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Dole Food (NYSE:DOLE)

Q4 2012 Earnings Call

March 12, 2013 4:45 pm ET

Executives

Beth Potillo - Senior Vice President and Treasurer

C. Michael Carter - President, Chief Operating Officer, Director and Member of Executive Committee

Keith C. Mitchell - Chief Financial Officer

Analysts

Carla Casella - JP Morgan Chase & Co, Research Division

Jordan Hughes - Goldman Sachs Group Inc., Research Division

Heather L. Jones - BB&T Capital Markets, Research Division

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Mark E. Williams - Janney Montgomery Scott LLC, Research Division

Arthur Roulac - Three Court, LP

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2012 Dole Food Company Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes.

And with that, I would now like to turn the call over to your host for today, Ms. Beth Potillo, Senior Vice President and Treasurer. Please go ahead.

Beth Potillo

Thank you, Keith. Good day, everyone, and welcome to Dole's fourth quarter and full year conference call. Joining me on the call today are Michael Carter, Keith Mitchell and Yoon Hugh. Earlier today, we filed our 2012 Form 10-K and issued our earnings release. The release, along with slides to accompany our call, are available at investors.dole.com. Today's call will last approximately 1 hour, and will focus on the new Dole and it's continuing operations. After our prepared remarks, we will take questions as time allows.

Some of the information we will discuss with you today contains forward-looking statements about the company's performance based upon management's current expectations. Given the risk and uncertainties inherent in our business, actual results may ultimately differ materially from these expectations. Further information on the factors that could affect Dole's financial results is included in our SEC filings, including Form 10-K and the forward-looking statements at the beginning of our slide presentation.

Management evaluates and monitors the overall company and segment performance primarily through a number of non-GAAP measures, including EBIT, adjusted EBITDA from continuing operations and comparable income or loss, total and per share, from continuing operations. Some of today's prepared remarks will include these measures. Information on how we calculate these measures and reconciliations to GAAP financial measures can be found in today's earnings release and in the Appendix of today's slide presentation.

I would now like to turn the call over to Michael, who will discuss the performance of our continuing operations. Keith will follow-up with a discussion of our financial results.

C. Michael Carter

Thank you, Beth. Good afternoon, everybody, and thank you for joining our call today and for your interest in our company. First, let me introduce the new Dole management members on the call with me today. Keith Mitchell is our new Chief Financial Officer. Keith had been the Chief Financial Officer of our North American Fresh Fruit business for the past 7 years. Yoon Hugh, our Controller and Chief Accounting Officer, is now a Dole Senior Vice President with added responsibilities. And Beth Potillo, our Treasurer, also now Senior Vice President with additional responsibilities. The remaining Dole retains an extraordinarily experienced operational and corporate management team with energetic employees throughout our organization.

Let me also express, on behalf of Dole and David Murdock, appreciation and gratitude to David DeLorenzo and Joe Tesoriero for our successful teaming over the years in managing Dole. David will remain on the Dole board, and we look forward to his continued contribution to our success.

As for myself, by way of background, I've been with Dole about 13 years. My career began on Wall Street at the firm Winthrop, Stimson, Putnam and Roberts, where I stayed for about 8 years. I then moved into business positions, both legal and operational at 4 successive public companies. First, with then conglomerates The Singer Company and RJR Nabisco for about 8 years, followed by a combined 12-plus years with Concurrent Computer Corporation and Pinkerton's, Inc. I am very pleased to be joining you on today's call as the President and Chief Operating of the new Dole.

Let me begin by providing a brief update on the ITOCHU transaction. We will complete the sale of our Worldwide Packaged Foods and Asia Fresh businesses to ITOCHU for $1.685 billion cash on April 1. On February 22, ITOCHU paid Dole a nonrefundable cash deposit of $200 million to be applied towards the purchase price. These proceeds were used to repay revolver borrowings and certain sales transaction-related expenses and for general corporate purposes. When we announced the completion of the transaction, we'll also announce our new capital structure, which, with the sales proceeds will pay off our existing debt, approximately $1.8 billion, plus fees associated with the transaction, including debt breakage cost, taxes, pension and benefit funding, severance and related costs and extinguishment of the long-term Japanese yen hedges. We expect that this new capital structure, together with our other possible internal funding resources, will provide needed increased financial flexibility for the new Dole going forward.

Now as to the new Dole, the confirmation [ph] of the sale of Dole's Worldwide Packaged Foods and Asia Fresh businesses will result in a major portion of Dole's operations being sold, which are now classified as discontinued operations and will no longer be included as part of the Dole operations. The combined revenue of these discontinued operations represented approximately 38% of Dole's 2012 revenues at $2.6 billion. The remaining Dole will have a smaller footprint as a commodity produce company, with 2 lines of fresh produce businesses, fresh fruit and fresh vegetables now classified as continuing operations.

The new Dole will continue as an international commodity produce company, retaining its entire North American Fresh Vegetable business, as well as its fresh fruit businesses in North America, Latin America, Europe and Africa, which together, generated $4.2 billion revenue in 2012 and adjusted EBITDA of $146 million.

In connection with the sale transaction, ITOCHU will have exclusive rights to the Dole trademark on packaged fruit products worldwide and on fresh produce in Asia, Australia and New Zealand, subject to certain exceptions in our existing -- for our existing businesses. Dole is free to engage in these existing businesses as long we do not use the trademarks or brands being transferred or licensed to ITOCHU.

Subject to the terms of the acquisition agreement, Dole will be restricted for 2 years from growing, ripening, producing, distributing or selling fresh bananas or pineapple in Asia, Australia and New Zealand. And processing, distributing or selling processed pineapples worldwide. This transformative sale transaction will leave the new Dole with a stronger leverage profile and greater financial and operational flexibility to enhance shareholder value and to grow in this competitive environment.

In 2012, Dole's revenues from continuing operations when adjusted for the divestiture of our German and Spanish fresh food subsidiaries were comparable to 2011. Excluding the impact of the divestitures, fresh fruit revenues decreased 2%, primarily as a result of lower pricing in North America bananas and unfavorable exchange rates. Revenues in our Fresh Vegetable segment increased 8% as a result of our berry acquisition and higher pricing and favorable product mix in packaged salads.

Excluding a $26 million provision taken in connection with the possible resolution of certain legal-related matters, adjusted EBITDA was $172 million, a 12% decline from 2011. This continues a trend that began in 2009 when our adjusted EBITDA was $226 million.

2012 fresh fruit adjusted EBITDA, excluding $26 million legal provision, decreased 15% to $165 million. Most of this decline is attributable to our banana business, particularly in North America. While we have restructured our European business and realized improvements in that market in 2012, earnings in the North American banana business were lower in 2012, as we continued to see competitive price pressures and increased sourcing cost during the year.

Dole's North America volumes were up slightly compared to an 8% increase in industry volumes as other importers were more aggressive, resulting in a small loss of market share. This trend increased as the year progressed, and we have recently seen even lower contract pricing and higher industry volumes in the United States. There is ample supply of fruit in North America.

Our European banana import business improved in 2012, benefiting from restructuring activities in 2011. Local prices were up due to a more stable supply environment, but the weak euro exchange rate and higher cost of fruit more than offset the price increase. In the beginning of this year, there were expectations that the Philippine typhoon would cause prices in the European market to rise. However, that has not happened, as secondary markets such as the Middle East continue to be weak given the political instability there. As for fresh pineapple and Chilean deciduous fruit, earnings were comparable to 2011. Both of these businesses are consistent contributors, absent any unusual market changes.

For 2013, we expect fresh fruit adjusted EBITDA to be lower than in 2012, due to continued competitive pressure in the North America banana business. For 2012, adjusted EBITDA in the Fresh Vegetable business was comparable to 2011. Earnings and the value add business increased by 17% over 2011. Total volume in packaged salads was flat, but this was due to the decision to exit several unprofitable food service contracts. Both retail volume and pricing were up and manufacturing costs were lower.

Earnings in fresh packed vegetables were negative, versus positive results in 2011. This was due to an extended period of low prices in iceberg lettuce, celery, broccoli and cauliflower. Earnings from berries increased over 2011, as blueberries were up significantly due to the acquisition. This increase was offset by lower results in our legacy strawberry business. The last 2 quarters of 2012 were very challenging due to warmer weather in California, which reduced the quality of strawberries. While pricing was higher, it was more than offset by the increased cost resulting from the lower quality fruit.

In 2013, we are expecting an increase in adjusted EBITDA from our vegetable business, driven by a return to normalized pricing and fresh packed vegetables. The environment in packaged salads remains very competitive, with a continued increase of private label, which is currently over 30% of the category. Supply is tight in both value add and fresh packed, due to the prolonged supply problems triggered by cold weather conditions in Arizona, which we expect will remain tight until the industry returns to Salinas in mid-April. As a result, fresh packed pricing has been strong, but as expected, costs are higher in the value-added business due to lower yields and higher labor costs. As part of our growth plans in value added, we have begun to ship organic products.

We expect berry earnings to increase modestly in 2013. The year has started off a bit challenging as strawberry industry supplies have been high, and pricing in January and February were at historical lows. Pricing in March has increased slightly, but not enough to make up for pricing in the first 2 months of the year.

Corporate expense, excluding ITOCHU transaction expenses of $49 million, was down in 2012 due to lower annual incentive accruals. Our normal run rate for corporate overhead is about $60 million. We have resized corporate to reflect Dole's smaller footprint and have reduced corporate headcount over 40%. This will result in savings of approximately $10 million in 2013.

All of these dynamics led us to the lower end of our previous guidance of $150 million to $170 million assuming no major market changes. This guidance includes expected sustainable cost savings of $20 million. $10 million of which will be contributed by corporate and the remaining $10 million from operations. We have also begun initiatives to realign and streamline our global personnel and corporate structure by rightsizing and delivering synergies within Dole's remaining Fresh Fruit and Vegetable businesses.

These projects include merging back office operations with common IT systems, expansion of shared services and various other operational programs aimed at reducing manufacturing and growing costs. These programs are in the developmental stage and it is too early to know the timing or amount of costs and savings associated with them.

We have assessed our capital structure needs together with other possible internal funding resources, including Dole's Hawaii landholdings on the island of Oahu, where we are actively marketing the approximately 20,600 acres of land that Dole is not currently farming. We're seeking to sell as much as of this land as we possibly can each year, expecting that it will take a few years to sell such a large quantity of farmland. Targeted proceeds are in the $175 million to $200 million range.

Potential proceeds may be used to increase the number of fresh fruit farms that we own and operate and to update our owned vessel fleet. We have an aggressive capital budget for 2013 of $170 million, which includes plans to buy more farms, rejuvenation and expansion of existing farms and the expansion of our port in Ecuador, as well as continued investment in our fresh vegetable business. Of this $170 million, approximately $100 million could be -- would be strategic-oriented investments for our fresh fruit business, which we believe will establish a solid foundation for rebuilding our earnings for the future.

In summary, while the current environment in the banana market remains challenging, we are optimistic that this transformative sale transaction will leave the new Dole with the financial and operational flexibility to grow in this competitive environment.

And now, I would like to turn the call over to Keith Mitchell, to go over the financial results in more detail.

Keith C. Mitchell

Thank you, Michael. I will now discuss our performance for the fourth quarter 2012 and full year 2012. If you are following along on the slides, please refer to Slides 13 through 18 for my remarks.

To begin with, I would like to point out that the fresh produce businesses that will remain following the consummation of the sale transaction are classified as continuing operations. Results for Packaged Foods and Asia Fresh are classified as discontinued operations.

In addition, U.S. GAAP results include unrealized gains and losses from currency movements, charges for restructuring, ITOCHU transaction related costs, as well as gains from asset sales. These items are detailed in their reconciliation of adjusted EBITDA from continuing operations to net income in our earnings release. My comments will focus on continuing operations.

Fourth quarter 2012 revenues decreased 8% to $888 million, primarily as a result of the divestitures of 2 of our European businesses. Excluding sales of $118 million from these divestitures, sales increased 5% from $844 million. Unfavorable foreign currency movement, lowered revenues by approximately $4 million.

For the full year 2012, revenues decreased 11% to $4.2 billion, primarily as a result of the divestitures. Excluding sales of $539 million from the divested businesses, sales were comparable. Unfavorable foreign currency movement lowered revenues by approximately $82 million during the full year 2012.

Fourth quarter 2012 adjusted EBITDA from continuing operations included a $26 million provision in the fresh fruit segment associated with the possible resolution of certain legal related matters. Excluding this legal provision, fourth quarter adjusted EBITDA was $14 million as compared to $11 million in 2011. Excluding the $26 million legal provision recorded in the fourth quarter, full year 2012 adjusted EBITDA was $172 million, a 12% decrease from 2011's level of $196 million.

Gross profit margin, excluding adjustments for unrealized gains and losses on foreign currency and fuel hedges, for the fourth quarter, increased to 7.2% from 6.6%. And for the full year 2012, increased to 8.7% from 8.4%. For the fourth quarter 2012, total selling, marketing and general and administrative expenses increased to $135 million or 15.2% of revenue, as compared with the fourth quarter 2011 expense of $70 million or 7.3% of revenue. The increase was mainly due to ITOCHU transaction related cost of $40 million and the $26 million legal provision. Excluding these items, SMG&A as a percent of revenue would have been 7.7% for the fourth quarter.

For the year 2012, total selling, marketing and general administrative expenses increased to $359 million or 8.5% of revenue as compared to the year 2011 expense of $290 million or 6.1% of revenue. The increase was due primarily to ITOCHU transaction related cost of $49 million and the $26 million legal provision. Excluding these items, SMG&A as a percent of revenue would have been 6.7% for the full year.

For interest expense, as a result of reflecting Dole Asia's operations as discontinued operations, amounts previously recorded as interest expense associated with Dole's notes and debentures, term loans, revolving credit facilities and interest rate swap, have been reclassified into discontinued operations for all periods. Therefore, interest expense for continued operations is much lower than we have shown in our past financial statements. For the fourth quarter of 2012, interest expense included an accrual of $4 million associated with the legal provision.

Income tax expense of $11 million was recorded for the full year 2012, compared to a $2 million income tax benefit in the prior year. Net cash tax payments for the full year of 2012 were $22 million. U.S. GAAP earnings per share from continuing operations was a loss of $0.99 for the fourth quarter compared to income of $0.06 in the prior year. Comparable income from continuing operations as summarized in Exhibit 3 of today's earnings release, was a loss of $0.59 per share for the fourth quarter, compared with income of $0.05 per share in the prior year.

For the fiscal year 2012, U.S. GAAP earnings per share from continuing operations were $0.01 compared to $1.15 in the prior year. Comparable income from continuing operations, as summarized in Exhibit 3 of today's earnings release, was $0.49 per share compared with $1.37 per share in the prior year.

Now I'd like to discuss our financial results by segment. In our fresh fruit segment, fourth quarter 2012 revenues decreased to $653 million from $743 million in the prior year. Excluding the fourth quarter 2011 sales from our divested European businesses of about $118 million, fresh fruit revenues increased $27 million or 4%, from $626 million. Improved local pricing and higher volumes in Europe were partially offset by slightly lower sales of bananas in North America. Net unfavorable foreign currency exchange movements in our foreign selling locations decreased fresh fruit revenues in the fourth quarter by approximately $4 million.

For the year 2012, fresh fruit revenues decreased to $3.1 billion from $3.8 billion in the prior year. About $539 million of the decrease was attributable to the European divestitures. The remaining $77 million or 2% decrease from $3.2 billion was a result of lower pricing in North America bananas and unfavorable euro and Swedish krona foreign currency exchange movements. These factors were partially offset by higher volumes of fresh pineapples and higher local pricing of Chilean deciduous fruit. Net unfavorable foreign currency movements in our foreign selling locations decreased fresh fruit revenues in the year by approximately $82 million.

As previously mentioned, fourth quarter 2012 adjusted fresh fruit EBITDA included a $26 million provision associated with the possible resolution of certain legal related matters. Excluding this legal provision, fourth quarter adjusted EBITDA was $15 million, as compared to $12 million in 2011.

Excluding the legal provision of $26 million, fresh fruit adjusted EBITDA for full year 2012 was $165 million compared to $194 million in 2011. This is a $29 million or 15% decrease. Banana earnings decreased, primarily due to lower pricing in North America and higher fruit cost in Europe, partially offset by lower shipping costs in Europe, which benefited from our restructuring efforts.

Earnings in European ripening and distribution decreased as a result of higher product costs and unfavorable euro currency exchange movements, partially offset by improved pricing, lower selling, marketing and general administrative expenses and higher equity earnings. These factors were partially offset by higher earnings in North America fresh pineapples and Chilean deciduous fruit. Earnings in fresh pineapples increased primarily as a result of lower fruit and shipping costs in North America and Europe, partially offset by lower pricing.

Turning to our vegetable segment. Fourth quarter revenues increased 7% to $235 million from $218 million in 2011. Packaged salads revenues increased 7% as a result of improved pricing. Fresh berries revenues increased 20% as a result of increased sales for strawberries, as well as higher volumes of raspberries and blackberries. Fresh packed vegetables revenue increased slightly due to improved volumes.

For the year 2012, Fresh Vegetables revenue increased 8% to $1.1 billion and $1 billion. The improvement was mainly driven by the berry acquisition in late 2011 and higher sales of strawberries. Packaged salads revenues increased as a result of improved pricing and favorable product mix, which was partially offset by lower pricing of fresh packed vegetables across all major product lines.

Fresh Vegetables adjusted EBITDA for the fourth quarter 2012 decreased $2.8 million to $10.8 million. Fresh berries earnings decreased as a result of higher growing and higher general and administrative expenses; packaged salads earnings decreased as a result of higher operating cost; fresh packed vegetables earnings were slightly lower due to lower pricing.

For the full year 2012, Fresh Vegetables adjusted EBITDA was $53 million, which was comparable to 2011. Earnings increased in packaged salads as a result of improved pricing and lower product costs due in part to production efficiencies, partially offset by higher selling, marketing and G&A; general and administrative expenses. Fresh berries earnings improved due to earnings from the berry acquisition, primarily in blueberries, partially offset by higher growing cost.

These factors were offset by lower earnings in the fresh packed business due to lower pricing across all major product lines during the first half of 2012, partially offset by lower growing cost.

Relating to corporate overhead, full year 2012 expenses amounted to $46 million compared to $52 million in 2011. The $6 million reduction mainly relates to lower incentive compensation expenses.

I will now discuss some key balance sheet and cash metrics. Total net debt at the end of 2012 was approximately $1.6 billion. There was $119 million of borrowings outstanding under our ABL revolver. After taking into account approximately $95 million of outstanding letters of credit issued under the ABL revolver, we had revolver availability of $117 million. Cash flows provided by operating activities for the consolidated company in the year 2012 was $45 million compared to $5 million in the prior year. The improvement was primarily due to lower inventory spending, as well as higher levels of accounts payable and accrued liabilities due to timing. These factors were partially offset by lower income and higher levels of receivables mainly due to timing.

Capital expenditures for the year 2012 were $109 million compared to $77 million in the prior year. As Michael discussed earlier, we estimate that capital additions for 2013 will be approximately $170 million, of which $100 million relates to our strategic projects.

Asset sales for the year were $42 million, and we have targeted $50 million in asset sales for 2013. We continue our hedging programs for currency and bunker fuel. For 2013, we have hedged approximately 50% of our net euro cash flow at an average rate of $1.28 per EUR 1, using participating forwards. We have also hedged 50% of our Chilean peso exposure at an average forward rate of 491 and 50% of our Costa Rica colón exposure, the back half of 2013 at 504.

For fiscal 2012, our fuel hedges benefited adjusted EBITDA by $1.7 million. For 2013, about 30% of our European requirements are hedged at an average swap rate of $565 per metric ton as compared with a current spot rate of $607 per metric ton.

That concludes our prepared remarks. I will now return the call to Michael.

C. Michael Carter

Thank you, Keith. We will now open the call for questions. Beth?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question is from the line of Carla Casella with JPMorgan.

Carla Casella - JP Morgan Chase & Co, Research Division

Once you complete the transaction, the asset sale, I guess, what is the timing of when you'll look to tender for, I'll call, the existing high yield bonds?

Beth Potillo

We'll do it right after the close.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And then, are you still looking for $400 million of debt to leave on the business after the refinancing?

C. Michael Carter

Carla, as I indicated in my remarks, we continue to assess our capital structure. And right now, the closing is -- will take place on April 1. We're working with our banks now. And that's why I'm deferring saying anything about our capital structure until we have that assessment completed. So then when we announce the sale transaction on April 1, we'll also announce the capital structure.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And then on the shipping side of the business, how much of your shipping is done through long-term contracts versus short-term contracts? And is there -- I guess if you could just discuss the variability in one versus the other, and how you look at that?

C. Michael Carter

Well, when you say that, are you talking about ships that we own versus that we charter?

Carla Casella - JP Morgan Chase & Co, Research Division

No, I mean for third-party -- I guess, shipping, where you're paying for shipping? Or do you source all -- I'm sorry, do you service all of your own?

C. Michael Carter

Well, coming into North America with maybe one or two exceptions, coming into North America, all of our shipping is -- are on Dole-owned vessels. But we do have, going into Europe in the North, we have our Dole-owned vessels in the South, we do use line of services to give us a little more flexibility there.

Beth Potillo

Those are short-term.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay. And then on the Dole-owned vessels, are you at the right number in terms of capacity -- how you look at capacity utilization on those? Or is there any -- are there any changes to the shipping organization once you're finished with the asset sale?

C. Michael Carter

Well, as you may have heard in some of our other calls, the larger ships are on the East. We have a rotation out West, involving 3 ships there. We would like to increase their capacity, given our business development on the West Coast. So we'll be looking to enhance those capabilities out West.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay. And then just one last one, your view on terms of banana supply over the next 6 to 12 months and then looking forward, any changes there?

C. Michael Carter

Well, certainly, in North America, we think as I've indicated, there's ample supply. So I'm not envisioning any change. The typhoon simply has not had any impact at all, certainly not in the U.S. and not in Europe either. So we just think that there's no supply issues right now.

Operator

Your next question is from the line of Jordan Hughes with Goldman Sachs.

Jordan Hughes - Goldman Sachs Group Inc., Research Division

One question, can you give us a few insights into the negotiation that led to the $200 million nonrefundable deposit? I guess why did you seek to procure that?

C. Michael Carter

Jordan, you may have been tracking our press releases going back to September. When we signed the acquisition agreement, we had several conditions in front of us. One was shareholder approval, then we had about 6 or so countries that we had to get antitrust clearance. While we had every expectation of having all of that done by the end of December and our contract call for a closing by the end of December, as you know, we got all of them, except for China and then early in the latter part of January, we got China. And, frankly, I think through that process, Dole managed to get that China approval ahead of any kind of expectations in terms of what normal course timing is out of China. And so ITOCHU, in that context, asked for enough time to complete some of the organizational changes that it needed to do on its side to be ready to take on the business. So in exchange for extending out to a fixed date of April 1, ITOCHU and Dole agreed to ITOCHU paying this nonrefundable $200 million. And obviously, as we've indicated in the press release, that's a set amount that has been paid, and there's -- and on the expectation that the deal will close on April 1, and it will.

Jordan Hughes - Goldman Sachs Group Inc., Research Division

Okay. And just, I guess, one follow up regarding that. I guess, as this process has kind of maybe been a little longer than you expected, has there been any change kind of to the cash proceeds you expect after fees and expenses? I mean because it's been a little longer, will there be higher fees and expenses, so that your actual proceeds might be a little lower?

C. Michael Carter

No, we don't anticipate any change.

Operator

Your next question is from the line of Heather Jones with BB&T Capital Markets.

Heather L. Jones - BB&T Capital Markets, Research Division

Going back to the cost savings number of $20 million for 2013, is that going to flow evenly by quarter throughout the year?

C. Michael Carter

Well, Heather, I think generally, yes. We've, obviously, because of the ITOCHU delay, we've held up a little bit in terms of timing, certainly on the corporate side because we've had to carry some of the cost. But we anticipate that $20 million basically to flow evenly through the year.

Heather L. Jones - BB&T Capital Markets, Research Division

And are you anticipating that the remaining $30 million -- full $30 million in 2014?

C. Michael Carter

No, the way I would say it is a little differently. I think I was clear about where we are in terms of our costs. The way I would look at this is this: We have begun a number of initiatives to realign and streamline our businesses, both at the -- not only at the corporate structure, but within the businesses themselves. We have a number of the projects that I kind of articulated in the prepared remarks, but these programs remain and still at developmental stage at the moment. And so it's still too early to talk about the timing of the cost and the savings from them.

Heather L. Jones - BB&T Capital Markets, Research Division

I mean are we looking out to later than even 2015? Or can you not articulate that at this time?

C. Michael Carter

I expect -- I think the best I can do right now is you can certainly count on this $20 million continuing. No, I wouldn't say that we have to look out that far, but later on this year, I'll have more to say about our cost savings.

Heather L. Jones - BB&T Capital Markets, Research Division

Okay. And when you look at your EBITDA guidance for 2013, it looks like that you're projecting -- adjusting for Asia, you're looking at the worst year for U.S. and for your remaining fresh fruit operations since '06. I mean '06 was a debacle with the withdrawal from Europe. So -- and yet if we look at relative to '06, there had arguably been some progress in North America. I'm just wondering, has North America deteriorated to the levels of pre-, call it, '07? I mean what is driving this deterioration in performance?

Keith C. Mitchell

I think the primary driver in North America is just that the pricing, while has increased significantly since 2006, cost of fruit, especially from source, cost of fruit has increased even more. So the margins are being squeezed. That's the key driver. SG&A has overall been, I would say, relatively flat on a per box basis or in a gross level as well. The key driver has just been the margin squeeze over the years.

Heather L. Jones - BB&T Capital Markets, Research Division

So is it a fair characterization to say that on an absolute profit basis, North America in fiscal '13 is expected to make less than '06, but Europe is -- I would assume, Europe will make more?

Keith C. Mitchell

Yes.

Heather L. Jones - BB&T Capital Markets, Research Division

Okay. And going to your CapEx -- I'm sorry, go ahead. I'm sorry what did you say?

Keith C. Mitchell

Correct, North America will, at this juncture, expect to make less than in 2006.

Heather L. Jones - BB&T Capital Markets, Research Division

Okay. And your CapEx number, you're projecting spending more in CapEx in your total EBITDA for 2013. And my first question is, is that run rate expected to extend into 2014? Secondly, it sounds like a spare [ph] amount of that money is going to be spent expanding Dole's direct ownership of banana production. Is the thought that, that should yield greater margins in the banana business? Or, I mean, what is your thinking? I mean, that's a very large sum?

C. Michael Carter

Well, firstly, no, we don't foresee that continuing beyond this year. As we've indicated, we view that as quite strategic. Heather, you're experienced in this business, and you know, you may have -- you're aware that there's been a margin squeeze with the grower on the one hand and the retailer on the other and the exporter in between. So the way we see it expanding in the owned farms is a strategic advantage doing it the right way where we're already seeing in our own farms increased productivity coming from our farms. And we believe that through kind of management resources that we have, we can realize some of the advantage than the grower is realizing today that we are not currently realizing, given the split between own and contracted. So we see this as fairly strategic.

Heather L. Jones - BB&T Capital Markets, Research Division

So you believe that not only should you be able to extract the grower margin, but do you believe that you can run farms better than your independent growers?

C. Michael Carter

I think, generally, yes, that is our view.

Operator

The next question is from the line of Ryan Oksenhendler with Bank of America Merrill Lynch.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Just a quick -- it's following from the CapEx. I look at, I guess -- you gave us the slides when you announced the transaction. I think post-transaction you said hypothetically 2011 CapEx would have been $40 million. And now you're taking that to $170 million. So I guess what's the difference between I know you said the $100 million of spending on fresh fruit, but what's the difference, the $30 million difference between the $40 million and the remaining $70 million there. And then also, can you just give a little more detail on what percentage will be spent on new farms versus shipping, because there's just a lot of money being spent.

Beth Potillo

Yes, this is Beth. The $40 million was what was spent in 2011, which was a lighter year of capital spending than say 2012 was, which is much -- which is more normal, probably, more normal level of spending. So that $40 million was a number -- was a historical figure from 2011. So I would say, probably on a normal basis, the spending is going to be more to a $60 million, $70 million run rate given there could be years we pull it back and then there could be years -- like this year, where we can intend to do more strategic-type projects.

Keith C. Mitchell

And Bryan (sic) [Ryan] , regarding the other part of your question, this strategic amount of $100 million is more focused on farms and rehabilitation, rejuvenation of existing farms. Our port in Ecuador, those kinds of investments, to be distinguished from acquiring ships. Now we do have, within that, some strategic enhancements of our existing fleet. But when it comes to acquiring new ships, we're talking about something very different, and there, we're thinking that some of the other internal funding resources would be also available to us, which is one of the reasons why we are actively marketing the Hawaii land, as you probably have been following ships. They run in the neighborhood of around $50 million a pop.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Got it. And then so just going back to Heather's question, in terms of funding the CapEx for next year, like, is it contingent upon selling some assets? Or possibly borrowing some money? Or do you think you can fund it all from operations?

Beth Potillo

With the proceeds and the term loan and cash flow from operations, we should have adequate cash available to fund those capital expenditures.

C. Michael Carter

And also, Bryan, we continue with our non-core asset sale target of about $50 million.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Got it. And then can you just talk about -- what was driving -- I know you had put out a press release early January and then another one late in January, pointing to the low end of the guidance, I guess what drove the downward revision of guidance for the full year?

C. Michael Carter

Well frankly, what we've been seeing in the markets, some of the trends we have been seeing going back earlier to, as I indicated, 2009, but more recently, 2011 into '12 and then even in the earlier part of this year. The kinds of trends we've been seeing, especially in the banana market are the kind of trends that led us to the low end. I'd like to think that that's the bottom. We have a number of things underway this year that we are planning to implement to address that, which is the principal focus of some of the strategic investment. But, frankly, that's what drove us to that kind of a guidance.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

And can you be, I guess, a little more specific, is it North America or Europe? And I guess I'm just curious because North America -- I'm sorry, European prices has been pretty weak for the last couple of weeks? And then I guess, maybe a little weaker than expected?

C. Michael Carter

It's just the continued North America banana pricing. And one of our press releases, we alluded to potential competitors buying market share.

Operator

Your next question is from the line of Jonathan Feeney with Janney Capital.

Mark E. Williams - Janney Montgomery Scott LLC, Research Division

This is Mark Williams sitting in for Jonathan. Most of my questions have been answered, but I -- so I wanted to ask just a couple of a housekeeping questions. My first is, have you guys given target or normalized margins for your segments? I think, it seems that your operating margins and some of your segments are below those of peer companies, do you see opportunities to raise those over time? And if so, what are you targeting? Have you disclosed that?

C. Michael Carter

Well, Keith talked a little bit about some of our margins, and frankly, I'm not sure you're correct in what you said about ours being higher than some of our competitors. But nevertheless, we're quite sensitive to gross margins and some of the other margins that Keith alluded to. There is absolutely an orientation to -- a world-class orientation cost and improvement, so you can bet that, that -- you don't stop pushing your margins, pushing for margin improvement and certainly we will not. Keith, anything else to add?

Keith C. Mitchell

Well, we typically look at EBITDA margins in the ranges of -- in our Fresh Vegetables section of anywhere between 4% to 5% and in our vegetable section, between 6% and 8%. But as Michael said, we continue to try to do better.

Mark E. Williams - Janney Montgomery Scott LLC, Research Division

That's helpful. And have you updated, I believe, on the announcement of the sale last year, you provided guidance on debt, post-transaction and taxes, have you updated those since then?

Beth Potillo

John (sic) [Mark] , I think Michael talked about the capital structure and the fact that we'll give more than update on that. On taxes, I think what we could just say at this point, is it's going to depend on the mix of the earnings for 2013, but our current estimate is about a 20% tax rate, overall.

Operator

Your next question is from the line of Elise Goldsmith [ph] with MetLife.

Unknown Analyst

I have a similar question as some other people, I'm not sure you'll answer. But in terms of cash structure, my question was, given the lower EBITDA expected for next year and the higher CapEx, do you guys have any plans to change your original plans of debt paydown? And I guess more specifically, I was looking at the notes that you can call that are due in '16?

Beth Potillo

Changed plans in what regard?

Unknown Analyst

I guess originally, I had assumed those would probably be called with the asset sale proceeds from this transaction. I'm just wondering if that's changed.

Beth Potillo

They will be. Everything has to be repaid.

C. Michael Carter

Yes, 100% of the debt, that $1.7 billion, which is inclusive of what you just said, all of that will be taken care off.

Operator

Your next question is from the line of Heather Jones with BB&T Capital Markets.

Heather L. Jones - BB&T Capital Markets, Research Division

Two just quick questions. I was wondering, first, it looks like -- looking at the yen swap, it looks like you were able to settle that at more favorable terms than expected, I guess, that's due to the deterioration of the yen. And secondly, do you have any intentions, post this transaction, to increase the pension funding level?

C. Michael Carter

Beth, you want to take care of the first point?

Beth Potillo

Yes, the yen swap, we did. We settled it out just on Friday, and took advantage of the yen deterioration. And the settlement amount is about $25 million.

Heather L. Jones - BB&T Capital Markets, Research Division

Okay, so that's way better. It hasn't been like a liability of like $160 million a couple of quarters ago...

Beth Potillo

Well, at the start, it was about $130 million, some of the accounting numbers got it to $160 million, but then we started the sale process, we expected it to be about $100 million.

C. Michael Carter

Yes, Heather, on your other point, part of the negotiation with ITOCHU, several things took place. One, obviously, with regard to all of the international plans that relate to the businesses, they're acquiring, all of that liability, goes with them directly with the acquired entities. With regard to the U.S. side, Dole will retain that liability, but ITOCHU will fund that liability to the tune of a total of $29 million. So that -- and the deal, they have an option to either pay the $29 million at the closing or pay that $29 million ratably over 5 years with interest. I think they may have elected to pay it, but -- at the closing, but again, that's still an option for them.

Heather L. Jones - BB&T Capital Markets, Research Division

What were your pro forma unfunded pension liability be then, just -- I mean, just ballpark?

Beth Potillo

Well, what's in the K is very current, and then if...

Heather L. Jones - BB&T Capital Markets, Research Division

Because I haven't gotten as far as the pension numbers in the K. Is that -- what's in the K, is that going to be restated for the -- for the continuing operations within the K?

Beth Potillo

Yes, it is. Yes, it is. On the K, it clearly states out what relates to our continuing operations versus what's going on with ITOCHU.

Operator

Our next question comes from the line of Arthur Roulac with Three Court.

Arthur Roulac - Three Court, LP

Guys, I have a couple of questions. One is the follow-up on the pension question. Can you say what are your cash pension contributions going to be in 2013?

Beth Potillo

Around $15 million.

Arthur Roulac - Three Court, LP

And is the assumption that we can sort of run that forward roughly as an annual expense?

Beth Potillo

That's close enough. Yes, it's about $18 million if you include all of our plans.

Arthur Roulac - Three Court, LP

Okay. And the second is in terms of purchasing perhaps some banana farms, which is it sounds like this large CapEx number, so it sounds like normal CapEx is somewhere around $60 million on a go-forward basis; you're saying it's $170 million this year. I guess as a firm, we as shareholders think about capital and it's very dear today and really the question is what's your return on $1 invested in these banana farms? And why is that like the best investment?

C. Michael Carter

The way to think about it, and it's probably closer to $70 million on a run-rate basis, but -- and as I said, not all of the $100 million is for farm purchases. There's some rejuvenation, rehabilitation of farms and some investment in our port and so forth. But what is available for farms, we look at, and we're quite disciplined about it, ROI, and anywhere from -- we look to have it on a run-rate basis producing 20% to 25% ROI. Initially, we may not see that, and our initial buy might be more in the range of 15%-ish. But when we come in and do our thing to it over the course of initially, depends on the status of that particular farm. We're looking for them to be running at about 20% to 25% after the first year.

Arthur Roulac - Three Court, LP

So you're saying is you spend $50 million in these farms, next year we should be getting $8 million plus of EBITDA out of that?

C. Michael Carter

Everything else being equal, that's what you should expect.

Arthur Roulac - Three Court, LP

Got it. My other question will be, you said cash tax rate of around 20% roughly?

Beth Potillo

Yes, that's going to depend on the mix of earnings by that's our tax current estimate.

Arthur Roulac - Three Court, LP

Got it. So you're at $20 million in cost savings roughly this year, apparently, and the more the question is I'm surprised your CapEx is going to be $70 million as a fully consolidated business. You weren't spending significantly more than that over the last 5 or 6 years and maybe you were massively underspending because you're so leveraged. But more my question is, where are the extra cost savings going to come? Because carving off half the business and only coughing up $20 million in cost savings seems a little low. I would assume that there are other things you can perhaps cut and I'd like to hear what those might be.

C. Michael Carter

I think a couple of things. I think you're right. We may have under underspent a bit, given the extreme leverage position the company has been in, one. Two, there are some things that we have seen now in the market where we can better position the company from -- to gain better competitive advantage, and so therefore, some investment, especially in the banana business. We see the utility of that. Heather rightfully asked of where we were with cost and as I said, we're not done. We've initiated a number of things and hopefully later in the year, we'll be able to talk to you about things that we're doing further with regard to that. We will not be sitting still on that topic.

Operator

And ladies and gentlemen, we are out of questions. So with that, I'd like to turn the call over to Mr. Michael Carter for some closing remarks.

C. Michael Carter

Again, everybody, I'd like to thank you, all, for your interest in the company and look forward to our next call.

Operator

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us, and you may now disconnect. Have a great day.

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