UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
_____________
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 676-8800
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No ___.
There were 1,487,520 shares of common stock, $.01 par
value per share, outstanding on July 31, 1998.
Total pages in filing - 13 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(Thousands of dollars)
(Unaudited)
June 30, December 31,
1998 1997
Assets
Current assets:
Cash and cash equivalent $ 4,755 $ 8,552
Short-term investments 115,914 108,744
Receivables, net 178,581 175,640
Inventories 187,526 211,024
Deferred income taxes 10,576 9,730
Prepaid expenses and deposits 16,640 15,545
Total current assets 513,992 529,235
Investments in and advances to foreign affiliates 117,174 93,668
Net property, plant and equipment 475,790 486,373
Other assets 16,357 15,109
Total assets $1,123,313 $1,124,385
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 176,713 $ 157,445
Current maturities of long-term debt 6,867 6,843
Accounts payable 63,699 78,805
Other current liabilities 100,028 117,809
Total current liabilities 347,307 360,902
Long-term debt, less current maturities 306,223 306,666
Deferred income taxes 29,429 27,943
Other liabilities 31,284 29,859
Total non-current and deferred liabilities 366,936 364,468
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued 1,789,599 shares 1,790 1,790
Less 302,079 shares held in treasury (302) (302)
1,488 1,488
Additional capital 13,214 13,214
Accumulated other comprehensive income 13 10
Retained earnings 394,355 384,303
Total stockholders' equity 409,070 399,015
Total liabilities and stockholders' equity $1,123,313 $1,124,385
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three months ended June 30, 1998 and 1997
(Thousands of dollars except per share amounts)
(Unaudited)
June 30, June 30,
1998 1997
Net sales $ 454,645 $ 449,366
Cost of sales and operating expenses 400,257 392,286
Gross income 54,388 57,080
Selling, general and administrative expenses 35,132 32,871
Operating income 19,256 24,209
Other income (expense):
Interest income 1,920 1,483
Interest expense (8,046) (7,141)
Loss from foreign affiliates (2,560) (3,069)
Miscellaneous 1,139 219
Total other income (expense), net (7,547) (8,508)
Earnings before income taxes 11,709 15,701
Income tax expense 3,777 5,196
Net earnings $ 7,932 $ 10,505
Earnings per common share $ 5.33 $ 7.06
Dividends declared per common share $ .25 $ .25
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Six months ended June 30, 1998 and 1997
(Thousands of dollars except per share amounts)
(Unaudited)
June 30, June 30,
1998 1997
Net sales $ 901,177 $ 849,546
Cost of sales and operating expenses 798,313 740,497
Gross income 102,864 109,049
Selling, general and administrative expenses 71,347 68,720
Operating income 31,517 40,329
Other income (expense):
Interest income 3,536 2,694
Interest expense (15,858) (14,901)
Loss from foreign affiliates (5,136) (4,718)
Miscellaneous 1,759 522
Total other income (expense), net (15,699) (16,403)
Earnings before income taxes 15,818 23,926
Income tax expense 5,022 8,085
Net earnings $ 10,796 $ 15,841
Earnings per common share $ 7.26 $ 10.65
Dividends declared per common share $ .50 $ .50
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(Thousands of dollars)
(Unaudited)
June 30, June 30,
1998 1997
Cash flows from operating activities:
Net earnings $ 10,796 $ 15,841
Adjustments to reconcile net earnings to
cash from operating activities:
Depreciation and amortization 31,265 28,236
Loss from foreign affiliates 5,136 4,718
Deferred income taxes 639 4,005
Gain from sale of fixed assets (1,479) (543)
Changes in current assets and liabilities:
Receivables, net of allowance (2,941) (3,160)
Inventories 23,498 (28,331)
Prepaid expenses and deposits (1,095) (10,594)
Current liabilities exclusive of debt (32,887) 32,217
Other, net 241 1,779
Net cash from operating activities 33,173 44,168
Cash flows from investing activities:
Purchase of investments (160,179) (117,590)
Proceeds from the sale or maturity of investments 153,013 105,374
Capital expenditures (24,670) (37,600)
Proceeds from sale of fixed assets 6,675 3,771
Investments in and advances to foreign affiliates (28,642) (22,137)
Investment in domestic affiliate (2,500) -
Notes receivable 1,228 160
Net cash from investing activities (55,075) (68,022)
Cash flows from financing activities:
Notes payable to bank, net 19,268 10,243
Proceeds from long-term debt - 10,032
Principal payments of long-term debt (419) (482)
Bond construction fund - (1,047)
Dividends paid (744) (744)
Net cash from financing activities 18,105 18,002
Net change in cash and cash equivalents (3,797) (5,852)
Cash and cash equivalents at beginning of year 8,552 11,467
Cash and cash equivalents at end of quarter $ 4,755 $ 5,615
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts
of Seaboard Corporation and its wholly owned domestic
and foreign subsidiaries (the "Company").
All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company's investments in non-controlled affiliates
are accounted for by the equity method. The unaudited
consolidated financial statements should be read in
conjunction with the consolidated financial statements of
the Company for the year ended December 31, 1997 as
filed in its Annual Report on Form 10-K.
The accompanying unaudited consolidated financial
statements include all adjustments (consisting only of
normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of
financial position, results of operations and cash flows.
Results of operations for interim periods are not
necessarily indicative of results to be expected for a
full year.
The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" as
of January 1, 1998. This statement establishes
requirements for reporting and display of
comprehensive income and its components. For the three
and six months ended June 30, 1998 and 1997, Other
Comprehensive Income adjustment consisted of an
immaterial unrealized gain on available-for-sale
securities, net of tax.
Note 2 - Inventories
The following is a summary of inventories at June 30, 1998
and December 31, 1997 (in thousands):
June 30, December 31,
1998 1997
At lower of last-in, first-out (LIFO) cost or market:
Live poultry $ 25,801 $ 27,116
Dressed poultry 25,232 32,496
Feed and baking ingredients, packaging
supplies and other 6,848 6,970
57,881 66,582
LIFO allowance (1,263) (4,744)
Total inventories at lower of LIFO cost or market 56,618 61,838
At lower of first-in, first-out (FIFO) cost or market:
Live hogs 79,736 76,484
Grain, flour and feed 17,689 37,575
Crops in production and related materials 10,433 11,166
Dressed pork 6,780 8,388
Other 16,270 15,573
Total inventories at lower of FIFO cost or market 130,908 149,186
Total inventories $ 187,526 $ 211,024
Note 3 - Contingencies
The Company is a defendant in a pending arbitration
proceeding and related litigation in Puerto Rico brought
by the owner of a chartered barge and tug which were
damaged by fire after delivery of the cargo. Damages of
$47.6 million are alleged. The Company is vigorously
defending the action and believes that it has no
responsibility for the loss. The Company also believes
that it would have a claim for indemnity if it were held
liable for any loss.
The Company is subject to various other legal proceedings
related to the normal conduct of its business. In the
opinion of management, none of these actions is expected
to result in a judgment having a materially adverse
effect on the consolidated financial statements of the
Company.
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
June 30, December 31,
1998 1997
Current ratio 1.48:1 1.47:1
Working capital $166.7 $168.3
Cash from operating activities for the six months ended
June 30, 1998 was $33.2 million, compared to $44.2
million for the six months ended June 30, 1997. The
decrease in cash flows was primarily related to a
decrease in net income and a net decrease in noncash
working capital items. Changes in individual
components of working capital are primarily related
to the sell-off of a previous build-up of poultry leg-
quarter inventory, and the timing of normal transactions
including voyage settlements and trade payables.
The Company invested $21.8 million in property, plant and
equipment in the food production and processing segment
for the six months ended June 30, 1998.
Capital expenditures in the pork division of $9.0
million were primarily for improvements to the pork
processing plant. For the remainder of 1998, an
additional $4.5 million is expected to be spent on
existing facilities. The Company previously disclosed
plans to construct a second processing plant and
increase annual production
from two to four million hogs. In connection with these
plans, the Company is currently making arrangements to
increase annual production to three million hogs.
This increase in hog production will be accomplished
through a combination of operating lease arrangements and
third party contract growers. The timing of expanding
production from three to four million hogs, as well as
the construction of the second processing plant, have not
been finalized.
Capital expenditures of $11.2 million for the six months
ended June 30, 1998 were made in the poultry
division, primarily for the completion of expansion
projects at the Athens and Elberton, Georgia, poultry
facilities. The Company anticipates spending $10.7
million for the remainder of 1998 primarily to make
general upgrades to its poultry facilities. Management
anticipates these expenditures will be financed by
internally generated cash.
Capital expenditures in the transportation segment
through June 30, 1998 totaled $2.0 million for general
replacement and upgrades of property and equipment.
During the six months ended June 30, 1998, the Company
made $29.8 million in advances to and non-voting
investments in Ingenio y Refineria San Martin del
Tabacal S.A. (Tabacal) in which the Company owns a non-
controlling interest. The Company cannot presently
predict the amount of additional advances that may be
needed for the remainder of 1998.
In the first quarter of 1998, the Company extended
committed, one-year revolving credit facilities totaling
$145 million for an additional year. As of June 30,
1998, the Company had $142.2 million outstanding under
committed, one-year revolving credit facilities totaling
$160.0 million and $34.5 million outstanding under
short-term uncommitted credit lines totaling $95.0
million.
In January 1998, the Company invested $2.5 million for
a minority interest in a new limited liability company in
Maine. The new company acquired the assets of an existing
seafood company which processes and distributes
prepackaged smoked seafood and related products. The
investment is being accounted for using the equity method.
In June 1998, the Company, pursuant to a joint venture
with two other partners, completed its acquisition of an
interest in a flour mill in Haiti. The Company made an
investment of $3.0 million for a minority
interest in the joint venture, which in turn owns 70% of
a Haitian company which owns the flour mill. In
July 1998, the Company completed the acquisition of a
50% interest in a flour mill in Lesotho for approximately
$5.0 million. These investments are being accounted for
using the equity method.
Management intends to continue seeking opportunities for
expansion in the industries in which it operates and
believes that the Company's liquidity, capital
resources and borrowing capabilities are adequate for its
current and intended operations.
RESULTS OF OPERATIONS
The segment distribution of the increase (decrease) in
net sales and operating income compared to the prior
year are as follows (in millions):
Net Sales Operating Income
Quarter Year-to-Date Quarter Year-to-Date
Food Production and
Processing Segment $ 4.8 $ 30.5 $ (5.3) $(11.0)
Commodity Trading and
Milling Segment (5.2) 6.7 1.5 1.2
Transportation Segment 6.5 16.1 (0.1) 1.2
Other (0.8) (1.7) (1.1) (0.2)
$ 5.3 $ 51.6 $ (5.0) $ (8.8)
Food Production and Processing Segment
Since late 1997, an industry wide increase in meat
production has resulted in lower sales prices in most
meat markets, especially pork products. Although pork
prices continue to be depressed, poultry prices
improved during the second quarter of 1998. Despite
these recent price pressures, net sales for the
food production and processing segment increased $4.8
and $30.5 million, respectively, for the three and six
months ended June 30, 1998 primarily as a result of
increased poultry and pork sales volumes. Operating
income decreased $5.3 and $11.0 million, respectively,
for the three and six months ended June 30, 1998,
compared to the same periods one year earlier. As more
fully described below, these decreases are primarily
the result of a substantial decrease in pork margins,
partially offset by improved poultry margins.
Net sales of poultry products totaled $124.7 and $249.9
million for the three and six months ended June 30, 1998,
an increase of $10.0 and $18.6 million compared to the
periods one year earlier, respectively. These increases
are primarily a result of increased sales volume at the
Elberton, Georgia, plant and, to a lesser extent, selling
off a build-up of leg-quarter inventory. The addition of
a new cooking line at the Elberton location in late
1997 has increased the Company's capacity to offer
further processed products in place of retail traypack
products. Gross income from poultry sales increased to
$14.0 and $21.5 million for the three and six
month periods of 1998, respectively, from $4.1 and
$10.4 million for the similar periods of 1997. These
increases are primarily the result of lower finished feed
costs and uninterrupted operation of the Athens,
Georgia, plant. During 1997, the Athens plant was shut
down for one week to convert from retail tray-pack to
food service production.
Net sales for the pork operations totaled $133.2 and
$254.9 million for the three and six months ended June
30, 1998, a decrease of $4.3 million and an increase of
$12.5 million compared to the same periods one year
earlier, respectively. The decrease in sales for the
three month period resulted from lower sales prices,
despite an increase in sales volume. The increase in
sales for the six month period resulted from increased
sales volumes partially offset by lower sales prices. The
increases in sales volume are the result of the hog
processing plant operating at double-shift production
during the entire first six months of 1998, compared
with single-shift production in the first quarter of
1997 and double-shift capacity for only part of the
second quarter of 1997. Gross income decreased to $3.9
and $5.4 million for the three and six months ended June
30, 1998, respectively, compared to $17.4 and $27.9
million for the same periods one year earlier. The
decreases in gross income are primarily the result of
lower prices for finished pork products without a
comparable decrease in the cost of production.
Management anticipates that lower pork prices will
continue to have a negative effect on financial results
during the remainder of 1998 compared to 1997.
Commodity Trading and Milling Segment
Compared with the same periods one year earlier, net
sales from commodity trading and milling activity
decreased $5.2 to $77.6 million for the three month
period, and increased $6.7 to $160.2 million for the six
month period. The decrease in sales for the three months
was primarily a result of lower volumes of commodity
sales to foreign
markets. The increase for the six months is primarily
the result of
higher volumes of commodity sales, mainly soybeans,
partially offset by lower commodity prices. Operating
income for the three and six months ended June 30,
1998, increased $1.5 and $1.2 million, to $4.3 and $6.8
million, respectively, compared to the same periods one
year earlier. The increases are the result of
increased income from
operating certain mills in foreign countries.
Transportation Segment
Net sales from containerized cargo operations increased
by $6.5 and $16.1 million to $83.3 and $161.6 million
for the three and six months ended June 30, 1998,
respectively, compared to the same periods one year
earlier. Operating income from containerized cargo
operations decreased $0.1 to $7.0 million for the
three month period, and increased $1.2 to $14.9
million for the six month period. The
increases in revenue and six month operating income
are primarily related to increased cargo volumes in
certain markets that the Company serves. Increased cargo
capacities result in higher profit margins. The decrease
in operating income for the three month period is
primarily attributable to an increase in various
general and administrative costs.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses
increased $2.3 and $2.6 million to $35.1 and $71.3
million for the three and six months ended June 30,
1998, respectively, compared to the same periods one year
earlier. As a percentage of revenues, and compared with
the same periods one year earlier, SG&A increased from
7.3% to 7.7% for the three month period, and decreased
from 8.1% to 7.9% for the six month period. SG&A
increased for the three months as a result of increased
selling expenses in the poultry division and various
general and administrative costs in the transportation
segment. SG&A decreased as a percentage of revenues for
the six months as a result of increased pork production.
Other Income and Expense
Interest income increased during the three and six months
ended June 30, 1998, compared to the same periods one
year earlier, primarily from an increase in average
invested funds. Interest expense increased during the
three and six month periods of 1998 compared to same
periods in 1997 as a result of increased short-term
borrowings. Loss from foreign affiliates is primarily
related to Tabacal.
Other Financial Information
The Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related
Information" for the year ending December 31, 1998.
This statement requires companies to report certain
information about operating segments in their
financial statements and establishes standards for
related disclosures about products and services,
geographic areas and major customers. SFAS 131
defines operating segments as components of an enterprise
about which separate financial information is available
that is evaluated regularly by management in deciding
how to allocate resources and in assessing
performance. Application to interim financial statements
in the year of adoption is not required, however,
comparative information for interim periods in the year
of adoption will be reported in the financial statements
for interim periods in fiscal 1999.
During the second quarter of 1998 the Financial
Accounting Standards
board issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes
accounting and reporting standards for derivative
instruments and all hedging activities. It requires that
an entity recognize all derivatives as either assets or
liabilities at their fair values. Accounting for
changes in the fair value of a derivative depends on
its designation and effectiveness. For derivatives
that qualify as effective hedges, the change in fair value
will have no net impact on earnings until the hedged
transaction affects earnings. For derivatives that are
not designated as hedging instruments, or for the
ineffective portion of a hedging instrument, the change
in fair value will affect current period earnings. The
Company will adopt SFAS No. 133 during its first quarter
of fiscal 2000 and does not believe it will have a
material impact on the Company's reported financial
position, results of operations or cash flows.
SEABOARD CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K. Seaboard Corporation has not
filed any reports on Form 8-K during the quarter
ended June 30, 1998.
This Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform
Act of 1995, which include statements concerning
projection of revenues, income or loss, capital
expenditures, capital structure or other financial items,
statements regarding the plans and objectives of
management for future
operations, statements of future economic performance,
statements of the assumptions underlying or relating
to any of the foregoing statements and other
statements which are other than statements of historical
fact. These statements appear in a number of places in
this Form 10-Q and include statements regarding the
intent, belief or current expectations of the Company and
its management with respect to (i) the cost and timing
of the completion of new or expanded facilities,
(ii) the Company's financing plans, (iii) the price of
feed stocks and other materials used by the Company, (iv)
the price for the Company's products and
services, (v) the anticipated
improvement in the financial results of Tabacal, or (vi)
other trends affecting the Company's financial condition
or results of operations. Readers are cautioned that any
such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties,
and that actual results may differ materially as a result
of various factors. The accompanying information
contained in this Form 10-Q under the heading
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" identifies
important factors which could cause such differences.
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
DATE: August 13, 1998
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Vice President-Chief
Financial Officer (Authorized officer
and principal financial and accounting
officer)
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