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 September 30, 1999
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 04-2260388
(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 October 15, 1999.
Total pages in filing - 17 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(Thousands of dollars)
(Unaudited)
September 30, December 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 28,837 $ 20,716
Short-term investments 77,891 155,763
Receivables, net 185,060 181,583
Inventories 257,476 214,846
Deferred income taxes 15,019 14,604
Prepaid expenses and deposits 19,284 13,757
Total current assets 583,567 601,269
Investments in and advances to foreign affiliates 28,821 28,416
Net property, plant and equipment 588,241 559,749
Other assets 31,615 33,700
Total assets $1,232,244 $1,223,134
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 204,755 $ 158,980
Current maturities of long-term debt 11,297 18,608
Accounts payable 65,306 73,481
Other current liabilities 109,458 114,395
Total current liabilities 390,816 365,464
Long-term debt, less current maturities 310,222 329,469
Deferred income taxes 44,987 44,147
Other liabilities 36,406 28,580
Total non-current and deferred liabilities 391,615 402,196
Minority interest 1,068 5,682
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 (181) (81)
Retained earnings 434,224 435,171
Total stockholders' equity 448,745 449,792
Total liabilities and stockholders' equity $1,232,244 $1,223,134
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three months ended September 30, 1999 and 1998
(Thousands of dollars except per share amounts)
(Unaudited)
September 30, September 30,
1999 1998
Net sales $ 445,128 $ 438,909
Cost of sales and operating expenses 400,230 382,681
Gross income 44,898 56,228
Selling, general and administrative expenses 34,857 34,721
Operating income 10,041 21,507
Other income (expense):
Interest income 1,770 1,630
Interest expense (9,456) (8,485)
Gain (loss) from foreign affiliates 36 (6,916)
Minority interest 114 -
Miscellaneous 98 1,701
Total other income (expense), net (7,438) (12,070)
Earnings before income taxes 2,603 9,437
Income tax expense 2,528 4,419
Net earnings $ 75 $ 5,018
Earnings per common share $ .05 $ 3.37
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
Nine months ended September 30, 1999 and 1998
(Thousands of dollars except per share amounts)
(Unaudited)
September 30, September 30,
1999 1998
Net sales $1,241,980 $1,340,086
Cost of sales and operating expenses 1,114,893 1,180,994
Gross income 127,087 159,092
Selling, general and administrative expenses 99,319 106,068
Operating income 27,768 53,024
Other income (expense):
Interest income 5,540 5,166
Interest expense (27,901) (24,343)
Loss from foreign affiliates (474) (12,052)
Minority interest 937 -
Miscellaneous 1,432 3,460
Total other income (expense), net (20,466) (27,769)
Earnings before income taxes 7,302 25,255
Income tax expense 7,133 9,441
Net earnings $ 169 $ 15,814
Earnings per common share $ .11 $ 10.63
Dividends declared per common share $ .75 $ .75
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
Nine months ended September 30, 1999 and 1998
(Thousands of dollars)
(Unaudited)
September 30, September 30,
1999 1998
Cash flows from operating activities:
Net earnings $ 169 $ 15,814
Adjustments to reconcile net earnings to
cash from operating activities:
Depreciation and amortization 46,041 44,543
Loss from foreign affiliates 474 12,052
Gain from sale of fixed assets (1,433) (2,209)
Deferred income taxes 452 2,944
Changes in current assets and liabilities:
Receivables, net of allowance (5,048) (2,281)
Inventories (42,544) 14,217
Prepaid expenses and deposits (5,527) (3,435)
Current liabilities exclusive of debt (13,113) (16,312)
Other, net 2,186 1,224
Net cash from operating activities (18,343) 66,557
Cash flows from investing activities:
Purchase of investments (335,503) (268,518)
Proceeds from the sale or maturity of investments 413,248 259,504
Capital expenditures (78,938) (34,958)
Proceeds from sale of fixed assets 4,152 8,033
Notes receivable 315 1,080
Additional investment in a controlled subsidiary (2,302) -
Investments in and advances to foreign affiliates (879) (40,794)
Investment in domestic affiliate - (2,500)
Net cash from investing activities 93 (78,153)
Cash flows from financing activities:
Notes payable to bank, net 45,775 17,603
Principal payments of long-term debt (24,270) (578)
Proceeds from interest rate swaps 5,982 -
Dividends paid (1,116) (1,116)
Net cash from financing activities 26,371 15,909
Net change in cash and cash equivalents 8,121 4,313
Cash and cash equivalents at beginning of year 20,716 8,552
Cash and cash equivalents at end of quarter $ 28,837 $ 12,865
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 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, 1998 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.
For the three and nine months ended September 30, 1999 and 1998, other
comprehensive income adjustments consisted of an immaterial unrealized
loss on available-for-sale securities and foreign currency cumulative
translation adjustment, net of tax.
Note 2 - Inventories
The following is a summary of inventories at September 30, 1999 and
December 31, 1998 (in thousands):
September 30, December 31,
1999 1998
At lower of last-in, first-out (LIFO) cost or market:
Live poultry $ 24,812 $ 24,840
Dressed poultry 34,742 22,961
Feed ingredients, packaging
supplies and other 4,531 5,813
64,085 53,614
LIFO allowance 6,666 2,811
Total inventories at lower of LIFO cost
or market 70,751 56,425
At lower of first-in, first-out (FIFO) cost or market:
Live hogs 74,772 75,887
Grain, flour and feed 30,543 8,196
Sugar produced and in process 22,726 26,025
Crops in production and related materials 12,003 11,233
Dressed pork 6,370 8,486
Other 40,311 28,594
Total inventories at lower of FIFO cost
or market 186,725 158,421
Total inventories $257,476 $214,846
Significant decreases in commodity prices during 1999 and 1998 have
eliminated the LIFO allowance as overall poultry feed costs have
decreased below base year levels. This change in LIFO allowance is
reflected in earnings as a reduction in cost of sales.
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 a defendant in a lawsuit brought in federal court by a
third party hog supplier claiming breach of agreement, common law
fraud and violation of the federal RICO statute. Damages of
approximately $25 million are alleged. Any amount awarded under the
RICO count would be trebled. The Company has counterclaimed asserting
breach of agreement and claiming damages of approximately $16 million.
The Company believes it has meritorious defenses to all counts, that
the RICO count is without merit, and that it will prevail on its
counterclaim.
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.
Note 4 - Segment Information
The following tables set forth specific financial information about
each segment as reviewed by the Company's management. Operating
income for segment reporting is prepared on the same basis as that
used for consolidated operating income. Operating income is used as
the measure of evaluating segment performance because management does
not consider interest and income tax expense on a segment basis.
The Company accounted for its investment in Tabacal using the equity
method through December 1998. Effective December 31, 1998, the
Company obtained voting control over a majority of the capital stock
of Tabacal. Accordingly, during 1999 the operating results of Tabacal
are accounted for as a consolidated subsidiary. Due to the
significance of Tabacal's operating results, it is reported as an
additional segment (Sugar and Citrus) in 1999. The December 31, 1998
total assets by segment information has been restated to include
Tabacal as a separate segment. No comparative 1998 segment operating
results information is provided as Tabacal's results were reported
under the equity method in 1998.
Sales to External Customers
Three Months Ended Nine Months Ended
September 30, September 30,
(Thousands of dollars) 1999 1998 1999 1998
Poultry $ 126,359 $ 135,423 $ 357,294 $ 385,307
Pork 138,101 124,503 394,319 379,454
Marine 74,061 72,029 216,265 231,471
Commodity Trading and Milling 75,698 73,163 190,053 233,380
Sugar and Citrus 15,091 - 30,222 -
All Other 15,818 33,791 53,827 110,474
Segment/Consolidated Totals $ 445,128 $ 438,909 $1,241,980 $1,340,086
Operating Income
Three Months Ended Nine MonthsEnded
September 30, September 30,
(Thousands of dollars) 1999 1998 1999 1998
Poultry $ 9,333 $ 19,320 $ 26,585 $ 25,906
Pork 7,611 (3,383) 17,818 (4,727)
Marine (4,631) 1,573 (5,509) 14,751
Commodity Trading and Milling (140) 834 1,756 7,692
Sugar and Citrus (443) - (9,243) -
All Other (677) 4,009 (291) 11,323
Segment Totals 11,053 22,353 31,116 54,945
Reconciliation to Consolidated Totals
Corporate Items (1,012) (846) (3,348) (1,921)
Consolidated Totals $ 10,041 $ 21,507 $ 27,768 $ 53,024
Total Assets
September 30, December 31,
(Thousands of dollars) 1999 1998
Poultry $ 222,668 $ 188,558
Pork 388,958 387,699
Marine 87,228 99,609
Commodity Trading and Milling 147,779 108,822
Sugar and Citrus 173,838 162,094
All Other 92,338 107,029
Segment Totals 1,112,809 1,053,811
Reconciliation to Consolidated Totals
Corporate Items 119,435 169,323
Consolidated Totals $1,232,244 $1,223,134
Administrative services provided by the corporate office are primarily
allocated to the individual segments based on the size and nature of
their operations. Prior to the third quarter of 1999, these costs
were primarily allocated based on revenues. The change in estimates
is deemed to provide a more accurate allocation and does not have a
material impact on prior period comparative information. Corporate
assets include short-term investments, certain investments in and
advances to foreign affiliates, fixed assets, deferred tax amounts and
other miscellaneous items. Corporate operating losses represent
certain operating costs not specifically allocated to individual
segments.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
September 30, December 31,
1999 1998
Current ratio 1.49:1 1.65:1
Working capital $192.8 $235.8
Cash from operating activities for the nine months ended September 30,
1999 decreased $84.9 million compared to the same period one year
earlier. The decrease in cash flows was primarily related to changes
in certain components of working capital and a decrease in net
earnings. The timing of certain transactions can have a significant
influence over changes in working capital balances. Current
liabilities exclusive of debt decreased during 1999 as the Company
paid $14.6 million in taxes related to the 1998 gain from the sale of
baking and flour milling operations in Puerto Rico. Within the
Commodity Trading and Milling segment there was a higher value of
inventory in transit at September 30, 1999 than at December 31, 1998,
resulting in increases in grain inventory and prepaid expense balances
and a partially offsetting increase in deferred revenue balances. In
1998 there was a lower value of inventory in transit at September 30,
1998 than at December 31, 1997, resulting in a decrease in grain
inventories and a partially offsetting decrease in deferred revenues
during that period. Dressed poultry inventory increased during 1999
in preparation for significant fourth quarter obligations under sales
contracts with certain customers compared to a decrease in dressed
poultry during 1998. Dressed poultry inventory decreased during the
first quarter of 1998 from the sell-off of a build-up of poultry leg-
quarter inventory. Wine inventories increased in 1999 due to seasonal
fluctuations. Wine inventories were not included in the comparable
1998 period as the winery was not acquired until October 1998.
Cash from investing activities for the nine months ended September 30,
1999 increased $78.2 million compared to the same period one year
earlier. The increase is primarily related to a net sale and maturity
of investments in the 1999 period compared to a net purchase of
investments in the comparable 1998 period. For the nine months ended
September 30, 1998, investments in and advances to foreign affiliates
includes $37.6 million to Tabacal. As discussed in Note 4, Tabacal
has been consolidated since December 31, 1998. As such, funds
invested in Tabacal for the nine months ended September 30, 1999 are
reflected within the appropriate components of the cash flow
statement, including capital expenditures.
The Company invested $78.9 million in property, plant and equipment
for the nine months ended September 30, 1999.
The Company invested $31.8 million in the Poultry segment primarily
for the expansion projects at the Mayfield, Kentucky and Chattanooga,
Tennessee, poultry facilities. The Company anticipates spending $25.0
million over the next six months for these expansions, an expansion of
the Elberton, Georgia, facility, and to make general upgrades to other
poultry facilities.
The Company invested $15.1 million in the Pork segment primarily for
the expansion of hog production facilities and for improvements to the
pork processing plant. The Company plans to invest $1.5 million
during the remainder of 1999 for general upgrades to the pork
processing plant.
Capital expenditures in the Marine segment totaled $12.2 million to
purchase two vessels previously chartered and for general replacement
and upgrades of property and equipment. During the remainder of 1999,
the Company anticipates spending $2.5 million for general replacement
and upgrades of property and equipment.
The Company invested $12.5 million in the Sugar and Citrus segment
primarily for improvements to existing operations and expansion of
sugarcane fields. During the remainder of 1999, the Company
anticipates spending $3.7 million for additional improvements and
expansion.
Capital expenditures in the Commodity Trading and Milling segment
totaled $3.1 million, including $2.0 million to purchase a previously
chartered bulk carrier vessel from a wholly-owned subsidiary of
Seaboard Flour Corporation, the owner of 75.3% of the Company's
outstanding common stock.
Capital expenditures in the other segments for the nine months ended
September 30, 1999 included $4.2 million in general modernization and
efficiency upgrades of plant and equipment.
Management anticipates that the planned capital expenditures for the
remainder of 1999 will be financed by internally generated cash or
proceeds from the sale or maturity of investments.
During the first quarter of 1999, the Company invested $2.3 million to
acquire additional shares of a Bulgarian winery. The Company
originally purchased a controlling interest in the winery in October
1998.
During the second quarter of 1999, the Company invested $1.7 million
for a minority interest in a flour mill in Angola to be accounted for
under the equity method.
Cash from financing activities for the nine months ended September 30,
1999 increased $10.5 million compared to the same period one year
earlier. The increase is primarily related to proceeds from short-
term borrowings and terminating interest rate swap agreements,
partially offset by payments on long-term debt. See further
discussion of terminated swap agreements under "Derivative
Information" below.
During the third quarter of 1999, the Company prepaid at a discount
certain long-term debt obligations assumed with the purchase of the
Bulgarian winery in October 1998 and adjusted certain acquisition
balances related to this acquisition. During the third quarter of
1999, the Company also prepaid at a discount other higher cost, U.S.
dollar denominated foreign subsidiary debt obligations. These
prepayments reduced total long-term debt obligations by $13.5 million.
Changes to the preliminary purchase price allocations and other non-
cash adjustments related to these transactions resulted in immaterial
adjustments to several balance sheet line items, primarily reductions
to minority interest, net property plant and equipment, and long-term
debt.
In the first quarter of 1999, the Company's one-year revolving credit
facilities totaling $145.0 million, maturing during the first quarter
of 1999, were increased to $153.3 million and extended for an
additional year. In addition, the existing five-year revolving credit
facility totaling $25.0 million was increased to $26.7 million.
During the third quarter of 1999, the Company repaid the outstanding
advances totaling $10.0 million on the five-year revolving credit
facility. As of September 30, 1999, the Company had $153.3 million
outstanding under one-year revolving credit facilities totaling $153.3
million and $51.5 million outstanding under short-term uncommitted
credit lines totaling $156.0 million.
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 will be
adequate for its current and intended operations.
RESULTS OF OPERATIONS
Compared to the same periods one year earlier, net sales for the three
months ended September 30, 1999 increased $6.2 million, and net sales
for the nine months ended September 30, 1999 decreased $98.1 million.
Operating income for the three and nine months ended September 30,
1999 decreased by $11.5 and $25.3 million, respectively, compared to
the same periods one year earlier.
As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Accordingly, certain 1998
quarterly segment information below has been reclassified to conform
with the new presentations.
Poultry Segment
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 126.4 135.4 $ 357.3 385.3
Operating income $ 9.3 19.3 $ 26.6 25.9
Net sales of poultry products for the three and nine months ended
September 30, 1999 decreased $9.0 and $28.0 million, respectively,
compared to the same periods in 1998. These decreases are primarily a
result of lower overall sales prices for poultry products. An
increase in poultry production within the industry has resulted in
lower prices for most poultry products while the Russian economic
situation continues to have a negative effect on domestic prices for
dark meat sales. Sales volumes increased for the three and nine
months ended September 30, 1999 compared to the same periods in 1998,
primarily as a result of increased export sales. From time to time, a
portion of the dressed product needed to meet increased levels of
export sales is purchased from third party suppliers. Although export
sales volumes increased during the periods, related revenues decreased
due to the lower prices. The sales volume increase for the nine month
period was partially offset by the sell-off of a build up of leg
quarter inventories in the first quarter of 1998. Although management
is unable to predict future poultry prices, current market conditions
indicate that poultry prices will remain lower than 1998 for the
remainder of 1999.
Compared to the same periods in 1998, operating income for the Poultry
segment decreased $10.0 million for the three months ended September
30, 1999, and increased $0.7 million for the nine months ended
September 30, 1999. During the first two quarters of 1999, operating
income increased compared to 1998 as the benefits of lower finished
feed costs more than offset lower sales prices. However, during the
third quarter of 1999, significantly lower sales prices were only
partially offset by lower finished feed costs, resulting in the
decrease in operating income for the quarter. Over the nine month
period, the lower feed costs were essentially offset by lower sales
prices. Although management cannot predict finished feed costs, it is
anticipated that feed ingredient costs should continue to be favorable
for the remainder of 1999.
Pork Segment
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 138.1 124.5 $ 394.3 379.5
Operating income $ 7.6 (3.4) $ 17.8 (4.7)
Net sales for the Pork segment increased $13.6 and $14.8 million,
respectively, for the three and nine months ended September 30, 1999
compared to the same periods in 1998. During the first two quarters
of 1999, an increase in sales volume was partially offset by lower
pork prices. During the third quarter of 1999, sales volume and pork
prices increased compared to the same period in 1998. The increase in
sales volume is the result of the hog processing plant operating at
full capacity on a double-shift basis during 1999. The plant employed
a second shift during the first half of 1998, but did not achieve full
double-shift capacity until the third quarter of 1998. Lower sales
prices for most pork products during the first two quarters of 1999
resulted from an industry-wide excess supply of live hogs, during the
third quarter the excess declined, resulting in improved prices.
Management cannot predict pork prices for the remainder of 1999.
Operating income for the Pork segment increased $11.0 and $22.5
million, respectively, for the three and nine months ended September
30, 1999 compared to the same periods in 1998. These increases are
primarily a result of a decrease in the cost of third party hogs
processed and, to a lesser extent, a decrease in the cost of Company
raised hogs. Operating income for the three months ended September
30, 1999 also benefited from the improvement in sales prices. The
decrease in the cost of Company raised hogs is primarily the result of
lower grain prices. Although management cannot predict the cost of
third party hogs or grain prices, it is anticipated that market
conditions for these items should continue to be favorable for the
remainder of 1999.
Marine Segment
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 74.1 72.0 $ 216.3 231.5
Operating income $ (4.6) 1.6 $ (5.5) 14.8
Compared to the same periods in 1998, net sales for the Marine segment
increased $2.1 million for the three months ended September 30 1999,
and decreased $15.2 million for the nine months ended September 30,
1999. Cargo volumes and applicable cargo rates decreased in the first
two quarters of 1999 compared to 1998 primarily as a result of weak
economic conditions in certain South American markets served by the
Company. During the third quarter of 1999, overall cargo volume
increased due to improvements in certain markets, but the effect on
net sales was largely offset as rates remained depressed.
Operating income from the Marine segment decreased $6.2 and $20.3
million, respectively, for the three and nine months ended September
30, 1999 compared to the same periods in 1998, primarily as a result
of lower cargo rates discussed above. Management expects that these
situations will continue to have a negative effect on financial
results for the remainder of 1999. A new U.S. shipping law, The Ocean
Reform Act of 1998, went into effect in May 1999 and permits shipping
companies to enter into unregulated confidential rate agreements with
shippers. Management is not able to determine the impact, if any, of
this new law on 1999 financial results.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 75.7 73.2 $ 190.1 233.4
Operating income $ (0.1) 0.8 $ 1.8 7.7
Compared to the same periods in 1998, net sales for the Commodity
Trading and Milling segment increased $2.5 million for the three
months ended September 30 1999, and decreased $43.3 million for the
nine months ended September 30, 1999. The decrease for the nine month
period is primarily a result of lower soybean sales, lower wheat sales
to certain foreign affiliates and, to a lesser extent, a decrease in
commodity prices sold in foreign markets during the first two quarters
of 1999. Such decreases were partially offset by the addition of
sales during 1999 from the Company's milling operations in Zambia
acquired in late 1998.
Operating income for this segment decreased $0.9 and $5.9 million,
respectively, for the three and nine months ended September 30, 1999
compared to the same periods in 1998, primarily due to the decrease in
wheat sales to certain foreign affiliates.
Sugar and Citrus Segment
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 15.1 - $ 30.2 -
Operating income $ (0.4) - $ (9.2) -
As discussed in Note 4 to the Condensed Consolidated Financial
Statements, comparative operating results for the Sugar and Citrus
segment are not presented as Tabacal was accounted for on the equity
method in 1998. However, lower sugar prices have resulted in
significantly lower revenues and higher losses in the first nine
months of 1999 compared to 1998. Also, during the second quarter of
1999 severance charges of $3.0 million were incurred related to
certain employee layoffs enacted to reduce future operating costs.
For the three and nine months ended September 30, 1998 the loss from
foreign affiliates attributable to Tabacal was $6.4 and $10.4 million,
respectively.
Failure of sugar prices to return to historical levels could lower
future expected cash flows to the extent that the carrying amount of
Tabacal's long-lived asset values might be impaired. Any such
impairment may require a write down of the related asset values with a
corresponding charge to earnings sometime during the next twelve
months. Management cannot predict sugar prices for the remainder of
1999.
Other Operations
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1999 1998 1999 1998
Net sales $ 15.8 33.8 $ 53.8 110.5
Operating income $ (0.7) 4.0 $ (0.3) 11.3
Net sales for all other segments decreased $18.0 and $56.7 million,
respectively, for the three and nine months ended September 30, 1999
compared to the same periods in 1998. The decrease is primarily a
result of the sale of the Puerto Rican baking operations in December
1998.
Operating income for all other segments decreased $4.7 and $11.6
million, respectively, for the three and nine months ended September
30, 1999 compared to the same periods in 1998. This decrease
primarily reflects the Puerto Rican baking operations sold in December
1998, lower operating results from the produce and power divisions and
losses from the Bulgarian winery acquired late in 1998.
Selling, General and Administrative Expenses
Compared to the same periods in 1998, selling, general and
administrative (SG&A) expenses increased $0.1 million for the three
months ended September 30 1999, and decreased $6.7 million for the
nine months ended September 30, 1999. The nine month decrease is
primarily a result of the Puerto Rican baking operations sold in
December 1998, partially offset by the winery acquired late in 1998,
and consolidation of Tabacal results in 1999, including the $3.0
million of severance charges discussed above.
Other Income (Expense)
Interest expense increased $1.0 and $3.6 million, respectively, for
the three and nine months ended September 30, 1999 compared to the
same periods in 1998. The increase is primarily a result of an
increase in average outstanding long-term borrowings and higher rates
on short-term borrowings. Increased average outstanding long-term
borrowings are primarily the result of the consolidation, effective
December 1998, of the existing debts of Tabacal and the Bulgarian
winery.
Loss from foreign affiliates for the three and nine months ended
September 30, 1998 were primarily attributable to the operations of
Tabacal. As discussed in Note 4 to the Condensed Consolidated
Financial Statements, Tabacal is included in 1999 consolidated
operations.
Minority interest represents the minority shareholders' share of the
operating results of the Bulgarian winery acquired in the fourth
quarter of 1998.
Income Tax Expense
Compared to the same periods one year earlier, the effective tax rates
increased significantly for the three and nine months ended September
30, 1999. These increases and the unusually high effective tax rates
for the 1999 periods are attributable to significant increases in
overall losses from foreign entities during 1999 for which no tax
benefit is available within their respective countries or to offset
domestic income.
Other Financial Information
During the second quarter of 1999, the Financial Accounting Standards
Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133." This statement amends SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," to defer its effective
date. The Company will now be required to adopt SFAS No. 133 during
the first quarter of fiscal 2001.
The Company has completed the Year 2000 assessment of its primary
mainframe computer systems and other computer and electronic
information systems throughout its operations. Resolution of all
critical issues identified within these systems, including all
necessary testing, is complete. Certain equipment with embedded chip
technology cannot be tested or guaranteed by the manufacturer for Year
2000 compliance. Consequently, general contingency plans are being
developed for certain locations including lists of spare parts to have
on hand and work around options in case of failure. Although not
deemed critical to consolidated operations, computer systems at
certain international locations are being reviewed and upgrades are
planned or in process. The failure to identify or resolve any
significant Year 2000 issue in a timely manner could have a material
adverse effect on the Company, including an interruption in, or a
failure of, certain normal business activities or operations.
The Company is also in the process of communicating with significant
suppliers and customers to determine the extent to which the Company
is vulnerable to failure of those third parties to resolve their own
Year 2000 issues. The Company does not anticipate the cost of Year
2000 compliance by suppliers to be passed on to the Company and has
not been informed of any material risks related to third party Year
2000 compliance. The Company is developing general contingency plans
for some instances of third party noncompliance including limited
backup utility sources to support live inventories for a short period
of time. However, the failure of a significant third party supplier
or customer to resolve its Year 2000 issues in a timely manner could
have a material adverse effect on the Company, such as business
disruptions resulting from noncompliance by a local utility (either
electric, gas or water) or chartered vessel service.
Based upon assessments completed to date, the Company believes that
the total costs, including equipment replacements and internal costs
consisting primarily of payroll related costs, to resolve Year 2000
issues will not be material to the Company's consolidated financial
statements. The discovery of a significant Year 2000 issue unknown at
this time could materially alter this estimate.
Derivative Information
The Company is exposed to various types of market risks from its day-
to-day operations. Primary market risk exposures result from changing
interest rates and commodity prices. Changes in interest rates impact
the cash required to service variable rate debt. Changes in commodity
prices impact the cost of necessary raw materials as well as the
selling prices of finished products. The Company uses interest rate
swaps to manage risks of increasing interest rates. The Company uses
corn, wheat, soybeans and soybean meal futures and options to manage
risks of increasing prices of raw materials. The Company uses hog
futures and options to manage risks of fluctuating prices of third
party hogs acquired for processing. The Company is also subject to
foreign currency exchange rate risk on a short-term note payable
denominated in foreign currency. This risk is managed through the use
of a foreign currency forward exchange agreement.
During the second quarter of 1999, the Company terminated two interest
rate swap agreements for proceeds totaling $0.7 million. These
agreements had remaining lives of eight years and combined notional
amounts of $50 million. During the third quarter of 1999, the Company
terminated all remaining interest rate swap agreements for proceeds
totaling $5.3 million. These agreements had remaining lives of eight
years and combined notional amounts of $150 million. Proceeds
received will be amortized as a reduction of interest expense over the
remaining eight year lives.
Other than the termination of the swap agreements, the Company's
market risk exposure related to these items has not changed
substantially since December 31, 1998.
SEABOARD CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company's subsidiary, Seaboard Farms, Inc. ("SF"), is a party to a
lawsuit brought by Consolidated Nutrition Marketing Corp. ("CN") in
the United States District Court for the District of Nebraska relating
to an agreement for SF to purchase hogs from CN. CN alleges breach of
the agreement, common law fraud and violation of the federal RICO
statute. The action seeks a declaratory judgment that SF breached the
agreement, unspecified damages for the breach of agreement count, and
damages of approximately $25 million on the other counts. Any amount
awarded under the RICO count would be trebled. SF has counterclaimed
against CN asserting breach of the agreement and claiming damages of
approximately $16 million. SF believes it has meritorious defenses to
all counts, that the RICO count is without merit,and that it will
prevail on its counterclaim. The lawsuit was originally filed on August
14, 1998 and was amended October 4, 1999.
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 September 30, 1999.
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 effect of Tabacal on
the consolidated financial statements of the Company, (vi) the impact
of Year 2000 issues, or (vii) 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: October 21, 1999
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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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
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