UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 04-2260388
(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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock American Stock Exchange
$1.00 Par Value
Securities registered pursuant of Section 12(g) of the Act:
None
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. X
(Continued)
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant. The aggregate market value shall
be computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days prior to the date of filing.
$122,179,750 (March 5, 1999). On such date, 349,085 shares
were held by non-affiliates, and the closing price of the stock
was $350.00 per share.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date: 1,487,519.75 shares of Common Stock as of
March 5, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part I, item 1(b), a part of item 1(c)(1) and the financial
information required by item 1(d) and Part II, items 5, 6, 7, 7A
and 8 are incorporated by reference to the Registrant's Annual
Report to Stockholders furnished to the Commission pursuant to
Rule 14a-3(b).
Part III, a part of item 10 and items 11, 12 and 13 are
incorporated by reference to the Registrant's definitive proxy
statement filed pursuant to Regulation 14A for the 1999 annual
meeting of stockholders (the "1999 Proxy Statement").
This Form 10-K and its Exhibits (Form 10-K) contain forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which may 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-K 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-K, including without limitation, the
information under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
identifies important factors which could cause such differences.
PART I
Item 1. Business
(a) General Development of Business
Seaboard Corporation, a Delaware corporation, the successor
corporation to a company first incorporated in 1928, and
subsidiaries ("Registrant" or "Company"), is a diversified
international agribusiness and transportation company which is
primarily engaged in domestic poultry and pork production and
processing, and cargo shipping. Overseas, the Company is
primarily engaged in commodity merchandising, flour and feed
milling, produce farming, sugar production, and electric power
generation. See Item 1(c) (1) (ii) below for a discussion of
developments in specific segments.
(b) Financial Information about Industry Segments
The information required by Item 1 relating to Industry
Segments is hereby incorporated by reference to Note 12 of
Registrant's Consolidated Financial Statements appearing on pages
41, 42 and 43 of the Registrant's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and
attached as Exhibit 13 to this Report.
(c) Narrative Description of Business
(1) Business Done and Intended to be Done by the Registrant
(i) Principal Products and Services
Registrant produces and processes poultry in the United
States and sells processed chicken and chicken parts, both
directly and through commercial distributors, foodservice and
institutional markets, to retail, primarily in the eastern half
of the United States and foreign markets.
Registrant produces hogs and processes pork in the United
States and sells fresh pork to further processors, foodservice
and retail, primarily in the western half of the United States
and foreign markets. Hogs produced at Company owned or leased
facilities are processed at the Company's processing plant.
Registrant operates an ocean liner service for containerized
cargo primarily between Florida and ports in the Caribbean Basin
and Central and South America.
Registrant sources and trades commodities, such as bulk
grains and oilseeds, for its subsidiaries, affiliates and third
parties primarily in Africa, the Caribbean, Central and South
America, the Eastern Mediterranean and Europe. Registrant
operates its own bulk carriers primarily in the Atlantic Basin to
conduct a portion of its commodity trading activities.
Registrant, by itself or through non-controlled subsidiaries,
operates flour and feed mills in Africa, the Caribbean and South
America.
Registrant, by itself or through non-controlled affiliates,
produces and processes produce and shrimp in Central and South
America, primarily for export to the U.S. and Europe. Registrant
also brokers fruits, vegetables and shrimp for independent
growers. The majority of these products are transported using
the Registrant's shipping line and distribution facility in
Miami, Florida. Registrant also operates a power generating
facility in the Dominican Republic, produces and refines
sugarcane and produces and processes citrus in Argentina, and
produces wine in Bulgaria. The Registrant, through non-
controlled affiliates, produces salmon and processes seafood in
Maine.
The information required by Item 1 with respect to the
amount or percentage of total revenue contributed by any class of
similar products or services which account for 10% or more of
consolidated revenue in any of the last three fiscal years is
hereby incorporated by reference to Note 12 of Registrant's
Consolidated Financial Statements appearing on pages 41, 42 and
43 of the Registrant's Annual Report to Stockholders furnished to
the Commission pursuant to rule 14a-3(b) and attached as Exhibit
13 to this report.
(ii) Status of Product or Segment
Registrant continues to expand its poultry and pork segments
by further investing in pork and poultry production and
processing facilities.
The Registrant plans to expand its Mayfield, Kentucky and
Chattanooga, Tennessee poultry facilities. Phase one of the
expansion is scheduled to begin in 1999 and includes a new
hatchery and feed mill in Mayfield, and an expansion of the
Mayfield poultry processing facility. In addition, Registrant
plans to add new deboning lines to the Chattanooga processing
facility. Phase two is scheduled to begin in 2000 and is
tentatively planned to include additional expansion of the
Chattanooga facilities.
In 1998, the Registrant began construction of facilities to
produce an additional one million market hogs per year. The
Registrant plans to construct a second vertically integrated pork
operation capable of processing over four million hogs annually
although the timing has not been finalized.
The Registrant's Argentine subsidiary continues to make
improvements to existing facilities and expand the sugarcane
fields.
In December 1998, the Registrant sold its baking and flour
mill operations in Puerto Rico.
(iii) Sources and Availability of Raw Materials
None of Registrant's businesses utilize material amounts of
raw materials that are dependent on purchases from one supplier
or a small group of dominant suppliers.
(iv) Patents, Trademarks, Licenses, Franchises and Concessions
Registrant currently uses one registered trademark: Easy
Entrees, for retail sales of poultry products. Registrant uses
three registered trademarks; Season Sweet, Chestnut Hill Farms
and Cumars Best in marketing fresh fruits, vegetables and shrimp
in the United States.
Patents, trademarks, franchises, licenses and concessions
are not material to any of Registrant's other segments.
(v) Seasonal Business
Profitability of the poultry operations is generally higher
in the summer months. Profits from processed pork are generally
higher in the fall months. Produce operations are seasonal,
depending on the crop being grown. Generally, crops which are
exported to the United States are only in production from
November through May. The Registrant's other segments are not
seasonally dependent to any material extent.
(vi) Practices Relating to Working Capital Items
There are no unusual industry practices or practices of
Registrant relating to working capital items.
(vii) Depending on a Single Customer or Few Customers
Registrant does not have sales to any one customer equal to
10% or more of Registrant's consolidated revenues, nor sales to a
few customers which, if lost, would have a material adverse
effect on any such segment or on Registrant taken as a whole.
(viii) Backlog
Backlog is not material to Registrant's businesses.
(ix) Government Contracts
No material portion of Registrant's business involves
government contracts.
(x) Competitive Conditions
Competition in Registrant's poultry and pork segments come
from a variety of national and regional producers and is based
primarily on product performance, customer service and price. In
the January 1999 issue of Broiler Industry, an industry trade
publication, the Registrant was ranked as one of the ten largest
poultry processors in the United States based on number of birds
processed. In the October 1998 issue of Successful Farming, an
industry trade publication, the Registrant was ranked in the top
ten pork producers in the United States based on sows in
production.
Registrant's ocean liner service for containerized cargoes
faces competition based on price and customer service. A new
U.S. shipping law, The Ocean Reform Act of 1998, will go into
effect in May 1999 and will permit shipping companies to enter
into unregulated confidential rate agreements with shippers.
Management is not able to predict the impact of this new law on
the Registrant. Registrant believes it is among the top five
ranking ocean liner services for containerized cargoes in the
Caribbean Basin based on cargo volume.
(xi) Research and Development Activities
Registrant does not engage in material research and
development activities.
(xii) Environmental Compliance
Registrant believes that it is in substantial compliance
with applicable Federal, state and local provisions relating to
environmental protection, and no significant capital expenditures
are contemplated in this area.
(xiii) Number of Persons Employed by Registrant
As of December 31, 1998, Registrant, excluding non-
controlled, non-consolidated foreign subsidiaries, had 14,954
employees, of whom 9,336 were employed in the United States.
(d) Financial Information about Foreign and Domestic
Operations and Export Sales
The financial information required by Item 1 relating to
export sales is hereby incorporated by reference to Note 12 of
Registrant's Consolidated Financial Statements appearing on pages
41, 42 and 43 of Registrant's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and
attached as Exhibit 13 to this report. Registrant did not have a
material amount of sales or transfers between geographic areas
for the periods reported on herein.
Registrant considers its relations with the governments of
the countries in which its foreign subsidiaries are located to be
satisfactory, but these foreign operations are subject to the
normal risks of doing business abroad, including expropriation,
confiscation, war, insurrection, civil strife and revolution,
currency inconvertibility and devaluation, and currency exchange
controls. To minimize these risks, Registrant has insured
certain investments in and loans to its affiliate shrimp farm in
Ecuador and its affiliate flour mills, in Democratic Republic of
Congo, Ecuador, Haiti and Mozambique, to the extent deemed
appropriate against certain of these risks with the Overseas
Private Investment Corporation, an agency of the United States
Government. In addition, the Company has purchased commercial
insurance to cover certain forms of political risk if physical
damage is done to its own and affiliate facilities abroad.
Item 2. Properties
(1) Poultry
The principal poultry operations of the Registrant consist
of five owned and one leased processing plants. These plants are
devoted to various phases of slaughtering, dressing, cutting,
packing, deboning or further-processing chickens. The total
slaughter capacity is approximately 244 million birds per year.
To support these facilities, the Registrant operates four feed
mills, four hatcheries and a network of 680 contract growers that
supply pullet, breeder and broiler farms. These facilities are
located in Alabama, Georgia, Kentucky and Tennessee.
(2) Pork
The Registrant owns a hog processing plant in Oklahoma with
a double shift capacity of approximately four million hogs per
year. Hog production facilities currently consist of a
combination of owned and leased farrowing, nursery and finishing
units to support 125,500 sows. Registrant owns three feed mills
which have a combined capacity to produce 850,000 tons of feed
annually to support the hog production. These facilities are
located in Oklahoma, Texas, Kansas and Colorado.
(3) Marine
Registrant leases a 135,000 square foot warehouse and more
than 70 acres of port terminal land and facilities in Florida
which are used in its containerized cargo operations. In
addition, Registrant timecharters, under short-term agreements,
between eighteen and twenty-two containerized ocean cargo vessels
with deadweights ranging from 2,488 to 9,200 metric-tons.
Registrant also bareboat charters, under long-term lease
agreements, three containerized ocean cargo vessels with
deadweights ranging from 12,169 to 12,648 metric tons.
(4) Commodity Trading and Milling
The Registrant owns in whole or in part nine flour mills
with capacity to produce over 5,000 metric tons of flour per day.
In addition, Registrant has feed mill capacity of 75 metric tons
per hour to produce formula animal feed. The flour mills, located
in Democratic Republic of Congo, Ecuador, Guyana, Haiti, Lesotho,
Mozambique, Nigeria, Sierra Leone and Zambia, and the feed mills
located in Ecuador, Lesotho, Nigeria and Zambia are owned; in
Lesotho, Nigeria and Sierra Leone the land the mills are located
on is leased under long-term agreements. The Registrant owns six
9,000 metric-ton deadweight dry bulk carriers.
(5) Other
Registrant leases 1,300 acres in Honduras and 1,000 acres in
Arizona for growing produce. Registrant also leases 40,000
square feet of refrigerated space and 70,000 square feet of dry
space in the Port of Miami for warehousing produce products.
Registrant has a controlling interest in an Argentine
company which owns approximately 37,000 acres of planted
sugarcane and approximately 4,200 acres of planted citrus. In
addition, this company owns a sugar mill with a capacity to
process 155,000 metric tons of sugar per year.
Registrant owns a floating power generating facility,
capable of producing 40 megawatts of power, located in the Port
of Rio Haino in Santo Domingo, Dominican Republic. During 1998,
Registrant sold the assets of a second power generating facility
capable of producing 17.5 megawatts of power also located in the
Dominican Republic.
Registrant owns a controlling interest in a Bulgarian winery
with a capacity to produce 27 million liters of wine per year.
Related facilities are located on approximately 330 acres of
owned land.
Registrant, by itself or through non-controlled affiliates,
operates approximately 3,100 acres of shrimp ponds in Honduras
and Ecuador. Approximately 1,400 acres are leased and the rest
are owned.
Registrant owns a non-controlling interest in a company in
Maine capable of producing over 10 million pounds of salmon.
Registrant owns a non-controlling interest in a company in
Maine with a 20,000 square feet facility for processing seafood
and related products.
Management believes that the Registrant's present facilities
are generally adequate and suitable for its current purposes. In
general, facilities are fully utilized; however, seasonal
fluctuations in inventories and production may occur as a
reaction to market demands for certain products. Certain foreign
flour mills may operate at less than full capacity due to
unavailability of foreign exchange to pay for imported raw
materials.
Item 3. Legal Proceedings
The Company is subject to legal proceedings related to the
normal conduct of its business, including as a defendant in a
maritime arbitration claim more fully described in Note 11 of the
consolidated financial statements. In the opinion of management,
none of these actions are expected to result in a final judgement
having a materially adverse effect on the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the last quarter of the
fiscal year covered by this report to a vote of security holders.
Executive Officers of Registrant
The following table lists the executive officers and certain
significant employees of Registrant. Generally, each executive
officer is elected at the Annual Meeting of the Board of
Directors following the Annual Meeting of Stockholders and holds
his office until the next such annual meeting or until his
successor is duly chosen and qualified. There are no
arrangements or understandings pursuant to which any executive
officer was elected.
Name (Age) Positions and Offices with Registrant and Affiliates
H. Harry Bresky (73) President of Registrant; President and Treasurer of
Seaboard Flour Corporation (SFC)
Joe E. Rodrigues (62) Executive Vice President and Treasurer
Rick J. Hoffman (44) Vice President
Steven J. Bresky (45) Vice President
Robert L. Steer (39) Vice President - Chief Financial Officer
Douglas W. Schult (42) Vice President - Human Resources
James L. Gutsch (45) Vice President - Engineering
David M. Becker (37) General Counsel and Assistant Secretary
Mr. H. Harry Bresky has served as President of Registrant
since 1967 and as President of SFC since 1987, and as Treasurer
of SFC since 1973. Mr. Bresky is the father of Steven J. Bresky.
Mr. Rodrigues has served as Executive Vice President and
Treasurer of Registrant since December 1986.
Mr. Hoffman has served as Vice President of Registrant since
April 1989.
Mr. Steven J. Bresky has served as Vice President of
Registrant since April 1989.
Mr. Steer has served as Vice President - Chief Financial
Officer of Registrant since April 1998 and previously as Vice
President - Finance of Registrant since April 1996. He has been
employed with the Registrant since 1984.
Mr. Schult has served as Vice President - Human Resources of
Registrant since April 1996. He has been employed with the
Registrant since February 1995, by M.G. Waldbaum from January
1993 to January 1995 and prior to that by IBP, Inc.
Mr. Gutsch has served as Vice President - Engineering of
Registrant since December 1998. He has been employed with the
Registrant since 1984.
Mr. Becker has served as General Cousel and Assistant
Secretary of Registrant since April 1998 and previously Assistant
Secretary of Registrant since May 1994. He has been employed
with the Registrant since 1993 and prior to that was employed by
the law firm Stinson Mag and Fizzell PC.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information required by Item 5 is hereby incorporated by
reference to "Stock Listing" and "Quarterly Financial Data"
appearing on pages 44 and 17, respectively, of Registrant's
Annual Report to Stockholders furnished to the Commission
pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this
Report.
Item 6. Selected Financial Data
The information required by Item 6 is hereby incorporated by
reference to the "Summary of Selected Financial Data" appearing
on page 16 of Registrant's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and
attached as Exhibit 13 of this Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 7 is hereby incorporated by
reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 18
through 24 of Registrant's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and
attached as Exhibit 13 to this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A is hereby incorporated
by reference to the material under the captions "Financial
Instruments" and "Commodity Instruments" within Note 1 of the
Registrant's Consolidated Financial Statements appearing on page
33, and to the material under the caption "Derivative
Information" within "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages
22 through 24 of the Registrant's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and
attached as Exhibit 13 to this Report.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is hereby incorporated by
reference to Registrant's "Quarterly Financial Data,"
"Independent Auditors' Report," "Consolidated Statements of
Earnings," "Consolidated Statements of Stockholders' Equity,"
"Consolidated Balance Sheets," "Consolidated Statements of Cash
Flows" and "Notes to Consolidated Financial Statements" appearing
on pages 17 and 25 through 43 of Registrant's Annual Report to
Stockholders furnished to the Commission pursuant to Rule 14a-
3(b) and attached as Exhibit 13 to this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of Registrant
Refer to "Executive Officers of Registrant" in Part I.
Information required by this item relating to directors of
Registrant has been omitted since Registrant filed a definitive
proxy statement within 120 days after December 31, 1998, the
close of its fiscal year. The information required by this item
relating to directors is incorporated by reference to "Item 1"
appearing on pages 3 and 4 of the 1999 Proxy statement. The
information required by this item relating to late filings of
reports required under Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the last paragraph on
page 2 of the Registrant's 1999 Proxy Statement.
Item 11. Executive Compensation
This item has been omitted since Registrant filed a
definitive proxy statement within 120 days after December 31,
1998, the close of its fiscal year. The information required by
this item is incorporated by reference to "Executive Compensation
and Other Information," "Retirement Plans" and "Compensation
Committee Interlocks and Insider Participation" appearing on
pages 5 through 8 and 10 of the 1999 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This item has been omitted since Registrant filed a
definitive proxy statement within 120 days after December 31,
1998, the close of its fiscal year. The information required by
this item is incorporated by reference to "Principal
Stockholders" appearing on page 2 and "Election of Directors" on
page 3 of the 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
This item has been omitted since Registrant filed a
definitive proxy statement within 120 days after December 31,
1998, the close of its fiscal year. The information required by
this item is incorporated by reference to "Compensation Committee
Interlocks and Insider Participation" appearing on page 10 of the
1999 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Consolidated financial statements.
See Index to Consolidated Financial Statements on
page F-1.
2. Consolidated financial statement schedules.
See Index to Consolidated Financial Statements on
page F-2.
3. Exhibits.
2.1 - Stock and Asset Purchase Agreement by and
between HDPR Acquisitions Corp., and CB
Acquisitions Corp., as Buyers and Seaboard
Corporation, as Seller, dated as of November 9,
1988. Incorporated by reference to Exhibit 2.1 of
Registrant's Form 8-K, dated December 30, 1998.
2.2 - Asset Purchase Agreement by and between HDPR
Acquisitions Corp., as Buyer, Harinas de Puerto
Rico, Inc., as Seller and Seaboard Corporation,
dated as of November 9, 1998. Incorporated by
reference to Exhibit 2.2 of Registrant's Form 8-K,
dated December 30, 1998.
3.1 - Registrant's Certificate of Incorporation,
as amended, incorporated by reference to Exhibit
3.1 of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.
3.2 - Registrant's By-laws, as amended.
Incorporated by reference to Exhibit 3.2 of
Registrant's Annual Report or Form 10-K for the
fiscal year ended December 31, 1997.
4.1 - Note Purchase Agreement dated December 1,
1993 between the Registrant and various purchasers
as listed in the exhibit. The Annexes and
Exhibits to the Note Purchase Agreement have been
omitted from the filing, but will be provided
supplementally upon request of the Commission.
Incorporated by reference to Exhibit 4.1 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
4.2 Seaboard Corporation 6.49% Senior Note Due
December 1, 2005 issued pursuant to the Note
Purchase Agreement described above. Incorporated
by reference to Exhibit 4.2 of Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993.
4.3 Note Purchase Agreement dated June 1, 1995
between the registrant and various purchasers as
listed in the exhibit. The Annexes and Exhibits
to the Note Purchase Agreement have been omitted
from the filing, but will be provided
supplementally upon request of the Commission.
Incorporated by reference to Exhibit 4.3 of
Registrant's Form 10-Q for the quarter ended
September 9, 1995.
4.4 Seaboard Corporation 7.88% Senior Note Due
June 1, 2007 issued pursuant to the Note Purchase
Agreement described above. Incorporated by
reference to Exhibit 4.4 of Registrant's Form 10-Q
for the quarter ended September 9, 1995.
4.5 - Seaboard Corporation Note Agreement dated as
of December 1, 1993 ($100,000,000
Senior Notes due December 1, 2005). First
Amendment to Note Agreement. Incorporated by
reference to Exhibit 4.7 of Registrant's Form 10-Q
for the quarter ended March 23, 1996.
4.6 - Seaboard Corporation Note Agreement dates as
of June 1, 1995 ($125,000,000
Senior Notes due June 1, 2007). First Amendment to
Note Agreement. Incorporated by reference to
Exhibit 4.8 of Registrant's Form 10-Q for the
quarter ended March 23, 1996.
* 10.1 Registrant's Executive Retirement Plan dated
January 1, 1997. The addenda have been omitted
from the filing, but will be provided
supplementary upon request of the Commission.
Incorporated by reference to Exhibit 10.1 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
* 10.2 Registrant's Amended and Restated
Supplemental Executive Retirement Plan.
* 10.3 Registrant's Supplemental Executive
Retirement Plan for H. Harry Bresky dated March
21, 1995. Incorporated by reference to Exhibit
10.3 of Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
* 10.4 Employment Agreement for Joe E. Rodrigues
dated July 9, 1986 and amended August 10, 1990.
Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report
on Form 10-K for the fiscal year ended December
31, 1995.
13 - Sections of Annual Report to security holders
incorporated by reference herein.
21 - List of subsidiaries.
27 - Financial Data Schedule (included in electronic copy only).
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
On January 13, 1999 the Registrant filed a report on Form 8-K,
dated December 30, 1998, disclosing the sale of its baking and
flour milling businesses located in Puerto Rico. This sale is
further described in Note 2 to the Consolidated Financial
Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SEABOARD CORPORATION
By /s/H. Harry Bresky By /s/Robert L. Steer
H. Harry Bresky, President Robert L. Steer, Vice President - Chief
(principal executive officer) Financial Officer (principal financial and
accounting officer)
Date: March 25, 1999 Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the
dates indicated.
By /s/H. Harry Bresky By /s/J.E. Rodrigues
H. Harry Bresky, Director J.E. Rodrigues, Director
Date: March 25, 1999 Date: March 25, 1999
By /s/David A. Adamsen By /s/Thomas J. Shields
David A. Adamsen, Director Thomas J. Shields, Director
Date: March 25, 1999 Date: March 25, 1999
SEABOARD CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements and Schedule
(Form 10-K)
Securities and Exchange Commission
For the year ended December 31, 1998
(With Independent Auditors' Report Thereon)
SEABOARD CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Financial Statements
Stockholders'
Annual Report Page
Independent Auditors' Report 25
Consolidated Statements of Earnings for the years
ended December 31, 1998, December 31, 1997 and
December 31, 1996 26
Consolidated Statements of Changes in Equity for the
years ended December 31, 1998, December 31, 1997 and
December 31, 1996 27
Consolidated Balance Sheets as of December 31, 1998
and December 31, 1997 28
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, December 31, 1997 and
December 31, 1996 30
Notes to Consolidated Financial Statements 31
The foregoing are incorporated by reference.
The individual financial statements of the nonconsolidated
foreign affiliates which would be required if each such foreign
affiliate were a Registrant are omitted, because (a) the
Registrant's and its other subsidiaries' investments in and
advances to such foreign affiliates do not exceed 20% of the
total assets as shown by the most recent consolidated balance
sheet; (b) the Registrant's and its other subsidiaries'
proportionate share of the total assets (after intercompany
eliminations) of such foreign affiliates do not exceed 20% of the
total assets as shown by the most recent consolidated balance
sheet; and (c) the Registrant's and its other subsidiaries'
equity in the earnings before income taxes and extraordinary
items of the foreign affiliates does not exceed 20% of such
income of the Registrant and consolidated subsidiaries compared
to the average income for the last five fiscal years.
Combined condensed financial information as to assets,
liabilities and results of operations have been presented for
nonconsolidated foreign affiliates in Note 5 of "Notes to the
Consolidated Financial Statements."
F-1
(Continued)
SEABOARD CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Schedule
Page
II - Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996
F-4
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related consolidated notes.
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Seaboard Corporation:
Under date of February 26, 1999, we reported on the consolidated
balance sheets of Seaboard Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated
statements of earnings, changes in equity and cash flows for each
of the years in the three-year period ended December 31, 1998, as
contained in the December 31, 1998 annual report to stockholders.
These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K
for the year ended December 31, 1998. In connection with our
audits of the aforementioned consolidated financial statements,
we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 4 to the consolidated financial statements,
the Company changed its method of accounting for spare parts and
supplies inventories in 1996.
KPMG LLP
Kansas City, Missouri
February 26, 1999
F-3
<TABLE>
<CAPTION>
Schedule II
SEABOARD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In Thousands)
Balance at Write-offs net Aquisitions Balance
beginning Provision net of and at end
of year (1) recoveries Disposals of year
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $20,658 5,902 1,790 1,347 $26,117
Year ended December 31, 1997:
Allowance for doubtful accounts $19,448 3,845 2,635 -- $20,658
Year ended December 31, 1996:
Allowance for doubtful accounts $17,088 4,122 1,762 -- $19,448
<FN>
(1) Charged to selling, general and administrative expenses.
</TABLE>
F-4
EXHIBIT 10.2
THE AMENDED AND RESTATED
SEABOARD CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
DATED JANUARY 1, 1998
Effective January 1, 1998, the Seaboard Corporation Supplemental
Executive Retirement Plan is amended and restated to read as
follows:
QUALIFICATIONS FOR ENTRY
In order to qualify for participation in the SEABOARD CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN a person must be a
participant in the Seaboard Corporation Retirement Savings Plan
with compensation in excess of the maximum compensation limit on
which qualified plan benefits may be paid pursuant to Internal
Revenue Code Section 401(a)(17), as may be amended from time to
time. Further, it is required that participants be a part of a
select group of management, who are deemed to make significant
contributions to the success of the organization, or who have
management and supervisory responsibilities for a key
organizational function, as well as the authority to make
autonomous decisions. Final approval of all participants will be
granted by the President or Executive Vice President of Seaboard
Corporation.
BENEFIT AMOUNT
All qualified plan participants are entitled to receive as
additional compensation, an amount equal to the Seaboard
Corporation's Retirement Savings Plan maximum employer match on
an after tax basis of each participant's eligible compensation in
excess of the maximum compensation limit on which qualified plan
benefits may be paid pursuant to Internal Revenue Code
Section 401(a)(17), as may be amended from time to time. For
purposes of this Plan, the term "Eligible Compensation" shall be
defined as in Section 1.10 of the Seaboard Corporation Retirement
Savings Plan, except that deferrals under any Company-sponsored
non-qualified deferred compensation arrangement shall be
considered eligible compensation under this Supplemental
Executive Retirement Plan. In addition, each such participant
will receive from the Company a "gross up" payment to reimburse
such participant for the estimated federal and state income taxes
such participant will have to pay on account of receipt of this
benefit, as determined by the Company, which determination shall
be conclusive.
By: /s/J.E. Rodrigues Date: February 11, 1999
Summary of Selected Financial Data
Seaboard Corporation and Subsidiaries
(Thousands of dollars except per share amounts) Years ended December 31,
1998 1997 1996 1995 1994
Net sales $1,779,869 $1,780,333 $1,464,362 $1,173,977 $983,804
Net earnings $ 52,355 $ 30,574 $ 5,846 $ 20,202 $ 35,201
Earnings per common share $ 35.20 $ 20.55 $ 3.93 $ 13.58 $ 23.67
Total assets $1,233,134 $1,124,385 $1,004,685 $ 878,132 $675,211
Long-term debt $ 329,469 $ 306,666 $ 297,719 $ 297,440 $177,666
Stockholders' equity $ 449,792 $ 399,015 $ 369,934 $ 365,810 $346,080
Dividends per common share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
In December 1998, the Company sold its baking and flour mill operations
in Puerto Rico, recognizing an after tax gain of $33,272,000 or $22.37 per
common share. See Note 2 to the consolidated financial statements for
further discussion.
As described in Note 4 to the consolidated financial statements, the
Company changed its method of accounting for spare parts and supplies
inventories in 1996. The cumulative effect of this change at January 1,
1996, was to increase net earnings by $3,006,000 or $2.02 per common share.
In addition, the net effect of this change in 1996, exclusive of the
cumulative effect, was to increase net earnings by $788,000 or $.53 per
common share.
Management's Discussion and Analysis
Liquidity and Capital Resources
(Dollars in millions) 1998 1997 1996
Current ratio 1.65:1 1.47:1 1.71:1
Working capital $ 235.8 168.3 204.2
Cash from operating activities $ 100.8 121.1 (72.8)
Capital expenditures $ 45.5 85.5 110.5
Long-term debt, exclusive of
current maturities $ 329.5 306.7 297.7
Total capitalization* $ 852.0 763.5 715.5
* Total capitalization is defined as stockholders' equity and
noncurrent liabilities.
Cash provided by operating activities for 1998 decreased $20.3 million
compared to 1997. The decrease in cash flows was primarily related to
changes in certain components of working capital and a decrease in net
earnings, excluding the gain on disposition of businesses. Changes in
components of working capital are primarily related to decreases in
inventory and the timing of normal transactions for voyage
settlements, trade payables and receivables. Within the Commodity
Trading and Milling segment there were fewer voyages in transit at
December 31, 1998 compared to December 31, 1997 resulting in a
decrease in deferred revenue balances and a partially offsetting
decrease in related grain inventories. In the Poultry segment, the
sell-off of a previous build-up of poultry leg quarter inventories
also contributed to the inventory decrease.
Cash provided by operating activities for 1997 increased $193.9
million compared to 1996 primarily as a result of a large increase in
current liabilities, smaller increases in accounts receivable and
inventories, and an increase in net earnings during 1997 compared to
1996. The increase in current liabilities consists primarily of
deferred revenues on incomplete voyages and various increases in other
accrued liabilities. The smaller increase in receivables during 1997
was primarily the result of smaller increases in pork and poultry
receivables and improved collections in the Transportation and Power
segments during 1997. The smaller increase in inventory was primarily
a result of the Pork segment experiencing a larger build-up of hog
inventories during 1996 than 1997.
The Company invested $45.5 million in property, plant and equipment
during 1998, of which $18.6 million was expended in the Poultry
segment, $16.3 in the Pork segment, $5.2 million in the Marine segment
and $5.4 million in other businesses of the Company.
The Company invested $18.6 million in 1998 primarily for the
completion of expansion projects at the Athens and Elberton, Georgia,
poultry facilities. During 1999, the Company anticipates spending
$55.0 million primarily to expand the Mayfield, Kentucky, and
Chattanooga, Tennessee, poultry facilities and make general upgrades
to other poultry facilities. Management anticipates these
expenditures will be funded from internally generated cash.
The Company invested $16.3 million in 1998 primarily for improvements
to the pork processing plant. The Company plans to invest $15.0
million in 1999 for general upgrades to the pork processing plant and
continued expansion of hog production facilities. The Company
previously disclosed plans to construct a second vertically integrated
pork operation and is currently making arrangements to increase annual
production to three million hogs. Management anticipates that this
increase in hog production will primarily be accomplished through a
combination of operating lease arrangements and third party contract
growers. The timing of the remaining expansion plans has not been
finalized.
Capital expenditures in the Marine segment during 1998 totaled $5.2
million for general replacement and upgrades of property and
equipment. During 1999, the Company anticipates spending $11.9
million for the purchase of two vessels currently being chartered and
for general replacement and upgrades of property and equipment.
Capital expenditures in all other segments for 1998 totaled $5.4
million in general modernization and efficiency upgrades of plant and
equipment.
During 1997, the Company invested $85.5 million in property, plant and
equipment. The Company invested $37.2 million in the Poultry segment
primarily to expand and convert the Athens, Georgia, poultry facility
from retail tray-pack production to foodservice production and to add
an additional cooking line at the Elberton, Georgia, poultry facility.
The Company invested $31.9 million in the Pork segment primarily for
improvements to the pork processing plant. Capital expenditures in the
Marine segment during 1997 totaled $9.0 million for general
replacement and upgrades of property and equipment. Capital
expenditures in all other segments for 1997 totaled $7.4 million in
general modernization and efficiency upgrades of plant and equipment.
During 1998, the Company made $45.8 million in advances to and non-
voting investments in Ingenio y Refineria San Martin del Tabacal S.A.
(Tabacal) for working capital requirements, reduction of debt, general
modernization, efficiency upgrades of plant and equipment and
expansion of sugarcane fields. During 1999, the Company plans to
invest $15.0 million in Tabacal for capital expenditures to upgrade
existing facilities and equipment and to expand sugarcane fields.
Effective December 31, 1998, the Company obtained voting control over
a majority of the capital stock of Tabacal. See Note 5 to the
consolidated financial statements for further discussion. During the
first half of 1999, management intends to increase the Company's
ownership in Tabacal. The cost is not expected to be material.
On December 30, 1998, the Company completed the sale of its baking and
flour milling businesses in Puerto Rico. These businesses were sold
for $81.4 million and the assumption of $11.8 million of liabilities
resulting in a gain of $54.5 million ($33.3 million after taxes). The
proceeds from the sale consisted of approximately $72.4 million in
cash and $9.0 million in notes receivable. See Note 2 to the
consolidated financial statements for further discussion.
In November 1998, the Company purchased a milling business in Zambia
by assuming liabilities of $10.2 million. In October 1998, the Company
purchased a controlling interest in an existing Bulgarian winery by
acquiring newly issued shares for $15.0 million. These acquisitions
were accounted for using the purchase method and would not have
significantly affected net earnings or earnings per share on a pro
forma basis.
In July 1998, the Company completed the acquisition of a 50% interest
in a flour mill in Lesotho for approximately $5.0 million. In June
1998, the Company, in 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. These investments are being accounted for
using the equity method.
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 smoked seafood and related products. The investment is
being accounted for using the equity method.
During 1998, the Company extended committed, one-year revolving credit
facilities totaling $160 million for an additional year. As discussed
in Note 5 to the consolidated financial statements, as of December 31,
1998, the Company consolidated Tabacal. This consolidation resulted in
an increase of $20 million in the Company's uncommitted lines of
credit. At December 31, 1998, the Company had $142.4 million
outstanding under the one-year revolving credit facilities totaling
$160 million and $16.6 million outstanding under the short-term
uncommitted credit lines totaling $120 million.
Subsequent to year-end, the Company's one-year revolving credit
facilities totaling $145 million maturing in 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 million was increased to $26.7 million.
As a result of the acquisitions in Bulgaria and Zambia, and the
consolidation of Tabacal, long-term debt of $42.1 million was added to
the Company's balance sheet. This long-term debt consisted of $18.3
million in current maturities of which $6.0 million was extinguished
in 1998. Management anticipates the remaining current maturities will
be paid from internally generated cash.
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
Net sales totaled $1,779.9 million for the year ended December 31,
1998, compared to sales of $1,780.3 million for the year ended
December 31, 1997. Operating income of $68.4 million for 1998
decreased $8.7 million compared to 1997.
Net sales totaled $1,780.3 million for the year ended December 31,
1997, an increase of $315.9 million compared to the year ended
December 31, 1996. Operating income of $77.1 million for 1997
increased $57.4 million compared to 1996.
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 1997 and
1996 segment information below has been reclassified to conform with
1998 presentations. See Note 12 to the consolidated financial
statements for further discussion of the adoption of SFAS 131.
Poultry Segment
(Dollars in millions) 1998 1997 1996
Net sales $ 514.5 476.6 501.7
Operating income $ 33.3 (7.0) 2.1
Net sales increased $37.9 million to $514.5 million in 1998 compared
to 1997. This increase is the result of an increase in sales volume
and higher poultry prices. Sales volume increased in 1998 as a result
of the operation for a full year of the new further processing cooking
line at the Elberton, Georgia, plant which commenced operation in the
second half of 1997. Domestic poultry prices increased in the second
half of 1998 but were somewhat offset by the effect of the Russian
economic crisis on certain export products, especially leg quarters.
Although management cannot predict poultry prices, it is anticipated
that prices will remain favorable during 1999, with the exception of
leg quarters.
Operating income increased $40.3 million to $33.3 million in 1998
compared to 1997. This increase is primarily the result of
significantly lower finished feed costs, improved sales prices and, to
a lesser extent, 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 foodservice production. This
increase was somewhat offset by increases in further processing costs
as a result of the change in sales mix. Although management cannot
predict finished feed costs, it is anticipated that feed ingredient
costs should continue to be favorable for most of 1999. Additional
expansion activities at existing facilities during 1999 could have a
short-term negative effect on financial results as construction may
temporarily halt production.
Net sales decreased $25.1 million to $476.6 million and operating
income decreased $9.1 million to $(7.0) million in 1997 compared to
1996. These decreases were a result of downtime and start-up costs
associated with converting the Company's largest plant located in
Athens, Georgia, from retail tray-pack to foodservice production. In
addition, there was a general decrease in poultry markets, especially
leg quarter prices, during 1997 compared to 1996. The decrease in
operating income was partially offset by lower finished feed costs,
primarily corn, and a reduction in packaging costs, primarily as a
result of product mix.
Pork Segment
(Dollars in millions) 1998 1997 1996
Net sales $ 500.4 531.6 234.3
Operating income $ (1.1) 38.4 (13.0)
Net sales decreased $31.2 million to $500.4 million in 1998 compared
to 1997. This decrease is the result of lower pork prices partially
offset by an increase in sales volume. Lower sales prices for most
pork products have resulted from an industry wide excess supply of
live hogs and, to a lesser extent, pricing pressure from the Asian
economic situation. The increase in sales volume is the result of the
hog processing plant operating at double-shift production during all
of 1998. The plant did not employ a second shift until part way
through the second quarter of 1997. During the third quarter of 1998,
the plant reached full capacity on a double-shift basis.
Operating income decreased $39.5 million to $(1.1) million in 1998
compared to 1997. This decrease is primarily the result of lower
prices for finished pork products without a comparable decrease in the
cost of production. This decrease was partially offset by an increase
in the percentage of cheaper third party hogs processed compared to
company raised hogs. Although management cannot predict pork prices,
it is anticipated that market conditions will be more favorable to the
Company during 1999 compared to 1998.
Net sales increased $297.3 million to $531.6 million in 1997 compared
to 1996. This increase is primarily the result of increased sales of
pork at the hog processing plant, which reached full single-shift
capacity during the second half of 1996 and commenced double-shift
operations during the second quarter of 1997. In addition, pork
prices were higher for the majority of 1997 compared to 1996.
Operating income increased $51.4 million to $38.4 million in 1997
compared to 1996. This increase is primarily the result of increased
utilization of the pork processing plant along with increased
production and weight per hog at the hog production facilities.
Marine Segment
(Dollars in millions) 1998 1997 1996
Net sales $ 310.9 309.3 265.7
Operating income $ 17.4 27.3 4.2
Net sales increased $1.6 million to $310.9 million in 1998 compared to
1997. During the first half of 1998, the Company experienced higher
cargo volumes in certain markets the Company serves. During the last
half of 1998, cargo volumes and applicable cargo rates decreased
primarily as a result of weakening economic conditions in certain
South American markets the Company serves and, to a lesser extent,
from trade disruptions relating to Hurricane Mitch in Central America
during the fourth quarter of 1998.
Operating income decreased $9.9 million to $17.4 million in 1998
compared to 1997. This decrease is primarily a result of lower cargo
volumes and rates during the last half of 1998, trade disruptions
relating to Hurricane Mitch during the fourth quarter of 1998 and, to
a lesser extent, an increase in various general and administrative
costs. Management expects that these situations will continue to have
a negative effect on financial results through at least the first half
of 1999. A new U.S. shipping law, The Ocean Reform Act of 1998, will
go into effect in May 1999 and will permit shipping companies to enter
into unregulated confidential rate agreements with shippers.
Management is not able to predict the impact of this new law on 1999
financial results.
Net sales increased $43.6 million to $309.3 million and operating
income increased $23.1 million to $27.3 million in 1997 compared to
1996. These increases are primarily the result of increased unit
cargo volumes shipped in certain markets that the Company serves and,
to a lesser extent, modestly higher container rates. During 1996,
container rates were under significant competitive pressure but
stabilized and began to improve during the fourth quarter of 1996.
Commodity Trading and Milling Segment
(Dollars in millions) 1998 1997 1996
Net sales $ 306.4 313.9 315.6
Operating income $ 10.5 9.5 17.7
Net sales decreased $7.5 million to $306.4 million in 1998 compared to
1997. This decrease is primarily the result of a decrease in
commodity prices sold in foreign markets partially offset by an
increase in tonnage sold. Operating income increased $1.0 million to
$10.5 million in 1998 compared to 1997. This increase is primarily
the result of increased income from operating certain mills in foreign
countries.
Net sales decreased $1.7 million to $313.9 million in 1997 compared to
1996. This decrease is primarily the result of a decrease in
commodity prices, mainly wheat and corn, sold in foreign markets
partially offset by an increase in tonnage sold. Operating income
decreased $8.2 million to $9.5 million in 1997 compared to 1996,
primarily as a result of lower millfeed prices in foreign markets and
increased reserves on certain foreign receivables.
Other Operations
(Dollars in millions) 1998 1997 1996
Net sales $ 147.7 148.9 147.1
Operating income $ 10.6 9.8 8.8
Net sales from other operations were almost unchanged in 1998 compared
to 1997. Operating income increased by $0.8 million in 1998 compared
to 1997 primarily as a result of lower electric power generating costs
and improved collections on foreign receivables partially offset by
shrimp operation damages from Hurricane Mitch in Honduras. Net sales
from other operations were almost unchanged in 1997 compared to 1996.
Operating income increased by $1.0 million in 1997 compared to 1996 as
a result of improved collections on foreign receivables.
As discussed in Note 2 to the consolidated financial statements, in
late 1998 the Company sold its Puerto Rican baking business and
acquired a winery in Bulgaria. In addition, Tabacal's results of
operations will be accounted for on a consolidated basis commencing in
1999. Although management cannot predict future sugar prices, it is
anticipated that market conditions will continue to have a negative
effect on Tabacal resulting in losses in 1999. Management expects the
overall result of these changes will be a decrease in sales and a
significant decrease in operating income for Other Operations in 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) totaled $147.0
million, $142.0 million and $128.8 million for the years ended
December 31, 1998, 1997 and 1996, respectively. As a percent of
revenues, SG&A increased to 8.3% in 1998 compared to 8.0% in 1997 as a
result of various cost increases in the Marine segment. As a percent
of revenues, SG&A decreased to 8.0% in 1997 compared to 8.8% in 1996
as a result of increased pork production and lower expenses in the
Marine segment.
Interest Income
Interest income totaled $7.1 million, $6.1 million and $9.1 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
The increase in 1998 is primarily the result of an increase in average
funds invested. The decrease in 1997 is primarily the result of a
decrease in average invested funds.
Interest Expense
Interest expense totaled $32.1 million, $31.1 million and $26.9
million for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase during 1997 compared to 1996 was primarily
a result of increased short-term borrowings during the year.
Loss from Foreign Affiliates
Loss from foreign affiliates totaled $(17.1) million, $(8.7) million
and $(3.0) million for the years ended December 31, 1998, 1997 and
1996, respectively. These losses are primarily attributable to the
operations of Tabacal. During 1998, losses increased from Tabacal as
a result of lower sugar prices and planned operating efficiencies and
harvest production levels not being realized. During 1997, losses
increased from Tabacal primarily as a result of the costs of upgrading
and expanding operations. As discussed above, Tabacal's results of
operations will be consolidated for 1999 and, accordingly, the loss
from foreign affiliates should decrease significantly.
Gain on Disposition of Businesses
On December 30, 1998, the Company completed the sale of its baking and
flour milling businesses in Puerto Rico resulting in a pre-tax gain of
$54.5 million ($33.3 million after taxes). See Note 2 to the
consolidated financial statements for further discussion.
Miscellaneous Income
Miscellaneous income totaled $4.4 million, $1.2 million and $1.3
million for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase during 1998 is primarily the result of
gains on the sale of fixed assets in the Marine segment as older,
fully depreciated equipment was replaced in the normal course of
business.
Income Tax Expense
In 1998, the effective tax rate increased to 39% compared to 31% in
1997. The increase is primarily attributable to an increase in loss
from foreign affiliates for which no benefit is available. The
effective tax rate for 1997 decreased compared to 1996. This decrease
was a result of increased permanently deferred foreign tax earnings
during 1997 and the effect of certain other permanent differences on
the increased level of income for 1997 compared to 1996.
Other Financial Information
The Company is subject to various federal and state regulations
regarding environmental protection and land use. Among other things,
these regulations affect the disposal of livestock waste and corporate
farming matters in general. Management believes it is in compliance
with all such material regulations. Laws and regulations in the
states where the Company currently conducts its pork operations are
becoming more restrictive. Any future changes could delay the
Company's expansion plans or increase related development costs.
Future changes in environmental or corporate farming laws could affect
the manner in which the Company operates its business and its cost
structure.
During the second quarter of 1998 the Financial Accounting Standards
Board issued 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 net earnings. The Company will adopt SFAS No. 133 during the
first quarter of fiscal 2000. Depending on market interest rates and
the types of financial hedging derivatives in place at the time of
adoption, adoption of this statement could result in significant
adjustments to the Company's balance sheet as financial derivatives
are recorded as assets or liabilities at fair value with corresponding
adjustments to Other Comprehensive Income. The Company does not
believe adoption will have a material impact on the Company's net
earnings or cash flows.
In 1998, the Company expanded the scope of its original Year 2000
assessment and has completed the assessment of its primary mainframe
computer systems, both hardware and software. Resolution of issues
identified within the primary mainframe computer systems, including
all necessary testing, is expected to be completed by mid-1999. The
Company is in the advanced stages of assessing other computer and
electronic information systems throughout its operations, with the
objective of addressing any issues deemed critical to operations by
mid-1999. 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. 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. Not all assessments are complete at this date and the
discovery of a significant Year 2000 issue unknown at this time could
materially alter this estimate.
The Company does not believe its businesses have been materially
adversely affected by general inflation.
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 decreasing prices of pork
products. 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.
The table below provides information about the Company's non-trading
financial instruments sensitive to changes in interest rates at
December 31, 1998. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected
maturity dates. Long-term debt includes foreign subsidiary
obligations of $21.5 million denominated in U.S. dollars and $14.6
million payable in Argentine pesos. The Argentine peso is currently
pegged to the U.S. dollar and accordingly, management believes there
is minimal exchange risk. For interest rate swaps, the table presents
notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contract. Weighted
average variable rates are based on rates in place at the reporting
date. Short-term instruments including short-term investments, non-
trade receivables and current notes payable have carrying values that
approximate market and are not included in this table due to their
short-term nature. The interest rate swaps listed below are used to
manage interest rate risk on certain variable rate current notes
payable, which management believes will be continuously outstanding
throughout the term of the swap agreements, and long-term debt.
Current notes payable totaled $159.0 million at December 31, 1998.
The fair value of long-term debt at December 31, 1998 was $363.4
million. The Company would be required to pay an estimated $13.0
million to terminate the exchange rate agreements at December 31,
1998.
(Dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total
Long-term debt:
Fixed rate $10,663 5,003 24,851 24,317 48,361 152,498 $265,693
Average interest rate 7.08% 10.56% 7.23% 7.06% 7.58% 7.77%
Variable rate $ 7,945 1,539 - 10,000 - 62,900 $ 82,384
Average interest rate 11.81% 5.00% - 6.07% - 4.51%
Interest rate swaps:
Variable to fixed - - - - - $200,000 $200,000
Average pay rate - - - - - 6.33% 6.33%
Average receive rate - - - - - LIBOR LIBOR
Inventories that are sensitive to changes in commodity prices,
including carrying amounts and fair values at December 31, 1998, are
presented in Note 4 to the consolidated financial statements.
Projected raw material requirements, finished product sales, and firm
sales commitments may also be sensitive to changes in commodity
prices. The tables below provide information about the Company's
derivative contracts that are sensitive to changes in commodity
prices. Although used to manage overall market risks, certain
contracts do not qualify as hedges for financial reporting purposes.
As a result, they are classified as trading instruments and carried at
fair market value. Contracts that qualify as hedges for financial
reporting purposes are classified as non-trading instruments. Gains
and losses on non-trading instruments are deferred and recognized as
adjustments of the carrying amounts of the commodities when the hedged
transaction occurs. The following tables present the notional
quantity amounts, the weighted average contract prices, the
contract maturities, and the fair value of the position of
the Company's open trading and non-trading derivatives at December 31,
1998.
<TABLE>
<CAPTION>
Trading:
Contract Volumes Wtd.-avg. Fair
Futures Quantity (000's)Units Price/Unit Maturity Value (000's)
Contracts
<S> <C> <C> <C> <C> <C>
Corn purchases - long 1,525 bushels $ 2.47 1999 $(211)
Corn sales - short 125 bushels 2.18 1999 6
Hog sales - short 600 pounds 0.38 1999 --
<CAPTION>
Contract Volumes Wtd.-avg. Exercise Fair
Option Contracts Quantity (000's)Units Price/Unit Maturity Value (000's)
<S> <C> <C> <C> <C> <C>
Corn puts written - long 3,540 bushels $ 2.11 1999 $(255)
Corn puts purchased - short 2,000 bushels 2.10 1999 53
Corn calls written - short 3,270 bushels 2.53 1999 (171)
Corn calls purchased - long 9,770 bushels 2.84 1999 146
Wheat puts written - long 1,535 bushels 3.01 1999 (176)
Wheat puts purchased - short 775 bushels 2.60 1999 22
Wheat calls written - short 400 bushels 2.93 1999 (75)
Wheat calls purchased - long 1,000 bushels 3.00 1999 33
Soybean meal calls
purchased - long 115 tons 166.30 1999 68
Hog calls written - short 800 pounds 0.48 1999 (11)
Non-trading:
<CAPTION>
Contract Volumes Wtd.-avg. Fair
Futures Contracts Quantity (000's)Units Price/Unit Maturity Value (000's)
<S> <C> <C> <C> <C> <C>
Corn purchases - long 2,075 bushels $ 2.22 1999 $(170)
Corn sales - short 1,485 bushels 2.24 1999 156
Wheat purchases - long 1,200 bushels 3.32 1999 (25)
Wheat sales - short 1,000 bushels 3.33 1999 27
Soybean purchases - long 1,350 bushels 5.77 1999 (479)
Soybean sales - short 1,025 bushels 5.79 1999 390
Soybean meal purchases - long 40 tons 146.84 1999 (262)
Soybean meal sales - short 36 tons 148.78 1999 306
</TABLE>
The table below provides information about the Company's financial
instrument and related derivative financial instrument sensitive to
foreign currency exchange rates, consisting of a Japanese Yen (Yen)
denominated note obligation and a foreign currency forward exchange
agreement. Information is presented in U.S. dollar equivalents. The
table presents the notional amounts and weighted average exchange rate
by contractual maturity date. The notional amount is generally used
to calculate the contractual payments to be exchanged under the
contract. Due to the short-term nature of these instruments, their
carrying and contract values approximate market.
(Dollars in thousands) 1999
Short-term notes payable:
Variable rate (Yen) $16,560
Average interest rate 5.85%
Related derivative:
Forward exchange agreement, including projected
interest due at maturity (receive Yen/pay $US) $16,616
Exchange rate 116.63
Quarterly Financial Data
(Unaudited)
Seaboard Corporation and Subsidiaries
(Thousands of dollars 1st 2nd 3rd 4th Total for
except per share amounts) Quarter Quarter Quarter Quarter the Year
1998
Net sales $446,532 454,645 438,909 439,783 $1,779,869
Operating income $ 12,261 19,256 21,507 15,340 $ 68,364
Net earnings $ 2,864 7,932 5,018 36,541 $ 52,355
Earnings per common share $ 1.93 5.33 3.37 24.57 $ 35.20
Dividends per common share $ .25 .25 .25 .25 $ 1.00
Market price range per common share:
High $ 435 375 1/16 336 445
Low $ 365 265 1/2 261 256
1997
Net sales $400,180 449,366 429,610 501,177 $1,780,333
Operating income $ 16,120 24,209 23,234 13,512 $ 77,075
Net earnings $ 5,336 10,505 10,508 4,225 $ 30,574
Earnings per common share $ 3.59 7.06 7.06 2.84 $ 20.55
Dividends per common share $ .25 .25 .25 .25 $ 1.00
Market price range per common share:
High $ 268 292 316 453
Low $ 230 1/4 247 1/2 264 309
In the fourth quarter of 1998, the Company sold its baking and flour
milling operations in Puerto Rico, recognizing an after-tax gain of
$33,272,000 or $22.37 per common share. See Note 2 to the consolidated
financial statements for further discussion.
Responsibility for Financial Statements
The consolidated financial statements appearing in this
annual report have been prepared by the Company in conformity
with generally accepted accounting principles and necessarily
include amounts based upon judgments with due consideration given
to materiality.
The Company relies on a system of internal accounting
controls that is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance
with Company policy and are properly recorded, and accounting
records are adequate for preparation of financial statements and
other information. The concept of reasonable assurance is based
on recognition that the cost of a control system should not
exceed the benefits expected to be derived and such evaluations
require estimates and judgments. The design and effectiveness of
the system are monitored by a professional staff of internal
auditors.
The consolidated financial statements have been audited by
the independent accounting firm of KPMG LLP, whose responsibility
is to examine records and transactions and to gain an
understanding of the system of internal accounting controls to
the extent required by generally accepted auditing standards and
render an opinion as to the fair presentation of the consolidated
financial statements.
The board of directors pursues its review of auditing,
internal controls and financial statements through its audit
committee, consisting of a majority of directors who are not
employed by the Company. In the exercise of its responsibilities,
the audit committee meets annually with management, with the
internal auditors and with the independent accountants to review
the scope and results of examinations. Both the internal auditors
and independent accountants have free access to the committee
with or without the presence of management.
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets
of Seaboard Corporation and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of earnings,
changes in equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Seaboard Corporation and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the consolidated financial
statements, the Company changed its method of accounting for
spare parts and supplies inventories in 1996.
KPMG LLP
Kansas City, Missouri
February 26, 1999
Seaboard Corporation and Subsidiaries
Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
Years ended December 31,
1998 1997 1996
Net sales $1,779,869 $1,780,333 $1,464,362
Cost of sales and operating expenses 1,564,536 1,561,265 1,315,782
Gross income 215,333 219,068 148,580
Selling, general and administrative expenses 146,969 141,993 128,835
Operating income 68,364 77,075 19,745
Other income (expense):
Interest income 7,072 6,127 9,095
Interest expense (32,062) (31,108) (26,864)
Loss from foreign affiliates (17,105) (8,733) (2,966)
Gain on disposition of businesses 54,544 -- --
Miscellaneous 4,449 1,221 1,292
Total other income (expense), net 16,898 (32,493) (19,443)
Earnings before income taxes and
cumulative effect of a change in
accounting principle 85,262 44,582 302
Income tax (expense) benefit (32,907) (14,008) 2,538
Earnings before cumulative effect of
a change in accounting principle 52,355 30,574 2,840
Cumulative effect of changing the
accounting for inventories, net of income tax
expense of $1,922 -- -- 3,006
Net earnings $ 52,355 $ 30,574 $ 5,846
Earnings per common share:
Earnings before cumulative effect of a change
in accounting principle $ 35.20 $ 20.55 $ 1.91
Cumulative effect of changing the
accounting for inventories -- -- 2.02
Earnings per common share $ 35.20 $ 20.55 $ 3.93
See accompanying notes to consolidated financial statements.
<TABLE>
Seaboard Corporation and Subsidiaries
Consolidated Statements of Changes in Equity
(Thousands of dollars except per share amounts)
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
Accumulated
Other
Common Treasury Additional Comprehensive Retained Comprehensive
Stock Stock Capital Income Earnings Income
<S> <C> <C> <C> <C> <C> <C>
Balances,January 1,1996 $ 1,790 $(302) $ 13,214 $ 251 $350,857
Net earnings -- -- -- -- 5,846 $ 5,846
Other comprehensive income,
net of income tax benefit of $142 -- -- -- (235) -- (235)
Comprehensive income -- -- -- -- -- 5,611
Dividends on common stock
($1.00 per share) -- -- -- -- (1,487)
Balances, December 31, 1996 1,790 (302) 13,214 16 355,216
Net earnings -- -- -- -- 30,574 30,574
Other comprehensive income,
net of income tax benefit of $3 -- -- -- (6) -- (6)
Comprehensive income -- -- -- -- -- 30,568
Dividends on common stock
($1.00 per share) -- -- -- -- (1,487)
Balances, December 31, 1997 1,790 (302) 13,214 10 384,303
Net earnings -- -- -- -- 52,355 52,355
Other comprehensive income,
net of income tax benefit of $56 -- -- -- (91) -- (91)
Comprehensive income -- -- -- -- -- $ 52,264
Dividends on common stock
($1.00 per share) -- -- -- -- (1,487)
Balances, December 31, 1998 $ 1,790 $(302) $ 13,214 $ (81) $435,171
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Seaboard Corporation and Subsidiaries
Consolidated Balance Sheets
(Thousands of dollars)
December 31,
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 20,716 $ 8,552
Short-term investments 155,763 108,744
Receivables:
Trade 160,229 169,990
Due from foreign affiliates 25,319 16,041
Other 22,152 10,267
207,700 196,298
Allowance for doubtful receivables (26,117) (20,658)
Net receivables 181,583 175,640
Inventories 214,846 211,024
Deferred income taxes 14,604 9,730
Prepaid expenses and deposits 13,757 15,545
Total current assets 601,269 529,235
Investments in and advances to foreign affiliates 28,416 93,668
Net property, plant and equipment 559,749 486,373
Other assets 33,700 15,109
Total Assets $1,223,134 $1,124,385
See accompanying notes to consolidated financial statements.
Seaboard Corporation and Subsidiaries
Consolidated Balance Sheets
(Thousands of dollars)
December 31,
Liabilities and Stockholders' Equity 1998 1997
Current liabilities:
Notes payable to banks $ 158,980 $ 157,445
Current maturities of long-term debt 18,608 6,843
Accounts payable 73,481 78,805
Accrued liabilities 77,868 55,520
Deferred revenues 15,384 42,958
Accrued payroll 21,143 19,331
Total current liabilities 365,464 360,902
Long-term debt, less current maturities 329,469 306,666
Deferred income taxes 44,147 27,943
Other liabilities 28,580 29,859
Total non-current and deferred liabilities 402,196 364,468
Minority interest 5,682 --
Commitments and contingent liabilities
Stockholders' equity:
Common stock of $1 par value. Authorized
4,000,000 shares; issued 1,789,599 shares
including 302,079 shares of treasury stock 1,790 1,790
Shares held in treasury (302) (302)
1,488 1,488
Additional capital 13,214 13,214
Accumulated other comprehensive income (81) 10
Retained earnings 435,171 384,303
Total stockholders' equity 449,792 399,015
Total Liabilities and Stockholders' Equity $1,223,134 $1,124,385
See accompanying notes to consolidated financial statements.
Seaboard Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of dollars)
Years ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 52,355 $ 30,574 $ 5,846
Adjustments to reconcile net earnings
to cash from operating activities:
Depreciation and amortization 58,564 56,896 50,914
Loss from foreign affiliates 17,105 8,733 2,966
Deferred income taxes 10,884 2,719 9,301
Gain from sale of fixed assets (3,278) (1,334) (1,977)
Gain from disposition of businesses (54,544) -- --
Changes in current assets and liabilities
(net of businesses acquired and disposed):
Receivables, net of allowance 9,982 (19,711) (66,575)
Inventories 36,164 (25,323) (72,858)
Prepaid expenses and deposits (770) (1,215) (79)
Current liabilities exclusive of debt (24,855) 64,529 (1,825)
Other, net (759) 5,242 1,525
Net cash from operating activities 100,848 121,110 (72,762)
Cash flows from investing activities:
Purchase of investments (446,868) (277,437) (327,020)
Proceeds from the sale of investments 311,433 193,303 300,265
Proceeds from the maturity of investments 85,053 65,754 71,202
Capital expenditures (45,543) (85,482) (110,491)
Investments in and advances to foreign
affiliates (48,586) (41,834) (6,476)
Proceeds from the sale of fixed assets 10,953 7,872 31,831
Notes receivable 496 163 719
Investment in domestic affiliate (2,500) -- --
Acquisition of businesses (net of cash
acquired) (1,388) -- --
Proceeds from disposition of businesses 72,359 -- --
Net cash from investing activities (64,591) (137,661) 39,970)
Cash flows from financing activities:
Notes payable to banks, net (15,025) 7,288 116,342
Proceeds from issuance of long-term debt -- 10,213 10,000
Principal payments of long-term debt (7,581) (1,323) (12,394)
Deferred grant revenue -- -- 350
Dividends paid (1,487) (1,487) (1,487)
Bond construction fund -- (1,055) 5,859
Net cash from financing activities (24,093) 13,636 118,670
Net change in cash and cash equivalents 12,164 (2,915) 5,938
Cash and cash equivalents at beginning of year 8,552 11,467 5,529
Cash and cash equivalents at end of year $ 20,716 $ 8,552 $ 11,467
See accompanying notes to consolidated financial statements.
Seaboard Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note 1
Summary of Significant Accounting Policies
Operations of Seaboard Corporation and its Subsidiaries
Seaboard Corporation and its subsidiaries (the Company) is a
diversified international agribusiness and transportation company primarily
engaged in domestic poultry and pork production and processing, and cargo
shipping. Overseas, the Company is primarily engaged in commodity
merchandising, flour and feed milling, produce farming, sugar production,
and electric power generation. Seaboard Flour Corporation is the owner of
75.3% of the Company's outstanding common stock.
Principles of Consolidation and Investments in Affiliates
The consolidated financial statements include the accounts of Seaboard
Corporation and its domestic and foreign subsidiaries. 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. Financial information from certain
foreign subsidiaries and affiliates is reported on a one-to three-month lag
depending on the specific entity.
Short-term Investments
Short-term investments are retained for future use in the business and
include time deposits, commercial paper, tax-exempt bonds, corporate bonds
and U.S. government obligations. All short-term investments held by the
Company are categorized as available-for-sale and are reported at fair value
with unrealized gains and losses reported, net of tax, as a component of
accumulated other comprehensive income. The cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income.
Inventories
The Company uses the lower of last-in, first-out (LIFO) or market for
determining cost for poultry and baking product inventories. All other
inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are being
depreciated generally on the straight-line method over useful lives ranging
from 3 to 45 years. Property, plant and equipment leases which are deemed
to be installment purchase obligations have been capitalized and included in
the property, plant and equipment accounts. Maintenance, repairs and minor
renewals are charged to operations while major renewals and improvements are
capitalized.
Deferred Grant Revenue
Included in other liabilities at December 31, 1998 and 1997 is
$11,127,000 and $11,550,000, respectively, of deferred grant revenue.
Deferred grant revenue represents economic development funds contributed to
the Company by government entities that were limited to construction of a
hog processing facility in Guymon, Oklahoma. Deferred grants are being
amortized to income over the life of the assets acquired with the funds.
Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities.
Comprehensive Income
The Company retroactively adopted Statement of Financial Accounting
Standards (SFAS) 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 years ended December 31,
1998, 1997 and 1996, other comprehensive income adjustments were not
material and consisted of unrealized gains on available-for-sale securities
and foreign currency cumulative translation adjustments, net of tax. The
adoption of this statement had no effect on the previously reported net
earnings or stockholders' equity.
Revenue Recognition
The Company recognizes revenue on commercial exchanges at the time
title to the goods transfers to the buyer. Revenue of the Company's
containerized cargo service is recognized ratably over the transit time for
each voyage.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Impairment of Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the asset to
future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Earnings Per Common Share
Earnings per common share are based upon the average shares outstanding
during the period. Average shares outstanding were 1,487,520 for each of
the three years ended December 31, 1998, 1997 and 1996, respectively. Basic
and diluted earnings per share are the same for all periods presented.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all demand deposits and overnight investments as cash equivalents.
Included in accounts payable are outstanding checks in excess of cash
balances of $19,997,000 and $22,487,000 at December 31, 1998 and 1997,
respectively. The amounts paid (received) for income taxes and interest are
as follows:
Years ended December 31,
(Thousands of dollars) 1998 1997 1996
Interest (net of amounts capitalized) $ 32,135 30,284 27,120
Income taxes $ 10,308 (6,817) (10,362)
Supplemental Noncash Transactions
As more fully described in Notes 2 and 5, during 1998 the Company
purchased two businesses, consolidated a previously non-controlled foreign
affiliate and disposed of its Puerto Rican baking and flour milling
operations. The following table summarizes the noncash transactions
resulting from the acquisitions and consolidation of the foreign affiliate:
Year ended December 31,
(Thousands of dollars) 1998
Increase in other working capital $ 38,539
Decrease in investments in and advances to foreign affiliates (96,733)
Increase in fixed assets 114,867
Increase in other net assets 9,198
Increase in notes payable and long-term debt (58,801)
Minority interest (5,682)
Cash paid, net of cash acquired and consolidated $ 1,388
The following table summarizes the noncash transactions resulting from the
disposition of businesses:
Year ended December 31,
(Thousands of dollars) 1998
Decrease in short-term investments $ 3,429
Decrease in other working capital 1,303
Decrease in fixed assets 19,736
Decrease in other net assets 1,347
Long-term note receivable from sale (8,000)
Gain on disposal 54,544
Proceeds from disposition of businesses $72,359
Foreign Currency
The Company has operations in and transactions with customers in
a number of foreign countries. The currencies of the countries
fluctuate in relation to the U.S. dollar. Most of the Company's
major contracts and transactions, however, are denominated in U.S.
dollars. In addition, the value of the U.S. dollar fluctuates in relation
to the currencies of countries where certain of the Company's foreign
subsidiaries and affiliates primarily conduct business. These fluctuations
result in exchange gains and losses. The activities of these foreign
subsidiaries and affiliates are
primarily conducted with U.S. subsidiaries or they operate in hyper-
inflationary environments. As a result, the Company translates the
financial statements of certain foreign subsidiaries and affiliates using
the U.S. dollar as the functional currency. The exchange gains and losses
reported in earnings were not material for the years ended December 31,
1998, 1997 and 1996. Foreign currency exchange restrictions imposed upon
the Company's foreign subsidiaries and foreign affiliates do not have a
significant effect on the consolidated financial position of the Company.
Certain foreign subsidiaries use local currency as their functional
currency. Assets and liabilities of these subsidiaries are translated to
U.S. dollars at year-end exchange rates, and income and expense items are
translated at average rates for the year. Resulting translation gains and
losses were not material for the years ended December 31, 1998, 1997 and
1996. Translation gains and losses are recorded as components of
accumulated other comprehensive income.
Financial Instruments
The Company enters into interest rate exchange agreements which involve
the exchange of fixed-rate and variable-rate interest payments over the life
of the agreements without the exchange of the underlying notional amounts to
hedge the effects of fluctuations in interest rates. These agreements
effectively convert specifically identified, variable-rate debt into fixed-
rate debt. The Company also has a foreign currency exchange agreement to
manage a foreign currency exchange risk on a short-term note which is
payable in foreign currency. Differences to be paid or received are accrued
as interest or exchange rates change and are recognized as an adjustment to
interest expense. See Note 8 for a description of outstanding exchange rate
agreements.
Gains and losses on termination of interest rate exchange agreements
are deferred and recognized over the term of the underlying debt instrument
as an adjustment to interest expense. At December 31, 1998 and 1997, net
deferred gains on terminated interest rate exchange agreements were not
material. In cases where there is no remaining underlying debt instrument,
gains and losses on termination are recognized currently in miscellaneous
income (expense).
Commodity Instruments
The Company enters into forward purchase and sale contracts, futures and
options to manage its exposure to price fluctuations in the commodity
markets. These commodity instruments generally involve the anticipated
purchase of feed grains and the sale of hogs. At December 31, 1998, the
Company had net contracts to purchase 11.9 million bushels of grain and
119,000 tons of meal, and net contracts to sell 1.4 million pounds of hogs.
Gains and losses on commodity instruments designated as hedges and for
which there is high correlation between changes in the value of the
instrument and changes in the value of the hedged commodity are deferred and
ultimately recognized in operations as part of the cost of the commodity.
Gains and losses on qualifying hedges of firm commitments or probable
anticipated transactions are also deferred and recognized as adjustments of
the carrying amounts of the commodities when the hedged transaction occurs.
When a qualifying hedge is terminated or ceases to meet the specific
criteria for use of hedge accounting, any deferred gains or losses through
that date continue to be deferred. Commodity instruments not qualifying as
hedges for financial reporting purposes are marked to market and included in
cost of sales in the consolidated statements of earnings. For the years
ended December 31, 1998, 1997 and 1996, losses on commodity contracts
reported in operating income were $5,583,000, $1,557,000 and $12,881,000,
respectively. At December 31, 1998, the net deferred gain on commodity
instruments was $92,000, compared to a net deferred loss at December 31,
1997 of $689,000. These amounts are included in deferred revenues in the
consolidated balance sheets. Cash flows from commodity instruments are
classified in the same category as cash flows from the hedged commodities in
the consolidated statements of cash flows.
Note 2
Acquisitions and Dispositions of Businesses
In October 1998, the Company purchased a controlling interest in an
existing Bulgarian winery by acquiring newly issued shares for $15,000,000.
In November 1998, the Company purchased a flour and feed milling operation
in Zambia by assuming liabilities of approximately $10,232,000. These
acquisitions were accounted for using the purchase method and would not have
significantly affected sales, net earnings or earnings per share on a pro
forma basis.
On December 30, 1998, the Company completed the sale of its Puerto Rican
baking and flour milling businesses, to a management group led by the
President of the baking businesses. These assets were sold for $81,359,000
and the assumption of $11,770,000 in liabilities. The proceeds consisted of
$72,359,000 in cash, an $8,000,000 interest bearing subordinated note
receivable due in 2004, and a $1,000,000 interest bearing note receivable
subsequently collected in the first quarter of 1999. The Company recognized
a pre-tax gain of $54,544,000 ($33,272,000 after tax) in connection with
this transaction.
The following pro forma unaudited financial data reflects the pro forma
impact on the Company's results of operations as if the sale was consummated
at the beginning of each year presented, excluding the gain on the sale,
with pro forma adjustments to give effect to reducing short-term borrowings,
interest income earned on short-term investments and certain other
adjustments, together with related income tax effects:
Years ended December 31,
(Thousands of dollars, except per share amounts) 1998 1997
Net sales $1,688,693 1,686,356
Net earnings $ 17,545 28,474
Earnings per share $ 11.79 19.14
The pro forma financial information is not necessarily indicative of
the results of operations that would have occurred had the sale been
consummated on the dates assumed, nor are they necessarily indicative of
future operating results.
Note 3
Short-term Investments
Substantially all available-for-sale securities have contractual
maturities within two years and are available to meet current operating
needs. The amortized cost of these investments approximates fair value at
December 31, 1998 and 1997. The gross realized gains and losses on sales of
available-for-sale securities were not material for the years ended December
31, 1998, 1997 and 1996. The following is a summary of the estimated fair
value of available-for-sale securities at December 31, 1998 and 1997:
December 31,
(Thousands of dollars) 1998 1997
U.S. Treasury securities
and obligations of U.S.
government agencies $ 39,265 $ 27,321
Obligations of states and
political subdivisions 60,877 50,587
Other debt securities 55,621 30,836
Total debt securities $ 155,763 $ 108,744
Note 4
Inventories
During the fourth quarter of 1996, the Company changed its method of
accounting for spare parts and supplies used in its poultry and pork
processing operations, retroactively effective as of January 1, 1996.
Previously, these spare parts and supplies were expensed when purchased.
Under the new method, such purchases are recorded as inventory and charged
to operations when used. Due to the growth of these inventories, primarily
as a result of completion of the new pork processing plant in Oklahoma, the
Company believes the new method is preferable as it provides a better
matching of revenues and expenses. The cumulative effect of this accounting
change at January 1, 1996 was to increase net earnings by $3,006,000 or
$2.02 per common share. The net effect of this accounting change was to
increase earnings before cumulative effect of change in accounting principle
by $788,000 or $.53 per common share for the year ended December 31, 1996.
A summary of inventories at the end of each year is as follows:
December 31,
(Thousands of dollars) 1998 1997
At lower of LIFO cost or market:
Live poultry $ 24,840 $ 27,116
Dressed poultry 22,961 32,496
Feed and baking ingredients, packaging
supplies and other 5,813 6,970
53,614 66,582
LIFO allowance 2,811 (4,744)
Total inventories at lower of LIFO cost
or market 56,425 61,838
At lower of FIFO cost or market:
Live hogs 75,887 76,484
Grain, flour and feed 8,196 37,575
Crops in production and related materials 17,133 11,166
Dressed pork 8,486 8,388
Processed sugar 20,125 -
Other 28,594 15,573
Total inventories at lower of FIFO cost
or market 158,421 149,186
Total inventories $ 214,846 $ 211,024
The use of the LIFO method increased net earnings in 1998, 1997 and
1996 by $4,609,000 ($3.10 per share), $766,000 ($.52 per share) and $589,000
($.40 per share), respectively. Significant decreases in commodity prices
during 1998 have eliminated the LIFO reserve as overall poultry feed costs
have decreased below base year levels. The increases in net earnings during
1997 and 1996 were primarily the result of declining purchase prices. If
the FIFO method had been used, inventories would have been $2,811,000 lower
and $4,744,000 higher than those reported at December 31, 1998 and 1997,
respectively.
Note 5
Investments in and Advances to Foreign Affiliates
The Company has made investments in and advances to non-controlled
foreign affiliates primarily conducting business in flour milling, feed
milling, and sugar production. The foreign affiliates are located in the
Democratic Republic of Congo, Lesotho, Mozambique, Nigeria and Sierra Leone
in Africa; Argentina and Ecuador in South America; and Haiti in the
Caribbean. These investments are accounted for by the equity method. See
further discussion below concerning consolidation of the sugar production
operation as of December 31, 1998.
The Company's investments in foreign affiliates are primarily carried
at the Company's equity in the underlying net assets of each subsidiary.
Certain of these foreign affiliates operate under restrictions imposed by
local governments which limit the Company's ability to have significant
influence on their operations. These restrictions have resulted in a loss
in value of these investments and advances that is other than temporary.
The Company suspended the use of the equity method for these investments and
recognized the impairment in value by a charge to earnings in years prior to
1996.
In July 1998, the Company acquired for $5,000,000 a non-controlling
interest in a flour mill in Lesotho. In June 1998, the Company, in a joint
venture with two other partners, acquired an interest in a flour mill in
Haiti. The Company made an investment of $3,000,000 for a minority interest
in the joint venture, which in turn owns 70% of a Haitian company which owns
the flour mill. These investments are being accounted for using the equity
method.
In October 1996, the Company acquired for $4,600,000 a non-controlling
interest in a flour mill located in Mozambique. The Company paid $1,000,000
at closing with the balance to be paid in installments over the next six
years. The Company accounts for this investment using the equity method.
In July 1996, the Company purchased for $8,800,000 a non-controlling
interest in Ingenio y Refineria San Martin del Tabacal S.A. (Tabacal).
Tabacal is an Argentine company primarily engaged in growing and refining
sugarcane and, to a lesser extent, citrus production. Through December 31,
1998, the Company had made net advances to and non-voting investments in
Tabacal of $113,399,000 for working capital, improvements to existing
operations, expansion of sugarcane and citrus fields and reduction of debt.
The Company accounted for this investment using the equity method from July
1996 through December 1998. Effective December 31, 1998, the Company
obtained voting control over a majority of the capital stock of Tabacal.
Accordingly, as of December 31, 1998, Tabacal is accounted for as a
consolidated subsidiary resulting in the elimination of $96,733,000 in
investments in and advances to foreign affiliates on the balance sheet. See
Notes 1 and 8 for further discussion of the effects of the consolidation on
the balance sheet.
Sales of grain and supplies to non-consolidated foreign affiliates are
included in consolidated net sales for the years ended December 31, 1998,
1997, and 1996, and amounted to $107,424,000, $79,946,000, and $83,007,000
respectively.
Combined condensed financial information of the non-controlled, non-
consolidated foreign affiliates for their fiscal periods ended within each
of the Company's years ended, excluding Tabacal's balance sheet as of
December 31, 1998, are as follows:
December 31,
(Thousands of dollars) 1998 1997 1996
Net sales $217,362 208,340 191,600
Net loss $(20,497) (13,831) (6,089)
Total assets $137,381 240,511 215,512
Total liabilities $ 72,995 193,094 157,484
Total equity $ 64,386 47,417 58,028
Note 6
Property, Plant and Equipment
A summary of property, plant and equipment at the end of each year is as
follows:
December 31,
(Thousands of dollars) 1998 1997
Land and improvements $ 74,025 $ 49,031
Buildings and improvements 191,671 173,031
Machinery and equipment 511,171 411,037
Transportation equipment 80,573 84,614
Office furniture and fixtures 14,172 13,604
Construction in progress 6,078 39,971
877,690 771,288
Accumulated depreciation and amortization (317,941) (284,915)
Net property, plant and equipment $ 559,749 $ 486,373
Approximately $252,000, $184,000 and $855,000 of interest costs were
capitalized as part of property, plant and equipment in the years ended
December 31, 1998, 1997 and 1996, respectively.
Note 7
Income Taxes
Total income taxes for the years ended December 31, 1998, 1997 and 1996
differ from the amounts computed by applying the statutory U.S. Federal
income tax rate to earnings before income taxes and cumulative effect of a
change in accounting principle for the following reasons:
Years ended December 31,
(Thousands of dollars) 1998 1997 1996
Computed tax expense on earnings before
income taxes and cumulative effect of
a change in accounting principle $ 29,842 $ 15,604 $ 105
Adjustments to tax expense attributable to:
Foreign tax differences 7,680 705 (3,789)
Tax-exempt investment income (730) (621) (603)
State income taxes, net of Federal benefit 1,018 700 820
Other (4,903) (2,380) 929
$ 32,907 $ 14,008 $ (2,538)
The components of total income taxes are as follows:
Years Ended December 31,
(Thousands of dollars) 1998 1997 1996
Current:
Federal $ 1,620 $ 4,341 $ (17,853)
Foreign (including Puerto Rico) 17,125 6,469 5,403
State and local 1,372 479 611
Deferred:
Federal 12,368 3,036 8,680
Foreign (including Puerto Rico) 110 (730) (380)
State and local 312 413 1,001
Income tax expense (benefit) 32,907 14,008 (2,538)
Cumulative effect of changing the
accounting for inventories -- -- 1,922
Unrealized changes in other comprehensive
income (56) (3) (142)
Total income taxes $ 32,851 $ 14,005 $ (758)
Components of the net deferred income tax liability at the end of each year
are as follows :
December 31,
(Thousands of dollars) 1998 1997
Deferred income tax liabilities:
Cash basis farming adjustment $ 18,084 $ 19,036
Deferred earnings of foreign subsidiaries 4,819 1,688
Depreciation 52,853 39,840
Other 775 581
76,531 61,145
Deferred income tax assets:
Reserves/accruals 40,001 29,492
Foreign losses 3,165 3,606
Other 5,972 11,984
49,138 45,082
Valuation allowance 2,150 2,150
Net deferred income tax liability $ 29,543 $ 18,213
The Company believes that its future taxable income will be sufficient
for full realization of the deferred tax assets. The valuation allowance
represents accumulated losses on certain foreign subsidiaries that will not
be recognized without future liquidation or sale of these subsidiaries.
At December 31, 1998 and 1997 current income taxes payable totaled
$17,231,000 and $7,422,000, respectively.
At December 31, 1998 and 1997, no provision has been made in the
accounts for Federal income taxes which would be payable if the
undistributed earnings of certain foreign subsidiaries were distributed to
the Company since management has determined that the earnings are
permanently invested in these foreign operations. Should such accumulated
earnings be distributed, the resulting Federal income taxes would amount to
approximately $33,500,000.
Note 8
Notes Payable and Long-term Debt
Notes payable amounting to $158,980,000 and $157,445,000 at December
31, 1998 and 1997, respectively, consisted of obligations due banks within
one year. At December 31, 1998, these funds were outstanding under the
Company's one-year revolving credit facilities totaling $160 million and
short-term uncommitted credit lines from banks totaling $120 million, less
outstanding letters of credit commitments totaling $7.0 million. Subsequent
to year-end, the Company's one-year revolving credit facilities totaling
$145 million maturing in the first quarter of 1999 were increased to $153.3
million and extended for an additional year. Weighted average interest
rates on the notes payable were 6.18% and 6.63% at December 31, 1998 and
1997, respectively.
As a result of an acquisition and the consolidation of a previously
unconsolidated foreign affiliate, as discussed in Notes 2 and 5,
respectively, long-term debt of $42,149,000 was added to the Company's
balance sheet. This long-term debt consisted of $18,330,000 in current
maturities of which $6,000,000 was extinguished as of December 31, 1998. In
addition, as a result of the consolidation discussed in Note 5, the Company
added to its balance sheet $16,560,000, payable in Japanese Yen (Yen),
included in notes payable above and outstanding under a $20 million
uncommitted line of credit. At December 31, 1998, the Company had foreign
exchange contracts in place effectively fixing the exchange rate on this
$16,560,000 note payable at 116.63 Yen to one U.S. dollar.
Subsequent to year-end, the Company's existing five-year revolving
credit facility totaling $25 million was increased to $26.7 million.
Notes payable, the revolving credit facilities and uncommitted credit
lines from banks are unsecured and do not require compensating balances.
Facility fees on these agreements are not material.
A summary of long-term debt at the end of each year is as follows:
December 31,
(Thousands of dollars) 1998 1997
Private placements:
6.49% senior notes, due 2001 through 2005 $ 100,000 $ 100,000
7.88% senior notes, due 2003 through 2007 125,000 125,000
Industrial Development Revenue Bonds (IDRBs),
floating rates (4.35% - 4.65% at
December 31, 1998) due through 2027 62,900 62,900
Revolving credit facility, floating rate
(6.07% at December 31, 1998) due 2002 10,000 10,000
Foreign subsidiary obligations
(9.00% - 14.50%) due 1999 through 2007 26,665 -
Foreign subsidiary obligations, floating rates
(5.00% - 15.50%) due 1999 through 2000 9,484 -
Term loan, 3.00%, due 1999 5,415 5,700
Capital lease obligations and other 8,613 9,909
348,077 313,509
Current maturities of long-term debt (18,608) (6,843)
Long-term debt, less current maturities $ 329,469 $ 306,666
Of the foreign subsidiary obligations, $21,532,000 are denominated in
U.S. dollars and the remaining $14,617,000 is payable in Argentine pesos.
At December 31, 1998, poultry processing facilities with a depreciated
cost of $17,861,000, and Argentine land and sugar production facilities and
equipment with a depreciated cost of $23,672,000, secure certain bond issues
and foreign subsidiary debt. Included in other assets at December 31, 1998
and 1997 are $1,477,000 and $1,371,000, respectively, of unexpended bond
proceeds held in trust that are invested in accordance with the bond
issuance agreements.
The terms of the note agreements pursuant to which the senior notes,
IDRBs, term loan and revolving credit facilities were issued require, among
other terms, the maintenance of certain ratios and minimum net worth, the
most restrictive of which requires the ratio of consolidated funded debt to
consolidated shareholders' equity, as defined, not to exceed .90 to 1, and
the maintenance of consolidated tangible net worth, as defined, of not less
than $250,000,000. The Company is in compliance with all restrictive debt
covenants relating to these agreements as of December 31, 1998.
At December 31, 1998 and 1997, the Company had interest rate exchange
agreements in place effectively fixing the interest rate on $200 million of
variable rate debt to a fixed, weighted-average rate of 6.33%. These
contracts expire in 2007. The Company monitors the risk of default by the
counterparty and does not anticipate nonperformance. For the year ended
December 31, 1998, ownership of these agreements increased interest expense
by $1,108,000. The effect on interest expense in 1997 was not material.
Annual maturities of long-term debt at December 31, 1998 are as follows:
$18,608,000 in 1999, $6,542,000 in 2000, $24,851,000 in 2001, $34,317,000 in
2002, $48,361,000 in 2003, and $215,398,000 thereafter.
Note 9
Fair Value of Financial Instruments
The fair value of the Company's short-term investments is based on
quoted market prices at the reporting date for these or similar investments.
At December 31, 1998 and 1997 the fair value of the Company's short-term
investments was $155,763,000 and $108,744,000, respectively, with an
amortized cost of $155,682,000 and $108,729,000 at December 31, 1998 and
1997, respectively.
The fair value of long-term debt is determined by comparing interest
rates for debt with similar terms and maturities. At December 31, 1998 and
1997 the fair value of the Company's long-term debt was $363,414,000 and
$316,746,000, respectively, with a carrying value of $348,077,000 and
$313,509,000 at December 31, 1998 and 1997, respectively. The fair values
of interest rate exchange agreements are obtained from dealer quotes. These
values represent the estimated amount the Company would receive or pay to
terminate the agreements. The Company would be required to pay an estimated
$13,000,000 to terminate the exchange agreements at December 31, 1998.
Other financial instruments consisting of cash and cash equivalents, net
receivables, notes payable, and accounts payable are carried at cost, which
approximates fair value, as a result of the short-term nature of the
instruments.
Note 10
Employee Benefits
The Company maintains defined benefit pension plans for its domestic
salaried, clerical and poultry employees. The Company also sponsors non-
qualified, unfunded supplemental executive plans. The plans generally
provide for normal retirement at age 65 and eligibility for participation
after one year's service upon attaining the age of 21. The Company bases
pension contributions on funding standards established by the Employee
Retirement Income Security Act of 1974. Benefits are generally based upon
the number of years of service and a percentage of final average pay. Plan
assets are invested in equity securities, fixed income bonds and short-term
cash equivalents. The changes in the plans' benefit obligations and fair
value of assets for the years ended December 31, 1998 and 1997, and a
statement of the funded status as of December 31, 1998 and 1997 were as
follows:
December 31,
(Thousands of dollars) 1998 1997
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $ 37,672 $ 32,143
Service cost 2,822 2,670
Interest cost 2,692 2,402
Actuarial losses 1,581 2,551
Benefits paid (2,187) (2,094)
Divestitures (see Note 2) (10,351) -
Benefit obligation at end of year $ 32,229 $ 37,672
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of year $ 32,391 $ 29,808
Actual return on plan assets 3,677 4,120
Employer contributions 1,091 534
Benefits paid (2,132) (2,071)
Divestitures (see Note 2) (6,995) -
Fair value of plan assets at end of year $ 28,032 $ 32,391
Funded status $ (4,197) $ (5,281)
Unrecognized transition obligation 1,215 1,400
Unamortized prior service cost (2,188) (1,932)
Unrecognized net actuarial gains (3,437) (3,091)
Accrued benefit cost $ (8,607) $ (8,904)
Assumptions used in determining pension information were:
Years ended December 31,
1998 1997 1996
Weighted-average assumptions:
Discount rate 7.25% 7.50% 7.75%
Expected return on plan assets 8.75% 8.75% 8.50-9.00%
Long-term rate of increase in
compensation levels 4.50% 4.25-4.50% 4.25-4.50%
The net periodic benefit cost of these plans was as follows:
Years ended December 31,
(Thousands of dollars) 1998 1997 1996
Components of net periodic benefit cost:
Service cost $ 2,822 $ 2,670 $ 1,874
Interest cost 2,692 2,403 2,204
Expected return on plan assets (2,833) (2,523) (2,258)
Amortization and other (80) (107) 51
Net periodic benefit cost $ 2,601 $ 2,443 $ 1,871
As of December 31, 1998, the projected benefit obligation and
accumulated benefit obligation for unfunded pension plans were $2,561,000
and $2,143,000, respectively. As of December 31, 1997, the projected
benefit obligation, accumulated benefit obligation and fair value of plan
assets for pension plans with accumulated benefit obligation in excess of
plan assets were $10,723,000, $9,106,000 and $5,878,000, respectively.
During 1997, a new non-qualified, unfunded supplemental executive
retirement plan was adopted amending and restating a previous plan. For
disclosure purposes, the new plan is included in the 1998 and 1997 section
of the defined benefit tables above while expenses related to the prior plan
are included in the 1996 supplemental discussion below.
The Company has certain individual, non-qualified, unfunded
supplemental retirement agreements for certain executive employees. Pension
expense for these plans was $514,000, $574,000, and $3,128,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Included in other
liabilities at December 31, 1998 and 1997 is $8,207,000 and $8,903,000,
respectively, representing the accrued benefit obligation for these plans.
The Company maintains a defined contribution plan covering most of its
domestic salaried and clerical employees. The Company contributes to the
plan an amount equal to 100% of employee contributions up to a maximum of 3%
of employee compensation. Employee vesting is based upon years of service
with 20% vested after one year of service and an additional 20% vesting with
each additional complete year of service. Contribution expense was
$1,698,000, $1,466,000, and $1,294,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
Note 11
Commitments and Contingencies
The Company leases various ships, facilities and equipment under
noncancelable operating lease agreements.
In addition, the Company is a party to master lease programs with
limited partnerships which own certain of the facilities used by the Company
in connection with its hog production. These arrangements are accounted for
as operating leases. Under these arrangements, the Company has certain
rights to acquire any or all of the leased properties at the conclusion of
their respective lease terms at a price based on estimated fair market value
of the property. In the event the Company does not acquire any property
which it has ceased to lease, the Company has a limited obligation to the
lessors for any deficiency between the amortized cost of the property and
the price for which it is sold up to a specific amount.
Rental expense for operating leases amounted to $59,221,000,
$50,436,000, and $45,591,000 in 1998, 1997 and 1996, respectively. Minimum
lease commitments under noncancelable leases with initial terms greater than
one year at December 31, 1998, were $30,519,000 for 1999, $19,131,000 for
2000, $12,911,000 for 2001, $9,713,000 for 2002, $8,107,000 for 2003, and
$33,541,000 thereafter. It is expected that, in the ordinary course of
business, leases will be renewed or replaced.
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
$47,600,000 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.
Note 12
Segment Information
The Company retroactively adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" for the year ended
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. Comparative information
for prior years presented has been restated to conform to the requirements
of SFAS 131.
Seaboard Corporation has four reportable segments: Poultry, Pork,
Marine, and Commodity Trading and Milling, each offering a specific product
or service. The Poultry segment sells fresh, frozen, value-added, and
further processed poultry products mainly to foodservice companies and
restaurants both domestically and overseas. The Pork segment sells fresh
and value-added pork products mainly to further processors and foodservice
companies both domestically and overseas. The Marine segment, primarily
based out of the Port of Miami, offers containerized cargo shipping services
throughout Latin America and the Caribbean. The Commodity Trading and
Milling segment sources bulk and bag commodities primarily overseas and
operates foreign flour and feed mills. Revenues from all other segments are
primarily derived from operations including produce farming, baking (sold in
December 1998, see Note 2), wine production, and the generation of
electricity. Each of the four main segments is separately managed and each
was started or acquired independent of the other segments.
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.
<TABLE>
<CAPTION>
(Thousands of dollars) 1998
Commodity
Trading Segment
Poultry Pork Marine and Milling All Other Totals
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $ 514,503 500,357 310,903 306,406 147,700 $1,779,869
Operating income $ 33,281 (1,122) 17,379 10,505 10,624 $ 70,667
Total assets $ 188,558 387,699 99,609 129,071 291,562 $1,096,499
Depreciation and amortization $ 18,085 20,676 8,451 2,985 7,763 $ 57,960
Capital expenditures $ 18,630 16,304 5,151 1,162 3,279 $ 44,526
Reconciliations to consolidated totals:
<CAPTION>
Segment Corporate Consolidating Consolidated
Totals Items Adjustment Totals
<S> <C> <C> <C> <C>
Sales to external customers $1,779,869 - - $1,779,869
Operating income $ 70,667 (2,303) - $ 68,364
Total assets $1,096,499 169,323 (42,688) $1,223,134
Depreciation and amortization $ 57,960 604 - $ 58,564
Capital expenditures $ 44,526 1,017 - $ 45,543
<CAPTION>
(Thousands of dollars) 1997
Commodity
Trading Segment
Poultry Pork Marine and Milling All Other Totals
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $ 476,580 531,587 309,306 313,900 148,960 $1,780,333
Operating income $ (6,997) 38,378 27,297 9,542 9,788 $ 78,008
Total assets $ 194,287 403,739 104,622 154,966 147,174 $1,004,788
Depreciation and amortization $ 15,150 20,225 9,476 3,037 7,835 $ 55,723
Capital expenditures $ 37,158 31,850 9,020 1,464 5,762 $ 85,254
Reconciliations to consolidated totals:
<CAPTION>
Segment Corporate Consolidating Consolidated
Totals Items Adjustment Totals
<S> <C> <C> <C> <C>
Sales to external customers $1,780,333 - - $1,780,333
Operating income $ 78,008 (933) - $ 77,075
Total assets $1,004,788 139,870 (20,273) $1,124,385
Depreciation and amortization $ 55,723 1,173 - $ 56,896
Capital expenditures $ 85,254 228 - $ 85,482
<CAPTION>
(Thousands of dollars) 1996
Commodity
Trading Segment
Poultry Pork Marine and Milling All Other Totals
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $ 501,710 234,291 265,645 315,610 147,106 $1,464,362
Operating income $ 2,090 (13,004) 4,226 17,763 8,803 $ 19,878
Total assets $ 168,327 374,237 96,511 131,189 133,438 $ 903,702
Depreciation and amortization $ 13,885 12,700 11,806 3,196 8,264 $ 49,851
Capital expenditures $ 12,391 83,044 8,582 1,935 3,749 $ 109,701
Reconciliations to consolidated totals:
<CAPTION>
Segment Corporate Consolidating Consolidated
Totals Items Adjustment Totals
<S> <C> <C> <C> <C>
Sales to external customers $1,464,362 - - $1,464,362
Operating income $ 19,878 (133) - $ 19,745
Total assets $ 903,702 113,397 (12,414) $1,004,685
Depreciation and amortization $ 49,851 1,063 - $ 50,914
Capital expenditures $ 109,701 790 - $ 110,491
</TABLE>
Administrative services provided by the corporate office are primarily
allocated to the individual segments based on revenues. Corporate assets
include short-term investments, investments in subsidiaries (eliminated in
consolidation), 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.
Geographic Information
No individual foreign country accounts for 10% or more of sales to
external customers. The following table provides a geographic summary of
the Company's net sales based on the location of product delivery:
Years ended December 31,
(Thousands of dollars) 1998 1997 1996
United States $1,092,868 $1,074,209 $ 845,437
Caribbean, Central and South America 336,957 315,729 302,877
Africa 126,169 160,349 166,332
Pacific Basin and Far East 76,328 90,244 42,042
Canada/Mexico 72,017 48,682 30,877
Eastern Mediterranean 40,830 37,382 33,502
Europe 34,700 53,738 43,295
Total $1,779,869 $1,780,333 $1,464,362
The following table provides a geographic summary of the Company's long-
lived assets according to their physical location and primary port for
Company owned vessels:
December 31,
(Thousands of dollars) 1998 1997 1996
United States $420,351 $ 457,262 $434,162
Argentina 103,968 -- --
All other 35,430 29,111 31,999
Total $559,749 $ 486,373 $466,161
At December 31, 1998 and 1997, the Company had approximately
$81,005,000 and $77,472,000, respectively, of foreign receivables, excluding
receivables due from foreign affiliates, which represent more of a
collection risk than the Company's domestic receivables. The Company
believes that its allowance for doubtful receivables is adequate.
EXHIBIT 21
SUBSIDIARIES NAMES UNDER STATE OR OTHER
OF THE WHICH SUBSIDIARIES JURISDICTION
REGISTRANT DO BUSINESS OF INCORPORATION
A & W Interlining American Interlining Maryland
Services Corp. Company
Western Coat Pad Company
African Coffee ACC Democratic Republic
Company, S.P.R.L. of Congo
Agencia Maritima Same Costa Rica
del Istmo, S.A.
Agencias Generales Conaven Venezuela
Conaven, C.A.
Almacenadora Conaven, S.A. Same Venezuela
Atlantic Salmon (Maine) Same Maine
Limited LIability Company*
Cape Fear Railways, Inc. Same North Carolina
Cayman Freight Shipping Same Cayman Islands
Services, Ltd.*
Chestnut Hill Farms, Inc. Same Florida
Chestnut Hill Farms Honduras, Same Honduras
S.A. de C.V.
Consorcio Naviero de Occidente, Conaven Venezuela
C.A.
Cultivos Marinos, S.A. de C.V. CUMAR Honduras
Delta Packaging Company Ltd.* Same Nigeria
Desarrollo Industrial DIBSA Ecuador
Bioacuatico, S.A.*
Ducktrap River Fish Farm, Same Maine
L.L.C.*
Empacadora Litoral, S.A. Same Honduras
S.A. de C.V.
Globe International Holdings, Same Nigeria
S.A.*
Guymon Housing Partners Same Oklahoma
Limited Partnership*
H&O Shipping Limited Same Liberia
Haiti Agro Processors Holdings, Same Cayman Islands
Ltd*
Ingenio y Refineria San Martin Tabacal Argentina
del Tabacal
Les Moulins d'Haiti S.E.M. Same Haiti
(LHM)*
Lesotho Flour Mills Limited* Same Lesotho
EXHIBIT 21
(continued)
Life Flour Mill Ltd.* Same Nigeria
Minoterie de Matadi, S.A.R.L.* Same Democratic Republic
of Congo
Mobeira, SARL* Same Mozambique
Molinos Champion, S.A.* Mochasa Ecuador
Molinos del Ecuador, C.A.* Molidor Ecuador
National Milling Company of Same Guyana
Guyana, Ltd.
National Milling Company Limited Same Zambia
Port of Miami Cold Storage, Inc. Same Florida
Representaciones Maritimas y Remarsa Guatemala
Aereas, S.A.
Samovar International Finance, Same Puerto Rico
Inc.
SASCO Engineering Co./
Seaboard Sales Corporation Same Bermuda
Sea Cargo, S.A. Same Panama
Seaboard de Colombia, S.A. Same Colombia
Seaboard de Honduras, S.A. Same Honduras
S.A. de C.V.
Seaboard del Peru, S.A. Same Peru
Seaboard Farms of Athens, Seaboard Farms of
Inc. Athens Inc.
Jordan Hatchery Georgia
Seaboard Farms of Chattanooga, Same Tennessee
Inc.
Seaboard Farms of Elberton, Seaboard Farms of
Inc. Elberton, Inc.
Seaboard Farms of Canton Georgia
Seaboard Farms of Kentucky, Inc. Same Kentucky
Seaboard Farms of Minnesota, Inc. Same Minnesota
Seaboard Farms of Orlando, Inc. Same Florida
Seaboard Farms, Inc. Same Oklahoma
Seaboard Guyana, Ltd. Same Bermuda
Seaboard Holdings Ltd. Same British Virgin
Islands
EXHIBIT 21
(continued)
Seaboard Marine Bahamas, Ltd. Same Bahamas
Seaboard Marine Ltd. Same Liberia
Seaboard Marine of Florida, Inc. Same Florida
Seaboard Overseas Limited Same Bahamas
S.B.D., LLC Same Delaware
Seaboard Ship Management Inc. Same Florida
Seaboard Shipping Services (PTY) Ltd. Same South Africa
Seaboard Trading and Shipping Ltd. Same Minnesota
Seaboard Trading de Mexico, S.A. Same Mexico
S.A. de C.V.
Seaboard Transport Inc. Same Oklahoma
Seaboard West Africa Limited* Same Sierra Leone
Seadom, S.A.* Same Dominican Republic
Secuador Limited Same Bermuda
Shilton Limited Same Cayman Islands
Top Feeds Limited* Same Nigeria
Transcontinental Capital Corp.
(Bermuda) Ltd. Same Bermuda
Vinprom Rousse AD Same Bulgaria
Zenith Investments, Ltd.* Same Nigeria
*Represents a non-controlled, non-consolidated affiliate.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
1998 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 20716
<SECURITIES> 155763
<RECEIVABLES> 207700
<ALLOWANCES> 26117
<INVENTORY> 214846
<CURRENT-ASSETS> 601269
<PP&E> 877690
<DEPRECIATION> 317941
<TOTAL-ASSETS> 1223134
<CURRENT-LIABILITIES> 365464
<BONDS> 329469
0
0
<COMMON> 1488
<OTHER-SE> 448304
<TOTAL-LIABILITY-AND-EQUITY> 1223134
<SALES> 1779869
<TOTAL-REVENUES> 1779869
<CGS> 1564536
<TOTAL-COSTS> 1564536
<OTHER-EXPENSES> 146969
<LOSS-PROVISION> 5902
<INTEREST-EXPENSE> 32062
<INCOME-PRETAX> 85262
<INCOME-TAX> 32907
<INCOME-CONTINUING> 52355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52355
<EPS-PRIMARY> 35.20
<EPS-DILUTED> 35.20
</TABLE>
