UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 676-8800
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ___.
There were 1,487,520 shares of common stock, $.01 par value
per share, outstanding on July 28, 2000.
Total pages in filing - 19 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(Thousands of dollars)
(Unaudited)
June 30, December 31,
2000 1999
Assets
Current assets:
Cash and cash equivalents $ 19,285 $ 11,039
Short-term investments 185,972 91,609
Receivables, net 169,201 171,931
Inventories 199,601 192,847
Deferred income taxes 16,545 15,031
Prepaid expenses and deposits 21,581 20,395
Current assets of discontinued operations - 103,464
Total current assets 612,185 606,316
Investments in and advances to foreign affiliates 34,373 28,449
Net property, plant and equipment 577,757 480,415
Other assets 29,902 30,204
Non-current assets of discontinued operations - 132,407
Total assets $1,254,217 $1,277,791
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 67,093 $ 221,353
Current maturities of long-term debt 14,346 11,487
Accounts payable 39,864 61,529
Other current liabilities 149,761 103,697
Current liabilities of discontinued operations - 24,013
Total current liabilities 271,064 422,079
Long-term debt, less current maturities 329,621 318,017
Deferred income taxes 68,219 41,948
Other liabilities 33,981 34,924
Non-current liabilities of discontinued operations - 16,824
Total non-current and deferred liabilities 431,821 411,713
Minority interest 343 831
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued 1,789,599 shares 1,790 1,790
Less 302,079 shares held in treasury (302) (302)
1,488 1,488
Additional capital 13,214 13,214
Accumulated other comprehensive income 1,849 (201)
Retained earnings 534,438 428,667
Total stockholders' equity 550,989 443,168
Total liabilities and stockholders' equity $1,254,217 $1,277,791
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three months ended June 30, 2000 and 1999
(Thousands of dollars except per share amounts)
(Unaudited)
June 30, June 30,
2000 1999
Net sales $ 386,268 $ 308,981
Cost of sales and operating expenses 342,491 280,301
Gross income 43,777 28,680
Selling, general and administrative expenses 31,549 27,618
Operating income 12,228 1,062
Other income (expense):
Interest income 3,166 1,918
Interest expense (8,091) (7,545)
Loss from foreign affiliates (793) (595)
Minority interest 222 349
Miscellaneous 3,083 640
Total other income (expense), net (2,413) (5,233)
Earnings (loss) from continuing operations
before income taxes 9,815 (4,171)
Income tax (expense) benefit (4,331) (24)
Earnings (loss) from continuing operations 5,484 (4,195)
Earnings from discontinued operations,
net of income taxes of $3,857 - 6,353
Net earnings $ 5,484 $ 2,158
Earnings (loss) per common share
from continuing operations $ 3.68 $ (2.82)
Earnings per common share
from discontinued operations - 4.27
Earnings per common share $ 3.68 $ 1.45
Dividends declared per common share $ .25 $ .25
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Six months ended June 30, 2000 and 1999
(Thousands of dollars except per share amounts)
(Unaudited)
June 30, June 30,
2000 1999
Net sales $ 747,791 $ 565,917
Cost of sales and operating expenses 658,569 513,626
Gross income 89,222 52,291
Selling, general and administrative expenses 58,959 50,824
Operating income 30,263 1,467
Other income (expense):
Interest income 7,518 3,770
Interest expense (17,377) (16,017)
Loss from foreign affiliates (1,382) (510)
Minority interest 488 823
Miscellaneous 7,128 1,218
Total other income (expense), net (3,625) (10,716)
Earnings (loss) from continuing operations
before income taxes 26,638 (9,249)
Income tax (expense) benefit (11,295) 622
Earnings (loss) from continuing operations 15,343 (8,627)
Earnings from discontinued operations,
net of income taxes of $6,177 - 10,173
Gain on disposal of discontinued operations,
net of income taxes of $56,560 91,172 -
Net earnings $ 106,515 $ 1,546
Earnings (loss) per common share
from continuing operations $ 10.31 $ (5.80)
Earnings per common share
from discontinued operations 61.29 6.84
Earnings per common share $ 71.60 $ 1.04
Dividends declared per common share $ .50 $ .50
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(Thousands of dollars)
(Unaudited)
June 30, June 30,
2000 1999
Cash flows from operating activities:
Net earnings $106,515 $ 1,546
Adjustments to reconcile net earnings to
cash from operating activities:
Net earnings from discontinued operations - (10,173)
Net gain on disposal of discontinued operations (91,172) -
Depreciation and amortization 23,404 21,776
Loss from foreign affiliates 1,382 510
Gain from sale of fixed assets (565) (993)
Gain from recognition of deferred swap proceeds (3,760) -
Deferred income taxes 18,748 1,548
Changes in current assets and liabilities
(net of businesses acquired and disposed):
Receivables, net of allowance 2,730 (8,998)
Inventories 5,103 (28,203)
Prepaid expenses and deposits (1,186) (8,120)
Current liabilities exclusive of debt (44,552) (9,870)
Other, net 546 2,473
Net cash from operating activities 17,193 (38,504)
Cash flows from investing activities:
Purchase of investments (990,907) (269,547)
Proceeds from the sale or maturity of investments 899,847 322,727
Capital expenditures (53,485) (30,451)
Proceeds from sale of fixed assets 3,979 2,375
Additional investment in a controlled subsidiary - (2,302)
Investments in and advances to foreign affiliates (7,306) (1,210)
Acquisition of businesses (42,019) -
Proceeds from disposal of discontinued operations,
net of cash expenditures 356,107 -
Net cash from investing activities 166,216 21,592
Cash flows from financing activities:
Notes payable to bank, net (154,260) 19,615
Principal payments of long-term debt (20,159) (1,223)
Dividends paid (744) (744)
Net cash from financing activities (175,163) 17,648
Net cash flows from discontinued operations - (1,312)
Net change in cash and cash equivalents 8,246 (576)
Cash and cash equivalents at beginning of year 11,039 20,716
Cash and cash equivalents at end of quarter $ 19,285 $ 20,140
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of Seaboard
Corporation and its domestic and foreign subsidiaries (the "Company").
As more fully described in Note 2, the Company sold its Poultry
Division effective January 3, 2000. Accordingly, comparative 1999
financial results and notes have been restated to reflect the Poultry
Division as a discontinued operation. All significant intercompany
balances and transactions have been eliminated in consolidation. The
Company's investments in non-controlled affiliates are accounted for
by the equity method. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 1999, an
amended version of which is anticipated to be filed in its Annual
Report on Form 10-K/A at the earliest practical date (see Produce
Division restatement discussion below).
The accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
financial position, results of operations and cash flows. Results of
operations for interim periods are not necessarily indicative of
results to be expected for a full year.
In August 2000, the Company announced that its management had
discovered that assets of its Produce Division had been overstated in
prior periods due to accounting errors and irregularities in the
Produce Division's books and records. The overstatements related
primarily to the crops in production and related materials in Honduras
as reported by the Miami headquarters of the Produce Division. After
consultation with the Company's independent auditors, management
determined to restate the Company's financial statements for each of
the prior periods effected as presented below. Financial statements
and related disclosures contained in this report reflect, where
appropriate, changes to conform to these restatements. The Company
plans to amend the applicable previous filings at the earliest
practical date. The Company expects such filings will reflect the
following:
(Thousands of dollars) Net Earnings Restatement Net Earnings
For the Year Ended: as Reported Adjustment as Restated
December 31, 1999 $ 240 (193) $ 47
December 31, 1998 $ 52,355 (1,417) $ 50,938
December 31, 1997 $ 30,574 (1,495) $ 29,079
December 31, 1996 $ 5,846 (458) $ 5,388
December 31, 1995 $ 20,202 (1,694) $ 18,508
(Thousands of dollars) Net Earnings Restatement Net Earnings
For the Quarter Ended: as Reported Adjustment as Restated
March 31, 2000 $ 101,233 (202) $101,031
December 31, 1999 $ (3,770) 119 $ (3,651)
September 30, 1999 $ 2,262 (110) $ 2,152
June 30, 1999 $ 2,056 102 $ 2,158
March 31, 1999 $ (308) (304) $ (612)
December 31, 1998 $ 36,541 182 $ 36,723
September 30, 1998 $ 5,018 (956) $ 4,062
June 30, 1998 $ 7,932 (585) $ 7,347
March 31, 1998 $ 2,864 (58) $ 2,806
(Thousands of dollars) Total Shareholders'
Restated amounts as of: Assets Equity
March 31, 2000 $1,310,248 $ 544,508
December 31, 1999 $1,277,791 $ 443,168
December 31, 1998 $1,215,897 $ 444,728
December 31, 1997 $1,119,327 $ 395,368
December 31, 1996 $1,001,927 $ 367,782
December 31, 1995 $ 876,079 $ 364,116
For the three and six months ended June 30, 2000, other comprehensive
income adjustments totaled $1.4 million and $2.1 million,
respectively. For the three and six months ended June 30, 1999, other
comprehensive income adjustments totaled $(0.1) million and $(0.1)
million, respectively. These adjustments consist primarily of an
unrealized gain on available-for-sale securities.
As more fully described in Note 2, during the first six months of 2000
the Company sold its Poultry Division and acquired the assets of an
existing hog production operation and a cargo terminal facility. The
following table summarizes the noncash transactions resulting from the
Poultry Division sale:
Six Months Ended
(Thousands of dollars) June 30, 2000
Decrease in net assets of discontinued operation $195,034
Decrease in net working capital (including current
income tax liability) 65,145
Increase in deferred income tax liability 4,756
Gain on disposition, net of income taxes 91,172
Proceeds from disposition, net of cash expenditures $356,107
The following table summarizes the noncash transactions resulting from
the acquisition of the hog production operation and cargo terminal
facility:
Six Months Ended
(Thousands of dollars) June 30, 2000
Increase in net working capital $ 8,654
Increase in fixed assets 70,887
Increase in other assets 600
Increase in long-term debt (34,622)
Increase in other liabilities (3,500)
Cash paid $ 42,019
Note 2 - Acquisitions and Dispositions of Businesses
Effective January 3, 2000, the Company completed the sale of its
Poultry Division to ConAgra, Inc. for $375 million, consisting of the
assumption of approximately $16 million in indebtedness and the
remainder in cash, subject to certain adjustments. The sale resulted
in a pre-tax gain of approximately $148 million ($91 million after
taxes). This gain is based on certain estimates including a final
working capital adjustment and construction costs the Company is
required to fund in 2000 to complete certain expansion projects on
behalf of the buyer. Any differences between these estimates and
their actual settlement will change the gain accordingly.
The Company's 1999 financial results have been restated to reflect the
Poultry Division as a discontinued operation. The amounts exclude
general corporate overhead previously allocated to the Poultry
Division for segment reporting purposes. The amounts include interest
on debt at the Poultry Division assumed by the buyer and an allocation
of the interest on the Company's general credit facilities based on a
ratio of the net assets of the discontinued operations to the total
net assets of the Company plus existing debt under the Company's
general credit facilities.
During the first quarter of 2000, the Company purchased the assets of
an existing hog production operation for approximately $75 million,
consisting of $34 million in cash and the assumption of $34 million in
debt, $4 million of currently payable liabilities and $3 million
payable over the next four years. The transaction was accounted for
using the purchase method and would not have significantly affected
net earnings or earnings per share on a pro forma basis.
During the second quarter of 2000, the Company purchased the assets of
a cargo terminal facility for approximately $9.1 million consisting of
$8.2 million in cash, including transaction expenses, and the
assumption of $0.9 million in debt. The transaction was accounted for
using the purchase method and would not have significantly affected
net earnings or earnings per share on a pro forma basis.
Note 3 - Inventories
During 1999 the Company changed its method of accounting for certain
inventories of the Pork Division from FIFO to LIFO, retroactive to
January 1, 1999. The following is a summary of inventories at June
30, 2000 and December 31, 1999 (in thousands):
June 30, December 31,
2000 1999
At lower of LIFO cost or market:
Live hogs and related materials $100,603 $ 75,662
Dressed pork and related materials 6,940 8,360
107,543 84,022
LIFO allowance 5,660 4,026
Total inventories at lower of LIFO cost
or market 113,203 88,048
At lower of FIFO cost or market:
Grain, flour and feed 34,853 41,772
Sugar produced and in process 17,652 22,398
Crops in production and related materials 6,109 7,490
Wine and spirits, finished and in process 12,686 12,555
Other 15,098 20,584
Total inventories at lower of FIFO cost
or market 86,398 104,799
Total inventories $199,601 $192,847
Low commodity prices during 2000 and 1999 have eliminated the LIFO
allowance as overall pork feed costs have decreased below base year
levels. This change in LIFO allowance is reflected in earnings as a
reduction in cost of sales.
Note 4 - Contingencies
The Company is a defendant in a pending arbitration proceeding and
related litigation in Puerto Rico brought by the owner of a chartered
barge and tug which were damaged by fire after delivery of the cargo.
Damages of $47.6 million are alleged. The Company received a ruling
in the arbitration proceeding in its favor which dismisses the
principal theory of recovery although the ruling has been appealed.
The Company believes that the ruling will be upheld on appeal and it
will have no responsibility for the loss.
During the first quarter of 2000, the Company resolved to the mutual
satisfaction of all parties litigation brought in federal court by a
third-party hog supplier claiming breach of agreement, common law
fraud and violation of the federal RICO statute and the Company's
counterclaims in this litigation. The resolution did not have a
material effect on the Company's financial position, results of
operations or cash flows.
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 5 - Segment Information
The following tables set forth specific financial information about
each segment as reviewed by the Company's management. Operating
income for segment reporting is prepared on the same basis as that
used for consolidated operating income. Operating income is used as
the measure of evaluating segment performance because management does
not consider interest and income tax expense on a segment basis.
During the fourth quarter of 1999, the Company changed its method of
accounting for certain inventories of the Pork segment from FIFO to
LIFO, retroactively effective as of January 1, 1999. Quarterly data
for 1999 has been restated accordingly.
The Sugar and Citrus segment represents Ingenio y Refineria San Martin
del Tabacal S.A. (Tabacal), an Argentine company primarily engaged in
growing and refining sugarcane and, to a lesser extent, citrus
production. The entire Argentine sugar industry is experiencing
financial difficulties, with Tabacal and certain large competitors
incurring operating losses because Argentine sugar prices are below
historical levels. As a result of these recent operating losses for
Tabacal, at year-end 1999 the Company evaluated the recoverability of
Tabacal's long-lived assets and believes that the value of those
assets is presently recoverable. However, any further long-term
decline in sugar prices would likely result in the carrying values not
being recoverable, which would result in a material charge to earnings
for the impairment of these assets.
As a result of recent operating losses, management is considering
various strategic alternatives for portions of its Produce Division
(included in "All Other" below). Continued losses in this operation
could result in a determination that the carrying values of certain
assets are not recoverable, resulting in a charge to earnings for the
impairment of any such assets.
Sales to External Customers
Three Months Ended Six Months Ended
June 30, June 30,
(Thousands of dollars) 2000 1999 2000 1999
Pork $180,628 $136,055 $355,886 $256,218
Marine 87,633 71,983 164,484 142,204
Commodity Trading and Milling 86,678 72,656 166,528 114,355
Sugar and Citrus 14,792 9,999 24,551 15,131
Power 6,756 5,657 13,362 10,605
Wine 1,331 3,519 3,435 6,879
All Other 8,450 9,112 19,545 20,525
Segment/Consolidated Totals $386,268 $308,981 $747,791 $565,917
Operating Income
Three Months Ended Six Months Ended
June 30, June 30,
(Thousands of dollars) 2000 1999 2000 1999
Pork $ 17,900 $ 10,326 $ 40,410 $ 12,919
Marine 3,058 (3,233) 2,534 (878)
Commodity Trading and Milling (45) 558 876 1,896
Sugar and Citrus (1,132) (4,922) (3,800) (8,800)
Power 1,601 1,626 2,988 2,891
Wine (1,504) (1,172) (3,399) (2,215)
All Other (6,764) (107) (7,553) (600)
Segment Totals 13,114 3,076 32,056 5,213
Corporate Items (886) (2,014) (1,793) (3,746)
Consolidated Totals $ 12,228 $ 1,062 $ 30,263 $ 1,467
Total Assets
June 30, December 31,
(Thousands of dollars) 2000 1999
Pork $ 487,602 $ 401,316
Marine 94,651 97,561
Commodity Trading and Milling 160,099 161,477
Sugar and Citrus 168,002 167,972
Power 61,767 21,068
Wine 25,359 29,156
All Other 38,146 38,931
Segment Totals 1,035,626 917,481
Corporate items 218,591 124,439
Discontinued Poultry Operations - 235,871
Consolidated Totals $1,254,217 $1,277,791
Administrative services provided by the corporate office are primarily
allocated to the individual segments based on the size and nature of
their operations. Corporate assets include short-term investments,
certain investments in and advances to foreign affiliates, fixed
assets, deferred tax amounts and other miscellaneous items. Corporate
operating losses represent certain operating costs not specifically
allocated to individual segments and, in 1999, general corporate
overhead previously allocated to the discontinued Poultry operations
as discussed in Note 2.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
As more fully described in Note 2 to the Condensed Consolidated
Financial Statements, the Company completed the sale of its Poultry
Division to ConAgra, Inc. effective January 3, 2000. As a result, the
Company's 1999 financial results have been restated to reflect the
Poultry Division as a discontinued operation. In August 2000, the
Company announced that its management had recently discovered that
assets of its Produce Division had been overstated in prior periods
and, as a result, management determined to restate the Company's
financial statements for each of the prior periods effected. The
discussions and figures below are based on the restated presentation.
LIQUIDITY AND CAPITAL RESOURCES
June 30, December 31,
2000 1999
Current ratio 2.26:1 1.44:1
Working capital $341.1 $184.2
Cash from operating activities for the six months ended June 30, 2000
increased $55.7 million compared to the same period one year earlier.
The increase in cash flows was primarily related to an increase in net
earnings from continuing operations and, to a lesser extent, changes
in components of working capital. Changes in components of working
capital, net of businesses acquired and disposed, are primarily
related to the timing of normal transactions for voyage settlements,
trade payables and receivables. Within the Commodity Trading and
Milling segment there was a lower value of inventory in transit at
June 30, 2000 than at December 31, 1999 resulting in decreases in
grain inventory and a partially offsetting decrease in deferred
revenue balances. At June 30, 1999 there was a higher value of
inventory in transit than at December 31, 1998, resulting in an
increase in inventory balances and a partially offsetting increase in
deferred revenue balances.
Cash from investing activities for the six months ended June 30, 2000
increased $144.6 million compared to the same period one year earlier.
The increase is primarily related to proceeds from the sale of
discontinued poultry operations, partially offset by acquisitions,
capital expenditures and net purchases of investments. See Note 2 to
the Condensed Consolidated Financial Statements for further discussion
of the Poultry Division sale and the acquisition of the assets of a
hog production operation and cargo terminal facility.
The Company invested $53.5 million in property, plant and equipment
for the six months ended June 30, 2000, of which $8.4 million was
expended in the Pork segment, $3.8 million in the Marine segment, $7.0
million in the Sugar and Citrus segment, $30.5 million in the Power
segment and $3.8 million in other businesses of the Company.
The Company invested $8.4 million in the Pork segment primarily for
the expansion of existing hog production facilities and for
improvements to the pork processing plant. The Company plans to
invest $17.9 million over the next six months for continued expansion
of hog production facilities and general upgrades to the pork
processing plant.
The Company invested $3.8 million in the Marine segment primarily for
container and other material handling equipment. The Company plans to
invest $6.5 million over the next six months for additional equipment.
The Company invested $7.0 million in the Sugar and Citrus segment
primarily for improvements to existing facilities and sugarcane
fields. Over the next six months, the Company anticipates spending
$3.1 million for additional improvements.
The Company invested $30.5 million in the Power segment primarily for
the construction of a 71.2 megawatt barge-mounted power plant to be
located in the Dominican Republic. Construction costs are expected to
total approximately $50 million.
During the first quarter of 2000, the Company purchased a minority
interest in a flour and feed mill operation in Kenya for $7.5 million.
This transaction was accounted for using the equity method.
In the first quarter of 2000, the Company's one-year revolving credit
facilities totaling $153.3 million maturing in the first quarter of
2000 were reduced to $141.0 million and extended for an additional
year and the short-term uncommitted credit lines totaling $145.0
million were reduced to $132.5 million. In the second quarter of
2000, short-term uncommitted credit lines were reduced an additional
$10.0 million to $122.5 million. As of June 30, 2000, the Company had
$30.0 million outstanding under one-year revolving credit facilities
and $37.1 million outstanding under short-term uncommitted credit
lines. During the first six months of 2000, the Company repaid
approximately $174.4 million in notes payable, industrial development
revenue bonds and other debt primarily with proceeds from the Poultry
Division sale. As a result of these repayments, approximately $3.8
million in unamortized proceeds from prior terminations of interest
rate agreements related to these notes were recognized as
miscellaneous income.
Management intends to continue seeking opportunities for expansion in
the industries in which it operates and believes that the Company's
liquidity, capital resources and borrowing capabilities will be
adequate for its current and intended operations.
RESULTS OF OPERATIONS
Net sales for the three and six months ended June 30, 2000 increased
$77.3 and $181.9 million, respectively, compared to the same periods
one year earlier. Operating income for the three and six months ended
June 30, 2000 increased $11.2 and $28.8 million, respectively,
compared to the same periods one year earlier.
Pork Segment
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 180.6 136.1 $ 355.9 256.2
Operating income $ 17.9 10.3 $ 40.4 12.9
Net sales for the Pork segment increased $44.5 and $99.7 million,
respectively, for the three and six months ended June 30, 2000
compared to the same periods in 1999, as a result of higher pork
prices and, to a lesser extent, an increase in sales volume. An
excess supply of hogs had depressed pork prices through the first half
of 1999. The excess has since declined resulting in improved prices.
Sales volume increased as the plant ran extended shifts to take
advantage of positive margins. Although management cannot predict
pork prices, it is anticipated that market conditions will continue to
be favorable during the remainder of 2000.
Operating income for the Pork segment increased $7.6 and $27.5
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999. These increases are
primarily a result of improved sales prices and volumes as discussed
above. As a result of recent acquisitions, the Company also benefited
from the increased number of lower cost Company raised hogs
slaughtered. While the cost of third-party hogs increased, third-
party hogs as a percent of total hogs slaughtered decreased.
Management is unable to predict future market prices for these items
but anticipates overall margins will remain favorable during the
remainder of 2000.
Marine Segment
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 87.6 72.0 $ 164.5 142.2
Operating income $ 3.1 (3.2) $ 2.5 (0.9)
Net sales for the Marine segment increased $15.6 and $22.3 million,
respectively, for the three and six months ended June 30, 2000
compared to the same periods in 1999. These increases resulted from a
significant increase in volumes, partially offset by a general
decrease in cargo rates. Management believes that weak economic
conditions in certain South American markets continue to depress
rates, however, volumes have increased and second quarter 2000 rates
overall began to stabilize. A new shipping law, The Ocean Reform Act
of 1998, went into effect in May 1999 and permits shipping companies
to enter into unregulated confidential rate agreements with shippers.
Management is not able to determine the impact, if any, this new law
has had on financial results.
Operating income from the Marine segment increased $6.3 and $3.4
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999, primarily as a result of
the increased volumes discussed above partially offset by lower rates
and higher fuel costs. Management expects that these situations will
continue to improve for the remainder of 2000 compared to 1999.
Commodity Trading and Milling Segment
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 86.7 72.7 $ 166.5 114.4
Operating income $ 0.0 0.6 $ 0.9 1.9
Net sales for the Commodity Trading and Milling segment increased
$14.0 and $52.1 million, respectively, for the three and six months
ended June 30, 2000 compared to the same periods in 1999. The
increases are primarily a result of increased commodity sales to third-
parties and certain foreign affiliates.
Operating income for this segment decreased $0.6 and $1.0 million,
respectively, for the three and six months ended June 30, 2000
compared to the same periods in 1999. The decreases are primarily a
result of losses incurred from the milling operations in Zambia,
partially offset by the increased commodity sales discussed above.
Sugar and Citrus Segment
Three Months Ended Six Months
Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 14.8 10.0 $ 24.6 15.1
Operating income $ (1.1) (4.9) $ (3.8) (8.8)
Net sales for the Sugar and Citrus segment increased $4.8 million and
$9.5 million, respectively, for the three and six months ended June
30, 2000 compared to the same periods in 1999. The increases are
primarily a result of higher sales volumes, partially offset by lower
prices.
Operating income for this segment increased $3.8 million and $5.0
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999, primarily as a result of
improved margins and lower operating costs. During the second quarter
of 1999, severance charges of $3.0 million were incurred related to
certain employee layoffs. Management is unable to predict sugar
prices or operating results for the remainder of 2000.
As a result of recent operating results for Tabacal, at year-end 1999
the Company evaluated the recoverability of Tabacal's long-lived
assets and believes that the value of those assets are presently
recoverable. However, any further long-term decline in sugar prices
would likely result in the carrying values not being recoverable,
which would result in a material charge to earnings for the impairment
of these assets.
Power Segment
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 6.8 5.7 $ 13.4 10.6
Operating income $ 1.6 1.6 $ 3.0 2.9
Net sales for the Power segment increased $1.1 million and $2.8
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999 while operating income
remained substantially unchanged. The increases are primarily a
result of higher rates, which have increased as a result of a fuel
adjustment clause allowing the Company to pass on higher fuel costs.
Wine Segment
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 1.3 3.5 $ 3.4 6.9
Operating income $ (1.5) (1.2) $ (3.4) (2.2)
Net sales for the Wine segment decreased $2.2 million and $3.5
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999. The decreases are a result
of lower sales volumes in certain European markets.
Operating income for this segment decreased $0.3 million and $1.2
million, respectively, for the three and six months ended June 30,
2000 compared to the same periods in 1999. The decreases in operating
income primarily result from lower sales discussed above, the cost of
acquiring wine materials on the open market to supplement local grape
shortages and increasing reserves for uncollectible receivables and
advances for raw materials. Although management is not able to
predict the amount of operating losses for 2000, it is anticipated
that operating losses will continue during 2000. Management is
currently evaluating future operating or strategic alternatives for
the Wine segment.
All Other
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 2000 1999 2000 1999
Net sales $ 8.5 9.1 $ 19.5 20.5
Operating income $ (6.8) (0.1) $ (7.6) (0.6)
Operating income from all other businesses decreased for the three and
six months ended June 30, 2000, compared to the same periods in 1999.
This decrease was primarily the result of low yields and quality in
the Produce Division which decreased margins on seasonal produce
sales, primarily melons, and to a lesser extent, losses related to the
pickle and pepper operations in Honduras. In addition, at the end of
the melon growing season in June 2000, management increased reserves
for certain related grower advances. Although management is not able
to predict the amount of operating losses for 2000, it is anticipated
that losses will continue to a lesser extent for the remainder of the
year.
As a result of recent operating losses, management is considering
various strategic alternatives for portions of its Produce Division.
Continued losses in this operation could result in a determination
that the carrying values of certain assets are not recoverable,
resulting in a charge to earnings for the impairment of any such
assets.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased $3.9 and
$8.1 million, respectively, for the three and six months ended June
30, 2000 compared to the same periods in 1999. The increase is
primarily a result of costs associated with acquired operations in the
Pork segment and the increase in reserves for certain uncollectible
grower advances in the Produce Division as discussed above. As a
percentage of revenues, SG&A decreased to 8.2% for the second quarter
of 2000 from 8.9% for the second quarter of 1999. For the six months
ended June 30, 2000 SG&A decreased to 7.9% from 9.0% for the same
period in 1999. These decreases are primarily attributable to
increases in revenues in the Marine and Sugar & Citrus segments
without a corresponding increase in SG&A costs.
Interest Income
Interest income increased $1.2 and $3.7 million, respectively, for the
three and six months ended June 30, 2000 compared to the same periods
in 1999. The increase reflects an increase in average funds invested
and, to a lesser extent, an increase in interest rates. Average funds
invested increased primarily as a result of the proceeds from the sale
of the Poultry Division in January 2000.
Interest Expense
Interest expense increased $0.5 and $1.4 million, respectively, for
the three and six months ended June 30, 2000 compared to the same
periods in 1999. The increase is primarily a result of higher
borrowing rates somewhat offset by reduced short-term debt
outstanding.
Loss from Foreign Affiliates
Losses from foreign affiliates increased $0.2 and $0.9 million,
respectively, for the three and six months ended June 30, 2000
compared to the same periods in 1999, primarily from lower earnings at
certain milling operations in Africa.
Miscellaneous Income
Miscellaneous income increased $2.4 and $5.9 million, respectively,
for the three and six months ended June 30, 2000 compared to the same
periods in 1999. As discussed in Liquidity and Capital Resources
above, these increases are primarily attributable to the recognition
of unamortized proceeds from prior terminations of interest rate
agreements associated with debt repaid during the periods.
Income Tax Expense
For the three and six months ended June 30, 2000, the Company's tax
expense is primarily attributable to net income from domestic
entities, primarily the Pork Segment, as compared to net losses from
domestic entities in the comparative 1999 periods. The effective tax
rates for the comparative 1999 periods were impacted by overall losses
from foreign entities for which tax benefits are not available within
their respective countries or to offset domestic income.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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. From time to time,
the Company uses interest rate swaps to manage risks of increasing
interest rates. Changes in commodity prices impact the cost of
necessary raw materials as well as the selling prices of finished
products. The Company uses corn, wheat, soybean and soybean meal
futures and options to manage risks of increasing prices of raw
materials. 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 Company's market risk exposure
related to these items has not changed materially since December 31,
1999.
SEABOARD CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The United States Environmental Protection Agency (USEPA) and the
United States Army Corp. of Engineers (USCOE) are investigating
whether Seaboard Farms, Inc. (the "Company") filled or discharged
animal waste into wetland, without requisite permits, constructed
facilities without a stormwater permit, or operated without a
discharge permit, all at the Dorman sow farm in Beaver County,
Oklahoma leased by the Company. This investigation was commenced by a
Document Information Request from the USEPA dated April 14, 2000, to
which the Company has responded.
The USEPA and USCOE are also investigating whether violations of the
Clean Water Act, 33 USC 1251, et seq. have occurred at various
facilities which the Company began to lease in January, 2000 in
Kingfisher County, Oklahoma. In connection with this investigation,
various Warrants and Orders for Entry and Investigation have been
issued by the United States District Court for the Western District of
Oklahoma, Docket Nos. MOO 109-BA through MOO 114-BA, inclusive, and
the Company expects to receive a document information request in
connection with these matters.
At present, these matters involve only the investigations under the
Clean Water Act described above, and, accordingly, no relief has yet
been sought by USEPA or USCOE. However, should an enforcement action
result in either one, the government may seek (a) to require the
Company to obtain requisite permits in order to continue operations,
and (b) civil penalties as provided in the Clean Water Act.
On June 2, 2000, a Complaint was filed by the Sierra Club against the
Company, Seaboard Farms, Inc. and Shawnee Funding, Limited Partnership
in the United States District Court for the Western District of
Oklahoma, No. CIV-00-979-L, seeking declaratory relief and civil
penalties. This Complaint has not been served. The Sierra Club
alleges violation of various sections of the Clean Water Act, and
intends to seek injunctive relief and a civil penalty of $25,000 for
each day of violation. The Company asserts the claims of the Sierra
Club are false and misleading, and intends to contest them vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
On August 9, 2000 the Registrant filed a report on Form 8-K
announcing the discovery of information revealing that assets of
its Produce Division had been overstated in prior periods and its
intent to restate financial statements for the affected periods.
This Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which include
statements concerning projection of revenues, income or loss, capital
expenditures, capital structure or other financial items, statements
regarding the plans and objectives of management for future
operations, statements of future economic performance, statements of
the assumptions underlying or relating to any of the foregoing
statements and other statements which are other than statements of
historical fact. These statements appear in a number of places in
this Form 10-Q and include statements regarding the intent, belief or
current expectations of the Company and its management with respect to
(i) the cost and timing of the completion of new or expanded
facilities, (ii) the Company's financing plans, (iii) the price of
feed stocks and other materials used by the Company, (iv) the cost to
purchase third-party hogs for slaughter at the Company's hog
processing facility and the sale price for pork products from such
operations, (v) the price for the Company's products and services,
(vi) the effect of Tabacal and/or the Wine segment on the consolidated
financial statements of the Company, or (vii) other trends affecting
the Company's financial condition or results of operations. Readers
are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially as a result of various
factors. The accompanying information contained in this Form 10-Q
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" identifies important factors
which could cause such differences.
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: August 14, 2000
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Vice President-Chief
Financial Officer (Authorized officer
and principal financial and accounting
officer)
