UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{X}X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2001
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, $1.00 par value
per share, outstanding on May 4,July, 27, 2001.
Total pages in filing - 1618 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31,June 30, 2001 and December 31, 2000
(Thousands of dollars)
(Unaudited)
March 31,June 30, December 31,
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 14,75414,933 $ 19,760
Short-term investments 115,426132,336 91,375
Receivables, net 217,609212,814 243,643
Inventories 213,780208,976 218,030
Deferred income taxes 14,38815,369 14,132
Prepaid expenses and other 30,28833,404 23,760
Total current assets 606,245617,832 610,700
Investments in and advances to foreign affiliates 62,74461,920 63,302
Net property, plant and equipment 610,120607,622 611,361
Other assets 23,99629,572 27,485
Total assets $1,303,105$1,316,946 $1,312,848
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 77,13646,287 $ 80,480
Current maturities of long-term debt 34,53133,612 34,487
Accounts payable 49,22350,096 59,181
Other current liabilities 138,413160,367 144,254
Total current liabilities 299,303290,362 318,402
Long-term debt, less current maturities 311,494310,386 312,418
Deferred income taxes 111,315110,281 107,833
Other liabilities 31,64031,956 33,464
Total non-current and deferred liabilities 454,449452,623 453,715
Minority interest 7362 46
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 1,246loss (5,282) (106)
Retained earnings 533,332564,479 526,089
Total stockholders' equity 549,280573,899 540,685
Total liabilities and stockholders' equity $1,303,105$ 1,316,946 $1,312,848
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three months ended March 31,June 30, 2001 and 2000
(Thousands of dollars except per share amounts)
(Unaudited)
March 31, March 31,June 30, June 30,
2001 2000
Net sales $ 435,260468,513 $ 369,807393,917
Cost of sales and operating expenses 386,461 324,362398,720 350,140
Gross income 48,799 45,44569,793 43,777
Selling, general and administrative expenses 30,763 27,41030,153 31,549
Operating income 18,036 18,03539,640 12,228
Other income (expense):
Interest income 2,309 4,3522,213 3,166
Interest expense (7,927) (9,286)(7,184) (8,091)
Loss from foreign affiliates (623) (589)(2,423) (793)
Minority interest (27) 26611 222
Gain on disposition of business 18,745 -
Miscellaneous 772 4,0451,687 3,083
Total other income (expense), net (5,496) (1,212)13,049 (2,413)
Earnings from continuing operations before income taxes 12,540 16,82352,689 9,815
Income tax expense (4,925) (6,964)
Earnings from continuing operations 7,615 9,859
Gain on disposal of discontinued operations,
net of income taxes of $56,560 - 91,172(21,170) (4,331)
Net earnings $ 7,61531,519 $ 101,031
Earnings per common share
from continuing operations $ 5.12 $ 6.63
Earnings per common share
from discontinued operations - 61.295,484
Earnings per common share $ 5.1221.19 $ 67.923.68
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, 2001 and 2000
(Thousands of dollars except per share amounts)
(Unaudited)
June 30, June 30,
2001 2000
Net sales $ 903,773 $ 763,724
Cost of sales and operating expenses 785,181 674,502
Gross income 118,592 89,222
Selling, general and administrative expenses 60,916 58,959
Operating income 57,676 30,263
Other income (expense):
Interest income 4,522 7,518
Interest expense (15,111) (17,377)
Loss from foreign affiliates (3,046) (1,382)
Minority interest (16) 488
Gain on disposition of business 18,745 -
Miscellaneous 2,459 7,128
Total other income (expense), net 7,553 (3,625)
Earnings from continuing operations
before income taxes 65,229 26,638
Income tax expense (26,095) (11,295)
Earnings from continuing operations 39,134 15,343
Gain on disposal of discontinued operations,
net of income taxes of $56,560 - 91,172
Net earnings $ 39,134 $106,515
Earnings per common share
from continuing operations $ 26.31 10.31
Earnings per common share
from discontinued operations - 61.29
Earnings per common share $ 26.31 $ 71.60
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
ThreeSix months ended March 31,June 30, 2001 and 2000
(Thousands of dollars)
(Unaudited)
March 31, March 31,June 30, June 30,
2001 2000
Cash flows from operating activities:
Net earnings $ 7,61539,134 $ 101,031106,515
Adjustments to reconcile net earnings to
cash from operating activities:
Net gain on disposal of discontinued operations - (91,172)
Depreciation and amortization 13,640 11,89127,492 23,404
Loss from foreign affiliates 623 5893,046 1,382
(Gain)loss from disposal of fixed assets 1,333 (448)1,072 (565)
Gain from recognition of deferred swap proceeds - (2,010)(3,760)
Gain on disposition of business (18,745) -
Deferred income taxes 2,281 4,4944,356 18,748
Changes in current assets and liabilities
(net of businesses acquired and disposed):
Receivables, net of allowance 26,034 (22,159)30,829 2,730
Inventories 4,250 8,1199,054 5,103
Prepaid expenses and other (6,528) (2,072)(9,644) (1,186)
Current liabilities exclusive of debt (15,799) (13,727)7,028 (44,552)
Other, net 2,464 (1,097)4,512 546
Net cash from operating activities 35,913 (6,561)98,134 17,193
Cash flows from investing activities:
Purchase of investments (133,360) (788,879)(333,302) (990,907)
Proceeds from the sale or maturity of investments 109,176 644,593293,053 899,847
Capital expenditures (14,858) (28,349)(27,428) (53,485)
Proceeds from sale of fixed assets 1,017 2,7002,391 3,979
Investments in and advances to foreign affiliates (65) (7,495)(2,198) (7,306)
Acquisition of businessbusinesses - (34,134)(42,019)
Proceeds from disposal of discontinued operations,
net of cash expenditures - 356,107
Net cash from investing activities (38,090) 144,543(67,484) 166,216
Cash flows from financing activities:
Notes payable to bank, net (3,344) (120,751)(34,193) (154,260)
Principal payments of long-term debt (880) (7,327)(2,907) (20,159)
Dividends paid (372) (372)(744) (744)
Bond construction fund 1,7672,367 -
Net cash from financing activities (2,829) (128,450)(35,477) (175,163)
Net change in cash and cash equivalents (5,006) 9,532(4,827) 8,246
Cash and cash equivalents at beginning of year 19,760 11,039
Cash and cash equivalents at end of quarter $ 14,75414,933 $ 20,57119,285
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of Seaboard
Corporation and its domestic and foreign subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation. The Company's investments in non-
controlled affiliates are accounted for by the equity method. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company
for the year ended December 31, 2000 as filed in its Annual Report on
Form 10-K.
The accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
financial position, results of operations and cash flows. Results of
operations for interim periods are not necessarily indicative of
results to be expected for a full year.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Certain
Derivative
Investments and Certain Hedging Activities," as amended. This statement
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 has 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 does affect current period net earnings.
The Company, from time-to-time, holds and issues certain derivative
instruments to manage various types of market risks from its day-to-
day operations. These primarily include the following: i) commodity
futures and option contracts to manage risks of increasing prices of
raw materials and firm sales commitments, ii) foreign currency
exchange agreements to manage the foreign currency exchange risk on
certain transactions denominated in foreign currencies, and iii)
interest rate exchange agreements to manage the risk of fluctuations
in interest rates. While management believes each of these
instruments manage various market risks, only certain instruments are
designated and accounted for as hedges under SFAS 133 as a result of
the extensive record keeping requirements of the provision. During
the first quartersix months of 2001, the only instruments accounted for as
hedges under SFAS 133 included certain commodity contracts and foreign
currency exchange agreements within the Commodity Trading and Milling
Segment. These were accounted for as fair value hedges and did not
have a material impact on net earnings.
Adoption of this statement resulted in adjustments primarily to the
Company's balance sheet as derivative instruments and related
agreements and deferred amounts were recorded as assets and
liabilities with corresponding adjustments to Other Comprehensive
Income or earnings. The adoption resulted in a cumulative-effect-type
adjustment increasing Accumulated Other Comprehensive Income by
$1,353,000, net of related income taxes, as deferred proceeds from
previously terminated swap agreements were reclassified from
liabilities. During fiscal 2001, $200,000 of this adjustment, net of
related income taxes, is expected to be recognized in earnings. The
adoption did not have a material impact on the Company's earnings or
cash flows.
ForNote 2 - Comprehensive Income
Components of comprehensive income are summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
(Thousands of dollars) 2001 2000 2001 2000
Net income $ 31,519 $ 5,484 $39,134 $106,515
Other comprehensive income (loss)
net of applicable taxes:
Cumulative translation
adjustment (326) 31 (326) 31
Unrealized gain (loss) on
investments (6,151) 1,338 (6,102) 2,019
Change in deferred gain on
swaps (51) - 1,252 -
Total comprehensive income $ 24,991 $ 6,853 $33,958 $108,565
The components of accumulated other comprehensive loss for the threesix
months ended MarchJune 30, 2001 are as follows:
Balance Balance
December 31, Period June 30,
(Thousands of dollars) 2000 Change 2001
and 2000,Cumulative translation adjustment $ (155) $ (326) $ (481)
Unrealized gain (loss) on investments 49 (6,102) (6,053)
Deferred gain on swaps - 1,252 1,252
Accumulated other comprehensive income adjustments consisted of an immaterial unrealized
gain on available-for-sale securities and foreign currency cumulative
translation adjustment, net of tax. For the three months ended March
31, 2001, other comprehensive income adjustments also include the
amortization of proceeds from previously terminated swap agreements
discussed above.loss $ (106) $(5,176) $(5,282)
Note 23 - Inventories
The following is a summary of inventories at March 31,June 30, 2001 and
December 31, 2000 (in thousands):
March2000:
June 30, December 31,
December 31,(Thousands of dollars) 2001 2000
At lower of LIFO cost or market:
Live hogs and related materials $ 128,122 $ 117,699$125,817 $117,699
Dressed pork and related materials 12,4327,998 10,995
140,554133,815 128,694
LIFO allowance (2,917)(4,186) (326)
Total inventories at lower of LIFO cost
or market 137,637129,629 128,368
At lower of FIFO cost or market:
Grain, flour and feed 37,46139,325 42,534
Sugar produced and in process 20,44819,491 24,454
Crops in production and related materials 4,2764,297 4,978
Other 13,95816,234 17,696
Total inventories at lower of FIFO cost
or market 76,14379,347 89,662
Total inventories $ 213,780 $ 218,030$208,976 $218,030
Note 34 - Contingencies
In August 2000, as a result of accounting errors and irregularities
discovered in the Produce Division's books and records, management
restated the Company's financial statements for each of the prior
periods effected and filed a Form 10-K/A on August 28, 2000. In a
letter dated December 27, 2000, the Securities and Exchange Commission
(SEC) notified the Company that it is conducting a formal
investigation of this matter to determine whether there have been any
violations of the federal securities laws and issued a subpoena to
acquire certain documents from the Company. Management is cooperating
with the SEC's requests and believes the outcome of the investigation
will not have anya material impact on the Company.
The Company owns certain partially completed hog production
facilities, having a net carrying value of $12,326,000 at March 31,June 30,
2001. The Company continues to seek, but has not yet received,
necessary operating and related permits. If the Company is unable to
obtain such permits, the carrying value of such property couldwould be
impaired.
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. The ruling has been upheld on appeal,
although it may be appealed to a higher court.appeal.
The arbitration is likely to continue based on other legal theories,
although the Company believes that it will have no responsibility for
the loss.
The majority of transactions at the Company's Sugar and Citrus
operation in Argentina are denominated in Argentine Pesos. As of June
30, 2001, the Company has $153,206,000 in net assets denominated in
Argentine Pesos. Over the past several years, the Argentine Peso has
been pegged to the U.S. dollar and accordingly, there has been minimal
exchange rate risk. However, deterioration of the economy in
Argentina increases the risk that there could be a currency
devaluation. Management is closely monitoring the situation but is
currently unable to predict the probability or magnitude of any
devaluation. However, a substantial devaluation of the Argentine Peso
could have a material adverse affect on the financial position of the
Company.
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 45 - 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.
In December 2000 the Company exchanged its controlling interest in its
Wine segment and a cash investment for a non-controlling interest in a
larger wine operation to be accounted for using the equity method. As
a result, the Company's segment disclosures do not reflect operating
results for the Wine segment in 2001.
As a result of recent operating losses at the Company's Sugar and
Citrus segment, at year-end 2000 the Company evaluated the
recoverability of this segment's long-lived assets and believesdetermined that
the value of those assets iswas presently recoverable. Recent operating
losses were primarily the result of sugar prices below historical
levels. Sugar prices have improved during the first quartersix months of
2001 resulting in operating income for this segment. However, should
sugar prices return to levels resulting in operating losses, the
recoverability of this segment's long-lived assets would again need to
be evaluated which could result in a material charge to earnings for
the impairment of these assets.
Within the Commodity Trading and Milling Division, the Company
evaluated the recoverability of the long-lived assets of its Zambian
milling operationsoperation at year-end 2000 due to its recent operating losses. The Company believeslosses
and determined the value of those assets iswas presently recoverable.
For the first six months of 2001, this operation has been profitable.
However, continuedshould this business incur future operating losses, fromthe
recoverability of the long-lived assets of this business could result in the carrying values not being recoverable,would again
need to be evaluated which could result in a material charge to
earnings for the impairment of these assets. Total long-lived assets
of this business are $6,874,000 at these operations totaled
$6,970,000 at March 31,June 30, 2001.
Sales to External Customers:Customers
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Thousands of dollars) 2001 2000 2001 2000
Pork $ 181,894 $ 183,542$211,103 $188,277 $392,997 $371,819
Marine 89,891 76,85196,663 87,633 186,554 164,484
Commodity Trading and Milling 116,229 79,850121,046 86,678 237,275 166,528
Sugar and Citrus 20,377 9,75916,841 14,792 37,218 24,551
Power 16,967 6,60616,203 6,756 33,170 13,362
Wine - 2,1041,331 - 3,435
All Other 9,902 11,0956,657 8,450 16,559 19,545
Segment/Consolidated Totals $ 435,260 $ 369,807$468,513 $393,917 $903,773 $763,724
Operating Income
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Thousands of dollars) 2001 2000 2001 2000
Pork $ 11,82625,476 $ 22,51017,900 $ 37,302 $ 40,410
Marine 4,653 (524)6,379 3,058 11,032 2,534
Commodity Trading and Milling 324 9214,152 (45) 4,476 876
Sugar and Citrus 1,022 (2,668)2,156 (1,132) 3,178 (3,800)
Power 3,293 1,3873,920 1,601 7,213 2,988
Wine - (1,895)(1,504) - (3,399)
All Other (1,833) (789)(1,421) (6,764) (3,254) (7,553)
Segment Totals 19,285 18,94240,662 13,114 59,947 32,056
Corporate Items (1,249) (907)(1,022) (886) (2,271) (1,793)
Consolidated Totals $ 18,03639,640 $ 18,03512,228 $ 57,676 $ 30,263
Total Assets
March 31,June 30, December 31,
(Thousands of dollars) 2001 2000
Pork $ 519,126506,307 $ 510,836
Marine 122,855119,765 121,895
Commodity Trading and Milling 181,685175,544 197,751
Sugar and Citrus 181,836182,131 186,099
Power 85,41881,538 88,514
All Other 24,78524,624 27,665
Segment Totals 1,115,7051,089,909 1,132,760
Corporate items 187,400Items 227,037 180,088
Consolidated Totals $1,303,105$1,316,946 $1,312,848
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.
Note 56 - Subsequent EventDisposition of Business
The Company had a non-controlling interest in a joint venture in Maine
primarily engaged in the production and processing of salmon and other
seafood products previously accounted for under the equity method. On
May 2, 2001, this joint venture completed a merger with Fjord Seafood
ASA (Fjord), a large salmon operation in Norway. The merger resultsresulted
in the Company exchanging its interest for 5,950,000 shares of common
stock of Fjord. Based on the fair market value of Fjord stock on May
2, 2001, as quoted on the Oslo Stock Exchange, the Company will
recognizerecognized
a gain in the second quarter of 2001 of approximately $18
million$18,745,000 ($11 million11,434,000 after
taxes) related to this transaction. As of June 30, 2001, the trading
price of Fjord's stock had decreased resulting in a net comprehensive
loss of $6,086,000 (See Note 2). The Company's ownership interest in
Fjord will beis accounted for as a non-
currentnon-current available for sale equity
security.security, the carrying value of which was $15,642,000 at June 30,
2001.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
March 31,June 30, December 31,
2001 2000
Current ratio 2.03:2.13:1 1.92:1
Working capital $306.9$327.5 $292.3
Cash from operating activities for the threesix months ended March 31,June 30, 2001
increased $42.5$80.9 million compared to the same period one year earlier.
The increase in cash flows was primarily related to changes in
components of working capital.capital and, to a lesser extent, an increase in
net earnings from continuing operations. 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, strong sales in the fourth quarter of
2000 and subsequent related collections resulted in a decrease in
receivable balances from year end to March 31, 2001.end. In addition, during the first
quarter of 2001, the Company collected
approximately $7.0 million in notes
receivable related to the 1998 sale of its baking and flour milling
operations in Puerto Rico.
Cash from investing activities for the threesix months ended March 31,June 30, 2001
decreased $182.6$233.7 million compared to the same period one year earlier.
The decrease wasis primarily related to proceeds in the first quarter of
2000 from the sale of discontinued poultry operations, partially
offset by acquisitions, capital expenditures and net purchases of
investments in that period.investments.
The Company invested $14.9$27.4 million in property, plant and equipment
for the threesix months ended March 31,June 30, 2001, of which $2.4$6.2 million was
expended in the Pork segment, $10.5$12.9 million in the Marine segment,
$1.1$6.2 million in the Sugar and Citrus segment and $0.9$2.1 million in other
businesses of the Company.
The Company invested $2.4$6.2 million in the Pork segment primarily for
the expansion of existing hog production facilities, completing
construction onof a new feed mill and for improvements to the pork
processing plant. The Company plans to invest $11.6$7.8 million over the
next ninesix months for continued expansion of hog production facilities completion of the new feed mill
and general upgrades to the pork processing plant. In March 2001, the
Company terminated previously announced plans to commence construction
in 2001 onof a second processing plant at a location in northeast
Kansas. The Company will continuecontinues to explore alternatives to increase
processing capacity.
The Company invested $10.5$12.9 million in the Marine segment primarily for
the purchase of a previously chartered vessel and, to a lesser extent,
for additional equipment. OverThe Company plans to invest $1.6 million over the next ninesix
months the Company
anticipates spending $4.0 million for additional equipment.
The Company invested $1.1$6.2 million in the Sugar and Citrus segment
primarily for improvements to existing facilities and sugarcane
fields. Over the next ninesix months, the Company anticipates spending
$7.5$2.4 million for additional improvements.
Cash from financing activities for the threesix months ended March 31,June 30, 2001,
increased $125.6$139.7 million compared to the same period one year earlier.
This increase is primarily the result of repaying
approximately $128.1 millionan increase in repayments of
notes payable and industrial development revenue bonds in the first
quartersix months of 2000, primarily with the proceeds from the Poultry
Division sale.
In the first quarter of 2001, the Company's one-year revolving credit
facilities totaling $141.0 million maturing in the first quarter of
2001 were extended for an additional year and the short-term
uncommitted credit lines totaling $119.5 million were reduced to $89.5
million. As of March 31,June 30, 2001, the Company had $40.0$25.0 million
outstanding under one-year revolving credit facilities and $37.1$21.3
million outstanding under short-term uncommitted credit lines.
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 arewill be
adequate for its current and intended operations.
RESULTS OF OPERATIONS
Net sales for the three and six months ended March 31,June 30, 2001 increased
by $65.5$74.6 and $140.0 million, compared to the three months ended March 31, 2000. Operating
income was essentially unchangedrespectively, compared to the same quarterperiods
one year ago.earlier. Operating income for both the three and six months
ended June 30, 2001 increased $27.4, compared to the same periods one
year earlier.
Pork Segment
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 181.9 183.5211.1 188.3 $ 393.0 371.8
Operating income $ 11.8 22.525.5 17.9 $ 37.3 40.4
Net sales for the Pork segment decreased $1.6increased $22.8 and $21.2 million,
inrespectively, for the first
quarter ofthree and six months ended June 30, 2001
compared to the first quarter of 2000, assame periods in 2000. These increases are primarily a
result of a decrease in sales volume partially offset by higher pork prices.
During the first quarter of 2000 the plant ran extended shifts to take
advantage of positive margins. As discussed below, margins remained
positive during the first quarter of 2001 but have decreased,
prompting a reduction of extended shifts. Management believes pork prices have
increased primarily as a result of lower meatthe favorable industry relationship
of pork supplies world wide.and pork demand.
Operating income for the Pork segment increased $7.6 million and
decreased $10.7$3.1 million, inrespectively, for the first quarter ofthree and six months
ended June 30, 2001, compared to the first quarter ofsame periods in 2000. The three
month period increase is primarily the result of a more favorable
sales mix and, to a lesser extent, higher sales prices during the
quarter as discussed above partially offset by higher Company-raised
hog costs. The decrease for the six-month period is primarily a
result of higher Company-raised hog costs, partially offset by the higher
sales prices as discussed above. The cost of Company-raised hogs
increased primarily as colder winter conditions increased feed and
energy usage while feed and energy prices also increased. The cost to
acquire third-partyincreased throughout
the growing period of the hogs also increased but to a lesser extent than
Company-raised hogs.processed during the first half of
2001. These cost increases contributed to a $2.6$3.9 million charge to
the LIFO inventory chargeallowance in the first quartersix months of 2001 with
similaradditional charges anticipated duringfor the remaining quartershalf of 2001. While
management is unable to predict future market prices, it currently
anticipates that overall market conditions during the remainder of 2001
will continue to be favorable.
Marine Segment
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 89.9 76.996.7 87.6 $ 186.6 164.5
Operating income $ 4.7 (0.5)6.4 3.1 $ 11.0 2.5
Net sales for the Marine segment increased $13.0$9.1 and $22.1 million,
inrespectively, for the first
quarter ofthree and six months ended June 30, 2001
compared to the first quarter ofsame periods in 2000. The increaseThese increases resulted from
an increase in volumevolumes, new services offered as a result of the
acquisition of a cargo terminal facility at the Port of Houston in
2000 and, to a lesser extent, an increase in cargo rates. Management believes weakAlthough
economic conditionsuncertainties still exist in certain South American markets,
depressedvolumes and rates during the first
quarter of 2000. Although economic uncertainties still exist, volumes in these markets improved during 2001 compared to
2000 although partially offset by a decline in business in the
first quarter of 2001 over the first
quarter of 2000. Overall rates increased slightly as a result of an
increased mix of higher-rate cargos, surcharges for a portion of
higher fuel costs incurred and slight rate improvements in certain
markets.Caribbean Basin.
Operating income fromfor the Marine segment increased $5.2$3.3 and $8.5
million, inrespectively, for the first quarter ofthree and six months ended June 30,
2001 compared to the first quarter ofsame periods in 2000, primarily as a result of
the increased volumes and ratesimproved South American markets discussed above. Management
anticipates that these market conditions will not fluctuate
significantly duringcontinue through the
remainder of 2001.
Commodity Trading and Milling Segment
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 116.2 79.9121.0 86.7 $ 237.3 166.5
Operating income $ 0.34.2 0.0 $ 4.5 0.9
Net sales for the Commodity Trading and Milling segment increased
$36.3$34.3 and $70.8 million, inrespectively, for the first quarter ofthree and six months
ended June 30, 2001 compared to the first
quarter ofsame periods in 2000. The
increase isincreases are primarily a result of increased wheat and soybean meal sales
to third-parties in certain markets and, to a lesser extent, to
certain foreign affiliates.
Operating income for this segment decreased $0.6increased $4.2 and $3.6 million,
inrespectively, for the first
quarter ofthree and six months ended June 30, 2001
compared to the first quarter of 2000,same periods in 2000. The increases are primarily as a
result of decreased income fromimprovements in operating certain mills in foreign
countries. Despite the increase incountries, including Zambia being profitable, and, to a lesser extent,
increased commodity sales noted above,
operating income from these sales remained essentially unchanged dueabove. The current profitability of
Zambia reduces the risk of impairment of related long-lived assets as
discussed in Note 5 to lower margins.the Condensed Consolidated Financial
Statements. Due to the nature of this segment's operations and its
exposure to foreign political situations, management is currently
unable to predict future sales and operating results.
The Company evaluated the recoverability of the long-lived assets of
its Zambian milling operations at year-end 2000 due to its recent
operating losses. The Company believes the value of those assets is
presently recoverable. However, continued operating losses from this
business could result in the carrying values not being recoverable,
which could result in a material charge to earnings for the impairment
of these assets. Total long-lived assets at these operations totaled
$7.0 million at March 31, 2001.
Sugar and Citrus Segment
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 20.4 9.816.8 14.8 $ 37.2 24.6
Operating income $ 1.0 (2.7)2.2 (1.1) $ 3.2 (3.8)
Net sales for the Sugar and Citrus segment increased $10.6$2.0 million inand
$12.6 million, respectively, for the first quarter ofthree and six months ended June
30, 2001 compared to the first quarter ofsame periods in 2000. TheFor the three-month
period, the increase is primarilya result of higher sugar prices partially
offset by a decrease in sales volumes. For the six-month period, the
increase is a result of higher sales volumes and to a
lesser extent, improved sugar
prices. Sales volumes have increased primarily as a result of increasing purchasesan increase
in the resale of sugar purchased from third-
parties for resale.third-parties.
Operating income for this segment increased $3.7$3.3 million and $7.0
million, respectively, for the three and six months ended June 30,
2001 compared to the same periods in 2000, primarily as a result of
the increased sales volumes, higher sugar prices and prices. Management cannot predict future sugar prices.
As a result of recent operating losses, at year-end 2000 the Company
evaluated the recoverabilityincreases in
production efficiencies. The current profitability of this segment'ssegment
reduces the risk of impairment of related long-lived assets and
believes thatas
discussed in Note 5 to the value of those assetsCondensed Consolidated Financial
Statements. While management is presently recoverable.
Recent operating losses were primarily the result ofunable to predict sugar prices below historical levels. Should sugar prices return to levels
resulting inor
operating losses,results, it currently anticipates that overall market
conditions for the recoverabilityremainder of this segment's
long-lived assets would again need2001 will continue to be evaluated which could resultfavorable
unless the current economic situation in Argentina causes market
disruptions, including the potential of a material chargecurrency devaluation as
discussed in Note 4 to earnings for the impairment of these assets.Condensed Consolidated Financial
Statements.
Power Segment
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 17.0 6.616.2 6.8 $ 33.2 13.4
Operating income $ 3.3 1.43.9 1.6 $ 7.2 3.0
Net sales for the Power segment increased $10.4$9.4 million inand $19.8
million, respectively, for the first
quarter ofthree and six months ended June 30,
2001 compared to the first quarter ofsame periods in 2000. Operating income increased
$1.9$2.3 million inand $4.2 million, respectively, for the first quarter ofthree and six
months ended June 30, 2001 compared to the first quarter ofsame periods in 2000. TheseThe
increases are primarily athe result of a new power barge beginning
operationoperations in October 2000. Operation of the new barge is expected to
continue to result in improved results for this segment duringfor the
remainder of 2001.
All Other
Three Months Ended March 31,Six Months Ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 9.9 11.16.7 8.5 $ 16.6 19.5
Operating income $ (1.8) (0.8)
Net sales(1.4) (6.8) $ (3.3) (7.6)
Sales decreased for all other businesses decreased $1.2 million infor the first
quarter ofthree and six months
ended June 30, 2001, compared to the first quartersame periods in 2000 as a result
of 2000.discontinuing the business of marketing fruits and vegetables as
discussed below. Operating income decreased $1.0 million infrom all other businesses improved
for the first quarter ofthree and six months ended June 30, 2001, compared to the firstsame
periods in 2000. This improvement was primarily the result of the
Company discontinuing the business of marketing fruits and vegetables
by selling certain assets of its Produce Division during the third
quarter of 2000. These decreases are primarily attributable
to decreased demand for product from the Company's pickles and peppers
operations in Honduras combined with lower yields in these operations.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased $1.4
million and increased $3.4$2.0 million, to $30.8 millionrespectively, for the first quarter ofthree and
six months ended June 30, 2001 compared to the first quarter ofsame periods in 2000.
The increasedecrease for the quarter is primarily the result of discontinuing
the business of marketing fruits and vegetables by the Produce
Division in the prior year as discussed above, partially offset by
increases discussed below. The increases are primarily a result of
increasing service and support functions related to expanding
operations in the Power, Sugar and Citrus, Commodity Trading and
Milling, and Marine segments.Segments. As a percentage of revenues, SG&A
decreased to 7.1% in6.4% for the firstsecond quarter of 2001 from 7.4% in8.0% for the
firstsecond quarter of 2000. For the six months ended June 30, 2001 SG&A
decreased to 6.7% from 7.7% for the same period in 2000 primarily due to the
result of increased revenues in these same segments.
Interest Income
Interest income decreased $2.0$1.0 and $3.0 million, inrespectively, for the
first quarter ofthree and six months ended June 30, 2001 compared to the first quarter ofsame periods
in 2000. The decreasedecreases primarily reflectsreflect a decrease in average funds
invested. Average funds invested were higher during the first quarter of 2000 primarily
from proceeds from the sale of the Poultry Division in January 2000.
Interest Expense
Interest expense decreased $1.4$0.9 and $2.3 million, inrespectively, for
the first quarter ofthree and six months ended June 30, 2001 compared to the first quarter ofsame
periods in 2000. The decrease isdecreases are primarily as a result of a decrease
in short-term borrowings, partially offset by an increase in long-term
borrowings. Short-term borrowings decreased primarily as a result of
repaying short-term borrowings in the first quarter of 2000, primarily
with proceeds from the Poultry Division sale, while average long-term
borrowings increased primarily as a result of debt assumed with certain
acquisitions in 2000.
Loss from Foreign Affiliates
As discussedLosses from foreign affiliates increased $1.6 and $1.7 million,
respectively, for the three and six months ended June 30, 2001
compared to the same periods in Note 4, in 20012000. These increases were primarily
due to the Company will begin reporting thebeginning to report operating results of itsthe
Company's wine investment using the equity method. The relatedmethod during 2001 as
discussed in Note 5 and, to a lesser extent, from lower earnings at
certain milling operations in Africa. As the Company reports the wine
investment results will be recorded on a three-month lag, andoperating results for only
three months are not included in
this quarter's results. As such, thefor 2001. The Company anticipates increased
losses from foreign affiliates for the remainder of 2001 compared to
2000.
Gain on Disposition of Business
During the second quarter of 2001, the Company exchanged its non-
controlling interest in a joint venture for shares of common stock in
Fjord Seafood ASA resulting in a gain of $18.7 million ($11.4 million
after taxes). See Note 6 to the remaining quarters of 2001.Condensed Consolidated Financial
Statements for further discussion.
Miscellaneous Income
Miscellaneous income decreased $3.3$1.4 and $4.7 million, respectively,
for the first quarter ofthree and six months ended June 30, 2001 compared to the first quarter ofsame
periods in 2000. This decrease resultedThese decreases are primarily from a $2.0$1.8 and $3.8
million gain duringfor the first quarter ofthree and six months, respectively, during 2000
from the recognition of unamortized proceeds from prior terminations
of interest rate agreements associated with debt repaid during the
quarter2000,
as discussed above.
Gain on Disposal of Discontinued Operations
The Company completed the sale of its Poultry Division on January 3,
2000, recognizing an after-tax gain on disposal of discontinued
operations of $91.2 million during 2000, subsequently adjusted in the
fourth quarter of 2000 to $90.0 million.
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, commodity prices and foreign currency exchange rates.
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, finished product
sales and firm sales commitments. The Company uses corn, wheat,
soybeans and soybean meal futures and options to manage certain risks
of increasing prices of raw materials and firm sales commitments.
From time to time, the Company uses hog futures to manage risks of
increasing prices of live hogs acquired for processing. Changes in
foreign currency exchange rates impact the cash paid or received by
the Company on foreign currency denominated receivables and payables.
The Company manages certain of these risks through the use of foreign
currency forward exchange agreements. The Company's market risk
exposure related to these items has not changed materially since
December 31, 2000, except with respect to transactions denominated in
Argentine Pesos as discussed below.
The majority of transactions at the Company's Sugar and Citrus
operation in Argentina are denominated in Argentine Pesos. Over the
past several years, the Argentine Peso has been peggedNote 4 to the U.S.
dollar and accordingly, there has been minimal exchange rate risk.
However, deterioration of the economy in Argentina as well as local
political instability increases the risk that there could be a
currency devaluation. Management is closely monitoring the situation
but is currently unable to predict the probability or magnitude of any
devaluation. However, a substantial devaluation of the Argentine Peso
could have a material adverse affect on the Company.
SEABOARD CORPORATION AND SUBSIDIARIESCondensed Consolidated
Financial Statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 6,June 7, 2001, the Sierra Club sentUnited States Environmental Protection Agency,
Region 6 ("EPA") filed an Emergency Administrative Order (the "SDWA
Order"), pursuant to Section 1431(a) of the Safe Drinking Water Act,
42 U.S.C. Sec. 300i(a) (the "SDWA"), against the Company's subsidiary,
Seaboard Farms, Inc. ("Seaboard Farms"), and PIC International Group,
Inc. ("PIC") (collectively, "Respondents"). The SDWA Order alleges
that the Respondents have violated the SDWA, through the operation of
five swine facilities and the introduction of a contaminant (nitrate)
into water used by several residences creating an imminent and
substantial risk of harm to the persons drinking the water. The SDWA
Order requires the Respondents to provide drinking water to three
residences and to identify potential additional wells used for
drinking water close to the facilities, to test the water in each of
the additional wells for nitrate levels and to provide drinking water
to any additional residences, as required by EPA. In the event the
Respondents fail to comply with the SDWA Order, the EPA may commence a
civil action and can seek a civil penalty of up to $15,000 per day,
per violation. The swine operations are located in an area of Oklahoma
which historically (before the swine farms were constructed) has high
nitrate levels. The lagoons retaining effluent at the operations are
lined with 30 mil high density polyethylene plastic liners, and land
application of effluent for the purposes of fertilization occurs at
agronomic rates (according to soil conditions and crop need). The
Company does not believe the facilities are the source of the nitrates
in the wells; however, the Company is cooperating with EPA.
On or about July 20, 2001, Respondents filed an action in the United
States Court of Appeals for the Tenth Circuit petitioning the Court to
set aside, declare invalid, and/or remand the SDWA Order for further
proceedings on the basis that the SDWA Order is arbitrary, capricious,
an abuse of discretion and otherwise not in accordance with law and
was issued without the observance of procedures required by law.
On June 29, 2001, the EPA filed a Sixty-Day
NoticeUnilateral Administrative Order (the
"RCRA Order"), pursuant to Section 7003 of Intent to Sue under the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. Sec. 6973 ("RCRA"), against
the same Respondents as those in the SDWA Order: Seaboard Farms
and underPIC. The RCRA Order contains principally the Emergency Planning and Community
Right-to-Know Act ("EPCRA"). With respect to RCRA, it is allegedsame allegations as
the SDWA Order that the Company is engaging insame five swine facility operations are
causing or could cause contamination of the dumpinggroundwater and that as a
result, Respondents have violated RCRA through the mishandling of
solid waste causingin the lagoons at the facilities which may present an
imminent and substantial endangerment to human health and/or the
environment. The RCRA Order requires Respondents to develop and
undertake a study to determine if there has been any contamination
from the lagoons and if there has been, to develop and undertake a
remedial plan. In the event the Respondents fail to comply with the
RCRA Order, the EPA may commence a civil action and can seek a civil
penalty of underground drinking water sources through elevated
nitrates in excessup to $5,500 per day, per violation.
The facilities which are the subject of the maximum contaminant allowed. With respectSDWA Order and the RCRA
Order were previously owned by PIC. PIC is presently providing
indemnity and defense of the action reserving its right to EPCRA, it is alleged thatcontest the
Company failedobligation to notifyprovide the National
Response Center and local officials of reportable releases of ammonia
and hydrogen sulfide into the air. Both allegations relate to the
Company's "Dorman" confined animal feeding operation. RCRA and EPCRA
authorize civil penalties of $25,000 per each day of each violation.indemnity. The Company does not believe
there are any grounds to contest providing the indemnity. The
indemnity is in the process of reviewing the allegations, but
preliminarily believes they have no merit, and in the event a lawsuit
is filed, will vigorously defend the suit.
Item 4. Submission of Matterssubject to a Vote of Security Holders
The annual meeting of stockholders was held on April 23, 2001 in
Newton, Massachusetts. Two items were submitted to a vote of
stockholders as described in the Company's Proxy Statement dated March
9, 2001. The table below briefly describes the proposals and results
of the stockholders' vote.
Votes in Votes
Favor Against Abstain
1. To elect:
H. Harry Bresky 1,405,046.75 0 32,828
David A. Adamsen 1,435,549.75 0 2,325
Douglas W. Baena 1,435,349.75 0 2,525
Joe E. Rodrigues 1,433,288.75 0 4,586
and Thomas J. Shields 1,435,539.75 0 2,335
as directors.
2. To ratify selection of
KPMG LLP
as independent auditors. 1,435,283.75 222 2,369$5,000,000 limit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- None2.1 Subscription Agreement by and between Seaboard Corporation,
Fjord Seafood ASA, ContiSea, LCC, DRFF Corp., ContiGroup
Companies, Inc. and Sabroso AS, dated March 16, 2001.
(b) Reports on Form 8-K.8-K
Seaboard Corporation has not filed any reports on Form 8-K during
the quarter ended March 31,June 30, 2001.
This Form 10-Q contains 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-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 processing at the Company's hog plant
and the sale
price for pork products from such operations, (v) the price for the
Company's products and services, (vi) the effect of the Company's sugar
business and foreign milling operations 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: May 7,August 6, 2001
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice
President, Treasurer, and Chief
Financial Officer
by: /s/ John A. Virgo
John A. Virgo, Corporate Controller