10-Q 1 qtr3rd00.txt 2000 3RD QUARTER 10-Q FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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, $1.00 par value per share, outstanding on October 27, 2000. Total pages in filing - 19 pages PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, 2000 and December 31, 1999 (Thousands of dollars) (Unaudited) September 30, December 31, 2000 1999 Assets Current assets: Cash and cash equivalents $ 27,480 $ 11,039 Short-term investments 129,451 91,609 Receivables, net 184,206 171,931 Inventories 227,750 192,847 Deferred income taxes 15,708 15,031 Prepaid expenses and deposits 29,058 20,395 Current assets of discontinued operations - 103,464 Total current assets 613,653 606,316 Investments in and advances to foreign affiliates 33,569 28,449 Net property, plant and equipment 610,533 480,415 Other assets 32,312 30,204 Non-current assets of discontinued operations - 132,407 Total assets $1,290,067 $1,277,791 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 68,928 $ 221,353 Current maturities of long-term debt 12,223 11,487 Accounts payable 50,430 61,529 Other current liabilities 168,166 103,697 Current liabilities of discontinued operations - 24,013 Total current liabilities 299,747 422,079 Long-term debt, less current maturities 330,666 318,017 Deferred income taxes 73,975 41,948 Other liabilities 33,043 34,924 Non-current liabilities of discontinued operations - 16,824 Total non-current and deferred liabilities 437,684 411,713 Minority interest 241 831 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 (37) (201) Retained earnings 537,730 428,667 Total stockholders' equity 552,395 443,168 Total liabilities and stockholders' equity $1,290,067 $1,277,791 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings Three months ended September 30, 2000 and 1999 (Thousands of dollars except per share amounts) (Unaudited) September 30, September 30, 2000 1999 Net sales $ 364,491 $ 318,769 Cost of sales and operating expenses 322,141 288,118 Gross income 42,350 30,651 Selling, general and administrative expenses 31,447 27,258 Operating income 10,903 3,393 Other income (expense): Interest income 2,362 1,770 Interest expense (6,995) (7,955) Income (loss) from foreign affiliates (884) 36 Minority interest 102 114 Miscellaneous 3,406 191 Total other income (expense), net (2,009) (5,844) Earnings (loss) from continuing operations before income taxes 8,894 (2,451) Income tax expense (5,230) (666) Earnings (loss) from continuing operations 3,664 (3,117) Earnings from discontinued operations, net of income taxes of $3,199 - 5,269 Net earnings $ 3,664 $ 2,152 Earnings (loss) per common share from continuing operations $ 2.46 $ (2.09) Earnings per common share from discontinued operations - 3.54 Earnings per common share $ 2.46 $ 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 Nine months ended September 30, 2000 and 1999 (Thousands of dollars except per share amounts) (Unaudited) September 30, September 30, 2000 1999 Net sales $1,112,282 $ 884,686 Cost of sales and operating expenses 980,710 801,744 Gross income 131,572 82,942 Selling, general and administrative expenses 90,406 78,082 Operating income 41,166 4,860 Other income (expense): Interest income 9,880 5,540 Interest expense (24,372) (23,972) Loss from foreign affiliates (2,266) (474) Minority interest 590 937 Miscellaneous 10,534 1,409 Total other income (expense), net (5,634) (16,560) Earnings (loss) from continuing operations before income taxes 35,532 (11,700) Income tax expense (16,525) (44) Earnings (loss) from continuing operations 19,007 (11,744) Earnings from discontinued operations, net of income taxes of $9,376 - 15,442 Gain on disposal of discontinued operations, net of income taxes of $56,560 91,172 - Net earnings $ 110,179 $ 3,698 Earnings (loss) per common share from continuing operations $ 12.77 $ (7.89) Earnings per common share from discontinued operations 61.29 10.38 Earnings per common share $ 74.06 $ 2.49 Dividends declared per common share $ .75 $ .75 Average number of shares outstanding 1,487,520 1,487,520 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2000 and 1999 (Thousands of dollars) (Unaudited) September 30, September 30, 2000 1999 Cash flows from operating activities: Net earnings $ 110,179 $ 3,698 Adjustments to reconcile net earnings to cash from operating activities: Net earnings from discontinued operations - (15,442) Net gain on disposal of discontinued operations (91,172) - Depreciation and amortization 36,175 33,675 Loss from foreign affiliates 2,266 474 Gain from sale of fixed assets (1,035) (1,410) Gain from recognition of deferred swap proceeds (3,760) - Deferred income taxes 26,430 452 Changes in current assets and liabilities (net of businesses acquired and disposed): Receivables, net of allowance (12,275) (9,208) Inventories (23,046) (26,688) Prepaid expenses and deposits (8,663) (5,570) Current liabilities exclusive of debt (15,581) (14,605) Other, net (2,799) 2,494 Net cash from operating activities 16,719 (32,130) Cash flows from investing activities: Purchase of investments (1,136,511) (335,503) Proceeds from the sale or maturity of investments 1,098,997 413,248 Capital expenditures (92,997) (47,095) Proceeds from sale of fixed assets 4,203 3,453 Additional investment in a controlled subsidiary - (2,302) Investments in and advances to foreign affiliates (7,386) (879) Acquisition of businesses (45,444) - Proceeds from disposal of discontinued operations, net of cash expenditures 356,107 - Net cash from investing activities 176,969 30,922 Cash flows from financing activities: Notes payable to bank, net (152,425) 45,775 Principal payments of long-term debt (23,706) (24,270) Proceeds from interest rate swaps - 5,982 Dividends paid (1,116) (1,116) Net cash from financing activities (177,247) 26,371 Net cash flows from discontinued operations - (17,042) Net change in cash and cash equivalents 16,441 8,121 Cash and cash equivalents at beginning of year 11,039 20,716 Cash and cash equivalents at end of quarter $ 27,480 $ 28,837 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 as filed in its Annual Report on Form 10-K/A. 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. As a result, management determined to restate the Company's financial statements for each of the prior periods effected. Financial statements and related disclosures contained in this report reflect, where appropriate, changes to conform to these restatements. For the three months ended September 30, 2000, other comprehensive income adjustments totaled $(1.9) million as certain available-for- sale securities with previously unrealized gains were sold during the period. For all other periods presented, other comprehensive income adjustments were immaterial. As more fully described in Note 2, during the first nine months of 2000 the Company sold its Poultry Division and acquired the assets of an existing hog production operation, a cargo terminal facility and a flour and feed milling facility. The following table summarizes the noncash transactions resulting from the Poultry Division sale: Nine Months Ended (Thousands of dollars) September 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, cargo terminal facility and flour and feed milling facility: Nine Months Ended (Thousands of dollars) September 30, 2000 Increase in net working capital $ 8,654 Increase in fixed assets 76,781 Increase in other assets 600 Increase in long-term debt (37,091) Increase in other liabilities (3,500) Cash paid $ 45,444 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. During the third quarter of 2000, the Company purchased the assets of a flour and feed milling facility in the Republic of Congo for approximately $5.9 million, consisting of $3.4 million in cash and $2.5 million payable over the next ten 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 third quarter of 2000, the Company discontinued the business of marketing fruits and vegetables grown through joint ventures or independent growers by selling certain assets of its Produce Division resulting in a $2.0 million loss. 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 September 30, 2000 and December 31, 1999 (in thousands): September 30, December 31, 2000 1999 At lower of LIFO cost or market: Live hogs and related materials $106,498 $ 75,662 Dressed pork and related materials 6,516 8,360 113,014 84,022 LIFO allowance 4,691 4,026 Total inventories at lower of LIFO cost or market 117,705 88,048 At lower of FIFO cost or market: Grain, flour and feed 52,484 41,772 Sugar produced and in process 22,504 22,398 Crops in production and related materials 4,691 7,490 Wine and spirits, finished and in process 12,048 12,555 Other 18,318 20,584 Total inventories at lower of FIFO cost or market 110,045 104,799 Total inventories $227,750 $192,847 Low commodity prices during 2000 and 1999 have created a positive LIFO allowance as overall pork feed costs have decreased below base year levels. This change in LIFO allowance is reflected in earnings as an adjustment to 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 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. Management continues to consider various strategic alternatives for the Produce Division (included in "All Other" below). Continued losses in this division 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 such assets. Sales to External Customers: Three Months Ended Nine Months Ended September 30, September 30, (Thousands of dollars) 2000 1999 2000 1999 Pork $169,185 $138,101 $ 525,071 $394,319 Marine 95,651 74,061 260,135 216,265 Commodity Trading and Milling 68,540 75,698 235,068 190,053 Sugar and Citrus 17,906 15,091 42,457 30,222 Power 6,141 6,110 19,503 16,715 Wine 1,156 2,851 4,591 9,730 All Other 5,912 6,857 25,457 27,382 Segment/Consolidated Totals $364,491 $318,769 $1,112,282 $884,686 Operating Income Three Months Ended Nine Months Ended September 30, September 30, (Thousands of dollars) 2000 1999 2000 1999 Pork $ 14,568 $ 11,195 $ 54,978 $ 24,114 Marine 3,562 (4,631) 6,096 (5,509) Commodity Trading and Milling (1,835) (140) (959) 1,756 Sugar and Citrus (417) (443) (4,217) (9,243) Power 492 1,656 3,480 4,547 Wine (1,922) (838) (5,321) (3,053) All Other (2,926) (1,665) (10,479) (2,265) Segment Totals $ 11,522 $ 5,134 $ 43,578 $ 10,347 Corporate items (619) (1,741) (2,412) (5,487) Segment/Consolidated Totals $ 10,903 $ 3,393 $ 41,166 $ 4,860 Total Assets September 30, December 31, (Thousands of dollars) 2000 1999 Pork $ 503,416 $ 401,316 Marine 109,569 97,561 Commodity Trading and Milling 184,129 161,477 Sugar and Citrus 185,574 167,972 Power 78,684 21,068 Wine 28,162 29,156 All Other 26,802 38,931 Segment Totals 1,116,336 917,481 Corporate items 173,731 124,439 Discontinued Poultry Operations - 235,871 Consolidated Totals $1,290,067 $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. Note 6 - Subsequent Event In October 2000, the Company entered into an agreement with a Bulgarian wine company and its affiliated wine marketing company to combine wine operations. Under the agreement, the Company will contribute its entire interest in its wine business (a controlling interest) and cash in exchange for a minority interest and preferred stock in the combined entity. Currently, the fair value of the combined entity has not been determined. If the fair value of the minority interest acquired by the Company is deemed less than the carrying value of the Company's interest contributed, the Company could incur a loss on this transaction. The closing of this transaction is subject to bank and governmental approvals but is expected to occur during the fourth quarter of 2000. 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 September 30, December 31, 2000 1999 Current ratio 2.05:1 1.44:1 Working capital $313.9 $184.2 Cash from operating activities for the nine months ended September 30, 2000 increased $48.8 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, partially offset by 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. Cash from investing activities for the nine months ended September 30, 2000 increased $146.0 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, cargo terminal facility and flour and feed milling facility. The Company invested $93.0 million in property, plant and equipment for the nine months ended September 30, 2000, of which $24.4 million was expended in the Pork segment, $5.1 million in the Marine segment, $9.6 million in the Sugar and Citrus segment, $49.0 million in the Power segment and $4.9 million in other businesses of the Company. The Company invested $24.4 million in the Pork segment primarily for the expansion of hog production facilities and for improvements to the pork processing plant. The Company plans to invest $3.4 million during the remainder of 2000 for continued expansion of hog production facilities, construction of a new feed mill and general upgrades to the pork processing plant. The Company continues to plan for a second processing plant and is currently pursuing zoning, permitting and development plans for a selected location in northeast Kansas. If the location is deemed viable for development and the requisite zoning permits are obtained, management anticipates that construction would begin in early 2001 and, although not yet finalized, anticipates total projected construction costs of approximately $140 million. Management is currently evaluating financing alternatives for the second processing plant. The Company invested $5.1 million in the Marine segment primarily for container and other material handling equipment. The Company plans to invest $11.2 million during the remainder of 2000 primarily to purchase a previously chartered vessel and for additional equipment. In addition, the Company plans to purchase a second previously chartered vessel in the first quarter of 2001. The Company invested $9.6 million in the Sugar and Citrus segment primarily for improvements to existing facilities and sugarcane fields. During the remainder of 2000, the Company anticipates spending $0.5 million for additional improvements. The Company invested $49.0 million in the Power segment primarily for the construction of a 71.2 megawatt barge-mounted power plant located in the Dominican Republic. During the remainder of 2000, the Company anticipates spending $2.0 million to complete installation. 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 October 2000, the Company entered into an agreement to merge its Bulgarian wine operations. See Note 6 to the Condensed Consolidated Financial Statements for further discussion. 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 September 30, 2000, the Company had $30.0 million outstanding under one-year revolving credit facilities and $38.9 million outstanding under short-term uncommitted credit lines. During the first nine months of 2000, the Company repaid approximately $176.1 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 nine months ended September 30, 2000 increased $45.7 and $227.6 million, respectively, compared to the same periods one year earlier. Operating income for the three and nine months ended September 30, 2000 increased $7.5 and $36.3 million, respectively, compared to the same periods one year earlier. Pork Segment Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 169.2 138.1 $ 525.1 394.3 Operating income $ 14.6 11.2 $ 55.0 24.1 Net sales for the Pork segment increased $31.1 and $130.8 million, respectively, for the three and nine months ended September 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. Operating income for the Pork segment increased $3.4 and $30.9 million, respectively, for the three and nine months ended September 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 hogs or pork but anticipates overall margins will remain favorable during the remainder of 2000. Marine Segment Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 95.7 74.1 $ 260.1 216.3 Operating income (loss) $ 3.6 (4.6) $ 6.1 (5.5) Net sales for the Marine segment increased $21.6 and $43.8 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999. These increases resulted primarily from significant increases in volumes, while cargo rates increased slightly. Management believes that weak economic conditions in certain South American markets continue to depress rates, however, volumes have increased and cargo rates have increased slightly, primarily in the third quarter. 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 $8.2 and $11.6 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999, primarily as a result of the increased volumes discussed above partially offset by higher fuel costs. Management expects that operating income will remain positive for the remainder of 2000. Commodity Trading and Milling Segment Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 68.5 75.7 $ 235.1 190.1 Operating income (loss) $ (1.8) (0.1) $ (1.0) 1.8 Net sales for the Commodity Trading and Milling segment decreased $7.2 million and increased $45.0 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999. While sales for the three month period declined, sales for the nine month period have increased primarily as a result of increased commodity sales to third-parties and certain foreign affiliates. Operating income for this segment decreased $1.7 and $2.8 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999. The decreases are primarily a result of losses incurred from various milling operations, partially offset by margins on the increased commodity sales discussed above. Sugar and Citrus Segment Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 17.9 15.1 $ 42.5 30.2 Operating (loss) $ (0.4) (0.4) $ (4.2) (9.2) Net sales for the Sugar and Citrus segment increased $2.8 million and $12.3 million, respectively, for the three and nine months ended September 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 $5.0 million for the nine months ended September 30, 2000 compared to the same period 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 operating results for the remainder of 2000. As a result of 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 Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 6.1 6.1 $ 19.5 16.7 Operating income $ 0.5 1.7 $ 3.5 4.5 Net sales for the Power segment were unchanged for the three months ended September 30, 2000 and increased $2.8 million for the nine months ended September 30, 2000 compared to the same periods in 1999. Sales increased during 2000 primarily as a result of a fuel adjustment clause allowing the Company to pass on higher fuel costs, partially offset by a decrease in rates resulting from a new contract effective in the third quarter of 2000. Operating income decreased $1.2 million and $1.0 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999, primarily as a result of the new supply contract and certain start up expenses associated with the new power barge. The new power barge began operation in October of 2000. Wine Segment Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 1.2 2.9 $ 4.6 9.7 Operating loss $ (1.9) (0.8) $ (5.3) (3.1) Net sales for the Wine segment decreased $1.7 million and $5.1 million, respectively, for the three and nine months ended September 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 $1.1 million and $2.2 million, respectively, for the three and nine months ended September 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. Management anticipates that operating losses will continue during 2000. All Other Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2000 1999 2000 1999 Net sales $ 5.9 6.9 $ 25.5 27.4 Operating loss $ (2.9) (1.7) $ (10.5) (2.3) Operating income from all other businesses decreased for the three and nine months ended September 30, 2000, compared to the same periods in 1999. This decrease was primarily the result of low yields and quality 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. During the third quarter of 2000 the Company discontinued the business of marketing fruits and vegetables grown through joint ventures or independent growers by selling certain assets of its Produce Division (see Note 2 to the Condensed Consolidated Financial Statements). Management continues to consider various strategic alternatives for the remaining portions of this division. Continued losses in the remaining operations 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 $4.2 and $12.3 million, respectively, for the three and nine months ended September 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 increases in reserves for certain uncollectible grower advances in the Produce Division and uncollectible advances for raw materials in the Wine Segment as discussed above. As a percentage of revenues, SG&A for the third quarter of 2000 remained unchanged from the third quarter of 1999 at 8.6%. For the nine months ended September 30, 2000 SG&A decreased to 8.1% from 8.8% for the same period in 1999. This decrease is 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 $0.6 and $4.3 million, respectively, for the three and nine months ended September 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. Loss from Foreign Affiliates Losses from foreign affiliates increased $0.9 and $1.8 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999, primarily from lower earnings at certain milling operations in Africa. Miscellaneous Income Miscellaneous income increased $3.2 and $9.1 million, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in 1999. For the three months, this increase is primarily attributable to the gain on the sale of certain marketable securities held for sale and increased profitability from a domestic affiliate, partially offset by the loss on sale of certain produce assets. For the nine months, the increase is also 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 nine months ended September 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 2. Legal Proceedings On September 21, 2000, the United States Environmental Protection Agency (USEPA) obtained four Warrants and Orders for Entry and Investigation issued by the United States District Court for the Western District of Oklahoma, Docket Nos. M00 197-AR to 200-AR inclusive, with respect to four facilities located in Beaver County, Oklahoma, one of which is presently being leased and three of which the Company is obligated to lease upon the completion of construction. In connection with obtaining the warrants, the USEPA indicated they were investigating whether violations of the Clean Water Act, 33 USC 1251, et seq. occurred. At present, these matters involve only an investigation under the Clean Water Act, and, accordingly, no relief has yet been sought by USEPA. However, should an enforcement action result, the government may seek (a) to require the Company to obtain requisite permits in order to engage in operations or continue with construction, as the case may be, 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. An amended complaint was filed August 17, 2000. The Sierra Club alleges several violations of the Clean Water Act, and intends to seek injunctive relief and a civil penalty of $25,000 for each day of each 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 - 27.1 Financial Data Schedule (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 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, (iv) the price for the Company's products and services, (v) the effect of Tabacal and/or the Wine segment on the consolidated financial statements of the Company, (vi) the expected closing of a transaction for the Bulgarian wine business, or (vii) other trends affecting the Company's financial condition or results of operations. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of various factors. The accompanying information contained in this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" identifies important factors which could cause such differences. PART II - OTHER INFORMATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: October 30, 2000 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Vice President-Chief Financial Officer (Authorized officer and principal financial and accounting officer)