EX-13 6 annual01.txt 2000 ANNUAL REPORT Summary of Selected Financial Data (Thousands of dollars except per share amounts) Years ended December 31, 2000 1999 1998 1997 1996 Net sales $1,583,696 $1,284,262 $1,294,492 $1,328,841 $ 971,903 Earnings (loss) from continuing operations $ 8,872 $ (13,587)$ 31,427 $ 35,070 $ 5,203 Net earnings $ 98,909 $ 47 $ 50,938 $ 29,079 $ 5,388 Earnings (loss) per common share from continuing operations $ 5.96 $ (9.13)$ 21.12 $ 23.58 $ 3.50 Earnings per common share$ 66.49 $ 0.03 $ 34.24 $ 19.55 $ 3.62 Total assets $1,312,848 $1,277,791 $1,215,897 $1,119,327 $1,002,892 Long-term debt,less current maturities $ 312,418 $ 318,017 $ 313,324 $ 290,521 $ 281,574 Stockholders' equity $ 540,685 $ 443,168 $ 444,728 $ 395,368 $ 367,782 Dividends per common share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 The Company completed the sale of its Poultry Division on January 3, 2000, recognizing an after-tax gain on disposal of discontinued operations of $90,037,000 or $60.53 per common share after a final adjustment in the fourth quarter of 2000. See Note 13 to the Consolidated Financial Statements for further discussion. In the fourth quarter of 2000, the Company's Pork Division reclassified certain shipping and handling costs from a reduction of revenue to cost of sales. Prior periods have been reclassified to conform with the current presentation. See Note 1 to the Consolidated Financial Statements for further discussion. The Company changed its method of accounting for certain inventories from FIFO to LIFO in 1999. The net effect of this change in 1999 was to increase net earnings by $2,456,000 or $1.65 per common share. In December 1998, the Company sold its baking and flour milling operations in Puerto Rico, recognizing an after-tax gain of $33,272,000 or $22.37 per common share. See Note 2 to the Consolidated Financial Statements for further discussion. The Company changed its method of accounting for spare parts and supplies inventories in 1996. The cumulative effect of this change at January 1, 1996, was to increase net earnings by $3,006,000 or $2.02 per common share. In addition, the net effect of this change in 1996, exclusive of the cumulative effect, was to increase net earnings by $788,000 or $0.53 per common share. Quarterly Financial Data (unaudited) (UNAUDITED) (Thousands of dollars 1st 2nd 3rd 4th Total for except per share amounts) Quarter Quarter Quarter Quarter the Year 2000 Net sales $ 369,807 393,917 372,260 447,712 $1,583,696 Operating income $ 18,035 12,228 10,903 6,899 $ 48,065 Earnings (loss) from continuing operations $ 9,859 5,484 3,664 (10,135)$ 8,872 Net earnings (loss) $ 101,031 5,484 3,664 (11,270)$ 98,909 Earnings (loss) per common share from continuing operations $ 6.63 3.68 2.46 (6.81)$ 5.96 Earnings (loss) per common share $ 67.92 3.68 2.46 (7.57)$ 66.49 Dividends per common share: $ 0.25 0.25 0.25 0.25 $ 1.00 Market price range per common share: High $ 200 206 204 182 Low $ 153 170 162 150 1999 Net sales $ 264,249 316,536 324,898 378,579 $1,284,262 Operating income $ 405 1,062 3,393 7,508 $ 12,368 Earnings (loss) from continuing operations $ (4,432) (4,195) (3,117) (1,843)$ (13,587) Net earnings (loss) $ (612) 2,158 2,152 (3,651)$ 47 Earnings (loss) per common share from continuing operations $ (2.98) (2.82) (2.09) (1.24)$ (9.13) Earnings (loss) per common share $ (0.41) 1.45 1.45 (2.46)$ 0.03 Dividends per common share $ 0.25 0.25 0.25 0.25 $ 1.00 Market price range per common share: High $ 457 340 320 262 Low $ 298 256 216 185 1/4 The Company completed the sale of its Poultry Division on January 3, 2000, recognizing an after-tax gain on disposal of discontinued operations of $90,037,000 or $60.53 per common share after a final adjustment to decrease the gain by $1,135,000 or $0.76 per common share in the fourth quarter of 2000. See Note 13 to the Consolidated Financial Statements for further discussion. In the fourth quarter of 2000, the Company exchanged its controlling interest in a Bulgarian wine company and $10,400,000 cash for a non-controlling interest in a larger Bulgarian wine operation, realizing an after-tax loss on the exchange of $3,648,000 or $2.45 per common share. See Note 2 to the Consolidated Financial Statements for further discussion. In the fourth quarter of 2000, the Company's Pork Division reclassified certain shipping and handling costs from a reduction of revenue to cost of sales. Prior periods have been reclassified to conform with the current presentation. See Note 1 to the Consolidated Financial Statements for further discussion. Management's Discussion & Analysis Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (Dollars in millions) 2000 1999 1998 Current ratio 1.92:1 1.44:1 1.64:1 Working capital $ 292.3 184.2 231.1 Cash from operating activities $ (0.5) (40.5) 59.5 Capital expenditures $ 116.9 67.7 26.9 Long-term debt, less current maturities $ 312.4 318.0 313.3 Cash provided by operating activities for 2000 increased $40.0 million compared to 1999. The increase was primarily related to an increase in cash from 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 exchanged/disposed, are primarily related to the timing of normal transactions for voyage settlements, trade payables, accrued liabilities and receivables. Within the Commodity Trading and Milling, and Power segments, higher sales in the fourth quarter of 2000 compared to the fourth quarter of 1999 resulted in increased receivable balances at December 31, 2000. Within the Commodity Trading and Milling segment, receivables and deferred revenues also increased at December 31, 2000 related to an increase in incomplete voyages compared to December 31, 1999. Despite the increase in deferred revenue, the change in current liabilities exclusive of debt resulted in a use of cash during 2000 as the Company funded approximately $16.0 million for accruals established as a component of the discontinued poultry operations sale in January 2000, primarily offsetting the increase in deferred revenues. These accruals related primarily to funding required for certain expansion projects in accordance with the original sales agreement. See Note 13 to the Consolidated Financial Statements for further discussion of the discontinued poultry operations. Cash provided by operating activities for 1999 decreased $100.0 million compared to 1998. The decrease is primarily related to changes in certain components of working capital, which include Tabacal for 1999 (see Sugar and Citrus segment discussion below), and a decrease in net earnings from continuing operations. Changes in components of working capital are primarily related to the timing of normal transactions for voyage settlements, trade payables and receivables. Within the Commodity Trading and Milling segment there was a higher value of inventory in transit at December 31, 1999 than at December 31, 1998 resulting in increases in grain inventory and prepaid expense balances and a partially offsetting increase in deferred revenue balances. Current liabilities exclusive of debt increased only slightly during 1999 as the Company paid $14.6 million in taxes related to the 1998 gain from the sale of baking and flour milling operations in Puerto Rico, primarily offsetting the increase in deferred revenue balances. Cash from investing activities for 2000 increased $178.3 million compared to 1999. The increase is primarily related to proceeds from the sale of discontinued poultry operations, partially offset by acquisitions, investments in foreign affiliates and capital expenditures. See Note 2 to the Consolidated Financial Statements for further discussion of the Poultry Division sale, the acquisition of the assets of a hog production operation, a cargo terminal facility, and a flour and feed milling facility and the exchange of a controlling interest in a Bulgarian wine operation and cash for a non-controlling interest in a larger Bulgarian wine operation. The Company invested $116.9 million in property, plant and equipment during 2000 as described below. The Company invested $26.4 million in the Pork segment during 2000 primarily for the expansion of hog production facilities, including starting construction on a new feed mill, and for improvements to the pork processing plant. The Company currently anticipates investing $14.0 million during 2001 for continued expansion of hog production facilities, completion of the new feed mill and general upgrades to the pork processing plant. The Company previously announced plans to commence construction on a second processing plant in 2001 including the selection of a location in northeast Kansas. However, permitting and site issues now make plant construction in 2001 uncertain. The Company invested $17.1 million in the Marine segment during 2000 primarily to purchase a previously chartered vessel and for container and other material handling equipment. The Company currently anticipates investing $14.5 million during 2001 primarily to purchase another previously chartered vessel in February 2001 and for additional equipment. The Company invested $14.4 million in the Sugar and Citrus segment primarily for improvements to existing facilities and sugarcane fields. During 2001, the Company currently plans to spend $8.0 million for additional improvements. The Company invested $52.1 million in the Power segment primarily for the construction of a 71.2 megawatt barge-mounted power plant located in the Dominican Republic. No material capital expenditures are expected in this division during 2001. Capital expenditures in all other segments during 2000 totaled $6.9 million in general modernization and efficiency upgrades of plant and equipment. Management anticipates the planned capital expenditures for 2001 will be financed by internally generated cash. 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. During the fourth quarter of 2000, the Company exchanged its controlling interest in a Bulgarian wine company and $10.4 million cash for a non-controlling interest in a larger Bulgarian wine operation, realizing a $5.6 million pre-tax loss in the exchange. This investment will be accounted for using the equity method. The Company has a non-controlling interest in a joint venture in Maine primarily engaged in the production and processing of salmon and other seafood products. In December 2000, this joint venture signed a non-binding letter of intent to merge with Fjord Seafood ASA (Fjord), a large salmon operation in Norway. Pending the resolution of certain contract terms, the merger is expected to close in the second quarter of 2001, resulting in the Company holding a less than 10% ownership interest in Fjord. Based on current fair market value of Fjord, the Company anticipates recognizing a gain upon completion of this transaction. Cash from investing activities for 1999 increased $44.7 million compared to 1998. The increase is primarily related to a net sale and maturity of investments in 1999 compared to a net purchase of investments in 1998. The net purchase of investments in 1998 related to the $72.4 million in cash received from the sale of baking and flour milling operations. During 1998, investments in and advances to foreign affiliates included $45.8 million to Tabacal. As further discussed in Note 5 to the Consolidated Financial Statements, Tabacal has been consolidated since December 31, 1998. As such, funds invested in Tabacal during 1999 are reflected within the appropriate components of the cash flow statements, including capital expenditures. During 1999, the Company invested $67.7 million in the property, plant and equipment of continuing operations. Capital expenditures in the Pork segment totaled $22.1 million primarily for the expansion of existing hog production facilities and for improvements to the pork processing plant. Capital expenditures in the Marine segment totaled $20.0 million primarily for the purchase of two vessels previously chartered and for general replacement and upgrades of property and equipment. Capital expenditures in the Commodity Trading and Milling segment totaled $4.8 million, including $2.0 million to purchase a previously chartered bulk carrier vessel from a wholly-owned subsidiary of Seaboard Flour Corporation, the owner of 75.3% of the Company's outstanding common stock. Capital expenditures in the Sugar and Citrus segment totaled $15.0 million primarily for improvements to existing operations and expansion of sugarcane fields. Capital expenditures in all other segments totaled $5.8 million in general modernization and efficiency upgrades of plant and equipment. During 1999, the Company invested $2.8 million to acquire additional shares of a Bulgarian winery originally acquired in 1998. During 1999, the Company also invested $1.7 million for a minority interest in a flour mill in Angola which is being accounted for using the equity method. Cash from financing activities in 2000 decreased $232.9 million compared to 1999 primarily from the repayment of notes payable in 2000 compared to net borrowings in 1999. During 2000, the Company repaid approximately $165.8 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. During 2000, the Company borrowed proceeds of $5.2 under an industrial development revenue bond. These funds were acquired for construction of a Pork Division feed mill. As of December 31, 2000, $4.1 million of the proceeds remains in a bond construction fund to be used for completion of the mill in 2001. During 2000, the Company's one-year revolving credit facilities totaling $153.3 million 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 $119.5 million. As of December 31, 2000, the Company had $31.2 million outstanding under one-year revolving credit facilities and $49.3 million outstanding under short-term uncommitted credit lines. Subsequent to year-end, 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 short-term uncommitted credit lines totaling $119.5 million were reduced to $109.5 million. Cash from financing activities in 1999 increased $90.6 million compared to 1998, primarily related to proceeds from short-term borrowings and, to a lesser extent, terminating interest rate swap agreements. During 1999, the Company terminated interest rate exchange agreements effectively fixing the interest rate on $200 million of variable rate debt for proceeds totaling $6.0 million. During 1999, the Company prepaid at a discount certain long-term debt obligations assumed with the purchase of the Bulgarian winery in October 1998 and adjusted certain balances related to the acquisition. During 1999, the Company also prepaid at a discount other higher cost, U.S. dollar denominated foreign subsidiary debt obligations. These prepayments reduced total long-term debt obligations by $13.5 million. Changes to the preliminary purchase price allocations and other non-cash adjustments related to these transactions resulted in immaterial adjustments to several balance sheet line items, primarily reductions to minority interest, net property, plant and equipment, and long-term debt. Cash used in discontinued poultry operations in 1999 primarily represents capital expenditures ($52.9 million including expansion projects) in excess of net operating cash flows. The decrease in cash from discontinued operations in 1999 compared to 1998 is primarily a result of lower earnings and higher capital expenditures. 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 totaled $1,583.7 million for the year ended December 31, 2000, compared to sales of $1,284.3 million for the year ended December 31, 1999. Operating income of $48.1 million for 2000 increased $35.7 million compared to 1999. Net sales totaled $1,284.3 million for the year ended December 31, 1999, compared to sales of $1,294.5 million for the year ended December 31, 1998. Operating income of $12.4 million for 1999 decreased $17.4 million compared to 1998. Pork Segment (Dollars in millions) 2000 1999 1998 Net sales $ 724.7 600.1 529.5 Operating income $ 63.4 37.7 (1.1) Net sales increased $124.6 million to $724.7 million in 2000 compared to 1999. This increase is 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 $25.7 million to $63.4 million in 2000 compared to 1999. This increase is 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 processed. While the cost of third-party hogs increased, third-party hogs as a percent of total hogs processed decreased. While management is unable to predict future market prices, it currently anticipates that overall market conditions in 2001 will continue to provide profitable results, although lower than those achieved in 2000. Net sales increased $70.6 million to $600.1 million in 1999 compared to 1998. This increase is primarily the result of an increase in sales volume and, to a lesser extent, improved prices for finished pork products. The increase in sales volume is the result of the hog processing plant operating at full capacity on a double-shift basis during 1999. The plant employed a second shift during the first half of 1998, but did not achieve full double-shift capacity until the third quarter of 1998. An excess supply of live hogs depressed pork prices during 1998 and the first half of 1999. During the second half of 1999, the excess declined, resulting in improved prices for the year. Operating income increased $38.8 million to $37.7 million in 1999 compared to 1998. This increase is primarily a result of improved sales prices and, to a lesser extent, a decrease in the cost of Company-raised hogs. The decrease in the cost of Company- raised hogs is primarily the result of lower grain prices. The Company also continued to benefit from low prices for third-party hogs purchased during 1999. However, an increase in this cost during the fourth quarter of 1999 compared to extremely low prices for third-party hogs during the fourth quarter of 1998 resulted in a slight increase in this cost for the year. In addition, effective January 1, 1999, the Company changed its method of accounting for certain pork inventories from FIFO to LIFO, increasing operating income in 1999 by $4.0 million. Marine Segment (Dollars in millions) 2000 1999 1998 Net sales $ 364.9 307.7 310.9 Operating income $ 14.5 (1.9) 17.4 Net sales for the Marine segment increased $57.2 million to $364.9 million in 2000 compared to 1999. This increase resulted primarily from significant increases in volumes, while cargo rates increased slightly. Management believes weak economic conditions in certain South American markets continued to depress rates for the first half of 2000; however, volumes increased and cargo rates improved in the second half of the year. Operating income from the Marine segment increased $16.4 million to $14.5 million in 2000 compared to 1999, primarily as a result of the increased volumes discussed above partially offset by higher fuel costs. Management expects operating income will remain positive during 2001, anticipating further volume increases and continued rate improvement in certain South American markets, but with uncertainty concerning fuel costs. Net sales decreased $3.2 million to $307.7 million in 1999 compared to 1998. Cargo volumes and applicable cargo rates decreased in the first half of 1999 compared to 1998 primarily as a result of weak economic conditions in certain South American markets served by the Company. During the second half of 1999, overall cargo volume increased from 1998 due to improvements in certain markets, but the effect on net sales was largely offset as rates remained depressed. Operating income from the Marine segment decreased $19.3 million to $(1.9) million in 1999 compared to 1998, primarily as a result of lower cargo rates discussed above. Commodity Trading and Milling Segment (Dollars in millions) 2000 1999 1998 Net sales $ 359.0 259.5 306.4 Operating income $ (3.5) 2.6 10.5 Net sales increased $99.5 million to $359.0 million in 2000 compared to 1999, primarily as a result of increased wheat sales to third parties in certain markets and to certain foreign affiliates. Operating income decreased $6.1 million to $(3.5) million in 2000 compared to 1999, primarily as result of losses from the Company's milling operations in Zambia and decreased income from operating certain mills in foreign countries. 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. Net sales decreased $46.9 million to $259.5 million in 1999 compared to 1998, primarily as a result of lower wheat sales to certain foreign affiliates, lower soybean sales to third parties and, to a lesser extent, a decrease in commodity prices sold in foreign markets. Wheat sales to certain foreign affiliates decreased as political unrest resulted in economic problems that reduced consumer purchasing power and thus lowered milling volumes. Such decreases were partially offset by the addition of sales during 1999 from the Company's milling operations in Zambia acquired in late 1998. Operating income decreased $7.9 million to $2.6 million in 1999 compared to 1998, primarily as a result of the decrease in wheat sales and margins to certain foreign affiliates as discussed above and operating losses from the Company's milling operations in Zambia acquired in late 1998. The Company has evaluated the recoverability of the long-lived assets of its Zambian milling operations due to its recent operating losses. Total long-lived assets at December 31, 2000 are $6.8 million. Currently, the Company believes the value of those assets is 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. Sugar and Citrus Segment (Dollars in millions) 2000 1999 1998 Net sales $ 60.1 46.9 - Operating income $ (7.6) (15.9) - Net sales increased $13.2 million to $60.1 million compared to 1999, primarily a result of higher sales volumes, partially offset by slightly lower prices. Operating income increased $8.3 million to $(7.6) million compared to 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. Although management is not able to predict sugar prices for 2001, it is anticipated that operating results may improve based on recent sugar price trends. As discussed in Note 5 to the Consolidated Financial Statements, comparative 1998 operating results for the Sugar and Citrus segment are not presented as this business was accounted for on the equity method in 1998. However, lower sugar prices offset increased volumes resulting in lower revenues and higher losses in 1999 compared to 1998. Lower sugar prices were primarily the result of an excess supply of sugar in Argentina and, to a lesser extent, lower sugar prices on the world market. As discussed above, during the second quarter of 1999, severance charges of $3.0 million were incurred related to certain employee layoffs. During 1998, the loss from foreign affiliates attributable to this business was $15.8 million. As a result of past operating losses, the Company annually evaluates the recoverability of the segment's long-lived assets and believes the value of those assets is presently recoverable. Further long-term decline in sugar prices could 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 (Dollars in millions) 2000 1999 1998 Net sales $ 35.8 23.0 26.2 Operating income $ 6.0 7.9 8.8 Net sales increased $12.8 million to $35.8 million in 2000 compared to 1999, primarily as a result of the new power barge beginning operation in October 2000 and, to a lesser extent, a fuel adjustment clause allowing the Company to pass on higher fuel costs. Operating income decreased $1.9 million to $6.0 million in 2000 compared to 1999, primarily as a result of the recovery of previously written-off receivables in 1999 and, to a lesser extent, certain start up expenses associated with the new power barge. Net sales decreased $3.2 million to $23.0 million in 1999 compared to 1998. Operating income decreased $0.9 million to $7.9 million in 1999 compared to 1998. These decreases are primarily a result of the termination of operations in October 1998 of a customer that was the only user of service from a generating station owned by the Company. Wine Segment (Dollars in millions) 2000 1999 1998 Net sales $ 6.8 12.9 - Operating income $ (9.2) (5.9) - As discussed in Note 2 to the Consolidated Financial Statements, Seaboard's consolidated wine segment and a cash contribution were exchanged for a non-controlling interest in a larger Bulgarian wine operation on December 29, 2000. As the Wine segment was previously consolidated on a three-month lag, in order to reflect the operating results of the Wine segment through the date of the exchange, the Wine segment's results for 2000 include 15 months of operations. The effect of including the additional three month activity in fiscal 2000 increased revenues by $1.2 million and decreased operating income by $1.9 million. Despite the inclusion of the additional three months' revenue for 2000, net sales decreased $6.1 million to $6.8 million in 2000 compared to 1999, primarily as a result of lower sales volumes in certain European markets. Operating income decreased $3.3 million to $(9.2) million in 2000 compared to 1999, primarily resulting from lower sales and the inclusion of additional losses through the date of exchange as 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. As discussed in Note 2 to the Consolidated Financial Statements, the Company originally acquired its wine business in October 1998. No results are presented for 1998 as the winery was reported on a three-month lag. Operating losses in 1999 are primarily a result of acquiring more expensive wine materials on the open market to supplement local grape shortages and reserving for uncollectible advances for raw materials. All Other Segments (Dollars in millions) 2000 1999 1998 Net sales $ 32.3 34.3 121.5 Operating income $ (11.5) (4.7) (0.4) Operating income decreased $6.8 million to $(11.5) million in 2000 compared to 1999, primarily as a 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 melon grower advances. 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 Consolidated Financial Statements). As a result of the sale and other operational and business changes in the Produce Division, management anticipates improved operating results for this division in 2001. Net sales from other operations decreased $87.2 million to $34.3 million in 1999 compared to 1998, while operating income decreased $4.3 million to $(4.7) million in 1999 compared to 1998. These decreases are primarily a result of the sale of the Puerto Rican baking operations in December 1998 as discussed in Note 2 to the Consolidated Financial Statements. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses totaled $129.2 million, $107.8 million and $119.3 million for the years ended December 31, 2000, 1999 and 1998, respectively. The 2000 increase is primarily a result of costs associated with acquired operations in the Pork segment, additional three month expenses in the Wine segment, increases in reserves for certain uncollectible grower advances in the Produce Division, uncollectible advances for raw materials in the Wine segment and increases in the Power segment associated with the recovery of receivables written-off in prior years. As a percentage of revenues, SG&A decreased to 8.2% in 2000 from 8.4% in 1999. This decrease is primarily attributable to increases in revenues in the Marine, Trading and Milling, and Sugar segments without a corresponding increase in SG&A costs. As a percent of revenues, SG&A decreased to 8.4% in 1999 compared to 9.2% in 1998 primarily as a result of the sale of the Puerto Rican baking operations in December 1998. This decrease is partially offset by the consolidation of Tabacal results in 1999, including the $3.0 million of severance charges discussed above, and the winery and Zambia milling operations acquired in late 1998. Interest Income Interest income totaled $12.6 million, $7.4 million and $7.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. The increase in 2000 over 1999 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. The increase in 1999 reflects an increase in interest rates partially offset by a decrease in average funds invested. Interest Expense Interest expense totaled $30.1 million, $31.4 million and $26.4 million for the years ended December 31, 2000, 1999 and 1998, respectively. The decrease in 2000 primarily reflects a decrease in short-term borrowings. In addition, interest expense for 1999 and 1998 excludes amounts allocated to the discontinued poultry operations (see Note 13 to the Consolidated Financial Statements). Short-term borrowings decreased primarily as a result of the proceeds from the sale of the Poultry Division in January 2000. The increase in 1999, as compared to 1998, reflects an increase in both long-term and short-term average borrowings and an increase in interest rates. The increase in average borrowings during 1999 is primarily attributable to the consolidation of the sugar business in December 1998. Loss from Foreign Affiliates Loss from foreign affiliates totaled $2.4 million, $1.4 million and $17.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. The increase in 2000 is primarily the result of the addition of a new milling operation and lower earnings at certain existing milling operations in Africa. Based on current political and economic situations in Africa, management anticipates losses from foreign milling affiliates to continue in 2001. As discussed above, the Company will report its wine investment on an equity basis for 2001 and anticipates related losses will also contribute to increased losses from foreign affiliates in 2001. Losses decreased in 1999 compared to 1998 primarily as a result of excluding the operations of the sugar business. As discussed in Note 5 to the Consolidated Financial Statements, subsequent to 1998 the sugar business is included in consolidated operations. Gain (Loss) on Exchange/Disposition of Businesses On December 29, 2000, the Company exchanged its controlling interest in a Bulgarian wine operation and cash for a non- controlling interest in a larger wine operation resulting in a pre-tax loss of $5.6 million ($3.6 million after tax). On December 30, 1998, the Company completed the sale of its baking and flour milling businesses in Puerto Rico resulting in a pre- tax gain of $54.5 million ($33.3 million after taxes). See Note 2 to the Consolidated Financial Statements for further discussion of each of these transactions. Miscellaneous Income Miscellaneous income totaled $11.1 million, $3.1 million and $3.9 million for the years ended December 31, 2000, 1999 and 1998, respectively. The increase in 2000 is primarily attributable to the recognition of unamortized proceeds from prior terminations of interest rate agreements associated with debt repaid during the year, gains on the sale of marketable securities held for sale and increased profitability from a domestic affiliate, partially offset by the loss on sale of certain produce assets. Income Tax Expense The effective tax rates increased significantly during 2000 and 1999 primarily as a result of significant increases in overall losses from foreign entities for which tax benefits are not available within their respective countries or to offset domestic income. Discontinued Operations Earnings from discontinued poultry operations (see Note 13 to the Consolidated Financial Statements), net of income taxes, decreased in 1999 compared to 1998 due primarily to lower overall sales prices for poultry products, partially offset by lower finished feed costs. An increase in poultry production within the industry had resulted in lower prices for most poultry products while the Russian economic situation had a negative effect on domestic prices for dark meat sales. Other Financial Information The Company is subject to various federal and state regulations regarding environmental protection and land and water use. Among other things, these regulations affect the disposal of livestock waste and corporate farming matters in general. Management believes it is in compliance, in all material respects, with all such regulations. Laws and regulations in the states where the Company currently conducts its pork operations are becoming more restrictive. These and future changes could delay the Company's expansion plans or increase related development costs. Future changes in environmental or corporate farming laws could affect the manner in which the Company operates its business and its cost structure. The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities an amendment of FASB Statement No. 133." These statements establish accounting and reporting standards for derivative instruments and all hedging activities. They require that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. For derivatives that qualify as effective hedges, the change in fair value will have no net impact on earnings until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value will affect current period net earnings. The Company will adopt these statements during the first quarter of fiscal 2001. The adoption will result in adjustments primarily to the Company's balance sheet as derivative instruments and related agreements and deferred amounts are recorded as assets or liabilities with corresponding adjustments to Other Comprehensive Income or earnings. The adoption is not expected to have a material impact on the Company's earnings or cash flows. The Company does not believe its businesses have been materially adversely affected by general inflation. Derivative Information The Company is exposed to various types of market risks from its day-to-day operations. Primary market risk exposures result from changing interest rates, 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 risks of increasing prices of raw materials and firm sales commitments. 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 these risks through the use of foreign currency forward exchange agreements. The table below provides information about the Company's non- trading financial instruments sensitive to changes in interest rates at December 31, 2000. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. At December 31, 2000, long-term debt includes foreign subsidiary obligations of $5.0 million denominated in U.S. dollars, $2.5 million denominated in Congolese francs, and $11.0 million payable in Argentine pesos. At December 31, 1999, long-term debt includes foreign subsidiary obligations of $5.1 million denominated in U.S. dollars and $12.8 million payable in Argentine pesos. The Argentine peso is currently pegged to the U.S. dollar and management believes there is minimal exchange rate risk. Weighted average variable rates are based on rates in place at the reporting date. Short-term instruments including short-term investments, non-trade receivables and current notes payable have carrying values that approximate market and are not included in this table due to their short-term nature. (Dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total Long-term debt: Fixed rate $ 33,229 26,973 51,379 51,439 51,656 68,704 $283,380 Average interest rate 6.55% 6.98% 7.38% 7.39% 7.40% 8.07% 7.42% Variable rate $ 1,258 26,667 - - - 35,600 $ 63,525 Average interest rate 5.00% 7.12% - - - 5.64% 6.25% Non-trading financial instruments sensitive to changes in interest rates at December 31, 1999 consisted of fixed rate long- term debt totaling $251.6 million with an average interest rate of 7.53%, and variable rate long-term debt totaling $77.9 million with an average interest rate of 6.25%. Inventories that are sensitive to changes in commodity prices, including carrying amounts and fair values at December 31, 2000 and 1999 are presented in Note 4 to the Consolidated Financial Statements. Projected raw material requirements, finished product sales, and firm sales commitments may also be sensitive to changes in commodity prices. The tables below provide information about the Company's derivative contracts that are sensitive to changes in commodity prices. Although used to manage overall market risks, certain contracts do not qualify as hedges for financial reporting purposes. As a result, they are classified as trading instruments and carried at fair market value. Contracts that qualify as hedges for financial reporting purposes are classified as non-trading instruments. Gains and losses on non-trading instruments are deferred and recognized as adjustments of the carrying amounts of the commodities when the hedged transaction occurs. The following tables present the notional quantity amounts, the weighted average contract prices, the contract maturities, and the fair value of the position of the Company's open trading and non-trading derivatives at December 31, 2000.
Trading: Contract Volumes Wtd.-avg. Fair Futures Contracts Quantity Units Price/Unit Maturity Value (000's) Corn purchases - long 815,000 bushels $ 2.26 2001 $ 48 Corn sales - short 105,000 bushels 2.53 2001 (9) Soybean meal purchases - long 1,500 tons 194.24 2001 2 Contract Volumes Wtd.-avg.Exercise Fair Options Contracts Quantity Units Price/Unit Maturity Value (000's) Wheat puts written - long 885,000 bushels $ 3.10 2001 $ (19) Wheat calls written - short collars 130,000 bushels 3.80 2001 (1) Wheat calls purchased - long collars 1,015,000 bushels 3.36 2001 84 Soybean meal puts purchased - short 5,500 tons 190.00 2001 32 Soybean meal calls purchased - long collars 5,500 tons 190.00 2001 29 Soybean meal calls written - short collars 5,500 tons 190.00 2001 (29) Non-trading: Contract Volumes Wtd.-avg. Fair Futures Contracts Quantity Units Price/Unit Maturity Value (000's) Corn purchases - long 3,615,000 bushels $ 2.22 2001 $ 342 Corn sales - short 3,905,000 bushels 2.24 2001 (285) Wheat purchases - long 5,050,000 bushels 3.14 2001 (32) Wheat sales - short 4,850,000 bushels 3.16 2001 173 Soybean meal purchases - long 81,700 tons 183.69 2001 739 Soybean meal sales - short 81,200 tons 185.31 2001 (630) Soybean purchases - long 1,245,000 bushels 4.87 2001 159 Soybean sales - short 1,245,000 bushels 4.88 2001 (146)
At December 31, 1999, the Company had net trading contracts to purchase 2.3 million bushels of grain (fair value of $(246,000)) and 11,200 tons of meal (fair value of $24,000), and net contracts to sell 1.4 million pounds of hogs (fair value of $16,000). At December 31, 1999, the Company had net non-trading contracts to sell 1.3 million bushels of grain (fair value of $(119,000)) and 3,200 tons of meal (fair value of $19,000). The table below provides information about the Company's trade receivables and financial instruments sensitive to foreign currency exchange rates, and all related forward currency exchange agreements at December 31, 2000. Information is presented in U.S. dollar equivalents and all contracts mature in 2001. The table presents the notional amounts and weighted average exchange rate. The notional amount is generally used to calculate the contractual payments to be exchanged under the contract. (Dollars in thousands) Contract Amounts Fair Value Firmly committed sales contracts (African rands (ZAR)) $ 35,458 $ (64) Related derivative: Forward exchange agreements (receive $US/pay ZAR) $ 35,819 $ 62 Average contractual exchange rate 7.63 Short-term notes payable: Variable rate (yen) $ 20,000 $ 20,000 Average effective interest rate 7.60% Related Derivative: Forward exchange agreement, including projected interest due at maturity (receive yen/pay $US) $ 20,242 $ 20,242 Exchange rate 110.87 At December 31, 1999, the Company had net agreements to exchange $25,565,000 of contracts denominated in African rands at an average contractual exchange rate of 6.22 ZAR to one U.S. dollar and an agreement effectively fixing the exchange rate on the $20 million payable in yen at 104.13 to one U.S. dollar (contract values approximate market). Responsibility for Financial Statements The consolidated financial statements appearing in this annual report have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America and necessarily include amounts based upon judgments with due consideration given to materiality. The Company relies on a system of internal accounting controls that is designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with Company policy and are properly recorded, and accounting records are adequate for preparation of financial statements and other information. The concept of reasonable assurance is based on recognition that the cost of a control system should not exceed the benefits expected to be derived and such evaluations require estimates and judgments. The design and effectiveness of the system are monitored by a professional staff of internal auditors. The consolidated financial statements have been audited by the independent accounting firm of KPMG LLP, whose responsibility is to examine records and transactions and to gain an understanding of the system of internal accounting controls to the extent required by auditing standards generally accepted in the United States of America and render an opinion as to the fair presentation of the consolidated financial statements. The Board of Directors pursues its review of auditing, internal controls and financial statements through its audit committee, composed entirely of independent directors. In the exercise of its responsibilities, the audit committee meets periodically with management, with the internal auditors and with the independent accountants to review the scope and results of audits. Both the internal auditors and independent accountants have unrestricted access to the audit committee with or without the presence of management. Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Seaboard Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seaboard Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for certain inventories from the first-in, first-out method to the last-in, first-out method in 1999. /s/KPMG LLP Kansas City, Missouri March 5, 2001 SEABOARD CORPORATION Consolidated Balance Sheets December 31, (Thousands of dollars) 2000 1999 Assets Current assets: Cash and cash equivalents $ 19,760 $ 11,039 Short-term investments 91,375 91,609 Receivables: Trade 194,966 141,838 Due from foreign affiliates 36,662 31,383 Other 41,816 27,785 273,444 201,006 Allowance for doubtful receivables (29,801) (29,075) Net receivables 243,643 171,931 Inventories 218,030 192,847 Deferred income taxes 14,132 15,031 Prepaid expenses and deposits 23,760 20,395 Current assets of discontinued operations - 103,464 Total current assets 610,700 606,316 Investments in and advances to foreign affiliates 63,302 28,449 Net property, plant and equipment 611,361 480,415 Other assets 27,485 30,204 Non-current assets of discontinued operations - 132,407 Total Assets $1,312,848 $1,277,791 See accompanying notes to consolidated financial statements. SEABOARD CORPORATION Consolidated Balance Sheets December 31, (Thousand of dollars) 2000 1999 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 80,480 $ 221,353 Current maturities of long-term debt 34,487 11,487 Accounts payable 59,181 61,529 Accrued liabilities 74,937 54,408 Deferred revenues 48,004 31,929 Accrued payroll 21,313 17,360 Current liabilities of discontinued operations - 24,013 Total current liabilities 318,402 422,079 Long-term debt, less current maturities 312,418 318,017 Deferred income taxes 107,833 41,948 Other liabilities 33,464 34,924 Non-current liabilities of discontinued operations - 16,824 Total non-current and deferred liabilities 453,715 411,713 Minority interest 46 831 Commitments and contingent liabilities Stockholders' equity: Common stock of $1 par value. Authorized 4,000,000 shares; Issued 1,789,599 shares including 302,079 shares of treasury stock 1,790 1,790 Shares held in treasury (302) (302) 1,488 1,488 Additional capital 13,214 13,214 Accumulated other comprehensive income (106) (201) Retained earnings 526,089 428,667 Total stockholders' equity 540,685 443,168 Total Liabilities and Stockholders' Equity $1,312,848 $1,277,791 See accompanying notes to consolidated financial statements. SEABOARD CORPORATION Consolidated Statements of Earnings Years ended December 31, (Thousands of dollars except per share amounts) 2000 1999 1998 Net sales $1,583,696 $1,284,262 $1,294,492 Cost of sales and operating expenses 1,406,439 1,164,134 1,145,379 Gross income 177,257 120,128 149,113 Selling, general and administrative expenses 129,192 107,760 119,343 Operating income 48,065 12,368 29,770 Other income (expense): Interest income 12,580 7,446 7,072 Interest expense (30,134) (31,418) (26,371) Loss from foreign affiliates (2,440) (1,413) (17,105) Gain (loss) on exchange/disposition of businesses(5,612) - 54,544 Minority interest 785 1,283 - Miscellaneous 11,059 3,128 3,908 Total other income (expense), net (13,762) (20,974) 22,048 Earnings (loss) from continuing operations before income taxes 34,303 (8,606) 51,818 Income tax expense (25,431) (4,981) (20,391) Earnings (loss) from continuing operations 8,872 (13,587) 31,427 Earnings from discontinued operations, net of income taxes of $8,278 and $11,753, for 1999 and 1998 respectively - 13,634 19,511 Gain on disposal of discontinued operations, net of income taxes of $57,305 90,037 - - Net earnings $ 98,909 $ 47 $ 50,938 Earnings per common share: Earnings (loss) from continuing operations $ 5.96 $ (9.13)$ 21.12 Earnings from discontinued operations 60.53 9.16 13.12 Earnings per common share $ 66.49 $ 0.03 $ 34.24 See accompanying notes to consolidated financial statements. SEABOARD CORPORATION Consolidated Statements of Changes in Equity (Thousands of dollars except per share amounts) Years ended December 31, 2000, 1999 and 1998
Accumulated Other Common Treasury Additional Comprehensive Retained Comprehensive Stock Stock Capital Income Earnings Income Balances, January 1, 1998 $ 1,790 $ (302) $ 13,214 $ 10 $ 380,656 Net earnings - - - - 50,938 $ 50,938 Other comprehensive income, net of income tax benefit of $56 - - - (91) - (91) Comprehensive income - - - - - 50,847 Dividends on common stock ($1.00 per share) - - - - (1,487) Balances, December 31, 1998 1,790 (302) 13,214 (81) 430,107 Net earnings - - - - 47 47 Other comprehensive income, net of income tax benefit of $77 - - - (120) - (120) Comprehensive income - - - - - (73) Dividends on common stock ($1.00 per share) - - - - (1,487) Balances, December 31, 1999 1,790 (302) 13,214 (201) 428,667 Net earnings - - - - 98,909 98,909 Other comprehensive income, net of income tax expense of $61 - - - 95 - 95 Comprehensive income - - - - - $ 99,004 Dividends on common stock ($1.00 per share) - - - - (1,487) Balances, December 31, 2000 $ 1,790 $ (302) $ 13,214 $ (106) $ 526,089 See accompanying notes to consolidated financial statements.
SEABOARD CORPORATION Consolidated Statement of Cash Flows Years ended December 31, (Thousand of dollars) 2000 1999 1998 Cash flows from operating activities: Net earnings $ 98,909 $ 47 $ 50,938 Adjustments to reconcile net earnings to cash from operating activities: Net earnings from discontinued operations - (13,634) (19,511) Net gain on disposal of discontinued operations (90,037) - - Depreciation and amortization 50,383 45,582 40,479 Loss from foreign affiliates 2,440 1,413 17,105 Deferred income taxes 57,809 (2,985) 10,884 Gain from recognition of deferred swap proceeds (3,760) - - Gain from sale of fixed assets (492) (1,984) (2,737) (Gain) loss from exchange/disposition of businesses 5,612 - (54,544) Changes in current assets and liabilities (net of businesses acquired and disposed): Receivables, net of allowance (64,182) (18,029) 7,471 Inventories (26,477) (48,127) 35,341 Prepaid expenses and deposits (4,584) (8,127) (1,040) Current liabilities exclusive of debt (25,279) 3,532 (24,576) Other, net (879) 1,837 (346) Net cash from operating activities (537) (40,475) 59,464 Cash flows from investing activities: Purchase of investments (1,235,054) (443,978) (446,868) Proceeds from the sale of investments 1,176,653 456,903 311,433 Proceeds from the maturity of investments 58,791 51,073 85,053 Capital expenditures (116,933) (67,713) (26,913) Investments in and advances to foreign affiliates, net (23,310) (1,446) (48,586) Proceeds from the sale of fixed assets 4,589 5,042 9,795 Investment in domestic affiliate - - (2,500) Additional investment in a controlled subsidiary - (2,791) - Acquisition of businesses (net of cash acquired) (45,444) - (1,388) Proceeds from disposal of discontinued operations, net of cash expenditures 356,107 - - Proceeds from disposition of businesses - - 72,359 Net cash from investing activities 175,399 (2,910) (47,615) Cash flows from financing activities: Notes payable to banks, net (140,873) 62,373 (15,025) Proceeds from issuance of long-term debt 5,211 26,667 - Principal payments of long-term debt (24,901) (26,807) (7,400) Dividends paid (1,487) (1,487) (1,487) Bond construction fund (4,091) - - Proceeds from termination of interest rate swap agreements - 5,982 - Net cash from financing activities (166,141) 66,728 (23,912) Net cash flows from discontinued operations - (33,020) 24,227 Net change in cash and cash equivalents 8,721 (9,677) 12,164 Cash and cash equivalents at beginning of year 11,039 20,716 8,552 Cash and cash equivalents at end of year $ 19,760 $ 11,039 $ 20,716 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Operations of Seaboard Corporation and its Subsidiaries Seaboard Corporation and its subsidiaries (the Company) is a diversified international agribusiness and transportation company primarily engaged domestically in pork production and processing, and cargo shipping. Overseas, the Company is primarily engaged in commodity merchandising, flour and feed milling, sugar production, and electric power generation. Seaboard Flour Corporation (the Parent Company) is the owner of 75.3% of the Company's outstanding common stock. Principles of Consolidation and Investments in Affiliates The consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's investments in non- controlled affiliates are accounted for by the equity method. Financial information from certain foreign subsidiaries and affiliates is reported on a one- to three-month lag depending on the specific entity. As more fully described in Note 13, the Company completed the sale of its Poultry Division effective January 3, 2000. The Company's financial statements and notes reflect the Poultry Division as a discontinued operation for all periods presented. Short-term Investments Short-term investments are retained for future use in the business and include time deposits, commercial paper, tax-exempt bonds, corporate bonds and U.S. government obligations. All short-term investments held by the Company are categorized as available-for-sale and are reported at fair value with unrealized gains and losses reported, net of tax, as a component of accumulated other comprehensive income. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Inventories The Company uses the lower of last-in, first-out (LIFO) cost or market for determining inventory cost of live hogs, dressed pork product and related materials. All other inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Property, Plant and Equipment Property, plant and equipment are carried at cost and are being depreciated generally on the straight-line method over useful lives ranging from 3 to 30 years. Property, plant and equipment leases which are deemed to be installment purchase obligations have been capitalized and included in the property, plant and equipment accounts. Routine maintenance, repairs and minor renewals are charged to operations while major renewals and improvements are capitalized. Costs expected to be incurred during regularly scheduled drydocking of vessels are accrued prior to the drydock date. Deferred Grant Revenue Included in other liabilities at December 31, 2000 and 1999 is $10,280,000 and $10,704,000, respectively, of deferred grant revenue. Deferred grant revenue represents economic development funds contributed to the Company by government entities that were limited to construction of a hog processing facility in Guymon, Oklahoma. Deferred grants are being amortized to income over the life of the assets acquired with the funds. Income Taxes Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Comprehensive Income For the years ended December 31, 2000, 1999 and 1998, other comprehensive income adjustments were not material and consisted of unrealized gains on available-for-sale securities and foreign currency cumulative translation adjustments, net of tax. Revenue Recognition and Reclassifications The Company recognizes revenue on commercial exchanges at the time title to the goods transfers to the buyer. Revenue of the Company's containerized cargo service is recognized ratably over the transit time for each voyage. In accordance with a consensus reached by the Emerging Issues Task Force on Issue No. 00-10, beginning in the fourth quarter of 2000 the Company's Pork Division reclassified all shipping and handling billed to customers in sales transactions from a reduction of revenue to cost of sales. This treatment is consistent with that followed by Seaboard's other divisions. The presentation of prior period information has been reclassified to conform with the current presentation. Shipping and handling amounts reclassified totalled $32,418,000, $28,958,000 and $29,126,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-lived Assets Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. See Note 12 for discussion of recoverability of certain segments' long-lived assets. Earnings Per Common Share Earnings per common share are based upon the average shares outstanding during the period. Average shares outstanding were 1,487,520 for each of the three years ended December 31, 2000, 1999 and 1998, respectively. Basic and diluted earnings per share are the same for all periods presented. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all demand deposits and overnight investments as cash equivalents. Included in accounts payable are outstanding checks in excess of cash balances of $22,836,000 and $23,483,000 at December 31, 2000 and 1999, respectively. The amounts paid (received) for interest and income taxes are as follows: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Interest (net of amounts capitalized) $ 29,821 33,090 26,444 Income taxes $ 11,805 15,432 (3,608) Supplemental Noncash Transactions As more fully described in Note 2, during 2000 the Company sold its Poultry Division, acquired the assets of an existing hog production operation, a cargo terminal facility and a flour and feed milling facility, and exchanged its controlling interest in a Bulgarian wine operation and cash for a non-controlling interest in a larger Bulgarian wine operation. As more fully described in Notes 2 and 5, during 1998 the Company purchased a wine operation in Bulgaria and a milling operation in Zambia, consolidated a previously non-controlled foreign affiliate and disposed of its Puerto Rican baking and flour milling operations. The following table summarizes the noncash transactions resulting from the disposition and exchange of businesses in 2000 and 1998: Years ended December 31, (Thousands of dollars) 2000 1998 Decrease in net working capital (including current income tax liability) $ 73,750 $ 4,732 Increase in investments in and advances to foreign affiliates (25,274) - Decrease in other fixed assets 7,865 19,736 Decrease in other net assets 102 1,347 Decrease in net assets of discontinued operation 195,034 - Long-term note receivable from sale - (8,000) Increase in deferred income tax liability 8,914 - Gain (loss) on exchange/disposition of businesses (5,612) 54,544 Gain on disposal of discontinued operations, net of income taxes 90,037 - Net proceeds from exchange/disposition of businesses $ 344,816 $ 72,359 Net proceeds from exchange/disposition of businesses in 2000 includes $356,107,000 in proceeds from disposal of discontinued operations and $11,291,000 in cash paid and contributed in the exchange of a business. The following table summarizes the noncash transactions resulting from the acquisitions and consolidation of the foreign affiliate in 2000 and 1998: Years ended December 31, (Thousands of dollars) 2000 1998 Increase in other working capital $ 8,654 $ 38,539 Decrease in investments in and advances to foreign affiliates - (96,733) Increase in fixed assets 76,781 114,867 Increase in other net assets 600 9,198 Increase in notes payable and long-term debt (37,091) (58,801) Increase in other liabilities (3,500) - Minority interest - (5,682) Cash paid, net of cash acquired and consolidated $ 45,444 $ 1,388 Foreign Currency The Company has operations in and transactions with customers in a number of foreign countries. The currencies of the countries fluctuate in relation to the U.S. dollar. Most of the Company's major contracts and transactions, however, are denominated in U.S. dollars. In addition, the value of the U.S. dollar fluctuates in relation to the currencies of countries where certain of the Company's foreign subsidiaries and affiliates primarily conduct business. These fluctuations result in exchange gains and losses. The activities of these foreign subsidiaries and affiliates are primarily conducted with U.S. subsidiaries or operate in hyper-inflationary environments. As a result, the Company remeasures the financial statements of certain foreign subsidiaries and affiliates using the U.S. dollar as the functional currency. The exchange gains and losses reported in earnings were not material for the years ended December 31, 2000, 1999 and 1998. Foreign currency exchange restrictions imposed upon the Company's foreign subsidiaries and foreign affiliates do not have a significant effect on the consolidated financial position of the Company. Certain foreign subsidiaries use local currency as their functional currency. Assets and liabilities of these subsidiaries are translated to U.S. dollars at year-end exchange rates, and income and expense items are translated at average rates for the year. Resulting translation gains and losses were not material for the years ended December 31, 2000, 1999 and 1998. Translation gains and losses are recorded as components of accumulated other comprehensive income. The Company, from time-to-time, enters into foreign currency exchange agreements to manage the foreign currency exchange risk on certain transactions denominated in foreign currencies. At December 31, 2000, the Company had net agreements to exchange $35,819,000 of contracts denominated in foreign currencies. Gains and losses on foreign currency exchange agreements designated as hedges and for which there is a high correlation between changes in the value of the exchange agreement and changes in the value of the hedged contract are deferred and ultimately recognized in earnings along with the related contract. Financial Instruments The Company, from time-to-time, enters into interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to hedge the effects of fluctuations in interest rates. These agreements effectively convert specifically identified, variable-rate debt into fixed-rate debt. Differences to be paid or received are accrued as interest rates change and are recognized as an adjustment to interest expense. See Note 8 for a description of outstanding exchange rate agreements. Gains and losses on termination of interest rate exchange agreements are deferred and recognized over the term of the underlying debt instrument as an adjustment to interest expense. At December 31, 2000 and 1999, net deferred gains on terminated interest rate exchange agreements totaled $2,217,000 and $6,435,000, respectively. In cases where there is no remaining underlying debt instrument, gains and losses on termination are recognized currently in miscellaneous income (expense). Commodity Instruments The Company enters into forward purchase and sale contracts, futures and options to manage its exposure to price fluctuations in the commodity markets. These commodity instruments generally involve the anticipated purchase of raw materials and firm sales commitments. At December 31, 2000, the Company had net contracts to purchase 2.4 million bushels of grain and net contracts to sell 3,500 tons of meal. Gains and losses on commodity instruments designated as hedges and for which there is high correlation between changes in the value of the instrument and changes in the value of the hedged commodity are deferred and ultimately recognized in operations as part of the cost of the commodity. Gains and losses on qualifying hedges of firm commitments or probable anticipated transactions are also deferred and recognized as adjustments of the carrying amounts of the commodities when the hedged transaction occurs. When a qualifying hedge is terminated or ceases to meet the specific criteria for use of hedge accounting, any deferred gains or losses through that date continue to be deferred. Commodity instruments not qualifying as hedges for financial reporting purposes are marked to market and included in cost of sales in the consolidated statements of operations. For the years ended December 31, 2000, 1999 and 1998, losses on commodity contracts reported in operating income were $1,315,000, $592,000, and $3,139,000, respectively. At December 31, 2000, the net deferred gain on commodity instruments was $236,000, compared to a net deferred loss at December 31, 1999 of $426,000. These amounts are included in deferred revenues in the consolidated balance sheets. Cash flows from commodity instruments are classified in the same category as cash flows from the hedged commodities in the consolidated statements of cash flows. Transactions with Parent Company At December 31, 2000, the Company had a net receivable balance from the Parent Company of $4,910,000 compared to a net payable balance at December 31, 1999 of $1,382,000. Interest on receivables is charged at the prime rate and interest on payables is accrued at the Company's short-term borrowing rate. Related interest income (expense) for the years ended December 31, 2000, 1999 and 1998, amounted to $192,000, $151,000 and $(8,000) respectively. Note 2 Acquisitions and Dispositions of Businesses The Company completed the sale of its Poultry Division on January 3, 2000. The sale of this division is presented as a discontinued operation and is more fully described in Note 13. 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. During the fourth quarter of 2000, the Company exchanged its controlling interest in a Bulgarian wine company and $10,400,000 cash for a non-controlling interest in a larger Bulgarian wine operation, realizing a $5,612,000 pre-tax ($3,648,000 after tax) loss on the exchange. This investment will be accounted for using the equity method. The transaction would not have significantly affected net earnings or earnings per share on a pro forma basis. In October 1998, the Company purchased a controlling interest in an existing Bulgarian winery by acquiring newly issued shares for $15,000,000. During 1999, the Company further increased its interest in the winery by purchasing previously issued shares for $2,791,000. In November 1998, the Company purchased a flour and feed milling operation in Zambia by assuming liabilities of approximately $10,232,000. These acquisitions were accounted for using the purchase method and would not have significantly affected sales, net earnings or earnings per share on a pro forma basis. On December 30, 1998, the Company completed the sale of its Puerto Rican baking and flour milling businesses to a management group led by the President of the baking businesses. These assets were sold for $81,359,000 and the assumption of $11,770,000 in liabilities. The proceeds consisted of $72,359,000 in cash, an $8,000,000 interest bearing subordinated note receivable due in 2004 (subsequently collected in the first quarter of 2001), and a $1,000,000 interest bearing note receivable (collected in the first quarter of 1999). The Company recognized a pre-tax gain of $54,544,000 ($33,272,000 after tax) in connection with this transaction. The following pro forma unaudited financial data reflects the pro forma impact on the Company's results of operations as if the sale was consummated at the beginning of 1998, excluding the gain on the sale, with pro forma adjustments to give effect to reducing short-term borrowings, interest income earned on short-term investments and certain other adjustments, together with related income tax effects: (Thousands of dollars, except per share amount) Year ended December 31,1998 Net sales $ 1,203,316 Loss from continuing operations $ (4,146) Net earnings $ 16,128 Loss per share from continuing operations $ (2.79) Earnings per share $ 10.84 The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the sale been consummated on the dates assumed, nor are they necessarily indicative of future operating results. Note 3 Short-term Investments Substantially all available-for-sale securities have contractual maturities within two years and are available to meet current operating needs. The amortized cost of these investments approximates fair value at December 31, 2000 and 1999. The Company realized net gains of $3,567,000 on sales of available- for-sale securities for the year ended December 31, 2000, which is included in miscellaneous income. Gross realized gains and losses on sales of available-for-sale securities were not material for the years ended December 31, 1999 and 1998. The following is a summary of the estimated fair value of available- for-sale securities at December 31, 2000 and 1999: December 31, (Thousands of dollars) 2000 1999 U.S. Treasury securities and obligations of U.S. government agencies $ 20,501 $ 33,960 Obligations of states and political subdivisions 60,610 35,526 Other securities 10,264 22,123 Total securities $ 91,375 $ 91,609 Note 4 Inventories A summary of inventories at the end of each year is as follows: December 31, (Thousands of dollars) 2000 1999 At lower of LIFO cost or market: Live hogs and related materials $ 117,699 $ 75,662 Dressed pork and related materials 10,995 8,360 128,694 84,022 LIFO allowance (326) 4,026 Total inventories at lower of LIFO cost or market 128,368 88,048 At lower of FIFO cost or market: Grain, flour and feed 42,534 41,772 Sugar produced and in process 24,454 22,398 Crops in production and related materials 4,978 7,490 Wine and other spirits - 12,555 Other 17,696 20,584 Total inventories at lower of FIFO cost or market 89,662 104,799 Total inventories $ 218,030 $ 192,847 In 1999, the Company changed its method of accounting for certain inventories of the Pork Division from FIFO to LIFO increasing net earnings from continuing operations in 1999 by $2,456,000 or $1.65 per common share. If the FIFO method had been used, inventories would have been $326,000 higher and $4,026,000 lower than those reported at December 31, 2000 and 1999, respectively. Note 5 Investments in and Advances to Foreign Affiliates The Company has made investments in and advances to non- controlled foreign affiliates primarily conducting business in flour and feed milling and wine making. The foreign affiliates are located in Angola, the Democratic Republic of Congo, Lesotho, Kenya, Mozambique, Nigeria and Sierra Leone in Africa; Ecuador in South America; Haiti in the Caribbean; and Bulgaria. These investments are accounted for by the equity method. The Company's investments in foreign affiliates are primarily carried at the Company's equity in the underlying net assets of each subsidiary. Certain of these foreign affiliates operate under restrictions imposed by local governments which limit the Company's ability to have significant influence on their operations. These restrictions have resulted in a loss in value of these investments and advances that is other than temporary. The Company suspended the use of the equity method for these investments and recognized the impairment in value by a charge to earnings in years prior to 1998. During the first quarter of 2000, the Company invested $7,500,000 for a minority interest in a flour and feed mill operation in Kenya. During the fourth quarter of 2000, the Company acquired a non-controlling interest in a Bulgarian wine operation. See Note 2 for further discussion. During the second quarter of 1999, the Company invested $1,700,000 for a minority interest in a flour mill in Angola. In July 1998, the Company acquired for $5,000,000 a non-controlling interest in a flour mill in Lesotho. In June 1998, the Company, in a joint venture with two other partners, acquired an interest in a flour mill in Haiti. The Company made an investment of $3,000,000 for a minority interest in the joint venture, which in turn owns 70% of a Haitian company which owns the flour mill. These investments are being accounted for using the equity method. Ingenio y Refineria San Martin del Tabacal S.A. (Tabacal) is an Argentine company primarily engaged in growing and refining sugarcane and, to a lesser extent, citrus production. The Company accounted for this investment using the equity method from July 1996 (date of acquisition) through December 1998. Losses from foreign affiliates during 1998 are primarily attributable to the operations of Tabacal. Effective December 31, 1998, the Company obtained voting control over a majority of the capital stock of Tabacal. Accordingly, as of December 31, 1998, Tabacal is accounted for as a consolidated subsidiary. See Note 1 for the noncash transactions resulting from this consolidation in 1998. Sales of grain and supplies to non-consolidated foreign affiliates are included in consolidated net sales for the years ended December 31, 2000, 1999 and 1998, and amounted to $106,876,000, $69,739,000 and $107,424,000, respectively. Combined condensed financial information of the non-controlled, non-consolidated foreign affiliates for their fiscal periods ended within each of the Company's years ended, including the Bulgarian wine operation's financial position as of December 31, 2000 only, as discussed in Note 2, and Tabacal's operating results for 1998 only, are as follows: December 31, (Thousands of dollars) 2000 1999 1998 Net sales $ 230,460 166,592 217,362 Net loss $ (8,843) (8,966) (20,497) Total assets $ 257,534 122,008 137,381 Total liabilities $ 152,560 61,557 72,995 Total equity $ 104,974 60,451 64,386 Note 6 Property, Plant and Equipment A summary of property, plant and equipment at the end of each year is as follows: December 31, (Thousands of dollars) 2000 1999 Land and improvements $ 97,842 $ 81,317 Buildings and improvements 186,408 154,647 Machinery and equipment 479,023 388,887 Transportation equipment 94,691 82,174 Office furniture and fixtures 12,817 13,697 Construction in progress 25,221 14,023 896,002 734,745 Accumulated depreciation and amortization (284,641) (254,330) Net property, plant and equipment $ 611,361 $ 480,415 Note 7 Income Taxes Income taxes attributable to continuing operations for the years ended December 31, 2000, 1999 and 1998 differ from the amounts computed by applying the statutory U.S. Federal income tax rate to earnings (loss) from continuing operations before income taxes for the following reasons: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Computed "expected" tax expense (benefit) $ 12,006 $ (3,012) $ 18,136 Adjustments to tax expense (benefit) attributable to: Foreign tax differences 10,160 8,988 7,680 Tax-exempt investment income (1,718) (358) (730) State income taxes, net of Federal benefit (2,506) 12 199 Other 7,489 (649) (4,894) Income tax expense - continuing operations 25,431 4,981 20,391 Income tax expense - discontinued operations 57,305 8,278 11,753 Total income tax expense $ 82,736 $ 13,259 $ 32,144 The components of total income taxes are as follows: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Current: Federal $(35,613)$ 2,976 $(11,570) Foreign (including Puerto Rico) 4,131 5,332 17,126 State and local (1,334) (419) (118) Deferred: Federal 57,204 (3,445) 14,300 Foreign (including Puerto Rico) (8) (6) 110 State and local 1,051 543 543 Income tax expense - continuing operations 25,431 4,981 20,391 Unrealized changes in other comprehensive income 61 (77) (56) Income tax expense - discontinued operations 57,305 8,278 11,753 Total income taxes $ 82,797 $ 13,182 $ 32,088 Components of the net deferred income tax liability at the end of each year are as follows: December 31, (Thousands of dollars) 2000 1999 Deferred income tax liabilities: Cash basis farming adjustment $ 16,224 $ 17,162 Deferred earnings of foreign subsidiaries 58,427 1,749 Depreciation 80,296 64,116 LIFO 32,242 1,570 Other 3,056 2,553 190,245 87,150 Deferred income tax assets: Reserves/accruals 50,056 48,591 Foreign losses 1,791 2,420 Tax credit carryforwards 23,287 10,372 Net operating loss carryforwards 23,118 1,000 Other 442 - 98,694 62,383 Valuation allowance 2,150 2,150 Net deferred income tax liability $ 93,701 $ 26,917 The Company believes its future taxable income will be sufficient for full realization of the deferred tax assets. The valuation allowance represents the effect of accumulated losses on certain foreign subsidiaries that will not be recognized without future liquidation or sale of these subsidiaries. At December 31, 2000, the Company had tax credit carryforwards of approximately $23,287,000. Approximately $11,236,000 of these carryforwards expire in varying amounts in 2001 through 2020 while the remaining balance may be carried forward indefinitely. At December 31, 2000, the Company had federal net operating loss carryforwards of approximately $63,195,000 expiring in varying amounts in 2019 and 2020. At December 31, 2000 and 1999, current income taxes payable totaled $10,915,000 and $7,155,000, respectively. At December 31, 2000 and 1999, no provision has been made in the accounts for Federal income taxes which would be payable if the undistributed earnings of certain foreign subsidiaries were distributed to the Company since management has determined that the earnings are permanently invested in these foreign operations. Should such accumulated earnings be distributed, the resulting Federal income taxes would amount to approximately $18,000,000. Note 8 Notes Payable and Long-term Debt Notes payable amounting to $80,480,000 and $221,353,000 at December 31, 2000 and 1999, respectively, consisted of obligations due banks within one year. At December 31, 2000, these funds were outstanding under the Company's one-year revolving credit facilities totaling $141.0 million and short- term uncommitted credit lines from banks totaling $119.5 million, less outstanding letters of credit commitments totaling $4.2 million. Subsequent to year-end, 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 short-term uncommitted credit lines totaling $119.5 million were reduced to $109.5 million. Weighted average interest rates on the notes payable were 7.64% and 7.24% at December 31, 2000 and 1999, respectively. Included in notes payable at December 31, 2000 and 1999, are $20.0 million payable in Japanese yen (yen), outstanding under a $20.0 million uncommitted line of credit. At December 31, 2000 and 1999, the Company had foreign exchange contracts in place effectively fixing the exchange rate on this note payable at 110.87 and 104.13 yen to one U.S. dollar, respectively. Notes payable, the revolving credit facilities and uncommitted credit lines from banks are unsecured and do not require compensating balances. Facility fees on these agreements are not material. A summary of long-term debt at the end of each year is as follows: December 31, (Thousands of dollars) 2000 1999 Private placements 6.49% senior notes, due 2001 through 2005 $100,000 $100,000 7.88% senior notes, due 2003 through 2007 125,000 125,000 Industrial Development Revenue Bonds (IDRBs), floating rates (5.23% - 6.23% at December 31, 2000) due 2018 through 2027 35,600 48,700 Promissory note, 6.87%, due 2001 through 2008 31,663 - Revolving credit facility, floating rates (7.12% at December 31, 2000) due 2002 26,667 26,667 Foreign subsidiary obligations, (9.00% - 14.50%) due 2001 through 2007 17,174 15,353 Foreign subsidiary obligation, floating rate (5.00% at December 31, 2000) due 2001 1,258 2,522 Term loan, 3.00%, due 2001 5,144 5,415 Capital lease obligations and other 4,399 5,847 346,905 329,504 Current maturities of long-term debt (34,487) (11,487) Long-term debt, less current maturities $312,418 $318,017 Of the 2000 foreign subsidiary obligations, $5,000,000 is denominated in U.S. dollars, $2,469,000 is denominated in Congolese francs and the remaining $10,963,000 is payable in Argentine pesos. Of the 1999 foreign subsidiary obligations, $5,085,000 was denominated in U.S. dollars and the remaining $12,790,000 was payable in Argentine pesos. At December 31, 2000, Argentine land and sugar production facilities and equipment with a depreciated cost of $17,461,000 secure certain bond issues and foreign subsidiary debt. Included in other assets at December 31, 2000 and 1999, are $5,622,000 and $1,532,000, respectively, of unexpended bond proceeds held in trust that are invested in accordance with the bond issuance agreements. The terms of the note agreements pursuant to which the senior notes, IDRBs, term loan and revolving credit facilities were issued require, among other terms, the maintenance of certain ratios and minimum net worth, the most restrictive of which requires the ratio of consolidated funded debt to consolidated shareholders' equity, as defined, not to exceed .90 to 1; requires the maintenance of consolidated tangible net worth, as defined, of not less than $250,000,000; and limits the Company's ability to sell assets under certain circumstances. The Company is in compliance with all restrictive debt covenants relating to these agreements as of December 31, 2000. At December 31, 1998, the Company had interest rate exchange agreements in place effectively fixing the interest rate on $200 million of variable rate debt to a fixed, weighted-average rate of 6.33%. These contracts were scheduled to expire in 2007. However, during 1999 the Company terminated these agreements for proceeds totaling $5,982,000. These proceeds were deferred and scheduled to be amortized as a reduction of interest expense through the original expiration dates in 2007, or recognized as other income to the extent of any early repayment of the related debt. Upon completion of the Poultry Division sale in January 2000, unamortized proceeds of $582,000 related to agreements associated with debt of the Company's discontinued poultry operations (see Note 13) were recognized as a component of the gain on the disposal in the first quarter of 2000. During 2000, the Company repaid approximately $165,774,000 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 $3,760,000 in unamortized proceeds from prior terminations of interest rate agreements related to these notes were recognized as miscellaneous income. Ownership of these agreements, including any amortization of termination proceeds, decreased interest expense in 2000 by $561,000 and increased interest expense in 1999 and 1998 by $799,000 and $808,000, respectively. Annual maturities of long-term debt at December 31, 2000 are as follows: $34,487,000 in 2001, $53,640,000 in 2002, $51,379,000 in 2003, $51,439,000 in 2004, $51,656,000 in 2005 and $104,304,000 thereafter. Note 9 Fair Value of Financial Instruments The fair value of the Company's short-term investments is based on quoted market prices at the reporting date for these or similar investments. At December 31, 2000 and 1999, the fair value of the Company's short-term investments was $91,375,000 and $91,609,000, respectively, with an amortized cost of $91,294,000 and $91,684,000 at December 31, 2000 and 1999, respectively. The fair value of long-term debt is determined by comparing interest rates for debt with similar terms and maturities. At December 31, 2000 and 1999, the fair value of the Company's long- term debt was $355,601,000 and $325,275,000, respectively, with a carrying value of $346,905,000 and $329,504,000 at December 31, 2000 and 1999, respectively. Other financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. Note 10 Employee Benefits The Company maintains a defined benefit pension plan for its domestic salaried and clerical employees. The Company also sponsors non-qualified, unfunded supplemental executive plans. The plans generally provide for normal retirement at age 65 and eligibility for participation after one year's service upon attaining the age of 21. The Company bases pension contributions on funding standards established by the Employee Retirement Income Security Act of 1974. Benefits are generally based upon the number of years of service and a percentage of final average pay. Plan assets are invested in equity securities, fixed income bonds and short-term cash equivalents. The changes in the plans' benefit obligations and fair value of assets for the years ended December 31, 2000 and 1999, and a statement of the funded status as of December 31, 2000 and 1999 are as follows: December 31, (Thousands of dollars) 2000 1999 Reconciliation of benefit obligation: Benefit obligation at beginning of year $ 31,764 $ 30,072 Service cost 1,802 2,419 Interest cost 2,498 2,231 Actuarial losses (gains) 2,445 (1,685) Benefits paid (1,502) (1,273) Curtailments (1,190) - Benefit obligation at end of year 35,817 31,764 Reconciliation of fair value of plan assets: Fair value of plan assets at beginning of year 27,722 26,213 Actual return on plan assets (177) 2,734 Employer contributions 1,346 48 Benefits paid (1,502) (1,273) Fair value of plan assets at end of year 27,389 27,722 Funded status (8,428) (4,042) Unrecognized transition obligation 619 1,052 Unamortized prior service cost (1,077) (1,966) Unrecognized net actuarial gains (171) (5,315) Accrued benefit cost $ (9,057) $(10,271) Assumptions used in determining pension information were: Years ended December 31, 2000 1999 1998 Weighted-average assumptions Discount rate 7.75% 8.00% 7.25% Expected return on plan assets 8.75% 8.75% 8.75% Long-term rate of increase in compensation levels 4.50% 4.50% 4.50% The net periodic benefit cost of these plans was as follows: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Components of net periodic benefit cost: Service cost $ 1,802 $ 2,419 $ 2,640 Interest cost 2,498 2,231 2,558 Expected return on plan assets (2,417) (2,268) (2,692) Amortization and other (136) (65) (68) Net periodic benefit cost $ 1,747 $ 2,317 $ 2,438 As of December 31, 2000, the projected benefit obligation and accumulated benefit obligation for unfunded pension plans were $4,793,000 and $3,821,000, respectively. As of December 31, 1999, the projected benefit obligation and accumulated benefit obligation for unfunded pension plans were $3,583,000 and $2,685,000, respectively. As more fully described in Note 13, the Poultry Division was sold in January 2000 and is presented as a discontinued operation. Poultry employees retain benefits in the primary pension plan summarized above and were treated as terminated and fully vested at the date of the sale. This resulted in a $1,614,000 curtailment gain in 2000, excluded from the table above and included as a component of the total gain on disposal of discontinued operations. The Company has certain individual, non-qualified, unfunded supplemental retirement agreements for certain executive employees. Pension expense for these plans was $933,000, $658,000 and $514,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Included in other liabilities at December 31, 2000 and 1999 is $9,663,000 and $8,492,000, respectively, representing the accrued benefit obligation for these plans. The Company maintains a defined contribution plan covering most of its domestic salaried and clerical employees. The Company contributes to the plan an amount equal to 100% of employee contributions up to a maximum of 3% of employee compensation. Employee vesting is based upon years of service with 20% vested after one year of service and an additional 20% vesting with each additional complete year of service. Contribution expense was $1,241,000, $1,157,000 and $1,102,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Note 11 Commitments and Contingencies The Company leases various ships, facilities and equipment under noncancelable operating lease agreements. In addition, the Company is a party to master lease programs with limited partnerships which own certain of the facilities used by the Company in connection with its hog production. These arrangements are accounted for as operating leases. Under these arrangements, the Company has certain rights to acquire any or all of the leased properties at the conclusion of their respective lease terms at a price based on estimated fair market value of the property. In the event the Company does not acquire any property which it has ceased to lease, the Company has a limited obligation to the lessors for any deficiency between the amortized cost of the property and the price for which it is sold up to a specific amount. Rental expense for operating leases amounted to $62,038,000, $58,253,000 and $57,515,000 in 2000, 1999 and 1998, respectively. Minimum lease commitments under noncancelable leases with initial terms greater than one year at December 31, 2000 were $25,835,000 in 2001, $21,119,000 in 2002, $12,580,000 in 2003, $6,396,000 in 2004, $5,507,000 in 2005 and $13,090,000 thereafter. It is expected that, in the ordinary course of business, leases will be renewed or replaced. 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. As a result, 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 any material impact on the Company. The Company owns certain partially completed hog production facilities, having a net carrying value of $12,326,000 at December 31, 2000. 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 could 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 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 12 Segment Information Seaboard Corporation had six reportable segments through December 31, 2000: Pork, Marine, Commodity Trading and Milling, Sugar and Citrus, Power, and Wine, each offering a specific product or service. The Pork segment sells fresh and value-added pork products mainly to further processors and foodservice companies both domestically and overseas. The Marine segment, primarily based out of the Port of Miami, offers containerized cargo shipping services throughout Latin America and the Caribbean. The Commodity Trading and Milling segment sources bulk and bag commodities primarily overseas and operates foreign flour and feed mills. The Sugar and Citrus segment produces and processes sugar and citrus in Argentina primarily to be marketed locally. The Power segment generates electric power from two floating generating facilities located in the Dominican Republic. The Wine segment, located in Bulgaria, primarily produced wines to be marketed throughout Europe. As discussed in Note 2, 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 reflect operating results for the Wine segment through 2000 but no assets for the Wine segment at December 31, 2000. Revenues from all other segments are primarily derived from operations including produce farming (certain portions discontinued in 2000, see Note 2) and baking (sold in December 1998, see Note 2). Each of the six main segments is separately managed and each was started or acquired independent of the other segments. The Company accounted for its investment in Tabacal using the equity method through December 1998. Effective December 31, 1998, the Company obtained voting control over a majority of the capital stock of Tabacal. Accordingly, during 1999 the operating results of Tabacal are accounted for as a consolidated subsidiary. No comparative 1998 segment operating results information is provided as Tabacal's results were reported under the equity method in 1998. The entire Argentine sugar industry is experiencing financial difficulties, with Tabacal and certain large competitors incurring operating losses in part because Argentine sugar prices are below historical levels. As a result of these recent operating losses for Tabacal, the Company has evaluated the recoverability of Tabacal's long-lived assets and believes the value of those assets is presently recoverable. However, a further decline in sugar prices over an extended period of time could result in the carrying values not being recoverable, which would result in a material charge to earnings for the impairment of these assets. Within the Commodity Trading and Milling Division, the Company has evaluated the recoverability of the long-lived assets of its Zambian milling operations due to its recent operating losses. Total long-lived assets at December 31, 2000 are $6,804,000 million. Currently, the Company believes the value of those assets is 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. 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. Sales to External Customers: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Pork $ 724,708 $ 600,117 $ 529,483 Marine 364,915 307,663 310,903 Commodity Trading and Milling 358,999 259,489 306,406 Sugar and Citrus 60,061 46,855 - Power 35,846 22,975 26,183 Wine 6,825 12,859 - All other 32,342 34,304 121,517 Segment/Consolidated Totals $ 1,583,696 $ 1,284,262 $ 1,294,492 Operating Income: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Pork $ 63,350 $ 37,661 $ (1,122) Marine 14,450 (1,893) 17,379 Commodity Trading and Milling (3,518) 2,615 10,505 Sugar and Citrus (7,587) (15,909) - Power 6,007 7,942 8,839 Wine (9,171) (5,946) - All other (11,539) (4,673) (395) Segment Totals 51,992 19,797 35,206 Corporate Items (3,927) (7,429) (5,436) Consolidated Totals $ 48,065 $ 12,368 $ 29,770 Depreciation and Amortization: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Pork $ 21,378 $ 20,759 $ 20,676 Marine 12,181 9,651 8,451 Commodity Trading and Milling 3,266 3,230 2,985 Sugar and Citrus 7,557 7,102 - Power 2,310 1,547 1,638 Wine 934 362 - All other 1,917 2,160 6,125 Segment Totals 49,543 44,811 39,875 Corporate Items 840 771 604 Consolidated Totals $ 50,383 $ 45,582 $ 40,479 Capital Expenditures: Years ended December 31, (Thousands of dollars) 2000 1999 1998 Pork $ 26,356 $ 22,072 $ 16,304 Marine 17,097 20,001 5,151 Commodity Trading and Milling 1,895 4,816 1,162 Sugar and Citrus 14,380 14,998 - Power 52,098 389 79 Wine 2,703 3,746 - All other 2,068 715 3,200 Segment Totals 116,597 66,737 25,896 Corporate Items 336 976 1,017 Consolidated Totals $ 116,933 $ 67,713 $ 26,913 Total Assets: Years ended December 31, (Thousands of dollars) 2000 1999 Pork $ 510,836 $ 401,316 Marine 121,895 97,561 Commodity Trading and Milling 197,751 161,477 Sugar and Citrus 186,099 167,972 Power 88,514 21,068 Wine - 29,156 All other 27,665 38,931 Segment Totals 1,132,760 917,481 Corporate Items 180,088 124,439 Discontinued Poultry Operations - 235,871 Consolidated Totals $1,312,848 $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. Prior to the third quarter of 1999, these costs were primarily allocated based on revenues. This change is deemed to provide a more accurate allocation and does not have a material impact on prior period comparative information. Corporate assets include short-term investments, 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 general Corporate overhead previously allocated to the discontinued Poultry operations. Geographic Information No individual foreign country accounts for 10% or more of sales to external customers. The following table provides a geographic summary of the Company's net sales based on the location of product delivery: Years ended December 31, (Thousands of dollars) 2000 1999 1998 United States $ 725,327 $ 658,740 $ 670,879 Caribbean, Central and South America 434,353 355,376 336,882 Africa 260,706 102,022 126,190 Pacific Basin and Far East 104,919 92,235 79,063 Canada/Mexico 31,643 41,521 38,598 Eastern Mediterranean 18,013 13,124 39,436 Europe 8,735 21,244 3,444 Totals $1,583,696 $1,284,262 $1,294,492 The following table provides a geographic summary of the Company's long-lived assets according to their physical location and primary port for Company owned vessels: December 31, (Thousands of dollars) 2000 1999 United States $ 410,773 $ 331,765 Argentina 115,167 111,486 All other 85,421 37,164 Totals $ 611,361 $ 480,415 At December 31, 2000 and 1999, the Company had approximately $153,831,000 and $93,624,000, respectively, of foreign receivables, excluding receivables due from foreign affiliates, which represent more of a collection risk than the Company's domestic receivables. The Company believes its allowance for doubtful receivables is adequate. Note 13 Discontinued Operations On 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, resulting in a pre-tax gain on the sale of approximately $147.3 million ($90.0 million after estimated taxes), including a final adjustment recorded in the fourth quarter of 2000. The Company's financial statements reflect the Poultry Division as a discontinued operation for all periods presented. Operating results of the discontinued poultry operations are summarized below. 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. The results for 1999 reflect activity through November 1999 (the measurement date); results for 1998 reflect activity for the entire year. Net losses incurred after the measurement date (for the month of December 1999) totaled $4,180,000 and were deferred as a component of current assets of discontinued operations at December 31, 1999. These losses were recognized in 2000 as a reduction of the gain realized on the sale. Years ended December 31, (Thousands of dollars) 1999 1998 Net sales $ 437,695 $ 514,503 Operating income $ 27,023 $ 36,414 Earnings from discontinued operations $ 13,634 $ 19,511 Assets and liabilities of the discontinued poultry operations are summarized below: (Thousands of dollars) December 31, 1999 Receivables $ 27,367 Inventories 70,532 Prepaid expenses and deposits 1,385 Deferred net loss after measurement date 4,180 Current assets of discontinued operations $ 103,464 Net property, plant and equipment $ 132,224 Other assets 183 Non-current assets of discontinued operations $ 132,407 Accounts payable $ 14,189 Accrued liabilities 9,824 Current liabilities of discontinued operations $ 24,013 Long-term debt $ 16,145 Other liabilities 679 Non-current liabilities of discontinued operations $ 16,824