0000088121-01-500008.txt : 20011107
0000088121-01-500008.hdr.sgml : 20011107
ACCESSION NUMBER: 0000088121-01-500008
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010929
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SEABOARD CORP /DE/
CENTRAL INDEX KEY: 0000088121
STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011]
IRS NUMBER: 042260388
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03390
FILM NUMBER: 1773629
BUSINESS ADDRESS:
STREET 1: 9000 W. 67TH STREET
CITY: SHAWNEE MISSION
STATE: KS
ZIP: 66202
BUSINESS PHONE: 9136768800
MAIL ADDRESS:
STREET 1: 9000 W. 67TH STREET
CITY: SHAWNEE MISSION
STATE: KS
ZIP: 66202
FORMER COMPANY:
FORMER CONFORMED NAME: HATHAWAY BAKERIES INC
DATE OF NAME CHANGE: 19710315
FORMER COMPANY:
FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP
DATE OF NAME CHANGE: 19820328
10-Q
1
qtr3rd01.txt
3RD QTR 2001 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 676-8800
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
There were 1,487,520 shares of common stock, $1.00 par value
per share, outstanding on October 26, 2001.
Total pages in filing - 17 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
September 29, December 31,
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 14,850 $ 19,760
Short-term investments 141,158 91,375
Receivables, net 226,596 243,643
Inventories 206,512 218,030
Deferred income taxes 14,915 14,132
Prepaid expenses and other 33,021 23,760
Total current assets 637,052 610,700
Investments in and advances to foreign affiliates 56,503 63,302
Net property, plant and equipment 606,651 611,361
Other assets 26,805 27,485
Total assets $1,327,011 $1,312,848
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 41,592 $ 80,480
Current maturities of long-term debt 60,365 34,487
Accounts payable 57,906 59,181
Other current liabilities 157,065 144,254
Total current liabilities 316,928 318,402
Long-term debt, less current maturities 282,727 312,418
Deferred income taxes 112,776 107,833
Other liabilities 29,863 33,464
Total non-current and deferred liabilities 425,366 453,715
Minority interest 98 46
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares
Issued 1,789,599 shares 1,790 1,790
Less 302,079 shares held in treasury (302) (302)
1,488 1,488
Additional capital 13,214 13,214
Accumulated other comprehensive loss (616) (106)
Retained earnings 570,533 526,089
Total stockholders' equity 584,619 540,685
Total liabilities and stockholders' equity $1,327,011 $1,312,848
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended
September 29, September 30,
2001 2000
Net sales $ 466,898 $ 372,260
Cost of sales and operating expenses 408,420 329,910
Gross income 58,478 42,350
Selling, general and administrative expenses 28,798 31,447
Operating income 29,680 10,903
Other income (expense):
Interest income 1,802 2,362
Interest expense (6,011) (6,995)
Loss from foreign affiliates (1,520) (884)
Minority interest (22) 102
Net gains (losses) on investments (14,719) 4,296
Miscellaneous net (2,645) (890)
Total other income (expense), net (23,115) (2,009)
Earnings before income taxes 6,565 8,894
Income tax expense (139) (5,230)
Net earnings $ 6,426 $ 3,664
Earnings per common share $ 4.32 $ 2.46
Dividends declared per common share $ .25 $ .25
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
September 29, September 30,
2001 2000
Net sales $ 1,370,671 $ 1,135,984
Cost of sales and operating expenses 1,193,601 1,004,412
Gross income 177,070 131,572
Selling, general and administrative expenses 89,714 90,406
Operating income 87,356 41,166
Other income (expense):
Interest income 6,324 9,880
Interest expense (21,122) (24,372)
Loss from foreign affiliates (4,566) (2,266)
Minority interest (38) 590
Net gains on investments 4,531 5,291
Miscellaneous net (691) 5,243
Total other income (expense), net (15,562) (5,634)
Earnings from continuing operations
before income taxes 71,794 35,532
Income tax expense (26,234) (16,525)
Earnings from continuing operations 45,560 19,007
Gain on disposal of discontinued operations,
net of income taxes of $56,560 - 91,172
Net earnings $ 45,560 $ 110,179
Earnings per common share
from continuing operations $ 30.63 $ 12.77
Earnings per common share
from discontinued operations - 61.29
Earnings per common share $ 30.63 $ 74.06
Dividends declared per common share $ .75 $ .75
Average number of shares outstanding 1,487,520 1,487,520
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 29, September 30,
2001 2000
Cash flows from operating activities:
Net earnings $ 45,560 $ 110,179
Adjustments to reconcile net earnings to
cash from operating activities:
Net gain on disposal of discontinued
operations - (91,172)
Depreciation and amortization 41,542 36,175
Loss from foreign affiliates 4,566 2,266
Net gains on investments (4,531) (5,291)
Net gains from sale of fixed assets (89) (1,035)
Gain from recognition of deferred
swap proceeds - (3,760)
Deferred income taxes 4,241 26,430
Changes in current assets and liabilities
(net of businesses acquired and disposed):
Receivables, net of allowance 17,047 (12,275)
Inventories 11,518 (23,046)
Prepaid expenses and other (9,261) (8,663)
Current liabilities exclusive of debt 11,536 (15,581)
Other, net (1,480) 2,492
Net cash from operating activities 120,649 16,719
Cash flows from investing activities:
Purchase of investments (593,768) (1,136,511)
Proceeds from the sale or maturity of investments 547,163 1,098,997
Capital expenditures (42,330) (92,997)
Proceeds from sale of fixed assets 2,613 4,203
Investments in and advances to foreign affiliates 1,439 (7,386)
Acquisition of businesses - (45,444)
Proceeds from disposal of discontinued operations,
net of cash expenditures - 356,107
Net cash from investing activities (84,883) 176,969
Cash flows from financing activities:
Notes payable to bank, net (38,888) (152,425)
Principal payments of long-term debt (3,813) (23,706)
Dividends paid (1,116) (1,116)
Bond construction fund 3,141 -
Net cash from financing activities (40,676) (177,247)
Net change in cash and cash equivalents (4,910) 16,441
Cash and cash equivalents at beginning of year 19,760 11,039
Cash and cash equivalents at end of quarter $ 14,850 $ 27,480
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of Seaboard
Corporation and its domestic and foreign subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation. The Company's investments in non-
controlled affiliates are accounted for by the equity method. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company
for the year ended December 31, 2000 as filed in its Annual Report on
Form 10-K. Beginning with the quarter ended September 29, 2001, the
Company's first three quarterly periods include approximately 13
weekly periods and end on the Saturday closest to the end of March,
June, and September. The Company's fiscal year-end will remain
December 31. Certain reclassifications have been made to prior year
amounts to conform to the current year presentation.
The accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring accruals), which,
in the opinion of management, are necessary for a fair presentation of
financial position, results of operations and cash flows. Results of
operations for interim periods are not necessarily indicative of
results to be expected for a full year.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Investments and Hedging Activities," as amended. This statement
requires that an entity recognize all derivatives as either assets or
liabilities at their fair values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness.
For derivatives that qualify as effective hedges, the change in fair
value has no net impact on earnings until the hedged transaction
affects earnings. For derivatives that are not designated as hedging
instruments, or for the ineffective portion of a hedging instrument,
the change in fair value does affect current period net earnings.
The Company, from time-to-time, holds and issues certain derivative
instruments to manage various types of market risks from its day-to-
day operations. These primarily include the following: i) commodity
futures and option contracts to manage risks of increasing prices of
raw materials and firm sales commitments, ii) foreign currency
exchange agreements to manage the foreign currency exchange risk on
certain transactions denominated in foreign currencies, and iii)
interest rate exchange agreements to manage the risk of fluctuations
in interest rates. While management believes each of these
instruments manage various market risks, only certain instruments are
designated and accounted for as hedges under SFAS 133 as a result of
the extensive record keeping requirements of the provision. During
the first nine months of 2001, the only instruments accounted for as
hedges under SFAS 133 included certain commodity contracts and foreign
currency exchange agreements within the Commodity Trading and Milling
Segment. These were accounted for as fair value hedges and did not
have a material impact on net earnings.
Adoption of this statement resulted in adjustments primarily to the
Company's balance sheet as derivative instruments and related
agreements and deferred amounts were recorded as assets and
liabilities with corresponding adjustments to other comprehensive
income or earnings. The adoption resulted in a cumulative-effect-type
adjustment increasing other comprehensive income by $1,353,000, net of
related income taxes, as deferred proceeds from previously terminated
swap agreements were reclassified from liabilities. During fiscal
2001, $200,000 of this adjustment, net of related income taxes, is
expected to be recognized in earnings. The adoption did not have a
material impact on the Company's earnings or cash flows.
Note 2 - Comprehensive Income
Components of total comprehensive income are summarized as follows:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2001 2000 2001 2000
Net income $ 6,426 $ 3,664 $ 45,560 $110,179
Other comprehensive income (loss)
net of applicable taxes:
Cumulative translation adjustment (95) (67) (421) (36)
Unrealized gain (loss) on investments 4,811 (1,819) (1,291) 200
Change in deferred gain on swaps (50) - 1,202 -
Total comprehensive income $ 11,092 $ 1,778 $ 45,050 $110,343
The components of accumulated other comprehensive loss for the nine
months ended September 29, 2001 are as follows:
Balance Balance
December 31 Period September 29
(Thousands of dollars) 2000 Change 2001
Cumulative translation adjustment $ (155) $ (421) $ (576)
Unrealized gain (loss) on investments 49 (1,291) (1,242)
Deferred gain on swaps - 1,202 1,202
Accumulated other comprehensive loss $ (106) $ (510) $ (616)
Note 3 - Inventories
The following is a summary of inventories at September 29, 2001 and
December 31, 2000:
September 29, December 31,
(Thousands of dollars) 2001 2000
At lower of LIFO cost or market:
Live hogs and related materials $125,891 $117,699
Dressed pork and related materials 9,788 10,995
135,679 128,694
LIFO allowance (5,032) (326)
Total inventories at lower of LIFO cost or market 130,647 128,368
At lower of FIFO cost or market:
Grain, flour and feed 32,739 42,534
Sugar produced and in process 20,084 24,454
Crops in production and related materials 3,910 4,978
Other 19,132 17,696
Total inventories at lower of FIFO cost or market 75,865 89,662
Total inventories $206,512 $218,030
Note 4 - Contingencies
In August 2000, as a result of accounting errors and irregularities
discovered in the Produce Division's books and records, management
restated the Company's financial statements for each of the prior
periods affected 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 was conducting a formal
investigation of this matter to determine whether there had been any
violations of the federal securities laws and issued a subpoena to
acquire certain documents from the Company. In October 2001, the SEC
concluded its investigation and did not take action against the
Company.
The Company owns certain partially completed hog production facilities
having a net carrying value of $12,326,000 at September 29, 2001. The
Company continues to seek, but has not yet received, necessary
operating and related permits. If the Company is unable to obtain
such permits, the carrying value of such property would be impaired.
The Company is a defendant in a pending arbitration proceeding and
related litigation in Puerto Rico brought by the owner of a chartered
barge and tug which were damaged by fire after delivery of the cargo.
Damages of $47.6 million are alleged. The Company received a ruling
in the arbitration proceeding in its favor, which dismisses the
principal theory of recovery. The ruling has been upheld on appeal.
The arbitration is likely to continue based on other legal theories,
although the Company believes it will have no responsibility for the
loss.
The majority of transactions at the Company's Sugar & Citrus operation
in Argentina are denominated in Argentine Pesos. As of September 29,
2001, the Company has $160,897,000 in net assets denominated in
Argentine Pesos. Over the past several years, the Argentine Peso has
been pegged to the U.S. Dollar and accordingly, there has been minimal
exchange risk. However, deterioration of the economy and recent
political elections in Argentina increase the risk that there could be
a currency devaluation. Management is closely monitoring the
situation but is currently unable to predict the probability or
magnitude of any devaluation. However, a substantial devaluation of
the Argentine Peso could have a material adverse effect on the
financial position of the Company.
The Company is subject to various other legal proceedings related to
the normal conduct of its business. In the opinion of management,
none of these actions is expected to result in a judgment having a
materially adverse effect on the consolidated financial statements of
the Company.
Note 5 - Segment Information
The following tables set forth specific financial information about
each segment as reviewed by the Company's management. Operating
income for segment reporting is prepared on the same basis as that
used for consolidated operating income. Operating income is used as
the measure of evaluating segment performance because management does
not consider interest and income tax expense on a segment basis.
In December 2000 the Company exchanged its controlling interest in its
Wine segment and a cash investment for a non-controlling interest in a
large wine operation to be accounted for using the equity method. As
a result, the Company's segment disclosures do not reflect operating
results for the Wine segment in 2001.
As a result of continued operating losses through year-end 2000 at the
Company's Sugar and Citrus segment, the Company evaluated the
recoverability of this segment's long-lived assets, concluding that
the value of those assets is presently recoverable. Operating losses
during 2000 were primarily the result of sugar prices below historical
levels. Sugar prices have improved during 2001 resulting in operating
income for this segment. However, should sugar prices return to
levels resulting in operating losses, the recoverability of this
segment's long-lived assets would again need to be evaluated which
could result in a material charge to earnings for the impairment of
these assets.
Within the Commodity Trading and Milling Division, the Company
evaluated the recoverability of the long-lived assets of its milling
operations in Zambia at year-end 2000 due to its recent operating
losses and determined the carrying value of those assets were
presently recoverable. During 2001, this operation has been
profitable. However, should this business incur future operating
losses, the recoverability of the long-lived assets of this business
would again need to be evaluated which could result in a material
charge to earnings for the impairment of these assets. Total long-
lived assets of this business totaled $6,731,000 at September 29,
2001.
Management is considering various strategic alternatives for the
Produce Division (included in "All Other" below) as a result of
continuing operating losses. Final conclusion of strategic
alternatives for this division could result in a determination that
the carrying values of certain assets are not recoverable, causing a
material charge to earnings for the impairment of such assets during
the fourth quarter of 2001. Total long-lived assets of this division
totaled $7,231,000 at September 29, 2001.
Sales to External Customers:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2001 2000 2001 2000
Pork $ 193,146 $ 176,954 $ 586,143 $ 548,773
Marine 97,641 95,651 284,195 260,135
Commodity Trading and Milling 130,302 68,540 367,577 235,068
Sugar and Citrus 22,988 17,906 60,206 42,457
Power 16,222 6,141 49,392 19,503
Wine - 1,156 - 4,591
All Other 6,599 5,912 23,158 25,457
Segment/Consolidated Totals $ 466,898 $ 372,260 $1,370,671 $1,135,984
Operating Income
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2001 2000 2001 2000
Pork $ 20,279 $ 14,568 $ 57,581 $ 54,978
Marine 4,122 3,562 15,154 6,096
Commodity Trading and Milling 1,459 (1,835) 5,935 (959)
Sugar and Citrus 2,996 (417) 6,174 (4,217)
Power 3,973 492 11,186 3,480
Wine - (1,922) - (5,321)
All Other (2,312) (2,926) (5,566) (10,479)
Segment Totals $ 30,517 $ 11,522 $ 90,464 $ 43,578
Corporate items (837) (619) (3,108) (2,412)
Segment/Consolidated Totals $ 29,680 $ 10,903 $ 87,356 $ 41,166
Total Assets
September 29, December 31,
(Thousands of dollars) 2001 2000
Pork $ 512,203 $ 510,836
Marine 120,206 121,895
Commodity Trading and Milling 175,211 197,751
Sugar and Citrus 195,213 186,099
Power 93,200 88,514
All Other 21,899 27,665
Segment Totals 1,117,932 1,132,760
Corporate items 209,079 180,088
Consolidated Totals $1,327,011 $1,312,848
Administrative services provided by the corporate office are primarily
allocated to the individual segments based on the size and nature of
their operations. Corporate assets include investments, certain
investments in and advances to foreign affiliates, fixed assets,
deferred tax amounts and other miscellaneous items. Corporate
operating losses represent certain operating costs not specifically
allocated to individual segments.
Note 6 - Gains (Losses) on Investments
The Company had a non-controlling interest in a joint venture in Maine
primarily engaged in the production and processing of salmon and other
seafood products. It was previously accounted for as a long-term
investment under the equity method. On May 2, 2001, this joint
venture completed a merger with Fjord Seafood ASA (Fjord), an
integrated salmon producer and processor headquartered in Norway. The
merger resulted in the Company exchanging its interest for 5,950,000
shares of common stock of Fjord. Based on the fair market value of
Fjord stock on May 2, 2001, as quoted on the Oslo Stock Exchange, the
Company recognized a gain in the second quarter of 2001 of $18,745,000
($11,434,000 after taxes) related to this transaction. The Company's
ownership interest in Fjord is accounted for as a non-current
available-for-sale equity security. After May 2, 2001, the trading
price of Fjord's stock had decreased resulting in a comprehensive loss
of $9,977,000 ($6,086,000 net of taxes) as of June 30, 2001.
In mid-August 2001, Fjord's management announced significantly lower
operating results primarily caused by low market prices for salmon
during the past several months resulting in a decline of Fjord's stock
price. Further dampening the prospects for near term recovery, the
events of September 11, 2001 caused worldwide economic instability
resulting in various near term economic uncertainties. On September
28, 2001, Fjord's management announced plans for a NOK 700 million
private placement to raise needed capital. As part of this plan,
Seaboard agreed to invest an additional NOK 100 million (approximately
$11.4 million) at NOK 6 per share, subject to reduction based on
exercise of preemptive rights by other shareholders of Fjord. The
private placement is expected to be completed in mid-November 2001.
Seaboard's management continues to believe in the long-term viability
of this investment as evidenced by the above commitment for additional
capital investment. However, as a result of the events discussed
above and the amount of the per share price decline, management
determined the decline in value on its total investment in Fjord is
other than temporary. As a result, a charge to earnings was recorded
in the third quarter of 2001 for $18,635,000 ($11,367,000 after
taxes). The remaining total carrying value of this investment as of
September 29, 2001 was $5,029,000.
During the third quarter of 2001, the Company sold shares of a long-
term investment of a non-controlling interest in a foreign company for
$4,000,000 in cash. As a result, the Company recognized a pre-tax
gain of $3,724,000 ($2,272,000 after taxes) during the third quarter.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
September 29, December 31,
2001 2000
Current ratio 2.01:1 1.92:1
Working capital $320.1 $292.3
Cash from operating activities for the nine months ended September 29,
2001 increased $103.9 million compared to the same period one year
earlier. The increase in cash flows was primarily related to changes
in components of working capital and, to a lesser extent, increases in
net earnings from continuing operations. Changes in components of
working capital, net of businesses acquired and disposed, are
primarily related to the timing of normal transactions for voyage
settlements, trade payables and receivables. Within the Commodity
Trading & Milling segment, strong sales in the fourth quarter of 2000
and subsequent related collections resulted in a decrease in
receivable balances from year-end. In addition, during the first
quarter of 2001, the Company collected $7.0 million in notes
receivable related to the 1998 sale of its baking and flour milling
operations in Puerto Rico. These reductions have been partially
offset by increased trade receivables in the Power and Sugar and
Citrus segments as a result of increased sales.
Cash from investing activities for the nine months ended September 29,
2001 decreased $261.9 million compared to the same period one year
earlier. The decrease is primarily related to proceeds in the first
quarter of 2000 from the sale of the discontinued poultry operations,
partially offset by acquisitions and capital expenditures.
The Company invested $42.3 million in property, plant and equipment
for the nine months ended September 29, 2001, of which $13.4 million
was expended in the Pork segment, $16.4 million in the Marine segment,
$9.1 million in the Sugar and Citrus segment and $3.4 million in other
businesses of the Company.
The capital expenditures of $13.4 million in the Pork segment
primarily relates to the expansion of existing hog production
facilities, completion of construction of a new feed mill and
improvements to the pork processing plant. The Company plans to
invest $5.1 million during the remainder of 2001 for continued
expansion of hog production facilities and general upgrades to the
pork processing plant. In March 2001, the Company terminated
previously announced plans to commence construction in 2001 of a
second processing plant at a location in northeast Kansas. The
Company continues to explore alternatives to increase processing
capacity.
The Company invested $16.4 million in the Marine segment for the
purchase of a previously chartered vessel and for equipment. The
Company plans to invest $3.2 million during the remainder of 2001 for
additional equipment.
The Company invested $9.1 million in the Sugar and Citrus segment
primarily for improvements to existing facilities and sugarcane
fields. During the remainder of 2001, the Company anticipates
spending $2.2 million for additional improvements.
The Company has committed to invest an additional NOK 100 million
(approximately $11.4 million) in a private placement of Fjord Seafood
ASA stock during the fourth quarter of 2001, subject to reduction
based on exercise of preemptive rights by other shareholders of Fjord.
See Note 6 to the Condensed Consolidated Financial Statements for
further discussion.
Cash from financing activities for the nine months ended September 29,
2001 increased $136.6 million compared to the same period one year
earlier. This increase is primarily the result of an increase in
repayments of notes payable and industrial revenue bonds in 2000,
primarily with the proceeds from the Poultry Division sale.
In the first quarter of 2001, the Company's one-year revolving credit
facilities totaling $141.0 million maturing in the first quarter of
2001 were extended for an additional year and the short-term
uncommitted credit lines totaling $119.5 million were reduced to $89.5
million. As of September 29, 2001, the Company had $18.9 million
outstanding under one-year revolving credit facilities and $22.7
million outstanding under short-term uncommitted credit lines.
Management intends to continue seeking opportunities for expansion in
the industries in which it operates and believes that the Company's
liquidity, capital resources and borrowing capabilities will be
adequate for its current and intended operations.
RESULTS OF OPERATIONS
Results of operations for the interim periods are not necessarily
indicative of results to be expected for a full year. Beginning with
the quarter ended September 29, 2001, the Company's first three
quarterly periods include approximately 13 weekly periods and end on
the Saturday closest to the end of March, June, and September. The
Company's fiscal year-end will remain December 31. Net sales for the
three and nine months ended September 29, 2001 increased $94.6 and
$234.7 million, respectively, compared to the same periods one year
earlier. Operating income for the three and nine months ended
September 29, 2001 increased $18.8 and $46.2 million, respectively,
compared to the same periods one year earlier.
Pork Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 193.1 177.0 $ 586.1 548.8
Operating income $ 20.3 14.6 $ 57.6 55.0
Net sales for the Pork segment increased $16.1 and $37.3 million,
respectively, for the three and nine months ended September 29, 2001
compared to the same periods in 2000. These increases are primarily a
result of higher pork prices. Management believes pork prices have
increased primarily as a result of the favorable relationship of pork
supplies and pork demand.
Operating income for the Pork segment increased $5.7 and $2.6 million,
respectively, for the three and nine months ended September 29, 2001
compared to the same periods in 2000. These increases are primarily a
result of higher sales prices as discussed above, and an increased
proportion of processing consisting of lower cost, Company-raised
hogs. These increases were partially offset by increased costs of both
Company-raised and third party hogs. Company-raised hog cost
increases reflect higher costs of feed, maintenance and energy.
During the nine-month period, the colder winter conditions during the
first quarter of 2001 increased feed and energy consumption while the
related prices for feed and energy also increased for the growing
period of the hogs processed during 2001. These cost increases
contributed to a $4.7 million charge to earnings related to the LIFO
inventory allowance in the first nine months of 2001. While
Management is unable to predict future market prices, it currently
believes overall market conditions during the remainder of 2001 will
continue to be profitable, although results are anticipated to be
somewhat lower than the average results achieved during the first
three quarters.
Marine Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 97.6 95.7 $ 284.2 260.1
Operating income $ 4.1 3.6 $ 15.2 6.1
Net sales for the Marine segment increased $1.9 and $24.1 million,
respectively, for the three and nine months ended September 29, 2001
compared to the same periods in 2000. The increase for the quarter
resulted from an increase in volumes to certain markets partially
offset by lower average cargo rates. The year-to-date period
benefited from increased volumes, slightly higher average cargo rates
and new services offered as a result of the acquisition of a cargo
terminal facility at the Port of Houston in 2000. Although economic
uncertainties still exist in certain South American markets, volumes
in these markets improved during 2001 compared to 2000, partially
offset by a decline in the Caribbean Basin.
Operating income for the Marine segment increased $0.5 and $9.1
million, respectively, for the three and nine months ended September
29, 2001 compared to the same periods in 2000, primarily as a result
of improved South American markets discussed above. While management
expects that current market conditions will continue throughout the
remainder of 2001, results are anticipated to be lower than the fourth
quarter of 2000.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 130.3 68.5 $ 367.6 235.1
Operating income (loss) $ 1.5 (1.8) $ 5.9 (1.0)
Net sales for the Commodity Trading and Milling segment increased
$61.8 million and $132.5 million, respectively, for the three and nine
months ended September 29, 2001 compared to the same periods in 2000.
The increases are primarily a result of increased trading volumes of
wheat, corn and soybean meal to third parties and, to a lesser extent,
wheat to foreign affiliates.
Operating income for this segment increased $3.3 and $6.9 million,
respectively, for the three and nine months ended September 29, 2001
compared to the same periods in 2000. The increases are primarily a
result of improvements in operating certain mills in foreign
countries, including profitable operations in Zambia, profitable
operations of a new mill acquired during the third quarter of 2000,
and, to a lesser extent, increased commodity sales as discussed above.
The current profitability of operations in Zambia reduces the risk of
impairment of related long-lived assets as discussed in Note 5 to the
Condensed Consolidated Financial Statements. Due to the nature of
this Segment's operations and its exposure to foreign political
situations, management is currently unable to predict future sales and
operating results.
Sugar and Citrus Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 23.0 17.9 $ 60.2 42.5
Operating income (loss) $ 3.0 (0.4) $ 6.2 (4.2)
Net sales for the Sugar and Citrus segment increased $5.1 million and
$17.7 million, respectively, for the three and nine months ended
September 29, 2001 compared to the same periods in 2000. The
increases are primarily a result of higher sales volumes and improved
sugar prices. Sales volumes increased primarily as a result of an
increase in the resale of sugar purchased from third parties.
Operating income for this segment increased $3.4 million and $10.4
million for the three and nine months ended September 29, 2001
compared to the same period in 2000, primarily as a result of
increased sales volumes, higher sugar prices and increases in
production efficiencies. The current profitability of this segment
reduces the risk of impairment of related long-lived assets as
discussed in Note 5 to the Condensed Consolidated Financial
Statements. While management is unable to predict sugar prices or
operating results, it currently anticipates that overall market
conditions for the remainder of 2001 will continue to be favorable
unless the current economic situation in Argentina causes market
disruptions, including the potential of a currency devaluation as
discussed in Note 4 to the Condensed Consolidated Financial
Statements.
Power Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 16.2 6.1 $ 49.4 19.5
Operating income $ 4.0 0.5 $ 11.2 3.5
Net sales for the Power segment increased $10.1 million and $29.9
million for the three and nine months ended September 29, 2001
compared to the same periods in 2000. Operating income increased $3.5
million and $7.7 million for the three and nine months ended September
29, 2001 compared to the same periods in 2000. These increases are
primarily the result of a new power barge beginning operations in
October 2000.
Through September 29, 2001, all sales of the power segment were to the
state-owned electric company of the Dominican Republic. Subsequent to
September 29, 2001, the Company commenced selling power directly to
power distribution companies at spot market prices. The Company
currently believes the rate to be achieved for spot market sales will
be higher than the previous contracted rates. Improved results are
expected to continue throughout the remainder of 2001 reflecting the
new barge and higher sales prices.
All Other
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2001 2000 2001 2000
Net sales $ 6.6 5.9 $ 23.2 25.5
Operating loss $ (2.3) (2.9) $ (5.6) (10.5)
Sales for the quarter ended September 29, 2001 increased slightly for
all other businesses but decreased for the nine months ended compared
to the same periods in 2000. Operating losses from all other
businesses improved for the three and nine months ended September 29,
2001, compared to the same periods in 2000. The improvements in
operating losses are primarily the result of the Company discontinuing
the business of marketing fruits and vegetables by selling certain
assets of its Produce Division during the third quarter of 2000.
Management is currently considering various strategic alternatives for
the remainder of the division, which could result in a material charge
to earnings during the fourth quarter as discussed in Note 5 to the
Condensed Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased $2.6
million and $0.7 million, respectively, for the three and nine months
ended September 29, 2001 compared to the same periods in 2000. The
decrease is primarily a result of discontinuing the business of
marketing fruits and vegetables by the Produce Division in the prior
year as discussed above, and changing to the equity method for the
Wine business during the second quarter of 2001 (discussed in Note 5
to the Condensed Consolidated Financial Statements), partially offset
by increases discussed below. The increases reflect increased service
and support functions related to expanded operations in the Power,
Sugar and Citrus, Commodity Trading and Milling, and Marine Segments.
As a percentage of revenues, SG&A decreased to 6.2% for the third
quarter of 2001 from 8.5% for the third quarter of 2000. For the nine
months ended September 29, 2001 SG&A decreased to 6.6% from 8.0% for
the same period in 2000 primarily as a result of increased revenue in
these same segments.
Interest Income
Interest income decreased $0.6 and $3.6 million, respectively, for the
three and nine months ended September 29, 2001 compared to the same
periods in 2000. The decreases primarily reflect a decrease in
average funds invested and a decrease in interest rates. Average
funds invested were higher during 2000 primarily from the proceeds
from the sale of the Poultry Division in January 2000.
Interest Expense
Interest expense decreased $1.0 and $3.3 million, respectively, for
the three and nine months ended September 29, 2001 compared to the
same periods in 2000. The decreases are primarily a result of a
decrease in short-term borrowings for the three and nine month
periods, partially offset by an increase in average long-term
borrowings for the nine month period. Short-term borrowings decreased
primarily as a result of repaying short-term borrowings in the first
quarter of 2000, primarily with proceeds from the Poultry Division
sale, while average long-term borrowings increased as a result of debt
assumed with certain acquisitions in 2000.
Loss from Foreign Affiliates
Losses from foreign affiliates increased $0.6 and $2.3 million,
respectively, for the three and nine months ended September 29, 2001
compared to the same periods in 2000. These increases were primarily
due to the Company beginning to report operating results of the
Company's wine investment using the equity method during 2001 as
discussed in Note 5 to the Condensed Consolidated Financial Statements
and, to a lesser extent, from lower earnings at certain milling
operations in Africa. As the Company reports the wine investment
results on a three-month lag, operating results for only six months
are included in 2001. The Company anticipates increased losses from
foreign affiliates for the remainder of 2001 compared to 2000.
Net Gains (Losses) on Investments
Net gains (losses) on investments decreased $19.0 and $0.8 million
during the three and nine months ended September 29, 2001 compared to
the same periods in 2000. During the second quarter of 2001, the
Company exchanged its investment in a joint venture for shares of
common stock in Fjord Seafood ASA (Fjord) resulting in a gain of $18.7
million ($11.4 million after taxes). Primarily as a result of
significantly lower operating results and the need for additional
capital, the share price of Fjord subsequently suffered a decline
determined to be other than temporary. As a result, the Company
recorded a $18.6 million loss ($11.4 million after taxes) in the third
quarter of 2001. Also during the third quarter of 2001, the Company
sold its shares of a long-term investment in a foreign company
recognizing a gain of $3.7 million ($2.3 million after taxes). See
Note 6 to the Condensed Consolidated Financial Statements for further
discussion. During the third quarter of 2000, the Company recognized
a $3.2 million gain on sale of certain marketable securities held for
sale.
Miscellaneous, Net
Miscellaneous, net decreased $1.8 and $5.9 million for the three and
nine months ended September 29, 2001 compared to the same periods in
2000. During the third quarter of 2001, the Company recognized a loss
of $2.9 million due to the impact of falling interest rates on
interest rate swap agreements. The decrease for the nine months also
reflects a $3.8 million gain during 2000 from the recognition of
unamortized proceeds from prior terminations of interest rate
agreements associated with debt repaid during 2000.
Gain on Disposal of Discontinued Operations
The Company completed the sale of its Poultry Division on January 3,
2000, recognizing an after-tax gain on disposal of discontinued
operations of $91.2 million during 2000, subsequently adjusted in the
fourth quarter of 2000 to $90.0 million.
Income Tax Expense
Income tax expense decreased $5.1 for the quarter and increased $9.7
million for the nine month period compared to the same periods in 2000
reflecting changes in taxable income. In addition, the Company's
effective tax rate decreased reflecting higher nontaxable income from
certain of its foreign entities.
Other Financial Information
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset
Retirement Obligations", effective for fiscal years beginning after
June 15, 2002. This statement will require the Company to record a
long-lived asset and related liability for the estimated future costs
of retiring certain assets. The estimated asset retirement
obligation, discounted to reflect present value, will grow to reflect
accretion of the interest component. The related retirement asset
will be amortized over the economic life of the related asset. Upon
adoption of this statement, a cumulative effect of a change in
accounting principle will be recorded at the beginning of the
effective year to recognize the deferred asset and related accumulated
amortization to date, and the estimated discounted asset retirement
liability together with cumulative accretion since the inception of
the liability.
The Company will incur asset retirement obligation costs associated
with the closure of its hog lagoons. Accordingly, the Company is
performing detailed assessments and obtaining the appraisals required
to estimate the future retirement costs. Because those evaluations
are not yet complete, the Company cannot currently estimate the
cumulative effect of this change in accounting principle. Currently,
the Company plans to adopt this statement during the first quarter of
fiscal 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to various types of market risks from its day-
to-day operations. Primary market risk exposures result from changing
interest rates, commodity prices and foreign currency exchange rates.
Changes in interest rates impact the cash required to service variable
rate debt. From time to time, the Company uses interest rate swaps to
manage risks of increasing interest rates. Changes in commodity
prices impact the cost of necessary raw materials, finished product
sales and firm sales commitments. The Company uses corn, wheat,
soybeans and soybean meal futures and options to manage certain risks
of increasing prices of raw materials and firm sales commitments.
From time to time, the Company uses hog futures to manage risks of
increasing prices of live hogs acquired for processing. Changes in
foreign currency exchange rates impact the cash paid or received by
the Company on foreign currency denominated receivables and payables.
The Company manages certain of these risks through the use of foreign
currency forward exchange agreements. The Company's market risk
exposure related to these items has not changed materially since
December 31, 2000 except with respect to transactions denominated in
Argentine Pesos (as discussed in Note 4 to the Condensed Consolidated
Financial Statements) and four, ten-year interest rate swap agreements
pursuant to which the Company will pay a weighted average fixed rate
of 5.64% and receive a variable rate based upon a three-month LIBOR
rate on a total notional amount of $125,000,000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
Seaboard Corporation has not filed any reports on Form 8-K during
the quarter ended September 29, 2001.
This Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which include
statements concerning projection of revenues, income or loss, capital
expenditures, capital structure or other financial items, statements
regarding the plans and objectives of management for future
operations, statements of future economic performance, statements of
the assumptions underlying or relating to any of the foregoing
statements and other statements which are other than statements of
historical fact. These statements appear in a number of places in
this Form 10-Q and include statements regarding the intent, belief or
current expectations of the Company and its management with respect to
(i) the cost and timing of the completion of new or expanded
facilities, (ii) the Company's financing plans, (iii) the price of
feed stocks and other materials used by the Company, (iv) the sale
price for pork products from such operations, (v) the price for the
Company's products and services, (vi) the effect of the Company's
sugar business, foreign milling operations and produce division on the
consolidated financial statements of the Company, or (vii) other
trends affecting the Company's financial condition or results of
operations. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially as a
result of various factors. The accompanying information contained in
this Form 10-Q under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" identifies important
factors that could cause such differences.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: November 2, 2001
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Treasurer and Chief Financial Officer
by: /s/ John A. Virgo
John A. Virgo, Corporate Controller