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