-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VEaXpXOmdHLrN5aTQZAllx9AnNTS32VZfFae9RGnAYDqmgsx8fZ6IzPLe1wgosZE klk3q3D1TGBSQq9SiD/WOw== 0000088121-99-000009.txt : 19990812 0000088121-99-000009.hdr.sgml : 19990812 ACCESSION NUMBER: 0000088121-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: POULTRY SLAUGHTERING AND PROCESSING [2015] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03390 FILM NUMBER: 99684396 BUSINESS ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66201 BUSINESS PHONE: 9136768800 MAIL ADDRESS: STREET 1: 9000 W. 67 STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 10-Q 1 1999 2ND QUARTER 10-Q FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 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, $.01 par value per share, outstanding on July 31, 1999. Total pages in filing - 17 pages PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets June 30, 1999 and December 31, 1998 (Thousands of dollars) (Unaudited) June 30, December 31, 1999 1998 Assets Current assets: Cash and cash equivalents $ 20,140 $ 20,716 Short-term investments 102,434 155,763 Receivables, net 187,569 181,583 Inventories 251,874 214,846 Deferred income taxes 14,882 14,604 Prepaid expenses and deposits 21,784 13,757 Total current assets 598,683 601,269 Investments in and advances to foreign affiliates 29,116 28,416 Net property, plant and equipment 571,000 559,749 Other assets 31,619 33,700 Total assets $1,230,418 $1,223,134 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 178,595 $ 158,980 Current maturities of long-term debt 21,431 18,608 Accounts payable 58,923 73,481 Other current liabilities 118,647 114,395 Total current liabilities 377,596 365,464 Long-term debt, less current maturities 325,423 329,469 Deferred income taxes 45,914 44,147 Other liabilities 31,431 28,580 Total non-current and deferred liabilities 402,768 402,196 Minority interest 1,002 5,682 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued 1,789,599 shares 1,790 1,790 Less 302,079 shares held in treasury (302) (302) 1,488 1,488 Additional capital 13,214 13,214 Accumulated other comprehensive income (171) (81) Retained earnings 434,521 435,171 Total stockholders' equity 449,052 449,792 Total liabilities and stockholders' equity $1,230,418 $1,223,134 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings Three months ended June 30, 1999 and 1998 (Thousands of dollars except per share amounts) (Unaudited) June 30, June 30, 1999 1998 Net sales $ 429,245 $ 454,645 Cost of sales and operating expenses 387,352 400,257 Gross income 41,893 54,388 Selling, general and administrative expenses 34,462 35,132 Operating income 7,431 19,256 Other income (expense): Interest income 1,918 1,920 Interest expense (8,854) (8,046) Loss from foreign affiliates (595) (2,560) Minority interest 349 - Miscellaneous 723 1,139 Total other income (expense), net (6,459) (7,547) Earnings before income taxes 972 11,709 Income tax expense 1,911 3,777 Net earnings (loss) $ (939) $ 7,932 Earnings (loss) per common share $ (.63) $ 5.33 Dividends declared per common share $ .25 $ .25 Average number of shares outstanding 1,487,520 1,487,520 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings Six months ended June 30, 1999 and 1998 (Thousands of dollars except per share amounts) (Unaudited) June 30, June 30, 1999 1998 Net sales $ 796,852 $ 901,177 Cost of sales and operating expenses 714,663 798,313 Gross income 82,189 102,864 Selling, general and administrative expenses 64,462 71,347 Operating income 17,727 31,517 Other income (expense): Interest income 3,770 3,536 Interest expense (18,445) (15,858) Loss from foreign affiliates (510) (5,136) Minority interest 823 - Miscellaneous 1,334 1,759 Total other income (expense), net (13,028) (15,699) Earnings before income taxes 4,699 15,818 Income tax expense 4,605 5,022 Net earnings $ 94 $ 10,796 Earnings per common share $ .06 $ 7.26 Dividends declared per common share $ .50 $ .50 Average number of shares outstanding 1,487,520 1,487,520 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Six months ended June 30, 1999 and 1998 (Thousands of dollars) (Unaudited) June 30, June 30, 1999 1998 Cash flows from operating activities: Net earnings $ 94 $ 10,796 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 29,995 31,265 Loss from foreign affiliates 510 5,136 Gain from sale of fixed assets (1,109) (1,479) Deferred income taxes 1,548 639 Changes in current assets and liabilities: Receivables, net of allowance (6,913) (2,941) Inventories (37,028) 23,498 Prepaid expenses and deposits (8,027) (1,095) Current liabilities exclusive of debt (10,292) (32,887) Other, net 3,325 241 Net cash from operating activities (27,897) 33,173 Cash flows from investing activities: Purchase of investments (269,547) (160,179) Proceeds from the sale or maturity of investments 322,727 153,013 Capital expenditures (43,455) (24,670) Proceeds from sale of fixed assets 3,161 6,675 Notes receivable 299 1,228 Additional investment in a controlled subsidiary (2,302) - Investments in and advances to foreign affiliates (1,210) (28,642) Investment in domestic affiliate - (2,500) Net cash from investing activities 9,673 (55,075) Cash flows from financing activities: Notes payable to bank, net 19,615 19,268 Principal payments of long-term debt (1,223) (419) Dividends paid (744) (744) Net cash from financing activities 17,648 18,105 Net change in cash and cash equivalents (576) (3,797) Cash and cash equivalents at beginning of year 20,716 8,552 Cash and cash equivalents at end of quarter $ 20,140 $ 4,755 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, 1998 as filed in its Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. For the three and six months ended June 30, 1999 and 1998, other comprehensive income adjustments consisted of an immaterial unrealized gain on available-for-sale securities and foreign currency cumulative translation adjustment, net of tax. Note 2 - Inventories The following is a summary of inventories at June 30, 1999 and December 31, 1998 (in thousands): June 30, December 31, 1999 1998 At lower of last-in, first-out (LIFO) cost or market: Live poultry $ 24,637 $ 24,840 Dressed poultry 30,456 22,961 Feed ingredients, packaging supplies and other 4,721 5,813 59,814 53,614 LIFO allowance 4,902 2,811 Total inventories at lower of LIFO cost or market 64,716 56,425 At lower of first-in, first-out (FIFO) cost or market: Live hogs 75,202 75,887 Grain, flour and feed 38,002 8,196 Sugar produced and in process 22,929 26,025 Crops in production and related materials 10,237 11,233 Dressed pork 5,740 8,486 Other 35,048 28,594 Total inventories at lower of FIFO cost or market 187,158 158,421 Total inventories $251,874 $214,846 Significant decreases in commodity prices during 1999 and 1998 have eliminated the LIFO allowance as overall poultry feed costs have decreased below base year levels. This change in LIFO allowance is reflected in earnings as a reduction in cost of sales. Note 3 - Contingencies The Company is a defendant in a pending arbitration proceeding and related litigation in Puerto Rico brought by the owner of a chartered barge and tug which were damaged by fire after delivery of the cargo. Damages of $47.6 million are alleged. The Company is vigorously defending the action and believes that it has no responsibility for the loss. The Company also believes that it would have a claim for indemnity if it were held liable for any loss. 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 4 - 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. The Company accounted for its investment in Tabacal using the equity method through December 1998. Effective December 31, 1998, the Company obtained voting control over a majority of the capital stock of Tabacal. Accordingly, during 1999 the operating results of Tabacal are accounted for as a consolidated subsidiary. Due to the significance of Tabacal's operating results, it is reported as an additional segment (Sugar and Citrus) in 1999. The December 31, 1998 total assets by segment information has been restated to include Tabacal as a separate segment. No comparative 1998 segment operating results information is provided as Tabacal's results were reported under the equity method in 1998. Sales to External Customers Three Months Ended Six Months Ended June 30, June 30, (Thousands of dollars) 1999 1998 1999 1998 Poultry $120,264 $124,696 $230,935 $249,884 Pork 136,055 133,215 256,218 254,951 Marine 71,983 82,399 142,204 159,442 Commodity Trading and Milling 72,656 77,592 114,355 160,217 Sugar and Citrus 9,999 - 15,131 - All Other 18,288 36,743 38,009 76,683 Segment/Consolidated Totals $429,245 $454,645 $796,852 $901,177 Operating Income Three Months Ended Six Months Ended June 30, June 30, (Thousands of dollars) 1999 1998 1999 1998 Poultry $ 10,763 $ 5,979 $ 17,252 $ 6,586 Pork 5,416 1,029 10,207 (1,344) Marine (3,233) 6,254 (878) 13,178 Commodity Trading and Milling 558 4,033 1,896 6,858 Sugar and Citrus (4,922) - (8,800) - All Other 150 2,949 386 7,314 Segment Totals 8,732 20,244 20,063 32,592 Reconciliation to consolidated totals Corporate Items (1,301) (988) (2,336) (1,075) Segment/Consolidated Totals $ 7,431 $ 19,256 $ 17,727 $ 31,517 Total Assets June 30, December 31, (Thousands of dollars) 1999 1998 Poultry $ 197,849 $ 188,558 Pork 386,009 387,699 Marine 87,439 99,609 Commodity Trading and Milling 151,517 108,822 Sugar and Citrus 170,317 162,094 All Other 95,790 107,029 Segment Totals 1,088,921 1,053,811 Reconciliation to consolidated totals Corporate items 141,497 169,323 Consolidated Totals $1,230,418 $1,223,134 Administrative services provided by the corporate office are primarily allocated to the individual segments based on revenues. Corporate assets include short-term investments, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES June 30, December 31, 1999 1998 Current ratio 1.59:1 1.65:1 Working capital $221.1 $235.8 Cash from operating activities for the six months ended June 30, 1999 decreased $61.1 million compared to the same period one year earlier. The decrease in cash flows was primarily related to changes in certain components of working capital and a decrease in net earnings. The timing of certain transactions can have a significant influence over changes in working capital balances. Current liabilities exclusive of debt decreased during the second quarter of 1999 as the Company paid $14.6 million in taxes related to the 1998 gain from the sale of baking and flour milling operations. Within the Commodity Trading and Milling segment there were several more voyages in transit at June 30, 1999 than at December 31, 1998, resulting in an increase in grain inventory balances and a partially offsetting increase in deferred revenue balances. In 1998 there were fewer voyages in transit at June 30, 1998 than at December 31, 1997, resulting in a decrease in grain inventories and a partially offsetting decrease in deferred revenues during that period. Dressed poultry inventory increased during 1999 in preparation for significant third quarter obligations under sales contracts with certain customers compared to a decrease in dressed poultry during 1998. Dressed poultry inventory decreased during the first quarter of 1998 from the sell-off of a build-up of poultry leg- quarter inventory. Wine inventories increased in 1999 due to seasonal fluctuations. Wine inventories were not included in the comparable 1998 period as the winery was not acquired until October 1998. Cash from investing activities for the six months ended June 30, 1999 increased $64.7 million compared to the same period one year earlier. The increase is primarily related to a net sale and maturity of investments in the 1999 period compared to a net purchase of investments in the comparable 1998 period. For the six months ended June 30, 1998, investments in and advances to foreign affiliates includes $29.8 million to Tabacal. As discussed in Note 4, Tabacal has been consolidated since December 31, 1998. As such, funds invested in Tabacal for the six months ended June 30, 1999 are reflected within the appropriate components of the cash flow statement, including capital expenditures. The Company invested $43.5 million in property, plant and equipment for the six months ended June 30, 1999. The Company invested $13.0 million in the Poultry segment primarily for the expansion projects at the Mayfield, Kentucky and Chattanooga, Tennessee, poultry facilities. The Company anticipates spending $43.8 million over the next six months for these expansions and to make general upgrades to other poultry facilities. The Company invested $7.7 million in the Pork segment primarily for the expansion of hog production facilities and for improvements to the pork processing plant. The Company plans to invest $6.0 million over the next six months for continued expansion of hog production facilities and general upgrades to the pork processing plant. Capital expenditures in the Marine segment totaled $10.0 million to purchase two vessels previously chartered and for general replacement and upgrades of property and equipment. Over the next six months, the Company anticipates spending $6.4 million for general replacement and upgrades of property and equipment. The Company invested $8.7 million in the Sugar and Citrus segment primarily for improvements to existing operations and expansion of sugarcane fields. Over the next six months, the Company anticipates spending $8.4 million for additional improvement and expansion. Capital expenditures in the other segments for the six months ended June 30, 1999 included $4.1 million in general modernization and efficiency upgrades of plant and equipment. Management anticipates the planned capital expenditures for the remainder of 1999 will be financed by internally generated cash or proceeds from the sale or maturity of investments. During the first quarter of 1999, the Company invested $2.3 million to acquire additional shares of a Bulgarian winery. The Company originally purchased a controlling interest in the winery in October 1998. During the second quarter of 1999, the Company invested $1.7 million for a minority interest in a flour mill in Angola to be accounted for under the equity method. In the first quarter of 1999, the Company's one-year revolving credit facilities totaling $145.0 million, maturing during the first quarter of 1999, were increased to $153.3 million and extended for an additional year. In addition, the existing five-year revolving credit facility totaling $25.0 million was increased to $26.7 million. As of June 30, 1999, the Company had $151.5 million outstanding under one- year revolving credit facilities totaling $153.3 million and $27.1 million outstanding under short-term uncommitted credit lines totaling $126.0 million. Subsequent to the second quarter balance sheet date, the Company prepaid certain of its higher cost, U.S. dollar denominated foreign subsidiary debt obligations. This prepayment reduced total debt obligations by $8.4 million. Management intends to continue seeking opportunities for expansion in the industries in which it operates and believes that the Company's liquidity, capital resources and borrowing capabilities will be adequate for its current and intended operations. RESULTS OF OPERATIONS Net sales for the three and six months ended June 30, 1999 decreased $25.4 and $104.3 million, respectively, compared to the same periods one year earlier. Operating income for the three and six months ended June 30, 1999 decreased by $11.8 and $13.8 million, respectively, compared to the same periods one year earlier. As of December 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." Accordingly, certain 1998 quarterly segment information below has been reclassified to conform with the new presentations. Poultry Segment Three Months Ended Six Months Ended June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 120.3 124.7 $ 230.9 249.9 Operating income $ 10.8 6.0 $ 17.3 6.6 Net sales of poultry products for the three and six months ended June 30, 1999 decreased $4.4 and $19.0 million, respectively, compared to the same periods in 1998. These decreases are primarily a result of lower overall sales prices for poultry products. An increase in poultry production within the industry has resulted in lower prices for most poultry products while the Russian economic situation continues to have a negative effect on domestic prices for dark meat sales. Sales volumes increased for the three months ended June 30, 1999 compared to the same period in 1998 primarily as a result of increased export sales. Although export sales volumes increased during the quarter, related revenues decreased due to the lower prices. Despite the increase in export sales volume during the second quarter, sales volumes for the six months ended June 30, 1999 did not change significantly compared to the same period in 1998 due to the sell-off of a build up of leg quarter inventories in the first quarter of 1998. Although management is unable to predict future poultry prices, current market conditions indicate that poultry prices will remain lower than 1998 for the remainder of 1999. Operating income for the Poultry segment increased $4.8 and $10.7 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998, primarily as a result of lower finished feed costs, partially offset by lower sales prices. Although management cannot predict finished feed costs, it is anticipated that feed ingredient costs should continue to be favorable for the remainder of 1999. Pork Segment Three Months Ended Six MonthsEnded June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 136.1 133.2 $ 256.2 255.0 Operating income $ 5.4 1.0 $ 10.2 (1.3) Net sales for the Pork segment increased $2.9 and $1.2 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. An increase in sales volume was largely offset by lower pork prices. The increase in sales volume is the result of the hog processing plant operating at full capacity on a double-shift basis during 1999. The plant employed a second shift during the first half of 1998, but did not achieve full double-shift capacity until the third quarter of 1998. Lower sales prices for most pork products have resulted from an industry wide excess supply of live hogs. Management cannot predict pork prices for the remainder of 1999. Operating income for the Pork segment increased $4.4 and $11.5 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. These increases are primarily a result of a decrease in the cost of third party hogs processed and, to a lesser extent, a decrease in the cost of Company raised hogs. The decrease in the cost of Company raised hogs is primarily the result of lower grain prices. Although management cannot predict the cost of third party hogs or grain prices, it is anticipated that market conditions should continue to be favorable for the remainder of 1999. Marine Segment Three Months Ended Six Months Ended June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 72.0 82.4 $ 142.2 159.4 Operating income $ (3.2) 6.3 $ (0.9) 13.2 Net sales for the Marine segment decreased $10.4 and $17.2 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. Cargo volumes and applicable cargo rates decreased in 1999 compared to 1998 primarily as a result of weak economic conditions in certain South American markets served by the Company. Operating income from the Marine segment decreased $9.5 and $14.1 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998, primarily as a result of lower cargo volumes and rates discussed above. Management expects that these situations will continue to have a negative effect on financial results for the remainder of 1999. A new U.S. shipping law, The Ocean Reform Act of 1998, went into effect in May 1999 and permits shipping companies to enter into unregulated confidential rate agreements with shippers. Management is not able to predict the impact of this new law on 1999 financial results. Commodity Trading and Milling Segment Three Months Ended Six Months Ended June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 72.7 77.6 $ 114.4 160.2 Operating income $ 0.6 4.0 $ 1.9 6.9 Net sales for the Commodity Trading and Milling segment decreased $4.9 and $45.8 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. The decrease is primarily a result of lower soybean sales, lower wheat sales to certain foreign affiliates and, to a lesser extent, a decrease in commodity prices sold in foreign markets. Such decreases were partially offset by the addition of sales during 1999 from the Company's milling operations in Zambia acquired in late 1998. Operating income for this segment decreased $3.4 and $5.0 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998, primarily due to the decrease in wheat sales to certain foreign affiliates. Sugar and Citrus Segment Three Months Ended Six Months Ended June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 10.0 - $ 15.1 - Operating income $ (4.9) - $ (8.8) - As discussed in Note 4 to the Condensed Consolidated Financial Statements, comparative operating results for the Sugar and Citrus segment are not presented as Tabacal was accounted for on the equity method in 1998. However, lower sugar prices have resulted in significantly lower revenues and higher losses in the first six months of 1999 compared to 1998. Also, during the second quarter of 1999 severance charges of $3.0 million were incurred related to certain employee layoffs enacted to reduce future operating costs. For the three and six months ended June 30, 1998 the loss from foreign affiliates attributable to Tabacal was $2.0 and $4.0 million, respectively. Failure of sugar prices to return to historical levels could lower future expected cash flows to the extent that the carrying amount of Tabacal's long-lived asset values might be impaired. Any such impairment may require a write down of the related asset values with a corresponding charge to earnings sometime during 1999 or 2000. Management cannot predict sugar prices for the remainder of 1999. Other Operations Three Months Ended Six Months Ended June 30, June 30, (Dollars in millions) 1999 1998 1999 1998 Net sales $ 18.3 36.7 $ 38.0 76.7 Operating income $ 0.2 2.9 $ 0.4 7.3 Net sales for all other segments decreased $18.4 and $38.7 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. The decrease is primarily a result of the sale of the Puerto Rican baking operations in December 1998, partially offset by the revenues of the Bulgarian winery acquired late in 1998. Operating income for all other segments decreased $2.7 and $6.9 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. This decrease primarily reflects the Puerto Rican baking operations sold in December 1998, lower operating income from the produce division and losses from the Bulgarian winery acquired late in 1998. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses decreased $0.7 and $6.9 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. The decrease is primarily a result of the Puerto Rican baking operations sold in December 1998, partially offset by the winery acquired late in 1998, and consolidation of Tabacal results in 1999, including the $3.0 million of severance charges discussed above. As a percentage of revenues, SG&A increased slightly to 8.0% for the second quarter of 1999 from 7.7% for the second quarter of 1998. For the six months ended June 30, 1999 SG&A increased to 8.1% compared to 7.9% for the same period in 1998. Other Income (Expense) Interest expense increased $0.8 and $2.6 million, respectively, for the three and six months ended June 30, 1999 compared to the same periods in 1998. The increase is primarily a result of increased long- term borrowings and higher overall borrowing rates. Increased long- term borrowings are primarily the result of the consolidation, effective December 1998, of the existing debts of Tabacal and the Bulgarian winery. Loss from foreign affiliates for the three and six months ended June 30, 1998 were primarily attributable to the operations of Tabacal. As discussed in Note 4 to the Condensed Consolidated Financial Statements, Tabacal is included in 1999 consolidated operations. Minority interest represents the minority shareholders' share of the operating results of the Bulgarian winery acquired in the fourth quarter of 1998. Income Tax Expense Compared to the same periods one year earlier, the effective tax rates increased significantly for the three and six months ended June 30, 1999. These increases and the unusually high effective tax rates for the 1999 periods are attributable to significant increases in overall losses from foreign entities during 1999 for which no tax benefit is available within their respective countries or to offset domestic income. Other Financial Information During the second quarter of 1999, the Financial Accounting Standards board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." This statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to defer its effective date. The Company will now be required to adopt SFAS No. 133 during the first quarter of fiscal 2001. The Company has completed the Year 2000 assessment of its primary mainframe computer systems and other computer and electronic information systems throughout its operations. Resolution of all critical issues identified within these systems, including all necessary testing, is complete. Certain equipment with embedded chip technology cannot be tested or guaranteed by the manufacturer for Year 2000 compliance. Consequently, general contingency plans are being developed for certain locations including lists of spare parts to have on hand and work around options in case of failure. Although not deemed critical to consolidated operations, computer systems at certain international locations are being reviewed and upgrades are planned or in process. The failure to identify or resolve any significant Year 2000 issue in a timely manner could have a material adverse effect on the Company, including an interruption in, or a failure of, certain normal business activities or operations. The Company is also in the process of communicating with significant suppliers and customers to determine the extent to which the Company is vulnerable to failure of those third parties to resolve their own Year 2000 issues. The Company does not anticipate the cost of Year 2000 compliance by suppliers to be passed on to the Company and has not been informed of any material risks related to third party Year 2000 compliance. The Company is developing general contingency plans for some instances of third party noncompliance including limited backup utility sources to support live inventories for a short period of time. However, the failure of a significant third party supplier or customer to resolve its Year 2000 issues in a timely manner could have a material adverse effect on the Company, such as business disruptions resulting from noncompliance by a local utility (either electric, gas or water) or chartered vessel service. Based upon assessments completed to date, the Company believes that the total costs, including equipment replacements and internal costs consisting primarily of payroll related costs, to resolve Year 2000 issues will not be material to the Company's consolidated financial statements. The discovery of a significant Year 2000 issue unknown at this time could materially alter this estimate. Derivative Information The Company is exposed to various types of market risks from its day- to-day operations. Primary market risk exposures result from changing interest rates and commodity prices. Changes in interest rates impact the cash required to service variable rate debt. Changes in commodity prices impact the cost of necessary raw materials as well as the selling prices of finished products. The Company uses interest rate swaps to manage risks of increasing interest rates. The Company uses corn, wheat, soybeans and soybean meal futures and options to manage risks of increasing prices of raw materials. The Company uses hog futures and options to manage risks of fluctuating prices of third party hogs acquired for processing. The Company is also subject to foreign currency exchange rate risk on a short-term note payable denominated in foreign currency. This risk is managed through the use of a foreign currency forward exchange agreement. During the second quarter of 1999, the Company terminated two interest rate swap agreements for proceeds totaling $0.7 million. These agreements had remaining lives of eight years and combined notional amounts of $50 million. Subsequent to June 30, 1999, the Company terminated all remaining interest rate swap agreements for proceeds totaling $5.3 million. These agreements had remaining lives of eight years and combined notional amounts of $150 million. Proceeds received will be amortized as a reduction of interest expense over the remaining eight year lives. Other than the termination of the swap agreements, the Company's market risk exposure related to these items has not changed substantially since December 31, 1998. SEABOARD CORPORATION AND SUBSIDIARIES 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 June 30, 1999. 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 price for the Company's products and services, (v) the effect of Tabacal on the consolidated financial statements of the Company, (vi) the impact of Year 2000 issues, or (vii) other trends affecting the Company's financial condition or results of operations. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of various factors. The accompanying information contained in this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" identifies important factors which could cause such differences. PART II - OTHER INFORMATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: August 11, 1999 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Vice President-Chief Financial Officer (Authorized officer and principal financial and accounting officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND QUARTER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 20140 102434 187569 0 251874 598683 917766 346766 1230418 377596 0 0 0 1488 447564 1230418 796852 796852 714663 714663 64462 0 18445 4699 4605 94 0 0 0 94 .06 .06
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