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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 28, 2002
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 1,255,105 shares of common stock, $1.00 par value
per share, outstanding on October 25, 2002.
Total pages in filing - 21 pages
PART I - FINANCIAL INFORMATION
Item. 1 Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
September 28, December 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 15,833 $ 22,997
Short-term investments 68,771 126,795
Receivables, net 179,252 187,416
Inventories 226,238 205,345
Deferred income taxes 15,093 10,075
Other current assets 21,876 36,343
Total current assets 527,063 588,971
Investments in and advances to foreign affiliates 92,942 68,189
Net property, plant and equipment 513,856 556,273
Other assets 23,979 21,324
Total assets $ 1,157,840 $ 1,234,757
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 33,946 $ 37,703
Current maturities of long-term debt 52,096 55,166
Accounts payable 57,905 61,513
Other current liabilities 135,470 126,218
Total current liabilities 279,417 280,600
Long-term debt, less current maturities 225,343 255,819
Deferred income taxes 75,170 129,905
Other liabilities 32,820 33,946
Total non-current and deferred liabilities 333,333 419,670
Minority interest 6,684 6,067
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 (61,432) (62,873)
Retained earnings 585,136 576,591
Total stockholders' equity 538,406 528,420
Total liabilities and stockholders' equity $ 1,157,840 $ 1,234,757
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 Nine Months Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
Net sales $ 429,800 $ 466,898 $ 1,349,827 $ 1,370,671
Cost of sales and
operating expenses 394,901 408,420 1,231,700 1,193,601
Gross income 34,899 58,478 118,127 177,070
Selling, general and
administrative expenses 25,588 28,798 76,870 89,714
Operating income 9,311 29,680 41,257 87,356
Other income (expense):
Interest expense (5,129) (6,011) (15,777) (21,122)
Interest income 1,079 1,802 4,241 6,324
Other investment
income (loss), net (32) (14,069) 120 4,531
Loss from foreign
affiliates (1,410) (2,321) (8,174) (5,367)
Minority interest (74) (22) (617) (38)
Foreign currency loss
, net (739) (25) (14,735) (484)
Miscellaneous, net (14,280) (3,270) (17,421) (207)
Total other income
(expense), net (20,585) (23,916) (52,363) (16,363)
Earnings (loss)
before income
taxes (11,274) 5,764 (11,106) 70,993
Income tax benefit
(expense) 5,601 (139) 22,254 (26,234)
Net earnings
(loss) $ (5,673) $ 5,625 $ 11,148 $ 44,759
Earnings (loss) per
common share $ (3.81) $ 3.78 $ 7.49 $ 30.09
Dividends declared per
common share $ 0.75 $ 0.25 $ 1.75 $ 0.75
Average number of
shares outstanding 1,487,520 1,487,520 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)
September 28, September 29,
2002 2001
Cash flows from operating activities:
Net earnings $ 11,148 $ 44,759
Adjustments to reconcile net earnings to
cash from operating activities:
Depreciation and amortization 37,780 41,542
Loss from foreign affiliates 8,174 5,367
Foreign currency translation loss 12,526 -
Deferred income taxes (24,947) 4,241
Net gains on investments (120) (4,531)
Changes in current assets and liabilities:
Receivables, net of allowance (1,089) 7,756
Inventories (30,947) 5,939
Other current assets 14,245 (18,391)
Current liabilities exclusive of debt 9,732 35,536
Other, net (3,267) (1,569)
Net cash from operating activities 33,235 120,649
Cash flows from investing activities:
Purchase of short-term investments (123,916) (593,768)
Proceeds from the sale or maturity of investments 181,087 547,163
Investments in and advances to foreign affiliates,
net (27,033) 1,439
Capital expenditures (34,115) (42,330)
Other, net 1,696 2,613
Net cash from investing activities (2,281) (84,883)
Cash flows from financing activities:
Notes payable to banks, net (2,387) (38,888)
Principal payments of long-term debt (29,530) (3,813)
Dividends paid (2,603) (1,116)
Bond construction fund 569 3,141
Net cash from financing activities (33,951) (40,676)
Effect of exchange rate change on cash (4,167) -
Net change in cash and cash equivalents (7,164) (4,910)
Cash and cash equivalents at beginning of year 22,997 19,760
Cash and cash equivalents at end of quarter $ 15,833 $ 14,850
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, 2001 as filed in its Annual Report on
Form 10-K. The Company's first three quarterly periods include
approximately 13 weekly periods ending on the Saturday closest to the
end of March, June and September. The Company's year-end is
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.
While the Company has certain variable rate debt and operating lease
payments with variable interest rate components, the Company's
interest rate exchange agreements are not treated as hedges for
accounting purposes. Losses related to these swaps during the 2002
three and nine-month periods of $14.2 million and $22.6 million,
respectively, are included in miscellaneous, net.
Supplemental Noncash Transactions - As more fully described in Note 2,
the continuing devaluation of the Argentine peso decreased the assets
and liabilities of the Sugar and Citrus segment during 2002. The
devaluation of the peso-denominated assets and liabilities reduced
working capital by $16,470,000, fixed assets by $35,226,000, and net
long-term liabilities by $1,908,000 during the year. See Note 4 for a
discussion of the tax benefits recorded related to this devaluation.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of;" however, it retains most of the
provisions of that Statement related to the recognition and
measurement of the impairment of long-lived assets to be "held and
used." The Statement provides more guidance on estimating cash flows
when performing a recoverability test, requires that a long-lived
asset to be disposed of other than by sale be classified as "held and
used" until it is disposed of, and establishes more restrictive
criteria to classify an asset as "held for sale." The adoption had no
immediate impact on the Company's financial statements.
Note 2 - Comprehensive Income (Loss)
Components of total comprehensive income (loss), net of related taxes,
are summarized as follows:
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Thousands of dollars) 2002 2001 2002 2001
Net (loss) income $ (5,673) $ 5,625 $ 11,148 $ 44,759
Other comprehensive income
(loss) net of applicable
taxes:
Foreign currency
translation adjustment 5,290 (61) 1,648 (387)
Unrealized loss on
investments (190) (20) (63) (36)
Net unrealized (loss) gain
on cash flow hedges (70) - 6 -
Deferred gain on swaps - - - 1,353
Amortization of deferred
gain on swaps (50) (50) (150) (151)
Total comprehensive income
(loss) $ (693) $ 5,494 $ 12,589 $ 45,538
The components of and changes in accumulated other comprehensive loss
for the nine months ended September 28, 2002 are as follows:
Balance Balance
December 31, Period September 28,
(Thousands of dollars) 2001 Change 2002
Foreign currency translation adjustment $ (62,588) $ 1,648 $ (60,940)
Unrealized loss on investments (164) (63) (227)
Unrecognized pension cost (1,273) - (1,273)
Net unrealized gain on cash flow hedges - 6 6
Deferred gain on swaps 1,152 (150) 1,002
Accumulated other comprehensive loss $ (62,873) $ 1,441 $ (61,432)
The foreign currency translation adjustment primarily represents the
effect of the Argentine peso devaluation on the net assets of the
Company's Sugar and Citrus segment. During 2002, the peso continued
to devalue against the dollar. As a result of this devaluation, the
Company has recorded charges against earnings, excluding tax
adjustments discussed below, totaling $12,526,000 for the nine-month
period in 2002 related to dollar denominated net liabilities of the
Company's Argentine subsidiary. In addition, currency translation
losses of $37,262,000 have been recorded during the nine month period
as a component of other comprehensive loss related to the peso-
denominated net assets. At September 28, 2002 the Company has
$42,259,000 in net assets denominated in Argentine pesos and
$9,070,000 in net liabilities denominated in U.S. dollars in
Argentina. Impacts of further fluctuations in the currency exchange
rate will be recorded in future periods. Prior to the second quarter
of 2002, no tax benefit was recorded for the devaluation losses.
During the second quarter of 2002, the Company reduced the foreign
currency translation adjustment by recognizing a one-time tax benefit
of $34.6 million. See Note 4 for further discussion.
The unrecognized pension cost is calculated and adjusted annually
during the fourth quarter. As a result of anticipated lower discount
rate and actual investment returns used in the calculation of
unrecognized pension cost, it is expected that the 2002 calculation
will result in additional comprehensive loss during the fourth
quarter.
With the exception of the provision related to the foreign currency
translation losses discussed above, which are provided at a 35% rate,
income taxes for components of accumulated other comprehensive loss
were recorded using a 39% effective tax rate.
Note 3 - Inventories
The following is a summary of inventories at September 28, 2002 and
December 31, 2001 (in thousands):
September 28, December 31,
2002 2001
At lower of LIFO cost or market:
Live hogs and related materials $ 123,404 $ 124,212
Dressed pork and related materials 15,270 12,930
138,674 137,142
LIFO allowance (4,905) (5,231)
Total inventories at lower of LIFO cost or market: 133,769 131,911
At lower of FIFO cost or market:
Grain, flour and feed 67,370 42,581
Sugar produced and in process 8,112 15,039
Other 16,987 15,814
Total inventories at lower of FIFO cost or market 92,469 73,434
Total inventories $ 226,238 $ 205,345
Note 4 - Contingencies
In May 2002, the Farm Security and Rural Investment Act of 2002 (Farm
Bill) was signed into law without the Johnson Amendment, which would
have prohibited packers, such as the Company, from owning and raising
swine. The Farm Bill is still pending appropriations. Based on the
current political environment concerning packers, it is uncertain
whether new legislation will be introduced in the future which could
have a negative impact on the Company.
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 and that ruling has been upheld on
appeal. The arbitration is continuing based on other legal theories,
although the Company believes that it will have no responsibility for
the loss.
The Company is a defendant in an action brought by the Sierra Club
alleging violations of various environmental laws related to one of
the Company's hog production operations. The Company believes it has
meritorious defenses to all of the claims of the Sierra Club but
cannot predict with certainty the outcome of the litigation. The
Company is also subject to an ongoing investigation by the United
States Environmental Protection Agency. In the opinion of management,
the above action and investigation are not expected to result in a
material adverse effect on the consolidated financial statements of
the Company.
The Company had not previously recognized any tax benefits from losses
generated by Ingenio y Refineria San Martin del Tabacal S.A.
(Tabacal), its sugar and citrus segment, for financial reporting
purposes since Tabacal was not a controlled entity for tax purposes
and it was not apparent that the permanent basis difference would
reverse in the foreseeable future. In February 2002, the Company
began a tender offer in Argentina to purchase the outstanding shares
of Tabacal not owned by the Company. During the second quarter of
2002, the Company completed a series of transactions which culminated
in Tabacal's conversion from a Sociedad Anonima (S.A.) to a Sociedad
de Responsabilidad Limitada (S.R.L.) organizational entity. This
conversion resulted in the Company recognizing a one time tax benefit
of $48.9 million, of which $34.6 million reduced the currency
translation adjustment recorded as accumulated other comprehensive
loss. The remaining benefit of $14.3 million was recognized as a
current tax benefit in the Consolidated Statement of Earnings for
2002.
The Company is a plaintiff in a lawsuit against several manufacturers
of vitamins and feed additives which have plead guilty in the context
of criminal proceedings to price fixing. Because the manufacturers
have admitted to the price fixing in the criminal context, it is
likely that the manufacturers will be liable for the overcharges made
as a result of the price fixing. During 2002, the Company recorded as
miscellaneous income $5.0 million received as settlement from certain
of the manufacturers from which the Company had purchases aggregating
$13.3 million during the relevant period. The Company had purchases
aggregating approximately $23.5 million from the remaining
manufacturers during the relevant time period.
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.
As the Sugar and Citrus segment operates solely in Argentina with
primarily local sales and operating expenses, the functional currency
is the Argentine peso. As described in Note 2, the Company has
recorded the effects of the recent and ongoing devaluation of the
Argentine peso. As a result, peso-denominated assets have been
reduced by $60,811,000 during 2002.
Management is currently considering various strategic alternatives for
the Produce Division and has ceased its shrimp, pickle and pepper
farming operations in Honduras. After evaluating the recoverability
of the long-lived assets of the Produce Division at December 31, 2001,
management determined the values were recoverable. Management intends
to update its analysis of recoverability during the fourth quarter of
2002. As of September 28, 2002, the total carrying value of these
long-lived assets totaled $5,588,000.
Sales to External Customers:
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Thousands of dollars) 2002 2001 2002 2001
Pork $ 147,864 $ 193,146 $ 478,253 $ 586,143
Commodity Trading and
Milling 152,845 130,302 484,517 367,577
Marine 91,801 97,641 279,264 284,195
Sugar and Citrus 14,364 22,988 43,659 60,206
Power 16,338 16,222 44,863 49,392
All Other 6,588 6,599 19,271 23,158
Segment/Consolidated
Totals $ 429,800 $ 466,898 $1,349,827 $1,370,671
Operating Income:
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Thousands of dollars) 2002 2001 2002 2001
Pork $ (2,397) $ 20,279 $ (5,232) $ 57,581
Commodity Trading and
Milling 3,480 1,459 17,836 5,935
Marine 3,190 4,122 12,365 15,154
Sugar and Citrus 3,375 2,996 11,322 6,174
Power 2,488 3,973 7,400 11,186
All Other 121 (2,312) (415) (5,566)
Segment Totals 10,257 30,517 43,276 90,464
Corporate Items (946) (837) (2,019) (3,108)
Consolidated Totals $ 9,311 $ 29,680 $ 41,257 $ 87,356
Total Assets:
September 28, December 31,
(Thousands of dollars) 2002 2001
Pork $ 503,901 $ 508,642
Commodity Trading and Milling 199,341 172,684
Marine 117,129 131,334
Sugar and Citrus 68,927 115,402
Power 70,414 77,102
All Other 17,657 20,276
Segment Totals 977,369 1,025,440
Corporate Items 180,471 209,317
Consolidated Totals $ 1,157,840 $ 1,234,757
Administrative services provided by the corporate office are primarily
allocated to the individual segments based on the size and nature of
their operations. Corporate assets include short-term investments,
certain investments in and advances to foreign affiliates, fixed
assets, deferred tax amounts and other miscellaneous items. Corporate
operating losses represent certain operating costs not specifically
allocated to individual segments.
Note 6 - Affiliate Investment
In July 2002, the Company purchased for $26.9 million an additional
66,666,667 shares of common stock of Fjord Seafood ASA (Fjord), an
integrated salmon producer and processor headquartered in Norway.
This additional investment increased the Company's ownership in Fjord
to approximately 21%.
Through the second quarter of 2002, this investment was accounted for
as a long-term available-for-sale equity security. As a result of the
increase in ownership to over 20% in July 2002, the Company began to
account for this investment under the equity method and, as required
by Accounting Principles Board Opinion No. 18, retroactively adjusted
all previous quarters' financial statements as if the equity method of
accounting had been used at the time of its initial investment in
Fjord on May 2, 2001. Below is a summary of the retroactive
adjustment of assets, equity and net income:
Year-to-date
(Thousands of dollars) Total Assets Equity Net Earnings
June 30, 2001
As reported $ 1,279,179 $ 573,899 $ 39,134
As adjusted $ 1,285,265 $ 579,985 $ 39,134
September 29, 2001
As reported $ 1,312,397 $ 584,619 $ 45,560
As adjusted $ 1,309,756 $ 585,107 $ 44,759
December 31, 2001
As reported $ 1,235,592 $ 527,203 $ 53,305
As adjusted $ 1,234,757 $ 528,420 $ 51,989
March 30, 2002
As reported $ 1,167,277 $ 498,656 $ 4,577
As adjusted $ 1,158,760 $ 494,131 $ 1,723
June 29, 2002
As reported $ 1,126,709 $ 540,223 $ 20,258
As adjusted $ 1,126,207 $ 540,215 $ 16,821
During the third quarter of 2002, the Company's investment in a
Bulgarian wine business (the Business) negotiated an extension of a
principal payment due date, future principal payment due dates and a
waiver of default when it was unable to make a scheduled principal
payment to a third-party bank and to achieve certain related loan
covenants. The Business has not yet fulfilled all the conditions of
the extension and anticipates needing additional revised terms and
conditions from the bank, which the bank has agreed to discuss. In
the event the Business does not obtain additional revisions to the
loan terms and/or waivers and the bank pursues legal recourse, the
impact on the Business and its financial condition is likely to impair
the value of its assets, and its ability to continue to operate
without pursuing bankruptcy protection. As of September 28, 2002, the
Company's investments in and advances to the Business totaled $19.9
million.
Note 7 - Subsequent Events
On October 8, 2002, the Company completed a private placement of
$109.0 million of Senior Notes due 2009 and 2012 with a weighted
average interest rate of 6.29%. The Senior Notes provide debt
covenants which include an increase in the minimum consolidated
tangible net worth from $250.0 to $350.0 million plus 25% of
consolidated net income, a new restricted payment provision which
limits dividends to $10.0 million plus 50% of consolidated net income
less 100% of consolidated net losses, and a new interest charge
coverage ratio of 2.0 to 1.0. The debt covenants for the existing
Senior Notes were also amended to reflect these provisions.
The Company used $107.3 million of the proceeds from this private
placement to refinance the indebtedness related to hog production
facilities currently under lease with Shawnee Funding, Limited
Partnership, effectively reducing the Company's net lease payments.
During the fourth quarter of 2002, management expects to purchase
these facilities, which will require an additional outlay of $12.2
million for a total of approximately $119.5 million.
On October 18, 2002, the Company consummated a transaction with its
parent company, Seaboard Flour Corporation (Seaboard Flour), pursuant
to which the Company effectively repurchased 232,414.85 shares of its
common stock owned by Seaboard Flour for $203.26 per share. Of the
total consideration of $47.2 million, Seaboard Flour was required
under the terms of the transaction immediately to pay $11.3 million to
the Company to repay in full all inter-company indebtedness owed by
Seaboard Flour to the Company, and to use the balance of the
consideration to pay bank indebtedness of Seaboard Flour and
transaction expenses.
The transaction was approved by the Company's Board of Directors
after receiving the recommendation in favor of the transaction by a
special committee of independent directors. The special committee was
advised by independent legal counsel and an independent investment
banking firm. As a result of the transaction, Seaboard Flour's
ownership interest in the Company dropped from approximately 75
percent to approximately 71 percent.
As a part of the transaction, Seaboard Flour also transferred to the
Company rights to receive possible future cash payments from a
subsidiary of Seaboard Flour, based primarily on the future sale of
real estate owned by that subsidiary. To the extent the Company
receives cash payments in the future as a result of those transferred
rights, the Company will issue to Seaboard Flour, at the ten day
rolling average closing price, determined as of the twentieth day
prior to the issue date, new shares of common stock. The maximum
number of shares of the Company's common stock which may be issued to
Seaboard Flour under this transaction is capped and cannot exceed the
number of shares which were originally purchased from Seaboard Flour.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash and short term investments as of September 28, 2002 decreased
$65.2 million from December 31, 2001 primarily reflecting payments
made on the Company's long-term debt and the additional investment in
Fjord Seafood ASA (Fjord) as discussed below. Cash from operating
activities was principally offset by capital expenditures.
Cash from operating activities for the nine months ended September
28, 2002, decreased $87.4 million compared to the same period one year
earlier. The decrease in cash flows was primarily related to lower
adjusted net earnings and changes in the components of working
capital. Changes in components of working capital are primarily
related to an increase in inventory resulting from the timing of
normal transactions for voyage settlements, trade payables and
receivables.
Cash from investing activities for the nine months ended September
28, 2002, increased $82.6 million compared to the same period one year
earlier. The increase was primarily related to proceeds from the net
sale of short-term investments compared to net purchases of short-term
investments in the prior year, partially offset by the additional
investment in Fjord. In July 2002, the Company invested an additional
$26.9 million in Fjord, an integrated salmon producer and processor
headquartered in Norway, increasing its ownership percentage from
approximately 11% to approximately 21%. See Note 6 to the
Consolidated Financial Statements for further discussion.
The Company invested $34.1 million in property, plant and equipment
for the nine months ended September 28, 2002, of which $23.0 million
was expended in the Pork segment, $2.3 million in the Commodity
Trading and Milling Segment, $5.7 million in the Marine segment, $2.0
million in the Sugar and Citrus segment, and $1.1 million in other
businesses of the Company.
The Company invested $23.0 million in the Pork segment primarily for
expansion of hog production facilities, improvements to the pork
processing plant, and purchase options for land upon which the Company
plans to expand operations as discussed below. During the remainder
of 2002, the Company anticipates spending $11.8 million for continued
expansion of hog production facilities, upgrades to the existing pork
processing plant and certain costs related to the planning for
construction of the new processing plant. In addition, during the
fourth quarter of 2002, the Company also intends to purchase
approximately $119.5 million of facilities currently under lease, as
discussed below.
The Company previously announced plans to build a second processing
plant in northern Texas along with related plans to expand its
vertically integrated hog production facilities. The Company is
continuing to evaluate these plans based on the current market
conditions in the pork industry caused by the oversupply of hogs and
pork. This project is also contingent on a number of other factors,
including obtaining necessary financing for the project, obtaining the
necessary permits, commitments for a sufficient quantity of hogs to
operate the plant, and no statutory impediments being imposed. This
project would require extensive capital outlays and financing demands.
The current cost estimates to build the plant are approximately
$150.0 million with an additional $200.0 million for live production
facilities for a total of approximately $350.0 million. If the
Company pursues this project, it would also enter into various
contract growing arrangements. Due to the above uncertainties,
Management is not able to predict the viability or the exact timing of
the expansion project; however, if the Company decides to pursue the
project, construction of the plant would not begin until after 2003.
The Company invested $2.3 million in the Commodity Trading and Milling
segment primarily for the purchase of additional equipment. During
the remainder of 2002, the Company anticipates spending $0.2 million
for additional equipment.
The Company invested $5.7 million in the Marine segment primarily for
the purchase of additional machinery and equipment. During the
remainder of 2002, the Company anticipates spending $4.7 million for
additional equipment.
The Company invested $2.0 million in the Sugar and Citrus segment
primarily for improvements to existing facilities and sugarcane
fields. During the remainder of 2002, the Company anticipates
spending $0.6 million for additional improvements.
The Company's one-year revolving credit facilities totaling $141.0
million at December 31, 2001 matured during the first quarter of 2002.
The Company extended a $20.0 million facility for one year. While the
Company currently anticipates replacing the facility that was not
extended during 2002, the total amount, related terms and timing of
the facility have not yet been determined. The Company also has short-
term uncommitted credit lines totaling $60.3 million at September 28,
2002. As of September 28, 2002, the Company had $5.0 million of
borrowings outstanding under the one-year revolving credit facility
and $30.3 million outstanding under the short-term uncommitted credit
lines.
The Company is a party to various master lease programs and a contract
finishing agreement (the "Facility Agreements") with limited
partnerships and a limited liability company which own certain of the
facilities that are used in connection with the Company's vertically
integrated hog production. These arrangements are accounted for as
operating leases. At September 28, 2002, the total amount of
unamortized costs representing fixed asset values and the underlying
outstanding debt under these Facility Agreements was approximately
$181.4 million. These hog production facilities produce approximately
45% of the Company-owned hogs processed at the plant. During the
second quarter of 2002, the underlying bank facility in one of the
limited partnerships was extended to December 2002 and was refinanced
by the Company during October 2002 for $107.3 million, as discussed
below. During the fourth quarter of 2002, the Company intends to
purchase the related assets from this limited partnership, which will
require an additional net outlay of $12.2 million for a total purchase
price of approximately $119.5 million. The Company is also evaluating
various options for certain of the remaining facilities, including
purchasing certain assets from the limited partnerships ($26.0 million
at September 28, 2002) or assigning its purchase option for the
properties to third parties with which the Company may enter into
grower arrangements. Management believes that it will have sufficient
liquidity and financing capacity to accomplish any of the
alternatives.
On October 8, 2002, the Company completed a private placement of
$109.0 million of Senior Notes due 2009 and 2012 with a weighted
average interest rate of 6.29%. The Company used $107.3 million of
the proceeds from this private placement to refinance the indebtedness
related to hog production facilities currently under a master lease
program as discussed above, effectively reducing the Company's net
lease payments. See Note 7 to the Consolidated Financial Statements
for further discussion.
On October 18, 2002, the Company purchased 232,414.85 shares of its
stock at $203.26 per share from Seaboard Flour Corporation (Seaboard
Flour), its parent company, for a total of $47.2 million. Seaboard
Flour was required to use the consideration to pay $11.3 million to
the Company to pay in full all intercompany indebtedness owed by
Seaboard Flour to the Company, and to use the balance to pay bank
indebtedness of Seaboard Flour and transaction expenses. See Note 7
to the Consolidated Financial Statements for further discussion.
In addition to the financing requirements to accommodate the Pork
segment expansion plans, the Company's Senior Notes continue to mature
through 2007. Management believes that the Company's current
combination of liquidity, capital resources and borrowing capabilities
will be adequate for its existing operations during fiscal 2002.
Management is evaluating various alternatives for future financings to
provide adequate liquidity for the Company's future operating and
expansion plans. In addition, management intends to continue seeking
opportunities for expansion in the industries in which it operates.
RESULTS OF OPERATIONS
Net sales for the three and nine months ended September 28, 2002,
decreased by $37.1 and $20.8 million, respectively, compared to the
same periods one year earlier. Operating income for the three and
nine months ended September 28, 2002 decreased by $20.4 and $46.1
million, respectively, compared to the same periods one year earlier.
Results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Pork Segment
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 147.9 $ 193.1 $ 478.3 $ 586.1
Operating (loss) income $ (2.4) $ 20.3 $ (5.2) $ 57.6
Net sales for the Pork segment decreased $45.2 and $107.8 million,
respectively, for the three and nine months ended September 28, 2002
compared to the same periods in 2001 primarily as a result of lower
pork prices. Reduced world-wide meat supplies during 2001 contributed
to higher sales prices for that year. During 2002, domestic meat
supplies have increased, causing increased competition for pork
products which has resulted in significantly lower sales prices
compared with the prior year.
Operating income for the Pork segment decreased $22.7 and $62.8
million, for the three and nine months ended September 28, 2002,
respectively, compared to the same periods in 2001, resulting in
operating losses for the 2002 periods. The decreases primarily
reflect the lower sales prices discussed above, partially offset by a
decrease in cost of third party hogs. While unable to predict future
market prices, management expects pork prices will remain below prior
year levels and anticipates operating losses for the remainder of
2002.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 152.8 $ 130.3 $ 484.5 $ 367.6
Operating income $ 3.5 $ 1.5 $ 17.8 $ 5.9
Loss from foreign
affiliates $ (0.4) $ (0.6) $ (1.7) $ (2.5)
Net sales for the Commodity Trading and Milling segment increased
$22.5 and $116.9 million, respectively, for the three and nine months
ended September 28, 2002 compared to the same periods in 2001. The
increase is primarily a result of increased commodity trading volumes
to third party customers and increased milling revenues, partially
offset by a decrease in commodity trading volumes to foreign
affiliates. Commodity trading volumes to third party customers
increased as the Company has focused its efforts on expanding in
certain existing and new trading markets. Milling revenues have
increased primarily as a result of favorable operating environments in
certain foreign locations, which have allowed certain mills to
increase production levels.
Operating income for this segment increased $2.0 and $11.9 million for
the three and nine months ended September 28, 2002, respectively,
compared to the same periods in 2001. Operating income increased
primarily as a result of increased third party trading volumes
discussed above, increased production at certain foreign milling
operations, and, to a lesser extent, a lower provision for bad debts.
In addition, operating income decreased $1.4 million and increased
$1.6 million for the three and nine months ended September 28, 2002,
respectively, compared to 2001 as a result of the change in the
Company's treatment of open commodity contracts. In 2001, commodity
derivative contracts were treated as fair value hedges with minimal
earnings impact since the related commodity sales contract was also
marked to market. While the Company believes its commodity futures
and options are economic hedges, beginning in the fourth quarter of
2001, the Company discontinued this accounting treatment given the
extensive record-keeping required. During 2002, while the open
derivative contracts have been marked-to-market through cost of goods
sold, the related, offsetting commodity sales contracts have not been
marked to market. As a result, the Company will recognize larger
variations in future quarters as the derivative commodity market
prices fluctuate. Due to the erratic political and economic
conditions in the countries in which the Company operates, management
is unable to predict future sales and operating results.
Loss from foreign affiliates decreased $0.2 and $0.8 million for the
three and nine months ended September 28, 2002, respectively, compared
to the same periods in 2001. These decreases are primarily a result
of improved operating environments at certain African milling
operations. Based on the exposure to foreign political and economic
conditions in the countries where the foreign affiliates operate,
management believes that losses from foreign affiliates may continue
for the remainder of 2002.
Marine Segment
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 91.8 $ 97.6 $ 279.3 $ 284.2
Operating income $ 3.2 $ 4.1 $ 12.4 $ 15.2
Net sales for the Marine segment decreased $5.8 and $4.9 million for
the three and nine months ended September 28, 2002 compared to the
same periods in 2001. During the third quarter of 2002, the Company
experienced significant declines in cargo volumes to certain South
American markets as the result of political instability in that
region, only partially offset by increases in other markets. For the
three and nine months ended September 28, 2002, cargo rates overall
declined slightly.
Operating income for the Marine segment decreased $0.9 and $2.8
million, respectively, for the three and nine months ended September
28, 2002 compared to the same periods in 2001, primarily reflecting
declines in cargo volumes discussed above and, to a lesser extent,
lower cargo rates. The duration and extent of certain South American
political instability will continue to affect future results while
shipping demand for that market remains depressed. Although
Management expects operating results for this segment to remain
profitable, with the political instability of certain markets,
operating income for the remainder of 2002 is expected to be lower
than 2001.
Sugar and Citrus Segment
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 14.4 $ 23.0 $ 43.7 $ 60.2
Operating income $ 3.4 $ 3.0 $ 11.3 $ 6.2
Net sales for the Sugar and Citrus segment decreased $8.6 and $16.5
million, respectively, for the three and nine months ended September
28, 2002 compared to the same periods in 2001. This decrease
primarily reflects the devaluation of the Argentine peso, discussed
below. The reductions were partially offset by higher sales prices
for sugar (in pesos) and, for the nine month period, increased sales
volumes. Operating income increased $0.4 and $5.1 million,
respectively, for the three and nine months ended September 28, 2002
compared to the same periods in 2001, reflecting the reduction in cost
of goods sold as a result of the devaluation and, to a lesser extent,
improved peso sales prices. While management is not able to predict
future sugar prices, this segment is expected to remain profitable for
the remainder of 2002.
As discussed in Note 2 to the Consolidated Financial Statements, the
functional currency of the Sugar and Citrus segment, the Argentine
peso, has devalued compared to the U.S. dollar resulting in material
currency translation losses. Operating income, as discussed above,
does not include the effects of the material currency translation
losses on shareholders' equity and net earnings that have been
incurred by the Company. The economy of Argentina has been severely,
negatively impacted by the devaluation and continuing recession. To
date, the peso prices for sugar have increased more than peso costs
have increased, resulting in improved operating income in terms of
U.S. dollars. However, as a result of the economic turmoil and
uncertainty, it is not possible for management to predict if this
trend will continue.
Power Segment
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 16.3 $ 16.2 $ 44.9 $ 49.4
Operating income $ 2.5 $ 4.0 $ 7.4 $ 11.2
Net sales for the Power segment were consistent for the three months
but decreased $4.5 million for the nine months ended September 28,
2002 compared to the same periods in 2001, primarily reflecting the
lower average market rates in the spot market during the first three
months of 2002. Through the third quarter of 2001, all sales from
this division were made under contract to the state-owned electric
company. That contract was rescinded during September 2001 and the
Company began selling power at market rates on the spot market.
Market rates decreased through the first quarter of 2002 reflecting,
in part, lower average fuel costs, a component of pricing, but
gradually increased during the second quarter ultimately reaching
levels more comparable with the prior year.
Operating income decreased $1.5 and $3.8 million, respectively, for
the three and nine months ended September 28, 2002 compared to the
same periods in 2001 primarily reflecting additional transmission fees
and, for the nine month period, the lower average market rates. These
reductions were partially offset by lower operating expenses. While
management is not able to predict future market rates, it is
anticipated that operating income will be lower for the remainder of
2002 compared to 2001.
All Other
Three Months Ended Nine Months Ended
September 28, September 29 September 28,September 29,
(Dollars in millions) 2002 2001 2002 2001
Net sales $ 6.6 $ 6.6 $ 19.3 $ 23.2
Operating income (loss) $ 0.1 $ (2.3) $ (0.4) $ (5.6)
Loss from foreign
affiliates $ (1.0) $ (1.7) $ (6.5) $ (2.9)
Net sales for all other businesses were consistent for the three
months but decreased $3.9 million for the nine months ended September
28, 2002 compared to 2001, and operating loss decreased $2.4 and $5.2
million, respectively, for the three and nine months ended September
28, 2002 compared to the same periods of 2001. These decreases are
primarily the result of the Produce division's decision to cease
shrimp, pickle and pepper farming operations in Honduras. Management
currently anticipates improved operating results for the remainder of
2002 compared to 2001. Management evaluated the recoverability of
those long-lived farming assets at December 31, 2001, determined the
values were recoverable, and is currently considering various
strategic alternatives for those assets. However, the final decision
regarding the alternatives, or continued losses from existing
operations, could result in the carrying values not being recoverable,
and could result in a material charge to earnings for the impairment
of those assets.
The loss from foreign affiliates represents the Company's share of
losses from equity method investments in Fjord and a Bulgarian wine
business recorded on a three-month lag. Loss from foreign affiliates
for the three months ended September 28, 2002 compared to 2001
decreased $0.7 million primarily as a result of foreign currency
exchange gains in the Bulgarian wine business. Loss from foreign
affiliates for the nine months ended September 28, 2002 compared to
2001 increased $3.6 million primarily as a result of equity in losses
from Fjord recorded beginning in the third quarter of 2001. See Note
6 to the Consolidated Financial Statements for a discussion of the
Company's increased investment in Fjord which required a retroactive
adjustment to apply the equity method of accounting since the
acquisition of the initial shares. As a result of low salmon prices
worldwide, management anticipates losses from Fjord to continue for
the remainder of 2002. The equity in losses from the wine investment
began during the second quarter of 2001. Management expects losses to
continue throughout the remainder of 2002.
During the third quarter of 2002, the Bulgarian wine business (the
Business) negotiated an extension of a principal payment due date,
future principal payment due dates and a waiver of default when it was
unable to make a scheduled principal payment to a third-party bank and
to achieve certain related loan covenants. The Business has not yet
fulfilled all the conditions of the extension and anticipates needing
additional revised terms and conditions from the bank, which the bank
has agreed to discuss. In the event the Business does not obtain
additional revisions to the loan terms and/or waivers and the bank
pursues legal recourse, the impact on the Business and its financial
condition is likely to impair the value of its assets, and its ability
to continue to operate without pursuing bankruptcy protection. As of
September 28, 2002, the Company's investments in and advances to the
Business totaled $19.9 million.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased $3.2 and
$12.8 million, respectively, for the three and nine months ended
September 28, 2002 compared to the same periods in 2001. The decrease
is primarily due to lower operating costs for the Sugar and Citrus
segment reflecting the effects of the Argentine peso devaluation on
peso denominated expenses, reduced operating expenses in the Power
division, and lower provision for bad debts in the Commodity Trading
and Milling and Marine divisions. As a percentage of revenues, SG&A
decreased to 6.0% and 5.7% from 6.2% and 6.5%, respectively, for the
three months and nine months ended September 28, 2002 compared to the
same periods in 2001. These decreases are primarily the result of the
reduced SG&A expenses in the segments discussed above partially offset
by lower consolidated revenues.
Interest Expense
Interest expense decreased $0.9 and $5.3 million, respectively, for
the three and nine months ended September 28, 2002 compared to the
same periods in 2001. The decrease is primarily a result of a lower
average level of short-term and long-term borrowings outstanding
during 2002, and, to a lesser extent, lower average interest rates.
Interest Income
Interest income decreased $0.7 and $2.1 million, respectively, for the
three and nine months ended September 28, 2002 compared to the same
periods in 2001, reflecting a reduction in average funds invested and,
to a lesser extent, lower average interest rates during 2002.
Other Investment Income, Net
During the second quarter of 2001, the Company exchanged its non-
controlling interest in a joint venture for shares of common stock in
Fjord Seafood ASA resulting in gain of $18.7 million ($11.4 million
after taxes). Subsequently, primarily as a result of Fjord's lower
operating results and need for additional capital, and the price
decline of Fjord's common stock, management determined the decline in
value of its total investment to be other than temporary and recorded
a charge to earnings of $18.6 million ($11.4 million after taxes)
during 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).
Foreign Currency Losses, Net
The Company operates in many developing countries throughout the
world. The political and economic conditions of these markets cause
volatility in currency exchange rates and expose the Company to the
risk of exchange rate loss related to foreign currency denominated net
assets. Foreign currency losses, net, for 2002 primarily reflects
the effect of the Argentine peso devaluation on the dollar denominated
assets and liabilities of the Company's Argentine subsidiary. See
Note 2 to the Consolidated Financial Statements for additional
discussion of the devaluation. As a result of the continuing economic
uncertainties in Argentina, management is unable to predict the extent
of any further devaluation of the Argentine peso.
Miscellaneous, Net
Miscellaneous, net, for the 2002 three and nine-month periods includes
$14.2 and $22.6 million of losses, respectively, from the Company's
ten-year interest rate swap agreements as a result of falling interest
rates. While the Company has certain variable rate debt and operating
lease payments with variable interest components, these swap
agreements are not accounted for as hedges. Although Management
cannot predict future interest rates, if interest rates rise in the
future, the Company will recognize income in future periods as the
market value of these swaps increase. The 2002 year-to-date loss was
partially offset by a gain of $5.0 million related to proceeds
received from a lawsuit as discussed in Note 4 to the Consolidated
Financial Statements.
Income Tax Expense
During the second quarter of 2002, the Company recognized a one-time
tax benefit of $14.3 million related to Tabacal. See Note 4 to the
Consolidated Financial Statements for additional discussion.
Excluding the effects of Tabacal, discussed above, the effective tax
rate for 2002 compared to 2001 primarily reflects the effects of
increased permanently deferred foreign earnings and lower domestic
taxable income.
Other Financial Information
The Financial Accounting Standards Board (FASB) has issued SFAS 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 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 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 the hog lagoons it is legally obligated to close.
Accordingly, the Company is performing detailed assessments and
obtaining the appraisals required to estimate the future retirement
costs. Although these costs could change by the date of adoption, it
is currently estimated that the Company will record a cumulative
effect of approximately $2.0 million as a charge to earnings, an
increase in net fixed assets of $2.6 million and a liability of
$4.6 million for this change in accounting principle at the date of
adoption. Currently, the Company plans to adopt this statement during
the first quarter of fiscal 2003. During 2003, the Company currently
estimates the total accretion of the liability and depreciation of
fixed assets to increase cost of sales by approximately $0.5 million.
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. Changes in the exchange rate
for the Argentine peso affect the valuation of foreign currency
denominated net assets of the Company's Argentine subsidiary and net
earnings for the impact of the change on that subsidiary's dollar
denominated net liabilities. The Company's market risk exposure
related to these items has not changed materially since December 31,
2001.
Item 4. Controls and Procedures
The Company has established a system of controls and other procedures
designed to ensure that information required to be disclosed in its
periodic reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms. These disclosure controls and procedures have been
evaluated under the direction of the Company's Chief Executive Officer
and Chief Financial Officer within the last 90 days. Based on such
evaluations, the Chief Executive Officer and Chief Financial Officer
have concluded that the disclosure controls and procedures are
effective. There have been no significant changes in the Company's
system of internal controls or in other factors that could
significantly affect internal controls subsequent to the evaluation by
the Chief Executive Officer and Chief Financial Officer.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, on June 29, 2001, the EPA filed a Unilateral
Administrative Order (the "RCRA Order"), pursuant to Section 7003 of
the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Sec. 6973 ("RCRA"), against the Company's subsidiary, Seaboard Farms,
Inc. ("Seaboard Farms"), Shawnee Funding, Limited Partnership, and PIC
International Group, Inc. ("PIC") (collectively, "Respondents"). The
RCRA Order alleges that five swine farms located in Major County and
Kingfisher County, Oklahoma purchased from PIC are causing or could
cause contamination of the groundwater. The RCRA Order alleges that,
as a result, Respondents have contributed to an "imminent and
substantial endangerment" within the meaning of RCRA from the leaking
of solid waste in the lagoons or other infrastructure at the farms.
The RCRA Order requires Respondents to develop and undertake a study
to determine if there has been any contamination from farm
infrastructure and, if contamination has occurred, to develop and
undertake a remedial plan. In the event the Respondents fail to
comply with the RCRA Order, the EPA may commence a civil action and
can seek a civil penalty of up to $5,500 per day, per violation.
As also previously reported, the Company has recently received notice
from the State of Oklahoma alleging that the Company has violated
various provisions of Oklahoma state law and the operating permits
related to these farms based on the same conditions which gave rise to
the RCRA Order.
Although the Company disputes the RCRA Order and the State of
Oklahoma's contentions, the Company is cooperating with the EPA and
the State of Oklahoma.
The farms that are the subject of the RCRA Order and the allegations
by the State of Oklahoma were previously owned by PIC. PIC is
presently providing indemnity and defense of the RCRA Order (reserving
its right to contest the obligation to do so) and the Company has
demanded that PIC provide indemnity and defense with respect to any
actions taken by the State of Oklahoma. PIC is contesting its
obligation to provide indemnity and defense with respect to certain
aspects of the RCRA Order and the notice of violation from the State
of Oklahoma. The Company does not believe there are valid grounds for
PIC to contest its obligation to provide the indemnity and defense of
these matters. One indemnity agreement with PIC is subject to a
$5,000,000 limit, but the Company believes that a more general
environmental indemnity agreement would require indemnification of
liability in excess of that amount.
Also as previously reported, EPA has been conducting a broad-reaching
investigation of Seaboard Farms, seeking information as to compliance
with the Clean Water Act (CWA), Comprehensive Environmental Response,
Compensation & Liability Act (CERCLA) and the Clean Air Act. Through
Information Requests and farm inspections, EPA obtained information
concerning whether Seaboard Farms' operations may be discharging
pollutants to waters of the United States in violation of the CWA,
whether National Pollutant Discharge Elimination System storm water
construction permits were obtained where required, whether there has
been unlawful filling of "wetlands" within the jurisdiction of the
CWA, whether Seaboard Farms has properly reported emissions of
hazardous substances into the air under CERCLA, and whether some of
its farms may be emitting air pollutants at levels subject to Clean
Air Act permitting requirements. As a result of the investigation,
EPA requested that the Company engage in settlement discussions to
avoid further EPA investigative efforts and potential formal claims
being filed. EPA has presented an initial written settlement demand,
and Seaboard has responded. The Company believes it has meritorious
legal and factual defenses and objections to EPA's demands, but will
continue to engage in settlement discussions. Such settlement
discussions could lead to an Agreed Consent Order.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Second Amendment to the Note Purchase Agreements dated as of
December 1, 1993 ($100,000,000 Senior Notes due December 1,
2005).
4.2 Second Amendment to the Note Purchase Agreements dated as of
June 1, 1995 ($125,000,000 Senior Notes due June 1, 2007).
4.3 Seaboard Corporation Note Purchase Agreement dated as of
September 30, 2002 between the Registrant and various
purchasers as listed in the exhibit. The Annexes and
Exhibits to the Note Purchase Agreement have been omitted
from the filing, but will be provided supplementally upon
request of the Commission.
4.4 Seaboard Corporation $32,500,000 5.8% Senior Note, Series A,
due September 30, 2009 issued pursuant to the Note Purchase
Agreement described above.
4.5 Seaboard Corporation $38,000,000 6.21% Senior Note, Series
B, due September 30, 2009 issued pursuant to the Note
Purchase Agreement described above.
4.6 Seaboard Corporation $7,500,000 6.21% Senior Note, Series C,
due September 30, 2012 issued pursuant to the Note Purchase
Agreement described above.
4.7 Seaboard Corporation $31,000,000 6.92% Senior Note, Series
D, due September 30, 2012 issued pursuant to the Note
Purchase Agreement described above.
10.1 Reorganization Agreement by and between Seaboard Corporation
and Seaboard Flour Corporation as of October 18, 2002
incorporated by reference to the Form 8-K dated
October 18, 2002.
10.2 Purchase and Sale Agreement dated October 18, 2002 by and
between Flour Holdings LLC and Seaboard Flour Corporation
with respect to which the "Earnout Payments" thereunder have
been assigned to Seaboard Corporation.
99.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
i. Seaboard Corporation filed Form 8-K dated August 7, 2002
including as exhibits, the Statements under Oath of its Principal
Executive Officer and Principal Financial Officer regarding the facts
and circumstances relating to Exchange Act filings submitted to the
Securities and Exchange Commission (SEC), pursuant to the SEC's Order
No. 4-460 (June 27, 2002).
ii. Seaboard Corporation filed Form 8-K dated October 8, 2002
announcing completion of a private placement of Senior Notes and its
intentions for the use of the proceeds.
iii. Seaboard Corporation filed Form 8-K dated October 18, 2002
announcing the repurchase of 232,414.85 shares of common stock from
its parent, Seaboard Flour.
This Form 10Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which may
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 Report 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 devaluation of
the Argentine peso, (vii) the effect of changes to the produce
division operations on the consolidated financial statements of the
Company, (viii) the potential impact of various environmental actions
pending or threatened against the Company or (ix) 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,
including without limitation the information under the headings
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," identifies important factors which 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 4, 2002
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
CERTIFICATIONS
I, H. H. Bresky, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seaboard
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 4, 2002
/s/ H. H. Bresky
H. H. Bresky, Chairman of the Board,
President and Chief Executive Officer
I, Robert L. Steer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seaboard
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 4, 2002
/s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Treasurer and Chief Financial Officer