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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 June 28, 2003
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 .
Indicate by a check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes X . No .
There were 1,255,053.90 shares of common stock, $1.00 par
value per share, outstanding on July 25, 2003.
Total pages in filing - 19 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
June 28, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $ 23,792 $ 23,242
Short-term investments 28,359 30,337
Receivables, net 162,264 201,792
Inventories 236,263 243,949
Deferred income taxes 17,967 15,481
Other current assets 36,922 42,896
Total current assets 505,567 557,697
Investments in and advances to foreign affiliates 81,157 83,855
Net property, plant and equipment 641,167 621,593
Other assets 21,105 17,996
Total assets $1,248,996 $1,281,141
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 39,872 $ 76,112
Current maturities of long-term debt 55,172 55,869
Accounts payable 68,400 67,464
Other current liabilities 142,766 156,917
Total current liabilities 306,210 356,362
Long-term debt, less current maturities 315,282 318,746
Deferred income taxes 79,837 71,509
Other liabilities 48,373 40,639
Total non-current and deferred liabilities 443,492 430,894
Minority interest 5,639 7,154
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued and outstanding 1,255,054 shares 1,255 1,255
Accumulated other comprehensive loss (58,276) (67,284)
Retained earnings 550,676 552,760
Total stockholders' equity 493,655 486,731
Total liabilities and stockholders' equity $1,248,996 $1,281,141
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 Six Months Ended
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
Net sales $ 485,883 $ 477,104 $ 947,750 $ 920,027
Cost of sales and operating expenses 448,866 436,962 875,384 836,799
Gross income 37,017 40,142 72,366 83,228
Selling, general and administrative
expenses 26,728 24,950 54,103 51,282
Operating income 10,289 15,192 18,263 31,946
Other income (expense):
Interest expense (6,728) (5,197) (13,549) (10,648)
Interest income 845 1,487 1,587 3,162
Loss from foreign affiliates (2,587) (1,819) (5,878) (6,764)
Minority interest 145 (366) (108) (543)
Foreign currency loss, net (4,731) (8,582) (6,101) (13,996)
Miscellaneous, net (876) (4,297) 1,332 (2,989)
Total other income (expense),
net (13,932) (18,774) (22,717) (31,778)
Earnings (loss) before income taxes
and cumulative effect of changes
in accounting principles (3,643) (3,582) (4,454) 168
Income tax benefit 727 18,680 605 16,653
Earnings (loss) before cumulative
effect of changes in accounting
principles (2,916) 15,098 (3,849) 16,821
Cumulative effect of changes in
accounting for asset retirement
obligations and drydock accruals,
net of income tax expense of $550 - - 3,648 -
Net earnings (loss) $ (2,916)$ 15,098 $ (201)$ 16,821
Net earnings (loss) per common share:
Earnings (loss) per share before
cumulative effect of changes in
accounting principles $ (2.32)$ 10.15 $ (3.06)$ 11.31
Cumulative effect of changes in
accounting for asset retirement
obligations and drydock accruals - - 2.90 -
Net earnings (loss) per common
share $ (2.32)$ 10.15 $ (0.16)$ 11.31
Dividends declared per common
share $ 0.75 $ 0.75 $ 1.50 $ 1.00
Average number of shares
outstanding 1,255,054 1,487,520 1,255,054 1,487,520
Pro forma amounts assuming changes
in accounting for asset retirement
obligations and drydock accruals
were applied retroactively:
Net earnings (loss) $ (2,916)$ 15,315 $ (3,849)$ 17,827
Net earnings (loss) per common
share $ (2.32)$ 10.29 $ (3.06)$ 11.98
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
June 28, June 29,
2003 2002
Cash flows from operating activities:
Net earnings $ (201) $ 16,821
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 32,170 25,222
Loss from foreign affiliates 5,878 6,764
Foreign currency exchange loss (gain) (4,602) 10,219
Cumulative effect in accounting changes, net (3,648) -
Deferred income taxes 1,294 (17,247)
Changes in current assets and liabilities:
Receivables, net of allowance 42,284 (19,896)
Inventories 11,442 8,722
Other current assets 5,694 10,801
Current liabilities exclusive of debt (8,521) (22,782)
Other, net (1,559) 125
Net cash from operating activities 80,231 18,749
Cash flows from investing activities:
Purchase of short-term investments (17,881) (46,629)
Proceeds from the sale or maturity of short-term
investments 20,359 84,699
Investments in and advances to foreign affiliates,
net (461) 369
Capital expenditures (18,120) (21,366)
Other, net 2,471 (148)
Net cash from investing activities (13,632) 16,925
Cash flows from financing activities:
Notes payable to banks, net (36,240) (6,821)
Principal payments of long-term debt (29,316) (28,597)
Dividends paid (1,883) (1,487)
Bond construction fund 658 575
Other, net (1,623) -
Net cash from financing activities (68,404) (36,330)
Effect of exchange rate change on cash 2,355 (2,473)
Net change in cash and cash equivalents 550 (3,129)
Cash and cash equivalents at beginning of year 23,242 22,997
Cash and cash equivalents at end of period $ 23,792 $ 19,868
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 condensed 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 condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements of the
Company for the year ended December 31, 2002 as filed in its Annual
Report on Form 10-K, as amended. 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.
The accompanying unaudited condensed 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.
Interest Rate Exchange Agreements
The Company's interest rate exchange agreements do not qualify as
hedges for accounting purposes. During the three and six months ended
June 28, 2003, the Company recorded losses of $6,945,000 and
$7,694,000 respectively related to these swaps compared to losses of
$9,638,000 and $8,478,000 for the same periods of 2002. The gains and
losses are included in miscellaneous, net on the Condensed
Consolidated Statements of Earnings and reflect changes in fair market
value, net of amounts paid or received. These losses include 2003 net
payments of $958,000 and $2,943,000 for the three and six month
periods, respectively, resulting from the difference between the fixed
rate paid and variable rate received on these contracts compared with
payments of $823,000 and $2,298,000 for the same periods in 2002.
Supplemental Non-cash Disclosures
As more fully described in Note 2, the volatility of the Argentine
peso has affected the U.S. dollar value of the peso-denominated assets
and liabilities of the Sugar and Citrus segment. The following table
shows the non-cash impact of the change in exchange rates on various
balance sheet categories, caused by the peso devaluation during 2002
and subsequent strengthening during 2003. During the six months ended
June 28, 2003, the Company recorded non-cash net gains of $4,602,000
compared with non-cash net losses of $10,219,000 for the same 2002
period related to revaluations of certain dollar denominated net
liabilities. In addition, see Note 2 for a discussion of the tax
benefits recorded in the second quarter of 2002 related to the
devaluation.
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
Increase (Decrease)
(thousands of dollars) 2003 2002 2003 2002
Working capital $ 3,687 $(2,415) $ 7,972 $(15,420)
Fixed assets 4,047 (6,075) 8,377 (34,905)
Other long-term net assets
or liabilities 380 (447) 405 (834)
During the second quarter of 2003, in connection with the purchase of
certain hog production facilities previously leased under a master
lease agreement, the Company recorded fixed assets of $25,042,000, and
assumed debt and a related interest payable totaling $24,507,000. See
Note 5 for additional discussion.
Accounting Changes and New Accounting Standards
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standard No. 143 (FAS 143), "Accounting for Asset
Retirement Obligations," which required the Company to record a long-
lived asset and related liability for asset retirement obligation
costs associated with the closure of the hog lagoons it is legally
obligated to close. Accordingly, on January 1, 2003, the Company
recorded the cumulative effect of the change in accounting principle
with a charge to earnings of $2,195,000 ($1,339,000 net of tax), an
increase in fixed assets of $3,221,000, and the recognition of a
liability, discounted to reflect present value, of $5,416,000. The
retirement asset will be amortized over the economic life of the
related asset. The Company currently estimates the annual accretion
of the liability and amortization of the assets during 2003 will
increase cost of sales by approximately $560,000. The adoption of
SFAS 143 decreased operating income by $140,000 and $255,000, and net
earnings by $85,000 and $156,000, or $0.07 and $0.12 per common share
respectively, for the three and six months ended June 28, 2003. If
the Company had adopted SFAS 143 retroactively to January 1, 2002,
operating income, net earnings and net earnings per common share would
have decreased by $116,000, $71,000 and $0.05 per share, respectively,
for the three months ended and $232,000, $142,000 and $0.10 per share,
respectively, for the six months ended June 29, 2002.
Through December 31, 2002, costs expected to be incurred during
regularly scheduled drydocking of vessels were accrued ratably prior
to the drydock date. Effective January 1, 2003, the Company changed
its method of accounting for these costs from the accrual method to
the direct-expense method. Under the new accounting method, drydock
maintenance costs are recognized as expense when maintenance services
are performed. The Company believes the newly adopted accounting
principle is preferable in these circumstances because the maintenance
expense is not recorded until the maintenance services are performed
and, accordingly, the direct-expense method eliminates significant
estimates and judgments inherent under the accrual method. As a
result, on January 1, 2003, the Company reversed the balance of the
accrued liability for drydock maintenance as of December 31, 2002 for
its Marine, Commodity Trading and Milling, and Power segments,
resulting in an increase in earnings of $6,393,000 ($4,987,000 net of
related tax expense) as a cumulative effect of a change in accounting
principle. The application of the new accounting principle decreased
operating income and net earnings for the second quarter of 2003 by
$612,000 and $528,000, respectively ($0.42 per common share). For the
six months ended June 28, 2003, operating income and net earnings
increased $396,000 and $219,000, respectively ($0.17 per common
share). The Company currently estimates the change from accruing in
advance to expensing as incurred will reduce cost of sales by
approximately $700,000 during 2003. If the change in accounting
principle was made retroactively to January 1, 2002, operating income,
net earnings and net earnings per common share would have increased by
$356,000, $289,000, and $0.19 per share respectively, for the 2002
three month period and $1,555,000 and $1,148,000, and $0.77 per common
share, respectively, for the 2002 six month period.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities". FIN 46 applies to an entity if its total equity at risk is
not sufficient to permit the entity to finance its activities without
additional subordinated support or if the equity investors lack
certain characteristics of a controlling financial interest. If an
entity has these characteristics, FIN 46 requires a test to identify
the primary beneficiary based on expected losses and expected returns
associated with the variable interest. The primary beneficiary is
then required to consolidate the entity. While the consolidation
requirements applied to all variable interest entities (VIEs) created
after January 31, 2003, for VIEs that existed prior to February 1,
2003, the consolidation requirements are effective if those VIEs
remain in existence for reporting periods beginning after June 15,
2003.
The Company will remain a party to certain contract production
agreements (the "Facility Agreements") with limited liability
companies which own certain of the facilities used in connection with
the Company's vertically integrated hog production. Through June 28,
2003, these arrangements have been accounted for as operating leases.
These facilities are owned by companies considered to be VIEs in
accordance with FIN 46, for which the Company is deemed to be the
primary beneficiary. Accordingly, the Company will be required to
consolidate these entities in the third quarter of 2003. Under one
Facility Agreement, the Company has certain rights to acquire any or
all of the properties at the conclusion of their respective terms at a
price which is expected to reflect estimated fair market value of the
property. In the event the Company does not acquire any property
which it has ceased to lease, the Company has a limited obligation for
any deficiency between the amortized cost of the property and the
price for which it is sold, up to a maximum of 80% to 87% of amortized
cost. As of June 28, 2003, the value of fixed assets related to this
property was $30,500,000. Consolidation of these two VIEs at the
beginning of the third quarter of 2003 will increase fixed assets,
related debt, and noncontrolling interest by $32,862,000, $32,338,000,
and $1,724,000, respectively, and the Company will record a cumulative
effect of a change in accounting principle for the excess of fixed
asset depreciation over mortgage loan amortization of $1,158,000,
($706,000 net of tax, or $0.56 per common share).
Note 2 - Comprehensive Income (Loss)
Components of total comprehensive income (loss), net of related taxes,
are summarized as follows:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands of dollars) 2003 2002 2003 2002
Net (loss) income $(2,916) $15,098 $ (201) $16,821
Other comprehensive income (loss)
net of applicable taxes:
Foreign currency translation
adjustment 2,354 31,438 9,145 (3,642)
Unrealized gains on investments 70 500 38 127
Net unrealized gains (losses) on
foreign exchange cash flow hedges 61 213 (75) 76
Amortization of deferred gain on
interest rate swaps (50) (50) (100) (100)
Total comprehensive income (loss) $ (481) $47,199 $ 8,807 $13,282
The components of and changes in accumulated other comprehensive loss
for the six months ended June 28, 2003 are as follows:
Balance Balance
December 31, Period June 28,
(Thousands of dollars) 2002 Change 2003
Foreign currency translation adjustment $(62,555) $ 9,145 $(53,410)
Unrealized loss on investments 118 38 156
Unrecognized pension cost (5,799) - (5,799)
Net unrealized gain on cash flow hedges - (75) (75)
Deferred gain of interest rate swaps 952 (100) 852
Accumulated other comprehensive loss $(67,284) $ 9,008 $(58,276)
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 as first recorded by the Company in
the fourth quarter of 2001 when the one to one parity with the U.S.
dollar was lifted. Since that time, the peso has devalued
approximately 65%. As of June 28, 2003, the Company had $60,189,000
in net assets denominated in Argentine pesos which have been revalued
through the foreign currency translation adjustment. In addition, the
Company had $13,849,000 of dollar denominated net liabilities which
are first revalued to the peso currency through earnings. During
2003, the strengthening of the peso increased total stockholders'
equity by $12,985,000 including an earnings increase of $1,378,000 for
the dollar denominated net liabilities, and a positive translation
adjustment of $11,607,000 included as a component of other
comprehensive income. During 2002, the devaluation of the peso
resulted in a charge against earnings of $12,304,000 for the six
months ended June 29, 2002 for the dollar denominated net liabilities,
and an additional translation loss of $37,831,000 included as a
component of other comprehensive loss. Until the second quarter of
2002, no tax benefit was provided related to the reduction to
stockholders' equity. However, after a series of transactions was
completed which changed the organizational structure of the Company's
Sugar and Citrus segment, a deferred tax benefit of $34,641,000
relating to the currency translation adjustment component of
accumulated other comprehensive loss, and a one-time current benefit
of $14,303,000 were recorded in the second quarter of 2002. Since
then, income taxes have been accrued at a 35% rate.
The unrecognized pension cost is calculated and adjusted annually
during the fourth quarter. With the exception of the foreign currency
translation loss discussed above, 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 June 28, 2003 and
December 31, 2002 (in thousands):
June 28, December 31,
2003 2002
At lower of LIFO cost or market:
Live hogs & materials $137,771 $129,386
Dressed pork & materials 21,914 21,198
159,685 150,584
LIFO allowance (13,907) (11,422)
Total inventories at lower of
LIFO cost or market 145,778 139,162
At lower of FIFO cost or market:
Grain, flour and feed 63,828 80,618
Sugar produced & in process 9,473 9,929
Other 17,184 14,240
Total inventories at lower of
FIFO cost or market 90,485 104,787
Total inventories $236,263 $243,949
Note 4 - Contingencies
In early 2003, individual bills (the Bills) were introduced in the
United States Senate and House of Representatives which include a
provision to prohibit meat packers, such as the Company, from owning
or controlling livestock intended for slaughter. The Bills also
contain a transition rule applicable to packers of pork providing for
an effective date which is 18 months after enactment. Similar
language was passed by the U.S. Senate in 2002 as part of the Senate's
version of the Farm Bill, but was eventually dropped in conference
committee and was not part of the final Farm Bill.
If any of the Bills containing the proposed language become law, it
could have a material adverse effect on the Company, its operations
and its strategy of vertical integration in the pork business.
Currently, the Company owns and operates production facilities and
owns swine and produces over three million hogs per year. If passed
in their current form, the Bills would prohibit the Company from
owning or controlling hogs, and thus would require the Company to
divest these operations, possibly at prices which are below the
carrying value of such assets on the Company's balance sheet, or
otherwise restructure its ownership and operation. At June 28, 2003,
the Company had $389,873,000 in hog production facilities classified
as net fixed assets on the Consolidated Balance Sheet and
approximately $32,862,000 in hog production facilities under facility
agreements (see Note 1 for a discussion of FIN 46). In addition, the
Company has $137,771,000 invested in live hogs and related materials
classified as inventory on the Consolidated Balance Sheet.
The Bills could also be construed as prohibiting or restricting the
Company from engaging in various contractual arrangements with third
party hog producers, such as traditional contract finishing
arrangements. At June 28, 2003, the Company had approximately
$67,247,000 in commitments through 2018 for various grower finishing
agreements. In addition, another bill was introduced in the Senate in
May 2003 which prohibits or severely limits the use of forward
contracts for hog purchases. Accordingly, the Company's ability to
contract for the supply of hogs to its processing facility could be
significantly, negatively impacted.
The Company, along with industry groups and other similarly situated
companies are vigorously lobbying against enactment of any such
legislation. However, the ultimate outcome is not presently
determinable.
The Company is a defendant in a pending arbitration proceeding 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 has reached an agreement to settle litigation brought by
the Sierra Club, subject to court approval. Under the terms of the
settlement, the Company will conduct an investigation at three farms
and potentially will be required to take remedial actions at the farms
if conditions so warrant.
The Company is subject to regulatory actions and an investigation by
the United States Environmental Protection Agency and the State of
Oklahoma. 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 is subject to various other legal proceedings related to
the normal conduct of its business, including various environmental
related actions. 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.
Certain of the Company's nonconsolidated affiliates and third party
contractors who perform services for the Company have bank debt
supporting their underlying operations. From time to time, the
Company will provide guarantees of that debt allowing a lower
borrowing rate or facilitating third party financing in order to
further the Company's business objectives. The Company does not issue
guarantees for compensation. The following table sets forth the terms
of guarantees of third party and nonconsolidated affiliate bank
indebtedness outstanding at June 28, 2003.
Guarantee beneficiary Maximum exposure Maturity
Foreign affiliate grain processor - Kenya $ 1,300,000 2003
Foreign affiliate food product distributor $ 400,000 2003
Various hog contract growers $ 1,585,000 2003
The Company's guarantees of the various hog contract growers renew
annually through 2013 and 2014 until the related debt matures.
The Company's Sugar and Citrus segment has agreed to market certain
sugar product for a third party under a contract expiring in 2008. In
the event the Company does not perform under the contract, it would be
responsible to make payments to the third party of a maximum of
$1,000,000 for 2003, decreasing annually to $200,000 in 2008.
As of June 28, 2003, the Company had outstanding $15,079,000 of
standby letters of credit (LCs) with various banks mostly to
facilitate operations of consolidated subsidiaries. Of these LCs,
$10,541,000 also reduced available borrowing capacity under the
Company's credit lines. Also included in this amount is an LC issued
to facilitate bank borrowing of the Company's Bulgarian wine affiliate
totaling 1,431,000 Euros (approximately $1,635,000). As of June 28,
2003, this affiliate's borrowings totaled EU 375,000 (approximately
$429,000). This affiliate has pledged inventory with a value of
approximately $2,229,000 as collateral for the LC. Because the value
of the inventory serving as collateral for the LC is considerably more
than the balance of the related debt, the Company has determined the
fair value of this LC to be immaterial.
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, along with
losses from foreign affiliates for the Commodity Trading and Milling
Division, is used as the measure of evaluating segment performance
because management does not consider interest and income tax expense
on a segment basis.
During the second quarter of 2003, the Company purchased certain hog
production facilities previously leased under a master lease agreement
with Mission Funding, LLC for $25,042,000, consisting of $535,000 net
cash and the assumption of $24,507,000 in bank debt and a related
interest payable.
Management ceased its shrimp, pickle and pepper farming operations in
Honduras in the fourth quarter of 2001 and has been considering
various strategic alternatives for the Produce Division. In
February 2003, the Company signed a letter of intent with a local
Honduran shrimp farmer for the sale of shrimp farming and shrimp
processing assets for $3,900,000. As a substantial portion of the
sale price is expected to be in the form of a long-term note
receivable from the buyer, the Company will use the cost recovery
method of accounting, and no gain will be recognized by the Company
until the actual cash is collected. The sale is expected to be
completed during the third quarter of 2003. In addition, certain
pickle and pepper farming assets are leased to local farmers. Based
on an impairment evaluation as of December 31, 2002, management
believes the remaining carrying value of these assets is recoverable.
As of June 28, 2003, the carrying value of these farming assets was
$742,000 which is included with All Other in the total assets table
below.
The Bulgarian wine business (the Business) in which the Company owns a
37% interest, negotiated a series of extensions of principal payment
due dates and revised payment terms through August 31, 2003, after it
was unable to make scheduled principal payments to a bank. The terms
of the latest extension require, among other provisions, the Business
to repay the majority of the principal balance plus accrued interest
by August 31, 2003 and the bank will forgive a portion of the debt
upon achievement of certain terms and conditions. In the event the
Business does not obtain external financing to make this payment, 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. At December 31, 2002, the
Business evaluated the recoverability of its long-lived assets based
on projected future cash flows and, accordingly, the Company believes
there is not an other-than-temporary decline in value of its
investment, pending the resolution of negotiations for additional
financing. As of June 28, 2003, the Company's investments in and
advances to the Business totaled $18,630,000. The Company's share of
losses from the Business is included with All Other in the loss from
foreign affiliates table below.
As of June 28, 2003 the Company owned approximately 20% of Fjord
Seafood ASA (Fjord), an integrated salmon producer and processor
headquartered in Norway, which is accounted for under the equity
method. Due in part to sustained low world-wide salmon prices, the
per share stock price of Fjord, as quoted on the Oslo Stock Exchange,
has declined during 2003. As a result of this decline, the market
value of the Company's investment in Fjord, based on the June 27, 2003
closing price, was $12,376,000 compared to the carrying value of
$34,498,000. If Salmon prices do not improve and Fjord continues to
sustain significant operating losses, certain of Fjord's assets could
be deemed to be impaired, causing material charges against Fjord's
earnings for the write-downs of Fjord's asset values and accordingly,
the Company would record its share of the impairment charge. In
addition, material charges to Fjord's earnings could lead to violations
of Fjord's bank covenants potentially resulting in further declines in
Fjord's stock price. The Company is monitoring these conditions which
ultimately could result in a material charge to earnings during the
second half of 2003, either through the equity in earnings adjustments
related to Fjord's results of operations, including impairment charges,
or through a decision by the Company's management that a portion or all
of the difference in market value of Fjord's stock price compared to the
Company's carrying value is deemed to be an other-than temporary decline
in value. The Company's share of losses from Fjord is included in All
Other in the Loss from Foreign Affiliates table and the investment
balance is included with Corporate Items in the Total Assets table
below.
Sales to External Customers:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands of dollars) 2003 2002 2003 2002
Pork $191,187 $159,331 $345,113 $330,389
Commodity Trading and Milling 149,366 184,134 327,141 331,672
Marine 104,038 96,648 196,324 187,463
Sugar and Citrus 17,823 14,596 30,595 29,295
Power 16,793 16,313 34,417 28,525
All Other 6,676 6,082 14,160 12,683
Segment/Consolidated Totals $485,883 $477,104 $947,750 $920,027
Operating Income:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands of dollars) 2003 2002 2003 2002
Pork $ (259) $ (5,352) $ (1,704) $ (2,835)
Commodity Trading and Milling 1,163 7,607 4,557 14,356
Marine 2,387 5,562 1,436 9,175
Sugar and Citrus 4,876 4,812 9,338 7,947
Power 2,476 3,287 4,941 4,912
All Other 23 (22) 810 (536)
Segment Totals 10,666 15,894 19,378 33,019
Corporate Items (377) (702) (1,115) (1,073)
Consolidated Totals $ 10,289 $ 15,192 $ 18,263 $ 31,946
Loss from Foreign Affiliates:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands of dollars) 2003 2002 2003 2002
Commodity Trading and Milling $ 41 $ (33) $ (1,659) $ (1,260)
All Other (2,628) (1,786) (4,219) (5,504)
Segment/Consolidated Totals $ (2,587) $ (1,819) $ (5,878) $ (6,764)
Total Assets:
June 28, December 31,
(Thousands of dollars) 2003 2002
Pork $ 653,784 $ 627,937
Commodity Trading and Milling 198,631 239,187
Marine 117,159 117,366
Sugar and Citrus 78,307 69,515
Power 71,811 73,872
All Other 12,785 15,971
Segment Totals 1,132,477 1,143,848
Corporate Items 116,519 137,293
Consolidated Totals $1,248,996 $1,281,141
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.
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 June 28, 2003, remained
consistent with year end balances as the reduction of receivable
balances was used to pay maturing debt. Cash from operating
activities for the six months ended June 28, 2003, increased $61.5
million compared to the same period one year earlier. The increase in
cash flows was primarily related to changes in the components of
working capital, primarily a change in receivables in the Commodity
Trading and Milling segment, partially offset by lower net earnings.
Within the Commodity Trading and Milling segment, lower sales in the
second quarter of 2003 resulted in a decrease in receivables compared
to higher sales in the second quarter of 2002 which caused an increase
in receivables.
Cash from investing activities for the six months ended June 28, 2003,
decreased $30.6 million compared to the same period one year earlier.
The decrease primarily reflects the high levels of short-term
investments sold during 2002 primarily to repay the Company's maturing
revolving credit facility.
The Company invested $18.1 million in property, plant and equipment
for the six months ended June 28, 2003, of which $10.7 million was
expended in the Pork segment, $3.5 million in the Marine segment, $2.6
million in the Sugar and Citrus segment, and $1.3 million in other
businesses of the Company.
The Company invested $10.7 million in the Pork segment primarily for
the expansion of existing hog production facilities, and land
acquisition and permitting activities to support the requirements of a
second processing plant. In addition, the hog production facilities
previously leased from Mission Funding, LLC under a master lease
arrangement were also purchased during the second quarter of 2003 for
a total of $25.0 million, including the assumption of $24.5 million in
bank debt and a related interest payable.
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. Based on current
financial and market conditions in the pork industry caused by the
oversupply of hogs and pork, the Company does not intend to proceed
with the expansion project at this time beyond the expenditures
required to allow future land development possibilities should market
conditions change. If the Company ultimately pursues this project, it
is also contingent on a number of other factors, including obtaining
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. As of June 28, 2003, $4.8
million of land, development costs, and land purchase options were
included in fixed assets related to this project. During the
remainder of 2003, the Company anticipates spending $4.5 million for
activities to support this Texas project, and $6.1 million for
improvements to existing hog production facilities and upgrades to the
existing pork processing plant.
The Company invested $3.5 million in the Marine segment primarily to
expand and replace fleet and cargo transportation equipment and make
facility improvements. During the remainder of 2003, the Company
anticipates spending $5.8 million to purchase additional equipment.
In addition, the Company is reviewing its options to purchase two
previously chartered vessels for $4.0 million or enter into new lease
agreements for the vessels.
The Company invested $2.6 million in the Sugar and Citrus segment
primarily for machinery and equipment, and improvements to sugarcane
fields. During the remainder of 2003, the Company anticipates
spending $1.4 million for additional improvements.
Excluding the potential Pork expansion plans, management anticipates
the additional 2003 capital expenditures for existing operations will
be financed by internally generated cash or the use of available short-
term investments.
Cash from financing activities during the six months ended June 28,
2003 decreased $32.1 million compared to the same period in 2002
reflecting reductions in short-term borrowings.
In the first quarter of 2003, the Company extended a $20.0 million
revolving credit facility, and, for use by a subsidiary in the
Commodity Trading and Milling segment, entered into two new committed
lines for $75.0 million and $5.0 million which are secured by certain
of the Company's commodity trading inventory and accounts receivable.
The new subsidiary credit lines include financial covenants for that
subsidiary which require maintenance of certain levels of working
capital and net worth, and limitations on debt to net worth and
liabilities to net worth ratios. As of June 28, 2003, the Company had
committed lines of credit totaling $125.0 million and uncommitted
lines totaling $58.8 million. Borrowings outstanding under committed
and uncommitted lines as of June 28, 2003 totaled $20.1 million and
$19.8 million, respectively. As of June 28, 2003, standby letters of
credit of $10.5 million reduced the Company's borrowing capacity.
The Company is a party to certain contract production agreements (the
"Facility Agreements") with limited liability companies which own
certain of the facilities used in connection with the Company's
vertically integrated hog production. Through June 28, 2003, these
arrangements have been accounted for as operating leases. These
facilities are owned by companies considered to be VIEs in accordance
with FIN 46, for which the Company is deemed to be the primary
beneficiary. Accordingly, the Company will be required to consolidate
these entities in the third quarter of 2003. Consolidation of these
two VIEs at the beginning of the third quarter of 2003 will increase
fixed assets, related debt, and noncontrolling interest by
$32,862,000, $32,338,000, and $1,724,000, respectively, and the
Company will record a cumulative effect of a change in accounting
principle for the excess of fixed asset depreciation over mortgage
loan amortization of $1,158,000, ($706,000 net of tax, or $0.56 per
common share).
In addition to the financing requirement to accommodate the Pork
segment expansion plans, the Company continues to make payments on
maturing Senior Notes. Management believes that the Company's current
combination of liquidity, capital resources and borrowing capabilities
will be adequate for its existing operations. 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.
See Note 4 to the Condensed Consolidated Financial Statements for
additional information with regard to commercial commitments and
contingent obligations.
RESULTS OF OPERATIONS
Net sales for the three and six months ended June 28, 2003, increased
by $8.8 and $27.7 million, respectively, compared to the same periods
one year earlier. Operating income for the three and six months ended
June 28, 2003 decreased by $4.9 and $13.7 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 Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 191.2 $ 159.3 $ 345.1 $ 330.4
Operating loss $ (0.3) $ (5.4) $ (1.7) $ (2.8)
Net sales for the Pork segment increased $31.9 and $14.7 million,
respectively, for the three and six months ended June 28, 2003
compared to the same periods in 2002 primarily as a result of improved
pork prices and, to a lesser extent, increased sales volumes for the
second quarter of 2003. Excess domestic meat supplies resulted in
lower sales prices throughout 2002 and into 2003, although prices have
continued to improve during 2003 compared to the declining trend
experienced throughout 2002. The increase in sales volume resulted
from the sale of inventory built up in the first quarter of 2003 in
anticipation of improved market conditions during the second quarter
of 2003.
Operating losses for the Pork segment decreased $5.1 and $1.1 million,
for the three and six months ended June 28, 2003, respectively,
compared to the same periods in 2002. The decreases primarily reflect
improved market prices discussed above partially offset by higher feed
costs. The second quarter 2003 operating loss includes a $1.6 million
charge for abandoned land development costs for several potential hog
production sites that the Company determined it would no longer
pursue. While unable to predict future market prices, management
currently expects overall market conditions to continue to improve
compared to prior year allowing this segment to return to positive
operating income for the remainder of 2003.
Commodity Trading and Milling Segment
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 149.3 $ 184.1 $ 327.1 $ 331.7
Operating income $ 1.2 $ 7.6 $ 4.6 $ 14.4
Loss from foreign affiliates $ 0.0 $ 0.0 $ (1.7) $ (1.3)
Net sales for the Commodity Trading and Milling segment decreased
$34.8 and $4.6 million for the three months and six month periods
ended June 28, 2003 compared to the same periods in 2002. The
decrease for the quarter is primarily the result of lower commodity
trading volumes to third party customers during the second quarter of
2003 as a result of changing crop conditions in Southern Africa. The
decrease for the six months is primarily attributable to lower
commodity sales to affiliates and, to a lesser extent, third party
customers.
Operating income for this segment decreased $6.4 and $9.8 million for
the three and six months ended June 28, 2003, respectively, compared
to the same periods in 2002. Operating income decreased primarily
from lower margins on commodity trading activity as a result of higher
freight costs and changes in local market conditions. Operating
income was also decreased by, although to a lesser extent, lower
commodity trading sales as discussed above and increased selling
expenses and reserves for bad debts. In addition, while the Company
believes its commodity futures and options are economic hedges of its
firm purchase and sales contracts, the Company does not perform the
extensive record-keeping required to account for commodity
transactions as hedges. As a result, these derivative contracts have
been marked-to-market through cost of goods sold, but the related,
offsetting change in market value of the firm sales commitments have
not been recognized. Operating income for 2003 included realized
derivative gains of $2.0 and $1.6 million for the three and six months
ended June 28, 2003 compared to gains of $2.0 and $5.2 million for the
same periods in of 2002. Due to the 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 remained constant for the second quarter
of 2003 and increased $0.4 million for the six months ended June 28,
2003, respectively, compared to the same periods in 2002. The
increase for the six months is primarily a result of increased losses
at a certain African milling operation. Based on the current
political and economic situations in the countries in which the flour
and feed mills operate, management believes that losses from foreign
affiliates may continue for the remainder of 2003.
Marine Segment
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 104.0 $ 96.6 $ 196.3 $ 187.5
Operating income $ 2.4 $ 5.6 $ 1.4 $ 9.2
Net sales for the Marine segment increased $7.4 and $8.8 million for
the three and six months ended June 28, 2003 compared to the same
periods in 2002. These increases primarily reflect increased cargo
volumes in most existing markets, certain new routes added during the
fourth quarter of 2002, and chartering of certain company-owned
vessels to carry military cargo to the Middle East. These increases
were partially offset by the significant declines in cargo volumes for
certain South American routes as a result of the political instability
in Venezuela. Commercial activity has not yet recovered from the
general strike that began in December 2002 and ended in February 2003.
Lower average cargo rates also offset revenue increases when compared
to the prior year.
Operating income for the Marine segment decreased $3.2 and $7.8
million, respectively, for the three and six months ended June 28,
2003 compared to the same periods in 2002, primarily reflecting the
effects of the political instability and the strike in Venezuela as
discussed above, higher fuel costs and, to a lesser extent, increased
selling and bad debt expenses. The duration and extent of reduced
demand, primarily attributed to the economic contraction in Venezuela
will continue to affect future results while shipping demand for
affected South American routes remains depressed. Although Management
expects operating results for this segment to remain profitable for
the remainder of 2003, continued economic uncertainties in certain
South American routes will continue to affect profitability.
Sugar and Citrus Segment
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 17.8 $ 14.6 $ 30.6 $ 29.3
Operating income $ 4.9 $ 4.8 $ 9.3 $ 7.9
The functional currency of the Sugar and Citrus segment is the
Argentine peso. After the Argentine government ended the one peso to
one U.S. dollar parity in January 2002, the peso suffered significant
and on-going devaluation throughout most of 2002. For the three and
six months ended June 28, 2003, this trend has reversed and the peso
has regained some value. See Note 2 to the Condensed Consolidated
Financial Statements for further discussion.
Net sales for the Sugar and Citrus segment increased $3.2 and $1.3
million for the three and six months ended June 28, 2003 compared to
the same periods in 2002. These increases are the result of higher
sugar prices partially offset by reduced sales volumes, primarily for
resale sugar as a result of lower quantities of sugar purchased from
third parties. The peso price of sugar has increased over the 2002
period prices to offset the effects of the devaluation of the peso.
Operating income increased $0.1 and $1.4 million for the three and six
months ended June 28, 2003, respectively, compared to the same periods
in 2002. The higher sugar prices are beginning to be offset by
increased production costs from the inflationary effect on the local
production components and the improving peso exchange rate. While
management is not able to predict future sugar prices or whether costs
will increase more than sugar prices in the coming months, management
expects operating income will remain positive for 2003.
Power Segment
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 16.8 $ 16.3 $ 34.4 $ 28.5
Operating income $ 2.5 $ 3.3 $ 4.9 $ 4.9
Net sales for the Power segment increased $0.5 and $5.9 million,
respectively, for the three and six months ended June 28, 2003
compared to the same periods in 2002 reflecting higher average spot
market rates for 2003. Throughout the first quarter of 2002, spot
market prices were lower compared with 2003 reflecting, in part, lower
average fuel costs, a component of pricing. Prices gradually
increased during the second quarter of 2002, ultimately reaching
levels more comparable with 2003. The Company has begun to contract
directly with approved large power users to reduce the exposure to
changes in spot market rates and currency fluctuations. Contract
pricing and the valuation of the corresponding receivable is more
closely tied to the U.S. dollar while spot market sales are stated in
Dominican Pesos. As of June 28, 2003, the Company has approved
contracts in place for approximately 50% of its capacity.
Operating income decreased $0.8 million for the three months ended
June 28, 2003 and remained constant for the six months ended June 28,
2003 compared to the same periods in 2002 primarily reflecting a
higher level of transmission fees assessed beginning in the second
quarter of 2003 and higher fuel costs. Although net sales increased
for the 2003 periods compared to 2002, these increases were offset by
the increase in fuel costs and additional transmission fees. While
management is not able to predict future spot market rates, it is
anticipated that operating income will be lower for the remainder of
2003 compared to 2002.
Foreign exchange losses are a component of other income (expense) and
not operating income. The Dominican Peso has devalued significantly
against the U.S. dollar during 2003. Accordingly, the Company has
incurred foreign currency losses of $4.9 and $6.7 million for the
three and six months ended June 28, 2003 related to the Power
division. Although the Company cannot predict foreign currency
exchange rates, given the current economic condition in the Dominican
Republic, it is reasonable to assume that additional foreign currency
losses will be incurred during the remainder of 2003.
All Other
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Dollars in millions) 2003 2002 2003 2002
Net sales $ 6.7 $ 6.1 $ 14.2 $ 12.7
Operating income (loss) $ 0.0 $ 0.0 $ 0.8 $ (0.5)
Loss from foreign affiliates $ (2.6) $ (1.8) $ (4.2) $ (5.5)
Net sales and operating income for all other businesses increased for
the three and six months ended June 28, 2003 compared to similar
periods in 2002. In February 2003, management signed a letter of
intent for the sale of the shrimp farming and shrimp processing
assets, and is currently considering various alternatives for the
remaining pickle and pepper farming assets. Management evaluated the
recoverability of the pickle and pepper farming assets at
December 31, 2002, and currently believes the remaining book value of
$0.7 million is recoverable. A future impairment charge could be
recognized however, depending on final decisions regarding the
alternatives for these assets.
The loss from foreign affiliates represents the Company's share of
losses from equity method investments in Fjord Seafood ASA (Fjord) and
a Bulgarian wine business. Continued losses from Fjord result from
sustained low world-wide salmon prices. Although management cannot
predict worldwide salmon prices, losses are expected to continue
through the remainder of 2003. See Note 5 to the Condensed
Consolidated Financial Statements for additional discussion regarding
the potential for material charges to earnings during the second half
of 2003 related to Fjord.
The Bulgarian wine business (the Business) negotiated an extension of
principal payment due dates and revised payment terms through August
31 2003, after it was unable to make scheduled principal payments to a
bank. The terms of the latest extension require, among other
provisions, the Business to repay the majority of the principal
balance plus accrued interest by August 31, 2003 and the bank will
forgive a portion of the debt upon achievement of certain terms and
conditions. In the event the Business does not obtain external
financing to make this payment, 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. At December 31, 2002, the Business evaluated the
recoverability of its long-lived assets based on projected future cash
flows and, accordingly, the Company believes there is not an other-
than-temporary decline in value of its investment, pending the
resolution of negotiations for additional financing. As of
June 28, 2003, the Company's investments in and advances to the
Business totaled $18,630,000.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased $1.8 and
$2.8 million, respectively, for the three and six months ended June
28, 2003 compared to the same periods in 2002. These increases
primarily reflect increased selling and bad debt expenses in the
Marine and Commodity Trading and Milling divisions. As a percentage
of revenues, SG&A increased to 5.5% and 5.7% from 5.2% and 5.6%,
respectively, for the three months and six months ended June 28, 2003
compared to the same periods in 2002.
Interest Expense
Interest expense increased $1.5 and $2.9 million, respectively, for
the three and six months ended June 28, 2003 compared to the same
periods in 2002. These increases are a result of higher average
levels of short-term and long-term debt outstanding during the 2003
periods, partially offset by lower average interest rates.
Interest Income
Interest income decreased $0.6 and $1.6 million, respectively, for the
three and six months ended June 28, 2003 compared to the same periods
in 2002 primarily reflecting a reduction of average funds invested
during 2003.
Foreign Currency Losses, Net
Foreign currency losses decreased $3.9 and $7.9 million for the three
and six months ended June 28, 2003 compared with the same periods in
2002. The losses during 2003 primarily result from the effects of
recent devaluation of the Dominican Republic peso on peso-denominated
net assets of the Power division, principally customer receivables,
partially offset by the effect of improvements in the Argentine peso
on dollar denominated net liabilities of the Sugar and Citrus segment.
See Note 2 to the Condensed Consolidated Financial Statements for
additional discussion of the Argentine peso devaluation. 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 risk of exchange
loss.
Miscellaneous, Net
Miscellaneous, net, for the 2003 three and six-month periods include
gains of $4.7 and $6.6 million, respectively, related to proceeds from
settlements of antitrust litigation primarily arising out of purchases
by the Company of methionine, a feed additive used by the Company.
The second quarter of 2002 includes a gain of $4.9 million related to
proceeds from a settlement of antitrust litigation against several
manufacturers of vitamins and feed additives. Miscellaneous, net also
includes losses on interest rate exchange agreements of $6.9 and $7.7
million, respectively for the three and six months ended June 28, 2003
compared to losses of $9.6 and $8.5 million respectively, for the
comparable 2002 periods. These swap agreements do not qualify as
hedges for accounting purposes and accordingly, changes in the market
value are recorded to earnings as interest rates change.
Income Tax Expense
During the second quarter of 2002, the Company recognized a one-time
tax benefit of $14.3 million related to the Company's Sugar and Citrus
segment. See Note 2 to the Consolidated Financial Statements for
additional discussion. Excluding the effects of the one-time benefit
discussed above, the income tax benefits recorded during 2003
decreased compared to 2002 primarily due to reduced levels of current
year domestic net losses subject to tax.
Other Financial Information
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". FIN 46 applies to an entity if its total equity
at risk is not sufficient to permit the entity to finance its
activities without additional subordinated support or if the equity
investors lack certain characteristics of a controlling financial
interest. If an entity has these certain characteristics, FIN 46
requires a test to identify the primary beneficiary based on expected
losses and expected returns associated with the variable interest.
The primary beneficiary is then required to consolidate the entity.
The consolidation requirements apply to all variable interest entities
(VIEs) created after January 31, 2003. The Company must apply the
consolidation requirements for VIEs that existed prior to February 1,
2003 and remain in existence as of the beginning of the first
reporting period beginning after June 15, 2003. See Note 1 to the
Condensed Consolidated Financial Statements for the related disclosure
of existing VIEs as of June 28, 2003 and the results of subsequent
consolidation.
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,
2002.
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 as of the end of the period covered by
this report. Based on such evaluations, the Chief Executive Officer
and Chief Financial Officer have concluded that the disclosure
controls and procedures are effective. There has not been any change
in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 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
32.2 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. - On May 6, 2003 Seaboard Corporation filed
a report on Form 8-K including the press release of earnings of
Seaboard Corporation for the first quarter ended March 29, 2003.
This Form 10-Q 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 ability to obtain adequate financing
and liquidity, (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 demand for power and related spot prices in the Dominican
Republic, (vii) the effect of currency fluctuations of the Argentine
and Dominican Republic pesos, (viii) the effect of changes to the
produce division operations on the consolidated financial statements
of the Company, (ix) the potential effect of the proposed meat packer
ban legislation, (x) the effect of the national strike in Venezuela on
the Company's Marine Division, (xi) the potential effect of the
Company's investments in a wine business and salmon and other seafood
business on the consolidated financial statements of the Company,
(xii) the potential impact of various environmental actions pending or
threatened against the Company or (xiii) 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: August 8, 2003
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Treasurer, and Chief Financial Officer
(principal financial officer)
by: /s/ John A. Virgo
John A. Virgo, Corporate Controller
(principal accounting officer)