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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 July 3, 2004
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)
(913) 676-8800
(Registrant's telephone number, including area code)
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 26, 2004.
Total pages in filing - 18 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
July 3, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 22,408 $ 37,377
Short-term investments 38,586 58,022
Receivables, net 218,452 190,013
Inventories 293,477 276,033
Deferred income taxes 18,838 17,972
Other current assets 41,843 35,419
Total current assets 633,604 614,836
Investments in and advances to foreign affiliates 42,096 46,680
Net property, plant and equipment 622,456 643,968
Other assets 31,235 20,207
Total assets $1,329,391 $1,325,691
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 1,160 $ 75,564
Current maturities of long-term debt 54,038 56,983
Accounts payable 83,254 61,817
Other current liabilities 158,630 149,726
Total current liabilities 297,082 344,090
Long-term debt, less current maturities 292,738 321,555
Deferred income taxes 107,437 85,295
Other liabilities 47,983 46,720
Total non-current and deferred liabilities 448,158 453,570
Minority and other noncontrolling interests 1,997 7,466
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 (59,688) (61,527)
Retained earnings 640,587 580,837
Total stockholders' equity 582,154 520,565
Total liabilities and stockholders' equity $1,329,391 $1,325,691
See notes to condensed consolidated financial statements.
1
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
Net sales:
Products $ 562,688 $ 359,367 $1,040,755 $ 703,965
Services 134,022 109,723 256,103 209,368
Other 15,597 16,793 31,124 34,417
Total net sales 712,307 485,883 1,327,982 947,750
Cost of sales and operating expenses:
Products 511,147 337,983 943,608 663,696
Services 102,042 97,767 200,405 184,845
Other 11,978 13,116 23,257 26,843
Total cost of sales and operating
expenses 625,167 448,866 1,167,270 875,384
Gross income 87,140 37,017 160,712 72,366
Selling, general and administrative
expenses 31,613 26,728 62,423 54,103
Operating income 55,527 10,289 98,289 18,263
Other income (expense):
Interest expense (6,679) (6,728) (14,418) (13,549)
Interest income 1,810 845 3,565 1,587
Loss from foreign affiliates (94) (2,587) (231) (5,878)
Minority and other noncontrolling
interests (312) 145 (394) (108)
Foreign currency gain (loss), net 157 (4,731) (1,504) (6,101)
Miscellaneous, net 533 (876) 2,873 1,332
Total other income (expense), net (4,585) (13,932) (10,109) (22,717)
Earnings (loss) before income taxes
and cumulative effect of changes
in accounting principles 50,942 (3,643) 88,180 (4,454)
Income tax benefit (expense) (16,686) 727 (26,547) 605
Earnings (loss) before cumulative
effect of changes in accounting
principles 34,256 (2,916) 61,633 (3,849)
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) $ 34,256 $ (2,916) $ 61,633 $ (201)
Net earnings (loss) per common share:
Earnings (loss) per share before
cumulative effect of changes in
accounting principles $ 27.29 $ (2.32) $ 49.11 $ (3.06)
Cumulative effect of changes in
accounting for asset retirement
obligations and drydock accruals - - - 2.90
Net earnings (loss) per common
share $ 27.29 $ (2.32) $ 49.11 $ (0.16)
Dividends declared per common
share $ 0.75 $ 0.75 $ 1.50 $ 1.50
Average number of shares
outstanding 1,255,054 1,255,054 1,255,054 1,255,054
See notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Six Months Ended
July 3, June 28,
2004 2003
Cash flows from operating activities:
Net earnings (loss) $ 61,633 $ (201)
Adjustments to reconcile net earnings (loss)
to cash from operating activities:
Depreciation and amortization 32,619 32,170
Loss from foreign affiliates 231 5,878
Foreign currency exchange gains (221) (4,602)
Cumulative effect in accounting changes, net - (3,648)
Deferred income taxes 20,672 1,294
Changes in current assets and liabilities:
Receivables, net of allowance (41,408) 42,284
Inventories (11,433) 11,442
Other current assets (7,257) 5,694
Current liabilities exclusive of debt 28,177 (8,521)
Other, net 514 (1,559)
Net cash from operating activities 83,527 80,231
Cash flows from investing activities:
Purchase of short-term investments (46,257) (17,881)
Proceeds from the sale or maturity of short-term
investments 65,899 20,359
Investments in and advances to foreign
affiliates, net 1,342 (461)
Capital expenditures (12,425) (18,120)
Other, net 2,249 2,471
Net cash from investing activities 10,808 (13,632)
Cash flows from financing activities:
Notes payable to banks, net (74,404) (36,240)
Principal payments of long-term debt (30,443) (29,316)
Repurchase of minority interest in a controlled
subsidiary (5,000) -
Dividends paid (1,883) (1,883)
Bond construction fund 1,200 -
Other, net (137) (965)
Net cash from financing activities (110,667) (68,404)
Effect of exchange rate change on cash 1,363 2,355
Net change in cash and cash equivalents (14,969) 550
Cash and cash equivalents at beginning of year 37,377 23,242
Cash and cash equivalents at end of period $ 22,408 $ 23,792
See notes to condensed consolidated financial statements.
3
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
("Seaboard"). All significant intercompany balances and transactions
have been eliminated in consolidation. Seaboard'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 Seaboard for
the year ended December 31, 2003 as filed in its Annual Report on
Form 10-K. Seaboard's first three quarterly periods include
approximately 13 weekly periods ending on the Saturday closest to the
end of March, June and September. Seaboard'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
Seaboard's interest rate exchange agreements do not qualify as hedges
for accounting purposes. During the three and six months ended
July 3, 2004 Seaboard recorded gains of $2,899,000 and $156,000,
respectively, related to these agreements compared to losses of
$6,945,000 and $7,694,000 during the same periods of 2003. 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 interest paid or received. During the 2004 three and
six month periods, Seaboard made net payments of $1,055,000 and
$3,267,000, respectively, compared to payments made of $958,000 and
$2,943,000 during the same periods of 2003 resulting from the
difference between the fixed rate paid and variable rate received on
these agreements.
Supplemental Non-cash Disclosures
The fluctuation of the Argentine peso has affected the U.S. dollar
value of the peso-denominated assets and liabilities of the Sugar and
Citrus segment. During the six months ended July 3, 2004, this
segment recorded non-cash gains of $221,000 caused by the revaluation
of certain dollar denominated net liabilities compared to gains of
$4,602,000 during the six months ended June 28, 2003. The following
table shows the non-cash impact of the change in exchange rates on
various balance sheet categories for the peso denominated assets and
liabilities.
Six Months Ended
July 3, June 28,
Increase (thousands of dollars) 2004 2003
Working capital $ 1,722 $ 7,972
Fixed assets 387 8,377
Other long-term net assets or liabilities 10 405
Accounting Changes and New Accounting Standards
Effective January 1, 2003, Seaboard adopted Statement of Financial
Accounting Standard No. 143 (SFAS 143), "Accounting for Asset
Retirement Obligations," which required Seaboard 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, Seaboard
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, or
$1.07 per common share). The following table shows the changes in the
asset retirement obligation during each year.
Three Months Ended Six Months Ended
Thousands of dollars July 3, 2004 June 28, 2003 July 3, 2004 June 28, 2003
Beginning balance $6,333 $5,572 $6,086 $5,416
Accretion expense 116 106 229 200
Liability for additional
lagoons placed in service - 231 134 293
Ending balance $6,449 $5,909 $6,449 $5,909
4
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, Seaboard 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. Seaboard 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 balance of the accrued liability for
drydock maintenance as of December 31, 2002 for its Commodity Trading
and Milling, Marine, and Power segments was reversed, resulting in an
increase in earnings of $6,393,000 ($4,987,000 net of related tax
expense or $3.97 per common share) as a cumulative effect of a change
in accounting principle.
As of December 31, 2003, Seaboard adopted Financial Accounting
Standards Board Interpretation No. 46, revised December 2003 (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. Based on its evaluations, Seaboard
consolidated certain limited liability companies as of
December 31, 2003, which own certain of the facilities used in
connection with Seaboard's vertically integrated hog production
because Seaboard was determined to be the primary beneficiary. If the
consolidation requirements would have been applied retroactively to
January 1, 2003, operating income, net earnings, and net earnings per
common share during 2003 would have decreased by $64,000, $39,000 and
$0.03, respectively, for the second quarter and $131,000, $80,000 and
$0.06, respectively, for the six month period.
Note 2 - Repurchase of Minority Interest
In connection with the December 2001 sale of a 10% minority interest
in one of the two power barges in the Dominican Republic, the buyer
was given a three-year option to sell the interest back to Seaboard
for the book value at the time of sale, pending collections of
outstanding receivables. During January 2004, the buyer provided
notice to exercise the option valued at $5,709,000. An initial
payment of $5,000,000 was paid during the second quarter of 2004 to
reacquire this interest with the remaining balance payable upon
collection of the remaining outstanding receivables.
In addition, Seaboard has historically paid commissions to a related
entity of the above party relative to the performance of the other
power barge. During the second quarter of 2004 Seaboard agreed to
terminate that relationship by making a one-time payment of
$2,000,000, included in selling, general and administrative expenses.
Note 3 - Comprehensive Income (Loss)
Components of total comprehensive income (loss), net of related taxes,
are summarized as follows:
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Thousands of dollars) 2004 2003 2004 2003
Net earnings (loss) $34,256 $(2,916) $61,633 $ (201)
Other comprehensive income (loss)
net of applicable taxes:
Foreign currency translation adjustment (317) 2,354 1,927 9,145
Unrealized gains (losses) on investments (16) 70 74 38
Unrealized gains (losses) on cash flow
hedges (10) 61 (62) (75)
Amortization of deferred gain on interest
rate swaps (50) (50) (100) (100)
Total comprehensive income (loss) $33,863 $ (481) $63,472 $8,807
5
The components of and changes in accumulated other comprehensive loss
for the six months ended July 3, 2004 are as follows:
Balance Balance
December 31, Period July 3,
(Thousands of dollars) 2003 Change 2004
Foreign currency translation adjustment $(56,490) $1,927 $(54,563)
Unrealized gain on investments 14 74 88
Unrecognized pension cost (5,772) - (5,772)
Net unrealized loss on cash flow hedges (30) (62) (92)
Deferred gain on interest rate swaps 751 (100) 651
Accumulated other comprehensive loss $(61,527) $1,839 $(59,688)
The unrecognized pension cost is calculated and adjusted annually
during the fourth quarter. With the exception of the foreign currency
translation loss to which a 35% federal tax rate is applied, income
taxes for components of accumulated other comprehensive loss were
recorded using a 39% effective tax rate.
Note 4 - Inventories
The following is a summary of inventories at July 3, 2004 and
December 31, 2003:
July 3, December 31,
(Thousands of dollars) 2004 2003
At lower of LIFO cost or market:
Live hogs & materials $152,360 $142,396
Dressed pork & materials 18,793 22,220
171,153 164,616
LIFO allowance (9,758) (7,608)
Total inventories at lower
of LIFO cost or market 161,395 157,008
At lower of FIFO cost or market:
Grain, flour and feed 96,135 87,831
Sugar produced & in process 14,900 14,807
Other 21,047 16,387
Total inventories at lower
of FIFO cost or market 132,082 119,025
Total inventories $293,477 $276,033
Note 5 - Employee Benefits
Seaboard maintains a defined benefit pension plan (the Plan) for its
domestic salaried and clerical employees and also sponsors non-
qualified, unfunded supplemental executive plans, and unfunded
supplemental retirement agreements with certain executive employees.
As a result of recently passed pension relief legislation and
finalization of Plan data, in order to meet the minimum funding
standards to avoid the Pension Benefit Guaranty Corporation variable
rate premiums established by the Employee Retirement Income Security
Act of 1974, Seaboard revised its original schedule of contributions
for 2004 from $7,000,000 to $5,763,000. Payments of $1,922,000 and
$562,000 were made on April 15, 2004 and July 15, 2004, respectively.
The net periodic benefit cost of these plans was as follows:
Three months ended Six months ended
July 3, June 28, July 3, June 28,
(Thousands of dollars) 2004 2003 2004 2003
Components of net periodic benefit cost:
Service cost $ 742 $ 720 $1,614 $1,547
Interest cost 881 864 1,855 1,884
Expected return on plan assets (775) (569) (1,567) (1,259)
Amortization and other 182 232 395 502
Net periodic benefit cost $1,030 $1,247 $2,297 $2,674
6
Note 6 - Contingencies
From time to time bills have been introduced in the United States
Senate and House of Representatives which include provisions to
prohibit meat packers, such as Seaboard, from owning or controlling
livestock intended for slaughter. If passed, such bills could
prohibit Seaboard from owning or controlling hogs, and thus would
require divestiture of our operations, possibly at prices which are
below the carrying value of such assets on the balance sheet, or
otherwise restructure its ownership and operation. Such bills could
also be construed as prohibiting or restricting Seaboard from engaging
in various contractual arrangements with third party hog producers,
such as traditional contract finishing arrangements. To date, none
have been passed into law nor does Seaboard expect any to be passed in
2004. However, Seaboard cannot assure such legislation will not be
adopted in the future. Seaboard, along with industry groups and
other similarly situated companies, continues to vigorously lobby
against enactment of any such legislation.
Seaboard reached an agreement in 2002 to settle litigation brought by
the Sierra Club. Under the terms of the settlement, Seaboard is
conducting an environmental investigation to determine the source of
elevated nitrates at three farms and potentially will be required to
take remedial actions at the farms if conditions so warrant.
Seaboard is subject to regulatory actions and an investigation by the
United States Environmental Protection Agency and the State of
Oklahoma. One such action involves five properties utilized in
Seaboard's hog production operations which were purchased from PIC
International Group, Inc. (PIC). Seaboard has undertaken an extensive
investigation, and has had significant discussions with the EPA and
the State of Oklahoma, proposing to take a number of corrective
actions with respect to the farms, and one additional farm, in order
to attempt to settle the action. In connection with these
discussions, EPA and the State of Oklahoma each stated that any
settlement must include a civil fine of $1,200,000 for EPA and
$500,000 for the State of Oklahoma. Seaboard believes that the EPA
has no authority to impose a civil fine and so advised the EPA as a
part of a settlement proposal. The EPA advised Seaboard that it
rejected its most recent settlement proposal and settlement
discussions have terminated. The EPA could bring an action against
Seaboard, although Seaboard believes it has meritorious defenses to
any such action, or the EPA could determine to take no further action.
Settlement discussions are continuing with the State of Oklahoma, and
Seaboard intends to proceed with its proposed corrective actions with
respect to the farms.
PIC is indemnifying Seaboard with respect to the action pursuant to an
indemnification agreement which has a $5 million limit. If the
settlement being discussed with the State of Oklahoma is agreed to,
the estimated cumulative costs which will be expended will total
approximately $6.2 million, not including the additional legal costs
required to negotiate the settlement or the $500,000 penalty demanded
by the State of Oklahoma. If the measures taken pursuant to the
settlement are not effective, other measures with additional costs may
be required. PIC has advised Seaboard that it is not responsible for
the costs in excess of $5 million. Seaboard disputes PIC's
determination of the costs to be included in the calculation and
believes that the costs to be considered are less than $5 million,
such that PIC is responsible for all such costs and penalties, except
for approximately $180,000 of estimated costs that would be incurred
over 5 years subsequent to the settlement for certain testing and
sampling. Seaboard has agreed to conduct such testing and sampling as
a part of the sampling it conducts in the normal course of operations
and believes that the incremental costs incurred to conduct such
testing and sampling will be less than $180,000. Seaboard also
believes that a more general indemnity agreement would require
indemnification of a liability in excess of $5 million (excluding the
estimated $180,000 cost for testing and sampling), although PIC
disputes this. With respect to other actions and the investigation,
neither is expected to have a material adverse effect on Seaboard's
consolidated financial statements.
Seaboard 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 have a material adverse effect on Seaboard's
consolidated financial statements.
Contingent Obligations
Certain of the non-consolidated affiliates and third party contractors
who perform services for Seaboard have bank debt supporting their
underlying operations. From time to time, Seaboard will provide
guarantees of that debt allowing a lower borrowing rate or
facilitating third party financing in order to further Seaboard's
business objectives. Seaboard does not issue guarantees of third
parties for compensation. The following table sets forth the terms of
guarantees as of July 3, 2004.
7
Guarantee beneficiary Maximum exposure Maturity
Foreign non-consolidated affiliate grain $1,000,000 Annual renewal
processor - Uganda
Foreign non-consolidated affiliate food $ 400,000 August 2004
product distributor - Ecuador
Various hog contract growers $1,585,000 Annual renewal
Seaboard guaranteed a bank borrowing for a subsidiary of a non-
consolidated foreign affiliate grain processor in Kenya, Unga Holdings
Limited (Unga), to facilitate bank financing used for the
rehabilitation and expansion of a milling facility in Uganda. This
guarantee was a part of the original purchase agreement with Unga when
Seaboard first invested in this company in 2000. The guarantee can be
drawn upon in the event of non-payment of a bank borrowing by Unga's
subsidiary. While the guarantee may be cancelled by Seaboard
annually, the bank has the right to draw on the guarantee in the event
it is advised that the guarantee will be cancelled. The guarantee
renews annually until the debt expires in 2007. During the second
quarter of 2004, Seaboard renewed the guarantee for an additional year
but reduced it from $1,300,000 to $1,000,000. Unga has provided a
reciprocal guarantee to Seaboard. As of July 3, 2004, this affiliate
had $977,000 of borrowings outstanding related to this guarantee.
The non-consolidated affiliate food product distributor in Ecuador
purchases certain products from a U.S. domiciled vendor. Seaboard has
guaranteed the payments for these purchases in order to secure normal
credit terms for this affiliate.
Seaboard has guaranteed a portion of the bank debt for certain
farmers, which debt proceeds were used to construct facilities to
raise hogs for Seaboard's Pork division. The guarantees enabled the
farmers to obtain favorable financing terms. These bank guarantees
renew annually until the underlying debt is fully repaid in 2013-2014.
The maximum exposure to Seaboard from these guarantees is $1,585,000.
Seaboard has not accrued a liability for any of the third party or
affiliate guarantees as management considered the likelihood of loss
to be remote.
As of July 3, 2004, Seaboard had outstanding $10,853,000 of letters of
credit with various banks that reduced Seaboard's borrowing capacity
under its committed credit facilities. The largest letter of credit
of $8,700,000 is for workers compensation insurance. Also included is
a letter of credit for $422,000 to support purchases for a non-
controlled affiliate mill expansion project. While this affiliate has
sufficient liquidity to pay for the improvements, the mill is located
in Haiti and the letter of credit was posted in lieu of advance vendor
payments for the purchases.
Note 7 - Segment Information
Seaboard has an equity investment in a Bulgarian wine business (the
Business) that is currently negotiating with its primary lender to
obtain a working capital line of credit to support inventory purchases
for the fall 2004 vintage. Its current bank covenants for existing
debt restrict the Business from obtaining unapproved additional
financings. Without the additional line of credit, the Business will
not be able to purchase adequate quantities of grapes to support
consistent production for the next vintage which could result in an
additional charge against the Business' earnings for impaired assets.
As of July 3, 2004, Seaboard's investments in and advances to the
Business totaled $14,608,000. Seaboard's share of losses from the
Business, included in All Other below, included a provision for
inventory write-downs totaling $800,000 during the second quarter of
2004.
During the fourth quarter of 2003, Seaboard sold its equity investment
in Fjord, a non-consolidated affiliate included in the All Other
segment. Seaboard's share of Fjord's losses recognized during the
three and six months ended June 28, 2003 totaled $1,837,000 and
$2,836,000, respectively.
The following tables set forth specific financial information about
each segment as reviewed by Seaboard's management. Operating income
for segment reporting is prepared on the same basis as that used for
consolidated operating income. Operating income, along with income or
losses from foreign affiliates for the Commodity Trading and Milling
Division, is used as the measure when evaluating segment performance
because management does not consider interest and income tax expense
on a segment basis.
8
Sales to External Customers:
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Thousands of dollars) 2004 2003 2004 2003
Pork $263,407 $191,187 $ 475,129 $ 345,113
Commodity Trading and Milling 293,375 149,366 550,051 327,141
Marine 118,231 104,038 229,149 196,324
Sugar and Citrus 15,132 17,823 28,851 30,595
Power 15,597 16,793 31,124 34,417
All Other 6,565 6,676 13,678 14,160
Segment/Consolidated Totals $712,307 $485,883 $1,327,982 $ 947,750
Operating Income:
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Thousands of dollars) 2004 2003 2004 2003
Pork $ 38,020 $ (259) $ 59,354 $ (1,704)
Commodity Trading and Milling (2,253) 1,163 6,460 4,557
Marine 16,632 2,387 24,049 1,436
Sugar and Citrus 2,561 4,876 6,119 9,338
Power (298) 2,476 1,227 4,941
All Other 870 23 1,395 810
Segment Totals 55,532 10,666 98,604 19,378
Corporate Items (5) (377) (315) (1,115)
Consolidated Totals $ 55,527 $ 10,289 $ 98,289 $ 18,263
Loss from Foreign Affiliates:
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Thousands of dollars) 2004 2003 2004 2003
Commodity Trading and Milling $ 1,921 $ 41 $ 2,588 $ (1,659)
All Other (2,015) (2,628) (2,819) (4,219)
Segment/Consolidated Totals $ (94) $ (2,587) $ (231) $ (5,878)
Total Assets:
July 3, December 31,
(Thousands of dollars) 2004 2003
Pork $ 672,006 $ 670,288
Commodity Trading and Milling 264,487 243,065
Marine 113,812 114,375
Sugar and Citrus 79,194 75,674
Power 76,159 76,920
All Other 15,789 13,953
Segment Totals 1,221,447 1,194,275
Corporate Items 107,944 131,416
Consolidated Totals $1,329,391 $1,325,691
9
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
Summary of Sources and Uses of Cash
Cash and short-term investments decreased $34.4 million from
December 31, 2003 primarily reflecting the use of $83.5 million
generated from operating activities for scheduled payments of $30.4
million on long-term debt, repayments of $74.4 million of subsidiary
short-term borrowings, and payments made for capital expenditures of
$12.4 million. Cash from operating activities for the six months
ended July 3, 2004, increased $3.3 million compared to the same period
one year earlier, primarily reflecting increased earnings offset by
the increased working capital needs of the Pork, Commodity Trading and
Milling and Power segments. Receivables in the Pork segment increased
reflecting strong sales while inventory levels increased reflecting
the recently populated new hog production facilities. For the
Commodity Trading and Milling segment, the overall increase in trading
activity caused increases in accounts receivable and inventories.
Working capital needs also increased for the Power segment as a result
of continuing slow collections of accounts receivable.
Capital Expenditures
Seaboard invested $12.4 million in property, plant and equipment
during 2004, of which $4.4 million was expended in the Pork segment,
$2.7 million in the Marine segment, $2.5 million in the Commodity
Trading and Milling segment, $2.5 million in the Sugar and Citrus
segment and $0.3 million in the remaining businesses. The capital
expenditures for 2004 are primarily of a normal recurring nature and
include replacements of machinery and equipment, and general facility
modernizations and upgrades. While there are no material commitments
for capital expenditures, during the remainder of 2004 management has
budgeted additional capital expenditures of $7.1 million in the Pork
segment, $3.0 million in the Commodity Trading and Milling segment,
$5.6 million in the Marine segment, $3.0 million in the Sugar and
Citrus segment and $0.3 million of all other businesses. Management
anticipates financing these capital expenditures from internally
generated cash, the use of available short-term investments or
existing short-term borrowing capacity.
Financing Activities and Debt
During 2004, Seaboard entered into two new, one-year committed credit
lines totaling $45.0 million and extended for one year a $20.0 million
committed credit facility. In addition, Seaboard combined, increased,
and extended its committed subsidiary credit facilities from a total
of $80.0 million to $95.0 million expiring on April 30, 2005. This
facility is denominated in U.S. dollars. As of July 3, 2004, Seaboard
had committed lines of credit totaling $185.0 million and uncommitted
lines totaling $32.0 million. As of July 3, 2004 Seaboard had
$1.2 million of borrowings outstanding under its uncommitted credit
lines. Outstanding standby letters of credit totaling $10.9 million
reduced Seaboard's borrowing capacity under its committed credit
lines.
In addition to funding Seaboard's planned capital expenditures as
discussed above, Seaboard's remaining 2004 scheduled long-term debt
maturities total $24.8 million. Management believes that Seaboard's
current combination of internally generated cash, liquidity, capital
resources and borrowing capabilities will be adequate to make these
scheduled debt payments and support existing operations during fiscal
2004. Management does, however, periodically review various
alternatives for future financing to provide additional liquidity for
future operating plans. As management intends to continue seeking
opportunities for expansion in the industries in which Seaboard
operates, management may have to pursue financing alternatives at that
time.
During 2004, the 10% minority interest owner of one of the power
barges located in the Dominican Republic exercised a put option for
the equity interest. See Note 2 to the Condensed Consolidated
Financial Statements for further discussion.
10
See Note 6 to the Condensed Consolidated Financial Statements for a
summary of Seaboard's contingent obligations, including guarantees
issued to support certain activities of non-consolidated affiliates or
third parties who provide services for Seaboard.
RESULTS OF OPERATIONS
Net sales for the three and six months ended July 3, 2004 increased by
$226.4 and $380.2 million, respectively, compared to the same periods
of 2003. The increase in net sales was primarily the result of higher
sales volumes and market prices for pork products, increased trading
volumes and commodity prices, and, to a lesser extent, an increased
level of marine cargo service with improved rates. Operating income
increased by $45.2 and $80.0 million for the 2004 three and six month
periods compared to same periods of 2003. The increase in sales also
contributed to higher operating income.
Pork Segment
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 263.4 $ 191.2 $ 475.1 $ 345.1
Operating income (loss) $ 38.0 $ (0.3) $ 59.4 $ (1.7)
Net sales for the Pork segment increased $72.2 and $130.0 million for
the three and six months of 2004 compared to the same periods of 2003,
primarily as a result of higher market prices for pork products and
higher sales volumes. The excess domestic meat supplies experienced
in early 2003 resulted in lower sales prices through the first quarter
of 2003. Prices generally improved throughout the remainder of 2003
and further improved through 2004 as a result of a strong demand for
pork products. Sales volumes increased as Seaboard operated
additional weekend processing shifts during 2004 to take advantage of
the favorable market conditions, and had an additional three business
days for the 2004 year-to-date period compared to 2003.
Operating income for the Pork segment increased $38.3 and
$61.1 million for the second quarter and year-to-date periods of 2004
compared with the same periods of 2003 as a result of the higher sales
prices and volumes discussed above, partially offset by an increase in
the cost of third party hogs and higher feed costs from increases in
commodity prices for corn and soybean meal. In addition, during the
second quarter of 2003, $1.6 million was charged against operations
for development costs of potential hog production sites Seaboard
decided not to pursue. Management is unable to predict future
market prices for pork products, feed costs and third party hog costs,
or whether overall market conditions will continue to be as favorable,
and therefore, management cannot predict whether this segment will
continue to be as profitable during the remainder of 2004.
Commodity Trading and Milling Segment
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 293.4 $ 149.4 $ 550.1 $ 327.1
Operating income $ (2.3) $ 1.2 $ 6.5 $ 4.6
Income (loss) from foreign
affiliates $ 1.9 $ - $ 2.6 $ (1.7)
Net sales for the Commodity Trading and Milling segment increased
$144.0 and $223.0 million for the three and six month periods of 2004
compared to the same periods of 2003. This increase is primarily the
result of increased trading volumes to third parties and affiliates,
primarily for wheat, soybean meal and corn, and world-wide increased
commodity and freight prices.
11
Operating income for this segment decreased $3.5 million for the
second quarter of 2004 compared to prior year and increased $1.9
million for the six month period. Both 2004 periods reflect the
increased sales volumes in the trading business discussed above, but
also reflect the negative impact of mark to market accounting for
commodity futures and options contracts. While management believes
its commodity futures and options are economic hedges of its firm
purchase and sales contracts, we do not perform the extensive record-
keeping required to account for commodity transactions as hedges for
accounting purposes. As a result, operating income for the three and
six month periods of 2004 includes losses of $11.8 and $10.5 million,
respectively, compared to gains of $0.4 and $0.1 million for the
comparable 2003 periods for these mark-to-market adjustments. It is
anticipated that during the second half of 2004, as products are
delivered to customers, most of the negative impact of the mark to
market accounting noted above will reverse, resulting in higher
operating income at that time. In addition, charter hire rates were
significantly higher during 2004 compared to 2003 but were primarily
offset by increased freight rates charged. Seaboard had entered into
some longer term charter contracts in 2003, allowing it to take
advantage of higher freight chartering opportunities during the second
quarter of 2004. However, Seaboard does not anticipate such
opportunities to repeat in the last half of 2004. Due to the
uncertain political and economic conditions in the countries in which
Seaboard operates, management is unable to predict future sales and
operating results, but anticipates positive operating income to
continue in 2004.
Income from foreign affiliates for the three and six months ended July
3, 2004 improved $1.9 and $4.3 million, respectively, from the
comparable 2003 periods primarily reflecting improved operating
results from most African milling operations. Based on current
political and economic situations in the countries in which the flour
and feed mills operate, management cannot predict whether the foreign
affiliates will remain profitable for the remainder of 2004.
Marine Segment
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 118.2 $ 104.0 $ 229.1 $ 196.3
Operating income $ 16.6 $ 2.4 $ 24.0 $ 1.4
Net sales for the Marine segment increased $14.2 and $32.8 million for
the three and six month periods of 2004 compared to the same periods
of 2003 reflecting higher cargo volumes and, to a lesser extent,
increased average cargo rates. The 2003 periods were significantly
negatively impacted by the general strike in Venezuela which began in
2002 and continued into February of 2003, resulting in the
discontinuance of all port calls to that country. While the political
and economic instability remains in Venezuela and that market has not
yet fully recovered, cargo volumes have continued to increase during
2004 compared to 2003. In addition, cargo volumes also increased in
most other markets. Average cargo rates for 2004 improved over 2003
reflecting improved market conditions and improved cargo mixes in
certain markets. Partially offsetting these increases for the six
month period, 2003 periods included revenue from chartering of certain
company-owned vessels to carry military cargo to the Middle East.
Operating income for the Marine segment increased $14.2 and
$22.6 million during the 2004 three and six month periods compared to
the same periods in 2003, primarily reflecting the increased volumes
and rates discussed above. Management cannot predict whether or to
what extent economic conditions will change for the Venezuelan and
related markets, and therefore cannot predict whether this segment
will continue to operate at the same comparative improved volume
levels during the remainder of 2004 as it experienced during the first
six months of the year.
The U.S. Maritime Transportation Security Act and corresponding
international regulations under The International Ship and Port-
facility Security Code were effective July 1, 2004. These regulations
require comprehensive security assessments and plans for vessels and
facilities in the U.S. and throughout the world. Management believes
Seaboard is in compliance and to date has not experienced any trade
disruptions, although it can not predict if any disruptions could
occur in the future if foreign ports do not fully comply.
12
Sugar and Citrus Segment
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 15.1 $ 17.8 $ 28.9 $ 30.6
Operating income $ 2.6 $ 4.9 $ 6.1 $ 9.3
Net sales for the Sugar and Citrus segment decreased in the three and
six month periods of 2004 compared to the same periods of 2003
reflecting lower average sales prices and lower volumes sold. The
lower prices reflect the abundant 2003 harvest in Argentina which
resulted in large sugar supplies. The lower sales volume reflects
less resale sugar as a result of lower quantities of sugar purchased
from third parties. While management cannot predict future sales
prices, management does not expect sales prices to increase above the
2003 prices for the remainder of 2004.
Operating income decreased $2.3 and $3.2 million during the three and
six month periods of 2004 compared to the prior year periods primarily
due to the higher inventoried costs of the recent sugar harvest and
production. During 2003, the peso price of sugar increased at a
higher rate than the related peso costs, a trend that has now reversed
as expenses are increasing. Management expects operating income for
2004 will remain positive although lower than comparable 2003 periods.
Power Segment
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 15.6 $ 16.8 $ 31.1 $ 34.4
Operating income (loss) $ (0.3) $ 2.5 $ 1.2 $ 4.9
The economic environment of the Dominican Republic remained unstable
throughout the first half of 2004. Even though multilateral credit
agencies have provided some funding to the government, the economic
problems still exist. The Power segment was able to collect a small
portion of past due amounts from certain distribution companies, but
significant balances are still outstanding from other generating and
distribution companies. As of July 3, 2004, Seaboard's net
receivables from customers with significant past due balances totaled
$20.3 million, including $10.7 million classified in other long-term
assets on the Condensed Consolidated Balance Sheet. Seaboard is
continuing to contract directly with large power users which
reduces the exposure to changes in spot market rates, currency
fluctuations and collection risks. However, Seaboard continues
to have a significant exposure to partially government-owned
distribution companies. As a result of the economic instability in
this country, during 2004 the Dominican Republic peso continued to
weaken against the U.S. dollar, causing foreign exchange losses of
$0.7 million and $2.6 million for the three and six months of 2004
related to the peso-denominated net assets compared to losses of
$4.9 and $6.7 million for the same 2003 periods. The exchange losses
are included in other income (expense) on the Condensed Consolidated
Statements of Earnings and are not a component of operating income.
Net sales for the Power segment decreased $1.2 and $3.3 million for
the three and six month periods of 2004 compared to the same periods
of 2003 due to lower production partially offset by higher sales
prices during the 2004 periods. Periodically during 2004, Seaboard
has curtailed production due to management's concerns about
collectibility of the revenues. Management may impose further
curtailments if liquidity conditions warrant.
Operating income decreased $2.8 and $3.7 million for the three and six
months of 2004 compared to the same periods of 2003 as commission
expenses increased by $2.0 and $2.5 million for each respective period
and bad debt expenses increased by $0.7 and $1.5 million,
respectively. As discussed in Note 2 to the Condensed Consolidated
Financial Statements, during the second quarter Seaboard made a one-
time commission payment of $2 million to terminate a business
relationship. Pending improvement to the economic problems in the
country, management cannot predict whether this segment will remain
profitable for the remainder of 2004.
13
All Other
Three Months Ended Six Months Ended
July 3, June 28, July 3, June 28,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 6.6 $ 6.7 $ 13.7 $ 14.2
Operating income $ 0.9 $ - $ 1.4 $ 0.8
Income (loss) from foreign
affiliates $ (2.0) $ (2.6) $ (2.8) $ (4.2)
Net sales for All Other remained consistent with 2003 while operating
income increased slightly reflecting improved operations primarily for
the pepper processing business. The loss from foreign affiliates in
2004 represents Seaboard's share of losses from its equity method
investment in a Bulgarian wine business. This business recorded a
provision for inventory write-downs of which Seaboard recorded its
share, $0.8 million, during the second quarter of 2004. See Note 7
to the Condensed Consolidated Financial Statements for further
discussion of this business.
The 2003 foreign affiliate losses also included losses for Seaboard's
share of Fjord Seafood ASA (Fjord) results which totaled $1.8 and $2.8
million for three and six month periods, respectively. The equity
investment in Fjord was sold during the fourth quarter of 2003.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the three and
six month periods of 2004 increased by $4.9 and $8.3 million over the
same periods of 2003 primarily due to increased commissions and bad
debt expense in the Power segment and, to a lesser extent, increased
selling costs in the Commodity Trading and Milling and Marine segments
related to the growth of these businesses. As a percentage of
revenues, SG&A decreased to 4.4% and 4.7% for the 2004 quarter and
year-to-date periods, respectively, compared to 5.5% and 5.7% for the
same periods of 2003 as a result of increased sales in the Pork,
Commodity Trading and Milling, and Marine segments.
Interest Expense
Interest expense for the quarter and year to date periods of 2004
remained fairly consistent with the prior year. During the second
quarter of 2004, Seaboard repaid nearly all of the subsidiary short-
term borrowings with cash from operations.
Interest Income
Interest income increased $1.0 and $2.0 million for the three and six
month periods of 2004 compared to the same periods of 2003 reflecting
higher level of average funds invested during 2004 and interest
proceeds from past due receivables, primarily in the Power segment.
Foreign Currency Gains (Losses)
Seaboard realized net foreign currency gains of $0.2 million during
the second quarter of 2004 compared to losses of $4.7 million in the
prior year and losses of $1.5 and $6.1 million for the six month
periods of 2004 and 2003, respectively. Losses from the devaluation
of the Dominican Republic peso totaled $0.7 and $2.6 million for the
three and six months ended July 3, 2004 compared to $4.9 and
$6.7 million during the same periods in 2003. Seaboard operates in
many developing countries throughout the world. The political and
economic conditions of these markets cause volatility in currency
exchange rates and expose Seaboard to the risk of exchange loss.
Miscellaneous, Net
Miscellaneous, net for the three and six months ended July 3, 2004
includes realized gains (losses) of ($0.6) and $0.9 million and
unrealized losses of $2.3 and $0.7 million, respectively, from the
mark to market of commodity futures and options contracts that
management doesn't view as direct economic hedges of its operations.
In addition, miscellaneous, net for the six months ended in 2004
includes a gain of $0.5 million from the settlement of antitrust
litigation for feed additives used by Seaboard. The 2003 three and
six month periods also include gains totaling $4.7 and $6.6 million,
respectively, from antitrust litigation for feed additives. Mark to
market gains on interest rate swap agreements totaling $2.9 and
$0.2 million for the 2004 three and six month periods compare to
losses of $6.9 and $7.7 million for same periods of 2003. 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
The effective tax rate increased to 30.1% for 2004 compared to 21.5%
for 2003 primarily as a result of increased domestic taxable income
and lower amounts of permanently deferred foreign earnings.
14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks from its day-to-
day operations. Primary market risk exposures result from changing
commodity prices, foreign currency exchange rates and interest rates.
Changes in commodity prices impact the cost of necessary raw
materials, finished product sales and firm sales commitments.
Seaboard uses various grain and meal futures and options purchase
contracts to manage certain risks of increasing prices of raw
materials and firm sales commitments. Short sales contracts are then
used to offset any open purchase derivatives when the related
commodity inventory is purchased in advance of the derivative
maturity, effectively canceling the initial futures or option purchase
contract. From time to time, hog futures are used to manage risks of
increasing prices of live hogs acquired for processing. Because
changes in foreign currency exchange rates impact the cash paid or
received on foreign currency denominated receivables and payables,
Seaboard 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 Seaboard's Argentine subsidiary and net
earnings for the impact of the change on that subsidiary's dollar
denominated net liabilities. Changes in interest rates impact the
cash required to service variable rate debt. From time to time,
Seaboard uses interest rate swaps to manage risks of increasing
interest rates. Seaboard's market risk exposure related to these
items has not changed materially since December 31, 2003.
Item 4. Controls and Procedures
Seaboard's management has evaluated, under the direction of our chief
executive and chief financial officers, the effectiveness of
Seaboard's disclosure controls and procedures as of July 3, 2004.
Based upon and as of the date of that evaluation, Seaboard's chief
executive and chief financial officers concluded that Seaboard's
disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports it files and
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported as and when required. It should be
noted that any system of disclosure controls and procedures, however
well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. In
addition, the design of any system of disclosure controls and
procedures is based in part upon assumptions about the likelihood of
future events. Because of these and other inherent limitations of any
such system, there can be no assurance that any design will always
succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
There has been no change in Seaboard's internal control over financial
reporting that occurred during the fiscal quarter ended July 3, 2004
that has materially affected, or is reasonably likely to materially
affect, Seaboard's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Protection Agency (EPA) and State of Oklahoma Claims
Concerning Farms in Major and Kingfisher County, Oklahoma
Seaboard Farms, Inc. (Seaboard Farms), is subject to an ongoing
Unilateral Administrative Order (the "RCRA Order") pursuant to
Section 7003 of the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. section 6973 ("RCRA"), filed by the EPA on June 29,
2001 against Seaboard Farms, Shawnee Funding, Limited Partnership and
PIC International Group, Inc. ("PIC") (collectively, "Respondents")
related to five swine farms located in Major County and Kingfisher
County, Oklahoma purchased from PIC. These same farms are the subject
of a Notice of Violation letter received from the State of Oklahoma,
alleging that Seaboard Farms has violated various provisions of state
law and the operating permits based on the same conditions which gave
rise to the RCRA Order.
Seaboard Farms disputes the RCRA Order and the State of Oklahoma's
contentions on legal and factual grounds, and advised the EPA that it
won't comply with the RCRA Order, as written. Notwithstanding,
Seaboard Farms has undertaken an extensive investigation under the
RCRA Order, and has had significant discussions with the EPA and the
State of Oklahoma, proposing to take a number of corrective actions
with respect to the farms in order to attempt to settle the RCRA Order
and the Oklahoma Notice of Violation. As a part of those discussions,
the EPA and the State of Oklahoma, advised Seaboard Farms that one
additional farm in Kingfisher County must be included in any
settlement, although neither agency has filed any formal claims with
respect to that farm. The EPA recently advised Seaboard Farms that
any such settlement must include a civil fine of $1,200,000. Seaboard
Farms believes that the EPA has no authority to impose a civil fine
and so advised the EPA as a part of a settlement proposal. The EPA
advised Seaboard Farms that it rejected its most recent
15
settlement proposal and settlement discussions have terminated. The
EPA could bring an action against Seaboard Farms to enforce the RCRA
Order, although Seaboard Farms believes it has meritorious defenses to
any such action, or the EPA could determine to take no further action.
The State of Oklahoma recently advised Seaboard Farms that any
settlement with it must include a civil fine of approximately
$500,000. Settlement discussions are continuing with the State of
Oklahoma, and Seaboard Farms intends to proceed with its proposed
corrective actions with respect to the farms.
The farms at issue were previously owned by PIC and PIC is
indemnifying Seaboard Farms with respect to the RCRA Order (reserving
its right to contest the obligation to do so), pursuant to an
indemnification agreement which has a $5 million limit. If the
settlement being discussed with the State of Oklahoma is agreed to,
the estimated cumulative costs which will be expended pursuant to the
settlement will total approximately $6.2 million, not including the
additional legal costs required to negotiate the settlement and not
including the approximately $500,000 penalty suggested by the State of
Oklahoma. If the measures taken pursuant to the settlement are not
effective or if certain additional issues arise at the farms after the
settlement, other measures with additional costs may be required. PIC
has advised Seaboard Farms that it is not responsible for the costs in
excess of $5 million. Seaboard Farms disputes PIC's determination of
the costs to be included in the calculation. Seaboard Farms believes
that the costs to be considered are less than $5 million, such that
PIC is responsible for all such costs and penalties, except for
approximately $180,000 of estimated costs that would be incurred over
5 years subsequent to the settlement for certain testing and sampling.
Seaboard Farms has agreed to conduct such testing and sampling as a
part of the sampling it conducts in the normal course of operations
and believes that the incremental costs incurred to conduct such
testing and sampling will be less than $180,000. Seaboard Farms also
believes that a more general indemnity agreement would require
indemnification of liability in excess of $5 million (excluding the
estimated $180,000 cost for testing and sampling), although PIC
disputes this.
Potential Additional EPA Claims
As disclosed in previous filings, 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 ("CAA"). In a letter dated May 24, 2004, EPA made
certain demands to resolve alleged violations of the CWA, CERCLA and
the CAA. Seaboard Farms has rejected certain portions of EPA's
demands on the basis that they are beyond EPA's authority and is
seeking clarification of other demands. Seaboard Farms has proposed
to conduct certain studies to resolve the CAA allegations, which
studies are estimated to cost approximately $30,000.
Other
On January 26, 2004, the U.S. Department of Justice sent Seaboard
Marine, Ltd. a letter stating that it was investigating possible
violations of 49 U.S.C. sections 5104-5124 and 49 C.F.R. sections
171-173 relating to the transportation, storage and discharge of
hazardous materials. Seaboard Marine is in the process of finalizing
a plea agreement with the Department of Justice pleading guilty to the
violations. The plea agreement requires Seaboard Marine to pay a
fine, restitution and other costs totaling approximately $300,000, to
implement a compliance plan, and to conduct training of employees.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders, held on April 26, 2004, included
three items submitted to a vote of stockholders. Item 4 of the Form
10-Q for the first quarter ended April 3, 2004 which was filed on May
7, 2004 discloses the results of the shareholder's vote, which
disclosure is incorporated herein by reference.
16
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.
i. On May 7, 2004, Seaboard Corporation filed a report on Form 8-K
with respect to Items 7 and 12 to report Seaboard's issuance of a
press release announcing earnings of Seaboard Corporation for the
first quarter ended April 3, 2004.
This Form 10-Q contains forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of Seaboard Corporation and its subsidiaries
(Seaboard). Forward-looking statements generally may be identified
as: statements that are not historical in nature; and statements
preceded by, followed by or that include the words "believes,"
"expects," "may," "will," "should," "could," "anticipates,"
"estimates," "intends," or similar expressions. In more specific
terms, forward-looking statements, include, without limitation:
statements concerning projection of revenues, income or loss, capital
expenditures, capital structure or other financial items, including
the impact of mark to market accounting on operating income;
statements regarding the plans and objectives of management for future
operations; statements of future economic performance; statements
regarding the intent, belief or current expectations of Seaboard and
its management with respect to: (i) the cost and timing of the
completion of new or expanded facilities, (ii) Seaboard's ability to
obtain adequate financing and liquidity, (iii) the price of feed
stocks and other materials used by Seaboard, (iv) the sale price for
pork products from such operations, (v) the price for other products
and services, (vi) the charter hire rates and fuel prices for
vessels, (vii) the demand for power, related spot market prices and
collectibility of receivables in the Dominican Republic, (viii) the
effect of the devaluation of the Argentine and Dominican Republic
pesos, (ix) the potential effect of the proposed meat packer ban
legislation on the Pork Division, (x) the effect of the Venezuelan
economy on the Marine Division, (xi) the potential effect of
Seaboard's investment in a wine business on the consolidated financial
statements, (xii) the potential impact of various environmental
actions pending or threatened against Seaboard, or (xiii) other trends
affecting Seaboard's financial condition or results of operations, and
statements of the assumptions underlying or relating to any of the
foregoing statements.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Actual
results may differ materially from those contemplated by the forward-
looking statements due to a variety of factors. The information
contained in this report, 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.
17
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 10, 2004
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, Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
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