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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 April 2, 2005
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 April 25, 2005.
Total pages in filing - 20 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
April 2, December 31,
2005 2004
Assets
Current assets:
Cash and cash equivalents $ 28,218 $ 14,620
Short-term investments 192,761 119,259
Receivables, net 259,462 246,129
Inventories 296,826 301,049
Deferred income taxes 15,540 14,341
Other current assets 46,971 48,040
Total current assets 839,778 743,438
Investments in and advances to foreign affiliates 37,551 38,001
Net property, plant and equipment 602,100 603,382
Other assets 45,741 51,873
Total assets $1,525,170 $1,436,694
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 3,041 $ 1,789
Current maturities of long-term debt 61,036 60,756
Accounts payable 80,630 83,506
Other current liabilities 184,766 162,855
Total current liabilities 329,473 308,906
Long-term debt, less current maturities 259,570 262,544
Deferred income taxes 125,116 125,559
Other liabilities 46,525 44,865
Total non-current and deferred liabilities 431,211 432,968
Minority and other noncontrolling interests 2,066 2,138
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 (51,739) (53,741)
Retained earnings 812,904 745,168
Total stockholders' equity 762,420 692,682
Total liabilities and stockholders' equity $1,525,170 $1,436,694
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
April 2, April 3,
2005 2004
Net sales:
Products $ 543,263 $ 478,067
Services 155,281 122,081
Other 14,783 15,527
Total net sales 713,327 615,675
Cost of sales and operating expenses:
Products 454,407 432,461
Services 117,375 98,363
Other 12,984 11,279
Total cost of sales and operating expenses 584,766 542,103
Gross income 128,561 73,572
Selling, general and administrative expenses 31,481 30,810
Operating income 97,080 42,762
Other income (expense):
Interest expense (5,993) (7,739)
Interest income 3,504 1,755
Loss from foreign affiliates (521) (137)
Minority and other noncontrolling interests (432) (82)
Foreign currency gain (loss), net 682 (1,661)
Miscellaneous, net 3,007 2,340
Total other income (expense), net 247 (5,524)
Earnings before income taxes 97,327 37,238
Income tax expense (28,650) (9,861)
Net earnings $ 68,677 $ 27,377
Earnings per common share $ 54.72 $ 21.81
Dividends declared per common share $ 0.75 $ 0.75
Average number of shares outstanding 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)
Three Months Ended
April 2, April 3,
2005 2004
Cash flows from operating activities:
Net earnings $ 68,677 $ 27,377
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 15,414 16,356
Loss from foreign affiliates 521 137
Foreign currency exchange gains (8) (435)
Deferred income taxes (1,691) 8,262
Changes in current assets and liabilities:
Receivables, net of allowance (9,701) (26,386)
Inventories 4,286 (27,228)
Other current assets 431 (16,081)
Current liabilities exclusive of debt 21,002 40,068
Other, net 707 1,272
Net cash from operating activities 99,638 23,342
Cash flows from investing activities:
Purchase of short-term investments (175,381) (33,499)
Proceeds from the sale or maturity of short-term
investments 101,879 1,217
Investments in and advances to foreign affiliates, net 1,557 80
Capital expenditures (13,869) (6,347)
Other, net 2,561 80
Net cash from investing activities (83,253) (38,469)
Cash flows from financing activities:
Notes payable to banks, net 1,252 (1,966)
Principal payments of long-term debt (2,768) (2,424)
Dividends paid (941) (941)
Other, net (401) -
Net cash from financing activities (2,858) (5,331)
Effect of exchange rate change on cash 71 746
Net change in cash and cash equivalents 13,598 (19,712)
Cash and cash equivalents at beginning of year 14,620 37,377
Cash and cash equivalents at end of period $ 28,218 $ 17,665
See notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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, 2004 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.
Derivative Instruments
As of January 1, 2005, Seaboard discontinued accounting for its
foreign currency exchange agreements as hedges for all new agreements
entered into by the commodity trading business. In addition, as of
January 1, 2005, Seaboard de-designated all prior outstanding hedges
with a value of $5,558,000, effectively fixing the asset resulting
from the mark-to-market gain on the firm sales commitment recorded in
other current assets on the Consolidated Balance Sheets as of December
31, 2004, until such time as the firm sales commitments mature through
March 2006. Beginning January 1, 2005, the mark-to-market changes in
the foreign exchange agreements were no longer offset with the mark-to-
market changes of the underlying firm sales commitment. The asset
value as of April 2, 2005 related to those remaining open firm sales
commitments totaled $2,942,000. Although management still believes
all of these instruments effectively manage market risks, the growth
of Seaboard's commodity trading business increased the ongoing costs
to maintain the extensive record-keeping requirements to qualify these
instruments as hedges for accounting purposes.
Seaboard's interest rate exchange agreements do not qualify as hedges
for accounting purposes. During the first quarter of 2005 Seaboard
recorded a gain of $2,978,000 compared to a loss of $2,743,000 during
2004 related to these agreements. The gain and loss 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. These amounts include net payments of $1,689,000
and $2,212,000 during 2005 and 2004, respectively, resulting from the
difference between the fixed rate paid and variable rate received on
these agreements.
Seaboard's market risk exposure related to its derivative instruments
has not changed materially since December 31, 2004.
Asset Retirement Obligations
Seaboard has recorded 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. The following table
shows the changes in the asset retirement obligation during the first
quarter of each year.
Three Months Ended
April 2, April 3,
Thousands of dollars 2005 2004
Beginning balance $6,266 $6,086
Accretion expense 116 113
Liability for additional lagoons placed in service - 134
Ending balance $6,382 $6,333
4
New Accounting Standards
On December 21, 2004, the FASB issued FASB Staff Position 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004"
(FSP 109-2). FSP 109-2, which was effective upon issuance, allows
companies time beyond the financial reporting period of enactment to
evaluate the effect of the earnings repatriation provision on its plan
for reinvestment or repatriation of foreign earnings for purposes of
applying SFAS 109. Additionally, FSP 109-2 provides guidance
regarding the required disclosures surrounding a company's
reinvestment or repatriation of foreign earnings. See Note 3 for
further discussion.
Note 2 - Inventories
The following is a summary of inventories at April 2, 2005 and
December 31, 2004:
April 2, December 31,
(Thousands of dollars) 2005 2004
At lower of LIFO cost or market:
Live hogs & materials $139,964 $141,126
Dressed pork & materials 25,331 20,334
165,295 161,460
LIFO allowance 1,799 461
Total inventories at lower of LIFO cost
or market 167,094 161,921
At lower of FIFO cost or market:
Grain, flour and feed 90,735 98,699
Sugar produced & in process 17,936 20,006
Other 21,061 20,423
Total inventories at lower of FIFO cost
or market 129,732 139,128
Total inventories $296,826 $301,049
Note 3 - Income Taxes
During the fourth quarter of 2004, President Bush signed into law H.R.
4520, the American Jobs Creation Act ("Act"). The Act is a significant
and complicated reform of U.S. income tax law. Management is
currently reviewing the new law to determine the impact on Seaboard.
The Act contains several provisions which will be favorable for
Seaboard. Of particular note, the Act repeals the prior law treatment
of shipping income as a component of subpart F income. This change
could allow Seaboard to avoid current U.S. taxation on its post-2004
shipping income and could have a material impact on Seaboard's future
effective tax rate and cash tax payments. However, due to ambiguity
with the application of Treasury Department Regulations, in the first
quarter of 2005 Seaboard has accrued $7.5 million of tax expense on
shipping income that could ultimately be treated as non-taxable if the
ambiguity is favorably resolved.
The Act would also allow Seaboard a one-time election to repatriate
permanently invested foreign earnings at a 5.25% effective U.S. income
tax rate rather than the statutory 35% rate, if certain domestic
reinvestment requirements are met. Management is currently evaluating
this provision of the Act and expects to complete its evaluation by
the fourth quarter of 2005. Seaboard's decision to utilize this
provision includes its ability to economically borrow at the foreign
subsidiary level to allow for the payment of a qualifying dividend.
Because Seaboard's borrowing capacity at this level is unknown, the
range of potential dividend amounts and corresponding taxes cannot be
reasonably estimated at this time. As of April 2, 2005, no provision
has been made in the accounts for Federal income taxes which would be
payable if the undistributed earnings of certain foreign subsidiaries
were distributed to Seaboard Corporation since management has
currently determined that the earnings are permanently invested in
these foreign operations. Should such accumulated earnings be
distributed, the resulting Federal income taxes applicable to earnings
through April 2, 2005 would have amounted to approximately
$79,000,000, assuming a 35% federal income tax rate.
5
Seaboard is regularly audited by federal, state and foreign tax
authorities, which may result in adjustments. Among current audits,
the IRS is examining Seaboard's federal income tax returns for 2000
through 2002 and is evaluating certain of Seaboard's tax positions for
the years under examination. Management believes that its tax
positions comply with applicable tax law and that it has adequately
provided for any reasonably foreseeable outcome of the matters.
Accordingly, Seaboard does not anticipate any material negative
earnings impact from their ultimate resolution. If a favorable
outcome is reached, Seaboard will record the earnings impact at the
time of resolution.
Note 4 - Employee Benefits
Seaboard maintains a defined benefit pension plan (the Plan) for its
domestic salaried and clerical employees. While Seaboard's policy has
historically been to provide funding to the Plan 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 made a special
contribution equal to the maximum deductible amount in the fourth
quarter of 2004 resulting in an over-funding of the Plan. As a
result, management does not expect to make any contributions to the
Plan during 2005. Additionally, Seaboard also sponsors non-qualified,
unfunded supplemental executive plans, and unfunded supplemental
retirement agreements with certain executive employees. Management
currently has no plans to provide funding for these supplemental
plans.
The net periodic benefit cost of these plans was as follows:
Three months ended
April 2, April 3,
(Thousands of dollars) 2005 2004
Components of net periodic benefit cost:
Service cost $ 906 $ 872
Interest cost 1,107 974
Expected return on plan assets (1,135) (792)
Amortization and other 297 213
Net periodic benefit cost $ 1,175 $ 1,267
Note 5 - Commitments and Contingencies
Seaboard reached an agreement in 2002 to settle litigation brought by
the Sierra Club. Under the terms of the settlement, Seaboard
conducted an investigation at three farms. Based on the
investigation, it has been determined that two farms do not require
any corrective action. The investigation is ongoing at the remaining
farm, and Seaboard will potentially be required to take remedial
actions at the farm if conditions so warrant. The costs of conducting
the monitoring and the investigation are not material.
Seaboard is subject to regulatory actions and an investigation by the
United States Environmental Protection Agency (EPA) 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 undertake continued monitoring and
take a number of corrective actions with respect to the farms, and one
additional farm, in order to attempt to settle the action. EPA,
Seaboard and PIC have also engaged in settlement negotiations
regarding civil penalty. Originally, EPA stated that any settlement
must include a civil fine of $1,200,000, but EPA has since reduced the
amount of its demand for a civil penalty to $345,000. Seaboard
believes that the EPA has no authority to impose a civil fine, but
settlement discussions are continuing. If the matter is not settled,
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.
A tentative verbal settlement has been reached with the State of
Oklahoma to resolve the State's notice of violation regarding the same
farms and allegations of violations of State law based on the same
facts as those alleged by EPA. The settlement with the State of
Oklahoma would require Seaboard Farms to pay a fine of $100,000 and to
undertake agreed upon supplemental environmental projects at a cost of
$80,000. The settlement is subject to the final terms of the
settlement being agreed to and the approval of the Oklahoma Board of
Agriculture. Irrespective of the settlement, Seaboard intends to
proceed with its proposed corrective actions with respect to the
farms.
6
PIC is indemnifying Seaboard with respect to the action pursuant to an
indemnification agreement which has a $5 million limit. To date, the
$5 million limit has not been exceeded. If the tentative settlement
with the State of Oklahoma is agreed to, the estimated cumulative
costs which will be expended will total approximately $6.9 million,
not including the additional legal costs required to negotiate the
settlement or the penalties demanded by EPA and tentatively agreed to
with 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 to
determine whether the $5 million limit will be exceeded 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
liability in excess of $5 million (excluding the estimated $180,000
cost for testing and sampling), although PIC disputes this.
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 result in a judgment having a materially adverse effect
on the consolidated financial statements.
From time to time bills have been introduced in the United States
Senate and House of Representatives which included provisions to
prohibit meat packers, such as Seaboard, from owning or controlling
livestock intended for slaughter. Such bills could have prohibited
Seaboard from owning or controlling hogs, and thus would have required
divestiture of our operations, or otherwise a restructuring of the
ownership and operation. In April of 2005, such a bill was again
introduced in the Senate, although Seaboard does not expect any such
action to be passed in 2005.
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 April 2, 2005.
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 2005
product distributor - Ecuador
Various hog contract growers $1,532,000 Annual renewal
Seaboard guaranteed a bank borrowing for a subsidiary of a foreign
affiliate grain processor in Kenya, Unga Holdings Limited (Unga), a
nonconsolidated milling affiliate, 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. 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. Unga Holdings has provided a
reciprocal guarantee to Seaboard. As of April 2, 2005, $760,000 of
borrowings was 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 $1,532,000.
7
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 April 2, 2005, Seaboard had outstanding $53,460,000 of letters
of credit (LCs) with various banks that reduced Seaboard's borrowing
capacity under its committed credit facilities. Included in this
amount are LCs totaling $42,688,000 which support the Industrial
Development Revenue Bonds included as long-term debt and $10,373,000
of LCs related to insurances coverages.
Note 6 - Stockholders' Equity and Accumulated Other Comprehensive
Income (Loss)
In conjunction with a 2002 transaction (the Transaction) between
Seaboard and its parent company, Seaboard Flour LLC (the Parent
Company), whereby Seaboard effectively repurchased shares of its
common stock owned by the Parent Company in return for repayment of
all indebtedness owed by the Parent Company to Seaboard, the Parent
Company also transferred to Seaboard rights to receive possible future
cash payments from a subsidiary of the Parent Company and the benefit
of other assets owned by that subsidiary. Seaboard also received tax
net operating losses ("NOLs") which may allow Seaboard to reduce the
amount of future income taxes it otherwise would pay. To the extent
Seaboard receives cash payments in the future as a result of the
transferred rights or reduces its federal income taxes payable by
utilizing the NOLs, Seaboard will issue to the Parent Company new
shares of common stock with a value equal to the cash received and/or
the NOL utilized. For these purposes, the value of the common stock
issued will be equal to the ten day rolling average closing price,
determined as of the twentieth day prior to the issue date. The
maximum number of shares of common stock which may be issued to the
Parent Company under the Transaction is capped at 232,414.85, the
number of shares which were originally purchased from the Parent
Company. As of April 2, 2005, Seaboard had not received any cash
payments from the subsidiary of its Parent Company and had not filed a
tax return utilizing any NOLs. The right to receive such payments
expires September 17, 2007. If on September 17, 2007 there are
remaining NOLs that have not been used, then Seaboard is to issue
shares based on the present value of such NOLs projected to be used in
the future.
As noted above, Seaboard has available NOLs from the Parent Company
totaling $23,764,000. These NOLs may be utilized in Seaboard's 2004
tax return pending finalization of the audits of Seaboard's prior
years' income tax returns currently being conducted by the Internal
Revenue Service as discussed in Note 3. If these NOLs are not
utilized in the 2004 tax return, they will be carried forward. If
these NOLs are utilized in the 2004 tax return (anticipated to be
filed September 15, 2005) or in subsequent tax returns, generating a
tax benefit of $8,317,000, Seaboard will issue additional shares of
its common stock to the Parent Company for the tax benefit received in
accordance with the terms of the Transaction, as described above.
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended
April 2, April 3,
(Thousands of dollars) 2005 2004
Net earnings $68,677 $27,377
Other comprehensive income (loss)
net of applicable taxes:
Foreign currency translation adjustment 1,723 2,244
Unrealized gains on investments 174 90
Unrealized gains (losses) on cash flow hedges 155 (52)
Amortization of deferred gain on interest rate swaps (50) (50)
Total comprehensive income $70,679 $29,609
8
The components of and changes in accumulated other comprehensive loss
for the three months ended April 2, 2005 are as follows:
Balance Balance
December 31, Period April 2,
(Thousands of dollars) 2004 Change 2005
Foreign currency translation adjustment $(53,986) $1,723 $(52,263)
Unrealized gain on investments 257 174 431
Unrecognized pension cost (375) - (375)
Net unrealized loss on cash flow hedges (188) 155 (33)
Deferred gain on interest rate swaps 551 (50) 501
Accumulated other comprehensive loss $(53,741) $2,002 $(51,739)
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 7 - Segment Information
As a result of sustained losses from an investment in a Bulgarian wine
business (the Business) and recognition in 2004 of a decline in value
considered other than temporary, Seaboard's common stock investment
and subordinated debt in the Business were reduced to zero. During
2005, Seaboard began applying losses from the Business against its
remaining investment in preferred stock, based on the change in
Seaboard's claim on the Business' book value. As a result, Seaboard
increased its share of losses to 100%. In February 2005, the Board of
Directors of the Business, and the majority of the owners of the
Business, including Seaboard, agreed to pursue the sale of the entire
Business or all of its assets. Based on current negotiations to sell
a substantial portion of the Business and all related wine labels, and
other information on the fair value for the sale of all other assets
of this Business, management believes the remaining carrying value of
its investment at the time of disposition will be recoverable from
sales proceeds. However, the business will be negotiating for a line
of credit needed by the end of the second quarter to support inventory
purchases for the fall 2005 vintage. Without the line of credit, the
Business will not be able to secure the purchase of an adequate
quantity of grapes to support consistent production for the next
vintage. As a result, this could cause a reduction in the value of
the Business and thus result in a decline in value considered other
than temporary in its investment in the Business as a charge to losses
from foreign affiliates in the All Other segment during the second
quarter of 2005. As of April 2, 2005, the carrying value of
Seaboard's investments in and advances to this business total
$7,679,000, including $3,832,000 of foreign currency translation gains
recorded in other comprehensive income from this business which will
be recognized in earnings upon completion of the sale. The investment
and losses from the Business are included in the All Other segment.
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 of evaluating segment performance
because management does not consider interest and income tax expense
on a segment basis.
9
Sales to External Customers:
Three Months Ended
April 2, April 3,
(Thousands of dollars) 2005 2004
Pork $ 242,436 $ 211,722
Commodity Trading and Milling 286,148 256,676
Marine 148,335 110,918
Sugar and Citrus 14,307 13,719
Power 14,783 15,527
All Other 7,318 7,113
Segment/Consolidated Totals $ 713,327 $ 615,675
Operating Income:
Three Months Ended
April 2, April 3,
(Thousands of dollars) 2005 2004
Pork $ 49,641 $ 21,334
Commodity Trading and Milling 19,820 8,713
Marine 22,485 7,417
Sugar and Citrus 2,972 3,558
Power 995 1,525
All Other 558 525
Segment Totals 96,471 43,072
Corporate Items 609 (310)
Consolidated Totals $ 97,080 $ 42,762
Income (Loss) from Foreign Affiliates:
Three Months Ended
April 2, April 3,
(Thousands of dollars) 2005 2004
Commodity Trading and Milling $ 2,112 $ 667
Sugar and Citrus 198 1
All Other (2,831) (805)
Segment/Consolidated Totals $ (521) $ (137)
Investments in and Advances to Foreign
Affiliates:
April 2, December 31,
(Thousands of dollars) 2005 2004
Commodity Trading and Milling $ 27,660 $ 26,762
Sugar and Citrus 2,212 2,050
All Other 7,679 9,189
Segment/Consolidated Totals $ 37,551 $ 38,001
10
Total Assets:
April 2, December 31,
(Thousands of dollars) 2005 2004
Pork $ 652,817 $ 655,551
Commodity Trading and Milling 281,615 278,324
Marine 169,354 138,238
Sugar and Citrus 92,239 90,035
Power 86,493 77,978
All Other 11,523 13,924
Segment Totals 1,294,041 1,254,050
Corporate Items 231,129 182,644
Consolidated Totals $1,525,170 $1,436,694
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 income (loss) represents certain operating items not
specifically allocated to individual segments.
11
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 increased $87.1 million from
December 31, 2004 reflecting the cash generated from operations. Cash
from operating activities totaled $99.6 million during the first
quarter of 2005, of which $13.9 million was used for capital
expenditures and $2.8 million was used to pay scheduled maturities on
long-term debt. Cash from 2005 operating activities increased over
the 2004 three month period primarily reflecting the increased
earnings of the Pork, Commodity Trading and Milling, and Marine
segments without corresponding increases in working capital needs as
experienced in the prior year.
Capital Expenditures and Other Investing Activities
Seaboard invested $13.9 million in property, plant and equipment for
the three months ended April 2, 2005, of which $1.7 million was
expended in the Pork segment, $7.8 million in the Marine segment,
$3.5 million in the Sugar and Citrus segment and $0.9 million in the
remaining businesses. The 2005 capital expenditures for the Marine
segment include $2.1 million for the purchase of a previously
chartered containerized cargo vessel with the remainder primarily
spent on cargo carrying equipment. In the Sugar and Citrus segment,
the capital expenditures were primarily used for mill expansion,
plantation development and harvesting equipment. All other capital
expenditures are of a normal recurring nature and primarily include
replacements of machinery and equipment, and general facility
modernizations and upgrades. Additionally, during the second quarter
of 2005, Seaboard intends to spend approximately $9.9 million to
purchase a used bulk vessel for the Commodity Trading and Milling
segment, and has spent $2.1 million to purchase a crane for the Marine
segment. As of April 2, 2005, excluding the bulk vessel and crane,
for the remainder of 2005 management has budgeted additional capital
expenditures totaling $31.0 million, including $9.7 million for the
Pork segment, $8.1 million for the Commodity Trading and Milling
segment, $5.4 million in the Marine segment, $5.9 million in the Sugar
and Citrus segment and $2.0 million for all other businesses. These
budgeted expenditures are primarily of a normal recurring nature and
include replacements of equipment and general facility upgrades and
improvements. Management anticipates financing these capital
expenditures from internally generated cash, the use of available
short-term investments or existing short-term borrowing capacity.
During the fourth quarter of 2004, Seaboard placed $716,000 in escrow
representing a partial payment for what will be a $3,383,000, or 12.9%
total investment in an electricity generating company in the Dominican
Republic. The remaining portion of the investment will be made as
soon as the local government, regulatory, shareholder and banking
approvals are received.
Financing Activities and Debt
As of April 2, 2005, Seaboard had short-term committed lines of credit
totaling $115.0 million, a $200.0 million five-year committed credit
facility, and uncommitted lines totaling $29.8 million. The
borrowings outstanding as of April 2, 2005 of $3.0 million were under
uncommitted lines. Outstanding standby letters of credit totaling
$53.5 million reduced Seaboard's borrowing capacity under its
committed credit lines, primarily representing $42.7 million for
Seaboard's outstanding Industrial Development Revenue Bonds and $10.4
million related to insurance coverages. The short-term committed
lines include a $95.0 million subsidiary credit facility for use by
the Commodity Trading and Milling segment which has been extended
through June 15, 2005, and a $20.0 million committed line that was
allowed to expire on April 30, 2005. It's management's intention to
further extend the subsidiary line, subject to finalization of the
borrowing capacity and other terms and conditions.
In addition to funding Seaboard's planned capital expenditures as
discussed above, Seaboard's remaining 2005 scheduled long-term debt
maturities total $58.0 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
2005. While management does periodically review various alternatives
for future financings to provide additional liquidity for future
operating plans, and intends to continue seeking opportunities for
expansion in the industries in which Seaboard operates, management
currently has no plans to pursue other financing alternatives at this
time.
See Note 5 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.
12
RESULTS OF OPERATIONS
Net sales increased to $713.3 million for the first quarter of 2005
compared to $615.7 million during the first quarter of 2004. The
increase in net sales was primarily the result of higher market prices
for pork products, higher volumes sold by the commodity trading
business, and improved average rates and volumes for marine cargo
service. Operating income increased to $97.1 million in 2005 compared
to $42.8 million during the first quarter of 2004. The factors
resulting in increased sales were also the primary reasons for higher
operating income for the quarter.
Pork Segment
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $242.4 $211.7
Operating income $ 49.6 $ 21.3
Net sales for the Pork segment increased $30.7 million in the first
quarter of 2005 compared to the first quarter of 2004 primarily
reflecting the higher domestic and international market prices for
pork products. Sales prices generally increased throughout 2004 and
have remained strong through the first quarter of 2005. The demand
for pork products remained strong, especially in the international
markets, as a result of higher prices for competing proteins,
favorable export conditions and a weakened U.S. dollar.
Operating income for the Pork segment increased $28.3 million in the
first quarter of 2005 compared to the first quarter of 2004 as a
result of the higher sales prices discussed above and lower feed
costs. In addition, Seaboard processed a higher percentage of
Seaboard-raised hogs which cost less than third party hogs. These
improvements were partially offset by an increase in cost of third
party hogs. Management is unable to predict future market prices for
pork products, feed costs and third party hogs, or for how long the
overall market conditions will continue to be favorable, but expects
the favorable conditions to continue through the first half of 2005.
Commodity Trading and Milling Segment
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $286.1 $256.7
Operating income $ 19.8 $ 8.7
Income from foreign affiliates $ 2.1 $ 0.7
Net sales for the Commodity Trading and Milling segment increased
$29.4 million in the first quarter of 2005 compared to the first
quarter of 2004, primarily reflecting increased trading volumes in
existing markets and certain new markets to third parties, primarily
for wheat and soybean meal. This increase was partially offset by
lower commodity prices compared to 2004. During the first half of
2004, world-wide commodity prices increased significantly before
declining in the latter half of the year.
Operating income for this segment increased $11.1 million in the first
quarter of 2005 compared to the first quarter of 2004. During the
first quarter of 2005 operating income increased $8.5 million compared
to the first quarter of 2004 for derivative gains as discussed below.
The increase also reflects higher third party sales volumes in the
trading business, improved margins on sales to certain affiliates, and
improved operations for certain milling locations. These improvements
were partially offset by higher 2005 selling, general and
administrative costs, reflecting growth of the business and higher bad
debt expenses. However, future margins may be impacted by fluctuating
freight rates. 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, excluding the potential effects of derivative gains
or losses, to continue in 2005.
13
Had Seaboard applied hedge accounting to its derivative instruments,
operating income would have been lower by $9.8 million in the first
quarter of 2005 and $1.3 million in the first quarter of 2004. While
management believes its foreign exchange contracts and commodity
futures and options are economic hedges of its firm purchase and sales
contracts, Seaboard does not perform the extensive record-keeping
required to account for either type of derivative as hedges for
accounting purposes. Accordingly, while the changes in value of the
derivative instruments were marked to market, the changes in value of
the firm purchase or sales contracts were not. As a result, operating
income for the first quarter of 2005 includes commodity derivative
gains of $6.5 million compared to gains of $1.3 million in 2004
related to these mark-to-market adjustments. In addition, operating
income for the first quarter of 2005 includes gains from foreign
exchange derivative contracts of $3.3 million. During 2004, the
foreign exchange contracts were accounted for as hedges. Seaboard's
market risk exposure related to its derivative instruments has not
changed materially since December 31, 2004.
Income from foreign affiliates in the first quarter of 2005 improved
$1.4 million from 2004 primarily reflecting improved operating results
from certain milling operations generally as a result of improved
local market conditions. 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 2005.
Marine Segment
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $148.3 $110.9
Operating income $ 22.5 $ 7.4
Net sales for the Marine segment increased $37.4 million in the first
quarter of 2005 compared to the first quarter of 2004 reflecting
higher average cargo rates and higher cargo volumes. Average cargo
rates increased over 2004 reflecting improved market conditions,
especially in the Venezuelan market, allowing prices to respond to
higher operating costs, particularly fuel and charter hire expenses,
and better cargo mixes in certain markets. The volumes and average
rates for the Venezuelan market in the first quarter of 2005 increased
over the first quarter of 2004 as that economy improved throughout
2004 and into 2005. Management cannot predict whether rates will
continue to increase in an amount sufficient to cover increasing
charter hire and bunker expenses.
Operating income for the Marine segment increased $15.1 million in the
first quarter of 2005 compared to the first quarter of 2004, primarily
reflecting the increased rates and volumes discussed above. Although
management cannot predict changes in future cargo rates or to what
extent changes in economic conditions will impact cargo volumes, it
does expect this segment to remain profitable in 2005.
Sugar and Citrus Segment
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $ 14.3 $ 13.7
Operating income $ 3.0 $ 3.6
Income from foreign affiliates $ 0.2 $ -
Net sales for the Sugar and Citrus segment increased slightly in the
first quarter of 2005 compared to the first quarter of 2004 primarily
reflecting slightly higher sales volumes. While management cannot
predict future sugar prices, management does not expect 2005 sugar
prices to increase above the 2004 prices. Operating income decreased
$0.6 million for the first quarter of 2005 compared to the prior year
primarily due to higher sugar production costs. Management expects
operating income will remain positive for 2005.
14
Power Segment
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $ 14.8 $ 15.5
Operating income $ 1.0 $ 1.5
Net sales for the Power segment decreased $0.7 million in the first
quarter of 2005 compared to the first quarter of 2004 primarily
reflecting slightly lower production. To avoid selling power on the
spot market to certain customers about whom management has
collectibility concerns, Seaboard entered into short-term sales
contracts for most of its production not already sold under existing
contracts. Although the generating facilities have operated near
capacity in 2005, management may impose further curtailments if
revenue collectibility conditions warrant.
Operating income decreased $0.5 million for the first quarter of 2005
compared to the first quarter of 2004 primarily reflecting higher fuel
costs and the impact of the strengthening peso on local expenses,
partially offset by lower commissions and bad debt expense. While the
economic problems continue to exist in the Dominican Republic,
management expects relative stability for the near term. Management
cannot predict whether this segment will remain profitable for the
remainder of 2005.
All Other
Three Months Ended
April 2, April 3,
(Dollars in millions) 2005 2004
Net sales $ 7.3 $ 7.1
Operating income $ 0.6 $ 0.5
Loss from foreign affiliates $ (2.8) $ (0.8)
Net sales and operating income for All Other remained consistent with
2004. The loss from foreign affiliates reflects Seaboard's share of
losses from its equity method investment in a Bulgarian wine business.
In 2005 Seaboard recorded 100% of the losses from this business
compared to 37% in the first quarter of 2004. See Note 7 to the
Condensed Consolidated Financial Statements for further discussion.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the first
quarter of 2005 increased by $0.7 million over the first quarter of
2004 primarily due to increases in the Commodity Trading and Milling
segment reflecting increased selling costs related to the growth of
the business and bad debt expense. Lower commission expenses and bad
debt expense of the Power segment partially offset this increase. As
a percentage of revenues, SG&A decreased to 4.4% in the first quarter
of 2005 compared to 5.0% for the first quarter of 2004 as a result of
increased sales in the Pork, Commodity Trading and Milling, and Marine
segments.
Interest Expense
Interest expense decreased $1.7 million in the first quarter of 2005
compared to the first quarter of 2004 reflecting the lower average
level of short-term and long-term borrowings outstanding during 2005.
During the second quarter of 2004, Seaboard repaid a significant
portion of its short-term notes payable to banks with operating cash
flows and there has been no need for additional borrowings.
Interest Income
Interest income increased $1.7 million in the first quarter of 2005
compared to the first quarter of 2004 primarily reflecting interest
received on outstanding customer receivable balances in the Power
segment, and the higher level of average funds invested during 2005.
15
Foreign Currency Gains (Losses)
Foreign currency net gains of $0.7 million in the first quarter of
2005 compared with $1.7 million of losses in 2004. During 2005, the
Dominican Republic peso strengthened, resulting in gains of $0.7
million while during 2004 its devaluation caused foreign exchange
losses of $1.9 million. 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 in the first quarter of 2005 reflects $3.0 million
of gains from the mark to market of interest rate swap agreements
compared to losses of $2.7 million in 2004. 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.
Miscellaneous, net for 2004 also includes gains of $3.1 million 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 2004 includes gains of
$0.5 million from the settlement of antitrust litigation for feed
additives used by Seaboard.
Income Tax Expense
The effective tax rate increased during 2005 compared to 2004
primarily as a result of increased domestic taxable income and lower
amounts of permanently deferred foreign earnings. As further
discussed in Note 3 of Condensed Consolidated Financial Statements,
due to ambiguity with the application of Treasury Department
Regulations, in the first quarter of 2005 Seaboard accrued $7.5
million tax expense on shipping income that could ultimately be
treated as non-taxable if the ambiguity is favorably resolved. In
addition, see Note 3 to the Condensed Consolidated Financial
Statements for a discussion of the Internal Revenue Service's
examination of Seaboard's federal income tax returns for 2000 through
2002.
Other Financial Information
On December 21, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position 109-2, "Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004" (FSP109-2). FSP 109-2, which was effective
upon issuance, allows companies time beyond the financial reporting
period of enactment to evaluate the effect of the earnings
repatriation provision on its plan for reinvestment or repatriation of
foreign earnings for purposes of applying Statement of Financial
Accounting Standards (SFAS) No. 109. Additionally, FSP 109-2 provides
guidance regarding the required disclosures surrounding a company's
reinvestment or repatriation of foreign earnings. Seaboard continues
to evaluate this provision of the Act to determine the amount of
foreign earnings to repatriate and expects to complete its evaluation
by the fourth quarter of 2005.
In November 2004, FASB issued SFAS 151, Inventory Costs. This
statement amends Accounting Research Board No. 43 to clarify the
accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 requires
that those items be recognized as current period charges regardless of
whether they meet the criterion of "so abnormal". In addition, SFAS
151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. Any costs outside the normal range would be considered a
period expense instead of an inventoried cost. For Seaboard, this
standard is effective for the fiscal year beginning January 1, 2006.
The adoption of SFAS 151 is not expected to have a material impact on
Seaboard's financial position or net earnings.
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 may then
be 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 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, 2004.
16
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Seaboard's
management evaluated, under the direction of our chief executive and
chief financial officers, the effectiveness of Seaboard's disclosure
controls and procedures as defined in Exchange Act 15(d) - 15(e) as of
April 2, 2005. 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.
Change in Internal Controls - There has been no change in Seaboard's
internal control over financial reporting that occurred during the
fiscal quarter ended April 2, 2005 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
Seaboard's subsidiary, Seaboard Farms, Inc. (Seaboard Farms), is
subject to an ongoing Unilateral Administrative Order (RCRA Order)
pursuant to Section 7003 of the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Sec. 6973 (RCRA), filed by the United
States Environmental Protection Agency (EPA) on June 29. 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 pay a civil penalty and to undertake
continued monitoring and take a number of corrective actions with
respect to the farms, and one additional farm, in order to attempt to
settle the RCRA Order and the Oklahoma Notice of Violation
Originally, EPA advised Seaboard Farms that any such settlement must
include a civil fine of $1,200,000, but EPA has since reduced the
amount of its demand for a civil penalty to $345,000. Seaboard Farms
believes that the EPA has no authority to impose a civil fine, but
settlement discussions are continuing.
A tentative verbal settlement has been reached with the State of
Oklahoma which would require Seaboard Farms to pay a fine of $100,000
and to undertake agreed upon supplemental environmental projects at a
cost of $80,000. The settlement is subject to the final terms being
agreed to and the approval of the Oklahoma Board of Agriculture.
Irrespective of the settlement, Seaboard Farms intends to proceed with
the 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. To date, the
$5 million limit has not been exceeded. If the tentative settlement
with the State of Oklahoma is agreed to, the estimated cumulative
costs which will be expended will total approximately $6.9 million,
not including the additional legal costs required to negotiate the
settlement or the penalties demanded by EPA and tentatively agreed to
with 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 to
determine whether the $5 million limit will be exceeded 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
liability in excess of $5 million (excluding the estimated $180,000
cost for testing and sampling), although PIC disputes this.
17
EPA has been conducting an additional 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. EPA has proposed to
settle the matter by Seaboard Farms paying a civil fine of $345,000
and taking various other actions which will cost approximately
$150,000. In addition, Seaboard Farms would agree to participate in
the National AFO/CAFO Air Emissions Agreement with EPA, with a portion
of the civil fine being paid under this agreement. Management
believes it has meritorious legal and factual defenses and objections
to EPA's demands, but settlement discussions are continuing.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on April 25, 2005 in
Newton, Massachusetts. Three items were submitted to a vote of
stockholders as described in Seaboard's Proxy Statement dated
March 14, 2005. The following table briefly describes the proposals
and results of the stockholders' vote.
Votes in Votes
Favor Withheld
1. To elect the following persons as directors.
H. Harry Bresky 1,140,850.9 72,786
David A. Adamsen 1,205,235.9 8,401
Douglas W. Baena 1,141,206.9 72,430
Joseph E. Rodrigues 1,205,268.9 8,368
Kevin M. Kennedy and 1,140,812.9 72,824
Steven J. Bresky 1,205,268.9 8,368
Votes in Votes Votes Broker
Favor Against Abstaining Non-Votes
2. To ratify selection of
KPMG LLP as independent
auditors for 2005. 1,212,623.9 287 726 -
3. Stockholder proposal for
preparation of environmental
sustainability report 75,303 1,066,377.9 15,234 56,722
Item 6. 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
18
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; 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) Seaboard's ability to obtain
adequate financing and liquidity, (ii) the price of feed stocks and
other materials used by Seaboard, (iii) the sale price or market
conditions for pork products from such operations, (iv) the price or
market conditions for other products and services, (v) the charter
hire rates and fuel prices for vessels, (vi) the demand for power,
related spot market prices and collectibility of receivables in the
Dominican Republic, (vii) the effect of the fluctuation in exchange
rates for the Dominican Republic pesos, (viii) the effect of the
Venezuelan economy on the Marine Division, (ix) the potential effect
of Seaboard's investment in a wine business on the consolidated
financial statements, (x) the potential impact of various
environmental actions pending or threatened against Seaboard, (xi) the
potential impact of the American Jobs Creation Act, or
(xii) statements concerning profitability of any of Seaboard's
segments (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.
19
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: May 4, 2005
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)
20