-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IOwcC2mvfbS1ZWCrtSvFMKgdb++WRxOUVXhL2KaQ5MT1h2CC1oLlDbq/6QEy6Cwu U4GkQ3ryw/GTJHLS8J33fg== 0000088121-02-000005.txt : 20020425 0000088121-02-000005.hdr.sgml : 20020425 ACCESSION NUMBER: 0000088121-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020330 FILED AS OF DATE: 20020425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 02621264 BUSINESS ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 BUSINESS PHONE: 9136768800 MAIL ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 10-Q 1 q-10.txt 1ST QTR 2002 10-Q 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 March 30, 2002 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3390 Seaboard Corporation (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (913) 676-8800 Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No ___. There were 1,487,520 shares of common stock, $1.00 par value per share, outstanding on April 19, 2002. 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) March 30, December 31, 2002 2001 Assets Current assets: Cash and cash equivalents $ 18,908 $ 22,997 Short-term investments 92,268 126,795 Receivables, net 196,281 187,416 Inventories 204,767 205,345 Deferred income taxes 15,092 13,966 Other current assets 29,173 36,343 Total current assets 556,489 592,862 Investments in and advances to foreign affiliates 49,629 52,256 Net property, plant and equipment 522,984 556,273 Other assets 38,175 34,201 Total long-term assets 610,788 642,730 Total assets $1,167,277 $1,235,592 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 40,712 $ 37,703 Current maturities of long-term debt 27,174 55,166 Accounts payable 49,943 61,513 Other current liabilities 121,620 126,218 Total current liabilities 239,449 280,600 Long-term debt, less current maturities 252,719 255,819 Deferred income taxes 136,216 131,957 Other liabilities 33,991 33,946 Total non-current and deferred liabilities 422,926 421,722 Minority interest 6,246 6,067 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued 1,789,599 shares 1,790 1,790 Less 302,079 shares held in treasury (302) (302) 1,488 1,488 Additional capital 13,214 13,214 Accumulated other comprehensive loss (98,158) (65,406) Retained earnings 582,112 577,907 Total stockholders' equity 498,656 527,203 Total liabilities and stockholders' equity $1,167,277 $1,235,592 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Thousands of dollars except per share amounts) (Unaudited) Three Months Ended March 30, March 31, 2002 2001 Net sales $ 442,923 $ 435,260 Cost of sales and operating expenses 399,837 386,461 Gross income 43,086 48,799 Selling, general and administrative expenses 26,332 30,763 Operating income 16,754 18,036 Other income (expense): Interest expense (5,451) (7,927) Interest income 1,675 2,309 Loss from foreign affiliates (2,091) (623) Minority interest (177) (27) Foreign currency loss, net (5,414) (448) Miscellaneous, net 1,308 1,220 Total other income (expense), net (10,150) (5,496) Earnings before income taxes 6,604 12,540 Income tax expense (2,027) (4,925) Net earnings $ 4,577 $ 7,615 Earnings per common share $ 3.08 $ 5.12 Dividends declared per common share $ .25 $ .25 Average number of shares outstanding 1,487,520 1,487,520 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) Three Months Ended March 30, March 31, 2002 2001 Cash flows from operating activities: Net earnings $ 4,577 $ 7,615 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 12,849 13,640 Loss from foreign affiliates 2,091 623 Foreign currency translation loss 4,979 - Deferred income taxes 1,382 2,281 Gain (loss) from sale of fixed assets (6) 1,333 Changes in current assets and liabilities: Receivables, net of allowance (17,481) 19,394 Inventories (8,600) 1,443 Other current assets 6,969 (14,196) Current liabilities exclusive of debt (11,988) 1,316 Other, net 1,909 2,464 Net cash from operating activities (3,319) 35,913 Cash flows from investing activities: Purchase of investments (32,054) (133,360) Proceeds from the sale or maturity of short-term investments 65,885 109,176 Investments in and advances to foreign affiliates 375 (65) Capital expenditures (9,083) (14,858) Other, net (715) 1,017 Net cash from investing activities 24,408 (38,090) Cash flows from financing activities: Notes payable to bank, net 3,009 (3,344) Principal payments of long-term debt (27,607) (880) Dividends paid (372) (372) Bond construction fund 557 1,767 Net cash from financing activities (24,413) (2,829) Effect of exchange rate change on cash (765) - Net change in cash and cash equivalents (4,089) (5,006) Cash and cash equivalents at beginning of year 22,997 19,760 Cash and cash equivalents at end of quarter $ 18,908 $ 14,754 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Note 1 - Accounting Policies and Basis of Presentation The consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The Company's investments in non- controlled affiliates are accounted for by the equity method. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2001 as filed in its Annual Report on Form 10-K. Beginning with the quarter ended September 29, 2001, the Company's first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. The Company's year-end is December 31. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Supplemental Noncash Transactions - As more fully described in Note 2, the further devaluation of the Argentine peso decreased the assets and liabilities of the Sugar and Citrus segment during the first quarter of 2002. The devaluation of the peso denominated assets and liabilities reduced working capital and fixed assets by $13,005,000 and $28,830,000, respectively, and reduced net long-term liabilities by $387,000. No tax benefit was recorded related to this devaluation. Effective January 1, 2002, the Company adopted the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of;" however, it retains most of the provisions of that Statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." The Statement provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset as "held for sale." The adoption had no immediate impact on the Company's financial statements. Note 2 - Comprehensive Income (Loss) Components of total comprehensive income (loss), net of related taxes, are summarized as follows: Three Months Ended March 30, March 31, (Thousands of dollars) 2002 2001 Net income $ 4,577 $ 7,615 Other comprehensive income (loss) net of applicable taxes: Foreign currency translation adjustment (35,185) (155) Unrealized gain on investments 2,620 98 Net unrealized loss on cash flow hedges (137) - Deferred gain on swaps - 1,353 Amortization of deferred gain on swaps (50) (50) Total comprehensive income (loss) $(28,175) $ 8,861 The components of and changes in accumulated other comprehensive loss for the three months ended March 30, 2002 are as follows: Balance Balance December 31, Period March 30, (Thousands of dollars) 2001 Change 2002 Foreign currency translation adjustment $(62,218) $(35,185) $(97,403) Unrealized gain (loss) on investments (3,067) 2,620 (447) Unrecognized pension cost (1,273) - (1,273) Net unrealized loss on cash flow hedges - (137) (137) Deferred gain on swaps 1,152 (50) 1,102 Accumulated other comprehensive loss $(65,406) $(32,752) $(98,158) The foreign currency translation adjustment primarily represents the effect of the Argentine peso devaluation on the net assets of the Company's Sugar and Citrus segment as first recorded by the Company in the fourth quarter of 2001. During the quarter ended March 30, 2002, the peso devalued an additional 43% against the U.S. dollar. As a result of this devaluation, the Company recorded a $40,046,000 reduction to shareholders' equity through a $4,979,000 charge against net earnings for dollar denominated debt of the Company's Argentine subsidiary, and a currency translation adjustment of $35,067,000 as an other comprehensive loss for the peso denominated net assets. At March 31, 2002 the Company has $46,292,000 in net assets denominated in Argentine pesos and $14,079,000 in net liabilities denominated in U.S. dollars in Argentina. Impacts of further fluctuations in the currency exchange rate will be recorded in future periods. No tax benefit has been provided related to this reduction of shareholders' equity. The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. With the exception of the foreign currency translation loss discussed above, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. Note 3 - Inventories The following is a summary of inventories at March 30, 2002 and December 31, 2001 (in thousands): March 30, December 31, 2002 2001 At lower of LIFO cost or market: Live hogs and related materials $120,882 $124,212 Dressed pork and related materials 11,122 12,930 132,004 137,142 LIFO allowance (5,831) (5,231) Total inventories at lower of LIFO cost or market: 126,173 131,911 At lower of FIFO cost or market: Grain, flour and feed 57,332 42,581 Sugar produced and in process 7,172 15,039 Other 14,090 15,814 Total inventories at lower of FIFO cost or market 78,594 73,434 Total inventories $204,767 $205,345 Note 4 - Contingencies On February 12, 2002, the United States Senate passed a Farm Bill, (S. Bill 1731), which includes a provision (the "Johnson Amendment") which prohibits packers, such as the Company, from owning or controlling livestock intended for slaughter for more than 14 days prior to the slaughter. The Johnson Amendment also contains a transition rule applicable to packers of pork providing for an effective date which is 18 months after enactment of the Act. The U.S. House of Representatives also passed a Farm Bill (H. Bill 2646), but this Bill does not include the prohibition on packers owning or controlling livestock. A committee of Conferees, consisting of members of both the Senate and the House, was established to attempt to reconcile the differences between the two Bills, including the Johnson Amendment. If a uniform Bill were agreed upon by the committee, the Farm Bill would be voted upon by both the Senate and the House and, if enacted, would be sent to the President for him to sign into law or to veto. The House Conferees informally have indicated they are not in favor of including the Johnson Amendment in the Farm Bill, and have offered a compromise to their Senate colleagues to form a Presidentially appointed committee to study the packer ownership issue and produce a report by December 2004. The report presumably would study the implications of the Johnson Amendment and make a recommendation as to it. If the Farm Bill containing the Johnson Amendment were to become law, it could have a material adverse effect on the Company, its operations and its strategy of vertical integration in the pork business. Currently, the Company owns and operates production facilities and owns swine and produces approximately three million hogs per year with construction in progress for an additional half million hogs per year. If enacted, the Johnson Amendment would prohibit the Company from owning or controlling hogs, and thus would require the Company to divest these operations, possibly at prices which are below the carrying value of such assets on the Company's balance sheet, or otherwise restructure its ownership and operation. At March 30, 2002, the Company has $247.6 million in hog production facilities classified as net fixed assets on the Consolidated Balance Sheet plus approximately $185.0 million in hog production facilities under Facility Agreements accounted for as operating leases. In addition, the Company has $120.9 million invested in live hogs and related materials classified as inventory on the Consolidated Balance Sheet. The Johnson Amendment could also be construed as prohibiting or restricting the Company from engaging in various contractual arrangements with third party hog producers, such as traditional contract finishing arrangements. Accordingly, the Company's ability to contract for the supply of hogs to its processing facility may be significantly, negatively impacted. At March 30, 2002, the Company had approximately $23.4 million in commitments through 2013 for various grow finishing agreements. The Company, along with industry groups and other similarly situated companies, is vigorously lobbying against enactment of the Johnson Amendment. The ultimate outcome of this matter is not presently determinable. The Company is a defendant in a pending arbitration proceeding and related litigation in Puerto Rico brought by the owner of a chartered barge and tug which were damaged by fire after delivery of the cargo. Damages of $47.6 million are alleged. The Company received a ruling in the arbitration proceeding in its favor which dismisses the principal theory of recovery and that ruling has been upheld on appeal. The arbitration is continuing based on other legal theories, although the Company believes that it will have no responsibility for the loss. The Company is a defendant in an action brought by the Sierra Club alleging violations of various environmental laws related to one of the Company's hog production operations. The Company believes it has meritorious defenses to all of the claims of the Sierra Club but cannot predict with certainty the outcome of the litigation. The Company is also subject to an ongoing investigation by the United States Environmental Protection Agency. The Company has not previously recognized any tax benefits from losses generated by Ingenio y Refineria San Martin del Tabacal S.A. (Tabacal), its sugar and citrus segment, for financial reporting purposes since it was not a controlled entity for tax purposes and it was not apparent that the permanent basis difference would reverse in the foreseeable future. During the first quarter of 2002, the Company substantially completed a tender offer in Argentina to purchase the outstanding shares of Tabacal not currently owned by the Company for $0.4 million. As a result of the current economic and political situation in Argentina, the Company is not yet certain that it will be able to fully complete the tender offer. If the Company is successful in concluding the above transaction during 2002, it would reduce its deferred tax liability by approximately $46.3 million which is the tax effect of the cumulative basis difference from Tabacal's operations since the date of acquisition by the Company in July of 1996 in its consolidated U.S. tax return. Of this amount, a majority of the tax benefit will reduce the currency translation adjustment recorded as other accumulated comprehensive loss. Based on the currency translation adjustment at March 30, 2002, this amount would be approximately $33.7 million. The currency translation adjustment, originally recorded as a result of the Argentine devaluation in January 2002, may fluctuate at the time of recognizing this potential tax benefit based on the exchange rates in effect at that time. The remaining benefit would be recognized as a current tax benefit in the Consolidated Statement of Earnings for 2002. The Company is a plaintiff in a lawsuit against several manufacturers of vitamins and feed additives which have plead guilty in the context of criminal proceedings to price fixing. Because the manufacturers have admitted price fixing in the criminal context, it is likely that the manufacturers will be liable for the overcharges made as a result of the price fixing. The Company had purchases aggregating approximately $37.7 million during the relevant time period. The Company is still in the process of determining what it believes was the amount of the overcharge on these purchases on account of the price fixing. Under antitrust laws, if the matter proceeds to trial, the manufacturers are responsible for treble damages. In a separate class action law suit which was brought against the manufacturers but which the Company opted out of, the matter was settled by the manufacturers paying a total of approximately 18% of the agreed gross sales as total damages. The Company opted out of the class action because it believes that it is entitled to a greater amount, either pursuant to a settlement or at trial. The Company is subject to various other legal proceedings related to the normal conduct of its business. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements of the Company. Note 5 - Segment Information The following tables set forth specific financial information about each segment as reviewed by the Company's management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income is used as the measure of evaluating segment performance because management does not consider interest and income tax expense on a segment basis. As the Sugar and Citrus segment operates solely in Argentina with primarily local sales and operating expenses, the functional currency is the Argentine peso. As described in Note 2, the Company has recorded the effects of the recent and ongoing devaluation of the Argentine peso. As a result, peso-denominated assets have been reduced by $49,249,000 during the first quarter of 2002. Management is currently considering various strategic alternatives for the Produce Division and has ceased its shrimp, pickle and pepper farming operations in Honduras. After evaluating the recoverability of the long-lived assets of the Produce Division at December 31, 2001, management believes the values are presently recoverable. As of March 30, 2002, the total carrying value of these long-lived assets totaled $6,279,000. Sales to External Customers: Three Months Ended March 30, March 31, (Thousands of dollars) 2002 2001 Pork $171,058 $181,894 Commodity Trading and Milling 147,538 116,229 Marine 90,815 89,891 Sugar and Citrus 14,699 20,377 Power 12,212 16,967 All Other 6,601 9,902 Segment/Consolidated Totals $442,923 $435,260 Operating Income Three Months Ended March 30, March 31, (Thousands of dollars) 2002 2001 Pork $ 2,517 $11,826 Commodity Trading and Milling 6,749 324 Marine 3,613 4,653 Sugar and Citrus 3,135 1,022 Power 1,625 3,293 All Other (514) (1,833) Segment Totals 17,125 19,285 Corporate Items (371) (1,249) Consolidated Totals $16,754 $18,036 Total Assets March 30, December 31, (Thousands of dollars) 2002 2001 Pork $ 506,743 $ 508,642 Commodity Trading and Milling 190,336 172,684 Marine 122,713 131,334 Sugar and Citrus 70,701 115,402 Power 78,925 77,102 All Other 19,007 20,276 Segment Totals 988,425 1,025,440 Corporate items 178,852 210,152 Consolidated Totals $1,167,277 $1,235,592 Administrative services provided by the corporate office are primarily allocated to the individual segments based on the size and nature of their operations. Corporate assets include short-term investments, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Cash from operating activities for the three months ended March 30, 2002, decreased $39.2 million compared to the same period one year earlier. The decrease in cash flows was primarily related to changes in the components of working capital. Changes in components of working capital are primarily related to the timing of normal transactions for voyage settlements, trade payables and receivables. Within the Commodity Trading and Milling segment, increased sales during the first quarter of 2002 resulted in an increase in receivables compared to a decrease in receivables for the first quarter of 2001. Cash from investing activities for the three months ended March 30, 2002, increased $62.5 million compared to the same period one year earlier. The increase was primarily related to proceeds from the net sale of short-term investments compared to net purchases of investments in the prior year. The Company invested $9.1 million in property, plant and equipment for the three months ended March 30, 2002, of which $5.2 million was expended in the Pork segment, $1.8 million in the Marine segment, $1.2 million in the Commodity Trading and Milling Segment, $0.7 million in the Sugar and Citrus segment, and $0.2 million in other businesses of the Company. The Company invested $5.2 million in the Pork segment primarily for expansion of existing hog production facilities, improvements to the pork processing plant, and purchase options for land upon which the Company plans to expand operations as discussed below. In February 2002, the Company announced plans to build a second processing plant in northern Texas along with related plans to expand its vertically integrated hog production facilities. These plans are contingent on a number of factors, including obtaining necessary permits, commitments for a sufficient quantity of hogs to operate the plant, and no statutory impediments being imposed by the proposed farm bill currently being debated in the U.S. Congress (see Note 4 to the Consolidated Financial Statements). These plans will require extensive capital outlays and financing demands. The current cost estimates to build the plant are approximately $150.0 million with an additional $200.0 million for live production facilities for a total of approximately $350.0 million. The Company also anticipates pursuing various contract growing arrangements. The Company is currently evaluating its alternatives for financing these expansion plans, including additional borrowings, leases or other business ventures with third parties. Due to the uncertainties surrounding permitting and the potential impact of the proposed farm bill, the Company is currently not able to predict the timing of the expansion project. During the remainder of 2002, the Company anticipates spending $26.7 million for continued expansion of existing hog production facilities, upgrades to the existing pork processing plant and certain costs related to the planning for construction of the new processing plant. The Company invested $1.8 million in the Marine segment primarily for the purchase of additional machinery and equipment. During the remainder of 2002, the Company anticipates spending $9.5 million for additional equipment. The Company invested $1.2 million in the Commodity Trading and Milling segment primarily for the purchase of additional equipment. During the remainder of 2002, the Company anticipates spending $2.0 million for additional equipment. The Company invested $0.7 million in the Sugar and Citrus segment primarily for improvements to existing facilities and sugarcane fields. During the remainder of 2002, the Company anticipates spending $2.3 million for additional improvements. Cash from financing activities for the three months ended March 30, 2002, decreased $21.6 million compared to the same period one year earlier. This decrease is primarily the result of repaying approximately $26.7 million of the maturing five-year revolving credit facility in the first quarter of 2002, partially offset by additional notes payable to banks. The Company's one-year revolving credit facilities totaling $141.0 million at December 31, 2001 matured during the first quarter of 2002. The Company extended $20.0 million of these facilities for one year. While the Company currently anticipates replacing the facilities that were not extended during 2002, the total amount and related terms of the facilities have not yet been determined. The Company also has short-term uncommitted credit lines totaling $85.3 million at March 30, 2002. As of March 30, 2002, the Company had $5.0 million of borrowings outstanding under the one-year revolving credit facilities and $35.7 million outstanding under the short-term uncommitted credit lines. The Company is a party to various master lease programs and a contract finishing agreement (the "Facility Agreements") with limited partnerships and a limited liability company which own certain of the facilities that are used in connection with the Company's vertically integrated hog production. These arrangements are accounted for as operating leases. At March 30, 2002, the total amount of unamortized costs representing fixed asset values and the underlying outstanding debt under these Facility Agreements was approximately $185.0 million. These hog production facilities produce approximately 45% of the Company owned hogs processed at the plant. In August 2002, $130.0 million of the underlying bank facility in one of the limited partnerships for certain properties expires. The Company currently has not determined if it will request the limited partnership to renew the bank facility or refinance in a new bank facility in order to permit the current arrangement to be continued. If the bank facility is neither renewed nor replaced, the Company may exercise its right to purchase the assets from the limited partnership ($122.6 million at March 30, 2002) or the limited partnership may attempt to sell the properties to a third party with which the Company may enter into a grower arrangement. Currently, management believes that it will have sufficient liquidity and financing capacity to accomplish any of the alternatives. In addition to the Pork segment expansion plans and potential financing requirements related to assets under Facility Agreements discussed above, the Company's Senior Notes continue to mature through 2007. Management believes that the Company's current combination of liquidity, capital resources and borrowing capabilities will be adequate for its existing operations during fiscal 2002. Management is evaluating various alternatives for future financings to provide adequate liquidity for the Company's future operating and expansion plans. In addition, management intends to continue seeking opportunities for expansion in the industries in which it operates. RESULTS OF OPERATIONS Net sales for the three months ended March 30, 2002 increased by $7.7 million compared to the three months ended March 31, 2001. Operating income decreased by $1.3 million compared to the same quarter one year ago. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Pork Segment Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 171.1 181.9 Operating income $ 2.5 11.8 Net sales for the Pork segment decreased $10.8 million in the first quarter of 2002 compared to the first quarter of 2001 as a result of a lower pork prices. Reduced world-wide meat supplies during 2001 contributed to higher sales prices for that year. During the last half of the first quarter of 2002, domestic meat supplies have increased, causing increased competition resulting in lower sales prices. Operating income for the Pork segment decreased $9.3 million in the first quarter of 2002 compared to the first quarter of 2001 primarily as the result of lower sales prices discussed above, partially offset by a decrease in cost of third party hogs. While unable to predict future market prices, management does anticipate that operating income for the remainder of 2002 will be significantly lower than 2001. Future results may also be adversely affected by the pending U.S. Farm Bill as further discussed in Note 4 to the Condensed Consolidated Financial Statements. Commodity Trading and Milling Segment Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 147.5 116.2 Operating income $ 6.7 0.3 Loss from foreign affiliates $ (1.2) (0.6) Net sales for the Commodity Trading and Milling segment increased $31.3 million in the first quarter of 2002 compared to the first quarter of 2001. The increase is primarily a result of higher commodity prices and increased milling revenues. Milling revenues have increased primarily as a result of favorable operating environments in certain foreign locations, which have allowed mills in those locations to increase production levels. Operating income for this segment increased $6.4 million in the first quarter of 2002 compared to the first quarter of 2001. Operating income increased primarily from realized derivative gains of $3.2 million related to commodity contracts, increased production at certain foreign milling operations, and, to a lesser extent, a lower provision for bad debts. During the 2001 quarter, the commodity contracts were treated as fair value hedges with minimal earnings impact. While the Company believes its commodity futures and options are economic hedges of its firm purchase and sales contracts, beginning in the fourth quarter of 2001, the Company discontinued the extensive record-keeping required to account for commodity transactions as fair value hedges. As a result, during 2002, while the derivative contracts have been marked-to-market through cost of goods sold, the related, offsetting change in market value of the firm commitments have not been recognized. Accordingly, the Company will recognize decreased operating income in future quarters related to these contracts based on current market values. As of March 30, 2002, the total fair value of open commodity positions was $2.0 million. Due to the nature of this segment's operations and its exposure to foreign political and economic situations, management is unable to predict future sales and operating results. Loss from foreign affiliates increased $0.6 million primarily as a result of increased losses at a certain African milling operation. Based on current political and economic situations in the countries the flour and feed mills operate, management anticipates losses from foreign affiliates to continue for the remainder of 2002. Marine Segment Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 90.8 89.9 Operating income $ 3.6 4.7 Net sales for the Marine segment increased $0.9 million in the first quarter of 2002 compared to the first quarter of 2001. This increase primarily reflects increased cargo volume to certain markets mostly offset by a decrease in average cargo rates compared to the prior year average. In March 2002, the Company experienced declining cargo volumes in certain South American markets as the result of local political instability in that region. Operating income for the Marine segment decreased $1.1 million in the first quarter of 2002 compared to the first quarter of 2001, primarily reflecting the lower margins due to declining cargo rates. The duration and extent of political instability in certain South American countries will continue to affect results. Although Management expects operating results for this segment to remain profitable during 2002, with the political instability of certain markets and reduced rates throughout the Caribbean region, operating income for the remainder of 2002 is expected to be lower than 2001. Sugar and Citrus Segment Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 14.7 20.4 Operating income $ 3.1 1.0 Net sales for the Sugar and Citrus segment decreased $5.7 million from the first quarter of 2001 primarily reflecting the devaluation of the Argentine peso, discussed below, partially offset by higher sales prices for sugar. Operating income increased $2.1 million reflecting the improved sales prices and certain lower operating costs. At this time, management is not able to predict future sugar prices and operating income for the remainder of 2002 in light of the events in Argentina discussed below. As discussed in Note 2 to the Consolidated Financial Statements, the functional currency of the Sugar and Citrus segment, the Argentine peso, continues to devalue compared to the U.S. dollar, resulting in material currency translation losses. Operating income, as discussed above, does not include the effects of the material currency translation losses on shareholders' equity or net earnings. The economy of Argentina has been severely, negatively impacted by the devaluation and continuing recession. Currently, management has been able to increase the peso prices for sugar more than peso costs have increased, resulting in improved operating income in terms of U.S. dollars. However, as a result of the economic turmoil and uncertainty, it is not possible for management to predict if this trend will continue or if costs will begin to increase more than sugar prices in the coming months. Power Segment Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 12.2 17.0 Operating income $ 1.6 3.3 Net sales for the Power segment decreased $4.8 million in the first quarter of 2002 compared to the first quarter of 2001 reflecting lower market rates in the spot market. Through the third quarter of 2001, all sales from this division were made under contract to the state- owned electric company. That contract was rescinded during September 2001 and the Company began selling power at market rates on the spot market. These market rates have decreased during the quarter reflecting, in part, lower average fuel costs, a component of pricing. Operating income decreased $1.7 million for the first quarter of 2002 compared to the first quarter of 2001 primarily reflecting the lower market rates and additional transmission fees, partially offset by lower operating expenses. While management is not able to predict future market rates, it is anticipated that operating income will be lower for the remainder of 2002 compared to 2001. All Other Three Months Ended March 30, March 31, (Dollars in millions) 2002 2001 Net sales $ 6.6 9.9 Operating loss $ (0.5) (1.8) Loss from foreign affiliates $ (0.9) - Net sales for all other businesses decreased $3.3 million and operating loss decreased $1.3 million in the first quarter of 2002 compared to the first quarter of 2001. These decreases are primarily the result of the Produce division's decision to cease shrimp, pickle and pepper farming operations in Honduras. Management currently anticipates improved operating results for the remainder of 2002 compared to 2001. Management has evaluated the recoverability of those long-lived farming assets at December 31, 2001, believes the value is presently recoverable, and is currently considering various strategic alternatives for those assets. However, the final decision regarding the alternatives, or continued losses from existing operations, could result in the carrying values not being recoverable, and could result in a material charge to earnings for the impairment of those assets. The loss from foreign affiliates during 2002 represents the Company's share of losses from an equity method investment in a Bulgarian wine business. The equity in losses from that investment began during the second quarter of 2001. Management currently anticipates continuing losses for the remainder of 2002. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses decreased $4.4 million to $26.3 million for the first quarter of 2002 compared to the first quarter of 2001. The decrease primarily reflects lower operating costs for the Sugar and Citrus segment, including the effects of the Argentine peso devaluation on peso denominated expenses, reduced operating expenses in the Power division and lower provision for bad debts in the Commodity Trading and Milling division. As a percentage of revenues, SG&A decreased to 5.9% in the first quarter of 2002 from 7.1% in the first quarter of 2001, primarily due to increased revenues in the Commodity Trading and Milling segment and the reduced SG&A expenses in the segments discussed above. Interest Expense Interest expense decreased $2.5 million in the first quarter of 2002 compared to the first quarter of 2001. The decrease is primarily a result of a lower average level of short-term and long-term borrowings outstanding during the 2002, and, to a lesser extent, lower average interest rates. Interest Income Interest income decreased $0.6 million in the first quarter of 2002 compared to the first quarter of 2001 reflecting lower average interest rates during 2002 and a reduction in average funds invested. Foreign Currency Losses Foreign currency losses increased to $5.4 million for the first quarter of 2002 compared with $0.4 million for the same period in 2001. The losses during 2002 primarily reflect the Argentine peso devaluation effect on dollar denominated net liabilities of the Company's Argentine subsidiary. See Note 2 to the Consolidated Financial Statements for additional discussion of the devaluation. As a result of the continuing economic uncertainties in Argentina, management is unable to predict the future extent of any further devaluation of the Argentine peso. Income Tax Expense The effective tax rate decreased during 2002 compared to 2001 primarily as the result of increased permanently deferred foreign earnings and lower domestic taxable income. Other Financial Information The Financial Accounting Standards Board (FASB) has issued SFAS No. 143, "Accounting for Asset Retirement Obligations", effective for fiscal years beginning after June 15, 2002. This statement will require the Company to record a long-lived asset and related liability for estimated future costs of retiring certain assets. The estimated asset retirement obligation, discounted to reflect present value, will grow to reflect accretion of the interest component. The related retirement asset will be amortized over the economic life of the related asset. Upon adoption of this statement, a cumulative effect of a change in accounting principle will be recorded at the beginning of the year to recognize the deferred asset and related accumulated amortization to date and the estimated discounted asset retirement liability together with cumulative accretion since the inception of the liability. The Company will incur asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close. Accordingly, the Company is performing detailed assessments and obtaining the appraisals required to estimate the future retirement costs. Although these costs could change by the date of adoption, it is currently estimated that the Company will record a cumulative effect of approximately $2.1 million as a charge to earnings, an increase in net fixed assets of $2.9 million and a liability of $5.0 million for this change in accounting principle at the date of adoption. Currently, the Company plans to adopt this statement during the first quarter of fiscal 2003. During 2003, the Company currently estimates the total accretion of the liability and depreciation of fixed assets to increase cost of sales by approximately $0.5 million. In February 2002, the Company began a tender offer in Argentina to purchase the remaining outstanding shares of its sugar and citrus subsidiary, Tabacal, not currently owned by the Company. If the Company is successful in completing this transaction, it would increase shareholders' equity by approximately $46.3 million by reducing its deferred tax liability. This benefit would be recognized by reducing other accumulated comprehensive loss and recording a tax benefit in the Consolidated Statement of Earnings for 2002. As a result of the current economic and political situation in Argentina, the Company is not yet certain that it will be able to complete the remaining required legal actions. See Note 4 to the Consolidated Financial Statements for further discussion. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to various types of market risks from its day- to-day operations. Primary market risk exposures result from changing interest rates, commodity prices and foreign currency exchange rates. Changes in interest rates impact the cash required to service variable rate debt. From time to time, the Company uses interest rate swaps to manage risks of increasing interest rates. Changes in commodity prices impact the cost of necessary raw materials, finished product sales and firm sales commitments. The Company uses corn, wheat, soybeans and soybean meal futures and options to manage certain risks of increasing prices of raw materials and firm sales commitments. From time to time, the Company uses hog futures to manage risks of increasing prices of live hogs acquired for processing. Changes in foreign currency exchange rates impact the cash paid or received by the Company on foreign currency denominated receivables and payables. The Company manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in the exchange rate for the Argentine peso affect the valuation of foreign currency denominated net assets of the Company's Argentine subsidiary and net earnings for the impact of the change on that subsidiary's dollar denominated net liabilities. The Company's market risk exposure related to these items has not changed materially since December 31, 2001. SEABOARD CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings On March 29, 2002, the EPA issued an Amended Emergency Administrative Order (the "SDWA Order"), pursuant to Section 1431(a) of the Safe Drinking Water Act, 42 U.S.C. Sec. 300i(a) ( the "SDWA"), against the Company's subsidiary, Seaboard Farms, Inc. ("Seaboard Farms"), Shawnee Funding Limited Partnership and PIC USA, Inc. ("PIC") (collectively, "Respondents"). The SDWA Order was issued after the negotiation of a settlement agreement with EPA and supercedes the similar order issued June 7, 2001. Pursuant to this settlement agreement, upon the issuance of the SDWA Order, EPA and Respondents agreed to dismiss the litigation Respondents had commenced in the United States Court of Appeals for the Tenth Circuit challenging the June 7, 2001 order. The SDWA Order relates to five swine farms located in Major County and Kingfisher County, Oklahoma and alleges that Respondents have violated the SDWA through the introduction of a contaminant (nitrate) into groundwater which may create an imminent and substantial risk of harm from contamination of domestic wells. Respondents disputed the allegations of the SDWA Order, but determined that it would be more cost effective to negotiate the terms of an order than to challenge it. Pursuant to the SDWA Order, Respondents must sample certain domestic wells and provide alternative water supplies for users of certain wells until investigations reveal that the wells are safe or that the swine farms are not the source of elevated nitrates. In the event the Respondents fail to comply with the SDWA Order, the EPA may commence a civil action and can seek a civil penalty of up to $15,000 per day, per violation. Seaboard is receiving indemnity and defense of the SDWA Order from PIC. On April 2, 2002, the United States Environmental Protection Agency ("EPA") sent to the Company's subsidiary, Seaboard Farms, and Mission Funding, LLC ("Mission) a letter pursuant to the Clean Air Act ("CAA") requiring Seaboard Farms and Mission to install and use monitoring equipment to sample emissions at certain hog confinement facilities for purposes of determining whether these operations are in compliance with the CAA. The EPA is requiring monitoring at specific facilities and requesting that Seaboard Farms and Mission determine whether the results therefrom can be reasonably extrapolated to estimate the emissions for all other farms operated by Seaboard Farms. If not, Seaboard Farms and Mission must list all unrepresented farms and either monitor those farms or identify other farms from which monitoring can be extrapolated to estimate their emissions. The letter also requires that Seaboard Farms and Mission submit a plan and protocol for testing for emissions of particulate matter, volatile organic compounds and hydrogen sulfide. The Company believes that EPA's demand is beyond the Agency's authority pursuant to the CAA because the monitoring program demanded by EPA (a) is not reasonably required to determine whether Seaboard Farms' and Mission's facilities are in compliance with the CAA, and (b) imposes monitoring methods that EPA has admitted are unreliable. Seaboard Farms has undertaken a technical study to determine whether its hog operations are in compliance with the CAA, including any applicable State Implementation Plan. Seaboard Farms intends to have discussions with EPA regarding a reasonable way to make the compliance determination demanded by EPA's letter. Pursuant to the CAA, if EPA is within its authority to require the monitoring and Seaboard Farms and Mission do not comply, the EPA can bring a suit to enforce the provisions of the letter, and if it is determined that EPA is within its authority, the court can impose a civil penalty of up to $27,500 per violation, per day of non-compliance, and may obtain appropriate injunctive relief. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.2 Registrant's Bylaws, as amended. (b) Reports on Form 8-K. On January 16, 2002 the Company filed a report on Form 8-K, dated January 11, 2002, disclosing the effects of the Argentine peso devaluation on the Company's Sugar and Citrus segment located in Argentina. Further discussion is included in Note 2 to the Condensed Consolidated Financial Statements. This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which may include statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, statements regarding the plans and objectives of management for future operations, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements and other statements which are other than statements of historical fact. These statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of the Company and its management with respect to (i) the cost and timing of the completion of new or expanded facilities, (ii) the Company's financing plans, (iii) the price of feed stocks and other materials used by the Company, (iv) the sale price for pork products from such operations, (v) the price for the Company's products and services, (vi) the effect of the devaluation of the Argentine peso, (vii) the effect of changes to the produce division operations on the consolidated financial statements of the Company, (viii) the potential effect of the proposed U.S. Farm Bill on the Company's Pork Division, (ix) the potential impact of various environmental actions pending or threatened against the Company or (x) other trends affecting the Company's financial condition or results of operations. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of various factors. The accompanying information contained in this Form 10-Q, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: April 25, 2002 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer, and Chief Financial Officer by: /s/ John A. Virgo John A. Virgo, Corporate Controller EX-3.2 3 bylaws.txt REGISTRANT'S BYLAWS, AS AMENDED SEABOARD CORPORATION RESTATED BY-LAWS OFFICES 1. The principal office shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is The Corporation Trust Company. 2. The corporation may also have an office in Chestnut Hill, Massachusetts, and also offices at such other places as the board of directors may from time to time determine or the business of the corporation may require. STOCKHOLDERS' MEETINGS 3. All meetings of the stockholders for the election of directors shall be held in the City of Boston, Commonwealth of Massachusetts, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or a duly executed waiver of notice thereof. 4. An annual meeting of Stockholders, commencing with the year 2002, shall be held on the fourth Monday of April in each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or such other date and time as the Board of Directors shall approve, at which meeting the Board of Directors shall elect, by a majority vote, the President, Treasurer and Secretary, and transact such other business as may be properly brought before the meeting. 5. Written notice of the annual meeting shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the corporation, at least ten days prior to the meeting. 6. At least ten days before every election of directors, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, with the residence of each and the number of voting shares held by each, shall be prepared by the secretary. Such list shall be open at the place where the election is to be held for said ten days, to the examination of any stockholder, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. 7. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of three (3) or more stockholders owning in amount one tenth of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 8. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the corporation, at least ten days before such meeting. 9. Business transacted at all special meetings shall be confined to the objects stated in the call. 10. The holders of a majority in amount of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the certificate of incorporation or by these by-laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders, entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. 11. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation or of these by-laws, a different vote is required in which case such express provision shall govern and control the decision of such question. 12. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than six months prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation, and except where the transfer books of the corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election of directors which shall have been transferred on the books of the corporation within twenty days next preceding such election of directors. 13. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the certificate of incorporation or of these by-laws, the meeting and vote of stockholders may be dispensed with, if all the stockholders who would have been entitled to vote upon the action if such meeting were held, shall consent in writing to such corporate action being taken. DIRECTORS 14. The number of directors of the corporation constituting the full board of directors shall be no less than three (3) and no more than fifteen (15), the exact number to be determined by the Board of Directors from time to time. Within the foregoing limits, between elections by stockholders the board of directors may change the number of directors constituting the full board of directors. Directors need not be stockholders of the corporation. Each director, including a director elected to fill a vacancy, shall hold office until his successor has been duly elected and qualified unless he sooner shall have resigned or been removed from office. 15. The directors may hold their meetings and keep the books of the corporation, except the original or duplicate stock ledger, outside of Delaware, at the office of the corporation in Chestnut Hill, Massachusetts, or at such other places as they may from time to time determine. 16. A vacancy or newly created directorship, as the case may be, shall be deemed to exist in the Board of Directors in case of the death, resignation, disqualification, or removal of any director, or if the authorized number of directors is increased, or if the stockholders fail at any meeting of stockholders at which directors are to be elected to elect the full authorized number of directors to be elected at that meeting. Vacancies and newly created directorships in the board of directors may be filled by a majority of the remaining directors, though fewer than a quorum, or by a sole remaining director. Upon the resignation of one or more directors from the board of directors to be effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office; provided, however, that such director, or the entire board of directors, may be removed from office, with or without cause, by the holders of a majority of shares then entitled to vote at an election of directors. 17. The property and business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. COMMITTEES OF DIRECTORS 18. The board of directors may, by vote of a majority of their entire number, elect from their own number an executive committee of not less than three (3) nor more than five (5) members, which committee may be vested with the management of the current and ordinary business of the corporation, including the declaration of dividends, the fixing and altering of the powers and duties of the several officers and agents of the corporation, the election of additional officers and agents, and the filling of vacancies other than in the board of directors, and with power to authorize purchases, sales, contracts, offers, conveyances, transfers and negotiable instruments. A majority of the executive committee shall constitute a quorum for the transaction of business but a less number may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. The executive committee may make rules not inconsistent herewith for the holding and conduct of its meetings. 19. The board of directors may, by resolution or resolutions passed by a majority of the whole board, designate other committees, each committee to consist of two (2) or more of the directors of the corporation, which to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. 20. All committees shall keep their regular minutes of their proceedings and report the same to the board, who shall have power to rescind any vote or resolution passed by any committee but no such rescission shall have retroactive effect. COMPENSATION OF DIRECTORS 21. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the board a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the board; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 22. Members of Executive or other committees may be allowed like compensation for attending committee meetings. MEETINGS OF THE BOARD 23. The first meeting of each newly elected board shall be held at such time and place either within or without the State of Delaware as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting provided a quorum shall be present, or they may meet at such place and time as shall be fixed by the consent in writing of all the directors. 24. Regular meetings of the board may be held without notice at such time and place either within or without the State of Delaware as shall from time to time be determined by the board. 25. Special meetings of the board may be called by the president on two (2) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two (2) directors. 26. At all meetings of the board a majority of the entire board shall be necessary and sufficient to constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation or by these by-laws. If a quorum shall not be present at any meeting of directors the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. 27. No notice of directors' meeting shall be necessary if all directors are present or waive notice of the meeting. NOTICES 28. Whenever under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in a post office or letter box, in a post-paid sealed wrapper, addressed to such director or stockholder at such address as appears on the books of the corporation, or, in default of other address, to such director or stockholder at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. 29. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation, or of these by-laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. OFFICERS 30. The officers of the corporation shall be chosen by the directors and shall be a president, a secretary and a treasurer. Two or more offices may be held by the same person, except that where the offices of president and secretary are held by the same person, such person shall not hold any other office. 31. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president from its members, a secretary and a treasurer, none of whom need be a member of the board. 32. The board of directors or Executive Committee may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board or Executive Committee. 33. The Board of Directors shall have authority (i) to fix the compensation, whether in the form of salary, bonus, stock options or otherwise, of all officers and employees of the Corporation, either specifically or by formula applicable to particular classes of officers or employees; and (ii) to authorize officers of the Corporation to fix the compensation of officers of the Corporation who are not "named executive officers" of the Corporation within the meaning of Item 402 of Regulation S-K promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934. The Board of Directors shall have authority to appoint a Compensation Committee and may delegate to such committee any or all of its authority relating to compensation. The appointment of an officer shall not create any employment or contract rights in that officer. 34. The officers of the corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. If the office of any officer becomes vacant for any reason, the vacancy shall be filled by the board of directors. THE PRESIDENT 35. The president shall be the chief executive officer of the corporation; he shall preside at all meetings of the stockholders and directors, shall be ex oficio a member of all standing committees, shall have general and active management of the business of the corporation, and shall see that all orders and resolutions of the board are carried into effect. 36. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. VICE-PRESIDENTS 37. Any vice-presidents in the order of their seniority shall, in the absence or disability of the president, perform the duties and exercise the powers of the president, and shall perform such other duties as the board of directors or Executive Committee shall prescribe. THE SECRETARY AND ASSISTANT SECRETARIES 38. The secretary shall attend all sessions of the board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall keep in safe custody the seal of the corporation and, when authorized by the board, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the treasurer or an assistant secretary. 39. Any assistant secretaries in order of their seniority shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties as the board of directors or Executive Committee shall prescribe. THE TREASURER AND ASSISTANT TREASURERS 40. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. 41. He shall disburse the funds of the corporation as may be ordered by the board, or Executive Committee, taking proper vouchers for such disbursements, and shall render to the president and directors, at the regular meetings of the board, or whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the corporation. 42. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. 43. Any assistant treasurers in the order of their seniority shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties as the board of directors or Executive Committee shall prescribe. CERTIFICATES OF STOCK 44. The certificates of stock of the corporation shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the president and the treasurer. If any stock certificate is signed (i) by a transfer agent or an assistant transfer agent or (ii) by a transfer clerk acting on behalf of the corporation and a registrar, the signature of any such officer may be facsimile. TRANSFERS OF STOCK 45. Upon surrender to the corporation or any transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. CLOSING OF TRANSFER BOOKS 46. The board of directors shall have power to close the stock transfer books of the corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding fifty days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the board of directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS 47. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. LOST CERTIFICATE 48. The board of directors or Executive Committee may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors or Executive Committee may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. DIVIDENDS 49. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. 50. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. DIRECTORS' ANNUAL STATEMENT 51. The board of directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS 52. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors or Executive Committee may from time to time designate. FISCAL YEAR 53. The fiscal year shall be the calendar year, beginning with the calendar year ending December 31, 1986. SEAL 54. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. AMENDMENTS 55. These by-laws may be altered or repealed at any regular meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, provided notice of the proposed alteration or repeal be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock entitled to vote at such meeting and present or represented thereat, or by the affirmative vote of a majority of the board of directors at any regular meeting of the board or at any special meeting of the board if notice of the proposed alteration or repeal be contained in the notice of such special meeting; provided, however, that no change of the time or place of the meeting for the election of directors shall be made within sixty days next before the day on which such meeting is to be held, and that in case of any change of such time or place, notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address at least twenty days before the meeting is held. INDEMNIFICATION 56. Mandatory Indemnification of Officers and Directors. The Corporation shall indemnify and reimburse each director and officer of the Corporation, and each director and officer of a subsidiary whose election or appointment it has voted for or expressly approved, who is elected, appointed or continued in office after February 22, 1993, for and against all liabilities and expenses imposed upon or reasonably incurred by him in connection with any action, suit or proceeding in which he may be involved or with which he may be threatened by reason of his being or having been a director or officer of the Corporation or of a subsidiary or his acts and omissions as such officer or director of the Corporation or of a subsidiary. The right of indemnity and reimbursement of each such person shall continue whether or not he continues to be such director or officer at the time such liabilities or expense are imposed upon or incurred by him and shall include, without being limited to, attorney's fees, court costs, judgments and compromise settlements. The right of reimbursement for liabilities and expenses so imposed or incurred shall include the right to receive such reimbursement in advance of the final disposition of any such action, suit or proceeding upon the Corporation's receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation pursuant to law or this paragraph. In no case shall such indemnification and reimbursement cover (i) liabilities or expenses imposed or incurred in connection with any matter as to which such director or officer shall be finally determined in such action, suit or proceeding to be liable by reason of his having been derelict in the performance of his duty as such director or officer; or (ii) amounts paid to the Corporation or to a subsidiary and expenses incurred in connection with the proceeding or claim on account of which such payment is made, unless such reimbursement is provided for in compromise settlement approved in a manner described in clause (c) next following; or (iii) liabilities or expenses imposed or incurred in connection with any matter which shall be settled by compromise (including settlement by consent decree or judgment) if under such compromise such director or officer is required to make any payment, unless such compromise shall, after notice that it involves such reimbursement, be approved as in the best interest of the Corporation by vote of the board of directors of the Corporation at a meeting in which no director against whom any action, suit or proceeding on the same or similar grounds is then pending participates, or by vote or written approval of the holders of a majority of the shares of stock of the Corporation then outstanding and entitled to vote, for this purpose not counting as outstanding any shares of stock held or controlled by any such director or officer of the Corporation against whom any action, suit or proceeding on the same or similar grounds is then pending; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such a person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. The rights of indemnification and reimbursement hereby provided shall not be exclusive of other rights to which any director or officer may be entitled. As used in this paragraph the terms "director" and "officer" shall include their respective heirs, executors and administrators. 57. Discretionary Indemnification. (a) Actions By Third Parties. The Corporation shall have the right, but not the obligation, to indemnify, up to and including the full extent set forth in this paragraph, any person who was or is a party, or is threatened to be made a party to, or is otherwise involved in, any pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was an employee or agent of the Corporation, or was serving at the request of the Corporation as a director, officer, partner, member, trustee, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise (whether or not for profit) including serving as Trustee of an employee benefit plan of the Corporation or other entity described in this subparagraph, (whether or not such employee benefit plan is governed by ERISA), against all liability, losses, expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding against any such person by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that he or she did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) Actions by or on Behalf of the Corporation. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, member, trustee, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise or entity (whether or not for profit) against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such a person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) Indemnification for Expenses of Successful Defense. To the extent that (i) in the case of actions, suits or proceedings relating to acts or omissions occurring prior to July 1, 1997, any director, officer, employee or agent of the Corporation; or (ii) in the case of actions, suits or proceedings relating to acts or omissions occurring on or after such date, any present or former director or officer of this Corporation or of a subsidiary has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs 56 or 57(b) of these Bylaws, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with such defense. The Corporation shall have the right, but not the obligation, to indemnify any person described in paragraphs 57(a) or (b) who has been successful on the merits or otherwise in defense of any action, suit or proceeding for which indemnification has been provided under paragraphs 57(a) or (b), or in defense of any claim, issue or matter therein, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with such defense. (d) Authorization. Any indemnification under paragraphs 56 or 57 of these Bylaws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, partner, member, trustee, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in paragraphs 56 or 57, as the case may be. Such determination shall be made, with respect to a person who is a director or officer of the Corporation at the time of such determination: (i) by a majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum; (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in written opinion; or (iv) by the stockholders. (e) Expense Advance. Expenses (including attorney's fees) incurred by present or former officers or directors of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized in one of the manners provided in paragraph 57(d) of these Bylaws upon receipt of an undertaking by or on behalf of such person to repay such amount, if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in these Bylaws. Such expenses (including attorneys' fees) incurred by other employees or agents of the Corporation may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. (f) Nonexclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, these Bylaws shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, partner, member, trustee, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, member, trustee, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise or non-profit entity against any liability asserted against, and incurred by, him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of these Bylaws or Section 145 of the Delaware General Corporation Law. (h) "The Corporation." For the purposes of paragraphs 56 or 57 of these Bylaws references to "the Corporation" shall include, in addition to the resulting corporation and, to the extent that the Board of Directors of the resulting corporation so decides, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as director, officer, partner, member, trustee, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise or non-profit entity, shall stand in the same position under the provisions of these Bylaws with respect to the resulting or surviving corporation as he or she would have had with respect to such constituent corporation if its separate existence had continued. (i) Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, partner, member, trustee, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, limited liability company, trust or other enterprise or non-profit entity or from insurance. (j) Other Definitions. For purposes of paragraphs 56 or 57 of these Bylaws references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, partner, member, trustee, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, partner, member, trustee, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in these Bylaws. (k) Continuation of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, these Bylaws shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, officer, partner, member, trustee, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (l) Amendment or Repeal. Neither the amendment nor repeal of paragraphs 56 or 57 of these Bylaws nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with paragraphs 56 or 57 of these Bylaws shall reduce, eliminate or adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the effectiveness of such amendment, repeal or adoption. -----END PRIVACY-ENHANCED MESSAGE-----