-----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, RZhYvmAqe3wZaSkvViMDss5rjTb7dKvSh2SHnACg7WuFpwpKuAdxi7iJ6apntdHR tbjWIMcCGJH77jrAIuJErA== 0000088121-02-000009.txt : 20020806 0000088121-02-000009.hdr.sgml : 20020806 20020805171848 ACCESSION NUMBER: 0000088121-02-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020805 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: 02719891 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 qtr202e.txt 2ND 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 June 29,2002 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 July 26, 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) June 29, December 31, 2002 2001 Assets Current assets: Cash and cash equivalents $ 19,868 $ 22,997 Short-term investments 88,920 126,795 Receivables, net 196,399 187,416 Inventories 186,377 205,345 Deferred income taxes 14,897 13,966 Other current assets 25,356 36,343 Total current assets 531,817 592,862 Investments in and advances to foreign affiliates 48,333 52,256 Net property, plant and equipment 516,096 556,273 Other assets 30,463 34,201 Total assets $ 1,126,709 $ 1,235,592 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 30,882 $ 37,703 Current maturities of long-term debt 52,030 55,166 Accounts payable 42,990 61,513 Other current liabilities 113,726 126,218 Total current liabilities 239,628 280,600 Long-term debt, less current maturities 226,202 255,819 Deferred income taxes 79,624 131,957 Other liabilities 34,422 33,946 Total non-current and deferred liabilities 340,248 421,722 Minority interest 6,610 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 (71,157) (65,406) Retained earnings 596,678 577,907 Total stockholders' equity 540,223 527,203 Total liabilities and stockholders' equity $ 1,126,709 $ 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 Six Months Ended June 29, June 30, June 29, June 30, 2002 2001 2002 2001 Net sales $ 477,104 $ 468,513 $ 920,027 $ 903,773 Cost of sales and operating expenses 436,962 398,720 836,799 785,181 Gross income 40,142 69,793 83,228 118,592 Selling, general and administrative expenses 24,950 30,153 51,282 60,916 Operating income 15,192 39,640 31,946 57,676 Other income (expense): Interest expense (5,197) (7,184) (10,648) (15,111) Interest income 1,487 2,213 3,162 4,522 Other investment income, net 149 18,711 152 18,600 Loss from foreign affiliates (1,236) (2,423) (3,327) (3,046) Minority interest (366) 11 (543) (16) Foreign currency loss, net (8,582) (11) (13,996) (459) Miscellaneous, net (4,446) 1,732 (3,141) 3,063 Total other income (expense), net (18,191) 13,049 (28,341) 7,553 Earnings (loss) before income taxes (2,999) 52,689 3,605 65,229 Income tax benefit (expense) 18,680 (21,170) 16,653 (26,095) Net earnings $ 15,681 $ 31,519 $ 20,258 $ 39,134 Earnings per common share $ 10.54 $ 21.19 $ 13.62 $ 26.31 Dividends declared per common share $ 0.75 $ 0.25 $ 1.00 $ 0.50 Average number of shares outstanding 1,487,520 1,487,520 1,487,520 1,487,520 See notes to condensed consolidated financial statements. SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) June 29, June 30, 2002 2001 Cash flows from operating activities: Net earnings $ 20,258 $ 39,134 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 25,222 27,492 Loss from foreign affiliates 3,327 3,046 Foreign currency translation loss 10,219 - Deferred income taxes (17,247) 4,356 (Gain) loss from sale of fixed assets (8) 1,072 Gain on exchange of investment - (18,745) Changes in current assets and liabilities: Receivables, net of allowance (19,896) 30,829 Inventories 8,722 9,054 Other current assets 10,801 (9,644) Current liabilities exclusive of debt (22,782) 7,028 Other, net 133 4,512 Net cash from operating activities 18,749 98,134 Cash flows from investing activities: Purchase of short-term investments (46,629) (333,302) Proceeds from the sale or maturity of short-term investments 84,699 293,053 Investments in and advances to foreign affiliates, net 369 (2,198) Capital expenditures (21,366) (27,428) Other, net (148) 2,391 Net cash from investing activities 16,925 (67,484) Cash flows from financing activities: Notes payable to banks, net (6,821) (34,193) Principal payments of long-term debt (28,597) (2,907) Dividends paid (1,487) (744) Bond construction fund 575 2,367 Net cash from financing activities (36,330) (35,477) Effect of exchange rate change on cash (2,473) - Net change in cash and cash equivalents (3,129) (4,827) Cash and cash equivalents at beginning of year 22,997 19,760 Cash and cash equivalents at end of quarter $ 19,868 $ 14,933 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 continuing devaluation of the Argentine peso decreased the assets and liabilities of the Sugar and Citrus segment during 2002. The devaluation of the peso-denominated assets and liabilities reduced working capital by $15,420,000, fixed assets by $34,905,000, and net long-term liabilities by $834,000 during the year. See Note 4 for a discussion of the tax benefits recorded related to this devaluation. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of;" however, it retains most of the provisions of that Statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." The Statement provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset as "held for sale." The adoption had no immediate impact on the Company's financial statements. Note 2 - Comprehensive Income (Loss) Components of total comprehensive income (loss), net of related taxes, are summarized as follows: Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Thousands of dollars) 2002 2001 2002 2001 Net income $ 15,681 $ 31,519 $ 20,258 $ 39,134 Other comprehensive income (loss) net of applicable taxes: Foreign currency translation adjustment 31,741 (326) (3,444) (326) Unrealized loss on investments (4,903) (6,151) (2,283) (6,102) Net unrealized gain on cash flow hedges 213 - 76 - Deferred gain on swaps - - - 1,353 Amortization of deferred gain on swaps (50) (51) (100) (101) Total comprehensive income $ 42,682 $ 24,991 $ 14,507 $ 33,958 The components of and changes in accumulated other comprehensive loss for the six months ended June 29, 2002 are as follows: Balance Balance December 31, Period June 29, (Thousands of dollars) 2001 Change 2002 Foreign currency translation adjustment $ (62,218) $ (3,444) $ (65,662) Unrealized loss on investments (3,067) (2,283) (5,350) Unrecognized pension cost (1,273) - (1,273) Net unrealized gain on cash flow hedges - 76 76 Deferred gain on swaps 1,152 (100) 1,052 Accumulated other comprehensive loss $ (65,406) $ (5,751) $ (71,157) The foreign currency translation adjustment primarily represents the effect of the Argentine peso devaluation on the net assets of the Company's Sugar and Citrus segment. During 2002, the peso continued to devalue against the dollar. As a result of this devaluation the Company has recorded charges against earnings, excluding tax adjustments discussed below, totaling $12,304,000 for the six-month period in 2002 related to dollar denominated net liabilities of the Company's Argentine subsidiary. In addition, currency translation losses of $37,831,000 have been recorded during the six month period as a component of other comprehensive loss related to the peso- denominated net assets. At June 29, 2002 the Company has $41,482,000 in net assets denominated in Argentine pesos and $10,530,000 in net liabilities denominated in U.S. dollars in Argentina. Impacts of further fluctuations in the currency exchange rate will be recorded in future periods. Prior to the second quarter of 2002, no tax benefit was recorded for the devaluation losses. During the second quarter of 2002, the Company reduced the foreign currency translation adjustment by recognizing a tax benefit of $34.6 million. See Note 4 for further discussion. The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. With the exception of the provision related to the foreign currency translation losses discussed above, which are provided at a 35% rate, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. Note 3 - Inventories The following is a summary of inventories at June 29, 2002 and December 31,2001 (in thousands): June 29, December 31, 2002 2001 At lower of LIFO cost or market: Live hogs and related materials $ 119,694 $ 124,212 Dressed pork and related materials 6,428 12,930 126,122 137,142 LIFO allowance (5,371) (5,231) Total inventories at lower of LIFO cost or market: 120,751 131,911 At lower of FIFO cost or market: Grain, flour and feed 44,222 42,581 Sugar produced and in process 4,857 15,039 Other 16,547 15,814 Total inventories at lower of FIFO cost or market 65,626 73,434 Total inventories $ 186,377 $ 205,345 Note 4 - Contingencies In May 2002, the Farm Security and Rural Investment Act of 2002 (Farm Bill) was signed into law without the Johnson Amendment, which would have prohibited packers such as the Company from owning and raising swine. The Farm Bill is still pending appropriations. Based on the current political environment concerning packers, it is uncertain whether new legislation will be introduced in the future which could have a negative impact on the Company. The Company is a defendant in a pending arbitration proceeding and related litigation in Puerto Rico brought by the owner of a chartered barge and tug which were damaged by fire after delivery of the cargo. Damages of $47.6 million are alleged. The Company received a ruling in the arbitration proceeding in its favor which dismisses the principal theory of recovery and that ruling has been upheld on appeal. The arbitration is continuing based on other legal theories, although the Company believes that it will have no responsibility for the loss. The Company is a defendant in an action brought by the Sierra Club alleging violations of various environmental laws related to one of the Company's hog production operations. The Company believes it has meritorious defenses to all of the claims of the Sierra Club but cannot predict with certainty the outcome of the litigation. The Company is also subject to an ongoing investigation by the United States Environmental Protection Agency. In the opinion of management, the above action and investigation are not expected to result in a materially adverse effect on the consolidated financial statements of the Company. The Company had not previously recognized any tax benefits from losses generated by Ingenio y Refineria San Martin del Tabacal S.A. (Tabacal), its sugar and citrus segment, for financial reporting purposes since 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. In February 2002, the Company began a tender offer in Argentina to purchase the outstanding shares of Tabacal not owned by the Company. During the second quarter of 2002, the Company completed a series of transactions which culminated in Tabacal's conversion from a Sociedad Anonima (S.A.) to a Sociedad de Responsabilidad Limitada or (S.R.L.) organizational entity. This conversion resulted in the Company recognizing a tax benefit of $48.9 million, of which $34.6 million reduced the currency translation adjustment recorded as accumulated other comprehensive loss. The remaining benefit of $14.3 million was recognized as a current tax benefit in the Consolidated Statement of Earnings for 2002. The Company is a plaintiff in a lawsuit against several manufacturers of vitamins and feed additives which have plead guilty in the context of criminal proceedings to price fixing. Because the manufacturers have admitted to the price fixing in the criminal context, it is likely that the manufacturers will be liable for the overcharges made as a result of the price fixing. During the second quarter of 2002, the Company recorded as miscellaneous income $4.9 million received as settlement from certain of the manufacturers from which the Company had purchases aggregating $13.3 million during the relevant period. The Company had purchases aggregating approximately $23.5 million from the remaining manufacturers during the relevant time period. The Company is subject to various other legal proceedings related to the normal conduct of its business. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements of the Company. Note 5 - Segment Information The following tables set forth specific financial information about each segment as reviewed by the Company's management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income is used as the measure of evaluating segment performance because management does not consider interest and income tax expense on a segment basis. As the Sugar and Citrus segment operates solely in Argentina with primarily local sales and operating expenses, the functional currency is the Argentine peso. As described in Note 2, the Company has recorded the effects of the recent and ongoing devaluation of the Argentine peso. As a result, peso-denominated assets have been reduced by $60,183,000 during the first six months 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 June 29, 2002, the total carrying value of these long-lived assets totaled $5,955,000. Sales to External Customers: Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Thousands of dollars) 2002 2001 2002 2001 Pork $ 159,331 $ 211,103 $ 330,389 $ 392,997 Commodity Trading and Milling 184,134 121,046 331,672 237,275 Marine 96,648 96,663 187,463 186,554 Sugar and Citrus 14,596 16,841 29,295 37,218 Power 16,313 16,203 28,525 33,170 All Other 6,082 6,657 12,683 16,559 Segment/Consolidated Totals $ 477,104 $ 468,513 $ 920,027 $ 903,773 Operating Income: Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Thousands of dollars) 2002 2001 2002 2001 Pork $ (5,352) $ 25,476 $ (2,835) $ 37,302 Commodity Trading and Milling 7,607 4,152 14,356 4,476 Marine 5,562 6,379 9,175 11,032 Sugar and Citrus 4,812 2,156 7,947 3,178 Power 3,287 3,920 4,912 7,213 All Other (22) (1,421) (536) (3,254) Segment Totals 15,894 40,662 33,019 59,947 Corporate Items (702) (1,022) (1,073) (2,271) Consolidated Totals $ 15,192 $ 39,640 $ 31,946 $ 57,676 Total Assets: June 29, December 31, (Thousands of dollars) 2002 2001 Pork $ 499,070 $ 508,642 Commodity Trading and Milling 181,852 172,684 Marine 119,034 131,334 Sugar and Citrus 63,115 115,402 Power 75,402 77,102 All Other 18,139 20,276 Segment Totals 956,612 1,025,440 Corporate Items 170,097 210,152 Consolidated Totals $ 1,126,709 $ 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. Note 6 - Subsequent Events In July 2002, Seaboard Corporation (Seaboard) purchased for $26.9 million an additional 66,666,667 shares of common stock of Fjord Seafood ASA (Fjord), an integrated salmon producer and processor headquartered in Norway. This additional investment increased Seaboard's ownership in Fjord to approximately 21%. Through June 29, 2002, Seaboard had accounted for this investment as a long-term available-for-sale equity security. As a result of the increase in ownership to over 20% in July 2002, in the third quarter of 2002 Seaboard will begin to account for this investment under the equity method. In addition, in the third quarter of 2002 Seaboard will be required by Accounting Principles Board Opinion No. 18 to retroactively adjust all previous quarters' financial statements as if the equity method of accounting had been used at the time of Seaboard's initial investment in Fjord on May 2, 2001. Below is a summary of the expected retroactive adjustment of assets, equity and net income: Year-to-date (Thousands of dollars) Total Assets Equity Net Earnings June 30, 2001 As reported $1,279,179 $573,899 $39,134 As adjusted $1,285,265 $579,985 $39,134 September 29, 2001 As reported $1,312,397 $584,619 $45,560 As adjusted $1,309,756 $585,107 $44,759 December 31, 2001 As reported $1,235,592 $527,203 $53,305 As adjusted $1,234,757 $528,420 $51,989 March 30, 2002 As reported $1,167,277 $498,656 $ 4,577 As adjusted $1,158,760 $494,131 $ 1,723 June 29, 2002 As reported $1,126,709 $540,223 $20,258 As adjusted $1,126,207 $540,215 $16,821 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Cash from operating activities for the six months ended June 29, 2002, decreased $79.4 million compared to the same period one year earlier. The decrease in cash flows was primarily related to lower net earnings and 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 2002 resulted in an increase in receivables compared to a decrease in receivables during the first half of 2001. Cash from investing activities for the six months ended June 29, 2002, increased $84.4 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 $21.4 million in property, plant and equipment for the six months ended June 29, 2002, of which $13.5 million was expended in the Pork segment, $1.4 million in the Commodity Trading and Milling Segment, $4.1 million in the Marine segment, $1.5 million in the Sugar and Citrus segment, and $0.9 million in other businesses of the Company. The Company invested $13.5 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. During the remainder of 2002, the Company anticipates spending $20.3 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. In addition, during the third quarter of 2002, the Company currently intends to purchase approximately $121.0 million of certain facilities currently under lease. See below for further discussion. 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, no statutory impediments being imposed and an improvement in market conditions. 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 above uncertainties and current pork industry conditions, Management is currently not able to predict the exact timing of the expansion project. It is currently estimated that the earliest construction might commence is the second half of 2003, subject to the necessary permits and financing being obtained. The Company invested $1.4 million in the Commodity Trading and Milling segment primarily for the purchase of additional equipment. During the remainder of 2002, the Company anticipates spending $1.1 million for additional equipment. The Company invested $4.1 million in the Marine segment primarily for the purchase of additional machinery and equipment. During the remainder of 2002, the Company anticipates spending $8.2 million for additional equipment. The Company invested $1.5 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 $1.6 million for additional improvements. In July 2002, the Company invested an additional $26.9 million in Fjord Seafood ASA (Fjord), an integrated salmon producer and processor headquartered in Norway, increasing its ownership percentage from approximately 11% to approximately 21%. See Note 6 to the Consolidated Financial Statements for further discussion. The Company's one-year revolving credit facilities totaling $141.0 million at December 31, 2001 matured during the first quarter of 2002. The Company extended the $20.0 million facility for one year. While the Company currently anticipates replacing the facility that was not extended during 2002, the total amount and related terms of the facility have not yet been determined. The Company also has short- term uncommitted credit lines totaling $75.3 million at June 29, 2002. As of June 29, 2002, the Company had no borrowings outstanding under the one-year revolving credit facility and $30.9 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 June 29, 2002, the total amount of unamortized costs representing fixed asset values and the underlying outstanding debt under these Facility Agreements was approximately $183.0 million. These hog production facilities produce approximately 45% of the Company owned hogs processed at the plant. During the second quarter of 2002, the underlying bank facility in one of the limited partnerships was extended to December 2002. The Company currently intends to purchase certain assets from the limited partnerships for approximately $121.0 million, subject to obtaining the necessary financing. Management is uncertain as to the exact timing of this purchase but anticipates finalizing the purchase and related financing during the third quarter of 2002. The Company is also currently evaluating various options for certain of the remaining facilities, including purchasing certain assets from the limited partnerships ($26.3 million at June 29, 2002) or having the limited partnerships and limited liability company attempt to sell properties to third parties with which the Company may enter into grower arrangements. Currently, management believes that it will have sufficient liquidity and financing capacity to accomplish any of the alternatives. In addition to the financing requirements to accommodate the Pork segment expansion plans, the Company's Senior Notes continue to mature through 2007. Management believes that the Company's current combination of liquidity, capital resources and borrowing capabilities will be adequate for its existing operations during fiscal 2002. Management is evaluating various alternatives for future financings to provide adequate liquidity for the Company's future operating and expansion plans. In addition, management intends to continue seeking opportunities for expansion in the industries in which it operates. RESULTS OF OPERATIONS Net sales for the three and six months ended June 29, 2002, increased by $8.6 and $16.3 million, respectively, compared to the same periods one year earlier. Operating income for the three and six months ended June 29, 2002 decreased by $24.4 and $25.7 million, respectively, compared to the same periods one year earlier. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Pork Segment Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 159.3 $ 211.1 $ 330.4 $ 393.0 Operating income (loss) $ (5.4) $ 25.5 $ (2.8) $ 37.3 Net sales for the Pork segment decreased $51.8 and $62.6 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001 primarily as a result of lower pork prices. Reduced world-wide meat supplies during 2001 contributed to higher sales prices for that year. During 2002, domestic meat supplies have increased, causing increased competition for pork products which has resulted in significantly lower sales prices compared with the prior year. Operating income for the Pork segment decreased $30.9 and $40.1 million, for the three and six months ended June 29, 2002, respectively, compared to the same periods in 2001, resulting in operating losses for the 2002 periods. The decreases primarily reflect the lower sales prices discussed above, partially offset by a decrease in cost of third party hogs. While unable to predict future market prices, management expects pork prices will remain below prior year levels and anticipates operating income for the remainder of 2002 will continue to be significantly lower than 2001, including the potential for breakeven operating results or minimal losses. Commodity Trading and Milling Segment Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 184.1 $ 121.0 $ 331.7 $ 237.3 Operating income $ 7.6 $ 4.2 $ 14.4 $ 4.5 Loss from foreign affiliates $ (0.0) $ (1.2) $ (1.2) $ (1.8) Net sales for the Commodity Trading and Milling segment increased $63.1 and $94.4 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001. The increase is primarily a result of increased commodity trading volumes to third party customers, increased milling revenues and, to a lesser extent, increased commodity trading volumes to foreign affiliates. Commodity trading volumes to third party customers increased as the Company has focused its efforts on expanding in certain existing and new trading markets. Milling revenues have increased primarily as a result of favorable operating environments in certain foreign locations, which have allowed certain mills to increase production levels. Operating income for this segment increased $3.4 and $9.9 million for the three and six months ended June 29, 2002, respectively, compared to the same periods in 2001. Operating income increased primarily from increased trading volumes discussed above, increased production at certain foreign milling operations, and, to a lesser extent, a lower provision for bad debts. In addition, operating income for the six months ended June 29, 2002 increased $3.0 million compared to 2001 as a result of the change in the Company's treatment of commodity contracts. During 2001, commodity derivative contracts were treated as fair value hedges with minimal earnings impact since the related firm contract was also marked to market. 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 has not been recognized. Accordingly, the Company will recognize decreased operating income in future quarters related to these contracts based on current market values. 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 decreased $1.2 and $0.6 million for the three and six months ended June 29, 2002, respectively, compared to the same periods in 2001. These decreases are primarily a result of improved operating environments at certain African milling operations during the second quarter. Based on the exposure to foreign political and economic situations in the countries in which the flour and feed mills operate, management believes that losses from foreign affiliates for the remainder of 2002 are possible. Marine Segment Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 96.6 $ 96.7 $ 187.5 $ 186.6 Operating income $ 5.6 $ 6.4 $ 9.2 $ 11.0 Net sales for the Marine segment remained fairly constant for the three and six months ended June 29, 2002 compared to the same periods in 2001. Overall, lower average cargo rates compared with prior year were primarily offset by higher volumes to certain markets. Beginning in March 2002, the Company experienced declining cargo volumes in certain South American markets as the result of political instability in that region, but this decline was offset by increases in other markets. Operating income for the Marine segment decreased $0.8 and $1.8 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001, primarily reflecting the lower margins due to declining cargo rates. The duration and extent of certain South American political instability will continue to affect future results while shipping demand for that market remains depressed. Although Management expects operating results for this segment to remain profitable during 2002, with the political instability of certain markets, operating income for the remainder of 2002 is expected to be lower than 2001. Sugar and Citrus Segment Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 14.6 $ 16.8 $ 29.3 $ 37.2 Operating income $ 4.8 $ 2.2 $ 7.9 $ 3.2 Net sales for the Sugar and Citrus segment decreased $2.2 and $7.9 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001. This decrease primarily reflects the devaluation of the Argentine peso, discussed below, partially offset by higher sales prices for sugar and, during the second quarter of 2002, increased sales volumes. Operating income increased $2.6 and $4.7 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001, reflecting the reduction in cost of goods sold as a result of the devaluation and improved sales prices. 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 and net earnings that have been incurred by the Company. The economy of Argentina has been severely, negatively impacted by the devaluation and continuing recession. To date, the peso prices for sugar have increased more than peso costs have increased, resulting in improved operating income in terms of U.S. dollars. However, as a result of the economic turmoil and uncertainty, it is not possible for management to predict if this trend will continue or if costs will begin to increase more than sugar prices in the coming months. Power Segment Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 16.3 $ 16.2 $ 28.5 $ 33.2 Operating income $ 3.3 $ 3.9 $ 4.9 $ 7.2 Net sales for the Power segment increased $0.1 million and decreased $4.7 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001 reflecting lower average market rates in the spot market for the first three months of 2002. Through the third quarter of 2001, all sales from this division were made under contract to the state-owned electric company. That contract was rescinded during September 2001 and the Company began selling power at market rates on the spot market. Market rates decreased through the first quarter of 2002 reflecting, in part, lower average fuel costs, a component of pricing, but gradually increased during the second quarter ultimately reaching levels more comparable with the prior year. Operating income decreased $0.6 and $2.3 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001 primarily reflecting the lower average market rates and additional transmission fees, partially offset by lower operating expenses. The 2002 second quarter results improved over the first quarter, reflecting the improvement in prices during the quarter as discussed above. 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 Six Months Ended June 29, June 30, June 29, June 30, (Dollars in millions) 2002 2001 2002 2001 Net sales $ 6.1 $ 6.7 $ 12.7 $ 16.6 Operating loss $ (0.0) $ (1.4) $ (0.5) $ (3.3) Loss from foreign affiliates $ (1.2) $ (1.2) $ (2.1) $ (1.2) Net sales for all other businesses decreased $0.6 and $3.9 million, respectively, and operating loss decreased $1.4 and $2.8 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods of 2001. These decreases are primarily the result of the Produce division's decision to cease shrimp, pickle and pepper farming operations in Honduras. Management currently anticipates improved operating results for the remainder of 2002 compared to 2001. Management 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 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. See Note 6 to the Consolidated Financial Statements for a discussion of the Company's investment in Fjord Seafood ASA whose results will be included using the equity method of accounting in future financial statements. Management currently anticipates continuing losses for the remainder of 2002. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses decreased $5.2 and $9.6 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 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 Marine and Power divisions and lower provision for bad debts in the Commodity Trading and Milling division. As a percentage of revenues, SG&A decreased to 5.2% and 5.6% from 6.4% and 6.7%, respectively, for the three months and six months ended June 29, 2002 compared to the same periods in 2001. These decreases are primarily the result of 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 $2.0 and $4.5 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001. The decrease is primarily a result of a lower average level of short-term and long-term borrowings outstanding during the 2002, and, to a lesser extent, lower average interest rates. Interest Income Interest income decreased $0.7 and $1.4 million, respectively, for the three and six months ended June 29, 2002 compared to the same periods in 2001 reflecting a reduction in average funds invested and lower average interest rates during 2002. Other Investment Income, Net During the second quarter of 2001, the Company exchanged its non- controlling interest in a joint venture for shares of common stock in Fjord Seafood ASA resulting in gain of $18.7 million ($11.4 million after taxes). Subsequently, primarily as a result of lower operating results, the need for additional capital, and the price decline of Fjord's common stock, management determined the decline in value of its total investment to be other than temporary and recorded a charge to earnings of $18.6 million ($11.4 million after taxes) during the third quarter of 2001. Foreign Currency Losses, Net Foreign currency losses, net, increased for 2002 primarily reflecting the effect of the Argentine peso devaluation on the dollar denominated assets and liabilities of the Company's Argentine subsidiary. See Note 2 to the Consolidated Financial Statements for additional discussion of the devaluation. As a result of the continuing economic uncertainties in Argentina, management is unable to predict the future extent of any further devaluation of the Argentine peso. Miscellaneous, Net Miscellaneous, net, for the 2002 three and six-month periods includes $9.6 and $8.5 million of losses, respectively, from interest rate swap agreements partially offset by a gain of $4.9 million in the second quarter related to proceeds received from a lawsuit as discussed in Note 4 to the Consolidated Financial Statements. Income Tax Expense During the second quarter of 2002, the Company recognized a one-time tax benefit of $14.3 million related to Tabacal. See Note 4 to the Consolidated Financial Statements for additional discussion. Excluding the effects of Tabacal, discussed above, the effective tax rate 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. 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 As previously reported, on June 29, 2001, the EPA filed a Unilateral Administrative Order (the "RCRA Order"), pursuant to Section 7003 of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sec. 6973 ("RCRA"), against the Company's subsidiary, Seaboard Farms, Inc. ("Seaboard Farms"), Shawnee Funding, Limited Partnership, and PIC International Group, Inc. ("PIC") (collectively, "Respondents"). The RCRA Order alleges that five swine farms located in Major County and Kingfisher County, Oklahoma purchased from PIC are causing or could cause contamination of the groundwater. The RCRA Order alleges that, as a result, Respondents have contributed to an "imminent and substantial endangerment" within the meaning of RCRA from the leaking of solid waste in the lagoons or other infrastructure at the farms. The RCRA Order requires Respondents to develop and undertake a study to determine if there has been any contamination from farm infrastructure and, if contamination has occurred, to develop and undertake a remedial plan. In the event the Respondents fail to comply with the RCRA Order, the EPA may commence a civil action and can seek a civil penalty of up to $5,500 per day, per violation. The Company has recently received notice from the State of Oklahoma alleging that the Company has violated various provisions of Oklahoma state law and the operating permits related to these farms based on the same conditions which gave rise to the RCRA Order. Although the Company disputes the RCRA Order and the State of Oklahoma's contentions, the Company is cooperating with the EPA and the State of Oklahoma. The farms that are the subject of the RCRA Order and the allegations by the State of Oklahoma were previously owned by PIC. PIC is presently providing indemnity and defense of the RCRA Order (reserving its right to contest the obligation to do so) and the Company has demanded that PIC provide indemnity and defense with respect to any actions taken by the State of Oklahoma. The Company does not believe there are valid grounds for PIC to contest its obligation to provide the indemnity and defense of these matters. One indemnity agreement with PIC is subject to a $5,000,000 limit, but the Company believes that a more general environmental indemnity agreement would require indemnification of liability in excess of that amount. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders was held on April 29, 2002 in Newton, Massachusetts. Two items were submitted to a vote of stockholders as described in the Company's Proxy Statement dated March 12, 2002. The following table briefly describes the proposals and results of the stockholders' vote. Votes in Votes Favor Against Abstain 1. To elect: H. Harry Bresky 1,293,424.75 0 40,428 David A. Adamsen 1,328,840.75 0 5,012 Douglas W. Baena 1,329,315.75 0 4,537 Joe E. Rodrigues 1,329,075.75 0 4,777 and Thomas J. Shields 1,328,790.75 0 5,062 as directors. 2. To ratify selection of KPMG LLP as independent auditors. 1,328,623.75 2,604 2,625 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 (b) Reports on Form 8-K. - Seaboard Corporation has not filed any reports on Form 8-K during the quarter ended June 29, 2002. This Form 10Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which may include statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, statements regarding the plans and objectives of management for future operations, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements and other statements which are other than statements of historical fact. These statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of the Company and its management with respect to (i) the cost and timing of the completion of new or expanded facilities, (ii) the Company's financing plans, (iii) the price of feed stocks and other materials used by the Company, (iv) the sale price for pork products from such operations, (v) the price for the Company's products and services, (vi) the effect of the devaluation of the Argentine peso, (vii) the effect of changes to the produce division operations on the consolidated financial statements of the Company, (viii) the potential impact of various environmental actions pending or threatened against the Company or (ix) other trends affecting the Company's financial condition or results of operations. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of various factors. The accompanying information contained in this Form 10-Q, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: August 5, 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-99.1 3 ex991.txt CERTIFICATION FOR THE SARBANES-OXLEY ACT OF 2002 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2002 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-99.2 4 ex992.txt CERTIFICATION FOR THE SARBANES-OXLEY ACT OF 2002 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2002 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert L. Steer Robert L Steer, Senior Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----