-----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, IjODRLfxrGEnaI1WOGtJl3by+2DIAscxi2aXDCri2bdpUr2K3416YZciMIEPuStm irIffgQ8ekTSs9IwlkaXgQ== 0000088121-04-000009.txt : 20040227 0000088121-04-000009.hdr.sgml : 20040227 20040227162855 ACCESSION NUMBER: 0000088121-04-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040227 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 04635680 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: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 10-K 1 k102003.txt SEABOARD CORPORATION 2003 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission file number: 1-3390 SEABOARD CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (913) 676-8800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered Common Stock $1.00 Par Value American Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ X ] No [ ] The aggregate market value of 354,380 shares of Seaboard voting stock held by nonaffiliates on January 31, 2004 was approximately $74,242,610.00, based on the closing price of $209.50 per share on June 27, 2003, the end of Seaboard's second fiscal quarter. As of February 20, 2003, the number of shares of common stock outstanding was 1,255,053.90. DOCUMENTS INCORPORATED BY REFERENCE Part I, item 1(b), a part of item 1(c)(1) and the financial information required by item 1(d) and Part II, items 6, 7, 7A and 8 are incorporated herein by reference to Seaboard Corporation's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b). Part II, a part of item 5, and Part III, a part of item 10 and items 11, 12 and 13 are incorporated herein by reference to Seaboard Corporation's definitive proxy statement filed pursuant to Regulation 14A for the 2004 annual meeting of stockholders. Forward-Looking Statements This report, including information included or incorporated by reference in this report, contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward- looking statements generally may be identified as: statements that are not historical in nature, and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends" or similar expressions In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, statements regarding the plans and objectives of management for future operations, statements of future economic performance, statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) the cost and timing of the completion of new or expanded facilities, (ii) Seaboard's ability to obtain adequate financing and liquidity, (iii) the price of feed stocks and other materials used by Seaboard, (iv) the sale price for pork products from such operations, (v) the price for other products and services, (vi) the charter hire rates and fuel prices for vessels, (vii) the demand for power, related spot market prices and collectibility of receivables in the Dominican Republic, (viii) the effect of the devaluation of the Argentine and Dominican Republic pesos, (ix) the potential effect of the proposed meat packer ban legislation on the Pork Division, (x) the effect of the Venezuelan economy on the Marine Division, (xi) the potential effect of Seaboard's investment in a wine business on the consolidated financial statements, (xii) the potential impact of various environmental actions pending or threatened against Seaboard, or (xiii) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to a variety of factors. The information contained in this Form 10-K and in other filings Seaboard makes with the Commission, including without limitation, the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K, identifies important factors which could cause such differences. 2 PART I Item 1. Business (a) General Development of Business Seaboard Corporation, a Delaware corporation, the successor corporation to a company first incorporated in 1928, and subsidiaries (Seaboard) is a diversified international agribusiness and transportation company which is primarily engaged domestically in pork production and processing, and cargo shipping. Overseas, Seaboard is primarily engaged in commodity merchandising, flour and feed milling, sugar production, and electric power generation. See Item 1(c) (1) (ii) "Status of Product or Segment" below for a discussion of developments in specific segments. Seaboard Flour LLC, a Delaware limited liability company, owns approximately 70.7 percent of the outstanding common stock of Seaboard. Mr. H. Harry Bresky, President and Chief Executive Officer of Seaboard, and other members of the Bresky family, including trusts created for their benefit; own approximately 99.5 percent of the common units of Seaboard Flour LLC. Such Bresky family members also own additional shares, representing approximately 3.0 percent of the outstanding common stock of Seaboard. (b) Financial Information about Industry Segments The information required by Item 1(b) of Form 10-K relating to Industry Segments is incorporated herein by reference to Note 13 of the Consolidated Financial Statements appearing on pages 48 through 52 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this Report. (c) Narrative Description of Business (1) Business Done and Intended to be Done by the Registrant (i) Principal Products and Services Pork Division - Seaboard, through its subsidiary, Seaboard Farms, Inc., engages in the businesses of hog production and pork processing in the United States. Through these operations, Seaboard produces and sells fresh and frozen pork to further processors, foodservice outlets, grocery stores and other retail outlets, and other distributors primarily in the western half of the United States, and to Japan and other foreign markets. Further processing companies purchase Seaboard's pork products in bulk and produce products, such as lunchmeat, hams, bacon, and sausages. Fresh pork, such as loins, tenderloins and ribs are sold to distributors and grocery stores. Seaboard also sells a small amount of packaged and marinated pork products. Seaboard sells some of its products under the brand name Prairie Fresh. Seaboard's hog processing plant is located in Guymon, Oklahoma, and operates at double shift capacity. The plant processes approximately 4.5 million hogs annually. Seaboard's hog production operations consist of the breeding and raising of approximately 3 million hogs annually at facilities it either owns or leases or at facilities owned and operated by third parties with whom it has grower contracts. Seaboard has recently completed expansion of the facilities to produce an additional 500,000 hogs annually. The hog production operations are located in the States of Oklahoma, Kansas, Texas and Colorado. As a part of the hog production operations, Seaboard produces specially formulated feed for the hogs at six owned feed mills. The remaining hogs processed are purchased from third party hog producers, primarily pursuant to purchase contracts. Commodity Trading and Milling Division - Seaboard's Commodity Trading and Milling Division, through its subsidiaries, Seaboard Overseas Limited located in Bermuda, Seaboard Overseas Trading and Shipping (PTY), Ltd. located in Durban, South Africa, and other locations in Peru, Ecuador and Kenya, markets wheat, corn, soybean meal and other commodities in bulk to third-party customers internationally and affiliated companies. These commodities are purchased worldwide, with primary destinations to Africa, South America, the Caribbean, and the Eastern Mediterranean. The division originates, transports and markets approximately 4 million tons of grains and proteins on an annual basis. Seaboard integrates the service of delivering commodities to its customers through the use of its owned bulk carriers and other chartered vessels, as required. 3 This division also operates milling businesses in 13 countries, which are primarily supplied by the trading locations discussed above. The grain processing businesses are operated through four owned and nine non-consolidated affiliates in Africa, the Caribbean and South America, with flour, feed and maize milling businesses which produce approximately 1.5 million metric tons of finished products per year. Most of the products produced by the milling operations are sold in the countries in which the products are produced. Marine Division - Seaboard, through its subsidiary, Seaboard Marine Limited, and various foreign affiliated companies and third party agents, provides containerized cargo shipping service to over twenty countries between the United States, the Caribbean Basin, and Central and South America. Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America and the Caribbean Basin to book both northbound and southbound cargo. Through intermodal arrangements, Seaboard can transport cargo from numerous U.S. mainland locations by either truck or rail to one of its U.S. port locations, where it is staged for shipment via sea. Seaboard's primary marine operations located in Miami include a 135,000 square foot warehouse for cargo consolidation and temporary storage, and a 70 acre private terminal at the Port of Miami. At the Port of Houston, Seaboard operates a 62 acre cargo terminal facility that includes over 690,000 square feet of on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes. Seaboard also makes scheduled vessel calls in New Orleans, Louisiana, Fernandina Beach, Florida and Philadelphia, Pennsylvania. Seaboard's fleet consists of approximately 28 owned or chartered vessels, thousands of dry, refrigerated and specialized containers and related equipment. Seaboard also provides cargo transportation service from its domestic ports of call to and from multiple foreign destinations where Seaboard does not make vessel calls through connecting carrier agreements with third party regional and global carriers. Sugar and Citrus Division - Seaboard, through its subsidiary, Ingenio y Refineria San Martin del Tabacal and other Argentine non-consolidated affiliates, is involved in the production and refining of sugar cane and the production and processing of citrus in Argentina. These products are primarily sold in Argentina, primarily to retailers, soft drink manufacturers, and food manufacturers, with some exports to the United States, South America and Europe. Seaboard grows a large portion of the sugar cane on approximately 40,000 acres of land it owns in northern Argentina. The cane is processed at an owned mill, with a processing capacity of approximately 180,000 metric tons of sugar per year. The sugar mill is one of the largest in Argentina. Seaboard also has an orange grove in Argentina consisting of approximately 3,000 acres. Power Division - Seaboard, through its subsidiary, Transcontinental Capital Corp. (Bermuda) Ltd., operates as an independent power producer in the Dominican Republic. This operation is exempt from U.S. regulation by the Public Utility Holding Company Act of 1938, as amended. The business operates two floating barges with a series of diesel engines capable of generating a combined rated capacity of approximately 112 megawatts of electricity. Seaboard generates electricity into the local Dominican Republic power grid, but is not involved in the transmission or distribution of the electricity. The barges are secured on the Ozama River in Santo Domingo, Dominican Republic. The electricity is sold at contracted pricing to another local generation company and certain large commercial users. The remaining electricity is sold in the "spot market" at current market pricing, primarily to three wholly or partially government-owned electric distribution companies. Other Businesses - Seaboard purchases and processes jalapeno peppers at its owned plant in Honduras. The processed peppers are primarily sold to a customer in the United States, being shipped by Seaboard's Marine division and distributed from Seaboard's Port of Miami cold storage warehouse. Seaboard has a truck transportation business which arranges truck freight services for third parties as a broker and as a carrier. This business also provides logistics and transportation services to other Seaboard companies, using its owner-operator program and extensive carrier network. Seaboard also has an equity investment in a wine business that produces wine in Bulgaria for distribution, primarily throughout Europe. The information required by Item 1 of Form 10-K with respect to the amount or percentage of total revenue contributed by any class of similar products or services which account for 10 percent or more of consolidated revenue in any of the last three fiscal years is set forth in Note 13 of Seaboard's Consolidated Financial Statements, appearing on pages 48 through 52 of the Seaboard's Annual Report to Stockholders, furnished to the Commission pursuant to rule 14a-3(b) and attached as Exhibit 13 to this report, which information is incorporated herein by reference. 4 (ii) Status of Product or Segment In early 2004, Seaboard entered into a marketing agreement with Triumph Foods LLC (Triumph) to market all of the pork products processed at Triumph's new pork processing plant to be constructed in St. Joseph, Missouri. The plant is scheduled to begin operations in mid to late 2005. This plant will have capacity similar to Seaboard's Guymon, Oklahoma plant. In early 2002, Seaboard announced plans to build a second pork processing plant in northern Texas along with related plans to expand its vertically integrated hog production facilities. However, with the planned construction of the Triumph pork processing plant discussed above, Seaboard does not intend to make any final decisions regarding construction until late 2006 when the Triumph plant is expected to reach its operating capacity. As a result, management does not intend to proceed with the expansion project at this time beyond the expenditures required to allow future land development possibilities should market conditions change. If Seaboard ultimately decides to pursue this project, it would also be contingent on a number of other factors, including obtaining financing for the project, obtaining the necessary permits, commitments for a sufficient quantity of hogs to operate the plant, and no statutory impediments being imposed. During the first half of 2003, Seaboard fully stocked a new Seaboard-owned hog production facility which increased the breeding herd by approximately 12,500 sows. Seaboard's processing plant began processing hogs produced from this facility in January 2004. During the third quarter of 2003, Seaboard purchased certain hog production facilities previously leased under a master lease arrangement. These facilities supply approximately 5% of the Seaboard-owned hogs processed at Seaboard's processing plant. In early 2003, individual legislative bills (the Bills) were introduced in the United States Senate and House of Representatives which include a provision to prohibit meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter. The Bills also contain a transition rule applicable to packers of pork providing for an effective date which is 18 months after enactment. Similar language was passed by the U.S. Senate in 2002 as part of the Senate's version of the Farm Bill, but was eventually dropped in conference committee and was not part of the final Farm Bill. If any of the Bills containing the proposed language becomes law, it could have a material adverse effect on Seaboard, its operations and its strategy of vertical integration in the pork business. Currently, Seaboard has the capacity to produce approximately three and one-half million hogs per year at facilities it either owns or leases or at facilities owned and operated by third-parties with whom it has grower contracts. If passed in their current form, the Bills would prohibit Seaboard from owning or controlling hogs, and thus would require divestiture of our operations, possibly at prices which are below the carrying value of such assets as recorded on the balance sheet, or otherwise restructure its ownership and operation. The Bills could also be construed as prohibiting or restricting Seaboard from engaging in various contractual arrangements with third party hog producers, such as traditional contract finishing arrangements. Accordingly, Seaboard's ability to contract for the supply of hogs to its processing facility could be significantly, negatively impacted. Seaboard, along with industry groups and other similarly situated companies are vigorously lobbying against enactment of any such legislation. However, Management cannot presently predict the ultimate outcome. 5 The economic environment in the Dominican Republic (DR), where the Power segment generates electricity from two barges, has deteriorated throughout 2003. As the local supply of U.S. dollars has tightened throughout the year, the Dominican peso has devalued significantly during 2003. Seaboard has contracts to sell approximately 50% of its power to certain qualified commercial large users and another local generation company, with the remaining production sold on the spot market to a limited number of commercial and government-owned distribution companies. The liquidity problems of the local government have impaired its ability to pay commercial creditors on a timely basis. During the second half of 2003, trade receivables grew substantially from the government-owned distribution companies and other companies that must also collect from the government in order to make payments on their accounts. While multilateral credit agencies may eventually provide funding support to this country to improve liquidity, management cannot predict if adequate funding will occur to fully resolve this situation during the next year. As a result, similar to other independent power producers, Seaboard began to fluctuate its level of power generation in mid-December 2003 between full capacity and approximately 50% based on management's belief about collectibility. With the exception of those government or government-reliant customers, all other contract customers continue to pay their accounts timely. Seaboard continues to pursue other contract customers which would allow this segment to increase generation of power in the future and reduce dependency on the government-owned distribution companies. During the third quarter of 2003, Seaboard sold its shrimp farming and shrimp processing assets in exchange for long-term notes receivable. During 2002 and early 2003, Seaboard's equity investment in a Bulgarian wine business (the Business) negotiated a series of extensions when it was unable to make a scheduled principal payment to a bank. During the third quarter of 2003, the Business successfully negotiated a refinancing of certain of its debt. As part of the refinancing, the bank forgave a portion of the debt and the Business sold certain assets, the proceeds of which were to repay a portion of the principal balance plus accrued interest. During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord Seafood ASA. (iii) Sources and Availability of Raw Materials None of Seaboard's businesses utilize material amounts of raw materials that are dependent on purchases from one supplier or a small group of dominant suppliers. (iv) Patents, Trademarks, Licenses, Franchises and Concessions Seaboard uses the registered trademark of Seaboard. The Pork Division uses registered trademarks relating to its products, including Seaboard Farms, Inc., Seaboard Farms, PrairieFresh, and A Taste Like No Other. Seaboard considers the use of these trademarks important to the marketing and promotion of its' pork products. The Marine Division uses the trade name Seaboard Marine which is also a registered trademark. Seaboard believes there is significant recognition of the Seaboard Marine trademark in the industry and by many of its customers. Part of the sales within the Sugar and Citrus segment are made under the Chango brand in Argentina, where this segment operates. Local sales prices benefit from sugar import duties imposed by the Argentine government, which affects the volume of sugar imported to that market. Seaboard's Power division benefits from a tax exempt concession granted by the Dominican Republic government through 2012. Patents, trademarks, franchises, licenses and concessions are not material to any of Seaboard's other segments. (v) Seasonal Business Profits from processed pork are generally higher in the fall months. Sugar prices in Argentina are generally lower during the typical sugarcane harvest period between June and November. Seaboard's other segments are not seasonally dependent to any material extent. 6 (vi) Practices Relating to Working Capital Items There are no unusual industry practices or practices of Seaboard relating to working capital items. (vii) Depending on a Single Customer or Few Customers Seaboard does not have sales to any one customer equal to 10% or more of consolidated revenues. The power segment sells power in the Dominican Republic to a limited number of contract customers and on the spot market accessed primarily by three wholly or partially government-owned distribution companies. Of the rated capacity of approximately 112 megawatts, approximately 50 megawatts are sold under a contract expiring in July 2004 to one independent power producer partially owned by a government- owned electric company. Because the demand for power in this country exceeds reliable supply, loss of this contract would result in additional spot market sales. Seaboard's Produce division sells nearly all of its processed jalapeno peppers to one customer under a contract expiring in 2006. We do not believe the loss of this customer would have a material adverse effect on Seaboard's consolidated financial position or results of operations. No other segments have sales to a few customers which, if lost, would have a material adverse effect on any such segment or on Seaboard taken as a whole. (viii) Backlog Backlog is not material to Seaboard businesses. (ix) Government Contracts No material portion of Seaboard business involves government contracts. (x) Competitive Conditions Competition in Seaboard's Pork segment comes from a variety of national and regional producers and is based primarily on product quality, customer service and price. According to a recent issue of Successful Farming, a trade publication, and a ranking prepared on behalf of the American Meat Institute, Seaboard ranks as one of the nation's top five pork producers (based on sows in production) and top ten pork processors (based on daily processing capacity). Seaboard's ocean liner service for containerized cargoes faces competition based on price and customer service. Seaboard believes it is among the top five ranking ocean liner services for containerized cargoes in the Caribbean Basin based on cargo volume. Seaboard's sugar business owns one of the largest sugar mills in Argentina and faces significant competition for sugar sales in the local Argentine market. Sugar prices in Argentina are higher than world markets due to current Argentine government price protection policies. Seaboard's power division is located in the Dominican Republic. Power generated by this division is sold on the spot market or to contract customers at prices primarily based on market conditions rather than cost-based rates. (xi) Research and Development Activities Seaboard does not engage in material research and development activities. (xii) Environmental Compliance Seaboard is subject to numerous Federal, state and local provisions relating to the environment which require the expenditure of funds in the ordinary course of business. Seaboard does not anticipate making expenditures for these purposes, including expenditures with respect to the items disclosed in Item 3, Legal Proceedings, which, in the aggregate would have a material or significant effect on the Seaboard's financial condition or results of operations. 7 (xiii) Number of Persons Employed by Registrant As of December 31, 2003, Seaboard, excluding non- consolidated foreign affiliates, had 9,462 employees, of whom 5,329 were employed in the United States. Approximately 2,000 employees in Seaboard's Pork Division and approximately 10 employees in Seaboard's Produce Division are covered by collective bargaining agreements. Seaboard considers its employee relations to be satisfactory. (d) Financial Information about Geographic Areas The financial information required by Item 1(d) of Form 10-K relating to export sales is incorporated herein by reference to Note 13 of Seaboard's Consolidated Financial Statements appearing on pages 48 through 52 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this report. Seaboard considers its relations with the governments of the countries in which its foreign subsidiaries and affiliates are located to be satisfactory, but these foreign operations are subject to risks of doing business in lesser-developed countries which are subject to potential civil unrests and government instabilities, increasing the exposure to potential expropriation, confiscation, war, insurrection, civil strife and revolution, currency inconvertibility and devaluation, and currency exchange controls. To minimize certain of these risks, Seaboard has insured certain investments in its affiliate flour mills in Angola, Democratic Republic of Congo, Haiti, Lesotho, Mozambique and Zambia, to the extent available and deemed appropriate against certain of these risks with the Overseas Private Investment Corporation, an agency of the United States Government. At the present time, Seaboard is experiencing some difficulty in Nigeria in converting the Naira (the Nigerian currency) to U.S. Dollars and other hard currencies. Also, Haiti is presently experiencing insurrection and civil unrest in certain parts of the country, but to date, this has not had any effect on Seaboard's flour milling operations in that country. These situations are not expected to have any material effect on Seaboard's cash flow or results of operations. At the date of this report, Seaboard is not aware of any other situations referred to above which could have a material effect on Seaboard's business. (e) Available Information Seaboard electronically files with the Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. The public may read and copy any materials filed with the Commission at their public reference room located at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain further information concerning the public reference room and any applicable copy charges, as well as the process of obtaining copies of filed documents by calling the Commission at 1-800-SEC- 0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding electronic filers at www.sec.gov. Seaboard provides access to its most recent Form 10-K, 10-Q and 8-K reports on its Internet website, www.seaboardcorp.com, free of charge, as soon as reasonably practicable after those reports are electronically filed with the Commission. Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks. Accordingly, no information provided at such internet addresses is intended or deemed to be incorporated herein by reference. 8 Item 2. Properties (1) Pork Seaboard's Pork Division owns a hog processing plant in Guymon, Oklahoma, which opened in 1995, with a double shift capacity of approximately four and one-half million hogs per year. The plant is utilized at near capacity throughout the year. Seaboard's hog production operations consist of the breeding and raising of approximately 3 million hogs annually at facilities it either owns or leases, or at facilities owned and operated by third parties with whom it has grower contracts. Seaboard has recently completed expansion of the facilities to produce an additional 500,000 hogs annually. This business currently operates six owned feed mills which have a combined capacity to produce approximately 1,700,000 tons of formulated feed annually used primarily to support Seaboard's existing hog production, and has the capability of supporting additional hog production in the future. These facilities are located in Oklahoma, Texas, Kansas and Colorado. (2) Commodity Trading and Milling Seaboard's Commodity Trading and Milling Division owns, in whole or in part, grain-processing operations in 13 countries which have the capacity to mill approximately 5,500 metric tons of wheat and maize per day. In addition, Seaboard has feed mill capacity of approximately 100 metric tons per hour to produce formula animal feed. The milling operations located in Angola, Democratic Republic of Congo, Ecuador, Guyana, Haiti, Kenya, Lesotho, Mozambique, Nigeria, Republic of Congo, Sierra Leone, Uganda and Zambia own their facilities; in Kenya, Lesotho, Mozambique, Nigeria, Republic of Congo and Sierra Leone the land the mills are located on is leased under long-term agreements. Certain foreign milling operations may operate at less than full capacity due to low demand related to poor consumer purchasing power and imported European-subsidized finished product. Seaboard also owns seven 9,000 metric-ton deadweight dry bulk carriers and "timecharters" (the charter of a vessel, whereby the vessel owner is responsible to provide the captain and crew necessary to operate the vessel), under short-term agreements, between seven and sixteen bulk carrier ocean vessels with deadweights ranging from 8,000 to 60,000 metric tons. (3) Marine Seaboard's Marine Division leases a 135,000 square foot warehouse and 70 acres of port terminal land and facilities in Miami, Florida which are used in its containerized cargo operations. Seaboard owns seven ocean cargo vessels with deadweights ranging from 2,813 to 14,545 metric tons and timecharters, under short-term agreements, between fifteen and nineteen containerized ocean cargo vessels with deadweights ranging from 2,600 to 19,456 metric-tons. This business also "bareboat charters" (the charter of a vessel, whereby the charterer is responsible for providing the captain and crew necessary to operate the vessel), under long-term lease agreements, three containerized ocean cargo vessels with deadweights ranging from 12,169 to 12,648 metric tons. Seaboard owns or leases an aggregate of approximately 30,000 dry, refrigerated and specialized containers and related equipment. Seaboard also leases approximately 62 acre cargo handling and terminal facility in Houston, Texas, which includes several on- dock warehouses totaling over 690,000 square feet for cargo storage. (4) Sugar and Citrus Seaboard's Argentine Sugar and Citrus Division owns approximately 40,000 acres of planted sugarcane and approximately 3,000 acres of orange groves. In addition, this division owns a sugar mill with a capacity to process approximately 180,000 metric tons of sugar per year, which is sufficient to process all of the cane harvested by this company and certain additional quantities harvested on behalf of the third party farmers in the region. The sugarcane fields and processing mill are located in northern Argentina in the Salta Province, which experiences seasonal rainfalls that may limit the harvest season, which then affects the duration of mill operations and quantities of sugar produced. This division also owns a juice processing plant and fresh fruit packaging plant with capacity to produce approximately 3,500 tons of concentrated juice and package approximately 300,000 boxes of fresh fruit annually. 9 (5) Power Seaboard's Power Division owns two floating electric power generating facilities, consisting of a system of diesel engines mounted onto barge-type vessels, with a combined rated capacity of approximately 112 megawatts, both located on the Ozama River in Santo Domingo, Dominican Republic. The barges historically generated power at near capacity throughout the year as the demand for power in the Dominican Republic exceeds reliable power supply although Seaboard has curtailed production due to recent non-payment by certain customers. Seaboard operates as an independent power producer and is not involved in the transmission and distribution facilities that deliver the power to the end users. (6) Other Seaboard owns a jalapeno pepper processing plant in Honduras and leases 40,000 square feet of refrigerated space and 70,000 square feet of dry space in the Port of Miami for warehousing produce products. Management believes that Seaboard's present facilities are adequate and suitable for its current purposes. Item 3. Legal Proceedings Sierra Club Settlement In order to settle threatened additional litigation with Sierra Club, Seaboard agreed to conduct an investigation to determine if corrective action is required at three farms purchased from PIC located in Kingfisher and Major Counties in Oklahoma according to an agreed upon process. Based on the investigation, it has been determined that one farm does not require any corrective action, although the process requires additional limited testing of ground water monitoring wells. The investigation is ongoing at the remaining two farms, and it is unknown if any remediation will be required. The costs of conducting the monitoring and the investigation are not material. Environmental Protection Agency (EPA) and State of Oklahoma Claims Concerning Farms in Major and Kingfisher County, Oklahoma 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 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. On July 23, 2002, Seaboard Farms received a Notice of Violation from the State of Oklahoma, alleging that Seaboard Farms has violated various provisions of state law and the operating permits related to these same farms based on the same conditions which gave rise to the RCRA Order. In the event the State brings an enforcement action, they have threatened to do so as an administrative action in which they can seek administrative penalties of not more than $10,000 per day of noncompliance and can seek to assess violation points which could prohibit Seaboard Farms from continuing to operate one or more of these farms. On April 15, 2003, EPA sent a formal Notice of Violation letter to the Respondents, alleging that the Respondents have failed to comply with the RCRA Order because they have not undertaken an investigation of land on which Seaboard Farms spreads effluent originating from the five facilities. The Respondents believe that the Notice of Violation letter has no merit because the RCRA Order, by its terms, does not cover these areas, and EPA does not have jurisdiction to impose the RCRA Order with respect to land application activities. 10 Seaboard Farms disputes the RCRA Order and the State of Oklahoma's contentions on legal and factual grounds, and has advised EPA that it won't comply with the RCRA Order, as written. Notwithstanding, Seaboard Farms is cooperating with EPA and the State of Oklahoma, and has had significant ongoing dialogue with EPA and the State of Oklahoma in order to attempt to settle the RCRA Order and the Oklahoma Notice of Violation, and Seaboard Farms has undertaken an extensive investigation under the RCRA Order. EPA and the State of Oklahoma, they have advised Seaboard Farms that one additional farm in Kingfisher County must be included in any settlement, although neither agency has filed any formal claims with respect to that farm.. No settlement has yet been reached with EPA or 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 indemnifying Seaboard Farms with respect to the RCRA Order (reserving its right to contest the obligation to do so), pursuant to an indemnification agreement which has a $5 million limit. PIC has advised Seaboard Farms that if the settlement being discussed with EPA and the State of Oklahoma is agreed to, PIC's costs will exceed the $5 million limit, but not by a material amount. Moreover, Seaboard Farms disputes PIC's determination of the costs to be included in the calculation and believes that the costs to be considered are less than $5 million, such that PIC is responsible for all such costs. Seaboard Farms also believes that a more general indemnity agreement would require indemnification of liability in excess of $5 million, although PIC disputes this. Seaboard Farms has also demanded that PIC provide indemnity and defense with respect to the Notice of Violation letter received from the State of Oklahoma. PIC is disputing its obligation to provide indemnity and defense with respect to this notice under both the $5 million indemnification and the general indemnification, and this dispute remains outstanding. Potential Additional EPA Claims EPA has been conducting a broad-reaching investigation of Seaboard Farms, seeking information as to compliance with the Clean Water Act (CWA), Comprehensive Environmental Response, Compensation & Liability Act (CERCLA) and the Clean Air Act. Through Information Requests and farm inspections, EPA obtained information that may be related to whether Seaboard Farms' operations are discharging pollutants to waters of the United States in violation of the CWA, whether National Pollutant Discharge Elimination System storm water construction permits were obtained, where required, whether there has been unlawful filling of or discharge to "wetlands" within the jurisdiction of the CWA, whether Seaboard Farms has properly reported emissions of hazardous substances into the air under CERCLA, and whether some of its farms may be emitting air pollutants at levels subject to Clean Air Act permitting requirements. As a result of the investigation, EPA requested that Seaboard Farms engage in settlement discussions to avoid further EPA investigative efforts and potential formal claims being filed. EPA has presented settlement demands, and Seaboard Farms has responded. Management believes it has meritorious legal and factual defenses and objections to EPA's demands, but will continue to engage in settlement discussions. Such settlement discussions could lead to an enforceable settlement agreement. On April 2, 2002, the United States Environmental Protection Agency ("EPA") sent to Seaboard Farms a letter pursuant to the Clean Air Act ("CAA") demanding Seaboard Farms monitor emissions at certain hog confinement facilities for purposes of determining whether these operations are in compliance with the CAA. The EPA also requested that Seaboard Farms agree that these facilities are comparable to all other facilities operated, and that the monitoring results can be reasonably extrapolated to estimate the emissions for all other farms operated by Seaboard Farms. If any of the specified farms are not comparable, the letter demanded that Seaboard Farms conduct monitoring at those farms. The letter also required that Seaboard Farms submit a plan and protocol for testing for emissions of particulate matter, volatile organic compounds and hydrogen sulfide. Although management believes that EPA's demand is beyond the Agency's authority pursuant to the CAA and that Seaboard Farms cannot be required to undertake the air monitoring, Seaboard Farms is engaging in discussions with EPA to attempt to reach an agreement that will be satisfactory to EPA. Seaboard Farms believes that the costs of conducting monitoring under a negotiated plan will not be material. If no agreement is reached with EPA, EPA could bring a suit to enforce the provisions of the letter, and if a court were to determine that EPA is within its authority, the court could impose a civil penalty of up to $27,500 per day of non-compliance, and could order injunctive relief requiring that Seaboard Farms conduct the monitoring. Seaboard Farms believes the emissions from its hog operations do not require CAA permits. 11 On February 20, 2003, Seaboard Farms received an additional Information Request from EPA seeking information as to compliance with the CWA by Seaboard Farms with respect to virtually all of its confined animal feeding operations. Management has complied with the Information Request. At present, no relief has been sought by the EPA. On March 24, 2003, Seaboard Farms received an additional Information Request seeking information as to a hog farm and a feed mill, each located in Colorado. The Company has complied with the Information Request. At present, no relief has been sought by the EPA. The costs incurred to comply with the various Information Requests from EPA are not material. Other On January 26, 2004, the U.S. Department of Justice sent Seaboard Marine, Ltd. a letter stating that it was investigating possible violations of 49 U.S.C. Secs. 5104-5124 and 49 C.F.R. Secs. 171-173 relating to the transportation, storage and discharge of hazardous materials. The letter does not specify the relief sought, but threatens prosecution. Although the matter has not been fully investigated, Seaboard has been advised that the assertions relate to a single 40 foot container which a customer loaded with drums containing chemicals to produce detergent. After taking possession of the loaded container, Seaboard Marine refused to transport it to the requested destination and returned it to the customer. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the last quarter of the fiscal year covered by this report. Executive Officers of Registrant The following table lists the executive officers and certain significant employees of Seaboard. Generally, each executive officer is elected at the annual meeting of the Board of Directors following the Annual Meeting of Stockholders and holds his office until the next such annual meeting or until his successor is duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was elected. Name (Age) Positions and Offices with Registrant and Affiliates H. Harry Bresky (78) Chairman of the Board, President and Chief Executive Officer of Seaboard; Manager of Seaboard Flour LLC (SF) Steven J. Bresky (50) Senior Vice President, International Operations Robert L. Steer (44) Senior Vice President, Treasurer and Chief Financial Officer David M. Becker (42) Vice President, General Counsel and Secretary Barry E. Gum (37) Vice President, Finance James L. Gutsch (50) Vice President, Engineering Ralph L. Moss (58) Vice President, Governmental Affairs David S. Oswalt (36) Vice President, Taxation and Business Development John A. Virgo (43) Vice President, Corporate Controller and Chief Accounting Officer Rodney K. Brenneman (39) President, Seaboard Farms, Inc. John Lynch (70) President, Seaboard Marine Ltd. Mr. H. Harry Bresky has served as President and Chief Executive Officer of Seaboard since February 2001 and previously as President of Seaboard from 1967 to 2001. He has served as Manager of SF (previously Seaboard Flour Corporation) since 2002. Previously he served as President of Seaboard Flour Corporation from 1987 through 2002, and as Treasurer of Seaboard Flour Corporation from 1973 through 2002. Mr. Bresky is the father of Steven J. Bresky. 12 Mr. Steven J. Bresky has served as Senior Vice President, International Operations of Seaboard since February 2001 and previously as Vice President of Seaboard from 1989 to 2001. Mr. Steer has served as Senior Vice President, Treasurer and Chief Financial Officer of Seaboard since February 2001 and previously as Vice President, Chief Financial Officer of Seaboard from 1998 to 2001. Mr. Becker has served as Vice President, General Counsel and Secretary of Seaboard since December 2003, and previously as Vice President, General Counsel and Assistant Secretary from 2001 to 2003. He served as General Counsel and Assistant Secretary of Seaboard from 1998 to 2001. Mr. Gum has served as Vice President, Finance of Seaboard since December 2003, previously as Director of Finance from 2000 to 2003 and prior to that as Finance Manager from 1999 to 2000. Mr. Gutsch has served as Vice President, Engineering of Seaboard since December 1998. Mr. Moss has served as Vice President, Governmental Affairs of Seaboard since December 2003 and previously as Director, Government Affairs from 1993 to 2003. Mr. Oswalt has served as Vice President, Taxation and Business Development of Seaboard since December 2003 and previously as Director of Tax from 1995 to 2003. Mr. Virgo has served as Vice President, Corporate Controller and Chief Accounting Officer of Seaboard since December 2003 and previously as Corporate Controller from 1996 to 2003. Mr. Brenneman has served as President of Seaboard Farms, Inc. since June 2001 and previously served as Senior Vice President and Chief Financial Officer of Seaboard Farms, Inc. from 1997 to 2001. Mr. Lynch has served as President of Seaboard Marine, Ltd. since 1998. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Seaboard's Board of Directors intends that Seaboard will continue to pay quarterly dividends, with the actual amount of any dividends being dependant upon such factors as Seaboard's financial condition, results of operations and current and anticipated cash needs, including capital requirements. As discussed in Note 8 of the consolidated financial statements appearing on pages 39 and 40 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report, Seaboard's ability to declare and pay dividends is subject to limitations imposed by the note agreements referred to there. Seaboard has not established any equity compensation plans for its employees under which options, rights or warrants with respect to Seaboard common stock may be granted. There were no purchases made by or on behalf of Seaboard or any "affiliated purchaser" (as defined by applicable rules of the Commission) of shares of Seaboard's common stock during the fourth quarter of the fiscal year covered by this report. In addition to the information provided above, the information required by Item 5 of Form 10-K is incorporated herein by reference to (a) the information under "Stock Listing" and (b) the dividends per common share information and market price range per common share information under "Quarterly Financial Data" appearing on pages 53 and 8, respectively, of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report. Item 6. Selected Financial Data The information required by Item 6 of Form 10-K is incorporated herein by reference to the "Summary of Selected Financial Data" appearing on page 7 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 of this Report. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by Item 7 of Form 10-K is incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 9 through 23 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by Item 7A of Form 10-K is incorporated herein by reference to (a) the material under the captions "Derivative Instruments and Hedging Activities" within Note 1 of Seaboard's Consolidated Financial Statements appearing on page 31, and (b) to the material under the caption "Derivative Information" within "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 21 through 23 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report. Item 8. Financial Statements and Supplementary Data The information required by Item 8 of Form 10-K is incorporated herein by reference to Seaboard's "Quarterly Financial Data," "Independent Auditors' Report," "Consolidated Balance Sheets," "Consolidated Statements of Earnings," "Consolidated Statements of Changes in Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" appearing on page 8 and pages 24 through 52 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Seaboard's management has evaluated, under the direction of our chief executive and chief financial officers, the effectiveness of Seaboard's disclosure controls and procedures as of December 31, 2003. Based upon and as of the date of that evaluation, Seaboard's chief executive and chief financial officers concluded that Seaboard's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There has been no change in Seaboard's internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. 14 PART III Item 10. Directors and Executive Officers of the Registrant We refer you to the information under the caption "Executive Officers of Registrant" appearing immediately following the disclosure in Item 4 of Part I of this report. Seaboard has adopted a code of business conduct and ethics for directors, officers (including our chief executive officer, chief financial officer, chief accounting officer, controller and persons performing similar functions) and employees. A copy of this code of business conduct and ethics is attached as Exhibit 14 to this Report. In addition to the information provided above, the information required by Item 10 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to directors under "Item 1: Election of Directors" appearing on page 5 of the 2004 Proxy statement, (b) the disclosure relating to Seaboard's audit committee and "audit committee financial expert" and its director nomination procedures under "Meetings of the Board of Directors and Committees -- Committees of the Board" appearing on pages 6 and 7 of Seaboard's definitive proxy statement filed pursuant to Regulation 14A for the 2004 annual meeting of Stockholders ("2004 Proxy Statement"), and (c) the disclosure relating to late filings of reports required under Section 16(a) of the Securities Exchange Act of 1934 under "Section 16(a) Beneficial Ownership Reporting Compliance" appearing on page 19 of the 2004 Proxy Statement. Item 11. Executive Compensation The information required by Item 11 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to compensation of directors under "Meetings of the Board of Directors and Committees -- Committees of the Board" appearing on pages 6 and 7 of the 2004 Proxy statement, and (b) the disclosure relating to compensation of executive officers under "Executive Compensation and Other Information," "Retirement Plans" and "Compensation Committee Interlocks and Insider Participation" appearing on pages 7 through 11 and page 14 of the 2004 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Seaboard has not established any equity compensation plans for its employees under which options, rights or warrants with respect to Seaboard common stock may be granted. In addition to the information provided above, the information required by Item 12 of Form 10-K is incorporated herein by reference to the disclosure under "Principal Stockholders" and "Share Ownership of Management and Directors" appearing on pages 3 and 4 of the 2004 Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by Item 13 of Form 10-K is incorporated herein by reference to "Compensation Committee Interlocks and Insider Participation" appearing on page 14 of the 2004 Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by Item 14 of Form 10-K is incorporated herein by reference to "Item 2 Selection of Independent Auditors" appearing on pages 15 and 16 of the 2004 Proxy Statement. PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Consolidated financial statements. 15 See Index to Consolidated Financial Statements on page F-1. 2. Consolidated financial statement schedules. See Index to Consolidated Financial Statements on page F-1. 3. Exhibits. 3.1 Seaboard's Certificate of Incorporation, as amended. Incorporated herein by reference to Exhibit 3.1 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 3.2 Seaboard's By-laws, as amended. Incorporated herein by reference to Exhibit 3.2 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4.1 Note Purchase Agreement dated December 1, 1993 between Seaboard and various purchasers as listed in the exhibit. Incorporated herein by reference to Exhibit 4.1 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. The Annexes and Exhibits to the Note Purchase Agreement have been omitted from the filing, but will be provided supplementally upon request of the Commission. 4.2 Seaboard Corporation 6.49% Senior Note Due December 1, 2005 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.2 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 4.3 Note Purchase Agreement dated June 1, 1995 between Seaboard and various purchasers as listed in the exhibit. Incorporated herein by reference to Exhibit 4.3 of Seaboard's Form 10-Q for the quarter ended September 9, 1995. The Annexes and Exhibits to the Note Purchase Agreement have been omitted from the filing, but will be provided supplementally upon request of the Commission. 4.4 Seaboard Corporation 7.88% Senior Note Due June 1, 2007 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.4 of Seaboard's Form 10-Q for the quarter ended September 9, 1995. 4.5 Seaboard Corporation Note Agreement dated as of December 1, 1993 ($100,000,000 Senior Notes due December 1, 2005). First Amendment to Note Agreement. Incorporated herein by reference to Exhibit 4.7 of Seaboard's Form 10-Q for the quarter ended March 23, 1996. 4.6 Seaboard Corporation Note Agreement dated as of June 1, 1995 ($125,000,000 Senior Notes due June 1, 2007). First Amendment to Note Agreement. Incorporated herein by reference to Exhibit 4.8 of Seaboard's Form 10-Q for the quarter ended March 23, 1996. 4.7 Second Amendment to the Note Purchase Agreements dated as of December 1, 1993 ($100,000,000 Senior Notes due December 1, 2005). Incorporated herein by reference to Exhibit 4.1 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.8 Second Amendment to the Note Purchase Agreements dated as of June 1, 1995 ($125,000,000 Senior Notes due June 1, 2007). Incorporated herein by reference to Exhibit 4.2 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 16 4.9 Seaboard Corporation Note Purchase Agreement dated as of September 30, 2002 between Seaboard and various purchasers as listed in the exhibit. Incorporated herein by reference to Exhibit 4.3 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. The Annexes and Exhibits to the Note Purchase Agreement have been omitted from the filing, but will be provided supplementally upon request of the Commission. 4.10 Seaboard Corporation $32,500,000 5.8% Senior Note, Series A, due September 30, 2009 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.4 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.11 Seaboard Corporation $38,000,000 6.21% Senior Note, Series B, due September 30, 2009 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.5 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.12 Seaboard Corporation $7,500,000 6.21% Senior Note, Series C, due September 30, 2012 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.6 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.13 Seaboard Corporation $31,000,000 6.92% Senior Note, Series D, due September 30, 2012 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.7 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. *10.1 Seaboard's Executive Retirement Plan dated January 1, 1997. The addenda have been omitted from the filing, but will be provided supplementary upon request of the Commission. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. *10.2 Seaboard's Supplemental Executive Benefit Plan as Amended and Restated. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 10-K for fiscal year ended December 31, 2000. *10.3 Seaboard's Supplemental Executive Retirement Plan for H. Harry Bresky dated March 21, 1995. Incorporated herein by reference to Exhibit 10.3 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. *10.4 Seaboard's Executive Deferred Compensation Plan dated January 1, 1999. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 10-Q for the quarter ended March 31, 1999. *10.5 First Amendment to Seaboard's Executive Retirement Plan as Amended and Restated January 1, 1997, dated February 28, 2001, amending Seaboard's Executive Retirement Plan dated January 1, 1997 referenced as Exhibit 10.1. Incorporated herein by reference to Exhibit 10.6 of Seaboard's Form 10-K for fiscal year ended December 31, 2000. *10.6 Seaboard's Investment Option Plan dated December 18, 2000. Incorporated herein by reference to Exhibit 10.7 of Seaboard's Form 10-K for fiscal year ended December 31, 2000. 10.7 Reorganization Agreement by and between Seaboard Corporation and Seaboard Flour Corporation as of October 18, 2002. Incorporated herein by reference to Exhibit 10.1 of the Form 8-K dated October 18, 2002. 17 10.8 Purchase and Sale Agreement dated October 18, 2002 by and between Flour Holdings LLC and Seaboard Flour Corporation with respect to which the "Earnout Payments" thereunder have been assigned to Seaboard Corporation. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 10.9 Marketing Agreement dated February 2, 2004 by and among Seaboard Corporation, Seaboard Farms, Inc., Triumph Foods LLC, and for certain limited purposes only, the members of Triumph Foods LLC. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 8-K dated February 3, 2004. 13 Sections of Annual Report to security holders specifically incorporated herein by reference herein. 14 Code of Ethics. 21 List of subsidiaries. 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d- 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d- 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K (i) Form 8-K dated November 4, 2003, filed with the Commission on November 4, 2003 with respect to Items 7 and 12 to report Seaboard's issuance of a press release dated November 4, 2003 announcing earnings for the third quarter ended September 27, 2003. (ii) Form 8-K dated December 3, 2003, filed with the Commission on December 3, 2003 with respect to Item 5 to report that Seaboard had completed the sale of 100% of its equity interest in Fjord Seafood ASA. (iii) Form 8-K dated December 3, 2003, filed with the Commission on December 5, 2003 with respect to Items 2 and 7 to report that Seaboard had completed the sale of 100% of its equity interest in Fjord Seafood ASA through a private placement by an investment banker to unknown third parties, and to furnish pro forma financial information. (c) Exhibits. See exhibits identified above under Item 15(a)3. (d) Financial Statement Schedules. See financial statement schedules identified above under Item 15(a)2. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Seaboard has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEABOARD CORPORATION By /s/H. H. Bresky By /s/Robert L. Steer H. H. Bresky, President and Chief Robert L. Steer, Senior Vice President, Executive Officer Treasurer and Chief Financial Officer (principal executive officer) (principal financial officer) Date: February 27, 2004 Date: February 27, 2004 By /s/John A. Virgo John A. Virgo, Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) Date: February 27, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. By /s/H. H. Bresky By /s/Kevin M. Kennedy H. H. Bresky, Director and Kevin M. Kennedy, Director Chairman of the Board Date: February 27, 2004 Date: February 27, 2004 By /s/David A. Adamsen By /s/J.E. Rodrigues David A. Adamsen, Director J.E. Rodrigues, Director Date: February 27, 2004 Date: February 27, 2004 By /s/Douglas W. Baena Douglas W. Baena, Director Date: February 27, 2004 19 SEABOARD CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedule Financial Statements Stockholders' Annual Report Page Independent Auditors' Report 24 Consolidated Balance Sheets as of December 31, 2003 and December 31, 2002 25 Consolidated Statements of Earnings for the years ended December 31, 2003, December 31, 2002 and December 31, 2001 26 Consolidated Statements of Changes in Equity for the years ended December 31, 2003, December 31, 2002 and December 31, 2001 27 Consolidated Statements of Cash Flows for the years ended December 31, 2003, December 31, 2002 and December 31, 2001 28 Notes to Consolidated Financial Statements 29 The foregoing are incorporated herein by reference. The individual financial statements of the nonconsolidated foreign affiliates, which would be required if each such foreign affiliate were a Registrant, are omitted because (a) Seaboard's and its other subsidiaries' investments in and advances to such foreign affiliates do not exceed 20% of the total assets as shown by the most recent consolidated balance sheet and (b) Seaboard's and its other subsidiaries' equity in the earnings before income taxes and extraordinary items of the foreign affiliates does not exceed 20% of such income of Seaboard and consolidated subsidiaries compared to the average income for the last five fiscal years. Combined condensed financial information as to assets, liabilities and results of operations have been presented for nonconsolidated foreign affiliates in Note 5 of "Notes to the Consolidated Financial Statements." II - Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001 F-3 All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related consolidated notes. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Seaboard Corporation: Under date of February 23, 2004, we reported on the consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2003, as contained in the December 31, 2003 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2003. Our reported dated February 23, 2004 contains an explanatory paragraph that states that the Company adopted Statement of Financial Standards No. 143, "Accounting for Asset Retirement Obligations," and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," and changed its method of accounting for costs expected to be incurred during regularly scheduled drydocking of vessels from the accrual method to the direct- expense method in 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Kansas City, Missouri February 23, 2004 F-2
Schedule II SEABOARD CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (In Thousands) Balance at Provision Write-offs net Accounting Balance at beginning of year (1) of recoveries Changes (2) end of year Year ended December 31, 2003: Allowance for doubtful accounts $16,178 8,473 (1,292) - $23,359 Drydock accrual $ 6,393 - - (6,393) $ - Year ended December 31, 2002: Allowance for doubtful accounts $20,571 62 (4,455) - $16,178 Drydock accrual $ 6,052 3,709 (3,368) - $ 6,393 Year ended December 31, 2001: Allowance for doubtful accounts $29,801 206 (9,436) - $20,571 Drydock accrual $ 5,496 5,356 (4,800) - $ 6,052 (1) The allowance for doubtful accounts provision is charged to selling, general and administrative expenses. Through December 31, 2002, the provision for drydock was charged to cost of sales. (2) Effective January 1, 2003, Seaboard changed its method of accounting for drydock maintenance costs from the accrue-in- advance method to the direct-expense method. As a result, Seaboard reversed its allowance for drydock accrual as a cumulative effect of a change in accounting principle.
F-3 EX-13 3 ex13.txt 2003 ANNUAL REPORT Exhibit 13 SEABOARD CORPORATION 2003 Annual Report Description of Business Seaboard Corporation is a diversified international agribusiness and transportation company primarily engaged domestically in pork production and processing, and cargo shipping. Overseas, Seaboard is primarily engaged in commodity merchandising, flour and feed milling, sugar production, and electric power generation. Table of Contents Letter to Stockholders 2 Division Summaries 4 Principal Locations 6 Summary of Selected Financial Data 7 Quarterly Financial Data (unaudited) 8 Management's Discussion & Analysis 9 Responsibility for Financial Statements 24 Independent Auditors' Report 24 Consolidated Balance Sheets 25 Consolidated Statements of Earnings 26 Consolidated Statements of Changes in Equity 27 Consolidated Statements of Cash Flows 28 Notes to Consolidated Financial Statements 29 Stockholder Information 53 This report, including information included or incorporated by reference in this report, contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward-looking statements generally may be identified as: statements that are not historical in nature; and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends," or similar expressions. In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) the cost and timing of the completion of new or expanded facilities, (ii) Seaboard's ability to obtain adequate financing and liquidity, (iii) the price of feed stocks and other materials used by Seaboard, (iv) the sale price for pork products from such operations, (v) the price for other products and services, (vi) the charter hire rates and fuel prices for vessels, (vii) the demand for power, related spot market prices and collectibility of receivables in the Dominican Republic, (viii) the effect of the devaluation of the Argentine and Dominican Republic pesos, (ix) the potential effect of the proposed meat packer ban legislation on the Pork Division, (x) the effect of the Venezuelan economy on the Marine Division, (xi) the potential effect of Seaboard's investment in a wine business on the consolidated financial statements, (xii) the potential impact of various environmental actions pending or threatened against Seaboard, or (xiii) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to a variety of factors. The information contained in this report, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Letter to Stockholders", identifies important factors which could cause such differences. 1 SEABOARD CORPORATION Letter to Stockholders A strong fourth quarter resulted in record sales and one of the highest levels of operating income in our company's history. I am particularly encouraged by the rebound in our pork business and the continued success of our overseas businesses. We continue our efforts to streamline each of our businesses. We are taking advantage of technological advances enabling us to better control costs, track products, and benchmark our businesses against each other and competing companies. Our pork business was able to capitalize on higher pork prices, which helped this business return to profitability and maintain margins in the face of relatively high pork supply. During the year we continued to expand our further-processing business. Seaboard Farms produces an increasing variety of seasoned and marinated products. These products are sold under our Prairie Fresh brand as well as private labels. An exciting new development for our company is the announcement we made in February 2004 that we had entered into an agreement to market 100% of the pork products to be produced by Triumph Foods. Triumph Foods is constructing a state-of-the-art vertically integrated pork processing facility in St. Joseph, Missouri. This facility will be based on the design for our proposed Texas plant and will have approximately the same capacity and product capabilities as our Guymon plant. The arrangement will allow us to effectively double the amount of product we market to meet our customer demands without the expense of a new plant. In previous reports, I have talked about the possibility of constructing a second vertically integrated pork complex in Texas. With the announcement of the venture with Triumph Foods, it is unlikely that this new plant project will move forward until sometime after the Triumph plant reaches full capacity and our customers demand additional product. Our Commodity Trading and Milling Division experienced another solid year. Favorable milling margins together with record output improved the contribution to earnings from our milling businesses. Grain-trading volumes were lower for the year because of improved local harvests in our key markets, which lowered import requirements. We continue to leverage our grain supply to affiliated milling businesses with third-party commodity trade in order to better serve our customers, lower unit costs, and generate incremental income. Although the markets in which we operate continue at times to be volatile politically and economically, the division continues to pursue strategic investments and joint ventures that will increase our base of milling assets and grain customers while further diversifying our base. Our Miami-based container shipping business began to show improvement in late 2003. The business had record sales because of increased shipping volumes in both new and existing markets. Operating income was significantly lower in 2003 because of continuing economic disruption in Venezuela. In addition, higher fuel and charter hire costs affected earnings. We are encouraged by the growth of the business outside of Venezuela and are seeking opportunities to lessen the impact of the continued disruptions on our business. 2 SEABOARD CORPORATION Letter to Stockholders The Sugar and Citrus Division posted record operating income in 2003. The turnaround and success of this division in recent years can be traced to production efficiencies, increasing sugar prices, and the peso devaluation, all of which contributed to a substantial lowering of costs. The improved results of all sugar producers as well as a more stable Argentine economy have resulted in a potential oversupply of sugar in the domestic economy. Consequently, we do not expect to be able to maintain this level of performance in 2004. We anticipate, however, that the division will continue to produce positive results. During 2003, the Power Division began to suffer the effects of the declining economic environment in the Dominican Republic. The Dominican peso devalued substantially during the year, and the country's government is currently not able to meet its financial obligations, including payments to independent power producers, such as Seaboard. The majority of our sales are to the ailing government-controlled power distribution companies and payments are not being made on a timely basis. We are aggressively pursuing additional private- contract customers that will allow us to increase the level of power generation and generate more reliable cash flow. We are optimistic that our current plan of action will help us successfully confront this challenge during 2004. Overall I am pleased by the improved performance of our company this year. In the face of volatile commodity markets and worldwide political and economic uncertainties, our ability to maintain flexibility and customer focus is to be applauded. We are prepared for the challenges we will face in 2004 and look forward to the opportunities created. As always, we appreciate the continued dedication and commitment of our 9,000 plus employees who serve to make this Company a leader in its respective industries. /s/ H.H. Bresky H.H. Bresky Chairman of the Board, President and Chief Executive Officer 3 SEABOARD CORPORATION Division Summaries Pork Division Seaboard's Pork Division is one of the largest vertically integrated pork processors in the United States. Seaboard is able to control animal production and processing from research and development in nutrition and genetics, to the production of high quality meat products at our processing facility. Seaboard's processing facility in Guymon, Oklahoma opened in 1995. The facility operates at double shift capacity and processes approximately four and one-half million hogs annually. Seaboard produces and sells fresh and frozen pork to further processors, foodservice outlets, grocery stores and other retail customers, and distributors primarily in the western half of the United States and foreign markets. Hogs processed at our plant include company raised hogs as well as hogs raised by third parties purchased under contract. Seaboard's hog production facilities consist of genetic and commercial breeding, farrowing, nursery and finishing buildings located in Oklahoma, Kansas, Texas and Colorado to produce approximately three million hogs annually. In addition, Seaboard recently completed expansion of the facilities to produce an additional 500,000 hogs annually. Seaboard currently operates six centrally located feed mills to provide formulated feed to these facilities and has additional feed mill capacity to support future growth. Seaboard's vertically integrated system provides a number of strategic advantages relative to other companies in the industry. These advantages, which result largely from significant control of the production and processing chain, allow Seaboard to produce high quality, safe products. The consistency and quality of Seaboard pork have allowed Seaboard to become one of the leading exporters of pork products from the United States to Japan and other foreign markets. Commodity Trading & Milling Division Seaboard's Commodity Trading & Milling Division markets wheat, corn, soybean meal and other commodities in bulk to third-party customers internationally and affiliated companies. These commodities are purchased worldwide with primary destinations in Africa, South America, the Caribbean, and the Eastern Mediterranean. The division originates, transports and markets approximately four million tons annually of wheat, corn, soybean meal and other commodities. The focus remains on the efficient supply of quality products and services to the wheat and maize milling and animal feed industries. Seaboard integrates the service of delivering commodities to its customers through the use of its seven owned bulk carriers and other chartered bulk vessels as required. Seaboard's Commodity Trading and Milling Division operates in seventeen countries, including five trading locations and thirteen grain processing businesses. The grain processing businesses are operated through four owned and nine non- consolidated affiliates in Africa, South America, and the Caribbean with flour, feed and maize milling businesses producing approximately one and one-half million metric tons of finished product per year. 4 SEABOARD CORPORATION Division Summaries Marine Division Seaboard's Marine Division, formed in 1983, provides containerized shipping service between the United States, the Caribbean Basin, and Central and South America. Seaboard's primary operations, located in Miami, include a 135,000 square- foot warehouse for cargo consolidation and temporary storage in addition to a 70 acre terminal at the Port of Miami. At the Port of Houston, Seaboard operates a 62 acre cargo terminal facility that includes over 690,000 square feet of on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes. Seaboard also makes scheduled vessel calls in New Orleans, Louisiana and Fernandina Beach, Florida, and Philadelphia, Pennsylvania. Seaboard's fleet consists of approximately 28 owned or chartered vessels, thousands of dry, refrigerated and specialized containers and related equipment. Within its service lanes, Seaboard is one of the largest shippers in terms of cargo volume to and from the Port of Miami and provides direct service to over 20 countries. Seaboard also provides extended service from our domestic ports of call to and from multiple foreign destinations through connecting carrier agreements with major regional and global carriers. To maximize fleet utilization, Seaboard uses a network of offices and agents throughout the United States, Canada, Latin American, and the Caribbean Basin to book both northbound and southbound cargo. Seaboard's full service intermodal capabilities allow the transport by either truck or rail, of both import and export cargo to and from various U.S. ports. Seaboard's frequent sailings and fixed-day schedules make it convenient for customers to coordinate manufacturing schedules and maintain inventories at cost-efficient levels. Seaboard's approach is to work in partnership with its customers and provide the most effective level of service throughout the United States to and from Latin America and the Caribbean Basin. Other Divisions Seaboard's other businesses consist largely of food-related businesses and electric power generation. Seaboard is involved in the production and refining of sugar, and the production and processing of citrus products in Argentina. These products are primarily marketed locally with some exports to the United States, South America and Europe. Seaboard's mill, one of the largest in Argentina, has a processing capacity of approximately 180,000 metric tons of sugar per year. The mill is located on a large tract of land in the Salta Province. Approximately 40,000 acres of this land is planted with sugar cane which supplies the majority of the raw product processed by the mill. Seaboard also has an orange grove consisting of approximately 3,000 acres. Seaboard owns two floating electric power generating facilities consisting of a series of diesel engines mounted on barges with a combined rated capacity of approximately 112 megawatts. Seaboard operates as an independent power producer that generates electricity into the local power grid but is not involved in the transmission or distribution of electricity. Electricity is sold under contract to another local generation company and certain commercial large users, and on the spot market which is accessed primarily by three wholly or partially government-owned distribution companies, and limited others. Seaboard processes jalapeno peppers at its plant in Honduras. These products are shipped to the United States on Seaboard Marine vessels and distributed from Seaboard's Port of Miami cold storage warehouse. Seaboard sources and sells truck freight to third parties via its brokerage business. This business also provides logistics and transportation service to other Seaboard companies using its owner-operator program and extensive carrier network. Seaboard also has an equity investment in a wine business that produces wine in Bulgaria for distribution primarily throughout Europe. 5 SEABOARD CORPORATION Principal Locations Pork Seaboard Overseas Seaboard Marine Ltd. Limited Miami, Florida Seaboard Farms, Inc. Bermuda, Ecuador and Shawnee Mission, Kenya Seaboard Marine Kansas (Trinidad) Ltd. (Pork Division Seaboard Overseas Trinidad Office) Peru SRL Guymon, Oklahoma Peru Seaboard Marine of (Processing Haiti, S.E. Plant) Seaboard Overseas Haiti Julesburg, Colorado Trading and Hugoton, Kansas Shipping (PTY) Ltd. SEADOM, S.A. Leoti, Kansas South Africa Dominican Republic Liberal, Kansas Rolla, Kansas Seaboard West Seamaritima S.A. Guymon, Oklahoma Africa Limited de C.V. Hennessey, Oklahoma Sierra Leone Mexico Optima, Oklahoma (Live Production Unga Holdings Operation Limited* Sugar and Citrus Offices) Kenya and Uganda Ingenio y Refineria San Martin del Commodity Trading & Marine Tabacal SRL Milling Argentina Agencias Generales KWABA - Sociedade Conaven, C.A. Industrial e Venezuela Power Commercial, SARL* Angola Agencia Maritima Transcontinental del Istmo, S.A. Capital Corp. Les Moulins d'Haiti Costa Rica (Bermuda) Ltd. S.E.M.* Dominican Republic Haiti Cayman Freight and Shipping Services, Ltd. Lesotho Flour Mills Cayman Islands Other Limited* Lesotho JacintoPort Boyar Estates S.A.* International LP Bulgaria Life Flour Mill Houston, Texas Ltd.* Chestnut Hill Farms Top Feeds Limited* Representaciones Honduras S. de Nigeria Maritima y R.L. de C.V. Aereas, S.A. Honduras Minoterie de Guatemala Matadi, S.A.R.L.* Mount Dora Farms Inc. Democratic Republic Sea Cargo, S.A. Miami, Florida of Congo Panama Seaboard Transport, Inc. Minoterie du Congo, Seaboard de Shawnee Mission, Kansas Republic of Congo Colombia, S.A. Colombia Mobeira, SARL* Corporate Office Mozambique Seaboard Honduras, S. de R.L. de C.V. Seaboard Corporation Molinos Champion, Honduras Shawnee Mission, Kansas S.A.* Molinos del Seaboard del Ecuador, C.A.* Peru, S.A. Ecuador Peru National Milling Seaboard Freight & Company of Shipping Jamaica Guyana Limited Limited Guyana Jamaica National Milling Seaboard Marine Corporation Bahamas Ltd. Limited Bahamas Zambia *Represents a non-controlled, non-consolidated affiliate 6 SEABOARD CORPORATION Summary of Selected Financial Data (Thousands of dollars except per share amounts) Years ended December 31, 2003 2002 2001 2000 1999 Net sales $1,981,340 $1,829,307 $1,804,610 $1,583,696 $1,284,262 Operating income $ 68,786 $ 47,125 $ 114,352 $ 48,065 $ 12,368 Earnings (loss) from continuing operations $ 31,842 $ 13,507 $ 51,989 $ 8,872 $ (13,587) Net earnings $ 31,842 $ 13,507 $ 51,989 $ 98,909 $ 47 Earnings (loss) per common share from continuing operations $ 25.37 $ 9.38 $ 34.95 $ 5.96 $ (9.13) Net earnings per common share $ 25.37 $ 9.38 $ 34.95 $ 66.49 $ 0.03 Total assets $1,325,691 $1,281,141 $1,234,757 $1,274,234 $1,249,022 Long-term debt, less current maturities $ 321,555 $ 318,746 $ 255,819 $ 312,418 $ 318,017 Stockholders' equity $ 520,565 $ 486,731 $ 528,420 $ 540,685 $ 443,168 Dividends per common share $ 3.00 $ 2.50 $ 1.00 $ 1.00 $ 1.00 During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord Seafood ASA (Fjord), an integrated salmon producer and processor headquartered in Norway, recognizing a gain of $18,036,000. The gain was not subject to tax. See Note 3 to the Consolidated Financial Statements for additional discussion. During 2003, Seaboard recorded its share of losses related to its investment in Fjord totaling $15,546,000, including $12,421,000 for asset impairment charges. Seaboard's share of losses from Fjord during 2002 and 2001 totaled $10,158,000 and $1,316,000, respectively. See Note 13 to the Consolidated Financial Statements for additional discussion. Also during 2003, Seaboard adopted Statement of Financial Accounting Standard No. 143, "Accounting for Asset Retirement Obligations," Financial Accounting Standards Board Interpretation No. 46, revised December 2003, "Consolidation of Variable Interest Entities," and changed its method of accounting for costs associated with the regularly scheduled drydocking of vessels from the accrue-in-advance method to the direct-expense method. As a result of these changes, Seaboard recorded a net cumulative effect of changes in accounting principles of $2,868,000, or $2.29 per share. See Note 1 to the Consolidated Financial Statements for additional information. During 2002, Seaboard completed a series of transactions related to its Argentine sugar business, resulting in a one-time tax benefit of $14,303,000. See Note 7 to the Consolidated Financial Statements for further discussion. During 2002, Seaboard effectively repurchased 232,414.85 shares of common stock from its parent company. See Note 12 to the Consolidated Financial Statements for further discussion. Seaboard's 2002 and 2001 financial position and results of operations were negatively impacted by the devaluation of the Argentine peso. See Note 12 to the Consolidated Financial Statements for further discussion. Seaboard completed the sale of its Poultry Division on January 3, 2000, recognizing an after-tax gain on disposal of discontinued operations of $90,037,000 or $60.53 per common share. 7 SEABOARD CORPORATION Quarterly Financial Data (unaudited) (UNAUDITED) (Thousands of dollars 1st 2nd 3rd 4th Total for except per share amounts) Quarter Quarter Quarter Quarter the Year 2003 Net sales $ 461,867 485,883 485,417 548,173 $1,981,340 Operating income $ 7,974 10,289 17,845 32,678 $ 68,786 Net earnings (loss) $ 2,715 (2,916) 1,838 30,205 $ 31,842 Earnings (loss) per common share $ 2.16 (2.32) 1.46 24.07 $ 25.37 Dividends per common share $ 0.75 0.75 0.75 0.75 $ 3.00 Market price range per common share: High $ 263.00 225.75 268.00 284.95 Low $ 195.00 195.00 203.00 215.00 2002 Net sales $ 442,923 477,104 429,800 479,480 $1,829,307 Operating income $ 16,754 15,192 9,311 5,868 $ 47,125 Net earnings (loss) $ 1,723 15,098 (5,673) 2,359 $ 13,507 Earnings (loss) per common share $ 1.16 10.15 (3.81) 1.81 $ 9.38 Dividends per common share $ 0.25 0.75 0.75 0.75 $ 2.50 Market price range per common share: High $ 335.00 305.00 301.00 259.00 Low $ 260.00 202.00 220.00 195.00 In the first quarter of 2003, Seaboard adopted Statement of Financial Accounting Standard No. 143, "Accounting for Asset Retirement Obligations" and changed its method of accounting for costs associated with the regularly scheduled drydocking of vessels from the accrue-in-advance method to the direct-expense method. As result of these changes, Seaboard recorded a net cumulative effect of changes in accounting principles of $3,648,000, or $2.90 per share. See Note 1 to the Consolidated Financial Statements for further discussion. During the fourth quarter of 2003, Seaboard adopted Financial Accounting Standards Board Interpretation No. 46, revised December 2003, "Consolidation of Variable Interest Entities," and recorded a cumulative effect of a change in accounting principles of $(780,000), or $(0.62) per common share. See Note 1 to the Consolidated Financial Statements for further discussion. During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord, recognizing a gain of $18,036,000. The gain was not subject to tax. See Note 3 to the Consolidated Financial Statements for further discussion. During the third quarter of 2003, Seaboard recorded a $12,421,000 charge to earnings for its share of asset impairments related to its investment in Fjord. See Note 13 to the Consolidated Financial Statements for further discussion. During the second quarter of 2002, Seaboard completed a series of transactions related to its Argentine sugar business, resulting in a one-time tax benefit of $14,303,000. See Note 7 to the Consolidated Financial Statements for further discussion. 8 SEABOARD CORPORATION Managements's Discussion & Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Seaboard is a diverse agribusiness and transportation company with global operations in several industries. Most of the sales and costs of Seaboard's segments are significantly influenced by worldwide fluctuations in commodity prices or changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in unrelated industries and different geographical locations, management evaluates their operations separately. Pork Segment Seaboard's most significant operation is the Pork segment which is primarily a domestic business with some export sales to Japan and other foreign markets. All sales of pork products are generated from a single hog processing plant in Guymon, Oklahoma, which operates at double shift capacity. In 2003, Seaboard raised over 60% of the hogs processed at the plant with the remaining hog requirements purchased primarily under contracts from independent producers. This segment has the largest dollar amount of sales and is the most capital intensive segment with over 50% of consolidated assets, including 75% of Seaboard's fixed assets, and material dollar amounts for live hog inventories. Of all Seaboards' businesses, management believes the Pork segment possesses the ability to generate the most material amount of operating income and cash flow in any one year. Of Seaboard's businesses, the Pork segment also has the greatest exposure to commodity price fluctuations. As a result, this segment's operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard's consolidated operating income and cash flows. Sales prices are directly affected by both domestic and world-wide supply and demand for pork products and other proteins. Feed costs are the most significant single component of the cost of raising hogs and can be materially affected by commodity price fluctuations for corn and soybean meal. In addition, costs can be materially affected by fluctuations in market prices for hogs purchased from third parties for processing at the plant. During 2003, this segment completed populating its existing live production facilities and management currently has no immediate plans for further expansion to support the Guymon processing plant. Accordingly, future working capital needs and other financing requirements related to incremental expansion should be minimal, as Seaboard has put on hold any future plans to construct a second processing plant as discussed below. As the Guymon plant operates at double shift capacity, to improve operating income Seaboard is constantly working towards improving the efficiencies of the Pork operations while considering ways to expand product offerings. In early 2004, Seaboard entered into a marketing agreement with Triumph Foods LLC (Triumph) to market all of the pork products produced at Triumph's new pork processing plant planned for construction in St. Joseph, Missouri. The plant is scheduled to begin operations in mid to late 2005. This plant will have similar capacity to Seaboard's Guymon plant. The Triumph plant is not expected to reach operating capacity until late 2006 and Seaboard does not intend to make any final decisions regarding construction of its potential second plant prior to that time. Commodity Trading and Milling Segment The Commodity Trading and Milling segment is Seaboard's second largest segment in terms of sales and assets, which consist primarily of working capital assets. This segment operates principally overseas with locations in Africa, Bermuda, South America and the Caribbean. These foreign operations can be significantly impacted by local crop production, political or economic situations. This segment's sales are also significantly affected by fluctuating commodity prices fueled by the dynamics of world-wide supply and demand for various commodities, such as wheat, corn and soybean meal. Although this segment owns seven ships, most of the third-party trading business is transacted by chartering ships. Charter hire rates, influenced by available charter capacity for worldwide trade in bulk cargoes, and related fuel costs can also impact business volumes and margins. The milling businesses, both owned and non-consolidated affiliates, operate in many foreign and, in most cases, lesser developed countries. Local and worldwide crop harvests, economic conditions, periodic political instability and subsidized flour imports can create fluctuating market conditions that can have a significant impact on both the trading and milling businesses' sales and operating income. 9 SEABOARD CORPORATION Managements's Discussion & Analysis The majority of the Commodity Trading and Milling segment's sales pertain to the commodity trading business which has experienced significant volume growth over the past few years, although growth slowed somewhat in 2003. This growth has increased the amount of working capital required to fund increases in accounts receivable and inventories while shipping requirements have been satisfied by the charter hiring of bulk cargo ships. As the commodity trading portion of the business sources grain worldwide with international destinations, timing of completion of voyages and fluctuations in the availability of and rates for bulk cargo shipping can significantly affect sales volumes, operating income and cash flows from quarter-to-quarter. Seaboard continues to look for opportunities for additional markets to expand the commodity trading and milling operations. Marine Segment The Marine segment is the third largest in terms of sales and assets. This segment provides containerized cargo shipping services primarily from the United States to over twenty different countries in the Caribbean basin, and Central and South America. Fluctuations in economic conditions and the potential unstable local political situations in the countries in which Seaboard operates can affect import/export trade volumes. In addition, containerized cargo rates can fluctuate depending on local supply and demand for shipping services. This division is also affected by fluctuations in fuel costs and charter hire rates. For the past couple of years, Seaboard has experienced the negative effects of the political instability in Venezuela, previously Seaboard's largest foreign destination, which also affected other related South American markets. This has had a significant impact on operating income while reducing the related cash flows. Seaboard's marine business is fairly mature and, excluding the effects of the Venezuelan situation, has had fairly stable cash flows and minimal financing requirements. Seaboard has successfully replaced the volume lost as a result of the Venezuelan situation by adding new routes and expanding volumes on existing routes although margins have decreased. Seaboard continues to look for ways to increase volumes on existing routes while looking to provide additional new services for the region. Sugar and Citrus Segment Seaboard's Sugar and Citrus segment operates a sugar mill in Argentina. In addition, Seaboard grows locally a substantial portion of the sugar cane processed at the mill. This segment's sales and operating income are significantly impacted by fluctuating prices for sugar. Fluctuations in the Argentine sugar harvest can have an impact on the local price of sugar. Also, but to a lesser degree, price fluctuations on the world market can affect local sugar prices and can also result in lower export sale volumes. Depending on local harvest and market conditions, from time to time, this business purchases third- party sugar for resale. Over the past several years, Seaboard made several modifications to this business to improve efficiencies of its operations. As the functional currency of the Sugar and Citrus segment is the Argentine peso, currency fluctuations can also have an impact on reported U.S. dollar sales, operating income and cash flows. As discussed in Note 12 to the Consolidated Financial Statements, in 2001 and early 2002, Argentina's peso experienced a significant devaluation to the U.S. dollar resulting in material foreign currency losses and write-downs in Seaboard's asset values related to this operation. Although initially the economy of Argentina was severely, negatively impacted by the devaluation and ensuing recession, the situation in Argentina has steadily improved in 2003 and the peso has been relatively stable. This devaluation, in addition to efficiency improvements, caused a significant increase in local sugar prices and decreases in inventory and production costs resulting in an improvement in operating income and cash flows for the past two years. Future financing needs are not expected to be significant for this operation. Seaboard continues to explore ways to improve and expand its existing operations while considering other alternatives to expand this segment. Power Segment Seaboard's Power segment operates as an unregulated independent power producer in the Dominican Republic (DR) generating power from a series of diesel engines mounted on two barges. The engines have historically operated at capacity. After the addition of the second barge in late 2000, this segment's financing needs have been minimal. For the past several years, this segment has produced some of Seaboard's best return on investment while operating cash flows have fluctuated from inconsistent customer collections. Seaboard has contracts to sell approximately one half of its power to certain government- approved commercial large users and another local 10 SEABOARD CORPORATION Managements's Discussion & Analysis generation company, with the remaining production sold on the spot market, primarily to three wholly or partially- government-owned distribution companies. Fuel is the largest cost component but increases in fuel prices usually have been passed through to the contract customers. The economic environment in the DR weakened significantly throughout 2003. During 2003, the Dominican peso devalued approximately 68%. In addition, during the last half of 2003 the power industry in the DR suffered from a cash flow imbalance. This occurred as a result of the government not allowing retail electricity rates, charged by the distribution companies, to increase sufficiently to cover the significant peso devaluation and increases in dollar-denominated fuel costs. The government has been unable to fully fund this cash shortfall. As a result of the weakened economic environment in the DR, during the second half of 2003, trade receivables grew substantially from the government-owned distribution companies or other companies that must also collect from the government in order to make payments on their accounts. While multilateral credit agencies may eventually provide funding support to this country to improve liquidity, management can not predict if adequate funding will occur to fully resolve this situation during the next year. As a result, similar to other independent power producers, Seaboard began to fluctuate its level of power generation in mid-December 2003 between full capacity and approximately 50% capacity, based on management's belief about collectibility. With the exception of those government or government-reliant customers, all other contract customers continue to pay their accounts timely. Seaboard continues to pursue other contract customers which would allow this segment to increase generation of power in the future and reduce dependency on the government-owned distribution companies. LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments as of December 31, 2003 increased $41.8 million over December 31, 2002 primarily reflecting the proceeds of $37.4 million from the sale of 100% of Seaboard's equity investment in Fjord Seafood, ASA (Fjord) in the fourth quarter of 2003. Uncertainties about the future profitability of this business, led to management's decision to divest its equity investment in the salmon industry. Cash generated from operating activities totaled $91.7 million for 2003 and was used primarily for scheduled principal payments of long-term debt of $52.9 million and capital expenditures of $31.5 million. Cash from operating activities for 2003 increased $64.2 million compared to 2002 primarily related to improved operating results of the Pork segment and a lower level of funding for working capital requirements. The reduced funding for working capital requirements primarily reflects the substantial prior year increase in working capital requirements for the expansion of the commodity trading business, while in 2003 such working capital needs remained fairly constant for this business. However, working capital requirements increased for the Pork segment, as live hog inventory levels were increased during 2003 reflecting new hog production facilities being fully populated. In addition, the Power segment's receivables increased due to recent collection problems. Cash and short-term investments as of December 31, 2002 decreased $96.2 million from December 31, 2001 as a result of payments of $47.2 million made to effectively repurchase shares of Seaboard's common stock from its parent, Seaboard Flour Corporation (see Note 12 to the Consolidated Financial Statements), a $26.9 million additional investment in Fjord, and $51.4 million of scheduled payments made on the long-term debt. The outflows were partially offset by an increase of $38.4 million in short- term borrowings and cash generated from operating activities of $27.5 million. Capital expenditures of $149.9 million in 2002 were primarily financed with $109.0 million of proceeds from a private placement of senior notes as discussed below. Cash from operating activities for 2002 decreased $131.7 million compared to 2001. The decrease was primarily due to lower net earnings, principally related to the Pork segment, and an increase in working capital requirements. Working capital requirements increased in 2002 primarily as a result of the increase in the commodity trading business and the timing of related normal transactions for voyage settlements, trade payables and receivables. Capital Expenditures During 2003 Seaboard invested $15.8 million in the Pork segment primarily for the expansion of existing hog production facilities, and land acquisition and permitting activities to support the requirements of a potential second processing plant. These capital expenditures exclude an increase in net fixed assets in 2003 for hog production 11 SEABOARD CORPORATION Managements's Discussion & Analysis facilities previously leased under a master lease agreement that were acquired for a total of $25.0 million primarily from the assumption of debt as discussed below, and also exclude $31.7 million of net fixed assets from the consolidation of variable interest entities (VIEs). See Note 1 to the Consolidated Financial Statements for further discussion of consolidation of VIEs. During 2004, Seaboard expects to invest $7.4 million for improvements to existing hog production facilities and upgrades to the pork processing plant. Seaboard invested $7.7 million in the Marine segment primarily to expand and replace cargo transportation and loading equipment, and make facility improvements. Instead of purchasing two previously chartered vessels during 2003, Seaboard entered into new leasing arrangements. During 2004, management plans to invest $8.6 million to purchase additional equipment. Seaboard invested $4.4 million in the Sugar and Citrus segment primarily for machinery and equipment, and improvements to the mill and sugarcane fields. During 2004, management anticipates spending $5.1 million for additional improvements to the plantation, mill and harvesting equipment. During 2003, capital expenditures for all other segments totaled $3.6 million for general modernization, mill expansion, and efficiency upgrades of plant and equipment. During 2004, Seaboard expects to spend a total of $5.5 million, of which $4.9 million is for mill expansion and equipment in the Commodity Trading and Milling division. Total planned capital expenditures for 2004 are $26.6 million. As these capital expenditures are primarily of a normal recurring operating amount, management anticipates financing from internally generated cash, the use of available short-term investments or from existing available short-term borrowing capacity. As of December 31, 2003, there were no material commitments for planned 2004 capital expenditures as these amounts primarily represent capital budget plans only. During 2002, Seaboard invested $149.9 million in property, plant and equipment. Seaboard invested $135.1 million in the Pork segment primarily to purchase hog production facilities previously leased, expand the hog production facilities, make improvements to the pork processing plant, and purchase land and obtain operating permits for the potential Texas expansion project. The hog production facilities, previously leased from Shawnee Funding, Limited Partnership under a master lease arrangement, were purchased in 2002 for a total of $117.5 million, including the assumption of a $10.0 million bond payable and offsetting $2.2 million cash in a construction fund. This was financed primarily with the proceeds from a private placement of $109.0 million of Senior Notes, as discussed below. Seaboard also invested $9.7 million in the Marine segment primarily for the purchase of additional machinery and equipment, $2.5 million in the Sugar and Citrus segment primarily for improvements to existing facilities and sugarcane fields, and $2.6 million in all other segments for general modernization and efficiency upgrades of plant and equipment. In early 2002, Seaboard announced plans to build a second processing plant in northern Texas along with related plans to expand its vertically integrated hog production facilities. However, with the planned construction of the Triumph pork processing plant discussed above, Seaboard does not intend to make any final decisions regarding construction until late 2006 when the Triumph plant is expected to reach its operating capacity. As a result, management does not intend to proceed with the expansion project at this time beyond the expenditures required to allow future land development possibilities. If Seaboard ultimately decides to pursue this project, it would be contingent on a number of other factors, including obtaining financing for the project, obtaining the necessary permits, commitments for a sufficient quantity of hogs to operate the plant, and no statutory impediments being imposed. As of December 31, 2003, $7.4 million of land, development costs, and land purchase options were included in fixed assets related to this project. Financing Activities, Debt and Related Covenants During 2003, Seaboard extended two committed revolving credit facilities totaling $45.0 million, and entered into two new committed lines for $75.0 million and $5.0 million for use by a subsidiary in the Commodity Trading and Milling segment as a result of the increased working capital needs in the commodity trading business. The new subsidiary credit lines are secured by certain commodity trading inventory and accounts receivable and include financial covenants for that subsidiary which require maintenance of certain levels of working capital and net worth, and limitations on debt to net worth and liabilities to net worth ratios. See Note 8 to the Consolidated Financial 12 SEABOARD CORPORATION Managements's Discussion & Analysis Statements for a summary of the material terms of Seaboard's credit facilities, including financial ratios and covenants. Management believes there are currently no covenants that materially restrict our ability to undertake additional debt financings. As of December 31, 2003, Seaboard is in compliance with all restrictive covenants relating to these arrangements. In conjunction with the 2003 purchase of hog production facilities previously leased, Seaboard assumed bank debt of $24.4 million as discussed in Note 8 to the Consolidated Financial Statements. In addition, Seaboard assumed $29.9 million of bank debt from one VIE. As of December 31, 2003, the consolidation of VIEs in accordance with FIN 46, including the assumed debt, increased long-term debt by $31.5 million. In 2002, Seaboard completed the private placement of $109.0 million of Senior Notes due 2009 and 2012 with a weighted average interest rate of 6.29%. Seaboard used $107.3 million of the proceeds from this private placement to purchase the indebtedness related to hog production facilities previously leased under a master lease program, effectively reducing the net lease payments. On December 31, 2002, Seaboard paid an additional $4.1 million and assumed a $10.0 million bond payable to complete the acquisition of Shawnee Funding, Limited Partnership effectively acquiring all of the related hog production facilities previously leased and $2.2 million of cash held in a construction fund which was used to repay a portion of the bonds payable. The following table represents a summary of Seaboard's available borrowing capacity as of December 31, 2003. Borrowings outstanding under committed and uncommitted lines as of December 31, 2003 totaled $55.0 million and $20.6 million, respectively. Letters of credit (LCs) of $11.5 million reduce Seaboard's borrowing capacity under its committed credit lines. Total amount (Thousands of dollars) available Short-term credit facilities - committed $125,000 Short-term uncommitted demand notes 51,921 Total borrowing capacity 176,921 Amounts drawn against lines (75,564) Letters of credit reducing borrowing availability (11,537) Available borrowing capacity at December 31, 2003 $ 89,820 During the first quarter of 2004, Seaboard entered into two new, one-year committed credit lines totaling $45.0 million. In addition, Seaboard's committed subsidiary credit lines totaling $80.0 million were extended to April 30, 2004, at which time management expects to extend them for one additional year. During 2004, Seaboard intends to extend its $20.0 million non- subsidiary committed credit facility expiring in May for another year, and plans to evaluate the renewal of its remaining credit facilities. Scheduled long-term debt maturities range from $42.0 to $64.9 million per year over the next four years. As Seaboard's existing operations currently have no material capital expenditure needs, based on current expenditure levels it is anticipated that such annual capital expenditures will range between $25-40 million. Accordingly, management believes Seaboard's current combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations. Management does, however, periodically review various alternatives for future financings to provide additional liquidity for future operating plans. As management intends to continue seeking future opportunities for expansion in the industries in which Seaboard operates, such as the potential second processing plant discussed above, depending on the timing of such opportunities it may have to pursue various financing alternatives at that time. 13 SEABOARD CORPORATION Managements's Discussion & Analysis Contractual Obligations and Off-Balance-Sheet Arrangements A summary of the Seaboard's contractual cash obligations as of December 31, 2003 is as follows: (Thousands of dollars) 2004 2005 2006 2007 2008 Thereafter Contract grower finishing agreements $ 8,489 $ 7,789 $ 7,599 $ 7,505 $ 7,582 $ 65,533 Other operating lease payments 26,379 8,850 8,360 6,976 4,705 8,226 Total lease obligations 34,868 16,639 15,959 14,481 12,287 73,759 Long-term debt 56,983 60,258 41,975 64,880 13,845 140,597 Short-term notes payable 75,564 - - - - - Other purchase commitments 98,312 1,814 288 288 - - Total cash obligations and commitments $265,727 $78,711 $58,222 $79,649 $26,132 $214,356 To support the operations of the Pork Division, Seaboard has agreements in place with farmers to raise a portion of Seaboard's hogs according to specifications. Under the terms of the agreements, additional payments would be required if the grower achieves certain performance standards. The contract grower finishing obligations shown above do not include these incentive payments which, given current operating performance, could range from about $1.0 to $1.5 million per year. In the event the farmer is unable to perform at an acceptable level, Seaboard has the right to terminate the agreement. The Marine segment enters into short-term contracts to time- charter vessels for use in its operations. These commitments of $16.5 million for 2004 are included above in other operating lease payments. The Commodity Trading and Milling segment enters into commodity purchase contracts, primarily to support sales commitments. These purchase commitments are not included in the commitment table above as they are cancelable and may be settled net. Using December 31, 2003 spot prices to calculate commitments based on spot prices, the value of purchase contracts in place at December 31, 2003 totals $136.6 million. See Note 11 to the Consolidated Financial Statements for a further discussion and for a more detailed listing of other purchase commitments. Seaboard has also issued $3.3 million of guarantees to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard. See Note 11 to the Consolidated Financial Statements for a detailed discussion. In connection with Seaboard's December 31, 2001 sale of a ten percent minority interest in one of its power barges in the Dominican Republic, the buyer was given the option to sell its interest back to Seaboard at any time until December 31, 2004 for the book value at the time of the sale, pending collection of outstanding receivables. During January of 2004, the buyer provided notice to exercise the put option. The book value of this minority interest as of December 31, 2003 of $5.7 million is included in minority and other non-controlling interests on the Consolidated Balance Sheets. In early 2004, in conjunction with the Marketing Agreement with Triumph, as discussed above, Seaboard committed to provide Triumph with future financing of up to $1.75 million in the event of certain specified cost over-runs incurred during plant development and construction. RESULTS OF OPERATIONS Net sales increased to a record $1,981.3 million for the year ended December 31, 2003 from $1,829.3 million and $1,804.6 million for the years ended December 31, 2002 and 2001, respectively. The increase in net sales in 2003 was primarily the result of higher domestic market prices for pork products for the Pork segment and higher sales for the Marine segment attributable to higher cargo volumes. The increase in net sales in 2002 was primarily the result of increased trading volumes from expanding in certain existing and new trading markets for the Commodity Trading and Milling segment, partially offset by lower sales in the Pork segment as a result of lower sale prices for pork products from increases in domestic meat supplies. 14 SEABOARD CORPORATION Managements's Discussion & Analysis Operating income improved to $68.8 million for 2003 compared to $47.1 million in 2002 and $114.4 million in 2001. The main component of this improvement in 2003 compared to 2002 was increased pork prices. Operating income for the Commodity Trading and Milling segment declined slightly in 2003 as a result of changing crop conditions in southern Africa. The Sugar and Citrus segment had record operating income in 2003 from higher sugar prices. The Marine and Power segment incurred significant declines in their operating income in 2003 reflecting various difficulties experienced in certain countries where they conduct business. Operating income declined in 2002 compared to 2001 primarily from lower sale prices for pork products. Pork Segment (Dollars in millions) 2003 2002 2001 Net sales $ 735.7 $ 645.8 $ 772.4 Operating income (loss) $ 22.4 $ (13.9) $ 68.7 Net sales for the Pork segment increased in 2003 compared to 2002 primarily as a result of higher domestic market prices for pork products. The excess domestic meat supplies experienced during 2002 resulted in lower sales prices throughout 2002 and into early 2003, although prices have generally improved during 2003 compared with 2002, especially in the fourth quarter of 2003. However, prices have not returned to the levels achieved during 2001 when world-wide supplies of meat products were lower. Sales volumes remained relatively unchanged for 2003 compared to 2002. Operating income for the Pork segment increased in 2003 compared to operating losses incurred during 2002. The increase primarily reflects improved market prices as discussed above, partially offset by higher costs of hogs purchased from third parties for processing and higher feed costs for hogs raised by Seaboard. For 2003, operating income also includes a $3.8 million LIFO benefit (including a $7.5 million benefit in the fourth quarter), reflecting increases in the number of Seaboard-raised hogs over prior year, as compared with a $6.2 million LIFO charge to earnings in 2002 (including a $6.5 million charge in the fourth quarter). Operating income for 2003 was reduced by a $2.5 million charge for land development costs for several potential hog production sites that Seaboard determined it would no longer pursue. Currently, management is unable to determine what, if any, effect the discovery of mad cow disease in the United States in December 2003 will have on pork prices, although prices have remained favorable in the first two months of 2004. While unable to predict future market prices for pork products, feed costs and third party hogs, management currently expects overall market conditions to continue to be favorable during 2004. Future results may also be adversely affected by the proposed packer ban legislation as discussed in Note 11 to the Consolidated Financial Statements. Net sales for the Pork segment decreased in 2002 compared to 2001 as the result of lower 2002 pork prices. Reduced world-wide meat supplies during 2001 contributed to higher sales prices for that year. During 2002, domestic meat supplies increased, which resulted in significantly lower sales prices compared with the prior year. Operating income for this segment decreased in 2002 compared to 2001 primarily as the result of the lower 2002 sales prices, as discussed above and higher feed costs, partially offset by a decrease in cost of third party hogs. Commodity Trading and Milling Segment (Dollars in millions) 2003 2002 2001 Net sales $ 667.9 $ 652.1 $ 476.2 Operating income $ 16.0 $ 18.4 $ 13.2 Loss from foreign affiliates $ (0.4) $ (3.8) $ (4.5) Net sales for the Commodity Trading and Milling segment increased in 2003 compared to 2002. The increase was primarily attributed to higher selling prices and increased commodity trading volumes to affiliates. This revenue increase was partially offset by a decrease in volume for third party customers during 2003 as a result of lower grain import demands in southern Africa primarily from changed crop conditions. 15 SEABOARD CORPORATION Managements's Discussion & Analysis Operating income for this segment decreased in 2003 compared to 2002. Operating income decreased primarily from lower commodity trading activity with third parties, as noted above, increased selling expenses and reserves for bad debts. In addition, during the latter half of 2003, increased demand for bulk cargo-carrying vessels has caused a significant increase in charter hire costs. While management believes its commodity futures and options are economic hedges of its firm purchase and sales contracts, we do not perform the extensive record-keeping required to account for commodity transactions as hedges for accounting purposes. As a result, operating income for 2003 includes a gain of $2.6 million compared to losses of $1.5 million for 2002 related to mark-to- market adjustments. See Note 9 to the Consolidated Financial Statements for further discussion on accounting for commodity derivatives. Management is unable to predict future sales and operating results due to the challenging political and economic climates under which it operates, however, it does anticipate remaining profitable in 2004. Loss from foreign affiliates decreased in 2003 compared to 2002 primarily as a result of improved operating performance for several milling operations. As a result of improved local market conditions, these operations were able to obtain higher prices generally for their products. Due to the fluctuating political and economic climate in the countries in which the grain processing affiliates operate, management cannot predict whether results from these foreign affiliates will continue to improve in 2004. Net sales for this segment increased in 2002 compared to 2001. This increase is primarily the result of increased commodity trading volumes of corn and wheat to third party customers and, to a lesser extent, increased milling revenues. Commodity trading volumes to third party customers increased in 2002 compared to 2001 as Seaboard focused its efforts on expanding in certain existing and new trading markets. Milling revenues increased primarily as a result of favorable operating environments in certain foreign locations, which allowed certain mills to increase production levels. The Commodity Trading and Milling segment's operating income increased in 2002 compared to 2001. This increase was primarily a result of increased third party trading volumes and increased production at certain foreign milling operations as discussed above. Loss from foreign affiliates decreased in 2002 compared to 2001. This decrease was primarily a result of a $1.0 million charge in 2001 for the other than temporary decline in value of a shrimp business in Ecuador due to recurring losses in that business partially offset by lower 2002 operating results at certain African milling operations. Marine Segment (Dollars in millions) 2003 2002 2001 Net sales $ 409.0 $ 383.4 $ 384.9 Operating income $ 5.8 $ 16.6 $ 24.0 Net sales for the Marine segment increased in 2003 compared to 2002 exceeding $400 million for the first time in this division's twenty-year history. The increase primarily reflects increased cargo volumes in most existing markets, certain new routes added during the fourth quarter of 2002, and chartering of certain company-owned vessels to carry military cargo to the Middle East in the first quarter. The 2003 fourth quarter volumes were especially strong compared to 2002. These increases were partially offset by a decrease in average cargo rates and a significant decline in volumes in the Venezuelan and related markets. Since March 2002, this segment's operations began to experience significant declines in cargo volumes for certain South American routes due primarily to the political instability in Venezuela. Commercial activity in Venezuela has not yet recovered from the general strike that began in December 2002 and ended in February 2003. Operating income for the Marine segment decreased in 2003 compared 2002, primarily reflecting the impact of the political instability in Venezuela, discussed above, higher fuel costs, increased charter hire costs and, to a lesser extent, increased selling expenses as a result of new routes. The Marine segment did have higher operating income in the fourth quarter of 2003 compared to 2002 from increased volumes noted above, potentially indicating better future operating results. However, the duration and extent of reduced shipping demand attributed to the economic contraction from the political instability in Venezuela will continue to affect future results while shipping demand for affected South American routes remains depressed. In addition, charter hire rates in the fourth quarter of 2003 increased significantly indicating future higher operating costs. As management is not able to predict to what extent 16 SEABOARD CORPORATION Managements's Discussion & Analysis economic conditions will improve for the Venezuelan and related markets, management cannot currently predict whether this segment will achieve increased operating income during 2004. Net sales for the Marine segment remained relatively constant in 2002 compared to 2001. Overall, cargo volumes increased in most existing markets and certain new routes were added during the fourth quarter of 2002. These increases were partially offset by significant declines in certain South American routes as a result of political instability in Venezuela throughout 2002. In addition, in December 2002 a general strike commenced in Venezuela resulting in the discontinuance of all port calls to that country. The overall increase in cargo volumes was also partially offset by generally lower cargo rates in 2002 compared to 2001. Operating income for the Marine segment decreased in 2002 compared to 2001, as a direct result of the political instability in Venezuela throughout 2002 as discussed above. Sugar and Citrus Segment (Dollars in millions) 2003 2002 2001 Net sales $ 70.7 $ 57.7 $ 77.7 Operating income (loss) $ 18.8 $ 16.3 $ 6.6 Loss from foreign affiliates $ (0.3) $ - $ - Sales increased in 2003 compared to 2002 primarily as a result of higher sales prices for sugar. The peso price of sugar has increased over 2002 prices to offset the effects of the devalued peso. Partially offsetting the increase in sales price were lower sales volumes as a result of lower quantities of sugar purchased from third parties for resale. While not able to predict sugar prices, management does not expect sales prices to continue to increase and believes prices may decline in 2004 as the sugar harvest in Argentina during the second half of 2003 yielded an abundant sugar supply. Operating income for 2003 increased compared to 2002 primarily as a result of the higher sugar prices partially offset by higher operating expenses as the local economy recovers. While expenses have not increased at the same rate as sugar prices, management expects production costs will continue to increase during 2004. As future cost of sales will reflect the higher costs of the 2003 sugar harvest and production now in inventory, combined with the potential for lower sugar prices in 2004 discussed above, management expects this to result in lower operating income during 2004. However, management expects operating income to remain positive for 2004. Operating income does not include the effects of the material currency translation losses on shareholders' equity and net earnings that were incurred in 2002 and 2001. See Note 12 to the Consolidated Financial Statements for further discussion. In 2002, net sales for the Sugar and Citrus segment decreased compared to 2001, primarily reflecting the devaluation of the Argentine peso at year-end 2001, as discussed above. The reduction was partially offset by increasing peso sales prices for sugar and increased sales volumes from export sales. Operating income increased in 2002 compared to 2001, reflecting the reduction in cost of goods sold as a result of the devaluation discussed above and, to a lesser extent, improved peso sales prices. Power Segment (Dollars in millions) 2003 2002 2001 Net sales $ 69.6 $ 63.1 $ 63.6 Operating income $ 7.0 $ 14.3 $ 14.6 Net sales for the Power segment increased for 2003 compared to 2002, despite curtailed production which began in mid- December 2003, primarily reflecting an increase in rates. During 2003, spot prices increased primarily as a result of higher fuel costs, a component of pricing. The contracts with large power users reduce Seaboard's exposure to changes in spot market rates and currency fluctuations. Contract pricing and the valuation of the corresponding receivable is more closely tied to the U.S. dollar while spot market sales are stated in Dominican pesos. 17 SEABOARD CORPORATION Managements's Discussion & Analysis Operating income decreased for 2003 compared to 2002 primarily reflecting an increase in the allowance of doubtful accounts related to those government-related receivables, and increased transmission access tolls and fees. For 2003, Seaboard recorded a $4.5 million charge to earnings ($4.3 million in the fourth quarter) for an increase in the allowance for doubtful accounts compared to a credit of $2.9 million in 2002 (all in the fourth quarter) as a result of recovery of previously reserved receivables. As trade receivables for this segment have increased significantly, management continues to monitor the situation closely. Pending resolution of the crisis within the country, management cannot predict at what level it will generate electricity or whether this segment will be profitable for 2004. Foreign exchange losses included in other income (expense) for this segment totaled $6.7 million during 2003 compared to $2.0 million in 2002 and a stable exchange rate for 2001. Although the Company cannot predict foreign currency exchange rates, given the current economic condition in the Dominican Republic, without funding support it is reasonable to assume that there is the potential for additional foreign currency losses during 2004. Net sales for the Power segment remained fairly constant in 2002 compared to 2001. Operating income also remained fairly constant in 2002 compared to 2001. During 2002, increased transmission fees incurred in conjunction with spot market sales were primarily offset by recovery of previously reserved receivables. All Other Segments (Dollars in millions) 2003 2002 2001 Net sales $ 28.5 $ 27.1 $ 29.8 Operating income (loss) $ 2.0 $ (0.8) $ (8.8) Loss from foreign affiliates $ (20.6) $ (13.0) $ (5.0) Net sales and operating income for all other businesses increased for the year ended December 31, 2003 compared to 2002 primarily from improvements in the Produce Division and discontinuing certain businesses during 2002 as discussed below. For 2004, management expects operating income for All Other Segments to remain positive. The loss from foreign affiliates represents Seaboard's share of losses from equity method investments in Fjord and a Bulgarian wine business. Operating results for these investments have been recorded on a three-month lag. Seaboard's share of losses from Fjord totaled $15.5 million for 2003, including $12.4 million for Seaboard's share of asset impairment charges incurred by Fjord, compared to losses of $10.2 million in 2002. See Note 13 to the Consolidated Financial Statements for further discussion. During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord and recognized a gain on the sale of $18.0 million, recorded in Other Investment Income. The Bulgarian wine business (the Business), in which Seaboard owns approximately 37%, went through a troubled debt restructuring during 2003. As a result of this transaction, the Business incurred a loss from the sale of assets, net of the gain from debt forgiveness, of which Seaboard recorded its share, $1.5 million, during 2003. See Note 13 to the Consolidated Financial Statements for further discussion. In addition, the Business has evaluated the recoverability of its long-lived assets based on projected future cash flows and accordingly, management believes that there is not an other than temporary decline in value for this investment. As of December 31, 2003, Seaboard's book value of the investments in and advances to the Business totaled $17.0 million. Seaboard's share of losses from this Business totaled $5.0 million, $2.9 million and $3.7 million for the years ended December 31, 2003, 2002 and 2001, respectively. Net Sales for All Other segments decreased in 2002 compared to 2001 and operating loss improved for 2002 compared to 2001. These fluctuations are primarily the result of the Produce division's decision to cease shrimp, pickle and pepper farming operations in Honduras in late 2001 and, to a lesser extent, discontinuing two non-produce related small businesses during early 2002. The loss from foreign affiliates in 2002 includes a full year of Seaboard's share of losses from Fjord which totaled $10.2 million compared to $1.3 million for two quarters of losses in 2001, and losses from the Bulgarian wine business. Fjord losses increased in 2002 as a result of low worldwide salmon prices and include $3.8 million for Seaboard's share of charges incurred to close and combine certain of Fjord's operations. 18 SEABOARD CORPORATION Managements's Discussion & Analysis Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses increased $15.1 million to $118.0 million for the year ended December 31, 2003 compared to 2002. The increase primarily reflects increased bad debt expense in the Power and Commodity Trading and Milling divisions as discussed above. To a lesser extent, selling expenses also increased in the Marine and the Commodity Trading and Milling divisions related to the expansion of these businesses. As a percentage of revenues, SG&A increased to 6.0% in 2003 from 5.6% in 2002. Selling, general and administrative (SG&A) expenses decreased $12.3 million to $102.9 million in 2002 compared to 2001. This decrease is primarily a result of lower operating costs for the Sugar and Citrus segment reflecting the effects of the Argentine peso devaluation on peso denominated expenses, recovery of previously written-off receivables in the Power segment and discontinuing operations of certain other small businesses. As a percentage of revenues, SG&A decreased to 5.6% for 2002 from 6.4% in 2001. Interest Expense Interest expense totaled $26.8 million, $22.7 million and $27.7 million for the years ended December 31, 2003, 2002 and 2001, respectively. The increase in 2003 interest expense primarily reflects a higher average level of long-term borrowings outstanding during the year. The decrease in 2002 from 2001 primarily reflects lower average interest rates and, to a lesser extent, a lower average level of short-term borrowings outstanding during 2002. Interest Income Interest income totaled $2.5 million, $5.9 million and $8.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The decreasing trend since 2001 is primarily due to a decreasing average level of invested funds. The decrease for 2002 also reflects lower interest rates. Other Investment Income, Net Other investment income, net totaled $21.4 million, $0.8 million and $4.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. In the fourth quarter of 2003, Seaboard sold its equity investment in Fjord, recognizing a nontaxable gain of $18.0 million on the sale. See Note 3 to the Consolidated Financial Statements for further discussion. During 2001, Seaboard sold its shares of a long-term investment in a foreign company recognizing a gain of $3.7 million. Foreign Currency Losses Foreign currency losses totaled $8.0 million, $17.1 million and $8.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. The weakening economy and liquidity crisis in the Dominican Republic during 2003 has resulted in a significant devaluation of the Dominican peso. Foreign currency losses in 2003 in the Power segment totaled $6.7 million related to peso-denominated net assets compared to losses of $2.0 million for 2002 and a stable exchange rate in 2001. Conversely, the Argentine peso has remained fairly stable during 2003 after two years of significant devaluation. The 2002 and 2001 foreign currency losses primarily reflect the Argentine peso devaluation effect on the dollar denominated net liabilities of the Sugar and Citrus segment for those years which totaled $12.5 million and $7.8 million, respectively. See Note 12 to the Consolidated Financial Statements for further discussion. In addition, during 2003 and 2002, Seaboard experienced increased foreign currency losses in its Commodity Trading and Milling division. Seaboard operates in many developing countries throughout the world. The political and economic conditions of these markets cause volatility in currency exchange rates and expose Seaboard to the risk of exchange loss. 19 SEABOARD CORPORATION Managements's Discussion & Analysis Miscellaneous, Net Miscellaneous, net totaled $7.4 million, $(5.7) million and $5.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. Included in 2003 and 2002 is $7.0 million and $18.3 million of proceeds from settlements of antitrust litigation primarily arising out of purchases of vitamins and methionine, feed additives used by Seaboard. Miscellaneous, net also includes the impact of changing interest rates on interest rate swap agreements which mature in 2011. Seaboard pays a weighted average fixed rate of 5.52% on the notional amount of $150.0 million and receives a variable interest rate in return. These contracts are marked-to-market. During 2003 and 2002, Seaboard recorded losses of $2.3 million and $25.0 million respectively, related to these swaps reflecting the higher contracted fixed rate compared to variable rates during those years. During 2001, Seaboard recognized a gain of $2.8 million on these contracts as variable rates were higher than the average fixed rate. These swap agreements do not qualify as hedges for accounting purposes and accordingly, changes in the market value are recorded to earnings as interest rates change. See Note 9 to the Consolidated Financial Statements for additional discussion. Income Tax Expense During 2003, Seaboard generated income from foreign operations which it plans to permanently invest overseas, free from U.S. tax, and domestic source income. In addition, while the 2003 sale of Seaboard's equity interest in Fjord generated a book gain, it generated a capital loss for U.S. income tax purposes. Because of the uncertainty surrounding Seaboard's ability to utilize this loss, the tax benefit of this loss was offset by a valuation allowance. In the event Seaboard generates sufficient capital gains to utilize the capital losses, a tax benefit will be recognized. During 2002, Seaboard generated domestic source losses and also recognized a one-time tax benefit of $14.3 million related to the cumulative basis difference in the Argentine Sugar and Citrus subsidiary. See Note 7 to the Consolidated Financial Statements for further discussion. OTHER FINANCIAL INFORMATION Seaboard is subject to various federal and state regulations regarding environmental protection and land and water use. Among other things, these regulations affect the disposal of livestock waste and corporate farming matters in general. Management believes it is in compliance, in all material respects, with all such regulations. Laws and regulations in the states where Seaboard currently conducts its pork operations are restrictive. Future changes in environmental or corporate farming laws could affect the manner in which Seaboard operates its business and its cost structure. On February 12, 2003, the Environmental Protection Agency (EPA) published its final regulations related to concentrated animal feeding operations (CAFOs) which are applicable to Seaboard's hog confinement operations. The regulations require Seaboard to obtain federal National Pollutant Discharge Elimination System (NPDES) Permits and to implement nutrient management plans with respect to virtually all of Seaboard's hog confinement operations. Management believes that it will be able to obtain the requisite permits and implement the requisite nutrient management plans without incurring expenditures which would have any material adverse effect on the financial condition or results of operations. Management does not believe its businesses have been materially adversely affected by general inflation. CRITICAL ACCOUNTING ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard's financial condition and results, and which require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These critical accounting policies include: Allowance for doubtful receivables - Management uses various data and historical information to evaluate the adequacy of this reserve for receivables estimated to be uncollectible as of the consolidated balance sheet date. Changes in estimates, developing trends and other new information can have a material effect on future evaluations. Seaboard's receivables are heavily weighted towards foreign receivables ($155.8 million or 73% at 20 SEABOARD CORPORATION Managements's Discussion & Analysis December 31, 2003), including receivables from foreign affiliates as discussed below and the Power segment, which generally represent more of a collection risk than its domestic receivables. For receivables in the Power segment, which operates in the Dominican Republic (DR), Seaboard evaluates the adequacy on a specific customer basis. Historically, collection patterns in the DR have been sporadic and are sometimes based upon negotiated settlements for past due receivables resulting in material revisions to the allowance for doubtful accounts from year-to-year. See Note 13 to the Consolidated Financial Statements for further discussion of 2003 events in the DR. Future collections or lack thereof could result in a material charge or credit to earnings depending on the ultimate resolution of each individual customer past due receivable. Investments in and advances to foreign affiliates - Management uses the equity method of accounting for these investments. At the balance sheet date, management will evaluate equity investments and related advances for a potential decline in value deemed other than temporary when management believes conditions warrant such an assessment. If management believes conditions warrant an assessment, such assessment is based on future projected net cash flows expected to be generated by the asset. These projected cash flows are subjective in nature and are based on management's best estimates and judgment. In addition, in most cases there is very little industry market data available for the countries in which these operations conduct their business. Since these investments mostly involve entities in foreign countries considered underdeveloped, changes in the local economy or political environment may occur suddenly and can materially alter the evaluation and estimates used to project cash flows. In most cases, Seaboard has an ongoing business relationship through sales of grain to these entities that also includes receivables from these foreign affiliates. Management considers the long-term business prospects of such investments when making its assessment. At December 31, 2003, the total investment in and advances to foreign affiliates was $46.7 million. See Note 5 to the Consolidated Financial Statements for further discussion. Income Taxes - Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard's various business units based on management's interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management's attention which could alter previous conclusions or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse impact on the financial statements. As of December 31, 2003, Seaboard has net deferred tax assets of $73.2 million, net of the valuation allowance of $23.9 million, and net deferred tax liabilities of $140.6 million. For the years ended December 31, 2003, 2002 and 2001, income tax expense included $11.9 million, $(26.2 million) and $26.2 million for deferred taxes to federal, foreign, state and local taxing jurisdictions. Contingent liabilities - Management has evaluated the various exposures, including environmental exposures of its Pork division, as described in Note 11 to the Consolidated Financial Statements. Based on currently available information and analysis, management has analyzed the potential probability of the various exposures and believes that all such items have been adequately accrued for and reflected in the consolidated balance sheet as of December 31, 2003. Changes in information, legal statutes or events could result in management making changes in estimates that could have a material adverse impact on the financial statements. DERIVATIVE INFORMATION Seaboard is exposed to various types of market risks from its day- to-day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates and interest rates. Changes in commodity prices impact the cost of necessary raw materials, finished product sales and firm sales commitments. Seaboard uses various grain and meal futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments. Short sales contracts are then used to offset the open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively canceling the initial futures or option purchase contract. From time to time, hog futures are used to manage risks of increasing prices of live hogs acquired for processing. Because changes in foreign currency exchange rates impact the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in interest rates impact the 21 SEABOARD CORPORATION Managements's Discussion & Analysis cash required to service variable rate debt. From time to time, Seaboard uses interest rate swaps to manage risks of increasing interest rates. Inventories that are sensitive to changes in commodity prices, including carrying amounts at December 31, 2003 and 2002, are presented in Note 4 to the Consolidated Financial Statements. Raw material requirements, finished product sales, and firm sales commitments are also sensitive to changes in commodity prices. The tables below provide information about Seaboard's derivative contracts that are sensitive to changes in commodity prices. Although used to manage overall market risks, Seaboard does not perform the extensive record-keeping required to account for commodity transactions as hedges. Management continues to believe its commodity futures and options are economic hedges and not speculative transactions although they do not qualify as hedges for accounting purposes. Since these derivatives are not accounted for as hedges, fluctuations in the related commodity prices could have a material impact on earnings in any given year. The following tables present the notional quantity amounts, the weighted average contract prices, the contract maturities, and the fair values of the open commodity derivative positions at December 31, 2003. Trading: Contract Volumes Wtd.-avg. Fair Value Futures Contracts Quantity Units Price/Unit Maturity (000's) Corn purchases - long 7,148,509 bushels $ 2.78 2004 $ 662 Corn sales - short 3,167,605 bushels 3.00 2004 (150) Wheat purchases - long 9,794,144 bushels 4.02 2004 (728) Wheat sales - short 5,194,316 bushels 4.05 2004 597 Soybean meal purchases - long 249,400 tons 220.16 2004 5,083 Soybean meal sales - short 152,800 tons 231.43 2004 (1,764) Contract Volumes Wtd.-avg. Fair Value Options Contracts Quantity Units Price/Unit Maturity (000's) Soybean meal puts written - long 6,000 bushels $ 3.00 2004 $ 12 Soybean meal puts purchased - short 6,000 bushels 3.50 2004 (12) Corn puts written - long 2,411,356 bushels 0.11 2004 (5) Corn puts purchased - long 500,000 bushels 0.04 2004 14 Corn calls purchased - long collars 1,000,000 bushels 0.05 2004 51 At December 31, 2002, Seaboard had net trading contracts to purchase 11,454,000 bushels of grain (fair value of ($1,607,000)) and 98,400 tons of meal (fair value of $(10,000)). The table below provides information about the forward currency exchange agreements entered into by Seaboard's commodity trading business and the related firm commitments and trade receivables and financial instruments sensitive to foreign currency exchange rates at December 31, 2003. Information is presented in U.S. dollar equivalents and all contracts mature in 2004. The table presents the notional amounts and weighted average exchange rate. The notional amount is generally used to calculate the contractual payments to be exchanged under the contract. 22 SEABOARD CORPORATION Managements's Discussion & Analysis Contract/ Change in (Dollars in thousands) Historical Cost Fair Values Trading: Forward exchange agreements (receive $U.S./pay South African rand (ZAR)) $10,288 $ (89) Nontrading: Accounts receivables and firmly committed sales contracts (denominated in ZAR) $68,877 $ 2,764 Accounts receivables and firmly committed sales contracts (denominated in Euro) $ 773 $ (2) Firmly committed purchase contracts (denominated in ZAR) $ 196 $ 5 Related derivatives: Forward exchange agreements (receive $U.S./pay ZAR) $68,877 $(2,809) Forward exchange agreements (receive $U.S./pay Euro) $ 773 $ 2 Forward Exchange agreements (receive ZAR/pay $U.S.) $ 196 $ (5) Average contractual exchange rates: Forward exchange agreements (receive $U.S./pay ZAR) 7.06 Forward exchange agreements (receive $U.S./pay Euro) 0.83 Forward exchange agreements (receive ZAR/pay $U.S.) 6.58 At December 31, 2002, Seaboard had net agreements to exchange the equivalent of $105,447,000 of South African rand at an average contractual exchange rate of 10.01 ZAR to one U.S. dollar and $892,000 of euros at an average rate of 0.99 euro to one U.S. dollar. The table below provides information about Seaboard's non-trading financial instruments sensitive to changes in interest rates at December 31, 2003. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. At December 31, 2003, long-term debt included foreign subsidiary obligations of $2.5 million payable in Argentine pesos, $2.4 million denominated in CFA francs (a currency used in several central African countries), and $2.0 million denominated in U.S. dollars. At December 31, 2002, long-term debt included foreign subsidiary obligations of $2.6 million payable in Argentine pesos, $2.1 million denominated in CFA francs, and $2.0 million denominated in U.S. dollars. Weighted average variable rates are based on rates in place at the reporting date. Short-term instruments including short-term investments, non-trade receivables and current notes payable have carrying values that approximate market and are not included in this table due to their short-term nature. (Dollars in thousands) 2004 2005 2006 2007 2008 Thereafter Total Long-term debt: Fixed rate $55,474 $60,258 $41,975 $64,880 $13,845 $98,808 $335,240 Average interest rate 7.02% 6.78% 6.87% 4.39% 5.70% 5.75% 6.02% Variable rate $ 1,509 $ - $ - $ - $ - $41,789 $ 43,298 Average interest rate 2.43% - - - - 1.3% 1.34% Non-trading financial instruments sensitive to changes in interest rates at December 31, 2002 consisted of fixed rate long- term debt totaling $328.7 million with an average interest rate of 7.21%, and variable rate long-term debt totaling $45.9 million with an average interest rate of 1.69%. Seaboard entered into five, ten-year interest rate exchange agreements during 2001 in which Seaboard pays a stated fixed rate and receives a variable rate of interest on a total notional amount of $150.0 million. As of December 31, 2003, the weighted average fixed rate payable was 5.52% and the aggregate fair value of the contracts at December 31, 2003 of $(14.2) million was recorded in accrued financial derivative liabilities. As of December 31, 2002, these agreements had a net fair value of $(18.0) million. 23 SEABOARD CORPORATION Responsibility for Financial Statements The consolidated financial statements appearing in this annual report have been prepared by management in conformity with accounting principles generally accepted in the United States of America and necessarily include amounts based upon judgments with due consideration given to materiality. Management relies on a system of internal accounting controls that is designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with company policy and are properly recorded, and accounting records are adequate for preparation of financial statements and other information. The concept of reasonable assurance is based on recognition that the cost of a control system should not exceed the benefits expected to be derived and such evaluations require estimates and judgments. The design and effectiveness of the system are monitored by a professional staff of internal auditors. The consolidated financial statements have been audited by the independent accounting firm of KPMG LLP, whose responsibility is to examine records and transactions and to gain an understanding of the system of internal accounting controls to the extent required by auditing standards generally accepted in the United States of America and render an opinion as to the fair presentation of the consolidated financial statements. The Board of Directors pursues its review of auditing, internal controls and financial statements through its audit committee, composed entirely of independent directors. In the exercise of its responsibilities, the audit committee meets periodically with management, with the internal auditors and with the independent accountants to review the scope and results of audits. Both the internal auditors and independent accountants have unrestricted access to the audit committee with or without the presence of management. Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seaboard Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations", and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", and changed its method of accounting for costs expected to be incurred during regularly scheduled drydocking of vessels from the accrual method to the direct-expense method in 2003. /s/ KPMG LLP Kansas City, Missouri February 23, 2004 24 SEABOARD CORPORATION Consolidated Balance Sheets December 31, (Thousands of dollars except per share amounts) 2003 2002 Assets Current assets: Cash and cash equivalents $ 37,377 $ 23,242 Short-term investments 58,022 30,337 Receivables: Trade 152,136 150,563 Due from foreign affiliates 47,979 41,360 Other 13,257 26,047 213,372 217,970 Allowance for doubtful receivables (23,359) (16,178) Net receivables 190,013 201,792 Inventories 276,033 243,949 Deferred income taxes 17,972 15,481 Other current assets 35,419 42,896 Total current assets 614,836 557,697 Investments in and advances to foreign affiliates 46,680 83,855 Net property, plant and equipment 643,968 621,593 Other assets 20,207 17,996 Total Assets $1,325,691 $1,281,141 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 75,564 $ 76,112 Current maturities of long-term debt 56,983 55,869 Accounts payable 61,817 67,464 Accrued compensation and benefits 42,509 35,633 Accrued financial derivative liabilities 20,109 33,630 Income taxes payable 19,692 17,583 Other accrued liabilities 67,416 70,071 Total current liabilities 344,090 356,362 Long-term debt, less current maturities 321,555 318,746 Deferred income taxes 85,295 71,509 Other liabilities 46,720 40,639 Total non-current and deferred liabilities 453,570 430,894 Minority and other noncontrolling interests 7,466 7,154 Commitments and contingent liabilities Stockholders' equity: Common stock of $1 par value. Authorized 4,000,000 shares; issued and outstanding 1,255,054 shares 1,255 1,255 Accumulated other comprehensive loss (61,527) (67,284) Retained earnings 580,837 552,760 Total stockholders' equity 520,565 486,731 Total Liabilities and Stockholders' Equity $1,325,691 $1,281,141 See accompanying notes to consolidated financial statements. 25 SEABOARD CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, (Thousands of dollars except per share amounts) 2003 2002 2001 Net sales: Products $1,474,101 $1,365,314 $1,342,889 Service revenues 437,617 400,887 398,149 Other 69,622 63,106 63,572 Total net sales 1,981,340 1,829,307 1,804,610 Cost of sales and operating expenses: Products 1,362,904 1,296,370 1,202,752 Services 379,681 337,177 329,773 Other 51,934 45,717 42,545 Total cost of sales and operating expenses 1,794,519 1,679,264 1,575,070 Gross income 186,821 150,043 229,540 Selling, general and administrative expenses 118,035 102,918 115,188 Operating income 68,786 47,125 114,352 Other income (expense): Interest expense (26,847) (22,659) (27,732) Interest income 2,520 5,887 8,500 Other investment income, net 21,440 757 4,823 Loss from foreign affiliates (21,274) (16,826) (9,508) Minority and other noncontrolling interests (332) (1,087) - Foreign currency loss, net (7,965) (17,143) (8,776) Miscellaneous, net 7,393 (5,696) 5,564 Total other income (expense), net (25,065) (56,767) (27,129) Earnings (loss) before income taxes and cumulative effect of changes in accounting principles 43,721 (9,642) 87,223 Income tax benefit (expense) (14,747) 23,149 (35,234) Earnings before cumulative effect of changes in accounting principles 28,974 13,507 51,989 Cumulative effect of changes in accounting for asset retirement obligations, drydock accruals, and variable interest entities, net of income tax expense of $52 2,868 - - Net earnings $ 31,842 $ 13,507 $ 51,989 Net earnings per common share: Net earnings before cumulative effect of changes in accounting principles $ 23.08 $ 9.38 $ 34.95 Cumulative effect of changes in accounting for asset retirement obligations, drydock accruals, and variable interest entities 2.29 - - Net earnings per common share $ 25.37 $ 9.38 $ 34.95 Dividends declared per common share $ 3.00 $ 2.50 $ 1.00 Average number of shares outstanding 1,255,054 1,439,753 1,487,520 Pro forma amounts assuming changes in accounting for asset retirement obligations, drydock accruals, and variable interest entities were applied retroactively: Net earnings $ 28,800 $ 13,373 $ 51,890 Net earnings per common share $ 22.95 $ 9.29 $ 34.88 See accompanying notes to consolidated financial statements. 26 SEABOARD CORPORATION Consolidated Statements of Changes in Equity
Accumulated Other (Thousands of dollars Common Treasury Additional Comprehensive Retained except per share amounts) Stock Stock Capital Loss Earnings Total Balances, January 1, 2001 $1,790 $(302) $ 13,214 $ (106) $526,089 $540,685 Comprehensive loss Net earnings 51,989 51,989 Other comprehensive loss net of income tax benefit of $115: Foreign currency translation adjustment (62,433) (62,433) Unrealized loss on investments (213) (213) Unrecognized pension cost (1,273) (1,273) Cumulative effect of SFAS 133 adoption related to deferred gains on interest rate swaps 1,352 1,352 Amortization of deferred gains on interest rate swaps (200) (200) Comprehensive loss (10,778) Dividends on common stock (1,487) (1,487) Balances, December 31, 2001 1,790 (302) 13,214 (62,873) 576,591 528,420 Comprehensive income Net earnings 13,507 13,507 Other comprehensive income net of income tax benefit of $37,557: Foreign currency translation adjustment 33 33 Unrealized gain on investments 282 282 Unrecognized pension cost (4,526) (4,526) Amortization of deferred gains on interest rate swaps (200) (200) Comprehensive income 9,096 Repurchase of common stock and cancellation of treasury stock (535) 302 (13,214) (33,794) (47,241) Dividends on common stock (3,544) (3,544) Balances, December 31, 2002 1,255 - - (67,284) 552,760 486,731 Comprehensive income Net earnings 31,842 31,842 Other comprehensive income net of income tax benefit of $3,470: Foreign currency translation adjustment 6,065 6,065 Unrealized loss on investments (104) (104) Unrecognized pension cost 27 27 Unrealized loss on cash flow hedges (30) (30) Amortization of deferred gains on interest rate swaps (201) (201) Comprehensive income 37,599 Dividends on common stock (3,765) (3,765) Balances, December 31, 2003 $1,255 $ - $ - $(61,527) $580,837 $520,565 See accompanying notes to consolidated financial statements.
27 SEABOARD CORPORATION Consolidated Statements of Cash Flows Years ended December 31, (Thousands of dollars) 2003 2002 2001 Cash flows from operating activities: Net earnings $ 31,842 $ 13,507 $ 51,989 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 64,203 52,636 55,800 Loss from foreign affiliates 21,274 16,826 9,508 Other investment income, net (21,440) (757) (4,823) Foreign currency exchange (gains) losses (3,775) 15,552 7,830 Cumulative effect of accounting changes, net (2,868) - - Deferred income taxes 7,773 (26,244) 26,086 Loss (gain) from sale of fixed assets 1,280 (1,452) (1,958) Changes in current assets and liabilities: Receivables, net of allowance 14,067 (28,408) 7,085 Inventories (28,983) (50,917) (8,831) Other current assets 12,039 (3,292) (21,725) Current liabilities exclusive of debt (7,634) 41,693 31,202 Other, net 3,913 (1,658) 7,065 Net cash from operating activities 91,691 27,486 159,228 Cash flows from investing activities: Purchase of short-term investments (88,453) (129,806) (388,786) Proceeds from the sale of short-term investments 51,246 223,643 270,204 Proceeds from the maturity of short-term investments 165 2,725 84,016 Proceeds from disposition of investment in foreign affiliate 37,390 - - Investments in and advances to foreign affiliates, net (1,388) (27,674) (5,048) Capital expenditures (31,472) (149,879) (54,962) Other, net 10,490 9,487 7,101 Net cash from investing activities (22,022) (71,504) (87,475) Cash flows from financing activities: Notes payable to banks, net (548) 38,409 (42,777) Proceeds from issuance of long-term debt - 109,000 - Principal payments of long-term debt (52,922) (51,352) (31,773) Purchase of common stock - (47,241) - Sale of minority interest in a controlled subsidiary - - 5,000 Dividends paid (3,765) (3,544) (1,487) Bond construction fund 654 563 3,116 Other, net (1,588) - - Net cash from financing activities (58,169) 45,835 (67,921) Effect of exchange rate change on cash 2,635 (1,572) (595) Net change in cash and cash equivalents 14,135 245 3,237 Cash and cash equivalents at beginning of year 23,242 22,997 19,760 Cash and cash equivalents at end of year $ 37,377 $ 23,242 $ 22,997 See accompanying notes to consolidated financial statements. 28 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Operations of Seaboard Corporation and its Subsidiaries Seaboard Corporation and its subsidiaries (Seaboard) is a diversified international agribusiness and transportation company primarily engaged domestically in pork production and processing, and cargo shipping. Overseas, Seaboard is primarily engaged in commodity merchandising, flour and feed milling, sugar production, and electric power generation. Seaboard Flour, LLC (the Parent Company) is the owner of 70.7% of Seaboard's outstanding common stock. Principles of Consolidation and Investments in Affiliates The consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The investments in non-controlled affiliates are accounted for by the equity method. Financial information from certain foreign subsidiaries and affiliates is reported on a one- to three-month lag depending on the specific entity. Short-term Investments Short-term investments are retained for future use in the business and may include money market accounts, tax-exempt bonds, corporate bonds and U.S. government obligations. All short-term investments held by Seaboard are categorized as available-for- sale and are reported at fair value with any related unrealized gains and losses reported net of tax, as a component of accumulated other comprehensive income. When held, the cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Accounts Receivable Accounts receivable are recorded at the invoiced amount and primarily do not bear interest. The allowance for doubtful accounts is Seaboard's best estimate of the amount of probable credit losses in Seaboard's existing accounts receivable. For most operating segments, Seaboard uses a specific identification approach to determine, in management's best judgment, the collection value of certain past due accounts. For the Marine, and Sugar and Citrus segments, the allowance for doubtful accounts is based on an aging percentage methodology primarily based on historical write-off experience. Seaboard reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Inventories Seaboard uses the lower of last-in, first-out (LIFO) cost or market for determining inventory cost of live hogs, dressed pork product and related materials. All other inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Property, Plant and Equipment Property, plant and equipment are carried at cost and are being depreciated generally on the straight-line method over useful lives ranging from 3 to 30 years. Property, plant and equipment leases which are deemed to be installment purchase obligations have been capitalized and included in the property, plant and equipment accounts. Routine maintenance, repairs, and minor renewals are charged to operations while major renewals and improvements are capitalized. Deferred Grant Revenue Included in other liabilities at December 31, 2003 and 2002 is $9,010,000 and $9,434,000, respectively, of deferred grant revenue. Deferred grant revenue represents economic development funds contributed by government entities that were limited to construction of a hog processing facility in Guymon, Oklahoma. Deferred grants are being amortized to income over the life of the assets acquired with the funds. Income Taxes Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. 29 SEABOARD CORPORATION Notes to Consolidated Financial Statements Revenue Recognition Revenue of the containerized cargo service is recognized ratably over the transit time for each voyage. Revenue of the commodity trading business is recognized when the commodity is delivered to the customer. Revenues from all other commercial exchanges are recognized at the time title to the goods transfers to the buyer. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-lived Assets At each balance sheet date, long-lived assets, primarily fixed assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Earnings Per Common Share Earnings per common share are based upon the average shares outstanding during the period. Average shares outstanding were 1,255,054, 1,439,753 and 1,487,520 for the years ended December 31, 2003, 2002 and 2001, respectively. Basic and diluted earnings per share are the same for all periods presented. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, management considers all demand deposits and overnight investments as cash equivalents. Included in accounts payable are outstanding checks in excess of cash balances of $16,935,000 and $23,782,000 at December 31, 2003 and 2002, respectively. The amounts paid for interest and income taxes are as follows: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Interest (net of amounts capitalized) $26,891 $21,310 $29,182 Income taxes 3,039 2,856 2,557 Supplemental Noncash Transactions As of December 31, 2003, Seaboard consolidated the balance sheets of certain variable interest entities as required by Financial Accounting Standards Board (FASB) Interpretation No. 46, revised December 2003 (FIN 46) resulting in an increase in net fixed assets, related debt and other non-controlling interests of $31,717,000, $31,492,000 and $1,619,000, respectively. See below for further discussion under the caption Accounting Changes and New Accounting Standards. During 2003, in connection with the purchase of certain hog production facilities previously leased under master lease agreements, Seaboard recorded fixed assets of $25,042,000 and assumed debt and a related interest payable totaling $24,507,000. See Note 6 for additional information. During 2002, Seaboard also acquired previously leased hog production facilities valued at $117,535,000 assuming a $10,000,000 bond payable and $2.2 million of related funds held in trust which were used to repay a portion of the bonds assumed. This purchase was financed primarily with proceeds from a private placement of senior notes as discussed in Note 8. As more fully described in Note 12, the volatility of the Argentine peso has affected the U.S. dollar value of the peso- denominated assets and liabilities of the Sugar and Citrus segment. During 2003, this segment recorded non-cash net gains of $3,775,000 related to the revaluation of certain dollar- denominated net liabilities compared to non-cash net losses of $15,552,000 and $7,830,000 for 2002 and 2001, respectively. The following table shows the non-cash 30 SEABOARD CORPORATION Notes to Consolidated Financial Statements impact of the change in exchange rates on various peso- denominated balance sheet items caused by the Argentine peso devaluation during 2002 and 2001, and its subsequent strengthening during 2003. Years ended December 31, Increase (Decrease) (Thousands of dollars) 2003 2002 2001 Working capital $ 7,545 $(17,177) $(22,355) Fixed assets 6,545 (35,302) (47,244) Other long-term net assets or liabilities (62) (2,107) 625 As more fully described in Note 2, during 2001 $1,007,000 in previously recorded payables was contributed as partial consideration received for the sale of a minority interest in a power barge. Foreign Currency Transactions and Translation Seaboard has operations in and transactions with customers in a number of foreign countries. The currencies of the countries fluctuate in relation to the U.S. dollar. Certain of the major contracts and transactions, however, are denominated in U.S. dollars. In addition, the value of the U.S. dollar fluctuates in relation to the currencies of countries where certain of Seaboard's foreign subsidiaries and affiliates primarily conduct business. These fluctuations result in exchange gains and losses. The activities of these foreign subsidiaries and affiliates are primarily conducted with U.S. subsidiaries or operate in hyper-inflationary environments. As a result, the financial statements of certain foreign subsidiaries and affiliates are re-measured using the U.S. dollar as the functional currency. Seaboard's Sugar and Citrus segment and two foreign affiliates (a Bulgarian wine business and a flour and feed milling operation in Kenya), use local currency as their functional currency. Assets and liabilities of these subsidiaries are translated to U.S. dollars at year-end exchange rates, and income and expense items are translated at average rates during the year. Translation gains and losses are recorded as components of other comprehensive loss. U.S. dollar denominated net asset or liability conversions to the local currency are recorded through income. Derivative Instruments and Hedging Activities Effective January 1, 2001, Seaboard adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Investments and Hedging Activities," as amended. This statement requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. Derivatives qualify for treatment as hedges for accounting purposes when there is a high correlation between the change in fair value of the instrument and the related change in value of the underlying commitment. In order to designate a derivative financial instrument as a hedge for accounting purposes, extensive record-keeping is required. For derivatives that qualify as hedges for accounting purposes, the change in fair value has no net impact on earnings until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments for accounting purposes, or for the ineffective portion of a hedging instrument, the change in fair value does affect current period net earnings. Seaboard holds and issues certain derivative instruments to manage various types of market risks from its day-to-day operations including commodity futures and option contracts, foreign currency exchange agreements and interest rate exchange agreements. While management believes each of these instruments effectively manages various market risks, only certain instruments are designated and accounted for as hedges as a result of the extensive record-keeping requirements. Adoption of SFAS 133 resulted in adjustments during 2001 primarily to Seaboard's balance sheet as derivative instruments and related agreements and deferred amounts were recorded as assets and liabilities with corresponding adjustments to other comprehensive loss or earnings. The adoption resulted in a cumulative-effect-type adjustment increasing other comprehensive income by $1,352,000, net of related income taxes, as deferred proceeds from previously terminated swap agreements were reclassified from liabilities. The adoption did not have a material impact on net earnings or cash flows. 31 SEABOARD CORPORATION Notes to Consolidated Financial Statements Transactions with Parent Company As of December 31, 2003 and 2002, Seaboard had a liability to the Parent Company of $15,000 and $51,000, respectively for a deposit to pay for any miscellaneous operating expenses incurred by Seaboard on behalf of the Parent Company. At December 31, 2001, Seaboard had a long-term receivable balance from the Parent Company of $8,576,000. Interest on this receivable was charged at the prime rate. In the first quarter of 2002, the receivable was formalized into Promissory Notes payable upon demand, was collateralized by 100,000 shares of Seaboard stock, and Seaboard advanced an additional $1,553,000 to the Parent Company and changed the interest rate to be the greater of the prime rate or 7.88% per annum. In October 2002, Seaboard effectively repurchased common stock from its Parent Company and the Parent Company repaid the Promissory Note in full. Related interest income for the years ended December 31, 2002 and 2001 amounted to $634,000 and $580,000, respectively. See Note 12 for further discussions. Accounting Changes and New Accounting Standards Effective January 1, 2003, Seaboard adopted Statement of Financial Accounting Standard No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations," which required Seaboard to record a long-lived asset and related liability for asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close. Management has performed detailed assessments and obtained the appraisals to estimate the future retirement costs and, accordingly, on January 1, 2003, the cumulative effect of the change in accounting principle was recorded with a charge to earnings of $2,195,000 ($1,339,000 net of tax, or $1.07 per common share), an increase in fixed assets of $3,221,000, and the recognition of a liability, discounted to reflect present value, of $5,416,000. The retirement asset is depreciated over the economic life of the related asset. The annual accretion of the liability of $420,000 and depreciation of the assets of $124,000 during 2003 decreased operating income, net earnings and net earnings per common share by $544,000, $332,000 and $0.26 per share, respectively. The accrued closure obligation of $6,086,000 as of December 31, 2003 also reflects $250,000 related to sites added during 2003. If Seaboard had adopted SFAS 143 retroactively to January 1, 2001, operating income, net earnings and net earnings per common share would have decreased by $526,000, $321,000 and $0.22 per share, respectively, for 2002 and $441,000, $269,000 and $0.18 per share, respectively, for 2001. Through December 31, 2002, costs expected to be incurred during regularly scheduled drydocking of vessels were accrued ratably prior to the drydock date. Effective January 1, 2003, Seaboard changed its method of accounting for these costs from the accrual method to the direct-expense method. Under the new accounting method, drydock maintenance costs are recognized as expense when maintenance services are performed. Management believes the newly adopted accounting principle is preferable in these circumstances because the maintenance expense is not recorded until the maintenance services are performed and, accordingly, the direct-expense method eliminates significant estimates and judgments inherent under the accrual method. As a result, on January 1, 2003, the balance of the accrued liability for drydock maintenance as of December 31, 2002 for its Marine, Commodity Trading and Milling, and Power segments was reversed, resulting in an increase in earnings of $6,393,000 ($4,987,000 net of related tax expense, or $3.97 per common share) as a cumulative effect of a change in accounting principle. The change from accruing in advance to expensing as incurred increased operating income, net earnings and net earnings per common share by $1,420,000, $1,076,000 and $0.86 per share, respectively, during 2003. If the change in accounting principle was made retroactively to January 1, 2001, operating income, net earnings and net earnings per common share would have increased by $341,000, $413,000, and $0.29 per share, respectively, for 2002, and $556,000, $431,000, and $0.29 per common share, respectively, for 2001. In 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities" (VIEs). FIN 46 applies to entities if its total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated support or if the equity investors lack certain characteristics of a controlling financial interest. If an entity has these characteristics, FIN 46 requires a test to identify the primary beneficiary based on expected losses and expected returns associated with the variable interest. The primary beneficiary is then required to consolidate the entity. As of December 31, 2003, Seaboard adopted FIN 46 and performed the required analysis to determine whether its non-consolidated affiliates or other arrangements qualified as VIEs pursuant to the requirements. Based on these evaluations, the VIEs for which Seaboard was determined to be the primary beneficiary are discussed in the following paragraph. In the event of certain changes in structure as defined in FIN 46, Seaboard will re- evaluate those relationships as needed. 32 SEABOARD CORPORATION Notes to Consolidated Financial Statements Seaboard is a party to certain contract production agreements (the "Facility Agreements") with limited liability companies which own certain of the facilities used in connection with the Pork segment's vertically integrated hog production. Through December 31, 2003 these arrangements were accounted for as operating leases. These facilities are owned by companies considered to be VIEs in accordance with FIN 46, for which Seaboard is deemed to be the primary beneficiary. Accordingly, Seaboard consolidated these entities as of December 31, 2003. In December 2003, Seaboard assumed the bank debt (with a balance of $29,895,000 at December 31, 2003) of one VIE. Under that Facility Agreement, which supplies approximately 14% of the Seaboard-owned hogs processed at the plant, Seaboard has the right to acquire any or all of the properties at the adjusted production cost, as defined. In the event Seaboard does not acquire any property which it has ceased to lease, Seaboard has the obligation for any deficiency between the adjusted production cost of the property and the price for which it is sold. As of December 31, 2003, the adjusted production cost of these fixed assets was $30,699,000. Consolidation of these VIEs on December 31, 2003, including the debt assumption, increased fixed assets, debt and non-controlling interest by $31,717,000, $31,492,000 and $1,619,000, respectively, and decreased net liabilities by $116,000, with a cumulative effect of a change in accounting principle for the excess of fixed asset depreciation over mortgage loan amortization of $1,278,000, ($780,000 net of tax, or $0.62 per common share). If the consolidation requirements would have been applied retroactively to January 1, 2001, operating income, net earnings, and net earnings per common share would have decreased by $252,000, $174,000 and $0.14, respectively for 2003, $370,000, $226,000 and $0.16, respectively for 2002, and $428,000, $261,000 and $0.18 respectively for 2001. Note 2 Dispositions of Businesses Effective December 31, 2001, Seaboard sold a ten percent minority interest in its power barge placed in service during the fourth quarter of 2000 in the Dominican Republic for $6,007,000, consisting of $5,000,000 cash and $1,007,000 in contributed payables previously recorded by Seaboard. No gain or loss was recognized on the sale. As part of the sale agreement, the buyer has the option to sell its interest back to Seaboard at any time until December 31, 2004 for the recorded book value at the time of the sale, pending collections of outstanding receivables. During January 2004, the buyer provided notice to exercise his option. As of December 31, 2003, the recorded book value of $5,740,000 is included in minority and other non-controlling interests on the Consolidated Balance Sheets. Note 3 Investments Seaboard's short-term marketable debt securities are treated as available-for-sale securities and are stated at their fair market values, which approximates amortized cost. As of December 31, 2003, no investment is valued at less than its cost. All available for sale securities are readily available to meet current operating needs. The following is a summary of the estimated fair value of available-for-sale securities classified as short-term investments at December 31, 2003 and 2002. December 31, (Thousands of dollars) 2003 2002 Obligations of states and political subdivisions $24,520 $10,765 Money market funds 33,502 19,572 Total short-term investments $58,022 $30,337 33 SEABOARD CORPORATION Notes to Consolidated Financial Statements Other investment income for each year is as follows: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Realized gain on sale/exchange of non-controlled affiliates $18,036 $ - $ 18,745 Loss from other-than-temporary decline in investment value - - (18,635) Realized gain on sale of securities 1,081 383 1,192 Other 2,323 374 3,521 Other investment income, net $21,440 $ 757 $ 4,823 Through May 2001, Seaboard owned a 42.5% non-controlling interest in a joint venture in Maine primarily engaged in the production and processing of salmon and other seafood products. This investment was accounted for using the equity method. In May 2001, this joint venture completed a merger with Fjord Seafood ASA (Fjord), an integrated salmon producer and processor headquartered in Norway. The merger resulted in Seaboard exchanging its interest for 5,950,000 shares, or 7%, of common stock of Fjord. Based on the fair market value of Fjord stock on May 2, 2001, as quoted on the Oslo Stock Exchange, Seaboard recognized a gain in the second quarter of 2001 of $18,745,000 ($11,434,000 after taxes) related to this transaction. In mid-August 2001, Fjord's management announced significantly lower operating results primarily caused by sustained low market prices for salmon resulting in a decline of Fjord's stock price. On September 28, 2001, Fjord's management announced plans for a Norwegian Kroner (NOK) 700 million private placement to raise needed capital. As a result of the events discussed above and the amount of the per share price decline, management determined the decline in value of its total investment in Fjord was other than temporary. As a result, a charge to earnings was recorded in the third quarter of 2001 for $18,635,000 ($11,367,000 after taxes). In November 2001, Fjord completed the private placement. As part of this plan, Seaboard invested an additional $10,779,000 for 15,800,000 shares at NOK 6 per share, increasing its ownership to approximately 11%. During the third quarter of 2002, Seaboard increased its ownership in Fjord to approximately 21% (see Note 5). During the fourth quarter of 2003, Seaboard sold its equity investment for $37,273,000, resulting in a gain on the sale of $18,036,000, which includes approximately $3,537,000 of foreign currency translation gains previously recorded through other comprehensive income. The gain was not subject to tax. See Note 7 for further discussion of the tax treatment. Note 4 Inventories A summary of inventories at the end of each year is as follows: December 31, (Thousands of dollars) 2003 2002 At lower of LIFO cost or market: Live hogs & materials $142,396 $129,386 Dressed pork & materials 22,220 21,198 164,616 150,584 LIFO allowance (7,608) (11,422) Total inventories at lower of LIFO cost or market 157,008 139,162 At lower of FIFO cost or market: Grain, flour and feed 87,831 80,618 Sugar produced & in process 14,807 9,929 Other 16,387 14,240 Total inventories at lower of FIFO cost or market 119,025 104,787 Total inventories $276,033 $243,949 34 SEABOARD CORPORATION Notes to Consolidated Financial Statements The use of the LIFO method increased 2003 net earnings by $2,327,000 ($1.85 per common share) and decreased net earnings in 2002 and 2001 by $3,777,000 ($2.62 per common share) and $2,992,000 ($2.01 per common share), respectively. If the FIFO method had been used for certain inventories of the Pork Division, inventories would have been $7,608,000 and $11,422,000 higher than those reported at December 31, 2003 and 2002, respectively. Note 5 Investments in and Advances to Foreign Affiliates Seaboard's investments in and advances to non-controlled, non- consolidated foreign affiliates are primarily with businesses conducting flour, maize and feed milling. The location and percentage ownership of these foreign affiliates are as follows: Angola (45%), the Democratic Republic of Congo (50%), Lesotho (50%), Kenya (35%), Mozambique (50%) and Nigeria (45-48%) in Africa; Ecuador (50%) in South America; and Haiti (33%) in the Caribbean. In addition, Seaboard owns a 37% investment in, and has made advances to a wine business in Bulgaria. The equity method is used to account for these investments. The investments in foreign affiliates are primarily carried at Seaboard's share of equity in the underlying net assets of each subsidiary. Certain of these foreign affiliates operate under restrictions imposed by local governments which limit management's ability to have significant influence on their operations. These restrictions have resulted in a loss in value of these investments and advances that are other than temporary. Use of the equity method was suspended for these investments and the impairment charge to earnings was recorded in years prior to 2001. As discussed in Note 3, during the fourth quarter of 2003, Seaboard sold its equity investment in Fjord, previously accounted for as a non-controlled foreign affiliate. During the third quarter of 2002, Seaboard purchased for $26,908,000 an additional 66,666,667 shares of Fjord increasing its ownership to 21%. During 2003, the Bulgarian wine business (the Business) went through a troubled debt restructuring. See Note 13 for further discussion. In addition, as of December 31, 2003, the Business evaluated the recoverability of its long-lived assets based on projected future cash flows. Based on this evaluation, management does not believe there is an other-than-temporary decline in value for this investment. As of December 31, 2003, the book value of Seaboard's investments in and advances to the Business totaled $17,027,000. Seaboard generally is the primary provider of choice for grains and supplies purchased by the non-controlled foreign affiliates primarily conducting grain processing. Sales of grain and supplies to these non-consolidated foreign affiliates included in consolidated net sales for the years ended December 31, 2003, 2002 and 2001 amounted to $148,318,000, $124,151,000 and $113,191,000, respectively. At December 31, 2003 and 2002, Seaboard had $28,040,000 and $27,151,000, respectively, of investments in and advances to, and $46,434,000 and $41,308,000, respectively, of receivables due from, these foreign affiliates. Combined condensed financial information of the non-controlled, non-consolidated foreign affiliates for their fiscal periods ended within each of Seaboard's years ended, including the new acquisitions since their respective investment dates, and the operations of affiliates through disposition dates, are as follows: Commodity Trading and Milling Segment December 31, (Thousands of dollars) 2003 2002 2001 Net sales $329,506 296,261 280,792 Net loss $ (1,408) (9,407) (12,447) Total assets $178,458 160,658 150,085 Total liabilities $120,986 107,103 87,181 Total equity $ 57,472 53,555 62,904 35 SEABOARD CORPORATION Notes to Consolidated Financial Statements Other Businesses December 31, (Thousands of dollars) 2003 2002 2001 Net sales $614,626 438,263 174,549 Net loss $(90,497) (74,281) (24,792) Total assets $ 64,106 708,096 617,373 Total liabilities $ 49,000 476,356 497,169 Total equity $ 15,106 231,740 120,204 Although the balance sheet data for the Other Businesses in 2003 excludes amounts related to Fjord, net sales and net loss for 2003 reflect $571,978,000 and $(77,030,000) respectively, related to Fjord's operations through the date of disposition. Note 6 Property, Plant and Equipment A summary of property, plant and equipment at the end of each year is as follows: December 31, (Thousands of dollars) 2003 2002 Land and improvements $ 106,864 $ 84,879 Buildings and improvements 272,269 238,638 Machinery and equipment 544,098 502,800 Transportation equipment 108,194 106,909 Office furniture and fixtures 12,881 12,355 Construction in progress 11,658 20,426 1,055,964 966,007 Accumulated depreciation and amortization (411,996) (344,414) Net property, plant and equipment $ 643,968 $ 621,593 During 2003, Seaboard purchased certain hog production facilities previously leased under a master lease agreement for $25,042,000 consisting of $535,000 net cash and the assumption of $24,358,000 in bank debt, and a related interest payable. In addition, as of December 31, 2003, Seaboard adopted FIN 46 as discussed in Note 1, which required the consolidation of certain limited liability companies for which Seaboard was determined to be the primary beneficiary. Consolidation of these entities increased fixed assets and accumulated depreciation as of December 31, 2003 by $38,059,000 and $6,342,000, respectively. During 2003, Seaboard sold certain hog production facilities for approximately $6,400,000 and entered into a grow finish agreement with the purchaser of the facilities, with a term expiring in 2018. The deferred gain on the sale of $432,000 will be amortized over the term of that agreement. During 2002, Seaboard purchased certain hog production facilities previously leased under a master lease agreement with Shawnee Funding, Limited Partnership for $117,535,000, consisting of $107,535,000 net cash and the assumption of a $10,000,000 bond payable. This purchase was primarily financed with the proceeds from a private placement of notes for $109,000,000 as discussed in Note 8. 36 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 7 Income Taxes Income taxes attributable to continuing operations for the years ended December 31, 2003, 2002 and 2001 differ from the amounts computed by applying the statutory U.S. Federal income tax rate to earnings (loss) from continuing operations before income taxes for the following reasons: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Computed "expected" tax expense (benefit) $ 15,302 $ (3,375) $ 30,988 Adjustments to tax expense (benefit) attributable to: Foreign tax differences (9,195) (19,083) (3,175) Tax-exempt investment income (55) (87) (497) State income taxes, net of Federal benefit 407 313 582 Change in valuation allowance 4,638 10,352 6,794 Other 3,650 (11,269) 542 Income tax (benefit) expense before cumulative effect 14,747 (23,149) 35,234 Income tax expense - cumulative effect of changes in accounting principles 52 - - Total income tax (benefit) expense $ 14,799 $(23,149) $ 35,234 The components of total income taxes are as follows: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Current: Federal $ 517 $ - $ 5,635 Foreign 2,239 2,989 1,357 State and local 136 107 1,994 Deferred: Federal 10,930 (27,193) 27,565 Foreign 531 573 (113) State and local 394 375 (1,204) Income tax (benefit) expense 14,747 (23,149) 35,234 Unrealized changes in other comprehensive income 3,470 (37,557) (115) Income tax expense - cumulative effect of changes in accounting principles 52 - - Total income taxes $18,269 $(60,706) $ 35,119 37 SEABOARD CORPORATION Notes to Consolidated Financial Statements Components of the net deferred income tax liability at the end of each year are as follows: December 31, (Thousands of dollars) 2003 2002 Deferred income tax liabilities: Cash basis farming adjustment $ 13,253 $ 14,061 Deferred earnings of foreign subsidiaries 11,373 13,894 Depreciation 86,721 90,738 LIFO 29,218 14,582 140,565 133,275 Deferred income tax assets: Reserves/accruals 37,823 45,786 Tax credit carryforwards 16,877 13,443 Net operating and capital loss carryforwards 38,848 33,591 Other 3,628 3,723 97,176 96,543 Valuation allowance 23,934 19,296 Net deferred income tax liability $ 67,323 $ 56,028 While the 2003 sale of Seaboard's equity investment in Fjord generated a gain for book purposes, a capital loss was generated for tax purposes. Because of the uncertainty surrounding Seaboard's ability to utilize this loss, the tax benefit of this loss was offset by a valuation allowance. In the event Seaboard generates sufficient capital gains to utilize the capital losses, a tax benefit will be recognized. Seaboard had not previously recognized any tax benefits from losses generated by Tabacal 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 the second quarter of 2002, management completed the purchase of the outstanding shares of Tabacal not owned by Seaboard, and converted Tabacal from a Sociedad Anonima (S.A.) to a Sociedad de Responsabilidad Limitada (S.R.L.) organizational entity. This conversion resulted in the recognition of a one-time tax benefit of $48,944,000, of which $34,641,000 reduced the currency translation adjustment recorded as accumulated other comprehensive income. The remaining benefit of $14,303,000 was recognized as a current tax benefit in the Consolidated Statement of Earnings for 2002. Management believes Seaboard's future taxable income will be sufficient for full realization of the deferred tax assets. The valuation allowance relates to the tax benefits from losses on investments that would be recognized as capital losses, and from net operating losses. Management does not believe these benefits are more likely than not to be realized due to limitations imposed on the deduction of these losses. At December 31, 2003, Seaboard had tax credit carryforwards of approximately $16,877,000. Approximately $7,833,000 of these carryforwards expire in varying amounts in 2007 through 2022 while the remaining balance may be carried forward indefinitely. At December 31, 2003, Seaboard had federal net operating loss carryforwards of approximately $42,000,000 expiring in varying amounts in 2004 through 2024. At December 31, 2003 and 2002, no provision has been made in the accounts for Federal income taxes which would be payable if the undistributed earnings of certain foreign subsidiaries were distributed to Seaboard Corporation since management has determined that the earnings are permanently invested in these foreign operations. Should such accumulated earnings be distributed, the resulting Federal income taxes would amount to approximately $58,000,000. 38 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 8 Notes Payable and Long-term Debt Notes payable amounting to $75,564,000 and $76,112,000 at December 31, 2003 and 2002, respectively, consisted of obligations due banks on demand or within one year. At December 31, 2003, Seaboard had committed short-term lines totaling $125,000,000 and uncommitted lines totaling approximately $51,921,000. Borrowings outstanding under committed and uncommitted lines as of December 31, 2003 totaled $55,000,000 and $20,564,000, respectively. The committed amount includes $80,000,000 of subsidiary credit lines for the Commodity Trading and Milling segment which are secured by certain commodity trading inventory and accounts receivable, and include financial covenants for that subsidiary which require maintenance of certain levels of working capital and net worth, limitations on debt to net worth, and liabilities to net worth ratios. The committed borrowings were under the subsidiary credit line. The committed subsidiary lines include a $5,000,000 facility denominated in South African Rand, of which $4,750,000 was drawn as of December 31, 2003. At December 31, 2003, Seaboard's borrowing capacity under its committed lines was reduced by letters of credit totaling $11,537,000. The weighted average interest rates for all notes payable were 3.59% and 3.69% at December 31, 2003 and 2002, respectively. During the first quarter of 2004, Seaboard entered into two new, one-year committed credit lines for a total of $45,000,000. In addition, the subsidiary committed credit lines were extended though April 30, 2004, at which time management expects to extend such credit lines for one additional year. With the exception of the notes payable under the Commodity Trading and Milling credit lines, the notes payable from banks under the credit lines are unsecured. The lines of credit do not require compensating balances. Facility fees on these agreements are not material. As discussed in Note 6, in connection with the purchase of certain previously-leased hog production facilities during 2003, Seaboard assumed bank debt of $24,358,000 with a weighted average interest rate of 7.45% due in 2014. As discussed in Note 1, in accordance with FIN 46, on December 31, 2003 Seaboard consolidated certain limited liability companies. As a result, bank debt totaling $31,492,000 is included in notes payable to banks in the table below. In connection with this consolidation, during December 2003, Seaboard assumed the bank debt of one VIE (with a balance of $29,895,000 as of December 31, 2003, a weighted average interest rate of 7.53%, and a maturity date in 2007). During 2002, Seaboard completed a private placement of $109,000,000 of Senior Notes due 2009 and 2012 with a weighted average interest rate of 6.29%. Seaboard used $107,267,000 of the proceeds from this private placement to refinance the indebtedness related to hog production facilities previously leased under a master lease program, effectively reducing Seaboard's net lease payments. On December 31, 2002, Seaboard paid an additional $4,077,000 to complete the acquisition of Shawnee Funding, Limited Partnership, effectively acquiring all of the related hog production facilities previously leased. As part of the purchase, Seaboard also assumed a variable rate (1.3% at December 31, 2003) $10,000,000 bond payable due 2014, and $2,210,000 of related cash in a construction fund which was used to repay a portion of bond during 2003. 39 SEABOARD CORPORATION Notes to Consolidated Financial Statements A summary of long-term debt at the end of each year is as follows: December 31, (Thousands of dollars) 2003 2002 Private placements: 6.49% senior notes, due 2004 through 2005 $ 40,000 $ 60,000 7.88% senior notes, due 2004 through 2007 100,000 125,000 5.80% senior notes, due 2005 through 2009 32,500 32,500 6.21% senior notes, due 2009 38,000 38,000 6.21% senior notes, due 2006 through 2012 7,500 7,500 6.92% senior notes, due 2012 31,000 31,000 Industrial Development Revenue Bonds, floating rates (1.25% at December 31, 2003) due 2014 through 2027 42,989 45,600 Notes payable to banks, 5.79 - 8.58%, due 2004 through 2014 76,424 24,654 Foreign subsidiary obligations, 10.00% - 17.50%, due 2004 through 2010 6,582 6,432 Foreign subsidiary obligation, floating rate due 2004 309 307 Capital lease obligations and other 3,234 3,622 378,538 374,615 Current maturities of long-term debt (56,983) (55,869) Long-term debt, less current maturities $321,555 $318,746 Of the 2003 foreign subsidiary obligations, $2,490,000 is payable in Argentine pesos, $2,401,000 is denominated in CFA francs and the remaining $2,000,000 is denominated in U.S. dollars. Of the 2002 foreign subsidiary obligations, $2,601,000 is payable in Argentine pesos, $2,138,000 is denominated in CFA francs and the remaining $2,000,000 is denominated in U.S. dollars. At December 31, 2003, Argentine land, sugar production facilities and equipment with a depreciated cost of $4,768,000 secured certain bond issues and foreign subsidiary debt. Included in other current assets at December 31, 2003 and 2002 are $1,289,000 and $4,152,000 respectively, of unexpended bond proceeds held in trust that are invested in accordance with the bond issuance agreements. During 2004, Seaboard expects to use remaining construction funds to redeem portions of or pay interest on the related industrial development revenue bonds (IDRBs). As a result, as of December 31, 2003, $1,200,000 of related debt was included in current maturities of long-term debt. The terms of the note agreements pursuant to which the senior notes, IDRBs, notes payable to banks and revolving credit facilities were issued require, among other terms, the maintenance of certain ratios and minimum net worth, the most restrictive of which requires the ratio of consolidated funded debt to consolidated shareholders' equity, as defined, not to exceed .90 to 1; an interest charge coverage ratio of 2.0 to 1.0; requires the maintenance of consolidated tangible net worth, as defined, of not less than $350,000,000 plus 25% of cumulative consolidated net income beginning January 1, 2003; limits aggregate dividend payments to $10.0 million plus 50% of consolidated net income less 100% of consolidated net losses beginning January 1, 2002 ($29,181,000 as of December 31, 2003); limits the sum of subsidiary funded debt and basket-secured debt, as defined, to 20% of consolidated tangible net worth; and limits Seaboard's ability to sell assets under certain circumstances. Seaboard is in compliance with all restrictive debt covenants relating to these agreements as of December 31, 2003. Annual maturities of long-term debt at December 31, 2003 are as follows: $56,983,000 in 2004, $60,258,000 in 2005, $41,975,000 in 2006, $64,880,000 in 2007, $13,845,000 in 2008 and $140,597,000 thereafter. 40 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 9 Derivatives and Fair Value of Financial Instruments Financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short- term nature of the instruments. The cost and fair values of investments and long-term debt at December 31, 2003 and 2002 are presented below. December 31 2003 2002 (Thousands of dollars) Cost Fair Value Cost Fair Value Short-term investments $ 58,022 $ 58,022 $ 30,337 $ 30,337 Long-term debt 378,538 386,814 374,615 386,732 The fair value of the short-term investments is based on quoted market prices at the reporting date for these or similar investments. The fair value of long-term debt is determined by comparing interest rates for debt with similar terms and maturities. Commodity Instruments Seaboard uses various grain and meal futures and options to manage its exposure to price fluctuations for raw materials, finished product sales and firm sales commitments. However, due to the extensive record-keeping required to designate the commodity derivative transactions as hedges for accounting purposes, Seaboard marks to market its commodity futures and options primarily as a component of cost of sales. Management continues to believe its commodity futures and options are economic hedges although they do not qualify as hedges for accounting purposes. Since these derivatives are not accounted for as hedges, fluctuations in the related commodity prices could have a material impact on earnings in any given year. At December 31, 2003 and 2002, Seaboard had open net contracts to purchase 409,000 and 410,000 metric tons of grain with fair values of $3,760,000 and $(1,617,000) respectively, included with other current assets or accrued financial derivative liabilities on the Consolidated Balance Sheets. For the years ended December 31, 2003, 2002 and 2001 Seaboard realized net gains (losses) of $4,882,000, $5,304,000, and $(2,681,000) related to commodity contracts, primarily included in cost of sales on the Consolidated Statements of Earnings. Foreign currency exchange agreements Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies, primarily related to its commodity trading business. Seaboard accounts for its currency exchange hedges of firm commitments and trade receivables from third parties as fair value hedges. Exchange agreements related to firm commitments and receivables from foreign affiliates are accounted for as cash flow hedges. For foreign currency exchange agreements designated as fair value hedges, the derivative gains and losses are recognized in operating income along with the change in fair value of the related contract. For foreign currency exchange agreements designated as cash flow hedges, the derivative gains and losses are included as a component of other comprehensive income until the underlying contract is recorded and revalued through earnings. The change in value of third party firm commitments and all foreign exchange derivatives are included in other current assets or accrued financial derivative liabilities on the Consolidated Balance Sheets. The firm sales commitments and related derivatives mature during 2004. The net gains and losses from the exchange agreements were not material for the years ended December 31, 2003, 2002 and 2001. At December 31, 2003 and 2002, Seaboard had hedged South African Rand (ZAR) denominated firm sales contracts and trade receivables from third parties with historical values totaling $64,353,000 and $98,242,000 with changes in fair values of $2,734,000 and $15,864,000, respectively. To hedge the change in value of these firm contracts and trade receivables, Seaboard entered into agreements to exchange $64,353,000 and $93,396,000 of contracts denominated in ZAR, with derivative fair values of $(2,779,000) and $(14,043,000), respectively. As of December 31, 2003, Seaboard also had ZAR denominated firm purchase contracts with historical values totaling $196,000 and changes in fair value totaling $5,000. Hedging the change in value of these agreements, Seaboard entered into agreements to exchange $196,000 for ZAR with derivative fair values totaling $(5,000) at December 31, 2003. 41 SEABOARD CORPORATION Notes to Consolidated Financial Statements At December 31, 2003 and 2002, Seaboard had hedged Euro denominated sales contracts and trade receivables from third parties totaling $773,000 and $890,000 with changes in fair value of $(2,000) and $32,000, respectively. To hedge the changes in values of the firm contracts and receivables, at December 31, 2003 and 2002 Seaboard had open agreements to exchange $773,000 and $892,000 of contracts denominated in Euros with derivative fair values of $2,000 and $(33,000), respectively. At December 31, 2003, Seaboard had ZAR denominated firm sales contracts with a foreign affiliate with historical values totaling $4,524,000 and changes in fair values of $30,000. To hedge the change in value of these contracts, Seaboard entered into agreements to exchange $4,524,000 of contracts denominated in ZAR with derivative fair values of $(30,000), which are included as a component of other comprehensive income at December 31, 2003. At December 31, 2003 and 2002, Seaboard also had trading foreign exchange contracts (receive $U.S./pay ZAR) to cover various foreign currency working capital needs for notional amounts of $10,288,000 and $12,051,000, respectively, with fair values of $(89,000) and $(241,000). Interest Rate Exchange Agreements Seaboard, from time-to-time, enters into interest rate exchange agreements which involve the exchange of fixed-rate and variable- rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt. At December 31, 2003 and 2002, deferred gains on prior year's terminated interest rate exchange agreements (net of tax) totaled $751,000 and $952,000, respectively, relating to swaps that hedged variable rate debt. This amount is included in accumulated other comprehensive loss on the Consolidated Balance Sheet. For the years ended December 31, 2003, 2002 and 2001, interest rate exchange agreements accounted for as hedges, including any amortization of terminated proceeds, decreased interest expense by $329,000, $329,000 and $326,000, respectively. At December 31, 2003 and 2002 Seaboard had five, ten-year interest rate exchange agreements outstanding that are not paired with specific variable rate contracts, whereby Seaboard pays a stated fixed rate and receives a variable rate of interest on a total notional amount of $150,000,000. While Seaboard has certain variable rate debt, these interest rate exchange agreements do not qualify as hedges for accounting purposes. At December 31, 2003 and 2002, the fair values of these contracts totaled $(14,160,000) and $(18,019,000), respectively, and are included in accrued financial derivative liabilities on the Consolidated Balance Sheets. For the years ended December 31, 2003, 2002, and 2001 the net gain (loss) for interest rate exchange agreements not accounted for as hedges were $(2,296,000), $(25,030,000) and $2,808,000, respectively, and are included in miscellaneous, net in the Consolidated Statements of Earnings. Included in the losses for 2003 and 2002 are net payments of $6,155,000 and $4,970,000 for the difference between the fixed rate paid and variable rate received on these contracts. Note 10 Employee Benefits Seaboard maintains a defined benefit pension plan (the Plan) for its domestic salaried and clerical employees. Seaboard also sponsors non-qualified, unfunded supplemental executive plans. The plans generally provide for normal retirement at age 65 and eligibility for participation after one year's service upon attaining the age of 21. Seaboard bases pension contributions on minimum funding standards to avoid the Pension Benefit Guaranty Corporation variable rate premiums established by the Employee Retirement Income Security Act of 1974. During 2004, management expects to contribute approximately $7,000,000 to the Plan to meet the minimum funding requirements. Benefits are generally based upon the number of years of service and a percentage of final average pay. Plan assets are invested to achieve a diversified overall portfolio of various mutual funds. Seaboard is willing to accept a moderate level of risk to potentially achieve higher investment returns. The overall portfolio is evaluated relative to customized benchmarks, and is expected to exceed the customized benchmark over five year rolling periods and longer. The investment strategy is periodically reviewed for continued appropriateness. Derivatives, real estate investments, non- marketable and private equity or placement securities are not allowed investments under the Plan. Seaboard's asset allocation targets and actual investment composition within the Plan are as follows: 42 SEABOARD CORPORATION Notes to Consolidated Financial Statements Actual Plan Composition Target Percentage at December 31, of Portfolio 2003 2002 Domestic Large Cap Equity 35% 36% 37% Domestic Small Cap Equity 15% 16% 15% International Equity 15% 14% 12% Domestic Fixed Income 35% 34% 36% Assumptions used in determining pension information for the plans were: Years ended December 31, 2003 2002 2001 Weighted-average assumptions Discount rate 6.25% 6.75% 7.25% Expected return on plan assets 8.25% 8.45% 8.75% Long-term rate of increase in compensation levels 4.00-5.00% 4.00-5.00% 4.00-5.00% Management selects the discount rate based on Moody's year-end published Aa corporate bond yield plus 25 basis points (to reflect the long-term nature of the pension liability compared to the average duration of the corporate bond), rounded to the nearest quarter percentage point. The expected return on Plan assets assumption is based on the weighted average of asset class expected returns that are consistent with historical returns. The assumed rate is selected to fall between the 50th and 75th percentiles of model-based results that reflect the plan's asset allocation. The measurement date for the Plan is December 31. The changes in the plans' benefit obligations and fair value of assets for the years ended December 31, 2003 and 2002, and a statement of the funded status as of December 31, 2003 and 2002 are as follows: December 31, (Thousands of dollars) 2003 2002 Reconciliation of benefit obligation: Benefit obligation at beginning of year $ 49,167 $ 41,126 Service cost 2,892 2,242 Interest cost 3,407 2,978 Actuarial losses 6,454 4,466 Benefits paid (1,886) (1,645) Benefit obligation at end of year 60,034 49,167 Reconciliation of fair value of plan assets: Fair value of plan assets at beginning of year 23,987 25,661 Actual return on plan assets 6,004 (2,391) Employer contributions 5,089 2,362 Benefits paid (1,886) (1,645) Fair value of plan assets at end of year 33,194 23,987 Funded status (26,840) (25,180) Unrecognized transition obligation 301 407 Unamortized prior service cost (664) (802) Unrecognized net actuarial losses 17,029 15,396 Accrued benefit cost $(10,174) $(10,179) 43 SEABOARD CORPORATION Notes to Consolidated Financial Statements Amounts recognized in the Consolidated Balance Sheets as of December 31, 2003 and 2002 consist of: December 31, (Thousands of dollars) 2003 2002 Accrued benefit liability $(19,221) $(19,610) Accumulated other comprehensive loss 9,047 9,431 Accrued benefit cost $(10,174) $(10,179) As of December 31, 2003, the projected benefit obligation and accumulated benefit obligation for unfunded pension plans were $12,633,000 and $9,161,000, respectively. As of December 31, 2002, the projected benefit obligation and accumulated benefit obligation for unfunded pension plans were $8,918,000 and $6,618,000, respectively. The net periodic benefit cost of these plans was as follows: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Components of net periodic benefit cost: Service cost $ 2,892 $ 2,242 $ 1,886 Interest cost 3,407 2,978 2,751 Expected return on plan assets (2,128) (2,209) (2,404) Amortization and other 913 232 21 Net periodic benefit cost $ 5,084 $ 3,243 $ 2,254 Seaboard also has certain individual, non-qualified, unfunded supplemental retirement agreements for certain executive employees. Pension expense for these plans was $697,000, $726,000 and $936,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Included in other liabilities at December 31, 2003 and 2002 is $10,260,000 and $9,975,000, respectively, representing the accrued benefit obligation for these plans. As of December 31, 2003, an unrecognized pension cost related to this plan of $415,000 was included in accumulated other comprehensive loss, net of related tax. Seaboard maintains a defined contribution plan covering most of its domestic salaried and clerical employees. Seaboard contributes to the plan an amount equal to 100% of employee contributions up to a maximum of 3% of employee compensation. Employee vesting is based upon years of service with 20% vested after one year of service and an additional 20% vesting with each additional complete year of service. Contribution expense was $1,471,000, $1,428,000 and $1,301,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Seaboard has an Investment Option Plan which allows certain employees to reduce their compensation in exchange for options to buy shares of certain mutual funds and/or pooled separate accounts. The exercise price for each investment option is established based upon the fair market value of the underlying investment on the date of grant. Seaboard contributes to the plan based on 3% of the employees reduced compensation. Seaboard's expense for this plan, which primarily includes amounts related to the change in fair value of the underlying investment accounts, was $2,127,000, $(1,360,000), and $303,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Included in other liabilities at December 31, 2003 and 2002 is $8,275,000 and $3,942,000 representing the market value of the payable to the employees upon exercise. In conjunction with this plan, Seaboard has purchased the specified number of units of the employee-designated investment plus the option price. These investments are treated as trading securities and are stated at their fair market values. Accordingly, as of December 31, 2003 and 2002, $10,742,000 and $5,673,000 were included in other current assets on the Consolidated Balance Sheets. Investment income related to the mark-to-market of these investments for 2003, 2002, and 2001 totaled $2,061,000, $(1,430,000) and $244,000, respectively. 44 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 11 Commitments and Contingencies In early 2003, individual legislative bills (the Bills) were introduced in the United States Senate and House of Representatives which include a provision to prohibit meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter. The Bills also contain a transition rule applicable to packers of pork providing for an effective date which is 18 months after enactment. Similar language was passed by the U.S. Senate in 2002 as part of the Senate's version of the Farm Bill, but was eventually dropped in conference committee and was not part of the final Farm Bill. If any of the Bills containing the proposed language becomes law, it could have a material adverse effect on Seaboard, its operations and its strategy of vertical integration in the pork business. Currently, Seaboard has the capacity to produce over three and one-half million hogs per year at facilities it either owns or leases or at facilities owned and operated by third parties with whom it has grower contracts. If passed in their current form, the Bills would prohibit Seaboard from owning or controlling hogs, and thus would require divestiture of our operations, possibly at prices which are below the carrying value of such assets as recorded on the balance sheet, or otherwise restructure its ownership and operation. At December 31, 2003, Seaboard has $403,322,000 in hog production facilities classified as net fixed assets on the Consolidated Balance Sheet. In addition, Seaboard has $142,396,000 invested in live hogs and related materials classified as inventory on the Consolidated Balance Sheet. The Bills could also be construed as prohibiting or restricting Seaboard from engaging in various contractual arrangements with third party hog producers, such as traditional contract finishing arrangements. At December 31, 2003, Seaboard has firm commitments of $104,497,000 through 2018 for various grow finishing agreements. Accordingly, Seaboard's ability to contract for the supply of hogs to its processing facility could be significantly, negatively impacted. Seaboard, along with industry groups and other similarly situated companies are vigorously lobbying against enactment of any such legislation. However, management cannot presently predict the ultimate outcome. Seaboard reached an agreement in 2002 to settle litigation brought by the Sierra Club. Under the terms of the settlement, Seaboard is conducting an investigation at three farms and potentially will be required to take remedial actions at the farms if conditions so warrant. Seaboard is subject to regulatory actions and an investigation by the United States Environmental Protection Agency and the State of Oklahoma. In the opinion of management, the above action and investigation are not expected to result in a material adverse effect on Seaboard's consolidated financial statements. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements. Seaboard was a plaintiff in lawsuits against several manufacturers of vitamins and methionine, feed additives used by Seaboard, which pleaded guilty in the context of criminal proceedings to price fixing. The manufacturers admitted to the price fixing in the criminal context, and were liable for the overcharges made. During 2003 and 2002, Seaboard recorded miscellaneous income of $6,960,000 and $18,315,000, respectively, representing amounts received as settlement from the manufacturers. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further business objectives. Seaboard does not issue guarantees of third parties for compensation. The following table sets forth the terms of guarantees as of December 31, 2003. 45 SEABOARD CORPORATION Notes to Consolidated Financial Statements Guarantee beneficiary Maximum exposure Maturity Foreign non-consolidated affiliate grain $ 1,300,000 2004 processor - Uganda Foreign non-consolidated affiliate food $ 400,000 2004 product distributor - Ecuador Various hog contract growers $ 1,585,000 2004 Seaboard guaranteed a bank borrowing for a subsidiary of a foreign affiliate grain processor in Kenya, Unga Holdings Limited (Unga), a non-consolidated milling affiliate, to facilitate bank financing used for the rehabilitation and expansion of a milling facility in Uganda. This guarantee was a part of the original purchase agreement with Unga when Seaboard first invested in this company in 2000. The guarantee can be drawn upon in the event of non-payment of a bank borrowing by Unga. While the guarantee may be cancelled by Seaboard annually, the bank has the right to draw on the guarantee in the event it is advised that the guarantee will be cancelled. The guarantee renews annually until the debt expires in 2007. Unga Holdings has provided a reciprocal guarantee to Seaboard. As of December 31, 2003, $1,121,000 of borrowings was outstanding related to this guarantee. The non-consolidated affiliate food product distributor in Ecuador purchases certain products from a U.S. domiciled vendor. Seaboard has guaranteed the payments in order to secure normal credit terms for this affiliate. Seaboard has guaranteed a portion of the bank debt for certain farmers, which debt proceeds were used to construct facilities to raise hogs for Seaboard's Pork division. The guarantees enabled the farmers to obtain favorable financing terms. These bank guarantees renew annually until the underlying debt is fully repaid in 2013-2014. The maximum exposure to Seaboard from these guarantees is $1,585,000. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considered the likelihood of loss to be remote. As of December 31, 2003, Seaboard had outstanding $11,537,000 of letters of credit (LCs) with various banks that reduced Seaboard's borrowing capacity under its committed credit facilities as discussed in Note 8. The largest letter of credit of $7,200,000 is for workers compensation insurance. Also included is an LC for $1,519,000 to support purchases for a non- controlled affiliate mill expansion project. While this affiliate has sufficient liquidity to pay for the improvements, the mill is located in Haiti and the LC was posted in lieu of advance vendor payments for the purchases. Commitments As of December 31, 2003 Seaboard had various noncancelable purchase commitments and commitments under operating leases as described in the table below. Purchase commitments Years ended December 31, (Thousands of dollars) 2004 2005 2006 2007 2008 Thereafter Grain and feed ingredients $ 42,287 $ 450 $ - $ - $ - $ - Fuel purchase contract 32,472 - - - - - Charter hire contracts 16,321 - - - - - Equipment purchases and facility improvements 3,998 - - - - - Other purchase commitments 1,870 - - - - - Hog procurement contracts 1,364 1,364 288 288 - - Total firm purchase commitments 98,312 1,814 288 288 - - Contract grower finishing agreements 8,489 7,789 7,599 7,505 7,582 65,533 Other operating lease payments 26,379 8,850 8,360 6,976 4,705 8,226 Total unrecognized firm commitments $133,180 $18,453 $16,247 $14,769 $12,287 $73,759 46 SEABOARD CORPORATION Notes to Consolidated Financial Statements Seaboard has entered into grain and feed ingredient purchase contracts to support the live hog operations of the Pork segment. The commitment amount included in the table are based on market prices as of December 31, 2003. The Power segment has entered into a contract for the supply of substantially all fuel required for 2004 at market-based prices. The fuel vendor is affiliated with the Dominican Republic government. The fuel commitment shown above reflects the average price per barrel at December 31, 2003 for the number of barrels specified in the agreement. The Power division has reduced its production resulting in reduced fuel requirements. While the quantity to be delivered is stated in the contract, the vendor has allowed Seaboard to reduce the amount of fuel purchases. The Commodity Trading and Milling segment has short-term time- charter and voyage-charger contracts in place to provide delivery of future grain sales. This segment also enters into commodity purchase contracts, primarily to support sales commitments. These purchase commitments are not included in the commitment table above as they are cancelable and may be settled net. Using December 31, 2003 spot prices to calculate commitments based on spot prices, the value of purchase contracts in place at December 31, 2003 totals $136,645,000. To support the operations of the Pork division, Seaboard has agreements in place with farmers to raise a portion of Seaboard's hogs according to Seaboard's specifications under long-term purchase contracts. Under the terms of the agreements, additional payments would be required if the grower achieves certain performance standards. The contract grower finishing obligations shown above do not reflect these incentive payments which, given current operating performance, could range from about $1,000,000 to $1,500,000 per year. In the event the farmer is unable to perform at an acceptable level, Seaboard has the right to terminate the contract. The Marine segment enters into short-term contracts to time- charter vessels for use in its operations. These commitments of $16,541,000 for 2004 are included above in other operating lease payments. Seaboard leases various ships, facilities and equipment under noncancelable operating lease agreements. Rental expense for operating leases, including payments made under the Facility Agreements prior to adoption of FIN 46, amounted to $60,751,000, $71,124,000 and $64,484,000 in 2003, 2002 and 2001, respectively. Seaboard's Sugar and Citrus segment has agreed to market certain sugar products for a third party under a contract expiring in 2008. In the event Seaboard does not perform under the contract, it would be responsible to make payments to the third party of a maximum of $800,000 for 2004, decreasing annually to $200,000 through 2008. In early 2004, in conjunction with a marketing agreement with Triumph Foods LLC (Triumph), Seaboard committed to provide Triumph with up to $1,750,000 of future financing in the event of specified costs over-runs incurred in the development and construction of the plant. Note 12 Stockholders' Equity and Accumulated Other Comprehensive Loss In October 2002, Seaboard consummated a transaction with the Parent Company, pursuant to which Seaboard effectively repurchased 232,414.85 shares of its common stock owned by the Parent Company for $203.26 per share. Of the total consideration of $47,241,000, the Parent Company was required under the terms of the transaction immediately to pay $11,260,000 to Seaboard to repay in full all indebtedness owed by the Parent Company to Seaboard, and to use the balance of the consideration to pay bank indebtedness of the Parent Company and transaction expenses. The transaction was approved by Seaboard's Board of Directors after receiving the recommendation in favor of the transaction by a special committee of independent directors. The special committee was advised by independent legal counsel and an independent investment banking firm. As a result of the transaction, the Parent Company's ownership interest dropped from approximately 75 percent to approximately 71 percent. 47 SEABOARD CORPORATION Notes to Consolidated Financial Statements As a part of the transaction, the Parent Company also transferred to Seaboard rights to receive possible future cash payments from a subsidiary of the Parent Company, based primarily on the future sale of real estate owned by that subsidiary. To the extent Seaboard receives cash payments in the future as a result of those transferred rights, Seaboard will issue to the Parent Company, at the ten day rolling average closing price, determined as of the twentieth day prior to the issue date, new shares of common stock. The maximum number of shares of common stock which may be issued to the Parent Company under this transaction is capped and cannot exceed the number of shares which were originally purchased from the Parent Company. The right to receive such payments expires September 17, 2007. As of December 31, 2003, Seaboard had not received any cash payments from the subsidiary of its Parent Company. During the fourth quarter of 2002, Seaboard cancelled 534,547 shares of common stock held in treasury including shares previously held by the Parent Company. The components of accumulated other comprehensive loss, net of related taxes, are summarized as follows: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Cumulative foreign currency translation adjustment $(56,490) $(62,555) $(62,588) Unrealized gain (loss) on investments 14 118 (164) Unrecognized pension cost (5,772) (5,799) (1,273) Net unrealized loss on cash flow hedges (30) - - Deferred gain on interest rate swaps 751 952 1,152 Accumulated other comprehensive loss $(61,527) $(67,284) $(62,873) The foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar and Citrus segment. During the fourth quarter of 2001, the Argentine government lifted the one to one parity of the peso with the U.S. dollar which resulted in immediate and significant devaluation. The devaluation continued throughout 2002 but the peso regained some value during 2003. Since the parity was lifted, the peso has lost approximately 67% of its value against the dollar. As a result of the change in peso value, stockholders' equity increased for the year ended December 31, 2003 by $10,749,000, compared to decreases of $50,372,000 and $68,974,000 for the years ended December 31, 2002 and 2001, respectively. These changes reflect the foreign currency exchange gains and losses recorded in earnings in each year by $519,000, $(12,540,000) and $(7,830,000) for 2003, 2002 and 2001, respectively, relating to net dollar-denominated debt of the Argentine subsidiary, and currency translation adjustments of $10,230,000, $(37,832,000) and $(61,144,000) as other comprehensive gains or losses for the peso-denominated net assets as of December 31, 2003, 2002, and 2001, respectively. At December 31, 2003, the Sugar and Citrus segment has $66,334,000 in net assets denominated in Argentine pesos and $17,286,000 in net liabilities denominated in U.S. dollars in Argentina. Until 2002, no tax benefit was provided related to this reduction of shareholders' equity. However, after a series of transactions was completed in 2002 which changed the organizational structure of this subsidiary as described in Note 7, Seaboard recorded a 35% deferred tax benefit relating to the currency translation adjustment component of accumulated other comprehensive loss and a one-time current benefit of $14,303,000 through the Consolidated Statements of Earnings. With the exception of the provision related to the foreign currency translation gains and losses discussed above, which are taxed at a 35% rate, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. 48 SEABOARD CORPORATION Notes to Consolidated Financial Statements Note 13 Segment Information Seaboard Corporation had five reportable segments through December 31, 2003: Pork, Commodity Trading and Milling, Marine, Sugar and Citrus, and Power, each offering a specific product or service. The Pork segment produces and sells fresh and frozen pork to further processors, foodservice outlets, grocery stores and other retail outlets, and distributors primarily in the western half of the United States and foreign markets. The Commodity Trading and Milling segment markets wheat, corn, soybean meal and other commodities in bulk to third-party customers internationally and to non-consolidated foreign affiliates, and operates foreign flour, maize and feed mills. The Marine segment, primarily based out of the Port of Miami, provides containerized cargo shipping services between the United States, the Caribbean basin, and Central and South America. The Sugar and Citrus segment produces and processes sugar and citrus in Argentina primarily to be marketed locally. The Power segment operates as an unregulated independent power producer in the Dominican Republic generating power from a series of diesel engines mounted on two barges. Revenues from all other segments are primarily derived from the jalapeno pepper processing and domestic trucking transportation operations. Each of the five main segments is separately managed and each was started or acquired independent of the other segments. As discussed in Note 6, during 2003, Seaboard purchased certain hog production facilities previously leased increasing the Pork segment's assets by $25,042,000. As discussed in Note 1, as of December 31, 2003, in accordance with FIN 46, Seaboard consolidated the net assets of certain limited liability companies which own certain of the facilities used in connection with the Pork segment's vertically integrated hog production. Consolidation of these entities increased the Pork segment's assets by $31,709,000 as of December 31, 2003. 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 1, as a result of currency fluctuations, the carrying value of peso- denominated assets has increased by $15,399,000 during 2003. As a result of the weakened economic environment in the Dominican Republic (DR), where the Power segment operates, the local government has experienced liquidity problems which have impaired its ability to pay commercial creditors on a timely basis. The liquidity problems have directly affected the government-owned distribution companies and other companies that must collect from the government to make payments on their accounts. During the latter half of 2003, certain customers did not make any payments for electric power sold to them by Seaboard. As of December 31, 2003, Seaboard had $20,734,000 in receivables from these customers not making payments. In mid-December 2003, Seaboard began to fluctuate its level of power generation between full capacity and approximately 50% based on management's belief about collectibility. As a result, Seaboard recorded a $4,284,000 charge to operating expense during the fourth quarter of 2003 to increase the allowance for doubtful accounts related to the nonpaying customers. For 2002, the allowance was reduced by $2,932,000, reflecting the recovery of previously reserved receivables for which Seaboard had negotiated full payment for all past due amounts. The economic environment in the DR weakened significantly during 2003 resulting in the devaluation of the Dominican peso of approximately 68%. Foreign exchange losses included in other income (expense) for this segment totaled $6,735,000 compared to $1,952,000 for 2002 and a stable exchange rate for 2001. The peso has continued to devalue through February 2004. During the fourth quarter of 2001, Seaboard ceased shrimp, pickle and pepper farming operations in Honduras. As a result, Seaboard incurred a charge to earnings for $1,300,000 primarily related to employee severance at these locations for the year ended December 31, 2001. During 2003, Seaboard sold its shrimp farming and processing assets in Honduras with a book value of $2,744,000 for $3,900,000, including cash received of $200,000 and notes receivable of $3,700,000, due in annual installments through 2009. As a substantial portion of the sale price is in the form of a long-term note receivable from the buyer, management will use the cost recovery method of accounting and no gain will be recognized until the actual cash is collected. The remaining carrying value of pickle and pepper farming assets to be disposed is not material. 49 SEABOARD CORPORATION Notes to Consolidated Financial Statements As discussed in Note 3, during the fourth quarter of 2003, Seaboard sold its equity investment in Fjord, a non-consolidated affiliate included in the All Other segment. Seaboard's share of Fjord's losses recognized during 2003, 2002 and 2001 as a loss from foreign affiliates totaled $15,546,000, $10,158,000 and $1,316,000, respectively. Included in 2003 losses is $12,421,000 for asset impairment charges primarily related to inventory, license, and fixed assets caused by sustained low world-wide salmon prices and an unfavorable U.S. Court ruling restricting Fjord from the use of its genetic material. Beginning with the third quarter of 2002, the Bulgarian wine business (the Business) had negotiated a series of extensions when it was unable to make a scheduled principal payment to a bank syndication. During the third quarter of 2003, the Business successfully negotiated a refinancing of certain of its debt. As part of the refinancing, the bank syndication forgave a portion of the debt and the Business sold certain assets, the proceeds of which were used to repay a portion of the principal balance plus accrued interest. As a result of this transaction, the Business incurred a loss from the sale of assets, net of the gain from debt forgiveness, of which Seaboard recorded its share, $1,489,000, during the third quarter of 2003. Seaboard's share of the Business' losses are included in the All Other segment as a loss from foreign affiliates. As a result of recurring losses in a shrimp business operated as a subsidiary of a foreign affiliate in Ecuador, at December 31, 2001, management evaluated the carrying value of its investment in the affiliate. Based on this evaluation, in the fourth quarter of 2001 Seaboard recognized a charge of $1,023,000 for the other than temporary decline in value in its investment in a foreign affiliate as a charge to losses from foreign affiliates related to the shrimp business in the Commodity Trading and Milling segment. The following tables set forth specific financial information about each segment as reviewed by management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with losses from foreign affiliates for the Commodity Trading and Milling Division, is used as the measure of evaluating segment performance because management does not consider interest and income tax expense on a segment basis. Sales to External Customers: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Pork $ 735,662 $ 645,820 $ 772,447 Commodity Trading and Milling 667,869 652,120 476,207 Marine 408,971 383,419 384,906 Sugar and Citrus 70,740 57,700 77,662 Power 69,622 63,106 63,572 All Other 28,476 27,142 29,816 Segment/Consolidated Totals $1,981,340 $1,829,307 $1,804,610 Operating Income: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Pork $ 22,447 $ (13,876) $ 68,717 Commodity Trading and Milling 15,951 18,430 13,223 Marine 5,759 16,599 24,001 Sugar and Citrus 18,755 16,294 6,614 Power 7,037 14,258 14,576 All Other 2,014 (784) (8,786) Segment Totals 71,963 50,921 118,345 Corporate (3,177) (3,796) (3,993) Consolidated Totals $ 68,786 $ 47,125 $ 114,352 50 SEABOARD CORPORATION Notes to Consolidated Financial Statements Loss from Foreign Affiliates: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Commodity Trading and Milling $ (384) $ (3,813) $ (4,506) Sugar and Citrus (337) - - All Other (20,553) (13,013) (5,002) Segment/Consolidated Totals $ (21,274) $ (16,826) $ (9,508) Depreciation and Amortization: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Pork $ 37,173 $ 24,069 $ 22,083 Commodity Trading and Milling 3,261 3,148 2,975 Marine 13,264 14,276 13,763 Sugar and Citrus 3,817 3,857 9,338 Power 5,348 5,220 5,153 All Other 936 1,322 1,599 Segment Totals 63,799 51,892 54,911 Corporate 404 744 889 Consolidated Totals $ 64,203 $ 52,636 $ 55,800 Capital Expenditures: Years ended December 31, (Thousands of dollars) 2003 2002 2001 Pork $ 15,756 $ 135,145 $ 20,686 Commodity Trading and Milling 2,741 1,122 2,034 Marine 7,651 9,710 20,879 Sugar and Citrus 4,435 2,545 10,252 Power 396 814 422 All Other 235 128 398 Segment Totals 31,214 149,464 54,671 Corporate 258 415 291 Consolidated Totals $ 31,472 $ 149,879 $ 54,962 Total Assets: December 31, (Thousands of dollars) 2003 2002 Pork $ 670,288 $ 627,937 Commodity Trading and Milling 243,065 239,187 Marine 114,375 117,366 Sugar and Citrus 75,674 69,515 Power 76,920 73,872 All Other 13,953 15,971 Segment Totals 1,194,275 1,143,848 Corporate 131,416 137,293 Consolidated Totals $1,325,691 $1,281,141 51 SEABOARD CORPORATION Notes to Consolidated Financial Statements 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. Geographic Information Seaboard had sales in South Africa totaling $200,310,000, $242,415,000, and $155,921,000 for the years ended December 31, 2003, 2002 and 2001, respectively, representing approximately 10%, 13% and 9% of total sales for each respective year. No other individual foreign country accounts for 10% or more of sales to external customers. The following table provides a geographic summary of net sales based on the location of product delivery. Years ended December 31, (Thousands of dollars) 2003 2002 2001 United States $ 758,325 $ 636,091 $ 747,877 Caribbean, Central and South America 555,680 541,332 548,386 Africa 485,619 478,273 348,217 Pacific Basin and Far East 93,568 94,550 106,504 Canada/Mexico 72,051 56,575 41,638 Eastern Mediterranean 9,301 14,435 6,861 Europe 6,796 8,051 5,127 Totals $1,981,340 $1,829,307 $1,804,610 The following table provides a geographic summary of Seaboard's long-lived assets according to their physical location and primary port for the vessels: December 31, (Thousands of dollars) 2003 2002 United States $ 544,016 $ 521,693 Dominican Republic 45,898 48,608 Argentina 37,174 30,385 All other 19,121 20,907 Totals $ 646,209 $ 621,593 At December 31, 2003 and 2002, Seaboard had approximately $107,828,000 and $113,331,000, respectively, of foreign receivables, excluding receivables due from foreign affiliates, which generally represent more of a collection risk than the domestic receivables. Management believes its allowance for doubtful receivables is adequate. 52 SEABOARD CORPORATION Board of Directors H.H. Bresky Joe E. Rodrigues Chairman of the Board, Director President and Retired Executive Vice Chief Executive Officer President and Treasurer David A. Adamsen Kevin M. Kennedy Director Director Vice President - Group General President and Chief Investment Manager, Officer, Great Circle Northeast Region, Dean Foods Management LLC Company Douglas W. Baena Director Chief Executive Officer, CreditAmerica, Inc. Officers H.H. Bresky James L. Gutsch Chairman of the Board, Vice President, Engineering President and Chief Executive Officer Ralph L. Moss Vice President, Governmental Steven J. Bresky Affairs Senior Vice President, International Operations David S. Oswalt Vice President, Taxation and Robert L. Steer Business Development Senior Vice President, Treasurer and Chief Financial John A. Virgo Officer Vice President, Corporate Controller and Chief Accounting David M. Becker Officer Vice President, General Counsel and Secretary William H. Croutch Assistant Secretary and Senior Barry E. Gum Attorney Vice President, Finance Chief Executive Officers of Principal Seaboard Operations Rodney K. Brenneman Steven J. Bresky Pork Commodity Trading and Milling John Lynch Marine Stock Transfer Agent and Availability of 10-K Report Registrar of Stock Seaboard files its Annual UMB Bank, n.a. Report on Form 10-K with the Securities Transfer Division Securities and Exchange P.O. Box 410064 Commission. Copies of the Kansas City, Missouri 64141-0064 Form 10-K for fiscal 2003 are (800) 884-4225 available without charge by writing Seaboard Corporation, 9000 West 67th Street, Shawnee Auditors Mission, Kansas 66202, Attention: Shareholder KPMG LLP Relations or via the internet 1000 Walnut, Suite 1600 at www.seaboardcorp.com. P.O. Box 13127 Seaboard provides access to Kansas City, Missouri 64199 its most recent Form 10-K, 10-Q and 8-K reports on its Stock Listing internet website, free of charge, as soon as reasonably Seaboard's common stock is practicable after those traded on the American Stock reports are electronically Exchange under the symbol SEB. filed with the Securities and Seaboard had 231 shareholders Exchange Commission. of record of shares of its common stock as of December 31, 2003. 53 EX-14 4 ex14.txt CODE OF ETHICS Exhibit 14 Code of Ethics Policy The successful operation and reputation of Seaboard Corporation and its subsidiaries and affiliates (collectively, the "Company") depend upon the principles of fairness and ethical conduct of its directors, officers and employees. The Company's reputation for integrity and excellence requires careful compliance with the spirit and letter of all laws and regulations, as well as a commitment to the highest standards of personal and professional conduct. The success and survival of this organization depends upon wise business decisions and an attitude of trust and respect between the Company and its customers, vendors and suppliers, employees, and shareholders. That trust must be preserved. Directors, officers and employees have a duty to support the goals and objectives of the Company, and to act in a way that will always merit the continued trust and confidence of the Company's customers, vendors and suppliers, employees, and shareholders. Accordingly, the Company adopts this Code of Ethics requiring its directors, officers, managers, employees and vendors to comply with the following. All subsidiaries of Seaboard Corporation shall adopt this Code of Ethics policy or a similar policy containing only such changes as are approved by Seaboard Corporation's Director of Human Resources. I. Honest and Ethical Conduct Directors, officers and employees will exhibit and promote the highest standards of honest and ethical conduct through the establishment and operation of policies and procedures that: Encourage and reward professional integrity in all aspects of the Company, by eliminating inhibitions and barriers to responsible behavior, such as coercion, fear of reprisal, or alienation from the Company itself. Prohibit and eliminate the appearance or occurrence of conflicts between what is in the best interest of the Company and what could result in material personal gain for a director, officer or employee of the Company, as defined in the attached Conflict of Interest policy. Provide a mechanism for members of the Company to inform senior management of deviations in practice from policies and procedures governing honest and ethical behavior. Demonstrate their personal support for such policies and procedures through periodic communication reinforcing these ethical standards throughout the Company. II. Financial Records and Periodic Reports Directors, officers and employees will establish and manage the enterprise transaction and reporting systems and procedures to ensure that: Business transactions are properly authorized and completely and accurately recorded on the Company's books and records in accordance with Generally Accepted Accounting Principles (GAAP) and established Company financial policy. The retention or proper disposal of Company records shall be in accordance with established Company policies and applicable legal and regulatory requirements. Periodic financial communications and reports will be delivered in a manner that facilitates the highest degree of clarity of content and meaning so that readers and users will quickly and accurately determine their significance and consequence. III. Compliance with Applicable Laws, Rules and Regulations .. Directors, officers and employees, to the extent applicable to their job function, shall comply with all federal, state and local statutes, regulations and administrative procedures in the course of all conduct on behalf of the Company. In addition to the general policies above, the Company adopts the following additional conduct-related policies: Conflict of Interest and Confidentiality Trading Seaboard Securities These policies are attached. As a condition of employment, each employee of the Company must be familiar with these policies and agree to abide by their provisions. If anyone has knowledge or is suspicious of any non compliance with any section of this Code or is concerned whether circumstances could lead to a violation of this Code, such person should report the matter to one or more of the following: the person's immediate supervisor, the Company's Director of Human Resources or the Company's General Counsel. Alternatively, the matter may be reported by calling the Company's dedicated toll free number, 866-676-8886, which will be answered by the Company's Director of Human Resources. The Company will not allow any retaliation against an employee who acts in good faith in reporting any such violation or suspected violation. IV. Anti-Competitive Conduct Directors, officers and employees shall not enter into any agreement, understanding or arrangement with any competitor about prices, territory restrictions, refusals to sell, allocation of business, bidding, or engage in any other type of anti competitive practice. CONFLICT OF INTEREST AND CONFIDENTIALITY Seaboard Corporation, its subsidiaries and affiliates (collectively, the "Company") require directors, officers and employees to conduct their non-work activities in such a manner that they do not conflict with the best interests of the Company or detract from the performance of their responsibilities. Directors, officers and employees shall follow the general guidelines set forth below. The failure of any employee to adhere to these general guidelines may result in discipline, including termination of employment. 1. Conflicts of Interest: A. All directors, officers and employees of the Company shall not have, directly or indirectly, any financial or other interest in any entity which is a supplier or customer of the Company. The foregoing shall not prohibit the ownership of not more than one percent (1%) of the stock of any supplier or customer which is listed upon a national stock exchange or actively traded in the over-the-counter market. B. Officers and employees shall not be employed by another entity, participate in self-employment, or serve another entity in any manner where such activity affects the employee's work efficiency or interferes with the employee's ability to act in the best interests of the Company. C. All officers and employees shall be required to complete a form disclosing all known conflicts of interest, or questions regarding such, to the Corporate Director of Human Resources for review and acceptance by the Company. The Company may require a person with a conflict of interest to dispense of such conflict of interest. The failure of any person to complete such form disclosing all conflicts of interests, to disclose all known conflicts of interest or to dispense with a conflict of interest, when requested by the Company, may result in discipline by the Company, including termination of employment. 2. Personal Gain: A. All of the business affairs of the Company with all parties, including government officials, suppliers, customers, unions and competitors, shall always be conducted on an ethical, legal and arm's length basis. B. Directors, officers and employees shall not provide or accept payments or gifts for the purpose of securing preferential consideration for the Company or as inducement to enter into any transaction. Examples of such prohibited conduct include giving or taking gifts, gratuities, favors, loans, guarantees of loans, excessive entertainment, kickbacks, rebates, and other types of financial inducements. C. Common business practice permits the offer or acceptance of certain courtesies of nominal value, usually in the form of meals and entertainment, provided objectivity of the parties will not be unduly affected. 3. Confidential Information: It is vital that we protect the privacy of the Company's confidential information. Confidential information includes proprietary, technical, business, financial, joint venture, customer and employee information that is not available publicly. It is the employee's responsibility to know what information is confidential and to obtain clarification when in doubt. A. Employees must not disclose confidential information to any person outside of the Company, unless authorized to do so. This includes, as prohibited, any disclosure of confidential information to family and friends. Where confidential information is entrusted to persons outside of the Company, efforts must be made to ensure the continuing protection and confidentiality of that information. Within the Company, confidential information should be disclosed only on a "need to know" basis. B. Employees must not use confidential information for unauthorized purposes. They must also take reasonable care to protect confidential information against loss, theft, unauthorized access, alteration or misuse. C. Employees leaving the Company who have had access to Company confidential information will be reminded of their continuing responsibility to protect it and maintain its confidentiality. The Company expects that employees joining it from other companies will not disclose the confidential information to those companies. POLICY WITH REGARD TO TRADING SEABOARD SECURITIES 1. In General In the course of their employment with Seaboard Corporation or its subsidiaries and affiliates (collectively, the "Company"), directors, officers and employees frequently come into possession of confidential and highly sensitive information concerning the Company, its customers, suppliers or other corporations with which the Company has contractual relationships or may be negotiating transactions. Much of this information has a potential for affecting the market price of securities issued by the corporations involved. Under some circumstances, federal securities law imposes potentially substantial civil and criminal penalties on persons who improperly obtain, use or provide material, non-public information, in connection with a purchase or sale of securities. Also keep in mind, the Securities and Exchange Commission ("SEC") may seek substantial civil penalties from any person who, at the time of an insider trading violation, "directly or indirectly controlled the person who committed such violation," i.e., an employer. As noted above, civil penalties for persons who control violators can equal the greater of $1,000,000 or three times the profit gained or losses avoided. Employers may also be subject to criminal penalties of $2,500,000 for insider trading violations committed by employees. Accordingly, when the maximum criminal penalty is combined with the maximum civil penalty, employers of persons who trade on the basis of insider information may be liable for up to $3,500,000 - even for employee violations that yield a small profit gained or loss avoided. The statute provides that any "controlling person" may be liable for civil penalties up to the amount specified above if the controlling person both (i) knew or recklessly disregarded the fact that the employee was likely to engage in a violation; and (ii) failed to take appropriate steps to prevent that violation before it occurred. Moreover, in recent years, the SEC and governmental prosecutors have been vigorously enforcing the insider trading laws against both individuals and institutions. Given all of these factors, the Company has determined to provide specific guidance concerning the propriety of various personal transactions, and to impose specific procedures in certain cases to attempt reasonably to ensure that neither the Company nor any of its directors, officers and employees violates insider trading laws. 2. Material Non-Public Information The federal securities laws and regulations have been held to prohibit the purchase or sale of a security at a time when the person trading in that security possesses material non-public information concerning the issuer of the security, or the market for the security, which has not yet become a matter of general public knowledge and which has been obtained or is being used in breach of a duty to maintain the information in confidence. Whether the information is proprietary information about the Company or information that could have an impact on the Company's stock price, employees must not pass the information on to others. The penalties discussed above apply, whether or not you derive any benefit from another's actions. "Material non-public information" includes information that is not available to the public at large which could affect the market price of the security and to which a reasonable investor would attach importance in deciding whether to buy, sell, or retain the security. Examples of information that might be deemed material include the following: annual or quarterly financial results, dividend increases or decreases, the declaration of a stock split or the offering of additional securities, earnings estimates, changes in previously announced earnings estimates, significant expansion or curtailment of operations, a significant increase or decline in business, a significant merger or acquisition proposal or agreement, unusual borrowings or securities offerings, major litigation, impending bankruptcy or financial liquidity problems, significant changes in management, purchases or sales of substantial assets, or the gain or loss of a substantial customer or supplier. This list is not exhaustive. Other types of information may be material at any particular time, depending upon the circumstances. It should be noted that either positive or adverse information may be material. Information is considered to be available to the public only when it has been released to the public through appropriate channels (e.g., by means of a press release or a statement from one of the Company's senior officers) and enough time has elapsed to permit the investment market to absorb and evaluate the information. Once public release has occurred, information will normally be regarded as absorbed and evaluated within two or three days thereafter. 3. Company Policy As long as an officer, director or employee has material non-public information relating to the Company or any other issuer, including any of the Company's customers, it is Company policy that the officer, director or employee may not directly or indirectly buy or sell the securities of the Company or any other affected issuer. Equally important, the information may not be passed along to others. This policy shall apply to officers, directors and employees of the Company or its subsidiaries and affiliates. To avoid potential liability under this policy, all officers, directors and employees of the Company must not purchase or sell securities of the Company or of any other issuer of a security at a time when the officer, director or employee is aware of any material non-public information about the Company or any issuer, regardless of how that information was obtained. The officer, director or employee also must not permit any member of his or her immediate family or anyone acting on his or her behalf, or anyone to whom he or she has disclosed the information, to purchase or sell such securities. After the information has been publicly disclosed through appropriate channels, a reasonable time should be allowed to elapse (at least three business days) before trading in the security, to allow for public dissemination and evaluation of the information. Without limiting the generality of the policy stated herein, no director or officer of the Company or its subsidiaries and affiliates may make any purchase or sale of securities of the Company (i) from the date two weeks prior to the end of each fiscal quarter until the beginning of the third business day after the public release of earnings for such quarter; (ii) from the time of the public release of any material information until the beginning of the third business day after such release; (iii) during any period when he or she is aware that the Company expects to make a public release of material information in the near future; and (iv) during any other period when he or she has knowledge of any "material inside information" concerning the Company. 4. Application of Policy to Family Members and Affiliates The foregoing requirements also apply to any purchase or sale of securities of the Company by a family member or others sharing the same address or by a corporation, partnership, trust or other entity owned or controlled by a director, officer or employee. 5. Prohibition of Short-Sales Federal securities laws prohibit any short sale or any short sale "against the box" of Company securities by any officers, directors or greater than ten-percent shareholders. A short sale is the sale of a security either not owned by the seller, or if owned, not delivered (the so-called short sale "against the box"), which involves the borrowing of shares by the seller's broker for the account of the seller and delivery of the borrowed shares to the buying broker. At some point in the future, the short seller must purchase the securities to cover the short position. Because the short seller hopes that he or she will be able to purchase at a price lower than the price at which the short sale was made, a short seller expects a security to decline in market value from present levels. Since short sales can depress the price of securities, the Company requires that none of its officers, directors or employees ever make short sales of the Company's securities (whether or not such short sales would be permitted under the federal securities laws). 6. Prohibited Practices In addition, it is the Company's policy that officers, directors and employees should not engage in any of the following activities with respect to the securities of the Company: A. Trading in securities on a short-term basis. Any security purchased must be held for a minimum of six (6) months before sale, unless the security is subject to forced sale, e.g., as a consequence of merger or acquisition; B. Purchases on margin without the prior, written consent of the Company after disclosure to the Company's Board of Directors; C. Short sales; or D. Buying or selling put or call options. EX-22 5 ex21.txt LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES NAMES UNDER STATE OR OTHER OF THE WHICH SUBSIDIARIES JURISDICTION REGISTRANT DO BUSINESS OF INCORPORATION Agencias Generales Conaven, C.A. Conaven Venezuela Agencia Maritima del Istmo, S.A. Same Costa Rica Almacenadora Conaven, S.A. Conaven Venezuela Boyar Estates S.A.* Same Luxembourg Cape Fear Railways, Inc. Same North Carolina Cayman Freight Shipping Services, Ltd. Same Cayman Islands Chestnut Hill Farms Honduras, S. de R.L. de C.V. Same Honduras Delta Packaging Company Ltd.* Same Nigeria Desarrollo Industrial Bioacuatico, S.A.* Same Ecuador Eureka Chicken Limited * Same Zambia Franquicias Azucareras S.A.* FASA Argentina Hybrid Poultry (Mauritius) Limited * Same Zambia H&O Shipping Limited Same Liberia Ingenio y Refineria San Martin del Tabacal S.R.L. Tabacal Argentina JacintoPort International LP Same Texas KWABA - Sociedade Industrial e Comercial, SARL* KWABA Angola Les Moulins d'Haiti S.E.M. (LHM)* Same Haiti Lesotho Flour Mills Limited* Same Lesotho Life Flour Mill Ltd.* Same Nigeria Minoterie de Matadi, S.A.R.L.* Same Democratic Republic of Congo Minoterie du Congo, S.A. Same Republic of Congo Mission Funding, L.L.C. Same Delaware Mobeira, SARL* Same Mozambique Molinos Champion, S.A.* Same Ecuador Molinos del Ecuador, C.A.* Same Ecuador Mount Dora Farms Inc. Same Florida National Milling Company of Guyana, Ltd. Same Guyana EXHIBIT 21 (continued) National Milling Corporation Limited Same Zambia Productores de Alcoholes y Melaza S.A.* PAMSA Argentina Port of Miami Cold Storage, Inc. Same Florida Representaciones Maritimas y Aereas, S.A. Same Guatemala Representaciones y Ventas S.A.* Same Ecuador Sea Cargo, S.A. Same Panama Seaboard de Colombia, S.A. Same Colombia Seaboard de Honduras, S. de R.L. de C.V. Same Honduras Seaboard del Peru, S.A. Same Peru Seaboard Farms, Inc. Same Oklahoma Seaboard Freight & Shipping Jamaica Limited Same Jamaica Seaboard Marine Bahamas, Ltd. Same Bahamas Seaboard Marine of Haiti, S.E. Same Haiti Seaboard Marine Ltd. Same Liberia Seaboard Marine of Florida, Inc. Same Florida Seaboard Marine (Trinidad) Limited Same Trinidad Seaboard Overseas Limited Same Bahamas Seaboard Overseas Management Company, Ltd. Same Bermuda Seaboard Overseas Peru SRL Same Peru Seaboard Overseas Trading and Shipping (PTY) Ltd. Same South Africa Seaboard Ship Management Inc. Same Florida Seaboard Software Innovations, Inc. Same Delaware Seaboard Trading and Shipping Ltd. Same Minnesota Seaboard Transport Inc. Same Oklahoma Seaboard West Africa Limited Same Sierra Leone SEADOM, S.A. Same Dominican Republic Seamaritima, S.A. de C.V. Same Mexico Shawnee Funding Limited Partnership Same Delaware Top Feeds Limited* Same Nigeria Transcontinental Capital Corp. (Bermuda) Ltd. TCCB Bermuda Unga Holdings Limited* Unga Kenya *Represents a non-controlled, non-consolidated affiliate. EX-31.1 6 ex31-1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATIONS I, H. H. Bresky, certify that: 1. I have reviewed this annual report on Form 10-K of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 27, 2004 /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-31.2 7 ex31-2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATIONS I, Robert L. Steer, certify that: 1. I have reviewed this annual report on Form 10-K of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 27, 2004 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer EX-32.1 8 ex32-1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 Exhibit 32.1 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (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. Section 1350, as adopted pursuant to Section 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-32.2 9 ex32-2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 Exhibit 32.2 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (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. Section 1350, as adopted pursuant to Section 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-----