-----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, Th9qgalOCsrMmZGlz9W4Xh0yhjJteZ4KmqhnEzrHMEZ8VeiekFgWTan7PDfb8o+p r3eiTlDVcFuhllvZ8UmroA== 0000088121-04-000016.txt : 20040810 0000088121-04-000016.hdr.sgml : 20040810 20040810161252 ACCESSION NUMBER: 0000088121-04-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040703 FILED AS OF DATE: 20040810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 04964624 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-Q 1 q102q04.txt SEABOARD CORPORATION 2004 2ND QTR 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 3, 2004 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3390 Seaboard Corporation (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (913) 676-8800 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes X . No . There were 1,255,053.90 shares of common stock, $1.00 par value per share, outstanding on July 26, 2004. Total pages in filing - 18 pages PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Thousands of dollars) (Unaudited) July 3, December 31, 2004 2003 Assets Current assets: Cash and cash equivalents $ 22,408 $ 37,377 Short-term investments 38,586 58,022 Receivables, net 218,452 190,013 Inventories 293,477 276,033 Deferred income taxes 18,838 17,972 Other current assets 41,843 35,419 Total current assets 633,604 614,836 Investments in and advances to foreign affiliates 42,096 46,680 Net property, plant and equipment 622,456 643,968 Other assets 31,235 20,207 Total assets $1,329,391 $1,325,691 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 1,160 $ 75,564 Current maturities of long-term debt 54,038 56,983 Accounts payable 83,254 61,817 Other current liabilities 158,630 149,726 Total current liabilities 297,082 344,090 Long-term debt, less current maturities 292,738 321,555 Deferred income taxes 107,437 85,295 Other liabilities 47,983 46,720 Total non-current and deferred liabilities 448,158 453,570 Minority and other noncontrolling interests 1,997 7,466 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued and outstanding 1,255,054 shares 1,255 1,255 Accumulated other comprehensive loss (59,688) (61,527) Retained earnings 640,587 580,837 Total stockholders' equity 582,154 520,565 Total liabilities and stockholders' equity $1,329,391 $1,325,691 See notes to condensed consolidated financial statements. 1 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Thousands of dollars except per share amounts) (Unaudited) Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, 2004 2003 2004 2003 Net sales: Products $ 562,688 $ 359,367 $1,040,755 $ 703,965 Services 134,022 109,723 256,103 209,368 Other 15,597 16,793 31,124 34,417 Total net sales 712,307 485,883 1,327,982 947,750 Cost of sales and operating expenses: Products 511,147 337,983 943,608 663,696 Services 102,042 97,767 200,405 184,845 Other 11,978 13,116 23,257 26,843 Total cost of sales and operating expenses 625,167 448,866 1,167,270 875,384 Gross income 87,140 37,017 160,712 72,366 Selling, general and administrative expenses 31,613 26,728 62,423 54,103 Operating income 55,527 10,289 98,289 18,263 Other income (expense): Interest expense (6,679) (6,728) (14,418) (13,549) Interest income 1,810 845 3,565 1,587 Loss from foreign affiliates (94) (2,587) (231) (5,878) Minority and other noncontrolling interests (312) 145 (394) (108) Foreign currency gain (loss), net 157 (4,731) (1,504) (6,101) Miscellaneous, net 533 (876) 2,873 1,332 Total other income (expense), net (4,585) (13,932) (10,109) (22,717) Earnings (loss) before income taxes and cumulative effect of changes in accounting principles 50,942 (3,643) 88,180 (4,454) Income tax benefit (expense) (16,686) 727 (26,547) 605 Earnings (loss) before cumulative effect of changes in accounting principles 34,256 (2,916) 61,633 (3,849) Cumulative effect of changes in accounting for asset retirement obligations and drydock accruals, net of income tax expense of $550 - - - 3,648 Net earnings (loss) $ 34,256 $ (2,916) $ 61,633 $ (201) Net earnings (loss) per common share: Earnings (loss) per share before cumulative effect of changes in accounting principles $ 27.29 $ (2.32) $ 49.11 $ (3.06) Cumulative effect of changes in accounting for asset retirement obligations and drydock accruals - - - 2.90 Net earnings (loss) per common share $ 27.29 $ (2.32) $ 49.11 $ (0.16) Dividends declared per common share $ 0.75 $ 0.75 $ 1.50 $ 1.50 Average number of shares outstanding 1,255,054 1,255,054 1,255,054 1,255,054 See notes to condensed consolidated financial statements. 2 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) Six Months Ended July 3, June 28, 2004 2003 Cash flows from operating activities: Net earnings (loss) $ 61,633 $ (201) Adjustments to reconcile net earnings (loss) to cash from operating activities: Depreciation and amortization 32,619 32,170 Loss from foreign affiliates 231 5,878 Foreign currency exchange gains (221) (4,602) Cumulative effect in accounting changes, net - (3,648) Deferred income taxes 20,672 1,294 Changes in current assets and liabilities: Receivables, net of allowance (41,408) 42,284 Inventories (11,433) 11,442 Other current assets (7,257) 5,694 Current liabilities exclusive of debt 28,177 (8,521) Other, net 514 (1,559) Net cash from operating activities 83,527 80,231 Cash flows from investing activities: Purchase of short-term investments (46,257) (17,881) Proceeds from the sale or maturity of short-term investments 65,899 20,359 Investments in and advances to foreign affiliates, net 1,342 (461) Capital expenditures (12,425) (18,120) Other, net 2,249 2,471 Net cash from investing activities 10,808 (13,632) Cash flows from financing activities: Notes payable to banks, net (74,404) (36,240) Principal payments of long-term debt (30,443) (29,316) Repurchase of minority interest in a controlled subsidiary (5,000) - Dividends paid (1,883) (1,883) Bond construction fund 1,200 - Other, net (137) (965) Net cash from financing activities (110,667) (68,404) Effect of exchange rate change on cash 1,363 2,355 Net change in cash and cash equivalents (14,969) 550 Cash and cash equivalents at beginning of year 37,377 23,242 Cash and cash equivalents at end of period $ 22,408 $ 23,792 See notes to condensed consolidated financial statements. 3 SEABOARD CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Note 1 - Accounting Policies and Basis of Presentation The condensed consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries ("Seaboard"). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard's investments in non- controlled affiliates are accounted for by the equity method. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2003 as filed in its Annual Report on Form 10-K. Seaboard's first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard's year-end is December 31. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Interest Rate Exchange Agreements Seaboard's interest rate exchange agreements do not qualify as hedges for accounting purposes. During the three and six months ended July 3, 2004 Seaboard recorded gains of $2,899,000 and $156,000, respectively, related to these agreements compared to losses of $6,945,000 and $7,694,000 during the same periods of 2003. The gains and losses are included in miscellaneous, net on the Condensed Consolidated Statements of Earnings and reflect changes in fair market value, net of interest paid or received. During the 2004 three and six month periods, Seaboard made net payments of $1,055,000 and $3,267,000, respectively, compared to payments made of $958,000 and $2,943,000 during the same periods of 2003 resulting from the difference between the fixed rate paid and variable rate received on these agreements. Supplemental Non-cash Disclosures The fluctuation of the Argentine peso has affected the U.S. dollar value of the peso-denominated assets and liabilities of the Sugar and Citrus segment. During the six months ended July 3, 2004, this segment recorded non-cash gains of $221,000 caused by the revaluation of certain dollar denominated net liabilities compared to gains of $4,602,000 during the six months ended June 28, 2003. The following table shows the non-cash impact of the change in exchange rates on various balance sheet categories for the peso denominated assets and liabilities. Six Months Ended July 3, June 28, Increase (thousands of dollars) 2004 2003 Working capital $ 1,722 $ 7,972 Fixed assets 387 8,377 Other long-term net assets or liabilities 10 405 Accounting Changes and New Accounting Standards Effective January 1, 2003, Seaboard adopted Statement of Financial Accounting Standard No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations," which required Seaboard to record a long- lived asset and related liability for asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close. Accordingly, on January 1, 2003, Seaboard recorded the cumulative effect of the change in accounting principle with a charge to earnings of $2,195,000 ($1,339,000 net of tax, or $1.07 per common share). The following table shows the changes in the asset retirement obligation during each year. Three Months Ended Six Months Ended Thousands of dollars July 3, 2004 June 28, 2003 July 3, 2004 June 28, 2003 Beginning balance $6,333 $5,572 $6,086 $5,416 Accretion expense 116 106 229 200 Liability for additional lagoons placed in service - 231 134 293 Ending balance $6,449 $5,909 $6,449 $5,909 4 Through December 31, 2002, costs expected to be incurred during regularly scheduled drydocking of vessels were accrued ratably prior to the drydock date. Effective January 1, 2003, Seaboard changed its method of accounting for these costs from the accrual method to the direct-expense method. Under the new accounting method, drydock maintenance costs are recognized as expense when maintenance services are performed. Seaboard believes the newly adopted accounting principle is preferable in these circumstances because the maintenance expense is not recorded until the maintenance services are performed and, accordingly, the direct-expense method eliminates significant estimates and judgments inherent under the accrual method. As a result, on January 1, 2003, the balance of the accrued liability for drydock maintenance as of December 31, 2002 for its Commodity Trading and Milling, Marine, and Power segments was reversed, resulting in an increase in earnings of $6,393,000 ($4,987,000 net of related tax expense or $3.97 per common share) as a cumulative effect of a change in accounting principle. As of December 31, 2003, Seaboard adopted Financial Accounting Standards Board Interpretation No. 46, revised December 2003 (FIN 46), "Consolidation of Variable Interest Entities". FIN 46 applies to an entity if its total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated support or if the equity investors lack certain characteristics of a controlling financial interest. If an entity has these characteristics, FIN 46 requires a test to identify the primary beneficiary based on expected losses and expected returns associated with the variable interest. The primary beneficiary is then required to consolidate the entity. Based on its evaluations, Seaboard consolidated certain limited liability companies as of December 31, 2003, which own certain of the facilities used in connection with Seaboard's vertically integrated hog production because Seaboard was determined to be the primary beneficiary. If the consolidation requirements would have been applied retroactively to January 1, 2003, operating income, net earnings, and net earnings per common share during 2003 would have decreased by $64,000, $39,000 and $0.03, respectively, for the second quarter and $131,000, $80,000 and $0.06, respectively, for the six month period. Note 2 - Repurchase of Minority Interest In connection with the December 2001 sale of a 10% minority interest in one of the two power barges in the Dominican Republic, the buyer was given a three-year option to sell the interest back to Seaboard for the book value at the time of sale, pending collections of outstanding receivables. During January 2004, the buyer provided notice to exercise the option valued at $5,709,000. An initial payment of $5,000,000 was paid during the second quarter of 2004 to reacquire this interest with the remaining balance payable upon collection of the remaining outstanding receivables. In addition, Seaboard has historically paid commissions to a related entity of the above party relative to the performance of the other power barge. During the second quarter of 2004 Seaboard agreed to terminate that relationship by making a one-time payment of $2,000,000, included in selling, general and administrative expenses. Note 3 - Comprehensive Income (Loss) Components of total comprehensive income (loss), net of related taxes, are summarized as follows: Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Thousands of dollars) 2004 2003 2004 2003 Net earnings (loss) $34,256 $(2,916) $61,633 $ (201) Other comprehensive income (loss) net of applicable taxes: Foreign currency translation adjustment (317) 2,354 1,927 9,145 Unrealized gains (losses) on investments (16) 70 74 38 Unrealized gains (losses) on cash flow hedges (10) 61 (62) (75) Amortization of deferred gain on interest rate swaps (50) (50) (100) (100) Total comprehensive income (loss) $33,863 $ (481) $63,472 $8,807 5 The components of and changes in accumulated other comprehensive loss for the six months ended July 3, 2004 are as follows: Balance Balance December 31, Period July 3, (Thousands of dollars) 2003 Change 2004 Foreign currency translation adjustment $(56,490) $1,927 $(54,563) Unrealized gain on investments 14 74 88 Unrecognized pension cost (5,772) - (5,772) Net unrealized loss on cash flow hedges (30) (62) (92) Deferred gain on interest rate swaps 751 (100) 651 Accumulated other comprehensive loss $(61,527) $1,839 $(59,688) The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. With the exception of the foreign currency translation loss to which a 35% federal tax rate is applied, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. Note 4 - Inventories The following is a summary of inventories at July 3, 2004 and December 31, 2003: July 3, December 31, (Thousands of dollars) 2004 2003 At lower of LIFO cost or market: Live hogs & materials $152,360 $142,396 Dressed pork & materials 18,793 22,220 171,153 164,616 LIFO allowance (9,758) (7,608) Total inventories at lower of LIFO cost or market 161,395 157,008 At lower of FIFO cost or market: Grain, flour and feed 96,135 87,831 Sugar produced & in process 14,900 14,807 Other 21,047 16,387 Total inventories at lower of FIFO cost or market 132,082 119,025 Total inventories $293,477 $276,033 Note 5 - Employee Benefits Seaboard maintains a defined benefit pension plan (the Plan) for its domestic salaried and clerical employees and also sponsors non- qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees. As a result of recently passed pension relief legislation and finalization of Plan data, in order to meet the minimum funding standards to avoid the Pension Benefit Guaranty Corporation variable rate premiums established by the Employee Retirement Income Security Act of 1974, Seaboard revised its original schedule of contributions for 2004 from $7,000,000 to $5,763,000. Payments of $1,922,000 and $562,000 were made on April 15, 2004 and July 15, 2004, respectively. The net periodic benefit cost of these plans was as follows: Three months ended Six months ended July 3, June 28, July 3, June 28, (Thousands of dollars) 2004 2003 2004 2003 Components of net periodic benefit cost: Service cost $ 742 $ 720 $1,614 $1,547 Interest cost 881 864 1,855 1,884 Expected return on plan assets (775) (569) (1,567) (1,259) Amortization and other 182 232 395 502 Net periodic benefit cost $1,030 $1,247 $2,297 $2,674 6 Note 6 - Contingencies From time to time bills have been introduced in the United States Senate and House of Representatives which include provisions to prohibit meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter. If passed, such bills could prohibit Seaboard from owning or controlling hogs, and thus would require divestiture of our operations, possibly at prices which are below the carrying value of such assets on the balance sheet, or otherwise restructure its ownership and operation. Such bills could also be construed as prohibiting or restricting Seaboard from engaging in various contractual arrangements with third party hog producers, such as traditional contract finishing arrangements. To date, none have been passed into law nor does Seaboard expect any to be passed in 2004. However, Seaboard cannot assure such legislation will not be adopted in the future. Seaboard, along with industry groups and other similarly situated companies, continues to vigorously lobby against enactment of any such legislation. Seaboard reached an agreement in 2002 to settle litigation brought by the Sierra Club. Under the terms of the settlement, Seaboard is conducting an environmental investigation to determine the source of elevated nitrates at three farms and potentially will be required to take remedial actions at the farms if conditions so warrant. Seaboard is subject to regulatory actions and an investigation by the United States Environmental Protection Agency and the State of Oklahoma. One such action involves five properties utilized in Seaboard's hog production operations which were purchased from PIC International Group, Inc. (PIC). Seaboard has undertaken an extensive investigation, and has had significant discussions with the EPA and the State of Oklahoma, proposing to take a number of corrective actions with respect to the farms, and one additional farm, in order to attempt to settle the action. In connection with these discussions, EPA and the State of Oklahoma each stated that any settlement must include a civil fine of $1,200,000 for EPA and $500,000 for the State of Oklahoma. Seaboard believes that the EPA has no authority to impose a civil fine and so advised the EPA as a part of a settlement proposal. The EPA advised Seaboard that it rejected its most recent settlement proposal and settlement discussions have terminated. The EPA could bring an action against Seaboard, although Seaboard believes it has meritorious defenses to any such action, or the EPA could determine to take no further action. Settlement discussions are continuing with the State of Oklahoma, and Seaboard intends to proceed with its proposed corrective actions with respect to the farms. PIC is indemnifying Seaboard with respect to the action pursuant to an indemnification agreement which has a $5 million limit. If the settlement being discussed with the State of Oklahoma is agreed to, the estimated cumulative costs which will be expended will total approximately $6.2 million, not including the additional legal costs required to negotiate the settlement or the $500,000 penalty demanded by the State of Oklahoma. If the measures taken pursuant to the settlement are not effective, other measures with additional costs may be required. PIC has advised Seaboard that it is not responsible for the costs in excess of $5 million. Seaboard disputes PIC's determination of the costs to be included in the calculation and believes that the costs to be considered are less than $5 million, such that PIC is responsible for all such costs and penalties, except for approximately $180,000 of estimated costs that would be incurred over 5 years subsequent to the settlement for certain testing and sampling. Seaboard has agreed to conduct such testing and sampling as a part of the sampling it conducts in the normal course of operations and believes that the incremental costs incurred to conduct such testing and sampling will be less than $180,000. Seaboard also believes that a more general indemnity agreement would require indemnification of a liability in excess of $5 million (excluding the estimated $180,000 cost for testing and sampling), although PIC disputes this. With respect to other actions and the investigation, neither is expected to have a material adverse effect on Seaboard's consolidated financial statements. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to have a material adverse effect on Seaboard's consolidated financial statements. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard's business objectives. Seaboard does not issue guarantees of third parties for compensation. The following table sets forth the terms of guarantees as of July 3, 2004. 7 Guarantee beneficiary Maximum exposure Maturity Foreign non-consolidated affiliate grain $1,000,000 Annual renewal processor - Uganda Foreign non-consolidated affiliate food $ 400,000 August 2004 product distributor - Ecuador Various hog contract growers $1,585,000 Annual renewal Seaboard guaranteed a bank borrowing for a subsidiary of a non- consolidated foreign affiliate grain processor in Kenya, Unga Holdings Limited (Unga), to facilitate bank financing used for the rehabilitation and expansion of a milling facility in Uganda. This guarantee was a part of the original purchase agreement with Unga when Seaboard first invested in this company in 2000. The guarantee can be drawn upon in the event of non-payment of a bank borrowing by Unga's subsidiary. While the guarantee may be cancelled by Seaboard annually, the bank has the right to draw on the guarantee in the event it is advised that the guarantee will be cancelled. The guarantee renews annually until the debt expires in 2007. During the second quarter of 2004, Seaboard renewed the guarantee for an additional year but reduced it from $1,300,000 to $1,000,000. Unga has provided a reciprocal guarantee to Seaboard. As of July 3, 2004, this affiliate had $977,000 of borrowings outstanding related to this guarantee. The non-consolidated affiliate food product distributor in Ecuador purchases certain products from a U.S. domiciled vendor. Seaboard has guaranteed the payments for these purchases in order to secure normal credit terms for this affiliate. Seaboard has guaranteed a portion of the bank debt for certain farmers, which debt proceeds were used to construct facilities to raise hogs for Seaboard's Pork division. The guarantees enabled the farmers to obtain favorable financing terms. These bank guarantees renew annually until the underlying debt is fully repaid in 2013-2014. The maximum exposure to Seaboard from these guarantees is $1,585,000. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considered the likelihood of loss to be remote. As of July 3, 2004, Seaboard had outstanding $10,853,000 of letters of credit with various banks that reduced Seaboard's borrowing capacity under its committed credit facilities. The largest letter of credit of $8,700,000 is for workers compensation insurance. Also included is a letter of credit for $422,000 to support purchases for a non- controlled affiliate mill expansion project. While this affiliate has sufficient liquidity to pay for the improvements, the mill is located in Haiti and the letter of credit was posted in lieu of advance vendor payments for the purchases. Note 7 - Segment Information Seaboard has an equity investment in a Bulgarian wine business (the Business) that is currently negotiating with its primary lender to obtain a working capital line of credit to support inventory purchases for the fall 2004 vintage. Its current bank covenants for existing debt restrict the Business from obtaining unapproved additional financings. Without the additional line of credit, the Business will not be able to purchase adequate quantities of grapes to support consistent production for the next vintage which could result in an additional charge against the Business' earnings for impaired assets. As of July 3, 2004, Seaboard's investments in and advances to the Business totaled $14,608,000. Seaboard's share of losses from the Business, included in All Other below, included a provision for inventory write-downs totaling $800,000 during the second quarter of 2004. During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord, a non-consolidated affiliate included in the All Other segment. Seaboard's share of Fjord's losses recognized during the three and six months ended June 28, 2003 totaled $1,837,000 and $2,836,000, respectively. The following tables set forth specific financial information about each segment as reviewed by Seaboard's management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income or losses from foreign affiliates for the Commodity Trading and Milling Division, is used as the measure when evaluating segment performance because management does not consider interest and income tax expense on a segment basis. 8 Sales to External Customers: Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Thousands of dollars) 2004 2003 2004 2003 Pork $263,407 $191,187 $ 475,129 $ 345,113 Commodity Trading and Milling 293,375 149,366 550,051 327,141 Marine 118,231 104,038 229,149 196,324 Sugar and Citrus 15,132 17,823 28,851 30,595 Power 15,597 16,793 31,124 34,417 All Other 6,565 6,676 13,678 14,160 Segment/Consolidated Totals $712,307 $485,883 $1,327,982 $ 947,750 Operating Income: Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Thousands of dollars) 2004 2003 2004 2003 Pork $ 38,020 $ (259) $ 59,354 $ (1,704) Commodity Trading and Milling (2,253) 1,163 6,460 4,557 Marine 16,632 2,387 24,049 1,436 Sugar and Citrus 2,561 4,876 6,119 9,338 Power (298) 2,476 1,227 4,941 All Other 870 23 1,395 810 Segment Totals 55,532 10,666 98,604 19,378 Corporate Items (5) (377) (315) (1,115) Consolidated Totals $ 55,527 $ 10,289 $ 98,289 $ 18,263 Loss from Foreign Affiliates: Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Thousands of dollars) 2004 2003 2004 2003 Commodity Trading and Milling $ 1,921 $ 41 $ 2,588 $ (1,659) All Other (2,015) (2,628) (2,819) (4,219) Segment/Consolidated Totals $ (94) $ (2,587) $ (231) $ (5,878) Total Assets: July 3, December 31, (Thousands of dollars) 2004 2003 Pork $ 672,006 $ 670,288 Commodity Trading and Milling 264,487 243,065 Marine 113,812 114,375 Sugar and Citrus 79,194 75,674 Power 76,159 76,920 All Other 15,789 13,953 Segment Totals 1,221,447 1,194,275 Corporate Items 107,944 131,416 Consolidated Totals $1,329,391 $1,325,691 9 Administrative services provided by the corporate office are primarily allocated to the individual segments based on the size and nature of their operations. Corporate assets include short-term investments, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments decreased $34.4 million from December 31, 2003 primarily reflecting the use of $83.5 million generated from operating activities for scheduled payments of $30.4 million on long-term debt, repayments of $74.4 million of subsidiary short-term borrowings, and payments made for capital expenditures of $12.4 million. Cash from operating activities for the six months ended July 3, 2004, increased $3.3 million compared to the same period one year earlier, primarily reflecting increased earnings offset by the increased working capital needs of the Pork, Commodity Trading and Milling and Power segments. Receivables in the Pork segment increased reflecting strong sales while inventory levels increased reflecting the recently populated new hog production facilities. For the Commodity Trading and Milling segment, the overall increase in trading activity caused increases in accounts receivable and inventories. Working capital needs also increased for the Power segment as a result of continuing slow collections of accounts receivable. Capital Expenditures Seaboard invested $12.4 million in property, plant and equipment during 2004, of which $4.4 million was expended in the Pork segment, $2.7 million in the Marine segment, $2.5 million in the Commodity Trading and Milling segment, $2.5 million in the Sugar and Citrus segment and $0.3 million in the remaining businesses. The capital expenditures for 2004 are primarily of a normal recurring nature and include replacements of machinery and equipment, and general facility modernizations and upgrades. While there are no material commitments for capital expenditures, during the remainder of 2004 management has budgeted additional capital expenditures of $7.1 million in the Pork segment, $3.0 million in the Commodity Trading and Milling segment, $5.6 million in the Marine segment, $3.0 million in the Sugar and Citrus segment and $0.3 million of all other businesses. Management anticipates financing these capital expenditures from internally generated cash, the use of available short-term investments or existing short-term borrowing capacity. Financing Activities and Debt During 2004, Seaboard entered into two new, one-year committed credit lines totaling $45.0 million and extended for one year a $20.0 million committed credit facility. In addition, Seaboard combined, increased, and extended its committed subsidiary credit facilities from a total of $80.0 million to $95.0 million expiring on April 30, 2005. This facility is denominated in U.S. dollars. As of July 3, 2004, Seaboard had committed lines of credit totaling $185.0 million and uncommitted lines totaling $32.0 million. As of July 3, 2004 Seaboard had $1.2 million of borrowings outstanding under its uncommitted credit lines. Outstanding standby letters of credit totaling $10.9 million reduced Seaboard's borrowing capacity under its committed credit lines. In addition to funding Seaboard's planned capital expenditures as discussed above, Seaboard's remaining 2004 scheduled long-term debt maturities total $24.8 million. Management believes that Seaboard's current combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate to make these scheduled debt payments and support existing operations during fiscal 2004. Management does, however, periodically review various alternatives for future financing to provide additional liquidity for future operating plans. As management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, management may have to pursue financing alternatives at that time. During 2004, the 10% minority interest owner of one of the power barges located in the Dominican Republic exercised a put option for the equity interest. See Note 2 to the Condensed Consolidated Financial Statements for further discussion. 10 See Note 6 to the Condensed Consolidated Financial Statements for a summary of Seaboard's contingent obligations, including guarantees issued to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard. RESULTS OF OPERATIONS Net sales for the three and six months ended July 3, 2004 increased by $226.4 and $380.2 million, respectively, compared to the same periods of 2003. The increase in net sales was primarily the result of higher sales volumes and market prices for pork products, increased trading volumes and commodity prices, and, to a lesser extent, an increased level of marine cargo service with improved rates. Operating income increased by $45.2 and $80.0 million for the 2004 three and six month periods compared to same periods of 2003. The increase in sales also contributed to higher operating income. Pork Segment Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 263.4 $ 191.2 $ 475.1 $ 345.1 Operating income (loss) $ 38.0 $ (0.3) $ 59.4 $ (1.7) Net sales for the Pork segment increased $72.2 and $130.0 million for the three and six months of 2004 compared to the same periods of 2003, primarily as a result of higher market prices for pork products and higher sales volumes. The excess domestic meat supplies experienced in early 2003 resulted in lower sales prices through the first quarter of 2003. Prices generally improved throughout the remainder of 2003 and further improved through 2004 as a result of a strong demand for pork products. Sales volumes increased as Seaboard operated additional weekend processing shifts during 2004 to take advantage of the favorable market conditions, and had an additional three business days for the 2004 year-to-date period compared to 2003. Operating income for the Pork segment increased $38.3 and $61.1 million for the second quarter and year-to-date periods of 2004 compared with the same periods of 2003 as a result of the higher sales prices and volumes discussed above, partially offset by an increase in the cost of third party hogs and higher feed costs from increases in commodity prices for corn and soybean meal. In addition, during the second quarter of 2003, $1.6 million was charged against operations for development costs of potential hog production sites Seaboard decided not to pursue. Management is unable to predict future market prices for pork products, feed costs and third party hog costs, or whether overall market conditions will continue to be as favorable, and therefore, management cannot predict whether this segment will continue to be as profitable during the remainder of 2004. Commodity Trading and Milling Segment Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 293.4 $ 149.4 $ 550.1 $ 327.1 Operating income $ (2.3) $ 1.2 $ 6.5 $ 4.6 Income (loss) from foreign affiliates $ 1.9 $ - $ 2.6 $ (1.7) Net sales for the Commodity Trading and Milling segment increased $144.0 and $223.0 million for the three and six month periods of 2004 compared to the same periods of 2003. This increase is primarily the result of increased trading volumes to third parties and affiliates, primarily for wheat, soybean meal and corn, and world-wide increased commodity and freight prices. 11 Operating income for this segment decreased $3.5 million for the second quarter of 2004 compared to prior year and increased $1.9 million for the six month period. Both 2004 periods reflect the increased sales volumes in the trading business discussed above, but also reflect the negative impact of mark to market accounting for commodity futures and options contracts. While management believes its commodity futures and options are economic hedges of its firm purchase and sales contracts, we do not perform the extensive record- keeping required to account for commodity transactions as hedges for accounting purposes. As a result, operating income for the three and six month periods of 2004 includes losses of $11.8 and $10.5 million, respectively, compared to gains of $0.4 and $0.1 million for the comparable 2003 periods for these mark-to-market adjustments. It is anticipated that during the second half of 2004, as products are delivered to customers, most of the negative impact of the mark to market accounting noted above will reverse, resulting in higher operating income at that time. In addition, charter hire rates were significantly higher during 2004 compared to 2003 but were primarily offset by increased freight rates charged. Seaboard had entered into some longer term charter contracts in 2003, allowing it to take advantage of higher freight chartering opportunities during the second quarter of 2004. However, Seaboard does not anticipate such opportunities to repeat in the last half of 2004. Due to the uncertain political and economic conditions in the countries in which Seaboard operates, management is unable to predict future sales and operating results, but anticipates positive operating income to continue in 2004. Income from foreign affiliates for the three and six months ended July 3, 2004 improved $1.9 and $4.3 million, respectively, from the comparable 2003 periods primarily reflecting improved operating results from most African milling operations. Based on current political and economic situations in the countries in which the flour and feed mills operate, management cannot predict whether the foreign affiliates will remain profitable for the remainder of 2004. Marine Segment Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 118.2 $ 104.0 $ 229.1 $ 196.3 Operating income $ 16.6 $ 2.4 $ 24.0 $ 1.4 Net sales for the Marine segment increased $14.2 and $32.8 million for the three and six month periods of 2004 compared to the same periods of 2003 reflecting higher cargo volumes and, to a lesser extent, increased average cargo rates. The 2003 periods were significantly negatively impacted by the general strike in Venezuela which began in 2002 and continued into February of 2003, resulting in the discontinuance of all port calls to that country. While the political and economic instability remains in Venezuela and that market has not yet fully recovered, cargo volumes have continued to increase during 2004 compared to 2003. In addition, cargo volumes also increased in most other markets. Average cargo rates for 2004 improved over 2003 reflecting improved market conditions and improved cargo mixes in certain markets. Partially offsetting these increases for the six month period, 2003 periods included revenue from chartering of certain company-owned vessels to carry military cargo to the Middle East. Operating income for the Marine segment increased $14.2 and $22.6 million during the 2004 three and six month periods compared to the same periods in 2003, primarily reflecting the increased volumes and rates discussed above. Management cannot predict whether or to what extent economic conditions will change for the Venezuelan and related markets, and therefore cannot predict whether this segment will continue to operate at the same comparative improved volume levels during the remainder of 2004 as it experienced during the first six months of the year. The U.S. Maritime Transportation Security Act and corresponding international regulations under The International Ship and Port- facility Security Code were effective July 1, 2004. These regulations require comprehensive security assessments and plans for vessels and facilities in the U.S. and throughout the world. Management believes Seaboard is in compliance and to date has not experienced any trade disruptions, although it can not predict if any disruptions could occur in the future if foreign ports do not fully comply. 12 Sugar and Citrus Segment Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 15.1 $ 17.8 $ 28.9 $ 30.6 Operating income $ 2.6 $ 4.9 $ 6.1 $ 9.3 Net sales for the Sugar and Citrus segment decreased in the three and six month periods of 2004 compared to the same periods of 2003 reflecting lower average sales prices and lower volumes sold. The lower prices reflect the abundant 2003 harvest in Argentina which resulted in large sugar supplies. The lower sales volume reflects less resale sugar as a result of lower quantities of sugar purchased from third parties. While management cannot predict future sales prices, management does not expect sales prices to increase above the 2003 prices for the remainder of 2004. Operating income decreased $2.3 and $3.2 million during the three and six month periods of 2004 compared to the prior year periods primarily due to the higher inventoried costs of the recent sugar harvest and production. During 2003, the peso price of sugar increased at a higher rate than the related peso costs, a trend that has now reversed as expenses are increasing. Management expects operating income for 2004 will remain positive although lower than comparable 2003 periods. Power Segment Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 15.6 $ 16.8 $ 31.1 $ 34.4 Operating income (loss) $ (0.3) $ 2.5 $ 1.2 $ 4.9 The economic environment of the Dominican Republic remained unstable throughout the first half of 2004. Even though multilateral credit agencies have provided some funding to the government, the economic problems still exist. The Power segment was able to collect a small portion of past due amounts from certain distribution companies, but significant balances are still outstanding from other generating and distribution companies. As of July 3, 2004, Seaboard's net receivables from customers with significant past due balances totaled $20.3 million, including $10.7 million classified in other long-term assets on the Condensed Consolidated Balance Sheet. Seaboard is continuing to contract directly with large power users which reduces the exposure to changes in spot market rates, currency fluctuations and collection risks. However, Seaboard continues to have a significant exposure to partially government-owned distribution companies. As a result of the economic instability in this country, during 2004 the Dominican Republic peso continued to weaken against the U.S. dollar, causing foreign exchange losses of $0.7 million and $2.6 million for the three and six months of 2004 related to the peso-denominated net assets compared to losses of $4.9 and $6.7 million for the same 2003 periods. The exchange losses are included in other income (expense) on the Condensed Consolidated Statements of Earnings and are not a component of operating income. Net sales for the Power segment decreased $1.2 and $3.3 million for the three and six month periods of 2004 compared to the same periods of 2003 due to lower production partially offset by higher sales prices during the 2004 periods. Periodically during 2004, Seaboard has curtailed production due to management's concerns about collectibility of the revenues. Management may impose further curtailments if liquidity conditions warrant. Operating income decreased $2.8 and $3.7 million for the three and six months of 2004 compared to the same periods of 2003 as commission expenses increased by $2.0 and $2.5 million for each respective period and bad debt expenses increased by $0.7 and $1.5 million, respectively. As discussed in Note 2 to the Condensed Consolidated Financial Statements, during the second quarter Seaboard made a one- time commission payment of $2 million to terminate a business relationship. Pending improvement to the economic problems in the country, management cannot predict whether this segment will remain profitable for the remainder of 2004. 13 All Other Three Months Ended Six Months Ended July 3, June 28, July 3, June 28, (Dollars in millions) 2004 2003 2004 2003 Net sales $ 6.6 $ 6.7 $ 13.7 $ 14.2 Operating income $ 0.9 $ - $ 1.4 $ 0.8 Income (loss) from foreign affiliates $ (2.0) $ (2.6) $ (2.8) $ (4.2) Net sales for All Other remained consistent with 2003 while operating income increased slightly reflecting improved operations primarily for the pepper processing business. The loss from foreign affiliates in 2004 represents Seaboard's share of losses from its equity method investment in a Bulgarian wine business. This business recorded a provision for inventory write-downs of which Seaboard recorded its share, $0.8 million, during the second quarter of 2004. See Note 7 to the Condensed Consolidated Financial Statements for further discussion of this business. The 2003 foreign affiliate losses also included losses for Seaboard's share of Fjord Seafood ASA (Fjord) results which totaled $1.8 and $2.8 million for three and six month periods, respectively. The equity investment in Fjord was sold during the fourth quarter of 2003. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses for the three and six month periods of 2004 increased by $4.9 and $8.3 million over the same periods of 2003 primarily due to increased commissions and bad debt expense in the Power segment and, to a lesser extent, increased selling costs in the Commodity Trading and Milling and Marine segments related to the growth of these businesses. As a percentage of revenues, SG&A decreased to 4.4% and 4.7% for the 2004 quarter and year-to-date periods, respectively, compared to 5.5% and 5.7% for the same periods of 2003 as a result of increased sales in the Pork, Commodity Trading and Milling, and Marine segments. Interest Expense Interest expense for the quarter and year to date periods of 2004 remained fairly consistent with the prior year. During the second quarter of 2004, Seaboard repaid nearly all of the subsidiary short- term borrowings with cash from operations. Interest Income Interest income increased $1.0 and $2.0 million for the three and six month periods of 2004 compared to the same periods of 2003 reflecting higher level of average funds invested during 2004 and interest proceeds from past due receivables, primarily in the Power segment. Foreign Currency Gains (Losses) Seaboard realized net foreign currency gains of $0.2 million during the second quarter of 2004 compared to losses of $4.7 million in the prior year and losses of $1.5 and $6.1 million for the six month periods of 2004 and 2003, respectively. Losses from the devaluation of the Dominican Republic peso totaled $0.7 and $2.6 million for the three and six months ended July 3, 2004 compared to $4.9 and $6.7 million during the same periods in 2003. Seaboard operates in many developing countries throughout the world. The political and economic conditions of these markets cause volatility in currency exchange rates and expose Seaboard to the risk of exchange loss. Miscellaneous, Net Miscellaneous, net for the three and six months ended July 3, 2004 includes realized gains (losses) of ($0.6) and $0.9 million and unrealized losses of $2.3 and $0.7 million, respectively, from the mark to market of commodity futures and options contracts that management doesn't view as direct economic hedges of its operations. In addition, miscellaneous, net for the six months ended in 2004 includes a gain of $0.5 million from the settlement of antitrust litigation for feed additives used by Seaboard. The 2003 three and six month periods also include gains totaling $4.7 and $6.6 million, respectively, from antitrust litigation for feed additives. Mark to market gains on interest rate swap agreements totaling $2.9 and $0.2 million for the 2004 three and six month periods compare to losses of $6.9 and $7.7 million for same periods of 2003. These swap agreements do not qualify as hedges for accounting purposes and accordingly, changes in the market value are recorded to earnings as interest rates change. Income Tax Expense The effective tax rate increased to 30.1% for 2004 compared to 21.5% for 2003 primarily as a result of increased domestic taxable income and lower amounts of permanently deferred foreign earnings. 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk Seaboard is exposed to various types of market risks from its day-to- day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates and interest rates. Changes in commodity prices impact the cost of necessary raw materials, finished product sales and firm sales commitments. Seaboard uses various grain and meal futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments. Short sales contracts are then used to offset any open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively canceling the initial futures or option purchase contract. From time to time, hog futures are used to manage risks of increasing prices of live hogs acquired for processing. Because changes in foreign currency exchange rates impact the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in the exchange rate for the Argentine peso affect the valuation of foreign currency denominated net assets of Seaboard's Argentine subsidiary and net earnings for the impact of the change on that subsidiary's dollar denominated net liabilities. Changes in interest rates impact the cash required to service variable rate debt. From time to time, Seaboard uses interest rate swaps to manage risks of increasing interest rates. Seaboard's market risk exposure related to these items has not changed materially since December 31, 2003. Item 4. Controls and Procedures Seaboard's management has evaluated, under the direction of our chief executive and chief financial officers, the effectiveness of Seaboard's disclosure controls and procedures as of July 3, 2004. Based upon and as of the date of that evaluation, Seaboard's chief executive and chief financial officers concluded that Seaboard's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There has been no change in Seaboard's internal control over financial reporting that occurred during the fiscal quarter ended July 3, 2004 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings Environmental Protection Agency (EPA) and State of Oklahoma Claims Concerning Farms in Major and Kingfisher County, Oklahoma Seaboard Farms, Inc. (Seaboard Farms), is subject to an ongoing Unilateral Administrative Order (the "RCRA Order") pursuant to Section 7003 of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. section 6973 ("RCRA"), filed by the EPA on June 29, 2001 against Seaboard Farms, Shawnee Funding, Limited Partnership and PIC International Group, Inc. ("PIC") (collectively, "Respondents") related to five swine farms located in Major County and Kingfisher County, Oklahoma purchased from PIC. These same farms are the subject of a Notice of Violation letter received from the State of Oklahoma, alleging that Seaboard Farms has violated various provisions of state law and the operating permits based on the same conditions which gave rise to the RCRA Order. Seaboard Farms disputes the RCRA Order and the State of Oklahoma's contentions on legal and factual grounds, and advised the EPA that it won't comply with the RCRA Order, as written. Notwithstanding, Seaboard Farms has undertaken an extensive investigation under the RCRA Order, and has had significant discussions with the EPA and the State of Oklahoma, proposing to take a number of corrective actions with respect to the farms in order to attempt to settle the RCRA Order and the Oklahoma Notice of Violation. As a part of those discussions, the EPA and the State of Oklahoma, advised Seaboard Farms that one additional farm in Kingfisher County must be included in any settlement, although neither agency has filed any formal claims with respect to that farm. The EPA recently advised Seaboard Farms that any such settlement must include a civil fine of $1,200,000. Seaboard Farms believes that the EPA has no authority to impose a civil fine and so advised the EPA as a part of a settlement proposal. The EPA advised Seaboard Farms that it rejected its most recent 15 settlement proposal and settlement discussions have terminated. The EPA could bring an action against Seaboard Farms to enforce the RCRA Order, although Seaboard Farms believes it has meritorious defenses to any such action, or the EPA could determine to take no further action. The State of Oklahoma recently advised Seaboard Farms that any settlement with it must include a civil fine of approximately $500,000. Settlement discussions are continuing with the State of Oklahoma, and Seaboard Farms intends to proceed with its proposed corrective actions with respect to the farms. The farms at issue were previously owned by PIC and PIC is indemnifying Seaboard Farms with respect to the RCRA Order (reserving its right to contest the obligation to do so), pursuant to an indemnification agreement which has a $5 million limit. If the settlement being discussed with the State of Oklahoma is agreed to, the estimated cumulative costs which will be expended pursuant to the settlement will total approximately $6.2 million, not including the additional legal costs required to negotiate the settlement and not including the approximately $500,000 penalty suggested by the State of Oklahoma. If the measures taken pursuant to the settlement are not effective or if certain additional issues arise at the farms after the settlement, other measures with additional costs may be required. PIC has advised Seaboard Farms that it is not responsible for the costs in excess of $5 million. Seaboard Farms disputes PIC's determination of the costs to be included in the calculation. Seaboard Farms believes that the costs to be considered are less than $5 million, such that PIC is responsible for all such costs and penalties, except for approximately $180,000 of estimated costs that would be incurred over 5 years subsequent to the settlement for certain testing and sampling. Seaboard Farms has agreed to conduct such testing and sampling as a part of the sampling it conducts in the normal course of operations and believes that the incremental costs incurred to conduct such testing and sampling will be less than $180,000. Seaboard Farms also believes that a more general indemnity agreement would require indemnification of liability in excess of $5 million (excluding the estimated $180,000 cost for testing and sampling), although PIC disputes this. Potential Additional EPA Claims As disclosed in previous filings, EPA has been conducting a broad-reaching investigation of Seaboard Farms, seeking information as to compliance with the Clean Water Act ("CWA"), Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA"), and the Clean Air Act ("CAA"). In a letter dated May 24, 2004, EPA made certain demands to resolve alleged violations of the CWA, CERCLA and the CAA. Seaboard Farms has rejected certain portions of EPA's demands on the basis that they are beyond EPA's authority and is seeking clarification of other demands. Seaboard Farms has proposed to conduct certain studies to resolve the CAA allegations, which studies are estimated to cost approximately $30,000. Other On January 26, 2004, the U.S. Department of Justice sent Seaboard Marine, Ltd. a letter stating that it was investigating possible violations of 49 U.S.C. sections 5104-5124 and 49 C.F.R. sections 171-173 relating to the transportation, storage and discharge of hazardous materials. Seaboard Marine is in the process of finalizing a plea agreement with the Department of Justice pleading guilty to the violations. The plea agreement requires Seaboard Marine to pay a fine, restitution and other costs totaling approximately $300,000, to implement a compliance plan, and to conduct training of employees. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders, held on April 26, 2004, included three items submitted to a vote of stockholders. Item 4 of the Form 10-Q for the first quarter ended April 3, 2004 which was filed on May 7, 2004 discloses the results of the shareholder's vote, which disclosure is incorporated herein by reference. 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. i. On May 7, 2004, Seaboard Corporation filed a report on Form 8-K with respect to Items 7 and 12 to report Seaboard's issuance of a press release announcing earnings of Seaboard Corporation for the first quarter ended April 3, 2004. This Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward-looking statements generally may be identified as: statements that are not historical in nature; and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends," or similar expressions. In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, including the impact of mark to market accounting on operating income; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) the cost and timing of the completion of new or expanded facilities, (ii) Seaboard's ability to obtain adequate financing and liquidity, (iii) the price of feed stocks and other materials used by Seaboard, (iv) the sale price for pork products from such operations, (v) the price for other products and services, (vi) the charter hire rates and fuel prices for vessels, (vii) the demand for power, related spot market prices and collectibility of receivables in the Dominican Republic, (viii) the effect of the devaluation of the Argentine and Dominican Republic pesos, (ix) the potential effect of the proposed meat packer ban legislation on the Pork Division, (x) the effect of the Venezuelan economy on the Marine Division, (xi) the potential effect of Seaboard's investment in a wine business on the consolidated financial statements, (xii) the potential impact of various environmental actions pending or threatened against Seaboard, or (xiii) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward- looking statements due to a variety of factors. The information contained in this report, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: August 10, 2004 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer (principal financial officer) by: /s/ John A. Virgo John A. Virgo, Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) 18 EX-31.1 2 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 quarterly report on Form 10-Q 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: August 10, 2004 /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-31.2 3 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 quarterly report on Form 10-Q 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: August 10, 2004 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer EX-32.1 4 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 Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 10, 2004 /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-32.2 5 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 Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 10, 2004 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----