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 October 2, 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 October 29, 2004.
Total pages in filing - 19 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
October 2, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 18,282 $ 37,377
Short-term investments 64,510 58,022
Receivables, net 262,021 190,013
Inventories 299,707 276,033
Deferred income taxes 15,544 17,972
Other current assets 45,458 35,419
Total current assets 705,522 614,836
Investments in and advances to foreign affiliates 40,370 46,680
Net property, plant and equipment 612,632 643,968
Other assets 29,289 20,207
Total assets $1,387,813 $1,325,691
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 11,352 $ 75,564
Current maturities of long-term debt 54,178 56,983
Accounts payable 77,284 61,817
Other current liabilities 160,318 149,726
Total current liabilities 303,132 344,090
Long-term debt, less current maturities 290,831 321,555
Deferred income taxes 118,884 85,295
Other liabilities 45,489 46,720
Total non-current and deferred liabilities 455,204 453,570
Minority and other noncontrolling interests 2,119 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 (60,091) (61,527)
Retained earnings 686,194 580,837
Total stockholders' equity 627,358 520,565
Total liabilities and stockholders' equity $1,387,813 $1,325,691
|
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
2004 2003 2004 2003
Net sales:
Products $ 522,422 $ 361,525 $1,563,177 $1,065,490
Services 132,272 105,793 388,375 315,161
Other 12,768 18,099 43,892 52,516
Total net sales 667,462 485,417 1,995,444 1,433,167
Cost of sales and operating
expenses:
Products 454,546 331,786 1,398,154 995,482
Services 101,466 95,960 301,871 280,805
Other 10,516 13,291 33,773 40,134
Total cost of sales and
operating expenses 566,528 441,037 1,733,798 1,316,421
Gross income 100,934 44,380 261,646 116,746
Selling, general and
administrative expenses 29,566 26,535 91,989 80,638
Operating income 71,368 17,845 169,657 36,108
Other income (expense):
Interest expense (6,120) (6,844) (20,538) (20,393)
Interest income 2,140 450 5,705 2,037
Income (loss) from foreign
affiliates 103 (15,054) (128) (20,932)
Minority and other
noncontrolling interests (227) (344) (621) (452)
Foreign currency gain
(loss), net 5,040 (914) 3,536 (7,015)
Miscellaneous, net (5,161) 5,448 (2,288) 6,780
Total other income (expense),
net (4,225) (17,258) (14,334) (39,975)
Earnings (loss) before income
taxes and cumulative effect
of changes in accounting
principles 67,143 587 155,323 (3,867)
Income tax benefit (expense) (20,595) 1,251 (47,142) 1,856
Earnings (loss) before
cumulative effect of changes
in accounting principles 46,548 1,838 108,181 (2,011)
Cumulative effect of changes
in accounting for asset
retirement obligations and
drydock accruals,net of
income tax expense of $550 - - - 3,648
Net earnings $ 46,548 $ 1,838 $ 108,181 $ 1,637
Net earnings per common share:
Earnings (loss) per share
before cumulative effect
of changes in accounting
principles $ 37.09 $ 1.46 $ 86.20 $ (1.60)
Cumulative effect of changes
in accounting for asset
retirement obligations and
drydock accruals - - - 2.90
Net earnings per common
share $ 37.09 $ 1.46 $ 86.20 $ 1.30
Dividends declared per
common share $ 0.75 $ 0.75 $ 2.25 $ 2.25
Average number of shares
outstanding 1,255,054 1,255,054 1,255,054 1,255,054
|
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Nine Months Ended
October 2, September 27,
2004 2003
Cash flows from operating activities:
Net earnings $ 108,181 $ 1,637
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 48,590 47,715
Loss from foreign affiliates 128 20,932
Foreign currency exchange gains (246) (3,891)
Cumulative effect of accounting changes, net - (3,648)
Deferred income taxes 35,613 (4,427)
Changes in current assets and liabilities:
Receivables, net of allowance (84,497) 18,801
Inventories (17,983) (8,292)
Other current assets (10,632) 9,065
Current liabilities exclusive of debt 24,089 (39)
Other, net (63) (3,068)
Net cash from operating activities 103,180 74,785
Cash flows from investing activities:
Purchase of short-term investments (144,874) (32,036)
Proceeds from the sale or maturity of short-term
investments 138,592 29,671
Investments in and advances to foreign affiliates,
net 3,014 (393)
Capital expenditures (21,768) (25,050)
Other, net 4,089 3,848
Net cash from investing activities (20,947) (23,960)
Cash flows from financing activities:
Notes payable to banks, net (64,212) (16,070)
Principal payments of long-term debt (32,297) (30,655)
Repurchase of minority interest in a controlled
subsidiary (5,000) -
Dividends paid (2,824) (2,824)
Bond construction fund 1,200 655
Other, net (152) (1,611)
Net cash from financing activities (103,285) (50,505)
Effect of exchange rate change on cash 1,957 2,341
Net change in cash and cash equivalents (19,095) 2,661
Cash and cash equivalents at beginning of year 37,377 23,242
Cash and cash equivalents at end of period $ 18,282 $ 25,903
|
See notes to condensed consolidated financial statements.
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies and Basis of Presentation
The 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 nine months ended October 2, 2004 Seaboard recorded losses of $4,172,000 and $4,016,000, respectively, related to these agreements compared to gains totaling $4,768,000 for the 2003 three month period and losses of $2,926,000 for the 2003 nine month period. 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 nine month periods, Seaboard made net payments of $2,142,000 and $5,409,000, respectively, compared to payments made of $2,175,000 and $5,118,000 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 nine months ended October 2, 2004, this segment recorded non-cash gains of $246,000 caused by the revaluation of certain dollar denominated net assets compared to gains of $3,891,000 during the nine months ended September 27, 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.
Nine Months Ended
October 2, September 27,
Increase (decrease) (thousands of dollars) 2004 2003
Working capital $1,744 $7,555
Fixed assets (45) 6,949
Other long-term net assets (14) 62
|
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 Nine Months Ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Beginning balance $6,449 $5,909 $6,086 $5,416
Accretion expense 116 109 345 309
Liability for additional
lagoons placed in service - - 134 293
Ending balance $6,565 $6,018 $6,565 $6,018
|
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 $48,000, $29,000 and $0.02, respectively, for the third quarter and $180,000, $110,000 and $0.09, respectively, for the nine 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 Nine Months Ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Net earnings $46,548 $1,838 $108,181 $ 1,637
Other comprehensive income
(loss) net of applicable
taxes:
Foreign currency
translation adjustment (470) 30 1,457 9,175
Unrealized gains on
investments 37 79 111 117
Unrealized gains (losses)
on cash flow hedges 80 (19) 18 (94)
Amortization of deferred
gain on interest rate
swaps (50) (51) (150) (151)
Total comprehensive income $46,145 $1,877 $109,617 $10,684
|
The components of and changes in accumulated other comprehensive loss for the nine months ended October 2, 2004 are as follows:
Balance Balance
December 31, Period October 2,
(Thousands of dollars) 2003 Change 2004
Foreign currency translation adjustment $(56,490) $1,457 $(55,033)
Unrealized gain on investments 14 111 125
Unrecognized pension cost (5,772) - (5,772)
Net unrealized loss on cash flow hedges (30) 18 (12)
Deferred gain on interest rate swaps 751 (150) 601
Accumulated other comprehensive loss $(61,527) $1,436 $(60,091)
|
The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. However, as a result of an anticipated lower discount rate used in the calculation of unrecognized pension cost and the retirement plan amendment discussed in Note 5, management expects the 2004 calculation will result in additional comprehensive loss 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 October 2, 2004 and December 31, 2003:
October 2, December 31,
(Thousands of dollars) 2004 2003
At lower of LIFO cost or market:
Live hogs & materials $146,469 $142,396
Dressed pork & materials 20,261 22,220
166,730 164,616
LIFO allowance (3,450) (7,608)
Total inventories at lower of LIFO
cost or market 163,280 157,008
At lower of FIFO cost or market:
Grain, flour and feed 99,559 87,831
Sugar produced & in process 15,746 14,807
Other 21,122 16,387
Total inventories at lower of FIFO
cost or market 136,427 119,025
Total inventories $299,707 $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. During 2004, payments of $1,922,000, $562,000 and $3,279,000 were made on April 15, July 15, and September 15, respectively.
On November 5, 2004, Seaboard amended its Executive Retirement Plan, which provides a supplemental retirement benefit to officers and certain key employees of Seaboard and its subsidiaries, to conform the benefit calculation to the Plan discussed above by changing the methodology for calculating the benefit to a percentage of final average pay for all years of service. The amendment also changes the normal form of the benefit to a lump sum payment, provided the employee has at least 5 years of service after the plan amendment was
adopted. Seaboard has also established a Rabbi Trust in order to provide a mechanism to provide discretionary funding for the benefit.
While this amendment has no effect on the 2004 net periodic benefit cost, it will impact the amount of future benefit costs. Had this amendment been in effect at the beginning of 2004, the 2004 annual net periodic benefit cost would have increased by $1,179,000 ($719,000 after tax, or $0.57 per share). Seaboard is considering providing funding for a portion of the liability to a trust during the fourth quarter of 2004 for this plan. As the Executive Retirement Plan is a non-qualified plan, the assets will remain on the books of Seaboard as a long-term asset.
The net periodic benefit cost of these plans was as follows:
Three months ended Nine months ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Components of net periodic
benefit cost:
Service cost $ 854 $ 735 $2,467 $2,283
Interest cost 1,021 841 2,877 2,724
Expected return on plan assets (847) (522) (2,414) (1,781)
Amortization and other 210 231 605 733
Net periodic benefit cost $1,238 $1,285 $3,535 $3,959
|
Note 6 - Contingencies
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 initially advised Seaboard that it rejected its most recent settlement proposal and settlement discussions terminated. The EPA recently requested a meeting with Seaboard Farms to reinstate settlement discussions. If the matter is not settled, the EPA could bring an action against Seaboard, although Seaboard believes it has meritorious defenses to any such action, or the EPA could determine to take no further action. 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.
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 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 October 2, 2004.
Guarantee beneficiary Maximum exposure Maturity Foreign non-consolidated affiliate grain $1,000,000 Annual renewal processor-Uganda Foreign non-consolidated affiliate food $ 400,000 August 2005 product distributor-Ecuador Various hog contract growers $1,585,000 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 October 2, 2004, this affiliate had $905,000 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 October 2, 2004, Seaboard had outstanding $10,642,000 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 $211,000 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
The Bulgarian wine business (the Business), in which Seaboard has an equity investment has obtained the necessary working capital resources during the third quarter of 2004 to support its inventory purchases for the fall 2004 vintage. However, this affiliate has continued to incur losses from its operations. As a result of sustained losses, Seaboard's common stock investment has been reduced to zero and Seaboard began applying losses against its remaining investment, consisting of preferred stock and debt, based on the change in Seaboard's claim on the Business' book value. Accordingly, Seaboard increased its share of losses from this Business from 37% to 73% in the third quarter of 2004. Annually during the fourth quarter, the Business evaluates the recoverability of its long-lived assets based on projected cash flows. Seaboard will consider this evaluation, among other things, and determine whether there is an other-than- temporary decline in value for this investment. Such a determination could have a material affect on the results of operations for 2004. As of October 2, 2004, Seaboard's investments in and advances to the Business totaled $13,274,000. 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 nine months ended September 27, 2003 totaled $13,420,000 and $16,256,000, respectively, including third quarter charges totaling $12,421,000 reflecting Fjord's asset impairment charges to write down licenses, inventory and fixed assets.
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.
Sales to External Customers:
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Pork $241,538 $186,125 $ 716,667 $ 531,238
Commodity Trading and Milling 255,808 151,830 805,859 478,971
Marine 124,994 99,301 354,143 295,625
Sugar and Citrus 25,749 22,710 54,600 53,305
Power 12,768 18,099 43,892 52,516
All Other 6,605 7,352 20,283 21,512
Segment/Consolidated Totals $667,462 $485,417 $1,995,444 $1,433,167
Operating Income:
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Pork $ 38,765 $ 3,954 $ 98,119 $ 2,250
Commodity Trading and Milling 9,395 5,445 15,855 10,002
Marine 17,153 (1,394) 41,202 42
Sugar and Citrus 3,285 5,899 9,404 15,237
Power 2,089 3,309 3,316 8,250
All Other 980 832 2,375 1,642
Segment Totals 71,667 18,045 170,271 37,423
Corporate Items (299) (200) (614) (1,315)
Consolidated Totals $ 71,368 $ 17,845 $ 169,657 $ 36,108
|
Income (loss) from Foreign Affiliates:
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Thousands of dollars) 2004 2003 2004 2003
Commodity Trading and Milling $ 1,365 $ 788 $ 3,953 $ (871)
All Other (1,262) (15,842) (4,081) (20,061)
Segment/Consolidated Totals $ 103 $(15,054) $ (128) $ (20,932)
Total Assets:
October 2, December 31,
(Thousands of dollars) 2004 2003
Pork $ 666,828 $ 670,288
Commodity Trading and Milling 288,005 243,065
Marine 115,764 114,375
Sugar and Citrus 90,666 75,674
Power 83,003 76,920
All Other 16,934 13,953
Segment Totals 1,261,200 1,194,275
Corporate Items 126,613 131,416
Consolidated Totals $1,387,813 $1,325,691
|
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 $12.6 million from December 31, 2003. While Seaboard generated $103.2 million of cash from operating activities, $32.3 million was used for scheduled payments on long-term debt, $64.2 million was used to repay notes payable to banks, and $21.8 million was used for capital expenditures. Cash from operating activities for the nine months ended October 2, 2004 increased $28.4 million compared to the same period one year earlier, primarily reflecting increased earnings, partially 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 $21.8 million in property, plant and equipment during 2004, of which $8.7 million was expended in the Pork segment, $4.7 million in the Marine segment, $3.9 million in the Commodity Trading and Milling segment, $4.0 million in the Sugar and Citrus segment and $0.5 million in the remaining businesses. The capital expenditures for 2004 have primarily been of a normal recurring nature including replacements of machinery and equipment, and general facility modernizations and upgrades. There are no material commitments for capital expenditures, nor are any major expansions currently planned for the next year. For the remainder of 2004, management has budgeted additional capital expenditures of $2.5 million in the Pork segment, $1.4 million in the Commodity Trading and Milling segment, $2.4 million in the Marine segment, $1.5 million in the Sugar and Citrus segment and $0.3 million in all other businesses. Management anticipates financing these capital expenditures from internally generated cash and the use of available short-term investments.
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 October 2, 2004, Seaboard had committed lines of credit totaling $185.0 million and uncommitted lines totaling $32.0 million. As of October 2, 2004 Seaboard had $10.0 million of borrowings outstanding under the committed credit lines and $1.4 million borrowed under its uncommitted credit lines. Outstanding standby letters of credit totaling $10.6 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 scheduled long-term debt maturities total $54.2 million over the next year with $23.0 million maturing during the fourth quarter of 2004. 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 the next year. 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.
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 nine months ended October 2, 2004 increased by $182.0 and $562.3 million, respectively, compared to the same periods of 2003. The increase in net sales was primarily the result of higher market prices and, to a lesser extent, sales volumes for pork products, increased trading volumes and commodity prices, and, to a lesser extent, increased level of marine cargo service with improved rates. Operating income increased by $53.5 and $133.5 million for the 2004 three and nine month periods compared to same periods of 2003. The increase in sales also contributed to higher operating income.
Pork Segment
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 241.5 $ 186.1 $ 716.7 $ 531.2
Operating income $ 38.8 $ 4.0 $ 98.1 $ 2.3
|
Net sales for the Pork segment increased $55.4 and $185.5 million for the three and nine months of 2004 compared to the same periods of 2003, primarily as a result of higher market prices for pork products and, to a lesser extent, higher sales volumes. The demand for pork products has remained strong during 2004. 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 the increasing demand for pork products. Sales volumes also 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 in the 2004 year- to-date period compared to 2003.
Operating income for the Pork segment increased $34.8 and $95.8 million for the third quarter and year-to-date periods of 2004 compared with the same periods of 2003 primarily as a result of the higher sales prices and volumes discussed above, partially offset by higher overall hog costs. Overall hog costs increased primarily as a result of higher costs for third-party hogs, partially offset by a decrease in the cost of internally-raised hogs and an increase in the percentage of lower cost internally-raised hogs. The third-quarter of 2004 includes charges of $1.4 million for abandoned land development costs at certain potential hog production sites and a potential second plant site that Seaboard has decided not to pursue at this time. The year-to-date 2003 period also includes charges totaling $1.6 million for abandoned land development costs of potential hog production sites that Seaboard decided not to pursue. Management is unable to predict future market prices for pork products, feed costs and third party hogs, or for how long the relatively strong overall market conditions will be sustained. However, management expects these operations to remain profitable for the fourth quarter of 2004.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 255.8 $ 151.8 $ 805.9 $ 479.0
Operating income $ 9.4 $ 5.4 $ 15.9 $ 10.0
Income (loss) from foreign
affiliates $ 1.4 $ 0.8 $ 4.0 $ (0.9)
|
Net sales for the Commodity Trading and Milling segment increased $104.0 and $326.9 million for the three and nine 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 and soybean meal, and world-wide increased commodity and freight prices. However, commodity prices decreased significantly during the third quarter of 2004 compared to commodity prices the first half of 2004.
Operating income for this segment increased $4.0 and $5.9 million for the 2004 quarter and year-to-date periods compared to the prior year reflecting the increased sales volumes in the trading business discussed above. However, the impact of mark-to-market accounting for commodity futures and options contracts partially offset the improvement. While management believes its commodity futures and options are economic hedges of its firm purchase and sales contracts, Seaboard does not perform the extensive record-keeping required to account for commodity transactions as hedges for accounting purposes. As a result, operating income for the three and nine month periods of 2004 includes losses of $0.4 and $10.8 million, respectively, compared to gains of $0.3 and $2.0 million for the comparable 2003 periods for these mark-to-market adjustments. If commodity prices stabilize for the fourth quarter of 2004, management anticipates that a significant portion of the negative impact of the mark-to-market accounting noted above will reverse as products are delivered to customers resulting in higher operating income at that time. In addition, charter hire rates continue to be significantly higher during 2004 compared to 2003 although a portion of the increased expense was 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 market rates during the second and third quarters of 2004. However, management expects higher freight rates to continue during the remainder of 2004 and 2005 while the long-term charters expire, thus reducing freight opportunities and potentially operating income. 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 for the remainder of 2004.
Income from foreign affiliates for the three and nine months ended October 2, 2004 improved $0.6 and $4.9 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 Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 125.0 $ 99.3 $ 354.1 $ 295.6
Operating income (loss) $ 17.2 $ (1.4) $ 41.2 $ 0.0
|
Net sales for the Marine segment increased $25.7 and $58.5 million for the three and nine month periods of 2004 compared to the same periods of 2003 reflecting higher average cargo rates, especially in the third quarter, and higher cargo volumes. Average cargo rates for 2004 improved over 2003 reflecting improved market conditions and improved cargo mixes in certain markets. 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. Partially offsetting these increases for the nine month period, in 2003 Seaboard earned revenue from chartering certain company-owned vessels to carry military cargo to the Middle East.
Operating income for the Marine segment increased $18.6 and $41.2 million during the 2004 three and nine month periods compared to the same periods in 2003, primarily reflecting the increased rates and volumes discussed above. Although management cannot predict changes in future cargo rates or to what extent economic conditions will continue to improve for the Venezuelan and related markets, it does anticipate these operations to remain profitable for the fourth quarter of 2004.
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 from these regulations, although it cannot predict if any disruptions could occur in the future if foreign ports do not fully comply.
Sugar and Citrus Segment
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 25.7 $ 22.7 $ 54.6 $ 53.3
Operating income $ 3.3 $ 5.9 $ 9.4 $ 15.2
|
Net sales for the Sugar and Citrus segment increased in the three and nine month periods of 2004 compared to the same periods of 2003. The increase was due to higher seasonal citrus trading volumes during the third quarter. This increase was partially offset by lower sugar prices during 2004 resulting from the abundant 2003 harvest in Argentina which resulted in large sugar supplies. While unable to predict future sales prices, management does not expect sales prices to increase significantly for the remainder of 2004.
Operating income decreased $2.6 and $5.8 million during the three and nine month periods of 2004 compared to the prior year periods primarily due to lower sugar prices as discussed above and higher costs of sales from the previously inventoried 2003 sugar harvest and production. During 2003, the peso price of sugar increased at a higher rate than the related peso costs, but that trend reversed and expenses have increased. The higher citrus sales volumes had a negligible impact on operating income. Management expects operating income for the fourth quarter of 2004 will remain positive although lower than 2003.
Power Segment
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 12.8 $ 18.1 $ 43.9 $ 52.5
Operating income $ 2.1 $ 3.3 $ 3.3 $ 8.3
|
The economic environment of the Dominican Republic (DR) has remained unstable throughout 2004. Multilateral credit agencies have not provided sufficient funding to the DR government to restore liquidity; consequently the economic problems still exist and this segment has experienced difficulty in collecting amounts owed from certain generating and distribution companies. As of October 2, 2004, Seaboard's net receivable exposure from customers with significant past due balances totaled $16.0 million, including $9.3 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, a significant exposure to the partially government-owned distribution companies still exists. Despite the continued liquidity problems, during the three and nine months ended October 2, 2004 the Dominican Republic peso strengthened against the U.S. dollar, resulting in foreign exchange gains of $5.1 and $2.5 million, respectively, related to the peso-denominated net assets, compared to a gain of $0.7 million and loss of $6.1 million for the same periods in 2003. The exchange gains and 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 $5.3 and $8.6 million for the three and nine month periods of 2004 compared to the same periods of 2003 primarily due to lower production. Periodically during 2004, Seaboard has curtailed production due to management's concerns about the collectibility of revenues. In addition, approximately $1.5 million of spot market sales were not recognized during the third quarter of 2004 as collectibility is not reasonably assured. Management may continue to impose further curtailments if it determines that liquidity conditions warrant.
Operating income decreased $1.2 and $5.0 million for the three and nine months of 2004 compared to the same periods of 2003. In addition to lower sales, commission expenses increased by $2.4 million for the 2004 nine month period. However, as a result of recent collections of a previously reserved accounts receivable, during the third quarter of 2004 $1.0 million of bad debt expense was reversed. 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. Absent improvement to the economic problems in the country including the related receivable collection issues, management cannot predict whether this segment will be profitable for the remainder of 2004.
All Other
Three Months Ended Nine Months Ended
October 2, September 27, October 2, September 27,
(Dollars in millions) 2004 2003 2004 2003
Net sales $ 6.6 $ 7.4 $ 20.3 $ 21.5
Operating income $ 1.0 $ 0.8 $ 2.4 $ 1.6
Loss from foreign
affiliates $ (1.3) $ (15.8) $ (4.1) $ (20.1)
|
Net sales for All Other decreased $0.8 and $1.2 million for the three and nine months of 2004 compared with the same periods of 2003 while operating income increased slightly. The increase in operating income primarily reflects improved operations 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 including losses of $0.8 million recorded in the second quarter for Seaboard's share of inventory write-downs. See Note 7 to the Condensed Consolidated Financial Statements for further discussion of this business.
The 2003 foreign affiliate losses also include Seaboard's share of Fjord Seafood ASA (Fjord) losses which totaled $13.4 and $16.3 million for three and nine month periods, respectively. Seaboard's share of third quarter losses included impairment charges of $12.4 million reflecting Fjord's write down of licenses, inventory and fixed assets. 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 nine month periods of 2004 increased by $3.0 and $11.4 million over the same periods of 2003 primarily due to increased selling costs in the Marine and Commodity Trading and Milling segments related to the growth of these businesses. The 2004 nine-month period also reflects the increased commissions in the Power segment. Partially offsetting the increase in SG&A for the 2004 quarter, the Power segment reversed $1.0 million of bad debt expense reflecting the collection of a previously reserved receivable. As a percentage of revenues, SG&A decreased to 4.4% and 4.6% for the 2004 quarter and year-to-date periods, respectively, compared to 5.5% and 5.6% 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 decreased for the quarter but increased slightly for the nine month period of 2004 compared to the same 2003 periods. During the second quarter of 2004, Seaboard repaid a significant portion of the notes payable to banks with cash from operations.
Interest Income
Interest income increased $1.7 and $3.7 million for the three and nine month periods of 2004 compared to the same periods of 2003 primarily reflecting larger amounts of interest received from past due customer accounts receivable in the Power and Commodity Trading and Milling segments. In addition, Seaboard had higher average levels of short- term investments during the 2004 periods.
Foreign Currency Gains (Losses)
Seaboard realized net foreign currency gains of $5.0 and $3.5 million during the three and nine month periods of 2004 respectively, compared to losses of $0.9 and $7.0 million for each respective period of 2003. The strengthening of the Dominican Republic peso during the third quarter of 2004 created gains of $5.1 and $2.5 million for the three and nine months ended October 2, 2004 compared to a gain of $0.7 million for the 2003 three month period and a loss of $6.1 million during the 2003 nine month period. 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 nine month periods of 2004 includes losses from the mark-to-market of interest rate swap agreements totaling $4.2 and $4.0 million, respectively, compared to a 2003 third quarter gain of $4.8 and year to date losses of $2.9 million. These swap agreements do not qualify as hedges for accounting purposes and accordingly, changes in the market value are recorded to earnings as interest rates change. Miscellaneous, net for the three and nine months ended October 2, 2004 also includes losses of $1.6 and $1.3 million, respectively, from the mark-to-market of commodity futures and options contracts that management does not view as direct economic hedges of its operations. In addition, miscellaneous, net for the 2004 nine month period includes a gain of $0.5 million from the settlement of antitrust litigation compared to antitrust litigation gains of $0.4 and $7.0 million for the 2003 three and nine month periods, respectively.
Income Tax Expense
The effective tax rate increased to 30.4% for 2004 primarily as a result of increased domestic taxable income and lower amounts of permanently deferred foreign earnings.
Other Financial Information
On October 22, 2004, President Bush signed into law H.R. 4520, the American Jobs Creation Act ("Act"). The Act is a significant and complicated reform of U.S. income tax law. Management is currently reviewing the new law to determine the impact on Seaboard. The Act contains several provisions which initially appear to be favorable for Seaboard. These include: phasing out the Extraterritorial Income Exclusion and replacing it with an income tax deduction for U.S. manufacturers, simplifying the U.S. foreign tax credit calculation by reducing the foreign tax credit baskets, reforming the interest allocation rules and allowing for recharacterization of overall domestic losses, and repealing the alternative minimum tax limitation on the use of foreign tax credits. The carryover period for foreign tax credits was generally extended from 5 to 10 years. More importantly, the Act repeals the prior law treatment of shipping income as a component of subpart F income. This change will allow Seaboard's post-2004 shipping income to avoid current taxation in the U.S. and should have a material impact on Seaboard's future effective tax rate and cash tax payments. The Act would also allow Seaboard a one-time election to repatriate permanently invested foreign earnings at a 5.25% effective U.S. income tax rate rather than the statutory 35% rate, if certain domestic reinvestment requirements are met. Management is evaluating this provision and has not determined whether to utilize the one-time repatriation opportunity.
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 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 October 2, 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 October 2, 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 initially advised Seaboard Farms that it rejected its most recent settlement proposal and settlement discussions terminated. The EPA recently requested a meeting with Seaboard Farms to reinstate settlement discussions. If the matter is not settled, 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.
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. On September 21, 2004, Seaboard Marine pled guilty to the violations. In conjunction with this guilty plea, Seaboard Marine entered into a Plea Agreement agreeing to pay a fine, restitution and other costs totaling approximately $300,000, to implement a compliance plan, and to conduct training of employees. At the sentencing, the US attorney will recommend that the judge impose the sentence set forth in the Plea Agreement, although the judge has discretion to impose a fine of up to $500,000.
Item 5. Other Information
(a) As discussed in Note 5 to the Condensed Consolidated Financial Statements, on November 5, 2004, Seaboard amended its Executive Retirement Plan, which provides a supplemental retirement benefit to officers and certain key employees of Seaboard and its subsidiaries. In addition, Seaboard has established a Rabbi Trust in order to provide a mechanism to provide discretionary funding for the benefit. The amendment to the Executive Retirement Plan and Rabbi Trust document are included as exhibits 10.1 and 10.2 of this Form 10-Q.
Item 6. Exhibits
Exhibits
10.1 Seaboard Corporation Executive Retirement Plan dated November 5, 2004, amending and restating the Seaboard Corporation Executive Retirement Plan dated January 1, 1997 as amended and restated February 28, 2001. The addendums to the Executive Retirement Plan have been omitted from the filing, but will be provided supplementally upon request of the Commission.
10.2 Seaboard Corporation Executive Retirement Plan Trust dated November 5, 2004 between Seaboard Corporation and Robert L. Steer, as trustee.
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
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, (xiii) the potential
impact of the American Jobs Creation Act, or (xiv) 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.
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: November 5, 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)
|
Exhibit 10.1
SEABOARD CORPORATION
EXECUTIVE RETIREMENT PLAN
2004 AMENDMENT AND RESTATEMENT
SEABOARD CORPORATION
EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE I. PURPOSE AND BACKGROUND 1
ARTICLE II. DEFINITIONS 1
2.1.Accrued Benefit 1
2.2.Actuarial Equivalent 1
2.3.Actuarial Value 1
2.4.Board 2
2.5.Change of Control 2
2.6.Committee 2
2.7.Company 2
2.8.Covered Compensation 2
2.9.Disability Retirement Date 2
2.10. Early Retirement Date 2
2.11. Earnings 2
2.12. Eligible Spouse 3
2.13. Final Average Earnings 3
2.14. Inactive Participant 3
2.15. Internal Revenue Code or Code 3
2.16. Normal Retirement Date 3
2.17. Participant 3
2.18. Participation Date 3
2.19. Pension Plan 3
2.20. Plan 4
2.21. Plan Administrator 4
2.22. Plan Year 4
2.23. Related Company 4
2.24. Separation Date 4
2.25. Year of Service 4
2.26. Years of Accrual Service 4
ARTICLE III. PARTICIPATION 4
3.1.Eligibility for Participation 4
3.2.Cessation of Participation. 4
3.3.Inactive Participants. 5
3.4.Participation not Contract of Employment 5
ARTICLE IV. RETIREMENT BENEFITS 5
4.1.Determination of Accrued Benefit 5
4.2.Early Retirement Benefit 6
|
ARTICLE V. PAYMENT OF BENEFITS 7 5.1.Fully Vested Benefits 7 5.2.Forfeitures 7 5.3.Commencement of Payment 7 5.4.Method of Payment 7 5.5.Participant Elections of Method of Payment. 10 5.6.Death Benefit. 10 5.7.Determination of Beneficiary. 10 ARTICLE VI. FUNDING 11 6.1.Unfunded Plan. 11 ARTICLE VII. WITHHOLDING OF TAXES 11 7.1.Tax Withholding 11 ARTICLE VIII. PLAN ADMINISTRATOR 11 8.1.Membership and Authority 11 8.2.Delegation 12 8.3.Information to be Furnished 12 8.4.Plan Administrator's Decision Final 12 8.5.Remuneration and Expenses 12 8.6.Indemnification of Committee Member 12 8.7.Resignation or Removal of Committee Member 13 8.8.Interested Committee Member 13 ARTICLE IX. CLAIMS PROCEDURE 13 9.1.Claim 13 9.2.Denial of Claim 13 9.3.Review of Claim 13 9.4.Final Decision 13 ARTICLE X. AMENDMENTS OR TERMINATION OF THE PLAN 13 10.1. Board 13 ARTICLE XI. MISCELLANEOUS 14 11.1. Captions 14 11.2. Company Action 14 11.3. Company Records 14 11.4. Evidence 14 11.5. Gender and Number 14 11.6. Governing Law 15 11.7. Nonassignability 15 11.8. Participant Cooperation 15 11.9. Successors 15 11.10.Unsecured General Creditor 15 |
11.11.Validity 15 11.12.Waiver of Notice 15 ADDENDUM A - PARTICIPANTS 17 ADDENDUM B - PRIOR CASH PAYMENTS 18 ADDENDUM C - PRE-1997 FROZEN BENEFITS 19 ADDENDUM D - PARTICIPANTS WITH INDIVIDUAL SERP AGREEMENTS 20 |
SEABOARD CORPORATION
EXECUTIVE RETIREMENT PLAN
ARTICLE I.
PURPOSE AND BACKGROUND
Seaboard Corporation adopted the Seaboard Corporation Executive Retirement Plan (the "Plan") effective January 1, 1994. Effective January 1, 1997, the Plan was restated and amended in its entirety.
The purpose of the Plan is to aid in retaining and attracting certain key employees of Seaboard Corporation and participating affiliated companies by providing to them supplemental retirement income. The Plan is intended to be an arrangement that is unfunded and maintained primarily for the purpose of providing supplemental retirement benefits to a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 as from time to time amended ("ERISA"), and the Plan shall be interpreted and administered in a manner consistent with this intent.
In furtherance of the purpose of the Plan, the Plan is hereby again restated and amended in its entirety effective upon the date of execution hereof (the "Effective Date"). The provisions of this amended and restated Plan shall apply to all Participants in the Plan who separate from service with the Company on or after the Effective Date (except as otherwise provided on Addendum A attached hereto). The benefits under the Plan of all Participants who separate from service with the Company prior to the Effective Date will be determined based upon the provisions of the Plan in effect at the time of such Separation from Service (except as otherwise provided on Addendum A attached hereto).
ARTICLE II.
DEFINITIONS
For the purpose of this Plan, the following words and phrases shall have the meaning indicated, unless the context clearly indicates otherwise:
2.1. Accrued Benefit means a Participant's benefit determined as of a particular time under the provisions of this Plan.
2.2. Actuarial Equivalent has the same meaning as such term has in the Pension Plan.
2.3. Actuarial Value means the lump sum equivalent value of a Participant's Accrued Benefit payable at his Normal Retirement Date and determined by using the interest and mortality tables then applicable for purposes of determining Actuarial Value under the Pension Plan.
2.4. Board means the Board of Directors of Seaboard Corporation.
2.5. Change of Control means an event or transaction which results in one or more of the following:
(a) The acquisition by any person or entity (other than by the Company or one of its subsidiaries) of more than fifty percent (50%) of either the outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors;
(b) The liquidation of the Company or the sale of more than eighty-five percent (85%) of the assets of the Company to an unrelated person or entity;
(c) The approval by the shareholders of the Company of a reorganization, merger or consolidation with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of the directors of the reorganized, merged or consolidated entity's then outstanding voting securities; or
(d) The acquisition by any person or entity (other than by any
descendant of Otto Bresky, Senior or any trust established
primarily for the benefit of any descendant of Otto Bresky,
Senior) of more than 50% of either the membership interests or
the combined voting power of Seaboard Flour, LLC.
2.6. Committee means the committee, if any, appointed to
administer this Plan pursuant to Article VIII.
2.7. Company means Seaboard Corporation, a Delaware corporation, and any of its subsidiaries or affiliates that are participating in this Plan, and any successors to the business of Seaboard Corporation and such participating subsidiaries or affiliates.
2.8. Covered Compensation has the same meaning as such term has in the Pension Plan.
2.9. Disability Retirement Date means the date the Participant has a Separation from Service because of disability, irrespective of the Participant's age. A Participant will be considered disabled if the Participant is disabled for purposes of the Pension Plan.
2.10. Early Retirement Date means the date as of which a
Participant has both (a) completed ten (10) Years of Service and
(b) been a Participant for five (5) Years.
2.11. Earnings means the total salary and bonus received by
the Participant from the Company for the Participant's services
during a calendar year subject to the following sentences of this
Section 2.11. Earnings shall not include reimbursements or other
expense allowances, fringe benefits (cash and non-cash), moving
expenses, and welfare benefits. Earnings also shall not include
any benefits accrued under this Plan. Earnings shall include the
amount of any elective contributions made by the Participant in
such year pursuant to a plan maintained by the
Company where such amount is not includable in gross income due to the provisions of Code Sections 125, 401(k) or 132(f). Earnings shall also include an amount equal to the amount of the reduction in the Participant's salary and bonus for the Plan Year made pursuant to the election of the Participant under the Seaboard Corporation Investment Option Plan established by Seaboard Corporation and as from time to time amended (the "Option Plan"); however, Earnings shall not include any amount of taxable income recognized by the Participant as a result of the exercise of an option granted under the Option Plan.
2.12. Eligible Spouse means the spouse of a Participant to whom the Participant was married on the date payment of the Participant's vested Accrued Benefit commences, or, if earlier, on the date of the Participant's death. The length of the marriage prior to either of such dates shall not be taken into consideration.
2.13. Final Average Earnings has the same meaning as such term has in the Pension Plan except that Final Average Earnings will be determined by using the definition of Earnings set forth herein.
2.14. Inactive Participant means a Participant who is no
longer accruing a benefit under the Plan because either (a) the
President or a Senior Vice President of the Company has
determined in his sole discretion that the Participant shall no
longer accrue a benefit under the Plan because the Participant no
longer satisfies criteria for participation as determined by the
President or a Senior Vice President in his sole discretion, or
(b) the Participant has had a Separation from Service.
2.15. Interest Rate means the Moody's Aaa Seasoned Bond Index average rate as of the first business day of the Plan Year containing the period for which the interest amount payable hereunder is to be determined.
2.16. Internal Revenue Code or Code means the Internal Revenue Code of 1986, as amended from time to time. References to any Section of the Internal Revenue Code shall include any successor provision thereto.
2.17. Key Participant means a Participant who is a key employee of the Company within the meaning of Code Section 416(i) (but without regard to Code Section 416(i)(5)).
2.18. Normal Retirement Date means the first day of the
calendar month coinciding with or next following the date the
Participant attains age sixty-two (62).
|
2.19. Participant means any individual who is designated as a Participant in the Plan as provided in Section 3.1 and who has not ceased to be a Participant under Section 3.2.
2.20. Participation Date means the date an employee becomes a Participant as provided in Section 3.1.
2.21. Pension Plan means the Seaboard Corporation Pension Plan as in effect on the Effective Date and as thereafter amended from time to time.
2.22. Plan means the Seaboard Corporation Executive Retirement Plan as set forth herein and as amended from time to time.
2.23. Plan Administrator means the Committee, if any, but if at any time there is no Committee acting hereunder then the Plan Administrator will be Seaboard Corporation.
2.24. Plan Year means the 12-month period beginning January 1 and ending December 31.
2.25. Related Company means any corporation which is a member
of a controlled group of corporations (as defined in Code Section
414(b)) that includes the Company.
2.26. Separation Date means the date the Participant has a Separation from Service.
2.27. Separation from Service means ceasing to be employed by the Company or any Related Company for any reason.
2.28. Years of Service at any particular time means the years of service the Participant has at that time as determined under the Pension Plan for vesting purposes.
2.29. Years of Accrual Service means Years of Accrual Service as determined for purposes of the Pension Plan, except that Years of Accrual Service shall be determined (a) based upon all hours of service with either the Company or a Related Company whether or not the Participant was a Participant in the Plan at the time of such service, (b) without applying the maximum limit of 35 Years of Accrual Service under the Pension Plan, and (c) without applying the Pension Plan's exclusion of service during any period from January 1, 1994 through January 1, 1997 that the Participant was accruing benefits under either this Plan or any predecessor plan that merged into this Plan. Notwithstanding the preceding sentence, Years of Accrual Service will not include any service for an entity occurring prior to the time the entity became a Related Company.
ARTICLE III.
PARTICIPATION
3.1. Participation Date. All persons who are Participants immediately prior to the Effective Date will remain Participants as of the Effective Date, and the Participation Date of any such Participant is that date prior to the Effective Date that he became a Participant. An employee of the Company who is not a Participant on the Effective Date, and who is determined by the President or a Senior Vice President of the Company to be a member of a select group of management or highly compensated employees, will become a Participant if he is designated as a Participant by the President or a Senior Vice President of the Company. Such employee's Participation Date will be the date specified by the President or a Senior Vice President of the Company. Commencement of participation does not guarantee any Participant continued active participation hereunder. Those employees who are Participants in the Plan on the Effective Date are listed on Addendum A attached hereto.
3.2. Cessation of Participation. A Participant will cease to be a Participant when he no longer has an Accrued Benefit.
3.3. Inactive Participants. An Inactive Participant will have a frozen Accrued Benefit hereunder. If at any time the frozen Accrued Benefit of an Inactive Participant is zero, then the Inactive Participant will no longer have an Accrued Benefit and will cease to be a Participant.
3.4. Participation not Contract of Employment. The Plan does not constitute a contract of employment, and participation in the Plan will not give any Participant the right to continue in the employ of or provide services to the Company, or interfere in any way with the right of the Company to terminate the employment of the Participant or give any right or claim to any benefit under the terms of the Plan unless such right or claim is specifically vested under the terms of the Plan.
ARTICLE IV.
RETIREMENT BENEFITS
4.1. Determination of Accrued Benefit. A Participant's Accrued
Benefit is a benefit payable in the form of a single life annuity
commencing on the Participant's Normal Retirement Date (or the
Participant's Separation Date if later than his Normal Retirement
Date) in an annual amount equal to the excess of (1) the sum of
(a) (the "Pre-Participation Service Benefit") and (b) (the "Post-
Participation Service Benefit") below, over (2) the sum of (c)
(the "Pension Plan Offset"), (d) (the "Prior Cash Payment
Offset"), (e) (the "Prior SERP Frozen Benefit Offset"), and (f)
(the "Individual SERP Agreement Offset") below; provided,
however, in no event shall the Participant's Accrued Benefit be
less than the amount of the Participant's Accrued Benefit
immediately prior to the Effective Date.
(a) Pre-Participation Service Benefit. A Participant's Pre- Participation Service Benefit will be determined taking into account only the Participant's Years of Accrual Service as of his Participation Date ("Pre-Participation Years of Accrual Service") and will be an amount equal to the sum of:
(i) .65% of his Final Average Earnings multiplied by his Pre- Participation Years of Accrual Service; and
(ii) .50% of his Final Average Earnings in excess of Covered Compensation multiplied by his Pre-Participation Years of Accrual Service.
(b) Post-Participation Service Benefit. A Participant's Post- Participation Service Benefit will be determined taking into account the Participant's Years of Accrual Service after the Participant's Participation Date ("Post-Participation Years of Accrual Service") and will be an amount equal to 2.5% of his Final Average Earnings multiplied by his Post-Participation Years of Accrual Service.
(c) Pension Plan Offset. The amount of a Participant's Pension Plan Offset is the Actuarial Equivalent of the Participant's accrued benefit as defined in the Pension Plan, determined as if such benefit were payable in the form of a single life annuity that commences on the Participant's Normal Retirement Date or, if later, the Participant's Separation Date.
(d) Prior Cash Payment Offset. This offset applies only to those Participants who received one or more cash payments under the provisions of the Plan in effect from January 1, 1994 through January 1, 1997. The amount of the Prior Cash Payment Offset is the Actuarial Equivalent of the benefit satisfied with such cash payments, determined as if such benefit were payable in the form of a single life annuity that commences on the Participant's Normal Retirement Date or, if later, the Participant's Separation Date. The name of each Participant who received one or more such cash payments and the benefit satisfied with such cash payment or payments are listed on Addendum B attached hereto.
(e) Prior SERP Frozen Benefit Offset. This offset applies only to those Participants who were participants under the Plan as in effect prior to 1997 and have a frozen accrued benefit under the Plan at that time payable as a 10 year certain and continuous annuity. The amount of the Prior SERP Frozen Benefit Offset is the Actuarial Equivalent of such frozen accrued benefit, determined as if such benefit were payable in the form of a single life annuity that commences on the Participant's Normal Retirement Date or, if later, the Participant's Separation Date. The name of each Participant who has such a frozen accrued benefit and the amount of such frozen accrued benefit are listed on Addendum C attached hereto.
(f) Individual SERP Agreement Offset. This offset applies only to those Participants who have an individual supplemental retirement arrangement with the Company. The amount of the Individual SERP Agreement Offset is the Actuarial Equivalent of the benefit under the individual supplemental retirement arrangement, determined as if such benefit were payable in the form of a single life annuity that commences on the Participant's Normal Retirement Date or, if later, the Participant's Separation Date. The name of each Participant who has such an individual retirement arrangement with the Company is listed on Addendum D attached hereto.
4.2. Early Retirement Accrued Benefit. A Participant's Accrued Benefit on or after the Participant's Early Retirement Date (regardless of whether the Participant's Separation from Service occurs before or after the Participant's Early Retirement Date) and prior to the Participant's Normal Retirement Date will be an early retirement Accrued Benefit. The Participant's early retirement Accrued Benefit determined as of a date that is on or after the date the Participant attains age 55 will equal the Participant's Accrued Benefit as determined under Section 4.1, reduced by 4% for each year by which the date of the determination of such Participant's early retirement Accrued Benefit precedes the Participant's Normal Retirement Date. The Participant's early retirement Accrued Benefit determined as of a date that is prior to the date the Participant attains age 55 will equal the actuarial equivalent, as of such determination date, based on the interest and mortality tables then applicable under Section 2.3, of the Participant's early retirement Accrued Benefit at age 55 as determined in accordance with the preceding sentence.
ARTICLE V.
PAYMENT OF BENEFITS
5.1. Fully Vested Benefits. A Participant will be fully vested in the Participant's Accrued Benefit upon the first to occur of:
(a) The Participant's Normal Retirement Date if the Participant is an employee of the Company or a Related Company on the Participant's Normal Retirement Date; or
(b) The Participant's disability if such disability occurs while the Participant is an employee of the Company or a Related Company; or
(c) The Participant's death while the Participant is an employee of the Company or a Related Company; or
(d) The Participant's completion of five Years of Service; or
(e) A Change of Control.
5.2. Forfeitures. If the Participant does not have a vested Accrued Benefit under the provisions of Section 5.1 upon the Participant's Separation Date, then the Participant's Accrued Benefit will be forfeited.
5.3. Commencement of Payment. If the Participant's vested Accrued Benefit is paid in the form of an annuity as hereinafter provided, then payment will commence as soon as practical after the later of the Participant's Separation Date or the date the Participant attains age sixty-two (62); provided, however, if the Participant is eligible for an early retirement benefit as provided in Section 4.2, then payment will commence as soon as practical following the later of the Participant's Separation Date or the date the Participant attains age 55, or at such later date as applicable under Section 5.6. If the Participant's vested Accrued Benefit is paid in the form of a lump sum as hereinafter provided, then payment will be made as soon as practical following the Participant's Separation from Service, or, if applicable, as soon as practical after a Change of Control, or at such later date as applicable under Section 5.6. If the Participant's vested Accrued Benefit is paid in the form of installments as hereinafter provided, then payment will commence as soon as practical following the Participant's Separation from Service, or at such later date as applicable under Section 5.6. Notwithstanding the preceding provisions of this Section 5.3 or any other provisions of the Plan to the contrary, payment of benefits to a Key Participant will not commence prior to the earlier of (a) the date which is six (6) months after the date of the Key Participant's Separation from Service, or (b) the death of the Key Participant.
5.4. Method of Payment. The Participant's vested Accrued Benefit will be paid in one of the following methods:
(a) Lump Sum Payment: A lump sum payment is a single cash payment in an amount equal to the Actuarial Value of the Participant's vested Accrued Benefit determined as of the payment date; provided, however, if the Participant is eligible to receive an early retirement benefit under Section 4.2, then the amount of a single lump sum payment to the Participant will equal the present value
determined as of the payment date of the
Participant's early retirement benefit under Section 4.2 payable
in the form of a single life annuity commencing on the payment
date and determined by using the interest and mortality tables
then applicable for purposes of determining Actuarial Value. The
Participant's vested Accrued Benefit will always be paid in a
lump sum payment if the dollar amount of the lump sum payment is
less than or equal to the mandatory lump sum payment dollar
amount under the Pension Plan at the time of payment. Subject to
the Participant's right to elect another method of payment under
Section 5.5, the Participant's vested Accrued Benefit also will
be paid in the form of a lump sum payment if the date of the
Participant's Separation from Service is on or after the later of
(i) five (5) years after the Effective Date, or (ii) five (5)
years after the Participant's Participation Date. Also, if not
otherwise paid in a lump sum payment under the provisions of the
preceding sentence, and subject to the Participant's right to
elect another method of payment under Section 5.5, the
Participant's vested Accrued Benefit will be paid in a lump sum
payment if the Participant is involuntarily terminated, or if the
Participant's Separation Date is on or after his Normal
Retirement Date, or if there is a Change of Control whether or
not the Participant then has a Separation from Service.
(b) Installment Payments: Installment payments are five annual payments in a five-consecutive-year period. The principal amount of each payment is equal to one fifth of the amount that would be paid to the Participant on the date the installment payments commence if instead the payment on that date were a lump sum payment as determined under Section 5.4(a). Each installment payment will also include interest on the aggregate amount of the unpaid installments determined by applying the Interest Rate. If the Participant is eligible to receive his vested Accrued Benefit in the form of a lump sum, and if the dollar amount of the lump sum payment determined under Section 5.4(a) is greater than the mandatory lump sum payment amount under the Pension Plan at the time of payment, then the Participant's benefit payment will be made in the form of installment payments if elected by the Participant in accordance with the provisions of Section 5.5.
(c) Annuity Payment: An annuity is payment in one of the forms described in the subparagraphs under this paragraph (b) that is the Actuarial Equivalent of the Participant's vested Accrued Benefit. If the Participant is not eligible to receive his vested Accrued Benefit in the form of a lump sum payment under the provisions of the preceding paragraph (a), then the Participant's vested Accrued Benefit will be paid in the form of either the annuity described in subparagraph (i) below, or the annuity described in subparagraph (ii) below, whichever applicable. If the Participant is eligible to receive his vested Accrued Benefit in the form of a lump sum, and if the dollar amount of the lump sum payment determined under Section 5.4(a) is greater than the mandatory lump sum payment amount under the Pension Plan at the time of payment, then the Participant's benefit payment will be made in one of the annuity forms described in the following subparagraphs if elected by the Participant in accordance with the provisions of Section 5.5; provided, however, if the Participant has an Eligible Spouse at the time the
election is made and elects a joint and survivor annuity payment, but does not have an Eligible Spouse at the time benefit payments commence, then benefit payments will be made in the form of a single life annuity.
(i) Single Life Annuity. A single life annuity is the Actuarial Equivalent of the Participant's vested Accrued Benefit payable in annual payments to the Participant for the lifetime of the Participant. If the Participant is not eligible to receive his vested Accrued Benefit in the form of a lump sum payment under the provisions of the preceding subparagraph (a), and if the Participant has no Eligible Spouse on the date payment of the Participant's benefit commences, then payment of the Participant's vested Accrued Benefit will be in the form of a single life annuity.
(ii) 50% Joint and Survivor Annuity. A 50% joint and survivor annuity is the Actuarial Equivalent of the Participant's vested Accrued Benefit payable in annual payments to the Participant for the lifetime of the Participant and to the Participant's Eligible Spouse upon the Participant's death for the lifetime of the Participant's Eligible Spouse, with each payment to the Participant's Eligible Spouse being 50% of the amount of each payment to the Participant. If the Participant is not eligible to receive his vested Accrued Benefit in the form of a lump sum payment under the provisions of the preceding subparagraph (a), and if the Participant has an Eligible Spouse on the date payment of the Participant's benefit commences, then payment of the Participant's vested Accrued Benefit will be in the form of a 50% joint and survivor annuity.
(iii) Single Life Annuity with 10 Year Term Certain. A single life annuity with a ten (10) year term certain is a single life annuity described in subparagraph (i) above with a guaranteed payment term of ten (10) years.
(iv) 75% Joint and Survivor Annuity. A 75% joint and survivor annuity is the Actuarial Equivalent of the Participant's vested Accrued Benefit payable in annual payments to the Participant for the lifetime of the Participant and to the Participant's Eligible Spouse upon the Participant's death for the lifetime of the Participant's Eligible Spouse, with each payment to the Participant's Eligible Spouse being 75% of the amount of each payment to the Participant.
(v) 100% Joint and Survivor Annuity. A 100% joint and survivor annuity is the Actuarial Equivalent of the Participant's vested Accrued Benefit payable in annual payments to the Participant for the lifetime of the Participant and to the Participant's Eligible Spouse upon the Participant's death for the lifetime of the Participant's Eligible Spouse, with each payment to the Participant's Eligible Spouse being 100% of the amount of each payment to the Participant.
5.5. Participant Elections of Method of Payment. A Participant may elect that, if payment of the Participant's vested Accrued Benefit is otherwise to be made in the form of a lump sum payment hereunder, and if the dollar amount of the lump sum payment is greater than the mandatory lump sum payment amount under the Pension Plan at the time of payment, payment will instead be made in the form of a an annuity under Section 5.4(b). No such election will be valid unless made at least twelve (12) months prior to the date payment would otherwise be made in the form of a lump sum payment. If a Participant has made an election under the preceding provisions of this Section 5.5 that the Participant's vested Accrued Benefit shall be paid in the form of an annuity, then the Participant may elect at any time no later than twelve (12) months prior to the date payment of the annuity is to commence, that payment will instead be made in the form of a lump sum payment.
5.6. Participant Elections of Commencement of Payment. If the
Participant's vested Accrued Benefit is to be paid in the form of
an annuity, then subject to the last sentence of this Section
5.6. the Participant may elect the date such annuity payments
commence; provided, however, regardless of any election by the
Participant, annuity payments will commence at age 62 if the
Participant is not eligible for an early retirement benefit under
Section 4.2; and provided, further, that in no event will annuity
payments commence later than age 62. If payment is to be made in
a lump sum, then subject to the last sentence of this Section
5.6, the Participant may elect the date payment of the lump sum
is made. In no event will any benefit payment be made prior to a
Participant's Separation Date except upon a Change of Control in
the case of a Participant who is not a Key Participant, and any
election regarding the time of the benefit payment will not be
valid unless the election is made at least twelve (12) months
prior to the date the benefit payment would otherwise be made or
benefit payments would otherwise commence; provided, however, if
a lump sum payment is to be made hereunder to a Participant who
is not a Key Participant on account of a Change of Control, the
Participant may elect that the provisions hereunder for payment
of benefits upon a Change of Control prior to a Participant's
Separation from Service will not apply to the Participant.
5.7. Death Benefit. If the Participant dies prior to the commencement of payment of Participant's Accrued Benefit, then the Participant's vested Accrued Benefit will be paid to the Participant's beneficiary as determined under Section 5.8 as soon as practical after the Participant's death in the form of a lump sum payment. If the Participant dies after the payment or commencement of payment of the Participant's Accrued Benefit, no further payments will be made hereunder with respect to the Participant and the Participant's benefits hereunder shall be deemed to be fully paid; provided, however, that if at the time of the Participant's death, the Participant's Accrued Benefit was being paid in the form of a single life annuity with a ten (10) year term certain and all of the guaranteed payments had not been made, or in the form of installment payments and all of the installment payments had not been made, then the remaining guaranteed payments or installment payments will be paid to the Participant's beneficiary as determined under Section 5.8; and provided, further, that if at the time of the Participant's death, the Participant's Accrued Benefit was being paid in the form of a joint and survivor annuity, then if the Participant's Eligible Spouse survives the Participant, the survivor annuity benefit will be paid to the Participant's Eligible Spouse until the death of the Participant's Eligible Spouse.
5.8. Determination of Beneficiary. Each Participant from time to time may designate any person or persons, trust, estate or charitable institution (who may be designated
concurrently or contingently) to whom the Participant's vested Accrued Benefit under the Plan will be paid if the Participant dies prior to the payment or commencement of payment of the Participant's Accrued Benefit or if the Participant dies after the commencement of payment in the form of a single life annuity with a ten (10) year term certain or in the form of installments and prior to the completion of such guaranteed payments or installments. A beneficiary designation will be effective only if filed in writing with the Plan Administrator while the Participant is alive. The Participant's beneficiary will be the beneficiary designated on the last such written designation filed by the Participant prior to the Participant's death.
If a Participant fails to validly designate a beneficiary, then the Participant's beneficiary will be the Participant's Eligible Spouse, but if the Participant is not survived by an Eligible Spouse then the Participant's beneficiary will be the personal representative of the Participant's estate; provided, however, if the Participant does not otherwise have a probate estate, the Plan Administrator may pay the Participant's vested Accrued Benefit to such person or persons whom the Plan Administrator determines, in the Plan Administrator's sole and absolute discretion, would be the beneficiaries in a probate proceeding, and the Plan Administrator shall have no liability to any person for any such determination.
ARTICLE VI.
FUNDING
6.1. Unfunded Plan. This Plan is an unfunded plan for income tax purposes and for purposes of Title I of ERISA. The Company may from time to time deposit assets in a trust established by the Company that is subject to the creditors of the Company but which assets must otherwise be used for the purpose of paying Accrued Benefits hereunder. In the event of a Change of Control, the Company will, as soon as practical following such Change of Control, deposit in such trust assets of an amount sufficient (as determined by the actuary of the Pension Plan) to pay all vested Accrued Benefits of the Participants as determined as of the first day following such Change of Control.
ARTICLE VII.
WITHHOLDING OF TAXES
7.1. Tax Withholding. The Company has the right to retain and withhold from any payment of benefits hereunder the amount of taxes required by any government to be withheld or otherwise be deducted and paid with respect to such payment.
ARTICLE VIII.
PLAN ADMINISTRATOR
8.1. Membership and Authority. The Board may appoint, or delegate the appointment of, a Committee to act as Plan Administrator. In the event a Committee is acting as Plan Administrator, the Committee shall act by a majority of its members except to the extent it has delegated responsibilities hereunder. The Plan Administrator shall have the following powers, rights and duties in addition to those vested in it elsewhere in the Plan:
(a) To adopt such rules of procedure and regulations as, in its opinion, may be necessary for the proper and efficient administration of the Plan and as are consistent with the provisions of the Plan.
(b) To enforce the Plan in accordance with its terms and with such applicable rules and regulations as may be adopted.
(c) To construe and interpret the Plan in the Plan Administrator's sole discretion, and to determine all questions arising under the Plan, including the power to determine the rights of Participants and their beneficiaries and the amount of their respective benefits.
(d) To maintain and keep adequate records concerning the Plan and concerning its proceedings and acts in such form and detail as the Plan Administrator may decide.
(e) To direct all payments of benefits under the Plan.
8.2. Delegation. In exercising its authority to control and manage the operation and administration of the Plan, the Plan Administrator may employ agents and counsel (who may also be employed by the Company) and delegate to them such powers as the Plan Administrator deems desirable.
8.3. Information to be Furnished. The Company shall furnish the Plan Administrator or its delegees such data and information as may be required. The records of the Company as to an employee's or Participant's period of employment, Separation from Service and the reason therefore, leave of absence and compensation will be conclusive on all persons unless determined to be incorrect.
8.4. Plan Administrator's Decision Final. Any interpretation of the Plan and any decision on any matter within the discretion of the Plan Administrator made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the Plan Administrator shall make such adjustment on account thereof as it considers equitable and practicable.
8.5. Remuneration and Expenses. No remuneration shall be paid to the Plan Administrator (or any Committee member) for services hereunder. All expenses of the Plan Administrator (or a Committee member) incurred in the performance of the administration of the Plan shall be reimbursed by the Company.
8.6. Indemnification of Committee Member. The Committee and the individual members thereof shall be indemnified by the Company against any and all liabilities, losses, costs, and expenses (including fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or the members by reason of the performance of a Committee function if the Committee or such members did not act dishonestly or in willful or negligent violation of the law or regulations under which such liability, loss, cost or expense arises.
8.7. Resignation or Removal of Committee Member. A Committee member may resign at any time by giving ten (10) days advance written notice to the Company and the other Committee members. The Company may remove a Committee member by giving advance written notice to him or her, and the other Committee members.
8.8. Interested Committee Member. A member of the Committee may not decide or determine any matter or question concerning his or her own benefits under the Plan.
ARTICLE IX.
CLAIMS PROCEDURE
9.1. Claim. Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee which shall respond in writing as soon as practicable.
9.2. Denial of Claim. If the claim or request is denied, the written notice of denial shall be made within ninety (90) days of the date of receipt of such claim or request by the Committee and shall state:
(a) The reason for denial, with specific reference to the Plan provisions on which the denial is based.
(b) A description of any additional material or information required and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
9.3. Review of Claim. Any person whose claim or request is denied or who has not received a response within ninety (90) days may request review by notice given in writing to the Committee within sixty (60) days of receiving a response or one hundred fifty (150) days from the date the claim was received by the Committee. The claim or request shall be reviewed by the Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing.
9.4. Final Decision. The decision on review shall normally be made within sixty (60) days after the Committee's receipt of a request for review. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be one hundred twenty (120) days after the Committee's receipt of a request for review. The decision shall be in writing and shall state the reasons and relevant plan provisions. All decisions on review shall be final and bind all parties concerned.
ARTICLE X.
AMENDMENTS OR TERMINATION OF THE PLAN
10.1. Board. The Board may, at any time or times, amend the Plan, pursuant to written resolution adopted by the Board; provided, however, no amendment shall be effective to decrease the amount of any Participant's Accrued Benefit which, at the time of the amendment,
was fully vested hereunder, unless the Participant agrees to such amendment, and no amendment may relieve the Company of its obligation under Article VI unless all of the Participants agree to such amendment. The Board may, at any time, terminate the Plan by written resolution adopted by the Board. In the event the Board terminates the Plan, all Participants who are employees of the Company or a Related Company at the time of such termination, will become fully vested in their Accrued Benefits and each Participant's Accrued Benefit will be paid in the form of an immediate lump sum cash payment in an amount determined in accordance with Section 5.4(a). In addition to the preceding amendment authority of the Board, the appropriate officers of the Company are authorized to amend the Plan from time to time as they deem advisable for purposes of complying with any provisions of the Internal Revenue Code and Treasury Regulations and any other guidance issued by the Secretary of the Treasury.
10.2. Deemed Amendment. The Secretary of the Treasury has
been directed by the United States Congress to adopt regulations
for the interpretation and application of Internal Revenue Code
Section 409A. No such regulations have been issued as of the
date of the adoption of this amended and restated Plan. It is
the Company's intention to amend the Plan to comply with the
requirements applicable to the Plan under the Code and such
regulations and other guidance as authorized under the last
sentence of Section 10.1. Until such time the Plan is actually
so amended, the Plan shall be deemed to be amended to the extent
necessary to be in compliance with such requirements and the Plan
shall be interpreted and administered accordingly.
ARTICLE XI.
MISCELLANEOUS
11.1. Captions. The captions of articles, sections, paragraphs and subparagraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
11.2. Company Action. Except as may be specifically provided herein, any action required or permitted to be taken by the Company may be taken on behalf of the Company by any officer of the Company.
11.3. Company Records. Records of the Company as to an employee's or Participant's period of employment, Separation from Service and the reason therefore, leaves of absence, reemployment and compensation will be conclusive on all persons, unless determined to be incorrect.
11.4. Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and may be signed, made or presented by the proper party or parties.
11.5. Gender and Number. Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular, and the singular shall include the plural.
11.6. Governing Law. Except to the extent governed by ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the state of Delaware.
11.7. Non-assignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly hereby declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or separation for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or another person's bankruptcy or insolvency.
11.8. Participant Cooperation. A Participant will cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder and such other action as may be requested by the Company.
11.9. Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.
11.10. Unsecured General Creditor. Participants and their beneficiaries, heirs, successors, and assigns will have no secured interest or claim in any property or assets of the Company whether or not such assets are held in a trust that may be used for the purpose of paying benefits hereunder. For purposes of the Plan, any and all of the Company's assets shall be, and remain, the general, unpledged, assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future. No Company shall have any obligation under this Plan with respect to individuals other than that Company's employees.
11.11. Validity. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
11.12. Waiver of Notice. Any notice required under the Plan may be waived by the person entitled to notice.
The Company hereby agrees to the provisions of this Plan, and, in Witness Thereof, the Company causes this Agreement to be, executed on this 5th day of November, 2004.
SEABOARD CORPORATION
By: /s/ H. Harry Bresky
H. Harry Bresky, President
|
Exhibit 10.2
SEABOARD CORPORATION EXECUTIVE RETIREMENT PLAN TRUST
THIS AGREEMENT made this 5th day of November, 2004, by and between Seaboard Corporation (the "Company") as the settlor, and Robert L. Steer as the trustee (the "Trustee");
WHEREAS, the Company desires to retain certain valued executives in its employment and reward such executives for their contributions to the achievement of Company goals and objectives over a period of years; and
WHEREAS, in furtherance of this objective the Company adopted the Seaboard Corporation Executive Retirement Plan (the "Plan") for the benefit of certain executives selected from time to time for participation in the Plan ("Executive" or "Executives"); and
WHEREAS, the Company wishes to hereby establish a trust (the "Trust") and to contribute to the Trust assets that will be held therein, subject to the claims of the Company's creditors in the event the Company is "Insolvent," as herein defined, until such time, if any, that amounts are paid to Executives and their beneficiaries under the Plan; and
WHEREAS, the Plan is not an employee benefit plan within the meaning of the Employee Retirement Income Security Act of ERISA; and
WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in meeting its liabilities under the Plan; and
WHEREAS, the Trustee desires to accept the Trust and to act as the Trustee hereunder;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) The Company, in its sole discretion, will transfer to the Trustee cash or other property acceptable to the Trustee which shall become the initial principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust shall be known as the "Seaboard Corporation Executive Retirement Plan Trust."
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(e) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Executives and their beneficiaries and general creditors of the Company as herein set forth. Executives and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Executives and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event the Company is "Insolvent," as defined in Section 3(a).
(f) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Executive or beneficiary shall have any right to compel such additional deposits except to the extent provided by separate written agreement.
Section 2. Payments to Executives and Their Beneficiaries.
(a) At the time any amount or amounts become payable to an Executive or the Executive's beneficiary (collectively referred to in this Section 2 as the "Payee") under the Plan, the Company shall advise the Trustee in writing of (i) the total amount of such payment to be made to the Payee under the Plan, (ii) the date such payment is to be made to the Payee, and (iii) the amount of such payment that will be paid by the Company. The Trustee will pay to the Payee the amount of any such payment not paid by the Company; provided, however, in no event shall the amount of such payment made by the Trustee to the Payee exceed the Trust's percentage (as determined under Section 2(d)) of the total such payment; and provided, further, that any payment made by the Trustee shall be subject to withholding as provided in the following sentence. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to amounts payable by the Trustee under this Section 2, and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company.
(b) The entitlement of a Payee to payments under the Plan shall be determined by the party authorized to make such determination under the provisions of the Plan.
(c) If the principal of the Trust, and any earnings thereon, are not sufficient to make any payment otherwise to be made by the Trustee under Section 2(a), then the Company shall pay the balance of each such payment. The Trustee shall notify the Company where principal and earnings are not sufficient.
(d) As of the last day of each year, an actuary selected by the
Company shall determine (applying the method described in Section
2(e)) the amount of assets as of such date that would be
necessary to fully fund all of the vested accrued benefits under
the Plan. The actuary shall advise the Trustee in writing of
this dollar amount. The Trustee shall then determine the Trust's
percentage for purposes of Section 2(a) by dividing the value of
the assets held in the Trust as of such last day of the year by
this dollar amount provided by the actuary; provided, however, in
no event shall the Trust's percentage exceed 100%. The Trust's
percentage determined as of the last day of a year shall apply
for purposes of any payments to be made under Section 2(a) by the
Trustee to a Payee during the period beginning on the first day
of the next year and ending on the last day of such next year.
(e) The amount of assets that will fully fund all of the vested accrued benefits under the Plan as of the last day of a year for purposes of determining the Trust's percentage under Section 2(d) shall be the greater of (i) the total amount needed to fully fund the projected benefit obligation for each vested Executive as defined by Statement of Financial Accounting Standards #87 (FAS 87) and based on the actuarial assumptions used by the Seaboard Corporation for purposes of the required disclosures for the Plan under FAS 87 as of such end of year measurement date, or (ii) the total amount that would be needed to pay in a lump sum payment to each vested Executive as of such last day the value of such Executive's accrued benefit calculated applying the same assumptions that would be used for purposes of calculating a lump sum payment under the Plan (whether or not the Executive is then entitled to a lump sum payment under the Plan).
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When Company Is Insolvent.
(a) The Trustee shall cease payments under the terms of the Plan if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in Section 1(e), the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below.
(1) The Board of Directors of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee may engage an advisor to determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payments to Executives or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's Insolvency, or
has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency.
(3) If at any time the Trustee or its advisor has determined that the Company is Insolvent, the Trustee shall discontinue payments to Executives or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Executives or their beneficiaries to pursue their rights as general creditors of the Company with respect to payments due under the Plan or otherwise.
(4) The Trustee shall resume payment under the Plan in accordance with Section 2 only after the Trustee or its advisor has determined that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues payments under the Plan from the Trust pursuant to
Section 3(b) and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate
amount of all payments due to Executives or their beneficiaries
under Section 2 for the period of such discontinuance, less the
aggregate amount of any payments made to Executives or their
beneficiaries by the Company in lieu of the payments provided for
under Section 2 during any such period of discontinuance.
Section 4. Investment Substitution Rights.
The Company shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any assets held by the Trust; provided, however, any assets so substituted must have a readily ascertainable fair market value and may not consist of any type of equity interest in, or any debt issued by, the Company or any affiliate of the Company or any entity related to the Company. This right to substitute assets is exercisable by the Company in a non-fiduciary capacity without the approval or consent of any person in a fiduciary capacity.
Section 5. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.
Section 6. Accounting by Trustee.
The Trustee shall keep separate accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Unless waived by the Company, within 60 days following the close of each calendar year and within 60 days after the removal or resignation of the Trustee, the Trustee shall cause to be delivered to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.
Section 7. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company.
(b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 8. Compensation and Expenses of Trustee.
The Company shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 9. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall be promptly transferred to the successor Trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless the Company extends such time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10 hereof, by the effective date of resignation or removal under paragraph (a) or (b) of this Section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.
Section 10. Appointment of Successor Trustee.
(a) If the Trustee resigns or is removed in accordance with
Section 9(a) or Section 9(b), the Company may appoint any
individual or bank trust department or other party that may be
granted corporate trustee powers under state law, as a successor
to replace the Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the
new Trustee, who shall have all of the rights and powers of the
former Trustee, including ownership rights in the Trust assets.
The former Trustee shall execute any instrument necessary or
reasonably requested by the Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Section 7(a). The successor Trustee shall not be responsible for, and Company shall indemnify and defend the successor Trustee from, any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.
Section 11. Indemnification of Trustee.
If the Trustee is one or more individuals, the Company shall indemnify and hold harmless the Trustee from and against all claims, liabilities, and damages, and all expenses reasonably incurred by the Trustee (including reasonable attorney fees) which arise as a result of the Trustee's action or failure to act hereunder unless such action or failure to act is due to the Trustee's gross negligence or willful misconduct. If the Trustee is a corporate trustee, the Company shall indemnify the Trustee against any and all claims, liabilities, and damages, and all expenses reasonable incurred (including reasonable attorney fees) which arise as a result of the Trustee's action or failure to act hereunder if such action or failure to act is a direct result of a direction or absence of direction by the Company or any other party to the extent such direction or absence of direction is authorized or required hereunder.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Executives and their beneficiaries are no longer entitled to payments pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
(b) Amounts payable to Executives and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Kansas.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be the day and year first above written.
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by Company and Trustee the day and year first above written.
SEABOARD CORPORATION
By: /s/ H. Harry Bresky
H. Harry Bresky, President
Company
/s/ Robert L. Steer
Robert L. Steer
Trustee
|
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: November 5, 2004
/s/ H. H. Bresky
H. H. Bresky, Chairman of the Board,
President and Chief Executive Officer
|
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: November 5, 2004
/s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Treasurer and Chief Financial Officer
|
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 October 2, 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. 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.
Date: November 5, 2004 /s/ H. H. Bresky
H. H. Bresky, Chairman of the Board,
President and Chief Executive Officer
|
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 October 2, 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. 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.
Date: November 5, 2004 /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Treasurer and Chief Financial Officer
|