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 September 29, 2007
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 check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes . No X .
There were 1,252,724.24 shares of common stock, $1.00 par value per
share, outstanding on October 22, 2007.
Total pages in filing - 20 pages
1
PART I - FINANCIAL INFORMATION
Item 1. 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
September 29, September 30, September 29, September 30,
2007 2006 2007 2006
Net sales:
Products $ 562,312 $ 463,853 $1,582,908 $1,388,953
Services 212,807 193,108 622,578 546,742
Other 26,209 21,421 67,209 67,197
Total net sales 801,328 678,382 2,272,695 2,002,892
Cost of sales and
operating expenses:
Products 513,610 393,605 1,454,042 1,186,659
Services 172,883 150,721 490,779 430,333
Other 22,503 19,279 59,062 58,061
Total cost of sales
and operating expenses 708,996 563,605 2,003,883 1,675,053
Gross income 92,332 114,777 268,812 327,839
Selling, general and
administrative expenses 42,731 39,109 127,931 113,246
Operating income 49,601 75,668 140,881 214,593
Other income (expense):
Interest expense (2,924) (4,299) (9,847) (14,633)
Interest income 4,821 4,875 14,864 16,406
Income from foreign
affiliates 284 455 1,558 2,484
Minority and other
noncontrolling interests (29) (1,803) 90 (4,925)
Foreign currency gain
(loss), net (1,183) (1,898) (2,614) 515
Miscellaneous, net 1,060 1,480 7,228 7,651
Total other income
(expense), net 2,029 (1,190) 11,279 7,498
Earnings before income
taxes 51,630 74,478 152,160 222,091
Income tax benefit
(expense) 942 (13,289) (7,576) (40,172)
Net earnings $ 52,572 $ 61,189 $ 144,584 $ 181,919
Earnings per common
share $ 41.75 $ 48.51 $ 114.69 $ 144.22
Dividends declared per
common share $ 0.75 $ 0.75 $ 2.25 $ 2.25
Average number of
shares outstanding 1,259,091 1,261,367 1,260,605 1,261,367
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
September 29, December 31,
2007 2006
Assets
Current assets:
Cash and cash equivalents $ 47,872 $ 31,369
Short-term investments 322,732 478,859
Receivables, net 286,217 277,048
Inventories 445,543 341,366
Deferred income taxes 12,184 12,894
Other current assets 76,023 55,033
Total current assets 1,190,571 1,196,569
Investments in and advances to foreign affiliates 52,665 42,457
Net property, plant and equipment 707,510 637,813
Goodwill 39,978 28,372
Intangible assets, net 31,297 28,760
Other assets 36,675 27,462
Total assets $2,058,696 $1,961,433
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 78,484 $ 62,975
Current maturities of long-term debt 21,124 63,415
Accounts payable 136,217 103,429
Other current liabilities 180,566 159,423
Total current liabilities 416,391 389,242
Long-term debt, less current maturities 125,600 137,817
Deferred income taxes 109,721 119,861
Other liabilities 76,878 72,103
Total non-current and deferred liabilities 312,199 329,781
Minority and other noncontrolling interests 970 39,103
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued and outstanding 1,252,724 and 1,261,367 shares 1,253 1,261
Additional paid-in capital 3,742 21,574
Accumulated other comprehensive loss (80,576) (82,493)
Retained earnings 1,404,717 1,262,965
Total stockholders' equity 1,329,136 1,203,307
Total liabilities and stockholders' equity $2,058,696 $1,961,433
See accompanying notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 29, September 30,
2007 2006
Cash flows from operating activities:
Net earnings $ 144,584 $ 181,919
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 58,879 52,753
Other investment income, net (2,607) (1,427)
Income from foreign affiliates (1,558) (2,484)
Put option value - (1,900)
Minority and noncontrolling interest (90) 4,925
Deferred income taxes (9,193) (104)
Gain from sale of fixed assets (1,040) (708)
Changes in current assets and liabilities:
Receivables, net of allowance (9,166) (26,420)
Inventories (105,427) 23,865
Other current assets (18,974) 8,950
Current liabilities, exclusive of debt 54,650 (16,504)
Other, net 2,602 (5,602)
Net cash from operating activities 112,660 217,263
Cash flows from investing activities:
Purchase of short-term investments (1,605,907) (2,261,175)
Proceeds from the sale or maturity of short-term
investments 1,761,847 2,236,460
Investments in and advances to foreign affiliates,
net (7,904) 2,004
Capital expenditures (124,123) (51,645)
Repurchase of minority interest in a controlled
subsidiary (61,260) -
Proceeds from the sale of fixed assets 2,220 2,026
Other, net (2,348) (1,667)
Net cash from investing activities (37,475) (73,997)
Cash flows from financing activities:
Notes payable to banks, net 15,509 (85,408)
Principal payments of long-term debt (54,156) (51,182)
Repurchase of common stock (17,841) -
Dividends paid (2,832) (2,838)
Other, net (109) (4,395)
Net cash from financing activities (59,429) (143,823)
Effect of exchange rate change on cash 747 (125)
Net change in cash and cash equivalents 16,503 (682)
Cash and cash equivalents at beginning of year 31,369 34,622
Cash and cash equivalents at end of period $ 47,872 $ 33,940
See accompanying notes to condensed consolidated financial statements.
4
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements of Seaboard for
the year ended December 31, 2006 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.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
New Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157 (SFAS 157), "Fair
Value Measurements". This statement establishes a single authoritative
definition of fair value when accounting rules require the use of fair
value, sets out a framework for measuring fair value, and requires
additional disclosures about fair-value measurements. For Seaboard, SFAS
157 is effective for the fiscal year beginning January 1, 2008.
Management believes the adoption of SFAS 157 will not have a material
impact on Seaboard's financial position or net earnings.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159 (SFAS 159), "The Fair Value Option for Financial Assets
and Financial Liabilities." This statement provides companies with an
option to report selected financial assets and liabilities at fair value.
Seaboard will be required to adopt this statement as of January 1, 2008.
Management believes the adoption of SFAS 159 will not have a material
impact on Seaboard's financial position or net earnings.
Supplemental Noncash Transactions
As more fully described in Note 2, Seaboard repurchased the 4.74% equity
interest in Seaboard Foods LP from the former owners of Daily's effective
January 1, 2007. The following table summarizes the non-cash
transactions resulting from this repurchase:
September 29,
(Thousands of dollars) 2007
Increase in fixed assets $ 7,976
Increase in goodwill 11,606
Increase in intangible assets 3,745
Decrease in minority interest 37,933
Cash paid $ 61,260
5
Note 2 - Repurchase of Minority Interest
On December 27, 2006, Seaboard entered into a Purchase Agreement to
repurchase the 4.74% equity interest in Seaboard Foods LP from the former
owners of Daily's effective January 1, 2007. As part of the Purchase
Agreement, on January 2, 2007 Seaboard paid $30,000,000 of the purchase
price for the 4.74% equity interest to the former owners of Daily's. The
total purchase price was equal to the greater of $40,000,000 or the same
formula-determined value of the original put option, determined as of
June 30, 2007, less the amount of interest which accrued on the initial
$30,000,000 portion of the purchase price from January 2, 2007 through
the date on which the balance of the purchase price was paid.
Based on the formula of operating results and certain net cash flows
through June 30, 2007, the final purchase price was determined to be
$61,260,000, including transaction costs of $53,000. Seaboard paid the
balance of the purchase price owed to the former owners of Daily's of
$31,207,000 in August 2007. The total purchase price for the 4.74%
equity interest in Seaboard Foods LP of $61,260,000 represents
$23,327,000 in excess of book value. Seaboard applied the purchase
method of accounting for this step acquisition by allocating the purchase
price to the fair value of the net assets acquired to the extent of the
4.74% change in ownership. The allocation of the purchase price resulted
in the recording of an increase in fixed assets of $7,976,000, an
intangible asset for customer relationships of $3,745,000 and goodwill of
$11,606,000 as of June 30, 2007. The goodwill has been allocated to
Seaboard's Pork segment and is expected to be deductible for tax
purposes. The intangible asset for customer relationships will be
amortized over fifteen years. Depreciation and amortization of $593,000
was recorded in the second quarter representing the amount of
depreciation on the write-up of fixed assets and amortization of
intangible asset from January 1, 2007 through June 30, 2007. Pro forma
results of operations are not presented, as the effects of this
acquisition are not considered material to Seaboard's results of
operations. The factor that contributed to a purchase price that
resulted in the recognition of goodwill was a formula based re-purchase
price resulting in a value in excess of historical book values.
Note 3 - Inventories
The following is a summary of inventories at September 29, 2007 and
December 31, 2006:
September 29, December 31,
(Thousands of dollars) 2007 2006
At lower of LIFO cost or market:
Live hogs and materials $173,749 $149,521
Fresh pork and materials 19,826 19,443
193,575 168,964
LIFO adjustment (13,671) 1,458
Total inventories at lower of LIFO cost or
market 179,904 170,422
At lower of FIFO cost or market:
Grain, primarily wheat, corn and soybeans 160,177 80,068
Sugar produced and in process 22,559 25,124
Other 41,602 29,016
Total inventories at lower of FIFO cost or
market 224,338 134,208
Grain, flour and feed at lower of weighted average cost
or market 41,301 36,736
Total inventories $445,543 $341,366
6
Note 4 - Income Taxes
Seaboard adopted the provisions of FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, on January 1, 2007. As of
January 1, 2007, Seaboard had $320,000 in total unrecognized tax benefits
all of which, if recognized, would affect the effective tax rate.
Beginning January 1, 2007, Seaboard now recognizes interest accrued
related to unrecognized tax benefits and penalties in income tax expense
as Seaboard believes it is more closely related to income tax expense
instead of financing related items. Prior to the adoption of FIN 48 on
January 1, 2007, Seaboard recognized interest accrued related to
unrecognized tax benefits in interest expense and penalties in selling,
general and administrative expenses. As of January 1, 2007, Seaboard did
not have any amounts recorded for accrued interest and penalties on
uncertain tax positions. Seaboard's tax returns are regularly audited by
federal, state and foreign tax authorities, which may result in
adjustments. Seaboard's U.S. federal income tax returns have been
reviewed through the 2004 tax year. Seaboard does not have any uncertain
tax positions in which it is reasonably possible that the total amounts
of the unrecognized tax benefits will significantly increase or decrease
within 12 months of the reporting date. The tax amounts provided above
have not changed materially since January 1, 2007.
During the third quarter of 2007, Seaboard revised its effective annual
tax rate as a result of changes in the estimated percentage mix of
foreign versus domestic income and change in valuation allowances
resulting in a net benefit for the quarter. In the second quarter of
2006, Seaboard reached a settlement with the Internal Revenue Service on
its audit of Seaboard's 2004 and 2003 U.S. federal income tax returns.
The favorable resolution of these tax issues resulted in a tax benefit of
$2,786,000 for items previously reserved which was recorded in the second
quarter of 2006.
Note 5 - Employee Benefits
Seaboard maintains a defined benefit pension plan ("the Plan") for its
domestic salaried and clerical employees. As a result of its liquidity
and tax positions, in April 2007 Seaboard made a deductible contribution
in the amount of $10,000,000 for the 2006 Plan year. At this time
management does not plan on making any additional contributions in 2007
for the 2006 plan year, and currently does not anticipate making any
contributions during 2007 for the 2007 plan year. Additionally, Seaboard
also sponsors non-qualified, unfunded supplemental executive plans, and
unfunded supplemental retirement agreements with certain executive
employees. Management is considering funding alternatives, but currently
has no plans to provide funding for these supplemental plans in advance
of when the benefits are paid.
Mr. H. H. Bresky retired as President and CEO of Seaboard effective July
6, 2006. As a result of Mr. Bresky's retirement, he was entitled to a
lump sum payment of $8,709,000 from Seaboard's Executive Retirement Plan.
Under IRS regulations, there is a six month delay of benefit payments for
key employees and thus Mr. Bresky was not paid his lump sum until
February 2007. This lump sum payment exceeded the Company's service and
interest cost components under this plan and thus required Seaboard to
recognize a portion of its actuarial losses. However, Seaboard was not
relieved of its obligation until the settlement was paid in 2007.
Accordingly, the settlement loss of $3,671,000 was not recognized until
February 2007 in accordance with Statement of Financial Accounting
Standards No. 88, "Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension for Termination Benefits."
The net periodic benefit cost of these plans was as follows:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2007 2006 2007 2006
Components of net periodic
benefit cost:
Service cost $ 1,216 $ 1,064 $ 3,671 $ 3,192
Interest cost 1,410 1,294 4,264 3,883
Expected return on plan
assets (1,363) (1,115) (4,137) (3,346)
Amortization and other 498 646 1,501 1,938
Settlement loss - - 3,671 -
Net periodic benefit
cost $ 1,761 $ 1,889 $ 8,970 $ 5,667
7
Note 6 - Commitments and Contingencies
During the fourth quarter of 2005, Seaboard's subsidiary, Seaboard
Marine, received a notice of violation letter from U.S. Customs and
Border Protection demanding payment of a significant penalty for an
alleged failure to manifest narcotics in connection with Seaboard
Marine's shipping operations, in violation of a federal statute and
regulation. Seaboard has responded to the allegations and is engaged in
discussions with U.S. Customs and Border Protection regarding the matter.
Management believes that the resolution of the matter will not have a
material adverse effect on the consolidated financial statements of
Seaboard.
In September 2007, Seaboard Marine settled a lawsuit brought by an
individual for injuries as a result of an accident occurring during
vessel loading operations in late 2004. Seaboard's Protection and
Indemnity Insurer provided indemnity and defense for the case, and paid
$7.5 million to fund the settlement, but continues to question whether
the loss is covered by insurance, and could seek reimbursement of the
settlement. Seaboard believes that there is insurance coverage, and has
received a legal opinion to this effect. If the Insurer sues to recover
the settlement and there is an adverse ruling, then Seaboard will pursue
other insurance. If it is determined that other insurance is not
applicable, Seaboard would be responsible for the $7.5 million amount
paid in settlement.
Seaboard is subject to various other legal proceedings related to the
normal conduct of its business, including various environmental related
actions. In the opinion of management, none of these actions is expected
to result in a judgment having a materially adverse effect on the
consolidated financial statements of Seaboard.
In June 2007, Seaboard received a $4,090,000 settlement related to a land
expropriation in Argentina. This land settlement was recorded as
miscellaneous income since the land was expropriated prior to Seaboard's
purchase of the sugar and citrus business, thus never a part of the sugar
and citrus operations recorded by Seaboard.
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. As
of September 29, 2007, Seaboard had guarantees outstanding to three third
parties with a total maximum exposure of $2,403,000. 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 September 29, 2007, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity under its
committed and uncommitted credit facilities by $57,021,000 and
$8,720,000, respectively. Included in these amounts are LCs totaling
$42,688,000, which support the Industrial Development Revenue Bonds
included as long-term debt and $14,008,000 of LCs related to insurance
coverages.
Commitments
At September 29, 2007, certain hog procurement contracts with two year
cancellation provisions remained in place, increasing commitments in 2009
by $15,453,000. During the third quarter of 2007, Seaboard Foods
increased grain and soybean meal commitments in 2008 valued at
$47,903,000 based on current market values at September 29, 2007.
Note 7 - Stockholders' Equity and Accumulated Other Comprehensive Loss
In conjunction with a 2002 transaction ("the Transaction") between
Seaboard and its parent company, Seaboard Flour LLC ("the Parent
Company"), whereby Seaboard effectively repurchased shares of its common
stock owned by the Parent Company in return for repayment of all
indebtedness owed by the Parent Company to Seaboard, the Parent Company
also transferred to Seaboard rights to receive possible future cash
payments from a subsidiary of the Parent Company and the benefit of other
assets owned by that subsidiary. To the extent Seaboard received cash
payments as a result of the transferred rights, Seaboard agreed to issue
to the Parent Company new shares of common stock with a value equal to
the cash received. The right to receive such payments expired on
September 17, 2007 without Seaboard receiving any payments or issuing any
shares to the Parent Company.
8
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2007 2006 2007 2006
Net earnings $52,572 $61,189 $144,584 $181,919
Other comprehensive income
(loss) net of applicable
taxes:
Foreign currency
translation adjustment (1,316) (998) (1,056) (1,867)
Unrealized gains (losses)
on investments 488 605 (223) 735
Unrecognized pension cost 361 - 3,321 -
Unrealized losses on cash
flow hedges - - - (22)
Amortization of deferred
gain on interest rate
swaps (39) (50) (125) (150)
Total comprehensive income $52,066 $60,746 $146,501 $180,615
The components of and changes in accumulated other comprehensive loss for
the nine months ended September 29, 2007 are as follows:
Balance Balance
December 31, Period September 29,
(Thousands of dollars) 2006 Change 2007
Foreign currency translation adjustment $(55,811) $(1,056) $(56,867)
Unrealized gain on investments 1,361 (223) 1,138
Unrecognized pension cost (28,140) 3,321 (24,819)
Net unrealized loss on cash flow hedges (55) - (55)
Deferred gain on interest rate swaps 152 (125) 27
Accumulated other comprehensive loss $(82,493) $ 1,917 $(80,576)
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. In addition, the unrecognized pension cost includes $7,241,000
related to employees at certain subsidiaries for which no tax benefit has
been recorded.
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to
$50,000,000 market value of its Common Stock in open market or privately
negotiated purchases, of which $32,159,000 remained available at
September 29, 2007. As of September 29, 2007, Seaboard had repurchased
8,643 shares of common stock at a cost of $17,841,000, including
commission fees of $22,000, cumulatively since inception of the stock
repurchase program. Shares repurchased are retired and resume status of
authorized and unissued shares.
Note 8 - Segment Information
Seaboard's investment in a Bulgarian wine business (the Business) and its
50% share of related losses from this Business are included in the All
Other segment. The owners of this Business, including Seaboard, have
been trying to sell the remaining assets of this Business. Since March
2007, this Business has been unable to make its scheduled loan payments
and has been in technical default on its bank debt which could result in
the Business being forced into bankruptcy. If this occurs prior to sale
of the Business, this could eliminate the remaining value of the Business
to Seaboard resulting in a charge to losses from foreign affiliates in
the All Other segment. Seaboard anticipates incurring additional losses
from the operation of this Business until the sale of this Business is
completed. As of September 29, 2007, the remaining carrying value of
Seaboard's investments in and advances to this Business total $1,431,000,
including $2,783,000 of foreign currency translation gains recorded in
other comprehensive income from this Business, which would be recognized
in earnings upon completion of any sale. This Business is considered a
variable interest entity and the related maximum exposure to Seaboard at
September 29, 2007 is limited to its remaining carrying value.
9
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
segment, is used as the measure of evaluating segment performance because
management does not consider interest and income tax expense on a segment
basis.
Sales to External Customers:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2007 2006 2007 2006
Pork $248,729 $255,872 $ 752,067 $ 753,305
Commodity Trading and
Milling 281,005 176,295 751,094 555,006
Marine 204,645 187,574 601,517 533,858
Sugar and Citrus 37,052 32,809 88,848 80,252
Power 26,209 21,421 67,207 67,197
All Other 3,688 4,411 11,962 13,274
Segment/Consolidated
Totals $801,328 $678,382 $2,272,695 $2,002,892
Operating Income:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2007 2006 2007 2006
Pork $ 11,275 $ 39,493 $ 45,178 $ 99,401
Commodity Trading and
Milling 15,526 8,120 21,599 36,509
Marine 20,277 24,389 73,313 67,403
Sugar and Citrus 3,530 4,592 10,177 12,385
Power 2,578 1,140 4,595 6,175
All Other 37 605 639 1,979
Segment Totals 53,223 78,339 155,501 223,852
Corporate Items (3,622) (2,671) (14,620) (9,259)
Consolidated Totals $ 49,601 $ 75,668 $ 140,881 $ 214,593
Income (Loss) from Foreign Affiliates:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Thousands of dollars) 2007 2006 2007 2006
Commodity Trading and
Milling $ 654 $ 1,019 $ 3,199 $ 4,988
Sugar and Citrus (84) (28) 100 (1,135)
All Other (286) (536) (1,741) (1,369)
Segment/Consolidated
Totals $ 284 $ 455 $ 1,558 $ 2,484
10
Total Assets:
September 29, December 31,
(Thousands of dollars) 2007 2006
Pork $ 775,298 $ 721,514
Commodity Trading and Milling 426,146 301,672
Marine 215,775 176,673
Sugar and Citrus 163,569 133,971
Power 63,390 66,978
All Other 6,830 8,464
Segment Totals 1,651,008 1,409,272
Corporate Items 407,688 552,161
Consolidated Totals $2,058,696 $1,961,433
Investments in and Advances to Foreign Affiliates:
September 29, December 31,
(Thousands of dollars) 2007 2006
Commodity Trading and Milling $ 50,520 $ 38,748
Sugar and Citrus 714 636
All Other 1,431 3,073
Segment/Consolidated Totals $ 52,665 $ 42,457
Administrative services provided by the corporate office allocated to the
individual segments represent corporate services rendered to and costs
incurred for each specific division with no allocation to individual
segments of general corporate management oversight costs. Corporate
assets include short-term investments, other current assets related to
deferred compensation plans, 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.
11
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 $139.6 million from
December 31, 2006, while cash from operating activities was $112.7
million for the nine months ended September 29, 2007. The decrease was
primarily the result of cash being used for capital expenditures of
$124.1 million, a payment of $61.3 million for the repurchase of the
minority interest as discussed in Note 2 to the Condensed Consolidated
Financial Statements, scheduled principal payments of long-term debt of
$54.2 million and $17.8 million used to repurchase common stock as
discussed in Note 7 to the Condensed Consolidated Financial Statements.
Cash from operating activities decreased $104.6 million for the nine
months ended September 29, 2007, primarily as the result of increases in
working capital needs in the Commodity Trading and Milling segment
primarily for increased amounts of inventory and, to a lesser extent,
lower net earnings for the period.
Acquisitions, Capital Expenditures and Other Investing Activities
During the nine months ended September 29, 2007, Seaboard invested $124.1
million in property, plant and equipment, of which $54.4 million was
expended in the Pork segment, $2.3 million was expended in the Commodity
Trading and Milling segment, $50.2 million in the Marine segment, and
$16.9 million in the Sugar and Citrus segment. The Pork segment spent
$38.7 million on constructing a biodiesel plant as discussed below and
constructing additional hog finishing space. The Marine segment spent
$36.3 million to purchase two containerized cargo vessels and to purchase
cargo carrying and handling equipment. In the Sugar and Citrus segment,
the capital expenditures were primarily for expansion of cane growing
operations, various improvements to the sugar mill and expansion of
alcohol distillery operations. All other capital expenditures are of a
normal recurring nature and primarily include replacements of machinery
and equipment, and general facility modernizations and upgrades.
The Pork segment is constructing a processing plant at an approximate
cost of $40.0 million to produce biodiesel to be sold to a third party,
which will be produced from by-products including from Seaboard's Guymon
processing plant. Construction of this plant began in the fourth quarter
of 2006 with approximately $9.5 million to be spent in the remainder of
2007. This plant is expected to begin operations during the first
quarter of 2008. The Pork segment is also currently constructing
additional hog finishing space to expand its live production facilities
to support the Guymon plant with approximately $3.7 million to be spent
in the remainder of 2007. In addition, the Pork segment previously
announced plans to expand its processed meats capabilities by
constructing a separate further processing plant, primarily for bacon, at
an approximate cost of $45.0 million. Construction of this facility was
anticipated to begin in the second half of 2007; however the timing of
this facility has been delayed with no related capital expenditures
currently expected in 2007. In addition, other alternatives to
construction may be considered for this project including the acquisition
of an existing facility.
For the remainder of 2007 management has budgeted capital expenditures
totaling $55.7 million. In addition to the projects detailed above, the
Pork segment plans to spend $9.2 million for improvement to existing hog
facilities and upgrades to the Guymon processing plant. The Commodity
Trading and Milling segment plans to spend $2.7 million primarily for
milling facility upgrades and related equipment. The Marine segment has
budgeted $22.9 million for additional cargo carrying and handling
equipment and expansion of port facilities. The Sugar and Citrus segment
plans to spend $7.2 million for expansion of alcohol distillery
operations, expansion of cane growing operations, and various
improvements to the sugar mill. The balance of $0.5 million is planned
to be spent in all other businesses. Management anticipates funding
these capital expenditures from available cash and short-term
investments.
During the third quarter of 2007, Seaboard paid approximately $31.2
million to the former owners of Daily's as the final payment to
repurchase their minority interest in Seaboard Foods, LP, as discussed in
Note 2 to the Condensed Consolidated Financial Statements.
In late September 2007, Seaboard acquired for $8.5 million a 40% non-
controlling interest, including cash contributed into the business, in a
flour mill business located in Colombia. This investment is accounted
for using the equity method. In October 2007, Seaboard finalized an
agreement to acquire a 50% non-controlling interest in a grain trading
business in Peru for $6.4 million. Such transaction is expected to be
completed during the fourth quarter of 2007 and will be accounted for
using the equity method.
12
Financing Activities and Debt
As of September 29, 2007, Seaboard had committed lines of credit totaling
$100.0 million and uncommitted lines totaling $173.8 million. Borrowings
outstanding under the uncommitted lines as of September 29, 2007, totaled
$78.5 million while there were no outstanding borrowings under the
committed credit facility. Outstanding standby letters of credit reduced
Seaboard's borrowing capacity under its committed and uncommitted credit
lines by $57.0 million and $8.7 million, respectively, primarily
representing $42.7 million for Seaboard's outstanding Industrial
Development Revenue Bonds and $14.0 million related to insurance
coverages.
Seaboard's remaining 2007 scheduled long-term debt maturities total $9.3
million. Management believes that Seaboard's current combination of
internally generated cash, liquidity, capital resources and short-term
borrowing capabilities will be adequate for its existing operations and
any currently known potential plans for expansion of existing operations
or business segments. Management intends to continue seeking
opportunities for expansion in the industries in which Seaboard operates,
utilizing existing liquidity and available borrowing capacity, and
currently does not plan to pursue other financing alternatives.
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to
$50,000,000 market value of its Common Stock in open market or privately
negotiated purchases, of which $32,159,000 remained available at
September 29, 2007. As of September 29, 2007, Seaboard used cash to
repurchase 8,643 shares of common stock at a total price of $17,841,000,
including commissions of $22,000. The stock repurchase will be funded by
cash on hand. Shares repurchased are retired and resume status of
authorized and unissued shares. The Board's stock repurchase
authorization does not obligate Seaboard to acquire a specific amount of
common stock and the stock repurchase program may be modified or
suspended at any time at Seaboard's discretion.
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 month periods of 2007 increased by
$122.9 million and $269.8 million, respectively, over the same periods in
2006, primarily reflecting the result of increased prices for commodities
sold by the commodity trading business and, to a lesser extent, increased
commodity trading volumes and higher volumes for marine cargo services.
Operating income decreased by $26.1 million and $73.7 million for the
three and nine month periods of 2007, respectively, compared to the same
periods in 2006. The decrease for both periods is primarily the result
of higher feed costs for hogs, including the effect on LIFO reserves,
primarily from the increased price of corn. The decrease for the nine
month period also reflects the effect of the mark-to-market of
derivatives in the Commodity Trading and Milling segment, and the pension
settlement loss in the first quarter of 2007 as discussed in Note 5 to
the Condensed Consolidated Financial Statements.
Pork Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $248.7 $255.9 $752.1 $753.3
Operating income $ 11.3 $ 39.5 $ 45.2 $ 99.4
Net sales for the Pork segment decreased $7.2 million and $1.2 million
for the three and nine month periods of 2007, respectively, compared to
the same periods in 2006. The decrease for the three month period is
primarily the result of lower prices for pork products sold and lower
domestic sales volume of pork products. The decrease for the nine month
period is primarily the result of lower domestic sales volume of pork
products partially offset by higher prices for pork products sold. In
addition, partially offsetting these decreases were higher marketing fee
income from increased number of head processed by Triumph Foods and, for
the quarter, an increase in market hogs sold to third parties.
13
Operating income for the Pork segment decreased $28.2 million and $54.2
million for the three and nine month periods of 2007, respectively,
compared to the same periods of 2006. The decreases primarily relate to
higher feed costs, primarily from the increased price of corn, and, to a
lesser extent for the nine month period, higher costs per hog for third
party hogs used for processing. Also decreasing operating income for the
three and nine month periods for 2007 compared to 2006 was an increase in
the change in the LIFO reserve of $6.9 million and $14.5 million,
respectively, primarily as a result of the higher feed costs. These
higher costs were partially offset by increased marketing fee income
discussed above.
Management is unable to predict future market prices for pork products or
the cost of feed and third party hogs. During the last half of 2006, the
price of corn began to rise significantly as the demand for corn
increased due to, among other things, demand from ethanol plants. Also,
over the past three years, market prices for pork products have been
higher than historic norms while recent prices for pork products sold
have declined. As a result of current market conditions and
unpredictable grain prices, management is unable to predict whether this
segment will remain profitable for the remainder of 2007.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $281.0 $176.3 $751.1 $555.0
Operating income $ 15.5 $ 8.1 $ 21.6 $ 36.5
Income from foreign
affiliates $ 0.7 $ 1.0 $ 3.2 $ 5.0
Net sales for the Commodity Trading and Milling segment increased $104.7
million and $196.1 million for the three and nine month periods of 2007,
respectively, compared to the same periods of 2006. The increases
primarily reflect increased prices for commodities sold, especially for
wheat, and, to a lesser extent, increased commodity trading volumes with
third parties. The increased trading volumes to third parties are
primarily a result of Seaboard expanding its business in new and existing
markets.
Operating income for this segment increased $7.4 million and decreased
$14.9 million for the three and nine month periods of 2007, respectively,
compared to the same periods of 2006. The fluctuations for the three and
nine month periods of 2007 compared to 2006 primarily reflects the $6.2
million and $7.8 million fluctuation, respectively, of marking to market
the derivative contracts as discussed below. The increase for the three
month period also is the result of increased commodity trading volumes as
discussed above. The decrease for the nine month period also reflects
lower margins from certain milling operations, especially in Zambia. The
lower margins at certain milling locations are the result of less
favorable market conditions, primarily from competitive pressures and
higher wheat costs. Due in large part 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 2007 based on
current market prices for commodities, excluding the potential effects of
marking to market derivative contracts.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, operating income would have been lower by $7.4 million and
$1.0 million for the three and nine month periods of 2007, respectively,
while operating income for the three and nine months of 2006 would have
been lower by $1.2 million and $8.8 million, respectively. While
management believes its commodity futures and options and foreign
exchange contracts are primarily economic hedges of its firm purchase and
sales contracts, Seaboard does not perform the type of extensive record-
keeping required to account for either type of derivative as hedges for
accounting purposes. Accordingly, while the changes in value of the
derivative instruments were marked to market, the changes in value of the
firm purchase or sales contracts were not. As products are delivered to
customers, these mark-to-market adjustments will be primarily offset by
realized margins as revenue is recognized.
Income from foreign affiliates for the three and nine month periods of
2007 decreased $0.3 million and $1.8 million, respectively, from the same
2006 periods as a result of less favorable market conditions. Based on
the uncertainty of local political and economic situations in the
countries in which the flour and feed mills operate, and increasing grain
costs, management cannot predict future results.
14
Marine Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $204.6 $187.6 $601.5 $533.9
Operating income $ 20.3 $ 24.4 $ 73.3 $ 67.4
Net sales for the Marine segment increased $17.0 million and $67.6
million for the three and nine month periods of 2007, respectively,
compared to the same periods of 2006 primarily reflecting higher cargo
volumes. Cargo volumes were higher as a result of continued favorable
economic conditions in most markets served. Cargo rates overall remained
relatively flat as a result of increased competition.
Operating income for the Marine segment decreased $4.1 million and
increased $5.9 million for the three and nine month periods of 2007,
respectively, compared to the same periods of 2006. The decrease for the
three month period was primarily the result of higher drydock costs and
increased fuel costs for vessels on a per unit shipped basis more than
offsetting the increase in higher cargo volumes. For the nine month
period, operating income increased as a result of higher cargo volumes
only being partially offset by higher drydock expenses. Although
management cannot predict changes in future volumes and cargo rates or to
what extent changes in competition and economic conditions will impact
net sales or operating income, it does expect this segment to remain
profitable for the remainder of 2007, although lower than 2006.
Sugar and Citrus Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $ 37.1 $ 32.9 $ 88.8 $ 80.3
Operating income $ 3.5 $ 4.6 $ 10.2 $ 12.4
Income (loss) from
foreign affiliates $ (0.1) $ 0.0 $ 0.1 $ (1.1)
Net sales for the Sugar and Citrus segment increased $4.2 million and
$8.5 million for the three and nine month periods of 2007, respectively,
compared to the same periods of 2006. The increase for the quarter
primarily reflects higher sugar prices and increased sales volumes from
export sales. The increase for the nine months primarily reflects
overall higher sugar prices partially offset by lower sales volume. Sales
volumes decreased primarily from lower export sales as the result of
fewer purchases of sugar from third parties for resale. Export prices
increased during 2007 while Argentine prices increased to a lesser extent
as governmental authorities continue to attempt to control inflation by
limiting the price of basic commodities, including sugar. Accordingly,
management cannot predict whether sugar prices will continue to increase.
However, Seaboard expects to at least maintain its historical sales
volume to Argentinean customers.
Operating income decreased $1.1 million and decreased $2.2 million for
the three and nine month periods of 2007, respectively, compared to the
same periods of 2006. The decreases are primarily the result of higher
shipping and related costs incurred and expensed for the Citrus business
during the third quarter of 2007 without related sales recognized as more
citrus sales were deferred compared to the prior year. Such citrus sales
are deferred until the final selling price is fixed and determinable,
which should occur during the fourth quarter. The decrease for the nine
months is also the result of higher administrative costs. Management
expects operating income will remain positive for the remainder of 2007.
A franchisee agreement was cancelled in the first quarter of 2006, which
resulted in a loss from foreign affiliates in the amount of $1.1 million.
Power Segment
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $ 26.2 $ 21.4 $ 67.2 $ 67.2
Operating income $ 2.6 $ 1.1 $ 4.6 $ 6.2
Net sales for the Power segment increased $4.8 million and remained
constant for the three and nine month periods of 2007, respectively,
compared to the same periods of 2006. The increase for the three month
period was the result of
15
higher rates attributable primarily to higher fuel costs, a component
of pricing, and, to a lesser extent, increased power production. For the
nine month period, increased power production was offset by lower rates
during 2007. At times during early 2007 and throughout 2006, Seaboard's
power production was restricted by the regulatory authorities in the
Dominican Republic (DR). The DR regulatory body schedules production
based on the amount of funds available to pay for the power produced and
the relative costs of the power produced.
Operating income increased $1.5 million and decreased $1.6 million for
the three and nine month periods of 2007, respectively, compared to the
same periods of 2006. The increase for the three month period is
primarily the result of higher rates being in excess of higher fuel
costs. The decrease for the nine month period is primarily the result of
lower rates while fuel costs remained about the same. Management cannot
predict future fuel costs or the extent to which the regulatory authority
will restrict Seaboard's future production of power, although management
expects this segment to remain profitable for the remainder of 2007.
All Other
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(Dollars in millions) 2007 2006 2007 2006
Net sales $ 3.7 $ 4.4 $ 12.0 $ 13.3
Operating income $ 0.0 $ 0.6 $ 0.6 $ 2.0
Loss from foreign
affiliate $ (0.3) $ (0.5) $ (1.7) $ (1.4)
Net sales and operating income decreased due to decreased volumes and
increased production costs in the jalapeno pepper operations. The loss
from foreign affiliate reflects Seaboard's share of losses from its
equity method investment in a Bulgarian wine business. Management
expects additional losses from the operations of this business for the
remainder of 2007. See Note 8 to the Condensed Consolidated Financial
Statements for further discussion of this business and intentions to sell
the business.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by
$3.6 million and $14.7 million in the three and nine month periods of
2007, respectively, compared to the same periods of 2006. These
increases are primarily the result of increased personnel costs
principally related to the growth of the business. In addition, the
increase for the nine month period is also a result of the $3.7 million
pension settlement loss recognized in the first quarter of 2007 related
to Mr. Bresky's retirement payment in February 2007 as discussed in Note
5 to the Condensed Consolidated Financial Statements. As a percentage of
revenues, SG&A decreased to 5.3% and 5.6% for the 2007 three and nine
month periods, respectively, compared to 5.8% and 5.7% for the same
periods in 2006 primarily as a result of increased sales in the Commodity
Trading and Milling and Marine segments.
Interest Expense
Interest expense decreased $1.4 million and $4.8 million in the three and
nine month periods of 2007, respectively, compared to the same periods of
2006 reflecting the lower average level of borrowings during 2007 and
lower average interest rates.
Interest Income
Interest income decreased $0.1 million and $1.5 million in the three and
nine month periods of 2007, respectively, compared to the same periods of
2006 primarily reflecting a decrease in interest received on outstanding
customer receivable balances in the Power segment, partially offset, for
the nine month period, by an increase in average funds invested.
Minority and Other Noncontrolling Interests
Minority and other noncontrolling interests expense decreased $1.8
million and $5.0 million in the three and nine month periods of 2007,
respectively, compared to the same periods of 2006 primarily as a result
of no longer having the minority interest associated with the Daily's
acquisition due to the equity interest being repurchased by Seaboard
effective January 1, 2007. See Note 2 to the Condensed Consolidated
Financial Statements for further discussion.
Foreign Currency Gains (Losses)
Seaboard realized net foreign currency losses of $1.2 million and $2.6
million in the three and nine month periods of 2007, respectively,
compared to losses of $1.9 million and gains of $0.5 million for the same
periods in 2006. The changes for the three and nine month periods
primarily relates to currency fluctuations in certain African operations
of the Commodity Trading and Milling segment.
16
Miscellaneous, Net
Miscellaneous, net for the nine month period of 2007 includes a $4.1
million gain from a favorable settlement received in June 2007 related to
a land expropriation in Argentina. This land settlement was recorded as
miscellaneous income since the land was expropriated prior to Seaboard's
purchase of the sugar and citrus business, thus never a part of the sugar
and citrus operations recorded by Seaboard. For the three and nine month
period of 2006, miscellaneous, net included income of $1.0 million and
$1.9 million, respectively, from the decrease in the value of the put
option related to the Daily's acquisition. On December 27, 2006,
Seaboard entered into a Purchase Agreement to repurchase the 4.74% equity
interest in Seaboard Foods LP from the former owners of Daily's, which
resulted in the put option obligation being reduced to zero as of
December 31, 2006. For the nine month period of 2006, miscellaneous, net
included a mark-to-market gain of $3.4 million on interest rate exchange
agreements. These interest rate agreements did not qualify as hedges for
accounting purposes and all such agreements were terminated during the
second quarter of 2006.
Income Tax Expense
The effective tax rate for the nine month period decreased during 2007
compared to 2006 primarily as a result of increased amounts of
permanently deferred foreign earnings and lower amounts of domestic
taxable income. During the third quarter of 2007, Seaboard revised its
effective annual tax rate as a result of changes in the estimated
percentage mix of foreign versus domestic income and change in valuation
allowances resulting in a net benefit for the quarter.
OTHER FINANCIAL INFORMATION
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157 (SFAS 157), "Fair
Value Measurements". This statement establishes a single authoritative
definition of fair value when accounting rules require the use of fair
value, sets out a framework for measuring fair value, and requires
additional disclosures about fair-value measurements. For Seaboard, SFAS
157 is effective for the fiscal year beginning January 1, 2008.
Management believes the adoption of SFAS 157 will not have a material
impact on Seaboard's financial position or net earnings.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159 (SFAS 159), "The Fair Value Option for Financial Assets
and Financial Liabilities." This statement provides companies with an
option to report selected financial assets and liabilities at fair value.
Seaboard will be required to adopt this statement as of January 1, 2008.
Management believes the adoption of SFAS 159 will not have a material
impact on Seaboard's financial position or net earnings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-day
operations. Seaboard utilizes derivative instruments to mitigate some of
these risks including both purchases and sales of futures and options to
hedge inventories, forward purchase and sale contracts. From time to
time, Seaboard may enter into speculative derivative transactions not
directly related to its raw material requirements. The nature of
Seaboard's market risk exposure related to these items has not changed
materially since December 31, 2006.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Seaboard's management
evaluated, under the direction of our Chief Executive and Chief Financial
Officers, the effectiveness of Seaboard's disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e) as of September 29,
2007. 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. Due to 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.
Change in Internal Controls -There has been no change in Seaboard's
internal control over financial reporting required by Exchange Act Rule
13a-15 that occurred during the fiscal quarter ended September 29, 2007
that has materially affected, or is reasonably likely to materially
affect, Seaboard's internal control over financial reporting.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 25, 2007, the United States District Court for the Western
District of Oklahoma approved the September 11, 2006 Consent Decree
Seaboard Foods entered into with the United States related to alleged
violations of the Clean Water Act, the Comprehensive Environmental
Response, Compensation & Liability Act and the Clean Air Act. On
October 23, 2007, Seaboard Foods paid a civil penalty of $105,000 and
interest of $199.36, and may be required to pay an additional $150,000
in stipulated penalties. The interest and potential stipulated penalty
payments result from a failure to timely pay the $105,000 civil penalty,
failure to timely submit a report to the United States and failure to
fully complete a certain provision of the Consent Decree related to
protection of wet depressional areas. Seaboard Foods was late in paying
and failed to comply with the other provisions described above because of
outside counsel's failure to notify Seaboard Foods of the court approval
of the Consent Decree. Seaboard Foods learned of entry of the Consent
Decree on October 19, 2007, immediately reported the Consent Decree
violations to the United States and was back in compliance with all
provisions of the Consent Decree by October 23, 2007. Seaboard Foods had
paid a portion of the civil penalty provided in the Consent Decree in
October 2006 by paying $100,000 to participate in the National AFO/CAFO
Air Emissions Agreement, which provides Seaboard Foods a safe harbor
against any past violations of the Clean Air Act, if any.
Item 1A. Risk Factors
There have been no material changes in the risk factors as previously
disclosed in Seaboard's Annual Report on form 10-K for the year ended
December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding Seaboard's purchase of
its common stock during the quarter.
Issuer Purchases of Equity Securities
Approximate
Dollar
Total Value
Number of
of Shares Shares
Purchased that May
as Part Yet Be
Total Average of Publicly Purchased
Number of Price Announced Under the
Shares Paid per Plans Plans or
Period Purchased Share or Programs Programs
July 1 to July 31, 2007 - n/a n/a $50,000,000
August 1 to August 31, 2007 2,157 $ 2,001.17 2,157 $45,683,469
September 1 to September 29, 2007 6,486 $ 2,085.13 6,486 $32,159,314
Total 8,643 $ 2,064.18 8,643 $32,159,314
All purchases during the quarter were made under the authorization from
our Board of Directors to purchase up to $50 million shares of Seaboard
common stock announced on August 8, 2007. An expiration date of August
31, 2009 has been specified for this authorization. All purchases were
made through open-market purchases and all the repurchased shares have
been retired.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
18
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) Seaboard's ability to obtain adequate financing and liquidity,
(ii) the price of feed stocks and other materials used by Seaboard,
(iii) the sales price or market conditions for pork, sugar and other
products and services, (iv) statements concerning management's
expectations of recorded tax effects under existing circumstances, (v)
the ability of the Commodity Trading and Milling to successfully compete
in the markets it serves and the volume of business and working capital
requirements associated with the competitive trading environment, (vi)
the charter hire rates and fuel prices for vessels, (vii) the
stability of the Dominican Republic's economy and demand for power,
related spot market prices and collectibility of receivables in the
Dominican Republic, (viii) the effect of the fluctuation in exchange
rates for the Dominican Republic peso, (ix) statements concerning
profitability or sales volume of any of Seaboard's segments, (x) the
anticipated costs and completion timetable for Seaboard's scheduled
capital improvements, or (xi) 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.
19
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 2, 2007
Seaboard Corporation
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
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)
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