UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2008
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, a non-accelerated filer or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer [ X ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
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 1,243,909 shares of common stock, $1.00 par value per
share, outstanding on July 21, 2008.
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 Six Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Net sales:
Products $ 731,123 $ 507,645 $1,477,023 $1,020,596
Services 234,410 211,957 453,259 409,771
Other 34,418 22,617 63,337 41,000
Total net sales 999,951 742,219 1,993,619 1,471,367
Cost of sales and operating
expenses:
Products 719,546 479,264 1,400,787 940,432
Services 202,101 167,626 388,043 317,896
Other 30,074 19,919 55,409 36,559
Total cost of sales and
operating expenses 951,721 666,809 1,844,239 1,294,887
Gross income 48,230 75,410 149,380 176,480
Selling, general and
administrative expenses 45,134 40,948 86,902 85,200
Operating income 3,096 34,462 62,478 91,280
Other income (expense):
Interest expense (3,011) (3,381) (5,837) (6,923)
Interest income 4,154 5,402 8,426 10,043
Income (loss) from foreign
affiliates 1,865 (142) 5,813 1,274
Minority and other
noncontrolling interests (210) 196 (236) 119
Foreign currency gain (loss),
net 2,358 1,873 625 (1,431)
Other investment income, net 6,936 1,352 8,456 1,772
Miscellaneous, net (831) 4,230 1,095 4,396
Total other income (expense), net 11,261 9,530 18,342 9,250
Earnings before income taxes 14,357 43,992 80,820 100,530
Income tax benefit (expense) 6,606 (1,335) 10,170 (8,518)
Net earnings $ 20,963 $ 42,657 $ 90,990 $ 92,012
Earnings per common share $ 16.85 $ 33.82 $ 73.14 $ 72.95
Dividends declared per common
share $ 0.75 $ 0.75 $ 1.50 $ 1.50
Average number of shares
outstanding 1,243,909 1,261,367 1,244,055 1,261,367
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
June 28, December 31,
2008 2007
Assets
Current assets:
Cash and cash equivalents $ 58,620 $ 47,346
Short-term investments 256,232 286,660
Receivables, net 379,747 359,313
Inventories 456,592 392,946
Deferred income taxes 20,007 19,558
Other current assets 104,397 77,710
Total current assets 1,275,595 1,183,533
Investments in and advances to foreign affiliates 68,150 60,706
Net property, plant and equipment 762,649 730,395
Goodwill 40,628 40,628
Intangible assets, net 30,090 30,895
Other assets 53,144 47,542
Total assets $2,230,256 $2,093,699
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 127,352 $ 85,088
Current maturities of long-term debt 9,900 11,912
Accounts payable 139,994 135,398
Other current liabilities 197,747 190,530
Total current liabilities 474,993 422,928
Long-term debt, less current maturities 124,728 125,532
Deferred income taxes 95,982 105,697
Other liabilities 88,504 84,343
Total non-current and deferred liabilities 309,214 315,572
Minority and other noncontrolling interests 2,209 971
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued and outstanding 1,243,909 and 1,244,278
shares 1,244 1,244
Accumulated other comprehensive loss (77,627) (78,651)
Retained earnings 1,520,223 1,431,635
Total stockholders' equity 1,443,840 1,354,228
Total liabilities and stockholders' equity $2,230,256 $2,093,699
See accompanying notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Six Months Ended
June 28, June 30,
2008 2007
Cash flows from operating activities:
Net earnings $ 90,990 $ 92,012
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 43,430 38,747
Income from foreign affiliates (5,813) (1,274)
Other investment income, net (8,456) (1,772)
Foreign currency exchange losses 1,389 -
Minority and other noncontrolling interest 236 (119)
Deferred income taxes (10,526) 1,382
Gain from sale of fixed assets (251) (730)
Changes in current assets and liabilities:
Receivables, net of allowance (16,102) 28,866
Inventories (62,923) (10,963)
Other current assets (25,553) (15,198)
Current liabilities, exclusive of debt 11,508 (3,474)
Other, net 7,329 (398)
Net cash from operating activities 25,258 127,079
Cash flows from investing activities:
Purchase of short-term investments (130,028) (1,351,064)
Proceeds from the sale of short-term investments 137,131 1,351,301
Proceeds from the maturity of short-term
investments 22,421 16,167
Investments in and advances to foreign
affiliates, net (458) 46
Capital expenditures (77,275) (80,174)
Repurchase of minority interest in a controlled
subsidiary - (30,053)
Proceeds from the sale of fixed assets 1,809 1,213
Other, net (2,139) (1,450)
Net cash from investing activities (48,539) (94,014)
Cash flows from financing activities:
Notes payable to banks, net 38,502 734
Principal payments of long-term debt (2,963) (28,789)
Repurchase of common stock (536) -
Dividends paid (1,866) (1,892)
Other, net 996 (82)
Net cash from financing activities 34,133 (30,029)
Effect of exchange rate change on cash 422 153
Net change in cash and cash equivalents 11,274 3,189
Cash and cash equivalents at beginning of year 47,346 31,369
Cash and cash equivalents at end of period $ 58,620 $ 34,558
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, 2007 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.
During the second quarter of 2008, an accounting error at the Marine
segment was discovered in previously issued financial statements. The
error arose in the Marine segment's consolidation and intercompany
elimination process of its foreign outport operations. The error, if
properly recorded, would have decreased sales and net earnings in
2006 by $2,101,000, decreased sales and net earnings in 2007 by
$4,171,000 and decreased sales and net earnings in the first quarter
of 2008 by $964,000. As the effect on prior periods was not
considered material, an adjustment to decrease sales and net earnings
by $7,236,000 was recorded in the second quarter of 2008.
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 December 2007, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 141(R) (SFAS
141R), "Business Combinations." This statement defines the acquirer as
the entity that obtains control of one or more businesses in the
business combination, establishes the acquisition date as the date that
the acquirer achieves control and requires the acquirer to recognize
the assets acquired, liabilities assumed and any noncontrolling
interest at their fair values as of the acquisition date. This
statement also requires that acquisition-related costs of the acquirer
be recognized separately from the business combination and will
generally be expensed as incurred. Seaboard will be required to adopt
this statement as of January 1, 2009. The impact of adopting SFAS 141R
will be applicable to any future business combinations for which the
acquisition date is on or after January 1, 2009.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51." This statement will
change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests and classified as a
component of equity. Seaboard will be required to adopt this statement
as of January 1, 2009. Management believes the adoption of SFAS 160
will not have a material impact on Seaboard's financial position or net
earnings.
In February 2008, the FASB issued FASB Staff Position 157-2 which
defers the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in an entity's financial statements on a
recurring basis (at least annually). Seaboard will be required to
adopt SFAS 157 for these nonfinancial assets and nonfinancial
liabilities as of January 1, 2009. Management believes the adoption
of SFAS 157 deferral provisions will not have a material impact on
Seaboard's financial position or net earnings.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133." This
statement will change the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide
enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and
how derivative
5
instruments and related hedged items affect an entity's financial
position, net earnings, and cash flows. Seaboard will be required
to adopt this statement as of January 1, 2009. Management believes
the adoption of SFAS 161 will not have a material impact on Seaboard's
financial position or net earnings.
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. 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.
Note 3 - Inventories
The following is a summary of inventories at June 28, 2008 and
December 31, 2007:
June 28, December 31,
(Thousands of dollars) 2008 2007
At lower of LIFO cost or market:
Live hogs and materials $211,286 $181,019
Fresh pork and materials 22,537 18,550
233,823 199,569
LIFO adjustment (53,160) (23,509)
Total inventories at lower of LIFO cost or market 180,663 176,060
At lower of FIFO cost or market:
Grains and oilseeds 163,176 100,082
Sugar produced and in process 28,201 35,180
Other 49,839 33,782
Total inventories at lower of FIFO cost or market 241,216 169,044
Grain, flour and feed at lower of weighted average cost
or market 34,713 47,842
Total inventories $456,592 $392,946
Note 4 - Income Taxes
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. There have not been any material changes in unrecognized income
tax benefits since December 31, 2007. Interest related to unrecognized
tax benefits and penalties were not material for the six months ended
June 28, 2008.
Note 5 - Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 (SFAS 157), "Fair Value Measurements". This
statement established a single authoritative definition of fair value
when accounting rules require the use of fair value, set out a
framework for measuring fair value, and required additional disclosures
about fair-value measurements. SFAS 157 clarifies that fair value is
an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants.
Seaboard adopted SFAS 157 on January 1, 2008 with the exception of
nonfinancial assets and nonfinancial liabilities that were deferred by
FASB Staff Position 157-2 as discussed in Note 1 to the Condensed
Consolidated Financial Statements. As of June 28, 2008, Seaboard has
not applied SFAS 157 to goodwill and intangible assets in accordance
with FASB Staff Position 157-2.
SFAS 157 discusses valuation techniques, such as the market approach
(prices and other relevant information generated by market conditions
involving identical or comparable assets or liabilities), the income
approach (techniques to convert future amounts to single present
amounts based on market expectations including present
6
value techniques and option-pricing), and the cost approach (amount
that would be required to replace the service capacity of an asset
which is often referred to as replacement cost). SFAS 157 utilizes
a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The
following is a brief description of those three levels:
Level 1: Observable inputs such as unadjusted quoted prices in active
markets for identical assets or liabilities that the Company has the
ability to access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity's own
assumptions.
The following table shows assets and liabilities measured at fair value
on a recurring basis as of June 28, 2008 and also the level within the
fair value hierarchy used to measure each category of assets.
Quoted Prices
In Active Significant
Markets for Other Significant
Balance Identical Observable Unobservable
June 28, Assets Inputs Inputs
(Thousands of dollars) 2008 (Level 1) (Level 2) (Level 3)
Assets:
Available-for-sale securities $256,232 $38,968 $217,264 $ -
Deferred compensation plans 30,028 21,099 8,929 -
Derivatives 14,049 13,222 827 -
Total Assets $300,309 $73,289 $227,020 $ -
Total Liabilities-Derivatives $ 9,064 $ 7,536 $ 1,528 $ -
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 provided companies
with an option to report selected financial assets and liabilities at
fair value. This statement was effective for Seaboard as of January 1,
2008; however Seaboard did not elect the option to report any of the
selected financial assets and liabilities at fair value.
Note 6 - 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 2008 for the 2007 or 2008 plan year. 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.
The late 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."
7
The net periodic benefit cost of these plans was as follows:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Thousands of dollars) 2008 2007 2008 2007
Components of net periodic benefit cost:
Service cost $1,242 $1,236 $2,637 $2,455
Interest cost 1,810 1,447 3,770 2,854
Expected return on plan assets (1,432) (1,527) (3,113) (2,774)
Amortization and other 418 493 787 1,003
Settlement loss - - - 3,671
Net periodic benefit cost $2,038 $1,649 $4,081 $7,209
Note 7 - 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. In response to Seaboard Marine's petition for relief, the
amount of the penalty has been reduced to an amount which will not have
a material adverse effect on the consolidated financial statements of
Seaboard. Seaboard is reviewing the reduction and will continue to
discuss with U.S. Customs and Border Protection a further reduction in
the penalty.
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.
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 June 28, 2008, Seaboard had guarantees outstanding
to two third parties with a total maximum exposure of $1,978,000.
Seaboard has not accrued a liability for any of the third party or
affiliate guarantees as management considers the likelihood of loss to
be remote.
As of June 28, 2008, Seaboard had outstanding letters of credit ("LCs")
with various banks which reduced its borrowing capacity under its
committed credit facilities by $56,471,000. Included in these amounts
are LCs totaling $42,688,000, which support the Industrial Development
Revenue Bonds included as long-term debt and $13,708,000 of LCs related
to insurance coverages.
Commitments
On May 30, 2008, Seaboard Marine Ltd. ("Seaboard Marine"), entered into
an Amended and Restated Terminal Agreement with Miami-Dade County
("County") for Marine Terminal Operations ("Amended Terminal
Agreement"), pursuant to which Seaboard Marine renewed its existing
Terminal Agreement with the County at the Port of Miami. The Amended
Terminal Agreement will enable Seaboard Marine to continue its existing
operations at the Port of Miami. The Amended Terminal Agreement has a
term through September 30, 2028, with two five-year renewal options,
the exercise of which are subject to certain conditions. The total
minimum payments over the initial term of the Amended Terminal
Agreement approximate $283,000,000. This minimum amount could increase
if certain conditions are met. In addition, the Amended Terminal
Agreement requires Seaboard Marine to fund approximately $5,000,000 in
terminal upgrades subject to certain conditions. The Amended Terminal
Agreement also requires the County to make certain improvements to
Seaboard Marine's container yard and adjacent berths at the Port of
Miami.
8
Note 8 - Stockholders' Equity and Accumulated Other Comprehensive Loss
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Thousands of dollars) 2008 2007 2008 2007
Net earnings $20,963 $42,657 $90,990 $92,012
Other comprehensive income
net of applicable taxes:
Foreign currency translation adjustment 896 740 1,326 260
Unrealized gains (losses) on investments (692) (1,277) (393) (711)
Unrecognized pension cost (136) 357 91 2,960
Amortization of deferred gain on interest
rate swaps - (43) - (86)
Total comprehensive income $21,031 $42,434 $92,014 $94,435
The components of and changes in accumulated other comprehensive loss
for the six months ended June 28, 2008 are as follows:
Balance Balance
December 31, Period June 28,
(Thousands of dollars) 2007 Change 2008
Foreign currency translation adjustment $(58,719) $1,326 $(57,393)
Unrealized gain on investments 1,149 (393) 756
Unrecognized pension cost (21,081) 91 (20,990)
Accumulated other comprehensive loss $(78,651) $1,024 $(77,627)
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 $6,471,000 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 $18,975,000 remained available
at June 28, 2008. For the six months ended June 28, 2008, Seaboard
repurchased 369 shares of common stock at a cost of $536,000. Shares
repurchased are retired and resume status of authorized and unissued
shares.
Note 9 - Segment Information
The Pork segment has $28,372,000 of goodwill and $24,000,000 of other
intangible assets not subject to amortization in connection with its
acquisition of Daily's in 2005. Previously, the fair value of these
intangible assets was partially based on certain scenarios that
included management's ability and intention to grow and expand Daily's
through construction or acquisition of additional capacity. During the
second quarter of 2008 management decided to indefinitely delay any
such future plans for expanding Daily's capacity. As of June 28, 2008,
Seaboard conducted its annual evaluation for impairment of this
goodwill and other intangible assets and, based on current market
conditions indicating projected future sale price increases and related
levels of estimated operating margins, determined there is no
impairment. However, if market conditions do not produce projected
future sale price increases or additional processed meats sales
volumes, and related levels of estimated operating margins, there is a
possibility that some amount of either this goodwill or other
intangible assets not subject to amortization, or both, could be deemed
impaired during some future period including fiscal 2008, which may
result in a charge to earnings.
Seaboard has an investment in a Bulgarian wine business (the Business).
Beginning in March 2007, this business had been unable to make its
scheduled loan payments and had been in technical default on its bank
debt. During the fourth quarter of 2007, Seaboard signed an agreement
to allow a bank to take majority ownership of the Business resulting in
a loss of significant influence by Seaboard. Accordingly, in the
fourth quarter of 2007
9
Seaboard discontinued using the equity method of accounting and wrote-
off the remaining investment balance. Seaboard recorded 50% of the
losses from the Business in 2007 in the "All Other" segment. In June
2008, Seaboard received $1,078,000 from another shareholder of the
Business in exchange for the assignment by Seaboard to the shareholder
of all rights to Seaboard's previous loans and advances to the
Business. The proceeds of this transaction are recorded in Other
Investment Income.
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, other investment income
and income tax expense on a segment basis.
Sales to External Customers:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Thousands of dollars) 2008 2007 2008 2007
Pork $288,329 $261,691 $ 527,244 $ 503,338
Commodity Trading and Milling 407,573 223,401 887,464 470,089
Marine 229,714 205,813 440,654 396,872
Sugar and Citrus 36,044 24,463 67,082 51,796
Power 34,418 22,615 63,337 40,998
All Other 3,873 4,236 7,838 8,274
Segment/Consolidated Totals $999,951 $742,219 $1,993,619 $1,471,367
Operating Income (Loss):
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Thousands of dollars) 2008 2007 2008 2007
Pork $(26,399) $ 12,992 $ (31,241) $ 33,903
Commodity Trading and Milling 13,112 (4,155) 62,184 6,073
Marine 13,611 25,540 24,491 53,036
Sugar and Citrus 2,726 2,032 5,899 6,647
Power 3,057 1,546 5,416 2,017
All Other 551 487 709 602
Segment Totals 6,658 38,442 67,458 102,278
Corporate Items (3,562) (3,980) (4,980) (10,998)
Consolidated Totals $ 3,096 $ 34,462 $ 62,478 $ 91,280
Income (Loss) from Foreign Affiliates:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Thousands of dollars) 2008 2007 2008 2007
Commodity Trading and Milling $ 1,728 $ 190 $ 5,664 $ 2,545
Sugar and Citrus 137 58 149 184
All Other - (390) - (1,455)
Segment/Consolidated Totals $ 1,865 $ (142) $ 5,813 $ 1,274
10
Total Assets:
June 28, December 31,
(Thousands of dollars) 2008 2007
Pork $ 817,104 $ 783,288
Commodity Trading and Milling 499,367 447,211
Marine 261,346 231,278
Sugar and Citrus 197,556 171,978
Power 76,163 64,647
All Other 8,662 6,993
Segment Totals 1,860,198 1,705,395
Corporate Items 370,058 388,304
Consolidated Totals $2,230,256 $2,093,699
Investments in and Advances to Foreign Affiliates:
June 28, December 31,
(Thousands of dollars) 2008 2007
Commodity Trading and Milling $ 66,814 $ 59,538
Sugar and Citrus 1,336 1,168
Segment/Consolidated Totals $ 68,150 $ 60,706
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, fixed assets, deferred tax
amounts and other miscellaneous items. Corporate operating losses
represent certain operating costs not specifically allocated to
individual segments.
Note 10 - Subsequent Event
Seaboard uses various grain, meal, hog and pork bellies futures and
options to manage its exposure to price fluctuations for raw materials
and other inventories, finished product sales and firm sales
commitments. However, due to the extensive record-keeping required to
designate the commodity derivative transactions as hedges for
accounting purposes, Seaboard marks to market its commodity futures and
options primarily as a component of cost of sales. Management
continues to believe its commodity futures and options are primarily
economic hedges although they do not qualify as hedges for accounting
purposes. Since these derivatives are not accounted for as hedges,
fluctuations in the related commodity prices could have a material
impact on earnings in any given quarter or year. From time to time,
Seaboard may also 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, 2007. However, during July 2008 the Pork
segment significantly increased the number of hog, grain and oilseed
futures contracts entered into based on market conditions. These
increased positions could increase volatility of reported financial
results due to mark to market accounting.
The size and mix of Seaboard's commodity future and option contracts
varies from time to time based upon an analysis of fundamental market
information. The following table provides the fair value of Seaboard's
net open commodity future and option derivatives for all divisions as
of July 26, 2008, June 28, 2008, and December 31, 2007.
(Thousands of dollars) July 26, 2008 June 28,2008 December 31, 2007
Grains and oilseeds $ (35,381) $ 3,840 $ 2,832
Hogs and pork bellies 4,037 (1,235) (994)
____________________________________________________________
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 as of June 28, 2008 decreased $19.2
million to $314.9 million from December 31, 2007. Cash used for
capital expenditures was $77.3 million which were primarily funded by
an increase in notes payable of $38.5 million and cash generated by
operating activities of $25.3 million. Cash from operating activities
decreased $101.8 million for the six months ended June 28, 2008
compared to the same period in 2007, primarily as the result of
increases in working capital needs in the Commodity Trading and Milling
segment, primarily for increased amounts of receivables and inventory,
and, to a lesser extent, the Marine segment, primarily for increased
amounts of receivables.
Acquisitions, Capital Expenditures and Other Investing Activities
During the six months ended June 28, 2008, Seaboard invested $77.3
million in property, plant and equipment, of which primarily $37.1
million was expended in the Pork segment, $21.3 million in the Marine
segment, and $16.8 million in the Sugar and Citrus segment. The Pork
segment spent $22.7 million on constructing additional hog finishing
space, the biodiesel plant and the ham-boning and processing plant
discussed below. The Marine segment spent $15.9 million to purchase
cargo carrying and handling equipment. In the Sugar and Citrus
segment, the capital expenditures were primarily for expansion of cane
growing operations, development of the cogeneration plant 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.
For the remainder of 2008 management has budgeted capital expenditures
totaling $87.3 million. In April, 2008, the Pork segment entered into
an agreement to build and operate a majority-owned ham-boning and
processing plant in Mexico. The total cost of this plant is expected
to be $10.0 million with approximately $8.1 million to be spent in the
remainder of 2008. This plant is currently expected to be completed in
late 2008 or early 2009. In addition, the Pork segment plans to spend
$9.4 million for improvements to existing hog facilities, upgrades to
the Guymon pork processing plant and additional facility upgrades and
related equipment. The Marine segment has budgeted $49.7 million
primarily for the purchase of additional cargo carrying and handling
equipment, the potential purchase of a containerized cargo vessel and
the expansion of existing port facilities. The Sugar and Citrus
segment plans to spend $16.4 million primarily for the development of a
40 megawatt cogeneration plant, expansion of cane growing operations
and completion of the expansion of alcohol distillery operations. The
balance of $3.7 million is planned to be spent in all other businesses.
Management anticipates funding these capital expenditures from
available cash, the use of available short-term investments or
Seaboard's available borrowing capacity.
During the second quarter of 2008, Seaboard decided to indefinitely
delay previously announced plans to expand its processed meats
capabilities by either constructing a separate further processing
plant, primarily for bacon, or the acquisition of an existing facility.
In addition, during the first quarter of 2008 Seaboard decided not to
proceed with any investment in the previously announced consortium to
construct two coal-fired 305 megawatt electric generating plants in the
Dominican Republic.
Financing Activities and Debt
As of June 28, 2008, Seaboard had committed lines of credit totaling
$100.0 million and uncommitted lines totaling $192.6 million.
Borrowings outstanding under the committed lines of credit totaled
$43.0 million and borrowings under the uncommitted lines of credit
totaled $84.4 million as of June 28, 2008. Outstanding standby letters
of credit reduced Seaboard's borrowing capacity under its committed
credit lines by $56.5 million primarily representing $42.7 million for
Seaboard's outstanding Industrial Development Revenue Bonds and $13.7
million related to insurance coverages.
On July 10, 2008, Seaboard entered into an Amended and Restated Credit
Agreement that increased its committed line of credit from $100.0
million to $300.0 million. This credit facility has a term of five
years, maturing July 10, 2013. With respect to financial covenants,
the Amended and Restated Credit Agreement increased the base amount
used to calculate the minimum consolidated tangible net worth that must
be maintained by Seaboard from $714.0 million under the 2004 Facility,
to $1,150.0 million plus 25% of consolidated net income after March 29,
2008.
Seaboard's remaining 2008 scheduled long-term debt maturities total
$9.0 million. Management believes that Seaboard's current combination
of internally generated cash, liquidity, capital resources and
borrowing capabilities will be adequate for its existing operations and
any currently known potential plans for expansion of existing
12
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.
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to $50.0
million market value of its common stock in open market or privately
negotiated purchases, of which $19.0 million remained available at June
28, 2008. For the six months ended June 28, 2008, Seaboard used cash
to repurchase 369 shares of common stock at a total price of $0.5
million. The remaining stock repurchase will be funded by cash on hand
or short-term investments. 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 7 to the Condensed Consolidated Financial Statements for a
summary of Seaboard's contingent obligations, including guarantees
issued to support certain activities of non-consolidated affiliates or
third parties who provide services for Seaboard.
RESULTS OF OPERATIONS
Net sales for the three and six month periods of 2008 increased by
$257.7 million and $522.3 million, respectively, over the same periods
in 2007, primarily reflecting the result of significant price increases
for commodities sold by the commodity trading business and, to a lesser
extent, increased commodity trading volumes. Also increasing sales
were higher cargo rates and, to a lesser extent, higher cargo volumes
for the Marine division.
Operating income decreased by $31.4 million and $28.8 million for the
three and six month periods of 2008, respectively, compared to the same
periods in 2007. The decrease for both periods is primarily the result
of higher feed costs for hogs, including the effect on LIFO reserves,
from the increased price of corn and, to a lesser extent, soybean meal.
Also decreasing operating income were lower margins on marine cargo
services as a result of increased fuel and other related operating
costs. The decreases were partially offset by the result of higher
commodity trading margins that are not expected to repeat and, for the
six month period, the $15.0 million fluctuation of marking to market
the derivative contracts, both as discussed below.
Pork Segment
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $288.3 $261.7 $527.2 $503.3
Operating income (loss) $(26.4) $ 13.0 $(31.2) $ 33.9
Net sales for the Pork segment increased $26.6 million and $23.9
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007. These increases are primarily
the result of higher volumes of pork products sold, reflecting
increases in export sales and, to a lesser extent, domestic sales,
derived from improvements completed at the Guymon processing plant
during the first quarter of 2008 to expand daily capacity. To a lesser
extent, sales of biodiesel related to the start-up of the new biodiesel
processing plant during the second quarter of 2008 also contributed to
the increase in net sales. Partially offsetting the increase for the
six month period is lower prices for pork products sold.
Operating income for the Pork segment decreased $39.4 million and $65.1
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007. The decreases primarily relate
to higher feed costs from the increased price of corn and, to a lesser
extent, soybean meal. Also decreasing operating income for the three
and six month periods of 2008 was the impact of using the LIFO method
for determining certain inventory costs. For the three and six months
ended June 28, 2008, LIFO decreased operating income by $22.5 million
and $29.7 million, respectively, in 2008 compared to decreases of $6.3
million and $8.7 million for the same periods in 2007, respectively,
primarily as a result of higher feed costs. Partially offsetting the
decrease in operating income were commodity derivative gains.
Management is unable to predict future market prices for pork products
or the cost of feed and third party hogs. Raw material costs in feed
rations continue to show significant volatility, primarily as a result
of uncertain global supply and demand factors. Without a noted
improvement in current market conditions including feed costs,
management expects to incur additional losses during the remainder of
2008. Also, there is the potential for increased volatility in
operating income during the second half of the year as a result of
increased derivative positions entered into in July 2008. See Item 3,
Quantitative and Qualitative Disclosures About Market Risk, below
13
for further discussion. In addition, as discussed in Note 9 to the
Condensed Consolidated Financial Statements, there is a possibility
that some amount of either goodwill or other intangible assets not
subject to amortization, or both, could be deemed impaired during some
future period including fiscal 2008, which may result in a charge to
earnings if projections are not met.
Commodity Trading and Milling Segment
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $407.6 $223.4 $887.5 $470.1
Operating income (loss) $ 13.1 $ (4.2) $ 62.2 $ 6.1
Income from foreign affiliates $ 1.7 $ 0.2 $ 5.7 $ 2.5
Net sales for the Commodity Trading and Milling segment increased
$184.2 million and $417.4 million for the three and six month periods
of 2008, respectively, compared to the same periods in 2007. The
increases are primarily the result of significant price increases for
commodities sold by the commodity trading business, especially for
wheat, and, to a lesser extent for the six month period, increased
commodity trading volumes. The increased trading volumes to third
parties are primarily a result of Seaboard expanding its business in
new and existing markets, including trading rice.
Operating income for this segment increased $17.3 million and $56.1
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007. The increases primarily reflect
certain long inventory positions, principally wheat, previously taken
by Seaboard which provided higher than average commodity trading
margins as the price of these commodities significantly increased to
historic highs at the time of sale. However, management does not
expect to be able to repeat these significant favorable margins for the
remainder of 2008. For the six month period, the increase also
reflects the $15.0 million fluctuation of marking to market the
derivative contracts as discussed below and, to a lesser extent
increased commodity trading volumes as discussed above. In addition,
the 2007 three and six month periods include losses accrued on certain
wheat trades entered into during the second quarter of 2007 for future
sale commitments at that time. The increases also reflect, although to
a lesser extent, improved margins from certain milling operations,
especially in Zambia.
Due to the uncertain political and economic conditions in the countries
in which Seaboard operates and the current fluctuations in the
commodity markets, management is unable to predict future sales and
operating results, but anticipates positive operating income for the
remainder of 2008 based on recent market prices for commodities,
excluding the potential effects of marking to market derivative
contracts. However, the current unprecedented high level of grain
prices increase certain business risks for each of the commodity
trading, consolidated milling and foreign affiliate operations in this
segment. Those risks, including holding high priced inventory or the
potential for reduced sales volumes, can increase if governments impose
sales price controls, grain prices fall significantly and competitors
hold lower priced positions, or customers default, which could result
in write-downs of inventory values and an increase in bad debt expense.
If any one or more of these conditions develop, the result may
materially lower operating income and could result in operating losses
for any one or all of the commodity trading, consolidated milling and
foreign affiliate operations.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, operating income would have been higher by $8.5 million
and lower by $8.6 for the three and six month periods of 2008,
respectively, while operating income would have been higher by $6.2
million and $6.4 million for the same periods in 2007. While
management believes its commodity futures and options, foreign exchange
contracts and forward freight agreements are primarily economic hedges
of its firm purchase and sales contracts or anticipated sales
contracts, Seaboard does not perform the extensive record-keeping
required to account for these types of transactions 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.
Accordingly, these mark-to-market gains could reverse in future
quarters in 2008.
Income from foreign affiliates for the three and six month periods of
2008 increased by $1.5 million and $3.2 million, respectively, from the
same 2007 periods as a result of 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 Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $229.7 $205.8 $440.7 $396.9
Operating income $ 13.6 $ 25.5 $ 24.5 $ 53.0
Net sales for the Marine segment increased $23.9 million and $43.8
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007 primarily reflecting higher cargo
rates and, to a lesser extent, higher cargo volumes. Cargo rates were
higher in certain markets primarily as a result of higher cost-recovery
surcharges for fuel. Cargo volumes were higher as a result of the
expansion of services provided in certain markets and continued
favorable economic conditions in most Latin American markets served.
Operating income for the Marine segment decreased $11.9 million and
$28.5 million for the three and six month periods of 2008,
respectively, compared to the same periods in 2007. The decreases were
primarily the result of significantly higher fuel costs for vessels on
a per unit shipped basis. Operating income also decreased as a result
of higher operating costs on a per unit shipped basis including
stevedoring, terminal costs, charter hire and owned-vessel operating
costs, and trucking. In addition, the decreases also reflects an
accounting error totaling $7.2 million and $6.3 million for the three
and six month periods, respectively, relating to prior periods that
were recorded in the second quarter of 2008, as discussed in Note 1 to
the Condensed Consolidated Financial Statements. Although management
cannot predict changes in future volumes and cargo rates or to what
extent changes in economic conditions and operating cost increases will
impact net sales or operating income, it does expect this segment to
remain profitable for the remainder of 2008, although significantly
lower than 2007.
Sugar and Citrus Segment
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $ 36.0 $ 24.5 $ 67.1 $ 51.8
Operating income $ 2.7 $ 2.0 $ 5.9 $ 6.6
Income from foreign affiliates $ 0.1 $ 0.1 $ 0.1 $ 0.2
Net sales for the Sugar and Citrus segment increased $11.5 million and
$15.3 million for the three and six month periods of 2008,
respectively, compared to the same periods in 2007. The increases
primarily reflect an increase in domestic volume of sugar sold and, to
a lesser extent, higher domestic sugar prices. Although domestic
Argentine sugar prices increased, 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. Seaboard expects to at
least maintain its historical sales volume to Argentinean customers.
Operating income increased $0.7 million and decreased $0.7 million for
the three and six month periods of 2008, respectively, compared to the
same periods in 2007. The increase for the three month period is
primarily the result of increased sales discussed above. The decrease
for the six month period is primarily the result of lower overall
margin percentage on sugar sales from a higher percentage mix of
purchased third party sugar for resale, which has a significantly lower
margin compared to sugar produced by Seaboard and, to a lesser extent,
higher administrative personnel costs. Management expects operating
income will remain positive for the remainder of 2008.
Power Segment
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $ 34.4 $ 22.6 $ 63.3 $ 41.0
Operating income $ 3.1 $ 1.5 $ 5.4 $ 2.0
Net sales for the Power segment increased $11.8 million and $22.3
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007 primarily reflecting higher rates.
The higher rates were attributable primarily to higher fuel costs, a
component of pricing. Operating income increased $1.6 million and $3.4
million for the three and six month periods of 2008, respectively,
compared to the same periods in 2007. The increase is primarily the
result of higher rates being in excess of higher fuel costs.
Management cannot predict
15
future fuel costs or the extent to which rates will fluctuate
compared to fuel costs, although management expects this segment to
remain profitable for the remainder of 2008.
All Other
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
(Dollars in millions) 2008 2007 2008 2007
Net sales $ 3.9 $ 4.2 $ 7.8 $ 8.3
Operating income $ 0.6 $ 0.5 $ 0.7 $ 0.6
Loss from foreign affiliate $ - $ (0.4) $ - $ (1.5)
Net sales and operating income primarily represents results from 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. During the fourth quarter of 2007, Seaboard
signed an agreement to allow a bank to take majority ownership of the
wine business resulting in a loss of significant influence by Seaboard.
Accordingly, Seaboard discontinued using the equity method of
accounting. See Note 9 to the Condensed Consolidated Financial
Statements for further discussion of this business.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by $4.2
million and $1.7 million for the three and six month periods of 2008,
respectively, compared to the same periods in 2007. The increases are
primarily due to increased personnel costs. Partially offsetting the
increase for the six month period is a $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 6 to the
Condensed Consolidated Financial Statements. As a percentage of
revenues, SG&A decreased to 4.5% and 4.3% for the 2008 three and six
month periods, respectively, compared to 5.5% and 5.8% for the same
periods in 2007 primarily as a result of increased sales in the
Commodity Trading and Milling segment.
Interest Income
Interest income decreased $1.2 million and $1.6 million for the three
and six month periods of 2008, respectively, compared to the same
periods of 2007 primarily reflecting a decrease in the average funds
invested.
Foreign Currency Gains (Losses)
Seaboard realized net foreign currency gains of $2.4 million and $0.6
million in the three and six month periods of 2008, respectively,
compared to gains of $1.9 million and losses of $1.4 million for the
same periods of 2007. The fluctuation for the six month period
primarily relates to exchange gains realized in certain South American
countries for the Marine segment.
Other Investment Income
The increase in Other Investment Income for the three and six month
periods of 2008 compared to the same periods in 2007 primarily reflects
realized gains of $2.6 million and $4.5 million, respectively, on
equity securities transactions, income of $2.0 million and $3.7
million, respectively, in the Power segment related to the settlement
of a receivable, not directly related to its business, purchased at a
discount. Also included in the 2008 periods was income of $1.1 million
related to the assignment of rights related to an investment as
discussed in Note 9 to the Condensed Consolidated Financial Statements.
Miscellaneous, Net
The decrease in miscellaneous, net for the three and six month periods
of 2008 compared to the same periods in 2007 primarily reflects a $4.2
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.
Income Tax Expense
The effective tax rate decreased in 2008 compared to 2007 resulting in
a tax benefit for 2008 primarily based on a projected domestic taxable
loss compared to permanently deferred foreign earnings for 2008.
16
OTHER FINANCIAL INFORMATION
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141(R) (SFAS 141R), "Business Combinations." This
statement defines the acquirer as the entity that obtains control of
one or more businesses in the business combination, establishes the
acquisition date as the date that the acquirer achieves control and
requires the acquirer to recognize the assets acquired, liabilities
assumed and any noncontrolling interest at their fair values as of the
acquisition date. This statement also requires that acquisition-
related costs of the acquirer be recognized separately from the
business combination and will generally be expensed as incurred.
Seaboard will be required to adopt this statement as of January 1,
2009. The impact of adopting SFAS 141R will be applicable to any
future business combinations for which the acquisition date is on or
after January 1, 2009.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51." This statement will
change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests and classified as a
component of equity. Seaboard will be required to adopt this statement
as of January 1, 2009. Management believes the adoption of SFAS 160
will not have a material impact on Seaboard's financial position or net
earnings.
In February 2008, the FASB issued FASB Staff Position 157-2 which
defers the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in an entity's financial statements on a
recurring basis (at least annually). Seaboard will be required to
adopt SFAS 157 for these nonfinancial assets and nonfinancial
liabilities as of January 1, 2009. Management believes the adoption
of SFAS 157 will not have a material impact on Seaboard's financial
position or net earnings.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133." This
statement will change the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide
enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and
how derivative instruments and related hedged items affect an entity's
financial position, net earnings, and cash flows. Seaboard will be
required to adopt this statement as of January 1, 2009. Management
believes the adoption of SFAS 161 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,
forward purchases, and forward freight agreements. From time to time,
Seaboard may also 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, 2007. However, during July 2008 the Pork
segment significantly increased the number of hog, grain and oilseed
futures contracts entered into based on market conditions. These
increased positions could increase volatility of reported financial
results due to mark to market accounting.
The size and mix of Seaboard's commodity future and option contracts
varies from time to time based upon an analysis of fundamental market
information. The following table provides the fair value of Seaboard's
net open commodity future and option derivatives for all divisions as
of July 26, 2008, June 28, 2008 and December 31, 2007.
(Thousands of dollars) July 26, 2008 June 28,2008 December 31, 2007
Grains and oilseeds $ (35,381) $ 3,840 $ 2,832
Hogs and pork bellies 4,037 (1,235) (994)
17
While Seaboard previously presented the market value of commodity
derivative instruments in a table, Seaboard now uses sensitivity
analysis to evaluate the effect that changes in the market value of
commodities will have on these commodity derivative instruments.
Seaboard feels that sensitivity analysis more appropriately reflects
the potential market value exposure associated with the use of
derivative instruments. The following table presents the sensitivity
of the fair value of Seaboard's open net commodity future and option
derivatives for all divisions to a hypothetical 10% adverse change in
market prices as of July 26, 2008 and December 31, 2007. The fair
value of such positions is a summation of the fair values calculated
for each commodity by valuing each net position at quoted market prices
as of the applicable date.
(Thousands of dollars) July 26, 2008 December 31, 2007
Grains and oilseeds $ 20,922 $ 9,533
Hogs and pork bellies 45,057 759
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
June 28, 2008. 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 June 28, 2008 that
has materially affected, or is reasonably likely to materially affect,
Seaboard's internal control over financial reporting.
PART II - OTHER INFORMATION
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, 2007.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders, held on April 28, 2008, included
two items submitted to a vote of stockholders. Item 4 of the Form 10-Q
for the first quarter ended March 29, 2008, which was filed on April
29, 2008 discloses the results of the shareholder's vote, which
disclosure is incorporated herein by reference.
Item 6. Exhibits
10.1 Amended and Restated Terminal Agreement between Miami-Dade County
and Seaboard Marine Ltd. for Marine Terminal Operations, dated
May 30, 2008. Incorporated herein by reference to Exhibit 10.1
of Seaboard's Form 8-K dated May 30, 2008.
10.2 Amended and Restated Credit Agreement between Borrowers and Bank
of America, N.A., dated July 10, 2008 ($300,000,000 revolving
credit facility expiring July 9, 2013). Incorporated herein by
reference to Exhibit 10.1 of Seaboard's Form 8-K dated July 10,
2008.
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
18
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) 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, grains, 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 segment 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, fuel costs and related spot market prices and collection of
receivables in the Dominican Republic, (viii) the effect of the
fluctuation in foreign currency exchange rates, (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.
This list of forward-looking statements is not exclusive. Seaboard
undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future
events, changes in assumptions or otherwise. 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: August 6, 2008
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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