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 March 31, 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 1,261,367.24 shares of common stock, $1.00 par value
per share, outstanding on April 23, 2007.
Total pages in filing - 18 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
March 31, April 1,
2007 2006
Net sales:
Products $ 512,951 $ 442,607
Services 197,814 170,617
Other 18,383 22,349
Total net sales 729,148 635,573
Cost of sales and operating expenses:
Products 461,168 382,491
Services 150,270 135,826
Other 16,640 19,291
Total cost of sales and operating expenses 628,078 537,608
Gross income 101,070 97,965
Selling, general and administrative expenses 44,252 37,108
Operating income 56,818 60,857
Other income (expense):
Interest expense (3,542) (5,569)
Interest income 4,641 5,994
Income (loss) from foreign affiliates 1,416 (91)
Minority and other noncontrolling interests (77) (1,454)
Foreign currency gain (loss), net (3,304) 3,268
Miscellaneous, net 586 4,784
Total other income (expense), net (280) 6,932
Earnings before income taxes 56,538 67,789
Income tax expense (7,183) (16,249)
Net earnings $ 49,355 $ 51,540
Earnings per common share $ 39.13 $ 40.86
Dividends declared per common share $ 0.75 $ 0.75
Average number of shares outstanding 1,261,367 1,261,367
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
March 31, December 31,
2007 2006
Assets
Current assets:
Cash and cash equivalents $ 30,032 $ 31,369
Short-term investments 461,971 478,859
Receivables, net 241,105 277,048
Inventories 355,761 341,366
Deferred income taxes 11,995 12,894
Other current assets 60,424 55,033
Total current assets 1,161,288 1,196,569
Investments in and advances to foreign affiliates 41,829 42,457
Net property, plant and equipment 657,014 637,813
Goodwill 28,372 28,372
Intangible assets, net 28,420 28,760
Other assets 29,844 27,462
Total assets $1,946,767 $1,961,433
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 63,828 $ 62,975
Current maturities of long-term debt 63,267 63,415
Accounts payable 89,512 103,429
Other current liabilities 144,214 159,423
Total current liabilities 360,821 389,242
Long-term debt, less current maturities 136,016 137,817
Deferred income taxes 119,453 119,861
Other liabilities 74,908 72,103
Total non-current and deferred liabilities 330,377 329,781
Minority and other noncontrolling interests 1,207 39,103
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued and outstanding 1,261,367 shares 1,261 1,261
Additional paid-in capital 21,574 21,574
Accumulated other comprehensive loss (79,847) (82,493)
Retained earnings 1,311,374 1,262,965
Total stockholders' equity 1,254,362 1,203,307
Total liabilities and stockholders' equity $1,946,767 $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)
Three Months Ended
March 31, April 1,
2007 2006
Cash flows from operating activities:
Net earnings $ 49,355 $ 51,540
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 18,783 17,394
Loss (income) from foreign affiliates (1,416) 91
Other investment income, net (420) (746)
Minority and noncontrolling interest 77 1,454
Deferred income taxes (822) (1,754)
Gain from sale of fixed assets (515) (333)
Changes in current assets and liabilities:
Receivables, net of allowance 36,618 9,411
Inventories (14,760) 4,716
Other current assets (5,130) (23,632)
Current liabilities, exclusive of debt (39,005) (9,972)
Other, net 7,456 (1,437)
Net cash from operating activities 50,221 46,732
Cash flows from investing activities:
Purchase of short-term investments (752,131) (1,249,900)
Proceeds from the sale or maturity of short-term
investments 769,927 1,277,143
Investments in and advances to foreign
affiliates, net 1,978 -
Capital expenditures (39,019) (16,266)
Repurchase of minority interest in a controlled
subsidiary (30,000) -
Proceeds from the sale of fixed assets 639 1,022
Other, net (1,219) (263)
Net cash from investing activities (49,825) 11,736
Cash flows from financing activities:
Notes payable to banks, net 853 (66,542)
Principal payments of long-term debt (1,990) (2,333)
Dividends paid (946) (946)
Other, net (40) (2,453)
Net cash from financing activities (2,123) (72,274)
Effect of exchange rate change on cash 390 (92)
Net change in cash and cash equivalents (1,337) (13,898)
Cash and cash equivalents at beginning of year 31,369 34,622
Cash and cash equivalents at end of period $ 30,032 $ 20,724
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.
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. Seaboard will pay the balance of the purchase price in
August 2007, currently estimated based on the formula to be an
additional $10,000,000 to $40,000,000 depending on operating results
and certain net cash flows through June 30, 2007. The total purchase
price for the 4.74% equity interest is 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 accrues 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 is paid. The minimum payment of $10,000,000 has been
recorded in other current liabilities while the related minority
interest has been eliminated on the balance sheet as of March 31,
2007.
5
Note 3 - Inventories
The following is a summary of inventories at March 31, 2007 and
December 31, 2006:
March 31, December 31,
(Thousands of dollars) 2007 2006
At lower of LIFO cost or market:
Live hogs and materials $162,855 $149,521
Fresh pork and materials 23,730 19,443
186,585 168,964
LIFO adjustment (989) 1,458
Total inventories at lower of LIFO
cost or market 185,596 170,422
At lower of FIFO cost or market:
Grain, primarily wheat, corn and soybeans 73,225 80,068
Sugar produced and in process 21,952 25,124
Other 31,171 29,016
Total inventories at lower of FIFO
cost or market 126,348 134,208
Grain, flour and feed at lower of weighted
average cost or market 43,817 36,736
Total inventories $355,761 $341,366
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.
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 current
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 options, but currently has no plans to provide
funding for these supplemental plans in advance of when the benefits
are paid.
Effective July 6, 2006, Mr. H. H. Bresky retired as President and CEO
of Seaboard. 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.
6
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
March 31, April 1,
(Thousands of dollars) 2007 2006
Components of net periodic benefit cost:
Service cost $ 1,219 $ 920
Interest cost 1,407 1,185
Expected return on plan assets (1,247) (1,147)
Amortization and other 510 484
Settlement loss 3,671 -
Net periodic benefit cost $ 5,560 $ 1,442
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.
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 March 31, 2007, Seaboard had three
guarantees outstanding 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 March 31, 2007, Seaboard had outstanding $57,371,000 of letters
of credit ("LCs") with various banks that reduced Seaboard's borrowing
capacity under its committed credit facility. Included in this amount
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.
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
receives 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 value of the common stock for
purposes of determining the number of shares issued is equal to the
ten day rolling average closing price, determined as of the twentieth
day prior to the issue date. The maximum number of shares of common
stock which may be issued to the Parent Company under the Transaction
is capped at 232,414.85, the number of shares which were originally
purchased from the Parent Company, less 6,313.34 shares already issued
to the Parent Company on November 3, 2005. Seaboard does not
currently expect to receive any material amount of cash prior to the
expiring of the right to receive such payments on September 17, 2007.
7
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended
March 31, April 1,
(Thousands of dollars) 2007 2006
Net earnings $49,355 $51,540
Other comprehensive income
net of applicable taxes:
Foreign currency translation adjustment (480) (1,097)
Unrealized gains (losses) on investments 566 (398)
Unrecognized pension cost 2,603 -
Unrealized losses on cash flow hedges - (22)
Amortization of deferred gain on interest rate swaps (43) (50)
Total comprehensive income $52,001 $49,973
The components of and changes in accumulated other comprehensive loss
for the three months ended March 31, 2007 are as follows:
Balance Balance
December 31, Period March 31,
(Thousands of dollars) 2006 Change 2007
Foreign currency translation adjustment $(55,811) $ (480) $(56,291)
Unrealized gain on investments 1,361 566 1,927
Unrecognized pension cost (28,140) 2,603 (25,537)
Net unrealized loss on cash flow hedges (55) - (55)
Deferred gain on interest rate swaps 152 (43) 109
Accumulated other comprehensive loss $(82,493) $2,646 $(79,847)
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 $7,352,000 related to employees at certain subsidiaries for
which no tax benefit has been recorded.
Note 8 - Segment Information
Seaboard's investment in a Bulgarian wine business (the Business) and
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. Seaboard is
entitled to receive 50% of any net sales proceeds after all third
party bank debt has been repaid. Seaboard anticipates incurring
additional losses from the operation of this Business until the sale
of this Business is completed. In late March 2007, this Business was
unable to make its next scheduled loan payment and is now in technical
default with its banks. Although the banks are discussing various
options with the Business, failure to reach agreement or receive a
waiver 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. As of March
31, 2007, the remaining carrying value of Seaboard's investments in
and advances to this Business total $2,085,000, including $2,761,000
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 March
31, 2007 is limited to its remaining carrying value.
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
8
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
March 31, April 1,
(Thousands of dollars) 2007 2006
Pork $ 241,647 $ 245,294
Commodity Trading and Milling 246,688 177,570
Marine 191,059 167,383
Sugar and Citrus 27,333 18,514
Power 18,383 22,349
All Other 4,038 4,463
Segment/Consolidated Totals $ 729,148 $ 635,573
Operating Income:
Three Months Ended
March 31, April 1,
(Thousands of dollars) 2007 2006
Pork $ 20,911 $ 30,100
Commodity Trading and Milling 10,228 9,965
Marine 27,496 18,591
Sugar and Citrus 4,615 2,815
Power 471 2,000
All Other 115 669
Segment Totals 63,836 64,140
Corporate Items (7,018) (3,283)
Consolidated Totals $ 56,818 $ 60,857
Income (Loss) from Foreign Affiliates:
Three Months Ended
March 31, April 1,
(Thousands of dollars) 2007 2006
Commodity Trading and Milling $ 2,355 $ 1,722
Sugar and Citrus 126 (1,057)
All Other (1,065) (756)
Segment/Consolidated Totals $ 1,416 $ (91)
9
Total Assets:
March 31, December 31,
(Thousands of dollars) 2007 2006
Pork $ 733,835 $ 721,514
Commodity Trading and Milling 277,872 301,672
Marine 195,160 176,673
Sugar and Citrus 136,101 133,971
Power 60,223 66,978
All Other 11,117 8,464
Segment Totals 1,414,308 1,409,272
Corporate Items 532,459 552,161
Consolidated Totals $1,946,767 $1,961,433
Investments in and Advances to Foreign Affiliates:
March 31, December 31,
(Thousands of dollars) 2007 2006
Commodity Trading and Milling $ 38,988 $ 38,748
Sugar and Citrus 756 636
All Other 2,085 3,073
Segment/Consolidated Totals $ 41,829 $ 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.
10
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 $18.2 million from
December 31, 2006 primarily reflecting $39.0 million for capital
expenditures and the $30.0 million payment related to the repurchase
of the minority interest as discussed in Note 2 to the Condensed
Consolidated Financial Statements, partially offset by cash generated
from operations. Cash from operating activities totaled $50.2 million
for the three months ended March 31, 2007, compared to $46.7 million
for the same period in 2006.
Acquisitions, Capital Expenditures and Other Investing Activities
During the three months ended March 31, 2007, Seaboard invested $39.0
million in property, plant and equipment, of which $7.5 million was
expended in the Pork segment, $0.5 million was expended in the
Commodity Trading and Milling segment, $23.7 million in the Marine
segment, and $4.3 million in the Sugar and Citrus segment. For the
Pork segment, $4.0 million was spent on constructing additional hog
finishing space and constructing a biodiesel plant as discussed below.
For the Marine segment, $21.4 million was spent to purchase a
containerized cargo vessel previously chartered and to purchase cargo
carrying and handling equipment. In the Sugar and Citrus segment, the
capital expenditures were primarily used for expansion of alcohol
distillery operations, the purchase of agricultural equipment,
improvements to the mill and costs associated with clearing land and
expanding planted sugar cane. 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 $36.0 million to utilize by-products primarily from its Guymon
processing plant to produce biodiesel, which will be sold to a third
party. Construction of this plant began in the fourth quarter of 2006
with approximately $28.1 million to be spent in the remainder of 2007.
The Pork segment is also currently constructing additional hog
finishing space to expand its live production facilities to support
the Guymon plant with approximately $14.7 million to be spent in the
remainder of 2007. In addition, the Pork segment plans to expand its
processed meats capabilities by constructing a separate further
processing plant in Guymon, Oklahoma, primarily for bacon and sausage
processing, at an approximate cost of $45.0 million. Construction of
this facility is anticipated to begin in the second half of 2007 with
approximately $10.0 million to be spent in 2007.
For the remainder of 2007 management has budgeted capital expenditures
totaling $156.5 million. In addition to the projects detailed above,
the Pork segment plans to spend $12.9 million for improvement to
existing hog facilities and upgrades to the Guymon processing plant.
The Commodity Trading and Milling segment plans to spend $7.9 million
primarily for milling facility upgrades and related equipment. The
Marine segment has budgeted $64.8 million for additional cargo
carrying and handling equipment, the purchase of a containerized cargo
vessel and expansion of port facilities. The Sugar and Citrus segment
plans to spend $17.3 million for the purchase of land and costs
associated with clearing land and expanding planted sugar cane,
improvements to the mill and expansion of the alcohol distillery
operations. The balance of $0.8 million is planned to be spent in all
other businesses. Management anticipates funding these capital
expenditures from available cash and short-term investments.
Financing Activities and Debt
As of March 31, 2007, Seaboard had committed lines of credit totaling
$100.0 million and uncommitted lines totaling $160.4 million.
Borrowings outstanding under the uncommitted lines as of March
31, 2007, totaled $63.8 million while there were no outstanding
borrowings under the committed credit facility. Outstanding standby
letters of credit totaling $57.4 million reduced Seaboard's borrowing
capacity under its committed credit line, 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
$61.4 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 and, based on existing liquidity
and available borrowing capacity, currently has no plans to pursue
other financing alternatives.
11
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 increased to $729.1 million for the first quarter of 2007
compared to $635.6 million for the first quarter of 2006. The
increase for the quarter is primarily the result of higher volumes
sold by the commodity trading business and to a lesser extent, higher
volumes for marine cargo services.
Operating income decreased to $56.8 million in 2007, compared to $60.9
million during the first quarter of 2006. The decrease for the
quarter is primarily the result of higher feed costs for hogs,
primarily from the increased price of corn, and the pension settlement
loss as discussed in Note 5 to the Condensed Consolidated Financial
Statements. The decrease was partially offset by higher volumes for
marine cargo services and lower cost of fuel for the Marine segment.
Pork Segment
Three Months Ended
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $241.6 $245.3
Operating income $ 20.9 $ 30.1
Net sales for the Pork segment decreased $3.7 million in the first
quarter of 2007 compared to the first quarter of 2006. The decrease
is primarily the result of decreased domestic sales volumes of pork
products. This decrease was partially offset by higher sales prices
for pork products and, to a lesser extent, higher marketing fee income
from increased number of head processed by Triumph Foods.
Operating income for the Pork segment decreased $9.2 million in the
first quarter of 2007 compared to the first quarter of 2006. This
decrease was the result of higher feed costs, primarily from the
increased price of corn, and, to a lesser extent higher costs for
third party hogs used for processing. These higher costs were
partially offset by a higher percentage of Seaboard-raised hogs
processed, which cost less than third party hogs, and 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, expansion plans for ethanol
plants. Also, over the past three years, especially during 2005 and
the last half of 2004, market prices for pork products were unusually
high compared to historic norms. History has demonstrated that high
market prices cannot be sustained over long periods of time but rather
rise and fall based on prevailing market conditions. Overall,
management expects this segment to remain profitable during 2007
although significantly lower than 2006.
Commodity Trading and Milling Segment
Three Months Ended
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $246.7 $177.6
Operating income $ 10.2 $ 10.0
Income from foreign affiliates $ 2.4 $ 1.7
Net sales for the Commodity Trading and Milling segment increased
$69.1 million in the first quarter of 2007 compared to the first
quarter of 2006. The increase primarily reflects increased commodity
trading volumes with third parties partially offset by a decrease in
sale volumes at certain African milling operations. The increased
trading volumes to third parties is primarily a result of Seaboard
expanding its business in new and existing markets it serves.
Operating income for this segment increased $0.2 million in the first
quarter of 2007 compared to the first quarter of 2006. The
fluctuation was the result of the increased trading margins on
commodities sold in existing markets, especially with certain
affiliated businesses, although such increase was principally offset
by the lower sales and lower margins from certain milling operations.
The lower sales and margins at certain milling locations is the
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result of less favorable market conditions. 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, excluding the potential effects of marking to
market derivative contracts. However, rising prices in the grain
markets are reaching levels that management believes could have an
adverse effect on operating income for the remainder of 2007.
Operating income for the first quarters of 2007 and 2006 was not
materially impacted by Seaboard applying mark-to-market accounting to
its derivative instruments. 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 in the first quarter of 2007 increased
by $0.7 million compared to the first quarter of 2006. Based on the
uncertainty of local political and economic situations in the
countries in which the flour and feed mills operate, and increasing
grain prices as discussed above, management cannot predict future
results.
Marine Segment
Three Months Ended
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $191.1 $167.4
Operating income $ 27.5 $ 18.6
Net sales for the Marine segment increased $23.7 million in the first
quarter of 2006 compared to the first quarter of 2007 reflecting
higher cargo volumes in most markets. Cargo volumes were higher as a
result of favorable economic conditions in most markets served.
Operating income for the Marine segment increased $8.9 million in the
first quarter of 2007 compared to the first quarter of 2006, primarily
reflecting the increased volumes discussed above and lower cost of
fuel, partially offset by higher dry-dock costs for vessels and
selling 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.
Sugar and Citrus Segment
Three Months Ended
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $ 27.3 $ 18.5
Operating income $ 4.6 $ 2.8
Income (loss) from foreign affiliates $ 0.1 $ (1.1)
Net sales for the Sugar and Citrus segment increased $8.8 million in
the first quarter of 2007 compared to the first quarter of 2006. The
increase primarily reflects overall higher sales volume of sugar and
overall higher sugar prices. Sales volumes increased primarily from
larger purchases of sugar from third parties for resale. Export
prices increased significantly 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 increased $1.8 million in the first quarter of 2007
compared to the first quarter of 2006. The increase primarily
reflects the increases in sugar prices as discussed above. Management
expects operating income will remain positive for the remainder of
2007.
The loss from foreign affiliates for the first quarter of 2006
primarily represents the expense of canceling a franchisee agreement
incurred during the first quarter of 2006.
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Power Segment
Three Months Ended
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $ 18.4 $ 22.3
Operating income $ 0.5 $ 2.0
Net sales for the Power segment decreased $3.9 million in the first
quarter of 2007 compared to the first quarter of 2006, primarily
reflecting lower rates and, to a lesser extent, lower power production
levels. Rates have decreased during 2007 primarily as a result of
lower fuel costs, a component of pricing. At times during 2007 and
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 decreased $1.5 million in the first quarter of 2007
compared to the first quarter of 2006 primarily as a result of lower
production levels and, to a lesser extent, increased overhaul and
other operating expenses. 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
March 31, April 1,
(Dollars in millions) 2007 2006
Net sales $ 4.0 $ 4.5
Operating income $ 0.1 $ 0.7
Loss from foreign affiliate $ (1.1) $ (0.8)
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
$7.1 million in the first quarter of 2007 compared to the first
quarter of 2006 primarily as 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 and, to a lesser
extent, increased selling costs in the Marine segment related to the
volume growth of this business. As a percentage of revenues, SG&A
increased to 6.1% in the first quarter of 2007 compared to 5.8% for
the first quarter of 2006 primarily from the pension settlement loss
noted above.
Interest Expense
Interest expense decreased $2.0 million in the first quarter of 2007
compared to the first quarter of 2006 reflecting the lower average
level of borrowings during 2007 and lower average interest rates.
Interest Income
Interest income decreased $1.4 million in the first quarter of 2007
compared to the first quarter of 2006 primarily reflecting a decrease
in interest received on outstanding customer receivable balances in
the Power segment, partially offset by an increase in funds invested.
Minority and Other Noncontrolling Interests
Minority and other noncontrolling interests expense decreased $1.4
million in the first quarter of 2007 compared to the first quarter 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.
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Foreign Currency Gains (Losses)
Seaboard realized net foreign currency losses of $3.3 million in the
first quarter of 2007 compared with $3.3 million of gains in the first
quarter of 2006. The fluctuation for the quarter primarily relates to
losses from currency appreciation in certain African operations of the
Commodity Trading and Milling segment.
Miscellaneous, Net
The decrease in miscellaneous, net for the first quarter of 2007
primarily reflects a mark-to-market gain of $2.9 million on interest
rate exchange agreements during the first quarter of 2006. 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 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.
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 March 31, 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 March 31,
2007 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, 2006.
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Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on April 23, 2007 in
Needham, Massachusetts. Two items were
submitted to a vote of stockholders as described in Seaboard's Proxy
Statement dated March 12, 2007. The
following table briefly describes the proposals and results of the
stockholders' vote.
Votes in Votes
Favor Withheld
1. To elect the following persons as directors.
Steven J. Bresky 1,127,264.2 98,900
David A. Adamsen 1,217,622.2 8,542
Douglas W. Baena 1,219,223.2 6,941
Kevin M. Kennedy and 1,219,219.2 6,945
Joseph E. Rodrigues 1,217,523.2 8,641
Votes in Votes Votes
Favor Against Abstaining
2. To ratify selection of KPMG LLP as
independent auditors for 2007. 1,225,252.2 703 209
There were no broker nonvotes on any matter.
Item 5. Other Information
At the April 23, 2007 meeting of the Board of Directors of Seaboard,
Steven J. Bresky, President and Chief Executive Officer of Seaboard,
was elected Chairman of the Board. Mr. Bresky succeeds the late H.
Harry Bresky in that position.
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
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
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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.
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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: May 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)
18