UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 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 1,241,519 shares of common stock, $1.00 par value per share,
outstanding on October 20, 2008.
Total pages in filing - 21 pages
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
2008 2007 2008 2007
Net sales:
Products $ 826,826 $ 562,312 $2,303,849 $1,582,908
Services 266,545 212,807 719,804 622,578
Other 38,320 26,209 101,657 67,209
Total net sales 1,131,691 801,328 3,125,310 2,272,695
Cost of sales and
operating expenses:
Products 785,162 513,610 2,185,949 1,454,042
Services 233,613 172,883 621,656 490,779
Other 36,322 22,503 91,731 59,062
Total cost of sales and
operating expenses 1,055,097 708,996 2,899,336 2,003,883
Gross income 76,594 92,332 225,974 268,812
Selling, general and
administrative expenses 44,880 42,731 131,782 127,931
Operating income 31,714 49,601 94,192 140,881
Other income (expense):
Interest expense (3,888) (2,924) (9,725) (9,847)
Interest income 2,508 4,821 10,934 14,864
Income from foreign
affiliates 4,819 284 10,632 1,558
Minority and other
noncontrolling interests (183) (29) (419) 90
Foreign currency loss,
net (2,131) (1,183) (1,506) (2,614)
Other investment income
(loss), net (1,168) 835 7,288 2,607
Miscellaneous, net 1,132 225 2,227 4,621
Total other income (expense),
net 1,089 2,029 19,431 11,279
Earnings before income
taxes 32,803 51,630 113,623 152,160
Income tax benefit (expense) 102 942 10,272 (7,576)
Net earnings $ 32,905 $ 52,572 $ 123,895 $ 144,584
Earnings per common
share $ 26.47 $ 41.75 $ 99.62 $ 114.69
Dividends declared per
common share $ 0.75 $ 0.75 $ 2.25 $ 2.25
Average number of
shares outstanding 1,243,015 1,259,091 1,243,706 1,260,605
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
September 27, December 31,
2008 2007
Assets
Current assets:
Cash and cash equivalents $ 58,372 $ 47,346
Short-term investments 242,234 286,660
Receivables, net 417,968 359,313
Inventories 649,543 392,946
Deferred income taxes 21,345 19,558
Other current assets 124,823 77,710
Total current assets 1,514,285 1,183,533
Investments in and advances to foreign affiliates 71,851 60,706
Net property, plant and equipment 765,632 730,395
Goodwill 40,628 40,628
Intangible assets, net 29,688 30,895
Other assets 59,484 47,542
Total assets $2,481,568 $2,093,699
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 230,661 $ 85,088
Current maturities of long-term debt 54,637 11,912
Accounts payable 187,940 135,398
Other current liabilities 268,221 190,530
Total current liabilities 741,459 422,928
Long-term debt, less current maturities 79,001 125,532
Deferred income taxes 91,139 105,697
Other liabilities 91,453 84,343
Total non-current and deferred liabilities 261,593 315,572
Minority and other noncontrolling interests 2,721 971
Stockholders' equity:
Common stock of $1 par value,
Authorized 4,000,000 shares;
issued and outstanding 1,241,519 and 1,244,278
shares 1,242 1,244
Accumulated other comprehensive loss (74,194) (78,651)
Retained earnings 1,548,747 1,431,635
Total stockholders' equity 1,475,795 1,354,228
Total liabilities and stockholders' equity $2,481,568 $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)
Nine Months Ended
September 27, September 29,
2008 2007
Cash flows from operating activities:
Net earnings $ 123,895 $ 144,584
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 67,181 58,879
Income from foreign affiliates (10,632) (1,558)
Other investment income, net (7,288) (2,607)
Foreign currency exchange losses 3,133 -
Minority and other noncontrolling interest 419 (90)
Deferred income taxes (18,826) (9,193)
Gain from sale of fixed assets (805) (1,040)
Changes in current assets and liabilities:
Receivables, net of allowance (51,674) (9,166)
Inventories (254,673) (105,427)
Other current assets (48,284) (18,974)
Current liabilities, exclusive of debt 129,739 54,650
Other, net 1,285 2,602
Net cash from operating activities (66,530) 112,660
Cash flows from investing activities:
Purchase of short-term investments (179,312) (1,605,907)
Proceeds from the sale of short-term investments 184,298 1,739,006
Proceeds from the maturity of short-term
investments 38,241 22,841
Investments in and advances to foreign
affiliates, net 590 (7,904)
Capital expenditures (102,864) (124,123)
Repurchase of minority interest in a controlled
subsidiary - (61,260)
Proceeds from the sale of fixed assets 2,909 2,220
Other, net 568 (2,348)
Net cash from investing activities (55,570) (37,475)
Cash flows from financing activities:
Notes payable to banks, net 141,904 15,509
Principal payments of long-term debt (4,056) (54,156)
Repurchase of common stock (3,988) (17,841)
Dividends paid (2,797) (2,832)
Other, net 1,325 (109)
Net cash from financing activities 132,388 (59,429)
Effect of exchange rate change on cash 738 747
Net change in cash and cash equivalents 11,026 16,503
Cash and cash equivalents at beginning of year 47,346 31,369
Cash and cash equivalents at end of period $ 58,372 $ 47,872
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 September 27, 2008 and
December 31, 2007:
September 27, December 31,
(Thousands of dollars) 2008 2007
At lower of LIFO cost or market:
Live hogs and materials $217,149 $181,019
Fresh pork and materials 25,451 18,550
242,600 199,569
LIFO adjustment (61,008) (23,509)
Total inventories at lower of LIFO cost or
market 181,592 176,060
At lower of FIFO cost or market:
Grains and oilseeds 314,386 100,082
Sugar produced and in process 44,024 35,180
Other 55,834 33,782
Total inventories at lower of FIFO cost or
market 414,244 169,044
Grain, flour and feed at lower of weighted average
cost or market 53,707 47,842
Total inventories $649,543 $392,946
As of September 27, 2008, Seaboard had approximately $50,000,000
recorded as grain inventories that are committed to various customers
in foreign countries for which customer contract performance is a
heightened concern. The current market price of this inventory in
these foreign countries is presently higher than cost. However, if
these customers ultimately do not perform and Seaboard is forced to
find other customers for a portion of this inventory, it is possible
that Seaboard could incur a material write-down in value of this
inventory if Seaboard is not successful in selling at current costs,
including any additional transportation costs.
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 nine
months ended September 27, 2008.
The lower tax benefit for the three month period of 2008 resulted from
a lowering of the 2008 annual benefit during the third quarter, which
occurred in response to the decrease in the 2008 projected domestic
taxable loss from the loss projected in the prior quarter. During the
third quarter of 2007, Seaboard revised its effective annual tax rate
as a result of changes in the estimated percentage mix of foreign
income and domestic income and a change in valuation allowances,
resulting in a net benefit for the quarter.
6
Note 5 -Derivatives and Fair Value of Financial Instruments
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 September 27, 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 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 September 27, 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
September 27, Assets Inputs Inputs
(Thousands of dollars) 2008 (Level 1) (Level 2) (Level 3)
Assets:
Available-for-sale securities $242,234 $ 23,348 $218,886 $ -
Deferred compensation plans 27,627 19,187 8,440 -
Derivatives 33,010 28,916 4,094 -
Total Assets $302,871 $ 71,451 $231,420 $ -
Total Liabilities-Derivatives $ 18,491 $ 17,369 $ 1,122 $ -
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.
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
7
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 September 27, 2008, and December 31, 2007.
(Thousands of dollars) September 27, 2008 December 31, 2007
Grains and oilseeds $ (34,429) $ 2,832
Hogs and pork bellies 49,667 (994)
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."
The net periodic benefit cost of these plans was as follows:
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Thousands of dollars) 2008 2007 2008 2007
Components of net periodic
benefit cost:
Service cost $ 1,376 $ 1,216 $ 4,013 $ 3,671
Interest cost 1,983 1,410 5,753 4,264
Expected return on plan
assets (1,697) (1,363) (4,810) (4,137)
Amortization and other 390 498 1,177 1,501
Settlement loss - - - 3,671
Net periodic benefit cost $ 2,052 $ 1,761 $ 6,133 $ 8,970
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 has appealed the reduced penalty to
seek 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.
8
Contingent Obligations
Certain of the non-consolidated affiliates and third party contractors
who perform services for Seaboard have bank debt supporting their
underlying operations. From time to time, Seaboard will provide
guarantees of that debt allowing a lower borrowing rate or
facilitating third party financing in order to further Seaboard's
business objectives. Seaboard does not issue guarantees of third
parties for compensation. As of September 27, 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 September 27, 2008, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity under
its committed credit facilities by $57,916,000. 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.
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 Nine Months Ended
September 27, September 29, September 27, September 29,
(Thousands of dollars) 2008 2007 2008 2007
Net earnings $32,905 $52,572 $123,895 $144,584
Other comprehensive
income net of
applicable taxes:
Foreign currency
translation adjustment 3,646 (1,316) 4,972 (1,056)
Unrealized gains
(losses) on
investments (452) 488 (845) (223)
Unrecognized pension
cost 239 361 330 3,321
Amortization of
deferred gain on
interest rate swaps - (39) - (125)
Total comprehensive income $36,338 $52,066 $128,352 $146,501
The components of and changes in accumulated other comprehensive loss
for the nine months ended September 27, 2008 are as follows:
Balance Balance
December 31, Period September 27,
(Thousands of dollars) 2007 Change 2008
Foreign currency translation adjustment $(58,719) $4,972 $(53,747)
Unrealized gain on investments 1,149 (845) 304
Unrecognized pension cost (21,081) 330 (20,751)
Accumulated other comprehensive loss $(78,651) $4,457 $(74,194)
9
The foreign currency translation adjustment primarily represents the
effect of the Argentine peso currency exchange fluctuation on the net
assets of the Sugar and Citrus segment. At September 27, 2008, the
Sugar and Citrus segment had $175,369,000 in net assets denominated in
Argentine pesos, $15,919,000 in net assets denominated in U.S. dollars
and $61,298,000 of liabilities denominated in Japanese Yen in
Argentina.
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 $6,485,000 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 $15,523,000 remained
available at September 27, 2008. For the nine months ended September
27, 2008, Seaboard repurchased 2,759 shares of common stock at a cost
of $3,988,000. 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.
In previously filed reports, Seaboard had separately reported its
Power division as a reportable segment. This division does not meet
the technical requirements for reporting as a separate segment and is
not expected to in the future. Accordingly, the Power division is now
reported as a part of "All Other" and prior periods have been
appropriately reclassified.
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 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 were 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.
10
Sales to External Customers:
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Thousands of dollars) 2008 2007 2008 2007
Pork $ 303,626 $248,729 $ 830,870 $ 752,067
Commodity Trading and
Milling 495,656 281,005 1,383,120 751,094
Marine 254,882 204,645 695,536 601,517
Sugar and Citrus 35,664 37,052 102,746 88,848
All Other 41,863 29,897 113,038 79,169
Segment/Consolidated
Totals $1,131,691 $801,328 $3,125,310 $2,272,695
Operating Income (Loss):
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Thousands of dollars) 2008 2007 2008 2007
Pork $ 1,201 $ 11,275 $ (30,040) $ 45,178
Commodity Trading and
Milling 21,443 15,526 83,627 21,599
Marine 11,998 20,277 36,489 73,313
Sugar and Citrus (3,074) 3,530 2,825 10,177
All Other 857 2,615 6,982 5,234
Segment Totals 32,425 53,223 99,883 155,501
Corporate Items (711) (3,622) (5,691) (14,620)
Consolidated Totals $ 31,714 $ 49,601 $ 94,192 $ 140,881
Income (Loss) from Foreign Affiliates:
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Thousands of dollars) 2008 2007 2008 2007
Commodity Trading and
Milling $ 4,706 $ 654 $ 10,370 $ 3,199
Sugar and Citrus 113 (84) 262 100
All Other - (286) - (1,741)
Segment/Consolidated
Totals $ 4,819 $ 284 $ 10,632 $ 1,558
Total Assets:
September 27, December 31,
(Thousands of dollars) 2008 2007
Pork $ 841,427 $ 783,288
Commodity Trading and Milling 706,204 447,211
Marine 275,700 231,278
Sugar and Citrus 233,691 171,978
All Other 88,277 71,640
Segment Totals 2,145,299 1,705,395
Corporate Items 336,269 388,304
Consolidated Totals $2,481,568 $2,093,699
11
Investments in and Advances to Foreign Affiliates:
September 27, December 31,
(Thousands of dollars) 2008 2007
Commodity Trading and Milling $ 70,371 $ 59,538
Sugar and Citrus 1,480 1,168
Segment/Consolidated Totals $ 71,851 $ 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.
__________________________________________________
12
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 September 27, 2008 decreased
$33.4 million to $300.6 million from December 31, 2007. The decrease
in cash and short-term investments along with an increase in notes
payables of $141.9 million was used for capital expenditures of $102.9
million and cash used in operating activities of $66.5 million. Cash
from operating activities decreased $179.2 million for the nine months
ended September 27, 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 inventory.
Acquisitions, Capital Expenditures and Other Investing Activities
During the nine months ended September 27, 2008, Seaboard invested
$102.9 million in property, plant and equipment, of which primarily
$45.3 million was expended in the Pork segment, $31.8 million in the
Marine segment, and $22.7 million in the Sugar and Citrus segment.
The Pork segment spent $25.7 million on constructing additional hog
finishing space, the biodiesel plant and the ham-boning and processing
plant discussed below. The Marine segment spent $23.9 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 $37.9 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 $3.3 million to be spent in the
remainder of 2008. This plant is currently expected to be completed in
early 2009. In addition, the Pork segment plans to spend $5.2 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 $17.0 million primarily
for the purchase of additional cargo carrying and handling equipment
and the expansion of existing port facilities. The Sugar and Citrus
segment plans to spend $10.4 million primarily for the development of
a 40 megawatt cogeneration plant and expansion of cane growing
operations. The balance of $2.0 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 September 27, 2008, Seaboard had committed lines of credit
totaling $300.0 million and uncommitted lines totaling $197.4 million.
Borrowings outstanding under the committed lines of credit totaled
$115.0 million and borrowings under the uncommitted lines of credit
totaled $115.7 million as of September 27, 2008. Outstanding standby
letters of credit reduced Seaboard's borrowing capacity under its
committed credit lines by $57.9 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
$7.9 million. Although continued pressure could result from expansion
of the global liquidity crisis, 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 operations or business segments.
13
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 $15.5 million remained available at
September 27, 2008. For the nine months ended September 27, 2008,
Seaboard used cash to repurchase 2,759 shares of common stock at a
total price of $4.0 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 nine month periods of 2008 increased by
$330.4 million and $852.6 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 and, for the three month
period, higher sales prices for pork products.
Operating income decreased by $17.9 million and $46.7 million for the
three and nine 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 continue
and, for the nine month period, the $10.4 million fluctuation of
marking to market the commodity trading and milling derivative
contracts, both as discussed below.
Pork Segment
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Dollars in millions) 2008 2007 2008 2007
Net sales $303.6 $248.7 $830.9 $752.1
Operating income (loss) $ 1.2 $ 11.3 $(30.0) $ 45.2
Net sales for the Pork segment increased $54.9 million and $78.8
million for the three and nine month periods of 2008, respectively,
compared to the same periods in 2007. The increase for the quarter is
primarily the result of higher sale prices for pork products and, to a
lesser extent, higher volumes of pork products sold. The increase for
the nine month period is 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. The increase for the nine month period was also
impacted, to a lesser extent than volumes, by the increase in sale
prices for pork products during the third quarter of 2008. 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 for both periods.
Operating income for the Pork segment decreased $10.1 million and
$75.2 million for the three and nine 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 nine month periods of 2008 was the impact of
using the LIFO method for determining certain inventory costs. For
the three and nine months ended September 27, 2008, LIFO decreased
operating income by $7.8 million and $37.5 million, respectively, in
2008 compared to decreases of $6.4 million and $15.1 million for the
same periods in 2007, respectively, primarily as a result of higher
feed costs. Also impacting operating income for both periods, but to
a lesser extent is operating losses related to the start-up of the
biodiesel plant. Partially offsetting these decreases are mark-to-
market gains in commodity derivatives of $3.7 million and $11.9
million for
14
the three and nine month periods in 2008 respectively, compared to
$2.3 million and $0.4 million for the same periods in 2007.
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 remainder of 2008 as a result of increased
derivative positions entered into in July 2008. See Item 3,
Quantitative and Qualitative Disclosures About Market Risk, below 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 Nine Months Ended
September 27, September 29, September 27, September 29,
(Dollars in millions) 2008 2007 2008 2007
Net sales $495.7 $281.0 $1,383.1 $ 751.1
Operating income $ 21.4 $ 15.5 $ 83.6 $ 21.6
Income from foreign
affiliates $ 4.7 $ 0.7 $ 10.4 $ 3.2
Net sales for the Commodity Trading and Milling segment increased
$214.7 million and $ 632.0 million for the three and nine 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, 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 $5.9 million and $62.0
million for the three and nine month periods of 2008, respectively,
compared to the same periods in 2007. The increases primarily reflect
the increased commodity trading volumes discussed above. For the nine
month period, the increase also reflects certain long inventory
positions, principally wheat, previously taken by Seaboard which
provided higher than average commodity trading margins during the
first half of 2008 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 continue these significant favorable
margins for the remainder of 2008. For the nine month period, the
increase also reflects the $10.4 million fluctuation of marking to
market the derivative contracts as discussed below.
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. In addition, see Note 3 to the Condensed Consolidation
Financial Statement for discussion regarding certain grain
inventories. 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 lower by $2.8 million
and lower by $11.4 million for the three and nine month periods of
2008, respectively, while operating income would have been lower by
$7.4 million and $1.0 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
periods, including fiscal 2008.
15
Income from foreign affiliates for the three and nine month periods of
2008 increased by $4.0 million and $7.2 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.
Marine Segment
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Dollars in millions) 2008 2007 2008 2007
Net sales $254.9 $204.6 $695.5 $601.5
Operating income $ 12.0 $ 20.3 $ 36.5 $ 73.3
Net sales for the Marine segment increased $50.3 million and $94.0
million for the three and nine 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 several Latin American markets
served.
Operating income for the Marine segment decreased $8.3 million and
$36.8 million for the three and nine 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 trucking, charter hire and owned-vessel operating costs,
terminal costs and stevedoring. In addition, the decrease for the
nine month period also reflects an accounting error totaling $6.3
million relating to prior periods that was 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 Nine Months Ended
September 27, September 29, September 27, September 29,
(Dollars in millions) 2008 2007 2008 2007
Net sales $ 35.7 $ 37.1 $102.7 $ 88.8
Operating income (loss) $ (3.1) $ 3.5 $ 2.8 $ 10.2
Income (loss) from foreign
affiliates $ 0.1 $ (0.1) $ 0.3 $ 0.1
Net sales for the Sugar and Citrus segment decreased $1.4 million and
increased $13.9 million for the three and nine month periods of 2008,
respectively, compared to the same periods in 2007. The decrease for
the three month period primarily reflects a decrease in the volume of
sugar sold as a result of lower export sales, partially offset by
higher domestic sugar prices. The increase for the nine month period
primarily reflects 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 decreased $6.6 million and $7.4 million for the three
and nine month periods of 2008, respectively, compared to the same
periods in 2007. The decreases are the result of losses incurred
during the third quarter for the citrus business primarily from
decreased juice production and citrus quality issues, decreased
profits for the sugar business primarily as a result of a labor work
stoppage issue for approximately one week during the third quarter and
higher administrative personnel costs. The decrease in operating
income as a percent of sales for the three and nine month periods was
also impacted by a higher percentage mix of purchased third party
sugar for resale, which has a significantly lower margin compared to
sugar produced by Seaboard. Management anticipates operating income
will be positive for the remainder of 2008, although lower than 2007.
16
All Other
Three Months Ended Nine Months Ended
September 27, September 29, September 27, September 29,
(Dollars in millions) 2008 2007 2008 2007
Net sales $ 41.9 $ 29.9 $113.0 $ 79.2
Operating income $ 0.9 $ 2.6 $ 7.0 $ 5.2
Loss from foreign
affiliate $ - $ (0.3) $ - $ (1.7)
Net sales and operating income primarily represents results from the
Dominican Republic Power division. Net sales increased $12.0 million
and $33.8 million for the three and nine 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
decreased $1.7 million and increased $1.8 million for the three and
nine month periods of 2008, respectively, compared to the same periods
in 2007. The decrease for the three month period is primarily the
result of higher maintenance and voltage regulation costs incurred
during the third quarter. The increase for the nine month period is
primarily the result of higher rates being in excess of higher fuel
costs. Management cannot predict future fuel costs or the extent to
which rates will fluctuate compared to fuel costs, although management
anticipates this segment to remain profitable for the remainder of
2008.
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
$2.1 million and $3.9 million for the three and nine month periods of
2008, respectively, compared to the same periods in 2007. The
increases are primarily due to increased personnel costs. Partially
offsetting the increases were decreased costs related to Seaboard's
deferred compensation programs (which are offset by the effect of the
mark-to-market investments recorded in other investment income
discussed below). Also, partially offsetting the increase for the
nine 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 3.9% and 4.2% for the 2008 three and nine month periods,
respectively, compared to 5.3% and 5.6% 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 $2.3 million and $3.9 million for the three
and nine month periods of 2008, respectively, compared to the same
periods of 2007 primarily reflecting a decrease in the average funds
invested.
Other Investment Income
The increase in Other Investment Income for the nine month period of
2008 compared to the same period in 2007 primarily reflects realized
gains of $4.5 million on equity securities transactions, income of
$5.9 million in the Power division related to the settlement of a
receivable, not directly related to its business, purchased at a
discount. Also included in the nine month period of 2008 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. Partially offsetting the above income items was
a $3.4 million and $7.2 million decrease in the mark-to-market value
of Seaboard's investments related to the deferred compensation
programs for the three and nine month periods of 2008 compared to the
same periods in 2007, respectively.
Miscellaneous, Net
The decrease in miscellaneous, net for the nine month period 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.
17
Income Tax Expense
The effective tax rate decreased in 2008 compared to 2007 resulting in
a tax benefit for the nine month period of 2008 primarily based on a
projected domestic taxable loss compared to permanently deferred
foreign earnings for 2008. The lower tax benefit for the three month
period of 2008 resulted from a lowering of the 2008 annual benefit
during the third quarter, which occurred in response to the decrease
in the 2008 projected domestic taxable loss from the loss projected in
the prior quarter.
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 September 27, 2008 and December 31, 2007.
(Thousands of dollars) September 27, 2008 December 31, 2007
Grains and oilseeds $ (34,429) $ 2,832
Hogs and pork bellies 49,667 (994)
18
While Seaboard previously presented the market value of commodity
derivative instruments in a table, Seaboard began using sensitivity
analysis in the second quarter of 2008 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
September 27, 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) September 27, 2008 December 31, 2007
Grains and oilseeds $ 19,283 $ 9,533
Hogs and pork bellies 36,049 759
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 September 27, 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 September
27, 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
The global financial crisis and decreased liquidity in the financial
markets could affect Seaboard's and its customers' ability to borrow,
which could adversely affect Seaboard's liquidity. There have been no
other 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding Seaboard's purchase
of its common stock during the quarter.
Issuer Purchases of Equity Securities
Total Approximate
Number Dollar Value
of Shares of Shares
Purchased that May
as Part Yet Be
Total Average of Publicly Purchased
Number Price Announced Under the
of Shares Paid per Plans Plans or
Period Purchased Share or Programs Programs
June 29 to July 31, 2008 - n/a n/a $18,975,441
August 1 to August 31, 2008 1,885 $1,483.80 1,885 $16,178,480
September 1 to September 27, 2008 505 $1,298.14 505 $15,522,922
Total 2,390 $1,444.57 2,390 $15,522,922
All purchases during the quarter were made under the authorization
from our Board of Directors to purchase up to $50.0 million of
Seaboard common stock announced on August 8, 2007. An expiration date
of August 31, 2009 has
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been specified for this authorization. All purchases were made
through open-market purchases and all the repurchased shares have
been retired.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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 ability of Seaboard
to sell certain grain inventories in foreign countries at current cost
basis and related customer contract performance, (ix) the effect of
the fluctuation in foreign currency exchange rates, (x) statements
concerning profitability or sales volume of any of Seaboard's
segments, (xi) the anticipated costs and completion timetable for
Seaboard's scheduled capital improvements, or (xii) 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: November 3, 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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