UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2008 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________ Commission File Number 1-3390 Seaboard Corporation (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (913) 676-8800 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X . There were 1,243,909 shares of common stock, $1.00 par value per share, outstanding on July 21, 2008. Total pages in filing - 20 pages
1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Thousands of dollars except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 2008 2007 2008 2007 Net sales: Products $ 731,123 $ 507,645 $1,477,023 $1,020,596 Services 234,410 211,957 453,259 409,771 Other 34,418 22,617 63,337 41,000 Total net sales 999,951 742,219 1,993,619 1,471,367 Cost of sales and operating expenses: Products 719,546 479,264 1,400,787 940,432 Services 202,101 167,626 388,043 317,896 Other 30,074 19,919 55,409 36,559 Total cost of sales and operating expenses 951,721 666,809 1,844,239 1,294,887 Gross income 48,230 75,410 149,380 176,480 Selling, general and administrative expenses 45,134 40,948 86,902 85,200 Operating income 3,096 34,462 62,478 91,280 Other income (expense): Interest expense (3,011) (3,381) (5,837) (6,923) Interest income 4,154 5,402 8,426 10,043 Income (loss) from foreign affiliates 1,865 (142) 5,813 1,274 Minority and other noncontrolling interests (210) 196 (236) 119 Foreign currency gain (loss), net 2,358 1,873 625 (1,431) Other investment income, net 6,936 1,352 8,456 1,772 Miscellaneous, net (831) 4,230 1,095 4,396 Total other income (expense), net 11,261 9,530 18,342 9,250 Earnings before income taxes 14,357 43,992 80,820 100,530 Income tax benefit (expense) 6,606 (1,335) 10,170 (8,518) Net earnings $ 20,963 $ 42,657 $ 90,990 $ 92,012 Earnings per common share $ 16.85 $ 33.82 $ 73.14 $ 72.95 Dividends declared per common share $ 0.75 $ 0.75 $ 1.50 $ 1.50 Average number of shares outstanding 1,243,909 1,261,367 1,244,055 1,261,367 See accompanying notes to condensed consolidated financial statements.
2 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Thousands of dollars) (Unaudited) June 28, December 31, 2008 2007 Assets Current assets: Cash and cash equivalents $ 58,620 $ 47,346 Short-term investments 256,232 286,660 Receivables, net 379,747 359,313 Inventories 456,592 392,946 Deferred income taxes 20,007 19,558 Other current assets 104,397 77,710 Total current assets 1,275,595 1,183,533 Investments in and advances to foreign affiliates 68,150 60,706 Net property, plant and equipment 762,649 730,395 Goodwill 40,628 40,628 Intangible assets, net 30,090 30,895 Other assets 53,144 47,542 Total assets $2,230,256 $2,093,699 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 127,352 $ 85,088 Current maturities of long-term debt 9,900 11,912 Accounts payable 139,994 135,398 Other current liabilities 197,747 190,530 Total current liabilities 474,993 422,928 Long-term debt, less current maturities 124,728 125,532 Deferred income taxes 95,982 105,697 Other liabilities 88,504 84,343 Total non-current and deferred liabilities 309,214 315,572 Minority and other noncontrolling interests 2,209 971 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued and outstanding 1,243,909 and 1,244,278 shares 1,244 1,244 Accumulated other comprehensive loss (77,627) (78,651) Retained earnings 1,520,223 1,431,635 Total stockholders' equity 1,443,840 1,354,228 Total liabilities and stockholders' equity $2,230,256 $2,093,699 See accompanying notes to condensed consolidated financial statements.
3 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) Six Months Ended June 28, June 30, 2008 2007 Cash flows from operating activities: Net earnings $ 90,990 $ 92,012 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 43,430 38,747 Income from foreign affiliates (5,813) (1,274) Other investment income, net (8,456) (1,772) Foreign currency exchange losses 1,389 - Minority and other noncontrolling interest 236 (119) Deferred income taxes (10,526) 1,382 Gain from sale of fixed assets (251) (730) Changes in current assets and liabilities: Receivables, net of allowance (16,102) 28,866 Inventories (62,923) (10,963) Other current assets (25,553) (15,198) Current liabilities, exclusive of debt 11,508 (3,474) Other, net 7,329 (398) Net cash from operating activities 25,258 127,079 Cash flows from investing activities: Purchase of short-term investments (130,028) (1,351,064) Proceeds from the sale of short-term investments 137,131 1,351,301 Proceeds from the maturity of short-term investments 22,421 16,167 Investments in and advances to foreign affiliates, net (458) 46 Capital expenditures (77,275) (80,174) Repurchase of minority interest in a controlled subsidiary - (30,053) Proceeds from the sale of fixed assets 1,809 1,213 Other, net (2,139) (1,450) Net cash from investing activities (48,539) (94,014) Cash flows from financing activities: Notes payable to banks, net 38,502 734 Principal payments of long-term debt (2,963) (28,789) Repurchase of common stock (536) - Dividends paid (1,866) (1,892) Other, net 996 (82) Net cash from financing activities 34,133 (30,029) Effect of exchange rate change on cash 422 153 Net change in cash and cash equivalents 11,274 3,189 Cash and cash equivalents at beginning of year 47,346 31,369 Cash and cash equivalents at end of period $ 58,620 $ 34,558 See accompanying notes to condensed consolidated financial statements.
4 SEABOARD CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Accounting Policies and Basis of Presentation The condensed consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries ("Seaboard"). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard's investments in non- controlled affiliates are accounted for by the equity method. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2007 as filed in its Annual Report on Form 10-K. Seaboard's first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard's year-end is December 31. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. During the second quarter of 2008, an accounting error at the Marine segment was discovered in previously issued financial statements. The error arose in the Marine segment's consolidation and intercompany elimination process of its foreign outport operations. The error, if properly recorded, would have decreased sales and net earnings in 2006 by $2,101,000, decreased sales and net earnings in 2007 by $4,171,000 and decreased sales and net earnings in the first quarter of 2008 by $964,000. As the effect on prior periods was not considered material, an adjustment to decrease sales and net earnings by $7,236,000 was recorded in the second quarter of 2008. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141(R) (SFAS 141R), "Business Combinations." This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. This statement also requires that acquisition-related costs of the acquirer be recognized separately from the business combination and will generally be expensed as incurred. Seaboard will be required to adopt this statement as of January 1, 2009. The impact of adopting SFAS 141R will be applicable to any future business combinations for which the acquisition date is on or after January 1, 2009. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51." This statement will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. Seaboard will be required to adopt this statement as of January 1, 2009. Management believes the adoption of SFAS 160 will not have a material impact on Seaboard's financial position or net earnings. In February 2008, the FASB issued FASB Staff Position 157-2 which defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually). Seaboard will be required to adopt SFAS 157 for these nonfinancial assets and nonfinancial liabilities as of January 1, 2009. Management believes the adoption of SFAS 157 deferral provisions will not have a material impact on Seaboard's financial position or net earnings. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133." This statement will change the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative
5 instruments and related hedged items affect an entity's financial position, net earnings, and cash flows. Seaboard will be required to adopt this statement as of January 1, 2009. Management believes the adoption of SFAS 161 will not have a material impact on Seaboard's financial position or net earnings. Note 2 - Repurchase of Minority Interest On December 27, 2006, Seaboard entered into a Purchase Agreement to repurchase the 4.74% equity interest in Seaboard Foods LP from the former owners of Daily's effective January 1, 2007. As part of the Purchase Agreement, on January 2, 2007 Seaboard paid $30,000,000 of the purchase price for the 4.74% equity interest to the former owners of Daily's. Based on the formula of operating results and certain net cash flows through June 30, 2007, the final purchase price was determined to be $61,260,000, including transaction costs of $53,000. Seaboard paid the balance of the purchase price owed to the former owners of Daily's of $31,207,000 in August 2007. Note 3 - Inventories The following is a summary of inventories at June 28, 2008 and December 31, 2007: June 28, December 31, (Thousands of dollars) 2008 2007 At lower of LIFO cost or market: Live hogs and materials $211,286 $181,019 Fresh pork and materials 22,537 18,550 233,823 199,569 LIFO adjustment (53,160) (23,509) Total inventories at lower of LIFO cost or market 180,663 176,060 At lower of FIFO cost or market: Grains and oilseeds 163,176 100,082 Sugar produced and in process 28,201 35,180 Other 49,839 33,782 Total inventories at lower of FIFO cost or market 241,216 169,044 Grain, flour and feed at lower of weighted average cost or market 34,713 47,842 Total inventories $456,592 $392,946 Note 4 - Income Taxes Seaboard's tax returns are regularly audited by federal, state and foreign tax authorities, which may result in adjustments. Seaboard's U.S. federal income tax returns have been reviewed through the 2004 tax year. There have not been any material changes in unrecognized income tax benefits since December 31, 2007. Interest related to unrecognized tax benefits and penalties were not material for the six months ended June 28, 2008. Note 5 - Fair Value Measurements In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), "Fair Value Measurements". This statement established a single authoritative definition of fair value when accounting rules require the use of fair value, set out a framework for measuring fair value, and required additional disclosures about fair-value measurements. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Seaboard adopted SFAS 157 on January 1, 2008 with the exception of nonfinancial assets and nonfinancial liabilities that were deferred by FASB Staff Position 157-2 as discussed in Note 1 to the Condensed Consolidated Financial Statements. As of June 28, 2008, Seaboard has not applied SFAS 157 to goodwill and intangible assets in accordance with FASB Staff Position 157-2. SFAS 157 discusses valuation techniques, such as the market approach (prices and other relevant information generated by market conditions involving identical or comparable assets or liabilities), the income approach (techniques to convert future amounts to single present amounts based on market expectations including present
6 value techniques and option-pricing), and the cost approach (amount that would be required to replace the service capacity of an asset which is often referred to as replacement cost). SFAS 157 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the reporting entity's own assumptions. The following table shows assets and liabilities measured at fair value on a recurring basis as of June 28, 2008 and also the level within the fair value hierarchy used to measure each category of assets. Quoted Prices In Active Significant Markets for Other Significant Balance Identical Observable Unobservable June 28, Assets Inputs Inputs (Thousands of dollars) 2008 (Level 1) (Level 2) (Level 3) Assets: Available-for-sale securities $256,232 $38,968 $217,264 $ - Deferred compensation plans 30,028 21,099 8,929 - Derivatives 14,049 13,222 827 - Total Assets $300,309 $73,289 $227,020 $ - Total Liabilities-Derivatives $ 9,064 $ 7,536 $ 1,528 $ - In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provided companies with an option to report selected financial assets and liabilities at fair value. This statement was effective for Seaboard as of January 1, 2008; however Seaboard did not elect the option to report any of the selected financial assets and liabilities at fair value. Note 6 - Employee Benefits Seaboard maintains a defined benefit pension plan ("the Plan") for its domestic salaried and clerical employees. As a result of its liquidity and tax positions, in April 2007 Seaboard made a deductible contribution in the amount of $10,000,000 for the 2006 plan year. At this time management does not plan on making any additional contributions in 2008 for the 2007 or 2008 plan year. Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees. Management is considering funding alternatives, but currently has no plans to provide funding for these supplemental plans in advance of when the benefits are paid. The late Mr. H. H. Bresky retired as President and CEO of Seaboard effective July 6, 2006. As a result of Mr. Bresky's retirement, he was entitled to a lump sum payment of $8,709,000 from Seaboard's Executive Retirement Plan. Under IRS regulations, there is a six month delay of benefit payments for key employees and thus Mr. Bresky was not paid his lump sum until February 2007. This lump sum payment exceeded the Company's service and interest cost components under this plan and thus required Seaboard to recognize a portion of its actuarial losses. However, Seaboard was not relieved of its obligation until the settlement was paid in 2007. Accordingly, the settlement loss of $3,671,000 was not recognized until February 2007 in accordance with Statement of Financial Accounting Standards No. 88, "Employers Accounting for Settlements and Curtailments of Defined Benefit Pension for Termination Benefits."
7 The net periodic benefit cost of these plans was as follows: Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Thousands of dollars) 2008 2007 2008 2007 Components of net periodic benefit cost: Service cost $1,242 $1,236 $2,637 $2,455 Interest cost 1,810 1,447 3,770 2,854 Expected return on plan assets (1,432) (1,527) (3,113) (2,774) Amortization and other 418 493 787 1,003 Settlement loss - - - 3,671 Net periodic benefit cost $2,038 $1,649 $4,081 $7,209 Note 7 - Commitments and Contingencies During the fourth quarter of 2005, Seaboard's subsidiary, Seaboard Marine, received a notice of violation letter from U.S. Customs and Border Protection demanding payment of a significant penalty for an alleged failure to manifest narcotics in connection with Seaboard Marine's shipping operations, in violation of a federal statute and regulation. In response to Seaboard Marine's petition for relief, the amount of the penalty has been reduced to an amount which will not have a material adverse effect on the consolidated financial statements of Seaboard. Seaboard is reviewing the reduction and will continue to discuss with U.S. Customs and Border Protection a further reduction in the penalty. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements of Seaboard. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard's business objectives. Seaboard does not issue guarantees of third parties for compensation. As of June 28, 2008, Seaboard had guarantees outstanding to two third parties with a total maximum exposure of $1,978,000. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considers the likelihood of loss to be remote. As of June 28, 2008, Seaboard had outstanding letters of credit ("LCs") with various banks which reduced its borrowing capacity under its committed credit facilities by $56,471,000. Included in these amounts are LCs totaling $42,688,000, which support the Industrial Development Revenue Bonds included as long-term debt and $13,708,000 of LCs related to insurance coverages. Commitments On May 30, 2008, Seaboard Marine Ltd. ("Seaboard Marine"), entered into an Amended and Restated Terminal Agreement with Miami-Dade County ("County") for Marine Terminal Operations ("Amended Terminal Agreement"), pursuant to which Seaboard Marine renewed its existing Terminal Agreement with the County at the Port of Miami. The Amended Terminal Agreement will enable Seaboard Marine to continue its existing operations at the Port of Miami. The Amended Terminal Agreement has a term through September 30, 2028, with two five-year renewal options, the exercise of which are subject to certain conditions. The total minimum payments over the initial term of the Amended Terminal Agreement approximate $283,000,000. This minimum amount could increase if certain conditions are met. In addition, the Amended Terminal Agreement requires Seaboard Marine to fund approximately $5,000,000 in terminal upgrades subject to certain conditions. The Amended Terminal Agreement also requires the County to make certain improvements to Seaboard Marine's container yard and adjacent berths at the Port of Miami.
8 Note 8 - Stockholders' Equity and Accumulated Other Comprehensive Loss Components of total comprehensive income, net of related taxes, are summarized as follows: Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Thousands of dollars) 2008 2007 2008 2007 Net earnings $20,963 $42,657 $90,990 $92,012 Other comprehensive income net of applicable taxes: Foreign currency translation adjustment 896 740 1,326 260 Unrealized gains (losses) on investments (692) (1,277) (393) (711) Unrecognized pension cost (136) 357 91 2,960 Amortization of deferred gain on interest rate swaps - (43) - (86) Total comprehensive income $21,031 $42,434 $92,014 $94,435 The components of and changes in accumulated other comprehensive loss for the six months ended June 28, 2008 are as follows: Balance Balance December 31, Period June 28, (Thousands of dollars) 2007 Change 2008 Foreign currency translation adjustment $(58,719) $1,326 $(57,393) Unrealized gain on investments 1,149 (393) 756 Unrecognized pension cost (21,081) 91 (20,990) Accumulated other comprehensive loss $(78,651) $1,024 $(77,627) With the exception of the foreign currency translation loss to which a 35% federal tax rate is applied, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. In addition, the unrecognized pension cost includes $6,471,000 related to employees at certain subsidiaries for which no tax benefit has been recorded. On August 7, 2007, the Board of Directors authorized Seaboard to repurchase from time to time prior to August 31, 2009 up to $50,000,000 market value of its Common Stock in open market or privately negotiated purchases, of which $18,975,000 remained available at June 28, 2008. For the six months ended June 28, 2008, Seaboard repurchased 369 shares of common stock at a cost of $536,000. Shares repurchased are retired and resume status of authorized and unissued shares. Note 9 - Segment Information The Pork segment has $28,372,000 of goodwill and $24,000,000 of other intangible assets not subject to amortization in connection with its acquisition of Daily's in 2005. Previously, the fair value of these intangible assets was partially based on certain scenarios that included management's ability and intention to grow and expand Daily's through construction or acquisition of additional capacity. During the second quarter of 2008 management decided to indefinitely delay any such future plans for expanding Daily's capacity. As of June 28, 2008, Seaboard conducted its annual evaluation for impairment of this goodwill and other intangible assets and, based on current market conditions indicating projected future sale price increases and related levels of estimated operating margins, determined there is no impairment. However, if market conditions do not produce projected future sale price increases or additional processed meats sales volumes, and related levels of estimated operating margins, there is a possibility that some amount of either this goodwill or other intangible assets not subject to amortization, or both, could be deemed impaired during some future period including fiscal 2008, which may result in a charge to earnings. Seaboard has an investment in a Bulgarian wine business (the Business). Beginning in March 2007, this business had been unable to make its scheduled loan payments and had been in technical default on its bank debt. During the fourth quarter of 2007, Seaboard signed an agreement to allow a bank to take majority ownership of the Business resulting in a loss of significant influence by Seaboard. Accordingly, in the fourth quarter of 2007
9 Seaboard discontinued using the equity method of accounting and wrote- off the remaining investment balance. Seaboard recorded 50% of the losses from the Business in 2007 in the "All Other" segment. In June 2008, Seaboard received $1,078,000 from another shareholder of the Business in exchange for the assignment by Seaboard to the shareholder of all rights to Seaboard's previous loans and advances to the Business. The proceeds of this transaction are recorded in Other Investment Income. The following tables set forth specific financial information about each segment as reviewed by Seaboard's management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income or losses from foreign affiliates for the Commodity Trading and Milling segment, is used as the measure of evaluating segment performance because management does not consider interest, other investment income and income tax expense on a segment basis. Sales to External Customers: Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Thousands of dollars) 2008 2007 2008 2007 Pork $288,329 $261,691 $ 527,244 $ 503,338 Commodity Trading and Milling 407,573 223,401 887,464 470,089 Marine 229,714 205,813 440,654 396,872 Sugar and Citrus 36,044 24,463 67,082 51,796 Power 34,418 22,615 63,337 40,998 All Other 3,873 4,236 7,838 8,274 Segment/Consolidated Totals $999,951 $742,219 $1,993,619 $1,471,367 Operating Income (Loss): Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Thousands of dollars) 2008 2007 2008 2007 Pork $(26,399) $ 12,992 $ (31,241) $ 33,903 Commodity Trading and Milling 13,112 (4,155) 62,184 6,073 Marine 13,611 25,540 24,491 53,036 Sugar and Citrus 2,726 2,032 5,899 6,647 Power 3,057 1,546 5,416 2,017 All Other 551 487 709 602 Segment Totals 6,658 38,442 67,458 102,278 Corporate Items (3,562) (3,980) (4,980) (10,998) Consolidated Totals $ 3,096 $ 34,462 $ 62,478 $ 91,280 Income (Loss) from Foreign Affiliates: Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Thousands of dollars) 2008 2007 2008 2007 Commodity Trading and Milling $ 1,728 $ 190 $ 5,664 $ 2,545 Sugar and Citrus 137 58 149 184 All Other - (390) - (1,455) Segment/Consolidated Totals $ 1,865 $ (142) $ 5,813 $ 1,274
10 Total Assets: June 28, December 31, (Thousands of dollars) 2008 2007 Pork $ 817,104 $ 783,288 Commodity Trading and Milling 499,367 447,211 Marine 261,346 231,278 Sugar and Citrus 197,556 171,978 Power 76,163 64,647 All Other 8,662 6,993 Segment Totals 1,860,198 1,705,395 Corporate Items 370,058 388,304 Consolidated Totals $2,230,256 $2,093,699 Investments in and Advances to Foreign Affiliates: June 28, December 31, (Thousands of dollars) 2008 2007 Commodity Trading and Milling $ 66,814 $ 59,538 Sugar and Citrus 1,336 1,168 Segment/Consolidated Totals $ 68,150 $ 60,706 Administrative services provided by the corporate office allocated to the individual segments represent corporate services rendered to and costs incurred for each specific division with no allocation to individual segments of general corporate management oversight costs. Corporate assets include short-term investments, other current assets related to deferred compensation plans, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments. Note 10 - Subsequent Event Seaboard uses various grain, meal, hog and pork bellies futures and options to manage its exposure to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. However, due to the extensive record-keeping required to designate the commodity derivative transactions as hedges for accounting purposes, Seaboard marks to market its commodity futures and options primarily as a component of cost of sales. Management continues to believe its commodity futures and options are primarily economic hedges although they do not qualify as hedges for accounting purposes. Since these derivatives are not accounted for as hedges, fluctuations in the related commodity prices could have a material impact on earnings in any given quarter or year. From time to time, Seaboard may also enter into speculative derivative transactions not directly related to its raw material requirements. The nature of Seaboard's market risk exposure related to these items has not changed materially since December 31, 2007. However, during July 2008 the Pork segment significantly increased the number of hog, grain and oilseed futures contracts entered into based on market conditions. These increased positions could increase volatility of reported financial results due to mark to market accounting. The size and mix of Seaboard's commodity future and option contracts varies from time to time based upon an analysis of fundamental market information. The following table provides the fair value of Seaboard's net open commodity future and option derivatives for all divisions as of July 26, 2008, June 28, 2008, and December 31, 2007. (Thousands of dollars) July 26, 2008 June 28,2008 December 31, 2007 Grains and oilseeds $ (35,381) $ 3,840 $ 2,832 Hogs and pork bellies 4,037 (1,235) (994) ____________________________________________________________
11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments as of June 28, 2008 decreased $19.2 million to $314.9 million from December 31, 2007. Cash used for capital expenditures was $77.3 million which were primarily funded by an increase in notes payable of $38.5 million and cash generated by operating activities of $25.3 million. Cash from operating activities decreased $101.8 million for the six months ended June 28, 2008 compared to the same period in 2007, primarily as the result of increases in working capital needs in the Commodity Trading and Milling segment, primarily for increased amounts of receivables and inventory, and, to a lesser extent, the Marine segment, primarily for increased amounts of receivables. Acquisitions, Capital Expenditures and Other Investing Activities During the six months ended June 28, 2008, Seaboard invested $77.3 million in property, plant and equipment, of which primarily $37.1 million was expended in the Pork segment, $21.3 million in the Marine segment, and $16.8 million in the Sugar and Citrus segment. The Pork segment spent $22.7 million on constructing additional hog finishing space, the biodiesel plant and the ham-boning and processing plant discussed below. The Marine segment spent $15.9 million to purchase cargo carrying and handling equipment. In the Sugar and Citrus segment, the capital expenditures were primarily for expansion of cane growing operations, development of the cogeneration plant and expansion of alcohol distillery operations. All other capital expenditures are of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades. For the remainder of 2008 management has budgeted capital expenditures totaling $87.3 million. In April, 2008, the Pork segment entered into an agreement to build and operate a majority-owned ham-boning and processing plant in Mexico. The total cost of this plant is expected to be $10.0 million with approximately $8.1 million to be spent in the remainder of 2008. This plant is currently expected to be completed in late 2008 or early 2009. In addition, the Pork segment plans to spend $9.4 million for improvements to existing hog facilities, upgrades to the Guymon pork processing plant and additional facility upgrades and related equipment. The Marine segment has budgeted $49.7 million primarily for the purchase of additional cargo carrying and handling equipment, the potential purchase of a containerized cargo vessel and the expansion of existing port facilities. The Sugar and Citrus segment plans to spend $16.4 million primarily for the development of a 40 megawatt cogeneration plant, expansion of cane growing operations and completion of the expansion of alcohol distillery operations. The balance of $3.7 million is planned to be spent in all other businesses. Management anticipates funding these capital expenditures from available cash, the use of available short-term investments or Seaboard's available borrowing capacity. During the second quarter of 2008, Seaboard decided to indefinitely delay previously announced plans to expand its processed meats capabilities by either constructing a separate further processing plant, primarily for bacon, or the acquisition of an existing facility. In addition, during the first quarter of 2008 Seaboard decided not to proceed with any investment in the previously announced consortium to construct two coal-fired 305 megawatt electric generating plants in the Dominican Republic. Financing Activities and Debt As of June 28, 2008, Seaboard had committed lines of credit totaling $100.0 million and uncommitted lines totaling $192.6 million. Borrowings outstanding under the committed lines of credit totaled $43.0 million and borrowings under the uncommitted lines of credit totaled $84.4 million as of June 28, 2008. Outstanding standby letters of credit reduced Seaboard's borrowing capacity under its committed credit lines by $56.5 million primarily representing $42.7 million for Seaboard's outstanding Industrial Development Revenue Bonds and $13.7 million related to insurance coverages. On July 10, 2008, Seaboard entered into an Amended and Restated Credit Agreement that increased its committed line of credit from $100.0 million to $300.0 million. This credit facility has a term of five years, maturing July 10, 2013. With respect to financial covenants, the Amended and Restated Credit Agreement increased the base amount used to calculate the minimum consolidated tangible net worth that must be maintained by Seaboard from $714.0 million under the 2004 Facility, to $1,150.0 million plus 25% of consolidated net income after March 29, 2008. Seaboard's remaining 2008 scheduled long-term debt maturities total $9.0 million. Management believes that Seaboard's current combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing
12 operations or business segments. Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity and available borrowing capacity. On August 7, 2007, the Board of Directors authorized Seaboard to repurchase from time to time prior to August 31, 2009 up to $50.0 million market value of its common stock in open market or privately negotiated purchases, of which $19.0 million remained available at June 28, 2008. For the six months ended June 28, 2008, Seaboard used cash to repurchase 369 shares of common stock at a total price of $0.5 million. The remaining stock repurchase will be funded by cash on hand or short-term investments. Shares repurchased are retired and resume status of authorized and unissued shares. The Board's stock repurchase authorization does not obligate Seaboard to acquire a specific amount of common stock and the stock repurchase program may be modified or suspended at any time at Seaboard's discretion. See Note 7 to the Condensed Consolidated Financial Statements for a summary of Seaboard's contingent obligations, including guarantees issued to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard. RESULTS OF OPERATIONS Net sales for the three and six month periods of 2008 increased by $257.7 million and $522.3 million, respectively, over the same periods in 2007, primarily reflecting the result of significant price increases for commodities sold by the commodity trading business and, to a lesser extent, increased commodity trading volumes. Also increasing sales were higher cargo rates and, to a lesser extent, higher cargo volumes for the Marine division. Operating income decreased by $31.4 million and $28.8 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The decrease for both periods is primarily the result of higher feed costs for hogs, including the effect on LIFO reserves, from the increased price of corn and, to a lesser extent, soybean meal. Also decreasing operating income were lower margins on marine cargo services as a result of increased fuel and other related operating costs. The decreases were partially offset by the result of higher commodity trading margins that are not expected to repeat and, for the six month period, the $15.0 million fluctuation of marking to market the derivative contracts, both as discussed below. Pork Segment Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $288.3 $261.7 $527.2 $503.3 Operating income (loss) $(26.4) $ 13.0 $(31.2) $ 33.9 Net sales for the Pork segment increased $26.6 million and $23.9 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. These increases are primarily the result of higher volumes of pork products sold, reflecting increases in export sales and, to a lesser extent, domestic sales, derived from improvements completed at the Guymon processing plant during the first quarter of 2008 to expand daily capacity. To a lesser extent, sales of biodiesel related to the start-up of the new biodiesel processing plant during the second quarter of 2008 also contributed to the increase in net sales. Partially offsetting the increase for the six month period is lower prices for pork products sold. Operating income for the Pork segment decreased $39.4 million and $65.1 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The decreases primarily relate to higher feed costs from the increased price of corn and, to a lesser extent, soybean meal. Also decreasing operating income for the three and six month periods of 2008 was the impact of using the LIFO method for determining certain inventory costs. For the three and six months ended June 28, 2008, LIFO decreased operating income by $22.5 million and $29.7 million, respectively, in 2008 compared to decreases of $6.3 million and $8.7 million for the same periods in 2007, respectively, primarily as a result of higher feed costs. Partially offsetting the decrease in operating income were commodity derivative gains. Management is unable to predict future market prices for pork products or the cost of feed and third party hogs. Raw material costs in feed rations continue to show significant volatility, primarily as a result of uncertain global supply and demand factors. Without a noted improvement in current market conditions including feed costs, management expects to incur additional losses during the remainder of 2008. Also, there is the potential for increased volatility in operating income during the second half of the year as a result of increased derivative positions entered into in July 2008. See Item 3, Quantitative and Qualitative Disclosures About Market Risk, below
13 for further discussion. In addition, as discussed in Note 9 to the Condensed Consolidated Financial Statements, there is a possibility that some amount of either goodwill or other intangible assets not subject to amortization, or both, could be deemed impaired during some future period including fiscal 2008, which may result in a charge to earnings if projections are not met. Commodity Trading and Milling Segment Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $407.6 $223.4 $887.5 $470.1 Operating income (loss) $ 13.1 $ (4.2) $ 62.2 $ 6.1 Income from foreign affiliates $ 1.7 $ 0.2 $ 5.7 $ 2.5 Net sales for the Commodity Trading and Milling segment increased $184.2 million and $417.4 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increases are primarily the result of significant price increases for commodities sold by the commodity trading business, especially for wheat, and, to a lesser extent for the six month period, increased commodity trading volumes. The increased trading volumes to third parties are primarily a result of Seaboard expanding its business in new and existing markets, including trading rice. Operating income for this segment increased $17.3 million and $56.1 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increases primarily reflect certain long inventory positions, principally wheat, previously taken by Seaboard which provided higher than average commodity trading margins as the price of these commodities significantly increased to historic highs at the time of sale. However, management does not expect to be able to repeat these significant favorable margins for the remainder of 2008. For the six month period, the increase also reflects the $15.0 million fluctuation of marking to market the derivative contracts as discussed below and, to a lesser extent increased commodity trading volumes as discussed above. In addition, the 2007 three and six month periods include losses accrued on certain wheat trades entered into during the second quarter of 2007 for future sale commitments at that time. The increases also reflect, although to a lesser extent, improved margins from certain milling operations, especially in Zambia. Due to the uncertain political and economic conditions in the countries in which Seaboard operates and the current fluctuations in the commodity markets, management is unable to predict future sales and operating results, but anticipates positive operating income for the remainder of 2008 based on recent market prices for commodities, excluding the potential effects of marking to market derivative contracts. However, the current unprecedented high level of grain prices increase certain business risks for each of the commodity trading, consolidated milling and foreign affiliate operations in this segment. Those risks, including holding high priced inventory or the potential for reduced sales volumes, can increase if governments impose sales price controls, grain prices fall significantly and competitors hold lower priced positions, or customers default, which could result in write-downs of inventory values and an increase in bad debt expense. If any one or more of these conditions develop, the result may materially lower operating income and could result in operating losses for any one or all of the commodity trading, consolidated milling and foreign affiliate operations. Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income would have been higher by $8.5 million and lower by $8.6 for the three and six month periods of 2008, respectively, while operating income would have been higher by $6.2 million and $6.4 million for the same periods in 2007. While management believes its commodity futures and options, foreign exchange contracts and forward freight agreements are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. Accordingly, while the changes in value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these mark-to-market adjustments will be primarily offset by realized margins as revenue is recognized. Accordingly, these mark-to-market gains could reverse in future quarters in 2008. Income from foreign affiliates for the three and six month periods of 2008 increased by $1.5 million and $3.2 million, respectively, from the same 2007 periods as a result of favorable market conditions. Based on the uncertainty of local political and economic situations in the countries in which the flour and feed mills operate, and increasing grain costs, management cannot predict future results.
14 Marine Segment Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $229.7 $205.8 $440.7 $396.9 Operating income $ 13.6 $ 25.5 $ 24.5 $ 53.0 Net sales for the Marine segment increased $23.9 million and $43.8 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007 primarily reflecting higher cargo rates and, to a lesser extent, higher cargo volumes. Cargo rates were higher in certain markets primarily as a result of higher cost-recovery surcharges for fuel. Cargo volumes were higher as a result of the expansion of services provided in certain markets and continued favorable economic conditions in most Latin American markets served. Operating income for the Marine segment decreased $11.9 million and $28.5 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The decreases were primarily the result of significantly higher fuel costs for vessels on a per unit shipped basis. Operating income also decreased as a result of higher operating costs on a per unit shipped basis including stevedoring, terminal costs, charter hire and owned-vessel operating costs, and trucking. In addition, the decreases also reflects an accounting error totaling $7.2 million and $6.3 million for the three and six month periods, respectively, relating to prior periods that were recorded in the second quarter of 2008, as discussed in Note 1 to the Condensed Consolidated Financial Statements. Although management cannot predict changes in future volumes and cargo rates or to what extent changes in economic conditions and operating cost increases will impact net sales or operating income, it does expect this segment to remain profitable for the remainder of 2008, although significantly lower than 2007. Sugar and Citrus Segment Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $ 36.0 $ 24.5 $ 67.1 $ 51.8 Operating income $ 2.7 $ 2.0 $ 5.9 $ 6.6 Income from foreign affiliates $ 0.1 $ 0.1 $ 0.1 $ 0.2 Net sales for the Sugar and Citrus segment increased $11.5 million and $15.3 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increases primarily reflect an increase in domestic volume of sugar sold and, to a lesser extent, higher domestic sugar prices. Although domestic Argentine sugar prices increased, governmental authorities continue to attempt to control inflation by limiting the price of basic commodities, including sugar. Accordingly, management cannot predict whether sugar prices will continue to increase. Seaboard expects to at least maintain its historical sales volume to Argentinean customers. Operating income increased $0.7 million and decreased $0.7 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increase for the three month period is primarily the result of increased sales discussed above. The decrease for the six month period is primarily the result of lower overall margin percentage on sugar sales from a higher percentage mix of purchased third party sugar for resale, which has a significantly lower margin compared to sugar produced by Seaboard and, to a lesser extent, higher administrative personnel costs. Management expects operating income will remain positive for the remainder of 2008. Power Segment Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $ 34.4 $ 22.6 $ 63.3 $ 41.0 Operating income $ 3.1 $ 1.5 $ 5.4 $ 2.0 Net sales for the Power segment increased $11.8 million and $22.3 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007 primarily reflecting higher rates. The higher rates were attributable primarily to higher fuel costs, a component of pricing. Operating income increased $1.6 million and $3.4 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increase is primarily the result of higher rates being in excess of higher fuel costs. Management cannot predict
15 future fuel costs or the extent to which rates will fluctuate compared to fuel costs, although management expects this segment to remain profitable for the remainder of 2008. All Other Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, (Dollars in millions) 2008 2007 2008 2007 Net sales $ 3.9 $ 4.2 $ 7.8 $ 8.3 Operating income $ 0.6 $ 0.5 $ 0.7 $ 0.6 Loss from foreign affiliate $ - $ (0.4) $ - $ (1.5) Net sales and operating income primarily represents results from the jalapeno pepper operations. The loss from foreign affiliate reflects Seaboard's share of losses from its equity method investment in a Bulgarian wine business. During the fourth quarter of 2007, Seaboard signed an agreement to allow a bank to take majority ownership of the wine business resulting in a loss of significant influence by Seaboard. Accordingly, Seaboard discontinued using the equity method of accounting. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of this business. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses increased by $4.2 million and $1.7 million for the three and six month periods of 2008, respectively, compared to the same periods in 2007. The increases are primarily due to increased personnel costs. Partially offsetting the increase for the six month period is a $3.7 million pension settlement loss recognized in the first quarter of 2007 related to Mr. Bresky's retirement payment in February 2007 as discussed in Note 6 to the Condensed Consolidated Financial Statements. As a percentage of revenues, SG&A decreased to 4.5% and 4.3% for the 2008 three and six month periods, respectively, compared to 5.5% and 5.8% for the same periods in 2007 primarily as a result of increased sales in the Commodity Trading and Milling segment. Interest Income Interest income decreased $1.2 million and $1.6 million for the three and six month periods of 2008, respectively, compared to the same periods of 2007 primarily reflecting a decrease in the average funds invested. Foreign Currency Gains (Losses) Seaboard realized net foreign currency gains of $2.4 million and $0.6 million in the three and six month periods of 2008, respectively, compared to gains of $1.9 million and losses of $1.4 million for the same periods of 2007. The fluctuation for the six month period primarily relates to exchange gains realized in certain South American countries for the Marine segment. Other Investment Income The increase in Other Investment Income for the three and six month periods of 2008 compared to the same periods in 2007 primarily reflects realized gains of $2.6 million and $4.5 million, respectively, on equity securities transactions, income of $2.0 million and $3.7 million, respectively, in the Power segment related to the settlement of a receivable, not directly related to its business, purchased at a discount. Also included in the 2008 periods was income of $1.1 million related to the assignment of rights related to an investment as discussed in Note 9 to the Condensed Consolidated Financial Statements. Miscellaneous, Net The decrease in miscellaneous, net for the three and six month periods of 2008 compared to the same periods in 2007 primarily reflects a $4.2 million gain from a favorable settlement received in June 2007 related to a land expropriation in Argentina. This land settlement was recorded as miscellaneous income since the land was expropriated prior to Seaboard's purchase of the sugar and citrus business, thus never a part of the sugar and citrus operations recorded by Seaboard. Income Tax Expense The effective tax rate decreased in 2008 compared to 2007 resulting in a tax benefit for 2008 primarily based on a projected domestic taxable loss compared to permanently deferred foreign earnings for 2008.
16 OTHER FINANCIAL INFORMATION In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) (SFAS 141R), "Business Combinations." This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. This statement also requires that acquisition- related costs of the acquirer be recognized separately from the business combination and will generally be expensed as incurred. Seaboard will be required to adopt this statement as of January 1, 2009. The impact of adopting SFAS 141R will be applicable to any future business combinations for which the acquisition date is on or after January 1, 2009. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51." This statement will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. Seaboard will be required to adopt this statement as of January 1, 2009. Management believes the adoption of SFAS 160 will not have a material impact on Seaboard's financial position or net earnings. In February 2008, the FASB issued FASB Staff Position 157-2 which defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually). Seaboard will be required to adopt SFAS 157 for these nonfinancial assets and nonfinancial liabilities as of January 1, 2009. Management believes the adoption of SFAS 157 will not have a material impact on Seaboard's financial position or net earnings. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133." This statement will change the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, net earnings, and cash flows. Seaboard will be required to adopt this statement as of January 1, 2009. Management believes the adoption of SFAS 161 will not have a material impact on Seaboard's financial position or net earnings. Item 3. Quantitative and Qualitative Disclosures About Market Risk Seaboard is exposed to various types of market risks in its day-to-day operations. Seaboard utilizes derivative instruments to mitigate some of these risks including both purchases and sales of futures and options to hedge inventories, forward purchase and sale contracts, forward purchases, and forward freight agreements. From time to time, Seaboard may also enter into speculative derivative transactions not directly related to its raw material requirements. The nature of Seaboard's market risk exposure related to these items has not changed materially since December 31, 2007. However, during July 2008 the Pork segment significantly increased the number of hog, grain and oilseed futures contracts entered into based on market conditions. These increased positions could increase volatility of reported financial results due to mark to market accounting. The size and mix of Seaboard's commodity future and option contracts varies from time to time based upon an analysis of fundamental market information. The following table provides the fair value of Seaboard's net open commodity future and option derivatives for all divisions as of July 26, 2008, June 28, 2008 and December 31, 2007. (Thousands of dollars) July 26, 2008 June 28,2008 December 31, 2007 Grains and oilseeds $ (35,381) $ 3,840 $ 2,832 Hogs and pork bellies 4,037 (1,235) (994)
17 While Seaboard previously presented the market value of commodity derivative instruments in a table, Seaboard now uses sensitivity analysis to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments. Seaboard feels that sensitivity analysis more appropriately reflects the potential market value exposure associated with the use of derivative instruments. The following table presents the sensitivity of the fair value of Seaboard's open net commodity future and option derivatives for all divisions to a hypothetical 10% adverse change in market prices as of July 26, 2008 and December 31, 2007. The fair value of such positions is a summation of the fair values calculated for each commodity by valuing each net position at quoted market prices as of the applicable date. (Thousands of dollars) July 26, 2008 December 31, 2007 Grains and oilseeds $ 20,922 $ 9,533 Hogs and pork bellies 45,057 759 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures - Seaboard's management evaluated, under the direction of our Chief Executive and Chief Financial Officers, the effectiveness of Seaboard's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of June 28, 2008. Based upon and as of the date of that evaluation, Seaboard's Chief Executive and Chief Financial Officers concluded that Seaboard's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Due to these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions. Change in Internal Controls - There has been no change in Seaboard's internal control over financial reporting required by Exchange Act Rule 13a-15 that occurred during the fiscal quarter ended June 28, 2008 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. PART II - OTHER INFORMATION Item 1A. Risk Factors There have been no material changes in the risk factors as previously disclosed in Seaboard's Annual Report on form 10-K for the year ended December 31, 2007. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders, held on April 28, 2008, included two items submitted to a vote of stockholders. Item 4 of the Form 10-Q for the first quarter ended March 29, 2008, which was filed on April 29, 2008 discloses the results of the shareholder's vote, which disclosure is incorporated herein by reference. Item 6. Exhibits 10.1 Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine Ltd. for Marine Terminal Operations, dated May 30, 2008. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 8-K dated May 30, 2008. 10.2 Amended and Restated Credit Agreement between Borrowers and Bank of America, N.A., dated July 10, 2008 ($300,000,000 revolving credit facility expiring July 9, 2013). Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 8-K dated July 10, 2008. 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
18 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 This Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward-looking statements generally may be identified as statements that are not historical in nature; and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends," or similar expressions. In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, including the impact of mark-to- market accounting on operating income; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) Seaboard's ability to obtain adequate financing and liquidity, (ii) the price of feed stocks and other materials used by Seaboard, (iii) the sales price or market conditions for pork, grains, sugar and other products and services, (iv) statements concerning management's expectations of recorded tax effects under existing circumstances, (v) the ability of the Commodity Trading and Milling segment to successfully compete in the markets it serves and the volume of business and working capital requirements associated with the competitive trading environment, (vi) the charter hire rates and fuel prices for vessels, (vii) the stability of the Dominican Republic's economy, fuel costs and related spot market prices and collection of receivables in the Dominican Republic, (viii) the effect of the fluctuation in foreign currency exchange rates, (ix) statements concerning profitability or sales volume of any of Seaboard's segments, (x) the anticipated costs and completion timetable for Seaboard's scheduled capital improvements, or (xi) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. This list of forward-looking statements is not exclusive. Seaboard undertakes no obligation to publicly update or revise any forward- looking statement, whether as a result of new information, future events, changes in assumptions or otherwise. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to a variety of factors. The information contained in this report, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences.
19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: August 6, 2008 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Chief Financial Officer (principal financial officer) by: /s/ John A. Virgo John A. Virgo, Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer)
20