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 July 1, 2006 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number 1-3390 Seaboard Corporation (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (913) 676-8800 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X . There were 1,261,367.24 shares of common stock, $1.00 par value per share, outstanding on July 31, 2006. Total pages in filing - 19 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 July 1, July 2, July 1, July 2, 2006 2005 2006 2005 Net sales: Products $ 482,493 $ 547,689 $ 925,100 $1,090,952 Services 183,017 168,475 353,634 323,756 Other 23,427 20,798 45,776 35,581 Total net sales 688,937 736,962 1,324,510 1,450,289 Cost of sales and operating expenses: Products 410,563 475,454 793,054 929,861 Services 143,786 130,697 279,612 248,072 Other 19,491 16,311 38,782 29,295 Total cost of sales and operating expenses 573,840 622,462 1,111,448 1,207,228 Gross income 115,097 114,500 213,062 243,061 Selling, general and administrative expenses 37,029 32,352 74,137 63,833 Operating income 78,068 82,148 138,925 179,228 Other income (expense): Interest expense (4,765) (5,611) (10,334) (11,604) Interest income 5,537 2,752 11,531 6,256 Income (loss) from foreign affiliates 2,120 (1,223) 2,029 (1,744) Minority and other noncontrolling interests (1,668) (40) (3,122) (472) Foreign currency gains (losses), net (855) (623) 2,413 59 Loss from the sale of a portion of operations - (1,773) - (1,773) Miscellaneous, net 1,387 (2,701) 6,171 306 Total other income (expense), net 1,756 (9,219) 8,688 (8,972) Earnings before income taxes 79,824 72,929 147,613 170,256 Income tax expense (10,634) (10,345) (26,883) (38,995) Net earnings $ 69,190 $ 62,584 $ 120,730 $ 131,261 Earnings per common share $ 54.85 $ 49.87 $ 95.71 $ 104.59 Dividends declared per common share $ 0.75 $ 0.75 $ 1.50 $ 1.50 Average number of shares outstanding 1,261,367 1,255,054 1,261,367 1,255,054 See notes to condensed consolidated financial statements.
2 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Thousands of dollars) (Unaudited) July 1, December 31, 2006 2005 Assets Current assets: Cash and cash equivalents $ 36,623 $ 34,622 Short-term investments 368,685 377,874 Receivables, net 222,878 223,024 Inventories 307,525 331,133 Deferred income taxes 11,513 9,743 Other current assets 56,816 70,814 Total current assets 1,004,040 1,047,210 Investments in and advances to foreign affiliates 41,438 39,992 Net property, plant and equipment 622,899 626,580 Goodwill 28,372 28,372 Intangible assets, net 29,440 30,120 Other assets 49,394 44,047 Total assets $1,775,583 $1,816,321 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 8,099 $ 92,938 Current maturities of long-term debt 61,101 61,415 Accounts payable 90,642 112,177 Other current liabilities 136,326 152,859 Total current liabilities 296,168 419,389 Long-term debt, less current maturities 171,959 201,063 Deferred income taxes 121,816 124,749 Other liabilities 52,843 57,216 Total non-current and deferred liabilities 346,618 383,028 Minority and other noncontrolling interests 36,950 36,034 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued and outstanding 1,261,367 shares 1,261 1,261 Additional paid-in capital 21,574 21,574 Accumulated other comprehensive loss (53,886) (53,025) Retained earnings 1,126,898 1,008,060 Total stockholders' equity 1,095,847 977,870 Total liabilities and stockholders' equity $1,775,583 $1,816,321 See notes to condensed consolidated financial statements.
3 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) Six Months Ended July 1, July 2, 2006 2005 Cash flows from operating activities: Net earnings $ 120,730 $ 131,261 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 34,887 30,943 Other investment income, net (827) (613) Loss (income) from foreign affiliates (2,029) 1,744 Foreign currency exchange losses (gains) 35 (29) Minority and noncontrolling interest 3,122 472 Loss from the sale of a portion of operations - 1,773 Deferred income taxes (579) (2,101) Gain from sale of fixed assets (585) (412) Changes in current assets and liabilities: Receivables, net of allowance (3,273) 7,525 Inventories 22,374 16,420 Other current assets 14,350 (2,447) Current liabilities, exclusive of debt (37,639) 186 Other, net (8,608) 2,718 Net cash from operating activities 141,958 187,440 Cash flows from investing activities: Purchase of short-term investments (1,962,579) (381,475) Proceeds from the sale or maturity of short-term investments 1,972,731 262,172 Investments in and advances to foreign affiliates, net 2,015 1,590 Capital expenditures (32,974) (33,082) Proceeds from the sale of a portion of operations - 23,633 Proceeds from the sale of fixed assets 1,596 1,408 Other, net (978) 2,938 Net cash from investing activities (20,189) (122,816) Cash flows from financing activities: Notes payable to banks, net (84,839) (404) Principal payments of long-term debt (29,422) (30,084) Dividends paid (1,892) (1,883) Other, net (3,552) (436) Net cash from financing activities (119,705) (32,807) Effect of exchange rate change on cash (63) 122 Net change in cash and cash equivalents 2,001 31,939 Cash and cash equivalents at beginning of year 34,622 14,620 Cash and cash equivalents at end of period $ 36,623 $ 46,559 See 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, 2005 as filed in its Annual Report on Form 10-K. Seaboard's first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard's year-end is December 31. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interest Rate Exchange Agreements Seaboard's interest rate exchange agreements do not qualify as hedges for accounting purposes. During the three and six months ended July 1, 2006, Seaboard recorded net gains of $455,000 and $3,374,000, respectively, related to these agreements compared to losses of $4,365,000 and $1,387,000 during the same periods of 2005 related to these agreements. The gains and losses are included in miscellaneous, net on the Condensed Consolidated Statements of Earnings and reflect changes in fair market value, net of interest paid or received. During the second quarter of 2006, Seaboard terminated all interest rate exchange agreements with a total notional value of $150,000,000. Seaboard made payments in the amount of $1,028,000 to unwind these swaps. In addition, during the three and six month periods of 2006, Seaboard made net payments of $222,000 and $909,000 respectively, compared to payments made of $733,000 and $2,422,000 during the same periods of 2005 resulting from the difference between the fixed rate paid and variable rate received on these agreements. New Accounting Standards In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes", which defines the threshold for recognizing the benefits of tax-return positions in the financial statements as "more- likely-than-not" to be sustained by the taxing authority. FIN 48 also prescribes a method for computing the tax benefit of such tax positions to recognize in the financial statements. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Seaboard is currently assessing the impacts of adoption of FIN 48 on its results of operations and its financial position and will be required to adopt FIN 48 as of January 1, 2007.
5 Note 2 - Inventories The following is a summary of inventories at July 1, 2006 and December 31, 2005: July 1, December 31, (Thousands of dollars) 2006 2005 At lower of LIFO cost or market: Live hogs & materials $143,266 $146,661 Fresh pork & materials 16,957 22,987 160,223 169,648 LIFO adjustment (570) 571 Total inventories at lower of LIFO cost or market 159,653 170,219 At lower of FIFO cost or market: Grain, flour and feed 100,702 107,073 Sugar produced & in process 16,044 26,559 Other 31,126 27,282 Total inventories at lower of FIFO cost or market 147,872 160,914 Total inventories $307,525 $331,133 Note 3 - Income Taxes Seaboard's tax returns are regularly audited by federal, state, and foreign tax authorities, which may result in adjustments. In the second quarter of 2006, Seaboard reached a settlement with the Internal Revenue Service on its audit of Seaboard's 2004 and 2003 U.S. Federal Tax Returns. The favorable resolution of these tax issues resulted in a tax benefit of $2,786,000 for items previously reserved which was recorded in the second quarter of 2006. During the fourth quarter of 2004, President Bush signed into law H.R. 4520, the American Jobs Creation Act ("Act"). The Act is a significant and complicated reform of U.S. income tax law. The Act contains several provisions which are favorable for Seaboard. Of particular note, the Act repealed the prior law treatment of shipping income as a component of subpart F income. This change means Seaboard will no longer accrue U.S. tax on its post-2004 shipping income, as such income is now deemed to be permanently deferred foreign earnings. Originally, there was ambiguity with the application of Treasury Department Regulations resulting in Seaboard accruing $7,490,000 of tax expense on shipping income in the first quarter of 2005. Ambiguity with this portion of the Act was favorably resolved and Seaboard reversed the previously accrued $7,490,000 as a reduction of income tax expense in the second quarter of 2005. Note 4 - Employee Benefits Seaboard maintains a defined benefit pension plan ("the Plan") for its domestic salaried and clerical employees. As a result of its current liquidity and tax positions, in February 2006 Seaboard made a contribution of $3,811,000 which was the maximum deductible contribution allowed for the 2005 plan year. An additional contribution may be made during 2006 for the 2006 plan year, but such amount is not yet known. Additionally, Seaboard also sponsors non- qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees. Management is considering funding options, but currently has no plans to provide funding for these supplemental plans in advance of when the benefits are paid. Effective July 6, 2006, Mr. H. H. Bresky retired as President and CEO of Seaboard, remaining as Chairman of the Board. As a result of Mr. Bresky's retirement, he is entitled to an estimated lump sum payment of approximately $7,400,000 from Seaboard's Executive Retirement Plan. Under the Act discussed in Note 3 above, there is a six month delay of benefit payments for key employees and thus Mr. Bresky will not be paid his lump sum until January 2007. It is expected that this lump sum payment will exceed the Company's service and interest cost components under this plan and thus will require the Company to recognize a portion of its actuarial losses, that are currently deferred, in 2007 when the Company is relieved of its obligation. Using current assumptions, this settlement loss is estimated at $2,500,000.
6 The net periodic benefit cost of these plans was as follows: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Thousands of dollars) 2006 2005 2006 2005 Components of net periodic benefit cost: Service cost $ 1,208 $ 952 $ 2,128 $ 1,858 Interest cost 1,405 1,097 2,589 2,204 Expected return on plan assets (1,084) (1,129) (2,231) (2,264) Amortization and other 807 293 1,292 590 Net periodic benefit cost $ 2,336 $ 1,213 $ 3,778 $ 2,388 Note 5 - Commitments and Contingencies Seaboard Foods LP ("Seaboard Foods") reached an agreement in 2002 to settle litigation brought by the Sierra Club. Under the terms of the settlement, Seaboard Foods conducted an investigation at three farms. Based on the investigation, it has been determined that two farms do not require any corrective action. The investigation at the one remaining farm concluded that the lagoon at this farm is a likely source of elevated nitrates in the ground water. Seaboard Foods advised the Oklahoma Department of Agriculture, Food & Forestry as to this fact, and is in the process of getting approval for and making the necessary corrective action, which will include constructing a replacement lagoon. The cost of the lagoon and any other implications is not known with certainty, but the cost is expected to be approximately $1,500,000. Seaboard Foods has given notice to PIC International Group, Inc. ("PIC"), the former owner of the farm, as to its right to indemnification from any loss as a result of the lagoon. To date, PIC has declined to provide indemnification. Seaboard Foods is subject to a regulatory action and an investigation by the United States Environmental Protection Agency ("EPA"). Such action involves five properties utilized in Seaboard Foods' hog production operations which were purchased from PIC. Seaboard Foods has undertaken an extensive investigation, and has had significant discussions with the EPA, proposing to take a number of corrective actions with respect to the farms, and one additional farm, in order to attempt to settle the actions. Originally, the EPA advised Seaboard Foods that any such settlement must include a civil fine of $1,200,000, but the EPA has since reduced the amount of its demand for a civil fine to $275,000. Seaboard Foods believes that the EPA has no authority to impose a civil fine under these circumstances, but settlement discussions are continuing. The State of Oklahoma pursued a regulatory action with respect to the same properties involved in the action by the EPA; however, the action has been settled. Pursuant to the settlement, Seaboard Foods paid a fine of $100,000 and agreed to undertake certain supplemental environmental projects at a cost of $80,000, and agreed to undertake specified measures, future monitoring and other measures if the specified measures are not effective. PIC is indemnifying Seaboard Foods with respect to the EPA action and the remedial aspects of the State of Oklahoma settlement, excluding the $100,000 state fine and $80,000 in costs for supplemental environmental projects, pursuant to an indemnification agreement which has a $5,000,000 limit. To date, the $5,000,000 limit has not been exceeded. The amounts expended and the estimated cumulative future capital expenditures total approximately $7,600,000, not including the additional legal costs required to negotiate the settlement or the penalties demanded by the EPA and the settlement reached with the State of Oklahoma. If the measures taken pursuant to the settlements are not effective, other measures with additional costs may be required. PIC has advised Seaboard Foods that it is not responsible for the costs in excess of $5,000,000, but has paid expenditures in excess of this amount. Seaboard Foods disputes PIC's determination of the costs to be included in the calculation to determine whether the $5,000,000 limit has been exceeded, and believes that the costs to be considered are less than $5,000,000, such that PIC is responsible for all such costs and penalties, except for approximately $180,000 of estimated costs that would be incurred over 5 years subsequent to the settlement for certain testing and sampling. Seaboard Foods has agreed to conduct such testing and sampling as part of the sampling it conducts in the normal course of operations, and believes that the incremental costs incurred to conduct such testing and sampling will be less than $180,000. Seaboard Foods also believes that a more general indemnity agreement would require indemnification of liability in excess of $5,000,000 (excluding the estimated $180,000 cost for testing and sampling), although PIC disputes this. During the fourth quarter of 2005, Seaboard's subsidiary, Seaboard Marine, received a notice of violation letter from U.S. Customs and Border Protection demanding payment of a significant penalty for an alleged failure to manifest narcotics in connection with Seaboard Marine's shipping operations, in violation of a federal statute and regulation. Seaboard has responded to the allegations and is engaged in discussions with U.S. Customs and
7 Border Protection regarding the matter. Management believes that the resolution of the matter will not have a material adverse effect on the consolidated financial statements of Seaboard. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements of Seaboard. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard's business objectives. Seaboard does not issue guarantees of third parties for compensation. As of July 1, 2006, Seaboard had three guarantees outstanding with a total maximum exposure of $2,403,000. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considered the likelihood of loss to be remote. As of July 1, 2006, Seaboard had outstanding $56,521,000 of letters of credit ("LCs") with various banks that reduced Seaboard's borrowing capacity under its committed credit facility. Included in this amount are LCs totaling $42,688,000 which support the Industrial Development Revenue Bonds included as long-term debt and $13,158,000 of LCs related to insurance coverages. Commitments During the second quarter of 2006, Seaboard Foods extended a hog procurement contract one additional year. This resulted in an additional commitment in the amount of $53,925,000 for 2008. Seaboard Foods also renegotiated this contract resulting in additional commitments in the amount of $12,831,000 and $13,451,000 for 2006 and 2007, respectively. Note 6 - Stockholders' Equity and Accumulated Other Comprehensive Income (Loss) In conjunction with a 2002 transaction ("the Transaction") between Seaboard and its parent company, Seaboard Flour LLC ("the Parent Company"), whereby Seaboard effectively repurchased shares of its common stock owned by the Parent Company in return for repayment of all indebtedness owed by the Parent Company to Seaboard, the Parent Company also transferred to Seaboard rights to receive possible future cash payments from a subsidiary of the Parent Company and the benefit of other assets owned by that subsidiary. Seaboard also received tax net operating losses ("NOLs") which allow Seaboard to reduce the amount of future income taxes it otherwise would pay. To the extent Seaboard receives cash payments as a result of the transferred rights or reduces its federal income taxes payable by utilizing the NOLs, Seaboard agreed to issue to the Parent Company new shares of common stock with a value equal to the cash received and/or the NOLs utilized. The value of the common stock for purposes of determining the number of shares issued is equal to the ten day rolling average closing price, determined as of the twentieth day prior to the issue date. The maximum number of shares of common stock which may be issued to the Parent Company under the Transaction is capped at 232,414.85, the number of shares which were originally purchased from the Parent Company. On September 15, 2005, Seaboard filed tax returns utilizing the NOLs resulting in reducing its federal income tax by $8,317,416. Based on terms of the Transaction, the price of the shares of Seaboard's common stock to be issued to the Parent Company is equal to the ten day rolling average closing price prior to October 1, 2005, which was $1,317.44. This resulted in Seaboard issuing 6,313.34 shares to Parent Company on November 3, 2005. As of July 1, 2006, Seaboard had not received any cash payments from the subsidiary of its Parent Company and does not currently expect to receive any material amount of cash prior to the expiring of the right to receive such payments on September 17, 2007.
8 Components of total comprehensive income, net of related taxes, are summarized as follows: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Thousands of dollars) 2006 2005 2006 2005 Net earnings $69,190 $62,584 $120,730 $131,261 Other comprehensive income (loss) net of applicable taxes: Foreign currency translation adjustment 228 711 (869) 2,434 Unrealized gains (losses) on investments 528 (127) 130 47 Unrealized gains (losses) on cash flow hedges - - (22) 155 Amortization of deferred gain on interest rate swaps (50) (50) (100) (100) Total comprehensive income $69,896 $63,118 $119,869 $133,797 The components of and changes in accumulated other comprehensive loss for the six months ended July 1, 2006 are as follows: Balance Balance December 31, Period July 1, (Thousands of dollars) 2005 Change 2006 Foreign currency translation adjustment $(53,229) $(869) $(54,098) Unrealized gain on investments 928 130 1,058 Unrecognized pension cost (1,041) - (1,041) Net unrealized loss on cash flow hedges (33) (22) (55) Deferred gain on interest rate swaps 350 (100) 250 Accumulated other comprehensive loss $(53,025) $(861) $(53,886) The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. 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. Note 7 - Segment Information In February 2005, the Board of Directors of the Bulgarian wine business ("the Business"), and the majority of the owners of the Business, including Seaboard, agreed to pursue the sale of the entire Business or all of its assets. As a result of additional advances made during 2005, which changed distribution priorities, Seaboard is entitled to receive approximately 50% of any net sale proceeds of this Business' equity after all third party bank debt has been repaid. As a result, Seaboard decreased its share of the losses from 100% in 2005 to 50% in 2006. Based on current negotiations to sell a substantial portion of the Business and all related wine labels, and other information on the fair value for the sale of all other assets of this Business, management believes if negotiations are successful the remaining carrying value of its investment at the time of disposition will be recoverable from sales proceeds. Seaboard anticipates incurring additional losses from the operation of this Business until the sale of this Business is completed. If the sale of certain assets does not occur during the next few months, the business will need to secure additional financing to secure its grape purchases for the upcoming fall harvest. Failure to secure additional financing and barring any additional support from the existing shareholders, including Seaboard, could result in the Business declaring bankruptcy. If the Business is forced into bankruptcy, this would eliminate the remaining value of the Business to Seaboard resulting in a charge to losses from foreign affiliates in the All Other segment during either the last half of 2006 or early 2007. As of July 1, 2006, the remaining carrying value of Seaboard's investments in and advances to this Business total $3,164,000, including $2,749,000 of foreign currency translation gains recorded in other comprehensive income from this Business which will be recognized in earnings upon completion of the sale. The investment and losses from the Business are included in the All Other segment. This Business is considered a variable interest entity and the related maximum exposure to Seaboard is $415,000 at July 1, 2006. 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
9 consolidated operating income. Operating income, along with income or losses from foreign affiliates for the Commodity Trading and Milling segment, is used as the measure of evaluating segment performance because management does not consider interest and income tax expense on a segment basis. Sales to External Customers: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Thousands of dollars) 2006 2005 2006 2005 Pork $252,139 $255,031 $ 497,433 $ 497,467 Commodity Trading and Milling 201,141 272,764 378,711 558,912 Marine 178,901 161,246 346,284 309,581 Sugar and Citrus 28,929 18,303 47,443 32,610 Power 23,427 20,798 45,776 35,581 All Other 4,400 8,820 8,863 16,138 Segment/Consolidated Totals $688,937 $736,962 $1,324,510 $1,450,289 Operating Income: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Thousands of dollars) 2006 2005 2006 2005 Pork $ 29,808 $ 47,905 $ 59,908 $ 98,329 Commodity Trading and Milling 18,424 7,541 28,389 27,745 Marine 24,423 23,043 43,014 45,971 Sugar and Citrus 4,978 2,261 7,793 5,271 Power 3,035 3,522 5,035 4,568 All Other 705 1,268 1,374 1,793 Segment Totals 81,373 85,540 145,513 183,677 Corporate Items (3,305) (3,392) (6,588) (4,449) Consolidated Totals $ 78,068 $ 82,148 $ 138,925 $ 179,228 Income (Loss) from Foreign Affiliates: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Thousands of dollars) 2006 2005 2006 2005 Commodity Trading and Milling $ 2,247 $ 1,366 $ 3,969 $ 3,478 Sugar and Citrus (50) 15 (1,107) 213 All Other (77) (2,604) (833) (5,435) Segment/Consolidated Totals $ 2,120 $ (1,223) $ 2,029 $ (1,744) Investments in and Advances to Foreign Affiliates: July 1, December 31, (Thousands of dollars) 2006 2005 Commodity Trading and Milling $ 37,688 $ 34,013 Sugar and Citrus 586 1,987 All Other 3,164 3,992 Segment/Consolidated Totals $ 41,438 $ 39,992
10 Total Assets: July 1, December 31, (Thousands of dollars) 2006 2005 Pork $ 709,327 $ 731,422 Commodity Trading and Milling 249,927 282,160 Marine 163,991 150,797 Sugar and Citrus 120,885 112,882 Power 76,370 77,206 All Other 8,689 8,991 Segment Totals 1,329,189 1,363,458 Corporate Items 446,394 452,863 Consolidated Totals $1,775,583 $1,816,321 During the third quarter of 2005, Seaboard revised its allocation of corporate administrative services to the individual segments to primarily represent corporate services rendered to and costs incurred for each specific division with no allocation to individual segments of general corporate management oversight costs. Previously, administrative services provided by the corporate office were primarily allocated to the individual segments based on the size and nature of their operations with certain operating expenses not specifically allocated to individual segments. Operating income for each segment presented above for the three and six months ended July 2, 2005 have been adjusted to reflect changes in the allocation of administrative services by the corporate office. Corporate assets include short-term investments, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments.
11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments decreased $7.2 million from December 31, 2005 primarily reflecting the repayments of $84.8 million of short-term borrowings, $29.4 million of long-term debt and $33.0 million for capital expenditures partially offset by cash generated from operations. Cash from operating activities totaled $142.0 million for the first six months of 2006, compared to $187.4 million for the same period in 2005. Cash from 2006 operating activities decreased compared to the 2005 six month period primarily reflecting the lower earnings for the Pork segment and increases in working capital needs in the Pork and Commodity Trading and Milling segments resulting from the timing of normal transactions for trade payables and voyage settlements, respectively. Capital Expenditures and Other Investing Activities During the six months ended July 1, 2006, Seaboard invested $33.0 million in property, plant and equipment, of which $12.8 million was expended in the Pork segment, $2.2 million was expended in the Commodity Trading and Milling segment, $11.8 million in the Marine segment, and $4.9 million in the Sugar and Citrus segment. For the Pork segment, $6.2 million was spent on the biodiesel plant, expanding the further processing capacity acquired from Daily's and upgrades to the Guymon processing plant. For the Marine segment, $7.9 million was spent to purchase cargo carrying and handling equipment. In the Sugar and Citrus segment, the capital expenditures were primarily used for harvesting equipment and improvements to the plantation. All other capital expenditures are of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades. The Pork segment plans to expand its processed meats capabilities by constructing a separate further processing plant, primarily for bacon and sausage processing, at an approximate cost of $40.0 million. Construction of this facility is expected to begin in the fourth quarter of 2006 or early 2007. In addition, the Pork segment is pursuing the construction of a processing plant to utilize by-products from its Guymon processing plant to produce biodiesel at an approximate cost of $34.0 million, which will be marketed to third parties. Construction of this plant is expected to begin in the second half of 2006 with approximately $12.0 million to be spent in the remainder of 2006 and approximately $20.0 million to be spent in 2007. For the remainder of 2006 management has budgeted capital expenditures totaling $68.0 million. In addition to the projects detailed above, the Pork segment plans to spend $7.9 million for improvement to existing hog facilities, expansion of the further processing capacity acquired from Daily's, upgrades to the Guymon processing plant and additional facility upgrades and related equipment. The Commodity Trading and Milling segment plans to spend $5.4 million primarily for milling facility upgrades and related equipment. The Marine segment has budgeted $23.3 million for additional cargo carrying and handling equipment, expansion of port facilities and to purchase containerized cargo vessels currently chartered. The Sugar and Citrus segment plans to spend $18.4 million for the purchase of land, construct a new alcohol distillery, improvements to the mill, plantation and harvesting equipment. The balance of $1.0 million is planned to be spent in all other businesses. Management anticipates funding these capital expenditures from available cash and short-term investments. Financing Activities and Debt During the second quarter of 2006, Seaboard terminated a $50.0 million committed line of credit leaving its committed credit facility totaling $100.0 million and uncommitted lines totaling $105.1 million as of July 1, 2006. Borrowings outstanding under the uncommitted lines as of July 1, 2006, totaled $8.1 million while there were no outstanding borrowings under the committed credit facility. Outstanding standby letters of credit totaling $56.5 million reduced Seaboard's borrowing capacity under its committed credit line, primarily representing $42.7 million for Seaboard's outstanding Industrial Development Revenue Bonds and $13.2 million related to insurance coverages. Seaboard's remaining 2006 scheduled long-term debt maturities total $32.0 million. Management believes that Seaboard's existing liquidity from available cash and short term investments will be adequate to make these scheduled debt payments and support existing operations during fiscal 2006. Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates. Management periodically reviews various alternatives for future financings to provide additional liquidity for future operating plans. See Note 5 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.
12 RESULTS OF OPERATIONS Net sales for the three and six month periods of 2006 decreased by $48.0 million and $125.8 million over the same periods in 2005, primarily reflecting the sale of some components of Seaboard's third party commodity trading operations in May 2005. Operating income decreased by $4.1 million and $40.3 million for the three and six month periods of 2006, respectively, compared to the same periods in 2005, primarily reflecting lower pork prices, partially offset by the effect of the mark-to-market of derivatives in the Commodity Trading and Milling segment. Operating income for each segment presented below for the three and six months ended July 1, 2006 have been adjusted to reflect changes in the allocation of administrative services by the corporate office as discussed in Note 7 to the Condensed Consolidated Financial Statements. Pork Segment Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $252.1 $255.0 $497.4 $497.5 Operating income $ 29.8 $ 47.9 $ 59.9 $ 98.3 Net sales for the Pork segment decreased $2.9 million and $0.1 million for the three and six month periods of 2006 compared to the same periods in 2005. The decreases are primarily the result of lower sales prices for pork products partially offset by sales contributed from the acquisition of Daily's in July 2005 and, to a lesser extent marketing fee income from Triumph Foods discussed below. Operating income for the Pork segment decreased $18.1 million and $38.4 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005. The decreases primarily relate to lower prices for pork products partially offset by lower costs for third party hogs used for processing, additional operating income contributed by Daily's operations and, to a lesser extent, marketing fee income from Triumph Foods. During the first quarter of 2006, Triumph Foods began production at its new pork processing plant and Seaboard began marketing the related pork products for a fee primarily based on the number of head processed by Triumph Foods. Management is unable to predict future market prices for pork products or the effect on market prices from marketing the increased volumes of pork products produced by Triumph Foods, and the cost of third party hogs used for processing. During 2005 and the last half of 2004, market prices for pork products were high relative to historic norms. Historically high market prices have not been sustained over long periods of time but rather rise and fall based on prevailing market conditions. Overall, management expects pork prices for the remainder of 2006 to be lower than 2005, which could result in significantly lower operating income for this segment during the remainder of 2006 compared to 2005. Commodity Trading and Milling Segment Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $201.1 $272.8 $378.7 $558.9 Operating income $ 18.4 $ 7.5 $ 28.4 $ 27.7 Income from foreign affiliates $ 2.2 $ 1.4 $ 4.0 $ 3.5 Net sales for the Commodity Trading and Milling segment decreased $71.7 million and $180.2 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005. The decreases primarily reflect the sale of some components of Seaboard's third party commodity trading operations in May 2005. Operating income for this segment increased $10.9 million and $0.7 million for the three and six month periods of 2006, respectively, compared to the same periods in 2005. The increase for the three and six month periods of 2006 compared to 2005 primarily reflects the $12.5 million and $2.7 million fluctuation, respectively, of marking to market the derivative contracts as discussed below. In addition, the increases for both the three and six month periods of 2006 reflect the improved gross margin percentage for the commodity trading business. Due to the uncertain political and economic conditions in the countries in which Seaboard operates, management is unable to predict future sales and operating results, but anticipates positive operating income for the remainder of 2006, excluding the potential effects of marking to market derivative contracts.
13 Had Seaboard applied hedge accounting to its derivative instruments, operating income would have been lower by $7.6 million for the three and six month periods of 2006, respectively, whereas operating income for the three and six months of 2005 would have been higher by $4.9 million and lower by $4.9 million, respectively. While management believes its foreign exchange contracts and commodity futures and options are economic hedges of its firm purchase and sales contracts, Seaboard does not perform the type of extensive record-keeping required to account for either type of derivative as hedges for accounting purposes. Accordingly, while the changes in value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As a result, operating income for the three and six month periods of 2006 includes commodity derivative gains of $2.6 million and $4.2 million, respectively, compared to losses of $3.5 million and gains of $3.0 million for the same 2005 periods related to these mark-to-market adjustments. In addition, operating income for the three and six months of 2006 includes gains from foreign exchange derivative contracts of $5.0 million and $3.4 million compared to losses of $1.4 million and gains of $1.9 million for the same 2005 periods. Income from foreign affiliates for the three and six month periods of 2006 increased $0.8 million and $0.5 million, respectively, from the same 2005 periods. Based on current political and economic situations in the countries in which the flour and feed mills operate, management cannot predict whether the foreign affiliates will remain profitable for the remainder of 2006. Marine Segment Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $178.9 $161.2 $346.3 $309.6 Operating income $ 24.4 $ 23.0 $ 43.0 $ 46.0 Net sales for the Marine segment increased $17.7 million and $36.7 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005 primarily reflecting higher average cargo rates across most markets and, to a lesser extent, higher cargo volumes in certain markets. Management cannot predict whether rates will continue to increase or be in an amount sufficient to cover increases in charter hire and fuel related expenses. Operating income for the Marine segment increased $1.4 million and decreased $3.0 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005. The increase for the three month period primarily reflects higher cargo rates partially offset by higher costs of fuel, charter hire and inland transportation, while such cost increases exceeded higher rates for the six month period. Although management cannot predict changes in future cargo rates, fuel related costs, charter hire expenses or to what extent changes in economic conditions will impact cargo volumes, it does expect this segment to remain profitable for the remainder of 2006 although lower than 2005. Sugar and Citrus Segment Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $ 28.9 $ 18.3 $ 47.4 $ 32.6 Operating income $ 5.0 $ 2.3 $ 7.8 $ 5.3 Income (loss) from foreign affiliates $ 0.0 $ 0.0 $ (1.1) $ 0.2 Net sales for the Sugar and Citrus segment increased $10.6 million and $14.8 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005 primarily reflecting higher sales volumes of sugar from increased purchases of sugar from third parties for resale and, to a lesser extent, increased sugar prices on export sales. Partially offsetting the increase was a decrease in citrus sales recognized during the second quarter of 2006 as a result of more consignment sales not yet recognized compared to 2005. Although export prices have increased, management does not expect Argentine sugar prices to significantly increase during 2006 because governmental authorities are attempting to control inflation by limiting the price of basic commodities, including sugar. However, Seaboard expects to maintain its historical sales volume to Argentinean customers. Operating income increased $2.7 million and $2.5 million for the three and six month periods of 2006, respectively, compared to the same periods of 2005, as a result of higher sales volumes and increase sugar prices as discussed above. Management expects operating income will remain positive for the remainder of 2006.
14 The loss from foreign affiliates for the first six months of 2006 represents the expense of canceling a franchisee agreement incurred during the first quarter of 2006. Power Segment Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $ 23.4 $ 20.8 $ 45.8 $ 35.6 Operating income $ 3.0 $ 3.5 $ 5.0 $ 4.6 Net sales for the Power segment increased $2.6 million and $10.2 million for the three and six month periods of 2006, respectively, compared to the same periods in 2005 primarily reflecting higher rates partially offset by lower power production levels. Rates have increased during 2006 primarily as a result of higher fuel costs, a component of pricing. During the first six months of 2006, Seaboard's power production was restricted by the regulatory authorities in the Dominican Republic. The regulatory body schedules production based on the amount of funds available to pay for the power produced and the relative costs of the power produced. Operating income decreased $0.5 million and increased $0.4 million for the three and six month periods of 2006, respectively, compared to the same periods in 2005. For the three month period of 2006, the decrease was primarily the result of lower production levels and fuel costs increasing more than the higher rates. For the six month period of 2006, the increase was primarily the result of higher rates being only partially offset by lower production levels and fuel cost increases. Management currently cannot predict if it will remain profitable for the remainder of 2006 since the extent to which the regulatory authority will restrict Seaboard's production of power is uncertain. All Other Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, (Dollars in millions) 2006 2005 2006 2005 Net sales $ 4.4 $ 8.8 $ 8.9 $ 16.1 Operating income $ 0.7 $ 1.3 $ 1.4 $ 1.8 Loss from foreign affiliate $ (0.1) $(2.6) $ (0.8) $ (5.4) Net sales decreased primarily as a result of discontinuing a portion of Seaboard's transportation business during the second half of 2005 and combining the remaining related party portion of the business with the Pork segment. Operating income decreased during 2006 primarily as a result of increased transportation costs in the jalapeno pepper operations. The loss from foreign affiliate reflects Seaboard's share of losses from its equity method investment in a Bulgarian wine business. In 2006 Seaboard recorded 50% of the losses from this business compared to 100% in 2005. Management expects additional losses from the operations of this business for the remainder of 2006. See Note 7 to the Condensed Consolidated Financial Statements for further discussion of this business and intentions to sell the business. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses increased by $4.7 million and $10.3 million during the three and six month periods of 2006 compared to the same periods of 2005 primarily as a result of the acquisition of Daily's and additional selling costs for marketing Triumph Foods' products in the Pork segment and increases in the Marine segment reflecting increased selling costs related to the volume growth of this business. As a percentage of revenues, SG&A increased to 5.4% and 5.6% for the 2006 three and six month periods, respectively, compared to 4.4% for the same periods in 2005 primarily from the increases noted above and lower net sales as a result of the sale of some components of Seaboard's third party commodity trading operations in May 2005. Interest Income Interest income increased $2.8 million and $5.3 million in the three and six month periods of 2006, respectively, compared to the same periods of 2005, primarily reflecting the higher level of average funds invested during 2006 and to a lesser extent, higher interest rates.
15 Minority and Other Noncontrolling Interests Minority and other noncontrolling interests expense increased $1.6 million and $2.7 million in the three and six month periods of 2006, respectively, compared to the same periods of 2005 primarily reflecting the minority interest resulting from the acquisition of Daily's in July 2005. Foreign Currency Gains (Losses) Seaboard realized net foreign currency losses of $0.9 million and gains of $2.4 million in the three and six month periods of 2006, respectively, compared to losses of $0.6 million and gains of $0.1 million in the same periods of 2005. The fluctuations in foreign currency gains and losses are primarily related to currency appreciation in certain African operations of the Commodity Trading and Milling segment. Loss from the Sale of a Portion of Operations During the second quarter of 2005, Seaboard sold some components of its third party commodity trading operations. Because Seaboard does not use hedge accounting for its commodity and foreign exchange agreements, gains of $2.2 million from the mark-to-market of the sold derivative instruments were recorded in cost of sales prior to the date of the sale while the change in value of the related firm sales commitment was not, resulting in a loss on the sale from this transaction totaling $1.8 million during the second quarter of 2005. Miscellaneous, Net Miscellaneous, net for the three and six months of 2006 includes $0.5 million and $3.4 million, respectively, of gains from the mark-to- market of interest rate swap agreements compared to losses of $4.4 million and $1.4 million, respectively for the same periods in 2005. See Note 1 to the Condensed Consolidated Financial Statements for further discussion. Miscellaneous, net for the three and six months of 2006 also includes income of $0.6 million and $0.9 million, respectively, from the decrease in the value of put option value relating to the Daily's acquisition in July 2005. Income Tax Expense The effective tax rate decreased for the six months of 2006 compared to 2005 primarily as a result of increased amounts of permanently deferred foreign earnings and lower amounts of domestic taxable income. Also, during the second quarter of 2006, Seaboard recorded a $2.8 million tax benefit related to a settlement with the Internal Revenue Service. In addition, during the second quarter of 2005, a previous tax expense of $7.5 million was reversed. See Note 3 to the Condensed Consolidated Financial Statements for further discussion. OTHER FINANCIAL INFORMATION In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes", which defines the threshold for recognizing the benefits of tax-return positions in the financial statements as "more- likely-than-not" to be sustained by the taxing authority. See Note 1 to the Condensed Consolidated Financial Statements for further discussion of FIN 48. Seaboard is currently assessing the impacts of adoption of FIN 48 on its results of operations and its financial position and will be required to adopt FIN 48 as of January 1, 2007. Item 3. Quantitative and Qualitative Disclosures About Market Risk Seaboard is exposed to various types of market risks in its day-to-day operations. Seaboard utilizes derivative instruments to mitigate some of these risks including both purchases and sales of futures and options to hedge inventories, forward purchase and sale contracts. From time to time, Seaboard may enter into speculative derivative transactions not directly related to its raw material requirements. The nature of Seaboard's market risk exposure related to these items has not changed materially since December 31, 2005. 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 July 1, 2006. 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.
16 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 July 1, 2006 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings Seaboard's subsidiary, Seaboard Foods LP ("Seaboard Foods"), is subject to an ongoing Unilateral Administrative Order ("RCRA Order") pursuant to Section 7003 of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sec. 6973 ("RCRA"), filed by the United States Environmental Protection Agency ("EPA") on June 29, 2001. Seaboard Foods has undertaken an extensive investigation, and has had significant discussions with the EPA, proposing to take a number of corrective actions with respect to the farms, and one additional farm, in order to attempt to settle the actions. Originally, the EPA advised Seaboard Foods that any such settlement must include a civil fine of $1,200,000, but the EPA has since reduced the amount of its demand for a civil fine to $275,000. Seaboard Foods believes that the EPA has no authority to impose a civil fine under these circumstances, but settlement discussions are continuing. The State of Oklahoma pursued a regulatory action with respect to the same properties involved in the EPA RCRA Order; however, the action has been settled. Pursuant to the settlement, Seaboard Foods paid a fine of $100,000 and agreed to undertake certain supplemental environmental projects at a cost of $80,000, and agreed to undertake specified measures, future monitoring and other measures if the specified measures are not effective. PIC is indemnifying Seaboard Foods with respect to the EPA action and the remedial aspects of the State of Oklahoma settlement, excluding the $100,000 state fine and $80,000 in costs for supplemental environmental projects, pursuant to an indemnification agreement which has a $5,000,000 limit. The amounts expended to date and the estimated cumulative future capital expenditures total approximately $7,600,000, not including the additional legal costs required to negotiate the settlement or the fine demanded by the EPA and the settlement reached with the State of Oklahoma. If the measures taken pursuant to the settlements are not effective, other measures with additional costs may be required. PIC has advised Seaboard Foods that it is not responsible for the costs in excess of $5,000,000, but has paid expenditures in excess of this amount. Seaboard Foods disputes PIC's determination of the costs to be included in the calculation to determine whether the $5,000,000 limit has been exceeded, and believes that the costs to be considered are less than $5,000,000, such that PIC is responsible for all such costs and penalties, except for approximately $180,000 of estimated costs that would be incurred over 5 years subsequent to the settlement for certain testing and sampling. Seaboard Foods has agreed to conduct such testing and sampling as part of the sampling it conducts in the normal course of operations, and believes that the incremental costs incurred to conduct such testing and sampling will be less than $180,000. Seaboard Foods also believes that a more general indemnity agreement would require indemnification of liability in excess of $5,000,000 (excluding the estimated $180,000 cost for testing and sampling), although PIC disputes this. The EPA also has been conducting a broad-reaching investigation of Seaboard Foods, seeking information as to compliance with the Clean Water Act ("CWA"), Comprehensive Environment Response, Compensation & Liability Act ("CERCLA") and the Clean Air Act. The EPA initially proposed to settle the matter by Seaboard Foods paying a civil fine of $345,000 and taking various other actions which will cost approximately $150,000. The EPA recently reduced the civil fine portion of its proposed settlement to $250,000. In addition, Seaboard Foods has applied to participate in the National AFO/CAFO Air Emissions Agreement with the EPA, with a portion of the civil fine being applied to satisfy the $100,000 payment owing under the Air Emissions Agreement. Management believes it has meritorious legal and factual defenses and objections to the EPA's demands, but settlement discussions are continuing. 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, 2005. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders, held on April 24, 2006, included three items submitted to a vote of stockholders. Item 4 of the Form 10- Q for the first quarter ended April 1, 2006, which was filed on May 5, 2006 discloses the results of the shareholder's vote, which disclosure is incorporated herein by reference.
17 Item 5. Other Information Seaboard Marine and Edward A. Gonzalez entered into an Amendment to Employment Agreement dated August 8, 2006, extending the term of the Agreement to five years, renewed annually for a like term of five years on July 1 of each year, unless Seaboard Marine Ltd. furnishes a written notice of non-renewal. All other terms of the Employment Agreement continue in full force and effect. Item 6. Exhibits 10.1 Amendment to Employment Agreement between Seaboard Corporation and Edward A. Gonzales, dated August 8, 2006. 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 sale price or market conditions for pork, sugar and other products, (iv) the sales price or market conditions for other products and services, (v) statements concerning management's expectations of recorded tax effects under existing circumstances, (vi) the ability of trading and milling to successfully compete in the markets it serves and the volume of business and working capital requirements associated with the competitive trading environment, (vii) the charter hire rates and fuel prices for vessels, (viii) the stability of the Dominican Republic's economy and demand for power, related spot market prices and collectibility of receivables in the Dominican Republic, (ix) the effect of the fluctuation in exchange rates for the Dominican Republic peso, (x) the potential effect of Seaboard's investment in a wine business on the consolidated financial statements, (xi) the potential impact of various environmental actions pending or threatened against Seaboard, (xii) statements concerning profitability or sales volume of any of Seaboard's segments, (xiii) the impact of the 2005 Daily's acquisition in enhancing Seaboard's ability to venture into other further processed pork products, (xiv) the timetable for the Triumph Foods pork processing plant to reach full double shift operating capacity, (xv) the ability of Seaboard to successfully market the increased volume of pork produced by Triumph Foods, (xvi) the anticipated costs and completion timetable for Seaboard's scheduled capital improvements, or (xvii) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward- looking statements due to a variety of factors. The information contained in this report, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences.
18 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 9, 2006 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and 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)
19