-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fphylq56vC67U45YaAB0XpbG2BzEEMcsfI8rwAlz/zPTckvX/tbFD5g0VXr2ZPUE z89u+JYpFsegZwKyzKQ1LQ== 0000088121-07-000002.txt : 20070305 0000088121-07-000002.hdr.sgml : 20070305 20070305162045 ACCESSION NUMBER: 0000088121-07-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070305 DATE AS OF CHANGE: 20070305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 07671444 BUSINESS ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 BUSINESS PHONE: 9136768800 MAIL ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 10-K 1 k10.txt SEABOARD CORPORATION 2006 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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) (ZipCode) (913) 676-8800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered Common Stock $1.00 Par Value American Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [ X ] 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 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 Act). Yes [ ] No [X ] The aggregate market value of the 354,635 shares of Seaboard voting stock held by nonaffiliates was approximately $453,932,800, based on the closing price of $1,280.00 per share on July 1, 2006, the end of Seaboard's second fiscal quarter. As of February 16, 2007, the number of shares of common stock outstanding was 1,261,367.24. DOCUMENTS INCORPORATED BY REFERENCE Part I, item 1(b), a part of item 1(c)(1) and the financial information required by item 1(d) and Part II, items 6, 7, 7A and 8 are incorporated herein by reference to Seaboard Corporation's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b). Part II, a part of item 5, and Part III, a part of item 10 and items 11, 12 and 13 are incorporated herein by reference to Seaboard Corporation's definitive proxy statement filed pursuant to Regulation 14A for the 2007 annual meeting of stockholders. Forward-Looking Statements This report, including information included or incorporated by reference in this report, contains certain 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, -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 and services, (iv) statements concerning management's expectations of recorded tax effects under certain 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 and demand for power, related spot market prices and collections of receivables in the Dominican Republic, (viii) the effect of the fluctuation in exchange rates for the Dominican Republic peso, (ix) the potential impact of the EPA consent decrees, and various environmental actions pending or threatened against Seaboard, (x) statements concerning profitability or sales volume of any of Seaboard's segments, (xi) the impact of the 2005 Daily's acquisition in enhancing Seaboard's ability to venture into further processed pork products, (xii) the timetable for the Triumph Foods pork processing plant to reach full double shift operating capacity, (xiii) the anticipated costs and completion timetable for Seaboard's scheduled capital improvements, or (xiv) 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 Form 10-K and in other filings Seaboard makes with the Commission, including without limitation, the information under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K, identifies important factors which could cause such differences. 2 PART I Item 1. Business (a) General Development of Business Seaboard Corporation, a Delaware corporation, the successor corporation to a company first incorporated in 1928, and subsidiaries (Seaboard) is a diversified international agribusiness and transportation company. In the United States, Seaboard is primarily engaged in pork production and processing, and ocean transportation. Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production, and electric power generation. See Item 1(c) (1) (ii) "Status of Product or Segment" below for a discussion of developments in specific segments. Seaboard Flour LLC, a Delaware limited liability company, owns approximately 70.9 percent of the outstanding common stock of Seaboard. Mr. Steven J. Bresky, President and Chief Executive Officer of Seaboard, and other members of the Bresky family, including trusts created for their benefit, own approximately 99.5 percent of the common units of Seaboard Flour LLC. (b) Financial Information about Industry Segments The information required by Item 1(b) of Form 10-K relating to Industry Segments is incorporated herein by reference to Note 13 of the Consolidated Financial Statements appearing on pages 56 through 59 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this Report. (c) Narrative Description of Business (1) Business Done and Intended to be Done by the Registrant (i) Principal Products and Services Pork Division - Seaboard, through its subsidiary Seaboard Foods LP, previously Seaboard Farms, Inc., engages in the businesses of hog production and pork processing in the United States. Through these operations, Seaboard produces and sells fresh, frozen and further processed pork products to further processors, foodservice operators, grocery stores and other retail outlets, and other distributors throughout the United States. Internationally, Seaboard sells to distributors in Japan, Mexico and other foreign markets. Other further processing companies also purchase Seaboard's fresh and frozen pork products in bulk and produce products, such as lunchmeat, hams, bacon, and sausages. Fresh pork, such as loins, tenderloins and ribs are sold to distributors and grocery stores. Seaboard also sells further processed pork products consisting primarily of raw and pre-cooked bacon from its two bacon further processing plants. Seaboard sells some of its fresh products under the brand name Prairie Fresh and its bacon and other further processed products under the Daily's brand name. Seaboard's hog processing plant is located in Guymon, Oklahoma, and operates at double shift capacity. Seaboard's bacon plants are located in Salt Lake City, Utah and Missoula, Montana. Seaboard's hog production operations consist of the breeding and raising of approximately 3.8 million hogs annually at facilities primarily owned or at facilities owned and operated by third parties with whom it has grower contracts. The hog production operations are located in the States of Oklahoma, Kansas, Texas and Colorado. As a part of the hog production operations, Seaboard produces specially formulated feed for the hogs at six owned feed mills. The remaining hogs processed are purchased from third party hog producers, primarily pursuant to purchase contracts. Commodity Trading and Milling Division - Seaboard's Commodity Trading and Milling Division, through its subsidiaries, Seaboard Overseas Limited based in Bermuda, and Seaboard Overseas Trading and Shipping (PTY), Ltd. located in South Africa, internationally markets wheat, corn, soybean meal and other related commodities in bulk to third party customers and affiliated companies. These commodities are purchased worldwide, with primary destinations to Africa, South America, and the Caribbean. The division sources, transports and markets approximately 3.0 million tons of grains and proteins on an annual basis. Seaboard integrates the service of delivering commodities to its customers through the use of chartered bulk vessels and its eight owned bulk carriers. 3 This division also operates milling and related businesses with twenty-five locations in thirteen countries, which are primarily supplied by the trading locations discussed above. The grain processing businesses are operated through six consolidated and seven non-consolidated affiliates in Africa, the Caribbean and South America, with flour, feed and maize milling businesses which produce approximately 1.5 million metric tons of finished products per year. Most of the products produced by the milling operations are sold in the countries in which the products are produced or into adjacent countries. Marine Division - Seaboard, through its subsidiary, Seaboard Marine Limited, and various foreign affiliated companies and third party agents, provides containerized cargo shipping service to over twenty-five countries between the United States, the Caribbean Basin, and Central and South America. Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America and the Caribbean Basin to book both northbound and southbound cargo to and from the United States and between the countries it serves. Through intermodal arrangements, Seaboard can transport cargo to and from numerous U.S. locations by either truck or rail to and from one of its U.S. port locations, where it is staged for export via vessel or received as import cargo from abroad. Seaboard's primary marine operation is located in Miami and includes a 135,000 square foot warehouse for cargo consolidation and temporary storage. Seaboard also has a 70 acre terminal located at the Port of Miami. Seaboard operates a 62 acre cargo terminal facility at the Port of Houston that includes over 690,000 square feet of on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes. Seaboard also makes scheduled vessel calls in Philadelphia, Pennsylvania, Fernandina Beach, Florida, New Orleans, Louisiana and approximately 38 foreign ports. At December 31, 2006, Seaboard's fleet consists of ten owned and approximately 29 chartered vessels, thousands of dry, refrigerated and specialized containers and related equipment. In January 2007, Seaboard purchased a vessel previously chartered. Seaboard also provides cargo transportation service from its domestic ports of call to and from multiple foreign destinations where Seaboard does not make vessel calls through connecting carrier agreements with third party regional and global carriers. Sugar and Citrus Division - Seaboard, through its subsidiary, Ingenio y Refineria San Martin del Tabacal and other Argentine non-consolidated affiliates, is involved in the production and refining of sugar cane and the production and processing of citrus in Argentina. This division also purchases sugar and citrus in bulk from third parties within Argentina for subsequent resale. The sugar products are primarily sold in Argentina, primarily to retailers, soft drink manufacturers, and food manufacturers, with some exports to the United States, South America and Europe while the citrus products are primarily exported to the global market. Seaboard grows a large portion of the sugar cane on approximately 50,000 acres of land it owns in northern Argentina. The cane is processed at an owned mill, with a current processing capacity of over 200,000 metric tons of sugar and over four million gallons of alcohol per year. The sugar mill is one of the largest in Argentina. In addition, approximately 3,000 acres of land is planted with oranges. Power Division - Seaboard, through its subsidiary, Transcontinental Capital Corp. (Bermuda) Ltd., operates as an independent power producer in the Dominican Republic. This operation is exempt from U.S. regulation under the Public Utility Holding Company Act of 1938, as amended. The business operates two floating barges with a system of diesel engines capable of generating a combined rated capacity of approximately 112 megawatts of electricity. Seaboard generates electricity into the local Dominican Republic power grid. Seaboard is not directly involved in the transmission or distribution of the electricity but does have contracts to sell directly to third party users. The barges are secured on the Ozama River in Santo Domingo, Dominican Republic. The electricity is sold at contracted pricing to certain large commercial users with contract terms extending from one to four years. Seaboard also sells power under short-term contracts with certain government- owned distribution companies. The remaining electricity is sold in the "spot market" at prevailing market prices, primarily to three wholly or partially government-owned electric distribution companies. Other Businesses - Seaboard purchases and processes jalapeno peppers at its owned plant in Honduras. The processed peppers are primarily sold to a customer in the United States, and are shipped to the United States by Seaboard's Marine Division and distributed from Seaboard's port facilities. The information required by Item 1 of Form 10-K with respect to the amount or percentage of total revenue contributed by any class of similar products or services which account for 10 percent or more of consolidated 4 revenue in any of the last three fiscal years is set forth in Note 13 of Seaboard's Consolidated Financial Statements, appearing on pages 56 through 59 of the Seaboard's Annual Report to Stockholders, furnished to the Commission pursuant to rule 14a-3(b) and attached as Exhibit 13 to this report, which information is incorporated herein by reference. (ii) Status of Product or Segment The Pork segment is currently planning to expand its processed meats capabilities by constructing a separate further processing plant, primarily for bacon and sausage processing. Construction of this facility is expected to begin during late 2007 and to be completed in early 2009. In addition, the Pork segment is constructing a biodiesel processing plant to utilize by-product from its Guymon processing plant. Construction of this plant began in 2006 and is expected to be completed in 2007. In January 2007, Seaboard repurchased the 4.74% equity interest in its subsidiary, Seaboard Foods LP, from the former owners of Daily's. The former owners of Daily's had acquired this equity interest as part of Seaboard's 2005 acquisition of Daily's, a bacon processor located in the western United States. During 2006, Triumph Foods began production at its new pork processing plant located in St. Joseph, Missouri, and Seaboard begin marketing the related pork products for a fee primarily based on the number of head processed by Triumph Foods. This plant has similar capacity to Seaboard's Guymon plant with the business based upon a similar integrated model as Seaboard's. Triumph Foods expects its plant to reach full double shift operating capacity during 2007. Seaboard's sales prices for its pork products are primarily based on an average sales price and mix of products sold from both Seaboard's and Triumph Food's hog processing plant. During 2006, Seaboard re-established its commodity trading business in markets associated with the sale in 2005 of some components of its third party commodity trading operations. During 2006, Seaboard began flour milling operations in Madagascar through the lease of two milling facilities. Seaboard has the ability to cancel the lease with notice which Seaboard could do if it is determined such milling operations cannot be profitable in this country. Seaboard is a minority owner in a flour milling operation, located in Angola, which closed in 2005. Seaboard is exploring various alternatives to reopen the operation. During 2006, Seaboard established a plan to expand the Sugar & Citrus business. As part of this plan, Seaboard has begun the process of purchasing land, planting an additional 15,000 acres of sugar cane and expanding the alcohol distillery operations. This expansion should raise sugar production from approximately 200,000 metric tons per year to approximately 230,000 metric tons per year and alcohol production from approximately four million gallons per year to approximately thirteen million gallons per year. At times during 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. In addition, Seaboard is pursuing additional investment opportunities in the power industry. Seaboard is part of a consortium that has been awarded the right to construct two coal-fired 305 megawatt electric generating plants in the Dominican Republic. The amount of equity required for the project is uncertain but Seaboard's 50% or less share of the investment could range from $25 to $75 million depending on the amount of financing obtained by the group and the timing of the construction of the second plant. The timing of the project and Seaboard's ultimate involvement cannot be determined. (iii) Sources and Availability of Raw Materials None of Seaboard's businesses utilize material amounts of raw materials that are dependent on purchases from one supplier or a small group of dominant suppliers. (iv) Patents, Trademarks, Licenses, Franchises and Concessions Seaboard uses the registered trademark of Seaboard. 5 The Pork Division uses registered trademarks relating to its products, including Seaboard Farms, Prairie Fresh, A Taste Like No Other, Daily's, Buffet Brand and Seaboard Farms, Inc.. Seaboard considers the use of these trademarks important to the marketing and promotion of its pork products. The Marine Division uses the trade name Seaboard Marine which is also a registered trademark. Seaboard believes there is significant recognition of the Seaboard Marine trademark in the industry and by many of its customers. Part of the sales within the Sugar and Citrus Division are made under the Chango brand in Argentina, where this division operates. Local sales prices are affected by sugar import duties imposed by the Argentine government, which affects the volume of sugar imported to and exported from that market. Seaboard's Power Division benefits from a tax exempt concession granted by the Dominican Republic government through 2012. Patents, trademarks, franchises, licenses and concessions are not material to any of Seaboard's other divisions. (v) Seasonal Business Profits from processed pork are generally higher in the fall months. Sugar prices in Argentina are generally lower during the typical sugarcane harvest period between June and November. Seaboard's other divisions are not seasonally dependent to any material extent. (vi) Practices Relating to Working Capital Items There are no unusual industry practices or practices of Seaboard relating to working capital items. (vii) Depending on a Single Customer or Few Customers Seaboard does not have sales to any one customer equal to ten percent or more of consolidated revenues. The Pork division derives approximately eleven percent of its revenues from three customers in Japan through one agent. The Power division sells power in the Dominican Republic to a limited number of contract customers and on the spot market accessed primarily by three wholly or partially government-owned distribution companies. Seaboard's Produce Division sells nearly all of its processed jalapeno peppers to one customer under a contract expiring in 2008. We do not believe the loss of this customer would have a material adverse effect on Seaboard's consolidated financial position or results of operations. No other division has sales to a few customers which, if lost, would have a material adverse effect on any such segment or on Seaboard taken as a whole. (viii) Backlog Backlog is not material to Seaboard businesses. (ix) Government Contracts No material portion of Seaboard business involves government contracts. (x) Competitive Conditions Competition in Seaboard's Pork Division comes from a variety of national, international and regional producers and processors and is based primarily on product quality, customer service and price. According to recent publications by Successful Farming and Informa Economics, trade publications, Seaboard ranks as one of the nation's top five pork producers (based on sows in production) and top ten pork processors (based on daily processing capacity). Seaboard's ocean liner service for containerized cargoes faces competition based on price and customer service. Seaboard believes it is among the top five ranking ocean liner services for containerized cargoes in the Caribbean Basin based on cargo volume. Seaboard's sugar business owns one of the largest sugar mills in Argentina and faces significant competition for sugar sales in the local Argentine market. Sugar prices in Argentina can fluctuate compared to world markets due to current Argentine government price protection policies. 6 Seaboard's Power Division is located in the Dominican Republic. Power generated by this segment is sold on the spot market or to contract customers at prices primarily based on market conditions rather than cost-based rates. (xi) Research and Development Activities Seaboard conducts research and development activities focused on various aspects of Seaboard's vertically integrated pork processing system, including improving product quality, production processes, animal genetics, nutrition and health. Incremental costs incurred to perform these tests are expensed as incurred and are not material to operating results. (xii) Environmental Compliance Seaboard is subject to numerous Federal, state and local provisions relating to the environment which require the expenditure of funds in the ordinary course of business. Seaboard does not anticipate making expenditures for these purposes, including expenditures with respect to the items disclosed in Item 3, Legal Proceedings, which, in the aggregate would have a material or significant effect on Seaboard's financial condition or results of operations. (xiii) Number of Persons Employed by Registrant As of December 31, 2006, Seaboard, excluding non- consolidated foreign affiliates, had 10,363 employees, of whom 5,545 were employed in the United States. Approximately 2,000 employees in Seaboard's Pork Division were covered by collective bargaining agreements as of December 31, 2006. Seaboard considers its employee relations to be satisfactory. (d) Financial Information about Geographic Areas The financial information required by Item 1(d) of Form 10-K relating to export sales is incorporated herein by reference to Note 13 of Seaboard's Consolidated Financial Statements appearing on pages 56 through 59 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this report. Seaboard considers its relations with the governments of the countries in which its foreign subsidiaries and affiliates are located to be satisfactory, but these foreign operations are subject to risks of doing business in lesser-developed countries which are subject to potential civil unrests and government instabilities, increasing the exposure to potential expropriation, confiscation, war, insurrection, civil strife and revolution, sales price controls, currency inconvertibility and devaluation, and currency exchange controls. To minimize certain of these risks, Seaboard has insured certain investments in its affiliate flour mills in Haiti, Lesotho, Mozambique, Republic of Congo and Zambia, to the extent available and deemed appropriate against certain of these risks with the Overseas Private Investment Corporation, an agency of the United States Government. Nigeria is presently experiencing an increase in insurrection and civil unrest in certain parts of the country but not in areas where Seaboard primarily operates and, to date, this has not had any effect on Seaboard's flour and feed operations in that country. Currently, these situations are not expected to have any material effect on Seaboard's cash flows or results of operations. At the date of this report, Seaboard is not aware of any other situations referred to above which could have a material effect on Seaboard's business. (e) Available Information Seaboard electronically files with the Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. The public may read and copy any materials filed with the Commission at their public reference room located at 100 F Street N.E., Washington, D.C. 20549. The public may obtain further information concerning the public reference room and any applicable copy charges, as well as the process of obtaining copies of filed documents by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding electronic filers at www.sec.gov. Seaboard provides access to its most recent Form 10-K, 10-Q and 8-K reports, and any amendments to these reports, on its Internet website, www.seaboardcorp.com, free of charge, as soon as reasonably practicable after those reports are electronically filed with the Commission. 7 Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks. Accordingly, no information provided at such Internet addresses is intended or deemed to be incorporated herein by reference. Item 1A. Risk Factors Seaboard has identified important risks and uncertainties that could affect the results of operations, financial condition or business and that could cause them to differ materially from Seaboard's historical results of operations, financial condition or business, or those contemplated by forward-looking statements made herein or elsewhere, by, or on behalf of, Seaboard. Factors that could cause or contribute to such differences include, but are not limited to, those factors described below. (a) General (1)Seaboard's Operations Are Subject To The General Risks Of The Food Industry. The segments of the business that are in the food products manufacturing industry are subject to the risks posed by: - food spoilage or food contamination; - evolving consumer preferences and nutritional and health- related concerns; - federal, state and local food processing controls; - consumer product liability claims; - product tampering; - the possible unavailability and/or expense of liability insurance. If one or more of these risks were to materialize, Seaboard's revenues could decrease, costs of doing business could increase, and Seaboard's operating results could be adversely affected. (2)Foreign Political And Economic Conditions Have A Significant Impact On Seaboard's Business. Seaboard is a diverse agribusiness and transportation company with global operations in several industries. Most of the sales and costs of Seaboard's segments are significantly influenced by worldwide fluctuations in commodity prices or changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. In addition, Seaboard's international activities pose risks not faced by companies that limit themselves to United States markets. These risks include: - changes in foreign currency exchange rates; - foreign currency exchange controls; - changes in a specific country's or region's political or economic conditions, particularly in emerging markets; - hyperinflation; - heightened customer credit risk; - tariffs, other trade protection measures and import or export licensing requirements; - potentially negative consequences from changes in tax laws; - different legal and regulatory structures and unexpected changes in legal and regulatory requirements; and - negative perception within a foreign country of a United States company doing business in that foreign country. Seaboard cannot assure you that it will be successful in competing effectively in international markets. (3)Seaboard's Common Stock Is Thinly Traded And Subject to Daily Price Fluctuations. The common stock of Seaboard is closely held (70.9%) and thinly traded on a daily basis on the American Stock Exchange. Accordingly, the price of a share of common stock can fluctuate more significantly from day-to-day than a widely held stock that is actively traded on a daily basis. (b) Pork Division (1)Fluctuations In Commodity Pork Prices Could Adversely Affect Seaboard's Results Of Operations. Sale prices for Seaboard's pork products are directly affected by both domestic and world wide supply and demand for pork products and other proteins, all of which are determined by constantly changing market forces of supply and demand as well as other factors over which Seaboard has little or no control. Commodity pork prices 8 demonstrate a cyclical nature over periods of years, reflecting changes in the supply of fresh pork and competing proteins on the market, especially beef and chicken. In addition, there could be weakness in the sales prices for Seaboard's pork products due to marketing the increased volumes of pork products produced by Triumph Foods. Seaboard's results of operations could be adversely affected by fluctuations in pork commodity prices. (2)Increases In The Costs Of Seaboard's Feed Components And Hog Purchases Could Adversely Affect Seaboard's Costs And Operating Margins. Feed costs are the most significant single component of the cost of raising hogs and can be materially affected by commodity price fluctuations for corn and soybean meal. The results of Seaboard's pork division business can be negatively affected by increased costs of Seaboard's feed components. The recent increase in construction of ethanol plants has elevated this risk as it has increased the competing demand for feed ingredients, primarily corn. Similarly, accounting for approximately 20% of Seaboard's total hogs slaughtered, the cost of third party hogs purchased fluctuates with market conditions and can have an impact on Seaboard's total costs. The cost and supply of feed components and the third party hogs that we purchase are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports and governmental agricultural policies. Seaboard attempts to manage certain of these risks through the use of financial instruments, however this may also limit its ability to participate in gains from favorable commodity fluctuations. Unless wholesale pork prices correspondingly increase, increases in the prices of Seaboard's feed components or in the cost of third party hogs purchased would adversely affect Seaboard's operating margins. (3)Seaboard's Ability To Attract And Retain Appropriate Personnel At Remote Locations Is Important To Seaboard's Business. The remote locations of the pork processing plant and live hog operations could negatively affect the availability and cost of labor. Seaboard is dependent on having sufficient properly trained operations personnel. Attracting and retaining qualified personnel is important to Seaboard's success. The inability to acquire and retain the services of such personnel could have a material adverse effect on Seaboard's operations. (4)The Loss Of Seaboard's Sole Hog Processing Facility Would Adversely Affect Seaboard's Business. Seaboard's Pork segment is largely dependant on the continued operation of a single hog processing facility. The loss of or damage to this facility for any reason - including fire, tornado, governmental action or other reason - would adversely affect Seaboard and Seaboard's pork products business. (5)Environmental Regulation And Related Litigation Could Have A Material Adverse Effect On Seaboard. Seaboard's operations and properties are subject to extensive and increasingly stringent laws and regulations pertaining to, among other things, the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Failure to comply with these laws and regulations and any future changes to them may result in significant consequences to Seaboard, including civil and criminal penalties, liability for damages and negative publicity. Some requirements applicable to Seaboard may also be enforced by citizen groups. Seaboard has incurred, and will continue to incur, significant capital and operating expenditures to comply with these laws and regulations. (6)Health Risk To Livestock Could Adversely Affect Production, The Supply Of Raw Materials And Seaboard's Business. Seaboard is subject to risks relating to its ability to maintain animal health and control diseases. The general health of the hogs and the reproductive performance of the sows can have an adverse impact on production and production costs, the supply of raw material to Seaboard's pork processing operations and consumer confidence. If Seaboard's hogs are affected by disease, Seaboard may be required to destroy infected livestock, which could adversely affect Seaboard's production or ability to sell or export its products. Moreover, the herd health of third party suppliers could adversely affect the supply and cost of hogs available for purchase by Seaboard. Adverse publicity concerning any disease or health concern could also cause customers to lose confidence in the safety and quality of Seaboard's food products. (7)If Seaboard's Pork Products Become Contaminated, We May Be Subject To Product Liability Claims And Product Recalls. Pork products may be subject to contamination by disease producing organisms, or pathogens. These pathogens are generally found in the environment and as a result, regardless of the manufacturing practices employed, there is a risk that they as a result of food processing could be present in Seaboard's processed pork products. Once contaminated products have been shipped for distribution, illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level. Even an 9 inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on Seaboard's business, reputation, prospects, results of operations and financial condition. (8)Corporate Farming Legislation Could Result In The Divestiture Or Restructuring Of Seaboard's Pork Operations. The development of large corporate farming operations and concentration of hog production in larger-scale facilities has engendered opposition from residents of states in which Seaboard conducts its pork processing and live hog operations. In response, corporate farming legislation periodically has been introduced in the United States Senate and House of Representatives, as well as in several state legislatures. These proposed anti-corporate farming bills have included provisions to prohibit or restrict meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter, which would require divestiture or restructuring of Seaboard's operations. (9)International Trade Barriers Could Adversely Affect Seaboard's Pork Operations. This segment realizes a significant portion of its revenues from international markets, particularly Japan. International sales are subject to risks related to general economic conditions, imposition of tariffs, quotas, trade barriers and other restrictions, enforcement of remedies in foreign jurisdictions and compliance with applicable foreign laws, and other economic and political uncertainties. These and other risks could result in border closings or other international trade barriers having an adverse effect on Seaboard's earnings. (c) Commodity Trading & Milling Division (1)Seaboard's Commodity & Milling Division Is Particularly Subject To Risks Associated With Foreign Operations. This segment principally operates in Africa, Bermuda, South America and the Caribbean and, in most cases, in what are generally regarded to be lesser developed countries. Many of these foreign operations are subject to risks of doing business in lesser- developed countries which are subject to potential civil unrests and government instabilities, increasing the exposure to potential expropriation, confiscation, war, insurrection, civil strife and revolution, currency inconvertibility and devaluation, and currency exchange controls, in addition to the risks of overseas operations mentioned in clause (a)(2) above. (2)Fluctuations In Commodity Grain Prices Could Adversely Affect The Business Of Seaboard's Commodity & Milling Division. This segment's sales are significantly affected by fluctuating worldwide prices for various commodities, such as wheat, corn and soybeans. These prices are determined by constantly changing market forces of supply and demand as well as other factors over which Seaboard has little or no control. North American and European subsidized wheat and flour exports, including donated food aid, and world-wide and local crop production can contribute to these fluctuating market conditions and can have a significant impact on the trading and milling businesses' sales, value of commodities held in inventory and operating income. Seaboard's results of operations could be adversely affected by fluctuations in commodity prices. (3)Seaboard's Commodity & Milling Division Largely Depends On The Availability Of Chartered Ships. Most of Seaboard's third party trading is transported with chartered ships. Charter hire rates, influenced by available charter capacity and demand for worldwide trade in bulk cargoes, and related fuel costs can impact business volumes and margins. (4)Seaboard's Failure To Establish Economic Hedges For Commodities May Adversely Affect Seaboard's Business. The commodity trading portion of the business enters into various commodity derivatives and, in some cases, foreign exchange derivatives to create an economic hedge for commodity trades it executes with its customers. Failure to execute or improper execution of a derivative position or a firmly committed sale or purchase contract could have an adverse impact on the results of operations and liquidity. (5)This Segment is Subject to Higher than Normal Risks for Attracting and Retaining Key Personnel. In the Commodity Trading environment, a loss of a key employee such as a commodity trader can have a negative impact resulting from the loss of revenues as personal customer relationships can be vital to obtaining and retaining business with various foreign customers. In the milling portion of this segment, employing and retaining qualified expatriate personnel is a key element of success given the difficult living conditions, the unique operating environments and the reliance on a relatively small number of executives to manage each individual location. 10 (d) Marine Division (1)The Demand For Seaboard's Marine Division's Services Are Affected By International Trade And Fluctuating Freight Rates. This segment provides containerized cargo shipping services primarily from the United States to over twenty-five different countries in the Caribbean Basin, and Central and South America. In addition to the risks of overseas operations mentioned in clause (a)(2) above, fluctuations in economic conditions, unstable or hostile local political situations in the countries in which Seaboard operates can affect import/export trade volumes and the price of container freight rates and adversely affect Seaboard's results of operations. (2)Chartered Ships Are Subject To Fluctuating Rates. The largest expense for this division is time charter cost. Certain of the ships are under charters longer than one year while others are less than one year. These costs can vary greatly due to a number of factors including the worldwide supply and demand for shipping. It is not possible to determine in advance whether a charter contract for more or less than one year will be favorable to Seaboard's business. Accordingly, entering into long-term charter hire contracts during periods of decreasing charter hire costs or short term charter hire contracts during periods of increasing charter hire costs could have an adverse affect on Seaboard's results of operation. (3)Increasing Fuel Prices Can Adversely Affect Seaboard's Business. Ship fuel expenses are one of the segment's largest expenses. These costs can vary greatly from year-to-year depending on world fuel prices. Although a fuel surcharge can be added to the freight rates charged by Seaboard to its customers, increases in the surcharge to a customer can lag actual fuel cost increases paid by Seaboard and can be influenced by competitive pressures thereby having an adverse effect on our results of operations. Also, but to a lesser extent, fuel price increases can impact the cost of inland transportation costs. (4)Marine Transportation Is An Inherently Risky Business. Seaboard's vessels and their cargoes are at risk of being damaged or lost because of events such as: - marine disasters; - bad weather; - mechanical failures; - grounding, fire, explosions and collisions; - human error; and - war and terrorism. All of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of Seaboard's vessels were involved in an accident, the resulting media coverage could have a material adverse effect on Seaboard's business, financial condition and results of operations. Moreover, Seaboard's port operations can be subject to disruption due to hurricanes, especially at Seaboard's major port of operations in Miami, Florida, which could have an adverse effect on our results of operations. (5)Seaboard is Subject To Complex Laws And Regulations That Can Adversely Affect The Cost, Manner Or Feasibility Of Doing Business. Increasingly stringent federal, state and local laws and regulations governing worker health and safety, environmental protection, port and terminal security, and the operation of vessels significantly affect Seaboard's operations. Many aspects of the marine industry are subject to extensive governmental regulation by the Federal Maritime Commission, the U.S. Coast Guard, and U.S. Customs and Border Protection, and to regulation by private industry organizations. Compliance with applicable laws, regulations and standards may require installation of costly equipment or operational changes, while the failure to comply may result in administrative and civil penalties, criminal sanctions or the suspension or termination of Seaboard's operations. (e) Sugar and Citrus Division (1)The Success Of This Segment Depends On The Condition Of The Argentinean Economy And Political Climate. This segment operates a sugar mill in Argentina, locally growing a substantial portion of the sugar cane processed at the mill. The majority of the sugar sales are within Argentina. Fluctuations in economic conditions or changes in the Argentine political climate can have an impact on the costs of operations and the sale price of sugar. In this regard, local sale prices are affected by sugar import duties imposed by the Argentine government, which affects the volume of sugar imported to and exported from that market. If import duties are changed, this could have a negative impact on Seaboard's sale price of sugar. In addition, recently the Argentine government 11 began to attempt controlling inflation by instituting price controls on commodities, including sugar, which could adversely impact the local sales price of sugar and the results of operations for this segment. (2)This Segment Is Subject To The Risks That Are Inherent In Any Agricultural Business. Seaboard's results of operations for this segment may be adversely affected by numerous factors over which we have little or no control and that are inherent in any agricultural business, including reductions in the market prices for Seaboard's products, adverse weather and growing conditions, pest and disease problems, and new government regulations regarding agriculture and the marketing of agricultural products. Of these risks, weather particularly can adversely affect the amount and quality of the sugar cane produced by Seaboard and Seaboard's competitors located in other regions of Argentina. (3)The Loss Of Seaboard's Sole Processing Facility Would Adversely Affect The Business Of This Segment. Seaboard's Sugar and Citrus segment is largely dependant on the continued operation of a single processing facility. The loss of or damage to this facility for any reason - including fire, tornado, governmental action or other reason - would adversely affect the business of this segment. (f) Power Division (1)This Segment Is Subject To Risks Of Doing Business In The Dominican Republic. This segment operates in the Dominican Republic (DR). In addition to significant currency fluctuations and the other risks of overseas operations mentioned in clause (a)(2) above, this segment can experience difficulty in obtaining timely collections of trade receivables from the government partially-owned distribution companies or other companies that must also collect from the government in order to make payments on their accounts. Currently, the DR does not allow a free market to enable prices to rise with demand which would limit our profitability in this business. The government has the ability to arbitrarily decide which power units will be able to operate, which could have adverse effects on results of operations. (2)Increases In Fuel Costs Could Adversely Affect Seaboard's Operating Margins. Fuel is the largest cost component of this segment's business and, therefore, margins may be adversely affected by fluctuations in fuel if such increases can not be fully passed to customers. Item 1B. Unresolved Staff Comments None Item 2. Properties (1) Pork - Seaboard's Pork Division owns a hog processing plant in Guymon, Oklahoma, which opened in 1995. It has a daily double shift capacity to process approximately 16,000 hogs and generally operates at capacity with additional weekend shifts depending on market conditions. The plant is utilized at near capacity throughout the year. Seaboard's hog production operations consist of the breeding and raising of approximately 3.8 million hogs annually at facilities it primarily owns or at facilities owned and operated by third parties with whom it has grower contracts. This business owns and operates six centrally located feed mills which have a combined capacity to produce approximately 1,700,000 tons of formulated feed annually used primarily to support Seaboard's existing hog production, and has the capability of supporting additional hog production in the future. These facilities are located in Oklahoma, Texas, Kansas and Colorado. Seaboard's Pork Division also owns two bacon further processing plants located in Salt Lake City, Utah and Missoula, Montana. These plants are utilized at or near capacity throughout the year, which is a combined daily smoking capacity of approximately 300,000 pounds of raw pork bellies. (2) Commodity Trading and Milling - Seaboard's Commodity Trading and Milling Division owns, in whole or in part, grain-processing and related agribusiness operations in thirteen countries which have the capacity to mill over 6,600 metric tons of wheat and maize per day. In addition, Seaboard has feed mill capacity of in excess of 128 metric tons per hour to produce formula animal feed. The milling operations located in Democratic Republic of Congo, Ecuador, Guyana, Haiti, Kenya, Lesotho, Mozambique, Nigeria, Republic of Congo, Sierra Leone, Uganda and Zambia own their facilities; in Kenya, Lesotho, Mozambique, Nigeria, Republic of Congo and Sierra Leone the land the mills are located on is leased under long-term agreements; and, in Madagascar the milling facilities are leased. Certain foreign milling operations may operate at less than full capacity due to low demand related to poor consumer purchasing power, excess 12 milling capacity in their competitive environment and European- subsidized wheat and flour exports. Seaboard also owns seven 9,000 metric- ton deadweight dry bulk carriers, one 23,400 metric ton deadweight dry bulk carrier, and "time charters" (the charter of a vessel, whereby the vessel owner is responsible to provide the captain and crew necessary to operate the vessel) under short-term agreements, between eleven and fifteen bulk carrier ocean vessels with deadweights ranging from 4,000 to 64,000 metric tons. (3) Marine - Seaboard's Marine Division leases a 135,000 square foot warehouse and 70 acres of port terminal land and facilities in Miami, Florida which are used in its containerized cargo operations. Seaboard also leases an approximately 62 acre cargo handling and terminal facility in Houston, Texas, which includes several on-dock warehouses totaling over 690,000 square feet for cargo storage. At December 31, 2006, Seaboard owned ten ocean cargo vessels with deadweights ranging from 2,600 to 14,545 metric tons and time charters under long-term contracts ranging from one to three years, and short-term agreements, of approximately twenty-nine containerized ocean cargo vessels with deadweights ranging from 3,377 to 20,433 metric tons. In January 2007, Seaboard purchased a vessel previously chartered with a deadweight of 19,000 metric tons. Seaboard owns or leases an aggregate of approximately 42,000 dry, refrigerated and specialized containers and related equipment. (4) Sugar and Citrus - Seaboard's Argentine Sugar and Citrus Division owns approximately 50,000 acres of planted sugarcane and approximately 3,000 acres of orange trees. Depending on local harvest and market conditions, this business also purchases third party sugar and citrus for resale. In addition, this division owns a sugar mill with a current capacity to process over 200,000 metric tons of sugar and over four million gallons of alcohol per year. This capacity is sufficient to process all of the cane harvested by this division and certain additional quantities harvested on behalf of the third party farmers in the region. The sugarcane fields and processing mill are located in northern Argentina in the Salta Province, which experiences seasonal rainfalls that may limit the harvest season, which then affects the duration of mill operations and quantities of sugar produced. This division also owns a juice processing plant and fresh fruit packaging plant with capacity to produce approximately 5,000 tons of concentrated juice and package approximately 400,000 boxes of fresh fruit annually. (5) Power - Seaboard's Power Division owns two floating electric power generating facilities, consisting of a system of diesel engines mounted onto barge-type vessels, with a combined rated capacity of approximately 112 megawatts, both located on the Ozama River in Santo Domingo, Dominican Republic. The barges historically generated power at near capacity throughout the year as the demand for power in the Dominican Republic exceeds reliable power supply. Seaboard operates as an independent power producer. Seaboard is not directly involved in the transmission and distribution facilities that deliver the power to the end users but does have contracts to sell directly to third party users. (6) Other - Seaboard owns a jalapeno pepper processing plant and warehouse in Honduras. Management believes that Seaboard's present facilities are adequate and suitable for its current purposes. Item 3. Legal Proceedings Sierra Club Settlement In order to settle threatened additional litigation with Sierra Club, Seaboard's subsidiary, Seaboard Foods LP ("Seaboard Foods"), agreed to conduct an investigation to determine if corrective action is required at three farms purchased from PIC International Group, Inc. ("PIC") located in Kingfisher and Major Counties in Oklahoma according to an agreed-upon process. 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 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 $1.5 million. Seaboard Foods has given notice to PIC as to its right to indemnification from any loss as a result of the lagoon. As of the date of this report, PIC has declined to provide indemnification. Environmental Protection Agency (EPA) and State of Oklahoma Claims Concerning Farms in Major and Kingfisher County, Oklahoma Seaboard Foods has been subject to an ongoing Unilateral Administrative Order ("RCRA Order"), pursuant to 13 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. The RCRA Order relates to five swine farms located in Major County and Kingfisher County, Oklahoma purchased from PIC International Group, Inc. ("PIC"), which is also a party to the RCRA Order. On September 11, 2006, Seaboard Foods and PIC signed a Consent Decree with the United States to resolve the RCRA Order, which Consent Decree was approved by the U.S. District Court on December 8, 2006. Pursuant to the Consent Decree, Seaboard Foods and PIC agreed to a civil penalty totaling $240,000, which PIC has paid. In addition to payment of the civil penalty, Seaboard Foods and PIC agreed to take a number of remedial actions with respect to the five farms subject to the RCRA Order, and Seaboard Foods agreed to take additional remedial actions with respect to one additional farm. These remedial actions include: groundwater remediation and lagoon replacement and/or barn repairs at three of the farms, ongoing leak detection and groundwater monitoring at all of the farms, contingency response plans effective upon the future detection of infrastructure leaks or over-application of effluent on land application acreage, investigation work regarding infrastructure at two of the farms, modification of land application procedures, and study of land application practices. If the remedial actions to be taken pursuant to the EPA Consent Decree are not effective, other actions with additional costs will be required. In March 2006, Seaboard Foods entered into a Settlement Agreement with the State of Oklahoma to resolve a regulatory action with respect to the same properties involved in the EPA RCRA Order. Pursuant to this Settlement Agreement, Seaboard Foods paid a fine of $100,000, agreed to undertake certain supplemental environmental projects at a cost of $80,000, and agreed to take remedial actions that are substantially identical to those provided for in the Consent Decree with the United States. PIC is jointly responsible for the remedial obligations under the EPA Consent Decree and has been indemnifying Seaboard Foods with respect thereto, pursuant to an indemnification agreement which has a $5,000,000 limit. PIC previously advised Seaboard Foods that it is not responsible for the expenditures in excess of $5,000,000, which Seaboard Foods disputes. Although there has been no formal resolution of this dispute with PIC, the amounts expended to date by PIC total in excess of $5,000,000, and PIC has continued to pay substantially all expenditures required to comply with the EPA Consent Decree. Moreover, as noted above, PIC is jointly responsible for the remedial obligations and substantially all other obligations under the EPA Consent Decree. As such, Seaboard believes that PIC will continue to take the actions necessary and to pay the costs of complying with the EPA Consent Decree. Seaboard Foods also believes that a more general indemnity agreement would require indemnification of liability in excess of $5,000,000 although PIC disputes this. Potential Additional EPA Claims The EPA has also been conducting a broad-reaching investigation of Seaboard Foods, seeking information as to compliance with the Clean Water Act ("CWA"), Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA") and the Clean Air Act. On September 11, 2006, Seaboard Foods entered into a Consent Decree with the United States to settle the matter, pursuant to which Seaboard Foods agreed to pay a civil penalty of $205,000 and to take various other actions which will cost approximately $150,000. As a part of the Consent Decree, Seaboard Foods has applied to participate in the National AFO/CAFO Air Emissions Agreement with the EPA. The $100,000 penalty that Seaboard Foods will pay to participate in the National AFO/CAFO Air Emissions Agreement will be applied to satisfy a portion of the civil penalty payment under the Consent Decree. Consummation of the Consent Decree with the United States is subject to approval of the United States District Court for the Western District of Oklahoma. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the last quarter of the fiscal year covered by this report. Executive Officers of Registrant The following table lists the executive officers and certain significant employees of Seaboard. Generally, each executive officer is elected at the annual meeting of the Board of Directors following the Annual Meeting of Stockholders and holds his office until the next such annual meeting or until his successor is duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was elected. 14 Name (Age) Positions and Offices with Registrant and Affiliates Steven J. Bresky (53) President and Chief Executive Officer Robert L. Steer (47) Senior Vice President, Chief Financial Officer David M. Becker (45) Vice President, General Counsel and Secretary Barry E. Gum (40) Vice President, Finance and Treasurer James L. Gutsch (53) Vice President, Engineering Ralph L. Moss (61) Vice President, Governmental Affairs David S. Oswalt (39) Vice President, Taxation and Business Development John A. Virgo (46) Vice President, Corporate Controller and Chief Accounting Officer Rodney K. Brenneman (42) President, Seaboard Foods, LP David M. Dannov (45) President, Seaboard Overseas and Trading Group Edward A. Gonzales (41) President, Seaboard Marine Ltd. Mr. Steven J. Bresky has served as President and Chief Executive Officer since July 2006, previously as Senior Vice President, International Operations of Seaboard from February 2001 to July 2006 and previously as Vice President of Seaboard from 1989 to 2001. Mr. Steer has served as Senior Vice President, Chief Financial Officer of Seaboard since December 2006 and previously as Senior Vice President, Treasurer and Chief Financial Officer from 2001- 2006. Mr. Becker has served as Vice President, General Counsel and Secretary of Seaboard since December 2003, and previously as Vice President, General Counsel and Assistant Secretary from 2001 to 2003. Mr. Gum has served as Vice President, Finance and Treasurer of Seaboard since December 2006, previously as Vice President, Finance from 2003-2006 and Director of Finance from 2000 to 2003. Mr. Gutsch has served as Vice President, Engineering of Seaboard since December 1998. Mr. Moss has served as Vice President, Governmental Affairs of Seaboard since December 2003 and previously as Director, Government Affairs from 1993 to 2003. Mr. Oswalt has served as Vice President, Taxation and Business Development of Seaboard since December 2003 and previously as Director of Tax from 1995 to 2003. Mr. Virgo has served as Vice President, Corporate Controller and Chief Accounting Officer of Seaboard since December 2003 and previously as Corporate Controller from 1996 to 2003. Mr. Brenneman has served as President of Seaboard Foods LP (previously Seaboard Farms Inc.) since June 2001. Mr. Dannov has served as President of Seaboard Overseas and Trading Group since August 2006 and previously as Vice President, Treasurer of Seaboard Overseas and Trading Group from 1996 to 2006. Mr. Gonzales has served as President of Seaboard Marine, Ltd. since January 2005 and previously as Vice President of Terminal Operations of Seaboard Marine Ltd. from 2000 to 2005. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Seaboard's Board of Directors intends that Seaboard will continue to pay quarterly dividends, with the actual amount of any dividends being dependant upon such factors as Seaboard's financial condition, results of operations and current and anticipated cash needs, including capital requirements. As discussed in Note 8 of the consolidated financial statements appearing on pages 46 and 47 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission 15 pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report, Seaboard's ability to declare and pay dividends is subject to limitations imposed by the note agreements referred to there. Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock, may be granted. There were no purchases made by or on behalf of Seaboard or any "affiliated purchaser" (as defined by applicable rules of the Commission) of shares of Seaboard's common stock during the fourth quarter of the fiscal year covered by this report. In addition to the information provided above, the information required by Item 5 of Form 10-K is incorporated herein by reference to (a) the information under "Stockholder Information - Stock Listing," (b) the dividends per common share information and market price range per common share information under "Quarterly Financial Data" and (c) the information under "Company Performance Graph" appearing on pages 60, 9 and 8, respectively, of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report. Item 6. Selected Financial Data The information required by Item 6 of Form 10-K is incorporated herein by reference to the "Summary of Selected Financial Data" appearing on page 7 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 of this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by Item 7 of Form 10-K is incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 10 through 25 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by Item 7A of Form 10-K is incorporated herein by reference to (a) the material under the captions "Derivative Instruments and Hedging Activities" within Note 1 of Seaboard's Consolidated Financial Statements appearing on page 36 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report, and (b) the material under the caption "Derivative Information" within "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 23 through 25 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a- 3(b) and attached as Exhibit 13 to this Report. Item 8. Financial Statements and Supplementary Data The information required by Item 8 of Form 10-K is incorporated herein by reference to Seaboard's "Quarterly Financial Data," "Report of Independent Registered Public Accounting Firm," "Consolidated Statements of Earnings," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Changes in Equity" and "Notes to Consolidated Financial Statements" appearing on page 9 and pages 27 through 59 of Seaboard's Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures - As of December 31, 2006, Seaboard's management has 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). 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, 16 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. Management's Report on Internal Control Over Financial Reporting - - Information required by Item 9A concerning management's report on Seaboard's internal control over financial reporting, as defined in Exchange Act rule 13a-15(f) is incorporated herein by reference to Seaboard's "Management's Report on Internal Control over Financial Reporting" appearing on page 26 of Seaboard's Annual Report to Stockholders furnished to the commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report. Registered Public Accounting Firm's Attestation Report - Information required by Item 9A with respect to Section 308(b) of regulation S-K is incorporated herein by reference to "Report of Independent Registered Public Accounting Firm" appearing on Pages 27 and 28 of Seaboard's Annual Report to Stockholders furnished to the commission pursuant to Rule 14-3(b) and attached as Exhibit 13 to this report. Change in Internal Controls - There has been no change in Seaboard's internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. Item 9B. Other Information Not Applicable. PART III Item 10. Directors and Executive Officers of the Registrant We refer you to the information under the caption "Executive Officers of Registrant" appearing immediately following the disclosure in Item 4 of Part I of this report. Seaboard has a Code of Ethics Policy (the Code) for directors, officers (including our chief executive officer, chief financial officer, chief accounting officer, controller and persons performing similar functions) and employees. Seaboard has posted the Code on its internet website, www.seaboardcorp.com, and intends to disclose any future changes and waivers to the Code by posting such information on that website. In addition to the information provided above, the information required by Item 10 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to directors under "Item 1: Election of Directors" appearing on page 4 and 5 of Seaboard's definitive proxy statement filed pursuant to Regulation 14A for the 2007 annual meeting of Stockholders ("2007 Proxy Statement"), (b) the disclosure relating to Seaboard's audit committee and "audit committee financial expert" and its director nomination procedures under "Board of Directors Information -- Committees of the Board -- Audit Committee" and "Board of Directors Information -- Director Nominations" appearing on pages 6 and 7 of the 2007 Proxy Statement, and (c) the disclosure relating to late filings of reports required under Section 16(a) of the Securities Exchange Act of 1934 under "Section 16(a) Beneficial Ownership Reporting Compliance" appearing on pages 26 and 27 of the 2007 Proxy Statement. Item 11. Executive Compensation The information required by Item 11 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to compensation of directors under "Board of Directors Information - - - Compensation of Directors" and "Employment Arrangements with Named Executive Officers" appearing on page 8 and pages 10 through 12 of the 2007 Proxy Statement, and (b) the disclosure relating to compensation of executive officers under "Executive Compensation and Other Information," "Benefit Plans" and "Compensation Committee Interlocks and Insider Participation," "Compensation Committee Report" and "Compensation Discussion and Analysis" appearing on pages 8 through 10, and pages 12 through 24 of the 2007 Proxy Statement. 17 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock may be granted. In addition to the information provided above, the information required by Item 12 of Form 10-K is incorporated herein by reference to the disclosure under "Principal Stockholders" and "Share Ownership of Management and Directors" appearing on pages 3 and 4 of the 2007 Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by Item 13 of Form 10-K is incorporated herein by reference to "Compensation Committee Interlocks and Insider Participation" appearing on pages 23 and 24 of the 2007 Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by Item 14 of Form 10-K is incorporated herein by reference to "Item 2 Selection of Independent Auditors" appearing on pages 24 through 26 of the 2007 Proxy Statement. PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as part of this report: 1. Consolidated financial statements. See Index to Consolidated Financial Statements on page F-1. 2. Consolidated financial statement schedules. See Index to Consolidated Financial Statements on page F-1. 3. Exhibits. 3.1 Seaboard's Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit 3.1 of Seaboard's Form 10-Q for the quarter ended April 1, 2006. 3.2 Seaboard's By-laws, as amended. 4.1 Note Purchase Agreement dated June 1, 1995 between Seaboard and various purchasers as listed in the exhibit. Incorporated herein by reference to Exhibit 4.3 of Seaboard's Form 10-Q for the quarter ended September 9, 1995. 4.2 Seaboard Corporation 7.88% Senior Note Due June 1, 2007 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.4 of Seaboard's Form 10-Q for the quarter ended September 9, 1995. 4.3 Seaboard Corporation Note Agreement dated as of June 1, 1995 ($125,000,000 Senior Notes due June 1, 2007). First Amendment to Note Agreement. Incorporated herein by reference to Exhibit 4.8 of Seaboard's Form 10-Q for the quarter ended March 23, 1996. 4.4 Second Amendment to the Note Purchase Agreements dated as of June 1, 1995 ($125,000,000 Senior Notes due June 1, 2007). Incorporated herein by reference to Exhibit 4.2 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.5 Seaboard Corporation Note Purchase Agreement dated as of September 30, 2002 between Seaboard and various purchasers as listed in the exhibit. Incorporated herein by reference to Exhibit 4.3 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.6 Seaboard Corporation $32,500,000 5.8% Senior Note, Series A, due September 30, 2009 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.4 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 18 4.7 Seaboard Corporation $38,000,000 6.21% Senior Note, Series B, due September 30, 2009 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.5 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.8 Seaboard Corporation $7,500,000 6.21% Senior Note, Series C, due September 30, 2012 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.6 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.9 Seaboard Corporation $31,000,000 6.92% Senior Note, Series D, due September 30, 2012 issued pursuant to the Note Purchase Agreement described above. Incorporated herein by reference to Exhibit 4.7 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 4.10 Seaboard Corporation Credit Agreement dated as of December 3, 2004 ($200,000,000 revolving credit facility expiring on December 2, 2009). Incorporated herein by reference to Exhibit 4.14 of Seaboard's Form 10-K for fiscal year ended December 31, 2004. 4.11 Amendment No. 1 to Seaboard Corporation Credit Agreement dated December 3, 2004 ($200,000,000 revolving credit facility expiring on December 2, 2009). Incorporated herein by reference to Exhibit 4.1 of Seaboard's Form 10-Q for the quarter ended July 2, 2005 4.12 Notice of Reduction of Aggregate Commitments (from $200,000,000 to $100,000,000) under Credit Agreement dated as of December 3, 2004 among Seaboard Corporation, Bank of America, N.A., Scotia Capital, Inc., Harris Trust and Savings Bank and Suntrust Bank and the Other Lenders Party Hereto Incorporated herein by reference to Exhibit 4.1 of Seaboard's Form 10-Q for the quarter ended October 1, 2005 10.1* Seaboard Corporation Executive Retirement Plan, 2005 Amendment and Restatement dated March 6, 2006, amending and restating the Seaboard Corporation Executive Retirement Plan dated November 5, 2004. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 10-K for fiscal year ended December 31, 2006. 10.2* Seaboard Corporation Supplemental Executive Retirement Plan for H. Harry Bresky dated March 21, 1995. Incorporated herein by reference to Exhibit 10.3 of Seaboard's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 10.3* Seaboard Corporation Executive Deferred Compensation Plan dated December 29, 2005, amending and restating the Seaboard Corporation Executive Deferred Compensation Plan dated January 1, 1999. Incorporated herein by reference to Exhibit 10.3 of Seaboard's Form 10-K for fiscal year ended December 31, 2006. 10.4* Seaboard Corporation Executive Retirement Plan Trust dated November 5, 2004 between Seaboard Corporation and Robert L. Steer as trustee. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 10-Q for the quarter ended October 2, 2004. 10.5* Seaboard Corporation Investment Option Plan dated December 18, 2000. Incorporated herein by reference to Exhibit 10.7 of Seaboard's Form 10-K for fiscal year ended December 31, 2000. 10.6 Reorganization Agreement by and between Seaboard Corporation and Seaboard Flour Corporation as of October 18, 2002. Incorporated herein by reference to Exhibit 10.1 of the Form 8-K dated October 18, 2002. 10.7 Purchase and Sale Agreement dated October 18, 2002 by and between Flour Holdings LLC and Seaboard Flour Corporation with respect to which the "Earnout Payments" thereunder have been assigned to Seaboard Corporation. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 10-Q for the quarter ended September 28, 2002. 10.8 Marketing Agreement dated February 2, 2004 by and among Seaboard Corporation, Seaboard Farms, Inc., Triumph Foods LLC, and for certain limited purposes only, the members of Triumph Foods LLC. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 8-K dated February 3, 2004. 19 10.9* Seaboard Corporation Retiree Medical Benefit Plan dated March 4, 2005. Incorporated herein by reference to Exhibit 10.10 of Seaboard's Form 10-K for fiscal year ended December 31, 2004. 10.10* Seaboard Corporation Executive Officers' Bonus Policy. Incorporated herein by reference to Exhibit 10.10 of Seaboard's Form 10-K for fiscal year ended December 31, 2006. 10.11* Employment Agreement between Seaboard Corporation and Steven J. Bresky dated July 1, 2005. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 10-Q for the quarter ended July 2, 2005. 10.12* Employment Agreement between Seaboard Corporation and Robert L. Steer dated July 1, 2005. Incorporated herein by reference to Exhibit 10.2 of Seaboard's Form 10-Q for the quarter ended July 2, 2005. 10.13* Employment Agreement between Seaboard Farms, Inc. and Rodney K. Brenneman dated July 1, 2005. Incorporated herein by reference to Exhibit 10.3 of Seaboard's Form 10-Q for the quarter ended July 2, 2005. 10.14* Employment Agreement between Seaboard Corporation and Edward A. Gonzalez dated July 1, 2005. Incorporated herein by reference to Exhibit 10.14 of Seaboard's Form 10-K for fiscal year ended December 31, 2006. 10.15* Seaboard Corporation Nonqualified Deferred Compensation Plan dated December 29, 2005. Incorporated herein by reference to Exhibit 10.15 of Seaboard's Form 10-K for fiscal year ended December 31, 2006. 10.16* Amendment to Employment Agreement between Seaboard Corporation and Edward A. Gonzalez dated August 8, 2006. Incorporated herein by reference to Exhibit 10.1 of Seaboard's Form 10-Q for the quarter ended July 1, 2006. 10.17* Employment Agreement between Seaboard Corporation and David M. Dannov dated July 1, 2006. 10.18* Second Amendment to Employment Agreement between Seaboard Corporation and Edward A. Gonzalez dated January 17, 2007. 13 Sections of Annual Report to security holders specifically incorporated herein by reference herein. 21 List of subsidiaries. 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. * Management contract or compensatory plan or arrangement. (b) Exhibits. See exhibits identified above under Item 15(a)3. (c) Financial Statement Schedules. See financial statement schedules identified above under Item 15(a)2. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. SEABOARD CORPORATION By /s/Steven J. Bresky By /s/Robert L. Steer Steven J. Bresky, President and Robert L. Steer, Senior Vice Chief Executive Officer (principal President, Chief Financial executive officer) Officer (principal financial officer) Date: March 5, 2007 Date: March 5, 2007 By /s/John A. Virgo John A. Virgo, Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) Date: March 5, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated. By By /s/Steven J. Bresky H. H. Bresky, Director and Chairman Steven J. Bresky, Director of the Board Date: Date: March 5, 2007 By /s/David A. Adamsen By /s/Kevin M. Kennedy David A. Adamsen, Director Kevin M. Kennedy, Director Date: March 5, 2007 Date: March 5, 2007 By /s/Douglas W. Baena By /s/Joseph E. Rodrigues Douglas W. Baena, Director Joseph E. Rodrigues, Director Date: March 5, 2007 Date: March 5, 2007 21 SEABOARD CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedule Financial Statements Stockholders' Annual Report Page Report of Independent Registered Public Accounting Firm 27 Consolidated Statement of Earnings for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 29 Consolidated Balance Sheets as of December 31, 2006 and December 31, 2005 30 Consolidated Statement of Cash Flows for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 31 Consolidated Statement of Changes in Equity for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 32 Notes to Consolidated Financial Statements 33 The foregoing are incorporated herein by reference. The individual financial statements of the nonconsolidated foreign affiliates, which would be required if each such foreign affiliate were a Registrant, are omitted because (a) Seaboard's and its other subsidiaries' investments in and advances to such foreign affiliates do not exceed 20% of the total assets as shown by the most recent consolidated balance sheet and (b) Seaboard's and its other subsidiaries' equity in the earnings before income taxes and extraordinary items of the foreign affiliates does not exceed 20% of such income of Seaboard and consolidated subsidiaries compared to the average income for the last five fiscal years. Combined condensed financial information as to assets, liabilities and results of operations have been presented for nonconsolidated foreign affiliates in Note 5 of "Notes to the Consolidated Financial Statements." II - Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005 and 2004 F-3 All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related consolidated notes. F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Seaboard Corporation: Under date of March 5, 2007, we reported on the consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2006, as contained in the December 31, 2006 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2006. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Our report dated March 5, 2007 contains an explanatory paragraph that states that the Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, in 2006. KPMG LLP Kansas City, Missouri March 5, 2007 F-2
Schedule II SEABOARD CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (In Thousands) Balance at Provision Net deductions Balance at beginning of year (1) (2) end ofyear Year ended December 31, 2006: Allowance for doubtful accounts $16,155 2,479 (3,996) $14,638 Year ended December 31, 2005: Allowance for doubtful accounts $14,524 3,987 (2,356) $16,155 Year ended December 31, 2004: Allowance for doubtful accounts $23,359 2,463 (11,298) $14,524 (1) The allowance for doubtful accounts provision is charged to selling, general and administrative expenses. (2) Includes write-offs net of recoveries and currency translation adjustments.
F-3 EX-10.17 2 ex10-17.txt EMPLOYMENT AGREEMENT-DAVID M. DANNOV EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July 1, 2006 by and between SEABOARD OVERSEAS AND TRADING GROUP, a division of Seaboard Corporation, a Delaware corporation (together with any Successor thereto, the "Company"), and David M. Dannov ("Executive"). WITNESSETH: WHEREAS, the Company desires to employ and secure the exclusive services of Executive on the terms and conditions set forth in this Agreement; WHEREAS, Executive desires to accept such employment on such terms and conditions; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows: 1. Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to continue to employ Executive, and Executive hereby accepts such continued employment with the Company. 2. Term; Position and Responsibilities; and Location. (a) Term of Employment. Unless Executive's employment shall sooner terminate pursuant to Section 8, the Company shall continue to employ Executive on the terms and subject to the conditions of this Agreement for a term commencing on July 1, 2006 (the "Commencement Date") and ending on the date which is five years after the Commencement Date, provided, however, on each annual anniversary date of the Commencement Date (an "Annual Anniversary Date"), Executive's employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions for five years after such Annual Anniversary Date, unless the Company shall have given written notice to Executive, at least thirty (30) days prior to the expiration of such Annual Anniversary Date, of its intention not to extend the Employment Period (as defined below) hereunder. Notwithstanding the foregoing, unless mutually agreed to by the Company and the Executive, Executive's employment hereunder shall under no circumstances extend beyond December 31, 2026. The period during which Executive is employed by the Company pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the "Employment Period." (b) Position and Responsibilities. During the Employment Period, Executive shall serve as President and Chief Executive Officer, Seaboard Overseas and Trading Group, and shall have such duties and responsibilities as are customarily assigned to individuals serving in such position and such other duties consistent with Executive's title and position as the Board of Directors of the Company (the "Board") specifies from time to time. Executive shall devote all of his skill, knowledge, commercial efforts and business time to the conscientious and good faith performance of his duties and responsibilities for the Company to the best of his ability. (c) Location. During the Employment Period, Executive's services shall be performed primarily in the Kansas City metropolitan area. However, Executive may be required to travel in and outside of Kansas City as the needs of the Company's business dictate. 3. Base Salary. Commencing August 7, 2006, the Company shall pay Executive a base salary at an annualized rate of two hundred twenty-five thousand dollars ($225,000), payable in installments on the Company's regular payroll dates. The Board shall review Executive's base salary annually during the Employment Period and may increase (but not decrease) such base salary from time to time, based on its periodic review of Executive's performance in accordance with the Company's regular policies and procedures. The annual base salary payable to Executive from time to time under this Section 3 shall hereinafter be referred to as the "Base Salary." 4. Annual Bonus Compensation. Executive shall be eligible to receive an annual bonus ("Annual Bonus") with respect to each calendar year ending during the Employment Period. The Annual Bonus shall be determined under the Company's Executive Officers' Bonus Plan or such other annual bonus plan maintained by the Company for similarly situated Executives that the Company designates, in its sole discretion (any such plan, the "Bonus Plan"), in accordance with the terms of such plan as in effect from time to time. Executive's Annual Bonus shall not be less than two hundred fifty thousand dollars ($250,000) for any calendar year during the Employment Period. The Annual Bonus is earned pro-rata throughout each year. The Annual Bonus for each year shall be payable in cash on or before March 1 of the following year. 5. Car Allowance. During Executive's Employment Period, Executive will be entitled to receive an annual car allowance and gasoline charge privileges in accordance with the Company's car allowance policy. 6. Executive Benefits. During the Employment Period, Executive will be eligible to participate in the employee and executive benefit plans and programs maintained by the Company from time to time in which executives of the Company at Executive's grade level are eligible to participate, including medical, dental, disability, hospitalization, life insurance, and retirement (i.e., 401K, pension and executive retirement plans), deferred compensation and savings plans, on the terms and subject to the conditions set forth in such plans; as may be amended from time to time; provided, however, the benefits provided by the Company will not be amended to provide for any benefits which are materially less than the current benefits provided to Executive at the Commencement Date. 7. Indemnification; Expenses; Paid Time Off. (a) Indemnification. Except to the extent, if any, prohibited by law, the Company shall indemnify Executive against expenses (including attorneys' fees of counsel selected by Executive), judgments, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which Executive was, is, or is threatened 2 to be, made a party by reason of facts which include Executive's being or having been an employee, officer, director or agent of the Company or any Affiliates. Except to the extent, if any, prohibited by law, the Company shall pay expenses (including attorneys' fees of counsel selected by Executive) actually and reasonably incurred by Executive in defending any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by Executive to repay such amounts so paid on Executive's behalf if it shall ultimately be determined that Executive is not entitled to be indemnified by the Company for such expenses under applicable law. The provisions of this Section 7(a) shall (i) survive termination of this Agreement; and (ii) not be deemed exclusive of any other indemnification or expense rights to which Executive may be entitled. (b) Business Expenses. During the Employment Period, the Company will reimburse Executive for all reasonable and necessary business-related expenses incurred by Executive at the request of and on behalf of the Company in accordance with The Company's normal expense reimbursement policies. (c) Paid Time Off. During the Employment Period, Executive shall be entitled to paid time off on an annualized basis in accordance with the Company's paid time off policy. Executive shall also be entitled to Company-designated holidays. 8. Termination of Employment. (a) Termination Due to Death or Disability. Executive's employment shall automatically terminate upon Executive's death and may be terminated by the Company due to Executive's Disability (as defined below in this subsection (a)). In the event that Executive's employment is terminated due to his Disability or death, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii). For purposes of this Agreement, "Disability" means a physical or mental disability that prevents or would prevent the performance by Executive of his duties hereunder for a continuous period of six months or longer. The determination of Executive's Disability will be made by an independent physician agreed to by the parties. If the parties are unable to agree within ten (10) days after a request for designation by a party, then the Company and the Executive shall each select a physician, and the two (2) physicians selected shall select a third physician. The three (3) physicians so selected shall make a determination of the Executive's Disability, as determined by at least two (2) of the three (3) physicians selected. Such determination shall be final and binding on the parties hereto, and shall be based on such competent medical evidence as shall be presented to such physicians by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such physicians. (b) Termination by the Company for Cause. Executive's employment may be terminated by the Company for Cause (as defined below in this subsection (b)). In the event of a termination of Executive's employment by the Company for Cause, Executive shall be paid the termination benefits as provided in Section 8(f)(ii). For purposes of this Agreement, "Cause" means (i) a material breach by Executive of any provision of this Agreement; (ii) a material violation by Executive of any Policy (as defined in Section 14), resulting in material injury to the Company; (iii) Executive's willful misconduct or gross negligence that has caused or is reasonably expected to 3 result in material injury to the business, reputation or prospects of the Company or any of its Affiliates; (iv) Executive's material fraud or misappropriation of funds; or (v) the commission by Executive of a felony involving moral turpitude; provided that no termination under clauses (i) or (ii) shall be effective unless Company shall have given Executive notice of the event or events constituting Cause and Executive shall have failed to cure such event or events within thirty (30) business days after receipt of such notice. (c) Termination Without Cause. Executive's employment may be terminated by the Company Without Cause (as defined below in this subsection (c)) at any time. In the event of a termination of Executive's employment by the Company Without Cause, the Executive shall be paid the termination benefits as provided in Section 8(f)(i). For purposes of this Agreement, a termination "Without Cause" shall mean a termination of Executive's employment by the Company other than due to Executive's death or Disability as described in Section 8(a) and other than for Cause as described in Section 8(b). (d) Termination by Executive. Executive may resign from his employment for any reason, including for Good Reason (as defined below in this subsection (d)). In the event of a termination of Executive's employment by Executive's resignation other than for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii) and in the event of a termination of Executive's employment by Executive for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(i). For purposes of this Agreement, a termination of employment by Executive for "Good Reason" shall mean a resignation by Executive from his employment with the Company within one hundred eighty (180) days following the occurrence, without Executive's consent, of any of the following events: (i) a material diminution in the Executive's position, authority or responsibilities; (ii) any involuntary relocation of the location where Executive primarily performs his services; or (iii) any other material breach by the Company of any material provision of this Agreement; provided that the Executive shall have given the Company notice of the event or events constituting Good Reason and the Company shall have failed to cure such event or events (to the extent capable of being cured) within thirty (30) business days after receipt of such notice. (e) Notice of Termination; Date of Termination. (i) Notice of Termination. Any termination of Executive's employment by the Company or by Executive (other than as a result of Executive's death) shall be communicated by a written Notice of Termination addressed to the other party to this Agreement. A "Notice of Termination" shall mean a notice stating that Executive or the Company, as the case may be, is electing to terminate Executive's employment with the Company (and thereby terminating the Employment Period), stating the proposed effective date of such termination, indicating the specific provision of this Section 8 under which such termination is being effected and, if applicable, setting forth in reasonable detail the circumstances claimed to provide the basis for such termination. Any Notice of Termination given by an Executive must specify an effective date of termination which is at least thirty (30) days after the giving of the Notice of Termination. 4 (ii) Date of Termination. The term "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death; and (ii) if Executive's employment is terminated for any other reason, the effective date of termination specified in such Notice of Termination. The Employment Period shall expire on the Date of Termination. (f) Payments Upon Certain Terminations. (i) In the event of a termination of Executive's employment by the Company Without Cause or by Executive's resignation from employment for Good Reason during the Employment Period, the Company shall pay to Executive (or, following his death, to Executive's estate), within thirty (30) days of the Date of Termination, (x) his Base Salary through the Date of Termination, to the extent not previously paid; (y) the pro-rata amount of the Annual Bonus (based on the amount paid for the previous year) which is accrued through the date of termination; and (z) reimbursement for any unreimbursed business expenses incurred by Executive prior to the Date of Termination that are subject to reimbursement pursuant to the terms hereof, and payment for paid time off accrued as of the Date of Termination but unused (such amounts under clauses (x), (y) and (z), collectively the "Accrued Obligations"). In addition, in the event of any such termination of Executive's employment, if Executive executes and delivers to the Company a Release and Discharge of All Claims substantially in the form approved by the Company, Executive (or, following his death, Executive's estate) shall be entitled to the following payments and benefits: (A) the Executive's Base Salary (at the Base Salary being paid on the Date of Termination), for the longer of: (x) the remaining Employment Period (assuming Executive's employment had not terminated) or (y) one (1) year (the "Severance Period"), payable in installments in accordance with the Company's regular payroll policies for one year after the Date of Termination, with the balance, if any, being paid pursuant to a lump sum payment on the one year anniversary date of the Date of Termination; and (B) the Executive's Annual Bonus (at the amount of the Annual Bonus paid to the Executive for the year prior to the Date of Termination) which would have been paid to the Executive had Executive's employment continued for the Severance Period, duly apportioned for any partial year, such amount to be payable to Executive on the one year anniversary date of the Date of Termination; and (C) the Executive shall receive "Years of Service" credit for the number of years comprising the Severance Period for purposes of accruing the Executive's benefit under the Company's Executive Retirement Plan and the Final Average Earnings thereunder for the Severance Period shall be determined based on the Base Salary being paid on the Date of Termination and the Annual Bonus paid to the Executive for the year prior to the Date of Termination; (D) the Executive shall automatically vest in all employee welfare and benefit plans in which the Executive was participating as of the Date of 5 Termination and such benefits shall be paid to Executive in accordance with the terms of such plans; and (E) the Company shall provide outplacement services to Executive for up to ninety (90) days. Executive shall not have a duty to mitigate the costs to the Company under this Section 8(f)(i), nor shall any payments from the Company to Executive hereunder be reduced, offset or canceled by any compensation or fees earned by (whether or not paid currently) or offered to Executive during the remainder of the fiscal year of the Company that includes the Date of Termination by a subsequent employer or other Person (as defined below in Section 18(k) below) for which Executive performs services, including, but not limited to, consulting services. (ii) If Executive's employment shall terminate upon his death or if the Company shall terminate Executive's employment for Cause or due to Executive's Disability or Executive shall resign from his employment without Good Reason, in any such case during the Employment Period, the Company shall pay to Executive (or, in the event of Executive's death, to his estate) the Accrued Obligations within thirty (30) days following the Date of Termination. (iii) Except as specifically set forth in this Section 8(f), no termination benefits shall be payable to or in respect of Executive's employment with the Company or its Affiliates. (iv) The Company shall have the right to apply and set off against the Accrued Obligations or any other amounts owing to Executive hereunder, any amounts owing by the Executive to the Company, whether pursuant to this Agreement or otherwise. (g) Resignation upon Termination. Effective as of any Date of Termination under this Section 8 or otherwise as of the date of Executive's termination of employment with the Company, Executive shall resign, in writing, from all Board memberships and other positions then held by him, or to which he has been appointed, designated or nominated, with the Company and its Affiliates. 9. Confidentiality. (a) Executive acknowledges and agrees that the terms of this Agreement, including all addendums and attachments hereto, are confidential. Executive agrees not to disclose any information contained in this Agreement, or the fact of this Agreement, to anyone, other than to Executive's lawyer, financial advisor or immediate family members. If Executive discloses any information contained in this Agreement to his lawyer, financial advisor or immediate family members as permitted herein, Executive agrees to immediately tell each such individual that he or she must abide by the confidentiality restrictions contained herein and keep such information confidential as well. 6 (b) Executive agrees that during his employment with the Company and thereafter, Executive will not, directly or indirectly (i) disclose any Confidential Information to any Person (other than, only with respect to the period that Executive is employed by the Company, to an Executive of the Company who requires such information to perform his or her duties for the Company); or (ii) use any Confidential Information for Executive's own benefit or the benefit of any third party. "Confidential Information" means confidential, proprietary or commercially sensitive information relating to (i) the Company or its Affiliates, or members of their management or boards; or (ii) any third parties who do business with the Company or its Affiliates, including customers and suppliers. Confidential Information includes, without limitation, marketing plans, business plans, financial information and records, operation methods, personnel information, drawings, designs, information regarding product development, other commercial or business information and any other information not available to the public generally. The foregoing obligation shall not apply to any Confidential Information that has been previously disclosed to the public or is in the public domain (other than by reason of a breach of Executive's obligations to hold such Confidential Information confidential). If Executive is required or requested by a court or governmental agency to disclose Confidential Information, Executive must notify the General Counsel of the Company in writing of such disclosure obligation or request no later than three business days after Executive learns of such obligation or request, and permit the Company to take all lawful steps it deems appropriate to prevent or limit the required disclosure. 10. Partial Restraint on Post-termination Competition. (a) Definitions. For the purposes of this Section 10, the following definitions shall apply: "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, other than the Company and its affiliates, that is engaging or actively planning to engage, wholly or partly, in activities ("Competitive Activities") that directly compete or would compete with the Company or its affiliates in the Company Activities (as hereinafter defined) in the Territory (as hereinafter defined). "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) any employment or independent contractor arrangement with any Competitor whereby Executive will serve such Competitor in any managerial, sales, executive or consultant capacity with respect to Competitive Activities in the Territory. "The Company Activities" means the businesses of (i) grain processing and flour milling; (ii) bulk ocean transportation; (iii) commodity trading; (iv) grain terminal operations and (v) any business acquired or commenced by the Company after the Commencement Date which has sales in excess of $50 million. "Non-compete Period" or "Non-solicitation Period" means the period beginning with the Commencement Date and ending on: (x) the two year anniversary date of the Date of Termination with respect to any termination of employment by the Executive pursuant to Section 8(d) above by Executive's resignation other than for Good Reason; or (y) the one (1) year 7 anniversary date of the Date of Termination with respect to any other termination of employment hereunder. "Territory" means the United States of America, Africa, South America and Haiti, which Executive acknowledges and agrees are the geographic areas in which the Company engages in the Company Activities, but with respect to grain processing and flour milling, shall not include the United States of America. (b) Non-competition. (i) The parties hereto acknowledge that Executive, by virtue of his position with and responsibilities to the Company, is engaging and is expected to continue to engage during the Term in the Company Activities throughout the Territory and has executive management responsibilities with respect to the Company responsibilities which extend throughout the Territory. Executive acknowledges that to protect adequately the interest of the Company in the business of the Company it is essential that any non-compete covenant with respect thereto cover all the Company Activities and the entire Territory. (ii) Executive hereby agrees that, during the Non- compete Period, Executive will not, either directly or indirectly, alone or in conjunction with any other party, accept or enter into a Competitive Position. Executive shall notify the Company promptly in writing if Executive receives an offer of a Competitive Position during the Non- compete Period, and such notice shall describe all material terms of such offer. Nothing contained in this Section 10 shall prohibit Executive from acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securities exchange or in the over-the-counter market. (c) Severability. If a judicial or arbitral determination is made that any of the provisions of this Section 10 constitutes an unreasonable or otherwise unenforceable restriction against Executive the provisions of this Section 10 shall be rendered void only to the extent that such judicial or arbitral determination finds such provisions to be unreasonable or otherwise unenforceable with respect to Executive. In this regard, Executive hereby agrees that any judicial or arbitral authority construing this Agreement shall sever or reform any portion of the Territory, any prohibited business activity or any time period from the coverage of this Agreement to allow the covenants in this Section 10 to be enforced to the maximum extent authorized by law, and shall then enforce the covenants in this Section 10 as so severed or reformed. (d) Reasonable Restrictions. Executive acknowledges that the restrictions and covenants contained in this Agreement are reasonably necessary to protect the goodwill and legitimate business interests of the Company, are not overbroad, overlong, or unfair (including in duration and scope), and will not curtail Executive's ability to earn a livelihood upon Executive's termination of employment with the Company. 11. Non-Solicitation of Employees and Customers. During the period of Executive's employment with the Company and for the one- year period following the termination of his 8 employment, Executive shall not, directly or indirectly, by himself or through any third party, whether on Executive's own behalf or on behalf of any other Person or entity, (i) solicit or endeavor to solicit, employ or retain; (ii) interfere with the relationship of the Company or any of its Affiliates with; or (iii) attempt to establish a business relationship with (A) any natural person who is or was (during Executive's employment with the Company) an employee or engaged by the Company or any Affiliate to provide services to it, or (B) any customer of the Company or any of its Affiliates who was a customer at any time during which Executive was an employee of the Company. 12. Work Product. Executive agrees that all of Executive's work product (created solely or jointly with others, and including any intellectual property or moral rights in such work product), given, disclosed, created, developed or prepared in connection with Executive's employment with the Company, whether ensuing during or after Executive's employment with the Company ("Work Product") shall exclusively vest in and be the sole and exclusive property of the Company and shall constitute "work made for hire" (as that term is defined under Section 101 of the U.S. Copyright Act, 17 U.S.C. 101) with the Company being the person for whom the work was prepared. In the event that any such Work Product is deemed not to be a "work made for hire" or does not vest by operation of law in the Company, Executive hereby irrevocably assigns, transfers and conveys to the Company, exclusively and perpetually, all right, title and interest which Executive may have or acquire in and to such Work Product throughout the world, including without limitation any copyrights and patents, and the right to secure registrations, renewals, reissues, and extensions thereof. The Company and its Affiliates or their designees shall have the exclusive right to make full and complete use of, and make changes to all Work Product without restrictions or liabilities of any kind, and Executive shall not have the right to use any such materials, other than within the legitimate scope and purpose of Executive's employment with the Company. Executive shall promptly disclose to the Company the creation or existence of any Work Product and shall take whatever additional lawful action may be necessary, and sign whatever documents the Company may require, in order to secure and vest in the Company or its designee all right, title and interest in and to all Work Product and any intellectual property rights therein (including full cooperation in support of any Company applications for patents and copyright or trademark registrations). 13. Return of Company Property. In the event of termination of Executive's employment for any reason, Executive shall return to the Company all of the property of the Company and its Affiliates, including without limitation all materials or documents containing or pertaining to Confidential Information, and including without limitation, any company car, all computers (including laptops), cell phones, keys, PDAs, Blackberries, credit cards, facsimile machines, card access to any Company building, customer lists, computer disks, reports, files, e-mails, work papers, Work Product, documents, memoranda, records and software, computer access codes or disks and instructional manuals, internal policies, and other similar materials or documents which Executive used, received or prepared, helped prepare or supervised the preparation of in connection with Executive's employment with the Company. Executive agrees not to retain any copies, duplicates, reproductions or excerpts of such material or documents. 14. Compliance With Company Policies. During Executive's employment with the Company, Executive shall be governed by and be subject to, and Executive hereby agrees to comply with, all Company policies applicable to employees generally or to employees at Executive's grade level, including without limitation, the Company's Code of Business Ethics and Conduct, in each 9 case, as any such policies may be amended from time to time in the Company's sole discretion (collectively, the "Policies"). 15. Injunctive Relief with Respect to Covenants; Forum, Venue and Jurisdiction. Executive acknowledges and agrees that a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14 is a material breach of this Agreement and that remedies at law may be inadequate to protect the Company and its Affiliates in the event of such breach, and, without prejudice to any other rights and remedies otherwise available to the Company, Executive agrees to the granting of injunctive relief in the Company's favor in connection with any such breach or violation without proof of irreparable harm, plus attorneys' fees and costs to enforce these provisions. Executive further acknowledges and agrees that the Company's obligations to pay Executive any amount or provide Executive with any benefit or right pursuant to Section 8 is subject to Executive's compliance with Executive's obligations under Sections 9 through 14 inclusive, and that in the event of a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14, the Company shall immediately cease paying such benefits and Executive shall be obligated to immediately repay to the Company all amounts theretofore paid to Executive pursuant to Section 8. In addition, if not repaid, the Company shall have the right to set off from any amounts otherwise due to Executive any amounts previously paid pursuant to Section 8(f) (other than the Accrued Obligations). Executive further agrees that the foregoing is appropriate for any such breach inasmuch as actual damages cannot be readily calculated, the amount is fair and reasonable under the circumstances, and the Company would suffer irreparable harm if any of these Sections were breached. All disputes not relating to any request or application for injunctive relief in accordance with this Section 15 shall be resolved by arbitration in accordance with Section 18(b). 16. Assumption of Agreement. The Company shall require any Successor thereto, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment Without Cause as described in Section 8, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including, but not limited to, summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby. 18. Miscellaneous. (a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company and its Successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal 10 representatives. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. The Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means), provided that the Successor to the Company shall expressly assume and agree to perform this Agreement in accordance with the provisions of Section 16. (b) Arbitration. The Company and Executive agree that any dispute or controversy arising under or in connection with this Agreement shall be resolved by final and binding arbitration before the American Arbitration Association ("AAA"). The arbitration shall be conducted in accordance with AAA's National Rules for the Resolution of Employment Disputes then in effect at the time of the arbitration. The arbitration shall be held in the general Kansas City, Kansas metropolitan area. The dispute shall be heard and determined by one arbitrator selected from a list of arbitrators who are members of AAA's Regional Employment Dispute Resolution roster. If the parties cannot agree upon a mutually acceptable arbitrator from the list, each party shall number the names in order of preference and return the list to AAA within ten (10) days from the date of the list. A party may strike a name from the list only for good cause. The arbitrator receiving the highest ranking by the parties shall be selected. Depositions, if permitted by the arbitrator, shall be limited to a maximum of two (2) per party and to a maximum of four (4) hours in duration. The arbitration shall not impair either party's right to request injunctive or other equitable relief in accordance with Section 15 of this Agreement. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas without reference to principles of conflicts of laws. (d) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes, as shall be required by law. (e) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Company and is agreed to in writing by Executive. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions. (f) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. (g) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing; (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested; (iii) deemed to have been received on the date of delivery or, if mailed, on the third business day after the mailing 11 thereof; and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): (i) If to the Company, to it at: Seaboard Corporation 9000 West 67th Street Shawnee Mission, Kansas 66202 Attention: General Counsel Telephone: (913) 676-8925 Facsimile: (913) 676-8978 (ii) if to Executive, to his residential address as currently on file with the Company. (h) Voluntary Agreement; No Conflicts. Executive represents that he is entering into this Agreement voluntarily and that Executive's employment hereunder and compliance with the terms and conditions of this Agreement will not conflict with or result in the breach by Executive of any agreement to which he is a party or by which he or his properties or assets may be bound. (i) Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (j) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof. (k) Certain other Definitions. "Affiliate" with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including, but not limited to, a Subsidiary of any such Person. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and "under common Control with"): with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Person" any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. "Subsidiary" with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership 12 interests representing fifty percent (50%) or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. "Successor" of a Person means a Person that succeeds to the assets and liabilities of the Seaboard Overseas and Trading Group by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the Seaboard Overseas and Trading Group are transferred. IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives, and Executive has hereunto set his hand, in each case effective as of the date first above written. THIS AGREEMENT CONTAINS A PROVISION REQUIRING THAT ARBITRATION PURSUANT TO THE AMERICAN ARBITRATION ASSOCIATION NATIONAL RULES FOR THE RESILUTION OF EMPLOYMENT DISPUTES IS THE EXCLUSIVE MEANS FOR RESOLVING ANY DISPUTE BETWEEN THE PARTIES HERETO AS TO THIS AGREEMENT. SEABOARD OVERSEAS AND TRADING GROUP, a division of Seaboard Corporation By: /s/ Steve Bresky Name: Steve Bresky Title: Chief Executive Officer Executive: By: /s/ Dave Dannov David M. Dannov 13 EX-10.18 3 ex10-18.txt EMPLOYMENT AGREEMENT-EDWARD A. GONZALEZ SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Second Amendment") is entered into as of January 17, 2007 by and between Seaboard Marine Ltd., a Liberian corporation, together with any successor thereto, the "Company," and Edward A. Gonzalez ("Executive"). W I T N E S S E T H: WHEREAS, the Company and Executive entered into that certain Employment Agreement ("Employment Agreement") dated as of July 1, 2005, which was amended pursuant to that certain Amendment to Employment Agreement dated August 8, 2006 (the "Amendment"); WHEREAS, it was intended that the Amendment also set forth an amendment to Section 10 of the Employment Agreement to extend the "Non-Compete Period"; WHEREAS, the Company and Executive desire to amend the Employment Agreement, as amended, as set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and Employee's continued employment hereunder, and for further good and valuable consideration, the Company and Executive hereby agree as follows: 1. Amendment to Paragraph 10. The definition of "Non- Compete Period" or "Non-Solicitation Period," as set forth in paragraph 10(a) of the Employment Agreement, as amended, is amended and restated to read as follows: (a) "Non-Compete Period" or "Non-Solicitation Period" means the period beginning with the Commencement Date and ending on: (x) the two year anniversary date of the Date of Termination with respect to any termination of employment by the Executive pursuant to Section 8(d) above by Executive's resignation other than for Good Reason; or (y) the one (1) year anniversary date of the Date of Termination with respect to any other termination of employment hereunder. 2. Agreement Continues in Effect. Except as set forth herein, the Employment Agreement shall continue in full force and effect pursuant to its terms. 3. Miscellaneous. This Amendment shall be governed and construed in accordance with the laws of the State of Florida, without reference to principles of conflict of laws. This Amendment may be executed in counterparts (including by facsimile), each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representative, and Executive has hereto set his hand, in each case, effective as of the date first above written. SEABOARD MARINE LTD. By: /s/ Robert L. Steer Robert L. Steer, Vice President EXECUTIVE: By: /s/ Edward A. Gonzalez Edward A. Gonzalez EX-13 4 ex13.txt 2006 ANNUAL REPORT Exhibit 13 SEABOARD CORPORATION 2006 Annual Report Description of Business Seaboard Corporation is a diversified international agribusiness and transportation company. In the United States, Seaboard is primarily engaged in pork production and processing, and ocean transportation. Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production, and electric power generation. Table of Contents Letter to Stockholders 2 Division Summaries 4 Principal Locations 6 Summary of Selected Financial Data 7 Company Performance Graph 8 Quarterly Financial Data (unaudited) 9 Management's Discussion & Analysis of Financial Condition and Results of Operations 10 Management's Responsibility for Financial Statements 26 Management's Report on Internal Control over Financial Reporting 26 Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 27 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 27 Consolidated Statements of Earnings 29 Consolidated Balance Sheets 30 Consolidated Statements of Cash Flows 31 Consolidated Statements of Changes in Equity 32 Notes to Consolidated Financial Statements 33 Stockholder Information 60 This report, including information included or incorporated by reference in this report, contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward-looking statements generally may be identified as statements that are not historical in nature; and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends," or similar expressions. In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items, including the impact of mark-to-market accounting on operating income; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) Seaboard's ability to obtain adequate financing and liquidity, (ii) the price of feed stocks and other materials used by Seaboard, (iii) the sales price or market conditions for pork, sugar and other products and services, (iv) statements concerning management's expectations of recorded tax effects under existing circumstances, (v) the ability of the Commodity Trading and Milling 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 and demand for power, related spot market prices and collection of receivables in the Dominican Republic, (viii) the effect of the fluctuation in exchange rates for the Dominican Republic peso, (ix) the potential impact of the EPA consent decrees, and various environmental actions pending or threatened against Seaboard, (x) statements concerning profitability or sales volume of any of Seaboard's segments, (xi) the impact of the 2005 Daily's acquisition in enhancing Seaboard's ability to venture into other further processed pork products, (xii) the timetable for the Triumph Foods pork processing plant to reach full double shift operating capacity, (xiii) the anticipated costs and completion timetable for Seaboard's scheduled capital improvements, or (xiv) 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" and "Letter to Stockholders", identifies important factors which could cause such differences. Letter to Stockholders 2006 was a landmark year for Seaboard. Harry Bresky has retired after 58 years of dedicated leadership and service to Seaboard. Many stockholders, and certainly many employees, customers and people associated with Seaboard, know the enormous influence he has had throughout the years. He is Seaboard, and the values he has instilled, and the culture and philosophy he has brought to bear have had an indelible influence on all of us. His work has led us in many directions over the years, and at the same time has brought growth, opportunity and financial success to Seaboard. Indeed, the seeds Harry Bresky sowed many years ago in creating our major divisions are now bearing financial fruit, and as importantly, his presence, attitude, philosophy and values are those same elements which make this Company what it is today: a professional, free-thinking and customer driven organization. For those long-term owners of Seaboard stock, you know the rich history, the successes and failures and the somewhat unconventional approach of our Company. I hope these defining qualities will compel you to remain loyal and patient owners. It has been an interesting journey to date, and I can speak for many in saying that we have enjoyed the ride. We don't usually highlight our financial accomplishments, but because we have had a remarkable run over the last three years, it gives me great pleasure to note a few highlights: since the beginning of 2004, our combined operating income has exceeded our previous 25 years combined, stockholder's equity has more than doubled and our stock price has appreciated over 500 percent. It would be nice to consider these highlights as reflecting a trend but, realistically, it is more likely that they reflect a spike within a trend. Seaboard Foods performed well in 2006, with revenues only slightly below 2005's record. Although we are beginning to see softening in pork prices, we continue to implement our strategy to produce more value-added products. Moving further down the production chain is expected to result in products that command higher margins, and should help insulate the Company from the cyclical nature of market prices for pork. 2006 was the first full year of operations for our Daily's acquisition, bringing variety to our product offerings and higher revenue to the Company. In addition, early in 2006, we began marketing products from the newly-completed Triumph Foods plant, which provides us additional scale and an alternative source of product. We look forward to Triumph Foods' expansion of its processing capacity in 2007 and the opportunity to enhance and expand our marketing efforts. We continue to invest in our Pork Division in 2007. In November 2006, we began construction on a new bio-diesel plant that will provide alternative outlets for some of our by-products and enhance our vertically integrated structure. We also continue to make investments in production assets that are designed to drive costs lower and allow for the growth in demand we have experienced over the past few years. Seaboard Marine achieved all-time record sales, cargo volumes and operating income in 2006 despite volatile fuel and vessel charter hire expenses. Through careful consideration of cargo flows and customer requirements, over the past few years, we have been able to introduce new routes and additional ports of call which have added to our level of service and flexible structure. Quick decision-making, creative solutions and a good feel for market conditions have helped us achieve results which have, quite frankly, exceeded our expectations. In 2007, we plan on making significant investments in marine equipment, vessels, port infrastructure and business systems which we believe will help us solidify our cost structure and enhance customer service. If stable political and economic conditions prevail, we expect to enjoy another positive year in 2007. 2006 marked the third consecutive year of higher operating margins for the Commodity Trading and Milling Division. We continue to build on our grain processing and trading base. In 2006, we added another East African location to our flour milling portfolio, and we have near term plans to add grain processing and grain terminal locations in both Latin America and Africa, including greenfield sites. On the commodity trading side, we continue to build on our customer base, and are entering new markets which will complement our milling activities and should give us certain competitive advantages over conventional commodity merchandising companies. In August of 2006, David Dannov took over my responsibilities as President of the Commodity Trading and Milling division. Dave has been a key component in the division for 17 years and he is well-prepared to bring further value to our trading and milling business. Tabacal, our Sugar and Citrus division in Argentina, performed well in 2006, with substantially higher sales and operating income compared to the prior two years. International sugar markets were strong, as the nexus with the energy markets was established and sugar prices rose as a result. Despite the local government restrictions placed on the price of domestic sugar, our local selling prices also increased, albeit slightly. In 2007, we plan to expand our alcohol distillery operations at Tabacal, as well as increase our production levels of sugar. 2 Since 2004, we have cautioned that these operating results are extraordinary, and that going forward, we expect to return to normalized levels of profitability which are more in line with our commodity-driven businesses. At the risk of sounding like "Chicken Little," there is no doubt that 2007 will present some challenges not present in prior years. First and foremost, we fully expect that our raw material costs for grain will be significantly higher this year, and could have a detrimental affect on the financial results of our Pork and Commodity Trading and Milling Divisions. Many of you are aware of the demand-driven fundamentals affecting the grain and oilseed markets, namely the ethanol industry boom, the increased participation of hedge and money funds in the derivative markets, and the continued political and economic push toward a higher degree of self-reliance for our energy needs in the United States. Domestically, Seaboard uses about 1.4 million tons of corn and protein meals in our animal rations, and overseas, the Company processes and trades over 3 million tons of wheat, corn and soybean meal. Commodity analysts are calling for significant price increases in the grain markets this year without corresponding price increases in meat prices. In addition, in many of our overseas locations, elasticity in demand will undoubtedly limit our ability to maintain or grow volumes in wheat flour, maize meal and manufactured feeds as we attempt to pass along our higher raw material costs. Our challenge this year will be to pay particular attention to this area and do what we can to manage our grain input costs and maximize their value. Secondarily, the political landscape has changed in certain key countries in the Americas and in Africa, which could have financial repercussions for our international businesses, including Seaboard Marine, our foreign milling operations and Tabacal. We have enjoyed the benefits of a steady push toward free market economics, however, in some locations, the momentum has shifted in other directions. We are cautiously optimistic that, given the basic and essential services and products we provide in these countries undergoing political change, we will be insulated from significant disruptions and will maintain and perhaps increase our market share. As foreign investors in sovereign lands, our best protection is to make ourselves indispensable and invaluable in each and every country in which we operate. In 2006 Seaboard generated $284 million in operating cash flow, paid down $91 million in debt, and added cash and additional working capital to the balance sheet. As a result, we are well positioned financially to take advantage of market opportunities and business acquisitions as they arise. Interest rates are relatively low and general market values are reasonable, which should allow us to find and fund businesses which can add depth and breadth to our Company. Obviously, we need to be cautious in our approach and not only find the right economic investment, but also the right mixture of people and assets which complement our existing structure. It is critical for us to look beyond the numbers and into the chemistry of any business combination. On behalf of my father as Chairman and patriarch of Seaboard, I would like to thank all of our employees who dedicate their days, and oftentimes nights and weekends, to the Company and work as much for personal and company pride as they do for monetary compensation. I may be a bit biased, but I sincerely believe that we have one of the most dynamic companies in operation today. /s/ Steven J. Bresky Steven J. Bresky President and Chief Executive Officer 3 Pork Division Seaboard's Pork Division is one of the largest vertically integrated pork processors in the United States. Seaboard is able to control animal production and processing from research and development in nutrition and genetics, to the production of high quality meat products at our processing facility. Seaboard's processing facility is located in Guymon, Oklahoma. The facility has a daily double shift capacity to process approximately 16,000 hogs and generally operates at capacity with additional weekend shifts depending on market conditions. Seaboard produces and sells fresh, frozen and further processed pork products to further processors, foodservice operators, grocery stores and other retail outlets, and other distributors throughout the United States. Internationally, Seaboard sells to distributors in Japan, Mexico and other foreign markets. Hogs processed at the plant principally include Seaboard-raised hogs as well as hogs raised by third parties purchased under contract and in the open market. Seaboard's hog production facilities consist of genetic and commercial breeding, farrowing, nursery and finishing buildings located in Oklahoma, Kansas, Texas and Colorado. These facilities have a capacity to produce approximately 3.8 million hogs annually. Seaboard owns and operates six centrally located feed mills to provide formulated feed to these facilities and has additional feed mill capacity to support future growth. Seaboard's Pork Division also owns two bacon processing plants located in Salt Lake City, Utah and Missoula, Montana. The processing plants produce premium sliced and pre-cooked bacon primarily for food service. These operations represent Seaboard's recent expansion of its integrated pork model into value-added products and are expected to enhance Seaboard's ability to penetrate into other further processed pork products. Seaboard's Pork Division also has an agreement with a similar size pork processor, Triumph Foods LLC (Triumph), to market all of the pork products produced at Triumph's plant in St. Joseph, Missouri. Pursuant to this agreement, Seaboard is able to provide the same quality ensured products to its customers. Seaboard earns a commission for this service and is entitled to be reimbursed for certain expenses. The plant began operations in January 2006 and Seaboard began marketing the related pork products for a fee primarily based on the number of head processed by Triumph Foods. Seaboard's vertically integrated system provides a number of strategic advantages relative to other companies in the industry. These advantages, which result largely from significant control of the production and processing chain, allow Seaboard to produce high quality, safe products. The consistency and quality of Seaboard pork have allowed Seaboard to become one of the leading exporters of pork products from the United States to Japan and other foreign markets. Commodity Trading & Milling Division Seaboard's Commodity Trading & Milling Division markets grain and oilseed products internationally to third party customers and affiliated companies. These commodities are purchased worldwide with primary destinations in Africa, South America, and the Caribbean. The division sources, transports and markets over three million tons annually of wheat, corn, soybean meal and other related commodities to the food and animal feed industries. The focus remains on the efficient supply of quality products and reliable services to industrial customers in selected markets. Seaboard integrates the service of delivering commodities to its customers primarily through the use of chartered bulk vessels and company owned bulk carriers. Seaboard's Commodity Trading and Milling Division has locations in fifteen countries. The commodity trading business operates through four offices in three countries. The grain processing businesses operate through twenty-five locations in thirteen countries consisting of six consolidated and seven non- consolidated affiliates in Africa, South America, and the Caribbean. These businesses produce over one and a half million metric tons of finished product per year. 4 Marine Division Seaboard's Marine Division provides containerized shipping service between the United States, the Caribbean Basin, and Central and South America. Seaboard's primary operations, located in Miami, include a 135,000 square-foot warehouse for cargo consolidation and temporary storage, in addition to a 70 acre terminal at the Port of Miami. At the Port of Houston, Seaboard operates a 62 acre cargo terminal facility that includes over 690,000 square feet of on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes. Seaboard also makes scheduled vessel calls in Philadelphia, Pennsylvania, Fernandina Beach, Florida, New Orleans, Louisiana and approximately 38 foreign ports. Seaboard's fleet consists of ten owned and approximately 29 chartered vessels, thousands of dry, refrigerated and specialized containers and related equipment. Within its service lanes, Seaboard is one of the largest shippers in terms of cargo volume to and from the Port of Miami. Seaboard Marine provides direct service to over 25 countries. Seaboard also provides extended service from our domestic ports of call to and from multiple foreign destinations through connecting carrier agreements with major regional and global carriers. To maximize fleet utilization, Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America, and the Caribbean Basin to book both northbound and southbound cargo to and from the United States and between the countries it serves. Seaboard's full service intermodal capabilities allow the transport by either truck or rail, of both import and export cargo to and from various U.S. ports. Seaboard's frequent sailings and fixed-day schedules make it convenient for customers to coordinate manufacturing schedules and maintain inventories at cost-efficient levels. Seaboard's approach is to work in partnership with its customers and provide the most effective level of service throughout the United States to and from Latin America and the Caribbean Basin and between the countries it serves. Other Divisions Seaboard's other businesses consist largely of food-related businesses and electric power generation. Seaboard is involved in the production and refining of sugar, and the production and processing of citrus products in Argentina. These products are primarily marketed locally with some exports to the United States, other South American countries and Europe. Seaboard's mill, one of the largest in Argentina, currently has a processing capacity of over 200,000 metric tons of sugar and over four million gallons of alcohol per year. The mill is located in the Salta Province of northern Argentina with administrative offices in Buenos Aires, Argentina. Approximately 50,000 acres of land is planted with sugar cane which supplies the majority of the raw product processed by the mill. In addition, approximately 3,000 acres is planted with orange trees. Seaboard owns two floating electric power generating facilities consisting of a system of diesel engines mounted on barges with a combined rated capacity of approximately 112 megawatts. Seaboard operates as an independent power producer which generates electricity into the local power grid. Seaboard is not directly involved in the transmission or distribution of electricity but does have contracts to sell directly to third party users. Electricity is sold under contract to certain large commercial users, and on the spot market that is accessed by three wholly or partially government-owned distribution companies, and limited others. Seaboard processes jalapeno peppers at its plant in Honduras. These products are shipped to the United States on Seaboard Marine vessels and distributed from Seaboard's port facilities. Seaboard also has an equity investment in a wine business that produces wine in Bulgaria for distribution primarily throughout Europe. 5 Corporate Office Seaboard Corporation Mobeira, SARL Seaboard de Nicaragua, Shawnee Mission, Kansas Mozambique Nicaragua Pork Molinos del Ecuador, C.A.* Seaboard del Peru, Ecuador S.A. Seaboard Foods LP Peru Pork Division Office National Milling Company Shawnee Mission, Kansas of Guyana, Inc. Seaboard Freight & Guyana Shipping Jamaica Processing Plant Limited Guymon, Oklahoma National Milling Jamaica Corporation Limited Live Production Operation Zambia Seaboard Honduras, S. Offices de R.L. de C.V. Julesburg, Colorado Honduras Hugoton, Kansas Seaboard West Africa Leoti, Kansas Limited Seaboard Marine Liberal, Kansas Sierra Leone Bahamas Ltd. Rolla, Kansas Bahamas Guymon, Oklahoma Unga Holdings Limited* Hennessey, Oklahoma Kenya and Uganda Seaboad Marine Optima, Oklahoma (Trinidad) Ltd. Marine Trinidad Processed Meats Salt Lake City, Utah Seaboard Marine Ltd. Seaboard Marine of Missoula, Montana Marine Division Office Haiti, S.E. Miami, Florida Haiti Commodity Trading & Milling Port Operations SEADOM, S.A. Fernandina Beach, Florida Dominican Republic Commodity Trading Operations Houston, Texas Bermuda Miami, Florida Sea Maritima S.A. de Ecuador New Orleans, Louisiana C.V. South Africa Philadelphia, Pennsylvania Mexico Les Moulins d'Haiti S.E.M.* Agencias Generales Haiti Conaven, C.A. Sugar and Citrus Venezuela Les Moulins de Madagascar, Ingenio y Refineria S.A.R.L. San Martin del Madagascar Agencia Maritima del Tabacal SRL Istmo, S.A. Argentina Lesotho Flour Mills Limited* Costa Rica Lesotho Cayman Freight Shipping Power Life Flour Mill Ltd.* Services, Ltd. Top Feeds Limited* Cayman Islands Transcontinental Nigeria Capital Corp. JacintoPort International LP (Bermuda) Ltd. Minoterie de Matadi, Houston, Texas Dominican Republic S.A.R.L.* Democratic Republic of Representaciones Congo Maritimas y Aereas, S.A. Other Guatemala Minoterie du Congo, S.A. Mount Dora Farms de Republic of Congo Sea Cargo, S.A. Honduras, S.R.L. Panama Honduras Seaboard de Colombia, S.A. Mount Dora Farms Inc. Colombia Houston, Texas *Represents a non-controlled, non-consolidated affiliate 6 Summary of Selected Financial Data Years ended December 31, (Thousands of dollars except per share amounts) 2006 2005 2004 2003 2002 Net sales $2,707,397 $2,688,894 $2,683,980 $1,981,340 $1,829,307 Operating income $ 296,995 $ 320,045 $ 251,254 $ 68,786 $ 47,125 Net earnings $ 258,689 $ 266,662 $ 168,096 $ 31,842 $ 13,507 Basic earnings per common share $ 205.09 $ 212.20 $ 133.94 $ 25.37 $ 9.38 Diluted earnings per common share $ 205.09 $ 211.94 $ 133.94 $ 25.37 $ 9.38 Total assets $1,961,433 $1,816,321 $1,436,694 $1,325,691 $1,281,141 Long-term debt, less current maturities $ 137,817 $ 201,063 $ 262,555 $ 321,555 $ 318,746 Stockholders' equity $1,203,307 $ 977,870 $ 692,682 $ 520,565 $ 486,731 Dividends per common share $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 2.50 As of December 31, 2006, Seaboard adopted Statement of Financial Accounting Standard No. 158 (SFAS 158), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." The adoption of SFAS 158 reduced stockholders equity by $25,014,000 as an adjustment to Accumulated Other Comprehensive Loss. See Note 10 to the Consolidated Financial Statements for further discussion. In the fourth quarter of 2005, Seaboard made a one-time election to repatriate previously permanently invested foreign earnings resulting in a total tax expense of approximately $11,586,000, recognized a tax benefit of $21,428,000 for the finalization of certain tax years as a result of a settlement with the Internal Revenue Service and recognized a tax benefit of $4,977,000 as a result of an agreement with the Puerto Rican Treasury department that favorably resolved certain prior years' tax issues. The net effect of these events was an increase in net earnings of $14,819,000, or $11.78 per common share on a diluted earnings basis for the year. See Note 7 of the Consolidated Financial Statements for further discussion. In January 2005, Seaboard agreed to a tax settlement related to prior year tax returns resulting in a tax benefit of $14,356,000, or $11.44 per common share, which was recognized in the fourth quarter of 2004. See Note 7 to the Consolidated Financial Statements for further discussion. In the fourth quarter of 2004, Seaboard recognized a $3,592,000 decline in value considered other than temporary in its investment in a Bulgarian wine business as a charge to loss from foreign affiliates. See Note 13 to the Consolidated Financial Statements for further discussion. As a result of its decision to sell this equity investment, in the fourth quarter of 2004, Seaboard recharacterized the related accounting for income tax purposes from ordinary to capital losses, which resulted in the reversal of a previously recorded tax benefit of $5,795,000 related to prior year losses. See Note 7 to the Consolidated Financial Statements for further discussion. The effect of these fourth quarter events related to this business was a decrease in net earnings of $9,387,000, or $7.48 per common share. During the fourth quarter of 2003, Seaboard sold its equity investment in Fjord Seafood ASA (Fjord), an integrated salmon producer and processor headquartered in Norway, recognizing a gain of $18,036,000 or $14.37 per share. The gain was not subject to tax. During 2003, Seaboard recorded its share of losses related to its investment in Fjord totaling $15,546,000, or $12.38 per share including $12,421,000 for asset impairment charges. Seaboard's share of losses from Fjord during 2002 totaled $10,158,000, or $7.06 per share. Also during 2003, Seaboard adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," Financial Accounting Standards Board Interpretation No. 46, revised December 2003, "Consolidation of Variable Interest Entities," and changed its method of accounting for costs associated with the regularly scheduled drydocking of vessels from the accrue-in-advance method to the direct-expense method. As a result of these changes, Seaboard recorded a net cumulative effect of changes in accounting principles of $2,868,000, or $2.29 per share. See Note 1 to the Consolidated Financial Statements for additional information. During 2002, Seaboard completed a series of transactions related to its Argentine sugar business, resulting in a one-time tax benefit of $14,303,000, or $9.93 per share. Also during 2002, Seaboard effectively repurchased 232,414.85 shares of common stock from its parent company. See Note 12 to the Consolidated Financial Statements for further discussion. 7 The Securities and Exchange Commission requires a five-year comparison of stock performance for Seaboard with that of an appropriate broad equity market index and similar industry index. Seaboard's common stock is traded on the American Stock Exchange, and one appropriate comparison is with the American Stock Exchange Market Value Index. Because there is no single industry index to compare stock performance, the companies comprising the Dow Jones Food and Marine Transportation Industry indices (the "Peer Group") were chosen as the second comparison. The following graph shows a five-year comparison of cumulative total return for Seaboard, the American Stock Exchange Market Value Index and the companies comprising the Dow Jones Food and Marine Transportation Industry indices weighted by market capitalization for the five fiscal years commencing December 31, 2001, and ending December 31, 2006. The information presented in the performance graph is historical in nature and is not intended to represent or guarantee future returns. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Seaboard Corporation, The AMEX Composite Index and a Peer Group The graph depicts data points below. *$100 invested on 12/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. The comparison of cumulative total returns presented in the above graph was plotted using the following index values and common stock price values: 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 Seaboard Corporation $100.00 $ 79.91 $ 94.32 $335.84 $509.59 $596.48 AMEX Market Value $100.00 $100.08 $144.57 $178.46 $220.35 $262.17 (U.S. & Foreign) Peer Group $100.00 $101.80 $112.19 $135.96 $130.63 $157.77 8 Quarterly Financial Data (unaudited) (UNAUDITED) (Thousands of dollars except per share amounts) 1st 2nd 3rd 4th Total for Quarter Quarter Quarter Quarter the Year 2006 Net sales $ 635,573 $ 688,937 $ 678,382 $ 704,505 $2,707,397 Operating income $ 60,857 $ 78,068 $ 75,668 $ 82,402 $ 296,995 Net earnings $ 51,540 $ 69,190 $ 61,189 $ 76,770 $ 258,689 Earnings per common share: Basic $ 40.86 $ 54.85 $ 48.51 $ 60.86 $ 205.09 Diluted $ 40.86 $ 54.85 $ 48.51 $ 60.86 $ 205.09 Dividends per common share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 3.00 Market price range per common share: High $1,594.00 $1,721.00 $1,460.00 $1,798.00 Low $1,223.00 $1,259.00 $1,140.00 $1,197.00 2005 Net sales $ 713,327 $ 736,962 $ 636,779 $ 601,826 $2,688,894 Operating income $ 97,080 $ 82,148 $ 65,383 $ 75,434 $ 320,045 Net earnings $ 68,677 $ 62,584 $ 52,590 $ 82,811 $ 266,662 Earnings per common share: Basic $ 54.72 $ 49.87 $ 41.90 $ 65.65 $ 212.20 Diluted $ 54.72 $ 49.87 $ 41.69 $ 65.65 $ 211.94 Dividends per common share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 3.00 Market price range per common share: High $1,147.20 $1,695.00 $1,784.00 $1,809.00 Low $ 978.00 $ 855.00 $1,177.00 $1,290.00 In the fourth quarter of 2005, Seaboard made a one-time election to repatriate previously permanently invested foreign earnings resulting in a total tax expense of approximately $11,586,000, recognized a tax benefit of $21,428,000 for the finalization of certain tax years as a result of a settlement with the Internal Revenue Service and recognized a tax benefit of $4,977,000 as a result of an agreement with the Puerto Rican Treasury department that favorably resolved certain prior years' tax issues. The net effect of these fourth quarter events was an increase in net earnings of $14,819,000, or $11.75 per common share on a diluted basis for the quarter. See Note 7 of the Consolidated Financial Statements for further discussion. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Seaboard is a diverse agribusiness and transportation company with global operations in several industries. Most of the sales and costs of Seaboard's segments are significantly influenced by worldwide fluctuations in commodity prices or changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in unrelated industries and different geographical locations, management evaluates their operations separately. Seaboard's reporting segments are based on information used by Seaboard's Chief Executive Officer in his capacity as chief operating decision maker to determine allocation of resources and assess performance. Pork Segment The Pork segment is primarily a domestic business with some export sales to Japan and other foreign markets. Revenues from the sale of pork products are primarily generated from a single hog processing plant in Guymon, Oklahoma, which operates at double shift capacity and two bacon further processing plants located in Salt Lake City, Utah and Missoula, Montana. In 2006, Seaboard raised approximately 80% of the hogs processed at the Guymon plant with the remaining hog requirements purchased primarily under contracts from independent producers. This segment is Seaboard's most capital intensive segment with approximately 37% of consolidated assets, including approximately 67% of Seaboard's fixed assets and material dollar amounts for live hog inventories. Management believes the Pork segment possesses the ability to generate more operating income and cash flow in any one year than any of Seaboard's other businesses, as was demonstrated by the past few years' operating results. Of Seaboard's businesses, management believes the Pork segment also has the greatest exposure to commodity price fluctuations. As a result, this segment's operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard's consolidated operating income and cash flows. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed costs are the most significant single component of the cost of raising hogs and can be materially affected by commodity prices for corn and soybean meal. In addition, costs can be materially affected by market prices for hogs purchased from third parties for processing at the plant. Seaboard plans to expand its processed meat capabilities by constructing a separate processing plant primarily for bacon and sausage processing. Construction of this facility is expected to begin in late 2007 and be completed in early 2009. Seaboard is constructing additional finishing space at an approximate cost of $16 million in 2007 to expand its live production facilities to support the Guymon plant. In addition, Seaboard is constructing a biodiesel processing plant to utilize by-product from its Guymon processing plant. Construction of this plant began in 2006 and is expected to be completed in 2007. As the Guymon plant operates at capacity, to improve operating income Seaboard is constantly working towards improving the efficiencies of the Pork operations as well as considering ways to increase margins by expanding product offerings. During 2006, Triumph Foods began production at its new pork processing plant located in St. Joseph, Missouri, and Seaboard began marketing the related pork products for a fee primarily based on the number of head processed by Triumph Foods. This plant has similar capacity to Seaboard's Guymon plant with the business based upon a similar integrated model as Seaboard's. Triumph Foods expects its plant to reach full double shift operating capacity during 2007. Seaboard's sales prices for its pork products are primarily based on an average sales price and mix of products sold from both Seaboard's and Triumph Food's hog processing plants. 10 Commodity Trading and Milling Segment The Commodity Trading and Milling segment operates overseas with locations in Africa, Bermuda, South America and the Caribbean. These foreign operations can be significantly impacted by local crop production, political instability, local government policies, economic and industry conditions, and currency fluctuations. This segment's sales are also significantly affected by fluctuating prices for various commodities, such as wheat, corn and soybean meal. Although this segment owns eight ships, most of the third party trading business is transacted with chartered ships. Charter hire rates, influenced by available charter capacity for worldwide trade in bulk cargoes, and related fuel costs can also impact business volumes and margins. The milling businesses, both consolidated and non- consolidated affiliates, operate in many foreign and, in most cases, lesser developed countries. Subsidized wheat and flour exports can create fluctuating market conditions that can have a significant impact on both the trading and milling businesses' sales and operating income. The majority of the Commodity Trading and Milling segment's sales pertain to the commodity trading business. The commodity trading portion of the business sources grain and delivers to many international locations, which affects the timing of completion of voyages, and the availability of and rates for bulk cargo shipping. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from quarter-to-quarter. After selling some components of its third party commodity trading operations in 2005, during 2006 Seaboard re-established its commodity trading business in markets associated with the sale. Seaboard concentrates on the supply of raw materials to its core milling operations and to third party commodity trades in support of these milling operations. Seaboard continues to seek opportunities in trading and milling businesses in order to achieve greater scale, volumes and profitability. Marine Segment The Marine segment provides containerized cargo shipping services primarily from the United States to over twenty-five different countries in the Caribbean Basin, and Central and South America. Fluctuations in economic conditions or unstable local political situations in the countries in which Seaboard operates can affect import/export trade volumes. In addition, containerized cargo rates can fluctuate depending on local supply and demand for shipping services. This segment time-charters or leases the majority of its ocean cargo vessels and is also affected by fluctuations in charter hire rates and fuel costs. Seaboard's marine business operates in many foreign countries and can experience significant fluctuations as a result of local economic or political instability. In prior years, when certain countries have experienced such instability, Seaboard's volumes and operating profits have been significantly impacted. In recent years, Seaboard has been able to increase cargo rates in most markets, which has helped offset higher charter hire rates and fuel costs. Assuming this segment continues to expand its cargo volumes, needs for vessels, cargo carrying and handling equipment will continue to increase over the next couple of years. Seaboard continues to explore ways to increase volumes on existing routes while seeking opportunities to broaden its route structure in the region. Sugar and Citrus Segment Seaboard's Sugar and Citrus segment operates a vertically integrated sugar and citrus production and processing complex in Argentina. This segment's sales and operating income are significantly impacted by local and worldwide sugar prices. Yields from the Argentine sugar harvest can have an impact on the local price of sugar. Also, but to a lesser degree, price fluctuations of the world market can affect local sugar prices and can also impact export sale volumes and prices. Depending on local harvest and market conditions, this business also purchases third party sugar and citrus for resale. Over the past several years, Seaboard made several modifications to this business to improve the efficiency of its operations. The functional currency of the Sugar and Citrus segment is the Argentine peso. The currency exchange rate can also have an impact on reported U.S. dollar sales, operating income and cash flows. Financing needs for the foreseeable future will increase for this operation as a result of planned expansion of sugar and alcohol production 11 along with the payment of debt. Seaboard continues to explore ways to improve and expand its existing operations while considering other alternatives to expand this segment. Power Segment Seaboard's Power segment operates as an unregulated independent power producer in the Dominican Republic (DR) generating power from diesel engines mounted on two barges. This segment's financing needs have been minimal for the existing operations. During the past few years, operating cash flows have fluctuated from inconsistent customer collections. Seaboard has contracts to sell approximately 50% of its power to certain government- approved commercial large users under long-term contracts and, at year-end, entered into short-term contracts for most of the remaining production. Energy produced in excess of contracted amounts is sold on the spot market primarily to three wholly or partially-government-owned distribution companies or other power producers who lack sufficient power production to service their customers. Fuel is the largest cost component but increases in fuel prices have generally been passed through to customers. At times during 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. During the last half of 2005, management decided to produce at near capacity as a result of a more stable payment performance from all customers, while during 2004 Seaboard curtailed its level of power production from time to time due to lack of payments from spot sales. Certain receivables from 2004 spot sales are still outstanding. Seaboard continues to pursue additional commercial contract customers, which would reduce dependency on the government for liquidity. In addition, Seaboard is pursuing additional investment opportunities in the power industry. LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments as of December 31, 2006 increased $97.7 million from December 31, 2005 primarily reflecting $283.8 million of cash generated from operations partially offset by capital expenditures of $85.9 million, reductions in notes payable to banks of $30.0 million and scheduled payments of long- term debt of $61.2 million. Cash from operating activities for 2006 decreased $47.4 million compared to 2005, primarily reflecting increases in working capital needs in the Commodity Trading and Milling segment resulting from re-establishing its commodity trading operations in markets along with the timing of normal transactions for trade payables and voyage settlements, and decreased earnings for the Pork segment. Cash and short-term investments as of December 31, 2005 increased $278.6 million from December 31, 2004 reflecting cash generated from operations, short-term borrowings of $90.0 million which occurred at year-end primarily to help fund a one-time qualifying foreign intercompany dividend (see Note 7 to the Consolidated Financial Statements for further discussion) and proceeds of $26.5 million from the sale of a portion of the commodity trading operations as discussed below. While cash from operating activities totaled $331.1 million, $64.2 million was used for capital expenditures, $60.6 million was used for scheduled maturities of long-term debt, and $48.0 million was used for the acquisition of Daily's as discussed below. Cash from operating activities for 2005 increased $137.0 million compared to 2004, primarily reflecting increased earnings of the Pork and Marine segments. In addition, ongoing working capital requirements have decreased for the Commodity Trading and Milling segment with the sale of some components of the commodity trading operations and as a result of improved collections of receivables for the Power segment. Capital Expenditures, Acquisitions and Other Investing Activities During 2006 Seaboard invested $85.9 million in property, plant and equipment, of which $30.3 million was expended in the Pork segment, $4.0 million in the Commodity Trading and Milling segment, $30.4 million in the Marine segment, $18.4 million in the Sugar and Citrus segment and $2.8 million in the remaining businesses. For the Pork segment, $12.9 million was spent on the construction of a biodiesel plant discussed below, improvements to the Guymon processing plant and expanding the further processing capacity acquired from Daily's. For the Marine segment, $23.1 million was spent to purchase cargo carrying and hauling equipment, expansion of port facilities and 12 to purchase two containerized cargo vessels previously chartered. In the Sugar and Citrus segment, the capital expenditures were primarily used for the purchase of land, expansion of the alcohol distillery operations, improvements to the mill, and plantation and harvesting equipment. All other capital expenditures were of a normal recurring nature and primarily included replacements of machinery and equipment, and general facility modernizations and upgrades. During 2006, the Pork segment began construction of a processing plant to utilize by-products from its Guymon pork processing plant to produce biodiesel which will be marketed to third parties. This plant is expected to be completed in late 2007 at a total cost of $34.0 million with approximately $28.0 million to be spent in 2007. The Pork segment is also currently planning to expand its processed meats capabilities by constructing a separate further processing plant, primarily for bacon and sausage processing, at an approximate cost of $45.0 million. Construction of this facility is expected to begin in late 2007 and be completed in early 2009 with approximately $22.5 million to be spent in 2007. In addition, the Pork segment is also currently constructing additional hog finishing space to expand its live production facilities to support the Guymon plant. These facilities are expected to be completed in 2007 with approximately $16.0 million to be spent in 2007. The total 2007 capital expenditures budget is $212.9 million. In addition to the projects detailed above, the Pork segment plans to spend an additional $22.3 million primarily for improvements to existing hog facilities, upgrades to the Guymon processing plant and additional facility upgrades and related equipment. The Commodity Trading and Milling segment plans to spend $5.7 million primarily for milling facility upgrades and related equipment. The Marine segment has budgeted $95.8 million primarily for additional cargo carrying and handling equipment, expansion of existing port facilities, and the purchase of two containerized cargo vessels, one of which is currently chartered. The Sugar and Citrus segment plans to spend $21.6 million primarily for expansion of the alcohol distillery operations, the purchase of land and costs associated with clearing land and expanding planted sugar cane, and improvements to the mill. The balance of $1.0 million is planned to be spent in all other businesses. Management anticipates paying for these capital expenditures from internally generated cash and the use of available short-term investments. As of December 31, 2006 Seaboard had commitments of $57.9 million to spend on construction projects, purchase equipment, and make facility improvements. During 2005 Seaboard invested $64.2 million in property, plant and equipment, of which $8.1 million was expended in the Pork segment, $13.8 million in the Commodity Trading and Milling segment, $30.0 million in the Marine segment, $11.2 million in the Sugar and Citrus segment and $1.1 million in the remaining businesses. For the Commodity Trading and Milling segment, $10.3 million was spent to purchase a used bulk vessel and make necessary improvements. For the Marine segment, $8.8 million was spent to purchase two previously chartered containerized cargo vessels and a crane, with the remaining expenditures primarily used to purchase cargo carrying equipment. In the Sugar and Citrus segment, the capital expenditures were primarily used for mill expansion, plantation development and harvesting equipment. All other capital expenditures were of a normal recurring nature and primarily included replacements of machinery and equipment, and general facility modernizations and upgrades. During the fourth quarter of 2006 Seaboard invested $4.6 million, plus $0.7 million previously placed in escrow in 2004 for a total of $5.3 million, for a less than 20% ownership interest in a company operating a 300 megawatt electricity generating facility in the Dominican Republic. See Note 3 to the consolidated Financial Statements for further discussion. Seaboard is part of a consortium that has been awarded the right to construct two coal-fired 305 megawatt electric generating plants in the Dominican Republic. The amount of equity required for the project is uncertain but Seaboard's 50% or less share of the investment could range from $25.0 to $75.0 million depending on the amount of financing obtained by the group and the timing of the construction of the second plant. The timing of the project and Seaboard's ultimate involvement cannot yet be determined. As discussed in Note 2 to the Consolidated Financial Statements, at the beginning of the third quarter of 2005, Seaboard completed the acquisition of a bacon processing company (Daily's) in exchange for $44.5 million in cash, plus working capital adjustments of approximately $3.1 million, a 4.74% equity interest in Seaboard Foods LP (formerly Seaboard Farms, Inc.) valued at $44.5 million, a put right associated with the 4.74% interest in Seaboard 13 Foods LP valued at $6.7 million and $0.4 million of acquisition costs incurred. The cash payment was funded with proceeds from the sale of short-term investments. In January 2007, Seaboard repurchased the 4.74% equity interest in its subsidiary, Seaboard Foods LP, from the former owners of Daily's. As part of the Purchase Agreement, on January 2, 2007 Seaboard paid $30 million of the purchase price for the 4.74% equity interest to the former owners of Daily's. Seaboard will pay the balance of the purchase price in August, 2007, currently estimated based on a formula determined value to be an additional $10-$40 million depending on operating results and certain net cash flows through June 30, 2007. See Note 2 to the consolidated Financial Statements for further discussion. As discussed in Note 2 to the Consolidated Financial Statements, effective May 9, 2005 Seaboard's Commodity Trading and Milling segment sold some components of its third party commodity trading operations for $26.5 million. During 2006, Seaboard re- established its commodity trading business in markets associated with the sale in 2005 of some components of its third party commodity trading operations. During 2004 Seaboard invested $33.6 million in property, plant and equipment, of which $11.8 million was expended in the Pork segment, $4.9 million in the Commodity Trading and Milling segment, $10.3 million in the Marine segment, $5.5 million in the Sugar and Citrus segment and $1.1 million in the remaining businesses. The capital expenditures for 2004 were primarily of a normal recurring nature which included replacements of machinery and equipment, and general facility modernizations and upgrades. Financing Activities, Debt and Related Covenants During the second quarter of 2006, Seaboard terminated a $50.0 million committed line of credit that had been entered into in December 2005 in connection with a one-time qualifying intercompany dividend paid. Seaboard terminated this line as foreign subsidiaries generated sufficient cash to repay the facility in its entirety during 2006. During the fourth quarter of 2006, a foreign subsidiary of Seaboard entered into a new uncommitted credit line denominated in Japanese Yen (approximately $54.6 million at December 31, 2006) to refinance intercompany debt. The following table represents a summary of Seaboard's available borrowing capacity as of December 31, 2006. Borrowings outstanding under committed and uncommitted lines as of December 31, 2006 totaled $0.0 million and $63.0 million, respectively. Letters of credit of $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. Total amount (Thousands of dollars) available Long-term credit facilities - committed $100,000 Short-term uncommitted demand notes 159,699 Total borrowing capacity 259,699 Amounts drawn against lines 62,975 Letters of credit reducing borrowing availability 56,521 Available borrowing capacity at December 31, 2006 $140,203 Seaboard currently has capacity under existing covenants to undertake additional debt financings of approximately $900.0 million. As of December 31, 2006, Seaboard is in compliance with all restrictive covenants relating to these arrangements. See Note 8 to the Consolidated Financial Statements for a summary of the material terms of Seaboard's credit facilities, including financial ratios and covenants. Scheduled long-term debt maturities range from $12.0 million to $63.4 million per year, for a total of $122.7 million, over the next three years. Management believes Seaboard's current combination of internally generated cash, liquidity, capital resources and short-term borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations or business segments. Management does, 14 however, periodically review various alternatives for future financings to provide additional liquidity for future operating plans. Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates and, based on existing liquidity and available borrowing capacity, currently has no plans to pursue other financing alternatives. In January 2006, Seaboard paid $2.1 million to purchase the equity of a variable interest entity (VIE) which was consolidated by Seaboard at December 31, 2005. This VIE owned certain facilities used in the Pork segment's vertically integrated hog production. Non-controlling interest related to this VIE on the consolidated balance sheet as of December 31, 2005 was $1.1 million. The difference between the purchase price and non- controlling interest resulted in an increase in fixed assets. In the fourth quarter of 2005, Seaboard issued 6,313.34 shares to its parent company, Seaboard Flour LLC, as a result of a tax benefit of $8.3 million. See Note 12 to the Consolidated Financial Statements for further discussion. During 2004, the 10% minority interest owner of one of the power barges located in the Dominican Republic exercised a put option for the equity interest. See Note 2 to the Consolidated Financial Statements for further discussion. Contractual Obligations and Off-Balance-Sheet Arrangements A summary of Seaboard's contractual cash obligations as of December 31, 2006 is as follows: Payments due by period Less than 1-3 3-5 More than (Thousands of dollars) Total 1 year years years 5 years Vessel time-charter commitments $ 81,401 $ 68,089 $ 13,312 $ - $ - Contract grower finishing agreements 120,054 11,948 23,782 22,968 61,356 Other operating lease payments 30,009 10,252 11,005 4,417 4,335 Total lease obligations 231,464 90,289 48,099 27,385 65,691 Long-term debt 201,232 63,415 59,253 3,510 75,054 Short-term notes payable 62,975 62,975 - - - Other purchase commitments 548,606 399,213 115,867 33,526 - Total contractual cash obligations and commitments $1,044,277 $615,892 $223,219 $64,421 $140,745 The Marine segment enters into contracts to time-charter vessels for use in its operations. To support the operations of the Pork segment, Seaboard has agreements in place with farmers to raise a portion of Seaboard's hogs according to specifications. Seaboard has entered into grain and feed ingredient purchase contracts to support the live hog operations of the Pork segment and has contracted for the purchase of additional hogs from third parties. The Commodity Trading and Milling segment also enters into commodity purchase contracts and ocean freight contracts, primarily to support sales commitments. See Note 11 to the Consolidated Financial Statements for a further discussion and for a more detailed listing of other purchase commitments. Seaboard has also issued $2.4 million of guarantees to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard. See Note 11 to the Consolidated Financial Statements for a detailed discussion. RESULTS OF OPERATIONS Net sales for the year ended December 31, 2006 increased to $2,707.4 million from $2,688.9 million in 2005 and $2,684.0 million for 2004. The increase in net sales in 2006 was primarily the result of higher cargo volumes and higher average rates for marine cargo services and, to a lesser degree, the acquisition of Daily's in July of 2005, higher sales volume and prices of sugar, and higher sales volumes at certain African milling locations. Substantially offsetting the increase was lower commodity trading volumes as the result of the sale of some components of 15 Seaboard's third party commodity trading operations in May 2005, and lower sales prices for pork products. The increase in net sales in 2005 was primarily the result of improved average rates and volumes for marine cargo services, the acquisition of Daily's and, to a lesser degree, improved international markets for the Pork segment. Partially offsetting the increase was the sale of some components of Seaboard's third party commodity trading operations. Operating income decreased to $297.0 million in 2006, down from $320.0 million in 2005 and up from $251.3 million in 2004. The 2006 decrease compared to 2005 primarily reflects the lower pork prices partially offset by higher cargo volumes and higher average rates for marine cargo services and, to a lesser degree, higher sugar prices. The 2005 improvement compared to 2004 primarily reflects the improved rates and volumes in the Marine segment, lower feed costs and improved international markets in the Pork segment and, to a lesser extent, the acquisition of Daily's. Also impacting the increase in operating income is the effect of the mark-to-market of commodity futures and options in the Commodity Trading and Milling segment increasing operating income $9.3 million in 2005 compared to 2004. Seaboard's operations primarily involve commodity based industries, which typically have cyclical upswings and downswings. For the past three years, Seaboard has experienced the positive effects from favorable pricing conditions in the Pork and Marine segments, while other segments have not experienced material negative conditions. If there is a significant cyclical downswing in the Pork or Marine industries or other industries in which Seaboard operates, Seaboard's results from operations will be adversely affected. Pork Segment (Dollars in millions) 2006 2005 2004 Net sales $1,002.7 $1,023.9 $ 961.6 Operating income $ 138.3 $ 182.7 $ 147.4 Net sales for the Pork segment decreased $21.2 million for the year ended December 31, 2006 compared to 2005, primarily as a result of lower sales prices for pork products and, to a lesser extent, decreased sales volumes of pork products. Sales volumes decreased as a result of fewer weekend production shifts in 2006 compared to 2005. Partially offsetting the decrease was sales contributed from the acquisition of Daily's in July 2005 as discussed in Note 2 to the Consolidated Financial Statements. Operating income decreased $44.4 million for the year ended December 31, 2006 compared with 2005 primarily as a result of lower prices for pork products. This decrease was partially offset by lower costs for third party hogs used for processing and a higher percentage of Seaboard-raised hogs processed which cost less than third party hogs. Also during 2006, Seaboard was able to partially offset market increases in the price of corn, a primary feed ingredient for hogs, with commodity derivative gains. Management is unable to predict future market prices for pork products or the cost of feed and third party hogs. During the last half of 2006, the price of corn began to rise significantly as the demand for corn increased due to, among other things, expansion plans for ethanol plants. Although Seaboard was able to partially offset these increases during 2006 with commodity derivative gains, management cannot predict to what extent it will be able to do so in 2007. Also, over the past three years, especially during 2005 and the last half of 2004, market prices for pork products were unusually high compared to historic norms. History has demonstrated that high market prices cannot be sustained over long periods of time but rather rise and fall based on prevailing market conditions. Overall, management expects this segment to remain profitable during 2007 although significantly lower than 2006. Net sales for the Pork segment increased $62.3 million for the year ended December 31, 2005 compared to 2004, primarily as a result of the acquisition of Daily's, a processor of premium sliced and pre-cooked bacon as discussed in Note 2 to the Consolidated Financial Statements, and to a lesser degree, the result of strong demand in the international markets which provided opportunities to shift volumes and product mix to higher sales price opportunities. The increases were partially offset by lower prices for pork products in the domestic markets. Operating income increased $35.3 million for the year ended December 31, 2005 compared with 2004 primarily as a result of lower feed costs and, to a lesser extent, the acquisition of Daily's, lower costs for third party hogs used for 16 processing, and a higher percentage of Seaboard-raised hogs processed which cost less than third party hogs. In addition, the prior year included an $8.1 million LIFO benefit whereas for 2005 LIFO was virtually unchanged. Commodity Trading and Milling Segment (Dollars in millions) 2006 2005 2004 Net sales $ 735.6 $ 835.7 $1,066.5 Operating income $ 37.2 $ 34.4 $ 29.3 Income from foreign affiliates $ 6.3 $ 8.1 $ 5.8 Net sales for the Commodity Trading and Milling segment decreased $100.1 million for the year ended December 31, 2006 compared to 2005. The decrease primarily reflects the sale of some components of Seaboard's third party commodity trading operations in May 2005. Partially offsetting the decrease was Seaboard re- establishing its commodity trading operations in markets associated with the sale discussed above and increased sales volumes at certain African milling operations primarily as a result of expanding existing businesses. As worldwide commodity price fluctuations cannot be predicted, management is unable to predict the level of future sales. Operating income for this segment increased $2.8 million for 2006 compared to 2005. This increase primarily reflects the positive fluctuation of $2.3 million in 2006 compared to 2005 of marking to market derivative contracts, as discussed below. The increase was also the result of improved income from higher sales volume at certain African milling operations as noted above. The increase was partially offset by the lower sales volume as a result of the sale discussed above. Due to the uncertain political and economic conditions in the countries in which Seaboard operates, management is unable to predict future operating results, but anticipates positive operating income for 2007. However, rising prices in the grain markets during the last half of 2006 reached levels that management believes could have an adverse effect on operating income in 2007. Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for 2006 and 2005 would have been lower by $6.2 million and $3.9 million, respectively, whereas operating income for 2004 would have been higher by $5.4 million. While management believes its commodity futures and options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts, Seaboard does not perform the extensive record-keeping required to account for commodity 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. Income from foreign affiliates for the year ended December 31, 2006 decreased $1.8 million from 2005. The decrease primarily reflects better local operating conditions in 2005 compared to 2006 for certain African affiliates. Based on the uncertainty of local political and economic situations in the countries in which the flour and feed mills operate, and increasing grain prices discussed above, management cannot predict future results. Net sales for the Commodity Trading and Milling segment decreased $230.8 million for the year ended December 31, 2005 compared to 2004. This decrease primarily reflects the sale of some components of Seaboard's third party commodity trading operations as discussed above partially offset by an increase in sales for certain consolidated milling operations from improved local operating conditions. Operating income for this segment increased $5.1 million for 2005 compared to 2004. This increase primarily reflects the positive fluctuation of $9.3 million in 2005 compared to 2004 of marking to market derivative contracts and $2.2 million of gains on derivative instruments sold in the sale transaction as discussed above. The increase was also the result of improved operations for certain consolidated milling locations. The increase was partially offset by the lower sales volume as a result of the sale discussed above and higher bad debt expenses in 2005 compared to 2004. In addition, in prior years Seaboard had entered into some long-term charter contracts allowing it to take advantage of higher freight market rates during 2004 which did not occur in 2005, increasing its overall profitability percentage during 2004. 17 Income from foreign affiliates for the year ended December 31, 2005 improved $2.3 million from 2004. This improvement primarily reflects improved local operating conditions. Marine Segment (Dollars in millions) 2006 2005 2004 Net sales $ 741.6 $ 638.3 $ 498.5 Operating income $ 106.0 $ 90.9 $ 63.9 Net sales for the Marine segment increased $103.3 million for the year ended December 31, 2006, compared to 2005 as a result of higher cargo volumes in most markets and higher average cargo rates in certain markets. Cargo volumes were higher as a result of favorable economic conditions in most markets served. Cargo rates were higher as a result of general rate increases across many markets and higher cost-recovery surcharges for fuel. Operating income for the Marine segment increased by $15.1 million over 2005, primarily reflecting the increased rates and volumes discussed above, partially offset by higher costs of fuel, inland transportation costs, charter hire, and selling expenses. Although management cannot predict changes in future cargo rates, fuel related costs, charter hire expenses or to what extent changes in competition and economic conditions will impact net sales or operating income, it does expect this segment to remain profitable in 2007 although lower than 2006. Net sales for the Marine segment increased $139.8 million for the year ended December 31, 2005, compared to 2004 as a result of higher average cargo rates and higher cargo volumes in most markets reflecting the continuation of improved market conditions since the second half of 2004. Operating income for the Marine segment increased by $27.0 million over 2004, primarily reflecting the increased rates and volumes discussed above, partially offset by higher charter hire expenses, fuel costs and, to a lesser extent, inland transportation costs. Sugar and Citrus Segment (Dollars in millions) 2006 2005 2004 Net sales $123.4 $ 89.0 $ 72.9 Operating income $ 19.2 $ 11.9 $ 12.2 Income (loss) from foreign affiliates $ (1.1) $ 0.1 $ 0.7 Net sales for the Sugar and Citrus segment increased $34.4 million for the year ended December 31, 2006 compared to 2005. The increase primarily reflects overall higher sales volume of sugar from increased purchases of sugar from third parties for resale and overall higher sugar prices, especially for export sales. Export prices increased significantly during 2006 while Argentine prices only increased slightly as governmental authorities are attempting to control inflation by limiting the price of basic commodities, including sugar. Accordingly, management cannot predict future sugar prices. However, Seaboard expects to maintain its historical sales volume to Argentinean customers. Operating income increased $7.3 million during 2006 compared to 2005 primarily as a result of higher sugar prices discussed above. The higher sales volume of purchased sugar did not significantly increase operating income as additional income was primarily offset by increased selling costs. The increase is also the result of, but to a lesser extent, decreased losses in the citrus operations as a result of improved prices for citrus products sold. Management expects positive operating income for 2007. Net sales for the Sugar and Citrus segment increased $16.1 million for the year ended December 31, 2005 compared to 2004. The increase was due to higher export sales volumes of sugar primarily from increased purchases of sugar from third parties for resale and, to a lesser extent, higher juice sales and increased sugar production. Operating income decreased $0.3 million during 2005 compared to 2004 primarily as a result of operating losses from lower margins for the citrus operation. Partially offsetting the decrease was the higher juice sales and higher sugar sales discussed above, although increased sugar production costs and higher costs of sugar purchases lowered gross margin on a percentage basis. 18 The loss from foreign affiliates in 2006 primarily represents the expense of canceling a franchisee agreement incurred during the first quarter of 2006. Power Segment (Dollars in millions) 2006 2005 2004 Net sales $ 87.8 $ 77.7 $ 56.4 Operating income $ 8.5 $ 9.6 $ 4.4 Net sales for the Power segment increased $10.1 million for the year ended December 31, 2006 compared to 2005 primarily reflecting higher rates partially offset by lower power production levels. Rates increased during 2006 primarily as a result of higher fuel costs, a component of pricing. At times during 2006, Seaboard's power production was restricted by the regulatory authorities in the Dominican Republic (DR). The DR regulatory body schedules production based on the amount of funds available to pay for the power produced and the relative costs of the power produced. Operating income decreased $1.1 million during 2006 compared to 2005. The decrease was primarily the result of lower production levels while fuel costs, transmission and other regulatory fees charged to Seaboard increased more than rates increased. Management cannot predict future fuel costs, transmission and other regulatory fees, or the extent to which the regulatory authority will restrict Seaboard's future production of power, although management expects to remain profitable for 2007. Based on prior year liquidity problems within the DR power sector where Seaboard's Power segment operates, certain amounts of prior years' receivables have not been fully collected from government- owned distribution companies and other companies that must collect from the government to make payments on their accounts. During 2006, Seaboard was able to reduce these receivable amounts by $9.3 million as a result of payments received. As of December 31, 2006, Seaboard's net receivable exposure from remaining customers with significant past due balances totaled $4.3 million, including $2.8 million classified in other long-term assets on the Consolidated Balance Sheet. In January 2007, Seaboard collected an additional $1.5 million related to these past due amounts. The DR Government is working with businesses in the power sector to create a plan for companies to recover the remaining past due amounts although it is uncertain if Seaboard will be able to fully collect all such amounts. Net sales for the Power segment increased $21.3 million for the year ended December 31, 2005 compared to 2004 primarily reflecting higher rates and, to a lesser extent, increased kilowatt hour production. Rates increased during 2005 primarily as a result of higher fuel costs, a component of pricing. Operating income increased $5.2 million during 2005 compared to 2004 primarily due to lower commissions and bad debt expenses in 2005, partially offset by higher fuel costs in excess of increased rates. All Other Segments (Dollars in millions) 2006 2005 2004 Net sales $ 16.4 $ 24.4 $ 28.0 Operating income $ 1.5 $ 2.6 $ 3.2 Loss from foreign affiliate $ (1.2) $ (7.9) $ (8.5) Net sales and operating income 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 also decreased during 2006 as a result of increased transportation costs in the jalapeno pepper operations. For 2007, management expects operating income for All Other Segments to remain positive. Operating income for all other businesses decreased for the year ended December 31, 2005 compared to 2004 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 as discussed above. 19 The loss from foreign affiliate reflects Seaboard's share of losses from its equity method investment in a Bulgarian wine business (the Business). In 2006 Seaboard recorded 50% of the losses from the Business compared to 100% in 2005, and 37% for the first three quarters of 2004 and 73% for the last quarter of 2004. In the fourth quarter of 2004, Seaboard recognized a $3.6 million decline in value considered other than temporary in its investment in this Business as a charge to losses from foreign affiliates. The loss in 2004 for the Business also includes a provision for inventory write-downs of which Seaboard recorded its share, $0.8 million, during the second quarter of 2004. Management expects additional losses from the operations of the Business during 2007. See Notes 5 and 13 to the Consolidated Financial Statements for further discussion of the Business and Seaboard's intention to sell the Business. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses for the year ended December 31, 2006 increased by $18.0 million over 2005 to $157.2 million primarily due to increases in the Marine segment reflecting increased costs related to the volume growth of this business, the acquisition of Daily's in the Pork segment and, to a lesser extent, additional selling costs related to higher sales volume in the Sugar and Citrus segment. As a percentage of revenues, SG&A increased to 5.8% for 2006 compared to 5.2% for 2005 primarily as a result of the sale of some components of Seaboard's third party commodity trading operations in May 2005 discussed above. SG&A expenses for the year ended December 31, 2005 increased by $11.5 million to $139.3 million over 2004 primarily due to increases in the Marine segment reflecting increased costs related to the volume growth of this business, the acquisition of Daily's in the Pork segment and increases in the Commodity Trading and Milling segment primarily from higher bad debt expense and, to a lesser extent, higher compensation costs as a result of increased profitability for the year. Partially offsetting this increase were lower commission expenses and bad debt expense for the Power segment. As a percentage of revenues, SG&A increased to 5.2% for 2005 compared to 4.8% for 2004 as a result of the sale of some components of Seaboard's third party commodity trading operations discussed above. Interest Expense Interest expense totaled $18.8 million, $22.2 million and $26.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Interest expense decreased for 2006 compared to 2005, primarily reflecting a lower average level of short-term and long-term borrowings outstanding during 2006. Interest expense decreased for 2005 compared to 2004, primarily reflecting a lower average level of short-term and long-term borrowings outstanding during 2005. Interest Income Interest income totaled $25.3 million, $14.2 million and $8.1 million for the years ended December 31, 2006, 2005 and 2004, respectively. The increase for 2006 primarily reflects the higher level of average funds invested during 2006, an increase in interest received on outstanding customer receivable balances in the Power segment and, to a lesser extent, higher interest rates on funds invested. The increase for 2005 primarily reflects the higher level of average funds invested during 2005, an increase in interest received on outstanding customer receivable balances in the Power segment and, to a lesser extent, higher interest rates on funds invested. Minority and Other Noncontrolling Interests Minority and other noncontrolling interests expense increased $2.4 million in 2006 compared to 2005, primarily reflecting the acquisition of Daily's in July of 2005, as discussed in Note 2 of the Consolidated Financial Statements. Foreign Currency Gains (Losses) Foreign currency gains (losses) totaled $1.2 million, $(1.0) million and $1.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. The fluctuations primarily relate to changes in the value of the Dominican Republic (DR) peso compared to the U.S. dollar incurred by the Power division related to its peso-denominated net assets, primarily trade receivables. 20 Loss from the Sale of a Portion of Operations As discussed in Note 2 to the Consolidated Financial Statements, Seaboard sold some components of its third party commodity trading operations in May 2005. 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 $1.7 million. Other Investment Income, Net Other investment income, net totaled $4.4 million, $2.0 million and $1.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. The increase for 2006 primarily reflects the gain realized on a sale of domestic equity securities. Miscellaneous, Net Miscellaneous, net totaled $10.2 million, $5.7 million and $(3.6) million for the years ended December 31, 2006, 2005 and 2004, respectively. Miscellaneous, net includes the impact of changing interest rates on interest rate swap agreements. During the second quarter of 2006, Seaboard terminated all interest rate exchange agreements by making a payment in the amount of $1.0 million to unwind these swaps. Seaboard paid a weighted average fixed rate of 5.51% on the notional amount of $150.0 million and received a variable interest rate in return before termination. These contracts were marked-to-market. During 2006, Seaboard recorded a gain of $3.4 million compared to a gain of $3.0 million in 2005, and a loss of $4.6 million in 2004, respectively, related to these swaps, reflecting the difference between the contracted fixed rate compared to variable rates during those years. These swap agreements did not qualify as hedges for accounting purposes and accordingly, changes in the market value were recorded to earnings as interest rates change. See Note 9 to the Consolidated Financial Statements for additional discussion. Also included in 2006 and 2005 is income of $5.4 million and $1.3 million, respectively, of put option value change as discussed in Note 2 to the Consolidated Financial Statements. Also included in 2004 are gains of $0.7 million of proceeds from settlements of antitrust litigation, primarily arising out of purchases of vitamins and methionine, feed additives used by Seaboard. Income Tax Expense The effective tax rate increased for 2006 compared to 2005 primarily reflecting favorable tax settlements in 2005. Also, during the second quarter of 2006, Seaboard recorded a $2.8 million tax benefit related to a settlement with the Internal Revenue Service. See Note 7 to the Consolidated Financial Statements for additional discussion of these items. The effective tax rate decreased for 2005 compared to 2004. The decrease is primarily as a result of changes to the treatment of shipping income by the U.S. taxing authorities and the favorable resolution of certain tax issues with the United States and Puerto Rico authorities. Partially offsetting this decrease was tax expense related to a one-time election to repatriate permanently invested foreign earnings. See Note 7 to the Consolidated Financial Statements for further discussion. OTHER FINANCIAL INFORMATION Seaboard is subject to various federal and state regulations regarding environmental protection and land and water use. Among other things, these regulations affect the disposal of livestock waste and corporate farming matters in general. Management believes it is in compliance, in all material respects, with all such regulations. Laws and regulations in the states where Seaboard currently conducts its pork operations are restrictive. Future changes in environmental or corporate farming laws could adversely affect the manner in which Seaboard operates its business and its cost structure. In June 2006, the 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. Management believes the adoption of FIN 48 will not have a material impact on Seaboard's financial position or net earnings. Seaboard will be required to adopt FIN 48 as of January 1, 2007. 21 In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157 (SFAS 157), "Fair Value Measurements." This statement establishes a single authoritative definition of fair value when accounting rules require the use of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. For Seaboard, SFAS 157 is effective for the fiscal year beginning January 1, 2008. Management believes the adoption of SFAS 157 will not have a material impact on Seaboard's financial position or net earnings. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provides companies with an option to report selected financial assets and liabilities at fair value. Seaboard will be required to adopt this statement as of January 1, 2008. Seaboard is currently evaluating its options under SFAS 159. Management does not believe its businesses have been materially adversely affected by general inflation. CRITICAL ACCOUNTING ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard's financial condition and results, and which require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors. These critical accounting policies include: Allowance for doubtful accounts - Seaboard primarily uses a specific identification approach, in management's best judgment, to evaluate the adequacy of this reserve for estimated uncollectible receivables as of the consolidated balance sheet date. Changes in estimates, developing trends and other new information can have a material effect on future evaluations. Furthermore, Seaboard's receivables are heavily weighted towards foreign receivables ($195.3 million or 64.8% at December 31, 2006), including receivables from foreign affiliates as discussed below and long term receivables in the Power segment, which generally represent more of a collection risk than its domestic receivables. For the Power segment which operates in the Dominican Republic (DR), collection patterns have been sporadic and are sometimes based upon negotiated settlements for past due receivables resulting in material revisions to the allowance for doubtful accounts from year to year. See Note 13 to the Consolidated Financial Statements for further discussion of events in the DR. Bad debt expense for the years ended December 31, 2006, 2005 and 2004 was $2.5 million, $4.0 million and $2.5 million, respectively. Future collections or lack thereof could result in a material charge or credit to earnings depending on the ultimate resolution of each individual customer past due receivable. Investments in and advances to foreign affiliates - Management uses the equity method of accounting for these investments. At the balance sheet date, management will evaluate equity investments and related advances for a potential decline in value deemed to be other than temporary when management believes conditions warrant such an assessment. If management believes conditions warrant an assessment, such assessment encompasses various methods to determine net realizable value, including methods based on the probability weighting of various future projected net cash flow scenarios expected to be generated by the long-lived assets of the entity, and the resulting ability of that entity to repay its debt and equity based on priority, probability weighting of various future projected net cash flow scenarios expected to be realized through the sale of the ownership interest of the investment, or other methods to assess the fair value of the investment. For example, as more fully discussed in Note 13 to the Consolidated Financial Statements, in 2004 Seaboard incurred a $3.6 million charge to earnings for a decline in value considered other than temporary for its investment in a Bulgarian wine business. The fair value of this investment as of December 31, 2006 was based on probability weightings of current sale negotiation information and available fair value information for the remaining assets. These projected cash flows and other methods are subjective in nature and are based on management's best estimates and judgment. In addition, in most cases there is very little industry market data available for the countries in which these operations conduct their business. Since these investments 22 mostly involve entities in foreign countries considered underdeveloped, changes in the local economy or political environment may occur suddenly and can materially alter the evaluation and estimates used to project cash flows. In most cases, Seaboard has an ongoing business relationship through sales of grain to these entities that also includes receivables from these foreign affiliates. Management considers the long- term business prospects of such investments when making its assessment. At December 31, 2006, the total investment in and advances to foreign affiliates was $42.5 million. See Note 5 to the Consolidated Financial Statements for further discussion. Accrued Pension Liability - The measurement of Seaboard's pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, turnover rates, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of changing the discount rate and assumed rate of return on plan assets by 50 basis points would increase pension expense by approximately $1.2 million per year. The effects of actual results differing from the assumptions are primarily accumulated in accrued pension liability and amortized over future periods and, therefore, generally affect Seaboard's recognized pension expense in such future periods. Income Taxes - Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard's various business units based on management's interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management's attention which could alter previous conclusions or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse or favorable impact on the financial statements. As of December 31, 2006, Seaboard has deferred tax assets of $36.6 million, net of the valuation allowance of $22.6 million, and deferred tax liabilities of $143.6 million. For the years ended December 31, 2006, 2005 and 2004, income tax expense included $6.5 million, $5.4 million and $40.1 million for deferred taxes to federal, foreign, state and local taxing jurisdictions. Contingent liabilities - Management has evaluated Seaboard's various exposures, including environmental exposures of its Pork segment, as described in Note 11 to the Consolidated Financial Statements. Based on currently available information and analysis, management has analyzed the potential probability of the various exposures and believes that all such items have been adequately accrued for and reflected in the consolidated balance sheet as of December 31, 2006. Changes in information, legal statutes or events could result in management making changes in estimates that could have a material adverse impact on the financial statements. DERIVATIVE INFORMATION Seaboard is exposed to various types of market risks from its day- to-day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates and interest rates. Changes in commodity prices impact the cost of necessary raw materials and other inventories, finished product sales and firm sales commitments. Seaboard uses various grain and meal futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments. Short sales contracts are then used to offset the open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively offsetting the initial futures or option purchase contract. From time to time, hog futures are used to manage risks of increasing prices of live hogs acquired for processing, pork bellies and hog futures are used to manage risks of fluctuating prices of pork product inventories and related future sales, and fuel oil derivatives may be used to lock in future vessel bunker costs. Because changes in foreign currency exchange rates impact the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in interest rates impact the cash required to service variable rate debt. From time to time, Seaboard uses interest rate swaps to manage risks of increasing interest rates. From time to time, Seaboard may enter into speculative derivative transactions related to its market risks. Inventories that are sensitive to changes in commodity prices, including carrying amounts at December 31, 2006 and 2005, are presented in Note 4 to the Consolidated Financial Statements. Raw material requirements, finished 23 product sales, and firm sales commitments are also sensitive to changes in commodity prices. The tables below provide information about Seaboard's derivative contracts that are sensitive to changes in commodity prices. Although used to manage overall market risks, Seaboard does not perform the extensive record-keeping required to account for commodity transactions as hedges. 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 year. The following tables present the notional quantity amounts, the weighted average contract prices, the contract maturities, and the fair values of the open commodity derivative positions at December 31, 2006. Contract Volumes Wtd.-avg. Fair Value Trading: Quantity Units Price/Unit Maturity (000's) Futures Contracts: Corn purchases-long 12,485,000 bushels $ 3.78 2007 $1,539 Corn sales-short 1,318,136 bushels 3.74 2007 (385) Wheat purchases-long 2,774,010 bushels 5.16 2007 55 Wheat sales-short 1,462,936 bushels 5.48 2007 26 Soybean sales-short 165,000 bushels 6.76 2007 (13) Soybean meal purchases-long 68,200 tons 187.86 2007 518 Soybean meal sales-short 60,100 tons 194.56 2007 (26) Hog purchases-long 15,560,000 pounds .69 2007 (83) Options Contracts: Corn puts written-short 5,000 bushels .07 2007 - Wheat puts written-short 200,000 bushels .10 2007 (1) Wheat calls purchased-long 100,000 bushels $ .33 2007 $ 2 At December 31, 2005, Seaboard had net trading contracts to purchase (sell) 1,512,000 bushels of grain with a fair value of $3,715,000, (61,800) tons of meal with a fair value of ($904,000), 720,000 pounds of pork bellies with a fair value of ($26,000) and (440,000) pounds of hog with a fair value of $39,000. The table below provides information about the forward currency exchange agreements entered into and financial instruments sensitive to foreign currency exchange rates at December 31, 2006. As more fully discussed in Note 1 and Note 9 to the Consolidated Financial Statements, through December 31, 2004 the majority of these forward exchange agreements were accounted for as hedges. As of January 1, 2005, Seaboard discontinued accounting for all forward exchange agreement as hedges. The information below is presented in U.S. dollar equivalents and the majority of the contracts mature through 2007. The table presents the contract amounts in fair values and weighted average contractual exchange rate. December 31, 2006 Contract (Dollars in thousands) Amounts Fair Values Trading: Forward exchange agreements (receive $U.S./pay South African Rand (ZAR)) $ 42,777 $(639) Related weighted average contractual exchange rates: Forward exchange agreements (receive $U.S./pay ZAR) 7.17 Forward exchange agreement, including projected Interest due at maturity (receive Japanese Yen/pay $U.S.) $ 58,435 $(783) Related weighted average contractual exchange rates: Forward exchange agreements (receive Japanese Yen/pay $U.S.) 114.30 24 At December 31, 2005, Seaboard had net agreements to exchange the equivalent of $57.9 million of South African rand at an average contractual exchange rate of 6.47 ZAR to one U.S. dollar and a fair value of $(1.1) million. The table below provides information about Seaboard's non-trading financial instruments sensitive to changes in interest rates at December 31, 2006. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. At December 31, 2006, long-term debt included foreign subsidiary obligations of $1.8 million denominated in CFA francs (a currency used in several central African countries), $0.3 million payable in Argentine pesos, and $0.6 million denominated in Mozambique metical. At December 31, 2005, long-term debt included foreign subsidiary obligations of $2.0 million denominated in CFA francs, $0.9 million payable in Argentine pesos, and $0.6 million denominated in Mozambique metical. Weighted average variable rates are based on rates in place at the reporting date. Short- term instruments including short-term investments, non-trade receivables and current notes payable have carrying values that approximate market and are not included in this table due to their short-term nature. (Dollars in thousands) 2007 2008 2009 2010 2011 Thereafter Total Long-term debt: Fixed rate $63,127 $11,979 $47,274 $ 2,033 $ 1,477 $33,254 $159,144 Average interest rate 7.50% 6.81% 6.29% 11.15% 8.87% 7.22% 7.09% Variable rate $ 288 $ - $ - $ - $ - $41,800 $ 42,088 Average interest rate 7.00% - - - - 3.98% 4.00% Non-trading financial instruments sensitive to changes in interest rates at December 31, 2005 consisted of fixed rate long- term debt totaling $220.4 million with an average interest rate of 5.54%, and variable rate long-term debt totaling $42.1 million with an average interest rate of 3.63%. During the second quarter of 2006, Seaboard terminated all interest rate exchange agreements with a total notional value of $150.0 million. Seaboard made payments in the amount of $1.0 million to unwind these swaps. Seaboard had originally entered into these five, ten-year interest rate exchange agreements during 2001 in which Seaboard paid a stated fixed rate and received a variable rate of interest on a total notional amount of $150.0 million. As of December 31, 2005, the weighted average fixed rate payable was 5.51% and the aggregate fair value of the contracts at December 31, 2005 of $(5.3) million was recorded in accrued financial derivative liabilities. 25 Management's Responsibility for Consolidated Financial Statements The management of Seaboard Corporation and its consolidated subsidiaries (Seaboard) is responsible for the preparation of its consolidated financial statements and related information appearing in this report. Management believes that the consolidated financial statements fairly present Seaboard's financial position and results of operations in conformity with U.S. generally accepted accounting principles and necessarily includes amounts that are based on estimates and judgments which it believes are reasonable based on current circumstances with due consideration given to materiality. Management relies on a system of internal controls over financial reporting that is designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with company policy and U.S. generally accepted accounting principles, and are properly recorded, and accounting records are adequate for preparation of financial statements and other information and disclosures. The concept of reasonable assurance is based on recognition that the cost of a control system should not exceed the benefits expected to be derived and such evaluations require estimates and judgments. The design and effectiveness of the system are monitored by a professional staff of internal auditors. All internal control systems, no matter how well designed, have inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Board of Directors pursues its review of auditing, internal controls and financial statements through its audit committee, composed entirely of independent directors. In the exercise of its responsibilities, the audit committee meets periodically with management, with the internal auditors and with the independent registered public accounting firm to review the scope and results of audits. Both the internal auditors and the registered public accounting firm have unrestricted access to the audit committee with or without the presence of management. The consolidated financial statements have been audited by the independent registered public accounting firm of KPMG LLP. Their responsibility is to examine records and transactions related to the consolidated financial statements to the extent required by the standards of the Public Company Accounting Oversight Board. KPMG has rendered their opinion that the consolidated financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Their report is included herein. Management's Report on Internal Control over Financial Reporting The management of Seaboard Corporation and its consolidated subsidiaries (Seaboard) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management and its Internal Audit Department, Seaboard conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under the framework in Internal Control - Integrated Framework, management concluded that Seaboard's internal control over financial reporting was effective as of December 31, 2006. Seaboard's registered independent public accounting firm, that audited the consolidated financial statements included in the annual report, have issued an audit report on management's assessment of Seaboard's internal control over financial reporting. Their report is included herein. 26 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Seaboard Corporation: We have audited the accompanying consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seaboard Corporation and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. As discussed in Note 10 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, in 2006. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Seaboard Corporation's internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 5, 2007 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting. /s/KPMG LLP Kansas City, Missouri March 5, 2007 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Seaboard Corporation: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Seaboard Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Seaboard Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included 27 obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that Seaboard Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Seaboard Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Seaboard Corporation and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of earnings, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 5, 2007 expressed an unqualified opinion on those consolidated financial statements. /s/KPMG LLP Kansas City, Missouri March 5, 2007 28 SEABOARD CORPORATION Consolidated Statement of Earnings (Thousands of dollars except per share amounts) 2006 2005 2004 Net sales: Products $1,858,588 $1,950,896 $2,088,030 Service revenues 760,964 660,313 539,564 Other 87,845 77,685 56,386 Total net sales 2,707,397 2,688,894 2,683,980 Cost of sales and operating expenses: Products 1,591,146 1,654,390 1,844,693 Services 586,142 511,394 416,132 Other 75,870 63,793 44,177 Total cost of sales and operating expenses 2,253,158 2,229,577 2,305,002 Gross income 454,239 459,317 378,978 Selling, general and administrative expenses 157,244 139,272 127,724 Operating income 296,995 320,045 251,254 Other income (expense): Interest expense (18,774) (22,165) (26,406) Interest income 25,257 14,186 8,132 Income (loss) from foreign affiliates 4,022 362 (2,045) Minority and other noncontrolling interests (6,883) (4,521) (625) Foreign currency gain (loss), net 1,210 (1,032) 1,616 Loss from the sale of a portion of operations - (1,748) - Other investment income, net 4,381 1,962 1,629 Miscellaneous, net 10,216 5,723 (3,644) Total other income (expense), net 19,429 (7,233) (21,343) Earnings before income taxes 316,424 312,812 229,911 Income tax expense (57,735) (46,150) (61,815) Net earnings $ 258,689 $ 266,662 $ 168,096 Basic earnings per common share $ 205.09 $ 212.20 $ 133.94 Diluted earnings per common share $ 205.09 $ 211.94 $ 133.94 Weighted average shares outstanding Basic 1,261,367 1,256,645 1,255,054 Diluted 1,261,367 1,258,202 1,255,054 Dividends declared per common share $ 3.00 $ 3.00 $ 3.00 See accompanying notes to consolidated financial statements. 29 SEABOARD COPORATION Consolidated Balance Sheets December 31, (Thousands of dollars except per share amounts) 2006 2005 Assets Current assets: Cash and cash equivalents $ 31,369 $ 34,622 Short-term investments 478,859 377,874 Receivables: Trade 202,112 171,044 Due from foreign affiliates 52,416 45,240 Other 37,158 22,895 291,686 239,179 Allowance for doubtful accounts (14,638) (16,155) Net receivables 277,048 223,024 Inventories 341,366 331,133 Deferred income taxes 12,894 9,743 Other current assets 55,033 70,814 Total current assets 1,196,569 1,047,210 Investments in and advances to foreign affiliates 42,457 39,992 Net property, plant and equipment 637,813 626,580 Goodwill 28,372 28,372 Intangible assets, net 28,760 30,120 Other assets 27,462 44,047 Total Assets $1,961,433 $1,816,321 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 62,975 $ 92,938 Current maturities of long-term debt 63,415 61,415 Accounts payable 103,429 112,177 Accrued compensation and benefits 78,818 61,466 Accrued voyage costs 30,860 31,940 Income taxes payable 2,525 2,407 Accrued financial derivative liabilities 1,422 6,368 Other accrued liabilities 45,798 50,678 Total current liabilities 389,242 419,389 Long-term debt, less current maturities 137,817 201,063 Deferred income taxes 119,861 124,749 Accrued pension liability 44,279 29,134 Other liabilities 27,824 28,082 Total non-current and deferred liabilities 329,781 383,028 Minority and other noncontrolling interests 39,103 36,034 Commitments and contingent liabilities 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 (82,493) (53,025) Retained earnings 1,262,965 1,008,060 Total stockholders' equity 1,203,307 977,870 Total Liabilities and Stockholders' Equity $1,961,433 $1,816,321 See accompanying notes to consolidated financial statements. 30 SEABOARD CORPORATION Consolidated Statement of Cash Flows Years ended December 31, (Thousands of dollars) 2006 2005 2004 Cash flows from operating activities: Net earnings $ 258,689 $ 266,662 $ 168,096 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 71,258 65,106 64,620 Loss (income) from foreign affiliates (4,022) (362) 2,045 Put option value change (5,400) (1,300) - Other investment income, net (4,381) (1,962) (1,629) Minority and noncontrolling interest 6,883 4,521 625 Loss from the sale of a portion of operations - 1,748 - Deferred income taxes 6,358 5,371 39,566 Gain from sale of fixed assets (705) (2,081) (1,350) Changes in current assets and liabilities, net of portion of operations sold and business acquired: Receivables, net of allowance (49,613) 37,247 (70,133) Inventories (11,349) (46,283) (18,744) Other current assets 17,915 (25,417) (12,266) Current liabilities, exclusive of debt (1,815) 15,678 30,851 Other, net (61) 12,204 (7,586) Net cash from operating activities 283,757 331,132 194,095 Cash flows from investing activities: Purchase of short-term investments (2,560,280) (819,643) (317,479) Proceeds from the sale of short-term investments 2,462,561 561,291 256,448 Purchase of long-term investments (4,585) - (1,722) Proceeds from the sale of a portion of operations - 26,471 - Acquisition of business - (47,993) - Investments in and advances to foreign affiliates, net 1,144 (399) 3,037 Capital expenditures (85,886) (64,241) (33,622) Proceeds from the sale of fixed assets 3,498 4,933 9,254 Other, net (2,954) 3,988 2,090 Net cash from investing activities (186,502) (335,593) (81,994) Cash flows from financing activities: Notes payable to banks, net (29,963) 91,149 (73,775) Principal payments of long-term debt (61,270) (60,580) (54,236) Repurchase of minority interest in a controlled subsidiary - (762) (5,000) Dividends paid (3,784) (3,770) (3,765) Bond construction fund - - 1,289 Dividends paid to minority and noncontrolling interests (2,741) (2,073) (232) Other, net (2,419) - (1,125) Net cash from financing activities (100,177) 23,964 (136,844) Effect of exchange rate change on cash (331) 499 1,986 Net change in cash and cash equivalents (3,253) 20,002 (22,757) Cash and cash equivalents at beginning of year 34,622 14,620 37,377 Cash and cash equivalents at end of year $ 31,369 $ 34,622 $ 14,620 See accompanying notes to consolidated financial statements. 31
SEABOARD CORPORATION Consolidated Statement of Changes in Equity Accumulated Other (Thousands of dollars Common Additional Comprehensive Retained except per share amounts) Stock Capital Loss Earnings Total Balances, January 1, 2004 $ 1,255 $ - $ (61,527) $ 580,837 $ 520,565 Comprehensive income Net earnings 168,096 168,096 Other comprehensive income net of income taxes of $4,329: Foreign currency translation adjustment 2,504 2,504 Unrealized gain on investments 243 243 Unrecognized pension cost 5,397 5,397 Unrealized loss on cash flow hedges (158) (158) Amortization of deferred gains on interest rate swaps (200) (200) Comprehensive income 175,882 Dividends on common stock (3,765) (3,765) Balances, December 31, 2004 1,255 - (53,741) 745,168 692,682 Comprehensive income Net earnings 266,662 266,662 Other comprehensive income net of income taxes benefit of $606: Foreign currency translation adjustment 757 757 Unrealized gain on investments 671 671 Unrecognized pension cost (666) (666) Unrealized loss on cash flow hedges 155 155 Amortization of deferred gains on interest rate swaps (201) (201) Comprehensive income 267,378 Issuance of 6,313 shares of common stock to Parent 6 8,311 8,317 Excess of fair value over book value of equity in subsidiary issued to a third party 13,263 13,263 Dividends on common stock (3,770) (3,770) Balances, December 31, 2005 1,261 21,574 (53,025) 1,008,060 977,870 Comprehensive income Net earnings 258,689 258,689 Other comprehensive income net of income tax benefit of $2,117: Foreign currency translation adjustment (2,582) (2,582) Unrealized gain on investments 433 433 Unrecognized pension cost (2,085) (2,085) Unrealized loss on cash flow hedges (22) (22) Amortization of deferred gains on interest rate swaps (198) (198) Comprehensive income 254,235 Adjustment to initially apply FASB Statement No. 158, net of tax benefit of $11,253 (25,014) (25,014) Dividends on common stock (3,784) (3,784) Balances, December 31, 2006 $ 1,261 $21,574 $ (82,493) $1,262,965 $1,203,307 See accompanying notes to consolidated financial statements.
32 Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Operations of Seaboard Corporation and its Subsidiaries Seaboard Corporation and its subsidiaries (Seaboard) is a diversified international agribusiness and transportation company. In the United States, Seaboard is primarily engaged in pork production and processing, and ocean transporation. Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production, and electric power generation. Seaboard Flour LLC (the Parent Company) is the owner of 70.9% of Seaboard's outstanding common stock. Principles of Consolidation and Investments in Affiliates The consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The investments in non-controlled foreign affiliates are accounted for by the equity method. Financial information from certain foreign subsidiaries and affiliates is reported on a one- to three-month lag depending on the specific entity. Short-term Investments Short-term investments are retained for future use in the business and may include money market accounts, municipal debt securities, corporate bonds and U.S. government obligations and, on a limited basis, foreign government bonds, high yield bonds, currency futures and domestic equity securities. All short-term investments held by Seaboard are categorized as available-for- sale and are reported at fair value with any related unrealized gains and losses reported net of tax, as a component of accumulated other comprehensive income. When held, the cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Gains and losses on sale of investments are generally based on the specific identification method. Accounts Receivable Accounts receivable are recorded at the invoiced amount and generally do not bear interest. The Power segment, however, collects interest on certain past due accounts and the Commodity Trading and Milling segment provides extended payment terms for certain customers and/or markets due to local business conditions. The allowance for doubtful accounts is Seaboard's best estimate of the amount of probable credit losses in Seaboard's existing accounts receivable. For most operating segments, Seaboard uses a specific identification approach to determine, in management's best judgment, the collection value of certain past due accounts. For the Marine segment, the allowance for doubtful accounts is based on an aging percentage methodology primarily based on historical write-off experience. Seaboard reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Inventories Seaboard uses the lower of last-in, first-out (LIFO) cost or market for determining inventory cost of live hogs, fresh pork product and related materials. Grain, flour and feed inventories at foreign milling operations are valued at the lower of weighted average cost or market. All other inventories, including further processed pork products, are valued at the lower of first-in, first-out (FIFO) cost or market. Property, Plant and Equipment Property, plant and equipment are carried at cost and are being depreciated generally on the straight-line method over useful lives ranging from 3 to 30 years. Property, plant and equipment leases which are deemed to be installment purchase obligations have been capitalized and included in the property, plant and equipment accounts. Routine and planned major maintenance, repairs, and minor renewals are expensed as incurred while major renewals and improvements are capitalized. Impairment of Long-lived Assets At each balance sheet date, long-lived assets, primarily fixed assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. 33 Goodwill and Other Intangible Assets Goodwill and other indefinite-life intangible assets are evaluated annually for impairment at the quarter-end closest to the anniversary date of the acquisition, or more frequently if certain indicators arise. Separable intangible assets with finite lives are amortized over their useful lives. Management believes there is no significant exposure to a loss from impairment of acquired goodwill and other intangible assets as of December 31, 2006. Accrued Self-Insurance Seaboard is self-insured for certain levels of general and vehicle liability, property, workers' compensation, product recall and health care coverage. The cost of these self- insurance programs is accrued based upon estimated settlements for known and anticipated claims. Any resulting adjustments to previously recorded reserves are reflected in current operating results. Deferred Grants Included in other liabilities at December 31, 2006 and 2005 is $7,740,000 and $8,164,000, respectively, of deferred grants. The deferred grants represent economic development funds contributed by government entities that were limited to construction of a pork processing facility in Guymon, Oklahoma. Deferred grants are being amortized as a reduction of depreciation expense over the life of the assets acquired with the funds. Asset Retirement Obligation Seaboard has recorded long-lived assets and a related liability for the asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close in the future should Seaboard cease operations or plan to close such lagoons voluntarily in accordance with a changed operating plan. Based on detailed assessments and appraisals obtained to estimate the future retirement costs, Seaboard has determined and recorded the present value of the projected costs with the retirement asset depreciated over the economic life of the related asset. The following table shows the changes in the asset retirement obligation during 2006 and 2005. Years ended December 31, (Thousands of dollars) 2006 2005 Beginning balance $6,730 $6,266 Accretion expense 499 464 Ending balance $7,229 $6,730 Income Taxes Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. However, in the future as these timing differences reverse, a lower statutory tax rate may apply pursuant to the provisions for domestic manufacturers of the American Jobs Creation Act of 2004. In accordance with the Financial Accounting Standards Board Staff Position No. 109-1, Application of FASB Statement No. 109, "Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004", Seaboard will recognize the benefit or cost of this change in the future. Revenue Recognition Revenue of the containerized cargo service is recognized ratably over the transit time for each voyage with expenses associated with containerized cargo service being recognized as incurred. Revenue of the commodity trading business is recognized when the commodity is delivered to the customer and the sales price is fixed or determinable. Revenues from all other commercial exchanges are recognized at the time products are shipped or delivered in accordance with shipping terms, or services rendered, the customer takes ownership and assumes risk of loss, collection is reasonably assured and the sales price is fixed or determinable. As a result of a marketing agreement with Triumph Foods, beginning in 2006 Seaboard's sales prices for its pork products included in product revenues are primarily based on an average sales price and mix of products sold from both Seaboard's and Triumph Foods' hog processing plants. Seaboard earns a fee for marketing the pork products of Triumph Foods and recognizes this fee as service revenue primarily based on the number of head processed by Triumph Foods. 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 34 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. Earnings Per Common Share Earnings per common share are based upon the weighted average shares outstanding during the period. Basic and diluted earnings per share are the same for the years ended December 31, 2006 and 2004. Basic and diluted earnings per share are different for the year ended December 31, 2005 as a result of the issuance of shares to the Parent Company in the fourth quarter of 2005. See Note 12 for further discussion. Reclassification Certain reclassifications have been made to prior year amounts on the balance sheet to conform to the current year presentation. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, management considers all demand deposits and overnight investments as cash equivalents. Included in accounts payable are bank overdrafts related to foreign subsidiaries in the amounts of $438,000 and $59,000, at December 31, 2006 and 2005, respectively. The amounts paid for interest and income taxes are as follows: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Interest (net of amounts capitalized) $19,461 $23,116 $26,179 Income taxes (net of refunds) 47,515 68,243 11,752 Supplemental Noncash Transactions As more fully described in Note 2, Seaboard sold some components of its third party commodity trading operations in May 2005. The following table summarizes the non-cash transactions resulting from this sale: Year ended (Thousands of dollars) December 31, 2005 Decrease in net working capital $28,055 Decrease in fixed assets 76 Decrease in other assets 88 Loss on the sale of a portion of operations (1,748) Net proceeds from sale $26,471 As more fully described in Note 2, Seaboard acquired a bacon processor in July 2005. The following table summarizes the non- cash transactions resulting from this acquisition: Year ended (Thousands of dollars) December 31, 2005 Increase in net working capital $ 11,430 Increase in fixed assets 28,798 Increase in intangible assets 30,800 Increase in goodwill 28,372 Increase in non-controlling interest (31,225) Increase in other non-controlling interest (219) Increase in put option value (6,700) Increase in additional paid-in capital (13,263) Cash paid $ 47,993 35 In the fourth quarter of 2005, Seaboard issued 6,313.34 shares to its Parent Company as a result of a tax benefit of $8,317,000. See Note 12 for further discussion. Foreign Currency Transactions and Translation Seaboard has operations in and transactions with customers in a number of foreign countries. The currencies of the countries fluctuate in relation to the U.S. dollar. Certain of the major contracts and transactions, however, are denominated in U.S. dollars. In addition, the value of the U.S. dollar fluctuates in relation to the currencies of countries where certain of Seaboard's foreign subsidiaries and affiliates primarily conduct business. These fluctuations result in exchange gains and losses. The activities of these foreign subsidiaries and affiliates are primarily conducted with U.S. subsidiaries or operate in hyper-inflationary environments. As a result, the financial statements of certain foreign subsidiaries and affiliates are re-measured using the U.S. dollar as the functional currency. Included in foreign currency gain (loss), net for the year ended December 31, 2006 is a foreign currency gain of $1,695,000 recorded in December 2006. This gain reflects the re-measurement as of December 31, 2006 of a note payable denominated in Japanese Yen, as discussed in Note 8, of a foreign consolidated subsidiary accounted for on a one month lag except for this re-measurement of this note payable. This currency gain was primarily offset by a mark-to-market currency loss at December 31, 2006 from a foreign currency derivative contract discussed in Note 9. Seaboard's Sugar and Citrus segment and three non-controlled, non- consolidated foreign affiliates (a Bulgarian wine business and two milling businesses in Kenya and Lesotho), use local currency as their functional currency. Assets and liabilities of these subsidiaries are translated to U.S. dollars at year-end exchange rates, and income and expense items are translated at average rates. Translation gains and losses are recorded as components of other comprehensive loss. U.S. dollar denominated net asset or liability conversions to the local currency are recorded through income. Derivative Instruments and Hedging Activities Seaboard follows Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Investments and Hedging Activities," as amended to account for its derivative contracts. This statement requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. Derivatives qualify for treatment as hedges for accounting purposes when there is a high correlation between the change in fair value of the instrument and the related change in value of the underlying commitment. In order to designate a derivative financial instrument as a hedge for accounting purposes, extensive record keeping is required. For derivatives that qualify as hedges for accounting purposes, the change in fair value has no net impact on earnings, to the extent the derivative is considered effective, until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments for accounting purposes, or for the ineffective portion of a hedging instrument, the change in fair value does affect current period net earnings. Seaboard holds and issues certain derivative instruments to manage various types of market risks from its day-to-day operations primarily including commodity futures and option contracts, foreign currency exchange agreements and interest rate exchange agreements. While management believes each of these instruments primarily are entered into in order to effectively manage various market risks, as of December 31, 2006 none of the derivatives are designated and accounted for as hedges primarily as a result of the extensive record-keeping requirements. From time to time, Seaboard may enter into speculative derivative transactions related to its market risks. As of January 1, 2005, Seaboard discontinued accounting for the foreign currency exchange agreements as hedges for all new agreements entered into by the commodity trading business. In addition, as of January 1, 2005, Seaboard de-designated all prior outstanding hedges, effectively fixing the asset resulting from the mark-to-market gain on the firm sales commitment of $5,558,000 recorded in other current assets on the Consolidated Balance Sheets as of December 31, 2004, until such time as the firm sales commitments mature. Beginning January 1, 2005, the mark-to-market changes in the foreign exchange agreements were no longer offset with the mark-to-market changes of the underlying firm sales commitment. While $4,241,000 of the related sales were consummated during fiscal 2005, $1,317,000 of the firm sales commitments were also sold as part of the sale of a portion of the third party trading operations as discussed in Note 2. Although management still believes all of these instruments effectively manage market risks, the growth of Seaboard's commodity trading business in recent years increased the ongoing costs to maintain the extensive record-keeping requirements to qualify these instruments as hedges for accounting purposes. 36 Accounting Changes and New Accounting Standards In June 2006, the 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. Management believes the adoption of FIN 48 will not have a material impact on Seaboard's financial position or net earnings. Seaboard will be required to adopt FIN 48 as of January 1, 2007. In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157 (SFAS 157), "Fair Value Measurements". This statement establishes a single authoritative definition of fair value when accounting rules require the use of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. For Seaboard, SFAS 157 is effective for the fiscal year beginning January 1, 2008. Management believes the adoption of SFAS 157 will not have a material impact on Seaboard's financial position or net earnings. In September 2006, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 108 (SAB 108), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the "roll-over" method and the "iron curtain" method. In SAB 108, the SEC staff established an approach that is commonly referred to as a "dual approach" because it now requires quantification of errors under both the iron curtain and the roll-over methods. During the fourth quarter of 2006, Seaboard adopted SAB 108. The adoption of SAB 108 did not have an effect on Seaboard's financial position, net earnings or prior year financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 (SFAS 158), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans". As of December 31, 2006, Seaboard adopted SFAS 158. See Note 10 for further discussion. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provides companies with an option to report selected financial assets and liabilities at fair value. Seaboard will be required to adopt this statement as of January 1, 2008. Seaboard is currently evaluating its options under SFAS 159. As of January 1, 2006, Seaboard adopted Financial Accounting Standards No. 151, "Inventory Costs" (SFAS 151), which amended Accounting Research Board No. 43 to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of "so abnormal". In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Any costs outside the normal range would be considered a period expense instead of an inventoried cost. The adoption of SFAS 151 did not have a material impact on Seaboard's financial position or net earnings. Note 2 Acquisitions, Dispositions and Repurchase of Minority Interest On July 5, 2005, Seaboard completed the acquisition effective July 3, 2005 of Daily's, a bacon processor located in the western United States, for a total purchase price of $99,181,000. The purchase price consisted of $44,488,000 in cash, plus working capital adjustments of $3,098,000, a 4.74% equity interest in Seaboard Foods LP (Foods, previously Seaboard Farms, Inc.) with a book value of $31,225,000 and fair value over book value of $13,263,000 recorded as additional paid-in capital for a total value of $44,488,000, a put option associated with the 4.74% equity interest estimated to have a fair value of $6,700,000, as discussed below, and $407,000 of additional acquisition costs incurred. The value of the 4.74% ownership interest issued to the Sellers was based on an earnings multiple of the business which approximates fair value. The acquisition includes Daily's two bacon processing plants located in Salt Lake City, Utah and Missoula, Montana. Daily's produces premium sliced and pre- cooked bacon primarily for food service. This acquisition continues Seaboard's expansion of its integrated pork model into value-added products and is expected to enhance Seaboard's ability to venture into other further processed pork products. 37 The sellers of Daily's had an option to put their 4.74% equity interest in Foods back to Seaboard after two years for the greater of $40,000,000 or a formula determined value as of the put date. The minimum put option value of $40,000,000 expired after five years. Likewise, Seaboard had a call provision after five years of operations whereby Seaboard could reacquire the 4.74% equity interest for the greater of $45,000,000 or a formula determined value. On December 27, 2006, Seaboard entered into a Purchase Agreement to repurchase the 4.74% equity interest in Foods from the former owners of Daily's effective January 1, 2007. As part of the Purchase Agreement, on January 2, 2007 Seaboard paid $30 million of the purchase price for the 4.74% equity interest to the former owners of Daily's. Seaboard will pay the balance of the purchase price in August 2007, currently estimated based on the formula to be an additional $10-$40 million depending on operating results and certain net cash flows through June 30, 2007. The total purchase price for the 4.74% equity interest is equal to the greater of $40 million or the same formula-determined value of the original put option, determined as of June 30, 2007; less the amount of interest which accrues on the initial $30 million portion of the purchase from January 2, 2007 through the date on which the balance of the purchase price is paid. The agreement to repurchase the 4.74% equity interest resulted in the put option obligation being reduced to zero, as the purchase price is representative of the fair value of the 4.74% equity interest, with the offset to income as of December 31, 2006. Included in other liabilities at December 31, 2005 is the value of the put option obligation in the amount of $5,400,000, which primarily represented the exposure that Seaboard could be forced to repurchase the 4.74% minority interest at a price that exceeded fair value at the exercise date. The decrease of the put option obligation was primarily the result of the passage of time decreasing this exposure to Seaboard. Included in Miscellaneous, net for the years ended December 31, 2006 and 2005 is the change in fair value of the put option obligation for each year since the date of acquisition of approximately $5,400,000 and $1,300,000, respectively. Operating results for Daily's are included in Seaboard's Consolidated Statement of Earnings from the date of acquisition. Pro forma results of operations are not presented, as the effects of the acquisition are not considered material to Seaboard's results of operations. The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at July 3, 2005, the effective date of the acquisition. (Thousands of dollars) July 3, 2005 Net working capital $11,430 Net property, plant and equipment 28,798 Intangible assets 30,800 Goodwill (tax basis of $21,673) 28,372 Increase in other non-controlling interest (219) Net assets acquired $99,181 The intangible assets acquired include $24,000,000 of trade names and registered trademarks which are not subject to amortization. The remaining intangible asset balance consists primarily of contractual and direct customer relationships, and covenants not to compete and will be amortized over five years. As a result of the acquisition, the Pork Division is the only segment with goodwill or intangible assets. The factors that contributed to a purchase price that resulted in the recognition of goodwill were the expansion of Pork's integrated model into value-added products allowing further realization from Pork's existing products and enhancing Pork's ability to venture into other further processed pork products and access to an expanded base of industry knowledge and expertise. The following table is a summary of goodwill and intangible assets acquired from Daily's at December 31, 2006 and 2005. 38 December 31, (Thousands of dollars) 2006 2005 Intangibles subject to amortization: Gross carrying amount: Customer relationships $ 5,300 $ 5,300 Covenants not to compete 1,500 1,500 6,800 6,800 Accumulated amortization: Customer relationships (1,590) (530) Covenants not to compete (450) (150) (2,040) (680) Net carrying amount: Customer relationships 3,710 4,770 Covenants not to compete 1,050 1,350 Intangibles subject to amortization, net 4,760 6,120 Intangibles not subject to amortization: Carrying amount-trade names and registered trademarks 24,000 24,000 Total intangible assets, net 28,760 30,120 Goodwill 28,372 28,372 Total goodwill and intangible assets, net $57,132 $58,492 The amortization expense of amortizable intangible assets for the years ended December 31, 2006 and 2005 was approximately $1,360,000 and $680,000, respectively. Amortization expense for the four succeeding years is $1,360,000 for each of the next three years and $680,000 in the fourth and final year of amortizing these assets. Effective May 9, 2005 Seaboard's Commodity Trading and Milling segment agreed to sell some components of its third party commodity trading operations, consisting primarily of certain forward sales contracts, certain grain inventory and all related contracts to support such sales contracts, including commodity futures and options, foreign exchange agreements, purchase contracts and charter agreements for $26,471,000. This transaction closed on May 27, 2005. The counterparty to this transaction is a South African company. During 2006, Seaboard re- established its commodity trading business in markets associated with the sale in 2005 of some components of its third party commodity trading operations. Seaboard continues to focus on the supply of raw materials to its core milling operations and the transaction of third party commodity trades in support of these operations. Since Seaboard does not use hedge accounting for its commodity and foreign exchange derivative instruments, the derivative instruments included in the sale were marked to market through the effective date of the sale while the change in value of the related commodity forward purchase and sale agreements were not. As a result, derivative gains relating to derivative instruments sold totaling $2,161,000 were included in operating income prior to the sale of a portion of the operations resulting in a loss on the sale transaction totaling $1,748,000. Since Seaboard has conducted its commodity trading business with third parties, consolidated subsidiaries, and foreign affiliates on an interrelated basis and continues trading with third parties in certain markets, operating income from the business sold cannot be clearly distinguished from the remaining operations of Seaboard's Commodity Trading and Milling segment without making numerous subjective assumptions primarily with respect to mark-to- market accounting. In January 2006, Seaboard paid $2,107,000 to purchase the equity of a Variable Interest Entity (VIE) which was consolidated by Seaboard at December 31, 2005. This VIE owned certain facilities used in the Pork segment's vertically integrated hog production. Non-controlling interest related to this VIE on the consolidated balance sheet as of December 31, 2005 was $1,074,000. The difference between the purchase price and non-controlling interest resulted in an increase in fixed assets. 39 In connection with the December 2001 sale of a 10% minority interest in one of the two power barges in the Dominican Republic, the buyer was given a three-year option to sell the interest back to Seaboard for the book value at the time of sale, pending collections of outstanding receivables. During January 2004, the buyer provided notice to exercise the option. An initial payment of $5,000,000 was paid during the second quarter of 2004 to reacquire this interest, $762,000 was paid during fiscal 2005. The remaining balance of $72,000 as of December 31, 2006 is payable subject to the collection of the remaining outstanding receivables. In addition, Seaboard has historically paid commissions to a related entity of the above party relative to the performance of the other power barge. During the second quarter of 2004 Seaboard agreed to terminate that relationship by making a one- time payment of $2,000,000, included in selling, general and administrative expenses. Note 3 Investments Seaboard's short-term investments are treated as available-for- sale securities and are stated at their fair market values. As of December 31, 2006 and 2005, the short-term investments primarily consisted of fixed rate municipal notes and bonds, auction rate securities (ARS), variable rate demand notes (VRDN) and money market funds. At December 31, 2006 and 2005, cost and fair market value were not materially different for these investments. The ARS have maturities over one year but provide liquidity through a periodic auction typically held every 7, 28 or 35 days at which time the rate is reset. The VRDNs have maturities over one year, however, liquidity is provided with a put feature to the tender agent which allows the holder to sell the VRDN at par plus accrued interest with a seven day notice. Because the ARS and VRDN investments are frequently re-priced, they trade in the market on par-in, par-out basis. In addition, Seaboard has investments in domestic equity securities with a cost basis of $3,960,000 and $5,056,000 at December 31, 2006 and 2005, respectively. All available-for-sale securities are classified as current assets as they are readily available to support Seaboard's current operating needs. At December 31, 2006 and 2005, short-term investments included $10,309,000 and $7,491,000, respectively, held by a wholly-owned consolidated insurance captive to pay Seaboard's retention of accrued outstanding workers' compensation claims. The following is a summary of the estimated fair value of available-for-sale securities classified as short-term investments at December 31, 2006 and 2005. December 31, (Thousands of dollars) 2006 2005 Auction rate securities $199,325 $103,815 Fixed rate municipal notes and bonds 192,753 - Variable rate demand notes 51,872 154,795 Money market funds 25,193 113,951 Domestic equity securities 5,361 5,313 Other 4,355 - Total short-term investments $478,859 $377,874 The following table summarizes the estimated fair value of fixed rate municipal notes and bonds designated as available-for-sale classified by the contractual maturity date of the security as of December 31, 2006. (Thousands of dollars) 2006 Due within one year $ 17,273 Due after one year through three years 93,606 Due after three years 81,874 Total fixed rate municipal notes and bonds $192,753 In addition to its short-term investments, as of December 31, 2006 and 2005 Seaboard also had long-term investments totaling $8,010,000 and $4,100,000, respectively, included in other assets on the Consolidated Balance Sheets. Included in this amount is an investment in the power industry in the Dominican Republic. As a result of receiving all final local government, regulatory, and banking approvals and requisite consents, during the fourth 40 quarter of 2006 Seaboard invested $4,585,000 million, plus $728,000 million previously placed in escrow in 2004, for a total of $5,313,000 million, for a less than 20% ownership interest in a company operating a 300 megawatt electricity generating facility in the Dominican Republic. This investment is accounted for using the cost method of accounting. Also, see Note 10 for a discussion of assets held in conjunction with investments related to Seaboard's deferred compensation plans. Other investment income for each year is as follows: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Realized gain on sale of securities $1,703 $ 4 $ 196 Other 2,678 1,958 1,433 Other investment income, net $4,381 $1,962 $1,629 Note 4 Inventories A summary of inventories at the end of each year is as follows: December 31, (Thousands of dollars) 2006 2005 At lower of LIFO cost or market: Live hogs and materials $149,521 $146,661 Fresh pork and materials 19,443 22,987 168,964 169,648 LIFO adjustment 1,458 571 Total inventories at lower of LIFO cost or market 170,422 170,219 At lower of FIFO cost or market: Grain, primarily wheat, corn and soybeans 80,068 75,441 Sugar produced and in process 25,124 26,559 Other 29,016 27,282 Total inventories at lower of FIFO cost or market 134,208 129,282 Grain, flour and feed at lower of weighted average cost or market 36,736 31,632 Total inventories $341,366 $331,133 The use of the LIFO method increased 2006, 2005 and 2004 net earnings by $541,000 ($0.43 per common share), $67,000 ($0.05 per common share), and $4,922,000 ($3.92 per common share), respectively. If the FIFO method had been used for certain inventories of the Pork segment, inventories would have been $1,458,000 and $571,000 lower as of December 31, 2006 and 2005, respectively. Note 5 Investments in and Advances to Foreign Affiliates Seaboard's investments in and advances to non-controlled, non- consolidated foreign affiliates are primarily with businesses conducting flour, maize and feed milling. The location and percentage ownership of these foreign affiliates are as follows: Democratic Republic of Congo (50%), Lesotho (50%), Kenya (35%), and Nigeria (45-48%) in Africa; Ecuador (50%) in South America; and Haiti (23%) in the Caribbean. In addition, Seaboard has investments in and advances to a wine business in Bulgaria (50%) and two sugar-related businesses in Argentina (46% - 50%). The equity method is used to account for these investments. During the fourth quarter of 2006, Seaboard's remaining individual investments in and advances to the Nigerian non- consolidated foreign affiliates of $1,048,000 were written down to zero as a result of Seaboard's proportionate share of operating losses for these entities. Accordingly, Seaboard has discontinued the use of the equity method of 41 accounting for these non-consolidated foreign affiliates until such time Seaboard's share of the investee's net income equals the share of net losses not recognized during the period the equity method is suspended. During 2005, milling operations ceased at Seaboard's non- controlled, non-consolidated foreign affiliate in Angola. Seaboard is exploring various alternatives to reopen the operation. As a result, during 2005 Seaboard fully reserved its past due receivables from grain sales to this affiliate by incurring a charge to bad debts and increasing its allowance for doubtful accounts in the amount of $1,500,000. The investment in and advances to this affiliate was written off as a result of Seaboard's share of operating losses incurred during 2005 by this affiliate. 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. During the third quarter of 2005, certain equity holders agreed to advance up to 4,500,000 Euros (approximately $5,400,000) to the Business, one-half by Seaboard, to fulfill the terms of its debt covenants, make principal payments, avoid bankruptcy and finance the current year's grape purchases. As of December 31, 2006, Seaboard had advanced 2,240,000 Euros (approximately $2,718,000). As a result of these additional advances, 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. 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 operations of this Business until the sale of this Business is completed. As of December 31, 2006, the remaining carrying value of Seaboard's investments in and advances to this Business total $3,073,000, including $2,684,000 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 VIE and the related maximum exposure to Seaboard at December 31, 2006 is limited to its remaining carrying value. As more fully discussed in Note 13, in the fourth quarter of 2004, Seaboard recognized a $3,592,000 decline in value considered other than temporary in its investment in the Business. See Note 7 for discussion of Seaboard's taxes related to this business. Seaboard generally is the primary provider of choice for grains and supplies purchased by the non-controlled foreign affiliates primarily conducting grain processing. Sales of grain and supplies to these non-consolidated foreign affiliates included in consolidated net sales for the years ended December 31, 2006, 2005 and 2004 amounted to $242,442,000, $232,864,000, and $229,422,000, respectively. At December 31, 2006 and 2005, Seaboard had $38,748,000 and $34,013,000, respectively, of investments in and advances to, and $51,227,000 and $44,459,000, respectively, of receivables due from these foreign affiliates. Combined condensed financial information of the non-controlled, non-consolidated foreign affiliates for their fiscal periods ended within each of Seaboard's years ended are as follows: Commodity Trading and Milling Segment December 31, (Thousands of dollars) 2006 2005 2004 Net sales $516,471 501,972 442,064 Net income $ 10,511 19,995 8,450 Total assets $234,212 215,269 202,788 Total liabilities $151,562 138,670 141,867 Total equity $ 82,650 76,599 60,921 42 Other Businesses December 31, (Thousands of dollars) 2006 2005 2004 Net sales $ 29,096 28,611 33,230 Net loss $ (4,548) (7,427) (8,143) Total assets $ 38,590 45,668 52,827 Total liabilities $ 42,160 44,266 43,969 Total equity $ (3,570) 1,402 8,858 Note 6 Property, Plant and Equipment A summary of property, plant and equipment at the end of each year is as follows: Useful December 31, (Thousands of dollars) Lives 2006 2005 Land and improvements 15 years $ 127,101 $ 115,334 Buildings and improvements 30 years 290,377 286,057 Machinery and equipment 3-20 years 617,738 596,257 Vessels and vehicles 3-18 years 136,350 127,419 Office furniture and fixtures 5 years 20,061 17,679 Construction in progress 25,609 8,644 1,217,236 1,151,390 Accumulated depreciation and amortization (579,423) (524,810) Net property, plant and equipment $ 637,813 $ 626,580 Note 7 Income Taxes Income taxes attributable to continuing operations for the years ended December 31, 2006, 2005 and 2004 differ from the amounts computed by applying the statutory U.S. Federal income tax rate of 35 percent to earnings (loss) before income taxes for the following reasons: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Computed "expected" tax expense $110,749 $109,484 $ 80,468 Adjustments to tax expense attributable to: Foreign tax differences (48,630) (46,184) (18,585) Tax-exempt investment income (4,276) (1,046) (221) State income taxes, net of federal benefit 7,310 6,202 1,461 Change in valuation allowance (3,890) 4,290 (3,540) Repatriation - 11,586 - Federal and foreign audit settlements (2,509) (26,405) (14,356) Other (1,019) (11,777) 16,588 Total income tax expense $ 57,735 $ 46,150 $ 61,815 43 Earnings before income taxes consists of the following: Years ended December 31, (Thousands of dollars) 2006 2005 2004 United States $139,725 $156,551 $120,398 Foreign $176,699 $156,261 $109,513 Total $316,424 $312,812 $229,911 The components of total income taxes are as follows: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Current: Federal $ 40,032 $ 28,885 $ 16,132 Foreign 6,795 5,578 4,271 State and local 4,438 6,314 1,317 Deferred: Federal (570) 1,287 39,249 Foreign 847 37 - State and local 6,193 4,049 846 Income tax expense 57,735 46,150 61,815 Unrealized changes in other comprehensive income (13,370) (606) 4,329 Total income taxes $ 44,365 $ 45,544 $ 66,144 Components of the net deferred income tax liability at the end of each year are as follows: December 31, (Thousands of dollars) 2006 2005 Deferred income tax liabilities: Cash basis farming adjustment $ 12,852 $ 12,418 Deferred earnings of foreign subsidiaries 1,079 347 Depreciation 96,525 93,159 LIFO 31,585 27,054 Other 1,525 2,423 143,566 135,401 Deferred income tax assets: Reserves/accruals 38,678 20,013 Tax credit carryforwards 4,179 6,533 Net operating and capital loss carryforwards 15,769 35,076 Other 619 - 59,245 61,622 Valuation allowance 22,646 41,227 Net deferred income tax liability $106,967 $115,006 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 contained several provisions which benefit 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, and had a material impact on Seaboard's 44 2006 and 2005 results and future effective tax rate and cash tax payments. This change decreased income tax expense approximately $34,609,000 and $30,298,000, respectively, for the years ended December 31, 2006 and 2005. The Act also allowed Seaboard a one-time election to repatriate permanently invested foreign earnings at a 5.25% effective U.S. income tax rate rather than the statutory 35% rate, if certain domestic reinvestment requirements are met. Management concluded its evaluation of this provision of the Act in the fourth quarter of 2005 and declared and paid a qualifying intercompany dividend of approximately $220,000,000. The dividend was paid from existing cash from foreign operations and by incurring $65,000,000 of new borrowings by a foreign subsidiary (see Note 8 for further discussion). Total taxes resulting from this dividend were approximately $11,586,000, including foreign withholding taxes incurred. As of December 31, 2006, Seaboard has not provided for U.S. Federal Income and foreign withholding taxes on $239,209,000 of undistributed earnings from foreign operations as Seaboard intends to reinvest such earnings indefinitely outside of the United States. Determination of the tax that might be paid on these undistributed earnings if eventually remitted is not practicable. The Act also repealed an export tax benefit and provides for a nine percent deduction on U.S. manufacturing income. Both are phased in over the next five years. Management expects these two changes to largely offset each other in future years. 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. Also, in the fourth quarter of 2005, the Joint Committee on Taxation (JCT) approved Seaboard's settlement with the Internal Revenue Services (IRS) of its 2000-2002 U.S. Federal Tax Returns. The favorable resolution of these tax issues resulted in a tax benefit of $21,428,000 for items previously reserved. Additionally, in February 2006 Seaboard entered into a Closing Agreement with the Puerto Rican Treasury Department which favorably resolved certain prior years' tax issues. The resolution of these issues resulted in Seaboard recording a tax benefit of $4,977,000 in the fourth quarter of 2005 for items previously reserved. In January 2005, Seaboard agreed to a settlement with the IRS related to a protest for Seaboard's federal income tax returns for 1994 through 1996 resulting in a $14,356,000 tax benefit which was recognized in the fourth quarter of 2004. As more fully discussed in Note 13, Seaboard intends to sells its equity investment in a Bulgarian wine business. As a result of the decision to sell this business, the accumulated losses for this business, which were previously considered ordinary for tax purposes, are now characterized as capital losses, which utilization is currently viewed as uncertain as discussed below. Accordingly, in the fourth quarter of 2004 Seaboard reversed previously recorded tax benefits of $5,795,000 related to prior year losses. Seaboard currently has tax holidays in three foreign countries resulting in tax savings of approximately $3,969,000, $4,311,000 and $3,376,000 respectively, or $3.15, $3.43 and $2.69 per diluted earnings per common share for the years ended December 31, 2006, 2005 and 2004, respectively. These tax holidays are set to expire in 2007, 2008, and 2012 for each country. Management believes Seaboard's future taxable income will be sufficient for full realization of the net deferred tax assets. The valuation allowance relates to the tax benefits from foreign net operating losses and from losses on investments that would be recognized as capital losses. Management does not believe these benefits are more likely than not to be realized due to limitations imposed on the deduction of these losses. In the event Seaboard generates sufficient capital gains to utilize the capital losses, a tax benefit will be recognized. The decrease in the valuation allowance for 2006 was primarily the result of lower foreign deferred tax assets, while in 2005 was the result of additional capital losses and additional foreign deferred tax assets, which management does not believe are more likely than not to be realized. At December 31, 2006, Seaboard had foreign net operating loss carryforwards (NOLs) of approximately $36,465,000, a portion of which expire in varying amounts between 2007 and 2011, and others that have indefinite expiration periods. At December 31, 2006, Seaboard had federal capital loss carryforwards of approximately $12,178,000 expiring in varying amounts in 2007 and 2008. 45 At December 31, 2006, Seaboard had state tax credit carry forwards of approximately $6,420,000 which may carry forward indefinitely. As discussed more fully in Note 12, during fiscal 2005, Seaboard filed tax returns utilizing NOLs that were available to use from its Parent Company pursuant to an earlier agreement. The Company issued shares of common stock to its Parent Company in exchange for the NOLs. Note 8 Notes Payable and Long-term Debt Notes payable amounting to $ 62,975,000 and $92,938,000 at December 31, 2006 and 2005, respectively, consisted of obligations due banks on demand or based on Seaboard's ability and intent to repay within one year. During the second quarter of 2006, Seaboard terminated a $50,000,000 committed line of credit that had been entered into in December, 2005 in connection with a one time qualifying foreign intercompany dividend paid as discussed in Note 7. Seaboard terminated this line as foreign subsidiaries generated sufficient cash to repay the facility in its entirety during 2006. During the fourth quarter of 2006, a foreign subsidiary of Seaboard entered into a new uncommitted credit line denominated in Japanese Yen (approximately $54,626,000 at December 31, 2006) to refinance intercompany debt. At December 31, 2006, Seaboard had a committed line totaling $100,000,000 and uncommitted lines totaling approximately $159,699,000 of which $135,199,000 of the uncommitted lines relate to foreign subsidiaries. At December 31, 2006, there were no borrowings outstanding under the committed line and borrowings totaled $62,975,000 under the uncommitted lines related to foreign subsidiaries. The borrowings outstanding at December 31, 2006 related to foreign subsidiaries primarily included $54,626,000 denominated in Japanese Yen and $7,931,000 denominated in South African Rand. At December 31, 2006, Seaboard's borrowing capacity under its committed line was reduced by letters of credit (LCs) totaling $56,521,000, including $42,688,000 of LCs for Seaboard's outstanding Industrial Development Revenue Bonds (IDRBs) and $13,158,000 related to insurance coverages. The weighted average interest rates for outstanding notes payable were 2.63% and 5.39% at December 31, 2006 and 2005, respectively. The notes payable to banks under the credit lines are unsecured. The lines of credit do not require compensating balances. Facility fees on these agreements are not material. A summary of long-term debt at the end of each year is as follows: December 31, (Thousands of dollars) 2006 2005 Private placements: 7.88% senior notes, due 2007 $ 25,000 $ 50,000 5.80% senior notes, due 2007 through 2009 19,500 26,000 6.21% senior notes, due 2009 38,000 38,000 6.21% senior notes, due 2007 through 2012 6,429 7,500 6.92% senior notes, due 2012 31,000 31,000 Industrial Development Revenue Bonds, floating rates (3.97% - 3.99% at December 31, 2006) due 2014 through 2027 41,800 41,800 Bank debt, 6.41% - 8.58%, due 2007 through 2010 34,075 61,710 Foreign subsidiary obligations, 2.00%-17.50%, due 2009 through 2010 2,443 3,276 Foreign subsidiary obligation, floating rate due 2007 288 311 Capital lease obligations and other 2,697 2,881 201,232 262,478 Current maturities of long-term debt (63,415) (61,415) Long-term debt, less current maturities $137,817 $201,063 Of the 2006 foreign subsidiary obligations, $1,847,000 is denominated in CFA francs, $288,000 is payable in Argentine pesos, and the remaining $596,000 is denominated in Mozambique metical. Of the 2005 foreign subsidiary obligations, $2,027,000 is denominated in CFA francs, $927,000 is payable in Argentine pesos, and the remaining $633,000 is denominated in Mozambique metical. 46 Seaboard consolidates a limited liability company deemed to be a VIE. As a result, bank debt totaling $24,803,000 and $27,918,000 as of December 31, 2006 and 2005, respectively, is included in the table above. This bank debt is collateralized by fixed assets with a net book value of $24,133,000 as of December 31, 2006. The weighted average interest rates were 7.54% at December 31, 2006 and 2005, respectively. At December 31, 2006, Seaboard had additional bank debt secured by hog production facilities and equipment with a net book value of $35,419,000. The terms of the note agreements pursuant to which the senior notes, IDRBs, bank debt and credit lines were issued require, among other terms, the maintenance of certain ratios and minimum net worth, the most restrictive of which requires consolidated funded debt not to exceed 50% of consolidated total capitalization; an adjusted leverage ratio of less than 3.5 to 1.0; requires the maintenance of consolidated tangible net worth, as defined, of not less than $507,000,000 plus 25% of cumulative consolidated net income beginning October 2, 2004; limits aggregate dividend payments to $10.0 million plus 50% of consolidated net income less 100% of consolidated net losses beginning January 1, 2002 plus the aggregate amount of Net Proceeds of Capital Stock for such period ($362,905,000 as of December 31, 2006) or $15,000,000 per year under certain circumstances; limits the sum of subsidiary indebtedness and priority indebtedness to 10% of consolidated tangible net worth; and limits Seaboard's ability to acquire investments and sell assets under certain circumstances. Seaboard is in compliance with all restrictive debt covenants relating to these agreements as of December 31, 2006. Annual maturities of long-term debt at December 31, 2006 are as follows: $63,415,000 in 2007, $11,979,000 in 2008, $47,274,000 in 2009, $2,033,000 in 2010, $1,477,000 in 2011 and $75,054,000 thereafter. Note 9 Derivatives and Fair Value of Financial Instruments Financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short- term nature of the instruments. The cost and fair values of investments and long-term debt at December 31, 2006 and 2005 are presented below. December 31, 2006 2005 (Thousands of dollars) Cost Fair Value Cost Fair Value Short-term investments $477,019 $478,859 $377,617 $377,874 Long-term debt 201,232 200,489 262,478 259,990 The fair value of the short-term investments is based on quoted market prices at the reporting date for these or similar investments. The fair value of long-term debt is determined by comparing interest rates for debt with similar terms and maturities. Commodity Instruments Seaboard uses various grain, meal, hog, pork bellies and fuel oil 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 year. From time to time, Seaboard may enter into speculative derivative transactions not directly related to its raw material requirements. At December 31, 2006 and 2005, Seaboard had open net contracts to purchase and (sell) 12,313,000 and (1,512,000) bushels of grain with fair values of $1,222,000 and $3,715,000, respectively, and 8,000 and (62,000) tons of soybean meal with fair values of $492,000 and $(904,000), respectively, included with other accrued financial derivative liabilities or current assets on the Consolidated Balance Sheets. In addition, at December 31, 2006 Seaboard had net contracts to purchase 15,560,000 pounds of hogs with fair values of $(83,000). At December 31, 2005, Seaboard also had contracts to sell 440,000 pounds of hogs with a fair value of $39,000 and contracts to 47 purchase 720,000 pounds of pork bellies with fair values of $(26,000). For the years ended December 31, 2006, 2005 and 2004 Seaboard realized net gains (losses) of $12,157,000, $(1,156,000), and $(11,886,000) related to commodity contracts, primarily included in cost of sales on the Consolidated Statements of Earnings. Foreign currency exchange agreements Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies. Prior to January 1, 2005 Seaboard accounted for its currency exchange hedges of firm commitments and trade receivables from third parties as fair value hedges through December 31, 2004. Exchange agreements related to firm commitments and receivables from foreign affiliates were accounted for as cash flow hedges through December 31, 2004. For foreign currency exchange agreements designated as fair value hedges, the derivative gains and losses were recognized in operating income for 2004 along with the change in fair value of the related contract through December 31, 2004. For foreign currency exchange agreements designated as cash flow hedges, the derivative gains and losses are included as a component of other comprehensive income until the underlying contract was recorded. As discussed in Note 1, as of January 1, 2005, Seaboard discontinued accounting for the foreign currency exchange agreements as hedges for all new agreements entered into by the commodity trading business. As a result, for 2006 and 2005 the change in value of only the foreign exchange agreements are marked to market as a component of cost of sales on the Consolidated Statements of Earnings and are included on other current assets or accrued financial derivatives liabilities on the Consolidated Balance Sheets as of December 31, 2006 and 2005. The net gains and losses recognized in the Consolidated Statements of Earnings from the exchange agreements were not material for the years ended December 31, 2004. At December 31, 2006 and 2005, Seaboard had trading foreign exchange contracts (receive $U.S./pay South African Rand (ZAR)) to cover its firm sales commitments and trade receivables with notional amounts of $41,458,000 and $56,596,000, respectively, with a fair value of $(644,000) and $(1,046,000), respectively, included in accrued financial derivative liabilities on the Consolidated Balance Sheet. At December 31, 2006 and 2005, Seaboard had trading foreign exchange contracts (receive $U.S./pay ZAR) to cover various foreign currency working capital needs for notional amounts of $1,319,000 and $1,259,000 respectively, with fair values of $5,000 and $(11,000). At December 31, 2006, Seaboard had trading foreign exchange contracts (receive Japanese Yen/pay $U.S.) to cover note payable borrowings for an uncommitted line of credit denominated in Japanese Yen for notional amounts of $58,435,000 with a fair value of $(783,000). Interest Rate Exchange Agreements Seaboard entered into interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt. At December 31, 2006 and 2005, deferred gains on prior year's terminated interest rate exchange agreements (net of tax) totaled $152,000 and $350,000, respectively, relating to swaps that hedged variable rate debt. This amount is included in accumulated other comprehensive loss on the Consolidated Balance Sheets. For each of the years ended December 31, 2006, 2005 and 2004, interest rate exchange agreements accounted for as hedges decreased interest expense by $324,000 resulting from amortization of terminated proceeds. At December 31, 2005 Seaboard had five, ten-year interest rate exchange agreements outstanding that were not paired with specific variable rate contracts, whereby Seaboard paid a stated fixed rate and received a variable rate of interest on a total notional amount of $150,000,000. While Seaboard had certain variable rate debt, these interest rate exchange agreements did not qualify as hedges for accounting purposes. 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. At December 31, 2005, the fair values of these contracts totaled $(5,311,000), and were included in accrued financial derivative liabilities on the Consolidated Balance Sheets. For the years ended December 31, 2006, 2005, and 2004 the net gain (loss) for interest rate exchange agreements not accounted for as hedges were $3,374,000, $2,996,000 and $(4,597,000), respectively, and are included in Miscellaneous, net in the Consolidated Statements of Earnings. Included in the gains and losses for 2006, 2005 and 2004 are net payments of $909,000, $4,047,000 and $6,403,000, respectively, during 2006, 2005 and 2004 for the difference between the fixed rate paid and variable rate received on these contracts. 48 Note 10 Employee Benefits Seaboard maintains a defined benefit pension plan (the Plan) for its domestic salaried and clerical employees. The Plan generally provides eligibility for participation after one year of service upon attaining the age of 21. Benefits are generally based upon the number of years of service and a percentage of final average pay. Seaboard has historically based pension contributions on minimum funding standards to avoid the Pension Benefit Guaranty Corporation variable rate premiums established by the Employee Retirement Income Security Act of 1974. However, because of Seaboard's positive liquidity position for the past three years, management authorized additional contributions to be made. In December 2004 Seaboard made a $14,250,000 contribution approximately equal to the maximum deductible amount for the 2004 plan year. In February 2006 Seaboard made a contribution of $3,811,000 which was the maximum deductible contribution allowed for the 2005 plan year. In March 2007, Seaboard may make a deductible contribution of $10,000,000 for the 2006 plan year. Although the maximum deductible amount for 2006 is $28,445,000, at this time management does not plan on making any additional contributions in 2007 for the 2006 plan year and currently does not anticipate making any contributions during 2007 for the 2007 plan year. Plan assets are invested to achieve a diversified overall portfolio consisting primarily of individual stocks, bonds and mutual funds. Seaboard is willing to accept a moderate level of risk to potentially achieve higher investment returns. The overall portfolio is evaluated relative to customized benchmarks, and is expected to exceed the customized benchmark over five year rolling periods and longer. The investment strategy is periodically reviewed for continued appropriateness. Derivatives, real estate investments, non-marketable and private equity or placement securities are not allowed investments under the Plan. Seaboard's asset allocation targets and actual investment composition within the Plan are as follows: Actual Plan Composition at December 31, Target Percentage of Portfolio 2006 2005 Domestic Large Cap Equity 35% 37% 36% Domestic Small and Mid Cap Equity 15% 14% 14% International Equity 15% 17% 16% Fixed Income 35% 32% 34% Seaboard also sponsors non-qualified, unfunded supplemental executive plans and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees. On November 5, 2004, Seaboard amended its Executive Retirement Plan, which provides a supplemental retirement benefit to officers and certain key employees of Seaboard and its subsidiaries, to conform the benefit calculation to the Plan discussed above by changing the methodology for calculating the benefit to a percentage of final average pay for all years of service. The amendment also changed the normal form of the benefit to a lump sum payment, provided the employee has at least 5 years of service after the plan amendment was adopted. While this amendment had no effect on the 2004 net periodic benefit cost, it increased unrecognized prior service cost by $8,697,000 at December 31, 2004, and increased net periodic benefit cost by $599,000 for each of the years ended December 31, 2006 and 2005. The unamortized prior service cost is being amortized over the average remaining working lifetime of the active participants for this plan. Management is considering funding options but currently has no plans to provide funding for these supplemental executive plans in advance of when the benefits are paid. Assumptions used in determining pension information for the plans were: Years ended December 31, 2006 2005 2004 Weighted-average assumptions Discount rate used to determine obligations 5.75% 5.50% 6.00% Discount rate used to determine net periodic benefit cost 5.50% 6.00% 6.25% Expected return on plan assets 7.50% 7.50% 8.25% Long-term rate of increase in compensation levels 4.00-5.00% 4.00-5.00% 4.00-5.00% 49 Management changed its assumptions basis for the discount rate and excepted return on plan assets beginning in 2005 to more accurately reflect its own estimated benefit payments and specific past history. The change in assumptions did not have a material impact on the results of operation for 2005. For 2006 and 2005, management selected the discount rate based on Moody's year-end published Aa corporate bond yield, rounded to the nearest quarter percentage point and compared this rate for reasonableness to a model-based result which the timing and amount of cash outflows approximates the estimated payouts. For 2004, management selected the discount rate based on Moody's year- end published Aa corporate bond yield plus 25 basis points. The expected return on Plan assets assumption is based on the weighted average of asset class expected returns that are consistent with historical returns. For 2006 and 2005 the assumed rate was selected to match the 50th percentile rounded to the nearest quarter percentage point of model-based results that reflect the Plan's asset allocation. For 2004, the assumed rate was selected to fall between the 50th and 75th percentiles rounded to the nearest quarter percentage point. The measurement date for the Plan is December 31. The unrecognized net actuarial losses are amortized over the average remaining working lifetime of the active participants for these plans. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 (SFAS 158), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans". This statement required companies to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plan(s) with the offset to accumulated other comprehensive income, a component of stockholders' equity. This statement requires employers to recognize previously disclosed but unrecognized gains/losses, prior service costs/credits, and transition assets/obligations when recognizing a plan's funded status as a component of shareholders' equity in accumulated other comprehensive income. As of December 31, 2006, Seaboard adopted SFAS 158. The adoption of SFAS 158 increased pension liabilities by $15,427,000, reduced prepaid pension assets by $13,342,000, reduced intangible pension assets by $7,498,000 and reduced total shareholders' equity by $25,014,000, net of a deferred tax asset of $11,253,000. SFAS 158 did not have an effect on 2006 net earnings or prior year financial statements. The changes in the plans' benefit obligations and fair value of assets for the Plan, supplemental executive plans and retirement agreements for the years ended December 31, 2006 and 2005, and a statement of the funded status as of December 31, 2006 and 2005 are as follows: December 31, 2006 2005 Accumulated Assets exceed Accumulated benefits accumulated benefits (Thousands of dollars) exceed assets benefits exceed assets Reconciliation of benefit obligation: Benefit obligation at beginning of year $100,706 $ 53,118 $ 34,664 Service cost 4,415 2,497 1,416 Interest cost 5,902 3,136 2,001 Actuarial gains 15,131 3,812 2,618 Benefits paid (4,824) (1,560) (996) Benefit obligation at end of year $121,330 $ 61,003 $ 39,703 Reconciliation of fair value of plan assets: Fair value of plan assets at beginning of year $ 57,383 $ 55,896 $ - Actual return on plan assets 7,996 3,047 - Employer contributions 6,583 - 996 Benefits paid (4,824) (1,560) (996) Fair value of plan assets at end of year $ 67,138 $ 57,383 $ - Funded status (54,192) (3,620) (39,703) Unrecognized transition obligation - - 97 Unamortized prior service cost - (389) 8,974 Unrecognized net actuarial losses - 16,939 6,989 Prepaid (accrued) benefit cost $(54,192) $ 12,930 $(23,643) 50 The funded status for the Plan was $(1,812,000) and $(3,620,000) at December 31, 2006 and 2005, respectively. The accumulated benefit obligation for the Plan was $62,950,000 and $57,342,000 and for the other plans was $39,346,000 and $31,790,000 at December 31, 2006 and 2005, respectively. Expected future net benefit payments for all plans during each of the next five years and in aggregate for the five year period beginning with the sixth year are as follows: $13,383,000, $5,954,000, $4,825,000, $6,076,000, $5,252,000, and $41,545,000, respectively. Amounts recognized in the Consolidated Balance Sheets as of December 31, 2006 and 2005 consist of: December 31 2006 2005 Accumulated Assets exceed Accumulated benefits accumulated benefits (Thousands of dollars) exceed assets benefits exceed assets Prepaid benefit cost $ - $ 12,930 $ - Accrued benefit liability (54,192) - (30,599) Intangible asset - - 5,249 Accumulated other comprehensive income - - 1,707 Prepaid (accrued) benefit cost $(54,192) $ 12,930 $(23,643) The amounts not reflected in net periodic benefit cost and included in accumulated other comprehensive income (AOCI) at December 31, 2006 was as follows: (Thousands of dollars) 2006 Accumulated loss, net of gain $(33,379) Prior service cost, net of credit (7,931) Transitional obligation (81) Total Accumulated Other Comprehensive Income $(41,391) The net periodic benefit cost of these plans was as follows: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Components of net periodic benefit cost: Service cost $ 4,415 $ 3,913 $ 3,310 Interest cost 5,902 5,137 4,370 Expected return on plan assets (4,462) (4,115) (2,873) Amortization and other 2,815 1,323 838 Net periodic benefit cost $ 8,670 $ 6,258 $ 5,645 The amounts in AOCI expected to be recognized as components of net periodic benefit cost in 2007 are as follows: (Thousands of dollars) 2007 Accumulated loss, net of gain $ 1,628 Prior service cost, net of credit 590 Transition obligation 16 Settlement loss 3,671 Estimated net periodic benefit cost $ 5,905 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 was entitled to a lump sum payment of $8,709,000 from Seaboard's Executive Retirement Plan as of December 31, 2006. Under the Act discussed in Note 7 above, 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 51 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 deferred as of December 31, 2006 and recognized in February 2007 in accordance with SFAS No. 88, "Employers Accounting for Settlements and Curtailments of Defined Benefit Pension for Termination Benefits." Seaboard participates in a multi-employer pension fund, which covers certain union employees under a collective bargaining agreement. Seaboard is required to make contributions to this plan in amounts established under the collective bargaining agreement. Contribution expense for this plan was $442,000, $452,000 and $346,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The applicable portion of the total plan benefits and net assets of this plan is not separately identifiable although Seaboard has received notice the pension fund is under funded. Seaboard could, under certain circumstances, be liable for unfunded vested benefits or other expenses of this jointly administered union plan. Seaboard has not established any liabilities for potential future withdrawal as such withdrawal from this plan is not probable. Seaboard maintains a defined contribution plan covering most of its domestic salaried and clerical employees. Seaboard primarily contributes to the plans an amount equal to 100% of employee contributions up to a maximum of 3% of employee compensation. Employee vesting is based upon years of service with 20% vested after one year of service and an additional 20% vesting with each additional complete year of service for the significant plan. Contribution expense for this plan was $1,643,000, $1,604,000 and $1,445,000 for the years ended December 31, 2006, 2005 and 2004, respectively. In addition, Seaboard maintains a defined contribution plan covering most of its hourly, non-union employees and in 2005 assumed responsibility for and sponsorship of two defined contribution plans covering most of Daily's employees. Contribution expense for these plans was $554,000, $440,000 and $250,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Beginning in 2006, Seaboard established a deferred compensation plan which allows certain employees to reduce their compensation in exchange for values in two investments. Seaboard has an Investment Option Plan which allowed certain employees to reduce their compensation in exchange for an option to acquire interests measured by reference to two investments. However, as a result of U.S. tax legislation passed in October 2004, reductions to compensation earned after 2004 is no longer allowed under the Investment Option Plan. The exercise price for each investment option was established based upon the fair market value of the underlying investment on the date of grant. Under both plans, Seaboard contributed 3% of the employees reduced compensation. Seaboard's expense for these two deferred compensation plans, which primarily includes amounts related to the change in fair value of the underlying investment accounts, was $2,466,000, $1,433,000 and $1,602,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Included in other liabilities at December 31, 2006 and 2005 are $19,009,000 and $15,250,000, respectively, representing the market value of the payable to the employees upon exercise for both plans. In conjunction with these plans, Seaboard purchased the specified number of units of the employee-designated investment plus the applicable option price for the Investment Option Plan. These investments are treated as trading securities and are stated at their fair market values. Accordingly, as of December 31, 2006 and 2005, $22,787,000 and $19,094,000 were included in other current assets on the Consolidated Balance Sheets. Investment income related to the mark-to-market of these investments for 2006, 2005, and 2004 totaled $2,358,000, $1,376,000 and $1,537,000, respectively. Note 11 Commitments and Contingencies Seaboard Foods has been subject to an ongoing Unilateral Administrative Order ("RCRA Order") filed by the United States Environmental Protection Agency ("EPA") on June 29, 2001. The RCRA Order relates to five swine farms located in Oklahoma purchased by Seaboard Foods from PIC International Group, Inc. ("PIC"), which is also a party to the RCRA Order. On September 11, 2006, Seaboard Foods and PIC signed a Consent Decree with the United States to resolve the RCRA Order, which Consent Decree was approved by the U.S. District Court on December 8, 2006. Pursuant to the Consent Decree, Seaboard Foods and PIC agreed to a civil penalty totaling $240,000, which PIC has paid. In addition to payment of the civil penalty, Seaboard Foods and PIC agreed to take a number of remedial actions with respect to the five farms subject to the RCRA Order, and Seaboard Foods agreed to take additional remedial actions with respect to one additional farm. Seaboard Foods' share of the costs for future remediation actions are not expected to be material. 52 In March 2006, Seaboard Foods entered into a Settlement Agreement with the State of Oklahoma to resolve a regulatory action with respect to the same properties involved in the EPA RCRA Order. Pursuant to this Settlement Agreement, Seaboard Foods paid a fine of $100,000, agreed to undertake certain supplemental environmental projects at a cost of $80,000, and agreed to take remedial actions that are substantially identical to those provided for in the Consent Decree with the United States discussed above. PIC is jointly responsible for the remedial obligations under the EPA Consent Decree and has been indemnifying Seaboard Foods with respect thereto, pursuant to an indemnification agreement which has a $5,000,000 limit. PIC previously advised Seaboard Foods that it is not responsible for the expenditures in excess of $5,000,000, which Seaboard Foods disputes. Although there has been no formal resolution of this dispute with PIC, the amounts expended to date by PIC total in excess of $5,000,000, and PIC has continued to pay substantially all expenditures required to comply with the EPA Consent Decree and thus no accrual for such costs has been recorded by Seaboard. Moreover, as noted above, PIC is jointly responsible for the remedial obligations and substantially all other obligations under the EPA Consent Decree. As such, Seaboard believes that PIC will continue to take the actions necessary and to pay the costs of complying with the EPA Consent Decree and thus no accrual for such costs has been recorded by Seaboard. Seaboard Foods also believes that a more general indemnity agreement would require indemnification of liability in excess of $5,000,000 although PIC disputes this. Accordingly, management does not believe there is any future material exposure for Seaboard related to these remediation actions and the related PIC indemnification. During the fourth quarter of 2005, Seaboard's subsidiary, Seaboard Marine, received a notice of violation letter from U.S. Customs and Border Protection demanding payment of a significant penalty for an alleged failure to manifest narcotics in connection with Seaboard Marine's shipping operations, in violation of a federal statute and regulation. Seaboard has responded to the allegations and is engaged in discussions with U.S. Customs and Border Protection regarding the matter. Management believes that the resolution of the matter will not have a material adverse effect on the consolidated financial statements of Seaboard. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements of Seaboard. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further business objectives. Seaboard does not issue guarantees of third parties for compensation. As of December 31, 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 considers the likelihood of loss to be remote. As of December 31, 2006, Seaboard had outstanding $61,782,000 of letters of credit (LCs) with various banks. Included in this amount are LCs that reduced Seaboard's borrowing capacity under its committed credit facilities as discussed in Note 8 totaling $42,688,000, which support the IDRBs included as long-term debt and $13,158,000 of LCs related to insurance coverages. Commitments As of December 31, 2006 Seaboard had various firm noncancelable purchase commitments and commitments under other agreements, arrangements and operating leases as described in the table below. 53 Purchase commitments Years ended December 31, (Thousands of dollars) 2007 2008 2009 2010 2011 Thereafter Hog procurement contracts $108,092 $ 82,608 $32,564 $33,526 $ - $ - Grain and feed ingredients 50,112 695 - - - - Grain purchase contracts for resale 162,262 - - - - - Fuel purchase contract 13,175 - - - - - Equipment purchases and facility improvements 57,852 - - - - - Other purchase commitments 7,720 - - - - - Total firm purchase commitments 399,213 83,303 32,564 33,526 - - Vessel time-charter arrangements 68,089 13,312 - - - - Contract grower finishing agreements 11,948 11,909 11,873 11,870 11,098 61,356 Other operating lease payments 10,252 7,655 3,350 2,505 1,912 4,335 Total unrecognized firm commitments $489,502 $116,179 $47,787 $47,901 $13,010 $65,691 Seaboard has contracted with third parties for the purchase of live hogs to process at its pork processing plant and has entered into grain and feed ingredient purchase contracts to support its live hog operations. The commitment amounts included in the table are based on projected market prices as of December 31, 2006. During 2006, 2005 and 2004, this segment paid $114,921,000, $155,406,000 and $177,107,000, respectively for live hogs purchased under committed contracts. The Commodity Trading and Milling segment enters into grain purchase contracts and ocean freight contracts, primarily to support firm sales commitments. These contracts are valued based on projected commodity prices as of December 31, 2006. This segment also has short-term freight contracts in place for delivery of future grain sales. The Power segment has entered into a contract for the supply of substantially all fuel required through June 2007 at market-based prices. The fuel commitment shown above reflects the average price per barrel at December 31, 2006 for the minimum number of barrels specified in the agreement. The Marine segment enters into contracts to time-charter vessels for use in its operations. These contracts range from short-term time-charter for a few months and long-term commitments ranging from one to three years. In addition to its long-term lease agreements, the short-term time-charter contracts of $112,000 for 2007 are included above in vessel time-charter arrangements. This segment's charter hire expenses during 2006, 2005 and 2004 totaled $91,747,000, $76,668,000 and $51,064,000, respectively. To support the operations of the Pork segment, Seaboard has contract grower finishing agreements in place with farmers to raise a portion of Seaboard's hogs according to Seaboard's specifications under long-term service agreements. Under the terms of the agreements, additional payments would be required if the grower achieves certain performance standards. The contract grower finishing obligations shown above do not reflect these incentive payments which, given current operating performance, total approximately $1,500,000 per year. In the event the farmer is unable to perform at an acceptable level, Seaboard has the right to terminate the contract. During the years ended 2006, 2005 and 2004, Seaboard paid $13,646,000, $12,970,000 and $10,099,000, respectively, under contract grower finishing agreements. Seaboard also leases various facilities and equipment under noncancelable operating lease agreements. Rental expense for operating leases amounted to $13,132,000, $11,542,000 and $10,420,000 in 2006, 2005 and 2004, respectively. 54 Note 12 Stockholders' Equity and Accumulated Other Comprehensive Loss In a 2002 transaction (the Transaction) between Seaboard and its parent company, Seaboard Flour LLC (the Parent Company), 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. As a part of the Transaction, the Parent Company 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 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 $8,317,000. 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 December 31, 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. As all contingencies regarding the issuance of the shares to the Parent Company were resolved as of October 1, 2005, the weighted average number of shares presented below reflect such shares as outstanding for one day in the third quarter and the entire period in the fourth quarter for the basic earnings per share calculation and for the entire third and fourth quarter for the diluted earnings per share calculation. The following table reconciles the number of shares utilized in the earnings per share calculations: Years ended December 31, 2006 2005 2004 Weighted-average number of shares Common shares - basic 1,261,367 1,256,645 1,255,054 Effect of weighted average dilutive securities for common stock issued to Parent - 1,557 - Common shares - diluted 1,261,367 1,258,202 1,255,054 As discussed in Note 2, as a result of issuing a 4.74% equity interest in Seaboard Foods LP in connection with the acquisition of Daily's during 2005, the difference between the fair value of this equity interest compared to the book value was recorded as additional paid-in capital in the amount of $13,263,000. The components of accumulated other comprehensive loss, net of related taxes, are summarized as follows: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Cumulative foreign currency translation adjustment $(55,811) $(53,229) $(53,986) Unrealized gain on investments 1,361 928 257 Unrecognized pension cost (28,140) (1,041) (375) Net unrealized loss on cash flow hedges (55) (33) (188) Deferred gain on interest rate swaps 152 350 551 Accumulated other comprehensive loss $(82,493) $(53,025) $(53,741) 55 The foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar and Citrus segment. When the Argentine government lifted the one to one parity of the peso to the U.S. dollar at the end of 2001, the peso lost significant value against the dollar. At December 31, 2006, the Sugar and Citrus segment had $107,156,000 in net assets denominated in Argentine pesos, $13,604,000 in net assets denominated in U.S. dollars and $54,626,000 of liabilities denominated in Japanese Yen in Argentina. As discussed in Note 10, as of December 31, 2006 Seaboard adopted SFAS 158 resulting in a $25,014,000 increase in unrecognized pension cost net of a deferred tax benefit of $11,253,000. With the exception of the provision related to the foreign currency translation gains and losses discussed above, which are taxed at a 35% rate, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. For 2006, the unrecognized pension cost includes $7,413,000 related to employees at certain subsidiaries for which no tax benefit has been recorded. Note 13 Segment Information Seaboard Corporation had five reportable segments through December 31, 2006: Pork, Commodity Trading and Milling, Marine, Sugar and Citrus, and Power, each offering a specific product or service. Seaboard's reporting segments are based on information used by Seaboard's Chief Executive Officer in his capacity as chief operating decision maker to determine allocation of resources and assess performance. Each of the five main segments is separately managed and each was started or acquired independent of the other segments. The Pork segment produces and sells fresh, frozen and further processed pork products to further processors, foodservice outlets, grocery stores and other retail outlets, and other distributors throughout the United States, and to Japan and to certain other foreign markets. The Commodity Trading and Milling segment internationally markets wheat, corn, soybean meal and other commodities in bulk to third party customers and to non-consolidated foreign affiliates, and operates flour, maize and feed mills in foreign countries. The Marine segment, based in Miami, Florida, provides containerized cargo shipping services between the United States, the Caribbean Basin, and Central and South America. The Sugar and Citrus segment produces and processes sugar, citrus and alcohol in Argentina primarily to be marketed locally. The Power segment operates as an unregulated independent power producer in the Dominican Republic generating power from a system of diesel engines mounted on two barges. Revenues for the All Other segment are primarily derived from the jalapeno pepper processing operations. The Pork segment derives between 10% to 13% percent of its revenues from three customers in Japan through one agent. In addition, approximately all of its hourly employees at its Guymon processing plant are covered by a collective bargaining agreement. 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. The Triumph Foods plant is expected to reach full double shift operating capacity during 2007. At times during 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. During the last half of 2005, management decided to produce at near capacity as a result of a more stable payment performance from all customers, while during 2004 Seaboard curtailed its level of power production from time to time due to lack of payments from spot sales. In addition, approximately $1,932,000 of spot market sales were not recorded during the second half of 2004 as collection was not reasonably assured. Certain receivables from 2004 spot sales are still outstanding. As of December 31, 2006, Seaboard's net receivable exposure from customers with significant past due balances totaled $2,775,000, which represents receivables from two customers classified in other long-term assets on the Consolidated Balance Sheets. The Dominican peso has fluctuated significantly against the U.S. dollar over the past few years. Foreign exchange gains (losses) included in other income (expense) for this segment totaled $741,000, $(1,569,000) and $2,460,000 for 2006, 2005 and 2004, respectively. Seaboard's produce division, representing the majority of sales in the All Other segment, derives almost all of its revenues from one customer. 56 Seaboard's investment in a Bulgarian wine business (the Business) and related losses from this Business are included in the All Other Segment. As a result of an agreement for additional advances made discussed in Note 5 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. During 2005, based on a change in Seaboard's claim on the Business' book value, Seaboard increased its share of losses from this Business to 100% in 2005 from 37% in 2004. In February 2005, the Board of Directors and the majority of the owners of this Business, including Seaboard, agreed to pursue the sale of the entire Business or all of its assets. Accordingly, Seaboard assessed the fair value of this Business 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. The result of this assessment indicated a fair value less than the recorded cost basis of as of December 31, 2004. As a result, in the fourth quarter of 2004, Seaboard recognized a $3,592,000 decline in value considered other than temporary in its investment in this Business as a charge to losses from foreign affiliates in the All Other segment. The following tables set forth specific financial information about each segment as reviewed by management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income (loss) 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: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Pork $1,002,656 $1,023,885 $ 961,614 Commodity Trading and Milling 735,583 835,662 1,066,545 Marine 741,563 638,296 498,504 Sugar and Citrus 123,378 88,969 72,940 Power 87,845 77,685 56,386 All Other 16,372 24,397 27,991 Segment/Consolidated Totals $2,707,397 $2,688,894 $2,683,980 Operating Income: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Pork $ 138,303 $ 182,749 $ 147,428 Commodity Trading and Milling 37,225 34,374 29,269 Marine 106,033 90,922 63,929 Sugar and Citrus 19,184 11,884 12,225 Power 8,471 9,561 4,409 All Other 1,530 2,604 3,196 Segment Totals 310,746 332,094 260,456 Corporate (13,751) (12,049) (9,202) Consolidated Totals $ 296,995 $ 320,045 $ 251,254 57 Income (Loss) from Foreign Affiliates: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Commodity Trading and Milling $ 6,323 $ 8,138 $ 5,806 Sugar and Citrus (1,060) 111 687 All Other (1,241) (7,887) (8,538) Segment/Consolidated Totals $ 4,022 $ 362 $ (2,045) Depreciation and Amortization: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Pork $ 43,744 $ 41,098 $ 40,017 Commodity Trading and Milling 3,974 3,344 2,945 Marine 13,502 11,047 11,504 Sugar and Citrus 5,800 5,176 4,214 Power 3,763 3,831 5,363 All Other 192 375 360 Segment Totals 70,975 64,871 64,403 Corporate 283 235 217 Consolidated Totals $ 71,258 $ 65,106 $ 64,620 Total Assets: December 31, December 31, (Thousands of dollars) 2006 2005 Pork $ 721,514 $ 731,422 Commodity Trading and Milling 301,672 282,160 Marine 176,673 150,797 Sugar and Citrus 133,971 112,882 Power 66,978 77,206 All Other 8,464 8,991 Segment Totals 1,409,272 1,363,458 Corporate 552,161 452,863 Consolidated Totals $ 1,961,433 $ 1,816,321 Investment in and Advances to Foreign Affiliates: December 31, (Thousands of dollars) 2006 2005 Commodity Trading and Milling $ 38,748 $ 34,013 Sugar and Citrus 636 1,987 All Other 3,073 3,992 Segment/Consolidated Totals $ 42,457 $ 39,992 58 Capital Expenditures: Years ended December 31, (Thousands of dollars) 2006 2005 2004 Pork $ 30,324 $ 8,070 $ 11,807 Commodity Trading and Milling 4,024 13,811 4,862 Marine 30,429 30,028 10,345 Sugar and Citrus 18,379 11,195 5,485 Power 107 277 198 All Other 1,033 820 847 Segment Totals 84,296 64,201 33,544 Corporate 1,590 40 78 Consolidated Totals $ 85,886 $ 64,241 $ 33,622 Administrative services provided by the corporate office allocated to the individual segments represent corporate services rendered to and costs incurred for each specific division with no allocation to individual segments of general corporate management oversight costs. Corporate assets include short-term investments, other current assets related to deferred compensation plans, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments. Geographic Information Seaboard had sales in South Africa totaling $172,067,000, $167,748,000 and $355,475,000 for the years ended December 31, 2006, 2005 and 2004, respectively, representing approximately 6%, 6% and 13% of total sales for each respective year. No other individual foreign country accounts for 10% or more of sales to external customers. The following table provides a geographic summary of net sales based on the location of product delivery. Years ended December 31, (Thousands of dollars) 2006 2005 2004 United States $1,027,295 $ 992,322 $ 951,650 Caribbean, Central and South America 845,577 839,305 713,921 Africa 588,050 570,975 744,552 Pacific Basin and Far East 147,560 164,584 133,307 Canada/Mexico 78,044 74,788 70,208 Eastern Mediterranean 3,979 29,312 51,786 Europe 16,892 17,608 18,556 Totals $2,707,397 $2,688,894 $2,683,980 The following table provides a geographic summary of Seaboard's long-lived assets according to their physical location and primary port for the vessels: December 31, (Thousands of dollars) 2006 2005 United States $ 520,215 $ 526,938 Dominican Republic 31,251 35,566 Argentina 55,386 44,231 All other 31,325 20,835 Totals $ 638,177 $ 627,570 At December 31, 2006 and 2005, Seaboard had approximately $142,848,000 and $111,801,000, respectively, of foreign receivables, excluding receivables due from foreign affiliates, which generally represent more of a collection risk than the domestic receivables. Management believes its allowance for doubtful accounts is adequate. 59 Board of Directors H.H. Bresky Steven J. Bresky Chairman of the Board Director Retired, former President and President and Chief Executive Officer Chief Executive Officer David A. Adamsen Kevin M. Kennedy Director Director Vice President - Chief Financial Officer, Wholesale & Manufacturing, Seaspan Corporation The Penn Traffic Company Joseph E. Rodrigues Director Douglas W. Baena Retired, former Executive Vice Director President and Treasurer Chief Executive Officer, CreditAmerica, Inc. Officers Steven J. Bresky Ralph L. Moss President and Chief Executive Vice President, Governmental Officer Affairs Robert L. Steer David S. Oswalt Senior Vice President, Chief Vice President, Taxation and Financial Officer Business Development David M. Becker John A. Virgo Vice President, General Counsel Vice President, Corporate and Secretary Controller and Chief Accounting Officer Barry E. Gum Vice President, Finance and Adriana N. Hoskins Treasurer Assistant Treasurer James L. Gutsch Vice President, Engineering Chief Executive Officers of Principal Seaboard Operations Rodney K. Brenneman Richard A. Watt Pork Sugar & Citrus David M. Dannov Armando G. Rodriguez Commodity Trading and Milling Power Edward A. Gonzalez Marine Stock Transfer Agent and Availability of 10-K Report Registrar of Stock Seaboard files its Annual UMB Bank, n.a. Report on Form 10-K with the Securities Transfer Division Securities and Exchange P.O. Box 410064 Commission. Copies of the Kansas City, Missouri 64141-0064 Form 10-K for fiscal 2006 are (800) 884-4225 available without charge by writing Seaboard Corporation, 9000 West 67th Street, Shawnee Auditors Mission, Kansas 66202, Attention: Shareholder KPMG LLP Relations or via the Internet 1000 Walnut, Suite 1000 at www.seaboardcorp.com. Kansas City, Missouri 64106 Seaboard provides access to its most recent Form 10-K, 10-Q and 8-K Stock Listing reports on its Internet website, free of charge, as soon as Seaboard's common stock is reasonably practicable after traded on the American Stock those reports are electronically Exchange under the symbol SEB. filed with the Securities and Seaboard had 169 shareholders Exchange Commission. of record of shares of its common stock as of February 16, 2007. 60 EX-21 5 ex21.txt LIST OF SUBSIDIAIRES EXHIBIT 21 SUBSIDIARIES NAMES UNDER STATE OR OTHER OF THE WHICH SUBSIDIARIES JURISDICTION REGISTRANT DO BUSINESS OF INCORPORATION Agencias Generales Conaven, C.A. Conaven Venezuela Agencia Maritima del Istmo, S.A. Same Costa Rica Almacenadora Conaven, S.A. Conaven Venezuela Boyar Estates S.A.* Same Luxembourg Cape Fear Railways, Inc. Same North Carolina Cayman Freight Shipping Services, Ltd. Same Cayman Islands Chestnut Hill Farms Honduras, S. de R.L. de C.V. Same Honduras Delta Packaging Company Ltd.* Same Nigeria Desarrollo Industrial Bioacuatico, S.A.* Same Ecuador Eureka Chickens Limited * Same Zambia Franquicias Azucareras S.A.* Same Argentina Granjas Porcinas Del Ecuador, S.A. Same Ecuador High Plains Bioenergy, LLC Same Oklahoma H&O Shipping Limited Same Liberia Ingenio y Refineria San Martin del Tabacal S.R.L. Tabacal Argentina InterAfrica Grains Ltd. Same Bermuda JacintoPort International LP Same Texas Les Moulins d'Haiti S.E.M. (LHM)* Same Haiti Les Moulins de Madagascar, S.A.R.L. Same Madagascar Lesotho Flour Mills Limited* Same Lesotho Life Flour Mill Ltd.* Same Nigeria Merriam Financial Services, Ltd. Same Bermuda Merriam Insurance Company, Ltd. Same Cayman Islands Minoterie de Matadi, S.A.R.L.* Same Democratic Republic of Congo Minoterie du Congo, S.A. Same Republic of Congo Mission Funding, L.L.C. Same Delaware Mobeira, SARL Same Mozambique Molinos Champion, S.A.* Same Ecuador Molinos del Ecuador, C.A.* Same Ecuador Mount Dora Farms de Honduras, S.R.L. Same Honduras Mount Dora Farms Inc. Same Florida National Milling Company of Guyana, Inc. Same Guyana National Milling Corporation Limited Same Zambia Productores de Alcoholes y Melaza S.A.* PAMSA Argentina EXHIBIT 21 (continued) Representaciones Maritimas y Aereas, S.A. Same Guatemala Representaciones y Ventas S.A.* Same Ecuador Sea Cargo, S.A. Same Panama Seaboard de Colombia, S.A. Same Colombia Seaboard de Nicaragua, S.A. Same Nicaragua Seaboard del Peru, S.A. Same Peru Seaboard Foods LP Same Oklahoma Seaboard Freight & Shipping Jamaica Limited Same Jamaica Seaboard Honduras, S. de R.L. de C.V. Same Honduras Seaboard Marine Bahamas, Ltd. Same Bahamas Seaboard Marine of Haiti, S.E. Same Haiti Seaboard Marine Ltd. Same Liberia Seaboard Marine of Florida, Inc. Same Florida Seaboard Marine (Trinidad) Limited Same Trinidad Seaboard Overseas Limited Same Bermuda Seaboard Overseas Management Company, Ltd. Same Bermuda Seaboard Overseas Trading and Shipping (PTY) Ltd. Same South Africa Seaboard Ship Management Inc. Same Florida Seaboard Solutions, Inc. Same Delaware Seaboard Trading and Shipping Ltd. Same Kansas Seaboard Transport Inc. Same Oklahoma Seaboard West Africa Limited Same Sierra Leone Seaboard Zambia Commodity Trading Limited Same Zambia SEADOM, S.A. Same Dominican Republic SeaMaritima, S.A. de C.V. Same Mexico SEEPC (Nigeria) Ltd. Same Nigeria Shawnee Funding, Limited Partnership Same Delaware Top Feeds Limited* Same Nigeria Transcontinental Capital Corp. (Bermuda) Ltd. TCCB Bermuda Unga Farmcare (East Africa) Limited* Same Kenya Unga Holdings Limited* Same Kenya Unga Limited* Same Uganda Unga Millers (Uganda) Limited* Same Kenya *Represents a non-controlled, non-consolidated affiliate. EX-31.1 6 ex31-1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATIONS I, Steven J. Bresky, certify that: 1. I have reviewed this annual report on Form 10-K of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 5, 2007 /s/ Steven J. Bresky Steven J. Bresky, President and Chief Executive Officer EX-31.2 7 ex31-2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATIONS I, Robert L. Steer, certify that: 1. I have reviewed this annual report on Form 10-K of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 5, 2007 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Chief Financial Officer EX-32.1 8 ex32-1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: - The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and - The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 5, 2007 /s/ Steven J. Bresky Steven J. Bresky, President and Chief Executive Officer EX-32.2 9 ex32-2.txt CERFITICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: - The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and - The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 5, 2007 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----