UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OctoberApril 2, 20102011
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________from_____________ to _________________
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(913) 676-8800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (232.405( 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
__ No __
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated Filer [ ] Accelerated filerFiler [ X ]
Non-accelerated filerNon-Accelerated Filer [ ] (Do not check if a smaller reporting company)
Smaller reporting companyReporting Company [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes .___ No X .
There were 1,215,879 shares of common stock, $1.00 par value per
share, outstanding on October 29, 2010.April 22, 2011.
Total pages in filing - 2522 pages
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
OctoberApril 2, OctoberApril 3,
October 2, October 3,2011 2010 2009 2010 2009
Net sales:
Products (includes sales to foreign affiliates
of $120,670,$162,268 and $125,830) $1,197,622 $ 849,049 $ 647,256 $2,403,174 $1,990,553
$138,396, $363,891 and $399,296,
respectively)772,587
Services 231,029 176,906 681,659 575,611238,212 214,720
Other 31,735 30,463 95,719 75,85932,345 32,969
Total net sales 1,111,813 854,625 3,180,552 2,642,0231,468,179 1,020,276
Cost of sales and operating expenses:
Products 795,722 619,824 2,160,084 1,911,5661,049,797 691,156
Services 196,379 162,272 584,637 503,339206,218 185,728
Other 25,738 26,049 78,776 65,95527,058 27,376
Total cost of sales and operating expenses 1,017,839 808,145 2,823,497 2,480,8601,283,073 904,260
Gross income 93,974 46,480 357,055 161,163185,106 116,016
Selling, general and administrative expenses 52,332 49,159 146,700 145,03154,830 48,550
Operating income (loss) 41,642 (2,679) 210,355 16,132130,276 67,466
Other income (expense):
Interest expense (1,731) (3,493) (5,647) (10,592)(1,516) (2,316)
Interest income 2,945 3,734 10,263 11,8782,297 3,317
Interest income from affiliates 3,833 139
Income from affiliates 4,851 5,273 16,275 12,8656,162 4,888
Other investment income, net 2,340 3,044
Foreign currency gain, net 5,552 1,130 2,623 325
Other investment income, net 7,819 5,574 8,704 12,953
Gain on disputed sale, net of
expenses - 16,787 - 16,7874,764 38
Miscellaneous, net (3,843) 164 (6,479) 6,358788 194
Total other income, net 15,593 29,169 25,739 50,57418,668 9,304
Earnings before income taxes 57,235 26,490 236,094 66,706148,944 76,770
Income tax benefit (expense) (17,752) 9,758 (56,591) 12,248expense (32,251) (14,107)
Net earnings $ 39,483116,693 $ 36,248 $ 179,503 $ 78,95462,663
Less: Net lossesloss attributable to noncontrolling
interests 386 467 748 653171 115
Net earnings attributable to Seaboard $ 39,869116,864 $ 36,715 $ 180,251 $ 79,60762,778
Earnings per common share $ 32.7496.11 $ 29.69 $ 146.93 $ 64.3250.84
Dividends declared per common share $ 0.75- $ 0.75 $ 2.25 $ 2.25
Average number of shares outstanding 1,217,828 1,236,758 1,226,780 1,237,6751,215,879 1,234,710
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
OctoberApril 2, December 31,
2011 2010 2009
Assets
Current assets:
Cash and cash equivalents $ 57,42234,463 $ 61,85741,124
Short-term investments 536,137 407,351300,210 332,205
Receivables, net of allowance 326,594 270,647456,052 359,944
Inventories 468,248 498,587547,420 533,761
Deferred income taxes 18,845 10,49018,497 18,393
Deferred costs 82,040 95,788- 84,141
Other current assets 130,941 80,582142,927 115,844
Total current assets 1,620,227 1,425,3021,499,569 1,485,412
Investments in and advances to affiliates 117,494 82,232341,020 331,322
Net property, plant and equipment 701,900 691,343718,546 701,131
Note receivable from affiliate 92,631 90,109
Goodwill 40,628 40,628
Intangible assets, net 19,927 20,67619,684 19,746
Other assets 59,676 76,95267,701 65,738
Total assets $2,559,852 $2,337,133$2,779,779 $2,734,086
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 79,408120,961 $ 81,26278,729
Current maturities of long-term debt 1,683 2,3371,711 1,697
Accounts payable 118,301 141,193120,332 146,265
Deferred revenue 164,673 112,88941,160 122,344
Deferred revenue from affiliates 34,537 38,719
Other current liabilities 231,692 180,359236,487 250,441
Total current liabilities 595,757 518,040555,188 638,195
Long-term debt, less current maturities 75,162 76,532106,640 91,407
Deferred income taxes 65,911 59,54668,605 75,695
Other liabilities 134,055 137,596154,604 150,540
Total non-current and deferred liabilities 275,128 273,674329,849 317,642
Stockholders' equity:
Common stock of $1 par value,
Authorized 1,250,000 shares;
issued and outstanding 1,215,879 and
1,236,758 shares 1,216 1,2371,216
Accumulated other comprehensive loss (117,888) (114,786)(124,060) (123,907)
Retained earnings 1,802,746 1,655,2222,014,761 1,897,897
Total Seaboard stockholders' equity 1,686,074 1,541,6731,891,917 1,775,206
Noncontrolling interests 2,893 3,7462,825 3,043
Total equity 1,688,967 1,545,4191,894,742 1,778,249
Total liabilities and stockholders' equity $2,559,852 $2,337,133$2,779,779 $2,734,086
See accompanying notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
NineThree Months Ended
OctoberApril 2, OctoberApril 3,
2011 2010 2009
Cash flows from operating activities:
Net earnings $ 179,503116,693 $ 78,95462,663
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 65,648 69,11120,274 21,853
Income from affiliates (16,275) (12,865)
Dividends received from affiliates 1,389 1,937(6,162) (4,888)
Other investment income, net (8,704) (12,953)
Foreign currency exchange (gain) loss (117) 6,166(2,340) (3,044)
Deferred income taxes (1,148) (12,836)
Loss (gain)(6,897) 478
Pay-in-kind interest on note receivable from
sale of fixed assets (2,573) 472
Gain on disputed sale, net of expensesaffiliate (2,521) -
(16,787)Other 225 (519)
Changes in current assets and liabilities:
Receivables, net of allowance (53,182) 58,904(96,552) (47,592)
Inventories 26,152 17,300(14,261) 66,404
Other current assets (15,460) (56,762)58,418 (23,145)
Current liabilities, exclusive of debt 64,618 62,658(125,463) 1,873
Other, net 12,134 2,7523,701 3,458
Net cash from operating activities 251,985 186,051(54,885) 77,541
Cash flows from investing activities:
Purchase of short-term investments (590,925) (267,244)(38,664) (187,625)
Proceeds from the sale of short-term investments 402,625 180,69267,000 142,788
Proceeds from the maturity of short-term investments 62,837 57,055
Acquisition of business, net of cash acquired (5,578) -3,985 11,150
Investments in and advances to affiliates, net (19,009) 76(3,637) (7,652)
Capital expenditures (77,897) (39,140)
Proceeds from the sale of fixed assets 4,812 2,931
Payment received for the potential sale of power barges - 15,000
Net proceeds from disputed sale - 16,787(39,029) (16,342)
Other, net 2,159 (3,524)99 1,145
Net cash from investing activities (220,976) (37,367)(10,246) (56,536)
Cash flows from financing activities:
Notes payable to banks, net (1,856) (97,622)42,232 (14,301)
Proceeds from the issuance of long-term debt 15,345 -
Principal payments of long-term debt (2,088) (46,669)(96) (843)
Repurchase of common stock (29,994) (3,370)- (7,149)
Dividends paid (2,756) (2,783)- (925)
Other, net 238 21253 80
Net cash from financing activities (36,456) (150,232)57,534 (23,138)
Effect of exchange rate change on cash 1,012 (2,869)936 (109)
Net change in cash and cash equivalents (4,435) (4,417)(6,661) (2,242)
Cash and cash equivalents at beginning of year 41,124 61,857 60,594
Cash and cash equivalents at end of period $ 57,42234,463 $ 56,17759,615
See accompanying notes to condensed consolidated financial statements.
4
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies and Basis of Presentation
The condensed consolidated financial statements include the accounts
of Seaboard Corporation and its domestic and foreign subsidiaries
("Seaboard"). All significant intercompany balances and transactions
have been eliminated in consolidation. Seaboard's investments in non-consolidatednon-
consolidated affiliates are accounted for by the equity method. The
unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements of Seaboard
for the year ended December 31, 20092010 as filed in its Annual Report on
Form 10-K. Seaboard's first three quarterly periods include
approximately 13 weekly periods ending on the Saturday closest to the
end of March, June and September. Seaboard's year-end is December 31.
The accompanying unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash
flows. Results of operations for interim periods are not necessarily
indicative of results to be expected for a full year. As Seaboard
conducts its commodity trading business with third parties,
consolidated subsidiaries and non-consolidated affiliates on an
interrelated basis, gross margin on non-
consolidatednon-consolidated affiliates cannot
be clearly distinguished without making numerous assumptions primarily
with respect to mark-to-market accounting for commodity derivatives.
Note Receivable from Affiliate
Seaboard has a note receivable from an affiliate (Butterball, LLC) in
the amount of $92,631,000 at April 2, 2011. Seaboard monitors the
credit quality of this note receivable by obtaining and reviewing
financial information for this affiliate on a monthly basis and by
having Seaboard representatives serve on the Board of Directors of
this affiliate. Seaboard recognized $2,521,000 of pay-in-kind
interest in the first quarter of 2011 related to this note receivable.
Use of Estimates
The preparation of the condensed consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Significant items subject to such estimates and
assumptions include those related to allowance for doubtful accounts,
valuation of inventories, impairment of long-lived assets, goodwill
and other intangible assets, income taxes and accrued pension
liability. Actual results could differ from those estimates.
Cash and Cash Equivalents
Net cash from operating activities was increased and net cash from
investing activities was decreased from prior year presentation by
$1,937,000 for the first nine months of 2009 to conform to the 2010
presentation of dividends received from affiliates.
Supplemental Noncash Transactions
As discussed in Note 10, during the third quarter of 2010, Seaboard
acquired a majority interest in a commodity origination, storage and
processing business in Canada. The purchase price allocation is
preliminary as management has not yet received the third party
valuation to determine the fair value for fixed assets and goodwill.
The following table summarizes the non-cash transactions resulting
from this acquisition:
Nine Months Ended
(Thousands of dollars) October 2, 2010
Increase in net working capital $ 1,254
Increase in fixed assets 5,515
Increase in intangible assets and other assets 175
Increase in deferred taxes (1,116)
Increase in non-controlling interest (250)
Cash paid, net of cash acquired, subject to final adjustments $ 5,578
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Codification (ASC) Topic 810-10 (formerly
Financial Accounting Standard No. 167 "Amendments to FASB
Interpretation No. 46(R)"). This Topic amends Interpretation 46(R)
and requires an enterprise to perform an analysis to determine
whether the enterprise's variable interest or interests give it a
controlling financial interest in a variable interest entity (VIE).
This analysis identifies the primary beneficiary of a VIE as the
enterprise that has both the power to direct the most significant
activities of a VIE and the obligation to absorb losses or the right
to receive benefits from the VIE.
This Topic eliminates the quantitative approach previously required
for determining the primary beneficiary of the VIE, which was based
on determining which enterprise absorbs the majority of the entity's
expected losses, receives a majority of the entity's expected
residual returns, or both. This Topic also amends Interpretation
46(R) to require ongoing reassessments of whether an enterprise is
the primary beneficiary of a
5
VIE and requires certain additional disclosures about the VIE.
Seaboard adopted this Topic as of January 1, 2010. The adoption
of this Topic did not have a material impact on Seaboard's financial
position or net earnings.
Note 2- Investments
Seaboard's short-term investments are treated as either available-
for-sale securities or trading securities. All of Seaboard's
available-for-sale and trading securities are classified as current
assets as they are readily available to support Seaboard's current
operating needs. Available-for-sale securities are recorded at their
estimated fair market valuesvalue with unrealized gains and losses reflected,reported, net of
tax, as a separate component of accumulated other comprehensive
income. Trading securities are recorded at their estimated fair market valuesvalue
with unrealized gains and losses reflected in the statement of
earnings.
As of OctoberApril 2, 20102011 and December 31, 2009,2010, the available-for-sale
investments primarily consisted of money market funds, fixed rate
municipal notes and bonds, corporate bonds, and fixed income mutual funds.funds
and U.S. Government obligations. At OctoberApril 2, 2010,2011, money market funds
include $43,456,000included $73,031,000 denominated in Euros. At OctoberApril 2, 20102011 and
December 31, 2009,2010, amortized cost and estimated fair market value were not
materially different for these investments.
As of OctoberApril 2, 2010,2011, the trading securities primarily consisted of
high yield debt securities. Unrealized net gains related to trading
securities were $330,000 and $87,000 for the three and nine months ended
OctoberApril 2, 2011 and April 3, 2010, were
$1,292,000 and $2,116,000, respectively, and $1,238,000 and
$1,779,000 for the three and nine months ended October 3, 2009,
respectively. 5
The following is a summary of the amortized cost and estimated fair
value of short-term investments for both available-for-sale and
trading securities at OctoberApril 2, 20102011 and December 31, 2009.2010.
2011 2010 2009
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Corporate bonds $ 92,006 $ 93,143 $ 86,182 $ 87,401
Money market funds $229,841 $229,841 $153,699 $153,699
Corporate bonds 107,628 109,638 34,663 35,44974,269 74,269 110,164 110,164
Fixed income mutual funds 60,161 60,295 - -60,334 60,490 60,256 60,302
Fixed rate municipal notes and bonds 45,700 46,018 144,794 148,60920,819 20,927 20,564 20,648
U.S. Government agency securities 15,849 15,750 17,503 17,514
Variable rate demand notes 29,900 29,900 1,900 1,9003,000 3,000 - -
U.S. Government agencyTreasury securities 15,369 15,478 15,907 16,2722,446 2,445 7,139 7,148
Asset backed debt securities 8,819 8,815 8,447 8,484
U.S. Treasury securities 3,589 3,651 - -2,364 2,364 2,847 2,848
Other 2,360 2,363 3,060 3,069
Foreign government debt securities - - 10,300 10,2102,364 2,360 2,355
Total available-for-sale short-term
investments 503,367 505,999 372,770 377,692273,447 274,752 307,015 308,380
High yield trading debt securities 24,751 26,570 24,784 26,77120,369 21,848 19,447 20,783
Other trading debt securities 3,271 3,568 2,669 2,8883,317 3,610 2,807 3,042
Total available-for-sale and
trading short-term Investments $531,389 $536,137 $400,223 $407,351short term investments $297,133 $300,210 $329,269 $332,205
The following table summarizes the estimated fair value of fixed rate
securities designated as available-for-sale classified by the
contractual maturity date of the security as of OctoberApril 2, 2010.2011.
(Thousands of dollars) 20102011
Due within one year $ 45,28819,515
Due after one year through three years 108,75066,724
Due after three years 15,79521,366
Total fixed rate securities $169,833
6$107,605
In addition to its short-term investments, Seaboard also has trading
securities related to Seaboard's deferred compensation plans
classified in other current assets on the Condensed Consolidated
Balance Sheets. See Note 5 to the Condensed Consolidated Financial
Statements for information on the types of trading securities held
related to the deferred compensation plans.
6
Note 3 - Inventories
The following is a summary of inventories at OctoberApril 2, 20102011 and
December 31, 2009:
October2010:
April 2, December 31,
(Thousands of dollars) 2011 2010 2009
At lower of LIFO cost or market:
Live hogs and materials $179,507 $192,999$208,870 $200,600
Fresh pork and materials 23,070 22,398
202,577 215,39733,077 24,779
241,947 225,379
LIFO adjustment (22,486) (22,807)(32,975) (24,085)
Total inventories at lower of LIFO cost or market 180,091 192,590208,972 201,294
At lower of FIFO cost or market:
Grains and oilseeds 179,044 174,508211,380 203,232
Sugar produced and in process 34,336 47,42951,431 50,190
Other 48,315 46,80441,561 44,013
Total inventories at lower of FIFO cost or market 261,695 268,741304,372 297,435
Grain, flour and feed at lower of weighted average
cost or market 26,462 37,25634,076 35,032
Total inventories $468,248 $498,587$547,420 $533,761
As of OctoberApril 2, 2010,2011, Seaboard had $3,235,000$4,200,000 recorded in grain
inventories related to its commodity trading business that are
committed to various customers in foreign countries for which
customer contract performance is a heightened concern. If Seaboard
is unable to collect amounts from these customers as currently
estimated or Seaboard is forced to find other customers for a
portion of this inventory, it is possible that Seaboard could incur
a material write-
downwrite-down in the value of this inventory if Seaboard is
not successful in selling at the current carrying value. For similar inventories that
existed prior to December 31, 2009,During the
first quarter of 2011, Seaboard incurred a write-down in
the first quarter of 2009 in the amount of $8,801,000$1,698,000
(with no tax benefit recognized), or $7.10$1.40 per share.share, related to
these types of inventories.
Note 4 - Income Taxes
Seaboard's tax returns are regularly audited by federal, state and
foreign tax authorities, which may result in adjustments. Seaboard's
U.S. federal income tax returns have been reviewed through the 2004
tax year. The statute of limitations has expired on the 2005 tax
year. Seaboard's 2006-2009 U.S. income tax returns are currently
under IRS examination. There have not been any material changes in
unrecognized income tax benefits since December 31, 2009.2010. Interest
related to unrecognized tax benefits and penalties was not material
for the ninethree months ended OctoberApril 2, 2010.
The change to income tax expense in 2010 from income tax benefit in
2009 is the result of projected domestic earnings during 2010
compared to projected domestic losses in 2009. The higher income
tax expense rate for the three month period of 2010 compared to the
nine month period of 2010 resulted from increasing the projected
domestic income relative to projected total income for 2010 during
the third quarter.2011.
Note 5 -Derivatives and Fair Value of Financial Instruments
U.S. GAAP discusses valuation techniques, such as the market approach
(prices and other relevant information generated by market conditions
involving identical or comparable assets or liabilities), the income
approach (techniques to convert future amounts to single present
amounts based on market expectations including present value
techniques and option-pricing), and the cost approach (amount that
would be required to replace the service capacity of an asset which is
often referred to as replacement cost). U.S. GAAP utilizes a fair
value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The following is
a brief description of those three levels:
7
Level 1: Observable inputs such as unadjusted quoted prices in
active markets for identical assets or liabilities that the Company
has the ability to access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity's own
assumptions.
7
The following table shows assets and liabilities measured at fair
value on a recurring basis as of OctoberApril 2, 20102011 and also the level
within the fair value hierarchy used to measure each category of
assets. Seaboard uses the end of the reporting period to determine if
there were any transfers between levels. There were no transfers
between levels that occurred in the first nine monthsquarter of 2010.2011. The
trading securities classified as other current assets below are assets
held for Seaboard's deferred compensation plans.
Balance
OctoberApril 2,
(Thousands of dollars) 2011 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Corporate bonds $ 93,143 $ - $ 93,143 $ -
Money market funds 74,269 74,269 - -
Fixed income mutual funds 60,490 60,490 - -
Fixed rate municipal notes and bonds 20,927 - 20,927 -
U.S. Government agency securities 15,750 - 15,750 -
Variable rate demand notes 3,000 - 3,000 -
U.S. Treasury securities 2,445 - 2,445 -
Asset backed debt securities 2,364 - 2,364 -
Other 2,364 - 2,364 -
Trading securities - short-term investments:
High yield debt securities 21,848 - 21,848 -
Other debt securities 3,610 - 3,610 -
Trading securities - other current assets:
Domestic equity securities 14,857 14,857 - -
Foreign equity securities 9,222 4,784 4,438 -
Fixed income mutual funds 4,936 4,936 - -
Money market funds 3,494 3,494 - -
U.S. Treasury securities 2,257 - 2,257 -
U.S. Government agency securities 1,972 - 1,972 -
Other 179 154 25 -
Derivatives:
Commodities 16,602 16,475 127 -
Interest rate swaps 1,977 - 1,977 -
Foreign currencies 22 - 22 -
Total Assets $355,728 $179,459 $176,269 $ -
Liabilities:
Derivatives:
Commodities(1) $ 14,917 $ 14,917 $ - $ -
Interest rate swaps 497 - 497 -
Foreign currencies 7,672 - 7,672 -
Total Liabilities $ 23,086 $ 14,917 $ 8,169 $ -
(1) Excludes $11,912 of option proceeds resulting in a net liability of
$3,005 as of April 2, 2011.
8
The following table shows assets and liabilities measured at fair
value on a recurring basis as of December 31, 2010 and also the level
within the fair value hierarchy used to measure each category of
assets.
Balance
December 31,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds $229,841 $229,841$110,164 $110,164 $ - $ -
Corporate bonds 109,63887,401 - 109,63887,401 -
Fixed income mutual funds 60,295 60,29560,302 60,302 - -
Fixed rate municipal notes and bonds 46,01820,648 - 46,018 -
Variable rate demand notes 29,900 - 29,90020,648 -
U.S. Government agency securities 15,47817,514 - 15,47817,514 -
U.S. Treasury securities 7,148 - 7,148 -
Asset backed debt securities 8,8152,848 - 8,815 -
U.S. Treasury securities 3,651 - 3,6512,848 -
Other 2,3632,355 - 2,3632,355 -
Trading securities - short-termsecurities- short term investments:
High yield debt securities 26,57020,783 - 26,57020,783 -
Other debt securities 3,5683,042 - 3,5683,042 -
Trading securities - other current assets:
Domestic equity securities 11,779 11,77913,332 13,332 - -
Foreign equity securities 7,651 3,790 3,8618,157 4,131 4,026 -
Fixed income mutual funds 3,625 3,6253,758 3,758 - -
Money market funds 3,225 3,2253,208 3,208 - -
U.S. Treasury securities 2,5352,732 - 2,5352,732 -
U.S. Government agency securities 1,6151,371 - 1,6151,371 -
Other 172 153 19183 157 26 -
Derivatives:
Commodities 2,790 2,79015,966 15,958 8 -
Interest rate swaps 1,410 - 1,410 -
Foreign currencies 28120 - 28120 -
Total Assets $569,557 $315,498 $254,059$382,442 $211,010 $171,432 $ -
Liabilities:
Derivatives:
Commodities (1) 50,464 50,464$ 9,170 $ 9,170 $ - $ -
Interest rate swaps 6,3671,161 - 6,3671,161 -
Foreign currencies 6,23511,652 - 6,23511,652 -
Total Liabilities $21,983 $ 63,0669,170 $ 50,464 $ 12,60212,813 $ -
(1) Excludes $30,718$5,163 of option proceeds resulting in a net liability of
$19,746$4,007 as of October 2,December 31, 2010. 8
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 fair value of long-term debt is estimated by comparing interest
rates for debt with similar terms and maturities. The amortized cost
and estimated fair values of investments and long-term debt at
OctoberApril 2, 20102011 and December 31, 20092010 are presented below.
2011 2010 2009
(Thousands of dollars)
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Short-term investments,
available-for-sale $503,367 $505,999 $372,770 $377,692$273,447 $274,752 $307,015 $308,380
Short-term investments,
trading debt securities 28,022 30,138 27,453 29,65923,686 25,458 22,254 23,825
Long-term debt 76,845 79,507 78,869 82,415108,351 111,343 93,104 96,438
9
While management believes its derivatives are primarily economic
hedges of its firm purchase and sales contracts or anticipated sales
contracts, Seaboard does not perform the extensive record-keeping
required to account for these types of transactions as hedges for
accounting purposes. Since these derivatives and interest rate
exchange agreements discussed below, are not accounted for as hedges,
fluctuations in the related commodity prices, currency exchange rates
and interest rates could have a material impact on earnings in any
given period. The nature of Seaboard's market risk exposure has not
changed materially since December 31, 2009.2010.
Commodity Instruments
Seaboard uses various grain, meal, hog, pork bellies and energy resource related
futures and options to manage its risk to price fluctuations for raw
materials and other inventories, finished product sales and firm sales
commitments. At OctoberApril 2, 2011, Seaboard had open net derivative
contracts to purchase 5,854,000 bushels of grain, 3,240,000 pounds of
hogs, 91,000 tons of soybean meal and 22,080,000 pounds of soybean oil
and open net derivative contracts to sell 4,032,000 gallons of heating
oil. At December 31, 2010, Seaboard had open net derivative contracts
to purchase 17,495,0005,880,000 bushels of grain, and 22,0002,900 tons of soybean meal and
43,240,000 pounds of hogs and open net derivative contracts to sell
1,596,0001,806,000 gallons of heating oil and
38,040,000 pounds of hogs. At December 31, 2009, Seaboard had open
net derivative contracts to sell 13,955,000 bushels of grain,
1,344,000 gallons of heating oil, 87,900 tons of soybean meal and
open net derivative contracts to purchase 2,720,000 pounds of hogs.oil. From time to time, Seaboard may
enter into speculative derivative transactions not directly related to
its raw material requirements. Commodity derivatives are recorded at
fair value with any changes in fair value being marked to market as a
component of cost of sales on the Condensed 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. Foreign exchange
agreements that were primarily related to the underlying commodity
transaction were recorded at fair value with changes in value marked
to market as a component of cost of sales on the Condensed
Consolidated Statements of Earnings. Foreign exchange agreements that
were not related to an underlying commodity transaction were recorded
at fair value with changes in value marked to market as a component of
foreign currency gain (loss) on the Condensed Consolidated Statements
of Earnings.
At OctoberApril 2, 2011, Seaboard had trading foreign exchange contracts to
cover its firm sales and purchase commitments and related trade
receivables and payables with net notional amounts of $209,246,000
primarily related to the South African Rand.
At December 31, 2010, Seaboard had trading foreign exchange contracts
to cover its firm sales and purchase commitments and related trade
receivables and payables with net notional amounts of $159,033,000$183,042,000
primarily related to the South African Rand.
At December 31, 2009, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with net notional amounts of
$193,379,000 primarily related to the South African Rand and the
Euro.
Interest Rate Exchange Agreements
In May 2010, Seaboard entered into three ten-year 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.
Seaboard pays a fixed rate and receives a variable rate of interest on
three notional amounts of $25,000,000 each. In August 2010, Seaboard
entered into another ten-year interest rate exchange agreement with a
notional amount of $25,000,000 that has terms similar to those for the
other three interest rate exchange agreements referred to above.
While Seaboard has certain variable rate debt, these interest rate
exchange 9
agreements do not qualify as hedges for accounting purposes.
Accordingly, the changes in fair value of these agreements are
recorded in Miscellaneous, net in the Condensed Consolidated Statement
of Earnings.
In December 2008 and again in March 2009, Seaboard entered into ten-
year interest rate exchange agreements with notional amounts of
$25,000,000 each to mitigate the effects of fluctuations in interest
rates, each with similar terms to agreements discussed above. In
June 2009, Seaboard terminated both interest rate exchange
agreements. Seaboard received payments in the amount of $3,981,000
to unwind these agreements.
Counterparty Credit Risk
Seaboard is subject to counterparty credit risk related to its foreign
currency exchange agreements. The maximum amount of loss
due to the credit risk of the counterparties for these agreements and interest rate swaps, should the
counterparties fail to perform according to the terms of the
contracts, was $28,000 ascontracts. Seaboard's foreign currency exchange agreements have a
maximum amount of October 2, 2010.loss due to credit risk in the amount of $22,000
with two counterparties. Seaboard's interest rate swaps have a
maximum amount of loss due to credit risk in the amount of $1,977,000
with two counterparties. Seaboard does not hold any collateral
related to these agreements. 10
The following table provides the amount of gain or (loss) recognized
for each type of derivative and where it was recognized in the
Condensed Consolidated Statement of Earnings for the three and nine
months
ended OctoberApril 2, 20102011 and OctoberApril 3, 2009.2010.
(Thousands of dollars)
Three Months Ended Nine Months Ended
OctoberApril 2, October2011 April 3, October 2, October 3,
2010 2009 2010 2009
Amount of Amount of Amount of Amount of
Location of Gain orAmount of Gain or Gain or Gain orAmount of Gain
or (Loss) or (Loss) (Loss) (Loss)or (Loss)
Recognized Recognized Recognized Recognized Recognized
in Income in Income
in Income in Income in Income
Commodities Cost of sales $(29,417) $ 7,528 $ (6,290) $ 13,648$13,986 $16,068
Foreign currencies Cost of sales (17,267) (6,148) (8,191) (19,330)8,787 (4,294)
Foreign currencies Foreign currency 257 3,898 (914) 332(136) (25)
Interest rate Miscellaneous, net (4,072)519 - (7,197) 5,312
The following table provides the fair value of each type of derivative
held as of OctoberApril 2, 20102011 and December 31, 20092010 and where each
derivative is included on the Condensed Consolidated Balance Sheets.
(Thousands of dollars) Asset Derivatives Liability Derivatives
Balance Fair Value Balance Fair Value
Sheet OctoberApril 2, December 31, Sheet OctoberApril 2, December 31,
Location 2011 2010 2009 Location 2011 2010 2009
Commodities Other current assets $2,790 $4,610$16,602 $15,966 Other current liabilities $50,464 (1)$14,917(1) $ 2,2889,170
Foreign currencies Other current assets 28 43022 120 Other current liabilities 6,235 5,9437,672 11,652
Interest rate Other current assets - -1,977 1,410 Other current liabilities 6,367 -497 1,161
(1) Excludes $30,718$11,912 of option proceeds resulting in a net liability of $19,746$3,005 as of OctoberApril 2, 2010.2011.
Note 6 - Employee Benefits
Seaboard maintains atwo defined benefit pension plan ("the Plan")plans for its domestic
salaried and clerical employees. Effective January 1,
2010, Seaboard split a portion of employees from the Plan into a new
defined benefit pension. However, the split did not change the
employees' benefit and thus pension expense should not be materially
impacted. At this time, no contributions are
expected to be made to these plans in 2010.2011. Seaboard also sponsors
non-qualified, unfunded supplemental executive plans, and unfunded
supplemental retirement agreements with certain executive employees.
Management has no plans to provide funding for these supplemental
plans in advance of when the benefits are paid.
10
The net periodic benefit cost for all of these plans was as follows:
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Thousands of dollars) 2011 2010 2009 2010 2009
Components of net periodic benefit cost:
Service cost $ 1,5861,927 $ 1,509 $ 4,755 $ 4,5201,611
Interest cost 2,166 2,046 6,493 6,1272,294 2,162
Expected return on plan assets (1,556) (1,197) (4,663) (3,579)(1,635) (1,534)
Amortization and other 999 1,252 2,995 3,7471,051 1,003
Net periodic benefit cost $ 3,1953,637 $ 3,610 $ 9,580 $10,8153,242
11
Note 7 - Commitments and Contingencies
In July 2009, Seaboard Corporation, and affiliated companies in its
Commodity Trading and Milling segment, resolved a dispute with a
third party related to a 2005 transaction in which a portion of its
trading operations was sold to a firm located abroad. As a result of
this action, Seaboard Overseas Limited received approximately
$16,787,000, net of expenses, in the third quarter of 2009. There
was no tax expense on this transaction.
Seaboard is subject to various legal proceedings related to the normal
conduct of its business, including various environmental related
actions. In the opinion of management, none of these actions is
expected to result in a judgment having a materially adverse effect on
the consolidated financial statements of Seaboard.
Contingent Obligations
Certain of the non-consolidated affiliates and third party contractors
who perform services for Seaboard have bank debt supporting their
underlying operations. From time to time, Seaboard will provide
guarantees of that debt allowing a lower borrowing rate or
facilitating third party financing in order to further Seaboard's
business objectives. Seaboard does not issue guarantees of third
parties for compensation. As of OctoberApril 2, 2010,2011, Seaboard had
guarantees outstanding to two third parties with a total maximum
exposure of $1,354,000. 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 OctoberApril 2, 2010,2011, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity under
its committed and uncommitted credit facilities by $42,720,000$42,578,000 and
$6,518,000,$8,161,000, respectively. Included in these amounts are LCs totaling
$26,385,000, which support the Industrial Development Revenue Bonds
included as long-term debt and $17,802,000$20,221,000 of LCs related to insurance
coverages.
Note 8 - Stockholders' Equity and Accumulated Other Comprehensive Loss
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Thousands of dollars) 2011 2010 2009 2010 2009
Net earnings $39,483 $36,248 $179,503$116,693 $ 78,95462,663
Other comprehensive income
net of applicable taxes:
Foreign currency translation adjustment (879) (579) (3,920) (11,003)(593) (1,392)
Unrealized gain on investments net (669) 1,575 (1,371) 1,36499 (1,100)
Unrecognized pension cost 704 860 2,189 2,581341 713
Total comprehensive income $38,639 $38,104 $176,401$116,540 $ 71,896
1160,884
The components of and changes in accumulated other comprehensive loss
for the ninethree months ended OctoberApril 2, 20102011 are as follows:
Balance Balance
December 31, Period OctoberApril 2,
(Thousands of dollars) 20092010 Change 2010
Foreign2011
Cumulative foreign currency translation
adjustment $ (77,576) $(3,920)(81,280) $(593) $ (81,496)(81,873)
Unrealized gain on investments net 2,579 (1,371) 1,208445 99 544
Unrecognized pension cost (39,789) 2,189 (37,600)(43,072) 341 (42,731)
Accumulated other comprehensive loss $(114,786) $(3,102) $(117,888)$(123,907) $(153) $(124,060)
The foreign currency translation adjustment primarily represents the
effect of the Argentine peso currency exchange fluctuation on the net
assets of the Sugar segment. At OctoberApril 2, 2010,2011, the Sugar segment had
$177,326,000$201,936,000 in net assets denominated in Argentine pesos and
$36,456,000$43,703,000 in net liabilities denominated in U.S. dollars.
With the exception of the foreign currency translation adjustment to
which a 35%35 percent federal tax rate is applied, income taxes for
components of accumulated other comprehensive loss were recorded using
a 39%39 percent effective tax rate. In addition, the unrecognized
pension cost includes $11,808,000$12,918,000 related to employees at certain
subsidiaries for which no tax benefit has been recorded. 12
On November 6, 2009, the Board of Directors authorized Seaboard to
repurchase from time to time prior to October 31, 2011 up to
$100,000,000 market value of its Common Stock in open market or
privately negotiated purchases which may be above or below the traded
market price. Such purchases may be made by Seaboard or Seaboard may
from time to time enter into a 10b5-1 plan authorizing a third party
to make such purchases on behalf of Seaboard. The stock repurchase
will be funded by cash on hand. Shares repurchased will be retired
and shall resume the status of authorized and unissued shares. Any
stock repurchases will be made in compliance with applicable legal
requirements and the timing of the repurchases and the number of
shares to be repurchased at any given time may depend on market
conditions, Securities and Exchange Commission regulations and other
factors. The Board's stock repurchase authorization does not obligate
Seaboard to acquire a specific amount of common stock and the stock
repurchase program may be suspended at any time at Seaboard's
discretion. For the ninethree months ended OctoberApril 2, 2010,2011, Seaboard repurchased 20,879did
not repurchase any shares of common stock at a coststock. As of $29,994,000.April 2, 2011,
$70,006,000 remained available for repurchase under this program.
Also, Seaboard currently does not intend to declare any dividends
during 2011 and 2012.
Note 9 - Segment Information
During the first half of 2008, Seaboard started operations at its
newly constructed biodiesel plant. The ongoing profitability of
this plant is primarily based on future sales prices, the price of
alternative inputs, enforcement of government usage mandates and
reinstituting federal tax credits, which expired at the end of 2009.
Currently, the federal tax credits have not been extended by the
U.S. Congress along with several other non-related tax credits that
have a recent history of being renewed annually. However, during
2010 Federal regulations were published to support the EPA mandates
for biodiesel and biodiesel prices have increased over the past few
months which management believes to be in response to these mandates
and non-extension of the tax credit. As of October 2, 2010,
Seaboard performed an impairment evaluation of this plant and
determined there was no impairment based on management's current
assumptions of future production volumes, sales prices, cost inputs
and the probabilities of the combination of federal usage mandates
and tax credits being renewed. However, if future market conditions
do not produce projected sales prices or expected cost inputs or
there is a material change in the enforcement of government usage
mandates or other available tax credits, there is a possibility that
some amount of the recorded value of this processing plant could be
deemed impaired during some future period including 2010, which may
result in a charge to earnings. The net book value of these assets
as of October 2, 2010 was $41,199,000.
During the second quarter of 2009, Seaboard started operations at its newly constructed
ham-boning and processing plant in Mexico. Since that time, this
plant has experienced certain difficulties including challenges facing
many U.S. border towns in Mexico. Despite being in operation for over
one year and reaching near-
capacitynear-capacity production levels, overall margins
remainhave been below expectations. As a result, management is currently implementingManagement has implemented various
changes related to this operation, and evaluating its long-
term viability.margins improved starting in
the fourth quarter of 2010. As of OctoberApril 2, 2010,2011, Seaboard performed
an impairment evaluation of this plant and determined there was no
impairment based on management's current cash flow assumptions and
probabilities of outcomes. However, if margins 12
from this operation do
not improve tomeet acceptable levels, there is a possibility that management may consider other alternatives
for this facility, including closing the plant. Thus there is a
possibility that some amount of the recorded
value of this facility could be deemed impaired during some future
period including 2010,2011, which may result in a charge to earnings. The
net book value of these assets as of OctoberApril 2, 20102011 was $10,116,000.
Prior to$9,864,000.
In the first quarter of 2009,2011, the SugarCommodity Trading and Milling
segment was named
Sugarrecognized $101,080,000 in net sales related to previously
deferred costs and Citrus reflectingdeferred revenues under contracts for which the
citrusfinal sale prices were not fixed and related juice operations
of this business. During the first quarter of 2009, management
reviewed its strategic options for the citrus business in light of a
continually difficult operating environment. In March 2009,
management decided not to process, package or market the 2009
harvest for the citrus and related juice operations. As a result,
during the first quarter of 2009, a charge to earnings of $2,803,000
was recorded primarily to write-down the value of related citrus and
juice inventories to net realizable value, considering such
remaining inventory will not be marketed similar to prior years but
instead liquidated. In the second quarter of 2009, management
decided to integrate and transform the land previously used for
citrus production into sugar cane production and thus incurred an
additional charge to earnings of approximately $2,497,000 during the
second quarter of 2009 in connection with this change in business.
The remaining fixed assets from the citrus operations, primarily
buildings and equipment, have either been sold under long-term
agreements or integrated into the sugar business. However, since
such sale agreements are long-term and collection of the sales price
is not reasonably assured,determinable until 2011.
On April 8, 2011, Seaboard closed the sale is being recognized under the
cost recovery method and thus the gain on sale, which is not
material, will not be recognized until proceeds collected exceed the
net book value of the assets sold.
The Power segment sells approximately 34% of its two floating power
generation to
a government-owned distribution company under a short-term contract
for which Seaboard bears a concentrated credit risk as this
customer, from time to time, has significant past due balances.
This contract expired at the end of March 2010 but was renewed in
May 2010 for one year, subject to early cancellation by either
party.
On March 2, 2009, an agreement became effective under which Seaboard
will sell its two power bargesgenerating facilities in the Dominican Republic, the Estrella Del
Norte ("EDN") and Estrella Del Mar ("EDM"), for $70,000,000. The agreement calls$73,102,000 (net of
$3,000,000 placed in escrow for the sale to occur on or around
January 1, 2011.potential dry dock costs). During
March 2009, $15,000,000 was paid to Seaboard (recorded as deferred
revenue in current liabilities as of OctoberApril 2, 2010) and2011). In the $55,000,000second
quarter of 2011, the previously escrowed balance of $55,000,000, less
$3,000,000 million to remain in escrow for potential dry dock costs,
plus $2,796,000 of escrow earnings and $3,306,000 for various
inventory items related to the purchase priceEDN, was paid into escrow and will be paid to Seaboard. Seaboard
atceased depreciation on January 1, 2010 for these two power generating
facilities but continued to operate them until March 30, 2011. As of
April 2, 2011, the closing of
the sale. The net book value of the two bargespower generating
facilities and various inventory items related to EDN was $20,090,000 as of
October 2, 2010$21,679,000
and is classified as held for sale and inventory in other current
assets. Accordingly, Seaboard ceased depreciationwill recognize a gain on sale of assets of
$51,423,000 in operating income in the two barges
assecond quarter of January 1, 2010 but will continue2011. In
late March 2011, the purchaser entered into discussions with Seaboard
to lease the EDM to Seaboard for a short period of time. On April 20,
2011, Seaboard signed a short-term lease agreement that allowed
Seaboard to resume operations of the EDM (72 megawatts) and operate these two barges
until a few weeks priorit
through approximately March 31, 2012. Seaboard and the purchaser also
agreed to defer the sale to the closing datepurchaser of the sale. Seaboard
will be responsible forinventory related to
the wind down and decommissioning costsEDM until the end of the barges. Completion of the sale is dependent upon several
issues, including meeting certain baseline performance and emission
tests, which will be performed during the fourth quarter of 2010.
Failure to satisfy or cure any deficiencies could result in the
agreement being terminated and the sale abandoned.lease term. Seaboard could
be responsible to pay liquidated damages of up to approximately
$15,000,000 should it fail to perform its obligations under the
agreement, after expiration of applicable cure and grace periods.
Seaboard will retainretained all other
physical properties of this business and is currently building a
106 megawatt floating power bargegenerating facility for use in the
Dominican Republic for approximately 83,573,000 Euros (approximately
US $107,650,000) plus additional project costs for a total of
approximately $125,000,000. Operations areThis new facility
is anticipated to begin inoperations by the end of 2011 or early 2012,
resulting in minimallower sales during 2011 for this segment.segment for the remainder of 2011.
The Turkey segment, accounted for using the equity method, had total
net sales and operating income in the first quarter of 2011 of
$278,457,000 and $5,673,000, respectively. As of April 2, 2011 and
December 31, 2010, the Turkey segment had total assets of $782,137,000
and $725,464,000, respectively.
The following tables set forth specific financial information about
each segment as reviewed by Seaboard's management. Operating income
for segment reporting is prepared on the same basis as that used for
consolidated operating income. Operating income, along with income or
losses from affiliates for the Commodity Trading and Milling segment,
is used as the measure of evaluating segment performance because
management does not consider interest, other investment income and
income tax expense on a segment basis.
13
Sales to External Customers:
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Thousands of dollars) 2011 2010 2009 2010 2009
Pork $ 354,524 $260,608 $1,020,714423,969 $ 793,583317,906
Commodity Trading and Milling 458,310 364,146 1,272,046 1,105,158712,231 408,103
Marine 214,247 165,675 633,285 548,360229,720 203,423
Sugar 49,170 28,970 148,028 106,17467,003 53,822
Power 31,735 30,463 95,719 75,85932,345 32,969
All Other 3,827 4,763 10,760 12,8892,911 4,053
Segment/Consolidated Totals $1,111,813 $854,625 $3,180,552 $2,642,023$1,468,179 $1,020,276
Operating Income (Loss):
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Thousands of dollars) 2011 2010 2009 2010 2009
Pork $ 54,26679,595 $ (1,998) $ 139,308 $ (15,123)26,408
Commodity Trading and Milling (28,250) 6,466 13,907 24,91723,072 22,634
Marine 12,635 (4,108) 31,938 13,3237,022 8,266
Sugar 3,669 (659) 24,491 49822,439 11,277
Power 4,474 2,767 12,208 5,4193,549 4,028
All Other 79 478 665 1,370(302) 412
Segment Totals 46,873 2,946 222,517 30,404135,375 73,025
Corporate Items (5,231) (5,625) (12,162) (14,272)(5,099) (5,559)
Consolidated Totals $ 41,642130,276 $ (2,679) $ 210,355 $ 16,13267,466
Income from Affiliates:
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Thousands of dollars) 2011 2010 2009 2010 2009
Commodity Trading and Milling $ 5,819 $ 4,817
$ 5,079 $ 15,667 $ 12,287
Sugar 34 194 608 578317 71
Turkey 26 -
Segment/Consolidated Totals $ 4,8516,162 $ 5,273 $ 16,275 $ 12,8654,888
Total Assets:
OctoberApril 2, December 31,
(Thousands of dollars) 2011 2010 2009
Pork $ 745,679798,018 $ 774,718761,490
Commodity Trading and Milling 605,583 521,618698,294 686,379
Marine 258,951 236,382267,516 246,902
Sugar 218,037 205,155232,067 223,223
Power 87,706 75,348107,127 91,739
Turkey 280,326 277,778
All Other 7,812 8,9888,568 6,332
Segment Totals 1,923,768 1,822,2092,391,916 2,293,843
Corporate Items 636,084 514,924387,863 440,243
Consolidated Totals $2,559,852 $2,337,133$2,779,779 $2,734,086
14
Investments in and Advances to Affiliates:
OctoberApril 2, December 31,
(Thousands of dollars) 2011 2010 2009
Commodity Trading and Milling $ 114,882150,082 $ 79,883140,696
Sugar 2,612 2,3493,243 2,957
Turkey 187,695 187,669
Segment/Consolidated Totals $ 117,494341,020 $ 82,232331,322
Administrative services provided by the corporate office allocated to
the individual segments represent corporate services rendered to and
costs incurred for each specific segment with no allocation to
individual segments of general corporate management oversight costs.
Corporate assets include short-term investments, other current assets
related to deferred compensation plans, fixed assets, deferred tax
amounts and other miscellaneous items. Corporate operating losses
represent certain operating costs not specifically allocated to
individual segments.
Note 10 - New Investments in Affiliates, Acquisition of Business and
Pending Transactions
In late March 2010, Seaboard acquired a 50% non-controlling interest
in an international commodity trading business located in North
Carolina for approximately $7,650,000. There was an initial payment
of $6,000,000 made in March 2010 with the remaining $1,650,000
recorded as a holdback payable over the next year upon verification
of the balance sheet as of the date of closing and collection of
certain receivables outstanding. This investment is accounted for
using the equity method.
In late July, Seaboard finalized an agreement to invest in a bakery
to be built in Central Africa. Seaboard will have a 50% non-
controlling interest in this business. The total project cost is
estimated to be $58,000,000 but Seaboard's total investment has not
yet been determined pending finalization of third party financing
alternatives for a significant portion of the project. The bakery
is not anticipated to be fully operational until the second half of
2011. As of October 3, 2010, Seaboard had invested $8,525,000 in
this project. This investment is accounted for using the equity
method.
During the third quarter of 2010, Seaboard acquired a majority
interest in a commodity origination, storage and processing business
in Canada for approximately $6,747,000, including $1,169,000 of cash
acquired, subject to final working capital adjustments. This
transaction was accounted for using the purchase method and would
not have significantly affected net earnings or earnings per share
on a pro forma basis.
On September 9, 2010, Seaboard Corporation entered into a Purchase
Agreement (the "Purchase Agreement") with Maxwell Farms, LLC,
Goldsboro Milling Company, and GM Acquisition LLC (collectively, the
"Maxwell Group"). Pursuant to the Purchase Agreement, Seaboard will
acquire a 50 percent non-controlling interest in Butterball, LLC
("Butterball"), for a cash purchase price equal to approximately
$177,500,000, subject to adjustment for any changes in working
capital at the time of closing. Butterball is a vertically
integrated producer, processor and marketer of branded turkeys,
turkey meat and parts. The other 50 percent ownership interest in
Butterball will continue to be owned by the Maxwell Group. In
connection with the purchase, Butterball will acquire the live
turkey growing and related assets of the Maxwell Group (which
presently owns a 51 percent interest in Butterball) and of
Murphy-Brown LLC ("Murphy Brown"), a subsidiary of Smithfield Foods,
Inc., which presently owns a 49 percent interest in Butterball (the
"Murphy Brown Ownership Interest"). Butterball currently purchases
a portion of the turkeys it processes from the Maxwell Group and
Murphy Brown. This investment will be accounted for using the
equity method.
In connection with the closing of the purchase, Seaboard has
committed to provide Butterball $100,000,000 of subordinated
financing with interest of 15% per annum, comprised of 5% payable in
cash semi-annually plus 10% pay-in-kind interest, with a seven year
maturity. Seaboard intends to fund this commitment with existing
cash and short-term investment balances. As part of the
subordinated financing, Seaboard will receive detachable warrants
representing 5% of the fully diluted equity units in Butterball with
a strike price of $0.01 per unit. Upon exercise, Seaboard would be
entitled to an additional economic interest, but all significant
corporate governance matters would continue to be shared equally
between Seaboard and the Maxwell group unless Seaboard already owns
a majority of the voting units. In addition, if Seaboard can not
arrange for third party financing to refinance the existing
Butterball debt, Seaboard is committed to provide an additional
$300,000,000 in senior secured credit facilities comprised of a term
loan facility of $150,000,000 and a revolving credit facility of
$150,000,000 with a five year maturity. As part of these financing
commitments, Seaboard will receive an underwriting fee of $8,000,000
and, if third party financing is arranged, will be required to pay
any arrangement fees associated with the financing. This
underwriting fee will be amortized__________________________________________________
15
over the term of the related debt. Seaboard has existing liquidity,
combination of cash and short-term investment balances plus
existing financing sources, to fund this debt if third party
financing cannot be arranged for Butterball.
The closing for the purchase and the financing is scheduled to occur
on or before December 10, 2010 and is subject to the satisfaction of
certain closing conditions, including the closing of the sale of the
Murphy Brown Ownership Interest and the live turkey growing and
related assets currently owned by Murphy Brown to an affiliate of
the Maxwell Group pursuant to a separate agreement and the
contribution of those assets to Butterball.
During the fourth quarter of 2010, Seaboard acquired for $5,000,000
a 25% non-controlling interest in a commodity trading business in
Australia. Also during the fourth quarter of 2010, Seaboard
combined its existing investment in poultry operations in Africa
with another existing African based poultry business. Seaboard
invested an additional $10,500,000 in this newly combined poultry
business for a total investment of $16,988,000, which represents a
50% non-controlling interest. This newly combined business has
operations in parts of Eastern and Southern Africa and is also
expanding by building new operations in Central Africa. These
investments will be accounted for using the equity method.
_______________________________________________________
16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
Cash and short-term investments as of OctoberApril 2, 2010 increased
$124.42011 decreased
$38.7 million to $593.6$334.7 million from December 31, 2009.2010. The increasedecrease
was the result of cash generatedused by operating activities of $252.0 million. During this same time,$54.9 million
and cash was primarily used for capital expenditures of $77.9 million, repurchases$39.0 million. Partially
offsetting this decrease was cash from borrowings of common stock
in the amount of $30.0 million and investments in two new affiliates
and acquisition of a business of $21.7 million, as discussed below.$57.6 million.
Cash from operating activities increased $65.9decreased $132.4 million for the ninethree
months ended OctoberApril 2, 20102011 compared to the same period in 2009,2010,
primarily as a result of changes in working capital needs in the
Commodity Trading and Milling segment for increases in receivables and
inventories and also timing of payments for current liabilities.
Partially offsetting this decrease was higher net earnings for the
ninethree months ended OctoberApril 2, 20102011 compared to the same period in 2009.2010.
Acquisitions, Capital Expenditures and Other Investing Activities
During the ninethree months ended OctoberApril 2, 2010,2011, Seaboard invested
$77.9$39.0 million in property, plant and equipment, of which $5.9$6.4 million
was expended in the Pork segment, $27.1$9.7 million in the Marine segment,
$21.9$4.5 million in the Sugar segment and $20.6$17.4 million in the Power
segment. The Pork segment expenditures were primarily for additional
finishing barns and improvements to existing facilities and related
equipment. The Marine segment expenditures were primarily for
purchases of cargo carrying and handling equipment.equipment and port
development projects. In the Sugar segment, the capital expenditures
were primarily for the continued development of the cogeneration plant
with the remaining amount for normal upgrades to existing operations.
The Power segment expenditures were primarily used for the
construction of a 106 megawatt power bargegenerating facility for use in
the Dominican Republic. The total cost of the project is estimated to
be approximately $125.0 million. Operations are anticipated to begin
inby the end of 2011 or early 2012. All other capital expenditures are
of a normal recurring nature and primarily include replacements of
machinery and equipment, and general facility modernizations and
upgrades.
For the remainder of 2010,2011, management has budgeted capital
expenditures totaling $49.2$165.7 million. The Pork segment plans to spend
$5.8$23.9 million primarily for additional finishing barns and, to a
lesser degree, improvements to existing facilities and related
equipment. The Marine segment has budgeted $5.3$41.0 million primarily
for the purchase of additional cargo carrying and handling equipment.equipment and port
development projects. In addition, management will be evaluating
whether to purchase additional containerized cargo vessels for the
Marine segment and dry bulk vessels for the Commodity Trading and
Milling segment during 2010.2011. The Sugar segment plans to spend a total
of $3.8$11.9 million consisting of $2.5$0.8 million for the continued
development of a 40 megawatt cogeneration plant, with the remaining
amount for normal upgrades to existing operations. The cogeneration
plant is expected to be operational by the first halfend of 2011.the second quarter
of 2011 at a total completed cost of approximately $47.0 million. The
Power segment plans to spend a total of $30.6$73.6 million primarily for the continued development of a 106 megawattnew power
barge which is
expected to be operational by early 2012.generating facility being constructed as discussed above. See Note 9
to the Condensed Consolidated Financial Statements for further
discussion. The balance of $3.7$15.3 million is planned to be spent in
all other businesses. Management anticipates paying for these capital
expenditures from available cash, the use of available short-term
investments or Seaboard's available borrowing capacity.
On March 2, 2009, an agreement became effective under whichDuring 2010, Seaboard agreed to sellinvest in various limited partnerships
as a limited partner that are expected to enable Seaboard to obtain
certain low income housing tax credits over a period of approximately
ten years. The total commitment is approximately $17.5 million and
the majority of the investment is expected to be made during late 2011
and 2012.
Seaboard has a 50% non-controlling interest in a bakery being built in
Central Africa. The total project cost is estimated to be $58.0
million but Seaboard's total investment has not yet been determined
pending finalization of third party financing alternatives for a
portion of the project. The bakery is not expected to be operational
until the second half of 2011. As of April 2, 2011, Seaboard had
invested $14.1 million in this project.
On April 8, 2011, Seaboard closed the sale of its two power bargesgenerating
facilities in the Dominican Republic on or
around January 1, 2011 for $70.0$73.1 million. During March 2009, $15.0
million was paid to Seaboard and the $55.0 million balance of the
purchase price was paid into escrow and will be paid to Seaboard at
the closing of the sale. See Note 9 to
the Condensed Consolidated Financial Statements for further
discussion.
In late March 2010, Seaboard acquired a 50% non-controlling interest
in an international commodity trading business located in North
Carolina for approximately $7.7 million. In late July, Seaboard
finalized an agreement to invest in a bakery to be built in Central
Africa for a 50% non-controlling interest in this business. As of
October 3, 2010, Seaboard had $8.5 million invested in this project.
See Note 10 to the Condensed Consolidated Financial Statements for
further discussion of these investments.
During the third quarter of 2010, Seaboard acquired a majority
interest in a commodity origination, storage and processing business
in Canada for approximately $6.7 million, including $1.2 million of
cash acquired, subject to final working capital adjustments.
On September 9, 2010, Seaboard Corporation entered into a Purchase
Agreement to acquire a 50 percent non-controlling interest in
Butterball, LLC ("Butterball") for a cash purchase price equal to
approximately $177.5 million, subject to adjustment for any changes
in working capital at the time of closing. In connection with the
closing of the purchase, Seaboard has committed to provide
Butterball $100 million of subordinated financing. Seaboard intends
to fund this commitment with existing cash and short-term investment
balances. In addition, if Seaboard can not arrange for third party
financing to refinance the existing Butterball debt, Seaboard is
committed to provide an additional $300 million in senior secured
credit facilities comprised of a
17
term loan facility of $150 million and a revolving credit facility
of $150 million. Seaboard has existing liquidity, consisting of
a combination of cash and short-term investment balances plus
existing financing sources, to fund this debt if third party
financing cannot be arranged for Butterball. The closing for
the purchase and the financing is scheduled to occur on or before
December 10, 2010 and is subject to the satisfaction of certain
closing conditions. See Note 10 to the Condensed Consolidated
Financial Statements for further discussion of this transaction.
During the fourth quarter of 2010, Seaboard acquired for $5.0
million a 25% non-controlling interest in a commodity trading
business in Australia. Also during the fourth quarter of 2010,
Seaboard invested $10.5 million in a newly combined poultry business
in Africa for a 50% non-controlling interest. See Note 10 to the
Condensed Consolidated Financial Statements for further discussion
of these investments.
Financing Activities and Debt
As of OctoberApril 2, 2010,2011, Seaboard had committed lines of credit totaling
$300.0 million and uncommitted lines totaling $168.5$165.5 million. As of
OctoberApril 2, 2010,2011, there were no borrowings outstanding under the
committed lines of credit and borrowings under the uncommitted lines
of credit totaled $31.9$76.0 million. Outstanding standby letters of
credit reduced Seaboard's borrowing capacity under its committed and
uncommitted credit lines by $42.7$42.6 million and
$6.5 16
$8.2 million, respectively, primarily representing $26.4 million
for Seaboard's outstanding Industrial Development Revenue Bonds and
$17.8$20.2 million related to insurance coverage. Also included in notes
payable as of OctoberApril 2, 20102011 was a term note of $47.5$45.0 million
denominated in U.S. dollars.
On September 17, 2010, Seaboard entered intohas a long-term credit agreement for $114.0 million at a fixed rate of 5.34% for the financing ofto
finance the construction of the new power barge, which will operategenerating facility in the
Dominican Republic as discussednoted above. ThisDuring the first quarter of 2011,
Seaboard borrowed an additional $15.3 million under this credit
facility has a
termfacility. As of ten years commencing upon achievement of commercial
operation which is expected to take place on or prior to April 24,
2012. The credit facility will mature no later than April 24, 2022
and is secured by the barge. At October 2, 2010, no amounts2011, $31.7 million had been borrowed from
this credit facility.
Seaboard's remaining 20102011 scheduled long-term debt maturities total
$0.3$1.6 million. As of OctoberApril 2, 2010,2011, Seaboard had cash and short-
termshort-term
investments of $593.6$334.7 million, with total net working capital of
$1,024.5 million.$944.4 million and a $300.0 million committed line of credit maturing
on July 10, 2013. Accordingly, management believes Seaboard's
combination of internally generated cash, liquidity, capital resources
and borrowing capabilities will be adequate for its existing
operations and any currently known potential plans for expansion of
existing operations or business segments for 2010,
including the Butterball transaction discussed above. Management
does, however, periodically review various alternatives for future
financing to provide additional liquidity for future operating plans
as noted above for current proposed projects.2011. Management intends
to continue seeking opportunities for expansion in the industries in
which Seaboard operates, utilizing existing liquidity, available
borrowing capacity and other financing alternatives.
On November 6, 2009, the Board of Directors authorized up to
$100.0 million for a new share repurchase program. For the ninethree
months ended OctoberApril 2, 2010,2011, Seaboard used cash todid not repurchase 20,879any shares of
common stock at a total price of $30.0 million.stock. See Note 8 to the Condensed Consolidated Financial
Statements for further discussion. Also, Seaboard currently does not
intend to declare any dividends during 2011 and 2012.
See Note 7 to the Condensed Consolidated Financial Statements for a
summary of Seaboard's contingent obligations, including guarantees
issued to support certain activities of non-consolidated affiliates or
third parties who provide services for Seaboard.
RESULTS OF OPERATIONS
Net sales increased to $1,468.2 million for the threefirst quarter of 2011
compared to $1,020.3 million for the first quarter of 2010. The
increase primarily reflected increased prices for and nine month periodsvolumes of
2010 increased by
$257.2 millioncommodities traded and $538.5 million, respectively, over the same
periods in 2009, which primarily reflectedalso an increase in overall sale prices for
pork products, increased commodities trading volumes and
higher cargo volumes for the Marine segment.products.
Operating income increased by $44.3to $130.3 million and $194.2in the first quarter of
2011, compared to $67.5 million forin the three and nine month periodsfirst quarter of 2010, respectively, compared to
the same periods in 2009. The increaseswhich
primarily reflectreflected higher Pork segment marginspork and to a lesser extent, increased margins for
the Sugar segment and the Marine segment as discussed below. The
increases were partially offset by a $26.9 million and $9.2 million
fluctuation of marking to market Commodity Trading and Milling
segment derivative contracts, as discussed below, for the three and
nine month periods of 2010 compared to the same periods in 2009.
18sugar prices.
Pork Segment
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Dollars in millions) 2011 2010 2009 2010 2009
Net sales $354.5 $260.6 $1,020.7 $793.6$ 424.0 $ 317.9
Operating income (loss) $ 54.379.6 $ (2.0) $ 139.3 $(15.1)26.4
Net sales for the Pork segment increased $93.9$106.1 million and $227.1
million forin the three and nine month periodsfirst
quarter of 2010, respectively,2011 compared to the same periods in 2009.first quarter of 2010. The increasesincrease
primarily reflectreflected an increase in overall sales prices for pork
products.products and, to a lesser extent, increased sales of biodiesel and
higher volume of pork products sold.
Operating income for the Pork segment increased $56.3 million and
$154.4$53.2 million for the
three and nine month periodsfirst quarter of 2010,
respectively,2011 compared to the same periods in 2009.first quarter of 2010. The
increasesincrease was primarily relate toa result of higher sales prices partially offset byand, to a
lesser extent, higher volumes of pork products sold. Partially
offsetting the increase was higher feed costs, primarily from higher
corn prices, and costs for hogs purchased from third parties.
Management is unable to predict future market prices for pork products
or the cost of feed and hogs purchased from third parties. However,
management anticipates positive operating income for the remainder of
2010.
In addition, as2011, although at a lower level than the first quarter. As discussed
in Note 9 to the Condensed Consolidated Financial Statements, there is
a possibility that some amount of either the biodiesel plant or ham-boning plant in Mexico or both, could
be deemed impaired during some future period including fiscal
2010,2011, which may
result in a charge to earnings if current projections are not met.
17
Commodity Trading and Milling Segment
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Dollars in millions) 2011 2010 2009 2010 2009
Net sales $458.3 $364.1 $1,272.0 $1,105.2$ 712.2 $ 408.1
Operating income (loss) as reported $(28.3) $ 6.523.1 $ 13.9 $ 24.922.6
Less mark-to-market adjustments 37.7 9.3 18.2 7.6(12.0) (8.7)
Operating income excluding mark-to-
marketmark-to-market
adjustments $ 9.411.1 $ 15.8 $ 32.1 $ 32.513.9
Income from affiliates $ 4.85.8 $ 5.1 $ 15.7 $ 12.34.8
Net sales for the Commodity Trading and Milling segment increased
$94.2 million and $166.8$304.1 million for the three and nine month
periodsfirst quarter of 2010, respectively,2011 compared to the same periods in 2009.first
quarter of 2010. The increases areincrease was primarily the result of increased
prices for corn and wheat, and increased volumes of commodities sold
to third parties, principally corn, soybean meal and wheat.corn. In addition,
$101.1 million in net sales were recognized in 2011 related to
previously deferred costs and deferred revenues under contracts for
which the final sale prices were not fixed and determinable until
2011. As worldwide commodity price fluctuations cannot be predicted,
management is unable to predict the level of future sales.
Operating income for this segment decreased $34.8 million and $11.0increased $0.5 million for the three and nine month periodsfirst
quarter of 2010, respectively,2011 compared to the same periods in 2009.first quarter of 2010. The decreases forincrease
primarily reflects the three
and nine month period primarily reflect the $28.4 million and $10.6$3.3 million fluctuation of marking to market
the derivative contracts, as discussed below, and, to a lesser extent,
increased volumes of commodities sold as discussed above. Offsetting
these increases were lower margins on third party trades. In
addition, the nine month periodoperating income for consolidated milling
operations as a result of 2009 also reflects theless favorable market conditions, write-
downs of $8.8$1.7 million in the first quarter of 20092011 for certain grain
inventories for customer contract performance issues, and related
lower of cost or market adjustments, as discussed
further in Note 3 to the Condensed Consolidated Financial Statements.Statements,
and higher selling and administrative personnel costs.
Due to the uncertain political and economic conditions in the
countries in which Seaboard operates and the current volatility in the
commodity markets, management is unable to predict future sales and
operating results. However, management anticipates positive operating
income for the remainder of 2010,2011, excluding the potential effects of
marking to market derivative contracts.
In addition, see
Note 3 to the Condensed Consolidated Financial Statements for
discussion regarding certain grain inventories.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, including intercompany Euro foreign exchange agreements
with Corporate, operating income for this segment would have been higherlower
by $37.7$12.0 million and $18.2$8.7 million, (including intercompany
Euro foreign exchange agreements with Corporate in the amount of
$1.5 million for both periods), respectively, for the threefirst quarter of 2011 and
nine
month periods of 2010, while operating income would have been higher
by $9.3 million and $7.6 million for the three and nine month
periods in 2009.respectively. While management believes its commodity futures
and options and foreign exchange contracts are primarily economic
hedges of its firm purchase and sales contracts or anticipated sales
contracts, Seaboard does not perform the extensive record-keeping
required to account for these types of 19
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 existing mark-to-market adjustments
should be primarily offset by realized margins or losses as revenue is
recognized and thus, these mark-
to-marketmark-to-market adjustments could reverse in
fiscal 2010.2011. Management believes eliminating these adjustments, as
noted in the table above, provides a more reasonable presentation to
compare and evaluate period-to-period financial results for this
segment.
Income from affiliates forin the three and nine month periodsfirst quarter of 2010
decreased2011 increased by
$0.3$1.0 million and increased $3.4 million, respectively,
fromcompared to the same periods in 2009.first quarter of 2010. Based on the
uncertainty of local political and economic situations in the
countries in which the flour and feed mills operate, management cannot
predict future results.
Marine Segment
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Dollars in millions) 2011 2010 2009 2010 2009
Net sales $214.2 $165.7 $633.3 $548.4$ 229.7 $ 203.4
Operating income (loss) $ 12.67.0 $ (4.1) $ 31.9 $ 13.38.3
Net sales for the Marine segment increased $48.5 million and $84.9$26.3 million for the three and nine month periodsfirst
quarter of 2010, respectively,2011 compared to the same periods in 2009first quarter of 2010. The increase
was primarily as a result of higher cargo volumes and, to a lesser
extent, increased rates in most markets served during 20102011 as economic
activity continued to increase.
The growth in volume was partially
offset by overall lower cargo rates for the nine month period in
2010 as cargo rates in the first quarter of 2009 had just started to
decline from the impacts of the slow economic conditions and
continued to decline for most of 2009. Overall, cargo rates have
remained fairly constant during 2010 but increased slightly during
the third quarter of 2010 compared to the same period in 2009. 18
Operating income for the Marine segment increased $16.7 million and
$18.6decreased $1.3 million for the
three and nine month periodsfirst quarter of 2010,
respectively,2011 compared to the same periods in 2009. For the three
month period, the increasefirst quarter of 2010. The
decrease was primarily the result of cost decreasesincreases for charterhirecharter hire,
fuel for vessels and the increase in rates, as discussed
above, partially offset by increased trucking costs on a per unit shipped basis. The increase for the nine month period was primarily
the result of cost decreases for charterhirebasis and to a lesser
extent, certain terminalalso
higher selling and other operating costs on a per unit
shipped basis.administrative personnel costs. Partially
offsetting the nine month increasedecrease were lowerhigher cargo rates as discussed above, and higher fuel costs for
vessels and increased trucking costs on a per unit shipped basis.above.
Management cannot predict changes in future cargo volumes and cargo
rates or to what extent changes in economic conditions in markets
served will affect net sales or operating income during the remainder
of 2010.2011. However, management anticipates positive operating income
for this segment will be profitable for the remainder ofin 2011, although lower than 2010.
Sugar Segment
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Dollars in millions) 2011 2010 2009 2010 2009
Net sales $ 49.267.0 $ 29.0 $ 148.0 $ 106.253.8
Operating income (loss) $ 3.722.4 $ (0.7) $ 24.5 $ 0.511.3
Income from affiliates $ -0.3 $ 0.2 $ 0.6 $ 0.60.1
Net sales for the Sugar segment increased $20.2 million and $41.8$13.2 million for the three and nine month periodsfirst
quarter of 2010, respectively,2011 compared to the same periods in 2009.first quarter of 2010. The increasesincrease
for the quarter primarily reflectreflects increased domestic sugar and alcohol prices
and, to a lesser extent, increased alcoholdomestic sugar volumes, partially
offset by lower sugar export volumes. During the first quarter of 2010,
Seaboard began sales of dehydrated alcohol to certain oil companies
under the Argentine government bio-ethanol program which requires
alcohol to be blended with gasoline. As a result, Seaboard
anticipates continued higher sales for 2010 compared to 2009.
However, Argentine governmental authorities continue to attempt to
control inflation by limiting the price of basic commodities,
including sugar. Accordingly, managementManagement cannot predict
sugar prices for the remainder of 2010.2011. Management anticipates the
cogeneration power plant, discussed above, will begin operations by
the end of the second quarter of 2011.
Operating income increased $4.4 million and $24.0$11.1 million for the three and nine month periodsfirst quarter of 2010, respectively,2011
compared to the same periods in 2009.first quarter of 2010. The increasesincrease primarily
representrepresents higher margins from the increase in sugar and alcohol prices discussed
above. In addition, the increaseManagement anticipates positive operating income for the nine month period
reflected a $5.3 million charge to earnings in 2009 related to the
write-down of citrus inventories, the
20
integration and transformation of land previously used for citrus
production into sugar cane production and related costs as discussed
in Note 9 to the Condensed Consolidated Financial Statements which
did not occur in 2010. Management expects this
segment to be
profitable for the remainder of 20102011, although not at the samea lower level asthan the
first nine months of 2010.quarter.
Power Segment
Three Months Ended
Nine Months Ended
OctoberApril 2, October 3, October 2, OctoberApril 3,
(Dollars in millions) 2011 2010 2009 2010 2009
Net sales $ 31.732.3 $ 30.5 $ 95.7 $ 75.933.0
Operating income $ 4.53.5 $ 2.8 $ 12.2 $ 5.44.0
Net sales for the Power segment increased $1.2 million and $19.8decreased $0.7 million for the three and nine month periodsfirst
quarter of 2010, respectively,2011 compared to the same periods in 2009first quarter of 2010 primarily
reflecting higher
rates,lower production levels, partially offset by lower production levels.higher rates.
The higher rates were attributable primarily to higher fuel costs, a
component of pricing. Operating income increased $1.7 million and $6.8decreased $0.5 million for the
three and nine month periodsfirst quarter of 2010, respectively,2011 compared to the same periods in 2009first quarter of 2010 primarily
as a result of higher
rates being in excess of higher fuel costs. There was no
depreciation expense in 2010 related to the assets classified as
held for sale although this was principally offset by increases in
otherlower production costs.levels.
See Note 9 to the Condensed Consolidated Financial Statements for the
pendingclosing of the sale of certain assets of this business on April 8,
2011, subsequent leasing of one power generating facility and the
construction of a new replacement power barge.generating facility. As a
result of the transactions discussed in Note 9, for mostsale, during the second quarter of 2011, therea gain on sale
of assets of $51.4 million will be minimalrecognized in operating income.
Management anticipates that sales from operations.will be significantly lower for the
remainder of 2011 as a result of the reduced operations until the
start-up of the new power generating facility, anticipated by the end
of 2011 or early 2012. Management cannot predict future fuel costs
or the extent to which rates will fluctuate compared to fuel costs,
although management anticipates positive operating income for this
segment will remain
profitable forin 2011. However, after the remainderfirst half of 2010.2011, operating
income is expected to be lower than 2010 as a result of lower sales
discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by
$3.2 million and $1.7$6.3 million for the three and nine month periodsperiod of 20102011 compared to the same
periodsperiod in 2009.2010. The increases areincrease is primarily due to increased personnel
costs primarily related to
Seaboard's deferred compensation programs for the three month period
(which are offset by the effect of the mark-to-market investments
recorded in other investment income discussed below).most segments. As a percentage of revenues, SG&A decreased
to 4.7% and 4.6%3.7% in the first quarter of 2011 compared to 4.8% for the three and nine month periodsquarter
of 2010 compared to 5.8% and 5.5% for
the same periods in 2009 primarily as a result of increased sales principally in the Pork and Commodity
Trading and Milling and Pork segments.
Interest ExpenseIncome from Affiliates
Interest expense decreased $1.8 million and $4.9 millionincome from affiliates for the
three and nine month periods of 2010 compared to the same periods2011 primarily represents interest
from a note receivable from Butterball, an affiliated company in 2009. The decreases are primarily the result of lower average level
of both short and long-term borrowings.which
Seaboard has a 50% non-controlling voting interest. This note was put
in place in
19
December 2010.
Foreign Currency Gains, Net
The fluctuations in foreign currency gains, (losses), net forin the three and nine monthsfirst quarter
of 20102011 compared to the same periods in 2009first quarter of 2010 primarily reflected
foreign currency gains forin the three and nine
month periodsfirst quarter of 20102011 from Euro cash and
short-term investment positions and Euro currency derivatives.
Other Investment Income, Net
Other investment income increased $2.2 million and decreased $4.2
million for the three and nine month periods of 2010 compared to the
same periods in 2009. The fluctuations reflect unrealized and
realized gains on short-term investments of $4.3 million and $5.6
million for the three and nine month periods of 2010 compared to
gains of $1.4 million and $2.8 million for the same periods in 2009.
Also, the fluctuations reflect gains of $3.0 million and $1.8
million for the three and nine month periods of 2010 in the mark-to-
market value of Seaboard's investments related to the deferred
compensation programs in the first nine months of 2010 compared to
gains of $1.9 million and $3.0 million for the same periods in 2009.
In addition, the three and nine month periods of 2009 included
income of $1.9 million and $5.6 million from the Power segment
related to the settlement of a receivable, not directly related to
its business and purchased at a discount.
Gain on Disputed Sale, Net
In July 2009, Seaboard Corporation, and affiliated companies in its
Commodity Trading and Milling segment, resolved a dispute with a
third party related to a 2005 transaction in which a portion of its
trading operations was sold to a firm located abroad. As a result of
this action, Seaboard Overseas Limited received $16.8 million, net
of expenses, in the third quarter of 2009. There was no tax expense
on this transaction.
21
Miscellaneous, Net
The decreases in miscellaneous, net income for the three and nine
month periods of 2010 compared to the same periods in 2009 primarily
reflected losses of $4.1 million and $7.2 million for the three and
nine month periods in 2010 compared to a gain of $5.3 million for
the nine month period of 2009 on interest rate exchange agreements.positions.
Income Tax Expense
The changeeffective tax rate for the first quarter of 2011, which
approximates the expected annual tax rate, remained fairly constant
compared to incomethe tax expense inrate for the year ended December 31, 2010.
However, the tax rate for the first quarter of 2011 is higher than the
tax rate for the first quarter of 2010 from income tax benefit in
2009 is the result ofprimarily due to higher
projected domestic earnings during 2010
compared to projected domestic losses in 2009. The higher income
tax expense rate for the three month period of 2010 compared to the
nine month period of 2010 resulted from increasing the projected
domestic income relative to projected total income for 2010 duringforeign earnings, as was the
third quarter. The higher benefit rate forcase in the three month
periodlast half of 2009 compared to the nine month period of 2009 resulted
from increasing the projected total domestic loss for the year
during the third quarter of 2009.2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-
dayday-to-day
operations. Seaboard utilizes derivative instruments to mitigate some
of these risks including both purchases and sales of futures and
options to hedge inventories, forward purchase and sale contracts and
forward purchases. Primary market risk exposures result from changing
commodity prices, foreign currency exchange rates and interest rates.
From time to time, Seaboard may also enter into speculative derivative
transactions not directly related to its raw material requirements.
The nature of Seaboard's market risk exposure related to these items
has not changed materially since December 31, 2009.2010. See Note 5 to the
Condensed Consolidated Financial Statements for further discussion.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Seaboard's
management evaluated, under the direction of our Chief Executive and
Chief Financial Officers, the effectiveness of Seaboard's disclosure
controls and procedures as defined in Exchange Act Rule 13a-15(e) as
of OctoberApril 2, 2010.2011. Based upon and as of the date of that evaluation,
Seaboard's Chief Executive and Chief Financial Officers concluded that
Seaboard's disclosure controls and procedures were effective to ensure
that information required to be disclosed in the reports it files and
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported as and when required. It should be
noted that any system of disclosure controls and procedures, however
well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. In
addition, the design of any system of disclosure controls and
procedures is based in part upon assumptions about the likelihood of
future events. Due to these and other inherent limitations of any
such system, there can be no assurance that any design will always
succeed in achieving its stated goals under all potential future
conditions.
Change in Internal Controls - There has been no change in Seaboard's
internal control over financial reporting required by Exchange Act
Rule 13a-15 that occurred during the fiscal quarter ended OctoberApril 2,
20102011 that has materially affected, or is reasonably likely to
materially affect, Seaboard's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in the risk factors as previously
disclosed in Seaboard's Annual Report on Form 10-K for the year ended
December 31, 2009.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding Seaboard's
purchase of its common stock during the quarter.
Issuer Purchases of Equity Securities
Approximate
Total Dollar
Number Value
of Shares of Shares
Purchased that May
as Part Yet Be
Total Average of Publicly Purchased
Number of Price Announced Under the
Shares Paid per Plans Plans or
Period Purchased Share or Programs Programs
July 4 to July 31, 2010 5,991 1,499.16 5,991 74,383,835
August 1 to August 31, 2010 2,756 1,588.47 2,756 70,005,999
September 1 to October 2, 2010 - - - 70,005,999
Total 8,747 1,527.30 8,747 70,005,999
All purchases during the quarter were made under the authorization
from our Board of Directors to purchase up to $100 million market
value of Seaboard common stock announced on November 6, 2009. An
expiration date of October 31, 2011 has been specified for this
authorization. All purchases were made through open-market
purchases and all the repurchased shares have been retired.2010.
Item 6. Exhibits
10.1 Engineering, Procurement and Construction Contract dated as of
August 17, 2010 by and between Seaboard Corporation and
Wartsila Finland OY
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
20
This Form 10-Q contains forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of Seaboard Corporation and its subsidiaries
(Seaboard). Forward-looking statements generally may be identified as
statements that are not historical in nature; and statements preceded
by, followed by or that include the words "believes," "expects,"
"may," "will," "should," "could," "anticipates," "estimates,"
"intends," or similar expressions. In more specific terms,
forward-lookingforward--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,Seaboard; (iii) the sales price or market
conditions for pork, grains, sugar, turkey and other products and
services,services; (iv) statements concerning management's expectations of
recorded tax effects under certain circumstances,circumstances; (v) the volume of
business and working capital requirements associated with the
competitive trading environment for the Commodity Trading and Milling
segment,segment; (vi) the charter hire rates and fuel prices for vessels,vessels;
(vii) the stability of the Dominican Republic's economy, fuel costs
and related spot market prices and collection of receivables in the
Dominican Republic,Republic; (viii) the ability of Seaboard to sell certain
grain inventories in foreign countries at current cost basis and the
related contract performance by customers,customers; (ix) the effect of the
fluctuation in foreign 23
currency exchange rates,rates; (x) statements
concerning profitability or sales volume of any of Seaboard's
segments,segments; (xi) the anticipated costs and completion timetable for
Seaboard's scheduled capital improvements, acquisitions and
dispositions,dispositions; or (xii) the anticipated
renewal of federal tax credits for biodiesel or (xiii) other trends affecting Seaboard's financial
condition or results of operations, and statements of the assumptions
underlying or relating to any of the foregoing statements.
This list of forward-looking statements is not exclusive. Seaboard
undertakes no obligation to publicly update or revise any
forward-
lookingforward-looking statement, whether as a result of new information,
future events, changes in assumptions or otherwise. Forward-looking
statements are not guarantees of future performance or results. They
involve risks, uncertainties and assumptions. Actual results may
differ materially from those contemplated by the forward-looking
statements due to a variety of factors. The information contained in
this report, including without limitation the information under the
headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations," identifies important factors which could
cause such differences.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SEABOARD CORPORATION
by: /s/Robert L. Steer
Robert L. Steer, SeniorExecutive Vice President,
Chief Financial Officer
(principal financial officer)
Date: November 5, 2010May 6, 2011
by: /s/John A. Virgo
John A. Virgo, Senior Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Date: November 5, 2010May 6, 2011
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