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 AprilJuly 2, 2011
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 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 X
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ X ]
Non-Accelerated Filer [ ] (Do not check if a smaller reporting company)
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X .
There were 1,215,879 shares of common stock, $1.00 par value per
share, outstanding on April 22,July 29, 2011.
Total pages in filing - 2223 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 AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
2011 2010 2011 2010
Net sales:
Products (includes sales
to affiliates of
$162,268$189,807, $117,391,
$352,075 and $125,830) $1,197,622$243,221) $1,128,574 $ 772,587781,538 $2,326,196 $1,554,125
Services 238,212 214,720245,343 235,910 483,555 450,630
Other 32,345 32,96924,670 31,015 57,015 63,984
Total net sales 1,468,179 1,020,2761,398,587 1,048,463 2,866,766 2,068,739
Cost of sales and operating
expenses:
Products 1,049,797 691,1561,003,292 673,206 2,053,089 1,364,362
Services 206,218 185,728235,274 202,530 441,492 388,258
Gain on sale of power generating
facilities (51,423) - (51,423) -
Other 27,058 27,37621,020 25,662 48,078 53,038
Total cost of sales and operating
expenses 1,283,073 904,2601,208,163 901,398 2,491,236 1,805,658
Gross income 185,106 116,016190,424 147,065 375,530 263,081
Selling, general and administrative
expenses 54,830 48,55053,459 45,818 108,289 94,368
Operating income 130,276 67,466136,965 101,247 267,241 168,713
Other income (expense):
Interest expense (1,516) (2,316)(1,506) (1,600) (3,022) (3,916)
Interest income 2,297 3,3172,047 3,708 4,344 7,025
Interest income from affiliates 3,833 1394,014 154 7,847 293
Income from affiliates 6,162 4,8885,365 6,536 11,527 11,424
Other investment income (loss), net 2,340 3,044286 (2,159) 2,626 885
Foreign currency gain (loss), net 4,764 382,381 (2,967) 7,145 (2,929)
Miscellaneous, net 788 194(2,952) (2,830) (2,164) (2,636)
Total other income, net 18,668 9,3049,635 842 28,303 10,146
Earnings before income taxes 148,944 76,770146,600 102,089 295,544 178,859
Income tax expense (32,251) (14,107)(33,236) (24,732) (65,487) (38,839)
Net earnings $ 116,693113,364 $ 62,66377,357 $ 230,057 $ 140,020
Less: Net loss attributable to
noncontrolling interests 171 115122 247 293 362
Net earnings attributable to
Seaboard $ 116,864113,486 $ 62,77877,604 $ 230,350 $ 140,382
Earnings per common share $ 96.1193.34 $ 50.8463.21 $ 189.45 $ 114.02
Dividends declared per common
share $ - $ 0.75 $ - $ 1.50
Average number of shares
outstanding 1,215,879 1,234,7101,227,628 1,215,879 1,231,207
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
AprilJuly 2, December 31,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 34,46364,528 $ 41,124
Short-term investments 300,210320,217 332,205
Receivables, net of allowance 456,052437,642 359,944
Inventories 547,420622,013 533,761
Deferred income taxes 18,49720,341 18,393
Deferred costs - 84,141
Other current assets 142,927115,840 115,844
Total current assets 1,499,5691,580,581 1,485,412
Investments in and advances to affiliates 341,020348,646 331,322
Net property, plant and equipment 718,546733,399 701,131
Note receivable from affiliate 92,63195,251 90,109
Goodwill 40,628 40,628
Intangible assets, net 19,68419,621 19,746
Other assets 67,70164,493 65,738
Total assets $2,779,779$2,882,619 $2,734,086
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 120,96191,980 $ 78,729
Current maturities of long-term debt 1,7113,346 1,697
Accounts payable 120,332142,480 146,265
Deferred revenue 41,16042,468 122,344
Deferred revenue from affiliates 34,53715,985 38,719
Other current liabilities 236,487253,146 250,441
Total current liabilities 555,188549,405 638,195
Long-term debt, less current maturities 106,640105,614 91,407
Deferred income taxes 68,60561,677 75,695
Other liabilities 154,604157,388 150,540
Total non-current and deferred liabilities 329,849324,679 317,642
Stockholders' equity:
Common stock of $1 par value,
Authorized 1,250,000 shares;
issued and outstanding 1,215,879 shares 1,216 1,216
Accumulated other comprehensive loss (124,060)(123,624) (123,907)
Retained earnings 2,014,7612,128,247 1,897,897
Total Seaboard stockholders' equity 1,891,9172,005,839 1,775,206
Noncontrolling interests 2,8252,696 3,043
Total equity 1,894,7422,008,535 1,778,249
Total liabilities and stockholders' equity $2,779,779$2,882,619 $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)
ThreeSix Months Ended
AprilJuly 2, AprilJuly 3,
2011 2010
Cash flows from operating activities:
Net earnings $230,057 $ 116,693 $ 62,663140,020
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 20,274 21,85340,417 43,938
Income from affiliates (6,162) (4,888)(11,527) (11,424)
Other investment income, net (2,340) (3,044)(2,626) (885)
Deferred income taxes (6,897) 478(15,564) 4,104
Pay-in-kind interest on note receivable from
affiliate (2,521)(5,068) -
Gain on sale of power generating facilities (51,423) -
Other 225 (519)1,085 (29)
Changes in current assets and liabilities:
Receivables, net of allowance (96,552) (47,592)(74,689) (27,713)
Inventories (14,261) 66,404(91,316) 29,578
Other current assets 58,418 (23,145)65,140 13,467
Current liabilities, exclusive of debt (125,463) 1,873(88,516) 15,186
Other, net 3,701 3,4587,489 2,754
Net cash from operating activities (54,885) 77,5413,459 208,996
Cash flows from investing activities:
Purchase of short-term investments (38,664) (187,625)(99,984) (409,700)
Proceeds from the sale of short-term investments 67,000 142,788101,308 230,995
Proceeds from the maturity of short-term investments 3,985 11,15011,973 39,997
Investments in and advances to affiliates, net (3,637) (7,652)(6,351) (8,062)
Capital expenditures (39,029) (16,342)(76,489) (39,048)
Proceeds from the sale of power generating facilities 58,103 -
Other, net 99 1,145809 4,641
Net cash from investing activities (10,246) (56,536)(10,631) (181,177)
Cash flows from financing activities:
Notes payable to banks, net 42,232 (14,301)13,251 (16,894)
Proceeds from the issuance of long-term debt 15,34516,056 -
Principal payments of long-term debt (96) (843)(195) (928)
Repurchase of common stock - (7,149)(16,635)
Dividends paid - (925)(1,844)
Other, net 53 80157 159
Net cash from financing activities 57,534 (23,138)29,269 (36,142)
Effect of exchange rate change on cash 936 (109)1,307 609
Net change in cash and cash equivalents (6,661) (2,242)23,404 (7,714)
Cash and cash equivalents at beginning of year 41,124 61,857
Cash and cash equivalents at end of period $ 34,46364,528 $ 59,61554,143
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 statementsCondensed 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-
consolidated affiliates are accounted for by the equity method. The
unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements should be read
in conjunction with the consolidated financial statementsConsolidated Financial Statements of Seaboard
for the year ended December 31, 2010 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 statementsCondensed 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-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$95,251,000 at AprilJuly 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$2,547,000 and $5,068,000 of pay-in-kindpay-
in-kind interest in the first quarterthree and six months of 2011,
respectively, related to this note receivable.
Use of Estimates
The preparation of the condensed consolidated financial statementsCondensed Consolidated Financial Statements in
conformity with U.S. generally accepted accounting principles (GAAP)
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,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.
Recent Accounting Standards Not Yet Adopted
In May 2011, the Financial Accounting Standards Board (FASB) issued
guidance to amend the requirements related to fair value measurement
which changed the wording used to describe many requirements in GAAP
for measuring fair value and for disclosing information about fair
value measurements. Additionally, the amendments clarify the FASB's
intent about the application of existing fair value measurement
requirements. The amended guidance is effective for Seaboard on
January 1, 2012. The adoption of this guidance is not expected to
have a material impact on Seaboard's financial position or net
earnings.
In June 2011, the FASB issued guidance to revise the manner in which
entities present comprehensive income in the financial statements.
The new guidance removes the footnote presentation option currently
used by Seaboard and requires entities to report components of
comprehensive income in either a continuous statement of comprehensive
income or two separate but consecutive statements. Seaboard will be
required to make this change in presentation in the first quarter of
2012. The adoption of this guidance will not have an 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 value with unrealized gains and losses reported, net of
tax, as a separate component of accumulated other comprehensive
income. Trading securities are recorded at their estimated fair value
with unrealized gains and losses reflected in the statement of
earnings.
5
As of AprilJuly 2, 2011 and December 31, 2010, the available-for-sale
investments primarily consisted of money market funds, fixed rate
municipal notes and bonds, corporate bonds, fixed income mutual funds
and U.S. Government obligations. At AprilJuly 2, 2011, money market funds
included $73,031,000$55,229,000 denominated in Euros. At AprilJuly 2, 2011 and
December 31, 2010, amortized cost and estimated fair value were not
materially different for these investments.
As of AprilJuly 2, 2011, the trading securities primarily consisted of high
yield debt securities. Unrealized net(losses) gains related to trading
securities were $330,000 and $87,000 for the three and six months ended AprilJuly 2, 2011 were
$(203,000) and April$1,366,000, respectively, and $(490,000) and $928,000
for the three and six months ended July 3, 2010, 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 AprilJuly 2, 2011 and December 31, 2010.
2011 2010
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Corporate bonds $ 92,00694,286 $ 93,14395,903 $ 86,182 $ 87,401
Money market funds 74,269 74,269 110,164 110,164
Fixed income mutual funds 60,334 60,49078,120 78,821 60,256 60,302
Money market funds 72,622 72,622 110,164 110,164
Fixed rate municipal notes and bonds 20,819 20,92717,981 18,110 20,564 20,648
U.S. Government agency securities 15,849 15,75016,279 16,286 17,503 17,514
U.S. Treasury securities 5,739 5,762 7,139 7,148
Variable rate demand notes 3,000 3,0003,200 3,200 - -
U.S. Treasury securities 2,446 2,445 7,139 7,148
Asset backed debt securities 2,364 2,3643,063 3,058 2,847 2,848
Other 2,360 2,364800 801 2,360 2,355
Total available-for-sale short-term
investments 273,447 274,752292,090 294,563 307,015 308,380
High yield trading debt securities 20,369 21,84820,206 21,261 19,447 20,783
Other trading debt securities 3,317 3,6104,083 4,393 2,807 3,042
Total available-for-sale and trading
short termshort-term investments $297,133 $300,210$316,379 $320,217 $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 AprilJuly 2, 2011.
(Thousands of dollars) 2011
Due within one year $ 19,51521,600
Due after one year through three years 66,72460,853
Due after three years 21,36622,170
Total fixed rate securities $107,605$104,623
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 AprilJuly 2, 2011 and
December 31, 2010:
AprilJuly 2, December 31,
(Thousands of dollars) 2011 2010
At lower of LIFO cost or market:
Live hogs and materials $208,870$224,532 $200,600
Fresh pork and materials 33,07726,247 24,779
241,947250,779 225,379
LIFO adjustment (32,975)(43,048) (24,085)
Total inventories at lower of LIFO cost or
market 208,972207,731 201,294
At lower of FIFO cost or market:
Grains and oilseeds 211,380284,372 203,232
Sugar produced and in process 51,43142,317 50,190
Other 41,56145,367 44,013
Total inventories at lower of FIFO cost or
market 304,372372,056 297,435
Grain, flour and feed at lower of weighted average cost or
market 34,07642,226 35,032
Total inventories $547,420$622,013 $533,761
As of AprilJuly 2, 2011, Seaboard had $4,200,000$2,910,000 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-downadditional write-downs in the value of this inventory if Seaboard is
not successful in selling at the current carrying value. DuringFor the
first quarterthree and six months of 2011, Seaboard incurred a write-downwrite-downs of
$1,698,000
(with no tax benefit recognized), or $1.40 per share,$1,644,000 and $3,342,000, respectively, 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, 2010. Interest related to unrecognized
tax benefits and penalties was not material for the threesix months ended
AprilJuly 2, 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:
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 AprilJuly 2, 2011 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 quartersix months of 2011. The
trading securities classified as other current assets below are assets
held for Seaboard's deferred compensation plans.
Balance
AprilJuly 2,
(Thousands of dollars) 2011 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-termsecurities-short-term
investments:
Corporate bonds $ 93,14395,903 $ - $ 93,14395,903 $ -
Money market funds 74,269 74,269 - -
Fixed income mutual funds 60,490 60,49078,821 78,821 - -
Money market funds 72,622 72,622 - -
Fixed rate municipal notes and bonds 20,92718,110 - 20,92718,110 -
U.S. Government agency securities 15,75016,286 - 15,75016,286 -
U.S. Treasury securities 5,762 - 5,762 -
Variable rate demand notes 3,0003,200 - 3,000 -
U.S. Treasury securities 2,445 - 2,4453,200 -
Asset backed debt securities 2,3643,058 - 2,3643,058 -
Other 2,364801 - 2,364801 -
Trading securities - short-term investments:
High yield debt securities 21,84821,261 - 21,84821,261 -
Other debt securities 3,6104,393 - 3,6104,393 -
Trading securities - other current assets:
Domestic equity securities 14,857 14,85714,496 14,496 - -
Foreign equity securities 9,222 4,784 4,4389,136 4,850 4,286 -
Fixed income mutual funds 4,936 4,9364,874 4,874 - -
Money market funds 3,494 3,4943,897 3,897 - -
U.S. Treasury securities 2,2572,150 - 2,2572,150 -
U.S. Government agency securities 1,9722,111 - 1,9722,111 -
Other 179 154 25234 169 65 -
Derivatives:
Commodities 16,602 16,475 1278,068 8,068 - -
Interest rate swaps 1,9771,084 - 1,9771,084 -
Foreign currencies 22240 - 22240 -
Total Assets $355,728 $179,459 $176,269$366,507 $187,797 $178,710 $ -
Liabilities:
Derivatives:
Commodities(1) $ 14,91727,425 $ 14,91727,425 $ - $ -
Interest rate swaps 4971,973 - 4971,973 -
Foreign currencies 7,6722,679 - 7,6722,679 -
Total Liabilities $ 23,08632,077 $ 14,91727,425 $ 8,1694,652 $ -
(1) Excludes $11,912$8,638 of option proceeds resulting in a net liability
of $3,005$18,787 as of AprilJuly 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 $110,164 $110,164 $ - $ -
Corporate bonds 87,401 - 87,401 -
Fixed income mutual funds 60,302 60,302 - -
Fixed rate municipal notes and bonds 20,648 - 20,648 -
U.S. Government agency securities 17,514 - 17,514 -
U.S. Treasury securities 7,148 - 7,148 -
Asset backed debt securities 2,848 - 2,848 -
Other 2,355 - 2,355 -
Trading securities- short term investments:
High yield debt securities 20,783 - 20,783 -
Other debt securities 3,042 - 3,042 -
Trading securities - other current assets:
Domestic equity securities 13,332 13,332 - -
Foreign equity securities 8,157 4,131 4,026 -
Fixed income mutual funds 3,758 3,758 - -
Money market funds 3,208 3,208 - -
U.S. Treasury securities 2,732 - 2,732 -
U.S. Government agency securities 1,371 - 1,371 -
Other 183 157 26 -
Derivatives:
Commodities 15,966 15,958 8 -
Interest rate swaps 1,410 - 1,410 -
Foreign currencies 120 - 120 -
Total Assets $382,442 $211,010 $171,432 $ -
Liabilities:
Derivatives:
Commodities (1)Commodities(1) $ 9,170 $ 9,170 $ - $ -
Interest rate swaps 1,161 - 1,161 -
Foreign currencies 11,652 - 11,652 -
Total Liabilities $21,983$ 21,983 $ 9,170 $ 12,813 $ -
(1) Excludes $5,163 of option proceeds resulting in a net liability
of $4,007 as of December 31, 2010.
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 AprilJuly 2,
2011 and December 31, 2010 are presented below.
2011 2010
(Thousands of dollars) Amortized Fair Amortized Fair
(Thousands of dollars)
Cost Value Cost Value
Short-term investments,
available-for-sale $273,447 $274,752$292,090 $294,563 $307,015 $308,380
Short-term investments,
trading debt securities 23,686 25,45824,289 25,654 22,254 23,825
Long-term debt 108,351 111,343108,960 112,368 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. From time to time, Seaboard may enter into speculative
derivative transactions not directly related to its raw material
requirements. The nature of Seaboard's market risk exposure has not
changed materially since December 31, 2010.
Commodity Instruments
Seaboard uses various grain, meal, hog, 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 AprilJuly 2, 2011, Seaboard had open net derivative
contracts to purchase 5,854,000 bushels35,760,000 pounds of grain, 3,240,000soybean oil, 5,440,000
pounds of hogs 91,000and 81,000 tons of soybean meal and 22,080,000 pounds of soybean oil and open net derivative
contracts to sell 4,032,0005,166,000 gallons of heating oil.oil and 4,212,000
bushels of grain. At December 31, 2010, Seaboard had open net
derivative contracts to purchase 5,880,000 bushels of grain,
2,900 tons of soybean meal and 43,240,000 pounds of hogs and open net
derivative contracts to sell 1,806,000 gallons of heating 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 AprilJuly 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$192,570,000
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 $183,042,000
primarily related to the South African Rand.
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 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.
Counterparty Credit Risk
Seaboard is subject to counterparty credit risk related to its foreign
currency exchange agreements and interest rate swaps, should the
counterparties fail to perform according to the terms of the
contracts. Seaboard's foreign currency exchange agreements have a
maximum amount of loss due to credit risk in the amount of $22,000$240,000
with twothree counterparties. Seaboard's interest rate swaps have a
maximum amount of loss due to credit risk in the amount of $1,977,000$1,084,000
with two counterparties.one counterparty. 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 six
months ended AprilJuly 2, 2011 and AprilJuly 3, 2010.
(Thousands of dollars)
April 2, 2011 April 3, 2010
Location of Gain Amount of Gain Amount of Gain
or (Loss) or (Loss) or (Loss)
Recognized Recognized Recognized
in Income in Income in Income
Commodities Cost of sales $13,986 $16,068
Foreign currencies Cost of sales 8,787 (4,294)
Foreign currencies Foreign currency (136) (25)
Interest rate Miscellaneous, net 519 -
(Thousands of dollars)
Three Months Ended Six Months Ended
July 2, 2011 July 3, 2010 July 2, 2011 July 3,2010
Amount of Amount of Amount of Amount of
Location of Gain or Gain or Gain or Gain or
Gain or (Loss) (Loss) (Loss) (Loss) (Loss)
Recognized Recognized Recognized Recognized Recognized
in Income in Income in Income in Income in Income
Commodities Cost of sales $6,669 $ 7,059 $20,655 $23,127
Foreign currencies Cost of sales 1,956 13,370 10,743 9,076
Foreign currencies Foreign currency (101) (1,146) (237) (1,171)
Interest rate Miscellaneous, net (3,121) (3,124) (2,602) (3,124)
The following table provides the fair value of each type of derivative
held as of AprilJuly 2, 2011 and December 31, 2010 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 AprilJuly 2, December 31, Sheet AprilJuly 2, December 31,
Location 2011 2010 Location 2011 2010
Commodities Other current assets $16,602$8,068 $15,966 Other current liabilities $14,917(1)$27,425(1) $ 9,170
Foreign currencies Other current assets 22240 120 Other current liabilities 7,6722,679 11,652
Interest rate Other current assets 1,9771,084 1,410 Other current liabilities 4971,973 1,161
(1) Excludes $11,912$8,638 of option proceeds resulting in a net liability
of $3,005$18,787 as of AprilJuly 2, 2011.
Note 6 - Employee Benefits
Seaboard maintains two defined benefit pension plans for its domestic
salaried and clerical employees. At this time, no contributions are
expected to be made to these plans in 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.
The net periodic benefit cost for all of these plans was as follows:
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Thousands of dollars) 2011 2010 2011 2010
Components of net periodic benefit cost:
Service cost $ 1,9271,805 $ 1,6111,558 $ 3,732 $ 3,169
Interest cost 2,294 2,1622,249 2,165 4,543 4,327
Expected return on plan assets (1,635) (1,534)(1,684) (1,573) (3,319) (3,107)
Amortization and other 1,051 1,003992 994 2,043 1,997
Net periodic benefit cost $ 3,6373,362 $ 3,2423,144 $ 6,999 $ 6,386
11
Note 7 - Commitments and Contingencies
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 statementsConsolidated 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 AprilJuly 2, 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 AprilJuly 2, 2011, Seaboard had outstanding letters of credit ("LCs")
with various banks which reduced its borrowing capacity under its
committed and uncommitted credit facilities by $42,578,000$43,078,000 and
$8,161,000,$5,311,000, respectively. Included in these amounts areThese LCs totalingincluded $26,385,000 of LCs,
which support the Industrial Development Revenue Bonds included as
long-term debt and $20,221,000$16,491,000 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 AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Thousands of dollars) 2011 2010 2011 2010
Net earnings $116,693 $ 62,663$113,364 $77,357 $230,057 $140,020
Other comprehensive income
net of applicable taxes:
Foreign currency translation adjustment (593) (1,392)(998) (1,649) (1,591) (3,041)
Unrealized gain on investments 99 (1,100)704 398 803 (702)
Unrecognized pension cost 341 713730 772 1,071 1,485
Total comprehensive income $116,540 $ 60,884$113,800 $76,878 $230,340 $137,762
The components of and changes in accumulated other comprehensive loss
for the threesix months ended AprilJuly 2, 2011 are as follows:
Balance Balance
December 31, Period AprilJuly 2,
(Thousands of dollars) 2010 Change 2011
Cumulative foreign currency translation
adjustment $ (81,280) $(593)$(1,591) $ (81,873)(82,871)
Unrealized gain on investments 445 99 544803 1,248
Unrecognized pension cost (43,072) 341 (42,731)1,071 (42,001)
Accumulated other comprehensive loss $(123,907) $(153) $(124,060)$ 283 $(123,624)
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 AprilJuly 2, 2011, the Sugar segment had
$201,936,000$199,743,000 in net assets denominated in Argentine pesos and
$43,703,000$37,670,000 in net liabilities denominated in U.S. dollars.
With the exception of the foreign currency translation adjustment to
which a 35 percent federal tax rate is applied, income taxes for
components of accumulated other comprehensive loss were recorded using
a 39 percent effective tax rate. In addition, the unrecognized
pension cost includes $12,918,000$12,685,000 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. TheAny such stock
repurchase will be funded by cash on hand. SharesAny 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 threesix months ended AprilJuly 2, 2011, Seaboard did not
repurchase any shares of common stock. As of AprilJuly 2, 2011,
$70,006,000 remained available for the repurchase of shares under this
program. Also, Seaboard currently does not intend to declare any
dividends during 2011 or 2012 as there was a prepayment of the annual
2011 and 2012.2012 dividends in December 2010.
Note 9 - Segment Information
During the second quarter of 2009, Seaboard started operations at its
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 yeartwo years and reaching near-capacity production levels at times,
overall marginsresults have been below expectations. Management has implemented various
changes related to this operation,expectations with inconsistencies in
margins and margins improved starting in
the fourth quarter of 2010.volumes. As of AprilJuly 2, 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 from this operation do
not meet acceptable levels, there is a possibility that the recorded
value of this facility could be deemed impaired during some future
period including 2011, which may result in a charge to earnings. The
net book value of these assets as of AprilJuly 2, 2011 was $9,864,000.$9,661,000.
In the first quarter of 2011, the Commodity Trading and Milling
segment recognized $101,080,000 in net sales related to previously
deferred costs and deferred revenues under contracts for which the
final sale prices were not fixed and determinable until 2011.
On April 8, 2011, Seaboard closed the sale of its two floating power
generating facilities in the Dominican Republic, the Estrella Del
Norte ("EDN") and Estrella Del Mar ("EDM"), for $73,102,000 (net of
$3,000,000 placed in escrow for potential dry dock costs). During
March 2009, $15,000,000 was paid to Seaboard (recorded as deferred
revenue in current liabilities as of April 2, 2011).Seaboard. In the second 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 EDN, was paid to Seaboard. Seaboard received
$1,500,000 of the $3,000,000 in escrow subsequent to July 2, 2011.
Seaboard ceased 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, theThe net book value of the two power generating facilities and
various inventory items related to EDN was $21,679,000 and is classified as held forat the sale
and inventory in other current
assets.close date. Seaboard will recognizerecognized a gain on sale of assets of
$51,423,000 in operating income in the second quarter of 2011. 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 it
through approximately March 31, 2012. Seaboard and the purchaser also
agreed to defer the sale to the purchaser of the inventory related to
the EDM until the end of the lease term. Seaboard retained all other
physical properties of this business and is currently building a
106 megawatt floating power generating facility for use in the
Dominican Republic for approximately $125,000,000. This new facility
is anticipated to begin operations by the end of 2011 or early 2012,
resulting in lower sales for this segment for the remainder of 2011.
The Turkey segment, accounted for using the equity method, had total
net sales for the three and six month periods of 2011 of $292,814,000
and $571,271,000, respectively, and operating income infor the first quarterthree and
six month periods of 2011 of $278,457,000$9,233,000 and $5,673,000,$14,906,000, respectively.
As of AprilJuly 2, 2011 and December 31, 2010, the Turkey segment had total
assets of $782,137,000$827,087,000 and $725,464,000, respectively. Management of
the Turkey segment is evaluating several opportunities to improve
the utilization at its plants and thereby increase earnings
potential. If implemented these initiatives could result in one time
charges to earnings during the second half of 2011 and into 2012.
The amount of such charges is not currently determinable.
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 13
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 AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Thousands of dollars) 2011 2010 2011 2010
Pork $ 423,969441,423 $ 317,906348,284 $ 865,392 $ 666,190
Commodity Trading and Milling 712,231 408,103621,007 405,633 1,333,238 813,736
Marine 229,720 203,423236,501 215,615 466,221 419,038
Sugar 67,003 53,82272,594 45,036 139,597 98,858
Power 32,345 32,96924,670 31,015 57,015 63,984
All Other 2,911 4,0532,392 2,880 5,303 6,933
Segment/Consolidated Totals $1,468,179 $1,020,276$1,398,587 $1,048,463 $2,866,766 $2,068,739
Operating Income (Loss):
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Thousands of dollars) 2011 2010 2011 2010
Pork $ 79,59562,494 $ 26,40858,634 $ 142,089 $ 85,042
Commodity Trading and Milling 23,072 22,63415,230 19,523 38,302 42,157
Marine 7,022 8,266(11,054) 11,037 (4,032) 19,303
Sugar 22,439 11,27721,586 9,545 44,025 20,822
Power 3,549 4,02853,057 3,706 56,606 7,734
All Other (302) 412(329) 174 (631) 586
Segment Totals 135,375 73,025140,984 102,619 276,359 175,644
Corporate Items (5,099) (5,559)(4,019) (1,372) (9,118) (6,931)
Consolidated Totals $ 130,276136,965 $ 67,466101,247 $ 267,241 $ 168,713
Income from Affiliates:
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Thousands of dollars) 2011 2010 2011 2010
Commodity Trading and Milling $ 5,8194,579 $ 4,8176,033 $ 10,398 $ 10,850
Sugar 317 71(99) 503 218 574
Turkey 26885 - 911 -
Segment/Consolidated Totals $ 6,1625,365 $ 4,8886,536 $ 11,527 $ 11,424
14
Total Assets:
AprilJuly 2, December 31,
(Thousands of dollars) 2011 2010
Pork $ 798,018782,102 $ 761,490
Commodity Trading and Milling 698,294779,364 686,379
Marine 267,516266,108 246,902
Sugar 232,067231,927 223,223
Power 107,12796,148 91,739
Turkey 280,326284,000 277,778
All Other 8,5689,933 6,332
Segment Totals 2,391,9162,449,582 2,293,843
Corporate Items 387,863433,037 440,243
Consolidated Totals $2,779,779$2,882,619 $2,734,086 14
Investments in and Advances to Affiliates:
AprilJuly 2, December 31,
(Thousands of dollars) 2011 2010
Commodity Trading and Milling $ 150,082156,801 $ 140,696
Sugar 3,2433,096 2,957
Turkey 187,695188,749 187,669
Segment/Consolidated Totals $ 341,020348,646 $ 331,322
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.
________________________________________________________________________________________________________________
15
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 AprilJuly 2, 2011 decreased
$38.7increased
$11.4 million to $334.7$384.7 million from December 31, 2010. The decreaseincrease
was the result of cash used by operating activities$58.1 million of $54.9proceeds received from the sale of
power generating facilities, as discussed below, and $29.1 million andin
increased net borrowings. Partially offsetting this increase was cash
used for capital expenditures of $39.0 million. Partially
offsetting this decrease was cash from borrowings of $57.6$76.5 million. Cash from operating
activities decreased $132.4$205.5 million for the threesix months ended AprilJuly 2,
2011 compared to the same period in 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 threesix months ended AprilJuly 2, 2011
compared to the same period in 2010.
Acquisitions, Capital Expenditures and Other Investing Activities
During the threesix months ended AprilJuly 2, 2011, Seaboard invested
$39.0$76.5 million in property, plant and equipment, of which $6.4$14.6 million
was expended in the Pork segment, $9.7$12.1 million in the Marine segment,
$4.5$11.7 million in the Sugar segment and $17.4$35.1 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 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.
Currently it is anticipated the cogeneration plant will be fully
operational by the fourth quarter of 2011. The Power segment
expenditures were primarily used for the construction of a 106
megawatt power generating 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 by 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 2011, management has budgeted capital
expenditures totaling $165.7$114.2 million. The Pork segment plans to spend
$23.9$14.3 million primarily for additional finishing barns and, to a
lesser degree, improvements to existing facilities and related
equipment. The Marine segment has budgeted $41.0$25.8 million primarily
for additional cargo carrying and handling equipment and port
development projects.equipment. 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 2011.
The Sugar segment plans to spend a total
of $11.9 million consisting of $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 end of the second quarter
of 2011 at a total completed cost of approximately $47.0 million. The
Power segment plans to spend $73.6$60.2 million primarily for the new
power generating facility being constructed as discussed above. See
Note 9 to the Condensed Consolidated Financial Statements for further
discussion. The balance of $15.3$13.9 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.
During 2010, Seaboard agreed to invest 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 AprilJuly 2, 2011, Seaboard had
invested $14.1$15.0 million in this project.
On April 8, 2011, Seaboard closed the sale of its two power generating
facilities in the Dominican Republic for $73.1 million. See Note 9 to
the Condensed Consolidated Financial Statements for further
discussion.
Financing Activities and Debt
As of AprilJuly 2, 2011, Seaboard had committed lines of credit totaling
$300.0 million and uncommitted lines totaling $165.5$182.4 million. As of
AprilJuly 2, 2011, there were no borrowings outstanding under the committed
lines of credit and borrowings under the uncommitted lines of credit
totaled $76.0$47.0 million. Outstanding standby letters of credit reduced
Seaboard's borrowing capacity under its committed and uncommitted
credit lines by $42.6$43.1 million and 16
$8.2$5.3 million, respectively,
primarily representing $26.4 million for Seaboard's outstanding
Industrial Development Revenue Bonds and $20.2$16.5 million related to
insurance coverage. Also included in notes payable as of AprilJuly 2, 2011
was a term note of $45.0 million
denominated in U.S. dollars.million.
16
Seaboard has a long-term credit agreement for $114.0 million to
finance the construction of the new power generating facility in the
Dominican Republic noted above. During the first quartersix months of 2011,
Seaboard borrowed an additional $15.3$16.1 million under this credit
facility. As of AprilJuly 2, 2011, $31.7$32.4 million had been borrowed from
this credit facility.
Seaboard's remaining 2011 scheduled long-term debt maturities total
$1.6$1.5 million. As of AprilJuly 2, 2011, Seaboard had cash and short-term
investments of $334.7$384.7 million, total net working capital of
$944.4$1,031.2 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 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 threesix months
ended AprilJuly 2, 2011, Seaboard did not repurchase any shares of common
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 first quarterthree and six month periods of 2011 compared to $1,020.3increased by
$350.1 million forand $798.0 million, respectively, over the first quarter of 2010. The
increasesame periods
in 2010, which primarily reflected increased prices for and volumes of
commodities traded and also an increase in overall sale prices for
pork products.
Operating income increased by $35.7 million and $98.5 million for the
three and six month periods of 2011, respectively, compared to $130.3the
same periods in 2010. The increases primarily reflect a one-time gain
on sale of power generating facilities of $51.4 million and, to a
lesser extent, higher sugar prices. The increase for the six month
period also reflects higher pork prices. The increases were partially
offset by declining performance in the first quarter of
2011, compared to $67.5 million in the first quarter of 2010, which
primarily reflectedMarine segment from higher
pork and sugar prices.operating costs.
Pork Segment
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Dollars in millions) 2011 2010 2011 2010
Net sales $ 424.0 $ 317.9$441.4 $348.3 $865.4 $666.2
Operating income $ 79.662.5 $ 26.458.6 $142.1 $ 85.0
Net sales for the Pork segment increased $106.1$93.1 million inand $199.2
million for the first
quarterthree and six month periods of 2011, respectively,
compared to the first quarter ofsame periods in 2010. The increaseincreases primarily reflectedreflect
an increase in overall sales prices for pork products, especially
during the first quarter of 2011, and, to a lesser extent, increased
sales ofprice for biodiesel and higher volume of pork products sold.
Operating income for the Pork segment increased $53.2$3.9 million and $57.1
million for the first quarterthree and six month periods of 2011, respectively,
compared to the first quarter ofsame periods in 2010. The increase wasincreases were primarily a
result of higher sales prices and, to a lesser extent, higher volumes
of pork products sold.sold as discussed above. Partially offsetting the
increase was higher feed costs, especially during the second quarter
of 2011, 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 2011, although at a lower level
than the first quarter.six months of 2011. As discussed in Note 9 to the
Condensed Consolidated Financial Statements, there is a possibility
that some amount of the ham-boning plant in Mexico could be deemed
impaired during some future period including 2011, which may result in
a charge to future earnings if current projections are not met.
17
Commodity Trading and Milling Segment
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Dollars in millions) 2011 2010 2011 2010
Net sales $ 712.2 $ 408.1$621.0 $405.6 $1,333.2 $813.7
Operating income as reported $ 23.115.2 $ 22.619.5 $ 38.3 $ 42.2
Less mark-to-market adjustments (12.0) (8.7)2.2 (10.7) (9.8) (19.5)
Operating income excluding
mark-to-market adjustments $ 11.117.4 $ 13.98.8 $ 28.5 $ 22.7
Income from affiliates $ 5.84.6 $ 4.86.0 $ 10.4 $ 10.9
Net sales for the Commodity Trading and Milling segment increased
$304.1$215.4 million and $519.5 million for the first quarterthree and six month periods
of 2011, respectively, compared to the first
quarter ofsame periods in 2010. The
increase wasincreases are primarily the result of increased prices for wheat and
corn, and, wheat, andto a lesser extent, increased volumes of commodities sold
to third parties, principally soybean meal and corn.parties. In addition, $101.1 million in net sales were
recognized in the first quarter of 2011 related to previously deferred
costs and deferred revenues under contracts for which the final sale
prices were not fixed and determinable until the first quarter of
2011. As worldwide commodity price fluctuations cannot be predicted,
management is unable to predict the level of future sales.
Operating income for this segment increased $0.5decreased $4.3 million and $3.9
million for the first
quarterthree and six month periods of 2011, respectively,
compared to the first quarter ofsame periods in 2010. The increasedecreases for the three and
six month periods primarily reflectsreflect the $3.3$12.9 million and $9.7 million
fluctuation of marking to market the derivative contracts, as
discussed below,below. Excluding the effects of these derivative contracts,
operating income increased $8.6 million and to a lesser extent,$5.8 million for the three
and six month periods, respectively. The increases are primarily the
result of increased volumes of commodities sold as discussed above. Offsetting
these increases were lowerabove
and, to a lesser extent, higher operating income for consolidated
milling operations as a result of lessmore favorable market conditions, write-
downsconditions.
Partially offsetting these increases were write-downs of $1.7$1.6 million
and $3.3 million in the first quarterthree and six month periods of 2011,
respectively, for certain grain inventories for customer contract
performance issues, as discussed further in Note 3 to the Condensed
Consolidated Financial Statements,
and higher selling and administrative personnel costs.Statements.
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 2011, excluding the potential effects of
marking to market derivative contracts.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, operating income for this segment would have been higher
by $2.2 million and lower by $12.0$9.8 million, and $8.7 million,respectively, for the first quarterthree
and six month periods of 2011 and operating income would have been
lower by $10.7 million and $19.5 million, respectively, for the three
and six month periods of 2010, 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
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 over time and thus, these
mark-to-market adjustments could reverse in fiscal 2011. Management
believes eliminating these adjustments, as noted in the table above,
provides a more reasonable presentation to compare and evaluate period-to-periodperiod-
to-period financial results for this segment.
Income from affiliates infor the first quarterthree and six month periods of 2011
increaseddecreased by $1.0$1.4 million compared toand $0.5 million, respectively, from the
first quarter ofsame periods in 2010. Based on the uncertainty of local political
and economic situationsenvironments in the countries in which the flour and feed
mills operate, management cannot predict future results.
18
Marine Segment
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Dollars in millions) 2011 2010 2011 2010
Net sales $ 229.7 $ 203.4$236.5 $215.6 $466.2 $419.0
Operating income (loss) $(11.1) $ 7.011.0 $ 8.3(4.0) $ 19.3
Net sales for the Marine segment increased $26.3$20.9 million and $47.2
million for the first
quarterthree and six month periods of 2011, respectively,
compared to the first quarter ofsame periods in 2010. The increase
wasincreases are primarily athe
result of higher cargo volumes and, to a lesser
extent, increased rates in most markets served during 2011 and
higher cargo volumes as economic activity continuedgenerally increased in 2011
compared to increase.
182010.
Operating income for the Marine segment decreased $1.3$22.1 million and
$23.3 million for the first quarterthree and six month periods of 2011,
respectively, compared to the first quarter ofsame periods in 2010. The decrease wasdecreases
were primarily the result of cost increases for charter hire,
fuel for vessels,
trucking and truckingcharter hire on a per unit shipped basis, especially in
the second quarter of 2011 when fuel and also
higher selling and administrative personnel costs.trucking expenses increased
significantly more than management anticipated. Partially offsetting
the decreasedecreases were higher cargo rates as discussed 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 2011.
However, based on recent significant cost increases for fuel and
trucking, management currently anticipates positivecontinuing operating incomelosses
for this segment in 2011, although lower than 2010.the remainder of 2011.
Sugar Segment
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Dollars in millions) 2011 2010 2011 2010
Net sales $ 67.072.6 $ 53.845.0 $139.6 $ 98.9
Operating income $ 22.421.6 $ 11.39.5 $ 44.0 $ 20.8
Income (loss) from affiliates $ 0.3(0.1) $ 0.10.5 $ 0.2 $ 0.6
Net sales for the Sugar segment increased $13.2$27.6 million and $40.7
million for the first
quarterthree and six month periods of 2011, respectively,
compared to the first quarter ofsame periods in 2010. The increase
for the quarterincreases primarily reflectsreflect
increased domestic sugar prices
and, to a lesser extent, increased domestic sugar volumes, partially
offset by lower sugar export volumes.prices. Management cannot predict sugar
prices for the remainder of 2011. Management anticipatesCurrently it is anticipated the
cogeneration power plant, discussed above, will begin operationsbe fully operational by the
end of the secondfourth quarter of 2011.
Operating income increased $11.1$12.1 million and $23.2 million for the
first quarterthree and six month periods of 2011, respectively, compared to the
first quarter ofsame periods in 2010. The increaseincreases primarily representsrepresent higher
margins from the increase in sugar prices discussed above. Management
anticipates positive operating income for this segment for the
remainder of 2011, although at a lower level than the first quarter.six months
of 2011. However, beginning in late July a labor strike began at the
sugar mill and if such strike continues for an extended period of
time, it will result in a significantly shorter harvest season and
could have a material impact to anticipated operating results for this
segment.
Power Segment
Three Months Ended AprilSix Months Ended
July 2, AprilJuly 3, July 2, July 3,
(Dollars in millions) 2011 2010 2011 2010
Net sales $ 32.324.7 $ 33.031.0 $57.0 $64.0
Operating income $ 3.553.1 $ 4.03.7 $56.6 $ 7.7
Net sales for the Power segment decreased $0.7$6.3 million and
$7.0 million for the first
quarterthree and six month periods of 2011,
respectively, compared to the first quarter ofsame periods in 2010 primarily
reflecting lower production levels, partially offset by higher rates.
The lower production levels are the result of the sale of the power
generating facilities as noted below which eliminated production for
part of April 2011 and also because only one of the two facilities was
subsequently leased and operated. The higher rates were attributable
primarily to higher fuel costs, a component of pricing. Operating
income decreased $0.5increased $49.4 million and $48.9 million for the first quarterthree and six
month periods of 2011, respectively, compared to the first quarter ofsame periods in
2010 primarily as a result of the gain on sale of power
19
generating facilities discussed below, partially offset by lower
production levels.levels discussed above.
See Note 9 to the Condensed Consolidated Financial Statements for the
closing 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 generating facility. As a result of the sale,
during the second quarter of 2011, a gain on sale of assets of
$51.4 million will bewas recognized in operating income. Management
anticipates that sales 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,
althoughcosts. However,
management anticipates positive operating income for this segment in
2011. However, after2011, although at a lower level than the first halfsix months of 2011, operating
income is expected to be lower than 2010 as a result of lower sales
discussed above.2011.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by
$6.3$7.6 million and $13.9 million for the three and six month periodperiods of
2011 compared to same periodperiods in 2010. The increase isincreases are primarily
due to increased personnel costs in most segments.segments and, to a lesser
degree, costs related to Seaboard's deferred compensation programs
(which are offset by the effect of the mark-to-market investments
recorded in other investment income discussed below). As a percentage
of revenues, SG&A decreased to 3.7% in3.8% for the first quarterthree and six month
periods of 2011 compared to 4.8%4.4% and 4.6% for the quarter
ofsame periods in 2010
primarily as a result of increased sales in the Commodity Trading and
Milling and Pork segments.
Interest Income
Interest income decreased $1.7 million and $2.7 million for the three
and six month periods of 2011 compared to the same periods in 2010.
The decreases primarily reflected a decrease in average funds
invested.
Interest Income from Affiliates
Interest income from affiliates for 2011 primarily represents interest
from a note receivable from Butterball, an affiliated company in which
Seaboard has a 50% non-controlling voting interest. This note was put
in place in 19
December 2010.
Other Investment Income (Loss), Net
Other investment income (loss), net increased $2.4 million and $1.7
million for the three and six month periods of 2011 compared to the
same periods in 2010. The increases primarily reflect income from the
mark-to-market value of Seaboard's investments related to the deferred
compensation programs in 2011 compared to losses in 2010.
Foreign Currency Gains (Losses), Net
The fluctuations in foreign currency gains, net infor the first quarterthree and six
months of 2011 compared to the first quarter ofsame periods in 2010 primarily reflectedreflects
foreign currency gains in the first quarter of 2011 from Euro cash and short-term investment
positions.
Income Tax Expense
The effective tax rate for the first quartersix months of 2011, which
approximates the expected annual tax rate, remained fairly constant
compared to the tax rate for the year ended December 31, 2010.
However, the tax rate for the first quartersix months of 2011 is higher than
the tax rate for the first quartersix months of 2010 primarily due to higher
projected domestic earnings relative to foreign earnings, as was the
case in the last half of 2010.
OTHER FINANCIAL INFORMATION
In May 2011, the Financial Accounting Standards Board (FASB) issued
guidance to amend the requirements related to fair value measurement
which changed the wording used to describe many requirements in GAAP
for measuring fair value and for disclosing information about fair
value measurements. Additionally, the amendments clarify the FASB's
intent about the application of existing fair value measurement
requirements. The amended guidance is effective for Seaboard on
January 1, 2012. The adoption of this guidance is not expected to
have a material impact on Seaboard's financial position or net
earnings.
In June 2011, the FASB issued guidance to revise the manner in which
entities present comprehensive income in the financial statements.
The new guidance removes the footnote presentation option currently
used by Seaboard and requires entities to report components of
comprehensive income in either a continuous statement of comprehensive
income or two separate but consecutive statements. Seaboard will be
required to make this change in presentation in the first quarter of
2012. The adoption of this guidance will not have an impact on
Seaboard's financial position or net earnings.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-day
operations. Seaboard utilizes derivative instruments to mitigate some
of these risks including both purchases and sales of futures and
options to hedge inventories, forward purchasepurchases and sale contracts and
forward purchases.contracts.
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, 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 AprilJuly 2, 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 AprilJuly 2, 2011
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, 2010.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Exchange
Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
20101 The following financial information from Seaboard Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 2, 2011,
formatted in XBRL (Extensible Business Reporting Language): (1)
Condensed Consolidated Statements of Earnings, (2) Condensed
Consolidated Balance Sheets, (3) Condensed Consolidated
Statements of Cash Flows, and (4) the Notes to Unaudited
Condensed Consolidated Financial Statements *.
* Pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration
statement or prospectus for purposes of sections 11 or 12 of the
Securities Act of 1933, are deemed not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, and otherwise
are not subject to liability under these sections.
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 21
statements preceded by, followed by or that include the words
"believes," "expects," "may," "will," "should," "could,"
"anticipates," "estimates," "intends," or similar expressions.
In more specific terms, forward--looking statements, include,
without limitation: statements concerning projection of revenues,
income or loss, capital expenditures, capital structure or other
financial items, including the impact of mark-to-market accounting
on operating income; statements regarding the plans and objectives
of management for future operations; statements of future economic
performance; statements regarding the intent, belief or current
expectations of Seaboard and its management with respect to: (i)
Seaboard's ability to obtain adequate financing and liquidity, (ii)
the price of feed stocks and other materials used by Seaboard; (iii)
the sales price or market conditions for pork, grains, sugar, turkey
and other products and services; (iv) statements concerning
management's expectations of recorded tax effects under certain
circumstances; (v) the volume of business and working capital
requirements associated with the competitive trading environment
for the Commodity Trading and Milling segment; (vi) the charter
hire rates and fuel prices for vessels; (vii) the stability of the Dominican Republic's economy, fuel costs and
related spot market prices and collection of receivables in the Dominican Republic; (viii) the
ability of Seaboard to sell certain grain inventories in foreign
countries at current cost basis and the related contract performance
by customers; (ix) the effect of the fluctuation in foreign currency
exchange rates; (x) statements concerning profitability or sales
volume of any of Seaboard's segments; (xi) the anticipated costs and
completion timetable for Seaboard's scheduled capital improvements,
acquisitions and dispositions; or (xii) other trends affecting
Seaboard's financial condition or results of operations, and
statements of the assumptions underlying or relating to any of the
foregoing statements.
This list of forward-looking statements is not exclusive. Seaboard
undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events, changes in assumptions or otherwise. Forward-looking
statements are not guarantees of future performance or results. They
involve risks, uncertainties and assumptions. Actual results may
differ materially from those contemplated by the forward-looking
statements due to a variety of factors. The information contained in
this report, including without limitation the information under the
headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations," identifies important factors which could
cause such differences.
2122
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, Executive Vice President,
Chief Financial Officer
(principal financial officer)
Date: May 6,August 9, 2011
by: /s/ John A. Virgo
John A. Virgo, Senior Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Date: May 6,August 9, 2011
2223