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SEABOARD
CORPORATION
2009 Annual Report
Description of Business
Seaboard Corporation is a diversified international
agribusiness and transportation company. In the United
States, Seaboard is primarily engaged in pork production and
processing, and ocean transportation. Overseas, Seaboard is
primarily engaged in commodity merchandising, grain
processing, sugar production, and electric power generation.
Table of Contents
Letter to Stockholders 2
Division Summaries 4
Principal Locations 6
Summary of Selected Financial Data 7
Company Performance Graph 8
Quarterly Financial Data (unaudited) 9
Management's Discussion & Analysis of Financial Condition
and Results of Operations 10
Management's Responsibility for Consolidated Financial
Statements 25
Management's Report on Internal Control over Financial
Reporting 25
Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements 26
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting 27
Consolidated Statements of Earnings 28
Consolidated Balance Sheets 29
Consolidated Statements of Cash Flows 30
Consolidated Statements of Changes in Equity 31
Notes to Consolidated Financial Statements 32
Stockholder Information 60
This report, including information included or incorporated by
reference in this report, contains certain forward-looking
statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business
of Seaboard Corporation and its subsidiaries (Seaboard).
Forward-looking statements generally may be identified as
statements that are not historical in nature; and statements
preceded by, followed by or that include the words "believes,"
"expects," "may," "will," "should," "could," "anticipates,"
"estimates," "intends," or similar expressions. In more
specific terms, forward-looking statements, include, without
limitation: statements concerning the projection of revenues,
income or loss, capital expenditures, capital structure or
other financial items, including the impact of mark-to-market
accounting on operating income; statements regarding the plans
and objectives of management for future operations; statements
of future economic performance; statements regarding the
intent, belief or current expectations of Seaboard and its
management with respect to: (i) Seaboard's ability to obtain
adequate financing and liquidity, (ii) the price of feed stocks
and other materials used by Seaboard, (iii) the sales price or
market conditions for pork, grains, sugar and other products
and services, (iv) statements concerning management's
expectations of recorded tax effects under 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 a 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, (xii) the impact from the H1N1 flu incident on
the demand and overall market prices for pork products 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-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" and
"Letter to Stockholders", identifies important factors which
could cause such differences.
1
Letter to Stockholders
This was a challenging year for us financially as we suffered
through both the general worldwide recession plus certain
industry and country specific disruptions. With operations in 39
countries in a broad mix of industries, it is practically
impossible to hit on all cylinders; on the other hand, this
diversification fuels our growth and reduces volatility in our
financial results. Globally, we can always count on supply and
demand imbalances, political and economic disruptions and
extraordinary natural and man-made disasters to create both
challenges and opportunities. Controlling those areas which are
within our control namely, quality of product, service and costs,
and maintaining an effective operating environment and a well-
defined culture, remain our goal at Seaboard. In this regard, we
have not wavered in 2009.
Although net income for 2009 was down 37% from 2008, operating
income, a more indicative reflection of performance, was down 80%
year to year, from $121.8 million to $23.7 million. Gross margins
have narrowed overall and we are mindful of the trend of our
increased general and administrative expenses. Our balance sheet
remains extremely strong with plenty of liquidity to fund working
capital increases, weather unexpected losses and make substantial
investments should opportunities arise. Over the last four years,
we have spent almost $440 million in capital improvements to
drive growth and to keep us operationally efficient and cost
effective. We continue to monitor the marketplace in search of
investments which are strategic and long-term in nature in hopes
of finding complementary and synergistic businesses to augment
our existing portfolio.
It's hard to imagine a more chaotic year than 2008 but 2009
proved to be even more extraordinary for us. Specifically, we
suffered through the havoc created by the H1N1 virus as it
impacted the entire protein sector, including Seaboard Foods.
This resulted in a sharp reduction in prices and volumes for
several months. In addition, political forces took their toll in
certain countries: in Argentina, with domestic price controls; in
Venezuela, with nationalization of certain ports of call and in
the U.S., with the increased role and impact of the federal
government in the economy and commercial markets. Although each
of these events affected us negatively, our diversification in
business segments and geographic locations allowed us to cushion
the blow and no single event caused irreparable or irreversible
damage. As we expand our reach worldwide and broaden our
interests, the probability of adverse incidents increases but
with a lesser impact on the company overall.
While pork processing and further processing margins continued to
produce good results, losses from hog production more than offset
those positive results. The H1N1 flu and recessionary factors
contributed to lower product prices by reducing overall demand.
While 2009 was a difficult year for everyone in the industry, we
remain extremely confident that the attributes of vertical
integration such as food safety, product quality and
consistency will provide us a competitive advantage over the long-
term. Hog producers cannot sustain continued losses and although
processors know this, competing meats, uncertainty in the export
markets and permanent changes in feed grain usage/demand have
resulted in an environment which has created volatility in our
earnings. Ultimately, we believe the US will adapt to these
changes by continuing to enlarge the supply of grain and by
satisfying protein demand through efficient animal production and
processing.
Including our marketing agreement with Triumph Foods, Seaboard
Foods markets about 9% market share of all pork processed in the
U.S., making us the fourth largest pork processor. We are also
the second largest hog producer in the U.S. It is our intention
to leverage this position to capture additional margins with a
broader mix of value-added products, retail alliances and further
processing activities.
Aside from these macro issues, we continue to launch new products
for foodservice and retail markets in both the U.S. and abroad.
With consistent quality, food safety and farm to market
identification, we expect our vertically integrated system
to continue to provide us significant opportunities as these
issues become more and more important to end consumers in both
domestic and export markets. We are hopeful that the toughest
times are behind us.
Ocean transportation is one of the best indicators in gauging the
health of the global economy and multi-lateral trade. Consistent
with the worldwide recession and contracted global trade, both
Seaboard Marine volumes and overall freight rates decreased in
2009. The strength of our many trade lanes depends on the health
of tourism, textiles, mining and GNP growth in the Caribbean
Basin and Latin America. This year marked the first decrease in
year-over-year unit volumes for Seaboard Marine in over a decade.
Many of our global competitors have suffered enormous losses over
the last year due to shrinking trade volumes and overcapacity.
Price wars ensued early in the year seemingly without regard for
financial consequences. As trade patterns began to stabilize,
shipping companies throughout the world began the process of
reducing capacity in a variety of ways to match trade volumes.
Due to reduced demand, ship charter rates decreased significantly
and we were able to take advantage of these cost savings. Over
the last several years, we have upgraded our container fleet and
cargo handling equipment and with the decline in ship values, we
continue to reconfigure our fleet through a combination of
chartered and owned tonnage. This is a great opportunity to
utilize more modern, efficient and versatile vessels.
Sadly, our weekly service into Port-au-Prince, Haiti was
interrupted by the devastating earthquake on January 12, 2010. We
are currently maintaining our service via a twice weekly feeder
vessel from Kingston, Jamaica through the
2
temporary use of a sister company's grain berth in Laffiteau,
Haiti. Despite the tragedy, it has been gratifying to see
Seaboard Marine and Commodity Trading and Milling (CT&M) work
together to quickly and creatively provide the transportation and
discharge facilities needed for critical relief and commercial
cargoes.
Although many shipping lines drastically scaled back and
suffered tremendous financial losses in 2009, Seaboard Marine
stayed the course. All routes were maintained at a high service
level. The philosophy of creative and responsive customer
service will continue. Having created a network of strong
port to port connections throughout the Caribbean Basin and Latin
America over the years, Seaboard Marine remains well
positioned to take advantage of growing trade volumes within the
Western Hemisphere as the world economy recovers.
2009 proved to be another outstanding year for CT&M, an
impressive result given the panic at the beginning of the year
with commodity prices in a freefall. Maintaining normal inventory
and forward positions for our grain processing facilities had a
negative impact on earnings. However, our access to liquidity and
lower replacement cost inputs allowed our operations to retain
solid margins. The quick rebound in the freight markets also
supported CT&M's earnings as our ocean freight ownership
contributed to bottom line results.
CT&M continues to expand its trading business to satisfy
affiliate and third party raw material requirements by opening up
new origins of supply, improving logistics through greater
control of vessel transportation and modernizing port
infrastructures. In lesser developed countries, controlling as
many components of the supply chain as possible becomes critical
to quality of service. Toward this end, we have opened commodity
and freight trading offices in Europe, Latin America and the U.S.
and we continue to pursue potential investments in selected grain
origination markets. In addition, we are expanding our presence
in specialty commodities through investments in infrastructure in
Canada, rice milling assets in Guyana and a trading company
acquisition which we expect to close in the near future. This
year we have been successful in further integrating our milling
and trading businesses by moving more products through our
destination markets. This affords us a greater degree of security
and product integrity. In 2010, we plan to further expand this
model to move more cargo through our sister division, Seaboard
Marine, and thus exercise more transactional control of our
commodity trade.
CT&M plans to pursue the expansion of its industrial operations
through the acquisition or green-field development of additional
grain based businesses, down-stream industries such as poultry,
baking and pasta and the expansion and renovation of our existing
mill capacity in several markets. Our grain processing facilities
remain a critical piece of our integrated supply chain model.
Tragically, the massive earthquake in Haiti took the lives of 15
employees of Les Moulins d' Haiti, our non-consolidated milling
operation near Port-au-Prince. Fortunately, the warehouse and
storage facilities remain operational and adequate insurance
coverage was in place allowing Les Moulins d' Haiti to rebuild
and expand capacity. We expect to resume milling operations in
early 2011. Many of our employees and their families have lost
their homes and suffered terribly as a result of this disaster.
It is our intention to continue to support our employees
in part through continued employment to support general cargo
handling and flour merchandising through our private port
facilities.
Tabacal has made significant progress toward maximizing the long-
term value of its land and assets through the conversion of sugar
cane into sugar, alcohol and energy. Despite some minor setbacks,
this business should be well positioned to take advantage of an
improved world sugar and alcohol outlook. In the latter half of
2009, world sugar prices rose sharply. This was triggered by
India's short crop and continued competition for sugar cane from
ethanol. In particular, Brazilian sugar production continues to
compete directly with ethanol demand for domestic and export
consumption and sugar prices have risen in tandem with those of
virtually all fossil fuel sources. Similarly, Argentina has
recently implemented a program requiring the blending of ethanol
into gasoline. This government program should help develop
alcohol as a much needed source of energy as well as help
stabilize the financial returns for land use.
Although we have seen a troubling decline in operating income
over the last five years, we are not demoralized. In fact, in
the face of these uncertain times, our diversified and integrated
structure has proven to be a durable and sustainable model.
Moreover, our success stems from the people who have devoted
their careers to Seaboard, who, I believe, display a genuine
sense of ownership and pride. Our people have helped to
successfully carry us through good times and bad. In consistently
adhering to the goal of producing quality products and services
to our customers, maintaining a competitive spirit and conducting
ourselves with professionalism, integrity and respect, we should
continue to enjoy a good measure of success.
/s/ Steven J. Bresky
Steven J. Bresky
President and
Chief Executive Officer
3
Pork Division
Seaboard's Pork Division is one of the largest vertically
integrated pork processors in the United States. Seaboard is
able to control animal production and processing from research
and development in nutrition and genetics, to the production of
high quality meat products at our processing facility.
Seaboard's processing facility is located in Guymon, Oklahoma.
The facility has a daily double shift capacity to process
approximately 18,500 hogs and generally operates at capacity with
additional weekend shifts depending on market conditions.
Seaboard produces and sells fresh and frozen pork products to
further processors, foodservice operators, grocery stores,
distributors and retail outlets throughout the United States.
Seaboard also sells to distributors and further processors in
Japan, Mexico and other foreign markets. Hogs processed at the
plant principally include Seaboard raised hogs as well as hogs
raised by third parties purchased under contract and in the spot
market.
Seaboard's hog production facilities consist of genetic and
commercial breeding, farrowing, nursery and finishing buildings
located in Oklahoma, Kansas, Texas and Colorado. These
facilities have a capacity to produce approximately 4.0 million
hogs annually. Seaboard owns and operates six centrally located
feed mills to provide formulated feed to these facilities.
Seaboard's Pork Division also owns two bacon processing plants
located in Salt Lake City, Utah and Missoula, Montana. The
processing plants produce sliced and pre-cooked bacon primarily
for food service. These operations enabled Seaboard to expand
its integrated pork model into value-added products and to
enhance its ability to extend production to include other further
processed pork products.
In the second quarter of 2008, Seaboard commenced production of
biodiesel at a facility constructed in Guymon, Oklahoma. The
biodiesel is produced from pork fat from Seaboard's Guymon pork
processing plant and from animal fat supplied by non-Seaboard
facilities. The biodiesel is sold to third parties. The
facility can also produce biodiesel from vegetable oil. Also,
during 2009 Seaboard completed construction of and began
operations at a majority-owned ham-boning and processing plant in
Mexico.
Seaboard's Pork Division has an agreement with a similar size
pork processor, Triumph Foods LLC (Triumph), to market all of the
pork products produced at Triumph's plant in St. Joseph,
Missouri. Pursuant to this agreement, Seaboard is able to
provide the same quality products to its customers that are
produced in its own facilities. Seaboard markets the pork
products for a fee primarily based on the number of head
processed by Triumph Foods and is entitled to be reimbursed for
certain expenses.
Commodity Trading & Milling Division
Seaboard's Commodity Trading & Milling Division markets wheat,
corn, soybean meal, rice and other similar commodities in bulk
overseas to third party customers and affiliated companies.
These commodities are purchased worldwide with primary
destinations in Africa, South America, and the Caribbean.
The division annually sources, transports and markets up to
approximately 4.5 million metric tons of wheat, corn, soybean
meal, rice and other related commodities to the food and animal
feed industries. The division efficiently provides quality
products and reliable services to industrial customers in
selected markets. Seaboard integrates the delivery of
commodities to its customers primarily through the use of company
owned and chartered bulk carriers.
Seaboard's Commodity Trading and Milling Division has facilities
in 17 countries. The commodity trading business operates through
eight offices in seven countries and one non-consolidated
affiliate location in South America. The grain processing
businesses operate facilities at 24 locations in 12 countries and
include four consolidated and nine non-consolidated affiliates in
Africa, South America, and the Caribbean. These businesses
produce approximately 2.5 million metric tons of finished product
per year.
4
Marine Division
Seaboard's Marine Division provides containerized shipping
service between the United States, the Caribbean Basin, and
Central and South America. Seaboard's primary operations,
located in Miami, include a 135,000 square-foot off-port
warehouse for cargo consolidation and temporary storage and an
81 acre terminal at the Port of Miami. At the Port of Houston,
Seaboard operates a 62 acre cargo terminal facility that includes
approximately 690,000 square feet of on-dock warehouse space for
temporary storage of bagged grains, resins and other cargoes.
Seaboard also makes scheduled vessel calls to Brooklyn, New York,
Fernandina Beach, Florida, New Orleans, Louisiana and 40 foreign
ports.
Seaboard's marine fleet consists of 12 owned and approximately 22
chartered vessels, as well as dry, refrigerated and specialized
containers and other related equipment. Seaboard is the largest
shipper in terms of cargo volume to and from the Port of Miami.
Seaboard Marine provides direct service to 25 countries.
Seaboard also provides extended service from our domestic ports
of call to and from multiple foreign destinations through a
network of connecting carrier agreements with major regional and
global carriers.
To maximize fleet utilization, Seaboard uses a network of offices
and agents throughout the United States, Canada, Latin America,
and the Caribbean Basin to book both northbound and southbound
cargo to and from the United States and between the countries it
serves. Seaboard's full service capabilities, including
agreements with a network of connecting carriers, allow transport
by truck or rail of import and export cargo to and from various
U.S. ports. Seaboard's frequent sailings and fixed-day schedules
make it convenient for customers to coordinate manufacturing
schedules and maintain inventories at cost-efficient levels.
Seaboard's approach is to work in partnership with its customers
to provide the most reliable and effective level of service
throughout the United States, Latin America and the Caribbean
Basin and between the countries it serves.
Other Divisions
In Argentina, Seaboard is involved in the production and refining
of sugar. The sugar is primarily marketed locally with some
exports to the United States, other South American countries and
Europe. Seaboard's mill, one of the largest in Argentina, has a
processing capacity of approximately 250,000 metric tons of sugar
and approximately 14 million gallons of alcohol (hydrated and
dehydrated) per year. The mill is located in the Salta Province
of northern Argentina with administrative offices in Buenos
Aires. Approximately 60,000 acres of land owned by Seaboard in
Argentina is planted with sugar cane, which supplies the majority
of the raw product processed by the mill. Depending on local
market conditions, sugar may also be purchased from third parties
for resale. During 2008 this division began construction of a 40
megawatt cogeneration power plant, which is expected to be
completed in the third quarter of 2010. In addition, in the
first quarter of 2010, the Company began sales of dehydrated
alcohol to certain local oil companies under the national bio-
ethanol program which requires alcohol to be blended with
gasoline.
Seaboard owns two floating electric power generating facilities
in the Dominican Republic, consisting of a system of diesel
engines mounted on barges with a combined rated capacity of
approximately 112 megawatts. Seaboard operates as an independent
power producer generating electricity for the local power grid.
Seaboard is not directly involved in the transmission or
distribution of electricity but does have contracts to sell
directly to third party users. Electricity is sold under
contract to certain large commercial users, under a short-term
contract that expires at the end of March 2010 with a government-
owned distribution company and on the spot market that is
accessed by three wholly government-owned distribution companies
and limited others. On March 2, 2009, an agreement became
effective under which Seaboard will sell the two barges. The
agreement calls for the sale to occur on or around January 1,
2011. Completion of the sale is dependent upon the satisfaction
of several conditions, including meeting certain baseline
performance and emission tests. Failure to satisfy or cure any
deficiencies could result in the agreement being terminated.
Seaboard is considering options to continue its power business in
the Dominican Republic after the sale of these assets is
completed.
Seaboard processes jalapeno peppers at its plant in Honduras.
These products are shipped to the United States on Seaboard
Marine vessels and distributed from Seaboard's port facilities.
5
Principal Locations
Corporate Office
Seaboard Corporation Minoterie de Matadi, Seaboard de Colombia, S.A.
Merriam, Kansas S.A.R.L.* Colombia
Democratic Republic of
Congo Seaboard de Nicaragua, S.A.
Pork Nicaragua
Minoterie du Congo, S.A.
Seaboard Foods LLC Republic of Congo Seaboard del Peru, S.A.
Pork Division Office Peru
Merriam, Kansas Moderna Alimentos, S.A.*
Molinos Champion, S.A.* Seaboard Freight & Shipping
Processing Plant Ecuador Jamaica Limited
Guymon, Oklahoma Jamaica
National Milling Company
Live Production of Guyana, Inc. Seaboard Honduras, S. de
Operation Offices Guyana R.L. de C.V.
Julesburg, Colorado Honduras
Hugoton, Kansas National Milling
Leoti, Kansas Corporation Limited Seaboard Marine Bahamas
Liberal, Kansas Zambia Ltd.
Rolla, Kansas Bahamas
Guymon, Oklahoma Rafael del Castillo &
Hennessey, Oklahoma Cia. S.A.* Seaboard Marine (Trinidad)
Optima, Oklahoma Colombia Ltd.
Trinidad
Processed Meats Seaboard West Africa
Salt Lake City, Utah Limited Seaboard Marine of Haiti,
Missoula, Montana Sierra Leone S.E.
Haiti
High Plains Bioenergy, Unga Holdings Limited*
LLC Kenya and Uganda SEADOM, S.A.
Guymon, Oklahoma Dominican Republic
Marine
Seaboard de Mexico SeaMaritima S.A. de C.V.
USA LLC Seaboard Marine Ltd. Mexico
Mexico Marine Division Office
Miami, Florida Sugar
Commodity Trading
& Milling Port Operations Ingenio y Refineria San
Brooklyn, New York Martin del Tabacal SRL
Commodity Trading Fernandina Beach, Florida Argentina
Operations Houston, Texas
Bermuda Miami, Florida Power
Colombia New Orleans, Louisiana
Ecuador Transcontinental Capital
Greece Agencias Generales Corp. (Bermuda) Ltd.
Miami, Florida Conaven, C.A. Dominican Republic
Peru* Venezuela
South Africa Other
Switzerland Agencia Maritima del
Istmo, S.A. Mount Dora Farms de
Fairfield Rice Inc.* Costa Rica Honduras, S.R.L.
Guyana Honduras
Cayman Freight Shipping
Les Moulins d'Haiti Services, Ltd. Mount Dora Farms Inc.
Haiti Cayman Islands Houston, Texas
Lesotho Flour Mills JacintoPort International
Limited* LLC
Lesotho Houston, Texas
Life Flour Mill Ltd.* Representaciones Maritimas
Premier Feeds Mills y Aereas, S.A.
Company Limited* Guatemala
Nigeria
Sea Cargo, S.A.
Panama
*Represents a non-controlled, non-consolidated affiliate
6
Summary of Selected Financial Data
Years ended December 31,
(Thousands of dollars except per share amounts)
2009 2008 2007 2006 2005
Net sales $3,601,308 $4,267,804 $3,213,301 $2,707,397 $2,688,894
Operating income $ 23,723 $ 121,809 $ 169,915 $ 296,995 $ 320,045
Net earnings
attributable to
Seaboard $ 92,482 $ 146,919 $ 181,332 $ 258,689 $ 266,662
Basic earnings per
common share $ 74.74 $ 118.19 $ 144.15 $ 205.09 $ 212.20
Diluted earnings per
common share $ 74.74 $ 118.19 $ 144.15 $ 205.09 $ 211.94
Total assets $2,337,133 $2,331,361 $2,093,699 $1,961,433 $1,816,321
Long-term debt, less
current maturities $ 76,532 $ 78,560 $ 125,532 $ 137,817 $ 201,063
Stockholders' equity $1,545,419 $1,463,578 $1,355,199 $1,242,410 $1,013,904
Dividends per common
share $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Seaboard Corporation, and affiliated companies in its Commodity
Trading and Milling segment, resolved a dispute with a third
party related to a 2005 transaction. As a result, Seaboard
Overseas Limited received $16,787,000, net of expenses, or $13.57
per common share in the third quarter of 2009 included in other
income. There was no tax expense on this transaction. See Note
11 to the Consolidated Financial Statements for further
discussion.
As of December 31, 2006, Seaboard adopted Statement of Financial
Accounting Standard No. 158 (SFAS 158), "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans." The
adoption of SFAS 158 reduced stockholders equity by $25,014,000
as an adjustment to Accumulated Other Comprehensive Loss. See
Note 10 to the Consolidated Financial Statements for further
discussion.
In the fourth quarter of 2005, Seaboard made a one-time election
to repatriate previously permanently invested foreign earnings
resulting in a total tax expense of approximately $11,586,000,
recognized a tax benefit of $21,428,000 for the finalization of
certain tax years as a result of a settlement with the Internal
Revenue Service and recognized a tax benefit of $4,977,000 as a
result of an agreement with the Puerto Rican Treasury department
that favorably resolved certain prior years' tax issues. The net
effect of these events was an increase in net earnings of
$14,819,000, or $11.78 per common share on a diluted earnings
basis for the year. See Note 7 of the Consolidated Financial
Statements for further discussion.
In January 2005, Seaboard agreed to a tax settlement related to
prior year tax returns resulting in a tax benefit of $14,356,000,
or $11.44 per common share, which was recognized in the fourth
quarter of 2004.
7
Company Performance Graph
The Securities and Exchange Commission requires a five-year
comparison of stock performance for Seaboard with that of an
appropriate broad equity market index and similar industry index.
Seaboard's common stock is traded on the NYSE Amex Equities
(formerly the NYSE Alternext US) and provides an appropriate
comparison for Seaboard's stock performance. Because there is no
single industry index to compare stock performance, the companies
comprising the Dow Jones Food and Marine Transportation Industry
indices (the "Peer Group") were chosen as the second comparison.
The following graph shows a five-year comparison of cumulative
total return for Seaboard, the NYSE Amex Equities Index and the
companies comprising the Dow Jones Food and Marine Transportation
Industry indices weighted by market capitalization for the five
fiscal years commencing December 31, 2004, and ending
December 31, 2009. The information presented in the performance
graph is historical in nature and is not intended to represent or
guarantee future returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Seaboard Corporation, The NYSE Amex Composit Index
And A Peer Group
The graph depicts data points below.
*$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
The comparison of cumulative total returns presented in the above
graph was plotted using the following index values and common
stock price values:
12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09
Seaboard Corporation $100.00 $151.74 $177.61 $148.15 $120.61 $136.64
NYSE Amex Equities $100.00 $125.80 $150.40 $178.95 $108.56 $147.27
Peer Group $100.00 $ 94.79 $114.71 $124.67 $ 95.96 $115.61
8
Quarterly Financial Data (unaudited)
(UNAUDITED)
(Thousands of dollars except per share amounts)
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter the Year
2009
Net sales $ 917,568 $ 869,830 $ 854,625 $ 959,285 $3,601,308
Operating income $ 16,042 $ 2,769 $ (2,679)$ 7,591 $ 23,723
Net earnings attributable
to Seaboard $ 15,973 $ 26,919 $ 36,715 $ 12,875 $ 92,482
Earnings per common share $ 12.89 $ 21.76 $ 29.69 $ 10.41 $ 74.74
Dividends per common share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 3.00
Closing market price range per common share:
High $1,215.00 $1,285.00 $ 1,382.82 $ 1,549.00
Low $ 805.00 $ 935.00 $ 1,040.00 $ 1,172.00
_______________________________________________________________________________
2008
Net sales $ 993,668 $ 999,951 $1,131,691 $1,142,494 $4,267,804
Operating income $ 59,382 $ 3,096 $ 31,714 $ 27,617 $ 121,809
Net earnings attributable
to Seaboard $ 70,027 $ 20,963 $ 32,905 $ 23,024 $ 146,919
Earnings per common share $ 56.28 $ 16.85 $ 26.47 $ 18.55 $ 118.19
Dividends per common share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 3.00
Closing market price range per common share:
High $1,645.00 $1,854.00 $ 1,826.00 $ 1,359.00
Low $1,251.00 $1,470.00 $ 1,210.00 $ 795.00
_______________________________________________________________________________
Seaboard Corporation, and affiliated companies in its Commodity
Trading and Milling segment, resolved a dispute with a third
party related to a 2005 transaction. As a result, Seaboard
Overseas Limited received $16,787,000, net of expenses, or $13.57
per common share in the third quarter of 2009 included in other
income. There was no tax expense on this transaction. See Note
11 to the Consolidated Financial Statements for further
discussion.
During the first and second quarters of 2009, Seaboard
repurchased 3,233 and 435 common shares respectively, as
authorized by Seaboard's Board of Directors. During the first,
third and fourth quarters of 2008, Seaboard repurchased 369,
2,390 and 1,093 common shares respectively, as authorized by
Seaboard's Board of Directors. See Note 12 to the Consolidated
Financial Statements for further discussion.
During the fourth quarter of 2008, Seaboard recorded an
impairment charge of $7,000,000 ($4,270,000 net of tax), or $3.44
per share, related to the value of other intangible assets not
subject to amortization. See Note 2 to the Consolidated
Financial Statements for further discussion. Also during the
fourth quarter of 2008, Seaboard recorded a write down of
$5,653,000 ($4,940,000 net of tax), or $3.98 per share, for 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. See Note
4 to the Consolidated Financial Statements for further
discussion.
9
Management's Discussion & Anaylsis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Seaboard is a diverse agribusiness and transportation company
with global operations in several industries. Most of the sales
and costs of Seaboard's segments are significantly influenced by
worldwide fluctuations in commodity prices or changes in foreign
political and economic conditions. Accordingly, sales, operating
income and cash flows can fluctuate significantly from year to
year. As each segment operates in unrelated industries and
different geographical locations, management evaluates their
operations separately. Seaboard's reporting segments are based
on information used by Seaboard's Chief Executive Officer in his
capacity as chief operating decision maker to determine
allocation of resources and assess performance.
Pork Segment
The Pork segment is primarily a domestic business with some
export sales to Japan, Mexico, and other foreign markets.
Revenues from the sale of pork products are primarily generated
from a single hog processing plant in Guymon, Oklahoma, which
operates at daily double shift processing capacity of 18,500
hogs, two bacon further processing plants located in Salt Lake
City, Utah and Missoula, Montana, and a ham-boning and processing
plant in Mexico. In 2009, Seaboard raised approximately 75% of
the hogs processed at the Guymon plant with the remaining hog
requirements purchased primarily under contracts from independent
producers. This segment is Seaboard's most capital intensive
segment with approximately 62% of Seaboard's fixed assets and
material dollar amounts for live hog inventories.
Of Seaboard's businesses, management believes the Pork segment
also has the greatest exposure to commodity price fluctuations.
As a result, this segment's operating income and cash flows can
materially fluctuate from year to year, significantly affecting
Seaboard's consolidated operating income and cash flows. Sales
prices are directly affected by both domestic and worldwide
supply and demand for pork products and other proteins. Feed
costs are the most significant single component of the cost of
raising hogs and can be materially affected by prices for corn
and soybean meal. In addition, costs can be materially affected
by market prices for hogs purchased from third parties for
processing at the plant. As the Guymon plant operates at
capacity, to improve operating income Seaboard is constantly
working towards improving the efficiencies of the Pork operations
as well as considering ways to increase margins by expanding
product offerings.
The Pork segment also produces biodiesel to be sold to third
parties. Biodiesel is produced from pork fat from Seaboard's
Guymon pork processing plant and from animal fat provided by
other parties. The processing plant also can produce biodiesel
from vegetable oil. This plant was completed in the second
quarter of 2008. See Note 6 to the Consolidated Financial
Statements for discussion on the expired federal tax credits for
the operation. Also, during 2009 Seaboard completed construction
of and began operations at a majority-owned ham-boning and
processing plant in Mexico.
The Pork segment has an agreement with a similar size pork
processor, Triumph Foods LLC (Triumph), to market all of the pork
products produced at Triumph's plant in St. Joseph, Missouri.
The Pork segment markets the related pork products for a fee
primarily based on the number of head processed by Triumph Foods.
This plant has a capacity similar to that of Seaboard's Guymon
plant and operates upon an integrated model similar to that of
Seaboard's. Seaboard's sales prices for its pork products are
primarily based on a margin sharing arrangement that considers
the average sales price and mix of products sold from both
Seaboard's and Triumph Food's hog processing plants.
Commodity Trading and Milling Segment
The Commodity Trading and Milling segment primarily operates
overseas with locations in Africa, Bermuda, South America, the
Caribbean and Europe. These foreign operations can be
significantly impacted by local crop production, political
instability, local government policies, economic and industry
conditions, and currency fluctuations. This segment's sales are
also significantly affected by fluctuating prices of various
commodities, such as wheat, corn, soybean meal and rice.
Although this segment owns eight ships, most of the third party
trading business is transacted with chartered ships. Charter
hire rates, influenced by available charter capacity for
worldwide trade in bulk cargoes, and related fuel costs also
affect business volumes and margins as they did during the recent
period of extreme price volatility. The milling businesses, both
consolidated and non-consolidated affiliates, operate in foreign
and, in most cases, lesser developed countries. Subsidized wheat
and flour exports can create fluctuating market conditions that
can have a significant impact on both the trading and milling
businesses' sales and operating income.
10
Management's Discussion & Anaylsis
The majority of the Commodity Trading and Milling segment's sales
pertain to the commodity trading business. Grain is sourced from
domestic and international locations and delivery of grains to
third party and affiliate customers in various international
locations. The execution of these purchase and delivery
transactions have long cycles of completion which may extend for
several months with a high degree of price volatility. As a
result, these factors can significantly affect sales volumes,
operating income, working capital and related cash flows from
quarter-to-quarter.
Seaboard concentrates on the supply of raw materials to its core
milling operations and to third party commodity trades in support
of these milling operations. Seaboard continues to seek
opportunities in trading and milling businesses in order to
achieve greater scale, volumes and profitability.
Marine Segment
The Marine segment provides containerized cargo shipping services
primarily from the United States to 25 countries in the Caribbean
Basin, Central and South America. As a result, fluctuations in
economic conditions or unstable political situations in the
regions or countries in which Seaboard operates can affect
import/export trade volumes. When certain regions or countries
experienced such conditions, Seaboard's volumes and operating
profits were significantly affected. In addition, containerized
cargo rates can fluctuate depending on local supply and demand
for shipping services. This segment time-charters or leases the
majority of its ocean cargo vessels and is thus affected by
fluctuations in charter hire rates as well as fuel costs.
As a result of the recent global downturn in containerized trade,
there soon could be distressed assets such as vessels and
handling equipment available at attractive prices. Seaboard will
carefully evaluate such opportunities. Seaboard also continues
to explore ways to increase volumes on existing routes while
seeking opportunities to broaden its route structure in the
region.
Sugar Segment
Seaboard's Sugar segment operates a vertically integrated sugar
complex in Argentina. This segment's sales and operating income
are significantly affected by local and worldwide sugar prices.
Yields from the Argentine sugar harvest can have an impact on the
local price of sugar. Also, but to a lesser degree, price
fluctuations in the world market can affect local sugar prices
and export sales volumes and prices. Depending on local market
conditions, this business purchases from third parties sugar for
resale. Over the past several years, Seaboard made various
modifications to this business to improve the efficiency of its
operations and expand its sugar and alcohol operations. In the
first quarter of 2010, the Company began sales of dehydrated
alcohol to certain local oil companies under the national bio-
ethanol program which requires alcohol to be blended with
gasoline.
Prior to the first quarter of 2009, the Sugar segment was named
Sugar and Citrus reflecting the citrus 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
the first quarter of 2009, management decided not to process,
package or market the 2009 harvest for the citrus and related
juice operations. In the second quarter of 2009, management
decided to integrate and transform some of the land previously
used for citrus production into sugar cane production.
The functional currency of the Sugar segment is the Argentine
peso. The currency exchange rate can have an impact on reported
U.S. dollar sales, operating income and cash flows. Financing
needs for the foreseeable future will remain high for this
operation as a result of ongoing expansion of sugar production
and construction of a 40 megawatt cogeneration power plant
expected to be completed in the third quarter of 2010. Seaboard
continues to explore ways to improve and expand its existing
operations while considering other alternatives to expand this
segment.
Power Segment
Seaboard's Power segment operates as an unregulated independent
power producer in the Dominican Republic (DR) generating power
from diesel engines mounted on two barges. This segment's
financing needs have been minimal for the existing operations.
During the past few years, operating cash flows have fluctuated
from inconsistent customer collections. Seaboard has contracts
to sell approximately 20% of the power it generates to certain
government-approved commercial large users under long-term
contracts. Seaboard also has a short-term contract that expires
at the end of March 2010 for approximately 34% of its power with
a government-owned distribution company. This short-term
contract exposes Seaboard to a concentrated credit risk as the
customer, from time to
11
Management's Discussion & Anaylsis
time, has significant past due balances. Energy produced in
excess of contracted amounts is sold on the spot market primarily
to three wholly government-owned distribution companies or other
power producers who lack sufficient power production to service
their customers.
The DR regulatory body schedules power production based on the
amount of funds available to pay for the power produced and the
relative costs of the power produced. Fuel is the largest cost
component, but increases in fuel prices generally have been
passed on to customers. See Note 13 to the Consolidated
Financial Statements for discussion on a pending sale of the two
barges in the near future. Seaboard is considering options to
continue its power business in the Dominican Republic after the
sale is completed. In addition, from time to time Seaboard
pursues additional investment opportunities in the power
industry.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
Cash and short-term investments as of December 31, 2009 increased
$95.9 million from December 31, 2008. The increase was the
result of cash generated by operating activities of $246.4
million, $16.8 million received from a gain on a disputed sale as
discussed in Note 11 to the Consolidated Financial Statements and
$15.0 million received for the potential sale of power barges, as
discussed in Note 13 to the Consolidated Financial Statements.
During 2009, cash was used to reduce notes payable by $95.1
million, to reduce long-term debt by $46.9 million and for
capital expenditures of $54.3 million. Cash from operating
activities for 2009 increased $135.1 million compared to 2008,
primarily as a result of decreases in working capital items of
accounts receivable and inventory in 2009 compared to increases
in 2008, partially offset by lower net earnings in 2009 compared
to 2008.
Cash and short-term investments as of December 31, 2008 increased
$39.3 million from December 31, 2007, while cash from operating
activities was $111.3 million for 2008. The increase was
primarily the result of the combination of cash from operating
activities, an increase in notes payable of $79.4 million in
excess of cash used for capital expenditures of $134.6 million,
scheduled principal payments of long-term debt of $11.7 million
and $5.0 million used to repurchase common stock as discussed in
Note 12 to the Consolidated Financial Statements. Cash from
operating activities for 2008 decreased $34.6 million compared to
2007, primarily reflecting lower net earnings for the year.
Capital Expenditures, Acquisitions and Other Investing Activities
During 2009 Seaboard invested $54.3 million in property, plant
and equipment, of which $15.2 million was expended in the Pork
segment, $14.7 million in the Marine segment, $21.6 million in
the Sugar segment and $2.8 million in the remaining businesses.
For the Pork segment, the expenditures were primarily for
improvements to existing hog facilities, upgrades to the Guymon
pork processing plant and construction of the ham-boning and
processing plant in Mexico. The ham-boning and processing plant
was completed in the second quarter of 2009. For the Marine
segment, $10.3 million was spent to purchase cargo carrying and
handling equipment. In the Sugar segment, $13.8 million was used
for development of the cogeneration power plant with the
remaining capital expenditures primarily being used for expansion
of cane growing operations. All other capital expenditures were
primarily of a normal recurring nature and primarily included
replacement of machinery and equipment, and general facility
modernizations and upgrades.
The total 2010 capital expenditures budget is $90.3 million. The
Pork segment plans to spend $16.9 million primarily for
improvements to existing facilities and related equipment. The
Marine segment has budgeted to spend $34.1 million primarily for
additional cargo carrying and handling 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. The Sugar segment plans to
spend $25.7 million, including $12.2 million for the continued
development of a 40 megawatt cogeneration power plant, with the
remaining amount for normal upgrades to existing operations. The
cogeneration power plant is expected to be operational by the
third quarter of 2010 for a total constructed cost of $37.2
million. The balance of $13.6 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. As of December 31, 2009 Seaboard had commitments of
$18.7 million to spend on construction projects, purchase
equipment, and make facility improvements.
12
Management's Discussion & Analysis
During 2008 Seaboard invested $134.6 million in property, plant
and equipment, of which $52.6 million was expended in the Pork
segment, $46.3 million in the Marine segment, $31.0 million in
the Sugar segment and $4.7 million in the remaining businesses.
For the Pork segment, $12.8 million was spent constructing
additional hog finishing space, $9.3 million was spent on the
construction of a biodiesel plant and $8.2 million was spent on
the ham-boning and processing plant. For the Marine segment,
$36.5 million was spent to purchase cargo carrying and handling
equipment. In the Sugar segment, $10.4 million was used for
development of the cogeneration power plant with the remaining
capital expenditures being used primarily for expansion of
alcohol distillery operations and expansion of cane growing
operations. All other capital expenditures were primarily of a
normal recurring nature and primarily included replacement of
machinery and equipment, and general facility modernizations and
upgrades.
During 2007 Seaboard invested $164.2 million in property, plant
and equipment, of which $78.1 million was expended in the Pork
segment, $3.0 million in the Commodity Trading and Milling
segment, $61.0 million in the Marine segment, $21.4 million in
the Sugar segment and $0.7 million in the remaining businesses.
For the Pork segment, $31.7 million was spent on the construction
of a biodiesel plant and $22.9 million was spent constructing
additional hog finishing space. For the Marine segment, $21.8
million was spent to purchase two containerized cargo vessels and
$21.4 million was spent to purchase cargo carrying and handling
equipment. In the Sugar segment, the capital expenditures were
primarily used for expansion of cane growing operations, various
improvements to the sugar mill and expansion of alcohol
distillery operations. All other capital expenditures were
primarily of a normal recurring nature and primarily included
replacements of machinery and equipment, and general facility
modernizations and upgrades.
On March 2, 2009, an agreement became effective under which
Seaboard will sell its two power barges in the Dominican Republic
on or around January 1, 2011 for $70.0 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 13 to the
Consolidated Financial Statements for further discussion.
In late September 2007, Seaboard acquired for $8.5 million a 40%
non-controlling interest, including cash contributed into the
business, in a flour milling business located in Colombia.
During the fourth quarter of 2007, Seaboard acquired for $6.6
million a 50% non-controlling interest in a grain trading
business in Peru. Both investments are accounted for using the
equity method.
In January 2007, Seaboard repurchased the 4.74% equity interest
in its subsidiary, Seaboard Foods LLC, from the former owners of
Daily's. As part of the Purchase Agreement, on January 2, 2007
Seaboard paid $30.0 million of the purchase price for the 4.74%
equity interest to the former owners of Daily's. During the third
quarter of 2007, Seaboard paid approximately $31.2 million to the
former owners of Daily's as the final payment to repurchase their
minority interest in Seaboard Foods, LLC. See Note 2 to the
Consolidated Financial Statements for further discussion.
Financing Activities, Debt and Related Covenants
In the fourth quarter of 2009, Seaboard obtained letter of credit
financing that replaced existing letters of credit resulting in
an increase to borrowing capacity by approximately $16.3 million.
The following table represents a summary of Seaboard's available
borrowing capacity as of December 31, 2009. At December 31,
2009, there were no borrowings outstanding under the committed
lines of credit and borrowings under the uncommitted lines of
credit totaled $33.8 million, all related to foreign
subsidiaries. Letters of credit reduced Seaboard's borrowing
capacity under its committed and uncommitted credit lines by
$41.7 million and $3.8 million, respectively, primarily
representing $26.4 million for Seaboard's outstanding Industrial
Development Revenue Bonds and $16.8 million related to insurance
coverage. Also included in notes payable at December 31, 2009
was a term note of $47.5 million denominated in U.S. dollars.
13
Management's Discussion & Analysis
Total amount
(Thousands of dollars) available
Long-term credit facilities - committed $300,000
Short-term uncommitted demand notes 135,588
Uncommitted term note 47,500
Total borrowing capacity 483,088
Amounts drawn against lines (33,762)
Uncommitted term note (47,500)
Letters of credit reducing borrowing availability (45,500)
Available borrowing capacity at December 31, 2009 $356,326
Seaboard has capacity under existing covenants to undertake
additional debt financings of approximately $844.8 million. As
of December 31, 2009, Seaboard is in compliance with all
restrictive covenants relating to these arrangements. See Note 8
to the Consolidated Financial Statements for a summary of the
material terms of Seaboard's credit facilities, including
financial ratios and covenants.
Scheduled long-term debt maturities range from $1.5 million to
$32.5 million per year, for a total of $36.4 million over the
next three years. As of December 31, 2009, Seaboard has cash and
short-term investments of $469.2 million, total working capital
of $907.3 million and a $300.0 million 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.
Management does, however, periodically review various
alternatives for future financing to provide additional liquidity
for future operating plans. Despite the current global business
climate, management intends to continue seeking opportunities for
expansion in the industries in which Seaboard operates, utilizing
existing liquidity and available borrowing capacity, and
currently does not plan to pursue other financing alternatives.
On November 6, 2009, the Board of Directors authorized up to $100
million for a new share repurchase program. The previous share
repurchase program approved by the Board of Directors on August
7, 2007, ended on August 31, 2009. Seaboard used cash to
repurchase 3,668 shares of common stock at a total price of $3.4
million in 2009, 3,852 shares of common stock at a total price of
$5.0 million in 2008 and 17,089 shares of common stock at a total
price of $30.5 million in 2007. See Note 12 for further
discussion.
Contractual Obligations and Off-Balance-Sheet Arrangements
The following table provides a summary of Seaboard's contractual
cash obligations as of December 31, 2009.
Payments due by period
Less than 1-3 3-5 More than
(Thousands of dollars) Total 1 year years years 5 years
Vessel time and voyage-
charter commitments $ 134,393 $ 69,631 $ 44,973 $ 19,789 $ -
Contract grower finishing
agreements 85,892 12,106 21,621 18,762 33,403
Other operating lease
payments 291,958 19,467 32,340 27,110 213,041
Total lease obligations 512,243 101,204 98,934 65,661 246,444
Long-term debt 78,869 2,337 34,023 8,509 34,000
Short-term notes payable 81,262 81,262 - - -
Other purchase commitments 544,280 389,449 154,831 - -
Total contractual cash
obligations and
commitments $1,216,654 $574,252 $287,788 $ 74,170 $280,444
14
Management's Discussion & Analysis
The Marine segment enters into contracts to time-charter vessels
for use in its operations. To support the operations of the Pork
segment, Seaboard has contract grower finishing agreements in
place with farmers to raise a portion of Seaboard's hogs.
Seaboard has entered into grain and feed ingredient purchase
contracts to support the live hog operations of the Pork segment
and has contracted for the purchase of additional hogs from third
parties. The Commodity Trading and Milling segment enters into
commodity purchase contracts and ocean freight contracts,
primarily to support sales commitments. Seaboard also leases
various facilities and equipment under noncancelable operating
lease agreements. See Note 11 to the Consolidated Financial
Statements for a further discussion and for a more detailed
listing of other purchase commitments.
Seaboard has also issued $1.4 million of guarantees to support
certain activities of non-consolidated affiliates and third
parties who provide services for Seaboard. See Note 11 to the
Consolidated Financial Statements for a detailed discussion.
RESULTS OF OPERATIONS
Net sales for the year ended December 31, 2009 were $3,601.3
million, $4,267.8 million in 2008 and $3,213.3 million in 2007.
The decrease in net sales in 2009 was primarily the result of
price decreases for commodities sold by the commodity trading
business, lower cargo volumes for the Marine segment and, to a
lesser extent, a decrease in sales prices for pork products.
Partially offsetting the decreases were increased commodities
trading volumes to non-consolidated foreign affiliates. The
increase in net sales in 2008 was primarily the result of
significant price increases for commodities sold by the commodity
trading business and, to a lesser extent, increased commodity
trading volumes. Also increasing sales were higher cargo rates
and, to a lesser extent, higher cargo volumes for the Marine
segment.
Operating income was $23.7 million in 2009, $121.8 million in
2008 and $169.9 million in 2007. The 2009 decrease compared to
2008 primarily reflected lower commodity trading and Marine
segment margins and a $32.6 million fluctuation of marking to
market Commodity Trading and Milling derivative contracts,
respectively, as discussed below. The decrease was partially
offset by higher margins on pork products sold primarily from
lower feed costs. The 2008 decrease compared to 2007 primarily
reflected the higher feed costs for hogs as a result of higher
corn prices and, to a lesser extent, higher soybean meal prices.
Also decreasing operating income were lower margins on marine
cargo services as a result of higher fuel prices and other
related operating costs. The decreases were partially offset by
the result of higher commodity trading margins that are not
expected to repeat and the effect of the mark-to-market of
derivatives in the Commodity Trading and Milling segment along
with the higher cargo rates for the Marine segment.
On January 12, 2010, Haiti was struck by an earthquake. Seaboard
has a non-controlling interest in a foreign affiliate with a
flour mill operation in Lafiteau, Haiti. Part of this facility
was severely damaged as a result of the earthquake. This
affiliate business intends to rebuild the damaged part of the
facility and will continue to operate the portion of the facility
that was not damaged. This facility was fully insured, including
business interruption and inventory coverage. Seaboard also
sells wheat and flour to this business through Seaboard's
commodity trading operations. In addition, the primary port in
Haiti, located in Port-au-Prince from which Seaboard Marine's
vessels normally dock, was severely damaged. Seaboard is not the
owner operator of this port location but does operate a small
terminal facility nearby that sustained minor damage from the
earthquake, which is covered by insurance. Currently, Seaboard
has no indication how long it will take before regular service
can be resumed to Haiti's primary port but is currently routing
cargoes through secondary ports in Haiti and the Dominican
Republic. Based on management's current expectations, which
includes assessment of anticipated insurance proceeds, this event
will not have a material impact on the financial statements.
Pork Segment
(Dollars in millions) 2009 2008 2007
Net sales $1,065.3 $1,126.0 $1,003.8
Operating income (loss) $ (15.0) $ (45.9) $ 39.5
Net sales of the Pork segment decreased $60.7 million for the
year ended December 31, 2009 compared to 2008. The decrease was
primarily the result of a decrease in overall sales prices for
pork products, partially offset by higher volumes of pork
products sold for export. Increased volumes were made possible
by the expansion in daily capacity
15
Management's Discussion & Analysis
at the Guymon processing plant during the first quarter of 2008.
The lower sales prices for pork products appear to be the result
of an excess supply of pork products in the domestic market, the
world economic challenges as well as the impacts of H1N1 flu
related concerns. In April 2009, reports of a new flu strain
believed to originate in Mexico rapidly received wide-spread
public attention. In response to initial reports referring to
this strain as "swine flu", certain countries banned U.S. pork
exports and this segment noted a decrease in overall market
prices for its pork products. By year-end, several foreign
markets lifted their bans on imports of U.S. pork products and
prices began to improve slightly.
Operating loss decreased $30.9 million for the year ended
December 31, 2009 compared with 2008. The improvement was
primarily a result of cost decreases more than offsetting the
sales price decreases discussed above. The cost decreases
primarily were related to lower feed costs (principally from
lower corn prices), the impact of using the LIFO method for
determining certain inventory costs, and lower costs of third
party hogs. LIFO increased operating results by $17.9 million in
2009 compared to a decrease of $17.2 million in 2008 primarily as
a result of lower costs to purchase corn and soybean meal during
2009. Also, in 2008 Seaboard incurred an impairment charge of
$7.0 million as discussed below.
Management is unable to predict future market prices for pork
products or the cost of feed and hogs purchased from third
parties. Management anticipates this segment's results to
improve to profitable levels in 2010 as sales prices for pork
products begin to increase as long as costs, such as the price of
corn used for feed, do not increase significantly. As discussed
in Note 6 to the Consolidated Financial Statements, there is a
possibility that some amount of the biodiesel plant could be
deemed impaired during some future period including fiscal 2010,
which may result in a charge to earnings if current projections
are not met.
Net sales of the Pork segment increased $122.2 million for the
year ended December 31, 2008 compared to 2007. The increase was
primarily the result of higher pork sales volumes, which
reflected increases in both domestic and export sales. The
increased volumes were made possible by the expansion in daily
capacity at the Guymon processing plant during the first quarter
of 2008. Sales of biodiesel related to the start-up of the new
biodiesel processing plant during the second quarter of 2008 also
contributed to the increase in net sales. To a lesser extent,
the results of the Pork segment were affected by higher pork
product prices.
Operating income decreased $85.4 million for the year ended
December 31, 2008 compared with 2007. The decrease was primarily
a result of higher feed costs from higher corn prices and to a
lesser extent, soybean meal prices. To a lesser extent,
operating losses related to the start-up of the biodiesel plant
affected operating income. In addition, as further discussed in
Note 2 to the Consolidated Financial Statements, during the
fourth quarter of 2008 Seaboard incurred an impairment charge of
$7.0 million related to Daily's trade name. Partially offsetting
these decreases was the increase in sales prices for pork
products noted above.
Commodity Trading and Milling Segment
(Dollars in millions) 2009 2008 2007
Net sales $1,531.6 $1,897.4 $1,152.0
Operating income as reported $ 24.8 $ 96.5 $ 20.9
Less mark-to-market adjustments 14.5 (18.1) 13.2
Operating income excluding mark-to-market
adjustments $ 39.3 $ 78.4 $ 34.1
Income from foreign affiliates $ 19.1 $ 12.6 $ 5.2
Net sales of the Commodity Trading and Milling segment decreased
$365.8 million for the year ended December 31, 2009 compared to
2008. The decrease was primarily the result of price decreases
for commodities sold by the commodity trading business,
especially for wheat, partially offset by increased commodity
trading volumes to non-consolidated foreign affiliates. As
worldwide commodity price fluctuations cannot be predicted,
management is unable to predict the level of future sales.
Operating income decreased $71.7 million for 2009 compared to
2008. The decrease primarily reflected certain long inventory
positions, especially wheat, taken by Seaboard which provided
higher than average commodity trading margins during the first
six months of 2008 as the price of these commodities
significantly increased to historic highs at the time of sale in
2008. In addition, the decrease includes a $32.6 million
fluctuation of marking to market the
16
Management's Discussion & Analysis
derivative contracts as discussed below. Operating income was
also impacted by certain grain inventory related write-downs in
2009 and 2008 as discussed in Note 4 to the Consolidated
Financial 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 2010, excluding the potential
effects of marking to market derivative contracts.
If Seaboard had not applied mark-to-market accounting to its
derivative instruments, operating income for 2009 and 2007 would
have been higher by $14.5 million and $13.2 million,
respectively, and 2008 would have been lower by $18.1 million.
While management believes its commodity futures and options,
foreign exchange contracts and forward freight agreements are
primarily economic hedges of its firm purchase and sales
contracts or anticipated sales contracts, Seaboard does not
perform the extensive record-keeping required to account for
these types of transactions as hedges for accounting purposes.
Accordingly, while the changes in value of the derivative
instruments were marked to market, the changes in value of the
firm purchase or sales contracts were not marked to market. As
products are delivered to customers, these mark-to-market
adjustments should be primarily offset by realized margins or
losses as revenue is recognized and thus, these mark-to-market
adjustments could reverse in fiscal 2009. Management believes
eliminating these adjustments, as noted in the table above,
provides a more reasonable presentation to compare and evaluate
year-to-year financial results for this segment.
Income from foreign affiliates for the year ended December 31,
2009 increased $6.5 million from 2008 primarily as a result of
favorable market conditions for certain foreign affiliates. The
increase was also the result of one of the entities discontinuing
its operations by selling its trade name and certain assets to an
entity in exchange for a minority ownership in such entity and a
separate sale of land and building to a third party. Seaboard's
proportionate share of these two transactions represents
approximately $2.3 million of the income from foreign affiliates
for 2009. See Note 5 to the Consolidated Financial Statements
for further discussion. 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 although management anticipates that 2010 income from
foreign affiliates will be lower than 2009.
Net sales of the Commodity Trading and Milling segment increased
$745.4 million for the year ended December 31, 2008 compared to
2007. The increase was primarily the result of significantly
higher prices of commodities sold by the commodity trading
business, especially wheat, and, to a lesser extent, increased
commodity trading volumes. The increased trading volumes were
primarily a result of Seaboard expanding its business in new and
existing markets, including trading rice.
Operating income increased $75.6 million for 2008 compared to
2007. The increase primarily reflected increased commodity
trading margins and, to a lesser extent, the increased commodity
trading volumes discussed above. The increase in commodity
trading margins primarily reflected certain long inventory
positions, principally wheat, previously taken by Seaboard, which
provided higher than average commodity trading margins during the
first half of 2008, as the price of these commodities
significantly increased to historic highs at the time of sale.
The increase also reflected the $31.3 million fluctuation of
marking to market the derivative contracts as discussed above.
Income from foreign affiliates for the year ended December 31,
2008 increased $7.4 million from 2007 as a result of favorable
market conditions.
Marine Segment
(Dollars in millions) 2009 2008 2007
Net sales $737.6 $958.0 $822.2
Operating income $ 24.1 $ 62.4 $104.2
Net sales of the Marine segment decreased $220.4 million for the
year ended December 31, 2009, compared to 2008 primarily as a
result of economic declines in most markets served by Seaboard
resulting in lower cargo volumes and, to a lesser extent, lower
cargo rates especially during the last half of 2009.
Operating income decreased by $38.3 million compared to 2008.
The decrease was primarily the result of lower rates, as
discussed above, not being offset by comparable decreases in
certain costs, such as port costs and
17
Management's Discussion & Analysis
stevedoring. However, significant decreases did occur related
to fuel costs for vessels, charterhire and trucking expenses on
a per unit shipped basis. Management cannot predict changes in
future cargo volumes and cargo rates or to what extent changes in
economic conditions in markets served will continue to affect net
sales or operating income during 2010. However, management
anticipates this segment will be profitable in 2010 although
somewhat lower during the first half than 2009 given the recent
fluctuations in global trade volume and cargo rates.
Net sales of the Marine segment increased $135.8 million for the
year ended December 31, 2008, compared to 2007 primarily as a
result of higher cargo rates and, to a lesser extent, higher
cargo volumes. Cargo rates were higher in certain markets
primarily as a result of higher cost-recovery surcharges for
fuel. Cargo volumes were higher as a result of the expansion of
services provided in certain markets and favorable economic
conditions during 2008 in several Latin American markets served.
Operating income decreased by $41.8 million compared to 2007.
The decrease was primarily the result of significantly higher
fuel costs for vessels on a per unit shipped basis. Operating
income also decreased as a result of higher operating costs on a
per unit shipped basis including charter hire and owned-vessel
operating costs, trucking, terminal costs and stevedoring.
Sugar Segment
(Dollars in millions) 2009 2008 2007
Net sales $143.0 $142.1 $125.9
Operating income (loss) $ (0.9) $ 3.7 $ 15.5
Income from foreign affiliates $ 1.0 $ 0.5 $ 0.4
Net sales of the Sugar segment increased $0.9 million for the
year ended December 31, 2009 compared to 2008. The increase is
primarily the result of increased volumes produced and sold in
the export markets partially offset by lower domestic sugar
prices and the elimination of the citrus operations. Argentine
governmental authorities continue to attempt to control inflation
by limiting the price of basic commodities, including sugar.
Accordingly, management cannot predict sugar prices for 2010.
Operating income decreased $4.6 million during 2009 compared to
2008 primarily as a result of lower margins on alcohol sales from
lower sales prices and lower margins from the citrus operations.
Although the citrus operations had negative margins for 2008,
during 2009 the negative margins were slightly higher as this
segment recorded a $5.3 million charge to earnings during the
first and second quarters of 2009 related to the write-down of
citrus inventories, the 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. The decrease also reflects
higher selling and administrative personnel costs in 2009.
Management anticipates higher operating income in this segment
for 2010 compared to 2009. In the first quarter of 2010, this
segment began sales of dehydrated alcohol to certain local oil
companies under the national bio-ethanol program which requires
alcohol to be blended with gasoline. In addition, the
construction of a 40 megawatt cogeneration power plant is
expected to be completed during the third quarter of 2010.
Net sales of the Sugar and Citrus segment increased $16.2 million
for the year ended December 31, 2008 compared to 2007. The
increase primarily reflected higher domestic sugar prices.
Operating income decreased $11.8 million during 2008 compared to
2007 primarily as a result of losses incurred by the citrus and
juice businesses, principally from citrus quality issues and
increased production costs for the juice business. In addition,
operating income decreased as a result of higher selling and
administrative personnel costs. Total gross margin from sugar
sales did not increase in 2008 compared to 2007 as the higher
sugar prices discussed above were primarily offset by a higher
percentage of sales from sugar purchased from third parties for
resale. This sugar had a significantly lower margin compared to
sugar produced by Seaboard. Increased production costs also
affected gross margin from sugar sales.
Power Segment
(Dollars in millions) 2009 2008 2007
Net sales $107.1 $129.4 $ 94.0
Operating income $ 8.2 $ 7.8 $ 5.4
Net sales for the Power segment decreased $22.3 million for 2009
compared to 2008 primarily reflecting lower rates. The lower
rates were attributable primarily to lower fuel costs, a
component of pricing. Operating income increased $0.4 million
during 2009 compared to 2008 primarily as a result of lower
production costs partially offset by higher administrative
personnel costs. Management cannot predict future fuel costs or
the extent to which rates will fluctuate compared to fuel costs,
although management anticipates this segment to remain profitable
in 2010. See Note 13 to the Consolidated Financial Statements
for the pending sale of certain assets of this business on or
around January 1, 2011. Accordingly, such assets are classified
as held for sale as of December 31, 2009 and depreciation ceased
on these assets as of January 1, 2010.
Net sales for the Power segment increased $35.4 million for 2008
compared to 2007 primarily as a result of higher rates. The
higher rates were attributable primarily to higher fuel costs, a
component of pricing. Operating income increased $2.4 million
during 2008 compared to 2007 primarily as a result of higher
rates being in excess of higher fuel costs.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year
ended December 31, 2009 increased by $18.0 million over 2008 to
$193.9 million. This increase was primarily due to increased
personnel costs, including increased costs of $13.9 million,
included in Corporate expenses, 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 increased
to 5.4% for 2009 compared to 4.1% for 2008 primarily as a result
of decreased sales in the Commodity Trading and Milling and
Marine segments.
SG&A expenses for the year ended December 31, 2008 increased by
$3.8 million over 2007 to $175.9 million. This increase was
primarily due to increased personnel costs. Partially offsetting
the increase were decreased 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). Also, partially offsetting the increase was a
$3.7 million pension settlement loss recognized in the first
quarter of 2007 related to the late Mr. H. H. Bresky's retirement
payment in February 2007 as discussed in Note 10 to the
Consolidated Financial Statements. As a percentage of revenues,
SG&A decreased to 4.1% for 2008 compared to 5.4% for 2007
primarily as a result of increased sales in the Commodity Trading
and Milling segment.
Interest Expense
Interest expense totaled $13.2 million, $15.4 million and $12.6
million for the years ended December 31, 2009, 2008 and 2007,
respectively. Interest expense decreased for 2009 compared to
2008, primarily as a result of a lower average level of both
short-term and long-term borrowings outstanding during 2009
partially offset by higher average interest rates on short-term
borrowings outstanding. Interest expense increased for 2008
compared to 2007, primarily as a result of a higher average level
of short-term borrowings outstanding during 2008 partially offset
by a lower average level of long-term borrowings outstanding.
Interest Income
Interest income totaled $17.3 million, $14.9 million and $18.9
million for the years ended December 31, 2009, 2008 and 2007,
respectively. The increase for 2009 primarily reflected an
increase in average funds invested. The decrease for 2008
primarily reflected a decrease in average funds invested.
Foreign Currency Gains (Losses)
Foreign currency gains (losses) totaled $2.4 million, $(19.7)
million and $0.1 million for the years ended December 31, 2009,
2008 and 2007, respectively. The fluctuation for 2009 compared
to 2008 primarily related to the unusually high currency losses
incurred during the fourth quarter of 2008, as noted below, from
the global liquidity crisis occurring at that time which did not
occur during 2009. The fluctuation for 2008 compared to 2007
primarily related to currency translation and realized losses in
the commodity trading business related to transactions
denominated in South African rand and, to a lesser extent, the
Euro Zone euro principally during the fourth quarter of
19
Management's Discussion & Analysis
2008. Although Seaboard does not utilize hedge accounting, the
commodity trading business does utilize foreign currency exchange
contracts to manage its risks and exposure to foreign currency
fluctuations caused primarily by the South African rand and the
Euro Zone euro. Management believes the gains and losses,
including the mark-to-market effects, of these foreign currency
contracts relate to the underlying commodity transactions and
classifies such gains and losses in cost of sales. In addition,
the 2008 loss includes currency losses related to the yen based
borrowing by the Sugar segment, principally during the fourth
quarter of 2008. A significant portion of this currency loss was
offset by a currency gain on the underlying debt, which was
recorded in a cumulative translation adjustment account in equity
as of December 31, 2008. Seaboard operates in many developing
countries. The political and economic conditions of these
markets, along with fluctuations in the value of the U.S. dollar,
cause volatility in currency exchange rates which exposes
Seaboard to fluctuating foreign currency gains and losses which
cannot be predicted by Seaboard.
Other Investment Income, Net
Other investment income, net totaled $15.5 million, $7.5 million
and $6.1 million for the years ended December 31, 2009, 2008 and
2007, respectively. Other investment income for 2009 primarily
reflected income of $6.0 million in the Power segment related to
the settlement of a receivable, not directly related to its
business and purchased at a discount, gains of $4.3 million in
the mark-to-market value of Seaboard's investments related to the
deferred compensation programs and gains of $2.8 million on debt
trading securities. Other investment income for 2008 primarily
reflected $8.9 million on equity securities transactions, income
of $7.6 million in the Power segment related to the settlement of
a receivable, not directly related to its business and purchased
at a discount, and income of $1.1 million related to the
assignment of rights related to an investment as discussed in
Note 13 to the Consolidated Financial Statements. Partially
offsetting the above income items was a $9.6 million loss in the
mark-to-market value of Seaboard's investments related to the
deferred compensation programs in 2008.
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.
Miscellaneous, Net
Miscellaneous, net totaled $6.5 million, $2.5 million and $5.2
million and for the years ended December 31, 2009, 2008 and 2007,
respectively. For 2009, miscellaneous, net included a $5.3
million gain on interest exchange agreements. During the second
quarter of 2007, Seaboard recognized a gain of $4.1 million from
a favorable settlement received in June 2007 related to a land
expropriation in Argentina. This land settlement was recorded as
miscellaneous income since the land was expropriated prior to
Seaboard's purchase of the sugar and citrus business, thus never
a part of the sugar and citrus operations recorded by Seaboard.
Income Tax Expense
The effective tax benefit rate decreased for 2009 compared to
2008 primarily from lower permanently deferred foreign earnings
and lower domestic taxable loss. The effective tax rate decreased
for 2008 compared to 2007 primarily from lower domestic taxable
income resulting in a tax benefit based on domestic taxable loss
compared to permanently deferred foreign earnings.
OTHER FINANCIAL INFORMATION
Seaboard is subject to various federal and state regulations
regarding environmental protection and land and water use. Among
other things, these regulations affect the disposal of livestock
waste and corporate farming matters in general. Management
believes it is in compliance, in all material respects, with all
such regulations. Laws and regulations in the states where
Seaboard conducts its pork operations are restrictive. Future
changes in environmental or corporate farming laws could
adversely affect the manner in which Seaboard operates its
business and its cost structure.
In June 2009, the FASB issued ASC Topic 810-10 (formerly
Financial Accounting Standard (FAS) 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
20
Management's Discussion & Analysis
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 variable
interest entity and requires certain additional disclosures about
the VIE. Seaboard will be required to adopt this Topic as of
January 1, 2010. Management believes the adoption of this Topic
will not have a material impact on Seaboard's financial position
or net earnings.
Management does not believe its businesses have been materially
adversely affected by general inflation.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates. Management has identified the accounting estimates
believed to be the most important to the portrayal of Seaboard's
financial condition and results, and which require management's
most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters
that are inherently uncertain. Management has reviewed these
critical accounting estimates with the Audit Committee of the
Board of Directors. These critical accounting policies include:
Allowance for Doubtful Accounts - Seaboard primarily uses a
specific identification approach, in management's best judgment,
to evaluate the adequacy of this reserve for estimated
uncollectible receivables as of the consolidated balance sheet
date. Changes in estimates, developing trends and other new
information can have a material effect on future evaluations.
Furthermore, Seaboard's total current and long-term receivables
are heavily weighted toward foreign receivables ($181.6 million
or 59.7% at December 31, 2009), including receivables due from
foreign affiliates ($47.4 million at December 31, 2009) and
receivables in the Power segment, which generally represent more
of a collection risk than its domestic receivables. Receivables
due from foreign affiliates are generally associated with
entities located in foreign countries considered underdeveloped,
as discussed below, which can experience conditions causing
sudden changes to their ability to repay such receivables on a
timely basis or in full. For the Power segment, which operates
in the Dominican Republic (DR), collection patterns have been
sporadic and are sometimes based upon negotiated settlements for
past due receivables resulting in material revisions to the
allowance for doubtful accounts from year to year. For example,
currently the Power segment sells approximately 34% of its power
generation to a government-owned distribution company under a
short-term contract that expires at the end of March 2010 and for
which Seaboard bears a concentrated credit risk as this customer
is usually behind in its payments on account. As of December 31,
2009, this customer account had billings outstanding of $12.8
million. Future collections of receivables or lack thereof
could result in a material charge or credit to earnings depending
on the ultimate resolution of each individual customer past due
receivable. Bad debt expense for the years ended December 31,
2009, 2008 and 2007 was $2.1 million, $0.8 million and $1.4
million, respectively.
Valuation of Inventories - Inventories are generally valued at
the lower of cost or market. In determining market, management
makes assumptions regarding replacement costs, estimated sales
prices, estimated costs to complete, estimated disposal costs,
and normal profit margins. For commodity trading inventories,
when contract performance by a customer becomes a concern,
management must also evaluate available options to dispose of the
inventory, including assumptions about potential negotiated
changes to sales contracts, sales prices in alternative markets
in various foreign countries and potentially additional
transportation costs. At times, management must consider
probability weighting various viable alternatives in its
determination of the net realizable value of the inventories.
These assumptions and probabilities are subjective in nature and
are based on management's best estimates and judgments existing
at the time of preparation. Changes in future market prices of
grains or facts and circumstances could result in a material
write-down in value of inventory or increased future margins on
the sale of inventory.
Impairment of Long-lived Assets - At each balance sheet date,
long-lived assets, primarily property, plant and equipment, are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount
21
Management's Discussion & Analysis
may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the
asset to future net cash flows expected to be generated by the
asset group. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of
the assets. Some of the key assumptions utilized in determining
future projected cash flows include estimated growth rates,
expected future sales prices and estimated costs. In some cases,
judgment is also required in assigning probability weighting to
the various future cash flow scenarios. The probability weighting
percentages used and the various future projected cash flow
models prepared by management are based on facts and
circumstances existing at the time of preparation and
management's best estimates and judgment of future operating
results. Seaboard cannot predict the occurrence of certain
future events that might adversely affect the reported value of
long-lived assets, which include but are not limited to, a
change in the business climate, government incentives, a negative
change in relationships with significant customers, and changes
to strategic decisions made in response to economic and
competitive conditions. Changes in these facts, circumstances
and management's estimates and judgment could result in an
impairment of fixed assets resulting in a material charge to
earnings. See Note 6 to the Consolidated Financial Statements
for further discussion on the Pork Segment and its recorded
value for the biodiesel processing plant of $43.2 million at
December 31, 2009.
Goodwill and Other Intangible Assets - Goodwill and other
indefinite-life intangible assets, not subject to amortization,
are evaluated annually for impairment at the quarter-end closest
to the anniversary date of the acquisition, or more frequently if
circumstances indicate that impairment is likely. The impairment
tests require management to make judgments in determining what
assumptions to use in estimating fair value. One of the methods
used by Seaboard to determine fair value is the income approach
using discounted future projected cash flows. Some of the key
assumptions utilized in determining future projected cash flows
include estimated growth rates, expected future sales prices and
costs, and future capital expenditures requirements. In some
cases, judgment is also required in assigning probability
weighting to the various future cash flow scenarios. The
probability weighting percentages used and the various future
projected cash flow models prepared by management are based on
facts and circumstances existing at the time of preparation and
management's best estimates and judgment of future operating
results. Seaboard cannot predict the occurrence of certain
future events that might adversely affect the reported value of
goodwill and indefinite-life intangible assets that may include,
but are not limited to, a change in the business climate, a
negative change in relationships with significant customers, and
changes to strategic decisions, including decisions to expand,
made in response to economic and competitive conditions. Changes
in these facts, circumstances and management's estimates and
judgment could result in an impairment of goodwill and/or other
intangible assets resulting in a material charge to earnings.
See Note 2 to the Consolidated Financial Statements for further
discussion regarding the Pork segment and its recorded intangible
asset values related to Daily's, including an impairment charge
of $7.0 million recorded in the fourth quarter of 2008 related to
Daily's trade name. At December 31, 2009, Seaboard had goodwill
of $40.6 million and other intangible assets not subject to
amortization of $17.0 million.
Income Taxes - Income taxes are determined by management based on
current tax regulations in the various worldwide taxing
jurisdictions in which Seaboard conducts its business. In
various situations, accruals have been made for estimates of the
tax effects for certain transactions, business structures, the
estimated reversal of timing differences and future projected
profitability of Seaboard's various business units based on
management's interpretation of existing facts, circumstances and
tax regulations. Should new evidence come to management's
attention which could alter previous conclusions or if taxing
authorities disagree with the positions taken by Seaboard, the
change in estimate could result in a material adverse or
favorable impact on the financial statements. As of
December 31, 2009, Seaboard has deferred tax assets of $65.3
million, net of the valuation allowance of $28.6 million, and
deferred tax liabilities of $114.4 million. For the years ended
December 31, 2009, 2008 and 2007, income tax expense included
$(11.5) million, $(6.3) million and $(22.5) million,
respectively, for deferred taxes to federal, foreign, state and
local taxing jurisdictions.
Accrued Pension Liability - The measurement of Seaboard's pension
liability and related expense is dependent on a variety of
assumptions and estimates regarding future events. These
assumptions include discount rates, assumed rate of return on
plan assets, compensation increases, turnover rates, mortality
rates and retirement rates. The discount rate and return on plan
assets are important elements of liability and expense
measurement and are reviewed on an annual basis. The effect of
decreasing both the discount rate and assumed rate of return on
plan
22
Management's Discussion & Analysis
assets by 50 basis points would be an increase in pension
expense of approximately $1.6 million per year. The effects of
actual results differing from the assumptions (i.e. gains or
losses) are primarily accumulated in accrued pension liability
and amortized over future periods if it exceeds the 10% corridor
and, therefore, could affect Seaboard's recognized pension
expense in such future periods, as permitted under ASC Topic 715
(formerly FAS No. 87, "Employers' Accounting for Pensions").
Accordingly, accumulated gains or losses in excess of the 10%
corridor are amortized over the average future service of active
participants. The unrecognized losses as of December 31, 2008
exceeded this 10% threshold as a result of the significant
investment losses incurred during 2008. As a result, Seaboard's
pension expense for its defined benefit pension plan for its
salaried and clerical employees increased by approximately $3.1
million for 2009 as compared to 2008 due to loss amortization.
See Note 10 to the Consolidated Financial Statements for further
discussion of management's assumptions and projected 2010
expense.
DERIVATIVE INFORMATION
Seaboard is exposed to various types of market risks in its day-
to-day operations. Primary market risk exposures result from
changing commodity prices, freight rates, foreign currency
exchange rates and interest rates. Although used to manage
overall market risks, Seaboard does not perform the extensive
record-keeping required to account for derivative transactions as
hedges. Management believes it uses derivatives primarily as
economic hedges although they do not qualify as hedges for
accounting purposes. Since these derivatives are not accounted
for as hedges, fluctuations in the related prices could have a
material impact on earnings in any given year. From time to
time, Seaboard may enter into speculative derivative transactions
related to its market risks.
Changes in commodity prices affect the cost of necessary raw
materials and other inventories, finished product sales and firm
sales commitments. Seaboard uses various grain and oilseed
futures and options purchase contracts to manage certain risks of
increasing prices of raw materials and firm sales commitments or
anticipated sales contracts. Short sales contracts are then used
to offset the open purchase derivatives when the related
commodity inventory is purchased in advance of the derivative
maturity, effectively offsetting the initial futures or option
purchase contract. From time to time, hog futures are used to
manage risks of increasing prices of live hogs acquired for
processing, and pork bellies and hog futures are used to manage
risks of fluctuating prices of pork product inventories and
related future sales. From time to time, Seaboard may enter into
short positions in energy related resources (i.e. heating oil,
crude oil, etc.) to manage certain exposures related to bioenergy
margins. Inventories that are sensitive to changes in commodity
prices, including carrying amounts at December 31, 2009 and 2008,
are presented in Note 4 to the Consolidated Financial Statements.
Raw material requirements, finished product sales, and firm sales
commitments are also sensitive to changes in commodity prices.
From time-to-time, the Commodity Trading and Milling segment
enters into certain forward freight agreements, viewed as taking
long positions in the freight market as well as covering short
freight sales, which may or may not result in actual losses when
future trades are executed. These forward freight agreements are
viewed by management as an economic hedge against the potential
of future rising charter hire rates to be incurred by this
segment for bulk cargo shipping while conducting its business of
delivering grains to customers in many international locations.
Forward freight agreements had virtually no net exposure to a
change in market price as the two open forward freight agreements
offset each other at December 31, 2008. As of December 31, 2009,
there were no such agreements outstanding.
Because changes in foreign currency exchange rates affect the
cash paid or received on foreign currency denominated receivables
and payables, Seaboard manages certain of these risks through the
use of foreign currency forward exchange agreements. Changes in
interest rates affect the cash required to service variable rate
debt. From time to time, Seaboard uses interest rate swaps to
manage risks of increasing interest rates.
In December 2008 and again in March 2009, Seaboard entered into
ten-year interest rate exchange agreements which involves 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 agreed to pay a
fixed rate and receive a variable rate of interest on two
notional amounts of $25.0 million each. In June 2009, Seaboard
terminated both interest rate exchange agreements with a total
notional value of $50.0 million. As of December 31, 2009, there
were no interest rate exchange agreements outstanding.
23
Management's Discussion & Analysis
The following table presents the sensitivity of the fair value of
Seaboard's open net commodity future and option contracts,
forward freight agreements, foreign currency contracts and
interest rate exchange agreements to a hypothetical 10% adverse
change in market prices or in foreign exchange rates and interest
rates as of December 31, 2009 and December 31, 2008. For all
open derivatives, the fair value of such positions is a summation
of the fair values calculated for each item by valuing each net
position at quoted market prices as of the applicable date.
(Thousands of dollars) December 31, 2009 December 31, 2008
Grains and oilseeds $ 9,808 $ 5,788
Hogs and pork bellies 186 868
Energy related resources 284 253
Foreign currencies 23,080 21,414
Interest rates - 570
The table below provides information about Seaboard's non-trading
financial instruments sensitive to changes in interest rates at
December 31, 2009. For debt obligations, the table presents
principal cash flows and related weighted average interest rates
by expected maturity dates. At December 31, 2009, long-term debt
included foreign subsidiary obligations of $0.7 million
denominated in CFA francs (a currency used in several central
African countries), $0.2 million payable in Argentine pesos and
the foreign subsidiary obligations denominated in Mozambique
metical were repaid in 2009. At December 31, 2008, long-term
debt included foreign subsidiary obligations of $1.1 million
denominated in CFA francs, $0.3 million payable in Argentine
pesos, and $0.1 million denominated in Mozambique metical.
Weighted average variable rates are based on rates in place at
the reporting date. Short-term instruments including short-term
investments, non-trade receivables and current notes payable have
carrying values that approximate market and are not included in
this table due to their short-term nature.
(Dollars in thousands) 2010 2011 2012 2013 2014 Thereafter Total
Long-term debt:
Fixed rate $2,105 $1,477 $32,546 $ 556 $ 153 $ - $36,837
Average interest
rate 11.33% 8.87% 7.03% 15.92% 15.92% - 7.52%
Variable rate $ 232 $ - $ - $ - $7,800 $34,000 $42,032
Average interest
rate 7.00% - - - 0.39% 0.41% 0.44%
Non-trading financial instruments sensitive to changes in
interest rates at December 31, 2008 consisted of fixed rate long-
term debt totaling $83.6 million with an average interest rate of
6.84%, and variable rate long-term debt totaling $42.1 million
with an average interest rate of 1.44%.
24
Management's Responsibility for Consolidated Financial Statements
The management of Seaboard Corporation and its consolidated
subsidiaries (Seaboard) is responsible for the preparation of its
consolidated financial statements and related information
appearing in this report. Management believes that the
consolidated financial statements fairly present Seaboard's
financial position and results of operations in conformity with
U.S. generally accepted accounting principles and necessarily
includes amounts that are based on estimates and judgments which
it believes are reasonable based on current circumstances with
due consideration given to materiality.
Management relies on a system of internal controls over financial
reporting that is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance
with company policy and U.S. generally accepted accounting
principles, and are properly recorded, and accounting records are
adequate for preparation of financial statements and other
information and disclosures. The concept of reasonable assurance
is based on recognition that the cost of a control system should
not exceed the benefits expected to be derived and such
evaluations require estimates and judgments. The design and
effectiveness of the system are monitored by a professional staff
of internal auditors.
All internal control systems, no matter how well designed, have
inherent limitations. Internal control over financial reporting
is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human
failures. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
The Board of Directors pursues its review of auditing, internal
controls and financial statements through its audit committee,
composed entirely of independent directors. In the exercise of
its responsibilities, the audit committee meets periodically with
management, with the internal auditors and with the independent
registered public accounting firm to review the scope and results
of audits. Both the internal auditors and the registered public
accounting firm have unrestricted access to the audit committee
with or without the presence of management.
The consolidated financial statements have been audited by the
independent registered public accounting firm of KPMG LLP. Their
responsibility is to examine records and transactions related to
the consolidated financial statements to the extent required by
the standards of the Public Company Accounting Oversight Board.
KPMG has rendered their opinion that the consolidated financial
statements are fairly presented, in all material respects, in
conformity with U.S. generally accepted accounting principles.
Their report is included herein.
Management's Report on Internal Control over Financial Reporting
The management of Seaboard Corporation and its consolidated
subsidiaries (Seaboard) is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Under
the supervision and with the participation of management and its
Internal Audit Department, Seaboard conducted an evaluation of
the effectiveness of its internal control over financial
reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on its evaluation under
the framework in Internal Control - Integrated Framework,
management concluded that Seaboard's internal control over
financial reporting was effective as of December 31, 2009.
Seaboard's registered independent public accounting firm, that
audited the consolidated financial statements included in the
annual report, has issued an audit report on the effectiveness of
Seaboard's internal control over financial reporting. Their
report is included herein.
25
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Seaboard Corporation:
We have audited the accompanying consolidated balance sheets of
Seaboard Corporation and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of earnings, changes in equity, and cash flows for
each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Seaboard Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Seaboard Corporation's internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 5, 2010 expressed an unqualified
opinion on the effectiveness of the Company's internal control
over financial reporting.
/s/KPMG LLP
Kansas City, Missouri
March 5, 2010
26
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Seaboard Corporation:
We have audited Seaboard Corporation's internal control over
financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Seaboard Corporation's management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying "Management's Report on Internal Control over
Financial Reporting". Our responsibility is to express an opinion
on the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company's assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Seaboard Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Seaboard Corporation and
subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of earnings, changes in equity and cash
flows for each of the years in the three-year period ended
December 31, 2009, and our report dated March 5, 2010 expressed
an unqualified opinion on those consolidated financial
statements.
/s/KPMG LLP
Kansas City, Missouri
March 5, 2010
27
SEABOARD CORPORATION
Consolidated Statement of Earnings
Years ended December 31,
(Thousands of dollars except per share amounts) 2009 2008 2007
Net sales:
Products (includes sales to foreign
affiliates of $543,066, $587,922
and $299,174) $2,718,736 $3,144,432 $2,268,310
Service revenues 775,498 993,942 851,038
Other 107,074 129,430 93,953
Total net sales 3,601,308 4,267,804 3,213,301
Cost of sales and operating expenses:
Products 2,619,396 3,005,924 2,120,412
Services 671,598 847,956 667,146
Other 92,701 116,253 83,769
Total cost of sales and operating expenses 3,383,695 3,970,133 2,871,327
Gross income 217,613 297,671 341,974
Selling, general and administrative expenses 193,890 175,862 172,059
Operating income 23,723 121,809 169,915
Other income (expense):
Interest expense (13,158) (15,354) (12,588)
Interest income 17,336 14,939 18,867
Income from foreign affiliates 20,158 13,084 3,874
Foreign currency gain (loss), net 2,432 (19,713) 120
Other investment income, net 15,500 7,522 6,065
Gain on disputed sale, net of expenses 16,787 - -
Miscellaneous, net 6,463 2,539 5,192
Total other income, net 65,518 3,017 21,530
Earnings before income taxes 89,241 124,826 191,445
Income tax benefit (expense) 2,276 22,689 (10,177)
Net earnings $ 91,517 $ 147,515 $ 181,268
Less: Net (income) loss attributable to
noncontrolling interests 965 (596) 64
Net earnings attributable to Seaboard $ 92,482 $ 146,919 $ 181,332
Earnings per common share $ 74.74 $ 118.19 $ 144.15
Weighted average shares outstanding 1,237,452 1,243,087 1,257,901
Dividends declared per common share $ 3.00 $ 3.00 $ 3.00
See accompanying notes to consolidated financial statements.
28
SEABOARD CORPORATION
Consolidated Balance Sheets
December 31,
(Thousands of dollars except per share amounts) 2009 2008
Assets
Current assets:
Cash and cash equivalents $ 61,857 $ 60,594
Short-term investments 407,351 312,680
Receivables:
Trade 194,764 207,534
Due from foreign affiliates 47,352 100,434
Other 35,861 60,012
277,977 367,980
Allowance for doubtful accounts (7,330) (7,303)
Net receivables 270,647 360,677
Inventories 498,587 508,995
Deferred income taxes 10,490 14,195
Deferred costs 95,788 20,546
Other current assets 80,582 94,167
Total current assets 1,425,302 1,371,854
Investments in and advances to foreign affiliates 82,232 68,091
Net property, plant and equipment 691,343 763,675
Goodwill 40,628 40,628
Intangible assets, net 20,676 22,285
Other assets 76,952 64,828
Total Assets $2,337,133 $2,331,361
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 81,262 $ 177,205
Current maturities of long-term debt 2,337 47,054
Accounts payable 141,193 122,869
Accrued compensation and benefits 84,165 72,857
Deferred revenue 112,889 50,252
Accrued voyage costs 33,874 48,382
Other accrued liabilities 62,320 73,472
Total current liabilities 518,040 592,091
Long-term debt, less current maturities 76,532 78,560
Deferred income taxes 59,546 81,205
Accrued pension liability 64,161 70,920
Other liabilities 73,435 45,007
Total non-current and deferred liabilities 273,674 275,692
Commitments and contingent liabilities
Stockholders' equity:
Common stock of $1 par value. Authorized 1,250,000
and 4,000,000 shares; issued and outstanding
1,236,758 and 1,240,426 shares 1,237 1,240
Accumulated other comprehensive loss (114,786) (111,703)
Retained earnings 1,655,222 1,569,818
Total Seaboard stockholders' equity 1,541,673 1,459,355
Noncontrolling interests 3,746 4,223
Total equity 1,545,419 1,463,578
Total Liabilities and Stockholders' Equity $2,337,133 $2,331,361
See accompanying notes to consolidated financial statements.
29
SEABOARD CORPORATION
Consolidated Statement of Cash Flows
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Cash flows from operating activities:
Net earnings $ 91,517 $ 147,515 $ 181,268
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 91,841 90,381 79,221
Income from foreign affiliates (20,158) (13,084) (3,874)
Dividends received from foreign affiliates 7,906 1,333 1,954
Other investment income, net (15,500) (7,522) (6,065)
Foreign currency exchange losses 6,578 19,606 4,496
Deferred income taxes (15,298) (7,602) (26,740)
Loss (gain) from sale of fixed assets 530 39 (1,285)
Gain on disputed sale, net of expenses (16,787) - -
Intangible asset impairment charge - 7,000 -
Changes in current assets and liabilities,
net of portion of operations sold and
business acquired:
Receivables, net of allowance 93,861 (14,518) (80,360)
Inventories 1,552 (119,859) (52,699)
Other current assets (58,823) (44,344) (20,968)
Current liabilities, exclusive of debt 69,738 43,264 63,255
Other, net 9,400 9,057 7,630
Net cash from operating activities 246,357 111,266 145,833
Cash flows from investing activities:
Purchase of short-term investments (346,522) (287,411) (1,683,849)
Proceeds from the sale of short-term
investments 211,403 204,494 1,851,589
Proceeds from the maturity of short-term
investments 66,842 61,675 24,842
Purchase of long-term investments (3,108) - (2,000)
Investments in and advances to foreign
affiliates, net 71 (710) (15,192)
Capital expenditures (54,276) (134,634) (164,173)
Repurchase of noncontrolling interest in a
controlled subsidiary - - (61,260)
Proceeds from the sale of fixed assets 3,255 4,412 4,148
Payment received for the potential sale of
power barges 15,000 - -
Net proceeds from disputed sale 16,787 - -
Other, net 46 (442) (4,754)
Net cash from investing activities (90,502) (152,616) (50,649)
Cash flows from financing activities:
Notes payable to banks, net (95,072) 79,354 19,111
Principal payments of long-term debt (46,914) (11,679) (63,536)
Repurchase of common stock (3,370) (5,012) (30,488)
Dividends paid (3,711) (3,728) (3,765)
Dividends paid to noncontrolling interests (112) (104) (136)
Other, net (291) (1,081) -
Net cash from financing activities (149,470) 57,750 (78,814)
Effect of exchange rate change on cash (5,122) (3,152) (393)
Net change in cash and cash equivalents 1,263 13,248 15,977
Cash and cash equivalents at beginning of year 60,594 47,346 31,369
Cash and cash equivalents at end of year $ 61,857 $ 60,594 $ 47,346
See accompanying notes to consolidated financial statements.
30
SEABOARD CORPORATION
Consolidated Statement of Changes in Equity
Accumulated
Other
Common Additional Comprehensive Retained Noncontrolling
(Thousands of dollars except per share amounts) Stock Capital Loss Earnings Interest Total
Balances, January 1, 2007 $ 1,261 $ 21,574 $ (82,493) $1,262,965 $ 39,103 $1,242,410
Comprehensive income:
Net earnings 181,332 (64) 181,268
Other comprehensive income net
of income tax expense of $(2,492):
Foreign currency translation adjustment (2,908) (2,908)
Unrealized gain on investments (212) (212)
Unrecognized pension cost 7,059 7,059
Unrealized loss on cash flow hedges 55 55
Amortization of deferred
gains on interest rate swaps (152) (152)
Total Comprehensive income 185,110
Purchase of noncontrolling interests (37,932) (37,932)
Dividends paid to noncontrolling interests (136) (136)
Repurchase of Common Stock (17) (21,574) (8,897) (30,488)
Dividends on common stock (3,765) (3,765)
Balances, December 31, 2007 1,244 - (78,651) 1,431,635 971 1,355,199
Comprehensive income:
Net earnings 146,919 596 147,515
Other comprehensive income net
of income tax benefit of $11,525:
Foreign currency translation adjustment (9,492) (9,492)
Unrealized gain on investments 632 632
Unrecognized pension cost (24,192) (24,192)
Total Comprehensive income 114,463
Addition of noncontrolling interests 2,760 2,760
Dividends paid to noncontrolling interests (104) (104)
Repurchase of Common Stock (4) (5,008) (5,012)
Dividends on common stock (3,728) (3,728)
Balances, December 31, 2008 1,240 - (111,703) 1,569,818 4,223 1,463,578
Comprehensive income:
Net earnings 92,482 (965) 91,517
Other comprehensive income net
of income tax benefit of $3,206:
Foreign currency translation adjustment (9,365) (9,365)
Unrealized gain on investments 798 798
Unrecognized pension cost 5,484 5,484
Total Comprehensive income 88,434
Addition of noncontrolling interests 600 600
Dividends paid to noncontrolling interests (112) (112)
Repurchase of Common Stock (3) - - (3,367) (3,370)
Dividends on common stock (3,711) (3,711)
Balances, December 31, 2009 $ 1,237 $ - $(114,786) $1,655,222 $ 3,746 $1,545,419
See accompanying notes to consolidated financial statements.
31
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Operations of Seaboard Corporation and its Subsidiaries
Seaboard Corporation and its subsidiaries (Seaboard) is a
diversified international agribusiness and transportation
company. In the United States, Seaboard is primarily engaged in
pork production and processing, and ocean transportation.
Overseas, Seaboard is primarily engaged in commodity
merchandising, grain processing, sugar production, and electric
power generation. Seaboard Flour LLC and SFC Preferred LLC
(Parent Companies) are the owners of 72.3% of Seaboard's
outstanding common stock.
Principles of Consolidation and Investments in Affiliates
The consolidated financial statements include the accounts of
Seaboard Corporation and its domestic and foreign subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation. Investments in non-controlled
foreign affiliates are accounted for by the equity method.
Financial information from certain foreign subsidiaries and
affiliates is reported on a one- to three-month lag depending on
the specific entity.
Short-term Investments
Short-term investments are retained for future use in the
business and may include money market accounts, municipal debt
securities, corporate bonds and U.S. government obligations and,
on a limited basis, foreign government bonds, high yield bonds,
currency futures and domestic equity securities. Investments
held by Seaboard that are categorized as available-for-sale are
reported at their estimated fair value with any related
unrealized gains and losses reported net of tax, as a component
of accumulated other comprehensive income. Investments held by
Seaboard that are categorized as trading securities are reported
at their estimated fair value with any unrealized gains and
losses included in other investment income on the Consolidated
Statement of Earnings. Debt securities that are categorized as
held to maturity, are recorded at amortized cost, which is
adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income.
Gains and losses on sale of investments are generally based on
the specific identification method.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and
generally do not bear interest. The Power segment, however,
collects interest on certain past due accounts and the Commodity
Trading and Milling segment provides extended payment terms for
certain customers and/or markets due to local business
conditions. The allowance for doubtful accounts is Seaboard's
best estimate of the amount of probable credit losses. For most
operating segments, Seaboard uses a specific identification
approach to determine, in management's judgment, the collection
value of certain past due accounts based on contractual terms.
For the Marine segment, the allowance for doubtful accounts is
based on an aging percentage methodology primarily based on
historical write-off experience. Seaboard reviews its allowance
for doubtful accounts monthly. Account balances are charged off
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Inventories
Seaboard uses the lower of last-in, first-out (LIFO) cost or
market for determining inventory cost of live hogs, fresh pork
product and related materials. Grain, flour and feed inventories
at foreign milling operations are valued at the lower of weighted
average cost or market. All other inventories, including further
processed pork products, are valued at the lower of first-in,
first-out (FIFO) cost or market.
Deferred Costs
Deferred costs represent inventory delivered to customers and
related shipping costs incurred for certain commodity trades that
Seaboard has received the majority of payments for the trades
(which are recorded as deferred revenues) but has not yet
recognized as revenue as the final sale price is not yet fixed
and determinable. The corresponding deferred margin on such
trades is not deemed material.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are being
depreciated generally on the straight-line method over useful
lives ranging from 3 to 30 years. Property, plant and equipment
leases which are deemed to be installment purchase obligations
have been capitalized and included in the property, plant and
equipment accounts. Routine and planned major maintenance,
repairs, and minor renewals are expensed as incurred while major
renewals and improvements are capitalized.
32
Notes to Consolidated Financial Statements
Impairment of Long-lived Assets
Long-lived assets, primarily property, plant and equipment, are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future
undiscounted net cash flows expected to be generated by the
asset. If such assets are determined to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the estimated fair
value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to
sell. See Note 6 for further discussion on the Pork Segment and
its recorded value of the biodiesel processing plant.
Goodwill and Other Intangible Assets
Goodwill and other indefinite-life intangible assets are
evaluated annually for impairment at the quarter-end closest to
the anniversary date of the acquisition, or more frequently if
circumstances indicate that impairment is likely. Separable
intangible assets with finite lives are amortized over their
estimated useful lives. Any one event or a combination of events
such as change in the business climate, a negative change in
relationships with significant customers, and changes to
strategic decisions, including decisions to expand, made in
response to economic or competitive conditions could require an
interim assessment prior to the next required annual assessment.
The most recent impairment tests performed and current market
conditions indicated goodwill and other intangible assets are not
impaired as of December 31, 2009. However, future conditions and
marketplace changes could significantly impact prospective
determinations of estimated cash flows as of December 31, 2009.
Accrued Self-Insurance
Seaboard is self-insured for certain levels of general and
vehicle liability, property, workers' compensation, product
recall and health care coverage. The cost of these self-
insurance programs is accrued based upon estimated settlements
for known and anticipated claims. Changes in estimates to
previously recorded reserves are reflected in current operating
results.
Deferred Grants
Included in other liabilities at December 31, 2009 and 2008 was
$6,469,000 and $6,894,000, respectively, of deferred grants. The
deferred grants represent economic development funds contributed
by government entities that were limited to construction of a
pork processing facility in Guymon, Oklahoma. Deferred grants
are being amortized as a reduction of depreciation expense over
the life of the assets acquired with the funds.
Asset Retirement Obligation
Seaboard has recorded long-lived assets and a related liability
for the asset retirement obligation costs associated with the
closure of the hog lagoons it is legally obligated to close in
the future should Seaboard cease operations or plan to close such
lagoons voluntarily in accordance with a changed operating plan.
Based on detailed assessments and appraisals obtained to estimate
the future retirement costs, Seaboard has determined and recorded
the present value of the projected costs in non-current other
liabilities on the Consolidated Balance Sheet, with the
retirement asset depreciated over the economic life of the
related asset. For 2009, the adjustment to existing lagoons
relates to changes in certain state regulations for lagoon
closures. The following table shows the changes in the asset
retirement obligation during 2009 and 2008.
Years ended December 31,
(Thousands of dollars) 2009 2008
Beginning balance $ 8,846 $8,117
Accretion expense 652 602
Liability for additional lagoons placed in service - 127
Adjustment to existing lagoons 1,592 -
Ending balance $11,090 $8,846
33
Notes to Consolidated Financial Statements
Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. However, in the future as these timing
differences reverse, a lower statutory tax rate may apply
pursuant to the provisions for domestic manufacturers of the
American Jobs Creation Act of 2004. In accordance with Financial
Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 740-10-55 (formerly FASB Staff Position
No. 109-1, "Application of FASB Statement No. 109, Accounting for
Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004"),
Seaboard will recognize the benefit or cost of this change in the
future.
Revenue Recognition
Revenue of the containerized cargo service is recognized ratably
over the transit time for each voyage with expenses associated
with containerized cargo service being recognized as incurred.
Revenue of the commodity trading business is recognized when the
commodity is delivered to the customer, collection is reasonably
assured, and the sales price is fixed or determinable. Revenues
from all other commercial exchanges are recognized at the time
products are shipped or delivered in accordance with shipping
terms or services rendered, the customer takes ownership and
assumes risk of loss, collection is reasonably assured and the
sales price is fixed or determinable. As a result of a marketing
agreement with Triumph Foods, beginning in 2006, Seaboard's sales
prices for its pork products included in product revenues are
primarily based on a margin sharing arrangement that considers
the average sales price and mix of products sold from both
Seaboard's and Triumph Foods' hog processing plants. Seaboard
earns a fee for marketing the pork products of Triumph Foods and
recognizes this fee as service revenue primarily based on the
number of head processed by Triumph Foods.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Earnings Per Common Share
Earnings per common share are based upon the weighted average
shares outstanding during the period. Basic and diluted earnings
per share are the same for all periods presented.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows,
management considers all demand deposits and overnight
investments as cash equivalents. Net cash from operating
activities was increased and net cash from investing activities
was decreased from prior year presentation by $1,333,000 and
$1,954,000 for 2008 and 2007, respectively, to conform to the
2009 presentation of dividends received from foreign affiliates.
The following table shows the amounts paid for interest and
income taxes.
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Interest (net of amounts capitalized) $ 13,845 $ 14,037 $ 11,733
Income taxes (net of refunds) (10,542) 10,815 20,993
Supplemental Noncash Transactions
As more fully described in Note 13, in May 2009 Seaboard received
sovereign government bonds of the Dominican Republic with a par
value of $20,000,000 denominated in U.S. dollars to satisfy the
same amount of outstanding billings owed by a customer that
Seaboard had classified as long-term. During the fourth quarter
of 2009, Seaboard sold a portion of these bonds with par value of
$9,700,000. At December 31, 2009, the remaining $10,300,000 par
value of bonds are classified as available-for-sale short term
investments on the Consolidated Balance Sheet. During January
and February 2010, Seaboard sold the remaining bonds resulting in
an immaterial loss.
34
Notes to Consolidated Financial Statements
As more fully described in Note 2, Seaboard repurchased the 4.74%
equity interest in Seaboard Foods LLC from the former owners of
Daily's effective January 1, 2007. The following table
summarizes the non-cash transactions resulting from this
repurchase.
Year ended
(Thousands of dollars) December 31, 2007
Increase in fixed assets $ 7,976
Increase in intangible assets 3,745
Increase in goodwill 12,256
Decrease in non-controlling interest 37,933
Increase in deferred income tax liability (650)
Cash paid $ 61,260
In the fourth quarter of 2007, the Power segment received
$4,500,000 of fixed assets for the settlement of a receivable,
not related to its business and purchased at a discount, and
recognized a gain of $3,596,000 included in other investment
income.
Foreign Currency Transactions and Translation
Seaboard has operations in and transactions with customers in a
number of foreign countries. The currencies of the countries
fluctuate in relation to the U.S. dollar. Certain of the major
contracts and transactions, however, are denominated in U.S.
dollars. In addition, the value of the U.S. dollar fluctuates in
relation to the currencies of countries where certain of
Seaboard's foreign subsidiaries and affiliates primarily conduct
business. These fluctuations result in exchange gains and
losses. The activities of these foreign subsidiaries and
affiliates are primarily conducted with U.S. subsidiaries or
operate in hyper-inflationary environments. As a result, the
financial statements of certain foreign subsidiaries and
affiliates are re-measured using the U.S. dollar as the
functional currency. Included in foreign currency gain (loss),
net for the years ended December 31, 2009, 2008 and 2007 was a
foreign currency gain of $4,794,000, a foreign currency loss of
$(4,575,000) and a foreign currency gain of $1,000,000,
respectively. These losses and gains reflect the re-
measurements as of December 31, 2008 and 2007 of a note payable
denominated in Japanese Yen, as discussed in Note 8, of a foreign
consolidated subsidiary accounted for on a one-month lag except
for this re-measurement of this note payable. The currency gains
for 2009 and 2007 and losses for 2008 were primarily offset by a
mark-to-market currency loss for December in 2009 and 2007 and a
gain in December for 2008 from a foreign currency derivative
contract discussed in Note 9. The note payable and related
foreign currency derivative were terminated in December 2009.
Seaboard's Sugar segment and three non-controlled, non-
consolidated foreign affiliates (milling businesses in Colombia,
Kenya and Lesotho), use local currency as their functional
currency. Assets and liabilities of these subsidiaries are
translated to U.S. dollars at year-end exchange rates, and income
and expense items are translated at average rates. Translation
gains and losses are recorded as components of other
comprehensive loss. U.S. dollar denominated net asset or
liability conversions to the local currency are recorded through
income.
Derivative Instruments and Hedging Activities
Seaboard recognizes all derivatives as either assets or
liabilities at their fair values. Accounting for changes in the
fair value of a derivative depends on its designation and
effectiveness. Derivatives qualify for treatment as hedges for
accounting purposes when there is a high correlation between the
change in fair value of the instrument and the related change in
value of the underlying commitment. In order to designate a
derivative financial instrument as a hedge for accounting
purposes, extensive record keeping is required. For derivatives
that qualify as hedges for accounting purposes, the change in
fair value has no net impact on earnings, to the extent the
derivative is considered effective, until the hedged transaction
affects earnings. For derivatives that are not designated as
hedging instruments for accounting purposes, or for the
ineffective portion of a hedging instrument, the change in fair
value does affect current period net earnings.
Seaboard holds and issues certain derivative instruments to
manage various types of market risks from its day-to-day
operations primarily including commodity futures and option
contracts and foreign currency exchange agreements, and from time-
to-time, forward freight agreements and interest rate exchange
agreements. While management believes each of these instruments
primarily are entered into in order to effectively manage various
market risks, as
35
Notes to Consolidated Financial Statements
of December 31, 2009, none of the derivatives are designated and
accounted for as hedges primarily as a result of the extensive
record-keeping requirements. From time to time, Seaboard may
enter into speculative derivative transactions related to its
market risks.
New Accounting Standards
In June 2009, the FASB issued ASC Topic 810-10 (formerly
Financial Accounting Standard (FAS) 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 variable
interest entity and requires certain additional disclosures about
the VIE. Seaboard will be required to adopt this Topic as of
January 1, 2010. Management believes the adoption of this Topic
will not have a material impact on Seaboard's financial position
or net earnings.
Recently Adopted Accounting Standards
Seaboard adopted FASB ASC Topic 810-10-65 (formerly FAS No. 160,
"Noncontrolling Interests in Consolidated Financial Statements -
an amendment of ARB No. 51") as of January 1, 2009. This Topic
changed the accounting and reporting for minority interests,
which are now recharacterized as noncontrolling interests. The
noncontrolling interests are now classified as a component of
equity. Noncontrolling interests are included in total
stockholder's equity for all years stockholder's equity is
presented. This Topic did not have a material impact on
Seaboard's financial position or net earnings.
Note 2
Acquisitions and Repurchase of Noncontrolling Interest
On July 5, 2005, Seaboard acquired Daily's, a bacon processor
located in the western United States. As part of this
acquisition, a 4.74% equity interest in Seaboard Foods LLC was
issued to the sellers. On December 27, 2006, Seaboard entered
into a Purchase Agreement to repurchase the 4.74% equity interest
in Foods from the former owners of Daily's effective January 1,
2007. As part of the Purchase Agreement, on January 2, 2007
Seaboard paid $30,000,000 of the purchase price for the 4.74%
equity interest to the former owners of Daily's. Based on the
formula of operating results and certain net cash flows through
June 30, 2007, the final purchase price was determined to be
$61,260,000, including transaction costs of $53,000. Seaboard
paid the balance of the purchase price owed to the former owners
of Daily's of $31,207,000 in August 2007. The total purchase
price for the 4.74% equity interest in Seaboard Foods LLC of
$61,260,000 represents $23,327,000 in excess of book value.
Seaboard applied the purchase method of accounting for this step
acquisition by allocating the purchase price to the fair value of
the net assets acquired to the extent of the 4.74% change in
ownership.
As a result of the Daily's acquisition and repurchase, the Pork
segment is the only segment with goodwill or intangible assets.
The following table is a summary of goodwill and intangible
assets acquired from the Daily's acquisition and Seaboard's
repurchase of Daily's 4.74% equity interest in Foods, at December
31, 2009 and 2008.
36
Notes to Consolidated Financial Statements
December 31,
(Thousands of dollars) 2009 2008
Intangibles subject to amortization:
Gross carrying amount:
Customer relationships $ 9,045 $ 9,045
Covenants not to compete 1,500 1,500
10,545 10,545
Accumulated amortization:
Customer relationships (5,519) (4,210)
Covenants not to compete (1,350) (1,050)
(6,869) (5,260)
Net carrying amount:
Customer relationships 3,526 4,835
Covenants not to compete 150 450
Intangibles subject to amortization, net 3,676 5,285
Intangibles not subject to amortization:
Carrying amount-trade names and registered trademarks 17,000 17,000
Total intangible assets, net 20,676 22,285
Goodwill 40,628 40,628
Total goodwill and intangible assets, net $61,304 $62,913
The amortization expense of amortizable intangible assets for the
years ended December 31, 2009, 2008 and 2007 was $1,610,000,
$1,610,000, and $1,610,000, respectively. Amortization expense
for the five succeeding years is $930,000 for the next year and
$250,000 each for the second, third, fourth and fifth year.
As of December 31, 2009, the Pork segment had $28,372,000 of
goodwill and $17,000,000 of other intangible assets not subject
to amortization in connection with its acquisition of Daily's in
2005. In 2008, revised projected future sales prices as of
December 31, 2008 indicated the potential for impairment. In
addition, the overall downturn of the United States economy and
Seaboard's stock price trading below book value during the fourth
quarter of 2008 provided additional indicators that Seaboard
should reassess its annual evaluation for impairment related to
Daily's intangible assets. This reassessment included downward
revisions in previously used future projected sales volumes and
royalty rate assumptions used in the measurement of Daily's trade
name as a result of the current economic conditions. This
analysis resulted in a $7,000,000 impairment charge recorded in
cost of sales on the Consolidated Statements of Earnings during
the fourth quarter of 2008 to write down the recorded value of
Daily's trade name to its estimated fair value of $17,000,000 as
of December 31, 2008. After this impairment charge, there was no
indication of potential impairment of goodwill related to Daily's
as the revised estimated enterprise fair value of Daily's
exceeded its book value as of December 31, 2008. As of July 4,
2009, Seaboard conducted its annual evaluation for impairment of
this goodwill and other intangible assets related to Daily's and,
based on current market conditions indicating future sale price
increases, additional processed meats sales volumes and related
levels of estimated operating margins determined there was no
impairment as of December 31, 2009.
Note 3
Short Term Investments
In April 2009, the FASB issued ASC Topic 320-10-65 (previously
Staff Position FAS 115-2 and FAS 124-2 "Recognition and
Presentation of Other-Than-Temporary Impairments"). This Topic
amends the other-than-temporary guidance for debt securities to
make the guidance more operational. This Topic also expands the
disclosures required in Topic 320-10 to interim periods. Seaboard
adopted this Topic in the second quarter of 2009. The adoption
of this Topic did not have an impact on Seaboard's financial
position or net earnings.
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. All of Seaboard's short term
investments are recorded at their estimated fair market values.
37
Notes to Consolidated Financial Statements
As of December 31, 2009 and 2008, the available-for-sale
investments primarily consisted of money market funds, fixed rate
municipal notes and bonds, corporate bonds and U.S. Government
agency securities. At December 31, 2009 and 2008, short-term
investments included $14,710,000 and $14,553,000, respectively,
held by a wholly-owned consolidated insurance captive to pay
Seaboard's retention of accrued outstanding workers' compensation
claims. At December 31, 2009 and 2008, amortized cost and
estimated fair market value were not materially different for
these investments. As of December 31, 2009, the trading
securities primarily consisted of high yield debt securities. As
of December 31, 2009 and 2008, unrealized gains related to
trading securities were $2,206,000 and $2,763,000, respectively.
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 December 31, 2009 and 2008.
2009 2008
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Money market funds $153,699 $153,699 $ 79,059 $ 79,059
Fixed rate municipal notes and bonds 144,794 148,609 170,150 173,096
Corporate bonds 34,663 35,449 5,006 4,800
U.S. Government agency securities 15,907 16,272 25,338 25,514
Foreign government debt securities 10,300 10,210 - -
Asset backed debt securities 8,447 8,484 4,250 4,068
Variable rate demand notes 1,900 1,900 7,900 7,900
Other 3,060 3,069 6,975 6,472
Total available for sale short-term
investments 372,770 377,692 298,678 300,909
High yield trading debt securities 24,784 26,771 - -
Other trading debt securities 2,669 2,888 - -
Domestic trading equity securities - - 9,008 11,771
Total available for sale and trading
short-term investments $400,223 $407,351 $307,686 $312,680
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 December 31,
2009.
(Thousands of dollars) 2009
Due within one year $ 55,764
Due after one year through three years 99,562
Due after three years 58,471
Total fixed rate securities $213,797
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 9 for information on the
types of trading securities held related to the deferred
compensation plans and Note 10 for a discussion of assets held in
conjunction with investments related to Seaboard's defined
benefit pension plan.
38
Notes to Consolidated Financial Statements
Note 4
Inventories
The following table is a summary of inventories at the end of
each year.
December 31,
(Thousands of dollars) 2009 2008
At lower of LIFO cost or market:
Live hogs and materials $192,999 $201,654
Fresh pork and materials 22,398 26,480
215,397 228,134
LIFO adjustment (22,807) (40,672)
Total inventories at lower of LIFO cost or market 192,590 187,462
At lower of FIFO cost or market:
Grains and oilseeds 174,508 179,774
Sugar produced and in process 47,429 56,259
Other 46,804 36,964
Total inventories at lower of FIFO cost or market 268,741 272,997
Grain, flour and feed at lower of weighted average cost or
market 37,256 48,536
Total inventories $498,587 $508,995
The use of the LIFO method increased 2009 earnings by $10,898,000
($8.81 per common share) and decreased 2008 and 2007 net earnings
by $10,469,000 ($8.42 per common share) and $15,230,000 ($12.11
per common share), respectively. If the FIFO method had been
used for certain inventories of the Pork segment, inventories
would have been higher by $22,807,000 and $40,672,000 as of
December 31, 2009 and 2008, respectively.
As of December 31, 2009, Seaboard had $10,784,000 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-down in 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, Seaboard incurred a write-down in the first quarter of
2009 in the amount of $8,801,000 (with no tax benefit
recognized), or $7.10 per share and a write-down of $7,010,000 in
2008, including $5,653,000 ($4,940,000 net of tax), or $3.98 per
share, recorded in the fourth quarter of 2008.
Note 5
Investments in and Advances to Foreign Affiliates
Seaboard's investments in and advances to non-controlled, non-
consolidated foreign affiliates are primarily with businesses
conducting flour, maize and feed milling. As of December 31,
2009, the location and percentage ownership of these foreign
affiliates are as follows: Democratic Republic of Congo (50%),
Lesotho (50%), Kenya (35%), and Nigeria (25-48%) in Africa;
Colombia (40%) and Ecuador (25-50%) in South America; and Haiti
(23%) in the Caribbean. Also, Seaboard has an investment in a
grain trading business in Peru (50%). Seaboard generally is the
primary provider of choice for grains and supplies purchased by
these non-controlled foreign affiliates. As Seaboard conducts
its commodity trading business with third parties, consolidated
subsidiaries and foreign affiliates on an interrelated basis,
gross margin on foreign affiliates cannot be clearly
distinguished without making numerous assumptions primarily with
respect to mark-to-market accounting for commodity derivatives.
In addition, Seaboard has investments in and advances to two
sugar-related businesses in Argentina (46% - 50%). The equity
method is used to account for all of the above investments.
39
Notes to Consolidated Financial Statements
In September 2007, Seaboard acquired for $8,500,000 a 40% non-
controlling interest, including cash contributed into the
business, in a flour milling business in Colombia. During the
fourth quarter of 2007, Seaboard acquired for $6,620,000 a 50%
non-controlling interest in a grain trading business in Peru.
Both of these investments are accounted for using the equity
method. At December 31, 2009, Seaboard's investment in foreign
affiliates included $3,778,000 related to the excess difference
between the amount at which these investments were carried and
the amount of underlying equity in net assets. The amortizable
assets are being amortized to earnings from foreign affiliates
over the remaining life of the assets.
Seaboard also had an investment in a Bulgarian wine business (the
Business). Beginning in March 2007, this business was unable to
make its scheduled loan payments and was in technical default on
its bank debt. During the fourth quarter of 2007, Seaboard
signed an agreement to allow a bank to take majority ownership of
the Business resulting in a loss of significant influence by
Seaboard. Accordingly, after recording its share of operating
losses for the fourth quarter, Seaboard discontinued using the
equity method of accounting. In accordance with ASC Topic 323-10-
35 (formerly FASB Staff Position APB 18-1), Seaboard reversed
$2,801,000 of previously recorded foreign currency translation
gains out of Accumulated Other Comprehensive Loss in the equity
section of the balance sheet related to this investment, wrote-
off the remaining investment balance of $1,472,000, and
recognized as income the remaining net amount of foreign currency
gains of $1,329,000 as of December 31, 2007. In 2007, Seaboard
recorded 50% of the losses from the Business. In February 2009,
Seaboard received approximately $64,000 for all of its remaining
shares outstanding in this Business.
In prior years, Seaboard's equity investments in its Nigerian non-
consolidated foreign affiliates were written down to zero and
Seaboard suspended using the equity method of accounting for
these non-consolidated foreign affiliates as losses allocated to
Seaboard exceeded the investment. During the fourth quarter of
2009, the application of the equity method of accounting was
resumed for these entities as a result of Seaboard's
proportionate share of income exceeding the share of losses not
recognized during the prior periods. A significant factor to
this occurring was the result of one of the entities
discontinuing its feed mill operations by selling its trade name
and certain assets to an entity in exchange for a minority
ownership in such entity, and a separate sale of land and
building to a third party for cash. Seaboard's proportionate
share of these two asset sales represents approximately
$2,323,000 of the income from foreign affiliates for 2009.
Combined condensed financial information of the non-controlled,
non-consolidated foreign affiliates for their fiscal periods
ended within each of Seaboard's years ended, excluding the
Bulgarian wine operation's financial position as of December 31,
2007 and net sales and net loss for 2008 and 2009 of Other
Businesses, were as follows:
Commodity Trading and Milling Segment December 31,
(Thousands of dollars) 2009 2008 2007
Net sales $1,051,621 1,053,818 613,695
Net income $ 45,867 34,955 12,263
Total assets $ 412,849 412,555 347,040
Total liabilities $ 215,146 247,337 211,694
Total equity $ 197,703 165,218 135,346
Other Businesses December 31,
(Thousands of dollars) 2009 2008 2007
Net sales $ 22,293 20,660 30,053
Net income (loss) $ 2,169 923 (2,621)
Total assets $ 11,544 15,506 13,802
Total liabilities $ 6,265 11,396 11,021
Total equity $ 5,279 4,110 2,781
40
Notes to Consolidated Financial Statements
Note 6
Property, Plant and Equipment
The following table is a summary of property, plant and equipment
at the end of each year.
Useful December 31,
(Thousands of dollars) Lives 2009 2008
Land and improvements 15 years $ 164,290 $ 161,115
Buildings and improvements 30 years 345,031 339,672
Machinery and equipment 3-20 years 697,656 760,225
Vessels and vehicles 3-18 years 161,125 167,126
Office furniture and fixtures 5 years 25,769 25,236
Construction in progress 32,868 32,177
1,426,739 1,485,551
Accumulated depreciation and amortization (735,396) (721,876)
Net property, plant and equipment $ 691,343 $ 763,675
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. Management believes the federal tax credits will be
renewed retroactive to January 1, 2010, sometime during 2010.
Several tax credits were allowed to expire at the end of 2009 and
the U.S. Congress has indicated these will be specifically
reviewed again in 2010. As of December 31, 2009, 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 the federal tax credits
are not renewed as discussed above, and 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 December 31, 2009 was $43,162,000.
As of December 31, 2009, the net book value of $20,090,000 for
two barges previously classified as machinery and equipment was
reclassified as held for sale in non-current other assets. See
Note 13 to the Consolidated Financial Statements for further
discussion.
41
Notes to Consolidated Financial Statements
Note 7
Income Taxes
Income taxes attributable to continuing operations for the years
ended December 31, 2009, 2008 and 2007 differed from the amounts
computed by applying the statutory U.S. Federal income tax rate
of 35 percent to earnings (loss) before income taxes excluding
noncontrolling interest for the following reasons:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Computed "expected" tax expense
excluding noncontrolling interest $ 31,572 $ 43,481 $ 67,028
Adjustments to tax expense attributable to:
Foreign tax differences (20,332) (54,232) (40,841)
Tax-exempt investment income (1,809) (2,554) (4,658)
State income taxes, net of federal benefit (3,010) (1,966) 1,078
Change in valuation allowance (2,146) (1,977) (5,754)
Federal tax credits (3,672) (4,390) (1,124)
Change in pension deferred tax (3,508) 335 131
Other 629 (1,386) (5,683)
Total income tax expense (benefit) $ (2,276) $(22,689) $ 10,177
Earnings before income taxes consisted of the following:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
United States $(14,511) $(28,988) $ 38,788
Foreign 104,717 153,218 152,721
Total earnings excluding
noncontrolling interest 90,206 124,230 191,509
Plus earnings attributable to noncontrolling
interest 965 (596) 64
Total earnings before income taxes $ 89,241 $124,826 $191,445
The components of total income taxes were as follows:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Current:
Federal $ 943 $(25,462) $ 24,192
Foreign 8,454 8,259 5,935
State and local (125) 823 2,542
Deferred:
Federal (18,216) (1,280) (21,789)
Foreign 10,285 (1,425) 1,453
State and local (3,617) (3,604) (2,156)
Income tax expense (benefit) (2,276) (22,689) 10,177
Unrealized changes in other comprehensive
income (3,206) (11,525) 2,492
Total income taxes $ (5,482) $(34,214) $ 12,669
As of December 31, 2009 and 2008, Seaboard had income taxes
receivable of $4,923,000 and $24,688,000, respectively, primarily
related to domestic tax jurisdictions and had income taxes
payable of $2,048,000 and $3,946,000, respectively, primarily
related to foreign tax jurisdictions.
42
Notes to Consolidated Financial Statements
Components of the net deferred income tax liability at the end of
each year were as follows:
December 31,
(Thousands of dollars) 2009 2008
Deferred income tax liabilities:
Cash basis farming adjustment $ 11,065 $ 12,001
Deferred earnings of foreign subsidiaries - 2,749
Depreciation 100,815 94,313
LIFO 242 17,330
Other 2,233 2,368
$ 114,355 $ 128,761
Deferred income tax assets:
Reserves/accruals $ 50,097 $ 48,708
Tax credit carryforwards 12,659 9,271
Deferred earnings of foreign subsidiaries 1,733 -
Net operating and capital loss carryforwards 18,648 16,381
Foreign minimum tax credit carryforward 10,104 8,152
Other 679 314
93,920 82,826
Valuation allowance 28,621 21,075
Net deferred income tax liability $ 49,056 $ 67,010
Seaboard recognizes interest accrued related to unrecognized tax
benefits and penalties in income tax expense. For the years
ended December 31, 2009, 2008 and 2007, such interest and
penalties were not material. The Company had approximately
$1,153,000 and $726,000 accrued for the payment of interest and
penalties on uncertain tax positions at December 31, 2009, and
2008, respectively.
As of December 31, 2009 and 2008, Seaboard had $3,395,000 and
$3,464,000, respectively, in total unrecognized tax benefits all
of which, if recognized, would affect the effective tax rate.
Seaboard does not have any material uncertain tax positions in
which it is reasonably possible that the total amounts of the
unrecognized tax benefits will significantly increase or decrease
within 12 months of the reporting date. The following table is a
reconciliation of the beginning and ending amount of unrecognized
tax benefits.
(Thousands of dollars) 2009 2008
Beginning balance at January 1 $ 3,464 $ 433
Additions for uncertain tax positions of prior years 206 -
Decreases for uncertain tax positions of prior years (184) (77)
Additions for uncertain tax positions of current year 32 3,108
Settlements (15) -
Lapse of statute of limitations (108) -
Ending balance at December 31 $ 3,395 $ 3,464
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.
As of December 31 2009, Seaboard had not provided for U.S.
Federal Income and foreign withholding taxes on $655,964,000 of
undistributed earnings from foreign operations as Seaboard
intends to reinvest such earnings indefinitely outside of the
United States. Determination of the tax that might be paid on
these undistributed earnings if eventually remitted is not
practicable.
43
Notes to Consolidated Financial Statements
Seaboard has tax holidays in one foreign country in 2009 and 2008
and had tax holidays in two foreign countries in 2007 which
resulted in tax savings of approximately $3,259,000, $1,961,000,
and $2,646,000 or $2.63, $1.58, and $2.10 per diluted earnings
per common share for the years ended December 31, 2009, 2008 and
2007, respectively. One of these expired at the end of 2007 and
the other expires in 2012.
Management believes Seaboard's future taxable income will be
sufficient for full realization of the net deferred tax assets.
The valuation allowance relates to the tax benefits from foreign
net operating losses, U.S. charitable contribution carryforwards
and capital losses. Management does not believe these benefits
are more likely than not to be realized due to limitations
imposed on the deduction of these losses. The increase of
$7,546,000 in the valuations allowance for 2009 was primarily the
result of foreign minimum income tax credits which are subject to
a limited carryforward period and taxable income limitations,
partially offset by the realization of capital loss
carryforwards. At December 31, 2009, Seaboard had foreign net
operating loss carryforwards (NOLs) of approximately $36,110,000
a portion of which expire in varying amounts between 2010 and
2016, while others have indefinite expiration periods.
At December 31, 2009, Seaboard had state tax credit carryforwards
of approximately $12,368,000 net of valuation allowance, all of
which carryforward indefinitely.
Note 8
Notes Payable and Long-term Debt
Notes payable amounting to $81,262,000 and $177,205,000 at
December 31, 2009 and 2008, respectively, consisted of
obligations due banks on demand or based on Seaboard's ability
and intent to repay within one year. In the fourth quarter of
2009, Seaboard obtained letter of credit financing that replaced
existing letters of credit resulting in an increase to borrowing
capacity by approximately $16,303,000. At December 31, 2009,
Seaboard had a committed line totaling $300,000,000, maturing
July 10, 2013, and uncommitted lines totaling approximately
$135,588,000 of which $98,588,000 of the uncommitted lines relate
to foreign subsidiaries. At December 31, 2009, there were no
borrowings outstanding under the committed line and borrowings
outstanding under the uncommitted lines totaled $33,762,000, all
related to foreign subsidiaries. The uncommitted borrowings
outstanding at December 31, 2009 primarily represented
$24,899,000 denominated in South African rand. Also included in
Notes Payable at December 31, 2008 was a term note of $56,638,000
denominated in Japanese Yen which was converted during the fourth
quarter of 2008 from a previous uncommitted line. The term note
denominated in Japanese Yen was paid off in December 2009 and
replaced with a term note denominated in U.S. dollars with a
balance of $47,500,000 at December 31, 2009. The weighted
average interest rates for outstanding notes payable were 6.07%
and 6.04% at December 31, 2009 and 2008, respectively.
At December 31, 2009, Seaboard's borrowing capacity under its
committed and uncommitted lines were reduced by letters of credit
(LCs) totaling $41,720,000, and $3,780,000, respectively,
primarily including $26,385,000 of LCs for Seaboard's outstanding
Industrial Development Revenue Bonds (IDRBs) and $16,802,000
related to insurance coverages.
The notes payable to banks under the credit lines are unsecured.
The lines of credit do not require compensating balances.
Facility fees on these agreements are not material.
44
Notes to Consolidated Financial Statements
The following table is a summary of long-term debt at the end of
each year.
December 31,
(Thousands of dollars) 2009 2008
Private placements:
5.80% senior notes, repaid in 2009 $ - $ 6,500
6.21% senior notes, repaid in 2009 - 38,000
6.21% senior notes, due 2010 through 2012 3,214 4,286
6.92% senior notes, due 2012 31,000 31,000
Industrial Development Revenue Bonds, floating rates
(.39%-.44% at December 31, 2009) due 2014 through 2027 41,800 41,800
Bank debt, 6.87% - 7.60%, repaid in 2009 - 319
Foreign subsidiary obligations, 17.00%, due 2010 688 1,217
Foreign subsidiary obligation, floating rate 232 262
Capital lease obligations and other 1,935 2,230
78,869 125,614
Current maturities of long-term debt (2,337) (47,054)
Long-term debt, less current maturities $ 76,532 $ 78,560
Of the 2009 foreign subsidiary obligations, $688,000 was
denominated in CFA francs, $232,000 was payable in Argentine
pesos, and the foreign subsidiary obligations denominated in
Mozambique metical was repaid in 2009. Of the 2008 foreign
subsidiary obligations, $1,074,000 was denominated in CFA francs,
$262,000 was payable in Argentine pesos, and the remaining
$143,000 was denominated in Mozambique metical.
The terms of the note agreements pursuant to which the senior
notes, IDRBs, bank debt and credit lines were issued require,
among other terms, the maintenance of certain ratios and minimum
net worth, the most restrictive of which requires consolidated
funded debt not to exceed 50% of consolidated total
capitalization; an adjusted leverage ratio of less than 3.5 to
1.0; requires the maintenance of consolidated tangible net worth,
as defined, of not less than $1,150,000,000 plus 25% of
cumulative consolidated net income beginning March 29, 2008;
limits aggregate dividend payments to $10,000,000 plus 50% of
consolidated net income less 100% of consolidated net losses
beginning January 1, 2002 plus the aggregate amount of Net
Proceeds of Capital Stock for such period ($535,883,000 as of
December 31, 2009) or $15,000,000 per year under certain
circumstances; limits the sum of subsidiary indebtedness and
priority indebtedness to 10% of consolidated tangible net worth;
and limits Seaboard's ability to acquire investments and sell
assets under certain circumstances. Seaboard is in compliance
with all restrictive debt covenants relating to these agreements
as of December 31, 2009.
Annual maturities of long-term debt at December 31, 2009 are as
follows: $2,337,000 in 2010, $1,477,000 in 2011, $32,546,000 in
2012, $556,000 in 2013, $7,953,000 in 2014 and $34,000,000
thereafter.
Note 9
Derivatives and Fair Value of Financial Instruments
Seaboard adopted ASC Topic 820 (formerly FAS No. 157, "Fair Value
Measurements") on January 1, 2008 with the exception of
nonfinancial assets and nonfinancial liabilities that were
deferred by ASC Topic 820-10 (formerly the Financial Accounting
Standards Board Staff Position FAS 157-2). Seaboard adopted ASC
Topic 820 for these nonfinancial assets and nonfinancial
liabilities as of January 1, 2009. The adoption of ASC Topic 820
for nonfinancial assets and liabilities did not have a material
impact on Seaboard's financial position or net earnings.
ASC Topic 820 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). ASC Topic 820 utilizes a fair value hierarchy
45
Notes to Consolidated Financial Statements
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: Quoted Prices In Active Markets for Identical Assets -
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: Significant Other Observable Inputs - 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: Significant Unobservable Inputs - Unobservable inputs
that reflect the reporting entity's own assumptions.
The following table shows assets and liabilities measured at fair
value (derivatives exclude margin accounts) on a recurring basis
as of December 31, 2009 and also the level within the fair value
hierarchy used to measure each category of assets.
Balance
December 31,
(Thousands of dollars) 2009 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds $153,699 $153,699 $ - $ -
Fixed rate municipal notes and bonds 148,609 - 148,609 -
Corporate bonds 35,449 - 35,449 -
U.S. Government agency securities 16,272 - 16,272 -
Foreign government debt securities 10,210 - 10,210 -
Asset backed debt securities 8,484 - 8,484 -
Variable rate demand notes 1,900 - 1,900 -
Other 3,069 - 3,069 -
Trading securities- short term investments:
High yield debt securities 26,771 - 26,771 -
Other debt securities 2,888 - 2,888 -
Trading securities - other current assets:
Domestic equity securities 10,834 10,834 - -
Foreign equity securities 7,054 3,327 3,727 -
Fixed income mutual funds 2,027 2,027 - -
U.S. Treasury securities 1,466 - 1,466 -
Money market funds 2,649 2,649 - -
U.S. Government agency securities 2,516 - 2,516 -
Other 139 139 - -
Derivatives 5,040 4,610 430 -
Total Assets $439,076 $177,285 $261,791 $ -
Total Liabilities - Derivatives $ 8,231 $ 2,288 $ 5,943 $ -
In April 2009, the FASB issued ASC Topic 820-10-65-4 (formerly
FASB Staff Position FAS 157-4 "Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly"). This Topic provides additional guidance for
estimating fair value when the volume and level of activity for
the asset or liability have significantly decreased. Seaboard
adopted this Topic in the second quarter of 2009. The adoption
of this Topic did not have an impact on Seaboard's financial
position or net earnings.
46
Notes to Consolidated Financial Statements
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 December 31, 2009 and 2008 are presented below.
December 31, 2009 2008
(Thousands of dollars) Amortized Cost Fair Value Amortized Cost Fair Value
Short-term investments,
available for sale $372,770 $377,692 $298,678 $300,909
Short-term investments,
trading debt securities 27,453 29,659 - -
Short-term investments,
trading equity securities - - 9,008 11,771
Long-term debt 78,869 82,415 125,614 131,822
In March 2008, the FASB issued ASC Topic 815-10 (formerly FAS No.
161, "Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133"). This Topic
changed the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide enhanced
disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items
are accounted for under ASC Topic 815, and how derivative
instruments and related hedged items affect an entity's financial
position, net earnings, and cash flows. Seaboard adopted this
Topic as of January 1, 2009. This Topic did not have an impact
on Seaboard's financial position or net earnings. 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.
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. 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, 2008. 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 Consolidated Statements of
Earnings. Since these derivatives are not accounted for as
hedges, fluctuations in the related commodity prices could have a
material impact on earnings in any given year.
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 and 87,900 tons of soybean meal and to purchase 2,720,000
pounds of hogs. At December 31, 2008, Seaboard had open net
contracts to purchase and (sell) (8,305,000) bushels of grain
with a fair value of $(3,272,000) 61,000 tons of soybean meal
with a fair value of $(589,000) and 13,200,000 pounds of hogs
with a fair value of $(23,000), included with other accrued
liabilities or other current assets on the Consolidated Balance
Sheets. At December 31, 2008, Seaboard had contracts to sell
1,722,000 tons of heating oil with a fair value of $59,000. For
the years ended December 31, 2009, 2008 and 2007 Seaboard
recognized net realized and unrealized gains of $7,047,000,
$36,156,000, and $18,469,000, respectively, related to commodity
contracts, primarily included in cost of sales on the
Consolidated Statements of Earnings.
Foreign currency exchange agreements
Seaboard enters into foreign currency exchange agreements to
manage the foreign currency exchange rate risk with respect to
certain transactions denominated in foreign currencies. These
foreign exchange agreements are recorded at fair value with
changes in value marked to market as a component of cost of sales
on the Consolidated Statements of Earnings as management believes
they are primarily related to the underlying commodity
transaction, with the exception of the Japanese Yen foreign
exchange agreement. The change in value of the Japanese Yen
foreign exchange agreement was marked to market as a component of
foreign currency gain (loss) on the Consolidated Statements of
Earnings. Since these agreements are not accounted for as
hedges, fluctuations in the related currency exchange rates could
have a material impact on earnings in any given year.
47
Notes to Consolidated Financial Statements
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 notional amounts of
$193,379,000 primarily related to the South African Rand and the
Euro. At December 31, 2009, Seaboard did not have any trading
foreign exchange contracts to cover various foreign currency
working capital needs related to the South African Rand.
At December 31, 2008, Seaboard had trading foreign exchange
contracts (receive $U.S./pay South African Rand (ZAR)) to cover
its firm sales commitments and trade receivables with notional
amounts of $77,343,000 with a fair value of $1,817,000, included
in other accrued liabilities on the Consolidated Balance Sheet.
At December 31, 2008, Seaboard had trading foreign exchange
contracts (receive $U.S./pay ZAR) to cover various foreign
currency working capital needs for notional amounts of
$28,490,000, with fair values of $(114,000).
At December 31, 2008, Seaboard had trading foreign exchange
contracts (receive $U.S./pay Euro) to cover its firm sales
commitments and trade receivables with a notional amount of
$43,076,000, with fair values of $(2,367,000), included in other
accrued liabilities on the Consolidated Balance Sheet.
At December 31, 2008, Seaboard had trading foreign exchange
contracts (pay $U.S./receive Canadian Dollars) to cover its
purchase commitments and trade payables with a notional amount of
$105,000 with fair values of $6,000.
At December 31, 2008, Seaboard had trading foreign exchange
contracts (receive Japanese Yen/pay $U.S.) to cover note payable
borrowings for a term note denominated in Japanese Yen for
notional amounts of $58,781,000, with fair values of $1,017,000.
Forward Freight Agreements
The Commodity Trading and Milling segment enters into certain
forward freight agreements, viewed as taking long positions in
the freight market as well as covering short freight sales, which
may or may not result in actual losses when future trades are
executed. These forward freight agreements, which expired in the
fourth quarter of 2009, are not accounted for as hedges but are
viewed by management as an economic hedge against the potential
of future rising charter hire rates to be incurred by this
segment for bulk cargo shipping while conducting its business of
delivering grains to customers in many international locations.
At December 31, 2009, there were no outstanding forward freight
agreements. At December 31, 2008, Seaboard had agreements to pay
$41,500 and receive $47,750 per day during 2009 with fair values
of $(11,636,000) and $13,917,000, respectively, included with
other accrued liabilities and other current assets on the
Consolidated Balance Sheet. Since these agreements are not
accounted for as hedges, the change in value related to these
agreements is recorded in cost of sales-products on the
Consolidated Statement of Earnings. Forward freight agreements
had no net exposure to a change in market price as the two open
forward freight agreements offset each other at December 31,
2008. As of December 31, 2009, there were no such agreements
outstanding.
Interest Rate Exchange Agreements
In December 2008 and again in March 2009, Seaboard entered into
ten-year interest rate exchange agreements which involves 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 agreed to pay a
fixed rate and receive a variable rate of interest on two
notional amounts of $25,000,000 each. In June 2009, Seaboard
terminated both interest rate exchange agreements with a total
notional value of $50,000,000. Seaboard received payments in the
amount of $3,981,000 to unwind these agreements. Since these
interest rate exchange agreements were not accounted for as
hedges, the change in value related to these agreements were
recorded in Miscellaneous, net in the Condensed Consolidated
Statements of Earnings. As of December 31, 2009, there were no
such agreements outstanding.
Counterparty Credit Risk
Seaboard is subject to counterparty credit risk related to its
foreign currency exchange agreements and forward freight
agreements. The maximum amount of loss due to the credit risk of
the counterparties for these agreements, should the
counterparties fail to perform according to the terms of the
contracts, is $430,000 as of December 31, 2009. Seaboard's
foreign currency exchange agreements have a maximum amount of
loss due to credit risk in the amount of $430,000 with several
counterparties. Seaboard does not hold any collateral related to
these agreements.
48
Notes to Consolidated Financial Statements
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 year ended December 31, 2009.
(Thousands of dollars)
December 31, 2009 Location of Gain or (Loss) Amount of Gain or (Loss)
Recognized in Income on Recognized in Income on
Derivative Derivative
Commodities Cost of sales-products $ 7,047
Foreign currencies Cost of sales-products (27,676)
Foreign currencies Foreign currency (1,980)
Interest rate Miscellaneous, net 5,312
The following table provides the fair value of each type of
derivative held as of December 31, 2009 and where each
derivative is included on the Condensed Consolidated Balance
Sheets.
(Thousands of dollars) Asset Derivatives Liability Derivatives
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value
Commodities Other current assets $4,610 Other current liabilities $2,288
Foreign
currencies Other current assets 430 Other current liabilities 5,943
Note 10
Employee Benefits
Seaboard maintains a defined benefit pension plan (the Plan) for
its domestic salaried and clerical employees. The Plan generally
provides eligibility for participation after one year of service
upon attaining the age of 21. Benefits are generally based upon
the number of years of service and a percentage of final average
pay.
Seaboard has historically based pension contributions on minimum
funding standards to avoid the Pension Benefit Guaranty
Corporation variable rate premiums established by the Employee
Retirement Income Security Act of 1974. However, because of
Seaboard's positive liquidity position for the past three years,
management authorized additional contributions to be made. In
April 2007, Seaboard made a deductible contribution of
$10,000,000 for the 2006 plan year, which resulted in a slightly
overfunded status in the Plan as of December 31, 2007. In July
2009, Seaboard made a deductible contribution of $14,615,000 for
the 2008 plan year as a result of the significant investment
losses incurred in the Plan during the fourth quarter of 2008.
Management anticipates making an additional deductible
contribution to the Plan currently estimated to be between
$8,000,000 and $15,000,000 for the 2009 and 2010 plan years.
In December 2008, the FASB issued ASC Topic 715-20-65 (formerly
FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement
Benefit Plan Assets," amending FASB Statement No. 132(R),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits"). This Topic required more detailed disclosures
regarding defined benefit pension plan assets, including
investment policies and strategies, major categories of plan
assets, valuation techniques used to measure the fair value of
plan assets and significant concentration of risk within plan
assets. Seaboard adopted these new disclosure requirements as of
December 31, 2009. The adoption of this Topic did not have an
impact on Seaboard's financial position or net earnings.
Assets are invested in the Plan to achieve a diversified overall
portfolio consisting primarily of individual stocks, money market
funds, collective investment funds, bonds and mutual funds.
Seaboard is willing to accept a moderate level of risk to
potentially achieve higher investment returns. The overall
portfolio is evaluated relative to customized benchmarks, and is
expected to exceed the customized benchmark over five year
rolling periods and longer. The investment strategy provides
investment managers' discretion and is periodically reviewed by
management for continued appropriateness. Derivatives, real
estate investments, non-marketable and private equity or
placement securities are not allowed investments under the Plan.
Seaboard's asset allocation targets and actual investment
composition within the Plan were as follows:
49
Notes to Consolidated Financial Statements
Actual Plan Composition at December 31,
Target Allocation 2009 2008
Domestic Large Cap
Equity 36% 29% 33%
Domestic Small and
Mid Cap Equity 14% 12% 13%
International Equity 15% 9% 14%
Fixed Income 34% 31% 39%
Cash and cash equivalents 1% 19% 1%
As described in Note 9 to the Consolidated Financial Statements,
ASC Topic 820 utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value
into three broad levels. The following table shows the Plan
assets measured at estimated fair value as of December 31, 2009
and also the level within the fair value hierarchy used to
measure each category of assets.
Balance
December 31,
(Thousands of dollars) 2009 Level 1 Level 2 Level 3
Assets:
Domestic equity securities $19,355 $19,355 $ - $ -
Money market funds 18,898 18,898 - -
Collective investment funds 11,566 - 11,566 -
U.S. Government agency securities 8,875 - 8,875 -
Fixed income mutual funds 8,087 8,087 - -
Foreign equity securities 7,003 2,402 4,601 -
Corporate bonds 4,179 - 4,179 -
U.S. Treasury securities 4,012 - 4,012 -
Mutual funds-equities 2,854 2,854 - -
Total Assets $84,829 $51,596 $33,233 $ -
Seaboard also sponsors non-qualified, unfunded supplemental
executive plans and has certain individual, non-qualified,
unfunded supplemental retirement agreements for certain retired
employees. The unamortized prior service cost is being amortized
over the average remaining working lifetime of the active
participants for this plan. Management has no plans to provide
funding for these supplemental executive plans in advance of when
the benefits are paid.
Assumptions used in determining pension information for the plans
were:
Years ended December 31,
2009 2008 2007
Weighted-average assumptions
Discount rate used to determine obligations 5.25-6.25% 6.25% 6.50%
Discount rate used to determine net periodic
benefit cost 6.25% 6.50% 5.75%
Expected return on plan assets 7.50% 7.50% 7.50%
Long-term rate of increase in compensation
levels 4.00-5.00% 4.00-5.00% 4.00-5.00%
Management selected the discount rate based on a model-based
result where the timing and amount of cash flows approximates the
estimated payouts. The expected return on Plan assets assumption
is based on the weighted average of asset class expected returns
that are consistent with historical returns. The assumed rate
selected was based on model-based results that reflect the Plan's
asset allocation and related long-term projected returns. The
measurement date for all plans is December 31. The unrecognized
net actuarial losses are generally amortized over the average
remaining working lifetime of the active participants for these
plans.
50
Notes to Consolidated Financial Statements
The changes in the plans' benefit obligations and fair value of
assets for the Plan, supplemental executive plans and retirement
agreements for the years ended December 31, 2009 and 2008, and a
statement of the funded status as of December 31, 2009 and 2008
were as follows:
December 31,
2009 2008
Assets exceed Accumulated Accumulated
accumulated benefits benefits
(Thousands of dollars) benefits exceed assets exceed assets
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $72,627 $ 60,287 $116,844
Service cost 2,925 3,115 5,199
Interest cost 4,572 3,611 7,510
Actuarial losses 4,669 1,188 8,023
Benefits paid (2,504) (3,790) (4,662)
Plan amendments - 1,215 -
Benefit obligation at end of year $82,289 $ 65,626 $132,914
Reconciliation of fair value of plan
assets:
Fair value of plan assets at beginning of
year $58,321 $ - $ 81,338
Actual return (loss) on plan assets 14,397 - (20,626)
Employer contributions 14,615 3,790 2,271
Benefits paid (2,504) (3,790) (4,662)
Fair value of plan assets at end of year $84,829 $ - $ 58,321
Funded status $ 2,540 $(65,626) $(74,593)
The funded status of the Plan was $2,540,000 and ($14,306,000) at
December 31, 2009 and 2008, respectively. The accumulated
benefit obligation for the Plan was $74,666,000 and $65,994,000
and for the other plans was $45,381,000 and $38,593,000 at
December 31, 2009 and 2008, respectively. Expected future net
benefit payments for all plans during each of the next five years
and in aggregate for the five year period beginning with the
sixth year are as follows: $6,161,000, $5,404,000, $5,797,000,
$6,177,000, $6,665,000, and $47,450,000, respectively.
The amounts not reflected in net periodic benefit cost and
included in accumulated other comprehensive income (AOCI) at
December 31, 2009 and 2008 were as follows:
(Thousands of dollars) 2009 2008
Accumulated loss, net of gain $(48,346) $(56,322)
Prior service cost, net of credit (8,209) 7,796)
Transitional obligation (32) (49)
Total Accumulated Other Comprehensive Income $(56,587) $(64,167)
The net periodic benefit cost of these plans was as follows:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Components of net periodic benefit cost:
Service cost $ 6,040 $ 5,199 $ 5,002
Interest cost 8,183 7,510 6,451
Expected return on plan assets (4,761) (6,029) (5,486)
Settlement - - 3,671
Amortization and other 5,017 1,582 2,224
Net periodic benefit cost $ 14,479 $ 8,262 $11,862
51
Notes to Consolidated Financial Statements
The accumulated unrecognized losses for 2008 in the Plan as of
December 31, 2008 exceeded the 10% deferral threshold as
permitted under U.S. GAAP as a result of the significant
investment losses incurred during 2008. Accordingly, Seaboard's
pension expense for the Plan increased by approximately
$3,140,000 for 2009 as compared to 2008 as a result of loss
amortization. In addition, pension expense for the Plan
increased an additional $1,725,000 for 2009 as compared to 2008
as a result of reduced expected return on assets, from the
decline of assets in the Plan during 2008, partially offset by
approximately $457,000 in expected earnings from the 2009
contribution discussed above. 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.
The late Mr. H. H. Bresky retired as President and CEO of
Seaboard effective July 6, 2006. As a result of Mr. Bresky's
retirement, he was entitled to a lump sum payment of $8,709,000
from Seaboard's Executive Retirement Plan. Under IRS
regulations, there is a six month delay of benefit payments for
key employees and thus Mr. Bresky was not paid his lump sum until
February 2007. This lump sum payment exceeded the Company's
service and interest cost components under this plan and thus
required Seaboard to recognize a portion of its actuarial losses.
However, Seaboard was not relieved of its obligation until the
settlement was paid in 2007. Accordingly, the settlement loss of
$3,671,000 was not recognized until February 2007 in accordance
with ASC Topic 715 (formerly FAS No. 88, "Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension for
Termination Benefits.")
The amounts in AOCI expected to be recognized as components of
net periodic benefit cost in 2010 are as follows:
(Thousands of dollars) 2010
Accumulated loss, net of gain $ 3,128
Prior service cost, net of credit 930
Transition obligation 16
Estimated net periodic benefit cost $ 4,074
Seaboard participates in a multi-employer pension fund, which
covers certain union employees under a collective bargaining
agreement. Seaboard is required to make contributions to this
plan in amounts established under the collective bargaining
agreement. Contribution expense for this plan was $509,000,
$498,000, and $453,000 for the years ended December 31, 2009,
2008 and 2007, respectively. The applicable portion of the total
plan benefits and net assets of this plan is not separately
identifiable although Seaboard has received notice the pension
fund was under funded. Seaboard could, under certain
circumstances, be liable for unfunded vested benefits or other
expenses of this jointly administered union plan. Seaboard has
not established any liabilities for potential future withdrawal
as such withdrawal from this plan is not probable.
Seaboard maintains a defined contribution plan covering most of
its domestic salaried and clerical employees. Seaboard
contributes to this plan an amount equal to 100% of employee
contributions up to a maximum of 3% of employee compensation.
Employee vesting is based upon years of service with 20% vested
after one year of service and an additional 20% vesting with each
additional complete year of service. Contribution expense for
this plan was $1,868,000, $1,812,000, and $1,709,000 for the
years ended December 31, 2009, 2008 and 2007, respectively. In
addition, Seaboard maintains a defined contribution plan covering
most of its hourly, non-union employees and two defined
contribution plans covering most of Daily's employees.
Contribution expense for these plans was $1,378,000, $1,038,000,
and $893,000 for the years ended December 31, 2009, 2008 and
2007, respectively.
Beginning in 2006, Seaboard established a deferred compensation
plan which allows certain employees to reduce their compensation
in exchange for values in four investments. Seaboard also has an
Investment Option Plan which allowed certain employees to reduce
their compensation in exchange for an option to acquire interests
measured by reference to three investments. However, as a result
of U.S. tax legislation passed in 2004, reductions to
compensation earned after 2004 are no longer allowed under the
Investment Option Plan. The exercise price for each investment
option was established based upon the fair market value of the
underlying investment on the date of grant. Under both plans,
Seaboard contributes 3% of the employees reduced compensation.
Seaboard's expense (income) for these two deferred compensation
plans, which primarily includes amounts related to the change in
fair value of the underlying investment accounts, was $4,340,000,
$(9,539,000) and $2,298,000 for the years ended
52
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007, respectively. Included in
other liabilities at December 31, 2009 and 2008 are $22,430,000
and $15,930,000, respectively, representing the market value of
the payable to the employees upon distribution or exercise for
each plan. In conjunction with these plans, Seaboard purchased
the specified number of units of the employee-designated
investment plus the applicable option price for the Investment
Option Plan. These investments are treated as trading securities
and are stated at their fair market values. Accordingly, as of
December 31, 2009 and 2008, $26,729,000 and $22,225,000,
respectively, were included in other current assets on the
Consolidated Balance Sheets. Investment income (loss) related to
the mark-to-market of these investments for 2009, 2008, and 2007
totaled $4,253,000, $(9,618,000) and $2,183,000, respectively.
Note 11
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 business objectives. Seaboard does not issue guarantees
of third parties for compensation. As of December 31, 2009,
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 December 31, 2009, Seaboard had outstanding letters of
credit (LCs) with various banks which reduced its borrowing
capacity under its committed and uncommitted credit facilities as
discussed in Note 8 by $41,720,000 and $3,780,000, respectively.
Included in these amount are LCs totaling $26,385,000, which
support the IDRBs included as long-term debt and $16,802,000 of
LCs related to insurance coverage.
Commitments
As of December 31, 2009 Seaboard had various firm noncancelable
purchase commitments and commitments under other agreements,
arrangements and operating leases as described in the table
below.
Purchase commitments Years ended December 31,
(Thousands of dollars) 2010 2011 2012 2013 2014 Thereafter
Hog procurement contracts $169,494 $148,932 $ - $ - $ - $ -
Grain and feed ingredients 79,455 3,298 - - - -
Grain purchase contracts for
resale 97,000 - - - - -
Fuel purchase contract 22,612 - - - - -
Equipment purchases
and facility improvements 16,127 2,601 - - - -
Other purchase commitments 4,761 - - - - -
Total firm purchase
commitments 389,449 154,831 - - - -
Vessel, time and voyage-
charter arrangements 69,631 22,843 22,130 18,005 1,784 -
Contract grower finishing
agreements 12,106 11,285 10,336 9,710 9,052 33,403
Other operating lease
payments 19,467 17,490 14,850 13,601 13,509 213,041
Total unrecognized firm
commitments $490,653 $206,449 $47,316 $41,316 $24,345 $246,444
53
Notes to Consolidated Fianancial Statements
Seaboard has contracted with third parties for the purchase of
live hogs to process at its pork processing plant and has entered
into grain and feed ingredient purchase contracts to support its
live hog operations. The commitment amounts included in the
table are based on projected market prices as of
December 31, 2009. During 2009, 2008 and 2007, this segment paid
$163,047,000, $155,400,000 and $131,490,000, respectively for
live hogs purchased under committed contracts.
The Commodity Trading and Milling segment enters into grain
purchase contracts and ocean freight contracts, primarily to
support firm sales commitments. These contracts are valued based
on projected commodity prices as of December 31, 2009. This
segment also has short-term freight contracts in place for
delivery of future grain sales.
The Marine segment enters into contracts to time-charter vessels
for use in its operations. These contracts range from short-term
time-charters for a few months and long-term commitments ranging
from one to three years. This segment's charter hire expenses
during 2009, 2008 and 2007 totaled $82,728,000, $115,877,000 and
$88,761,000, respectively.
To support the operations of the Pork segment, Seaboard has
contract grower finishing agreements in place with farmers to
raise a portion of Seaboard's hogs according to Seaboard's
specifications under long-term service agreements. Under the
terms of the agreements, additional payments would be required if
the grower achieves certain performance standards. The contract
grower finishing obligations shown above do not reflect these
incentive payments which, given current operating performance,
total approximately $1,500,000 per year. In the event the farmer
is unable to perform at an acceptable level, Seaboard has the
right to terminate the contract. During the years ended 2009,
2008 and 2007, Seaboard paid $13,703,000, $13,389,000 and
$13,280,000, respectively, under contract grower finishing
agreements.
Seaboard also leases various facilities and equipment under
noncancelable operating lease agreements including a terminal
operations agreement at the Port of Miami which runs through
2028. Rental expense for operating leases amounted to
$26,404,000, $23,147,000 and $20,174,000 in 2009, 2008 and 2007,
respectively.
Note 12
Stockholders' Equity and Accumulated Other Comprehensive Loss
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to
$50,000,000 market value of its Common Stock in open market or
privately negotiated purchases, of which $11,129,000 remained
available upon expiration on August 31, 2009.
On November 6, 2009, the Board of Directors authorized Seaboard
to repurchase from time to time prior to October 31, 2011 up to
$100 million 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.
Any 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.
Seaboard used cash to repurchase 3,668 shares of common stock at
a total price of $3,370,000 in 2009, 3,852 shares of common stock
at a total price of $5,012,000 in 2008 and 17,089 shares of
common stock at a total price of $30,488,000 in 2007.
54
Notes to Conolidated Financial Statements
The components of accumulated other comprehensive loss, net of
related taxes, are summarized as follows:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Cumulative foreign currency translation
adjustment $ (77,576) $ (68,211) $(58,719)
Unrealized gain on investments 2,579 1,781 1,149
Unrecognized pension cost (39,789) (45,273) (21,081)
Accumulated other comprehensive loss $(114,786) $(111,703) $(78,651)
The foreign currency translation adjustment primarily represents
the effect of the Argentine peso currency exchange fluctuation on
the net assets of the Sugar segment. When the Argentine
government lifted the one to one parity of the peso to the U.S.
dollar at the end of 2001, the peso lost significant value
against the dollar. At December 31, 2009, the Sugar segment had
$170,061,000 in net assets denominated in Argentine pesos and
$46,644,000 in net liabilities denominated in U.S. dollars in
Argentina.
With the exception of the provision related to the foreign
currency translation gains and losses discussed above, which are
taxed at a 35% rate, income taxes for components of accumulated
other comprehensive loss were recorded using a 39% effective tax
rate. For 2009 and 2008, the unrecognized pension cost includes
$12,740,000 and $15,721,000, respectively, related to employees
at certain subsidiaries for which no tax benefit has been
recorded.
Stockholders approved an amendment to decrease the number of
authorized shares of common stock from 4,000,000 shares to
1,250,000 shares at the annual meeting on April 27, 2009.
Note 13
Segment Information
Seaboard Corporation had five reportable segments through
December 31, 2009: Pork, Commodity Trading and Milling, Marine,
Sugar, and Power, each offering a specific product or service.
Seaboard's reporting segments are based on information used by
Seaboard's Chief Executive Officer in his capacity as chief
operating decision maker to determine allocation of resources and
assess performance. Each of the five main segments is separately
managed and each was started or acquired independent of the other
segments. The Pork segment produces and sells fresh and frozen
pork products to further processors, foodservice operators,
grocery stores, distributors and retail outlets throughout the
United States, and to Japan, Mexico and certain other foreign
markets. The Commodity Trading and Milling segment
internationally markets wheat, corn, soybean meal, rice and other
similar commodities in bulk to third party customers and to non-
consolidated foreign affiliates. This segment also operates
flour, maize and feed mills in foreign countries. The Marine
segment, based in Miami, Florida, provides containerized cargo
shipping services between the United States, the Caribbean Basin,
and Central and South America. The Sugar segment produces and
processes sugar and alcohol in Argentina primarily to be marketed
locally. The Power segment operates as an unregulated
independent power producer in the Dominican Republic generating
power from a system of diesel engines mounted on two barges.
Revenues for the All Other segment are primarily derived from the
jalapeno pepper processing operations.
The Pork segment derives approximately 12% percent of its
revenues from a few customers in Japan through one agent.
Substantially all of its hourly employees at its Guymon
processing plant are covered by a collective bargaining
agreement. The Pork segment incurred an impairment charge of
$7,000,000 related to the Daily's trade name in the fourth
quarter of 2008 (see Note 2 for further discussion). In addition,
as of December 31, 2009, the Pork segment had fixed assets with a
net book value of $43,162,000 related to its biodiesel processing
plant which began operations during 2008. See Note 6 for
discussion of the potential for future impairment of these fixed
assets.
Prior to the first quarter of 2009, the Sugar segment was named
Sugar and Citrus reflecting the citrus 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
primarily in cost of sales of $2,803,000 was recorded primarily
to write-down
55
Notes to Consolidated Financial Statements
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 primarily in cost of sales 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 collectibility of the sales price is
not reasonably assured, 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 power generation
to a government-owned distribution company under a short-term
contract that expires at the end of March 2010 for which Seaboard
bears a concentrated credit risk as this customer, from time to
time, has significant past due balances. In May 2009, Seaboard
received sovereign government bonds of the Dominican Republic
with a par value of $20,000,000 denominated in U.S. dollars, with
an 8% tax free coupon rate, to satisfy the same amount of
outstanding billings from this customer that Seaboard had
classified as long-term. During the fourth quarter of 2009,
Seaboard sold a portion of these bonds with par value of
$9,700,000 resulting in an immaterial loss. The remaining
$10,300,000 par value of bonds are classified as available-for-
sale short term investments on the Consolidated Balance Sheet as
of December 31, 2009. During January and February 2010, Seaboard
sold the remaining bonds resulting in an immaterial loss.
On March 2, 2009, an agreement became effective under which
Seaboard will sell its two power barges in the Dominican Republic
for $70,000,000, which will use such barges for private use. The
agreement calls for the sale to occur on or around January 1,
2011. During March 2009, $15,000,000 was paid to Seaboard
(recorded as long-term deferred revenue) and the $55,000,000
balance of the purchase price was paid into escrow and will be
paid to Seaboard at the closing of the sale. The net book value
of the two barges was $20,090,000 as of December 31, 2009 and is
classified as held for sale in non-current other assets.
Accordingly, Seaboard will cease depreciation on January 1, 2010
for these two barges but continue to operate these two barges
until a few weeks prior to the closing date of the sale.
Seaboard will be responsible for the wind down and
decommissioning costs of the barges. Completion of the sale is
dependent upon several issues, including meeting certain baseline
performance and emission tests. Failure to satisfy or cure any
deficiencies could result in the agreement being terminated and
the sale abandoned. 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
retain all other physical properties of this business and is
considering options to continue its power business in the
Dominican Republic after the sale of these assets is completed.
The loss from foreign affiliate in 2007 for the "All Other"
segment reflects Seaboard's share of losses from its equity
method investment in a Bulgarian wine business (the Business).
There was no remaining book value as of December 31, 2007. In
June 2008, Seaboard received $1,078,000 from another shareholder
of the Business in exchange for the assignment by Seaboard to the
shareholder of all rights to Seaboard's previous loans and
advances to the Business. The proceeds of this transaction were
recorded in Other Investment Income. In February 2009, Seaboard
sold all of its shares in this Business. See Note 5 to the
Consolidated Financial Statements for further discussion.
The following tables set forth specific financial information
about each segment as reviewed by management. Operating income
for segment reporting is prepared on the same basis as that used
for consolidated operating income. Operating income, along with
income from foreign affiliates for the Commodity Trading and
Milling segment, is used as the measure of evaluating segment
performance because management does not consider interest and
income tax expense on a segment basis.
56
Notes to Consolidated Financial Statements
Sales to External Customers:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Pork $1,065,338 $1,125,969 $1,003,790
Commodity Trading and Milling 1,531,572 1,897,374 1,152,035
Marine 737,629 958,027 822,221
Sugar 142,966 142,148 125,882
Power 107,074 129,430 93,951
All Other 16,729 14,856 15,422
Segment/Consolidated Totals $3,601,308 $4,267,804 $3,213,301
Operating Income:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Pork $ (15,025) $ (45,934) $ 39,528
Commodity Trading and Milling 24,839 96,517 20,905
Marine 24,113 62,365 104,156
Sugar (851) 3,690 15,484
Power 8,172 7,845 5,402
All Other 1,498 1,033 634
Segment Totals 42,746 125,516 186,109
Corporate (19,023) (3,707) (16,194)
Consolidated Totals $ 23,723 $ 121,809 $ 169,915
Income from Foreign Affiliates:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Commodity Trading and Milling $ 19,128 $ 12,629 $ 5,232
Sugar 1,030 455 360
All Other - - (1,718)
Segment/Consolidated Totals $ 20,158 $ 13,084 $ 3,874
Depreciation and Amortization:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Pork $ 53,182 $ 53,288 $ 47,258
Commodity Trading and Milling 4,681 4,509 4,501
Marine 21,772 19,994 16,568
Sugar 7,732 8,030 6,510
Power 3,783 3,926 3,747
All Other 431 415 320
Segment Totals 91,581 90,162 78,904
Corporate 260 219 317
Consolidated Totals $ 91,841 $ 90,381 $ 79,221
57
Notes to Consolidated Financial Statements
Total Assets:
December 31,
(Thousands of dollars) 2009 2008
Pork $ 774,718 $ 800,062
Commodity Trading and Milling 521,618 543,303
Marine 236,382 267,268
Sugar 205,155 225,716
Power 75,348 73,501
All Other 8,988 7,721
Segment Totals 1,822,209 1,917,571
Corporate 514,924 413,790
Consolidated Totals $2,337,133 $2,331,361
Investment in and Advances to Foreign Affiliates:
December 31,
(Thousands of dollars) 2009 2008
Commodity Trading and Milling $ 79,883 $ 66,578
Sugar 2,349 1,513
Segment/Consolidated Totals $ 82,232 $ 68,091
Capital Expenditures:
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Pork $ 15,188 $ 52,649 $ 78,085
Commodity Trading and Milling 2,650 4,333 3,013
Marine 14,697 46,309 61,045
Sugar 21,603 30,964 21,424
Power 39 53 218
All Other 87 311 362
Segment Totals 54,264 134,619 164,147
Corporate 12 15 26
Consolidated Totals $ 54,276 $ 134,634 $ 164,173
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.
Geographic Information
Seaboard had sales in South Africa totaling $292,547,000,
$437,362,000 and $322,998,000 for the years ended December 31,
2009, 2008 and 2007, respectively, representing approximately 8%,
10% and 10% of total sales for each respective year. No other
individual foreign country accounted for 10% or more of sales to
external customers.
58
Notes to Consolidated Financial Statements
The following table provides a geographic summary of net sales
based on the location of product delivery.
Years ended December 31,
(Thousands of dollars) 2009 2008 2007
Caribbean, Central and South America $1,406,749 $1,726,789 $1,151,032
Africa 969,324 1,269,505 810,084
United States 855,412 924,470 936,825
Pacific Basin and Far East 165,721 162,122 154,127
Canada/Mexico 146,601 143,665 91,513
Europe 42,537 17,534 26,584
Eastern Mediterranean 14,964 23,719 43,136
Totals $3,601,308 $4,267,804 $3,213,301
The following table provides a geographic summary of Seaboard's
long-lived assets according to their physical location and
primary port for the vessels.
December 31,
(Thousands of dollars) 2009 2008
United States $ 547,111 $594,908
Argentina 87,712 85,156
Dominican Republic 26,239 30,234
All other 53,559 54,444
Totals $ 714,621 $764,742
At December 31, 2009 and 2008, Seaboard had approximately
$134,261,000 and $168,303,000, respectively, of foreign
receivables, excluding receivables due from foreign affiliates,
which generally represent more of a collection risk than the
domestic receivables. Management believes its allowance for
doubtful accounts is adequate.
59
Stockholder Information
Board of Directors
_______________________________________________________________________________
Steven J. Bresky Joseph E. Rodrigues
Director and Chairman of the Director
Board Retired, former Executive Vice
President and Chief Executive President and Treasurer of
Officer of Seaboard Seaboard
David A. Adamsen Edward I. Shifman, Jr.
Director and Audit Committee Director and Audit Committee
Member Member
Vice President - Wholesale Retired, former Managing
Sales, Director and Executive
C&S Wholesale Grocers Vice President of Wachovia
Capital Fiance
Douglas W. Baena
Director and Audit Committee
Chair
Self-employed, engaging in
facilitation of equipment
leasing financings and
consulting
Officers
_______________________________________________________________________________
Steven J. Bresky David S. Oswalt
President and Chief Executive Vice President, Taxation and
Officer Business Development
Robert L. Steer Ty A. Tywater
Senior Vice President, Chief Vice President, Audit Services
Financial Officer
John A. Virgo
David M. Becker Vice President, Corporate
Vice President, General Counsel Controller and Chief Accounting
and Secretary Officer
Barry E. Gum Zachery J. Holden
Vice President, Finance and Assistant Secretary
Treasurer
Adriana N. Hoskins
James L. Gutsch Assistant Treasurer
Vice President, Engineering
Ralph L. Moss
Vice President, Governmental
Affairs
Chief Executive Officers of Principal Seaboard Operations
_______________________________________________________________________________
Rodney K. Brenneman Hugo D. Rossi
Pork Sugar
David M. Dannov Armando G. Rodriguez
Commodity Trading and Milling Power
Edward A. Gonzalez
Marine
Stock Transfer Agent and
Registrar of Stock Availability of 10-K Report
_________________________________ ____________________________________________
Computershare Trust Company, N.A. Seaboard files its Annual Report on Form
P.O. Box 43078 10-K with the Securities and Exchange
Providence, Rhode Island 02940- Commission. Copies of the Form 10-K for
3078 fiscal 2009 are available without charge
(800) 884-4225 by writing Seaboard Corporation, 9000 West
67th Street, Shawnee Mission, Kansas 66202,
Auditors Attention: Shareholder Relations or via the
_________________________________ Internet at http://www.seaboardcorp.com/
investor-sec.aspx
KPMG LLP Seaboard provides access to its most recent
1000 Walnut, Suite 1000 Form 10-K, 10-Q and 8-K reports on its
Kansas City, Missouri 64106 Internet website, free of charge, as soon as
reasonably practicable after those reports
are electronically filed with the Securities
Stock Listing and Exchange Commission.
_________________________________
Seaboard's common stock is
traded on the NYSE Amex
Equities (formerly, NYSE
Alternext US) under the symbol
SEB. Seaboard had 192
shareholders of record of its
common stock as of February 5,
2010.
60
