Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2010
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________ to ____________________
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(913) 676-8800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes . No X .
There were 1,218,635 shares of common stock, $1.00 par value per
share, outstanding on July 30, 2010.
Total pages in filing - 22 pages
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
2010 2009 2010 2009
Net sales:
Products (includes sales to $ 781,538 $ 661,784 $1,554,125 $1,343,297
foreign affiliates of $117,391
$119,984, $243,221 and $260,900,
respectively)
Services 235,910 183,822 450,630 398,705
Other 31,015 24,224 63,984 45,396
Total net sales 1,048,463 869,830 2,068,739 1,787,398
Cost of sales and operating expenses:
Products 673,206 630,373 1,364,362 1,291,742
Services 202,530 166,719 388,258 341,067
Other 25,662 21,529 53,038 39,906
Total cost of sales and operating
expenses 901,398 818,621 1,805,658 1,672,715
Gross income 147,065 51,209 263,081 114,683
Selling, general and administrative
expenses 45,818 48,440 94,368 95,872
Operating income 101,247 2,769 168,713 18,811
Other income (expense):
Interest expense (1,600) (3,243) (3,916) (7,099)
Interest income 3,862 4,818 7,318 8,144
Income from affiliates 6,536 3,698 11,424 7,592
Foreign currency gain (loss), net (2,967) 3,128 (2,929) (805)
Other investment income (loss), net (2,159) 5,885 885 7,379
Miscellaneous, net (2,830) 3,080 (2,636) 6,194
Total other income, net 842 17,366 10,146 21,405
Earnings before income taxes 102,089 20,135 178,859 40,216
Income tax benefit (expense) (24,732) 6,425 (38,839) 2,490
Net earnings $ 77,357 $ 26,560 $ 140,020 $ 42,706
Less: Net losses attributable to
noncontrolling interests 247 359 362 186
Net earnings attributable to
Seaboard $ 77,604 $ 26,919 $ 140,382 $ 42,892
Earnings per common share $ 63.21 $ 21.76 $ 114.02 $ 34.64
Dividends declared per common
share $ 0.75 $ 0.75 $ 1.50 $ 1.50
Average number of shares
outstanding 1,227,628 1,237,010 1,231,207 1,238,126
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
July 3, December 31,
2010 2009
Assets
Current assets:
Cash and cash equivalents $ 54,143 $ 61,857
Short-term investments 546,134 407,351
Receivables, net of allowance 299,386 270,647
Inventories 464,648 498,587
Deferred income taxes 12,376 10,490
Deferred costs 74,762 95,788
Other current assets 106,394 80,582
Total current assets 1,557,843 1,425,302
Investments in and advances to affiliates 102,244 82,232
Net property, plant and equipment 680,112 691,343
Goodwill 40,628 40,628
Intangible assets, net 19,871 20,676
Other assets 63,892 76,952
Total assets $2,464,590 $2,337,133
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 64,370 $ 81,262
Current maturities of long-term debt 1,670 2,337
Accounts payable 100,063 141,193
Deferred revenue 162,245 112,889
Other current liabilities 201,531 180,359
Total current liabilities 529,879 518,040
Long-term debt, less current maturities 76,337 76,532
Deferred income taxes 63,908 59,546
Other liabilities 130,111 137,596
Total non-current and deferred liabilities 270,356 273,674
Stockholders' equity:
Common stock of $1 par value, Authorized
1,250,000 shares;
issued and outstanding 1,224,626 and
1,236,758 shares 1,225 1,237
Accumulated other comprehensive loss (117,044) (114,786)
Retained earnings 1,777,139 1,655,222
Total Seaboard stockholders' equity 1,661,320 1,541,673
Noncontrolling interests 3,035 3,746
Total equity 1,664,355 1,545,419
Total liabilities and stockholders' equity $2,464,590 $2,337,133
See accompanying notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Thousands of dollars)
(Unaudited)
Six Months Ended
July 3, July 4,
2010 2009
Cash flows from operating activities:
Net earnings $ 140,020 $ 42,706
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 43,938 46,223
Income from affiliates (11,424) (7,592)
Dividends received from affiliates 1,390 1,937
Other investment income, net (885) (7,379)
Foreign currency exchange (gain) loss (102) 1,789
Deferred income taxes 4,104 (12,932)
Loss (gain) from sale of fixed assets (1,317) 834
Changes in current assets and liabilities:
Receivables, net of allowance (27,713) 54,352
Inventories 29,578 31,038
Other current assets 13,467 (52,251)
Current liabilities, exclusive of debt 15,186 60,454
Other, net 2,754 11,223
Net cash from operating activities 208,996 170,402
Cash flows from investing activities:
Purchase of short-term investments (409,700) (218,683)
Proceeds from the sale of short-term investments 230,995 154,101
Proceeds from the maturity of short-term investments 39,997 35,196
Investments in and advances to affiliates, net (8,062) 79
Capital expenditures (39,048) (28,456)
Proceeds from the sale of fixed assets 3,017 1,769
Payment received for the potential sale of power
barges - 15,000
Other, net 1,624 (589)
Net cash from investing activities (181,177) (41,583)
Cash flows from financing activities:
Notes payable to banks, net (16,894) (100,400)
Principal payments of long-term debt (928) (989)
Repurchase of common stock (16,635) (3,370)
Dividends paid (1,844) (1,855)
Other, net 159 159
Net cash from financing activities (36,142) (106,455)
Effect of exchange rate change on cash 609 (2,766)
Net change in cash and cash equivalents (7,714) 19,598
Cash and cash equivalents at beginning of year 61,857 60,594
Cash and cash equivalents at end of period $ 54,143 $ 80,192
See accompanying notes to condensed consolidated financial statements.
4
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies and Basis of Presentation
The condensed consolidated financial statements include the accounts
of Seaboard Corporation and its domestic and foreign subsidiaries
("Seaboard"). All significant intercompany balances and
transactions have been eliminated in consolidation. Seaboard's
investments in non-consolidated affiliates are accounted for by the
equity method. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements of Seaboard for the year ended
December 31, 2009 as filed in its Annual Report on Form 10-K.
Seaboard's first three quarterly periods include approximately 13
weekly periods ending on the Saturday closest to the end of March,
June and September. Seaboard's year-end is December 31.
The accompanying unaudited condensed consolidated financial
statements include all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are
necessary for a fair presentation of financial position, results of
operations and cash flows. Results of operations for interim
periods are not necessarily indicative of results to be expected for
a full year. As Seaboard conducts its commodity trading business
with third parties, consolidated subsidiaries and non-consolidated
affiliates on an interrelated basis, gross margin on non-
consolidated affiliates cannot be clearly distinguished without
making numerous assumptions primarily with respect to mark-to-market
accounting for commodity derivatives.
Use of Estimates
The preparation of the condensed consolidated financial statements
in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the condensed
consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Net cash from operating activities was increased and net cash from
investing activities was decreased from prior year presentation by
$1,937,000 for the first six months of 2009 to conform to the 2010
presentation of dividends received from affiliates.
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Codification (ASC) Topic 810-10 (formerly
Financial Accounting Standard No. 167 "Amendments to FASB
Interpretation No. 46(R)"). This Topic amends Interpretation 46(R)
and requires an enterprise to perform an analysis to determine
whether the enterprise's variable interest or interests give it a
controlling financial interest in a variable interest entity (VIE).
This analysis identifies the primary beneficiary of a VIE as the
enterprise that has both the power to direct the most significant
activities of a VIE and the obligation to absorb losses or the right
to receive benefits from the VIE.
This Topic eliminates the quantitative approach previously required
for determining the primary beneficiary of the VIE, which was based
on determining which enterprise absorbs the majority of the entity's
expected losses, receives a majority of the entity's expected
residual returns, or both. This Topic also amends Interpretation
46(R) to require ongoing reassessments of whether an enterprise is
the primary beneficiary of a VIE and requires certain additional
disclosures about the VIE. Seaboard adopted this Topic as of
January 1, 2010. The adoption of this Topic did not have a material
impact on Seaboard's financial position or net earnings.
Note 2- Investments
Seaboard's short-term investments are treated as either available-
for-sale securities or trading securities. All of Seaboard's
available-for-sale and trading securities are classified as current
assets as they are readily available to support Seaboard's current
operating needs. Available-for-sale securities are recorded at
their estimated fair market values with unrealized gains and losses
reflected, net of tax, as a separate component of accumulated other
comprehensive income. Trading securities are recorded at their
estimated fair market values with unrealized gains and losses
reflected in the statement of earnings.
As of July 3, 2010 and December 31, 2009, the available-for-sale
investments primarily consisted of money market funds, fixed rate
municipal notes and bonds, corporate bonds, fixed income mutual
funds and U.S. Government agency securities. At July 3, 2010, money
market funds include $53,525,000 denominated in
5
Euros. At July 3, 2010 and December 31, 2009, available-for-sale
short-term investments included $26,448,000 and $14,710,000,
respectively, held by a wholly-owned consolidated insurance captive
to pay Seaboard's retention of accrued outstanding workers'
compensation claims. At July 3, 2010 and December 31, 2009,
amortized cost and estimated fair market value were not materially
different for these investments.
As of July 3, 2010, the trading securities primarily consisted of
high yield debt securities. Unrealized gains (losses) related to
trading securities for the three and six months ended July 3, 2010
were $(490,000) and $928,000, respectively, and $794,000 and
$578,000 for the three and six months ended July 4, 2009,
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 July 3, 2010 and December 31, 2009.
2010 2009
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Money market funds $169,629 $169,629 $153,699 $153,699
Fixed rate municipal notes and bonds 112,044 114,285 144,794 148,609
Corporate bonds 101,636 102,817 34,663 35,449
Fixed income mutual funds 60,090 59,990 - -
U.S. Government agency securities 25,043 25,290 15,907 16,272
Variable rate demand notes 18,600 18,600 1,900 1,900
Asset backed debt securities 11,631 11,593 8,447 8,484
U.S. Treasury securities 9,229 9,358 - -
Other 3,860 3,834 3,060 3,069
Foreign government debt securities - - 10,300 10,210
Total available-for-sale short-term
investments 511,762 515,396 372,770 377,692
High yield trading debt securities 26,212 27,043 24,784 26,771
Other trading debt securities 3,598 3,695 2,669 2,888
Total available-for-sale and trading
short-term Investments $541,572 $546,134 $400,223 $407,351
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 July 3, 2010.
(Thousands of dollars) 2010
Due within one year $122,030
Due after one year through three years 135,969
Due after three years 53,569
Total fixed rate securities $311,568
In addition to its short-term investments, Seaboard also has trading
securities related to Seaboard's deferred compensation plans
classified in other current assets on the Condensed Consolidated
Balance Sheets. See Note 5 to the Condensed Consolidated Financial
Statements for information on the types of trading securities held
related to the deferred compensation plans.
6
Note 3 - Inventories
The following is a summary of inventories at July 3, 2010 and
December 31, 2009:
July 3, December 31,
(Thousands of dollars) 2010 2009
At lower of LIFO cost or market:
Live hogs and materials $170,814 $192,999
Fresh pork and materials 19,500 22,398
190,314 215,397
LIFO adjustment (19,212) (22,807)
Total inventories at lower of LIFO cost or market 171,102 192,590
At lower of FIFO cost or market:
Grains and oilseeds 195,245 174,508
Sugar produced and in process 28,305 47,429
Other 42,508 46,804
Total inventories at lower of FIFO cost or market 266,058 268,741
Grain, flour and feed at lower of weighted average cost or
market 27,488 37,256
Total inventories $464,648 $498,587
As of July 3, 2010, Seaboard had $5,040,000 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 the value of this inventory if Seaboard is not successful in
selling at the current carrying value. For similar inventories that
existed prior to December 31, 2009, 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.
Note 4 - Income Taxes
Seaboard's tax returns are regularly audited by federal, state and
foreign tax authorities, which may result in adjustments.
Seaboard's U.S. federal income tax returns have been reviewed
through the 2004 tax year. There have not been any material changes
in unrecognized income tax benefits since December 31, 2009.
Interest related to unrecognized tax benefits and penalties was not
material for the six months ended July 3, 2010.
Note 5 -Derivatives and Fair Value of Financial Instruments
U.S. GAAP discusses valuation techniques, such as the market
approach (prices and other relevant information generated by market
conditions involving identical or comparable assets or liabilities),
the income approach (techniques to convert future amounts to single
present amounts based on market expectations including present value
techniques and option-pricing), and the cost approach (amount that
would be required to replace the service capacity of an asset which
is often referred to as replacement cost). U.S. GAAP utilizes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The
following is a brief description of those three levels:
Level 1: Observable inputs such as unadjusted quoted prices in
active markets for identical assets or liabilities that the Company
has the ability to access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity's own
assumptions.
The following table shows assets and liabilities measured at fair
value on a recurring basis as of July 3, 2010 and also the level
within the fair value hierarchy used to measure each category of
assets. Seaboard uses the end of the reporting period to determine
if there were any transfers between levels. There were no transfers
7
between levels that occurred in the first six months of 2010. The
trading securities classified as other current assets below are
assets held for Seaboard's deferred compensation plans.
Balance
July 3,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds $169,629 $169,629 $ - $ -
Fixed rate municipal notes and bonds 114,285 - 114,285 -
Corporate bonds 102,817 - 102,817 -
Fixed income mutual funds 59,990 59,990 - -
U.S. Government agency securities 25,290 - 25,290 -
Variable rate demand notes 18,600 - 18,600 -
Asset backed debt securities 11,593 - 11,593 -
U.S. Treasury securities 9,358 - 9,358 -
Other 3,834 - 3,834 -
Trading securities - short-term investments:
High yield debt securities 27,043 - 27,043 -
Other debt securities 3,695 - 3,695 -
Trading securities - other current assets:
Domestic equity securities 10,256 10,256 - -
Foreign equity securities 6,582 3,314 3,268 -
Fixed income mutual funds 3,403 3,403 - -
Money market funds 3,252 3,252 - -
U.S. Treasury securities 2,319 - 2,319 -
U.S. Government agency securities 1,763 - 1,763 -
Other 143 133 10 -
Derivatives:
Commodities 4,242 4,242 - -
Foreign currencies 1,424 - 1,424 -
Total Assets $579,518 $254,219 $325,299 $ -
Liabilities:
Derivatives:
Commodities 428 428 - -
Interest rate swaps 2,931 - 2,931 -
Foreign currencies 1,037 - 1,037 -
Total Liabilities $ 4,396 $ 428 $ 3,968 $ -
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 July
3, 2010 and December 31, 2009 are presented below.
2010 2009
(Thousands of dollars) Amortized Cost Fair Value Amortized Cost Fair Value
Short-term investments,
available-for-sale $511,762 $515,396 $372,770 $377,692
Short-term investments,
trading debt securities 29,810 30,738 27,453 29,659
Long-term debt 78,007 81,433 78,869 82,415
8
While management believes its derivatives are primarily economic
hedges of its firm purchase and sales contracts or anticipated sales
contracts, Seaboard does not perform the extensive record-keeping
required to account for these types of transactions as hedges for
accounting purposes. Since these derivatives and interest rate
exchange agreements discussed below, are not accounted for as
hedges, fluctuations in the related commodity prices, currency
exchange rates and interest rates could have a material impact on
earnings in any given period. The nature of Seaboard's market risk
exposure has not changed materially since December 31, 2009.
Commodity Instruments
Seaboard uses various grain, meal, hog, pork bellies and energy
resource related futures and options to manage its risk to price
fluctuations for raw materials and other inventories, finished
product sales and firm sales commitments. At July 3, 2010, Seaboard
had open net derivative contracts to sell 11,401,000 bushels of
grain, 38,500 tons of soybean meal 1,344,000 gallons of heating oil,
and 28,200,000 pounds of hogs. At December 31, 2009, Seaboard had
open net derivative contracts to sell 13,955,000 bushels of grain,
1,344,000 gallons of heating oil, 87,900 tons of soybean meal and to
purchase 2,720,000 pounds of hogs. From time to time, Seaboard may
enter into speculative derivative transactions not directly related
to its raw material requirements. Commodity derivatives are
recorded at fair value with any changes in fair value being marked
to market as a component of cost of sales on the Condensed
Consolidated Statements of Earnings.
Foreign Currency Exchange Agreements
Seaboard enters into foreign currency exchange agreements to manage
the foreign currency exchange rate risk with respect to certain
transactions denominated in foreign currencies. Foreign exchange
agreements that were primarily related to the underlying commodity
transaction were recorded at fair value with changes in value marked
to market as a component of cost of sales on the Condensed
Consolidated Statements of Earnings. Foreign exchange agreements
that were not related to an underlying commodity transaction were
recorded at fair value with changes in value marked to market as a
component of foreign currency gain (loss) on the Condensed
Consolidated Statements of Earnings.
At July 3, 2010, Seaboard had trading foreign exchange contracts to
cover its firm sales and purchase commitments and related trade
receivables and payables with net notional amounts of $113,765,000
primarily related to the South African Rand.
At December 31, 2009, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with net notional amounts of
$193,379,000 primarily related to the South African Rand and the
Euro.
Interest Rate Exchange Agreements
In May 2010, Seaboard entered into three ten-year interest rate
exchange agreements which involve the exchange of fixed-rate and
variable-rate interest payments over the life of the agreements
without the exchange of the underlying notional amounts to mitigate
the effects of fluctuations in interest rates on variable rate debt.
Seaboard pays a fixed rate and receives a variable rate of interest
on three notional amounts of $25,000,000 each. While Seaboard has
certain variable rate debt, these interest rate exchange agreements
do not qualify as hedges for accounting purposes. Accordingly, the
changes in fair value of these agreements are recorded in
Miscellaneous, net in the Condensed Consolidated Statement of
Earnings.
In December 2008 and again in March 2009, Seaboard entered into ten-
year interest rate exchange agreements with notional amounts of
$25,000,000 each to mitigate the effects of fluctuations in interest
rates, each with similar terms to agreements discussed above. In
June 2009, Seaboard terminated both interest rate exchange
agreements. Seaboard received payments in the amount of $3,981,000
to unwind these agreements.
Counterparty Credit Risk
Seaboard is subject to counterparty credit risk related to its
foreign currency exchange agreements. The maximum amount of loss
due to the credit risk of the counterparties for these agreements,
should the counterparties fail to perform according to the terms of
the contracts, was $1,424,000 as of July 3, 2010. Seaboard does not
hold any collateral related to these agreements.
The following table provides the amount of gain or (loss) recognized
for each type of derivative and where it was recognized in the
Condensed Consolidated Statement of Earnings for the three and six
months ended July 3, 2010 and July 4, 2009.
9
(Thousands of dollars)
Three Months Ended Six Months Ended
July 3, 2010 July 4, 2009 July 3, 2010 July 4, 2009
Amount of Amount of Amount of Amount of
Location of Gain or Gain or Gain or Gain or
Gain or (Loss) (Loss) (Loss) (Loss) (Loss)
Recognized Recognized Recognized Recognized Recognized
in Income in Income in Income in Income in Income
Commodities Cost of sales $ 7,059 $ 2,479 $23,127 $ 6,120
Foreign currencies Cost of sales 13,370 (15,010) 9,076 (13,182)
Foreign currencies Foreign currency (1,146) 2,166 (1,171) (3,566)
Interest rate Miscellaneous, net (3,124) 2,833 (3,124) 5,312
The following table provides the fair value of each type of
derivative held as of July 3, 2010 and December 31, 2009 and where
each derivative is included on the Condensed Consolidated Balance
Sheets.
(Thousands of dollars) Asset Derivatives Liability Derivatives
Balance Fair Value Balance Fair Value
Sheet July 3, December 31, Sheet July 3, December 31,
Location 2010 2009 Location 2010 2009
Commodities Other current assets $4,242 $4,610 Other current liabilities $ 428 $2,288
Foreign currencies Other current assets 1,424 430 Other current liabilities 1,037 5,943
Interest rate Other current assets - - Other current liabilities 2,931 -
Note 6 - Employee Benefits
Seaboard maintains a defined benefit pension plan ("the Plan") for
its domestic salaried and clerical employees. Effective January 1,
2010, Seaboard split a portion of employees from the Plan into a new
defined benefit pension. However, the split did not change the
employees' benefit and thus pension expense should not be materially
impacted. Management is currently evaluating whether to make any
contributions during 2010. At this time, no contributions are
anticipated to be made in 2010 for the 2009 and 2010 plan years.
Seaboard also sponsors non-qualified, unfunded supplemental
executive plans, and unfunded supplemental retirement agreements
with certain executive employees. Management has no plans to
provide funding for these supplemental plans in advance of when the
benefits are paid.
The net periodic benefit cost of these plans was as follows:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Thousands of dollars) 2010 2009 2010 2009
Components of net periodic benefit cost:
Service cost $ 1,558 $ 1,525 $ 3,169 $ 3,011
Interest cost 2,165 2,057 4,327 4,081
Expected return on plan assets (1,573) (1,322) (3,107) (2,382)
Amortization and other 994 1,289 1,997 2,495
Net periodic benefit cost$ 3,144 $ 3,549 $ 6,386 $ 7,205
Note 7 - Commitments and Contingencies
Seaboard is subject to various legal proceedings related to the
normal conduct of its business, including various environmental
related actions. In the opinion of management, none of these
actions is expected to result in a judgment having a materially
adverse effect on the consolidated financial statements of Seaboard.
Contingent Obligations
Certain of the non-consolidated affiliates and third party
contractors who perform services for Seaboard have bank debt
supporting their underlying operations. From time to time, Seaboard
will provide guarantees of that debt allowing a lower borrowing rate
or facilitating third party financing in order to further Seaboard's
business objectives. Seaboard does not issue guarantees of third
parties for compensation. As of July 3, 2010, Seaboard had
guarantees outstanding to two third parties with a total maximum
exposure of $1,354,000.
10
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 July 3, 2010, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity
under its committed and uncommitted credit facilities by $42,720,000
and $4,766,000, respectively. Included in these amounts are LCs
totaling $26,385,000, which support the Industrial Development
Revenue Bonds included as long-term debt and $17,802,000 of LCs
related to insurance coverages.
Note 8 - Stockholders' Equity and Accumulated Other Comprehensive
Loss
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Thousands of dollars) 2010 2009 2010 2009
Net earnings $77,357 $26,560 $140,020 $42,706
Other comprehensive income
net of applicable taxes:
Foreign currency translation adjustment (1,649) (4,558) (3,041) (10,424)
Unrealized gain on investments, net 398 (1,132) (702) (211)
Unrecognized pension cost 772 885 1,485 1,721
Total comprehensive income $76,878 $21,755 $137,762 $33,792
The components of and changes in accumulated other comprehensive
loss for the six months ended July 3, 2010 are as follows:
Balance Balance
December 31, Period July 3,
(Thousands of dollars) 2009 Change 2010
Foreign currency translation adjustment $ (77,576) $(3,041) $ (80,617)
Unrealized gain on investments, net 2,579 (702) 1,877
Unrecognized pension cost (39,789) 1,485 (38,304)
Accumulated other comprehensive loss $(114,786) $(2,258) $(117,044)
The foreign currency translation adjustment primarily represents the
effect of the Argentine peso currency exchange fluctuation on the net
assets of the Sugar segment. At July 3, 2010, the Sugar segment had
$157,235,000 in net assets denominated in Argentine pesos and
$18,922,000 in net liabilities denominated in U.S. dollars.
With the exception of the foreign currency translation adjustment to
which a 35% federal tax rate is applied, income taxes for components
of accumulated other comprehensive loss were recorded using a 39%
effective tax rate. In addition, the unrecognized pension cost
includes $12,053,000 related to employees at certain subsidiaries
for which no tax benefit has been recorded.
On November 6, 2009, the Board of Directors authorized Seaboard to
repurchase from time to time prior to October 31, 2011 up to
$100,000,000 market value of its Common Stock in open market or
privately negotiated purchases which may be above or below the
traded market price. Such purchases may be made by Seaboard or
Seaboard may from time to time enter into a 10b5-1 plan authorizing
a third party to make such purchases on behalf of Seaboard. The
stock repurchase will be funded by cash on hand. Shares repurchased
will be retired and shall resume the status of authorized and
unissued shares. Any stock repurchases will be made in compliance
with applicable legal requirements and the timing of the repurchases
and the number of shares to be repurchased at any given time may
depend on market conditions, Securities and Exchange Commission
regulations and other factors. The Board's stock repurchase
authorization does not obligate Seaboard to acquire a specific
amount of common stock and the stock repurchase program may be
suspended at any time at Seaboard's discretion. For the six months
ended July 3, 2010, Seaboard repurchased 12,132 shares of common
stock at a cost of $16,635,000.
11
Note 9 - Segment Information
During the first half of 2008, Seaboard started operations at its
newly constructed biodiesel plant. The ongoing profitability of
this plant is primarily based on future sales prices, the price of
alternative inputs, enforcement of government usage mandates and
reinstituting federal tax credits, which expired at the end of 2009.
Several tax credits were allowed to expire at the end of 2009 and
certain members of the U.S. Congress have indicated these will be
specifically reviewed during 2010. Management believes the federal
tax credits may be renewed retroactive to January 1, 2010, during
2010. As of July 3, 2010, Seaboard performed an impairment
evaluation of this plant and determined there was no impairment
based on management's current assumptions of future production
volumes, sales prices, cost inputs and the probabilities of the
combination of federal usage mandates and tax credits being renewed.
However, if 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 recorded value of these assets as of July 3, 2010 was
$41,878,000.
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 of $2,803,000
was recorded primarily to write-down the value of related citrus and
juice inventories to net realizable value, considering such
remaining inventory will not be marketed similar to prior years but
instead liquidated. In the second quarter of 2009, management
decided to integrate and transform the land previously used for
citrus production into sugar cane production and thus incurred an
additional charge to earnings of approximately $2,497,000 during the
second quarter of 2009 in connection with this change in business.
The remaining fixed assets from the citrus operations, primarily
buildings and equipment, have either been sold under long-term
agreements or integrated into the sugar business. However, since
such sale agreements are long-term and collection of the sales price
is not reasonably assured, 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
for which Seaboard bears a concentrated credit risk as this
customer, from time to time, has significant past due balances.
This contract expired at the end of March 2010 but was renewed in
May 2010 for one year, subject to early cancellation by either
party.
On March 2, 2009, an agreement became effective under which Seaboard
will sell its two power barges in the Dominican Republic for
$70,000,000. 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 deferred revenue in current liabilities as of
July 3, 2010) 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
July 3, 2010 and is classified as held for sale in other current
assets. Accordingly, Seaboard ceased depreciation on the two barges
as of January 1, 2010 but will 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 currently finalizing plans to build a 106 megawatt
power barge in the Dominican Republic for approximately 83,000,000
Euros plus additional project costs for a total of approximately
$125,000,000. Such plans are expected to be finalized during the
third or fourth quarter of 2010 with operations anticipated to begin
in early 2012.
The following tables set forth specific financial information about
each segment as reviewed by Seaboard's management. Operating income
for segment reporting is prepared on the same basis as that used for
consolidated operating income. Operating income, along with income
or losses from affiliates for the
12
Commodity Trading and Milling segment, is used as the measure of
evaluating segment performance because management does not consider
interest, other investment income and income tax expense on a
segment basis.
Sales to External Customers:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Thousands of dollars) 2010 2009 2010 2009
Pork $ 348,284 $270,218 $ 666,190 $ 532,975
Commodity Trading and Milling 405,633 360,135 813,736 741,012
Marine 215,615 175,738 419,038 382,685
Sugar 45,036 35,197 98,858 77,204
Power 31,015 24,224 63,984 45,396
All Other 2,880 4,318 6,933 8,126
Segment/Consolidated Totals $1,048,463 $869,830 $2,068,739 $1,787,398
Operating Income (Loss):
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Thousands of dollars) 2010 2009 2010 2009
Pork $ 58,634 $ 3,952 $ 85,042 $ (13,125)
Commodity Trading and Milling 19,523 5,350 42,157 18,451
Marine 11,037 (2,308) 19,303 17,431
Sugar 9,545 (1,141) 20,822 1,157
Power 3,706 1,300 7,734 2,652
All Other 174 619 586 892
Segment Totals 102,619 7,772 175,644 27,458
Corporate Items (1,372) (5,003) (6,931) (8,647)
Consolidated Totals $ 101,247 $ 2,769 $ 168,713 $ 18,811
Income from Affiliates:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Thousands of dollars) 2010 2009 2010 2009
Commodity Trading and Milling $ 6,033 $ 3,505 $ 10,850 $ 7,208
Sugar 503 193 574 384
Segment/Consolidated Totals $ 6,536 $ 3,698 $ 11,424 $ 7,592
Total Assets:
July 3, December 31,
(Thousands of dollars) 2010 2009
Pork $ 742,656 $ 774,718
Commodity Trading and Milling 564,340 521,618
Marine 255,290 236,382
Sugar 207,137 205,155
Power 54,531 75,348
All Other 9,349 8,988
Segment Totals 1,833,303 1,822,209
Corporate Items 631,287 514,924
Consolidated Totals $2,464,590 $2,337,133
13
Investments in and Advances to Affiliates:
July 3, December 31,
(Thousands of dollars) 2010 2009
Commodity Trading and Milling $ 99,651 $ 79,883
Sugar 2,593 2,349
Segment/Consolidated Totals $ 102,244 $ 82,232
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.
___________________________________________________________
14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
Cash and short-term investments as of July 3, 2010 increased $131.1
million to $600.3 million from December 31, 2009. The increase was
the result of cash generated by operating activities of $209.0
million. During this same time, cash was primarily used for capital
expenditures of $39.0 million, reduction of notes payable by $16.9
million and repurchases of common stock in the amount of $16.6
million. Cash from operating activities increased $38.6 million for
the six months ended July 3, 2010 compared to the same period in
2009, primarily as a result of higher net earnings for the six
months ended July 3, 2010 compared to the same period in 2009.
Acquisitions, Capital Expenditures and Other Investing Activities
During the six months ended July 3, 2010, Seaboard invested $39.0
million in property, plant and equipment, of which $3.4 million was
expended in the Pork segment, $19.1 million in the Marine segment
and $13.3 million in the Sugar segment. The Pork segment
expenditures were primarily for improvements to existing facilities
and related equipment. The Marine segment expenditures were
primarily for purchases of cargo carrying and handling equipment.
In the Sugar segment, the capital expenditures were primarily for
the continued development of the cogeneration plant with the
remaining amount for normal upgrades to existing operations. All
other capital expenditures are of a normal recurring nature and
primarily include replacements of machinery and equipment, and
general facility modernizations and upgrades.
For the remainder of 2010 management has budgeted capital
expenditures totaling $40.6 million. The Pork segment plans to
spend $10.2 million for improvements to existing facilities and
related equipment. The Marine segment has budgeted $15.6 million
primarily for the purchase of 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 a total of $8.3 million consisting of $2.9
million for the continued development of a 40 megawatt cogeneration
plant, with the remaining amount for normal upgrades to existing
operations. The cogeneration plant is expected to be operational by
early 2011. The balance of $6.5 million is planned to be spent in
all other businesses. Management anticipates paying for these
capital expenditures from available cash, the use of available short-
term investments or Seaboard's available borrowing capacity.
On March 2, 2009, an agreement became effective under which Seaboard
agreed to 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 9 to the Condensed Consolidated
Financial Statements for further discussion.
In late March 2010, Seaboard acquired a 50% non-controlling interest
in an international commodity trading business located in North
Carolina for approximately $7.7 million. There was an initial
payment of $6.0 million made in March 2010 with the remaining $1.7
million recorded as a holdback payable over the next year upon
verification of the balance sheet as of the date of closing and
collection of certain receivables outstanding. This investment is
accounted for using the equity method.
In late July, Seaboard finalized an agreement to invest in a bakery
to be built in Central Africa. Seaboard will have a 50% non-
controlling interest in this business. The total project cost is
estimated to be $58.0 million but Seaboard's total investment has
not yet been determined pending finalization of third party
financing alternatives for a significant portion of the project.
Seaboard is currently finalizing plans to build a new 106 megawatt
power barge in the Dominican Republic. The total cost of the
project is estimated to be $125.0 million but Seaboard's total
investment has not yet been determined pending finalization of third
party financing alternatives for a significant portion of the
project. During the second quarter of 2010, Seaboard made an
advance payment of approximately $2.0 million related to the
potential construction of the barge. If Seaboard ultimately decides
not to build the barge, Seaboard would incur a charge to earnings to
write-off this advance payment. Finalization of the plans is
anticipated to occur during the third or fourth quarter of 2010 with
operations anticipated to begin in early 2012.
15
Financing Activities and Debt
As of July 3, 2010, Seaboard had committed lines of credit totaling
$300.0 million and uncommitted lines totaling $162.8 million. As of
July 3, 2010, there were no borrowings outstanding under the
committed lines of credit and borrowings under the uncommitted lines
of credit totaled $16.9 million. Outstanding standby letters of
credit reduced Seaboard's borrowing capacity under its committed and
uncommitted credit lines by $42.7 million and $4.8 million,
respectively, primarily representing $26.4 million for Seaboard's
outstanding Industrial Development Revenue Bonds and $17.8 million
related to insurance coverage. Also included in notes payable as of
July 3, 2010 was a term note of $47.5 million denominated in U.S.
dollars.
Seaboard's remaining 2010 scheduled long-term debt maturities total
$1.5 million. As of July 3, 2010, Seaboard had cash and short-term
investments of $600.3 million with total net working capital of
$1,028.0 million. 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 as noted above for current proposed projects.
Management intends to continue seeking opportunities for expansion
in the industries in which Seaboard operates, utilizing existing
liquidity, available borrowing capacity, and other financing
alternatives.
On November 6, 2009, the Board of Directors authorized up to $100.0
million for a new share repurchase program. For the six months
ended July 3, 2010, Seaboard used cash to repurchase 12,132 shares
of common stock at a total price of $16.6 million. See Note 8 to the
Condensed Consolidated Financial Statements for further discussion.
See Note 7 to the Condensed Consolidated Financial Statements for a
summary of Seaboard's contingent obligations, including guarantees
issued to support certain activities of non-consolidated affiliates
or third parties who provide services for Seaboard.
RESULTS OF OPERATIONS
Net sales for the three and six month periods of 2010 increased by
$178.6 million and $281.3 million, respectively, over the same
periods in 2009, which primarily reflected an increase in sale
prices for pork products, increased commodities trading volumes and
higher cargo volumes for the Marine segment.
Operating income increased by $98.5 million and $149.9 million for
the three and six month periods of 2010, respectively, compared to
the same periods in 2009. The increases primarily reflect higher
Pork segment margins and, to a lesser extent, increased margins for
the Sugar segment. The three month period also reflects an increase
in operating income for the Marine segment as discussed below. In
addition, the increases reflect a $12.6 million and $17.8 million
fluctuation of marking to market Commodity Trading and Milling
segment derivative contracts, as discussed below, for the three and
six month periods of 2010 compared to the same periods in 2009.
Pork Segment
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Dollars in millions) 2010 2009 2010 2009
Net sales $348.3 $270.2 $666.2 $533.0
Operating income (loss) $ 58.6 $ 4.0 $ 85.0 $(13.1)
Net sales for the Pork segment increased $78.1 million and $133.2
million for the three and six month periods of 2010, respectively,
compared to the same periods in 2009. The increases primarily
reflect an increase in overall sales prices for pork products.
Operating income for the Pork segment increased $54.6 million and
$98.1 million for the three and six month periods of 2010,
respectively, compared to the same periods in 2009. The increases
primarily relate to higher sales prices and, to a lesser extent,
lower feed costs, partially offset by higher costs for hogs
purchased from third parties. Management is unable to predict
future market prices for pork products or the cost of feed and hogs
purchased from third parties. However, management anticipates
positive operating income for the remainder of 2010.
16
In addition, as discussed in Note 9 to the Condensed 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.
Commodity Trading and Milling Segment
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Dollars in millions) 2010 2009 2010 2009
Net sales $405.6 $360.1 $813.7 $741.0
Operating income as reported $ 19.5 $ 5.4 $ 42.2 $ 18.5
Less mark-to-market adjustments (10.7) 1.9 (19.5) (1.7)
Operating income excluding mark-to-market
adjustments $ 8.8 $ 7.3 $ 22.7 $ 16.8
Income from affiliates $ 6.0 $ 3.5 $ 10.9 $ 7.2
Net sales for the Commodity Trading and Milling segment increased
$45.5 million and $72.7 million for the three and six month periods
of 2010, respectively, compared to the same periods in 2009. The
increases are primarily the result of increased volumes of
commodities sold, principally corn and, to a lesser degree, wheat
for the six month period. Partially offsetting the increase were
price decreases for commodities sold by the commodity trading
business to third parties, especially for corn and, to a lesser
degree, soybean meal and also, for the six month period, wheat.
Operating income for this segment increased $14.1 million and $23.7
million for the three and six month periods of 2010, respectively,
compared to the same periods in 2009. The increases for the three
and six month period primarily reflect the $12.6 million and $17.8
million fluctuation of marking to market the derivative contracts as
discussed below. In addition, the increase for the six month period
also reflects the write-downs of $8.8 million in the first quarter
of 2009 for certain grain inventories for customer contract
performance issues and related lower of cost or market adjustments,
as discussed further in Note 3 to the Condensed Consolidated
Financial Statements.
Due to the uncertain political and economic conditions in the
countries in which Seaboard operates and the current volatility in
the commodity markets, management is unable to predict future sales
and operating results. However, management anticipates positive
operating income for the remainder of 2010, excluding the potential
effects of marking to market derivative contracts. In addition, see
Note 3 to the Condensed Consolidated Financial Statements for
discussion regarding certain grain inventories.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, operating income would have been lower by $10.7 million
and $19.5 million, respectively, for the three and six month periods
of 2010, while operating income would have been higher by $1.9
million for the three month period in 2009 and lower by $1.7 million
for the six month period of 2009. While management believes its
commodity futures and options and foreign exchange contracts are
primarily economic hedges of its firm purchase and sales contracts
or anticipated sales contracts, Seaboard does not perform the
extensive record-keeping required to account for these types of
transactions as hedges for accounting purposes. Accordingly, while
the changes in value of the derivative instruments were marked to
market, the changes in value of the firm purchase or sales contracts
were not. As products are delivered to customers, these 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 2010. Management believes
eliminating these adjustments, as noted in the table above, provides
a more reasonable presentation to compare and evaluate period-to-
period financial results for this segment.
Income from affiliates for the three and six month periods of 2010
increased by $2.5 million and $3.7 million, respectively, from the
same periods in 2009. 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.
17
Marine Segment
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Dollars in millions) 2010 2009 2010 2009
Net sales $215.6 $175.7 $419.0 $382.7
Operating income (loss) $ 11.0 $ (2.3) $ 19.3 $ 17.4
Net sales for the Marine segment increased $39.9 million and $36.3
million for the three and six month periods of 2010, respectively,
compared to the same periods in 2009 primarily as a result of higher
cargo volumes in most markets served during 2010 as economic
activity continued to increase. The growth in volumes were
partially offset by overall lower cargo rates in 2010 as rates in
the first quarter of 2009 had just started to decline from the
impacts of the slow economic conditions and continued to decline for
most of 2009. Overall, cargo rates have remained fairly constant
during 2010.
Operating income for the Marine segment increased $13.3 million and
$1.9 million for the three and six month periods of 2010,
respectively, compared to the same periods in 2009. The increases
were primarily the result of cost decreases for charterhire and, to
a lesser extent, certain terminal and other operating costs on a per
unit shipped basis. Partially offsetting the increases were lower
cargo rates, as discussed above, and higher fuel costs for vessels
and increased trucking costs 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 affect net sales or operating income during the
remainder of 2010. However, management anticipates this segment
will be profitable for the remainder of 2010.
Sugar Segment
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Dollars in millions) 2010 2009 2010 2009
Net sales $ 45.0 $ 35.2 $ 98.9 $ 77.2
Operating income (loss) $ 9.5 $ (1.1) $ 20.8 $ 1.2
Income from affiliates $ 0.5 $ 0.2 $ 0.6 $ 0.4
Net sales for the Sugar segment increased $9.8 million and $21.7
million for the three and six month periods of 2010, respectively,
compared to the same periods in 2009. The increases primarily
reflect increased sugar and alcohol prices. Partially offsetting
the increases were lower volumes of sugar sales as a result of less
sugar purchased for resale. During the first quarter of 2010,
Seaboard began sales of dehydrated alcohol to certain local oil
companies under the national bio-ethanol program which requires
alcohol to be blended with gasoline. As a result, Seaboard
anticipates higher sales for 2010 compared to 2009. However,
Argentine governmental authorities continue to attempt to control
inflation by limiting the price of basic commodities, including
sugar. Accordingly, management cannot predict sugar prices for the
remainder of 2010.
Operating income increased $10.6 million and $19.6 million for the
three and six month periods of 2010, respectively, compared to the
same periods in 2009. The increases primarily represent higher
margins from the increase in sugar and alcohol prices discussed
above. In addition, the increases also reflects a $2.5 million and
$5.3 million charge to earnings for the three and six month periods
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 which
did not occur in 2010. Management expects this segment to be
profitable for the remainder of 2010 although not at the same level
as the first six months of 2010.
Power Segment
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(Dollars in millions) 2010 2009 2010 2009
Net sales $ 31.0 $ 24.2 $ 64.0 $ 45.4
Operating income $ 3.7 $ 1.3 $ 7.7 $ 2.7
Net sales for the Power segment increased $6.8 million and $18.6
million for the three and six month periods of 2010, respectively,
compared to the same periods in 2009 primarily reflecting higher
rates. The higher rates were attributable primarily to higher fuel
costs, a component of pricing. Operating income increased $2.4
million and $5.0 million for the three and six month periods of
2010, respectively, compared to the same
18
periods in 2009 primarily as a result of higher rates being in
excess of higher fuel costs. There was no depreciation expense in
2010 related to the assets classified as held for sale although this
was principally offset by increases in other production costs. See
Note 9 to the Condensed Consolidated Financial Statements for the
potential future sale of certain assets of this business and
potential plans to build a new power barge. Management cannot
predict future fuel costs or the extent to which rates will
fluctuate compared to fuel costs, although management anticipates
this segment will remain profitable for the remainder of 2010.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased by
$2.6 million and $1.5 million for the three and six month periods of
2010 compared to the same periods in 2009. The decreases are
primarily due to decreased personnel costs related to Seaboard's
deferred compensation programs (which are offset by the effect of
the mark-to-market investments recorded in other investment income
discussed below). As a percentage of revenues, SG&A decreased to
4.4% and 4.6% for the three and six month periods of 2010 compared
to 5.6% and 5.4% for the same periods in 2009 primarily as a result
of increased sales principally in the Pork and Commodity Trading and
Milling segments.
Interest Expense
Interest expense decreased $1.6 million and $3.2 million for the
three and six month periods of 2010 compared to the same periods in
2009. The decreases are primarily the result of lower average level
of both short and long-term borrowings.
Foreign Currency Gains (Losses), Net
The fluctuations in foreign currency gains (losses), net for the
three and six months of 2010 compared to the same periods in 2009
primarily reflects foreign currency losses for the three month
period of 2010 from Euro cash and short-term investment positions
and Euro currency derivatives compared to foreign currency gains
during 2009 in the Commodity Trading and Milling segment related to
transactions denominated in the Euro and South African rand.
Other Investment Income (Loss), Net
Other investment income decreased $8.0 million and $6.5 million for
the three and six month periods of 2010 compared to the same periods
in 2009. The decreases primarily reflect losses of $2.4 million and
$1.2 million for the three and six month periods of 2010 in the mark-
to-market value of Seaboard's investments related to the deferred
compensation programs in the first six months of 2010 compared to
gains of $1.7 million and $1.1 million for the same periods in 2009.
In addition, the three and six month periods of 2009 included income
of $1.8 million and $3.9 million from the Power segment related to
the settlement of a receivable, not directly related to its business
and purchased at a discount.
Miscellaneous, Net
The decreases in miscellaneous, net income for the three and six
month periods of 2010 compared to the same periods in 2009 primarily
reflect a loss of $3.1 million in both periods in 2010 compared to
gains of $2.8 million and $5.3 million on interest rate exchange
agreements for the three and six month periods of 2009.
Income Tax Expense
The change to income tax expense in 2010 from income tax benefit in
2009 is the result of projected domestic earnings during 2010
compared to projected domestic losses in 2009. The higher income
tax expense rate for the three month period of 2010 compared to the
six month period of 2010 resulted from increasing the projected
domestic income relative to projected total income for 2010 during
the second quarter. The higher income tax benefit for the three
month period of 2009 compared to the six month period of 2009
resulted from changing projected domestic income to a projected
domestic loss during the second quarter of 2009.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-
day operations. Seaboard utilizes derivative instruments to
mitigate some of these risks including both purchases and sales of
futures and options to hedge inventories, forward purchase and sale
contracts and forward purchases. Primary market risk exposures
result from changing commodity prices, foreign currency exchange
rates and interest rates. From time to time, Seaboard may also
enter into speculative derivative transactions not directly related
to its raw material requirements. The nature of Seaboard's market
risk exposure related to these items has not changed materially
since December 31, 2009. See Note 5 to the Condensed Consolidated
Financial Statements for further discussion.
19
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Seaboard's
management evaluated, under the direction of our Chief Executive and
Chief Financial Officers, the effectiveness of Seaboard's disclosure
controls and procedures as defined in Exchange Act Rule 13a-15(e) as
of July 3, 2010. Based upon and as of the date of that evaluation,
Seaboard's Chief Executive and Chief Financial Officers concluded
that Seaboard's disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports it
files and submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported as and when required.
It should be noted that any system of disclosure controls and
procedures, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any system of disclosure
controls and procedures is based in part upon assumptions about the
likelihood of future events. Due to these and other inherent
limitations of any such system, there can be no assurance that any
design will always succeed in achieving its stated goals under all
potential future conditions.
Change in Internal Controls - There has been no change in Seaboard's
internal control over financial reporting required by Exchange Act
Rule 13a-15 that occurred during the fiscal quarter ended July 3,
2010 that has materially affected, or is reasonably likely to
materially affect, Seaboard's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in the risk factors as
previously disclosed in Seaboard's Annual Report on form 10-K for
the year ended December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding Seaboard's
purchase of its common stock during the quarter.
Issuer Purchases of Equity Securities
Total Approximate
Number Dollar Value
of Shares of Shares
Purchased that May
as Part Yet Be
Total Average of Publicly Purchased
Number Price Announced Under the
of Shares Paid per Plans Plans or
Period Purchased Share or Programs Programs
April 4 to April 30, 2010 2,550 1,340.94 2,550 89,431,292
May 1 to May 31, 2010 2,178 1,446.97 2,178 86,279,792
June 1 to July 3, 2010 1,952 1,493.08 1,952 83,365,296
Total 6,680 1,419.97 6,680 83,365,296
All purchases during the quarter were made under the authorization
from our Board of Directors to purchase up to $100 million market
value of Seaboard common stock announced on November 6, 2009. An
expiration date of October 31, 2011 has been specified for this
authorization. All purchases were made through open-market
purchases and all the repurchased shares have been retired.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
20
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
This Form 10-Q contains forward-looking statements with respect to
the financial condition, results of operations, plans, objectives,
future performance and business of Seaboard Corporation and its
subsidiaries (Seaboard). Forward-looking statements generally may
be identified as statements that are not historical in nature; and
statements preceded by, followed by or that include the words
"believes," "expects," "may," "will," "should," "could,"
"anticipates," "estimates," "intends," or similar expressions. In
more specific terms, forward-looking statements, include, without
limitation: statements concerning projection of revenues, income or
loss, capital expenditures, capital structure or other financial
items, including the impact of mark-to-market accounting on
operating income; statements regarding the plans and objectives of
management for future operations; statements of future economic
performance; statements regarding the intent, belief or current
expectations of Seaboard and its management with respect to:
(i) Seaboard's ability to obtain adequate financing and liquidity,
(ii) the price of feed stocks and other materials used by Seaboard,
(iii) the 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 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 anticipated renewal of federal tax credits for biodiesel or
(xiii) other trends affecting Seaboard's financial condition or
results of operations, and statements of the assumptions underlying
or relating to any of the foregoing statements.
This list of forward-looking statements is not exclusive. Seaboard
undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future
events, changes in assumptions or otherwise. Forward-looking
statements are not guarantees of future performance or results.
They involve risks, uncertainties and assumptions. Actual results
may differ materially from those contemplated by the forward-looking
statements due to a variety of factors. The information contained
in this report, including without limitation the information under
the headings "Management's Discussion and Analysis of Financial
Condition and Results of Operations," identifies important factors
which could cause such differences.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SEABOARD CORPORATION
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Chief Financial Officer
(principal financial officer)
Date: August 10, 2010
by: /s/ John A. Virgo
John A. Virgo, Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Date: August 10, 2010
22
