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SEABOARD CORPORATION
2010 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.
Seaboard also has an interest in turkey operations in the
United States.
Table of Contents
Letter to Stockholders 2
Principal Locations 5
Division Summaries 6
Summary of Selected Financial Data 8
Company Performance Graph 9
Quarterly Financial Data (unaudited) 10
Management's Discussion & Analysis of Financial Condition
and Results of Operations 11
Management's Responsibility for Consolidated Financial
Statements 26
Management's Report on Internal Control over Financial
Reporting 26
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements 27
Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting 28
Consolidated Statements of Earnings 29
Consolidated Balance Sheets 30
Consolidated Statements of Cash Flows 31
Consolidated Statements of Changes in Equity 32
Notes to Consolidated Financial Statements 33
Stockholder Information 60
This report, including information included or incorporated by
reference in this report, contains certain forward-looking
statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business
of Seaboard Corporation and its subsidiaries (Seaboard).
Forward-looking statements generally may be identified as
statements that are not historical in nature and statements
preceded by, followed by or that include the words: "believes,"
"expects," "may," "will," "should," "could," "anticipates,"
"estimates," "intends," or similar expressions. In more
specific terms, forward-looking statements, include, without
limitation: statements concerning 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, turkey and other
products and services, (iv) statements concerning management's
expectations of recorded tax effects under certain
circumstances, (v) the volume of business and working capital
requirements associated with the competitive trading
environment for the Commodity Trading and Milling segment,
(vi) the charter hire rates and fuel prices for vessels,
(vii) the stability of the Dominican Republic's economy, fuel
costs and related spot market prices and collection of
receivables in the Dominican Republic, (viii) the ability of
Seaboard to sell certain grain inventories in foreign countries
at 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, or (xii) other trends affecting Seaboard's
financial condition or results of operations, and statements of
the assumptions underlying or relating to any of the foregoing
statements.
This list of forward-looking statements is not exclusive.
Seaboard undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events, changes in assumptions or
otherwise. Forward-looking statements are not guarantees of
future performance or results. They involve risks,
uncertainties and assumptions. Actual results may differ
materially from those contemplated by the forward-looking
statements due to a variety of factors. The information
contained in this report, including without limitation the
information under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Letter to Stockholders", identifies important factors which
could cause such differences.
1
Letter to Stockholders
2010 was a year to remember as we posted record results in sales,
operating income and net income. Seaboard Foods, our integrated
pork division, is largely responsible for these high water marks
but our other divisions also delivered very respectable results.
This is laudable during this time of worldwide economic and
political instability. As an international food and
transportation company, our results are not only driven by
industry fundamentals, but are heavily influenced by global
economic, social and political conditions. While 2010 is in the
bank, it is clear that 2011 will be challenging and
unpredictable. As a company reliant on commodity inputs such as
grain and energy and in industries which are heavily regulated
by government and scrutinized by special interest groups,
managing margins becomes more challenging as major costs are
tougher to control. The current volatility and high prices of
many of our critical raw materials and products has provided
some benefits in the short term, but could ultimately impact us
negatively. Higher prices for our finished products are not
beneficial long term to our customers or to the growth of our
industries. Going forward, as we attempt to maintain margins and
market share with our finished products we face the reality of
consumer price resistance and food substitution. Maintaining our
focus on aspects that we can control, namely quality of product
and service, broader product mix and a strong company culture is
increasingly important.
As noted in this Annual Report, some divisions posted record
revenue and operating income largely due to higher sales prices
and, in nearly all segments, volume increases. Revenues increased
almost 22% year over year to $4.386 billion with operating income
up $297.3 million. Our operations generated $236.5 million in
cash after adjusting for capital expenditures and strengthened an
already solid balance sheet. We remain in a favorable position to
fund increased working capital needs, new investments and
continued organic growth. Although it is tempting to deploy our
liquid position quickly to improve on current short-term
investment returns, we value strong cash reserves and prefer to
remain in an opportunistic and flexible position. To create cash
flow, long term value and sustainable businesses, we need to be
patient and thoughtful as we grow the Company.
A significant accomplishment for our Company in 2010 was our
acquisition in December of a 50% voting interest in Butterball
LLC. With the Butterball acquisition, we are pleased to be co-
owners with the Maxwell Group who has been involved in several
agricultural businesses since 1916. As with all business
combinations, there is the risk of successfully merging company
cultures and philosophies. The transition period with the Maxwell
and Butterball Groups has been exceptionally smooth. Sharing
similar business principles, priorities and practices give us the
confidence that we can be of mutual benefit to one another and
bring strength and value to our common interests. Butterball is
a company that has tremendous brand recognition, quality
products, and a strong customer base supported by focused
customer service and disciplined and enthusiastic employees.
As shareholders, I encourage you to seek out Butterball, Prairie
Fresh and Daily's products at retailers wherever and whenever you
get the chance!
Looking beyond 2010, this may be one of the more challenging
years in recent memory for Seaboard and other grain reliant food
businesses in the U.S. and worldwide. Beginning in 2005, when
Congress enacted the U.S. Energy Policy Act and mandated the
compulsory blending of ethanol with gasoline, the battle of food
versus fuel was underway. Unfortunately, for consumers in the
U.S. and abroad, the expansion of land use to produce enough corn
to meet the increased demand from the ethanol mandate without
significant price disruption has not taken place. As a
consequence, corn and other row crops competing for the same land
base have skyrocketed in price.
The U.S. government has not modified its current renewable fuels
energy program (in fact, it has moved to increase the mandates)
and as a result, prices for grain-based consumer foods have risen
dramatically. Meat products are quickly becoming less affordable
for most consumers. Domestic per capita consumption of protein
has decreased in all meat categories over the last five years and
is down over 20% and 15% respectively in the beef and pork
sectors since 1980. Sadly, over time, the U.S., with perhaps the
best infrastructure and commercial skills to convert grain into
value added food products, may lose its competitive edge in the
export markets and with high prices, cause further erosion in
overall demand.
This period of high unemployment coupled with an economy
struggling for normalcy is a troubling time. As we reflect on the
health of our agricultural markets and specifically the livestock
sector, we must look hard at major reformation of the current
legislation coming up for review this year. It is our hope that
the U.S. government will see the
2
Letter to Stockholders
unintended consequences and enormous impact the renewable fuels
standard has had on the livestock sector and amend or legislate
a more durable and predictable structure for the industry.
The current food crisis not only impacts quality of life
issues domestically but as we have seen, contributes toward
destabilizing nations around the world.
Seaboard Foods is responsible, in large part, for our record
results this year. Pork processing margins were unusually high as
sales prices accelerated faster than live production costs. In
addition, export volumes increased particularly to our higher
valued markets in the Far East while domestic volumes nearly kept
pace with 2009. With the price of animal feed dramatically rising
over the last six months and the expectation that prices will not
decline materially over the near term, the entire meat sector has
taken a conservative approach on the supply side and this will
continue until the federal government brings more clarity to farm
program and energy policy. Going forward, as meat prices and
government regulation increase, it will be tougher for the
industry to maintain volumes, margins and export competitiveness.
As an integrated producer and processor, it is uncertain if we
will continue to enjoy historically high processor margins and to
weather variable returns on hog production. Seaboard Foods should
continue to have greater control over the quality of our raw
materials and finished product which is a competitive advantage
and key part of our business model. The benefits of our model are
many as we deliver safe and consistent high quality products to
our customers. We continue to make headway in the retail and
institutional markets with enhanced and further processed value
added products. With Butterball's strengths in certain categories
and markets and Seaboard Foods in others, we should be in an
ideal position to better both of these businesses with continued
coordination and cooperation. Over time, the distinct skill sets
and synergies between these two companies should bring tangible
and intangible benefits to both.
Seaboard Marine posted significantly better year over year
results with increased revenue and operating income as the global
economy gradually recovered from its low levels in 2009. Unit
volumes increased approximately 20% while average container rates
remained about the same as higher trucking and fuel expenses were
more than offset by lower charter rates and terminal costs. Last
year, margins suffered as operators tried to maintain volume and
market share in a shrinking market. Over the next few years, we
expect to implement a fairly aggressive vessel replacement
program. We intend to replace many older, less fuel efficient
ships with new, more efficient vessels. Our mixture of owned and
chartered vessels will also change as we move toward a more
modern, specialized, fuel efficient and higher capacity fleet.
Over the last several years we have undergone an aggressive
capital expenditure program to drive our operating costs lower
with infrastructure improvements, cargo handling equipment
purchases and software systems. These initiatives should lower
our overall cost structure and provide improved service to our
client base. In addition, we continue to add or modify existing
routes in response to customer demands and particularly where it
strengthens our position in the Americas. Although cargo carriage
is a basic business, there are many moving parts and coordinating
and executing all components is critical in delivering a
reliable, flexible and premium service. We continue to perform
well in this regard.
The Commodity Trading and Milling Division experienced a year of
growth and development as well as good overall operating results.
After eliminating the impact of mark-to-market accounting on
derivatives and a one time litigation gain in 2009, the division
achieved solid earnings growth this year. Third party grain
trading had a better year in Latin America while grain processing
margins were mixed in both Africa and the Americas. We have added
new trade offices in the U.S., Canada and Australia and added to
our industrial base in Latin America and Africa. Now, with 13
trading offices and 32 plant locations in 21 countries on five
continents, our network of industrial operations and trading
offices gives us the leverage and scale to provide our customers
multiple choices in origins of supply, a range of raw and
processed products and cost competitive positions through our
owned and chartered vessel fleet. With this broad base, we have
been able to expand into different commodities, including
specialty grains and value added products and incrementally add
to our regular trade routes. In 2011, we expect to add new
commodity channels and routes to the existing trade portfolio. We
also continue to look for industrial investment opportunities in
value added grain based businesses.
This coming year, with a virtual certainty of historically high
commodity prices, we expect heavy price resistance and generally
lower margins and volumes on the milling side. We are already
seeing this in some locations in West Africa and additional
pressure from host governments to reduce product prices to
maintain social stability. In Haiti, we plan
3
Letter to Stockholders
on resuming milling operations later this year after an entire
year of downtime for mill reconstruction as a result of the
earthquake in January 2010. Overall, although we expect this
coming year to be challenging due to volatile and high priced
commodities, we will continue to focus on upgrading our supply
chain logistics, risk management activities and administrative
support system. As a global division with over 45 years in the
commodity and milling business in various forms of partnerships,
we have a wide and diverse network through which we can
analyze various opportunities and build synergistically on our
commodity based platform.
Tabacal, our sugar cane production and processing business in
northern Argentina performed exceptionally well in 2010. As
mentioned in previous annual reports, we have spent considerable
sums over the last five years in expanding cane acreage, crushing
capacity, distillery functionality and energy production. We now
have a modern, efficient and flexible operation which allows us
to produce many grades of sugar and alcohol for both fuel and
industrial use. With our new co-generation plant expected to come
on stream in the 2nd quarter this year, our energy costs should
be reduced significantly and our excess power should generate
incremental returns for the company.
With state and national elections coming up in October this year,
the political and economic issues are crystallizing now in
Argentina. Inflationary factors, government price controls and
labor issues are some of the major challenges going forward and
we are hoping that no major disruption upsets the momentum we are
building. That being said, we believe the government understands
the ongoing contribution of our company and value of our industry
and with our new capabilities and disciplined approach, we feel
confident that we will continue to earn respectable returns.
Sugar and fuel are close to historic highs and although they may
correct to the downside, we believe our costs should enable us to
remain profitable.
Operating income for 2010 was 63% higher than last year from $8.2
to $13.4 million as price increases more than offset higher fuel
expenses in the Dominican Republic. As mentioned previously, we
anticipate closing on the sale of our current power producing
assets to a third party in the second quarter of 2011. The two
power barges will be replaced by one new 106 MW barge with the
capability of burning heavy fuel oil or natural gas. Our net
investment in the new 106 MW power barge will be about $55
million after considering the anticipated sale proceeds of $70
million for the existing barges. The new engines will give us the
flexibility to produce electricity with either natural gas or
heavy fuel oil depending on price and availability of fuel stock.
We have a solid infrastructure, good relations with the host
government and the industrial private sector and we are
optimistic that when we begin commercial operations in 2012, the
new power barge will be fully dispatched and will rank among the
most efficient power producers in the Dominican Republic. Our
expectations are that we will exceed prior year financial results
once we begin continuous operations in 2012.
It is with pride and thanks that we deliver these record results
for the year and although it is only one in the Company's 83 year
history, it is many years in the making. Seaboard is made up of
many unique people who have helped shape this Company into a
special one as measured not just by financial performance but by
product value, customer appreciation and employee satisfaction.
For this, I am extremely grateful and appreciative and as
shareholders, I hope you are as well. If stockholder's equity is
a reliable measure of financial performance (as some notable
investment analysts proclaim), then we haven't done too badly
over the last several years. We will no doubt face some tougher
financial times in 2011 but longer term, our selected industries
and integrated business model ought to bring some reasonable
growth and value to our invested group.
/s/Steven J. Bresky
Steven J. Bresky
President and
Chief Executive Officer
4
Principal Locations
Corporate Office Minoterie de Seaboard de Nicaragua, S.A.
Seaboard Corporation Matadi, S.A.R.L.* Nicaragua
Merriam, Kansas
Democratic Republic Seaboard del Peru, S.A.
Pork of Congo Peru
Seaboard Foods LLC
Pork Division Office Minoterie du Congo, Seaboard Freight & Shipping
Merriam, Kansas S.A. Jamaica Limited
Republic of Congo Jamaica
Processing Plant
Guymon, Oklahoma Moderna Alimentos, S.A.* Seaboard Honduras, S. de R.L.
Molinos Champion, S.A.* de C.V.
Live Production Ecuador Honduras
Operation Offices
Julesburg, Colorado National Milling Seaboard Marine Bahamas Ltd.
Hugoton, Kansas Company Bahamas
Leoti, Kansas of Guyana, Inc.
Liberal, Kansas Guyana Seaboard Marine (Trinidad)
Rolla, Kansas Ltd.
Guymon, Oklahoma National Milling Trinidad
Hennessey, Oklahoma Corporation Limited
Optima, Oklahoma Zambia Seaboard Marine of Haiti,
S.E.
Processed Meats Companie Industrial de Haiti
Salt Lake City, Utah Productos Agreopecuarios
Missoula, Montana SA* SEADOM, S.A.
Rafael del Castillo & Dominican Republic
High Plains Cia. S.A.*
Bioenergy, LLC Colombia SeaMaritima S.A. de C.V.
Guymon, Oklahoma Mexico
Seaboard West Africa
Seaboard de Mexico Limited* Sugar
USA LLC Sierra Leone Ingenio y Refineria San
Mexico Martin del Tabacal SRL
Unga Holdings Limited* Argentina
Commodity Trading & Kenya and Uganda
Milling Power
Commodity Trading Marine Transcontinental Capital
Operations Seaboard Marine Ltd. Corp. (Bermuda) Ltd.
Australia* Marine Division Office Dominican Republic
Bermuda Miami, Florida
Canada Turkey
Chapel Hill, Port Operations Butterball LLC*
North Carolina* Brooklyn, New York Division Office
Colombia Fernandina Beach, Florida Garner, North Carolina
Ecuador Houston, Texas Processing Plants
Greece Miami, Florida Huntsville, Arkansas
Isle of Man New Orleans, Louisiana Jonesboro, Arkansas
Miami, Florida Ozark, Arkansas
Peru* Agencias Generales Conaven, Longmont, Colorado
South Africa C.A. Carthage, Missouri
Switzerland Venezuela Kinston, North Carolina
Mt. Olive, North Carolina
African Poultry Agencia Maritima del Istmo,
Development S.A.
Limited* Costa Rica Other
Democratic Republic Mount Dora Farms de
of Congo, Cayman Freight Shipping Honduras, S.R.L.
Kenya and Zambia Services, Ltd. Honduras
Cayman Islands
Fairfield Rice Inc.* Mount Dora Farms Inc.
Guyana JacintoPort International LLC Houston, Texas
Houston, Texas
Les Moulins d'Haiti
S.E.M.* Representaciones Maritimas y
Haiti Aereas, S.A.
Guatemala
Lesotho Flour Mills
Limited* Sea Cargo, S.A.
Lesotho Panama
Life Flour Mill Ltd.* Seaboard de Colombia, S.A.
Premier Feeds Mills Colombia
Company Limited*
Nigeria
*Represents a non-controlled, non-consolidated affiliate
5
Division Summaries
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 facilities.
Seaboard's processing facility is located in Guymon, Oklahoma.
The facility has a daily double shift capacity to process
approximately 19,400 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 four 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 enable 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 primarily 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 sources, transports and markets approximately
five million metric tons per year of wheat, corn, soybean meal,
rice and other similar 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 28 countries. The commodity trading business operates through
ten offices in nine countries and three non-consolidated
affiliates located in nine countries. The grain processing
businesses operate facilities at 32 locations in 14 countries and
include four consolidated and fourteen non-consolidated
affiliates in Africa, South America, and the Caribbean. These
businesses produce approximately three million metric tons of
finished product per year.
6
Division Summaries
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 42 foreign
ports.
Seaboard's marine fleet consists of 10 owned and 29 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 26 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 grows sugar cane, produces and refines
sugar, and produces alcohol. The sugar is primarily marketed
locally with some exports to the United States and other South
American countries. 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 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 second quarter of 2011. In
addition, in the first quarter of 2010, the Company began sales
of dehydrated alcohol to certain oil companies under the
Argentine government 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 has an agreement to sell
these electric power generating facilities, which sale is
anticipated to be finalized during the second quarter in 2011.
Seaboard is retaining all other physical properties of its power
generation business and is currently constructing a replacement
power generation facility with a rated capacity of 106 megawatts
for use in the Dominican Republic. Operations are anticipated to
begin by the end of 2011 or early 2012. 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.
On December 6, 2010, Seaboard purchased a 50 percent non-
controlling voting interest in Butterball, LLC ("Butterball").
Butterball is a vertically integrated producer, processor and
marketer of branded and non-branded turkeys, and other turkey
products. Butterball has seven processing plants and numerous
live production and feed milling operations located in Arkansas,
Colorado, Kansas, Missouri and North Carolina. Butterball
produces approximately 1 billion pounds of turkey each year, and
supplies its products to more than 30 countries. Butterball is a
national supplier to retail and foodservice outlets and also
exports products to Mexico and other countries.
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.
7
Summary of Selected Financial Data
(Thousands of dollars except
per share amounts) Years ended December 31,
2010 2009 2008 2007 2006
Net sales $4,385,702 $3,601,308 $4,267,804 $3,213,301 $2,707,397
Operating income $ 321,066 $ 23,723 $ 121,809 $ 169,915 $ 296,995
Net earnings attributable
to Seaboard $ 283,611 $ 92,482 $ 146,919 $ 181,332 $ 258,689
Basic earnings per common
share $ 231.69 $ 74.74 $ 118.19 $ 144.15 $ 205.09
Diluted earnings per
common share $ 231.69 $ 74.74 $ 118.19 $ 144.15 $ 205.09
Total assets $2,734,086 $2,337,133 $2,331,361 $2,093,699 $1,961,433
Long-term debt, less
current maturities $ 91,407 $ 76,532 $ 78,560 $ 125,532 $ 137,817
Stockholders' equity $1,778,249 $1,545,419 $1,463,578 $1,355,199 $1,242,410
Dividends per common
share $ 9.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
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.
8
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 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, 2005, and ending December
31, 2010. 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 Equities Composite Index
and a Peer Group
The graph depicts data points below.
*$100 invested on 12/31/05 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:
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10
Seaboard Corporation $100.00 $117.05 $ 97.64 $ 79.49 $ 90.05 $133.55
NYSE Amex Equities
Composite $100.00 $119.54 $144.62 $ 87.02 $118.50 $152.13
Peer Group $100.00 $120.20 $131.33 $101.27 $121.20 $139.55
9
Quarterly Financial Data (unaudited)
(UNAUDITED)
(Thousands of dollars except per share amounts)
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter the Year
2010
Net sales $1,020,276 $1,048,463 $1,111,813 $1,205,150 $4,385,702
Operating income $ 67,466 $ 101,247 $ 41,642 $ 110,711 $ 321,066
Net earnings
attributable to
Seaboard $ 62,778 $ 77,604 $ 39,869 $ 103,360 $ 283,611
Earnings per common
share $ 50.84 $ 63.21 $ 32.74 $ 85.01 $ 231.69
Dividends per common
share $ 0.75 $ 0.75 $ 0.75 $ 6.75 $ 9.00
Closing market price range per common share:
High $ 1,430.00 $ 1,610.00 $ 1,795.00 $ 2,006.00
Low $ 1,195.00 $ 1,261.00 $ 1,387.05 $ 1,750.01
2009
Net sales $ 917,568 $ 869,830 $ 854,625 $ 959,285 $3,601,308
Operating income (loss) $ 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
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
During 2010, Seaboard repurchased 5,452 common shares in the
first quarter, 6,680 in the second quarter and 8,747 in the third
quarter, as authorized by Seaboard's Board of Directors. 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. See Note 12 to the Consolidated Financial
Statements for further discussion.
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.
10
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 and 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 distinct 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 19,400
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 2010 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 55% of Seaboard's fixed assets and
material amounts of 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 operations as
well as considering ways to increase margins by expanding product
offerings.
The Pork segment also produces biodiesel which is sold to third
parties. Biodiesel is produced from pork fat obtained from
Seaboard's pork processing plant and from animal fat purchased
from third parties. The processing plant also can produce
biodiesel from vegetable oil. This plant was completed in the
second quarter of 2008. 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 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, which is managed under
the name of Seaboard Overseas and Trading Group, 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, the majority of the third
party trading business is transacted with chartered ships.
Freight rates, influenced by available charter capacity for
worldwide trade in bulk cargoes, and related fuel costs affect
business volumes and margins. 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.
11
The majority of the Commodity Trading and Milling segment's sales
pertain to the commodity trading business. Grain is sourced from
multiple origins and delivered 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 invested in several entities during 2010 and continues
to seek opportunities to expand its trading and milling
businesses.
Marine Segment
The Marine segment provides containerized cargo shipping services
primarily from the United States to 26 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 trade
volumes and operating profits. 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.
Seaboard continues to explore ways to increase volumes on
existing routes while seeking opportunities to broaden its route
structure in the regions it serves.
Sugar Segment
Seaboard's Sugar segment operates a vertically integrated sugar
production facility 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
sugar from third parties for resale. Over the past several
years, Seaboard made numerous improvements to this business to
increase the efficiency of its operations and expand its sugar
and alcohol production capabilities. In the first quarter of
2010, the Company began sales of dehydrated alcohol to certain
oil companies under an Argentine government bio-ethanol program,
which mandates alcohol to be blended with gasoline.
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.
Historically, the financing needs were relatively high for this
operation as a result of ongoing expansion of sugar production
and construction of a 40 megawatt cogeneration power plant.
However, with the completion of the cogeneration power plant
anticipated during the second quarter of 2011, financing needs
for this segment should be minimal. 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 independent power
producer in the Dominican Republic (DR) generating power from a
system of diesel engines mounted on two barges having a combined
rated capacity of approximately 112 megawatts. As discussed in
Note 13 to the Consolidated Financial Statements, during the
second quarter of 2011, it is anticipated that Seaboard will
complete the sale of the two existing electric power generating
facilities. Seaboard is currently in process of constructing a
replacement power generation facility capable of generating power
from liquid natural gas or diesel fuel which will be mounted on a
single barge and will have a rated capacity of approximately 106
megawatts. It is anticipated the replacement power facility will
be placed in service by the end of 2011 or early 2012.
Development of the replacement power facility is being financed
with a $114,000,000 financing facility and Seaboard's available
cash or borrowing capacity. During the past few years, operating
cash flows have fluctuated from inconsistent customer
collections.
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. In addition, from time to time Seaboard
pursues additional investment opportunities in the power
industry.
12
Turkey Segment
On December 6, 2010, Seaboard purchased a 50 percent non-
controlling voting interest in Butterball, LLC ("Butterball").
Butterball is a vertically integrated producer, processor and
marketer of branded and non-branded turkeys, and other turkey
products. Butterball has seven processing plants and numerous
live production and feed milling operations located in Arkansas,
Colorado, Kansas, Missouri and North Carolina. Sales prices are
directly affected by both domestic and worldwide supply and
demand for turkey products and other proteins. Feed costs are
the most significant single component of the cost of raising
turkeys and can be materially affected by prices for corn and
soybean meal. The turkey business is seasonal only on the whole
bird side with Thanksgiving and Christmas holidays driving the
majority of those sales. As part of this investment, Seaboard
provided financing to Butterball of $100.0 million in
subordinated debt with detachable warrants. See Note 4 to the
Consolidated Financial Statements for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
Cash and short-term investments as of December 31, 2010 decreased
$95.9 million from December 31, 2009. The decrease was primarily
the result of investing $177.5 million for a 50% non-controlling
voting interest in Butterball plus $100.0 million financing
provided to Butterball in subordinated debt. Also during 2010,
cash was used for capital expenditures of $103.3 million,
investments in four new non-consolidated affiliates and
acquisitions of a business of $33.3 million, as discussed below,
repurchases of common stock in the amount of $30.0 million and
dividends paid of $11.0 million. Partially offsetting the
decrease was cash generated by operating activities of $339.8
million. Cash from operating activities for 2010 increased $93.5
million compared to 2009, primarily as a result of higher net
earnings in 2010 compared to 2009, partially offset by a prior
year increase in net working capital that did not repeat in 2010.
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.
Capital Expenditures, Acquisitions and Other Investing Activities
During 2010, Seaboard invested $103.3 million in property, plant
and equipment, of which $9.6 million was expended in the Pork
segment, $28.4 million in the Marine segment, $30.6 million in
the Sugar segment, $31.7 million in the Power segment and $3.0
million in the remaining businesses. For the Pork segment, the
expenditures were primarily for improvements to existing
facilities and related equipment. For the Marine segment, $23.5
million was spent to purchase cargo carrying and handling
equipment. In the Sugar segment, the capital expenditures were
primarily used for construction of the cogeneration power plant
with the remaining capital expenditures for normal upgrades to
existing operations. For the Power segment, expenditures were
primarily used for the construction of a 106 megawatt power
generation facility for use in the Dominican Republic. The total
cost of this project is estimated to be approximately $125.0
million. Operations are anticipated to begin by the end of 2011
or early 2012. All other capital expenditures were primarily of
a normal recurring nature and primarily included replacement of
machinery and equipment, and general facility modernizations and
upgrades.
The total 2011 capital expenditures budget is $211.2 million.
The Pork segment plans to spend $33.5 million primarily for
additional finishing barns and, to a lesser degree, improvements
to existing facilities and related equipment. The Marine segment
has budgeted to spend $51.4 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 2011. The Sugar segment plans to spend
$18.3 million, including $2.1 million for the completion 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 end of the second
quarter of 2011 at a total completed cost of approximately $50.0
million. The Power segment plans to spend $87.4 million
primarily for the new power barge being constructed as discussed
above. The balance of $20.6 million is planned to be spent in
13
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, 2010 Seaboard had commitments of
$100.4 million to spend on construction projects, purchase
equipment, and make facility improvements.
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.
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.
On December 6, 2010, Seaboard acquired a 50 percent non-
controlling voting interest in Butterball for a cash purchase
price of $177.5 million. In connection with this investment,
Seaboard provided to Butterball $100.0 million of subordinated
financing. See Note 4 to the Consolidated Financial Statements
for further discussion of this transaction.
During the fourth quarter of 2010, Seaboard acquired a 25% non-
controlling interest in a commodity trading business in Australia
for $5.0 million. Also during the fourth quarter of 2010,
Seaboard invested $10.5 million in a newly combined poultry
business in Africa for a 50% non-controlling interest.
During the third quarter of 2010, Seaboard acquired a majority
interest in a commodity origination, storage and processing
business in Canada for approximately $6.7 million, subject to
final working capital adjustments. The assets acquired included
cash of $1.2 million. Also during the third quarter of 2010,
Seaboard finalized an agreement to invest in a bakery to be built
in Central Africa for a 50% non-controlling interest in this
business. As of December 31, 2010, Seaboard had invested $10.1
million in this project. The total project cost is estimated to
be $58.0 million but Seaboard's total investment has not yet been
determined pending finalization of third party financing
alternatives for a portion of the project. The bakery is not
anticipated to be fully operational until the second half of
2011.
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.
See Note 4 to the Consolidated Financial Statements for further
discussion of these non-controlling interest investments made in
2010.
During 2010, Seaboard agreed to invest in various limited
partnerships as a limited partner that are expected to allow
Seaboard to obtain certain low income housing tax credits over a
period of approximately ten years. The total commitment is
approximately $17.5 million and the majority of the investment is
expected to be made during late 2011 and 2012.
On March 2, 2009, an agreement became effective under which
Seaboard will sell its two power generating facilities in the
Dominican Republic 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
14
anticipated to be during the second quarter. See Note 13 to
the Consolidated Financial Statements for further discussion.
Financing Activities, Debt and Related Covenants
The following table represents a summary of Seaboard's available
borrowing capacity as of December 31, 2010. At December 31,
2010, there were no borrowings outstanding under the committed
lines of credit and borrowings under the uncommitted lines of
credit totaled $33.7 million, all related to foreign
subsidiaries. Letters of credit reduced Seaboard's borrowing
capacity under its committed and uncommitted credit lines by
$42.6 million and $8.1 million, respectively, primarily
representing $26.4 million for Seaboard's outstanding Industrial
Development Revenue Bonds and $20.2 million related to insurance
coverage. Also included in notes payable at December 31, 2010
was a term note of $45.0 million denominated in U.S. dollars.
Total amount
(Thousands of dollars) available
Long-term credit facilities - committed $300,000
Short-term uncommitted demand notes 164,479
Uncommitted term note 45,000
Total borrowing capacity 509,479
Amounts drawn against lines (33,729)
Uncommitted term note (45,000)
Letters of credit reducing borrowing availability (50,714)
Available borrowing capacity at December 31, 2010 $380,036
On September 17, 2010, Seaboard entered into a credit agreement
for $114.0 million at a fixed rate of 5.34% for the financing of
the construction of a replacement power generation facility,
which will operate in the Dominican Republic as discussed above.
This credit facility has a term of ten years commencing upon
achievement of commercial operation which is expected to take
place prior to April 24, 2012. The credit facility will mature
no later than April 24, 2022 and is secured by the power
generating facility. At December 31, 2010, $16.4 million had
been borrowed from this credit facility.
Seaboard has capacity under existing loan covenants to undertake
additional debt financings of approximately $1,681.7 million. As
of December 31, 2010, Seaboard is in compliance with all
restrictive covenants related to these loans and facilities. 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 are $1.7 million, $34.2
million and $2.2 million over the next three years. As of
December 31, 2010, Seaboard has cash and short-term investments
of $373.3 million, total working capital of $847.2 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 plans for expansion of
existing operations or business segments for 2011. Management
does, however, periodically review various alternatives for
future financing to provide additional liquidity for future
operating plans. 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.
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
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 20,879 shares of common stock at a total price of
$30.0 million in 2010,
15
3,668 shares of common stock at a total price of $3.4 million in
2009 and 3,852 shares of common stock at a total price of $5.0
million in 2008. See Note 12 to the Consolidated Financial
Statements 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, 2010.
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 $ 220,889 $ 68,911 $ 59,664 $23,569 $ 68,745
Contract grower finishing
agreements 73,993 11,473 20,082 17,661 24,777
Other operating lease payments 273,097 17,572 29,444 25,894 200,187
Total lease obligations 567,979 97,956 109,190 67,124 293,709
Long-term debt 93,104 1,697 36,373 11,223 43,811
Short-term notes payable 78,729 78,729 - - -
Other purchase commitments 782,153 689,818 86,970 5,170 195
Total contractual cash
obligations and commitments $1,521,965 $868,200 $232,533 $83,517 $337,715
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 years ended December 31, 2010, 2009 and 2008
were $4,385.7 million, $3,601.3 million and $4,267.8 million,
respectively. The increase in net sales in 2010 primarily
reflected an increase in sale prices for pork products, increased
commodities trading volumes and higher cargo volumes for the
Marine segment. 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 affiliates.
Operating income for the years ended December 31, 2010, 2009 and
2008 were $321.1 million, $23.7 million and $121.8 million,
respectively. The 2010 increase primarily reflected higher Pork
segment margins and, to a lesser extent, increased margins for
the Sugar segment and the Marine segment as discussed below. 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.
16
Pork Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 1,388.3 $ 1,065.3 $ 1,126.0
Operating income (loss) $ 213.3 $ (15.0) $ (45.9)
Net sales of the Pork segment increased $323.0 million for the
year ended December 31, 2010 compared to 2009. The increase
primarily reflected an increase in overall sales prices for pork
products.
Operating income increased $228.3 million for the year ended
December 31, 2010 compared with 2009. The increase was primarily
a result of higher sales prices, 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. Recent increases in corn prices, the primary cost of
feed, could result in higher overall live production costs for
2011. Management anticipates positive operating income for 2011
although at lower levels than 2010. As discussed in Note 5 to
the Consolidated Financial Statements, there is a possibility
that some amount of the ham-boning plant in Mexico could be
deemed impaired during some future period including fiscal 2011,
which may result in a charge to earnings if current projections
are not met.
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 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.
Commodity Trading and Milling Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 1,808.9 $ 1,531.6 $ 1,897.4
Operating income as reported $ 34.4 $ 24.8 $ 96.5
Less mark-to-market adjustments 17.2 14.5 (18.1)
Operating income excluding
mark-to-market adjustments $ 51.6 $ 39.3 $ 78.4
Income from affiliates $ 21.0 $ 19.1 $ 12.6
Net sales of the Commodity Trading and Milling segment increased
$277.3 million for the year ended December 31, 2010 compared to
2009. The increase is primarily the result of increased volumes
of commodities sold to third parties, principally corn, soybean
meal and soybeans, and, to a lesser extent, increased prices for
wheat and corn during the fourth quarter of 2010. Partially
offsetting this increase was a decrease in commodity trading
volumes to non-consolidated affiliates. As worldwide commodity
price fluctuations cannot be predicted, management is unable to
predict the level of future sales.
Operating income increased $9.6 million for 2010 compared to
2009. The increase primarily reflects the write-down of $8.8
million in the first quarter of 2009 of certain grain inventories
for customer contract performance issues and related lower of
cost or market adjustments, as discussed further in Note 3 to the
Consolidated Financial Statements.
17
Also, the increase reflects the $2.7 million fluctuation of
marking to market the derivative contracts, as discussed below.
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 this segment in 2011, 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 this segment in 2010
and 2009 would have been higher by $17.2 million and $14.5
million, respectively and 2008 would have been lower by $18.1
million. 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 sale contracts were not.
As products are delivered to customers, these existing mark-to-
market adjustments should be primarily offset by realized margins
or losses as revenue is recognized and thus, these mark-to-market
adjustments should reverse in fiscal 2011. Management believes
eliminating these adjustments, as noted in the table above,
provides a more reasonable presentation to compare and evaluate
period-to-period financial results for this segment.
Income from affiliates for the year ended December 31, 2010
increased $1.9 million from 2009 primarily as a result of
favorable market conditions for certain affiliates. Based on the
uncertainty of local political and economic situations in the
countries in which the flour and feed mills and other related
businesses operate, management cannot predict future results.
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 affiliates.
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 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 3 to the Consolidated Financial Statements.
Income from affiliates for the year ended December 31, 2009
increased $6.5 million from 2008 primarily as a result of
favorable market conditions for certain 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 affiliates for
2009. See Note 4 to the Consolidated Financial Statements for
further discussion.
Marine Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 853.6 $ 737.6 $ 958.0
Operating income $ 47.6 $ 24.1 $ 62.4
Net sales of the Marine segment increased $116.0 million for the
year ended December 31, 2010, compared to 2009 primarily as a
result of higher cargo volumes in most markets served during 2010
as economic activity increased. The growth in volume was
partially offset by overall lower cargo rates in 2010 as cargo
rates in the first quarter of 2009 had just started to decline
from the impacts of the slow economic conditions and continued to
decline for most of 2009. Overall, cargo rates have remained
fairly constant during 2010 but increased slightly during the
second half of 2010 compared to the same period in 2009.
18
Operating income increased by $23.5 million compared to 2009.
The increase was 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 increase 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 2011, however, management
anticipates positive operating income for this segment in 2011.
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 stevedoring. However,
significant decreases did occur related to fuel costs for
vessels, charterhire and trucking expenses on a per unit shipped
basis.
Sugar Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 196.0 $ 143.0 $ 142.1
Operating income (loss) $ 31.7 $ (0.9) $ 3.7
Income from affiliates $ 1.0 $ 1.0 $ 0.5
Net sales of the Sugar segment increased $53.0 million for the
year ended December 31, 2010 compared to 2009. The increase
primarily reflects increased domestic sugar and alcohol prices
and, to a lesser extent, increased alcohol volumes, partially
offset by lower sugar volumes produced and sold. During the
first quarter of 2010, Seaboard began sales of dehydrated alcohol
under the Argentine government bio-ethanol program which requires
alcohol to be blended with gasoline. Argentine governmental
authorities continue to attempt to control inflation by limiting
the price increases of basic commodities and related exports,
including certain sugar products produced by this segment.
Accordingly, management cannot predict sugar prices for 2011.
Management anticipates the cogeneration power plant, discussed in
capital expenditures above, will begin operations during the
second quarter of 2011.
Operating income increased $32.6 million during 2010 compared to
2009. The increase primarily represents higher margins from the
increase in alcohol and sugar prices discussed above and, to a
lesser extent, increased alcohol volumes. In addition, the
increase reflected a $5.3 million charge to earnings in 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
13 to the Consolidated Financial Statements which did not occur
in 2010. Management anticipates positive operating income for
this segment in 2011.
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.
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 13 to the Consolidated
Financial Statements. The decrease also reflects higher selling
and administrative costs in 2009.
19
Power Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 124.0 $ 107.1 $ 129.4
Operating income $ 13.4 $ 8.2 $ 7.8
Net sales of the Power segment increased $16.9 million for 2010
compared to 2009 primarily reflecting higher rates, partially
offset by lower production levels. The higher rates were
attributable primarily to higher fuel costs, a component of
pricing, especially during the first half of 2010. Operating
income increased $5.2 million during 2010 compared to 2009
primarily as a result of higher rates being in excess of higher
fuel costs, partially offset by lower production levels. There
was no depreciation expense in 2010 related to the assets
classified as held for sale although this was principally offset
by increases in certain other production costs.
See Note 13 to the Consolidated Financial Statements for
discussion of the pending sale of the two existing barges and
construction of a new replacement power generating facility.
Upon finalization of the sale, which is anticipated to occur
during the second quarter of 2011, a gain on sale of assets of
approximately $50.0 million will be recognized in operating
income. As a result of these transactions, after the first
quarter, sales will be significantly lower for the remainder of
2011 as a result of the limited operations during the period of
time between the sale of the existing barges is completed, and
the start-up of the new barge, anticipated by the end of 2011 or
early 2012. Management cannot predict future fuel costs or the
extent to which rates will fluctuate compared to fuel costs,
although management anticipates positive operating income for
this segment in 2011. However, after the first half of 2011,
operating income will be lower than 2010 as a result of lower
sales discussed above.
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 costs.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year
ended December 31, 2010 increased by $11.0 million over 2009 to
$204.9 million. This increase was primarily due to increased
personnel costs in most segments and, to a lesser extent, project
development costs including the Butterball transaction. As a
percentage of revenues, SG&A decreased to 4.7% for 2010 compared
to 5.4% for 2009 primarily as a result of increased sales in the
Pork and Commodity Trading and Milling segments.
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.
Interest Expense
Interest expense totaled $5.6 million, $13.2 million and $15.4
million for the years ended December 31, 2010, 2009 and 2008,
respectively. Interest expense decreased for 2010 compared to
2009, primarily as a result of a lower average level of total
borrowings outstanding during 2010 and, to a lesser extent, lower
average interest rates on total borrowings outstanding during
2010. In addition, interest expense decreased for 2010 compared
to 2009 as a result of more capitalized interest in 2010 compared
to 2009. Interest expense capitalized in 2010 was $3.4 million
compared to $0.7 million in 2009, Interest expense decreased for
2009 compared to 2008, primarily as a result of a lower average
level of total borrowings outstanding during 2009 partially
offset by higher average interest rates on short-term borrowings
outstanding.
Interest Income
Interest income totaled $12.6 million, $17.3 million and $14.9
million for the years ended December 31, 2010, 2009 and 2008,
respectively. The decrease for 2010 primarily reflected lower
average interest rate on funds invested. The increase for 2009
primarily reflected an increase in average funds invested.
20
Other Investment Income, Net
Other investment income, net totaled $14.1 million, $15.5 million
and $7.5 million for the years ended December 31, 2010, 2009 and
2008, respectively. Other investment income for 2010 primarily
reflected realized gains on short-term investments of $6.6
million, a gain of $4.2 million in the mark-to-market value of
Seaboard's investments related to the deferred compensation
programs and $2.2 million in syndication fees recognized from the
Butterball transaction as discussed in Note 4 to the Consolidated
Financial Statements. 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.
Foreign Currency Gains (Losses)
Foreign currency gains (losses) totaled $1.3 million, $2.4
million and $(19.7) million for the years ended December 31,
2010, 2009 and 2008, 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. 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.
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 primarily related to the South African Rand and the
Euro Zone euro. Management believes these 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. 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.
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 $(0.4) million, $6.5 million and $2.5
million for the years ended December 31, 2010, 2009 and 2008,
respectively. For 2010, miscellaneous, net included a loss of
$1.3 million on interest rate exchange agreements. For 2009,
miscellaneous, net included a $5.3 million gain on interest rate
exchange agreements.
Income Tax Expense
The change to income tax expense in 2010 from income tax benefit
in 2009 is the result of domestic earnings during 2010 compared
to domestic losses in 2009. The effective tax benefit rate
decreased for 2009 compared to 2008 primarily from lower
permanently deferred foreign earnings and lower domestic taxable
loss.
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.
Management does not believe its businesses have been materially
adversely affected by inflation.
21
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 estimates 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 ($258.6 million
or 53.6% at December 31, 2010), including foreign receivables due
from affiliates ($75.4 million at December 31, 2010), which
generally represent more of a collection risk than its domestic
receivables. Receivables due from 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. 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,
2010, 2009 and 2008 was $2.8 million, $2.1 million and $0.8
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 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 5 to the Consolidated Financial
Statements for further discussion on the Pork Segment and its
recorded value for the ham-boning and processing plant in Mexico
of $10.0 million at December 31, 2010.
22
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 possible. 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 6 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, 2010, 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, 2010, Seaboard has deferred tax assets of $84.9
million, net of the valuation allowance of $30.7 million, and
deferred tax liabilities of $142.2 million. For the years ended
December 31, 2010, 2009 and 2008, income tax expense included
$13.4 million, $(11.5) million and $(6.3) 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 assets by 50 basis points would be an increase in pension
expense of approximately $1.9 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 U.S. GAAP.
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.
23
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. These derivatives are used to
manage overall market risks, however, 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 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, 2010 and 2009,
are presented in Note 3 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 (FFAs), 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 FFAs 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. As of December 31,
2010 and 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.
During 2010, Seaboard entered into four 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 four notional amounts of $25.0
million 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
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 $25.0 million each, with similar terms to agreements discussed
above to mitigate the effects of fluctuation in interest rates.
In June 2009, Seaboard terminated both interest rate exchange
agreements and received payments of $4.0 million to unwind these
agreements. As of December 31, 2009, there were no interest rate
exchange agreements outstanding.
The following table presents the sensitivity of the fair value of
Seaboard's open net commodity future and option contracts,
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, 2010
and December 31, 2009. 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.
24
(Thousands of dollars) December 31, 2010 December 31, 2009
Grains and oilseeds $ 3,787 $ 9,808
Hogs and pork bellies 3,809 186
Energy related resources 459 284
Foreign currencies 22,415 23,080
Interest rates 2,636 -
The table below provides information about Seaboard's non-trading
financial instruments sensitive to changes in interest rates at
December 31, 2010. For debt obligations, the table presents
principal cash flows and related weighted average interest rates
by expected maturity dates. At December 31, 2010, long-term debt
included foreign subsidiary obligations of $16.4 million payable
in U.S. dollars and $0.2 million payable in Argentine pesos. 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) and $0.2 million
payable in Argentine pesos. 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) 2011 2012 2013 2014 2015 Thereafter Total
Long-term debt:
Fixed rate $1,476 $34,182 $2,191 $1,788 $1,635 $ 9,811 $51,083
Average interest rate 8.87% 6.95% 8.02% 6.25% 5.34% 5.34% 6.66%
Variable rate $ 221 $ - $ - $7,800 $ - $34,000 $42,021
Average interest rate 7.00% - - 1.51% - 1.71% 1.70%
Non-trading financial instruments sensitive to changes in
interest rates at December 31, 2009 consisted of fixed rate long-
term debt totaling $36.8 million with an average interest rate of
7.52%, and variable rate long-term debt totaling $42.0 million
with an average interest rate of 0.44%.
25
Management's Responsibility for Consolidated Financial Statements
The management of Seaboard Corporation and its consolidated
subsidiaries (Seaboard) is responsible for the preparation of its
consolidated financial statements and related information
appearing in this report. Management believes that the
consolidated financial statements fairly present Seaboard's
financial position and results of operations in conformity with
U.S. generally accepted accounting principles and necessarily
includes amounts that are based on estimates and judgments which
it believes are reasonable based on current circumstances with
due consideration given to materiality.
Management relies on a system of internal controls over financial
reporting that is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance
with company policy and U.S. generally accepted accounting
principles, and are properly recorded, and accounting records are
adequate for preparation of financial statements and other
information and disclosures. The concept of reasonable assurance
is based on recognition that the cost of a control system should
not exceed the benefits expected to be derived and such
evaluations require estimates and judgments. The design and
effectiveness of the system are monitored by a professional staff
of internal auditors.
All internal control systems, no matter how well designed, have
inherent limitations. Internal control over financial reporting
is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human
failures. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
The Board of Directors pursues its review of auditing, internal
controls and financial statements through its audit committee,
composed entirely of independent directors. In the exercise of
its responsibilities, the audit committee meets periodically with
management, with the internal auditors and with the independent
registered public accounting firm to review the scope and results
of audits. Both the internal auditors and the independent
registered public accounting firm have unrestricted access to the
audit committee with or without the presence of management.
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, 2010.
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.
26
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Seaboard Corporation:
We have audited the accompanying consolidated balance sheets of
Seaboard Corporation and subsidiaries (the Company) as of
December 31, 2010 and 2009, 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, 2010. 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, 2010 and 2009, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 2010, 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, 2010, 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 9, 2011 expressed an unqualified
opinion on the effectiveness of the Company's internal control
over financial reporting.
KPMG LLP
Kansas City, Missouri
March 9, 2011
27
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, 2010, 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, 2010, 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, 2010 and 2009, 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, 2010, and our report dated March 9, 2011 expressed
an unqualified opinion on those consolidated financial
statements.
KPMG LLP
Kansas City, Missouri
March 9, 2011
28
SEABOARD CORPORATION
Consolidated Statement of Earnings
Years ended December 31,
(Thousands of dollars except per share amounts) 2010 2009 2008
Net sales:
Products (includes sales to affiliates $3,354,348 $2,718,736 $3,144,432
of $500,265, $543,066 and $587,922)
Service revenues 907,320 775,498 993,942
Other 124,034 107,074 129,430
Total net sales 4,385,702 3,601,308 4,267,804
Cost of sales and operating expenses:
Products 2,980,606 2,619,396 3,005,924
Services 775,637 671,598 847,956
Other 103,465 92,701 116,253
Total cost of sales and operating expenses 3,859,708 3,383,695 3,970,133
Gross income 525,994 217,613 297,671
Selling, general and administrative expenses 204,928 193,890 175,862
Operating income 321,066 23,723 121,809
Other income (expense):
Interest expense (5,632) (13,158) (15,354)
Interest income 12,631 17,336 14,939
Income from affiliates 20,965 20,158 13,084
Other investment income, net 14,145 15,500 7,522
Foreign currency gain (loss), net 1,254 2,432 (19,713)
Gain on disputed sale, net of expenses - 16,787 -
Miscellaneous, net (384) 6,463 2,539
Total other income, net 42,979 65,518 3,017
Earnings before income taxes 364,045 89,241 124,826
Income tax benefit (expense) (81,033) 2,276 22,689
Net earnings $ 283,012 $ 91,517 $ 147,515
Less: Net (income) loss attributable
to noncontrolling interests 599 965 (596)
Net earnings attributable to Seaboard $ 283,611 $ 92,482 $ 146,919
Earnings per common share $ 231.69 $ 74.74 $ 118.19
Weighted average shares outstanding 1,224,092 1,237,452 1,243,087
Dividends declared per common share $ 9.00 $ 3.00 $ 3.00
See accompanying notes to consolidated financial statements.
29
SEABOARD CORPORATION
Consolidated Balance Sheets
December 31,
(Thousands of dollars except per share amounts) 2010 2009
Assets
Current assets:
Cash and cash equivalents $ 41,124 $ 61,857
Short-term investments 332,205 407,351
Receivables:
Trade 243,786 194,764
Due from affiliates 75,771 47,352
Other 48,557 35,861
368,114 277,977
Allowance for doubtful accounts (8,170) (7,330)
Net receivables 359,944 270,647
Inventories 533,761 498,587
Deferred income taxes 18,393 10,490
Deferred costs 84,141 95,788
Other current assets 115,844 80,582
Total current assets 1,485,412 1,425,302
Investments in and advances to affiliates 331,322 82,232
Net property, plant and equipment 701,131 691,343
Note receivable from affiliate 90,109 -
Goodwill 40,628 40,628
Intangible assets, net 19,746 20,676
Other assets 65,738 76,952
Total Assets $2,734,086 $2,337,133
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 78,729 $ 81,262
Current maturities of long-term debt 1,697 2,337
Accounts payable 146,265 141,193
Accrued compensation and benefits 102,003 84,165
Deferred revenue 122,344 103,931
Deferred revenue from affiliates 38,719 8,958
Accrued voyage costs 39,515 33,874
Accrued commodity inventory 34,099 10,434
Other accrued liabilities 74,824 51,886
Total current liabilities 638,195 518,040
Long-term debt, less current maturities 91,407 76,532
Deferred income taxes 75,695 59,546
Accrued pension liability 78,817 64,161
Other liabilities 71,723 73,435
Total non-current liabilities 317,642 273,674
Commitments and contingent liabilities
Stockholders' equity:
Common stock of $1 par value. Authorized 1,250,000
shares;
issued and outstanding 1,215,879 and 1,236,758
shares 1,216 1,237
Accumulated other comprehensive loss (123,907) (114,786)
Retained earnings 1,897,897 1,655,222
Total Seaboard stockholders' equity 1,775,206 1,541,673
Noncontrolling interests 3,043 3,746
Total equity 1,778,249 1,545,419
Total Liabilities and Stockholders' Equity $2,734,086 $2,337,133
See accompanying notes to consolidated financial statements.
30
SEABOARD CORPORATION
Consolidated Statement of Cash Flows
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Cash flows from operating activities:
Net earnings $ 283,012 $ 91,517 $ 147,515
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 86,802 91,841 90,381
Income from affiliates (20,965) (20,158) (13,084)
Dividends received from affiliates 1,843 7,906 1,333
Other investment income, net (14,145) (15,500) (7,522)
Foreign currency exchange losses (140) 6,578 19,606
Deferred income taxes 12,506 (15,298) (7,602)
Loss (gain) from sale of fixed assets (2,555) 530 39
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 (86,205) 93,861 (14,518)
Inventories (40,053) 1,552 (119,859)
Other current assets (2,570) (58,823) (44,344)
Current liabilities, exclusive of debt 107,482 69,738 43,264
Other, net 14,800 9,400 9,057
Net cash from operating activities 339,812 246,357 111,266
Cash flows from investing activities:
Purchase of short-term investments (687,335) (346,522) (287,411)
Proceeds from the sale of short-term
investments 695,384 211,403 204,494
Proceeds from the maturity of short-term
investments 69,534 66,842 61,675
Acquisition of business, net of cash
acquired (5,578) - -
Sale (purchase) of long-term investments 552 (3,108) -
Investments in and advances to affiliates,
net (217,578) 71 (710)
Notes receivable issued to affiliate (100,000) - -
Proceeds from syndication and subordinated
loan fees 6,525 - -
Capital expenditures (103,336) (54,276) (134,634)
Proceeds from the sale of fixed assets 7,655 3,255 4,412
Payment received for the potential sale of
power barges - 15,000 -
Net proceeds from disputed sale - 16,787 -
Other, net 1,140 46 (442)
Net cash from investing activities (333,037) (90,502) (152,616)
Cash flows from financing activities:
Notes payable to banks, net (2,535) (95,072) 79,354
Proceeds from the issuance of long-term debt 16,352 - -
Principal payments of long-term debt (2,179) (46,914) (11,679)
Repurchase of common stock (29,994) (3,370) (5,012)
Dividends paid (10,963) (3,711) (3,728)
Dividends paid to noncontrolling interests (36) (112) (104)
Other, net 370 (291) (1,081)
Net cash from financing activities (28,985) (149,470) 57,750
Effect of exchange rate change on cash 1,477 (5,122) (3,152)
Net change in cash and cash equivalents (20,733) 1,263 13,248
Cash and cash equivalents at beginning of year 61,857 60,594 47,346
Cash and cash equivalents at end of year $ 41,124 $ 61,857 $ 60,594
See accompanying notes to consolidated financial statements.
31
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, 2008 $ 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
Purchase 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
Comprehensive income:
Net earnings 283,611 (599) 283,012
Other comprehensive income net
of income tax benefit of $5,443:
Foreign currency translation adjustment (3,704) (3,704)
Unrealized gain on investments (2,134) (2,134)
Unrecognized pension cost (3,283) (3,283)
Total comprehensive income 273,891
Addition/sale of noncontrolling interests (68) (68)
Dividends paid to noncontrolling interests (36) (36)
Repurchase of common Stock (21) (29,973) (29,994)
Dividends on common stock (10,963) (10,963)
Balances, December 31, 2010 $ 1,216 $ - $ (123,907) $1,897,897 $3,043 $1,778,249
See accompanying notes to consolidated financial statements.
32
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Operations of Seaboard Corporation and its Subsidiaries
Seaboard Corporation and its subsidiaries (Seaboard) is a
diversified international agribusiness and transportation
company. In the United States, Seaboard is primarily engaged in
pork production and processing and ocean transportation.
Overseas, Seaboard is primarily engaged in commodity
merchandising, grain processing, sugar production, and electric
power generation. Seaboard also has an interest in turkey
operations in the United States. Seaboard Flour LLC and SFC
Preferred LLC (Parent Companies) are the owners of 73.5% 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
affiliates are accounted for by the equity method. Financial
information from certain 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, corporate bonds,
fixed income mutual funds, municipal debt securities and U.S.
government obligations and, on a limited basis, high yield bonds,
domestic equity securities and foreign government bonds.
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 in certain countries due to local market
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 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.
33
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 5 for further discussion on the Pork Segment and
its recorded value of the ham-boning and processing plant in
Mexico.
Goodwill and Other Intangible Assets
Goodwill and other indefinite-life intangible assets are
evaluated by reporting unit 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, 2010.
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, 2010 and 2009 was
$6,047,000 and $6,469,000, 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. The following table shows the changes in the
asset retirement obligation during 2010 and 2009:
Years ended December 31,
(Thousands of dollars) 2010 2009
Beginning balance $11,090 $ 8,846
Accretion expense 938 652
Adjustment to existing lagoons - 1,592
Ending balance $12,028 $ 11,090
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 U.S.
GAAP, Seaboard will recognize the benefit or cost of this change
in the future.
34
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, 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. Significant items subject
to such estimates and assumptions include those related to
allowance for doubtful accounts, valuation of inventories,
impairment of long-lived assets, goodwill and other intangible
assets, income taxes and accrued pension liability. Actual
results could differ from those estimates.
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. The following table shows the
amounts paid for interest and income taxes:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Interest (net of amounts capitalized) $ 8,377 $ 13,845 $14,037
Income taxes (net of refunds) 69,626 (10,542) 10,815
Included in property, plant and equipment is capitalized interest
in the amount of $3,350,000, $702,000 and $1,679,000 for 2010,
2009 and 2008, respectively.
Supplemental Noncash Transactions
As discussed in Note 13, during the third quarter of 2010,
Seaboard acquired a majority interest in a commodity origination,
storage and processing business in Canada. Total cash paid, net
of cash acquired was $5,578,000 and increased working capital by
$1,254,000, fixed assets by $4,637,000, other long-term assets in
the amount of $833,000, deferred tax liabilities by $896,000 and
non-controlling interest by $250,000.
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 was 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.
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
35
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 and 2008 was a foreign currency gain of
$4,794,000 and a foreign currency loss of $(4,575,000),
respectively. These losses and gains reflect the re-
measurements of a note payable denominated in Japanese Yen 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 losses for 2008 were primarily offset
by a mark-to-market currency loss for December in 2009 and a gain
in December for 2008 from a foreign currency derivative contract.
The note payable and related foreign currency derivative were
terminated in December 2009.
Seaboard's Sugar segment, a consolidated subsidiary in Canada
(Commodity Trading and Milling segment) and four non-controlled,
non-consolidated affiliates (Commodity Trading and Milling
segment businesses in Colombia, Kenya, Lesotho and Zambia), 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. For these
entities, 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 of December 31, 2010, 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.
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board issued new
accounting guidance for variable interest entities. This
guidance 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 guidance eliminated 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 guidance
also requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity and
requires certain additional disclosures about the VIE. Seaboard
adopted this guidance as of January 1, 2010. The adoption of this
guidance did not have a material impact on Seaboard's financial
position or net earnings.
36
Note 2
Investments
Seaboard's short-term investments are treated as either available-
for-sale securities or trading securities and are recorded at
their estimated fair market values. 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.
As of December 31, 2010 and 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 obligations. At December 31, 2010 and
2009, amortized cost and estimated fair market value were not
materially different for these investments. At December 31,
2010, money market funds included $78,338,000 denominated in
Euros. As of December 31, 2010 and 2009, the trading securities
primarily consisted of high yield debt securities. As of
December 31, 2010 and 2009, unrealized gains related to trading
securities were $1,571,000 and $2,206,000, 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, 2010 and 2009:
2010 2009
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Money market funds $110,164 $110,164 $153,699 $153,699
Corporate bonds 86,182 87,401 34,663 35,449
Fixed income mutual funds 60,256 60,302 - -
Fixed rate municipal notes and bonds 20,564 20,648 144,794 148,609
U.S. Government agency securities 17,503 17,514 15,907 16,272
U.S. Treasury securities 7,139 7,148 - -
Asset backed debt securities 2,847 2,848 8,447 8,484
Variable rate demand notes - - 1,900 1,900
Foreign government debt securities - - 10,300 10,210
Other 2,360 2,355 3,060 3,069
Total available-for-sale short-term
investments 307,015 308,380 372,770 377,692
High yield trading debt securities 19,447 20,783 24,784 26,771
Other trading debt securities 2,807 3,042 2,669 2,888
Total available-for-sale and trading
short-term investments $329,269 $332,205 $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 December 31,
2010:
(Thousands of dollars) 2010
Due within one year $ 14,953
Due after one year through three years 82,197
Due after three years 19,603
Total fixed rate securities $116,753
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 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.
37
Note 3
Inventories
The following table is a summary of inventories at the end of
each year:
December 31,
(Thousands of dollars) 2010 2009
At lower of LIFO cost or market:
Live hogs and materials $200,600 $192,999
Fresh pork and materials 24,779 22,398
225,379 215,397
LIFO adjustment (24,085) (22,807)
Total inventories at lower of LIFO cost or market 201,294 192,590
At lower of FIFO cost or market:
Grains and oilseeds 203,232 174,508
Sugar produced and in process 50,190 47,429
Other 44,013 46,804
Total inventories at lower of FIFO cost or market 297,435 268,741
Grain, flour and feed at lower of weighted average cost or
market 35,032 37,256
Total inventories $533,761 $498,587
The use of the LIFO method decreased 2010 and 2008 earnings by
$780,000 ($0.64 per common share) and $10,469,000 ($8.42 per
common share) and increased 2009 net earnings by $10,898,000
($8.81 per common share), respectively. If the FIFO method had
been used for certain inventories of the Pork segment,
inventories would have been higher by $24,085,000 and $22,807,000
as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, Seaboard had $4,647,000 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 4
Investments in and Advances to Affiliates
Seaboard's investments in and advances to non-controlled, non-
consolidated affiliates are primarily related to Butterball, LLC
(Butterball), as discussed below, and businesses conducting
flour, maize and feed milling, and poultry production and
processing. As of December 31, 2010, the location and percentage
ownership of these affiliates excluding Butterball are as
follows: Democratic Republic of Congo (50%), Lesotho (50%),
Kenya (35-50%), Nigeria (25-48%), and Zambia (50%) in Africa;
Colombia (40%) and Ecuador (25-50%) in South America; and Haiti
(23%) in the Caribbean. Also, Seaboard has investments in grain
trading businesses in Australia (25%), North Carolina (50%) and
Peru (50%). Seaboard generally is the primary provider of choice
for grains, feed and supplies purchased by these non-controlled
affiliates. As Seaboard conducts its commodity trading business
with third parties, consolidated subsidiaries and affiliates on
an interrelated basis, cost of sales, on 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.
38
On December 6, 2010, Seaboard Corporation acquired a 50% non-
controlling voting interest in Butterball from Maxwell Farms,
LLC, Goldsboro Milling Company, and GM Acquisition LLC
(collectively, the "Maxwell Group") for a cash purchase price of
$177,500,000. Butterball is a vertically integrated producer,
processor and marketer of branded and non-branded turkeys and
other turkey products. Seaboard purchased its interest in
Butterball from the Maxwell Group after the Maxwell Group had
reacquired a 49% interest held by Murphy-Brown, LLC ("Murphy-
Brown"), a subsidiary of Smithfield Foods, Inc. The other 50
percent ownership interest in Butterball will continue to be
owned by the Maxwell Group. In connection with the purchase,
Butterball also acquired the live turkey growing and related
assets of the Maxwell Group and of Murphy-Brown. As of December
31, 2010, total assets of $725,464,000 for Butterball included
intangible assets of $111,000,000 for trade name and $56,602,000
for goodwill. The equity method is used to account for this
investment.
In connection with this transaction, Seaboard provided Butterball
with a $100,000,000 unsecured subordinated loan (the
"subordinated loan") with a seven year maturity and interest of
15% per annum, comprised of 5% payable in cash semi-annually,
plus 10% pay-in-kind interest compounded semi-annually and paid
at maturity. As part of the subordinated loan, Seaboard received
a $2,000,000 cash fee from Butterball as consideration for
providing this financing that will be amortized over the term of
the subordinated loan. The amortization related to 2010 was
recorded in interest income in the Consolidated Statement of
Earnings.
In connection with providing the subordinated loan, Seaboard
received detachable warrants, which upon exercise for a nominal
price, would enable Seaboard to acquire an additional 5% equity
interest in Butterball. Seaboard can exercise these warrants at
any time before December 6, 2020. Butterball has the right to
repurchase the warrants for fair market value. The warrant
agreement essentially provides Seaboard with a 52.5% economic
interest as these warrants are in-substance an additional equity
interest. Therefore, Seaboard recorded 52.5% of Butterball's
earnings as Income from Affiliates in the Consolidated Statement
of Earnings. However, all significant corporate governance
matters would continue to be shared equally between Seaboard and
Maxwell even if the warrants are exercised, unless Seaboard
already owns a majority of the voting rights at the time of
exercise. The warrants qualify for equity treatment under
accounting standards. Accordingly, as of December 6, 2010, the
warrants were allocated a value of $10,586,000, classified as
Investments in and Advances to Affiliates on the Consolidated
Balance Sheet, and the subordinated loan was allocated a value of
$89,414,000, classified as Note Receivable from Affiliate on the
Consolidated Balance Sheet, of the total $100,000,000
subordinated financing discussed above. Seaboard monitors the
credit quality of this Note Receivable from Affiliate by
obtaining and reviewing financial information for this affiliate
on a monthly basis and by serving on the Board of Directors of
this affiliate.
In addition, in connection with this transaction Seaboard
arranged financing to refinance the existing Butterball debt with
third party lenders. For these services, in December 2010
Seaboard received a cash syndication fee from Butterball of
$4,525,000, net of arrangement fees paid to several banks who
assisted with the third party financing. Since Seaboard has a
52.5% economic interest in Butterball, Seaboard only recognized
47.5% of this net syndication fee in December 2010 in Other
Investment Income in the Consolidated Statement of Earnings. The
remaining net syndication fee will be amortized over the five
year term of the related Butterball debt.
In October 2010, Seaboard acquired for $5,000,000 a 25% non-
controlling interest in a commodity trading business in
Australia. Also in October 2010, Seaboard combined its existing
investment in poultry operations in Africa with another existing
African based poultry business. Seaboard invested an additional
$10,500,000 in this newly combined poultry business for a total
investment of $16,988,000, which represents a 50% non-controlling
interest. This newly combined business has operations primarily
in Kenya and Zambia and is also expanding by building new
operations in the Democratic Republic of Congo.
In July 2010, Seaboard finalized an agreement to invest in a
bakery to be built in Central Africa. Seaboard will have a 50%
non-controlling interest in this business. The total project
cost is estimated to be $58,000,000 but Seaboard's total
investment has not yet been determined pending finalization of
third party financing alternatives for a portion of the project.
The bakery is anticipated to be fully operational in the second
half of 2011. As of December 31, 2010, Seaboard had invested
$10,080,000 in this project.
In March 2010, Seaboard acquired a 50% non-controlling interest
in an international commodity trading business located in North
Carolina for approximately $7,650,000. There was an initial
payment of $6,000,000 made in March 2010, an additional payment
of $990,000 in the fourth quarter of 2010 with the remaining
$660,000 to be paid in the
39
first half of 2011 upon verification of the balance sheet as of
the date of closing and collection of certain receivables
outstanding.
At December 31, 2010, Seaboard's carrying value of certain of
these investments in affiliates in the Commodity Trading and
Milling segment was $12,527,000 more than its share of the
affiliate's book value. The excess is attributable primarily to
the valuation of property, plant and equipment and intangible
assets. The amortizable assets are being amortized to earnings
from affiliates over the remaining life of the assets.
In prior years, Seaboard's equity investments in its Nigerian non-
consolidated affiliates were written down to zero and Seaboard
suspended use of the equity method of accounting for these non-
consolidated 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 exceeded the share of losses not recognized during the
prior periods. A significant contributing factor to this change
in accounting treatment 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 non-controlling
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 represented approximately
$2,323,000 of the income from affiliates for 2009.
Combined condensed financial information of the non-controlled,
non-consolidated affiliates for their fiscal periods ended within
each of Seaboard's years ended were as follows (the net sales and
net income for the Turkey segment below represent the period from
December 6, 2010 to December 31, 2010):
Commodity Trading and Milling Segment December 31,
(Thousands of dollars) 2010 2009 2008
Net sales $1,117,440 1,051,621 1,053,818
Net income $ 47,594 45,867 34,955
Total assets $ 581,755 412,849 412,555
Total liabilities $ 250,076 215,146 247,337
Total equity $ 331,679 197,703 165,218
Sugar Segment December 31,
(Thousands of dollars) 2010 2009 2008
Net sales $ 20,132 22,293 20,660
Net income $ 2,064 2,169 923
Total assets $ 10,248 11,544 15,506
Total liabilities $ 3,791 6,265 11,396
Total equity $ 6,457 5,279 4,110
Turkey Segment December 31,
(Thousands of dollars) 2010
Net sales $ 83,409
Net loss $ (1,901)
Total assets $ 725,464
Total liabilities $ 360,673
Total equity $ 364,791
40
Note 5
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 2010 2009
Land and improvements 0-15 years $ 166,201 $ 164,290
Buildings and improvements 30 years 348,160 345,031
Machinery and equipment 3-20 years 727,148 697,656
Vessels and vehicles 3-18 years 144,380 161,125
Office furniture and fixtures 5 years 26,527 25,769
Construction in progress 83,896 32,868
1,496,312 1,426,739
Accumulated depreciation and amortization (795,181) (735,396)
Net property, plant and equipment $ 701,131 $ 691,343
During the first half of 2008, Seaboard started operations at its
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 to a lesser
degree federal tax credits, which expired at the end of 2009.
The federal tax credit was renewed by Congress in late December
2010 and was made retroactive to January 1, 2010 with a new
expiration date of December 31, 2011. As of December 31, 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 management's expectation for both federal usage
mandates and tax credits. Based on 2010 experience, management
estimates that government usage mandates will adequately
compensate for the potential loss of federal tax credits.
Management does not believe an impairment of these assets is
likely in the near future unless actual results differ
significantly from management's current forecast. The net book
value of these assets as of December 31, 2010 was $40,526,000.
During the second quarter of 2009, Seaboard started operations at
its ham-boning and processing plant in Mexico. Since that time,
this plant has experienced certain difficulties including
challenges facing many U.S. border towns in Mexico. Despite
being in operation for over one year and reaching near-capacity
production levels, overall margins have been below expectations.
As a result, management has implemented various changes related
to this operation and margins improved during the fourth quarter
of 2010. As of December 31, 2010, Seaboard performed an
impairment evaluation of this plant and determined there was no
impairment based on management's current cash flow assumptions
and probabilities of outcomes. However, if margins from this
operation do not meet acceptable levels there is a possibility
that management may consider other alternatives for this
facility. Thus there is a possibility that the recorded value of
this facility could be deemed impaired during some future period
including 2011, which may result in a charge to earnings. The
net book value of these assets as of December 31, 2010 was
$9,994,000.
41
Note 6
Goodwill and Intangible Assets, net
Goodwill and intangible assets relate to the 2005 acquisition of
Daily's, a bacon processor located in the western United States,
and the related subsequent repurchase of a noncontrolling
interest of Seaboard Foods LLC in the Pork segment.
The following table is a summary of intangible assets at the end
of each year:
December 31,
(Thousands of dollars) 2010 2009
Intangibles subject to amortization:
Gross carrying amount:
Customer relationships $ 9,045 $ 9,045
Covenants not to compete - 1,500
9,045 10,545
Accumulated amortization:
Customer relationships (6,299) (5,519)
Covenants not to compete - (1,350)
(6,299) (6,869)
Net carrying amount:
Customer relationships 2,746 3,526
Covenants not to compete - 150
Intangibles subject to amortization, net 2,746 3,676
Intangibles not subject to amortization:
Carrying amount-trade names and registered trademarks 17,000 17,000
Total intangible assets, net $19,746 $20,676
The amortization expense of amortizable intangible assets for the
years ended December 31, 2010, 2009 and 2008 was $930,000,
$1,610,000, and $1,610,000, respectively. Amortization expense
for the five succeeding years is $250,000 each year.
As of December 31, 2010, 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 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,
2010, 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, 2010.
42
Note 7
Income Taxes
Income taxes attributable to continuing operations for the years
ended December 31, 2010, 2009 and 2008 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) 2010 2009 2008
Computed "expected" tax expense excluding
noncontrolling interest $ 127,625 $ 31,572 $ 43,481
Adjustments to tax expense attributable to:
Foreign tax differences (33,322) (20,332) (54,232)
Tax-exempt investment income (974) (1,809) (2,554)
State income taxes, net of federal benefit 1,803 (3,010) (1,966)
Change in valuation allowance (6,189) (2,146) (1,977)
Federal tax credits (3,351) (3,672) (4,390)
Change in pension deferred tax (329) (3,508) 335
Other (4,230) 629 (1,386)
Total income tax expense (benefit) $ 81,033 $ (2,276) $(22,689)
Most of Seaboard's foreign tax differences are attributable to a
significant portion of the earnings from Seaboard's foreign
operations being subject to no income tax or a tax rate which is
considerably lower than the U.S. corporate tax rate.
Earnings before income taxes consisted of the following:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
United States $223,401 $(14,511) $(28,988)
Foreign 141,243 104,717 153,218
Total earnings excluding noncontrolling
interest 364,644 90,206 124,230
Plus earnings attributable to noncontrolling
interest 599 965 (596)
Total earnings before income taxes $364,045 $ 89,241 $124,826
The components of total income taxes were as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Current:
Federal $ 48,814 $ 943 $(25,462)
Foreign 15,855 8,454 8,259
State and local 2,924 (125) 823
Deferred:
Federal 13,204 (18,216) (1,280)
Foreign 15 10,285 (1,425)
State and local 221 (3,617) (3,604)
Income tax expense (benefit) 81,033 (2,276) (22,689)
Unrealized changes in other comprehensive
income (5,443) (3,206) (11,525)
Total income taxes $ 75,590 $ (5,482) $(34,214)
As of December 31, 2010 and 2009, Seaboard had income taxes
receivable of $12,234,000 and $4,923,000, respectively, primarily
related to domestic tax jurisdictions and had income taxes
payable of $7,066,000 and $2,048,000, respectively, primarily
related to foreign tax jurisdictions.
43
Components of the net deferred income tax liability at the end of
each year were as follows:
December 31,
(Thousands of dollars) 2010 2009
Deferred income tax liabilities:
Cash basis farming adjustment $ 10,724 $ 11,065
Depreciation 98,692 100,815
LIFO 29,017 242
Other 3,768 2,233
$142,201 $114,355
Deferred income tax assets:
Reserves/accruals $ 67,244 $ 50,097
Tax credit carryforwards 9,554 12,659
Deferred earnings of foreign subsidiaries 6,274 1,733
Net operating and capital loss carryforwards 18,727 18,648
Foreign minimum tax credit carryforward 10,400 10,104
Other 3,364 679
115,563 93,920
Valuation allowance 30,664 28,621
Net deferred income tax liability $ 57,302 $ 49,056
Seaboard recognizes interest accrued related to unrecognized tax
benefits and penalties in income tax expense. For the years
ended December 31, 2010, 2009 and 2008, such interest and
penalties were not material. The Company had approximately
$1,323,000 and $1,153,000 accrued for the payment of interest and
penalties on uncertain tax positions at December 31, 2010, and
2009, respectively.
As of December 31, 2010 and 2009, Seaboard had $3,548,000 and
$3,395,000, 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) 2010 2009
Beginning balance at January 1 $ 3,395 $ 3,464
Additions for uncertain tax positions of prior years 596 206
Decreases for uncertain tax positions of prior years (367) (184)
Additions for uncertain tax positions of current year 21 32
Settlements (97) (15)
Lapse of statute of limitations - (108)
Ending balance at December 31 $ 3,548 $ 3,395
Seaboard's tax returns are regularly audited by federal, state
and foreign tax authorities, which may result in adjustments.
Seaboard's U.S. federal income tax returns have been reviewed
through the 2004 tax year. The statute of limitations has
expired on the 2005 tax year. Seaboard's 2006-2008 U.S. income
tax returns are currently under IRS examination.
As of December 31 2010, Seaboard had not provided for U.S.
Federal Income and foreign withholding taxes on $739,305,000 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
practical.
44
Seaboard had a tax holiday in one foreign country in 2010, 2009
and 2008 which resulted in tax savings of approximately
$3,434,000, $3,259,000 and $1,961,000, or $2.80, $2.63 and $1.58
per diluted earnings per common share for the years ended
December 31, 2010, 2009 and 2008, respectively. The tax holiday
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 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 $2,043,000 in the valuations allowance for 2010 was
primarily the result of an increase of foreign deferred tax
assets partially offset by the realization of charitable
contributions and capital loss carryovers. At December 31, 2010,
Seaboard had foreign net operating loss carryforwards (NOLs) of
approximately $61,473,000 a portion of which expire in varying
amounts between 2011 and 2017, while others have indefinite
expiration periods.
At December 31, 2010, Seaboard had state tax credit carryforwards
of approximately $14,698,000 net of valuation allowance, all of
which carryforward indefinitely.
Note 8
Notes Payable and Long-term Debt
Notes payable amounting to $78,729,000 and $81,262,000 at
December 31, 2010 and 2009, respectively, consisted of
obligations due banks on demand or based on Seaboard's ability
and intent to repay within one year. At December 31, 2010,
Seaboard had a committed bank line totaling $300,000,000,
maturing July 10, 2013, and uncommitted bank lines totaling
approximately $164,479,000 of which $127,479,000 of the
uncommitted lines relate to foreign subsidiaries. At December
31, 2010, there were no borrowings outstanding under the
committed line and borrowings outstanding under the uncommitted
lines totaled $33,729,000, all related to foreign subsidiaries.
The uncommitted borrowings outstanding at December 31, 2010
primarily represented $30,242,000 denominated in South African
Rand. Also included in notes payable at December 31, 2010 was a
term note of $45,000,000 denominated in U.S. dollars related to
the Sugar segment in Argentina. The weighted average interest
rates for outstanding notes payable were 5.79% and 6.07% at
December 31, 2010 and 2009, respectively.
At December 31, 2010, Seaboard's borrowing capacity under its
committed and uncommitted lines was reduced by letters of credit
(LCs) totaling $42,578,000, and $8,136,000, respectively,
primarily including $26,385,000 of LCs for Seaboard's outstanding
Industrial Development Revenue Bonds (IDRBs) and $20,221,000
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.
On September 17, 2010, Seaboard entered into a credit agreement
for $114,000,000 at a fixed rate of 5.34% for the financing of a
replacement power generating facility, which will operate in the
Dominican Republic as discussed in Note 13. This credit facility
has a term of ten years which will commence upon achievement of
commercial operation which is expected to take place on or prior
to April 24, 2012. The credit facility will mature no later than
April 24, 2022 and is secured by the power generating facility.
At December 31, 2010, $16,352,000 had been borrowed from this
credit facility.
45
The following table is a summary of long-term debt at the end of
each year:
December 31,
(Thousands of dollars) 2010 2009
Private placements:
6.21% senior notes, due 2011 through 2012 2,143 3,214
6.92% senior notes, due 2012 31,000 31,000
Industrial Development Revenue Bonds, floating rates
(1.50% - 1.94% at December 31, 2010) due 2014 through 2027 41,800 41,800
Foreign subsidiary obligation, 5.34%, due 2012 through 2021 16,352 -
Foreign subsidiary obligations, 17.00%, repaid in 2010 - 688
Foreign subsidiary obligation, floating rate 221 232
Capital lease obligations and other 1,588 1,935
93,104 78,869
Current maturities of long-term debt (1,697) (2,337)
Long-term debt, less current maturities $91,407 $76,532
Of the 2010 foreign subsidiary obligations, $16,352,000 was
payable in U.S. dollars, $221,000 was payable in Argentine pesos.
Of the 2009 foreign subsidiary obligations, $688,000 was
denominated in CFA francs, $232,000 was payable in Argentine
pesos.
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 ($645,864,000 as of
December 31, 2010) 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, 2010.
Annual maturities of long-term debt at December 31, 2010 are as
follows: $1,697,000 in 2011, $34,182,000 in 2012, $2,191,000 in
2013, $9,588,000 in 2014, $1,635,000 in 2015 and $43,811,000
thereafter.
Note 9
Derivatives and Fair Value of Financial Instruments
U.S. GAAP discusses several 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: 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.
46
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, 2010 and also the level within the fair value
hierarchy used to measure each category of assets:
Balance
December 31,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds $110,164 $110,164 $ - $ -
Corporate bonds 87,401 - 87,401 -
Fixed income mutual funds 60,302 60,302 - -
Fixed rate municipal notes and bonds 20,648 - 20,648 -
U.S. Government agency securities 17,514 - 17,514 -
U.S. Treasury securities 7,148 - 7,148 -
Asset backed debt securities 2,848 - 2,848 -
Other 2,355 - 2,355 -
Trading securities- short term investments:
High yield debt securities 20,783 - 20,783 -
Other debt securities 3,042 - 3,042 -
Trading securities - other current assets:
Domestic equity securities 13,332 13,332 - -
Foreign equity securities 8,157 4,131 4,026 -
Fixed income mutual funds 3,758 3,758 - -
Money market funds 3,208 3,208 - -
U.S. Treasury securities 2,732 - 2,732 -
U.S. Government agency securities 1,371 - 1,371 -
Other 183 157 26 -
Derivatives:
Commodities 15,966 15,9588 - -
Interest rate swaps 1,410 - 1,410 -
Foreign currencies 120 - 120 -
Total Assets $382,442 $211,010 $171,432 $ -
Liabilities:
Derivatives:
Commodities (1) $ 9,170 $ 9,170 $ - $ -
Interest rate swaps 1,161 - 1,161 -
Foreign currencies 11,652 - 11,652 -
Total Liabilities $ 21,983 $ 9,170 $ 12,813 $ -
(1) Excludes $5,163 of option proceeds resulting in a net liability of
$4,007 as of December 31, 2010.
Financial instruments consisting of cash and cash equivalents,
net receivables, notes payable, and accounts payable are carried
at cost, which approximates fair value, as a result of the short-
term nature of the instruments.
The fair value of long-term debt is estimated by comparing
interest rates for debt with similar terms and maturities. The
amortized cost and estimated fair values of investments and long-
term debt at December 31, 2010 and 2009 are presented below:
47
December 31, 2010 2009
(Thousands of dollars) Amortized Cost Fair Value Amortized Cost Fair Value
Short-term investments,
available-for-sale $ 307,015 $308,380 $372,770 $377,692
Short-term investments,
trading debt securities 22,254 23,825 27,453 29,659
Long-term debt 93,104 96,438 78,869 82,415
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 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, 2009. 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 period.
At December 31, 2010, Seaboard had open net derivative contracts
to purchase 5,880,000 bushels of grain, 2,900 tons of soybean
meal and 43,240,000 pounds of hogs and open net derivative
contracts to sell 1,806,000 gallons of heating oil. 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 open net derivative contracts to
purchase 2,720,000 pounds of hogs. For the years ended December
31, 2010, 2009 and 2008 Seaboard recognized net realized and
unrealized gains of $8,047,000 $7,047,000 and $36,156,000,
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. 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
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 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.
At December 31, 2010, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with notional amounts of
$183,042,000 primarily related to the South African Rand.
At December 31, 2009, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with notional amounts of
$193,379,000 primarily related to the South African Rand and the
Euro.
Forward Freight Agreements (FFAs)
From time to time the Commodity Trading and Milling segment
enters into certain FFAs, 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. At December 31, 2010 and 2009, there were no such
agreements outstanding.
Interest Rate Exchange Agreements
In May 2010, Seaboard entered into three ten-year interest rate
exchange agreements which involve the exchange of fixed-rate and
variable-rate interest payments over the life of the agreements
without the exchange of the underlying notional amounts to
mitigate the effects of fluctuations in interest rates on
variable rate debt. Seaboard pays a fixed rate and receives a
variable rate of interest on three notional amounts of
$25,000,000 each. In August 2010,
48
Seaboard entered into another ten-year interest rate exchange
agreement with a notional amount of $25,000,000 that has terms
similar to those for the other three interest rate exchange
agreements referred to above. While Seaboard has certain
variable rate debt, these interest rate exchange agreements
do not qualify as hedges for accounting purposes. Accordingly,
the changes in fair value of these agreements are recorded in
Miscellaneous, net in the 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, with similar terms to agreements discussed
above to mitigate the effects of fluctuations in interest rates.
In June 2009, Seaboard terminated both interest rate exchange
agreements and received payments 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 and interest rate swaps,
should the counterparties fail to perform according to the terms
of the contracts. Seaboard's foreign currency exchange
agreements have a maximum amount of loss due to credit risk in
the amount of $120,000 with two counterparties. Seaboard's
interest rate swaps have a maximum amount of loss due to credit
risk in the amount of $1,410,000 with one counterparty. 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 Consolidated Statement of Earnings for the year
ended December 31, 2010 and 2009:
(Thousands of dollars)
2010 2009
Location of Gain or (Loss) Amount of Gain or (Loss)
Recognized in Income on Recognized in Income on
Derivatives Derivatives
Commodities Cost of sales-products $ 8,047 $ 7,047
Foreign currencies Cost of sales-products (18,538) (27,676)
Foreign currencies Foreign currency (1,580) (1,980)
Interest rate Miscellaneous, net (1,309) 5,312
The following table provides the fair value of each type of
derivative held as of December 31, 2010 and 2009 and where each
derivative is included on the Consolidated Balance Sheets:
(Thousands of dollars) Asset Derivatives Liability Derivatives
2010 2009 2010 2009
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value
Commodities Other current assets $15,966 $4,610 Other current liabilities $ 9,170 (1) $2,288
Foreign currencies Other current assets 120 430 Other current liabilities 11,652 5,943
Interest rate Other current assets 1,410 - Other current liabilities 1,161 -
(1)Excludes $5,163 of option proceeds resulting in a net liability of $4,007 as of December 31, 2010.
Note 10
Employee Benefits
Seaboard maintains a defined benefit pension plan for its
domestic salaried and clerical employees and, effective January
1, 2010, split a portion of employees from this plan into a new
defined benefit plan with identical benefits. Both plans are
collectively referred to below as "the Plans." The Plans
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, 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 defined benefit pension plan during the fourth
quarter of 2008. Management did not make any contributions in
2010 and currently does not plan on making any contributions to
the Plans in 2011.
49
As part of the split of the defined benefit pension plan
discussed above, on January 1, 2010 Seaboard implemented a new
investment policy for each of the two separate plans. The
difference in target allocation percentages are based on one plan
having more current retirees and thus a more conservative
portfolio versus the other plan which can assume greater risk as
it will have a longer investment time horizon. Assets are
invested in the Plans 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 portfolios are evaluated
relative to customized benchmarks. The investment strategy
provides investment managers' discretion and is periodically
reviewed by management for adherence to policy and performance
against benchmarks. Seaboard's asset allocation targets and
actual investment composition within the Plans were as follows:
Actual Composition of Plans at December 31,
Target Allocations 2010 2009
Domestic Large Cap Equity 29-40% 31-42% 29%
Domestic Small and Mid Cap
Equity 7-10% 12-14% 12%
International Equity 11-16% 11-15% 9%
Fixed Income 25-42% 22-39% 31%
Alternative investments 6-8% 4-5% -
Cash and cash equivalents 1-5% 2-3% 19%
As described in Note 9 to the Consolidated Financial Statements,
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 table shows the Plans' assets
measured at estimated fair value as of December 31, 2010 and also
the level within the fair value hierarchy used to measure each
category of assets:
Balance
December 31,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Domestic equity securities $27,411 $27,411 $ - $ -
Corporate bonds 19,570 - 19,570 -
Collective investment funds 12,889 - 12,889 -
Foreign equity securities 7,410 7,410 - -
Fixed income mutual funds 6,073 6,073 - -
Money market funds 5,337 5,337 - -
U.S. Treasury STRIPS 3,135 - 3,135 -
Exchange traded funds-equity 3,012 3,012 - -
Mutual funds-equities 2,892 2,892 - -
Real estate mutual fund 2,042 2,042 - -
Exchange traded funds-fixed
income 1,787 1,787 - -
Municipal bonds 1,713 - 1,713 -
Other 367 204 163 -
Total Assets $93,638 $56,168 $37,470 $ -
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.
50
Assumptions used in determining pension information for all of
the above plans were:
Years ended December 31,
2010 2009 2008
Weighted-average assumptions
Discount rate used to determine
obligations 4.45-5.65% 5.25-6.25% 6.25%
Discount rate used to determine net
periodic benefit cost 5.25-6.25% 6.25% 6.50%
Expected return on plan assets 7.25-7.75% 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 returns on the Plans' assets
assumption are 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 Plans' 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 all of these plans.
The changes in the plans' benefit obligations and fair value of
assets for the Plans, supplemental executive plans and retirement
agreements for the years ended December 31, 2010 and 2009, and a
statement of the funded status as of December 31, 2010 and 2009
were as follows:
December 31,
2010 2009
Assets exceed Accumulated Assets exceed Accumulated
accumulated benefits accumulated benefits
(Thousands of dollars) benefits exceed assets benefits exceed assets
Reconciliation of benefit
obligation:
Benefit obligation at
beginning of year $ - $147,915 $72,627 $ 60,287
Service cost 1,370 4,997 2,925 3,115
Interest cost 3,258 5,454 4,572 3,611
Actuarial losses 4,896 10,013 4,669 1,188
Benefits paid (2,563) (2,317) (2,504) (3,790)
Plan split 55,648 (55,648) - -
Plan amendments- - - - 1,215
Benefit obligation at
end of year $ 62,609 $110,414 $82,289 $ 65,626
Reconciliation of fair
value of plan assets:
Fair value of plan assets
at beginning of year $ - $ 84,829 $58,321 $ -
Actual return on plan
assets 7,106 4,513 14,397 -
Employer contributions - 2,070 14,615 3,790
Benefits paid (2,563) (2,317) (2,504) (3,790)
Plan split 59,152 (59,152) - -
Fair value of plan assets
at end of year $ 63,695 $ 29,943 $84,829 $ -
Funded status $ 1,086 $(80,471) $ 2,540 $(65,626)
The net funded status of the Plans was $(2,713,000) and
$2,540,000 at December 31, 2010 and 2009, respectively. The
accumulated benefit obligation for the Plans was $83,727,000 and
$74,666,000 and for the other plans was $56,120,000 and
$45,381,000 at December 31, 2010 and 2009, 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: $6,724,000,
$5,355,000, $5,931,000, $6,424,000, $8,653,000, and $56,459,000,
respectively.
51
The amounts not reflected in net periodic benefit cost and
included in accumulated other comprehensive income (AOCI) before
taxes at December 31, 2010 and 2009 were as follows:
(Thousands of dollars) 2010 2009
Accumulated loss, net of gain $ (54,752) $(48,346)
Prior service cost, net of credit (7,280) (8,209)
Transitional obligation (16) (32)
Total Accumulated Other Comprehensive Income $(62,048) $(56,587)
The net periodic benefit cost of these plans was as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Components of net periodic benefit cost:
Service cost
$ 6,367 $ 6,040 $ 5,199
Interest cost 8,712 8,183 7,510
Expected return on plan assets (6,218) (4,761) (6,029)
Amortization and other 4,046 5,017 1,582
Net periodic benefit cost $12,907 $14,479 $ 8,262
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 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.
The amounts in AOCI expected to be recognized as components of
net periodic benefit cost in 2011 are as follows:
(Thousands of dollars) 2011
Accumulated loss, net of gain $3,216
Prior service cost, net of credit 929
Transition obligation 16
Estimated net periodic benefit cost $4,161
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 $528,000,
$509,000, and $498,000 for the years ended December 31, 2010,
2009 and 2008, 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. In 2010, Seaboard
contributed to this plan an amount equal to 50% of employee
contributions up to a maximum of 6% of employee compensation. In
2009 and 2008, Seaboard contributed 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 $1,826,000,
$1,868,000 and $1,812,000 for the years ended December 31, 2010,
2009 and 2008, 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
52
employees. Contribution expense for these plans was
$1,455,000, $1,378,000 and $1,038,000 for the years ended
December 31, 2010, 2009 and 2008, 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 $4,267,000,
$4,340,000 and $(9,539,000) for the years ended
December 31, 2010, 2009 and 2008, respectively. Included in
other liabilities at December 31, 2010 and 2009 are $28,444,000
and $22,430,000, 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, 2010 and 2009, $32,739,000 and $26,729,000,
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 2010, 2009, and 2008
totaled $4,203,000, $4,253,000 and $(9,618,000), 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, 2010,
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, 2010, 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 $42,578,000 and $8,136,000, respectively.
Included in these amounts are LCs totaling $26,385,000, which
support the IDRBs included as long-term debt and $20,221,000 of
LCs related to insurance coverage.
Commitments
As of December 31, 2010 Seaboard had various firm noncancelable
purchase commitments and commitments under other agreements,
arrangements and operating leases as described in the table
below:
53
Purchase commitments Years ended December 31,
(Thousands of dollars) 2011 2012 2013 2014 2015 Thereafter
Hog procurement contracts $182,705 $ 23,638 $20,542 $ 5,065 $ - $ -
Grain and feed ingredients 164,437 2,850 218 - - -
Grain purchase contracts for
resale 212,501 - - - - -
Construction of new power
barge 69,956 9,613 - - - -
Fuel purchase contract 24,045 17,504 - - - -
Equipment purchases
and facility improvements 20,844 - - - - -
Other purchase commitments 15,330 10,008 2,597 71 34 195
Total firm purchase
commitments 689,818 63,613 23,357 5,136 34 195
Vessel, time and voyage-
charter arrangements 68,911 31,568 28,096 12,984 10,585 68,745
Contract grower finishing
agreements 11,473 10,372 9,710 9,052 8,609 24,777
Other operating lease
payments 17,572 15,413 14,031 13,155 12,739 200,187
Total unrecognized firm
commitments $787,774 $120,966 $75,194 $40,327 $31,967 $293,904
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, 2010. During 2010, 2009 and 2008, this segment paid
$183,982,000, $163,047,000 and $155,400,000, 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, 2010. 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 ten years. This segment's charter hire expenses
during 2010, 2009 and 2008 totaled $57,606,000, $82,728,000 and
$115,877,000, 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 2010,
2009 and 2008, Seaboard paid $13,752,000, $13,703,000 and
$13,389,000, 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
$24,835,000, $26,404,000 and $23,147,000 in 2010, 2009 and 2008,
respectively.
The Power segment entered into a liquid natural gas contract for
part of 2011 and 2012 related to the new power barge.
54
Note 12
Stockholders' Equity and Accumulated Other Comprehensive Loss
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. As of December 31, 2010, $70,006,000
remains available for repurchase under this program. Previously,
shares were repurchased from time to time under authorization
from the Board of Directors on August 7, 2007 through August 31,
2009.
Seaboard used cash to repurchase 20,879 shares of common stock at
a total price of $29,994,000 in 2010, 3,668 shares of common
stock at a total price of $3,370,000 in 2009 and 3,852 shares of
common stock at a total price of $5,012,000 in 2008.
The components of accumulated other comprehensive loss, net of
related taxes, are summarized as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Cumulative foreign currency translation
adjustment $ (81,280) $ (77,576) $ (68,211)
Unrealized gain on investments 445 2,579 1,781
Unrecognized pension cost (43,072) (39,789) (45,273)
Accumulated other comprehensive loss $(123,907) $(114,786) $(111,703)
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, 2010, the Sugar segment had
$187,305,000 in net assets denominated in Argentine pesos and
$41,576,000 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 2010 and 2009, the unrecognized pension cost includes
$13,231,000 and $12,740,000, 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 six reportable segments through
December 31, 2010: Pork, Commodity Trading and Milling, Marine,
Sugar, Power and Turkey, 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 six 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 affiliates. This segment also operates
flour, maize and feed mills in foreign countries. The Marine
segment, based in Miami, Florida, provides containerized
55
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. The
Turkey segment, accounted for using the equity method basis, is a
vertically integrated producer, processor and marketer of branded
and non-branded turkeys and other turkey products. Total assets
for the Turkey segment represents Seaboard's investment in and
notes receivable from this affiliate. Revenues for the All Other
segment are primarily derived from the jalapeno pepper processing
operations.
The Pork segment derives approximately 11% 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 6 for further discussion). As of
December 31, 2010, the Pork segment's ham-boning and processing
plant in Mexico had a net book value of $9,994,000. See Note 5
for discussion of the potential for future impairment of this
plant.
The Commodity Trading and Milling segment derives a significant
portion of its operating income from sales to a non-consolidated
affiliate and also derives a significant portion of its income
from affiliates from this same affiliate. During the third
quarter of 2010, Seaboard acquired a majority interest in a
commodity origination, storage and processing business in Canada
for approximately $6,747,000, including $1,169,000 of cash
acquired, subject to final working capital adjustments. This
transaction was accounted for using the purchase method and would
not have significantly affected net earnings or earnings per
share on a pro forma basis.
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 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 around the end of the first quarter in 2011
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 was 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 floating power generating facilities
in the Dominican Republic for $70,000,000, which will use such
barges for private use. The sale is anticipated to be closed
during the second quarter in 2011. During March 2009,
$15,000,000 was paid to Seaboard (recorded as deferred revenue as
of December 31, 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 December 31, 2010 and is classified as held for
sale in other current assets. Seaboard ceased depreciation on
January 1, 2010 for these two barges but will continue to operate
these two barges until a few weeks
56
prior to the closing date of the sale. Seaboard will recognize
a gain on sale of assets of approximately $50,000,000 in
operating income at the closing of the sale in 2011. Seaboard
will be responsible for the wind down and decommissioning costs
of the barges. Closing 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
retained all other physical properties of this business and is
currently building a replacement 106 megawatt floating power
generating facility for use in the Dominican Republic for
approximately 83,573,000 Euros (approximately US $107,650,000)
plus additional project costs for a total of approximately
$125,000,000. Operations are anticipated to begin by the end of
2011 or early 2012, resulting in lower sales during 2011 for this
segment.
The following tables set forth specific financial information
about each segment as reviewed by management, except for the
Turkey segment information discussed in Note 4 to the
Consolidated Financial Statements. Operating income for segment
reporting is prepared on the same basis as that used for
consolidated operating income. Operating income, along with
income from affiliates for the Commodity Trading and Milling
segment, is used as the measure of evaluating segment performance
because management does not consider interest and income tax
expense on a segment basis.
Sales to External Customers:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $1,388,265 $1,065,338 $1,125,969
Commodity Trading and Milling 1,808,948 1,531,572 1,897,374
Marine 853,565 737,629 958,027
Sugar 195,993 142,966 142,148
Power 124,034 107,074 129,430
All Other 14,897 16,729 14,856
Segment/Consolidated Totals $4,385,702 $3,601,308 $4,267,804
Operating Income:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 213,325 $ (15,025) $ (45,934)
Commodity Trading and Milling 34,432 24,839 96,517
Marine 47,612 24,113 62,365
Sugar 31,741 (851) 3,690
Power 13,424 8,172 7,845
All Other 832 1,498 1,033
Segment Totals 341,366 42,746 125,516
Corporate (20,300) (19,023) (3,707)
Consolidated Totals $ 321,066 $ 23,723 $ 121,809
Income from Affiliates:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Commodity Trading and Milling $ 20,983 $ 19,128 $ 12,629
Sugar 980 1,030 455
Turkey (998) - -
Segment/Consolidated Totals $ 20,965 $ 20,158 $ 13,084
57
Depreciation and Amortization:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 50,813 $ 53,182 $ 53,288
Commodity Trading and Milling 5,165 4,681 4,509
Marine 22,743 21,772 19,994
Sugar 7,180 7,732 8,030
Power 204 3,783 3,926
All Other 428 431 415
Segment Totals 86,533 91,581 90,162
Corporate 269 260 219
Consolidated Totals $ 86,802 $ 91,841 $ 90,381
Total Assets:
December 31,
(Thousands of dollars) 2010 2009
Pork $ 761,490 $ 774,718
Commodity Trading and Milling 686,379 521,618
Marine 246,902 236,382
Sugar 223,223 205,155
Power 91,739 75,348
Turkey 277,778 -
All Other 6,332 8,988
Segment Totals 2,293,843 1,822,209
Corporate 440,243 514,924
Consolidated Totals $2,734,086 $2,337,133
Investment in and Advances to Affiliates:
December 31,
(Thousands of dollars) 2010 2009
Commodity Trading and Milling $ 140,696 $ 79,883
Sugar 2,957 2,349
Turkey 187,669 -
Segment/Consolidated Totals $ 331,322 $ 82,232
Capital Expenditures:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 9,568 $15,188 $ 52,649
Commodity Trading and Milling 2,390 2,650 4,333
Marine 28,411 14,697 46,309
Sugar 30,620 21,603 30,964
Power 31,709 39 53
All Other 362 87 311
Segment Totals 103,060 54,264 134,619
Corporate 276 12 15
Consolidated Totals $103,336 $54,276 $134,634
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
58
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 $420,277,000,
$292,547,000 and $437,362,000 for the years ended December 31,
2010, 2009 and 2008, respectively, representing approximately
10%, 8% and 10% of total sales for each respective year. No
other individual foreign country accounted for 10% or more of
sales to external customers.
The following table provides a geographic summary of net sales
based on the location of product delivery:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Caribbean, Central and South America $1,702,823 $1,406,749 $1,726,789
United States 1,079,316 855,412 924,470
Africa 1,061,221 969,324 1,269,505
Canada/Mexico 245,935 146,601 143,665
Pacific Basin and Far East 198,100 165,721 162,122
Eastern Mediterranean 78,380 14,964 23,719
Europe 19,927 42,537 17,534
Totals $4,385,702 $3,601,308 $4,267,804
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) 2010 2009
United States $ 511,908 $ 547,111
Argentina 105,298 87,712
Dominican Republic 56,928 26,239
All other 49,197 53,559
Totals $ 723,331 $ 714,621
At December 31, 2010 and 2009, Seaboard had approximately
$183,163,000 and $134,261,000, respectively, of foreign
receivables, excluding receivables due from 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 Seaboard
Officer of Seaboard
Edward I. Shifman, Jr.
David A. Adamsen Director and Audit Committee Member
Director and Audit Committee Retired, former Managing Director and
Member Executive Vice President of
Former Vice President - Wachovia Capital Finance
Wholesale Sales,
C&S Wholesale Grocers
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 David H. Rankin
Senior Vice President, Chief Vice President
Financial Officer
Ty A. Tywater
David M. Becker Vice President, Audit Services
Vice President, General Counsel
and Secretary John A. Virgo
Vice President, Corporate
Barry E. Gum Controller and Chief Accounting
Vice President, Finance and Officer
Treasurer
Zachery J. Holden
James L. Gutsch Assistant Secretary
Vice President, Engineering
Adriana N. Hoskins
Ralph L. Moss Assistant Treasurer
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 Availability of Form 10-K Report
Registrar of Stock ____________________________________________
________________________________
Seaboard files its Annual Report on Form
BNY Mellon 10-K with the Securities and Exchange
P.O. Box 3580160 Commission. Copies of the Form 10-K for
Pittsburgh, PA 15252-8010 fiscal 2010 are available without charge
(866) 351-3330 by writing Seaboard Corporation, 9000
West 67th Street, Merriam, 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
Stock Listing reports are electronically filed with the
________________________________ Securities and Exchange Commission.
Seaboard's common stock is
traded on the NYSE Amex
Equities under the symbol SEB.
Seaboard had 177 shareholders
of record of its common stock
as of February 4, 2011.
60
