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EX-32.1 - EX-32.1 - SEABOARD CORP /DE/a14-12465_1ex32d1.htm
EX-32.2 - EX-32.2 - SEABOARD CORP /DE/a14-12465_1ex32d2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

{ X }                    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 28, 2014

 

OR

 

{    }                      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________________________ to ____________________________

 

Commission File Number 1-3390

 

 

Seaboard Corporation

 

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

 

 

04-2260388

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

9000 W. 67th Street, Shawnee Mission, Kansas

 

 

66202

(Address of principal executive offices)

 

(Zip Code)

 

 

(913) 676-8800

 

(Registrant’s telephone number, including area code)

 

 

Not Applicable

 

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  X   No    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  X   No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer [ X ]

 

Accelerated Filer [   ]

 

Non-Accelerated Filer   [   ] (Do not check if a smaller reporting company)

 

Smaller Reporting Company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       No  X .

There were 1,170,550 shares of common stock, $1.00 par value per share, outstanding on July 23, 2014.

 

1



 

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

 

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Thousands of dollars except share and per share amounts)

(Unaudited)

 

 

 

 

 

Three Months Ended

 

 

 

 

Six Months Ended

 

 

 

 

 

June 28,

 

 

 

June 29,

 

 

 

 

June 28,

 

 

 

June 29,

 

 

 

 

 

2014

 

 

 

2013

 

 

 

 

2014

 

 

 

2013

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes sales to affiliates of $179,031, $164,548, $375,017 and $347,083)

 

 

 

$

1,417,116

 

 

 

$

1,371,142

 

 

 

 

$

2,630,871

 

 

 

$

2,634,415

 

Service revenues

 

 

 

224,127

 

 

 

237,948

 

 

 

 

436,160

 

 

 

483,960

 

Other

 

 

 

53,348

 

 

 

74,949

 

 

 

 

107,196

 

 

 

147,960

 

Total net sales

 

 

 

1,694,591

 

 

 

1,684,039

 

 

 

 

3,174,227

 

 

 

3,266,335

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 

1,249,249

 

 

 

1,294,124

 

 

 

 

2,354,832

 

 

 

2,465,826

 

Services

 

 

 

202,482

 

 

 

216,097

 

 

 

 

396,989

 

 

 

441,092

 

Other

 

 

 

45,433

 

 

 

58,408

 

 

 

 

99,391

 

 

 

117,101

 

Total cost of sales and operating expenses

 

 

 

1,497,164

 

 

 

1,568,629

 

 

 

 

2,851,212

 

 

 

3,024,019

 

Gross income

 

 

 

197,427

 

 

 

115,410

 

 

 

 

323,015

 

 

 

242,316

 

Selling, general and administrative expenses

 

 

 

63,088

 

 

 

61,861

 

 

 

 

123,473

 

 

 

125,309

 

Operating income

 

 

 

134,339

 

 

 

53,549

 

 

 

 

199,542

 

 

 

117,007

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(3,856

)

 

 

(2,370

)

 

 

 

(8,676

)

 

 

(4,762

)

Interest income

 

 

 

1,724

 

 

 

4,269

 

 

 

 

8,804

 

 

 

8,358

 

Interest income from affiliates

 

 

 

6,880

 

 

 

5,370

 

 

 

 

13,236

 

 

 

11,525

 

Income (loss) from affiliates

 

 

 

7,803

 

 

 

(4,547

)

 

 

 

14,447

 

 

 

(7,397

)

Other investment income (loss), net

 

 

 

2,787

 

 

 

(1,932

)

 

 

 

3,360

 

 

 

254

 

Foreign currency losses, net

 

 

 

(2,994

)

 

 

(135

)

 

 

 

(8,687

)

 

 

(1,280

)

Miscellaneous, net

 

 

 

(2,393

)

 

 

3,870

 

 

 

 

(2,253

)

 

 

4,692

 

Total other income, net

 

 

 

9,951

 

 

 

4,525

 

 

 

 

20,231

 

 

 

11,390

 

Earnings before income taxes

 

 

 

144,290

 

 

 

58,074

 

 

 

 

219,773

 

 

 

128,397

 

Income tax expense

 

 

 

(49,851

)

 

 

(18,048

)

 

 

 

(76,885

)

 

 

(30,614

)

Net earnings

 

 

 

$

94,439

 

 

 

$

40,026

 

 

 

 

$

142,888

 

 

 

$

97,783

 

Less: Net income attributable to noncontrolling interests

 

 

 

(762

)

 

 

(479

)

 

 

 

(1,045

)

 

 

(782

)

Net earnings attributable to Seaboard

 

 

 

$

93,677

 

 

 

$

39,547

 

 

 

 

$

141,843

 

 

 

$

97,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

79.01

 

 

 

$

33.07

 

 

 

 

$

119.53 

 

 

 

$

81.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $725, $2,939, $10,388 and $5,540:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(2,790

)

 

 

(6,699

)

 

 

 

(29,565

)

 

 

(12,821

)

Unrealized gain (loss) on investments

 

 

 

498

 

 

 

(2,137

)

 

 

 

1,024

 

 

 

(1,708

)

Unrealized gain (loss) on cash flow hedges

 

 

 

(275

)

 

 

-    

 

 

 

 

86

 

 

 

-    

 

Unrecognized pension cost

 

 

 

320

 

 

 

2,545

 

 

 

 

640

 

 

 

3,737

 

Other comprehensive loss, net of tax

 

 

 

$

(2,247

)

 

 

$

(6,291

)

 

 

 

$

(27,815

)

 

 

$

(10,792

)

Comprehensive income

 

 

 

92,192

 

 

 

33,735

 

 

 

 

115,073

 

 

 

86,991

 

Less: Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 

 

(765

)

 

 

(522

)

 

 

 

(1,044

)

 

 

(819

)

Comprehensive income attributable to Seaboard

 

 

 

$

91,427

 

 

 

$

33,213

 

 

 

 

$

114,029

 

 

 

$

86,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

 

1,185,633

 

 

 

1,195,815

 

 

 

 

1,186,640

 

 

 

1,196,656

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars)

(Unaudited)

 

 

 

June 28,

 

December 31,

 

 

 

2014

 

2013

 

Assets

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

73,654

 

$

55,055

 

Short-term investments

 

325,134

 

290,649

 

Receivables, net of allowance

 

582,520

 

651,404

 

Inventories

 

724,636

 

698,998

 

Deferred income taxes

 

25,170

 

23,449

 

Other current assets

 

125,947

 

134,394

 

Total current assets

 

1,857,061

 

1,853,949

 

Net property, plant and equipment

 

862,673

 

863,573

 

Investments in and advances to affiliates

 

417,652

 

406,900

 

Notes receivable from affiliates

 

189,856

 

180,386

 

Goodwill

 

43,218

 

43,218

 

Other intangible assets, net

 

18,872

 

18,997

 

Other assets

 

46,551

 

51,025

 

Total assets

 

$

3,435,883

 

$

3,418,048

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

 

 

Notes payable to banks

 

$

37,998

 

$

67,699

 

Current maturities of long-term debt

 

85,500

 

11,697

 

Accounts payable

 

193,658

 

200,242

 

Deferred revenue

 

61,658

 

46,192

 

Other current liabilities

 

262,832

 

289,497

 

Total current liabilities

 

641,646

 

615,327

 

Long-term debt, less current maturities

 

628

 

80,480

 

Deferred income taxes

 

78,893

 

73,336

 

Other liabilities and deferred credits

 

173,473

 

168,935

 

Total non-current liabilities

 

252,994

 

322,751

 

Commitments and contingent liabilities

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock of $1 par value,

 

 

 

 

 

Authorized 1,250,000 shares;

 

 

 

 

 

issued and outstanding 1,170,550 and 1,188,955 shares

 

1,171

 

1,189

 

Accumulated other comprehensive loss

 

(209,612

)

(181,797

)

Retained earnings

 

2,743,937

 

2,655,857

 

Total Seaboard stockholders’ equity

 

2,535,496

 

2,475,249

 

Noncontrolling interests

 

5,747

 

4,721

 

Total equity

 

2,541,243

 

2,479,970

 

Total liabilities and stockholders’ equity

 

$

3,435,883

 

$

3,418,048

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Thousands of dollars)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

142,888

 

$

97,783

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

46,057

 

46,513

 

Gain from sale of fixed assets

 

(1,887

)

(6,393

)

Deferred income taxes

 

13,362

 

2,278

 

Pay-in-kind interest and accretion on notes receivable from affiliates

 

(7,535

)

(6,431

)

Loss (income) from affiliates

 

(14,447

)

7,397

 

Dividends received from affiliates

 

1,823

 

11,129

 

Other investment income, net

 

(3,360

)

(254

)

Other, net

 

626

 

(109

)

Changes in assets and liabilities:

 

 

 

 

 

Receivables, net of allowance

 

69,297

 

(26,429

)

Inventories

 

(51,365

)

(3,186

)

Other current assets

 

6,042

 

(8,598

)

Current liabilities, exclusive of debt

 

(5,728

)

(70,405

)

Other, net

 

7,140

 

3,119

 

Net cash from operating activities

 

202,913

 

46,414

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of short-term investments

 

(567,264

)

(391,782

)

Proceeds from the sale of short-term investments

 

530,709

 

338,843

 

Proceeds from the maturity of short-term investments

 

3,338

 

3,644

 

Capital expenditures

 

(68,213

)

(82,136

)

Proceeds from the sale of fixed assets

 

2,252

 

9,890

 

Investments in and advances to affiliates, net

 

(1,786

)

(11,913

)

Principal payments received on long-term notes receivable from affiliates

 

-    

 

81,272

 

Purchase of long-term investments

 

(2,333

)

(3,079

)

Other, net

 

(70

)

7,382

 

Net cash from investing activities

 

(103,367

)

(47,879

)

Cash flows from financing activities:

 

 

 

 

 

Notes payable to banks, net

 

(23,943

)

36,820

 

Principal payments of long-term debt

 

(5,903

)

(29,767

)

Repurchase of common stock

 

(53,781

)

(13,693

)

Other, net

 

(18

)

(644

)

Net cash from financing activities

 

(83,645

)

(7,284

)

Effect of exchange rate change on cash

 

2,698

 

109

 

Net change in cash and cash equivalents

 

18,599

 

(8,640

)

Cash and cash equivalents at beginning of year

 

55,055

 

47,651

 

Cash and cash equivalents at end of period

 

$

73,654

 

$

39,011

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



 

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 Accounting Policies and Basis of Presentation

 

The Condensed Consolidated Financial Statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”).  All significant intercompany balances and transactions have been eliminated in consolidation.  Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method.  The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of Seaboard for the year ended December 31, 2013 as filed in its Annual Report on Form 10-K.  Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September.  Seaboard’s year-end is December 31.

 

The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows.  Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.  As Seaboard conducts its commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, gross margin on non-consolidated affiliates cannot be clearly distinguished without making numerous assumptions primarily with respect to mark-to-market accounting for commodity derivatives.

 

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, 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.

 

Supplemental Non-Cash Transactions

Seaboard has notes receivable from affiliates which accrue pay-in-kind interest income, primarily from one affiliate as discussed in Note 9. Seaboard recognized $3,907,000 and $7,535,000, respectively, of non-cash, pay-in-kind interest income and accretion of discount for the three and six months ended June 28, 2014 and $3,320,000 and $6,431,000, respectively, for the three and six months ended June 29, 2013, respectively, related to these notes receivable.

 

Recently Issued Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board issued guidance to develop a single, comprehensive revenue recognition model for all contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Seaboard is currently evaluating the impact this new guidance will have on its consolidated financial statements and related disclosures.  Seaboard will be required to adopt this guidance on January 1, 2017 and it is currently anticipated that Seaboard will apply this guidance using the cumulative effect transition method.

 

Note 2 – Investments

 

Seaboard’s short-term investments are treated as either available-for-sale securities or trading securities.  All of Seaboard’s available-for-sale and trading securities are classified as current assets as they are readily available to support Seaboard’s current operating needs.  Available-for-sale securities are recorded at their estimated fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive loss.  Trading securities are recorded at their estimated fair value with unrealized gains and losses reflected in other investment income (loss), net.  At June 28, 2014 and December 31, 2013, amortized cost and estimated fair value were not materially different for these investments. At June 28, 2014, money market funds included $6,848,000 denominated in Euros and $5,549,000 denominated in Canadian dollars.

 

5



 

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at June 28, 2014 and December 31, 2013.

 

 

 

2014

 

2013

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Thousands of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

Money market funds

 

$

66,993

 

$

66,993

 

$

88,430

 

$

88,430

 

Corporate bonds

 

49,306

 

49,921

 

69,591

 

70,258

 

U.S. Government agency securities

 

43,615

 

43,629

 

27,299

 

27,147

 

Asset backed debt securities

 

10,791

 

10,791

 

8,446

 

8,477

 

Collateralized mortgage obligations

 

5,575

 

5,584

 

7,597

 

7,600

 

U.S. Treasury securities

 

5,039

 

5,035

 

5,258

 

5,223

 

Emerging markets debt mutual fund

 

-

 

-

 

17,693

 

16,941

 

Total available-for-sale short-term investments

 

181,319

 

181,953

 

224,314

 

224,076

 

High yield trading debt securities

 

101,802

 

103,163

 

49,352

 

50,428

 

Equity mutual fund

 

25,087

 

25,017

 

-

 

-

 

Money market funds held in trading accounts

 

5,728

 

5,728

 

11,033

 

11,033

 

Domestic equity ETF

 

4,853

 

5,107

 

-

 

-

 

Emerging markets trading debt mutual fund

 

3,282

 

2,988

 

3,202

 

2,858

 

Emerging markets trading debt securities

 

605

 

621

 

1,300

 

1,336

 

Other trading investments

 

505

 

557

 

841

 

918

 

Total available-for-sale and trading short-term investments

 

$

323,181

 

$

325,134

 

$

290,042

 

$

290,649

 

 

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 June 28, 2014.

 

(Thousands of dollars)

 

2014

 

Due within one year

 

$

1,963

 

Due after one year through three years

 

45,889

 

Due after three years

 

49,675

 

Total fixed rate securities

 

$

97,527

 

 

In addition to its short-term investments, Seaboard also has trading securities related to Seaboard’s deferred compensation plans classified in other current assets on the Condensed Consolidated Balance Sheets.  See Note 5 to the Condensed Consolidated Financial Statements for information on the types of trading securities held related to the deferred compensation plans.

 

6



 

Note 3 – Inventories

 

The following is a summary of inventories at June 28, 2014 and December 31, 2013:

 

 

 

June 28,

 

December 31,

 

(Thousands of dollars)

 

2014

 

2013

 

At lower of LIFO cost or market:

 

 

 

 

 

Live hogs and materials

 

  $

209,734

 

  $

207,310

 

Fresh pork and materials

 

22,513

 

33,485

 

 

 

232,247

 

240,795

 

LIFO adjustment

 

(49,140

)

(62,236

)

Total inventories at lower of LIFO cost or market

 

183,107

 

178,559

 

At lower of FIFO cost or market:

 

 

 

 

 

Grains, oilseeds and other commodities

 

350,720

 

299,229

 

Sugar produced and in process

 

41,351

 

53,325

 

Other

 

71,558

 

74,289

 

Total inventories at lower of FIFO cost or market

 

463,629

 

426,843

 

Grain, flour and feed at lower of weighted average cost or market

 

77,900

 

93,596

 

Total inventories

 

  $

724,636

 

  $

698,998

 

 

Note 4 – Income Taxes

 

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments.  Seaboard’s U.S. federal income tax years’ are closed through 2009. The Internal Revenue Service (IRS) has completed its examination of Seaboard’s 2010 U.S. income tax return.  The examination report will be subject to review by the Joint Committee on Taxation.  There have not been any material changes in unrecognized income tax benefits since December 31, 2013.  Interest related to unrecognized tax benefits and penalties was not material for the six months ended June 28, 2014.

 

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Tax Act) was signed into law.  The Tax Act extended many expired corporate income tax provisions that impact current and deferred taxes for financial reporting purposes.  In accordance with U.S. GAAP, the determination of current and deferred taxes is based on the provisions of the enacted law as of the balance sheet date; the effects of future changes in tax law are not anticipated.  The effects of changes in tax laws, including retroactive changes, are recognized in the financial statements in the period that the changes are enacted.  Accordingly, as the Tax Act was signed into law in 2013, the effects of the retroactive provisions in the new law on current and deferred tax assets and liabilities for Seaboard were recorded in the first quarter of 2013.  The total impact was a one-time tax benefit of $7,945,000 recorded in the first quarter of 2013 related to certain 2012 income tax credits.  In addition to this amount is a one-time credit of approximately $11,260,000 for 2012 Federal blender’s credits that was recognized as revenues in the first quarter of 2013.  See Note 9 for further discussion of this Federal blender’s credit.

 

Note 5 – Derivatives and Fair Value of Financial Instruments

 

U.S. GAAP discusses valuation techniques, such as the market approach (prices and other relevant information generated by market conditions involving identical or comparable assets or liabilities), the income approach (techniques to convert future amounts to single present amounts based on market expectations including present value techniques and option-pricing), and the cost approach (amount that would be required to replace the service capacity of an asset which is often referred to as replacement cost).  U.S. GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The following is a brief description of those three levels:

 

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2:   Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3:    Unobservable inputs that reflect the reporting entity’s own assumptions.

 

7



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of June 28, 2014 and also the level within the fair value hierarchy used to measure each category of assets.  Seaboard uses the end of the reporting period to determine if there were any transfers between levels.  There were no transfers between levels that occurred in the first six months of 2014.  The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

June 28,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2014

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities - short-term investments:

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

66,993

 

$

66,993

 

$

-

 

$

-

 

 

Corporate bonds

 

49,921

 

-

 

49,921

 

-

 

 

U.S. Government agency securities

 

43,629

 

-

 

43,629

 

-

 

 

Asset backed debt securities

 

10,791

 

-

 

10,791

 

-

 

 

Collateralized mortgage obligations

 

5,584

 

-

 

5,584

 

-

 

 

U.S. Treasury securities

 

5,035

 

-

 

5,035

 

-

 

 

Trading securities - short-term investments:

 

 

 

 

 

 

 

 

 

 

High yield debt securities

 

103,163

 

-

 

103,163

 

-

 

 

Equity mutual fund

 

25,017

 

25,017

 

-

 

-

 

 

Money market funds held in trading accounts

 

5,728

 

5,728

 

-

 

-

 

 

Domestic equity ETF

 

5,107

 

5,107

 

-

 

-

 

 

Emerging markets trading debt mutual fund

 

2,988

 

2,988

 

-

 

-

 

 

Emerging markets trading debt securities

 

621

 

-

 

621

 

-

 

 

Other trading investments

 

557

 

-

 

557

 

-

 

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

30,869

 

30,869

 

-

 

-

 

 

Foreign equity securities

 

8,450

 

7,049

 

1,401

 

-

 

 

Fixed income mutual funds

 

4,945

 

4,945

 

-

 

-

 

 

Money market funds

 

2,273

 

2,273

 

-

 

-

 

 

Other

 

2,083

 

177

 

1,906

 

-

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

9,560

 

9,560

 

-

 

-

 

 

Interest rate swaps

 

-

 

-

 

-

 

-

 

 

Foreign currencies

 

2,101

 

-

 

2,101

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

385,415

 

$

160,706

 

$

224,709

 

$

-

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

38,166

 

$

38,014

 

$

152

 

$

-

 

 

Interest rate swaps

 

6,901

 

-

 

6,901

 

-

 

 

Foreign currencies

 

378

 

-

 

378

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

$

45,445

 

$

38,014

 

$

7,431

 

$

-

 

 

 

(1) Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of June 28, 2014, the commodity derivatives had a margin account balance of $44,039,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $15,585,000 and an other current liability of $152,000.

 

8



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and also the level within the fair value hierarchy used to measure each category of assets.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2013

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities - short-term investments:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

88,430

 

$

88,430

 

$

-

 

$

-

 

 

Corporate bonds

 

70,258

 

-

 

70,258

 

-

 

 

U.S. Government agency securities

 

27,147

 

-

 

27,147

 

-

 

 

Emerging markets debt mutual fund

 

16,941

 

16,941

 

-

 

-

 

 

Asset backed debt securities

 

8,477

 

-

 

8,477

 

-

 

 

Collateralized mortgage obligations

 

7,600

 

-

 

7,600

 

-

 

 

U.S. Treasury securities

 

5,223

 

-

 

5,223

 

-

 

 

Trading securities - short term investments:

 

 

 

 

 

 

 

 

 

 

High yield debt securities

 

50,428

 

-

 

50,428

 

-

 

 

Money market funds held in trading accounts

 

11,033

 

11,033

 

-

 

-

 

 

Emerging markets trading debt mutual fund

 

2,858

 

2,858

 

-

 

-

 

 

Emerging markets trading debt securities

 

1,336

 

-

 

1,336

 

-

 

 

Other trading investments

 

918

 

-

 

918

 

-

 

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

26,672

 

26,672

 

-

 

-

 

 

Foreign equity securities

 

9,570

 

7,317

 

2,253

 

-

 

 

Fixed income mutual funds

 

3,974

 

3,974

 

-

 

-

 

 

Money market funds

 

1,931

 

1,931

 

-

 

-

 

 

Other

 

3,203

 

1,628

 

1,575

 

-

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

2,331

 

2,331

 

-

 

-

 

 

Foreign currencies

 

2,763

 

-

 

2,763

 

-

 

 

Total Assets

 

$

341,093

 

$

163,115

 

$

177,978

 

$

-

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

16,014

 

$

15,422

 

$

592

 

$

-

 

 

Interest rate swaps

 

4,103

 

-

 

4,103

 

-

 

 

Foreign currencies

 

101

 

-

 

101

 

-

 

 

Total Liabilities

 

$

20,218

 

$

15,422

 

$

4,796

 

$

-

 

 

(1) Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of December 31, 2013, the commodity derivatives had a margin account balance of $29,822,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $16,731,000 and an other current liability of $592,000.

 

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. If Seaboard’s debt was measured at fair value on its Condensed Consolidated Balance Sheets, it would have been classified as level 2 in the fair value hierarchy. The amortized cost and estimated fair values of investments and long-term debt at June 28, 2014 and December 31, 2013 are presented below.

 

9



 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

(Thousands of dollars)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Short-term investments, available-for-sale

 

$

181,319

 

$

  181,953

 

$

224,314

 

$

  224,076

 

Short-term investments, trading debt securities

 

141,862

 

143,181

 

65,728

 

66,573

 

Long-term debt

 

86,128

 

88,220

 

92,177

 

94,578

 

 

While management believes its derivatives are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes.  Since these derivatives and interest rate exchange agreements discussed below are not accounted for as hedges, fluctuations in the related commodity prices, currency exchange rates and interest rates could have a material impact on earnings in any given period.  Seaboard also enters 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, 2013.

 

Commodity Instruments

 

Seaboard uses various derivative futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments.  At June 28, 2014, Seaboard had open net derivative contracts to purchase 17,760,000 pounds of hogs, 220,000 pounds of milk powder, 80,000 pounds of cheese and 44,000 pounds of dry whey powder and open net derivative contracts to sell 3,759,000 pounds of sugar, 720,000 bushels of grain, 420,000 gallons of heating oil and 178,000 tons of soybean meal.  At December 31, 2013, Seaboard had open net derivative contracts to purchase 51,184,000 pounds of sugar, 32,440,000 pounds of hogs, 6,540,000 bushels of grain, 440,000 pounds of cheese and 308,000 pounds of dry whey powder and open net derivative contracts to sell 12,125,000 pounds of palm oil and 76,000 tons of soybean meal.  Commodity derivatives are recorded at fair value with any changes in fair value being marked to market as a component of cost of sales on the Condensed Consolidated Statements of Comprehensive Income.

 

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 currency exchange agreements that were primarily related to an underlying commodity transaction were recorded at fair value with changes in value marked to market as a component of cost of sales on the Condensed Consolidated Statements of Comprehensive Income.  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 losses, net on the Condensed Consolidated Statements of Comprehensive Income.

 

At June 28, 2014 and December 31, 2013, Seaboard had trading foreign currency exchange agreements to cover its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $88,271,000 and $127,389,000, respectively, primarily related to the South African Rand.

 

Interest Rate Exchange Agreements

 

In March and April 2014, Seaboard entered into four approximately eight-year interest rate exchange agreements with mandatory early termination dates in the second half of 2014 for three of the agreements and early 2015 for one of the agreements. These four exchange agreements involve the exchange of fixed-rate and variable-rate interest payments without the exchange of the underlying notional amounts to mitigate the potential effects of fluctuations in interest rates on the anticipated dry bulk vessel leases in the last half of 2014 and early 2015. Seaboard pays a fixed rate and receives a variable rate of interest on these four notional amounts of $22,000,000 each. In 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 these three notional amounts of $25,000,000 each. All seven of these interest rate exchange agreements do not qualify as hedges for accounting purposes. Accordingly, the changes in fair value of these agreements are recorded in miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income. At June 28, 2014 and December 31, 2013, Seaboard had seven and three interest rate exchange agreements outstanding, respectively, with a total notional value of $163,000,000 and $75,000,000, respectively.

 

10



 

Counterparty Credit Risk

 

From time to time 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.  As of June 28, 2014, Seaboard’s foreign currency exchange agreements have a maximum amount of loss due to credit risk in the amount of $2,101,000 with six counterparties and no such exposures related to the interest rate swaps.  Seaboard does not hold any collateral related to these agreements.

 

The following table provides the amount of gain or (loss) recognized in income for each type of derivative and where it was recognized in the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 28, 2014 and June 29, 2013.

 

(Thousands of dollars)

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

Commodities

 

Cost of sales

 

$

9,962

 

 

$

5,867

 

$

3,378

 

 

$

1,059

 

 

Foreign currencies

 

Cost of sales

 

2,328

 

 

1,993

 

2,813

 

 

13,499

 

 

Foreign currencies

 

Foreign currency

 

(1,185

)

 

1,820

 

(420

)

 

5,887

 

 

Interest rate

 

Miscellaneous, net

 

(3,293

)

 

2,962

 

(3,895

)

 

3,434

 

 

 

The following table provides the fair value of each type of derivative held as of June 28, 2014 and December 31, 2013 and where each derivative is included on the Condensed Consolidated Balance Sheets.

 

(Thousands of dollars)

 

 

 

Asset Derivatives

 

 

 

Liability Derivatives

 

 

 

 

 

June 28,

 

December 31,

 

 

 

June 28,

 

December 31,

 

 

 

 

 

2014

 

2013

 

 

 

2014

 

2013

 

Commodities

 

Other current assets

 

$

9,560 (1)

 

$

2,331

 

Other current liabilities

 

$

38,166 (1)

 

$

16,014

 

Foreign currencies

 

Other current assets

 

2,101

 

2,763

 

Other current liabilities

 

378

 

101

 

Interest rate

 

Other current assets

 

-

 

-

 

Other current liabilities

 

6,901

 

4,103

 

 

(1)   Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of June 28, 2014 and December 31, 2013, the commodity derivatives had a margin account balance of $44,039,000 and $29,822,000, respectively, resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $15,585,000 and $16,731,000, respectively and other current liabilities of $152,000 and $592,000, respectively.

 

Note 6 – Employee Benefits

 

Seaboard maintains two defined benefit pension plans for its domestic salaried and clerical employees.  At this time, no contributions are expected to be made to these plans for the remainder of 2014.  Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees.  Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

 

The net periodic benefit cost for all of these plans was as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,004

 

 

$

2,263

 

 

$

3,860

 

 

$

4,684

 

 

Interest cost

 

2,418

 

 

2,035

 

 

4,821

 

 

4,103

 

 

Expected return on plan assets

 

(2,179

)

 

(1,614

)

 

(4,364

)

 

(3,226

)

 

Amortization and other

 

581

 

 

1,543

 

 

1,051

 

 

3,179

 

 

Agreement termination gain

 

-    

 

 

(3,204

)

 

-

 

 

(3,204

)

 

Net periodic benefit cost

 

$

2,824

 

 

$

1,023

 

 

$

5,368

 

 

$

5,536

 

 

 

11


 


 

In late April 2013, Mr. Joseph E. Rodrigues, Seaboard’s board member and retired former Executive Vice President and Treasurer of Seaboard Corporation, passed away.  During retirement, Mr. Rodrigues received retirement payments under an individual, non-qualified, unfunded supplemental retirement agreement.  Upon his death, this agreement terminated which eliminated the remaining accrued pension liability. This resulted in a one-time agreement termination gain of $3,204,000, or $1,954,000 net of tax, which was recognized in net earnings in addition to a gain of $2,148,000, or $1,310,000 net of tax, from the elimination of unrecognized pension cost in other comprehensive income during the second quarter of 2013.

 

Note 7 Long-Term Debt, Commitments and Contingencies

 

In July 2014, Seaboard provided notice of optional prepayment to its lenders related to a credit agreement with an original maturity date of 2021.  As a result, $74,100,000 was reclassified from long-term debt to current maturities of long-term debt as of June 28, 2014.  The total principal payment of $85,500,000 is anticipated to be made on August 29, 2014.  At that time, Seaboard will also be required to pay an approximately $3,760,000 fee for early payment that will be expensed in the third quarter of 2014.

 

Contingencies

 

On September 19, 2012, the United States Immigration and Customs Enforcement (“ICE”) executed three search warrants authorizing the seizure of certain records from Seaboard’s offices in Merriam, Kansas and at the Seaboard Foods employment office and the human resources department in Guymon, Oklahoma.  The warrants generally called for the seizure of employment-related files, certain e-mails and other electronic records relating to Medicaid and Medicaid recipients, certain health care providers in the Guymon area, and Seaboard’s health plan and certain personnel issues.  The United States Attorney’s Office for the Western District of Oklahoma (“USAO”), which has been leading the investigation, recently advised Seaboard that it intends to close its investigation and that no charges would be brought against Seaboard, although the possibility of proceedings by ICE and/or the Oklahoma Attorney General’s office remains.  No proceedings have been filed or brought as of this time.  It is not possible at this time to determine whether Seaboard will incur any material fines, penalties or liabilities in connection with this matter.

 

Seaboard is subject to various administrative and judicial proceedings and other legal matters related to the normal conduct of its business.  In the opinion of management, the ultimate resolutions of these items are not expected to have a material adverse effect on the Condensed 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 in order to further Seaboard’s business objectives.  Seaboard does not issue guarantees of third parties for compensation.  As of June 28, 2014, guarantees outstanding to third parties were not material. 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 June 28, 2014, Seaboard’s borrowing capacity under its uncommitted lines was reduced by letters of credit totaling $3,653,000.  The notes payable to banks under the committed and uncommitted credit lines are unsecured.  These lines of credit do not require compensating balances.

 

Note 8 – Stockholders’ Equity and Accumulated Other Comprehensive Loss

 

Seaboard has a share repurchase program in place which was initially approved by its Board of Directors in November 2009, and is in effect through October 31, 2015.  In May 2014, the Board of Directors increased the dollar amount of Seaboard common stock authorized to be repurchased under the share repurchase program by $20,000,000, and Seaboard commenced a tender offer to repurchase shares.  On June 19, 2014, Seaboard completed the tender offer, pursuant to which it repurchased 16,738 shares of common stock at a price per share of $2,950, for a total cost of $49,377,000. As of June 28, 2014, $50,846,000 remained available for repurchases under the share repurchase program.  For the six months ended June 28, 2014, Seaboard repurchased 18,405 shares of common stock at a total cost of $53,781,000.  Under this share repurchase program, Seaboard is authorized to repurchase its common stock from time to time in open market or privately negotiated purchases, which may be above or below the traded market price.  During the period that the share repurchase program remains in effect, from time to time Seaboard may enter into a 10b5-1 plan authorizing a third party to make such purchases on behalf of Seaboard.  The stock repurchases are being funded by cash on hand, and shares repurchased are being retired and resume the status of authorized and unissued shares.  All stock repurchases are being made in compliance with applicable legal requirements and the timing of the repurchases and the

 

12



 

number of shares repurchased at any given time depend upon market conditions, compliance with Securities and Exchange Commission regulations and other factors.  The Board of Directors 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.

 

In December 2012, Seaboard declared and paid a dividend of $12.00 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 a prepayment of the annual 2013, 2014, 2015 and 2016 dividends ($3.00 per share per year).  Seaboard did not declare or pay a dividend in 2013. Seaboard does not currently intend to declare any further dividends for the years 2014-2016.

 

The changes in the components of other comprehensive loss (OCL), net of related taxes, are as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Foreign currency translation adjustment

 

$

(2,790

)

 

$

(6,699

)

 

$

(29,565

)

 

$

(12,821

)

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss)

 

553

 

 

(1,948

)

 

568

 

 

(1,309

)

 

Amounts reclassified from OCL to net earnings

 

(55

)

(1)

(189

)

(1)

456

 

(1)

(399

)

(1)

Unrealized gain (loss) on investments

 

498

 

 

(2,137

)

 

1,024

 

 

(1,708

)

 

Unrealized gain (loss) on cash flow hedges

 

(275

)

 

-   

 

 

86

 

 

-   

 

 

Pension cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain

 

-   

 

 

1,310

 

 

-   

 

 

1,310

 

 

Amounts reclassified from OCL to net earnings

 

320

 

(2)

1,235

 

(2)

640

 

(2)

2,427

 

(2)

Unrecognized pension cost

 

320

 

 

2,545

 

 

640

 

 

3,737

 

 

Other Comprehensive Loss, Net of Tax

 

$

(2,247

)

 

$

(6,291

)

 

$

(27,815

)

 

$

(10,792

)

 

 

(1)    This represents realized gains on the sale of available-for-sale securities and was recorded in other investment income (loss), net.

(2)    This primarily represents the amortization of actuarial losses that were included in net periodic pension cost and was recorded in operating income.  See Note 6 for further discussion.

 

As discussed in Note 6 to the Condensed Consolidated Financial Statements, Seaboard recognized a one-time retirement agreement termination gain of $1,310,000 net of tax, in unrecognized pension cost in other comprehensive income during the second quarter of 2013.

 

The components of accumulated other comprehensive loss, net of related taxes, are as follows:

 

 

 

June 28,

 

December 31,

 

(Thousands of dollars)

 

2014

 

2013

 

Cumulative Foreign Currency Translation Adjustment:

 

$

(184,978

)

 

$

(155,413

)

Unrealized Gain on Investments:

 

1,505

 

 

481

 

Unrealized Loss on Cash Flow Hedges:

 

(27

)

 

(113

)

Unrecognized Pension Cost:

 

(26,112

)

 

(26,752

)

Total Accumulated Other Comprehensive Loss

 

$

(209,612

)

 

$

(181,797

)

 

The foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar segment.  At June 28, 2014, the Sugar segment had $124,511,000 in net assets denominated in Argentine pesos and $1,396,000 in net assets denominated in U.S. dollars.  Management anticipates that the Argentine peso may continue to weaken against the U.S. dollar and thus it is anticipated that Seaboard could incur additional foreign currency translation adjustment losses in other comprehensive loss during the remainder of 2014.

 

At June 28, 2014 and June 29, 2013, income taxes for cumulative foreign currency translation adjustments were recorded using a 35% effective tax rate except for $50,353,000 and $4,988,000, respectively, related to certain subsidiaries for which no tax benefit was recorded. At June 28, 2014 and June 29, 2013, income taxes for all

 

13



 

other components of accumulated other comprehensive loss were recorded using a 39% effective rate except for unrecognized pension cost of $8,498,000 and $20,346,000, respectively, related to employees at certain subsidiaries for which no tax benefit has been recorded.

 

Note 9 - Segment Information

 

The Tax Act signed into law in January 2013 as discussed in Note 4, renewed and extended the Federal blender’s credits that Seaboard was entitled to receive for biodiesel it blends which had previously expired on December 31, 2011 and renewed retroactively to January 1, 2012 with an expiration of December 31, 2013.  As a result, in the first quarter of 2013 the Pork segment recognized a one-time credit of approximately $11,260,000 as revenues related to this Federal blender’s tax incentive for gallons produced and sold in fiscal 2012. The Federal blender’s credits have not been renewed for 2014.

 

The Commodity Trading and Milling segment has a 50% non-controlling interest in a bakery located in the Democratic Republic of Congo which began start-up operations in the fourth quarter of 2012.  As part of its investment in this bakery, Seaboard has an interest bearing long-term note receivable from this bakery which has a decreasing balance with the first payment due in June 2015 and a final maturity date of December 2020.  Repayment of this note is dependent upon this business improving existing operations to generate adequate future cash flows to make scheduled payments when due.  As of June 28, 2014, the recorded balance of this Note Receivable from Affiliates was $34,144,000.

 

The Power segment has been operating a floating power generating facility (72 megawatts) in the Dominican Republic under a short-term lease agreement.  On April 1, 2014, Seaboard provided notice to cancel the lease.  Seaboard will operate the leased facility until September 30, 2014.  Seaboard had previously sold this facility to the current owner in 2011.  As part of the original sale in 2011, Seaboard and the purchaser agreed to defer the sale of inventory to the purchaser related to the leased facility until the end of the lease term.  In addition, $1,500,000 of the original sale price for this facility remained in escrow and currently provides security for the lease until the end of the lease term.  Finalization of the transfer of the leased facility to the owner and related settlement of all items noted above is anticipated to occur during the fourth quarter of 2014.  At that time, Seaboard anticipates recognizing a gain related to these items of an amount estimated to be approximately $4,500,000.

 

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (Butterball).  Butterball had total net sales for the three and six months ended June 28, 2014 of $375,668,000 $731,431,000, respectively, compared to total net sales for the three and six months ended June 29, 2013 of $353,944,000 and $724,514,000, respectively. Butterball had operating income for the three and six months ended June 28, 2014 of $28,682,000 and $49,430,000, respectively, compared to operating loss for the three and six months ended June 29, 2013 of $(2,417,000) and $(4,520,000), respectively.  In the first quarter of 2013, Butterball incurred additional charges for impairment of fixed assets related to the planned sale of its Longmont, Colorado facility of which Seaboard’s proportionate share of these charges represented $(2,704,000) recognized in loss from affiliates.  This facility was sold in the second quarter of 2014 for approximately the remaining net book value. As of June 28, 2014 and December 31, 2013, the Turkey segment had total assets of $1,035,666,000 and $907,004,000, respectively.

 

On December 31, 2012, Seaboard provided a loan of $81,231,000 to Butterball, which was included in Notes Receivable from Affiliates.  This loan was made to fund Butterball’s purchase of assets from Gusto Packing Company, Inc., a pork and turkey further processor located in Montgomery, Illinois. In late March 2013, Butterball renegotiated its third party financing and on March 28, 2013 repaid in full this loan from Seaboard.

 

In conjunction with Seaboard’s initial investment in Butterball in December 2010, Seaboard has a long-term note receivable from Butterball which had a balance of $133,294,000 as of June 28, 2014.  Part of the interest earned on this note is pay-in-kind interest, which accumulates and is paid at maturity in December 2017.

 

The following tables set forth specific financial information about each segment as reviewed by Seaboard’s management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income.  Operating income, along with income or losses from affiliates for the Commodity Trading and Milling segment, is used as the measure of evaluating segment performance because management does not consider interest, other investment income and income tax expense on a segment basis.

 

14



 

Sales to External Customers:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Pork

 

$

466,735

 

$

416,850

 

$

848,825

 

$

826,102

 

Commodity Trading and Milling

 

914,114

 

894,762

 

1,703,504

 

1,695,516

 

Marine

 

210,960

 

226,725

 

411,424

 

456,881

 

Sugar

 

46,986

 

67,890

 

97,342

 

134,054

 

Power

 

53,033

 

74,812

 

106,881

 

147,779

 

All Other

 

2,763

 

3,000

 

6,251

 

6,003

 

Segment/Consolidated Totals

 

$

1,694,591

 

$

1,684,039

 

$

3,174,227

 

$

3,266,335

 

 

Operating Income (Loss):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Pork

 

$

110,213

 

$

23,634

 

$

170,690

 

$

55,898

 

Commodity Trading and Milling

 

18,263

 

8,610

 

30,193

 

20,938

 

Marine

 

(3,057

)

(4,114

)

(10,449

)

(7,380

)

Sugar

 

9,654

 

11,578

 

16,415

 

28,119

 

Power

 

6,129

 

15,037

 

4,445

 

27,976

 

All Other

 

(8

)

18

 

329

 

138

 

Segment Totals

 

141,194

 

54,763

 

211,623

 

125,689

 

Corporate Items

 

(6,855

)

(1,214

)

(12,081

)

(8,682

)

Consolidated Totals

 

$

134,339

 

$

53,549

 

$

199,542

 

$

117,007

 

 

Income (Loss) from Affiliates:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Commodity Trading and Milling

 

$

(2,170

)

$

(2,278

)

$

(2,205

)

$

(188

)

Sugar

 

443

 

24

 

748

 

117

 

Turkey

 

9,530

 

(2,293

)

15,904

 

(7,326

)

Segment/Consolidated Totals

 

$

7,803

 

$

(4,547

)

$

14,447

 

$

(7,397

)

 

Total Assets:

 

 

 

June 28,

 

December 31,

 

(Thousands of dollars)

 

2014

 

2013

 

Pork

 

$

793,538

 

$

773,641

 

Commodity Trading and Milling

 

1,114,690

 

1,056,930

 

Marine

 

263,238

 

271,012

 

Sugar

 

179,876

 

226,245

 

Power

 

244,382

 

267,431

 

Turkey

 

365,199

 

342,083

 

All Other

 

7,531

 

6,428

 

Segment Totals

 

2,968,454

 

2,943,770

 

Corporate Items

 

467,429

 

474,278

 

Consolidated Totals

 

$

3,435,883

 

$

3,418,048

 

 

15



 

Investments in and Advances to Affiliates:

 

 

 

June 28,

 

December 31,

 

(Thousands of dollars)

 

2014

 

2013

 

Commodity Trading and Milling

 

$

191,799

 

$

197,036

 

Sugar

 

2,853

 

2,768

 

Turkey

 

223,000

 

207,096

 

Segment/Consolidated Totals

 

$

417,652

 

$

406,900

 

 

Administrative services provided by the corporate office allocated to the individual segments represent corporate services rendered to and costs incurred for each specific segment with no allocation to individual segments of general corporate management oversight costs.  Corporate assets include short-term investments, other current assets related to deferred compensation plans, fixed assets, deferred tax amounts and other miscellaneous items.  Corporate operating losses represent certain operating costs not specifically allocated to individual segments and include costs related to Seaboard’s deferred compensation programs (which are offset by the effect of the mark-to-market investments recorded in Other Investment Income (Loss), Net).

 

 

16


 


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Summary of Sources and Uses of Cash

Cash and short-term investments as of June 28, 2014 increased $53.1 million to $398.8 million from December 31, 2013.  The increase was primarily the result of net cash from operating activities of $202.9 million.  Partially offsetting the increase was cash used for capital expenditures of $68.2 million, repurchases of common stock of $53.8 million and decreases in notes payable of $23.9 million. Cash from operating activities increased $156.5 million for the six months ended June 28, 2014 compared to the same period in 2013, primarily as a result of changes in working capital.  Accounts receivables decreased in 2014, principally related to collections of U.S. tax receivables and also past due amounts in the Power segment, while current liabilities decreased in 2013 primarily from timing of payments related principally to the Commodity Trading and Milling segment.

Acquisitions, Capital Expenditures and Other Investing Activities

During the six months ended June 28, 2014, Seaboard invested $68.2 million in property, plant and equipment, of which $30.8 million was expended in the Pork segment, $19.6 million in the Marine segment and $17.8 million in all other segments. The Pork segment expenditures were primarily for compressed natural gas semi-tractors and related refueling stations, improvements to existing facilities and related equipment, and additional finishing barns. The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment.  All other segments’ capital expenditures were of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades.

For the remainder of 2014, management has budgeted capital expenditures totaling $138.8 million.  The Pork segment plans to spend $27.4 million primarily for improvements to existing facilities and related equipment.  The Commodity Trading and Milling segment plans to spend $62.1 million primarily for payments of $53.0 million for four dry bulk vessels being built for a total estimated cost of $90.0 million and improvements to existing facilities and related equipment. However, Seaboard currently anticipates selling and leasing back these four vessels as they are completed which would result in Seaboard receiving back the amounts spent to build at each individual lease inception with no gain or loss on sale.  Final lease terms including amount of payments are pending finalization of the lease agreements.  The first three vessels are scheduled for delivery in the second half of 2014 and the last vessel in early 2015. The Marine segment has budgeted $31.8 million primarily for additional cargo carrying and handling equipment. In addition, management will be evaluating whether to purchase additional containerized cargo vessels for the Marine segment during 2014. The balance of $17.5 million is planned to be spent in all other businesses primarily for normal upgrades to existing operations.  Management anticipates paying for these capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

On March 28, 2013, Butterball, LLC (Butterball) repaid in full the $81.2 million loan Seaboard made on December 31, 2012 to its non-consolidated affiliate to fund its purchase of assets from Gusto Packing Company, Inc.  In addition, during the first quarter of 2013, Butterball paid a $10.3 million cash dividend to Seaboard.

Financing Activities and Debt

As of June 28, 2014, Seaboard had a committed line of credit totaling $200.0 million and uncommitted lines totaling $191.5 million.  As of June 28, 2014, there were no borrowings outstanding under the committed line of credit and borrowings under the uncommitted lines of credit totaled $38.0 million, with all such borrowings related to foreign subsidiaries.  Seaboard’s borrowing capacity under its uncommitted lines was reduced by letters of credit totaling $3.7 million.

In July 2014, Seaboard provided notice of optional prepayment to its lenders related to a credit agreement with an original maturity date of 2021.  As a result, $74.1 million was reclassified from long-term debt to current maturities of long-term debt as of June 28, 2014.  The total principal payment of $85.5 million is anticipated to be made on August 29, 2014.  At that time, Seaboard will also be required to pay an approximately $3.8 million fee for early payment that will be expensed in the third quarter of 2014.  In December 2012, Seaboard provided notice of call for early redemption to holders of certain Industrial Development Revenue Bonds effective January 14, 2013.  Seaboard paid $13.0 million in the first quarter of 2013.

As of June 28, 2014, Seaboard had cash and short-term investments of $398.8 million, additional total net working capital of $816.6 million and a $200.0 million committed line of credit maturing on February 20, 2018.  Accordingly, management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations or business segments for 2014. Management intends to continue

 

17



 

seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity, available borrowing capacity and other financing alternatives.

As of June 28, 2014, $115.0 million of the $398.8 million of cash and short-term investments were held by Seaboard’s foreign subsidiaries and Seaboard could be required to accrue and pay taxes to repatriate these funds if needed for Seaboard’s operations in the U.S. However, Seaboard’s intent is to permanently reinvest these funds outside the U.S. and current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations.

For the six months ended June 28, 2014, Seaboard used cash to repurchase 18,405 shares of common stock at a total price of $53.8 million.  See Note 8 to the Condensed Consolidated Financial Statements for further discussion of this item.

See Note 7 to the Condensed Consolidated Financial Statements for a summary of Seaboard’s contingent obligations, including guarantees issued to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard.

RESULTS OF OPERATIONS

Net sales for the three and six month periods of 2014 increased by $10.6 million and decreased $92.1 million, respectively, over the same periods in 2013.  The increase for the three month period primarily reflected higher prices for pork products sold principally offset by the same factors that are noted below as accounting for the decrease for the six month period.  The decrease for the six month period primarily reflected lower sales volume of pork products and decreased payments received from the U.S. Government for biodiesel production for the Pork segment, lower cargo volumes in certain markets for the Marine segment, lower spot market rates for the Power segment and lower volumes of sugar sold for the Sugar segment.  The six month decrease was partially offset by higher prices for pork products sold.

Operating income increased by $80.8 million and $82.5 million for the three and six month periods of 2014, respectively, compared to the same periods in 2013.  The increases primarily reflected higher prices for pork products sold. Partially offsetting the increases were decreased payments received from the U.S. Government for biodiesel production for the Pork segment and lower spot market rates for the Power division.

Pork Segment 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,

 

June 28,

 

June 29,

 

(Dollars in millions)

 

2014

 

2013

 

2014

 

2013

 

Net sales

 

$ 466.7

 

$  416.9

 

$  848.8

 

$   826.1

 

Operating income

 

$ 110.2

 

$    23.6

 

$  170.7

 

$     55.9

 

Net sales for the Pork segment increased $49.8 million and $22.7 million for the three and six month periods of 2014, respectively, compared to the same periods in 2013.  The increases are primarily the result of higher prices for pork products sold.  Partially offsetting the increases were lower sales volumes of pork products from processing fewer internally grown hogs, lower sales volumes of biodiesel and decreased payments received from the U.S. government for biodiesel production.  U.S. Government payments included a one-time credit of $11.3 million recorded as revenues in the first quarter of 2013 related to the Tax Act, related to the Federal blender’s credit that Seaboard was entitled to receive for biodiesel it blends but has not been renewed for 2014. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the Federal blender’s credit.

Operating income for the Pork segment increased $86.6 million and $114.8 million for the three and six month periods of 2014, respectively, compared to the same periods in 2013.  The increases are primarily the result of higher prices for pork products sold and, to a lesser extent, lower feed costs for hogs internally grown.  Partially offsetting the increases were lower margins for biodiesel from lower sales volumes and decreased payments received from the U.S. Government including, for the six month period, a one-time credit of $11.3 million recorded as revenues in the first quarter of 2013, discussed above.

Management is unable to predict future market prices for pork products, the cost of feed or the impact to Seaboard from the porcine epidemic diarrhea virus currently being experienced by the pork industry.  In addition, the Federal blender’s credit expired December 31, 2013 and recently proposed Federal regulations, if approved, decrease U.S. government mandates to use biofuels for 2014.  However, management anticipates positive operating income for this segment for the remainder of 2014, although somewhat lower than the first half of 2014.

 

18



 

Commodity Trading and Milling Segment

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,

 

June 29,