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EX-32.1 - EX-32.1 - SEABOARD CORP /DE/a14-19201_1ex32d1.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 September 27, 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 October 17, 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

 

 

 

Nine Months Ended

 

 

 

 

 

September 27,

 

 

 

September 28,

 

 

 

September 27,

 

 

 

September 28,

 

 

 

 

 

2014

 

 

 

2013

 

 

 

2014

 

 

 

2013

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes sales to affiliates of $205,644, $183,968, $580,661 and $531,051)

 

 

 

$

1,350,329

 

 

 

$

1,352,158

 

 

 

$

3,981,200

 

 

 

$

3,986,573

 

Service revenues

 

 

 

218,988

 

 

 

221,619

 

 

 

655,148

 

 

 

705,579

 

Other

 

 

 

53,324

 

 

 

74,328

 

 

 

160,520

 

 

 

222,288

 

Total net sales

 

 

 

1,622,641

 

 

 

1,648,105

 

 

 

4,796,868

 

 

 

4,914,440

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 

1,228,624

 

 

 

1,276,966

 

 

 

3,583,456

 

 

 

3,742,792

 

Services

 

 

 

198,276

 

 

 

211,914

 

 

 

595,265

 

 

 

653,006

 

Other

 

 

 

34,798

 

 

 

58,272

 

 

 

134,189

 

 

 

175,373

 

Total cost of sales and operating expenses

 

 

 

1,461,698

 

 

 

1,547,152

 

 

 

4,312,910

 

 

 

4,571,171

 

Gross income

 

 

 

160,943

 

 

 

100,953

 

 

 

483,958

 

 

 

343,269

 

Selling, general and administrative expenses

 

 

 

64,857

 

 

 

67,183

 

 

 

188,330

 

 

 

192,492

 

Operating income

 

 

 

96,086

 

 

 

33,770

 

 

 

295,628

 

 

 

150,777

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(8,408)

 

 

 

(2,568)

 

 

 

(17,084)

 

 

 

(7,330)

 

Interest income

 

 

 

2,344

 

 

 

2,171

 

 

 

11,148

 

 

 

10,529

 

Interest income from affiliates

 

 

 

6,775

 

 

 

5,476

 

 

 

20,011

 

 

 

17,001

 

Income (loss) from affiliates

 

 

 

9,492

 

 

 

(4,989)

 

 

 

23,939

 

 

 

(12,386)

 

Other investment income (loss), net

 

 

 

(2,990)

 

 

 

3,020

 

 

 

370

 

 

 

3,274

 

Foreign currency losses, net

 

 

 

(530)

 

 

 

(180)

 

 

 

(9,217)

 

 

 

(1,460)

 

Gain on sale of controlling interest in subsidiary

 

 

 

64,392

 

 

 

-

 

 

 

64,392

 

 

 

-

 

Miscellaneous, net

 

 

 

655

 

 

 

59

 

 

 

(1,598)

 

 

 

4,751

 

Total other income, net

 

 

 

71,730

 

 

 

2,989

 

 

 

91,961

 

 

 

14,379

 

Earnings before income taxes

 

 

 

167,816

 

 

 

36,759

 

 

 

387,589

 

 

 

165,156

 

Income tax expense

 

 

 

(63,536)

 

 

 

(5,394)

 

 

 

(140,421)

 

 

 

(36,008)

 

Net earnings

 

 

 

$

104,280

 

 

 

$

31,365

 

 

 

$

247,168

 

 

 

$

129,148

 

Less: Net loss (income) attributable to noncontrolling interests

 

 

 

469

 

 

 

(396)

 

 

 

(576)

 

 

 

(1,178)

 

Net earnings attributable to Seaboard

 

 

 

$

104,749

 

 

 

$

30,969

 

 

 

$

246,592

 

 

 

$

127,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 $

89.49

 

 

 

 $

25.99

 

 

 

 $

208.76

 

 

 

 $

107.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $1,506, $4,012, $11,894 and $9,552:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(3,120)

 

 

 

(14,067)

 

 

 

(32,685)

 

 

 

(26,888)

 

Unrealized gain (loss) on investments

 

 

 

(105)

 

 

 

227

 

 

 

919

 

 

 

(1,481)

 

Unrealized gain on cash flow hedges

 

 

 

149

 

 

 

-

 

 

 

235

 

 

 

-

 

Unrecognized pension cost

 

 

 

320

 

 

 

1,192

 

 

 

960

 

 

 

4,929

 

Other comprehensive loss, net of tax

 

 

 

$

(2,756)

 

 

 

$

(12,648)

 

 

 

$

(30,571)

 

 

 

$

(23,440)

 

Comprehensive income

 

 

 

101,524

 

 

 

18,717

 

 

 

216,597

 

 

 

105,708

 

Less: Comprehensive loss (income) attributable to noncontrolling interests

 

 

 

476

 

 

 

(398)

 

 

 

(568)

 

 

 

(1,217)

 

Comprehensive income attributable to Seaboard

 

 

 

$

102,000

 

 

 

$

18,319

 

 

 

$

216,029

 

 

 

$

104,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

 

1,170,550

 

 

 

1,191,744

 

 

 

1,181,217

 

 

 

1,195,006

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars)

(Unaudited)

 

 

 

September 27,

 

December 31,

 

 

 

2014

 

2013

 

Assets

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

56,033

 

$

55,055

 

Short-term investments

 

362,965

 

290,649

 

Receivables, net of allowance

 

535,013

 

651,404

 

Inventories

 

733,640

 

698,998

 

Deferred income taxes

 

27,642

 

23,449

 

Other current assets

 

128,651

 

134,394

 

Total current assets

 

1,843,944

 

1,853,949

 

Net property, plant and equipment

 

846,178

 

863,573

 

Investments in and advances to affiliates

 

522,071

 

406,900

 

Notes receivable from affiliates

 

194,244

 

180,386

 

Goodwill

 

14,846

 

43,218

 

Other intangible assets, net

 

4,060

 

18,997

 

Other assets

 

44,726

 

51,025

 

Total assets

 

$

3,470,069

 

$

3,418,048

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

 

 

Notes payable to banks

 

$

28,834

 

$

67,699

 

Current maturities of long-term debt

 

-

 

11,697

 

Accounts payable

 

165,882

 

200,242

 

Deferred revenue

 

72,471

 

46,192

 

Other current liabilities

 

301,035

 

289,497

 

Total current liabilities

 

568,222

 

615,327

 

Long-term debt, less current maturities

 

-

 

80,480

 

Deferred income taxes

 

81,276

 

73,336

 

Other liabilities and deferred credits

 

177,992

 

168,935

 

Total non-current liabilities

 

259,268

 

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

 

(212,368

)

(181,797

)

Retained earnings

 

2,848,686

 

2,655,857

 

Total Seaboard stockholders’ equity

 

2,637,489

 

2,475,249

 

Noncontrolling interests

 

5,090

 

4,721

 

Total equity

 

2,642,579

 

2,479,970

 

Total liabilities and stockholders’ equity

 

$

3,470,069

 

$

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)

 

 

 

Nine Months Ended

 

 

 

September 27,

 

September 28,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

247,168

 

$

129,148

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

69,322

 

70,182

 

Gain from sale of fixed assets

 

(1,631

)

(2,856

)

Gain from sale of power generating facility assets

 

(4,953

)

-

 

Deferred income taxes

 

14,690

 

15,702

 

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

 

(11,511

)

(9,828

)

Loss (income) from affiliates

 

(23,939

)

12,386

 

Dividends received from affiliates

 

1,823

 

11,129

 

Other investment income, net

 

(370

)

(3,274

)

Gain on sale of controlling interest in a subsidiary

 

(64,392

)

-

 

Other, net

 

(735

)

806

 

Changes in assets and liabilities:

 

 

 

 

 

Receivables, net of allowance

 

89,718

 

(70,669

)

Inventories

 

(74,971

)

(40,739

)

Other current assets

 

3,781

 

(12,579

)

Current liabilities, exclusive of debt

 

22,016

 

(95,233

)

Other, net

 

17,250

 

857

 

Net cash from operating activities

 

283,266

 

5,032

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of short-term investments

 

(922,902

)

(480,085

)

Proceeds from the sale of short-term investments

 

842,294

 

540,456

 

Proceeds from the maturity of short-term investments

 

5,794

 

4,270

 

Principal payments received on notes receivable

 

1,684

 

14,425

 

Capital expenditures

 

(94,665

)

(110,943

)

Proceeds from the sale of fixed assets

 

2,639

 

10,552

 

Proceeds from the sale of power generating facility assets

 

7,715

 

-

 

Investments in and advances to affiliates, net

 

(22,083

)

(37,751

)

Long-term notes receivable issued to affiliates

 

-

 

(17,224

)

Principal payments received on long-term notes receivable from affiliates

 

-

 

81,272

 

Purchase of long-term investments

 

(2,333

)

(4,032

)

Proceeds from the sale of controlling interest in a subsidiary

 

72,500

 

-

 

Other, net

 

1,073

 

(316

)

Net cash from investing activities

 

(108,284

)

624

 

Cash flows from financing activities:

 

 

 

 

 

Notes payable to banks, net

 

(31,815

)

27,020

 

Principal payments of long-term debt

 

(91,403

)

(29,909

)

Repurchase of common stock

 

(53,781

)

(17,349

)

Other, net

 

(48

)

(1,096

)

Net cash from financing activities

 

(177,047

)

(21,334

)

Effect of exchange rate change on cash

 

3,043

 

(220

)

Net change in cash and cash equivalents

 

978

 

(15,898

)

Cash and cash equivalents at beginning of year

 

55,055

 

47,651

 

Cash and cash equivalents at end of period

 

$

56,033

 

$

31,753

 

 

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, income taxes and accrued pension liability.  Actual results could differ from those estimates.

 

Supplemental Non-Cash Transactions

As more fully described in Note 9, as of September 27, 2014 Seaboard’s Pork segment sold to Triumph Foods LLC (Triumph) a 50% interest in its processed meats division, Daily’s Premium Meats (Daily’s).  As a result, Seaboard deconsolidated Daily’s from its Condensed Consolidated Balance Sheet as of September 27, 2014.  The following table summarizes the non-cash transactions resulting from this deconsolidation:

 

 

(Thousands of dollars)

 

September 27, 2014

Decrease in net working capital

 

          $

19,349

 

Increase in investment in and advances to affiliates

 

(72,500

)

Decrease in fixed assets

 

16,038

 

Decrease in goodwill

 

28,372

 

Decrease in other intangible assets, net (not subject to amortization)

 

17,000

 

Decrease in noncontrolling interest

 

(151

)

Gain on sale of controlling interest in subsidiary

 

64,392

 

Net proceeds from sale of controlling interest in subsidiary

 

          $

72,500

 

 

 

 

 

 

 

Seaboard has notes receivable from affiliates which accrue pay-in-kind interest income, primarily from one affiliate as discussed in Note 9. Seaboard recognized $3,976,000 and $11,511,000, respectively, of non-cash, pay-in-kind interest income and accretion of discount for the three and nine months ended September 27, 2014 and $3,397,000 and $9,828,000, respectively, for the three and nine months ended September 28, 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

 

5



 

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 September 27, 2014 and December 31, 2013, amortized cost and estimated fair value were not materially different for these investments. At September 27, 2014, money market funds included $4,875,000 denominated in Canadian dollars.

 

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 September 27, 2014 and December 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Thousands of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 $

62,965

 

$

62,965

 

$

88,430

 

$

88,430

 

Corporate bonds

 

10,389

 

10,439

 

69,591

 

70,258

 

U.S. Government agency securities

 

10,376

 

10,355

 

27,299

 

27,147

 

Asset backed debt securities

 

2,224

 

2,244

 

8,446

 

8,477

 

Collateralized mortgage obligations

 

1,192

 

1,214

 

7,597

 

7,600

 

U.S. Treasury securities

 

521

 

521

 

5,258

 

5,223

 

Emerging markets debt mutual fund

 

-

 

-

 

17,693

 

16,941

 

Total available-for-sale short-term investments

 

87,667

 

87,738

 

224,314

 

224,076

 

High yield trading debt securities

 

191,459

 

188,645

 

49,352

 

50,428

 

Equity mutual fund

 

65,088

 

65,050

 

-

 

-

 

Domestic equity ETF

 

14,877

 

15,203

 

-

 

-

 

Emerging markets trading debt mutual fund

 

3,309

 

2,849

 

3,202

 

2,858

 

Emerging markets trading debt securities

 

1,678

 

1,660

 

1,300

 

1,336

 

Money market funds held in trading accounts

 

390

 

390

 

11,033

 

11,033

 

Other trading investments

 

1,435

 

1,430

 

841

 

918

 

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

 

 $

365,903

 

$

362,965

 

$

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 September 27, 2014.

 

 

(Thousands of dollars)

 

 

2014

 

Due within one year

 

$

815

 

Due after one year through three years

 

8,374

 

Due after three years

 

11,229

 

 

 

 

 

Total fixed rate securities

 

$

20,418

 

 

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 September 27, 2014 and December 31, 2013:

 

 

 

September 27,

 

December 31,

(Thousands of dollars)

 

 

2014

 

 

 

2013

 

At lower of LIFO cost or market:

 

 

 

 

 

 

 

 

Live hogs and materials

 

 

$

202,802

 

 

 

$

207,310

 

Fresh pork and materials

 

 

34,199

 

 

 

33,485

 

 

 

 

237,001

 

 

 

240,795

 

LIFO adjustment

 

 

(42,880

)

 

 

(62,236

)

Total inventories at lower of LIFO cost or market

 

 

194,121

 

 

 

178,559

 

At lower of FIFO cost or market:

 

 

 

 

 

 

 

 

Grains, oilseeds and other commodities

 

 

354,653

 

 

 

299,229

 

Sugar produced and in process

 

 

45,570

 

 

 

53,325

 

Other

 

 

54,003

 

 

 

74,289

 

Total inventories at lower of FIFO cost or market

 

 

454,226

 

 

 

426,843

 

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

 

 

85,293

 

 

 

93,596

 

Total inventories

 

 

$

733,640

 

 

 

$

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) examination of Seaboard’s 2010 U.S. income tax return has been finalized.  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 nine months ended September 27, 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 September 27, 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 nine months of 2014.  The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

 

 

 

 

 

 

 

 

September 27,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2014

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Money market funds

 

 $

62,965

 

  $

62,965

 

  $

-

 

$

 

Corporate bonds

 

10,439

 

-

 

10,439

 

 

U.S. Government agency securities

 

10,355

 

-

 

10,355

 

 

Asset backed debt securities

 

2,244

 

-

 

2,244

 

 

Collateralized mortgage obligations

 

1,214

 

-

 

1,214

 

 

U.S. Treasury securities

 

521

 

-

 

521

 

 

Trading securities - short-term investments:

 

 

 

 

 

 

 

 

 

High yield debt securities

 

188,645

 

-

 

188,645

 

 

Equity mutual fund

 

65,050

 

65,050

 

-

 

 

Domestic equity ETF

 

15,203

 

15,203

 

-

 

 

Emerging markets trading debt mutual fund

 

2,849

 

2,849

 

-

 

 

Emerging markets trading debt securities

 

1,660

 

-

 

1,660

 

 

Money market funds held in trading accounts

 

390

 

390

 

-

 

 

Other trading investments

 

1,430

 

-

 

1,430

 

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

29,632

 

29,632

 

-

 

 

Foreign equity securities

 

8,018

 

8,018

 

-

 

 

Fixed income mutual funds

 

4,362

 

4,362

 

-

 

 

Money market funds

 

2,727

 

2,727

 

-

 

 

Other

 

1,357

 

616

 

741

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

20,394

 

20,394

 

-

 

 

Interest rate swaps

 

-

 

-

 

-

 

 

Foreign currencies

 

4,674

 

-

 

4,674

 

 

Total Assets

 

 $

434,129

 

  $

212,206

 

  $

221,923

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

 $

16,083

 

  $

15,974

 

  $

109

 

$

 

Interest rate swaps

 

5,766

 

-

 

5,766

 

 

Foreign currencies

 

218

 

-

 

218

 

 

Total Liabilities

 

 $

22,067

 

  $

15,974

 

  $

6,093

 

$

 

 

(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 September 27, 2014, the commodity derivatives had a margin account balance of $13,006,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $17,426,000 and an other current liability of $109,000.

 

 

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 September 27, 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

 

$      87,667

 

$    87,738

 

$      224,314

 

$    224,076

 

 

 

 

 

 

 

 

 

 

 

 Short-term investments, trading securities

 

278,236

 

275,227

 

65,728

 

66,573

 

 

 

 

 

 

 

 

 

 

 

 Long-term debt

 

-

 

-

 

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 September 27, 2014, Seaboard had open net derivative contracts to purchase 37,980,000 pounds of soybean oil, 466,000 pounds of sugar and 44,000 pounds of dry whey powder and open net derivative contracts to sell 23,200,000 pounds of hogs, 9,427,000 bushels of grain, 5,838,000 gallons of heating oil and 48,000 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 September 27, 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 $88,295,000 and $127,389,000, respectively, primarily related to the South African Rand.

 

Interest Rate Exchange Agreements

 

During 2014, Seaboard put into place four, approximately eight-year interest rate exchange agreements with mandatory early termination dates in the second half of 2014 and early 2015 for one of the agreements. Two of these agreements have since been terminated that had mandatory early termination dates in the second half of 2014.  Payments made by Seaboard to unwind these agreements were not material. Also in the second half of 2014, Seaboard entered into two new interest rate exchange agreements to replace the two that were terminated as noted above, each with a mandatory early termination date in early 2015 and similar terms as the interest rate exchange agreements terminated. These four exchange agreements, still outstanding as of September 27, 2014, 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

 

10



 

miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income. At September 27, 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.

 

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 September 27, 2014, Seaboard’s foreign currency exchange agreements have a maximum amount of loss due to credit risk in the amount of $4,674,000 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 nine months ended September 27, 2014 and September 28, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 (Thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities

 

Cost of sales

 

$

(296

)

$

(8,790

)

$

3,082

 

$

(7,731)

 

Foreign currencies

 

Cost of sales

 

1,957

 

1,528

 

4,770

 

15,027

 

Foreign currencies

 

Foreign currency

 

3,145

 

(926

)

2,725

 

4,961

 

Interest rate

 

Miscellaneous, net

 

91

 

(570

)

(3,804

)

2,864

 

 

The following table provides the fair value of each type of derivative held as of September 27, 2014 and December 31, 2013 and where each derivative is included on the Condensed Consolidated Balance Sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (Thousands of dollars)

 

 

Asset Derivatives

 

 

 

Liability Derivatives

 

 

 

 

September 27,

 

December 31,

 

 

 

September 27,

 

December 31,

 

 

 

 

2014

 

2013

 

 

 

2014

 

2013

 

Commodities(1)

Other current assets

 

$ 20,394

 

$   2,331

 

Other current liabilities

 

$   16,083

 

$   16,014

 

Foreign currencies

Other current assets

 

4,674

 

2,763

 

Other current liabilities

 

218

 

101

 

Interest rate

Other current assets

 

-

 

-

 

Other current liabilities

 

5,766

 

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 September 27, 2014 and December 31, 2013, the commodity derivatives had a margin account balance of $13,006,000 and $29,822,000, respectively, resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $17,426,000 and $16,731,000, respectively and other current liabilities of $109,000 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.

 

11



 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$     1,924

 

 

$  2,342

 

 

$  5,784

 

 

$  7,026

 

 

Interest cost

 

2,404

 

 

2,028

 

 

7,225

 

 

6,131

 

 

Expected return on plan assets

 

(2,173

)

 

(1,615

)

 

(6,537

)

 

(4,841

)

 

Amortization and other

 

524

 

 

1,565

 

 

1,575

 

 

4,744

 

 

Agreement termination gain

 

-

 

 

-

 

 

-

 

 

(3,204

)

 

Net periodic benefit cost

 

$     2,679

 

 

$  4,320

 

 

$  8,047

 

 

$  9,856

 

 

 

 

 

 

 

 

 

 

 

 

 

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 – Notes Payable, Long-Term Debt, Commitments and Contingencies

 

On October 24, 2014, Seaboard entered into a Credit Agreement for a committed line of credit totaling $50,000,000 related to a foreign subsidiary for the Commodity Trading and Milling segment.  This credit facility matures October 23, 2015 and does not change existing debt covenants.

 

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 was made on August 29, 2014.  At that time, Seaboard paid a $3,760,000 fee for early payment which was charged to interest expense 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, previously advised Seaboard that it intended to close its investigation and that no charges would be brought against Seaboard.  However, discussions with the USAO continue regarding the status of the investigation and the possibility of proceedings by the USAO, 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 any agencies will continue to pursue an investigation or 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 September 27, 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.

 

12



 

As of September 27, 2014, Seaboard’s borrowing capacity under its uncommitted lines was reduced by letters of credit totaling $1,386,000.  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 September 27, 2014, $50,846,000 remained available for repurchases under the share repurchase program.  For the nine months ended September 27, 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 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

 

Nine Months Ended

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

Foreign currency translation adjustment

 

$   (3,120

)

 

$   (14,067

)

 

$   (32,685

)

 

$   (26,888

)

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss)

 

274

 

 

376

 

 

842

 

 

(933

)

 

Amounts reclassified from OCL to net earnings

 

(379

)

(1)

(149

)

(1)

77

 

(1)

(548

)

(1)

Unrealized gain (loss) on investments

 

(105

)

 

227

 

 

919

 

 

(1,481

)

 

Unrealized gain on cash flow hedges

 

149

 

 

-

 

 

235

 

 

-

 

 

Pension cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain

 

-

 

 

-

 

 

-

 

 

1,310

 

 

Amounts reclassified from OCL to net earnings

 

320

 

(2)

1,192

 

(2)

960

 

(2)

3,619

 

(2)

Unrecognized pension cost

 

320

 

 

1,192

 

 

960

 

 

4,929

 

 

Other Comprehensive Loss, Net of Tax

 

$   (2,756

)

 

$   (12,648

)

 

$   (30,571

)

 

$   (23,440

)

 

 

(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.

 

13



 

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

 

 

 

 

 

 

 

 

 

September 27,

 

December 31,

 

 (Thousands of dollars)

 

2014

 

2013

 

 Cumulative Foreign Currency Translation Adjustment:

 

$  (188,098

)

$  (155,413

)

 Unrealized Gain on Investments:

 

1,400

 

481

 

 Unrealized Gain (Loss) on Cash Flow Hedges:

 

122

 

(113

)

 Unrecognized Pension Cost:

 

(25,792

)

(26,752

)

 Total Accumulated Other Comprehensive Loss

 

$  (212,368

)

$  (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 September 27, 2014, the Sugar segment had $122,145,000 in net assets denominated in Argentine pesos and $2,556,000 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 September 27, 2014 and September 28, 2013, income taxes for cumulative foreign currency translation adjustments were recorded using a 35% effective tax rate except for $50,801,000 and $10,514,000, respectively, related to certain subsidiaries for which no tax benefit was recorded. At September 27, 2014 and September 28, 2013, income taxes for all other components of accumulated other comprehensive loss were recorded using a 39% effective rate except for unrecognized pension cost of $8,415,000 and $19,954,000, respectively, related to employees at certain subsidiaries for which no tax benefit has been recorded.

 

Note 9 - Segment Information

 

As of September 27, 2014, Seaboard’s Pork segment sold to Triumph a 50% interest in Daily’s for cash proceeds of $72,500,000 plus a receivable of $1,720,000 for preliminary working capital adjustments, resulting in a gain on sale of controlling interest in subsidiary of $64,392,000 ($39,279,000 net of taxes, or $33.56 per share) in the third quarter of 2014.  The final sale price is subject to agreement on the final working capital adjustments but any such remaining adjustment is not anticipated to be significant.  Daily’s produces and markets raw and pre-cooked bacon, ham and sausage and has two further processing plants located in Salt Lake City, Utah and Missoula, Montana.  The Pork segment currently has a business relationship with Triumph under which Seaboard markets substantially all of the pork products produced at Triumph’s plant in St. Joseph, Missouri.  Through September 27, 2014, Seaboard consolidated the operating results of Daily’s as part of its Pork segment operations. As a result of this transaction, Seaboard deconsolidated Daily’s from its Condensed Consolidated Balance Sheet as of September 27, 2014 (see Note 1, Supplemental Non-Cash Transactions, for details of the impact on the Condensed Consolidated Balance Sheet from this deconsolidation).  Seaboard’s remaining 50% investment in Daily’s will be accounted for in the Pork segment by using the equity method of accounting.  Based on the cash consideration received for this transaction and preliminary third party valuations for fixed assets and certain intangible assets, it was determined the fair value of Seaboard’s remaining 50% investment in Daily’s exceeded book value by $31,336,000, which is included in the gain on sale above, for a total fair value of $72,500,000.  In addition, both Seaboard and Triumph contributed $2,000,000 each to Daily’s as additional equity to provide Daily’s with additional working capital resulting in a total investment in affiliate of $74,500,000 related to Daily’s for Seaboard as of September 27, 2014.  Pro forma results of operations are not presented as the effects of deconsolidation are not material to Seaboard’s results of operations, primarily as Seaboard supplies raw product to Daily’s.  Triumph also supplies raw product to Daily’s.  It is expected that both Seaboard and Triumph will continue to sell raw product to Daily’s.

 

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.

 

14



 

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.  In addition, the bakery has been incurring operating losses since it began operations as it continues to resolve equipment problems and attempt to gain market share.  As of September 27, 2014, the recorded balance of this Note Receivable from Affiliates was $34,556,000 and Seaboard’s equity investment in this bakery was $11,869,000.  If the current operating results of this bakery do not improve in the future, there is a possibility that some of the recorded value of the Note Receivable from Affiliate could be deemed uncollectible or there could be a decline in value deemed other than temporary for the related equity investment, or both, during some future period which may result in a material charge to earnings.  Including this investment, as of September 27, 2014 Seaboard had a total of $71,593,000 of investments in, advances to and notes receivable from all of its affiliates in the Democratic Republic of Congo, which represents the single largest foreign country risk exposure for Seaboard’s equity method investments.  One of the other affiliates, to which Seaboard sells wheat, is the only supplier of flour to this bakery.

 

On September 24, 2014, Seaboard invested $17,333,000 in a cargo terminal business in Jamaica for a 21% non-controlling interest. This investment will be accounted for in the Marine segment using the equity method reported on a three-month lag basis and thus Seaboard’s first proportionate share of earnings will not be recognized until the first quarter of 2015.

 

The Power segment had 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 ceased operations of the leased facility on September 3, 2014.  Seaboard had previously sold this facility to the current owner in 2011.  In conjunction with ceasing operations, Seaboard sold inventory related to these operations, the sale of which had been deferred until the end of the lease term.  In addition, $1,500,000 of the original sale price for this facility, which remained in escrow as security for the lease, was paid to Seaboard.  Finalization of the transfer of the leased facility to the owner and related settlement of all items occurred on September 18, 2014.  As a result, Seaboard recognized a $4,953,000 gain from sale of assets in operating income related to these items in the third quarter of 2014.

 

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 nine months ended September 27, 2014 of $486,971,000 and $1,218,402,000, respectively, compared to total net sales for the three and nine months ended September 28, 2013 of $444,787,000 and $1,169,301,000, respectively. Butterball had operating income for the three and nine months ended September 27, 2014 of $35,881,000 and $85,311,000, respectively, compared to operating income (loss) for the three and nine months ended September 28, 2013 of $1,282,000 and $(3,238,000), respectively.  In the first and third quarters 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 $(1,155,000) and $(3,859,000) recognized in loss from affiliates, for the three and nine months ended September 28, 2013, respectively.  This facility was sold in the second quarter of 2014 for approximately the remaining net book value. As of September 27, 2014 and December 31, 2013, the Turkey segment had total assets of $1,073,196,000 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 $137,105,000 as of September 27, 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.

 

15



 

Sales to External Customers:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

454,927

 

$

435,981

 

$

1,303,752

 

$

1,262,083

 

Commodity Trading and Milling

 

858,497

 

857,994

 

2,562,001

 

2,553,510

 

Marine

 

205,260

 

219,466

 

616,684

 

676,347

 

Sugar

 

47,786

 

58,500

 

145,128

 

192,554

 

Power

 

51,622

 

73,607

 

158,503

 

221,386

 

All Other

 

4,549

 

2,557

 

10,800

 

8,560

 

Segment/Consolidated Totals

 

$

1,622,641

 

$

1,648,105

 

$

4,796,868

 

$

4,914,440

 

 

Operating Income (Loss):

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

70,400

 

$

34,099

 

$

241,090

 

$

89,997

 

Commodity Trading and Milling

 

13,309

 

8,808

 

43,502

 

29,746

 

Marine

 

(4,564

)

(15,033

)

(15,013

)

(22,413

)

Sugar

 

6,280

 

193

 

22,695

 

28,312

 

Power

 

15,044

 

13,429

 

19,489

 

41,405

 

All Other

 

531

 

216

 

860

 

354

 

Segment Totals

 

101,000

 

41,712

 

312,623

 

167,401

 

Corporate Items

 

(4,914

)

(7,942

)

(16,995

)

(16,624

)

Consolidated Totals

 

$

96,086

 

$

33,770

 

$

295,628

 

$

150,777

 

 

Income (Loss) from Affiliates:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

(Thousands of dollars)

 

2014

 

2013

 

2014

 

2013