XASE:SEB Seaboard Corporation Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

SEB Fair Value Estimate
Premium
SEB Consider Buying
Premium
SEB Consider Selling
Premium
SEB Fair Value Uncertainty
Premium
SEB Economic Moat
Premium
SEB Stewardship
Premium
 

 

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 30, 2012

 

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   No ___

 

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

 

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

 

Large Accelerated Filer [ 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 1,202,122 shares of common stock, $1.00 par value per share, outstanding on July 27, 2012.

 

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 30,

 

 

 

July 2,

 

 

 

 

June 30,

 

 

 

July 2,

 

 

 

 

 

2012

 

 

 

2011

 

 

 

 

2012

 

 

 

2011

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes sales to affiliates of $194,836, $189,807, $363,184 and $352,075)

 

 

 

$

1,194,991

 

 

 

$

1,128,574

 

 

 

 

$

2,385,813

 

 

 

$

2,326,196

 

Services

 

 

 

248,354

 

 

 

245,343

 

 

 

 

493,109

 

 

 

483,555

 

Other

 

 

 

67,248

 

 

 

24,670

 

 

 

 

102,784

 

 

 

57,015

 

Total net sales

 

 

 

1,510,593

 

 

 

1,398,587

 

 

 

 

2,981,706

 

 

 

2,866,766

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 

1,108,998

 

 

 

1,003,292

 

 

 

 

2,176,963

 

 

 

2,053,089

 

Services

 

 

 

226,407

 

 

 

235,274

 

 

 

 

446,924

 

 

 

441,492

 

Gain on sale of power generating facilities

 

 

 

-

 

 

 

(51,423

)

 

 

 

-

 

 

 

(51,423

)

Other

 

 

 

54,622

 

 

 

21,020

 

 

 

 

82,659

 

 

 

48,078

 

Total cost of sales and operating expenses

 

 

 

1,390,027

 

 

 

1,208,163

 

 

 

 

2,706,546

 

 

 

2,491,236

 

Gross income

 

 

 

120,566

 

 

 

190,424

 

 

 

 

275,160

 

 

 

375,530

 

Selling, general and administrative expenses

 

 

 

59,843

 

 

 

53,459

 

 

 

 

121,081

 

 

 

108,289

 

Operating income

 

 

 

60,723

 

 

 

136,965

 

 

 

 

154,079

 

 

 

267,241

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(3,231

)

 

 

(1,506

)

 

 

 

(4,938

)

 

 

(3,022

)

Interest income

 

 

 

3,044

 

 

 

2,047

 

 

 

 

5,163

 

 

 

4,344

 

Interest income from affiliates

 

 

 

5,033

 

 

 

4,014

 

 

 

 

10,250

 

 

 

7,847

 

Income from affiliates

 

 

 

9,816

 

 

 

5,365

 

 

 

 

19,385

 

 

 

11,527

 

Other investment income (loss), net

 

 

 

(969

)

 

 

286

 

 

 

 

2,490

 

 

 

2,626

 

Foreign currency gain (loss), net

 

 

 

(3,849

)

 

 

2,381

 

 

 

 

(585

)

 

 

7,145

 

Miscellaneous, net

 

 

 

(4,005

)

 

 

(2,952

)

 

 

 

(2,656

)

 

 

(2,164

)

Total other income, net

 

 

 

5,839

 

 

 

9,635

 

 

 

 

29,109

 

 

 

28,303

 

Earnings before income taxes

 

 

 

66,562

 

 

 

146,600

 

 

 

 

183,188

 

 

 

295,544

 

Income tax expense

 

 

 

(16,870

)

 

 

(33,236

)

 

 

 

(51,496

)

 

 

(65,487

)

Net earnings

 

 

 

$

49,692

 

 

 

$

113,364

 

 

 

 

$

131,692

 

 

 

$

230,057

 

Less: Net loss attributable to noncontrolling interests

 

 

 

405

 

 

 

122

 

 

 

 

614

 

 

 

293

 

Net earnings attributable to Seaboard

 

 

 

$

50,097

 

 

 

$

113,486

 

 

 

 

$

132,306

 

 

 

$

230,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

41.58

 

 

 

$

93.34

 

 

 

 

$

109.63

 

 

 

$

189.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $1,752, $114, $2,565 and $409:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(3,601

)

 

 

(998

)

 

 

 

(3,141

)

 

 

(1,591

)

Unrealized gain (loss) on investments

 

 

 

(313

)

 

 

704

 

 

 

 

1,171

 

 

 

803

 

Unrealized loss on cash flow hedges

 

 

 

-

 

 

 

-

 

 

 

 

(91

)

 

 

-

 

Unrecognized pension cost

 

 

 

2,243

 

 

 

730

 

 

 

 

3,320

 

 

 

1,071

 

Other comprehensive income (loss), net of tax

 

 

 

$

(1,671

)

 

 

$

436

 

 

 

 

$

1,259

 

 

 

$

283

 

Comprehensive income

 

 

 

48,021

 

 

 

113,800

 

 

 

 

132,951

 

 

 

230,340

 

Less: Comprehensive loss attributable to noncontrolling interests

 

 

 

422

 

 

 

120

 

 

 

 

575

 

 

 

278

 

Comprehensive income attributable to Seaboard

 

 

 

$

48,443

 

 

 

$

113,920

 

 

 

 

$

133,526

 

 

 

$

230,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

 

1,204,837

 

 

 

1,215,879

 

 

 

 

1,206,871

 

 

 

1,215,879

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars)

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

Assets

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

48,126

 

$

71,510

 

Short-term investments

 

440,037

 

323,256

 

Receivables, net of allowance

 

472,774

 

477,209

 

Inventories

 

606,214

 

644,930

 

Deferred income taxes

 

23,344

 

23,203

 

Other current assets

 

99,576

 

91,934

 

Total current assets

 

1,690,071

 

1,632,042

 

Investments in and advances to affiliates

 

384,071

 

364,840

 

Net property, plant and equipment

 

812,501

 

796,822

 

Notes receivable from affiliate

 

116,096

 

110,903

 

Goodwill

 

43,218

 

40,628

 

Intangible assets, net

 

19,826

 

19,496

 

Other assets

 

44,384

 

41,997

 

Total assets

 

$

3,110,167

 

$

3,006,728

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

 

 

Notes payable to banks

 

$

30,354

 

$

16,219

 

Current maturities of long-term debt

 

44,183

 

40,885

 

Accounts payable

 

146,022

 

151,869

 

Deferred revenue

 

55,381

 

29,147

 

Deferred revenue from affiliates

 

10,079

 

27,806

 

Other current liabilities

 

246,980

 

295,483

 

Total current liabilities

 

532,999

 

561,409

 

Long-term debt, less current maturities

 

139,814

 

116,367

 

Deferred income taxes

 

47,593

 

66,300

 

Other liabilities

 

187,622

 

183,185

 

Total non-current and deferred liabilities

 

375,029

 

365,852

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock of $1 par value,

 

 

 

 

 

Authorized 1,250,000 shares;

 

 

 

 

 

issued and outstanding 1,202,472 and 1,210,597 shares

 

1,202

 

1,211

 

Accumulated other comprehensive loss

 

(154,806

)

(156,065

)

Retained earnings

 

2,350,143

 

2,233,778

 

Total Seaboard stockholders’ equity

 

2,196,539

 

2,078,924

 

Noncontrolling interests

 

5,600

 

543

 

Total equity

 

2,202,139

 

2,079,467

 

Total liabilities and stockholders’ equity

 

$

3,110,167

 

$

3,006,728

 

 

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 30,

 

July 2,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

131,692

 

$

230,057

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

44,333

 

40,417

 

Gain on sale of power generating facilities

 

-

 

(51,423

)

Gain from sale of fixed assets

 

(2,951

)

(503

)

Deferred income taxes

 

(17,689

)

(15,564

)

Pay-in-kind interest and accretion on note receivable from affiliate

 

(5,758

)

(5,142

)

Income from affiliates

 

(19,385

)

(11,527

)

Other investment income, net

 

(2,490

)

(2,626

)

Other

 

3,029

 

1,662

 

Changes in current assets and liabilities, net of business acquired:

 

 

 

 

 

Receivables, net of allowance

 

(15,590

)

(74,689

)

Inventories

 

83,692

 

(91,316

)

Other current assets

 

(1,421

)

65,140

 

Current liabilities, exclusive of debt

 

(64,732

)

(88,516

)

Other, net

 

10,523

 

7,489

 

Net cash from operating activities

 

143,253

 

3,459

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of short-term investments

 

(434,890

)

(99,984

)

Proceeds from the sale of short-term investments

 

300,911

 

101,308

 

Proceeds from the maturity of short-term investments

 

19,993

 

11,973

 

Investments in and advances to affiliates, net

 

(6,791

)

(6,351

)

Capital expenditures

 

(68,056

)

(76,489

)

Proceeds from the sale of fixed assets

 

5,839

 

953

 

Proceeds from the sale of power generating facilities

 

-

 

58,103

 

Principal payments received on long-term notes receivable from affiliate

 

564

 

-

 

Purchase of long-term investments

 

(6,525

)

(308

)

Acquisition of business, net of cash acquired

 

(2,825

)

-

 

Other, net

 

545

 

164

 

Net cash from investing activities

 

(191,235

)

(10,631

)

Cash flows from financing activities:

 

 

 

 

 

Notes payable to banks, net

 

14,135

 

13,251

 

Proceeds from the issuance of long-term debt

 

32,682

 

16,056

 

Principal payments of long-term debt

 

(5,928

)

(195

)

Repurchase of common stock

 

(15,949

)

-

 

Other, net

 

208

 

157

 

Net cash from financing activities

 

25,148

 

29,269

 

Effect of exchange rate change on cash

 

(550

)

1,307

 

Net change in cash and cash equivalents

 

(23,384

)

23,404

 

Cash and cash equivalents at beginning of year

 

71,510

 

41,124

 

Cash and cash equivalents at end of period

 

$

48,126

 

$

64,528

 

 

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, 2011 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

As discussed in Note 9, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for their investment in PS International, LLC with Seaboard’s ownership interest increasing from 50% to 70% as a result of Seaboard’s payment of $3,660,000 in January 2012. Total cash paid, net of cash acquired was $2,825,000 and increased working capital by $14,419,000, fixed assets by $163,000, goodwill by $2,590,000, intangible assets by $621,000, other long-term assets by $96,000, non-controlling interest by $5,649,000 and decreased investment in and advances to affiliates by $9,415,000. See Note 9 for additional information.

 

As discussed in Note 9, Seaboard had a note receivable from an affiliate which accrues pay-in-kind interest income. Seaboard recognized $2,940,000 and $5,758,000, respectively, of non-cash, pay-in-kind interest income and accretion of discount for the three and six months ended June 30, 2012 and $2,621,000 and $5,142,000, respectively, for the three and six months ended July 2, 2011, respectively, related to this note receivable.

 

Recently Adopted Accounting Standards

In May 2011, the Financial Accounting Standards Board (FASB) issued guidance to amend the requirements related to fair value measurement which changed the wording used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Seaboard adopted this guidance on January 1, 2012.  The adoption of this guidance did not have a material impact on Seaboard’s financial position or net earnings.

 

In June 2011, the FASB issued guidance to revise the manner in which entities present comprehensive income in the financial statements.  The new guidance removed the footnote presentation option and required entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements.  Seaboard adopted this guidance in the first quarter of 2012.  The adoption of this guidance did not have an impact on Seaboard’s financial position or net earnings.

 

In September 2011, the FASB issued guidance to allow entities the option of performing a qualitative assessment to test goodwill for impairment.  This guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.  If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill

 

5



 

impairment test.  Otherwise, the two-step goodwill impairment test is not required.  Seaboard adopted this guidance on January 1, 2012. The adoption of this guidance did not have an impact on Seaboard’s financial position or net earnings.

 

In July 2012, the FASB issued guidance to allow entities the option of performing a qualitative assessment to test indefinite-lived intangible assets for impairment.  This guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the intangible asset is less than its carrying value.  If it is concluded that this is the case, it is necessary to calculate the fair value of the intangible asset.  Otherwise, calculating the fair value of the intangible asset is not required.  Early adoption is permitted and Seaboard adopted this guidance on June 30, 2012. The adoption of this guidance did not have an impact on Seaboard’s financial position or net earnings.

 

Note 2– Investments

 

Seaboard’s short-term investments are treated as either available-for-sale securities or trading securities.  All of Seaboard’s available-for-sale and trading securities are classified as current assets as they are readily available to support Seaboard’s current operating needs.  Available-for-sale securities are recorded at their estimated fair 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 30, 2012 and December 31, 2011, amortized cost and estimated fair value were not materially different for these investments.

 

At June 30, 2012, money market deposit accounts included $6,106,000 denominated in Canadian dollars and money market funds included $5,214,000 denominated in Euros.  As of June 30, 2012, the trading securities primarily consisted of high yield debt securities.  Unrealized (losses) gains related to trading securities for the three and six months ended June 30, 2012 were $(135,000) and $656,000, respectively, and $(203,000) and $1,366,000 for the three and six months ended July 2, 2011, respectively.

 

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at June 30, 2012 and December 31, 2011.

 

 

 

   2012

 

2011

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Thousands of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

Corporate bonds

 

$

134,965

 

$

136,258

 

$

88,589

 

$

89,146

 

Money market funds and deposit accounts

 

101,011

 

101,011

 

139,420

 

139,420

 

Enhanced cash mutual fund

 

50,000

 

50,072

 

-

 

-

 

Collateralized mortgage obligations

 

24,859

 

24,944

 

14,915

 

15,011

 

Fixed rate municipal notes and bonds

 

23,553

 

23,592

 

17,718

 

17,788

 

U.S. Government agency securities

 

22,424

 

22,572

 

9,720

 

9,757

 

U.S. Treasury securities

 

20,458

 

20,526

 

4,848

 

4,905

 

Emerging markets debt mutual fund

 

17,693

 

17,035

 

17,693

 

16,399

 

Asset backed debt securities

 

15,499

 

15,514

 

3,533

 

3,533

 

Other

 

680

 

683

 

1,480

 

1,484

 

Total available-for-sale short-term investments

 

411,142

 

412,207

 

297,916

 

297,443

 

High yield trading debt securities

 

21,129

 

22,084

 

20,155

 

20,750

 

Emerging markets trading debt mutual fund

 

2,966

 

2,919

 

2,620

 

2,487

 

Emerging markets trading debt securities

 

2,004

 

2,073

 

2,444

 

2,355

 

Other trading debt securities

 

684

 

754

 

218

 

221

 

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

 

$

437,925

 

$

440,037

 

$

323,353

 

$

323,256

 

 

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 30, 2012.

 

6



 

 

 

 

 

(Thousands of dollars)

 

2012

 

 

 

 

 

Due within one year

 

$

44,983

 

Due after one year through three years

 

88,072

 

Due after three years

 

67,516

 

Total fixed rate securities

 

$

200,571

 

 

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.

 

Note 3 – Inventories

 

The following is a summary of inventories at June 30, 2012 and December 31, 2011:

 

 

 

June 30,

 

December 31,

(Thousands of dollars)

 

2012

 

2011

At lower of LIFO cost or market:

 

 

 

 

 

Live hogs and materials

 

$

225,877

 

$

228,624

 

Fresh pork and materials

 

29,777

 

29,426

 

 

 

255,654

 

258,050

 

LIFO adjustment

 

(68,383

)

(57,783

)

Total inventories at lower of LIFO cost or market

 

187,271

 

200,267

 

At lower of FIFO cost or market:

 

 

 

 

 

Grains and oilseeds

 

218,840

 

251,839

 

Sugar produced and in process

 

53,750

 

78,730

 

Other

 

77,093

 

63,449

 

Total inventories at lower of FIFO cost or market

 

349,683

 

394,018

 

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

 

69,260

 

50,645

 

Total inventories

 

$

606,214

 

$

644,930

 

 

Note 4 – Income Taxes

 

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in adjustments.  Seaboard’s 2010 U.S. income tax return is currently under IRS examination.  There have not been any material changes in unrecognized income tax benefits since December 31, 2011.  Interest related to unrecognized tax benefits and penalties was not material for the six months ended June 30, 2012.

 

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 30, 2012 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 2012.  The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2012

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

136,258

 

$

-

 

$

136,258

 

$

  -

 

Money market funds and deposit accounts

 

101,011

 

101,011

 

-

 

-

 

Enhanced cash mutual fund

 

50,072

 

50,072

 

-

 

-

 

Collateralized mortgage obligations

 

24,944

 

-

 

24,944

 

-

 

Fixed rate municipal notes and bonds

 

23,592

 

-

 

23,592

 

-

 

U.S. Government agency securities

 

22,572

 

-

 

22,572

 

-

 

U.S. Treasury securities

 

20,526

 

-

 

20,526

 

-

 

Emerging markets debt mutual fund

 

17,035

 

17,035

 

-

 

-

 

Asset backed debt securities

 

15,514

 

-

 

15,514

 

-

 

Other

 

683

 

-

 

683

 

-

 

Trading securities - short-term investments:

 

 

 

 

 

 

 

 

 

High yield debt securities

 

22,084

 

-

 

22,084

 

-

 

Emerging markets trading debt mutual fund

 

2,919

 

2,919

 

-

 

-

 

Emerging markets trading debt securities

 

2,073

 

-

 

2,073

 

-

 

Other debt securities

 

754

 

-

 

754

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

16,667

 

16,667

 

-

 

-

 

Foreign equity securities

 

6,232

 

3,573

 

2,659

 

-

 

Fixed income mutual funds

 

5,011

 

5,011

 

-

 

-

 

Money market funds

 

3,078

 

3,078

 

-

 

-

 

U.S. Government agency securities

 

2,402

 

-

 

2,402

 

-

 

U.S. Treasury securities

 

1,433

 

-

 

1,433

 

-

 

Corporate bonds

 

62

 

-

 

62

 

-

 

Other

 

276

 

233

 

43

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

11,732

 

11,732

 

-

 

-

 

Foreign currencies

 

647

 

-

 

647

 

-

 

Total Assets

 

$

487,577

 

$

211,331

 

$

276,246

 

$

  -

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

11,917

 

$

11,917

 

$

-

 

$

  -

 

Interest rate swaps

 

13,566

 

-

 

13,566

 

-

 

Foreign currencies

 

1,133

 

-

 

1,133

 

-

 

Total Liabilities

 

$

26,616

 

$

11,917

 

$

14,699

 

$

  -

 

(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 30, 2012, the commodity derivatives had a margin account balance of $8,788,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $8,603,000.

 

8



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and also the level within the fair value hierarchy used to measure each category of assets.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2011

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Money market funds

 

$

139,420

 

$

139,420

 

$

-

 

$

-

 

Corporate bonds

 

89,146

 

-

 

89,146

 

-

 

Fixed rate municipal notes and bonds

 

17,788

 

-

 

17,788

 

-

 

Emerging markets debt mutual fund

 

16,399

 

16,399

 

-

 

-

 

Collateralized mortgage obligations

 

15,011

 

-

 

15,011

 

-

 

U.S. Government agency securities

 

9,757

 

-

 

9,757

 

-

 

U.S. Treasury securities

 

4,905

 

-

 

4,905

 

-

 

Asset backed debt securities

 

3,533

 

-

 

3,533

 

-

 

Other

 

1,484

 

-

 

1,484

 

-

 

Trading securities - short term investments:

 

 

 

 

 

 

 

 

 

High yield debt securities

 

20,750

 

-

 

20,750

 

-

 

Emerging markets trading debt mutual fund

 

2,487

 

2,487

 

-

 

-

 

Emerging markets trading debt securities

 

2,355

 

-

 

2,355

 

-

 

Other debt securities

 

221

 

-

 

221

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

13,563

 

13,563

 

-

 

-

 

Foreign equity securities

 

7,490

 

3,991

 

3,499

 

-

 

Money market funds

 

4,521

 

4,521

 

-

 

-

 

Fixed income mutual funds

 

4,483

 

4,483

 

-

 

-

 

U.S. Government agency securities

 

2,085

 

-

 

2,085

 

-

 

U.S. Treasury securities

 

1,474

 

-

 

1,474

 

-

 

Corporate bonds

 

72

 

-

 

72

 

-

 

Other

 

236

 

159

 

77

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

5,144

 

5,144

 

-

 

-

 

Foreign currencies

 

2,247

 

-

 

2,247

 

-

 

Total Assets

 

$

364,571

 

$

190,167

 

$

174,404

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

5,529

 

$

5,529

 

$

-

 

$

-

 

Interest rate swaps

 

11,268

 

-

 

11,268

 

-

 

Foreign currencies

 

3,380

 

-

 

3,380

 

-

 

Total Liabilities

 

$

20,177

 

$

5,529

 

$

14,648

 

$

-

 

(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, 2011, the commodity derivatives had a margin account balance of $8,619,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $8,234,000.

 

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 30, 2012 and December 31, 2011 are presented below.

 

9



 

 

 

 

 

 

 

 

 

 

 

 

 

  2012

  2011

(Thousands of dollars)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Short-term investments, available-for-sale

 

$

411,142

 

$

412,207

 

$

297,916

 

$

297,443

 

Short-term investments, trading debt securities

 

26,783

 

27,830

 

25,437

 

25,813

 

Long-term debt

 

183,997

 

188,030

 

157,252

 

161,636

 

 

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.  From time to time, Seaboard may enter into speculative derivative transactions not directly related to its raw material requirements.  The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2011.

 

Commodity Instruments

 

Seaboard uses various grain, meal, hog, and energy resource related futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments.  At June 30, 2012, Seaboard had open net derivative contracts to purchase 14,243,000 pounds of sugar and 88,000 pounds of whey powder and open derivative contracts to sell 6,798,000 bushels of grain, 5,580,000 pounds of soybean oil, 3,680,000 pounds of hogs and 140,000 tons of soybean meal.  At December 31, 2011, Seaboard had open net derivative contracts to purchase 23,300 tons of soybean meal, 2,580,000 pounds of soybean oil and 2,280,000 pounds of hogs and open net derivative contracts to sell 10,599,000 bushels of grain and 1,176,000 gallons of heating oil.  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 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 gain (loss) on the Condensed Consolidated Statements of Comprehensive Income.

 

At June 30, 2012 and December 31, 2011, Seaboard had trading foreign exchange contracts to cover its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $91,125,000 and $158,266,000, respectively, primarily related to the South African Rand.

 

Interest Rate Exchange Agreements

 

In May 2010, Seaboard entered into three ten-year interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt.  Seaboard pays a fixed rate and receives a variable rate of interest on three notional amounts of $25,000,000 each.  In August 2010, Seaboard entered into another ten-year interest rate exchange agreement with a notional amount of $25,000,000 that has terms similar to those for the other three interest rate exchange agreements referred to above.  While Seaboard has certain variable rate debt, these interest rate exchange agreements do not qualify as hedges for accounting purposes.  Accordingly, the changes in fair value of these agreements are recorded in Miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income. At June 30, 2012 and December 31, 2011, Seaboard had four interest rate exchange agreements outstanding with a total notional value of $100,000,000.

 

Counterparty Credit Risk

 

Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements and interest rate swaps, should the counterparties fail to perform according to the terms of the contracts.  Seaboard’s foreign

 

10



 

currency exchange agreements have a maximum amount of loss due to credit risk in the amount of $647,000 with four counterparties.  Seaboard does not hold any collateral related to these agreements.

 

The following table provides the amount of gain or (loss) recognized for each type of derivative and where it was recognized in the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and July 2, 2011.

 

(Thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30, 2012

 

July 2, 2011

 

June 30, 2012

 

July 2, 2011

 

 

 

 

 

Amount of

 

Amount of

 

Amount of

 

Amount of

 

 

 

Location of

 

Gain or

 

Gain or

 

Gain or

 

Gain or

 

 

 

Gain or (Loss)

 

(Loss)

 

(Loss)

 

(Loss)

 

(Loss)

 

 

 

Recognized

 

Recognized

 

Recognized

 

Recognized

 

Recognized

 

 

 

in Income

 

in Income

 

in Income

 

in Income

 

in Income

 

Commodities

 

Cost of sales

 

$

(5,699

)

 

$

 6,669

 

 

$

 (8,114

)

 

$

 20,655

 

 

Foreign currencies

 

Cost of sales

 

5,118

 

 

1,956

 

 

(299

)

 

10,743

 

 

Foreign currencies

 

Foreign currency

 

101

 

 

(101

)

 

(3,612

)

 

(237

)

 

Interest rate

 

Miscellaneous, net

 

(4,400

)

 

(3,121

)

 

(3,752

)

 

(2,602

)

 

 

The following table provides the fair value of each type of derivative held as of June 30, 2012 and December 31, 2011 and where each derivative is included on the Condensed Consolidated Balance Sheets.

 

(Thousands of dollars)

Asset Derivatives

 

Liability Derivatives

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

Sheet

 

June 30,

 

December 31,

 

Sheet

 

June 30,

 

December 31,

 

Location

 

2012

 

2011

 

Location

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities

Other current assets

 

$

11,732

(1)

 

$

5,144

 

 

Other current assets

 

$

11,917

(1)

 

$

5,529

 

Foreign currencies

Other current assets

 

647

 

 

2,247

 

 

Other current liabilities

 

1,133

 

 

3,380

 

Interest rate

Other current assets

 

-

 

 

-

 

 

Other current liabilities

 

13,566

 

 

11,268

 

 

(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 30, 2012 and December 31, 2011, the commodity derivatives had a margin account balance of $8,788,000 and $8,619,000, respectively, resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $8,603,000 and $8,234,000, 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 in 2012.  Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees.  Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Thousands of dollars)

 

2012

 

2011

 

2012

 

2011

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,210

 

 

$

1,805

 

$

4,436

 

$

3,732

 

 

Interest cost

 

2,177

 

 

2,249

 

4,435

 

4,543

 

 

Expected return on plan assets

 

(1,617

)

 

(1,684

)

(3,209

)

(3,319

)

 

Amortization and other

 

1,567

 

 

992

 

3,097

 

2,043

 

 

Settlement

 

1,796

 

 

-

 

1,796

 

-

 

 

Net periodic benefit cost

 

$

6,133

 

 

$

3,362

 

$

10,555

 

$

6,999

 

 

 

11



 

During June 2012 when the actual pension costs for 2012 were finalized, it was determined that a settlement payment made in March 2012 was greater than the actual service cost and interest cost components of the 2012 net periodic pension cost for a non-qualified, unfunded supplemental executive plan.  As a result, during the second quarter of 2012 a settlement loss of $1,796,000 was recorded in the Pork division’s results of operations.

 

Note 7 Commitments and Contingencies

 

Seaboard is subject to various legal proceedings related to the normal conduct of its business, including various environmental related actions.  In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the Consolidated Financial Statements of Seaboard.

 

Contingent Obligations

 

Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations.  From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard’s business objectives.  Seaboard does not issue guarantees of third parties for compensation.  As of June 30, 2012, Seaboard had guarantees outstanding to three third parties with a total maximum exposure of $1,131,000.  Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considers the likelihood of loss to be remote.

 

As of June 30, 2012, Seaboard had outstanding letters of credit (“LCs”) with various banks which reduced its borrowing capacity under its committed and uncommitted credit facilities by $78,850,000 and $8,690,000, respectively.  These LCs included $30,469,000 of LCs for supply agreements, $26,385,000 of LCs, which support the Industrial Development Revenue Bonds included as long-term debt and $21,765,000 of LCs related to insurance coverages.

 

Commitments

 

In June 2012, Seaboard entered into an agreement to build four dry bulk vessels to be used by the Commodity Trading and Milling segment at a total cost of approximately $83,000,000. A down payment of $8,300,000 was made in July 2012.  These vessels are expected to be completed in 2014 with the majority of the amount due in 2014.

 

Note 8 – Stockholders’ Equity and Accumulated Other Comprehensive Loss

 

The components of and changes in accumulated other comprehensive loss for the six months ended June 30, 2012 are as follows:

 

 

 

Balance

 

 

 

Balance

 

 

 

December 31,

 

Period

 

June 30,

 

(Thousands of dollars)

 

2011

 

Change

 

2012

 

 

 

 

 

 

 

 

 

Cumulative foreign currency translation adjustment

 

$

(93,669

)

$

(3,141

)

$

(96,810

)

Unrealized gain (loss) on investments

 

(311

)

1,171

 

860

 

Unrealized loss on cash flow hedges

 

-

 

(91

)

(91

)

Unrecognized pension cost

 

(62,085

)

3,320

 

(58,765

)

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

$

(156,065

)

$

1,259

 

$

(154,806

)

 

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 30, 2012, the Sugar segment had $213,777,000 in net assets denominated in Argentine pesos and $1,208,000 in net assets denominated in U.S. dollars.

 

With the exception of the foreign currency translation adjustment to which a 35 percent federal tax rate is applied, income taxes for components of accumulated other comprehensive loss were recorded using a 39 percent effective tax rate.  In addition, the unrecognized pension cost includes $19,898,000 related to employees at certain subsidiaries for which no tax benefit has been recorded.

 

On October 31, 2011, the Board of Directors extended through October 31, 2012 the share repurchase program previously approved on November 6, 2009 and originally set to expire on October 31, 2011.  Under this share repurchase program, Seaboard was originally authorized to repurchase from time to time up to $100,000,000

 

12



 

market value of its Common Stock in open market or privately negotiated purchases which may be above or below the traded market price.  As of June 30, 2012, $44,086,000 remained available for repurchases under this program.  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 repurchase will be funded by cash on hand.  Shares repurchased will be retired and resume the status of authorized and unissued shares.  All stock repurchased will be made in compliance with applicable legal requirements and the timing of the repurchases and the number of shares repurchased at any given time will depend upon market conditions, compliance with Securities and Exchange Commission regulations and other factors.  The Board’s stock repurchase authorization does not obligate Seaboard to acquire a specific amount of common stock and the stock repurchase program may be suspended at any time at Seaboard’s discretion. For the six months ended June 30, 2012, Seaboard repurchased 8,125 shares of common stock at a total cost of $15,949,000.  Also, Seaboard currently does not intend to declare or pay any dividends during 2012 as there was a prepayment of the annual 2011 and 2012 dividends in December 2010.

 

Note 9 - Segment Information

 

In January 2012, Seaboard made a payment of $3,660,000 to increase its ownership interest from 50% to 70% in PS International, LLC (PSI), an international specialty grain trading business headquartered in North Carolina. As a result, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for this investment. The final amount of this payment will be determined during 2012 upon final verification of certain balance sheet items as of December 31, 2011.  Pro forma results of operations are not presented, as the effects of consolidation are not material to Seaboard’s results of operations.

 

In the first quarter of 2011, the Commodity Trading and Milling segment recognized $101,080,000 in net sales related to previously deferred costs and deferred revenues under contracts for which the final sale prices were not fixed and determinable until 2011.

 

On April 8, 2011, Seaboard closed the sale of its two floating power generating facilities in the Dominican Republic. As a result, Seaboard recognized a gain on sale of assets of $51,423,000 in operating income in the second quarter of 2011. In late March 2011, the purchaser entered into discussions with Seaboard to lease one of the facilities to Seaboard for a short period of time.  On April 20, 2011, Seaboard signed a short-term lease agreement that allowed Seaboard to resume operations of one of the facilities (72 megawatts) and operate it through March 31, 2012.  Seaboard and the purchaser also agreed to defer the sale to the purchaser of the inventory related to the leased facility until the end of the lease term.  In late March 2012, this lease was extended to August 31, 2012.  After August 31, 2012, this lease will automatically extend on a month-to-month basis but is cancellable by either party while the purchaser reconsiders its long-term plans for the facility.  Also, as of June 30, 2012, $1,500,000 of the original sale price for this power generating facility remained in escrow for potential dry dock costs and also serves as the lease security deposit for Seaboard’s obligation under the lease.  Seaboard retained all other physical properties of this business and constructed a new 106 megawatt floating power generating facility for use in the Dominican Republic, which began commercial operations in March 2012.  The total project costs capitalized were $136,000,000.

 

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 30, 2012 of $302,423,000 and $604,039,000, respectively, compared to total net sales for the three and six months ended July 2, 2011 of $292,814,000 and $571,271,000, respectively. Butterball had operating income for the three and six months ended June 30, 2012 of $17,767,000 and $41,132,000, respectively, compared to operating income for the three and six months ended July 2, 2011 of $9,233,000 and $14,906,000, respectively.  As of June 30, 2012 and December 31, 2011, the Turkey segment had total assets of $908,269,000 and $819,618,000, respectively.

 

In conjunction with Seaboard’s initial investment in Butterball on December 6, 2010, Seaboard has a long-term note receivable from Butterball which had a balance of $106,451,000 as of June 30, 2012.  Part of the interest earned on this note is pay-in-kind interest, which accumulates and is paid at maturity.  During the third quarter of 2011, Seaboard provided a term loan of $13,037,000 to Butterball to pay off capital leases for certain fixed assets which originally were financed with third parties.  The effective interest rate on the term loan is approximately 12%.  Although the term loan expires on January 31, 2018, Seaboard anticipates that Butterball will pay off the term loan prior to such expiration date as Butterball is expected to sell all of the related assets and is required to remit the proceeds from such sale to Seaboard to repay the loan.  As of June 30, 2012, the balance of the term loan recorded in long-term notes receivable from affiliate was $9,645,000.

 

13



 

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.

 

Sales to External Customers:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Thousands of dollars)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

400,667

 

$

441,423

 

$

801,328

 

$

865,392

 

Commodity Trading and Milling

 

725,076

 

621,007

 

1,449,614

 

1,333,238

 

Marine

 

236,062

 

236,501

 

469,811

 

466,221

 

Sugar

 

77,633

 

72,594

 

151,252

 

139,597

 

Power

 

67,248

 

24,670

 

102,784

 

57,015

 

All Other

 

3,907

 

2,392

 

6,917

 

5,303

 

Segment/Consolidated Totals

 

$

1,510,593

 

$

1,398,587

 

$

2,981,706

 

$

2,866,766

 

 

Operating Income (Loss):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Thousands of dollars)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

20,846

 

$

62,494

 

$

73,719

 

$

142,089

 

Commodity Trading and Milling

 

11,467

 

15,230

 

37,160

 

38,302

 

Marine

 

1,081

 

(11,054

)

1,572

 

(4,032

)

Sugar

 

20,734

 

21,586

 

37,711

 

44,025

 

Power

 

10,654

 

53,057

 

16,474

 

56,606

 

All Other

 

163

 

(329

)

169

 

(631

)

Segment Totals

 

64,945

 

140,984

 

166,805

 

276,359

 

Corporate Items

 

(4,222

)

(4,019

)

(12,726

)

(9,118

)

Consolidated Totals

 

$

60,723

 

$

136,965

 

$

154,079

 

$

267,241

 

 

Income (Loss) from Affiliates:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Thousands of dollars)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Commodity Trading and Milling

 

$

4,305

 

$

4,579

 

$

5,012

 

$

10,398

 

Sugar

 

(61

)

$

(99

)

(62

)

218

 

Turkey

 

5,572

 

885

 

14,435

 

911

 

Segment/Consolidated Totals

 

$

9,816

 

$

5,365

 

$

19,385

 

$

11,527

 

 

14



 

Total Assets:

 

 

 

June 30,

 

December 31,

 

(Thousands of dollars)

 

2012

 

2011

 

 

 

 

 

 

 

Pork

 

$

729,262

 

$

738,574

 

Commodity Trading and Milling

 

740,034

 

755,903

 

Marine

 

261,322

 

261,781

 

Sugar

 

252,857

 

269,564

 

Power

 

247,437

 

165,118

 

Turkey

 

331,907

 

312,164

 

All Other

 

6,534

 

6,257

 

Segment Totals

 

2,569,353

 

2,509,361

 

Corporate Items

 

540,814

 

497,367

 

Consolidated Totals

 

$

3,110,167

 

$

3,006,728

 

 

Investments in and Advances to Affiliates:

 

 

 

June 30,

 

December 31,

 

(Thousands of dollars)

 

2012

 

2011

 

 

 

 

 

 

 

Commodity Trading and Milling

 

$

165,280

 

$

160,402

 

Sugar

 

2,980

 

3,177

 

Turkey

 

215,811

 

201,261

 

Segment/Consolidated Totals

 

$

384,071

 

$

364,840

 

 

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, Net).

 


 

15



 

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 30, 2012 increased $93.4 million to $488.2 million from December 31, 2011.  The increase was primarily the result of $143.3 million in net cash from operating activities and $40.9 million in increased net borrowings. Partially offsetting this increase was cash used for capital expenditures of $68.1 million and repurchase of common stock of $15.9 million.  Cash from operating activities increased $139.8 million for the six months ended June 30, 2012 compared to the same period in 2011, primarily as a result of lower working capital needs in the Commodity Trading and Milling segment for receivables and inventories and also timing of payments for current liabilities.  Partially offsetting this increase was lower net earnings for the six months ended June 30, 2012 compared to the same period in 2011.

 

Acquisitions, Capital Expenditures and Other Investing Activities

During the six months ended June 30, 2012, Seaboard invested $68.1 million in property, plant and equipment, of which $21.5 million was expended in the Pork segment, $12.0 million in the Commodity Trading and Milling segment, $3.3 million in the Marine segment, $12.4 million in the Sugar segment and $18.1 million in the Power segment.  The Pork segment expenditures were primarily for additional finishing barns and improvements to existing facilities and related equipment. The Commodity Trading and Milling segment expenditures were primarily for the purchase of a dry bulk vessel. The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment and port development.  In the Sugar segment, the capital expenditures were primarily for expansion of cane growing operations and normal upgrades to existing operations.  The Power segment expenditures were primarily used for the construction of a 106 megawatt power generating facility for use in the Dominican Republic.  The total cost of the completed project was $136.0 million.  This facility began operations in March 2012.  All other capital expenditures are of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades.

 

For the remainder of 2012, management has budgeted capital expenditures totaling $103.2 million.  The Pork segment plans to spend $39.2 million primarily for improvements to existing facilities and related equipment, a new feed mill and additional finishing barns.  The Commodity Trading and Milling segment has budgeted $15.4 million primarily for a down payment of $8.3 million made in July 2012 on four dry bulk vessels to be built for a total cost of approximately $83.0 million. These vessels are expected to be completed in 2014 with the majority of the amount due in 2014. The remaining amount is for improvements to existing facilities and related equipment. The Marine segment has budgeted $27.6 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 and additional dry bulk vessels for the Commodity Trading and Milling segment during 2012.  The Sugar segment plans to spend $14.1 million primarily on normal upgrades to existing operations. The balance of $6.9 million is planned to be spent in all other businesses.  Management anticipates paying for these capital expenditures from available cash, the use of available short-term investments or Seaboard’s available borrowing capacity.

 

Effective, January 1, 2012, Seaboard increased its ownership interest in PS International, LLC (PSI), a specialty grain trading business headquartered in Chapel Hill, North Carolina, from 50% to 70% by making a cash payment of $3.7 million in January 2012. See Note 9 to the Condensed Consolidated Financial Statements for further discussion.

 

During 2010, Seaboard agreed to invest in various limited partnerships as a limited partner that are expected to enable Seaboard to obtain certain low income housing tax credits over a period of approximately ten years.  As of June 30, 2012, Seaboard had invested $11.3 million in these partnerships, including $6.5 million in 2012.  The total commitment is approximately $17.5 million with additional investments of $2.4 million anticipated to be made during the remainder of 2012.

 

Seaboard has a 50% non-controlling interest in a bakery being built in central Africa.  The bakery is not expected to be fully operational until late third quarter or fourth quarter of 2012.  As of June 30, 2012, Seaboard had invested a total of $28.8 million in this project, including $7.3 million invested during the six month period ended June 30, 2012.  Although a final agreement has not yet been reached, management currently anticipates Seaboard’s total investment in and advances to this affiliate business will be approximately $43.0 million with most of the remaining $14.2 million to be advanced during the remainder of 2012.

 

16



 

Financing Activities and Debt

In June 2012, Seaboard’s committed line of credit was reduced from $300.0 million to $200.0 million. As of June 30, 2012, Seaboard had a committed line of credit totaling $200.0 million and uncommitted lines totaling $207.9 million.  As of June 30, 2012, there were no borrowings outstanding under the committed line of credit and borrowings under the uncommitted lines of credit totaled $30.4 million, all related to foreign subsidiaries.  Outstanding standby letters of credit reduced Seaboard’s borrowing capacity under its committed and uncommitted credit lines by $78.9 million and $8.7 million, respectively, primarily representing $30.5 million for supply agreements, $26.4 million for Seaboard’s outstanding Industrial Development Revenue Bonds and $21.8 million related to insurance coverage.

 

Seaboard has a long-term credit agreement for $114.0 million to finance the construction of the new power generating facility in the Dominican Republic noted above.  During the first six months of 2012, Seaboard borrowed the remaining $32.7 million under this credit facility.  In June 2012, Seaboard made a payment in the amount of $5.7 million for this credit facility, which resulted in a balance of $108.3 million as of June 30, 2012.

 

Seaboard’s remaining 2012 scheduled long-term debt maturities total $38.2 million.  As of June 30, 2012, Seaboard had cash and short-term investments of $488.2 million, total net working capital of $1,157.1 million and a $200.0 million committed line of credit maturing on July 10, 2013.  Accordingly, management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations or business segments for 2012. Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity, available borrowing capacity and other financing alternatives.

 

As of June 30, 2012, $188.8 million of the $488.2 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.

 

As of June 30, 2012, Seaboard believes its exposure to the current potential European sovereign debt problems is not material. Seaboard monitors these exposures and currently does not believe there is a significant risk to it.

 

On November 6, 2009, the Board of Directors authorized up to $100.0 million for a share repurchase program, which was extended by the Board of Directors for an additional year through October 31, 2012.  For the six months ended June 30, 2012, Seaboard used cash to repurchase 8,125 shares of common stock at a total price of $15.9 million.  See Note 8 to the Condensed Consolidated Financial Statements for further discussion.  Also, Seaboard currently does not intend to declare or pay any dividends during 2012.

 

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 2012 increased by $112.0 million and $114.9 million, respectively, over the same periods in 2011.  The increases primarily reflect increased sales for commodity trading and increased sales volume from the start-up of the new power generating facility in March 2012.  The increases were partially offset by lower domestic sales prices for pork products sold.

 

Operating income decreased by $76.2 million and $113.2 million for the three and six month periods of 2012, respectively, compared to the same periods in 2011.  The decreases primarily reflect a one-time gain on sale of power generating facilities of $51.4 million recognized in the second quarter of 2011.  The decreases also reflect lower domestic sales prices for pork products sold and, to a lesser extent, higher feed costs for the Pork division.

 

Pork Segment

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Dollars in millions)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

400.7

 

$

441.4

 

$

801.3

 

$

865.4

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

20.8

 

$

62.5

 

$

73.7

 

$

142.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17



 

Net sales for the Pork segment decreased $40.7 million and $64.1 million for the three and six month periods of 2012, respectively, compared to the same periods in 2011.  The decreases primarily reflected lower domestic sales prices for pork products and, to a lesser extent, lower export sales volume for pork products sold.

 

Operating income for the Pork segment decreased $41.7 million and $68.4 million for the three and six month periods of 2012, respectively, compared to the same periods in 2011.  The decrease was primarily a result of lower prices for domestic pork products sold as noted above and, to a lesser extent, higher feed costs.  Management is unable to predict future market prices for pork products or the cost of feed.  However, management anticipates positive operating income for the remainder of 2012, although at a lower level than 2011 as a result of current market conditions.

 

Commodity Trading and Milling Segment

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(Dollars in millions)

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

725.1

 

 

$

621.0

 

$

1,449.6

 

$

1,333.2

 

Operating income as reported

 

$

11.5

 

 

$

15.2

 

$

37.2

 

$

38.3

 

Less mark-to-market adjustments

 

 

8.6

 

 

 

2.2

 

 

2.4

 

 

(9.8

)

Operating income excluding mark-to-market adjustments

 

$

20.1

 

 

$

17.4

 

$

39.6

 

$

28.5

 

Income from affiliates

 

$

4.3

 

 

$

4.6

 

$

5.0

 

$

10.4