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 October 3, 2009
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission File Number 1-3390
Seaboard Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(913) 676-8800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes __ No __
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ 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 1,236,578 shares of common stock, $1.00 par value per
share, outstanding on October 23, 2009.
Total pages in filing - 23 pages
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Net sales:
Products (includes sales to $ 647,256 $ 826,826 $1,990,553 $2,303,849
foreign affiliates of
$138,396, $156,128, $399,296
and $414,430, respectively)
Services 176,906 266,545 575,611 719,804
Other 30,463 38,320 75,859 101,657
Total net sales 854,625 1,131,691 2,642,023 3,125,310
Cost of sales and operating expenses:
Products 619,824 785,162 1,911,566 2,185,949
Services 162,272 233,613 503,339 621,656
Other 26,049 36,322 65,955 91,731
Total cost of sales and operating
expenses 808,145 1,055,097 2,480,860 2,899,336
Gross income 46,480 76,594 161,163 225,974
Selling, general and administrative
expenses 49,159 44,880 145,031 131,782
Operating (loss) income (2,679) 31,714 16,132 94,192
Other income (expense):
Interest expense (3,493) (3,888) (10,592) (9,725)
Interest income 3,734 2,508 11,878 10,934
Income from foreign affiliates 5,273 4,819 12,865 10,632
Foreign currency gain (loss),
net 1,130 (2,131) 325 (1,506)
Other investment income (loss),
net 5,574 (1,168) 12,953 7,288
Gain on disputed sale, net of
expenses 16,787 - 16,787 -
Miscellaneous, net 164 1,132 6,358 2,227
Total other income (expense), net 29,169 1,272 50,574 19,850
Earnings before income taxes 26,490 32,986 66,706 114,042
Income tax benefit 9,758 102 12,248 10,272
Net earnings $ 36,248 $ 33,088 $ 78,954 $ 124,314
Less: Net losses (earnings)
attributable to
noncontrolling interests 467 (183) 653 (419)
Net earnings attributable to
Seaboard $ 36,715 $ 32,905 $ 79,607 $ 123,895
Earnings per common share $ 29.69 $ 26.47 $ 64.32 $ 99.62
Dividends declared per common
share $ 0.75 $ 0.75 $ 2.25 $ 2.25
Average number of shares
outstanding 1,236,758 1,243,015 1,237,675 1,243,706
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
October 3, December 31,
2009 2008
Assets
Current assets:
Cash and cash equivalents $ 56,177 $ 60,594
Short-term investments 368,434 312,680
Receivables, net 304,438 360,677
Inventories 482,152 508,995
Deferred income taxes 15,614 14,195
Other current assets 172,928 114,713
Total current assets 1,399,743 1,371,854
Investments in and advances to foreign affiliates 79,994 68,091
Net property, plant and equipment 718,972 763,675
Goodwill 40,628 40,628
Intangible assets, net 21,078 22,285
Other assets 51,657 64,828
Total assets $2,312,072 $2,331,361
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 80,178 $ 177,205
Current maturities of long-term debt 2,422 47,054
Accounts payable 102,698 122,869
Other current liabilities 324,411 244,963
Total current liabilities 509,709 592,091
Long-term debt, less current maturities 76,623 78,560
Deferred income taxes 65,785 81,205
Other liabilities 130,138 115,927
Total non-current and deferred liabilities 272,546 275,692
Stockholders' equity:
Common stock of $1 par value, Authorized
1,250,000 and 4,000,000 shares;
issued and outstanding 1,236,758 and
1,240,426 shares 1,237 1,240
Accumulated other comprehensive loss (118,761) (111,703)
Retained earnings 1,643,275 1,569,818
Total Seaboard stockholders' equity 1,525,751 1,459,355
Noncontrolling interests 4,066 4,223
Total equity 1,529,817 1,463,578
Total liabilities and stockholders' equity $2,312,072 $2,331,361
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
October 3, September 27,
2009 2008
Cash flows from operating activities:
Net earnings $ 78,954 $ 124,314
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 69,111 67,181
Income from foreign affiliates (12,865) (10,632)
Other investment income, net (12,953) (7,288)
Foreign currency exchange losses 6,166 3,133
Deferred income taxes (12,836) (18,826)
Loss (gain) from disposal of fixed assets 472 (805)
Gain on disputed sale, net of expenses (16,787) -
Changes in current assets and liabilities:
Receivables, net of allowance 58,904 (51,674)
Inventories 17,300 (254,673)
Other current assets (56,762) (48,284)
Current liabilities, exclusive of debt 62,658 129,739
Other, net 2,752 1,285
Net cash from operating activities 184,114 (66,530)
Cash flows from investing activities:
Purchase of short-term investments (267,244) (179,312)
Proceeds from the sale of short-term investments 180,692 184,298
Proceeds from the maturity of short-term investments 57,055 38,241
Investments in and advances to foreign affiliates, net 2,013 590
Capital expenditures (39,140) (102,864)
Proceeds from the disposal of fixed assets 2,931 2,909
Payment received for the potential sale of power barges 15,000 -
Net proceeds from disputed sale 16,787 -
Other, net (3,524) 568
Net cash from investing activities (35,430) (55,570)
Cash flows from financing activities:
Notes payable to banks, net (97,622) 141,904
Principal payments of long-term debt (46,669) (4,056)
Repurchase of common stock (3,370) (3,988)
Dividends paid (2,783) (2,797)
Other, net 212 1,325
Net cash from financing activities (150,232) 132,388
Effect of exchange rate change on cash (2,869) 738
Net change in cash and cash equivalents (4,417) 11,026
Cash and cash equivalents at beginning of year 60,594 47,346
Cash and cash equivalents at end of period $ 56,177 $ 58,372
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-controlled 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, 2008 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 foreign affiliates
on an interrelated basis, gross margin on foreign 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 consolidated financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Supplemental Noncash Transaction
As more fully described in Note 9 to the Condensed Consolidated
Financial Statements, in May 2009 Seaboard received sovereign
government bonds of the Dominican Republic with a par value of
$20,000,000 denominated in U.S. dollars to satisfy the same amount
of outstanding billings owed by a customer that Seaboard had
classified as long-term. These bonds are classified as available-
for-sale short term investments on the Condensed Consolidated
Balance Sheet.
New Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) No. 167 "Amendments to FASB
Interpretation No. 46(R)". This statement amends Interpretation
46(R) and requires an enterprise to perform an analysis to determine
whether the enterprise's variable interest or interests give it a
controlling financial interest in a variable interest entity (VIE).
This analysis identifies the primary beneficiary of a VIE as the
enterprise that has both the power to direct the most significant
activities of a VIE and the obligation to absorb losses or the right
to receive benefits from the VIE.
This statement eliminates the quantitative approach previously
required for determining the primary beneficiary of the VIE, which
was based on determining which enterprise absorbs the majority of
the entity's expected losses, receives a majority of the entity's
expected residual returns, or both. This statement also amends
Interpretation 46(R) to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity
and requires certain additional disclosures about the VIE. Seaboard
will be required to adopt this statement as of January 1, 2010.
Management believes the adoption of this statement will not have a
material impact on Seaboard's financial position or net earnings.
Recently Adopted Accounting Standards
Seaboard adopted FASB Accounting Standards Codification (ASC) Topic
810-10-65 (formerly FAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51") as
of January 1, 2009. This Topic changed the accounting and reporting
for minority interests, which are now recharacterized as
noncontrolling interests. The noncontrolling interests are now
classified as a component of equity. This Topic did not have an
impact on Seaboard's financial position or net earnings.
Seaboard adopted FASB ASC Topic 855-10 (formerly FAS No. 165
"Subsequent Events"), for the second quarter ended July 4, 2009.
This Topic requires an entity to disclose the date through which
subsequent events have been evaluated. Seaboard evaluated
subsequent events through November 6, 2009, which is the date the
financial statements were issued.
5
Note 2- Investments
In April 2009, the FASB issued ASC Topic 320-10-65 (previously Staff
Position FAS 115-2 and FAS 124-2 "Recognition and Presentation of
Other-Than-Temporary Impairments"). This Topic amends the other-
than-temporary guidance for debt securities to make the guidance
more operational. This Topic also expands the disclosures required
in Topic 320-10 to interim periods. Seaboard adopted this Topic in
the second quarter of 2009. The adoption of this Topic did not have
an impact on Seaboard's financial position or net earnings.
Seaboard's short-term investments are treated as either available-
for-sale securities or trading securities. Available-for-sale
securities are recorded at their estimated fair market values with
unrealized gains and losses reflected, net of tax, as a separate
component of accumulated other comprehensive income. Trading
securities are recorded at their estimated fair market values with
unrealized gains and losses reflected in the statement of earnings.
All of Seaboard's available-for-sale and trading securities are
classified as current assets as they are readily available to
support Seaboard's current operating needs.
As of October 3, 2009 and December 31, 2008, the available-for-sale
investments primarily consisted of fixed rate municipal notes and
bonds, money market funds and U.S. Government agency securities. At
October 3, 2009 and December 31, 2008, available-for-sale short-term
investments included $15,793,000 and $14,553,000, respectively, held
by a wholly-owned consolidated insurance captive to pay Seaboard's
retention of accrued outstanding workers' compensation claims. At
October 3, 2009 and December 31, 2008, amortized cost and estimated
fair market value were not materially different for these
investments. As of October 3, 2009, the trading securities
primarily consisted of high yield debt securities. Unrealized gains
related to trading securities were $1,238,000 and $1,779,000 for the
three and nine months ended October 3, 2009, respectively.
The following is a summary of the amortized cost and estimated fair
value of short-term investments for both available-for-sale and
trading securities at October 3, 2009 and December 31, 2008.
2009 2008
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Fixed rate municipal notes and bonds $139,332 $143,582 $170,150 $173,096
Money market funds 116,498 116,498 79,059 79,059
U.S. Government agency securities 18,289 18,786 25,338 25,514
Foreign government debt securities 20,000 20,000 - -
Variable rate demand notes 3,900 3,900 7,900 7,900
Other debt securities 36,968 37,877 16,231 15,340
Total available-for-sale short-term
investments 334,987 340,643 298,678 300,909
High yield trading debt securities 23,782 25,342 - -
Other trading debt securities 2,230 2,449 - -
Domestic trading equity securities - - 9,008 11,771
Total available-for-sale and trading
short-term investments $360,999 $368,434 $307,686 $312,680
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 October 3, 2009.
(Thousands of dollars) 2009
Due within one year $ 62,605
Due after one year through three years 103,411
Due after three years 47,261
Total fixed rate securities $213,277
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
6
held related to the deferred compensation plans.
Note 3 - Inventories
The following is a summary of inventories at October 3, 2009 and
December 31, 2008:
October 3, December 31,
(Thousands of dollars) 2009 2008
At lower of LIFO cost or market:
Live hogs and materials $179,903 $201,654
Fresh pork and materials 24,317 26,480
204,220 228,134
LIFO adjustment (21,683) (40,672)
Total inventories at lower of LIFO cost or market 182,537 187,462
At lower of FIFO cost or market:
Grains and oilseeds 179,442 179,774
Sugar produced and in process 44,224 56,259
Other 39,896 36,964
Total inventories at lower of FIFO cost or market 263,562 272,997
Grain, flour and feed at lower of weighted average cost or
market 36,053 48,536
Total inventories $482,152 $508,995
As of October 3, 2009, Seaboard had $3,956,000 recorded in grain
inventories related to its commodity trading business that are
committed primarily to one customer in a foreign country for which
contract performance is an ongoing concern. During the first quarter
of 2009, these and other grain inventory values were written down
$8,801,000 (with no tax benefit currently recognized), or $7.10 per
share, based on management's estimate of net realizable value
considering all of the facts and circumstances at that time. However,
if Seaboard is successful in realizing more value from this inventory
than what is currently recorded, it is possible that Seaboard could
recover previous write-offs. Conversely, if Seaboard is unable to
collect amounts primarily from the one customer as currently
estimated, it is possible that Seaboard could incur an additional
material write-down in value of this inventory during the fourth
quarter of 2009.
Note 4 - Income Taxes
Seaboard's tax returns are regularly audited by federal, state and
foreign tax authorities, which may result in adjustments.
Seaboard's U.S. federal income tax returns have been reviewed
through the 2004 tax year. There have not been any material changes
in unrecognized income tax benefits since December 31, 2008.
Interest related to unrecognized tax benefits and penalties was not
material for the nine months ended October 3, 2009.
Note 5 -Derivatives and Fair Value of Financial Instruments
Seaboard adopted ASC Topic 820 (formerly FAS No. 157, "Fair Value
Measurements") on January 1, 2008 with the exception of nonfinancial
assets and nonfinancial liabilities that were deferred by ASC Topic
820-10 (formerly the Financial Accounting Standards Board Staff
Position FAS 157-2). Seaboard adopted ASC Topic 820 for these
nonfinancial assets and nonfinancial liabilities as of January 1,
2009. The adoption of ASC Topic 820 for nonfinancial assets and
liabilities did not have a material impact on Seaboard's financial
position or net earnings.
ASC Topic 820 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). ASC Topic 820 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.
7
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity's own
assumptions.
The following table shows assets and liabilities measured at fair
value on a recurring basis as of October 3, 2009 and also the level
within the fair value hierarchy used to measure each category of
assets. The trading securities classified as other current assets
below are assets held for Seaboard's deferred compensation plans.
Quoted Prices
In Active Significant
Markets for Other Significant
Balance Identical Observable Unobservable
October 3, Assets Inputs Inputs
(Thousands of dollars) 2009 (Level 1) (Level 2) (Level 3)
Assets:
Available-for-sale securities -
short-term investments:
Fixed rate municipal notes
and bonds $143,582 $ - $143,582 $ -
Money market funds 116,498 116,498 - -
U.S. Government agency
securities 18,786 - 18,786 -
Foreign government debt
securities 20,000 - 20,000 -
Variable rate demand notes 3,900 - 3,900 -
Other debt securities 37,877 - 37,877 -
Trading securities - short-term
investments:
High yield debt securities 25,342 - 25,342 -
Other debt securities 2,449 - 2,449 -
Trading securities - other current
assets:
Domestic equity securities 10,312 10,312 - -
Foreign equity securities 6,557 3,002 3,555 -
Fixed income mutual funds 2,253 2,253 - -
U.S. Treasury securities 1,150 - 1,150 -
Money market funds 2,521 2,521 - -
U.S. Government agency securities 2,839 - 2,839 -
Other 157 140 17 -
Derivatives 11,349 7,192 4,157 -
Total Assets $405,572 $141,918 $263,654 $ -
Total Liabilities-Derivatives $ 7,148 $ 5,047 $ 2,101 $ -
In April 2009, the FASB issued ASC Topic 820-10-65-4 (formerly FASB
Staff Position FAS 157-4 "Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly"). This
Topic provides additional guidance for estimating fair value when
the volume and level of activity for the asset or liability have
significantly decreased. Seaboard adopted this Topic in the second
quarter of 2009. The adoption of this Topic did not have an impact
on Seaboard's financial position or net earnings.
In April 2009, the FASB issued ASC Topic 825-10-65-1 (formerly FSP
FAS 107-1 and APB 28-1 "Interim Disclosures about Fair Value of
Financial Instruments"). This Topic expands the fair value
disclosures required for all financial instruments within the scope
of Topic 825 to interim periods. Seaboard adopted this Topic in the
second quarter of 2009. The adoption of this Topic did not have an
impact on Seaboard's financial position or net earnings.
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
8
maturities. The amortized cost and estimated fair values of
investments and long-term debt at October 3, 2009 and December 31,
2008 are presented below.
2009 2008
(Thousands of dollars) Amortized Cost Fair Value Amortized Cost Fair Value
Short-term investments,
available-for-sale $334,987 $ 340,643 $ 298,678 $ 300,909
Short-term investments,
trading debt securities 26,012 27,791 - -
Short-term investments,
trading equity securities - - 9,008 11,771
Long-term debt 79,045 82,062 125,614 131,822
In March 2008, the FASB issued ASC Topic 815-10 (formerly FAS No.
161, "Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133"). This Topic
changed the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced
disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted
for under ASC Topic 815, and how derivative instruments and related
hedged items affect an entity's financial position, net earnings,
and cash flows. Seaboard adopted this Topic as of January 1, 2009.
This Topic did not have an impact on Seaboard's financial position
or net earnings. While management believes its derivatives are
primarily economic hedges of its firm purchase and sales contracts
or anticipated sales contracts, Seaboard does not perform the
extensive record-keeping required to account for these types of
transactions as hedges for accounting purposes.
Commodity Instruments
Seaboard uses various grain, meal, hog, pork bellies and energy
resource related futures and options to manage its exposure to price
fluctuations for raw materials and other inventories, finished
product sales and firm sales commitments. At October 3, 2009,
Seaboard had open net derivative contracts to sell 9,745,000 bushels
of grain and 1,428,000 gallons of heating oil, and to purchase
25,000 tons of soybean meal and 13,520,000 pounds of hogs. 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, 2008. Commodity derivatives are
recorded at fair value with any changes in fair value being marked
to market as a component of cost of sales on the Condensed
Consolidated Statements of Earnings. Since these derivatives are
not accounted for as hedges, fluctuations in the related commodity
prices could have a material impact on earnings in any given period.
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. These foreign
exchange agreements are recorded at fair value with changes in value
marked to market as a component of cost of sales on the Condensed
Consolidated Statements of Earnings as management believes they
primarily related to the underlying commodity transaction, with the
exception of the Japanese Yen foreign exchange agreement. The
change in value of the Japanese Yen foreign exchange agreement is
marked to market as a component of foreign currency gain (loss) on
the Condensed Consolidated Statements of Earnings. Since these
agreements are not accounted for as hedges, fluctuations in the
related currency exchange rates could have a material impact on
earnings in any given period.
At October 3, 2009, Seaboard had trading foreign exchange contracts
to cover its firm sales and purchase commitments and related trade
receivables and payables with notional amounts of $162,916,000
primarily related to the South African Rand and the Euro. At
October 3, 2009, Seaboard had trading foreign exchange contracts to
cover various foreign currency working capital needs related to the
South African Rand with notional amounts of $5,063,000. At October
3, 2009, Seaboard had a trading foreign exchange contract to cover a
note payable borrowing for a term note denominated in Japanese Yen
for a notional amount of $58,781,000.
Forward Freight Agreements
The Commodity Trading and Milling segment enters into certain
forward freight agreements, viewed as taking long positions in the
freight market as well as covering short freight sales, which may or
may not result in actual losses when future trades are executed.
These forward freight agreements, which expire in the fourth quarter
of 2009, are not accounted for as hedges but are viewed by
management as an economic hedge against the potential of future
rising charter hire rates to be incurred by this segment for bulk
cargo shipping while conducting its business of delivering grains to
customers in many international locations. At October 3, 2009,
Seaboard had
9
forward freight agreements to pay $41,500 and receive $47,750 per
day during 2009. Since these agreements are not accounted for
as hedges, the change in value related to these agreements is
recorded in cost of sales on the Condensed Consolidated
Statements of Earnings.
Interest Rate Exchange Agreements
In December 2008 and again in March 2009, Seaboard entered into 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 agreed to pay a fixed rate and receive
a variable rate of interest on two notional amounts of $25,000,000
each. In June 2009, Seaboard terminated both interest rate exchange
agreements with a total notional value of $50,000,000. Seaboard
received payments in the amount of $3,981,000 to unwind these
agreements. Since these interest rate exchange agreements were not
accounted for as hedges, the change in value related to these
agreements were recorded in Miscellaneous, net in the Condensed
Consolidated Statements of Earnings.
Counterparty Credit Risk
Seaboard is subject to counterparty credit risk related to its
foreign currency exchange agreements and forward freight agreements.
The maximum amount of loss due to the credit risk of the
counterparties for these agreements, should the counterparties fail
to perform according to the terms of the contracts, is $6,839,000 as
of October 3, 2009. Seaboard's foreign currency exchange agreements
have a maximum amount of loss due to credit risk in the amount of
$4,157,000 with several counterparties. Seaboard's forward freight
agreements have a maximum amount of loss in the amount of $2,682,000
with one counterparty. Seaboard does not hold any collateral
related to these agreements.
The following table provides the amount of gain or (loss) recognized
for each type of derivative and where it was recognized in the
Condensed Consolidated Statement of Earnings for the three and nine
months ended October 3, 2009.
(Thousands of dollars)
October 3, 2009
Three Months Ended Nine Months Ended
Location of Gain or (Loss) Amount of Gain or(Loss) Amount of Gain or (Loss)
Recognized in Income on Recognized in Income on Recognized in Income on
Derivative Derivative Derivative
Commodities Cost of sales $ 7,528 $ 13,648
Foreign currencies Cost of sales (6,148) (19,330)
Foreign currencies Foreign currency 3,898 332
Forward freight agreements Cost of sales - -
Interest rate Miscellaneous, net - 5,312
The following table provides the fair value of each type of
derivative held as of October 3, 2009 and where each derivative is
included on the Condensed Consolidated Balance Sheets.
(Thousands of dollars) Asset Derivatives Liability Derivatives
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value
Commodities Other current assets $4,511 Other current liabilities $2,921
Foreign currencies Other current assets 4,157 Other current liabilities 2,102
Forward freight agreements Other current assets 2,682 Other current liabilities 2,125
Note 6 - Employee Benefits
Seaboard maintains a defined benefit pension plan ("the Plan") for
its domestic salaried and clerical employees. As a result of
significant investment losses incurred in the Plan during the fourth
quarter of 2008, in July 2009 Seaboard made a deductible
contribution of $14,615,000 for the 2008 plan year. As a result of
this contribution, at this time management does not anticipate
making a contribution for the 2009 plan year. 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.
10
The net periodic benefit cost of these plans was as follows:
Three Months Ended Nine Months Ended
October 3, September 27, October3, September 27,
(Thousands of dollars) 2009 2008 2009 2008
Components of net periodic
benefit cost:
Service cost $ 1,509 $ 1,376 $ 4,520 $ 4,013
Interest cost 2,046 1,983 6,127 5,753
Expected return on plan assets (1,197) (1,697) (3,579) (4,810)
Amortization and other 1,252 390 3,747 1,177
Net periodic benefit cost $ 3,610 $ 2,052 $10,815 $ 6,133
The accumulated unrecognized losses for 2008 in the Plan as of
December 31, 2008 exceeded the 10% deferral threshold as permitted
under U.S GAAP for pension plans as a result of the significant
investment losses incurred during 2008. Accordingly, Seaboard's
pension expense for the Plan will increase by approximately
$3,000,000 for 2009 as compared to 2008 as a result of loss
amortization. In addition, pension expense for the Plan is expected
to increase an additional $1,739,000 as a result of reduced expected
return on assets, from the decline of assets in the Plan during
2008, partially offset by approximately $457,000 in expected
earnings from the 2009 contribution discussed above.
In December 2008, the FASB issued ASC Topic 715-20-65 (formerly FSP
FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit
Plan Assets," amending FASB Statement No. 132(R), "Employers'
Disclosures about Pensions and Other Postretirement Benefits").
Seaboard will be required to adopt this Topic effective for the
fiscal year ending December 31, 2009. This Topic will require more
detailed disclosures regarding defined benefit pension plan assets,
including investment policies and strategies, major categories of
plan assets, valuation techniques used to measure the fair value of
plan assets and significant concentration of risk within plan
assets. Management believes the adoption of this Topic will not
have a material impact on Seaboard's financial position or net
earnings.
Note 7 - Commitments and Contingencies
In July 2009, Seaboard Corporation, and affiliated companies in its
Commodity Trading and Milling segment, resolved a dispute with a
third party related to a 2005 transaction in which a portion of its
trading operations was sold to a firm located abroad. As a result of
this action, Seaboard Overseas Limited received approximately
$16,787,000, net of expenses, in the third quarter of 2009. There
was no tax expense on this transaction.
Seaboard is subject to various legal proceedings related to the
normal conduct of its business, including various environmental
related actions. In the opinion of management, none of these
actions is expected to result in a judgment having a materially
adverse effect on the consolidated financial statements of Seaboard.
Contingent Obligations
Certain of the non-consolidated affiliates and third party
contractors who perform services for Seaboard have bank debt
supporting their underlying operations. From time to time, Seaboard
will provide guarantees of that debt allowing a lower borrowing rate
or facilitating third party financing in order to further Seaboard's
business objectives. Seaboard does not issue guarantees of third
parties for compensation. As of October 3, 2009, Seaboard had
guarantees outstanding to two third parties with a total maximum
exposure of $1,978,000. 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 October 3, 2009, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity
under its committed and uncommitted credit facilities by $58,123,000
and $4,099,000, respectively. Included in these amounts are LCs
totaling $42,688,000, which support the Industrial Development
Revenue Bonds included as long-term debt and $15,350,000 of LCs
related to insurance coverages.
11
Note 8 - Stockholders' Equity and Accumulated Other Comprehensive
Loss
Components of total comprehensive income, net of related taxes, are
summarized as follows:
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Thousands of dollars) 2009 2008 2009 2008
Net earnings $36,248 $33,088 $ 78,954 $124,314
Other comprehensive income
netof applicable taxes:
Foreign currency translation
adjustment (579) 3,646 (11,003) 4,972
Unrealized gain on
investments, net 1,575 (452) 1,364 (845)
Unrecognized pension cost 860 239 2,581 330
Total comprehensive income $38,104 $36,521 $ 71,896 $128,771
The components of and changes in accumulated other comprehensive
loss for the nine months ended October 3, 2009 are as follows:
Balance Balance
December 31, Period October 3,
(Thousands of dollars) 2008 Change 2009
Foreign currency translation adjustment $ (68,211) $(11,003) $ (79,214)
Unrealized gain on investments, net 1,781 1,364 3,145
Unrecognized pension cost (45,273) 2,581 (42,692)
Accumulated other comprehensive loss $(111,703) $ (7,058) $(118,761)
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 October 3, 2009, the Sugar segment
had $153,622,000 in net assets denominated in Argentine pesos,
$16,497,000 in net assets denominated in U.S. dollars and $57,352,000
of liabilities denominated in Japanese Yen in Argentina.
With the exception of the foreign currency translation adjustment to
which a 35% federal tax rate is applied, income taxes for components
of accumulated other comprehensive loss were recorded using a 39%
effective tax rate. In addition, the unrecognized pension cost
includes $14,973,000 related to employees at certain subsidiaries
for which no tax benefit has been recorded.
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to
$50,000,000 market value of its Common Stock in open market or
privately negotiated purchases, of which $11,129,000 remained
available upon expiration on August 31, 2009. For the nine months
ended October 3, 2009, Seaboard repurchased 3,668 shares of common
stock at a cost of $3,370,000. There were no shares purchased
during the third quarter of 2009. Shares repurchased were retired
and resumed the status of authorized and unissued shares. See Note
10 to the Condensed Consolidated Financial Statements for
information on the new share repurchase program that was authorized
by the Board of Directors on November 6, 2009.
Stockholders approved an amendment to decrease the number of
authorized shares of common stock from 4,000,000 shares to 1,250,000
shares at the annual meeting on April 27, 2009.
Note 9 - Segment Information
As of October 3, 2009, the Pork segment had $28,372,000 of goodwill
and $17,000,000 of other intangibles not subject to amortization in
connection with its acquisition of Daily's. As of July 4, 2009,
Seaboard conducted its annual evaluation for impairment of this
goodwill and other intangible assets and, based on current market
conditions indicating future sales price increases, additional
processed meats sales volumes and related levels of estimated
operating margins, determined there is no impairment.
12
During the first half of 2008, Seaboard started operations at its
processing plant to produce biodiesel. The ongoing profitability of
this plant is primarily based on future sales prices, the price of
alternative inputs, government usage mandates and the continuation
of a federal tax credit, which is set to expire at the end of 2009.
Currently, it is unclear if this tax credit will be renewed. During
the fourth quarter of 2008, a combination of continued start-up
expenses, a decrease in fuel prices and relatively high input prices
resulted in an operating loss. Seaboard performed an impairment
evaluation of this plant as of December 31, 2008 but determined
there was no impairment based on management's current assumptions of
future production volumes, sales prices, cost inputs and the
probabilities of the combination of federal usage mandates and tax
credits extensions. However, if future market conditions do not
produce projected sale prices or expected cost inputs or there is a
material change in the government usage mandates or available tax
credits, there is a possibility that some amount of the recorded
value of this processing plant could be deemed impaired during some
future period including 2009, which may result in a charge to
earnings. The recorded value of these assets as of October 3, 2009
was $43,762,000.
Prior to the first quarter of 2009, the Sugar segment was named
Sugar and Citrus reflecting the citrus and related juice operations
of this business. During the first quarter of 2009, management
reviewed its strategic options for the citrus business in light of a
continually difficult operating environment. In March 2009,
management decided not to process, package or market the 2009
harvest for the citrus and related juice operations. As a result,
during the first quarter of 2009, a charge to earnings of $2,803,000
was recorded primarily to write-down the value of related citrus and
juice inventories to net realizable value, considering such
remaining inventory will not be marketed similar to prior years but
instead liquidated. In the second quarter of 2009, management
decided to integrate and transform the land previously used for
citrus production into sugar cane production and thus incurred an
additional charge to earnings of approximately $2,497,000 during the
second quarter of 2009 in connection with this change in business.
In addition, management is evaluating the use of the remaining fixed
assets, primarily buildings and equipment, to determine the best
alternative use of these assets in the future. Management is
considering various alternatives, including leasing, selling, or
integrating the fixed assets into the existing sugar business.
Accordingly, depending on the final disposition of these fixed
assets, additional charges to earnings could be incurred for
potential write-down of these fixed assets in future quarters if
such plans do not fully recover the existing net book value of such
fixed assets. The net book value of these assets was $2,890,000 as
of October 3, 2009. Management anticipates finalizing its plans for
these fixed assets by the end of 2009.
Included in the "All Other" segment is the Power division. The
Power division sells approximately 34% of its power generation to a
government-owned distribution company under a short-term contract
for which Seaboard bears a concentrated credit risk as this
customer, from time to time, has significant past due balances. In
May 2009, Seaboard received sovereign government bonds of the
Dominican Republic with a par value of $20,000,000 denominated in
U.S. dollars, with an 8% tax free coupon rate, to satisfy the same
amount of outstanding billings from this customer that Seaboard had
classified as long-term. These bonds are now classified as
available-for-sale short term investments on the Condensed
Consolidated Balance Sheet as of October 3, 2009.
On March 2, 2009, an agreement became effective under which Seaboard
agreed to sell its two power barges in the Dominican Republic for
$70,000,000. The agreement calls for the sale to occur on or around
January 1, 2011. During March 2009, $15,000,000 was paid to
Seaboard (recorded as long-term deferred revenue) and the
$55,000,000 balance of the purchase price was paid into escrow and
will be paid to Seaboard at the closing of the sale. The book value
of the two barges was $21,124,000 as of October 3, 2009. Seaboard
will continue to operate these two barges until the closing date of
the sale, with an estimated annual depreciation cost of
approximately $3,600,000. Seaboard will be responsible for the wind
down and decommissioning costs of the barges. Completion of the
sale is dependent upon several conditions, including meeting certain
baseline performance and emission tests. Failure to satisfy or cure
any deficiencies could result in the agreement being terminated and
the sale abandoned. Seaboard could be responsible to pay liquidated
damages of up to approximately $15,000,000 should it fail to perform
its obligations under the agreement, after expiration of applicable
cure and grace periods. Seaboard will retain all other physical
properties of this business and is considering options to continue
its power business in the Dominican Republic after the sale of these
assets is completed.
The following tables set forth specific financial information about
each segment as reviewed by Seaboard's
13
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 foreign
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 Nine Months Ended
October 3, September 27, October 3, September 27,
(Thousands of dollars) 2009 2008 2009 2008
Pork $260,608 $ 303,626 $ 793,583 $ 830,870
Commodity Trading and Milling 364,146 495,656 1,105,158 1,383,120
Marine 165,675 254,882 548,360 695,536
Sugar 28,970 35,664 106,174 102,746
All Other 35,226 41,863 88,748 113,038
Segment/Consolidated Totals $854,625 $1,131,691 $2,642,023 $3,125,310
Operating Income (Loss):
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Thousands of dollars) 2009 2008 2009 2008
Pork $ (1,998) $ 1,201 $ (15,123) $ (30,040)
Commodity Trading and Milling 6,466 21,443 24,917 83,627
Marine (4,108) 11,998 13,323 36,489
Sugar (659) (3,074) 498 2,825
All Other 3,245 857 6,789 6,982
Segment Totals 2,946 32,425 30,404 99,883
Corporate Items (5,625) (711) (14,272) (5,691)
Consolidated Totals $ (2,679) $ 31,714 $ 16,132 $ 94,192
Income from Foreign Affiliates:
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Thousands of dollars) 2009 2008 2009 2008
Commodity Trading and Milling $ 5,079 $ 4,706 $ 12,287 $ 10,370
Sugar 194 113 578 262
Segment/Consolidated Totals $ 5,273 $ 4,819 $ 12,865 $ 10,632
Total Assets:
October 3, December 31,
(Thousands of dollars) 2009 2008
Pork $ 768,667 $ 800,062
Commodity Trading and Milling 540,099 543,303
Marine 231,812 267,268
Sugar 195,704 225,716
All Other 95,006 81,222
Segment Totals 1,831,288 1,917,571
Corporate Items 480,784 413,790
Consolidated Totals $2,312,072 $2,331,361
14
Investments in and Advances to Foreign Affiliates:
October 3, December 31,
(Thousands of dollars) 2009 2008
Commodity Trading and Milling $ 78,117 $ 66,578
Sugar 1,877 1,513
Segment/Consolidated Totals $ 79,994 $ 68,091
Administrative services provided by the corporate office allocated
to the individual segments represent corporate services rendered to
and costs incurred for each specific division 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.
Note 10 - Subsequent Event
On November 6, 2009, the Board of Directors authorized Seaboard to
repurchase from time to time prior to October 31, 2011 up to $100
million market value of its Common Stock in open market or privately
negotiated purchases which may be above or below the traded market
price. The stock repurchase will be funded by cash on hand. Any
shares repurchased will be retired and shall resume the status of
authorized and unissued shares. Any stock repurchases will be made
in compliance with applicable legal requirements and the timing of
the repurchases and the number of shares to be repurchased at any
given time may depend on market conditions, Securities and Exchange
Commission regulations and other factors. The Board's stock
repurchase authorization does not obligate Seaboard to acquire a
specific amount of common stock and the stock repurchase program may
be suspended at any time at Seaboard's discretion.
_________________________________________________________
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 October 3, 2009 increased
$51.3 million to $424.6 million from December 31, 2008. The
increase was the result of cash generated by operating activities of
$184.1 million, and $16.8 million received from a gain on a disputed
sale (as discussed in Note 7 to the Condensed Consolidated Financial
Statements) and $15.0 million received for the potential sale of
power barges, as discussed below. During this same time, cash was
used to reduce notes payable by $97.6 million, to reduce long-term
debt by $46.7 million and to spend $39.1 million on capital
expenditures. Cash from operating activities increased $250.6
million for the nine months ended October 3, 2009 compared to the
same period in 2008, primarily as the result of decreases in working
capital items of accounts receivable and inventory in 2009 compared
to increases in 2008, partially offset by lower net earnings for the
nine months ended October 3, 2009 compared to the same period in
2008.
Acquisitions, Capital Expenditures and Other Investing Activities
During the nine months ended October 3, 2009, Seaboard invested
$39.1 million in property, plant and equipment, of which $12.7
million was expended in the Pork segment, $11.0 million in the
Marine segment, and $13.5 million in the Sugar segment. The Pork
segment expenditures were primarily for improvements to existing hog
facilities, upgrades to the Guymon pork processing plant and the ham-
boning and processing plant in Mexico. The ham-boning and
processing plant was completed in the second quarter of 2009. The
Marine segment expenditures were primarily for purchases of cargo
carrying and handling equipment. In the Sugar segment, the capital
expenditures were primarily for the development of the cogeneration
plant and expansion of cane growing operations. All other capital
expenditures are of a normal recurring nature and primarily include
replacements of machinery and equipment, and general facility
modernizations and upgrades.
For the remainder of 2009 management has budgeted capital
expenditures totaling $23.3 million. The Pork segment plans to
spend $2.9 million for improvements to existing hog facilities and
upgrades to the Guymon pork processing plant. The Marine segment
has budgeted $6.8 million primarily for the purchase of additional
cargo carrying and handling equipment. In addition, management will
be evaluating whether to purchase additional containerized cargo
vessels for the Marine segment and dry bulk vessels for the
Commodity Trading and Milling segment during 2009. The Sugar
segment plans to spend a total of $12.1 million consisting of $8.0
million for the development of a 40 megawatt cogeneration plant,
with the remaining amount primarily for the expansion of cane
growing operations. The cogeneration plant is expected to be
operational by the second quarter of 2010 with an additional $12.0
million anticipated to be spent during 2010. The balance of $1.5
million is planned to be spent in all other businesses. Management
anticipates paying for these capital expenditures from available
cash, the use of available short-term investments or Seaboard's
available borrowing capacity.
On March 2, 2009, an agreement became effective under which Seaboard
agreed to sell its two power barges in the Dominican Republic on or
around January 1, 2011 for $70.0 million. During March 2009, $15.0
million was paid to Seaboard and the $55.0 million balance of the
purchase price was paid into escrow and will be paid to Seaboard at
the closing of the sale. See Note 9 to the Condensed Consolidated
Financial Statements for further discussion.
Financing Activities and Debt
As of October 3, 2009, Seaboard had committed lines of credit
totaling $300.0 million and uncommitted lines totaling $135.8
million. As of October 3, 2009, there were no borrowings
outstanding under the committed lines of credit and borrowings under
the uncommitted lines of credit totaled $22.8 million. Outstanding
standby letters of credit reduced Seaboard's borrowing capacity
under its committed and uncommitted credit lines by $58.1 million
and $4.1 million, respectively, primarily representing $42.7 million
for Seaboard's outstanding Industrial Development Revenue Bonds and
$15.3 million related to insurance coverage. Also included in notes
payable as of October 3, 2009 was a term note of $57.4 million
denominated in Japanese Yen. Subsequent to October 3, 2009,
Seaboard obtained letter of credit financing that replaced existing
letters of credit resulting in an increase to borrowing capacity by
approximately $16.3 million.
Seaboard's remaining 2009 scheduled long-term debt maturities total
$0.4 million. Although the worldwide economic downturn could affect
Seaboard's ability to fund operations, management believes
Seaboard's current 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
16
business segments for 2009. In July 2008, Seaboard secured a $300.0
million line of credit for five years and as of October 3, 2009, has
cash and short-term investments of $424.6 million with total net
working capital of $890.0 million. In management's view, the
primary liquidity issues for 2009 pertain to its customers' and
suppliers' liquidity, financing capabilities and overall financial
health, which could affect Seaboard's sales volumes or customer
contract performance, procurement of or access to needed inventory,
supplies and equipment, and the timely collection of receivables
along with related potential deterioration in the receivables
aging. Management periodically reviews various alternatives for
future financing to provide additional liquidity for future
operating plans. Despite the current global business climate,
management intends to continue seeking opportunities for
expansion in industries in which Seaboard operates, utilizing
existing liquidity and available borrowing capacity, and currently
does not plan to pursue other financing alternatives.
The Seaboard share repurchase program ended on August 31, 2009. For
the nine months ended October 3, 2009, Seaboard used cash to
repurchase 3,668 shares of common stock at a total price of $3.4
million. On November 6, 2009, the Board of Directors authorized up
to $100 million for a new share repurchase program. See Note 8 and
10 to the Condensed Consolidated Financial Statements for further
discussion.
See Note 7 to the Condensed Consolidated Financial Statements for a
summary of Seaboard's contingent obligations, including guarantees
issued to support certain activities of non-consolidated affiliates
or third parties who provide services for Seaboard.
RESULTS OF OPERATIONS
Net sales for the three and nine month periods of 2009 decreased by
$277.1 million and $483.3 million, respectively, over the same
periods in 2008. The decreases primarily reflect price decreases
for commodities sold by the commodity trading business, lower cargo
volumes for the Marine segment and, to a lesser extent, a decrease
in sale prices for pork products. Partially offsetting the
decreases were increased commodities trading volumes to non-
consolidated affiliates.
Operating income decreased by $34.4 million and $78.1 million for
the three and nine month periods of 2009, respectively, compared to
of the same periods in 2008. The decreases for the three month
period and the nine month period reflect lower Marine segment
margins and a $12.1 million and $19.0 million fluctuation of marking
to market Commodity Trading and Milling derivative contracts,
respectively, as discussed below. The nine month decrease was also
significantly impacted by lower commodity trading margins as
discussed below partially offset by higher margins on pork products
sold primarily from lower feed costs.
Pork Segment
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 260.6 $ 303.6 $ 793.6 $ 830.9
Operating income (loss) $ (2.0) $ 1.2 $ (15.1) $ (30.0)
Net sales for the Pork segment decreased $43.0 million and $37.3
million for the three and nine month periods of 2009, respectively,
compared to the same periods in 2008. The decreases primarily
represents a decrease in overall sale prices for pork products,
partially offset by higher volumes of pork products sold especially
for export. Increased volumes were made possible by the expansion
in daily capacity at the Guymon processing plant during the first
quarter of 2008. The lower sales prices for pork products appear to
be the result of an excess supply of pork products in the domestic
market, the impacts of flu related concerns as well as the world
economic challenges. In April 2009, reports of a new flu strain
believed to originate in Mexico rapidly received wide-spread public
attention. Despite confirmations that people could not catch this
strain of influenza by eating or handling pork products, early
reports labeled this strain as "swine flu." In late April, U.S.
officials re-named this strain as "2009 H1N1 flu", recognizing that
this strain had not been found in any pigs, and therefore it cannot
be contracted from pork products. In response to initial reports,
certain countries banned U.S. pork exports and this segment noted a
decrease in overall market prices for its pork products.
Operating income for the Pork segment decreased $3.2 million and
increased $14.9 million for the three and nine month periods of
2009, respectively, compared to the same periods in 2008. For the
quarter, the lower sale prices discussed above more than offset
several cost decreases resulting in the operating loss while for the
nine month period, cost decreases more than offset the sale price
decreases. The cost decreases primarily were related to lower feed
costs, the impact of using the LIFO method for determining certain
inventory costs and lower costs of third party hogs. For the three
and nine months ended October 3, 2009, LIFO increased operating
17
income by $6.9 million and $19.0 million, respectively, compared to
decreases of $7.8 million and $37.5 million for the same periods in
2008, respectively, primarily as a result of lower costs to purchase
corn and soybean meal during 2009.
Management is unable to predict future market prices for pork
products or the cost of feed and hogs purchased from third parties.
Although several foreign markets have lifted their bans on imports
of U.S. pork products, flu-related concerns are still present and
the lingering impact from these market disruptions continue to have
a negative impact on sales prices. As a result, management believes
operating losses will continue for the remainder of 2009.
In addition, as discussed in Note 9 to the Condensed Consolidated
Financial Statements, there is a possibility that some amount of the
biodiesel plant could be deemed impaired during some future period
including fiscal 2009, which may result in a charge to earnings if
current projections are not met.
Commodity Trading and Milling Segment
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 364.1 $ 495.7 $1,105.2 $1,383.1
Operating income $ 6.5 $ 21.4 $ 24.9 $ 83.6
Income from foreign affiliates $ 5.1 $ 4.7 $ 12.3 $ 10.4
Net sales for the Commodity Trading and Milling segment decreased
$131.6 million and $277.9 million for the three and nine month
periods of 2009, respectively, compared to the same periods in 2008.
The decreases are primarily the result of price decreases for
commodities sold by the commodity trading business, especially for
wheat, partially offset by increased commodity trading volumes to
non-consolidated affiliates.
Operating income for this segment decreased $14.9 million and $58.7
million for the three and nine month periods of 2009, respectively,
compared to the same periods in 2008. The decreases for the three
month period and the nine month period reflect the $12.1 million and
$19.0 million, respectively, fluctuation of marking to market the
derivative contracts as discussed below. In addition, for the nine
month period the decrease also reflects certain long inventory
positions, especially wheat, taken by Seaboard which provided higher
than average commodity trading margins during the first six months
of 2008 as the price of these commodities significantly increased to
historic highs at the time of sale in 2008. The nine month decrease
also reflects write-downs of $8.8 million for certain grain
inventories during the first quarter of 2009 for customer contract
performance issues and related lower of cost or market adjustments,
as discussed further in Note 3 to the Condensed Consolidated
Financial Statements, and lower operating income at the milling
operations in Zambia as a result of high wheat costs causing reduced
consumer demand and unfavorable currency devaluation impacting local
sales and operating costs.
Due to the uncertain political and economic conditions in the
countries in which Seaboard operates and the current volatility in
the commodity markets, management is unable to predict future sales
and operating results. However, management anticipates positive
operating income for the remainder of 2009, excluding the potential
effects of marking to market derivative contracts. In addition, see
Note 3 to the Condensed Consolidated Financial Statements for
discussion regarding certain grain inventories.
Had Seaboard not applied mark-to-market accounting to its derivative
instruments, operating income would have been higher by $9.3 million
and $7.6 million for the three and nine month periods of 2009,
respectively, while operating income would have been lower by $2.8
million and $11.4 million for the same periods in 2008. While
management believes its commodity futures and options, foreign
exchange contracts and forward freight agreements are primarily
economic hedges of its firm purchase and sales contracts or
anticipated sales contracts, Seaboard does not perform the extensive
record-keeping required to account for these types of transactions
as hedges for accounting purposes. Accordingly, while the changes
in value of the derivative instruments were marked to market, the
changes in value of the firm purchase or sales contracts were not.
As products are delivered to customers, these mark-to-market
adjustments will be primarily offset by realized margins as revenue
is recognized. Accordingly, these mark-to-market gains and losses
could reverse in future periods, including fiscal 2009.
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Income from foreign affiliates for the three and nine month periods
of 2009 increased by $0.4 million and $1.9 million, respectively,
from the same 2008 periods as a result of more favorable market
conditions. Based on the uncertainty of local political and
economic situations in the countries in which the flour and feed
mills operate, management cannot predict future results.
Marine Segment
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Dollars in millions) 2009 2008 2009 2008
Net sales $165.7 $254.9 $ 548.4 $ 695.5
Operating income (loss) $ (4.1) $ 12.0 $ 13.3 $ 36.5
Net sales for the Marine segment decreased $89.2 million and $147.1
million for the three and nine month periods of 2009, respectively,
compared to the same periods in 2008. The decreases primarily
reflect economic declines in most markets served by Seaboard
resulting in lower cargo volumes and, to a lesser extent, lower
cargo rates especially during the third quarter.
Operating income for the Marine segment decreased $16.1 million and
$23.2 million for the three and nine month periods of 2009,
respectively, compared to the same periods in 2008. The decreases
were primarily the result of lower rates, as discussed above, not
being offset by comparable decreases in certain costs, such as port
costs and stevedoring. However, significant decreases did occur
related to fuel costs for vessels and trucking expenses on a per
unit shipped basis. In addition, operating income for 2008 was
decreased by an accounting error totaling $6.3 million for the nine
month period, relating to prior periods that were recorded in the
second quarter of 2008. Management cannot predict changes in future
cargo volumes and cargo rates or to what extent changes in economic
conditions in markets served will continue to affect net sales or
operating income during the remainder of 2009. Given the recent
decline in global trade volume and cargo rates, management is unable
to predict whether this segment will be profitable for the remainder
of 2009.
Sugar Segment
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 29.0 $35.7 $106.2 $102.7
Operating income (loss) $ (0.7) $(3.1) $ 0.5 $ 2.8
Income from foreign affiliates $ 0.2 $ 0.1 $ 0.6 $ 0.3
Net sales for the Sugar segment decreased $6.7 million and increased
$3.5 million for the three and nine month periods of 2009,
respectively, compared to the same periods in 2008. The decrease
for the quarter primarily reflects lower domestic sugar prices and
the elimination of the citrus business as discussed below. The
increase for the nine month period primarily reflects an increase in
volumes partially offset by less sugar purchased from third parties
for resale and the elimination of the citrus business. Argentine
governmental authorities continue to attempt to control inflation by
limiting the price increases of basic commodities, including sugar.
Accordingly, management cannot predict sugar prices.
Operating income increased $2.4 million and decreased $2.3 million
for the three and nine month periods of 2009, respectively, compared
to the same periods in 2008. The improvement for the three month
period is primarily the result of prior year operating losses from
the citrus business which were not conducted during 2009 as
discussed below partially offset by lower margins from the sugar
business primarily as a result of lower sugar prices as discussed
above. The decrease for the nine month period primarily represents
a decrease of $1.5 million from the citrus business as a result of
$5.3 million charge to earnings during the first and second quarters
of 2009 related to the write-down of citrus inventories, the
integration and transformation of land previously used for citrus
production into sugar cane production and related costs as discussed
in Note 9 to the Condensed Consolidated Financial Statements. The
nine month decrease also reflects higher selling and administrative
personnel costs. Management is unable to predict whether this
segment will be profitable for the remainder of 2009.
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All Other
Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 35.2 $41.9 $ 88.7 $113.0
Operating income $ 3.2 $ 0.9 $ 6.8 $ 7.0
Net sales and operating income primarily represent results from the
Dominican Republic Power division. Net sales decreased $6.7 million
and $24.3 million for the three and nine month periods of 2009,
respectively, compared to the same periods in 2008 primarily
reflecting lower rates partially offset by higher power production
levels. The lower rates were attributable primarily to lower fuel
costs, a component of pricing. Operating income increased $2.3
million and decreased $0.2 million for the three and nine month
periods of 2009, respectively, compared to the same periods in 2008.
The three month increase is primarily related to lower voltage
regulation and other similar costs and the result of lower rates
noted above decreasing less than fuel costs. The decrease for the
nine month period is primarily a result of higher administrative
personnel costs. Management cannot predict future fuel costs or the
extent to which rates will fluctuate compared to fuel costs, but
anticipates this segment will remain profitable for the remainder of
2009. See Note 9 to the Condensed Consolidated Financial Statements
for the potential future sale of certain assets of this business.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased by
$4.3 million and $13.2 million for the three and nine month periods
of 2009 compared to the same periods in 2008. The increases are
primarily due to increased personnel costs, including increased
costs related to Seaboard's deferred compensation programs (which
are offset by the effect of the mark-to-market investments recorded
in other investment income discussed below). As a percentage of
revenues, SG&A increased to 5.8% and 5.5% for the 2009 three and
nine month periods, respectively compared to 4.0% and 4.2% for the
same periods in 2008 primarily as a result of decreased sales.
Other Investment Income
Other investment income increased $6.7 million and $5.7 million for
the three and nine month periods of 2009 compared to the same
periods in 2008. The increases primarily reflect gains in the mark-
to-market value of Seaboard's investments related to the deferred
compensation programs in 2009 compared to losses in 2008.
Gain on Disputed Sale, Net
In July 2009, Seaboard Corporation, and affiliated companies in its
Commodity Trading and Milling segment, resolved a dispute with a
third party related to a 2005 transaction in which a portion of its
trading operations was sold to a firm located abroad. As a result of
this action, Seaboard Overseas Limited received $16.8 million, net
of expenses, in the third quarter of 2009. There was no tax expense
on this transaction.
Miscellaneous, Net
The increase in miscellaneous, net income for the nine month period
of 2009 compared to the same period in 2008 primarily reflects a
gain of $5.3 million on interest rate exchange agreements for the
nine month period of 2009.
Income Tax Expense
The effective tax benefit rate for the nine month period increased
in 2009 compared to 2008 based on lower projected permanently
deferred foreign earnings compared to projected domestic taxable
loss for 2009 compared to 2008. The higher benefit rate for the
three month period of 2009 compared to the nine month period of 2009
resulted from increasing the projected total domestic loss for the
year during the third quarter.
OTHER FINANCIAL INFORMATION
In June 2009, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) No. 167 "Amendments to FASB
Interpretation No. 46(R)". This statement amends Interpretation
46(R) and requires an enterprise to perform an analysis to determine
whether the enterprise's variable interest or interests give it a
controlling financial interest in a variable interest entity (VIE).
This analysis identifies the primary beneficiary of a VIE as the
enterprise that has both the power to direct the most significant
activities of a VIE and the obligation to absorb losses or the right
to receive benefits from the VIE.
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This statement also amends Interpretation 46(R) to require ongoing
reassessments of whether an enterprise is the primary beneficiary of
a VIE and requires certain additional disclosures about the VIE.
Seaboard will be required to adopt this statement as of January 1,
2010. Management believes the adoption of this statement will not
have a material impact on Seaboard's financial position or net
earnings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-
day operations. Seaboard utilizes derivative instruments to
mitigate some of these risks including both purchases and sales of
futures and options to hedge inventories, forward purchase and sale
contracts, forward purchases, and forward freight agreements.
Primary market risk exposures result from changing commodity prices,
freight rates, foreign currency exchange rates and interest rates.
From time to time, Seaboard may also enter into speculative
derivative transactions not directly related to its raw material
requirements. The nature of Seaboard's market risk exposure related
to these items has not changed materially since December 31, 2008.
See Note 5 to the Condensed Consolidated Financial Statements for
further discussion.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Seaboard's
management evaluated, under the direction of our Chief Executive and
Chief Financial Officers, the effectiveness of Seaboard's disclosure
controls and procedures as defined in Exchange Act Rule 13a-15(e) as
of October 3, 2009. Based upon and as of the date of that
evaluation, Seaboard's Chief Executive and Chief Financial Officers
concluded that Seaboard's disclosure controls and procedures were
effective to ensure that information required to be disclosed in the
reports it files and submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported as and when
required. It should be noted that any system of disclosure controls
and procedures, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any system of disclosure
controls and procedures is based in part upon assumptions about the
likelihood of future events. Due to these and other inherent
limitations of any such system, there can be no assurance that any
design will always succeed in achieving its stated goals under all
potential future conditions.
Change in Internal Controls - There has been no change in Seaboard's
internal control over financial reporting required by Exchange Act
Rule 13a-15 that occurred during the fiscal quarter ended October 3,
2009 that has materially affected, or is reasonably likely to
materially affect, Seaboard's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in the risk factors as
previously disclosed in Seaboard's Annual Report on form 10-K for
the year ended December 31, 2008.
Item 5. Other Information
On November 6, 2009, the Board of Directors authorized Seaboard to
repurchase from time to time prior to October 31, 2011 up to $100
million market value of its Common Stock in open market or privately
negotiated purchases which may be above or below the traded market
price. The stock repurchase will be funded by cash on hand. Any
shares repurchased will be retired and shall resume the status of
authorized and unissued shares. Any stock repurchases will be made
in compliance with applicable legal requirements and the timing of
the repurchases and the number of shares to be repurchased at any
given time may depend on market conditions, Securities and Exchange
Commission regulations and other factors. The Board's stock
repurchase authorization does not obligate Seaboard to acquire a
specific amount of common stock and the stock repurchase program may
be suspended at any time at Seaboard's discretion.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
This Form 10-Q contains forward-looking statements with respect to
the financial condition, results of operations, plans, objectives,
future performance and business of Seaboard Corporation and its
subsidiaries (Seaboard). Forward-looking statements generally may
be identified as statements that are not historical in nature; and
statements preceded by, followed by or that include the words
"believes," "expects," "may," "will," "should," "could,"
"anticipates," "estimates," "intends," or similar expressions. In
more specific terms, forward-looking statements, include, without
limitation: statements concerning projection of revenues, income or
loss, capital expenditures, capital structure or other financial
items, including the impact of mark-to-market accounting on
operating income; statements regarding the plans and objectives of
management for future operations; statements of future economic
performance; statements regarding the intent, belief or current
expectations of Seaboard and its management with respect to:
(i) Seaboard's ability to obtain adequate financing and liquidity,
(ii) the price of feed stocks and other materials used by Seaboard,
(iii) the sales price or market conditions for pork, grains, sugar
and other products and services, (iv) statements concerning
management's expectations of recorded tax effects under existing
circumstances, (v) the ability of the Commodity Trading and Milling
segment to successfully compete in the markets it serves and the
volume of business and working capital requirements associated with
the competitive trading environment, (vi) the charter hire rates and
fuel prices for vessels, (vii) the stability of the Dominican
Republic's economy, fuel costs and related spot market prices and
collection of receivables in the Dominican Republic, (viii) the
ability of Seaboard to sell certain grain inventories in foreign
countries at current cost basis and the related contract performance
by customers, (ix) the effect of the fluctuation in foreign currency
exchange rates, (x) statements concerning profitability or sales
volume of any of Seaboard's segments, (xi) the anticipated costs and
completion timetable for Seaboard's scheduled capital improvements,
(xii) the impact from the flu incident on the demand and overall
market prices for pork products, or (xiii) other trends affecting
Seaboard's financial condition or results of operations, and
statements of the assumptions underlying or relating to any of the
foregoing statements.
This list of forward-looking statements is not exclusive. Seaboard
undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future
events, changes in assumptions or otherwise. Forward-looking
statements are not guarantees of future performance or results.
They involve risks, uncertainties and assumptions. Actual results
may differ materially from those contemplated by the forward-looking
statements due to a variety of factors. The information contained
in this report, including without limitation the information under
the headings "Management's Discussion and Analysis of Financial
Condition and Results of Operations," identifies important factors
which could cause such differences.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SEABOARD CORPORATION
by: /s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Chief Financial Officer
(principal financial officer)
Date: November 6, 2009
by: /s/ John A. Virgo
John A. Virgo, Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Date: November 6, 2009
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