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 July 4, 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 1,236,758 shares of common stock, $1.00 par value per
share, outstanding on July 31, 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 Six Months Ended
July 4, June 28, July 4, June 28,
2009 2008 2009 2008
Net sales:
Products (includes sales to $ 661,784 $ 731,123 $1,343,297 $1,477,023
foreign affiliates of
$119,984, $148,609, $260,900
and $258,302, respectively)
Services 183,822 234,410 398,705 453,259
Other 24,224 34,418 45,396 63,337
Total net sales 869,830 999,951 1,787,398 1,993,619
Cost of sales and operating expenses:
Products 630,373 719,546 1,291,742 1,400,787
Services 166,719 202,101 341,067 388,043
Other 21,529 30,074 39,906 55,409
Total cost of sales and operating
expenses 818,621 951,721 1,672,715 1,844,239
Gross income 51,209 48,230 114,683 149,380
Selling, general and administrative
expenses 48,440 45,134 95,872 86,902
Operating income 2,769 3,096 18,811 62,478
Other income (expense):
Interest expense (3,243) (3,011) (7,099) (5,837)
Interest income 4,818 4,154 8,144 8,426
Income from foreign affiliates 3,698 1,865 7,592 5,813
Foreign currency loss, net 3,128 2,358 (805) 625
Other investment income, net 5,885 6,936 7,379 8,456
Miscellaneous, net 3,080 (831) 6,194 1,095
Total other income (expense), net 17,366 11,471 21,405 18,578
Earnings before income taxes 20,135 14,567 40,216 81,056
Income tax benefit 6,425 6,606 2,490 10,170
Net earnings $ 26,560 $ 21,173 $ 42,706 $ 91,226
Less: Net losses (earnings)
attributable to noncontrolling
interests 359 (210) 186 (236)
Net earnings attributable to
Seaboard $ 26,919 $ 20,963 $ 42,892 $ 90,990
Earnings per common share $ 21.76 $ 16.85 $ 34.64 $ 73.14
Dividends declared per common
share $ 0.75 $ 0.75 $ 1.50 $ 1.50
Average number of shares
outstanding 1,237,010 1,243,909 1,238,126 1,244,055
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of dollars)
(Unaudited)
July 4, December 31,
2009 2008
Assets
Current assets:
Cash and cash equivalents $ 80,192 $ 60,594
Short-term investments 364,881 312,680
Receivables, net 307,576 360,677
Inventories 470,342 508,995
Deferred income taxes 13,808 14,195
Other current assets 166,761 114,713
Total current assets 1,403,560 1,371,854
Investments in and advances to foreign affiliates 72,946 68,091
Net property, plant and equipment 734,131 763,675
Goodwill 40,628 40,628
Intangible assets, net 21,481 22,285
Other assets 48,282 64,828
Total assets $2,321,028 $2,331,361
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 73,536 $ 177,205
Current maturities of long-term debt 46,887 47,054
Accounts payable 150,497 122,869
Other current liabilities 275,099 244,963
Total current liabilities 546,019 592,091
Long-term debt, less current maturities 77,782 78,560
Deferred income taxes 64,359 81,205
Other liabilities 140,175 115,927
Total non-current and deferred liabilities 282,316 275,692
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 (120,617) (111,703)
Retained earnings 1,607,488 1,569,818
Total Seaboard stockholders' equity 1,488,108 1,459,355
Noncontrolling interests 4,585 4,223
Total equity 1,492,693 1,463,578
Total liabilities and stockholders' equity $2,321,028 $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)
Six Months Ended
July 4, June 28,
2009 2008
Cash flows from operating activities:
Net earnings $ 42,706 $ 91,226
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 46,223 43,430
Income from foreign affiliates (7,592) (5,813)
Other investment income, net (7,379) (8,456)
Foreign currency exchange losses 1,789 1,389
Deferred income taxes (12,932) (10,526)
Loss (gain) from disposal of fixed assets 834 (251)
Changes in current assets and liabilities:
Receivables, net of allowance 54,352 (16,102)
Inventories 31,038 (62,923)
Other current assets (52,251) (25,553)
Current liabilities, exclusive of debt 60,454 11,508
Other, net 11,223 7,329
Net cash from operating activities 168,465 25,258
Cash flows from investing activities:
Purchase of short-term investments (218,683) (130,028)
Proceeds from the sale of short-term
investments 154,101 137,131
Proceeds from the maturity of short-term
investments 35,196 22,421
Investments in and advances to foreign
affiliates, net 2,016 (458)
Capital expenditures (28,456) (77,275)
Proceeds from the disposal of fixed assets 1,769 1,809
Payment received for the potential sale of
power barges 15,000 -
Other, net (589) (2,139)
Net cash from investing activities (39,646) (48,539)
Cash flows from financing activities:
Notes payable to banks, net (100,400) 38,502
Principal payments of long-term debt (989) (2,963)
Repurchase of common stock (3,370) (536)
Dividends paid (1,855) (1,866)
Other, net 159 996
Net cash from financing activities (106,455) 34,133
Effect of exchange rate change on cash (2,766) 422
Net change in cash and cash equivalents 19,598 11,274
Cash and cash equivalents at beginning of year 60,594 47,346
Cash and cash equivalents at end of period $ 80,192 $ 58,620
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 from this customer that Seaboard had
classified as long-term.
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 is currently evaluating the impact of this statement but
does not anticipate this statement will have a material impact on
Seaboard's financial position or net earnings.
Recently Adopted Accounting Standards
Seaboard adopted FAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51" as
of January 1, 2009. This statement 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 statement did not have an
impact on Seaboard's financial position or net earnings.
Seaboard adopted FAS No. 165, "Subsequent Events", for the second
quarter ended July 4, 2009. This statement requires an entity to
disclose the date through which subsequent events have been
evaluated. Seaboard evaluated subsequent events through August 12,
2009, which is the date the financial statements were issued. This
statement did not have an impact on Seaboard's financial position or
net earnings.
5
Note 2- Investments
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 115-2
and FAS 124-2 "Recognition and Presentation of Other-Than-Temporary
Impairments". This FSP amends the other-than-temporary guidance for
debt securities to make the guidance more operational. This FSP
also expands the disclosures required in FAS 115 "Accounting for
Certain Investments in Debt and Equity Securities" to interim
periods. Seaboard adopted this FSP in the second quarter of 2009.
The adoption of this FSP 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 July 4, 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
July 4, 2009 and December 31, 2008, available-for-sale short-term
investments included $13,500,000 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
July 4, 2009 and December 31, 2008, amortized cost and estimated
fair market value were not materially different for these
investments. As of July 4, 2009, the trading securities primarily
consisted of high yield debt securities. Unrealized gains related
to trading securities as of July 4, 2009 were $794,000 and $578,000
for the three and six months ended July 4, 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 July 4, 2009 and December 31, 2008.
2009 2008
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Fixed rate municipal notes and bonds $148,329 $152,054 $170,150 $173,096
Money market funds 110,925 110,925 79,059 79,059
U.S. Government agency securities 26,648 27,110 25,338 25,514
Foreign government debt securities 20,000 19,048 - -
Variable rate demand notes 5,200 5,200 7,900 7,900
Other debt securities 24,330 24,674 16,231 15,340
Total available-for-sale short-term
investments 335,432 339,011 298,678 300,909
High yield trading debt securities 23,511 24,070 - -
Other trading debt securities 1,781 1,800 - -
Domestic trading equity securities - - 9,008 11,771
Total available-for-sale and trading
short-term investments $360,724 $364,881 $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 July 4, 2009.
(Thousands of dollars) 2009
Due within one year $ 68,613
Due after one year through three years 89,416
Due after three years 54,395
Total fixed rate securities $ 212,424
6
In addition to its short-term investments, as of July 4, 2009 and
December 31, 2008, Seaboard also had long-term investments totaling
$12,203,000 and $11,748,000, respectively, included in other assets
on the Condensed Consolidated Balance Sheets. Included in this
amount is a $5,910,000 investment for a less than 20% ownership
interest in a company operating a 300 megawatt electricity
generating facility in the Dominican Republic. This investment is
accounted for using the cost method of accounting. 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 July 4, 2009 and
December 31, 2008:
July 4, December 31,
(Thousands of dollars) 2009 2008
At lower of LIFO cost or market:
Live hogs and materials $184,380 $201,654
Fresh pork and materials 21,835 26,480
206,215 228,134
LIFO adjustment (28,574) (40,672)
Total inventories at lower of LIFO cost or market 177,641 187,462
At lower of FIFO cost or market:
Grains and oilseeds 179,111 179,774
Sugar produced and in process 34,132 56,259
Other 37,358 36,964
Total inventories at lower of FIFO cost or market 250,601 272,997
Grain, flour and feed at lower of weighted average cost
or market 42,100 48,536
Total inventories $470,342 $508,995
As of July 4, 2009, Seaboard had $7,842,000 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 estimated, 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.
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 six months ended July 4, 2009.
Note 5 -Derivatives and Fair Value of Financial Instruments
Seaboard adopted Statement of Financial Accounting Standards No. 157
(FAS 157), "Fair Value Measurements" on January 1, 2008 with the
exception of nonfinancial assets and nonfinancial liabilities that
were deferred by the Financial Accounting Standards Board (FASB)
Staff Position FAS 157-2. Seaboard adopted FAS 157 for these
nonfinancial assets and nonfinancial liabilities as of January 1,
2009. The adoption of FAS 157 for nonfinancial assets and
liabilities did not have a material impact on Seaboard's financial
position or net earnings.
FAS 157 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
7
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). FAS 157
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.
The following table shows assets and liabilities measured at fair
value on a recurring basis as of July 4, 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
July 4, 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 $152,054 $ - $152,054 $ -
Money market funds 110,925 110,925 - -
U.S. Government agency
securities 27,110 - 27,110 -
Foreign government debt
securities 19,048 - 19,048 -
Variable rate demand notes 5,200 - 5,200 -
Other debt securities 24,674 - 24,674 -
Trading securities - short-term
investments:
High yield debt securities 24,070 - 24,070 -
Other debt securities 1,800 - 1,800 -
Trading securities - other current
assets:
Domestic equity securities 10,726 10,726 - -
Foreign equity securities 5,758 2,183 3,575 -
Fixed income mutual funds 2,391 2,391 - -
U.S. Treasury securities 1,226 - 1,226 -
Money market funds 1,840 1,840 - -
U.S. Government agency
securities 2,710 - 2,710 -
Other 116 91 25 -
Derivatives 18,137 17,676 461 -
Total Assets $407,785 $145,832 $261,953 $ -
Total Liabilities -
Derivatives $ 15,583 $ 8,631 $ 6,952 $ -
In April 2009, the FASB issued FASB Staff Position (FSP) 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 FSP 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 FSP in the second quarter of 2009. The
adoption of this FSP did not have an impact on Seaboard's financial
position or net earnings.
8
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 "Interim
Disclosures about Fair Value of Financial Instruments". This FSP
expands the fair value disclosures required for all financial
instruments within the scope of FAS 107 to interim periods. Seaboard
adopted this FSP in the second quarter of 2009. The adoption of this
FSP 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 maturities. The amortized cost
and estimated fair values of investments and long-term debt at July
4, 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 $335,432 $339,011 $298,678 $300,909
Short-term investments,
trading debt securities 25,292 25,870 - -
Short-term investments,
trading equity securities - - 9,008 11,771
Long-term debt 124,669 129,806 125,614 131,822
In March 2008, the FASB issued FAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB
Statement No. 133." This statement 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
Statement 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity's financial
position, net earnings, and cash flows. Seaboard adopted this
statement as of January 1, 2009. This statement 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 July 4, 2009, Seaboard
had open net derivative contracts to sell 10,976,000 bushels of
grain, 55,000 tons of soybean meal and 1,554,000 gallons of heating
oil. 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 year.
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 Yen foreign exchange agreement. The change in
value of the 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
year.
At July 4, 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 $153,940,000
primarily related to the South African Rand and the Euro. At July
4, 2009, Seaboard had trading foreign exchange contracts to cover
various foreign currency working capital needs related to the South
African Rand for notional amounts of $6,646,000. At July 4, 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.
9
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 July 4, 2009,
Seaboard had 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 $6,080,000 as
of July 4, 2009. Seaboard's foreign currency exchange agreements
have a maximum amount of loss due to credit risk in the amount of
$460,000 with several counterparties. Seaboard's forward freight
agreements have a maximum amount of loss in the amount of $5,620,000
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 six
months ended July 4, 2009.
(Thousands of dollars)
July 4, 2009 Three Months Ended Six 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 $ 2,479 $ 6,120
Foreign currencies Cost of sales (15,010) (13,182)
Foreign currencies Foreign currency 2,166 (3,566)
Forward freight agreements Cost of sales - -
Interest rate Miscellaneous, net 2,833 5,312
The following table provides the fair value of each type of
derivative held as of July 4, 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 $12,057 Other current liabilities $ 4,137
Foreign currencies Other current assets 460 Other current liabilities 6,952
Forward freight agreements Other current assets 5,620 Other current liabilities 4,494
10
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.
The net periodic benefit cost of these plans was as follows:
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Thousands of dollars) 2009 2008 2009 2008
Components of net periodic benefit cost:
Service cost $ 1,525 $ 1,242 $ 3,011 $ 2,637
Interest cost 2,057 1,810 4,081 3,770
Expected return on plan assets (1,322) (1,432) (2,382) (3,113)
Amortization and other 1,289 418 2,495 787
Net periodic benefit cost $ 3,549 $ 2,038 $ 7,205 $ 4,081
The accumulated unrecognized losses for 2008 in the Plan as of
December 31, 2008 exceeded the 10% deferral threshold as permitted
under FAS No. 87, "Employers' Accounting for Pensions" 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 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 statement effective for the fiscal year ending December 31,
2009. This FSP 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 FSP will not have a material impact on
Seaboard's financial position or net earnings.
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 July 4, 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 July 4, 2009, Seaboard had outstanding letters of credit
("LCs") with various banks which reduced its borrowing capacity
under its committed and uncommitted credit facilities by $54,678,000
and $4,150,000, respectively. Included in these amounts are LCs
totaling $39,385,000, which support the Industrial Development
Revenue Bonds included as long-term debt and $15,208,000 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 Six Months Ended
July 4, June 28, July 4, June 28,
(Thousands of dollars) 2009 2008 2009 2008
Net earnings $26,560 $21,173 $ 42,706 $91,226
Other comprehensive income
net of applicable taxes:
Foreign currency translation
adjustment (4,558) 896 (10,424) 1,326
Unrealized gain on investments, net (1,132) (692) (211) (393)
Unrecognized pension cost 885 (136) 1,721 91
Total comprehensive income $21,755 $21,241 $ 33,792 $92,250
The components of and changes in accumulated other comprehensive
loss for the six months ended July 4, 2009 are as follows:
Balance Balance
December 31, Period July 4,
(Thousands of dollars) 2008 Change 2009
Foreign currency translation adjustment $ (68,211) $(10,424) $ (78,635)
Unrealized gain on investments, net 1,781 (211) 1,570
Unrecognized pension cost (45,273) 1,721 (43,552)
Accumulated other comprehensive loss $(111,703) $ (8,914) $(120,617)
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 July 4, 2009, the Sugar segment had
$144,616,000 in net assets denominated in Argentine pesos, $18,372,000
in net assets denominated in U.S. dollars and $53,489,000 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 $15,222,000 related to employees at certain subsidiaries
and the unrealized gain on investments, net includes an unrealized
loss of $952,000 on foreign government debt securities of the
Dominican Republic 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 at July 4, 2009. For the six months ended July 4, 2009,
Seaboard repurchased 3,668 shares of common stock at a cost of
$3,370,000. Shares repurchased are retired and resume the status of
authorized and unissued shares.
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 July 4, 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.
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
12
2009. 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 July 4, 2009 was
$44,343,000.
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 $3,439,000 as
of July 4, 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 July 4, 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 $22,034,000 as of July 4, 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 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.
13
Sales to External Customers:
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Thousands of dollars) 2009 2008 2009 2008
Pork $270,218 $288,329 $ 532,975 $ 527,244
Commodity Trading and Milling 360,135 407,573 741,012 887,464
Marine 175,738 229,714 382,685 440,654
Sugar 35,197 36,044 77,204 67,082
All Other 28,542 38,291 53,522 71,175
Segment/Consolidated Totals $869,830 $999,951 $1,787,398 $1,993,619
Operating Income (Loss):
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Thousands of dollars) 2009 2008 2009 2008
Pork $ 3,952 $(26,399) $ (13,125) $ (31,241)
Commodity Trading and Milling 5,350 13,112 18,451 62,184
Marine (2,308) 13,611 17,431 24,491
Sugar (1,141) 2,726 1,157 5,899
All Other 1,919 3,608 3,544 6,125
Segment Totals 7,772 6,658 27,458 67,458
Corporate Items (5,003) (3,562) (8,647) (4,980)
Consolidated Totals $ 2,769 $ 3,096 $ 18,811 $ 62,478
Income from Foreign Affiliates:
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Thousands of dollars) 2009 2008 2009 2008
Commodity Trading and Milling $ 3,505 $ 1,728 $ 7,208 $ 5,664
Sugar 193 137 384 149
Segment/Consolidated Totals $ 3,698 $ 1,865 $ 7,592 $ 5,813
Total Assets:
July 4, December 31,
(Thousands of dollars) 2009 2008
Pork $ 768,822 $ 800,062
Commodity Trading and Milling 552,515 543,303
Marine 238,873 267,268
Sugar 180,414 225,716
All Other 91,072 81,222
Segment Totals 1,831,696 1,917,571
Corporate Items 489,332 413,790
Consolidated Totals $2,321,028 $2,331,361
14
Investments in and Advances to Foreign Affiliates:
July 4, December 31,
(Thousands of dollars) 2009 2008
Commodity Trading and Milling $ 71,215 $ 66,578
Sugar 1,731 1,513
Segment/Consolidated Totals $ 72,946 $ 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
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 expects to receive approximately $16,790,000
million, net of expenses, in the third quarter of 2009.
_______________________________________________________
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 July 4, 2009 increased $71.8
million to $445.1 million from December 31, 2008. The increase was
the result of cash generated by operating activities of $168.5
million 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 $100.4 million, to spend $28.5 million on
capital expenditures and to repurchase common stock for $3.4
million. Cash from operating activities increased $143.2 million
for the six months ended July 4, 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 six months
ended July 4, 2009 compared to the same period in 2008.
Acquisitions, Capital Expenditures and Other Investing Activities
During the six months ended July 4, 2009, Seaboard invested $28.5
million in property, plant and equipment, of which $9.7 million was
expended in the Pork segment, $9.5 million in the Marine segment,
and $7.8 million in the Sugar segment. The Pork segment
expenditures were primarily for the ham-boning and processing plant
in Mexico, upgrades to the Guymon pork processing plant and
improvements to existing hog facilities. 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 $42.1 million. The Pork segment plans to
spend $8.7 million for upgrades to the Guymon pork processing plant,
improvements to existing hog facilities and additional facility
upgrades and related equipment. The Marine segment has budgeted
$11.1 million primarily for the purchase of additional cargo
carrying and handling equipment, and the expansion of existing port
facilities. 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
$17.8 million consisting of $11.6 million for the development of a
40 megawatt cogeneration plant, with the remaining amount primarily
for the expansion of cane growing operations and harvesting
equipment. 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 $4.5 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 July 4, 2009, Seaboard had committed lines of credit totaling
$300.0 million and uncommitted lines totaling $135.7 million. As of
July 4, 2009, there were no borrowings outstanding under the
committed lines of credit and borrowings under the uncommitted lines
of credit totaled $20.0 million. Outstanding standby letters of
credit reduced Seaboard's borrowing capacity under its committed and
uncommitted credit lines by $54.7 million and $4.2 million,
respectively, primarily representing $39.4 million for Seaboard's
outstanding Industrial Development Revenue Bonds and $15.2 million
related to insurance coverage. Also included in notes payable as of
July 4, 2009 was a term note of $53.5 million denominated in
Japanese Yen.
Seaboard's remaining 2009 scheduled long-term debt maturities total
$46.1 million. Although the current global liquidity crisis and
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 business segments for 2009. In July 2008, Seaboard
secured a $300.0 million line of credit for five years and as of
July 4, 2009, has cash and short-term investments of $445.1 million
with total net
16
working capital of $857.5 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.
On August 7, 2007, the Board of Directors authorized Seaboard to
repurchase from time to time prior to August 31, 2009 up to $50.0
million market value of its common stock in open market or privately
negotiated purchases, of which $11.1 million remained available at
July 4, 2009. For the six months ended July 4, 2009, Seaboard used
cash to repurchase 3,668 shares of common stock at a total price of
$3.4 million. It is anticipated that any future stock repurchases
will be funded by cash on hand or short-term investments. Shares
repurchased are retired and resume status of authorized and unissued
shares. 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 modified or suspended at any
time at Seaboard's discretion.
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 2009 decreased by
$130.1 million and $206.2 million, respectively, over the same
periods in 2008, primarily reflecting price decreases for
commodities sold by the commodity trading business and lower cargo
volumes for the Marine segment. Partially offsetting the decreases
were increased commodities trading volumes to affiliates.
Operating income decreased by $0.3 million and $43.7 million for the
three and six month periods of 2009, respectively, compared to of
the same periods in 2008. The decrease for the six month period is
primarily the result of lower commodity trading margins, lower
Marine segment margins and a $6.9 million fluctuation of marking to
market Commodity Trading and Milling derivative contracts, as
discussed below. The six month decrease was partially offset by
higher margins on pork products sold primarily from lower feed
costs.
Pork Segment
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 270.2 $ 288.3 $ 533.0 $ 527.2
Operating income (loss) $ 4.0 $ (26.4) $ (13.1) $ (31.2)
Net sales for the Pork segment decreased $18.1 million and increased
$5.8 million for the three and six month periods of 2009,
respectively, compared to the same periods in 2008. The decrease
for the quarter primarily represents a decrease in sale prices for
pork products, partially offset by higher volumes of pork products
sold. The increases for the six months is primarily the result of
higher volumes of pork products sold, primarily export sales,
partially offset by lower sale prices for pork products. The
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 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 increased $30.4 million and
$18.1 million for the three and six month periods of 2009,
respectively, compared to the same periods in 2008. The increases
primarily related to lower feed costs and the impact of using the
LIFO method for determining certain inventory costs and, to a lesser
extent, lower costs of third party hogs. For the three and six
months ended July 4, 2009, LIFO increased operating income by $7.0
million and $12.1 million, respectively, compared to decreases of
$22.5 million and
17
$29.7 million for the same periods in 2008, respectively, primarily
as a result of lower costs to purchase corn and soybean meal during
2009. Partially offsetting the increases in operating income were
lower sale prices for pork products noted above.
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 and flu-related concerns seem to have
diminished, the lingering impact from these market disruptions could
continue to have a negative impact on sales prices. As a result,
management is unable to predict whether this segment will be
profitable during the second half 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 Six Months Ended
July 4, June 28, July 4, June 28,
(Dollars in millions) 2009 2008 2009 2008
Net sales $360.1 $407.6 $741.0 $887.5
Operating income $ 5.4 $ 13.1 $ 18.5 $ 62.2
Income from foreign affiliates $ 3.5 $ 1.7 $ 7.2 $ 5.7
Net sales for the Commodity Trading and Milling segment decreased
$47.5 million and $146.5 million for the three and six 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
affiliates.
Operating income for this segment decreased $7.7 million and $43.7
million for the three and six month periods of 2009, respectively,
compared to the same periods in 2008. The decreases primarily
reflect 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. Also, the decreases reflect 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. In addition, for the six
month period the decrease also reflects the $6.9 million fluctuation
of marking to market the derivative contracts as discussed below and
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.
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 $1.9 million
for the three month period and lower by $1.7 million for the six
month period of 2009, respectively, while operating income would
have been higher by $8.5 million and lower by $8.6 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.
18
Income from foreign affiliates for the three and six month periods
of 2009 increased by $1.8 million and $1.5 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 Six Months Ended
July 4, June 28, July 4, June28,
(Dollars in millions) 2009 2008 2009 2008
Net sales $175.7 $229.7 $382.7 $440.7
Operating income (loss) $ (2.3) $ 13.6 $ 17.4 $ 24.5
Net sales for the Marine segment decreased $54.0 million and $58.0
million for the three and six month periods of 2009, respectively,
compared to the same periods in 2008 primarily reflecting lower
cargo volumes as a result of economic declines in most markets
served by Seaboard. For the quarter, cargo rates were down in most
markets while for the six month period cargo rates were slightly
higher compared to the same periods in 2008.
Operating income for the Marine segment decreased $15.9 million and
$7.1 million for the three and six month periods of 2009,
respectively, compared to the same periods in 2008. The decreases
were primarily the result of lower volumes, as discussed above, not
being offset by comparable decreases in certain costs such as
charter hire and owned-vessel operating costs, port costs and
stevedoring. Partially offsetting the decreases were lower fuel
costs for vessels and trucking expenses on a per unit shipped basis.
Also, impacting the quarter were lower cargo rates. In addition,
operating income for 2008 was decreased by an accounting error
totaling $7.2 million and $6.3 million for the three and six month
periods, respectively, 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 during the
second half of 2009.
Sugar Segment
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 35.2 $ 36.0 $ 77.2 $ 67.1
Operating income (loss) $ (1.1) $ 2.7 $ 1.2 $ 5.9
Income from foreign affiliates $ 0.2 $ 0.1 $ 0.4 $ 0.1
Net sales for the Sugar segment decreased $0.8 million and increased
$10.1 million for the three and six month periods of 2009,
respectively, compared to the same periods in 2008. The decrease
for the quarter primarily reflects less sugar purchased from third
parties for resale and lower domestic sugar prices partially offset
by higher volumes of alcohol sales. The increase for the six month
period primarily reflects an increase in volumes for export sales
and, to a lesser extent, higher volumes of alcohol sales partially
offset by less sugar purchased from third parties for resale.
Argentine governmental authorities continue to attempt to control
inflation by limiting the price of basic commodities, including
sugar. Accordingly, management cannot predict sugar prices.
Operating income decreased $3.8 million and $4.7 million for the
three and six month periods of 2009, respectively, compared to the
same periods in 2008. The decreases primarily represent a $2.5
million and $5.3 million charge to earnings for the three and six
month periods 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 decreases also reflect higher selling and
administrative personnel costs. For the six month period, the
decrease was partially offset by higher income from sugar export
sales as discussed above. Management is unable to predict whether
this segment will be profitable during the second half of 2009.
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All Other
Three Months Ended Six Months Ended
July 4, June 28, July 4, June28,
(Dollars in millions) 2009 2008 2009 2008
Net sales $ 28.5 $38.3 $ 53.5 $ 71.2
Operating income $ 1.9 $ 3.6 $ 3.5 $ 6.1
Net sales and operating income primarily represents results from the
Dominican Republic Power division. Net sales decreased $9.8 million
and $17.7 million for the three and six month periods of 2009,
respectively, compared to the same periods in 2008 primarily
reflecting lower rates. The lower rates were attributable primarily
to lower fuel costs, a component of pricing. Operating income
decreased $1.7 million and $2.6 million for the three and six month
periods of 2009, respectively, compared to the same periods in 2008
primarily as a result of rates decreasing more than fuel costs
decreased. 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
$3.3 million and $9.0 million for the three and six month periods of
2009 compared to the same periods in 2008. The increases are
primarily due to increased personnel costs. As a percentage of
revenues, SG&A increased to 5.6% and 5.4% for the 2009 three and six
month periods, respectively compared to 4.5% and 4.4% for the same
periods in 2008 primarily as a result of decreased sales in the
Commodity Trading and Milling segment.
Miscellaneous, Net
The increase in miscellaneous, net income for the three and six
month periods of 2009 compared to the same periods in 2008 primarily
reflect gains of $2.8 million and $5.3 million on interest rate
exchange agreements for the three and six month periods of 2009.
Income Tax Expense
The effective tax benefit rate for the six month period decreased in
2009 compared to 2008 based on a lower projected domestic taxable
loss for 2009 compared to 2008. The higher benefit for the three
month period of 2009 compared to the six month period of 2009
resulted from changing projected domestic income to a projected
domestic loss during the second quarter of 2009.
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.
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 is currently evaluating the impact of this
statement but does not anticipate this statement will 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.
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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 July 4, 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 July 4,
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding Seaboard's
purchase of its common stock during the quarter.
Issuer Purchases of Equity Securities
Approximate
Total Dollar
Number Value
of Shares of Shares
Purchased as that May
Part Yet Be
Total Average of Publicly Purchased
Number Price Announced Under the
of Shares Paid per Plans or Plans or
Period Purchased Share Programs Programs
April 5 to April 30, 2009 - n/a n/a $11,561,979
May 1 to May 31, 2009 435 $995.41 435 $11,128,976
June 1 to July 4, 2009 - n/a n/a $11,128,976
Total 435 $995.41 435 $11,128,976
All purchases during the quarter were made under the authorization
from our Board of Directors to purchase up to $50.0 million of
Seaboard common stock announced on August 8, 2007. An expiration
date of August 31, 2009 has been specified for this authorization.
All purchases were made through open-market purchases and all the
repurchased shares have been retired.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders, held on April 27, 2009, included
three items submitted to a vote of stockholders. Item 4 of the Form
10-Q for the first quarter ended April 4, 2009, which was filed on
May 8, 2009, discloses the results of the shareholder's vote, which
disclosure is incorporated herein by reference.
Item 5. Other Information
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 expects to receive approximately $16,790,000
million, net of expenses, in the third quarter of 2009.
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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
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: August 12, 2009
by: /s/ John A. Virgo
John A. Virgo, Vice President,
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Date: August 12, 2009
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