0001104659-12-014042.txt : 20120228 0001104659-12-014042.hdr.sgml : 20120228 20120228161445 ACCESSION NUMBER: 0001104659-12-014042 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20111231 FILED AS OF DATE: 20120228 DATE AS OF CHANGE: 20120228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 12647394 BUSINESS ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 BUSINESS PHONE: 9136768800 MAIL ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 10-K 1 a12-2715_110k.htm 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

(Mark One)

 

x

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

 

For the fiscal year ended December 31, 2011

 

OR

 

o

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)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

Title of each class

 

Name of each exchange on which registered

Common Stock $1.00 Par Value

 

NYSE Amex Equities

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

 

None

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities  Act.  Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o  No x

 

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 o

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

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 “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

The aggregate market value of the 312,873 shares of Seaboard common stock held by nonaffiliates was approximately $757,168,304, based on the closing price of $2,420.05 per share on July 1, 2011, the end of Seaboard’s most recently completed second fiscal quarter.  As of January 27, 2012, the number of shares of common stock outstanding was 1,209,397.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the following documents are incorporated by reference into the indicated parts of this report: (1) Seaboard Corporation’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) – Parts I and II; and (2) Seaboard Corporation’s definitive proxy statement filed pursuant to Regulation 14A for the 2012 annual meeting of stockholders – Part III.

 

 

 



 

FORM 10-K

 

SEABOARD CORPORATION

 

Forward-Looking Statements

 

This report, including information included or incorporated by reference in this report, contains certain 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 the projection of revenues, income or loss, capital expenditures, capital structure or other financial items;

 

·              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 sale price or market conditions for pork, grains, sugar, turkey and other products and services;

 

(iv)          the recorded tax effects under certain circumstances;

 

(v)           the volume of business and working capital requirements associated with the competitive trading environment for the Commodity Trading and Milling division;

 

(vi)          the charter hire rates and fuel prices for vessels;

 

(vii)         the fuel costs and related spot market prices in the Dominican Republic;

 

(viii)        the effect of the fluctuation in foreign currency exchange rates;

 

(ix)          the profitability or sales volume of any of Seaboard’s divisions;

 

(x)          the anticipated costs and completion timetable for Seaboard’s scheduled capital improvements, acquisitions and dispositions; or

 

(xi)        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 Form 10-K and in other filings Seaboard makes with the Commission, including without limitation, the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K, identifies important factors which could cause such differences.

 

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PART I

 

Item 1.  Business

 

(a)  General Development of Business

 

Seaboard Corporation, a Delaware corporation, and its subsidiaries (Seaboard), is a diversified international agribusiness and transportation company.  In the United States, Seaboard is primarily engaged in pork production and processing and ocean transportation.  Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production, and electric power generation.  Seaboard also has an interest in turkey operations in the United States.  See Item 1(c) (1) (ii) “Status of Product or Segment” below for a discussion of acquisitions, dispositions and other developments in specific divisions.

 

Seaboard Flour LLC and SFC Preferred LLC, Delaware limited liability companies, collectively own approximately 73.8 percent of the outstanding common stock of Seaboard.  Mr. Steven J. Bresky, President and Chief Executive Officer of Seaboard, and other members of the Bresky family, including trusts created for their benefit, own the equity interests of Seaboard Flour LLC and SFC Preferred LLC.

 

(b)  Financial Information about Industry Segments

 

The financial information relating to Industry Segments required by Item 1 of Form 10-K is incorporated herein by reference to Note 13 of the Consolidated Financial Statements appearing on pages 54 through 58 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report.

 

(c)  Narrative Description of Business

 

(1)  Business Done and Intended to be Done by the Registrant

 

(i)  Principal Products and Services

 

Pork Division – Seaboard, through its subsidiary Seaboard Foods LLC, engages in the businesses of hog production and pork processing in the United States.  Through these operations, Seaboard produces and sells fresh and frozen pork products to further processors, foodservice operators, grocery stores, distributors and retail outlets throughout the United States.  Internationally, Seaboard sells to these same types of customers in Japan, Mexico and other foreign markets.  Other further processing companies also purchase Seaboard’s fresh and frozen pork products in bulk and produce products, such as lunchmeat, ham, bacon, and sausage.  Fresh pork, such as loins, tenderloins and ribs are sold to distributors and grocery stores.  Seaboard also sells further processed pork products consisting primarily of raw and pre-cooked bacon from its two bacon further processing plants.  Seaboard sells some of its fresh products under the brand name Prairie Fresh® and its bacon and other further processed products under the Daily’s® brand name.  Seaboard’s hog processing plant is located in Guymon, Oklahoma, and generally operates at full capacity.  Seaboard’s bacon plants are located in Salt Lake City, Utah and Missoula, Montana.  Seaboard has a majority interest in a ham-boning and processing plant in Mexico.  Seaboard also earns fees, based primarily on the number of head processed, to market substantially all of the products produced by Triumph Foods LLC at their pork processing plant located in St. Joseph, Missouri.

 

Seaboard’s hog production operations consist of the breeding and raising of over four million hogs annually primarily at facilities owned by Seaboard or at facilities owned and operated by third parties with whom Seaboard has grower contracts.  The hog production operations are located in the States of Oklahoma, Kansas, Texas and Colorado.  As a part of the hog production operations, Seaboard produces specially formulated feed for the hogs at six owned feed mills.  The remaining hogs processed are purchased from third party hog producers, primarily pursuant to purchase contracts.

 

Seaboard produces biodiesel at a facility in Guymon, Oklahoma.  The biodiesel is produced from pork fat from Seaboard’s Guymon pork processing plant and from animal fat supplied by non-Seaboard facilities.  The biodiesel is sold to third parties.  The facility can also produce biodiesel from vegetable oil.  Seaboard is able to reduce or stop production when it isn’t economically feasible to produce based on input costs or the price of biodiesel.

 

Commodity Trading and Milling Division – Seaboard’s Commodity Trading and Milling Division is an integrated grain trading, grain processing and logistics company.  This Division markets wheat, corn, soybean meal, rice and other similar commodities in bulk to third parties and affiliated companies.  This division is managed under the name of Seaboard Overseas and Trading Group, conducts business primarily through its subsidiaries, Seaboard Overseas

 

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Limited with offices in Colombia, Ecuador, Isle of Man and South Africa, Seaboard Overseas Trading and Shipping (PTY), Ltd. located in South Africa, and its non-consolidated affiliates, ContiLatin del Peru S.A. located in Lima, Peru, and Plum Grove Pty Ltd located in Fremantle, Australia.  In addition, although to a lesser degree, Seaboard also markets various specialty grains and other similar commodities to third party customers, collectively managed as Seaboard Specialty Grains and Foods, through its subsidiaries PS International, LLC (previously a non-consolidated affiliate through December 31, 2011; see “Status of Product or Segment” below for further discussion) located in Chapel Hill, North Carolina, with additional international offices, SeaRice Caribbean located in Miami, Florida, SeaRice Limited located in Geneva, Switzerland, and Fill-more Seeds, Inc. located in Fillmore, Canada.  All of the commodities marketed by this division are purchased from growing regions worldwide, with primary destinations being Africa, South America and the Caribbean.  The division sources, transports and markets approximately seven million tons of grains and proteins on an annual basis.  Seaboard integrates the service of delivering commodities to its customers through the use of chartered bulk vessels and its eight owned bulk carriers.

 

This division also operates grain and feed milling and related businesses with 28 locations in 14 countries, which are primarily supplied by the trading locations discussed above.  The grain processing businesses are operated through five consolidated and thirteen non-consolidated affiliates in Africa, the Caribbean and South America.  These are flour, feed and maize milling businesses which produce approximately three million metric tons of finished products per year.  Most of the products produced by the milling operations are sold in the countries in which the products are produced or into adjacent countries.

 

In addition, this division has a 49 percent non-controlling interest in a poultry business in Africa and a 50 percent non-controlling interest in a bakery being built in Central Africa.  The bakery is not anticipated to be operational until the second half of 2012.

 

Marine Division – Seaboard, through its subsidiary, Seaboard Marine Ltd., and various foreign affiliated companies and third party agents, provides containerized cargo shipping service to 25 countries between the United States, the Caribbean Basin, and Central and South America.  Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America and the Caribbean Basin to book both northbound and southbound cargo to and from the United States and between the countries it serves.  Through agreements with a network of connecting carriers, Seaboard can transport cargo to and from numerous U.S. locations by either truck or rail to and from one of its U.S. port locations, where it is staged for export via vessel or received as import cargo from abroad.

 

Seaboard’s primary marine operation is located in Miami and includes a terminal located at the Port of Miami and an off-dock warehouse for cargo consolidation and temporary storage.  Seaboard also operates a cargo terminal facility at the Port of Houston that includes an on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes.  Seaboard also makes scheduled vessel calls in Brooklyn, New York, Fernandina Beach, Florida, New Orleans, Louisiana and 41 foreign ports.  At December 31, 2011, Seaboard’s fleet consisted of 9 owned and approximately 28 chartered vessels, and dry, refrigerated and specialized containers and other related equipment.

 

Sugar Division – Seaboard, through its subsidiary, Ingenio y Refineria San Martin del Tabacal and other Argentine non-consolidated affiliates, grows sugar cane, produces and refines sugar, and produces alcohol in Argentina.  This division also purchases sugar in bulk from third parties mostly within Argentina for subsequent resale.  The sugar products are mostly sold in Argentina, primarily to retailers, soft drink manufacturers, and food manufacturers, with some exports to the United States and other South American countries.  Seaboard grows a large portion of the sugar cane on nearly 70,000 acres of land it owns in northern Argentina. The cane is processed at an owned mill, with a current processing capacity of approximately 250,000 metric tons of sugar and approximately 15 million gallons of alcohol per year.  The sugar mill is one of the largest in Argentina. Also, this division recently completed construction of a 38 megawatt cogeneration power plant, which became fully operational in October 2011.

 

Power Division – Seaboard, through its subsidiary, Transcontinental Capital Corp. (Bermuda) Ltd., operates as an independent power producer in the Dominican Republic.  This operation is exempt from U.S. regulation under the Public Utility Holding Company Act of 1938, as amended.  Through early 2011, this division operated two floating power generating facilities with a system of diesel engines capable of generating a combined rated capacity of approximately 112 megawatts of electricity.  See “Status of Product or Segment” below for discussion of the sale of the two facilities, the subsequent short-term lease of one of the two facilities sold and the construction of a new replacement floating power generating facility that is anticipated to begin commercial operations in March 2012.

 

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Seaboard generates electricity into the local Dominican Republic power grid.  Seaboard is not directly involved in the transmission or distribution of the electricity but does have contracts to sell directly to third party users.  The floating power generating facilities are secured on the Ozama River in Santo Domingo, Dominican Republic.

 

Turkey Segment – Seaboard owns a 50 percent non-controlling voting interest in Butterball, LLC (“Butterball”).  The other 50 percent ownership interest is owned by a group consisting of Maxwell Farms, LLC, Goldsboro Milling Company and GM Acquisition LLC (collectively, the “Maxwell Group”) based in North Carolina.  Butterball is a vertically integrated producer, processor and marketer of branded and non-branded turkeys, and other turkey products.  Butterball has five processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri and Kansas.  Butterball produces approximately 1 billion pounds of turkey each year, and the company supplies its products to more than 30 countries.  Butterball is a national supplier to retail and foodservice outlets and also exports products to Mexico and overseas.

 

Other Businesses – Seaboard purchases and processes jalapeño peppers at its owned plant in Honduras.  The processed peppers are primarily sold to a customer in the United States, and are shipped to the United States by Seaboard’s Marine Division and distributed from Seaboard’s port facilities.

 

The information required by Item 1 of Form 10-K with respect to the amount or percentage of total revenue contributed by any class of similar products or services which account for 10 percent or more of consolidated revenue in any of the last three fiscal years is set forth in Note 13 of Seaboard’s Consolidated Financial Statements, appearing on pages 54 through 58 of the Seaboard’s Annual Report to Stockholders, furnished to the Commission pursuant to rule 14a-3(b) and attached as Exhibit 13 to this report, which information is incorporated herein by reference.

 

(ii)  Status of Product or Segment

 

The Federal tax credits for biodiesel produced by the Pork division expired on December 31, 2011.  Currently, it is not anticipated that Congress will extend this credit beyond 2011.

 

In late July 2010, Seaboard finalized an agreement to invest in a bakery to be built in Central Africa.  Seaboard has a 50% non-controlling interest in this business.  The total project cost is estimated to be $60.5 million but Seaboard’s total investment has not yet been determined pending finalization of third party financing alternatives for a significant portion of the project.  The bakery is anticipated to be fully operational during the second half of 2012.

 

Seaboard has a non-controlling interest in an affiliate with a flour mill operation in Lafiteau, Haiti.  In January 2010, Haiti was struck by an earthquake.  Part of this facility was severely damaged as a result of the earthquake.  This facility was fully insured, including business interruption and inventory coverage.  Construction was completed in late 2011 and the mill resumed commercial operations in January 2012.  Seaboard also sells wheat and, while the mill was under construction, sold flour to this business through Seaboard’s commodity trading operations.

 

During December 2011, Seaboard finalized an agreement to lease certain milling assets in Ghana under a new consolidated entity named Flour Mills of Ghana.  The term of the lease is 33 years. This arrangement will provide local production and sale of flour products.

 

Effective, January 1, 2012, Seaboard increased its ownership from 50% to 70% in PS International, LLC (PSI), a specialty grain trading business located in Chapel Hill, North Carolina.

 

During 2011, the Sugar Division completed development of a 38 megawatt cogeneration power plant.  This plant became fully operational in October 2011.  This plant is expected to run primarily during the sugar harvest season, which is between May and November, with minimal operations outside of harvest season since this plant is primarily operated using sugar by-product.

 

On April 8, 2011, Seaboard closed the sale of its two existing power generating facilities in the Dominican Republic for $73.1 million.  On April 20, 2011, Seaboard signed a short-term lease agreement that allowed Seaboard to resume operations of one of the facilities (72 megawatts) through approximately March 31, 2012.  Seaboard and the purchaser also agreed to defer the sale to the purchaser of the inventory related to the EDM until the end of the lease term.  Seaboard retained all other physical properties of this business and constructed a new 106 megawatt floating

 

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power generating facility for use in the Dominican Republic for approximately $133.0 million.  This new facility was delivered in January 2012 and is anticipated to begin commercial operations in March 2012.

 

As of April 1, 2012, the Power Division’s tax exempt concession granted by the Dominican Republic government will cease.

 

On December 31, 2011, Butterball closed its Longmont, Colorado facilities. During the third quarter of 2011, Seaboard made an additional capital contribution of $5.6 million in Butterball to assist in their acquisition of certain live growing facilities.

 

(iii)  Sources and Availability of Raw Materials

 

None of Seaboard’s businesses utilize material amounts of raw materials that are dependent on purchases from one supplier or a small group of dominant suppliers.  However, the Turkey Segment purchases a significant portion of its feed for its turkeys in North Carolina from the Maxwell Group, Seaboard’s 50% partner in Butterball.

 

(iv)  Patents, Trademarks, Licenses, Franchises and Concessions

 

Seaboard uses the registered trademark of Seaboard®.

 

The Pork Division uses registered trademarks relating to its products, including Seaboard Farms®, Prairie Fresh®, A Taste Like No Other®, Daily’s®, Daily’s Premium Meats Since 1893®, St. Joe Pork®, High Plains Bioenergy®, Prairie Fresh Prime®, Seaboard Foods®, Buffet Brand®, Seaboard Farms, Inc.® Del Pueblo® and Cook in Bag®.  Seaboard considers the use of these trademarks important to the marketing and promotion of its pork products.

 

The Marine Division uses the trade name Seaboard Marine® and Seaboard Solutions® which are all registered trademarks.  Seaboard believes there is significant recognition of these trademarks in the industry and by many of its customers.

 

Part of the sales within the Sugar Division are made under the Chango® brand in Argentina, where this division operates.  Local sales prices are affected by government price control and sugar import duties imposed by the Argentine government, impacting local volume sold, as well as imported and exported volumes to and from international markets.  Sourcing in the domestic market is also closely monitored by the local government.

 

The Turkey Segment uses registered trademarks relating to its products, including Butterball® and Carolina Turkeys®.  Seaboard considers the use of these trademarks important to marketing and promotion of its turkey products.

 

Patents, trademarks, franchises, licenses and concessions are not material to any of Seaboard’s other divisions.

 

(v)  Seasonal Business

 

The Sugar Division’s cogeneration plant is expected to run primarily during the sugar harvest season with minimal operations outside of harvest season since this plant is primarily operated using sugar by-product. The Turkey business is seasonal only on the whole bird side with Thanksgiving and Christmas holidays driving the majority of those sales.  Seaboard’s other divisions are not seasonally dependent to any material extent.

 

(vi)  Practices Relating to Working Capital Items

 

There are no unusual industry practices or practices of Seaboard relating to working capital items.

 

(vii)  Depending on a Single Customer or Few Customers

 

Seaboard does not have sales to any one customer equal to ten percent or more of consolidated revenues.  The Pork Division derives approximately 10 percent of its revenues from a few customers in Japan through one agent.  Historically, the Commodity Trading and Milling Division derives a significant portion of its operating income from sales to a non-consolidated affiliate. The Power Division sells power in the Dominican Republic on the spot market accessed primarily by three wholly government-owned distribution companies and one partially government-owned generation company, and also to a limited number of contract customers.  No other division has sales to a few customers which, if lost, would have a material adverse effect on any such division or on Seaboard taken as a whole.

 

(viii)  Backlog

 

Backlog is not material to Seaboard’s businesses.

 

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(ix)  Government Contracts

 

No material portion of Seaboard’s business involves government contracts.

 

(x)  Competitive Conditions

 

Competition in Seaboard’s Pork Division comes from a variety of national, international and regional producers and processors and is based primarily on product quality, customer service and price.  According to recent publications by Successful Farming and Informa Economics, trade publications, Seaboard ranks as one of the nation’s top five pork producers (based on sows in production) and top ten pork processors (based on daily processing capacity).

 

Seaboard’s commodity trading business to third parties faces competition from numerous traders around the world in a very competitive environment with low margin percentages on most trades.  Most of the grain processing and related businesses face competition from either imported products or other local producers in the same industries.

 

Seaboard’s ocean liner service for containerized cargoes faces competition based on price, reliable sailing frequencies and customer service.  Seaboard believes it is among the top five ranking ocean liner services for containerized cargoes in the Caribbean Basin and Central America based on cargo volume.

 

Seaboard’s sugar business owns one of the largest sugar mills in Argentina and faces significant competition for sugar sales in the local Argentine market.  Sugar prices in Argentina can fluctuate compared to world markets due to current Argentine government price control and protection policies.

 

Seaboard’s Power Division is located in the Dominican Republic.  Power generated by this division is sold on the spot market or to contract customers at prices based on market conditions and cost-based rates.

 

Competition for the Turkey Segment comes from a variety of national and regional producers and processors and is based primarily on product quality, customer service and price.  Butterball ranks as one of the nation’s top three turkey producers (based on live production).

 

(xi)  Research and Development Activities

 

Seaboard and its Turkey Segment conduct research and development activities focused on various aspects of Seaboard’s vertically integrated pork and turkey processing system, including improving product quality, production processes, animal genetics, nutrition and health.  Incremental costs incurred to perform these tests are expensed as incurred and are not material to operating results.

 

(xii)  Environmental Compliance

 

Seaboard and its Turkey Segment are subject to numerous Federal, state and local provisions relating to the environment which require the expenditure of funds in the ordinary course of business.  Seaboard and its Turkey Segment do not anticipate making expenditures for these purposes, which, in the aggregate would have a material or significant effect on Seaboard’s financial condition or results of operations.

 

(xiii)  Number of Persons Employed by Registrant

 

As of December 31, 2011, Seaboard, excluding non-consolidated affiliates, had 10,573 employees, of whom 5,918 were employed in the United States.  Approximately 2,100 employees in Seaboard’s Pork Division were covered by collective bargaining agreements as of December 31, 2011.  Seaboard considers its employee relations to be satisfactory.

 

(d)  Financial Information about Geographic Areas

 

In addition to the narrative disclosure provided below, the financial information relating to export sales required by Item 1 of Form 10-K is incorporated herein by reference to Note 13 of Seaboard’s Consolidated Financial Statements appearing on pages 54 through 58 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report.

 

Seaboard considers its relations with the governments of the countries in which its foreign subsidiaries and affiliates are located to be satisfactory, but foreign operations in lesser-developed countries are subject to risks of doing business such as potential civil unrests and government instabilities, increasing the exposure to potential expropriation, confiscation, war, insurrection, civil strife and revolution, sales price controls, currency inconvertibility and devaluation, and currency exchange controls.  To minimize certain of these risks, Seaboard has insured certain investments in its affiliate flour mills in Democratic

 

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Republic of Congo, Haiti, Lesotho, Madagascar, Republic of Congo and Zambia, to the extent available and deemed appropriate against certain of these risks with the Overseas Private Investment Corporation, an agency of the United States Government.  At the date of this report, Seaboard is not aware of any situations which could have a material effect on Seaboard’s business.

 

(e)  Available Information

 

Seaboard electronically files with the Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act.  The public may read and copy any materials filed with the Commission at their public reference room located at 100 F Street N.E., Washington, D.C. 20549.  The public may obtain further information concerning the public reference room and any applicable copy charges, as well as the process of obtaining copies of filed documents by calling the Commission at 1-800-SEC-0330.

 

The Commission maintains an internet website that contains reports, proxy and information statements, and other information regarding electronic filers at www.sec.gov.  Seaboard provides access to its most recent Form 10-K, 10-Q and 8-K reports, and any amendments to these reports, on its internet website, www.seaboardcorp.com, free of charge, as soon as reasonably practicable after those reports are electronically filed with the Commission.

 

Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks.  Accordingly, no information provided at such Internet addresses is intended or deemed to be incorporated herein by reference.

 

Item 1A.  Risk Factors

 

Seaboard has identified important risks and uncertainties that could affect the results of operations, financial condition or business and that could cause them to differ materially from Seaboard’s historical results of operations, financial condition or business, or those contemplated by forward-looking statements made herein or elsewhere, by, or on behalf of, Seaboard.  Factors that could cause or contribute to such differences include those factors described below.

 

(a)  General

 

(1)   Seaboard’s Operations are Subject to the General Risks of the Food Industry.  The divisions of the business that are in the food products manufacturing industry are subject to the risks posed by:

 

·      food spoilage or food contamination;

·      evolving consumer preferences and nutritional and health-related concerns;

·      federal, state, national, provincial and local food processing regulations;

·      consumer product liability claims;

·      product tampering; and

·      public perception of food production practices.

 

If one or more of these risks were to materialize, Seaboard’s revenues could decrease, costs of doing business could increase, and Seaboard’s operating results could be adversely affected.

 

(2)   Foreign Political and Economic Conditions Have a Significant Impact on Seaboard’s Business.  Seaboard is a diverse agribusiness and transportation company with global operations in several industries.  Most of the sales and costs of Seaboard’s divisions are significantly influenced by worldwide fluctuations in commodity prices or changes in foreign political and economic conditions.  Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year.  In addition, Seaboard’s international activities pose risks not faced by companies that limit themselves to United States markets. These risks include:

 

·      changes in foreign currency exchange rates;

·      foreign currency exchange controls;

·      changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;

·      hyperinflation;

·      heightened customer credit and execution risk;

·      tariffs, other trade protection measures and import or export licensing requirements;

·      potentially negative consequences from changes in tax laws;

 

8



 

·      different legal and regulatory structures and unexpected changes in legal and regulatory requirements; and

·      negative perception within a foreign country of a United States company doing business in that foreign country.

 

Seaboard cannot provide assurance that it will be successful in competing effectively in international markets.

 

(3)   Deterioration of Economic Conditions Could Negatively Impact Seaboard’s Business.  Seaboard’s business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs and the effects of governmental initiatives to manage economic conditions.  Any such changes could adversely affect the demand for our meat products, grains and shipping services, or the cost and availability of our needed raw materials and packaging materials, thereby negatively affecting our financial results.  The current national and global economic conditions, could, among other things:

 

·      impair the financial condition of some of our customers and suppliers thereby increasing customer bad debts or non-performance by customers and suppliers;

·      negatively impact global demand for protein and grain-based products, which could result in a reduction of sales, operating income and cash flows;

·      decrease the value of our investments in equity and debt securities, including pension plan assets; and

·      impair the financial viability of our insurers.

 

(4)   Ocean Transportation Has Inherent Risks.  Seaboard’s owned and chartered vessels along with related cargoes are at risk of being damaged or lost because of events such as:

 

·      marine disasters;

·      bad weather;

·      mechanical failures;

·      grounding, fire, explosions and collisions;

·      human error; and

·      war, piracy and terrorism.

 

All of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting.  If one of Seaboard’s vessels were involved in an accident, the resulting media coverage could have a material adverse effect on Seaboard’s business, financial condition and results of operations.

 

(5)   Seaboard’s Common Stock is Thinly Traded and Subject to Daily Price Fluctuations.  The common stock of Seaboard is closely held (73.8% is collectively owned by Seaboard Flour and SFC Preferred LLC, which are owned by S. Bresky and other members of the Bresky family) and thinly traded on a daily basis on the NYSE Amex Equities.  Accordingly, the price of a share of common stock can fluctuate more significantly from day-to-day than that of a share of widely held stock that is actively traded on a daily basis.

 

(b)  Pork Division

 

(1)   Fluctuations in Commodity Pork Prices Could Adversely Affect Seaboard’s Results of Operations.  Sales prices for Seaboard’s pork products are directly affected by both domestic and world-wide supply and demand for pork products and other proteins, all of which are determined by constantly changing market forces of supply and demand as well as other factors over which Seaboard has little or no control.  Commodity pork prices demonstrate a cyclical nature over periods of years, reflecting changes in the supply of fresh pork and competing proteins on the market, especially beef and chicken.  Seaboard’s results of operations could be adversely affected by fluctuations in pork commodity prices.

 

(2)   Increases in Costs of Seaboard’s Feed Components and Hog Purchases Could Adversely Affect Seaboard’s Costs and Operating Margins.  Feed costs are the most significant single component of the cost of raising hogs and can be materially affected by commodity price fluctuations for corn and soybean meal.  The results of Seaboard’s Pork Division can be negatively affected by increased costs of Seaboard’s feed components.  The recent increase in construction and operation of ethanol plants has elevated this risk as it has increased the competing demand for feed ingredients, primarily corn.  Similarly, accounting for approximately 24% of Seaboard’s total hogs slaughtered, the cost of third party hogs purchased fluctuates with market conditions and can have an impact on Seaboard’s total costs.  The cost and supply of feed components and the third party hogs that we purchase are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no

 

9



 

control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports and governmental agricultural policies.  Seaboard attempts to manage certain of these risks through the use of financial instruments, however this may also limit its ability to participate in gains from favorable commodity fluctuations.  Unless wholesale pork prices correspondingly increase, increases in the prices of Seaboard’s feed components or in the cost of third party hogs purchased would adversely affect Seaboard’s operating margins.

 

(3)   Seaboard May be Unable to Obtain Appropriate Personnel at Remote Locations.  The remote locations of the pork processing plant and live hog operations, and a more restrictive national policy on immigration could negatively affect the availability and cost of labor.  Seaboard is dependent on having sufficient properly trained operations personnel.  Attracting and retaining qualified personnel is important to Seaboard’s success.  The inability to acquire and retain the services of such personnel could have a material adverse effect on Seaboard’s operations.

 

(4)   The Loss of Seaboard’s Sole Hog Processing Facility Could Adversely Affect Seaboard’s Business.  Seaboard’s Pork Division is largely dependent on the continued operation of a single hog processing facility.  The loss of or damage to this facility for any reason – including fire, tornado, governmental action or other reason – could adversely affect Seaboard and Seaboard’s pork business.

 

(5)   Environmental Regulation and Related Litigation Could Have a Material Adverse Effect on Seaboard.  Seaboard’s operations and properties are subject to extensive and increasingly stringent laws and regulations pertaining to, among other things, odors, the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment.  Failure to comply with these laws and regulations and any future changes to them may result in significant consequences to Seaboard, including civil and criminal penalties, liability for damages and negative publicity.  Some requirements applicable to Seaboard may also be enforced by citizen groups.  Seaboard has incurred, and will continue to incur, operating expenditures to comply with these laws and regulations.

 

(6)   Health Risk to Livestock Could Adversely Affect Production, the Supply of Raw Materials and Seaboard’s Business.  Seaboard is subject to risks relating to its ability to maintain animal health and control diseases.  The general health of the hogs and the reproductive performance of the sows can have an adverse impact on production and production costs, the supply of raw material to Seaboard’s pork processing operations and consumer confidence.  If Seaboard’s hogs are affected by disease, Seaboard may be required to destroy infected livestock, which could adversely affect Seaboard’s production or ability to sell or export its products.  Moreover, the herd health of third party suppliers could adversely affect the supply and cost of hogs available for purchase by Seaboard.  Adverse publicity concerning any disease or health concern could also cause customers to lose confidence in the safety and quality of Seaboard’s food products.

 

(7)   If Seaboard’s Pork Products Become Contaminated, We May be Subject to Product Liability Claims and Product Recalls.  Pork products may be subject to contamination by disease producing organisms.  These organisms are generally found in the environment and as a result, regardless of the manufacturing practices employed, there is a risk that they could be present in Seaboard’s processed pork products as a result of food processing.  Once contaminated products have been shipped for distribution, illness and death may result if the organisms are not eliminated at the further processing, foodservice or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on Seaboard’s business, reputation, prospects, results of operations and financial condition.

 

(8)   Corporate Farming Legislation Could Result in the Divestiture or Restructuring of Seaboard’s Pork Operations.  The development of large corporate farming operations and concentration of hog production in larger-scale facilities has engendered opposition from residents of states in which Seaboard conducts its pork processing and live hog operations.  From time-to-time, corporate farming legislation has been introduced in the United States Senate and House of Representatives, as well as in several state legislatures.  These proposed anti-corporate farming bills have included provisions to prohibit or restrict meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter, which would require divestiture or restructuring of Seaboard’s operations.

 

(9)   International Trade Barriers Could Adversely Affect Seaboard’s Pork Operations.  This division realizes a significant portion of its revenues from international markets, particularly Japan and Mexico.  International sales are subject to risks related to general economic conditions, imposition of tariffs, quotas, trade barriers and other restrictions, enforcement of remedies in foreign jurisdictions and compliance with applicable foreign laws, and other economic and political uncertainties.  These and other risks could result in border closings or other international trade barriers having an adverse effect on Seaboard’s earnings.

 

10



 

(10)   Discontinuation of Tax Credits for Biodiesel Could Adversely Affect Seaboard’s Results of Operations.  Seaboard has received Federal and State tax credits for the biodiesel it produces and sells.  The Federal tax credit expired on December 31, 2009, but was renewed by Congress in late December 2010 retroactive to January 1, 2010 with an expiration date of December 31, 2011. Currently, it is not anticipated that Congress will extend this tax credit beyond 2011, although it is anticipated that other factors including government mandates to use biofuels should create sufficient demand.  However, Seaboard’s results of operations could be adversely affected and the recorded value of property, plant and equipment related to the biodiesel processing facility could be impaired if demand is not sufficient enough to maintain profitable operations.

 

(11)  Operations of Biodiesel Production Facility.  The profitability of Seaboard’s biodiesel plant could be adversely affected by various factors, including the market price of pork and other animal fat which is utilized to produce biodiesel, and the market price for biodiesel which is influenced by world oil prices.  Unfavorable changes in these prices over extended periods of time could adversely affect Seaboard’s results of operations and could result in the potential impairment of the recorded value of the property, plant and equipment related to this facility.

 

(c)  Commodity Trading & Milling Division

 

(1)   Seaboard’s Commodity & Milling Division is Subject to Risks Associated with Foreign Operations.  This division principally operates in Africa, South America and the Caribbean and, in most cases, in what are generally regarded to be lesser developed countries.  Many of these foreign operations are subject to risks of doing business in lesser-developed countries which are subject to potential civil unrests and government instabilities, increasing the exposure to potential expropriation, confiscation, war, insurrection, civil strife and revolution, currency inconvertibility and devaluation, and currency exchange controls, in addition to the risks of overseas operations mentioned in clause (a)(2) above.  In addition, foreign government policies and regulations could restrict the purchase of various grains, reducing or limiting Seaboard’s ability to access grains or to limit Seaboard’s sales price for grains sold in local markets.

 

(2)   Fluctuations in Commodity Grain Prices Could Adversely Affect the Business of Seaboard’s Commodity & Milling Division.  This division’s sales are significantly affected by fluctuating worldwide prices for various commodities, such as wheat, corn, soybeans and rice.  These prices are determined by constantly changing market forces of supply and demand as well as other factors over which Seaboard has little or no control.  North American and European subsidized wheat and flour exports, including donated food aid, and world-wide and local crop production can contribute to these fluctuating market conditions and can have a significant impact on the trading and milling businesses’ sales, value of commodities held in inventory and operating income.  Seaboard’s results of operations could be adversely affected by fluctuations in commodity prices.

 

(3)   Seaboard’s Commodity & Milling Division Largely Depends on the Availability of Chartered Ships.  Most of Seaboard’s third party trading is transported with chartered ships.  Charter hire rates, influenced by available charter capacity and demand for worldwide trade in bulk cargoes, port access and throughput time, and related fuel costs can impact business volumes and margins.

 

(4)   This Division Uses a Material Amount of Derivative Products to Manage Certain Market Risks.  The commodity trading portion of the business enters into various commodity derivatives, foreign exchange derivatives and freight derivatives to create what management believes is an economic hedge for commodity trades it executes or intends to execute with its customers.  From time to time, this portion of the business may enter into speculative derivative transactions related to its market risks.  Failure to execute or improper execution of a derivative position or a firmly committed sale or purchase contract, a speculative transaction that closes without the desired result or exposure to counter party risk could have an adverse impact on the results of operations and liquidity.

 

(5)   This Division is Subject to Higher than Normal Risks for Attracting and Retaining Key Personnel.  In the commodity trading environment, a loss of a key employee such as a commodity trader can have a negative impact resulting from the loss of revenues as personal customer relationships can be vital to obtaining and retaining business with various foreign customers.  In the milling portion of this division, employing and retaining qualified expatriate personnel is a key element of success given the difficult living conditions, the unique operating environments and the reliance on a relatively small number of executives to manage each individual location.

 

(d)  Marine Division

 

(1)   The Demand for Seaboard’s Marine Division’s Services Are Affected by International Trade and Fluctuating Freight Rates.  This division provides containerized cargo shipping services primarily from the United States to 25 different

 

11



 

countries in the Caribbean Basin, Central and South America.  In addition to the risks of overseas operations mentioned in clause (a)(2) above, fluctuations in economic conditions, unstable or hostile local political situations in the countries in which Seaboard operates can affect import/export trade volumes and the price of container freight rates and adversely affect Seaboard’s results of operations.

 

(2)   Chartered Ships Are Subject to Fluctuating Rates.  Time charter expenses are one of the division’s largest expenses.  Certain ships are under charters longer than one year while others are less than one year.  These costs can vary greatly due to a number of factors including the worldwide supply and demand for shipping.  It is not possible to determine in advance whether a charter contract for more or less than one year will be favorable to Seaboard’s business.  Accordingly, entering into long-term charter hire contracts during periods of decreasing charter hire costs or short term charter hire contracts during periods of increasing charter hire costs could have an adverse effect on Seaboard’s results of operation.

 

(3)   Increased Fuel Prices May Adversely Affect Seaboard’s Business.  Ship fuel expenses are one of the division’s largest expenses and vary greatly from year to year depending on fuel prices. While most trade lanes have a series of fuel surcharges in place that seek to adjust revenues with changes in fuel prices, such mechanisms do not act with precision in terms of timing and amount. When fuel prices increase rapidly or consistently, the surcharge mechanism may not adjust revenues enough to offset the increase in cost to Seaboard.  Fuel surcharges are also an area of competition among carriers and market forces may preclude us from generating enough revenue from the fuel surcharges to offset any increase in costs, which may have a negative effect on Seaboard’s profitability. Also, but to a lesser extent, fuel price increases can impact the cost of inland transportation costs.

 

(4)   Hurricanes May Disrupt Operations in the Caribbean Basin.  Seaboard’s port operations throughout the Caribbean Basin can be subject to disruption due to hurricanes, especially at Seaboard’s major ports in Miami, Florida and Houston, Texas, which could have an adverse effect on our results of operations.

 

(5)   Seaboard is Subject to Complex Laws and Regulations that May Adversely Affect the Revenues, Cost, Manner or Feasibility of Doing Business.  Federal, state and local laws and domestic and international regulations governing worker health and safety, environmental protection, port and terminal security, and the operation of vessels significantly affect Seaboard’s operations, including rate discussions and other related arrangements.  Many aspects of the marine industry, including rate agreements, are subject to extensive governmental regulation by the Federal Maritime Commission, the U.S. Coast Guard, and U.S. Customs and Border Protection, and to regulation by private industry organizations.  Compliance with applicable laws, regulations and standards may require installation of costly equipment or operational changes, while the failure to comply may result in administrative and civil penalties, criminal sanctions or the suspension or termination of Seaboard’s operations or detention of its vessels.  In addition, future changes in laws, regulations and standards, including allowed freight rate discussions and other related arrangements, may result in additional costs or a reduction in revenues.

 

(e)  Sugar Division

 

(1)   The Success of this Division Depends on the Condition of the Argentinean Economy and Political Climate.  This division operates a sugar mill and alcohol production facility in Argentina, locally growing a substantial portion of the sugar cane processed at the mill.  The majority of the sales are within Argentina.  Fluctuations in economic conditions or changes in the Argentine political climate can have an impact on the costs of operations, the sales prices of products and export opportunities and the exchange rate of the Argentine peso to the U.S. dollar.  In this regard, local sales prices are affected by government price control and sugar import duties imposed by the Argentine government, impacting local volume sold, as well as imported and exported volumes to and from international markets.  If import duties are changed, this could have a negative impact on Seaboard’s sale price of its products.  In addition, the Argentine government attempts to control inflation through price controls on commodities, including sugar, which could adversely impact the local sales price of its products and the results of operations for this division. A devaluation of the Argentine peso would have a negative impact on Seaboard’s financial position.

 

(2)   This Division is Subject to the Risks that Are Inherent in any Agricultural Business.  Seaboard’s results of operations for this division may be adversely affected by numerous factors over which we have little or no control and that are inherent in any agricultural business, including reductions in the market prices for Seaboard’s products, adverse weather and growing conditions, pest and disease problems, and new government regulations regarding agriculture and the marketing of agricultural products.  Of these risks, weather particularly can adversely affect the amount and quality of the sugar cane produced by Seaboard and Seaboard’s competitors located in other regions of Argentina.

 

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(3)   The Loss of Seaboard’s Sole Processing Facility Would Adversely Affect the Business of This Division.  Seaboard’s Sugar Division is largely dependent on the continued operation of a single processing facility.  The loss of or damage to this facility for any reason – including fire, tornado, earthquake, governmental action, labor unrest resulting in labor strikes or other reasons - would adversely affect the business of this division.

 

(4)   Labor Relations.  This division is dependent on unionized labor at its single sugar mill in Argentina.  The current nature of the political environment in Argentina makes normal labor relations very challenging. Contributing to the situation are the policies of Argentina’s National Government, the failure of the Argentine courts to enforce contractual obligations with unions and basic property rights.  Interruptions in production as a result of labor unrest can adversely impact the quantity of sugar cane harvested and the amount of sugar and alcohol produced and can interfere with the distribution of products stored at the facility in the Salta Province.

 

(f)  Power Division

 

(1)   This Division is Subject to Risks of Doing Business in the Dominican Republic.  This division operates in the Dominican Republic (DR).  In addition to significant currency fluctuations and the other risks of overseas operations mentioned in clause (a)(2) above, this division can experience difficulty in obtaining timely collections of trade receivables from the government partially-owned distribution companies or other companies that must also collect from the government in order to make payments on their accounts.  Currently, the DR does not allow a free market to enable prices to rise with demand which would limit our profitability in this business.  The government has the ability to arbitrarily decide which power units will be able to operate, which could have adverse effects on results of operations.

 

(2)   Increases in Fuel Costs Could Adversely Affect Seaboard’s Operating Margins.  Fuel is the largest cost component of this division’s business and, therefore, margins may be adversely affected by fluctuations in fuel if such increases can not be fully passed to customers.

 

(3)   Difficulties Could Be Experienced in the Start-Up of the New Power Generating Facility.  The new power generating facility was delivered in January 2012 and is anticipated to begin commercial operations in March 2012.  Significant operational delays or other difficulties encountered in the start-up of operations could have adverse effects on results of operations.

 

(g)  Turkey Segment

 

(1)  Fluctuations in Commodity Turkey Prices Could Adversely Affect the Results of Operations.  Sales prices for turkey products are directly affected by both domestic and world wide supply and demand for turkey products and other proteins which are determined by constantly changing market forces of supply and demand as well as other factors over which Butterball has little or no control.  Butterball’s results of operations and Seaboard’s investment in Butterball could be adversely affected by fluctuations in the turkey commodity prices.

 

(2)  Increases in Costs of Turkey’s Feed Components and Turkey Purchases Could Adversely Affect Costs and Operating Margins.  Feed costs are the most significant single component of the cost of raising turkeys and can be materially affected by commodity price fluctuations for corn, soybean meal, and other commodity grain inputs.  Butterball’s results may be negatively affected by increased costs of the feed components.  The recent increase in construction and operation of ethanol plants has elevated this risk as it has increased the competing demand for feed ingredients, primarily corn.  Butterball attempts to manage some of these risks through the use of financial instruments; however this may also limit its ability to participate in gains from favorable commodity fluctuations.  Unless wholesale turkey prices correspondingly increase, increases in the prices of Butterball’s feed components would adversely affect Butterball’s results of operations and Seaboard’s investment in Butterball.

 

(3)  Decreased Perception of Value in the Butterball’s Brand Could Adversely Affect Sales Quantity and Price of Butterball Products.  Butterball is a premium brand name, built on a long history of offering a quality product that has been differentiated in the market.  The value of the Butterball brand allows for sales of a higher unit price than other turkey products.  In order to maintain this advantage, Butterball must continue to support the brand with successful marketing efforts.  In addition, negative news reports for any reason in a variety of areas on the company or the turkey/poultry industry could negatively impact this brand perception and Butterball’s results of operation and the value of Seaboard’s investment in Butterball.

 

(4)  The Loss of Butterball’s Primary Further Processing Facility Could Adversely Affect Butterball’s Business.  Although Butterball has five processing plants, Butterball is disproportionately dependent on the continued operation

 

13



 

of the further processing plant in Mt. Olive, North Carolina that handles the significant production of further processed turkey products.  The loss of or damage to this facility for any reason – including fire, tornado, governmental action or other reason – could adversely affect the results of operation for Butterball and the value of Seaboard’s investment in Butterball.

 

(5)   If Butterball’s Turkey Products Become Contaminated, the Company May be subject to Product Liability Claims and Product Recalls.  Turkey products may be subject to contamination by disease producing organisms.  These organisms are generally found in the environment and as a result, there is a risk that they may contaminate products. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on the company’s business, reputation, and prospects.  This could adversely affect the results of operations and financial condition of Butterball and the value of the Seaboards investment in Butterball.

 

(6)   Health Risk to Poultry Could Adversely Affect Production, the Supply of Raw Materials and Butterball’s Business.  Butterball is subject to risks relating to its ability to maintain animal health and control diseases.  The general health of the turkeys and reproductive performance can have an adverse impact on production and production costs, the supply of raw material to Butterball’s processing operations and consumer confidence.  If Butterball’s turkeys are affected by disease, Butterball may be required to destroy infected birds, which could adversely affect Butterball’s production or ability to sell or export its products.  Adverse publicity concerning any disease or health concern could also cause customers to lose confidence in the safety and quality of Butterball food products, resulting in an adverse affect on Butterball’s results of operations and the value of Seaboards investment in Butterball.

 

(7)   Butterball May be Unable to Obtain Appropriate Personnel at Remote Locations.  The remote locations of some of the turkey processing plants and live turkey operations along with a more restrictive national policy on immigration could negatively affect the availability and cost of labor.  Butterball is dependent on having sufficient properly trained operations personnel.  Attracting and retaining qualified personnel is important to Butterball’s success.  The inability to acquire and retain the services of such personnel could have a material adverse effect on Butterball’s operations and the value of Seaboards investment in Butterball.

 

Item 1B.  Unresolved Staff Comments

 

None

 

Item 2.  Properties

 

(1)   Pork - Seaboard’s Pork Division owns a hog processing plant in Guymon, Oklahoma, which opened in 1995.  It has a daily double shift capacity to process approximately 19,400 hogs and generally operates at capacity with additional weekend shifts depending on market conditions. Seaboard’s hog production operations consist of the breeding and raising of approximately 4.2 million hogs annually at facilities it primarily owns or at facilities owned and operated by third parties with whom it has grower contracts.  This business owns and operates six centrally located feed mills which have a combined capacity to produce approximately 1,700,000 tons of formulated feed annually used primarily to support Seaboard’s existing hog production, and have the capability of supporting additional hog production in the future.  These facilities are located in Oklahoma, Texas, Kansas and Colorado.

 

Seaboard’s Pork Division also owns two bacon further processing plants located in Salt Lake City, Utah and Missoula, Montana.  These plants are utilized near capacity throughout the year, which is a combined daily smoking capacity of approximately 300,000 pounds of raw pork bellies. The Pork Division also operates a majority-owned ham-boning and processing plant in Mexico that has the capacity to process 74.0 million pounds of ham annually.

 

The Pork Division owns a processing plant in Guymon, Oklahoma with the capacity to produce 30.0 million gallons of biodiesel annually, which is currently produced from pork fat from Seaboard’s Guymon pork processing plant and from animal fat supplied by non-Seaboard facilities.  The facility can also produce biodiesel from vegetable oil.

 

(2)   Commodity Trading and Milling - Seaboard’s Commodity Trading and Milling Division owns, in whole or in part, grain-processing and related agribusiness operations in 14 countries which have the capacity to mill approximately 7,100 metric tons of wheat and maize per day.  In addition, Seaboard has feed mill capacity of in excess of 200 metric tons per hour to produce formula animal feed.  The milling operations located in Colombia, Democratic Republic of Congo, Ecuador, Ghana, Guyana, Haiti, Kenya, Lesotho, Madagascar, Nigeria, Republic of Congo, Sierra Leone, Uganda and Zambia own their facilities; and in

 

14



 

Kenya, Lesotho, Nigeria, Republic of Congo and Sierra Leone the land on which the mills are located is leased under long-term agreements.  Certain foreign milling operations may operate at less than full capacity due to low demand related to poor consumer purchasing power, excess milling capacity in their competitive environment and imported flour.  In addition, this division also has an investment through non-consolidate affiliates in poultry businesses operating in parts of Eastern and Southern Africa.  Seaboard also owns seven 9,000 metric-ton deadweight dry bulk carriers, one 23,400 metric ton deadweight dry bulk carrier, and charters vessels under short-term agreements, between 17 and 39 bulk carrier ocean vessels with deadweights ranging from 231 to 50,900 metric tons.

 

(3)   Marine - Seaboard’s Marine Division leases a 167,600 square foot off-port warehouse and 81 acres of port terminal land and facilities in Miami, Florida which are used in its containerized cargo operations.  Seaboard also leases an approximately 62 acre cargo handling and terminal facility in Houston, Texas, which includes several on-dock warehouses totaling approximately 690,000 square feet for cargo storage.  At December 31, 2011, Seaboard owned 9 ocean cargo vessels with deadweights ranging from 2,600 to 19,500 metric tons.  In addition, Seaboard chartered 32 vessels under contracts that typically range from approximately five months to three years with deadweights ranging from 3,700 to nearly 26,500 metric tons but have also entered into some longer-term charters up to twelve years.  Seaboard also owns or leases dry, refrigerated and specialized containers and other related equipment.

 

(4)   Sugar - Seaboard’s Argentine Sugar Division owns nearly 70,000 acres of planted sugarcane.  Depending on local market conditions, this business also purchases third party sugar for resale.  In addition, this division owns a sugar mill with a current capacity to process approximately 250,000 metric tons of sugar and an alcohol distillery with a current capacity of approximately 15 million gallons of alcohol per year.  This capacity is sufficient to process all of the cane harvested by this division and certain additional quantities purchased from third party farmers in the region.  The sugarcane fields and processing mill are located in northern Argentina in the Salta Province, which experiences seasonal rainfalls that may limit the harvest season, which then affects the duration of mill operations and quantities of sugar produced. The Sugar Division completed construction of a 38 megawatt cogeneration power plant that supplies surplus electricity to the Argentine grid.  This plant became fully operational in October 2011.  The plant is primarily powered by the burning of sugarcane byproducts during the harvest season.

 

(5)  Power - Seaboard’s Power Division owns one floating electric power generating facility (106 megawatts), which is anticipated to begin commercial operations in March 2012, and leases a second floating power generating facility (72 megawatts) through March 2012, both consisting of a system of diesel engines mounted onto barge-type vessels located on the Ozama River in Santo Domingo, Dominican Republic.  The owned facility is capable of using natural gas or heavy fuel oil.  Seaboard operates as an independent power producer.  Seaboard is not directly involved in the transmission and distribution facilities that deliver the power to the end users but does have contracts to sell directly to third party users.

 

(6)   Turkey – Seaboard’s Turkey Segment has a total of five processing plants and numerous company and third party live production facilities and feed milling operations, all of which are located in Arkansas, Kansas, Missouri and North Carolina.  These plants produce approximately one billion pounds of turkey each year.

 

(7)   Other - Seaboard owns a jalapeño pepper processing plant and warehouse in Honduras.

 

In addition to the information provided above, the information under “Principal Locations” of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report is incorporated herein by reference.

 

Management believes that Seaboard’s present facilities are adequate and suitable for its current purposes.

 

Item 3.  Legal Proceedings

 

The information required by Item 3 of Form 10-K is incorporated herein by reference to Note 11 of Seaboard’s Consolidated Financial Statements appearing on pages 52 and 53 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report.

 

Item 4.  Mine Safety Disclosures

 

Not Applicable.

 

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Executive Officers of the Registrant

 

The following table lists the executive officers and certain significant employees of Seaboard.  Generally, executive officers are elected at the annual meeting of the Board of Directors following the Annual Meeting of Stockholders and hold office until the next such annual meeting or until their respective successors are duly chosen and qualified.  There are no arrangements or understandings pursuant to which any executive officer was elected.

 

Name (Age)

 

Positions and Offices with Registrant and Affiliates

 

 

 

Steven J. Bresky (58)

 

President and Chief Executive Officer

 

 

 

Robert L. Steer (52)

 

Executive Vice President, Chief Financial Officer

 

 

 

David M. Becker (50)

 

Senior Vice President, General Counsel and Secretary

 

 

 

Barry E. Gum (45)

 

Senior Vice President, Finance and Treasurer

 

 

 

James L. Gutsch (58)

 

Senior Vice President, Engineering

 

 

 

Ralph L. Moss (66)

 

Senior Vice President, Governmental Affairs

 

 

 

David S. Oswalt (44)

 

Senior Vice President, Taxation and Business Development

 

 

 

John A. Virgo (51)

 

Senior Vice President, Corporate Controller and Chief Accounting Officer

 

 

 

David H. Rankin (40)

 

Vice President

 

 

 

Ty A. Tywater (42)

 

Vice President, Audit Services

 

 

 

Terry J. Holton (52)

 

President, Seaboard Foods, LLC

 

 

 

David M. Dannov (50)

 

President, Seaboard Overseas and Trading Group

 

 

 

Edward A. Gonzalez (46)

 

President, Seaboard Marine Ltd.

 

Mr. Steven J. Bresky has served as President and Chief Executive Officer of Seaboard since July 2006.

 

Mr. Steer has served as Executive Vice President, Chief Financial Officer of Seaboard since April 2011, and previously as Senior Vice President, Chief Financial Officer since December 2006.

 

Mr. Becker has served as Senior Vice President, General Counsel and Secretary of Seaboard since April 2011, and previously as Vice President, General Counsel and Secretary since December 2003.

 

Mr. Gum has served as Senior Vice President, Finance and Treasurer of Seaboard since April 2011, and previously as Vice President, Finance and Treasurer since December 2006.

 

Mr. Gutsch has served as Senior Vice President, Engineering of Seaboard since April 2011, and previously as Vice President, Engineering since December 1998.

 

Mr. Moss has served as Senior Vice President, Governmental Affairs of Seaboard since April 2011, and previously as Vice President, Governmental Affairs since December 2003.

 

Mr. Oswalt has served as Senior Vice President, Taxation and Business Development of Seaboard since April 2011, and previously as Vice President, Taxation and Business Development since December 2003.

 

Mr. Virgo has served as Senior Vice President, Corporate Controller and Chief Accounting Office of Seaboard since April 2011, and previously as Vice President, Corporate Controller and Chief Accounting Officer since December 2003.

 

Mr. Rankin has served as Vice President of Seaboard since December 2010 and previously as Director of Taxation and Business Development since January 2006.

 

Mr. Tywater has served as Vice President, Audit Services of Seaboard since November 2008 and previously as Internal Audit Director from 2002 to 2008.

 

Mr. Holton has served as President of Seaboard Foods, LLC since December 2011 and previously as Senior Vice President, Sales and Marketing since September 1997.

 

16



 

Mr. Dannov has served as President of Seaboard Overseas and Trading Group since August 2006.

 

Mr. Gonzalez has served as President of Seaboard Marine, Ltd. since January 2005.

 

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

In December 2010, Seaboard declared and paid a dividend of $6.75 per share on its common stock.  The increased amount of the dividend (which has historically been $0.75 per share on a quarterly basis or $3.00 per share on an annual basis) represented payment of the regular fourth quarter dividend of $0.75 per share and a prepayment of the annual 2011 and 2012 dividends ($3.00 per share per year).  Seaboard did not declare any dividends for 2011 and does not intend to declare any dividends for 2012. As discussed in Note 8 of the consolidated financial statements appearing on pages 43 and 44 of the Seaboard Corporation Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report (which discussion is incorporated herein by reference), Seaboard’s ability to declare and pay dividends is subject to limitations imposed by the note agreements referred to there.

 

Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock, may be granted.

 

The following table sets forth information concerning any purchases made by or on behalf of Seaboard or any “affiliated purchaser” (as defined by applicable rules of the Commission) of shares of Seaboard’s common stock during the fourth quarter of the fiscal year covered by this report.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

Issuer Purchases of Equity Securities

 

 

 

 

 

 

 

 

Period

 

Total Number of
Shares Purchased

 

Average Price
Paid per Share

 

Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs

 

Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs

 

October 2 to October 31, 2011

 

2,982

 

$

1,850.95

 

2,982

 

$

63,328,810

 

November 1 to November 30, 2011

 

300

 

$

1,901.37

 

300

 

$

62,758,398

 

December 1 to December 31, 2011

 

1,400

 

$

1,945.50

 

1,400

 

$

60,034,696

 

Total

 

4,682

 

$

1,882.46

 

4,682

 

$

60,034,696

 

 

All purchases during the quarter were made under the authorization from our Board of Directors announced on October 31, 2011 to extend through October 31, 2012 the share repurchase program previously approved on November 6, 2009.  Under this share repurchase program, Seaboard is authorized to repurchase from time to time up to $100.0 million market value of its Common Stock in open market or privately negotiated purchases above or below the traded market price.  Shares repurchased will be retired and resume the status of authorized and unissued shares.

 

In addition to the information provided above, the information required by Item 5 of Form 10-K is incorporated herein by reference to (a) the information under “Stockholder Information - Stock Listing,” (b) the dividends per common share information and closing market price range per common share information under “Quarterly Financial Data” and (c) the information under “Company Performance Graph” appearing on pages 59, 10 and 9, respectively, of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report.

 

17



 

Item 6.  Selected Financial Data

 

The information required by Item 6 of Form 10-K is incorporated herein by reference to the “Summary of Selected Financial Data” appearing on page 8 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 of this Report.

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information required by Item 7 of Form 10-K is incorporated herein by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing on pages 11 through 24 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

The information required by Item 7A of Form 10-K is incorporated herein by reference to (a) the material under the captions “Derivative Instruments and Hedging Activities” within Note 1 and 9 of Seaboard’s Consolidated Financial Statements appearing on pages 35, 47 and 48 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report, and (b) the material under the caption “Derivative Information” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing on pages 23 and 24 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report.

 

Item 8.  Financial Statements and Supplementary Data

 

The information required by Item 8 of Form 10-K is incorporated herein by reference to Seaboard’s “Quarterly Financial Data,” “Report of Independent Registered Public Accounting Firm,” “Consolidated Statements of Earnings,” “Consolidated Balance Sheets,” “Consolidated Statements of Cash Flows,” “Consolidated Statements of Changes in Equity” and “Notes to Consolidated Financial Statements” appearing on page 10 and pages 26 through 58 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this Report.

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures – As of December 31, 2011, Seaboard’s management has 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).  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.

 

Management’s Report on Internal Control Over Financial Reporting – Information required by Item 9A of Form 10-K concerning management’s report on Seaboard’s internal control over financial reporting, as defined in Exchange Act rule 13a-15(f) is incorporated herein by reference to Seaboard’s “Management’s Report on Internal Control over Financial Reporting” appearing on page 25 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to this report.

 

Registered Public Accounting Firm’s Attestation Report – Information required by Item 9A of Form 10-K with respect to the registered public accounting firm’s attestation report on Seaboard’s internal controls over financial reporting is incorporated herein by reference to “Report of Independent Registered Public Accounting Firm” appearing on page 27 of Seaboard’s Annual Report to Stockholders furnished to the Commission pursuant to Rule 14-3(b) and attached as Exhibit 13 to this report.

 

18



 

Change in Internal Controls - There has been no change in Seaboard’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, Seaboard’s internal control over financial reporting.

 

Item 9B.  Other Information

 

None.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance

 

We refer you to the information under the caption “Executive Officers of Registrant” appearing immediately following the disclosure in Item 4 of Part I of this report.

 

Seaboard has a Code of Ethics Policy (the Code) for directors, officers (including our chief executive officer, chief financial officer, chief accounting officer, controller and persons performing similar functions) and employees.  Seaboard has posted the Code on its internet website, www.seaboardcorp.com, under the “About Us” tab and intends to disclose any future changes and waivers to the Code by posting such information on that website.

 

In addition to the information provided above, the information required by Item 10 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to directors under “Item 1:  Election of Directors” appearing on pages 5 through 7 of Seaboard’s definitive proxy statement filed pursuant to Regulation 14A for the 2012 annual meeting of Stockholders (“2012 Proxy Statement”), (b) the disclosure relating to Seaboard’s audit committee and “audit committee financial expert” and its director nomination procedures under “Board of Directors Information – Committees of the Board – Audit Committee” and “Board of Directors Information – Director Nominations” appearing on page 8 of the 2012 Proxy Statement, and (c) the disclosure relating to late filings of reports required under Section 16(a) of the Securities Exchange Act of 1934 under “Section 16(a) Beneficial Ownership Reporting Compliance” appearing on page 28 of the 2012 Proxy Statement.

 

Item 11.  Executive Compensation

 

The information required by Item 11 of Form 10-K is incorporated herein by reference to (a) the disclosure relating to compensation of directors under “Board of Directors Information – Compensation of Directors” and “Employment Arrangements with Named Executive Officers” appearing on page 9 and pages 12 and 13 of the 2012 Proxy Statement, and (b) the disclosure relating to compensation of executive officers under “Executive Compensation and Other Information,” “Benefit Plans” and “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report” and “Compensation Discussion and Analysis” appearing on pages 9 through 24 of the 2012 Proxy Statement.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock may be granted.

 

In addition to the information provided above, the information required by Item 12 of Form 10-K is incorporated herein by reference to the disclosure under “Principal Stockholders” and “Share Ownership of Management and Directors” appearing on pages 3 through 5 of the 2012 Proxy Statement.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

 

The information required by Item 13 of Form 10-K is incorporated herein by reference to the disclosure under “Compensation Committee Interlocks and Insider Participation” appearing on page 23 of the 2012 Proxy Statement, and the disclosure under “Board of Directors Information – Controlled Corporation” and “Board of Directors Information – Committees of the Board” appearing on pages 7 and 8 of the 2012 Proxy Statement.

 

Item 14.  Principal Accounting Fees and Services

 

The information required by Item 14 of Form 10-K is incorporated herein by reference to the disclosure under “Item 2 Selection of Independent Auditors” appearing on pages 24 through 26 of the 2012 Proxy Statement.

 

19



 

PART IV

 

Item 15.  Exhibits, Financial Statement Schedules

 

(a)   The following documents are filed as part of this report:

 

1.     Consolidated financial statements.

 

See Index to Consolidated Financial Statements on page F-1.

 

 

2.     Consolidated financial statement schedules.

 

See Index to Consolidated Financial Statements on page F-1.

 

3.     Exhibits.

 

3.1        Seaboard’s Restated Certificate of Incorporation.  Incorporated herein by reference to Exhibit 3.1 of Seaboard’s Form 10-Q for the quarter ended April 4, 2009.

 

3.2        Seaboard’s By-laws, as amended.  Incorporated herein by reference to Exhibit 3.2 of Seaboard’s Form 10-K for fiscal year ended December 31, 2005.

 

4.1        Seaboard Corporation Note Purchase Agreement dated as of September 30, 2002 between Seaboard and various purchasers as listed in the exhibit.  Incorporated herein by reference to Exhibit 4.3 of Seaboard’s Form 10-Q for the quarter ended September 28, 2002.

 

4.2        Seaboard Corporation $7,500,000 6.21% Senior Note, Series C, due September 30, 2012  issued pursuant to the Note Purchase Agreement described above.  Incorporated herein by reference to Exhibit 4.6 of Seaboard’s Form 10-Q for the quarter ended September 28, 2002.

 

4.3        Seaboard Corporation $31,000,000 6.92% Senior Note, Series D, due September 30, 2012  issued pursuant to the Note Purchase Agreement described above.  Incorporated herein by reference to Exhibit 4.7 of Seaboard’s Form 10-Q for the quarter ended September 28, 2002.

 

4.4        Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine Ltd. for Marine Terminal Operations, dated May 30, 2008.  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 8-K dated May 30, 2008.

 

4.5        Amended and Restated Credit Agreement between Borrowers and Bank of America, N.A., dated July 10, 2008 ($300,000,000 revolving credit facility expiring July 10, 2013).  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 8-K dated July 10, 2008.

 

4.6        Amendment No. 1 to Credit Agreement between Borrowers and Bank of America N.A., dated December 17, 2010.  Incorporated herein by reference to Exhibit 4.6 of Seaboard’s Form 10-K for fiscal year ended December 31, 2010.

 

10.1*  Seaboard Corporation 409A Executive Retirement Plan Amended and Restated Effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Executive Retirement Plan, 2005 Amendment and Restatement dated March 6, 2006. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.2*  Seaboard Corporation Executive Deferred Compensation Plan as Amended and Restated Effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Executive Deferred Compensation Plan dated December 29, 2005.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.3*    Seaboard Corporation Executive Retirement Plan Trust dated November 5, 2004 between Seaboard Corporation and Robert L. Steer as trustee.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-Q for the quarter ended October 2, 2004.

 

10.4*    Seaboard Corporation Investment Option Plan dated December 18, 2000.  Incorporated herein by reference to Exhibit 10.7 of Seaboard’s Form 10-K for fiscal year ended December 31, 2000.

 

20



 

10.5        Marketing Agreement dated February 2, 2004 by and among Seaboard Corporation, Seaboard Farms, Inc., Triumph Foods LLC, and for certain limited purposes only, the members of Triumph Foods LLC.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 8-K dated February 3, 2004.

 

10.6*      Seaboard Corporation Retiree Medical Benefit Plan as Amended and Restated Effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Retiree Medical Benefit Plan dated March 4, 2005.  Incorporated herein by reference to Exhibit 10.6 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.7*    Seaboard Corporation Executive Officers’ Bonus Policy.  Incorporated herein by reference to Exhibit 10.10 of Seaboard’s Form 10-K for fiscal year ended December 31, 2005.

 

10.8*    Employment Agreement between Seaboard Corporation and Steven J. Bresky dated July 1, 2005.  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended July 2, 2005.

 

10.9*      Employment Agreement between Seaboard Corporation and Robert L. Steer dated July 1, 2005.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-Q for the quarter ended July 2, 2005.

 

10.10*  Employment Agreement between Seaboard Marine Ltd. and Edward A. Gonzalez dated July 1, 2005.  Incorporated herein by reference to Exhibit 10.14 of Seaboard’s Form 10-K for fiscal year ended December 31, 2006.

 

10.11*   Seaboard Corporation Nonqualified Deferred Compensation Plan Effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Nonqualified Deferred Compensation Plan dated December 29, 2005.  Incorporated herein by reference to Exhibit 10.12 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.12*  Amendment to Employment Agreement between Seaboard Marine Ltd. and Edward A. Gonzalez dated August 8, 2006.  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended July 1, 2006.

 

10.13*  Employment Agreement between Seaboard Overseas Trading Group and David M. Dannov dated July 1, 2006.  Incorporated herein by reference to Exhibit 10.17 of Seaboard’s Form 10-K for fiscal year ended December 31, 2006.

 

10.14*   Second Amendment to Employment Agreement between Marine, Ltd. and Edward A. Gonzalez dated January 17, 2007.  Incorporated herein by reference to Exhibit 10.18 of Seaboard’s Form 10-K for fiscal year ended December 31, 2006.

 

10.15*   First Amendment to Employment Agreement between Seaboard Corporation and Steven J. Bresky dated December 15, 2008. Incorporated herein by reference to Exhibit 10.16 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.16*  First Amendment to Employment Agreement between Seaboard Corporation and Robert L. Steer dated December 15, 2008.  Incorporated herein by reference to Exhibit 10.17 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.17*  Third Amendment to Employment Agreement between Seaboard Marine Ltd. and Edward A. Gonzalez dated December 15, 2008.  Incorporated herein by reference to Exhibit 10.19 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.18*  First Amendment to Employment Agreement between Seaboard Overseas Trading Group and David M. Dannov dated December 15, 2008.  Incorporated herein by reference to Exhibit 10.20 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

21



 

10.19      Asset Purchase Agreement by and among Transcontinental Capital Corporation (Bermuda) Ltd. (as Seller), Seaboard Corporation (as Seller-Parent) and Pueblo Viejo Dominicana Corporation (as Buyer), dated as of September 23, 2008.  Incorporated herein by reference to Exhibit 10.21 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.20      Amendment to Asset Purchase Agreement amount Transcontinental Capital Corporation (Bermuda) Ltd., Seaboard Corporation and Pueblo Viejo dated as of March 2, 2009.  Incorporated herein by reference to Exhibit 10.22 of Seaboard’s Form 10-K for fiscal year ended December 31, 2008.

 

10.21*   Seaboard Corporation Cash Balance Executive Retirement Plan effective January 1, 2009 and dated December 18, 2009.  Incorporated herein by reference to Exhibit 10.23 of Seaboard’s Form 10-K for fiscal year ended December 31, 2009.

 

10.22*   Seaboard Marine Ltd. 401(k) Excess Plan effective January 1, 2009 and dated December 18, 2009.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-K for fiscal year ended December 31, 2009.

 

10.23*   Amendment No. 1 to the Seaboard Corporation Non-Qualified Deferred Compensation Plan effective January 1, 2009 and dated December 17, 2009.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-K for fiscal year ended December 31, 2009.

 

10.24      Engineering, Procurement and Construction Contract dated as of August 17, 2010 by and between Seaboard Corporation and Wartsila Finland OY.  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended October 2, 2010.

 

10.25      Purchase Agreement by and among Seaboard Corporation, Maxwell Farms, LLC, Goldsboro Milling Company and GM Acquisition, LLC as of September 9, 2010. Incorporated herein by reference to Exhibit 10.27 of Seaboard’s Form 10-K for fiscal year ended December 31, 2010.

 

13         Sections of Annual Report to security holders specifically incorporated herein by reference herein.

 

21         List of subsidiaries.

 

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.

 

101       The following financial information from Seaboard Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Earnings, (2) Consolidated Balance Sheets, (3) Consolidated Statements of Cash Flows,(4) Consolidated Statement of Changes in Equity and (5) the Notes to Unaudited Condensed Consolidated Financial Statements **.

 


*  Management contract or compensatory plan or arrangement.

 

**   Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

 

(b)  Exhibits.

 

See exhibits identified above under Item 15(a)3.

 

22



 

(c)  Financial Statement Schedules.

 

See financial statement schedules identified above under Item 15(a)2.

 

23



 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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/Steven J. Bresky

 

 

Steven J. Bresky, Chairman of the Board,

 

 

President and Chief Executive Officer

 

 

 

 

Date:

February 28, 2012

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated.

 

Name

 

Date

 

Title

 

 

 

 

 

/s/Steven J. Bresky

 

February 28, 2012

 

Chairman of the Board, President, Chief Executive Officer and Director (principal executive officer)

Steven J. Bresky

 

 

 

 

 

 

 

 

/s/Robert L. Steer

 

February 28, 2012

 

Executive Vice President, Chief Financial Officer (principal financial officer)

Robert L. Steer

 

 

 

 

 

 

 

 

 

 

 

 

/s/John A. Virgo

 

February 28, 2012

 

Senior Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer)

John A. Virgo

 

 

 

 

 

 

 

 

 

 

 

 

/s/David A. Adamsen

 

February 28, 2012

 

Director

David A. Adamsen

 

 

 

 

 

 

 

 

 

/s/Douglas W. Baena

 

February 28, 2012

 

Director

Douglas W. Baena

 

 

 

 

 

 

 

 

 

/s/Joseph E. Rodrigues

 

February 28, 2012

 

Director

Joseph E. Rodrigues

 

 

 

 

 

 

 

 

 

/s/Edward I. Shifman, Jr.

 

February 28, 2012

 

Director

Edward I. Shifman, Jr.

 

 

 

 

 

24



 

SEABOARD CORPORATION AND SUBSIDIARIES

 

Index to Consolidated Financial Statements and Schedule

 

Financial Statements

 

 

Stockholders’

 

Annual Report Page

 

 

Report of Independent Registered Public Accounting Firm

26

 

 

Consolidated Statement of Earnings for the years ended December 31, 2011, December 31, 2010 and December 31, 2009

28

 

 

Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010

29

 

 

Consolidated Statement of Cash Flows for the years ended December 31, 2011, December 31, 2010 and December 31, 2009

30

 

 

Consolidated Statement of Changes in Equity for the years ended December 31, 2011, December 31, 2010 and December 31, 2009

31

 

 

Notes to Consolidated Financial Statements

32

 

The foregoing is incorporated herein by reference.

 

The individual financial statements of the nonconsolidated affiliates, which would be required if each such affiliate were a Registrant, are omitted because (a) Seaboard’s and its other subsidiaries’ investments in and advances to such affiliates do not exceed 20% of the total assets as shown by the most recent consolidated balance sheet and (b) Seaboard’s and its other subsidiaries’ equity in the earnings before income taxes and extraordinary items of the affiliates does not exceed 20% of such income of Seaboard and consolidated subsidiaries compared to the average income for the last five fiscal years.

 

Combined condensed financial information as to assets, liabilities and results of operations have been presented for nonconsolidated affiliates in Note 5 of “Notes to the Consolidated Financial Statements.”

 

II - Valuation and Qualifying Accounts for the years ended December 31, 2011, 2010 and 2009

F-3

 

All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related consolidated notes.

 

F-1



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Seaboard Corporation:

 

Under date of February 28, 2012, we reported on the consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of earnings, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2011, as contained in the annual report on Form 10-K for the year 2011.  In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index.  This financial statement schedule is the responsibility of the Company’s management.  Our responsibility is to express an opinion on this financial statement schedule based on our audits.

 

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

 

/s/ KPMG LLP

 

 

Kansas City, Missouri

 

February 28, 2012

 

 

F-2



 

Schedule II

 

SEABOARD CORPORATION AND SUBSIDIARIES

Valuation and Qualifying Accounts

(In Thousands)

 

 

 

Balance at

 

Provision

 

Net deductions

 

Balance at

 

 

 

beginning of year

 

(1)

 

(2)

 

end of year

 

Allowance for Doubtful Accounts:

 

 

 

 

 

 

 

 

 

Year ended December 31, 2011

 

$

8,170

 

4,400

 

(1,629

)

$

10,941

 

Year ended December 31, 2010

 

$

7,330

 

2,771

 

(1,931

)

$

8,170

 

Year ended December 31, 2009

 

$

7,303

 

2,088

 

(2,061

)

$

7,330

 

 


(1)           The allowance for doubtful accounts provision is charged to selling, general and administrative expenses.

(2)           Includes write-offs net of recoveries and currency translation adjustments.

 

 

 

Balance at

 

Charged (credit)

 

Other

 

Balance at

 

 

 

beginning of year

 

to expense

 

(3)

 

end of year

 

Allowance for Deferred Tax Assets:

 

 

 

 

 

 

 

 

 

Year ended December 31, 2011

 

$

30,664

 

(13,959

)

(385

)

$

16,320

 

Year ended December 31, 2010

 

$

28,621

 

2,512

 

(469

)

$

30,664

 

Year ended December 31, 2009

 

$

21,075

 

8,473

 

(927

)

$

28,621

 

 


(3)           Activity related to currency translation.

 

 

 

Balance at

 

Charged (credit)

 

Balance at

 

 

 

beginning of year

 

to expense

 

end of year

 

Reserve for LIFO Valuation:

 

 

 

 

 

 

 

Year ended December 31, 2011

 

$

24,085

 

33,698

 

$

57,783

 

Year ended December 31, 2010

 

$

22,807

 

1,278

 

$

24,085

 

Year ended December 31, 2009

 

$

40,672

 

(17,865

)

$

22,807

 

 

F-3


EX-13 2 a12-2715_1ex13.htm EX-13

Exhibit 13

 

 

2011 Annual Report

 



 

SEABOARD CORPORATION

 

Description of Business

Seaboard Corporation is a diversified international agribusiness and transportation company. In the United States, Seaboard is primarily engaged in pork production and processing and ocean transportation. Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production and electric power generation. Seaboard also has an interest in turkey operations in the United States.

 

Table of Contents

 

Letter to Stockholders

2

Principal Locations

5

Division Summaries

6

Summary of Selected Financial Data

8

Company Performance Graph

9

Quarterly Financial Data (unaudited)

10

Management’s Discussion & Analysis of Financial Condition and Results of Operations

11

Management’s Responsibility for Consolidated Financial Statements

25

Management’s Report on Internal Control over Financial Reporting

25

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

26

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

27

Consolidated Statements of Earnings

28

Consolidated Balance Sheets

29

Consolidated Statements of Cash Flows

30

Consolidated Statements of Changes in Equity

31

Notes to Consolidated Financial Statements

32

Stockholder Information

59

 

This report, including information included or incorporated by reference in this report, contains certain 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 the 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, turkey and other products and services; (iv) the recorded tax effects under certain circumstances; (v) the volume of business and working capital requirements associated with the competitive trading environment for the Commodity Trading and Milling segment; (vi) the charter hire rates and fuel prices for vessels; (vii) the fuel costs and related spot market prices in the Dominican Republic; (viii) the effect of the fluctuation in foreign currency exchange rates; (ix) the profitability or sales volume of any of Seaboard’s segments; (x) the anticipated costs and completion timetable for Seaboard’s scheduled capital improvements, acquisitions and dispositions; or (xi) 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” and “Letter to Stockholders” identifies important factors which could cause such differences.

 

1



 

SEABOARD CORPORATION

Letter to Stockholders

 

Letter to Stockholders is intentionally omitted from Exhibit 13 and will be included in printed Annual Report.

 

2



 

SEABOARD CORPORATION

Letter to Stockholders

 

Letter to Stockholders is intentionally omitted from Exhibit 13 and will be included in printed Annual Report.

 

3



 

SEABOARD CORPORATION

Letter to Stockholders

 

Letter to Stockholders is intentionally omitted from Exhibit 13 and will be included in printed Annual Report.

 

4



 

SEABOARD CORPORATION

Principal Locations

 

Corporate Office

 

Life Flour Mill Ltd.*

 

Seaboard del Peru, S.A.

Seaboard Corporation

 

Premier Feeds Mills Company Limited*

 

Peru

Merriam, Kansas

 

Nigeria

 

 

 

 

 

 

Seaboard Freight & Shipping Jamaica Limited

Pork

 

LMM Farine, S.A.

 

Jamaica

Seaboard Foods LLC

 

Madagascar

 

 

Pork Division Office

 

 

 

Seaboard Honduras, S.de R.L. de C.V.

Merriam, Kansas

 

Minoterie de Matadi, S.A.R.L.*

 

Honduras

 

 

Democratic Republic of Congo

 

 

Processing Plant

 

 

 

Seaboard Marine Bahamas Ltd.

Guymon, Oklahoma

 

Minoterie du Congo, S.A.

 

Bahamas

 

 

Republic of Congo

 

 

Processed Meats

 

 

 

Seaboard Marine (Trinidad) Ltd.

Salt Lake City, Utah

 

Moderna Alimentos, S.A.*

 

Trinidad

Missoula, Montana

 

Molinos Champion, S.A.*

 

 

 

 

Ecuador

 

Seaboard Marine of Haiti, S.E.

High Plains Bioenergy, LLC

 

 

 

Haiti

Guymon, Oklahoma

 

National Milling Corporation Limited

 

 

 

 

Zambia

 

SEADOM, S.A.

Seaboard de Mexico USA LLC

 

 

 

Dominican Republic

Mexico

 

Seaboard West Africa Limited*

 

 

 

 

Sierra Leone

 

SeaMaritima S.A. de C.V.

 

 

 

 

Mexico

Commodity Trading and Milling

 

Unga Holdings Limited*

 

 

Commodity Trading Operations

 

Kenya and Uganda

 

Sugar

Australia*

 

 

 

Ingenio y Refineria San Martin del Tabacal SRL

Canada

 

Marine

 

Argentina

Chapel Hill, North Carolina

 

Seaboard Marine Ltd.

 

 

Colombia

 

Marine Division Office

 

Power

Ecuador

 

Miami, Florida

 

Transcontinental Capital Corp. (Bermuda) Ltd.

Greece

 

 

 

Dominican Republic

Isle of Man

 

Port Operations

 

 

Miami, Florida

 

Brooklyn, New York

 

Turkey

Peru*

 

Fernandina Beach, Florida

 

Butterball LLC*

South Africa

 

Houston, Texas

 

Division Office

Switzerland

 

Miami, Florida

 

Garner, North Carolina

 

 

New Orleans, Louisiana

 

 

African Poultry Development Limited*

 

 

 

Processing Plants

Democratic Republic of Congo,

 

Agencias Generales Conaven, C.A.

 

Huntsville, Arkansas

Kenya and Zambia

 

Venezuela

 

Jonesboro, Arkansas

 

 

 

 

Ozark, Arkansas

Compania Industrial de Productos Agreopecuarios SA*

 

Agencia Maritima del Istmo, S.A.

Costa Rica

 

Carthage, Missouri

Mt. Olive, North Carolina

Rafael del Castillo & Cia. S.A*

 

 

 

 

Colombia

 

Cayman Freight Shipping Services, Ltd.

 

Other

 

 

Cayman Islands

 

Mount Dora Farms de Honduras, S.R.L.

Fairfield Rice Inc.*

 

 

 

Honduras

National Milling Company of Guyana, Inc.

 

JacintoPort International LLC

 

 

Guyana

 

Houston, Texas

 

Mount Dora Farms Inc.

 

 

 

 

Houston, Texas

Les Moulins d’Haiti S.E.M.*

 

Representaciones Maritimas y Aereas, S.A.

 

 

Haiti

 

Guatemala

 

 

 

 

 

 

 

Lesotho Flour Mills Limited*

 

Sea Cargo, S.A.

 

 

Lesotho

 

Panama

 

 

 

 

 

 

 

Flour Mills of Ghana

 

Seaboard de Colombia, S.A.

 

 

Ghana

 

Colombia

 

 

 

 

 

 

 

 

 

Seaboard de Nicaragua, S.A.

 

 

 

 

Nicaragua

 

 

 

*Represents a non-controlled, non-consolidated affiliate

 

5



 

SEABOARD CORPORATION

Division Summaries

 

Pork Division

Seaboard’s Pork Division is one of the largest vertically integrated pork processors in the United States. Seaboard is able to control animal production and processing from research and development in nutrition and genetics, to the production of high quality meat products at our processing facilities.

 

Seaboard’s main processing facility is located in Guymon, Oklahoma. The facility has a daily double shift capacity to process approximately 19,400 hogs and generally operates at capacity, with additional weekend shifts depending on market conditions. Seaboard produces and sells fresh and frozen pork products to further processors, foodservice operators, grocery stores, distributors and retail outlets throughout the United States. Seaboard also sells to distributors, and further processors in Japan, Mexico and other foreign markets. Hogs processed at the plant are primarily Seaboard raised hogs. In addition, the remaining hogs processed are raised by third parties and purchased under contract or in the open market.

 

Seaboard’s hog production facilities consist of genetic and commercial breeding, farrowing, nursery and finishing buildings located in Oklahoma, Kansas, Texas and Colorado. These facilities have a capacity to produce over four million hogs annually. Seaboard owns and operates six centrally located feed mills to provide formulated feed to these hogs.

 

Seaboard’s Pork Division also owns two bacon processing plants located in Salt Lake City, Utah and Missoula, Montana. The processing plants produce sliced and pre-cooked bacon primarily for food service. These operations enable Seaboard to expand its integrated pork model into value-added products and to enhance its ability to extend production to include other further processed pork products.

 

Seaboard produces biodiesel at a facility in Guymon, Oklahoma. The biodiesel is primarily produced from pork fat from Seaboard’s Guymon pork processing plant and from animal fat supplied by non-Seaboard facilities. The biodiesel is sold to third parties. The facility can also produce biodiesel from vegetable oil.

 

Seaboard’s Pork Division has an agreement with a similar size pork processor, Triumph Foods LLC (Triumph), to market substantially all of the pork products produced at Triumph’s plant in St. Joseph, Missouri. Pursuant to this agreement, Seaboard is able to provide the same quality products to its customers that are produced in its own facilities. Seaboard markets the pork products for a fee primarily based on the number of head processed by Triumph Foods.

 

Commodity Trading and Milling Division

Seaboard’s Commodity Trading and Milling Division is an integrated grain trading, grain processing and logistics operation.  This division markets wheat, corn, soybean meal, rice and other similar commodities in bulk overseas to third party customers and affiliated companies. These commodities are purchased worldwide, with primary destinations in Africa, South America and the Caribbean.

 

The division sources, transports and markets approximately seven million metric tons per year of wheat, corn, soybean meal, rice and other similar commodities to the food and animal feed industries. The division efficiently provides quality products and reliable services to industrial customers in selected markets. Seaboard integrates the delivery of commodities to its customers primarily through the use of company owned and chartered bulk carriers.

 

Seaboard’s Commodity Trading and Milling Division has facilities in 29 countries. The commodity trading business operates through ten offices in eight countries and three non-consolidated affiliates located in nine countries. One of these non-consolidated affiliates became a consolidated affiliate in January 2012. The grain processing businesses operate facilities at 28 locations in 14 countries, and include five consolidated and thirteen non-consolidated affiliates in Africa, South America and the Caribbean. These businesses produce approximately three million metric tons of finished product per year.

 

6



 

SEABOARD CORPORATION

Division Summaries

 

Marine Division

Seaboard’s Marine Division provides containerized shipping service between the United States, the Caribbean Basin and Central and South America. Seaboard’s primary operations, located in Miami, include an off-port warehouse for cargo consolidation and temporary storage and a terminal at the Port of Miami. At the Port of Houston, Seaboard operates a cargo terminal facility that includes on-dock warehouse space for temporary storage of bagged grains, resins and other cargoes. Seaboard also makes scheduled vessel calls to Brooklyn, New York, Fernandina Beach, Florida, New Orleans, Louisiana and multiple foreign ports in the Caribbean Basin and Central and South America.

 

Seaboard’s marine fleet consists of owned and chartered vessels, as well as dry, refrigerated and specialized containers and other related equipment. Seaboard is the largest shipper in terms of cargo volume to and from the Port of Miami. Seaboard provides extended service from our domestic ports of call to and from multiple foreign destinations through a network of connecting carrier agreements with major regional and global carriers.

 

To maximize fleet utilization, Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America and the Caribbean Basin to book both northbound and southbound cargo to and from the United States and between the countries it serves. Seaboard’s full service capabilities, including agreements with a network of connecting carriers, allow transport by truck or rail of import and export cargo to and from various U.S. ports. Seaboard’s frequent sailings and fixed-day schedules make it convenient for customers to coordinate manufacturing schedules and maintain inventories at cost-efficient levels. Seaboard’s approach is to work in partnership with its customers to provide the most reliable and effective level of service throughout the United States, Latin America and the Caribbean Basin and between the countries it serves.

 

Other Divisions

In Argentina, Seaboard grows sugar cane, produces and refines sugar and produces alcohol.  The sugar is primarily marketed locally, with some exports to the United States and other South American countries. Seaboard’s mill, one of the largest in Argentina, has a processing capacity of approximately 250,000 metric tons of sugar and approximately 15 million gallons of alcohol per year. The mill is located in the Salta Province of Argentina, with administrative offices in Buenos Aires. Land owned by Seaboard in Argentina is planted with sugar cane, which supplies the majority of the raw product processed by the mill. Depending on local market conditions, sugar may also be purchased from third parties for resale.  In addition, this division sells dehydrated alcohol to certain oil companies under the Argentine government bio-ethanol program, which requires alcohol to be blended with gasoline.  During 2011, this division completed construction of a 38 megawatt co-generation power plant which became fully operational in October 2011.  The plant is powered by the burning of sugarcane byproducts during the harvest season, which is between May and November.

 

In the Dominican Republic, Seaboard is an independent power producer generating electricity for the local power grid.  Seaboard is not directly involved in the transmission or distribution of electricity.  Seaboard primarily sells on the spot market but does have some contracts to sell directly to third party users.  Through early 2011, this division operated two floating electric power generating facilities consisting of a system of diesel engines mounted onto barge-type vessels located on the Ozama River in Santo Domingo.  On April 8, 2011, Seaboard closed the sale of its two power generating facilities. On April 20, 2011, Seaboard signed a short-term lease agreement that allowed Seaboard to resume operations of one of the facilities (72 megawatts) through approximately March 31, 2012.  In addition, Seaboard retained all other physical properties of this business and constructed a new 106 megawatt floating power generating facility.  This new facility was delivered in January 2012 and is anticipated to begin commercial operations in March 2012.

 

On December 6, 2010, Seaboard purchased a 50 percent non-controlling voting interest in Butterball, LLC (Butterball). Butterball is a vertically integrated producer, processor and marketer of branded and non-branded turkeys and other turkey products. Butterball has five processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri and Kansas. Butterball produces approximately one billion pounds of turkey each year, and supplies its products to more than 30 countries. Butterball is a national supplier to retail and foodservice outlets, and also exports products to Mexico and other countries.

 

Seaboard processes jalapeño peppers at its plant in Honduras. These products are shipped to the United States on Seaboard Marine vessels and distributed from Seaboard’s port facilities.

 

7



 

SEABOARD CORPORATION

Summary of Selected Financial Data

 

 

 

Years ended December 31,

 

(Thousands of dollars except per share amounts)

 

2011

 

2010

 

2009

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

5,746,902

 

$

4,385,702

 

$

3,601,308

 

$

4,267,804

 

$

3,213,301

 

Operating income

 

$

407,204

 

$

321,066

 

$

 23,723

 

$

 121,809

 

$

 169,915

 

Net earnings attributable to Seaboard

 

$

345,847

 

$

283,611

 

$

 92,482

 

$

 146,919

 

$

 181,332

 

Basic earnings per common share

 

$

284.66

 

$

 231.69

 

$

 74.74

 

$

 118.19

 

$

 144.15

 

Total assets

 

$

3,006,728

 

$

 2,734,086

 

$

 2,337,133

 

$

 2,331,361

 

$

 2,093,699

 

Long-term debt, less current maturities

 

$

116,367

 

$

 91,407

 

$

 76,532

 

$

 78,560

 

$

 125,532

 

Stockholders’ equity

 

$

2,079,467

 

$

 1,778,249

 

$

 1,545,419

 

$

 1,463,578

 

$

 1,355,199

 

Dividends per common share

 

$

 

$

9.00

 

$

3.00

 

$

3.00

 

$

3.00

 

 

In 2011, Seaboard closed the sale of its two floating power generating facilities in the Dominican Republic resulting in a gain on sale of assets of $52,923,000, or $43.56 per share, included in operating income.  There was no tax expense on these transactions.  See Note 13 to the Consolidated Financial Statements for further discussion.

 

In December 2010, Seaboard declared and paid a dividend of $6.75 per share on the common stock.  The increased amount of the dividend (which has historically been $0.75 per share on a quarterly basis or $3.00 per share on an annual basis) represented payment of the regular fourth quarter dividend of $0.75 per share and a prepayment of the annual 2011 and 2012 dividends ($3.00 per share per year). Seaboard did not declare a dividend in 2011 and currently does not intend to declare any further dividends in 2012. Basic and diluted earnings per common share are the same for all periods presented.

 

Seaboard Corporation, and affiliated companies in its Commodity Trading and Milling segment, resolved a dispute with a third party related to a 2005 transaction.  As a result, Seaboard Overseas Limited received $16,787,000, net of expenses, or $13.57 per common share, in 2009 included in other income.  There was no tax expense on this transaction. See Note 11 to the Consolidated Financial Statements for further discussion.

 

8



 

SEABOARD CORPORATION

Company Performance Graph

 

The Securities and Exchange Commission requires a five-year comparison of stock performance for Seaboard with that of an appropriate broad equity market index and similar industry index.  Seaboard’s common stock is traded on the NYSE Amex Equities and provides an appropriate comparison for Seaboard’s stock performance.  Because there is no single industry index to compare stock performance, the companies comprising the Dow Jones Food and Marine Transportation Industry indices (the “Peer Group”) were chosen as the second comparison.

 

The following graph shows a five-year comparison of cumulative total return for Seaboard, the NYSE Amex Equities Index and the companies comprising the Dow Jones Food and Marine Transportation Industry indices, weighted by market capitalization for the five fiscal years commencing December 31, 2006 and ending December 31, 2011.  The information presented in the performance graph is historical in nature and is not intended to represent or guarantee future returns.

 

 

The comparison of cumulative total returns presented in the above graph was plotted using the following index values and common stock price values:

 

 

 

12/31/06

 

12/31/07

 

12/31/08

 

12/31/09

 

12/31/10

 

12/31/11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaboard Corporation

 

$

100.00

 

$

83.41

 

$

67.91

 

$

76.93

 

$

114.09

 

$

116.67

 

NYSE Amex Equities Composite

 

$

100.00

 

$

122.46

 

$

73.97

 

$

100.19

 

$

127.31

 

$

128.98

 

Peer Group

 

$

100.00

 

$

108.88

 

$

84.49

 

$

100.82

 

$

116.07

 

$

132.87

 

 

9



 

SEABOARD CORPORATION

Quarterly Financial Data (unaudited)

 

(UNAUDITED)

 

1st

 

2nd

 

3rd

 

4th

 

Total for

 

(Thousands of dollars except per share amounts)

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

the Year

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,468,179

 

$

1,398,587

 

$

1,476,718

 

$

1,403,418

 

$

5,746,902

 

Operating income

 

$

130,276

 

$

136,965

 

$

66,989

 

$

72,974

 

$

407,204

 

Net earnings attributable to Seaboard

 

$

116,864

 

$

113,486

 

$

36,560

 

$

78,937

 

$

345,847

 

Earnings per common share

 

$

96.11

 

$

93.34

 

$

30.07

 

$

65.12

 

$

284.66

 

Dividends per common share

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Closing market price range per common share:

 

 

 

 

 

 

 

 

 

 

 

High

 

$

2,413.00

 

$

2,443.00

 

$

2,704.00

 

$

2,307.00

 

 

 

Low

 

$

1,965.00

 

$

2,160.00

 

$

1,801.99

 

$

1,684.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,020,276

 

$

1,048,463

 

$

1,111,813

 

$

1,205,150

 

$

4,385,702

 

Operating income

 

$

67,466

 

$

101,247

 

$

41,642

 

$

110,711

 

$

321,066

 

Net earnings attributable to Seaboard

 

$

62,778

 

$

77,604

 

$

39,869

 

$

103,360

 

$

283,611

 

Earnings per common share

 

$

50.84

 

$

63.21

 

$

32.74

 

$

85.01

 

$

231.69

 

Dividends per common share

 

$

0.75

 

$

0.75

 

$

0.75

 

$

6.75

 

$

9.00

 

 

 

 

 

 

 

 

 

 

 

 

 

Closing market price range per common share:

 

 

 

 

 

 

 

 

 

 

 

High

 

$

1,430.00

 

$

1,610.00

 

$

1,795.00

 

$

2,006.00

 

 

 

Low

 

$

1,195.00

 

$

1,261.00

 

$

1,387.05

 

$

1,750.01

 

 

 

 

In April 2011, Seaboard closed the sale of its two floating power generating facilities in the Dominican Republic.  Seaboard recognized a gain on sale of assets of $51,423,000, or $42.29 per share, included in operating income in the second quarter of 2011.  In July 2011, Seaboard received $1,500,000 of the $3,000,000 in escrow for potential dry dock costs of these facilities.  The $1,500,000, or $1.23 per share, was recognized as a gain on sale of assets in operating income in the third quarter of 2011.  There was no tax expense on these transactions.  See Note 13 to the Consolidated Financial Statements for further discussion.

 

In December 2010, Seaboard declared and paid a dividend of $6.75 per share on the common stock. The increased amount of the dividend (which has historically been $0.75 per share on a quarterly basis or $3.00 per share on an annual basis) represented payment of the regular fourth quarter dividend of $0.75 per share and a prepayment of the annual 2011 and 2012 dividends ($3.00 per share per year). Seaboard did not declare a dividend in 2011 and currently does not intend to declare any dividends in 2012.

 

During 2011, Seaboard repurchased 600 common shares in the third quarter and 4,682 shares in the fourth quarter.  During 2010, Seaboard repurchased 5,452 common shares in the first quarter, 6,680 shares in the second quarter and 8,747 shares in the third quarter, as authorized by Seaboard’s Board of Directors. See Note 12 to the Consolidated Financial Statements for further discussion.

 

10



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Seaboard is a diverse agribusiness and transportation company, with global operations in several industries. Most of the sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations in commodity prices and changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in distinct industries and different geographical locations, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s Chief Executive Officer in his capacity as chief operating decision maker to determine allocation of resources and assess performance.

 

Pork Segment

The Pork segment is primarily a domestic business, with some export sales to Japan, Mexico, and other foreign markets. Revenues from the sale of pork products are primarily generated from a single hog processing plant in Guymon, Oklahoma, which generally operates at daily double shift processing capacity of 19,400 hogs, two bacon further processing plants located in Salt Lake City, Utah and Missoula, Montana, and a ham boning and processing plant in Mexico. In 2011, Seaboard raised approximately 76% of the hogs processed at the Guymon plant, with the remaining hog requirements purchased primarily under contracts from independent producers. This segment is Seaboard’s most capital intensive segment, with approximately 47% of Seaboard’s total fixed assets and also has material amounts of inventories.

 

Of Seaboard’s businesses, management believes the Pork segment has the greatest exposure to commodity price fluctuations. As a result, this segment’s operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard’s consolidated operating income and cash flows. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed costs are the most significant single component of the cost of raising hogs and can be materially affected by changes in the prices for corn and soybean meal. In addition, costs can be materially affected by market prices for hogs purchased from third parties for processing at the plant. As the Guymon plant generally operates at capacity, to improve operating income Seaboard is constantly working towards improving the efficiencies of the operations, as well as considering ways to increase margins by expanding product offerings.

 

The Pork segment also produces biodiesel which is sold to third parties. Biodiesel is produced from pork fat obtained from Seaboard’s pork processing plant and from animal fat purchased from third parties. The processing plant also can produce biodiesel from vegetable oil. Seaboard is also a majority-owner of a ham-boning and processing plant in Mexico.

 

The Pork segment has an agreement with Triumph Foods LLC (Triumph) to market substantially all of the pork products produced at Triumph’s plant in St. Joseph, Missouri. The Pork segment markets the related pork products for a fee primarily based on the number of head processed by Triumph Foods. This plant has a capacity similar to that of Seaboard’s Guymon plant and operates upon an integrated model similar to that of Seaboard’s. Seaboard’s sales prices for its pork products are primarily based on a margin sharing arrangement that considers the average sales price and mix of products sold from both Seaboard’s and Triumph Food’s hog processing plants.

 

Commodity Trading and Milling Segment

The Commodity Trading and Milling segment, which is managed under the name of Seaboard Overseas and Trading Group, primarily operates overseas and is an integrated grain trading, grain processing and logistics operation with locations in Africa, South America, the Caribbean and Europe. These foreign operations can be significantly impacted by local crop production, political instability, local government policies, economic and industry conditions and currency fluctuations. This segment’s sales are also significantly affected by fluctuating prices of various commodities, such as wheat, corn, soybean meal and rice. Although this segment owns eight ships, the majority of the third party trading business is transacted with chartered ships. Freight rates, influenced by available charter capacity for worldwide trade in bulk cargoes, and related fuel costs affect business volumes and margins. The milling businesses, both consolidated and non-consolidated affiliates, operate in foreign and, in most cases, lesser developed countries. Subsidized wheat and flour exports can create fluctuating market conditions that can have a significant impact on both the trading and milling businesses’ sales and operating income. This segment is Seaboard’s most working capital intensive segment, with approximately 34% of Seaboard’s total working capital at December 31, 2011, primarily consisting of inventories and receivables.

 

11



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

The majority of the Commodity Trading and Milling segment’s sales pertain to the commodity trading business. Grain is sourced from multiple origins and delivered to third party and affiliate customers in various international locations. The execution of these purchase and delivery transactions have long cycles of completion which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from quarter to quarter.

 

Effective, January 1, 2012, Seaboard increased its ownership from 50% to 70% in PS International, LLC, a specialty grain trading business located in Chapel Hill, North Carolina.  Seaboard invested in several entities in recent years and continues to seek opportunities to expand its trading and milling businesses.

 

Marine Segment

The Marine segment provides containerized cargo shipping services primarily between the United States and 25 countries in the Caribbean Basin, Central and South America. As a result, fluctuations in economic conditions or unstable political situations in the regions or countries in which Seaboard operates can affect trade volumes and operating profits. In addition, containerized cargo rates can fluctuate depending on local supply and demand for shipping services. This segment time-charters or leases the majority of its ocean cargo vessels and is thus affected by fluctuations in charter hire rates, as well as fuel costs.

 

Seaboard continues to explore ways to increase volumes on existing routes, while seeking opportunities to broaden its route structure in the regions it serves.

 

Sugar Segment

Seaboard’s Sugar segment operates a vertically integrated sugar and alcohol production facility in Argentina. This segment’s sales and operating income are significantly affected by local and worldwide sugar prices. Yields from the Argentine sugar harvest can have an impact on the local price of sugar. Also, but to a lesser degree, price fluctuations in the world market can affect local sugar prices and export sales volumes and prices. Depending on local market conditions, this business purchases sugar from third parties for resale. Over the past several years, Seaboard made numerous improvements to this business to increase the efficiency of its operations and expand its sugar and alcohol production capabilities. In the first quarter of 2010, this segment began sales of dehydrated alcohol to certain oil companies under an Argentine government bio-ethanol program, which mandates alcohol to be blended with gasoline.  In the fourth quarter of 2011, this segment completed construction of a 38 megawatt co-generation power plant which is powered by the burning of sugarcane byproducts during the harvest season, which is between May and November.

 

The functional currency of the Sugar segment is the Argentine peso. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows. Historically, the cash needs were relatively high for this operation as a result of ongoing expansion of sugar production and construction of a 38 megawatt co-generation power plant. However, with improved operational performance and the completion of the co-generation power plant in October 2011, financing needs for this segment should be minimal in 2012. Seaboard continues to explore ways to improve and expand its existing operations while considering other alternatives to expand this segment.

 

Power Segment

Seaboard’s Power segment is an independent power producer in the Dominican Republic (DR) generating electricity from a system of diesel engines mounted on floating barges for the local power grid.  As discussed in Note 13 to the Consolidated Financial Statements, in April, 2011, Seaboard closed the sale of its two existing power generating facilities but signed a short-term lease that allowed Seaboard to resume operations of one of the facilities (72 megawatts) through March 31, 2012.  During 2011, Seaboard also completed the construction of a new floating power generating facility with a rated capacity of 106 megawatts.  This facility was delivered in January 2012 and is anticipated to begin operations in March 2012.  The total cost of the project is estimated to be approximately $133.0 million, including capitalized interest, and is primarily being financed with a $114.0 million financing agreement.  After the completion of this new facility in the first quarter of 2012, financing needs for this segment should be minimal for the remainder of 2012.  During the past few years, operating cash flows have fluctuated from inconsistent customer collections.

 

The DR regulatory body schedules power production based on the amount of funds available to pay for the power produced and the relative costs of the power produced. Fuel is the largest cost component, but increases in fuel prices generally have been passed on to customers. In addition, from time to time Seaboard may pursue additional investment opportunities in the power industry.

 

12



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Turkey Segment

On December 6, 2010, Seaboard purchased a 50 percent non-controlling voting interest in Butterball, LLC (Butterball). Butterball is a vertically integrated producer, processor and marketer of branded and non-branded turkeys and other turkey products. Butterball has five processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri and Kansas. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed costs are the most significant single component of the cost of raising turkeys, and can be materially affected by prices for corn and soybean meal. The turkey business is seasonal only on the whole bird side, with Thanksgiving and Christmas holidays driving the majority of those sales.

 

LIQUIDITY AND CAPITAL RESOURCES

Summary of Sources and Uses of Cash

Cash and short-term investments as of December 31, 2011 increased $21.4 million from December 31, 2010. The increase was primarily the result of $220.0 million in net cash from operating activities, $65.0 million in proceeds from issuance of long-term debt and $59.6 million of proceeds received from the sale of power generating facilities. Partially offsetting the increase was cash used for capital expenditures of $183.7 million, decreases in notes payable to banks of $62.5 million, notes receivable issued to affiliates, net of $40.3 million, investments in and advances to affiliates of $18.5 million and repurchases of common stock of $10.0 million.  Cash from operating activities for 2011 decreased $119.8 million compared to 2010, primarily as a result of changes in net working capital needs in the Commodity Trading and Milling segment for increases in receivables and inventories and also timing of payments for current liabilities.

 

Cash and short-term investments as of December 31, 2010 decreased $95.9 million from December 31, 2009. The decrease was primarily the result of investing $177.5 million for a 50 percent non-controlling voting interest in Butterball, plus $100.0 million financing provided to Butterball in subordinated debt. Also during 2010, cash was used for capital expenditures of $103.3 million, investments in four new non-consolidated affiliates and acquisitions of a business of $33.3 million, as discussed below, repurchases of common stock in the amount of $30.0 million and dividends paid of $11.0 million. Partially offsetting the decrease was cash generated by operating activities of $339.8 million. Cash from operating activities for 2010 increased $93.5 million compared to 2009, primarily as a result of higher net earnings in 2010 compared to 2009, partially offset by a prior year increase in net working capital that did not repeat in 2010.

 

Capital Expenditures, Acquisitions and Other Investing Activities

During 2011, Seaboard invested $183.7 million in property, plant and equipment, of which $39.9 million was expended in the Pork segment, $31.2 million in the Marine segment, $22.6 million in the Sugar segment and $84.0 million in the Power segment.  The Pork segment expenditures were primarily for additional finishing barns, tractor-trailers and improvements to existing facilities and related equipment.  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 completion of the cogeneration plant with the remaining amount for normal upgrades to existing operations.  The cogeneration plant became fully operational in October 2011.  The Power segment expenditures were primarily used for the construction of a 106 megawatt power generating facility, which will operate in the Dominican Republic.  The power generating facility is anticipated to begin commercial operations in March 2012.  The total cost of the project is estimated to be approximately $133.0 million, including capitalized interest.  All other capital expenditures were of a normal recurring nature and primarily included replacements of machinery and equipment, and general facility modernizations and upgrades.

 

The total 2012 capital expenditures budget is $166.2 million. The Pork segment plans to spend $50.3 million primarily for additional finishing barns, a new feed mill and improvements to existing facilities and related equipment.  The Marine segment has budgeted $40.1 million primarily for additional cargo carrying and handling equipment.  In addition, management will be evaluating whether to purchase additional containerized cargo vessels for the Marine segment and dry bulk vessels for the Commodity Trading and Milling segment during 2012.  The Sugar segment plans to spend $40.4 million primarily for expansion of cane growing operations and normal upgrades to existing operations. The Power segment plans to spend $19.6 million primarily for the completion of the new power generating facility project discussed above. The balance of $15.8 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 and/or Seaboard’s available borrowing capacity.

 

13



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

During 2010, Seaboard invested $103.3 million in property, plant and equipment, of which $9.6 million was expended in the Pork segment, $28.4 million in the Marine segment, $30.6 million in the Sugar segment, $31.7 million in the Power segment and $3.0 million in the remaining businesses. The capital expenditures for the Pork segment were primarily for improvements to existing facilities and related equipment. Capital expenditures for the Marine segment included $23.5 million spent to purchase cargo carrying and handling equipment. The capital expenditures for the Sugar segment were primarily for construction of the co-generation power plant with the remaining capital expenditures for normal upgrades to existing operations. Capital expenditures for the Power segment were primarily used for the construction of the power generation facility discussed above All other capital expenditures were primarily of a normal recurring nature and primarily included replacement of machinery and equipment, and general facility modernizations and upgrades.

 

During 2009 Seaboard invested $54.3 million in property, plant and equipment, of which $15.2 million was expended in the Pork segment, $14.7 million in the Marine segment, $21.6 million in the Sugar segment and $2.8 million in the remaining businesses. Capital expenditures for the Pork segment were primarily for improvements to existing hog facilities, upgrades to the Guymon pork processing plant and construction of the ham boning and processing plant in Mexico. The ham boning and processing plant was completed in the second quarter of 2009. Capital expenditures for the Marine segment included $10.3 million spent to purchase cargo carrying and handling equipment. Capital expenditures for the Sugar segment included $13.8 million for the development of the co-generation power plant, with the remaining capital expenditures primarily being used for expansion of cane growing operations. All other capital expenditures were primarily of a normal recurring nature and primarily included replacement of machinery and equipment, and general facility modernizations and upgrades.

 

Effective, January 1, 2012, Seaboard increased its ownership interest in PS International, LLC (PSI), a specialty grain trading business located in Chapel Hill, North Carolina, from 50% to 70% by making an initial cash payment of $3.7 million in January 2012.  During the fourth quarter of 2011, Seaboard provided a $35.0 million line of credit to this then 50% owned, non-consolidated affiliate.  Seaboard initially acquired a 50% non-controlling interest in PSI in late March 2010 for $7.7 million.  See Note 4 to the Consolidated Financial Statements for further discussion of these transactions.

 

In December 2011, Seaboard made an $8.5 million advance capital lease payment to begin operations in 2012 of a flour mill in Ghana.  See Note 13 to the Consolidated Financial Statements for further discussion.

 

During the third quarter of 2011, Seaboard provided a term loan of $13.0 million to its non-consolidated affiliate, Butterball, LLC (Butterball).  Also during the third quarter of 2011, Seaboard made an additional capital contribution of $5.6 million in Butterball.  On December 6, 2010, Seaboard acquired its 50 percent non-controlling voting interest in Butterball for a cash purchase price of $177.5 million.  In connection with this investment, Seaboard provided to Butterball $100.0 million of subordinated financing.  See Note 4 to the Consolidated Financial Statements for further discussion of these transactions.

 

On April 8, 2011, Seaboard closed the sale of its two power generating facilities in the Dominican Republic for $73.1 million.  See Note 13 to the Consolidated Financial Statements for further discussion.

 

During the fourth quarter of 2010, Seaboard acquired a 25 percent non-controlling interest in a commodity trading business in Australia for $5.0 million. Also during the fourth quarter of 2010, Seaboard invested $10.5 million in a newly-combined poultry business in Africa for a 50 percent non-controlling interest.

 

During the third quarter of 2010, Seaboard acquired a majority interest in a commodity origination, storage and processing business in Canada for approximately $6.7 million.  The assets acquired included cash of $1.2 million. Also during the third quarter of 2010, Seaboard finalized an agreement to invest in a bakery to be built in Central Africa for a 50 percent non-controlling interest in this business. During 2011 and 2010, Seaboard invested $11.4 million and $10.1 million, respectively, for a total of $21.5 million as of December 31, 2011 in this project.  The total project cost is estimated to be $60.5 million, but Seaboard’s total investment has not yet been determined pending finalization of third party financing alternatives for a portion of the project.  The bakery is not anticipated to be fully operational until the second half of 2012.

 

During 2010, Seaboard agreed to invest in various limited partnerships as a limited partner that are expected to enable Seaboard to obtain certain low income housing tax credits over a period of approximately ten years.  The total commitment is approximately $17.5 million.  As of December 31, 2011, Seaboard had invested a total of $4.7 million in these partnerships with the remaining investment anticipated to be made in 2012.

 

14



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Financing Activities, Debt and Related Covenants

The following table presents a summary of Seaboard’s available borrowing capacity as of December 31, 2011.  At December 31, 2011, there were no borrowings outstanding under the committed line of credit and borrowings under the uncommitted lines of credit totaled $16.2 million, all related to foreign subsidiaries.  Letters of credit reduced Seaboard’s borrowing capacity under its committed and uncommitted credit lines by $48.1 million and $25.0 million, respectively, primarily representing $26.4 million for Seaboard’s outstanding Industrial Development Revenue Bonds and $21.5 million related to insurance coverage.

 

 

 

Total amount

 

(Thousands of dollars)

 

available

 

 

 

 

 

Long-term credit facility – committed

 

$

300,000

 

Short-term uncommitted demand notes

 

182,966

 

Total borrowing capacity

 

482,966

 

Amounts drawn against lines

 

(16,219

)

Letters of credit reducing borrowing availability

 

(73,123

)

Available borrowing capacity at December 31, 2011

 

$

393,624

 

 

On September 17, 2010, Seaboard entered into a credit agreement for $114.0 million at a fixed rate of 5.34% for the financing of the construction of the new power generating facility in the Dominican Republic, as discussed above.  The credit agreement will mature in December 2021 and is secured by the power generating facility.  During 2011, Seaboard borrowed $65.0 million from the credit agreement.  At December 31, 2011, $81.3 million had been borrowed from this credit facility.  It is currently anticipated the remaining $32.7 million will be borrowed during 2012.

 

Seaboard has capacity under existing loan covenants to undertake additional debt financings of approximately $1,883.0 million.  As of December 31, 2011, Seaboard was in compliance with all restrictive covenants related to these loans and facilities.  See Note 8 to the Consolidated Financial Statements for a summary of the material terms of Seaboard’s credit facilities, including financial ratios and covenants.

 

Scheduled long-term debt maturities are $40.9 million, $8.7 million and $16.1 million over the three years ending December 31, 2014.  As of December 31, 2011, Seaboard had cash and short-term investments of $394.8 million, total working capital of $1,070.6 million and a $300.0 million committed line of credit maturing on July 10, 2013.  Accordingly, management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations or business segments for 2012.  Management does, however, periodically review various alternatives for future financing to provide additional liquidity for future operating plans.  Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity, available borrowing capacity and other financing alternatives.

 

As of December 31, 2011, $100.8 million of the $394.8 million of cash and short-term investments were held by Seaboard’s foreign subsidiaries and Seaboard could be required to accrue and pay taxes to repatriate these funds if needed for Seaboard’s operations in the U.S.  However, Seaboard’s intent is to permanently reinvest these funds outside the U.S. and current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations.

 

As of December 31, 2011, Seaboard believes its exposure to the current potential European sovereign debt problems is not material. Seaboard monitors these exposures and currently does not believe there is a significant risk.

 

On November 6, 2009, the Board of Directors authorized up to $100.0 million for a new share repurchase program, which was extended by the Board of Directors through October 31, 2012.  Seaboard used cash to repurchase 5,282 shares of common stock at a total price of $10.0 million in 2011, 20,879 shares of common stock at a total price of $30.0 million in 2010 and 3,668 shares of common stock at a total price of $3.4 million in 2009. See Note 12 to the Consolidated Financial Statements for further discussion.  Seaboard did not pay any dividends in 2011 and currently does not intend to declare or pay any dividends during 2012 as there was a prepayment of the annual 2011 and 2012 dividends in December 2010.

 

15



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Contractual Obligations and Off-Balance Sheet Arrangements

The following table provides a summary of Seaboard’s contractual cash obligations as of December 31, 2011.

 

 

 

Payments due by period

 

 

 

 

 

Less than

 

1-3

 

3-5

 

More than

 

(Thousands of dollars)

 

Total

 

1 year

 

years

 

years

 

5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel time and voyage-charter commitments

 

$

321,350

 

$

101,087

 

$

76,355

 

$

44,947

 

$

98,961

 

Contract grower finishing agreements

 

66,089

 

11,673

 

19,765

 

17,732

 

16,919

 

Other operating lease payments

 

261,509

 

17,920

 

29,263

 

26,560

 

187,766

 

Total lease obligations

 

648,948

 

130,680

 

125,383

 

89,239

 

303,646

 

Long-term debt

 

157,252

 

40,885

 

24,773

 

16,264

 

75,330

 

Other long-term liabilities

 

86,209

 

8,309

 

4,389

 

11,242

 

62,269

 

Short-term notes payable

 

16,219

 

16,219

 

 

 

 

Other purchase commitments

 

1,336,309

 

827,134

 

235,281

 

200,153

 

73,741

 

Total contractual cash obligations and commitments

 

$

2,244,937

 

$

1,023,227

 

$

389,826

 

$

316,898

 

$

514,986

 

 

The Marine segment enters into contracts to time-charter vessels for use in its operations. To support the operations of the Pork segment, Seaboard has contract grower finishing agreements in place with farmers to raise a portion of Seaboard’s hogs. Seaboard has entered into grain and feed ingredient purchase contracts to support the live hog operations of the Pork segment, and has contracted for the purchase of additional hogs from third parties. The Commodity Trading and Milling segment enters into commodity purchase contracts and ocean freight contracts, primarily to support sales commitments. Seaboard also leases various facilities and equipment under non-cancelable operating lease agreements. See Note 11 to the Consolidated Financial Statements for a further discussion and for a more detailed listing of other purchase commitments.

 

Other long-term liabilities in the table above represent expected benefit payments for various non-qualified pension plans and supplemental retirement arrangements as discussed in Note 10 to the Consolidated Financial Statements, which are unfunded obligations that are deemed to be employer contributions. No contributions are planned at this time to the two qualified pension plans. Non-current deferred income taxes and certain other long-term liabilities on the Consolidated Balance Sheet are not included in the table above as management is unable to reliably estimate the timing of the payments for these items. In addition, deferred revenues and other deferred credits included in other long-term liabilities on the Consolidated Balance Sheet have been excluded from the table above since they do not represent contractual obligations.

 

Seaboard has issued $1.3 million of guarantees to support certain activities of non-consolidated affiliates and third parties who provide services for Seaboard. See Note 11 to the Consolidated Financial Statements for a detailed discussion.

 

RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2011, 2010 and 2009 were $5,746.9 million, $4,385.7 million and $3,601.3 million, respectively. The increase in net sales for 2011 compared to 2010 primarily reflected increased prices for and volumes of commodities traded and also an increase in overall sale prices for pork products. The increase in net sales for 2010 compared to 2009 primarily reflected an increase in sale prices for pork products, increased commodities trading volumes and higher cargo volumes for the Marine segment.

 

Operating income for the years ended December 31, 2011, 2010 and 2009 were $407.2 million, $321.1 million and $23.7 million, respectively. The increase for 2011 compared to 2010 reflects a one-time gain on sale of power generating facilities of $52.9 million. The increase also reflected $33.8 million fluctuation of marking to market Commodity Trading and Milling derivative contracts, as discussed below, higher sugar prices and higher pork prices.  The increases were partially offset by write-downs of $15.4 million in 2011 for certain grain inventories for customer contract performance issues as discussed below and declining performance in the Marine segment from higher operating costs.  The 2010 increase compared to 2009 primarily reflected higher Pork segment margins and, to a lesser extent, increased margins for the Sugar segment and the Marine segment, as discussed below.

 

16



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Pork Segment

 

(Dollars in millions)

 

2011

 

2010

 

2009

 

Net sales

 

$

1,744.6

 

$

1,388.3

 

$

1,065.3

 

Operating income (loss)

 

$

259.3

 

$

213.3

 

$

(15.0

)

 

Net sales for the Pork segment increased $356.3 million for the year ended December 31, 2011 compared to 2010.  The increase primarily reflected an increase in overall sales prices for pork products and, to a lesser extent, increased sales prices for and volume of biodiesel, and also higher volume of pork products sold.

 

Operating income for the Pork segment increased $46.0 million for the year ended December 31, 2011 compared to 2010.  The increase was primarily a result of higher sales prices and, to a lesser extent, higher volumes of pork products sold and an increase in payments received from the U.S. Government for biodiesel production in 2011 compared to 2010.  Partially offsetting the increase was higher feed costs primarily from higher corn prices and to a lesser degree, higher costs for hogs purchased from third parties and the impact of using the LIFO method for determining certain inventory costs.  LIFO decreased operating income $33.7 million in 2011 compared to $1.3 million in 2010 primarily as a result of higher costs to purchase corn during 2011.  Also, during the third quarter of 2011, a $5.6 million impairment charge was incurred related to the ham boning plant in Mexico.  See Note 13 to the Consolidated Financial Statements for further discussion of the impairment charge.

 

Management is unable to predict future market prices for pork products or the cost of feed and hogs purchased from third parties.  The Federal tax credits for biodiesel produced by Seaboard expired on December 31, 2011 and currently management does not anticipate these credits to be renewed for 2012.  However, management anticipates positive operating income for this segment for 2012, although at a lower level than 2011.

 

Net sales of the Pork segment increased $323.0 million for the year ended December 31, 2010, compared to 2009. The increase primarily reflected an increase in overall sales prices for pork products.  Operating income increased $228.3 million for the year ended December 31, 2010, compared with 2009.  The increase was primarily a result of higher sales prices, partially offset by higher costs for hogs purchased from third parties.

 

Commodity Trading and Milling Segment

 

(Dollars in millions)

 

2011

 

2010

 

2009

 

Net sales

 

$

2,689.8

 

$

1,808.9

 

$

1,531.6

 

 

 

 

 

 

 

 

 

Operating income as reported

 

$

43.2

 

$

34.4

 

$

24.8

 

Less mark-to-market adjustments

 

(16.6

)

17.2

 

14.5

 

Operating income excluding mark-to-market adjustments

 

$

26.6

 

$

51.6

 

$

39.3

 

 

 

 

 

 

 

 

 

Income from affiliates

 

$

13.4

 

$

21.0

 

$

19.1

 

 

Net sales for the Commodity Trading and Milling segment increased $880.9 million for the year ended December 31, 2011 compared to 2010.  The increase is primarily the result of increased prices for wheat and corn, and increased volumes of commodities sold to both third parties and non-consolidated affiliates.  In addition, $101.1 million in net sales were recognized in the first quarter of 2011 related to previously deferred costs and deferred revenues under contracts for which the final sale prices were not fixed and determinable until the first quarter of 2011. As worldwide commodity price fluctuations cannot be predicted, management is unable to predict the level of future sales.

 

Operating income increased $8.8 million for the year ended December 31, 2011, compared to 2010.  The increase primarily reflects the $33.8 million fluctuation of marking to market the derivative contracts in 2011, as discussed below.  Excluding the effects of these derivative contracts, operating income decreased $25.0 million for 2011 compared to 2010.  The decrease was primarily the result of certain grain inventory write-downs of $15.4 million in 2011 for various customer contract performance issues. The decrease was also the result of, but to a lesser extent, higher selling, general and administrative expenses primarily from higher personnel costs and bad debt expense.

 

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 for this segment. However, management anticipates positive operating income for this segment in 2012, excluding the potential effects of marking to market derivative contracts.

 

17



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment in 2011 would have been lower by $16.6 million and in 2010 and 2009 would have been higher by $17.2 million and $14.5 million, respectively.  While management believes its commodity futures and options and foreign exchange contracts 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 existing mark-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time and thus, these mark-to-market adjustments could reverse in fiscal 2012.  Management believes eliminating these adjustments, as noted in the table above, provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

 

Income from affiliates for the year ended December 31, 2011 decreased by $7.6 million from 2010.  The decrease primarily represents unfavorable market conditions for certain affiliates.  Partially offsetting this decrease was a $5.1 million gain (Seaboard’s proportionate share) recognized in the fourth quarter of 2011 as a result of Seaboard’s non-consolidated affiliate in Haiti’s final insurance settlement for the 2010 earthquake.  Based on the uncertainty of local political and economic environments in the countries in which these businesses operate, management cannot predict future results.

 

Net sales of the Commodity Trading and Milling segment increased $277.3 million for the year ended December 31, 2010, compared to 2009.  The increase is primarily the result of increased volumes of commodities sold to third parties, principally corn, soybean meal and soybeans and, to a lesser extent, increased prices for wheat and corn during the fourth quarter of 2010. Partially offsetting this increase was a decrease in commodity trading volumes to non-consolidated affiliates.

 

Operating income increased $9.6 million for 2010, compared to 2009. The increase primarily reflects the write-down of $8.8 million of certain grain inventories for various customer contract performance issues and related lower of cost or market adjustments, as discussed further in Note 3 to the Consolidated Financial Statements. Also, the increase reflects the $2.7 million fluctuation of marking to market the derivative contracts, as discussed above.

 

Income from affiliates for the year ended December 31, 2010 increased $1.9 million from 2009, primarily as a result of favorable market conditions for certain affiliates.

 

Marine Segment

 

(Dollars in millions)

 

2011

 

2010

 

2009

 

Net sales

 

$

928.5

 

$

853.6

 

$

737.6

 

Operating income (loss)

 

$

(3.9

)

$

47.6

 

$

24.1

 

 

Net sales of the Marine segment increased $74.9 million for the year ended December 31, 2011, compared to 2010 primarily as the result of increased rates in most markets served during 2011 and, to a lesser extent higher cargo volumes as economic activity generally increased in 2011 compared to 2010.

 

Operating income decreased by $51.5 million for the year ended December 31, 2011, compared to 2010.  The decrease was primarily the result of cost increases for fuel, trucking and charterhire on a per unit shipped basis. Partially offsetting the decrease was higher cargo rates as discussed above. Management cannot predict changes in future cargo volumes and cargo rates or to what extent changes in economic conditions in markets served will affect net sales or operating income during 2012. Based on higher fuel and trucking costs, management currently cannot predict if this segment will be profitable in 2012.

 

Net sales of the Marine segment increased $116.0 million for the year ended December 31, 2010, compared to 2009 primarily as a result of higher cargo volumes in most markets served during 2010 as economic activity increased.  The growth in volume was partially offset by overall lower cargo rates in 2010 as cargo rates in the first quarter of 2009 had just started to decline from the impacts of the slow economic conditions and continued to decline for most of 2009.  Overall, cargo rates remained fairly constant during 2010 but increased slightly during the second half of 2010 compared to the same period in 2009.

 

18



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Operating income increased by $23.5 million for the year ended December 31, 2010, compared to 2009. The increase was primarily the result of cost decreases for charter hire and, to a lesser extent, certain terminal and other operating costs on a per unit shipped basis. Partially offsetting the increase were lower cargo rates, as discussed above, and higher fuel costs for vessels and increased trucking costs on a per unit shipped basis.

 

Sugar Segment

 

(Dollars in millions)

 

2011

 

2010

 

2009

 

Net sales

 

$

259.8

 

$

196.0

 

$

143.0

 

Operating income (loss)

 

$

65.1

 

$

31.7

 

$

(0.9

)

Income from affiliates

 

$

0.4

 

$

1.0

 

$

1.0

 

 

Net sales of the Sugar segment increased $63.8 million for the year ended December 31, 2011 compared to 2010.  The increase primarily reflects increased domestic sugar prices partially offset by lower volumes.  Management cannot predict sugar prices for 2012.  The cogeneration plant, discussed above, became fully operational in October 2011 and it is not anticipated to generate significant revenues until the sugar harvest season, which is between May and November.

 

Operating income increased $33.4 million for the year ended December 31, 2011 compared to 2010.  The increase primarily represents higher margins resulting from the increase in sugar prices discussed above.  Management anticipates positive operating income for this segment for 2012, although at a lower level than in 2011.

 

Net sales of the Sugar segment increased $53.0 million for the year ended December 31, 2010, compared to 2009.  The increase primarily reflects increased domestic sugar and alcohol prices and, to a lesser extent, increased alcohol volumes, partially offset by lower sugar volumes produced and sold.  During the first quarter of 2010, Seaboard began sales of dehydrated alcohol under the Argentine government bio-ethanol program, which requires alcohol to be blended with gasoline.

 

Operating income increased $32.6 million during 2010, compared to 2009.  The increase primarily represents higher margins from the increase in alcohol and sugar prices discussed above and, to a lesser extent, increased alcohol volumes. In addition, the increase reflected a $5.3 million charge to earnings in 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 13 to the Consolidated Financial Statements, which did not occur in 2010.

 

Power Segment

 

(Dollars in millions)

 

2011

 

2010

 

2009

 

Net sales

 

$

111.4

 

$

124.0

 

$

107.1

 

Operating income

 

$

60.8

 

$

13.4

 

$

8.2

 

 

Net sales of the Power segment decreased $12.6 million for the year ended December 31, 2011 compared to 2010 primarily reflecting lower production levels, partially offset by higher rates.  The lower production levels are the result of the sale of the power generating facilities as noted below which eliminated production for part of April 2011 and also because only one of the two facilities was subsequently leased and operated.  The higher rates were attributable primarily to higher fuel costs, a component of pricing.

 

Operating income increased $47.4 million for the year ended December 31, 2011 compared to 2010. This increase was primarily a result of the gain on sale of power generating facilities of $52.9 million, partially offset by lower production levels discussed above.  See Note 13 to the Consolidated Financial Statements for the sale of certain assets of this business on April 8, 2011, subsequent leasing of one power generating facility and the construction of a new replacement power generating facility.

 

Management anticipates that sales volumes will be higher for 2012 as a result of the reduced operations in 2011 and the start-up of commercial electricity production from the new power generating facility anticipated in March 2012.  Management cannot predict future fuel costs or the extent to which rates will fluctuate compared to fuel costs.  However, management anticipates positive operating income for this segment for 2012 although lower than 2011, which included the gain on sale discussed above.

 

19



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Net sales of the Power segment increased $16.9 million for 2010, compared to 2009, primarily reflecting higher rates partially offset by lower production levels. The higher rates were attributable primarily to higher fuel costs, a component of pricing, especially during the first half of 2010. Operating income increased $5.2 million during 2010, compared to 2009, primarily as a result of higher rates being in excess of higher fuel costs partially offset by lower production levels.  There was no depreciation expense in 2010 related to the assets classified as held for sale, although this was principally offset by increases in certain other production costs.

 

Turkey Segment

 

(Dollars in millions)

 

2011

 

2010

 

Income (loss) from affiliate

 

$

12.7

 

$

(1.0

)

 

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball. See Note 4 to the Consolidated Financial Statements for discussion of Seaboard’s investment in Butterball, which occurred on December 6, 2010.  Accordingly, the loss from affiliate for 2010 above represents the period from December 6, 2010 to December 31, 2010.  During the third quarter of 2011, management of Butterball announced the closing of its Longmont, Colorado facilities by December 31, 2011, resulting in an impairment of fixed assets charge and accrued severance charges.  Seaboard’s proportionate share of these charges in the second half of 2011 was $3.0 million recognized in income from affiliate for 2011.  Also included in the income from affiliate for 2011 is a $2.6 million loss (Seaboard’s proportionate share) from interest rate exchange agreements as a result of fluctuating interest rates.  Management anticipates positive income for 2012, excluding the potential effects of marking to market commodity derivative contracts and interest rate exchange agreements.

 

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses for the year ended December 31, 2011 increased by $15.8 million over 2010 to $220.7 million.  This increase was primarily the result of increased personnel costs in most segments partially offset by lower costs related to Seaboard’s deferred compensation programs (which are offset by the mark-to-market investments recorded in Other Investment Income, Net discussed below).  As a percentage of revenues, SG&A decreased to 3.8% for 2011 compared to 4.7% for 2010 primarily as a result of increased sales in the Commodity Trading and Milling and Pork segments.

 

SG&A expenses for the year ended December 31, 2010 increased by $11.0 million over 2009 to $204.9 million.  This increase was primarily due to increased personnel costs in most segments and, to a lesser extent, project development costs including the Butterball transaction.  As a percentage of revenues, SG&A decreased to 4.7% for 2010, compared to 5.4% for 2009, primarily as a result of increased sales in the Pork and Commodity Trading and Milling segments.

 

Interest Expense

Interest expense totaled $6.9 million, $5.6 million and $13.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. Interest expense increased for 2011 compared to 2010, primarily from higher average interest rates on total borrowings outstanding.  Interest expense decreased for 2010 compared to 2009, primarily as a result of a lower average level of total borrowings outstanding during 2010 and, to a lesser extent, lower average interest rates on total borrowings outstanding during 2010.  In addition, interest expense decreased for 2010, compared to 2009 as a result of more capitalized interest in 2010, compared to 2009.

 

Interest Income

Interest income totaled $10.0 million, $11.1 million and $16.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.  The decrease for 2011 primarily reflected a decrease in average funds invested.  The decrease for 2010 primarily reflected lower average interest rate on funds invested.

 

Interest Income from Affiliates

Interest income from affiliates totaled $17.8 million, $1.5 million and $1.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.  The increase for 2011 compared to 2010 primarily represents interest from notes receivable from Butterball.  Seaboard invested in Butterball in December 2010, as noted above.

 

20



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Other Investment Income, Net

Other investment income, net totaled $0.2 million, $14.1 million and $15.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. The decrease for 2011 compared to 2010 primarily reflected a loss of $1.6 million in 2011 compared to a gain of $4.2 million in 2010 from the mark-to-market value of Seaboard’s investments related to the deferred compensation programs and realized gains of $0.7 million on short-term investments in 2011 compared to $6.6 million of realized gains for 2010.  Other investment income for 2010 also included $2.2 million in syndication fees recognized from the Butterball investment transaction, as noted above.

 

Foreign Currency Gains, Net

Foreign currency gains, net totaled $0.7 million, $1.3 million and $2.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.  Foreign currency gains, net primarily reflected foreign currency fluctuations from net assets denominated in the Euro Zone euro and the South African rand.  These amounts also include foreign currency losses for the Sugar segment from dollar based net liabilities related to foreign currency changes in the Argentine peso.  As such local dollar based debt was paid off during December 2011, such losses should not continue in 2012.  Seaboard operates in many developing countries.  The political and economic conditions of these markets, along with fluctuations in the value of the U.S. dollar, cause volatility in currency exchange rates which exposes Seaboard to fluctuating foreign currency gains and losses which cannot be predicted by Seaboard.

 

Although Seaboard does not utilize hedge accounting, the commodity trading business does utilize foreign currency exchange contracts to manage its risks and exposure to foreign currency fluctuations primarily related to the South African rand and the Euro Zone euro.  Management believes these gains and losses, including the mark-to-market effects, of these foreign currency contracts relate to the underlying commodity transactions and classifies such gains and losses in cost of sales.

 

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

Miscellaneous, net totaled $(13.1) million, $(0.4) million and $6.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. Miscellaneous, net included a loss of $14.5 million in 2011 compared to a loss of $1.3 million in 2010 and a gain of $5.3 million in 2009 on interest rate exchange agreements.

 

Income Tax Expense

The change to income tax expense in 2010 from income tax benefit in 2009 is the result of domestic earnings during 2010, compared to domestic losses in 2009.

 

OTHER FINANCIAL INFORMATION

Seaboard is subject to various federal and state regulations regarding environmental protection and land and water use. Among other things, these regulations affect the disposal of livestock waste and corporate farming matters in general. Management believes it is in compliance, in all material respects, with all such regulations. Laws and regulations in the states where Seaboard conducts its pork operations are restrictive. Future changes in environmental or corporate farming laws could adversely affect the manner in which Seaboard operates its business and its cost structure.

 

Management does not believe its businesses have been materially adversely affected by inflation.

 

CRITICAL ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.  Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard’s financial condition and results, and which require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors. These critical accounting estimates include:

 

21



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

Allowance for Doubtful Accounts – Seaboard primarily uses a specific identification approach, in management’s best judgment, to evaluate the adequacy of this reserve for estimated uncollectible receivables as of the consolidated balance sheet date. Changes in estimates, developing trends and other new information can have a material effect on future evaluations. Furthermore, Seaboard’s total current and long-term receivables are heavily weighted toward foreign receivables ($315.2 million or 55.0% at December 31, 2011), including foreign receivables due from affiliates ($93.6 million at December 31, 2011), which generally represent more of a collection risk than its domestic receivables.  Receivables due from affiliates are generally associated with entities located in foreign countries considered underdeveloped, as discussed below, which can experience conditions causing sudden changes to their ability to repay such receivables on a timely basis or in full.  Future collections of receivables or lack thereof could result in a material charge or credit to earnings depending on the ultimate resolution of each individual customer past due receivable.  Bad debt expense for the years ended December 31, 2011, 2010 and 2009 was $4.4 million, $2.8 million and $2.1 million, respectively.

 

Valuation of Inventories – Inventories are generally valued at the lower of cost or market. In determining market, management makes assumptions regarding replacement costs, estimated sales prices, estimated costs to complete, estimated disposal costs and normal profit margins. For commodity trading inventories, when contract performance by a customer becomes a concern, management must also evaluate available options to dispose of the inventory, including assumptions about potential negotiated changes to sales contracts, sales prices in alternative markets in various foreign countries and potentially additional transportation costs.  At times, management must consider probability weighting various viable alternatives in its determination of the net realizable value of the inventories. These assumptions and probabilities are subjective in nature, and are based on management’s best estimates and judgments existing at the time of preparation. Changes in future market prices of grains or facts and circumstances could result in a material write-down in value of inventory or decreased future margins on the sale of inventory.  See Note 13 to the Consolidated Financial Statements for further discussion on the Commodity Trading and Milling segment and its $15.4 million and $8.8 million in write-downs of inventories in 2011 and 2009, respectively.

 

Impairment of Long-Lived Assets – At each balance sheet date, long-lived assets, primarily property, plant and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Some of the key assumptions utilized in determining future projected cash flows include estimated growth rates, expected future sales prices and estimated costs. In some cases, judgment is also required in assigning probability weighting to the various future cash flow scenarios. The probability weighting percentages used and the various future projected cash flow models prepared by management are based on facts and circumstances existing at the time of preparation and management’s best estimates and judgment of future operating results. Seaboard cannot predict the occurrence of certain future events that might adversely affect the reported value of long-lived assets, which include, but are not limited to, a change in the business climate, government incentives, a negative change in relationships with significant customers, and changes to strategic decisions made in response to economic and competitive conditions. Changes in these facts, circumstances and management’s estimates and judgment could result in an impairment of fixed assets resulting in a material charge to earnings.  See Note 5 to the Consolidated Financial Statements for further discussion on the Pork Segment and its $5.6 million impairment charge recorded in cost of sales in 2011 related to its ham-boning and processing plant in Mexico.

 

Goodwill and Other Intangible Assets – Goodwill and other indefinite-life intangible assets, not subject to amortization, are evaluated annually for impairment at the quarter end closest to the anniversary date of the acquisition, or more frequently if circumstances indicate that impairment is possible. The impairment tests require management to make judgments in determining what assumptions to use in estimating fair value. One of the methods used by Seaboard to determine fair value is the income approach using discounted future projected cash flows. Some of the key assumptions utilized in determining future projected cash flows include estimated growth rates, expected future sales prices and costs, and future capital expenditures requirements. In some cases, judgment is also required in assigning probability weighting to the various future cash flow scenarios. The probability weighting percentages used and the various future projected cash flow models prepared by management are based on facts and circumstances existing at the time of preparation and management’s best estimates and judgment of future operating results. Seaboard cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and indefinite-life intangible assets that may include, but are not limited to, a change

 

22



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

in the business climate, a negative change in relationships with significant customers and changes to strategic decisions, including decisions to expand made in response to economic and competitive conditions. Changes in these facts, circumstances and management’s estimates and judgment could result in an impairment of goodwill and/or other intangible assets resulting in a material charge to earnings. At December 31, 2011, Seaboard had goodwill of $40.6 million and other intangible assets not subject to amortization of $17.0 million.

 

Income Taxes – Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard’s various business units based on management’s interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management’s attention which could alter previous conclusions or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse or favorable impact on the financial statements. As of December 31, 2011, Seaboard has deferred tax assets of $109.2 million, net of the valuation allowance of $16.3 million, and deferred tax liabilities of $152.3 million. For the years ended December 31, 2011, 2010 and 2009, income tax expense included $(1.9) million, $13.4 million and $(11.5) million, respectively, for deferred taxes to federal, foreign, state and local taxing jurisdictions.

 

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, turnover rates, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement, and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would be an increase in pension expense of approximately $1.7 million per year. The effects of actual results differing from the assumptions (i.e., gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods if it exceeds the 10 percent corridor and, therefore, could affect Seaboard’s recognized pension expense in such future periods, as permitted under U.S. GAAP.  Accordingly, accumulated gains or losses in excess of the 10 percent corridor are amortized over the average future service of active participants. See Note 10 to the Consolidated Financial Statements for further discussion of management’s assumptions.

 

DERIVATIVE INFORMATION

Seaboard is exposed to various types of market risks in its day-to-day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates and interest rates. Derivatives are used to manage these overall market risks; however, Seaboard does not perform the extensive record-keeping required to account for derivative transactions as hedges. Management believes it uses derivatives primarily as economic hedges, although they do not qualify as hedges for accounting purposes. Since these derivatives are not accounted for as hedges, fluctuations in the related prices could have a material impact on earnings in any given year. Seaboard also enters into speculative derivative transactions related to its market risks.

 

Changes in commodity prices affect the cost of necessary raw materials and other inventories, finished product sales and firm sales commitments. Seaboard uses various grain and oilseed futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments or anticipated sales contracts.  Short sales contracts are then used to offset the open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively offsetting the initial futures or option purchase contract. From time to time, hog futures are used to manage risks of increasing prices of live hogs acquired for processing, and hog futures are used to manage risks of fluctuating prices of pork product inventories and related future sales.  From time to time, Seaboard may enter into short positions in energy related resources (i.e., heating oil, crude oil, etc.) to manage certain exposures related to bio-energy margins. Inventories that are sensitive to changes in commodity prices, including carrying amounts at December 31, 2011 and 2010, are presented in Note 3 to the Consolidated Financial Statements. Raw material requirements, finished product sales and firm sales commitments are also sensitive to changes in commodity prices.

 

Because changes in foreign currency exchange rates affect the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in interest rates affect the cash required to service variable rate debt. From time to time, Seaboard uses interest rate swaps to manage risks of increasing interest rates.

 

23



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

During 2010, Seaboard entered into four ten-year interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt. Seaboard pays a fixed rate and receives a variable rate of interest on four notional amounts of $25.0 million each. While Seaboard has certain variable rate debt, these interest rate exchange agreements do not qualify as hedges for accounting purposes. Accordingly, the changes in fair value of these agreements are recorded in Miscellaneous, net in the Consolidated Statement of Earnings.

 

The following table presents the sensitivity of the fair value of Seaboard’s open net commodity future and option contracts, foreign currency contracts and interest rate exchange agreements to a hypothetical 10 percent adverse change in market prices or in foreign exchange rates and interest rates as of December 31, 2011 and December 31, 2010. For all open derivatives, the fair value of such positions is a summation of the fair values calculated for each item by valuing each net position at quoted market prices as of the applicable date.

 

(Thousands of dollars)

 

December 31, 2011

 

December 31, 2010

 

Grains and oilseeds

 

$

6,628

 

$

3,787

 

Hogs and pork bellies

 

201

 

3,809

 

Energy related resources

 

478

 

459

 

Foreign currencies

 

17,885

 

22,415

 

Interest rates

 

1,393

 

2,636

 

 

The table below provides information about Seaboard’s non-trading financial instruments sensitive to changes in interest rates at December 31, 2011.  For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.  At December 31, 2011, long-term debt included foreign subsidiary obligations of $81.3 million payable in U.S. dollars and $0.2 million payable in Argentine pesos.  At December 31, 2010, long-term debt included foreign subsidiary obligations of $16.4 million denominated in U.S. dollars and $0.2 million payable in Argentine pesos.  Weighted average variable rates are based on rates in place at the reporting date. Short-term instruments, including short-term investments, non-trade receivables and current notes payable have carrying values that approximate market and are not included in this table due to their short-term nature.

 

(Dollars in thousands)

 

2012

 

2013

 

2014

 

2015

 

2016

 

Thereafter

 

Total

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate

 

$

40,679

 

$

8,688

 

$

8,285

 

$

8,132

 

$

8,132

 

$

41,330

 

$

115,246

 

Average interest rate

 

6.69

%

6.02

%

5.54

%

5.34

%

5.34

%

5.52

%

5.95

%

Variable rate

 

$

206

 

$

 

$

7,800

 

$

 

$

 

$

34,000

 

$

42,006

 

Average interest rate

 

7.00

%

 

1.27

%

 

 

1.66

%

1.61

%

 

Non-trading financial instruments sensitive to changes in interest rates at December 31, 2010 consisted of fixed rate long-term debt totaling $51.1 million, with an average interest rate of 6.66 percent and variable rate long-term debt totaling $42.0 million, with an average interest rate of 1.70 percent.

 

24



 

SEABOARD CORPORATION

Management’s Reports

 

Management’s Responsibility for Consolidated Financial Statements

The management of Seaboard Corporation and its consolidated subsidiaries (Seaboard) is responsible for the preparation of its consolidated financial statements and related information appearing in this report. Management believes that the consolidated financial statements fairly present Seaboard’s financial position and results of operations in conformity with U.S. generally accepted accounting principles, and necessarily includes amounts that are based on estimates and judgments which it believes are reasonable based on current circumstances with due consideration given to materiality.

 

Management relies on a system of internal controls over financial reporting that is designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with company policy and U.S. generally accepted accounting principles and are properly recorded, and accounting records are adequate for preparation of financial statements and other information and disclosures. The concept of reasonable assurance is based on recognition that the cost of a control system should not exceed the benefits expected to be derived, and such evaluations require estimates and judgments. The design and effectiveness of the system are monitored by a professional staff of internal auditors.

 

All internal control systems, no matter how well designed, have inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance, and is subject to lapses in judgment and breakdowns resulting from human failures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

The Board of Directors pursues its review of auditing, internal controls and financial statements through its audit committee, composed entirely of independent directors. In the exercise of its responsibilities, the audit committee meets periodically with management, with the internal auditors and with the independent registered public accounting firm to review the scope and results of audits. Both the internal auditors and the independent registered public accounting firm have unrestricted access to the audit committee, with or without the presence of management.

 

Management’s Report on Internal Control Over Financial Reporting

The management of Seaboard Corporation and its consolidated subsidiaries (Seaboard) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision, and with the participation of management and its Internal Audit Department, Seaboard conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under the framework in Internal Control - Integrated Framework, management concluded that Seaboard’s internal control over financial reporting was effective as of December 31, 2011.

 

Seaboard’s registered independent public accounting firm, that audited the consolidated financial statements included in the annual report, has issued an audit report on the effectiveness of Seaboard’s internal control over financial reporting.  Their report is included herein.

 

25



 

SEABOARD CORPORATION

Report of Independent Registered Public Accounting Firm

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Seaboard Corporation:

 

We have audited the accompanying consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2011 and 2010 and the related consolidated statements of earnings, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seaboard Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Seaboard Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

 

 

 

 

 

 

Kansas City, Missouri

 

February 28, 2012

 

 

26



 

SEABOARD CORPORATION

Report of Independent Registered Public Accounting Firm

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Seaboard Corporation:

 

We have audited Seaboard Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Seaboard Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Seaboard Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Seaboard Corporation and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of earnings, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2011, and our report dated February 28, 2012 expressed an unqualified opinion on those consolidated financial statements.

 

 

 

 

 

 

 

Kansas City, Missouri

 

February 28, 2012

 

 

27



 

SEABOARD CORPORATION

Consolidated Statement of Earnings

 

 

 

Years ended December 31,

 

(Thousands of dollars except per share amounts)

 

2011

 

2010

 

2009

 

Net sales:

 

 

 

 

 

 

 

Products (includes sales to affiliates of $808,834, $500,265 and $543,066)

 

4,666,172

 

3,354,348

 

2,718,736

 

Service revenues

 

969,339

 

907,320

 

775,498

 

Other

 

111,391

 

124,034

 

107,074

 

Total net sales

 

5,746,902

 

4,385,702

 

3,601,308

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

Products

 

4,196,360

 

2,980,606

 

2,619,396

 

Services

 

879,199

 

775,637

 

671,598

 

Gain on sale of power generating facilities

 

(52,923

)

 

 

Other

 

96,383

 

103,465

 

92,701

 

Total cost of sales and operating expenses

 

5,119,019

 

3,859,708

 

3,383,695

 

Gross income

 

627,883

 

525,994

 

217,613

 

Selling, general and administrative expenses

 

220,679

 

204,928

 

193,890

 

Operating income

 

407,204

 

321,066

 

23,723

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense

 

(6,868

)

(5,632

)

(13,158

)

Interest income

 

10,004

 

11,088

 

16,213

 

Interest income from affiliates

 

17,826

 

1,543

 

1,123

 

Income from affiliates

 

26,621

 

20,965

 

20,158

 

Other investment income, net

 

249

 

14,145

 

15,500

 

Foreign currency gain, net

 

651

 

1,254

 

2,432

 

Gain on disputed sale, net of expenses

 

 

 

16,787

 

Miscellaneous, net

 

(13,079

)

(384

)

6,463

 

Total other income, net

 

35,404

 

42,979

 

65,518

 

Earnings before income taxes

 

442,608

 

364,045

 

89,241

 

Income tax benefit (expense)

 

(99,051

)

(81,033

)

2,276

 

Net earnings

 

$

343,557

 

$

283,012

 

$

91,517

 

Less: Net loss attributable to noncontrolling interests

 

2,290

 

599

 

965

 

Net earnings attributable to Seaboard

 

$

345,847

 

$

283,611

 

$

92,482

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

284.66

 

$

231.69

 

$

74.74

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

1,214,934

 

1,224,092

 

1,237,452

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 

$

9.00

 

$

3.00

 

 

See accompanying notes to consolidated financial statements.

 

28



 

SEABOARD CORPORATION

Consolidated Balance Sheets

 

 

 

December 31,

 

(Thousands of dollars except per share amounts)

 

2011

 

2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

71,510

 

$

41,124

 

Short-term investments

 

323,256

 

332,205

 

Receivables:

 

 

 

 

 

Trade

 

280,279

 

243,786

 

Due from affiliates

 

126,616

 

75,771

 

Other

 

81,255

 

48,557

 

 

 

488,150

 

368,114

 

Allowance for doubtful accounts

 

(10,941

)

(8,170

)

Net receivables

 

477,209

 

359,944

 

Inventories

 

644,930

 

533,761

 

Deferred income taxes

 

23,203

 

18,393

 

Deferred costs

 

 

84,141

 

Other current assets

 

91,934

 

115,844

 

Total current assets

 

1,632,042

 

1,485,412

 

Investments in and advances to affiliates

 

364,840

 

331,322

 

Net property, plant and equipment

 

796,822

 

701,131

 

Notes receivable from affiliate

 

110,903

 

90,109

 

Goodwill

 

40,628

 

40,628

 

Intangible assets, net

 

19,496

 

19,746

 

Other assets

 

41,997

 

65,738

 

Total Assets

 

$

3,006,728

 

$

2,734,086