0001104659-13-080059.txt : 20131101 0001104659-13-080059.hdr.sgml : 20131101 20131101161002 ACCESSION NUMBER: 0001104659-13-080059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20130928 FILED AS OF DATE: 20131101 DATE AS OF CHANGE: 20131101 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 131186040 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-Q 1 a13-18733_110q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

{ X }                    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 28, 2013

 

OR

 

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

 

For the transition period from __________________________ to __________________________

 

Commission File Number 1-3390

 

Seaboard Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

 

04-2260388

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

9000 W. 67th Street, Shawnee Mission, Kansas

 

66202

(Address of principal executive offices)

 

(Zip Code)

 

(913) 676-8800

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  X   No __

 

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

 

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

 

Large Accelerated Filer [ X ]

Accelerated Filer [   ]

Non-Accelerated Filer   [   ] (Do not check if a smaller reporting company)

Smaller Reporting Company [   ]

 

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

 

There were 1,190,830 shares of common stock, $1.00 par value per share, outstanding on October 25, 2013.

 



 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Thousands of dollars except share and per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

 

September 28,

 

September 29,

 

 

 

 

2013

 

 

 

2012

 

 

 

 

2013

 

 

 

2012

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes sales to affiliates of $183,968, $180,968, $531,051 and $544,152)

 

 

 

$

1,352,158

 

 

 

$

1,149,648

 

 

 

 

$

3,986,573

 

 

 

$

3,535,461

 

Service revenues

 

 

 

221,619

 

 

 

253,085

 

 

 

 

705,579

 

 

 

746,194

 

Other

 

 

 

74,328

 

 

 

76,683

 

 

 

 

222,288

 

 

 

179,467

 

Total net sales

 

 

 

1,648,105

 

 

 

1,479,416

 

 

 

 

4,914,440

 

 

 

4,461,122

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 

1,276,966

 

 

 

1,061,215

 

 

 

 

3,742,792

 

 

 

3,238,178

 

Services

 

 

 

211,914

 

 

 

216,232

 

 

 

 

653,006

 

 

 

663,156

 

Other

 

 

 

58,272

 

 

 

57,506

 

 

 

 

175,373

 

 

 

140,165

 

Total cost of sales and operating expenses

 

 

 

1,547,152

 

 

 

1,334,953

 

 

 

 

4,571,171

 

 

 

4,041,499

 

Gross income

 

 

 

100,953

 

 

 

144,463

 

 

 

 

343,269

 

 

 

419,623

 

Selling, general and administrative expenses

 

 

 

67,183

 

 

 

59,406

 

 

 

 

192,492

 

 

 

180,487

 

Operating income

 

 

 

33,770

 

 

 

85,057

 

 

 

 

150,777

 

 

 

239,136

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(2,568

)

 

 

(3,888

)

 

 

 

(7,330

)

 

 

(8,826

)

Interest income

 

 

 

2,171

 

 

 

3,180

 

 

 

 

10,529

 

 

 

8,343

 

Interest income from affiliates

 

 

 

5,476

 

 

 

4,759

 

 

 

 

17,001

 

 

 

15,009

 

Income (loss) from affiliates

 

 

 

(4,989

)

 

 

2,318

 

 

 

 

(12,386

)

 

 

21,703

 

Other investment income, net

 

 

 

3,020

 

 

 

3,830

 

 

 

 

3,274

 

 

 

6,320

 

Foreign currency gains (losses), net

 

 

 

(180

)

 

 

165

 

 

 

 

(1,460

)

 

 

(420

)

Miscellaneous, net

 

 

 

59

 

 

 

(919

)

 

 

 

4,751

 

 

 

(3,575

)

Total other income, net

 

 

 

2,989

 

 

 

9,445

 

 

 

 

14,379

 

 

 

38,554

 

Earnings before income taxes

 

 

 

36,759

 

 

 

94,502

 

 

 

 

165,156

 

 

 

277,690

 

Income tax expense

 

 

 

(5,394

)

 

 

(19,869

)

 

 

 

(36,008

)

 

 

(71,365

)

Net earnings

 

 

 

$

31,365

 

 

 

$

74,633

 

 

 

 

$

129,148

 

 

 

$

206,325

 

Less: Net loss (income) attributable to noncontrolling interests

 

 

 

(396

)

 

 

(211

)

 

 

 

(1,178

)

 

 

403

 

Net earnings attributable to Seaboard

 

 

 

$

30,969

 

 

 

$

74,422

 

 

 

 

$

127,970

 

 

 

$

206,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 $

25.99

 

 

 

 $

61.92

 

 

 

 

 $

107.09

 

 

 

 $

171.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $4,012, $1, $9,552 and $2,566:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(14,067

)

 

 

(6,023

)

 

 

 

(26,888

)

 

 

(9,164

)

Unrealized gain (loss) on investments

 

 

 

227

 

 

 

1,604

 

 

 

 

(1,481

)

 

 

2,775

 

Unrealized loss on cash flow hedges

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

(91

)

Unrecognized pension cost

 

 

 

1,192

 

 

 

1,135

 

 

 

 

4,929

 

 

 

4,455

 

Other comprehensive loss, net of tax

 

 

 

$

(12,648

)

 

 

$

(3,284

)

 

 

 

$

(23,440

)

 

 

$

(2,025

)

Comprehensive income

 

 

 

18,717

 

 

 

71,349

 

 

 

 

105,708

 

 

 

204,300

 

Less: Comprehensive loss (income) attributable to noncontrolling interests

 

 

 

(398

)

 

 

(220

)

 

 

 

(1,217

)

 

 

355

 

Comprehensive income attributable to Seaboard

 

 

 

$

18,319

 

 

 

$

71,129

 

 

 

 

$

104,491

 

 

 

$

204,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

 

1,191,744

 

 

 

1,201,974

 

 

 

 

1,195,006

 

 

 

1,205,239

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars)

(Unaudited)

 

 

 

September 28,

 

December 31,

 

 

 

2013

 

2012

 

Assets

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

31,753

 

$

47,651

 

Short-term investments

 

244,995

 

313,379

 

Receivables, net of allowance

 

574,301

 

521,892

 

Inventories

 

781,848

 

756,864

 

Deferred income taxes

 

22,753

 

24,586

 

Other current assets

 

132,742

 

118,391

 

Total current assets

 

1,788,392

 

1,782,763

 

Net property, plant and equipment

 

857,848

 

843,879

 

Investments in and advances to affiliates

 

396,559

 

410,542

 

Notes receivable from affiliates

 

175,001

 

202,931

 

Goodwill

 

43,218

 

43,218

 

Other intangible assets, net

 

19,074

 

19,843

 

Other assets

 

49,793

 

44,605

 

Total assets

 

$

3,329,885

 

$

3,347,781

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

 

 

Notes payable to banks

 

$

54,870

 

$

28,786

 

Current maturities of long-term debt

 

11,856

 

25,138

 

Accounts payable

 

166,649

 

217,041

 

Deferred revenue

 

58,052

 

53,811

 

Deferred revenue from affiliates

 

11,308

 

24,131

 

Other current liabilities

 

283,548

 

327,668

 

Total current liabilities

 

586,283

 

676,575

 

Long-term debt, less current maturities

 

104,172

 

120,825

 

Deferred income taxes

 

38,244

 

33,929

 

Other liabilities and deferred credits

 

204,636

 

208,263

 

Total non-current liabilities

 

347,052

 

363,017

 

Commitments and contingent liabilities

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock of $1 par value,

 

 

 

 

 

Authorized 1,250,000 shares;

 

 

 

 

 

issued and outstanding 1,191,230 and 1,197,660 shares

 

1,191

 

1,198

 

Accumulated other comprehensive loss

 

(194,984

)

(171,544

)

Retained earnings

 

2,585,523

 

2,474,896

 

Total Seaboard stockholders’ equity

 

2,391,730

 

2,304,550

 

Noncontrolling interests

 

4,820

 

3,639

 

Total equity

 

2,396,550

 

2,308,189

 

Total liabilities and stockholders’ equity

 

$

3,329,885

 

$

3,347,781

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Thousands of dollars)

(Unaudited)

 

 

 

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

129,148

 

$

206,325

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

70,182

 

67,518

 

Gain from sale of fixed assets

 

(2,856

)

(6,343

)

Deferred income taxes

 

15,702

 

(14,105

)

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

 

(9,828

)

(8,747

)

Loss (income) from affiliates

 

12,386

 

(21,703

)

Dividends received from affiliates

 

11,129

 

596

 

Other investment income, net

 

(3,274

)

(6,320

)

Other

 

806

 

2,340

 

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

 

 

 

 

 

Receivables, net of allowance

 

(70,669

)

(66,783

)

Inventories

 

(40,739

)

(119,871

)

Other current assets

 

(12,579

)

(33,759

)

Current liabilities, exclusive of debt

 

(95,233

)

116,341

 

Other, net

 

857

 

17,471

 

Net cash from operating activities

 

5,032

 

132,960

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of short-term investments

 

(480,085

)

(602,811

)

Proceeds from the sale of short-term investments

 

540,456

 

529,144

 

Proceeds from the maturity of short-term investments

 

4,270

 

27,077

 

Principal payments received on notes receivable

 

14,425

 

838

 

Capital expenditures

 

(110,943

)

(112,218

)

Proceeds from the sale of fixed assets

 

10,552

 

10,599

 

Investments in and advances to affiliates, net

 

(37,751

)

(9,321

)

Long-term notes receivable issued to affiliates

 

(17,224

)

-

 

Principal payments received on long-term notes receivable from affiliates

 

81,272

 

1,139

 

Purchase of long-term investments

 

(4,032

)

(6,629

)

Acquisition of business, net of cash acquired

 

-

 

(2,825

)

Other, net

 

(316

)

(96

)

Net cash from investing activities

 

624

 

(165,103

)

Cash flows from financing activities:

 

 

 

 

 

Notes payable to banks, net

 

27,020

 

7,688

 

Proceeds from the issuance of long-term debt

 

-

 

32,682

 

Principal payments of long-term debt

 

(29,909

)

(6,050

)

Repurchase of common stock

 

(17,349

)

(18,193

)

Other, net

 

(1,096

)

382

 

Net cash from financing activities

 

(21,334

)

16,509

 

Effect of exchange rate change on cash

 

(220

)

(1,371

)

Net change in cash and cash equivalents

 

(15,898

)

(17,005

)

Cash and cash equivalents at beginning of year

 

47,651

 

71,510

 

Cash and cash equivalents at end of period

 

$

31,753

 

$

54,505

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



 

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 Accounting Policies and Basis of Presentation

 

The Condensed Consolidated Financial Statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”).  All significant intercompany balances and transactions have been eliminated in consolidation.  Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method.  The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of Seaboard for the year ended December 31, 2012 as filed in its Annual Report on Form 10-K.  Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September.  Seaboard’s year-end is December 31.

 

The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows.  Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.  As Seaboard conducts its commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, gross margin on non-consolidated affiliates cannot be clearly distinguished without making numerous assumptions primarily with respect to mark-to-market accounting for commodity derivatives.

 

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include those related to allowance for doubtful accounts, valuation of inventories, impairment of long-lived assets, goodwill and other intangible assets, income taxes and accrued pension liability.  Actual results could differ from those estimates.

 

Supplemental Non-Cash Transactions

As discussed in Note 9, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for their investment in PS International, LLC with Seaboard’s ownership interest increasing from 50% to 70% as a result of cash paid, net of cash acquired of $2,825,000 in January 2012. An additional payment was made in 2012 subsequent to the third quarter of 2012 for this transaction upon final verification of certain balance sheet items as of December 31, 2011. On December 31, 2012, Seaboard further increased its ownership from 70% to 85%. Total cash paid during the first quarter 2012, net of cash acquired was $2,825,000, and increased working capital by $14,419,000, fixed assets by $163,000, goodwill by $2,590,000, intangible assets by $621,000, other long-term assets by $96,000, non-controlling interest by $5,649,000 and decreased investment in and advances to affiliates by $9,415,000. A final payment of $515,000 was made in the second quarter of 2013, which increased intangible assets.  See Note 9 for additional information.

 

During the third quarter of 2013, Seaboard finalized the details of its investment in and long-term loan to a bakery business in the Democratic Republic of Congo in which Seaboard has a 50% non-controlling interest, resulting in decreasing investments in and advances to affiliates and increasing long-term notes receivable from affiliates by $26,290,000 for amounts previously advanced prior to 2013. This interest bearing note receivable has a decreasing balance with a final maturity date of December 2020.

 

As discussed in Note 9, Seaboard has a note receivable from an affiliate which accrues pay-in-kind interest income. Seaboard recognized $3,397,000 and $9,828,000, respectively, of non-cash, pay-in-kind interest income and accretion of discount for the three and nine months ended September 28, 2013 and $2,989,000 and $8,747,000, respectively, for the three and nine months ended September 29, 2012, respectively, primarily related to this note receivable.

 

5



 

Note 2– Investments

 

Seaboard’s short-term investments are treated as either available-for-sale securities or trading securities.  All of Seaboard’s available-for-sale and trading securities are classified as current assets as they are readily available to support Seaboard’s current operating needs.  Available-for-sale securities are recorded at their estimated fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive loss.  Trading securities are recorded at their estimated fair value with unrealized gains and losses reflected in other investment income (loss), net.  At September 28, 2013 and December 31, 2012, amortized cost and estimated fair value were not materially different for these investments.

 

At September 28, 2013, money market funds included $15,898,000 denominated in Euros, $7,680,000 denominated in British Pounds and $4,130,000 denominated in Canadian dollars.  As of September 28, 2013, the trading securities primarily consisted of high yield debt securities.

 

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at September 28, 2013 and December 31, 2012.

 

 

 

2013

 

2012

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Thousands of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

78,435

 

$

78,435

 

$

126,537

 

$

126,537

 

Corporate bonds

 

68,411

 

69,038

 

67,275

 

69,214

 

U.S. Government agency securities

 

20,627

 

20,412

 

23,647

 

23,775

 

Emerging markets debt mutual fund

 

17,693

 

17,253

 

17,693

 

18,734

 

Collateralized mortgage obligations

 

15,058

 

15,007

 

15,059

 

15,162

 

Asset backed debt securities

 

8,926

 

8,967

 

12,180

 

12,238

 

U.S. Treasury securities

 

5,258

 

5,237

 

17,165

 

17,169

 

Total available-for-sale short-term investments

 

214,408

 

214,349

 

279,556

 

282,829

 

High yield trading debt securities

 

24,445

 

25,195

 

21,839

 

23,406

 

Emerging markets trading debt mutual fund

 

3,161

 

2,900

 

3,046

 

3,237

 

Emerging markets trading debt securities

 

1,493

 

1,535

 

2,361

 

2,600

 

Other trading investments

 

974

 

1,016

 

1,262

 

1,307

 

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

 

$

244,481

 

$

244,995

 

$

308,064

 

$

313,379

 

 

The following table summarizes the estimated fair value of fixed rate securities designated as available-for-sale classified by the contractual maturity date of the security as of September 28, 2013.

 

 

(Thousands of dollars)

 

 

2013

 

Due within one year

 

$

658

 

Due after one year through three years

 

41,940

 

Due after three years

 

57,131

 

Total fixed rate securities

 

$

99,729

 

 

In addition to its short-term investments, Seaboard also has trading securities related to Seaboard’s deferred compensation plans classified in other current assets on the Condensed Consolidated Balance Sheets.  See Note 5 to the Condensed Consolidated Financial Statements for information on the types of trading securities held related to the deferred compensation plans.

 

6



 

Note 3 – Inventories

 

The following is a summary of inventories at September 28, 2013 and December 31, 2012:

 

 

 

September 28,

 

December 31,

(Thousands of dollars)

 

 

2013

 

 

 

2012

 

At lower of LIFO cost or market:

 

 

 

 

 

 

 

 

Live hogs and materials

 

 

$

240,528

 

 

 

$

258,638

 

Fresh pork and materials

 

 

34,892

 

 

 

31,495

 

 

 

 

275,420

 

 

 

290,133

 

LIFO adjustment

 

 

(78,897

)

 

 

(90,730

)

Total inventories at lower of LIFO cost or market

 

 

196,523

 

 

 

199,403

 

At lower of FIFO cost or market:

 

 

 

 

 

 

 

 

Grains, oilseeds and other commodities

 

 

349,034

 

 

 

317,573

 

Sugar produced and in process

 

 

57,887

 

 

 

65,986

 

Other

 

 

76,016

 

 

 

73,606

 

Total inventories at lower of FIFO cost or market

 

 

482,937

 

 

 

457,165

 

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

 

 

102,388

 

 

 

100,296

 

Total inventories

 

 

$

781,848

 

 

 

$

756,864

 

 

Note 4 – Income Taxes

 

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments.  Seaboard’s U.S. federal income tax years’ are closed through 2009. Seaboard’s 2010 U.S. income tax return is currently under IRS examination.  There have not been any material changes in unrecognized income tax benefits since December 31, 2012.  Interest related to unrecognized tax benefits and penalties was not material for the three and nine months ended September 28, 2013.

 

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Tax Act) was signed into law.  The Tax Act extended many expired corporate income tax provisions that impact current and deferred taxes for financial reporting purposes.  In accordance with U.S. GAAP, the determination of current and deferred taxes is based on the provisions of the enacted law as of the balance sheet date; the effects of future changes in tax law are not anticipated.  The effects of changes in tax laws, including retroactive changes, are recognized in the financial statements in the period that the changes are enacted.  Accordingly, as the Tax Act was signed into law in 2013, the effects of the retroactive provisions in the new law on current and deferred tax assets and liabilities for Seaboard were recorded in the first quarter of 2013.  The total impact was a one-time tax benefit of $7,945,000 recorded in the first quarter of 2013 related to certain 2012 income tax credits.  In addition to this amount is a one-time credit of approximately $11,260,000 for 2012 Federal blender’s credits that was recognized as revenues in the first quarter of 2013.  See Note 9 for further discussion of this Federal blender’s credit.

 

Note 5 –Derivatives and Fair Value of Financial Instruments

 

U.S. GAAP discusses valuation techniques, such as the market approach (prices and other relevant information generated by market conditions involving identical or comparable assets or liabilities), the income approach (techniques to convert future amounts to single present amounts based on market expectations including present value techniques and option-pricing), and the cost approach (amount that would be required to replace the service capacity of an asset which is often referred to as replacement cost).  U.S. GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The following is a brief description of those three levels:

 

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2:   Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

7



 

Level 3:    Unobservable inputs that reflect the reporting entity’s own assumptions.

 

The following table shows assets and liabilities measured at fair value on a recurring basis as of September 28, 2013 and also the level within the fair value hierarchy used to measure each category of assets.  Seaboard uses the end of the reporting period to determine if there were any transfers between levels.  There were no transfers between levels that occurred in the first nine months of 2013.  The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

September 28,

 

 

 

 

 

 

 

(Thousands of dollars)

 

 

2013

 

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

$

78,435

 

 

$

78,435

 

$

-

 

$

-

 

Corporate bonds

 

 

69,038

 

 

-

 

69,038

 

-

 

U.S. Government agency securities

 

 

20,412

 

 

-

 

20,412

 

-

 

Emerging markets debt mutual fund

 

 

17,253

 

 

17,253

 

-

 

-

 

Collateralized mortgage obligations

 

 

15,007

 

 

-

 

15,007

 

-

 

Asset backed debt securities

 

 

8,967

 

 

-

 

8,967

 

-

 

U.S. Treasury securities

 

 

5,237

 

 

-

 

5,237

 

-

 

Trading securities - short-term investments:

 

 

 

 

 

 

 

 

 

 

 

High yield debt securities

 

 

25,195

 

 

-

 

25,195

 

-

 

Emerging markets trading debt mutual fund

 

 

2,900

 

 

2,900

 

-

 

-

 

Emerging markets trading debt securities

 

 

1,535

 

 

-

 

1,535

 

-

 

Other trading investments

 

 

1,016

 

 

507

 

509

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

22,881

 

 

22,881

 

-

 

-

 

Foreign equity securities

 

 

9,380

 

 

5,614

 

3,766

 

-

 

Fixed income mutual funds

 

 

5,954

 

 

5,954

 

-

 

-

 

Money market funds

 

 

2,046

 

 

2,046

 

-

 

-

 

U.S. Treasury securities

 

 

1,506

 

 

-

 

1,506

 

-

 

U.S. Government agency securities

 

 

958

 

 

-

 

958

 

-

 

Corporate bonds

 

 

81

 

 

-

 

81

 

-

 

Other

 

 

313

 

 

271

 

42

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

 

2,062

 

 

2,062

 

-

 

-

 

Foreign currencies

 

 

4,088

 

 

-

 

4,088

 

-

 

Total Assets

 

 

$

294,264

 

 

$

137,923

 

$

156,341

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

 

$

17,882

 

 

$

17,882

 

$

-

 

$

-

 

Interest rate swaps

 

 

5,318

 

 

-

 

5,318

 

-

 

Foreign currencies

 

 

92

 

 

-

 

92

 

-

 

Total Liabilities

 

 

$

23,292

 

 

$

17,882

 

$

5,410

 

$

-

 

 

(1) Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of September 28, 2013, the commodity derivatives had a margin account balance of $30,382,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $14,562,000.

 

8



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and also the level within the fair value hierarchy used to measure each category of assets.

 

 

Balance

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

(Thousands of dollars)

2012

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

126,537

 

 

$

126,537

 

$

-

 

$

-

 

Corporate bonds

 

69,214

 

 

-

 

69,214

 

-

 

U.S. Government agency securities

 

23,775

 

 

-

 

23,775

 

-

 

Emerging markets debt mutual fund

 

18,734

 

 

18,734

 

-

 

-

 

U.S. Treasury securities

 

17,169

 

 

-

 

17,169

 

-

 

Collateralized mortgage obligations

 

15,162

 

 

-

 

15,162

 

-

 

Asset backed debt securities

 

12,238

 

 

-

 

12,238

 

-

 

Trading securities - short term investments:

 

 

 

 

 

 

 

 

 

 

High yield debt securities

 

23,406

 

 

-

 

23,406

 

-

 

Emerging markets trading debt mutual fund

 

3,237

 

 

3,237

 

-

 

-

 

Emerging markets trading debt securities

 

2,600

 

 

-

 

2,600

 

-

 

Other trading investments

 

1,307

 

 

822

 

485

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

15,864

 

 

15,864

 

-

 

-

 

Fixed income mutual funds

 

7,153

 

 

7,153

 

-

 

-

 

Foreign equity securities

 

6,831

 

 

4,218

 

2,613

 

-

 

Money market funds

 

3,157

 

 

3,157

 

-

 

-

 

U.S. Government agency securities

 

2,117

 

 

-

 

2,117

 

-

 

U.S. Treasury securities

 

1,567

 

 

-

 

1,567

 

-

 

Corporate bonds

 

60

 

 

-

 

60

 

-

 

Other

 

239

 

 

187

 

52

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

6,916

 

 

6,699

 

217

 

-

 

Total Assets

 

$

357,283

 

 

$

186,608

 

$

170,675

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

7,112

 

 

$

7,112

 

$

-

 

$

-

 

Interest rate swaps

 

9,810

 

 

-

 

9,810

 

-

 

Foreign currencies

 

4,157

 

 

-

 

4,157

 

-

 

Total Liabilities

 

$

21,079

 

 

$

7,112

 

$

13,967

 

$

-

 

 

(1) Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of December 31, 2012, the commodity derivatives had a margin account balance of $14,063,000 resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $13,867,000.

 

Financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments.

 

The fair value of long-term debt is estimated by comparing interest rates for debt with similar terms and maturities. If Seaboard’s debt was measured at fair value on its Condensed Consolidated Balance Sheets, it would have been classified as level 2 in the fair value hierarchy. The amortized cost and estimated fair values of investments and long-term debt at September 28, 2013 and December 31, 2012 are presented below.

 

9



 

 

 

2013

 

2012

 

 

(Thousands of dollars)

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Short-term investments, available-for-sale

 

$     214,408

 

$  214,349

 

$    279,556

 

$  282,829

 

Short-term investments, trading debt securities

 

30,073

 

30,646

 

28,508

 

30,550

 

Long-term debt

 

116,028

 

118,875

 

145,963

 

149,333

 

 

While management believes its derivatives are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes.  Since these derivatives and interest rate exchange agreements discussed below are not accounted for as hedges, fluctuations in the related commodity prices, currency exchange rates and interest rates could have a material impact on earnings in any given period.  Seaboard also enters into speculative derivative transactions not directly related to its raw material requirements.  The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2012.

 

Commodity Instruments

 

Seaboard uses various derivative futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments.  At September 28, 2013, Seaboard had open net derivative contracts to purchase 15,456,000 pounds of sugar, 11,400,000 pounds of soybean oil and 200,000 pounds of cheese and open net derivative contracts to sell 15,120,000 pounds of hogs, 6,090,000 gallons of heating oil, 4,269,000 bushels of grain and 213,000 tons of soybean meal.  At December 31, 2012, Seaboard had open net derivative contracts to purchase 28,896,000 pounds of sugar, 15,403,000 bushels of grain and 120,000 pounds of cheese and open net derivative contracts to sell 21,080,000 pounds of hogs, 546,000 gallons of heating oil, 220,000 pounds of dry whey powder and 53,000 tons of soybean meal.  Commodity derivatives are recorded at fair value with any changes in fair value being marked to market as a component of cost of sales on the Condensed Consolidated Statements of Comprehensive Income.

 

Foreign Currency Exchange Agreements

 

Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies.  Foreign currency exchange agreements that were primarily related to an underlying commodity transaction were recorded at fair value with changes in value marked to market as a component of cost of sales on the Condensed Consolidated Statements of Comprehensive Income.  Foreign currency exchange agreements that were not related to an underlying commodity transaction were recorded at fair value with changes in value marked to market as a component of foreign currency gain (loss) on the Condensed Consolidated Statements of Comprehensive Income.

 

At September 28, 2013 and December 31, 2012, Seaboard had trading foreign currency exchange agreements to cover its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $97,874,000 and $243,563,000, respectively, primarily related to the South African Rand.

 

Interest Rate Exchange Agreements

 

In May 2010, Seaboard entered into three ten-year interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt.  Seaboard pays a fixed rate and receives a variable rate of interest on three notional amounts of $25,000,000 each.  In August 2010, Seaboard entered into another ten-year interest rate exchange agreement with a notional amount of $25,000,000 that has terms similar to those for the other three interest rate exchange agreements referred to above.  In September 2012, Seaboard terminated one interest rate exchange agreement with a notional value of $25,000,000. Seaboard made a payment in the amount of $3,861,000 to unwind this agreement. While Seaboard has certain variable rate debt, these interest rate exchange agreements do not qualify as hedges for accounting purposes. Accordingly, the changes in fair value of these agreements are recorded in Miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income. At September 28, 2013 and December 31, 2012, Seaboard had three interest rate exchange agreements outstanding with a total notional value of $75,000,000.

 

10



 

Counterparty Credit Risk

 

Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements and interest rate swaps, should the counterparties fail to perform according to the terms of the contracts.  As of September 28, 2013, Seaboard’s foreign currency exchange agreements have a maximum amount of loss due to credit risk in the amount of $4,088,000 with seven counterparties.  Seaboard does not hold any collateral related to these agreements.

 

The following table provides the amount of gain or (loss) recognized in income for each type of derivative and where it was recognized in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2013 and September 29, 2012.

 

(Thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

Commodities

 

Cost of sales

 

 

$

(8,790

)

 

 

$

1,660

 

 

 

$

(7,731

)

 

 

$

(6,454

)

 

Foreign currencies

 

Cost of sales

 

 

1,528

 

 

 

4,302

 

 

 

15,027

 

 

 

4,003

 

 

Foreign currencies

 

Foreign currency

 

 

(926

)

 

 

(327

)

 

 

4,961

 

 

 

(3,939

)

 

Interest rate

 

Miscellaneous, net

 

 

(570

)

 

 

(1,372

)

 

 

2,864

 

 

 

(5,124

)

 

 

The following table provides the fair value of each type of derivative held as of September 28, 2013 and December 31, 2012 and where each derivative is included on the Condensed Consolidated Balance Sheets.

 

(Thousands of dollars)

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

September 28,

December 31,

 

September 28,

December 31,

 

 

 

 

2013

 

 

2012

 

 

 

2013

 

 

2012

 

Commodities

 

Other current assets

 

$   2,062

(1)

 

$   6,916

 

Other current assets

 

$   17,882

(1)

 

$   7,112

 

Foreign currencies

 

Other current assets

 

4,088

 

 

-

 

Other current liabilities

 

92

 

 

4,157

 

Interest rate

 

Other current assets

 

-

 

 

-

 

Other current liabilities

 

5,318

 

 

9,810

 

 

(1)   Seaboard’s commodities derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts.  As of September 28, 2013 and December 31, 2012, the commodity derivatives had a margin account balance of $30,382,000 and $14,063,000, respectively, resulting in a net other current asset on the Condensed Consolidated Balance Sheets of $14,562,000 and $13,867,000, respectively.

 

Note 6 – Employee Benefits

 

Seaboard maintains two defined benefit pension plans for its domestic salaried and clerical employees.  During the third quarter of 2013, Seaboard completed future funding analyses for these plans and in September 2013 made a deductible contribution of $10,000,000 for the 2012 plan year, principally to avoid future Pension Benefit Guaranty Corporation variable rate premiums established pursuant to the Employee Retirement Income Security Act of 1974.  At this time, no further contributions are expected to be made to these plans for the remainder of 2013.  Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees.  Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

 

11



 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

(Thousands of dollars)

 

2013

 

2012

 

2013

 

2012

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,342

 

$

2,221

 

$

7,026

 

$  6,657

 

Interest cost

 

2,028

 

2,220

 

6,131

 

6,655

 

Expected return on plan assets

 

(1,615)

 

(1,608)

 

(4,841)

 

(4,817)

 

Amortization and other

 

1,565

 

1,550

 

4,744

 

4,647

 

Agreement termination gain

 

-

 

-

 

(3,204)

 

-

 

Settlement

 

-

 

-

 

-

 

1,796

 

Net periodic benefit cost

 

$

4,320

 

$

4,383

 

$

9,856

 

$14,938

 

 

In late April 2013, Mr. Joseph E. Rodrigues, Seaboard’s board member and retired former Executive Vice President and Treasurer of Seaboard Corporation, passed away.  During retirement, Mr. Rodrigues received retirement payments under an individual, non-qualified, unfunded supplemental retirement agreement.  Upon his death, this agreement terminated which eliminated the remaining accrued pension liability. This resulted in a one-time agreement termination gain of $3,204,000, or $1,954,000 net of tax, which was recognized in net earnings in addition to a gain of $2,148,000, or $1,310,000 net of tax, from the elimination of unrecognized pension cost in other comprehensive income during the second quarter of 2013.

 

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

 

Note 7 Notes Payable, Long-Term Debt, Commitments and Contingencies

 

In April 2013, Seaboard provided notice of call for early redemption to holders of certain Industrial Development Revenue Bonds (IDRBs) effective May 13, 2013.  As a result, $10,800,000 of IDRBs were reclassified from long-term debt to current maturities of long-term debt as of March 30, 2013.  A payment of $10,800,000 was made in the second quarter of 2013.

 

In February 2013, Seaboard refinanced its committed bank line for $200,000,000 and also extended the maturity date to February 20, 2018. The refinancing of the committed bank line revised the terms by increasing the tangible net worth to $1,870,445,000, plus 25% of cumulative consolidated net income beginning after December 31, 2012, increasing the dividend payment limit to $25,000,000 per year, increasing the subsidiary and priority indebtedness to 20% and eliminated the required consolidated funded debt to consolidated total capitalization ratio.

 

In December 2012, Seaboard provided notice of call for early redemption to holders of certain IDRBs effective January 14, 2013.  As a result, $13,000,000 of IDRBs were reclassified from long-term debt to current maturities of long-term debt as of December 31, 2012.  A payment of $13,000,000 was made in the first quarter of 2013.

 

Contingencies

 

On September 19, 2012, the United States Immigration and Customs Enforcement (“ICE”) executed three search warrants authorizing the seizure of certain records from Seaboard’s offices in Merriam, Kansas and at the Seaboard Foods employment office and the human resources department in Guymon, Oklahoma.  The warrants generally called for the seizure of employment-related files, certain e-mails and other electronic records relating to Medicaid and Medicaid recipients, certain health care providers in the Guymon area, and Seaboard’s health plan and certain personnel issues.  This investigation is being handled by the United States Attorney’s Office for the Western District of Oklahoma (“USAO”).  Seaboard is cooperating with the USAO in connection with this investigation.  No civil or criminal proceedings or charges have been filed or brought.  It is not possible at this time to determine whether Seaboard will incur any fines, penalties or material liabilities in connection with this matter.

 

Seaboard is subject to various administrative and judicial proceedings and other legal matters related to the normal conduct of its business.  In the opinion of management, the ultimate resolutions of these items are not expected to have a material adverse effect on the Condensed Consolidated Financial Statements of Seaboard.

 

12



 

Contingent Obligations

 

Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations.  From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard’s business objectives.  Seaboard does not issue guarantees of third parties for compensation.  As of September 28, 2013, guarantees outstanding to third parties were not material. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considers the likelihood of loss to be remote.

 

As of September 28, 2013, Seaboard had outstanding letters of credit (“LCs”) with various banks which reduced its borrowing capacity under its committed and uncommitted credit facilities by $44,960,000 and $3,597,000, respectively.  These LCs included $18,397,000 of LCs, which support the IDRBs included as long-term debt and $26,889,000 of LCs related to insurance coverages.

 

Commitments

 

In July 2013, Seaboard Marine, Ltd. (“Seaboard Marine”) amended its Terminal Agreement with Miami-Dade County primarily to provide increased acreage, minimum usage of port cranes and add one additional five-year renewal option.  Under this amended terminal agreement accounted for as an operating lease, Seaboard Marine’s total minimum payments over the initial term of the agreement through September 30, 2028, increased by approximately $75,600,000 and now includes three five-year renewal options.  This minimum amount could increase if certain conditions are met.

 

Note 8 – Stockholders’ Equity and Accumulated Other Comprehensive Loss

 

The components of and changes in accumulated other comprehensive loss, net of tax, for the three months ended September 28, 2013 are as follows:

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

Unrealized

 

Unrealized

 

 

 

 

 

 

 

Currency

 

Gain (Loss)

 

Loss on

 

Unrecognized

 

 

 

 

 

Translation

 

on

 

Cash Flow

 

Pension

 

 

 

(Thousands of dollars)

 

Adjustment

 

Investments

 

Hedges

 

Cost

 

Total

 

Balance June 29, 2013

 

$

(122,278

)

$

524

 

 

$

(113

)

$

(60,469

)

 

$(182,336

)

Other comprehensive income (loss) before reclassifications

 

(14,067

)

376

 

 

-

 

-

 

 

(13,691

)

Amounts reclassified from accumulated other comprehensive loss

 

-

 

(149

)(1)

 

-

 

1,192

(2)

 

1,043

 

Net current-period other comprehensive income (loss)

 

(14,067

)

227

 

 

-

 

1,192

 

 

(12,648

)

Balance September 28, 2013

 

$

(136,345

)

$

751

 

 

$

(113

)

$

(59,277

)

 

$(194,984

)

 

(1) This represents realized gains on the sale of available-for-sale securities and was recorded in other investment income, net.

(2) This primarily represents the amortization of actuarial losses that are included in net periodic pension cost and are recorded in operating income.  See Note 6 for further discussion.

 

13



 

The components of and changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 28, 2013 are as follows:

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

Unrealized

 

Unrealized

 

 

 

 

 

 

 

Currency

 

Gain (Loss)

 

Loss on

 

Unrecognized

 

 

 

 

 

Translation

 

on

 

Cash Flow

 

Pension

 

 

 

(Thousands of dollars)

 

Adjustment

 

Investments

 

Hedges

 

Cost

 

Total

 

Balance December 31, 2012

 

$

(109,457

)

$

2,232

 

 

$

(113

)

$

(64,206

)

 

$

(171,544

)

Other comprehensive income (loss) before reclassifications

 

(26,888

)

(933

)

 

-

 

1,310

 

 

(26,511

)

Amounts reclassified from accumulated other comprehensive loss

 

-

 

(548

)(1)

 

-

 

3,619

(2)

 

3,071

 

Net current-period other comprehensive income (loss)

 

(26,888

)

(1,481

)

 

-

 

4,929

 

 

(23,440

)

Balance September 28, 2013

 

$

(136,345

)

$

751

 

 

$

(113

)

$

(59,277

)

 

$

(194,984

)

 

(1) This represents realized gains on the sale of available-for-sale securities and was recorded in other investment income, net.

(2) This primarily represents the amortization of actuarial losses that are included in net periodic pension cost and are recorded in operating income.  See Note 6 for further discussion.

 

As discussed in Note 6 to the Condensed Consolidated Financial Statements, Seaboard recognized a one-time retirement agreement termination gain of $1,310,000 net of tax, in unrecognized pension cost in other comprehensive loss during the second quarter of 2013.

 

The foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar segment.  At September 28, 2013, the Sugar segment had $175,807,000 in net assets denominated in Argentine pesos and $1,468,000 in net assets denominated in U.S. dollars.  Management anticipates that the Argentine peso may continue to weaken against the U.S. dollar and thus it is anticipated that Seaboard will incur additional foreign currency translation adjustment losses in other comprehensive loss during the remainder of 2013.

 

With the exception of the foreign currency translation adjustment to which a 35 percent federal tax rate is applied, income taxes for components of accumulated other comprehensive loss were recorded using a 39 percent effective tax rate.  In addition, the unrecognized pension cost includes $19,954,000 related to employees at certain subsidiaries for which no tax benefit has been recorded.

 

On November 1, 2013, Seaboard’s Board of Directors authorized an additional $75,000,000 for use in purchasing  Seaboard’s Common Stock pursuant to Seaboard’s share repurchase program initially approved in November 2009, and which previously had $100,000,000 of authority. As of September 28, 2013, $15,856,000 remained available for repurchases under this program, before the newly authorized additional $75,000,000.  For the nine months ended September 28, 2013, Seaboard repurchased 6,430 shares of common stock at a total cost of $17,349,000.  The share repurchase program is in effect through October 31, 2015.  Under this share repurchase program, Seaboard is authorized to repurchase its Common Stock from time to time in open market or privately negotiated purchases, which may be above or below the traded market price. During the period that the share repurchase program remains in effect, from time to time, Seaboard may enter into a 10b5-1 plan authorizing a third party to make such purchases on behalf of Seaboard.  The stock repurchase will be funded by cash on hand.  Shares repurchased will be retired and resume the status of authorized and unissued shares.  All stock repurchased will be made in compliance with applicable legal requirements and the timing of the repurchases and the number of shares repurchased at any given time will depend upon market conditions, compliance with Securities and Exchange Commission regulations and other factors.  The Board’s stock repurchase authorization does not obligate Seaboard to acquire a specific amount of common stock and the stock repurchase program may be suspended at any time at Seaboard’s discretion.

 

In December 2012, Seaboard declared and paid a dividend of $12.00 per share on the common stock.  The increased amount of the dividend (which has historically been $0.75 per share on a quarterly basis or $3.00 per share on an annual basis) represented a prepayment of the annual 2013, 2014, 2015 and 2016 dividends ($3.00

 

14



 

per share per year).  Seaboard does not currently intend to declare any further dividends for the years 2013-2016.

 

Note 9 - Segment Information

 

The Tax Act signed into law in January 2013 as discussed in Note 4, renewed and extended the Federal credits that Seaboard is entitled to receive for biodiesel it blends which had previously expired on December 31, 2011 and renewed retroactively to January 1, 2012 with an expiration of December 31, 2013.  As a result, in the first quarter of 2013 the Pork segment recognized a one-time credit of approximately $11,260,000 as revenues related to this Federal blender’s tax incentive for gallons produced and sold in fiscal 2012.  The impact for the remainder of 2013 is not expected to be significant as market prices for biodiesel have adjusted downward as a result of the renewed credit.

 

In January 2012, Seaboard made a payment of $2,825,000, net of cash acquired, to increase its ownership interest from 50% to 70% in PS International, LLC (PSI), a specialty grain trading business headquartered in North Carolina. As a result, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for this investment. An additional payment was made in 2012 subsequent to the second quarter of 2012 for this transaction upon final verification of certain balance sheet items as of December 31, 2011. On December 31, 2012, Seaboard further increased its ownership from 70% to 85%.  Total cash paid for these two transactions in 2012, net of cash acquired was $3,186,000 and $3,045,000, respectively.  An additional payment in the amount of $515,000 was made in the second quarter of 2013 for the December 2012 transaction upon final verification of certain balance sheet items as of December 31, 2012. Pro forma results of operations are not presented, as the effects of consolidation are not material to Seaboard’s results of operations.

 

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (Butterball).  Butterball had total net sales for the three and nine months ended September 28, 2013 of $444,787,000 and $1,169,301,000, respectively, compared to total net sales for the three and nine months ended September 29, 2012 of $369,949,000 and $973,988,000, respectively. Butterball had operating income (loss) for the three and nine months ended September 28, 2013 of $1,282,000 and $(3,238,000), respectively, compared to operating income for the three and nine months ended September 29, 2012 of $7,554,000 and $48,686,000, respectively.  In the first and third quarters of 2013, Butterball incurred additional charges for impairment of fixed assets related to the planned sale of its Longmont, Colorado facility of which Seaboard’s proportionate share of these charges represented $(1,155,000) and $(3,859,000) recognized in loss from affiliate for the three and nine months ended September 28, 2013, respectively.  As of September 28, 2013 and December 31, 2012, the Turkey segment had total assets of $1,058,004,000 and $871,945,000, respectively.

 

On December 31, 2012, Seaboard provided a loan of $81,231,000 to Butterball, which was included in Notes Receivable from Affiliates.  This loan was made to fund Butterball’s purchase of assets from Gusto Packing Company, Inc., a pork and turkey further processor located in Montgomery, Illinois. In late March 2013, Butterball renegotiated its third party financing and on March 28, 2013 repaid in full this loan from Seaboard.

 

In conjunction with Seaboard’s initial investment in Butterball on December 6, 2010, Seaboard has a long-term note receivable from Butterball which had a balance of $122,438,000 as of September 28, 2013.  Part of the interest earned on this note is pay-in-kind interest, which accumulates and is paid at maturity.  During the third quarter of 2011, Seaboard provided a term loan of $13,037,000 to Butterball to pay off capital leases for certain fixed assets which originally were financed with third parties.  The effective interest rate on the term loan is approximately 12%.  Although the term loan expires on January 31, 2018, Seaboard anticipates that Butterball will pay off the term loan prior to such expiration date as Butterball is expected to sell all of the related assets and is required to remit the proceeds from such sale to Seaboard to repay the loan.  As of September 28, 2013, the balance of the term loan recorded in long-term notes receivable from affiliates was $9,030,000.

 

The following tables set forth specific financial information about each segment as reviewed by Seaboard’s management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income.  Operating income, along with income or losses from affiliates for the Commodity Trading and Milling segment, is used as the measure of evaluating segment performance because management does not consider interest, other investment income and income tax expense on a segment basis.

 

15



 

Sales to External Customers:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

(Thousands of dollars)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

435,981

 

$

413,077

 

$

1,262,083

 

$

1,214,405

 

Commodity Trading and Milling

 

857,994

 

675,649

 

2,553,510

 

2,125,263

 

Marine

 

219,466

 

242,330

 

676,347

 

712,141

 

Sugar

 

58,500

 

69,025

 

192,554

 

220,277

 

Power

 

73,607

 

75,778

 

221,386

 

178,562

 

All Other

 

2,557

 

3,557

 

8,560

 

10,474

 

Segment/Consolidated Totals

 

$

1,648,105

 

$

1,479,416

 

$

4,914,440

 

$

4,461,122

 

 

Operating Income (Loss):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

(Thousands of dollars)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

34,099

 

$

29,863

 

$

89,997

 

$

103,582

 

Commodity Trading and Milling

 

8,808

 

16,662

 

29,746

 

53,822

 

Marine

 

(15,033)

 

13,006

 

(22,413)

 

14,578

 

Sugar

 

193

 

13,615

 

28,312

 

51,326

 

Power

 

13,429

 

18,649

 

41,405

 

35,123

 

All Other

 

216

 

93

 

354

 

262

 

Segment Totals

 

41,712

 

91,888

 

167,401

 

258,693

 

Corporate Items

 

(7,942)

 

(6,831)

 

(16,624)

 

(19,557)

 

Consolidated Totals

 

$

33,770

 

$

85,057

 

$

150,777

 

$

239,136

 

 

Income (Loss) from Affiliates:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

(Thousands of dollars)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Commodity Trading and Milling

 

$

(999)

 

$

2,143

 

$

(1,187)

 

$

7,155

 

Sugar

 

54

 

(122)

 

171

 

(184)

 

Turkey

 

(4,044)

 

297

 

(11,370)

 

14,732

 

Segment/Consolidated Totals

 

$

(4,989)

 

$

2,318

 

$

(12,386)

 

$

21,703

 

 

Total Assets:

 

 

 

September 28,

 

December 31,

 

(Thousands of dollars)

 

2013

 

2012

 

 

 

 

 

 

 

Pork

 

$

776,480

 

$

740,245

 

Commodity Trading and Milling

 

1,024,475

 

992,507

 

Marine

 

273,529

 

281,215

 

Sugar

 

237,344

 

254,445

 

Power

 

282,076

 

235,377

 

Turkey

 

330,855

 

423,825

 

All Other

 

4,713

 

5,288

 

Segment Totals

 

2,929,472

 

2,932,902

 

Corporate Items

 

400,413

 

414,879

 

Consolidated Totals

 

$

3,329,885

 

$

3,347,781

 

 

16



 

Investments in and Advances to Affiliates:

 

 

 

September 28,

 

December 31,

 

(Thousands of dollars)

 

2013

 

2012

 

 

 

 

 

 

 

Commodity Trading and Milling

 

$

194,645

 

$

186,873

 

Sugar

 

2,526

 

2,775

 

Turkey

 

199,388

 

220,894

 

Segment/Consolidated Totals

 

$

396,559

 

$

410,542

 

 

Administrative services provided by the corporate office allocated to the individual segments represent corporate services rendered to and costs incurred for each specific segment with no allocation to individual segments of general corporate management oversight costs.  Corporate assets include short-term investments, other current assets related to deferred compensation plans, fixed assets, deferred tax amounts and other miscellaneous items.  Corporate operating losses represent certain operating costs not specifically allocated to individual segments and include costs related to Seaboard’s deferred compensation programs (which are offset by the effect of the mark-to-market investments recorded in Other Investment Income, Net).

 

17



 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

LIQUIDITY AND CAPITAL RESOURCES

Summary of Sources and Uses of Cash

Cash and short-term investments as of September 28, 2013 decreased $84.3 million to $276.7 million from December 31, 2012.  Cash decreased as a result of capital expenditures of $110.9 million, investments in affiliates of $37.8 million, principal payments of long-term debt of $29.9 million and repurchase of common stock of $17.3 million.  Partially offsetting the decrease were principal payments received on notes receivable from affiliate of $81.3 million and an increase in notes payable of $27.0 million.  Cash from operating activities decreased $127.9 million for the nine months ended September 28, 2013 compared to the same period in 2012, primarily reflecting the timing of payments as a result of a decrease in current liabilities during the 2013 period while current liabilities increased for the 2012 period, principally in the Commodity Trading and Milling segment.

 

Acquisitions, Capital Expenditures and Other Investing Activities

During the nine months ended September 28, 2013, Seaboard invested $110.9 million in property, plant and equipment, of which $58.1 million was expended in the Pork segment, $13.0 million in the Commodity Trading and Milling segment, $20.7 million in the Marine segment and $19.1 million in all other segments. The Pork segment expenditures were primarily for additional finishing barns, improvements to existing facilities and related equipment, completion of construction of a new feed mill and the purchase of semi-tractors. The Commodity Trading and Milling segment expenditures were primarily for the purchase of a dry bulk vessel. The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment.  All other segments’ capital expenditures were of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades.

 

For the remainder of 2013, management has budgeted capital expenditures totaling $60.7 million.  The Pork segment plans to spend $25.2 million primarily for semi-tractors, additional finishing barns and improvements to existing facilities and related equipment.  The Commodity Trading and Milling segment has budgeted $15.9 million primarily for the purchase of a dry bulk vessel for $9.2 million, improvements to existing facilities and related equipment and another payment on four dry bulk vessels being built. The final payment of $72.6 million for these vessels being built is anticipated to be made in 2014 for a total cost of $83.0 million. The Marine segment has budgeted $12.6 million primarily for additional cargo carrying and handling equipment. In addition, management will be evaluating whether to purchase additional containerized cargo vessels for the Marine segment during 2013. The balance of $7.0 million is planned to be spent in all other businesses primarily for normal upgrades to existing operations.  Management anticipates paying for these capital expenditures from a combination of available cash, the use of available short-term investments or Seaboard’s available borrowing capacity.

 

In September 2013, Seaboard invested $7.4 million in a flour milling business located in Southern Africa for a 49% non-controlling interest.  Also in September 2013, Seaboard invested $17.0 million in a flour production business in Brazil for a 50% non-controlling equity interest and provided a $13.0 million long-term loan to this business.  Half of the interest on this long-term note receivable from affiliate is paid currently in cash and the other half accrues as pay-in-kind interest. This note receivable matures in September 2020 but can be repaid after one year with Seaboard having the option to convert to equity after one year and the other equity holders having the option to match such conversion with a purchase of new shares to avoid dilution.  These investments will be accounted for using the equity method.

 

In July 2013, Seaboard acquired a 50% non-controlling interest in a flour milling business located in Gambia.  As of September 28, 2013, Seaboard had invested $7.3 million with an additional estimated $1.0 million anticipated to be invested during the remainder of 2013, for a total investment in and advances to this affiliate of $8.3 million.  This investment will be accounted for using the equity method.

 

On March 28, 2013, Butterball, LLC (Butterball) repaid in full the $81.2 million loan Seaboard made on December 31, 2012 to its non-consolidated affiliate, to fund its purchase of assets from Gusto Packing Company, Inc.  In addition, during the first quarter of 2013, Butterball paid a $10.3 million cash dividend to Seaboard.

 

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. See Note 9 to the Condensed Consolidated Financial Statements for further discussion.

 

18



 

Financing Activities and Debt

As of September 28, 2013, Seaboard had a committed line of credit totaling $200.0 million and uncommitted lines totaling $270.4 million.  In February 2013, Seaboard refinanced the committed credit facility extending the maturity date to February 20, 2018.  As of September 28, 2013, there were no borrowings outstanding under the committed line of credit and borrowings under the uncommitted lines of credit totaled $54.9 million, with all such borrowings related to foreign subsidiaries.  Outstanding standby letters of credit reduced Seaboard’s borrowing capacity under its committed and uncommitted credit lines by $45.0 million and $3.6 million, respectively, primarily representing $18.4 million for Seaboard’s outstanding Industrial Development Revenue Bonds and $26.9 million related to insurance coverage.

 

In April 2013, Seaboard provided notice of call for early redemption to holders of certain IDRBs effective May 13, 2013.  As a result, $10.8 million of IDRBs were reclassified from long-term debt to current maturities of long-term debt as of March 30, 2013. Seaboard paid $10.8 million in the second quarter of 2013.  In December 2012, Seaboard provided notice of call for early redemption to holders of certain IDRBs effective January 14, 2013.  As a result, $13.0 million of IDRBs were reclassified from long-term debt to current maturities of long-term debt as of December 31, 2012.  Seaboard paid $13.0 million in the first quarter of 2013.

 

Seaboard’s remaining 2013 scheduled long-term debt maturities total $6.0 million.  As of September 28, 2013, Seaboard had cash and short-term investments of $276.7 million, additional total net working capital of $925.4 million and a $200.0 million committed line of credit maturing on February 20, 2018.  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 2013. 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 September 28, 2013, $78.1 million of the $276.7 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 September 28, 2013, 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 1, 2013, Seaboard’s Board of Directors authorized an additional $75.0 million for use in purchasing Seaboard’s Common Stock pursuant to Seaboard’s share repurchase program initially approved in November 2009.  For the nine months ended September 28, 2013, Seaboard used cash to repurchase 6,430 shares of common stock at a total price of $17.3 million.  See Note 8 to the Condensed Consolidated Financial Statements for further discussion of this item.

 

See Note 7 to the Condensed Consolidated Financial Statements for a summary of Seaboard’s contingent obligations, including guarantees issued to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard.

 

RESULTS OF OPERATIONS

Net sales for the three and nine month periods of 2013 increased by $168.7 million and $453.3 million, respectively, over the same periods in 2012.  The increases primarily reflect higher sales for commodity trading from increased volumes to third parties, especially for the three month period, and increased sale prices for wheat and soybean meal, especially for the nine month period.

 

Operating income decreased by $51.3 million and $88.4 million for the three and nine month periods of 2013, respectively, compared to the same periods in 2012.  The decreases primarily reflect operating losses for the Marine segment and lower operating income for the Sugar segment as discussed below.  The decrease for the nine month period also reflects lower operating income for commodity trading sales as discussed below.

 

19



 

Pork Segment

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,

 

(Dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

Net sales

 

$   436.0

 

$   413.1

 

$ 1,262.1

 

$ 1,214.4

 

Operating income

 

$     34.1

 

$     29.9

 

$      90.0

 

$    103.6

 

 

Net sales for the Pork segment increased $22.9 million and $47.7 million for the three and nine month periods of 2013, respectively, compared to the same periods in 2012.  The increases primarily reflect higher prices for pork products sold, principally in the domestic market.  The increase for the nine months also reflects a one-time credit of $11.3 million related to 2012 production recorded as revenues in the first quarter of 2013 related to the Tax Act, which renewed and extended the Federal blender’s credits that Seaboard is entitled to receive for biodiesel it blends and increased payments received from the U.S. Government for biodiesel production partially offset by decreased prices for biodiesel sold in 2013 compared to 2012. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the Federal blender’s credit.

 

Operating income for the Pork segment increased $4.2 million and decreased $13.6 million for the three and nine month periods of 2013, respectively, compared to the same periods in 2012.  The increase for the three month period primarily reflects higher prices for pork products sold partially offset by various increased costs, principally for hogs internally grown and, to a lesser extent, for third party hogs.  The decrease for the nine month period is the result of various increased costs, primarily for hogs internally grown principally as a result of higher feed costs. Partially offsetting the decrease for the nine month period were the one-time credit of $11.3 million, increased government payments and higher prices for pork products sold as discussed above.

 

Management is unable to predict future market prices for pork products, the cost of feed or the impact to Seaboard from the porcine epidemic diarrhea virus currently being experienced by the pork industry.  However, management anticipates positive operating income for this segment for the remainder of 2013.

 

Commodity Trading and Milling Segment

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,

 

September 29,

 

September 28,

 

September 29,