0001104659-15-014380.txt : 20150226 0001104659-15-014380.hdr.sgml : 20150226 20150226161143 ACCESSION NUMBER: 0001104659-15-014380 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20141231 FILED AS OF DATE: 20150226 DATE AS OF CHANGE: 20150226 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: 15652674 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 a14-24467_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, 2014

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)

 

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

 

 

Title of each class

Common Stock $1.00 Par Value

Name of each exchange on which registered

NYSE MKT

 

 

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 [   ]  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 [   ]  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 [    ]

 

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 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.  [X ]

 

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 [    ]

 

 

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 Act). Yes [   ]  No [X ]

 

The aggregate market value of the 262,621 shares of Seaboard common stock held by nonaffiliates was approximately $806,102,028, based on the closing price of $3,069.45 per share on June 27, 2014, the end of Seaboard’s most recently completed second fiscal quarter.  As of January 31, 2015, the number of shares of common stock outstanding was 1,170,550.

 

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 2015 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 and changes in tax laws;

 

(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.

 

2



 

FORM 10-K

 

SEABOARD CORPORATION

 

PART I

 

Item 1Business

 

(a)          General Development of Business

 

Originally founded in 1918, today Seaboard Corporation, a Delaware corporation organized in 1946, and its subsidiaries (Seaboard), is a diverse global 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 76.4 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 12 of the Consolidated Financial Statements appearing on pages 56 through 59 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 business 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 numerous 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 sells some of its fresh products under the brand name Prairie Fresh®.  Seaboard’s hog processing plant is located in Guymon, Oklahoma and generally operates at capacity.  Seaboard also has 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 (Triumph) at its 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 five 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.

 

At the end of the third quarter of 2014, Seaboard’s Pork Division sold to Triumph a 50% interest in its processed meats division, Daily’s Premium Meats (Daily’s).  As a result, Seaboard’s Pork Division now has a 50% non-controlling interest in Daily’s. Daily’s produces and markets raw and pre-cooked bacon, ham and sausage under the Daily’s® brand name primarily for the food service industry and, to a lesser extent, retail markets.  Daily’s has two further processing plants located in Salt Lake City, Utah and Missoula, Montana and generally operate at capacity. Seaboard and Triumph each supply raw product to Daily’s.

 

3



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

Commodity Trading and Milling Division – Seaboard’s Commodity Trading and Milling Division is an integrated agricultural commodity trading and processing and logistics company.  This Division markets wheat, corn, soybean meal and other commodities in bulk to third parties and affiliated companies.  This division is principally managed under the name of Seaboard Overseas and Trading Group, conducts business primarily through its subsidiaries, Seaboard Overseas Limited with offices in Colombia, Ecuador, Isle of Man, Kenya, Singapore 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, Seaboard also markets various other agricultural commodities to third party customers, through its subsidiary PS International, LLC located in Chapel Hill, North Carolina, with multiple international sales offices.  This division also operates a grain and specialty crop storage and throughput facility through Fill-More Seeds, Inc. located in Fillmore, Canada, and an ocean transportation brokerage operation through Seaboard Bulk Services, Ltd. located in Athens, Greece.  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 nine million tons of agricultural commodities on an annual basis.  Seaboard integrates the service of delivering commodities to its customers through the use of short-term chartered bulk vessels and its four owned bulk carriers.

 

This division also operates grain and feed milling and related businesses with 31 locations in 16 countries, which are primarily supplied by the trading locations discussed above.  The grain processing businesses are operated through five consolidated and fourteen non-consolidated affiliates in Africa, the Caribbean and South America.  These are primarily flour, feed and maize milling businesses which produce approximately four million metric tons of finished products per year.  In addition, this division has a non-controlling interest in a poultry business in Africa, and a bakery business in the Democratic Republic of Congo.  Most of the products produced by these operations are sold in the countries in which the products are produced or into adjacent countries.

 

Marine Division – Seaboard, through its subsidiary, Seaboard Marine Ltd., and various foreign affiliated companies and third party agents, provides cargo shipping services to 26 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 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 Port Miami and off-dock warehouses 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, New Orleans, Louisiana and 45 foreign ports.  At December 31, 2014, Seaboard’s fleet consisted of approximately 23 chartered and 2 owned vessels, and dry, refrigerated and specialized containers and other related equipment.

 

Sugar Division – Seaboard, through its subsidiaries, Ingenio y Refineria San Martin del Tabacal and Alconoa, as well as 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 operates a 51 megawatts cogeneration power plant. This plant primarily operates during the sugar harvest season, which is typically between May and November, with minimal operations outside of harvest season since this plant is primarily fueled using sugarcane by-product.

 

Power Division – Seaboard, through its subsidiary, Transcontinental Capital Corp. (Bermuda) Ltd., operates as an independent power producer generating electricity for the local power grid in the Dominican Republic. Seaboard operates one owned floating power generating facility with capacity to generate approximately 108 megawatts of

 

4



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

electricity. The facility is secured on the Ozama River in Santo Domingo, Dominican Republic. Seaboard previously leased another facility under a short-term lease which was canceled during 2014.  Seaboard is not directly involved in the transmission or distribution of electricity.  This operation is exempt from U.S. regulation under the Public Utility Holding Company Act of 1938, as amended.  Seaboard primarily sells on the spot market accessed primarily by wholly government-owned distribution companies or partially government-owned generation companies.

 

Turkey Segment –Seaboard owns 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 four processing plants, two further processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri, Illinois and Kansas.  Butterball produces approximately one billion pounds of turkey each year.  Butterball is a national supplier to retail and foodservice outlets and also exports products to Mexico and numerous other foreign markets.

 

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.

 

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 12 of Seaboard’s Consolidated Financial Statements, appearing on pages 56 through 59 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

 

On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law renewing the Federal blender’s credit that Seaboard is entitled to receive for biodiesel it blends by the Pork Division retroactive to January 1, 2014 with an expiration date of December 31, 2014.

 

In September 2014, the Pork Division sold to Triumph Foods, LLC a 50% interest in its processed meats division, Daily’s Premium Meats.

 

The Commodity Trading and Milling Division has four dry bulk vessels being built for a total cost of approximately $90.0 million. These vessels are expected to be completed in 2015. Seaboard currently anticipates selling and leasing back these four vessels as they are completed which would result in Seaboard receiving back the amounts spent to build at each individual lease inception.

 

In September 2014, the Marine Division invested $17.3 million in a cargo terminal business in Jamaica for a 21% non-controlling interest.

 

The Power Division operated a 72 megawatt power generating facility in the Dominican Republic under a short-term lease agreement.  On April 1, 2014, Seaboard provided notice to cancel this lease and ceased operations of the leased facility on September 3, 2014.

 

(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 and grain used in the manufacturing of feed for its turkeys in North Carolina from 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®, St. Joe Pork®, High Plains Bioenergy®, Prairie Fresh Prime®, Seaboard Foods®, Buffet Brand®, Del Pueblo®, Cook in Bag®, 67th Street™ and The Thrill Without The Grill®.  The Pork Division’s non-consolidated affiliate, Daily’s Premium Meats, LLC, uses the trademarks Daily’s® and Daily’s Premium Meats Since 1893®. Seaboard considers the use of these trademarks important to the marketing and promotion of its pork products.

 

5



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

The Marine Division uses the trade name Seaboard Marine® and Seaboard Solutions® which are both 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.  Certain local sales prices are affected by government price control, primarily for one kilogram size bags, 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.

 

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 primarily operates during the sugar harvest season, which is typically between May and November, with minimal operations outside of harvest season since this plant is primarily fueled with sugarcane 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 10% or more of consolidated revenues.  Historically, the Commodity Trading and Milling Division derives a significant portion of its operating income from sales to a non-consolidated affiliate. The Sugar Division derives approximately 15% of its revenues from one customer. The Power Division sells power in the Dominican Republic on the spot market accessed primarily by three wholly government-owned companies.  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.

 

(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 was ranked number 3 in pork production (based on sows in production) and number 4 in processing (based on daily processing capacity) in the U.S. (including Triumph volume).

 

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 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 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 Argentine government price control and protection policies.

 

6



 

FORM 10-K

 

SEABOARD CORPORATION

 

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, 2014, Seaboard, excluding non-consolidated affiliates, had 10,778 employees, of whom 5,585 were employed in the United States.  Approximately 2,200 employees in Seaboard’s Pork Division were covered by collective bargaining agreements as of December 31, 2014.  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 12 of Seaboard’s Consolidated Financial Statements appearing on pages 56 through 59 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 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.

 

7



 

FORM 10-K

 

SEABOARD CORPORATION

 

Item 1ARisk 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)

International Operations Subject Seaboard to Risks That Could 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;

 

 

 

 

 

 

 

·

 

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

 

 

 

 

 

 

 

·

 

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

 

 

 

 

 

 

 

·

 

compliance with U.S. laws and regulations for conducting international business such as Foreign Account Tax Compliance Act, Foreign Corrupt Practices Act and Office of Foreign Assets Control regulations.

 

 

 

 

 

 

 

·

 

expropriation, civil unrest and government instabilities; and

 

 

 

 

 

 

 

·

 

inconsistent application or enforcement of local laws, including tax laws.

 

 

 

 

 

 

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;

 

8



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

 

 

·

 

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 (76.4%) is collectively owned by Seaboard Flour and SFC Preferred LLC , which are beneficially owned by S. Bresky and other members of the Bresky family) and thinly traded on a daily basis on the NYSE MKT. 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 Third Party 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 continued operation of ethanol plants has elevated this risk as it has increased the competing demand for feed ingredients, primarily corn. Similarly, accounting for approximately 25% 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 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,

 

9



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

 

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)

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.

 

(9)

The Operating Profit of the Biodiesel Production Facility Could Be Adversely Impacted by Various Factors. 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 and U.S. government mandates to use biofuels. Unfavorable changes in these prices over extended periods of time or adverse changes in U.S. government mandates to use biofuels, 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)

This 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, corruption, 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 this Division. This division’s sales are significantly affected by fluctuating worldwide prices for various commodities, such as wheat, corn, soybeans and, to a lesser degree, various other agricultural commodity products. 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. European flour exports, including donated food aid, flour dumping practices and world-wide and local crop production can contribute to these fluctuating market conditions and can have a significant impact on the trading and

 

10



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

 

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)

This Division Largely Depends on the Availability of Short-Term Chartered Ships. Most of Seaboard’s third party trading is transported with short-term 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 and foreign exchange derivatives to create what management believes is an economic hedge for commodity trades it executes or intends to execute with its customers. This portion of the business also enters 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 grain processing 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.

 

(6)

This Division faces Increasing Competition. This division is experiencing increasing competition in certain foreign markets by well capitalized originators and traders of commodities making sales directly to end-use customers. If various grain originators refuse to sell commodities to Seaboard for sale in these foreign markets, this could make it more challenging for Seaboard to purchase commodities for sale to its customers at competitive prices. Seaboard’s sales volume and sale prices for commodities to customers as well as results of operations could be adversely impacted by such increased competition.

 

 

 

(d)

Marine Division

 

 

 

 

(1)

The Demand for this Division’s Services Are Affected by International Trade and Fluctuating Freight Rates. This division provides cargo shipping services primarily from the United States to many different countries in the Caribbean Basin, Central and South America. In addition to the risks of overseas operations mentioned in (a)(2) above, fluctuations in economic conditions, unstable or hostile local political situations in the countries in which Seaboard operates, most notably Venezuela in recent years, can affect import/export trade volumes and cargo 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 the Division’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 inland transportation costs both in the U.S. and overseas.

 

(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.

 

11



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

(5)

This Division 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, including fuel regulations, significantly affect Seaboard’s operations, including rate discussions and other related arrangements. Many aspects of the marine industry, including rate agreements and vessel space sharing 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, Currency and Political Climate. This division operates a sugar mill, alcohol production and power generation 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.

 

(3)

The Loss of this Division’s Sole Processing Facility Would Adversely Affect the Business. 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 Relation Challenges Could Adversely Affect Operations.  This division is dependent on unionized labor at its single sugar mill in Argentina.  The political and economic environment in Argentina makes normal labor relations very challenging.  Contributing to the situation are the policies of Argentina’s National Government and 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, alcohol and power produced and can interfere with the distribution of products stored at the facility in the Salta Province.

 

(5)

The Operating Profit of the Alcohol Production Facility Could Be Adversely Impacted by Government Regulations. The profitability of Seaboard’s alcohol production facility could be adversely affected by Argentine government regulations related to the bio-ethanol market regarding production quotas and fuel blends. In addition, the entry of corn alcohol producers in Argentina may increase competition. Unfavorable changes in market prices over extended periods of time or adverse changes in the Argentine government’s regulations regarding bio-ethanol production quotas and fuel blends, could adversely affect Seaboard’s results of operations.

 

(6)

The Operating Profit of the Cogeneration Power Plant Could Be Adversely Impacted by Contract for the Sale of Energy. In 2013, the biomass cogeneration contract was ratified by the Argentine national energy regulator setting the sale price for energy produced and sold by Seaboard’s cogeneration power plant. The profitability of Seaboard’s cogeneration power plant could be adversely affected by the failure to enforce the terms of the contract, which could

 

12



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

 

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.

 

 

 

(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 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 could limit our profitability in this business. The government has the ability to arbitrarily decide which power units will be able to operate, which can ultimately determine spot market prices for electricity generated and sold into the power grid and thus could have adverse effects on results of operations.

 

(2)

Fluctuations 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 prices if such fluctuations cannot be fully passed to customers through the spot market price mechanism.

 

(3)

Supply of Natural Gas is Limited in the Dominican Republic. Supply of natural gas in the Dominican Republic is limited to one primary supplier. Although the recently constructed barge can run on other types of fuel, supply disruptions of natural gas could have a negative impact on this division’s operating income.

 

 

 

(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 worldwide 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 the value of 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 continued 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 the value of Seaboard’s investment in Butterball.

 

(3)

Adverse Operating Results Could Result in Need for Additional Investment. Butterball has third party bank loan facilities separate from Seaboard which are secured by substantially all of the assets of Butterball. Adverse operating results could cause Butterball to default on such loan facilities which could result in a significant adverse impact on Butterball’s financial position, or result in Seaboard needing to increase Seaboard’s investment in Butterball.

 

(4)

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.

 

(5)

The Loss of Butterball’s Primary Further Processing Facility Could Adversely Affect Butterball’s Business. Although Butterball has four processing plants and two further processing plants, Butterball is disproportionately dependent on the continued operation of the processing plant in Mt. Olive, North Carolina that handles a significant volume of the 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.

 

13



 

FORM 10-K

 

SEABOARD CORPORATION

 

 

(6)

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 Seaboard’s investment in Butterball.

 

(7)

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 effect on Butterball’s results of operations and the value of Seaboard’s investment in Butterball.

 

(8)

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 Seaboard’s investment in Butterball.

 

Item 1BUnresolved Staff Comments

 

None

 

Item 2Properties

 

(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 20,000 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 4.3 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 five centrally located feed mills which have a combined capacity to produce approximately 1,800,000 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.  The Pork Division also operates a ham-boning and processing plant in Mexico that has the capacity to process 96.0 million pounds of ham annually.

 

The Pork Division owns a processing plant in Guymon, Oklahoma with the capacity to produce 36.0 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.

 

Seaboard’s Pork Division’s non-consolidated affiliate, Daily’s, 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 340,000 pounds of raw pork bellies.

 

(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 16 countries which have the capacity to mill approximately 9,500 metric tons of wheat and maize per day.  In addition, Seaboard has feed mill capacity of approximately 185 metric tons per hour to produce formula animal feed.  The milling operations located in Brazil, Colombia, Democratic Republic of Congo, Ecuador, Gambia, Ghana, Guyana, Haiti, Kenya, Lesotho, Nigeria, Republic of Congo, South Africa, Uganda and Zambia own their facilities; and in Kenya, Lesotho, Nigeria, and Republic of Congo 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, poor consumer purchasing power, excess milling capacity in their competitive environment or imported flour.  In addition, this division also has an investment through non-consolidated affiliates in poultry businesses operating in parts of Eastern and Southern Africa.

 

14



 

FORM 10-K

 

SEABOARD CORPORATION

 

Seaboard also owns three 18,900 metric ton deadweight dry bulk carriers, one 23,400 metric ton deadweight dry bulk carrier, and charters between 22 and 49 bulk carriers with deadweights ranging from 4,700 to 73,500 metric tons under short-term agreements.

 

(3)          Marine - Seaboard’s Marine Division leases approximately 267,000 square feet of off-port warehouse space and 93 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, 2014, Seaboard owned 2 ocean cargo vessels with deadweights ranging from 7,700 to 10,700 metric tons.  In addition, Seaboard chartered approximately 23 vessels under contracts that typically range from approximately six months to three years with deadweights ranging from 8,000 to nearly 32,500 metric tons but has also entered into some longer-term charters up to ten 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 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 and alcohol produced. The Sugar Division also owns a 51 megawatt cogeneration power plant that supplies surplus electricity to the Argentine power grid under a renewable energy contract with an Argentine state owned company.  The plant is primarily powered by the burning of sugarcane by-products during the harvest season.

 

 (5)       Power - Seaboard’s Power Division owns one floating electric power generating facility (108 megawatts).  The facility consists 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 generating electricity for the local power grid.  Seaboard is not directly involved in the transmission and distribution facilities that deliver the power to the end users.

 

(6) Turkey – Seaboard’s Turkey Segment has a total of four processing plants, two further processing plants and numerous company and third party live production facilities and feed milling operations, all of which are located in Arkansas, Illinois, 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 10 of Seaboard’s Consolidated Financial Statements appearing on pages 53 and 54 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.

 

15



 

FORM 10-K

 

SEABOARD CORPORATION

 

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 (61)

 

President and Chief Executive Officer

Robert L. Steer (55)

 

Executive Vice President, Chief Financial Officer

David M. Becker (53)

 

Senior Vice President, General Counsel and Secretary

David S. Oswalt (47)

 

Senior Vice President, Finance and Treasurer

James L. Gutsch (61)

 

Senior Vice President, Engineering

Ralph L. Moss (69)

 

Senior Vice President, Governmental Affairs

John A. Virgo (54)

 

Senior Vice President, Corporate Controller and Chief Accounting Officer

David H. Rankin (43)

 

Vice President, Taxation and Business Development

Ty A. Tywater (45)

 

Vice President, Audit Services

Terry J. Holton (55)

 

President, Seaboard Foods, LLC

David M. Dannov (53)

 

President, Seaboard Overseas and Trading Group

Edward A. Gonzalez (49)

 

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. 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, Finance and Treasurer since April 2013, and previously as Senior Vice President, Taxation and Business Development of Seaboard from 2011 to 2013 and as Vice President, Taxation and Business Development from 2003 to 2011.

 

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.  On February 10, 2015, Mr. Virgo gave notice of his retirement from Seaboard effective March 31, 2015.

 

Mr. Rankin has served as Vice President, Taxation and Business Development since April 2013, and previously as Vice President of Seaboard from 2010 to 2013.

 

Mr. Tywater has served as Vice President, Audit Services of Seaboard since November 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.

 

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.

 

16



 

FORM 10-K

 

SEABOARD CORPORATION

 

PART II

 

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

 

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 per share per year).  Seaboard does not currently intend to declare any further dividends for the years 2015-2016. Seaboard did not declare a dividend in 2014, 2013 and 2011. In 2010, Seaboard declared and paid dividends of $9.00 per share on the common stock, which included a prepayment of the annual 2011 and 2012 dividends ($3.00 per share per year). As discussed in Note 7 of the consolidated financial statements appearing on pages 44 and 45 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 debt 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.

 

Seaboard presently may repurchase up to $50.8 million market value of its common stock from time to time in open market or privately negotiated purchases under its share repurchase program. See Note 11 of the consolidated financial statements appearing on pages 54 and 55 of the Seaboard Corporation Annual Report to Stockholders for further discussion. There were no 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.

 

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 60, 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.

 

Item 6Selected 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 7Management’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 7AQuantitative 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 8 of Seaboard’s Consolidated Financial Statements appearing on pages 35, 48 and 49 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.

 

17



 

FORM 10-K

 

SEABOARD CORPORATION

 

Item 8Financial 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 Comprehensive Income,” “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 59 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 9Changes 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, 2014, 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.

 

Change in Internal Controls –There have been no change in Seaboard’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2014 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 10Directors, 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, 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 and 6 of Seaboard’s definitive proxy statement filed pursuant to Regulation 14A for the 2015 annual meeting of Stockholders (“2015

 

18



 

FORM 10-K

 

SEABOARD CORPORATION

 

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 7 of the 2015 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 26 of the 2015 Proxy Statement.

 

Item 11Executive 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”  appearing on page 8 of the 2015 Proxy Statement, and (b) the disclosure relating to compensation of executive officers under “Executive Compensation and Other Information,” “Employment Arrangements with Named Executive Officers,” “Benefit Plans” and “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report” and “Compensation Discussion and Analysis” appearing on pages 9 through 21of the 2015 Proxy Statement.

 

Item 12Security 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 2015 Proxy Statement.

 

Item 13Certain 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 21 of the 2015 Proxy Statement, and the disclosure under “Board of Directors Information – Controlled Corporation” and “Board of Directors Information – Committees of the Board” appearing on page 7 of the 2015 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 22 through 24 of the 2015 Proxy Statement.

 

PART IV

 

Item 15Exhibits, 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                         Amended and Restated Credit Agreement between Borrowers and Bank of America, N.A., dated February 20, 2013 ($200,000,000 revolving credit facility expiring February 20, 2018).  Incorporated herein by reference to Exhibit 4.2 of Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

19



 

FORM 10-K

 

SEABOARD CORPORATION

 

10.1*                 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.

 

10.2*                 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.

 

10.3*                 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.

 

10.4                        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.

 

10.5*                 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.

 

10.6*                 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.

 

10.7*                 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.

 

10.08*          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.

 

10.09*          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.

 

10.10*          Seaboard Corporation 409A Executive Retirement Plan Amended and Restated Effective January 1, 2013 and dated December 21, 2012, amending and restating the Seaboard Corporation Executive Retirement Plan, Amendment and Restatement dated December 22, 2008.  Incorporated by reference to Exhibit 10.14 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.11*          Seaboard Corporation Cash Balance Executive Retirement Plan Amendment and Restatement Effective January 1, 2013 and dated December 21, 2012, amending and restating the Seaboard Corporation Cash Balance Executive Retirement Plan dated December 18, 2009.  Incorporated by reference to Exhibit 10.15 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.12*          Employment Agreement between Seaboard Corporation and Steven J. Bresky dated December 21, 2012.  Incorporated by reference to Exhibit 10.16 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.13*          Employment Agreement between Seaboard Corporation and Robert L. Steer dated December 21, 2012.  Incorporated by reference to Exhibit 10.17 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.14*          Employment Agreement between Seaboard Foods LLC and Terry J. Holton, dated December 21, 2012.  Incorporated by reference to Exhibit 10.18 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

20



 

FORM 10-K

 

SEABOARD CORPORATION

 

10.15*          Employment Agreement between Seaboard Overseas and Trading Group and David M. Dannov dated December 21, 2012.  Incorporated by reference to Exhibit 10.19 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.16*          Employment Agreement between Seaboard Marine Ltd. and Edward A. Gonzalez dated December 21, 2012.  Incorporated by reference to Exhibit 10.20 to Seaboard’s Form 10-K for fiscal year ended December 31, 2012.

 

10.17                 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.

 

10.18                 Amendment No. 1 to Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine, Ltd. for Marine Terminal Operations dated March 30, 2009.  Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended June 29, 2013.

 

10.19                 Amendment No. 2 to Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine, Ltd. for Marine Terminal Operations dated July 31, 2013.  Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-Q for the quarter ended June 29, 2013.

 

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, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Comprehensive Income, (2) Consolidated Balance Sheets, (3) Consolidated Statements of Cash Flows,(4) Consolidated Statements 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.

 

(c)          Financial Statement Schedules.

 

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

 

21



 

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 26, 2015

 

 

 

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 26, 2015

Chairman of the Board, President,

 

Steven J. Bresky

 

 

Chief Executive Officer and

 

 

 

 

Director (principal executive

 

 

 

 

officer)

 

 

 

 

 

 

 

 

 

 

 

/s/Robert L. Steer

 

February 26, 2015

Executive Vice President,

 

Robert L. Steer

 

 

Chief Financial Officer

 

 

 

 

(principal financial officer)

 

 

 

 

 

 

 

 

 

 

 

/s/John A. Virgo

 

February 26, 2015

Senior Vice President, Corporate

 

John A. Virgo

 

 

Controller and Chief Accounting

 

 

 

 

Officer (principal accounting

 

 

 

 

officer)

 

 

 

 

 

 

/s/David A. Adamsen

 

February 26, 2015

Director

 

David A. Adamsen

 

 

 

 

 

 

 

 

 

/s/Douglas W. Baena

 

February 26, 2015

Director

 

Douglas W. Baena

 

 

 

 

 

 

 

 

 

/s/Edward I. Shifman, Jr.

 

February 26, 2015

Director

 

Edward I. Shifman, Jr.

 

 

 

 

22



 

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 Statements of Comprehensive Income for the years ended December 31, 2014, December 31, 2013 and December 31, 2012

 

28

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2014 and December 31, 2013

 

29

 

 

 

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2014, December 31, 2013 and December 31, 2012

 

30

 

 

 

 

 

Consolidated Statements of Changes in Equity for the years ended December 31, 2014, December 31, 2013 and December 31, 2012

 

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 4 of “Notes to the Consolidated Financial Statements.”

 

II - Valuation and Qualifying Accounts for the years ended December 31, 2014, 2013 and 2012

 

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 26, 2015, we reported on the consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, as contained in the annual report on Form 10-K for the year 2014.  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 26, 2015

 

 

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, 2014

 

$

12,832

 

 

 

398

 

 

 

(1,269)

 

 

$

11,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2013

 

$

12,131

 

 

 

3,432

 

 

 

(2,731)

 

 

$

12,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2012

 

$

10,941

 

 

 

3,092

 

 

 

(1,902)

 

 

$

12,131

 

 

 

(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)

 

Balance at

 

 

beginning of year

 

to expense

 

end of year

 

 

 

 

 

 

 

 

 

 

 

Allowance for Deferred Tax Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

$

17,869

 

 

 

2,689

 

 

$

20,558

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2013

 

$

11,758

 

 

 

6,111

 

 

$

17,869

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2012

 

$

16,320

 

 

 

(4,562)

 

 

$

11,758

 

 

 

 

Balance at

 

Charged (credit)

 

Balance at

 

 

beginning of year

 

to expense

 

end of year

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for LIFO Valuation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

$

62,236

 

 

 

(25,676)

 

 

$

36,560

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2013

 

$

90,730

 

 

 

(28,494)

 

 

$

62,236

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2012

 

$

57,783

 

 

 

32,947

 

 

$

90,730

 

 

F-3


EX-13 2 a14-24467_1ex13.htm EX-13

Exhibit 13

 

 

 

2014 Annual Report

 



 

SEABOARD CORPORATION

 

 

Description of Business

 

Seaboard Corporation is a diverse global 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 Comprehensive Income

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

60

 

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 and changes in tax laws; (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.

 

 

2014 Annual Report

1

 

 



 

SEABOARD CORPORATION

Letter to Stockholders

 

 

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

 

 

2

 

2014 Annual Report

 

 



 

SEABOARD CORPORATION

Letter to Stockholders

 

 

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

 

 

 

2014 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

 

2014 Annual Report

 

 



 

SEABOARD CORPORATION

Principal Locations

 

 

Corporate Office

 

Flour Mills of Ghana

 

Seaboard de Nicaragua, S.A.

Seaboard Corporation

 

Ghana

 

Nicaragua

Merriam, Kansas

 

Life Flour Mill Ltd.*

 

Seaboard del Peru, S.A.

Pork

 

Nigeria

 

Peru

Seaboard Foods LLC

 

LMM Farine, S.A.

 

Kingston Wharves Limited*

Pork Division Office

 

Madagascar

 

Seaboard Freight & Shipping Jamaica

Merriam, Kansas

 

Congo Poultry Limited*

 

Limited

Processing Plant

 

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

 

Jamaica

Guymon, Oklahoma

 

Societe Africaine de Developpement

 

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

High Plains Bioenergy, LLC

 

Industriel Alimentaire*

 

Honduras

Guymon, Oklahoma

 

Democratic Republic of Congo

 

Seaboard Marine (Trinidad) Ltd.

Seaboard de Mexico USA LLC

 

Minoterie du Congo, S.A.

 

Trinidad

Mexico

 

Republic of Congo

 

Seaboard Marine of Haiti, S.E.

Daily’s Premium Meats, LLC*

 

Moderna Alimentos, S.A.*

 

Haiti

Salt Lake City, Utah

 

Molinos Champion, S.A.*

 

SEADOM, S.A.

Missoula, Montana

 

Ecuador

 

Dominican Republic

Commodity Trading and Milling

 

Paramount Mills (Pty) Ltd.*

 

SeaMaritima S.A. de C.V.

Commodity Trading Operations

 

South Africa

 

Mexico

Australia*

 

National Milling Corporation Limited

 

Sugar

Canada

 

Zambia

 

Alconoa S.R.L.

Chapel Hill, North Carolina

 

Unga Holdings Limited*

 

Ingenio y Refineria San Martin del

Colombia

 

Kenya and Uganda

 

Tabacal SRL

Ecuador

 

Marine

 

Argentina

Greece

 

Seaboard Marine Ltd.

 

Power

Isle of Man

 

Marine Division Office

 

Transcontinental Capital Corp.

Kenya

 

Miami, Florida

 

(Bermuda) Ltd.

Peru*

 

Port Operations

 

Dominican Republic

Singapore

 

Brooklyn, New York

 

Turkey

South Africa

 

Houston, Texas

 

Butterball LLC*

Africa Poultry Development Limited*

 

Miami, Florida

 

Division Office

Kenya and Zambia

 

New Orleans, Louisiana

 

Garner, North Carolina

Belarina Alimentos S.A.*

 

Agencias Generales Conaven, C.A.

 

Processing Plants

Brazil

 

Venezuela

 

Huntsville, Arkansas

Compania Industrial de Productos

 

Agencia Maritima del Istmo, S.A.

 

Ozark, Arkansas

Agreopecuarios SA*

 

Costa Rica

 

Carthage, Missouri

Rafael del Castillo & Cia. S.A*

 

Cayman Freight Shipping Services, Ltd.

 

Mt. Olive, North Carolina

Colombia

 

Cayman Islands

 

Further Processing Plants

Gambia Milling Corporation*

 

JacintoPort International LLC

 

Jonesboro, Arkansas

Gambia

 

Houston, Texas

 

Montgomery, Illinois

National Milling Company

 

Representaciones Maritimas y Aereas, S.A.

 

Other

of Guyana, Inc.

 

Guatemala

 

Mount Dora Farms de Honduras,

Guyana

 

Sea Cargo, S.A.

 

S.R.L.

Les Moulins d’Haiti S.E.M.*

 

Panama

 

Honduras

Haiti

 

Seaboard de Colombia, S.A.

 

Mount Dora Farms Inc.

Lesotho Flour Mills Limited*

 

Colombia

 

Houston, Texas

Lesotho

 

 

 

 

 

*Represents a non-controlled, non-consolidated affiliate

 

 

 

2014 Annual Report

5

 

 



 

SEABOARD CORPORATION

Division Summaries

 

 

Pork Division

Seaboard was a pioneer in the vertical integration of the U.S. pork industry and its Pork Division is one of the largest producers and processors in the United States. Seaboard is able to efficiently control pork production across the entire life cycle of the hog, beginning with research and development in nutrition and genetics and extending to the production of high quality meat products at our processing and further processing facilities.

 

Seaboard’s hog processing facility is located in Guymon, Oklahoma. The facility is a double shift operation that processes approximately 20,000 hogs per day and generally operates at capacity.  Weekend shifts are added as market conditions dictate. 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 occasionally in the open market. Seaboard produces and sells fresh and frozen pork products to further processors, food service operators, grocery stores, distributors and retail outlets throughout the United States. Seaboard also sells to distributors, trading companies and further processors in Japan, Mexico and numerous other foreign markets.

 

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 five centrally located feed mills to provide formulated feed to these hogs.

 

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 blenders for distribution and in the retail markets. 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. The agreement enhances the efficiency of Seaboard’s sales and marketing efforts and expands Seaboard’s geographic footprint. Seaboard receives a fee on a per head basis on all Triumph products.  In 2014, Seaboard was ranked number 3 in pork production and number 4 in processing in the U.S. (including Triumph volume).

 

As of September 27, 2014, Seaboard’s Pork Division sold to Triumph a 50% interest in its processed meats division, Daily’s Premium Meats (Daily’s).  As a result, Seaboard’s Pork Division now has a 50% non-controlling interest in Daily’s. Daily’s produces and markets raw and pre-cooked bacon, ham and sausage primarily for the food service industry and, to a lesser extent, retail markets.  Daily’s has two further processing plants located in Salt Lake City, Utah and Missoula, Montana. Seaboard and Triumph each supply raw product to Daily’s.

 

Commodity Trading and Milling Division

Seaboard’s Commodity Trading and Milling Division is an integrated agricultural commodity trading and processing and logistics operation.  This division sources, transports and markets approximately nine million metric tons per year of wheat, corn, soybean meal and other commodities primarily to third party customers and affiliated companies. These commodities are purchased worldwide, with primary destinations in Africa, South America and the Caribbean. Seaboard integrates the delivery of commodities to its customers through the use of company owned and short-term chartered bulk carriers.

 

Seaboard’s Commodity Trading and Milling Division operates facilities in 23 countries. The commodity trading business has ten offices in nine countries in addition to two non-consolidated affiliates in two other countries. The grain processing businesses operate facilities at 31 locations in 16 countries, and include five consolidated and fourteen non-consolidated affiliates primarily in Africa, South America and the Caribbean. Seaboard and its affiliates produce approximately four million metric tons of wheat flour, maize meal and manufactured feed per year in addition to other related grain based products.

 

6

 

2014 Annual Report

 

 



 

SEABOARD CORPORATION

Division Summaries

 

 

Marine Division

Seaboard’s Marine Division provides cargo shipping services 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 Port 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, New Orleans, Louisiana and various foreign ports in the Caribbean Basin and Central and South America.

 

This Division’s fleet consists of chartered and, to a lesser extent, owned vessels, and includes dry, refrigerated and specialized containers and other cargo related equipment. Seaboard is the largest shipper in terms of cargo volume in Port Miami. Seaboard provides extensive service between our domestic ports of call and multiple foreign destinations.

 

To maximize fleet utilization, Seaboard uses a network of offices and agents throughout the United States, Canada, Latin America and the Caribbean Basin to sell freight to and from multiple points. Seaboard’s full service capabilities 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 allow customers to coordinate manufacturing schedules and maintain inventories at cost-efficient levels.

 

Sugar Division

In Argentina, Seaboard grows sugarcane, 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 sugar processing plant, one of the largest in Argentina, has an annual capacity to produce 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 primarily with sugarcane, which supplies the majority of the raw material processed. 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 governmental bio-ethanol program, which requires alcohol to be blended with gasoline.  This division also owns a 51 megawatt cogeneration power plant.  The plant is fueled by the burning of sugarcane by-products during the harvest season, which is typically between May and November.

 

Power Division

In the Dominican Republic, Seaboard is an independent power producer generating electricity for the local power grid from one owned floating power generating facility with a capacity to generate 108 megawatts. Seaboard previously leased another facility under a short-term lease which was canceled during 2014.  Seaboard is not directly involved in the transmission or distribution of electricity.  Seaboard primarily sells power on the spot market.  Principal buyers are government-owned distribution companies and partially government-owned generation companies.

 

Other Divisions

Seaboard has a 50 percent non-controlling voting interest in Butterball, LLC (Butterball). Butterball is the largest vertically integrated producer, processor and marketer of branded and non-branded turkey and other products in the United States. Butterball has four processing plants, two further processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri, Illinois and Kansas. Butterball produces approximately one billion pounds of turkey each year. Butterball is a national supplier to retail and foodservice outlets, and also exports products to Mexico and numerous other foreign markets.

 

Seaboard processes jalapeño peppers at its plant in Honduras, which are primarily shipped to and sold in the United States.

 

 

 

2014 Annual Report

7

 

 



 

SEABOARD CORPORATION

Summary of Selected Financial Data

 

 

 

 

Years ended December 31,

 

(Thousands of dollars except per share amounts)

 

2014

 

2013

 

2012

 

2011

 

2010

 

Net sales

 

$

6,473,076

 

$

6,670,414

 

$

6,189,133

 

$

5,746,902

 

$

4,385,702

 

Operating income

 

$

423,559

 

$

204,864

 

$

309,661

 

$

407,204

 

$

321,066

 

Net earnings attributable to Seaboard

 

$

365,270

 

$

205,236

 

$

282,311

 

$

345,847

 

$

283,611

 

Basic earnings per common share

 

$

309.96

 

$

171.92

 

$

234.54

 

$

284.66

 

$

231.69

 

Total assets

 

$

3,677,320

 

$

3,418,048

 

$

3,347,781

 

$

3,006,728

 

$

2,734,086

 

Long-term debt, less current maturities

 

$

-

 

$

80,480

 

$

120,825

 

$

116,367

 

$

91,407

 

Stockholders’ equity

 

$

2,720,273

 

$

2,479,970

 

$

2,308,189

 

$

2,079,467

 

$

1,778,249

 

Dividends per common share

 

$

-

 

$

-

 

$

12.00

 

$

-

 

$

9.00

 

 

As of September 27, 2014, Seaboard’s Pork segment sold to Triumph Foods LLC a 50% interest in Daily’s Premium Meats, its processed meats division.  Included in net earnings attributable to Seaboard for 2014 is a gain on sale of controlling interest in subsidiary of $40,233,000 net of taxes, or $34.14 per common share ($65,955,000 gain before taxes).

 

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Tax Act) was signed into law.  As the Tax Act was signed into law in 2013, the effects of the retroactive provisions in the new law on current and deferred taxes assets and liabilities for Seaboard were recorded in the first quarter of 2013.  The total impact was a tax benefit of $7,945,000, or $6.66 per common share, recorded in the first quarter of 2013 related to certain 2012 income tax credits.  In addition to this amount was a credit of approximately $11,260,000, or $9.43 per common share, for 2012 Federal blender’s credits that was recognized as revenues in the first quarter of 2013.  There was no tax expense on this transaction.

 

In December 2012, Seaboard declared and paid a dividend of $12.00 per common share.  The increased amount of the dividend (which has historically been $0.75 per common share on a quarterly basis or $3.00 per common share on an annual basis) represented a prepayment of the annual 2013, 2014, 2015 and 2016 dividends ($3.00 per common share per year).  Seaboard does not currently intend to declare any further dividends for the years 2015 and 2016. Seaboard did not declare a dividend in 2014, 2013 and 2011. In 2010, Seaboard declared and paid dividends of $9.00 per common share, which included a prepayment of the annual 2011 and 2012 dividends ($3.00 per common share per year). Basic and diluted earnings per common share are the same for all periods presented.

 

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 common share, included in operating income.  There was no tax expense on this transaction.

 

8

 

2014 Annual Report

 

 



 

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 MKT (formerly 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 MKT 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, 2009 and ending December 31, 2014.  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:

 

 

 

12/31/09

 

12/31/10

 

12/31/11

 

12/31/12

 

12/31/13

 

12/31/14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaboard Corporation

 

$ 100.00

 

$ 148.31

 

$ 151.66

 

$ 189.39

 

$ 209.23

 

$ 314.26

 

NYSE MKT Composite

 

$ 100.00

 

$ 129.56

 

$ 133.75

 

$ 140.87

 

$ 150.79

 

$ 153.24

 

Peer Group

 

$ 100.00

 

$ 113.14

 

$ 130.19

 

$ 140.29

 

$ 188.47

 

$ 211.18

 

 

 

2014 Annual Report

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

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,479,636

 

$

1,694,591

 

$

1,622,641

 

$

1,676,208

 

$

6,473,076

 

Operating income

 

$

65,203

 

$

134,339

 

$

96,086

 

$

127,931

 

$

423,559

 

Net earnings attributable to Seaboard

 

$

48,166

 

$

93,677

 

$

104,749

 

$

118,678

 

$

365,270

 

Earnings per common share

 

$

40.55

 

$

79.01

 

$

89.49

 

$

101.39

 

$

309.96

 

Dividends per common share

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closing market price range per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

2,771.00

 

$

3,069.45

 

$

3,097.60

 

$

4,197.95

 

 

 

 

Low

 

$

2,455.01

 

$

2,356.00

 

$

2,480.15

 

$

2,606.00

 

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,582,296

 

$

1,684,039

 

$

1,648,105

 

$

1,755,974

 

$

6,670,414

 

Operating income

 

$

63,458

 

$

53,549

 

$

33,770

 

$

54,087

 

$

204,864

 

Net earnings attributable to Seaboard

 

$

57,454

 

$

39,547

 

$

30,969

 

$

77,266

 

$

205,236

 

Earnings per common share

 

$

47.98

 

$

33.07

 

$

25.99

 

$

64.91

 

$

171.92

 

Dividends per common share

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closing market price range per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

2,881.94

 

$

2,825.92

 

$

2,945.00

 

$

2,874.99

 

 

 

 

Low

 

$

2,504.00

 

$

2,594.78

 

$

2,680.00

 

$

2,695.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On December 19, 2014, the Tax Increase Prevention Act of 2014 (the 2014 Tax Act) was signed into law.  The 2014 Tax Act extended for 2014 only many expired corporate income tax provisions that impact current and deferred taxes for financial reporting purposes. The total annual effects of the provisions in the new law on current and deferred taxes assets and liabilities for Seaboard were recorded in the fourth quarter of 2014.  The impact was a tax benefit of $11,410,000, or $9.75 per common share, primarily related to certain income tax credits.  In addition to this amount was a credit of $15,450,000, or $13.20 per common share, for the 2014 Federal blender’s credits that was recognized as revenues in the fourth quarter of 2014.  There was no tax expense on this transaction.

 

As of September 27, 2014, Seaboard’s Pork segment sold to Triumph Foods LLC a 50% interest in Daily’s Premium Meats, its processed meats division.  Included in net earnings attributable to Seaboard for third and fourth quarters of 2014 is a gain on sale of controlling interest in subsidiary of $39,279,000 and $954,000, respectively, net of taxes, or $33.56 per common share and $0.82 per common share, respectively ($65,955,000 total gain before taxes).

 

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Tax Act) was signed into law.  As the Tax Act was signed into law in 2013, the effects of the retroactive provisions in the new law on current and deferred taxes assets and liabilities for Seaboard were recorded in the first quarter of 2013.  The total impact was a tax benefit of $7,945,000, or $6.63 per common share, recorded in the first quarter of 2013 related to certain 2012 income tax credits.  In addition to this amount was a credit of approximately $11,260,000, or $9.40 per common share, for 2012 Federal blender’s credits that was recognized as revenues in the first quarter of 2013.  There was no tax expense on this transaction.

 

No dividends were paid during 2014 or 2013 as they were declared and prepaid in December 2012.  During 2014, Seaboard repurchased 1,667 and 16,738 common shares in the first and second quarters, respectively.  During 2013, Seaboard repurchased 147, 4,945, 1,338 and 2,275 common shares in the first, second, third and fourth quarters, respectively.

 

10

 

2014 Annual Report

 

 



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

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

 

OVERVIEW

Seaboard is a diverse global agribusiness and transportation company, with 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 U.S. business, with some export sales to Japan, Mexico, and numerous 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 approximately 20,000 hogs and a ham boning and processing plant in Mexico. In 2014, Seaboard raised approximately 75% 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, representing approximately 49% of Seaboard’s total fixed assets in addition to material amounts of inventories.

 

Within the portfolio of Seaboard’s businesses, management believes profitability of the Pork segment is most susceptible 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 accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. With the Guymon plant generally operating at capacity, Seaboard is constantly looking for ways to enhance the facility’s operational efficiency while also looking to increase margins by introducing new, higher value products.

 

The Pork segment also produces biodiesel which is sold to third parties. Biodiesel is produced from pork fat from Seaboard’s pork processing plant and from animal fat purchased from third parties. The processing plant also is capable of producing biodiesel from vegetable oil.

 

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. Triumph has processing capacity similar to that of Seaboard’s Guymon plant and operates with an integrated model similar to 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’s hog processing plants.

 

At the end of the third quarter of 2014, Seaboard’s Pork segment sold to Triumph a 50% interest in its processed meats division, Daily’s Premium Meats (Daily’s).  As a result, Seaboard’s Pork segment now has a 50% non-controlling interest in Daily’s. Daily’s produces and markets raw and pre-cooked bacon, ham and sausage primarily for the food service industry and, to a lesser extent, retail markets.  Daily’s has two further processing plants located in Salt Lake City, Utah and Missoula, Montana. Seaboard and Triumph each supply raw product to Daily’s.

 

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 agricultural commodity trading and processing and logistics operation with locations in Africa, South America, the Caribbean, Europe and Asia. These foreign operations can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in 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, to a lesser degree, various other agricultural commodity products. Although this segment owns four ships, the majority of the third party trading business is transacted with short-term 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 grain processing businesses, both consolidated and non-consolidated affiliates, operate in foreign and, in most cases, lesser developed countries. Flour exports of various countries can exacerbate volatile market conditions that

 

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

may 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, representing approximately 39% of Seaboard’s total working capital at December 31, 2014, and primarily consisted of inventories and receivables.

 

The majority of the Commodity Trading and Milling segment’s sales derive from its commodity trading business in which agricultural commodities are 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.  Profit margins are sometimes protected by using commodity derivatives and other risk management practices. 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 cargo shipping services primarily between the United States and 26 countries in the Caribbean Basin, Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which Seaboard operates, most notably Venezuela in recent years, may affect trade volumes and operating profits. In addition, 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

The 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. Domestic sugar production levels in Argentina may affect the local price.  Global sugar price fluctuations, to a lesser extent, have an impact in Argentina as well.  Depending on local market conditions, this business purchases sugar from third parties for resale. Over the past several years, Seaboard has taken a number of steps to enhance the efficiency of its operations and expand its sugar and alcohol production capacity. This segment sells dehydrated alcohol to certain oil companies under an Argentine government bio-ethanol program, which mandates alcohol to be blended with gasoline.  This segment also owns a 51 megawatt cogeneration power plant which is fueled by the burning of sugarcane by-products during the harvest season, which is typically 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. Following several years of heavy capital investment in this segment to expand production capacity and to construct a 51 megawatt cogeneration power plant, financing needs for this segment were minimal in 2014 and should remain minimal in 2015. Seaboard continues to explore various ways to improve and expand this segment.

 

Power Segment

The Power segment is an independent power producer in the Dominican Republic (DR) generating electricity from a system of diesel engines mounted on a floating power generating facility for the local power grid. Seaboard previously leased another facility under a short-term lease which was canceled during 2014.  Seaboard primarily sells power on the spot market primarily to government-owned distribution companies and partially government-owned generation companies.  This segment is subject to delays in obtaining timely collections from sales to these government related entities.  In some prior years, operating cash flows have fluctuated from inconsistent customer collections.

 

Supply of power in the DR is determined by a government body and is subject to fluctuations based on government budgetary constraints. While fuel is this segment’s largest cost component and is subject to price swings, higher fuel costs generally have been passed on to customers.  Seaboard may pursue further power industry investments in the future.

 

Turkey Segment

In December 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 turkey and other products. Butterball has four processing plants, two further processing plants and numerous live production and feed milling operations located in North Carolina, Arkansas, Missouri, Illinois and Kansas. Sales prices are directly

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can significantly affect the profitability and cash flows of Butterball. 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, 2014 increased $181.3 million from December 31, 2013.  The increase was primarily the result of net cash from operating activities of $374.1 million, proceeds from sale of controlling interest in subsidiary of $74.1 million and increases in notes payable of $16.9 million.  Partially offsetting the increase was cash used for capital expenditures of $121.2 million, principal payments of long-term debt of $91.4 million, repurchases of common stock of $53.8 million and investments in affiliates of $31.4 million. Cash from operating activities increased $249.1 million for 2014 primarily as a result of changes in working capital, principally from changes in receivables.  Receivables were relatively unchanged for 2014 compared to 2013, principally related to significant collections of past due amounts in the Power segment offsetting other segments’ increases, while receivables increased significantly in 2013 compared to 2012 for the Power segment and U.S. income tax receivables.

 

Cash and short-term investments as of December 31, 2013 decreased $15.3 million from December 31, 2012. The decrease was primarily the result of cash used for capital expenditures of $149.7 million, principal payments of long-term debt of $53.8 million, investments in and advances to affiliates discussed below of $39.5 million, and repurchases of common stock of $23.6 million. Partially offsetting the decrease was net cash from operating activities of $125.0 million, principal repayments received on notes receivable from affiliate of $81.4 million and an increase in notes payable of $41.1 million.  Cash from operating activities for 2013 decreased $136.7 million compared to 2012, primarily as a result of timing of payments related to certain current liabilities in the Commodity Trading and Milling and, to a lesser degree, Power segments as total current liabilities decreased in 2013 while they increased in 2012.

 

Capital Expenditures, Acquisitions and Other Investing Activities

During 2014, Seaboard invested $121.2 million in property, plant and equipment, of which $54.2 million was expended in the Pork segment, $21.4 for the Commodity Trading and Milling segment and $29.4 million in the Marine segment.  The Pork segment expenditures were primarily for improvements to existing facilities and related equipment, additional finishing barns and compressed natural gas semi-tractors and related refueling stations.  The Commodity Trading and Milling segment expenditures were primarily for payments related to building four vessels as discussed below.  The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment.  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 2015 capital expenditures budget is $229.1 million. The Pork segment plans to spend $71.3 million primarily for improvements to existing facilities and related equipment, additional finishing barns and compressed natural gas semi-tractors and related refueling stations. The Commodity Trading and Milling segment plans to spend $75.2 million primarily for payments of $58.8 million for four dry bulk vessels being built for a total estimated cost of $90.0 million and improvements to existing facilities and related equipment. However, Seaboard currently anticipates selling and leasing back these four vessels as they are completed which would result in Seaboard receiving back the amounts spent to build at each individual lease inception with no gain or loss on sale.  Payments under the lease agreements will be finalized upon delivery of the vessels.  The four vessels are scheduled for delivery in 2015.  The Marine segment has budgeted $62.1 million primarily for additional cargo carrying and handling equipment and purchase of an additional containerized cargo vessel. In addition, management will be evaluating whether to purchase additional containerized cargo vessels for the Marine segment during 2015.  The balance of $20.5 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 and Seaboard’s available borrowing capacity.

 

During 2013, Seaboard invested $149.7 million in property, plant and equipment, of which $79.6 million was expended in the Pork segment, $24.2 million in the Commodity Trading and Milling segment, $22.8 million in the Marine segment, $17.1 million in the Sugar segment and $4.2 million in the Power segment.  The Pork segment expenditures were primarily for additional finishing barns, semi-tractors, improvements to existing facilities and

 

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

related equipment and construction of a new feed mill.  The Commodity Trading and Milling segment expenditures were primarily for the purchase of two dry bulk vessels 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 normal upgrades to existing operations, including cane re-planting.  All other capital expenditures were of a normal recurring nature and primarily included replacements of machinery and equipment, and general facility modernizations and upgrades.

 

During 2012, Seaboard invested $158.8 million in property, plant and equipment, of which $52.3 million was expended in the Pork segment, $22.8 million in the Commodity Trading and Milling segment, $35.4 million in the Marine segment, $22.1 million in the Sugar segment and $25.0 million in the Power segment.  The Pork segment expenditures were primarily for additional finishing barns, improvements to existing facilities and related equipment and construction of a new feed mill.  The Commodity Trading and Milling segment expenditures were primarily for the purchase of a dry bulk vessel and for a down payment of $8.3 million made in July 2012 on four dry bulk vessels being built as discussed above. The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment and the purchase of a cargo vessel.  In the Sugar segment, the capital expenditures were primarily for expansion of cane growing operations and normal upgrades to existing operations.  The Power segment expenditures were primarily used to complete the construction in the Dominican Republic of a 108 megawatt power generating facility, which began commercial operations in March 2012.  The total cost of the project was $136.0 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.

 

As of September 27, 2014, Seaboard’s Pork segment sold to Triumph Foods, LLC a 50% interest in its Daily’s Premium Meats division for cash of $74.1 million.  In September 2014, Seaboard invested $17.3 million in a cargo terminal business in Jamaica for a 21% non-controlling interest.  See Note 4 to the Consolidated Financial Statements for further discussion.

 

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.  See Note 4 to the Consolidated Financial Statements for further discussion. Also in September 2013, Seaboard invested $7.4 million in a flour milling business located in South Africa for a 49% non-controlling interest.  In July 2013, Seaboard acquired a 50% non-controlling interest in a flour milling business located in Gambia by making a total investment in and advances to this affiliate of $9.1 million during 2013.

 

On December 31, 2012, Seaboard provided a loan of $81.2 million to its non-consolidated affiliate, Butterball, LLC (Butterball) to fund its purchase of assets from Gusto Packing Company, Inc.  On March 28, 2013, Butterball repaid in full this $81.2 million loan.  See Note 4 to the Consolidated Financial Statements for further discussion of these transactions.

 

Beginning in 2010, Seaboard invested in a bakery built in the Democratic Republic of Congo for a 50 percent non-controlling interest in this business. During 2014, 2013 and 2012, Seaboard invested $2.6 million, $4.5 million, and $24.8 million, respectively, in equity, long-term advances and long-term notes receivable for a total investment of $53.4 million in this business. The bakery began operations in the fourth quarter of 2012. See Note 4 to the Consolidated Financial Statements for further discussion of this investment.

 

Starting in 2011, Seaboard began 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.  During 2014, 2013 and 2012, Seaboard invested $0.1 million, $3.8 million and $8.4 million, respectively.  Additional investments are required to be made in future years but are not deemed material in total.

 

In February 2015, Seaboard committed to invest in a limited liability company that will operate a refined coal processing plant in Oklahoma.  Production of refined coal generates federal income tax credits.  Seaboard’s funding commitment for this company can vary depending on production and, based on current production estimates, is anticipated to be approximately $7.0 million in 2015 with anticipated future annual contributions of between $4.0 million and $9.0 million per year until 2021, for a total estimate of approximately $53.0 million.

 

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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, 2014.  At December 31, 2014, there were no borrowings outstanding under the committed lines of credit and borrowings under the uncommitted lines of credit totaled $75.5 million, with all such borrowings related to foreign subsidiaries.  On October 24, 2014, Seaboard entered into a Credit Agreement for a committed line of credit totaling $50.0 million related to a foreign subsidiary for the Commodity Trading and Milling segment.  This credit facility matures on October 23, 2015.  See Note 7 to the Consolidated Financial Statements for further discussion.

 

 

 

Total amount

 

(Thousands of dollars)

 

available

 

Long-term credit facility – committed

 

$

200,000

 

Short-term credit facility – committed

 

50,000

 

Short-term uncommitted demand notes

 

243,620

 

Total borrowing capacity

 

493,620

 

Amounts drawn against lines

 

(75,524

)

Letters of credit reducing borrowing availability

 

(1,544

)

Available borrowing capacity at December 31, 2014

 

$

416,552

 

 

 

 

 

 

In July 2014, Seaboard provided notice of optional prepayment to its lenders related to a credit agreement with an original maturity date of 2021.  The total principal payment of $85.5 million was made on August 29, 2014.  During 2012, Seaboard borrowed $32.7 million from this credit agreement. In November 2013, Seaboard provided notice of call for early redemption to holders of certain Industrial Development Revenue Bonds (IDRBs) effective December 20, 2013 and paid $18.0 million in the fourth quarter of 2013.  In April 2013, Seaboard provided notice of call for early redemption to holders of certain IDRBs effective May 13, 2013 and 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 and paid $13.0 million in the first quarter of 2013. See Note 7 to the Consolidated Financial Statements for further discussion.

 

As of December 31, 2014, Seaboard has capacity under existing loan covenants to undertake additional debt financings of approximately $2,185.5 million.  As of December 31, 2014, Seaboard was in compliance with all restrictive covenants related to these loans and facilities.  See Note 7 to the Consolidated Financial Statements for a summary of the material terms of Seaboard’s credit facilities, including financial ratios and covenants.

 

As of December 31, 2014, Seaboard had cash and short-term investments of $527.0 million, additional total working capital of $891.1 million and a $200.0 million long-term 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 2015.  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, 2014, $76.7 million of the $527.0 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.

 

Seaboard used cash to repurchase 18,405, 8,705 and 12,937 shares of common stock at a total price of $53.8 million, $23.6 million and $26.8 million in 2014, 2013 and 2012, respectively. See Note 11 to the Consolidated Financial Statements for further discussion.

 

In December 2012, Seaboard declared and paid a dividend of $12.00 per share on the common stock which represented a prepayment of the annual 2013, 2014, 2015 and 2016 dividends ($3.00 per share per year).  Seaboard does not currently intend to declare any further dividends for the years 2015 and 2016.  Seaboard did not declare or pay any dividends in 2014, 2013 and 2011.  In December 2010, Seaboard declared and prepaid the 2012 and 2011 dividends of $3.00 per share per year.

 

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

Contractual Obligations and Off-Balance Sheet Arrangements

 

The following table provides a summary of Seaboard’s contractual obligations as of December 31, 2014.

 

 

 

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

 

$

174,529

 

$

58,223

 

$

38,366

 

$

36,500

 

$

41,440

 

Contract grower finishing agreements

 

41,455

 

11,124

 

20,622

 

9,687

 

22

 

Other operating lease payments

 

332,626

 

25,407

 

47,479

 

47,351

 

212,389

 

Total lease obligations

 

548,610

 

94,754

 

106,467

 

93,538

 

253,851

 

Other long-term liabilities

 

87,746

 

4,283

 

12,968

 

15,217

 

55,278

 

Short-term notes payable

 

75,524

 

75,524

 

-

 

-

 

-

 

Interest payments

 

7,739

 

4,288

 

2,257

 

1,050

 

144

 

Other purchase commitments

 

1,055,414

 

786,288

 

212,902

 

56,158

 

66

 

Total contractual cash obligations and commitments

 

$

1,775,033

 

$

965,137

 

$

334,594

 

$

165,963

 

$

309,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, primarily to support sales commitments. Seaboard also leases various facilities and equipment under non-cancelable operating lease agreements. Seaboard guarantees to third parties were not material as of December 31, 2014. See Note 10 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 9 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 Sheets 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 Sheets have been excluded from the table above since they do not represent contractual obligations.

 

Interest payments in the table above include the net payments for interest rate exchange agreements based on the fixed amounts paid and the variable amount received, which is estimated using the projected yield as of December 31, 2014.

 

RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2014, 2013 and 2012 were $6,473.1 million, $6,670.4 million and $6,189.1 million, respectively. The decrease in net sales for 2014 compared to 2013 primarily reflected lower sales volume for the Power segment, lower cargo volumes in certain markets for the Marine segment and lower volumes of sugar sold for the Sugar segment. The increase in net sales for 2013 compared to 2012 primarily reflected higher sales for commodity trading from increased volumes to third parties and, to a lesser extent, increased sale prices as discussed below.

 

Operating income for the years ended December 31, 2014, 2013 and 2012 were $423.6 million, $204.9 million and $309.7 million, respectively. The increase for 2014 compared to 2013 primarily reflected higher prices for pork products sold.  The decrease for 2013 compared to 2012 primarily reflected increased operating costs and lower cargo rates for the Marine segment, lower sale prices and increased production costs for the sugar segment, and lower margins on wheat sales to a non-consolidated affiliate in Africa and, to a lesser extent, to third parties for the Commodity Trading and Milling segment.  Partially offsetting the decrease was higher biodiesel margins primarily from increased government payments for the Pork segment.

 

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Management’s Discussion & Analysis

 

 

Pork Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Net sales

 

$

1,717.3

 

$

1,713.1

 

$

1,638.4

 

Operating income

 

$

349.0

 

$

147.7

 

$

122.6

 

Income from affiliate

 

$

3.7

 

$

-

 

$

-

 

 

Net sales for the Pork segment increased $4.2 million for the year ended December 31, 2014 compared to 2013.  The increase was primarily the result of higher prices for pork products sold.  Partially offsetting the increase was lower sales volume of pork products from processing fewer internally grown hogs, lower sales prices and volumes for biodiesel, decreased payments received from the U.S. Government for biodiesel production, and the decrease in fourth quarter sales from the sale of a 50% interest in Daily’s as discussed in Note 4 to the Consolidated Financial Statements.  In December 2014, the Federal blender’s credit that Seaboard is entitled to receive for biodiesel it blends was reinstated for 2014, retroactive to January 1, 2014.  As a result, the 2014 Federal blender’s credit of $15.5 million was recorded as revenues in the fourth quarter of 2014.  See Note 12 to the Consolidated Financial Statements for further discussion of the Federal blender’s credit.

 

Operating income increased $201.3 million for the year ended December 31, 2014 compared to 2013.  The increase was primarily the result of higher prices for pork products sold and, to a lesser extent, lower feed costs for hogs internally grown.  Partially offsetting the increase was lower margins for biodiesel from items discussed above and increased costs for third party hogs.

 

Management is unable to predict future market prices for pork products or the cost of feed.  In addition, the Federal blender’s credit expired December 31, 2014.  However, management anticipates positive operating income for this segment in 2015, although significantly lower than 2014.

 

Income from affiliate is from Seaboard’s 50% proportionate share of 2014 fourth quarter earnings from Daily’s, accounted for using the equity method, as discussed in Note 4 to the Consolidated Financial Statements.

 

Net sales for the Pork segment increased $74.7 million for the year ended December 31, 2013 compared to 2012.  The increase primarily reflected higher prices for pork products sold in the domestic market and increased payments received from the U.S. government for biodiesel production in 2013 compared to 2012.  Partially offsetting the increase were lower sales volume of pork products in the domestic market and lower prices for biodiesel sold in 2013 compared to 2012.  U.S. Government payments included credits of $11.3 million recorded as revenues in the first quarter of 2013 related to the Tax Act, for the total Federal blender’s credits for 2012.  See Note 12 to the Consolidated Financial Statements for further discussion of the Federal blender’s credit.

 

Operating income increased $25.1 million for the year ended December 31, 2013 compared to 2012.  The increase was the result of higher biodiesel margins primarily from increased government payments, including the credit of $11.3 million, discussed above.  Higher prices for pork products were offset by increased costs, principally for hogs internally grown and, to a lesser extent, for third party hogs.  However, higher feed costs were offset by positive changes from using the LIFO method for determining certain inventory costs.

 

Commodity Trading and Milling Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Net sales

 

$

3,499.3

 

$

3,501.5

 

$

3,023.5

 

Operating income as reported

 

$

53.9

 

$

38.3

 

$

71.9

 

Mark-to-market adjustments

 

(12.5

)

 

3.7

 

0.9

 

Operating income excluding mark-to-market adjustments

 

$

41.4

 

$

42.0

 

$

72.8

 

Income (loss) from affiliates

 

$

(23.7

)

$

(0.6

)

$

10.5

 

 

 

 

 

 

 

 

 

 

Net sales for the Commodity Trading and Milling segment decreased $2.2 million for the year ended December 31, 2014 compared to 2013.  Lower sales prices for various commodities were principally offset by higher sales volumes for such commodities, especially corn.

 

Operating income increased $15.6 million for the year ended December 31, 2014, compared to 2013.  The increase primarily reflected fluctuations of $16.2 million of marking to market derivative contracts as discussed below.  Excluding the effects of mark-to-market adjustment for derivatives contracts as discussed below, operating income

 

 

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Management’s Discussion & Analysis

 

 

decreased $0.6 million.  The decrease primarily reflected recoveries of $5.2 million in 2013 of inventory write-downs for customer contract performance issues recognized in prior years partially offset by improved operating income at certain milling locations.

 

Due to worldwide commodity price fluctuations, 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 2015, excluding the effects of marking to market derivative contracts.

 

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment in 2014 would have been lower by $12.5 million and in 2013 and 2012 would have been higher by $3.7 million and $0.9 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 2015.  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.

 

Loss from affiliates for the year ended December 31, 2014 increased by $23.1 million from 2013.  The increase primarily reflected a $10.8 million write-down recorded in the fourth quarter of 2014 as a result of a decline in value considered other than temporary for Seaboard’s investment in a bakery located in the Democratic Republic of Congo and losses incurred in 2014 from an affiliate in Brazil newly invested by Seaboard during the latter part of 2013.  See Note 4 to the Consolidated Financial Statements for further discussion of the write-down and investments in these affiliates.  Based on the uncertainty of local political and economic environments in the countries in which Seaboard’s affiliates operate, management cannot predict future results.

 

Net sales for the Commodity Trading and Milling segment increased $478.0 million for the year ended December 31, 2013 compared to 2012.  The increase primarily reflected higher sales for commodity trading from increased volumes to third parties for wheat, soybean meal and various agricultural commodities and, to a lesser extent, increased sale prices for soybean meal and soybeans.

 

Operating income decreased $33.6 million for the year ended December 31, 2013, compared to 2012.  The decrease primarily reflected certain unfavorable market conditions which resulted in lower margins on wheat sales to a non-consolidated affiliate in Africa and, to a lesser extent, to third parties.  Partially offsetting the decrease were recoveries of $5.2 million in 2013 of the inventory write-downs for customer contract performance issues recognized in prior years.  Excluding the effects of the mark-to-market adjustments for derivative contracts as discussed below, operating income decreased $30.8 million for 2013 compared to 2012.

 

Income from affiliates for the year ended December 31, 2013 decreased by $11.1 million from 2012.  The decrease was primarily the result of certain unfavorable market conditions for an affiliate in Africa.  Based on the uncertainty of local political and economic environments in the countries in which the flour and feed mills operate, management cannot predict future results.

 

Marine Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Net sales

 

$

852.7

 

$

913.8

 

$

969.6

 

Operating income (loss)

 

$

(2.7

)

$

(25.8

)

$

26.1

 

 

Net sales for the Marine segment decreased $61.1 million for the year ended December 31, 2014, compared to 2013.  The decrease was primarily the result of lower cargo volumes in certain markets, most notably Venezuela, during 2014 compared to 2013.

 

Operating loss decreased by $23.1 million for the year ended December 31, 2014, compared to 2013.  The decrease, which occurred during the second half of 2014, was primarily the result of lower voyage costs, such as fuel costs and, to a lesser extent, charter hire, on a per unit shipped basis partially offset by lower operating results related to the Venezuela operations.  Management cannot predict

changes in future cargo volumes and cargo rates or to what

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

extent changes in economic conditions in markets served will affect net sales or operating income during 2015. However, based on recent improved market conditions, management anticipates this segment will be profitable in 2015.

 

Net sales for the Marine segment decreased $55.8 million for the year ended December 31, 2013, compared to 2012.  The decrease was primarily the result of lower volumes in certain markets, most notably Venezuela, and, to a lesser extent, decreased cargo rates in certain markets served during 2013 compared to 2012.

 

Operating income decreased by $51.9 million for the year ended December 31, 2013, compared to 2012.  The decrease was primarily the result of increased trucking costs and certain terminal operating costs on a per unit shipped basis impacted by the decreased volumes and, to a lesser extent, decreased cargo rates noted above.

 

Sugar Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Net sales

 

$

199.5

 

$

245.5

 

$

288.3

 

Operating income

 

$

26.6

 

$

24.5

 

$

60.2

 

Income from affiliates

 

$

0.7

 

$

0.6

 

$

0.1

 

 

Net sales for the Sugar segment decreased $46.0 million for the year ended December 31, 2014 compared to 2013.  The decrease primarily reflected lower volumes of sugar sold and, to a much lesser extent, lower sales prices for sugar.  Sugar sales are denominated in Argentine pesos and the lower sales prices for sugar in terms of U.S. dollars was the result of the exchange rate changes as the Argentine peso continued to weaken against the U.S. dollar in 2014, especially in the first quarter of 2014.  Management cannot predict sugar and alcohol prices for 2015, but management anticipates that the Argentine peso may continue to weaken against the U.S. dollar.

 

Operating income increased $2.1 million for the year ended December 31, 2014 compared to 2013.  The increase primarily represents a $4.3 million gain recorded in the second quarter of 2014 from a final insurance settlement for property damage and business interruption claims related to prior years and lower selling, general and administrative expenses from the exchange rate changes discussed above.  Partially offsetting the increase was lower income from sugar sales as a result of lower volumes of sugar sold and lower sales prices as noted above.  Management anticipates positive operating income for this segment in 2015, although lower than 2014.

 

Net sales for the Sugar segment decreased $42.8 million for the year ended December 31, 2013 compared to 2012.  The decrease primarily reflects lower sales prices for sugar and, to a lesser extent, lower volumes of sugar sold.  Sugar sales are denominated in Argentine pesos and the lower sales prices for sugar in terms of U.S. dollars were primarily the result of the exchange rate differences as the Argentine peso continued to weaken against the U.S, dollar in 2013.  Partially offsetting the decrease in net sales was increased sales volume of alcohol.

 

Operating income decreased $35.7 million for the year ended December 31, 2013 compared to 2012.  The decrease primarily represents lower income from sugar sales as a result of lower sale prices as noted above and, to a lesser extent, increased costs of production. Partially offsetting this decrease was higher income from alcohol sales from increased sales volume as noted above.

 

Power Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Net sales

 

$

189.1

 

$

283.8

 

$

255.4

 

Operating income

 

$

19.0

 

$

42.9

 

$

55.0

 

 

Net sales for the Power segment decreased $94.7 million for the year ended December 31, 2014 compared to 2013.  The decrease primarily reflected lower volumes and, to a lesser extent, lower spot market rates.  Although management cannot predict future spot market rates, sales volumes for 2015 are anticipated to be lower than 2014 as a result of cancelling the short-term leasing of a power generating facility on September 3, 2014 as discussed in Note 12 to the Consolidated Financial Statements.

 

Operating income decreased $23.9 million for the year ended December 31, 2014 compared to 2013. The decrease primarily reflected lower spot market rates and lower volumes partially offset by lower fuel costs per kilowatt hour generated and a gain on sale of assets of $5.0 million as discussed in Note 12 to the Consolidated Financial

 

 

2014 Annual Report

19

 

 



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

Statements.  Management cannot predict future fuel costs or the extent that spot market rates will fluctuate compared to fuel costs.  However, management anticipates positive operating income for this segment in 2015.

 

Net sales for the Power segment increased $28.4 million for the year ended December 31, 2013 compared to 2012.  The increase primarily reflected increased volumes from operating the new power generating facility the entire first quarter in 2013.  The new power generating facility started operating in March 2012.

 

Operating income decreased $12.1 million for the year ended December 31, 2013 compared to 2012. The decrease primarily reflected higher operating costs and higher fuel costs per kilowatt hour generated, partially offset by higher production volumes noted above.

 

Turkey Segment

(Dollars in millions)

 

2014

 

2013

 

2012

 

Income (loss) from affiliate

 

$

54.7

 

$

(10.3)

 

$

20.2 

 

 

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball.  The increase in income from affiliate for 2014 compared to 2013 was primarily the result of lower feed costs and higher prices of turkey products sold.  In addition, Butterball incurred charges in 2013 for impairment of fixed assets related to the planned sale of its closed processing plant in Longmont, Colorado.  Seaboard’s proportionate share was $3.7 million recognized in loss from affiliate for 2013.  This plant was sold in the second quarter of 2014 for approximately the remaining net book value. Management anticipates positive income for this segment in 2015.

 

The decrease in income from affiliate for 2013 compared to 2012 was primarily the result of higher feed costs and, to a lesser extent, various production inefficiencies experienced especially during the fourth quarter of 2013 related to the Montgomery, Illinois operation acquired in December 2012.  In addition, Butterball incurred additional charges in 2013 for impairment of fixed assets related to the Longmont, Colorado facility as discussed above.

 

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses for the year ended December 31, 2014 decreased by $9.5 million over 2013 to $254.5 million.  The decrease was primarily the result of lower expenses for the Sugar segment from the exchange rate changes discussed above and lower bad debt expense.  As a percentage of revenues, SG&A decreased to 3.9% for 2014 compared to 4.0% for 2013.

 

SG&A expenses for the year ended December 31, 2013 increased by $12.6 million over 2012 to $264.0 million.  The increase was primarily the result of increased administrative expenses and personnel costs in most segments.  As a percentage of revenues, SG&A decreased to 4.0% for 2013 compared to 4.1% for 2012.

 

Interest Expense

Interest expense totaled $20.2 million, $11.4 million and $11.0 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The increase in 2014 compared to 2013 primarily reflected higher interest rates on notes payable related to foreign subsidiaries and a $3.8 million charge for early payment of debt, as discussed in Note 7.

 

Interest Income

Interest income totaled $14.0 million, $17.6 million and $11.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The decrease for 2014 compared to 2013 primarily reflected a decrease in interest received on outstanding customer receivable balances in the Power segment.  The increase for 2013 compared to 2012 primarily reflected an increase in interest received on outstanding customer receivable balances in the Power segment.

 

Interest Income from Affiliates

Interest income from affiliates totaled $27.4 million, $24.7 million and $20.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The increases primarily represented increased interest income from notes receivable from Butterball.

 

Other Investment Income, Net

Other investment income, net totaled $2.1 million, $7.8 million and $8.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The fluctuations primarily reflect mark-to-market fluctuations from investments, especially high yield trading debt securities in 2014.

 

20

 

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SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

Foreign Currency Gains (Losses), Net

Foreign currency gains (losses), net totaled $(9.3) million, $0.1 million and $0.4 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The increase in foreign currency losses, net in 2014 compared to 2013 reflects increased losses related to multiple currencies with the more significant changes related to the Euro Zone euro, Zambian kwacha and South African rand.  Seaboard operates in many foreign countries which are less developed than the U.S.  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 Sale of Controlling Interest in Subsidiary

Seaboard’s Pork segment sold to Triumph Foods, LLC a 50% interest in its Daily’s Premium Meats division resulting in a pre-tax gain of $66.0 million recognized in the third quarter of 2014 related to this transaction. See Note 4 to the Consolidated Financial Statements for further discussion.

 

Miscellaneous, Net

Miscellaneous, net totaled $(5.1) million, $5.9 million and $(3.0) million for the years ended December 31, 2014, 2013 and 2012, respectively. Miscellaneous, net primarily reflected mark-to-market fluctuations on interest rate exchange agreements.

 

Income Tax Expense

The effective tax rate for 2014 was higher than 2013 primarily as the mix of domestic and foreign earnings for 2014 fluctuated from prior year resulting in more income taxed at a higher tax rate and because the 2013 rate included two years of tax benefits due to the retroactive nature of the Tax Act as discussed below.  The effective tax rate for 2013 was lower than 2012 primarily from tax-exempt income related to biodiesel production recognized in 2013 and a one-time tax benefit of $7.9 million recorded in 2013 related to certain 2012 income tax credits as further discussed in Note 6 to the Consolidated Financial Statements.  Excluding these tax benefits, the effective tax rate for 2013 was higher than 2012 as the mix of domestic and foreign earnings fluctuated.  Certain U.S. income tax provisions expired on December 31, 2014.  Seaboard’s effective tax rate could increase in 2015 compared to 2014 related to domestic earnings if the expired income tax provisions are not retroactively extended.

 

OTHER FINANCIAL INFORMATION

In May 2014, the Financial Accounting Standards Board issued guidance to develop a single, comprehensive revenue recognition model for all contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Seaboard is currently evaluating the impact this new guidance will have on its consolidated financial statements and related disclosures.  Seaboard will be required to adopt this guidance on January 1, 2017 and it is currently anticipated that Seaboard will apply this guidance using the cumulative effect transition method.

 

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:

 

 

2014 Annual Report

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 at 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 receivables are heavily weighted toward foreign receivables ($456.8 million or 77.3% at December 31, 2014), including foreign receivables due from affiliates ($190.3 million at December 31, 2014), 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 less developed than the U.S., which can experience conditions causing sudden changes to their ability to pay such receivables on a timely basis or in full.  Although in recent years collections have been fairly stable, based on various historical experiences 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, 2014, 2013 and 2012 was $0.4 million, $3.4 million and $3.1 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.

 

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 undiscounted 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.

 

Investments in and advances to Affiliates and Notes Receivable from Affiliates – Seaboard has numerous investments in and advances to various businesses that it owns 50% or less for a non-controlling interest and are accounted for using the equity method.  In addition, for some of these investments, Seaboard also has Notes Receivable for loans Seaboard provided to these businesses.  For the Commodity Trading and Milling segment, these investments are primarily in various foreign countries which are less developed than the U.S. and thus expose Seaboard to various greater financial risks.  At certain times when there are ongoing operating losses, local economies are depressed, commodity based markets are less stable, or foreign governments cause challenging business conditions, the fair value of the equity method investment is evaluated by management.  The fair value of these investments is not readily determinable as almost all of these investments are not publicly traded.  Management will use other methods to determine fair value such as estimated future cash flows, including assumptions on growth rates, for the business and consideration of other local business conditions as applicable.  If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded to income (loss) from affiliate based on the excess of the carrying value over the best estimate of fair value of the investment.  In addition, if based on current information and events it is probable that Seaboard will be unable to collect all amounts due according to the contractual terms of the Notes Receivable from Affiliates and an amount can be reasonably estimated, Seaboard will write down the amounts to estimated realizable

 

22

 

2014 Annual Report

 

 



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

value.  Information and events creating uncertainty about the realization of recorded amounts for notes from affiliates include, but are not limited to, the estimated cash flows generated by the affiliates’ business, the sufficiency of collateral securing the amounts, the creditworthiness of the counterparties involved, and consideration of other local business conditions as applicable.  Changes in facts, circumstances and management’s estimates and judgment could result in a material charge to earnings. See Note 4 to the Consolidated Financial Statements for further discussion on the Commodity Trading and Milling segment and its $10.8 million write-down recorded in loss from affiliates in 2014 related to its investment in a bakery located in the Democratic Republic of Congo.

 

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, 2014, Seaboard had deferred tax assets of $162.1 million, net of the valuation allowance of $20.6 million, and deferred tax liabilities of $212.0 million. For the years ended December 31, 2014, 2013 and 2012, income tax expense included $25.4 million, $35.0 million and $(22.4) 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 $2.7 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 9 to the Consolidated Financial Statements for further discussion.

 

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, oilseed and other commodity 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, 2014 and 2013, 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.

 

 

2014 Annual Report

23

 

 



 

SEABOARD CORPORATION

Management’s Discussion & Analysis

 

 

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. Seaboard uses interest rate swaps to manage risks of increasing interest rates.

 

During 2014, Seaboard put into place four, approximately eight-year interest rate exchange agreements with mandatory early termination dates in the second half of 2014 and 2015 for one of the agreements. Three of these agreements have since been terminated that had mandatory early termination dates in 2014.  Payments made by Seaboard to unwind these agreements were not material. Also in 2014, Seaboard entered into three new interest rate exchange agreements to replace the three that were terminated as noted above, each with a mandatory early termination date in 2015 and similar terms as the interest rate exchange agreements terminated. These four exchange agreements, still outstanding as of December 31, 2014, involve the exchange of fixed-rate and variable-rate interest payments without the exchange of the underlying notional amounts to mitigate the potential effects of fluctuations in interest rates on the anticipated dry bulk vessel leases in 2015. Seaboard pays a fixed rate and receives a variable rate of interest on these four notional amounts of $22.0 million each. During 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 $25.0 million each. All seven of 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 Statements of Comprehensive Income.

 

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 change in market prices or in foreign exchange rates and interest rates as of December 31, 2014 and December 31, 2013. 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, 2014

 

December 31, 2013

 

Grains and oilseeds

 

$              8,108

 

$             14,281

 

Hogs

 

1,652

 

3,275

 

Energy related resources

 

786

 

-

 

Vegetable oils

 

629

 

453

 

Sugar

 

466

 

994

 

Dry dairy products

 

3

 

102

 

Foreign currencies

 

19,016

 

19,629

 

Interest rates

 

1,203

 

830

 

 

Seaboard does not have any long-term debt outstanding as of December 31, 2014.  At December 31, 2013, long-term debt included foreign subsidiary obligations payable in U.S. dollars $91.2 million.  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.

 

Non-trading financial instruments sensitive to changes in interest rates at December 31, 2013 consisted of fixed rate long-term debt totaling $92.2 million, with an average interest rate of 5.44 percent.

 

24

 

2014 Annual Report

 

 



 

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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under the framework in Internal Control - Integrated Framework (2013), management concluded that Seaboard’s internal control over financial reporting was effective as of December 31, 2014.

 

Seaboard’s independent registered 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.

 

 

2014 Annual Report

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, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014. 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, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, 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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

 

 

 

 

Kansas City, Missouri

February 26, 2015

 

26

 

2014 Annual Report

 

 



 

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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of th