SEABOARD CORP /DE/ - Quarter Report: 2012 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2012

 

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

 

(Exact name of registrant as specified in its charter)

 

 

 

(913) 676-8800

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

Large Accelerated Filer [ X ]		Accelerated Filer [   ]
Non-Accelerated Filer [   ] (Do not check if a smaller reporting company)		Smaller Reporting Company [   ]

 

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

 

There were 1,206,247 shares of common stock, $1.00 par value per share, outstanding on April 20, 2012.

 

 

1

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Thousands of dollars except share and per share amounts)

(Unaudited)

 

				Three Months Ended
				March 31,					April 2,
				2012					2011
Net sales:
Products (includes sales to affiliates of $168,348 and $162,268)				$	1,190,822				$	1,197,622
Services				244,755					238,212
Other				35,536					32,345
Total net sales				1,471,113					1,468,179
Cost of sales and operating expenses:
Products				1,067,965					1,049,797
Services				220,517					206,218
Other				28,037					27,058
Total cost of sales and operating expenses				1,316,519					1,283,073
Gross income				154,594					185,106
Selling, general and administrative expenses				61,238					54,830
Operating income				93,356					130,276
Other income (expense):
Interest expense				(1,707		)			(1,516		)
Interest income				2,119					2,297
Interest income from affiliates				5,217					3,833
Income from affiliates				9,569					6,162
Other investment income, net				3,459					2,340
Foreign currency gain, net				3,264					4,764
Miscellaneous, net				1,349					788
Total other income, net				23,270					18,668
Earnings before income taxes				116,626					148,944
Income tax expense				(34,626		)			(32,251		)
Net earnings				$	82,000				$	116,693
Less: Net loss attributable to noncontrolling interests				209					171
Net earnings attributable to Seaboard				$	82,209				$	116,864
Earnings per common share		$  68.00					$  96.11
Other comprehensive income (loss), net of income tax benefit of $813 and $295:
Foreign currency translation adjustment				460					(593		)
Unrealized gain on investments				1,484					99
Unrealized loss on cash flow hedges				(91		)			-
Unrecognized pension cost				1,077					341
Other comprehensive income (loss), net of tax				$	2,930				$	(153	)
Comprehensive income				84,930					116,540
Less: comprehensive loss attributable to the noncontrolling interest				153					158
Comprehensive income attributable to Seaboard				$	85,083				$	116,698
Average number of shares outstanding				1,208,905					1,215,879

 

See accompanying notes to condensed consolidated financial statements.

 

 

2

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars)

(Unaudited)

 

		March 31,			December 31,
		2012			2011
Assets
Current assets:
Cash and cash equivalents		$	53,053		$	71,510
Short-term investments		359,834			323,256
Receivables, net of allowance		494,167			477,209
Inventories		694,694			644,930
Deferred income taxes		23,078			23,203
Other current assets		95,761			91,934
Total current assets		1,720,587			1,632,042
Investments in and advances to affiliates		371,129			364,840
Net property, plant and equipment		801,600			796,822
Note receivable from affiliate		113,156			110,903
Goodwill		43,218			40,628
Intangible assets, net		19,972			19,496
Other assets		42,482			41,997
Total assets		$	3,112,144		$	3,006,728
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable to banks		$	39,583		$	16,219
Current maturities of long-term debt		41,447			40,885
Accounts payable		130,862			151,869
Deferred revenue		78,933			29,147
Deferred revenue from affiliates		38,486			27,806
Other current liabilities		248,290			295,483
Total current liabilities		577,601			561,409
Long-term debt, less current maturities		121,165			116,367
Deferred income taxes		64,717			66,300
Other liabilities		184,904			183,185
Total non-current and deferred liabilities		370,786			365,852
Stockholders’ equity:
Common stock of $1 par value,
Authorized 1,250,000 shares;
issued and outstanding 1,207,347 and 1,210,597 shares		1,207			1,211
Accumulated other comprehensive loss		(153,135		)	(156,065		)
Retained earnings		2,309,654			2,233,778
Total Seaboard stockholders’ equity		2,157,726			2,078,924
Noncontrolling interests		6,031			543
Total equity		2,163,757			2,079,467
Total liabilities and stockholders’ equity		$	3,112,144		$	3,006,728

 

See accompanying notes to condensed consolidated financial statements.

 

 

3

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Thousands of dollars)

(Unaudited)

 

		Three Months Ended
		March 31,			April 2,
		2012			2011
Cash flows from operating activities:
Net earnings		$	82,000		$	116,693
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization		21,136			20,274
Deferred income taxes		(1,291		)	(6,897		)
Pay-in-kind interest and accretion on note receivable from affiliate		(2,818		)	(2,521		)
Income from affiliates		(9,569		)	(6,162		)
Other investment income, net		(3,459		)	(2,340		)
Other		(714		)	225
Changes in current assets and liabilities, net of business acquired:
Receivables, net of allowance		(36,015		)	(96,552		)
Inventories		(2,707		)	(14,261		)
Other current assets		3,910			58,418
Current liabilities, exclusive of debt		(27,600		)	(125,463		)
Other, net		3,989			3,701
Net cash from operating activities		26,862			(54,885		)
Cash flows from investing activities:
Purchase of short-term investments		(237,924		)	(38,664		)
Proceeds from the sale of short-term investments		194,330			67,000
Proceeds from the maturity of short-term investments		9,816			3,985
Investments in and advances to affiliates, net		(3,631		)	(3,637		)
Capital expenditures		(28,969		)	(39,029		)
Principal payments received on long-term notes receivable from affiliate		564			-
Purchase of long-term investments		(2,046		)	-
Acquisition of business, net of cash acquired		(2,825		)	-
Other, net		2,845			99
Net cash from investing activities		(67,840		)	(10,246		)
Cash flows from financing activities:
Notes payable to banks, net		23,364			42,232
Proceeds from the issuance of long-term debt		5,476			15,345
Principal payments of long-term debt		(112		)	(96		)
Repurchase of common stock		(6,335		)	-
Other, net		104			53
Net cash from financing activities		22,497			57,534
Effect of exchange rate change on cash		24			936
Net change in cash and cash equivalents		(18,457		)	(6,661		)
Cash and cash equivalents at beginning of year		71,510			41,124
Cash and cash equivalents at end of period		$	53,053		$	34,463

 

See accompanying notes to condensed consolidated financial statements.

 

 

4

 

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 – Accounting Policies and Basis of Presentation

 

The Condensed Consolidated Financial Statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”).  All significant intercompany balances and transactions have been eliminated in consolidation.  Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method.  The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of Seaboard for the year ended December 31, 2011 as filed in its Annual Report on Form 10-K.  Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September.  Seaboard’s year-end is December 31.

 

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

 

Use of Estimates

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

 

Supplemental Non-Cash Transactions

As discussed in Note 9, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for their investment in PS International, LLC with Seaboard’s ownership interest increasing from 50% to 70% as a result of Seaboard’s initial payment of $3,660,000 in January 2012. Total cash paid, net of cash acquired was $2,825,000 and increased working capital by $14,419,000, fixed assets by $163,000, goodwill by $2,590,000, intangible assets by $621,000, other long-term assets by $96,000, non-controlling interest by $5,649,000 and decreased investment in and advances to affiliates by $9,415,000. See Note 9 for additional information.

 

As discussed in Note 9, Seaboard had a note receivable from an affiliate which accrues pay-in-kind interest income. Seaboard recognized $2,818,000 and $2,521,000 of non-cash, pay–in-kind interest income and accretion of discount for the first quarter ended March 31, 2012 and April 2, 2011, respectively, related to this note receivable.

 

Recently Adopted Accounting Standards

In May 2011, the Financial Accounting Standards Board (FASB) issued guidance to amend the requirements related to fair value measurement which changed the wording used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Seaboard adopted this guidance on January 1, 2012.  The adoption of this guidance did not have a material impact on Seaboard’s financial position or net earnings.

 

In June 2011, the FASB issued guidance to revise the manner in which entities present comprehensive income in the financial statements.  The new guidance removed the footnote presentation option and required entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements.  Seaboard adopted this guidance in the first quarter of 2012.  The adoption of this guidance did not have an impact on Seaboard’s financial position or net earnings.

 

In September 2011, the FASB issued guidance to allow entities the option of performing a qualitative assessment to test goodwill for impairment.  This guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.  If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill

 

 

5

 

impairment test.  Otherwise, the two-step goodwill impairment test is not required.  Seaboard adopted this guidance on January 1, 2012. The adoption of this guidance did not have an impact on Seaboard’s financial position or net earnings.

 

Note 2– Investments

 

Seaboard’s short-term investments are treated as either available-for-sale securities or trading securities.  All of Seaboard’s available-for-sale and trading securities are classified as current assets as they are readily available to support Seaboard’s current operating needs.  Available-for-sale securities are recorded at their estimated fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income.  Trading securities are recorded at their estimated fair value with unrealized gains and losses reflected in the statement of earnings.  At March 31, 2012 and December 31, 2011, amortized cost and estimated fair value were not materially different for these investments.

 

At March 31, 2012, money market funds included $19,419,000 denominated in Euros. As of March 31, 2012, the trading securities primarily consisted of high yield debt securities.  Unrealized (losses) gains related to trading securities were $828,000 and $330,000 for the three months ended March 31, 2012 and April 2, 2011, respectively.

 

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at March 31, 2012 and December 31, 2011.

 

		2012						2011
		Amortized			Fair			Amortized			Fair
(Thousands of dollars)		Cost			Value			Cost			Value
Corporate bonds		$	132,726		$	133,989		$	88,589		$	89,146
Money market funds		69,867			69,867			139,420			139,420
U.S. Treasury securities		36,110			36,095			4,848			4,905
Collateralized mortgage obligations		22,677			22,720			14,915			15,011
Fixed rate municipal notes and bonds		21,275			21,335			17,718			17,788
U.S. Government agency securities		18,534			18,603			9,720			9,757
Emerging markets debt mutual fund		17,693			17,687			17,693			16,399
Asset backed debt securities		10,530			10,536			3,533			3,533
Other		1,480			1,483			1,480			1,484
Total available-for-sale short-term investments		330,892			332,315			297,916			297,443
High yield trading debt securities		21,217			22,349			20,155			20,750
Emerging markets trading debt mutual funds		2,651			2,686			2,620			2,487
Emerging markets trading debt securities		2,099			2,246			2,444			2,355
Other trading debt securities		217			238			218			221
Total available-for-sale and trading short-term investments		$	357,076		$	359,834		$	323,353		$	323,256

 

The following table summarizes the estimated fair value of fixed rate securities designated as available-for-sale classified by the contractual maturity date of the security as of March 31, 2012.

 

(Thousands of dollars)		2012
Due within one year		$	53,083
Due after one year through three years		90,771
Due after three years		66,844
Total fixed rate securities		$	210,698

 

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

 

 

6

 

Note 3 – Inventories

 

The following is a summary of inventories at March 31, 2012 and December 31, 2011:

 

		March 31,			December 31,
(Thousands of dollars)		2012			2011
At lower of LIFO cost or market:
Live hogs and materials		$	227,303		$	228,624
Fresh pork and materials		31,586			29,426
		258,889			258,050
LIFO adjustment		(56,604		)	(57,783		)
Total inventories at lower of LIFO cost or market		202,285			200,267
At lower of FIFO cost or market:
Grains and oilseeds		280,500			251,839
Sugar produced and in process		64,157			78,730
Other		84,671			63,449
Total inventories at lower of FIFO cost or market		429,328			394,018
Grain, flour and feed at lower of weighted average cost or market		63,081			50,645
Total inventories		$	694,694		$	644,930

 

Note 4 – Income Taxes

 

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in adjustments. Seaboard’s 2006-2010 U.S. income tax returns are currently under IRS examination.  There have not been any material changes in unrecognized income tax benefits since December 31, 2011.  Interest related to unrecognized tax benefits and penalties was not material for the three months ended March 31, 2012.

 

Note 5 –Derivatives and Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

The following table shows assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and also the level within the fair value hierarchy used to measure each category of assets.  Seaboard uses the end of the reporting period to determine if there were any transfers between levels.  There were no transfers between levels that occurred in the first quarter of 2012.  The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

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		Balance
		March 31,
(Thousands of dollars)		2012		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities - short-term
investments:
Corporate bonds		$133,989		$           -		$133,989		$       -
Money market funds		69,867		69,867		-		-
U.S. Treasury securities		36,095		-		36,095		-
Collateralized mortgage obligations		22,720		-		22,720		-
Fixed rate municipal notes and bonds		21,335		-		21,335		-
U.S. Government agency securities		18,603		-		18,603		-
Emerging markets debt mutual fund		17,687		17,687		-		-
Asset backed debt securities		10,536		-		10,536		-
Other		1,483		-		1,483		-
Trading securities - short-term investments:
High yield debt securities		22,349		-		22,349		-
Emerging markets trading debt mutual fund		2,686		2,686		-		-
Emerging markets trading debt securities		2,246		-		2,246		-
Other debt securities		238		-		238		-
Trading securities - other current assets:
Domestic equity securities		16,614		16,614		-		-
Foreign equity securities		6,946		3,887		3,059		-
Fixed income mutual funds		4,914		4,914		-		-
Money market funds		3,674		3,674		-		-
U.S. Government agency securities		2,405		-		2,405		-
U.S. Treasury securities		1,409		-		1,409		-
Corporate bonds		64		-		64		-
Other		365		316		49		-
Derivatives:
Commodities(1)		2,398		2,398		-		-
Interest rate swaps		-		-		-		-
Foreign currencies		88		-		88		-
Total Assets		$398,711		$ 122,043		$276,668		$       -
Liabilities:
Derivatives:
Commodities(1)		$    3,360		$     3,360		$           -		$       -
Interest rate swaps		9,900		-		9,900		-
Foreign currencies		500		-		500		-
Total Liabilities		$  13,760		$     3,360		$  10,400		$       -

 

 

 

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The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and also the level within the fair value hierarchy used to measure each category of assets.

 

		Balance
		December 31,
(Thousands of dollars)		2011		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds		$139,420		$139,420		$          -		$        -
Corporate bonds		89,146		-		89,146		-
Fixed rate municipal notes and bonds		17,788		-		17,788		-
Emerging markets debt mutual fund		16,399		16,399		-		-
Collateralized mortgage obligations		15,011		-		15,011		-
U.S. Government agency securities		9,757		-		9,757		-
U.S. Treasury securities		4,905		-		4,905		-
Asset backed debt securities		3,533		-		3,533		-
Other		1,484		-		1,484		-
Trading securities - short term investments:
High yield debt securities		20,750		-		20,750		-
Emerging markets trading debt mutual fund		2,487		2,487		-		-
Emerging markets trading debt securities		2,355		-		2,355		-
Other debt securities		221		-		221		-
Trading securities - other current assets:
Domestic equity securities		13,563		13,563		-		-
Foreign equity securities		7,490		3,991		3,499		-
Money market funds		4,521		4,521		-		-
Fixed income mutual funds		4,483		4,483		-		-
U.S. Government agency securities		2,085		-		2,085		-
U.S. Treasury securities		1,474		-		1,474		-
Corporate bonds		72		-		72		-
Other		236		159		77		-
Derivatives:
Commodities(1)		5,144		5,144		-		-
Interest rate swaps		-		-		-		-
Foreign currencies		2,247		-		2,247		-
Total Assets		$364,571		$190,167		$174,404		$         -
Liabilities:
Derivatives:
Commodities(1)		$    5,529		$    5,529		$            -		$         -
Interest rate swaps		11,268		-		11,268		-
Foreign currencies		3,380		-		3,380		-
Total Liabilities		$  20,177		$    5,529		$  14,648		$         -

 

 

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

 

The fair value of long-term debt is estimated by comparing interest rates for debt with similar terms and maturities. If Seaboard’s debt was measured at fair value on its Condensed Consolidated Balance Sheets, it would have been classified as level 2 in the fair value hierarchy. The amortized cost and estimated fair values of investments and long-term debt at March 31, 2012 and December 31, 2011 are presented below.

 

 

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		2012						2011
(Thousands of dollars)		Amortized Cost			Fair Value			Amortized Cost			Fair Value
Short-term investments, available-for-sale		$	330,892		$	332,315		$	297,916		$	297,443
Short-term investments, trading debt securities		26,184			27,519			25,437			25,813
Long-term debt		162,612			166,038			157,252			161,636

 

While management believes its derivatives are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes.  Since these derivatives and interest rate exchange agreements discussed below, are not accounted for as hedges, fluctuations in the related commodity prices, currency exchange rates and interest rates could have a material impact on earnings in any given period.  From time to time, Seaboard may enter into speculative derivative transactions not directly related to its raw material requirements.  The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2011.

 

Commodity Instruments

 

Seaboard uses various grain, meal, hog, and energy resource related futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments.  At March 31, 2012, Seaboard had open net derivative contracts to purchase 7,160,000 pounds of hogs and 1,213,000 pounds of sugar and open net derivative contracts to sell 714,000 gallons of heating oil, 595,000 bushels of grain and 114,000 tons of soybean meal.  At December 31, 2011, Seaboard had open net derivative contracts to purchase 23,300 tons of soybean meal, 2,580,000 pounds of soybean oil and 2,280,000 pounds of hogs and open net derivative contracts to sell 10,599,000 bushels of grain and 1,176,000 gallons of heating oil.  Commodity derivatives are recorded at fair value with any changes in fair value being marked to market as a component of cost of sales on the Condensed Consolidated Statements of Earnings.

 

Foreign Currency Exchange Agreements

 

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

 

At March 31, 2012 and December 31, 2011, Seaboard had trading foreign exchange contracts to cover its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $127,029,000 and $158,266,000, respectively, primarily related to the South African Rand.

 

Interest Rate Exchange Agreements

 

In May 2010, Seaboard entered into three ten-year interest rate exchange agreements which involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts to mitigate the effects of fluctuations in interest rates on variable rate debt.  Seaboard pays a fixed rate and receives a variable rate of interest on three notional amounts of $25,000,000 each.  In August 2010, Seaboard entered into another ten-year interest rate exchange agreement with a notional amount of $25,000,000 that has terms similar to those for the other three interest rate exchange agreements referred to above.  While Seaboard has certain variable rate debt, these interest rate exchange agreements do not qualify as hedges for accounting purposes.  Accordingly, the changes in fair value of these agreements are recorded in Miscellaneous, net in the Condensed Consolidated Statement of Earnings. At March 31, 2012 and December 31, 2011, Seaboard had four interest rate exchange agreements outstanding with a total notional value of $100,000,000.

 

Counterparty Credit Risk

 

Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements and interest rate swaps, should the counterparties fail to perform according to the terms of the contracts.  Seaboard’s foreign currency exchange agreements have a maximum amount of loss due to credit risk in the amount of $88,000 with

 

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four counterparties.  Seaboard does not hold any collateral related to these agreements.

 

The following table provides the amount of gain or (loss) recognized for each type of derivative and where it was recognized in the Condensed Consolidated Statement of Earnings for the three months ended March 31, 2012 and April 2, 2011.

 

(Thousands of dollars)
		Location of		March 31, 2012					April 2, 2011
		Gain or (Loss)		Amount of Gain or (Loss)					Amount of Gain or (Loss)
		Recognized in Income		Recognized in Income					Recognized in Income
Commodities		Cost of sales			$	(2,415	)			$	13,986
Foreign currencies		Cost of sales			(5,417		)			8,787
Foreign currencies		Foreign currency			(3,713		)			(136		)
Interest rate		Miscellaneous, net			648					519

 

The following table provides the fair value of each type of derivative held as of March 31, 2012 and December 31, 2011 and where each derivative is included on the Condensed Consolidated Balance Sheets.

 

(Thousands of dollars)					Asset Derivatives							Liability Derivatives
		Balance			Fair Value				Balance			Fair Value
		Sheet			March 31,		December 31,		Sheet			March 31,		December 31,
		Location			2012		2011		Location			2012		2011
Commodities(1)		Other current assets			$  2,398		$  5,144		Other current assets			$  3,360		$   5,529
Foreign currencies		Other current assets			88		2,247		Other current liabilities			500		3,380
Interest rate		Other current assets			-		-		Other current liabilities			9,900		11,268

 

Note 6 – Employee Benefits

 

Seaboard maintains two defined benefit pension plans for its domestic salaried and clerical employees.  At this time, no contributions are expected to be made to these plans in 2012.  Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees. Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

 

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

 

		Three Months Ended
		March 31,			April 2,
(Thousands of dollars)		2012			2011
Components of net periodic benefit cost:
Service cost		$  2,226			$  1,927
Interest cost		2,258			2,294
Expected return on plan assets		(1,592	)		(1,635	)
Amortization and other		1,530			1,051
Net periodic benefit cost		$  4,422			$  3,637

 

Note 7 – Commitments and Contingencies

 

Seaboard is subject to various legal proceedings related to the normal conduct of its business, including various environmental related actions.  In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the Consolidated Financial Statements of Seaboard.

 

 

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