UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended July 4, 2015

 

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 West 67th Street, Shawnee Mission, Kansas

 

66202

(Address of principal executive offices)

 

(Zip Code)

 

(913) 676-8800

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

 

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

 

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

 

Large Accelerated Filer [ X ]

Accelerated Filer [   ]

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

Smaller Reporting Company [   ]

 

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

 

There were 1,170,550 shares of common stock, $1.00 par value per share, outstanding on July 28, 2015.

 

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

 

 

 

Six Months Ended

 

 

 

 

 

July 4,

 

 

 

June 28,

 

 

 

July 4,

 

 

 

June 28,

 

 

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes sales to affiliates of $212,464, $179,031, $424,170 and $375,017)

 

 

 

$

1,148,164

 

 

 

$

1,417,116

 

 

 

$

2,325,091

 

 

 

$

2,630,871

 

Service revenues

 

 

 

251,846

 

 

 

224,127

 

 

 

500,955

 

 

 

436,160

 

Other

 

 

 

27,876

 

 

 

53,348

 

 

 

54,198

 

 

 

107,196

 

Total net sales

 

 

 

1,427,886

 

 

 

1,694,591

 

 

 

2,880,244

 

 

 

3,174,227

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

 

1,081,425

 

 

 

1,249,249

 

 

 

2,200,088

 

 

 

2,354,832

 

Services

 

 

 

224,298

 

 

 

202,482

 

 

 

443,316

 

 

 

396,989

 

Other

 

 

 

22,634

 

 

 

45,433

 

 

 

44,147

 

 

 

99,391

 

Total cost of sales and operating expenses

 

 

 

1,328,357

 

 

 

1,497,164

 

 

 

2,687,551

 

 

 

2,851,212

 

Gross income

 

 

 

99,529

 

 

 

197,427

 

 

 

192,693

 

 

 

323,015

 

Selling, general and administrative expenses

 

 

 

67,867

 

 

 

63,088

 

 

 

133,192

 

 

 

123,473

 

Operating income

 

 

 

31,662

 

 

 

134,339

 

 

 

59,501

 

 

 

199,542

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(3,760

)

 

 

(3,856

)

 

 

(8,290

)

 

 

(8,676

)

Interest income

 

 

 

2,596

 

 

 

1,724

 

 

 

5,925

 

 

 

8,804

 

Interest income from affiliates

 

 

 

7,179

 

 

 

6,880

 

 

 

14,239

 

 

 

13,236

 

Income from affiliates

 

 

 

12,257

 

 

 

8,120

 

 

 

23,036

 

 

 

15,401

 

Other investment income (loss), net

 

 

 

(2,736

)

 

 

2,787

 

 

 

3,812

 

 

 

3,360

 

Foreign currency gains (losses), net

 

 

 

363

 

 

 

(2,994

)

 

 

1,775

 

 

 

(8,687

)

Miscellaneous, net

 

 

 

3,517

 

 

 

(2,393

)

 

 

(910

)

 

 

(2,253

)

Total other income, net

 

 

 

19,416

 

 

 

10,268

 

 

 

39,587

 

 

 

21,185

 

Earnings before income taxes

 

 

 

51,078

 

 

 

144,607

 

 

 

99,088

 

 

 

220,727

 

Income tax expense

 

 

 

(18,968

)

 

 

(49,851

)

 

 

(33,850

)

 

 

(76,885

)

Net earnings

 

 

 

$

32,110

 

 

 

$

94,756

 

 

 

$

65,238

 

 

 

$

143,842

 

Less: Net income attributable to noncontrolling interests

 

 

 

(459

)

 

 

(762

)

 

 

(685

)

 

 

(1,045

)

Net earnings attributable to Seaboard

 

 

 

$

31,651

 

 

 

$

93,994

 

 

 

$

64,553

 

 

 

$

142,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$     27.04 

 

 

 

$     79.28 

 

 

 

$     55.15 

 

 

 

$    120.34 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $682, $725, $824 and $10,388:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(8,836

)

 

 

(2,790

)

 

 

(14,794

)

 

 

(29,565

)

Unrealized gain (loss) on investments

 

 

 

(3

)

 

 

498

 

 

 

674

 

 

 

1,024

 

Unrealized gain (loss) on cash flow hedges

 

 

 

-    

 

 

 

(275

)

 

 

-    

 

 

 

86

 

Unrecognized pension cost

 

 

 

945

 

 

 

320

 

 

 

2,227

 

 

 

640

 

Other comprehensive loss, net of tax

 

 

 

$

(7,894

)

 

 

$

(2,247

)

 

 

$

(11,893

)

 

 

$

(27,815

)

Comprehensive income

 

 

 

24,216

 

 

 

92,509

 

 

 

53,345

 

 

 

116,027

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

(451

)

 

 

(765

)

 

 

(754

)

 

 

(1,044

)

Comprehensive income attributable to Seaboard

 

 

 

$

23,765

 

 

 

$

91,744

 

 

 

$

52,591

 

 

 

$

114,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

 

1,170,550

 

 

 

1,185,633

 

 

 

1,170,550

 

 

 

1,186,640

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of dollars except share and per share amounts)

(Unaudited)

 

 

 

July 4,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

80,093

 

$

36,459

 

Short-term investments

 

626,537

 

490,566

 

Receivables, net of allowance

 

488,986

 

633,965

 

Inventories

 

664,970

 

736,302

 

Deferred income taxes

 

46,435

 

45,647

 

Other current assets

 

124,684

 

110,053

 

Total current assets

 

2,031,705

 

2,052,992

 

Net property, plant and equipment

 

839,661

 

846,757

 

Investments in and advances to affiliates

 

605,014

 

543,411

 

Notes receivable from affiliates

 

191,778

 

197,270

 

Other assets

 

70,188

 

51,328

 

Total assets

 

$

3,738,346

 

$

3,691,758

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

Current liabilities:

 

 

 

 

 

Notes payable to banks

 

$

103,252

 

$

75,524

 

Accounts payable

 

163,977

 

214,218

 

Deferred revenue

 

66,713

 

51,158

 

Other current liabilities

 

306,368

 

293,932

 

Total current liabilities

 

640,310

 

634,832

 

Deferred income taxes

 

76,029

 

95,538

 

Other liabilities and deferred credits

 

234,108

 

226,677

 

Total non-current liabilities

 

310,137

 

322,215

 

Commitments and contingent liabilities

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock of $1 par value,

 

 

 

 

 

Authorized 1,250,000 shares;

 

 

 

 

 

issued and outstanding 1,170,550 shares

 

1,171

 

1,171

 

Accumulated other comprehensive loss

 

(264,530

)

(252,637

)

Retained earnings

 

3,046,355

 

2,981,802

 

Total Seaboard stockholders’ equity

 

2,782,996

 

2,730,336

 

Noncontrolling interests

 

4,903

 

4,375

 

Total equity

 

2,787,899

 

2,734,711

 

Total liabilities and stockholders’ equity

 

$

3,738,346

 

$

3,691,758

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



 

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Thousands of dollars)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

65,238

 

$

143,842

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

46,126

 

46,057

 

Gain from sale of fixed assets

 

(499

)

(1,887

)

Deferred income taxes

 

(19,538

)

13,362

 

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

 

(8,765

)

(7,535

)

Income from affiliates

 

(23,036

)

(15,401

)

Dividends received from affiliates

 

18,326

 

1,823

 

Other investment income, net

 

(3,812

)

(3,360

)

Other, net

 

1,672

 

626

 

Changes in assets and liabilities:

 

 

 

 

 

Receivables, net of allowance

 

145,444

 

69,297

 

Inventories

 

63,569

 

(51,365

)

Other current assets

 

(14,193

)

6,042

 

Current liabilities, exclusive of debt

 

(18,973

)

(5,728

)

Other, net

 

12,385

 

7,140

 

Net cash from operating activities

 

263,944

 

202,913

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of short-term investments

 

(313,417

)

(567,264

)

Proceeds from the sale of short-term investments

 

165,751

 

530,709

 

Proceeds from the maturity of short-term investments

 

15,877

 

3,338

 

Capital expenditures

 

(68,005

)

(68,213

)

Proceeds from the sale of fixed assets

 

24,079

 

2,252

 

Investments in and advances to affiliates, net

 

(49,831

)

(1,786

)

Principal payments received on long-term notes receivable from affiliates

 

74

 

-    

 

Purchase of long-term investments

 

(22,258

)

(2,333

)

Other, net

 

(2,897

)

(70

)

Net cash from investing activities

 

(250,627

)

(103,367

)

Cash flows from financing activities:

 

 

 

 

 

Notes payable to banks, net

 

30,757

 

(23,943

)

Principal payments of long-term debt

 

-    

 

(5,903

)

Repurchase of common stock

 

-    

 

(53,781

)

Other, net

 

(226

)

(18

)

Net cash from financing activities

 

30,531

 

(83,645

)

Effect of exchange rate change on cash

 

(214

)

2,698

 

Net change in cash and cash equivalents

 

43,634

 

18,599

 

Cash and cash equivalents at beginning of year

 

36,459

 

55,055

 

Cash and cash equivalents at end of period

 

$

80,093

 

$

73,654

 

 

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, 2014 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 adjustments) 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, potential write-down related to investments in and advances to affiliates and notes receivable from affiliates, income taxes and accrued pension liability. Actual results could differ from those estimates.

 

Supplemental Non-Cash Transactions

Seaboard has notes receivable from affiliates which accrue pay-in-kind interest income, primarily from one affiliate as discussed in Note 9. Seaboard recognized $4,405,000 and $8,765,000 of non-cash, pay-in-kind interest income and accretion of discount for the three and six months ended July 4, 2015, respectively, and $3,907,000 and $7,535,000 for the three and six months ended June 28, 2014, respectively, related to these notes receivable.

 

Recently Issued Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) 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, 2018 and it is currently anticipated that Seaboard will apply this guidance using the cumulative effect transition method.

 

In July 2015, the FASB issued guidance to simplify the subsequent measurement of inventory; excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. Seaboard is analyzing the impact of this new standard and, at this time, cannot estimate the impact of adoption on net earnings.

 

Change in Accounting Method

During the second quarter of 2015, Seaboard invested an additional $10,000,000 in a business operating a 300 megawatt electricity generating facility in the Dominican Republic. This investment increased Seaboard’s ownership interest to 29.9% from less than 20%.  Seaboard’s previous investment of $5,910,000 was accounted for using the cost method and as a result of this additional investment, Seaboard changed its accounting method to the equity method. This change in accounting requires Seaboard to present its prior period financial results to reflect the equity method of accounting from the date of the initial investment which resulted in a $12,691,000 adjustment to retained earnings and a corresponding increase to its investment as of January 1, 2014. The results for the three and six months ended July 4, 2015 and

 

5



 

June 28, 2014, which represents Seaboard’s portion of the income (losses) incurred by the investee were not material. There is no tax impact to Seaboard on these amounts. See Note 9 for more information.

 

Note 2 — Investments

 

Seaboard’s short-term investments are treated as either available-for-sale securities or trading securities. All of Seaboard’s available-for-sale and trading securities are classified as current assets as they are readily available to support Seaboard’s current operating needs. Available-for-sale securities are recorded at their estimated fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive loss. Trading securities are recorded at their estimated fair value with unrealized gains and losses reflected in other investment income (loss), net. At July 4, 2015, money market funds included $969,000 denominated in British pounds and $560,000 denominated in Canadian dollars.

 

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at July 4, 2015 and December 31, 2014.

 

 

 

2015

 

2014

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Thousands of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

Money market funds

 

$

266,106

 

$

266,106

 

$

142,432

 

$

142,432

 

Corporate bonds

 

12,540

 

12,538

 

11,000

 

11,015

 

U.S. Government agency securities

 

9,437

 

9,480

 

9,684

 

9,666

 

Other available-for-sale investments

 

3,685

 

3,706

 

3,933

 

3,983

 

Total available-for-sale short-term investments

 

291,768

 

291,830

 

167,049

 

167,096

 

High yield trading debt securities

 

162,196

 

159,798

 

187,491

 

181,483

 

Equity mutual fund

 

86,309

 

84,557

 

83,809

 

82,542

 

Domestic equity ETF

 

59,155

 

61,914

 

31,307

 

32,651

 

Money market funds held in trading accounts

 

23,618

 

23,618

 

21,401

 

21,401

 

Other trading investments

 

5,719

 

4,820

 

6,173

 

5,393

 

Total trading short-term investments

 

336,997

 

334,707

 

330,181

 

323,470

 

Total short-term investments

 

$

628,765

 

$

626,537

 

$

497,230

 

$

490,566

 

 

The following table summarizes the estimated fair value of fixed rate securities designated as available-for-sale classified by the contractual maturity date of the security as of July 4, 2015.

 

(Thousands of dollars)

 

2015

 

Due within one year

 

$

980

 

Due after one year through three years

 

9,841

 

Due after three years

 

12,542

 

Total fixed rate securities

 

$

23,363

 

 

In addition to its short-term investments, Seaboard also has trading securities related to Seaboard’s deferred compensation plans classified in other current assets in 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 July 4, 2015 and December 31, 2014:

 

 

 

July 4,

 

December 31,

 

(Thousands of dollars)

 

2015

 

2014

 

At lower of LIFO cost or market:

 

 

 

 

 

Live hogs and materials

 

$

212,405

 

$

208,641

 

Fresh pork and materials

 

27,140

 

28,573

 

 

 

239,545

 

237,214

 

LIFO adjustment

 

(30,992

)

(36,560

)

Total inventories at lower of LIFO cost or market

 

208,553

 

200,654

 

At lower of FIFO cost or market:

 

 

 

 

 

Grains, oilseeds and other commodities

 

266,388

 

320,066

 

Sugar produced and in process

 

51,069

 

48,863

 

Other

 

59,785

 

57,344

 

Total inventories at lower of FIFO cost or market

 

377,242

 

426,273

 

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

 

79,175

 

109,375

 

Total inventories

 

$

664,970

 

$

736,302

 

 

Note 4 — Income Taxes

 

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments. Seaboard’s U.S. federal income tax years’ are closed through 2010. There have not been any material changes in unrecognized income tax benefits since December 31, 2014. Interest related to unrecognized tax benefits and penalties was not material for the six months ended July 4, 2015.

 

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.

 

7



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of July 4, 2015 and also the level within the fair value hierarchy used to measure each category of assets and liabilities. 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 six months of 2015. The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

July 4,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2015

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Money market funds

 

$

266,106

 

$

266,106

 

$

-

 

$

-

 

Corporate bonds

 

12,538

 

-

 

12,538

 

-

 

U.S. Government agency securities

 

9,480

 

-

 

9,480

 

-

 

Other available-for-sale investments

 

3,706

 

-

 

3,706

 

-

 

Trading securities - short-term investments:

 

 

 

 

 

 

 

 

 

High yield trading debt securities

 

159,798

 

-

 

159,798

 

-

 

Equity mutual fund

 

84,557

 

84,557

 

-

 

-

 

Domestic equity ETF

 

61,914

 

61,914

 

-

 

-

 

Money market funds held in trading accounts

 

23,618

 

23,618

 

-

 

-

 

Other trading investments

 

4,820

 

2,453

 

2,367

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

36,294

 

36,294

 

-

 

-

 

Foreign equity securities

 

7,010

 

7,010

 

-

 

-

 

Fixed income mutual funds

 

3,587

 

3,587

 

-

 

-

 

Other

 

2,919

 

2,520

 

399

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

20,737

 

20,737

 

-

 

-

 

Interest rate swaps

 

1,368

 

-

 

1,368

 

-

 

Foreign currencies

 

2,285

 

-

 

2,285

 

-

 

Total Assets

 

$

700,737

 

$

508,796

 

$

191,941

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

11,530

 

$

11,530

 

$

-

 

$

-

 

Interest rate swaps

 

5,348

 

-

 

5,348

 

-

 

Foreign currencies

 

1,606

 

-

 

1,606

 

-

 

Total Liabilities

 

$

18,484

 

$

11,530

 

$

6,954

 

$

-

 

(1) Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of July 4, 2015, the commodity derivatives had a margin account balance of $10,168,000 resulting in a net other current asset in the Condensed Consolidated Balance Sheet of $19,852,000 and a net other current liability of $477,000.

 

8



 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and also the level within the fair value hierarchy used to measure each category of assets.

 

 

 

Balance

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

(Thousands of dollars)

 

2014

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Money market funds

 

$

142,432

 

$

142,432

 

$

-

 

$

-

 

Corporate bonds

 

11,015

 

-

 

11,015

 

-

 

U.S. Government agency securities

 

9,666

 

-

 

9,666

 

-

 

Other available-for-sale investments

 

3,983

 

-

 

3,983

 

-

 

Trading securities - short term investments:

 

 

 

 

 

 

 

 

 

High yield trading debt securities

 

181,483

 

-

 

181,483

 

-

 

Equity mutual fund

 

82,542

 

82,542

 

-

 

-

 

Domestic equity ETF

 

32,651

 

32,651

 

-

 

-

 

Money market funds held in trading accounts

 

21,401

 

21,401

 

-

 

-

 

Other trading investments

 

5,393

 

2,614

 

2,779

 

-

 

Trading securities - other current assets:

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

33,857

 

33,857

 

-

 

-

 

Foreign equity securities

 

6,532

 

6,532

 

-

 

-

 

Fixed income mutual funds

 

4,570

 

4,570

 

-

 

-

 

Other

 

2,676

 

2,405

 

271

 

-

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

6,136

 

6,136

 

-

 

-

 

Foreign currencies

 

1,675

 

-

 

1,675

 

-

 

Total Assets

 

$

546,012

 

$

335,140

 

$

210,872

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

Commodities(1)

 

$

1,779

 

$

1,779

 

$

-

 

$

-

 

Interest rate swaps

 

7,715

 

-

 

7,715

 

-

 

Foreign currencies

 

407

 

-

 

407

 

-

 

Total Liabilities

 

$

9,901

 

$

1,779

 

$

8,122

 

$

-

 

(1) Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of December 31, 2014, the commodity derivatives had a margin account balance of $4,314,000 resulting in a net other current asset in the Condensed Consolidated Balance Sheet of $9,267,000 and a net other current liability of $596,000.

 

Financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. The amortized cost and estimated fair values of investments at July 4, 2015 and December 31, 2014 are presented in Note 2.

 

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 the derivatives discussed below are not accounted for as hedges, fluctuations in the related commodity prices, currency exchange rates and interest rates could have a material impact on earnings in any given period. Seaboard also enters into speculative derivative transactions not directly related to its raw material requirements. The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2014.

 

9



 

Commodity Instruments

 

Seaboard uses various derivative futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. At July 4, 2015, Seaboard had open net derivative contracts to purchase 32,400,000 pounds of hogs, 17,087,000 bushels of grain, 3,240,000 pounds of soybean oil, 312,000 tons of soybean meal and 220,000 pounds of dry whey powder and open net derivative contracts to sell 1,722,000 pounds of sugar. At December 31, 2014, Seaboard had open net derivative contracts to purchase 19,800,000 pounds of hogs, 19,620,000 pounds of soybean oil, 15,551,000 pounds of sugar, 10,697,000 bushels of grain, 88,000 pounds of dry whey powder and 85,000 tons of soybean meal and open net derivative contracts to sell 4,326,000 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 in the Condensed Consolidated Statements of Comprehensive Income.

 

Foreign Currency Exchange Agreements

 

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

 

At July 4, 2015 and December 31, 2014, Seaboard had trading foreign currency exchange agreements to cover its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $45,737,000 and $143,961,000, respectively, primarily related to the South African rand.

 

Interest Rate Exchange Agreements

 

During 2014, Seaboard initially put into place four, approximately eight-year interest rate exchange agreements with mandatory early termination dates in the second half of 2014 and early 2015 for one of the agreements.  During 2014 and 2015, these interest rate exchange agreements were terminated and replaced, each with a mandatory early termination date, which coincides with the revised anticipated delivery dates in 2015 of dry bulk vessels to be leased, and have similar terms as the original agreements terminated. In June 2015, one agreement was terminated and not renewed with the delivery of a bulk vessel now leased. Payments made by Seaboard to unwind these agreements were not material. These exchange agreements 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 four dry bulk vessel leases in 2015. Seaboard pays a fixed rate and receives a variable rate of interest on these three notional amounts outstanding of $22,000,000 each. In 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 these three notional amounts of $25,000,000 each. All of Seaboard’s outstanding interest rate exchange agreements do not qualify as hedges for accounting purposes. Accordingly, the changes in fair value of these agreements are recorded in miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income. At July 4, 2015 and December 31, 2014, Seaboard had six and seven interest rate exchange agreements outstanding, respectively, with a total notional value of $141,000,000 and $163,000,000, respectively.

 

Counterparty Credit Risk

 

From time to time Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements and interest rate swaps, should the counterparties fail to perform according to the terms of the contracts. As of July 4, 2015, Seaboard has a maximum amount of loss due to credit risk in the amount of $2,285,000 with five counterparties related to foreign currency exchange agreements and $1,368,000 with one counterparty related to the interest rate swaps. Seaboard does not hold any collateral related to these agreements.

 

The following table provides the amount of gain or (loss) recognized in income for each type of derivative and where it was recognized in the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 4, 2015 and June 28, 2014.

 

10



 

(Thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

 

 

 

 

2015

 

2014

 

2015

 

2014

 

Commodities

 

Cost of sales

 

$

3,886

 

$

9,962

 

$

(2,062)

 

$

3,378

 

Foreign currencies

 

Cost of sales

 

1,915

 

2,328

 

1,421

 

2,813

 

Foreign currencies

 

Foreign currency

 

69

 

(1,185)

 

1,602

 

(420)

 

Interest rate

 

Miscellaneous, net

 

3,568

 

(3,293)

 

(1,123)

 

(3,895)

 

 

The following table provides the fair value of each type of derivative held as of July 4, 2015 and December 31, 2014 and where each derivative is included in the Condensed Consolidated Balance Sheets.

 

(Thousands of dollars)

 

 

Asset Derivatives

 

 

 

Liability Derivatives

 

 

 

 

 

July 4,

 

December 31,

 

 

July 4,

 

December 31,

 

 

 

 

 

2015

 

2014

 

 

 

2015

 

2014

 

Commodities(1)

 

Other current assets

 

$20,737

 

$  6,136

 

Other current liabilities

 

$ 11,530

 

$   1,779

 

Foreign currencies

 

Other current assets

 

2,285

 

1,675

 

Other current liabilities

 

1,606

 

407

 

Interest rate

 

Other current assets

 

1,368

 

-

 

Other current liabilities

 

5,348

 

7,715

 

 

(1)   Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of July 4, 2015 and December 31, 2014, the commodity derivatives had a margin account balance of $10,168,000 and $4,314,000, respectively, resulting in a net other current asset in the Condensed Consolidated Balance Sheets of $19,852,000 and $9,267,000, respectively and a net other current liability of $477,000 and $596,000, respectively.

 

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 for the remainder of 2015. Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees. Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

(Thousands of dollars)

 

July 4,
2015

 

June 28,
2014

 

July 4,
2015

 

June 28,
2014

 

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,495

 

$

2,004

 

$

4,942

 

$

3,860

 

Interest cost

 

2,587

 

2,418

 

5,137

 

4,821

 

Expected return on plan assets

 

(2,173)

 

(2,179)

 

(4,288)

 

(4,364)

 

Amortization and other

 

1,377

 

581

 

2,126

 

1,051

 

Net periodic benefit cost

 

$

4,286

 

$

2,824

 

$

7,917

 

$

5,368

 

 

Note 7 Commitments and Contingencies

 

Contingencies

 

On April 29, 2015, Seaboard received from the Department of Justice, Asset Forfeiture and Money Laundering Section (“AFMLS”), a Grand Jury subpoena issued by the United States District Court for the District of Columbia (the “DC District Court”) requesting records related to 37 specified foreign companies and five individuals.  Seaboard has previously produced documents responsive to Grand Jury subpoenas dated September 18, 2014 and October 17, 2014.  The subpoena issued September 18, 2014 requested records related to nine entities and one individual, and the subpoena issued October 17, 2014 requested records with respect to eight additional entities and one additional individual. Two additional subpoenas, each dated July 2, 2015 were received by Seaboard requesting records related to a certain customer. The companies and individuals as to which the requested records relate to are not affiliated with Seaboard. The AFMLS attorney conducting the investigation has advised Seaboard that it is not a target of the

 

11



 

investigation. Seaboard has retained outside counsel and is cooperating with the government’s investigation.  It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome or to estimate the amount of potential loss, if any, resulting from the government’s inquiry.

 

On September 19, 2012, the United States Immigration and Customs Enforcement (“ICE”) executed three search warrants authorizing the seizure of certain records from Seaboard’s offices in Merriam, Kansas and at the Seaboard Foods LLC (“Seaboard Foods”) employment office and the human resources department in Guymon, Oklahoma. The warrants generally called for the seizure of employment-related files, certain e-mails and other electronic records relating to Medicaid and Medicaid recipients, certain health care providers in the Guymon area, and Seaboard’s health plan and certain personnel issues. The United States Attorney’s Office for the Western District of Oklahoma (“USAO”), which has been leading the investigation, previously advised Seaboard that it intended to close its investigation and that no charges would be brought against Seaboard. However, discussions with the USAO continue regarding the status of the investigation and the possibility of proceedings by the USAO, ICE and/or the Oklahoma Attorney General’s office remains. No proceedings have been filed or brought as of the date of this report. It is not possible at this time to determine whether any agencies will continue to pursue an investigation or whether Seaboard will incur any material fines, penalties or liabilities in connection with this matter.

 

Seaboard’s subsidiary Seaboard Foods, has a dispute with the United Food & Commercial Workers International Union-industry Pension Fund (“Pension Fund”) regarding pension contributions being made by Seaboard Foods to a multi-employer pension plan for the benefit of union employees at Seaboard Foods’ Guymon pork processing plant (the “Pension Plan”). Under a Collective Bargaining Agreement (“CBA”) with United Food & Commercial Workers Union Local Two (“UCFW”), Seaboard Foods is making contributions to the Pension Plan based on hours worked to fund a pension benefit. Effective July 21, 2014, Seaboard Foods and UFCW negotiated a renewal of the CBA, which reduced a portion of the pension contributions being made to the Pension Plan and implemented a new 401(k) Plan pursuant to which Seaboard Foods also makes contributions on behalf of the employees. The changes to the pension contributions and the 401(k) Plan became effective January 1, 2015, pursuant to renewal of the CBA. The contributions being made by Seaboard Foods to the 401(k) Plan exceed the reduction in contributions being made to the Pension Plan.

 

The dispute involves the Pension Fund’s acceptance of the changes to the contributions to the Pension Plan. Seaboard Foods had previously contacted the Pension Fund advising it of Seaboard Foods’ intent to bargain with the UCFW to make changes to the contributions and also advising the Pension Fund of the negotiated changes before they went into effect. Seaboard Foods believes it received approval of the changes from the Pension Fund. In fact, prior to the changes becoming effective, the Pension Fund sent letters to the employees and to Seaboard Foods giving notice of a reduction in benefit accruals attributable to the changes made to the contributions as negotiated in the CBA. However, on June 17, 2015, Seaboard Foods received a letter from the Pension Fund demanding that Seaboard Foods reinstate, effective January 1, 2015, the contributions being made under the prior CBA or the Pension Fund will consider Seaboard Foods as having fully withdrawn from the Pension Fund effective December 31, 2014. This position by the Pension Fund directly contradicts the Pension Fund’s previous representations and Seaboard Foods believes the Pension Fund cannot legally take this action. If the Pension Fund is successful in effecting the full withdrawal by Seaboard Foods from the Pension Plan, Seaboard Foods would incur a withdrawal liability. The exact amount of this withdrawal liability is dependent of a number of factors and is approximately $11,000,000, paid in quarterly installments over a period not to exceed 20 years. If Seaboard Foods were to reinstate the pension contributions to the levels existing under the prior CBA, and as now demanded by the Pension Fund trustees, it would have to re-open negotiations of the CBA. No amounts have been accrued for the potential withdrawal liability as of July 4, 2015 as Seaboard does not believe such liability is probable as of the date of this filing.

 

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

 

Contingent Obligations

 

Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt in order to further Seaboard’s business objectives. Seaboard does not issue guarantees of third parties for compensation. As of July 4, 2015, guarantees outstanding to third parties were not material. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considers the likelihood of loss to be remote.

 

12



 

As of July 4, 2015, Seaboard’s borrowing capacity under its uncommitted lines was reduced by letters of credit totaling $1,531,000. There were no letters of credit to reduce the committed lines. The notes payable to banks under the committed and uncommitted credit lines are unsecured. These lines of credit do not require compensating balances.

 

On May 13, 2015 Seaboard, through a wholly-owned subsidiary, agreed to contribute up to $207,400,000 to jointly develop and operate a pork processing facility in Sioux City, Iowa. Approximately $25,700,000 will be contributed in 2015 with the remaining amounts through 2019. As part of the operations, Seaboard agreed to provide hogs to be processed at the facility. Seaboard is currently evaluating its options to provide additional hogs to the facility.

 

Note 8 – Stockholders’ Equity and Accumulated Other Comprehensive Loss

 

Seaboard has a share repurchase program in place which was initially approved by its Board of Directors in November 2009, and is in effect through October 31, 2015. As of July 4, 2015, $50,846,000 remained available for repurchases under the share repurchase program.  For the six months ended July 4, 2015, Seaboard did not repurchase any shares of common stock. In May 2014, Seaboard commenced a tender offer to repurchase shares. On June 19, 2014 Seaboard completed the tender offer, pursuant to which it repurchased 16,738 shares of common stock at a price per share of $2,950, for a total cost of $49,377,000. Under this share repurchase program, Seaboard is authorized to repurchase its common stock from time to time in open market or privately negotiated purchases, which may be above or below the traded market price. During the period that the share repurchase program remains in effect, from time to time Seaboard may enter into a 10b5-1 plan authorizing a third party to make such purchases on behalf of Seaboard. The stock repurchases are being funded by cash on hand, and shares repurchased are being retired and resume the status of authorized and unissued shares. All stock repurchases are being made in compliance with applicable legal requirements and the timing of the repurchases and the number of shares repurchased at any given time depend upon market conditions, compliance with Securities and Exchange Commission regulations and other factors. The Board’s stock repurchase authorization does not obligate Seaboard to acquire a specific amount of common stock and the stock repurchase program may be suspended at any time at Seaboard’s discretion.

 

In December 2012, Seaboard declared and paid a dividend of $12.00 per share on the common stock. The increased amount of the dividend (which has historically been $0.75 per share on a quarterly basis or $3.00 per share on an annual basis) represented a prepayment of the annual 2013, 2014, 2015 and 2016 dividends ($3.00 per share per year). Seaboard did not declare or pay a dividend in 2013 and 2014. Seaboard does not currently intend to declare any further dividends for the years 2015 and 2016.

 

13



 

The changes in the components of other comprehensive loss (“OCL”), net of related taxes, are as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Thousands of dollars)

 

2015

 

2014

 

2015

 

2014

 

Foreign currency translation adjustment

 

$

(8,836)

 

$

(2,790)

 

$

(14,794)

 

$

(29,565)

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

Unrealized gain

 

11

 

553

 

747

 

568

 

Amounts reclassified from OCL to net earnings

 

(14)

(1)

(55)

(1)

(73)

(1)

456

(1)

Unrealized gain (loss) on investments

 

(3)

 

498

 

674

 

1,024

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on cash flow hedges

 

-

 

(275)

 

-

 

86

 

 

 

 

 

 

 

 

 

 

 

Pension cost:

 

 

 

 

 

 

 

 

 

Unrealized gain (loss)

 

(16)

 

-

 

283

 

-

 

Amounts reclassified from OCL to net earnings

 

961

(2)

320

(2)

1,944

(2)

640

(2)

Unrecognized pension cost

 

945

 

320

 

2,227

 

640

 

Other comprehensive loss, net of tax

 

$

(7,894)

 

$

(2,247)

 

$

(11,893)

 

$

(27,815)

 

 

(1)  This represents realized losses (gains) on the sale of available-for-sale securities and was recorded in other

investment income (loss), net.

 

(2)  This primarily represents the amortization of actuarial losses that were included in net periodic pension cost and

was recorded in operating income.  See Note 6 for further discussion.

 

 

The components of accumulated other comprehensive loss, net of related taxes, are as follows:

 

 

 

 

July 4,

 

December 31,

 

(Thousands of dollars)

 

2015

 

2014

 

Cumulative foreign currency translation adjustment

 

$ (208,831)

 

$ (194,037)

 

Unrealized gain on investments

 

2,008

 

1,334

 

Unrecognized pension cost

 

(57,707)

 

(59,934)

 

Total accumulated other comprehensive loss

 

$ (264,530)

 

$ (252,637)

 

 

The foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar segment. At July 4, 2015, the Sugar segment had $115,447,000 in net assets denominated in Argentine pesos and $22,000 in net liabilities denominated in U.S. dollars. Management anticipates that the Argentine peso could continue to weaken against the U.S. dollar and thus it is anticipated that Seaboard could incur additional foreign currency translation adjustment losses in other comprehensive loss during the remainder of 2015.

 

At July 4, 2015 and June 28, 2014, income taxes for cumulative foreign currency translation adjustments were recorded using a 35% effective tax rate except for $66,988,000 and $50,353,000, respectively, related to certain subsidiaries for which no tax benefit was recorded. At July 4, 2015 and June 28, 2014, income taxes for all other components of accumulated other comprehensive loss were recorded using a 39% effective rate except for unrecognized pension cost of $19,471,000 and $8,498,000, respectively, related to employees at certain subsidiaries for which no tax benefit was recorded.

 

Note 9 - Segment Information

 

As of September 27, 2014, Seaboard’s Pork segment sold a 50% interest in Daily’s Premium Meats, LLC (“Daily’s”) to Triumph Foods LLC (“Triumph”). Daily’s produces and markets raw and pre-cooked bacon, ham and sausage and has two further processing plants located in Salt Lake City, Utah and Missoula, Montana. The Pork segment currently has a business relationship with Triumph under which Seaboard markets substantially all of the pork products produced at Triumph’s plant in St. Joseph, Missouri.  Through September 27, 2014, Seaboard consolidated the operating results of Daily’s as part of its Pork segment operations. As a result of this transaction, Seaboard deconsolidated Daily’s from its Condensed Consolidated Balance Sheet as of September 27, 2014. Seaboard’s remaining 50% investment in Daily’s is accounted for in the Pork segment by using the equity method of accounting. Both Seaboard and Triumph supply raw product to Daily’s.

 

14



 

The Commodity Trading and Milling segment has a 50% noncontrolling interest in a bakery located in the Democratic Republic of Congo (“DRC”), which began operations in the fourth quarter of 2012. The bakery has been incurring operating losses since it began operations as it continues to resolve equipment problems and attempts to gain market share. As a result of the continuing equipment problems, other production challenges and unfavorable local market conditions causing challenges in gaining market share, Seaboard’s management determined achieving improved operating results would take significantly longer than anticipated. As a result, Seaboard’s management determined there was a decline in value considered other-than-temporary as of December 31, 2014 and thus Seaboard recorded a write-down in the fourth quarter of 2014, which represented the remaining equity investment in this business and suspended the use of the equity method as of December 31, 2014. As part of its investment in this bakery, Seaboard has an interest bearing long-term note receivable from this bakery, the terms of which require periodic principal payments, with the first payment due in June 2015 and a final maturity date of December 2020. No payment was received in June and Seaboard agreed to review future payment terms. Repayment of this note is primarily dependent upon this business improving existing operations to generate adequate future cash flows to make future payments. Seaboard discontinued recognizing interest income on the note receivable during the fourth quarter of 2014. As of July 4, 2015, the recorded balance of this note receivable from affiliate and previous accrued interest was $34,556,000, all classified as long-term given uncertainty of the timing of payments in the future. If the future cash flows of this bakery do not improve, there is a possibility that some of the recorded value of the note receivable from affiliate could be deemed uncollectible in the future, which may result in a material charge to earnings. Including this business, as of July 4, 2015 Seaboard had a total of $57,708,000 of investments in, advances to and notes receivable from all of its affiliates in the DRC, which represents the single largest foreign country risk exposure for Seaboard’s equity method investments. One of the other affiliates in the DRC, to which Seaboard sells wheat, is the only supplier of flour to this bakery.

 

In September 2013, Seaboard invested $17,000,000 in a flour production business in Brazil for a 50% noncontrolling equity interest and provided a $13,000,000 long-term loan to this business. Half of the interest on this long-term note receivable from affiliate is payable currently in cash and the other half accrues as pay-in-kind interest. This note receivable matures in September 2020 but can be repaid with Seaboard having the option to convert the note receivable to equity and the other equity holders having the option to match such conversion with a purchase of new shares to avoid dilution. In addition, at the time of Seaboard’s initial investment in this business, plans included potential future equal additional investments by the owners to improve existing operations and expand operations to improve long-term operating results. Seaboard’s share of additional investments and advances totaled $5,554,000 and $3,886,000 during the six months ended July 4, 2015 and the year ended December 31, 2014, respectively. This business, which has received additional third party loans during 2015, incurred significant operating losses in 2014 and for the first six months of 2015. During the three and six months ended July 4, 2015, Seaboard recorded losses from affiliate of $10,247,000 and $21,913,000, respectively, related to this investment, which included $5,846,000 in the six month period for its proportionate share of a deferred income tax asset allowance related to 2014 and 2013. These recorded losses from affiliate were first used to reduce Seaboard’s investment in the business to zero and then, the remaining equity losses of $7,194,000 were used to write-down its advances and long-term note receivable from affiliate during the second quarter of 2015. Discussions are ongoing between the owners to determine the extent and timing of future additional investments by one or both parties or additional third party loans to fund expansion in an attempt to improve operating results. However, during the second quarter, Seaboard became concerned with disagreements with the other business partner as to the necessary support of the business, including the other equity partner’s ability and willingness to fund additional capital contributions. Based on current discussions with our business partner and the management of the business, the extent of the losses and revised financial outlook of the business, the halting of the construction plans for a new plant and the amount of existing third party debt of $27,300,000, Seaboard reserved the remaining portion of the advance and long-term loans of $9,345,000 during the second quarter of 2015 and thus reduced these advances and long-term loans to zero as of July 4, 2015. This charge was recorded as a reduction to income from affiliates in the Condensed Consolidated Statements of Comprehensive Income. As of December 31, 2014, the recorded balance of this note receivable from affiliate was $13,849,000 and Seaboard’s equity investment and advances in this business was $11,669,000. Seaboard also had a gross receivable due from affiliate related to this business resulting from sales of grain and supplies of $16,480,000 and $13,969,000 as of July 4, 2015 and December 31, 2014, respectively, which Seaboard reserved $3,000,000 in the second quarter of 2015 based on an analysis of collectability and working capital. It is possible that additional reserves will be necessary during the remainder of 2015.

 

In September 2014, Seaboard invested $17,333,000 in a cargo terminal business in Jamaica for a 21% noncontrolling interest. This investment is accounted for in the Marine segment using the equity method reported on a three-month lag basis and thus Seaboard’s first proportionate share of earnings was recognized in the first six months of 2015.

 

15



 

The Power segment had been operating a floating power generating facility (72 megawatts) in the Dominican Republic under a short-term lease agreement, but on April 1, 2014, Seaboard provided notice to cancel the lease and ceased operation of the leased facility on September 3, 2014. During the second quarter of 2015, Seaboard invested an additional $10,000,000 in a business operating a 300 megawatt electricity generating facility in the Dominican Republic and changed its method of accounting from a cost method investment at Corporate to an equity method investment in the Power segment. As a result, Seaboard reclassified the $5,910,000 initial investment from Corporate to the Power segment along with $12,691,000 of Seaboard’s interest in this business’ reported net income since the date of its initial investment, which is reflected as an adjustment to retained earnings as of January 1, 2014.

 

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (“Butterball”). Butterball had total net sales for the three and six months ended July 4, 2015 of $390,739,000 and $788,437,000, respectively, compared to total net sales for the three and six months ended June 28, 2014 of $375,668,000 and $731,431,000, respectively. Butterball had operating income for the three and six months ended July 4, 2015 of $51,362,000 and $93,959,000, respectively, compared to operating income for the three and six months ended June 28, 2014 of $28,682,000 and $49,430,000, respectively. As of July 4, 2015 and December 31, 2014, Butterball had total assets of $1,040,435,000 and $1,021,182,000, respectively.

 

In conjunction with Seaboard’s initial investment in Butterball in December 2010, Seaboard has a long-term note receivable from Butterball which had a balance of $149,691,000 as of July 4, 2015. Part of the interest earned on this note is pay-in-kind interest, which accumulates and is paid at maturity in December 2017.

 

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

 

Sales to External Customers:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Thousands of dollars)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

331,259

 

$

466,735

 

$

652,147

 

$

848,825

 

Commodity Trading and Milling

 

778,688

 

914,114

 

1,599,276

 

1,703,504

 

Marine

 

241,679

 

210,960

 

478,339

 

411,424

 

Sugar

 

45,107

 

46,986

 

90,366

 

97,342

 

Power

 

27,510

 

53,033

 

52,641

 

106,881

 

All Other

 

3,643

 

2,763

 

7,475

 

6,251

 

Segment/Consolidated Totals

 

$

1,427,886

 

$

1,694,591

 

$

2,880,244

 

$

3,174,227

 

 

Operating Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Thousands of dollars)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

18,537

 

$

110,213

 

$

34,933

 

$

170,690

 

Commodity Trading and Milling

 

7,380

 

18,263

 

11,862

 

30,193

 

Marine

 

5,451

 

(3,057

)

12,230

 

(10,449

)

Sugar

 

993

 

9,654

 

4,992

 

16,415

 

Power

 

4,342

 

6,129

 

6,976

 

4,445

 

All Other

 

235

 

(8

)

343

 

329

 

Segment Totals

 

36,938

 

141,194

 

71,336

 

211,623

 

Corporate Items

 

(5,276

)

(6,855

)

(11,835

)

(12,081

)

Consolidated Totals

 

$

31,662

 

$

134,339

 

$

59,501

 

$

199,542

 

 

16



 

Income (Loss) from Affiliates:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Thousands of dollars)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Pork

 

$

3,836

 

$

-

 

$

6,489

 

$

-

 

Commodity Trading and Milling

 

(15,947

)

(2,170

)

(25,196

)

(2,205

)

Marine

 

413

 

-

 

1,066

 

-

 

Sugar

 

111

 

443

 

527

 

748

 

Power

 

573

 

317

 

125

 

954

 

Turkey

 

23,271

 

9,530

 

40,025

 

15,904

 

Segment/Consolidated Totals

 

$

12,257

 

$

8,120

 

$

23,036

 

$

15,401

 

 

Total Assets:

 

 

 

 

 

 

 

July 4,

 

December 31,

 

(Thousands of dollars)

 

2015

 

2014

 

 

 

 

 

 

 

Pork

 

$

812,570

 

$

821,172

 

Commodity Trading and Milling

 

976,396

 

1,103,461

 

Marine

 

301,484

 

283,276

 

Sugar

 

179,423

 

198,271

 

Power

 

232,928

 

219,604

 

Turkey

 

427,404

 

393,425

 

All Other

 

5,909

 

5,887

 

Segment Totals

 

2,936,114

 

3,025,096

 

Corporate Items

 

802,232

 

666,662

 

Consolidated Totals

 

$

3,738,346

 

$

3,691,758

 

 

Investments in and Advances to Affiliates:

 

 

 

 

 

 

 

July 4,

 

December 31,

 

(Thousands of dollars)

 

2015

 

2014

 

 

 

 

 

 

 

Pork

 

$

85,105

 

$

79,832

 

Commodity Trading and Milling

 

197,797

 

178,344

 

Marine

 

18,106

 

17,333

 

Sugar

 

3,351

 

2,994

 

Power

 

30,473

 

20,348

 

Turkey

 

270,182

 

244,560

 

Segment/Consolidated Totals

 

$

605,014

 

$

543,411

 

 

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

 

17



 

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

 

LIQUIDITY AND CAPITAL RESOURCES

Summary of Sources and Uses of Cash

Cash and short-term investments as of July 4, 2015 increased $179.6 million to $706.6 million from December 31, 2014. The increase was primarily the result of net cash from operating activities of $263.9 million, proceeds from sale of fixed assets of $24.1 million and increases in notes payable of $30.8 million.  Partially offsetting the increase was cash used for capital expenditures of $68.0 million, investments in affiliates of $49.8 million and purchase of long-term investments of $22.3 million. Cash from operating activities increased $61.0 million for the six months ended July 4, 2015 compared to the same period in 2014, primarily as a result of decreases in accounts receivable and inventory, principally in the Commodity Trading and Milling segment, partially offset by lower net earnings.

Acquisitions, Capital Expenditures and Other Investing Activities

During the six months ended July 4, 2015, Seaboard invested $68.0 million in property, plant and equipment, of which $18.6 million was expended in the Pork segment, $19.5 million in the Commodity Trading and Milling segment, and $24.3 million in the Marine segment. The Pork segment expenditures were primarily for improvements to existing facilities and related equipment and additional hog finishing barns. Of the Commodity Trading and Milling segment expenditures, $15.5 million was for the construction of dry bulk vessels, of which the first was delivered and then sold and leased back by Seaboard, at its book value of $21.9 million during the second quarter. The Marine segment expenditures were primarily for purchases of cargo carrying and handling equipment, and $7.9 million for the purchase of a containerized cargo vessel. All other capital expenditures were primarily of a normal recurring nature and primarily included replacements of machinery and equipment, and general facility modernizations and upgrades.

For the remainder of 2015, management has budgeted capital expenditures totaling $148.0 million. The Pork segment plans to spend $24.1 million primarily for improvements to existing facilities and related equipment and additional hog finishing barns. The Commodity Trading and Milling segment plans to spend $60.4 million primarily for payments of $48.2 million for three dry bulk vessels being built for a total estimated cost of $68.1 million and improvements to existing facilities and related equipment. However, Seaboard currently anticipates selling and leasing back these three 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 three vessels are scheduled for delivery during 2015 and early 2016. The Marine segment has budgeted $35.5 million primarily for additional cargo carrying and handling equipment. In addition, management will be evaluating whether to purchase additional containerized cargo vessels for the Marine segment during 2015. The balance of $28.0 million is planned to be spent in all other businesses primarily for normal upgrades to existing operations and for the expansion of the alcohol distillery in the Sugar segment. 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.

On May 13, 2015 Seaboard, through a wholly-owned subsidiary, agreed to contribute up to $207.4 million to jointly develop and operate a pork processing facility in Sioux City, Iowa. Approximately $25.7 million is expected to be contributed in 2015 with the remaining amounts through 2019. As part of the operations, Seaboard agreed to provide hogs to be processed at the facility. Seaboard is currently evaluating its options to provide these additional hogs to the facility.

In March 2015, Seaboard invested $10.0 million in an oilseed crushing business in the Republic of Turkey for a 25% noncontrolling interest. This investment will be accounted for using the equity method.

In the second quarter of 2015, Seaboard invested $10.0 million in a business operating a 300 megawatt electricity generating facility in the Dominican Republic, increasing Seaboard’s ownership interest to 29.9%. See Note 1 to the Condensed Consolidated Financial Statements for further discussion.

Also, in the second quarter of 2015, Seaboard invested $8.0 million in a flour milling business in Botswana for a 49% noncontrolling interest and $10.3 million, which had previously been held in escrow, for a 45% noncontrolling interest in a commodity trading and flour milling business in Uruguay. These investments will be accounted for using the equity method. In the second quarter of 2015, Seaboard also invested $18.2 million for an 11.96% noncontrolling interest in a grain trading and poultry business in Morocco which will be accounted for using the cost method.

 

18



 

During the second quarter of 2015, Seaboard provided an additional $4.0 million short-term loan to a port project in Haiti consisting primarily of a marine terminal operation, electric power generating plant and free trade zone development. This loan, which totals $8.0 million, is convertible into equity by Seaboard once certain business operating conditions are met in Haiti. Seaboard does anticipate these conditions being met by the end of 2015, at which time it will convert the loan to equity and invest an additional $7.0 million for a total minority equity investment of less than 25%.

Financing Activities and Debt

As of July 4, 2015, Seaboard had a short-term $50.0 million committed line of credit, a long-term $200.0 million committed line of credit and uncommitted lines totaling $262.6 million. As of July 4, 2015, there were no borrowings outstanding under the committed lines of credit and borrowings under the uncommitted lines of credit totaled $103.3 million, with all such borrowings related to foreign subsidiaries. Seaboard’s borrowing capacity under its uncommitted lines was reduced by letters of credit totaling $1.5 million.

As of July 4, 2015, Seaboard had cash and short-term investments of $706.6 million, additional total net working capital of $684.8 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 July 4, 2015, $269.4 million of the $706.6 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.

For the six months ended June 28, 2014, Seaboard used cash to repurchase 18,405 shares of common stock at a total price of $53.8 million. See Note 8 to the Condensed Consolidated Financial Statements for further discussion of this item.

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

RESULTS OF OPERATIONS

Net sales for the three and six month periods of 2015 decreased by $266.7 million and $294.0 million, respectively, over the same periods in 2014. The decreases primarily reflected the deconsolidation of Daily’s and lower prices for pork products sold in the Pork segment as discussed below, lower sales prices for various commodities for the Commodity Trading and Milling segment and lower sales volume for the Power segment. The decreases were partially offset by higher cargo volumes for the Marine segment.

Operating income decreased by $102.7 million and $140.0 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases primarily reflected lower prices for pork products sold.

Pork Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Dollars in millions)

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

331.3

 

$

466.7

 

$

652.1

 

$

848.8

 

Operating income

 

$

18.5

 

$

110.2

 

$

34.9

 

$

170.7

 

Income from affiliates

 

$

3.8

 

$

 

$

6.5

 

$

 

 

Net sales for the Pork segment decreased $135.4 million and $196.7 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases were primarily the result of the deconsolidation of Daily’s, as discussed below and lower prices for pork products sold. The decreases were partially offset by an increase in related sales volume.

Operating income for the Pork segment decreased $91.7 million and $135.8 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases were primarily the result of lower prices for

 

19



 

pork products and to a lesser degree, the deconsolidation of Daily’s as discussed below. Partially offsetting the decreases were lower feed costs for hogs internally grown and lower costs for third party hogs.

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

Income from affiliates is primarily from Seaboard’s 50% proportionate share of earnings from Daily’s accounted for using the equity method as discussed in Note 9 to the Condensed Consolidated Financial Statements. Seaboard’s first proportionate share of earnings for Daily’s was recognized in the fourth quarter of 2014.

Commodity Trading and Milling Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

 

June 28,

 

 

July 4,

 

 

June 28,

 

(Dollars in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net sales

 

$

778.7

 

 

$

914.1

 

 

$

1,599.3

 

 

$

1,703.5 

 

Operating income as reported

 

$

7.4

 

 

$

18.3

 

 

$

11.9

 

 

$

30.2 

 

Less mark-to-market adjustments

 

(1.3

)

 

(6.9

)

 

(6.1

)

 

(4.6)

 

Operating income excluding mark-to-market adjustments

 

$

6.1

 

 

$

11.4

 

 

$

5.8

 

 

$

25.6 

 

Loss from affiliates

 

$

(15.9

)

 

$

(2.2

)

 

$

(25.2

)

 

$

(2.2)

 

 

Net sales for the Commodity Trading and Milling segment decreased $135.4 million and $104.2 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases primarily reflected lower sales prices for various commodities, offset by higher sales volume to third parties, principally for wheat and soybean meal for the six month period.

Operating income for this segment decreased $10.9 million and $18.3 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases primarily reflected certain unfavorable market conditions, which resulted in lower margins on commodity trades to third parties, especially wheat, an increase in bad debt expense and for the three months of 2015, a fluctuation of $5.6 million of marking to market derivative contracts as discussed below. Excluding the effects of mark-to-market adjustments for derivatives contracts as discussed below, operating income decreased $5.3 million and $19.8 million, for the three and six month periods, respectively.

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 for the remainder of 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 would have been lower by $1.3 million and $6.1 million, respectively, for the three and six month periods of 2015 and would have been lower by $6.9 million and $4.6 million, respectively, for the three and six month periods of 2014. 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, other than the recognition of certain loss contracts. 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 three and six month periods of 2015 increased by $13.7 million and $23.0 million, respectively, from the same periods in 2014. The increases primarily reflected operating and currency losses and the write-off of notes receivable from an affiliate in Brazil of $19.6 million and $31.3 million for the three and six months periods, respectively.  Based on the uncertainty of local political and economic environments in the countries in which Seaboard’s affiliates operate, management cannot predict future results. However, management anticipates continuing losses from its affiliate in Brazil for the remainder of 2015. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of this affiliate.

 

20



 

Marine Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Dollars in millions)

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

241.7

 

$

211.0

 

$

478.3

 

$

411.4

 

Operating income (loss)

 

$

5.5

 

$

(3.1

)

$

12.2

 

$

(10.4

)

Income from affiliate

 

$

0.4

 

$

-  

 

$

1.1

 

$

-  

 

 

Net sales for the Marine segment increased $30.7 million and $66.9 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The increases were primarily the result of higher cargo volumes, partially offset by lower cargo rates in certain markets during 2015 compared to 2014.

Operating income increased $8.6 million and $22.6 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The increases were primarily the result of lower voyage costs, principally fuel costs, on a per unit shipped basis, partially offset by lower cargo rates. Management cannot predict changes in future cargo volumes, cargo rates and fuel costs, or to what extent changes in economic conditions in markets served will affect net sales or operating income during the remainder of 2015. However, based on recent improved market conditions, management anticipates this segment will have positive operating income for the remainder of 2015.

Income from affiliate represents an investment in a cargo terminal business in Jamaica accounted for using the equity method as discussed in Note 9 to the Condensed Consolidated Financial Statements. Seaboard’s first proportionate share of earnings for this investment was recognized in the first quarter of 2015.

Sugar Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Dollars in millions)

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

45.1

 

$

47.0

 

$

90.4

 

$

97.3

 

Operating income

 

$

1.0

 

$

9.7

 

$

5.0

 

$

16.4

 

Income from affiliates

 

$

0.1

 

$

0.4

 

$

0.5

 

$

0.7

 

 

Net sales for the Sugar segment decreased $1.9 million and $6.9 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases primarily reflected lower volumes of sugar and alcohol sold partially offset by higher sale prices for both. Sugar and alcohol sales are denominated in Argentine pesos and the increase in sale prices in terms of U.S. dollars was somewhat negatively impacted by exchange rate changes as the Argentine peso continued to weaken against the U.S. dollar in 2015. Management cannot predict sale prices for the remainder of 2015, but management anticipates that the Argentine peso may continue to weaken against the U.S. dollar.

Operating income decreased $8.7 million and $11.4 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decreases primarily reflected lower income as a result of lower volumes of sugar and alcohol sold, while increased sale prices of sugar were offset by higher production costs. The decreases in operating income were also the result of higher selling, general and administrative expenses principally from increased personnel related costs. Operating income for the three and six month periods of 2014 included a $4.3 million gain recorded from a final insurance settlement for property damage and business interruption claims related to prior years. Based on recent market conditions, management anticipates this segment will not be profitable for the remainder of 2015.

 

21



 

Power Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Dollars in millions)

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

$

27.5

 

$

53.0

 

$

52.6

 

$

106.9

 

Operating income

 

$

4.3

 

$

6.1

 

$

7.0

 

$

4.4

 

Income from affiliate

 

$

0.6

 

$

0.3

 

$

0.1

 

$

1.0

 

 

Net sales for the Power segment decreased $25.5 million and $54.3 million for the three and six month periods of 2015, respectively, compared to the same period in 2014. The decreases primarily reflect lower volumes and, to a lesser extent, lower spot market rates. Although management cannot predict future spot market rates, sales volumes for 2015 will be lower than the same periods in 2014 as a result of cancelling the short-term leasing of a power generating facility on September 3, 2014, as further discussed in Note 9 to the Condensed Consolidated Financial Statements.

Operating income decreased $1.8 million and increased $2.6 million for the three and six month periods of 2015, respectively, compared to the same periods in 2014. The decrease in the three month period of 2015 primarily reflects lower volumes. The increase for the six month period of 2015 primarily reflects lower fuel costs per kilowatt hour generated in excess of lower spot market rates and lower other production costs, partially offset by lower volumes. 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 for the remainder of 2015, although lower than 2014.

Turkey Segment

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 4,

 

June 28,

 

July 4,

 

June 28,

 

(Dollars in millions)

 

2015

 

2014

 

2015