0000088121-11-000002.txt : 20110309
0000088121-11-000002.hdr.sgml : 20110309
20110309160555
ACCESSION NUMBER: 0000088121-11-000002
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20101231
FILED AS OF DATE: 20110309
DATE AS OF CHANGE: 20110309
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SEABOARD CORP /DE/
CENTRAL INDEX KEY: 0000088121
STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011]
IRS NUMBER: 042260388
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03390
FILM NUMBER: 11675140
BUSINESS ADDRESS:
STREET 1: 9000 W. 67TH STREET
CITY: SHAWNEE MISSION
STATE: KS
ZIP: 66202
BUSINESS PHONE: 9136768800
MAIL ADDRESS:
STREET 1: 9000 W. 67TH STREET
CITY: SHAWNEE MISSION
STATE: KS
ZIP: 66202
FORMER COMPANY:
FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP
DATE OF NAME CHANGE: 19820328
FORMER COMPANY:
FORMER CONFORMED NAME: HATHAWAY BAKERIES INC
DATE OF NAME CHANGE: 19710315
10-K
1
k102010.txt
SEABOARD CORPORATION 2010 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number: 1-3390
SEABOARD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2260388
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 W. 67th Street, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip Code)
(913) 676-8800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock $1.00 Par Value NYSE Amex Equities
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [ X ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No
[ X ]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "larger
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X ]
The aggregate market value of the 323,395 shares of Seaboard
common stock held by nonaffiliates was approximately
$454,693,370, based on the closing price of $1,406.00 per share
on July 2, 2010, the end of Seaboard's second fiscal quarter. As
of February 4, 2011, the number of shares of common stock
outstanding was 1,215,879.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
into the indicated parts of this report: (1) Seaboard
Corporation's Annual Report to Stockholders furnished to the
Commission pursuant to Rule 14a-3(b) - Parts I and II; and (2)
Seaboard Corporation's definitive proxy statement filed pursuant
to Regulation 14A for the 2011 annual meeting of stockholders -
Part III.
Forward-Looking Statements
This report, including information included or incorporated by
reference in this report, contains certain forward-looking
statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business of
Seaboard Corporation and its subsidiaries (Seaboard). Forward-
looking statements generally may be identified as:
- statements that are not historical in nature; and
- statements preceded by, followed by or that include the
words "believes," "expects," "may," "will," "should,"
"could," "anticipates," "estimates," "intends" or similar
expressions.
In more specific terms, forward-looking statements include,
without limitation:
- statements concerning the projection of revenues, income or
loss, capital expenditures, capital structure or other
financial items;
- statements regarding the plans and objectives of management
for future operations;
- statements of future economic performance;
- statements regarding the intent, belief or current
expectations of Seaboard and its management with respect to:
(i) Seaboard's ability to obtain adequate financing and
liquidity;
(ii) the price of feed stocks and other materials used by
Seaboard;
(iii) the sale price or market conditions for pork, grains,
sugar, turkey and other products and services;
(iv) statements concerning management's expectations of
recorded tax effects under certain circumstances;
(v) the volume of business and working capital
requirements associated with the competitive trading
environment for the Commodity Trading and Milling
division;
(vi) the charter hire rates and fuel prices for vessels;
(vii) the stability of the Dominican Republic's economy,
fuel cost and related spot market prices and
collections of receivables in the Dominican Republic;
(viii) the ability of Seaboard to sell certain grain
inventories in foreign countries at current cost basis
and the related contract performance by customers;
(ix) the effect of the fluctuation in foreign currency
exchange rates;
(x) statements concerning profitability or sales volume of
any of Seaboard's divisions;
(xi) the anticipated costs and completion timetable for
Seaboard's scheduled capital improvements,
acquisitions and dispositions; and
(xii) other trends affecting Seaboard's financial condition
or results of operations, and statements of the
assumptions underlying or relating to any of the
foregoing statements.
This list of forward-looking statements is not exclusive.
Seaboard undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events, changes in assumptions or otherwise.
Forward-looking statements are not guarantees of future
performance or results. They involve risks, uncertainties and
assumptions. Actual results may differ materially from those
contemplated by the forward-looking statements due to a variety
of factors. The information contained in this Form 10-K and in
other filings Seaboard makes with the Commission, including
without limitation, the information under the headings "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Form 10-K,
identifies important factors which could cause such differences.
2
PART I
Item 1. Business
(a) General Development of Business
Seaboard Corporation, a Delaware corporation, and its subsidiaries
(Seaboard), is a diversified international agribusiness and
transportation company. In the United States, Seaboard is
primarily engaged in pork production and processing and ocean
transportation. Overseas, Seaboard is primarily engaged in
commodity merchandising, grain processing, sugar production, and
electric power generation. Seaboard also has an interest in turkey
operations in the United States. See Item 1(c) (1) (ii) "Status of
Product or Segment" below for a discussion of acquisitions,
dispositions and other developments in specific divisions.
Seaboard Flour LLC and SFC Preferred LLC, Delaware limited
liability companies, collectively own approximately 73.5 percent of
the outstanding common stock of Seaboard. Mr. Steven J. Bresky,
President and Chief Executive Officer of Seaboard, and other
members of the Bresky family, including trusts created for their
benefit, own the equity interests of Seaboard Flour LLC and SFC
Preferred LLC.
(b) Financial Information about Industry Segments
The financial information relating to Industry Segments required by
Item 1 of Form 10-K is incorporated herein by reference to Note 13
of the Consolidated Financial Statements appearing on pages 55
through 59 of the Seaboard Corporation Annual Report to
Stockholders furnished to the Commission pursuant to Rule 14a-3(b)
and attached as Exhibit 13 to this Report.
(c) Narrative Description of Business
(1) Business Done and Intended to be Done by the Registrant
(i) Principal Products and Services
Pork Division - Seaboard, through its subsidiary Seaboard
Foods LLC, engages in the businesses of hog production and
pork processing in the United States. Through these
operations, Seaboard produces and sells fresh and frozen pork
products to further processors, foodservice operators, grocery
stores, distributors and retail outlets throughout the United
States. Internationally, Seaboard sells to these same types
of customers in Japan, Mexico and other foreign markets.
Other further processing companies also purchase Seaboard's
fresh and frozen pork products in bulk and produce products,
such as lunchmeat, ham, bacon, and sausage. Fresh pork, such
as loins, tenderloins and ribs are sold to distributors and
grocery stores. Seaboard also sells further processed pork
products consisting primarily of raw and pre-cooked bacon from
its two bacon further processing plants. Seaboard sells some
of its fresh products under the brand name Prairie Freshr and
its bacon and other further processed products under the
Daily'sr brand name. Seaboard's hog processing plant is
located in Guymon, Oklahoma, and operates at double shift
capacity. Seaboard's bacon plants are located in Salt Lake
City, Utah and Missoula, Montana. Seaboard also earns fees,
based primarily on the number of head processed, to market all
of the products produced by Triumph Foods LLC at their pork
processing plant located in St. Joseph, Missouri.
Seaboard's hog production operations consist of the breeding
and raising of approximately four million hogs annually
primarily at facilities owned by Seaboard or at facilities
owned and operated by third parties with whom Seaboard has
grower contracts. The hog production operations are located
in the States of Oklahoma, Kansas, Texas and Colorado. As a
part of the hog production operations, Seaboard produces
specially formulated feed for the hogs at six owned feed
mills. The remaining hogs processed are purchased from third
party hog producers, primarily pursuant to purchase contracts.
Seaboard produces biodiesel at a facility in Guymon, Oklahoma.
The biodiesel is produced from pork fat from Seaboard's Guymon
pork processing plant and from animal fat supplied by non-
Seaboard facilities. The biodiesel is sold to third parties.
The facility can also produce biodiesel from vegetable oil.
Seaboard is able to reduce or stop production when it isn't
economically feasible to produce based on input costs or the
price of biodiesel.
Seaboard has a majority interest in a ham-boning and
processing plant in Mexico.
Commodity Trading and Milling Division - Seaboard's Commodity
Trading and Milling Division markets wheat, corn, soybean
meal, rice and other similar commodities in bulk to third
parties and affiliated companies. This division is managed
under the name of Seaboard Overseas and Trading Group,
conducts business primarily through
3
its subsidiaries, Seaboard Overseas Limited with offices in
Bermuda, Colombia, Ecuador, Isle of Man and South
Africa, Seaboard Overseas Trading and Shipping (PTY), Ltd.
located in South Africa, SeaRice Limited located in Geneva,
Switzerland, SeaRice Caribbean located in Miami, Florida,
and its non-consolidated affiliates, ContiLatin del Peru
S.A. located in Lima, Peru, and Plum Grove Pty Ltd located
in Fremantle, Australia. In addition, although to a
lesser degree, Seaboard also markets various
specialty grains and other similar commodities to third party
customers through its subsidiaries SeaRice Caribbean and Fill-
more Seeds, Inc. located in Fillmore, Canada, and its non-
consolidated affiliate PS International located in Chapel
Hill, North Carolina, with additional international offices.
All of the commodities marketed by this division are purchased
from growing regions worldwide, with primary destinations
being Africa, South America, Asia, Europe and the Caribbean.
The division sources, transports and markets approximately
five million tons of grains and proteins on an annual basis.
Seaboard integrates the service of delivering commodities to
its customers through the use of chartered bulk vessels and
its eight owned bulk carriers.
This division also operates milling and related businesses
with 32 locations in 14 countries, which are primarily
supplied by the trading locations discussed above. The grain
processing businesses are operated through four consolidated
and fourteen non-consolidated affiliates in Africa, the
Caribbean and South America. These are flour, feed and maize
milling businesses which produce approximately three million
metric tons of finished products per year. Most of the
products produced by the milling operations are sold in the
countries in which the products are produced or into adjacent
countries.
In addition, this division has a 50 percent non-controlling
interest in a newly combined poultry business in Africa and a
50 percent non-controlling interest in a bakery to be built in
Central Africa. The bakery is not anticipated to be fully
operational until the second half of 2011.
Marine Division - Seaboard, through its subsidiary, Seaboard
Marine Ltd., and various foreign affiliated companies and
third party agents, provides containerized cargo shipping
service to 26 countries between the United States, the
Caribbean Basin, and Central and South America. Seaboard uses
a network of offices and agents throughout the United States,
Canada, Latin America and the Caribbean Basin to book both
northbound and southbound cargo to and from the United States
and between the countries it serves. Through agreements with
a network of connecting carriers, Seaboard can transport cargo
to and from numerous U.S. locations by either truck or rail to
and from one of its U.S. port locations, where it is staged
for export via vessel or received as import cargo from abroad.
Seaboard's primary marine operation is located in Miami and
includes an 81 acre terminal located at the Port of Miami and
a 135,000 square foot off-dock warehouse for cargo
consolidation and temporary storage. Seaboard also operates a
62 acre cargo terminal facility at the Port of Houston that
includes approximately 690,000 square feet of on-dock
warehouse space for temporary storage of bagged grains, resins
and other cargoes. Seaboard also makes scheduled vessel calls
in Brooklyn, New York, Fernandina Beach, Florida, New Orleans,
Louisiana and 42 foreign ports. At December 31, 2010,
Seaboard's fleet consisted of 10 owned and approximately 29
chartered vessels, and dry, refrigerated and specialized
containers and other related equipment.
Sugar Division - Seaboard, through its subsidiary, Ingenio y
Refineria San Martin del Tabacal and other Argentine non-
consolidated affiliates, grows sugar cane, produces and
refines sugar, and produces alcohol in Argentina. This
division also purchases sugar in bulk from third parties
within Argentina for subsequent resale. The sugar products
are mostly sold in Argentina, primarily to retailers, soft
drink manufacturers, and food manufacturers, with some exports
to the United States and South America. Seaboard grows a
large portion of the sugar cane on more than 60,000 acres of
land it owns in northern Argentina. The cane is processed at
an owned mill, with a current processing capacity of
approximately 250,000 metric tons of sugar and approximately
14 million gallons of alcohol per year (hydrated and
dehydrated). The sugar mill is one of the largest in
Argentina. Also, during 2008 this division began construction
of a 40 megawatt cogeneration power plant, which is expected
to be completed during the second quarter of 2011.
Power Division - Seaboard, through its subsidiary,
Transcontinental Capital Corp. (Bermuda) Ltd., operates as an
independent power producer in the Dominican Republic. This
operation is exempt from U.S. regulation under the Public
Utility Holding Company Act of 1938, as amended. This
division operates two floating barges with a system of diesel
engines capable of generating a combined rated capacity of
approximately 112 megawatts of electricity. See "Status of
Product or Segment" below for discussion of the pending sale
of the two barges and the construction
4
of a new replacement power barge. Seaboard generates
electricity into the local Dominican Republic power grid.
Seaboard is not directly involved in the transmission
or distribution of the electricity but does have contracts
to sell directly to third party users. The barges are secured
on the Ozama River in Santo Domingo, Dominican Republic.
Turkey Segment - Seaboard owns a 50 percent non-controlling
voting interest in Butterball, LLC ("Butterball"). The other
50 percent ownership interest is owned by a group consisting
of Maxwell Farms, LLC, Goldsboro Milling Company and GM
Acquisition LLC (collectively, the "Maxwell Group") based in
North Carolina. Butterball is a vertically integrated
producer, processor and marketer of branded and non-branded
turkeys, and other turkey products. Butterball has seven
processing plants and numerous live production and feed
milling operations located in Arkansas, Colorado, Kansas,
Missouri and North Carolina. Butterball produces
approximately 1 billion pounds of turkey each year, and the
company supplies its products to more than 30 countries.
Butterball is a national supplier to retail and foodservice
outlets and also exports products to Mexico and overseas.
Other Businesses - Seaboard purchases and processes jalapeno
peppers at its owned plant in Honduras. The processed peppers
are primarily sold to a customer in the United States, and are
shipped to the United States by Seaboard's Marine Division and
distributed from Seaboard's port facilities.
The information required by Item 1 of Form 10-K with respect
to the amount or percentage of total revenue contributed by
any class of similar products or services which account for
10 percent or more of consolidated revenue in any of the last
three fiscal years is set forth in Note 13 of Seaboard's
Consolidated Financial Statements, appearing on pages 55
through 59 of the Seaboard's Annual Report to Stockholders,
furnished to the Commission pursuant to rule 14a-3(b) and
attached as Exhibit 13 to this report, which information is
incorporated herein by reference.
(ii) Status of Product or Segment
During the fourth quarter of 2010, Seaboard acquired for $5.0
million a 25% non-controlling interest in a commodity trading
business in Australia. Also during the fourth quarter of
2010, Seaboard combined its existing investment in poultry
operations in Africa with another existing African based
poultry business. Seaboard invested an additional $10.5
million in this newly combined poultry business for a total
investment of $17.0 million, which represents a 50% non-
controlling interest. This newly combined business has
operations in parts of Eastern and Southern Africa and is also
expanding by building new operations in Central Africa.
During the third quarter of 2010, Seaboard acquired a majority
interest in a commodity origination, storage and processing
business in Canada for approximately $6.7 million. The assets
acquired included $1.2 million of cash.
In late July 2010, Seaboard finalized an agreement to invest
in a bakery to be built in Central Africa. Seaboard will have
a 50% non-controlling interest in this business. The total
project cost is estimated to be $58.0 million but Seaboard's
total investment has not yet been determined pending
finalization of third party financing alternatives for a
significant portion of the project. The bakery is anticipated
to be fully operational during the second half of 2011.
In late March 2010, Seaboard acquired a 50% non-controlling
interest in an international commodity trading business
located in North Carolina for approximately $7.6 million.
During 2008 Seaboard discontinued operations of its flour
milling operations in Mozambique as a result of its Mozambican
subsidiary entering into an agreement to exchange its flour
milling facility for a ten percent ownership interest in a
food processing company in that country. This exchange
transaction was completed in the first half of 2010.
On January 12, 2010, Haiti was struck by an earthquake.
Seaboard has a non-controlling interest in an affiliate with a
flour mill operation in Lafiteau, Haiti. Part of this
facility was severely damaged as a result of the earthquake.
This affiliate business is in the process of rebuilding the
damaged part of the facility and continues to operate the
portion of the facility that was not damaged. This facility
was fully insured, including business interruption and
inventory coverage. Construction is anticipated to be
completed in late 2011. Seaboard also sells wheat and flour
to this business through Seaboard's commodity trading
operations. In addition, the primary port in Haiti, located
in Port-au-Prince from which Seaboard Marine's vessels
normally dock, was severely damaged. Seaboard resumed its
regular service to Haiti during the first half of 2010.
5
The Sugar Division is in the process of developing a 40
megawatt cogeneration power plant. This plant is expected
to be completed during the second quarter of 2011. In
addition, in the first quarter of 2010, the Company began
sales of dehydrated alcohol to certain oil companies under the
Argentine government bio-ethanol program which requires
alcohol to be blended with gasoline.
The Power Division's short-term contract with a government-
owned distribution company, which represents approximately 34%
of its sales, will expire before the sale of the existing
power barges is completed as discussed below.
On March 2, 2009, an agreement became effective under which
Seaboard sold its two power barges in the Dominican Republic
for $70.0 million to a third party, which will use such barges
for private use. It is anticipated that the sale will be
completed during the second quarter of 2011. Seaboard will be
responsible for the wind down and decommissioning costs of the
barges. Completion of the sale is dependent upon the
satisfaction of several conditions, including meeting certain
baseline performance and emissions tests. Failure to satisfy
or cure any deficiencies could result in the agreement being
terminated. Seaboard retained all other physical properties
of its power generation business and is currently building a
106 megawatt power barge for use in the Dominican Republic for
approximately 83,573,000 Euros (approximately US $107,650,000)
plus additional project costs for a total of approximately
$125,000,000. Operations are anticipated to begin by the end
of 2011 or early 2012 resulting in decreased sales during 2011
for this division.
On December 6, 2010, Seaboard acquired a 50 percent non-
controlling voting interest in Butterball from the Maxwell
Group, for a cash purchase price equal to approximately $177.5
million. Butterball is a vertically integrated producer,
processor and marketer of branded and non-branded turkeys, and
other turkey products. The other 50 percent ownership
interest in Butterball will continue to be owned by the
Maxwell Group. In connection with the purchase, Butterball
acquired the live turkey growing and related assets of the
Maxwell Group (which previously owned a 51 percent interest in
Butterball) and of Murphy-Brown LLC ("Murphy Brown"), a
subsidiary of Smithfield Foods, Inc., which previously owned a
49 percent interest in Butterball. Butterball previously
purchased a portion of the turkeys it processed from the
Maxwell Group and Murphy Brown. In connection with this
transaction, Seaboard provided Butterball with a $100,000,000
unsecured subordinated loan with a seven year maturity and
interest of 15% per annum, comprised of 5% payable in cash
semi-annually, plus 10% pay-in-kind interest compounded semi-
annually and paid at maturity. As part of the subordinated
financing, Seaboard received detachable warrants representing
5% of the fully diluted equity units in Butterball with a
strike price of $0.01 per unit.
(iii) Sources and Availability of Raw Materials
None of Seaboard's businesses utilize material amounts of raw
materials that are dependent on purchases from one supplier or
a small group of dominant suppliers. However, the Turkey
Segment purchases a significant portion of its feed for its
turkeys in North Carolina from the Maxwell Group.
(iv) Patents, Trademarks, Licenses, Franchises and
Concessions
Seaboard uses the registered trademark of Seaboard.
The Pork Division uses registered trademarks relating to its
products, including Seaboard Farms, Prairie Fresh, A Taste
Like No Other, Daily's, Daily's Premium Meats Since 1893,
High Plains Bioenergy, Prairie Fresh Prime, Seaboard Foods,
Buffet Brand, Seaboard Farms, Inc. and Del Pueblo.
Seaboard considers the use of these trademarks important to
the marketing and promotion of its pork products.
The Marine Division uses the trade name Seaboard Marine and
Seaboard Solutions which are all registered trademarks.
Seaboard believes there is significant recognition of these
trademarks in the industry and by many of its customers.
Part of the sales within the Sugar Division are made under the
Chango brand in Argentina, where this division operates.
Local sales prices are affected by government price control
and sugar import duties imposed by the Argentine government,
impacting local volume sold, as well as imported and exported
volumes to and from international markets. Sourcing in the
domestic market is also closely monitored by the local
government.
6
Seaboard's Power Division benefits from a tax exempt
concession granted by the Dominican Republic government
through 2012.
The Turkey Segment uses registered trademarks relating to its
products, including Butterball and Carolina Turkeys.
Seaboard considers the use of these trademarks important to
marketing and promotion of its turkey products.
Patents, trademarks, franchises, licenses and concessions are
not material to any of Seaboard's other divisions.
(v) Seasonal Business
Sugar prices in Argentina are generally lower during the
typical sugarcane harvest period between May and November.
The Turkey business is seasonal only on the whole bird side
with Thanksgiving and Christmas holidays driving the majority
of those sales. Seaboard's other divisions are not seasonally
dependent to any material extent.
(vi) Practices Relating to Working Capital Items
There are no unusual industry practices or practices of
Seaboard relating to working capital items.
(vii) Depending on a Single Customer or Few Customers
Seaboard does not have sales to any one customer equal to ten
percent or more of consolidated revenues. The Pork Division
derives approximately 11 percent of its revenues from a few
customers in Japan through one agent. The Commodity Trading
and Milling Division derives a significant portion of its
operating income from sales to a non-consolidated affiliate
and also derives a significant portion of its income from
affiliates from this same affiliate. The Power Division sells
power in the Dominican Republic to a limited number of
contract customers and on the spot market accessed primarily
by three wholly government-owned distribution companies.
Approximately 34% of the Power Division's power generation is
provided for one government-owned distribution company under a
short-term contract for which Seaboard bears a concentrated
credit risk as this customer, from time to time, has
significant past due balances. No other division has sales
to a few customers which, if lost, would have a material
adverse effect on any such division or on Seaboard taken as a
whole.
(viii) Backlog
Backlog is not material to Seaboard's businesses.
(ix) Government Contracts
No material portion of Seaboard's business involves government
contracts.
(x) Competitive Conditions
Competition in Seaboard's Pork Division comes from a variety
of national, international and regional producers and
processors and is based primarily on product quality, customer
service and price. According to recent publications by
Successful Farming and Informa Economics, trade publications,
Seaboard ranks as one of the nation's top five pork producers
(based on sows in production) and top ten pork processors
(based on daily processing capacity).
Seaboard's ocean liner service for containerized cargoes faces
competition based on price, reliable sailing frequencies and
customer service. Seaboard believes it is among the top five
ranking ocean liner services for containerized cargoes in the
Caribbean Basin based on cargo volume.
Seaboard's sugar business owns one of the largest sugar mills
in Argentina and faces significant competition for sugar sales
in the local Argentine market. Sugar prices in Argentina can
fluctuate compared to world markets due to current Argentine
government price control and protection policies.
Seaboard's Power Division is located in the Dominican
Republic. Power generated by this division is sold on the
spot market or to contract customers at prices primarily based
on market conditions rather than cost-based rates.
Competition for the Turkey Segment comes from a variety of
national and regional producers and processors and is based
primarily on product quality, customer service and price.
Butterball ranks as one of the nation's top three turkey
producers (based on live production).
(xi) Research and Development Activities
Seaboard and its Turkey Segment conducts research and
development activities focused on various aspects of
7
Seaboard's vertically integrated pork and turkey processing
system, including improving product quality, production
processes, animal genetics, nutrition and health. Incremental
costs incurred to perform these tests are expensed as incurred
and are not material to operating results.
(xii) Environmental Compliance
Seaboard and its Turkey Segment are subject to numerous
Federal, state and local provisions relating to the
environment which require the expenditure of funds in the
ordinary course of business. Seaboard and its Turkey Segment
do not anticipate making expenditures for these purposes,
which, in the aggregate would have a material or significant
effect on Seaboard's financial condition or results of
operations.
(xiii) Number of Persons Employed by Registrant
As of December 31, 2010, Seaboard, excluding non-consolidated
affiliates, had 10,865 employees, of whom 5,778 were employed
in the United States. Approximately 2,000 employees in
Seaboard's Pork Division were covered by collective bargaining
agreements as of December 31, 2010. Seaboard considers its
employee relations to be satisfactory.
(d) Financial Information about Geographic Areas
In addition to the narrative disclosure provided below, the
financial information relating to export sales required by Item 1
of Form 10-K is incorporated herein by reference to Note 13 of
Seaboard's Consolidated Financial Statements appearing on pages 55
through 59 of Seaboard's Annual Report to Stockholders furnished to
the Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13
to this report.
Seaboard considers its relations with the governments of the
countries in which its foreign subsidiaries and affiliates are
located to be satisfactory, but foreign operations in lesser-
developed countries are subject to risks of doing business such as
potential civil unrests and government instabilities, increasing
the exposure to potential expropriation, confiscation, war,
insurrection, civil strife and revolution, sales price controls,
currency inconvertibility and devaluation, and currency exchange
controls. To minimize certain of these risks, Seaboard has insured
certain investments in its affiliate flour mills in Democratic
Republic of Congo, Haiti, Lesotho, Republic of Congo and Zambia, to
the extent available and deemed appropriate against certain of
these risks with the Overseas Private Investment Corporation, an
agency of the United States Government. At the date of this
report, Seaboard is not aware of any situations which could have a
material effect on Seaboard's business, although the January 2010
earthquake in Haiti could result in civil unrest over a period of
time if local conditions do not improve from continuing poor
conditions.
(e) Available Information
Seaboard electronically files with the Commission annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports pursuant to Section 13(a) or
15(d) of the Exchange Act. The public may read and copy any
materials filed with the Commission at their public reference room
located at 100 F Street N.E., Washington, D.C. 20549. The public
may obtain further information concerning the public reference room
and any applicable copy charges, as well as the process of
obtaining copies of filed documents by calling the Commission at 1-
800-SEC-0330.
The Commission maintains an internet website that contains reports,
proxy and information statements, and other information regarding
electronic filers at www.sec.gov. Seaboard provides access to its
most recent Form 10-K, 10-Q and 8-K reports, and any amendments to
these reports, on its internet website, www.seaboardcorp.com, free
of charge, as soon as reasonably practicable after those reports
are electronically filed with the Commission.
Please note that any internet addresses provided in this report are
for information purposes only and are not intended to be
hyperlinks. Accordingly, no information provided at such Internet
addresses is intended or deemed to be incorporated herein by
reference.
Item 1A. Risk Factors
Seaboard has identified important risks and uncertainties that
could affect the results of operations, financial condition or
business and that could cause them to differ materially from
Seaboard's historical results of operations, financial condition or
business, or those contemplated by forward-looking statements made
herein or elsewhere, by, or on behalf of, Seaboard. Factors that
could cause or contribute to such differences include, but are not
limited to, those factors described below.
8
(a) General
(1) Seaboard's Operations are Subject to the General Risks of
the Food Industry. The divisions of the business that are
in the food products manufacturing industry are subject to
the risks posed by:
- food spoilage or food contamination;
- evolving consumer preferences and nutritional and
health-related concerns;
- federal, state, national, provincial and local food
processing controls;
- consumer product liability claims;
- product tampering; and
- the possible unavailability and/or expense of
liability insurance.
If one or more of these risks were to materialize, Seaboard's
revenues could decrease, costs of doing business could
increase, and Seaboard's operating results could be adversely
affected.
(2) Foreign Political and Economic Conditions Have a Significant
Impact on Seaboard's Business. Seaboard is a diverse
agribusiness and transportation company with global
operations in several industries. Most of the sales and
costs of Seaboard's divisions are significantly influenced by
worldwide fluctuations in commodity prices or changes in
foreign political and economic conditions. Accordingly,
sales, operating income and cash flows can fluctuate
significantly from year to year. In addition, Seaboard's
international activities pose risks not faced by companies
that limit themselves to United States markets. These risks
include:
- changes in foreign currency exchange rates;
- foreign currency exchange controls;
- changes in a specific country's or region's political
or economic conditions, particularly in emerging
markets;
- hyperinflation;
- heightened customer credit and execution risk;
- tariffs, other trade protection measures and import or
export licensing requirements;
- potentially negative consequences from changes in tax
laws;
- different legal and regulatory structures and
unexpected changes in legal and regulatory
requirements; and
- negative perception within a foreign country of a
United States company doing business in that foreign
country.
Seaboard cannot provide assurance that it will be successful
in competing effectively in international markets.
(3) Deterioration of Economic Conditions Could Negatively Impact
Seaboard's Business. Seaboard's business may be adversely
affected by changes in national or global economic conditions,
including inflation, interest rates, availability of capital
markets, consumer spending rates, energy availability and
costs and the effects of governmental initiatives to manage
economic conditions. Any such changes could adversely affect
the demand for our meat products, grains and shipping
services, or the cost and availability of our needed raw
materials and packaging materials, thereby negatively
affecting our financial results. The current national and
global economic conditions, could, among other things:
- impair the financial condition of some of our
customers and suppliers thereby increasing customer
bad debts or non-performance by customers and
suppliers;
- negatively impact global demand for protein and grain-
based products, which could result in a reduction of
sales, operating income and cash flows;
- decrease the value of our investments in equity and
debt securities, including pension plan assets; and
- impair the financial viability of our insurers.
(4) Ocean Transportation Has Inherent Risks. Seaboard's owned
and chartered vessels along with related cargoes are at risk
of being damaged or lost because of events such as:
- marine disasters;
- bad weather;
- mechanical failures;
- grounding, fire, explosions and collisions;
- human error; and
- war, piracy and terrorism.
9
All of these hazards can result in death or injury to
persons, loss of property, environmental damages, delays or
rerouting. If one of Seaboard's vessels were involved in an
accident, the resulting media coverage could have a material
adverse effect on Seaboard's business, financial condition
and results of operations.
(5) Seaboard's Common Stock is Thinly Traded and Subject to Daily
Price Fluctuations. The common stock of Seaboard is closely
held (73.5% is collectively owned by Seaboard Flour and SFC
Preferred LLC, which are owned by S. Bresky and other members
of the Bresky family) and thinly traded on a daily basis on
the NYSE Amex Equities. Accordingly, the price of a share
of common stock can fluctuate more significantly from day-to-
day than that of a share of widely held stock that is
actively traded on a daily basis.
(b) Pork Division
(1) Fluctuations in Commodity Pork Prices Could Adversely Affect
Seaboard's Results of Operations. Sales prices for
Seaboard's pork products are directly affected by both
domestic and world wide supply and demand for pork products
and other proteins, all of which are determined by constantly
changing market forces of supply and demand as well as other
factors over which Seaboard has little or no control.
Commodity pork prices demonstrate a cyclical nature over
periods of years, reflecting changes in the supply of fresh
pork and competing proteins on the market, especially beef
and chicken. Seaboard's results of operations could be
adversely affected by fluctuations in pork commodity prices.
(2) Increases in Costs of Seaboard's Feed Components and Hog
Purchases Could Adversely Affect Seaboard's Costs and
Operating Margins. Feed costs are the most significant
single component of the cost of raising hogs and can be
materially affected by commodity price fluctuations for corn
and soybean meal. The results of Seaboard's Pork Division
can be negatively affected by increased costs of Seaboard's
feed components. The recent increase in construction and
operation of ethanol plants has elevated this risk as it has
increased the competing demand for feed ingredients,
primarily corn. Similarly, accounting for approximately 25%
of Seaboard's total hogs slaughtered, the cost of third party
hogs purchased fluctuates with market conditions and can have
an impact on Seaboard's total costs. The cost and supply of
feed components and the third party hogs that we purchase are
determined by constantly changing market forces of supply and
demand, which are driven by matters over which we have no
control, including weather, current and projected worldwide
grain stocks and prices, grain export prices and supports and
governmental agricultural policies. Seaboard attempts to
manage certain of these risks through the use of financial
instruments, however this may also limit its ability
to participate in gains from favorable commodity fluctuations.
Unless wholesale pork prices correspondingly increase,
increases in the prices of Seaboard's feed components or in
the cost of third party hogs purchased would adversely affect
Seaboard's operating margins.
(3) Seaboard May be Unable to Obtain Appropriate Personnel at
Remote Locations. The remote locations of the pork processing
plant and live hog operations, and a more restrictive
national policy on immigration could negatively affect the
availability and cost of labor. Seaboard is dependent on
having sufficient properly trained operations personnel.
Attracting and retaining qualified personnel is important to
Seaboard's success. The inability to acquire and retain the
services of such personnel could have a material adverse
effect on Seaboard's operations.
(4) The Loss of Seaboard's Sole Hog Processing Facility Could
Adversely Affect Seaboard's Business. Seaboard's Pork
Division is largely dependent on the continued operation of
a single hog processing facility. The loss of or damage to
this facility for any reason - including fire, tornado,
governmental action or other reason - could adversely affect
Seaboard and Seaboard's pork business.
(5) Environmental Regulation and Related Litigation Could Have a
Material Adverse Effect on Seaboard. Seaboard's operations
and properties are subject to extensive and increasingly
stringent laws and regulations pertaining to, among other
things, odors, the discharge of materials into the
environment and the handling and disposition of wastes
(including solid and hazardous wastes) or otherwise relating
to protection of the environment. Failure to comply with
these laws and regulations and any future changes to them may
result in significant consequences to Seaboard, including
civil and criminal penalties, liability for damages and
negative publicity. Some requirements applicable to Seaboard
may also be enforced by citizen groups. Seaboard has
incurred, and will continue to incur, operating expenditures
to comply with these laws and regulations.
(6) Health Risk to Livestock Could Adversely Affect Production,
the Supply of Raw Materials and Seaboard's Business.
Seaboard is subject to risks relating to its ability to
maintain animal health and control diseases. The general
health of the hogs and the reproductive performance of the
sows can have an adverse impact on production and production
costs, the supply of raw material to Seaboard's pork
processing operations and consumer confidence. If Seaboard's
hogs are affected by disease, Seaboard may be required
to destroy infected livestock, which could adversely affect
10
Seaboard's production or ability to sell or export its
products. Moreover, the herd health of third party suppliers
could adversely affect the supply and cost of hogs available
for purchase by Seaboard. Adverse publicity concerning any
disease or health concern could also cause customers to lose
confidence in the safety and quality of Seaboard's food
products.
(7) If Seaboard's Pork Products Become Contaminated, We May be
Subject to Product Liability Claims and Product Recalls.
Pork products may be subject to contamination by disease
producing organisms. These organisms are generally found in
the environment and as a result, regardless of the
manufacturing practices employed, there is a risk that they
could be present in Seaboard's processed pork products as a
result of food processing. Once contaminated products have
been shipped for distribution, illness and death may result
if the organisms are not eliminated at the further processing,
foodservice or consumer level. Even an inadvertent shipment
of contaminated products is a violation of law and may lead
to increased risk of exposure to product liability claims,
product recalls and increased scrutiny by federal and state
regulatory agencies and may have a material adverse effect on
Seaboard's business, reputation, prospects, results of
operations and financial condition.
(8) Corporate Farming Legislation Could Result in the Divestiture
or Restructuring of Seaboard's Pork Operations. The
development of large corporate farming operations and
concentration of hog production in larger-scale facilities
has engendered opposition from residents of states in which
Seaboard conducts its pork processing and live hog operations.
From time-to-time, corporate farming legislation has been
introduced in the United States Senate and House of
Representatives, as well as in several state legislatures.
These proposed anti-corporate farming bills have included
provisions to prohibit or restrict meat packers, such as
Seaboard, from owning or controlling livestock intended for
slaughter, which would require divestiture or
restructuring of Seaboard's operations.
(9) International Trade Barriers Could Adversely Affect
Seaboard's Pork Operations. This division realizes a
significant portion of its revenues from international
markets, particularly Japan and Mexico. International sales
are subject to risks related to general economic conditions,
imposition of tariffs, quotas, trade barriers and other
restrictions, enforcement of remedies in foreign
jurisdictions and compliance with applicable foreign laws,
and other economic and political uncertainties. These and
other risks could result in border closings or other
international trade barriers having an adverse effect on
Seaboard's earnings.
(10) Discontinuation of Tax Credits for Biodiesel Could
Adversely Affect Seaboard's Results of Operations. Seaboard
obtains Federal and State tax credits for the biodiesel it
produces and sells. The Federal tax credit expired on
December 31, 2009, but was renewed by Congress in late
December 2010 retroactive to January 1, 2010 with a new
expiration date of December 31, 2011. If Congress does not
extend this tax credit beyond 2011 and other factors
including government mandates to use biofuels don't create
sufficient demand, Seaboard's results of operations could be
adversely affected and the recorded value of property,
plant and equipment related to the biodiesel processing
facility could be impaired.
(11) Operations of Biodiesel Production Facility. The
profitability of Seaboard's biodiesel plant could be
adversely affected by various factors, including the market
price of pork and other animal fat which is utilized to
produce biodiesel, and the market price for biodiesel.
Unfavorable changes in these prices over extended periods of
time could adversely affect Seaboard's results of operations
and could result in the potential impairment of the recorded
value of the property, plant and equipment related to this
facility.
(c) Commodity Trading & Milling Division
(1) Seaboard's Commodity & Milling Division is Subject to Risks
Associated with Foreign Operations. This division
principally operates in Africa, Bermuda, South America and
the Caribbean and, in most cases, in what are generally
regarded to be lesser developed countries. Many of these
foreign operations are subject to risks of doing business in
lesser-developed countries which are subject to potential
civil unrests and government instabilities, increasing the
exposure to potential expropriation, confiscation, war,
insurrection, civil strife and revolution, currency
inconvertibility and devaluation, and currency exchange
controls, in addition to the risks of overseas operations
mentioned in clause (a)(2) above. In addition, foreign
government policies and regulations could restrict the
purchase of various grains, reducing or limiting Seaboard's
ability to access grains or to limit Seaboard's sales price
for grains sold in local markets.
(2) Fluctuations in Commodity Grain Prices Could Adversely Affect
the Business of Seaboard's Commodity & Milling Division.
This division's sales are significantly affected by
fluctuating worldwide prices for various commodities, such as
wheat, corn, soybeans and rice. These prices are determined
by constantly changing market forces of supply and demand as
well as other factors over which Seaboard has little or no
control. North American and European
11
subsidized wheat and flour exports, including donated food
aid, and world-wide and local crop production can contribute
to these fluctuating market conditions and can have a
significant impact on the trading and milling businesses'
sales, value of commodities held in inventory and operating
income. Seaboard's results of operations could be adversely
affected by fluctuations in commodity prices.
(3) Seaboard's Commodity & Milling Division Largely Depends on
the Availability of Chartered Ships. Most of Seaboard's
third party trading is transported with chartered ships.
Charter hire rates, influenced by available charter capacity
and demand for worldwide trade in bulk cargoes, port access
and throughput time, and related fuel costs can impact
business volumes and margins.
(4) This Division Uses a Material Amount of Derivative Products
to Manage Certain Market Risks. The commodity trading
portion of the business enters into various commodity
derivatives, foreign exchange derivatives and freight
derivatives to create what management believes is an economic
hedge for commodity trades it executes or intends to execute
with its customers. From time to time, this portion of the
business may enter into speculative derivative transactions
related to its market risks. Failure to execute or improper
execution of a derivative position or a firmly committed sale
or purchase contract, a speculative transaction that closes
without the desired result or exposure to counter party risk
could have an adverse impact on the results of operations and
liquidity.
(5) This Division is Subject to Higher than Normal Risks for
Attracting and Retaining Key Personnel. In the commodity
trading environment, a loss of a key employee such as a
commodity trader can have a negative impact resulting from
the loss of revenues as personal customer relationships can
be vital to obtaining and retaining business with various
foreign customers. In the milling portion of this division,
employing and retaining qualified expatriate personnel is a
key element of success given the difficult living conditions,
the unique operating environments and the reliance on a
relatively small number of executives to manage each
individual location.
(d) Marine Division
(1) The Demand for Seaboard's Marine Division's Services Are
Affected by International Trade and Fluctuating Freight Rates.
This division provides containerized cargo shipping services
primarily from the United States to twenty-six different
countries in the Caribbean Basin, Central and South America.
In addition to the risks of overseas operations mentioned in
clause (a)(2) above, fluctuations in economic conditions,
unstable or hostile local political situations in the
countries in which Seaboard operates can affect import/export
trade volumes and the price of container freight rates and
adversely affect Seaboard's results of operations.
(2) Chartered Ships Are Subject to Fluctuating Rates. Time
charter expenses are one of the division's largest expenses.
Certain ships are under charters longer than one year while
others are less than one year. These costs can vary greatly
due to a number of factors including the worldwide supply and
demand for shipping. It is not possible to determine in
advance whether a charter contract for more or less than one
year will be favorable to Seaboard's business. Accordingly,
entering into long-term charter hire contracts during periods
of decreasing charter hire costs or short term charter hire
contracts during periods of increasing charter hire costs
could have an adverse effect on Seaboard's results of
operation.
(3) Increased Fuel Prices May Adversely Affect Seaboard's
Business. Ship fuel expenses are one of the division's
largest expenses. These costs can vary greatly from year-to-
year depending on world fuel prices. Also, but to a lesser
extent, fuel price increases can impact the cost of inland
transportation costs.
(4) Hurricanes May Disrupt Operations in the Caribbean Basin.
Seaboard's port operations throughout the Caribbean Basin can
be subject to disruption due to hurricanes, especially at
Seaboard's major ports in Miami, Florida and Houston, Texas,
which could have an adverse effect on our results of
operations.
12
(5) Seaboard is Subject to Complex Laws and Regulations that May
Adversely Affect the Revenues, Cost, Manner or Feasibility of
Doing Business. Federal, state and local laws and domestic
and international regulations governing worker health and
safety, environmental protection, port and terminal security,
and the operation of vessels significantly affect Seaboard's
operations, including rate discussions and other related
arrangements. Many aspects of the marine industry, including
rate agreements, are subject to extensive governmental
regulation by the Federal Maritime Commission, the U.S. Coast
Guard, and U.S. Customs and Border Protection, and to
regulation by private industry organizations. Compliance
with applicable laws, regulations and standards may require
installation of costly equipment or operational changes,
while the failure to comply may result in administrative and
civil penalties, criminal sanctions or the suspension or
termination of Seaboard's operations or detention of its
vessels. In addition, future changes in laws, regulations and
standards, including allowed freight rate discussions and
other related arrangements, may result in additional costs or
a reduction in revenues.
(e) Sugar Division
(1) The Success of this Division Depends on the Condition of the
Argentinean Economy and Political Climate. This division
operates a sugar mill and alcohol production facility in
Argentina, locally growing a substantial portion of
the sugar cane processed at the mill. The majority of the
sales are within Argentina. Fluctuations in economic
conditions or changes in the Argentine political climate can
have an impact on the costs of operations, the sales prices
of products and export opportunities and the exchange rate of
the Argentine peso to the U.S. dollar. In this regard, local
sales prices are affected by government price control and
sugar import duties imposed by the Argentine government,
impacting local volume sold, as well as imported and exported
volumes to and from international markets. If import duties
are changed, this could have a negative impact on Seaboard's
sale price of its products. In addition, the Argentine
government attempts to control inflation through price
controls on commodities, including sugar, which could
adversely impact the local sales price of its products and
the results of operations for this division. A devaluation
of the Argentine peso would have a negative impact on
Seaboard's financial position.
(2) This Division is Subject to the Risks that Are Inherent in
any Agricultural Business. Seaboard's results of operations
for this division may be adversely affected by numerous
factors over which we have little or no control and that
are inherent in any agricultural business, including
reductions in the market prices for Seaboard's products,
adverse weather and growing conditions, pest and disease
problems, and new government regulations regarding
agriculture and the marketing of agricultural products. Of
these risks, weather particularly can adversely affect the
amount and quality of the sugar cane produced by Seaboard and
Seaboard's competitors located in other regions of Argentina.
(3) The Loss of Seaboard's Sole Processing Facility Would
Adversely Affect the Business of This Division. Seaboard's
Sugar Division is largely dependant on the continued
operation of a single processing facility. The loss of or
damage to this facility for any reason - including fire,
tornado, governmental action, labor unrest resulting in labor
strikes or other reasons - would adversely affect the
business of this division.
(4) Labor Relations. This division is dependent on unionized
labor at its single sugar mill in Argentina. The current
nature of the political environment in Argentina makes normal
labor relations very challenging. Contributing to the
situation are the policies of Argentina's National Government,
the failure of the Argentine courts to enforce contractual
obligations with unions and basic property rights.
Interruptions in production as a result of labor unrest can
adversely impact the quantity of sugar cane harvested and the
amount of sugar and alcohol produced and can interfere with
the distribution of products stored at the facility in the
Salta Province.
(f) Power Division
(1) This Division is Subject to Risks of Doing Business in the
Dominican Republic. This division operates in the Dominican
Republic (DR). In addition to significant currency
fluctuations and the other risks of overseas operations
mentioned in clause (a)(2) above, this division can
experience difficulty in obtaining timely collections of
trade receivables from the government partially-owned
distribution companies or other companies that must also
collect from the government in order to make payments on
their accounts. Currently, the DR does not allow a free
market to enable prices to rise with demand which would limit
our profitability in this business. The government has the
ability to arbitrarily decide which power units will be able
to operate, which could have adverse effects on results of
operations.
13
(2) Increases in Fuel Costs Could Adversely Affect Seaboard's
Operating Margins. Fuel is the largest cost component of
this division's business and, therefore, margins may be
adversely affected by fluctuations in fuel if such increases
can not be fully passed to customers.
(3) Seaboard could Incur Significant Damages if it Fails to Meet
Obligations Under A Power Barge Sale Agreement. Seaboard's
agreement to sell its Dominican Republic barges requires that
it meet certain performance standards at closing. If these
standards are not met, Seaboard would be in breach of the
agreement and may incur significant damages for that breach.
(g) Turkey Segment
(1) Fluctuations in Commodity Turkey Prices Could Adversely
Affect the Results of Operations. Sales prices for turkey
products are directly affected by both domestic and world
wide supply and demand for turkey products which are
determined by constantly changing market forces of supply and
demand as well as other factors over which Butterball has
little or no control. Butterball's results of operations
and Seaboard's investment in Butterball could be adversely
affected by fluctuations in the turkey commodity prices.
(2) Increases in Costs of Turkey's Feed Components and Turkey
Purchases Could Adversely Affect Costs and Operating Margins.
Feed costs are the most significant single component of the
cost of raising turkeys and can be materially affected by
commodity price fluctuations for corn, soybean meal, and
other commodity grain inputs. Butterball's results may be
negatively affected by increased costs of the feed components.
The recent increase in construction and operation of ethanol
plants has elevated this risk as it has increased the
competing demand for feed ingredients, primarily corn.
Butterball attempts to manage some of these risks through the
use of financial instruments; however this may also limit its
ability to participate in gains from favorable commodity
fluctuations. Unless wholesale turkey prices correspondingly
increase, increases in the prices of Butterball's feed
components would adversely affect Butterball's results of
operations and Seaboard's investment in Butterball.
(3) Decreased Perception of Value in the Butterball's Brand
Could Adversely Affect Sales Quantity and Price of Butterball
Products. Butterball is a premium brand name, built on a
long history of offering a quality product that has been
differentiated in the market. The value of the Butterball
brand allows for sales of a higher unit price than other
turkey products. In order to maintain this advantage,
Butterball must continue to support the brand with successful
marketing efforts. In addition, negative news reports for any
reason in a variety of areas on the company or the
turkey/poultry industry could negatively impact this brand
perception and Butterball's results of operation and the
value of Seaboard's investment in Butterball.
(4) The Loss of Butterball's Primary Further Processing
Facility Could Adversely Affect Butterball's Business.
Although Butterball has five processing plants, Butterball is
disproportionately dependent on the continued operation of
the further processing plant in Mt. Olive, North Carolina
that handles the significant production of further processed
turkey products. The loss of or damage to this facility for
any reason - including fire, tornado, governmental action or
other reason - could adversely affect the results of
operation for Butterball and the value of Seaboard's
investment in Butterball.
(5) If Butterball's Turkey Products Become Contaminated, the
Company May be subject to Product Liability Claims and
Product Recalls. Turkey products may be subject to
contamination by disease producing organisms. These organisms
are generally found in the environment and as a result, there
is a risk that they may contaminate products. Even an
inadvertent shipment of contaminated products is a violation
of law and may lead to increased risk of exposure to
product liability claims, product recalls and increased
scrutiny by federal and state regulatory agencies and may
have a material adverse effect on the company's business,
reputation, and prospects. This could adversely affect the
results of operations and financial condition of Butterball
and the value of the Seaboards investment in Butterball.
(6) Health Risk to Poultry Could Adversely Affect Production,
the Supply of Raw Materials and Butterball's Business.
Butterball is subject to risks relating to its ability to
maintain animal health and control diseases. The general
health of the turkeys and reproductive performance can have
an adverse impact on production and production costs, the
supply of raw material to Butterball's processing operations
and consumer confidence. If Butterball's turkeys are affected
by disease, Butterball may be required to destroy infected
birds, which could adversely affect Butterball's production
or ability to sell or export its products. Adverse
publicity concerning any disease or health concern could
also cause customers to lose confidence in the safety and
quality of Butterball food products, resulting in an adverse
affect on Butterball's results of operations and the value of
Seaboards investment in Butterball.
14
(7) Butterball May be Unable to Obtain Appropriate Personnel
at Remote Locations. The remote locations of some of the
turkey processing plants and live turkey operations along
with a more restrictive national policy on immigration
could negatively affect the availability and cost of labor.
Butterball is dependent on having sufficient properly trained
operations personnel. Attracting and retaining qualified
personnel is important to Butterball's success. The inability
to acquire and retain the services of such personnel could
have a material adverse effect on Butterball's operations and
the value of Seaboards investment in Butterball.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
(1) Pork - Seaboard's Pork Division owns a hog processing plant in
Guymon, Oklahoma, which opened in 1995. It has a daily double
shift capacity to process approximately 19,400 hogs and generally
operates at capacity with additional weekend shifts depending on
market conditions. Seaboard's hog production operations consist of
the breeding and raising of approximately 4.0 million hogs annually
at facilities it primarily owns or at facilities owned and operated
by third parties with whom it has grower contracts. This business
owns and operates six centrally located feed mills which have a
combined capacity to produce approximately 1,700,000 tons of
formulated feed annually used primarily to support Seaboard's
existing hog production, and have the capability of supporting
additional hog production in the future. These facilities are
located in Oklahoma, Texas, Kansas and Colorado.
Seaboard's Pork Division also owns two bacon further processing
plants located in Salt Lake City, Utah and Missoula, Montana.
These plants are utilized near capacity throughout the year, which
is a combined daily smoking capacity of approximately 300,000
pounds of raw pork bellies. The Pork Division also operates a
majority-owned ham-boning and processing plant in Mexico that has
the capacity to process 74.0 million pounds of ham annually.
The Pork Division owns a processing plant in Guymon, Oklahoma with
the capacity to produce 30.0 million gallons of biodiesel annually,
which is currently produced from pork fat from Seaboard's Guymon
pork processing plant and from animal fat supplied by non-Seaboard
facilities. The facility can also produce biodiesel from vegetable
oil.
(2) Commodity Trading and Milling - Seaboard's Commodity Trading
and Milling Division owns, in whole or in part, grain-processing
and related agribusiness operations in 14 countries which have the
capacity to mill approximately 6,400 metric tons of wheat and maize
per day. In addition, Seaboard has feed mill capacity of in excess
of 200 metric tons per hour to produce formula animal feed. The
milling operations located in Colombia, Democratic Republic of
Congo, Ecuador, Guyana, Haiti, Kenya, Lesotho, Nigeria, Republic of
Congo, Sierra Leone, Uganda and Zambia own their facilities; and in
Kenya, Lesotho, Nigeria, Republic of Congo and Sierra Leone the
land on which the mills are located is leased under long-term
agreements. Certain foreign milling operations may operate at
less than full capacity due to low demand related to poor consumer
purchasing power, excess milling capacity in their competitive
environment and European-subsidized wheat and flour exports. In
addition, this division also has an investment through non-
consolidate affiliates in poultry businesses operating in parts of
Eastern and Southern Africa. Seaboard also owns seven 9,000 metric-
ton deadweight dry bulk carriers, one 23,400 metric ton deadweight
dry bulk carrier, and "time charters" (the charter of a vessel,
whereby the vessel owner is responsible to provide the captain and
crew necessary to operate the vessel) under short-term agreements,
between 13 and 44 bulk carrier ocean vessels with deadweights
ranging from 500 to 44,000 metric tons.
(3) Marine - Seaboard's Marine Division leases a 135,000 square
foot off-port warehouse and 81 acres of port terminal land and
facilities in Miami, Florida which are used in its containerized
cargo operations. Seaboard also leases an approximately 62 acre
cargo handling and terminal facility in Houston, Texas, which
includes several on-dock warehouses totaling approximately 690,000
square feet for cargo storage. At December 31, 2010, Seaboard
owned 10 ocean cargo vessels with deadweights ranging from 2,600 to
19,500 metric tons and time chartered 29 vessels under contracts
that typically range from approximately five months to two years
with deadweights ranging from 3,400 to nearly 26,500 metric tons.
Seaboard also owns or leases dry, refrigerated and specialized
containers and other related equipment.
15
(4) Sugar - Seaboard's Argentine Sugar Division owns more than
60,000 acres of planted sugarcane. Depending on local market
conditions, this business also purchases third party sugar for
resale. In addition, this division owns a sugar mill with a
current capacity to process approximately 250,000 metric tons of
sugar and an alcohol distillery with a current capacity of
approximately 14 million gallons of alcohol per year. This
capacity is sufficient to process all of the cane harvested by this
division and certain additional quantities purchased from third
party farmers in the region. The sugarcane fields and processing
mill are located in northern Argentina in the Salta Province, which
experiences seasonal rainfalls that may limit the harvest season,
which then affects the duration of mill operations and quantities
of sugar produced. During the second quarter of 2011, it is
anticipated that construction will be completed on a 40 megawatt
cogeneration power plant.
(5) Power - Seaboard's Power Division owns two floating electric
power generating facilities, consisting of a system of diesel
engines mounted onto barge-type vessels, with a combined rated
capacity of approximately 112 megawatts, both located on the Ozama
River in Santo Domingo, Dominican Republic. Seaboard operates as
an independent power producer. Seaboard is not directly involved
in the transmission and distribution facilities that deliver the
power to the end users but does have contracts to sell directly to
third party users. See "Status of Product or Segment" under Item 1
of this report for discussion of the sale of the two barges and the
construction of a new replacement power barge.
(6) Turkey - Seaboard's Turkey Segment has a total of seven
processing plants and numerous company and third party live
production facilities and feed milling operations, all of which are
located in Arkansas, Colorado, Kansas, Missouri and North Carolina.
These plants produce approximately one billion pounds of turkey
each year.
(7) Other - Seaboard owns a jalapeno pepper processing plant and
warehouse in Honduras.
In addition to the information provided above, the information
under "Principal Locations" of Seaboard's Annual Report to
Stockholders furnished to the Commission pursuant to Rule 14a-3(b)
and attached as Exhibit 13 to this report is incorporated herein by
reference.
Management believes that Seaboard's present facilities are adequate
and suitable for its current purposes.
Item 3. Legal Proceedings
The information required by Item 3 of Form 10-K is incorporated
herein by reference to Note 11 of Seaboard's Consolidated Financial
Statements appearing on pages 53 and 54 of Seaboard's Annual Report
to Stockholders furnished to the Commission pursuant to Rule 14a-
3(b) and attached as Exhibit 13 to this Report.
Item 4. Reserved
Executive Officers of the Registrant
The following table lists the executive officers and certain
significant employees of Seaboard. Generally, executive officers
are elected at the annual meeting of the Board of Directors
following the Annual Meeting of Stockholders and hold office until
the next such annual meeting or until their respective successors
are duly chosen and qualified. There are no arrangements or
understandings pursuant to which any executive officer was elected.
Name (Age) Positions and Offices with Registrant and Affiliates
Steven J. Bresky (57) President and Chief Executive Officer
Robert L. Steer (51) Senior Vice President, Chief Financial Officer
David M. Becker (49) Vice President, General Counsel and Secretary
Barry E. Gum (44) Vice President, Finance and Treasurer
James L. Gutsch (57) Vice President, Engineering
Ralph L. Moss (65) Vice President, Governmental Affairs
David S. Oswalt (43) Vice President, Taxation and Business Development
16
David H. Rankin (39) Vice President
Ty A. Tywater (41) Vice President, Audit Services
John A. Virgo (50) Vice President, Corporate Controller and
Chief Accounting Officer
Rodney K. Brenneman (46) President, Seaboard Foods, LLC
David M. Dannov (49) President, Seaboard Overseas and Trading Group
Edward A. Gonzalez (45) President, Seaboard Marine Ltd.
Mr. Steven J. Bresky has served as President and Chief Executive
Officer since July 2006 and previously as Senior Vice President,
International Operations of Seaboard from February 2001 to July
2006.
Mr. Steer has served as Senior Vice President, Chief Financial
Officer of Seaboard since December 2006 and previously as Senior
Vice President, Treasurer and Chief Financial Officer from 2001-
2006.
Mr. Becker has served as Vice President, General Counsel and
Secretary of Seaboard since December 2003.
Mr. Gum has served as Vice President, Finance and Treasurer of
Seaboard since December 2006 and previously as Vice President,
Finance from 2003-2006.
Mr. Gutsch has served as Vice President, Engineering of Seaboard
since December 1998.
Mr. Moss has served as Vice President, Governmental Affairs of
Seaboard since December 2003.
Mr. Oswalt has served as Vice President, Taxation and Business
Development of Seaboard since December 2003.
Mr. Rankin has served as Vice President of Seaboard since December
2010 and previously as Director of Taxation and Business
Development since January 2006.
Mr. Tywater has served as Vice President, Audit Services of
Seaboard since November 2008 and previously as Internal Audit
Director from 2002 to 2008.
Mr. Virgo has served as Vice President, Corporate Controller and
Chief Accounting Officer of Seaboard since December 2003.
Mr. Brenneman has served as President of Seaboard Foods, LLC
(previously Seaboard Farms Inc.) since June 2001.
Mr. Dannov has served as President of Seaboard Overseas and Trading
Group since August 2006 and previously as Vice President, Treasurer
of Seaboard Overseas and Trading Group from 1996 to 2006.
Mr. Gonzalez has served as President of Seaboard Marine, Ltd. since
January 2005.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on its common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis) represented
payment of the regular fourth quarter dividend of $0.75 per share
and a prepayment of the annual 2011 and 2012 dividends ($3.00 per
share per year). Seaboard does not intend to declare any further
dividends for the years 2011 and 2012. As discussed in Note 8 of
the consolidated financial statements appearing on pages 45 and 46
of the Seaboard Corporation Annual Report to Stockholders furnished
to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit
13 to this Report (which discussion is incorporated herein by
reference), Seaboard's ability to declare and pay dividends is
subject to limitations imposed by the note agreements referred to
there.
Seaboard has not established any equity compensation plans or
individual agreements for its employees under which Seaboard common
stock, or options, rights or warrants with respect to Seaboard
common stock, may be granted.
17
There were no purchases made by or on behalf of Seaboard or any
"affiliated purchaser" (as defined by applicable rules of the
Commission) of shares of Seaboard's common stock during the fourth
quarter of the fiscal year covered by this report.
In addition to the information provided above, the information
required by Item 5 of Form 10-K is incorporated herein by reference
to (a) the information under "Stockholder Information - Stock
Listing," (b) the dividends per common share information and closing
market price range per common share information under "Quarterly
Financial Data" and (c) the information under "Company Performance
Graph" appearing on pages 60, 10 and 9, respectively, of Seaboard's
Annual Report to Stockholders furnished to the Commission pursuant
to Rule 14a-3(b) and attached as Exhibit 13 to this report.
Item 6. Selected Financial Data
The information required by Item 6 of Form 10-K is incorporated
herein by reference to the "Summary of Selected Financial Data"
appearing on page 8 of Seaboard's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and attached
as Exhibit 13 of this Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 7 of Form 10-K is incorporated
herein by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages
11 through 25 of Seaboard's Annual Report to Stockholders furnished
to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit
13 to this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
The information required by Item 7A of Form 10-K is incorporated
herein by reference to (a) the material under the captions
"Derivative Instruments and Hedging Activities" within Note 1 and 9
of Seaboard's Consolidated Financial Statements appearing on pages
36, 48 and 49 of Seaboard's Annual Report to Stockholders furnished
to the Commission pursuant to Rule 14a-3(b) and attached as Exhibit
13 to this Report, and (b) the material under the caption
"Derivative Information" within "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
appearing on pages 24 and 25 of Seaboard's Annual Report to
Stockholders furnished to the Commission pursuant to Rule 14a-3(b)
and attached as Exhibit 13 to this Report.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 of Form 10-K is incorporated
herein by reference to Seaboard's "Quarterly Financial Data,"
"Report of Independent Registered Public Accounting Firm,"
"Consolidated Statements of Earnings," "Consolidated Balance
Sheets," "Consolidated Statements of Cash Flows," "Consolidated
Statements of Changes in Equity" and "Notes to Consolidated
Financial Statements" appearing on page 10 and pages 27 through 59
of Seaboard's Annual Report to Stockholders furnished to the
Commission pursuant to Rule 14a-3(b) and attached as Exhibit 13 to
this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - As of December
31, 2010, Seaboard's management has evaluated, under the direction
of our chief executive and chief financial officers, the
effectiveness of Seaboard's disclosure controls and procedures, as
defined in Exchange Act rule 13a - 15(e). Based upon and as of the
date of that evaluation, Seaboard's chief executive and chief
financial officers concluded that Seaboard's disclosure controls
and procedures were effective to ensure that information required
to be disclosed in the reports it files and submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized
and reported as and when required. It should be noted that any
system of disclosure controls and procedures, however well designed
and operated, can provide only reasonable, and not absolute,
assurance that the objectives of the system are met. In addition,
the design of any system of disclosure controls and procedures is
based in part upon assumptions about the likelihood of future
events. Due to these and other inherent limitations of any such
system, there can be no assurance that any design will always
succeed in achieving its stated goals under all potential future
conditions.
Management's Report on Internal Control Over Financial Reporting -
Information required by Item 9A of Form 10-K concerning
management's report on Seaboard's internal control over financial
reporting, as defined in Exchange Act rule 13a-15(f) is
incorporated herein by reference to Seaboard's "Management's Report
on Internal Control over Financial Reporting"
18
appearing on page 26 of Seaboard's Annual Report to Stockholders
furnished to the Commission pursuant to Rule 14a-3(b) and attached
as Exhibit 13 to this report.
Registered Public Accounting Firm's Attestation Report -
Information required by Item 9A of Form 10-K with respect to the
registered public accounting firm's attestation report on
Seaboard's internal controls over financial reporting is
incorporated herein by reference to "Report of Independent
Registered Public Accounting Firm" appearing on page 27 of
Seaboard's Annual Report to Stockholders furnished to the
Commission pursuant to Rule 14-3(b) and attached as Exhibit 13 to
this report.
Change in Internal Controls - There has been no change in
Seaboard's internal control over financial reporting that occurred
during the fiscal quarter ended December 31, 2010 that has
materially affected, or is reasonably likely to materially affect,
Seaboard's internal control over financial reporting.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We refer you to the information under the caption "Executive
Officers of Registrant" appearing immediately following the
disclosure in Item 4 of Part I of this report.
Seaboard has a Code of Ethics Policy (the Code) for directors,
officers (including our chief executive officer, chief financial
officer, chief accounting officer, controller and persons
performing similar functions) and employees. Seaboard has posted
the Code on its internet website, www.seaboardcorp.com, under the
"About Us" tab and intends to disclose any future changes and
waivers to the Code by posting such information on that website.
In addition to the information provided above, the information
required by Item 10 of Form 10-K is incorporated herein by
reference to (a) the disclosure relating to directors under "Item
1: Election of Directors" appearing on pages 5 through 7 of
Seaboard's definitive proxy statement filed pursuant to Regulation
14A for the 2010 annual meeting of Stockholders ("2011 Proxy
Statement"), (b) the disclosure relating to Seaboard's audit
committee and "audit committee financial expert" and its director
nomination procedures under "Board of Directors Information --
Committees of the Board -- Audit Committee" and "Board of
Directors Information -- Director Nominations" appearing on pages
8 and 9 of the 2011 Proxy Statement, and (c) the disclosure
relating to late filings of reports required under Section 16(a)
of the Securities Exchange Act of 1934 under "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing on page 27 of
the 2011 Proxy Statement.
Item 11. Executive Compensation
The information required by Item 11 of Form 10-K is incorporated
herein by reference to (a) the disclosure relating to compensation
of directors under "Board of Directors Information -- Compensation
of Directors" and "Employment Arrangements with Named Executive
Officers" appearing on page 9 and pages 12 and 13 of the 2011 Proxy
Statement, and (b) the disclosure relating to compensation of
executive officers under "Executive Compensation and Other
Information," "Benefit Plans" and "Compensation Committee
Interlocks and Insider Participation," "Compensation Committee
Report" and "Compensation Discussion and Analysis" appearing on
pages 10 and 11 and pages 13 through 22 of the 2011 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Seaboard has not established any equity compensation plans or
individual agreements for its employees under which Seaboard common
stock, or options, rights or warrants with respect to Seaboard
common stock may be granted.
In addition to the information provided above, the information
required by Item 12 of Form 10-K is incorporated herein by
reference to the disclosure under "Principal Stockholders" and
"Share Ownership of Management and Directors" appearing on pages 3
through 5 of the 2011 Proxy Statement.
19
Item 13. Certain Relationships and Related Transactions, and
Director Independence
The information required by Item 13 of Form 10-K is incorporated
herein by reference to the disclosure under "Compensation Committee
Interlocks and Insider Participation" appearing on page 22 of the
2011 Proxy Statement, and the disclosure under "Board of Directors
Information - Controlled Corporation" and "Board of Directors
Information - Committees of the Board" appearing on pages 7 and 8
of the 2011 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 of Form 10-K is incorporated
herein by reference to the disclosure under "Item 2 Selection of
Independent Auditors" appearing on pages 25 through 27 of the 2011
Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.Consolidated financial statements.
See Index to Consolidated Financial Statements on page F-1.
2.Consolidated financial statement schedules.
See Index to Consolidated Financial Statements on page F-1.
3.Exhibits.
3.1 Seaboard's Restated Certificate of Incorporation.
Incorporated herein by reference to Exhibit 3.1 of
Seaboard's Form 10-Q for the quarter ended April 4, 2009.
3.2 Seaboard's By-laws, as amended. Incorporated herein by
reference to Exhibit 3.2 of Seaboard's Form 10-K for
fiscal year ended December 31, 2005.
4.1 Seaboard Corporation Note Purchase Agreement dated as of
September 30, 2002 between Seaboard and various purchasers
as listed in the exhibit. Incorporated herein by
reference to Exhibit 4.3 of Seaboard's Form 10-Q for the
quarter ended September 28, 2002.
4.2 Seaboard Corporation $7,500,000 6.21% Senior Note, Series
C, due September 30, 2012 issued pursuant to the Note
Purchase Agreement described above. Incorporated herein
by reference to Exhibit 4.6 of Seaboard's Form 10-Q for
the quarter ended September 28, 2002.
4.3 Seaboard Corporation $31,000,000 6.92% Senior Note, Series
D, due September 30, 2012 issued pursuant to the Note
Purchase Agreement described above. Incorporated herein
by reference to Exhibit 4.7 of Seaboard's Form 10-Q for
the quarter ended September 28, 2002.
4.4 Amended and Restated Terminal Agreement between Miami-Dade
County and Seaboard Marine Ltd. for Marine Terminal
Operations, dated May 30, 2008. Incorporated herein by
reference to Exhibit 10.1 of Seaboard's Form 8-K dated May
30, 2008.
4.5 Amended and Restated Credit Agreement between Borrowers
and Bank of America, N.A., dated July 10, 2008
($300,000,000 revolving credit facility expiring July 10,
2013). Incorporated herein by reference to Exhibit 10.1
of Seaboard's Form 8-K dated July 10, 2008.
4.6 Amendment No. 1 to Credit Agreement between Borrowers and
Bank of America N.A., dated December 17, 2010.
20
10.1* Seaboard Corporation 409A Executive Retirement Plan
Amended and Restated Effective January 1, 2009 and dated
December 22, 2008, amending and restating the Seaboard
Corporation Executive Retirement Plan, 2005 Amendment and
Restatement dated March 6, 2006. Incorporated herein by
reference to Exhibit 10.1 of Seaboard's Form 10-K for
fiscal year ended December 31, 2008.
10.2* Seaboard Corporation Executive Deferred Compensation Plan
as Amended and Restated Effective January 1, 2009 and
dated December 22, 2008, amending and restating the
Seaboard Corporation Executive Deferred Compensation Plan
dated December 29, 2005. Incorporated herein by reference
to Exhibit 10.2 of Seaboard's Form 10-K for fiscal year
ended December 31, 2008.
10.3* Seaboard Corporation Executive Retirement Plan Trust
dated November 5, 2004 between Seaboard Corporation and
Robert L. Steer as trustee. Incorporated herein by
reference to Exhibit 10.2 of Seaboard's Form 10-Q for the
quarter ended October 2, 2004.
10.4* Seaboard Corporation Investment Option Plan dated
December 18, 2000. Incorporated herein by reference to
Exhibit 10.7 of Seaboard's Form 10-K for fiscal year ended
December 31, 2000.
10.5 Marketing Agreement dated February 2, 2004 by and among
Seaboard Corporation, Seaboard Farms, Inc., Triumph Foods
LLC, and for certain limited purposes only, the members of
Triumph Foods LLC. Incorporated herein by reference to
Exhibit 10.2 of Seaboard's Form 8-K dated February 3,
2004.
10.6* Seaboard Corporation Retiree Medical Benefit Plan as
Amended and Restated Effective January 1, 2009 and dated
December 22, 2008, amending and restating the Seaboard
Corporation Retiree Medical Benefit Plan dated March 4,
2005. Incorporated herein by reference to Exhibit 10.6 of
Seaboard's Form 10-K for fiscal year ended December 31,
2008.
10.7* Seaboard Corporation Executive Officers' Bonus
Policy. Incorporated herein by reference to Exhibit 10.10
of Seaboard's Form 10-K for fiscal year ended December 31,
2005.
10.8* Employment Agreement between Seaboard Corporation and
Steven J. Bresky dated July 1, 2005. Incorporated herein
by reference to Exhibit 10.1 of Seaboard's Form 10-Q for
the quarter ended July 2, 2005.
10.9* Employment Agreement between Seaboard Corporation and
Robert L. Steer dated July 1, 2005. Incorporated herein
by reference to Exhibit 10.2 of Seaboard's Form 10-Q for
the quarter ended July 2, 2005.
10.10* Employment Agreement between Seaboard Farms, Inc. and
Rodney K. Brenneman dated July 1, 2005. Incorporated
herein by reference to Exhibit 10.3 of Seaboard's Form 10-
Q for the quarter ended July 2, 2005.
10.11* Employment Agreement between Seaboard Corporation and
Edward A. Gonzalez dated July 1, 2005. Incorporated
herein by reference to Exhibit 10.14 of Seaboard's Form 10-
K for fiscal year ended December 31, 2006.
10.12* Seaboard Corporation Nonqualified Deferred
Compensation Plan Effective January 1, 2009 and dated
December 22, 2008, amending and restating the Seaboard
Corporation Nonqualified Deferred Compensation Plan dated
December 29, 2005. Incorporated herein by reference to
Exhibit 10.12 of Seaboard's Form 10-K for fiscal year
ended December 31, 2008.
10.13* Amendment to Employment Agreement between Seaboard
Corporation and Edward A. Gonzalez dated August 8, 2006.
Incorporated herein by reference to Exhibit 10.1 of
Seaboard's Form 10-Q for the quarter ended July 1, 2006.
10.14* Employment Agreement between Seaboard Overseas
Trading Group and David M. Dannov dated July 1, 2006.
Incorporated herein by reference to Exhibit 10.17 of
Seaboard's Form 10-K for fiscal year ended December 31,
2006.
21
10.15* Second Amendment to Employment Agreement between
Seaboard Corporation and Edward A. Gonzalez dated January
17, 2007. Incorporated herein by reference to Exhibit
10.18 of Seaboard's Form 10-K for fiscal year ended
December 31, 2006.
10.16* First Amendment to Employment Agreement between
Seaboard Corporation and Steven J. Bresky dated December
15, 2008. Incorporated herein by reference to Exhibit
10.16 of Seaboard's Form 10-K for fiscal year ended
December 31, 2008.
10.17* First Amendment to Employment Agreement between
Seaboard Corporation and Robert L. Steer dated December
15, 2008. Incorporated herein by reference to Exhibit
10.17 of Seaboard's Form 10-K for fiscal year ended
December 31, 2008.
10.18* First Amendment to Employment Agreement between
Seaboard Foods LLC, formerly known as Seaboard Farms Inc.,
and Rodney K. Brenneman dated December 15, 2008.
Incorporated herein by reference to Exhibit 10.18 of
Seaboard's Form 10-K for fiscal year ended December 31,
2008.
10.19* Third Amendment to Employment Agreement between
Seaboard Marine Ltd. and Edward A. Gonzalez dated December
15, 2008. Incorporated herein by reference to Exhibit
10.19 of Seaboard's Form 10-K for fiscal year ended
December 31, 2008.
10.20* First Amendment to Employment Agreement between
Seaboard Overseas Trading Group and David M. Dannov dated
December 15, 2008. Incorporated herein by reference to
Exhibit 10.20 of Seaboard's Form 10-K for fiscal year
ended December 31, 2008.
10.21 Asset Purchase Agreement by and among
Transcontinental Capital Corporation (Bermuda) Ltd. (as
Seller), Seaboard Corporation (as Seller-Parent) and
Pueblo Viejo Dominicana Corporation (as Buyer), dated as
of September 23, 2008. Incorporated herein by reference
to Exhibit 10.21 of Seaboard's Form 10-K for fiscal year
ended December 31, 2008.
10.22 Amendment to Asset Purchase Agreement amount
Transcontinental Capital Corporation (Bermuda) Ltd.,
Seaboard Corporation and Pueblo Viejo dated as of March 2,
2009. Incorporated herein by reference to Exhibit 10.22
of Seaboard's Form 10-K for fiscal year ended December 31,
2008.
10.23* Seaboard Corporation Cash Balance Executive
Retirement Plan effective January 1, 2009 and dated
December 18, 2009. Incorporated herein by reference to
Exhibit 10.23 of Seaboard's Form 10-K for fiscal year
ended December 31, 2009.
10.24* Seaboard Marine Ltd. 401(k) Excess Plan effective
January 1, 2009 and dated December 18, 2009. Incorporated
herein by reference to Exhibit 10.2 of Seaboard's Form 10-
K for fiscal year ended December 31, 2009.
10.25* Amendment No. 1 to the Seaboard Corporation Non-
Qualified Deferred Compensation Plan effective January 1,
2009 and dated December 17, 2009. Incorporated herein by
reference to Exhibit 10.2 of Seaboard's Form 10-K for
fiscal year ended December 31, 2009.
10.26 Engineering, Procurement and Construction Contract
dated as of August 17, 2010 by and between Seaboard
Corporation and Wartsila Finland OY. Incorporated herein
by reference to Exhibit 10.1 of Seaboard's Form 10-Q for
the quarter ended October 2, 2010.
10.27 Purchase Agreement by and among Seaboard Corporation,
Maxwell Farms, LLC, Goldsboro Milling Company and GM
Acquisition, LLC as of September 9, 2010.
13 Sections of Annual Report to security holders specifically
incorporated herein by reference herein.
21 List of subsidiaries.
31.1 Certification of the Chief Executive Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
22
32.1 Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement.
(b) Exhibits.
See exhibits identified above under Item 15(a)3.
(c) Financial Statement Schedules.
See financial statement schedules identified above under Item
15(a)2.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SEABOARD CORPORATION
By /s/Steven J. Bresky By /s/Robert L. Steer
Steven J. Bresky, President and Robert L. Steer, Senior Vice President,
Chief Executive Officer Chief Financial Officer (principal
(principal executive officer) financial officer)
Date: March 9, 2011 Date: March 9, 2011
By /s/John A. Virgo
John A. Virgo, Vice President, Corporate
Controller and Chief Accounting Officer
(principal accounting officer)
Date: March 9, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of registrant and in the capacities and on the dates
indicated.
By /s/Steven J. Bresky By /s/Edward I. Shifman, Jr.
Steven J. Bresky, Director and Edward I. Shifman, Jr., Director
Chairman of the Board
Date: March 9, 2011 Date: March 9, 2011
By /s/David A. Adamsen By /s/Joseph E. Rodrigues
David A. Adamsen, Director Joseph E. Rodrigues, Director
Date: March 9, 2011 Date: March 9, 2011
By /s/Douglas W. Baena
Douglas W. Baena, Director
Date: March 9, 2011
24
SEABOARD CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Financial Statements
Stockholders'
Annual Report Page
Report of Independent Registered Public Accounting Firm 27
Consolidated Statement of Earnings for the years
ended December 31, 2010, December 31, 2009 and
December 31, 2008 29
Consolidated Balance Sheets as of December 31, 2010
and December 31, 2009 30
Consolidated Statement of Cash Flows for the years
ended December 31, 2010, December 31, 2009 and
December 31, 2008 31
Consolidated Statement of Changes in Equity for the
years ended December 31, 2010, December 31, 2009 and
December 31, 2008 32
Notes to Consolidated Financial Statements 33
The foregoing is incorporated herein by reference.
The individual financial statements of the nonconsolidated
affiliates, which would be required if each such affiliate were a
Registrant, are omitted because (a) Seaboard's and its other
subsidiaries' investments in and advances to such affiliates do
not exceed 20% of the total assets as shown by the most recent
consolidated balance sheet and (b) Seaboard's and its other
subsidiaries' equity in the earnings before income taxes and
extraordinary items of the affiliates does not exceed 20% of such
income of Seaboard and consolidated subsidiaries compared to the
average income for the last five fiscal years.
Combined condensed financial information as to assets,
liabilities and results of operations have been presented for
nonconsolidated affiliates in Note 5 of "Notes to the
Consolidated Financial Statements."
II - Valuation and Qualifying Accounts for the years ended
December 31, 2010, 2009 and 2008 F-3
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related consolidated notes.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Seaboard Corporation:
Under date of March 9, 2011, we reported on the consolidated
balance sheets of Seaboard Corporation and subsidiaries (the
Company) as of December 31, 2010 and 2009, and the related
consolidated statements of earnings, changes in equity, and cash
flows for each of the years in the three-year period ended
December 31, 2010, as contained in the annual report on Form 10-K
for the year 2010. In connection with our audits of the
aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule as listed
in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Kansas City, Missouri
March 9, 2011
F-2
Schedule II
SEABOARD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In Thousands)
Balance at Provision Net deductions Balance at
beginning of year (1) (2) end of year
Year ended December 31, 2010:
Allowance for doubtful accounts $ 7,330 2,771 (1,931) $ 8,170
Year ended December 31, 2009:
Allowance for doubtful accounts $ 7,303 2,088 (2,061) $ 7,330
Year ended December 31, 2008:
Allowance for doubtful accounts $ 8,060 776 (1,533) $ 7,303
(1) The allowance for doubtful accounts provision is charged to selling, general and administrative expenses.
(2) Includes write-offs net of recoveries and currency translation adjustments.
F-3
EX-4.6
2
ex4-6.txt
AMENDMENT NO 1 TO CREDIT AGREEMENT BETWEEN BORROWERS AND BANK OF AMERICA
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment"),
dated as of December 17, 2010 is made by and among SEABOARD
CORPORATION, a Delaware corporation (the "Company"), CERTAIN
SUBSIDIARIES OF THE COMPANY (each a "Designated Borrower" and,
together with the Company, the "Borrowers"), BANK OF AMERICA,
N.A., as administrative agent (in such capacity, the
"Administrative Agent"), and each of the Lenders signatory
hereto. Capitalized terms used but not otherwise defined herein
have the respective meanings ascribed to them in the Credit
Agreement as defined below.
W I T N E S S E T H:
WHEREAS, the Borrowers, Bank of America, as Administrative
Agent, Swing Line Lender and L/C Issuer, and the Lenders have
entered into that certain Amended and Restated Credit Agreement
dated as of July 10, 2008 (as hereby amended and as from time to
time hereafter further amended, modified, supplemented, restated,
or amended and restated, the "Credit Agreement"), pursuant to
which the Lenders have made available to the Borrowers a
revolving credit facility, including a letter of credit
subfacility and a swing line subfacility; and
WHEREAS, the Borrowers have requested that the
Administrative Agent and the Required Lenders amend certain
provisions of the Credit Agreement as set forth in Section 1
below; and
WHEREAS, the Administrative Agent and the Lenders signatory
hereto are willing to effect such amendments on the terms and
conditions as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendments to Credit Agreement. Subject to the terms and
conditions set forth herein, the Credit Agreement is hereby
amended as follows:
(a) The definition of "Priority Indebtedness" in
Section 1.02 of the Credit Agreement is amended by deleting
the reference to "Section 7.01(n)" and inserting "Section
7.01(p)" in lieu thereof.
(b) Section 7.01(o) of the Credit Agreement is deleted
in its entirety and the following new Sections 7.01(o) and
(p) are inserted in lieu thereof:
(o) Liens on the barge securing the financing
obtained by Transcontinental Capital Corp. (Bermuda)
Ltd. in connection with the purchase of a 106 MW barge-
mounted power plant in the Dominican Republic; and
(p) Liens not otherwise permitted by this Section
7.01; provided, that the aggregate amount of
Indebtedness secured by Liens permitted by this clause
(p) shall not at any time, when added to all other
Priority Indebtedness, exceed 10% of Consolidated
Tangible Net Worth determined at such time.
(c) Section 7.03(i) of the Credit Agreement is amended
by deleting "Ingenio v Refineria San Martin del Tabacal" and
inserting "Transcontinental Capital Corp. (Bermuda) Ltd." in
lieu thereof.
2. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of the following
conditions precedent:
(a) the Administrative Agent shall have received each
of the following documents or instruments in form and
substance reasonably acceptable to the Administrative Agent:
(i) one or more counterparts of this Amendment,
duly executed by the Borrowers, the Administrative
Agent and the Required Lenders;
(ii) such other documents, instruments, opinions,
certifications, undertakings, further assurances and
other matters as the Administrative Agent shall
reasonably require; and
(b) unless waived by the Administrative Agent, all
fees and expenses of the Administrative Agent and the
Lenders (including the reasonable fees and expenses of
counsel to the Administrative Agent to the extent invoiced
prior to the date hereof) in connection with this Amendment
shall have been paid in full (without prejudice to final
settling of accounts for such fees and expenses).
3. Reaffirmation by each of the Borrowers. Each of the
Borrowers hereby consents, acknowledges and agrees to the
amendments of the Credit Agreement set forth herein.
4. Representations and Warranties. In order to induce the
Administrative Agent and the Lenders to enter into this
Amendment, the Borrowers represent and warrant to the
Administrative Agent and the Lenders as follows:
(a) The representations and warranties of (i) the
Borrowers contained in Article V and (ii) each Loan Party
contained in each other Loan Document or in any document
furnished at any time under or in connection herewith or
therewith, shall be true and correct on and as of the date
hereof, except to the extent that such representations and
warranties specifically refer to an earlier date, in which
case they shall be true and correct as of such earlier date,
and except that for purposes of this Amendment, the
representations and warranties contained in subsections (a)
and (b) of Section 5.05 shall be deemed to refer to the most
recent statements furnished pursuant to clauses (a) and (b),
respectively, of Section 6.01.
(b) Since the date of the most recent financial
reports of the Company delivered pursuant to Section 6.01(a)
of the Credit Agreement, there has been no event or
circumstance that has resulted or could reasonably be
expected to result in a Material Adverse Effect.
(c) No Default or Event of Default has occurred and is
continuing.
2
5. Entire Agreement. This Amendment, together with all
the Loan Documents (collectively, the "Relevant Documents"), sets
forth the entire understanding and agreement of the parties
hereto in relation to the subject matter hereof and supersedes
any prior negotiations and agreements among the parties relative
to such subject matter. No promise, condition, representation or
warranty, express or implied, not herein set forth, shall bind
any party hereto and not one of them has relied on any such
promise, condition, representation or warranty. Each of the
parties hereto acknowledges that, except as otherwise expressly
stated in the Relevant Documents, no representations, warranties
or commitments, express or implied, have been made by any party
to the other. None of the terms or conditions of this Amendment
may be changed, modified, waived or canceled orally or otherwise,
except as permitted pursuant to Section 10.01 of the Credit
Agreement.
6. Full Force and Effect of Amendment. Except as hereby
specifically amended, modified or supplemented, the Credit
Agreement and all other Loan Documents are hereby confirmed and
ratified in all respects by each party hereto and shall be and
remain in full force and effect according to their respective
terms.
7. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be deemed an original
as against any party whose signature appears thereon, and all of
which shall together constitute one and the same instrument.
Delivery of an executed counterpart of a signature page of this
Amendment by telecopy, facsimile or other electronic transmission
(including .PDF) shall be effective as delivery of a manually
executed counterpart of this Amendment.
8. Governing Law. This Amendment shall in all respects be
governed by, and construed in accordance with the laws of the
State of New York.
9. Enforceability. Should any one or more of the
provisions of this Amendment be determined to be illegal or
unenforceable as to one or more of the parties hereto, all other
provisions nevertheless shall remain effective and binding on the
parties hereto.
10. References. All references in any of the Loan
Documents to the "Credit Agreement" shall mean the Credit
Agreement as amended hereby.
11. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the Borrowers, the
Administrative Agent and each of the Lenders, and their
respective successors, assigns and legal representatives;
provided, however, that no Borrower, without the prior consent of
the Required Lenders, may assign any rights, powers, duties or
obligations hereunder.
[Signature pages follow.]
3
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be made, executed and delivered by their duly
authorized officers as of the day and year first above written.
BORROWERS:
SEABOARD CORPORATION
By: /s/ Robert L. Steer
Name: Robert L. Steer
Title: Senior Vice President and CFO
MERRIAM FINANCIAL SERVICES, LTD.
By: /s/ Robert L. Steer
Name: Robert L. Steer
Title: Vice President
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A., as
Administrative Agent
By: /s/ Joan Mok-Lau
Name: Joan Mok-Lau
Title: Vice President
LENDERS:
BANK OF AMERICA, N.A., as a Lender,
L/C Issuer and Swing Line Lender
By: /s/ David L. Catherall
Name: David L. Catherall
Title: Senior Vice President
COBANK, ACB
By: /s/ Alan V. Schuler
Name: Alan V. Schuler
Title: Vice President
U.S. AGBANK, FCB, as disclosed
agent
By: /s/ Travis W. Ball
Name: Travis W. Ball
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Robert M. Mandula
Name: Robert M. Mandula
Title: Managing Director
By: /s/ Izumi Fukushima
Name: Izumi Fukushima
Title: Executive Director
SUNTRUST BANK
By: /s/ M. Gabe Bonfield
Name: M. Gabe Bonfield
Title: Vice President
THE BANK OF NEW YORK MELLON
By: /s/ Donald G. Cassidy, Jr.
Name: Donald G. Cassidy, Jr.
Title: Managing Director
EX-10.27
3
ex10-27.txt
PURCHASE AGREEMENT BY AND AMOUNG SEABOARD CORPORATION, MAXWELL FARMS LLC, GOLDSBORO MILLING COMPANY AND GM ACQUISITION, LLC
PURCHASE AGREEMENT
by and among
SEABOARD CORPORATION,
MAXWELL FARMS, LLC,
GOLDSBORO MILLING COMPANY
and
GM ACQUISITION, LLC
As of September 9, 2010
TABLE OF CONTENTS
Page
ARTICLE I. CONSTRUCTION; DEFINITIONS 1
Section 1.1 Definitions 1
Section 1.2 Other Definitions 14
Section 1.3 Construction 16
Section 1.4 Accounting Terms 16
ARTICLE II. PURCHASE AND SALE 16
Section 2.1 Maxwell Closing 16
Section 2.2 Seaboard Closing 18
Section 2.3 Further Assurances 18
ARTICLE III. CLOSING DATE STATEMENTS; ADJUSTMENTS 18
Section 3.1 Closing Date Statements 18
Section 3.2 Adjustment of Maxwell Purchase Price 19
Section 3.3 Goldsboro Parties Release 21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES RELATED TO THE
COMPANY 21
Section 4.1 Organization 21
Section 4.2 Authorization 21
Section 4.3 Capital Structure 22
Section 4.4 Subsidiaries 23
Section 4.5 Absence of Restrictions and Conflicts 23
Section 4.6 Real Property 23
Section 4.7 Title to Assets; Related Matters 24
Section 4.8 Inventory 24
Section 4.9 Financial Statements 25
Section 4.10 No Undisclosed Liabilities 25
Section 4.11 Absence of Certain Changes 25
Section 4.12 Legal Proceedings 25
Section 4.13 Compliance with Law 26
Section 4.14 Company Contracts 26
Section 4.15 Tax Returns; Taxes 26
Section 4.16 Officers and Employees 28
Section 4.17 Company Benefit Plans 28
Section 4.18 Labor Relations 29
Section 4.19 Insurance Policies 30
Section 4.20 Environmental, Health and Safety Matters 30
Section 4.21 Intellectual Property 31
Section 4.22 Software 33
Section 4.23 Transactions with Affiliates 33
Section 4.24 Undisclosed Payments 33
i
Section 4.25 Customer and Supplier Relations 33
Section 4.26 Notes; Accounts Receivable 34
Section 4.27 Licenses 34
Section 4.28 Ethical Practices 34
Section 4.29 Product and Service Warranties and Guaranties 35
Section 4.30 Brokers, Finders and Investment Bankers 35
Section 4.31 Guarantees 35
Section 4.32 Financial Capability 35
Section 4.33 Disclosure 36
ARTICLE V. REPRESENTATIONS AND WARRANTIES RELATED TO THE
MAXWELL GROWING INTEREST 36
Section 5.1 Real Property 36
Section 5.2 Title to Assets; Related Matters 37
Section 5.3 Inventory 37
Section 5.4 No Other Assumed Liabilities 37
Section 5.5 Legal Proceedings 37
Section 5.6 Compliance with Law 38
Section 5.7 Maxwell Growing Interest Contracts 38
Section 5.8 Officers and Employees 39
Section 5.9 MGI Benefit Plans 39
Section 5.10 Labor Relations 40
Section 5.11 Insurance Policies 40
Section 5.12 Environmental, Health and Safety Matters 41
Section 5.13 Intellectual Property 42
Section 5.14 Software 42
Section 5.15 Transactions with Affiliates 43
Section 5.16 Undisclosed Payments 43
Section 5.17 Supplier Relations 43
Section 5.18 Licenses 43
ARTICLE VI. REPRESENTATIONS AND WARRANTIES RELATED TO THE
GOLDSBORO PARTIES 44
Section 6.1 Authorization 44
Section 6.2 Absence of Restrictions and Conflicts 44
Section 6.3 Ownership of Equity 44
Section 6.4 Legal Proceedings 45
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER 45
Section 7.1 Organization 45
Section 7.2 Authorization 45
Section 7.3 Absence of Restrictions and Conflicts 45
Section 7.4 Financial Capability 46
ARTICLE VIII. CERTAIN COVENANTS AND AGREEMENTS 46
Section 8.1 Conduct of Business by the Company 46
ii
Section 8.2 Inspection and Access to Information 46
Section 8.3 Notices of Certain Events 47
Section 8.4 Interim Financials 47
Section 8.5 No Solicitation of Transactions 47
Section 8.6 Reasonable Efforts; Further Assurances; Cooperation 48
Section 8.7 Public Announcements 50
Section 8.8 Supplements to Schedules 50
Section 8.9 Confidentiality 50
Section 8.10 Tax Matters 50
Section 8.11 Growing Interest Assets 50
Section 8.12 Seaboard Commitment Letters 51
Section 8.13 Commitment Fees 51
ARTICLE IX. CONDITIONS TO CLOSING 51
Section 9.1 Conditions to Obligations of Each Party 51
Section 9.2 Conditions to Obligations of the Purchaser 52
Section 9.3 Conditions to Obligations of the Goldsboro Parties 54
ARTICLE X. CLOSING 54
Section 10.1 Closing 54
Section 10.2 Goldsboro Parties' Closing Deliveries 54
Section 10.3 Purchaser Closing Deliveries 55
ARTICLE XI. TERMINATION 56
Section 11.1 Termination 56
Section 11.2 Specific Performance and Other Remedies 56
Section 11.3 Effect of Termination 57
ARTICLE XII. INDEMNIFICATION 57
Section 12.1 Indemnification Obligations of the Goldsboro
Parties to the Company 57
Section 12.2 Indemnification Obligations of the Goldsboro
Parties to the Purchaser 58
Section 12.3 Indemnification Obligations of the Purchaser 58
Section 12.4 Indemnification Procedure 59
Section 12.5 Claims Period 61
Section 12.6 Liability Limits. 62
Section 12.7 Exclusive Remedy 62
ARTICLE XIII. MISCELLANEOUS PROVISIONS 62
Section 13.1 Notices 62
Section 13.2 Assignment; Successors in Interest 63
Section 13.3 Captions 63
Section 13.4 Controlling Law; Amendment 63
Section 13.5 Consent to Jurisdiction, Etc 63
Section 13.6 Severability 64
Section 13.7 Counterparts 64
Section 13.8 Enforcement of Certain Rights 64
Section 13.9 Waiver 64
iii
Section 13.10 Integration 64
Section 13.11 Cooperation Following the Closing 64
Section 13.12 Transaction Costs 64
iv
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of
September 9, 2010, is made and entered into by and among SEABOARD
CORPORATION, a Delaware corporation (the "Purchaser"), MAXWELL
FARMS, LLC, a North Carolina limited liability company
("Maxwell"), GOLDSBORO MILLING COMPANY, a North Carolina
corporation ("Goldsboro" and, collectively with Maxwell, the
"Maxwell Group") and GM ACQUISITION, LLC, a North Carolina
limited liability company ("Newco" and, collectively with Maxwell
and Goldsboro, the "Goldsboro Parties" and each, individually, a
"Goldsboro Party"). The Purchaser, Maxwell, Goldsboro and Newco
are sometimes individually referred to herein as a "Party" and
collectively as the "Parties."
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Operating Agreement
(the "Operating Agreement") of Butterball, LLC, a North Carolina
limited liability company (the "Company") among the Company,
Maxwell and Murphy-Brown LLC, a Delaware limited liability
company ("Murphy-Brown"), dated September 27, 2006, Maxwell
currently holds 51% of the outstanding Membership Interests (as
hereinafter defined) of the Company and Murphy-Brown currently
holds 49% of the outstanding Membership Interests (the "Murphy-
Brown Membership Interest") of the Company;
WHEREAS, pursuant to the terms of the Operating Agreement,
Murphy-Brown has delivered a Buy/Sell Notice (the "Buy/Sell
Notice"), dated March 15, 2010, pursuant to which Murphy-Brown
has offered to sell the Murphy-Brown Membership Interest, the MB
Member Note and the Murphy-Brown Growing Interest (as hereinafter
defined) (the Murphy-Brown Membership Interest, the MB Member
Note and the Murphy-Brown Growing Interest collectively referred
to as the "Murphy-Brown Butterball Interest") to Maxwell in
accordance with the terms of the Operating Agreement and the
Buy/Sell Notice; and
WHEREAS, the Parties desire to enter into a series of
transactions as more specifically described in this Agreement
pursuant to which the Purchaser and Maxwell will, upon
consummation of such transactions, each own 50% of the
outstanding Membership Interests of the Company, and the Company
will own the Murphy-Brown Growing Interest and the Maxwell
Growing Interest (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and
conditions hereinafter set forth, and intending to be legally
bound hereby, each Party hereby agrees:
ARTICLE I.
CONSTRUCTION; DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein,
have the following meanings:
"Additional Maxwell Growing Interest Assets" means an
approximately 40 acre parcel of real property and related
improvements in Sampson County, North Carolina which Goldsboro
has an option to purchase from Coharie Hog Farm, Inc. and
portions of the so called Henderson Farm, Shepard Farm and
Steven's Farm as more specifically described on Schedule 1.1(a).
"Adjacent Owners" means the owners of the real property
located adjacent to the real property included in the Maxwell
Growing Interest or the Murphy-Brown Growing Interest.
"Affiliate" of any specified Person means any other Person
directly or indirectly Controlling or Controlled by or under
direct or indirect common Control with such specified Person.
"Appraisal" means that certain joint appraisal and report,
dated as of June 11, 2010, prepared by and among Farmers National
Company, CB Richard Ellis and Duff and Phelps, LLC, pursuant to
the terms of Article 10 of the Operating Agreement and the
instructions of Maxwell and Murphy-Brown.
"Balance Sheet" means the audited consolidated balance sheet
of the Company and its Subsidiaries as of January 3, 2010
included in the Financial Statements.
"Business" means the operations of the Company and its
Subsidiaries, including the production of branded turkey
products.
"Business Day" means any day except Saturday, Sunday or any
day on which banks are generally not open for business in the
City of New York, New York.
"Butterball Closing Date Indebtedness" means all
Indebtedness of the Company and its Subsidiaries under the Term
Debt and the Revolver to the extent such Indebtedness is
outstanding as of the Closing Date prior to the payment of such
Indebtedness pursuant to Section 2.1(d) out of the New Butterball
Credit Facility Loan Proceeds.
"CERCLA" means the United States Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9607 et seq.
and the rules and regulations promulgated thereunder.
"Claims Period" means the period during which a claim for
indemnification may be asserted hereunder by an Indemnified
Party.
"Closing" means the consummation of the Maxwell Closing and
the Seaboard Closing as set forth in Section 10.1 of this
Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the United States Internal Revenue Code of
1986, as amended.
"Commercial Software" means commercial "off the shelf"
software understood as third party software that is generally
made available pursuant to a "shrink wrap" license or that is
otherwise commercially available to all licensees pursuant to a
standard end-user license.
2
"Commitment Fees" means the "commitment fees" payable by
Maxwell, the Purchaser or the Company related to the Butterball
Refinancing, whether payable to a third party or the Purchaser.
For purposes of this definition, "commitment fees" refers to
fees, which are commonly referred to either as "commitment" fees
or "underwriter" fees, that are paid to ensure that the New
Butterball Credit Facility Loan Proceeds will be available as of
Closing (including the Seaboard Commitment Fee), and "commitment
fees" will not include "arrangement fees" or other on-going fees
related to bank lines, which may also be payable by the Company
in connection with the Butterball Refinancing.
"Company Ancillary Documents" means any certificate,
agreement, document or other instrument to be executed and
delivered by the Company or any of its Subsidiaries in connection
with the transactions contemplated hereby.
"Company Benefit Plan" means each Employee Benefit Plan
currently sponsored or maintained or required to be sponsored or
maintained by the Company or any of its Subsidiaries or to which
the Company or any of its Subsidiaries makes, or has any
obligation to make, directly or indirectly, any contributions or
with respect to which the Company or any of its Subsidiaries has,
or might have, any other liabilities.
"Company Contracts" means all existing written contracts and
agreements to which the Company or any of its Subsidiaries is a
party, by which the Company, any of its Subsidiaries or any
property of any of them is subject or by which the Company or any
of its Subsidiaries is otherwise bound (other than the leases
relating to the Leased Real Property set forth on Schedule
4.6(c), the Employment Agreements set forth on Schedule 4.16, the
Company Benefit Plans set forth on Schedule 4.17, the labor
agreements set forth on Schedule 4.18, and the insurance policies
set forth on Schedule 4.19) (a) involving an annual commitment or
annual payment to or from the Company or any of its Subsidiaries
of more than $1,000,000 individually or (b) the termination or
cancellation of which would be reasonably likely to result in a
Material Adverse Effect on the Business.
"Company Indemnified Parties" means the Company and its
Subsidiaries and each of the successors and assigns of any of the
foregoing.
"Company Intellectual Property" means any Intellectual
Property that is owned by or licensed to the Company or any of
its Subsidiaries, including the Company Registered Intellectual
Property.
"Company Licensed Software" means all Software (other than
Company Proprietary Software and Commercial Software) used by the
Company or any of its Subsidiaries.
"Company Proprietary Software" means all Software owned by
the Company or any of its Subsidiaries.
"Company Real Property" means the Leased Real Property and
the Owned Real Property.
"Company Registered Intellectual Property" means all of the
Registered Intellectual Property owned by or licensed to the
Company or any of its Subsidiaries.
3
"Company Software" means the Company Licensed Software and
the Company Proprietary Software.
"Confidential Information" means any trade secrets or
similar data or information of the Company or any of its
Subsidiaries that provides the Company or any of its Subsidiaries
with a competitive advantage by virtue of not being generally
known to the public or competitors.
"Control" means, when used with respect to any specified
Person, the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"Customer" means each customer that paid the Company or any
of its Subsidiaries in the aggregate more than $25,000,000 during
the 12-month period ended on August 1, 2010.
"Deeds" means the deeds to be delivered to the Company
pursuant to the M-G Purchase Agreement.
"Disclosure Schedule" means the disclosure schedule to this
Agreement, in the form agreed to by the Parties.
"Dollar", "Dollars" and the symbol "$" shall mean lawful
money of the United States of America.
"Employee Benefit Plan" means, with respect to any Person,
(a) each plan, fund, program, agreement, arrangement or scheme,
including each plan, fund, program, agreement, arrangement or
scheme maintained or required to be maintained under the Laws of
a jurisdiction outside the United States of America, in each
case, that is or was at any time sponsored or maintained or
required to be sponsored or maintained by such Person or to which
such Person makes or has made, or has or has had an obligation to
make, contributions providing for employee benefits or for the
remuneration, direct or indirect, of the employees, former
employees, directors, managers, officers, consultants,
independent contractors, contingent workers or leased employees
of such Person or the dependents of any of them (whether written
or oral), including each deferred compensation, bonus, incentive
compensation, pension, retirement, stock purchase, stock option
and other equity compensation plan, or "welfare" plan (within the
meaning of Section 3(1) of ERISA, determined without regard to
whether such plan is subject to ERISA), (b) each "pension" plan
(within the meaning of Section 3(2) of ERISA, determined without
regard to whether such plan is subject to ERISA), (c) each
severance, retention or change in control plan or agreement, each
plan or agreement providing health, vacation, summer hours,
supplemental unemployment benefit, hospitalization insurance,
medical, dental or legal benefit and (d) each other employee
benefit plan, fund, program, agreement, arrangement or scheme.
"Employment Agreement" means any employment contract,
consulting agreement, termination or severance agreement, salary
continuation agreement, change of control agreement, non-compete
agreement, retention agreement, or any other agreement respecting
the terms and conditions of employment or payment of
compensation, or of a consulting or independent contractor
relationship with an individual, in respect to any current
officer, employee, consultant or independent contractor, and
further includes any agreement with any
4
former officer of employee pursuant to which such officer or
employee is entitled to any compensation to be made after the
Closing Date.
"Environmental Laws" means all federal, state, or local or
foreign Laws relating to human health and safety, protection of
the environment, including surface or ground water, drinking
water supply, soil, surface or subsurface strata or medium, or
ambient air, pollution control, product registration or the
regulation of Hazardous Materials.
"ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
"ERISA Affiliate" means any Person (whether incorporated or
unincorporated) that together with the Company or any of its
Subsidiaries would be deemed a "single employer" within the
meaning of Section 414 of the Code.
"Estimated Working Capital Deficit" means the amount, if
any, by which the Estimated Net Working Capital is less than the
Target Working Capital, as reflected on the Estimated Working
Capital Schedule.
"Estimated Working Capital Surplus" means the amount, if
any, by which the Estimated Net Working Capital exceeds the
Target Working Capital, as reflected on the Estimated Working
Capital Schedule.
"Excluded Maxwell Growing Interest Assets" means the real
property commonly known as Neuse Farm, portions of the Newsome 2
DO Farm, and portions of the so called Lake Breeder Farm, Spring
Creek Farm and Sasser Darkout and Fields Farm and personal
property consisting of twelve (12) feed and four (4) rendering
trucks, all more specifically described on Schedule 1.1(b).
"Expiration Date" means the date set forth on Schedule
1.1(c).
"Feed Supply Agreement" means that feed supply agreement to
be entered into by Sleepy Creek Turkeys, Inc., an Affiliate of
the entities that comprise the Maxwell Group, and the Company on
the Closing Date, in the form agreed to by the Parties.
"Final Working Capital Schedule" means the "Final Working
Capital Schedule" as finally determined pursuant to Section 3.2
hereof.
"Financial Statements" means (a) the audited consolidated
balance sheets of the Company and its Subsidiaries as of January
3, 2010, December 28, 2008, and December 30, 2007 and the audited
consolidated statements of income, stockholders' equity and cash
flows of the Company and its Subsidiaries for the 12-month
periods then ended and (b) the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of August 1, 2010
and the unaudited consolidated statements of income,
stockholders' equity and cash flows of the Company and its
Subsidiaries for the seven-month period then ended.
5
"Financing Fees" means all fees (including "arrangement"
fees) and expenses incurred by the Company and its Subsidiaries
with respect to the Butterball Refinancing other than the
Commitment Fees.
"FLSA" means the United States Fair Labor Standards Act and
the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in the
United States as applied consistently with the past practices of
the Company and its Subsidiaries in the preparation of the year-
end audited Financial Statements.
"Goldsboro Ancillary Documents" means any certificate,
agreement, document or other instrument, other than this
Agreement, to be executed and delivered by any Goldsboro Party or
any Affiliate of any Goldsboro Party (other than the Company or
any of its Subsidiaries) in connection with the transactions
contemplated hereby.
"Goldsboro Indemnified Parties" means the Goldsboro Parties
and their Affiliates, each of their respective officers and
directors and each of the heirs, executors, successors and
assigns of any of the foregoing.
"Governmental Entity" means any federal, state, local or
foreign government, any political subdivision thereof, or any
court, administrative or regulatory agency, department,
instrumentality, body or commission or other governmental
authority or agency.
"Hazardous Materials" means any waste, pollutant,
contaminant, hazardous substance, toxic, ignitable, reactive or
corrosive substance, hazardous waste, special waste, industrial
substance, by-product, process-intermediate product or waste,
asbestos or asbestos-containing materials, lead-based paint,
petroleum or petroleum-derived substance or waste, chemical
liquids or solids, liquid or gaseous products, or any constituent
of any such substance or waste, the management, use, handling or
disposal of which is in any way governed by or subject to any
applicable Environmental Law.
"HSR Act" means the United States Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations
promulgated thereunder.
"Indebtedness" means all indebtedness with respect to
borrowed money, including loans, deferred consideration, debts,
any liabilities under acceptances, credit cards, monies due under
capitalized leases or financial leases (but excluding operating
leases), or for the deferred purchase price of property or
services for which the applicable Person is liable, contingently
or otherwise as obligor, guarantor, or otherwise, or in respect
of which the applicable Person otherwise assures against loss,
including but not limited to bank debt, bank fees, shareholder
debt and vendor debt, including, in each case above, any interest
accrued thereon and prepayment or similar penalties and expenses
which would be payable if such liability were paid in full as of
the Closing Date.
"Indemnified Party" means a Company Indemnified Party, a
Purchaser Indemnified Party or a Goldsboro Indemnified Party.
6
"Intellectual Property" means any or all of the following
and all rights, arising out of or associated therewith: (a) all
United States and foreign patents and applications therefor and
all reissues, reexaminations, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof;
(b) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary
information, know-how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing
throughout the world; (c) all works of authorship (whether
copyrightable or not), including Software, all copyrights,
copyright registrations and applications therefor, all registered
mask works and applications for mask work registration; and all
other rights corresponding thereto throughout the world; (d) all
industrial designs and any registrations and applications
therefor throughout the world; (e) all internet uniform resource
locators, domain names, trade names, logos, slogans, brands,
designs, trade dress, common law trademarks and service marks,
trademark and service mark and trade dress registrations and
applications therefor throughout the world and all goodwill and
other rights related thereto; (f) all databases and data
collections and all rights therein throughout the world; (g) all
moral and economic rights of authors and inventors, however
denominated, throughout the world; and (h) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"Knowledge" with respect to the Goldsboro Parties means all
facts known by Walter Pelletier or Tom Howell on the date hereof
after due inquiry with respect to the matters at hand (including,
in the case of matters related to the Company and its
Subsidiaries, discussions with Keith Shoemaker, Ed Kacsuta, Kerry
Doughty, George Nalley, Alice Johnson and Gary Lenaghan), and all
facts that any of the foregoing Persons should have known on the
date hereof with respect to the matters at hand if such Person
had made due inquiry and exercised reasonable diligence in the
context which, with respect to the Company, takes into
consideration that the Goldsboro Parties are a 51% owner of the
Company and are not an operator of the Company.
"Laws" means all statutes, rules, codes, regulations,
restrictions, ordinances, orders, decrees, approvals, directives,
judgments, injunctions, writs, awards and decrees of, or issued
by, any Governmental Entity.
"Leased Real Property" means the parcels of real property of
which the Company or any of its Subsidiaries is the lessee
(together with all fixtures and improvements thereon).
"Legal Dispute" means any action, suit, arbitration or
proceeding between or among the Parties and their respective
Affiliates arising in connection with any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement
or any related document.
"Legal Proceeding" means any suit, action, claim,
arbitration, proceeding or investigation pending, as of the
Closing Date, against the Company, any of its Subsidiaries,
Maxwell or any MGI Subsidiary, or their respective real or
personal property, before any Governmental Entity or any
arbitrator.
"Licenses" means all notifications, licenses, permits
(including environmental, construction and operation permits),
qualifications, franchises, certificates, approvals, exemptions,
classifications, registrations and other similar documents and
authorizations issued by any Governmental Entity, and
applications therefor.
7
"Liens" mean all mortgages, liens, pledges, security
interests, charges, claims, restrictions and encumbrances of any
nature whatsoever.
"Losses" means liabilities, damages, losses, costs,
expenses, penalties and fines.
"Material Adverse Effect" means any state of facts, change,
event, effect or occurrence (when taken together with all other
states of fact, changes, events, effects or occurrences) that is
or may be reasonably likely to be materially adverse to the
financial condition, results of operations, properties, assets or
liabilities (including contingent liabilities) of the Company and
its Subsidiaries, taken as a whole. A Material Adverse Effect
shall also include any state of facts, change, event or
occurrence that shall have occurred or been threatened that (when
taken together with all other states of facts, changes, events,
effects or occurrences that have occurred or been threatened) is
or would be reasonably likely to prevent or materially delay the
performance by the Goldsboro Parties of their obligations
hereunder or the consummation of the transactions contemplated
hereby.
"Maxwell Closing" means the consummation of the transactions
contemplated by Section 2.1 hereof.
"Maxwell Expenses" means the legal, accounting, financial
advisory and other advisory or consulting fees and expenses
incurred by the Goldsboro Parties in connection with the
transactions contemplated by this Agreement, including amounts
payable to (a) Kilpatrick Stockton LLP, (b) McColl Partners, (c)
CB Richard Ellis or (d) Duff and Phelps, LLC, but excluding any
Commitment Fees paid by the Goldsboro Parties.
"Maxwell Family" means each of the following individuals and
their respective spouses and descendants thereof: Mary Ann
Maxwell, Charlotte M. Weaver, Elizabeth M. Yarboro, James L.
Maxwell, III, Elizabeth M. Pelletier and Mildred G. Maxwell.
"Maxwell Group Member Note" means (a) that certain
Promissory Note between the Company's predecessor-in-interest,
Carolina Turkeys, and Sleepy Creek Turkeys, Inc., dated January
1, 2006, in the original principal amount of $3,060,000.00 and
amended by letter agreement between Company and Sleepy Creek
Turkeys, Inc.; (b) that certain Promissory Note between the
Company's predecessor-in-interest, Carolina Turkeys, and Maxwell
Foods, Inc. dated January 1, 2006, in the original principal
amount of $4,590,000.00 and amended by letter agreement between
Company and Maxwell Foods, Inc.; and (c) that certain Promissory
Note between the Company's predecessor-in-interest, Carolina
Turkeys, and Goldsboro Milling Company dated January 1, 2006, in
the original principal amount of $4,947,000.00 and amended by
letter agreement between Company and Goldsboro Milling Company.
"Maxwell Growing Interest" means the turkey growing
interests of Maxwell, the MGI Subsidiaries and their Affiliates
as described on Schedule 1.1(d). For purposes of clarity, the
Maxwell Growing Interest shall not include the Excluded Maxwell
Growing Interest Assets and shall include the Additional Maxwell
Growing Interest Assets.
"Maxwell Indiana" means Maxwell Farms of Indiana, Inc., an
Indiana corporation.
8
"Maxwell Membership Interest" means the Membership Interests
of the Company owned by Maxwell.
"Maxwell Purchase Price" means an amount equal to (a) Two
Hundred Fifty-One Million Nine Hundred Thousand Dollars
($251,900,000) minus (b) the aggregate amount of the Butterball
Closing Date Indebtedness minus (c) the aggregate amount of the
Murphy-Brown Member Note Purchase Price minus (d) the aggregate
amount of the Maxwell Group Member Note Purchase Price minus (e)
the amount of any Estimated Working Capital Deficit, if any, plus
(f) the amount of any Estimated Working Capital Surplus, if any.
"Maxwell Redemption Agreement" means the redemption
agreement to be entered into by Maxwell and the Company on the
Closing Date, in the form agreed to by the Parties.
"Maxwell Target Price" means an amount equal to (a) One
Hundred Ninety-Eight Million Five Hundred Thousand Dollars
($198,500,000), plus (b) the amount, if any, by which the total
amount of current assets included in the Maxwell Growing Interest
sold to Smithfield and its Affiliates exceeds Twenty-Seven
Million Five Hundred Thousand Dollars ($27,500,000), minus (c)
the amount, if any, by which the total amount of current assets
included in the Maxwell Growing Interest sold to Smithfield and
its Affiliates is less than Twenty-Seven Million Five Hundred
Thousand Dollars ($27,500,000).
"MB Member Note" means (a) that certain Promissory Note
between the Company's predecessor-in-interest, Carolina Turkeys,
and Murphy-Brown, LLC dated January 1, 2006, in the original
principal amount of $7,350,000.00 and amended by letter agreement
between Company and Murphy-Brown, LLC and (b) that certain
Promissory Note between the Company's predecessor-in-interest,
Carolina Turkeys, and Murphy-Brown, LLC dated January 1, 2006, in
the original principal amount of $4,753,000.00 and amended by
letter agreement between Company and Murphy-Brown, LLC.
"Membership Interests" means "Membership Interests" in the
Company (as defined in the Operating Agreement).
"M-G Purchase Agreement" means the purchase agreement to be
entered into by the Company, on the one hand, and the Maxwell
Group, certain MGI Subsidiaries and their Affiliates, on the
other hand, on the Closing Date, in the form agreed to by the
Parties.
"MGI Benefit Plan" means each Employee Benefit Plan
currently sponsored or maintained or required to be sponsored or
maintained by Maxwell or any MGI Subsidiary or to which Maxwell
or any MGI Subsidiary makes, or has any obligation to make,
directly or indirectly, any contributions or with respect to
which Maxwell or any MGI Subsidiary has, or might have, any other
liabilities, in each case, in connection with the MGI Business.
"MGI Business" means the live turkey operations of Maxwell
or the MGI Subsidiaries or their Affiliates that will be sold to
the Company as part of the MG Purchase.
"MGI Licensed Software" means all Software (other than MGI
Proprietary Software) used by Maxwell or any MGI Subsidiary in
the MGI Business.
9
"MGI Proprietary Software" means all Software owned by
Maxwell or any MGI Subsidiary and used in the MGI Business.
"MGI Real Property" means the parcels of real property
related to the Maxwell Growing Interest and included in the
Appraisal, of which Maxwell or one of the MGI Subsidiaries or
Affiliates is fee title owner (together with all fixtures and
improvements thereon), which may be adjusted from the property
included in the Appraisal based on final surveys or geographical,
access or existing physical features, which adjustments shall in
no event impair in any material respect the operation of the MGI
Business conducted from such property.
"MGI Software" means the MGI Licensed Software and the MGI
Proprietary Software.
"MGI Subsidiary" or "MGI Subsidiaries" means any or all
Persons engaged in the MGI Business of which Maxwell shall own
directly, or indirectly through another Person, a nominee
arrangement or otherwise at least a majority of the outstanding
capital stock (or other shares of beneficial interest) entitled
to vote generally or otherwise have the power to elect a majority
of the board of directors or similar governing body or the legal
power to direct the business or policies of such Person.
"Murphy-Brown Butterball Interest Contribution Agreement"
means the contribution agreement to be entered into by Newco and
the Company on the Closing Date, in the form agreed to by the
Parties.
"Murphy-Brown Contracts" means the Assumed Turkey Contracts
as defined in the Murphy-Brown Purchase Agreement.
"Murphy-Brown Growing Interest" means the turkey growing
interests of Murphy-Brown and its Affiliates as described on
Schedule 1.1(e).
"Murphy-Brown Purchase Agreement" means the purchase
agreement to be entered into by Newco and Murphy-Brown on or
prior to the Closing Date, in the form agreed to by the Parties.
"Net Working Capital" means (a) the current assets of the
Company and its Subsidiaries on a consolidated basis less (b) the
liabilities of the Company and its Subsidiaries on a consolidated
basis, as of the Closing Date, determined in accordance with the
Working Capital Guidelines.
"Newco Promissory Note" means the unconditional promissory
note to be issued by Newco to the Purchaser on the Closing Date,
in the form agreed to by the Parties.
"Ordinary Course" means the ordinary course of Business of
the Company and its Subsidiaries consistent with past practice or
the ordinary course of MGI Business of Maxwell and the MGI
Subsidiaries consistent with past practice, as applicable.
"Owned Real Property" means the parcels of real property of
which the Company or a Subsidiary is fee title owner (together
with all fixtures and improvements thereon).
10
"Pathology Lab Services Agreement and Lease" means,
collectively, that pathology lab services agreement to be entered
into by Maxwell Foods, LLC and Maxwell Farms of Indiana, Inc.,
each an Affiliate of the entities that comprise the Maxwell
Group, and the Company on the Closing Date and that lease to be
entered into by Goldsboro and the Company on the Closing Date,
each in the form agreed to by the Parties.
"Permitted Liens" means (a) Liens for Taxes not yet due and
payable, (b) statutory Liens of landlords, (c) Liens of carriers,
warehousemen, mechanics, materialmen and repairmen incurred in
the Ordinary Course and not yet delinquent, (d) mortgage Liens
existing as of the date hereof, but which will be paid-off and
released at Closing, and (e) in the case of Company Real Property
and MGI Real Property, zoning, building, or other restrictions,
variances, covenants, rights of way, encumbrances, easements and
other irregularities in title or survey, as well as matters
reflected in existing title policies or title commitments
covering the Company Real Property and the MGI Real Property,
none of which, individually or in the aggregate, (i) interfere in
any material respect with the present use of or occupancy of the
affected parcel, (ii) have more than an immaterial effect on the
value thereof or its use or (iii) would impair the ability of
such parcel to be sold, leased or subleased for its present use.
"Person" means any individual, corporation, partnership,
joint venture, limited liability company, trust, unincorporated
organization or Governmental Entity.
"Preliminary Working Capital Schedule" means a draft
schedule of the Net Working Capital, which shall include a
calculation of each of the Net Working Capital, the Working
Capital Surplus, if any, and the Working Capital Deficit, if any.
"Purchaser Ancillary Documents" means any certificate,
agreement, document or other instrument, other than this
Agreement, to be executed and delivered by the Purchaser in
connection with the transactions contemplated hereby.
"Purchaser Indemnified Parties" means the Purchaser and its
Affiliates, each of their respective officers and directors and
each of the heirs, executors, successors and assigns of any of
the foregoing.
"Registered Intellectual Property" means (a) all United
States and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks
and service marks, applications to register trademarks and
service marks, and trade dress; intent-to-use applications, or
other registrations or applications related to trademarks and
service marks and trade dress; (iii) registered copyrights and
applications for copyright registration; (iv) domain name
registrations; and (v) registered mask works and applications for
mask work registration; and (b) any other Intellectual Property
that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded
with any federal, state, local or foreign Governmental Entity or
other public body.
"Release" means, with respect to any Hazardous Material, any
spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing
into any surface or ground water, drinking water supply, soil,
surface or subsurface strata or medium, or the ambient air.
11
"Revolver" means (a) that certain Credit Agreement, dated as
of October 2, 2006, by and among the Company, as Borrower, CT of
Kinston, LLC, as Guarantor, certain Lenders from time to time
party thereto, and Bank of Montreal (Chicago Branch), as
Administrative Agent, as amended by a first amendment thereto and
by that certain Second Amendment to Credit Agreement dated as of
August 28, 2008, (b) that certain Revolver Note by the Company,
as Borrower, in favor of Bank of Montreal (Chicago Branch), as
Lender, in the original principal amount of up to $162,500,000.00
dated October 2, 2006, (c) that certain Revolver Note by the
Company, as Borrower, in favor of Bank of Montreal (Chicago
Branch), as Lender, in the original principal amount of up to
$37,500,000.00 dated October 2, 2006, and (d) that certain Swing
Note by the Company, as Borrower, in favor of Bank of Montreal
(Chicago Branch), as Lender, in the original principal amount of
up to $20,000,000.00 dated October 2, 2006.
"Schedule" means a schedule included in the Disclosure
Schedule, as such schedule is more specifically identified
herein.
"Seaboard Closing" means the consummation of the
transactions contemplated by Section 2.2 hereof.
"Seaboard Commitment Fee" means the Commitment Fee in the
amount of $8,000,000 which will be payable by the Company to the
Purchaser in connection with the Closing pursuant to the Seaboard
Commitment Letters.
"Seaboard Commitment Letters" means, collectively, (a) the
commitment letter, dated the date hereof, from Seaboard to, and
accepted and agreed to by, Maxwell (together with all exhibits
attached thereto), and (b) the related fee letter, dated the date
hereof, from Seaboard to, and accepted and agreed to by, Maxwell.
"Seaboard Expenses" means the legal, accounting, financial
advisory and other advisory or consulting fees and expenses
incurred by the Purchaser in connection with the transactions
contemplated by this Agreement, including amounts payable to King
& Spalding.
"Seaboard Purchase Agreement" means the purchase agreement
to be entered into by the Purchaser and Newco on the Closing
Date, in the form agreed to by the Parties.
"Sleepy Creek" means Sleepy Creek Turkeys, Inc., a North
Carolina corporation.
"Seaboard Purchase Price" means an amount equal to the
lesser of (a) One Hundred Seventy-Six Million One Hundred
Thousand Dollars ($176,100,000) and (b) the Total Murphy-Brown
Purchase Price.
"Software" means all computer software programs, together
with any error corrections, updates, modifications, or
enhancements thereto, in both machine readable form and human
readable form, including all comments and any procedural code.
"Subsidiary" or "Subsidiaries" means any or all Persons of
which the Company (or other specified Person) shall own directly,
or indirectly through another Person, a nominee arrangement or
otherwise at least a majority of the outstanding capital stock
(or other shares of beneficial interest) entitled to vote
generally or otherwise have the power to elect a majority of
12
the board of directors or similar governing body or the legal
power to direct the business or policies of such Person.
"Supplemental Earnings" means an amount equal to (a) the net
income (determined in accordance with GAAP) of the Company and
its Subsidiaries for the period commencing as of November 29,
2010 and ending as of the Closing Date (such net income being
referred to herein as the "Interim Income") less (b) an amount
equal to the amounts necessary to satisfy the federal and state
income Tax liabilities of the Goldsboro Parties and Murphy-Brown
that are attributable to the Interim Income (with such income Tax
liabilities being calculated with reference to the items of the
Company's income, gain, deduction, loss and credit (determined
without regard to the specific Tax circumstances of a member of
the Company) and the highest marginal rate of federal and state
income Tax applicable to income allocated to a member of the
Company in the states in which the Company has income Tax nexus).
"Supplier" means any supplier that the Company and its
Subsidiaries have paid in the aggregate more than $25,000,000
during the 12-month period ended on August 1, 2010.
"Surveys" shall mean, as to each parcel of MGI Real Property
that, as of the date of this Agreement, is not a legally
subdivided parcel with legal and direct access to a public right
of way, a current boundary survey prepared and certified by a
duly licensed North Carolina land surveyor and registered
professional engineer, showing each such parcel of MGI Real
Property as a separate, legally subdivided parcel together with
access (either direct or via an Access Easement Agreement) to a
public right of way, including a metes and bounds or lot and
block legal description of each such parcel to be used in the
Deeds, and otherwise prepared in accordance with Section 8.11
below and reasonably acceptable to the Purchaser.
"Target Working Capital" means an amount equal to (a) One
Hundred Ninety-Six Million Dollars ($196,000,000) plus (b) an
amount equal to the Supplemental Earnings, if any, if the Closing
does not occur on or before December 13, 2010.
"Taxes" means all taxes, assessments, charges, duties, fees,
levies and other governmental charges (including interest,
penalties or additions associated therewith), including income,
franchise, capital stock, real property, personal property,
tangible, withholding, employment, payroll, social security,
social contribution, unemployment compensation, disability,
transfer, sales, use, excise, license, occupation, registration,
stamp, premium, environmental, customs duties, alternative or add-
on minimum, estimated, gross receipts, value-added and all other
taxes of any kind for which the Company or any of its
Subsidiaries may have any liability whatsoever that may be
imposed by any Governmental Entity, whether disputed or not, and
any charges, interest, additions or penalties imposed by any
Governmental Entity.
"Tax Return" means any report, return, claim for refund,
declaration or other information return or statement required to
be supplied to a Governmental Entity relating to Taxes, including
any schedule or attachment thereto and any estimated returns and
any amendment thereof.
"Term Debt" means (a) that certain Term Note by the Company,
as Borrower, in favor of Bank of Montreal (Chicago Branch), as
Lender, in the original principal amount of $162,500,000.00 dated
October 2, 2006, and (b) that certain Term Note by the Company,
as
13
Borrower, in favor of Bank of Montreal (Chicago Branch), as
Lender, in the original principal amount of $37,500,000.00 dated
October 2, 2006.
"Total Murphy-Brown Purchase Price" means an amount equal to
(a) the Murphy-Brown Membership Interest Purchase Price, plus (b)
the Initial M-B G-I Purchase Price, plus (c) the Murphy-Brown
Member Note Purchase Price.
"Transaction Expenses" means the legal, accounting,
financial advisory and other third party advisory or consulting
fees and expenses incurred by the Company or any of its
Subsidiaries in connection with the transactions contemplated by
this Agreement, excluding Commitment Fees, Financing Fees and
Maxwell Expenses (which shall not include expenses under the
retention agreements with certain employees of the Company listed
on Schedule 4.16).
"Treasury Regulations" means the Income Tax Regulations,
promulgated under the Code.
"WARN" means the United States Worker Adjustment and
Retraining Notification Act and the rules and regulations
promulgated thereunder.
"Warranty" means any warranty or guaranty made by the
Company or any of its Subsidiaries as to goods sold, or services
provided, by the Company or any of its Subsidiaries, including
the Company's standard form of warranty as attached to Schedule
4.29.
"Working Capital Deficit" means the amount, if any, by which
the Net Working Capital, as reflected on the Final Working
Capital Schedule, is less than the Estimated Net Working Capital.
"Working Capital Guidelines" means the guidelines for
determining Net Working Capital, in the form agreed to by the
Parties.
"Working Capital Surplus" means the amount, if any, by which
the Net Working Capital, as reflected on the Final Working
Capital Schedule, exceeds the Estimated Net Working Capital.
Section 1.2 Other Definitions. Each of the following terms is
defined in the Section set forth opposite such term:
Term Section
Access Easement Agreements 9.2(k)
Alternative Offer 8.5
Arbitrator 3.2(f)
Affiliate Loans 4.26(a)
Agreement Preamble
Butterball Refinancing 2.1(d)
Buy/Sell Notice Recitals
Closing Date Indebtedness Statement 3.1(a)
Closing Date Purchase Price Statement 3.1(b)
Company Recitals
Company Legal Proceeding 4.12
Confidentiality Agreement 8.9
14
DOJ 8.6(a)
Estimated Net Working Capital 3.2(a)
Estimated Working Capital Schedule 3.2(a)
FTC 8.6(a)
Goldsboro Preamble
Goldsboro Losses 12.3
Goldsboro Opinion 9.2(c)
Goldsboro Parties Preamble
Goldsboro Party Preamble
Grower Contract Assignments 9.2(j)
Indemnifiable Losses 12.2
Indemnifying Party 12.4(a)
Indemnity Basket 12.6
Indemnity Cap 12.6
Initial M-B G-I Purchase Price 2.1(b)
Initial M-G G-I Purchase Price 2.1(e)
Insurance Contracts 4.19
Interim Income Definition of "Supplemental Earnings"
M-G Purchase 2.1(e)
Management Services Agreement 9.2(h)
Maxwell Preamble
Maxwell Butterball Interest 8.5
Maxwell Closing Payment 2.1(f)
Maxwell Group Preamble
Maxwell Group Member Note Purchase Price 2.1(e)
Maxwell Growing Interest Assets Transfers 8.11
Maxwell Redemption 2.1(f)
Maxwell Transition Services Agreement 9.2(i)
MGI Contracts 5.7
MGI Employment Agreements 5.8
MGI Insurance Contracts 5.11
MGI Legal Proceeding 5.5
Murphy-Brown Recitals
Murphy-Brown Butterball Interest Recitals
Murphy-Brown Butterball Interest Contribution 2.1(c)
Murphy-Brown Butterball Interest Purchase 2.1(b)
Murphy-Brown Member Note Purchase Price 2.1(b)
Murphy-Brown Membership Interest Recitals
Murphy-Brown Membership Interest Purchase Price 2.1(b)
New Butterball Credit Facility Loan Amount 2.1(d)
New Butterball Credit Facility Loan Proceeds 2.1(d)
Newco Preamble
Newco Loan 2.1(a)
Newco Loan Amount 2.1(a)
Newco Membership Interest 2.2(a)
Operating Agreement Recitals
15
Parties Preamble
Party Preamble
Payoff Letters 9.2(e)
Purchaser Preamble
Purchaser Opinion 9.3(c)
Seaboard Contribution 2.2(a)
Seaboard Purchase 2.2(a)
Smithfield 8.5
Section 1.3 Construction. Unless the context of this
Agreement otherwise clearly requires, (a) references to the
plural include the singular, and references to the singular
include the plural, (b) references to one gender include the
other gender, (c) the words "include," "includes" and "including"
do not limit the preceding terms or words and shall be deemed to
be followed by the words "without limitation", (d) the terms
"hereof", "herein", "hereunder", "hereto" and similar terms in
this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement, (e) the terms "day" and
"days" mean and refer to calendar day(s), (f) the terms "year"
and "years" mean and refer to calendar year(s) and (g) unless set
forth specifically otherwise, the settlement of all payments
hereunder shall be made in Dollars. Unless otherwise set forth
herein, references in this Agreement to (i) any document,
instrument or agreement (including this Agreement) (A) includes
and incorporates all Exhibits, Schedules and other attachments
thereto, (B) includes all documents, instruments or agreements
issued or executed in replacement thereof and (C) means such
document, instrument or agreement, or replacement or predecessor
thereto, as amended, modified or supplemented from time to time
in accordance with its terms and in effect at any given time, and
(ii) a particular Law means such Law as amended, modified,
supplemented or succeeded, from time to time and in effect at any
given time on or prior to the Closing Date. All Article and
Section references herein are to Articles and Sections of this
Agreement, unless otherwise specified. This Agreement shall not
be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if all Parties had
prepared it.
Section 1.4 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP.
ARTICLE II.
PURCHASE AND SALE
Section 2.1 Maxwell Closing. At the Maxwell Closing, the
Parties, as applicable, will cause the following transactions to
be consummated:
(a) As evidenced by the Newco Promissory Note, the
Purchaser will loan (the "Newco Loan") to Newco an amount
(the "Newco Loan Amount") equal to the Total Murphy-Brown
Purchase Price.
(b) Immediately following the funding of the Newco
Loan, Newco shall purchase (i) the Murphy-Brown Membership
Interest, free and clear of all Liens other than liens
permitted under the Murphy-Brown Purchase Agreement, from
Murphy-Brown pursuant to the terms of the Operating
Agreement, the Buy/Sell Notice and the Murphy-
16
Brown Purchase Agreement for One Hundred Twenty Million
Dollars ($120,000,000) (the "Murphy-Brown Membership
Interest Purchase Price"), (ii) the Murphy-Brown Growing
Interest, free and clear of all Liens other than liens
permitted under the Murphy-Brown Purchase Agreement, from
Murphy-Brown pursuant to the terms of the Operating
Agreement, the Buy/Sell Notice and the Murphy-Brown Purchase
Agreement for the purchase price (the "Initial M-B G-I
Purchase Price") set forth in the Buy/Sell Notice, which
Initial M-B G-I Purchase Price is subject to adjustment in
accordance with the Murphy-Brown Purchase Agreement, and
(iii) the MB Member Note, free and clear of all Liens, from
Murphy-Brown for the purchase price (the "Murphy-Brown
Member Note Purchase Price") set forth in the Murphy-Brown
Purchase Agreement (the transactions described in this
clause (b), collectively the "Murphy-Brown Butterball
Interest Purchase").
(c) Immediately following the consummation of the
Murphy-Brown Butterball Interest Purchase, pursuant to the
Murphy-Brown Butterball Interest Contribution Agreement,
Newco shall contribute to the Company (i) the Murphy-Brown
Growing Interest and (ii) $14,000,000 of the outstanding
principal and secured interest under the Murphy-Brown Member
Note. The transactions described in this clause (c) are
collectively referred to herein as the "Murphy-Brown
Butterball Interest Contribution".
(d) Immediately following the consummation of the
Murphy-Brown Butterball Interest Contribution, the Goldsboro
Parties and the Purchaser shall (i) cause the Company to
consummate the loan transaction contemplated by the Seaboard
Commitment Letters pursuant to which the Company will
receive loan proceeds (the "New Butterball Credit Facility
Loan Proceeds") of approximately $301,400,000 (or such
greater or lesser amount as shall be needed for the Company
to satisfy its obligations in connection with the Closing)
(the "New Butterball Credit Facility Loan Amount"), of which
approximately $200,000,000 will consist of a senior credit
facility and approximately $100,000,000 will consist of
subordinated debt, and (ii) cause the Company to use the New
Butterball Credit Facility Loan Proceeds to pay off the
Butterball Closing Date Indebtedness and, to the extent not
paid prior to the Closing, the Financing Fees and the
Transaction Expenses (the transactions described in this
clause (d), collectively the "Butterball Refinancing"). In
this regard, it is understood that (x) the Maxwell Group
will be reimbursed for any Commitment Fees paid by the
Maxwell Group (rather than by the Company or its
Subsidiaries) prior to the Closing and (y) the Purchaser
will be reimbursed for any Commitment Fees paid by the
Purchaser (rather than by the Company or its Subsidiaries)
prior to the Closing.
(e) Immediately following the consummation of the
Butterball Refinancing, the Goldsboro Parties shall cause
the Company to purchase (i) the Maxwell Growing Interest,
free and clear of all Liens other than Permitted Liens, from
the Maxwell Group and certain MGI Subsidiaries and their
Affiliates pursuant to the M-G Purchase Agreement for the
purchase price set forth in the M-G Purchase Agreement (the
"Initial M-G G-I Purchase Price"), which Initial M-G G-I
Purchase Price is subject to adjustment in accordance with
the M-G Purchase Agreement and (ii) the Maxwell Group Member
Note, free and clear of all Liens other than Permitted Liens,
from Maxwell for the purchase price (the "Maxwell Group
Member Note Purchase Price") set forth in the M-G
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Purchase Agreement (the transactions described in this
clause (e), collectively the "M-G Purchase").
(f) Immediately following the consummation of the M-G
Purchase, pursuant to the Maxwell Redemption Agreement, the
Goldsboro Parties will cause the Company to purchase from
Maxwell, and Maxwell to sell to the Company, a Membership
Interest in the Company held by Maxwell representing a 1.1%
interest in the profits of the Company and an interest in
the capital of the Company equal to the Maxwell Purchase
Price, free and clear of all Liens, and in consideration
therefor, the Goldsboro Parties will cause the Company to
pay at Closing a cash amount (the "Maxwell Closing Payment")
equal to the Maxwell Purchase Price (the transactions
described in this clause (f), collectively the "Maxwell
Redemption"). Immediately following the Maxwell Closing,
Maxwell will own a Membership Interest in the Company
representing more than 50% of the total interest in the
capital and profits of the Company.
Section 2.2 Seaboard Closing. Following the consummation
of the Maxwell Closing, the Parties, as applicable, will cause
the following transactions to be consummated at the Seaboard
Closing:
(a) (i) Pursuant to the Seaboard Purchase Agreement,
Newco will (A) sell, transfer, and deliver to the Purchaser,
free and clear of all Liens, the 49.0% Membership Interest
in the Company held by Newco (the "Newco Membership
Interest"), which will represent less than 50% of the total
interest in the capital and profits of the Company, and (B)
pay to the Purchaser in cash the amount, if any, by which
the Newco Loan Amount (plus accrued interest, if any,
thereon) exceeds the Seaboard Purchase Price, and in
consideration therefor, the Purchaser shall discharge the
Newco Promissory Note and shall return the Newco Promissory
Note marked "paid in full" to Newco, and (ii) the Purchaser
shall contribute in cash to the Company an amount, if any,
by which $177,500,000 exceeds the Seaboard Purchase Price
(the "Seaboard Contribution") (the transactions described in
this clause (a), collectively the "Seaboard Purchase").
(b) Immediately following the Seaboard Contribution,
each of Maxwell and the Purchaser will own 50% of the
outstanding Membership Interests in the Company,
representing 50% of the total interest in the capital and
profits of the Company.
Section 2.3 Further Assurances. Each Party shall on the
Closing Date and from time to time thereafter, at any other
Party's reasonable request and without further consideration,
execute and deliver to such other Party such instruments of
transfer, conveyance, and assignment as shall be reasonably
requested to effect the transactions contemplated by this
Agreement.
ARTICLE III.
CLOSING DATE STATEMENTS; ADJUSTMENTS
Section 3.1 Closing Date Statements.
(a) Not less than two (2) Business Days prior to the
Closing Date, Maxwell shall deliver to the Purchaser a
statement (the "Closing Date Indebtedness Statement"),
signed by the Chief Financial Officer of Maxwell, which
sets forth, by lender, the
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aggregate amount of the Butterball Closing Date Indebtedness.
Attached to the Closing Date Indebtedness Statement will be
copies of the Payoff Letters, or forms thereof, to be
delivered in accordance with Section 9.2(e) hereof.
(b) Not less than two (2) Business Days prior to the
Closing Date, Maxwell shall deliver to the Purchaser a
statement (the "Closing Date Purchase Price Statement"),
signed by the Chief Financial Officer of Maxwell, which sets
forth the Murphy-Brown Membership Interest Purchase Price,
the Initial M-B G-I Purchase Price, the Murphy-Brown Member
Note Purchase Price, the Total Murphy-Brown Purchase Price,
the Maxwell Purchase Price, the Murphy-Brown Member Note
Purchase Price, the Maxwell Group Member Note Purchase Price,
the Transaction Expenses, the Financing Fees, the Commitment
Fees (including the Seaboard Commitment Fee), the Initial
M-G G-I Purchase Price, the Maxwell Group Member Note
Purchase Price, the Maxwell Closing Payment, the Seaboard
Purchase Price and the Seaboard Contribution.
Section 3.2 Adjustment of Maxwell Purchase Price.
(a) Not less than three (3) Business Days prior to the
Closing Date, Maxwell shall deliver to the Purchaser a
statement (the "Estimated Working Capital Schedule")
containing Maxwell's estimate of Net Working Capital
("Estimated Net Working Capital").
(b) No later than 120 days following the Closing Date,
the Parties shall cause the Company to prepare and deliver
to Maxwell and the Purchaser the Preliminary Working Capital
Schedule.
(c) Maxwell shall have thirty (30) days following
receipt of the Preliminary Working Capital Schedule during
which to notify the Purchaser of any dispute of any item
contained in the Preliminary Working Capital Schedule, which
notice shall set forth in reasonable detail the basis for
such dispute. The Purchaser shall have thirty (30) days
following receipt of the Preliminary Working Capital
Schedule during which to notify Maxwell of any dispute of
any item contained in the Preliminary Working Capital
Schedule, which notice shall set forth in reasonable detail
the basis for such dispute.
(d) If Maxwell does not notify the Purchaser of any
such dispute and the Purchaser does not notify Maxwell of
any such dispute within such thirty (30) day period, then
the Preliminary Working Capital Schedule shall be deemed to
be the Final Working Capital Schedule.
(e) If Maxwell notifies the Purchaser of any such
dispute or the Purchaser notifies Maxwell of any such
dispute within such thirty (30) day period, then Maxwell and
the Purchaser shall cooperate in good faith to resolve any
such dispute as promptly as possible, and upon such
resolution, the Final Working Capital Schedule shall be
prepared in accordance with the agreement of Maxwell and the
Purchaser.
(f) If Maxwell and the Purchaser are unable to resolve
any dispute regarding the Preliminary Working Capital
Schedule within thirty (30) days (or such longer period as
Maxwell and the Purchaser shall mutually agree in writing),
following notice of such
19
dispute, such dispute shall be submitted to, and all issues
having a bearing on such dispute shall be resolved by, (x)
the Raleigh, North Carolina office of Deloitte Touche, or
(y) in the event such accounting firm is unable or unwilling
to take such assignment, a "Big Four" or other nationally
recognized accounting firm mutually agreed upon by Maxwell
and the Purchaser (such identified accounting firm or, if
applicable, the firm so selected, the "Arbitrator").
Maxwell and the Purchaser shall instruct the Arbitrator that,
in resolving any such dispute and in determining Net Working
Capital and the Working Capital Deficit or Working Capital
Surplus, if any, the Arbitrator shall not assign to any item
in dispute a value that is (A) greater than the greatest
value for such item assigned by Maxwell, on the one hand, or
the Purchaser, on the other hand, or (B) less than the
smallest value for such item assigned by Maxwell, on the one
hand, or the Purchaser, on the other hand. Such resolution
shall be final and binding on the Parties. The Arbitrator
shall use commercially reasonable efforts to complete its
work within thirty (30) days following its engagement. The
fees, costs and expenses of the Arbitrator (i) shall be
borne by the Company in the proportion that the aggregate
dollar amount of all unsuccessfully disputed items by the
Purchaser (as finally determined by the Arbitrator) bears to
the aggregate dollar amount of all such items so submitted
by both Purchaser and the Goldsboro Parties, and (ii) shall
be borne by the Goldsboro Parties on a joint and several
basis in the proportion that the aggregate dollar amount of
all successfully disputed items by the Purchaser (as finally
determined by the Arbitrator) bears to the aggregate dollar
amount of all such items so submitted by both Purchaser and
the Goldsboro Parties. If any disputes are submitted to the
Arbitrator pursuant to this Section 3.2(f), the Final
Working Capital Schedule shall be prepared in accordance
with the decision of the Arbitrator and, to the extent
applicable, the agreement of Maxwell and the Purchaser.
(g) Within five (5) Business Days following the
determination of the Final Working Capital Schedule in
accordance with this Section 3.2:
(i) To the extent that there is a Working Capital
Deficit, the Goldsboro Parties shall be obligated on a
joint and several basis to pay to the Company in cash
an aggregate amount equal to the Working Capital
Deficit by wire transfer of immediately available funds.
(ii) To the extent there is a Working Capital
Surplus on the Final Working Capital Schedule, the
Purchaser and Maxwell shall cause the Company to pay to
Maxwell in cash an aggregate amount equal to the
Working Capital Surplus by wire transfer of immediately
available funds to an account designated by Maxwell.
Upon such payment, the Company shall be fully released
and discharged of any obligation with respect to the
Working Capital Surplus.
(iii) Any payment made pursuant to this Section
3.2(g) shall include an additional amount of simple
interest equal to the amount of interest that such
payment would have earned had it earned interest at the
rate per annum of 4% from the Closing Date through the
date of such payment.
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Section 3.3 Goldsboro Parties Release. In consideration
for the agreement and covenants of the Purchaser set forth in
this Agreement, each of the Goldsboro Parties and each of their
respective Affiliates hereby, effective as of the Closing,
knowingly, voluntarily and unconditionally releases, forever
discharges, and covenants not to sue the Company or any of its
Subsidiaries and their respective predecessors and successors,
and any of their respective current and former officers,
directors, employees, agents, or representatives from and for any
and all claims, causes of action, demands, suits, debts,
obligations, liabilities, damages, losses, costs, and expenses
(including attorneys' fees) of every kind or nature whatsoever,
known or unknown, actual or potential, suspected or unsuspected,
fixed or contingent, that such Goldsboro Party has or may have,
now or in the future, arising out of, relating to, or resulting
from any act of commission or omission, errors, negligence,
strict liability, breach of contract, tort, violations of law,
matter or cause whatsoever from the beginning of time to the
Closing Date; provided, however, that such release shall not
cover any claims against the Company or its Subsidiaries (a)
under the Maxwell Group Member Note, unless and until the Maxwell
Group Member Note is purchased by the Company pursuant to Section
2.1(e), (b) with respect to amounts otherwise payable to any
Goldsboro Party or their Affiliates for goods sold or services
rendered by the Goldsboro Parties or their Affiliates to the
Company and its Subsidiaries in the Ordinary Course on or prior
to the Closing Date (which amounts, to the extent not paid prior
to the Closing Date, shall be accrued as liabilities of the
Company and its Subsidiaries as of the Closing Date for purposes
of determining the Net Working Capital); or (c) any obligation
arising under or contemplated by this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES RELATED TO THE COMPANY
The Goldsboro Parties hereby, jointly and severally,
represent and warrant to the Purchaser as follows as of the date
hereof and the Closing Date:
Section 4.1 Organization. The Company and each of its
Subsidiaries is a corporation or limited liability company, as
applicable, duly formed and validly existing under the laws of
the jurisdiction of incorporation or organization, as applicable,
set forth on Schedule 4.1 and each has all requisite power and
authority to own, lease and operate its properties and to carry
on its business as now being conducted. The Company and each of
its Subsidiaries is duly qualified or registered as a foreign
corporation or limited liability company, as applicable, to
transact business under the Laws of each jurisdiction where the
character of its activities or the location of the properties
owned or leased by it requires such qualification or
registration. The Goldsboro Parties have heretofore made
available to the Purchaser correct and complete copies of the
organizational documents of the Company and each of its
Subsidiaries as currently in effect and the corporate or limited
liability company, as applicable, record books with respect to
actions taken by its shareholders, board of directors, members
and managers, as applicable. Schedule 4.1 contains a correct and
complete list of the jurisdictions in which the Company and each
of its Subsidiaries is qualified or registered to do business as
a foreign corporation or limited liability company, as
applicable.
Section 4.2 Authorization. The Company and each of its
Subsidiaries has the right, power, authority and capacity to
execute and deliver the Company Ancillary Documents and to
perform its obligations thereunder and to consummate the
transactions contemplated thereunder.
21
As of the Closing, the consummation of the transactions
contemplated thereby will be duly authorized by all required
action on the part of the Company and each of its Subsidiaries.
Section 4.3 Capital Structure.
(a) Schedule 4.3(a) accurately and completely sets
forth the capital structure of the Company and each of its
Subsidiaries including the number of membership interests or
other equity interests which are authorized and which are
issued and outstanding. All of the issued and outstanding
membership interests or other equity interests of the
Company and each of its Subsidiaries (x) are duly authorized,
validly issued, fully paid and nonassessable, (y) are held
of record by the Persons and in the amounts set forth on
Schedule 4.3(a), and (z) were not issued or acquired by the
holders thereof in violation of any Law, agreement or the
preemptive rights of any Person. Except as set forth on
Schedule 4.3(a), no membership interests or other equity
interests of the Company or any of its Subsidiaries are
reserved for issuance or are held as treasury shares, and (i)
there are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange,
subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities or other
plans or commitments, contingent or otherwise, relating to
the equity of the Company or any of its Subsidiaries; (ii)
there are no outstanding contracts or other agreements of
the Company, any of its Subsidiaries, the Goldsboro Parties
or, to the Knowledge of the Goldsboro Parties, any other
Person to purchase, redeem or otherwise acquire any
outstanding membership interests or other equity interests
of the Company or any of its Subsidiaries, or securities or
obligations of any kind convertible into any membership
interests or other equity interests of the Company or any of
its Subsidiaries; (iii) there are no dividends or
distribution rights which have accrued or been declared but
are unpaid on the membership interests or other equity
interests of the Company or any of its Subsidiaries; (iv)
there are no outstanding or authorized equity appreciation,
phantom stock, equity plans or similar rights with respect
to the Company or any of its Subsidiaries; and (v) there are
no voting agreements or other membership agreements relating
to the management or equity of the Company or any of its
Subsidiaries. Except as set forth on Schedule 4.3(a),
neither the Company nor any of its Subsidiaries has ever
purchased, redeemed or otherwise acquired any membership
interests, units or other equity interests of the Company or
any of its Subsidiaries. Other than Maxwell and Murphy-
Brown, no other Person is the record holder of any
membership interests, units or other equity interests in the
Company. Schedule 4.3(a) also lists all non-cash dividends
or distributions made by the Company to its members since
January 3, 2010. To the Knowledge of any Goldsboro Party,
no prior offer, issue, redemption, call, purchase, sale,
transfer, negotiation or other transaction of any nature or
kind with respect to any membership interests or other
equity interests (including options, warrants or debt
convertible into shares, options or warrants) of the Company,
any of its Subsidiaries or any entity that has been merged
into the Company or any such Subsidiary has given rise to
any claim or action by any Person that is enforceable
against the Company, any of its Subsidiaries, the Goldsboro
Parties or the Purchaser, and no fact or circumstance exists
that could give rise to any such right, claim or action. All
redemptions or transfers of membership interests or other
equity interests of the Company or any of its Subsidiaries
since January 3, 2010 are set forth on Schedule 4.3(a).
22
(b) Except for the Term Debt, the Revolver, the
Maxwell Group Member Note, the MB Member Note, capital lease
obligations, trade payables and other liabilities reflected
in the Balance Sheet and except as set forth on Schedule
4.3(b), there is no outstanding Indebtedness of the Company
or any of its Subsidiaries.
Section 4.4 Subsidiaries. Except as set forth on Schedule
4.4, neither the Company nor any of its Subsidiaries has ever
owned, nor does it currently own, directly or indirectly, any
capital stock or other equities, securities or interests in any
other corporation or in any limited liability company,
partnership, joint venture or other entity.
Section 4.5 Absence of Restrictions and Conflicts. The
execution, delivery and performance of this Agreement, the
Company Ancillary Documents, the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of and
compliance with the terms and conditions hereof and thereof, do
not or will not (as the case may be), with the passing of time or
the giving of notice or both, violate or conflict with,
constitute a breach of or default under, result in the loss of
any benefit under, permit the acceleration of any obligation
under or create in any party the right to terminate, modify or
cancel, (a) any term or provision of the organizational documents
of the Company or any of its Subsidiaries, (b) except as
indicated on Schedule 4.14 and except for contracts with respect
to the Revolver, the Term Debt, the Maxwell Group Member Note,
the MB Member Note and any other Indebtedness to be paid in
connection with the consummation of the transactions contemplated
by this Agreement, any Company Contract or any other contract,
agreement, permit, franchise, license or other instrument
applicable to the Company or any of its Subsidiaries that would
reasonably be expected to result in a Material Adverse Effect on
the Business, (c) any judgment, decree or order of any court or
Governmental Entity or agency to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties are bound, or
(d) any Law or arbitration award applicable to the Company or any
of its Subsidiaries. Except for filings pursuant to the HSR Act,
no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required
with respect to the Company or any of its Subsidiaries in
connection with the execution, delivery or performance of this
Agreement, the Company Ancillary Documents, or the consummation
of the transactions contemplated hereby or thereby.
Section 4.6 Real Property.
(a) Schedule 4.6(a) sets forth a correct and complete
description of the Owned Real Property.
(b) The Company or one of its Subsidiaries, as listed
on Schedule 4.6(a), has good and marketable title to the
Owned Real Property, subject to Permitted Liens.
(c) Schedule 4.6(c) sets forth a correct and complete
description of the Leased Real Property.
(d) The Company or one of its Subsidiaries, as listed
on Schedule 4.6(c), has a valid leasehold interest in the
Leased Real Property, and the leases granting such interests
are in full force and effect.
23
(e) Except as set forth on Schedule 4.6(e), no
portion of the Company Real Property, or any building or
improvement located thereon, to the Knowledge of the
Goldsboro Parties, violates in any material respect any Law,
including those Laws relating to zoning, building, land use,
environmental, health and safety, fire, air, sanitation and
noise control, except to the extent that any such violation
or noncompliance would not interfere with the Business as
currently conducted by the Company and its Subsidiaries.
Except for the Permitted Liens or as set forth on Schedule
4.6(e), no Company Real Property is subject to any decree or
order of any Governmental Entity (or, to the Knowledge of
any Goldsboro Party, threatened or proposed order).
(f) The improvements and fixtures on the Company Real
Property are, in all material respects, considered as a
whole, in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and
are adequate and suitable for the purposes for which they
are presently being used. There is no condemnation or
similar proceeding pending or, to the Knowledge of any
Goldsboro Party, threatened against any of the Company Real
Property or any improvement thereon. The Company Real
Property constitutes all of the real property utilized by
the Company and its Subsidiaries in the operation of the
Business.
Section 4.7 Title to Assets; Related Matters.
(a) Except as set forth on Schedule 4.7 the Company
and its Subsidiaries have good and marketable title to all
of their respective property and assets, free and clear of
all Liens except Permitted Liens.
(b) All equipment and other items of tangible
personal property and assets of the Company and its
Subsidiaries (i) are, in all material respects, considered
as a whole, in good operating condition and in a state of
good maintenance and repair, ordinary wear and tear excepted,
(ii) were acquired and are usable in the regular and
Ordinary Course and (iii) conform, in all material respects,
to all applicable Laws. No Person other than the Company or
its Subsidiaries owns any equipment or other tangible
personal property or assets situated on the premises of the
Company or any of its Subsidiaries, except for leased items
that are subject to personal property leases. Except as set
forth on Schedule 4.7, since January 3, 2010, neither the
Company nor any of its Subsidiaries has sold, transferred or
disposed of any assets, other than sales of inventory in the
Ordinary Course and other sales of assets which, in the
aggregate, do not exceed $100,000 in sales price.
Section 4.8 Inventory. The Company's and its Subsidiaries'
inventory (both as of the date hereof and on the Closing Date as
will be reflected on the Final Working Capital Schedule), to the
Knowledge of the Goldsboro Parties, (a) is sufficient for the
operation of the Company's and its Subsidiaries' business in the
Ordinary Course, (b) consists of items that are good and
merchantable within normal trade tolerances, (c) is of a quality
and quantity presently usable or saleable in the Ordinary Course
(subject to applicable reserves), (d) is valued on the books and
records of the Company or a Subsidiary, as applicable, at the
lower of cost or market consistent with past practice, and (e) is
subject to reserves determined in accordance with GAAP,
specifically including reserves for obsolescence and excess
inventory. To the Knowledge of the
24
Goldsboro Parties, no previously sold inventory is subject to
returns in excess of those historically experienced by the
Company or its Subsidiaries.
Section 4.9 Financial Statements. The Financial
Statements are attached as Schedule 4.9 hereto. Except as
expressly noted on Schedule 4.9, the Audited Financial Statements
have been prepared in accordance with GAAP from the books and
records of the Company and its Subsidiaries, and such books and
records have been maintained on a basis consistent with GAAP.
Each balance sheet included in the Financial Statements
(including the related notes and schedules) fairly presents, in
all material respects, the financial position of the Company and
its Subsidiaries, as applicable, as of the date of such balance
sheet, and each statement of income and cash flows included in
the Financial Statements (including the related notes and
schedules) fairly presents, in all material respects, the results
of operations and changes in cash flows of the Company and its
Subsidiaries for the periods set forth therein, in each case in
accordance with GAAP (except with respect to the Interim
Financial Statements, which are not prepared in accordance with
GAAP, and as otherwise as expressly noted therein or as disclosed
on Schedule 4.9). Since the date of the Balance Sheet, there has
been no change in any accounting (or tax accounting) policy,
practice or procedure of the Company or any of its Subsidiaries.
The Company and its Subsidiaries maintain accurate books and
records reflecting each of their assets and liabilities and
maintain proper and adequate internal accounting controls
sufficient to provide reasonable assurances regarding the
reliability of financial reporting and the preparation of annual
financial statements for external purposes in accordance with
GAAP.
Section 4.10 No Undisclosed Liabilities. Except as
disclosed on Schedule 4.10 or any of the other Schedules, to the
Knowledge of the Goldsboro Parties, neither the Company nor any
of its Subsidiaries has any liability (whether absolute, accrued,
contingent or otherwise) that is not adequately reflected or
provided for in the Balance Sheet, except liabilities that have
been incurred since the date of the Balance Sheet in the Ordinary
Course.
Section 4.11 Absence of Certain Changes. Since the date
of the Balance Sheet and through the date of this Agreement, and
except as set forth on Schedule 4.11, there has not been (i) any
Material Adverse Effect, (ii) any damage, destruction, loss or
casualty to property or assets of the Company or any of its
Subsidiaries with a value in excess of $1,000,000, whether or not
covered by insurance, (iii) any action taken to declare any
dividend, pay or set aside for payment any dividend or other
distribution, or make any payment to any related parties (other
than the payment of salaries in the Ordinary Course) or (iv) any
action taken of the type described in Section 8.1 hereof, that,
had such action occurred following the date hereof without the
Purchaser's prior approval, would be in violation of Section 8.1
hereof.
Section 4.12 Legal Proceedings. Except as set forth on
Schedule 4.12, there is no suit, action, claim, arbitration,
proceeding or investigation pending or, to the Knowledge of any
Goldsboro Party, threatened against, relating to or involving the
Company, any of its Subsidiaries or their respective real or
personal property before any Governmental Entity or any
arbitrator (a "Company Legal Proceeding"). Notwithstanding the
foregoing, it is understood that Schedule 4.12 need not list any
matters which have only been threatened (as opposed to matters
which are pending) unless such threatened matters are reasonably
likely to result in Losses to the Company or any of its
Subsidiaries, which exceed $50,000 with respect to any such
matter individually or which exceed $100,000 in the aggregate
with respect to all such matters.
25
Section 4.13 Compliance with Law. The Company and each of
its Subsidiaries is (and has been at all times during the past
four (4) years) in compliance in all material respects with all
applicable Laws, except to the extent such instances of non-
compliance would not require payment by, or result in Losses to,
the Company or any of its Subsidiaries, in excess of $50,000 with
respect to any such instance individually or in excess of
$100,000 in the aggregate with respect to all such instances.
Except as set forth on Schedule 4.13, neither the Company nor any
of its Subsidiaries has received any written notice that it is
under investigation with respect to, and, to the Knowledge of any
Goldsboro Party, neither the Company nor any of its Subsidiaries
is otherwise now under investigation with respect to, any
violation of any applicable Law or other requirement of a
Governmental Entity. Neither the Company nor any of its
Subsidiaries is (a) subject to any judgment, decree, injunction,
rule or order of any court or arbitration panel or (b) debarred
or suspended from doing business with any Governmental Entity.
Section 4.14 Company Contracts. Correct and complete
copies of all Company Contracts have been made available to
Purchaser. To the Knowledge of the Goldsboro Parties, the
Company Contracts are legal, valid, binding and enforceable, in
all material respects, in accordance with their respective terms
with respect to the Company or any of its Subsidiaries, as
applicable, and each other party to such Company Contracts.
There is no existing material default or material breach by the
Company or any of its Subsidiaries, as applicable, under any
Company Contract (or event or condition that, with notice or
lapse of time or both could constitute a default or breach), and,
to the Knowledge of any Goldsboro Party, there is no such default
(or event or condition that, with notice or lapse of time or both,
could constitute a default or breach) with respect to any third
party to any Company Contract. To the Knowledge of the Goldsboro
Parties, neither the Company nor any of its Subsidiaries is
participating in any discussions or negotiations regarding
modification of or amendment to any Company Contract or entry
into any new material contract applicable to the Company, any of
its Subsidiaries or the real or personal property of the Company
or any of its Subsidiaries. Except as set forth on Schedule 4.14,
no Company Contract requires the consent of or notice to the
other party thereto to avoid any material breach, default or
violation of such contract, agreement or other instrument in
connection with the transactions contemplated hereby.
Section 4.15 Tax Returns; Taxes.
(a) Except as otherwise disclosed on Schedule 4.15(a):
(i) all Tax Returns of the Company and each of its
Subsidiaries due to have been filed through the date hereof
in accordance with any applicable Law have been timely filed
and are correct and complete in all material respects; (ii)
all Taxes, deposits of Taxes or other payments relating to
Taxes due and owing by the Company and each of its
Subsidiaries (whether or not shown on any Tax Return), have
been paid in full; (iii) there are not now any extensions of
time in effect with respect to the dates on which any Tax
Returns of the Company or any of its Subsidiaries were or are
due to be filed; (iv) all deficiencies asserted as a result
of any examination of any Tax Returns of the Company or any
of its Subsidiaries have been paid in full, accrued on the
books of the Company or its Subsidiaries, as applicable, or
finally settled, and no issue has been raised in any such
examination which, by application of the same or similar
principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined; (v)
no claims have been asserted and no proposals or deficiencies
for any Taxes of the Company
26
or any of its Subsidiaries are being asserted, proposed or,
to the Knowledge of the Company, threatened, and no audit or
investigation of any return or report of Taxes of the Company
or any of its Subsidiaries is currently underway, pending or,
to the Knowledge of the Company, threatened; (vi) no claim
has ever been made by a taxing authority in a jurisdiction in
which the Company or any of its Subsidiaries does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction; (vii) the Company and each of its Subsidiaries
have withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, member,
partner, stockholder or other third party; (viii) there are
no outstanding waivers or agreements by or on behalf of the
Company or any of its Subsidiaries for the extension of time
for the assessment of any Taxes or deficiency thereof, nor
are there any requests for rulings, outstanding subpoenas or
requests for information, notice of proposed reassessment of
any property owned or leased by the Company or any of its
Subsidiaries or any other matter pending between the Company
or any of its Subsidiaries and any taxing authority; (ix)
there are no Liens for Taxes (other than Liens for Taxes
which are not yet due and payable), nor are there any Liens
for Taxes which are pending or, to the Knowledge of the
Company, threatened; (x) none of the Goldsboro Parties is a
"foreign person" within the meaning of Section 1445 of the
Code; (xi) neither the Company nor any of its Subsidiaries is
a party to any Tax allocation or sharing agreement under
which the Company or any of its Subsidiaries will have any
liability after the Closing; (xii) neither the Company nor
any of its Subsidiaries has been a member of an affiliated
group filing a consolidated U.S. federal income Tax Return
(other than a group the common parent of which the Company is
the parent); (xiii) neither the Company nor any of its
Subsidiaries has any liability for the Taxes of any Person
(other than the Company or its Subsidiaries) under Treasury
Regulation section 1.1502-6 (or any similar provision of
state, local, or foreign Law), as a transferee or successor,
by contract, or otherwise; (xiv) neither the Company nor any
of its Subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments
that will not be deductible under Section 280G of the Code;
(xv) the Company is a partnership for federal income Tax
purposes and has not made an election under Treasury
Regulation Section 301.7701-3 to be taxed as a corporation;
(xvi) no Subsidiary has made an election under Treasury
Regulation Section 301.7701-3 relating to its classification
for federal income tax purposes; and (xvii) the Company and
its Subsidiaries have at all times used proper accounting
methods and periods in computing their Tax liability.
(b) Except as set forth on Schedule 4.15(b), the
Goldsboro Parties have delivered to the Purchaser correct and
complete copies of all federal, state, local and foreign
income Tax Returns (together with any agent's reports and any
accountants' work papers) relating to the operations of the
Company and each of its Subsidiaries for taxable years ended
on or after December 31, 2005.
(c) The unpaid Taxes of the Company and its
Subsidiaries did not, as of the date of the applicable
Financial Statements, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set
forth on the face of the applicable balance sheet included in
the Financial Statements (rather than any notes thereto).
Since January 3, 2010, neither the
27
Company nor any of its Subsidiaries has incurred any
liability for Taxes arising from extraordinary gains or
losses, as that term is used in GAAP, outside the Ordinary
Course.
(d) None of the Company's Subsidiaries has distributed
stock of another Person, or has had its stock distributed by
another Person, in a transaction that was purported or
intended to be governed in whole or in part by Section 355 or
Section 361 of the Code.
Section 4.16 Officers and Employees. Except as set forth on
Schedule 4.16, neither the Company nor any of its Subsidiaries is
a party to or bound by any Employment Agreement. The Goldsboro
Parties have provided to the Purchaser correct and complete
copies of each Employment Agreement to which the Company or any
of its Subsidiaries is a party, or by which any of them is
otherwise bound. To the Knowledge of the Goldsboro Parties,
there is no existing default or breach of the Company or any of
its Subsidiaries, as applicable, under any Employment Agreement
(or event or condition that, with notice or lapse of time or both
could constitute a default or breach), and there is no such
default (or event or condition that, with notice or lapse of time
or both, could constitute a default or breach) with respect to
any third party to any Employment Agreement. Except as set forth
on Schedule 4.12, neither the Company nor any of its Subsidiaries
nor any Goldsboro Party has received a claim from any
Governmental Entity to the effect that the Company or any of its
Subsidiaries has improperly classified any person (a) as an
independent contractor or (b) as "exempt" or "non-exempt" under
the FLSA. Except as set forth on Schedule 4.16, no Goldsboro
Party has made any verbal commitments to any officer, employee,
former employee, consultant or independent contractor of the
Company or any of its Subsidiaries with respect to compensation,
promotion, retention, termination, severance or similar matters
in connection with the transactions contemplated hereby or
otherwise. The retention and severance agreements entered into
by Maxwell with certain employees of the Company as described on
Schedule 4.16 shall be assumed and paid by the Company in
accordance with the terms of those agreements.
Section 4.17 Company Benefit Plans. To the Knowledge of
the Goldsboro Parties, each Company Benefit Plan is identified in
Schedule 4.17, and the Goldsboro Parties have provided a correct
and complete copy of each such plan to the Purchaser together
with the most recent report filed with respect to such plan with
any Governmental Entity. Except as set forth in Schedule 4.17,
no Company Benefit Plan is subject to Title IV of ERISA, and no
Company Benefit Plan is described in Section 413(c) of the Code
or Section 3(40) of ERISA. Except as set forth in Schedule 4.17,
the terms of each Company Benefit Plan as currently in effect
that purports to be qualified under Section 401(a) of the Code
and any trust which is a part of any such Company Benefit Plan
are subject to a favorable determination letter or opinion letter
from the U.S. Internal Revenue Service, and each such plan has
been operated and administered in accordance with all Laws
(including ERISA and the Code). The terms of each other Company
Benefit Plan satisfy the requirements of Laws (including ERISA
and the Code), and each such plan has been operated and
administered in accordance with all Laws (including ERISA and the
Code) except as would not reasonably be expected to result in a
Material Adverse Effect on the Business. Except as set forth in
Schedule 4.17, the Company and each of its Subsidiaries have
timely satisfied all reporting and disclosure obligations under
Laws (including ERISA and the Code) with respect to the Company
Benefit Plans except as would not reasonably be expected to
result in a Material Adverse Effect on the Business. To the
Knowledge of the Goldsboro Parties,
28
neither the Company nor an ERISA Affiliate has any liability
(directly or indirectly, contingent or otherwise) under any
Employee Benefit Plan other than a Company Benefit Plan. To the
Knowledge of the Goldsboro Parties, there have been no prohibited
transactions (as described in Section 406 of ERISA or Section
4975 of the Code) with respect to any Company Benefit Plan which
have not been corrected in full with respect to which any Tax or
penalty is due or which are not otherwise exempt under Section
4975(d) of the Code or Section 408 of ERISA. Except as set forth
in Schedule 4.17, if the benefits under a Company Benefit Plan
are funded through a trust, the fair market value of the assets
of such trust equal or exceed the liabilities of such plan. If
the benefits under a Company Benefit Plan are funded through
insurance contracts, such contracts are in full force and effect
and all premiums have been paid when due. If benefits under a
Company Benefit Plan are funded from the general assets of the
Company or any of its Subsidiaries, the liability for funding
such benefits is shown on the books and records of the Company or
the applicable Subsidiary of the Company in accordance with GAAP
and any applicable standards of the Financial Accounting
Standards Board. Except as set forth in Schedule 4.17, to the
Knowledge of the Goldsboro Parties, the Company and each of its
Subsidiaries have made full and timely payment of all amounts
which are required to be paid as contributions to each Company
Benefit Plan. No Company Benefit Plan provides for benefits
described in Section 3(1) of ERISA following a termination of
employment except as required under Part 6 of Title I of ERISA,
and the Company and each of its Subsidiaries have complied in all
respects with the healthcare continuation coverage requirements
of Part 6 of Title I of ERISA. Except as set forth in Schedule
4.17, to the Knowledge of the Goldsboro Parties, there is no
contract, agreement, plan or arrangement with any Person which
provides for any payment to any employee by the Company or any of
its Subsidiaries, which payment would fail to be deductible by
reason of Section 280G of the Code or which would exceed the
deduction limits under Section 404 of the Code. Except as set
forth in Schedule 4.17, to the Knowledge of the Goldsboro Parties,
neither the Company nor any of its Subsidiaries has any
contractual obligation to maintain any Company Benefit Plan for
any period of time or to make contributions from its general
assets at a fixed rate to such plan (other than premium payments
for an insurance contract which are set on a year-to-year basis
and matching contributions as provided in the Company's 401(k)
plan), and the Company can terminate any Company Benefit Plan at
any time, including a Company Benefit Plan which is described in
Section 401(k) of the Code, without any early termination fee or
penalty becoming due under the terms of any group annuity or
other insurance contract.
Section 4.18 Labor Relations. Except as set forth in
Schedule 4.18, (a) neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement,
contract or legally binding commitment to any trade union or
employee organization or group in respect of or affecting
employees; (b) neither the Company nor any of its Subsidiaries is
currently engaged in any negotiation with any trade union or
employee organization; (c) neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practice within the
meaning of the National Labor Relations Act, and there is no
pending or, to the Knowledge of any Goldsboro Party, threatened
complaint regarding any alleged unfair labor practices as so
defined; (d) there is no strike, labor dispute, work slow down or
stoppage pending or, to the Knowledge of any Goldsboro Party,
threatened against the Company or any of its Subsidiaries; (e)
there is no arbitration proceeding arising out of any grievance
or under any collective bargaining agreement which is pending or,
to the Knowledge of any Goldsboro Party, threatened against the
Company or any of its Subsidiaries; (f) neither the Company nor
any of its Subsidiaries has experienced
29
any material work stoppage; (g) neither the Company nor any of
its Subsidiaries is the subject of any union organization effort;
(h) there are no claims pending or, to the Knowledge of any
Goldsboro Party, threatened against the Company or any of its
Subsidiaries related to the status of any individual as an
independent contractor or employee; and (i) the Company and each
of its Subsidiaries have complied in all respects with WARN.
Section 4.19 Insurance Policies. Schedule 4.19 sets forth
a list of all policies of insurance currently maintained, owned
or held by the Company and its Subsidiaries (excluding any
insurance contract which is part of a Company Benefit Plan
identified on Schedule 4.17) (collectively, the "Insurance
Contracts"), including the policy limits or amounts of coverage,
deductibles or self-insured retentions, and annual premiums with
respect thereto. To the Knowledge of the Goldsboro Parties, such
Insurance Contracts are valid and binding in accordance with
their terms, are in full force and effect, and the Insurance
Contracts will continue in effect after the Closing Date.
Similar coverage to the coverage set forth in the Insurance
Contracts has been maintained on a continuous basis for the last
four (4) years. To the Knowledge of the Goldsboro Parties,
neither the Company nor any of its Subsidiaries has received
written notice that (a) it has breached or defaulted under any of
such Insurance Contracts, or (b) that any event has occurred that
would permit termination, modification, acceleration or
repudiation of such Insurance Contracts. Except as set forth in
Schedule 4.19 and except as would not reasonably be expected to
result in a Material Adverse Effect on the Business, neither the
Company nor any of its Subsidiaries is in default (including a
failure to pay an insurance premium when due) with respect to any
Insurance Contract, nor has the Company nor any of its
Subsidiaries failed to give any notice of any claim under such
Insurance Contract in due and timely fashion nor has the Company
nor any of its Subsidiaries ever been denied or turned down for
insurance coverage.
Section 4.20 Environmental, Health and Safety Matters.
Except as set forth on Schedule 4.20:
(a) The Company and each of its Subsidiaries possess
all permits and approvals required under, and each is in
compliance in all material respects with, all Environmental
Laws, and the Company and each of its Subsidiaries is in
compliance in all material respects with all applicable
limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
timetables contained in all Environmental Laws, or any
notice or demand letter issued thereunder,
(b) to the Knowledge of the Goldsboro Parties, neither
the Company nor any of its Subsidiaries has received notice
of actual or threatened liability under CERCLA or any
similar foreign, state or local Law from any Governmental
Entity or any third party and there is no fact or
circumstance that could form the basis for the assertion of
any claim against the Company or any of its Subsidiaries
under any Environmental Law, including CERCLA or any similar
local, state or foreign Law with respect to any on-site or
off-site location;
(c) neither the Company nor any of its Subsidiaries
has entered into or agreed to enter into, any consent decree
or order, and neither the Company nor any of its
Subsidiaries is subject to any judgment, decree or judicial
or administrative order relating
30
to compliance with, or the cleanup of Hazardous Materials
under, any applicable Environmental Law;
(d) neither the Company nor any of its Subsidiaries
has been alleged to be in violation of, and has not been
subject to any administrative or judicial proceeding
pursuant to, applicable Environmental Laws either now or any
time during the past four (4) years;
(e) to the Knowledge of the Goldsboro Parties, the
Company and the Goldsboro Parties have made available to the
Purchaser copies of all reports, notices and assessments
relating to material environmental matters of the Company
and its Subsidiaries; and neither the Company nor any of its
Subsidiaries has paid any fine, penalty or assessment within
the prior four (4) years with respect to environmental
matters; and
(f) neither the Company nor any of its Subsidiaries is
subject to any claim, obligation, liability, loss, damage
or expense of any kind or nature whatsoever, contingent or
otherwise, incurred or imposed or based upon any provision
of any Environmental Law or arising out of any act or
omission of the Company or any of its Subsidiaries, or the
Company's or any of its Subsidiaries' employees, agents or
representatives or arising out of the ownership, use,
control or operation by the Company or any of its
Subsidiaries of any plant, facility, site, area or property
(including any plant, facility, site, area or property
currently or previously owned or leased by the Company or
any of its Subsidiaries) from which any Hazardous Materials
were Released into the environment (the term "environment"
meaning any surface or ground water, drinking water supply,
soil, surface or subsurface strata or medium, or the
ambient air); neither the Company nor any of its
Subsidiaries has imported, manufactured, stored, managed,
used, operated, transported, treated or disposed of any
Hazardous Material other than in compliance in all
material respects with all Environmental Laws.
Section 4.21 Intellectual Property.
(a) Schedule 4.21(a) contains a list of all Company
Registered Intellectual Property, and specifying as to each
scheduled item, as applicable, the assigned identifier or
number, title or mark, filing date, registration or grant
date and jurisdiction, and identifies that which is owned
and that which is licensed by the Company and any of its
Subsidiaries.
(b) Except as set forth in Schedule 4.21(b), no
Company Intellectual Property owned by the Company or any of
its Subsidiaries, or product or service as currently used by
the Company or any of its Subsidiaries and which
incorporates and relates to such Company Intellectual
Property, is subject to any proceeding or outstanding decree,
order, judgment, settlement agreement or stipulation
(excluding licenses and business arrangements entered into
by the Company or any of its Subsidiaries in the Ordinary
Course) (i) restricting in any manner the use, transfer or
licensing thereof by the Company or any of its Subsidiaries
or (ii) that may affect the validity, use or enforceability
of the Company Intellectual Property or any such product or
service.
31
Each item of Company Registered Intellectual Property
owned by the Company or any of its Subsidiaries is valid
and subsisting. Except as set forth on Schedule 4.21(b),
all necessary registration, maintenance and renewal fees
currently due in connection with Company Registered
Intellectual Property owned by the Company or any of its
Subsidiaries have been made for the purposes of maintaining
and recording ownership of such Company Registered
Intellectual Property in any jurisdiction material to the
operations of the Company as currently conducted and as
proposed to be conducted.
(c) Except as set forth on Schedule 4.21(c), the
Company owns and has good and exclusive title to, or has
licenses for, each item of Company Intellectual Property
necessary for the conduct of the Company's and its
Subsidiaries' business as currently conducted and as
proposed to be conducted, free and clear of any Lien
(excluding licenses and related restrictions); and the
Company is the exclusive owner or exclusive licensee of all
trademarks and service marks, brands, trade names and domain
names of the Company Registered Intellectual Property.
Except as set forth on Schedule 4.21(c), neither the Company
nor any of its Subsidiaries has granted any rights or
interest in the Company Intellectual Property to a third
party.
(d) The Company owns exclusively and has good title to
all copyrighted works created by or on behalf of the Company
or any of its Subsidiaries for, or otherwise has the right
to use the copyrighted works on or in connection with, the
products currently offered by or proposed to be offered by
the Company or any of its Subsidiaries.
(e) To the extent that the Company Intellectual
Property has been developed or created by a third party for
the Company or any of its Subsidiaries, the Company or such
Subsidiary, as applicable, has either (i) obtained a written
agreement with such third party confirming the Company's
ownership of such Company Intellectual Property, or (ii) has
an irrevocable license sufficient for the operations of the
Company and each of its Subsidiaries as currently conducted
and as proposed to be conducted to all of such third party's
Intellectual Property in such work, material or invention by
operation of law or by valid agreement.
(f) The operations of the Company and its Subsidiaries
as currently conducted and as proposed to be conducted,
including the Company's and any of its Subsidiaries' design,
development, marketing and sale of the products or services
of the Company and any such Subsidiary, has not since
October 2, 2006, and does not, infringe or misappropriate in
any manner the Intellectual Property of any third party or,
to the Knowledge of any Goldsboro Party, constitute unfair
competition or trade practices under the Laws of any
jurisdiction.
(g) The Goldsboro Parties have no Knowledge, and have
not received written notice of or any other overt threat
from any third party, that the operation of the Company and
its Subsidiaries as it is currently conducted and as
proposed to be conducted, or any act, product, service,
brand or mark of the Company or any of its Subsidiaries
currently offered or used by the Company, infringes or
misappropriates the Intellectual Property of any third party
or constitutes unfair competition or trade practices under
the Laws of any jurisdiction.
32
(h) To the Knowledge of the Goldsboro Parties, no
Person is currently infringing or misappropriating any
Company Intellectual Property.
(i) The Company and its Subsidiaries have taken
reasonable steps to protect the rights of the Company and
its Subsidiaries in the Confidential Information and any
trade secret or confidential information of third parties
used by the Company or any Subsidiary, and, except under
confidentiality obligations, there has not been to the
Knowledge of the Goldsboro Parties any unauthorized public
disclosure by the Company or any of its Subsidiaries of any
Confidential Information or any such trade secret or
confidential information of third parties.
Section 4.22 Software. Neither the Company nor any of its
Subsidiaries owns any Company Proprietary Software or licenses or
uses any Company Licensed Software that is material to the
operation of the Company or its Subsidiaries as currently
conducted and as proposed to be conducted.
Section 4.23 Transactions with Affiliates. Except as set
forth on Schedule 4.23, to the Knowledge of the Goldsboro Parties,
no executive officer of the Company, any of its Subsidiaries, any
Goldsboro Party, Murphy-Brown or any Affiliate of any of them, no
Person with whom any such officer, manager or director has any
direct or indirect relation by blood, marriage or adoption, no
entity in which any such officer, manager or director or Person
owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than five
percent of the stock of which is beneficially owned by all such
officers, directors and Persons in the aggregate), no Affiliate
of any of the foregoing and no current or former Affiliate of the
Company or any of its Subsidiaries, including any Goldsboro Party
or Murphy-Brown, has any interest in: (a) any contract,
arrangement or understanding with, or relating to, the Company or
any of its Subsidiaries or the properties or assets of the
Company or any of its Subsidiaries; (b) any loan, arrangement,
understanding, agreement or contract for or relating to the
Company or any of its Subsidiaries or the properties or assets of
the Company or any of its Subsidiaries; or (c) any property
(real, personal or mixed), tangible or intangible, used or
currently intended to be used by the Company or any of its
Subsidiaries.
Section 4.24 Undisclosed Payments. To the Knowledge of
the Goldsboro Parties, neither the Company, any of its
Subsidiaries nor any of their respective officers, managers or
directors, nor anyone acting on behalf of any of them, has made
or received any payment not correctly categorized and fully
disclosed in the Company's or Subsidiaries' books and records in
connection with or in any way relating to or affecting the
Company or any of its Subsidiaries.
Section 4.25 Customer and Supplier Relations. The Company
and its Subsidiaries maintain good relations with each of its
Customers and Suppliers and, to the Knowledge of the Goldsboro
Parties, no event has occurred that could materially and
adversely affect the Company's or its Subsidiaries' relations
with any Customer or Supplier. Except as set forth on Schedule
4.25, no Customer or Supplier has during the last twelve (12)
months cancelled, terminated or, to the Knowledge of any
Goldsboro Party, made any threat to cancel or otherwise terminate
any of its contracts with the Company or any of its Subsidiaries
or to decrease its usage or supply of the Company's or any of its
Subsidiaries' services or products, where such
33
cancellation, termination, decrease would be reasonably expected
to result in a Material Adverse Effect on the Business. Except
as set forth on Schedule 4.25, no Goldsboro Party has any
Knowledge to the effect that any current Customer or Supplier may
terminate or materially alter its business relations with the
Company or any of its Subsidiaries, either as a result of the
transactions contemplated hereby or otherwise and where such
termination or alteration would be reasonably expected to result
in a Material Adverse Effect on the Business
Section 4.26 Notes; Accounts Receivable.
(a) Notes. All notes receivable and notes payable of
the Company and its Subsidiaries owing by or to any
Affiliate of the Company or any of its Subsidiaries or by or
to any Goldsboro Party or Murphy-Brown (the "Affiliate
Loans") have been paid in full, settled by way of capital
contribution in kind, cancelled or otherwise discharged
prior to the date hereof or shall have been paid in full,
settled by way of capital contribution in kind, cancelled or
otherwise discharged prior to the Closing Date. Schedule
4.26(a) sets forth a correct and complete list of all
Affiliate Loans and the outstanding balance and applicable
interest payments under each Affiliate Loan as of the date
hereof.
(b) Accounts Receivable. Except as set forth on
Schedule 4.26(b), all receivables reflected on the Final
Working Capital Schedule (net of any reserves shown thereon)
(i) will be valid, existing and collectible in a manner
consistent with the Company's past practice without resort
to legal proceedings or collection agencies, (ii) represent
monies due for goods sold and delivered or services rendered
in the Ordinary Course and (iii) will not be subject to any
refund or adjustment or any defense, right of set-off,
assignment, restriction, security interest or other Lien.
Neither the Company nor any of its Subsidiaries has factored
any of its receivables.
(c) Accounts Payable. The accounts payable of the
Company and its Subsidiaries reflected on the Balance Sheet
(and that will be reflected on the Final Working Capital
Schedule) arose or will arise from bona fide transactions in
the Ordinary Course.
Section 4.27 Licenses. The Company and its Subsidiaries
own or possess all Licenses that are necessary to enable them to
carry on their operations as presently conducted. To the
Knowledge of the Goldsboro Parties, all such Licenses are valid,
binding and in full force and effect. The execution, delivery and
performance hereof and the consummation of the transactions
contemplated hereby shall not adversely affect any such License,
or require consent from, or notice to, any Governmental Entity.
No loss or expiration of any License is pending or, to the
Knowledge of any Goldsboro Party, threatened (other than
expiration upon the end of any term).
Section 4.28 Ethical Practices. To the Knowledge of the
Goldsboro Parties, neither the Company, any of its Subsidiaries
nor any representative thereof has offered or given anything of
value to: (i) any official of a Governmental Entity, any
political party or official thereof or any candidate for
political office; (ii) any customer or member of any Governmental
Entity; or (iii) any other Person, in any such case while knowing
or having reason to know that all or a portion
34
of such money or thing of value may be offered, given or promised,
directly or indirectly, to any customer or member of any
Governmental Entity or any candidate for political office for the
purpose of the following: (x) influencing any action or decision
of such Person, in such Person's official capacity, including a
decision to fail to perform such Person's official function; (y)
inducing such Person to use such Person's influence with any
Governmental Entity to affect or influence any act or decision of
such Governmental Entity to assist the Company or any of its
Subsidiaries in obtaining or retaining business for, with, or
directing business to, any Person; or (z) where such payment
would constitute a bribe, kickback or illegal or improper payment
to assist the Company or any of its Subsidiaries in obtaining or
retaining business for, with, or directing business to, any
Person.
Section 4.29 Product and Service Warranties and Guaranties.
(a) There is no pending or, to the Knowledge of any
Goldsboro Party, threatened claim alleging any breach of any
Warranty. Except as set forth on Schedule 4.29, neither the
Company nor any of its Subsidiaries has exposure to, or
liability under, any Warranty (a) beyond that which is
typically assumed in the ordinary course of business by
Persons engaged in businesses comparable in size and scope
of the Company and its Subsidiaries, or (b) that would have
a Material Adverse Effect. Attached to Schedule 4.29 is the
standard form of Warranty provided by the Company and its
Subsidiaries.
(b) Except as set forth on Schedule 4.29, adequate
reserves for any expense to be incurred by any Company or
any of its Subsidiaries as a result of any Warranty granted
prior to the Closing will be reflected on the Final Working
Capital Schedule.
Section 4.30 Brokers, Finders and Investment Bankers.
Except as set forth on Schedule 4.30, neither the Company, any of
its Subsidiaries, nor any Goldsboro Party, nor any officer,
member, manager, director or employee of the Company or any of
its Subsidiaries nor any Affiliate of the Company or any of its
Subsidiaries, has employed any broker, finder or investment
banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in
connection with the transactions contemplated hereby. The
Goldsboro Parties are solely responsible for the fees and
expenses of the brokers set forth on Schedule 4.30.
Section 4.31 Guarantees. Except as otherwise disclosed on
Schedule 4.31, neither any Goldsboro Party nor, to the Knowledge
of the Goldsboro Parties, Murphy-Brown nor any of their
respective Affiliates has guaranteed any obligations of the
Company or any of its Subsidiaries under any guarantee, letter of
credit, bid bond or performance bond.
Section 4.32 Financial Capability. To the Knowledge of
the Goldsboro Parties, the Seaboard Commitment Letters are in
full force and effect and have not been amended or modified.
None of the Goldsboro Parties has any reasonable expectation that
any of the conditions set forth in the Seaboard Commitment
Letters will not be satisfied. None of the Goldsboro Parties
knows of any circumstances or conditions that could be reasonably
expected to prevent the availability at the Closing of the
Seaboard Commitment Letters.
35
Section 4.33 Disclosure. No representation, warranty or
covenant made by any Goldsboro Party in this Agreement, the
Schedules or the Exhibits or any Goldsboro Ancillary Document
contains an untrue statement of a material fact or omits to state
a material fact required to be stated herein or therein or is
necessary to make the statements contained herein or therein not
misleading. Purchaser hereby acknowledges that it is not relying
and has not relied whatsoever on any other representations and
warranties or any other information or materials, including, but
not limited to, those materials containing projections of the
financial performance of the Company, regarding the subject
matter of this Agreement, except for the representations and
warranties set forth in this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES RELATED TO THE MAXWELL GROWING
INTEREST
The Goldsboro Parties hereby, jointly and severally,
represent and warrant to the Purchaser as follows as of the date
hereof and as of the Closing Date:
Section 5.1 Real Property.
(a) Schedule 5.1(a) sets forth a correct and complete
description of the MGI Real Property. Purchaser acknowledges
that final legal descriptions of the MGI Real Property do
not exist as of this date, but will be prepared by the
Goldsboro Parties prior to Closing.
(b) Maxwell or Goldsboro or one of the MGI
Subsidiaries or an Affiliate of Maxwell or Goldsboro, as
listed on Schedule 5.1(a), has good and marketable title to
the MGI Real Property, subject to Permitted Liens.
(c) All of the MGI Real Property is owned (and will be
conveyed) in fee simple and none is leased.
(d) No portion of the MGI Real Property, or any
building or improvement located thereon, violates in any
material respect any Law, including those Laws relating to
zoning, building, land use, environmental, health and safety,
fire, air, sanitation and noise control, except to the
extent that any such violation or noncompliance would not
interfere with the MGI Business as currently conducted.
Except for the Permitted Liens or as set forth on Schedule
5.1(d), no MGI Real Property is subject to any decree or
order of any Governmental Entity (or, to the Knowledge of
any Goldsboro Party, threatened or proposed order).
(e) The improvements and fixtures on the MGI Real
Property are, in all material respects, considered as a
whole with respect to each separate parcel of MGI Real
Property, in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and
are adequate and suitable for the purposes for which they
are presently being used. There is no condemnation or
similar proceeding pending or, to the Knowledge of any
Goldsboro Party, threatened against any of the MGI Real
Property or any improvement thereon. The MGI Real Property
constitutes all of the real
36
property utilized by Maxwell and the MGI Subsidiaries in the
operation of the MGI Business.
Section 5.2 Title to Assets; Related Matters.
(a) Except as set forth on Schedule 5.2, Maxwell and
the MGI Subsidiaries have good and marketable title to all
of their respective property and assets used in the MGI
Business, free and clear of all Liens except Permitted Liens.
(b) All equipment and other items of tangible personal
property and assets of Maxwell and the MGI Subsidiaries used
in the MGI Business (i) are, in all material respects,
considered as a whole, in good operating condition and in a
state of good maintenance and repair, ordinary wear and tear
excepted, (ii) were acquired and are usable in the regular
and Ordinary Course and (iii) conform, in all material
respects, to all applicable Laws. No Person other than
Maxwell, Goldsboro or one of the MGI Subsidiaries or any of
their respective Affiliates owns any equipment or other
tangible personal property or assets situated on the MGI
Real Property, except for leased items that are subject to
personal property leases. Except for Excluded Maxwell
Growing Interest Assets and except as set forth on Schedule
5.2, since January 1, 2010, neither Maxwell nor any of the
MGI Subsidiaries has sold, transferred or disposed of any
assets, other than sales of inventory in the Ordinary Course
and other sales of assets which, in the aggregate, do not
exceed $100,000 in sales price.
Section 5.3 Inventory. Maxwell's and the MGI Subsidiaries'
inventory related to the MGI Business (both as of the date hereof
and on the Closing Date (as will be reflected on the "Final
Working Capital Schedule" pursuant to the M-G Purchase
Agreement)) (a) is sufficient for the operation of the MGI
Business in the Ordinary Course, (b) consists of items that are
good and merchantable within normal trade tolerances, (c) is of a
quality and quantity presently usable or saleable in the Ordinary
Course (subject to applicable reserves), (d) is valued on the
books and records of Maxwell or the MGI Subsidiaries at the lower
of cost or market with the cost determined under the first-in-
first-out inventory valuation method consistent with past
practice, and (e) is subject to reserves determined in accordance
with GAAP, specifically including reserves for obsolescence and
excess inventory. To the Knowledge of the Goldsboro Parties, no
previously sold inventory of the MGI Business is subject to
returns in excess of those historically experienced by Maxwell or
the MGI Subsidiaries.
Section 5.4 No Other Assumed Liabilities. The Company
will not assume any liabilities or obligations related to the
Maxwell Growing Interest in connection with the M-G Purchase,
other than obligations under the MGI Contracts, the insurance
policies set forth on Schedule 5.11, and the contracts listed on
Schedule 5.4, and then only to the extent such obligations are
not required to be performed on or prior to the Closing Date, but
rather will accrue and relate to operations subsequent to the
Closing Date.
Section 5.5 Legal Proceedings. Except as and to the
extent unrelated to the MGI Business or as set forth on Schedule
5.5, there is no suit, action, claim, arbitration, proceeding or
investigation pending or, to the Knowledge of any Goldsboro
Party, threatened against, relating to or involving Maxwell, any
MGI Subsidiary or their respective real or personal property used
37
in the MGI Business before any Governmental Entity or any
arbitrator (an "MGI Legal Proceeding").
Section 5.6 Compliance with Law. Except as and to the
extent unrelated to the MGI Business, Maxwell and each MGI
Subsidiary is (and has been at all times during the four (4)
years) in compliance in all material respects with all applicable
Laws, except to the extent such instances of non-compliance would
not require payment by, or result in Losses to, Maxwell or any
MGI Subsidiary or the Company or any of its Subsidiaries, in
excess of $50,000 with respect to any such instance individually
or in excess of $100,000 in the aggregate with respect to all
such instances. Except as and to the extent unrelated to the MGI
Business or as set forth on Schedule 5.6, (a) neither Maxwell nor
any MGI Subsidiary has been charged with, nor received any
written notice that it is under investigation with respect to,
and, to the Knowledge of any Goldsboro Party, neither Maxwell nor
any MGI Subsidiary is otherwise now under investigation with
respect to, any violation of any applicable Law or other
requirement of a Governmental Entity, (b) neither Maxwell nor any
MGI Subsidiary is a party to, or bound by, any order, judgment,
decree, injunction, rule or award of any Governmental Entity or
arbitrator and (c) Maxwell and each MGI Subsidiary has filed all
reports and has all Licenses required to be filed with any
Governmental Entity on or prior to the date hereof. Sleepy Creek
has revised its standard grower contract form to comply with all
applicable federal Laws (and, to the Knowledge of the Goldsboro
Parties, such revised contract does now so comply), and Sleepy
Creek has now entered into new contracts with each of its active
growers based upon such revised standard contract form. Except
as and to the extent unrelated to the MGI Business or as set
forth on Schedule 5.6, neither Maxwell nor any MGI Subsidiary
sells, or has ever sold, any product or provided any services to
any Governmental Entity, and neither Maxwell nor any MGI
Subsidiary is currently under any contract or agreement with any
Governmental Entity. Neither Maxwell nor any MGI Subsidiary is
(x) subject to any judgment, decree, injunction, rule or order of
any court or arbitration panel with respect to the MGI Business
or (y) debarred or suspended from doing business with any
Governmental Entity.
Section 5.7 Maxwell Growing Interest Contracts. Schedule
5.7 sets forth a correct and complete list of all grower
contracts and other contracts related to the MGI Business to
which Maxwell or any MGI Subsidiary is a party, by which Maxwell,
any MGI Subsidiary or any property of any of them is subject or
by which Maxwell or any MGI Subsidiary is otherwise bound,
whether oral or written, which will be assigned to the Company as
part of the M-G Purchase (the "MGI Contracts") (other than the
Employment Agreements set forth on Schedule 5.8, the MGI Benefit
Plans set forth on Schedule 5.9 and the insurance policies set
forth on Schedule 5.11). Copies of all MGI Contracts have been
made available to the Purchaser. To the Knowledge of the
Goldsboro Parties, the MGI Contracts are legal, valid, binding
and enforceable, in all material respects, in accordance with
their respective terms with respect to Maxwell or any MGI
Subsidiary, as applicable, and each other party to such MGI
Contracts. There is no existing default or breach of Maxwell or
any MGI Subsidiary, as applicable, under any MGI Contract (or
event or condition that, with notice or lapse of time or both
could constitute a default or breach) and, to the Knowledge of
any Goldsboro Party, there is no such default (or event or
condition that, with notice or lapse of time or both, could
constitute a default or breach) with respect to any third party
to any MGI Contract (although approximately 10% of growers are on
process improvement plans).
38
Section 5.8 Officers and Employees. Except as and to the
extent unrelated to the MGI Business or as set forth on Schedule
5.8, neither Maxwell nor any MGI Subsidiary is a party to or
bound by any Employment Agreement (the Employment Agreements set
forth on Schedule 5.8 being referred to herein as the "MGI
Employment Agreements"). The Goldsboro Parties have provided to
the Purchaser correct and complete copies of each MGI Employment
Agreement. To the Knowledge of the Goldsboro Parties, there is
no existing default or breach of Maxwell or any MGI Subsidiary,
as applicable, under any MGI Employment Agreement (or event or
condition that, with notice or lapse of time or both could
constitute a default or breach), and there is no such default
(or event or condition that, with notice or lapse of time or
both, could constitute a default or breach) with respect to any
third party to any MGI Employment Agreement. Neither any
Goldsboro Party nor any MGI Subsidiary has received a claim from
any Governmental Entity to the effect that MGI or any MGI
Subsidiary has improperly classified any person (a) as an
independent contractor or (b) as "exempt" or "non-exempt" under
the FLSA. Except as and to the extent unrelated to the MGI
Business or as set forth on Schedule 5.8, neither any Goldsboro
Party nor any MGI Subsidiary has made any verbal commitments to
any officer, employee, former employee, consultant or
independent contractor of Maxwell or any MGI Subsidiary with
respect to compensation, promotion, retention, termination,
severance or similar matters in connection with the transactions
contemplated hereby or otherwise.
Section 5.9 MGI Benefit Plans. Each MGI Benefit Plan is
identified in Schedule 5.9, and the Goldsboro Parties have
provided a correct and complete copy of each such plan to the
Purchaser together with the most recent report filed with
respect to such plan with any Governmental Entity. No MGI
Benefit Plan is subject to Title IV of ERISA, and no MGI Benefit
Plan is described in Section 413(c) of the Code or Section 3(40)
of ERISA. The terms of each MGI Benefit Plan as currently in
effect that purports to be qualified under Section 401(a) of the
Code and any trust which is a part of any such MGI Benefit Plan
are subject to a favorable determination letter or opinion
letter from the U.S. Internal Revenue Service, and each such
plan has been operated and administered in accordance with all
Laws (including ERISA and the Code). The terms of each other
MGI Benefit Plan satisfy the requirements of Laws (including
ERISA and the Code), and each such plan has been operated and
administered in accordance with all Laws (including ERISA and
the Code). Maxwell and each of the MGI Subsidiaries have timely
satisfied all reporting and disclosure obligations under Laws
(including ERISA and the Code) with respect to the MGI Benefit
Plans. Neither Maxwell nor an ERISA Affiliate has any liability
(directly or indirectly, contingent or otherwise) under any
Employee Benefit Plan other than a MGI Benefit Plan. There have
been no prohibited transactions (as described in Section 406 of
ERISA or Section 4975 of the Code) with respect to any MGI
Benefit Plan which have not been corrected in full with respect
to which any Tax or penalty is due or which are not otherwise
exempt under Section 4975(d) of the Code or Section 408 of ERISA.
If the benefits under an MGI Benefit Plan are funded through a
trust, the fair market value of the assets of such trust equal
or exceed the liabilities of such plan. If the benefits under
an MGI Benefit Plan are funded through insurance contracts, such
contracts are in full force and effect and all premiums have
been paid when due. If benefits under an MGI Benefit Plan are
funded from the general assets of Maxwell or any of the MGI
Subsidiaries, the liability for funding such benefits is shown
on Schedule 5.9 (with such liability being shown in accordance
with GAAP and any applicable standards of the Financial
Accounting Standards Board). Maxwell and each of the MGI
Subsidiaries have made full and timely payment of all amounts
which are required to be paid as contributions to each MGI
Benefit Plan. No MGI Benefit Plan provides for benefits
39
described in Section 3(1) of ERISA following a termination of
employment except as required under Part 6 of Title I of ERISA,
and Maxwell and each of the MGI Subsidiaries have complied in
all respects with the healthcare continuation coverage
requirements of Part 6 of Title I of ERISA. Except as set forth
in Schedule 5.9, there is no contract, agreement, plan or
arrangement with any Person which provides for any payment to
any employee by Maxwell or any of the MGI Subsidiaries, which
payment would fail to be deductible by reason of Section 280G of
the Code or which would exceed the deduction limits under
Section 404 of the Code. Except as set forth in Schedule 5.9,
neither Maxwell nor any of the MGI Subsidiaries has any
contractual obligation to maintain any MGI Benefit Plan for any
period of time or to make contributions from its general assets
at a fixed rate to such plan (other than premium payments for an
insurance contract which are set on a year-to-year basis and
matching contributions as provided in Maxwell's 401(k) plan),
and Maxwell can terminate any MGI Benefit Plan at any time,
including an MGI Benefit Plan which is described in Section
401(k) of the Code, without any early termination fee or penalty
becoming due under the terms of any group annuity or other
insurance contract.
Section 5.10 Labor Relations. Except as and to the
extent unrelated to the MGI Business or as set forth in Schedule
5.10, (a) neither Maxwell nor any of the MGI Subsidiaries is a
party to any collective bargaining agreement, contract or
legally binding commitment to any trade union or employee
organization or group in respect of or affecting employees; (b)
neither Maxwell nor any of the MGI Subsidiaries is currently
engaged in any negotiation with any trade union or employee
organization; (c) neither Maxwell nor any of the MGI
Subsidiaries has engaged in any unfair labor practice within the
meaning of the National Labor Relations Act, and there is no
pending or, to the Knowledge of any Goldsboro Party, threatened
complaint regarding any alleged unfair labor practices as so
defined; (d) there is no strike, labor dispute, work slow down
or stoppage pending or, to the Knowledge of any Goldsboro Party,
threatened against Maxwell or any of the MGI Subsidiaries; (e)
there is no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement which is pending or,
to the Knowledge of any Goldsboro Party, threatened against
Maxwell or any of the MGI Subsidiaries; (f) neither Maxwell nor
any of the MGI Subsidiaries has experienced any material work
stoppage; (g) neither Maxwell nor any of the MGI Subsidiaries is
the subject of any union organization effort; (h) there are no
claims pending or, to the Knowledge of any Goldsboro Party,
threatened against Maxwell or any of the MGI Subsidiaries
related to the status of any individual as an independent
contractor or employee; and (i) Maxwell and each of the MGI
Subsidiaries have complied in all respects with WARN.
Section 5.11 Insurance Policies. Schedule 5.11 sets
forth a list of all policies of insurance currently maintained,
owned or held by Maxwell and the MGI Subsidiaries related to the
MGI Business (collectively, the "MGI Insurance Contracts"),
including the policy limits or amounts of coverage, deductibles
or self-insured retentions, and annual premiums with respect
thereto. To the Knowledge of the Goldsboro Parties, such MGI
Insurance Contracts are valid and binding in accordance with
their terms, are in full force and effect, and the MGI Insurance
Contracts will continue in effect after the Closing Date.
Similar coverage to the coverage set forth in the MGI Insurance
Contracts has been maintained on a continuous basis for the last
five (5) years. Neither Maxwell nor any of the MGI Subsidiaries
has received written notice that (a) it has breached or
defaulted under any of such MGI Insurance Contracts, or (b) that
any event has occurred that would permit termination,
modification, acceleration or repudiation of such
40
MGI Insurance Contracts. Except as set forth in Schedule 5.11,
neither Maxwell nor any MGI Subsidiary is in default (including
a failure to pay an insurance premium when due) in any material
respect with respect to any MGI Insurance Contract, nor has
Maxwell nor any MGI Subsidiary failed to give any notice of any
material claim under such MGI Insurance Contract in due and
timely fashion nor has Maxwell nor any MGI Subsidiary ever been
denied or turned down for insurance coverage.
Section 5.12 Environmental, Health and Safety Matters.
Except as set forth on Schedule 5.12, with respect to the MGI
Real Property and the MGI Business:
(a) Maxwell and each MGI Subsidiary possess all
permits and approvals required under, and each is in
compliance in all material respects with, all Environmental
Laws, and Maxwell and each MGI Subsidiary is in compliance
in all material respects with all applicable limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables
contained in all Environmental Laws or contained in any
other Law, or any notice or demand letter issued thereunder;
(b) to the Knowledge of the Goldsboro Parties,
neither Maxwell nor any MGI Subsidiary has received notice
of actual or threatened liability under CERCLA or any
similar foreign, state or local Law from any Governmental
Entity or any third party and there is no fact or
circumstance that could form the basis for the assertion of
any claim against Maxwell or any MGI Subsidiary under any
Environmental Law, including CERCLA or any similar local,
state or foreign Law with respect to any on-site or off-
site location;
(c) neither Maxwell nor any MGI Subsidiary has
entered into or agreed to enter into any consent decree or
order, and neither Maxwell nor any MGI Subsidiary is
subject to any judgment, decree or judicial or
administrative order relating to compliance with, or the
cleanup of Hazardous Materials under, any applicable
Environmental Law;
(d) neither Maxwell nor any MGI Subsidiary has been
alleged to be in violation of, and has not been subject to
any administrative or judicial proceeding pursuant to,
applicable Environmental Laws either now or any time during
the past four (4) years;
(e) neither Maxwell nor any MGI Subsidiary is subject
to any claim, obligation, liability, loss, damage or
expense of any kind or nature whatsoever, contingent or
otherwise, incurred or imposed or based upon any provision
of any Environmental Law or arising out of any act or
omission of Maxwell or any MGI Subsidiary, or Maxwell's or
any MGI Subsidiaries' employees, agents or representatives
or arising out of the ownership, use, control or operation
by Maxwell or any MGI Subsidiary of any plant, facility,
site, area or property (including any plant, facility,
site, area or property currently or previously owned or
leased by Maxwell or any MGI Subsidiary) from which any
Hazardous Materials were Released into the environment (the
term "environment" meaning any surface or ground water,
drinking water supply, soil, surface or subsurface strata
or medium, or the ambient air);
41
(f) the Goldsboro Parties have made available to the
Purchaser copies of all reports, correspondence, memoranda,
computer data and files relating to environmental matters
in the MGI Real Property; and neither Maxwell nor any MGI
Subsidiary has paid any fine, penalty or assessment within
the prior four (4) years with respect to environmental
matters on the MGI Real Property;
(g) no MGI Real Property, improvement or equipment of
Maxwell or any MGI Subsidiary contains any polychlorinated
biphenyls, underground storage tanks, open or closed pits,
sumps or other containers in violation in any material
respect of Environmental Laws; and
(h) neither Maxwell nor any MGI Subsidiary has
imported, manufactured, stored, managed, used, operated,
transported, treated or disposed of any Hazardous Material
other than in material compliance with all Environmental
Laws.
Section 5.13 Intellectual Property. Maxwell or an MGI
Subsidiary has transferred all right, title and interest of
Maxwell or such MGI Subsidiary in any Company Intellectual
Property to the Company or will transfer all right, title and
interest of Maxwell or such MGI Subsidiary in any Company
Intellectual Property to the Company in connection with the M-G
Purchase Agreement.
Section 5.14 Software.
(a) Schedule 5.14 sets forth a correct and complete
list of: (i) the MGI Proprietary Software, (ii) the MGI
Licensed Software, and (iii) all technical and restricted
materials relating to the acquisition, design, development,
use or maintenance of computer code program documentation
and materials used by Maxwell or any MGI Subsidiary and
related to the MGI Software.
(b) Except as set forth on Schedule 5.14, Maxwell has
all right, title and interest in and to the MGI Proprietary
Software, free and clear of all Liens. Maxwell has
developed the MGI Proprietary Software through its own
efforts, as described in Section 5.14(d), and for use in
the conduct of the MGI Business. The use of the MGI
Software does not breach any term of any license or other
contract between Maxwell or any MGI Subsidiary, on the one
hand, and any third party, on the other hand. Maxwell and
the MGI Subsidiaries are in compliance with the terms and
conditions of all license agreements in favor of Maxwell or
any MGI Subsidiary relating to the MGI Licensed Software.
(c) The MGI Proprietary Software has not, does not
and shall not infringe any patent, copyright or trade
secret or any other Intellectual Property right of any
third party. The source code for the MGI Proprietary
Software is and has been maintained in confidence.
(d) The MGI Proprietary Software was: (i) developed
by Maxwell's employees working within the scope of their
employment at the time of such development; or (ii)
developed by agents, consultants, contractors or other
Persons who have executed appropriate instruments of
assignment in favor of Maxwell as assignee that
42
have conveyed to Maxwell ownership of all of its
Intellectual Property rights in the MGI Proprietary
Software; or (iii) acquired by Maxwell in connection with
acquisitions in which Maxwell obtained appropriate
representations, warranties and indemnities from the
transferring party relating to the title to Intellectual
Property rights in the MGI Proprietary Software. Neither
Maxwell nor any MGI Subsidiary has received notice from any
third party claiming any right, title or interest in the
MGI Proprietary Software.
(e) Neither Maxwell nor any MGI Subsidiary has
granted rights in the MGI Software to any third party.
Section 5.15 Transactions with Affiliates. Except as set
forth on Schedule 5.15, to the Knowledge of the Goldsboro Parties,
no officer, manager or director of Maxwell or any MGI Subsidiary,
no Person with whom any such officer, manager or director has any
direct or indirect relation by blood, marriage or adoption, no
entity in which any such officer, manager or director or Person
owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than five
percent of the stock of which is beneficially owned by all such
officers, directors and Persons in the aggregate), no Affiliate
of any of the foregoing and no current or former Affiliate of
Maxwell or any MGI Subsidiary has any interest in: (a) any
contract, arrangement or understanding with, or relating to,
Maxwell or any MGI Subsidiary or the properties or assets of
Maxwell or any MGI Subsidiary in connection with the MGI
Business; (b) any loan, arrangement, understanding, agreement or
contract for or relating to Maxwell or any MGI Subsidiary or the
properties or assets of Maxwell or any MGI Subsidiary in
connection with the MGI Business; or (c) any property (real,
personal or mixed), tangible or intangible, used or currently
intended to be used by Maxwell or any MGI Subsidiary in
connection with the MGI Business.
Section 5.16 Undisclosed Payments. To the Knowledge of the
Goldsboro Parties, neither Maxwell, any MGI Subsidiary nor any of
their respective officers, managers or directors, nor anyone
acting on behalf of any of them, has made or received any payment
not correctly categorized and fully disclosed in Maxwell's or the
MGI Subsidiaries' books and records in connection with or in any
way relating to or affecting the MGI Business.
Section 5.17 Supplier Relations. Schedule 5.17 contains a
correct and complete list of the names of the suppliers to the
MGI Business to which Maxwell or any MGI Subsidiary paid an
amount in excess of $10,000,000 during the twelve (12) month
period ended June 30, 2010.
Section 5.18 Licenses. Schedule 5.18 is a correct and
complete list of all Licenses held by Maxwell and each MGI
Subsidiary related to the MGI Business. Maxwell and the MGI
Subsidiaries own or possess all Licenses that are necessary to
enable them to carry on the MGI Business as presently
conducted. To the Knowledge of the Goldsboro Parties, all such
Licenses are valid, binding and in full force and effect. The
execution, delivery and performance hereof and the consummation
of the transactions contemplated hereby shall not adversely
affect any such License, or require consent from, or notice to,
any Governmental Entity. Maxwell has taken all necessary action
to maintain each such License. No loss or expiration of any
such License is pending or, to the Knowledge of any Goldsboro
Party, threatened (other than expiration upon the end of any
term).
43
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES RELATED TO THE GOLDSBORO PARTIES
The Goldsboro Parties hereby, jointly and severally,
represent and warrant to the Purchaser as follows as of the date
hereof and as of the Closing Date:
Section 6.1 Authorization. Each Goldsboro Party has the
right, power, authority and capacity to execute and deliver this
Agreement and each Goldsboro Ancillary Document and to perform
its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Goldsboro
Ancillary Documents by the Goldsboro Parties and the consummation
of the transactions contemplated hereby and thereby have been
duly authorized by all required action on the part of the
Goldsboro Parties. This Agreement has been, and the Goldsboro
Ancillary Documents shall be as of the Closing Date, duly
executed and delivered by the Goldsboro Parties, and do or shall,
as the case may be, constitute the valid and binding agreements
of the Goldsboro Parties enforceable against the Goldsboro
Parties in accordance with their respective terms.
Section 6.2 Absence of Restrictions and Conflicts. The
execution, delivery and performance of this Agreement and the
Goldsboro Ancillary Documents, the consummation of the
transactions contemplated hereby and thereby and the fulfillment
of and compliance with the terms and conditions hereof and
thereof do not or shall not, as the case may be, with the passing
of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss
of any benefit under, permit the acceleration of any obligation
under or create in any party the right to terminate, modify or
cancel (a) except as set forth on Schedule 6.2, any contract,
agreement, permit, franchise, license or other instrument
applicable to such Goldsboro Party, (b) any judgment, decree or
order of any Governmental Entity to which such Goldsboro Party is
a party or by which such Goldsboro Party or any of its properties
are bound, or (c) any Law or arbitration award applicable to such
Goldsboro Party.
Section 6.3 Ownership of Equity.
(a) Maxwell has good and valid title to and beneficial
ownership of the number of Membership Interests set forth
next to Maxwell's name on Schedule 4.3, and such Membership
Interests are (i) validly issued, fully paid, and
nonassessable, and (ii) free and clear of all Liens. Other
than the Membership Interests listed on Schedule 4.3,
Maxwell owns no Membership Interests, units or other equity
security of the Company or any of its Subsidiaries, or any
option, warrant, right, call, commitment or right of any
kind to have any such equity security issued.
(b) As of the Closing, (i) pursuant to the Murphy-
Brown Butterball Interest Contribution Agreement, Newco will
convey good title to the Murphy-Brown Growing Interest and
the Murphy-Brown Member Note, free and clear of all Liens
other than liens permitted under the Murphy-Brown Purchase
Agreement, to the Company, and (ii) pursuant to the Seaboard
Purchase Agreement, Newco will convey good title to the
Newco Membership Interest, free and clear of all Liens, to
the Purchaser.
44
(c) Immediately upon consummation of the Seaboard
Closing, Maxwell and the Purchaser will each own a 50%
Membership Interest in the Company, free and clear of all
Liens.
(d) Maxwell is a wholly-owned subsidiary of Maxwell
Indiana. The equity interests of Maxwell Indiana are owned
by individuals who are members of the Maxwell Family (or
trusts for the benefit of such individuals or related
persons), and Maxwell Indiana is not a subsidiary of any
other entity.
Section 6.4 Legal Proceedings. There are no suits,
actions, claims, proceedings or investigations pending or, to the
Knowledge of such Goldsboro Party, threatened against, relating
to or involving such Goldsboro Party which could reasonably be
expected to adversely affect such Goldsboro Party's ability to
consummate the transactions contemplated by this Agreement or the
Goldsboro Ancillary Documents.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the
Goldsboro Parties as follows:
Section 7.1 Organization. The Purchaser is a corporation
duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry
on its business as now being conducted.
Section 7.2 Authorization. The Purchaser has full power
and authority to execute and deliver this Agreement and the
Purchaser Ancillary Documents, to perform its obligations
hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of
this Agreement and the Purchaser Ancillary Documents by the
Purchaser, the performance by the Purchaser of its obligations
hereunder and thereunder, and the consummation of the
transactions provided for herein and therein have been duly and
validly authorized by all necessary action on the part of the
Purchaser. This Agreement has been and, as of the Closing Date,
the Purchaser Ancillary Documents shall be, duly executed and
delivered by the Purchaser and do or shall, as the case may be,
constitute the valid and binding agreements of the Purchaser,
enforceable against the Purchaser in accordance with their
respective terms, subject to applicable bankruptcy insolvency and
other similar Laws affecting the enforceability of creditors'
rights generally, general equitable principles and the discretion
of course in granting equitable remedies.
Section 7.3 Absence of Restrictions and Conflicts. The
execution, delivery and performance of this Agreement and the
Purchaser Ancillary Documents, the consummation of the
transactions contemplated hereby and thereby and the fulfillment
of, and compliance with, the terms and conditions hereof and
thereof do not or shall not (as the case may be), with the
passing of time or the giving of notice or both, violate or
conflict with, constitute a breach of or default under, result in
the loss of any benefit under, or permit the acceleration of any
obligation under, (a) any term or provision of the organizational
documents of the Purchaser, (b) any contract to which the
Purchaser is a party, (c) any judgment, decree or order of any
45
Governmental Entity to which the Purchaser is a party or by which
the Purchaser or any of its properties is bound or (d) any Law
applicable to the Purchaser unless, in each case, such violation,
conflict, breach, default, loss of benefit or accelerated
obligation would not, either individually or in the aggregate,
have a material adverse impact on the ability of the Purchaser to
consummate the transactions contemplated hereby, or by the
Purchaser Ancillary Documents, except for compliance with the
applicable requirements of the HSR Act.
Section 7.4 Financial Capability. To the knowledge of
the Purchaser, the Seaboard Commitment Letters are in full force
and effect and have not been amended or modified. The Purchaser
does not have any reasonable expectation that any of the
conditions set forth in the Seaboard Commitment Letters will not
be satisfied. The Purchaser does not know of any circumstances
or conditions (other than the termination of this Agreement in
accordance with its terms) that could be reasonably expected to
prevent the availability at the Closing of the New Butterball
Credit Facility Loan Proceeds.
ARTICLE VIII.
CERTAIN COVENANTS AND AGREEMENTS
Section 8.1 Conduct of Business by the Company. For the
period commencing on the date hereof and ending on the Closing
Date, the Goldsboro Parties will not vote, approve, agree to or
otherwise authorize any action which requires the unanimous
approval, agreement or authorization of Maxwell and Murphy-Brown
pursuant to the Operating Agreement without the prior written
consent of the Purchaser (which consent shall not be unreasonably
withheld, conditioned or delayed). In connection with the
continued operation of the Company and each Subsidiary during the
period commencing on the date hereof and ending on the Closing
Date, the Goldsboro Parties shall confer, and shall use
commercially reasonable efforts to cause the Company to confer,
in good faith on a regular and frequent basis with the Purchaser
regarding operational matters and the general status of on-going
operations of the Company and its Subsidiaries. Each Goldsboro
Party hereby acknowledges that, except as otherwise consented to
in writing by the Purchaser, the Purchaser does not and shall not
waive any right it may have hereunder as a result of such
consultations. The Goldsboro Parties shall not, and shall use
commercially reasonable efforts to cause the Company and each
Subsidiary not to, take any action that would, or that could
reasonably be expected to, result in any representation or
warranty of any Goldsboro Party set forth herein to become
untrue.
Section 8.2 Inspection and Access to Information. During
the period commencing on the date hereof and ending on the
Closing Date, the Goldsboro Parties will, and will use reasonable
efforts to cause the Company, each Subsidiary and their
respective officers, directors, managers, employees, auditors and
agents to, provide the Purchaser and its accountants, investment
bankers, counsel, environmental consultants and other authorized
representatives full access, during reasonable hours and under
reasonable circumstances, to any and all of their respective
premises, employees (including executive officers), properties,
contracts, commitments, books, records and other information
(including, with respect to the Company and its Subsidiaries, Tax
Returns filed and those in preparation) and shall use reasonable
efforts to cause the Company's officers to furnish to the
Purchaser and its authorized representatives, promptly upon
request therefor, any and all financial, technical and operating
data and other
46
information pertaining to the Company or any of its Subsidiaries
and otherwise fully cooperate with the conduct of due diligence
by the Purchaser and its representatives.
Section 8.3 Notices of Certain Events. The Goldsboro
Parties shall promptly notify the Purchaser of:
(a) any change or event that, individually or in the
aggregate, has had or could reasonably be expected to have a
Material Adverse Effect or otherwise result in any
representation or warranty of any Goldsboro Party hereunder
being inaccurate in any material respect;
(b) any notice or other communication from any Person
alleging that the consent of such Person is or may be
required in connection with the transactions contemplated
hereby;
(c) any notice or other communication from any
Governmental Entity in connection with the transactions
contemplated hereby;
(d) any action, suit, claim, investigation or
proceeding commenced or, to the Knowledge of any Goldsboro
Party, threatened against, relating to or involving or
otherwise affecting the Company or any of its Subsidiaries
that, if pending on the date hereof, would have been
required to have been disclosed pursuant to Section 4.12 or
that relates to the consummation of the transactions
contemplated hereby; and
(e) (i) the damage or destruction by fire or other
casualty of any asset or part thereof of the Company or any
of its Subsidiaries or (ii) any such asset or part thereof
becoming the subject of any proceeding (or, to the Knowledge
of any Goldsboro Party, any threatened proceeding) for the
taking thereof or of any right relating thereto by
condemnation, eminent domain or other similar governmental
action.
Each Goldsboro Party hereby acknowledges that the Purchaser
does not and shall not waive any right it may have hereunder as a
result of such notifications.
Section 8.4 Interim Financials. As promptly as
practicable following each regular accounting period on or after
August 1, 2010 and prior to the Closing Date, the Goldsboro
Parties shall use reasonable efforts to cause the Company to
deliver to the Purchaser periodic financial reports in the
form that it customarily prepares for its internal purposes
concerning the Company and its Subsidiaries and, if available,
unaudited statements of the financial position of the Company
and its Subsidiaries as of the last day of each accounting
period and statements of income and changes in financial position
of such entity for the period then ended.
Section 8.5 No Solicitation of Transactions. During the
period commencing on the date hereof and ending on the Closing
Date, the Goldsboro Parties and their respective Affiliates,
officers, directors, shareholders and advisors will not initiate,
solicit, negotiate, respond to, or pursue with any third party
(including, without limitation, Smithfield Foods, Inc.
("Smithfield") and its Affiliates) any inquiry, proposal or offer
relating to the acquisition and/or financing of the Company and
its Subsidiaries or the Business, or any portion thereof, or of
the Murphy-Brown Butterball Interest, the Maxwell Growing
Interest, or the Maxwell Membership Interest (the
47
Maxwell Membership Interest together with the Maxwell Growing
Interest, the "Maxwell Butterball Interest") whether by purchase
of assets or stock, merger, consolidation, recapitalization,
reorganization or other transaction (an "Alternative Offer"), and
shall not provide any information regarding the Company, its
Subsidiaries, the Maxwell Butterball Interest or the Murphy-Brown
Butterball Interest, to any third party, where the Goldsboro
Parties or their respective Affiliates, officers, directors,
shareholders and advisors have reason to believe such information
may be used in connection with an Alternative Offer. In addition,
the Goldsboro Parties will, from the date hereof until the
Closing Date, cease any discussions with any third parties other
than the Purchaser relating to an Alternative Offer. The
Goldsboro Parties will promptly advise the Purchaser in writing
of the terms of any Alternative Offer and the name of the offeror.
Notwithstanding the foregoing, it is understood that the
Goldsboro Parties shall be permitted to continue discussions and
negotiations with Smithfield and its Affiliates with respect to
the purchase of the Murphy-Brown Butterball Interest pursuant to
the Buy/Sell Notice. Notwithstanding anything to the contrary
contained herein, this Section 8.5 shall be deemed to have
terminated in the event that this Agreement is terminated in
accordance with the provisions of Article XI.
Section 8.6 Reasonable Efforts; Further Assurances;
Cooperation. Subject to the other provisions hereof, each Party
shall each use its commercially reasonable, good faith efforts to
perform its obligations hereunder and to take, or cause to be
taken, and do, or cause to be done, all things necessary, proper
or advisable under applicable Law to obtain all consents required
as described on Schedule 4.14 and all regulatory approvals and to
satisfy all conditions to its obligations hereunder and to cause
the transactions contemplated herein to be effected as soon as
practicable, but in any event on or prior to the Expiration Date,
in accordance with the terms hereof and shall cooperate fully
with each other Party and its officers, directors, managers,
employees, agents, counsel, accountants and other designees in
connection with any step required to be taken as a part of its
obligations hereunder, including the following:
(a) On August 31, 2010, each of the Goldsboro Parties
and the Purchaser filed with the United States Federal Trade
Commission (the "FTC") and the United States Department of
Justice (the "DOJ") the notification and report form and any
supplemental information requested in connection therewith
pursuant to the HSR Act required for the transactions
contemplated by this Agreement. The Goldsboro Parties and
the Purchaser shall keep each other reasonably apprised of
the status of any communications with, and any inquiries or
requests for additional information from, the FTC or the DOJ
and shall comply promptly with any such inquiry or request
and shall promptly provide any supplemental information
requested in connection with the filings made hereunder
pursuant to the HSR Act. Each Party shall use its
reasonable best efforts to obtain any clearance required
under the HSR Act for the consummation of the transactions
contemplated by this Agreement. Each of the Parties shall
cooperate with the other in promptly filing any other
necessary applications, reports or other documents with any
Governmental Entity having jurisdiction with respect to this
Agreement and the transactions contemplated hereby, and in
seeking necessary consultation with and prompt favorable
action by such Governmental Entity. Notwithstanding any
provision of this Agreement to the contrary, the Purchaser
shall not be required under the terms of this Agreement to
dispose of or hold separate all or any portion of the
businesses or assets of the Purchaser or any of its
Affiliates or the Company and its Subsidiaries in order to
48
remedy or otherwise address the concerns (whether or not
formally expressed) of any Governmental Entity under the HSR
Act or any other antitrust statute or regulation. Any
filing fees or other expenses required to be paid under the
HSR Act shall be borne one-half by the Purchaser, on one
hand, and one-half by the Goldsboro Parties, on a joint and
several basis, on the other hand.
(b) In the event any claim, action, suit,
investigation or other proceeding by any Governmental Entity
or other Person is commenced that questions the validity or
legality of any of the transactions contemplated hereby or
seeks damages in connection therewith, the Parties shall (i)
cooperate and use all commercially reasonable efforts to
defend against such claim, action, suit, investigation or
other proceeding, (ii) in the event an injunction or other
order is issued in any such action, suit or other proceeding,
use all commercially reasonable efforts to have such
injunction or other order lifted, and (iii) cooperate
reasonably regarding any other impediment to the
consummation of the transactions contemplated hereby.
(c) The Goldsboro Parties will cause the Company to
give all notices to third parties and use its commercially
reasonable best efforts (in consultation with the Purchaser)
to obtain all third-party consents (i) necessary, proper or
advisable to consummate the transactions contemplated hereby,
(ii) required to be given or obtained, including those
required to be given or obtained as set forth on Schedule
4.14 and the other Schedules, (iii) required to avoid a
breach of or default under any Company Contract in
connection with the consummation of the transactions
contemplated hereby or (iv) required to prevent a Material
Adverse Effect, whether prior to, on or following the
Closing Date.
(d) The Goldsboro Parties, on the one hand, and the
Purchaser, on the other hand, shall give prompt notice to
the other Party or Parties of (i) the occurrence, or failure
to occur, of any event, the occurrence or failure of which
would be likely to cause any representation or warranty of
the Goldsboro Parties or the Purchaser, as the case may be,
contained herein to be untrue or inaccurate at any time from
the date hereof to the Closing Date or that will or may
result in the failure to satisfy any condition specified in
Article IX and (ii) any failure of the Goldsboro Parties or
the Purchaser, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or
satisfied by any of them hereunder. Each Goldsboro Party
hereby acknowledges that the Purchaser does not and shall
not waive any right it may have hereunder as a result of
such notifications, and the Purchaser hereby acknowledges
that none of the Goldsboro Parties waive, nor shall waive
any right any of them may have hereunder as a result of such
notifications; provided that each Party shall provide the
other Party with reasonable time to cure any such occurrence
or failure to occur of an event.
(e) The Goldsboro Parties shall use reasonable efforts
to cause the Company, each Subsidiary and any Affiliate of
any of them thereof to do all things required by the Company
or any of its Subsidiaries pursuant to this Agreement and
otherwise to consummate the transactions contemplated by
this Agreement.
49
Section 8.7 Public Announcements. Subject to their legal
obligations, each Party shall consult with the other regarding
the timing and content of all announcements regarding this
Agreement or the transactions contemplated hereby, whether to the
financial community, Governmental Entities, employees, customers,
suppliers or the general public and shall use reasonable efforts
to agree upon the text of any such announcement prior to its
release.
Section 8.8 Supplements to Schedules. From time to time
up to the Closing, the Goldsboro Parties shall promptly
supplement or amend the Schedules that they have delivered with
respect to any matter first existing or occurring following the
date hereof that (a) if existing or occurring at or prior to the
date hereof, would have been required to be set forth or
described in the Schedules, or (b) is necessary to correct any
information in the Schedules that has been rendered inaccurate
thereby. No supplement or amendment to any Schedule shall have
any effect for the purpose of determining satisfaction of the
conditions set forth in Section 9.2 or the obligations of the
Goldsboro Parties under Sections 12.1 and 12.2.
Section 8.9 Confidentiality. The terms of the
Confidentiality Agreement (the "Confidentiality Agreement"),
dated June 16, 2010, with respect to Butterball and Maxwell are
incorporated by reference herein and shall continue in full force
and effect until the Closing, at which time such Confidentiality
Agreement and the obligations of the Purchaser under this Section
8.9 shall terminate. If this Agreement is, for any reason,
terminated prior to Closing, the Confidentiality Agreement shall
nonetheless continue in full force and effect.
Section 8.10 Tax Matters. The Company will make (or, if
made previously, will maintain) an election under Section 754 of
the Code that will apply with respect to the Company's taxable
year in which the Seaboard Closing occurs. All transfer,
documentary, sales, use, stamp, registration and other such Taxes
and fees (including any penalties and interest) incurred in
connection with this Agreement shall be paid by the Company when
due, and the Goldsboro Parties will cause the Company, at its own
expense, to file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable Law, the Purchaser will, and will cause
its Affiliates to, join in the execution of any such Tax Returns
and other documentation.
Section 8.11 Growing Interest Assets. Prior to the
Closing, the Goldsboro Parties shall take all commercially
reasonable actions to cause the Maxwell Growing Interest to
exclude the Excluded Maxwell Growing Interest Assets and include
the Additional Maxwell Growing Interest Assets (the "Maxwell
Growing Interest Assets Transfers"). Purchaser acknowledges and
agrees that the Goldsboro Parties do not currently own portions
of the Additional Maxwell Growing Interest Assets which portions
are described on Schedule 1.1(a). Prior to the Closing, Maxwell,
at Maxwell's expense, will deliver to the Company and the
Purchaser the Surveys. Each Survey will: (i) show the location
of all highways, streets, roads and railroads lying adjacent to
each property, (ii) show the approximate location of all major
creeks or ponds, if any, abutting any boundary lines of each
property, (iii) show any and all encroachments over and across
boundary lines, (iv) define the property in acres and square feet
and show a metes and bounds legal description on each Survey and
provide a valid and accurate legal description of the property
(to be used in the Deeds); (v) contain the North directional
arrow at the top of the Survey; (vi) show each point of access to
the property and its direct access to a public
50
right-of-way or such other easement providing a legal and
insurable means of access to such public right-of-way; (vii) be
sufficient to delete the "general" or "standard" survey exception
to a 2006 ALTA title policy in favor of a future insured, and
(viii) include certification of the Survey's accuracy. The
Goldsboro Parties will take all steps (including the granting of
appropriate rights of way easements) to ensure that each parcel
of MGI Real Property has access to a public right of way, as more
particularly described in Section 9.2(k) below. The Parties
shall mutually agree upon any improvements which are to be made
to any Additional Maxwell Growing Interest Assets after the date
hereof and prior to the Closing.
Section 8.12 Seaboard Commitment Letters. The Seaboard
Commitment Letters shall be executed and delivered by Purchaser
and accepted by Maxwell simultaneously with the execution of this
Agreement. While it is understood that Purchaser intends to form
a syndicate of lenders reasonably acceptable to Maxwell in order
to finance the transactions contemplated by the Seaboard
Commitment Letters, the successful formation of such a syndicate
prior to the Closing shall not be a condition to Purchaser's
commitment under the Seaboard Commitment Letters to initially
fund such credit facilities on the Closing Date. Subject to the
terms and conditions set forth in the Seaboard Commitment
Letters, the Goldsboro Parties shall use commercially reasonable
efforts to take all actions to cause the financing transactions
contemplated by the Seaboard Commitment Letters to be consummated
simultaneously with the Closing. Without limitation to the
forgoing, the Goldsboro Parties will, and will cause the Company
to, use commercially reasonable efforts to (a) maintain the
effectiveness of, and comply with all of their respective
obligations under, the Seaboard Commitment Letters in accordance
with their terms (including all obligations of the Goldsboro
Parties to cooperate with and provide agreements in favor of any
"Lead Arranger" engaged by the Purchaser in connection with the
syndication of the financing transactions contemplated by the
Seaboard Commitment Letters), (b) enter into definitive
documentation with respect to the financing transactions
contemplated by the Seaboard Commitment Letters, (c) satisfy all
funding conditions set forth in the definitive documentation with
respect to the financing transactions contemplated by the
Seaboard Commitment Letters and (d) consummate the financing
transactions contemplated by the Seaboard Commitment Letters. No
Goldsboro Party shall, and the Goldsboro Parties shall cause the
Company not to, solicit, initiate, entertain or permit, or enter
into any discussions in respect of, any offering, placement or
arrangement of any financing that is a competing financing to the
financing transactions contemplated by the Seaboard Commitment
Letters.
Section 8.13 Commitment Fees. To the extent that any
Commitment Fees are paid by Maxwell or the Purchaser prior to the
Closing, the Parties shall cause the Company to reimburse Maxwell
or the Purchaser, as applicable, at Closing in an amount equal to
the aggregate Commitment Fees paid by such Party.
ARTICLE IX.
CONDITIONS TO CLOSING
Section 9.1 Conditions to Obligations of Each Party. The
respective obligations of each Party to effect the transactions
contemplated hereby shall be subject the fulfillment at or prior
to the Closing of each of the following additional conditions:
51
(a) Governmental Consents. The waiting period
applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act shall have
expired or been terminated. All other consents, approvals,
orders or authorizations of, or registrations, declarations
or filings with, all Governmental Entities required in
connection with the execution, delivery or performance
hereof shall have been obtained or made.
(b) Injunction. There shall be no effective
injunction, writ or preliminary restraining order or any
order of any nature issued by a Governmental Entity of
competent jurisdiction to the effect that the transactions
contemplated by this Agreement may not be consummated as
provided herein, no proceeding or lawsuit shall have been
commenced by any Governmental Entity or third party for the
purpose of obtaining any such injunction, writ or
preliminary restraining order and no written notice shall
have been received from any Governmental Entity indicating
an intent to restrain, prevent, materially delay or
restructure the transactions contemplated hereby.
(c) Amended and Restated Operating Agreement. Maxwell
and the Purchaser shall have entered into an Amended and
Restated Operating Agreement of the Company, in the form
agreed to by the Parties.
(d) Murphy-Brown Butterball Interest Purchase. All
closing conditions related to the Murphy-Brown Butterball
Interest Purchase shall have been satisfied or waived.
Section 9.2 Conditions to Obligations of the Purchaser.
The obligations of the Purchaser to consummate the transactions
contemplated hereby shall be subject to the fulfillment at or
prior to the Closing of each of the following additional
conditions:
(a) Representations and Warranties. The
representations and warranties of the Goldsboro Parties set
forth in Article VI shall have been correct and complete in
all material respects as of the date hereof and shall be
correct and complete in all material respects as of the
Closing Date as though made on and as of the Closing Date,
except that those representations and warranties that by
their terms are qualified by materiality shall be correct
and complete in all respects.
(b) Performance of Obligations of the Goldsboro
Parties. The Goldsboro Parties shall have performed in all
material respects all covenants and agreements required to
be performed by each of them hereunder at or prior to the
Closing.
(c) Opinion of Goldsboro Parties' Counsel. The
Purchaser shall have received an opinion of Kilpatrick
Stockton LLP, counsel to the Goldsboro Parties, dated the
Closing Date, substantially in the form agreed to by the
Parties (the "Goldsboro Opinion").
(d) Ancillary Documents. The Goldsboro Parties shall
have delivered, or caused to be delivered, to the Purchaser
the documents listed in Section 10.2.
52
(e) Indebtedness; Release of Liens. The Goldsboro
Parties shall have delivered to the Purchaser payoff letters
("Payoff Letters") from each lender to the Butterball
Closing Date Indebtedness outstanding as of the Closing Date
(including any interest accrued thereon and any prepayment
or similar penalties and expenses associated with the
prepayment of such indebtedness on the Closing Date) and an
agreement that, if such aggregate amount so identified is
paid to such lender on the Closing Date, such indebtedness
shall be repaid in full and that all Liens of such lender
affecting any real or personal property of the Company or
any of its Subsidiaries will be released.
(f) Closing Date Indebtedness Statement and Closing
Date Purchase Price Statement. The Goldsboro Parties shall
have delivered to the Purchaser the Closing Date
Indebtedness Statement and Closing Date Purchase Price
Statement at least two (2) Business Days prior to the
Closing Date.
(g) Maxwell Growing Interest Assets Transfers. The
Maxwell Growing Interest Assets Transfers shall have been
consummated, and the Purchaser shall have received
reasonable evidence thereof.
(h) Management Services Agreement. The Company and
Sleepy Creek Management, LLC, a North Carolina limited
liability company and an Affiliate of the entities
comprising the Maxwell Group, shall have entered into a
Management Services Agreement, substantially in the form
agreed to by the Parties (the "Management Services
Agreement").
(i) Maxwell Transition Services Agreement. The
Company and Sleepy Creek Turkeys, Inc., an Affiliate of the
entities comprising the Maxwell Group, shall have entered
into a Transition Services Agreement, substantially in the
form agreed to by the Parties (the "Maxwell Transition
Services Agreement").
(j) Grower Contracts. Each of the Maxwell Group and
Newco, as applicable, shall have executed a valid assignment
to the Company of the MGI Contracts or the Murphy-Brown
Contracts, as applicable, in the form agreed to by the
Parties (collectively, the "Grower Contract Assignments").
(k) Access Easements. The Company shall have executed
access easement agreements with the Adjacent Owners
sufficient to provide access to and from a public
right-of-way for each parcel of real property included in
the Maxwell Growing Interest that does not have direct
access to (i.e., touch) a public right-of-way, substantially
in the form agreed to by the Parties (collectively, the
"Access Easement Agreements"). All easements shall be
subject to the prior written consent of Purchaser (which
consent shall not be unreasonably withheld, conditioned or
delayed).
(l) Transaction Documents. Each of the Newco
Promissory Note, the Murphy-Brown Purchase Agreement, the
Murphy-Brown Butterball Interest Contribution Agreement, the
M-G Purchase Agreement, the Maxwell Redemption Agreement,
and the Seaboard Purchase Agreement shall have been executed
and delivered by all parties thereto.
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Section 9.3 Conditions to Obligations of the Goldsboro
Parties. The obligations of the Goldsboro Parties to consummate
the transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing of each of the following
additional conditions:
(a) Representations and Warranties. The
representations and warranties of the Purchaser contained in
Article VII shall have been correct and complete in all
material respects as of the date hereof and shall be correct
and complete in all material respects as of the Closing Date
as though made on and as of the Closing Date, except that
those representations and warranties that by their terms are
qualified by materiality shall be correct and complete in
all respects.
(b) Performance of Obligations by the Purchaser. The
Purchaser shall have performed in all material respects all
covenants and agreements required to be performed by it
hereunder on or prior to the Closing Date.
(c) Opinion of the Purchaser's Counsel. The Goldsboro
Parties shall have received an opinion of King & Spalding
LLP, counsel to the Purchaser, dated the Closing Date,
substantially in the form agreed to by the Parties (the
"Purchaser Opinion").
(d) Ancillary Documents. The Purchaser shall have
delivered, or caused to be delivered, to the Goldsboro
Parties the documents listed in Section 10.3.
ARTICLE X.
CLOSING
Section 10.1 Closing. The Maxwell Closing shall occur at
9:00 a.m., Atlanta, Georgia time, on the third (3rd) Business Day
following the satisfaction or waiver of the conditions set forth
in Article IX that are contemplated to be satisfied prior to the
Closing, or on such other date as the Parties may agree. The
Seaboard Closing shall occur immediately following the Maxwell
Closing. The Closing shall take place at the offices of
Kilpatrick Stockton LLP, 3737 Glenwood Avenue, Suite 400,
Raleigh, North Carolina 27612 or at such other place as the
Parties may agree.
Section 10.2 Goldsboro Parties' Closing Deliveries. At
the Closing, the Goldsboro Parties shall deliver, or cause to be
delivered, to the Purchaser the following:
(a) a certificate executed by Maxwell, on behalf of
the Goldsboro Parties, as to compliance with the conditions
set forth in Sections 9.2(a) and (b);
(b) the Payoff Letters;
(c) the Newco Promissory Note, executed by Newco;
(d) the Murphy-Brown Purchase Agreement, executed by
Newco and Murphy-Brown;
(e) the Murphy-Brown Butterball Interest Contribution
Agreement, executed by Newco and the Company;
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(f) the M-G Purchase Agreement, executed by the
Maxwell Group and certain MGI Subsidiaries and their
Affiliates and the Company;
(g) the Maxwell Redemption Agreement, executed by
Maxwell and the Company;
(h) the Seaboard Purchase Agreement, executed by Newco;
(i) the Management Services Agreement, the Feed Supply
Agreement, and the Pathology Lab Services Agreement and
Lease, each executed by Goldsboro or its Affiliate, as
applicable, and the Company;
(j) the Maxwell Transition Services Agreement,
executed by Sleepy Creek Turkeys, Inc. and the Company;
(k) the Grower Contract Assignments, executed by
Maxwell or Newco, as applicable, and the Company;
(l) the Access Easement Agreements, executed by the
Company and the Adjacent Owners, as applicable;
(m) the Goldsboro Opinion;
(n) a certificate of non-foreign status by each
Goldsboro Party and the Company sworn under penalty of
perjury and in form and substance required under Treasury
Regulation Section 1.1445-2(B)(2)(iv), stating that such
Goldsboro Party or the Company, as applicable, is not a
"foreign person" as defined in Section 1445 of the Code and
setting forth such Goldsboro Party's or the Company's, as
applicable, name, taxpayer identification number and address;
and
(o) all other documents required to be entered into by
the Company, any of its Subsidiaries or any Goldsboro Party
pursuant hereto or reasonably requested by the Purchaser to
otherwise consummate the transactions contemplated hereby.
Section 10.3 Purchaser Closing Deliveries. On the Closing,
the Purchaser shall have delivered, or caused to be delivered, to
the Goldsboro Parties the following:
(a) a certificate of an authorized officer of the
Purchaser as to compliance with the conditions set forth in
Sections 9.3(a) and (b);
(b) the Seaboard Purchase Agreement, executed by the
Purchaser;
(c) the Purchaser Opinion; and
(d) all other documents required to be entered into or
delivered by the Purchaser at or prior to the Closing
pursuant hereto.
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ARTICLE XI.
TERMINATION
Section 11.1 Termination. This Agreement may be
terminated:
(a) in writing by mutual consent of the Parties;
(b) by written notice from Maxwell to the Purchaser,
in the event the Purchaser (i) fails to perform in any
material respect any of its agreements contained herein
required to be performed by it at or prior to the Closing or
(ii) materially breaches any of its representations and
warranties contained herein, which failure or breach is not
cured within twenty (20) days following Maxwell having
notified the Purchaser of its intent to terminate this
Agreement pursuant to this Section 11.1(b);
(c) by written notice from the Purchaser to Maxwell,
in the event any of the Goldsboro Parties (i) fails to
perform in any material respect any of its agreements
contained herein required to be performed by it at or prior
to the Closing or (ii) materially breaches any of its
representations and warranties contained in Article VI,
which failure or breach is not cured within twenty (20) days
following the Purchaser having notified Maxwell of its
intent to terminate this Agreement pursuant to this Section
11.1(c); or
(d) by written notice by Maxwell to the Purchaser or
the Purchaser to Maxwell, as the case may be, in the event
the Closing has not occurred on or prior to the Expiration
Date for any reason other than delay or nonperformance of
the Party seeking such termination.
Section 11.2 Specific Performance and Other Remedies.
(a) Each Party hereby acknowledges that the rights of
each Party to consummate the transactions contemplated
hereby are special, unique and of extraordinary character
and that, in the event that any Party violates or fails or
refuses to perform any covenant or agreement made by it
herein, the non-breaching Party may be without an adequate
remedy at law. In the event that any Party violates or
fails or refuses to perform any covenant or agreement made
by such Party herein, the non-breaching Party or Parties may,
subject to the terms hereof and in addition to any remedy at
law for damages or other relief, institute and prosecute an
action in any court of competent jurisdiction to enforce
specific performance of such covenant or agreement or seek
any other equitable relief.
(b) Notwithstanding anything in Section 11.2(a) or
Section 11.3 to the contrary, in addition to any other
remedies which may otherwise be available to Purchaser in
accordance with this Agreement, if the Purchaser terminates
this Agreement pursuant to Section 11.1(c) or Maxwell
terminates this Agreement pursuant to Section 11.1(d) and
the Goldsboro Parties elect to sell the Maxwell Butterball
Interest to Smithfield or its Affiliates on or prior to
December 31, 2011, then the Goldsboro Parties shall pay to
the Purchaser within ten (10) days following the
consummation of such sale a cash amount equal to the greater
of (i) One Million Dollars ($1,000,000) or (ii) an amount
equal to 50% of the amount, if any, by which (x) the total
purchase price paid to
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the Goldsboro Parties in exchange for the Maxwell Butterball
Interest exceeds (y) the Maxwell Target Price.
Section 11.3 Effect of Termination. In the event of
termination of this Agreement pursuant to this Article XI, this
Agreement shall forthwith become void and there shall be no
liability on the part of any Party or its partners, officers,
directors or stockholders, except for obligations under Section
8.7 (Public Announcements), Section 11.2(b) (Specific Performance
and Other Remedies), Section 13.1 (Notices), Section 13.4
(Controlling Law; Amendment), Section 13.5 (Consent to
Jurisdiction, Etc.) and Section 13.12 (Transaction Costs) and
this Section 11.3, all of which shall survive the date of such
termination. Each Party shall redeliver all documents, work
papers and other materials of the other Party relating to the
transactions contemplated hereby, whether obtained before or
after the execution hereof, to the Party furnishing the same or,
upon prior written notice to such Party, shall destroy all such
documents, work papers and other materials and deliver notice to
the Party seeking destruction of such documents that such
destruction has been completed, and all confidential information
received by any Party with respect to the other Parties shall be
treated in accordance with the Confidentiality Agreement.
Notwithstanding the foregoing, nothing contained herein shall
relieve any Party from liability for any breach hereof.
ARTICLE XII.
INDEMNIFICATION
Section 12.1 Indemnification Obligations of the Goldsboro
Parties to the Company. The Goldsboro Parties shall, jointly and
severally, indemnify, defend and hold harmless the Company
Indemnified Parties from, against, and in respect of, any and all
claims, liabilities, obligations, damages, losses, costs,
expenses, penalties, fines and judgments (at equity or at law,
including statutory and common) whenever arising or incurred
(including amounts paid in settlement, costs of investigation and
reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) any breach or inaccuracy of any representation or
warranty made by any Goldsboro Party in Article IV or
Article V (other than Section 4.12 and Section 5.5, as those
matters are otherwise covered by Section 12.1(c)) of this
Agreement or the Goldsboro Ancillary Documents;
(b) any breach of any covenant, agreement or
undertaking made by any Goldsboro Party in this Agreement or
the Goldsboro Ancillary Documents;
(c) any claims, liabilities, obligations, losses,
damages, costs, expenses, penalties, fines and judgments
incurred by the Company and its Subsidiaries after the
Closing Date relating to, resulting from or arising out of
any Legal Proceedings (including the Company Legal
Proceedings and the MGI Legal Proceedings listed on Schedule
4.12 or Schedule 5.5), except to the extent otherwise
reserved for in Final Working Capital Schedule with respect
to such Legal Proceedings;
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(d) any liability or obligation relating to the
Maxwell Growing Interest, other than to the extent not
required to be performed on or prior to the Closing Date and
accruing and relating to operations subsequent to the
Closing Date;
(e) any liability or obligation relating to the
Excluded Maxwell Growing Interest Assets;
(f) any Indebtedness of the Company or its
Subsidiaries as of the Closing Date other than the Term Debt,
the Revolver, the Maxwell Group Member Note, the MB Member
Note and any other Indebtedness disclosed in Schedule 4.3(b);
or
(g) any liability or obligation arising out of or
relating to any claim asserted against the Company or any of
its Subsidiaries by Murphy-Brown.
Section 12.2 Indemnification Obligations of the Goldsboro
Parties to the Purchaser. The Goldsboro Parties shall, jointly
and severally, indemnify, defend and hold harmless the Purchaser
Indemnified Parties from, against, and in respect of, any and all
claims, liabilities, obligations, damages, losses, costs,
expenses, penalties, fines and judgments (at equity or at law,
including statutory and common) whenever arising or incurred
(including amounts paid in settlement, costs of investigation and
reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) any breach or inaccuracy of any representation or
warranty made by the Goldsboro Parties in Article VI of this
Agreement or the Goldsboro Ancillary Documents; or
(b) any breach of any covenant, agreement or
undertaking made by any Goldsboro Party in this Agreement or
the Goldsboro Ancillary Documents.
The claims, liabilities, obligations, losses, damages,
costs, expenses, penalties, fines and judgments of the Purchaser
Indemnified Parties described in this Section 12.2 as to which
the Purchaser Indemnified Parties are entitled to indemnification
and the claims, liabilities, obligations, losses, damages, costs,
expenses, penalties, fines and judgments of the Company
Indemnified Parties described in Section 12.1 as to which the
Company Indemnified Parties are entitled to indemnification are
collectively referred to as "Indemnifiable Losses."
Section 12.3 Indemnification Obligations of the Purchaser.
The Purchaser shall indemnify and hold harmless the Goldsboro
Indemnified Parties from, against and in respect of any and all
claims, liabilities, obligations, losses, damages, costs,
expenses, penalties, fines and judgments (at equity or at law,
including statutory and common) whenever arising or incurred
(including amounts paid in settlement, costs of investigation and
reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) any breach or inaccuracy of any representation or
warranty made by the Purchaser in Article VII of this
Agreement or in any Purchaser Ancillary Document; or
(b) any breach of any covenant, agreement or
undertaking made by the Purchaser in this Agreement or in
any Purchaser Ancillary Document.
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The claims, liabilities, obligations, losses, damages,
costs, expenses, penalties, fines and judgments of the Goldsboro
Indemnified Parties described in this Section 12.3 as to which
the Goldsboro Indemnified Parties are entitled to indemnification
are collectively referred to as "Goldsboro Losses."
Section 12.4 Indemnification Procedure.
(a) Promptly following receipt by an Indemnified Party
of notice by a third party (including any Governmental
Entity) of any complaint or the commencement of any audit,
investigation, action or proceeding with respect to which
such Indemnified Party may be entitled to receive payment
from another Party for any Indemnifiable Loss or any
Goldsboro Loss (as the case may be), such Indemnified Party
shall notify the Purchaser or Maxwell (on behalf of the
Goldsboro Parties), as the case may be (the "Indemnifying
Party"), promptly following the Indemnified Party's receipt
of such complaint or notice of the commencement of such
audit, investigation, action or proceeding; provided,
however, that the failure to so notify the Indemnifying
Party shall relieve the Indemnifying Party from liability
hereunder with respect to such claim only if, and only to
the extent that, such failure to so notify the Indemnifying
Party results in the forfeiture by the Indemnifying Party
of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The
Indemnifying Party shall have the right, upon written notice
delivered to the Indemnified Party within twenty (20) days
thereafter assuming full responsibility for any
Indemnifiable Losses or Goldsboro Losses (as the case may be)
resulting from such audit, investigation, action or
proceeding, to assume the defense of such complaint, audit,
investigation, action or proceeding, to the extent such
complaint, audit, investigation, action or proceeding
involves solely monetary damages, including the employment
of counsel reasonably satisfactory to the Indemnified Party
and the payment of the fees and disbursements of such
counsel; provided, however, that an Indemnifying Party will
not be entitled to assume the defense of any complaint,
audit, investigation, action or proceeding if (i) such claim
could result in criminal liability of, or equitable remedies
against, the Indemnified Party; or (ii) the Indemnified
Party reasonably believes that the interests of the
Indemnifying Party and the Indemnified Party with respect to
the such claim are in conflict with one another, and as a
result, the Indemnifying Party could not adequately represent
the interests of the Indemnified Party in such claim. In the
event, however, that the Indemnifying Party declines or fails
to assume, or is not permitted to assume, the defense of the
audit, investigation, action or proceeding on the terms
provided above or to employ counsel reasonably satisfactory
to the Indemnified Party, in either case within such twenty
(20) day period, or if the Indemnifying Party is not entitled
to assume the defense of the audit, investigation, action or
proceeding in accordance with the preceding sentence, then
such Indemnified Party may employ counsel to represent or
defend it in any such audit, investigation, action or
proceeding and the Indemnifying Party shall pay the
reasonable fees and disbursements of such counsel for the
Indemnified Party as incurred; provided, however, that the
Indemnifying Party shall not be required to pay the fees and
disbursements of more than one counsel for all Indemnified
Parties in any jurisdiction in any single audit,
investigation, action or proceeding. In any audit,
investigation, action or proceeding for which indemnification
is being sought hereunder the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of
such action, shall have the
59
right to participate in such matter and to retain its own
counsel at such Party's own expense. The Indemnifying Party
or the Indemnified Party (as the case may be) shall at all
times use reasonable efforts to keep the Indemnifying Party
or the Indemnified Party (as the case may be) reasonably
apprised of the status of the defense of any matter the
defense of which it is maintaining and to cooperate in good
faith with each other with respect to the defense of any such
matter.
(b) No Indemnified Party may settle or compromise any
audit, investigation, action or proceeding or consent to the
entry of any judgment with respect to which indemnification
is being sought hereunder without the prior written consent
of the Indemnifying Party, unless (i) the Indemnifying Party
fails to assume, or is not permitted to assume, and maintain
the defense of such claim pursuant to Section 12.4(a) or (ii)
such settlement, compromise or consent includes an
unconditional release of the Indemnifying Party and its
officers, directors, managers, employees and Affiliates from
all liability arising out of such claim. An Indemnifying
Party may not, without the prior written consent of the
Indemnified Party, settle or compromise any claim or consent
to the entry of any judgment with respect to which
indemnification is being sought hereunder unless (x) such
settlement, compromise or consent includes an unconditional
release of the Indemnified Party and its officers, directors,
managers, employees and Affiliates from all liability arising
out of such claim, (y) does not contain any admission or
statement suggesting any wrongdoing or liability on behalf of
the Indemnified Party and (z) does not contain any equitable
order, judgment or term that in any manner affects, restrains
or interferes with the business of the Indemnified Party or
any of the Indemnified Party's Affiliates.
(c) In the event an Indemnified Party claims a right to
payment pursuant hereto, such Indemnified Party shall send
written notice of such claim to the appropriate Indemnifying
Party. Such notice shall specify the basis for such claim.
The failure by any Indemnified Party so to notify the
Indemnifying Party shall not relieve the Indemnifying Party
from any liability that it may have to such Indemnified Party
with respect to any claim made pursuant to this Section
12.4(c), it being understood that notices for claims in
respect of a breach of a representation or warranty must be
delivered prior to the expiration of the survival period for
such representation or warranty under Section 12.5. In the
event the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days following its receipt of such
notice that the Indemnifying Party disputes its liability to
the Indemnified Party under this Article XII or the amount
thereof, the claim specified by the Indemnified Party in such
notice shall be conclusively deemed a liability of the
Indemnifying Party under this Article XII, and the
Indemnifying Party shall pay the amount of such liability to
the Indemnified Party on demand or, in the case of any notice
in which the amount of the claim (or any portion of the
claim) is estimated, on such later date when the amount of
such claim (or such portion of such claim) becomes finally
determined. In the event the Indemnifying Party has timely
disputed its liability with respect to such claim as provided
above, as promptly as possible, such Indemnified Party and
the appropriate Indemnifying Party shall establish the merits
and amount of such claim (by mutual agreement, litigation,
arbitration or otherwise) and, within five (5) Business Days
following the final determination of the merits and amount
60
of such claim, the Indemnifying Party shall pay to the
Indemnified Party in immediately available funds in an amount
equal to such claim as determined hereunder.
(d) The Parties agree that the Purchaser shall have the
right to exercise the rights of the Company Indemnified
Parties under this Article XII, but any amounts paid in
satisfaction of any Indemnifiable Losses on behalf of the
Company Indemnified Parties shall be paid to the Company.
(e) Any indemnification obligation of the Goldsboro
Parties pursuant to this Article XII shall be satisfied by
the Goldsboro Parties on a joint and several basis.
Section 12.5 Claims Period. The Claims Period hereunder
shall begin on the date hereof and terminate as follows:
(a) (i) with respect to Indemnifiable Losses arising
under Section 12.1(a) with respect to any breach or
inaccuracy of any representation or warranty in Section 4.2
(Authorization), Section 4.3 (Capital Structure), or Section
4.30 (Brokers), the Claims Period shall continue indefinitely
(ii) with respect to Indemnifiable Losses arising under
Section 12.1(a) with respect to any breach or inaccuracy of
any representation or warranty in Section 4.1 (Organization),
Section 4.7(a) (Title to Assets) or Section 5.2(a) (Title to
Assets), the Claims Period shall terminate on the date that
is three (3) years following the Closing Date (iii) with
respect to Indemnifiable Losses arising under Section 12.1(a)
with respect to any breach or inaccuracy of any
representation or warranty in Section 4.15 (Tax Returns;
Taxes), the Claims Period shall terminate on the date that is
sixty (60) days following the termination of the applicable
statute of limitations or, if there is no applicable statute
of limitations, the Claims Period shall terminate on the date
that is five (5) years following the Closing Date (iv) with
respect to Indemnifiable Losses arising under Section 12.1(b),
the Claims Period shall terminate on the date that is two (2)
years following the Closing Date (v) with respect to
Indemnifiable Losses arising under Section 12.1(c), the
Claims Period shall terminate on the date that is five (5)
years following the Closing Date (vi) with respect to
Indemnifiable Losses arising under Section 12.1(d) the Claims
Period shall terminate on the date that is two (2) years
following the Closing Date (vii) with respect to
Indemnifiable Losses arising under Section 12.1(e), the
Claims Period shall continue indefinitely, and (viii) with
respect to all other Indemnifiable Losses arising under
Section 12.1, the Claims Period shall terminate on the date
that is twelve (12) months following the Closing Date;
(b) with respect to Indemnifiable Losses arising under
Section 12.2, the Claims Period shall terminate on the date
that is twelve (12) months following the Closing Date; and
(c) with respect to Goldsboro Losses arising under
Section 12.3, the Claims Period shall continue indefinitely.
Notwithstanding the foregoing, if, prior to the close of
business on the last day of the applicable Claims Period, an
Indemnifying Party shall have been properly notified of a claim
for indemnity hereunder and such claim shall not have been
finally resolved or disposed of at such
61
date, such claim shall continue to survive and shall remain a
basis for indemnity hereunder until such claim is finally
resolved or disposed of in accordance with the terms hereof.
Section 12.6 Liability Limits. Notwithstanding anything
to the contrary set forth herein, no claim shall be made against
any Goldsboro Party for indemnification under Sections 12.1(a),
12.1(c) or 12.2(a) for Indemnifiable Losses unless and until the
aggregate amount of such Indemnifiable Losses exceeds One Million
Dollars ($1,000,000) (the "Indemnity Basket"), in which event the
Purchaser (on behalf of the Company Indemnified Parties) may
claim indemnification for all Indemnifiable Losses only to the
extent such Indemnifiable Losses, in the aggregate, exceed One
Million Dollars ($1,000,000). The total aggregate amount of the
liability of the Goldsboro Parties for Indemnifiable Losses
indemnified under Sections 12.1(a), 12.1(c) and 12.2(a) shall be
limited to Ten Million Dollars ($10,000,000) (the "Indemnity
Cap"). The amount of Indemnifiable Losses otherwise payable to
any Indemnified Party pursuant to this Article XII shall be net
of any insurance proceeds actually received by such Indemnified
Party with respect to such Indemnifiable Losses.
Section 12.7 Exclusive Remedy. The Parties agree that,
excluding (a) any claim for injunctive or other equitable relief,
(b) the rights of the Parties under Section 11.2, or (c) any
claim related to fraud, willful misconduct or bad faith by the
Goldsboro Parties or the Purchaser in connection with the
transactions related to this Agreement, the indemnification
provisions of this Article XII are intended to provide the sole
and exclusive remedy as to all claims either the Goldsboro
Parties, on the one hand, or the Purchaser, on the other hand,
may incur arising from or relating to this Agreement.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
Section 13.1 Notices. All notices, communications and
deliveries required or made hereunder must be made in writing
signed by or on behalf of the Party making the same and shall be
delivered personally or by a national overnight courier service
or by registered or certified mail (return receipt requested)
(with postage and other fees prepaid) as follows:
To the Purchaser: Seaboard Corporation
9000 West 67th Street
Shawnee Mission, KS 66202
Attn: David Becker, General Counsel
with a copy to: King & Spalding LLP
1180 Peachtree Street
Atlanta, GA 30309
Attn: Russell B. Richards
To the Goldsboro Parties Maxwell Farms, LLC
(Maxwell): 938 Millers Chapel Road
Goldsboro, NC 27534
62
Attn: Tom Howell
with a copy to: Kilpatrick Stockton LLP
3737 Glenwood Avenue
Suite 400
Raleigh, NC 27612
Attn: Gary Joyner
or to such other representative or at such other address of a
Party as such Party may furnish to the other Parties in writing.
Any such notice, communication or delivery shall be deemed given
or made (a) on the date of delivery, if delivered in person, (b)
on the first Business Day following timely delivery to a national
overnight courier service or (c) on the fifth Business Day
following it being mailed by registered or certified mail.
Section 13.2 Assignment; Successors in Interest. No
assignment or transfer by any Party of such Party's rights and
obligations hereunder shall be made except with the prior written
consent of the other Parties; provided that the Purchaser shall,
without the obligation to obtain the prior written consent of
any other Party, be entitled to assign this Agreement or all or
any part of its rights or obligations hereunder to one or more
Affiliates of the Purchaser. This Agreement shall be binding
upon and shall inure to the benefit of the Parties and their
respective successors and permitted assigns, and any reference
to a Party shall also be a reference to the successors and
permitted assigns thereof.
Section 13.3 Captions. The titles, captions and table of
contents contained herein are inserted herein only as a matter of
convenience and for reference and in no way define, limit, extend
or describe the scope of this Agreement or the intent of any
provision hereof.
Section 13.4 Controlling Law; Amendment. This Agreement
shall be governed by and construed and enforced in accordance
with the internal Laws of the State of Delaware without reference
to its choice of law rules. This Agreement may not be amended,
modified or supplemented except by written agreement of the
Parties.
Section 13.5 Consent to Jurisdiction, Etc. Each Party
hereby irrevocably consents and agrees that any Legal Dispute
shall be brought only to the exclusive jurisdiction of the courts
of the State of North Carolina or the federal courts located in
the State of Delaware, and each Party hereby consents to the
jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding that is brought in any
such court has been brought in an inconvenient forum. During the
period a Legal Dispute is pending before a court, all actions,
suits or proceedings with respect to such Legal Dispute or any
other Legal Dispute, including any counterclaim, cross-claim or
interpleader, shall be subject to the exclusive jurisdiction of
such court. Each Party hereby waives, and shall not assert as a
defense in any Legal Dispute, that (a) such Party is not subject
thereto, (b) such action, suit or proceeding may not be brought
or is not maintainable in such court, (c) such Party's property
is exempt or immune from execution, (d) such action, suit or
63
proceeding is brought in an inconvenient forum or (e) the venue
of such action, suit or proceeding is improper. A final judgment
in any action, suit or proceeding described in this Section 13.5
following the expiration of any period permitted for appeal and
subject to any stay during appeal shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by applicable Laws.
Section 13.6 Severability. Any provision hereof that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. To the extent permitted by
Law, each Party hereby waives any provision of Law that renders
any such provision prohibited or unenforceable in any respect.
Section 13.7 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this
Agreement or the terms hereof to produce or account for more than
one of such counterparts.
Section 13.8 Enforcement of Certain Rights. Nothing
expressed or implied herein is intended, or shall be construed,
to confer upon or give any Person other than the Parties, and
their successors or permitted assigns, any right, remedy,
obligation or liability under or by reason of this Agreement, or
result in such Person being deemed a third-party beneficiary
hereof.
Section 13.9 Waiver. Any agreement on the part of a
Party to any extension or waiver of any provision hereof shall be
valid only if set forth in an instrument in writing signed on
behalf of such Party. A waiver by a Party of the performance of
any covenant, agreement, obligation, condition, representation or
warranty shall not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or
warranty. A waiver by any Party of the performance of any act
shall not constitute a waiver of the performance of any other act
or an identical act required to be performed at a later time.
Section 13.10 Integration. This Agreement and the
documents executed pursuant hereto supersede all negotiations,
agreements and understandings among the Parties with respect to
the subject matter hereof (except for the Confidentiality
Agreement, which the Parties agree will terminate as of the
Closing) and constitute the entire agreement among the Parties
with respect thereto.
Section 13.11 Cooperation Following the Closing. Following
the Closing, each Party shall deliver to the other Parties such
further information and documents and shall execute and deliver
to the other Parties such further instruments and agreements as
any other Party shall reasonably request to consummate or confirm
the transactions provided for herein, to accomplish the purpose
hereof or to assure to any other Party the benefits hereof.
Section 13.12 Transaction Costs. Except as provided above
or as otherwise expressly provided herein, each Party shall pay
its own fees, costs and expenses incurred in connection herewith
and the transactions contemplated hereby, including the fees,
costs and expenses of its financial advisors, accountants and
counsel. Without limiting the foregoing, it is understood that
64
the Goldsboro Parties shall pay the Maxwell Expenses and the
Purchaser shall pay the Seaboard Expenses.
* * * * *
65
IN WITNESS WHEREOF, the Parties have caused this Agreement
to be duly executed, as of the date first above written.
PURCHASER:
SEABOARD CORPORATION
By: /s/ Robert L. Steer
Name: Robert L. Steer
Title: Senior Vice President
GOLDSBORO:
GOLDSBORO MILLING COMPANY
By: /s/ J. Louis Maxwell, Jr.
Name: J. Louis Maxwell, Jr.
Title: Authorized Signatory
By: /s/ J. Walter Pelletier, III
Name: J. Walter Pelletier, III
Title: Authorized Signatory
MAXWELL:
MAXWELL FARMS, LLC
By: /s/ J. Louis Maxwell, Jr.
Name: J. Louis Maxwell, Jr.
Title: Authorized Signatory
By: /s/ J. Walter Pelletier, III
Name: J. Walter Pelletier, III
Title: Authorized Signatory
NEWCO:
GM ACQUISITION, LLC
By: /s/ J. Louis Maxwell, Jr.
Name: J. Louis Maxwell, Jr.
Title: Authorized Signatory
By: /s/ J. Walter Pelletier, III
Name: J. Walter Pelletier, III
Title: Authorized Signatory
Signature Page to Purchase Agreement
EX-13
4
ex13.txt
2010 ANNUAL REPORT
SEABOARD CORPORATION
2010 Annual Report
Description of Business
Seaboard Corporation is a diversified international
agribusiness and transportation company. In the United
States, Seaboard is primarily engaged in pork production and
processing and ocean transportation. Overseas, Seaboard is
primarily engaged in commodity merchandising, grain
processing, sugar production, and electric power generation.
Seaboard also has an interest in turkey operations in the
United States.
Table of Contents
Letter to Stockholders 2
Principal Locations 5
Division Summaries 6
Summary of Selected Financial Data 8
Company Performance Graph 9
Quarterly Financial Data (unaudited) 10
Management's Discussion & Analysis of Financial Condition
and Results of Operations 11
Management's Responsibility for Consolidated Financial
Statements 26
Management's Report on Internal Control over Financial
Reporting 26
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements 27
Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting 28
Consolidated Statements of Earnings 29
Consolidated Balance Sheets 30
Consolidated Statements of Cash Flows 31
Consolidated Statements of Changes in Equity 32
Notes to Consolidated Financial Statements 33
Stockholder Information 60
This report, including information included or incorporated by
reference in this report, contains certain forward-looking
statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business
of Seaboard Corporation and its subsidiaries (Seaboard).
Forward-looking statements generally may be identified as
statements that are not historical in nature and statements
preceded by, followed by or that include the words: "believes,"
"expects," "may," "will," "should," "could," "anticipates,"
"estimates," "intends," or similar expressions. In more
specific terms, forward-looking statements, include, without
limitation: statements concerning the projection of revenues,
income or loss, capital expenditures, capital structure or
other financial items, including the impact of mark-to-market
accounting on operating income; statements regarding the plans
and objectives of management for future operations; statements
of future economic performance; statements regarding the
intent, belief or current expectations of Seaboard and its
management with respect to: (i) Seaboard's ability to obtain
adequate financing and liquidity, (ii) the price of feed stocks
and other materials used by Seaboard, (iii) the sales price or
market conditions for pork, grains, sugar, turkey and other
products and services, (iv) statements concerning management's
expectations of recorded tax effects under certain
circumstances, (v) the volume of business and working capital
requirements associated with the competitive trading
environment for the Commodity Trading and Milling segment,
(vi) the charter hire rates and fuel prices for vessels,
(vii) the stability of the Dominican Republic's economy, fuel
costs and related spot market prices and collection of
receivables in the Dominican Republic, (viii) the ability of
Seaboard to sell certain grain inventories in foreign countries
at a current cost basis and the related contract performance by
customers, (ix) the effect of the fluctuation in foreign
currency exchange rates, (x) statements concerning
profitability or sales volume of any of Seaboard's segments,
(xi) the anticipated costs and completion timetable for
Seaboard's scheduled capital improvements, acquisitions and
dispositions, or (xii) other trends affecting Seaboard's
financial condition or results of operations, and statements of
the assumptions underlying or relating to any of the foregoing
statements.
This list of forward-looking statements is not exclusive.
Seaboard undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events, changes in assumptions or
otherwise. Forward-looking statements are not guarantees of
future performance or results. They involve risks,
uncertainties and assumptions. Actual results may differ
materially from those contemplated by the forward-looking
statements due to a variety of factors. The information
contained in this report, including without limitation the
information under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Letter to Stockholders", identifies important factors which
could cause such differences.
1
Letter to Stockholders
2010 was a year to remember as we posted record results in sales,
operating income and net income. Seaboard Foods, our integrated
pork division, is largely responsible for these high water marks
but our other divisions also delivered very respectable results.
This is laudable during this time of worldwide economic and
political instability. As an international food and
transportation company, our results are not only driven by
industry fundamentals, but are heavily influenced by global
economic, social and political conditions. While 2010 is in the
bank, it is clear that 2011 will be challenging and
unpredictable. As a company reliant on commodity inputs such as
grain and energy and in industries which are heavily regulated
by government and scrutinized by special interest groups,
managing margins becomes more challenging as major costs are
tougher to control. The current volatility and high prices of
many of our critical raw materials and products has provided
some benefits in the short term, but could ultimately impact us
negatively. Higher prices for our finished products are not
beneficial long term to our customers or to the growth of our
industries. Going forward, as we attempt to maintain margins and
market share with our finished products we face the reality of
consumer price resistance and food substitution. Maintaining our
focus on aspects that we can control, namely quality of product
and service, broader product mix and a strong company culture is
increasingly important.
As noted in this Annual Report, some divisions posted record
revenue and operating income largely due to higher sales prices
and, in nearly all segments, volume increases. Revenues increased
almost 22% year over year to $4.386 billion with operating income
up $297.3 million. Our operations generated $236.5 million in
cash after adjusting for capital expenditures and strengthened an
already solid balance sheet. We remain in a favorable position to
fund increased working capital needs, new investments and
continued organic growth. Although it is tempting to deploy our
liquid position quickly to improve on current short-term
investment returns, we value strong cash reserves and prefer to
remain in an opportunistic and flexible position. To create cash
flow, long term value and sustainable businesses, we need to be
patient and thoughtful as we grow the Company.
A significant accomplishment for our Company in 2010 was our
acquisition in December of a 50% voting interest in Butterball
LLC. With the Butterball acquisition, we are pleased to be co-
owners with the Maxwell Group who has been involved in several
agricultural businesses since 1916. As with all business
combinations, there is the risk of successfully merging company
cultures and philosophies. The transition period with the Maxwell
and Butterball Groups has been exceptionally smooth. Sharing
similar business principles, priorities and practices give us the
confidence that we can be of mutual benefit to one another and
bring strength and value to our common interests. Butterball is
a company that has tremendous brand recognition, quality
products, and a strong customer base supported by focused
customer service and disciplined and enthusiastic employees.
As shareholders, I encourage you to seek out Butterball, Prairie
Fresh and Daily's products at retailers wherever and whenever you
get the chance!
Looking beyond 2010, this may be one of the more challenging
years in recent memory for Seaboard and other grain reliant food
businesses in the U.S. and worldwide. Beginning in 2005, when
Congress enacted the U.S. Energy Policy Act and mandated the
compulsory blending of ethanol with gasoline, the battle of food
versus fuel was underway. Unfortunately, for consumers in the
U.S. and abroad, the expansion of land use to produce enough corn
to meet the increased demand from the ethanol mandate without
significant price disruption has not taken place. As a
consequence, corn and other row crops competing for the same land
base have skyrocketed in price.
The U.S. government has not modified its current renewable fuels
energy program (in fact, it has moved to increase the mandates)
and as a result, prices for grain-based consumer foods have risen
dramatically. Meat products are quickly becoming less affordable
for most consumers. Domestic per capita consumption of protein
has decreased in all meat categories over the last five years and
is down over 20% and 15% respectively in the beef and pork
sectors since 1980. Sadly, over time, the U.S., with perhaps the
best infrastructure and commercial skills to convert grain into
value added food products, may lose its competitive edge in the
export markets and with high prices, cause further erosion in
overall demand.
This period of high unemployment coupled with an economy
struggling for normalcy is a troubling time. As we reflect on the
health of our agricultural markets and specifically the livestock
sector, we must look hard at major reformation of the current
legislation coming up for review this year. It is our hope that
the U.S. government will see the
2
Letter to Stockholders
unintended consequences and enormous impact the renewable fuels
standard has had on the livestock sector and amend or legislate
a more durable and predictable structure for the industry.
The current food crisis not only impacts quality of life
issues domestically but as we have seen, contributes toward
destabilizing nations around the world.
Seaboard Foods is responsible, in large part, for our record
results this year. Pork processing margins were unusually high as
sales prices accelerated faster than live production costs. In
addition, export volumes increased particularly to our higher
valued markets in the Far East while domestic volumes nearly kept
pace with 2009. With the price of animal feed dramatically rising
over the last six months and the expectation that prices will not
decline materially over the near term, the entire meat sector has
taken a conservative approach on the supply side and this will
continue until the federal government brings more clarity to farm
program and energy policy. Going forward, as meat prices and
government regulation increase, it will be tougher for the
industry to maintain volumes, margins and export competitiveness.
As an integrated producer and processor, it is uncertain if we
will continue to enjoy historically high processor margins and to
weather variable returns on hog production. Seaboard Foods should
continue to have greater control over the quality of our raw
materials and finished product which is a competitive advantage
and key part of our business model. The benefits of our model are
many as we deliver safe and consistent high quality products to
our customers. We continue to make headway in the retail and
institutional markets with enhanced and further processed value
added products. With Butterball's strengths in certain categories
and markets and Seaboard Foods in others, we should be in an
ideal position to better both of these businesses with continued
coordination and cooperation. Over time, the distinct skill sets
and synergies between these two companies should bring tangible
and intangible benefits to both.
Seaboard Marine posted significantly better year over year
results with increased revenue and operating income as the global
economy gradually recovered from its low levels in 2009. Unit
volumes increased approximately 20% while average container rates
remained about the same as higher trucking and fuel expenses were
more than offset by lower charter rates and terminal costs. Last
year, margins suffered as operators tried to maintain volume and
market share in a shrinking market. Over the next few years, we
expect to implement a fairly aggressive vessel replacement
program. We intend to replace many older, less fuel efficient
ships with new, more efficient vessels. Our mixture of owned and
chartered vessels will also change as we move toward a more
modern, specialized, fuel efficient and higher capacity fleet.
Over the last several years we have undergone an aggressive
capital expenditure program to drive our operating costs lower
with infrastructure improvements, cargo handling equipment
purchases and software systems. These initiatives should lower
our overall cost structure and provide improved service to our
client base. In addition, we continue to add or modify existing
routes in response to customer demands and particularly where it
strengthens our position in the Americas. Although cargo carriage
is a basic business, there are many moving parts and coordinating
and executing all components is critical in delivering a
reliable, flexible and premium service. We continue to perform
well in this regard.
The Commodity Trading and Milling Division experienced a year of
growth and development as well as good overall operating results.
After eliminating the impact of mark-to-market accounting on
derivatives and a one time litigation gain in 2009, the division
achieved solid earnings growth this year. Third party grain
trading had a better year in Latin America while grain processing
margins were mixed in both Africa and the Americas. We have added
new trade offices in the U.S., Canada and Australia and added to
our industrial base in Latin America and Africa. Now, with 13
trading offices and 32 plant locations in 21 countries on five
continents, our network of industrial operations and trading
offices gives us the leverage and scale to provide our customers
multiple choices in origins of supply, a range of raw and
processed products and cost competitive positions through our
owned and chartered vessel fleet. With this broad base, we have
been able to expand into different commodities, including
specialty grains and value added products and incrementally add
to our regular trade routes. In 2011, we expect to add new
commodity channels and routes to the existing trade portfolio. We
also continue to look for industrial investment opportunities in
value added grain based businesses.
This coming year, with a virtual certainty of historically high
commodity prices, we expect heavy price resistance and generally
lower margins and volumes on the milling side. We are already
seeing this in some locations in West Africa and additional
pressure from host governments to reduce product prices to
maintain social stability. In Haiti, we plan
3
Letter to Stockholders
on resuming milling operations later this year after an entire
year of downtime for mill reconstruction as a result of the
earthquake in January 2010. Overall, although we expect this
coming year to be challenging due to volatile and high priced
commodities, we will continue to focus on upgrading our supply
chain logistics, risk management activities and administrative
support system. As a global division with over 45 years in the
commodity and milling business in various forms of partnerships,
we have a wide and diverse network through which we can
analyze various opportunities and build synergistically on our
commodity based platform.
Tabacal, our sugar cane production and processing business in
northern Argentina performed exceptionally well in 2010. As
mentioned in previous annual reports, we have spent considerable
sums over the last five years in expanding cane acreage, crushing
capacity, distillery functionality and energy production. We now
have a modern, efficient and flexible operation which allows us
to produce many grades of sugar and alcohol for both fuel and
industrial use. With our new co-generation plant expected to come
on stream in the 2nd quarter this year, our energy costs should
be reduced significantly and our excess power should generate
incremental returns for the company.
With state and national elections coming up in October this year,
the political and economic issues are crystallizing now in
Argentina. Inflationary factors, government price controls and
labor issues are some of the major challenges going forward and
we are hoping that no major disruption upsets the momentum we are
building. That being said, we believe the government understands
the ongoing contribution of our company and value of our industry
and with our new capabilities and disciplined approach, we feel
confident that we will continue to earn respectable returns.
Sugar and fuel are close to historic highs and although they may
correct to the downside, we believe our costs should enable us to
remain profitable.
Operating income for 2010 was 63% higher than last year from $8.2
to $13.4 million as price increases more than offset higher fuel
expenses in the Dominican Republic. As mentioned previously, we
anticipate closing on the sale of our current power producing
assets to a third party in the second quarter of 2011. The two
power barges will be replaced by one new 106 MW barge with the
capability of burning heavy fuel oil or natural gas. Our net
investment in the new 106 MW power barge will be about $55
million after considering the anticipated sale proceeds of $70
million for the existing barges. The new engines will give us the
flexibility to produce electricity with either natural gas or
heavy fuel oil depending on price and availability of fuel stock.
We have a solid infrastructure, good relations with the host
government and the industrial private sector and we are
optimistic that when we begin commercial operations in 2012, the
new power barge will be fully dispatched and will rank among the
most efficient power producers in the Dominican Republic. Our
expectations are that we will exceed prior year financial results
once we begin continuous operations in 2012.
It is with pride and thanks that we deliver these record results
for the year and although it is only one in the Company's 83 year
history, it is many years in the making. Seaboard is made up of
many unique people who have helped shape this Company into a
special one as measured not just by financial performance but by
product value, customer appreciation and employee satisfaction.
For this, I am extremely grateful and appreciative and as
shareholders, I hope you are as well. If stockholder's equity is
a reliable measure of financial performance (as some notable
investment analysts proclaim), then we haven't done too badly
over the last several years. We will no doubt face some tougher
financial times in 2011 but longer term, our selected industries
and integrated business model ought to bring some reasonable
growth and value to our invested group.
/s/Steven J. Bresky
Steven J. Bresky
President and
Chief Executive Officer
4
Principal Locations
Corporate Office Minoterie de Seaboard de Nicaragua, S.A.
Seaboard Corporation Matadi, S.A.R.L.* Nicaragua
Merriam, Kansas
Democratic Republic Seaboard del Peru, S.A.
Pork of Congo Peru
Seaboard Foods LLC
Pork Division Office Minoterie du Congo, Seaboard Freight & Shipping
Merriam, Kansas S.A. Jamaica Limited
Republic of Congo Jamaica
Processing Plant
Guymon, Oklahoma Moderna Alimentos, S.A.* Seaboard Honduras, S. de R.L.
Molinos Champion, S.A.* de C.V.
Live Production Ecuador Honduras
Operation Offices
Julesburg, Colorado National Milling Seaboard Marine Bahamas Ltd.
Hugoton, Kansas Company Bahamas
Leoti, Kansas of Guyana, Inc.
Liberal, Kansas Guyana Seaboard Marine (Trinidad)
Rolla, Kansas Ltd.
Guymon, Oklahoma National Milling Trinidad
Hennessey, Oklahoma Corporation Limited
Optima, Oklahoma Zambia Seaboard Marine of Haiti,
S.E.
Processed Meats Companie Industrial de Haiti
Salt Lake City, Utah Productos Agreopecuarios
Missoula, Montana SA* SEADOM, S.A.
Rafael del Castillo & Dominican Republic
High Plains Cia. S.A.*
Bioenergy, LLC Colombia SeaMaritima S.A. de C.V.
Guymon, Oklahoma Mexico
Seaboard West Africa
Seaboard de Mexico Limited* Sugar
USA LLC Sierra Leone Ingenio y Refineria San
Mexico Martin del Tabacal SRL
Unga Holdings Limited* Argentina
Commodity Trading & Kenya and Uganda
Milling Power
Commodity Trading Marine Transcontinental Capital
Operations Seaboard Marine Ltd. Corp. (Bermuda) Ltd.
Australia* Marine Division Office Dominican Republic
Bermuda Miami, Florida
Canada Turkey
Chapel Hill, Port Operations Butterball LLC*
North Carolina* Brooklyn, New York Division Office
Colombia Fernandina Beach, Florida Garner, North Carolina
Ecuador Houston, Texas Processing Plants
Greece Miami, Florida Huntsville, Arkansas
Isle of Man New Orleans, Louisiana Jonesboro, Arkansas
Miami, Florida Ozark, Arkansas
Peru* Agencias Generales Conaven, Longmont, Colorado
South Africa C.A. Carthage, Missouri
Switzerland Venezuela Kinston, North Carolina
Mt. Olive, North Carolina
African Poultry Agencia Maritima del Istmo,
Development S.A.
Limited* Costa Rica Other
Democratic Republic Mount Dora Farms de
of Congo, Cayman Freight Shipping Honduras, S.R.L.
Kenya and Zambia Services, Ltd. Honduras
Cayman Islands
Fairfield Rice Inc.* Mount Dora Farms Inc.
Guyana JacintoPort International LLC Houston, Texas
Houston, Texas
Les Moulins d'Haiti
S.E.M.* Representaciones Maritimas y
Haiti Aereas, S.A.
Guatemala
Lesotho Flour Mills
Limited* Sea Cargo, S.A.
Lesotho Panama
Life Flour Mill Ltd.* Seaboard de Colombia, S.A.
Premier Feeds Mills Colombia
Company Limited*
Nigeria
*Represents a non-controlled, non-consolidated affiliate
5
Division Summaries
Pork Division
Seaboard's Pork Division is one of the largest vertically
integrated pork processors in the United States. Seaboard is
able to control animal production and processing from research
and development in nutrition and genetics, to the production of
high quality meat products at our processing facilities.
Seaboard's processing facility is located in Guymon, Oklahoma.
The facility has a daily double shift capacity to process
approximately 19,400 hogs and generally operates at capacity with
additional weekend shifts depending on market conditions.
Seaboard produces and sells fresh and frozen pork products to
further processors, foodservice operators, grocery stores,
distributors and retail outlets throughout the United States.
Seaboard also sells to distributors and further processors in
Japan, Mexico and other foreign markets. Hogs processed at the
plant principally include Seaboard raised hogs as well as hogs
raised by third parties purchased under contract and in the spot
market.
Seaboard's hog production facilities consist of genetic and
commercial breeding, farrowing, nursery and finishing buildings
located in Oklahoma, Kansas, Texas and Colorado. These
facilities have a capacity to produce approximately four million
hogs annually. Seaboard owns and operates six centrally located
feed mills to provide formulated feed to these facilities.
Seaboard's Pork Division also owns two bacon processing plants
located in Salt Lake City, Utah and Missoula, Montana. The
processing plants produce sliced and pre-cooked bacon primarily
for food service. These operations enable Seaboard to expand its
integrated pork model into value-added products and to enhance
its ability to extend production to include other further
processed pork products.
In the second quarter of 2008, Seaboard commenced production of
biodiesel at a facility constructed in Guymon, Oklahoma. The
biodiesel is primarily produced from pork fat from Seaboard's
Guymon pork processing plant and from animal fat supplied by non-
Seaboard facilities. The biodiesel is sold to third parties.
The facility can also produce biodiesel from vegetable oil.
Also, during 2009 Seaboard completed construction of and began
operations at a majority-owned ham-boning and processing plant in
Mexico.
Seaboard's Pork Division has an agreement with a similar size
pork processor, Triumph Foods LLC (Triumph), to market all of the
pork products produced at Triumph's plant in St. Joseph,
Missouri. Pursuant to this agreement, Seaboard is able to
provide the same quality products to its customers that are
produced in its own facilities. Seaboard markets the pork
products for a fee primarily based on the number of head
processed by Triumph Foods and is entitled to be reimbursed for
certain expenses.
Commodity Trading & Milling Division
Seaboard's Commodity Trading & Milling Division markets wheat,
corn, soybean meal, rice and other similar commodities in bulk
overseas to third party customers and affiliated companies.
These commodities are purchased worldwide with primary
destinations in Africa, South America, and the Caribbean.
The division sources, transports and markets approximately
five million metric tons per year of wheat, corn, soybean meal,
rice and other similar commodities to the food and animal feed
industries. The division efficiently provides quality products
and reliable services to industrial customers in selected
markets. Seaboard integrates the delivery of commodities to its
customers primarily through the use of company owned and
chartered bulk carriers.
Seaboard's Commodity Trading and Milling Division has facilities
in 28 countries. The commodity trading business operates through
ten offices in nine countries and three non-consolidated
affiliates located in nine countries. The grain processing
businesses operate facilities at 32 locations in 14 countries and
include four consolidated and fourteen non-consolidated
affiliates in Africa, South America, and the Caribbean. These
businesses produce approximately three million metric tons of
finished product per year.
6
Division Summaries
Marine Division
Seaboard's Marine Division provides containerized shipping
service between the United States, the Caribbean Basin, and
Central and South America. Seaboard's primary operations,
located in Miami, include a 135,000 square-foot off-port
warehouse for cargo consolidation and temporary storage and an
81 acre terminal at the Port of Miami. At the Port of Houston,
Seaboard operates a 62 acre cargo terminal facility that includes
approximately 690,000 square feet of on-dock warehouse space for
temporary storage of bagged grains, resins and other cargoes.
Seaboard also makes scheduled vessel calls to Brooklyn, New York,
Fernandina Beach, Florida, New Orleans, Louisiana and 42 foreign
ports.
Seaboard's marine fleet consists of 10 owned and 29 chartered
vessels, as well as dry, refrigerated and specialized containers
and other related equipment. Seaboard is the largest shipper in
terms of cargo volume to and from the Port of Miami. Seaboard
Marine provides direct service to 26 countries. Seaboard also
provides extended service from our domestic ports of call to and
from multiple foreign destinations through a network of
connecting carrier agreements with major regional and global
carriers.
To maximize fleet utilization, Seaboard uses a network of offices
and agents throughout the United States, Canada, Latin America,
and the Caribbean Basin to book both northbound and southbound
cargo to and from the United States and between the countries it
serves. Seaboard's full service capabilities, including
agreements with a network of connecting carriers, allow transport
by truck or rail of import and export cargo to and from various
U.S. ports. Seaboard's frequent sailings and fixed-day schedules
make it convenient for customers to coordinate manufacturing
schedules and maintain inventories at cost-efficient levels.
Seaboard's approach is to work in partnership with its customers
to provide the most reliable and effective level of service
throughout the United States, Latin America and the Caribbean
Basin and between the countries it serves.
Other Divisions
In Argentina, Seaboard grows sugar cane, produces and refines
sugar, and produces alcohol. The sugar is primarily marketed
locally with some exports to the United States and other South
American countries. Seaboard's mill, one of the largest in
Argentina, has a processing capacity of approximately
250,000 metric tons of sugar and approximately 14 million gallons
of alcohol (hydrated and dehydrated) per year. The mill is
located in the Salta Province of Argentina with administrative
offices in Buenos Aires. Approximately 60,000 acres of land
owned by Seaboard in Argentina is planted with sugar cane, which
supplies the majority of the raw product processed by the mill.
Depending on local market conditions, sugar may also be purchased
from third parties for resale. During 2008 this division began
construction of a 40 megawatt cogeneration power plant, which is
expected to be completed in the second quarter of 2011. In
addition, in the first quarter of 2010, the Company began sales
of dehydrated alcohol to certain oil companies under the
Argentine government bio-ethanol program which requires alcohol
to be blended with gasoline.
Seaboard owns two floating electric power generating facilities
in the Dominican Republic, consisting of a system of diesel
engines mounted on barges with a combined rated capacity of
approximately 112 megawatts. Seaboard has an agreement to sell
these electric power generating facilities, which sale is
anticipated to be finalized during the second quarter in 2011.
Seaboard is retaining all other physical properties of its power
generation business and is currently constructing a replacement
power generation facility with a rated capacity of 106 megawatts
for use in the Dominican Republic. Operations are anticipated to
begin by the end of 2011 or early 2012. Seaboard operates as an
independent power producer generating electricity for the local
power grid. Seaboard is not directly involved in the
transmission or distribution of electricity but does have
contracts to sell directly to third party users.
On December 6, 2010, Seaboard purchased a 50 percent non-
controlling voting interest in Butterball, LLC ("Butterball").
Butterball is a vertically integrated producer, processor and
marketer of branded and non-branded turkeys, and other turkey
products. Butterball has seven processing plants and numerous
live production and feed milling operations located in Arkansas,
Colorado, Kansas, Missouri and North Carolina. Butterball
produces approximately 1 billion pounds of turkey each year, and
supplies its products to more than 30 countries. Butterball is a
national supplier to retail and foodservice outlets and also
exports products to Mexico and other countries.
Seaboard processes jalapeno peppers at its plant in Honduras.
These products are shipped to the United States on Seaboard
Marine vessels and distributed from Seaboard's port facilities.
7
Summary of Selected Financial Data
(Thousands of dollars except
per share amounts) Years ended December 31,
2010 2009 2008 2007 2006
Net sales $4,385,702 $3,601,308 $4,267,804 $3,213,301 $2,707,397
Operating income $ 321,066 $ 23,723 $ 121,809 $ 169,915 $ 296,995
Net earnings attributable
to Seaboard $ 283,611 $ 92,482 $ 146,919 $ 181,332 $ 258,689
Basic earnings per common
share $ 231.69 $ 74.74 $ 118.19 $ 144.15 $ 205.09
Diluted earnings per
common share $ 231.69 $ 74.74 $ 118.19 $ 144.15 $ 205.09
Total assets $2,734,086 $2,337,133 $2,331,361 $2,093,699 $1,961,433
Long-term debt, less
current maturities $ 91,407 $ 76,532 $ 78,560 $ 125,532 $ 137,817
Stockholders' equity $1,778,249 $1,545,419 $1,463,578 $1,355,199 $1,242,410
Dividends per common
share $ 9.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
Seaboard Corporation, and affiliated companies in its Commodity
Trading and Milling segment, resolved a dispute with a third
party related to a 2005 transaction. As a result, Seaboard
Overseas Limited received $16,787,000, net of expenses, or $13.57
per common share in the third quarter of 2009 included in other
income. There was no tax expense on this transaction. See Note
11 to the Consolidated Financial Statements for further
discussion.
8
Company Performance Graph
The Securities and Exchange Commission requires a five-year
comparison of stock performance for Seaboard with that of an
appropriate broad equity market index and similar industry index.
Seaboard's common stock is traded on the NYSE Amex Equities and
provides an appropriate comparison for Seaboard's stock
performance. Because there is no single industry index to
compare stock performance, the companies comprising the Dow Jones
Food and Marine Transportation Industry indices (the "Peer
Group") were chosen as the second comparison.
The following graph shows a five-year comparison of cumulative
total return for Seaboard, the NYSE Amex Equities Index and the
companies comprising the Dow Jones Food and Marine Transportation
Industry indices weighted by market capitalization for the five
fiscal years commencing December 31, 2005, and ending December
31, 2010. The information presented in the performance graph is
historical in nature and is not intended to represent or
guarantee future returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Seaboard Corporation, the NYSE Amex Equities Composite Index
and a Peer Group
The graph depicts data points below.
*$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
The comparison of cumulative total returns presented in the above
graph was plotted using the following index values and common
stock price values:
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10
Seaboard Corporation $100.00 $117.05 $ 97.64 $ 79.49 $ 90.05 $133.55
NYSE Amex Equities
Composite $100.00 $119.54 $144.62 $ 87.02 $118.50 $152.13
Peer Group $100.00 $120.20 $131.33 $101.27 $121.20 $139.55
9
Quarterly Financial Data (unaudited)
(UNAUDITED)
(Thousands of dollars except per share amounts)
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter the Year
2010
Net sales $1,020,276 $1,048,463 $1,111,813 $1,205,150 $4,385,702
Operating income $ 67,466 $ 101,247 $ 41,642 $ 110,711 $ 321,066
Net earnings
attributable to
Seaboard $ 62,778 $ 77,604 $ 39,869 $ 103,360 $ 283,611
Earnings per common
share $ 50.84 $ 63.21 $ 32.74 $ 85.01 $ 231.69
Dividends per common
share $ 0.75 $ 0.75 $ 0.75 $ 6.75 $ 9.00
Closing market price range per common share:
High $ 1,430.00 $ 1,610.00 $ 1,795.00 $ 2,006.00
Low $ 1,195.00 $ 1,261.00 $ 1,387.05 $ 1,750.01
2009
Net sales $ 917,568 $ 869,830 $ 854,625 $ 959,285 $3,601,308
Operating income (loss) $ 16,042 $ 2,769 $ (2,679)$ 7,591 $ 23,723
Net earnings
attributable to
Seaboard $ 15,973 $ 26,919 $ 36,715 $ 12,875 $ 92,482
Earnings per common
share $ 12.89 $ 21.76 $ 29.69 $ 10.41 $ 74.74
Dividends per common
share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 3.00
Closing market price range per common share:
High $ 1,215.00 $ 1,285.00 $ 1,382.82 $ 1,549.00
Low $ 805.00 $ 935.00 $ 1,040.00 $ 1,172.00
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
During 2010, Seaboard repurchased 5,452 common shares in the
first quarter, 6,680 in the second quarter and 8,747 in the third
quarter, as authorized by Seaboard's Board of Directors. During
the first and second quarters of 2009, Seaboard repurchased 3,233
and 435 common shares respectively, as authorized by Seaboard's
Board of Directors. See Note 12 to the Consolidated Financial
Statements for further discussion.
Seaboard Corporation, and affiliated companies in its Commodity
Trading and Milling segment, resolved a dispute with a third
party related to a 2005 transaction. As a result, Seaboard
Overseas Limited received $16,787,000, net of expenses, or $13.57
per common share in the third quarter of 2009 included in other
income. There was no tax expense on this transaction. See Note
11 to the Consolidated Financial Statements for further
discussion.
10
Management's Discussion & Anaylsis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Seaboard is a diverse agribusiness and transportation company
with global operations in several industries. Most of the sales
and costs of Seaboard's segments are significantly influenced by
worldwide fluctuations in commodity prices and changes in foreign
political and economic conditions. Accordingly, sales, operating
income and cash flows can fluctuate significantly from year to
year. As each segment operates in distinct industries and
different geographical locations, management evaluates their
operations separately. Seaboard's reporting segments are based
on information used by Seaboard's Chief Executive Officer in his
capacity as chief operating decision maker to determine
allocation of resources and assess performance.
Pork Segment
The Pork segment is primarily a domestic business with some
export sales to Japan, Mexico, and other foreign markets.
Revenues from the sale of pork products are primarily generated
from a single hog processing plant in Guymon, Oklahoma, which
operates at daily double shift processing capacity of 19,400
hogs, two bacon further processing plants located in Salt Lake
City, Utah and Missoula, Montana, and a ham-boning and processing
plant in Mexico. In 2010 Seaboard raised approximately 75% of
the hogs processed at the Guymon plant with the remaining hog
requirements purchased primarily under contracts from independent
producers. This segment is Seaboard's most capital intensive
segment with approximately 55% of Seaboard's fixed assets and
material amounts of inventories.
Of Seaboard's businesses, management believes the Pork segment
also has the greatest exposure to commodity price fluctuations.
As a result, this segment's operating income and cash flows can
materially fluctuate from year to year, significantly affecting
Seaboard's consolidated operating income and cash flows. Sales
prices are directly affected by both domestic and worldwide
supply and demand for pork products and other proteins. Feed
costs are the most significant single component of the cost of
raising hogs and can be materially affected by prices for corn
and soybean meal. In addition, costs can be materially affected
by market prices for hogs purchased from third parties for
processing at the plant. As the Guymon plant operates at
capacity, to improve operating income Seaboard is constantly
working towards improving the efficiencies of the operations as
well as considering ways to increase margins by expanding product
offerings.
The Pork segment also produces biodiesel which is sold to third
parties. Biodiesel is produced from pork fat obtained from
Seaboard's pork processing plant and from animal fat purchased
from third parties. The processing plant also can produce
biodiesel from vegetable oil. This plant was completed in the
second quarter of 2008. During 2009 Seaboard completed
construction of and began operations at a majority-owned ham-
boning and processing plant in Mexico.
The Pork segment has an agreement with Triumph Foods LLC
(Triumph), to market all of the pork products produced at
Triumph's plant in St. Joseph, Missouri. The Pork segment
markets the related pork products for a fee primarily based on
the number of head processed by Triumph Foods. This plant has a
capacity similar to that of Seaboard's Guymon plant and operates
upon an integrated model similar to that of Seaboard's.
Seaboard's sales prices for its pork products are primarily based
on a margin sharing arrangement that considers the average sales
price and mix of products sold from both Seaboard's and Triumph
Food's hog processing plants.
Commodity Trading and Milling Segment
The Commodity Trading and Milling segment, which is managed under
the name of Seaboard Overseas and Trading Group, primarily
operates overseas with locations in Africa, Bermuda, South
America, the Caribbean and Europe. These foreign operations can
be significantly impacted by local crop production, political
instability, local government policies, economic and industry
conditions, and currency fluctuations. This segment's sales are
also significantly affected by fluctuating prices of various
commodities, such as wheat, corn, soybean meal and rice.
Although this segment owns eight ships, the majority of the third
party trading business is transacted with chartered ships.
Freight rates, influenced by available charter capacity for
worldwide trade in bulk cargoes, and related fuel costs affect
business volumes and margins. The milling businesses, both
consolidated and non-consolidated affiliates, operate in foreign
and, in most cases, lesser developed countries. Subsidized wheat
and flour exports can create fluctuating market conditions that
can have a significant impact on both the trading and milling
businesses' sales and operating income.
11
The majority of the Commodity Trading and Milling segment's sales
pertain to the commodity trading business. Grain is sourced from
multiple origins and delivered to third party and affiliate
customers in various international locations. The execution of
these purchase and delivery transactions have long cycles of
completion which may extend for several months with a high degree
of price volatility. As a result, these factors can
significantly affect sales volumes, operating income, working
capital and related cash flows from quarter-to-quarter.
Seaboard invested in several entities during 2010 and continues
to seek opportunities to expand its trading and milling
businesses.
Marine Segment
The Marine segment provides containerized cargo shipping services
primarily from the United States to 26 countries in the Caribbean
Basin, Central and South America. As a result, fluctuations in
economic conditions or unstable political situations in the
regions or countries in which Seaboard operates can affect trade
volumes and operating profits. In addition, containerized cargo
rates can fluctuate depending on local supply and demand for
shipping services. This segment time-charters or leases the
majority of its ocean cargo vessels and is thus affected by
fluctuations in charter hire rates as well as fuel costs.
Seaboard continues to explore ways to increase volumes on
existing routes while seeking opportunities to broaden its route
structure in the regions it serves.
Sugar Segment
Seaboard's Sugar segment operates a vertically integrated sugar
production facility in Argentina. This segment's sales and
operating income are significantly affected by local and
worldwide sugar prices. Yields from the Argentine sugar harvest
can have an impact on the local price of sugar. Also, but to a
lesser degree, price fluctuations in the world market can affect
local sugar prices and export sales volumes and prices.
Depending on local market conditions, this business purchases
sugar from third parties for resale. Over the past several
years, Seaboard made numerous improvements to this business to
increase the efficiency of its operations and expand its sugar
and alcohol production capabilities. In the first quarter of
2010, the Company began sales of dehydrated alcohol to certain
oil companies under an Argentine government bio-ethanol program,
which mandates alcohol to be blended with gasoline.
The functional currency of the Sugar segment is the Argentine
peso. The currency exchange rate can have an impact on reported
U.S. dollar sales, operating income and cash flows.
Historically, the financing needs were relatively high for this
operation as a result of ongoing expansion of sugar production
and construction of a 40 megawatt cogeneration power plant.
However, with the completion of the cogeneration power plant
anticipated during the second quarter of 2011, financing needs
for this segment should be minimal. Seaboard continues to
explore ways to improve and expand its existing operations while
considering other alternatives to expand this segment.
Power Segment
Seaboard's Power segment operates as an independent power
producer in the Dominican Republic (DR) generating power from a
system of diesel engines mounted on two barges having a combined
rated capacity of approximately 112 megawatts. As discussed in
Note 13 to the Consolidated Financial Statements, during the
second quarter of 2011, it is anticipated that Seaboard will
complete the sale of the two existing electric power generating
facilities. Seaboard is currently in process of constructing a
replacement power generation facility capable of generating power
from liquid natural gas or diesel fuel which will be mounted on a
single barge and will have a rated capacity of approximately 106
megawatts. It is anticipated the replacement power facility will
be placed in service by the end of 2011 or early 2012.
Development of the replacement power facility is being financed
with a $114,000,000 financing facility and Seaboard's available
cash or borrowing capacity. During the past few years, operating
cash flows have fluctuated from inconsistent customer
collections.
The DR regulatory body schedules power production based on the
amount of funds available to pay for the power produced and the
relative costs of the power produced. Fuel is the largest cost
component, but increases in fuel prices generally have been
passed on to customers. In addition, from time to time Seaboard
pursues additional investment opportunities in the power
industry.
12
Turkey Segment
On December 6, 2010, Seaboard purchased a 50 percent non-
controlling voting interest in Butterball, LLC ("Butterball").
Butterball is a vertically integrated producer, processor and
marketer of branded and non-branded turkeys, and other turkey
products. Butterball has seven processing plants and numerous
live production and feed milling operations located in Arkansas,
Colorado, Kansas, Missouri and North Carolina. Sales prices are
directly affected by both domestic and worldwide supply and
demand for turkey products and other proteins. Feed costs are
the most significant single component of the cost of raising
turkeys and can be materially affected by prices for corn and
soybean meal. The turkey business is seasonal only on the whole
bird side with Thanksgiving and Christmas holidays driving the
majority of those sales. As part of this investment, Seaboard
provided financing to Butterball of $100.0 million in
subordinated debt with detachable warrants. See Note 4 to the
Consolidated Financial Statements for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
Cash and short-term investments as of December 31, 2010 decreased
$95.9 million from December 31, 2009. The decrease was primarily
the result of investing $177.5 million for a 50% non-controlling
voting interest in Butterball plus $100.0 million financing
provided to Butterball in subordinated debt. Also during 2010,
cash was used for capital expenditures of $103.3 million,
investments in four new non-consolidated affiliates and
acquisitions of a business of $33.3 million, as discussed below,
repurchases of common stock in the amount of $30.0 million and
dividends paid of $11.0 million. Partially offsetting the
decrease was cash generated by operating activities of $339.8
million. Cash from operating activities for 2010 increased $93.5
million compared to 2009, primarily as a result of higher net
earnings in 2010 compared to 2009, partially offset by a prior
year increase in net working capital that did not repeat in 2010.
Cash and short-term investments as of December 31, 2009 increased
$95.9 million from December 31, 2008. The increase was the
result of cash generated by operating activities of $246.4
million, $16.8 million received from a gain on a disputed sale as
discussed in Note 11 to the Consolidated Financial Statements and
$15.0 million received for the potential sale of power barges, as
discussed in Note 13 to the Consolidated Financial Statements.
During 2009, cash was used to reduce notes payable by $95.1
million, to reduce long-term debt by $46.9 million and for
capital expenditures of $54.3 million. Cash from operating
activities for 2009 increased $135.1 million compared to 2008,
primarily as a result of decreases in working capital items of
accounts receivable and inventory in 2009 compared to increases
in 2008, partially offset by lower net earnings in 2009 compared
to 2008.
Capital Expenditures, Acquisitions and Other Investing Activities
During 2010, Seaboard invested $103.3 million in property, plant
and equipment, of which $9.6 million was expended in the Pork
segment, $28.4 million in the Marine segment, $30.6 million in
the Sugar segment, $31.7 million in the Power segment and $3.0
million in the remaining businesses. For the Pork segment, the
expenditures were primarily for improvements to existing
facilities and related equipment. For the Marine segment, $23.5
million was spent to purchase cargo carrying and handling
equipment. In the Sugar segment, the capital expenditures were
primarily used for construction of the cogeneration power plant
with the remaining capital expenditures for normal upgrades to
existing operations. For the Power segment, expenditures were
primarily used for the construction of a 106 megawatt power
generation facility for use in the Dominican Republic. The total
cost of this project is estimated to be approximately $125.0
million. Operations are anticipated to begin by the end of 2011
or early 2012. All other capital expenditures were primarily of
a normal recurring nature and primarily included replacement of
machinery and equipment, and general facility modernizations and
upgrades.
The total 2011 capital expenditures budget is $211.2 million.
The Pork segment plans to spend $33.5 million primarily for
additional finishing barns and, to a lesser degree, improvements
to existing facilities and related equipment. The Marine segment
has budgeted to spend $51.4 million primarily for additional
cargo carrying and handling equipment and port development
projects. In addition, management will be evaluating whether to
purchase additional containerized cargo vessels for the Marine
segment and dry bulk vessels for the Commodity Trading and
Milling segment during 2011. The Sugar segment plans to spend
$18.3 million, including $2.1 million for the completion of a 40
megawatt cogeneration power plant, with the remaining amount for
normal upgrades to existing operations. The cogeneration power
plant is expected to be operational by the end of the second
quarter of 2011 at a total completed cost of approximately $50.0
million. The Power segment plans to spend $87.4 million
primarily for the new power barge being constructed as discussed
above. The balance of $20.6 million is planned to be spent in
13
all other businesses. Management anticipates paying for these
capital expenditures from available cash, the use of available
short-term investments or Seaboard's available borrowing
capacity. As of December 31, 2010 Seaboard had commitments of
$100.4 million to spend on construction projects, purchase
equipment, and make facility improvements.
During 2009 Seaboard invested $54.3 million in property, plant
and equipment, of which $15.2 million was expended in the Pork
segment, $14.7 million in the Marine segment, $21.6 million in
the Sugar segment and $2.8 million in the remaining businesses.
For the Pork segment, the expenditures were primarily for
improvements to existing hog facilities, upgrades to the Guymon
pork processing plant and construction of the ham-boning and
processing plant in Mexico. The ham-boning and processing plant
was completed in the second quarter of 2009. For the Marine
segment, $10.3 million was spent to purchase cargo carrying and
handling equipment. In the Sugar segment, $13.8 million was used
for development of the cogeneration power plant with the
remaining capital expenditures primarily being used for expansion
of cane growing operations. All other capital expenditures were
primarily of a normal recurring nature and primarily included
replacement of machinery and equipment, and general facility
modernizations and upgrades.
During 2008 Seaboard invested $134.6 million in property, plant
and equipment, of which $52.6 million was expended in the Pork
segment, $46.3 million in the Marine segment, $31.0 million in
the Sugar segment and $4.7 million in the remaining businesses.
For the Pork segment, $12.8 million was spent constructing
additional hog finishing space, $9.3 million was spent on the
construction of a biodiesel plant and $8.2 million was spent on
the ham-boning and processing plant. For the Marine segment,
$36.5 million was spent to purchase cargo carrying and handling
equipment. In the Sugar segment, $10.4 million was used for
development of the cogeneration power plant with the remaining
capital expenditures being used primarily for expansion of
alcohol distillery operations and expansion of cane growing
operations. All other capital expenditures were primarily of a
normal recurring nature and primarily included replacement of
machinery and equipment, and general facility modernizations and
upgrades.
On December 6, 2010, Seaboard acquired a 50 percent non-
controlling voting interest in Butterball for a cash purchase
price of $177.5 million. In connection with this investment,
Seaboard provided to Butterball $100.0 million of subordinated
financing. See Note 4 to the Consolidated Financial Statements
for further discussion of this transaction.
During the fourth quarter of 2010, Seaboard acquired a 25% non-
controlling interest in a commodity trading business in Australia
for $5.0 million. Also during the fourth quarter of 2010,
Seaboard invested $10.5 million in a newly combined poultry
business in Africa for a 50% non-controlling interest.
During the third quarter of 2010, Seaboard acquired a majority
interest in a commodity origination, storage and processing
business in Canada for approximately $6.7 million, subject to
final working capital adjustments. The assets acquired included
cash of $1.2 million. Also during the third quarter of 2010,
Seaboard finalized an agreement to invest in a bakery to be built
in Central Africa for a 50% non-controlling interest in this
business. As of December 31, 2010, Seaboard had invested $10.1
million in this project. The total project cost is estimated to
be $58.0 million but Seaboard's total investment has not yet been
determined pending finalization of third party financing
alternatives for a portion of the project. The bakery is not
anticipated to be fully operational until the second half of
2011.
In late March 2010, Seaboard acquired a 50% non-controlling
interest in an international commodity trading business located
in North Carolina for approximately $7.7 million.
See Note 4 to the Consolidated Financial Statements for further
discussion of these non-controlling interest investments made in
2010.
During 2010, Seaboard agreed to invest in various limited
partnerships as a limited partner that are expected to allow
Seaboard to obtain certain low income housing tax credits over a
period of approximately ten years. The total commitment is
approximately $17.5 million and the majority of the investment is
expected to be made during late 2011 and 2012.
On March 2, 2009, an agreement became effective under which
Seaboard will sell its two power generating facilities in the
Dominican Republic for $70.0 million. During March 2009, $15.0
million was paid to Seaboard and the $55.0 million balance of the
purchase price was paid into escrow and will be paid to Seaboard
at the closing of the sale
14
anticipated to be during the second quarter. See Note 13 to
the Consolidated Financial Statements for further discussion.
Financing Activities, Debt and Related Covenants
The following table represents a summary of Seaboard's available
borrowing capacity as of December 31, 2010. At December 31,
2010, there were no borrowings outstanding under the committed
lines of credit and borrowings under the uncommitted lines of
credit totaled $33.7 million, all related to foreign
subsidiaries. Letters of credit reduced Seaboard's borrowing
capacity under its committed and uncommitted credit lines by
$42.6 million and $8.1 million, respectively, primarily
representing $26.4 million for Seaboard's outstanding Industrial
Development Revenue Bonds and $20.2 million related to insurance
coverage. Also included in notes payable at December 31, 2010
was a term note of $45.0 million denominated in U.S. dollars.
Total amount
(Thousands of dollars) available
Long-term credit facilities - committed $300,000
Short-term uncommitted demand notes 164,479
Uncommitted term note 45,000
Total borrowing capacity 509,479
Amounts drawn against lines (33,729)
Uncommitted term note (45,000)
Letters of credit reducing borrowing availability (50,714)
Available borrowing capacity at December 31, 2010 $380,036
On September 17, 2010, Seaboard entered into a credit agreement
for $114.0 million at a fixed rate of 5.34% for the financing of
the construction of a replacement power generation facility,
which will operate in the Dominican Republic as discussed above.
This credit facility has a term of ten years commencing upon
achievement of commercial operation which is expected to take
place prior to April 24, 2012. The credit facility will mature
no later than April 24, 2022 and is secured by the power
generating facility. At December 31, 2010, $16.4 million had
been borrowed from this credit facility.
Seaboard has capacity under existing loan covenants to undertake
additional debt financings of approximately $1,681.7 million. As
of December 31, 2010, Seaboard is in compliance with all
restrictive covenants related to these loans and facilities. See
Note 8 to the Consolidated Financial Statements for a summary of
the material terms of Seaboard's credit facilities, including
financial ratios and covenants.
Scheduled long-term debt maturities are $1.7 million, $34.2
million and $2.2 million over the next three years. As of
December 31, 2010, Seaboard has cash and short-term investments
of $373.3 million, total working capital of $847.2 million and a
$300.0 million line of credit maturing on July 10, 2013.
Accordingly, management believes Seaboard's combination of
internally generated cash, liquidity, capital resources and
borrowing capabilities will be adequate for its existing
operations and any currently known plans for expansion of
existing operations or business segments for 2011. Management
does, however, periodically review various alternatives for
future financing to provide additional liquidity for future
operating plans. Management intends to continue seeking
opportunities for expansion in the industries in which Seaboard
operates, utilizing existing liquidity, available borrowing
capacity and other financing alternatives.
In December 2010, Seaboard declared and paid a dividend of $6.75
per share on the common stock. The increased amount of the
dividend (which has historically been $0.75 per share on a
quarterly basis or $3.00 per share on an annual basis)
represented payment of the regular fourth quarter dividend of
$0.75 per share and a prepayment of the annual 2011 and 2012
dividends ($3.00 per share per year). Seaboard does not intend
to declare any further dividends for the years 2011 and 2012.
On November 6, 2009, the Board of Directors authorized up to $100
million for a new share repurchase program. The previous share
repurchase program approved by the Board of Directors on August
7, 2007, ended on August 31, 2009. Seaboard used cash to
repurchase 20,879 shares of common stock at a total price of
$30.0 million in 2010,
15
3,668 shares of common stock at a total price of $3.4 million in
2009 and 3,852 shares of common stock at a total price of $5.0
million in 2008. See Note 12 to the Consolidated Financial
Statements for further discussion.
Contractual Obligations and Off-Balance-Sheet Arrangements
The following table provides a summary of Seaboard's contractual
cash obligations as of December 31, 2010.
Payments due by period
Less than 1-3 3-5 More than
(Thousands of dollars) Total 1 year years years 5 years
Vessel time and voyage-charter
commitments $ 220,889 $ 68,911 $ 59,664 $23,569 $ 68,745
Contract grower finishing
agreements 73,993 11,473 20,082 17,661 24,777
Other operating lease payments 273,097 17,572 29,444 25,894 200,187
Total lease obligations 567,979 97,956 109,190 67,124 293,709
Long-term debt 93,104 1,697 36,373 11,223 43,811
Short-term notes payable 78,729 78,729 - - -
Other purchase commitments 782,153 689,818 86,970 5,170 195
Total contractual cash
obligations and commitments $1,521,965 $868,200 $232,533 $83,517 $337,715
The Marine segment enters into contracts to time-charter vessels
for use in its operations. To support the operations of the Pork
segment, Seaboard has contract grower finishing agreements in
place with farmers to raise a portion of Seaboard's hogs.
Seaboard has entered into grain and feed ingredient purchase
contracts to support the live hog operations of the Pork segment
and has contracted for the purchase of additional hogs from third
parties. The Commodity Trading and Milling segment enters into
commodity purchase contracts and ocean freight contracts,
primarily to support sales commitments. Seaboard also leases
various facilities and equipment under noncancelable operating
lease agreements. See Note 11 to the Consolidated Financial
Statements for a further discussion and for a more detailed
listing of other purchase commitments.
Seaboard has also issued $1.4 million of guarantees to support
certain activities of non-consolidated affiliates and third
parties who provide services for Seaboard. See Note 11 to the
Consolidated Financial Statements for a detailed discussion.
RESULTS OF OPERATIONS
Net sales for the years ended December 31, 2010, 2009 and 2008
were $4,385.7 million, $3,601.3 million and $4,267.8 million,
respectively. The increase in net sales in 2010 primarily
reflected an increase in sale prices for pork products, increased
commodities trading volumes and higher cargo volumes for the
Marine segment. The decrease in net sales in 2009 was primarily
the result of price decreases for commodities sold by the
commodity trading business, lower cargo volumes for the Marine
segment and, to a lesser extent, a decrease in sales prices for
pork products. Partially offsetting the decreases were increased
commodities trading volumes to non-consolidated affiliates.
Operating income for the years ended December 31, 2010, 2009 and
2008 were $321.1 million, $23.7 million and $121.8 million,
respectively. The 2010 increase primarily reflected higher Pork
segment margins and, to a lesser extent, increased margins for
the Sugar segment and the Marine segment as discussed below. The
2009 decrease compared to 2008 primarily reflected lower
commodity trading and Marine segment margins and a $32.6 million
fluctuation of marking to market Commodity Trading and Milling
derivative contracts, respectively, as discussed below. The
decrease was partially offset by higher margins on pork products
sold primarily from lower feed costs.
16
Pork Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 1,388.3 $ 1,065.3 $ 1,126.0
Operating income (loss) $ 213.3 $ (15.0) $ (45.9)
Net sales of the Pork segment increased $323.0 million for the
year ended December 31, 2010 compared to 2009. The increase
primarily reflected an increase in overall sales prices for pork
products.
Operating income increased $228.3 million for the year ended
December 31, 2010 compared with 2009. The increase was primarily
a result of higher sales prices, partially offset by higher costs
for hogs purchased from third parties.
Management is unable to predict future market prices for pork
products or the cost of feed and hogs purchased from third
parties. Recent increases in corn prices, the primary cost of
feed, could result in higher overall live production costs for
2011. Management anticipates positive operating income for 2011
although at lower levels than 2010. As discussed in Note 5 to
the Consolidated Financial Statements, there is a possibility
that some amount of the ham-boning plant in Mexico could be
deemed impaired during some future period including fiscal 2011,
which may result in a charge to earnings if current projections
are not met.
Net sales of the Pork segment decreased $60.7 million for the
year ended December 31, 2009 compared to 2008. The decrease was
primarily the result of a decrease in overall sales prices for
pork products, partially offset by higher volumes of pork
products sold for export. Increased volumes were made possible
by the expansion in daily capacity at the Guymon processing plant
during the first quarter of 2008. The lower sales prices for
pork products appear to be the result of an excess supply of pork
products in the domestic market, the world economic challenges as
well as the impacts of H1N1 flu related concerns. In April 2009,
reports of a new flu strain believed to originate in Mexico
rapidly received wide-spread public attention. In response to
initial reports referring to this strain as "swine flu", certain
countries banned U.S. pork exports and this segment noted a
decrease in overall market prices for its pork products. By year-
end, several foreign markets lifted their bans on imports of U.S.
pork products and prices began to improve slightly.
Operating loss decreased $30.9 million for the year ended
December 31, 2009 compared with 2008. The improvement was
primarily a result of cost decreases more than offsetting the
sales price decreases discussed above. The cost decreases
primarily were related to lower feed costs (principally from
lower corn prices), the impact of using the LIFO method for
determining certain inventory costs, and lower costs of third
party hogs. LIFO increased operating results by $17.9 million in
2009 compared to a decrease of $17.2 million in 2008 primarily as
a result of lower costs to purchase corn and soybean meal during
2009. Also, in 2008 Seaboard incurred an impairment charge of
$7.0 million.
Commodity Trading and Milling Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 1,808.9 $ 1,531.6 $ 1,897.4
Operating income as reported $ 34.4 $ 24.8 $ 96.5
Less mark-to-market adjustments 17.2 14.5 (18.1)
Operating income excluding
mark-to-market adjustments $ 51.6 $ 39.3 $ 78.4
Income from affiliates $ 21.0 $ 19.1 $ 12.6
Net sales of the Commodity Trading and Milling segment increased
$277.3 million for the year ended December 31, 2010 compared to
2009. The increase is primarily the result of increased volumes
of commodities sold to third parties, principally corn, soybean
meal and soybeans, and, to a lesser extent, increased prices for
wheat and corn during the fourth quarter of 2010. Partially
offsetting this increase was a decrease in commodity trading
volumes to non-consolidated affiliates. As worldwide commodity
price fluctuations cannot be predicted, management is unable to
predict the level of future sales.
Operating income increased $9.6 million for 2010 compared to
2009. The increase primarily reflects the write-down of $8.8
million in the first quarter of 2009 of certain grain inventories
for customer contract performance issues and related lower of
cost or market adjustments, as discussed further in Note 3 to the
Consolidated Financial Statements.
17
Also, the increase reflects the $2.7 million fluctuation of
marking to market the derivative contracts, as discussed below.
Due to the uncertain political and economic conditions in the
countries in which Seaboard operates and the current volatility
in the commodity markets, management is unable to predict future
sales and operating results. However, management anticipates
positive operating income for this segment in 2011, excluding the
potential effects of marking to market derivative contracts.
If Seaboard had not applied mark-to-market accounting to its
derivative instruments, operating income for this segment in 2010
and 2009 would have been higher by $17.2 million and $14.5
million, respectively and 2008 would have been lower by $18.1
million. 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 sale contracts were not.
As products are delivered to customers, these existing mark-to-
market adjustments should be primarily offset by realized margins
or losses as revenue is recognized and thus, these mark-to-market
adjustments should reverse in fiscal 2011. Management believes
eliminating these adjustments, as noted in the table above,
provides a more reasonable presentation to compare and evaluate
period-to-period financial results for this segment.
Income from affiliates for the year ended December 31, 2010
increased $1.9 million from 2009 primarily as a result of
favorable market conditions for certain affiliates. Based on the
uncertainty of local political and economic situations in the
countries in which the flour and feed mills and other related
businesses operate, management cannot predict future results.
Net sales of the Commodity Trading and Milling segment decreased
$365.8 million for the year ended December 31, 2009 compared to
2008. The decrease was primarily the result of price decreases
for commodities sold by the commodity trading business,
especially for wheat, partially offset by increased commodity
trading volumes to non-consolidated affiliates.
Operating income decreased $71.7 million for 2009 compared to
2008. The decrease primarily reflected certain long inventory
positions, especially wheat, taken by Seaboard which provided
higher than average commodity trading margins during the first
six months of 2008 as the price of these commodities
significantly increased to historic highs at the time of sale in
2008. In addition, the decrease includes a $32.6 million
fluctuation of marking to market the derivative contracts as
discussed below. Operating income was also impacted by certain
grain inventory related write-downs in 2009 and 2008 as discussed
in Note 3 to the Consolidated Financial Statements.
Income from affiliates for the year ended December 31, 2009
increased $6.5 million from 2008 primarily as a result of
favorable market conditions for certain affiliates. The increase
was also the result of one of the entities discontinuing its
operations by selling its trade name and certain assets to an
entity in exchange for a minority ownership in such entity and a
separate sale of land and building to a third party. Seaboard's
proportionate share of these two transactions represents
approximately $2.3 million of the income from affiliates for
2009. See Note 4 to the Consolidated Financial Statements for
further discussion.
Marine Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 853.6 $ 737.6 $ 958.0
Operating income $ 47.6 $ 24.1 $ 62.4
Net sales of the Marine segment increased $116.0 million for the
year ended December 31, 2010, compared to 2009 primarily as a
result of higher cargo volumes in most markets served during 2010
as economic activity increased. The growth in volume was
partially offset by overall lower cargo rates in 2010 as cargo
rates in the first quarter of 2009 had just started to decline
from the impacts of the slow economic conditions and continued to
decline for most of 2009. Overall, cargo rates have remained
fairly constant during 2010 but increased slightly during the
second half of 2010 compared to the same period in 2009.
18
Operating income increased by $23.5 million compared to 2009.
The increase was primarily the result of cost decreases for
charterhire and, to a lesser extent, certain terminal and other
operating costs on a per unit shipped basis. Partially
offsetting the increase were lower cargo rates, as discussed
above, and higher fuel costs for vessels and increased trucking
costs on a per unit shipped basis. Management cannot predict
changes in future cargo volumes and cargo rates or to what extent
changes in economic conditions in markets served will affect net
sales or operating income during 2011, however, management
anticipates positive operating income for this segment in 2011.
Net sales of the Marine segment decreased $220.4 million for the
year ended December 31, 2009, compared to 2008 primarily as a
result of economic declines in most markets served by Seaboard
resulting in lower cargo volumes and, to a lesser extent, lower
cargo rates especially during the last half of 2009.
Operating income decreased by $38.3 million compared to 2008.
The decrease was primarily the result of lower rates, as
discussed above, not being offset by comparable decreases in
certain costs, such as port costs and stevedoring. However,
significant decreases did occur related to fuel costs for
vessels, charterhire and trucking expenses on a per unit shipped
basis.
Sugar Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 196.0 $ 143.0 $ 142.1
Operating income (loss) $ 31.7 $ (0.9) $ 3.7
Income from affiliates $ 1.0 $ 1.0 $ 0.5
Net sales of the Sugar segment increased $53.0 million for the
year ended December 31, 2010 compared to 2009. The increase
primarily reflects increased domestic sugar and alcohol prices
and, to a lesser extent, increased alcohol volumes, partially
offset by lower sugar volumes produced and sold. During the
first quarter of 2010, Seaboard began sales of dehydrated alcohol
under the Argentine government bio-ethanol program which requires
alcohol to be blended with gasoline. Argentine governmental
authorities continue to attempt to control inflation by limiting
the price increases of basic commodities and related exports,
including certain sugar products produced by this segment.
Accordingly, management cannot predict sugar prices for 2011.
Management anticipates the cogeneration power plant, discussed in
capital expenditures above, will begin operations during the
second quarter of 2011.
Operating income increased $32.6 million during 2010 compared to
2009. The increase primarily represents higher margins from the
increase in alcohol and sugar prices discussed above and, to a
lesser extent, increased alcohol volumes. In addition, the
increase reflected a $5.3 million charge to earnings in 2009
related to the write-down of citrus inventories, the integration
and transformation of land previously used for citrus production
into sugar cane production and related costs as discussed in Note
13 to the Consolidated Financial Statements which did not occur
in 2010. Management anticipates positive operating income for
this segment in 2011.
Net sales of the Sugar segment increased $0.9 million for the
year ended December 31, 2009 compared to 2008. The increase is
primarily the result of increased volumes produced and sold in
the export markets partially offset by lower domestic sugar
prices and the elimination of the citrus operations. Argentine
governmental authorities continue to attempt to control inflation
by limiting the price of basic commodities, including sugar.
Operating income decreased $4.6 million during 2009 compared to
2008 primarily as a result of lower margins on alcohol sales from
lower sales prices and lower margins from the citrus operations.
Although the citrus operations had negative margins for 2008,
during 2009 the negative margins were slightly higher as this
segment recorded a $5.3 million charge to earnings during the
first and second quarters of 2009 related to the write-down of
citrus inventories, the integration and transformation of land
previously used for citrus production into sugar cane production
and related costs as discussed in Note 13 to the Consolidated
Financial Statements. The decrease also reflects higher selling
and administrative costs in 2009.
19
Power Segment
(Dollars in millions) 2010 2009 2008
Net sales $ 124.0 $ 107.1 $ 129.4
Operating income $ 13.4 $ 8.2 $ 7.8
Net sales of the Power segment increased $16.9 million for 2010
compared to 2009 primarily reflecting higher rates, partially
offset by lower production levels. The higher rates were
attributable primarily to higher fuel costs, a component of
pricing, especially during the first half of 2010. Operating
income increased $5.2 million during 2010 compared to 2009
primarily as a result of higher rates being in excess of higher
fuel costs, partially offset by lower production levels. There
was no depreciation expense in 2010 related to the assets
classified as held for sale although this was principally offset
by increases in certain other production costs.
See Note 13 to the Consolidated Financial Statements for
discussion of the pending sale of the two existing barges and
construction of a new replacement power generating facility.
Upon finalization of the sale, which is anticipated to occur
during the second quarter of 2011, a gain on sale of assets of
approximately $50.0 million will be recognized in operating
income. As a result of these transactions, after the first
quarter, sales will be significantly lower for the remainder of
2011 as a result of the limited operations during the period of
time between the sale of the existing barges is completed, and
the start-up of the new barge, anticipated by the end of 2011 or
early 2012. Management cannot predict future fuel costs or the
extent to which rates will fluctuate compared to fuel costs,
although management anticipates positive operating income for
this segment in 2011. However, after the first half of 2011,
operating income will be lower than 2010 as a result of lower
sales discussed above.
Net sales for the Power segment decreased $22.3 million for 2009
compared to 2008 primarily reflecting lower rates. The lower
rates were attributable primarily to lower fuel costs, a
component of pricing. Operating income increased $0.4 million
during 2009 compared to 2008 primarily as a result of lower
production costs partially offset by higher administrative costs.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year
ended December 31, 2010 increased by $11.0 million over 2009 to
$204.9 million. This increase was primarily due to increased
personnel costs in most segments and, to a lesser extent, project
development costs including the Butterball transaction. As a
percentage of revenues, SG&A decreased to 4.7% for 2010 compared
to 5.4% for 2009 primarily as a result of increased sales in the
Pork and Commodity Trading and Milling segments.
SG&A expenses for the year ended December 31, 2009 increased by
$18.0 million over 2008 to $193.9 million. This increase was
primarily due to increased personnel costs, including increased
costs of $13.9 million, included in Corporate expenses, related
to Seaboard's deferred compensation programs (which are offset by
the effect of the mark-to-market investments recorded in other
investment income discussed below). As a percentage of
revenues, SG&A increased to 5.4% for 2009 compared to 4.1% for
2008 primarily as a result of decreased sales in the Commodity
Trading and Milling and Marine segments.
Interest Expense
Interest expense totaled $5.6 million, $13.2 million and $15.4
million for the years ended December 31, 2010, 2009 and 2008,
respectively. Interest expense decreased for 2010 compared to
2009, primarily as a result of a lower average level of total
borrowings outstanding during 2010 and, to a lesser extent, lower
average interest rates on total borrowings outstanding during
2010. In addition, interest expense decreased for 2010 compared
to 2009 as a result of more capitalized interest in 2010 compared
to 2009. Interest expense capitalized in 2010 was $3.4 million
compared to $0.7 million in 2009, Interest expense decreased for
2009 compared to 2008, primarily as a result of a lower average
level of total borrowings outstanding during 2009 partially
offset by higher average interest rates on short-term borrowings
outstanding.
Interest Income
Interest income totaled $12.6 million, $17.3 million and $14.9
million for the years ended December 31, 2010, 2009 and 2008,
respectively. The decrease for 2010 primarily reflected lower
average interest rate on funds invested. The increase for 2009
primarily reflected an increase in average funds invested.
20
Other Investment Income, Net
Other investment income, net totaled $14.1 million, $15.5 million
and $7.5 million for the years ended December 31, 2010, 2009 and
2008, respectively. Other investment income for 2010 primarily
reflected realized gains on short-term investments of $6.6
million, a gain of $4.2 million in the mark-to-market value of
Seaboard's investments related to the deferred compensation
programs and $2.2 million in syndication fees recognized from the
Butterball transaction as discussed in Note 4 to the Consolidated
Financial Statements. Other investment income for 2009 primarily
reflected income of $6.0 million in the Power segment related to
the settlement of a receivable, not directly related to its
business and purchased at a discount, gains of $4.3 million in
the mark-to-market value of Seaboard's investments related to the
deferred compensation programs and gains of $2.8 million on debt
trading securities.
Foreign Currency Gains (Losses)
Foreign currency gains (losses) totaled $1.3 million, $2.4
million and $(19.7) million for the years ended December 31,
2010, 2009 and 2008, respectively. The fluctuation for 2009
compared to 2008 primarily related to the unusually high currency
losses incurred during the fourth quarter of 2008, as noted
below, from the global liquidity crisis occurring at that time
which did not occur during 2009. In addition, the 2008 loss
includes currency losses related to the yen based borrowing by
the Sugar segment, principally during the fourth quarter of 2008.
A significant portion of this currency loss was offset by a
currency gain on the underlying debt, which was recorded in a
cumulative translation adjustment account in equity as of
December 31, 2008.
Although Seaboard does not utilize hedge accounting, the
commodity trading business does utilize foreign currency exchange
contracts to manage its risks and exposure to foreign currency
fluctuations primarily related to the South African Rand and the
Euro Zone euro. Management believes these gains and losses,
including the mark-to-market effects, of these foreign currency
contracts relate to the underlying commodity transactions and
classifies such gains and losses in cost of sales. Seaboard
operates in many developing countries. The political and
economic conditions of these markets, along with fluctuations in
the value of the U.S. dollar, cause volatility in currency
exchange rates which exposes Seaboard to fluctuating foreign
currency gains and losses which cannot be predicted by Seaboard.
Gain on Disputed Sale, Net
In July 2009, Seaboard Corporation, and affiliated companies in
its Commodity Trading and Milling segment, resolved a dispute
with a third party related to a 2005 transaction in which a
portion of its trading operations was sold to a firm located
abroad. As a result of this action, Seaboard Overseas Limited
received $16.8 million, net of expenses, in the third quarter of
2009. There was no tax expense on this transaction.
Miscellaneous, Net
Miscellaneous, net totaled $(0.4) million, $6.5 million and $2.5
million for the years ended December 31, 2010, 2009 and 2008,
respectively. For 2010, miscellaneous, net included a loss of
$1.3 million on interest rate exchange agreements. For 2009,
miscellaneous, net included a $5.3 million gain on interest rate
exchange agreements.
Income Tax Expense
The change to income tax expense in 2010 from income tax benefit
in 2009 is the result of domestic earnings during 2010 compared
to domestic losses in 2009. The effective tax benefit rate
decreased for 2009 compared to 2008 primarily from lower
permanently deferred foreign earnings and lower domestic taxable
loss.
OTHER FINANCIAL INFORMATION
Seaboard is subject to various federal and state regulations
regarding environmental protection and land and water use. Among
other things, these regulations affect the disposal of livestock
waste and corporate farming matters in general. Management
believes it is in compliance, in all material respects, with all
such regulations. Laws and regulations in the states where
Seaboard conducts its pork operations are restrictive. Future
changes in environmental or corporate farming laws could
adversely affect the manner in which Seaboard operates its
business and its cost structure.
Management does not believe its businesses have been materially
adversely affected by inflation.
21
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates. Management has identified the accounting estimates
believed to be the most important to the portrayal of Seaboard's
financial condition and results, and which require management's
most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters
that are inherently uncertain. Management has reviewed these
critical accounting estimates with the Audit Committee of the
Board of Directors. These critical accounting estimates include:
Allowance for Doubtful Accounts - Seaboard primarily uses a
specific identification approach, in management's best judgment,
to evaluate the adequacy of this reserve for estimated
uncollectible receivables as of the consolidated balance sheet
date. Changes in estimates, developing trends and other new
information can have a material effect on future evaluations.
Furthermore, Seaboard's total current and long-term receivables
are heavily weighted toward foreign receivables ($258.6 million
or 53.6% at December 31, 2010), including foreign receivables due
from affiliates ($75.4 million at December 31, 2010), which
generally represent more of a collection risk than its domestic
receivables. Receivables due from affiliates are generally
associated with entities located in foreign countries considered
underdeveloped, as discussed below, which can experience
conditions causing sudden changes to their ability to repay such
receivables on a timely basis or in full. For the Power segment,
which operates in the Dominican Republic (DR), collection
patterns have been sporadic and are sometimes based upon
negotiated settlements for past due receivables resulting in
material revisions to the allowance for doubtful accounts from
year to year. Future collections of receivables or lack thereof
could result in a material charge or credit to earnings depending
on the ultimate resolution of each individual customer past due
receivable. Bad debt expense for the years ended December 31,
2010, 2009 and 2008 was $2.8 million, $2.1 million and $0.8
million, respectively.
Valuation of Inventories - Inventories are generally valued at
the lower of cost or market. In determining market, management
makes assumptions regarding replacement costs, estimated sales
prices, estimated costs to complete, estimated disposal costs,
and normal profit margins. For commodity trading inventories,
when contract performance by a customer becomes a concern,
management must also evaluate available options to dispose of the
inventory, including assumptions about potential negotiated
changes to sales contracts, sales prices in alternative markets
in various foreign countries and potentially additional
transportation costs. At times, management must consider
probability weighting various viable alternatives in its
determination of the net realizable value of the inventories.
These assumptions and probabilities are subjective in nature and
are based on management's best estimates and judgments existing
at the time of preparation. Changes in future market prices of
grains or facts and circumstances could result in a material
write-down in value of inventory or increased future margins on
the sale of inventory.
Impairment of Long-lived Assets - At each balance sheet date,
long-lived assets, primarily property, plant and equipment, are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset group. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Some of the
key assumptions utilized in determining future projected cash
flows include estimated growth rates, expected future sales
prices and estimated costs. In some cases, judgment is also
required in assigning probability weighting to the various future
cash flow scenarios. The probability weighting percentages used
and the various future projected cash flow models prepared by
management are based on facts and circumstances existing at the
time of preparation and management's best estimates and judgment
of future operating results. Seaboard cannot predict the
occurrence of certain future events that might adversely affect
the reported value of long-lived assets, which include but are
not limited to, a change in the business climate, government
incentives, a negative change in relationships with significant
customers, and changes to strategic decisions made in response to
economic and competitive conditions. Changes in these facts,
circumstances and management's estimates and judgment could
result in an impairment of fixed assets resulting in a material
charge to earnings. See Note 5 to the Consolidated Financial
Statements for further discussion on the Pork Segment and its
recorded value for the ham-boning and processing plant in Mexico
of $10.0 million at December 31, 2010.
22
Goodwill and Other Intangible Assets - Goodwill and other
indefinite-life intangible assets, not subject to amortization,
are evaluated annually for impairment at the quarter-end closest
to the anniversary date of the acquisition, or more frequently if
circumstances indicate that impairment is possible. The
impairment tests require management to make judgments in
determining what assumptions to use in estimating fair value.
One of the methods used by Seaboard to determine fair value is
the income approach using discounted future projected cash flows.
Some of the key assumptions utilized in determining future
projected cash flows include estimated growth rates, expected
future sales prices and costs, and future capital expenditures
requirements. In some cases, judgment is also required in
assigning probability weighting to the various future cash flow
scenarios. The probability weighting percentages used and the
various future projected cash flow models prepared by management
are based on facts and circumstances existing at the time of
preparation and management's best estimates and judgment of
future operating results. Seaboard cannot predict the occurrence
of certain future events that might adversely affect the reported
value of goodwill and indefinite-life intangible assets that may
include, but are not limited to, a change in the business
climate, a negative change in relationships with significant
customers, and changes to strategic decisions, including
decisions to expand, made in response to economic and competitive
conditions. Changes in these facts, circumstances and
management's estimates and judgment could result in an impairment
of goodwill and/or other intangible assets resulting in a
material charge to earnings. See Note 6 to the Consolidated
Financial Statements for further discussion regarding the Pork
segment and its recorded intangible asset values related to
Daily's, including an impairment charge of $7.0 million recorded
in the fourth quarter of 2008 related to Daily's trade name. At
December 31, 2010, Seaboard had goodwill of $40.6 million and
other intangible assets not subject to amortization of $17.0
million.
Income Taxes - Income taxes are determined by management based on
current tax regulations in the various worldwide taxing
jurisdictions in which Seaboard conducts its business. In
various situations, accruals have been made for estimates of the
tax effects for certain transactions, business structures, the
estimated reversal of timing differences and future projected
profitability of Seaboard's various business units based on
management's interpretation of existing facts, circumstances and
tax regulations. Should new evidence come to management's
attention which could alter previous conclusions or if taxing
authorities disagree with the positions taken by Seaboard, the
change in estimate could result in a material adverse or
favorable impact on the financial statements. As of
December 31, 2010, Seaboard has deferred tax assets of $84.9
million, net of the valuation allowance of $30.7 million, and
deferred tax liabilities of $142.2 million. For the years ended
December 31, 2010, 2009 and 2008, income tax expense included
$13.4 million, $(11.5) million and $(6.3) million, respectively,
for deferred taxes to federal, foreign, state and local taxing
jurisdictions.
Accrued Pension Liability - The measurement of Seaboard's pension
liability and related expense is dependent on a variety of
assumptions and estimates regarding future events. These
assumptions include discount rates, assumed rate of return on
plan assets, compensation increases, turnover rates, mortality
rates and retirement rates. The discount rate and return on plan
assets are important elements of liability and expense
measurement and are reviewed on an annual basis. The effect of
decreasing both the discount rate and assumed rate of return on
plan assets by 50 basis points would be an increase in pension
expense of approximately $1.9 million per year. The effects of
actual results differing from the assumptions (i.e. gains or
losses) are primarily accumulated in accrued pension liability
and amortized over future periods if it exceeds the 10% corridor
and, therefore, could affect Seaboard's recognized pension
expense in such future periods, as permitted under U.S. GAAP.
Accordingly, accumulated gains or losses in excess of the 10%
corridor are amortized over the average future service of active
participants. The unrecognized losses as of December 31, 2008
exceeded this 10% threshold as a result of the significant
investment losses incurred during 2008. As a result, Seaboard's
pension expense for its defined benefit pension plan for its
salaried and clerical employees increased by approximately $3.1
million for 2009 as compared to 2008 due to loss amortization.
See Note 10 to the Consolidated Financial Statements for further
discussion of management's assumptions.
23
DERIVATIVE INFORMATION
Seaboard is exposed to various types of market risks in its day-
to-day operations. Primary market risk exposures result from
changing commodity prices, freight rates, foreign currency
exchange rates and interest rates. These derivatives are used to
manage overall market risks, however, Seaboard does not perform
the extensive record-keeping required to account for derivative
transactions as hedges. Management believes it uses derivatives
primarily as economic hedges although they do not qualify as
hedges for accounting purposes. Since these derivatives are not
accounted for as hedges, fluctuations in the related prices could
have a material impact on earnings in any given year. From time
to time, Seaboard may enter into speculative derivative
transactions related to its market risks.
Changes in commodity prices affect the cost of necessary raw
materials and other inventories, finished product sales and firm
sales commitments. Seaboard uses various grain and oilseed
futures and options purchase contracts to manage certain risks of
increasing prices of raw materials and firm sales commitments or
anticipated sales contracts. Short sales contracts are then used
to offset the open purchase derivatives when the related
commodity inventory is purchased in advance of the derivative
maturity, effectively offsetting the initial futures or option
purchase contract. From time to time, hog futures are used to
manage risks of increasing prices of live hogs acquired for
processing and hog futures are used to manage risks of
fluctuating prices of pork product inventories and related future
sales. From time to time, Seaboard may enter into short
positions in energy related resources (i.e. heating oil, crude
oil, etc.) to manage certain exposures related to bioenergy
margins. Inventories that are sensitive to changes in commodity
prices, including carrying amounts at December 31, 2010 and 2009,
are presented in Note 3 to the Consolidated Financial Statements.
Raw material requirements, finished product sales, and firm sales
commitments are also sensitive to changes in commodity prices.
From time-to-time, the Commodity Trading and Milling segment
enters into certain forward freight agreements (FFAs), viewed as
taking long positions in the freight market as well as covering
short freight sales, which may or may not result in actual losses
when future trades are executed. These FFAs are viewed by
management as an economic hedge against the potential of future
rising charter hire rates to be incurred by this segment for bulk
cargo shipping while conducting its business of delivering grains
to customers in many international locations. As of December 31,
2010 and 2009, there were no such agreements outstanding.
Because changes in foreign currency exchange rates affect the
cash paid or received on foreign currency denominated receivables
and payables, Seaboard manages certain of these risks through the
use of foreign currency forward exchange agreements. Changes in
interest rates affect the cash required to service variable rate
debt. From time to time, Seaboard uses interest rate swaps to
manage risks of increasing interest rates.
During 2010, Seaboard entered into four ten-year interest rate
exchange agreements which involve the exchange of fixed-rate and
variable-rate interest payments over the life of the agreements
without the exchange of the underlying notional amounts to
mitigate the effects of fluctuations in interest rates on
variable rate debt. Seaboard pays a fixed rate and receives a
variable rate of interest on four notional amounts of $25.0
million each. While Seaboard has certain variable rate debt,
these interest rate exchange agreements do not qualify as hedges
for accounting purposes. Accordingly, the changes in fair value
of these agreements are recorded in Miscellaneous, net in the
Consolidated Statement of Earnings.
In December 2008 and again in March 2009, Seaboard entered into
ten-year interest rate exchange agreements with notional amounts
of $25.0 million each, with similar terms to agreements discussed
above to mitigate the effects of fluctuation in interest rates.
In June 2009, Seaboard terminated both interest rate exchange
agreements and received payments of $4.0 million to unwind these
agreements. As of December 31, 2009, there were no interest rate
exchange agreements outstanding.
The following table presents the sensitivity of the fair value of
Seaboard's open net commodity future and option contracts,
foreign currency contracts and interest rate exchange agreements
to a hypothetical 10% adverse change in market prices or in
foreign exchange rates and interest rates as of December 31, 2010
and December 31, 2009. For all open derivatives, the fair value
of such positions is a summation of the fair values calculated
for each item by valuing each net position at quoted market
prices as of the applicable date.
24
(Thousands of dollars) December 31, 2010 December 31, 2009
Grains and oilseeds $ 3,787 $ 9,808
Hogs and pork bellies 3,809 186
Energy related resources 459 284
Foreign currencies 22,415 23,080
Interest rates 2,636 -
The table below provides information about Seaboard's non-trading
financial instruments sensitive to changes in interest rates at
December 31, 2010. For debt obligations, the table presents
principal cash flows and related weighted average interest rates
by expected maturity dates. At December 31, 2010, long-term debt
included foreign subsidiary obligations of $16.4 million payable
in U.S. dollars and $0.2 million payable in Argentine pesos. At
December 31, 2009, long-term debt included foreign subsidiary
obligations of $0.7 million denominated in CFA francs (a currency
used in several central African countries) and $0.2 million
payable in Argentine pesos. Weighted average variable rates are
based on rates in place at the reporting date. Short-term
instruments including short-term investments, non-trade
receivables and current notes payable have carrying values that
approximate market and are not included in this table due to
their short-term nature.
(Dollars in thousands) 2011 2012 2013 2014 2015 Thereafter Total
Long-term debt:
Fixed rate $1,476 $34,182 $2,191 $1,788 $1,635 $ 9,811 $51,083
Average interest rate 8.87% 6.95% 8.02% 6.25% 5.34% 5.34% 6.66%
Variable rate $ 221 $ - $ - $7,800 $ - $34,000 $42,021
Average interest rate 7.00% - - 1.51% - 1.71% 1.70%
Non-trading financial instruments sensitive to changes in
interest rates at December 31, 2009 consisted of fixed rate long-
term debt totaling $36.8 million with an average interest rate of
7.52%, and variable rate long-term debt totaling $42.0 million
with an average interest rate of 0.44%.
25
Management's Responsibility for Consolidated Financial Statements
The management of Seaboard Corporation and its consolidated
subsidiaries (Seaboard) is responsible for the preparation of its
consolidated financial statements and related information
appearing in this report. Management believes that the
consolidated financial statements fairly present Seaboard's
financial position and results of operations in conformity with
U.S. generally accepted accounting principles and necessarily
includes amounts that are based on estimates and judgments which
it believes are reasonable based on current circumstances with
due consideration given to materiality.
Management relies on a system of internal controls over financial
reporting that is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance
with company policy and U.S. generally accepted accounting
principles, and are properly recorded, and accounting records are
adequate for preparation of financial statements and other
information and disclosures. The concept of reasonable assurance
is based on recognition that the cost of a control system should
not exceed the benefits expected to be derived and such
evaluations require estimates and judgments. The design and
effectiveness of the system are monitored by a professional staff
of internal auditors.
All internal control systems, no matter how well designed, have
inherent limitations. Internal control over financial reporting
is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human
failures. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
The Board of Directors pursues its review of auditing, internal
controls and financial statements through its audit committee,
composed entirely of independent directors. In the exercise of
its responsibilities, the audit committee meets periodically with
management, with the internal auditors and with the independent
registered public accounting firm to review the scope and results
of audits. Both the internal auditors and the independent
registered public accounting firm have unrestricted access to the
audit committee with or without the presence of management.
Management's Report on Internal Control over Financial Reporting
The management of Seaboard Corporation and its consolidated
subsidiaries (Seaboard) is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Under
the supervision and with the participation of management and its
Internal Audit Department, Seaboard conducted an evaluation of
the effectiveness of its internal control over financial
reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on its evaluation under
the framework in Internal Control - Integrated Framework,
management concluded that Seaboard's internal control over
financial reporting was effective as of December 31, 2010.
Seaboard's registered independent public accounting firm, that
audited the consolidated financial statements included in the
annual report, has issued an audit report on the effectiveness of
Seaboard's internal control over financial reporting. Their
report is included herein.
26
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Seaboard Corporation:
We have audited the accompanying consolidated balance sheets of
Seaboard Corporation and subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of earnings, changes in equity, and cash flows for
each of the years in the three-year period ended
December 31, 2010. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Seaboard Corporation and subsidiaries as of
December 31, 2010 and 2009, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Seaboard Corporation's internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 9, 2011 expressed an unqualified
opinion on the effectiveness of the Company's internal control
over financial reporting.
KPMG LLP
Kansas City, Missouri
March 9, 2011
27
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Seaboard Corporation:
We have audited Seaboard Corporation's internal control over
financial reporting as of December 31, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Seaboard Corporation's management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying "Management's Report on Internal Control over
Financial Reporting". Our responsibility is to express an opinion
on the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company's assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Seaboard Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Seaboard Corporation and
subsidiaries as of December 31, 2010 and 2009, and the related
consolidated statements of earnings, changes in equity and cash
flows for each of the years in the three-year period ended
December 31, 2010, and our report dated March 9, 2011 expressed
an unqualified opinion on those consolidated financial
statements.
KPMG LLP
Kansas City, Missouri
March 9, 2011
28
SEABOARD CORPORATION
Consolidated Statement of Earnings
Years ended December 31,
(Thousands of dollars except per share amounts) 2010 2009 2008
Net sales:
Products (includes sales to affiliates $3,354,348 $2,718,736 $3,144,432
of $500,265, $543,066 and $587,922)
Service revenues 907,320 775,498 993,942
Other 124,034 107,074 129,430
Total net sales 4,385,702 3,601,308 4,267,804
Cost of sales and operating expenses:
Products 2,980,606 2,619,396 3,005,924
Services 775,637 671,598 847,956
Other 103,465 92,701 116,253
Total cost of sales and operating expenses 3,859,708 3,383,695 3,970,133
Gross income 525,994 217,613 297,671
Selling, general and administrative expenses 204,928 193,890 175,862
Operating income 321,066 23,723 121,809
Other income (expense):
Interest expense (5,632) (13,158) (15,354)
Interest income 12,631 17,336 14,939
Income from affiliates 20,965 20,158 13,084
Other investment income, net 14,145 15,500 7,522
Foreign currency gain (loss), net 1,254 2,432 (19,713)
Gain on disputed sale, net of expenses - 16,787 -
Miscellaneous, net (384) 6,463 2,539
Total other income, net 42,979 65,518 3,017
Earnings before income taxes 364,045 89,241 124,826
Income tax benefit (expense) (81,033) 2,276 22,689
Net earnings $ 283,012 $ 91,517 $ 147,515
Less: Net (income) loss attributable
to noncontrolling interests 599 965 (596)
Net earnings attributable to Seaboard $ 283,611 $ 92,482 $ 146,919
Earnings per common share $ 231.69 $ 74.74 $ 118.19
Weighted average shares outstanding 1,224,092 1,237,452 1,243,087
Dividends declared per common share $ 9.00 $ 3.00 $ 3.00
See accompanying notes to consolidated financial statements.
29
SEABOARD CORPORATION
Consolidated Balance Sheets
December 31,
(Thousands of dollars except per share amounts) 2010 2009
Assets
Current assets:
Cash and cash equivalents $ 41,124 $ 61,857
Short-term investments 332,205 407,351
Receivables:
Trade 243,786 194,764
Due from affiliates 75,771 47,352
Other 48,557 35,861
368,114 277,977
Allowance for doubtful accounts (8,170) (7,330)
Net receivables 359,944 270,647
Inventories 533,761 498,587
Deferred income taxes 18,393 10,490
Deferred costs 84,141 95,788
Other current assets 115,844 80,582
Total current assets 1,485,412 1,425,302
Investments in and advances to affiliates 331,322 82,232
Net property, plant and equipment 701,131 691,343
Note receivable from affiliate 90,109 -
Goodwill 40,628 40,628
Intangible assets, net 19,746 20,676
Other assets 65,738 76,952
Total Assets $2,734,086 $2,337,133
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 78,729 $ 81,262
Current maturities of long-term debt 1,697 2,337
Accounts payable 146,265 141,193
Accrued compensation and benefits 102,003 84,165
Deferred revenue 122,344 103,931
Deferred revenue from affiliates 38,719 8,958
Accrued voyage costs 39,515 33,874
Accrued commodity inventory 34,099 10,434
Other accrued liabilities 74,824 51,886
Total current liabilities 638,195 518,040
Long-term debt, less current maturities 91,407 76,532
Deferred income taxes 75,695 59,546
Accrued pension liability 78,817 64,161
Other liabilities 71,723 73,435
Total non-current liabilities 317,642 273,674
Commitments and contingent liabilities
Stockholders' equity:
Common stock of $1 par value. Authorized 1,250,000
shares;
issued and outstanding 1,215,879 and 1,236,758
shares 1,216 1,237
Accumulated other comprehensive loss (123,907) (114,786)
Retained earnings 1,897,897 1,655,222
Total Seaboard stockholders' equity 1,775,206 1,541,673
Noncontrolling interests 3,043 3,746
Total equity 1,778,249 1,545,419
Total Liabilities and Stockholders' Equity $2,734,086 $2,337,133
See accompanying notes to consolidated financial statements.
30
SEABOARD CORPORATION
Consolidated Statement of Cash Flows
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Cash flows from operating activities:
Net earnings $ 283,012 $ 91,517 $ 147,515
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation and amortization 86,802 91,841 90,381
Income from affiliates (20,965) (20,158) (13,084)
Dividends received from affiliates 1,843 7,906 1,333
Other investment income, net (14,145) (15,500) (7,522)
Foreign currency exchange losses (140) 6,578 19,606
Deferred income taxes 12,506 (15,298) (7,602)
Loss (gain) from sale of fixed assets (2,555) 530 39
Gain on disputed sale, net of expenses - (16,787) -
Intangible asset impairment charge - - 7,000
Changes in current assets and liabilities,
net of portion of operations sold and
business acquired:
Receivables, net of allowance (86,205) 93,861 (14,518)
Inventories (40,053) 1,552 (119,859)
Other current assets (2,570) (58,823) (44,344)
Current liabilities, exclusive of debt 107,482 69,738 43,264
Other, net 14,800 9,400 9,057
Net cash from operating activities 339,812 246,357 111,266
Cash flows from investing activities:
Purchase of short-term investments (687,335) (346,522) (287,411)
Proceeds from the sale of short-term
investments 695,384 211,403 204,494
Proceeds from the maturity of short-term
investments 69,534 66,842 61,675
Acquisition of business, net of cash
acquired (5,578) - -
Sale (purchase) of long-term investments 552 (3,108) -
Investments in and advances to affiliates,
net (217,578) 71 (710)
Notes receivable issued to affiliate (100,000) - -
Proceeds from syndication and subordinated
loan fees 6,525 - -
Capital expenditures (103,336) (54,276) (134,634)
Proceeds from the sale of fixed assets 7,655 3,255 4,412
Payment received for the potential sale of
power barges - 15,000 -
Net proceeds from disputed sale - 16,787 -
Other, net 1,140 46 (442)
Net cash from investing activities (333,037) (90,502) (152,616)
Cash flows from financing activities:
Notes payable to banks, net (2,535) (95,072) 79,354
Proceeds from the issuance of long-term debt 16,352 - -
Principal payments of long-term debt (2,179) (46,914) (11,679)
Repurchase of common stock (29,994) (3,370) (5,012)
Dividends paid (10,963) (3,711) (3,728)
Dividends paid to noncontrolling interests (36) (112) (104)
Other, net 370 (291) (1,081)
Net cash from financing activities (28,985) (149,470) 57,750
Effect of exchange rate change on cash 1,477 (5,122) (3,152)
Net change in cash and cash equivalents (20,733) 1,263 13,248
Cash and cash equivalents at beginning of year 61,857 60,594 47,346
Cash and cash equivalents at end of year $ 41,124 $ 61,857 $ 60,594
See accompanying notes to consolidated financial statements.
31
SEABOARD CORPORATION
Consolidated Statement of Changes in Equity
Accumulated
Other
Common Additional Comprehensive Retained Noncontrolling
(Thousands of dollars except per share amounts) Stock Capital Loss Earnings Interest Total
Balances, January 1, 2008 $ 1,244 $ - $ (78,651) $1,431,635 $ 971 $1,355,199
Comprehensive income:
Net earnings 146,919 596 147,515
Other comprehensive income net
of income tax benefit of $11,525:
Foreign currency translation adjustment (9,492) (9,492)
Unrealized gain on investments 632 632
Unrecognized pension cost (24,192) (24,192)
Total comprehensive income 114,463
Purchase of noncontrolling interests 2,760 2,760
Dividends paid to noncontrolling interests (104) (104)
Repurchase of common Stock (4) (5,008) (5,012)
Dividends on common stock (3,728) (3,728)
Balances, December 31, 2008 1,240 - (111,703) 1,569,818 4,223 1,463,578
Comprehensive income:
Net earnings 92,482 (965) 91,517
Other comprehensive income net
of income tax benefit of $3,206:
Foreign currency translation adjustment (9,365) (9,365)
Unrealized gain on investments 798 798
Unrecognized pension cost 5,484 5,484
Total comprehensive income 88,434
Addition of noncontrolling interests 600 600
Dividends paid to noncontrolling interests (112) (112)
Repurchase of common Stock (3) (3,367) (3,370)
Dividends on common stock (3,711) (3,711)
Balances, December 31, 2009 1,237 - (114,786) 1,655,222 3,746 1,545,419
Comprehensive income:
Net earnings 283,611 (599) 283,012
Other comprehensive income net
of income tax benefit of $5,443:
Foreign currency translation adjustment (3,704) (3,704)
Unrealized gain on investments (2,134) (2,134)
Unrecognized pension cost (3,283) (3,283)
Total comprehensive income 273,891
Addition/sale of noncontrolling interests (68) (68)
Dividends paid to noncontrolling interests (36) (36)
Repurchase of common Stock (21) (29,973) (29,994)
Dividends on common stock (10,963) (10,963)
Balances, December 31, 2010 $ 1,216 $ - $ (123,907) $1,897,897 $3,043 $1,778,249
See accompanying notes to consolidated financial statements.
32
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Operations of Seaboard Corporation and its Subsidiaries
Seaboard Corporation and its subsidiaries (Seaboard) is a
diversified international agribusiness and transportation
company. In the United States, Seaboard is primarily engaged in
pork production and processing and ocean transportation.
Overseas, Seaboard is primarily engaged in commodity
merchandising, grain processing, sugar production, and electric
power generation. Seaboard also has an interest in turkey
operations in the United States. Seaboard Flour LLC and SFC
Preferred LLC (Parent Companies) are the owners of 73.5% of
Seaboard's outstanding common stock.
Principles of Consolidation and Investments in Affiliates
The consolidated financial statements include the accounts of
Seaboard Corporation and its domestic and foreign subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation. Investments in non-controlled
affiliates are accounted for by the equity method. Financial
information from certain subsidiaries and affiliates is reported
on a one- to three-month lag depending on the specific entity.
Short-term Investments
Short-term investments are retained for future use in the
business and may include money market accounts, corporate bonds,
fixed income mutual funds, municipal debt securities and U.S.
government obligations and, on a limited basis, high yield bonds,
domestic equity securities and foreign government bonds.
Investments held by Seaboard that are categorized as available-
for-sale are reported at their estimated fair value with any
related unrealized gains and losses reported net of tax, as a
component of accumulated other comprehensive income. Investments
held by Seaboard that are categorized as trading securities are
reported at their estimated fair value with any unrealized gains
and losses included in other investment income on the
Consolidated Statement of Earnings. Debt securities that are
categorized as held to maturity, are recorded at amortized cost,
which is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest
income. Gains and losses on sale of investments are generally
based on the specific identification method.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and
generally do not bear interest. The Power segment, however,
collects interest on certain past due accounts and the Commodity
Trading and Milling segment provides extended payment terms for
certain customers in certain countries due to local market
conditions. The allowance for doubtful accounts is Seaboard's
best estimate of the amount of probable credit losses. For most
operating segments, Seaboard uses a specific identification
approach to determine, in management's judgment, the collection
value of certain past due accounts based on contractual terms.
For the Marine segment, the allowance for doubtful accounts is
based on an aging percentage methodology primarily based on
historical write-off experience. Seaboard reviews its allowance
for doubtful accounts monthly. Account balances are charged off
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Inventories
Seaboard uses the lower of last-in, first-out (LIFO) cost or
market for determining inventory cost of live hogs, fresh pork
product and related materials. Grain, flour and feed inventories
at foreign milling operations are valued at the lower of weighted
average cost or market. All other inventories, including further
processed pork products, are valued at the lower of first-in,
first-out (FIFO) cost or market.
Deferred Costs
Deferred costs represent inventory delivered to customers and
related shipping costs incurred for certain commodity trades that
Seaboard has received the majority of payments for the trades
(which are recorded as deferred revenues) but has not yet
recognized as revenue as the final sale price is not yet fixed
and determinable. The corresponding deferred margin on such
trades is not deemed material.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are being
depreciated on the straight-line method over useful lives ranging
from 3 to 30 years. Property, plant and equipment leases which
are deemed to be installment purchase obligations have been
capitalized and included in the property, plant and equipment
accounts. Routine and planned major maintenance, repairs, and
minor renewals are expensed as incurred while major renewals and
improvements are capitalized.
33
Impairment of Long-lived Assets
Long-lived assets, primarily property, plant and equipment, are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future
undiscounted net cash flows expected to be generated by the
asset. If such assets are determined to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the estimated fair
value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to
sell. See Note 5 for further discussion on the Pork Segment and
its recorded value of the ham-boning and processing plant in
Mexico.
Goodwill and Other Intangible Assets
Goodwill and other indefinite-life intangible assets are
evaluated by reporting unit annually for impairment at the
quarter-end closest to the anniversary date of the acquisition,
or more frequently if circumstances indicate that impairment is
likely. Separable intangible assets with finite lives are
amortized over their estimated useful lives. Any one event or a
combination of events such as change in the business climate, a
negative change in relationships with significant customers, and
changes to strategic decisions, including decisions to expand,
made in response to economic or competitive conditions could
require an interim assessment prior to the next required annual
assessment. The most recent impairment tests performed and
current market conditions indicated goodwill and other intangible
assets are not impaired as of December 31, 2010.
Accrued Self-Insurance
Seaboard is self-insured for certain levels of general and
vehicle liability, property, workers' compensation, product
recall and health care coverage. The cost of these self-
insurance programs is accrued based upon estimated settlements
for known and anticipated claims. Changes in estimates to
previously recorded reserves are reflected in current operating
results.
Deferred Grants
Included in other liabilities at December 31, 2010 and 2009 was
$6,047,000 and $6,469,000, respectively, of deferred grants. The
deferred grants represent economic development funds contributed
by government entities that were limited to construction of a
pork processing facility in Guymon, Oklahoma. Deferred grants
are being amortized as a reduction of depreciation expense over
the life of the assets acquired with the funds.
Asset Retirement Obligation
Seaboard has recorded long-lived assets and a related liability
for the asset retirement obligation costs associated with the
closure of the hog lagoons it is legally obligated to close in
the future should Seaboard cease operations or plan to close such
lagoons voluntarily in accordance with a changed operating plan.
Based on detailed assessments and appraisals obtained to estimate
the future retirement costs, Seaboard has determined and recorded
the present value of the projected costs in non-current other
liabilities on the Consolidated Balance Sheet, with the
retirement asset depreciated over the economic life of the
related asset. The following table shows the changes in the
asset retirement obligation during 2010 and 2009:
Years ended December 31,
(Thousands of dollars) 2010 2009
Beginning balance $11,090 $ 8,846
Accretion expense 938 652
Adjustment to existing lagoons - 1,592
Ending balance $12,028 $ 11,090
Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. However, in the future as these timing
differences reverse, a lower statutory tax rate may apply
pursuant to the provisions for domestic manufacturers of the
American Jobs Creation Act of 2004. In accordance with U.S.
GAAP, Seaboard will recognize the benefit or cost of this change
in the future.
34
Revenue Recognition
Revenue of the containerized cargo service is recognized ratably
over the transit time for each voyage with expenses associated
with containerized cargo service being recognized as incurred.
Revenue of the commodity trading business is recognized when the
commodity is delivered to the customer, collection is reasonably
assured, and the sales price is fixed or determinable. Revenues
from all other commercial exchanges are recognized at the time
products are shipped or delivered in accordance with shipping
terms or services rendered, the customer takes ownership and
assumes risk of loss, collection is reasonably assured and the
sales price is fixed or determinable. As a result of a marketing
agreement with Triumph Foods, Seaboard's sales prices for its
pork products included in product revenues are primarily based on
a margin sharing arrangement that considers the average sales
price and mix of products sold from both Seaboard's and Triumph
Foods' hog processing plants. Seaboard earns a fee for marketing
the pork products of Triumph Foods and recognizes this fee as
service revenue primarily based on the number of head processed
by Triumph Foods.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting principles
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 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.
Earnings Per Common Share
Earnings per common share are based upon the weighted average
shares outstanding during the period. Basic and diluted earnings
per share are the same for all periods presented.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows,
management considers all demand deposits and overnight
investments as cash equivalents. The following table shows the
amounts paid for interest and income taxes:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Interest (net of amounts capitalized) $ 8,377 $ 13,845 $14,037
Income taxes (net of refunds) 69,626 (10,542) 10,815
Included in property, plant and equipment is capitalized interest
in the amount of $3,350,000, $702,000 and $1,679,000 for 2010,
2009 and 2008, respectively.
Supplemental Noncash Transactions
As discussed in Note 13, during the third quarter of 2010,
Seaboard acquired a majority interest in a commodity origination,
storage and processing business in Canada. Total cash paid, net
of cash acquired was $5,578,000 and increased working capital by
$1,254,000, fixed assets by $4,637,000, other long-term assets in
the amount of $833,000, deferred tax liabilities by $896,000 and
non-controlling interest by $250,000.
As more fully described in Note 13, in May 2009 Seaboard received
sovereign government bonds of the Dominican Republic with a par
value of $20,000,000 denominated in U.S. dollars to satisfy the
same amount of outstanding billings owed by a customer that
Seaboard had classified as long-term. During the fourth quarter
of 2009, Seaboard sold a portion of these bonds with par value of
$9,700,000. At December 31, 2009, the remaining $10,300,000 par
value of bonds was classified as available-for-sale short term
investments on the Consolidated Balance Sheet. During January
and February 2010, Seaboard sold the remaining bonds resulting in
an immaterial loss.
Foreign Currency Transactions and Translation
Seaboard has operations in and transactions with customers in a
number of foreign countries. The currencies of the countries
fluctuate in relation to the U.S. dollar. Certain of the major
contracts and transactions, however, are denominated in U.S.
dollars. In addition, the value of the U.S. dollar fluctuates in
relation to the currencies of
35
countries where certain of Seaboard's foreign subsidiaries and
affiliates primarily conduct business. These fluctuations
result in exchange gains and losses. The activities of these
foreign subsidiaries and affiliates are primarily conducted
with U.S. subsidiaries or operate in hyper-inflationary
environments. As a result, the financial statements of certain
foreign subsidiaries and affiliates are re-measured using
the U.S. dollar as the functional currency.
Included in foreign currency gain (loss), net for the years ended
December 31, 2009 and 2008 was a foreign currency gain of
$4,794,000 and a foreign currency loss of $(4,575,000),
respectively. These losses and gains reflect the re-
measurements of a note payable denominated in Japanese Yen of a
foreign consolidated subsidiary accounted for on a one-month lag
except for this re-measurement of this note payable. The
currency gains for 2009 and losses for 2008 were primarily offset
by a mark-to-market currency loss for December in 2009 and a gain
in December for 2008 from a foreign currency derivative contract.
The note payable and related foreign currency derivative were
terminated in December 2009.
Seaboard's Sugar segment, a consolidated subsidiary in Canada
(Commodity Trading and Milling segment) and four non-controlled,
non-consolidated affiliates (Commodity Trading and Milling
segment businesses in Colombia, Kenya, Lesotho and Zambia), use
local currency as their functional currency. Assets and
liabilities of these subsidiaries are translated to U.S. dollars
at year-end exchange rates, and income and expense items are
translated at average rates. Translation gains and losses are
recorded as components of other comprehensive loss. For these
entities, U.S. dollar denominated net asset or liability
conversions to the local currency are recorded through income.
Derivative Instruments and Hedging Activities
Seaboard recognizes all derivatives as either assets or
liabilities at their fair values. Accounting for changes in the
fair value of a derivative depends on its designation and
effectiveness. Derivatives qualify for treatment as hedges for
accounting purposes when there is a high correlation between the
change in fair value of the instrument and the related change in
value of the underlying commitment. In order to designate a
derivative financial instrument as a hedge for accounting
purposes, extensive record keeping is required. For derivatives
that qualify as hedges for accounting purposes, the change in
fair value has no net impact on earnings, to the extent the
derivative is considered effective, until the hedged transaction
affects earnings. For derivatives that are not designated as
hedging instruments for accounting purposes, or for the
ineffective portion of a hedging instrument, the change in fair
value does affect current period net earnings.
Seaboard holds and issues certain derivative instruments to
manage various types of market risks from its day-to-day
operations primarily including commodity futures and option
contracts and foreign currency exchange agreements, and from time-
to-time, forward freight agreements and interest rate exchange
agreements. While management believes each of these instruments
primarily are entered into in order to effectively manage various
market risks, as of December 31, 2010, none of the derivatives
are designated and accounted for as hedges primarily as a result
of the extensive record-keeping requirements. From time to time,
Seaboard may enter into speculative derivative transactions
related to its market risks.
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board issued new
accounting guidance for variable interest entities. This
guidance requires an enterprise to perform an analysis to
determine whether the enterprise's variable interest or interests
give it a controlling financial interest in a variable interest
entity (VIE). This analysis identifies the primary beneficiary
of a VIE as the enterprise that has both the power to direct the
most significant activities of a VIE and the obligation to absorb
losses or the right to receive benefits from the VIE.
This guidance eliminated the quantitative approach previously
required for determining the primary beneficiary of the VIE,
which was based on determining which enterprise absorbs the
majority of the entity's expected losses, receives a majority of
the entity's expected residual returns, or both. This guidance
also requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity and
requires certain additional disclosures about the VIE. Seaboard
adopted this guidance as of January 1, 2010. The adoption of this
guidance did not have a material impact on Seaboard's financial
position or net earnings.
36
Note 2
Investments
Seaboard's short-term investments are treated as either available-
for-sale securities or trading securities and are recorded at
their estimated fair market values. 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.
As of December 31, 2010 and 2009, the available-for-sale
investments primarily consisted of money market funds, fixed rate
municipal notes and bonds, corporate bonds, fixed income mutual
funds and U.S. Government obligations. At December 31, 2010 and
2009, amortized cost and estimated fair market value were not
materially different for these investments. At December 31,
2010, money market funds included $78,338,000 denominated in
Euros. As of December 31, 2010 and 2009, the trading securities
primarily consisted of high yield debt securities. As of
December 31, 2010 and 2009, unrealized gains related to trading
securities were $1,571,000 and $2,206,000, 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 December 31, 2010 and 2009:
2010 2009
Amortized Fair Amortized Fair
(Thousands of dollars) Cost Value Cost Value
Money market funds $110,164 $110,164 $153,699 $153,699
Corporate bonds 86,182 87,401 34,663 35,449
Fixed income mutual funds 60,256 60,302 - -
Fixed rate municipal notes and bonds 20,564 20,648 144,794 148,609
U.S. Government agency securities 17,503 17,514 15,907 16,272
U.S. Treasury securities 7,139 7,148 - -
Asset backed debt securities 2,847 2,848 8,447 8,484
Variable rate demand notes - - 1,900 1,900
Foreign government debt securities - - 10,300 10,210
Other 2,360 2,355 3,060 3,069
Total available-for-sale short-term
investments 307,015 308,380 372,770 377,692
High yield trading debt securities 19,447 20,783 24,784 26,771
Other trading debt securities 2,807 3,042 2,669 2,888
Total available-for-sale and trading
short-term investments $329,269 $332,205 $400,223 $407,351
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 December 31,
2010:
(Thousands of dollars) 2010
Due within one year $ 14,953
Due after one year through three years 82,197
Due after three years 19,603
Total fixed rate securities $116,753
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 Consolidated
Balance Sheets. See Note 9 for information on the types of
trading securities held related to the deferred compensation
plans and Note 10 for a discussion of assets held in conjunction
with investments related to Seaboard's defined benefit pension
plan.
37
Note 3
Inventories
The following table is a summary of inventories at the end of
each year:
December 31,
(Thousands of dollars) 2010 2009
At lower of LIFO cost or market:
Live hogs and materials $200,600 $192,999
Fresh pork and materials 24,779 22,398
225,379 215,397
LIFO adjustment (24,085) (22,807)
Total inventories at lower of LIFO cost or market 201,294 192,590
At lower of FIFO cost or market:
Grains and oilseeds 203,232 174,508
Sugar produced and in process 50,190 47,429
Other 44,013 46,804
Total inventories at lower of FIFO cost or market 297,435 268,741
Grain, flour and feed at lower of weighted average cost or
market 35,032 37,256
Total inventories $533,761 $498,587
The use of the LIFO method decreased 2010 and 2008 earnings by
$780,000 ($0.64 per common share) and $10,469,000 ($8.42 per
common share) and increased 2009 net earnings by $10,898,000
($8.81 per common share), respectively. If the FIFO method had
been used for certain inventories of the Pork segment,
inventories would have been higher by $24,085,000 and $22,807,000
as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, Seaboard had $4,647,000 recorded in
grain inventories related to its commodity trading business that
are committed to various customers in foreign countries for which
customer contract performance is a heightened concern. If
Seaboard is unable to collect amounts from these customers as
currently estimated or Seaboard is forced to find other customers
for a portion of this inventory, it is possible that Seaboard
could incur a material write-down in value of this inventory if
Seaboard is not successful in selling at the current carrying
value. For similar inventories that existed prior to December
31, 2009, Seaboard incurred a write-down in the first quarter of
2009 in the amount of $8,801,000 (with no tax benefit
recognized), or $7.10 per share and a write-down of $7,010,000 in
2008, including $5,653,000 ($4,940,000 net of tax), or $3.98 per
share, recorded in the fourth quarter of 2008.
Note 4
Investments in and Advances to Affiliates
Seaboard's investments in and advances to non-controlled, non-
consolidated affiliates are primarily related to Butterball, LLC
(Butterball), as discussed below, and businesses conducting
flour, maize and feed milling, and poultry production and
processing. As of December 31, 2010, the location and percentage
ownership of these affiliates excluding Butterball are as
follows: Democratic Republic of Congo (50%), Lesotho (50%),
Kenya (35-50%), Nigeria (25-48%), and Zambia (50%) in Africa;
Colombia (40%) and Ecuador (25-50%) in South America; and Haiti
(23%) in the Caribbean. Also, Seaboard has investments in grain
trading businesses in Australia (25%), North Carolina (50%) and
Peru (50%). Seaboard generally is the primary provider of choice
for grains, feed and supplies purchased by these non-controlled
affiliates. As Seaboard conducts its commodity trading business
with third parties, consolidated subsidiaries and affiliates on
an interrelated basis, cost of sales, on affiliates cannot be
clearly distinguished without making numerous assumptions
primarily with respect to mark-to-market accounting for commodity
derivatives. In addition, Seaboard has investments in and
advances to two sugar-related businesses in Argentina (46-50%).
The equity method is used to account for all of the above
investments.
38
On December 6, 2010, Seaboard Corporation acquired a 50% non-
controlling voting interest in Butterball from Maxwell Farms,
LLC, Goldsboro Milling Company, and GM Acquisition LLC
(collectively, the "Maxwell Group") for a cash purchase price of
$177,500,000. Butterball is a vertically integrated producer,
processor and marketer of branded and non-branded turkeys and
other turkey products. Seaboard purchased its interest in
Butterball from the Maxwell Group after the Maxwell Group had
reacquired a 49% interest held by Murphy-Brown, LLC ("Murphy-
Brown"), a subsidiary of Smithfield Foods, Inc. The other 50
percent ownership interest in Butterball will continue to be
owned by the Maxwell Group. In connection with the purchase,
Butterball also acquired the live turkey growing and related
assets of the Maxwell Group and of Murphy-Brown. As of December
31, 2010, total assets of $725,464,000 for Butterball included
intangible assets of $111,000,000 for trade name and $56,602,000
for goodwill. The equity method is used to account for this
investment.
In connection with this transaction, Seaboard provided Butterball
with a $100,000,000 unsecured subordinated loan (the
"subordinated loan") with a seven year maturity and interest of
15% per annum, comprised of 5% payable in cash semi-annually,
plus 10% pay-in-kind interest compounded semi-annually and paid
at maturity. As part of the subordinated loan, Seaboard received
a $2,000,000 cash fee from Butterball as consideration for
providing this financing that will be amortized over the term of
the subordinated loan. The amortization related to 2010 was
recorded in interest income in the Consolidated Statement of
Earnings.
In connection with providing the subordinated loan, Seaboard
received detachable warrants, which upon exercise for a nominal
price, would enable Seaboard to acquire an additional 5% equity
interest in Butterball. Seaboard can exercise these warrants at
any time before December 6, 2020. Butterball has the right to
repurchase the warrants for fair market value. The warrant
agreement essentially provides Seaboard with a 52.5% economic
interest as these warrants are in-substance an additional equity
interest. Therefore, Seaboard recorded 52.5% of Butterball's
earnings as Income from Affiliates in the Consolidated Statement
of Earnings. However, all significant corporate governance
matters would continue to be shared equally between Seaboard and
Maxwell even if the warrants are exercised, unless Seaboard
already owns a majority of the voting rights at the time of
exercise. The warrants qualify for equity treatment under
accounting standards. Accordingly, as of December 6, 2010, the
warrants were allocated a value of $10,586,000, classified as
Investments in and Advances to Affiliates on the Consolidated
Balance Sheet, and the subordinated loan was allocated a value of
$89,414,000, classified as Note Receivable from Affiliate on the
Consolidated Balance Sheet, of the total $100,000,000
subordinated financing discussed above. Seaboard monitors the
credit quality of this Note Receivable from Affiliate by
obtaining and reviewing financial information for this affiliate
on a monthly basis and by serving on the Board of Directors of
this affiliate.
In addition, in connection with this transaction Seaboard
arranged financing to refinance the existing Butterball debt with
third party lenders. For these services, in December 2010
Seaboard received a cash syndication fee from Butterball of
$4,525,000, net of arrangement fees paid to several banks who
assisted with the third party financing. Since Seaboard has a
52.5% economic interest in Butterball, Seaboard only recognized
47.5% of this net syndication fee in December 2010 in Other
Investment Income in the Consolidated Statement of Earnings. The
remaining net syndication fee will be amortized over the five
year term of the related Butterball debt.
In October 2010, Seaboard acquired for $5,000,000 a 25% non-
controlling interest in a commodity trading business in
Australia. Also in October 2010, Seaboard combined its existing
investment in poultry operations in Africa with another existing
African based poultry business. Seaboard invested an additional
$10,500,000 in this newly combined poultry business for a total
investment of $16,988,000, which represents a 50% non-controlling
interest. This newly combined business has operations primarily
in Kenya and Zambia and is also expanding by building new
operations in the Democratic Republic of Congo.
In July 2010, Seaboard finalized an agreement to invest in a
bakery to be built in Central Africa. Seaboard will have a 50%
non-controlling interest in this business. The total project
cost is estimated to be $58,000,000 but Seaboard's total
investment has not yet been determined pending finalization of
third party financing alternatives for a portion of the project.
The bakery is anticipated to be fully operational in the second
half of 2011. As of December 31, 2010, Seaboard had invested
$10,080,000 in this project.
In March 2010, Seaboard acquired a 50% non-controlling interest
in an international commodity trading business located in North
Carolina for approximately $7,650,000. There was an initial
payment of $6,000,000 made in March 2010, an additional payment
of $990,000 in the fourth quarter of 2010 with the remaining
$660,000 to be paid in the
39
first half of 2011 upon verification of the balance sheet as of
the date of closing and collection of certain receivables
outstanding.
At December 31, 2010, Seaboard's carrying value of certain of
these investments in affiliates in the Commodity Trading and
Milling segment was $12,527,000 more than its share of the
affiliate's book value. The excess is attributable primarily to
the valuation of property, plant and equipment and intangible
assets. The amortizable assets are being amortized to earnings
from affiliates over the remaining life of the assets.
In prior years, Seaboard's equity investments in its Nigerian non-
consolidated affiliates were written down to zero and Seaboard
suspended use of the equity method of accounting for these non-
consolidated affiliates as losses allocated to Seaboard exceeded
the investment. During the fourth quarter of 2009, the
application of the equity method of accounting was resumed for
these entities as a result of Seaboard's proportionate share of
income exceeded the share of losses not recognized during the
prior periods. A significant contributing factor to this change
in accounting treatment was the result of one of the entities
discontinuing its feed mill operations by selling its trade name
and certain assets to an entity in exchange for a non-controlling
ownership in such entity, and a separate sale of land and
building to a third party for cash. Seaboard's proportionate
share of these two asset sales represented approximately
$2,323,000 of the income from affiliates for 2009.
Combined condensed financial information of the non-controlled,
non-consolidated affiliates for their fiscal periods ended within
each of Seaboard's years ended were as follows (the net sales and
net income for the Turkey segment below represent the period from
December 6, 2010 to December 31, 2010):
Commodity Trading and Milling Segment December 31,
(Thousands of dollars) 2010 2009 2008
Net sales $1,117,440 1,051,621 1,053,818
Net income $ 47,594 45,867 34,955
Total assets $ 581,755 412,849 412,555
Total liabilities $ 250,076 215,146 247,337
Total equity $ 331,679 197,703 165,218
Sugar Segment December 31,
(Thousands of dollars) 2010 2009 2008
Net sales $ 20,132 22,293 20,660
Net income $ 2,064 2,169 923
Total assets $ 10,248 11,544 15,506
Total liabilities $ 3,791 6,265 11,396
Total equity $ 6,457 5,279 4,110
Turkey Segment December 31,
(Thousands of dollars) 2010
Net sales $ 83,409
Net loss $ (1,901)
Total assets $ 725,464
Total liabilities $ 360,673
Total equity $ 364,791
40
Note 5
Property, Plant and Equipment
The following table is a summary of property, plant and equipment
at the end of each year:
Useful December 31,
(Thousands of dollars) Lives 2010 2009
Land and improvements 0-15 years $ 166,201 $ 164,290
Buildings and improvements 30 years 348,160 345,031
Machinery and equipment 3-20 years 727,148 697,656
Vessels and vehicles 3-18 years 144,380 161,125
Office furniture and fixtures 5 years 26,527 25,769
Construction in progress 83,896 32,868
1,496,312 1,426,739
Accumulated depreciation and amortization (795,181) (735,396)
Net property, plant and equipment $ 701,131 $ 691,343
During the first half of 2008, Seaboard started operations at its
biodiesel plant. The ongoing profitability of this plant is
primarily based on future sales prices, the price of alternative
inputs, enforcement of government usage mandates and to a lesser
degree federal tax credits, which expired at the end of 2009.
The federal tax credit was renewed by Congress in late December
2010 and was made retroactive to January 1, 2010 with a new
expiration date of December 31, 2011. As of December 31, 2010,
Seaboard performed an impairment evaluation of this plant and
determined there was no impairment based on management's current
assumptions of future production volumes, sales prices, cost
inputs and management's expectation for both federal usage
mandates and tax credits. Based on 2010 experience, management
estimates that government usage mandates will adequately
compensate for the potential loss of federal tax credits.
Management does not believe an impairment of these assets is
likely in the near future unless actual results differ
significantly from management's current forecast. The net book
value of these assets as of December 31, 2010 was $40,526,000.
During the second quarter of 2009, Seaboard started operations at
its ham-boning and processing plant in Mexico. Since that time,
this plant has experienced certain difficulties including
challenges facing many U.S. border towns in Mexico. Despite
being in operation for over one year and reaching near-capacity
production levels, overall margins have been below expectations.
As a result, management has implemented various changes related
to this operation and margins improved during the fourth quarter
of 2010. As of December 31, 2010, Seaboard performed an
impairment evaluation of this plant and determined there was no
impairment based on management's current cash flow assumptions
and probabilities of outcomes. However, if margins from this
operation do not meet acceptable levels there is a possibility
that management may consider other alternatives for this
facility. Thus there is a possibility that the recorded value of
this facility could be deemed impaired during some future period
including 2011, which may result in a charge to earnings. The
net book value of these assets as of December 31, 2010 was
$9,994,000.
41
Note 6
Goodwill and Intangible Assets, net
Goodwill and intangible assets relate to the 2005 acquisition of
Daily's, a bacon processor located in the western United States,
and the related subsequent repurchase of a noncontrolling
interest of Seaboard Foods LLC in the Pork segment.
The following table is a summary of intangible assets at the end
of each year:
December 31,
(Thousands of dollars) 2010 2009
Intangibles subject to amortization:
Gross carrying amount:
Customer relationships $ 9,045 $ 9,045
Covenants not to compete - 1,500
9,045 10,545
Accumulated amortization:
Customer relationships (6,299) (5,519)
Covenants not to compete - (1,350)
(6,299) (6,869)
Net carrying amount:
Customer relationships 2,746 3,526
Covenants not to compete - 150
Intangibles subject to amortization, net 2,746 3,676
Intangibles not subject to amortization:
Carrying amount-trade names and registered trademarks 17,000 17,000
Total intangible assets, net $19,746 $20,676
The amortization expense of amortizable intangible assets for the
years ended December 31, 2010, 2009 and 2008 was $930,000,
$1,610,000, and $1,610,000, respectively. Amortization expense
for the five succeeding years is $250,000 each year.
As of December 31, 2010, the Pork segment had $28,372,000 of
goodwill and $17,000,000 of other intangible assets not subject
to amortization in connection with its acquisition of Daily's.
In 2008, revised projected future sales prices as of December 31,
2008 indicated the potential for impairment. In addition, the
overall downturn of the United States economy and Seaboard's
stock price trading below book value during the fourth quarter of
2008 provided additional indicators that Seaboard should reassess
its annual evaluation for impairment related to Daily's
intangible assets. This reassessment included downward revisions
in previously used future projected sales volumes and royalty
rate assumptions used in the measurement of Daily's trade name as
a result of the current economic conditions. This analysis
resulted in a $7,000,000 impairment charge recorded in cost of
sales on the Consolidated Statements of Earnings during the
fourth quarter of 2008 to write down the recorded value of
Daily's trade name to its estimated fair value of $17,000,000 as
of December 31, 2008. After this impairment charge, there was no
indication of potential impairment of goodwill related to Daily's
as the revised estimated enterprise fair value of Daily's
exceeded its book value as of December 31, 2008. As of July 4,
2010, Seaboard conducted its annual evaluation for impairment of
this goodwill and other intangible assets related to Daily's and,
based on current market conditions indicating future sale price
increases, additional processed meats sales volumes and related
levels of estimated operating margins determined there was no
impairment as of December 31, 2010.
42
Note 7
Income Taxes
Income taxes attributable to continuing operations for the years
ended December 31, 2010, 2009 and 2008 differed from the amounts
computed by applying the statutory U.S. Federal income tax rate
of 35 percent to earnings (loss) before income taxes excluding
noncontrolling interest for the following reasons:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Computed "expected" tax expense excluding
noncontrolling interest $ 127,625 $ 31,572 $ 43,481
Adjustments to tax expense attributable to:
Foreign tax differences (33,322) (20,332) (54,232)
Tax-exempt investment income (974) (1,809) (2,554)
State income taxes, net of federal benefit 1,803 (3,010) (1,966)
Change in valuation allowance (6,189) (2,146) (1,977)
Federal tax credits (3,351) (3,672) (4,390)
Change in pension deferred tax (329) (3,508) 335
Other (4,230) 629 (1,386)
Total income tax expense (benefit) $ 81,033 $ (2,276) $(22,689)
Most of Seaboard's foreign tax differences are attributable to a
significant portion of the earnings from Seaboard's foreign
operations being subject to no income tax or a tax rate which is
considerably lower than the U.S. corporate tax rate.
Earnings before income taxes consisted of the following:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
United States $223,401 $(14,511) $(28,988)
Foreign 141,243 104,717 153,218
Total earnings excluding noncontrolling
interest 364,644 90,206 124,230
Plus earnings attributable to noncontrolling
interest 599 965 (596)
Total earnings before income taxes $364,045 $ 89,241 $124,826
The components of total income taxes were as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Current:
Federal $ 48,814 $ 943 $(25,462)
Foreign 15,855 8,454 8,259
State and local 2,924 (125) 823
Deferred:
Federal 13,204 (18,216) (1,280)
Foreign 15 10,285 (1,425)
State and local 221 (3,617) (3,604)
Income tax expense (benefit) 81,033 (2,276) (22,689)
Unrealized changes in other comprehensive
income (5,443) (3,206) (11,525)
Total income taxes $ 75,590 $ (5,482) $(34,214)
As of December 31, 2010 and 2009, Seaboard had income taxes
receivable of $12,234,000 and $4,923,000, respectively, primarily
related to domestic tax jurisdictions and had income taxes
payable of $7,066,000 and $2,048,000, respectively, primarily
related to foreign tax jurisdictions.
43
Components of the net deferred income tax liability at the end of
each year were as follows:
December 31,
(Thousands of dollars) 2010 2009
Deferred income tax liabilities:
Cash basis farming adjustment $ 10,724 $ 11,065
Depreciation 98,692 100,815
LIFO 29,017 242
Other 3,768 2,233
$142,201 $114,355
Deferred income tax assets:
Reserves/accruals $ 67,244 $ 50,097
Tax credit carryforwards 9,554 12,659
Deferred earnings of foreign subsidiaries 6,274 1,733
Net operating and capital loss carryforwards 18,727 18,648
Foreign minimum tax credit carryforward 10,400 10,104
Other 3,364 679
115,563 93,920
Valuation allowance 30,664 28,621
Net deferred income tax liability $ 57,302 $ 49,056
Seaboard recognizes interest accrued related to unrecognized tax
benefits and penalties in income tax expense. For the years
ended December 31, 2010, 2009 and 2008, such interest and
penalties were not material. The Company had approximately
$1,323,000 and $1,153,000 accrued for the payment of interest and
penalties on uncertain tax positions at December 31, 2010, and
2009, respectively.
As of December 31, 2010 and 2009, Seaboard had $3,548,000 and
$3,395,000, respectively, in total unrecognized tax benefits all
of which, if recognized, would affect the effective tax rate.
Seaboard does not have any material uncertain tax positions in
which it is reasonably possible that the total amounts of the
unrecognized tax benefits will significantly increase or decrease
within 12 months of the reporting date. The following table is a
reconciliation of the beginning and ending amount of unrecognized
tax benefits:
(Thousands of dollars) 2010 2009
Beginning balance at January 1 $ 3,395 $ 3,464
Additions for uncertain tax positions of prior years 596 206
Decreases for uncertain tax positions of prior years (367) (184)
Additions for uncertain tax positions of current year 21 32
Settlements (97) (15)
Lapse of statute of limitations - (108)
Ending balance at December 31 $ 3,548 $ 3,395
Seaboard's tax returns are regularly audited by federal, state
and foreign tax authorities, which may result in adjustments.
Seaboard's U.S. federal income tax returns have been reviewed
through the 2004 tax year. The statute of limitations has
expired on the 2005 tax year. Seaboard's 2006-2008 U.S. income
tax returns are currently under IRS examination.
As of December 31 2010, Seaboard had not provided for U.S.
Federal Income and foreign withholding taxes on $739,305,000 of
undistributed earnings from foreign operations as Seaboard
intends to reinvest such earnings indefinitely outside of the
United States. Determination of the tax that might be paid on
these undistributed earnings if eventually remitted is not
practical.
44
Seaboard had a tax holiday in one foreign country in 2010, 2009
and 2008 which resulted in tax savings of approximately
$3,434,000, $3,259,000 and $1,961,000, or $2.80, $2.63 and $1.58
per diluted earnings per common share for the years ended
December 31, 2010, 2009 and 2008, respectively. The tax holiday
expires in 2012.
Management believes Seaboard's future taxable income will be
sufficient for full realization of the net deferred tax assets.
The valuation allowance relates to the tax benefits from foreign
net operating losses and capital losses. Management does not
believe these benefits are more likely than not to be realized
due to limitations imposed on the deduction of these losses. The
increase of $2,043,000 in the valuations allowance for 2010 was
primarily the result of an increase of foreign deferred tax
assets partially offset by the realization of charitable
contributions and capital loss carryovers. At December 31, 2010,
Seaboard had foreign net operating loss carryforwards (NOLs) of
approximately $61,473,000 a portion of which expire in varying
amounts between 2011 and 2017, while others have indefinite
expiration periods.
At December 31, 2010, Seaboard had state tax credit carryforwards
of approximately $14,698,000 net of valuation allowance, all of
which carryforward indefinitely.
Note 8
Notes Payable and Long-term Debt
Notes payable amounting to $78,729,000 and $81,262,000 at
December 31, 2010 and 2009, respectively, consisted of
obligations due banks on demand or based on Seaboard's ability
and intent to repay within one year. At December 31, 2010,
Seaboard had a committed bank line totaling $300,000,000,
maturing July 10, 2013, and uncommitted bank lines totaling
approximately $164,479,000 of which $127,479,000 of the
uncommitted lines relate to foreign subsidiaries. At December
31, 2010, there were no borrowings outstanding under the
committed line and borrowings outstanding under the uncommitted
lines totaled $33,729,000, all related to foreign subsidiaries.
The uncommitted borrowings outstanding at December 31, 2010
primarily represented $30,242,000 denominated in South African
Rand. Also included in notes payable at December 31, 2010 was a
term note of $45,000,000 denominated in U.S. dollars related to
the Sugar segment in Argentina. The weighted average interest
rates for outstanding notes payable were 5.79% and 6.07% at
December 31, 2010 and 2009, respectively.
At December 31, 2010, Seaboard's borrowing capacity under its
committed and uncommitted lines was reduced by letters of credit
(LCs) totaling $42,578,000, and $8,136,000, respectively,
primarily including $26,385,000 of LCs for Seaboard's outstanding
Industrial Development Revenue Bonds (IDRBs) and $20,221,000
related to insurance coverages.
The notes payable to banks under the credit lines are unsecured.
The lines of credit do not require compensating balances.
Facility fees on these agreements are not material.
On September 17, 2010, Seaboard entered into a credit agreement
for $114,000,000 at a fixed rate of 5.34% for the financing of a
replacement power generating facility, which will operate in the
Dominican Republic as discussed in Note 13. This credit facility
has a term of ten years which will commence upon achievement of
commercial operation which is expected to take place on or prior
to April 24, 2012. The credit facility will mature no later than
April 24, 2022 and is secured by the power generating facility.
At December 31, 2010, $16,352,000 had been borrowed from this
credit facility.
45
The following table is a summary of long-term debt at the end of
each year:
December 31,
(Thousands of dollars) 2010 2009
Private placements:
6.21% senior notes, due 2011 through 2012 2,143 3,214
6.92% senior notes, due 2012 31,000 31,000
Industrial Development Revenue Bonds, floating rates
(1.50% - 1.94% at December 31, 2010) due 2014 through 2027 41,800 41,800
Foreign subsidiary obligation, 5.34%, due 2012 through 2021 16,352 -
Foreign subsidiary obligations, 17.00%, repaid in 2010 - 688
Foreign subsidiary obligation, floating rate 221 232
Capital lease obligations and other 1,588 1,935
93,104 78,869
Current maturities of long-term debt (1,697) (2,337)
Long-term debt, less current maturities $91,407 $76,532
Of the 2010 foreign subsidiary obligations, $16,352,000 was
payable in U.S. dollars, $221,000 was payable in Argentine pesos.
Of the 2009 foreign subsidiary obligations, $688,000 was
denominated in CFA francs, $232,000 was payable in Argentine
pesos.
The terms of the note agreements pursuant to which the senior
notes, IDRBs, bank debt and credit lines were issued require,
among other terms, the maintenance of certain ratios and minimum
net worth, the most restrictive of which requires consolidated
funded debt not to exceed 50% of consolidated total
capitalization; an adjusted leverage ratio of less than 3.5 to
1.0; requires the maintenance of consolidated tangible net worth,
as defined, of not less than $1,150,000,000 plus 25% of
cumulative consolidated net income beginning March 29, 2008;
limits aggregate dividend payments to $10,000,000 plus 50% of
consolidated net income less 100% of consolidated net losses
beginning January 1, 2002 plus the aggregate amount of Net
Proceeds of Capital Stock for such period ($645,864,000 as of
December 31, 2010) or $15,000,000 per year under certain
circumstances; limits the sum of subsidiary indebtedness and
priority indebtedness to 10% of consolidated tangible net worth;
and limits Seaboard's ability to acquire investments and sell
assets under certain circumstances. Seaboard is in compliance
with all restrictive debt covenants relating to these agreements
as of December 31, 2010.
Annual maturities of long-term debt at December 31, 2010 are as
follows: $1,697,000 in 2011, $34,182,000 in 2012, $2,191,000 in
2013, $9,588,000 in 2014, $1,635,000 in 2015 and $43,811,000
thereafter.
Note 9
Derivatives and Fair Value of Financial Instruments
U.S. GAAP discusses several 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: Quoted Prices In Active Markets for Identical Assets -
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: Significant Other Observable Inputs - 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.
46
Level 3: Significant Unobservable Inputs - Unobservable inputs
that reflect the reporting entity's own assumptions.
The following table shows assets and liabilities measured at fair
value (derivatives exclude margin accounts) on a recurring basis
as of December 31, 2010 and also the level within the fair value
hierarchy used to measure each category of assets:
Balance
December 31,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Available-for-sale securities - short-term
investments:
Money market funds $110,164 $110,164 $ - $ -
Corporate bonds 87,401 - 87,401 -
Fixed income mutual funds 60,302 60,302 - -
Fixed rate municipal notes and bonds 20,648 - 20,648 -
U.S. Government agency securities 17,514 - 17,514 -
U.S. Treasury securities 7,148 - 7,148 -
Asset backed debt securities 2,848 - 2,848 -
Other 2,355 - 2,355 -
Trading securities- short term investments:
High yield debt securities 20,783 - 20,783 -
Other debt securities 3,042 - 3,042 -
Trading securities - other current assets:
Domestic equity securities 13,332 13,332 - -
Foreign equity securities 8,157 4,131 4,026 -
Fixed income mutual funds 3,758 3,758 - -
Money market funds 3,208 3,208 - -
U.S. Treasury securities 2,732 - 2,732 -
U.S. Government agency securities 1,371 - 1,371 -
Other 183 157 26 -
Derivatives:
Commodities 15,966 15,9588 - -
Interest rate swaps 1,410 - 1,410 -
Foreign currencies 120 - 120 -
Total Assets $382,442 $211,010 $171,432 $ -
Liabilities:
Derivatives:
Commodities (1) $ 9,170 $ 9,170 $ - $ -
Interest rate swaps 1,161 - 1,161 -
Foreign currencies 11,652 - 11,652 -
Total Liabilities $ 21,983 $ 9,170 $ 12,813 $ -
(1) Excludes $5,163 of option proceeds resulting in a net liability of
$4,007 as of December 31, 2010.
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. The
amortized cost and estimated fair values of investments and long-
term debt at December 31, 2010 and 2009 are presented below:
47
December 31, 2010 2009
(Thousands of dollars) Amortized Cost Fair Value Amortized Cost Fair Value
Short-term investments,
available-for-sale $ 307,015 $308,380 $372,770 $377,692
Short-term investments,
trading debt securities 22,254 23,825 27,453 29,659
Long-term debt 93,104 96,438 78,869 82,415
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.
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. 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, 2009. 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 Consolidated Statements of
Earnings. Since these derivatives are not accounted for as
hedges, fluctuations in the related commodity prices could have a
material impact on earnings in any given period.
At December 31, 2010, Seaboard had open net derivative contracts
to purchase 5,880,000 bushels of grain, 2,900 tons of soybean
meal and 43,240,000 pounds of hogs and open net derivative
contracts to sell 1,806,000 gallons of heating oil. At December
31, 2009, Seaboard had open net derivative contracts to sell
13,955,000 bushels of grain, 1,344,000 gallons of heating oil and
87,900 tons of soybean meal and open net derivative contracts to
purchase 2,720,000 pounds of hogs. For the years ended December
31, 2010, 2009 and 2008 Seaboard recognized net realized and
unrealized gains of $8,047,000 $7,047,000 and $36,156,000,
respectively, related to commodity contracts, primarily included
in cost of sales on the 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 the underlying
commodity transaction were recorded at fair value with changes in
value marked to market as a component of cost of sales on the
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 Consolidated
Statements of Earnings. Since these agreements are not accounted
for as hedges, fluctuations in the related currency exchange
rates could have a material impact on earnings in any given year.
At December 31, 2010, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with notional amounts of
$183,042,000 primarily related to the South African Rand.
At December 31, 2009, Seaboard had trading foreign exchange
contracts to cover its firm sales and purchase commitments and
related trade receivables and payables with notional amounts of
$193,379,000 primarily related to the South African Rand and the
Euro.
Forward Freight Agreements (FFAs)
From time to time the Commodity Trading and Milling segment
enters into certain FFAs, viewed as taking long positions in the
freight market as well as covering short freight sales, which may
or may not result in actual losses when future trades are
executed. At December 31, 2010 and 2009, there were no such
agreements outstanding.
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,
48
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 Consolidated Statement of Earnings.
In December 2008 and again in March 2009, Seaboard entered into
ten-year interest rate exchange agreements with notional amounts
of $25,000,000 each, with similar terms to agreements discussed
above to mitigate the effects of fluctuations in interest rates.
In June 2009, Seaboard terminated both interest rate exchange
agreements and received payments of $3,981,000 to unwind these
agreements.
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 $120,000 with two counterparties. Seaboard's
interest rate swaps have a maximum amount of loss due to credit
risk in the amount of $1,410,000 with one counterparty. 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 Consolidated Statement of Earnings for the year
ended December 31, 2010 and 2009:
(Thousands of dollars)
2010 2009
Location of Gain or (Loss) Amount of Gain or (Loss)
Recognized in Income on Recognized in Income on
Derivatives Derivatives
Commodities Cost of sales-products $ 8,047 $ 7,047
Foreign currencies Cost of sales-products (18,538) (27,676)
Foreign currencies Foreign currency (1,580) (1,980)
Interest rate Miscellaneous, net (1,309) 5,312
The following table provides the fair value of each type of
derivative held as of December 31, 2010 and 2009 and where each
derivative is included on the Consolidated Balance Sheets:
(Thousands of dollars) Asset Derivatives Liability Derivatives
2010 2009 2010 2009
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value
Commodities Other current assets $15,966 $4,610 Other current liabilities $ 9,170 (1) $2,288
Foreign currencies Other current assets 120 430 Other current liabilities 11,652 5,943
Interest rate Other current assets 1,410 - Other current liabilities 1,161 -
(1)Excludes $5,163 of option proceeds resulting in a net liability of $4,007 as of December 31, 2010.
Note 10
Employee Benefits
Seaboard maintains a defined benefit pension plan for its
domestic salaried and clerical employees and, effective January
1, 2010, split a portion of employees from this plan into a new
defined benefit plan with identical benefits. Both plans are
collectively referred to below as "the Plans." The Plans
generally provides eligibility for participation after one year
of service upon attaining the age of 21. Benefits are generally
based upon the number of years of service and a percentage of
final average pay.
Seaboard has historically based pension contributions on minimum
funding standards to avoid the Pension Benefit Guaranty
Corporation variable rate premiums established by the Employee
Retirement Income Security Act of 1974. However, in July 2009,
Seaboard made a deductible contribution of $14,615,000 for the
2008 plan year as a result of the significant investment losses
incurred in the defined benefit pension plan during the fourth
quarter of 2008. Management did not make any contributions in
2010 and currently does not plan on making any contributions to
the Plans in 2011.
49
As part of the split of the defined benefit pension plan
discussed above, on January 1, 2010 Seaboard implemented a new
investment policy for each of the two separate plans. The
difference in target allocation percentages are based on one plan
having more current retirees and thus a more conservative
portfolio versus the other plan which can assume greater risk as
it will have a longer investment time horizon. Assets are
invested in the Plans to achieve a diversified overall portfolio
consisting primarily of individual stocks, money market funds,
collective investment funds, bonds and mutual funds. Seaboard is
willing to accept a moderate level of risk to potentially achieve
higher investment returns. The overall portfolios are evaluated
relative to customized benchmarks. The investment strategy
provides investment managers' discretion and is periodically
reviewed by management for adherence to policy and performance
against benchmarks. Seaboard's asset allocation targets and
actual investment composition within the Plans were as follows:
Actual Composition of Plans at December 31,
Target Allocations 2010 2009
Domestic Large Cap Equity 29-40% 31-42% 29%
Domestic Small and Mid Cap
Equity 7-10% 12-14% 12%
International Equity 11-16% 11-15% 9%
Fixed Income 25-42% 22-39% 31%
Alternative investments 6-8% 4-5% -
Cash and cash equivalents 1-5% 2-3% 19%
As described in Note 9 to the Consolidated Financial Statements,
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 table shows the Plans' assets
measured at estimated fair value as of December 31, 2010 and also
the level within the fair value hierarchy used to measure each
category of assets:
Balance
December 31,
(Thousands of dollars) 2010 Level 1 Level 2 Level 3
Assets:
Domestic equity securities $27,411 $27,411 $ - $ -
Corporate bonds 19,570 - 19,570 -
Collective investment funds 12,889 - 12,889 -
Foreign equity securities 7,410 7,410 - -
Fixed income mutual funds 6,073 6,073 - -
Money market funds 5,337 5,337 - -
U.S. Treasury STRIPS 3,135 - 3,135 -
Exchange traded funds-equity 3,012 3,012 - -
Mutual funds-equities 2,892 2,892 - -
Real estate mutual fund 2,042 2,042 - -
Exchange traded funds-fixed
income 1,787 1,787 - -
Municipal bonds 1,713 - 1,713 -
Other 367 204 163 -
Total Assets $93,638 $56,168 $37,470 $ -
Seaboard also sponsors non-qualified, unfunded supplemental
executive plans and has certain individual, non-qualified,
unfunded supplemental retirement agreements for certain retired
employees. The unamortized prior service cost is being amortized
over the average remaining working lifetime of the active
participants for this plan. Management has no plans to provide
funding for these supplemental executive plans in advance of when
the benefits are paid.
50
Assumptions used in determining pension information for all of
the above plans were:
Years ended December 31,
2010 2009 2008
Weighted-average assumptions
Discount rate used to determine
obligations 4.45-5.65% 5.25-6.25% 6.25%
Discount rate used to determine net
periodic benefit cost 5.25-6.25% 6.25% 6.50%
Expected return on plan assets 7.25-7.75% 7.50% 7.50%
Long-term rate of increase in compensation
levels 4.00-5.00% 4.00-5.00% 4.00-5.00%
Management selected the discount rate based on a model-based
result where the timing and amount of cash flows approximates the
estimated payouts. The expected returns on the Plans' assets
assumption are based on the weighted average of asset class
expected returns that are consistent with historical returns.
The assumed rate selected was based on model-based results that
reflect the Plans' asset allocation and related long-term
projected returns. The measurement date for all plans is
December 31. The unrecognized net actuarial losses are generally
amortized over the average remaining working lifetime of the
active participants for all of these plans.
The changes in the plans' benefit obligations and fair value of
assets for the Plans, supplemental executive plans and retirement
agreements for the years ended December 31, 2010 and 2009, and a
statement of the funded status as of December 31, 2010 and 2009
were as follows:
December 31,
2010 2009
Assets exceed Accumulated Assets exceed Accumulated
accumulated benefits accumulated benefits
(Thousands of dollars) benefits exceed assets benefits exceed assets
Reconciliation of benefit
obligation:
Benefit obligation at
beginning of year $ - $147,915 $72,627 $ 60,287
Service cost 1,370 4,997 2,925 3,115
Interest cost 3,258 5,454 4,572 3,611
Actuarial losses 4,896 10,013 4,669 1,188
Benefits paid (2,563) (2,317) (2,504) (3,790)
Plan split 55,648 (55,648) - -
Plan amendments- - - - 1,215
Benefit obligation at
end of year $ 62,609 $110,414 $82,289 $ 65,626
Reconciliation of fair
value of plan assets:
Fair value of plan assets
at beginning of year $ - $ 84,829 $58,321 $ -
Actual return on plan
assets 7,106 4,513 14,397 -
Employer contributions - 2,070 14,615 3,790
Benefits paid (2,563) (2,317) (2,504) (3,790)
Plan split 59,152 (59,152) - -
Fair value of plan assets
at end of year $ 63,695 $ 29,943 $84,829 $ -
Funded status $ 1,086 $(80,471) $ 2,540 $(65,626)
The net funded status of the Plans was $(2,713,000) and
$2,540,000 at December 31, 2010 and 2009, respectively. The
accumulated benefit obligation for the Plans was $83,727,000 and
$74,666,000 and for the other plans was $56,120,000 and
$45,381,000 at December 31, 2010 and 2009, respectively.
Expected future net benefit payments for all plans during each of
the next five years and in aggregate for the five year period
beginning with the sixth year are as follows: $6,724,000,
$5,355,000, $5,931,000, $6,424,000, $8,653,000, and $56,459,000,
respectively.
51
The amounts not reflected in net periodic benefit cost and
included in accumulated other comprehensive income (AOCI) before
taxes at December 31, 2010 and 2009 were as follows:
(Thousands of dollars) 2010 2009
Accumulated loss, net of gain $ (54,752) $(48,346)
Prior service cost, net of credit (7,280) (8,209)
Transitional obligation (16) (32)
Total Accumulated Other Comprehensive Income $(62,048) $(56,587)
The net periodic benefit cost of these plans was as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Components of net periodic benefit cost:
Service cost
$ 6,367 $ 6,040 $ 5,199
Interest cost 8,712 8,183 7,510
Expected return on plan assets (6,218) (4,761) (6,029)
Amortization and other 4,046 5,017 1,582
Net periodic benefit cost $12,907 $14,479 $ 8,262
The accumulated unrecognized losses for 2008 in the Plan as of
December 31, 2008 exceeded the 10% deferral threshold as
permitted under U.S. GAAP as a result of the significant
investment losses incurred during 2008. Accordingly, Seaboard's
pension expense for the Plan increased by approximately
$3,140,000 for 2009 compared to 2008 as a result of loss
amortization. In addition, pension expense for the Plan
increased an additional $1,725,000 for 2009 as compared to 2008
as a result of reduced expected return on assets, from the
decline of assets in the Plan during 2008, partially offset by
approximately $457,000 in expected earnings from the 2009
contribution discussed above.
The amounts in AOCI expected to be recognized as components of
net periodic benefit cost in 2011 are as follows:
(Thousands of dollars) 2011
Accumulated loss, net of gain $3,216
Prior service cost, net of credit 929
Transition obligation 16
Estimated net periodic benefit cost $4,161
Seaboard participates in a multi-employer pension fund, which
covers certain union employees under a collective bargaining
agreement. Seaboard is required to make contributions to this
plan in amounts established under the collective bargaining
agreement. Contribution expense for this plan was $528,000,
$509,000, and $498,000 for the years ended December 31, 2010,
2009 and 2008, respectively. The applicable portion of the total
plan benefits and net assets of this plan is not separately
identifiable although Seaboard has received notice the pension
fund was under funded. Seaboard could, under certain
circumstances, be liable for unfunded vested benefits or other
expenses of this jointly administered union plan. Seaboard has
not established any liabilities for potential future withdrawal
as such withdrawal from this plan is not probable.
Seaboard maintains a defined contribution plan covering most of
its domestic salaried and clerical employees. In 2010, Seaboard
contributed to this plan an amount equal to 50% of employee
contributions up to a maximum of 6% of employee compensation. In
2009 and 2008, Seaboard contributed to this plan an amount equal
to 100% of employee contributions up to a maximum of 3% of
employee compensation. Employee vesting is based upon years of
service with 20% vested after one year of service and an
additional 20% vesting with each additional complete year of
service. Contribution expense for this plan was $1,826,000,
$1,868,000 and $1,812,000 for the years ended December 31, 2010,
2009 and 2008, respectively. In addition, Seaboard maintains a
defined contribution plan covering most of its hourly, non-union
employees and two defined contribution plans covering most of
Daily's
52
employees. Contribution expense for these plans was
$1,455,000, $1,378,000 and $1,038,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Beginning in 2006, Seaboard established a deferred compensation
plan which allows certain employees to reduce their compensation
in exchange for values in four investments. Seaboard also has an
Investment Option Plan which allowed certain employees to reduce
their compensation in exchange for an option to acquire interests
measured by reference to three investments. However, as a result
of U.S. tax legislation passed in 2004, reductions to
compensation earned after 2004 are no longer allowed under the
Investment Option Plan. The exercise price for each investment
option was established based upon the fair market value of the
underlying investment on the date of grant. Under both plans,
Seaboard contributes 3% of the employees reduced compensation.
Seaboard's expense (income) for these two deferred compensation
plans, which primarily includes amounts related to the change in
fair value of the underlying investment accounts, was $4,267,000,
$4,340,000 and $(9,539,000) for the years ended
December 31, 2010, 2009 and 2008, respectively. Included in
other liabilities at December 31, 2010 and 2009 are $28,444,000
and $22,430,000, respectively, representing the market value of
the payable to the employees upon distribution or exercise for
each plan. In conjunction with these plans, Seaboard purchased
the specified number of units of the employee-designated
investment plus the applicable option price for the Investment
Option Plan. These investments are treated as trading securities
and are stated at their fair market values. Accordingly, as of
December 31, 2010 and 2009, $32,739,000 and $26,729,000,
respectively, were included in other current assets on the
Consolidated Balance Sheets. Investment income (loss) related to
the mark-to-market of these investments for 2010, 2009, and 2008
totaled $4,203,000, $4,253,000 and $(9,618,000), respectively.
Note 11
Commitments and Contingencies
In July 2009, Seaboard Corporation, and affiliated companies in
its Commodity Trading and Milling segment, resolved a dispute
with a third party related to a 2005 transaction in which a
portion of its trading operations was sold to a firm located
abroad. As a result of this action, Seaboard Overseas Limited
received approximately $16,787,000, net of expenses, in the third
quarter of 2009. There was no tax expense on this transaction.
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.
Contingent Obligations
Certain of the non-consolidated affiliates and third party
contractors who perform services for Seaboard have bank debt
supporting their underlying operations. From time to time,
Seaboard will provide guarantees of that debt allowing a lower
borrowing rate or facilitating third party financing in order to
further business objectives. Seaboard does not issue guarantees
of third parties for compensation. As of December 31, 2010,
Seaboard had guarantees outstanding to two third parties with a
total maximum exposure of $1,354,000. Seaboard has not accrued a
liability for any of the third party or affiliate guarantees as
management considers the likelihood of loss to be remote.
As of December 31, 2010, Seaboard had outstanding letters of
credit (LCs) with various banks which reduced its borrowing
capacity under its committed and uncommitted credit facilities as
discussed in Note 8 by $42,578,000 and $8,136,000, respectively.
Included in these amounts are LCs totaling $26,385,000, which
support the IDRBs included as long-term debt and $20,221,000 of
LCs related to insurance coverage.
Commitments
As of December 31, 2010 Seaboard had various firm noncancelable
purchase commitments and commitments under other agreements,
arrangements and operating leases as described in the table
below:
53
Purchase commitments Years ended December 31,
(Thousands of dollars) 2011 2012 2013 2014 2015 Thereafter
Hog procurement contracts $182,705 $ 23,638 $20,542 $ 5,065 $ - $ -
Grain and feed ingredients 164,437 2,850 218 - - -
Grain purchase contracts for
resale 212,501 - - - - -
Construction of new power
barge 69,956 9,613 - - - -
Fuel purchase contract 24,045 17,504 - - - -
Equipment purchases
and facility improvements 20,844 - - - - -
Other purchase commitments 15,330 10,008 2,597 71 34 195
Total firm purchase
commitments 689,818 63,613 23,357 5,136 34 195
Vessel, time and voyage-
charter arrangements 68,911 31,568 28,096 12,984 10,585 68,745
Contract grower finishing
agreements 11,473 10,372 9,710 9,052 8,609 24,777
Other operating lease
payments 17,572 15,413 14,031 13,155 12,739 200,187
Total unrecognized firm
commitments $787,774 $120,966 $75,194 $40,327 $31,967 $293,904
Seaboard has contracted with third parties for the purchase of
live hogs to process at its pork processing plant and has entered
into grain and feed ingredient purchase contracts to support its
live hog operations. The commitment amounts included in the
table are based on projected market prices as of
December 31, 2010. During 2010, 2009 and 2008, this segment paid
$183,982,000, $163,047,000 and $155,400,000, respectively for
live hogs purchased under committed contracts.
The Commodity Trading and Milling segment enters into grain
purchase contracts and ocean freight contracts, primarily to
support firm sales commitments. These contracts are valued based
on projected commodity prices as of December 31, 2010. This
segment also has short-term freight contracts in place for
delivery of future grain sales.
The Marine segment enters into contracts to time-charter vessels
for use in its operations. These contracts range from short-term
time-charters for a few months and long-term commitments ranging
from one to ten years. This segment's charter hire expenses
during 2010, 2009 and 2008 totaled $57,606,000, $82,728,000 and
$115,877,000, respectively.
To support the operations of the Pork segment, Seaboard has
contract grower finishing agreements in place with farmers to
raise a portion of Seaboard's hogs according to Seaboard's
specifications under long-term service agreements. Under the
terms of the agreements, additional payments would be required if
the grower achieves certain performance standards. The contract
grower finishing obligations shown above do not reflect these
incentive payments which, given current operating performance,
total approximately $1,500,000 per year. In the event the farmer
is unable to perform at an acceptable level, Seaboard has the
right to terminate the contract. During the years ended 2010,
2009 and 2008, Seaboard paid $13,752,000, $13,703,000 and
$13,389,000, respectively, under contract grower finishing
agreements.
Seaboard also leases various facilities and equipment under
noncancelable operating lease agreements including a terminal
operations agreement at the Port of Miami which runs through
2028. Rental expense for operating leases amounted to
$24,835,000, $26,404,000 and $23,147,000 in 2010, 2009 and 2008,
respectively.
The Power segment entered into a liquid natural gas contract for
part of 2011 and 2012 related to the new power barge.
54
Note 12
Stockholders' Equity and Accumulated Other Comprehensive Loss
On November 6, 2009, the Board of Directors authorized Seaboard
to repurchase from time to time prior to October 31, 2011 up to
$100 million market value of its Common Stock in open market or
privately negotiated purchases which may be above or below the
traded market price. Such purchases may be made by Seaboard or
Seaboard may from time to time enter into a 10b5-1 plan
authorizing a third party to make such purchases on behalf of
Seaboard. The stock repurchase will be funded by cash on hand.
Any shares repurchased will be retired and shall resume the
status of authorized and unissued shares. Any stock repurchases
will be made in compliance with applicable legal requirements and
the timing of the repurchases and the number of shares to be
repurchased at any given time may depend on market conditions,
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. As of December 31, 2010, $70,006,000
remains available for repurchase under this program. Previously,
shares were repurchased from time to time under authorization
from the Board of Directors on August 7, 2007 through August 31,
2009.
Seaboard used cash to repurchase 20,879 shares of common stock at
a total price of $29,994,000 in 2010, 3,668 shares of common
stock at a total price of $3,370,000 in 2009 and 3,852 shares of
common stock at a total price of $5,012,000 in 2008.
The components of accumulated other comprehensive loss, net of
related taxes, are summarized as follows:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Cumulative foreign currency translation
adjustment $ (81,280) $ (77,576) $ (68,211)
Unrealized gain on investments 445 2,579 1,781
Unrecognized pension cost (43,072) (39,789) (45,273)
Accumulated other comprehensive loss $(123,907) $(114,786) $(111,703)
The foreign currency translation adjustment primarily represents
the effect of the Argentine peso currency exchange fluctuation on
the net assets of the Sugar segment. When the Argentine
government lifted the one to one parity of the peso to the U.S.
dollar at the end of 2001, the peso lost significant value
against the dollar. At December 31, 2010, the Sugar segment had
$187,305,000 in net assets denominated in Argentine pesos and
$41,576,000 in net liabilities denominated in U.S. dollars in
Argentina.
With the exception of the provision related to the foreign
currency translation gains and losses discussed above, which are
taxed at a 35% rate, income taxes for components of accumulated
other comprehensive loss were recorded using a 39% effective tax
rate. For 2010 and 2009, the unrecognized pension cost includes
$13,231,000 and $12,740,000, respectively, related to employees
at certain subsidiaries for which no tax benefit has been
recorded.
Stockholders approved an amendment to decrease the number of
authorized shares of common stock from 4,000,000 shares to
1,250,000 shares at the annual meeting on April 27, 2009.
Note 13
Segment Information
Seaboard Corporation had six reportable segments through
December 31, 2010: Pork, Commodity Trading and Milling, Marine,
Sugar, Power and Turkey, each offering a specific product or
service. Seaboard's reporting segments are based on information
used by Seaboard's Chief Executive Officer in his capacity as
chief operating decision maker to determine allocation of
resources and assess performance. Each of the six main segments
is separately managed and each was started or acquired
independent of the other segments. The Pork segment produces and
sells fresh and frozen pork products to further processors,
foodservice operators, grocery stores, distributors and retail
outlets throughout the United States, and to Japan, Mexico and
certain other foreign markets. The Commodity Trading and Milling
segment internationally markets wheat, corn, soybean meal, rice
and other similar commodities in bulk to third party customers
and to non-consolidated affiliates. This segment also operates
flour, maize and feed mills in foreign countries. The Marine
segment, based in Miami, Florida, provides containerized
55
cargo shipping services between the United States, the Caribbean
Basin, and Central and South America. The Sugar segment produces
and processes sugar and alcohol in Argentina primarily to be
marketed locally. The Power segment operates as an unregulated
independent power producer in the Dominican Republic generating
power from a system of diesel engines mounted on two barges. The
Turkey segment, accounted for using the equity method basis, is a
vertically integrated producer, processor and marketer of branded
and non-branded turkeys and other turkey products. Total assets
for the Turkey segment represents Seaboard's investment in and
notes receivable from this affiliate. Revenues for the All Other
segment are primarily derived from the jalapeno pepper processing
operations.
The Pork segment derives approximately 11% percent of its
revenues from a few customers in Japan through one agent.
Substantially all of its hourly employees at its Guymon
processing plant are covered by a collective bargaining
agreement. The Pork segment incurred an impairment charge of
$7,000,000 related to the Daily's trade name in the fourth
quarter of 2008 (see Note 6 for further discussion). As of
December 31, 2010, the Pork segment's ham-boning and processing
plant in Mexico had a net book value of $9,994,000. See Note 5
for discussion of the potential for future impairment of this
plant.
The Commodity Trading and Milling segment derives a significant
portion of its operating income from sales to a non-consolidated
affiliate and also derives a significant portion of its income
from affiliates from this same affiliate. During the third
quarter of 2010, Seaboard acquired a majority interest in a
commodity origination, storage and processing business in Canada
for approximately $6,747,000, including $1,169,000 of cash
acquired, subject to final working capital adjustments. This
transaction was accounted for using the purchase method and would
not have significantly affected net earnings or earnings per
share on a pro forma basis.
Prior to the first quarter of 2009, the Sugar segment was named
Sugar and Citrus reflecting the citrus and related juice
operations of this business. During the first quarter of 2009,
management reviewed its strategic options for the citrus business
in light of a continually difficult operating environment. In
March 2009, management decided not to process, package or market
the 2009 harvest for the citrus and related juice operations. As
a result, during the first quarter of 2009, a charge to earnings
primarily in cost of sales of $2,803,000 was recorded primarily
to write-down the value of related citrus and juice inventories
to net realizable value, considering such remaining inventory
will not be marketed similar to prior years but instead
liquidated. In the second quarter of 2009, management decided to
integrate and transform the land previously used for citrus
production into sugar cane production and thus incurred an
additional charge to earnings primarily in cost of sales of
approximately $2,497,000 during the second quarter of 2009 in
connection with this change in business. The remaining fixed
assets from the citrus operations, primarily buildings and
equipment, have either been sold under long-term agreements or
integrated into the sugar business. However, since such sale
agreements are long-term and collectibility of the sales price is
not reasonably assured, the sale is being recognized under the
cost recovery method and thus the gain on sale, which is not
material, will not be recognized until proceeds collected exceed
the net book value of the assets sold.
The Power segment sells approximately 34% of its power generation
to a government-owned distribution company under a short-term
contract that expires around the end of the first quarter in 2011
for which Seaboard bears a concentrated credit risk as this
customer, from time to time, has significant past due balances.
In May 2009, Seaboard received sovereign government bonds of the
Dominican Republic with a par value of $20,000,000 denominated in
U.S. dollars, with an 8% tax free coupon rate, to satisfy the
same amount of outstanding billings from this customer that
Seaboard had classified as long-term. During the fourth quarter
of 2009, Seaboard sold a portion of these bonds with par value of
$9,700,000 resulting in an immaterial loss. The remaining
$10,300,000 par value of bonds was classified as available-for-
sale short term investments on the Consolidated Balance Sheet as
of December 31, 2009. During January and February 2010, Seaboard
sold the remaining bonds resulting in an immaterial loss.
On March 2, 2009, an agreement became effective under which
Seaboard will sell its two floating power generating facilities
in the Dominican Republic for $70,000,000, which will use such
barges for private use. The sale is anticipated to be closed
during the second quarter in 2011. During March 2009,
$15,000,000 was paid to Seaboard (recorded as deferred revenue as
of December 31, 2010) and the $55,000,000 balance of the purchase
price was paid into escrow and will be paid to Seaboard at the
closing of the sale. The net book value of the two barges was
$20,090,000 as of December 31, 2010 and is classified as held for
sale in other current assets. Seaboard ceased depreciation on
January 1, 2010 for these two barges but will continue to operate
these two barges until a few weeks
56
prior to the closing date of the sale. Seaboard will recognize
a gain on sale of assets of approximately $50,000,000 in
operating income at the closing of the sale in 2011. Seaboard
will be responsible for the wind down and decommissioning costs
of the barges. Closing of the sale is dependent upon several
issues, including meeting certain baseline performance and
emission tests. Failure to satisfy or cure any deficiencies
could result in the agreement being terminated and the sale
abandoned. Seaboard could be responsible to pay
liquidated damages of up to approximately $15,000,000 should it
fail to perform its obligations under the agreement, after
expiration of applicable cure and grace periods. Seaboard
retained all other physical properties of this business and is
currently building a replacement 106 megawatt floating power
generating facility for use in the Dominican Republic for
approximately 83,573,000 Euros (approximately US $107,650,000)
plus additional project costs for a total of approximately
$125,000,000. Operations are anticipated to begin by the end of
2011 or early 2012, resulting in lower sales during 2011 for this
segment.
The following tables set forth specific financial information
about each segment as reviewed by management, except for the
Turkey segment information discussed in Note 4 to the
Consolidated Financial Statements. Operating income for segment
reporting is prepared on the same basis as that used for
consolidated operating income. Operating income, along with
income from affiliates for the Commodity Trading and Milling
segment, is used as the measure of evaluating segment performance
because management does not consider interest and income tax
expense on a segment basis.
Sales to External Customers:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $1,388,265 $1,065,338 $1,125,969
Commodity Trading and Milling 1,808,948 1,531,572 1,897,374
Marine 853,565 737,629 958,027
Sugar 195,993 142,966 142,148
Power 124,034 107,074 129,430
All Other 14,897 16,729 14,856
Segment/Consolidated Totals $4,385,702 $3,601,308 $4,267,804
Operating Income:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 213,325 $ (15,025) $ (45,934)
Commodity Trading and Milling 34,432 24,839 96,517
Marine 47,612 24,113 62,365
Sugar 31,741 (851) 3,690
Power 13,424 8,172 7,845
All Other 832 1,498 1,033
Segment Totals 341,366 42,746 125,516
Corporate (20,300) (19,023) (3,707)
Consolidated Totals $ 321,066 $ 23,723 $ 121,809
Income from Affiliates:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Commodity Trading and Milling $ 20,983 $ 19,128 $ 12,629
Sugar 980 1,030 455
Turkey (998) - -
Segment/Consolidated Totals $ 20,965 $ 20,158 $ 13,084
57
Depreciation and Amortization:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 50,813 $ 53,182 $ 53,288
Commodity Trading and Milling 5,165 4,681 4,509
Marine 22,743 21,772 19,994
Sugar 7,180 7,732 8,030
Power 204 3,783 3,926
All Other 428 431 415
Segment Totals 86,533 91,581 90,162
Corporate 269 260 219
Consolidated Totals $ 86,802 $ 91,841 $ 90,381
Total Assets:
December 31,
(Thousands of dollars) 2010 2009
Pork $ 761,490 $ 774,718
Commodity Trading and Milling 686,379 521,618
Marine 246,902 236,382
Sugar 223,223 205,155
Power 91,739 75,348
Turkey 277,778 -
All Other 6,332 8,988
Segment Totals 2,293,843 1,822,209
Corporate 440,243 514,924
Consolidated Totals $2,734,086 $2,337,133
Investment in and Advances to Affiliates:
December 31,
(Thousands of dollars) 2010 2009
Commodity Trading and Milling $ 140,696 $ 79,883
Sugar 2,957 2,349
Turkey 187,669 -
Segment/Consolidated Totals $ 331,322 $ 82,232
Capital Expenditures:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Pork $ 9,568 $15,188 $ 52,649
Commodity Trading and Milling 2,390 2,650 4,333
Marine 28,411 14,697 46,309
Sugar 30,620 21,603 30,964
Power 31,709 39 53
All Other 362 87 311
Segment Totals 103,060 54,264 134,619
Corporate 276 12 15
Consolidated Totals $103,336 $54,276 $134,634
Administrative services provided by the corporate office
allocated to the individual segments represent corporate services
rendered to and costs incurred for each specific segment with no
allocation to individual segments of general
58
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.
Geographic Information
Seaboard had sales in South Africa totaling $420,277,000,
$292,547,000 and $437,362,000 for the years ended December 31,
2010, 2009 and 2008, respectively, representing approximately
10%, 8% and 10% of total sales for each respective year. No
other individual foreign country accounted for 10% or more of
sales to external customers.
The following table provides a geographic summary of net sales
based on the location of product delivery:
Years ended December 31,
(Thousands of dollars) 2010 2009 2008
Caribbean, Central and South America $1,702,823 $1,406,749 $1,726,789
United States 1,079,316 855,412 924,470
Africa 1,061,221 969,324 1,269,505
Canada/Mexico 245,935 146,601 143,665
Pacific Basin and Far East 198,100 165,721 162,122
Eastern Mediterranean 78,380 14,964 23,719
Europe 19,927 42,537 17,534
Totals $4,385,702 $3,601,308 $4,267,804
The following table provides a geographic summary of Seaboard's
long-lived assets according to their physical location and
primary port for the vessels:
December 31,
(Thousands of dollars) 2010 2009
United States $ 511,908 $ 547,111
Argentina 105,298 87,712
Dominican Republic 56,928 26,239
All other 49,197 53,559
Totals $ 723,331 $ 714,621
At December 31, 2010 and 2009, Seaboard had approximately
$183,163,000 and $134,261,000, respectively, of foreign
receivables, excluding receivables due from affiliates, which
generally represent more of a collection risk than the domestic
receivables. Management believes its allowance for doubtful
accounts is adequate.
59
Stockholder Information
Board of Directors
_______________________________________________________________________________
Steven J. Bresky Joseph E. Rodrigues
Director and Chairman of the Director
Board Retired, former Executive Vice
President and Chief Executive President and Treasurer of Seaboard
Officer of Seaboard
Edward I. Shifman, Jr.
David A. Adamsen Director and Audit Committee Member
Director and Audit Committee Retired, former Managing Director and
Member Executive Vice President of
Former Vice President - Wachovia Capital Finance
Wholesale Sales,
C&S Wholesale Grocers
Douglas W. Baena
Director and Audit Committee
Chair
Self-employed, engaging in
facilitation of equipment
leasing financings and
consulting
Officers
_______________________________________________________________________________
Steven J. Bresky David S. Oswalt
President and Chief Executive Vice President, Taxation and
Officer Business Development
Robert L. Steer David H. Rankin
Senior Vice President, Chief Vice President
Financial Officer
Ty A. Tywater
David M. Becker Vice President, Audit Services
Vice President, General Counsel
and Secretary John A. Virgo
Vice President, Corporate
Barry E. Gum Controller and Chief Accounting
Vice President, Finance and Officer
Treasurer
Zachery J. Holden
James L. Gutsch Assistant Secretary
Vice President, Engineering
Adriana N. Hoskins
Ralph L. Moss Assistant Treasurer
Vice President, Governmental
Affairs
Chief Executive Officers of Principal Seaboard Operations
_______________________________________________________________________________
Rodney K. Brenneman Hugo D. Rossi
Pork Sugar
David M. Dannov Armando G. Rodriguez
Commodity Trading and Milling Power
Edward A. Gonzalez
Marine
Stock Transfer Agent and Availability of Form 10-K Report
Registrar of Stock ____________________________________________
________________________________
Seaboard files its Annual Report on Form
BNY Mellon 10-K with the Securities and Exchange
P.O. Box 3580160 Commission. Copies of the Form 10-K for
Pittsburgh, PA 15252-8010 fiscal 2010 are available without charge
(866) 351-3330 by writing Seaboard Corporation, 9000
West 67th Street, Merriam, Kansas 66202,
Auditors Attention: Shareholder Relations or via
________________________________ the Internet at. http://www.seaboardcorp.
com/investor-sec.aspx
KPMG LLP Seaboard provides access to its most recent
1000 Walnut, Suite 1000 Form 10-K, 10-Q and 8-K reports on its
Kansas City, Missouri 64106 Internet website, free of charge, as soon
as reasonably practicable after those
Stock Listing reports are electronically filed with the
________________________________ Securities and Exchange Commission.
Seaboard's common stock is
traded on the NYSE Amex
Equities under the symbol SEB.
Seaboard had 177 shareholders
of record of its common stock
as of February 4, 2011.
60
EX-21
5
ex21.txt
LIST OF SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES NAMES UNDER STATE OR OTHER
OF THE WHICH SUBSIDIARIES JURISDICTION
REGISTRANT DO BUSINESS OF INCORPORATION
African Poultry Development Limited* Same Mauritius
Agencias Generales Conaven, C.A. Conaven Venezuela
Agencia Maritima del Istmo, S.A. Same Costa Rica
Alconoa S.R.L. Same Argentina
BINA Congo Limited Same Bermuda
Butterball, LLC* Same North Carolina
Cape Fear Railways, Inc. Same North Carolina
Cayman Freight Shipping Services, Ltd.* Same Cayman Islands
Chestnut Hill Farms Honduras,
S. de R.L. de C.V. Same Honduras
Compania Industrial de Productos
Agropecuarios S.A.* Same Colombia
ContiLatin del Peru S.A. * Same Peru
Corporacion Alto Valle, S.A. ALVASA Dominican Republic
Delta Packaging Company Ltd.* Same Nigeria
Desarrollo Industrial Bioacuatico, S.A.* DIBSA Ecuador
Ecuador Holdings, Ltd* Same Bermuda
Eureka Chickens Limited * Same Zambia
Fairfield Rice Incorporated* Same Guyana
Fill-More Seeds Inc. Same Canada
Franquicias Azucareras S.A.* Same Argentina
Global Trading Sierra Leone Limited Same Bahamas
Gloridge Bakery (PTY) Limited * Same Republic of South
Africa
Grassmere Holdings Limited Same Mauritius
Green Island Maritime, Inc. Same Florida
High Plains Bioenergy, LLC Same Oklahoma
HPB Biodiesel Inc. Same Delaware
Hybrid Poultry (Mauritius) Limited * Same Mauritius
H&O Shipping Limited1 Same Liberia
I.A.G. (Zambia) Limited Same Zambia
Ingenio y Refineria San Martin del Tabacal
S.R.L. Tabacal Argentina
InterAfrica Grains Ltd. Same Bermuda
Inversiones y Servicios Diversos, S.A. INVERSA Guatemala
JacintoPort International LLC Same Texas
JP LP, LLC Same Delaware
Les Moulins d'Haiti S.E.M. (LHM)* Same Haiti
Lesotho Flour Mills Limited* Same Lesotho
Life Flour Mill Ltd.* Same Nigeria
LLM Farine S.A. Same Madagascar
EXHIBIT 21
(continued)
Maple Creek Farms, LLC Same Kansas
Merriam Financial Services, Ltd. Same Bermuda
Merriam Insurance Company, Ltd. Same Cayman Islands
Merriam International Finance B.V. Same The Netherlands
Minoterie de Matadi, S.A.R.L.* Midema Democratic Republic
of Congo
Minoterie du Congo, S.A. Minoco Republic of Congo
Mission Funding, L.L.C. Same Delaware
Moderna Alimentos, S.A.* Same Ecuador
Molinos Champion, S.A.* Same Ecuador
Mount Dora Farms de Honduras, S.R.L. Same Honduras
Mount Dora Farms Inc. Same and Florida
SeaRice Caribbean
National Milling Company of Guyana, Inc. Namilco Guyana
National Milling Corporation Limited Namilco Zambia
Plum Grove Pty Ltd. Same Australia
Premier Feeds Mills Company Limited* Same Nigeria
Productores de Alcoholes y Melaza S.A.* PAMSA Argentina
PS International, LLC Same Delaware
Rafael del Castillo & Cia. S.A. * Molinos Tres Colombia
Castillos
Representaciones Maritimas y Aereas, S.A. REMARSA Guatemala
Representaciones y Ventas S.A.* Same Ecuador
Sea Cargo, S.A. Same Panama
Seaboard Bulk Services, Ltd. Same Bermuda
Seaboard de Colombia, S.A. Same Colombia
Seaboard de Mexico USA LLC2 Same Delaware
Seaboard de Nicaragua, S.A. Same Nicaragua
Seaboard del Peru, S.A. Same Peru
Seaboard Farms of Athens, Inc. Same Kansas
Seaboard Farms of Elberton, Inc. Same Kansas
Seaboard Foods LLC Same Oklahoma
Seaboard Foods of Missouri, Inc. Same Missouri
Seaboard Freight & Shipping Jamaica Limited Same Jamaica
Seaboard Guyana Ltd. Same Bermuda
Seaboard Honduras, S. de R.L. de C.V. Same Honduras
Seaboard Marine Bahamas, Ltd. Same Bahamas
Seaboard Marine of Haiti, S.E. Same Haiti
Seaboard Marine Ltd.3 Same Liberia
Seaboard Marine of Florida, Inc. Same Florida
EXHIBIT 21
(continued)
Seaboard Marine (Trinidad) Limited Same Trinidad
Seaboard Minoco Ltd. Same Bermuda
Seaboard MOZ Limited Same Bermuda
Seaboard (Nigeria) Limited Same Nigeria
Seaboard Overseas Colombia Limitada Same Colombia
Seaboard Overseas (IOM) Ltd. Same Isle of Man
Seaboard Overseas Limited Same Bermuda
Seaboard Overseas Management Company, Ltd. Same Bermuda
Seaboard Overseas Trading and Shipping
(PTY) Ltd. Same South Africa
Seaboard Ship Management Inc. Same Florida
Seaboard Solutions de Honduras, S.de R.L. Same Honduras
Seaboard Solutions, Inc. Same Delaware
Seaboard Trading and Shipping Ltd. Same Kansas
Seaboard Transport Canada, Inc. Same Delaware
Seaboard Transport Inc. Same Oklahoma
Seaboard West Africa Limited* Same Sierra Leone
Seaboard Zambia Ltd. Same Bermuda
SEADOM, S.A. Same Dominican Republic
SeaMaritima, S.A. de C.V. Same Mexico
SeaRice Limited Same Bermuda
SeaRice Guyana, Inc. Same Guyana
Secuaconti, S.A. * Molidor Ecuador
Secuador Limited Same Bermuda
SEEPC (Nigeria) Ltd.* Same Nigeria
Servicios Maritimos Intermodales, C.A. Same Venezuela
Shawnee Funding, Limited Partnership Same Delaware
Shawnee GP LLC Same Delaware
Shawnee LP LLC Same Delaware
Shilton Limited Same Cayman Islands
Shilton Zambia, Ltd. Same Zambia
SSI Ocean Services, Inc. Same Florida
Stewart Southern Railway Inc. * Same Canada
T-S Shared Operations, LLC* Same Missouri
Top Feeds Limited* Same Nigeria
Transcontinental Capital Corp. (Bermuda)
Ltd. TCCB Bermuda
Unga Farmcare (East Africa) Limited* Same Kenya
Unga Holdings Limited* Same Kenya
Unga Limited* Same Kenya
Unga Millers (Uganda) Limited* Same Uganda
Zenith Investment Limited* Same Nigeria
1 Owns eight foreign ship holding company subsidiaries
2 Owns three Mexican incorporated subsidiaries
3 Owns twelve foreign ship holding company subsidiaries
*Represents a non-controlled, non-consolidated affiliate.
EX-31.1
6
ex31-1.txt
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
Exhibit 31.1
CERTIFICATIONS
I, Steven J. Bresky, certify that:
1. I have reviewed this annual report on Form 10-K of Seaboard
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Date: March 9, 2011
/s/ Steven J. Bresky
Steven J. Bresky, President and
Chief Executive Officer
EX-31.2
7
ex31-2.txt
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
Exhibit 31.2
CERTIFICATIONS
I, Robert L. Steer, certify that:
1. I have reviewed this annual report on Form 10-K of Seaboard
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Date: March 9, 2011
/s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Chief Financial Officer
EX-32.1
8
ex32-1.txt
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K
for the fiscal year ended December 31, 2010 (the Report) by
Seaboard Corporation (the Company), the undersigned, as the Chief
Executive Officer of the Company, hereby certifies pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:
- The Report fully complies with the requirements of Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934;
and
- The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: March 9, 2011
/s/ Steven J. Bresky
Steven J. Bresky, President and
Chief Executive Officer
EX-32.2
9
ex32-2.txt
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K
for the fiscal year ended December 31, 2010 (the Report) by
Seaboard Corporation (the Company), the undersigned, as the Chief
Financial Officer of the Company, hereby certifies pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:
- The Report fully complies with the requirements of Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934;
and
- The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: March 9, 2011
/s/ Robert L. Steer
Robert L. Steer, Senior Vice President,
Chief Financial Officer