0000088121-11-000007.txt : 20111011
0000088121-11-000007.hdr.sgml : 20111010
20110713160520
ACCESSION NUMBER: 0000088121-11-000007
CONFORMED SUBMISSION TYPE: CORRESP
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20110713
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: CORRESP
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
CORRESP
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filename1.txt
SEABOARD CORPORATION
July 13, 2011
Justin Dobbie
Legal Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549
RE: Seaboard Corporation
Form 10-K
Filed March 9, 2011
Definitive Proxy Statement on Schedule 14A
Filed March 15, 2011
Form 10-Q
Filed May 6, 2011
File No. 001-03390
Dear Mr. Dobbie:
We are writing in response to your letter dated July 1, 2011,
with respect to the above-referenced report filed by Seaboard
Corporation ("Seaboard" or the "Company"). Our numbered
responses to your comments correspond to the numbered comments in
your letter.
In responding to your comments, we acknowledge that:
- the Company is responsible for the adequacy and
accuracy of the disclosure in our filing with the
Commission;
- staff comments or changes to disclosure in response to
staff comments do not foreclose the Commission from
taking any action with respect to the filing; and
- the Company may not assert staff comments as a defense
in any proceeding initiated by the Commission or any
person under the federal securities laws of the United
States.
COMMENTS AND OUR RESPONSES
Form 10-K
Item 1A: Risk Factors, page 7
Comment 1: Please delete the phrase "but are not limited to" in
future filings. Your "Risk Factors" section should
include all material risks.
Response: In future filings, we will delete the phrase as
requested and we confirm our "Risk Factors" section
will continue to include all material risks.
Management's Discussion and Analysis
- Contractual Obligations and Off-Balance Sheet Arrangements,
page 16
Comment 2: We note that your disclosure in MD&A includes a table
of contractual obligations. In future filings, please
include disclosure of long-term liabilities presented
on your balance sheet such as pension liabilities and
deferred tax liabilities. See Item 303(A)(5) of
Regulation S-K.
Response: In future filings, as appropriate we will add a
separate line item titled "other long-term
liabilities" with the related disclosure to the table
of contractual obligations substantially to the
following effect :
"Other long-term liabilities in the table above
represent expected benefit payments for various non-
qualified pension plans and supplemental retirement
arrangements as discussed in Note 10 to the
Consolidated Financial Statements, which are deemed
to be employer contributions since these are unfunded
obligations. No contributions are planned at this
time to the two qualified pension plans. Non-
current deferred income taxes and certain other long-
term liabilities on the Consolidated Balance Sheet
are not included in the table above as management is
unable to reliably estimate the timing of the
payments for these items. In addition, deferred
revenues included in other long-term liabilities on
the Consolidated Balance Sheet have been excluded
from the table above since they do not represent
contractual obligations."
Statements of Earnings, page 29
Comment 3: We note that revenue is presented as "net sales" on
the face of the statements of earnings. Please
explain to us, and disclose in future filings, the
nature of any incentives, discounts or allowances
that are recorded as reductions to revenue in the
calculation of the "net sales" amount. Please also
disclose the accounting policy and when these items
are recognized in the financial statements. To the
extent that the aggregate amount of reductions to
gross revenue are material,
2
please disclose the amount of the reductions in the
notes to the financial statements in future filings,
preferably by individual components in tabular format.
Response: Seaboard records revenue net of certain items, which
primarily include estimated discounts based on volume
recognized at the time of sale. The aggregate amount
of reductions to revenue as a percentage of net sales
is less than 1%. Accordingly, Seaboard has deemed
these amounts immaterial for disclosure purposes but
will include in future filings if such amounts become
material.
Notes to the Financial Statements
Note 2. Investments
Comment 4: We note from your disclosure in the statement of cash
flows that during each of the years in which a
statement of earnings has been provided you have
received proceeds from the sale of short-term
investments and the maturity of short-term
investments. Please revise future filings to include
the disclosures required by ASC 320-10-50-9 which
include disclosure of the gross realized gains and
gross realized losses that have been included in
earnings as a result of the sales of available for
sale securities.
Response: Pretax gross realized gains on the sale of available
for sale securities as a percentage of earnings
before income tax were 1.5%, 0.6% and 2.2% for the
years ended December 31, 2010, 2009 and 2008,
respectively. Pretax net realized gains on the sale
of available for sale securities as a percentage of
earnings before income tax were 1.4%, 0.2% and 1.8%
for the years ended December 31, 2010, 2009 and 2008,
respectively. Accordingly, Seaboard has deemed these
amounts immaterial for disclosure purposes. Seaboard
will include the disclosures required by ASC 320-10-
50-9 in future filings, if such amounts are material.
Note 13. Segment Information, page 55
Comment 5: We note your disclosure that on March 2, 2009 an
agreement became effective under which you will sell
two floating power generating facilities in the
Dominican Republic for $70 million and as of December
31, 2010 the net book value of the two barges was
$20.1 million and are classified as held for sale on
the balance sheet. We further note your disclosure
that you expect to recognize a gain on the sale of
assets of approximately $50 million in operating
income at the close of the sale in 2011. Please
explain to us why believe that this sale
appropriately represents the sale of assets rather
than a discontinued operation. As part of your
response, please explain to us whether these power
generating facilities represent a component of an
entity. Please see the guidance in ASC 205-20-45.
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Response: The power barges sold represent individual assets at
a level below that of a component of an entity. The
power barges sold were used together with other
assets including fuel storage tanks, line connections
to the local power grid and other assets which
collectively are considered the power generating
component. Seaboard has retained this component to
continue as a supplier to the Dominican power grid
after this sale. As discussed below, Seaboard is
removing certain older assets and replacing them with
similar new, more efficient assets at the same
location to continue to produce power and therefore
did not meet the criteria for discontinued operations
in ASC 205-20-45. This is akin to retrofitting a
plant with new equipment.
Seaboard first disclosed the agreement to sell the
two floating generating facilities in the Dominican
Republic in its 2008 Annual Report on Form 10-K. It
is important to note the first sentence of Note 13 to
the 2008 Annual Report stated the buyer "will use
such barges for private use" meaning it would not be
producing power for sale to third parties in
competition with Seaboard. As a result, Seaboard was
not selling the business, just certain assets of the
business. As discussed below, the revenue-producing
activity of the component will remain the same as
before the transaction, which is generating
electricity into the local Dominican Republic power
grid for sale to third parties. Most of the
employees, all of the customer base and operating
rights have been retained by Seaboard. Accordingly,
the sale of these assets did not and will not result
in the elimination of the power generating component
or Seaboard operating in or generating cash flows in
the Dominican Republic.
In addition, the last sentence of Note 13 in our 2008
Annual Report stated "Seaboard will retain all other
physical properties of this business and is
considering options to continue its power business in
the Dominican Republic after the sale of these assets
is completed." Such assets include the
administration building, spare parts warehouse, two
fuel storage tanks and certain line connections to
the local power grid. The two assets sold are such
they would be disconnected and moved to a different
location leaving the rest of the operations in place.
In addition, Seaboard has certain power supply
agreements with various industrial customers for
which Seaboard would continue to provide power past
the closing date of the sale. During the time after
the sale of the assets, Seaboard intended to buy
power on the spot market for resale to these
customers until such time a new generation facility
began operation.
In the second quarter Form 10-Q for the period ended
July 3, 2010, Seaboard announced it was finalizing
plans to build a 106 megawatt power generating
facility in the Dominican Republic. This new power
barge would replace the assets sold and, when
delivered later this year, will be placed in the
exact location where the assets sold use to be. This
was also disclosed in the 2010
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Annual Report on Form 10-K in Note 13 by the following
sentence: "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." This
business activity, the assets we retained together
with the new power generating facility makes Seaboard
a continuing part of the Dominican power supply
industry. Nothing was discontinued and no business
components were sold.
Comment 6: Reference is also made to your Business - Financial
Information about Industry Segments and MD&A -
Overview sections concerning some additional
information on your Commodity, Trading & Milling
("CTM") segment. Within the CTM segment, we note the
nature of your two types of business activities is
different as follows:
(1) a commodity & trading business where you
internationally purchase and trade a number of
commodities (wheat, corn soybean meal, rice); and
(2) the operation of a grain milling processing
business where you mill and produce flour, feed and
maize.
We note that your CTM segment is the largest of your
six reportable segments relative to your consolidated
sales, as it represented approximately $1.8 billion
(or 41%) of the $4.3 billion consolidated sales in
fiscal 2010. Although the milling operations produce
products that are supplied by your trading business,
the nature of these two business (trading and
milling) activities appear dissimilar with their
economic characteristics, risks, customers,
production processes and/or marketing methods. In
this regard, we have also noted below several
examples of disclosure in your Form 10-K and Annual
Report that appear to highlight differences in these
respective business activities. In MD&A - Overview
for the Commodity Trading and Milling Segment (page
11, Annual Report), you discuss that fluctuating
market conditions for wheat and flour can have a
significant impact on both the trading and milling
business sales and operating income. It appears that
wheat and flour separately impact your trading and
milling business, respectively. Furthermore, in Item
1A - Section (c)(4) - Risk Factor for Commodity
Trading & Milling (page 12, Form 10-K), you disclose
that you enter into material amounts of significantly
different derivative products to manage certain
market risks within the commodity trading portion of
the business, thus it appears the risks of these two
businesses are dissimilar. We also note that the mark-
to-market adjustments for the derivative instruments
has materially impacted the operating results of the
CTM segment, as presented in MD&A for this segment's
operating results (see page 17, Annual Report). In
addition, the 2010 Letter to Stockholders (page 3,
Annual Report) highlights positive results obtained
from grain trading in Latin America, while also
stating that grain processing margins were mixed in
both Africa and the Americas along with a fiscal 2011
expectation of heavy price
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resistance and generally lower margins and volumes on
the milling side. As such, it appears you may not meet
all the criteria as specified in ASC Topic 280-10-50-11
to aggregate these two operating businesses.
Please re-evaluate your segment reporting of CTM to
consider further disaggregation of these two
operating businesses into separate reportable
business segments. In the event management still
continues to believe aggregation of the trading and
milling businesses as one reportable segment is
appropriate under the above accounting guidance,
please provide a clear and complete response that
provides all the information as specified below:
(1) an organizational flowchart of the CTM segment
detailing all of its operating segments;
(2) the chief operating decision maker(s) ("CODM")
of the CTM segment and how executive management of
this segment is structured and resources are
allocated to the operating segments that comprise the
CTM segment;
(3) a detailed discussion of each factor in ASC
Topic 280-10-50-11 that enables management to support
its conclusion that aggregation of all operating
segments into the one reportable CTM segment is
appropriate;
(4) discrete separate financial information for the
trading and milling businesses for each of the last
three (2008-2010) fiscal years and subsequent 2011
interim periods detailing revenues, operating income
and geographic sales information, respectively.
Please also let us know how much of the sales
(quantified) for each of these businesses went to
similar customers; and
(5) a representative sample copy of the discrete
financial information that is regularly furnished (on
a quarterly or annual basis) to the CODM for the CTM
segment.
After your additional consideration and re-evaluation
of this matter, please either revise your financial
reporting or advise as applicable. We may have
further comment if management continues to believe
that the current reporting of CTM as one reportable
segment is appropriate.
Response: As disclosed in Note 13 to the Consolidated Financial
Statements, Seaboard's reporting segments are based
on information used by Seaboard's Chief Executive
Officer, Mr. Steve Bresky, in his capacity as CODM,
to determine allocation of resources and assess
performance. Mr. Bresky communicates directly and
individually with each of the five Chief Executive
Officers of principal Seaboard operations. These
include Rodney Brenneman, Pork,
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Edward Gonzalez, Marine, Hugo Rossi, Sugar,
Armando Rodriguez, Power and David Dannov, CT&M. Such
communications include meetings where allocation of
capital resources, results of operations, and future
plans are discussed.
The CT&M segment is an integrated grain trading,
grain processing and logistics company with primary
focus on the African and South American markets. The
objective of this segment is to create value through
the world-wide origination, delivery and processing
of grain by our subsidiaries and affiliates. Also
this segment creates value for third-party processors
by utilizing our grain merchandising strategies and
logistics knowledge with focus on least cost
origination. The CT&M segment is comprised of
approximately many different components, some
consolidated and some accounted for on the equity
method. These represent either trading functions,
milling and other locations, or segment overhead and
administrative functions. Each of these components
is part of one business and thus one operating
segment. In our management reporting we combine
milling and trading results and evaluate these
results on a combined basis. This results in key
management decisions and resource allocation
decisions made on a combined basis.
In Seaboard's view, one of the main criteria of a
operating segment described in ASC Topic 280-10-50-1
is its operating results are regularly reviewed by
the chief operating decision (CODM) maker to make
decisions about resources to be allocated to the
segment and assess it performance. In your request
for information, you ask for a detail discussion of
ASC Topic 280-10-50-11. However, that reference is
to the aggregation criteria for combining two
separate operating segments. As noted above,
Seaboard does not manage CT&M as two separate
operating segments but rather one business and one
operating segment comprised of numerous components
and thus the aggregation criteria does not apply in
our circumstance. We do not report trading and
milling separately because we do not manage CT&M in
this manner internally. The critical information
used by our senior management team responsible for
overseeing this segment is presented on a combined
basis. This information assigns trades to milling
locations on a non-GAAP basis and reports margin by
milling channel and margin by third party trades.
Our segment manager reports directly to our Chief
Operating Decision Maker (CODM). Information
presented to both our CODM and our Board is at a
combined level consistent with our existing segment
reporting. If we were to disaggregate this segment
into two pieces this would be inconsistent with how
our CODM and segment management team view the
business, manage activity, report results and
allocate resources.
As noted above, the Chief Executive Officer of the
CT&M segment is Mr. Dave Dannov. Mr. Dannov reports
directly to Mr. Bresky. Various individuals report
to Mr. Dannov for both trading and milling
operations. However, no
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one individual manages either the entire commodity
trading operations or the entire milling operations.
Also reporting to Mr. Dannov is a group of
approximately twenty individuals that provide
administrative support functions for both trading
and milling operations including Accounting, Human
Resources, Information Systems, Engineering,
Purchasing, Business Development and other
Administrative support functions. There is no
distinction made in an attempt to split overhead
between the various businesses that make up CT&M but
rather these costs are reported internally as one
category. Strategy development is done on an
integrated basis including input from the
administrative, trading and milling management
regarding business development opportunities, capital
expenditures, investments and staff expansion.
Various meetings are held with both trading and
milling personnel attending. Trading and milling
activities are highly coordinated with daily
interaction between groups regarding key business
decisions, including raw material input planning,
logistics, pricing, product quality, financing and
many other day-to-day business decisions.
Each of the trading and milling businesses are
treated as one collective group for key internal
reports that are primarily used and relied upon by
our CODM. We do not believe it would be appropriate
or useful to separately prepare financial information
for external reporting that is inconsistent with how
we view and manage this business. The various
comments in our Form 10-K and Annual Report,
including the President's letter, are comments made
to describe and explain various aspects of this
operating segment to help a reader understand the
business.
Organizationally, Mr. Dannov has established
operating entities or groups of entities in which he
has placed senior managing executives who report
directly to Mr. Dannov. These entities or groups of
entities are comprised of trading and milling
entities, which have a common purpose of purchasing
bulk commodities from anywhere in the world, shipping
those commodities to milling concerns, processing the
commodities, and sales of the commodities or refined
products to wholesalers, manufacturers, distributors,
bakers or retail entities. The entities represent an
integrated group, dependent upon other entities
within the CT&M segment. In addition to sourcing
commodities for the milling businesses, the trading
office may also supply price management function on
their behalf. The results of the milling operations
are materially impacted by the support provided by
the trading operations. The trading operations are
involved in the procurement and delivery of raw
materials for the milling operations. The mills give
the trading operations direction of quality, quantity
and timing of delivery. Conversely in certain sales
channels the trading entity would not operate without
milling entities, as they provide the base cargo, or
only cargo for certain geographic areas. This
dependency requires the decision making, the
management of the group of businesses, the
organization and reporting to be considered one
single activity. This is our lens
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and is how our CODM and segment management team manage
this business.
The CT&M segment is a combination of operations that
forms one integrated operation. When considering all
of the components of these operations, there are some
differences but reporting separately is not how the
business is managed or viewed by Seaboard's executive
management group, especially Mr. Bresky or Mr.
Dannov. Mr. Dannov constantly gives guidance to all
of CT&M's management to view the operations as one
integrated business rather than separate component
parts thus demanding management focus on what is best
for CT&M as a whole rather than any one specific
entity. This is validated by the fact the group
incentive compensation program shares performance of
the entire division amongst the different management
groups. Additionally, this holistic structure that
integrates these commodity trading and milling
activities is also how Mr. Bresky and Mr. Dannov
communicate the business model to outside parties
such as bankers, customers, suppliers and potential
business partners. This structure has historically
served our organization well and in our view is the
most appropriate way to view and evaluate this
portion of our business by an investor.
Additional information requested such as organization
chart, discrete separate financial information, and
representative sample copies of the discrete
information that is regularly furnished to the CODM
for the CT&M segment will be provided on a
confidential basis in a separate letter since such
information is not public information.
Schedule II - Valuation and Qualifying Accounts
Comment 7: Please revise future filings to expand the schedule
to include the applicable financial information on
the valuation allowance for deferred tax assets and
the valuation account for LIFO inventory adjustments.
Response: In future filings, we will expand the schedule as
requested.
Signatures, page 23
Comment 8: In future filings, please revise the second half of
the signature page to have your principal executive
officer, principal financial officer and principal
accounting officer sign in their individual
capacities. Refer to General Instruction D to Form 10-
K.
Response: In future filings, we will revise the signature page
as requested.
9
Definitive Proxy Statement on Schedule 14A
2010 Executive Compensation Components, page 19
Comment 9: We note you paid your named executive officers cash
bonuses in amounts above the mandatory bonus amounts
set forth in the employment agreements. We also note
that although the company does not have specific
targets, the 2010 bonuses of your named executive
officers were "reflective of the operating results"
of the company. In future filings, please revise to
disclose the process the board undertook to determine
the amount of bonuses awarded to the named executive
officers and the specific factors, including a
general overview of individual performance and
business unit goals, the board considered.
Specifically disclose the operating results that the
board considered in granting bonuses and how the
board used these results to determine the exact
amount of the bonus award received by each named
executive officer.
Response: We state in our Proxy Statement on page 20 that "the
Board of Directors establishes compensation based
upon a subjective review of Company performance and
individual performance." We further explain that the
Board subjectively evaluates both performance and
compensation. The Board does not utilize any
metrics or any other specific factors, and there
aren't individual or business unit goals which are
considered, in establishing compensation. Rather,
the Board subjectively establishes compensation in
light of existing compensation and a subjective
assessment of how Seaboard is doing. In the future,
if there are specific factors which are considered,
and if there are individual performance or business
unit goals, these will be disclosed. We will also
clarify that the process utilized by the Board of
Directors in establishing compensation is subjective.
Comment 10: We note that the board evaluates compensation so that
the amounts paid to your key employees remains
"competitive relative to compensation paid to
similarly situated executives of [y]our peer
companies" and that you determine bonuses based on a
"subjective evaluation of the market data." As such,
it appears that you may benchmark compensation.
Please revise in future filings to provide the
companies against which you benchmark or provide an
analysis as to why this is not necessary. Please also
revise future filings to clarify how you conducted a
subjective evaluation of "market data" and the data
to which you are referring.
Response: The Board sometimes, but not always, will consider
the average compensation paid to executives of other
companies, which may be in a business related to a
business of Seaboard, or of a similar size, or
otherwise have some other similarity to Seaboard.
When they do so, a general review of this data is
undertaken, but no specific benchmark is utilized.
In the future, if the executive compensation of peer
companies is reviewed by the Board in determining
compensation, we will set forth the peer companies,
and if the evaluation of this
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data is conducted by any process other than a
subjective review of the data, we will describe the
process.
Form 10-Q for the quarter ended April 2, 2011
Note 9. Segment Information, page 13
Comment 11: We note your disclosure that on April 20, 2011 you
signed a short-term lease agreement that allowed you
to resume operations of one of the barges (EDM) sold
in the Dominican Republic on April 8, 2011. In light
of your disclosure that you will recognize the entire
$51.4 million gain on the sale of the barges in
operating income in the second quarter of 2011,
please explain to us why you believe it is
appropriate to record the gain related to the sale of
the EDM barge at the time of sale when you have
entered into a sale-leaseback transaction. Your
response should specifically address your
consideration on recognizing the gain over the
leaseback period that extends through approximately
March 31, 2012. Please refer to the guidance in ASC
840-40-25-3.
Response: ASC 840-40-55-82 provides an example, similar to
Seaboard's transaction, whereby the seller negotiates
a leaseback of a factory for one year because its new
facilities are under construction and approximately
one year will be required to complete the new
facilities. In this example, since the leaseback was
deemed a minor leaseback, the seller-lessee
recognized the sale and the full gain at the time of
sale.
In Seaboard's transaction, the leaseback is deemed a
minor leaseback because the present value of the
leaseback is significantly less than 10 percent of
the fair value of the EDM barge sold. It should also
be noted that Seaboard was approached by the buyer to
lease the property in late March 2011, well after the
effective date of the sale agreement of March 2, 2009
and that the lease period was slightly less than one
year. The expected life of this asset is
considerably longer than this short lease term. The
amount of rentals called for by the lease was deemed
reasonable. As a result, the condition in ASC 840-40-
25-3 was met so Seaboard accounted for the sale and
subsequent minor leaseback as separate transactions
based on their respective terms. Accordingly,
Seaboard recognized the full $51.4 million gain on
the sale of barges in operating income in the second
quarter of 2011 (at the time of sale) in accordance
with ASC 840-40-25-3.
In summary, we have carefully considered the comments and views
expressed in your letter and believe your comments will improve
our future financial reporting. We believe our responses fully
respond to the comments provided, and we do not believe that
these inquiries or responses indicate the existence of any
deficiencies in financial reporting controls or procedures. If
you have any questions or require any further information, please
call John Virgo at (913) 676-8800.
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Very truly yours,
SEABOARD CORPORATION
/s/Robert L. Steer
Robert L. Steer
Executive Vice President and Chief
Financial Officer
12