Segment Information

9 Months Ended

Oct. 01, 2011

Segment Information

Segment Information

Note 9 — Segment Information

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 two years, overall results have been below expectations with inconsistencies in margins and volumes.  As of October 1, 2011, Seaboard performed an impairment evaluation of this plant and determined there was an impairment loss based on management’s current cash flow assumptions and probabilities of outcomes.  This analysis resulted in a $5,600,000 impairment charge recorded in cost of sales on the Consolidated Statement of Earnings during the third quarter of 2011 to write down the recorded value of these assets to the estimated fair value.  As this plant is not wholly-owned by Seaboard, this impairment charge is partially offset by a reduction (loss attributable) to noncontrolling interest of $1,830,000.  Accordingly, the total impact on net earnings attributable to Seaboard, net of taxes, was $2,300,000.  The remaining net book value of these assets as of October 1, 2011 was $3,900,000.

In the first quarter of 2011, the Commodity Trading and Milling segment recognized $101,080,000 in net sales related to previously deferred costs and deferred revenues under contracts for which the final sale prices were not fixed and determinable until 2011.

On April 8, 2011, Seaboard closed the sale of its two floating power generating facilities in the Dominican Republic, the Estrella Del Norte (“EDN”) and Estrella Del Mar (“EDM”), for $73,102,000 (net of $3,000,000 placed in escrow for potential dry dock costs). During March 2009, $15,000,000 was paid to Seaboard.  In the second quarter of 2011, the previously escrowed balance of $55,000,000, less $3,000,000 to remain in escrow for potential dry dock costs, plus $2,796,000 of escrow earnings and $3,306,000 for various inventory items related to the EDN, was paid to Seaboard.  Seaboard received $1,500,000 of the $3,000,000 in escrow in the third quarter of 2011.  The $1,500,000 was recognized as a gain on sale of assets in operating income in the third quarter of 2011.  Seaboard ceased depreciation on January 1, 2010 for these two power generating facilities but continued to operate them until March 30, 2011.  The net book value of the two power generating facilities and various inventory items related to EDN was $21,679,000 at the sale close date.   Seaboard recognized a gain on sale of assets of $51,423,000 in operating income in the second quarter of 2011.   In late March 2011, the purchaser entered into discussions with Seaboard to lease the EDM to Seaboard for a short period of time.  On April 20, 2011, Seaboard signed a short-term lease agreement that allowed Seaboard to resume operations of the EDM (72 megawatts) and operate it through approximately March 31, 2012.  Seaboard and the purchaser also agreed to defer the sale to the purchaser of the inventory related to the EDM until the end of the lease term.  Seaboard retained all other physical properties of this business and is currently building a 106 megawatt floating power generating facility for use in the Dominican Republic for approximately $125,000,000.  This new facility is anticipated to begin operations in early 2012, resulting in lower sales for this segment for the remainder of 2011.

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (Butterball).  Butterball had total net sales for the three and nine month periods ended October 1, 2011 of $371,505,000 and $942,776,000, respectively, and operating income for the three and nine month periods ended October 1, 2011 of $1,249,000 and $16,155,000, respectively.  As of October 1, 2011 and December 31, 2010, the Turkey segment had total assets of $880,058,000 and $725,464,000, respectively.  During the third quarter of 2011, management of Butterball announced the planned closing of its Longmont, Colorado facilities by December 31, 2011, resulting in an impairment of fixed assets charge and an accrued severance charge.  Seaboard’s proportionate share of these charges was $(2,622,000) recognized in income from affiliates for the three and nine month periods ended October 1, 2011.

In conjunction with Seaboard’s initial investment in Butterball on December 6, 2010, Seaboard has a long-term note receivable from Butterball which had a balance of $97,911,000 as of October 1, 2011.  Part of the interest earned on this note is pay-in-kind interest, which accumulates and is paid at maturity.  During the third quarter of 2011, Seaboard provided a term loan of $13,037,000 to Butterball to pay off capital leases for certain fixed assets which originally were financed with third parties.  The effective interest rate on the term loan is approximately 12%.  Although the term loan expires on January 31, 2018, Seaboard anticipates that Butterball will pay off the term loan prior to such expiration date as Butterball intends to sell all of the related assets and is required to remit the proceeds from such sale to Seaboard to repay the loan.  As of October 1, 2011, the balance of the term loan recorded in long-term notes receivable from affiliate was $12,825,000.

On September 30, 2011, Seaboard provided a $20,000,000 short-term loan to Butterball evidenced by a Subordinated Convertible Promissory Note (the “Note”).  This Note bears interest at prime plus 2% and is classified as a current receivable as of October 1, 2011.  On November 3, 2011, Butterball repaid this loan in full.

During the third quarter of 2011, Seaboard made an additional capital contribution of $5,598,000 in Butterball to assist Butterball in its acquisition of certain live growing facilities.  Maxwell Farms, LLC, the owner of a 50% voting interest in Butterball, made an equal capital contribution.

Subsequent to October 1, 2011, Seaboard provided a $35,000,000 line of credit to a 50% owned, non-consolidated affiliate, PS International, LLC, to pay off a credit facility with third party banks used for working capital needs.  The line of credit has an interest rate of prime plus 1%, a 0.5% commitment fee on the unused portion and is secured by the assets of the affiliate.  As of October 29, 2011, Seaboard had a balance of $22,800,000 receivable from this affiliate under this line of credit.

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

Sales to External Customers:

	Three Months Ended				Nine Months Ended
(Thousands of dollars)	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Pork	$	446,138	$	354,524	$	1,311,530	$	1,020,714
Commodity Trading and Milling	717,188		458,310		2,050,426		1,272,046
Marine	225,594		214,247		691,815		633,285
Sugar	55,611		49,170		195,208		148,028
Power	28,614		31,735		85,629		95,719
All Other	3,573		3,827		8,876		10,760
Segment/Consolidated Totals	$	1,476,718	$	1,111,813	$	4,343,484	$	3,180,552

Operating Income (Loss):

	Three Months Ended						Nine Months Ended
(Thousands of dollars)	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010
Pork	$	53,755		$	54,266		$	195,844		$	139,308
Commodity Trading and Milling	7,054			(28,250		)	45,356			13,907
Marine	(8,150		)	12,635			(12,182		)	31,938
Sugar	10,566			3,669			54,591			24,491
Power	3,718			4,474			60,324			12,208
All Other	(272		)	79			(903		)	665
Segment Totals	66,671			46,873			343,030			222,517
Corporate Items	318			(5,231		)	(8,800		)	(12,162		)
Consolidated Totals	$	66,989		$	41,642		$	334,230		$	210,355

Income (loss) from Affiliates:

	Three Months Ended					Nine Months Ended
(Thousands of dollars)	October 1, 2011			October 2, 2010		October 1, 2011			October 2, 2010
Commodity Trading and Milling	$	1,384		$	4,817	$	11,782		$	15,667
Sugar	93			34		311			608
Turkey	(4,154		)	—		(3,243		)	—
Segment/Consolidated Totals	$	(2,677	)	$	4,851	$	8,850		$	16,275

Total Assets:

(Thousands of dollars)	October 1, 2011		December 31, 2010
Pork	$	749,813	$	761,490
Commodity Trading and Milling	816,539		686,379
Marine	269,096		246,902
Sugar	251,750		223,223
Power	154,992		91,739
Turkey	321,091		277,778
All Other	6,661		6,332
Segment Totals	2,569,942		2,293,843
Corporate Items	400,617		440,243
Consolidated Totals	$	2,970,559	$	2,734,086

Investments in and Advances to Affiliates:

(Thousands of dollars)	October 1, 2011		December 31, 2010
Commodity Trading and Milling	$	159,704	$	140,696
Sugar	3,108		2,957
Turkey	190,355		187,669
Segment/Consolidated Totals	$	353,167	$	331,322

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 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.  For the three months ended October 1, 2011, corporate operating income represents negative costs related to Seaboard’s deferred compensation programs (which are offset by the effect of the mark-to-market investments recorded in Other Investment Income (Loss), Net) in excess of certain operating costs not specifically allocated to individual segments.