Segment Information

9 Months Ended

Sep. 29, 2012

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. Despite being in operation for over two years, overall results had been below expectations with inconsistencies in margins and volumes. In the third quarter of 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 Condensed Consolidated Statements of Comprehensive Income 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 September 29, 2012 was $3,686,000.

In January 2012, Seaboard made a payment of $3,660,000 to increase its ownership interest from 50% to 70% in PS International, LLC (PSI), an international specialty grain trading business headquartered in North Carolina. As a result, effective January 1, 2012, Seaboard began consolidation accounting and discontinued the equity method of accounting for this investment. The final amount of this payment will be determined during 2012 upon final verification of certain balance sheet items as of December 31, 2011.  Pro forma results of operations are not presented, as the effects of consolidation are not material to Seaboard’s results of operations.

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. As a result, Seaboard recognized a gain on sale of assets of $51,423,000 in operating income in the second quarter of 2011. Seaboard received an additional $1,500,000 of escrow in the third quarter of 2011 for unused dry dock costs.  The $1,500,000 was recognized as additional gain on sale of assets in operating income in the third quarter of 2011. In late March 2011, the purchaser entered into discussions with Seaboard to lease one of the facilities 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 one of the facilities (72 megawatts) and operate it through March 31, 2012.  Seaboard and the purchaser also agreed to defer the sale to the purchaser of the inventory related to the leased facility until the end of the lease term. In late March 2012, this lease was extended to August 31, 2012.  After August 31, 2012, this lease automatically extended on a month-to-month basis but is cancellable by either party while the purchaser reconsiders its long-term plans for the facility.  Also, as of September 29, 2012, $1,500,000 of the original sale price for this power generating facility remained in escrow for potential dry dock costs and also serves as the lease security deposit for Seaboard’s obligation under the lease.  Seaboard retained all other physical properties of this business and constructed a new 106 megawatt floating power generating facility for use in the Dominican Republic, which began commercial operations in March 2012.  The total project costs capitalized were $136,000,000.

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 months ended September 29, 2012 of $369,949,000 and $973,988,000, respectively, compared to total net sales for the three and nine months ended October 1, 2011 of $371,505,000 and $942,776,000, respectively. Butterball had operating income for the three and nine months ended September 29, 2012 of $7,554,000 and $48,686,000, respectively, compared to operating income for the three and nine months ended October 1, 2011 of $1,249,000 and $16,155,000, respectively.  As of September 29, 2012 and December 31, 2011, the Turkey segment had total assets of $933,738,000 and $819,618,000, respectively. During the third quarter of 2011, management of Butterball announced the 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 $109,440,000 as of September 29, 2012.  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 is expected 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 September 29, 2012, the balance of the term loan recorded in long-term notes receivable from affiliate was $9,071,000.

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
	September 29,		October 1,		September 29,		October 1,
(Thousands of dollars)	2012		2011		2012		2011
Pork	$	413,077	$	446,138	$	1,214,405	$	1,311,530
Commodity Trading and Milling	675,649		717,188		2,125,263		2,050,426
Marine	242,330		225,594		712,141		691,815
Sugar	69,025		55,611		220,277		195,208
Power	75,778		28,614		178,562		85,629
All Other	3,557		3,573		10,474		8,876
Segment/Consolidated Totals	$	1,479,416	$	1,476,718	$	4,461,122	$	4,343,484

Operating Income (Loss):
	Three Months Ended						Nine Months Ended
	September 29,			October 1,			September 29,			October 1,
(Thousands of dollars)	2012			2011			2012			2011
Pork	$	29,863		$	53,755		$	103,582		$	195,844
Commodity Trading and Milling	16,662			7,054			53,822			45,356
Marine	13,006			(8,150		)	14,578			(12,182		)
Sugar	13,615			10,566			51,326			54,591
Power	18,649			3,718			35,123			60,324
All Other	93			(272		)	262			(903		)
Segment Totals	91,888			66,671			258,693			343,030
Corporate Items	(6,831		)	318			(19,557		)	(8,800		)
Consolidated Totals	$	85,057		$	66,989		$	239,136		$	334,230

Income (Loss) from Affiliates:
	Three Months Ended						Nine Months Ended
	September 29,			October 1,			September 29,			October 1,
(Thousands of dollars)	2012			2011			2012			2011
Commodity Trading and Milling	$	2,143		$	1,384		$	7,155		$	11,782
Sugar	(122		)	93			(184		)	311
Turkey	297			(4,154		)	14,732			(3,243		)
Segment/Consolidated Totals	$	2,318		$	(2,677	)	$	21,703		$	8,850

Total Assets:
	September 29,		December 31,
(Thousands of dollars)	2012		2011
Pork	$	735,525	$	738,574
Commodity Trading and Milling	1,003,661		755,903
Marine	279,449		261,781
Sugar	255,481		269,564
Power	252,621		165,118
Turkey	334,663		312,164
All Other	5,366		6,257
Segment Totals	2,866,766		2,509,361
Corporate Items	492,147		497,367
Consolidated Totals	$	3,358,913	$	3,006,728

Investments in and Advances to Affiliates:
	September 29,		December 31,
(Thousands of dollars)	2012		2011
Commodity Trading and Milling	$	169,098	$	160,402
Sugar	2,752		3,177
Turkey	216,153		201,261
Segment/Consolidated Totals	$	388,003	$	364,840

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 and include costs related to Seaboard’s deferred compensation programs (which are offset by the effect of the mark-to-market investments recorded in Other Investment Income, Net).