Quarterly Report (10-q)

Data : 30/04/2019 @ 22:38
Fonte : Edgar (US Regulatory)
Titolo : Seaboard Corp (SEB)
Quotazione : 3795.0  3.97 (0.10%) @ 00:00
Quotazione Seaboard Grafico

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended March 30, 2019

 

OR

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________________ to __________________________

 

Seaboard Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

1-3390

 

04-2260388

(State or other jurisdiction of

 

(Commission

 

(I.R.S. Employer

incorporation)

 

File Number)

 

Identification No.)

 

 

 

 

 

9000 West 67th Street, Merriam, Kansas

 

66202

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code    (913) 676-8800

Not Applicable

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐

 

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

 

 

 

Large Accelerated Filer ☒

Accelerated Filer ☐

Non-Accelerated Filer   ☐ 

Smaller Reporting Company ☐

 

Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

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

There were 1,165,821 shares of common stock, $1.00 par value per share, outstanding on April 24, 2019.

 

1


 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

(Millions of dollars except share and per share amounts)

2019

    

2018

 

Net sales:

 

 

 

 

 

 

Products (includes affiliate sales of $320 and $306)

$

1,245

 

$

1,291

 

Services (includes affiliate sales of $4 and $2)

 

269

 

 

264

 

Other

 

29

 

 

24

 

Total net sales

 

1,543

 

 

1,579

 

Cost of sales and operating expenses:

 

 

 

 

 

 

Products

 

1,230

 

 

1,145

 

Services

 

240

 

 

240

 

Other

 

23

 

 

22

 

Total cost of sales and operating expenses

 

1,493

 

 

1,407

 

Gross income

 

50

 

 

172

 

Selling, general and administrative expenses

 

84

 

 

75

 

Operating income (loss)

 

(34)

 

 

97

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

(6)

 

 

(8)

 

Interest income

 

 7

 

 

 3

 

Loss from affiliates

 

(18)

 

 

(6)

 

Other investment income (loss), net

 

113

 

 

(37)

 

Foreign currency gains, net

 

 3

 

 

 4

 

Miscellaneous, net

 

 —

 

 

 1

 

Total other income (loss), net

 

99

 

 

(43)

 

Earnings before income taxes

 

65

 

 

54

 

Income tax expense

 

(8)

 

 

(22)

 

Net earnings

$

57

 

$

32

 

Less: Net loss (income) attributable to noncontrolling interests

 

 —

 

 

 —

 

Net earnings attributable to Seaboard

$

57

 

$

32

 

 

 

 

 

 

 

 

Earnings per common share

$

48.79

 

$

26.75

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax expense of $0:

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2)

 

 

(10)

 

Unrecognized pension cost

 

 3

 

 

 1

 

Other comprehensive income (loss), net of tax

$

 1

 

$

(9)

 

Comprehensive income

 

58

 

 

23

 

Less: Comprehensive loss (income) attributable to noncontrolling interests

 

 —

 

 

 —

 

Comprehensive income attributable to Seaboard

$

58

 

$

23

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

1,167,430

 

 

1,170,550

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

March 30,

 

December 31,

 

(Millions of dollars except share and per share amounts)

2019

    

2018

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

59

 

$

194

 

Short-term investments

 

1,488

 

 

1,336

 

Receivables, net

 

504

 

 

551

 

Inventories

 

988

 

 

815

 

Other current assets

 

143

 

 

131

 

Total current assets

 

3,182

 

 

3,027

 

Property, plant and equipment, net

 

1,232

 

 

1,160

 

Operating lease right of use assets, net

 

464

 

 

 —

 

Investments in and advances to affiliates

 

789

 

 

804

 

Goodwill

 

166

 

 

167

 

Other non-current assets

 

143

 

 

149

 

Total assets

$

5,976

 

$

5,307

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes payable to banks

$

252

 

$

148

 

Current maturities of long-term debt

 

53

 

 

39

 

Accounts payable

 

297

 

 

238

 

Deferred revenue

 

46

 

 

39

 

Deferred revenue from affiliates

 

28

 

 

31

 

Operating lease liabilities

 

101

 

 

 —

 

Other current liabilities

 

259

 

 

289

 

Total current liabilities

 

1,036

 

 

784

 

Long-term debt, less current maturities

 

735

 

 

739

 

Deferred income taxes

 

139

 

 

127

 

Long-term income tax liability

 

73

 

 

73

 

Long-term operating lease liabilities

 

403

 

 

 —

 

Other liabilities

 

220

 

 

255

 

Total non-current liabilities

 

1,570

 

 

1,194

 

Commitments and contingent liabilities

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock of $1 par value. Authorized 1,250,000 shares; issued and outstanding 1,165,821 shares in 2019 and 1,169,217 shares in 2018

 

 1

 

 

 1

 

Accumulated other comprehensive loss

 

(409)

 

 

(410)

 

Retained earnings

 

3,768

 

 

3,727

 

Total Seaboard stockholders’ equity

 

3,360

 

 

3,318

 

Noncontrolling interests

 

10

 

 

11

 

Total equity

 

3,370

 

 

3,329

 

Total liabilities and stockholders’ equity

$

5,976

 

$

5,307

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

(Millions of dollars)

2019

    

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

$

57

 

$

32

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

34

 

 

32

 

Deferred income taxes

 

 7

 

 

 7

 

Loss from affiliates

 

18

 

 

 6

 

Dividends received from affiliates

 

 2

 

 

 2

 

Other investment loss (income), net

 

(113)

 

 

37

 

Other, net

 

 —

 

 

(1)

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Receivables, net of allowance

 

37

 

 

(88)

 

Inventories

 

(170)

 

 

 2

 

Other current assets

 

(10)

 

 

42

 

Current liabilities, exclusive of debt

 

24

 

 

(67)

 

Other, net

 

 7

 

 

 4

 

Net cash from operating activities

 

(107)

 

 

 8

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of short-term investments

 

(577)

 

 

(254)

 

Proceeds from the sale of short-term investments

 

382

 

 

537

 

Proceeds from the maturity of short-term investments

 

153

 

 

 9

 

Capital expenditures

 

(83)

 

 

(36)

 

Cash paid for acquisition of businesses

 

 —

 

 

(270)

 

Investments in and advances to affiliates, net

 

 —

 

 

(17)

 

Principal payments received on notes receivable from affiliates

 

 —

 

 

 4

 

Purchase of long-term investments

 

(6)

 

 

(3)

 

Other, net

 

 4

 

 

 1

 

Net cash from investing activities

 

(127)

 

 

(29)

 

Cash flows from financing activities:

 

 

 

 

 

 

Notes payable to banks, net

 

104

 

 

39

 

Proceeds from long-term debt

 

14

 

 

 —

 

Principal payments of long-term debt

 

(2)

 

 

(32)

 

Repurchase of common stock

 

(13)

 

 

 —

 

Dividends paid

 

(3)

 

 

(2)

 

Other, net

 

(1)

 

 

 —

 

Net cash from financing activities

 

99

 

 

 5

 

Effect of exchange rate changes on cash and cash equivalents

 

 —

 

 

 —

 

Net change in cash and cash equivalents

 

(135)

 

 

(16)

 

Cash and cash equivalents at beginning of year

 

194

 

 

116

 

Cash and cash equivalents at end of period

$

59

 

$

100

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

SEABOARD CORPORATION AND SUBSIDIARIES

Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

Comprehensive

 

Retained

 

Noncontrolling

 

 

 

 

(Millions of dollars)

 

Stock

 

Loss

 

Earnings

 

Interests

 

Total

 

Balances, December 31, 2017

 

$

 1

 

$

(354)

 

$

3,750

 

$

11

 

$

3,408

 

Adoption of accounting guidance

 

 

 —

 

 

(7)

 

 

 7

 

 

 —

 

 

 —

 

Addition to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 4

 

 

 4

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 —

 

 

 —

 

 

32

 

 

 —

 

 

32

 

Other comprehensive loss, net of tax

 

 

 —

 

 

(9)

 

 

 —

 

 

 —

 

 

(9)

 

Dividends on common stock ($1.50/share)

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

 

Balances, March 31, 2018

 

$

 1

 

$

(370)

 

$

3,787

 

$

15

 

$

3,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2018

 

$

 1

 

$

(410)

 

$

3,727

 

$

11

 

$

3,329

 

Reduction to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 —

 

 

 —

 

 

57

 

 

 —

 

 

57

 

Other comprehensive income, net of tax

 

 

 —

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

Repurchase of common stock

 

 

 —

 

 

 —

 

 

(13)

 

 

 —

 

 

(13)

 

Dividends on common stock ($2.25/share)

 

 

 —

 

 

 —

 

 

(3)

 

 

 —

 

 

(3)

 

Balances, March 30, 2019

 

$

 1

 

$

(409)

 

$

3,768

 

$

10

 

$

3,370

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 – Accounting Policies and Basis of Presentation

The condensed consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2018 as filed in its annual report on Form 10-K. Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard’s year-end is December 31.

The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Except for new guidance adopted prospectively as discussed below, Seaboard has consistently applied all accounting policies as disclosed in the annual report on Form 10-K to all periods presented in these condensed consolidated financial statements. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. As Seaboard conducts its commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, gross margin on non-consolidated affiliates cannot be clearly distinguished without making numerous assumptions primarily with respect to mark-to-market accounting for commodity derivatives.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include those related to allowance for doubtful accounts, valuation of inventories, impairment of long-lived assets, potential write-down related to investments in and advances to affiliates and notes receivable from affiliates, income taxes, lease liabilities and right of use (“ROU”) assets and accrued pension liability. Actual results could differ from those estimates.

Supplemental Cash Flow Information

Non-cash investing and financing activities included purchases of property, plant and equipment in accounts payable of $8 million and the impact upon adoption of the new leasing guidance further discussed below. During the three months ended March 30, 2019, $30 million of operating lease ROU assets were obtained in exchange for new operating lease liabilities. Cash paid for amounts included in the measurement of operating lease liabilities was $33 million, all included in net cash from operating activities.

Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill of $1 million from year-end to March 30, 2019 was related to foreign currency exchange differences within the Commodity Trading and Milling (“CT&M”) segment. As of March 30, 2019, intangible assets were $66 million, net of accumulated amortization of $8 million.

Recently Issued Accounting Standard Adopted

On January 1, 2019, Seaboard adopted new guidance which requires the recognition of ROU assets and lease liabilities for all leases with terms longer than 12 months. As a result of this adoption on January 1, 2019, Seaboard recorded operating lease ROU assets of $460 million, adjusted for the deferred rent liability balance at year-end, and lease liabilities of $498 million. The adoption of the new guidance did not have a material impact on the condensed consolidated statement of comprehensive income and the condensed consolidated statement of cash flows. The accounting for finance leases, formerly called capital leases, remained substantially unchanged. Seaboard adopted the new guidance using the effective date method and, therefore, prior period financials were not revised. Seaboard elected the package of practical expedients available upon transition, which permitted Seaboard to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. All of Seaboard’s equity method investments must adopt the new standard by December 31, 2020. See Note 4 for additional details on the impact of adopting this new accounting standard.

 

 

 

 

 

6


 

Note 2 – Investments

The following is a summary of the estimated fair value of short-term investments classified as trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30,

 

December 31,

 

(Millions of dollars)

 

2019

 

2018

 

Domestic equity securities

 

$

714

 

$

632

 

Domestic debt securities

 

 

396

 

 

268

 

Foreign equity securities

 

 

222

 

 

218

 

High yield securities

 

 

65

 

 

19

 

Foreign debt securities

 

 

40

 

 

16

 

Collateralized loan obligations

 

 

27

 

 

28

 

Money market funds held in trading accounts

 

 

10

 

 

146

 

Term deposits

 

 

 9

 

 

 9

 

Other trading securities

 

 

 5

 

 

 —

 

Total trading short-term investments

 

$

1,488

 

$

1,336

 

The change in unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was $104 million and $(22) million for the three months ended March 30, 2019 and March 31, 2018, respectively.

Seaboard had $57 million of equity securities denominated in foreign currencies as of March 30, 2019, with $27 million in euros, $11 million in Japanese yen, $9 million in British pounds, $3 million in Swiss francs and the remaining $7 million in various other currencies. As of December 31, 2018, Seaboard had $66 million of equity securities denominated in foreign currencies, with $25 million in euros, $20 million in Japanese yen, $9 million in British pounds, $3 million in Swiss francs and the remaining $9 million in various other currencies. Also, money market funds included less than $1 million and $10 million denominated in various foreign currencies as of March 30, 2019 and December 31, 2018, respectively. Term deposits are denominated in the West African franc.

Note 3 – Inventories

The following is a summary of inventories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30,

 

December 31,

 

(Millions of dollars)

    

2019

    

2018

 

At lower of LIFO cost or market:

 

 

 

 

 

 

 

Hogs and materials

 

$

374

 

$

361

 

Fresh pork and materials

 

 

41

 

 

36

 

LIFO adjustment

 

 

(58)

 

 

(58)

 

Total inventories at lower of LIFO cost or market

 

 

357

 

 

339

 

At lower of FIFO cost and net realizable value:

 

 

 

 

 

 

 

Grains, oilseeds and other commodities

 

 

361

 

 

229

 

Sugar produced and in process

 

 

26

 

 

17

 

Other

 

 

85

 

 

81

 

Total inventories at lower of FIFO cost and net realizable value

 

 

472

 

 

327

 

Grain, flour and feed at lower of weighted average cost and net realizable value

 

 

159

 

 

149

 

 Total inventories

 

$

988

 

$

815

 

 

7


 

 

Note 4 – Leases

Seaboard has operating leases primarily for land, buildings, machinery and equipment and vessels. Seaboard had no material finance leases as of March 30, 2019. Seaboard’s Marine segment leases its PortMiami terminal, among other ports. The Pork segment has contract grower agreements in place with farmers to raise a portion of Seaboard’s hogs using the farmer’s buildings, land and equipment. The Marine and CT&M segments lease vessels for use in operations. Seaboard elected to account for lease and nonlease maintenance components as a single lease component for all classes of underlying assets. Seaboard’s nonlease components are primarily for services related to labor associated with caring for hogs in its contract grower agreements and crew services on vessel charter arrangements.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. As of March 30, 2019, the weighted average remaining lease term for Seaboard’s operating leases was approximately 7 years. Seaboard’s lease terms vary depending upon the class of asset and some leases include options to extend or terminate. Since Seaboard is not reasonably certain to exercise these renewal or termination options, the options are not considered in determining the lease term, and associated potential option payments or penalties are excluded from lease payments. Seaboard has elected not to recognize ROU assets and lease liabilities for short-term leases for all classes of underlying assets. Short-term leases are leases with terms greater than one month, but less than 12 months.

Maturities of operating lease liabilities as of March 30, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

    

 

    

Remainder of 2019

 

$

99

 

2020

 

 

110

 

2021

 

 

97

 

2022

 

 

72

 

2023

 

 

51

 

Thereafter

 

 

205

 

Total undiscounted lease payments

 

 

634

 

Less imputed interest

 

 

(130)

 

Total operating lease liability

 

$

504

 

Seaboard’s weighted average discount rate for operating leases was 6.76% as of March 30, 2019. There were estimates and judgments made in determining Seaboard’s multiple discount rates based on term, country and currency, including developing a secured credit rating and spreading market yield data across maturities and country risk-free rates.

Below is Seaboard’s commitments table as of December 31, 2018, that disclosed operating lease payments for the next five years and thereafter. Seaboard had no material capital leases as of December 31, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

 

(Millions of dollars)

    

2019

    

2020

    

2021

    

2022

    

2023

    

Thereafter

 

Ports

 

$

18

 

$

18

 

$

19

 

$

19

 

$

20

 

$

109

 

Vessel, time and voyage-charters

 

 

58

 

 

27

 

 

26

 

 

13

 

 

 8

 

 

25

 

Contract grower agreements

 

 

47

 

 

41

 

 

37

 

 

27

 

 

18

 

 

61

 

Other operating lease payments

 

 

18

 

 

13

 

 

 9

 

 

 8

 

 

 6

 

 

15

 

Total unrecognized non-cancelable commitments

 

$

141

 

$

99

 

$

91

 

$

67

 

$

52

 

$

210

 

8


 

 

The components of lease cost for the three months ended March 30, 2019, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

    

 

    

Operating lease cost

 

 

$

33

 

Variable lease cost

 

 

 

 3

 

Short-term lease cost

 

 

 

10

 

Total lease cost

 

 

$

46

 

Operating lease cost is recognized on a straight-line basis over the lease term. Variable lease payments associated with the Company’s leases are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments on leased assets are primarily for payments in excess of minimums with regards to throughput of containers at PortMiami. Short-term leases are primarily for containers and vessels at Seaboard’s Marine segment. Rental expense for leases with terms of a month or less are excluded from the total lease cost above.

 

 

 

Note 5 – Notes Payable, Long-term Debt, Commitments and Contingencies

Notes Payable

Notes payable outstanding under uncommitted credit lines was $192 million as of March 30, 2019, of which $153 million was related to foreign subsidiaries, with $109 million denominated in South African rand, $21 million denominated in the Canadian dollar, $19 million denominated in Zambian kwacha and $4 million denominated in the Brazilian real. The weighted average interest rate for outstanding notes payable was 6.22% and 7.76% as of March 30, 2019 and December 31, 2018, respectively. The notes payable under the uncommitted credit lines are unsecured and do not require compensating balances. Also, Seaboard has a $100 million committed credit line secured by certain short-term investments with $60 million outstanding as of March 30, 2019. Seaboard’s borrowing capacity under its uncommitted and committed lines was reduced by the outstanding balances and letters of credit totaling $18 million as of March 30, 2019.

Long-term Debt

The following is a summary of long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30,

 

December 31,

(Millions of dollars)

 

 

2019

 

2018

Term Loan due 2028

 

$

696

 

$

698

 

Foreign subsidiary obligations due 2019 through 2023

 

 

93

 

 

81

 

Total long-term debt at face value

 

 

789

 

 

779

 

Current maturities of long-term debt and unamortized discount and costs

 

 

(54)

 

 

(40)

 

Long-term debt, less current maturities and unamortized discount and costs

 

$

735

 

$

739

 

The interest rate on the Term Loan due 2028 was 4.12% and 4.15% as of March 30, 2019 and December 31, 2018, respectively. The weighted average interest rate on Seaboard’s foreign subsidiary obligations was 3.97% and 3.80% as of March 30, 2019 and December 31, 2018, respectively. Seaboard was in compliance with all restrictive debt covenants relating to these agreements as of March 30, 2019.

Contingencies

On June 28, 2018, Wanda Duryea and eleven other indirect purchasers of pork products, acting on behalf of themselves and a putative class of indirect purchasers of pork products, filed a class action complaint in the U.S. District Court for the District of Minnesota against several pork processors, including Seaboard Foods and Agri Stats, Inc., a company described in the complaint as a data sharing service. Subsequent to the filing of this initial complaint, additional class action complaints making similar claims on behalf of putative classes of direct and indirect purchasers were filed in the U.S. District Court for the District of Minnesota. The complaints allege, among other things, that beginning in January 2009, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of pork products in violation of U.S. antitrust laws by coordinating their output and limiting production, allegedly facilitated by the exchange of non-public information about prices, capacity, sales volume and demand through Agri Stats, Inc. The complaints on behalf of the putative classes of indirect purchasers also include causes of action under various state laws, including state antitrust laws, unfair competition laws, consumer protection statutes, and state common law claims for unjust enrichment. The complaints also allege that the defendants concealed this conduct from the plaintiffs and the members of the putative classes. The relief sought in the respective complaints includes treble damages, injunctive relief, pre- and post-judgment interest, costs,

9


 

and attorneys’ fees on behalf of the putative classes. The complaints were amended and consolidated, and the cases are now organized into three consolidated putative class actions brought on behalf of (a) direct purchasers, (b) consumer indirect purchasers, and (c) commercial and institutional indirect purchasers.  The amended complaints named Seaboard Corporation as an additional defendant. Seaboard intends to defend these cases vigorously. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome resulting from these suits, or to estimate the amount of potential loss, if any, resulting from the suits.

On March 20, 2018, the bankruptcy trustee (the “Trustee”) for Cereoil Uruguay S.A. (“Cereoil”) filed a suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter naming as parties Seaboard and Seaboard’s subsidiaries, Seaboard Overseas Limited (“SOL”) and Seaboard Uruguay Holdings Ltd. (“Seaboard Uruguay”). Seaboard has a 45% indirect ownership of Cereoil. The suit seeks an order requiring Seaboard, SOL, and Seaboard Uruguay to reimburse Cereoil the amount of $22 million, contending that deliveries of soybeans to SOL pursuant to purchase agreements should be set aside as fraudulent conveyances. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and its two subsidiaries could be ordered to pay the amount of $22 million. Any award in this case would offset against any award in the additional case described below filed by the Trustee on April 27, 2018.

On April 27, 2018, the Trustee for Cereoil filed another suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter naming as parties Seaboard, SOL, Seaboard Uruguay, all directors of Cereoil, including two individuals employed by Seaboard who served as directors at the behest of Seaboard, and the Chief Financial Officer of Cereoil, an employee of Seaboard who also served at the behest of Seaboard (collectively, the “Cereoil Defendants”). The Trustee contends that the Cereoil Defendants acted with willful misconduct to cause Cereoil’s insolvency, and thus should be ordered to pay all liabilities of Cereoil, net of assets. The bankruptcy filing lists total liabilities of $53 million and assets of $30 million. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and the other Cereoil Defendants could be ordered to pay the amount of the net indebtedness of Cereoil, which based on the bankruptcy schedules would total $23 million. It is possible that the net indebtedness could be higher than this amount if Cereoil’s liabilities are greater than $53 million and/or Cereoil’s assets are worth less than $30 million. In addition, in the event of an adverse ruling, the Bankruptcy Court of First Instance could order payment of the Trustee’s professional fees, interest, and other expenses. Any award in this case would offset against any award in the case described above filed on March 20, 2018.

On May 15, 2018, the Trustee for Nolston S.A. (“Nolston”) filed a suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter naming as parties Seaboard and the other Cereoil Defendants. Seaboard has a 45% indirect ownership of Nolston. The Trustee contends that the Cereoil Defendants acted with willful misconduct to cause Nolston’s insolvency, and thus should be ordered to pay all liabilities of Nolston, net of assets. The bankruptcy filing lists total liabilities of $29 million and assets of $15 million. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and the other Cereoil Defendants could be ordered to pay the amount of the net indebtedness of Nolston, which based on the bankruptcy schedules would total $14 million. It is possible that the net indebtedness could be higher than this amount if Nolston’s liabilities are greater than $29 million and/or Nolston’s assets are worth less than $15 million. In addition, in the event of an adverse ruling, the Bankruptcy Court of First Instance could order payment of the Trustee’s professional fees, interest, and other expenses.

On September 18, 2014, and subsequently in 2015 and 2016, Seaboard received a number of grand jury subpoenas and informal requests for information from the Department of Justice, Asset Forfeiture and Money Laundering Section (“AFMLS”), seeking records related to specified foreign companies and individuals. The companies and individuals as to which the requested records relate were not affiliated with Seaboard, although Seaboard has also received subpoenas and requests for additional information relating to an affiliate of Seaboard. During 2017, Seaboard received grand jury subpoenas requesting documents and information related to money transfers and bank accounts in the Democratic Republic of Congo (“DRC”) and other African countries and requests to interview certain Seaboard employees and to obtain testimony before a grand jury. Seaboard has retained outside counsel and is cooperating with the government’s investigation. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome or to estimate the amount of potential loss, if any, resulting from the government’s inquiry.

10


 

Seaboard is subject to various administrative and judicial proceedings and other legal matters related to the normal conduct of its business. In the opinion of management, the ultimate resolution of these items is not expected to have a material adverse effect on the condensed consolidated financial statements of Seaboard.

Guarantees

Certain of the non-consolidated affiliates and third-party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt in order to further Seaboard’s business objectives. Seaboard does not issue guarantees of third parties for compensation. As of March 30, 2019, guarantees outstanding to affiliates and third parties were not material. Seaboard has not accrued a liability for any of the affiliate or third-party guarantees as management considers the likelihood of loss to be remote. See Notes Payable above for discussion of letters of credit.

 

 

 

Note 6 – Employee Benefits

Seaboard has a defined benefit pension plan for certain of its domestic salaried and clerical employees. At this time, no contributions are expected to be made to the plan in 2019. Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees. Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

Of the total net periodic benefit cost presented in the table below, the service cost component is recorded in either cost of sales or selling, general and administrative expenses depending upon the employee. The other components of net periodic benefit cost are recorded in miscellaneous, net in the condensed consolidated statements of comprehensive income.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 30,

 

March 31,

 

(Millions of dollars)

    

2019

    

2018

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

Service cost

 

$

 2

 

$

 3

 

Interest cost

 

 

 3

 

 

 3

 

Expected return on plan assets

 

 

(2)

 

 

(3)

 

Amortization and other

 

 

 1

 

 

 1

 

Net periodic benefit cost

 

$

 4

 

$

 4

 

 

 

11


 

 

 

Note 7 – Derivatives and Fair Value of Financial Instruments

Seaboard uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad levels:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities that Seaboard has the ability to access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables shows assets and liabilities measured at fair value on a recurring basis as of March 30, 2019 and December 31, 2018, and also the level within the fair value hierarchy used to measure each category of assets and liabilities. The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

March 30,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2019

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities – short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

$

714

 

$

714

 

$

 —

 

$

 —

 

Domestic debt securities

 

 

396

 

 

116

 

 

280

 

 

 —

 

Foreign equity securities

 

 

222

 

 

222

 

 

 —

 

 

 —

 

High yield securities

 

 

65

 

 

10

 

 

55

 

 

 —

 

Foreign debt securities

 

 

40

 

 

 2

 

 

38

 

 

 —

 

Collateralized loan obligations

 

 

27

 

 

 —

 

 

27

 

 

 —

 

Money market funds held in trading accounts

 

 

10

 

 

10

 

 

 —

 

 

 —

 

Term deposits

 

 

 9

 

 

 9

 

 

 —

 

 

 —

 

Other trading securities

 

 

 5

 

 

 5

 

 

 —

 

 

 —

 

Trading securities – other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

35

 

 

35

 

 

 —

 

 

 —

 

Money market fund held in trading accounts

 

 

 2

 

 

 2

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

 2

 

 

 2

 

 

 —

 

 

 —

 

Fixed income securities

 

 

 2

 

 

 2

 

 

 —

 

 

 —

 

Other

 

 

 1

 

 

 1

 

 

 —

 

 

 —

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

 1

 

 

 1

 

 

 —

 

 

 —

 

Foreign currencies

 

 

 4

 

 

 —

 

 

 4

 

 

 —

 

Total assets

 

$

1,535

 

$

1,131

 

$

404

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

13

 

$

 —

 

$

 —

 

$

13

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

29

 

 

29

 

 

 —

 

 

 —

 

Total liabilities

 

$

42

 

$

29

 

$

 —

 

$

13

 

 

(1)

Seaboard’s commodity derivative assets and liabilities are presented in the condensed consolidated balance sheets on a net basis, including netting the derivatives with the related margin accounts. As of March 30, 2019, the commodity derivatives had a margin account balance of $67 million resulting in a net other current asset in the condensed consolidated balance sheet of $39 million.

 

 

12


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2018

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities – short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

$

632

 

$

632

 

$

 —

 

$

 —

 

Domestic debt securities

 

 

268

 

 

215

 

 

53