Try our mobile app
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____________________________________ to ____________________________________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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).
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.
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
There were
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||
(Millions of dollars except share and per share amounts) | 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net sales: | ||||||||||||
Products (affiliate sales of $ | $ | | $ | | $ | | $ | | ||||
Services (affiliate sales of $ |
| |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total net sales |
| |
| |
| |
| | ||||
Cost of sales and operating expenses: | ||||||||||||
Products |
| |
| |
| |
| | ||||
Services |
| |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total cost of sales and operating expenses |
| |
| |
| |
| | ||||
Gross income |
| |
| |
| |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Operating income |
| |
| |
| |
| | ||||
Other income (expense): | ||||||||||||
Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Interest income |
| |
| |
| |
| | ||||
Loss from affiliates |
| ( |
| ( |
| — |
| ( | ||||
Other investment income (loss), net |
| ( |
| |
| |
| ( | ||||
Foreign currency gains (losses), net |
| |
| ( |
| |
| ( | ||||
Miscellaneous, net |
| |
| |
| |
| | ||||
Total other income (expense), net |
| ( |
| |
| |
| ( | ||||
Earnings before income taxes |
| |
| |
| |
| | ||||
Income tax benefit (expense) |
| ( |
| |
| ( |
| ( | ||||
Net earnings | $ | | $ | | $ | | $ | | ||||
Less: Net loss (earnings) attributable to noncontrolling interests |
| |
| |
| |
| | ||||
Net earnings attributable to Seaboard | $ | | $ | | $ | | $ | | ||||
Earnings per common share | $ | | $ | | $ | | $ | | ||||
Average number of shares outstanding |
| |
| |
| |
| | ||||
Other comprehensive income (loss), net of income tax expense of $ | ||||||||||||
Foreign currency translation adjustment |
| |
| |
| |
| ( | ||||
Unrecognized pension cost |
| |
| |
| |
| | ||||
Other comprehensive income (loss), net of tax | $ | | $ | | $ | | $ | ( | ||||
Comprehensive income |
| |
| |
| |
| | ||||
Less: Comprehensive loss (income) attributable to noncontrolling interests |
| |
| |
| |
| | ||||
Comprehensive income attributable to Seaboard | $ | | $ | | $ | | $ | | ||||
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
October 2, | December 31, |
| ||||
(Millions of dollars except share and per share amounts) | 2021 |
| 2020 |
| ||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term investments |
| |
| | ||
Receivables, net of allowance for credit losses of $ |
| |
| | ||
Inventories |
| |
| | ||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Property, plant and equipment, net |
| |
| | ||
Operating lease right of use assets, net | | | ||||
Investments in and advances to affiliates |
| |
| | ||
Goodwill |
| |
| | ||
Other non-current assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Lines of credit | $ | | $ | | ||
Current maturities of long-term debt |
| |
| | ||
Accounts payable |
| |
| | ||
Deferred revenue | | | ||||
Operating lease liabilities | | | ||||
Other current liabilities |
| |
| | ||
Total current liabilities |
| |
| | ||
Long-term debt, less current maturities |
| |
| | ||
Deferred income taxes |
| |
| | ||
Long-term operating lease liabilities | | | ||||
Other liabilities |
| |
| | ||
Total non-current liabilities |
| |
| | ||
Commitments and contingent liabilities | ||||||
Stockholders’ equity: | ||||||
Common stock of $ |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Retained earnings |
| |
| | ||
Total Seaboard stockholders’ equity |
| |
| | ||
Noncontrolling interests |
| |
| | ||
Total equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
3
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
Accumulated | ||||||||||||||||
Other | ||||||||||||||||
Common | Comprehensive | Retained | Noncontrolling | |||||||||||||
(Millions of dollars) | Stock | Loss | Earnings | Interests | Total | |||||||||||
Balances, December 31, 2019 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Adoption of accounting guidance (see Note 1) | — | — | ( | — | ( | |||||||||||
Comprehensive income (loss): | ||||||||||||||||
Net loss | — | — | ( | — | ( | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Repurchase of common stock | — | — | ( | — | ( | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, March 28, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive loss: | ||||||||||||||||
Net loss | — | — | ( | — | ( | |||||||||||
Other comprehensive loss, net of tax | — | ( | — | — | ( | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, June 27, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income: | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, September 26, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Balances, December 31, 2020 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income: | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, April 3, 2021 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income (loss): | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive loss, net of tax | — | ( | — | — | ( | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, July 3, 2021 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income: | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Acquisition of noncontrolling interest | — | — | — | | | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, October 2, 2021 | $ | | $ | ( | $ | | $ | | $ | | ||||||
See accompanying notes to condensed consolidated financial statements
4
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended |
| |||||
October 2, | September 26, | |||||
(Millions of dollars) | 2021 |
| 2020 |
| ||
Cash flows from operating activities: | ||||||
Net earnings | $ | | $ | | ||
Adjustments to reconcile net earnings to cash from operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Deferred income taxes |
| ( |
| ( | ||
Loss from affiliates |
| — |
| | ||
Dividends received from affiliates |
| |
| | ||
Other investment loss (income), net |
| ( |
| | ||
Other, net |
| |
| | ||
Changes in assets and liabilities, net of acquisition: | ||||||
Receivables, net of allowance for credit losses |
| ( |
| | ||
Inventories |
| ( |
| ( | ||
Other assets |
| ( |
| | ||
Accounts payable | | ( | ||||
Other liabilities, exclusive of debt |
| ( |
| ( | ||
Net cash from operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Purchase of short-term investments |
| ( |
| ( | ||
Proceeds from the sale of short-term investments |
| |
| | ||
Proceeds from the maturity of short-term investments |
| |
| | ||
Capital expenditures |
| ( |
| ( | ||
Proceeds from the sale of property, plant and equipment |
| |
| | ||
Acquisition of business | ( | — | ||||
Principal payments received on notes receivable | | — | ||||
Purchase of long-term investments |
| ( |
| ( | ||
Other, net |
| |
| ( | ||
Net cash from investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Uncommitted lines of credit, net |
| |
| | ||
Draws under committed lines of credit | | | ||||
Repayments of committed lines of credit | ( | ( | ||||
Principal payments of long-term debt |
| ( |
| ( | ||
Repurchase of common stock |
| — |
| ( | ||
Dividends paid |
| ( |
| ( | ||
Other, net |
| ( |
| — | ||
Net cash from financing activities |
| |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents |
| ( |
| ( | ||
Net change in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents at beginning of year |
| |
| | ||
Cash and cash equivalents at end of period | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
5
SEABOARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Basis of Presentation and Accounting Policies
The condensed consolidated financial statements include the accounts of Seaboard Corporation and its subsidiaries (“Seaboard”). These financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2020 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 31st. Preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.”) requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
The 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. Seaboard has consistently applied all accounting policies as disclosed in its latest annual report on Form 10-K to all periods presented in these condensed consolidated financial statements. During the fourth quarter of 2020, Seaboard elected to change its method of valuing its inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The effects of the change in accounting principle from LIFO to FIFO were retrospectively applied and, as a result, certain financial statement line items in the condensed consolidated statements of comprehensive income, changes in equity and cash flows for the nine months ended September 26, 2020 were adjusted as necessary. For further information, refer to Seaboard’s annual report on Form 10-K for the year ended December 31, 2020.
Supplemental Cash Flow Information
Non-cash investing activities for the nine months ended October 2, 2021, included purchases of property, plant and equipment in accounts payable of $
Nine Months Ended | ||||||||
October 2, | September 26, | |||||||
(Millions of dollars) | 2021 | 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | | $ | | ||||
Operating cash flows from finance leases | | | ||||||
Financing cash flows from finance leases | | | ||||||
Operating ROU assets obtained in exchange for new operating lease liabilities | $ | | $ | | ||||
Finance ROU assets obtained in exchange for new finance lease liabilities | | | ||||||
Goodwill and Other Intangible Assets
The change in the carrying amount of goodwill of $
Income Taxes
Seaboard computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjusts the provision for discrete tax items recorded in the period.
Accounting Standard Recently Adopted
On January 1, 2020, Seaboard adopted guidance which requires the use of a new current expected credit loss model in order to determine the allowance for credit losses with respect to receivables, among other financial instruments. This model estimates the lifetime of expected credit loss and replaces the existing incurred loss model. As a result of this adoption, Seaboard recorded a cumulative-effect adjustment of $
6
Note 2 – Investments
The following is a summary of the estimated fair value of short-term investments classified as trading securities:
October 2, | December 31, |
| |||||
(Millions of dollars) |
| 2021 | 2020 |
| |||
Domestic debt securities | $ | | $ | | |||
Domestic equity securities | | | |||||
Foreign equity securities |
| |
| | |||
Foreign debt securities | | | |||||
Money market funds held in trading accounts | | | |||||
Other trading securities | | | |||||
Total trading short-term investments | $ | | $ | | |||
The change in unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was ($
Seaboard had $
Seaboard had long-term investments of $
Note 3 – Inventories
The following is a summary of inventories:
October 2, | December 31, |
| |||||
(Millions of dollars) |
| 2021 |
| 2020 | |||
At lower of FIFO cost and net realizable value (NRV): | |||||||
Hogs and materials | $ | | $ | | |||
Pork products and materials |
| |
| | |||
Grains, oilseeds and other commodities |
| |
| | |||
Biodiesel | | | |||||
Sugar produced and in process |
| |
| | |||
Other |
| |
| | |||
Total inventories at lower of FIFO cost and NRV |
| |
| | |||
Grain, flour and feed at lower of weighted average cost and NRV |
| |
| | |||
Total inventories | $ | | $ | | |||
Note 4 – Lines of Credit, Long-Term Debt, Commitments and Contingencies
Lines of Credit
The outstanding balances under uncommitted lines of credit were $
During the second quarter of 2021, Seaboard amended a committed line of credit agreement to increase the borrowing capacity from $
7
under committed lines of credit as of October 2, 2021 and balance outstanding as of December 31, 2020.
Long-term Debt
The following is a summary of long-term debt:
October 2, | December 31, | ||||||
(Millions of dollars) | 2021 | 2020 | |||||
Term Loan due 2028 | $ | | $ | | |||
Foreign subsidiary obligations | — | | |||||
Other long-term debt | | | |||||
Total debt at face value | | | |||||
Current maturities and unamortized discount and costs | ( | ( | |||||
Long-term debt, less current maturities and unamortized discount and costs | $ | | $ | | |||
The interest rate on the Term Loan due 2028 was
Seaboard was in compliance with all restrictive debt covenants relating to these agreements as of October 2, 2021.
Legal Proceedings
On July 21, 2021, a lawsuit was filed by an individual, Odette Blanco de Fernandez, who alleges that she owns a claim to confiscated property, related persons who purportedly inherited claims to confiscated property (“Inheritors”) and estates of deceased persons who purportedly own claims to confiscated property (“Estates”) against Seaboard Corporation in the U.S. District Court for the District of Delaware under Title III of the Cuban Liberty and Solidarity Act of 1996, also known as the Helms-Burton Act (the “Act”). The same plaintiffs filed a separate lawsuit against Seaboard Marine Ltd. (“Seaboard Marine”) on December 20, 2020, in the U.S. District Court for the Southern District of Florida. The Act provides that any person who knowingly and intentionally “traffics” in property which was confiscated by the Cuban government may be liable to any U.S. national who owns the claim to such property for money damages in an amount equal to the greater of the current value of the property or the value of the property when confiscated, plus interest from the date of confiscation, reasonable attorneys’ fees and costs, and treble damages under certain circumstances. The Act numerates certain activities that are excluded from liability, including “lawful travel.” The complaint in each of the cases alleges that the plaintiffs hold claims to a
On June 28, 2018,
8
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 assert claims under various state laws, including state antitrust laws, unfair competition laws, consumer protection statutes, and common law unjust enrichment. The relief sought in the respective complaints includes treble damages, injunctive relief, pre- and post-judgment interest, costs and attorneys’ fees. On October 16, 2020, the District Court denied defendants’ motions to dismiss the amended complaints, but the District Court later dismissed all claims against Seaboard Corporation without prejudice.
In 2021, additional standalone plaintiffs filed similar actions in other federal courts throughout the country, several of which name Seaboard Corporation as a defendant. These actions have been conditionally transferred to Minnesota for pretrial proceedings pursuant to an order by the Judicial Panel on Multidistrict Litigation. Also in 2021, the states of New Mexico and Alaska filed cases in state court against substantially the same defendants, including Seaboard Foods LLC and Seaboard Corporation, based on substantially similar allegations.
Seaboard believes that it has meritorious defenses to the claims alleged in these matters and intends to vigorously defend these matters. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome resulting from these suits, or to reasonably estimate the amount of potential loss or range 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 of 2018 naming as parties Seaboard Corporation and its subsidiaries, Seaboard Overseas Limited (“SOL”) and Seaboard Uruguay Holdings Ltd. (“Seaboard Uruguay”). Seaboard Corporation has a
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 of 2018 naming as parties Seaboard Corporation, SOL, Seaboard Uruguay, all directors of Cereoil, including
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 September 30, 2021, HSBC Bank (Uruguay) SA ("HSBC"), a creditor in the Cereoil bankruptcy proceeding pending in Uruguay, filed a suit in the U.S. District Court for the District of Kansas against Seaboard Corporation alleging claims for breach of contract, promissory estoppel, breach of the duty of good faith and fair dealing, unjust enrichment, fraud, negligent misrepresentation and fraud by concealment based upon a comfort letter, alleged statements by Cereoil personnel (including the chief financial officer serving at the behest of Seaboard), and the same grain transactions that the Trustee challenges as fraudulent conveyances in the Cereoil bankruptcy in Uruguay discussed above. HSBC seeks $
9
alleged in this matter and intends to vigorously defend this matter. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit.
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 of 2018 naming as parties Seaboard and the other Cereoil Defendants. Seaboard has a
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 Seaboard’s non-consolidated affiliates have debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt in order to further Seaboard’s business objectives. As of October 2, 2021, 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.
Note 5 – Employee Benefits
Seaboard has qualified defined benefit pension plans for its domestic salaried and clerical employees that were hired before January 1, 2014. Effective January 1, 2021, Seaboard transferred assets and liabilities for employees of certain Seaboard subsidiaries into a successor plan. 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 any plans in advance of when the benefits are paid.
The net periodic benefit cost for all plans was as follows:
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, |
| |||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Components of net periodic benefit cost: | |||||||||||||
Service cost | $ | | $ | | $ | | $ | | |||||
Interest cost |
| |
| |
| |
| | |||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | |||||
Amortization |
| |
| |
| |
| | |||||
Settlement loss recognized | — | | | | |||||||||
Net periodic benefit cost | $ | | $ | | $ | | $ | | |||||
10
Note 6 – Derivatives and Fair Value of Financial Instruments
The following tables show assets and liabilities measured at fair value on a recurring basis as of October 2, 2021 and December 31, 2020, 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 |
|
|
|
| ||||||||
October 2, |
| ||||||||||||
(Millions of dollars) | 2021 | Level 1 | Level 2 | Level 3 |
| ||||||||
Assets: | |||||||||||||
Trading securities – short-term investments: | |||||||||||||
Domestic debt securities | $ | | $ | | $ | | $ | — | |||||
Domestic equity securities |
| |
| |
| — |
| — | |||||
Foreign equity securities | | | — | — | |||||||||
Foreign debt securities | | | | — | |||||||||
Money market funds held in trading accounts |
| |
| | — | — | |||||||
Other trading securities | | — | | — | |||||||||
Trading securities – other current assets: | |||||||||||||
Domestic equity securities |
| |
| |
| — |
| — | |||||
Money market fund held in trading accounts | | |
| — |
| — | |||||||
Foreign equity securities |
| |
| |
| — |
| — | |||||
Fixed income mutual funds |
| |
| |
| |
| — | |||||
Long-term investment - BDC | | — | — | | |||||||||
Derivatives: | |||||||||||||
Commodities |
| |
| |
| — |
| — | |||||
Foreign currencies |
| |
| — |
| |
| — | |||||
Total Assets | $ | | $ | | $ | | $ | | |||||
Liabilities: | |||||||||||||
Trading securities – short-term investments: | |||||||||||||
Other trading securities | $ | | $ | — | $ | | $ | — | |||||
Contingent consideration | | — | — | | |||||||||
Derivatives: | |||||||||||||
Commodities | | | — | — | |||||||||
Foreign currencies |
| |
| — |
| |
| — | |||||
Total Liabilities | $ | | $ | | $ | | $ | | |||||
11
| Balance |
|
|
|
| ||||||||
December 31, |
| ||||||||||||
(Millions of dollars) | 2020 | Level 1 | Level 2 | Level 3 |
| ||||||||
Assets: | |||||||||||||
Trading securities – short-term investments: | |||||||||||||
Domestic equity securities | $ | | $ | | $ | — | $ | — | |||||
Domestic debt securities | | | | — | |||||||||
Foreign equity securities | | | — | — | |||||||||
Foreign debt securities | | — | | — | |||||||||
Money market funds held in trading accounts | | | — | — | |||||||||
Other trading securities |
| |
| |
| |
| — | |||||
Trading securities – other current assets: | |||||||||||||
Domestic equity securities |
| |
| |
| — |
| — | |||||
Money market fund held in trading accounts | | | — |
| — | ||||||||
Foreign equity securities |
| |
| |
| — |
| — | |||||
Fixed income mutual funds |
| |
| |
| |
| — | |||||
Long-term investment - BDC |
| |
| — |
| — |
| | |||||
Derivatives: | |||||||||||||
Commodities |
| |
| |
| — |
| — | |||||
Interest rate swaps |
| |
| — |
| |
| — | |||||
Total Assets | $ | | $ | | $ | | $ | | |||||
Liabilities: | |||||||||||||
Trading securities – short-term investments: | |||||||||||||
Other trading securities | $ | | $ | — | $ | | $ | — | |||||
Contingent consideration | | — | — | | |||||||||
Derivatives: | |||||||||||||
Commodities | | | — | — | |||||||||
Foreign currencies |
| |
| — |
| |
| — | |||||
Total Liabilities | $ | | $ | | $ | | $ | | |||||
Financial instruments consisting of cash and cash equivalents, net receivables, lines of credit 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 short-term investments is measured using multiple levels. Domestic debt securities categorized as level 1 in the fair value hierarchy include debt securities held in mutual funds and ETFs. Domestic debt securities categorized as level 2 include corporate bonds, mortgage-backed securities, asset-backed securities, U.S. Treasuries and high-yield securities. Foreign debt securities categorized as level 2 include foreign government or government related securities, corporate bonds, asset-backed securities and high-yield securities with a country of origin concentration outside the U.S. Seaboard’s long-term debt is recorded on the financials at amortized cost. Since most long-term debt is variable-rate, its carrying amount approximates fair value, and would have been classified as level 2.
Seaboard has a long-term investment in a BDC that primarily lends to and invests in debt securities of privately held companies. This long-term investment is classified in other non-current assets and is valued at net asset value (“NAV”), adjusted for specific liquidity factors, resulting in level 3 classification. The change in value during 2021 is related to an additional contribution of $
The fair value of Seaboard’s contingent consideration related to a 2018 acquisition was classified as a level 3 in the fair value hierarchy since the calculation is dependent upon projected company specific inputs using a Monte Carlo simulation. Seaboard remeasures the estimated fair value of the contingent consideration liability until settled with adjustments included in interest expense. The change in value during 2021 was related to new financial information, foreign currency rates, interest rates and estimated earnings before interest taxes depreciation and amortization projections at the measurement date.
Seaboard’s operations are exposed to market risks from changes in commodity prices, foreign currency exchange rates, interest rates and equity prices. Seaboard uses various commodity derivative futures and options to manage its risk of price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. Also, Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain
12
transactions denominated in foreign currencies, interest rate swap agreements to manage the interest rate risk with respect to certain variable rate long-term debt, and equity futures contracts to manage the equity price risk with respect to certain short-term investments. While management believes its derivatives are primarily economic hedges, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. These derivative contracts are recorded at fair value, with any changes in fair value recognized in the condensed consolidated statements of comprehensive income. As the derivative contracts are not accounted for as hedges, fluctuations in the related prices or rates could have a material impact on earnings in any given reporting period. The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2020.
Seaboard had the following aggregated outstanding notional amounts related to derivative financial instruments:
October 2, | December 31, | ||||||||||||||
(Millions) | Metric | 2021 | 2020 | ||||||||||||
Commodities | |||||||||||||||
Grain | Bushels | | |||||||||||||
Hogs | Pounds | | |||||||||||||
Soybean oil | Pounds | | |||||||||||||
Heating oil | Gallons | | — | ||||||||||||
Foreign currencies | U.S. dollar | | |||||||||||||
Interest rate swaps | U.S. dollar | — | |||||||||||||
Equity futures | U.S. dollar | | |||||||||||||
During the third quarter of 2021, all of Seaboard’s interest rate swap agreements were terminated resulting in a realized gain of $
Credit risks associated with these derivative contracts are not significant as Seaboard minimizes counterparty exposure by dealing with credit-worthy counterparties and uses margin accounts for some contracts. At October 2, 2021, the maximum amount of credit risk, had the counterparties failed to perform according to the terms of the contract, was $
The following table provides the amount of gain or (loss) for each type of derivative and where it was recognized in the condensed consolidated statements of comprehensive income:
Three Months Ended | Nine Months Ended | ||||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||||
(Millions of dollars) |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Commodities |
| Cost of sales | $ | ( | $ | | $ | ( | $ | | |||||
Foreign currencies |
| Cost of sales |
| |
| |
| |
| | |||||
Foreign currencies |
| Foreign currency gains (losses), net |
| |
| ( |
| |
| ( | |||||
Interest rate swaps | Interest expense | ( | — | | ( | ||||||||||
Equity futures |
| Other investment income (loss), net |
| ( |
| ( |
| ( | | ||||||
13
The following table provides the fair value of each type of derivative held and where each derivative is included in the condensed consolidated balance sheets:
Asset Derivatives | Liability Derivatives | ||||||||||||||||
October 2, | December 31, | October 2, | December 31, | ||||||||||||||
(Millions of dollars) |
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 | |||||||
Commodities |
| Other current assets | $ | | $ |
| Other current liabilities | $ | | $ | |||||||
Foreign currencies |
| Other current assets |
| |
| — |
| Other current liabilities |
| |
| | |||||
Interest rate swaps | Other current assets | — | | Other current liabilities | — | — | |||||||||||
Equity futures |
| Short-term investments |
| — |
| — |
| Short-term investments |
| — |
| — | |||||
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 October 2, 2021 and December 31, 2020, the commodity derivatives had a margin account balance of $
Note 7 – Stockholders’ Equity and Accumulated Other Comprehensive Loss
Seaboard’s share repurchase program expired on October 31, 2020. Under this share repurchase program, Seaboard was authorized to repurchase its common stock from time to time in open market or privately negotiated purchases, which may have been above or below the traded market price. During 2020, Seaboard repurchased
The components of accumulated other comprehensive loss, net of related taxes, were as follows:
October 2, | December 31, |
| |||||
(Millions of dollars) |
| 2021 |
| 2020 |
| ||
Cumulative foreign currency translation adjustment | $ | ( | $ | ( | |||
Cumulative unrecognized pension cost |
| ( |
| ( | |||
Total accumulated other comprehensive loss | $ | ( | $ | ( | |||
Note 8 – Segment Information
Seaboard has
In the third quarter of 2021, Seaboard’s CT&M segment increased its ownership interest in a feed manufacturer and hog producer in Ecuador from
The following tables present Seaboard’s sales disaggregated by revenue source and segment:
Net Sales: | Three Months Ended October 2, 2021 | |||||||||||||||||||||
Sugar | ||||||||||||||||||||||
and | All | Consolidated | ||||||||||||||||||||
(Millions of dollars) | Pork | CT&M | Marine | Alcohol | Power | Other | Totals | |||||||||||||||
Major Products/Services Lines: | ||||||||||||||||||||||
Products | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | ||||||||
Transportation | | — | | — | — | — | | |||||||||||||||
Energy | | — | — | | | — | | |||||||||||||||
Other | | | — | — | — | — | | |||||||||||||||
Segment/Consolidated Totals | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
14
Net Sales: | Three Months Ended September 26, 2020 | |||||||||||||||||||||
Sugar | ||||||||||||||||||||||
and | All | Consolidated | ||||||||||||||||||||
(Millions of dollars) | Pork | CT&M | Marine | Alcohol | Power | Other | Totals | |||||||||||||||
Major Products/Services Lines: | ||||||||||||||||||||||
Products | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | ||||||||
Transportation | | — | | — | — | — | | |||||||||||||||
Energy | | — | — | | | — | | |||||||||||||||
Other | | | — | — | — | — | | |||||||||||||||
Segment/Consolidated Totals | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Net Sales: | Nine Months Ended October 2, 2021 | |||||||||||||||||||||
Sugar | ||||||||||||||||||||||
and | All | Consolidated | ||||||||||||||||||||
(Millions of dollars) | Pork | CT&M | Marine | Alcohol | Power | Other | Totals | |||||||||||||||
Major Products/Services Lines: | ||||||||||||||||||||||
Products | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | ||||||||
Transportation | | — | | — | — | | | |||||||||||||||
Energy | | — | — | | | — | | |||||||||||||||
Other | | | — | — | — | — | | |||||||||||||||
Segment/Consolidated Totals | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Net Sales: | Nine Months Ended September 26, 2020 | |||||||||||||||||||||
Sugar | ||||||||||||||||||||||
and | All | Consolidated | ||||||||||||||||||||
(Millions of dollars) | Pork | CT&M | Marine | Alcohol | Power | Other | Totals | |||||||||||||||
Major Products/Services Lines: | ||||||||||||||||||||||
Products | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | ||||||||
Transportation | | — | | — | — | — | | |||||||||||||||
Energy | | — | — | | | — | | |||||||||||||||
Other | | | — | — | — | — | | |||||||||||||||
Segment/Consolidated Totals | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
The following tables present Seaboard’s operating income (loss) and income (loss) from affiliates by segment. Operating income (loss) for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income (loss), along with income or loss from affiliates for the Pork, CT&M and Turkey segments, is used as the measure of evaluating segment performance because management does not consider interest, other investment income (loss) and income tax benefit (expense) on a segment basis. Administrative services provided by the corporate office are allocated to the individual segments and represent corporate services rendered to and costs incurred for each specific segment, with no allocation to individual segments of general corporate management oversight costs.
Operating Income (Loss): | Three Months Ended | Nine Months Ended |
| ||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Pork | $ | | $ | | $ | | | ||||||
CT&M |
| |
| |
| | | ||||||
Marine |
| |
| |
| | ( | ||||||
Sugar and Alcohol |
| — |
| ( |
| — | ( | ||||||
Power |
| ( |
| |
| ( |
| | |||||
All Other |
| — |
| — |
| |
| | |||||
Segment Totals |
| |
| |
| |
| | |||||
Corporate |
| ( |
| ( |
| ( |
| ( | |||||
Consolidated Totals | $ | | $ | | $ | | $ | | |||||
15
Income (Loss) from Affiliates: | Three Months Ended | Nine Months Ended | |||||||||||
October 2, | September 26, | October 2, | September 26, |
| |||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Pork | $ | — | $ | — | $ | ( | $ | ( | |||||
CT&M | | ( | | ( | |||||||||
Marine | | | | | |||||||||
Sugar and Alcohol |
| — |
| — |
| — |
| — | |||||
Power | — | — | — | — | |||||||||
Turkey |
| ( |
| ( |
| ( |
| ( | |||||
Segment/Consolidated Totals | $ | ( | $ | ( | $ | — | $ | ( | |||||
The following tables present total assets by segment and the investments in and advances to affiliates by segment. Corporate assets primarily include cash and short-term investments, other current assets related to deferred compensation plans, long-term investments and other miscellaneous items. Corporate operating results represent certain operating costs not specifically allocated to individual segments and include costs related to Seaboard’s deferred compensation plans, which are offset by the effect of the mark-to-market adjustments on these investments recorded in other investment income (loss), net.
Total Assets: | October 2, | December 31, |
| ||||
(Millions of dollars) |
| 2021 |
| 2020 |
| ||
Pork | $ | | $ | ||||
CT&M |
| |
| ||||
Marine |
| |
| ||||
Sugar and Alcohol |
| |
| ||||
Power |
| |
| ||||
Turkey |
| |
| ||||
All Other |
| |
| ||||
Segment Totals |
| |
| ||||
Corporate |
| |
| ||||
Consolidated Totals | $ | | $ | ||||
Investments in and Advances to Affiliates: | October 2, | December 31, |
| ||||
(Millions of dollars) |
| 2021 |
| 2020 |
| ||
Pork | $ | | $ | | |||
CT&M | | | |||||
Marine | | | |||||
Sugar and Alcohol |
| |
| | |||
Power | | | |||||
Turkey |
| |
| | |||
Segment/Consolidated Totals | $ | | $ | | |||
The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (“Butterball”). As of October 2, 2021 and December 31, 2020, Butterball had total assets of $
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Net sales | $ | | $ | | $ | | $ | | |||||
Operating loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard's condensed consolidated financial statements and the accompanying notes found above. Certain statements in this report contain forward-looking statements. See the section below entitled "Forward-looking Statements" for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
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 potential plans for expansion of existing operations in both the short-term and long-term. 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. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard’s financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous. Also, from time to time, Seaboard may fund capital calls and issue borrowings for its equity method investments based on specific facts and circumstances.
As of October 2, 2021, Seaboard had cash and short-term investments of approximately $1.6 billion and additional total net working capital of $898 million. Also, Seaboard had available uncommitted lines of credit totaling $527 million and committed lines of credit available totaling $150 million as of October 2, 2021.
As of October 2, 2021, $52 million of the $1.6 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. Seaboard intends to continue permanently reinvesting the majority of these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations. For any planned repatriation to the U.S., Seaboard would record applicable deferred taxes for state or foreign withholding taxes.
Cash and short-term investments as of October 2, 2021 increased $37 million from December 31, 2020. The increase was primarily the result of timing of draws under lines of credit and cash from operations, partially offset by investments in capital expenditures. During the second quarter of 2021, the short-term investment portfolio was repositioned to reduce equity price risk and in anticipation of possibly utilizing short-term investment proceeds to fund capital expenditures. As a result, proceeds from the sale of short-term investments and cash used in the purchase of short-term investments are higher in the condensed consolidated statement of cash flows for the nine months ended October 2, 2021 than the same prior year period. Cash from operating activities increased $68 million for the nine months ended October 2, 2021 compared to the same period in 2020, primarily due to higher adjusted earnings, partially offset by investments in working capital as inventories increased due to higher commodity prices and receivables are higher due to sales growth.
During the nine months ended October 2, 2021, Seaboard invested $324 million in property, plant and equipment, of which the Pork segment spent $255 million for the construction of a renewable diesel plant, a fuel storage and distribution facility and other projects. For the remainder of 2021, management has budgeted capital expenditures totaling approximately $235 million mostly in the Pork and Marine segments. The Pork segment budgeted approximately $132 million primarily to complete modifications of a renewable diesel plant, and other new investments, including biogas recovery and improvements to a new fuel storage and distribution facility. Operations at the renewable diesel plant in Hugoton, Kansas, are expected to commence around the beginning of 2022. The Marine segment budgeted approximately $65 million for the purchase of a used vessel and for the first installment payment on three vessels that are being constructed. During the third quarter of 2021, Seaboard’s Marine segment executed contracts to build three vessels with completion expected in 2024. The ships are estimated to cost $60 million each for a total cash outlay of approximately $180 million in accordance with milestones achieved over the course of construction. Management anticipates paying for capital expenditures from a combination of available cash, short-term investments and borrowing capacity.
17
During the first quarter of 2021, Seaboard repaid foreign subsidiary debt related to a 2018 acquisition of $46 million upon its maturity. Seaboard’s primary debt outstanding is a Term Loan due in 2028 with a balance of $679 million as of October 2, 2021. Draws under lines of credit for the nine months ended October 2, 2021, increased compared to the same prior year period to fund working capital.
RESULTS OF OPERATIONS
Net sales for the three and nine month periods of 2021 increased $631 million and $1,629 million, respectively, compared to the same periods in 2020. The increase for the three and nine month periods primarily reflected higher prices of commodities sold in the CT&M segment, higher prices for pork products, market hogs and biodiesel sold in the Pork segment and higher cargo volumes and rates in the Marine segment.
Operating income increased $73 million and $258 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase for the three month period primarily reflected higher margins on pork product and hog sales in the Pork segment and higher voyage revenue in the Marine segment. The increase for the nine month period primarily reflected higher margins on pork product and hog sales in the Pork segment and higher voyage revenue in the Marine segment, partially offset by lower margins, derivative contract losses and higher selling, general and administrative costs in the CT&M segment.
Seaboard continues to encounter challenges resulting from the COVID-19 pandemic and the related variants, mostly with labor at certain locations. The near and long-term impacts of the COVID-19 pandemic, including COVID-19 variants, on Seaboard’s operations and the global economy are unknown and impossible to predict with any level of certainty. The continuing impact of the COVID-19 pandemic on Seaboard’s business will depend on a number of factors, including, but not limited to, the scope, severity and duration of any resurgence of the pandemic and related variants, the actions taken to contain the outbreak and the continuing direct and indirect economic effects of the outbreak and containment measures.
Pork Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Net sales | $ | 620 | $ | 466 | $ | 1,878 | $ | 1,380 | |||||
Operating income | $ | 52 | $ | 14 | $ | 242 | $ | 55 | |||||
Income (loss) from affiliates | $ | — | $ | — | $ | (2) | $ | (3) | |||||
Net sales for the Pork segment increased $154 million and $498 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase was primarily the result of higher prices of pork products sold, and to a lesser extent, higher prices and volumes of market hogs and higher selling prices of biodiesel.
Operating income for the Pork segment increased $38 million and $187 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase was primarily due to higher margins on pork product sales and market hogs due to higher sales prices, partially offset by higher hog costs related to feed. Management is unable to predict market prices for pork products, the cost of feed or third-party hogs or the prices of biodiesel or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions, management cannot predict if this segment will be profitable for the remainder of 2021. The uncertainties and the volatility of the commodity grain markets could have a significant impact on this segment’s profitability.
CT&M Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net sales | $ | 1,267 | $ | 880 | $ | 3,795 | $ | 2,917 | |||||
Operating income as reported | $ | 25 | $ | 28 | $ | 57 | $ | 82 | |||||
Mark-to-market adjustments |
| (13) |
| (5) |
| 8 |
| (7) | |||||
Operating income excluding mark-to-market adjustments | $ | 12 | $ | 23 | $ | 65 | $ | 75 | |||||
Income (loss) from affiliates | $ | 7 | $ | (3) | $ | 17 | $ | (2) | |||||
Net sales for the CT&M segment increased $387 million and $878 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase for the three month period primarily reflected higher
18
sales prices for most commodities to third-party customers and affiliates, and to a lesser extent, higher volumes to affiliates, partially offset by lower volumes to third-party customers. The increase for the nine month period primarily reflected higher sales prices of commodities and, to a lesser extent, higher volumes to third-party customers, partially offset by lower volumes to affiliates due to timing of shipments.
Operating income for this segment decreased $3 million and $25 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The decrease for the three month period primarily reflected costs associated with operational changes and higher selling, general and administrative costs, partially offset by derivative contract gains related to mark-to-market adjustments. The decrease for the nine month period primarily reflected derivative contract losses related to mark-to-market adjustments, lower volumes of certain commodities sold, costs associated with operational changes and higher selling, general and administrative costs, partially offset by higher margins on third-party sales. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates, the volatility in the commodity markets, changes in ocean freight rates, and the ongoing impacts of the COVID- 19 pandemic, including variants, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment for the remainder of 2021, excluding the effects of marking to market derivative contracts.
Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $13 million and higher by $8 million for the three and nine month periods of 2021, respectively, and lower by $5 million and $7 million for the three and nine month periods of 2020, respectively. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts and anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these 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 sales 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 over time, and these mark-to-market adjustments could reverse in 2021. Management believes eliminating these mark-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.
Income from affiliates increased $10 million and $19 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020, primarily due to improved results from several of this segment’s affiliates related to a return of sales volumes post COVID-19 disruptions.
Marine Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net sales | $ | 343 | $ | 244 | $ | 962 | $ | 705 | |||||
Operating income (loss) | $ | 42 | $ | 14 | $ | 95 | $ | (3) | |||||
Income from affiliates | $ | 2 | $ | 1 | $ | 4 | $ | 3 | |||||
Net sales for the Marine segment increased $99 million and $257 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase for the three month period of 2021 was primarily the result of an increase in average freight rates due to strong demand and low capacity of ships and higher cargo volumes. The increase for the nine month period of 2021 was primarily the result of higher cargo volumes and, to a lesser extent, an increase in freight rates. In 2020, cargo volumes were lower due to many of Seaboard Marine’s customers temporarily shutting down due to government orders associated with the COVID-19 pandemic and the recovery of operations taking time.
Operating income increased $28 million and $98 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase for the three and nine month periods was primarily the result of higher voyage revenue, partially offset by higher fuel costs due to the increase in both price and consumption, higher charter hire costs due to increased rates and more vessels, and higher terminal and intermodal trucking costs related to the increase in cargo volumes. Management cannot predict changes in fuel costs, cargo volumes and cargo rates, or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods; however, management expects continued high charter hire rates, but anticipates this segment will be profitable for the remainder of 2021.
19
Sugar and Alcohol Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net sales | $ | 32 | $ | 31 | $ | 84 | $ | 71 | |||||
Operating loss | $ | — | $ | (1) | $ | — | $ | (4) | |||||
Net sales for the Sugar and Alcohol segment increased $1 million and $13 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The increase for the three month period primarily reflected higher prices and volumes of alcohol sold, partially offset by lower volumes and sales prices on sugar. The increase for the nine month period was primarily due to higher volumes and prices of alcohol sold related to strong demand post the COVID-19 pandemic lockdown. Sugar and alcohol sales are denominated in Argentine pesos, and an increase in local sales prices may be offset by exchange rate changes in the Argentine peso against the U.S. dollar.
Operating income for the Sugar and Alcohol segment increased $1 million and $4 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. For the three and nine month periods, the increase primarily reflected higher revenues and lower production costs on alcohol, partially offset by lower margins on sugar. Management cannot predict local sugar and alcohol prices, the volatility in the currency exchange rate or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions, management cannot predict if this segment will be profitable for the remainder of 2021.
Power Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net sales | $ | 10 | $ | 21 | $ | 34 | $ | 51 | |||||
Operating income (loss) | $ | (3) | $ | 3 | $ | (10) | $ | 4 | |||||
Net sales for the Power segment decreased $11 million and $17 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The decrease for the three month period primarily reflected lower power generation due to reduced operations associated with the interconnection of the existing barge at a new site, and to a lesser extent, temporary fuel constraints. The decrease for the nine month period primarily reflected lower power generation due to the interconnection that occurred during the third quarter of 2021 discussed above and the Power segment’s place on the grid operator’s merit list, partially offset by higher spot market rates as a result of higher fuel prices. Typically, dispatch to the power grid is done on the basis of a merit list with lower cost power plants dispatched before those with higher costs. The commercial operations for the new barge are anticipated to begin later this year.
Operating income for the Power segment decreased $6 million and $14 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The decrease for the three and nine month periods was primarily due to lower revenues, partially offset by lower operating costs primarily due to lower fuel consumption and higher maintenance costs in the prior year. Management cannot predict fuel costs, the extent that spot market rates will fluctuate compared to fuel costs or other power producers, or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions and the timing of the new barge’s commercial operations, management cannot predict if this segment will be profitable for the remainder of 2021.
Turkey Segment
Three Months Ended | Nine Months Ended | ||||||||||||
October 2, | September 26, | October 2, | September 26, | ||||||||||
(Millions of dollars) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Loss from affiliates | $ | (10) | $ | (4) | $ | (19) | $ | (25) | |||||
The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC. The increase in loss from affiliates for the three month period of 2021 compared to the same period in 2020 was primarily due to higher feed, transportation and plant production costs that offset higher selling prices. The decrease in loss from affiliates for the nine month period of 2021 compared to the same period in 2020 was primarily the result of an increase in sales volume and higher revenue per pound, partially offset by a weaker sales mix due to a decrease in value-added product sales and higher feed costs. Also, other costs, including interest, were lower for the nine month period of 2021 than the
20
same period of 2020 primarily due to mark-to-market fluctuations on interest rate swap agreements. Management is unable to predict market prices for turkey products, the cost of feed or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods however, management anticipates this segment will be profitable for the remainder of 2021 due to its holiday season sales. The uncertainties and the volatility of the commodity grain markets could have a significant impact on this segment’s profitability.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased $1 million and increased $21 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. The decrease for the three month period was primarily the result of lower pension settlements and costs associated with Seaboard’s deferred compensation program, partially offset by higher salaries and wages and bonus accruals associated with improved financial performance. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss). The increase for the nine month period was primarily the result of higher personnel costs related to bonus accruals and wages and higher consulting costs, partially offset by lower pension settlements.
Interest Expense
Interest expense increased $5 million and decreased $10 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020. For the three month period, the increase was primarily related to adjustments on a contingent consideration liability discussed further in Note 6 to the condensed consolidated financial statements. The decrease in interest expense for the nine month period was primarily related to mark-to-market fluctuations on interest rate swap agreements and lower interest rates on outstanding debt. During the third quarter of 2021, Seaboard early terminated all of its interest rate swap agreements.
Other Investment Income (Loss), Net
Other investment income, net decreased $65 million and increased $149 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020 primarily due to mark-to-market fluctuations and realized gains on short-term investments.
Foreign Currency Gains (Losses), Net
Foreign currency gains, net increased $10 million and $28 million for the three and nine month periods of 2021, respectively, compared to the same periods in 2020 primarily due to fluctuations in the euro, Zambian kwacha and the South African rand, among fluctuations of other currency exchange rates in several foreign countries.
Income Tax Benefit (Expense)
The effective tax rate for the three and nine month periods of 2021 increased compared to the same respective periods in 2020 primarily due to higher forecasted earnings and actual year-to-date results. The effective tax rate for the three and nine month periods of 2021 was lower than the U.S. federal income tax rate of 21% primarily due to the availability of tax credits which decreased income tax expense.
21
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Seaboard is exposed to various types of market risks in its day-to-day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates, interest rates and equity prices. Occasionally, Seaboard utilizes derivative instruments to manage these overall market risks. The nature of Seaboard’s market risk exposure related to these items has not changed materially since December 31, 2020. Seaboard early terminated its interest rate swap agreements during the third quarter of 2021 increasing its exposure to interest rate risk. See Note 6 to the condensed consolidated financial statements for further discussion.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures — Seaboard’s management evaluated, under the direction of the Chief Executive and Chief Financial Officers, the effectiveness of Seaboard’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of October 2, 2021. 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 provide reasonable assurance that information required to be disclosed in the reports it files and submits under the Exchange Act 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.
Change in Internal Control Over Financial Reporting — There have been no changes in Seaboard’s internal control over financial reporting required by Exchange Act Rule 13a-15(f) that occurred during the fiscal quarter ended October 2, 2021 that has materially affected, or is reasonably likely to materially affect, Seaboard’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information related to Seaboard’s legal proceedings, see Note 4 to the condensed consolidated financial statements.
Item 1A. Risk Factors
Except for the update to the risk factor set forth below, there have been no material changes in the risk factors as previously disclosed in Seaboard’s annual report on Form 10-K for the year ended December 31, 2020.
Specific Pork Segment Risks
| (5) | This Segment is Subject to Complex Laws and Regulations That May Adversely Affect the Revenues, Costs, Manner or Feasibility of Doing Business. Federal, state and local laws, and domestic and international regulations governing worker health and safety, environmental protection, food safety and animal health and welfare significantly affect this segment’s operations. Some requirements applicable to this segment may also be enforced by citizen groups. For example, 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. In another example, the State of California enacted Proposition 12, the Farm Animal Confinement Initiative (“Proposition 12”), which prohibits, the sale within the State of California of certain uncooked pork produced from breeding sows or its offspring which have been confined after December 31, 2021 in less than 24 square feet of usable floor space, or which have been confined in a manner that prevents the animal from lying down, standing up, fully extending the animal’s limbs, or turning around freely. Although the constitutionality of Proposition 12 has been challenged in two separate lawsuits, such legal challenges have been unsuccessful to date. Further, the agencies of the State of California responsible for implementation of Proposition 12 have not issued final regulations to implement the initiative. Notwithstanding the lack of final regulations, Proposition 12 will become fully effective on January 1, 2022. This segment is assessing Proposition 12 and the related costs of compliance, such as the additional capital expenditures that would be needed for construction of barns and pens provided for the requisite expanded animal spacing, in the event that it |
22
| must comply with Proposition 12. If this segment is unable to comply with Proposition 12, Seaboard would not be able to sell certain uncooked pork products in California, which accounted for approximately 9% of its direct sales for the year ended December 31, 2020, in addition to indirect sales through further processor customers. If other pork processors similarly are unable to comply with Proposition 12 and cannot sell certain uncooked pork products in California, this could result in a significant oversupply of uncooked pork products being sold in locations other than California, which could result in a significant decline in the sales prices of such products. Failure to comply with these laws and regulations and any future changes to them could result in significant consequences to Seaboard, including civil and criminal penalties, liability for damages, negative publicity and the inability to do business in certain locales. |
Item 6. |
| Exhibits |
Exhibit No. | Description | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
23
Forward-looking Statements
This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including with respect to the financial condition, results of operations, plans, objectives, future performance and business of 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 projection of revenues, income or loss, adequate liquidity levels, 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, agricultural commodities, sugar, alcohol, turkey and other products and services; (iv) the recorded tax effects under certain circumstances and changes in tax laws; (v) the volume of business and working capital requirements associated with the competitive trading environment for the CT&M segment; (vi) the charter hire rates and fuel prices for vessels; (vii) the fuel costs and related spot market prices for electricity in the Dominican Republic; (viii) the effect of the fluctuation in foreign currency exchange rates, (ix) the profitability or sales volume of any of Seaboard’s segments; (x) the anticipated costs and completion timetables for Seaboard’s scheduled capital improvements, acquisitions and dispositions; (xi) the productive capacity of facilities that are planned or under construction, and the timing of the commencement of operations at such facilities; (xii) the impact of pandemics or other public health emergencies, such as the COVID-19 pandemic or any resurgence thereof; (xiii) potential future impact on Seaboard’s business of new legislation, rules or policies; (xiv) adverse results in pending litigation matters; or (xv) 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. Forward-looking statements are based only on Seaboard’s current beliefs, expectations and assumptions regarding its future financial condition, results of operations, plans, objectives, performance and business. 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, except as required by law. 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 heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the information included under the caption “Risk Factors” in Seaboard’s latest annual report on Form 10-K, as supplemented in this Form 10-Q, identifies important factors that could cause such differences.
24
SIGNATURES
Pursuant to the requirements 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 | ||
(Registrant) | ||
by: | /s/ David H. Rankin | |
David H. Rankin | ||
Executive Vice President, Chief Financial Officer | ||
(principal financial officer) | ||
Date: November 2, 2021 | ||
by: | /s/ Michael D. Trollinger | |
Michael D. Trollinger | ||
Senior Vice President, Corporate Controller | ||
and Chief Accounting Officer | ||
(principal accounting officer) | ||
Date: November 2, 2021 | ||
25
