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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 | Six Months Ended | |||||||||||
July 1, | July 2, | July 1, | July 2, | |||||||||
(Millions of dollars except share and per share amounts) | 2023 |
| 2022 |
| 2023 |
| 2022 |
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Net sales: | ||||||||||||
Products (affiliate sales of $ | $ | | $ | | $ | | $ | | ||||
Services (affiliate sales of $ |
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Other |
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Total net sales |
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Cost of sales and operating expenses: | ||||||||||||
Products |
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Services |
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Other |
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Total cost of sales and operating expenses |
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Gross income |
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Selling, general and administrative expenses |
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Operating income (loss) |
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Other income (expense): | ||||||||||||
Interest expense |
| ( |
| ( |
| ( |
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Interest income |
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Income from affiliates |
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Other investment income (loss), net |
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| ( |
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Foreign currency gains, net |
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Miscellaneous, net |
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Total other income (expense), net |
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| ( |
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Earnings before income taxes |
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Income tax benefit |
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Net earnings | $ | | $ | | $ | | $ | | ||||
Less: Net earnings attributable to noncontrolling interests |
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| ( | ||||
Net earnings attributable to Seaboard | $ | | $ | | $ | | $ | | ||||
Earnings per common share | $ | | $ | | $ | | $ | | ||||
Average number of shares outstanding |
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Other comprehensive income (loss), net of income tax expense of $ | ||||||||||||
Foreign currency translation adjustment |
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| ( |
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Unrecognized pension cost |
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Other comprehensive income (loss), net of tax | $ | | $ | ( | $ | | $ | ( | ||||
Comprehensive income |
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Less: Comprehensive income attributable to noncontrolling interests |
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| ( | ||||
Comprehensive income attributable to Seaboard | $ | | $ | | $ | | $ | | ||||
See accompanying notes to condensed consolidated financial statements.
2
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
July 1, | December 31, |
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(Millions of dollars except share and per share amounts) | 2023 |
| 2022 |
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Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term investments |
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Receivables: |
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Trade | | | ||||
Due from affiliates | | | ||||
Other | | | ||||
Total receivables | | | ||||
Allowance for credit losses | ( | ( | ||||
Receivables, net | | | ||||
Inventories |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation of $ |
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Operating lease right-of-use assets, net | | | ||||
Investments in and advances to affiliates |
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Goodwill |
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Other non-current assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Lines of credit | $ | | $ | | ||
Accounts payable |
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Deferred revenue (includes $ | | | ||||
Operating lease liabilities | | | ||||
Other current liabilities |
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Total current liabilities |
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Long-term debt, less current maturities |
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Long-term operating lease liabilities | | | ||||
Other non-current liabilities |
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Total liabilities |
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Commitments and contingent liabilities | ||||||
Stockholders’ equity: | ||||||
Common stock of $ |
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Accumulated other comprehensive loss |
| ( |
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Retained earnings |
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Total Seaboard stockholders’ equity |
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Noncontrolling interests |
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Total equity |
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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, 2021 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income (loss): | ||||||||||||||||
Net earnings | — | — | | | | |||||||||||
Other comprehensive loss, net of tax | — | ( | — | — | ( | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, April 2, 2022 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income (loss): | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive loss, net of tax | — | ( | — | — | ( | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, July 2, 2022 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Balances, December 31, 2022 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income (loss): | ||||||||||||||||
Net loss | — | — | ( | — | ( | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, April 1, 2023 | $ | | $ | ( | $ | | $ | | $ | | ||||||
Comprehensive income: | ||||||||||||||||
Net earnings | — | — | | — | | |||||||||||
Other comprehensive income, net of tax | — | | — | — | | |||||||||||
Dividends on common stock ($ | — | — | ( | — | ( | |||||||||||
Balances, July 1, 2023 | $ | | $ | ( | $ | | $ | | $ | | ||||||
See accompanying notes to condensed consolidated financial statements.
4
SEABOARD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended |
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July 1, | July 2, | |||||
(Millions of dollars) | 2023 |
| 2022 |
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Cash flows from operating activities: | ||||||
Net earnings | $ | | $ | | ||
Adjustments to reconcile net earnings to cash from operating activities: | ||||||
Depreciation and amortization |
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Deferred income taxes |
| ( |
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Income from affiliates |
| ( |
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Dividends received from affiliates |
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Other investment loss (income), net |
| ( |
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Other, net |
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Changes in assets and liabilities, net of dispositions: | ||||||
Receivables, net of allowance for credit losses |
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Inventories |
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Other assets |
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Accounts payable | ( | | ||||
Other liabilities, exclusive of debt |
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Net cash from operating activities |
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Cash flows from investing activities: | ||||||
Purchase of short-term investments |
| ( |
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Proceeds from the sale of short-term investments |
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Proceeds from the maturity of short-term investments |
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Capital expenditures |
| ( |
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Proceeds from the sale of property, plant and equipment |
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Purchase of long-term investments |
| ( |
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Proceeds from the sale of subsidiaries, net of cash sold | — | | ||||
Proceeds from the sale of non-consolidated affiliates |
| — |
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Other, net |
| — |
| ( | ||
Net cash from investing activities |
| ( |
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Cash flows from financing activities: | ||||||
Uncommitted lines of credit, net |
| ( |
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Draws under committed lines of credit | | | ||||
Repayments of committed lines of credit | ( | ( | ||||
Principal payments of long-term debt |
| ( |
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Finance lease payments | ( | ( | ||||
Dividends paid |
| ( |
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Net cash from financing activities |
| ( |
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Effect of exchange rate changes on cash and cash equivalents |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of year |
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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
Basis of Presentation
The accompanying condensed consolidated financial statements of Seaboard Corporation and its subsidiaries (“Seaboard”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Seaboard’s annual report on Form 10-K for the year ended December 31, 2022. The unaudited financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Results of operations and cash flows for the periods presented are not necessarily indicative of results to be expected for the full year.
Related-Party Transactions
Seaboard has investments in several non-consolidated affiliates to further its business strategies and partner with other entities that have expertise in certain industries and countries. These investments are all accounted for using the equity method of accounting. Related-party transactions with these non-consolidated affiliates for product sales or services are identified on the statement of comprehensive income. As Seaboard conducts its agricultural commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, cost of sales on affiliate sales transactions cannot be distinguished without making numerous assumptions, primarily with respect to mark-to-market accounting for commodity derivatives. Purchases of raw materials or services from related parties included in Cost of sales were $
Supplemental Cash Flow Information
Non-cash investing activities for the six months ended July 1, 2023 included purchases of property, plant and equipment in accounts payable of $
Six Months Ended | ||||||||
July 1, | July 2, | |||||||
(Millions of dollars) | 2023 | 2022 | ||||||
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 | | | ||||||
ROU assets obtained in exchange for new lease liabilities: | ||||||||
Operating leases | $ | | $ | | ||||
Finance leases | | | ||||||
Goodwill and Other Intangible Assets
The change in the carrying amount of goodwill was related to foreign currency translation differences of $
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Note 2 – Investments
The following is a summary of the estimated fair value of short-term investments classified as trading securities:
July 1, | December 31, |
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(Millions of dollars) |
| 2023 | 2022 |
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Domestic debt securities | $ | | $ | | |||
Domestic equity securities | | | |||||
Foreign equity securities |
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Money market funds held in trading accounts | | | |||||
Foreign debt securities | | | |||||
Other trading securities | | | |||||
Total trading short-term investments | $ | | $ | | |||
The unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was $
Seaboard had $
As of July 1, 2023 and December 31, 2022, Seaboard had long-term investments of $
Note 3 – Inventories
The following is a summary of inventories:
July 1, | December 31, |
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(Millions of dollars) |
| 2023 |
| 2022 | |||
At lower of FIFO cost and net realizable value (“NRV”): | |||||||
Hogs and materials | $ | | $ | | |||
Pork products and materials |
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Grains, oilseeds and other commodities |
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Biofuels and related credits | | | |||||
Other |
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Total inventories at lower of FIFO cost and NRV |
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Grain, flour and feed at lower of weighted average cost and NRV |
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Total inventories | $ | | $ | | |||
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Note 4 – Lines of Credit, Long-Term Debt, Commitments and Contingencies
Lines of Credit
As of July 1, 2023, the outstanding balances under committed and uncommitted lines of credit were $
On March 28, 2023, Seaboard amended and restated its committed line of credit agreement to increase the borrowing capacity and extend the maturity date. This $
Long-Term Debt
Long-term debt includes borrowings under term loans and other contractual obligations, including notes payable.
The following is a summary of long-term debt:
July 1, | December 31, | ||||||
(Millions of dollars) | 2023 | 2022 | |||||
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 | $ | | $ | | |||
On June 30, 2023, Seaboard amended and restated its Term Loan due 2028 credit agreement to change the interest reference rate from the London Inter-Bank Offered Rate (“LIBOR”) to SOFR due to the discontinuation of LIBOR as of June 30, 2023. The amendment was accounted for using the practical expedient option offered by current guidance which allows for contract modifications resulting in a new reference rate be accounted for as a continuation of the existing contract. The Term Loan due 2028 bears interest at fluctuating rates based on margins over a Base Rate or SOFR, at the option of the borrower, based on terms defined in credit agreement. 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 July 1, 2023.
Legal Proceedings
Seaboard is subject to various legal proceedings and claims which arise in the ordinary course of business. In Seaboard’s opinion, it has made appropriate and adequate accruals for claims where necessary as of July 1, 2023; however, the ultimate liability for these matters is uncertain, and if significantly different than the amounts accrued, the outcome could have a material effect on the financial condition or results of operations of Seaboard. Costs for litigating claims are expensed as incurred.
Helms-Burton Act Litigation
On July 21, 2021, a lawsuit was filed by an individual, Odette Blanco de Fernandez (“Ms. de Fernandez”), and the heirs (“Inheritors”) and estates (“Estates”) of
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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 acquires an ownership interest in such property for money damages in an amount equal to the greater of the current fair market 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 complaint in each of the cases alleges that the Plaintiffs acquired ownership interests to a
The Florida District Court in the Seaboard Marine case dismissed the claims of the Inheritors and the Estates because they did not acquire the ownership claims prior to March 1996, as required by the Act. The remaining plaintiff, Ms. de Fernandez, contends she owns
As to the suit against Seaboard Corporation, on October 21, 2021, the Plaintiffs filed an amended complaint which principally added allegations that there were other callings made by Seaboard Marine at the Port of Mariel and that Seaboard Corporation engaged in a pattern of doing business with individuals and entities in contravention of U.S. foreign policy. Seaboard Corporation filed a Motion to Dismiss which is pending. On September 28, 2022, the Delaware District Court stayed this lawsuit against Seaboard Corporation until 30 days after the outcome of the appeal in the Seaboard Marine case.
On March 24, 2023, the Plaintiffs, Seaboard Marine and Seaboard Corporation entered into a settlement agreement to settle the cases against Seaboard Marine and Seaboard Corporation for an immaterial amount that was contingent on the Florida District Court vacating the Summary Judgment entered in favor of Seaboard Marine on August 19, 2022. On June 13, 2023 the Florida District Court denied the Motion to Vacate the Summary Judgement and this denial order was not appealed. As such, the settlement is of no force and effect, and the Appeal will continue. Seaboard believes that it has meritorious defenses to the claims and intends to vigorously defend the litigation. However, the outcome of litigation is inherently unpredictable and subject to significant uncertainties, and if unfavorable, could result in a material liability.
Pork Price-Fixing Antitrust Litigation
On June 28, 2018,
Additional standalone plaintiffs filed similar actions in federal courts throughout the country, several of which named Seaboard Corporation as a defendant. Those actions filed in courts other than the District of Minnesota have been conditionally transferred to Minnesota for pretrial proceedings pursuant to an order by the Judicial Panel on Multidistrict Litigation. The states of New Mexico and Alaska filed civil cases in state court against substantially the same defendants, including Seaboard Foods and Seaboard Corporation, based on substantially similar allegations. Except in the New Mexico action, all claims against Seaboard Corporation have been dismissed without prejudice.
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On June 12, 2023, Seaboard Foods entered into a settlement agreement with the putative direct purchaser plaintiff class (the “DPP Class”), which settlement is subject to court approval. Pursuant to this agreement, Seaboard agreed to pay the DPP Class approximately $
Seaboard believes that it has meritorious defenses to the claims alleged in these matters and intends to vigorously defend any matters not resolved by the above settlement. 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. However, the outcome of litigation is inherently unpredictable and subject to significant uncertainties, and if unfavorable, could result in a material liability.
Pork Compensation Antitrust Litigation
On November 11, 2022,
On June 23, 2023, Seaboard Foods reached a settlement with the Class to settle the Class Action for an immaterial amount, which settlement is subject to approval of the Court. Members of the Class will have the opportunity to opt-out of the Class and commence their own actions.
Cereoil and Nolston Litigation
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 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 filed an additional 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
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inflation adjustment, interest, the Trustee’s fees and other expenses. Any award in this case should be reduced by the amount of any award in the Clawback Action described above that is paid to Cereoil.
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 (the “Kansas District Court”) 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 $
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
Guarantees
Certain of Seaboard’s non-consolidated affiliates have debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of such debt in order to further Seaboard’s business objectives. As of July 1, 2023, guarantees outstanding were not material. Seaboard has not accrued a liability for any of the guarantees as the likelihood of loss is remote.
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Note 5 – Derivatives and Fair Value of Financial Instruments
The following tables show assets and liabilities measured at fair value on a recurring basis and 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.
July 1, |
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(Millions of dollars) | 2023 | Level 1 | Level 2 | Level 3 |
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Assets: | |||||||||||||
Trading securities – short-term investments: | |||||||||||||
Domestic debt securities | $ | | $ | | $ | | $ | — | |||||
Domestic equity securities |
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| — |
| — | |||||
Foreign equity securities | | | — | — | |||||||||
Money market funds held in trading accounts |
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| | — | — | |||||||
Foreign debt securities | | — | | — | |||||||||
Other trading securities | | — | | — | |||||||||
Trading securities – other current assets | | | | — | |||||||||
Long-term investment - BDC | | — | | — | |||||||||
Derivatives | | | | — | |||||||||
Total assets | $ | | $ | | $ | | $ | — | |||||
Liabilities: | |||||||||||||
Contingent consideration | $ | | $ | — | $ | — | $ | | |||||
Derivatives | | | | — | |||||||||
Total liabilities | $ | | $ | | $ | | $ | | |||||
December 31, |
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(Millions of dollars) | 2022 | Level 1 | Level 2 | Level 3 |
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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 |
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| — |
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| — | |||||
Trading securities – other current assets | | | | — | |||||||||
Long-term investment - BDC |
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| — |
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| — | |||||
Derivatives | | | — | — | |||||||||
Total assets | $ | | $ | | $ | | $ | — | |||||
Liabilities: | |||||||||||||
Contingent consideration | $ | | $ | — | $ | — | $ | | |||||
Derivatives | | | | — | |||||||||
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 exchange-traded funds.
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 valued at net asset value, but is subject to contractual sale restrictions pursuant to shareholder arrangements.
Seaboard’s contingent consideration is related to a 2018 acquisition. The fair value is dependent on the probability of the acquiree achieving certain financial performance targets using earnings before interest, taxes, depreciation and
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amortization (“EBITDA”) as a metric. The contingent consideration ranges between
The fair value of long-term debt is estimated by comparing interest rates for debt with similar terms and maturities. As Seaboard’s long-term debt is mostly variable-rate, its carrying amount approximates fair value. If Seaboard’s long-term debt was measured at fair value on its condensed consolidated balance sheets, it would have been classified as level 2 in the fair value hierarchy. See Note 4 for a discussion of Seaboard’s long-term debt.
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. Seaboard also enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies. From time to time, Seaboard enters into interest rate swap agreements to manage the interest rate risk with respect to certain variable rate long-term debt and enters into equity futures contracts to manage the equity price risk with respect to certain short-term investments. Although 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 materially changed since December 31, 2022.
Seaboard had the following aggregated outstanding notional amounts related to derivative financial instruments:
July 1, | December 31, | ||||||||||||||
(Millions) | Metric | 2023 | 2022 | ||||||||||||
Commodities: | |||||||||||||||
Grain | Bushels | | | ||||||||||||
Hogs | Pounds | | | ||||||||||||
Soybean oil | Pounds | | | ||||||||||||
Foreign currencies | U.S. dollar | | | ||||||||||||
Credit risks associated with these derivative contracts are not significant because Seaboard minimizes counterparty exposure by dealing with credit-worthy counterparties and using margin accounts for some contracts. As of July 1, 2023, 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 fair value of each type of derivative held and where each derivative is included in the condensed consolidated balance sheets:
Asset | Liability | ||||||||||||||||
July 1, | December 31, | July 1, | December 31, | ||||||||||||||
(Millions of dollars) |
|
| 2023 |
| 2022 |
|
| 2023 |
| 2022 | |||||||
Commodities |
| $ | | $ |
| $ | | $ | |||||||||
Foreign currencies |
|
| |
| — |
|
| |
| | |||||||
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 July 1, 2023 and December 31, 2022, the commodity derivatives had a margin account balance of $
13
The following table provides the amount of gain or (loss) recognized in income for each type of derivative and where it was recognized in the condensed consolidated statements of comprehensive income:
Three Months Ended | Six Months Ended | ||||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||||
(Millions of dollars) |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
Commodities |
| $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Foreign currencies |
|
| ( |
| ( |
| |
| ( | ||||||
Foreign currencies |
|
| ( |
| |
| ( |
| | ||||||
Note 6 – Stockholders’ Equity and Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss (“AOCL”), net of related taxes, were as follows:
Cumulative | ||||||||||
Foreign | Cumulative | |||||||||
Currency | Unrecognized | |||||||||
Translation | Pension | |||||||||
(Millions of dollars) | Adjustment | Cost | Total | |||||||
Balance December 31, 2021 | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive loss before reclassifications |
| ( |
| ( |
| ( | ||||
Amounts reclassified from AOCL to net earnings |
| | (b) |
| | (a) |
| | ||
Other comprehensive loss, net of tax |
| ( |
| — |
| ( | ||||
Balance April 2, 2022 | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive loss before reclassifications |
| ( |
| — |
| ( | ||||
Amounts reclassified from AOCL to net earnings |
| — |
| | (a) |
| | |||
Other comprehensive income (loss), net of tax |
| ( |
| |
| ( | ||||
Balance July 2, 2022 | $ | ( | $ | ( | $ | ( | ||||
Balance December 31, 2022 | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income before reclassifications |
| |
| |
| | ||||
Amounts reclassified from AOCL to net earnings |
| — |
| | (a) |
| | |||
Other comprehensive income, net of tax |
| |
| |
| | ||||
Balance April 1, 2023 | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income before reclassifications |
| |
| |
| | ||||
Amounts reclassified from AOCL to net earnings |
| — |
| — | (a) |
| — | |||
Other comprehensive income, net of tax |
| |
| |
| | ||||
Balance July 1, 2023 | $ | ( | $ | ( | $ | ( | ||||
| (a) | This reclassification adjustment primarily represents the amortization of actuarial losses (gains) that were included in net periodic pension cost. |
| (b) | This reclassification adjustment reflects the recognition of a currency translation adjustment upon the disposition of a CT&M business in Brazil whose functional currency was the Brazilian real. |
14
Note 7 – Segment Information
Seaboard has
The following tables present Seaboard’s sales disaggregated by revenue source and segment:
Net Sales: | Three Months Ended July 1, 2023 | |||||||||||||||||||||
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: | Three Months Ended July 2, 2022 | |||||||||||||||||||||
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: | Six Months Ended July 1, 2023 | |||||||||||||||||||||
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: | Six Months Ended July 2, 2022 | |||||||||||||||||||||
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 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
15
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 | Six Months Ended |
| ||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Pork | $ | ( | $ | | $ | ( | $ | | |||||
CT&M |
| |
| |
| | | ||||||
Marine |
| |
| |
| | | ||||||
Sugar and Alcohol |
| |
| — |
| | | ||||||
Power |
| |
| |
| |
| | |||||
All Other |
| |
| |
| |
| | |||||
Segment Totals |
| ( |
| |
| ( |
| | |||||
Corporate |
| ( |
| ( |
| ( |
| ( | |||||
Consolidated Totals | $ | ( | $ | | $ | ( | $ | | |||||
Income (Loss) from Affiliates: | Three Months Ended | Six Months Ended | |||||||||||
July 1, | July 2, | July 1, | July 2, |
| |||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Pork | $ | | $ | | $ | | $ | | |||||
CT&M | ( | | ( | | |||||||||
Marine | | | | | |||||||||
Sugar and Alcohol |
| — |
| — |
| — |
| — | |||||
Power | — | — | — | — | |||||||||
Turkey |
| |
| |
| |
| | |||||
Segment/Consolidated Totals | $ | | $ | | $ | | $ | | |||||
16
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: | July 1, | December 31, |
| ||||
(Millions of dollars) |
| 2023 |
| 2022 |
| ||
Pork | $ | | $ | ||||
CT&M |
| |
| ||||
Marine |
| |
| ||||
Sugar and Alcohol |
| |
| ||||
Power |
| |
| ||||
Turkey |
| |
| ||||
All Other |
| |
| ||||
Segment Totals |
| |
| ||||
Corporate |
| |
| ||||
Consolidated Totals | $ | | $ | ||||
Investments in and Advances to Affiliates: | July 1, | December 31, |
| ||||
(Millions of dollars) |
| 2023 |
| 2022 |
| ||
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 July 1, 2023 and December 31, 2022, Butterball had total assets of $
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net sales | $ | | $ | | $ | | $ | | |||||
Operating income | $ | | $ | | $ | | $ | | |||||
Net earnings | $ | | $ | | $ | | $ | | |||||
17
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 consolidated financial statements and the accompanying notes included in this quarterly report on Form 10-Q and within Seaboard’s annual report on Form 10-K filed for the year ended December 31, 2022 (the “2022 Annual Report”). Certain statements in this report contain forward-looking statements. See the section 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.
RECENT DEVELOPMENTS
As previously disclosed, on July 8, 2023, Seaboard received a proposal from entities affiliated with Ellen S. Bresky, the Chairwoman of Seaboard’s Board of Directors, and other members of the Bresky family, including Seaboard Flour LLC, SFC Preferred, LLC, SJB SEB LLC, trusts created for the benefit of members of the Bresky family and The Wally Foundation (collectively, the “Bresky Group”), that Seaboard repurchase, directly or indirectly, at least $600 million in shares of common stock, $1.00 par value per share, of Seaboard (“Common Stock”) currently held by the Bresky Group, at a price per share of Common Stock to be mutually agreed (the “Proposal”).
The Board of Directors of Seaboard has formed a special committee (the “Special Committee”) comprised of two independent directors to evaluate the Proposal and any other form of return of capital that may be proposed by the Bresky Group. The Special Committee has also retained independent legal counsel and has retained an independent financial advisor to assist in its review of the Proposal. The Special Committee's grant of authority provides that no repurchase or alternative proposed capital return transaction involving Seaboard and the Bresky Group may be consummated without the prior favorable recommendation of the Special Committee. The Proposal does not constitute a binding commitment with respect to a repurchase or any other transaction. No agreement, arrangement or understanding between Seaboard and the Bresky Group relating to any proposed capital return transaction will be created unless definitive documentation is executed and delivered by the appropriate parties. There can be no assurance that the Proposal or any related or alternative transaction will be completed or, if completed, what the terms of such transaction will be.
LIQUIDITY AND CAPITAL RESOURCES
Management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities are adequate for its existing operations and any currently known potential plans for expansion in both the short-term and long-term. It is management’s intent to continue seeking expansion opportunities in the industries in which Seaboard operates, and to utilize existing liquidity, available borrowing capacity and other financing alternatives for such opportunities. 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.
Liquidity includes cash and cash equivalents, short-term investments and availability under line of credit facilities. As of July 1, 2023, Seaboard had cash and short-term investments of nearly $1.3 billion and additional total net working capital of $1.1 billion. The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.
| Total Amount |
| ||
(Millions of dollars) | Available | |||
Short-term uncommitted and committed lines | $ | 1,318 | ||
Amounts drawn against lines |
| (444) | ||
Available borrowing capacity as of July 1, 2023 | $ | 874 | ||
Seaboard’s available borrowing capacity increased $206 million from December 31, 2022. Seaboard’s committed line of credit agreement was amended and restated during the first quarter of 2023, increasing the committed borrowing capacity from $250 million to $450 million.
As of July 1, 2023, $109 million of the $1.3 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. During 2022, Seaboard reversed its indefinite reinvestment assertion in connection with previously-taxed undistributed earnings of its Seaboard Marine subsidiary due to the operational efficiencies of repatriating and recorded a deferred tax liability. For all other
18
foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. Determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.
As discussed above, subsequent to period end, Seaboard received the Proposal from the Bresky Group to repurchase at least $600 million of Common Stock currently held by the Bresky Group. The Special Committee is currently evaluating the Proposal with the assistance of its independent advisors. If Seaboard accepts the Proposal or a similar return of capital or alternative transaction, Seaboard may need to fund the repurchases through a combination of cash on hand, cash generated from the sale of marketable securities, third-party debt financing, debt security offerings, or any combination thereof, which would impact Seaboard’s liquidity position.
Cash Flows
Cash provided by operating activities increased $87 million for the six months ended July 1, 2023, compared to the same period in 2022. Seaboard’s net earnings, adjusted for non-cash items, decreased $349 million, but Seaboard had positive cash flow from working capital changes of $410 million. The working capital changes reflected a decrease in accounts receivable due to lower revenues, a decrease in inventories due to lower inventory prices, and a decrease in accounts payable due to timing of payments on purchases.
Cash flows from investing activities for short-term investments are part of Seaboard’s overall liquidity management strategy. Short-term investment purchases are a result of the investment of excess cash, asset allocation from the active management of the portfolio and re-investment of matured securities. Proceeds from the sale of short-term investments may be used to fund working capital needs and capital expenditure purchases. During the six months ended July 1, 2023, Seaboard invested $219 million in property, plant and equipment, of which $151 million was invested in the Pork segment for biogas recovery projects, normal replacement of breeding herd and other investments, and $58 million was invested in the Marine segment to purchase a used vessel, installment payments on vessels under construction and other investments. During the second quarter of 2023, Seaboard’s Marine segment executed contracts to build two smaller twenty-foot equivalent unit dual-fueled vessels that are estimated to cost $49 million each for a total cash outlay of approximately $98 million. These vessels are expected to be complete in late 2025. For the remainder of 2023, management has budgeted capital expenditures totaling approximately $390 million. Planned expenditures in the Pork segment are primarily for biogas recovery projects, normal replacement of breeding herd, further investment in hog production assets and other investments. At certain hog farms, the Pork segment is constructing biogas recovery facilities to capture methane from its hog lagoons and inject it as renewable natural gas into the local pipeline infrastructure. Planned expenditures in the Marine segment include installment payments on vessels under construction. Management anticipates paying for these capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.
Cash flows from financing activities primarily include draws and repayments on lines of credit. Seaboard’s lines of credit are used to fund working capital and investments in capital expenditures, as needed. The primary debt outstanding is a Term Loan due in 2028 with a balance of $667 million as of July 1, 2023.
RESULTS OF OPERATIONS
Overall, Seaboard’s businesses were impacted by the volatility in the commodity grain, hog and fuel markets and a general softening of global demand. As Seaboard’s operations are heavily commodity-driven, financial performance for certain subsidiaries is very cyclical based on respective commodity markets.
Net Sales
Net sales for the three- and six-month periods of 2023 decreased $580 million and $790 million, respectively, compared to the same periods in 2022. The decrease primarily reflected a decline of $376 million and $602 million, respectively, in sales in the CT&M segment due to a decrease in volumes and sales prices of commodities sold, a decline of $167 million and $185 million, respectively, in sales in the Marine segment due to a decline in cargo volumes, and a decrease in sales in the Pork segment of $68 million and $74 million, respectively, primarily as a result of lower pork sales prices. The decreases were partially offset by an increase in the Power segment sales of $16 million and $50 million, respectively, as a result of an increase in EDM III power generation. See the net sales discussion by reportable segment below for more details.
19
Operating Income (Loss)
Operating income decreased $196 million and $405 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The decrease primarily reflected a decline of $105 million and $344 million, respectively, in operating income in the Pork segment due to lower selling prices on pork products and higher hog costs and a decline of $95 million and $112 million, respectively, in operating income in the Marine segment due to a decline in voyage revenue. See the operating income discussion by reportable segment below for more details.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $11 million and $18 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022, primarily due to higher personnel costs.
Interest Expense
Interest expense increased $8 million and $22 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022, primarily due to higher interest rates on outstanding debt.
Interest Income
Interest income increased $7 million and $15 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022, primarily due to higher interest earned on debt securities.
Other Investment Income (Loss), Net
Other investment income, net increased $185 million and $277 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022, primarily due to unrealized mark-to-market gains on short-term investments. Also in the second quarter of 2022, there was a $46 million charge recorded related to a long-term solar energy investment. The charge on this long-term investment was offset with the benefit of the investment tax credits recorded in income tax benefit (expense).
Income Tax Benefit (Expense)
The effective tax rate for the three- and six-month periods of 2023 decreased compared to the three- and six-month periods of 2022, primarily due to lower forecasted earnings compared to prior year.
Segment Results
See Note 7 to the condensed consolidated financial statements for a reconciliation of net sales and operating income (loss) by reportable segment to consolidated net sales and consolidated operating income (loss), respectively.
Pork Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net sales | $ | 595 | $ | 663 | $ | 1,209 | $ | 1,283 | |||||
Operating income (loss) | $ | (104) | $ | 1 | $ | (316) | $ | 28 | |||||
Income from affiliates | $ | 9 | $ | 7 | $ | 19 | $ | 7 | |||||
Net sales for the Pork segment decreased $68 million and $74 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The decrease was primarily the result of lower sales prices of pork products and market hogs due to declines in commodity market pricing reducing net sales by $107 million and $165 million, respectively, and lower biodiesel sales of $52 million and $53 million, respectively, primarily related to the timing of sales of related credits. The decrease was partially offset by an increase in sales from the renewable diesel plant in Hugoton, Kansas of $62 million and $116 million, respectively, that began operations during the third quarter of 2022. Additionally, higher volumes of pork products sold contributed to higher sales of $29 million and $28 million, respectively.
Operating income for the Pork segment decreased $105 million and $344 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The decrease for the three-month period primarily reflected $127 million in lower margins on pork products and market hogs due to lower sales prices and higher hog costs, including an increase in feed costs of $55 million offset by a decrease of $43 million to the lower of cost and net realizable value (“LCNRV”) inventory reserve. An inventory adjustment has been necessary in recent periods to properly state the hog inventory balances at quoted future market prices for pork products and grain costs. Biodiesel and renewable diesel margins were higher due to no mark-to-market derivative contract losses in the three-month period of 2023 compared to $20 million of such losses in the same period during 2022 and the commencement of operations in Hugoton, Kansas,
20
partially offset by lower biodiesel margins related to lower sales prices and higher costs. The decrease for the six-month period primarily reflected $340 million in lower margins on pork products and market hogs due to lower sales prices and higher hog costs, including an increase in feed costs of $129 million and a total net increase to the LCNRV inventory reserve of $10 million. Lower biodiesel and renewable diesel margins due to lower sales prices and higher raw material costs were offset with no mark-to-market derivative contracts losses for the period compared to $36 million for the six months ended July 2, 2022. Management is unable to predict market prices for pork products, biodiesel, renewable diesel or the cost of feed or third-party hogs for future periods; however, based on current conditions management anticipates this segment will not be profitable for the remainder of 2023.
CT&M Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Net sales | $ | 1,335 | $ | 1,711 | $ | 2,679 | $ | 3,281 | |||||
Operating income as reported | $ | 17 | $ | 30 | $ | 60 | $ | 42 | |||||
Mark-to-market adjustments |
| 14 |
| 9 |
| 7 |
| 27 | |||||
Operating income excluding mark-to-market adjustments | $ | 31 | $ | 39 | $ | 67 | $ | 69 | |||||
Income (loss) from affiliates | $ | (2) | $ | 4 | $ | (10) | $ | 9 | |||||
Net sales for the CT&M segment decreased $376 million and $602 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. For the three-month period, sales decreased $204 million due to lower volumes of certain commodities sold related to increased competition and market dynamics and $172 million due to lower average sales prices as a result of commodity price fluctuations. For the six-month period, sales decreased $540 million due to lower volumes as a result of increased competition and market dynamics and $62 million due to lower average sales prices. Sales prices for many of Seaboard’s products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces.
Operating income for the CT&M segment decreased $13 million for the three-month period and increased $18 million for the six-month period of 2023 compared to the same periods in 2022. The decrease for the three-month period was primarily due to lower margins resulting from lower volumes and sales prices. The increase for the six-month period primarily reflected the change of $20 million in mark-to-market adjustments on derivative contracts. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates and the volatility in the commodity markets, 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 2023, excluding the effects of mark-to-market adjustments on derivative contracts.
Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been higher by $14 million and $7 million for the three- and six-month periods of 2023, respectively, and higher by $9 million and $27 million for the three- and six-month periods of 2022, 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 2023. Management believes that eliminating these mark-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.
Marine Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Net sales | $ | 356 | $ | 523 | $ | 804 | $ | 989 | |||||
Operating income | $ | 60 | $ | 155 | $ | 156 | $ | 268 | |||||
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Net sales for the Marine segment decreased $167 million and $185 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. Cargo volumes decreased approximately 26% and 21% for the three- and six-month periods, respectively. Freight rates began declining during the first quarter of 2023 and continued to decline through the second quarter of 2023. The decline in cargo volumes and freight rates is primarily a result of a general decrease in demand for ocean transportation services.
Operating income for the Marine segment decreased $95 million and $112 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The decrease for the three- and six-month periods was primarily the result of lower voyage revenue, partially offset by lower voyage-related costs, such as slot costs, terminal services and intermodal trucking costs, due to the lower cargo volumes. Management cannot predict changes in fuel costs or other voyage-related costs, cargo volumes or cargo rates for future periods; however, management anticipates this segment will be profitable for the remainder of 2023, though operating income is expected to be lower than the prior year.
Sugar and Alcohol Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Net sales | $ | 40 | $ | 24 | $ | 78 | $ | 55 | |||||
Operating income | $ | 3 | $ | — | $ | 9 | $ | 2 | |||||
Net sales for the Sugar and Alcohol segment increased $16 million and $23 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The increase in sugar sales of $7 million and $11 million for the three- and six-month periods, respectively, primarily reflected higher prices of sugar as a result of a decrease in market supply. The increase in alcohol sales of $9 million and $12 million for the three- and six-month periods, respectively, primarily reflected higher volumes and prices of alcohol sold due to governmental price adjustments.
Operating income for the Sugar and Alcohol segment increased $3 million and $7 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The increase primarily reflected higher margins on sugar sales. Management cannot predict local sugar and alcohol prices or the volatility in the currency exchange rate for future periods; however, management anticipates this segment will be profitable for the remainder of 2023.
Power Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Net sales | $ | 63 | $ | 47 | $ | 115 | $ | 65 | |||||
Operating income | $ | 22 | $ | 6 | $ | 32 | $ | 1 | |||||
Net sales for the Power segment increased $16 million and $50 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. More power generation from EDM III, which began operations in June of 2022, contributed to an increase in sales of $21 million and $55 million for the three- and six-month periods, respectively. More power generation from EDM II, which began operations in 2012, was offset by lower spot market rates primarily due to lower fuel prices.
Operating income for the Power segment increased $16 million and $31 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. The increase was primarily due to more income generated from EDM III’s operations. Management cannot predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods; however, management anticipates this segment will be profitable for the remainder of 2023. While EDM II remains in operation in the Dominican Republic, Seaboard continues to explore strategic alternatives for this barge, including a sale or relocation.
Turkey Segment
Three Months Ended | Six Months Ended | ||||||||||||
July 1, | July 2, | July 1, | July 2, | ||||||||||
(Millions of dollars) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Income from affiliates | $ | 16 | $ | 11 | $ | 41 | $ | 27 | |||||
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The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC. Income from affiliates increased $5 million and $14 million for the three- and six-month periods of 2023, respectively, compared to the same periods in 2022. Butterball’s net income improved in both periods primarily due to an increase in sales, partially offset by higher production costs. The increase in sales for the three- and six-month periods of 2023 primarily reflected an increase in average selling price of 7% and 12%, respectively, as a result of a stronger mix of valued-added products. Seaboard’s income from affiliates for the six-month period was partially offset by a $13 million gain on the sale of a business that was recorded in the first quarter of 2022. Management is unable to predict market prices for turkey products and the cost of feed for future periods; however, management anticipates this segment will be profitable for the remainder of 2023.
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, 2022. See Note 5 to the condensed consolidated financial statements for further discussion of market risk exposure.
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 July 1, 2023. 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 July 1, 2023 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 additional risk factor and update to the risk factor set forth below, there have been no material changes in the risk factors as previously disclosed in the 2022 Annual Report. The first risk factor supplements the risk factors set forth in the 2022 Annual Report. The second risk factor replaces and supersedes the risk factor with the same title set forth in the 2022 Annual Report.
Business and Operational Risks
| (8) | A group of stockholders owns approximately 78% of the outstanding shares of Seaboard common stock and has proposed that Seaboard repurchase, directly or indirectly, at least $600 million in shares of common stock held by the stockholders at a price per share to be mutually agreed by the parties. The consummation of any future transaction by the parties may adversely affect Seaboard's liquidity and any future sales of stock by such stockholders to third parties in the open market or in privately negotiated transactions may adversely impact the market price of Seaboard’s common stock. Seaboard has received a proposal from entities affiliated with Ellen S. Bresky, the Chairwoman of Seaboard's Board of Directors, and other members of the Bresky family, including Seaboard Flour LLC, SFC Preferred, LLC, SJB SEB LLC, trusts created for the benefit of members of the Bresky family and The Wally Foundation (collectively, the “Bresky Group”) that Seaboard repurchase, directly or |
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| indirectly, at least $600 million in shares of common stock currently held by the Bresky Group, at a price per share of common stock to be mutually agreed (the “Proposal”). The Board of Directors of Seaboard has formed a special committee (the “Special Committee”) comprised of two independent directors to evaluate the Proposal and any other form of return of capital that may be proposed by the Bresky Group. The Special Committee’s grant of authority provides that no repurchase or alternative proposed capital return transaction involving Seaboard and the Bresky Group may be consummated without the prior favorable recommendation of the Special Committee. The Proposal does not constitute a binding commitment with respect to a repurchase or any other transaction. No agreement, arrangement or understanding between Seaboard and the Bresky Group relating to any proposed capital return transaction will be created unless definitive documentation is executed and delivered by the appropriate parties. |
Variations in the market price of Seaboard common stock may occur as a result of changing assumptions regarding the transaction proposed in the Proposal, independent of changes in Seaboard's business, financial condition or prospects or changes in general market or economic conditions. As a result, a definitive agreement regarding the Proposal, or a failure to reach a definitive agreement regarding the Proposal, could result in a significant change in the market price of Seaboard common stock. In the event that Seaboard agrees to a repurchase or alternative proposed capital return transaction with the Bresky Group or any other return of capital transaction, Seaboard's liquidity may be adversely affected. Seaboard expects to incur costs in connection with the consideration of the Proposal, including costs of financial and legal advisors to the Special Committee and legal advisors to Seaboard. In addition, members of the Bresky Group may sell shares to third parties in open market or privately negotiated transactions. No prediction can be made as to the effect, if any, such future sales may have on the market price of the shares of Seaboard common stock prevailing from time to time. However, the future sale of a substantial number of shares by members of the Bresky Group to third parties, or the perception that such sales could occur, could adversely affect prevailing market prices for shares of Seaboard common stock.
Legal and Regulatory Risks
| (2) | Operations Are Subject to Complex Laws and Regulations. Federal, state and local laws, and domestic and international regulations governing worker health and safety, food safety and animal health and welfare, port and terminal security and the operation of vessels, including fuel regulations, significantly affect revenues, costs and the manner or feasibility of doing business. Some requirements applicable to Seaboard may also be enforced by citizen groups. |
| ● | In the Pork segment, select states have implemented varying standards related to the required living conditions for breeding sows. Some laws apply to animals grown in the state of enactment while, more recently, several states have enacted laws that prohibit the sale of meat from non-compliant animals grown in any of the fifty states or foreign countries. Diversity of standards for housing sows requires each producer to implement separate record keeping to track compliant animals through the growing process to the processing plant, and finished products from the processing plant to third party purchasers. Such laws can also impose civil and criminal penalties for failing to comply. Animal production assets have long expected useful lives. The enactment of more stringent standards can impair the value of existing assets, increase the cost of production and distribution, lower the value of non-compliant products and/or disrupt the market for pork which could result in a reduction in the sales prices of pork products. Incrementally, strict growing standards could cause the creation of regional markets of compliant products or require the industry to build compliant assets for each market. For example, the state of California enacted the Farm Animal Confinement Initiative (“Proposition 12”) which became enforceable on July 1, 2023. Proposition 12 prohibits the sale within the state of certain uncooked pork produced from breeding sows or their offspring unless certain conditions are met. Similarly, Massachusetts Question 3 prohibits the sale of certain pork products within the state of Massachusetts, as well as the shipment of certain pork products through the state. The volume of such pork sold into California and Massachusetts accounted for approximately 5% of Seaboard’s direct sales for the year ended December 31, 2022, in addition to indirect sales through further processor customers. |
| ● | In the Marine segment, many aspects of the shipping industry, including rate agreements and vessel cost sharing agreements, are subject to extensive governmental regulation by the Federal Maritime Commission, the U.S. Coast Guard, and U.S. Customs and Border Protection, as well as regulation by private industry organizations. Compliance with applicable laws, regulations and standards may require capital investments or operational changes. As an example, this segment may be adversely impacted by |
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| changes in vessel fuel consumption efficiency requirements. Certain ships, based on their capacity and other factors, may have to meet certain energy usage standards while sailing. The net effect could be that ships, particularly small ones which are less efficient on a twenty-foot equivalent unit basis, might need to reduce speed to consume less fuel. Failure to comply may result in administrative and civil penalties, criminal sanctions, the suspension or termination of Seaboard’s operations or detention of its vessels. |
| ● | In the Sugar and Alcohol segment, Seaboard’s alcohol production facility is affected by Argentine government regulations regarding production quotas, fuel blends and sales prices in the bioethanol market. |
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. In addition, future changes in laws, regulations and standards may result in additional costs or a reduction in revenues.
Item 5. Other Information
During the three months ended July 1, 2023, director or officer of Seaboard adopted or terminated a “Rule b5-1 trading arrangement” or “non-Rule b5- trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. There were no reportable events during the quarter ended July 1, 2023 otherwise reportable under this Item 5.
Item 6. |
| Exhibits |
Exhibit No. | Description | |
10.1 | ||
10.2* | ||
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) | |
*Management contract or compensatory plan or arrangement | ||
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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, renewable diesel and biodiesel, freight, 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) potential future impact on Seaboard’s business of new legislation, rules or policies; (xiii) adverse results in pending litigation matters; (xiv) Seaboard's receipt of a proposal from certain controlling stockholders to repurchase shares of their common stock or enter into an alternative capital return transaction and Seaboard's response thereto; 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. Such factors include risks associated with international operations, including Russia’s invasion of Ukraine, deterioration of economic conditions, and increasing recessionary risks, interest rate fluctuations, inflation, systemic pressures in the banking industry, including potential disruptions in credit markets, supply chain and labor market disruptions, stock price fluctuations, decentralization of operations, investments in non-consolidated affiliates, cyber-attacks and cybersecurity breaches, the food industry, health risks to animals, fluctuations in commodity prices, increases in costs of purchase, difficulties in obtaining and retaining appropriate personnel, the loss or closure of principal properties, disruptions of operations of suppliers and co-packers, ocean transportation, fluctuations in fuel costs, general risks of litigation, compliance with complex rules and regulations, including stringent environmental regulation, actions considered or taken by certain controlling stockholders to obtain a return of capital, and specific risks relating to Seaboard's segments. 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, describes these factors and identifies other important factors that could cause such differences.
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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: August 1, 2023 | ||
by: | /s/ Barbara M. Smith | |
Barbara M. Smith | ||
Vice President, Corporate Controller | ||
(principal accounting officer) | ||
Date: August 1, 2023 | ||
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