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EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - SEABOARD CORP /DE/seb-20161001ex311389d0d.htm
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - SEABOARD CORP /DE/seb-20161001ex322f5cfb6.htm
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - SEABOARD CORP /DE/seb-20161001ex321d1bbda.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - SEABOARD CORP /DE/seb-20161001ex31254b549.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended October 1, 2016

 

OR

 

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

 

For the transition period from __________________________ to __________________________

 

Seaboard Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

1-3390

 

04-2260388

(State or other jurisdiction of

 

(Commission

 

(I.R.S. Employer

incorporation)

 

File Number)

 

Identification No.)

 

 

 

 

 

9000 West 67th Street, Merriam, Kansas

 

66202

(Address of principal executive offices)

 

(Zip Code)

 

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

Not Applicable

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒  No ☐

 

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

 

 

 

Large Accelerated Filer ☒

Accelerated Filer ☐

Non-Accelerated Filer   ☐ (Do not check if a smaller reporting company)

Smaller Reporting Company ☐

 

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

 

There were 1,170,550 shares of common stock, $1.00 par value per share, outstanding on October 28, 2016.

 

1


 

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 1,

 

October 3,

 

October 1,

 

October 3,

 

(Millions of dollars except share and per share amounts)

2016

    

2015

    

2016

    

2015

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes affiliate sales of $261, $241, $697 and $665)

$

1,070

 

$

1,139

 

$

3,230

 

$

3,464

 

Services (includes affiliate sales of $0, $0, $1 and $0)

 

237

 

 

243

 

 

716

 

 

744

 

Other

 

23

 

 

29

 

 

60

 

 

83

 

Total net sales

 

1,330

 

 

1,411

 

 

4,006

 

 

4,291

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

1,006

 

 

1,077

 

 

2,977

 

 

3,277

 

Services

 

198

 

 

223

 

 

619

 

 

666

 

Other

 

18

 

 

21

 

 

51

 

 

65

 

Total cost of sales and operating expenses

 

1,222

 

 

1,321

 

 

3,647

 

 

4,008

 

Gross income

 

108

 

 

90

 

 

359

 

 

283

 

Selling, general and administrative expenses

 

66

 

 

67

 

 

205

 

 

200

 

Operating income

 

42

 

 

23

 

 

154

 

 

83

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(7)

 

 

(4)

 

 

(23)

 

 

(12)

 

Interest income

 

7

 

 

2

 

 

11

 

 

8

 

Interest income from affiliates

 

6

 

 

7

 

 

18

 

 

21

 

Income from affiliates

 

21

 

 

16

 

 

54

 

 

39

 

Other investment income (loss), net

 

29

 

 

(26)

 

 

42

 

 

(22)

 

Foreign currency gains, net

 

1

 

 

 —

 

 

10

 

 

2

 

Miscellaneous, net

 

1

 

 

(5)

 

 

(1)

 

 

(7)

 

Total other income (loss), net

 

58

 

 

(10)

 

 

111

 

 

29

 

Earnings before income taxes

 

100

 

 

13

 

 

265

 

 

112

 

Income tax expense

 

(25)

 

 

(10)

 

 

(55)

 

 

(44)

 

Net earnings

$

75

 

$

3

 

$

210

 

$

68

 

Less: Net income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

Net earnings attributable to Seaboard

$

75

 

$

3

 

$

209

 

$

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

$

64.42

 

$

2.59

 

$

178.67

 

$

57.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $1, $1, $9 and $2:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(7)

 

 

(7)

 

 

(23)

 

 

(22)

 

Unrealized gain on investments

 

1

 

 

 —

 

 

1

 

 

1

 

Unrecognized pension cost

 

 —

 

 

1

 

 

2

 

 

3

 

Other comprehensive loss, net of tax

$

(6)

 

$

(6)

 

$

(20)

 

$

(18)

 

Comprehensive income (loss)

 

69

 

 

(3)

 

 

190

 

 

50

 

Less: Comprehensive income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

Comprehensive income (loss) attributable to Seaboard

$

69

 

$

(3)

 

$

189

 

$

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

1,170,550

 

 

1,170,550

 

 

1,170,550

 

 

1,170,550

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

2


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

October 1,

 

December 31,

 

(Millions of dollars except share and per share amounts)

2016

    

2015

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

113

 

$

50

 

Short-term investments

 

1,180

 

 

1,254

 

Receivables, net

 

451

 

 

510

 

Inventories

 

779

 

 

739

 

Other current assets

 

104

 

 

111

 

Total current assets

 

2,627

 

 

2,664

 

Net property, plant and equipment

 

978

 

 

831

 

Investments in and advances to affiliates

 

756

 

 

671

 

Notes receivable from affiliates, net

 

192

 

 

200

 

Other non-current assets

 

90

 

 

65

 

Total assets

$

4,643

 

$

4,431

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes payable to banks

$

129

 

$

141

 

Current maturities of long-term debt

 

17

 

 

4

 

Accounts payable

 

213

 

 

239

 

Deferred revenue

 

106

 

 

93

 

Other current liabilities

 

328

 

 

289

 

Total current liabilities

 

793

 

 

766

 

Long-term debt, less current maturities

 

503

 

 

518

 

Deferred income taxes

 

66

 

 

41

 

Other liabilities and deferred credits

 

203

 

 

224

 

Total non-current liabilities

 

772

 

 

783

 

Commitments and contingent liabilities

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock of $1 par value. Authorized 1,250,000 shares; issued and outstanding 1,170,550 shares

 

1

 

 

1

 

Accumulated other comprehensive loss

 

(298)

 

 

(278)

 

Retained earnings

 

3,363

 

 

3,153

 

Total Seaboard stockholders’ equity

 

3,066

 

 

2,876

 

Noncontrolling interests

 

12

 

 

6

 

Total equity

 

3,078

 

 

2,882

 

Total liabilities and stockholders’ equity

$

4,643

 

$

4,431

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

3


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

October 1,

 

October 3,

 

(Millions of dollars)

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

$

210

 

$

68

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

74

 

 

69

 

Deferred income taxes

 

34

 

 

(33)

 

Pay-in-kind interest and accretion on notes receivable from affiliates

 

(2)

 

 

(13)

 

Income from affiliates

 

(54)

 

 

(39)

 

Dividends received from affiliates

 

31

 

 

36

 

Other investment loss (income), net

 

(42)

 

 

22

 

Other, net

 

15

 

 

2

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Receivables, net of allowance

 

42

 

 

177

 

Inventories

 

(14)

 

 

30

 

Other current assets

 

7

 

 

(9)

 

Current liabilities, exclusive of debt

 

26

 

 

40

 

Other, net

 

(28)

 

 

16

 

Net cash from operating activities

 

299

 

 

366

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of short-term investments

 

(353)

 

 

(675)

 

Proceeds from the sale of short-term investments

 

461

 

 

434

 

Proceeds from the maturity of short-term investments

 

19

 

 

24

 

Capital expenditures

 

(128)

 

 

(96)

 

Proceeds from the sale of fixed assets

 

46

 

 

24

 

Acquisition of businesses

 

(214)

 

 

 —

 

Investments in and advances to affiliates, net

 

(55)

 

 

(78)

 

Long-term notes receivable issued to affiliates

 

(12)

 

 

 —

 

Principal payments received on long-term notes receivable from affiliates

 

12

 

 

 —

 

Purchase of long-term investments

 

(19)

 

 

(26)

 

Other, net

 

8

 

 

7

 

Net cash from investing activities

 

(235)

 

 

(386)

 

Cash flows from financing activities:

 

 

 

 

 

 

Notes payable to banks, net

 

(2)

 

 

33

 

Proceeds from long-term debt

 

2

 

 

 —

 

Principal payments of long-term debt

 

(1)

 

 

 —

 

Net cash from financing activities

 

(1)

 

 

33

 

Effect of exchange rate changes on cash and cash equivalents

 

 —

 

 

 —

 

Net change in cash and cash equivalents

 

63

 

 

13

 

Cash and cash equivalents at beginning of year

 

50

 

 

36

 

Cash and cash equivalents at end of period

$

113

 

$

49

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

4


 

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 – Accounting Policies and Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of Seaboard for the year ended December 31, 2015 as filed in its annual report on Form 10-K. Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard’s year-end is December 31.

The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. As Seaboard conducts its commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, gross margin on non-consolidated affiliates cannot be clearly distinguished without making numerous assumptions primarily with respect to mark-to-market accounting for commodity derivatives.

Use of Estimates

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

Supplemental Non-Cash Transactions

Seaboard had notes receivable from affiliates that accrued pay-in-kind interest income, primarily from one affiliate. On January 4, 2016, the interest on this note receivable was modified to eliminate future pay-in-kind interest as discussed in Note 9 to the Condensed Consolidated Financial Statements. Seaboard recognized less than $1 million of non-cash accretion of discount and $2 million of non-cash, pay-in-kind interest income and accretion of discount for the three and nine months ended October 1, 2016, respectively, and $4 million and $13 million for the three and nine months ended October 3, 2015, respectively, related to notes receivable from affiliates.

Recently Issued Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance to develop a single, comprehensive revenue recognition model for all contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. Seaboard is currently evaluating the impact this new guidance will have on its consolidated financial statements and related disclosures. Seaboard will be required to adopt this guidance on January 1, 2018, and it is currently anticipated that Seaboard will apply this guidance using the cumulative effect transition method.

In July 2015, the FASB issued guidance to simplify the subsequent measurement of inventory, excluding inventory measured using last-in, first-out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Seaboard believes the adoption of this guidance will not have a material impact on Seaboard’s financial position or net earnings. 

In January 2016, the FASB issued guidance that requires entities to measure equity investments, other than those accounted for using the equity method of accounting, at fair value and recognize any changes in fair value in net income if a readily determinable fair value exists. For equity investments without readily determinable fair values, the cost method of accounting is eliminated. An entity may elect to record these equity investments at cost, less impairment, and

5


 

plus or minus subsequent adjustments for observable price changes. The new guidance is effective for interim and annual periods beginning after December 15, 2017. Seaboard believes the adoption of this guidance will not have a material impact on Seaboard’s financial position or net earnings.

In February 2016, the FASB issued guidance that a lessee should recognize in the balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from the previous guidance. For operating leases, a lessee is required to: (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the balance sheet, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis and (3) classify all cash payments within operating activities in the statement of cash flows. It is effective for public entities for fiscal years and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. Seaboard is currently assessing the potential impact of this new standard.

 

Note 2 – Investments

The following is a summary of the amortized cost and estimated fair value of short-term investments for both available-for-sale and trading securities at October 1, 2016 and December 31, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1, 2016

 

December 31, 2015

 

 

    

Amortized

    

Fair

    

Amortized

    

Fair

 

(Millions of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

Money market funds

 

$

 —

 

$

 —

 

$

81

 

$

81

 

Total available-for-sale short-term investments

 

 

 —

 

 

 —

 

 

81

 

 

81

 

Domestic equity securities

 

 

466

 

 

491

 

 

475

 

 

466

 

Domestic debt securities

 

 

400

 

 

403

 

 

452

 

 

450

 

Foreign equity securities

 

 

158

 

 

159

 

 

120

 

 

120

 

High yield debt securities

 

 

104

 

 

105

 

 

108

 

 

104

 

Collateralized loan obligations

 

 

14

 

 

14

 

 

10

 

 

10

 

Money market funds held in trading accounts

 

 

8

 

 

8

 

 

22

 

 

22

 

Other trading securities

 

 

 —

 

 

 —

 

 

1

 

 

1

 

Total trading short-term investments

 

 

1,150

 

 

1,180

 

 

1,188

 

 

1,173

 

Total short-term investments

 

$

1,150

 

$

1,180

 

$

1,269

 

$

1,254

 

 

 

Seaboard had $91 million of equity securities denominated in foreign currencies at October 1, 2016, with $34 million in euros, $19 million in Japanese yen, $15 million in British pounds, $7 million in Swiss francs and the remaining $16 million in various other currencies. At December 31, 2015, Seaboard had $80 million of equity securities denominated in foreign currencies, with $25 million in euros, $20 million in Japanese yen, $15 million in British pounds, $7 million in Swiss francs and the remaining $13 million in various other currencies. Also, money market funds included less than $1 million and $3 million denominated in various foreign currencies at October 1, 2016 and December 31, 2015, respectively.

Unrealized gains (losses) related to trading securities were $27 million and $41 million for the three and nine months ended October 1, 2016, respectively, and $(22) million and $(21) million for the three and nine months ended October 3, 2015, respectively.

In addition to its short-term investments, Seaboard also has trading securities related to Seaboard’s deferred compensation plans classified in other current assets in the Condensed Consolidated Balance Sheets. See Note 5 to the Condensed Consolidated Financial Statements for information on the types of trading securities held related to the deferred compensation plans.

 

6


 

Note 3 – Inventories

The following is a summary of inventories at October 1, 2016 and December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1,

 

December 31,

 

(Millions of dollars)

    

2016

    

2015

 

At lower of LIFO cost or market:

 

 

 

 

 

 

 

Live hogs and materials

 

$

255

 

$

210

 

Fresh pork and materials

 

 

31

 

 

26

 

 

 

 

286

 

 

236

 

LIFO adjustment

 

 

(25)

 

 

(28)

 

Total inventories at lower of LIFO cost or market

 

 

261

 

 

208

 

At lower of FIFO cost or market:

 

 

 

 

 

 

 

Grains, oilseeds and other commodities

 

 

315

 

 

330

 

Sugar produced and in process

 

 

37

 

 

52

 

Other

 

 

62

 

 

61

 

Total inventories at lower of FIFO cost or market

 

 

414

 

 

443

 

Grain, flour and feed at lower of weighted average cost or market

 

 

104

 

 

88

 

 Total inventories

 

$

779

 

$

739

 

 

 

 

Note 4 – Income Taxes

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments. Seaboard’s U.S. federal income tax years are closed through 2011. Seaboard’s 2013 U.S. income tax return is currently under Internal Revenue Service examination. There have not been any material changes in unrecognized income tax benefits since December 31, 2015. Interest and penalties related to unrecognized tax benefits were not material for the nine months ended October 1, 2016.

 

Note 5 – Derivatives and Fair Value of Financial Instruments

GAAP discusses valuation techniques, such as the market approach (prices and other relevant information generated by market conditions involving identical or comparable assets or liabilities), the income approach (techniques to convert future amounts to single present amounts based on market expectations including present value techniques and option-pricing), and the cost approach (amount that would be required to replace the service capacity of an asset, which is often referred to as replacement cost). Seaboard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad levels:

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

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

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

 

7


 

The following table shows assets and liabilities measured at fair value on a recurring basis as of October 1, 2016 and also the level within the fair value hierarchy used to measure each category of assets and liabilities. Seaboard determines if there are any transfers between levels at the end of a reporting period. There were no transfers between levels that occurred in the first nine months of 2016. The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

October 1,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2016

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities – short term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

$

491

 

$

491

 

$

 —

 

$

 —

 

Domestic debt securities

 

 

403

 

 

403

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

159

 

 

159

 

 

 —

 

 

 —

 

High yield debt securities

 

 

105

 

 

 —

 

 

105

 

 

 —

 

Collateralized loan obligations

 

 

14

 

 

 —

 

 

14

 

 

 —

 

Money market funds held in trading accounts

 

 

8

 

 

8

 

 

 —

 

 

 —

 

Trading securities – other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

30

 

 

30

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

4

 

 

4

 

 

 —

 

 

 —

 

Fixed income mutual funds

 

 

3

 

 

3

 

 

 —

 

 

 —

 

Other

 

 

4

 

 

3

 

 

1

 

 

 —

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

9

 

 

9

 

 

 —

 

 

 —

 

Foreign currencies

 

 

1

 

 

 —

 

 

1

 

 

 —

 

Total Assets

 

$

1,231

 

$

1,110

 

$

121

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

$

12

 

$

12

 

$

 —

 

$

 —

 

Interest rate swaps

 

 

6

 

 

 —

 

 

6

 

 

 —

 

Foreign currencies

 

 

7

 

 

 —

 

 

7

 

 

 —

 

Total Liabilities

 

$

25

 

$

12

 

$

13

 

$

 —

 

 

(1)

Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of October 1, 2016, the commodity derivatives had a margin account balance of $17 million resulting in a net other current asset in the Condensed Consolidated Balance Sheet of $14 million.

 

 

8


 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and also the level within the fair value hierarchy used to measure each category of assets and liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2015

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities – short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

81

 

$

81

 

$

 —

 

$

 —

 

Trading securities – short term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

466

 

 

466

 

 

 —

 

 

 —

 

Domestic debt securities

 

 

450

 

 

450

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

120

 

 

120

 

 

 —

 

 

 —

 

High yield debt securities

 

 

104

 

 

 —

 

 

104

 

 

 —

 

Money market funds held in trading accounts

 

 

22

 

 

22

 

 

 —

 

 

 —

 

Collateralized loan obligation

 

 

10

 

 

 —

 

 

10

 

 

 —

 

Other trading securities

 

 

1

 

 

 —

 

 

1

 

 

 —

 

Trading securities – other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

31

 

 

31

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

5

 

 

5

 

 

 —

 

 

 —

 

Fixed income mutual funds

 

 

4

 

 

4

 

 

 —

 

 

 —

 

Other

 

 

3

 

 

2

 

 

1

 

 

 —

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

4

 

 

4

 

 

 —

 

 

 —

 

Foreign currencies

 

 

8

 

 

 —

 

 

8

 

 

 —

 

Total Assets

 

$

1,309

 

$

1,185

 

$

124

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

$

18

 

$

18

 

$

 —

 

$

 —

 

Interest rate swaps

 

 

6

 

 

 —

 

 

6

 

 

 —

 

Total Liabilities

 

$

24

 

$

18

 

$

6

 

$

 —

 

 

(1)

Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of December 31, 2015, the commodity derivatives had a margin account balance of $29 million resulting in a net other current asset in the Condensed Consolidated Balance Sheet of $15 million.

 

Financial instruments consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value as a result of the short-term nature of the instruments. The amortized cost and estimated fair values of short-term investments at October 1, 2016 and December 31, 2015 are presented in Note 2 to the Condensed Consolidated Financial Statements. 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 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.

While management believes its derivatives are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. As the derivatives discussed below are not accounted for as hedges, fluctuations in the related commodity prices, foreign currency exchange rates and interest rates could have a material impact on earnings in any given period. Seaboard also enters into speculative derivative transactions not directly related to its raw material requirements. The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2015.

9


 

Commodity Instruments

Seaboard uses various derivative futures and options to manage its risk of price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. At October 1, 2016, Seaboard had open net derivative contracts to purchase 20 million bushels of grain, 14 million pounds of hogs and 12 million pounds of soybean oil. At December 31, 2015, Seaboard had open net derivative contracts to purchase 25 million pounds of hogs, 22 million bushels of grain and 3 million pounds of sugar and open net derivative contracts to sell 8 million pounds of soybean oil. Commodity derivatives are recorded at fair value with any changes in fair value being marked-to-market as a component of cost of sales in the Condensed Consolidated Statements of Comprehensive Income.

Foreign Currency Exchange Agreements

Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies. Foreign currency exchange agreements that are primarily related to an underlying commodity transaction are recorded at fair value with changes in value marked-to-market as a component of cost of sales in the Condensed Consolidated Statements of Comprehensive Income. Foreign currency exchange agreements that are not related to an underlying commodity transaction are recorded at fair value with changes in value marked-to-market as a component of foreign currency gains (losses), net in the Condensed Consolidated Statements of Comprehensive Income. At October 1, 2016 and December 31, 2015, Seaboard had trading foreign currency exchange agreements to cover a portion of its firm sales and purchase commitments and related trade receivables and payables with net notional amounts of $60 million and $94 million, respectively, primarily related to the South African rand and Canadian dollar.

Interest Rate Exchange Agreements

During 2014 and 2015, Seaboard entered into four, approximately eight-year interest rate exchange agreements with mandatory early termination dates, which coincided with the anticipated delivery dates in 2015 and 2016 of dry bulk vessels to be leased. These agreements involved the exchange of fixed-rate and variable-rate interest payments without the exchange of the underlying notional amounts to mitigate the potential effects of fluctuations in interest rates on the anticipated dry bulk vessel leases. As of December 31, 2015, two agreements remained, with an aggregate notional amount of $44 million. In the first quarter of 2016, these agreements were terminated and not renewed with the delivery of the final two bulk vessels. Payments to unwind these agreements totaled $2 million.

During 2010, Seaboard entered into three ten-year interest rate exchange agreements to mitigate the effects of fluctuations in interest rates on variable-rate debt. These agreements involve the exchange of fixed-rate and variable-rate interest payments over the life of the agreements without the exchange of the underlying notional amounts. Seaboard pays a fixed rate and receives a variable rate of interest on the notional amounts.

At October 1, 2016 and December 31, 2015, Seaboard had three and five interest rate exchange agreements outstanding, respectively, with a total notional value of $75 million and $119 million, respectively. None of Seaboard’s outstanding interest rate exchange agreements qualify as hedges for accounting purposes. Accordingly, the changes in fair value of these agreements are recorded in miscellaneous, net in the Condensed Consolidated Statements of Comprehensive Income.

Counterparty Credit Risk

From time to time Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements and interest rate swaps should the counterparties fail to perform according to the terms of the contracts. As of October 1, 2016, Seaboard had a maximum amount of loss due to credit risk in the amount of $1 million with three counterparties related to foreign currency exchange agreements, and no counterparty credit risk related to the interest rate swaps. Seaboard does not hold any collateral related to these agreements.

10


 

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 for the three and nine months ended October 1, 2016 and October 3, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

October 1,

 

October 3,

 

October 1,

 

October 3,

 

(Millions of dollars)

    

 

    

2016

    

2015

    

2016

    

2015

 

Commodities

 

Cost of sales

 

$

(14)

 

$

(16)

 

$

17

 

$

(18)

 

Foreign currencies

 

Cost of sales

 

 

(12)

 

 

4

 

 

(25)

 

 

5

 

Foreign currencies

 

Foreign currency gains, net

 

 

 —

 

 

 —

 

 

 —

 

 

2

 

Interest rate swaps

 

Miscellaneous, net

 

 

1

 

 

(5)

 

 

(3)

 

 

(6)

 

The following table provides the fair value of each type of derivative held as of October 1, 2016 and December 31, 2015 and where each derivative is included in the Condensed Consolidated Balance Sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

Liability Derivatives

 

 

 

 

 

October 1,

 

December 31,

 

 

 

October 1,

 

December 31,

 

(Millions of dollars)

    

 

    

2016

    

2015

    

 

    

2016

    

2015

 

Commodities(1)

 

Other current assets

 

$

9

 

$

4

 

Other current liabilities

 

$

12

 

$

18

 

Foreign currencies

 

Other current assets

 

 

1

 

 

8

 

Other current liabilities

 

 

7

 

 

 —

 

Interest rate swaps

 

Other current assets

 

 

 —

 

 

 —

 

Other current liabilities

 

 

6

 

 

6

 

 

(1)

Seaboard’s commodity derivative assets and liabilities are presented in the Condensed Consolidated Balance Sheets on a net basis, including netting the derivatives with the related margin accounts. As of October 1, 2016 and December 31, 2015, the commodity derivatives had a margin account balance of $17 million and $29 million, respectively, resulting in a net other current asset in the Condensed Consolidated Balance Sheets of $14 million and $15 million, respectively.

 

 

 

 

Note 6 – Employee Benefits

Seaboard maintains two defined benefit pension plans for its domestic salaried and clerical employees. During the third quarter of 2016, Seaboard completed future funding analyses for these plans, and in September 2016 made a deductible contribution of $39 million to one of the pension plans for the 2015 plan year. At this time, no further contributions are expected to be made to these plans in 2016. Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees. Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

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