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EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - SEABOARD CORP /DE/seb-20170930ex322139c8f.htm
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - SEABOARD CORP /DE/seb-20170930ex321a10783.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - SEABOARD CORP /DE/seb-20170930ex312116fce.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - SEABOARD CORP /DE/seb-20170930ex311b73fad.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 September 30, 2017

OR

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

For the transition period from __________________________ to __________________________

Commission File Number: 1-3390

Seaboard Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

 

 

04-2260388

(State or other jurisdiction of incorporation)

 

 

 

(I.R.S. Employer Identification No.)

incorporation)

 

 

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large Accelerated Filer ☒

Accelerated Filer ☐

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

Smaller Reporting Company ☐

 

Emerging Growth Company ☐

 

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

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

There were 1,170,550 shares of common stock, $1.00 par value per share, outstanding on October 27, 2017.

 

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

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

(Millions of dollars except share and per share amounts)

2017

    

2016

    

2017

    

2016

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products (includes affiliate sales of $293, $261, $822 and $697)

$

1,135

 

$

1,070

 

$

3,413

 

$

3,230

 

Services (includes affiliate sales of $0, $0, $3 and $1)

 

238

 

 

237

 

 

732

 

 

716

 

Other

 

29

 

 

23

 

 

78

 

 

60

 

Total net sales

 

1,402

 

 

1,330

 

 

4,223

 

 

4,006

 

Cost of sales and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

1,028

 

 

1,006

 

 

3,106

 

 

2,977

 

Services

 

206

 

 

198

 

 

641

 

 

619

 

Other

 

20

 

 

18

 

 

61

 

 

51

 

Total cost of sales and operating expenses

 

1,254

 

 

1,222

 

 

3,808

 

 

3,647

 

Gross income

 

148

 

 

108

 

 

415

 

 

359

 

Selling, general and administrative expenses

 

77

 

 

66

 

 

224

 

 

205

 

Operating income

 

71

 

 

42

 

 

191

 

 

154

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(9)

 

 

(7)

 

 

(19)

 

 

(23)

 

Interest income

 

 2

 

 

 7

 

 

 9

 

 

11

 

Interest income from affiliates

 

 6

 

 

 6

 

 

18

 

 

18

 

Income (loss) from affiliates

 

(3)

 

 

21

 

 

(10)

 

 

54

 

Other investment income, net

 

54

 

 

29

 

 

119

 

 

42

 

Foreign currency gains, net

 

 3

 

 

 1

 

 

12

 

 

10

 

Miscellaneous, net

 

 —

 

 

 1

 

 

 —

 

 

(1)

 

Total other income, net

 

53

 

 

58

 

 

129

 

 

111

 

Earnings before income taxes

 

124

 

 

100

 

 

320

 

 

265

 

Income tax expense

 

(43)

 

 

(25)

 

 

(96)

 

 

(55)

 

Net earnings

$

81

 

$

75

 

$

224

 

$

210

 

Less: Net income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

Net earnings attributable to Seaboard

$

81

 

$

75

 

$

224

 

$

209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

$

69.28

 

$

64.42

 

$

191.63

 

$

178.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income tax benefit of $1, $1, $0 and $9:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2)

 

 

(7)

 

 

(3)

 

 

(23)

 

Unrealized gain on investments

 

 —

 

 

 1

 

 

 3

 

 

 1

 

Unrecognized pension cost

 

 1

 

 

 —

 

 

 3

 

 

 2

 

Other comprehensive income (loss), net of tax

$

(1)

 

$

(6)

 

$

 3

 

$

(20)

 

Comprehensive income

 

80

 

 

69

 

 

227

 

 

190

 

Less: Comprehensive income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

Comprehensive income attributable to Seaboard

$

80

 

$

69

 

$

227

 

$

189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

1,170,550

 

 

1,170,550

 

 

1,170,550

 

 

1,170,550

 

 

 

 

 

 

 

    

 

 

 

 

 

 

Dividends declared per common share

$

1.50

 

$

 —

    

$

4.50

 

$

 —

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(Millions of dollars except share and per share amounts)

2017

    

2016

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

61

 

$

77

 

Short-term investments

 

1,358

 

 

1,277

 

Receivables, net

 

622

 

 

627

 

Inventories

 

828

 

 

762

 

Other current assets

 

120

 

 

105

 

Total current assets

 

2,989

 

 

2,848

 

Net property, plant and equipment

 

1,064

 

 

1,006

 

Investments in and advances to affiliates

 

846

 

 

773

 

Notes receivable from affiliates, net

 

17

 

 

26

 

Other non-current assets

 

77

 

 

102

 

Total assets

$

4,993

 

$

4,755

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes payable to banks

$

97

 

$

121

 

Current maturities of long-term debt

 

50

 

 

17

 

Accounts payable

 

190

 

 

216

 

Deferred revenue

 

140

 

 

114

 

Other current liabilities

 

298

 

 

317

 

Total current liabilities

 

775

 

 

785

 

Long-term debt, less current maturities

 

490

 

 

499

 

Deferred income taxes

 

122

 

 

77

 

Other liabilities and deferred credits

 

210

 

 

219

 

Total non-current liabilities

 

822

 

 

795

 

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

 

(301)

 

 

(304)

 

Retained earnings

 

3,683

 

 

3,465

 

Total Seaboard stockholders’ equity

 

3,383

 

 

3,162

 

Noncontrolling interests

 

13

 

 

13

 

Total equity

 

3,396

 

 

3,175

 

Total liabilities and stockholders’ equity

$

4,993

 

$

4,755

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

October 1,

 

(Millions of dollars)

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

$

224

 

$

210

 

Adjustments to reconcile net earnings to cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

88

 

 

74

 

Deferred income taxes

 

44

 

 

34

 

Loss (income) from affiliates

 

10

 

 

(54)

 

Dividends received from affiliates

 

24

 

 

31

 

Other investment income, net

 

(119)

 

 

(42)

 

Other, net

 

(10)

 

 

13

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Receivables, net of allowance

 

14

 

 

42

 

Inventories

 

(67)

 

 

(14)

 

Other current assets

 

(10)

 

 

 7

 

Current liabilities, exclusive of debt

 

(5)

 

 

26

 

Other, net

 

 5

 

 

(28)

 

Net cash from operating activities

 

198

 

 

299

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of short-term investments

 

(420)

 

 

(353)

 

Proceeds from the sale of short-term investments

 

428

 

 

461

 

Proceeds from the maturity of short-term investments

 

42

 

 

19

 

Capital expenditures

 

(118)

 

 

(128)

 

Proceeds from the sale of fixed assets

 

 3

 

 

46

 

Acquisition of businesses

 

(54)

 

 

(214)

 

Investments in and advances to affiliates, net

 

(87)

 

 

(55)

 

Notes receivable issued to affiliates

 

(2)

 

 

(12)

 

Principal payments received on notes receivable from affiliates

 

 3

 

 

12

 

Purchase of long-term investments

 

(9)

 

 

(19)

 

Other, net

 

(2)

 

 

 8

 

Net cash from investing activities

 

(216)

 

 

(235)

 

Cash flows from financing activities:

 

 

 

 

 

 

Notes payable to banks, net

 

(20)

 

 

(2)

 

Proceeds from long-term debt

 

38

 

 

 2

 

Principal payments of long-term debt

 

(13)

 

 

(1)

 

Dividends paid

 

(6)

 

 

 —

 

Net cash from financing activities

 

(1)

 

 

(1)

 

Effect of exchange rate changes on cash and cash equivalents

 

 3

 

 

 —

 

Net change in cash and cash equivalents

 

(16)

 

 

63

 

Cash and cash equivalents at beginning of year

 

77

 

 

50

 

Cash and cash equivalents at end of period

$

61

 

$

113

 

 

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, 2016, 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.

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 revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods and services. This guidance supersedes nearly all existing revenue recognition guidance under GAAP. Seaboard will adopt this guidance on January 1, 2018, for all consolidated subsidiaries using the cumulative effect transition method, where any cumulative effect of initially adopting the guidance is recognized at the date of adoption. Based on management’s current assessment, the majority of Seaboard’s revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. Seaboard believes the adoption of this guidance will not have a material impact on its financial position or net earnings, although it anticipates expansion of consolidated financial statement disclosures in order to comply with the guidance.

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 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 plus or minus subsequent adjustments for observable price changes. Seaboard will adopt this guidance on January 1, 2018, and believes the adoption of this guidance will not have a material impact on its financial position or net earnings.

In February 2016, the FASB issued guidance that a lessee should record a right-of-use (“ROU”) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The recognition, measurement, and presentation of expenses and cash flows arising from a financing lease have not significantly changed from the previous guidance. For operating leases, a lessee is required to: (1) recognize a ROU 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

5


 

within operating activities in the statement of cash flows. Seaboard will adopt this guidance on January 1, 2019, for all consolidated subsidiaries. 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 in the preliminary stages of its assessment of the effect the guidance will have on its existing accounting policies and the consolidated financial statements, but expects there will be an increase in assets and liabilities on the consolidated balance sheets at adoption due to the recording of ROU assets and corresponding lease liabilities, which will likely be material. See Note 10 to the consolidated financial statements included in Seaboard’s annual report for the year ended December 31, 2016, for information about Seaboard’s lease obligations. 

In March 2017, the FASB issued guidance that will require the service cost component of net periodic benefit cost to be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in inventory. The other components of net periodic benefit cost will be presented outside of operating income and will not be capitalizable. Seaboard will adopt this guidance on January 1, 2018, and believes the adoption of this guidance will not have a material impact on its financial position or net earnings.

 

Note 2 – Investments

The following is a summary of the amortized cost and estimated fair value of short-term investments classified as trading securities held at September 30, 2017 and December 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

    

Amortized

    

Fair

    

Amortized

    

Fair

 

(Millions of dollars)

 

Cost

 

Value

 

Cost

 

Value

 

Domestic equity securities

 

$

609

 

$

716

 

$

444

 

$

482

 

Foreign equity securities

 

 

265

 

 

310

 

 

198

 

 

199

 

Domestic debt securities held in mutual funds/ETFs/U.S. Treasuries

 

 

174

 

 

175

 

 

437

 

 

437

 

High yield securities

 

 

85

 

 

86

 

 

114

 

 

115

 

Money market funds held in trading accounts

 

 

36

 

 

36

 

 

13

 

 

13

 

Collateralized loan obligations

 

 

28

 

 

29

 

 

25

 

 

26

 

Other trading securities

 

 

 4

 

 

 6

 

 

 5

 

 

 5

 

Total trading short-term investments

 

$

1,201

 

$

1,358

 

$

1,236

 

$

1,277

 

 

Seaboard had $110 million of equity securities denominated in foreign currencies at September 30, 2017, with $47 million in euros, $22 million in Japanese yen, $19 million in British pounds, $6 million in Swiss francs and the remaining $16 million in various other currencies. At December 31, 2016, Seaboard had $91 million of equity securities denominated in foreign currencies, with $35 million in euros, $20 million in Japanese yen, $16 million in British pounds, $6 million in Swiss francs and the remaining $14 million in various other currencies. Also, money market funds denominated in various foreign currencies were less than $1 million and $1 million at September 30, 2017 and December 31, 2016, respectively.

Unrealized gains related to trading securities still held at the end of the respective reporting period were $54 million and $114 million for the three and nine months ended September 30, 2017, respectively, and $27 million and $41 million for the three and nine months ended October 1, 2016, 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 September 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(Millions of dollars)

    

2017

    

2016

 

At lower of LIFO cost or market:

 

 

 

 

 

 

 

Live hogs and materials

 

$

296

 

$

273

 

Fresh pork and materials

 

 

32

 

 

34

 

 

 

 

328

 

 

307

 

LIFO adjustment

 

 

(23)

 

 

(21)

 

Total inventories at lower of LIFO cost or market

 

 

305

 

 

286

 

At lower of FIFO cost or market:

 

 

 

 

 

 

 

Grains, oilseeds and other commodities

 

 

330

 

 

279

 

Sugar produced and in process

 

 

33

 

 

30

 

Other

 

 

72

 

 

62

 

Total inventories at lower of FIFO cost or market

 

 

435

 

 

371

 

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

 

 

88

 

 

105

 

 Total inventories

 

$

828

 

$

762

 

 

 

 

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 2013 through 2015 U.S. income tax returns are currently under Internal Revenue Service examination. There have not been any material changes in unrecognized income tax benefits since December 31, 2016. Interest and penalties related to unrecognized tax benefits were not material for the three and nine months ended September 30, 2017.

 

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 September 30, 2017, 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 2017. The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2017

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities – short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

$

716

 

$

716

 

$

 —

 

$

 —

 

Foreign equity securities

 

 

310

 

 

310

 

 

 —

 

 

 —

 

Domestic debt securities held in mutual funds/ETFs/U.S. Treasuries

 

 

175

 

 

173

 

 

 2

 

 

 —

 

High yield securities

 

 

86

 

 

20

 

 

66

 

 

 —

 

Money market funds held in trading accounts

 

 

36

 

 

36

 

 

 —

 

 

 —

 

Collateralized loan obligations

 

 

29

 

 

 —

 

 

29

 

 

 —

 

Other trading securities

 

 

 6

 

 

 5

 

 

 1

 

 

 —

 

Trading securities – other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

38

 

 

38

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

 5

 

 

 5

 

 

 —

 

 

 —

 

Fixed income mutual funds

 

 

 4

 

 

 4

 

 

 —

 

 

 —

 

Other

 

 

 2

 

 

 2

 

 

 —

 

 

 —

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

 3

 

 

 3

 

 

 —

 

 

 —

 

Foreign currencies

 

 

 4

 

 

 —

 

 

 4

 

 

 —

 

Total Assets

 

$

1,414

 

$

1,312

 

$

102

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

$

 2

 

$

 2

 

$

 —

 

$

 —

 

Interest rate swaps

 

 

 3

 

 

 —

 

 

 3

 

 

 —

 

Total Liabilities

 

$

 5

 

$

 2

 

$

 3

 

$

 —

 

 

(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 September 30, 2017, the commodity derivatives had a margin account balance of $16 million resulting in a net other current asset in the condensed consolidated balance sheet of $17 million.

 

 

8


 

The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, and also the level within the fair value hierarchy used to measure each category of assets and liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance

    

 

 

    

 

 

    

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

(Millions of dollars)

 

2016

 

Level 1

Level 2

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities – short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

$

482

 

$

482

 

$

 —

 

$

 —

 

Domestic debt securities held in mutual funds/ETFs/U.S. Treasuries

 

 

437

 

 

437

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

199

 

 

199

 

 

 —

 

 

 —

 

High yield securities

 

 

115

 

 

15

 

 

100

 

 

 —

 

Collateralized loan obligations

 

 

26

 

 

 —

 

 

26

 

 

 —

 

Money market funds held in trading accounts

 

 

13

 

 

13

 

 

 —

 

 

 —

 

Other trading securities

 

 

 5

 

 

 5

 

 

 —

 

 

 —

 

Trading securities – other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic equity securities

 

 

30

 

 

30

 

 

 —

 

 

 —

 

Foreign equity securities

 

 

 3

 

 

 3

 

 

 —

 

 

 —

 

Fixed income mutual funds

 

 

 3

 

 

 3

 

 

 —

 

 

 —

 

Other

 

 

 4

 

 

 4

 

 

 —

 

 

 —

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

 

 3

 

 

 3

 

 

 —

 

 

 —

 

Foreign currencies

 

 

 1

 

 

 —

 

 

 1

 

 

 —

 

Total Assets

 

$

1,321

 

$

1,194

 

$

127

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities (1)

 

$

 1

 

$

 1

 

$

 —

 

$

 —

 

Interest rate swaps

 

 

 4

 

 

 —

 

 

 4

 

 

 —

 

Foreign currencies

 

 

 4

 

 

 —

 

 

 4

 

 

 —

 

Total Liabilities

 

$

 9

 

$

 1

 

$

 8

 

$

 —

 

 

(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, 2016, the commodity derivatives had a margin account balance of $10 million resulting in a net other current asset in the condensed consolidated balance sheet of $12 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 September 30, 2017 and December 31, 2016 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 in 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, 2016.

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 September 30, 2017, Seaboard had open net derivative contracts to purchase 34 million bushels of grain and 13 million pounds of hogs and open net derivative contracts to sell 55 million pounds of soybean oil and 4 million gallons of heating oil. At December 31, 2016, Seaboard had open net derivative contracts to purchase 22 million bushels of grain and 14 million pounds of hogs and open net derivative contracts to sell 35 million pounds of soybean oil and 4 million gallons of heating 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 September 30, 2017 and December 31, 2016, 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 $73 million and $81 million, respectively, primarily related to the South African rand and Canadian dollar.

Interest Rate Exchange Agreements

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 September 30, 2017 and December 31, 2016, Seaboard had three interest rate exchange agreements outstanding with a total notional value of $75 million. 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 September 30, 2017, Seaboard had a maximum amount of loss due to credit risk of $4 million with six 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 September 30, 2017 and October 1, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

(Millions of dollars)

    

 

    

2017

    

2016

    

2017

    

2016

 

Commodities

 

Cost of sales

 

$

(6)

 

$

(14)

 

$

(5)

 

$

17

 

Foreign currencies

 

Cost of sales

 

 

 2

 

 

(12)

 

 

(3)

 

 

(25)

 

Foreign currencies

 

Foreign currency gains, net

 

 

(1)

 

 

 —

 

 

(2)

 

 

 —

 

Interest rate swaps

 

Miscellaneous, net

 

 

 —

 

 

 1

 

 

 —

 

 

(3)

 

The following table provides the fair value of each type of derivative held as of September 30, 2017 and December 31, 2016 and where each derivative is included in the condensed consolidated balance sheets.