UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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
(I.R.S. Employer Identification No.)
Incorporation or Organization)
9000 West 67th Street, Merriam, Kansas
66202
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code (913) 676-8800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock $1.00 Par Value
SEB
NYSE American
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Accelerated filer ◻
Non-accelerated filer ◻
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the 251,270 shares of Seaboard common stock held by nonaffiliates was approximately $741,867,137, based on the closing price of $2,952.47 per share on June 27, 2020, the end of Seaboard’s most recently completed second fiscal quarter. As of January 31, 2021, the number of shares of common stock outstanding was 1,160,779.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference to the registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2020.
YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Part I
Page
Item 1
Business
2
Item 1A
Risk Factors
6
Item 1B
Unresolved Staff Comments
13
Item 2
Properties
Item 3
Legal Proceedings
14
Item 4
Mine Safety Disclosures
Part II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15
Item 6
Selected Financial Data
16
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
24
Item 8
Financial Statements and Supplementary Data
26
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income
28
Consolidated Balance Sheets
29
Consolidated Statements of Changes in Equity
30
Consolidated Statements of Cash Flows
31
Notes to Consolidated Financial Statements
32
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
62
Item 9A
Controls and Procedures
Item 9B
Other Information
64
Part III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
Part IV
Item 15
Exhibit and Financial Statement Schedules
Item 16
Form 10-K Summary
67
Signatures
68
PART I
Forward-looking Statements
This report, including information included or incorporated by reference in this report, contains certain “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 Corporation and its subsidiaries (“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:
This list of forward-looking statements is not exclusive. Forward-looking statements are based only on Seaboard’s current beliefs, expectations and assumptions regarding its future financial condition, results of operations, plans, objectives, performance and business. Seaboard undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions or otherwise, except as required by law. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to a variety of factors. The information contained in this Form 10-K and in other filings Seaboard makes with the Securities and Exchange Commission (the “SEC”), including without limitation, the information under the items “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K, identifies important factors which could cause such differences.
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Item 1. Business
General Development of Business
Seaboard Corporation and its subsidiaries (collectively, “Seaboard”) together comprise a diverse group of integrated companies with a broad global presence. Seaboard is primarily engaged in hog production and pork processing in the United States (“U.S.”); commodity trading and grain processing in Africa and South America; cargo shipping services in the U.S., Caribbean and Central and South America; sugar and alcohol production in Argentina; and electric power generation in the Dominican Republic. Seaboard also has an equity method investment in Butterball, LLC (“Butterball”), a producer and processor of turkey products.
During 2020, Seaboard had unexpected leadership changes. In July 2020, Seaboard’s President, Chief Executive Officer (“CEO”) and Chairman of the Board of Directors, Steven J. Bresky, passed away. The presiding Executive Vice President, Chief Financial Officer (“CFO”), Robert L. Steer, was appointed President, and CEO and Ellen S. Bresky, was appointed a director and Chairwoman of the Board of Directors, in each case, to fill the vacant positions previously held by Mr. Bresky. Mr. Steer continued to serve as CFO until December 2020, at which time David H. Rankin was appointed as Executive Vice President, CFO. Approximately 77% of the outstanding common stock of Seaboard is collectively owned by Seaboard Flour LLC and SFC Preferred, LLC. Ms. Bresky and other members of the Bresky family, including trusts created for their benefit, own the equity interests of Seaboard Flour LLC and SFC Preferred, LLC, which are Delaware limited liability companies.
All of Seaboard’s segments, which provide food, transportation and power, are considered “essential businesses” as defined by the respective governments and have continued to operate during the COVID-19 pandemic. Seaboard’s operations have been directly and indirectly impacted by the COVID-19 pandemic primarily by governmental actions taken to stop or slow the spread of COVID-19 and changes in customer behavior, and there still remains uncertainty about the expected duration and severity of the impact that the COVID-19 pandemic will have on Seaboard’s operations and the global economy. Seaboard continues to promote the safety and security of all of its employees by providing masks and sanitizers, expanding cleaning, making improvements to air exchangers, promoting social distancing, and limiting travel and visitors, among many other precautions.
Description of Business
Principal Products and Services and Any Dependency
Pork Segment – Seaboard, through its subsidiary Seaboard Foods LLC, is a vertically integrated pork producer that primarily produces and sells fresh and frozen pork products to further processors, foodservice operators, distributors and grocery stores. This segment sells to U.S. customers and exports to Japan, Mexico, China and numerous other foreign markets. Seaboard raises approximately 85% of the hogs processed at its processing plant in Guymon, Oklahoma, with the remaining hog requirements purchased primarily under contracts from independent producers. Seaboard’s hog production facilities consist of genetic and commercial breeding, farrowing, nursery and finishing buildings. In November of 2020, Seaboard acquired a business, that was previously a supplier of hogs. See Note 2 to the consolidated financial statements for further discussion of this acquisition.
The Pork segment also produces biodiesel at facilities in Oklahoma and Missouri. Biodiesel is produced from pork fat supplied by the Oklahoma pork processing plant and from other animal fats and vegetable oils purchased from third parties. The biodiesel is sold to fuel blenders for distribution. In 2019, the Pork segment purchased and began modifying an idle ethanol plant in Hugoton, Kansas, to produce renewable diesel with operations currently expected to begin in 2022.
Seaboard has a 50% noncontrolling interest in Seaboard Triumph Foods, LLC (“STF”), which operates a pork processing plant located in Sioux City, Iowa. STF began single-shift operations in September 2017 and a second shift commenced in October 2018. STF’s plant is designed to process approximately six million market hogs annually when operating at full capacity. Seaboard has agreements with STF and Triumph Foods, LLC (“Triumph”), an independent pork processor, to market substantially all pork products produced at STF’s and Triumph’s pork processing plants. Seaboard and Triumph supply a portion of the hogs processed at the STF plant. Seaboard’s revenues for its pork products are primarily based on a margin sharing arrangement that considers the average sales price, standard costs and the mix of products sold from the Seaboard and Triumph pork processing plants. The Pork segment also has a 50% noncontrolling interest in Daily’s Premium Meats, LLC, which produces and markets raw and pre-cooked bacon using pork bellies sourced from Seaboard, Triumph and STF.
CT&M Segment – Seaboard’s CT&M segment, which is managed under the name of Seaboard Overseas and Trading Group, is an integrated agricultural commodity trading, processing and logistics company. Overall, the CT&M segment has facilities in 29 countries, primarily in Africa and South America. This segment sources, transports and markets
approximately 14 million metric tons per year of wheat, corn, soybeans, soybean meal and other commodities. Also, Seaboard and its affiliates produce approximately six million metric tons of wheat flour, maize meal, manufactured feed and oilseed crush commodities per year in addition to other related grain-based products. This segment owns three vessels, but the majority of the trading business is transacted with chartered ships.
Marine Segment – Seaboard, through its subsidiary, Seaboard Marine Ltd., and various foreign affiliated companies and third-party agents, provides cargo shipping services in the U.S. and 26 countries in the Caribbean and Central and South America. The Marine segment’s primary operations are at PortMiami and include a marine terminal and an off-port warehouse for cargo consolidation and temporary storage. Seaboard also makes scheduled vessel calls in Brooklyn, Houston, New Orleans, Philadelphia, Savannah and various ports in the Caribbean and Central and South America. The Marine segment uses a network of offices and agents to sell freight services. Seaboard’s capabilities allow transport by truck or rail of import and export cargo to and from various U.S. and foreign ports. This segment’s fleet consists of approximately 21 chartered and three owned vessels, as well as dry, refrigerated and specialized containers.
Sugar and Alcohol Segment – Seaboard, through its subsidiary, Seaboard Energías Renovables y Alimentos S.R.L., operates a vertically integrated sugar and alcohol production facility in Argentina. Seaboard supplies most of the raw material processed in this facility with sugarcane grown on land that it owns. The sugar is primarily marketed locally, with some exports to other countries. The alcohol is primarily marketed to industrial users or sold as dehydrated alcohol to certain oil companies under the Argentine governmental bioethanol program, which requires alcohol to be blended with gasoline. The Sugar and Alcohol segment had two bioethanol customers that collectively represented approximately 35%-48% of its sales in each of the last three years. This segment also owns a 51-megawatt cogeneration power plant, which is fueled by the burning of sugarcane by-products, natural gas and other biomass when available.
Power Segment – Seaboard, through its subsidiary, Transcontinental Capital Corp. (Bermuda) Ltd., is an independent power producer generating electricity for the Dominican Republic power grid. Seaboard’s Power segment sells the electricity it generates primarily on the spot market to government-owned distribution companies. It is not directly involved in the transmission or distribution of electricity and is exempt from regulations under the Public Utility Holding Company Act of 1938, as amended. Seaboard’s Power segment owns and operates a power generating barge that contains a system of engines capable of using natural gas or heavy fuel oil to produce up to 108 megawatts of electricity. Seaboard’s Power segment is currently constructing a new floating power barge with capacity to generate approximately 146 megawatts of electricity using gaseous fuels, including natural gas. Operations are currently expected to begin by the end of 2021. Seaboard is exploring strategic alternatives for the existing barge, including selling, relocating or operating in conjunction with the new barge at the current site.
Turkey Segment – Seaboard has a 50% noncontrolling interest in Butterball, LLC (“Butterball”), a vertically integrated producer and processor of conventional, antibiotic-free and organic turkey products. Butterball is a national supplier to retail stores, foodservice outlets and industrial entities, and to a lesser extent, exports products to Mexico and other foreign markets. The Turkey segment had two retail customers that collectively represented approximately 27% of its sales in each of the last three years.
Other Businesses – Seaboard, through its subsidiary, Mount Dora Farms Inc., processes jalapeño peppers at its plant in Honduras, which are primarily shipped to and sold in the U.S.
See Note 13 to the consolidated financial statements for total revenue contributed by any class of similar products or services.
Competitive Conditions
Competition in Seaboard’s Pork segment comes from a variety of regional, national and international producers and processors and is based primarily on product quality, customer service and price. According to the trade publications Successful Farming and Informa Economics, Seaboard was ranked number three in hog production (based on sows in production) and number four in pork processing in the U.S. in 2020 (based on daily processing capacity, including Triumph’s and STF’s capacity).
Seaboard’s CT&M segment faces competition from numerous traders around the world. Most of the grain processing and related businesses face competition from either imported products or other local producers in the same industries.
Seaboard’s Marine segment faces competition based on price, reliable sailing frequencies and customer service.
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Seaboard’s Sugar and Alcohol segment owns one of the largest sugar mills in Argentina and faces significant competition for sugar sales in the local Argentine market. Sugar and alcohol prices in Argentina can fluctuate compared to world markets due to Argentine government price controls and protection policies.
Seaboard’s Power segment sells the power it generates to the spot market or to contract customers at prices based on market conditions and cost-based rates. The Dominican government sets a cap on the electricity spot market prices and establishes the dispatch order of who sells into the power grid. To sell to the power grid, Seaboard competes with producers utilizing various types of fuel and generation technologies, including hydro, solar, wind, natural gas, heavy fuel oil or coal. Producers who have lower variable costs to operate may receive dispatch preference from the Dominican government. The new power barge is expected to be more efficient than Seaboard’s dual-fueled barge due to the latest technologies and use of gas turbines instead of engines.
Competition for the Turkey segment comes from a variety of regional and national producers and processors and is based primarily on product quality, customer service and price.
Resources Material to Business
The Power segment and Turkey segment utilize material amounts of raw materials that are dependent on purchases from one supplier or a small group of dominant suppliers. The Power segment has one primary supplier of natural gas, but the existing barge can run on other types of fuel. The Turkey segment purchases a significant portion of its feed and grain used in the manufacturing of feed for its turkeys in North Carolina from Seaboard’s 50% partner in Butterball.
Also, Seaboard believes there is significant recognition of the trademarks identified below in the various industries Seaboard serves and by many of its customers. The Pork segment uses registered trademarks including, but not limited to, Seaboard Foods®, Seaboard Farms®, Seaboard EnergyTM, Prairie Fresh®, Prairie Fresh USA Prime®, Our Farms, Our Commitment®, St. Joe Pork®, and Cook-in Bag®. The CT&M segment uses registered trademarks including, but not limited to, Mothers Pride® and Zambia’s Pride® in Zambia, Thunderbolt Flour® and Maid Marian® in Guyana, GMA® and Top Pain® in Ivory Coast, and GMD® and Jarga® in Senegal. The Marine segment uses the registered trademarks of Seaboard Marine® and Seaboard Solutions®. The Sugar and Alcohol segment markets sugar under the Chango® brand. The Turkey segment uses registered trademarks including, but not limited to, Butterball®, Carolina Turkey® and Farm to Family Butterball®. While Seaboard considers all of its intellectual and proprietary rights important, Seaboard believes its business as a whole is not materially dependent on any particular patent, trademark, license or other intellectual property right.
Seasonal Business
The Turkey business is seasonal for whole birds and related products with the holiday season driving the majority of those sales. Seaboard’s other segments are not seasonally dependent to any material extent.
Governmental Regulations
Environmental Matters
Seaboard’s Pork segment and Turkey segment are subject to numerous federal, state and local laws and regulations relating to the environment that require the expenditure of funds in the ordinary course of business. Seaboard’s Pork and Turkey segments do not anticipate making expenditures for these purposes that, in the aggregate, would have a material effect on Seaboard’s financial condition or results of operations. Also, Seaboard’s Marine and CT&M segments’ vessels are subject to environment regulations related to global sulfur emissions requirements.
Other Regulations
As a company with global operations, Seaboard is subject to complex foreign and U.S. laws and regulations, including trade regulations, tariffs, import and export regulations and anti-bribery and corruption laws. Seaboard has policies and procedures in place to promote compliance with these laws and regulations. To date, Seaboard’s compliance actions and costs relating to these laws, rules and regulations have not resulted in a material effect on Seaboard’s financial condition or results of operations. Governmental regulations are subject to change, and accordingly, Seaboard is unable to assess the possible effect of compliance with future requirements or whether compliance with such regulations will materially impact Seaboard’s business in the future.
Human Capital Resources
Employees are critical to the operation of all Seaboard’s essential businesses and Seaboard is committed to the safety and wellbeing of all employees. Seaboard’s human capital management strategies include a focus on the following areas: (i) physical wellness – Seaboard offers competitive healthcare benefits, including wellness and employee assistance programs; (ii) financial wellness – Seaboard offers competitive compensation and bonus packages, as well as life and
4
disability insurance benefits; (iii) work/life wellness – Seaboard provides paid time off and paid holidays, as well as professional development opportunities and support, including tuition reimbursement programs; (iv) community wellness – Seaboard believes in supporting the communities in which it operates and provides matching gift programs, volunteer time off and sponsors charitable activities and events; and (v) additional benefits – Seaboard provides other benefits designed to engage and retain employees, including hosting employee events designed to maintain morale and foster teamwork and providing an employee meat purchase program at wholesale prices. Seaboard also recognizes that diversity is the key to its successful operations and seeks to design human capital management strategies to meet the diverse needs of its employees.
As of December 31, 2020, Seaboard had approximately 13,100 employees, of whom approximately 6,600 were in the U.S. Of Seaboard’s total U.S. employees, approximately 83% were Pork segment employees. Substantially all of Seaboard’s Pork segment’s hourly employees at its processing plant are covered by a collective bargaining agreement that expires in 2024. The Pork segment has had challenges recruiting and retaining employees due to the remote locations, restrictive domestic policies on immigration and unique operating environments, among other factors. Currently between 30% and 60% of the Pork segment’s workforce is dependent upon employment visas in different production areas.
Internationally, Seaboard operates facilities globally, including in developing countries, where at times, inherent challenges associated with safety and political stability may exist, primarily in the CT&M segment. The CT&M segment is dependent on identifying and retaining qualified expatriate personnel at many of its locations. Recruiting and developing talent in these locations remains a priority for this segment.
Available Information
Seaboard’s annual reports on Form 10-K, quarterly reports on 10-Q, current reports on 8-K and all amendments to those reports are available free of charge on its website at www.seaboardcorp.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). In addition, copies of Seaboard’s SEC filings will be made available, free of charge, on written request. Seaboard does not intend for information contained in its website to be part of this Form 10-K.
Information About Seaboard’s Executive Officers
The following table lists the executive officers of Seaboard. Generally, executive officers are elected at the annual meeting of the Board of Directors following the Annual Meeting of Stockholders and hold office until the next such annual meeting or until their respective successors are duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was elected.
Name (Age)
Positions and Offices
Robert L. Steer (61)
President and Chief Executive Officer
David M. Becker (59)
Executive Vice President, General Counsel and Secretary
David H. Rankin (49)
Executive Vice President, Chief Financial Officer
James L. Gutsch (67)
Senior Vice President, Engineering
Michael D. Trollinger (52)
Senior Vice President, Corporate Controller and Chief Accounting Officer
Ty A. Tywater (51)
Senior Vice President, Audit Services
Jacob A. Bresky (33)
Vice President, International
Benjamin R. Hodes (35)
Vice President, Finance
Adriana N. Hoskins (51)
Vice President and Treasurer
Elizabeth A. Loudon (56)
Vice President, Tax
Brad Warner (53)
Vice President, Human Resources
James T. Hubler (42)
Associate General Counsel and Assistant Secretary
Zachery J. Holden (53)
Assistant Secretary
Emma A. Vacas Jacques (43)
Assistant Treasurer
Peter B. Brown (58)
President, Seaboard Foods LLC
David M. Dannov (59)
President, Seaboard Overseas and Trading Group
Edward A. Gonzalez (55)
President, Seaboard Marine Ltd.
Mr. Steer has served as President and Chief Executive Officer since July 2020. Prior to that, he served as Executive Vice President, Chief Financial Officer from April 2011 to December 2020.
Mr. Becker has served as Executive Vice President, General Counsel and Secretary since December 2020 and previously as Senior Vice President, General Counsel and Secretary since April 2011.
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Mr. Rankin has served as Executive Vice President, Chief Financial Officer since December 2020. Prior to that, he served as Senior Vice President, Taxation and Business Development since April 2015.
Mr. Gutsch has served as Senior Vice President, Engineering since April 2011.
Mr. Trollinger has served as Senior Vice President, Corporate Controller and Chief Accounting Officer since December 2020 and previously as Vice President, Corporate Controller and Chief Accounting Officer since March 2015.
Mr. Tywater has served as Senior Vice President, Audit Services since December 2020 and previously as Vice President, Audit Services since November 2008.
Mr. Bresky has served as Vice President, International since July 2020. Prior to that, he served in various roles with the Seaboard Overseas and Trading Group for more than seven years.
Mr. Hodes has served as Vice President, Finance since December 2020 and previously as Finance Director since December 2019. Prior to that, he served as Finance Manager since 2015.
Ms. Hoskins has served as Vice President and Treasurer since December 2020 and previously as Assistant Treasurer since 2006.
Ms. Loudon has served as Vice President, Tax since December 2020 and previously as Tax Director since January 2017. Prior to that, she served as Tax Manager since 2006.
Mr. Warner has served as Vice President, Human Resources since December 2020 and previously as Director of Human Resources since April 2019. Prior to that, he served as Director of Human Resources with the Seaboard Overseas and Trading Group for more than 12 years.
Mr. Hubler has served as Associate General Counsel since October 2018 and Assistant Secretary since April 2019. Prior to joining Seaboard Corporation, Mr. Hubler was Assistant Vice President, Legal at Dairy Farmers of America, Inc. for over two years and prior to that, Director and Senior Corporate Counsel at VeriSign, Inc. from July 2008 to March 2016.
Mr. Holden has served as Assistant Secretary since June 2010, and also serves as Vice President and General Counsel with the Seaboard Overseas and Trading Group.
Ms. Vacas Jacques has served as Assistant Treasurer since January 2021 and previously as Treasury Director since July 2014.
Mr. Brown has served as President of Seaboard Foods LLC since January 2021. Prior to joining Seaboard Foods LLC, Mr. Brown was the Chief Operating Officer of Butterball, LLC for almost two years and President and Chief Operating Officer at High Liner Foods from 2014 to 2018.
Mr. Dannov has served as President of Seaboard Overseas and Trading Group since August 2006.
Mr. Gonzalez has served as President of Seaboard Marine Ltd. since January 2005.
Item 1A. Risk Factors
A description of factors that could materially affect Seaboard’s business, results of operations or financial condition is provided below.
Industry Risks
Pathogens which may cause food contamination are found generally in livestock and in the environment and therefore may be present in Seaboard’s products. These pathogens also can be introduced to its products as a result of improper
handling by customers or consumers. Seaboard does not have control over handling procedures once products have been shipped for distribution. If one or more of these risks were to materialize, Seaboard’s revenues could decrease, costs of doing business could increase, and Seaboard’s operating results could be adversely affected.
Any of these hazards could result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of Seaboard’s vessels were involved in an incident, the resulting negative public perception could have a material adverse effect on Seaboard’s business, financial condition and results of operations. Also, many aspects of the shipping industry are subject to extensive governmental regulations. Compliance with applicable laws, regulations and standards may require installation of costly equipment or operational changes, while the 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.
Macro Operation Risks
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Business and Operational Risks
Specific Pork Segment Risks
Specific Commodity Trading and Milling Segment Risks
Specific Marine Segment Risks
Specific Sugar and Alcohol Segment Risks
Specific Power Segment Risks
Specific Turkey Segment Risks
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Management believes that Seaboard’s present facilities are adequate and suitable for its current purposes. Seaboard’s principal properties by segment are described below:
(1) Pork — Seaboard’s Pork segment owns a pork processing plant in Guymon, Oklahoma. It has a double-shift capacity to process approximately six million hogs annually and generally operates at capacity with additional weekend shifts depending on market conditions. Seaboard’s hog production operations consist of the breeding and raising of approximately eight million hogs annually at facilities it primarily owns or at facilities owned and operated by third parties with whom it has grower contracts. This segment owns and operates eight centrally located feed mills, which have a combined capacity to produce approximately three million tons of formulated feed annually. These feed mills are used primarily to support Seaboard’s existing hog production and have the capability of supporting additional hog production in the future. These facilities are located in Iowa, Oklahoma, Texas, Kansas and Colorado. The Pork segment also operates a ham-boning and processing plant in Mexico that has the capacity
to process 96 million pounds of ham annually. The Pork segment owns biodiesel plants in Oklahoma and Missouri, with the capacity to produce 46 million gallons and 30 million gallons, respectively, of biodiesel annually. In 2019, the Pork segment purchased and began modifying an idle ethanol plant in Hugoton, Kansas, to produce renewable diesel with operations currently expected to begin in 2022. The Kansas plant is currently expected to produce 85 million gallons of renewable diesel annually when operating at full capacity.
(2) Commodity Trading and Milling — Seaboard’s CT&M grain-processing business, which includes 10 consolidated and 17 non-consolidated affiliates, operates facilities at 41 locations in 23 countries. Seaboard and its affiliates produce approximately six million metric tons of wheat flour, maize meal, manufactured feed and oilseed crush commodities per year in addition to other related grain-based products. The grain-processing and related agribusiness operations located in Botswana, Brazil, Colombia, the Democratic Republic of Congo, Ecuador, Gambia, Ghana, Guyana, Haiti, Jamaica, Kenya, Lesotho, Mauritania, Morocco, Mozambique, Nigeria, Peru, Republic of Congo, South Africa, Turkey, and Zambia own their facilities; and in Ivory Coast, Kenya, Lesotho, Morocco, Mozambique, Nigeria, Republic of Congo, Senegal and Zambia, the land on which certain facilities are located is leased under long-term agreements. Certain foreign milling operations may operate at less than full capacity due to low demand, poor consumer purchasing power, excess milling capacity in their competitive environment or imported flour. The commodity trading business has 13 offices in 12 countries, in addition to two non-consolidated affiliates in two other countries. Seaboard’s CT&M segment owns three 18,900 metric ton deadweight dry bulk vessels and charters between 32 and 56 bulk vessels with deadweights ranging from 3,000 to 81,000 metric tons under short-term agreements.
(3) Marine — Seaboard’s Marine segment leases approximately 297,000 square feet of off-port warehouse space and approximately 86 acres of port terminal land and facilities in Miami, Florida, which are used in its containerized cargo operations. Seaboard’s Marine segment also leases an approximately 100-acre cargo handling and marine terminal facility in Houston, Texas, which includes several warehouses totaling approximately 690,000 square feet for cargo storage. The Marine segment owns three ocean cargo vessels with deadweights ranging from 7,700 to 11,000 metric tons. In addition, this segment charters approximately 21 vessels under contracts with a remaining average term of approximately eleven months with deadweights ranging from approximately 5,000 to 34,700 metric tons. Seaboard’s Marine segment owns or leases dry, refrigerated and specialized containers and other related equipment.
(4) Sugar and Alcohol — Seaboard’s Sugar and Alcohol segment owns nearly 70,000 acres of planted sugarcane and a sugar mill with an annual capacity to crush approximately three million metric tons of sugar cane. The facility, including an alcohol distillery, has an annual production capacity of approximately 250,000 metric tons of sugar and approximately 33 million gallons of alcohol. This capacity is sufficient to process all of the cane harvested by this segment and additional quantities purchased from third-party farmers in the region. The sugarcane fields, processing mill, distillery and 51-megawatt cogeneration power plant are located in northern Argentina in the Salta Province. This area experiences seasonal rainfalls that may limit the harvest season, which then affects the duration of mill operations and quantities of sugar and alcohol produced.
(5) Power — Seaboard’s Power segment owns one power generating barge with capacity to generate approximately 108 megawatts of electricity that is secured on the Ozama River in Santo Domingo, Dominican Republic. Seaboard’s Power segment is currently constructing a new floating power barge with capacity to generate approximately 146 megawatts of electricity that also will be secured nearby on the Ozama River.
(6) Turkey — Seaboard’s Turkey segment has a total of four processing plants, two further processing plants and numerous company and third-party live production facilities and feed milling operations, located in North Carolina, Arkansas, Missouri and Kansas. These facilities produce over one billion pounds of turkey each year. Although capacity to meet core further processing demand is sufficient, Butterball uses third-party copacker arrangements to supplement portions of its portfolio where it either does not maintain competencies, or to meet demand beyond its internal production capacity.
Item 3. Legal Proceedings
The information required by this item is included in Note 9 to the consolidated financial statements.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Seaboard’s common stock is traded on the NYSE American under the symbol SEB. Seaboard had 2,873 stockholders of record of its common stock as of January 31, 2021.
Stock Performance Graph
The SEC requires a five-year comparison of stock performance for Seaboard with that of an appropriate broad equity market index and similar industry index. Since there is no single industry index to compare stock performance, the companies comprising the Dow Jones U.S. Food Products and Dow Jones U.S. Marine Transportation Industry indices (the “Peer Group”) were chosen as the second comparison.
The following line graph shows a five-year comparison of cumulative total return for Seaboard Corporation, the NYSE American Index and the companies comprising the Peer Group, weighted by market capitalization for the five fiscal years commencing December 31, 2015 and ending December 31, 2020.
The comparison of cumulative total returns presented in the above graph was plotted using the following index values and common stock price values:
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Seaboard Corporation
$
100.00
136.52
152.58
122.60
147.62
105.57
119.65
120.83
103.00
116.58
113.81
Peer Group
112.71
113.74
94.57
117.36
122.98
In each of the four quarters of 2020 and 2019, Seaboard declared and paid quarterly dividends of $2.25 per share of common stock. In each of the four quarters of 2018, Seaboard declared and paid quarterly dividends of $1.50 per share of common stock. Seaboard’s Board of Directors intends that Seaboard will continue to pay quarterly dividends for the reasonably foreseeable future, with such future dividends and the amount of any such dividends being subject to the determination, declaration and discretion of Seaboard’s Board of Directors and dependent upon factors such as Seaboard’s financial condition, results of operations, and, current and anticipated cash needs, including capital requirements. As discussed in Note 8 to the consolidated financial statements, Seaboard’s ability to declare and pay dividends is subject to limitations imposed by debt agreements.
Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock, may be granted.
Seaboard’s share repurchase program expired on October 31, 2020. There were no purchases made by or on behalf of Seaboard or any “affiliated purchaser” (as defined by applicable rules of the SEC) of shares of Seaboard’s common stock during the fourth quarter of the fiscal year covered by this report. See Note 12 to the consolidated financial statements for discussion of share repurchase activity during 2020.
Item 6. Selected Financial Data
Years ended December 31,
(Millions of dollars except per share amounts)
2020
2019 (a)
2018 (a)
2017 (a)
2016 (a)
Net sales
7,126
6,840
6,583
5,809
5,379
Operating income
245
110
236
250
222
Other investment income (loss), net
84
225
(152)
177
69
Net earnings attributable to Seaboard
283
287
255
(c)
307
Basic earnings per common share
244.21
246.62
2.26
217.56
262.58
Total assets
6,399
6,349
(b)
5,365
5,192
4,776
Long-term debt, less current maturities
707
730
739
482
499
Stockholders’ equity
3,828
3,601
3,372
3,431
3,188
Dividends declared per common share (d)
9.00
6.00
—
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations in commodity prices and changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and a different geographic location, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s CEO to determine allocation of resources and assess performance, in his capacity as chief operating decision maker.
Seaboard’s operations have been both directly and indirectly impacted by the COVID-19 pandemic. At the onset of the pandemic in March and April of 2020, Seaboard experienced a change in product mix, including a significant decline in volume and prices for food service business due to restaurant closings, less demand for transportation due to customers temporarily shut down due to government orders and capital market volatility. Seaboard saw improvement in its third and fourth quarter 2020 results though challenges remain. Seaboard continues to encounter partially staffed shifts, lock downs or curfews in some geographic regions and the impacts from commodity market volatility. The near and long-term impacts of COVID-19 on Seaboard’s operations and the global economy are unknown and impossible to predict with any level of certainty.
Pork Segment
The Pork segment primarily produces hogs to process and sells fresh and frozen pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. Within the portfolio of Seaboard’s businesses, management believes profitability of the Pork segment is most susceptible to commodity price fluctuations. As a result, this segment’s operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard’s consolidated operating income and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 58% of Seaboard’s total fixed assets, in addition to approximately 48% of total inventories, as of December 31, 2020. With the plant generally operating at capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher value products. This segment also produces biodiesel for sale to third parties. Sales prices are affected by the supply and demand of diesel and environmental credit initiatives.
CT&M Segment
The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of the CT&M segment’s sales are derived from sourcing agricultural commodities from multiple origins which are delivered to third-party and affiliate customers in various international locations. The execution of these purchase and delivery transactions have long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 46% of Seaboard’s total inventories as of December 31, 2020. This segment owns three vessels, but the majority of the trading business is transacted with chartered ships. Consolidated and non-consolidated affiliates operate the grain processing business in foreign countries that are, in most cases, lesser developed. Foreign operations can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates. This segment’s sales are also significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions that may have a significant impact on this segment’s sales and operating income. Profit margins are sometimes protected by using commodity derivatives and other risk management practices. The CT&M segment has invested in several entities in recent years and continues to seek opportunities to expand its business.
Marine Segment
The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, cargo rates can fluctuate depending on regional supply and demand for shipping services. Since the Marine segment time-charters the majority of its ocean cargo vessels, it is affected by fluctuations in charter hire rates as well as fuel costs. This segment continues to explore ways to increase volumes on existing routes while seeking opportunities to broaden its route structure in the regions it serves.
Sugar and Alcohol Segment
The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. The Sugar and Alcohol segment’s sales and operating income are significantly affected by local and worldwide sugar and alcohol prices. Domestic sugar production levels in Argentina affect the local price. Global sugar price fluctuations, to a lesser extent, have an impact in Argentina as well. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows.
Power Segment
The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.
Turkey Segment
The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can significantly affect the profitability and cash flows of Butterball.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Sources and Uses of Cash
As of December 31, 2020, Seaboard had cash and short-term investments of $1.5 billion and additional total working capital of $737 million. Cash and short-term investments as of December 31, 2020 decreased $18 million from December 31, 2019. The decrease was primarily the result of $259 million of capital expenditures and $69 million of long-term debt payments, partially offset by $291 million of cash from operations. Cash from operating activities increased $120 million primarily due to higher adjusted earnings partially offset by uses of cash for working capital.
As of December 31, 2020, $52 million of the $1.5 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. Seaboard intends to continue permanently reinvesting the majority of these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations. For any planned repatriation to the U.S., Seaboard would record applicable deferred taxes for state or foreign withholding taxes.
Capital Expenditures, Acquisitions and Other Investing Activities
During 2020, Seaboard invested $259 million in property, plant and equipment, of which $207 million was in the Pork segment and $27 million in the Power segment. The Pork segment expenditures were primarily for the expansion of the Oklahoma pork processing plant and the modifications of an idle ethanol plant and its related assets in Hugoton, Kansas. The Power segment expenditures were primarily for its power generating barge under construction. All other capital expenditures were primarily of a normal recurring nature such as replacements of machinery and equipment and general facility modernizations and upgrades.
The total budget for 2021 capital expenditures is approximately $456 million, with $340 million planned in the Pork segment and $25 million in the Power segment to complete the new barge and interconnection for existing barge at a different site. The Pork segment budgeted approximately $173 million to complete modifications to convert an acquired idle ethanol facility to a renewable diesel plant with operations currently expected to begin in 2022, and the remainder to new projects, including biogas recovery projects. Certain projects or purchases were delayed due to COVID-19, so overall capital expenditures are expected to be higher than last year. 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.
Seaboard has acquired businesses in 2020, 2019 and 2018, and intends to continue to look for opportunities to further grow and diversify its operations, but there are no definitive plans at this time. Also, from time to time, Seaboard may fund capital calls and issue borrowings for its equity method investments based on the specific facts and circumstances. During 2020, Seaboard contributed $8 million to non-consolidated affiliates for working capital needs.
18
Financing Activities
The following table presents a summary of Seaboard’s available borrowing capacity. During 2020, Seaboard entered into a committed line of credit agreement for $250 million of additional liquidity for working capital and general corporate purposes.
Total amount
(Millions of dollars)
available
Short-term uncommitted and committed lines
1,028
Amounts drawn against lines
(222)
Available borrowing capacity as of December 31, 2020
806
Seaboard has debt of $763 million, which includes term loans of $714 million and foreign subsidiary obligations of $49 million. Subsequent to year-end, Seaboard repaid $46 million of foreign subsidiary obligations. Seaboard has capacity under its debt covenants to undertake additional debt financings of approximately $1.3 billion as of December 31, 2020. See Note 8 to the consolidated financial statements for further discussion of debt.
Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity, available borrowing capacity and other financing alternatives. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous. Accordingly, management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations for the next twelve months.
Contractual Obligations and Off-Balance Sheet Arrangements
Several of Seaboard’s segments have long-term contractual obligations, including non-cancelable lease agreements and purchase commitments. See Notes 6 and 9 to the consolidated financial statements for discussion on purchase commitments and leases, respectively.
The following table provides a summary of Seaboard’s long-term contractual obligations as of December 31, 2020:
Payments due by period
Less than
1-3
3-5
More than
Total
1 year
years
5 years
Purchase commitments
2,404
1,462
288
367
Operating lease obligations
476
121
150
88
117
Finance lease obligations
112
25
45
Long-term debt
763
55
679
Interest payments on long-term debt (a)
91
23
Retirement benefit payments (b)
75
34
20
Mandatory deemed repatriation tax (c)
Total contractual cash obligations
3,927
1,668
539
455
1,265
Deferred income taxes and certain other long-term liabilities in the consolidated balance sheets are not included in the table above as management is unable to reliably estimate the timing of the payments for these items.
19
RESULTS OF OPERATIONS
Prior period financial information included in this Form 10-K has been adjusted for the effect of a change in method in accounting for inventory in the Pork segment. See Note 1 to the consolidated financial statements for further discussion of this change in accounting principle and the related impact to the financial statements.
Net sales for the years ended December 31, 2020, 2019 and 2018 were $7.1 billion, $6.8 billion and $6.6 billion, respectively. The increase for 2020 compared to 2019 primarily reflected higher volumes of certain commodities in the CT&M segment and higher volumes for pork products and hogs sold in the Pork segment, partially offset by lower cargo volumes in the Marine segment and lower spot prices and generation in the Power segment. The increase for 2019 compared to 2018 primarily reflected higher volumes of certain commodities in the CT&M segment and higher prices for pork products sold in the Pork segment, partially offset by lower biodiesel revenue in the Pork segment and lower volumes and prices of sugar and alcohol sold in the Sugar and Alcohol segment.
Operating income for the years ended December 31, 2020, 2019 and 2018 was $245 million, $110 million and $236 million, respectively. The increase for 2020 compared to 2019 primarily reflected lower derivative contract losses and higher margins on pork product sales in the Pork segment and higher margins on third-party sales and derivative contract gains in the CT&M segment, partially offset by lower revenues in the Power segment. The decrease for 2019 compared to 2018 primarily reflected derivative contract losses and lower margins on biodiesel sales in the Pork segment, lower alcohol margins in the Sugar and Alcohol segment and higher voyage costs in the Marine segment.
2019 ADJUSTED
2018 ADJUSTED
1,941
1,851
1,774
131
60
144
Loss from affiliates
(9)
(22)
(30)
Net sales for the Pork segment increased $90 million for the year ended December 31, 2020 compared to 2019. The increase was primarily the result of higher volumes of pork products, market hogs and biodiesel sold and the recognition of more federal blender’s credits than the prior year, partially offset by lower biodiesel prices.
Operating income for the Pork segment increased $71 million for the year ended December 31, 2020 compared to 2019. The increase was primarily due to lower derivative contract losses, higher pork product sales, lower costs for feed and third-party hogs, more income associated with the federal blender’s credits received, and no expense related to the withdrawal liability from a multi-employer pension fund recorded in 2019 as discussed below, partially offset by higher plant processing costs and lower margins on biodiesel sales. Seaboard sells pork to international customers located in China, among other countries, and incremental tariffs, the duration of which is uncertain, continue to have a negative impact on earnings. Management is unable to predict market prices for pork products, the cost of feed or third-party hogs, the prices of biodiesel or the ongoing impacts of the COVID-19 pandemic for future periods. For 2021, it currently appears that overall costs will be higher than in 2020 because of higher grain prices. Based on these conditions, management cannot predict if this segment will be profitable in 2021.
Loss from affiliates has decreased primarily due to the STF plant processing more hogs and utilizing more capacity. STF’s operations began in September 2017 with a second shift commencing in October 2018.
Net sales for the Pork segment increased $77 million for the year ended December 31, 2019 compared to 2018. The increase was primarily the result of higher volumes and prices of market hogs sold, higher prices and volumes for pork products sold and the recognition of the federal blender’s credits of $60 million in 2019 for biodiesel production in tax years 2018 and 2019, partially offset by lower biodiesel prices and volumes. In December 2019, the President of the U.S. signed into law the Further Consolidated Appropriations Act that extended the federal blender’s credits through 2022. In the first quarter of 2018, the Pork segment received $42 million of revenue related to 2017 biodiesel production.
Operating income for the Pork segment decreased $84 million for the year ended December 31, 2019 compared to 2018. The decrease was primarily due to derivative contract losses, lower margins on biodiesel sales and a $14 million expense related to the withdrawal liability from a multi-employer pension fund as discussed in Note 10 to the consolidated financial statements, partially offset by higher margins on pork product sales and the increase in federal blender’s credits received. Margins on pork product sales increased as higher sales prices were only partially offset by higher production and processing costs.
2019
2018
3,994
3,672
3,428
Operating income as reported
118
46
Marked-to-market adjustments
(15)
Operating income excluding marked-to-market adjustments
103
49
Income (loss) from affiliates
(2)
(5)
(11)
Net sales for the CT&M segment increased $322 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher volumes of certain commodities to third-party customers, including sales from a business acquired in October 2019, and higher corn, soybean and other commodity prices, partially offset by lower volumes to affiliates.
Operating income for the CT&M segment increased $56 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher margins on third-party sales, including margins for a business acquired in October 2019, from higher prices and volumes, derivative contract gains of $20 million related to mark-to-market adjustments and lower selling, general and administrative expenses. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates, the volatility in the commodity markets and the ongoing impacts of the COVID-19 pandemic, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment in 2021, excluding the effects of marking to market derivative contracts.
Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $15 million in 2020 and higher by $5 million and $3 million in 2019 and 2018 respectively. While management believes its commodity futures, options and foreign exchange contracts 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 transactions as hedges for accounting purposes. Accordingly, while the changes in fair 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 marked-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time and therefore, these marked-to-market adjustments could reverse in fiscal 2021. Management believes eliminating these marked-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.
Net sales for the CT&M segment increased $244 million for the year ended December 31, 2019 compared to 2018. The increase primarily reflected higher volumes of certain commodities for third-party customers, including sales for a business acquired in January 2018 with certain entities on a three-month lag and another business acquired in October 2019, and higher wheat, corn and other commodity prices, partially offset by lower affiliate volumes and sales prices.
Operating income for the CT&M segment increased $16 million for the year ended December 31, 2019 compared to 2018. The increase primarily reflected higher margins on third-party sales, partially offset by higher selling, general and administrative costs related to the business acquired.
1,005
1,061
1,057
21
Income from affiliates
Net sales for the Marine segment decreased $56 million for the year ended December 31, 2020 compared to 2019. The decrease was primarily the result of lower cargo volumes, partially offset by slightly higher rates due to a change in cargo mix with more refrigerated containers that generally have a higher freight rate. The Marine segment’s results were significantly impacted in the second quarter of 2020 with a decrease of $67 million in sales compared to the same period in 2019 due to less demand with many of Marine’s customers temporarily shut down due to government orders associated with COVID-19.
Operating income for the Marine segment increased $17 million for the year ended December 31, 2020 compared to 2019. The increase was primarily the result of lower fuel costs due to the decrease in price and consumption and lower other
voyage costs and terminal costs related to the reduction in cargo volumes. Management cannot predict fuel costs, cargo volumes and cargo rates, the ongoing impacts of the COVID-19 pandemic or to what extent changes in economic conditions in markets served will affect net sales or operating income for future periods. However, management anticipates positive operating income for this segment in 2021.
Net sales for the Marine segment increased $4 million for the year ended December 31, 2019 compared to 2018. The increase was primarily the result of a change in cargo mix, with more refrigerated containers that generally have a higher rate, partially offset by lower cargo volumes.
Operating income for the Marine segment decreased $21 million for the year ended December 31, 2019 compared to 2018. The decrease was primarily the result of higher voyage costs related to charter hire rates, terminal costs and fuel costs. The reduced global sulfur emissions cap from 3.5% to 0.5% became effective on January 1, 2020 and resulted in higher fuel costs as purchases of low-sulfur fuel began in late 2019.
106
184
Operating income (loss)
(16)
9
Net sales for the Sugar and Alcohol segment decreased $15 million for the year ended December 31, 2020 compared to 2019. The decrease primarily reflected lower volumes and prices of alcohol sold as a result of less demand for fuels with the lengthy COVID-19 pandemic lockdown, partially offset by higher sugar prices. Sugar and alcohol sales are denominated in Argentine pesos, and an increase in local sales prices may be offset by exchange rate changes in the Argentine peso against the U.S. dollar. This segment’s functional currency is the U.S. dollar, which will continue to be effective as long as the Argentine economy is considered highly inflationary.
Operating income for the Sugar and Alcohol segment increased $18 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher margins on sugar due to higher prices and lower alcohol and sugar production costs. Management cannot predict local sugar and alcohol prices, the volatility in the currency exchange rate or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2021.
Net sales for the Sugar and Alcohol segment decreased $63 million for the year ended December 31, 2019 compared to 2018. The decrease primarily reflected lower volumes and prices of sugar and alcohol sold.
Operating income for the Sugar and Alcohol segment decreased $25 million for the year ended December 31, 2019 compared to 2018. The decrease primarily reflected lower margins on alcohol, partially offset by lower selling, general and administrative expenses.
122
27
10
Net sales for the Power segment decreased $53 million for the year ended December 31, 2020 compared to 2019. The decrease primarily reflected lower spot market rates as a result of lower fuel prices and lower production related to more power generation from lower variable-cost producers.
Operating income for the Power segment decreased $24 million for the year ended December 31, 2020 compared to 2019 primarily due to lower revenues, partially offset by lower fuel costs due to lower prices and fuel consumption. Management cannot predict fuel costs, the extent that spot market rates will fluctuate compared to fuel costs or other power producers, or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2021. Financial results are expected to be lower during the period of interconnection for the existing barge at a new site.
Net sales for the Power segment decreased $5 million for the year ended December 31, 2019 compared to 2018. The decrease primarily reflected lower spot market rates as a result of lower fuel prices.
22
Operating income for the Power segment increased $6 million for the year ended December 31, 2019 compared to 2018 primarily due to lower fuel costs, partially offset by lower revenues.
Income from affiliates decreased as the Power segment sold its 29.9% interest in an electricity generation facility during 2019.
Loss from affiliate
(10)
(21)
The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball. The decrease in loss from affiliate for 2020 compared to 2019 was primarily the result of higher sales attributable to more whole bird volumes and increased prices related to a stronger sales mix of value-added products sold and less interest expense, partially offset by higher live and production costs. The increase in loss from affiliate for 2019 compared to 2018 was primarily the result of higher production and other costs, including interest, partially offset by higher prices for turkey products sold. Management is unable to predict market prices for turkey products, the cost of feed or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2021.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2020 decreased $7 million compared to 2019. The decrease was primarily the result of lower costs related to Seaboard’s deferred compensation program, recovery of bad debt expense and lower travel costs and other cost reduction efforts, partially offset by higher personnel costs, which included higher pension settlement charges in 2020. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss). SG&A expenses for the year ended December 31, 2019 increased $22 million compared to 2018. The increase was primarily the result of increased personnel-related costs, including higher costs related to Seaboard’s deferred compensation program and the businesses acquired.
Interest Expense
Interest expense totaled $19 million, $36 million and $44 million for the years ended December 31, 2020, 2019 and 2018, respectively. The decrease in interest expense for 2020 compared to 2019 primarily related to lower interest rates on outstanding debt and increased capitalized interest related to ongoing capital expenditure investments. The decrease in interest expense for 2019 compared to 2018 primarily related to lower interest rates on outstanding debt for the Sugar and Alcohol segment and more capitalized interest related to capital expenditure investments, partially offset by higher debt outstanding related to the Term Loan due 2028 amended in September 2018.
Interest Income
Interest income totaled $22 million, $30 million and $14 million for the years ended December 31, 2020, 2019 and 2018, respectively. The decrease for 2020 compared to 2019 was primarily due to less interest earned on debt securities. The increase for 2019 compared to 2018 was primarily due to increased investments in debt securities.
Other Investment Income (Loss), Net
Other investment income (loss), net totaled $84 million, $225 million and ($152) million for the years ended December 31, 2020, 2019 and 2018, respectively. The changes primarily reflect mark-to-market fluctuations on short-term investments.
Foreign Currency Gains (Losses), Net
Foreign currency gains (losses), net totaled ($31) million, $0 million and $4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The increase in foreign currency losses for 2020 compared to 2019 primarily reflected losses in the euro, Zambian kwacha and South African rand, among fluctuations of other currency exchange rates in several foreign countries. The decrease in foreign currency gains for 2019 compared to 2018 primarily reflected losses in the Argentine peso, partially offset by fluctuations of other currency exchange rates.
Income Tax Expense
The 2020 effective tax rate was higher than the 2019 effective tax rate primarily due to decreased tax-exempt income and federal investment tax credits, partially offset by a decrease in foreign tax expense related to a change in the mix of domestic and foreign earnings as compared to the prior year. The 2019 effective tax rate was lower than the 2018 effective tax rate primarily due to increased federal investment tax credits and more tax-exempt income from the retroactive
extension of the federal blender’s credits in December 2019 for both 2018 and 2019. Also, the 2018 rate was impacted by the change in tax classification of a wholly owned subsidiary from a partnership to a corporation and an adjustment to the Tax Cuts and Jobs Act (“2017 Tax Act”) income tax liability. See Note 14 to the consolidated financial statements for further information on Seaboard’s income taxes.
CRITICAL ACCOUNTING ESTIMATES
This discussion and analysis of financial condition and results of operations is based upon Seaboard’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires Seaboard to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard’s financial condition and results, and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.
Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would be an increase in pension expense of approximately $4 million per year. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods if it exceeds the 10% corridor and, therefore, could affect Seaboard’s recognized pension expense in such future periods, as permitted under GAAP. See Note 10 to the consolidated financial statements for discussion of the pension rates and assumptions.
Income Taxes – Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard’s various business units based on management’s interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management’s attention that could alter previous conclusions, if tax laws change or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse or favorable impact on the financial statements. An increase in the future U.S. federal income tax rate of 5% would increase tax expense on the reversal of timing differences by approximately $27 million as a one-time adjustment, which would be fully reflected in the period of enactment.
Item 7A. 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 derivatives are used to manage these overall market risks; however, Seaboard does not perform the extensive record-keeping required to account for derivative transactions as hedges. Management believes it uses derivatives primarily as economic hedges, although they do not qualify as hedges for accounting purposes. Since these derivatives are not accounted for as hedges, fluctuations in the related prices could have a material impact on earnings in any given year. From time to time, Seaboard also enters into speculative derivative transactions related to its market risks.
Commodity price changes affect the cost of necessary raw materials and other inventories, finished product sales and firm sales commitments. Seaboard uses various grain, oilseed and other commodity futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments or anticipated sales contracts. Short sales contracts are used to offset the open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively offsetting the initial futures or option purchase contract.
The political and economic conditions of the countries in which Seaboard does business, along with fluctuations in the value of the U.S. dollar, cause volatility in currency exchange rates, which exposes Seaboard to fluctuating foreign currency gains and losses that cannot be predicted. Since changes in foreign currency exchange rates affect the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency exchange agreements. Also, since changes in interest rates affect the cash required to service variable-rate debt, Seaboard uses interest rate exchange agreements to manage risks of increasing interest rates.
Equity price risk is the risk that Seaboard may incur losses due to adverse changes in the market prices of the equity securities it holds in its short-term investment portfolio. Market prices for equity securities are subject to fluctuation and may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. As of December 31, 2020 and 2019, the fair value of Seaboard’s marketable equity securities was approximately $835 million and $910 million, respectively. Seaboard enters into equity futures contracts to manage the equity price risk with respect to certain short-term investments.
The following table presents the sensitivity of the fair value of Seaboard’s open net commodity future and option contracts, foreign currency exchange agreements, interest rates and marketable equity securities to a hypothetical 10% change in market prices, interest rates and foreign exchange rates as of December 31, 2020 and 2019. For all open derivatives, the fair value of such positions is a summation of the fair values calculated for each item by valuing each net position at quoted market prices as of the applicable date.
December 31, 2020
December 31, 2019
Grains and oilseeds
Vegetable oils
Energy related resources
Equity prices
Foreign currencies
11
Interest rates
The table below provides information about Seaboard’s long-term debt that is sensitive to changes in interest rates as of December 31, 2020. For this variable-rate debt, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
2021
2022
2023
2024
2025
Thereafter
Long-term debt:
Variable rate
8
649
687
Weighted average interest rate
2.82%
2.57%
2.00%
1.77%
1.80%
Long-term debt sensitive to changes in interest rates as of December 31, 2019 totaled $749 million with a weighted average interest rate of 3.44%.
Item 8. Financial Statements and Supplementary Data
To the Stockholders and Board of Directors
Seaboard Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Seaboard Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Changes in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has elected to change its method of accounting for certain inventories in the United States to the first-in, first-out (“FIFO”) method from the last-in, first-out (“LIFO”) method effective January 1, 2018.
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02 - Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sufficiency of audit evidence over net sales
As described in Note 13 to the consolidated financial statements, the Company earned $7.1 billion of net sales in 2020. The net sales was primarily generated by the Pork, Commodity, Trading and Milling, Marine, Sugar and Alcohol, and Power reporting segments. Within these reporting segments, the Company has operating locations in over 45 countries.
We identified the evaluation of the sufficiency of audit evidence over net sales as a critical audit matter. Due to the geographical and reporting segment dispersion of net sales, we applied auditor judgment to determine the extent of locations at which to perform procedures. Furthermore, given the disaggregation of local management and language differences between locations, our audit team consisted of auditors located in multiple countries around the world.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the nature and amounts of the Company’s net sales at its various locations and applied auditor judgment to determine the locations at which procedures were to be performed. We evaluated the design and implementation as well as tested the operating effectiveness of certain internal controls over the Company’s net sales process, including controls related to the recognition and consolidation of global net sales amounts. We tested samples of individual net sales transactions by comparing the amounts recognized by the Company to relevant underlying documentation such as purchase orders, contractual arrangements, and delivery documents, as applicable. In addition, we evaluated the sufficiency of audit evidence obtained over net sales by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.
We have served as the Company’s auditor since 1959.
Kansas City, Missouri
February 16, 2021
(Millions of dollars except share and per share amounts)
Net sales:
Products (includes sales to affiliates of $1,125, $1,346 and $1,282)
5,993
5,610
5,334
Services revenues (includes sales to affiliates of $21, $18 and $12)
1,058
1,104
1,116
Other
126
133
Total net sales
Cost of sales and operating expenses:
Products
5,580
5,316
4,963
Services
915
989
971
57
89
99
Total cost of sales and operating expenses
6,552
6,394
6,033
Gross income
574
446
550
Selling, general and administrative expenses
329
336
314
Other income (expense):
Interest expense
(19)
(36)
(44)
Interest income
(18)
(41)
Foreign currency gains (losses), net
(31)
Miscellaneous, net
(3)
Total other income (loss), net
41
180
(225)
Earnings before income taxes
286
290
Income tax expense
(8)
Net earnings
Less: Net loss attributable to noncontrolling interests
Earnings per common share
Average number of shares outstanding
1,161,526
1,165,758
1,170,501
Other comprehensive income (loss), net of income tax benefit (expense) of $3, $4 and $(2):
Foreign currency translation adjustment
(7)
(20)
(53)
Unrecognized pension cost
(23)
Other comprehensive loss, net of tax
(50)
Comprehensive income (loss)
253
257
(47)
Less: Comprehensive loss (income) attributable to noncontrolling interests
(1)
Comprehensive income (loss) attributable to Seaboard
252
(46)
See accompanying notes to consolidated financial statements.
December 31,
Assets
Current assets:
Cash and cash equivalents
76
125
Short-term investments
1,465
1,434
Receivables:
Trade
381
370
Due from affiliates
111
109
195
Total receivables
560
674
Allowance for credit losses
(28)
Net receivables
532
646
Inventories
1,178
1,086
Prepaid expenses
44
48
Other current assets
59
Total current assets
3,354
3,414
Net property, plant and equipment
1,582
1,431
Operating lease right of use assets, net
390
Investments in and advances to affiliates
698
735
Goodwill
167
164
Other intangible assets, net
54
58
Other non-current assets
154
101
Liabilities and Stockholders’ Equity
Current liabilities:
Lines of credit
246
Current maturities of long-term debt
Accounts payable (includes $7 and $14 to affiliates)
276
368
Accrued compensation and benefits
Deferred revenue (includes $38 and $32 to affiliates)
80
Operating lease liabilities
104
Accrued voyage costs
Other current liabilities
145
130
Total current liabilities
1,076
1,189
Long-term operating lease liabilities
318
379
Accrued pension liability
179
159
Deferred income taxes
93
Long-term income tax liability
Other liabilities
182
136
Total non-current liabilities
1,495
1,559
Commitments and contingent liabilities
Stockholders’ equity:
Common stock of $1 par value. Authorized 1,250,000 shares; issued and outstanding 1,160,779 shares in 2020 and 1,164,848 shares in 2019
Accumulated other comprehensive loss
(471)
(440)
Retained earnings
4,287
4,030
Total Seaboard stockholders’ equity
3,817
3,591
Noncontrolling interests
Total equity
Total liabilities and stockholders’ equity
Accumulated
Common
Comprehensive
Retained
Noncontrolling
Stock
Loss
Earnings
Interests
Balances, January 1, 2018
(354)
3,750
3,408
Cumulative effect of change in accounting principle (Note 1)
Adoption of new accounting standard (See Note 1)
Comprehensive loss:
(49)
Repurchase of common stock
Additions to noncontrolling interests
Reduction to noncontrolling interests
(4)
Dividends on common stock, $6.00/share
Balances, December 31, 2018 ADJUSTED
(410)
3,770
Comprehensive income:
(17)
Dividends on common stock, $9.00/share
Balances, December 31, 2019 ADJUSTED
Other comprehensive income (loss), net of tax
(13)
Balances, December 31, 2020
Cash flows from operating activities:
Adjustments to reconcile net earnings to cash from operating activities:
Depreciation and amortization
172
138
134
Mandatory deemed repatriation tax
(56)
Dividends received from affiliates
Other investment loss (income), net
(84)
152
Other, net
Changes in assets and liabilities, net of acquisitions:
Receivables, net of allowance
(58)
(99)
(158)
(61)
Other assets
Accounts payable
114
(25)
Other liabilities, exclusive of debt
78
(24)
Net cash from operating activities
291
171
238
Cash flows from investing activities:
Purchase of short-term investments
(739)
(1,026)
(1,130)
Proceeds from sale of short-term investments
791
973
1,191
Proceeds from maturity of short-term investments
47
185
53
Capital expenditures
(259)
(349)
(162)
Proceeds from sale of non-consolidated affiliate
Acquisition of businesses
(27)
(264)
Investments in and advances to affiliates, net
(26)
Purchase of long-term investments
(38)
Net cash from investing activities
(262)
(253)
Cash flows from financing activities:
Uncommitted lines of credit, net
Draws under committed lines of credit
100
Repayments of committed lines of credit
(290)
(100)
Proceeds from long-term debt
37
43
251
Principal payments of long-term debt
(69)
(35)
Dividends paid
Net cash from financing activities
(82)
190
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
194
116
Cash and cash equivalents at end of year
Note 1 - Summary of Significant Accounting Policies
Operations of Seaboard Corporation and its Subsidiaries
Seaboard Corporation and its subsidiaries (collectively, “Seaboard”) together comprise a diverse group of integrated companies with a broad global presence. Seaboard is primarily engaged in hog production and pork processing in the U.S; commodity trading and grain processing in Africa and South America; cargo shipping services in the U.S., Caribbean and Central and South America; sugar and alcohol production in Argentina; and electric power generation in the Dominican Republic. Seaboard also has an equity method investment in Butterball, LLC (“Butterball”), a producer and processor of turkey products. Approximately 77% of the outstanding common stock of Seaboard is collectively owned by Seaboard Flour LLC and SFC Preferred, LLC.
Principles of Consolidation and Investments in Affiliates
The consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Financial information from certain foreign subsidiaries and affiliates is reported on a one- to three-month lag, depending on the specific entity. As Seaboard conducts its agricultural commodity trading business with third parties, consolidated subsidiaries and affiliates on an interrelated basis, cost of sales on 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 consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Change in Accounting Principle
During the fourth quarter of 2020, Seaboard elected to change its method for valuing hogs, fresh pork and other inventories in the Pork segment from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. Total inventories accounted for under the LIFO method represented approximately 42% of consolidated inventories prior to this change in method. Seaboard believes that the FIFO method is preferable as this method more accurately matches cost of sales with the related revenues than the LIFO method as the FIFO method more closely resembles the physical flow of inventory. Also, the FIFO method results in the inventory at the end of a period consisting of more recently incurred costs.
The effects of the change in accounting principle from LIFO to FIFO have been applied retrospectively to all periods presented and certain financial statement line items in Seaboard’s consolidated financial statements were adjusted as necessary. As of January 1, 2018, the cumulative effect of this change on periods prior to those presented resulted in an increase to beginning retained earnings of $23 million.
The impact of the change on Seaboard’s consolidated statements of comprehensive income is summarized below:
Year ended
December 31, 2018
As Computed Under LIFO
As Reported Under FIFO
Impact of Change to FIFO
As Previously Reported
As Adjusted
Cost of sales and operating expenses
6,612
(60)
6,400
(6)
6,060
514
440
523
209
Income tax expense (benefit)
239
Earnings (loss) per common share
205.88
38.33
242.78
3.84
(14.61)
16.87
The impact of the change on Seaboard’s consolidated balance sheet is summarized below:
1,118
1,022
87
4,243
3,983
The impact of the change on Seaboard’s consolidated statements of cash flows is summarized below:
As
Impact of
Computed
Reported
Change to
Previously
Under LIFO
Under FIFO
FIFO
Adjusted
(55)
(39)
(34)
This change did not affect Seaboard’s previously reported cash flows from operating, investing or financing activities.
Foreign Currency Transactions and Translation
Seaboard has operations in several foreign countries, and the currencies of the countries fluctuate in relation to the U.S. dollar. Certain of the major contracts and transactions, however, are denominated in U.S. dollars. These fluctuations result in exchange gains and losses. In addition, the value of the U.S. dollar fluctuates in relation to the currencies of countries where certain of Seaboard’s foreign subsidiaries and affiliates primarily conduct business. Certain Commodity Trading and Milling (“CT&M”) segment consolidated subsidiaries located in Brazil, Canada, Guyana, Ivory Coast, Senegal, South Africa and Zambia use local currency as their functional currency. Also, certain non-controlled, non-consolidated affiliates of the CT&M and Sugar and Alcohol segments use local currency as their functional currency. Assets and liabilities of these subsidiaries are translated to U.S. dollars at year-end exchange rates, and income and expenses are translated at average rates. Translation gains and losses are recorded as components of other comprehensive income (loss). For the consolidated subsidiaries and non-consolidated affiliates, U.S. dollar denominated net asset or liability conversions to the local currency are recorded through income.
GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100%. In mid-2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation in that country exceeded 100%. As a result, Seaboard adopted highly inflationary accounting as of July 1, 2018 for Seaboard’s Sugar and Alcohol segment. Under highly inflationary accounting, the Sugar and Alcohol segment’s functional currency became the U.S. dollar, and its income statement and balance sheet are measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities are reflected in foreign currency gains (losses), net. For the years ended December 31, 2020, 2019 and 2018, Seaboard recognized $1 million, $(3) million and $9 million, respectively, in foreign currency gains (losses) related to the adoption of highly inflationary accounting as a result of its net monetary liability position.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, management considers all demand deposits, overnight investments and other investments with original maturities less than three months as cash equivalents.
33
Supplemental Cash Flow Information
The amounts paid for interest and income taxes are as follows:
Interest, net of interest capitalized
36
Income taxes, net of refunds
35
The following table includes supplemental cash and non-cash information related to leases. Seaboard reports the amortization of right of use (“ROU”) assets and changes in operating lease liabilities in other liabilities, exclusive of debt in the consolidated statements of cash flows.
Twelve months ended
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
142
137
Operating cash flows from finance leases
Financing cash flows from finance leases
Operating ROU assets obtained in exchange for new operating lease liabilities
95
Finance ROU assets obtained in exchange for new finance lease liabilities
50
Other non-cash activities were related to the non-cash consideration paid in the acquisitions discussed further in Note 2, including incurrence of debt and contingent consideration, and capital expenditures of $7 million included in accounts payable.
Short-Term Investments
Short-term investments are categorized as trading securities and reported at their estimated fair value with any unrealized gains and losses included in other investment income (loss), net in the consolidated statements of comprehensive income. Purchases and sales are recorded on a settlement date basis, and gains and losses on investment sales are generally based on the specific identification method. Short-term investments are retained for future use in the business.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and generally do not bear interest. The Power segment, however, collects interest on certain past due accounts, and the CT&M segment provides extended payment terms for certain customers in certain countries due to local market conditions.
The allowance for credit losses is Seaboard’s best estimate of the amount of probable credit losses using the current expected credit loss model. This model estimates the lifetime of expected credit loss based on historical experience, current conditions and reasonable supportable forecasts. Changes in estimates, developing trends and other new information can have a material effect on future evaluations. As of December 31, 2020 and 2019, Seaboard had gross foreign receivables of approximately $410 million and $390 million, respectively, which generally represent more of a collection risk than the domestic receivables, although as of December 31, 2020 no individual material amounts were deemed to have a heightened risk of collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The activity within the allowance for credit losses was as follows:
Balance at
Transition
beginning of year
Adjustment(a)
Provision(b)
Net deductions(c)
end of year
Allowance for Credit Losses:
Year Ended December 31, 2020
Year Ended December 31, 2019
Year Ended December 31, 2018
(a) Adjustment made upon adoption of new guidance to retained earnings.
(b) Provision amounts are charged to selling, general and administrative expenses.
(c) Includes write-offs net of recoveries, foreign currency translation adjustments and other adjustments.
Notes Receivable
Notes receivable are included in other receivables, if current, and other non-current assets, if long-term. Seaboard monitors the credit quality of notes receivable, the majority of which are from its affiliates, using the current expected credit loss model as well. For notes receivable from affiliates, Seaboard obtains and reviews financial information monthly and Seaboard representatives serve on their Board of Directors.
The activity within the allowance for notes receivable was as follows:
Provision
Net deductions
Allowance for Notes Receivable:
Grain, flour and feed inventories at the CT&M segment’s foreign milling operations are valued at the lower of weighted average cost and net realizable value (“NRV”). All other inventories are valued at the lower of FIFO cost and NRV. In determining NRV, management makes assumptions regarding estimated sales prices, estimated costs to complete and estimated disposal costs. Changes in future market prices or facts and circumstances could result in a material write down in the value of inventory or decreased future margins on the sale of inventory. During the fourth quarter of 2020, Seaboard elected to change its method of accounting for valuing hogs, fresh pork and other inventories in the Pork segment from the LIFO method to the FIFO method, with all prior periods adjusted to apply the new method. See the Change in Accounting Principle section above for further discussion.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are being depreciated on the straight-line method over useful lives, ranging from 3 to 30 years. Property, plant and equipment under finance leases are stated at the present value of minimum lease payments and subsequently amortized using the straight-line method over the earlier of the end of its useful life or the end of the lease term. Routine and planned major maintenance, repairs and minor renewals are expensed as incurred, while major renewals and improvements are capitalized. Property, plant and equipment and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Right of Use Assets and Lease Liabilities
ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. As Seaboard’s leases do not have readily determinable implicit discount rates, Seaboard adjusts its incremental borrowing rate to determine the present value
of the lease payments. Seaboard determines the incremental borrowing rate for its leases by adjusting the local risk-free interest rate on its Term Loan due 2028 with a credit risk premium corresponded to Seaboard’s unreported credit rating. Seaboard has elected not to recognize ROU assets and lease liabilities for short-term leases for all classes of underlying assets. Short-term leases are leases with terms greater than 1 month, but less than 12 months. Also, Seaboard elected to account for lease and non-lease maintenance components as a single lease component for all classes of underlying assets.
Equity Method Investments
Investments in non-controlled affiliates where we have significant influence are accounted for by the equity method. For the CT&M segment, these investments are primarily in foreign countries, which are less developed than the U.S., and therefore, expose Seaboard to greater financial risks. At certain times when there are ongoing losses, local economies are depressed, commodity-based markets are less stable or foreign governments cause challenging business conditions, the fair value of the equity method investments is evaluated by management. The fair value of these investments is not readily determinable as almost all of these investments are not publicly traded. Management will use other methods to determine fair value such as estimated future cash flows, including assumptions on growth rates, for the business and consideration of other local business conditions as applicable.
Goodwill and Other Intangible Assets
Goodwill is assessed annually for impairment by each reporting unit at the quarter end closest to the anniversary date of the initial acquisition, or more frequently if circumstances indicate that impairment is likely. Any one event or a combination of events such as change in the business climate, a negative change in relationships with significant customers and changes to strategic decisions, could require an interim assessment prior to the next required annual assessment. If qualitative factors indicate more likely than not an impairment is possible, Seaboard performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Based on the annual qualitative assessments conducted by these reporting units, there were no impairment charges recorded for the year ended December 31, 2020.
The changes in the carrying amount of goodwill were as follows:
Pork
CT&M
Segment
Balance as of December 31, 2018
149
Acquisition
Foreign currency translation
Balance as of December 31, 2019
146
Other adjustments
Balance as of December 31, 2020
Separable intangible assets with finite lives are amortized over their estimated useful lives and evaluated for impairment similar to property, plant and equipment discussed above. The gross carrying amount and accumulated amortization for finite-lived intangible were as follows:
Customer
relationships
names
Gross carrying amount
51
79
Accumulated amortization and currency translation
Net carrying amount
Amortization of intangible assets was $8 million for both the years ended December 31, 2020 and 2019. Using the exchange rates in effect at year-end, estimated amortization of intangible assets as of December 31, 2020 was $8 million each year for the next five years and $14 million thereafter.
Accrued Self-Insurance
Seaboard is self-insured for certain levels of workers’ compensation, health care coverage, property damage, vehicle, product recall and general liability. The cost of these self-insurance programs is accrued based upon estimated settlements for known and anticipated claims. Changes in estimates to previously recorded reserves are reflected in current operating results.
Asset Retirement Obligation
Seaboard has recorded long-lived assets and a related liability for the asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close in the future should Seaboard cease operations or plan to close such lagoons voluntarily in accordance with a changed operating plan. Based on detailed assessments and appraisals obtained to estimate the future asset retirement obligation costs, Seaboard recorded the present value of the projected costs in non-current other liabilities in the consolidated balance sheets with the retirement asset depreciated over the economic life of the related asset. The following table shows the changes in the asset retirement obligation:
Beginning balance
Accretion expense
Ending balance
Revenue Recognition
Seaboard recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration it expects to receive in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of Seaboard’s revenue arrangements consist of a single performance obligation as the promise to transfer the individual product or service is not separately identifiable from other promises in the contracts, including shipping and handling and customary storage, and, therefore, not distinct. Seaboard’s transaction prices are mostly fixed, but occasionally include minimal variable consideration for early payment, volume and other similar discounts, which are highly probable based on the history with the respective customers. Taxes assessed by a governmental authority that are collected by Seaboard from a customer are excluded from sales.
Seaboard does not disclose the value of unsatisfied performance obligations for: (i) contracts with an original expected length of one year or less; and (ii) contracts for which revenue is recognized at the amount to which it has the right to invoice for services performed. Also, Seaboard recognizes a financing component only on obligations that extend longer than one year.
Derivative Instruments and Hedging Activities
Seaboard recognizes all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. Derivatives qualify for treatment as hedges for accounting purposes when there is a high correlation between the change in fair value of the instrument and the related change in value of the underlying commitment. Additionally, in order to designate a derivative financial instrument as a hedge for accounting purposes, extensive record keeping is required. For derivatives that qualify as hedges for accounting purposes, the change in fair value has no net impact on earnings, to the extent the derivative is considered effective, until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments for accounting purposes, or for the ineffective portion of a hedging instrument, the change in fair value affects current period net earnings.
Seaboard uses derivative instruments to manage various types of market risks, including primarily commodity futures and option contracts, foreign currency exchange agreements, interest rate exchange agreements and equity future contracts. While management believes each of these instruments are primarily entered into in order to effectively manage various market risks, as of December 31, 2020, none of the derivatives were designated and accounted for as hedges, primarily as a result of the extensive record-keeping requirements. From time to time, Seaboard also enters into speculative derivative transactions not directly related to its raw materials requirements.
Research and Development
Seaboard conducts continuous research and development activities to develop new products and to improve existing products and processes. Seaboard incurred research and development expenses of $134 million, $143 million and $77 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Seaboard accounts for the global intangible low-taxed income (“GILTI”) provision and the base-erosion and anti-abuse tax (“BEAT”) provision taxes in the period incurred.
Earnings Per Common Share
Earnings per common share are based upon the weighted average shares outstanding during the period. Basic and diluted earnings per share are the same for all periods presented.
Accounting Standards Recently Adopted
On January 1, 2020, Seaboard adopted guidance which requires the use of a new current expected credit loss model in order to determine the allowance for credit losses with respect to receivables, among other financial instruments. This model estimates the lifetime of expected credit loss and replaces the existing incurred loss model. As a result of this adoption, Seaboard recorded a cumulative-effect adjustment of $3 million on January 1, 2020 that decreased retained earnings and increased the allowance for credit losses. See the Accounts Receivable section above for additional details related to the adoption of this new accounting standard.
On January 1, 2019, Seaboard adopted guidance which requires the recognition of ROU assets and lease liabilities for most leases. As a result of this adoption, Seaboard recorded operating lease ROU assets of $460 million, adjusted for the deferred rent liability balance as of December 31, 2018, and lease liabilities of $498 million. The adoption of the new guidance did not have a material impact on the consolidated statement of comprehensive income and the consolidated statement of cash flows. The accounting for finance leases, formerly called capital leases, remained substantially unchanged. Seaboard adopted the new guidance using the effective date method and, therefore, prior period financials were not revised. Seaboard elected the package of practical expedients available upon transition, which permitted Seaboard to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. See Note 6 for additional details on leases.
On January 1, 2018, Seaboard adopted guidance that eliminated cost method accounting and requires measuring equity investments, other than those accounted for using the equity method of accounting, at fair value and recognizing fair value changes in net income if a readily determinable fair value exists. On January 1, 2018, $7 million of accumulated other comprehensive loss was reclassified to retained earnings by means of a cumulative effect adjustment, and all future gains/losses on these equity investments is reflected in other investment income (loss), net.
Note 2 - Acquisitions
In November 2020, Seaboard’s Pork segment purchased substantially all of the operating assets of Hitch Pork Producers, Inc., a hog production company that previously supplied hogs to the Guymon plant. The purchase price of $27 million included $23 million in hog farms and related assets and $4 million in inventories.
On October 28, 2019, Seaboard’s CT&M segment increased its ownership percentage from 50% to 100% to obtain control of Seaboard Overseas Peru S.A., formerly known as ContiLatin del Peru S.A., an importer and trader of grains in Peru. Seaboard accounted for this transaction as a business combination achieved in stages. Total consideration for the purchase price included $7 million of cash paid, net of $2 million cash acquired, Seaboard’s previously held equity interest was remeasured at its acquisition-date fair value of $9 million and pre-existing affiliate trade receivables fair valued at the acquisition date of $13 million.
38
The following table summarizes the purchase price allocation resulting from this consolidation:
Receivables
Property, plant and equipment
Intangible assets
Total fair value of assets acquired
108
(65)
Total fair value of liabilities assumed
(79)
Net fair value of assets acquired
On January 5, 2018, Seaboard’s CT&M segment acquired substantially all of the outstanding common shares of Borisniak Corp., Les Grands Moulins d’Abidjan, Les Grands Moulins de Dakar, Eurafrique, and Societe Mediterraneenne de Transport, collectively operating as Groupe Mimran (“Mimran”). Mimran operates three flour mills and an associated grain trading business located in Senegal, Ivory Coast and Monaco. This acquisition increased Seaboard’s flour and feed milling capacity and annual grain trading volume.
The total purchase price for this acquisition based on the acquisition date fair values and using the exchange rate in effect at the time of acquisition, was $324 million consisting of:
Cash payment, net of $64 million of cash acquired
264
Euro-denominated note payable due 2021, 3.25% interest
Contingent consideration
Total fair value of consideration at acquisition date
324
The fair value of the contingent consideration, classified in other non-current liabilities in the consolidated balance sheet, is dependent on the probability of Mimran achieving certain financial performance targets using earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a metric. The contingent consideration ranges between zero and $48 million payable between five and eight years following the closing, at the discretion of the sellers. The note payable and the contingent consideration are noncash transactions that were excluded from the consolidated statement of cash flows for the year ended December 31, 2018.
The following table summarizes the purchase price allocation resulting from this acquisition:
Current assets
83
148
Other long-term assets
404
Current liabilities
Other long-term liabilities
(76)
Less: Noncontrolling interest
The intangible assets include $28 million allocated to trade names, amortizable over 9 years, and $50 million allocated to customer relationships, amortizable over 9 years. Goodwill represents Mimran’s market presence and its experienced workforce. The intangible assets and goodwill are not deductible for income tax purposes.
39
Certain Mimran entities acquired are accounted for on a three-month lag and use local currency as their functional currency. Translation gains and losses are recorded as components of other comprehensive income (loss).
Note 3 - Investments
The following is a summary of the estimated fair value of short-term investments classified as trading securities:
Domestic equity securities
702
706
Domestic debt securities
496
460
Foreign equity securities
189
Foreign debt securities
Money market funds held in trading accounts
Other trading securities
Total trading short-term investments
The change in unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was $74 million, $176 million and ($110) million for the years ended December 31, 2020, 2019 and 2018, respectively.
Seaboard had $1 million of equity securities denominated in foreign currencies as of December 31, 2020, and $62 million of equity securities denominated in foreign currencies as of December 31, 2019, with $32 million in euros, $12 million in Japanese yen, $8 million in the British pound and the remaining $10 million in various other currencies. Seaboard had $28 million and $13 million of debt securities denominated in euros as of December 31, 2020 and 2019, 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 consolidated balance sheets. See Note 11 for information on the types of trading securities held related to the deferred compensation plans. See Note 10 for a discussion of assets held in conjunction with investments related to Seaboard’s defined benefit pension plans.
Note 4 - Inventories
The following table is a summary of inventories:
At lower of FIFO cost and NRV:
Hogs and materials
437
387
Fresh pork and materials
Grains, oilseeds and other commodities
380
353
Biodiesel
72
Sugar produced and in process
61
Total inventories at lower of FIFO cost and NRV
1,020
912
Grain, flour and feed at lower of weighted average cost and NRV
158
174
Total inventories
40
Note 5 - Net Property, Plant and Equipment
The following table is a summary of property, plant and equipment:
Useful
Lives
Land and improvements
-
268
Buildings and improvements
712
Machinery and equipment
1,367
1,360
Vessels and vehicles
147
Office furniture and fixtures
42
Contract growers
Construction in progress
389
3,030
2,776
Accumulated depreciation and amortization
(1,448)
(1,345)
Finance lease ROU assets are included in property, plant and equipment and comprise all of the contract growers’ asset category, with the remaining balance in buildings, machinery and equipment and land. Finance lease ROU assets were $92 million and $50 million, net of $12 million and $3 million in accumulated amortization at December 31, 2020 and 2019, respectively.
Seaboard’s capitalized interest on construction in progress was $10 million and $7 million for the years ended December 31, 2020 and 2019, respectively.
Note 6 – Leases
Seaboard’s operating leases are primarily for ports, vessels, contract grower assets, and to a lesser extent, land, buildings and machinery and equipment. Seaboard’s finance leases are primarily for contract grower assets. Seaboard’s Marine segment leases its PortMiami terminal, among other ports. The Marine and CT&M segments lease vessels for use in operations. The Pork segment has contract grower agreements in place with farmers to raise a portion of Seaboard’s hogs using the farmer’s buildings, land and equipment. Seaboard’s non-lease components are primarily for services related to labor associated with caring for hogs in its contract grower agreements and crew services on vessel charter arrangements.
As of December 31, 2020, the weighted average remaining lease term for Seaboard’s operating and finance leases was approximately six years and nine years, respectively. Seaboard’s lease terms vary depending upon the class of asset and some leases include options to extend or terminate. Since Seaboard is not reasonably certain to exercise these renewal or termination options, the options are not considered in determining the lease term and associated potential option payments or penalties are excluded from lease payments.
Seaboard’s operating lease assets and liabilities are reported separately in the consolidated balance sheet. The classification of Seaboard’s finance leases in the consolidated balance sheet as of December 31, 2020 and 2019, respectively, was as follows:
Finance lease right of use assets, net
Property, plant and equipment, net
92
Finance lease liabilities
Non-current finance lease liabilities
The components of lease cost were as follows:
Operating lease cost
Finance lease cost:
Amortization of right of use assets
Interest on lease liabilities
Variable lease cost
Short-term lease cost
Sublease income
Total lease cost
197
Operating lease cost and short-term lease cost are recognized on a straight-line basis over the lease term. Finance lease cost is recognized based on the effective interest method for the lease liability and straight-line amortization of the ROU asset. Variable lease payments are recognized when the circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are primarily for payments in excess of minimums with regards to throughput of shipping containers. Short-term leases are primarily for containers and vessels at Seaboard’s Marine segment. Lease cost is included in various line items in the consolidated statements of comprehensive income or capitalized to inventory. Rental expense for leases with terms of a month or less are excluded from the total lease cost above.
Rental expense for facility and equipment operating leases for all segments was $46 million in 2018. The Marine and CT&M segments’ vessel charter hire expenses during 2018 totaled $111 million. The Pork segment paid $48 million for contract grower agreements in 2018.
Maturities of lease liabilities as of December 31, 2020 were as follows:
Operating
Finance
Leases
Total undiscounted lease payments
Less imputed interest
Total lease liability
429
Seaboard’s weighted average discount rate for operating and finances leases was 6.44% and 5.18%, respectively, as of December 31, 2020. There were estimates and judgments made in determining Seaboard’s multiple discount rates based on term, country and currency, including developing a secured credit rating and spreading market yield data across maturities and country risk-free rates.
Note 7 – Equity Method Investments
Seaboard has several investments in and advances to non-controlled, non-consolidated affiliates that are all accounted for using the equity method of accounting. See Note 15 for detail of the investments in and advances to affiliates by segment. Financial information from certain foreign affiliates is reported on a one- to three-month lag, depending on the specific entity.
1,543
1,453
927
Net loss
(43)
586
639
623
Total liabilities
277
243
341
362
The Pork segment has a 50% noncontrolling interest in Daily’s Premium Meats, LLC (“Daily’s”) and Seaboard Triumph Foods, LLC (“STF”). Daily’s produces and markets raw and pre-cooked bacon. STF operates a pork processing plant, which began operations in September 2017. Seaboard’s Pork segment supplies raw materials to both of these facilities for processing and provides marketing services to STF for its pork products. Combined condensed financial information of these entities for each of Seaboard’s years ended is included in the table above.
2,482
3,129
3,238
(12)
1,745
1,697
1,914
1,185
1,075
1,242
622
672
The CT&M segment has noncontrolling interests in foreign businesses conducting flour, maize and feed milling, baking operations, poultry production and processing, and agricultural commodity trading. Seaboard’s CT&M segment supplies commodities to the majority of its equity method milling affiliates. As of December 31, 2020, the location and percentage ownership of CT&M’s affiliates were as follows: Botswana (50%), Democratic Republic of Congo (50%), Gambia (50%), Kenya (46.87%-49%), Lesotho (50%), Mauritania (50%), Morocco (11.44%-17.08%), Nigeria (25%-48.33%), Senegal (49%), South Africa (30%-50%), Tanzania (49%) and Zambia (49%) in Africa; Colombia (40%-42%), Ecuador (25%-50%), Guyana (50%), and Peru (50%) in South America; Jamaica (50%) and Haiti (23.33%) in the Caribbean; Turkey (25%) in Europe; Australia (30%-33.33%); and Canada (45%) and the U.S. (40%) in North America. Combined condensed financial information of these entities for each of Seaboard’s years ended is included in the table above. As of December 31, 2020, the CT&M segment’s carrying value of certain investments in affiliates was more than its share of the affiliates’ book value by $54 million. The excess is attributable primarily to the valuation of property, plant and equipment and intangible assets. Certain basis adjustments are being amortized to income (loss) from affiliates over the remaining life of the assets.
During 2018, Seaboard’s CT&M segment acquired a 50% noncontrolling interest in a grain trading and flour milling business in Mauritania for total consideration of $16 million.
66
70
Net income
269
272
98
107
155
162
139
The Marine segment has a 21% noncontrolling interest in a cargo terminal business in Jamaica and a 18% noncontrolling interest in a holding company that owns a Caribbean terminal operation. Combined condensed financial information of these entities for each of Seaboard’s years ended is included in the table above. These affiliates provide terminal and stevedoring services to the Marine segment. As of December 31, 2020, the Marine segment’s carrying value of certain investments in affiliates was less than its share of the affiliates’ book value by $29 million. The difference is attributable primarily to the valuation of property, plant and equipment and impairments taken by Seaboard, but not the respective entity. Certain basis adjustments are being amortized to income (loss) from affiliates over the remaining life of the assets.
The Sugar and Alcohol segment has noncontrolling interests in two sugar-related businesses in Argentina (48% and 50%). Combined condensed financial information of these entities for each of Seaboard’s years ended is included in the table above.
143
247
The Power segment has noncontrolling interests in two energy-related businesses in the Dominican Republic (45% and 50%). In September 2019, Seaboard’s Power segment sold its 29.9% noncontrolling interest in a Dominican Republic electricity generation facility for $23 million cash, net of $1 million in selling expenses and taxes and recorded a $6 million note receivable in other non-current assets in the consolidated balance sheet. There was no gain or loss recognized in the consolidated statements of comprehensive income upon the sale. Combined condensed financial information of these entities for each of Seaboard’s years ended is included in the table above.
1,675
1,612
1,591
Operating loss
(40)
993
1,038
1,072
481
507
502
512
531
570
The Turkey segment represents Seaboard’s 50% noncontrolling interest in Butterball. Butterball’s condensed financial information for each of Seaboard’s years ended is included in the table above. Within total assets, Butterball had trade name intangible assets of $111 million and goodwill of $66 million as of December 31, 2020.
Seaboard holds warrants, which upon exercise for a nominal price, would enable Seaboard to acquire an additional 5% equity interest in Butterball. The warrants qualify for equity treatment under accounting standards and are classified as investments in and advances to affiliates in the consolidated balance sheets. Seaboard can exercise these warrants at any time prior to December 31, 2025, when the warrants expire. Butterball has the right to repurchase the warrants for fair market value. The warrant agreement essentially provides Seaboard with a 52.5% economic interest, as these warrants are in substance an additional equity interest. Therefore, Seaboard records 52.5% of Butterball’s earnings as income (loss) from affiliates in the consolidated statements of comprehensive income. However, all significant corporate governance matters would continue to be shared equally between Seaboard and its partner in Butterball even if the warrants were exercised, unless Seaboard already owned a majority of the voting rights at the time of exercise.
Note 8 – Debt
The outstanding balances under uncommitted lines of credit was $222 million and $246 million as of December 31, 2020 and 2019, respectively. Of the $222 million outstanding as of December 31, 2020, $142 million was denominated in foreign currencies, with $106 million denominated in the South African rand, $25 million denominated in the Canadian dollar, $9 million denominated in the Zambian kwacha and the remaining in various other currencies. The weighted average interest rate for outstanding uncommitted lines of credit was 3.89% and 5.79% as of December 31, 2020 and 2019, respectively. The uncommitted lines of credit are unsecured and do not require compensating balances.
Seaboard has two committed revolving credit agreements, which provide for a $250 million unsecured line of credit with a $100 million accordion option maturing May 20, 2021, and a $100 million line of credit secured by certain short-term investments maturing September 30, 2021. Draws bear interest based on LIBOR plus a spread. Seaboard incurs unused commitment fees of 0.15% to 0.20% per annum. There were no outstanding balances under committed lines of credit as of December 31, 2020 and 2019.
Long-term debt includes borrowings under term loans and other contractual obligations for payment, including notes payable. The following table is a summary of long-term debt:
Term Loans due 2027-2028
714
691
Foreign subsidiary obligations
102
Total debt at face value
793
Current maturities and unamortized discount and costs
(63)
Long-term debt, less current maturities and unamortized discount and costs
In December 2020, Seaboard received a $30 million term loan that incurs a 1% interest rate and matures in 2027.
On September 25, 2018, Seaboard Foods LLC entered into an Amended and Restated Term Loan Credit Agreement (“Credit Agreement”) with CoBank, ACB, Farm Credit Services of America, PCA, and the lenders party thereto. This Credit Agreement replaced Seaboard Foods LLC’s $500 million unsecured term loan with a $700 million unsecured term loan (“Term Loan”) and extended the maturity from December 4, 2022 to September 25, 2028. Seaboard Foods LLC received proceeds of $220 million, net of certain costs. The Term Loan provides for quarterly payments of the principal balance pursuant to the revised amortization schedule set forth in the Credit Agreement, with the balance due on the maturity date. The Term Loan bears interest at fluctuating rates based on various margins over a Base Rate, LIBOR or a Quoted Rate, at the option of the borrower. The interest rate was 1.77% and 3.42% as of December 31, 2020 and 2019, respectively. The Credit Agreement contains customary covenants for credit facilities of this type, including restrictions on the incurrence of indebtedness over a certain threshold, ability to make certain acquisitions, investments and asset dispositions and aggregate dividend payments.
Foreign subsidiary obligations as of December 31, 2020, include a $46 million euro-denominated note payable due to the sellers related to a 2018 acquisition. This note payable was repaid in January 2021. The weighted average interest rate of all foreign subsidiary debt was 3.51% and 3.50% as of December 31, 2020 and 2019, respectively.
Seaboard was in compliance with all restrictive debt covenants relating to these agreements as of December 31, 2020.
The aggregate minimum principal payments required on long-term debt as of December 31, 2020 were as follows: $55 million in 2021, $8 million in 2022, $7 million in 2023, $7 million in 2024, $7 million in 2025 and $679 million thereafter.
Note 9 - Commitments and Contingencies
On June 28, 2018, twelve indirect purchasers of pork products filed a class action complaint in the U.S. District Court for the District of Minnesota (the “District Court”) against several pork processors, including Seaboard Foods LLC, and Agri Stats, Inc., a company described in the complaint as a data sharing service. The complaint also named Seaboard Corporation as a defendant. Additional class action complaints making similar claims on behalf of putative classes of direct and indirect purchasers were later filed in the District Court, and three additional actions by standalone plaintiffs (including the Commonwealth of Puerto Rico) were filed in or transferred to the District Court. The consolidated actions are styled In re Pork Antitrust Litigation. The operative complaints allege, among other things, that beginning in January 2009, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of pork products in violation of U.S. antitrust laws by coordinating their output and limiting production, allegedly facilitated by the exchange of non-public information about prices, capacity, sales volume and demand through Agri Stats, Inc. The complaints on behalf of the putative classes of indirect purchasers also assert claims under various state laws, including state antitrust laws, unfair competition laws, consumer protection statutes, and common law unjust enrichment. The relief sought in the respective complaints includes treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees. On October 16, 2020, the District Court denied defendants’ motions to dismiss the amended complaints, but the District Court later dismissed all claims against Seaboard Corporation without prejudice. Seaboard intends to defend these cases vigorously. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome resulting from these suits, or to reasonably estimate the amount of potential loss or range of potential loss, if any, resulting from the suits.
On March 20, 2018, the bankruptcy trustee (the “Trustee”) for Cereoil Uruguay S.A. (“Cereoil”) filed a suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter of 2018 naming as parties Seaboard and Seaboard’s subsidiaries, Seaboard Overseas Limited (“SOL”) and Seaboard Uruguay Holdings Ltd. (“Seaboard Uruguay”). Seaboard has a 45% indirect ownership of Cereoil. The suit seeks an order requiring Seaboard, SOL and Seaboard Uruguay to reimburse Cereoil the amount of $22 million, contending that deliveries of soybeans to SOL pursuant to purchase agreements should be set aside as fraudulent conveyances. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and its two subsidiaries could be ordered to pay the amount of $22 million. Any award in this case would offset against any award in the additional case described below filed by the Trustee on April 27, 2018.
On April 27, 2018, the Trustee for Cereoil filed another suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter of 2018 naming as parties Seaboard, SOL, Seaboard Uruguay, all directors of Cereoil, including two individuals employed by Seaboard who served as directors at the behest of Seaboard, and the Chief Financial Officer of Cereoil, an employee of Seaboard who also served at the behest of Seaboard (collectively, the “Cereoil Defendants”). The Trustee contends that the Cereoil Defendants acted with willful misconduct to cause Cereoil’s insolvency, and thus should be ordered to pay all liabilities of Cereoil, net of assets. The bankruptcy filing lists total liabilities of $53 million and assets of $30 million. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and the other Cereoil Defendants could be ordered to pay the amount of the net indebtedness of Cereoil, which based on the bankruptcy schedules would total $23 million. It is possible that the net indebtedness could be higher than this amount if Cereoil’s liabilities are greater than $53 million and/or Cereoil’s assets are worth less than $30 million. In addition, in the event of an adverse ruling, the Bankruptcy Court of First Instance could order payment of the Trustee’s professional fees, interest, and other expenses. Any award in this case would offset against any award in the case described above filed on March 20, 2018.
A creditor of Cereoil which has a claim in the bankruptcy proceeding pending in Uruguay of approximately $10 million, plus accrued interest, has threatened to bring legal action in the U.S. against Seaboard alleging on various legal theories that Seaboard is responsible for this same indebtedness. Seaboard will vigorously defend this action should it be brought.
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 45% indirect ownership of Nolston. The Trustee contends that the Cereoil Defendants acted with willful misconduct to cause Nolston’s insolvency, and thus should be ordered to pay all liabilities of Nolston, net of assets. The bankruptcy filing lists total liabilities of $29 million and assets of $15 million. Seaboard intends to defend this case vigorously. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and the other Cereoil Defendants could be ordered to pay the amount of the net indebtedness of Nolston, which based on the bankruptcy schedules would total $14 million. It is possible that the net indebtedness could be higher than this amount if Nolston’s liabilities are greater than $29 million and/or Nolston’s assets are worth less than $15 million. In addition, in the event of an adverse ruling, the Bankruptcy Court of First Instance could order payment of the Trustee’s professional fees, interest, and other expenses.
Seaboard is subject to various administrative and judicial proceedings and other legal matters related to the normal conduct of its business. In the opinion of management, the ultimate resolution of these items is not expected to have a material adverse effect on the consolidated financial statements of Seaboard.
Guarantees
Certain of the non-consolidated affiliates and third-party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt in order to further Seaboard’s business objectives. Seaboard does not issue guarantees for compensation. As of December 31, 2020, guarantees outstanding were not material. Seaboard has not accrued a liability for any of the guarantees as management considers the likelihood of loss to be remote.
Commitments
As of December 31, 2020, Seaboard had various non-cancelable commitments under contractual agreements:
Totals
Hog procurement contracts (a)
94
96
583
Grain commitments (b)
153
Grain purchase contracts for resale (c)
916
Fuel supply contracts (d)
235
Construction commitments (e)
120
Equipment and other commitments
Total unrecognized non-cancelable commitments
141
Note 10 - Employee Benefits
Seaboard has a qualified defined benefit pension plan (the “Plan”) for its domestic salaried and clerical employees that were hired before January 1, 2014. Benefits are generally based upon the number of years of service and a percentage of final average pay. Seaboard has historically based pension contributions on minimum funding standards to avoid the Pension Benefit Guaranty Corporation (“PBGC”) variable rate premiums established by the Employee Retirement Income Security Act (“ERISA”) of 1974. Seaboard did not make any contributions in 2020 and 2019 and currently does not plan on making any contributions in 2021. Effective January 1, 2021, Seaboard will transfer assets and liabilities for employees of certain Seaboard subsidiaries into a successor plan.
Pursuant to Seaboard’s investment policy, assets are invested in the Plan to achieve a diversified target allocation of approximately 50% in domestic equities, 25% in international equities, 20% in fixed income securities and 5% in alternative investments. The investment strategy is periodically reviewed by management for adherence to policy and performance. The following tables show the Plan’s assets measured at estimated fair value as of December 31, 2020 and 2019, respectively, and the level within the fair value hierarchy used to measure each category of assets:
Level 1
Level 2
Level 3
Assets:
Domestic fixed income mutual funds
Foreign fixed income mutual funds
Money market funds
206
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 executive plans in advance of when the benefits are paid.
Assumptions used in determining pension information for all of the above plans were:
Weighted average assumptions
Discount rate used to determine obligations
0.70
2.60
%
2.15
3.50
4.50
Discount rate used to determine net periodic benefit cost
2.75
3.80
Expected return on plan assets
6.25
Long-term rate of increase in compensation levels
4.00
Management selected the discount rate based on a model-based result where the timing and amount of cash flows approximates the estimated payouts. The expected returns on the Plan’s assets assumption are based on the weighted average of asset class expected returns that are consistent with historical returns. The assumed rate of return selected was based on model-based results that reflect the Plan’s asset allocation and related long-term projected returns. The measurement date for all plans is December 31.
The aggregate changes in the benefit obligation and fair value of assets for the Plan, supplemental executive plans and retirement agreements and the funded status were as follows:
Accumulated benefits exceed assets
Reconciliation of benefit obligation:
Benefit obligation at beginning of year
348
293
Service cost
Interest cost
Actuarial losses
Plan settlements
Benefits paid
Benefit obligation at end of year
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of year
156
Actual return on plan assets
Employer contributions
Fair value of plan assets at end of year
Funded status
(173)
(163)
The net funded status of the Plan was $(43) million and $(53) million as of December 31, 2020 and 2019, respectively. The benefit obligation increased primarily due to a decrease in discount rates for all plans. The accumulated benefit obligation for the Plan was $157 million and $205 million, respectively, and for all the other plans was $179 million and $104 million as of December 31, 2020 and 2019, respectively. Expected future benefit payments for all plans during each of the next five years and the next five years thereafter were as follows: $10 million, $30 million, $19 million, $22 million, $14 million and $77 million, respectively.
The net periodic benefit cost of these plans was as follows:
Components of net periodic benefit cost:
Amortization
Settlement loss recognized
Net periodic benefit cost
The service cost component is recorded in either cost of sales or selling, general and administrative expenses depending upon the employee, and the other components of net periodic benefit cost are recorded in miscellaneous, net in the consolidated statements of comprehensive income. The amounts not reflected in net periodic benefit cost and included in accumulated other comprehensive loss before taxes as of December 31, 2020 and 2019 were $112 million and $88 million, respectively. Such amounts primarily represent the unrecognized net actuarial losses that are generally amortized over the average remaining working lifetime of the active participants for all of these plans. The settlements recognized were primarily due to certain participants who received lump sum payments that exceeded the service cost plus interest cost for the respective plan. During 2020, Seaboard made a lump sum $32 million pension distribution, related to the passing of Mr. Steve Bresky, Seaboard’s former Chief Executive Officer.
Seaboard has deferred compensation plans that allow certain employees to reduce their compensation in exchange for values in various investments, with one plan having options that are exercisable. In conjunction with these plans, Seaboard purchases investments that are classified as trading securities and included in other current assets and recognizes the amount payable to the employees in other current liabilities on the consolidated balance sheets. Investments for Seaboard’s deferred compensation plans were $26 million and $51 million as of December 31, 2020 and 2019, respectively. The payable to the employees was $23 million and $45 million as of December 31, 2020 and 2019, respectively. Seaboard paid $32 million of deferred compensation, related to Mr. Bresky, reducing the other current liabilities and other current assets. Deferred compensation plan costs recognized in selling, general and administrative expenses are offset by the effect of the marked-to-market adjustments on investments recorded in other investment income (loss). Seaboard’s income (expense) for these plans, which primarily includes amounts related to the change in fair value of the underlying investment accounts, was $(6) million, $(11) million and $2 million for the years ended December 31, 2020, 2019 and 2018, respectively. Investment income (loss) related to the deferred compensation investments totaled $6 million, $11 million and $(2) million, for the years ended December 31, 2020, 2019 and 2018, respectively.
Seaboard maintains defined contribution plans covering most of its domestic employees. Contribution expense for these plans was $4 million for each of the years ended December 31, 2020, 2019 and 2018.
In July 2019, after ratification of a renewed collective bargaining agreement, Seaboard ceased contributing to the United Food and Commercial Workers International Union-Industry Pension Fund (the “Fund”), a multi-employer pension fund, which subsequently terminated Seaboard’s participation. The Fund covered certain union employees under a collective bargaining agreement. Seaboard recorded a $14 million withdrawal liability in 2019, that is payable in quarterly installments over 20 years. Contribution expense for this Fund was $1 million for each of the years ended December 31, 2019 and 2018.
Note 11 - Derivatives and Fair Value of Financial Instruments
The fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value into three broad levels:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.
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.
Trading securities – short-term investments:
196
300
Trading securities – other current assets:
Fixed income mutual funds
Long-term investment
Derivatives:
Commodities
Interest rate swaps
1,552
1,134
Liabilities:
127
333
Fixed income securities
1,491
1,095
396
Financial instruments consisting of cash and cash equivalents, net receivables, lines of credit and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. The fair value of short-term investments is measured using multiple levels. Domestic debt securities categorized as level 1 in the fair value hierarchy include debt securities held in mutual funds and ETFs. Domestic debt securities categorized as level 2 include corporate bonds, mortgage-backed securities, asset-backed securities, U.S. Treasuries and high-yield securities. Foreign debt securities categorized as level 2 include foreign government or government related securities, corporate bonds, asset-backed securities and high-yield securities with a country of origin concentration outside the U.S.
During 2020, Seaboard invested $30 million in a financial services company that primarily lends to and invests in debt securities of privately held companies. This long-term investment is classified in “Other non-current assets” on the consolidated balance sheet and is valued at net asset value (“NAV”), adjusted for specific liquidity factors, resulting in level 3 classification.
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 consolidated balance sheets, it would have been classified as level 2 in the fair value hierarchy. See Note 8 for a discussion of Seaboard’s long-term debt. The fair value of Seaboard’s contingent consideration related to a 2018 acquisition was classified as a level 3 in the fair value hierarchy since the calculation is dependent upon projected company specific inputs using a Monte Carlo simulation. Seaboard remeasures the estimated fair value of the contingent consideration liability until settled with adjustments included in net earnings (loss). The increase in the liability from 2019 to 2020 was related to lower interest rates.
While management believes its derivatives are primarily economic hedges, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. As the derivatives discussed below are not accounted for as hedges, fluctuations in the related commodity prices, foreign currency exchange rates, interest rates and equity prices could have a material impact on earnings in any given reporting period.
Commodity Instruments
Seaboard uses various derivative futures and options to manage its risk to price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. Commodity derivatives are recorded at fair value, with any changes in fair value recognized as a component of cost of sales in the consolidated statements of comprehensive
income. As of December 31, 2020, Seaboard had open net derivative contracts to purchase 26 million bushels of grain and 2 million pounds of hogs and open net derivative contracts to sell 56 million pounds of soybean oil. As of December 31, 2019, Seaboard had open net derivative contracts to purchase 17 million bushels of grain and net derivative contracts to sell 132 million pounds of soybean oil and 12 million gallons of heating oil.
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 primarily relate to an underlying commodity transaction are recorded at fair value with changes in value recognized as a component of cost of sales in the 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 recognized as a component of foreign currency gains (losses), net in the consolidated statements of comprehensive income. As of December 31, 2020 and 2019, Seaboard had foreign currency exchange agreements with notional amounts of $49 million and $78 million, respectively, primarily related to the South African rand and euro. From time to time Seaboard is subject to counterparty credit risk related to its foreign currency exchange agreements should the counterparties fail to perform according to the terms of the contracts. As of December 31, 2020, Seaboard had a maximum aggregate amount of loss due to credit risk of less than $1 million with four counterparties related to its foreign currency exchange agreements. Seaboard does not hold any collateral related to these agreements.
Interest Rate Swap Agreements
Seaboard enters into interest rate swap agreements to manage the interest rate risk with respect to certain variable-rate long-term debt. Interest rate swap agreements are recorded at fair value with changes in value recognized as a component of interest expense, net in the consolidated statements of comprehensive income. During 2020, Seaboard entered into three interest rate swap agreements with an aggregate notional value of $400 million that mature in mid-2025. Seaboard pays fixed-rate interest payments at a weighted-average interest rate of 0.26% over the life of the agreements and receives variable-rate interest payments based on the one-month LIBOR from the counterparty without the exchange of the underlying notional amounts. Seaboard had a maximum aggregate amount of loss due to credit risk of less than $1 million with one counterparty related to interest rate swap agreements.
Equity Futures Contracts
Seaboard enters into equity futures contracts to manage the equity price risk with respect to certain short-term investments. Equity futures contracts are recorded at fair value with changes in value recognized as a component of other investment income (loss), net in the consolidated statements of comprehensive income. The notional amounts of these equity futures contracts were $3 million and $0 million as of December 31, 2020 and 2019, respectively.
The following table provides the amount of gain (loss) recorded for each type of derivative and where it was recognized in the consolidated statements of comprehensive income:
Cost of sales
(52)
Equity
The following table provides the fair value of each type of derivative held and where each derivative is included in the consolidated balance sheets:
Asset Derivatives
Liability Derivatives
Seaboard’s commodity derivative assets and liabilities are presented in the consolidated balance sheets on a net basis, including netting the derivatives with the related margin accounts. As of December 31, 2020 and 2019, the commodity derivatives had a margin account balance of $15 million and $13 million, respectively, resulting in a net other current asset
52
in the consolidated balance sheets of $24 million and $15 million, respectively. Seaboard’s equity derivatives are also presented on a net basis, including netting the derivatives within short-term investments.
Note 12 - Stockholders’ Equity and Accumulated Other Comprehensive Loss
Seaboard’s share repurchase program expired on October 31, 2020. Under this share repurchase program, Seaboard was authorized to repurchase its common stock from time to time in open market or privately negotiated purchases, which may have been above or below the traded market price. Seaboard repurchased 4,069 and 4,369 shares of common stock during 2020 and 2019, respectively, at a total price of $13 million and $17 million, respectively. Shares repurchased were retired and became authorized and unissued shares.
The components of accumulated other comprehensive loss, net of related taxes, were as follows:
Cumulative
Foreign
Currency
Unrecognized
Translation
Pension
Adjustment
Cost
Balance December 31, 2018
Other comprehensive loss before reclassifications
(14)
Amounts reclassified from accumulated other comprehensive loss to net earnings
(a)
Balance December 31, 2019
(369)
(71)
(45)
Balance December 31, 2020
(376)
(95)
(a) This primarily represents the amortization of actuarial losses (gains) and other adjustments that were included in net periodic pension cost. See Note 10 for further discussion.
The cumulative foreign currency translation adjustment primarily represents the effect of the Argentine peso currency exchange fluctuation on the net assets of the Sugar and Alcohol segment. Effective in the third quarter of 2018, the Sugar and Alcohol segment’s functional currency changed from the Argentine peso to the U.S. dollar due to highly inflationary accounting. See Note 1 for discussion of the functional currency change.
Income taxes for the cumulative unrecognized pension cost component of accumulated other comprehensive loss was recorded using a 25% effective tax rate for 2020 and 26%effective tax rate for 2019 and 2018, except for unrecognized pension cost of $34 million, $21 million and $23 million in 2020, 2019 and 2018, respectively, related to employees at certain subsidiaries for which no tax benefit was recorded.
Note 13 – Revenue Recognition
Seaboard has multiple segments with diverse revenue streams. For additional information on Seaboard’s segments, see Note 15. The following tables presents Seaboard’s sales disaggregated by revenue source and segment:
Marine
Sugar and Alcohol
Power
All Other
Consolidated Totals
Major Products/Services Lines:
1,682
3,981
5,774
Transportation
1,013
Energy
219
294
Segment/Consolidated Totals
1,599
3,654
5,382
210
Revenue from goods and services transferred to customers at a single point in time account for approximately 85% of Seaboard’s net sales. Substantially all of the sales in Seaboard’s Marine segment are recognized ratably over the transit time for each voyage as Seaboard believes this is a faithful depiction of the performance obligation to its customers. Almost all of Seaboard’s contracts with its customers are short-term, defined as less than one year.
Deferred revenue represents cash payments received in advance of Seaboard’s performance or revenue billed that is unearned. The CT&M segment requires certain customers to pay in advance or upon delivery to avoid collection risk. The Marine segment’s deferred revenue balance primarily relates to the unearned portion of billed revenue when a ship is on the water and has not arrived at the designated port. Deferred revenue balances are reduced when revenue is recognized. The deferred revenue balance as of December 31, 2019 was recognized as revenue during the first quarter of 2020.
Note 14 - Income Taxes
Earnings before income taxes were as follows:
United States
Total earnings excluding noncontrolling interests
Net loss attributable to noncontrolling interests
Total earnings before income taxes
The components of total income taxes were as follows:
Current:
Federal
State and local
Deferred:
Unrealized changes in other comprehensive income (loss)
Total income taxes
Income taxes for the years ended December 31, 2020, 2019 and 2018 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to earnings (loss) before income taxes excluding noncontrolling interests for the following reasons:
Computed “expected” tax expense (benefit) excluding noncontrolling interests
Adjustments to tax expense (benefit) attributable to:
Foreign tax differences
Tax-exempt income
(29)
State income taxes, net of federal benefit
Repatriation tax
Foreign entity tax status change
Federal tax credits
Federal rate reduction effect on capital loss carryback
Total income tax expense
In December 2019, the President of the U.S. signed into law the Further Consolidated Appropriations Act (the “2019 Tax Act”) that extended the federal blender’s credits through 2022, with retroactive recognition for 2018 and 2019. As a result, in the fourth quarter of 2019, Seaboard recognized non-taxable revenue of $136 million related to the 2018 and 2019 federal blender’s credits on the biodiesel the Pork segment blends. In February 2018, Congress retroactively extended the federal blender’s credits for 2017 and Seaboard recognized a one-time tax benefit of $4 million and non-taxable revenue of $61 million in the first quarter of 2018. In accordance with GAAP, the effects of changes in tax laws, including retroactive changes, are recognized in the financial statements in the period that the changes are enacted.
Seaboard has certain investments in various entities that are expected to enable Seaboard to obtain certain investment tax credits. Seaboard has invested in three limited liability companies that operate refined coal processing plants that generate federal income tax credits based on production levels. Seaboard’s total contributions to these long-term investments were $17 million, $15 million and $17 million during 2020, 2019 and 2018, respectively. Additionally, Seaboard invested $20 million during 2019 in limited liability companies involved in a biogas fueled power project that will generate federal income tax credits. These alternative long-term investments, accounted for using the equity method of accounting, generated in aggregate $22 million and $34 million of investment tax credits for 2020 and 2019, respectively.
Certain of Seaboard’s foreign operations are subject to no income tax or a tax rate that is lower than the U.S. corporate tax rate. Fluctuation of earnings or losses incurred from certain foreign operations conducting business in these jurisdictions impact the mix of taxable earnings.
In 2018, Seaboard elected to change the tax status of a wholly owned subsidiary from a partnership to a corporation. This change in tax status resulted in an estimated $22 million of additional tax expense and deferred tax liabilities. In 2017, Seaboard recognized $112 million of tax expense related to mandatory deemed repatriated earnings associated with the Tax Cuts and Job Act (“2017 Tax Act”). Seaboard recorded additional tax expense of $16 million related primarily to repatriation and, to a lesser extent, executive compensation items in 2018.
As of December 31, 2020 and 2019, Seaboard had income taxes receivable of $18 million and $14 million, respectively, primarily related to domestic tax jurisdictions, and had income taxes payable of $14 million and $16 million, respectively, primarily related to foreign tax jurisdictions. As of December 31, 2020, Seaboard has $6 million of long-term income tax liability related to the 2017 Tax Act mandatory deemed repatriated earnings that is due April 15, 2026. The decrease in the long-term income tax liability is related to a carryback of tax credits and reclass of overpayments.
Seaboard provided for U.S. federal income tax on $1.3 billion of undistributed earnings from foreign operations in conjunction with the 2017 Tax Act. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. Seaboard intends to continue permanently reinvesting the majority of these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations and therefore, 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.
Components of the net deferred income tax liability were as follows:
Deferred income tax liabilities:
Depreciation
119
Domestic partnerships
65
Unrealized gain on investments
Inventory
224
Deferred income tax assets:
Reserves/accruals
74
73
Net operating and capital loss carry-forwards
63
Tax credit carry-forwards
215
Valuation allowance
Net deferred income tax liability
During the fourth quarter of 2020, Seaboard elected to change its method for valuing the inventories of its Seaboard Foods LLC subsidiary from the LIFO method to the FIFO method. For tax purposes, prior to this change, Seaboard had a Tax LIFO reserve of approximately $51 million. This Tax LIFO reserve will be recognized as taxable income ratably over a four-year period beginning in 2020. A deferred tax liability has been established for the future reversal amount and is included in the inventory lines in the table above, with adjustments for the retrospective presentation.
The activity within the valuation allowance account was as follows:
Charge (credit)
to expense
Allowance for Deferred Tax Assets:
Management believes Seaboard’s future taxable income will be sufficient for full realization of the net deferred tax assets. The valuation allowance relates to the tax benefits from state net operating losses and foreign net operating losses and tax credits. Management does not believe these benefits are more likely than not to be realized due to limitations imposed on the utilization of these losses and credits. As of December 31, 2020, Seaboard had state net operating loss carry-forwards of approximately $203 million and foreign net operating loss carry-forwards of approximately $111 million, a portion of which expire in varying amounts between 2021 and 2040, while others have indefinite expiration periods. As of December 31, 2020, Seaboard had state tax credit carry-forwards of approximately $22 million, net of valuation allowance, all of which carry-forward indefinitely.
Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments. Seaboard’s 2013, 2014 and 2015 IRS audit was finalized during the fourth quarter of 2020 with a settlement reached on an issue previously reserved as an uncertain tax position. The settlement resulted in the reversal of uncertain tax positions in the amount of approximately $6 million, and the recording of expense on IRS audit settlement of approximately $6 million. Seaboard’s 2016 U.S. income tax return is currently under IRS examination. U.S. federal tax years prior to 2013 are generally no longer subject to IRS tax assessment. In the U.S., typically the three most recent tax years are subject to IRS audits, unless an agreement is made to extend the statute of limitations for an audit in progress. In
56
Seaboard’s major non-U.S. jurisdictions, including Argentina, the Dominican Republic, Ivory Coast and Senegal, tax years are typically subject to examination for three to six years.
As of December 31, 2020 and 2019, Seaboard had $30 million and $31 million, respectively, in total unrecognized tax benefits, all of which if recognized would affect the effective tax rate. Seaboard does not have any material uncertain tax positions in which it is reasonably possible that the total amounts of the unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.
The following table is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Beginning balance at January 1
Additions for uncertain tax positions of prior years
Decreases for uncertain tax positions of prior years
Additions for uncertain tax positions of current year
Lapse of statute of limitations
Ending balance as of December 31
Seaboard accrues interest related to unrecognized tax benefits and penalties in income tax expense and had approximately $8 million accrued for the payment of interest and penalties as of December 31, 2020 and 2019.
Note 15 - Segment Information
Seaboard has six reportable segments: Pork, CT&M, Marine, Sugar and Alcohol, Power and Turkey, each offering a specific product or service. Seaboard’s reporting segments are based on information used by Seaboard’s Chief Executive Officer in his capacity as chief operating decision maker to determine allocation of resources and assess performance. Each of the six segments is separately managed, and each was started or acquired independent of the other segments. The Pork segment primarily produces hogs to process and sells fresh and frozen pork products to further processors, foodservice operators, distributors and grocery stores throughout the U.S. and to foreign markets. This segment also produces biodiesel from pork fat and other animal fats and vegetable oils for sale to third parties. Substantially all of Seaboard’s Pork segment’s hourly employees at its processing plant are covered by a collective bargaining agreement that expires in 2024. The CT&M segment is an integrated agricultural commodity trading, processing and logistics operation that internationally markets wheat, corn, soybean meal and other agricultural commodities in bulk to third-party customers and to non-consolidated affiliates. This segment also operates flour, maize and feed mills and bakery operations in numerous foreign countries. The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. The Power segment is an independent power producer in the Dominican Republic operating a power generating barge. The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Total assets for the Turkey segment represent Seaboard’s investment in Butterball. Revenues for the All Other segment are primarily derived from a jalapeño pepper processing operation. Below are significant segment events that impact financial results for the periods covered by this report.
In February 2019, the Pork segment entered into an asset purchase agreement to buy an idle ethanol plant in Hugoton, Kansas for approximately $40 million. Seaboard accounted for this transaction as an asset acquisition as no workforce or substantive processes were acquired. The purchase price was allocated to property, plant and equipment based on a relative fair value basis. The Pork segment is converting the Hugoton, Kansas plant to a renewable diesel production facility, with operations currently expected to begin in 2022. The Pork segment’s biodiesel plants have historically received federal blender’s credits for the biodiesel they blend. As a result of the 2019 Tax Act, Seaboard recognized $60 million of net
revenue related to the 2018 and 2019 federal blender’s credits. Revenue was recognized as earned during 2020 based on biodiesel production and will be recognized in the same manner for years 2021 and 2022.
In October 2019, the CT&M segment obtained control of a former non-consolidated affiliate that operates a grain trading business in Peru. On January 5, 2018, the CT&M segment acquired flour milling and associated businesses in Senegal, Ivory Coast and Monaco. See Note 2 for further details of these acquisitions.
The Power segment is currently constructing a power barge for use in the Dominican Republic that is anticipated to begin operations by the end of 2021, alongside its existing barge; however Seaboard continues to explore strategic alternatives for the existing barge, including selling or relocating.
The following tables set forth specific financial information about each segment as reviewed by Seaboard’s management, except for the Turkey segment information previously disclosed in Note 7. Operating income and total assets in 2019 and 2018 have been adjusted in the Pork segment to reflect the change in inventory accounting method as described in Note 1. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income (loss) from affiliates for the Pork, CT&M and Turkey segments, are used as the measures of evaluating segment performance because management does not consider interest, other investment income (loss) and income tax 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. 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 programs, which are offset by the effect of the mark-to-market adjustments on these investments recorded in other investment income (loss), net.
Net Sales:
Operating Income (Loss):
ADJUSTED
Segment Totals
Corporate
Income (Loss) from Affiliates:
Turkey
Depreciation and Amortization:
Total Assets:
1,927
1,866
1,585
1,621
508
554
302
265
275
4,746
4,748
1,653
1,601
Investments in and Advances to Affiliates:
183
237
Capital Expenditures:
207
86
259
349
161
Geographic Information
Seaboard had sales in Colombia totaling $812 million, $778 million and $757 million for the years ended December 31, 2020, 2019 and 2018, respectively, representing approximately 11% of total sales for each year. Seaboard had sales in South Africa totaling $743 million, $668 million and $589 million for the years ended December 31, 2020, 2019 and 2018, respectively, representing approximately 10%, 10% and 9% of total sales for each respective year. No other individual foreign country accounted for 10% or more of sales to external customers.
The following table provides a geographic summary of net sales based on the location of product delivery:
Caribbean, Central and South America
2,744
2,792
2,753
Africa
2,099
1,859
1,536
1,447
1,408
Pacific Basin and Far East
435
Canada/Mexico
202
308
Europe
All other
The following table provides a geographic summary of Seaboard’s property, plant and equipment according to their physical location and primary port for the vessels:
1,053
899
Singapore
Dominican Republic
Argentina
Senegal
Ivory Coast
Zambia
105
Note 16 – Quarterly Financial Data (unaudited) Adjusted
Results for all quarters have been updated to reflect the impact of a change in accounting principle from the LIFO inventory method to the FIFO inventory method. See Note 1 for further discussion of this accounting principle change. Earnings Per Share (“EPS”) amounts are calculated based on thousands of dollars and; therefore, some quarters will show EPS adjustments without any adjustments to net earnings (loss) attributable to Seaboard due to rounding.
2020:
1st
2nd
3rd
4th
Quarter
1,683
1,808
1,645
1,990
1,548
1,717
1,527
1,768
Other investment income (loss)
128
Net earnings (loss) attributable to Seaboard
(103)
(88.43)
(22.35)
126.17
222.52
Impact of Accounting Change
(0.30)
(1.16)
6.41
1,719
1,517
(88.73)
(23.51)
132.58
2019:
1,822
1,663
1,812
1,493
1,686
1,589
1,632
113
175
48.79
50.13
(6.00)
149.91
0.09
6.13
(1.23)
1,676
1,634
173
48.88
56.26
(7.23)
148.75
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
As of December 31, 2020, Seaboard’s management has evaluated, under the direction of its chief executive and chief financial officers, the effectiveness of Seaboard’s disclosure controls and procedures, as defined under the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(e). 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.
Management’s Report on Internal Control Over Financial Reporting
The management of Seaboard is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision, and with the participation of management and its Internal Audit Department, Seaboard conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its evaluation under the framework in Internal Control - Integrated Framework (2013), management concluded that Seaboard’s internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG, an independent registered public accounting firm, as stated in their report which is included herein.
Change in Internal Control Over Financial Reporting
There have been no changes in Seaboard’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, Seaboard’s internal control over financial reporting.
Opinion on Internal Control Over Financial Reporting
We have audited Seaboard Corporation and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes(collectively, the consolidated financial statements), and our report dated February 16, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kansas City, MissouriFebruary 16, 2021
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information about the executive officers of Seaboard is included under the caption “Information About Seaboard’s Executive Officers” in Item 1 of this annual report on Form 10-K.
Seaboard has a Code of Conduct and Ethics Policy for Senior Financial Officers applicable to its senior financial officers (including the chief executive officer, chief financial officer, chief accounting officer and controller and persons performing similar functions) and a Code of Ethics Policy applicable to its directors, officers and other employees (together the “Codes”). Seaboard has posted the Codes on its internet website, www.seaboardcorp.com, and intends to satisfy the disclosure requirement under Item 10 of Form 10-K regarding any future changes and waivers to the Codes by posting such information on that website.
In addition to the information provided above, the information required by this item is incorporated herein by reference to the information under the captions “Item 1: Election of Directors,” “Board of Directors Information – Committees of the Board – Audit Committee,” “Board of Directors Information – Director Nominations” and “Delinquent Section 16(a) Reports” of Seaboard’s definitive proxy statement for the 2021 annual meeting of stockholders, which will be filed no later than 120 days after December 31, 2020 (“Proxy Statement”).
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the information under the captions “Board of Directors Information – Compensation of Directors,” “Executive Compensation and Other Information,” “Employment Arrangements with Named Executive Officers,” “Benefit Plans,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” and “Compensation Discussion and Analysis” included in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Seaboard has not established any equity compensation plans or individual agreements for its employees under which Seaboard common stock, or options, rights or warrants with respect to Seaboard common stock may be granted.
In addition to the information provided above, the information required by this item is incorporated herein by reference to the information under the captions “Principal Stockholders” and “Share Ownership of Management and Directors” included in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the information under the captions “Compensation Committee Interlocks and Insider Participation,” “Board of Directors Information – Controlled Corporation” and “Board of Directors Information – Committees of the Board” included in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the information under the caption “Item 2: Selection of Independent Auditors” included in the Proxy Statement.
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) List the following documents filed as a part of the report:
1. Financial statements.
The financial statements are included in Item 8 of this Form 10-K.
2. Financial statement schedules.
All schedules are omitted as the required information is not applicable or the information is presented in the consolidated financial statements or related consolidated notes.
3. Exhibits.
Exhibit No.
Description
3.1
Seaboard Corporation Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit 3.1 of Seaboard’s Form 10-Q for the quarter ended April 4, 2009.
3.2
Seaboard Corporation By-laws, as amended. Incorporated herein by reference to Exhibit 3.2 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2005.
Description of common stock. Incorporated herein by reference to Exhibit 4 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2019.
10.1*
Seaboard Corporation Retiree Medical Benefit Plan as Amended and Restated effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Retiree Medical Benefit Plan dated March 4, 2005. Incorporated herein by reference to Exhibit 10.6 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2008.
10.2*
First Amendment to the Seaboard Corporation Retiree Medical Benefit Plan effective March 25, 2015 and dated March 31, 2015. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended April 4, 2015.
10.3*
Seaboard Corporation Non-Qualified Deferred Compensation Plan effective January 1, 2009 and dated December 22, 2008, amending and restating the Seaboard Corporation Non-Qualified Deferred Compensation Plan dated December 29, 2005. Incorporated herein by reference to Exhibit 10.12 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2008.
10.4*
Amendment No. 1 to the Seaboard Corporation Non-Qualified Deferred Compensation Plan effective January 1, 2009 and dated December 17, 2009. Incorporated herein by reference to Exhibit 10.25 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2009.
10.5*
Amendment No. 2 to the Seaboard Corporation Non-Qualified Deferred Compensation Plan effective January 1, 2019 and dated January 2, 2019. Incorporated herein by reference to Exhibit 10.7 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2018.
10.6*
Seaboard Corporation Post-2018 Non-Qualified Deferred Compensation Plan effective January 1, 2019 and dated December 28, 2018. Incorporated herein by reference to Exhibit 10.8 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2018.
10.7*
Seaboard Corporation 409A Executive Retirement Plan Amended and Restated effective January 1, 2013 and dated December 21, 2012, amending and restating the Seaboard Corporation Executive Retirement Plan, Amendment and Restatement dated December 22, 2008. Incorporated herein by reference to Exhibit 10.14 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2012.
10.8*
First Amendment to the Seaboard Corporation 409A Executive Retirement Plan effective as of January 1, 2015 and dated January 14, 2016. Incorporated herein by reference to Exhibit 10.8 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2015.
10.9*
Seaboard Corporation Cash Balance Executive Retirement Plan Amended and Restated effective August 1, 2020. Incorporated herein by reference to Exhibit 10.3 of Seaboard’s Form 10-Q for the quarter ended September 26, 2020.
10.10*
Seaboard Corporation Pension Plan as restated and amended effective as of January 1, 2017. Incorporated herein by reference to Exhibit 10.10 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2016.
10.11*
Amendment No. 1 to the Seaboard Corporation Pension Plan as Restated as of January 1, 2017 effective and dated August 31, 2020. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended September 26, 2020.
10.12*
Seaboard Marine Ltd. 401(k) Excess Plan effective January 1, 2009 and dated December 18, 2009. Incorporated herein by reference to Exhibit 10.24 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2009.
10.13*
Seaboard Corporation Investment Option Plan dated December 18, 2000. Incorporated herein by reference to Exhibit 10.7 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2000.
10.14*
Seaboard Corporation Executive Officers’ Bonus Policy (effective for 2017). Incorporated herein by reference to Exhibit 10.14 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2016.
10.15*
Seaboard Corporation Executive Officers’ Bonus Policy (effective for 2018 and supersedes all policies). Incorporated herein by reference to Exhibit 10.17 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2018.
10.16*
Employment Agreement between Seaboard Corporation and Steven J. Bresky dated December 21, 2012. Incorporated herein by reference to Exhibit 10.16 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2012.
10.17*
Amendment to Employment Agreement between Seaboard Corporation and Steven J. Bresky dated March 22, 2017. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended April 1, 2017.
10.18*
Restated Employment Agreement between Seaboard Corporation and Robert L. Steer dated August 27, 2020. Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-Q for the quarter ended September 26, 2020.
10.19*+
Restated Employment Agreement between Seaboard Corporation and David H. Rankin dated January 12, 2021.
10.20*+
Retirement Agreement between Seaboard Corporation and Darwin E. Sand dated November 23, 2020, which replaces the Employment Agreement between Seaboard Foods LLC and Darwin E. Sand dated December 31, 2018.
10.21*
Employment Agreement between Seaboard Overseas and Trading Group and David M. Dannov dated December 21, 2012. Incorporated herein by reference to Exhibit 10.19 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2012.
10.22*
Amendment to Employment Agreement between Seaboard Overseas and Trading Group and David M. Dannov dated March 22, 2017. Incorporated herein by reference to Exhibit 10.3 of Seaboard’s Form 10-Q for the quarter ended April 1, 2017.
10.23*
Employment Agreement between Seaboard Marine Ltd. and Edward A. Gonzalez dated December 21, 2012. Incorporated herein by reference to Exhibit 10.20 of Seaboard’s Form 10-K for the fiscal year ended December 31, 2012.
10.24*
Summary of Perquisite for Personal Use of Seaboard Airplane. Incorporated herein by reference to Exhibit 10.4 of Seaboard’s Form 10-Q for the quarter ended September 26, 2020.
10.25
Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine Ltd. for Marine Terminal Operations dated May 30, 2008. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 8-K dated May 30, 2008.
10.26
Amendment No. 1 to Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine Ltd. for Marine Terminal Operations dated March 30, 2009. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 10-Q for the quarter ended June 29, 2013.
10.27
Amendment No. 2 to Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine Ltd. for Marine Terminal Operations dated July 31, 2013. Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 10-Q for the quarter ended June 29, 2013.
10.28
Marketing Agreement dated February 2, 2004 by and among Seaboard Corporation, Seaboard Farms, Inc., Triumph Foods, LLC, and for certain limited purposes only, the members of Triumph Foods, LLC. Incorporated herein by reference to Exhibit 10.2 of Seaboard’s Form 8-K dated February 3, 2004.
10.29
Amended and Restated Term Loan Credit Agreement dated September 25, 2018 by and among Seaboard Corporation, Seaboard Foods LLC, CoBank, ACB, Farm Credit Services of America, PCA and other lenders. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 8-K filed September 27, 2018.
10.30
364-Day Revolving Credit Agreement dated May 21, 2020. Incorporated herein by reference to Exhibit 10.1 of Seaboard’s Form 8-K dated May 28, 2020.
18+
Letter of Independent Registered Public Accounting Firm Regarding Change in Accounting Principle.
21+
List of subsidiaries.
31.1+
Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+
Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
+ Filed electronically with this annual report on Form 10-K with the SEC and transmitted via EDGAR.
(b) Exhibits.
See exhibits identified above under Item 15(a)(3).
(c) Financial Statement Schedules.
Item 16. Form 10-K Summary
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By:
/s/ Robert L. Steer
Robert L. Steer
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Date
Title
President, Chief Executive Officer
(principal executive officer)
/s/ David H. Rankin
Executive Vice President,
David H. Rankin
Chief Financial Officer
(principal financial officer)
/s/ Michael D. Trollinger
Senior Vice President,
Michael D. Trollinger
Corporate Controller and
Chief Accounting Officer
(principal accounting officer)
/s/ Ellen S. Bresky
Chairwoman of the Board
Ellen S. Bresky
/s/ Douglas W. Baena
Lead Director
Douglas W. Baena
/s/ David A. Adamsen
Director
David A. Adamsen
/s/ Edward I. Shifman, Jr.
Edward I. Shifman, Jr.
/s/ Paul M. Squires
Paul M. Squires