10-Q 1 seb-20220402x10q.htm SEABOARD CORPORATION 10-Q DATED APRIL 2, 2022
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 2, 2022

OR

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

For the transition period from __________________________ to __________________________

Commission File Number:  1-3390

Seaboard Corporation

(Exact name of registrant as specified in its charter)

Delaware

04-2260388

(State or other jurisdiction of incorporation)

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

9000 West 67th Street, Merriam, Kansas

66202

(Address of principal executive offices)

(Zip Code)

(913) 676-8928

Registrant’s telephone number, including area code

Not Applicable

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock $1.00 Par Value

SEB

NYSE American

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No  

There were 1,160,779 shares of common stock, $1.00 par value per share, outstanding on April 25, 2022.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

April 2,

April 3,

(Millions of dollars except share and per share amounts)

2022

    

2021

 

Net sales:

Products (includes affiliate sales of $389 and $293)

$

2,214

$

1,731

Services (includes affiliate sales of $5 and $5)

 

477

 

313

Other

 

18

 

15

Total net sales

 

2,709

 

2,059

Cost of sales and operating expenses:

Products

 

2,121

 

1,606

Services

 

331

 

261

Other

 

21

 

14

Total cost of sales and operating expenses

 

2,473

 

1,881

Gross income

 

236

 

178

Selling, general and administrative expenses

 

90

 

86

Operating income

 

146

 

92

Other income (expense):

Interest expense

 

2

 

10

Interest income

 

5

 

5

Income from affiliates

 

23

 

6

Other investment income (loss), net

 

(65)

 

71

Foreign currency gains, net

 

 

9

Miscellaneous, net

 

8

 

6

Total other income (loss), net

 

(27)

 

107

Earnings before income taxes

 

119

 

199

Income tax expense

 

(15)

 

(20)

Net earnings

$

104

$

179

Less: Net income attributable to noncontrolling interests

 

(1)

 

Net earnings attributable to Seaboard

$

103

$

179

Earnings per common share

$

89.28

$

154.03

Average number of shares outstanding

 

1,160,779

 

1,160,779

Other comprehensive income, net of income tax expense of $0 and $1:

Foreign currency translation adjustment

 

(1)

 

15

Unrecognized pension cost

 

 

1

Other comprehensive income, net of tax

$

(1)

$

16

Comprehensive income

 

103

 

195

Less: Comprehensive loss (income) attributable to noncontrolling interests

 

(1)

 

Comprehensive income attributable to Seaboard

$

102

$

195

See accompanying notes to condensed consolidated financial statements.

2

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

April 2,

December 31,

 

(Millions of dollars except share and per share amounts)

2022

    

2021

 

Assets

Current assets:

Cash and cash equivalents

$

94

$

75

Short-term investments

 

1,295

 

1,416

Receivables, net of allowance for credit losses of $31 and $31

 

843

 

762

Inventories

 

1,698

 

1,663

Other current assets

 

139

 

131

Total current assets

 

4,069

 

4,047

Property, plant and equipment, net

 

2,047

 

1,892

Operating lease right of use assets, net

467

496

Investments in and advances to affiliates

 

679

 

651

Goodwill

 

161

 

163

Other non-current assets

 

246

 

254

Total assets

$

7,669

$

7,503

Liabilities and Stockholders’ Equity

Current liabilities:

Lines of credit

$

531

$

516

Accounts payable

 

466

 

404

Deferred revenue

115

108

Operating lease liabilities

166

171

Other current liabilities

 

354

 

353

Total current liabilities

 

1,632

 

1,552

Long-term debt, less current maturities

 

705

 

708

Deferred income taxes

 

76

 

99

Long-term operating lease liabilities

334

360

Other liabilities

 

388

 

350

Total non-current liabilities

 

1,503

 

1,517

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 2022 and 2021

 

1

 

1

Accumulated other comprehensive loss

 

(433)

 

(432)

Retained earnings

 

4,947

 

4,847

Total Seaboard stockholders’ equity

 

4,515

 

4,416

Noncontrolling interests

 

19

 

18

Total equity

 

4,534

 

4,434

Total liabilities and stockholders’ equity

$

7,669

$

7,503

See accompanying notes to condensed consolidated financial statements.

3

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

Accumulated

Other

Common

Comprehensive

Retained

Noncontrolling

(Millions of dollars)

Stock

Loss

Earnings

Interests

Total

Balances, December 31, 2020

$

1

$

(471)

$

4,287

$

11

$

3,828

Comprehensive income:

Net earnings

179

179

Other comprehensive income, net of tax

16

16

Dividends on common stock ($2.25/share)

(3)

(3)

Balances, April 3, 2021

$

1

$

(455)

$

4,463

$

11

$

4,020

Balances, December 31, 2021

$

1

$

(432)

$

4,847

$

18

$

4,434

Comprehensive income:

Net earnings

103

1

104

Other comprehensive loss, net of tax

(1)

(1)

Dividends on common stock ($2.25/share)

(3)

(3)

Balances, April 2, 2022

$

1

$

(433)

$

4,947

$

19

$

4,534

See accompanying notes to condensed consolidated financial statements.

4

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended

 

April 2,

April 3,

(Millions of dollars)

2022

    

2021

 

Cash flows from operating activities:

Net earnings

$

104

$

179

Adjustments to reconcile net earnings to cash from operating activities:

Depreciation and amortization

 

50

 

42

Deferred income taxes

 

(23)

 

14

Income from affiliates

 

(23)

 

(6)

Dividends received from affiliates

 

6

 

28

Other investment loss (income), net

 

65

 

(71)

Other, net

 

8

 

(4)

Changes in assets and liabilities, net of dispositions:

Receivables, net of allowance for credit losses

 

(99)

 

(138)

Inventories

 

(45)

 

(177)

Other assets

 

(2)

 

(20)

Accounts payable

67

27

Other liabilities, exclusive of debt

 

(2)

 

(24)

Net cash from operating activities

 

106

 

(150)

Cash flows from investing activities:

Purchase of short-term investments

 

(165)

 

(210)

Proceeds from the sale of short-term investments

 

220

 

356

Proceeds from the maturity of short-term investments

 

7

 

10

Capital expenditures

 

(161)

 

(96)

Purchase of long-term investments

 

(13)

 

(9)

Proceeds from the sale of subsidiaries, net of cash sold

13

Other, net

 

2

 

18

Net cash from investing activities

 

(97)

 

69

Cash flows from financing activities:

Uncommitted lines of credit, net

27

124

Draws under committed lines of credit

379

172

Repayments of committed lines of credit

 

(385)

 

(172)

Principal payments of long-term debt

 

(3)

 

(48)

Dividends paid

 

(3)

 

(3)

Other, net

 

(6)

 

(2)

Net cash from financing activities

 

9

 

71

Effect of exchange rate changes on cash and cash equivalents

 

1

 

(1)

Net change in cash and cash equivalents

 

19

 

(11)

Cash and cash equivalents at beginning of year

 

75

 

76

Cash and cash equivalents at end of period

$

94

$

65

See accompanying notes to condensed consolidated financial statements.

5

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation and Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Seaboard Corporation and its subsidiaries (“Seaboard”). These financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2021 as filed in its annual report on Form 10-K. Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard’s year-end is December 31. Preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.”) requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

The unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Seaboard has consistently applied all accounting policies as disclosed in its latest annual report on Form 10-K to all periods presented in these condensed consolidated financial statements.

Supplemental Cash Flow Information

Non-cash investing activities for the three months ended April 2, 2022, included purchases of property, plant and equipment in accounts payable of $5 million. 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 condensed consolidated statements of cash flows.

Three Months Ended

April 2,

April 3,

(Millions of dollars)

2022

2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

49

$

36

Operating cash flows from finance leases

1

1

Financing cash flows from finance leases

6

2

ROU assets obtained in exchange for new lease liabilities:

Operating leases

$

13

$

13

Finance leases

59

4

Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill was related to foreign currency exchange differences of $2 million within the Commodity Trading and Milling (“CT&M”) segment. As of April 2, 2022, intangible assets, included in other non-current assets, were $42 million, net of accumulated amortization of $34 million.

Income Taxes

Seaboard computes its year-to-date income tax provision by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjusts the provision for discrete tax items recorded in the period.

6

Note 2 – Investments

The following is a summary of the estimated fair value of short-term investments classified as trading securities:

April 2,

December 31,

(Millions of dollars)

 

2022

2021

Domestic equity securities

$

460

$

472

Domestic debt securities

452

542

Foreign equity securities

183

193

Foreign debt securities

138

133

Money market funds held in trading accounts

 

48

 

59

Other trading securities

14

17

Total trading short-term investments

$

1,295

$

1,416

The change in unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was ($42) million and $65 million for the three months ended April 2, 2022 and April 3, 2021, respectively.

Seaboard had $37 million and $46 million of short-term investments denominated in foreign currencies, primarily euros, as of April 2, 2022 and December 31, 2021, respectively.

As of April 2, 2022 and December 31, 2021, Seaboard had long-term investments of $160 million and $156 million, respectively, primarily in a business development company (“BDC”), real estate and renewable energy facilities. The BDC investment is included in the fair value hierarchy table in Note 6 and the other investments are primarily accounted for under the equity method of accounting. Long-term investments are classified in other non-current assets on the consolidated balance sheets.

Note 3 – Inventories

The following is a summary of inventories:

April 2,

December 31,

 

(Millions of dollars)

    

2022

    

2021

At lower of FIFO cost and NRV:

Hogs and materials

$

514

$

489

Pork products and materials

 

77

 

64

Grains, oilseeds and other commodities

 

604

 

634

Biofuels and related credits

171

147

Sugar produced and in process

 

29

 

21

Other

 

58

 

71

Total inventories at lower of FIFO cost and NRV

 

1,453

1,426

Grain, flour and feed at lower of weighted average cost and NRV

 

245

 

237

Total inventories

$

1,698

$

1,663

Note 4 – Lines of Credit, Long-Term Debt, Commitments and Contingencies

Lines of Credit

As of April 2, 2022, the outstanding balances under committed and uncommitted lines of credit were $152 million and $379 million, respectively. Of the total outstanding balance as of April 2, 2022, $155 million was denominated in foreign currencies, with $132 million denominated in the South African rand and the remaining in various other currencies. As of December 31, 2021, the outstanding balances under committed and uncommitted lines of credit were $157 million and $359 million, respectively. Of the total outstanding balance as of December 31, 2021, $218 million was denominated in foreign currencies, with $177 million denominated in the South African rand and the remaining in various other currencies. The weighted average interest rate for outstanding lines of credit was 2.34% and 2.71% as of April 2, 2022 and December 31, 2021, respectively.

7

Long-term Debt

Long-term debt includes borrowings under term loans and other contractual obligations for payment, including notes payable. The interest rate on the Term Loan due 2028 was 2.08% and 1.73% as of April 2, 2022 and December 31, 2021, respectively.

The following is a summary of long-term debt:

April 2,

December 31,

(Millions of dollars)

2022

2021

Term Loans due 2028

$

676

$

677

Foreign subsidiary obligations

1

Other long-term debt

38

39

Total debt at face value

714

717

Current maturities and unamortized discount and costs

(9)

(9)

Long-term debt, less current maturities and unamortized discount and costs

$

705

$

708

Seaboard was in compliance with all restrictive debt covenants relating to these agreements as of April 2, 2022.

Legal Proceedings

On July 21, 2021, a lawsuit was filed by an individual, Odette Blanco de Fernandez, who alleges that she owns a claim to confiscated property, related persons who purportedly inherited claims to confiscated property (“Inheritors”) and estates of deceased persons who purportedly own claims to confiscated property (“Estates”) against Seaboard Corporation in the U.S. District Court for the District of Delaware under Title III of the Cuban Liberty and Solidarity Act of 1996, also known as the Helms-Burton Act (the “Act”). The same plaintiffs filed a separate lawsuit against Seaboard Marine Ltd. (“Seaboard Marine”) on December 20, 2020, in the U.S. District Court for the Southern District of Florida. The Act provides that any person who knowingly and intentionally “traffics” in property which was confiscated by the Cuban government may be liable to any U.S. national who acquires an ownership interest to such property for money damages in an amount equal to the greater of the current fair market value of the property or the value of the property when confiscated, plus interest from the date of confiscation, reasonable attorneys’ fees and costs, and treble damages under certain circumstances. The complaint in each of the cases alleges that the plaintiffs acquired ownership interests to a 70-year concession to develop port facilities at Mariel Bay, Cuba, and to ownership of surrounding land, and that these and other property rights were confiscated by the Cuban government in 1960. The complaints further allege that Seaboard Corporation and Seaboard Marine knowingly and intentionally “trafficked” within the meaning of the Act in the confiscated property by carrying and/or directing cargo to the Port of Mariel. The Court in the Seaboard Marine case dismissed the claims of the Inheritors and the Estates because they did not acquire the ownership claims prior to March 1996, as required by the Act. The Court denied the plaintiffs’ motion for reconsideration of the dismissal of the Estates. On April 8, 2022, Seaboard Marine filed a Motion for Summary Judgement and a Motion to Exclude Opinions of Plaintiff’s Experts, including Plaintiff’s two experts’ opinions on damages. The case is set on the Court’s trial calendar for August 1, 2022. As to the suit against Seaboard Corporation, on October 21, 2021, the plaintiffs filed an amended complaint which principally adds allegations that there were additional callings made by Seaboard Marine at the Port of Mariel and that Seaboard Corporation engaged in a pattern of doing business with individuals and entities in contravention of the foreign policy of the U.S. Seaboard Corporation has filed a Motion to Dismiss, which has been briefed and is pending. The operative complaints in each lawsuit seek unspecified damages (including treble damages) and pre-filing interest as provided in the Act; pre-judgment interest; attorneys’ fees, costs and expenses; and such other relief as is just and proper.  Seaboard Corporation and Seaboard Marine believe they have meritorious defenses to the claims alleged in these matters and intend to vigorously defend these matters. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome resulting from either of these suits, or to reasonably estimate the amount of potential loss or range of potential loss, if any, resulting from the suits.

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

8

violation of U.S. antitrust laws by coordinating their output and limiting production, allegedly facilitated by the exchange of non-public information about prices, capacity, sales volume and demand through Agri Stats, Inc. The complaints on behalf of the putative classes of indirect purchasers also assert claims under various state laws, including state antitrust laws, unfair competition laws, consumer protection statutes, and common law unjust enrichment. The relief sought in the respective complaints includes treble damages, injunctive relief, pre- and post-judgment interest, costs and attorneys’ fees. On October 16, 2020, the District Court denied defendants’ motions to dismiss the amended complaints, but the District Court later dismissed all claims against Seaboard Corporation without prejudice.

In 2021 and 2022, additional standalone plaintiffs filed similar actions in other federal courts throughout the country, several of which name Seaboard Corporation as a defendant. These actions have been or are expected to be conditionally transferred to Minnesota for pretrial proceedings pursuant to an order by the Judicial Panel on Multidistrict Litigation. Also in 2021, the states of New Mexico and Alaska filed civil cases in state court against substantially the same defendants, including Seaboard Foods LLC and Seaboard Corporation, based on substantially similar allegations.

Seaboard believes that it has meritorious defenses to the claims alleged in these matters and intends to vigorously defend these matters. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome resulting from these suits, or to reasonably estimate the amount of potential loss or range of potential loss, if any, resulting from the suits.

On March 20, 2018, the bankruptcy trustee (the “Trustee”) for Cereoil Uruguay S.A. (“Cereoil”) filed a suit in the Bankruptcy Court of First Instance in Uruguay that was served during the second quarter of 2018 naming as parties Seaboard Corporation and its subsidiaries, Seaboard Overseas Limited (“SOL”) and Seaboard Uruguay Holdings Ltd. (“Seaboard Uruguay”). Seaboard Corporation has a 45% indirect ownership of Cereoil. The suit seeks an order requiring Seaboard Corporation, 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 believes that it has meritorious defenses to the claims alleged in this matter and intends to vigorously defend this matter. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard and its two subsidiaries could be ordered to pay the amount of $22 million plus interest. 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 Corporation, 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 believes that it has meritorious defenses to the claims alleged in this matter and intends to vigorously defend this matter. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. In the event of an adverse ruling, Seaboard Corporation 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.

On September 30, 2021, HSBC Bank (Uruguay) SA ("HSBC"), a creditor in the Cereoil bankruptcy proceeding pending in Uruguay, filed a suit in the U.S. District Court for the District of Kansas against Seaboard Corporation alleging claims for breach of contract, promissory estoppel, breach of the duty of good faith and fair dealing, unjust enrichment, fraud, negligent misrepresentation and fraud by concealment based upon a comfort letter, alleged statements by Cereoil personnel (including the Chief Financial Officer serving at the behest of Seaboard), and the same grain transactions that the Trustee challenges as fraudulent conveyances in the Cereoil bankruptcy in Uruguay discussed above.  HSBC seeks $10 million plus interest and other relief in excess of $3.2 million. Seaboard believes that is has meritorious defenses to the claims alleged in this matter and intends to vigorously defend this matter. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit.

9

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 believes that it has meritorious defenses to the claims alleged in this matter and intends to vigorously defend this matter. It is impossible at this stage to determine the probability of a favorable or unfavorable outcome resulting from this suit. 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, asset sales and removal of duplicative claims, is estimated to be approximately $8 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. The ultimate resolution of these items is not expected to have a material adverse effect on the condensed consolidated financial statements of Seaboard.

Guarantees

Certain of Seaboard’s non-consolidated affiliates have debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt in order to further Seaboard’s business objectives. As of April 2, 2022, guarantees outstanding were not material. Seaboard has not accrued a liability for any of the guarantees as the likelihood of loss is remote.

Note 5 – Employee Benefits

Seaboard has qualified defined benefit pension plans for its domestic salaried and clerical employees that were hired before January 1, 2014. Seaboard also sponsors non-qualified, unfunded supplemental executive plans.

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

Three Months Ended

April 2,

April 3,

 

(Millions of dollars)

    

2022

    

2021

 

Components of net periodic benefit cost:

Service cost

$

2

$

3

Interest cost

 

2

 

2

Expected return on plan assets

 

(3)

 

(3)

Amortization and other

 

2

 

2

Net periodic benefit cost

$

3

$

4

10

Note 6 – Derivatives and Fair Value of Financial Instruments

The following tables show assets and liabilities measured at fair value on a recurring basis 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.

    

    

    

    

 

April 2,

 

(Millions of dollars)

2022

Level 1

Level 2

Level 3

 

Assets:

Trading securities – short-term investments:

Domestic equity securities

$

460

$

460

$

$

Domestic debt securities

452

163

289

Foreign equity securities

 

183

 

183

 

 

Foreign debt securities

 

138

 

4

 

134

 

Money market funds held in trading accounts

48

48

Other trading securities

 

14

 

 

14

 

Trading securities – other current assets

30

29

1

Long-term investment - BDC

79

79

Derivatives

14

10

4

Total assets

$

1,418

$

897

$

442

$

79

Liabilities:

Contingent consideration

$

17

$

$

$

17

Derivatives

47

43

4

Total liabilities

$

64

$

43

$

4

$

17

    

    

    

    

 

December 31,

 

(Millions of dollars)

2021

Level 1

Level 2

Level 3

 

Assets:

Trading securities – short-term investments:

Domestic debt securities

$

542

$

247

$

295

$

Domestic equity securities

472

472

Foreign equity securities

193

193

Foreign debt securities

133

2

131

Money market funds held in trading accounts

 

59

 

59

 

 

Other trading securities

 

17

 

 

17

 

Trading securities – other current assets

29

28

1

Long-term investment - BDC

 

81

 

 

 

81

Derivatives

11

6

5

Total assets

$

1,537

$

1,007

$

449

$

81

Liabilities:

Contingent consideration

$

18

$

$

$

18

Derivatives

10

5

5

Total liabilities

$

28

$

5

$

5

$

18

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 and foreign 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.

11

Seaboard has a long-term investment in a BDC that primarily lends to and invests in debt securities of privately held companies. This long-term investment is valued at net asset value (“NAV”), adjusted for a liquidity discount of $1 million, resulting in level 3 classification. The change in value for the first quarter of 2022 was related to capital market activity and is recorded in other investment income (loss) in the condensed consolidated statements of comprehensive income.

The fair value of long-term debt is estimated by comparing interest rates for debt with similar terms and maturities. As Seaboard’s long-term debt is mostly variable-rate, its carrying amount approximates fair value. If Seaboard’s long-term debt was measured at fair value on its condensed consolidated balance sheets, it would have been classified as level 2 in the fair value hierarchy. See Note 4 for a discussion of Seaboard’s long-term debt.

Seaboard’s contingent consideration, classified in other non-current liabilities, is related to a 2018 acquisition. The fair value is dependent on the probability of the acquiree achieving certain financial performance targets using earnings before interest, taxes, depreciation and 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 fair value is classified as a level 3 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 change in value during 2022 was related to updated interest rates and foreign currency rates.

Seaboard’s operations are exposed to market risks from changes in commodity prices, foreign currency exchange rates, interest rates and equity prices. Seaboard uses various commodity derivative futures and options to manage its risk of price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. Also, Seaboard enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies. From time to time, Seaboard enters into interest rate swap agreements to manage the interest rate risk with respect to certain variable rate long-term debt and equity futures contracts to manage the equity price risk with respect to certain short-term investments. While management believes its derivatives are primarily economic hedges, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. These derivative contracts are recorded at fair value, with any changes in fair value recognized in the condensed consolidated statements of comprehensive income. As the derivative contracts are not accounted for as hedges, fluctuations in the related prices or rates could have a material impact on earnings in any given reporting period. The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2021.

Seaboard had the following aggregated outstanding notional amounts related to derivative financial instruments:

April 2,

December 31,

(Millions)

Metric

2022

2021

Commodities:

Grain

Bushels

3

1

Soybean oil

Pounds

59

20

Heating oil

Gallons

14

15

Foreign currencies

U.S. dollar

201

95

Credit risks associated with these derivative contracts are not significant as Seaboard minimizes counterparty exposure by dealing with credit-worthy counterparties and uses margin accounts for some contracts. At April 2, 2022, the maximum amount of credit risk, had the counterparties failed to perform according to the terms of the contract, was $4 million.

The following table provides the fair value of each type of derivative held and where each derivative is included in the condensed consolidated balance sheets:

Asset

Liability

April 2,

December 31,