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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 26, 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 incorporation)

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

9000 West 67th Street, Merriam, Kansas

66202

(Address of principal executive offices)

(Zip Code)

(913) 676-8800

(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 October 20, 2020.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

(Millions of dollars except share and per share amounts)

2020

    

2019

    

2020

    

2019

 

Net sales:

Products (affiliate sales of $226, $339, $817 and $1,017)

$

1,362

$

1,359

$

4,333

$

4,117

Services (affiliate sales of $4, $5, $16 and $13)

 

257

 

270

 

746

 

814

Other

 

26

 

34

 

57

 

97

Total net sales

 

1,645

 

1,663

 

5,136

 

5,028

Cost of sales and operating expenses:

Products

 

1,294

 

1,329

 

4,090

 

3,981

Services

 

215

 

239

 

656

 

717

Other

 

18

 

21

 

46

 

70

Total cost of sales and operating expenses

 

1,527

 

1,589

 

4,792

 

4,768

Gross income

 

118

 

74

 

344

 

260

Selling, general and administrative expenses

 

89

 

80

 

241

 

247

Operating income (loss)

 

29

 

(6)

 

103

 

13

Other income (expense):

Interest expense

 

(6)

 

(9)

 

(17)

 

(27)

Interest income

 

6

 

10

 

17

 

25

Loss from affiliates

 

(6)

 

(15)

 

(27)

 

(49)

Other investment income (loss), net

 

56

 

2

 

(41)

 

152

Foreign currency gains (losses), net

 

(5)

 

1

 

(21)

 

3

Miscellaneous, net

 

1

 

(1)

 

3

 

(1)

Total other income (expense), net

 

46

 

(12)

 

(86)

 

103

Earnings (loss) before income taxes

 

75

 

(18)

 

17

 

116

Income tax benefit (expense)

 

72

 

11

 

1

 

(8)

Net earnings (loss)

$

147

$

(7)

$

18

$

108

Less: Net loss attributable to noncontrolling interests

 

 

 

 

Net earnings (loss) attributable to Seaboard

$

147

$

(7)

$

18

$

108

Earnings (loss) per common share

$

126.17

$

(6.00)

$

15.14

$

92.97

Average number of shares outstanding

 

1,160,779

 

1,165,081

 

1,161,792

 

1,166,073

Other comprehensive income (loss), net of income tax expense of $2, $0, $3 and $0:

Foreign currency translation adjustment

 

5

 

2

 

(11)

 

(9)

Unrecognized pension cost

 

5

 

1

 

7

 

7

Other comprehensive income (loss), net of tax

$

10

$

3

$

(4)

$

(2)

Comprehensive income (loss)

 

157

 

(4)

 

14

 

106

Less: Comprehensive loss attributable to noncontrolling interests

 

 

 

 

Comprehensive income (loss) attributable to Seaboard

$

157

$

(4)

$

14

$

106

See accompanying notes to condensed consolidated financial statements.

2

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

September 26,

December 31,

 

(Millions of dollars except share and per share amounts)

2020

    

2019

 

Assets

Current assets:

Cash and cash equivalents

$

92

$

125

Short-term investments

 

1,245

 

1,434

Receivables, net

 

525

 

646

Inventories

 

1,062

 

1,022

Other current assets

 

91

 

123

Total current assets

 

3,015

 

3,350

Property, plant and equipment, net

 

1,514

 

1,431

Operating lease right of use assets, net

404

446

Investments in and advances to affiliates

 

698

 

735

Goodwill

 

164

 

164

Other non-current assets

 

181

 

159

Total assets

$

5,976

$

6,285

Liabilities and Stockholders’ Equity

Current liabilities:

Lines of credit

$

271

$

246

Current maturities of long-term debt

 

56

 

62

Accounts payable

 

210

 

368

Deferred revenue

58

80

Operating lease liabilities

111

104

Other current liabilities

 

304

 

329

Total current liabilities

 

1,010

 

1,189

Long-term debt, less current maturities

 

683

 

730

Deferred income taxes

 

24

 

76

Long-term income tax liability

62

62

Long-term operating lease liabilities

331

379

Other liabilities

 

321

 

295

Total non-current liabilities

 

1,421

 

1,542

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

 

1

 

1

Accumulated other comprehensive loss

 

(444)

 

(440)

Retained earnings

 

3,978

 

3,983

Total Seaboard stockholders’ equity

 

3,535

 

3,544

Noncontrolling interests

 

10

 

10

Total equity

 

3,545

 

3,554

Total liabilities and stockholders’ equity

$

5,976

$

6,285

See accompanying notes to condensed consolidated financial statements.

3

SEABOARD CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

 

September 26,

September 28,

(Millions of dollars)

2020

    

2019

 

Cash flows from operating activities:

Net earnings

$

18

$

108

Adjustments to reconcile net earnings to cash from operating activities:

Depreciation and amortization

 

109

 

103

Deferred income taxes

 

(56)

 

(9)

Loss from affiliates

 

27

 

49

Dividends received from affiliates

 

11

 

7

Other investment loss (income), net

 

41

 

(152)

Other, net

 

27

 

7

Changes in assets and liabilities:

Receivables, net of allowance

 

112

 

15

Inventories

 

(50)

 

(96)

Other assets

 

3

 

26

Accounts payable

(146)

(20)

Other liabilities, exclusive of debt

 

(62)

 

32

Net cash from operating activities

 

34

 

70

Cash flows from investing activities:

Purchase of short-term investments

 

(432)

 

(863)

Proceeds from the sale of short-term investments

 

600

 

762

Proceeds from the maturity of short-term investments

 

26

 

174

Capital expenditures

 

(160)

 

(261)

Proceeds from the sale of non-consolidated affiliate

 

 

24

Investments in and advances to affiliates, net

 

(8)

 

(11)

Purchase of long-term investments

 

(41)

 

(14)

Other, net

 

2

 

(6)

Net cash from investing activities

 

(13)

 

(195)

Cash flows from financing activities:

Lines of credit, net

 

30

 

63

Proceeds from long-term debt

 

7

 

36

Principal payments of long-term debt

 

(63)

 

(20)

Repurchase of common stock

 

(13)

 

(17)

Dividends paid

 

(7)

 

(7)

Other, net

 

(7)

 

(3)

Net cash from financing activities

 

(53)

 

52

Effect of exchange rate changes on cash and cash equivalents

 

(1)

 

Net change in cash and cash equivalents

 

(33)

 

(73)

Cash and cash equivalents at beginning of year

 

125

 

194

Cash and cash equivalents at end of period

$

92

$

121

See accompanying notes to condensed consolidated financial statements.

4

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, 2018

$

1

$

(410)

$

3,727

$

11

$

3,329

Reduction to noncontrolling interests

(1)

(1)

Comprehensive income:

Net earnings

57

57

Other comprehensive income, net of tax

1

1

Repurchase of common stock

(13)

(13)

Dividends on common stock ($2.25/share)

(3)

(3)

Balances, March 30, 2019

$

1

$

(409)

$

3,768

$

10

$

3,370

Comprehensive income:

Net earnings

58

58

Other comprehensive loss, net of tax

(6)

(6)

Repurchase of common stock

(1)

(1)

Dividends on common stock ($2.25/share)

(2)

(2)

Balances, June 29, 2019

$

1

$

(415)

$

3,823

$

10

$

3,419

Comprehensive loss:

Net loss

(7)

(7)

Other comprehensive income, net of tax

3

3

Repurchase of common stock

(3)

(3)

Dividends on common stock ($2.25/share)

(2)

(2)

Balances, September 28, 2019

$

1

$

(412)

$

3,811

$

10

$

3,410

Balances, December 31, 2019

$

1

$

(440)

$

3,983

$

10

$

3,554

Adoption of accounting guidance (see Note 1)

(3)

(3)

Comprehensive loss:

Net loss

(103)

(103)

Other comprehensive income, net of tax

5

5

Repurchase of common stock

(13)

(13)

Dividends on common stock ($2.25/share)

(3)

(3)

Balances, March 28, 2020

$

1

$

(435)

$

3,861

$

10

$

3,437

Comprehensive loss:

Net loss

(26)

(26)

Other comprehensive loss, net of tax

(19)

(19)

Dividends on common stock ($2.25/share)

(2)

(2)

Balances, June 27, 2020

$

1

$

(454)

$

3,833

$

10

$

3,390

Comprehensive income:

Net income

147

147

Other comprehensive income, net of tax

10

10

Dividends on common stock ($2.25/share)

(2)

(2)

Balances, September 26, 2020

$

1

$

(444)

$

3,978

$

10

$

3,545

See accompanying notes to condensed consolidated financial statements

5

SEABOARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Accounting Policies and Basis of Presentation

The condensed consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries (“Seaboard”). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard’s investments in non-consolidated affiliates are accounted for by the equity method. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2019 as filed in its annual report on Form 10-K. Seaboard’s first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard’s year-end is December 31.

The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Except for new guidance adopted prospectively as discussed below, Seaboard has consistently applied all accounting policies as disclosed in the annual report on Form 10-K to all periods presented in these condensed consolidated financial statements. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. As Seaboard conducts its commodity trading business with third parties, consolidated subsidiaries and non-consolidated affiliates on an interrelated basis, gross margin on non-consolidated affiliates cannot be clearly distinguished without making numerous assumptions primarily with respect to mark-to-market accounting for commodity derivatives.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Items subject to such estimates and assumptions include those related to allowance for credit losses on receivables, valuation of inventories, impairment of long-lived assets, intangibles and goodwill, write-down related to investments in and advances to affiliates and notes receivable from affiliates, income taxes, lease liabilities and right of use (“ROU”) assets and accrued pension liability. Actual results could differ from those estimates.

Supplemental Cash Flow Information

The following table includes supplemental cash and non-cash information related to leases. Seaboard reports the amortization of ROU assets and changes in operating lease liabilities in other liabilities, exclusive of debt in the condensed consolidated statements of cash flows.

Nine months ended

September 26,

September 28,

(Millions of dollars)

2020

2019

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

Operating cash flows from operating leases

$

107

$

101

Operating cash flows from finance leases

3

1

Financing cash flows from finance leases

5

1

Operating ROU assets obtained in exchange for new operating lease liabilities

$

46

$

62

Finance ROU assets obtained in exchange for new finance lease liabilities

46

31

6

Leases

Seaboard’s operating lease assets and liabilities are reported separately in the condensed consolidated balance sheets. The classification of Seaboard’s finance leases in the condensed consolidated balance sheets was as follows:

September 26,

December 31,

(Millions of dollars)

2020

2019

Finance lease ROU assets, net

Property, plant and equipment, net

$

90

$

50

Finance lease liabilities

Other current liabilities

10

5

Non-current finance lease liabilities

Other liabilities

77

40

Accounting Standard Adopted During 2020

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 accounts receivable and notes receivable, among other financial instruments. This model estimates the lifetime of expected credit loss based on historical experience, current conditions and reasonable supportable forecasts 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. The allowance for credit loss was $29 million and $28 million at September 26, 2020 and December 31, 2019, respectively. The activity within the allowance for credit losses on receivables was immaterial for the three and nine months ended September 26, 2020.

Seaboard used the loss-rate method in developing its allowance for credit losses, which involved identifying pools of assets with similar risk characteristics, reviewing historical losses within the last five years and consideration for any reasonable supportable forecasts of economic indicators. Seaboard endeavors to minimize credit risk by its credit granting policies, relationships established with customers and relatively short billing and collection cycles. Management monitors the credit quality of its different receivable types by frequent customer discussions, following economic and industry trends and specific customer data. Changes in estimates, developing trends and other new information can have a material effect on future evaluations.

Recently Issued Accounting Standard Not Yet Adopted

In December 2019, the Financial Accounting Standards Board issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the general principles and improves consistent application of GAAP for other areas by clarifying and amending existing guidance. This guidance is effective for Seaboard on January 1, 2021. Seaboard is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on its financial statements and disclosures.

Note 2 – Investments

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

September 26,

December 31,

 

(Millions of dollars)

    

2020

2019

 

Domestic equity securities

$

613

$

706

Domestic debt securities

391

409

Foreign equity securities

 

107

 

189

Foreign debt securities

57

43

High yield securities

55

56

Collateralized loan obligations

 

16

 

15

Money market funds held in trading accounts

2

12

Other trading securities

4

4

Total trading short-term investments

$

1,245

$

1,434

The change in unrealized gains (losses) related to trading securities still held at the end of the respective reporting period was $53 million and $(45) million for the three and nine months ended September 26, 2020, respectively, and $2 million and $124 million for the three and nine months ended September 28, 2019, respectively.

As of September 26, 2020, Seaboard had $1 million of equity securities denominated in foreign currencies all in Canadian dollars. As of December 31, 2019, Seaboard had $62 million of equity securities denominated in foreign currencies, with $32 million in euros, $12 million in Japanese yen, $8 million in British pounds and the remaining $10 million in various

7

other currencies. Seaboard had $21 million and $13 million of debt securities denominated in euros as of September 26, 2020 and December 31, 2019, respectively.

Note 3 – Inventories

The following is a summary of inventories:

September 26,

December 31,

 

(Millions of dollars)

    

2020

    

2019

At lower of last-in, first-out ("LIFO") cost or market:

Hogs and materials

$

394

$

387

Fresh pork and materials

 

29

 

46

LIFO adjustment

 

(71)

 

(64)

Total inventories at lower of LIFO cost or market

 

352

 

369

At lower of first-in, first-out ("FIFO") cost and net realizable value ("NRV"):

Grains, oilseeds and other commodities

 

424

 

353

Sugar produced and in process

 

26

 

17

Other

 

118

 

109

Total inventories at lower of FIFO cost and NRV

 

568

 

479

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

 

142

 

174

 Total inventories

$

1,062

$

1,022

Note 4 – Debt and Commitments and Contingencies

The outstanding balances under uncommitted and committed lines of credit were $242 million and $29 million, respectively, as of September 26, 2020. Of the aggregate outstanding balance, $157 million was denominated in foreign currencies with $122 million denominated in the South African rand, $24 million denominated in the Canadian dollar and $11 million denominated in various other currencies. The outstanding balances under uncommitted and committed lines of credit were $246 million and $0 million, respectively, as of December 31, 2019. The weighted average interest rates for outstanding lines of credit were 4.23% and 5.79% as of September 26, 2020 and December 31, 2019, respectively.

During the second quarter of 2020, Seaboard entered into an unsecured $250 million short-term committed revolving line of credit agreement with a $100 million accordion option maturing May 20, 2021. Draws bear interest based on LIBOR plus 1.63%. Seaboard incurs unused commitment fees of 0.20% per annum. During September of 2020, Seaboard renewed its $100 million secured committed line of credit with Wells Fargo Bank, National Association through September 30, 2021. Pursuant to the amendment, interest is computed at LIBOR plus 0.75%, and Seaboard incurs an unused commitment fee of 0.15% per annum.

Long-term debt includes borrowings under term loans and other contractual obligations for payment, including notes payable. The following is a summary of long-term debt:

September 26,

December 31,

(Millions of dollars)

2020

2019

Term Loan due 2028

$

688

$

691

Foreign subsidiary obligations

52

102

Total long-term debt at face value

740

793

Current maturities of long-term debt and unamortized discount and costs

(57)

(63)

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

$

683

$

730

The interest rate on the Term Loan due 2028 was 1.78% and 3.42% as of September 26, 2020 and December 31, 2019, respectively. The weighted average interest rate on Seaboard’s foreign subsidiary obligations was 3.41% and 3.50% as of September 26, 2020 and December 31, 2019, respectively.

Seaboard was in compliance with all restrictive debt covenants as of September 26, 2020.

Legal Proceedings

On June 28, 2018, Wanda Duryea and eleven other indirect purchasers of pork products, acting on behalf of themselves and a putative class of 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

8

Stats, Inc., a company described in the complaint as a data sharing service. Subsequent to the filing of this initial complaint, additional class action complaints making similar claims on behalf of putative classes of direct and indirect purchasers were filed in the District Court. The complaints were amended and consolidated for pre-trial purposes, into three consolidated putative class actions brought on behalf of (a) direct purchasers, (b) consumer indirect purchasers and (c) commercial and institutional indirect purchasers. The amended complaints named Seaboard Corporation as an additional defendant. The consolidated actions are styled In re Pork Antitrust Litigation. Subsequent to the original filings, two additional actions making similar claims, including one by the Commonwealth of Puerto Rico, were brought in or transferred to the District Court. The complaints alleged, 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 included causes of action under various state laws, including state antitrust laws, unfair competition laws, consumer protection statutes and state common law claims for unjust enrichment. The complaints also alleged that the defendants concealed this conduct from the plaintiffs and the members of the putative classes. The relief sought in the respective complaints includes treble damages, injunctive relief, pre- and post-judgment interest, costs and attorneys’ fees on behalf of the putative classes. On August 8, 2019, the District Court granted defendants’ motion to dismiss the class action cases while giving the plaintiffs leave to amend. The classes and the other two plaintiffs filed amended complaints in November and December 2019. In addition to amending the original claims, the consumer indirect purchasers have asserted a new claim alleging that the exchange of information by defendants through Agri Stats Inc. unreasonably restrained trade. On October 16, 2020, the defendants’ pending motion to dismiss the amended complaints was denied. 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

9

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 condensed 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 of third parties for compensation. As of September 26, 2020, guarantees outstanding to affiliates and third parties were not material. Seaboard has not accrued a liability for any of the affiliate or third-party guarantees as management considers the likelihood of loss to be remote.

Note 5 – Employee Benefits

Seaboard has a defined benefit pension plan for certain domestic salaried and clerical employees. At this time, no contributions are expected to be made to the plan in 2020. Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and has certain individual, non-qualified, unfunded supplemental retirement agreements for certain retired employees. Management has no plans to provide funding for these supplemental plans in advance of when the benefits are paid.

During the third quarter of 2020, Seaboard made a lump sum $32 million pension distribution, related to the passing of Mr. Steve Bresky. This distribution resulted in recognizing a $9 million pension settlement charge in a non-qualified supplemental executive plan.

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

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

 

(Millions of dollars)

    

2020

    

2019

    

2020

    

2019

 

Components of net periodic benefit cost:

Service cost

$

2

$

2

$

7

$

6

Interest cost

 

2

 

3

 

8

 

9

Expected return on plan assets

 

(2)

 

(2)

 

(8)

 

(7)

Amortization

 

1

 

1

 

5

 

5

Settlement loss recognized

9

11

Net periodic benefit cost

$

12

$

4

$

23

$

13

In addition to the pension distribution, Seaboard paid $32 million of deferred compensation, related to Mr. Bresky, which decreased deferred compensation plan assets and liabilities recorded in other current assets and liabilities, respectively, on the condensed consolidated balance sheet.

10

Note 6 – Derivatives and Fair Value of Financial Instruments

The following tables shows assets and liabilities measured at fair value on a recurring basis as of September 26, 2020 and December 31, 2019, and also 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.

    

Balance

    

    

    

 

September 26,

 

(Millions of dollars)

2020

Level 1

Level 2

Level 3

 

Assets:

Trading securities – short-term investments:

Domestic equity securities

$

613

$

613

$

$

Domestic debt securities

 

391

 

122

 

269

 

Foreign equity securities

107

107

Foreign debt securities

57

57

High yield securities

55

7

48

Collateralized loan obligations

16

16

Money market funds held in trading accounts

 

2

 

2

Other trading securities

4

4

Trading securities – other current assets:

Domestic equity securities

 

12

 

12

 

 

Money market fund held in trading accounts

6

6

 

 

Foreign equity securities

 

3

 

3

 

 

Fixed income securities

 

2

 

2

 

 

Long-term investment

31

31

Derivatives:

Commodities

 

16

 

16

 

 

Foreign currencies

 

4

 

 

4

 

Total Assets

$

1,319

$

894

$

394

$

31

Liabilities:

Contingent consideration

$

15

$

$

$

15

Derivatives:

Commodities

15

15

Interest rate swaps

 

1

 

 

1

 

Foreign currencies

 

4

 

 

4

 

Total Liabilities

$

35

$

15

$

5

$

15

11

    

Balance

    

    

    

 

December 31,

 

(Millions of dollars)

2019

Level 1

Level 2

Level 3

 

Assets:

Trading securities – short-term investments:

Domestic equity securities

$

706

$

706

$

$

Domestic debt securities

409

117

292

Foreign equity securities

189

189

High yield securities

 

56

 

10

 

46

 

Foreign debt securities

43

43

Collateralized loan obligations

15

15

Money market funds held in trading accounts

12

12

Other trading securities

 

4

 

4

 

 

Trading securities – other current assets:

Domestic equity securities

 

40

 

40

 

 

Money market fund held in trading accounts

6

6

 

Foreign equity securities

 

3

 

3

 

 

Fixed income securities

 

2

 

2

 

 

Derivatives:

Commodities

 

6

 

6

 

 

Total Assets

$

1,491

$

1,095

$

396

$

Liabilities:

Contingent consideration

$

13

$

$

$

13

Derivatives:

Commodities

4

4

Foreign currencies

 

3

 

 

3

 

Total Liabilities

$

20

$

4

$

3

$

13

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 and U.S. Treasuries. High yield securities categorized as level 1 in the fair value hierarchy include high yield securities held in mutual funds and ETFs and level 2 includes corporate bonds and bank loans.

During the first quarter of 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 condensed 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 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 during 2020 was related to lower interest rates at the measurement date.

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 period. The nature of Seaboard’s market risk exposure has not changed materially since December 31, 2019.

12