LIQUIDITY AND CAPITAL RESOURCES
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. 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.
Liquidity includes cash and cash equivalents, short-term investments and
availability under revolving credit facilities. As of April 3, 2021, Seaboard
had cash and short-term investments of $1.4 billion and additional total net
working capital of $979 million. Also, Seaboard had uncommitted lines of credit
available totaling $398 million and committed lines of credit available totaling
$350 million as of April 3, 2021.
As of April 3, 2021, $52 million of the $1.4 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.
Cash Flows
Cash and short-term investments as of April 3, 2021 decreased $92 million to
$1.4 billion from December 31, 2020. The decrease was primarily the result of
the liquidation of short-term investments for working capital needs. Cash from
operating activities decreased $44 million for the three-month period of 2021
compared to the same period in 2020 primarily due to uses of cash for working
capital, partially offset by higher adjusted earnings.
During the three months ended April 3, 2021, Seaboard invested $96 million in
property, plant and equipment, of which $78 million was in the Pork segment. The
Pork segment expenditures were primarily for the construction of the renewable
diesel plant in Hugoton, Kansas. For the remainder of 2021, management has
budgeted capital expenditures totaling approximately $455 million. The Pork
segment budgeted approximately $365 million primarily for modifications to
convert the Hugoton, Kansas plant to a renewable diesel plant, with operations
expected to begin in 2022, and other new investments, including a fuel storage
and distribution facility and biogas recovery.
During the three months ended April 3, 2021, Seaboard repaid foreign subsidiary
debt related to a 2018 acquisition of $46 million upon its maturity. The primary
debt outstanding is a Term Loan due in 2028 with a balance of $683 million as of
April 3, 2021.
RESULTS OF OPERATIONS
Net sales for the three-month period of 2021 increased $376 million over the
same period in 2020. The increase primarily reflected higher sales prices and
volumes of certain commodities in the CT&M segment, higher prices for pork
products, market hogs and biodiesel sold in the Pork segment and higher cargo
volumes in the Marine segment.
Operating income increased $29 million for the three-month period of 2021
compared to the same period in 2020. The increase primarily reflected higher
margins on pork product sales in the Pork segment and higher cargo sales and
lower fuel and other voyage costs in the Marine segment, partially offset by
derivative contract losses in the CT&M segment.
Seaboard's operations have been impacted by the COVID-19 pandemic; however,
Seaboard has seen improvements in its financial results since the most dramatic
impact in the second quarter of 2020 when the onset of the pandemic began.
Seaboard continues to encounter challenges with labor and has partially-staffed
shifts; impacts from commodity market volatility; and certain product sales not
yet at pre-COVID levels. The near and long-term impacts of the COVID-19 pandemic
on Seaboard's operations and the global economy are unknown and impossible to
predict with any level of certainty. Other than capital market volatility on
short-term investments, the effects of the COVID-19 pandemic were not
significant on a consolidated or segment basis to Seaboard's first quarter
results of prior year.
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Pork Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Net sales $ 565 $ 455
Operating income $ 61 $ 32
Income from affiliates $ 4 $ 1Net sales for the Pork segment increased $110 million for the three-month period
of 2021 compared to the same period in 2020. The increase was primarily the
result of higher prices of pork products, market hogs and biodiesel sold.
Operating income for the Pork segment increased $29 million for the three-month
period of 2021 compared to the same period in 2020. The increase was primarily
due to higher margins on pork product sales and market hogs, partially offset by
higher costs for feed. Management is unable to predict market prices for pork
products, the cost of feed or third-party hogs or the prices of biodiesel or the
ongoing impacts of the COVID-19 pandemic for future periods; however, management
anticipates this segment will be profitable for the remainder of 2021. The
uncertainties and the volatility of the commodity grain markets could have a
significant impact on profitability.
CT&M Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Net sales $ 1,151 $ 914
Operating income as reported $ 16 $ 30
Mark-to-market adjustments 11 (5)
Operating income excluding mark-to-market adjustments $ 27 $ 25
Income from affiliates
$ 6 $ 1
Net sales for the CT&M segment increased $237 million for the three-month period
of 2021 compared to the same period in 2020. The increase primarily reflected
higher sales prices and volumes of certain commodities to third-party customers
and, to a lesser extent, higher commodity prices to affiliates, partially offset
by lower volumes to affiliates.
Operating income for this segment decreased $14 million for the three-month
period of 2021 compared to the same period in 2020. The decrease primarily
reflected derivative contract losses related to mark-to-market adjustments,
partially offset by higher margins on third-party sales. 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 for
the remainder of 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 higher by $11
million and lower by $5 million for the three-month period of 2021 and 2020,
respectively. While management believes its commodity futures, options and
foreign exchange contracts are primarily economic hedges of its firm purchase
and sales contracts and 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 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 mark-to-market adjustments should be primarily offset by realized
margins or losses as revenue is recognized over time, and these mark-to-market
adjustments could reverse in 2021. Management believes eliminating these
mark-to-market adjustments provides a more reasonable presentation to compare
and evaluate period-to-period financial results for this segment.
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Marine Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Net sales $ 300 $ 269
Operating income (loss) $ 21 $ (6)
Income from affiliates $ 1 $ 1Net sales for the Marine segment increased $31 million for the three-month
period of 2021 compared to the same period in 2020. The increase was primarily
the result of higher cargo volumes.
Operating income for this segment increased $27 million for the three-month
period of 2021 compared to the same period in 2020. The increase was primarily
the result of higher sales and lower fuel costs, partially offset by higher
terminal and intermodal trucking costs related to the increase in cargo volumes.
Management cannot predict changes in fuel costs or other voyage costs, including
charter hire costs, cargo volumes and cargo rates, or the ongoing impacts of the
COVID-19 pandemic for future periods; however, management anticipates this
segment will be profitable for the remainder of 2021.
Sugar and Alcohol Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Net sales $ 26 $ 22
Operating income (loss) $ 1 $ (1)
Income from affiliates $ - $ -
Net sales for the Sugar and Alcohol segment increased $4 million for the
three-month period of 2021 compared to the same period in 2020. The increase
primarily reflected higher volumes of sugar and alcohol sold, partially offset
by lower prices of sugar and alcohol. 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.
Operating income for the Sugar and Alcohol segment increased $2 million for the
three-month period of 2021 compared to the same period in 2020. The increase
primarily reflected higher margins on alcohol due to lower production costs,
partially offset by lower margins on sugar due to higher production costs and
lower prices. 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 for the remainder of 2021.
Power Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Net sales $ 13 $ 17
Operating income (loss) $ (2) $ 2
Income from affiliates $ - $ -
Net sales for the Power segment decreased $4 million for the three-month period
of 2021 compared to the same period in 2020. The decrease reflected lower power
generation, partially offset by higher spot market rates as a result of higher
fuel prices. Dispatch to the local power grid is done on the basis of a merit
list with lower cost power plants dispatched before those with higher costs.
Operating income for the Power segment decreased $4 million for the three-month
period of 2021 compared to the same period in 2020. The decrease was primarily
due to lower revenues. 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 and plans for the interconnection of the existing
barge at a new site related to the arrival of the new barge, management expects
this segment will not be profitable for the remainder of 2021. The new barge
arrived in early May 2021 and testing and commissioning has commenced.
Commercial operations
18
for the new barge are anticipated to begin later this year and management
continues to explore strategic alternatives for the existing barge, including
selling or relocating.
Turkey Segment
Three Months Ended
April 3, March 28,
(Millions of dollars) 2021 2020
Loss from affiliates $ (5) $ (7)The Turkey segment, accounted for using the equity method, represents Seaboard's
investment in Butterball, LLC. The decrease in loss from affiliates for the
three-month period of 2021 compared to the same period in 2020 was primarily the
result of lower interest costs, partially offset by higher feed and plant
production costs. Sales volumes increased, and to a lesser extent, prices,
though the decrease in value-added product sales contributed to a weaker sales
mix with lower margins. 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 for the remainder of 2021. The uncertainties and the
volatility of the commodity grain markets could have a significant impact on
profitability.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased $14 million for
the three-month period of 2021 compared to the same period in 2020 primarily as
a result of higher costs related to Seaboard's deferred compensation program.
The deferred compensation program costs are offset by the effect of the
mark-to-market on investments recorded in other investment income (loss).
Interest Expense
Interest expense decreased $15 million for the three-month period of 2021
compared to the same period in 2020 primarily related to lower interest rates on
outstanding debt and mark-to-market fluctuations on interest rate swap
agreements.
Other Investment Income (Loss), Net
Other investment income (loss), net increased $296 million for the three-month
period of 2021 compared to the same period in 2020 primarily due to
mark-to-market fluctuations on short-term investments.
Foreign Currency Gains (Losses), Net
Foreign currency gains (losses), net increased $20 million for the three-month
period of 2021 compared to the same period in 2020 primarily due to fluctuations
in the South African rand and the euro among fluctuations of other currency
exchange rates in several foreign countries.
Income Tax Benefit (Expense)
The effective tax rate for the three-month period of 2021 was lower than the
three-month period of 2020 primarily due to pre-tax income in 2021 versus
pre-tax loss in 2020 and the associated impact from tax credits. Tax credits
decrease the income tax expense in a pre-tax income year resulting in a lower
effective tax rate and increase the income tax benefit in a pre-tax loss year
resulting in a higher effective tax rate.
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