Note 7 – Notes Payable, Long-term Debt, Commitments and Contingencies

Notes Payable

Of the $97 million of notes payable outstanding at September 30, 2017, all were related to foreign subsidiaries, with $80 million denominated in South African rand, $15 million denominated in Argentine pesos and $2 million denominated in Zambian kwacha. The weighted average interest rate for outstanding notes payable was 11.56% and 14.88% at September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, Seaboard had uncommitted credit lines totaling $419 million, of which $369 million related to foreign subsidiaries. As of September 30, 2017, Seaboard’s borrowing capacity under its uncommitted lines was reduced by $97 million drawn under the uncommitted lines and $3 million of letters of credit. The notes payable under the credit lines are unsecured and do not require compensating balances.

Also, Seaboard has a $100 million committed credit line secured by certain short-term investments, but there was no outstanding balance as of September 30, 2017. During the third quarter of 2017, Seaboard renewed this credit line for another year until September 28, 2018, with no other changes to the agreement.

Long-term Debt

The following is a summary of long-term debt:



		September 30,		December 31,
(Millions of dollars)		2017		2016
Term Loan due 2022	$	488	$	497
Foreign subsidiary obligations due 2018 through 2023		53		20
Total long-term debt at face value		541		517
Current maturities of long-term debt and unamortized discount		(51)		(18)
Long-term debt, less current maturities and unamortized discount	$	490	$	499

During the third quarter of 2017, Seaboard’s Sugar segment refinanced certain notes payable with a short-term loan denominated in Argentine pesos valued at approximately $32 million as of September 30, 2017. The short-term loan incurs a fixed rate of interest of 23% until its maturity on February 7, 2018.

The interest rate on the Term Loan due 2022 was 2.86% and 2.40% at September 30, 2017 and December 31, 2016, respectively. The weighted average interest rate on Seaboard’s foreign subsidiary obligations was 21.18% and 22.39% at September 30, 2017 and December 31, 2016, respectively. Seaboard was in compliance with all restrictive debt covenants relating to these agreements as of September 30, 2017.

Contingencies

On September 18, 2014, and subsequently in 2015 and 2016, Seaboard received a number of grand jury subpoenas and informal requests for information from the Department of Justice, Asset Forfeiture and Money Laundering Section (“AFMLS”), seeking records related to specified foreign companies and individuals. The companies and individuals as to which the requested records relate were not affiliated with Seaboard, although Seaboard has also received subpoenas and requests for additional information relating to an affiliate of Seaboard. During 2017, Seaboard received grand jury subpoenas requesting documents and information related to money transfers and bank accounts in the Democratic Republic of Congo (“DRC”) and other African countries and requests to interview certain Seaboard employees and to obtain testimony before a grand jury. Seaboard has retained outside counsel and is cooperating with the government’s investigation. It is impossible at this stage either to determine the probability of a favorable or unfavorable outcome or to estimate the amount of potential loss, if any, resulting from the government’s inquiry.

On September 19, 2012, the U.S. Immigration and Customs Enforcement (“ICE”) executed three search warrants authorizing the seizure of certain records from Seaboard’s offices in Merriam, Kansas and at the Seaboard Foods LLC (“Seaboard Foods”) employment office and the human resources department in Guymon, Oklahoma. The warrants generally called for the seizure of employment-related files, certain e-mails and other electronic records relating to Medicaid and Medicaid recipients, certain health care providers in the Guymon area, and Seaboard’s health plan and certain personnel issues. The U.S. Attorney’s Office for the Western District of Oklahoma (“USAO”), which has been leading the investigation, previously advised Seaboard that it intended to close its investigation and that no charges would be brought against Seaboard. However, discussions continue with the USAO, ICE and the Oklahoma Attorney General's office regarding the matter, including the possibility of a settlement. No proceedings have been filed or brought as of the date of this report. It is not possible at this time to determine whether a settlement will be reached or whether Seaboard will incur any material fines, penalties or liabilities in connection with this matter.

On February 16, 2016, Seaboard Foods received an information request from the U.S. Environmental Protection Agency (“EPA”) seeking information under the Clean Air Act with regard to various ammonia releases at Seaboard Foods’ pork processing plant in Guymon, Oklahoma. Seaboard Foods has been cooperating with the EPA with regard to the investigation. On July 21, 2017, a letter was received from the EPA alleging violations of regulations and indicating an intent to proceed administratively with respect to these violations. The letter included a draft Consent Agreement and Final Order (“Agreement”) which proposed a civil penalty and the requirement that a “Supplemental Environmental Project” (“SEP”) be undertaken. Seaboard believes that the matter will be resolved with the civil penalty and the cost of the SEP being less than $1 million.

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.

Contingent Obligations

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 30, 2017, guarantees outstanding to third parties were not material. Seaboard has not accrued a liability for any of the third-party or affiliate guarantees as management considers the likelihood of loss to be remote. See Notes Payable section above for discussion of letters of credit.