Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

Note 6 – Leases

Seaboard’s operating leases are primarily for ports, vessels, contract grower assets, and to a lesser extent, land, buildings and machinery and equipment. Seaboard’s finance leases are primarily for contract grower assets. Seaboard’s Marine segment leases its PortMiami terminal, among other ports. The Marine and CT&M segments lease vessels for use in operations. The Pork segment has contract grower agreements in place with farmers to raise a portion of Seaboard’s hogs using the farmer’s buildings, land and equipment. Seaboard’s nonlease components are primarily for services related to labor associated with caring for hogs in its contract grower agreements and crew services on vessel charter arrangements.

As of December 31, 2019, the weighted average remaining lease term for Seaboard’s operating and finance leases was approximately six years and nine years, respectively. Seaboard’s lease terms vary depending upon the class of asset and some leases include options to extend or terminate. Since Seaboard is not reasonably certain to exercise these renewal or termination options, the options are not considered in determining the lease term and associated potential option payments or penalties are excluded from lease payments.

Seaboard’s operating lease assets and liabilities are reported separately in the consolidated balance sheet. The classification of Seaboard’s finance leases in the consolidated balance sheet as of December 31, 2019 was as follows:

(Millions of dollars)
Finance lease right of use assets, net	Property, plant and equipment, net	$	50
Finance lease liabilities	Other current liabilities		5
Non-current finance lease liabilities	Other liabilities		40

The components of lease cost for 2019 were as follows:

(Millions of dollars)
Operating lease cost	$	138
Finance lease cost:
Amortization of right of use assets		3
Interest on lease liabilities		1
Variable lease cost		7
Short-term lease cost		48
Total lease cost	$	197

Operating lease cost and short-term lease cost are recognized on a straight-line basis over the lease term. Finance lease cost is recognized based on the effective interest method for the lease liability and straight-line amortization of the ROU asset. Variable lease payments are recognized when the circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are primarily for payments in excess of minimums with regards to throughput of shipping containers. Short-term leases are primarily for containers and vessels at Seaboard’s Marine segment. Lease cost is included in various line items in the consolidated statements of comprehensive income or capitalized to inventory. Rental expense for leases with terms of a month or less are excluded from the total lease cost above.

Rental expense for facility and equipment operating leases for all segments was $46 million and $44 million in 2018 and 2017, respectively. The Marine and CT&M segments’ vessel charter hire expenses during 2018 and 2017 totaled $111 million and $96 million, respectively. The Pork segment paid $48 million and $37 million for contract grower agreements in 2018 and 2017, respectively.

Maturities of lease liabilities as of December 31, 2019 were as follows:

		Operating		Finance
(Millions of dollars)		Leases		Leases
2020	$	130	$	7
2021		113		7
2022		84		7
2023		58		7
2024		48		7
Thereafter		164		26
Total undiscounted lease payments		597		61
Less imputed interest		(114)		(16)
Total lease liability	$	483	$	45

Seaboard’s weighted average discount rate for operating and finances leases was 6.58% and 6.31%, respectively, as of December 31, 2019. There were estimates and judgments made in determining Seaboard’s multiple discount rates based on term, country and currency, including developing a secured credit rating and spreading market yield data across maturities and country risk-free rates.

Below is Seaboard’s commitments table as of December 31, 2018 that disclosed operating lease payments for the next five years and thereafter. Seaboard had no material capital leases as of December 31, 2018.

	Years ended December 31,
(Millions of dollars)	2019		2020		2021		2022		2023		Thereafter
Ports	$	18	$	18	$	19	$	19	$	20	$	109
Vessel, time and voyage-charters		58		27		26		13		8		25
Contract grower agreements		47		41		37		27		18		61
Other operating lease payments		18		13		9		8		6		15
Total unrecognized non-cancelable commitments	$	141	$	99	$	91	$	67	$	52	$	210