Accounting Policies and Basis of Presentation

6 Months Ended

Jun. 27, 2020

Accounting Policies and Basis of Presentation

Accounting Policies and Basis of Presentation

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 marked-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. Significant 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, potential 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.

	Three months ended				Six months ended
	June 27,		June 29,		June 27,		June 29,
(Millions of dollars)		2020		2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	36	$	35	$	71	$	67
Operating cash flows from finance leases		1		1		2		1
Financing cash flows from finance leases		2		—		3		—
Operating ROU assets obtained in exchange for new operating lease liabilities	$	5	$	12	$	43	$	42
Finance ROU assets obtained in exchange for new finance lease liabilities		19		16		27		17

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:

		June 27,		December 31,
(Millions of dollars)		2020		2019
Finance lease ROU assets, net	Property, plant and equipment, net	$	74	$	50
Finance lease liabilities	Other current liabilities		7		5
Non-current finance lease liabilities	Other liabilities		62		40

Goodwill and Other Intangible Assets

The decrease in the carrying amount of goodwill was due to a $(1) million acquisition related adjustment in the Commodity Trading and Milling (“CT&M”) segment. See Note 10 for further information on this acquisition-related adjustment. As of June 27, 2020, intangible assets, included in other non-current assets, were $55 million, net of accumulated amortization of $12 million. Amortization expense was $2 million and $4 million and foreign currency exchange adjustments were $0 million and ($1) million for the three and six month periods ended June 27, 2020, respectively.

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 $30 million and $28 million at June 27, 2020 and December 31, 2019, respectively. The activity within the allowance for credit losses on receivables was immaterial for the three and six months ended June 27, 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 due to credit granting policies, relationships established with its 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.