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Segment Information | 6 Months Ended
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Jul. 01, 2017
Segment Information |
Segment Information | Note 9 – Segment Information Seaboard has six reportable segments: Pork, Commodity Trading and Milling (“CT&M”), Marine, Sugar, Power and Turkey, each offering a specific product or service. Below are segment updates from year-end. During the second quarter of 2017, Seaboard’s CT&M segment invested an additional $7 million in a grain trading and poultry business in Morocco. This investment increased Seaboard’s ownership interest to 19.4% and as a result, Seaboard changed its accounting method from the cost method to equity method effective on the date of the additional investment. This investment will be reported on a three-month lag basis, and therefore Seaboard’s first proportionate share of earnings from this investment will not be recognized until the third quarter of 2017. During the first quarter of 2017, Seaboard’s CT&M segment acquired a pulse and grain elevator in Canada for total cash consideration of $14 million. This business, which complements an existing CT&M business in Canada, is expected to increase pulse trade volumes. The purchase was recorded at fair value with $11 million allocated to property, plant and equipment and $3 million allocated to goodwill. Goodwill represents the assembled workforce, cost savings of buying rather than developing a greenfield operation and the close proximity of this elevator to the producers in the region. The goodwill is deductible for income tax purposes. Operating results have been included in Seaboard’s condensed consolidated financial statements from the date of acquisition. Pro forma results of operations are not presented as the effects are not material to Seaboard’s results of operations. The CT&M segment has a 50% noncontrolling interest in a bakery located in the DRC. Seaboard’s investment balance is zero. As part of its original investment, Seaboard has an interest bearing long-term note receivable from this affiliate that had a principal and interest balance of approximately $19 million at July 1, 2017, all classified as long-term given uncertainty of the timing of payments in the future. In the second and fourth quarters of 2016, Seaboard reserved an aggregate of $16 million of the original note balance in bad debt expense within selling, general and administrative expenses in the consolidated statements of comprehensive income. The note receivable is 50% guaranteed by the other shareholder in the entity. During the fourth quarter of 2016, the business owners began discussions regarding various strategic alternatives, such as restructuring the note to further extend the term and match payments to revised cash flow estimates, enforce the guarantees from the other owner which may require legal action, sale of the bakery, or Seaboard obtaining control of the bakery at which time the entity would become consolidated. As of the date of this report, no alternative strategic solution has been agreed upon, and there has been no amendment of the note receivable agreement. If the future long-term cash flows of this bakery do not improve, more of the recorded value of the note receivable from affiliate could be deemed uncollectible in the future, which could result in a further charge to earnings. The CT&M segment had a 50% noncontrolling interest in Belarina Alimentos S.A. (“Belarina”), a flour production business in Brazil, which it accounted for using the equity method of accounting prior to October 28, 2016, the date Seaboard obtained 98% of the equity ownership and control of Belarina. Seaboard has included the financial results of Belarina in its consolidated financial statements since the date of acquisition. During the three and six months ended July 2, 2016, Seaboard’s advances totaled $13 million and $14 million, respectively. Related to these advances, Seaboard recorded losses from affiliate of $11 million and $12 million, respectively, and currency translation adjustment losses included in other comprehensive income (loss) of $2 million and $2 million, respectively. Seaboard’s Marine segment includes a 36% investment in a holding company that owns a majority interest in a Caribbean start-up terminal operation. Seaboard accounts for its investment using the equity method, and as of December 31, 2016 had a book investment balance of $14 million, a convertible note receivable of $2 million and an affiliate receivable of $1 million. During the first quarter of 2017, the terminal operations encountered the loss of a customer and defaulted on certain third-party debt obligations. In addition, third-party engineering studies identified significant unexpected construction modifications needed for the terminal operation. As a result, Seaboard evaluated its investment in affiliate and receivables for impairment and recorded a $5 million charge on its investment, a $1 million charge on its convertible note receivable and a $3 million allowance on its affiliate receivables in the three month period ended April 1, 2017. The holding company is investigating various strategic alternatives, such as additional capital calls, restructuring of the third-party debt and restructuring of the affiliate equity and receivables, which includes the deferral of all affiliated receivable payments until such future time as cash flow is sufficient to pay all third-party debt. If future long-term cash flows do not improve, there is a possibility that there could be additional charges. In March of 2017, Seaboard’s Power segment was notified by the Ministry of Environment and Natural Resources (the “Ministry”), a division within the Dominican Republic government, that it would not renew the environmental license for Seaboard’s power plant on a barge located in the Ozama River. If the license is not renewed, Seaboard would be required to find a new location by the third quarter of 2018. Seaboard’s management is in discussions with the Ministry and will vigorously defend its rights to continue to operate the barge, which is under a special dispensation from the President of the Dominican Republic, in its current location. It is not possible at this time to determine whether a favorable outcome will be reached or to estimate the charge to earnings if Seaboard has to relocate the barge. The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (“Butterball”). As of July 1, 2017 and December 31, 2016, Butterball had total assets of $1,124 million and $1,154 million, respectively. Butterball’s summarized income statement information is as follows:
|  | Three Months Ended |  | Six Months Ended |
|  |  | July 1, |  | July 2, |  | July 1, |  | July 2,
(Millions of dollars) |  |  | 2017 |  | 2016 |  | 2017 |  | 2016
Net sales |  | $ | 354 |  | $ | 391 |  | $ | 704 |  | $ | 776 |
Operating income (loss) |  | $ | (20) |  | $ | 44 |  | $ | (10) |  | $ | 89 |
Net income (loss) |  | $ | (27) |  | $ | 34 |  | $ | (22) |  | $ | 72 |
In the second quarter of 2017, Butterball decided that it will close its Montgomery, Illinois, further processing plant during the third quarter of 2017, resulting in a charge primarily related to impaired fixed assets and accrued severance. Seaboard’s proportionate share of this charge was $11 million recognized in income (loss) from affiliates during the three and six month periods of 2017. The following tables set forth specific financial information about each segment as reviewed by Seaboard’s management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income or loss from affiliates for the CT&M and Turkey segments, is used as the measure of evaluating segment performance because management does not consider interest, other investment income and income tax expense on a segment basis.
Sales to External Customers: |  | Three Months Ended |  | Six Months Ended |
|  | July 1, |  | July 2, |  | July 1, |  | July 2, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | 414 |  | $ | 359 |  | $ | 784 |  | $ | 687 |
Commodity Trading and Milling |  |  | 701 |  |  | 707 |  |  | 1,428 |  |  | 1,416 |
Marine |  |  | 232 |  |  | 232 |  |  | 466 |  |  | 459 |
Sugar |  |  | 48 |  |  | 36 |  |  | 88 |  |  | 69 |
Power |  |  | 23 |  |  | 19 |  |  | 47 |  |  | 36 |
All Other |  |  | 4 |  |  | 4 |  |  | 8 |  |  | 9 |
Segment/Consolidated Totals |  | $ | 1,422 |  | $ | 1,357 |  | $ | 2,821 |  | $ | 2,676 |
Operating Income: |  | Three Months Ended |  | Six Months Ended |
|  | July 1, |  | July 2, |  | July 1, |  | July 2, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | 51 |  | $ | 50 |  | $ | 100 |  | $ | 79 |
Commodity Trading and Milling |  |  | 1 |  |  | 19 |  |  | 18 |  |  | 28 |
Marine |  |  | 1 |  |  | 7 |  |  | 4 |  |  | 10 |
Sugar |  |  | 3 |  |  | 2 |  |  | 6 |  |  | 2 |
Power |  |  | 2 |  |  | 2 |  |  | 4 |  |  | 2 |
All Other |  |  | 1 |  |  | 1 |  |  | 1 |  |  | 1 |
Segment Totals |  |  | 59 |  |  | 81 |  |  | 133 |  |  | 122 |
Corporate |  |  | (5) |  |  | (5) |  |  | (13) |  |  | (10) |
Consolidated Totals |  | $ | 54 |  | $ | 76 |  | $ | 120 |  | $ | 112 |
Income (Loss) from Affiliates: |  | Three Months Ended |  | Six Months Ended |
|  | July 1, |  | July 2, |  | July 1, |  | July 2, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | 3 |  | $ | 4 |  | $ | 3 |  | $ | 7 |
Commodity Trading and Milling |  |  | 2 |  |  | (11) |  |  | 6 |  |  | (15) |
Marine |  |  | — |  |  | — |  |  | (6) |  |  | 1 |
Sugar |  |  | — |  |  | — |  |  | — |  |  | 1 |
Power |  |  | 1 |  |  | — |  |  | 1 |  |  | 1 |
Turkey |  |  | (14) |  |  | 18 |  |  | (11) |  |  | 38 |
Segment/Consolidated Totals |  | $ | (8) |  | $ | 11 |  | $ | (7) |  | $ | 33 |
Total Assets: |  | July 1, |  | December 31, |
(Millions of dollars) |  | 2017 |  | 2016 |
Pork |  | $ | 1,218 |  | $ | 1,157 |
Commodity Trading and Milling |  |  | 951 |  |  | 989 |
Marine |  |  | 317 |  |  | 314 |
Sugar |  |  | 174 |  |  | 166 |
Power |  |  | 196 |  |  | 196 |
Turkey |  |  | 469 |  |  | 493 |
All Other |  |  | 7 |  |  | 6 |
Segment Totals |  |  | 3,332 |  |  | 3,321 |
Corporate |  |  | 1,530 |  |  | 1,434 |
Consolidated Totals |  | $ | 4,862 |  | $ | 4,755 |
Investments in and Advances to Affiliates: |  | July 1, |  | December 31, |
(Millions of dollars) |  | 2017 |  | 2016 |
Pork |  | $ | 227 |  | $ | 175 |
Commodity Trading and Milling |  |  | 231 |  |  | 207 |
Marine |  |  | 29 |  |  | 33 |
Sugar |  |  | 4 |  |  | 4 |
Power |  |  | 32 |  |  | 30 |
Turkey |  |  | 301 |  |  | 324 |
Segment/Consolidated Totals |  | $ | 824 |  | $ | 773 |
Administrative services provided by the corporate office are allocated to the individual segments and represent corporate services rendered to and costs incurred for each specific segment, with no allocation to individual segments of general corporate management oversight costs. Corporate assets include short-term investments, other current assets related to deferred compensation plans, fixed assets, and other miscellaneous items. Corporate operating losses represent certain operating costs not specifically allocated to individual segments and include costs related to Seaboard’s deferred compensation plans, which are offset by the effect of the mark-to-market adjustments on these investments recorded in other investment income (loss), net.

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