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Segment Information | 9 Months Ended
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Sep. 30, 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. On August 30, 2017, Seaboard’s Pork segment acquired hog inventory and hog farms in the Central U.S. from New Fashion Pork, LLP for total cash consideration of $40 million. This acquisition provides additional sows to further increase Seaboard’s capacity to fulfil its hog supply commitment for processing at the Seaboard Triumph Foods, LLC plant, which began operations in September 2017. The purchase was recorded at fair value in Seaboard’s Pork segment, and the allocation of the purchase price is below. No material intangible assets were identified.
(Millions of dollars) |  |
Inventories |  | $ | 6 |
Property, plant and equipment |  |  | 34 |
Total consideration transferred |  | $ | 40 |
Operating results have been included in Seaboard’s condensed consolidated financial statements from the date of acquisition. There was no material impact to Seaboard’s sales and net earnings as a result of the purchase. Pro forma results of operations are not presented as the effects are not material to Seaboard’s results of operations. 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 is reported on a three-month lag basis, and therefore Seaboard’s first proportionate share of earnings from this investment was recognized in 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 $17 million, net of reserves, at September 30, 2017, all classified as long-term given uncertainty of the timing of payments in the future. The note receivable is 50% guaranteed by the other shareholder in the entity. In 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 statement of comprehensive income. During the third quarter of 2017, Seaboard recorded this entity’s current period loss of $2 million against the note receivable. In September 2017, Seaboard reached an agreement to amend the note to further extend the term and match payments to cash flow estimates. 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. Seaboard’s advances totaled $14 million during the nine months ended October 1, 2016. Related to these advances, Seaboard recorded income (loss) from affiliate of $2 million and $(10) million for the three and nine months ended October 1, 2016, respectively, and currency translation adjustment losses included in other comprehensive income (loss) of $2 million and $4 million, respectively. Seaboard’s Marine segment includes a 36% investment in a holding company that owns a Caribbean start-up terminal operation. Seaboard accounts for its investment using the equity method. 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. For the three and nine months ended September 30, 2017, Seaboard recognized $2 million and $9 million, respectively, in income (loss) from affiliates for its proportionate share of equity losses. 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 September 30, 2017 and December 31, 2016, Butterball had total assets of $1,147 million and $1,154 million, respectively. Butterball’s summarized income statement information is as follows:
|  | Three Months Ended |  | Nine Months Ended |
|  |  | September 30, |  | October 1, |  | September 30, |  | October 1,
(Millions of dollars) |  |  | 2017 |  | 2016 |  | 2017 |  | 2016
Net sales |  | $ | 439 |  | $ | 450 |  | $ | 1,143 |  | $ | 1,226 |
Operating income (loss) |  | $ | 9 |  | $ | 27 |  | $ | (1) |  | $ | 116 |
Net income (loss) |  | $ | 1 |  | $ | 22 |  | $ | (21) |  | $ | 94 |
In the second quarter of 2017, Butterball decided that it would close its Montgomery, Illinois, further processing plant during the third quarter of 2017, resulting in charges primarily related to impaired fixed assets and accrued severance. Seaboard’s proportionate share of these charges, recognized in income (loss) from affiliates, was $11 million in the second quarter of 2017 and $1 million in the third quarter of 2017. The following tables set forth specific financial information about each segment as reviewed by Seaboard’s management. Operating income (loss) for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income (loss), along with income or loss from affiliates for the Pork, 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 |  | Nine Months Ended |
|  | September 30, |  | October 1, |  | September 30, |  | October 1, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | 404 |  | $ | 371 |  | $ | 1,188 |  | $ | 1,058 |
Commodity Trading and Milling |  |  | 694 |  |  | 673 |  |  | 2,122 |  |  | 2,089 |
Marine |  |  | 225 |  |  | 225 |  |  | 691 |  |  | 684 |
Sugar |  |  | 50 |  |  | 34 |  |  | 138 |  |  | 103 |
Power |  |  | 25 |  |  | 23 |  |  | 72 |  |  | 59 |
All Other |  |  | 4 |  |  | 4 |  |  | 12 |  |  | 13 |
Segment/Consolidated Totals |  | $ | 1,402 |  | $ | 1,330 |  | $ | 4,223 |  | $ | 4,006 |
Operating Income (Loss): |  | Three Months Ended |  | Nine Months Ended |
|  | September 30, |  | October 1, |  | September 30, |  | October 1, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | 57 |  | $ | 54 |  | $ | 157 |  | $ | 133 |
Commodity Trading and Milling |  |  | 7 |  |  | (13) |  |  | 25 |  |  | 15 |
Marine |  |  | 4 |  |  | 9 |  |  | 8 |  |  | 19 |
Sugar |  |  | 6 |  |  | (7) |  |  | 12 |  |  | (5) |
Power |  |  | 3 |  |  | 4 |  |  | 7 |  |  | 6 |
All Other |  |  | — |  |  | 1 |  |  | 1 |  |  | 2 |
Segment Totals |  |  | 77 |  |  | 48 |  |  | 210 |  |  | 170 |
Corporate |  |  | (6) |  |  | (6) |  |  | (19) |  |  | (16) |
Consolidated Totals |  | $ | 71 |  | $ | 42 |  | $ | 191 |  | $ | 154 |
Income (Loss) from Affiliates: |  | Three Months Ended |  | Nine Months Ended |
|  | September 30, |  | October 1, |  | September 30, |  | October 1, |
(Millions of dollars) |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Pork |  | $ | (4) |  | $ | 3 |  | $ | (1) |  | $ | 10 |
Commodity Trading and Milling |  |  | (1) |  |  | 5 |  |  | 5 |  |  | (10) |
Marine |  |  | (1) |  |  | — |  |  | (7) |  |  | 1 |
Sugar |  |  | 1 |  |  | — |  |  | 1 |  |  | 1 |
Power |  |  | 2 |  |  | 2 |  |  | 3 |  |  | 3 |
Turkey |  |  | — |  |  | 11 |  |  | (11) |  |  | 49 |
Segment/Consolidated Totals |  | $ | (3) |  | $ | 21 |  | $ | (10) |  | $ | 54 |
Total Assets: |  | September 30, |  | December 31, |
(Millions of dollars) |  | 2017 |  | 2016 |
Pork |  | $ | 1,294 |  | $ | 1,157 |
Commodity Trading and Milling |  |  | 1,044 |  |  | 989 |
Marine |  |  | 325 |  |  | 314 |
Sugar |  |  | 173 |  |  | 166 |
Power |  |  | 195 |  |  | 196 |
Turkey |  |  | 471 |  |  | 493 |
All Other |  |  | 6 |  |  | 6 |
Segment Totals |  |  | 3,508 |  |  | 3,321 |
Corporate |  |  | 1,485 |  |  | 1,434 |
Consolidated Totals |  | $ | 4,993 |  | $ | 4,755 |
Investments in and Advances to Affiliates: |  | September 30, |  | December 31, |
(Millions of dollars) |  | 2017 |  | 2016 |
Pork |  | $ | 241 |  | $ | 175 |
Commodity Trading and Milling |  |  | 236 |  |  | 207 |
Marine |  |  | 28 |  |  | 33 |
Sugar |  |  | 4 |  |  | 4 |
Power |  |  | 34 |  |  | 30 |
Turkey |  |  | 303 |  |  | 324 |
Segment/Consolidated Totals |  | $ | 846 |  | $ | 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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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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