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Segment Information | 9 Months Ended
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Sep. 29, 2018
Segment Information |
Segment Information | Note 10 – Segment Information Seaboard has six reportable segments: Pork, CT&M, Marine, Sugar, Power and Turkey, each offering a specific product or service. For details on the respective products or services, refer to Note 13 to the consolidated financial statements included in Seaboard’s annual report for the year ended December 31, 2017. Below are segment updates from year-end. In February 2018, Congress retroactively extended the Federal blender’s credits for 2017, which resulted in Seaboard’s Pork segment recognizing approximately $42 million of revenue in the first quarter of 2018 for the biodiesel it blends. There was no tax expense on this transaction. On January 5, 2018, Seaboard’s CT&M segment acquired substantially all of the outstanding common shares of Borisniak Corp., Societe Les Grands Moulins d’Abidjan, Les Grands Moulins de Dakar, Eurafrique, and Societe Mediterraneenne de Transport, collectively operating as Groupe Mimran (“Mimran”). Mimran operates three flour mills and an associated grain trading business located in Senegal, Ivory Coast and Monaco. This acquisition is expected to increase Seaboard’s flour and feed milling capacity and annual grain trading volume. The total purchase price for this acquisition is subject to a working capital adjustment and, based on the acquisition date fair values and using the exchange rate in effect at the time of acquisition, was $330 million consisting of:
(Millions of dollars) |  |  | Fair Value |
Cash payment, net of $64 million of cash acquired |  | $ | 270 |
Euro-denominated note payable due 2021, 3.25% interest |  |  | 46 |
Contingent consideration |  |  | 14 |
Total fair value of consideration at acquisition date |  | $ | 330 |
See Note 8 for further description of the note payable. The fair value of the contingent consideration, classified in other non-current liabilities on the condensed consolidated balance sheet, is dependent on the probability of Mimran achieving certain financial performance targets using earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a metric. The contingent consideration ranges between zero and $48 million payable between five and eight years following the closing, at the discretion of the sellers. Seaboard is in the process of obtaining a third-party valuation of the tangible and intangible assets, and therefore the initial allocation of the purchase price is subject to refinement. The purchase was recorded at fair value and preliminarily allocated as follows:
(Millions of dollars) |  |  | Fair Value |
Current assets |  | $ | 84 |
Property, plant and equipment |  |  | 57 |
Intangible assets |  |  | 100 |
Goodwill |  |  | 161 |
Other long-term assets |  |  | 4 |
Total fair value of assets acquired |  |  | 406 |
Current liabilities |  |  | (38) |
Other long-term liabilities |  |  | (34) |
Total fair value of liabilities assumed |  |  | (72) |
Less: Noncontrolling interest |  |  | (4) |
Net fair value of assets acquired |  | $ | 330 |
The intangible assets include $28 million allocated to trade names, amortizable over 7‑9 years, and $72 million allocated to customer relationships, amortizable over 7‑11 years. Goodwill represents Mimran’s market presence and its experienced workforce. The intangible assets and goodwill are not deductible for income tax purposes. Certain Mimran entities acquired are accounted for on a three-month lag and use local currency as their functional currency. For the three and nine month periods ended September 29, 2018, net sales of $120 million and $272 million, respectively, and net earnings of $5 million and $14 million, respectively, were recognized in Seaboard’s condensed consolidated financial statements from the date of acquisition. Translation gains and losses are recorded as components of other comprehensive income (loss). Acquisition costs, incurred primarily in 2017, of $1 million were expensed in selling, general and administrative expenses. The following unaudited pro forma information presents the combined consolidated financial results for Seaboard as if the acquisition had been completed at January 1, 2017.
|  | Three Months Ended | Nine Months Ended |
|  |  | September 29, |  | September 30, | September 29, |  | September 30, |
(Millions of dollars except per share amounts) |  |  | 2018 |  | 2017 | 2018 |  | 2017 |
Net sales |  | $ | 1,651 |  | $ | 1,475 |  | $ | 4,981 |  | $ | 4,431 |
Net earnings |  | $ | 35 |  | $ | 87 |  | $ | 78 |  | $ | 243 |
Earnings per common share |  | $ | 29.93 |  | $ | 74.42 |  | $ | 67.90 |  | $ | 207.81 |
During the first quarter of 2018, Seaboard’s CT&M segment invested total consideration of $16 million for a 50% noncontrolling interest in a grain trading and flour milling business in Mauritania. The investment amount is subject to change dependent upon resolution of certain contingencies. The investment is accounted for using the equity method of accounting and reported on a three-month lag. Seaboard’s first proportionate share of this affiliate’s income (loss) was recognized in the second quarter of 2018. 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 an aggregate principal and interest balance of approximately $8 million and $15 million at September 29, 2018 and December 31, 2017, respectively, all classified as long-term in other non-current assets given uncertainty of the timing of payments in the future. The note receivable is 50% guaranteed by the other shareholder in the entity. Seaboard recorded this entity’s current period losses against the note receivable, and the losses were $3 million and $7 million for three and nine months ended September 29, 2018, respectively. If the future long-term cash flows of this bakery do not improve, more of the recorded value of this note receivable could be deemed uncollectible in the future, which could result in a further charge to earnings. The Marine segment has a 36% noncontrolling interest in a holding company that owns a Caribbean terminal operation. During the first quarter of 2017, the holding company’s 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 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. The holding company is investigating various strategic alternatives, such as additional capital calls, refinancing 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 2017, the 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, which would have required Seaboard to find a new location for its power plant by the third quarter of 2018. However, during the first quarter of 2018, the Ministry renewed Seaboard’s environmental license to operate the power plant in its current location through 2020. The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (“Butterball”). As of September 29, 2018 and December 31, 2017, Butterball had total assets of $1,183 million and $999 million, respectively. Butterball’s summarized income statement information is as follows:
|  | Three Months Ended |  | Nine Months Ended |
|  |  | September 29, |  |  | September 30, |  |  | September 29, |  |  | September 30, |
(Millions of dollars) |  |  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Net sales |  | $ | 399 |  | $ | 439 |  | $ | 1,046 |  | $ | 1,143 |
Operating income (loss) |  | $ | (19) |  | $ | 9 |  | $ | (29) |  | $ | (1) |
Net income (loss) |  | $ | (23) |  | $ | 1 |  | $ | (36) |  | $ | (21) |
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 (loss) and income tax expense on a segment basis.
Sales to External Customers: |  | Three Months Ended |  | Nine Months Ended |
|  | September 29, |  | September 30, |  | September 29, |  | September 30, |
(Millions of dollars) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Pork |  | $ | 412 |  | $ | 404 |  | $ | 1,320 |  | $ | 1,188 |
Commodity Trading and Milling |  |  | 898 |  |  | 694 |  |  | 2,574 |  |  | 2,122 |
Marine |  |  | 259 |  |  | 225 |  |  | 771 |  |  | 691 |
Sugar |  |  | 43 |  |  | 50 |  |  | 155 |  |  | 138 |
Power |  |  | 34 |  |  | 25 |  |  | 88 |  |  | 72 |
All Other |  |  | 5 |  |  | 4 |  |  | 13 |  |  | 12 |
Segment/Consolidated Totals |  | $ | 1,651 |  | $ | 1,402 |  | $ | 4,921 |  | $ | 4,223 |
Operating Income (Loss): |  | Three Months Ended |  | Nine Months Ended |
|  | September 29, |  | September 30, |  | September 29, |  | September 30, |
(Millions of dollars) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Pork |  | $ | 2 |  | $ | 59 |  | $ | 111 |  | $ | 162 |
Commodity Trading and Milling |  |  | 21 |  |  | 7 |  |  | 30 |  |  | 25 |
Marine |  |  | 9 |  |  | 4 |  |  | 9 |  |  | 8 |
Sugar |  |  | 5 |  |  | 6 |  |  | 17 |  |  | 12 |
Power |  |  | 7 |  |  | 3 |  |  | 13 |  |  | 7 |
All Other |  |  | 1 |  |  | — |  |  | 2 |  |  | 1 |
Segment Totals |  |  | 45 |  |  | 79 |  |  | 182 |  |  | 215 |
Corporate |  |  | (8) |  |  | (6) |  |  | (16) |  |  | (19) |
Consolidated Totals |  | $ | 37 |  | $ | 73 |  | $ | 166 |  | $ | 196 |
Income (Loss) from Affiliates: |  | Three Months Ended |  | Nine Months Ended |
|  | September 29, |  | September 30, |  | September 29, |  | September 30, |
(Millions of dollars) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Pork |  | $ | (8) |  | $ | (4) |  | $ | (21) |  | $ | (1) |
Commodity Trading and Milling |  |  | (4) |  |  | (1) |  |  | (10) |  |  | 5 |
Marine |  |  | — |  |  | (1) |  |  | 1 |  |  | (7) |
Sugar |  |  | 1 |  |  | 1 |  |  | 1 |  |  | 1 |
Power |  |  | 4 |  |  | 2 |  |  | 7 |  |  | 3 |
Turkey |  |  | (11) |  |  | — |  |  | (18) |  |  | (11) |
Segment/Consolidated Totals |  | $ | (18) |  | $ | (3) |  | $ | (40) |  | $ | (10) |
Total Assets: |  | September 29, |  | December 31, |
(Millions of dollars) |  | 2018 |  | 2017 |
Pork |  | $ | 1,298 |  | $ | 1,309 |
Commodity Trading and Milling |  |  | 1,467 |  |  | 964 |
Marine |  |  | 336 |  |  | 376 |
Sugar |  |  | 135 |  |  | 197 |
Power |  |  | 180 |  |  | 188 |
Turkey |  |  | 292 |  |  | 315 |
All Other |  |  | 8 |  |  | 4 |
Segment Totals |  |  | 3,716 |  |  | 3,353 |
Corporate |  |  | 1,719 |  |  | 1,808 |
Consolidated Totals |  | $ | 5,435 |  | $ | 5,161 |
Investments in and Advances to Affiliates: |  | September 29, |  | December 31, |
(Millions of dollars) |  | 2018 |  | 2017 |
Pork |  | $ | 207 |  | $ | 231 |
Commodity Trading and Milling |  |  | 260 |  |  | 240 |
Marine |  |  | 29 |  |  | 28 |
Sugar |  |  | 4 |  |  | 4 |
Power |  |  | 31 |  |  | 38 |
Turkey |  |  | 292 |  |  | 310 |
Segment/Consolidated Totals |  | $ | 823 |  | $ | 851 |
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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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