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 or that impact prior period financial statements.

On February 7, 2016, Seaboard’s Pork segment acquired hog inventory, a feed mill, truck washes and certain hog farms in the Central U.S. from Christensen Farms & Feedlots, Inc. and Christensen Farms Midwest, LLC for total cash consideration of $148 million. Seaboard had previously agreed to provide a portion of the hogs to be processed at the new pork processing facility being developed through STF LLC, as discussed in Note 7 to the Condensed Consolidated Financial Statements. With this purchase, Seaboard will increase its sow herd to meet the majority of such supply commitment for single shift processing at the new plant. Seaboard anticipates buying additional hog inventory and related assets during 2016 to fulfill the remaining amount of such hog supply commitment.

The purchase was recorded at fair value in Seaboard’s Pork segment and the allocation of the purchase price was as follows:



(Millions of dollars)
Inventories	$	33
Property, plant and equipment		111
Intangible assets		1
Goodwill		3
Total consideration transferred	$	148

Intangible assets include customer relationships that have a weighted-average useful life of 1.6 years. Goodwill represents the farms’ established processes, workforce and close proximity to the Sioux City, Iowa, processing plant.

Operating results have been included in Seaboard’s Condensed Consolidated Financial Statements from the date of acquisition. Net sales of $34 million and $54 million and an immaterial amount of net income were recognized during the three and six months ended July 2, 2016, respectively. Acquisition costs were less than $1 million.

The following unaudited pro forma information presents the combined consolidated financial results for Seaboard as if the acquisition had been completed at the beginning of January 1, 2015.



	Three months ended				Six months ended
		July 2,		July 4,	July 2,		July 4,
(Millions of dollars except per share amounts)		2016		2015	2016		2015
Net sales	$	1,357	$	1,469	$	2,692	$	2,958
Net earnings	$	80	$	36	$	135	$	68
Earnings per common share	$	68.34	$	30.46	$	114.25	$	57.71

The CT&M segment has a 50% noncontrolling interest in a bakery located in the Democratic Republic of Congo (“DRC”), which began operations in 2012. As a result of continuing equipment problems, other production challenges and unfavorable local market conditions causing operating losses and challenges in gaining market share, Seaboard recorded a write-down of $11 million in loss from affiliate in the fourth quarter of 2014, which represented the remaining equity investment in this business. There was no tax benefit from this transaction. As part of its original investment, Seaboard has an interest bearing long-term note receivable from this affiliate. During the second quarter of 2016, Seaboard reached an agreement with the other owner to restructure this note receivable by extending the maturity 18 months to June 2022 and changing the bi-annual payments to monthly payments of varying amounts beginning in the fourth quarter of 2016. In addition to the debt restructuring, certain events occurred during the second quarter, including the bakery’s failure to meet cash flow forecasts due to significant equipment updates that did not accomplish the intended improvement in quality and consistency of the bread, that caused new bakery management to reevaluate the business plan and the production and profitability forecast. The new forecasts and the restructuring of the debt resulted in Seaboard recording a reserve of $11 million in bad debt expense within selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income. There was no tax benefit from this transaction. As of July 2, 2016, the recorded balance of this note was $24 million, all classified as long-term. If the future long-term cash flows of this bakery do not improve and updated forecasted cash flow projections are not met, more of the recorded value of the note receivable from affiliate could be deemed uncollectible in the future, which could result in a material charge to earnings. Including this business, as of July 2, 2016, Seaboard had a total of $50 million of investments in, advances to and notes receivable from all of its affiliates in the DRC, which represent the single largest foreign country risk exposure of Seaboard’s equity method investments. One of the other affiliates in the DRC, to which Seaboard sells wheat, is the only supplier of flour to this bakery.

The CT&M segment also has a 50% noncontrolling interest in a flour production business in Brazil. Since September 2013, Seaboard has contributed a total of $63 million in investments and advances, and provided a $13 million long-term loan to this business. Half of the interest on this long-term note receivable from affiliate is payable currently in cash and the other half accrues as pay-in-kind interest. This note receivable matures in September 2020 but can be repaid with Seaboard having the option to convert the note receivable to equity and the other equity holders having the option to match such conversion with a purchase of new shares to avoid dilution. 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, as this entity’s functional currency is the Brazilian real. Based on discussions with the business’s other 50% shareholder and the executive management of the business, the extent of the losses and revised financial forecast of the business economy, the halting of the construction plans for a new plant and the amount of existing third-party debt, Seaboard previously reserved a total of $22 million related to its advances and long-term note receivable. Third-party debt was $19 million and $16 million as of July 2, 2016 and December 31, 2015, respectively. In total, Seaboard’s investment in the business, advances and long-term note receivable are zero as of July 2, 2016. Seaboard is in discussions with the other shareholder to revise the Shareholders Agreement, and, if finalized, Seaboard would obtain control of the business and the entity would become consolidated. However, there is no certainty that Seaboard will successfully be able to obtain control. Seaboard also had a gross trade receivable due from affiliate related to this business resulting from sales of grain and supplies of $21 million and $17 million as of July 2, 2016 and December 31, 2015, respectively, which Seaboard recorded a reserve of $9 million during 2015 based on an analysis of collectability and working capital.

During the first quarter of 2016, the CT&M segment provided a $12 million loan to a Peruvian affiliate. Interest is payable monthly, and the principal is due on August 31, 2017, with no prepayment penalty. The balance of this long-term note receivable was $6 million as of July 2, 2016.

During the first quarter of 2016, Seaboard invested $7 million of cash and converted its $8 million note receivable to equity for a 36% noncontrolling interest in a holding company that owns a controlling interest in two Haitian start-up projects consisting of a marine terminal operation and a free trade zone development, which includes a planned power plant. The investment is accounted for in the Marine segment using the equity method and reported on a three-month lag. Seaboard’s first proportionate share of income (loss) from affiliates was recognized in the second quarter of 2016.

During the second quarter of 2015, the Power segment invested an additional $10 million in a business operating a 300 megawatt electricity generating facility in the Dominican Republic and changed its method of accounting from a cost method investment to an equity method investment. This change in accounting required Seaboard to present its prior period financial results to reflect the equity method of accounting from the date of the initial investment. Seaboard's portion of the investee’s loss for the three months ended April 4, 2015 was not material.

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball, LLC (“Butterball”). As of July 2, 2016 and December 31, 2015, Butterball had total assets of $1,146 million and $1,087 million, respectively. Butterball’s summarized income statement information is as follows:



	Three Months Ended				Six Months Ended
		July 2,		July 4,		July 2,		July 4,
(Millions of dollars)		2016		2015		2016		2015
Net sales	$	391	$	390	$	776	$	788
Operating income	$	44	$	51	$	89	$	94
Net income	$	34	$	44	$	72	$	76

In connection with its initial investment in Butterball in December 2010, Seaboard provided Butterball with a $100 million unsecured subordinated loan with a seven-year maturity and interest of 15% per annum, comprised of 5% payable in cash semi-annually, plus 10% pay-in-kind interest, compounded semi-annually, which accumulates and is paid at maturity. Also in connection with providing the subordinated loan, Seaboard received detachable warrants, which upon exercise for a nominal price, would enable Seaboard to acquire an additional 5% equity interest in Butterball. In January 2016, the interest on the subordinated loan was modified to 10% per annum, payable only in cash semi-annually and the warrants were also modified, whereby Seaboard can exercise these warrants at any time after December 31, 2018 or prior to December 31, 2025 after which time the warrants expire.

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 losses 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 2,		July 4,		July 2,		July 4,
(Millions of dollars)	2016		2015		2016		2015
Pork	$	359	$	331	$	687	$	652
Commodity Trading and Milling		707		779		1,416		1,599
Marine		232		242		459		479
Sugar		36		45		69		90
Power		19		28		36		53
All Other		4		3		9		7
Segment/Consolidated Totals	$	1,357	$	1,428	$	2,676	$	2,880



Operating Income (Loss):	Three Months Ended				Six Months Ended
	July 2,		July 4,		July 2,		July 4,
(Millions of dollars)	2016		2015		2016		2015
Pork	$	50	$	19	$	79	$	35
Commodity Trading and Milling		19		8		28		12
Marine		7		5		10		12
Sugar		2		1		2		5
Power		2		4		2		7
All Other		1		—		1		—
Segment Totals		81		37		122		71
Corporate		(5)		(5)		(10)		(11)
Consolidated Totals	$	76	$	32	$	112	$	60



Income (Loss) from Affiliates:	Three Months Ended				Six Months Ended
	July 2,		July 4,		July 2,		July 4,
(Millions of dollars)	2016		2015		2016		2015
Pork	$	4	$	4	$	7	$	6
Commodity Trading and Milling		(11)		(16)		(15)		(25)
Marine		—		—		1		1
Sugar		—		—		1		—
Power		—		1		1		1
Turkey		18		23		38		40
Segment/Consolidated Totals	$	11	$	12	$	33	$	23



Total Assets:	July 2,		December 31,
(Millions of dollars)	2016		2015
Pork	$	1,026	$	858
Commodity Trading and Milling		903		988
Marine		313		296
Sugar		176		202
Power		199		271
Turkey		483		448
All Other		6		6
Segment Totals		3,106		3,069
Corporate		1,321		1,362
Consolidated Totals	$	4,427	$	4,431



Investments in and Advances to Affiliates:	July 2,		December 31,
(Millions of dollars)	2016		2015
Pork	$	146	$	115
Commodity Trading and Milling		207		218
Marine		35		19
Sugar		3		3
Power		35		34
Turkey		316		282
Segment/Consolidated Totals	$	742	$	671

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 for general corporate management oversight costs. Corporate assets include short-term investments, other current assets related to deferred compensation plans, fixed assets, deferred tax amounts 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.