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 product 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 U.S. 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 seller.

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 an experienced workforce. The intangible assets and goodwill are not deductible for income tax purposes.

Certain Mimran entities acquired will be accounted for on a three-month lag and sales, and net earnings from these entities’ operations will be reflected in the second quarter of 2018 results. Net sales of $44 million and net income of $5 million, for Mimran entities not on a lag, were recognized in Seaboard’s condensed consolidated financial statements from the date of acquisition. 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
	March 31,		April 1,
(Millions of dollars except per share amounts)	2018		2017
Net sales	$	1,639	$	1,463
Net earnings	$	36	$	91
Earnings per common share	$	30.46	$	76.78

Also during the first quarter of 2018, Seaboard’s CT&M segment invested total consideration of $18 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 will be accounted for using the equity method of accounting and reported on a three-month lag. Seaboard’s first proportionate share of income (loss) from affiliates will be 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 a principal and interest balance of approximately $13 million and $15 million at March 31, 2018 and December 31, 2017, 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. Beginning with the third quarter of 2017, Seaboard has recorded this entity’s current period losses against the note receivable and the losses were $2 million for the first quarter of 2018. 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 Marine segment has a 36% noncontrolling interest in a holding company that owns a Caribbean start-up 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 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. 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 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 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 March 31, 2018 and December 31, 2017, Butterball had total assets of $1,061 million and $999 million, respectively. Butterball’s summarized income statement information was as follows:



	Three Months Ended
		March 31,		April 1,
(Millions of dollars)		2018		2017
Net sales	$	321	$	350
Operating income	$	2	$	10
Net income	$	2	$	5

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 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
	March 31,		April 1,
(Millions of dollars)	2018		2017
Pork	$	466	$	370
Commodity Trading and Milling		786		727
Marine		249		234
Sugar		51		40
Power		23		24
All Other		4		4
Segment/Consolidated Totals	$	1,579	$	1,399



Operating Income (Loss):	Three Months Ended
	March 31,		April 1,
(Millions of dollars)	2018		2017
Pork	$	92	$	50
Commodity Trading and Milling		11		17
Marine		(4)		3
Sugar		2		3
Power		—		2
All Other		—		—
Segment Totals		101		75
Corporate		(4)		(7)
Consolidated Totals	$	97	$	68



Income (Loss) from Affiliates:	Three Months Ended
	March 31,		April 1,
(Millions of dollars)	2018		2017
Pork	$	(7)	$	—
Commodity Trading and Milling		(2)		4
Marine		—		(6)
Sugar		—		—
Power		2		—
Turkey		1		3
Segment/Consolidated Totals	$	(6)	$	1



Total Assets:	March 31,		December 31,
(Millions of dollars)	2018		2017
Pork	$	1,386	$	1,309
Commodity Trading and Milling		1,431		964
Marine		347		376
Sugar		175		197
Power		190		188
Turkey		311		315
All Other		6		4
Segment Totals		3,846		3,353
Corporate		1,409		1,808
Consolidated Totals	$	5,255	$	5,161



Investments in and Advances to Affiliates:	March 31,		December 31,
(Millions of dollars)	2018		2017
Pork	$	224	$	231
Commodity Trading and Milling		259		240
Marine		29		28
Sugar		4		4
Power		39		38
Turkey		311		310
Segment/Consolidated Totals	$	866	$	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.