SEABOARD CORP /DE/ (SEB)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes in Item 8. Certain statements in this report contain forward-looking statements. See the introduction in Item 1 for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

OVERVIEW

Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations of commodity prices and changes in global political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and varying geographic locations, management independently evaluates each segment’s operations. Seaboard’s reporting segments are based on information used by Seaboard’s CEO, in his capacity as chief operating decision maker, to determine allocation of resources and assess performance. During 2024, Liquid Fuels became a separate reportable segment, and the former Sugar and Alcohol segment became part of All Other. The historical periods presented have been recast to reflect these changes. See Note 13 to the consolidated financial statements for further discussion of this segment change.

Pork Segment

The Pork segment primarily produces hogs to process and sells pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost of raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a significant cost factor. As a result, commodity price fluctuations can affect profitability and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 47% of Seaboard’s total fixed assets and approximately 39% of total inventories as of December 31, 2024. With the plant generally operating near capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher margin value-added products. This segment also produces swine-derived renewable natural gas, but sales are not significant as most sites are in the early stages of operation. Consistent production at each site may take longer than expected as it is dependent upon a number of variables, including the maturity and volatile solid concentration of the lagoon, weather, hog health and methanogen health.

CT&M Segment

The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of its sales are derived from sourcing agricultural commodities from multiple origins and delivering them to third-party and affiliate customers in various international locations. This segment’s sales are significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions. Profit margins are sometimes protected through commodity derivatives and other risk management practices, but the execution of these purchase and delivery transactions have long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 41% of Seaboard’s total inventories as of December 31, 2024. Consolidated subsidiaries and non-consolidated affiliates operate the grain processing facilities in foreign countries that are, in most cases, lesser developed and are more likely to be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates.

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Marine Segment

The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, freight rates can fluctuate depending on regional supply and demand for shipping services. Since this segment time-charters ocean cargo vessels, it is affected by fluctuations in charter hire rates.

Liquid Fuels Segment

The Liquid Fuels segment produces biodiesel and renewable diesel and generates related environmental credits, specifically LCFS credits and RINs, which are then sold to third parties. The profitability of this segment is impacted by world oil prices, the market prices of pork fat, other animal fats and vegetable oils, all of which are utilized to produce biodiesel and renewable diesel, and by government mandates and incentives to use biofuels and the market price of environmental credits.

Power Segment

The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.

Turkey Segment

The Turkey segment represents Seaboard’s 52.5% non-controlling investment in Butterball, which is accounted for using the equity method. Butterball produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost of raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, price fluctuations for corn and soybean meal affect profitability and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

The primary objectives of Seaboard’s financing strategy are to effectively manage financial risks, ensure efficient liquidity for daily global operations and maintain balance sheet strength. Seaboard’s principal funding sources are generated from operating activities, short-term investments and borrowings from revolving lines of credit and term loans. Seaboard’s cash requirements include funding for working capital, capital expenditures, strategic investments and other needs. Management believes Seaboard’s combination of internally generated cash, liquidity and borrowing capabilities will be adequate to meet all short-term and long-term commitments.

As of December 31, 2024, Seaboard had cash and short-term investments of nearly $1.2 billion and additional total working capital of $0.9 billion. As of December 31, 2024, $97 million of the $1.2 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. During 2022, Seaboard reversed its indefinite reinvestment assertion in connection with certain previously-taxed undistributed earnings of its Seaboard Marine subsidiary due to the tax effectiveness of repatriating. For all other foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. because determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.

The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

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Seaboard had long-term debt of $1.0 billion as of December 31, 2024, which included a Term Loan due 2033 of $963 million. Current maturities of long-term debt were $11 million as of December 31, 2024. The credit agreement governing the Term Loan due 2033 contains customary covenants for credit facilities of this type, including restrictions on the ability to grant liens on assets, incur indebtedness and make certain acquisitions, investments, asset dispositions and dividend payments in excess of specified amounts. Seaboard evaluates opportunities to access efficient financing in the markets where it operates, leveraging low-cost funding to support its operations.

Cash Flows

Cash generated from operating activities was $519 million for the year ended December 31, 2024, compared to $710 million for 2023. The decrease of $191 million in operating cash flows was primarily due to changes in working capital. Cash from working capital was lower due to timing of collections on accounts receivable and less volatility of inventory cost. Operating cash flows during 2024 were also impacted by lower dividend payments of $53 million from two of Seaboard’s equity method investments. The decrease in cash generated from working capital of $417 million was partially offset by the $278 million change in earnings, adjusted for non-cash items.

Cash used in investing activities was $484 million for the year ended December 31, 2024, compared to $273 million for 2023.  During 2024, Seaboard invested $511 million in property, plant and equipment, of which $299 million was in the Pork segment and $172 million was in the Marine segment. The Pork segment expenditures were primarily to fund renewable biogas recovery projects. At certain hog farms, the Pork segment has renewable biogas recovery facilities to capture methane from its hog lagoons and convert it into renewable natural gas, which is then injected into the local pipeline infrastructure. Some of these sites were placed in service during 2024, while one remains under construction. The Marine segment expenditures primarily related to installment payments on dual-fueled vessels under construction and the funding of other investments. Two vessels were completed and delivered in 2024, and six other dual-fueled vessels are expected to be completed and delivered in 2025. Cash flows from investing activities for short-term investments are part of Seaboard’s overall liquidity management strategy. Short-term investment purchases are a result of the investment of excess cash, asset allocation from the active management of the portfolio and reinvestment of matured securities.

Cash provided by financing activities was $12 million for the year ended December 31, 2024, compared to cash used in financing activities of $581 million for 2023. Cash flows from financing activities primarily include draws and repayments under committed and uncommitted revolving facilities held with financial institutions across multiple jurisdictions and currencies. There has been significant activity in drawing and repaying lines of credit, with the funds used for working capital and increased investment in capital expenditures. As previously disclosed, during 2023, Seaboard repurchased an aggregate of 189,724 shares of its common stock from certain affiliates in a privately negotiated transaction at a price below the traded market price for an aggregate purchase price of $600 million. The share repurchase was negotiated and approved by a special committee of Seaboard’s Board of Directors, comprised solely of disinterested, independent directors. The special committee was advised by independent legal counsel and an independent financial advisor, and received a fairness opinion from its independent financial advisor regarding the repurchase. The U.S. excise taxes incurred as part of the transaction were paid during 2024.

Capital Expenditures and Other Investments

Seaboard continues to make investments in its operations. The total budget for 2025 capital expenditures is approximately $630 million, with approximately $290 million planned in the Marine segment, primarily for vessels under construction, and approximately $215 million planned in the Pork segment. Management anticipates funding these capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

Also, as of December 31, 2024, Seaboard committed to invest approximately $35 million in certain long-term investments in 2025, primarily real estate-related. Based on specific facts and circumstances, Seaboard may also fund capital calls and issue borrowings for its equity method investments.

Seaboard continues to look for opportunities to further grow and diversify its operations, but there are no definitive plans for additional acquisitions at this time. Management intends to utilize existing liquidity, available borrowing capacity and other financing alternatives to fund these opportunities. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard’s financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous.

Future Contractual Obligations

Other than those obligations discussed above, future obligations mostly include normal operating expenses. For operating and finance leases, Seaboard had a current undiscounted obligation of $191 million and a long-term undiscounted obligation of $418 million as of December 31, 2024; see Note 5 to the consolidated financial statements for further

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discussion on leases. The majority of Seaboard’s purchase commitments for materials or supplies are related to hog, grain, freight and fuel procurement contracts with a current obligation of approximately $1.3 billion and a long-term obligation of approximately $576 million as of December 31, 2024; see Note 8 to the consolidated financial statements for further discussion on commitments. Also, Seaboard is subject to obligations under its existing defined benefit pension plans. As of December 31, 2024, the unfunded status of all plans was $24 million. For additional information about Seaboard’s pension plans, see Note 9 to the consolidated financial statements.

RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2024, 2023 and 2022 were $9.1 billion, $9.6 billion and $11.2 billion, respectively. The decrease in sales of $500 million for 2024 compared to 2023 primarily reflected a $422 million decrease in CT&M segment sales due to lower prices of commodities. The decrease of $1.6 billion for 2023 compared to 2022 primarily reflected a sales decline of $1.2 billion in the CT&M segment due to lower prices and volumes of commodities sold and a sales decline of $544 million in the Marine segment due to lower cargo volumes and freight rates. See the net sales discussion by reportable segment below for more details.

Operating income (loss) for the years ended December 31, 2024, 2023 and 2022 was $156 million, ($87) million and $657 million, respectively. The increase in operating income of $243 million for 2024 compared to 2023 primarily reflected an increase in operating income of $475 million in the Pork segment due to higher margins on the sale of pork products and market hogs, partially offset primarily by a decrease in operating income of $146 million in the Marine segment due to lower voyage revenue. The decrease of $744 million for 2023 compared to 2022 primarily reflected a decrease in operating income of $395 million in the Pork segment due to lower margins on the sale of pork products and market hogs and a decline in operating income of $363 million in the Marine segment due to lower voyage revenue. See the operating income discussion by reportable segment below for more details.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $17 million for the year ended December 31, 2024 compared to 2023. The increase was primarily due to higher personnel costs, partially offset by the $10 million adjustment to the contingent consideration liability recorded during 2023. SG&A expenses for the year ended December 31, 2023 increased $30 million compared to 2022. The increase was primarily due to higher personnel costs, including $7 million for the deferred compensation program, and an adjustment of the contingent consideration liability of $10 million.

Interest Expense

Interest expense increased $14 million for the year ended December 31, 2024 compared to 2023 primarily due to higher interest rates on more outstanding debt, partially offset by an increase of $7 million in capitalized interest on construction in progress. In November 2023, Seaboard amended its Term Loan Credit Agreement and increased the principal amount from $700 million to $975 million. Interest expense increased $18 million for the year ended December 31, 2023 compared to 2022 primarily due to higher interest rates on outstanding debt, partially offset by an increase of $13 million in capitalized interest on construction in progress.

Interest Income

Interest income increased $6 million for the year ended December 31, 2024 compared to 2023 and $30 million for the year ended December 31, 2023 compared to 2022 primarily due to higher interest rates on short-term investments.

Other Investment Income (Loss), Net

Other investment income, net decreased $66 million for the year ended December 31, 2024 compared to 2023. The decrease was primarily due to less unrealized mark-to-market gains on short-term investments. Other investment income, net increased $324 million for the year ended December 31, 2023 compared to 2022. The increase was primarily due to unrealized mark-to-market gains on short-term investments and a $46 million charge recorded during 2022 related to a long-term solar energy investment.

Income Tax Benefit (Expense)

The 2024 effective tax rate was higher than the 2023 effective tax rate primarily due to recording a $212 million valuation allowance on U.S. deferred tax assets. Seaboard has a history of using tax credits before they expire, and although U.S. generally accepted accounting principles (“GAAP”) required Seaboard to record a valuation allowance based on past results, management currently believes that these deferred tax assets will be realized in the future over time before they expire, although there can be no assurance as to the timing or if these will be realized at all. Seaboard’s federal tax credits have long carryforward periods that expire between 2042 and 2044. Despite recent pre-tax book losses in the U.S. operations as a result of challenging commodity conditions, Seaboard has no federal net operating loss carryforwards. The 2023 effective tax rate was lower than the 2022 effective tax rate primarily due to lower earnings, more federal tax credits and a larger state tax benefit due to higher domestic losses. See Note 12 to the consolidated financial statements for further information on Seaboard’s income taxes.

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In 2021, the OECD released Pillar Two as part of its Base Erosion and Profit Shifting initiative. The rules are designed to ensure large multinational companies pay a minimum level of tax on the income arising in each jurisdiction where they operate. The adoption and effective dates of these rules vary by country and the rules include some temporary safe harbors. Several countries in which Seaboard operates enacted Pillar Two laws in 2024, but the impact was not material to Seaboard. Additional countries in which Seaboard has operations have adopted Pillar Two rules effective in 2025. Overall, Seaboard will incur incremental income taxes related to Pillar Two due to operations in jurisdictions with effective tax rates that were lower than 15% prior to implementing the new rules, including but not limited to Isle of Man, the Bahamas and Monaco. Based on preliminary calculations, Seaboard does not expect additional tax cost of Pillar Two to be material in 2025. Seaboard will continue to monitor legislative developments related to Pillar Two in the countries in which it operates and the potential impact on future results.

Segment Results

See Note 13 to the consolidated financial statements for a reconciliation of net sales and operating income by reportable segment to consolidated net sales and consolidated operating income, respectively.

Pork Segment

The increase in net sales for the year ended December 31, 2024 compared to 2023 was driven by higher volumes and prices of pork products sold which increased sales $128 million and $40 million, respectively, and higher prices and volumes of market hogs sold which increased sales $19 million and $16 million, respectively. Sales associated with the renewable natural gas sites increased due to more production, but are currently not significant. Most renewable natural gas sites are in the early stages of operations and production is dependent upon the maturity of the lagoons.

The increase in operating income for the year ended December 31, 2024 compared to 2023 reflected higher margins on pork products and market hogs sold, primarily due to higher sale prices and lower hog production costs, including lower feed costs of $181 million, and to a lesser extent, a decrease in legal expenses. Also, inventory adjustments to the lower of cost and net realizable value (“LCNRV”) reserve resulted in an increase of $42 million in operating income based on a comparison of changes to the reserve per market prices at each respective period end. Inventory adjustments to the LCNRV reserve were necessary since the third quarter of 2022 to properly state the hog inventory balances at quoted future market prices for pork products and grain costs. With more favorable pork prices and lower grain commodity costs, the LCNRV reserve was not needed as of December 31, 2024. While management anticipates this segment to be profitable in 2025, it is difficult to predict market prices for pork products, the cost of feed or third-party hogs for future periods.

The decrease in net sales for the year ended December 31, 2023 compared to 2022 was due to lower market prices of pork products and market hogs sold which decreased sales $228 million, partially offset by higher volumes of pork products sold that increased sales $37 million.

The decrease in operating income for the year ended December 31, 2023 compared to 2022 primarily reflected $392 million in lower margins on pork products and market hogs due to lower sales prices and higher hog production costs, including higher feed costs of $98 million, and to a lesser extent, an increase in legal expense, partially offset by a decrease in adjustments to the LCNRV inventory reserve of $41 million.

CT&M Segment

Net sales decreased for the year ended December 31, 2024 compared to 2023 primarily due to lower average sales prices of commodities sold, which decreased sales $973 million, partially offset by higher volumes, which increased sales

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$551 million. Sales prices for many of Seaboard’s products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces.

Operating income decreased for the year ended December 31, 2024 compared to 2023 primarily due to lower margins driven by $22 million in mark-to-market losses on derivative contracts, partially offset by a $10 million contingent consideration liability adjustment recorded in the prior year. While management anticipates positive operating income, excluding the effects of mark-to-market adjustments, for this segment in 2025, it is difficult to predict worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates and the volatility in the commodity markets for future periods.

Income from affiliates increased for the year ended December 31, 2024 compared to 2023. CT&M’s investments in affiliates are represented by numerous milling, feed and protein affiliates, with no individual investment representing a material fluctuation. The increase was primarily due to higher margins driven by lower commodity costs.

Net sales decreased for the year ended December 31, 2023 compared to 2022 primarily due to lower average sales prices, which decreased sales $619 million, and lower volumes as a result of increased competition and market dynamics, which decreased sales $532 million.

Operating income decreased for the year ended December 31, 2023 compared to 2022. Margins increased slightly year over year primarily due to lower commodity costs but were offset by a $10 million adjustment to the contingent consideration liability.

Income from affiliates decreased for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to several entities challenged with lower margins due to higher costs and competition, with no individual investment representing a material fluctuation.

Marine Segment

The decrease in net sales for the year ended December 31, 2024 compared to 2023 was primarily due to an overall decline in average freight rates driven by competitive pressures, partially offset by an increase in cargo volumes. Cargo volumes increased 7% for the year ended 2024 as compared to the year ended 2023.

The decrease in operating income for the year ended December 31, 2024 compared to 2023 was primarily the result of lower voyage revenue and increases in stevedoring and terminal costs, attributable to increased cargo volumes and rates. While management anticipates this segment will be profitable in 2025, it is difficult to predict changes in fuel costs or other voyage-related costs, cargo volumes or cargo rates for future periods.

The decrease in net sales for the year ended December 31, 2023 compared to 2022 was primarily due to an overall decline in both cargo volumes and freight rates as a result of a general decrease in demand for ocean transportation services. Cargo volumes decreased 17% for the year ended 2023 compared to the year ended 2022.

The decrease in operating income for the year ended December 31, 2023 compared to 2022 was primarily the result of lower voyage revenue, partially offset by lower voyage-related costs, such as slot costs, terminal services, trucking costs and fuel costs, due to the lower cargo volumes and fuel prices.

Liquid Fuels Segment

The decrease in net sales for the year ended December 31, 2024 compared to 2023 reflected lower market prices of environmental credits and fuel sold of $146 million and $25 million, respectively, partially offset by an increase in the volume of fuel sold of $35 million as the renewable diesel plant had more consistent production. Average LCFS and RIN credit market values decreased 17% and 56%, respectively, compared to 2023.

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The increase in operating loss for the year ended December 31, 2024 compared to 2023 primarily reflected lower environmental credit sales and lower margins on fuel sold. Product margins were insignificant after declining selling prices. While management anticipates this segment will be near break-even in 2025, it is difficult to predict market prices for biodiesel, renewable diesel, environmental credits or the cost of feedstocks for future periods.

With the passing of the Inflation Reduction Act of 2022, the federal blender’s credits expired December 31, 2024, and a new clean fuel production credit replaced the federal blender’s credits starting in 2025. Regulatory guidance to implement the new credit was issued in early 2025, and the value varies based on the greenhouse gas emissions factor of fuel produced and sold. This clean fuel production credit will be less than the federal blender’s credit, but Seaboard is still evaluating the new guidance and the impact it will have on its financial statements. The federal blender’s credits included in sales were $125 million and $103 million for the years ended December 31, 2024 and 2023, respectively.

The increase in net sales for the year ended December 31, 2023 compared to 2022 was primarily due to a $276 million increase in volumes sold from the renewable diesel plant in Hugoton, Kansas, which began operations in the third quarter of 2022. This increase was partially offset by lower market prices of fuel sold of $116 million and lower environmental credit sales of $69 million due to timing.

The increase in operating loss for the year ended December 31, 2023 compared to 2022 reflected lower product margins, driven by lower sales prices. This decrease was partially offset with no mark-to-market derivative contract losses for 2023 compared to $35 million in 2022.

Power Segment

The increase in net sales for the year ended December 31, 2024 compared to 2023 reflected a slight increase in power generation, partially offset by lower spot market rates due to lower fuel prices.

The decrease in operating income for the year ended December 31, 2024 compared to 2023 was primarily a result of an increase in maintenance costs. While management anticipates this segment will be profitable in 2025, it is difficult to predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods.

The increase in net sales for the year ended December 31, 2023 compared to 2022 was primarily driven by more power generation from EDM III, which began operations in June 2022, contributing to an increase in sales of $60 million.

The increase in operating income for the year ended December 31, 2023 compared to 2022 was due to more revenue generated primarily from EDM III’s operations, partially offset primarily by an increase in fuel costs of $12 million and other costs related to EDM III.

Turkey Segment

The Turkey segment represents Seaboard’s non-controlling 52.5% investment in Butterball, which is accounted for using the equity method. The decrease in Butterball’s net income of $95 million for the year ended December 31, 2024 compared to 2023 was primarily the result of lower sales of $141 million due to weaker pricing, partially offset by a decrease in production costs, primarily attributable to lower feed costs. The average selling price decreased 8% for the year ended December 31, 2024 compared to 2023, primarily due to lower market prices. Sales volumes did not have a significant impact on the results. While management anticipates this segment will be profitable in 2025, it is difficult to predict market prices for turkey products or the cost of feed for future periods. Butterball’s closure of a further-processing plant in Jonesboro, Arkansas, effective February 3, 2025, is not expected to have a material impact on net income in 2025.

The decrease in Butterball’s net income of $30 million for the year ended December 31, 2023 compared to 2022 was primarily the result of income recorded in 2022 related to a $21 million gain on the sale of businesses and $11 million of mark-to-market gains on interest-rate swap agreements that were terminated in 2022. The decrease was partially offset by

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higher margins with a stronger mix of value-added products sold and production efficiencies. Volumes sold decreased 7% for the year ended December 31, 2023 compared to 2022.

CRITICAL ACCOUNTING ESTIMATES

The preparation of Seaboard’s consolidated financial statements requires management to make estimates, judgments and assumptions. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard’s financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Realizability of Deferred Tax Assets – Recording income taxes requires judgment in the use of assumptions and estimates. As of each reporting date, management considers new information that could affect its conclusions regarding the future realization of Seaboard’s deferred tax assets. In evaluating Seaboard’s ability to recover deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the deferred tax assets. Seaboard might rely more on forecasts in the future for certain evidence and given the inherent uncertainty involved, there can be significant differences between anticipated and actual results. Unforeseen events may significantly impact forecasts or actual results, and these changes could have a material impact on Seaboard’s income taxes. Since the evaluation requires consideration of events that may occur some years into the future, significant judgment is required, and management’s conclusion could be materially different if certain expectations do not materialize.

During the third quarter of 2024, after considering U.S. pre-tax book income and the effects of permanent differences, Seaboard’s U.S. operations were in a historical three-year cumulative loss position, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Under U.S. GAAP, the presence of a three-year cumulative loss limits Seaboard’s ability to consider other subjective evidence, such as its expectations of future taxable income and projections of growth. As of December 31, 2024, Seaboard had a valuation allowance of $242 million which could reverse in future periods when positive sufficient evidence is achieved. Seaboard’s valuation allowance and related charge to expense increased $212 million during the year ended December 31, 2024. A reversal would result in a benefit to income taxes and an increase in net income during the applicable period in which the allowance is reversed. A valuation allowance is maintained on deferred tax assets until there is sufficient evidence to support the reversal of the allowance.

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would have an immaterial impact on pension expense. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods if they exceed the 10% corridor and therefore could affect Seaboard’s recognized pension expense in such future periods as permitted under U.S. GAAP. See Note 9 to the consolidated financial statements for discussion of the pension rates and assumptions.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 to the consolidated financial statements for a discussion of recently issued accounting standards.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes in Item 8. Certain statements in this report contain forward-looking statements. See the introduction in Item 1 for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

OVERVIEW

Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations of commodity prices and changes in global political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and a different geographic location, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s CEO in his capacity as chief operating decision maker to determine allocation of resources and assess performance.

Pork Segment

The Pork segment primarily produces hogs to process and sells pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. As a result, commodity price fluctuations can affect profitability and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 63% of Seaboard’s total fixed assets and approximately 52% of total inventories as of December 31, 2023. With the plant generally operating near capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher margin value-added products. This segment produces biodiesel and renewable diesel and related credits for sale to third parties. Sales prices are affected by the supply and demand of diesel and environmental credit initiatives. This segment also produces renewable natural gas, but Seaboard does not expect its sales to be significant in 2024 as just a few sites are operational and production is dependent upon maturity of the lagoons.

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CT&M Segment

The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of its sales are derived from sourcing agricultural commodities from multiple origins and delivering them to third-party and affiliate customers in various international locations. This segment’s sales are significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions. Profit margins are sometimes protected through commodity derivatives and other risk management practices, but the execution of these purchase and delivery transactions has long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 41% of Seaboard’s total inventories as of December 31, 2023. Consolidated subsidiaries and non-consolidated affiliates operate the grain processing facilities in foreign countries that are, in most cases, lesser developed and can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates.

Marine Segment

The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, freight rates can fluctuate depending on regional supply and demand for shipping services. Since this segment time-charters ocean cargo vessels, it is affected by fluctuations in charter hire rates as well as fuel costs.

Sugar and Alcohol Segment

The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. This segment’s sales and operating income are significantly affected by local sugar and alcohol prices, domestic sugar production levels and government regulations on local prices. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows.

Power Segment

The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.

Turkey Segment

The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can affect profitability and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations in both the short-term and long-term.

Liquidity includes cash and cash equivalents, short-term investments and available borrowing capacity under line of credit facilities. As of December 31, 2023, Seaboard had cash and short-term investments of nearly $1.0 billion and additional total working capital of $1.0 billion. The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

Seaboard’s available borrowing capacity increased $403 million from December 31, 2022. Seaboard’s committed line of credit agreement was amended and restated during the first quarter of 2023, increasing the committed borrowing capacity from $250 million to $450 million.

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Seaboard’s liquidity was not significantly impacted by the common stock repurchase transaction that occurred during the fourth quarter of 2023, which is further discussed in the Financing Activities section below. On the day of closing, Seaboard incrementally borrowed less than $50 million under its existing credit facilities to fund the repurchase and working capital. The remaining repurchase amount was funded by cash on hand and cash from the sale of short-term investments. Cash and short-term investments as of December 31, 2023 decreased $256 million from December 31, 2022.

Summary of Sources and Uses of Cash

Seaboard’s principal funding source is cash from operating activities and its principal cash requirements primarily include operating expenses and capital expenditures. Cash flows from investing activities for short-term investments are part of Seaboard’s overall liquidity management strategy. Short-term investment purchases are a result of the investment of excess cash, asset allocation from the active management of the portfolio and reinvestment of matured securities.

As of December 31, 2023, $49 million of the $1.0 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. During 2022, Seaboard reversed its indefinite reinvestment assertion in connection with certain previously-taxed undistributed earnings of its Seaboard Marine subsidiary due to the tax effectiveness of repatriating these earnings and recorded a deferred tax liability for federal and state incremental tax costs associated with the repatriation. For all other foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. because determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.

In 2021, the OECD released Pillar Two Model Rules (“Pillar Two”) to address the tax challenges of the digitalization of the economy. The rules under the model are designed to ensure large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate. The rules also include transitional safe harbors which provide temporary exemption of operations in some jurisdictions if certain criteria are met. Some jurisdictions in which Seaboard operates enacted Pillar Two legislation effective in 2024, but the impact will not be material to Seaboard in 2024. Seaboard will continue to monitor legislative developments across relevant jurisdictions and the potential impact on future results.

Cash Flows from Operating Activities

Cash provided by operating activities increased $34 million for the year ended December 31, 2023, compared to the same period in 2022. Seaboard’s net earnings, adjusted for non-cash items, decreased $642 million, but Seaboard had positive cash flow from changes in certain assets and liabilities of $615 million including positive working capital cash flow changes of $526 million. The working capital changes primarily reflected a decrease in accounts receivable due to lower revenues, a decrease in inventories due to lower commodity prices, and a decrease in accounts payable due to timing of payments on purchases. Cash flows from dividends received from affiliates increased $77 million primarily related to distributions received from Butterball.

During 2023, Seaboard paid $30 million to settle a contingent consideration liability related to a 2018 acquisition; cash flows from financing activities include $14 million recognized at the 2018 acquisition date and cash flows from operating activities include $16 million, which is the settlement amount in excess of the liability amount recognized at the acquisition date.

Capital Expenditures, Acquisitions and Other Investing Activities

During 2023, Seaboard invested $506 million in property, plant and equipment, of which $361 million was in the Pork segment and $121 million was in the Marine segment. The Pork segment expenditures were primarily to fund renewable biogas recovery projects and maintenance and investment of the renewable diesel plant. At certain hog farms, the Pork segment is constructing renewable biogas recovery facilities to capture methane from its hog lagoons and inject it as renewable natural gas into the local pipeline infrastructure. The Marine segment expenditures primarily related to the purchase of a used vessel, deposits and installment payments on dual-fuel vessels under construction and the funding of other investments.

The total budget for 2024 capital expenditures is approximately $555 million, with $293 million planned in the Pork segment and $206 million in the Marine segment. The Pork segment’s budget primarily includes normal replacement of breeding herd, completion of certain renewable biogas recovery projects, and other investments. The Marine segment’s budget primarily includes continued installment payments on eight vessels under construction. The payments for these vessels are made in accordance with milestones achieved throughout construction. Three vessels are expected to be

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complete in 2024 and five vessels are expected to be complete in 2025. As of December 31, 2023, long-term capital expenditure cash requirements for these vessels are approximated to be $173 million in 2024 and $169 million in 2025. Management anticipates funding the capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

Seaboard acquired businesses in 2022 and 2021 and intends to continue to look for opportunities to further grow and diversify its operations, but there are no definitive plans for additional acquisitions at this time. Management intends to utilize existing liquidity, available borrowing capacity and other financing alternatives to fund these opportunities. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous.

From time to time, proceeds from the sale of short-term investments may be used to fund capital expenditure purchases, working capital needs or other requirements. For the stock repurchase transaction in 2023, Seaboard sold equity securities and purchased money market funds held in trading accounts. Included in the $2 billion of gross cash flows related to the sale and purchase of short-term investments for 2021 was asset reallocation intended to reduce equity exposure.

Seaboard continues to make long-term investments with $16 million, $117 million and $98 million invested during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, Seaboard is committed to invest approximately $11 million in certain long-term investments in 2024, primarily real-estate related. Seaboard may also fund capital calls and issue borrowings for its equity method investments based on specific facts and circumstances.

Financing Activities

Cash flows from financing activities primarily include draws and repayments on lines of credit. Seaboard’s lines of credit are used to fund working capital and investments in capital expenditures, as needed. During 2023 and 2022, there was a high volume of draws and repayment activity under lines of credit with the draws used to fund working capital and greater investments in capital expenditures. Seaboard had long-term debt of $1.0 billion as of December 31, 2023, which includes a Term Loan due 2033 of $973 million. Current maturities of long-term debt were $11 million as of December 31, 2023. During the fourth quarter of 2023, Seaboard refinanced its long-term debt to increase the principal amount and extend the maturity date. Seaboard received proceeds of $307 million, net of fees, upon closing of the refinancing. See Note 7 to the consolidated financial statements for further discussion of debt.

As previously disclosed, on October 9, 2023, Seaboard entered into three Stock Repurchase Agreements (the “Repurchase Agreements”) with the following three separate counterparties: Seaboard Flour LLC, SFC Preferred, LLC and REP23 LLC (collectively, the “Sellers”). The Sellers are entities affiliated with Ellen S. Bresky, the Chairwoman of Seaboard’s Board of Directors, or other members of the Bresky family (collectively, the “Bresky Group”). The repurchases were proposed by the Sellers in July 2023 to facilitate certain internal family planning and structuring objectives. On October 10, 2023, the closings under the Repurchase Agreements occurred pursuant to which Seaboard repurchased an aggregate of 189,724 shares (the “Shares”) of its common stock, $1.00 par value per share (“Common Stock”), from the Sellers at a purchase price of $3,162.50 per share, representing a 15.7% discount to the 180-day volume, weighted-average trading price of the Common Stock as of October 6, 2023, a 14.9% discount to the 30-day volume, weighted- average trading price of the Common Stock as of October 6, 2023 and a 13.5% discount to closing price of the Common Stock as of October 6, 2023. Seaboard paid an aggregate purchase price of $600 million for the Shares. The Repurchase Agreements were negotiated and approved by a special committee of Seaboard’s Board of Directors (the “Special Committee”), comprised solely of disinterested, independent directors, including the lead independent director. The Special Committee was advised by independent legal counsel and an independent financial advisor. The Special Committee received an opinion from its independent financial advisor as to the fairness of the consideration paid for the Shares from a financial point of view to Seaboard and stockholders unaffiliated with the Bresky Group. The Special Committee’s grant of authority provided that no repurchase or alternative proposed capital return transaction involving Seaboard and the Bresky Group could be consummated without the prior favorable recommendation of the Special Committee.

Future Contractual Obligations

Other than those obligations discussed above, future obligations mostly include normal operating expenses. For operating and finance leases, Seaboard had a current undiscounted obligation of $192 million and a long-term undiscounted obligation of $492 million as of December 31, 2023, see Note 5 to the consolidated financial statements. The majority of Seaboard’s purchase commitments for materials or supplies are related to hog, grain, feedstock and fuel procurement contracts with a current obligation of approximately $1.5 billion and a long-term obligation of approximately $800 million as of December 31, 2023, see Note 8 to the consolidated financial statements. Also, Seaboard is subject to obligations

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under its existing defined benefit pension plans. As of December 31, 2023, the unfunded status of all plans was $78 million. Anticipated employer payments related to the pension and supplemental executive plans in 2024 are $23 million. For additional information about Seaboard’s pension plans, see Note 9 to the consolidated financial statements.

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RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2023, 2022 and 2021 were $9.6 billion, $11.2 billion and $9.2 billion, respectively. The decrease of $1.6 billion for 2023 compared to 2022 primarily reflected a sales decline of $1.2 billion in the CT&M segment due to lower prices and volumes of commodities sold and a sales decline of $544 million in the Marine segment due to lower cargo volumes and freight rates. The increase in net sales of $2 billion for 2022 compared to 2021 primarily reflected higher prices of commodities sold in the CT&M segment of $1.1 billion, and higher freight rates in the Marine segment of $647 million. See the net sales discussion by reportable segment below for more details.

Operating income (loss) for the years ended December 31, 2023, 2022 and 2021 was ($87) million, $657 million and $458 million, respectively. The decrease of $744 million for 2023 compared to 2022 primarily reflected a decline in operating income of $392 million in the Pork segment due to lower margins on the sale of pork products and market hogs, and a decline in operating income of $363 million in the Marine segment due to lower voyage revenue. The increase in operating income of $199 million for 2022 compared to 2021 primarily reflected an increase of $394 million in the Marine segment due to higher voyage revenue, an increase of $90 million in the CT&M segment due to higher margins on certain commodities, partially offset by lower margins on pork product, market hog and biodiesel sales in the Pork segment which decreased operating income by $323 million. See the operating income discussion by reportable segment below for more details.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $30 million for the year ended December 31, 2023 compared to 2022. The increase was primarily due to higher personnel costs including $7 million for the deferred compensation program and an adjustment of the contingent consideration liability discussed above of $10 million. SG&A expenses for the year ended December 31, 2022 increased $13 million compared to 2021. The increase was primarily the result of higher SG&A with no individually significant items, partially offset by lower costs associated with Seaboard’s deferred compensation program of $7 million. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss), net.

Interest Expense

Interest expense increased $18 million for the year ended December 31, 2023 compared to 2022. The increase in interest expense was primarily due to higher interest rates on outstanding debt, partially offset by an increase of $13 million in capitalized interest on construction in progress. Interest expense increased $27 million for the year ended December 31, 2022 compared to 2021. The increase primarily related to higher interest rates on outstanding debt.

Interest Income

Interest income increased $30 million for the year ended December 31, 2023 compared to 2022 and $10 million for the year ended December 31, 2022 compared to 2021. The increase was primarily due to higher interest rates on debt securities.

Other Investment Income (Loss), Net

Other investment income, net increased $324 million for the year ended December 31, 2023 compared to 2022. The increase was primarily due to unrealized mark-to-market gains on short-term investments and a $46 million charge recorded during 2022 related to a long-term solar energy investment. Other investment income, net decreased $372 million for the year ended December 31, 2022 compared to 2021. The decrease primarily reflected mark-to-market losses on short-term investments and the $46 million charge noted above. The charge on this long-term investment was offset with the benefit of the investment tax credits recorded in income tax benefit (expense).

Foreign Currency Gains (Losses), Net

Foreign currency gains, net decreased $9 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to fluctuations in the Zambian kwacha, among fluctuations of other currency exchange rates in several foreign countries. Foreign currency gains, net decreased $11 million for the year ended December 31, 2022 compared to 2021. The decrease primarily reflected fluctuations in the euro, among fluctuations of other currency exchange rates in several foreign countries.

Income Tax Benefit (Expense)

The 2023 effective tax rate was lower than the 2022 effective tax rate primarily due to lower earnings, more federal tax credits and a larger state tax benefit due to higher domestic losses. The 2022 effective tax rate was lower than the 2021

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effective tax rate primarily due to an increase in federal investment tax credits available in 2022 and a change in the mix of foreign and domestic earnings, with foreign earnings generally taxed at lower rates. See Note 12 to the consolidated financial statements for further information on Seaboard’s income taxes.

Segment Results

See Note 13 to the consolidated financial statements for a reconciliation of net sales and operating income by reportable segment to consolidated net sales and consolidated operating income, respectively.

Pork Segment

Net sales for the Pork segment decreased $89 million for the year ended December 31, 2023 compared to 2022. The change was due to a decrease in sales of $228 million for pork products and market hogs due primarily to lower market prices, partially offset by higher volumes of pork products sold that increased sales $37 million. The decrease was partially offset by a $91 million increase in biodiesel and renewable diesel sales and related credits due primarily to a $276 million increase in volumes sold from the renewable diesel plant in Hugoton, Kansas which began operations in the third quarter of 2022, partially offset by a decrease in prices of $116 million and timing of sales of associated credits of $69 million.

Operating income for the Pork segment decreased $432 million for the year ended December 31, 2023 compared to 2022. The decrease primarily reflected $392 million in lower margins on pork products and market hogs due to lower sales prices and higher hog production costs, including higher feed costs of $98 million, and to a lesser extent, an increase in legal expense, partially offset by a decrease in adjustments to the lower of cost and net realizable value (“LCNRV”) inventory reserve of $41 million. An inventory adjustment has been necessary since the third quarter of 2022 to properly state the hog inventory balances at quoted future market prices for pork products and grain costs. Lower biodiesel and renewable diesel margins related to lower sales prices were partially offset with no mark-to-market derivative contract losses for the period compared to $35 million in 2022. Management is unable to predict market prices for pork products, biodiesel, renewable diesel, or related credits, or the costs of feed, third-party hogs or feedstock for future periods, but based on current market conditions, management anticipates the segment's profitability will be near break-even for 2024. Scheduled maintenance and repairs on the renewable diesel plant began in the fourth quarter of 2023 and will not be completed until early 2024, and as a result, renewable diesel operating income for the first quarter of 2024 will be impacted.

Net sales for the Pork segment increased $124 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of an increase in biodiesel sales of $146 million related to higher prices and an increase in the sales of associated credits of $107 million. The increases were partially offset by a decrease in volumes of pork products and market hogs sold resulting in a decrease in sales of $113 million.

Operating income for the Pork segment decreased $323 million for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to lower margins on pork product and market hog sales due to higher costs of hogs, including inventory adjustments of $41 million, and higher feed costs of $130 million, biodiesel-related mark-to-market derivative contract losses of $35 million and higher biodiesel and renewable diesel operational costs of $26 million due to feedstock costs and start-up costs at the Hugoton renewable diesel plant.

Income from affiliates increased $21 million for the year ended December 31, 2022 compared to 2021 due to improved results at STF.

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CT&M Segment

Net sales for the CT&M segment decreased $1.2 billion for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to lower average sales prices, which decreased sales $619 million and lower volumes as a result of increased competition and market dynamics, which decreased sales $532 million. Sales prices for many of Seaboard’s products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces.

Operating income for the CT&M segment decreased $6 million for the year ended December 31, 2023 compared to 2022. Margins increased slightly year over year primarily due to lower commodity costs but were offset by the $10 million adjustment to the contingent consideration liability. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates and the volatility in the commodity markets, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment in 2024, excluding the effects of marked-to-market adjustments.

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $6 million and $7 million in 2023 and 2022, respectively, and higher by $7 million in 2021. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes. Accordingly, while the changes in fair value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these existing marked-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time; therefore, these marked-to-market adjustments could reverse in fiscal 2024. Management believes eliminating these marked-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

Income from affiliates decreased $39 million for the year ended December 31, 2023 compared to 2022. CT&M’s investments in affiliates are represented by numerous milling, feed, protein and trading affiliates, with no individual investment representing a material fluctuation. The decrease was primarily due to several entities challenged with lower margins due to higher costs and competition.

Net sales for the CT&M segment increased $1.1 billion for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher average sales prices of certain commodities of $1.1 billion.

Operating income for the CT&M segment increased $90 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on certain commodities, costs associated with operational changes recorded in 2021 but not repeated in 2022 of approximately $25 million, and derivative contract gains of $7 million in 2022 related to the change in mark-to-market adjustments compared to losses of $7 million in 2021.

Marine Segment

Net sales for the Marine segment decreased $544 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to an overall decline in both cargo volumes and freight rates. Cargo volumes decreased 17% for the year ended 2023 compared to the year ended 2022. The decline in cargo volumes and freight rates is primarily a result of a general decrease in demand for ocean transportation services.

Operating income for the Marine segment decreased $363 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily the result of lower voyage revenue, partially offset by lower voyage-related costs, such as slot costs, fuel costs, terminal services and trucking costs due to the lower cargo volumes, and fuel prices. Management

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cannot predict changes in fuel costs or other voyage-related costs, cargo volumes or cargo rates for future periods; however, management anticipates this segment will be profitable in 2024.

Net sales for the Marine segment increased $647 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher freight rates.

Operating income for the Marine segment increased $394 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher voyage revenue, partially offset by higher voyage-related costs, including charter-hire costs, fuel costs and other operational costs primarily due to increased rates.

Sugar and Alcohol Segment

Net sales for the Sugar and Alcohol segment increased $30 million for the year ended December 31, 2023 compared to 2022. Sugar sales increased $20 million due to higher prices related to lower market supply. Alcohol sales increased $10 million due to higher volumes related to strong demand and higher prices primarily associated with governmental price adjustments.

Operating income for the Sugar and Alcohol segment increased $7 million for the year ended December 31, 2023 compared to 2022. The increase primarily reflected higher margins on sugar sales. Higher sugar sales prices were partially offset by higher production costs primarily due to inflationary pressure and foreign exchange volatility. Management cannot predict local sugar and alcohol prices or the volatility in the currency exchange rate for future periods, and management is uncertain whether this segment will be profitable in 2024.

Net sales for the Sugar and Alcohol segment increased $6 million for the year ended December 31, 2022 compared to 2021. Sugar and alcohol sales increased $10 million, partially offset by lower energy production. Higher sales prices were mostly offset by lower volumes of sugar and alcohol sold due to low inventory levels from recent harvests.

Operating income for the Sugar and Alcohol segment increased $9 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on sugar and alcohol sales.

Power Segment

Net sales for the Power segment increased $79 million for the year ended December 31, 2023 compared to 2022. More power generation from EDM III, that began operations in June 2022, contributed to an increase in sales of $60 million. EDM II, the power-generating barge which began operations in 2012, increased its dispatch volume in 2023 primarily due to improved availability of competitively priced fuel.

Operating income for the Power segment increased $57 million for the year ended December 31, 2023 compared to 2022. The increase was due to more revenue generated primarily from EDM III’s operations, partially offset primarily by an increase in fuel costs of $12 million and other costs related to EDM III. Management cannot predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods; however, management anticipates this segment will be profitable in 2024. While EDM II remains in operation in the Dominican Republic, Seaboard continues to explore strategic alternatives for this barge, including a sale or relocation.

Net sales for the Power segment increased $98 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected more power generation with EDM III also in operation of $76 million, and to a lesser extent, higher spot market rates of $22 million as a result of higher fuel prices.

Operating income for the Power segment increased $23 million for the year ended December 31, 2022 compared to 2021 primarily due to higher revenues, partially offset by higher fuel and other operational costs due to higher prices.

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Turkey Segment

The Turkey segment, accounted for using the equity method, represents Seaboard’s 52.5% investment in Butterball. Income from affiliate decreased $16 million for the year ended December 31, 2023 compared to 2022 as Butterball’s net income decreased $30 million for the year ended December 31, 2023 compared to 2022. The decrease in net income was primarily the result of income recorded in the prior year related to a $21 million gain on the sale of businesses, and $11 million of mark-to-market gains on interest-rate swap agreements that were terminated in 2022. The decrease was partially offset by higher margins with a stronger mix of value-added products sold and production efficiencies. Volumes sold decreased 7% for the year ended December 31, 2023 compared to 2022. Management is unable to predict market prices for turkey products or the cost of feed for future periods; however, management anticipates this segment will be profitable in 2024.

Income from affiliate increased $123 million for the year ended December 31, 2022 compared to 2021 as Butterball’s net income increased $234 million for the year ended December 31, 2022 compared to 2021. The increase in net income was primarily the result of higher revenues of $258 million, primarily due to higher selling prices and strong markets, and gains on the sale of businesses and interest rate-swap agreements of $32 million, slightly offset by higher feed and plant production costs.

CRITICAL ACCOUNTING ESTIMATES

The preparation of Seaboard’s consolidated financial statements requires Seaboard to make estimates, judgments, and assumptions. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimate believed to be the most important to the portrayal of Seaboard’s financial condition and results of operations, and that requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters. Management has reviewed this critical accounting estimate with the Audit Committee of the Board of Directors.

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would have a minimal impact on pension expense. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods, if it exceeds the 10% corridor and therefore, could affect Seaboard’s recognized pension expense in such future periods as permitted under generally accepted accounting principles (“GAAP”). See Note 9 to the consolidated financial statements for discussion of the pension rates and assumptions.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes in Item 8. Certain statements in this report contain forward-looking statements. See the introduction in Item 1 for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

OVERVIEW

Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations in commodity prices and changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and a different geographic location, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s CEO to determine allocation of resources and assess performance, in his capacity as chief operating decision maker.

Pork Segment

The Pork segment primarily produces hogs to process and sells pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. This segment’s profitability is susceptible to commodity price fluctuations and its operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard’s consolidated operating income and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 61% of Seaboard’s total fixed assets and approximately 50% of total inventories as of December 31, 2022. With the plant generally operating near capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher margin value-added products. This segment also produces biodiesel and renewable diesel and related credits for sale to third parties. Sales prices are affected by the supply and demand of diesel and environmental credit initiatives.

CT&M Segment

The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of its sales are derived from sourcing agricultural commodities from multiple origins which are delivered to third-party and affiliate customers in various international locations. This segment’s sales are also significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions that may have a significant impact on this segment’s sales and operating income. Profit margins are sometimes protected through commodity derivatives and other risk management practices. The execution of these purchase and delivery transactions have long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 44% of Seaboard’s total inventories as of December 31, 2022. Consolidated subsidiaries and non-consolidated affiliates operate the grain processing facilities in foreign countries that are, in most cases, lesser developed and can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates. This segment has invested in several entities in recent years and continues to seek opportunities to expand its business.

Marine Segment

The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, freight rates can fluctuate depending on regional supply and demand for shipping services. Since this segment time-charters ocean cargo vessels, it is affected by fluctuations in charter

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hire rates as well as fuel costs. This segment continues to explore ways to increase volumes on existing routes while seeking opportunities to broaden its route structure in the regions it serves.

Sugar and Alcohol Segment

The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. This segment’s sales and operating income are significantly affected by local sugar and alcohol prices, and domestic sugar production levels and government regulations affect these local prices. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows.

Power Segment

The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.

Turkey Segment

The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can significantly affect profitability and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations in both the short-term and long-term.

Summary of Sources and Uses of Cash

Seaboard’s principal funding source is cash from operating activities and its principal cash requirements primarily include operating expenses and capital expenditures. As of December 31, 2022, Seaboard had cash and short-term investments of nearly $1.3 billion and additional total working capital of $1.2 billion. The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

As of December 31, 2022, $183 million of the $1.3 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. During the fourth quarter of 2022, Seaboard reversed its indefinite reinvestment assertion in connection with certain previously-taxed undistributed earnings of its Seaboard Marine subsidiary due to the tax effectiveness of repatriating. As a result, Seaboard recorded a deferred tax liability of $13 million for federal and state incremental tax costs associated with the future potential repatriation of Seaboard Marine’s previously-taxed foreign undistributed earnings. For all other foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. Determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.

Cash and short-term investments as of December 31, 2022 decreased $206 million from December 31, 2021. The decrease was primarily the result of $474 million for capital expenditures, $117 million for purchases of long-term investments, $58 million for the acquisition of a business, debt payments of $105 million, unrealized losses on short-term investments of $150 million due to capital market volatility, partially offset by higher net cash from operations of $680 million. Cash from operating activities increased $588 million, primarily due to higher cash earnings and less working capital investment, primarily related to inventories due to trade timing.

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Capital Expenditures, Acquisitions and Other Investing Activities

During 2022, Seaboard invested $474 million in property, plant and equipment, of which $315 million was in the Pork segment and $136 million was in the Marine segment. The Pork segment expenditures were primarily to fund biogas recovery projects, normal replacement of breeding herd and other investments. At certain hog farms, the Pork segment is constructing biogas recovery facilities to capture methane from its hog lagoons and inject it as renewable natural gas into the local pipeline infrastructure. The Marine segment expenditures primarily related to the purchase of two used vessels and installment payments on vessels under construction.

The total budget for 2023 capital expenditures is approximately $750 million, with $475 million planned in the Pork segment and $200 million in the Marine segment. The Pork segment’s budget primarily includes further investment in hog production assets, completion of certain biogas recovery projects, normal replacement of breeding herd and other investments. The Marine segment’s budget primarily includes continued installment payments on vessels under construction. During the third quarter of 2022, Seaboard’s Marine segment executed contracts to build three additional dual-fueled vessels that are estimated to cost $62 million each for a total cash outlay of approximately $186 million. The contracts executed in 2021 for the three initial vessels were estimated to cost $60 million each for a total cash outlay of approximately $180 million. The payments for all six vessels under construction are made in accordance with milestones achieved throughout construction. The three initial vessels are expected to be complete in 2024 and the three additional vessels are expected to be complete in 2025. As of December 31, 2022, long-term capital expenditure cash requirements included approximately $150 million in 2024 and $100 million in 2025 for these vessels under construction. Management anticipates paying for capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

Seaboard acquired businesses in 2022, 2021 and 2020, and intends to continue to look for opportunities to further grow and diversify its operations, but there are no definitive plans for additional acquisitions at this time. Management intends to utilize existing liquidity, available borrowing capacity and other financing alternatives to fund these opportunities. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous. Seaboard may also fund capital calls and issue borrowings for its equity method investments based on specific facts and circumstances.

From time to time, proceeds from the sale of short-term investments may be used to fund capital expenditure purchases or working capital needs. Included in the $2 billion of gross cash flows related to both the sale and purchase of short-term investments in the consolidated statement of cash flows for the year ended December 31, 2021 was asset reallocation intended to reduce equity exposure. Seaboard continues to make long-term investments, with $117 million, $98 million and $47 million invested during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, Seaboard is committed to invest approximately $15 million in certain long-term investments in 2023, primarily real-estate related.

Financing Activities

Seaboard believes it has adequate available borrowings to meet short-term and long-term operating needs. During 2022, there was a high volume of draws and repayments activity under lines of credit compared to prior years with the draws used to fund working capital and greater investments in capital expenditures. Seaboard had long-term debt of $710 million as of December 31, 2022, which includes a term loan due 2028 of $670 million. Current maturities on long-term debt were $7 million as of December 31, 2022, with expected annual interest payments of approximately $41 million based on interest rates as of year-end. During 2021, Seaboard repaid foreign subsidiary debt related to a 2018 acquisition of $46 million upon its maturity. See Note 7 to the consolidated financial statements for further discussion of debt.

Future Contractual Obligations

Other than those obligations discussed above, future obligations mostly include normal operating expenses. For operating and finance leases, Seaboard had a current undiscounted obligation of $236 million and a long-term undiscounted obligation of $550 million as of December 31, 2022 per Note 5 to the consolidated financial statements. The majority of Seaboard’s purchase commitments for materials or supplies are related to hog, grain, feedstock and fuel procurement contracts with a current obligation of approximately $1.6 billion and a long-term obligation of approximately $1.1 billion as of December 31, 2022, per Note 8 to the consolidated financial statements. Also, Seaboard is subject to obligations under its existing defined benefit pension plans. As of December 31, 2022, the unfunded status of all plans was $94 million. Anticipated employer payments related to the unfunded nonqualified executive plans in 2023 are $36 million. For additional information about Seaboard’s pension plans, see Note 9 to the consolidated financial statements.

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RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2022, 2021 and 2020 were $11.2 billion, $9.2 billion and $7.1 billion, respectively. The increase for 2022 compared to 2021 primarily reflected higher sales prices of commodities sold in the CT&M segment, higher freight rates in the Marine segment, the commencement of operations of a second barge in the Power segment, and higher biodiesel sales, partially offset by lower volumes of pork products and market hogs sold in the Pork segment. The increase for 2021 compared to 2020 primarily reflected higher prices of commodities sold in the CT&M segment, higher prices for pork products, market hogs and biodiesel sold in the Pork segment and higher cargo volumes and rates in the Marine segment.

Operating income for the years ended December 31, 2022, 2021 and 2020 was $657 million, $458 million and $245 million, respectively. The increase for 2022 compared to 2021 primarily reflected higher voyage revenue in the Marine segment, higher margins on certain commodities in the CT&M segment and more power generation in the Power segment, partially offset by lower margins on pork product, market hog and biodiesel sales in the Pork segment. The increase for 2021 compared to 2020 primarily reflected higher voyage revenue in the Marine segment, increased margins on pork product and market hog sales in the Pork segment, and higher commodity prices, partially offset by derivative commodity contract losses and other operational costs in the CT&M segment.

Pork Segment

Net sales for the Pork segment increased $124 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher biodiesel prices and increased sales of biofuel credits, and to a lesser extent, higher volumes of biodiesel sold and higher prices of pork products sold, largely offset by a decrease in volumes of pork products sold and lower volumes and prices of market hogs sold.

Operating income for the Pork segment decreased $323 million for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to lower margins on pork product and market hog sales due to higher costs of hogs, including inventory adjustments, and higher feed and plant processing costs, biodiesel-related mark-to-market derivative contract losses, higher feedstock costs for biofuel operations and higher start-up costs for renewable diesel operations. During 2022, the Pork segment recorded lower of cost or market inventory valuation adjustments associated with a combination of factors, including the decline in quoted market hog prices and higher grain costs during the period. The renewable diesel plant in Hugoton, Kansas, began operations during the third quarter of 2022. Management is unable to predict market prices for pork products or biodiesel or the costs of feed or third-party hogs for future periods. Based on current conditions, management anticipates this segment will not be profitable in 2023.

Income from affiliates increased $21 million for the year ended December 31, 2022 compared to 2021 primarily due to improved operations at STF.

Net sales for the Pork segment increased $540 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of higher prices of pork products sold, and to a lesser extent, higher prices and volumes of market hogs and higher biodiesel prices, partially offset by lower volumes of pork products sold.

Operating income for the Pork segment increased $96 million for the year ended December 31, 2021 compared to 2020. The increase was primarily due to higher margins on pork product sales and market hogs due to higher sales prices, partially offset by higher hog costs related to feed and higher selling, general and administrative expenses.

Income from affiliates increased $12 million for the year ended December 31, 2021 compared to 2020 due to improved results at both STF and Daily’s primarily related to the commodity markets and return of sales volumes post COVID-19 disruptions.

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CT&M Segment

Net sales for the CT&M segment increased $1.1 billion for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher sales prices of commodities, and to a lesser extent, higher volumes to third-party customers, partially offset by lower volumes to affiliates due to timing of shipments.

Operating income for the CT&M segment increased $90 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on certain commodities, costs associated with operational changes recorded in 2021 not repeated in the current year, and derivative contract gains of $7 million related to the change in mark-to-market adjustments compared to losses of $7 million in 2021. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates and the volatility in the commodity markets, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment in 2023, excluding the effects of marking to market derivative contracts.

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $7 million and $15 million in 2022 and 2020, respectively, and higher by $7 million in 2021. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes. Accordingly, while the changes in fair value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these existing marked-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time and therefore, these marked-to-market adjustments could reverse in fiscal 2023. Management believes eliminating these marked-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

Net sales for the CT&M segment increased $1.2 billion for the year ended December 31, 2021 compared to 2020. The increase primarily reflected higher sales prices of most commodities, and to a lesser extent, higher volumes to third-party customers, partially offset by lower volumes to affiliates due to timing of shipments.

Operating income for the CT&M segment decreased $57 million for the year ended December 31, 2021 compared to 2020. The decrease primarily reflected derivative contract losses of $22 million related to the change in mark-to-market adjustments, $18 million of goodwill and property, plant and equipment impairment charges related to plans to dispose of immaterial businesses, and higher selling, general and administrative expenses.

Income from affiliates increased $20 million for year ended December 31, 2021 compared to 2020 primarily due to improved results from several of this segment’s affiliates related to a return of sales volumes post COVID-19 disruptions.

Marine Segment

Net sales for the Marine segment increased $647 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher freight rates, partially offset by lower cargo volumes.

Operating income for the Marine segment increased $394 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher voyage revenue, partially offset by higher voyage-related costs, including charter-hire costs, fuel costs and other operational costs primarily due to increased prices. Management cannot predict changes in fuel costs or other voyage costs, cargo volumes or freight rates for future periods; however, management anticipates this segment will be profitable in 2023.

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Net sales for the Marine segment increased $391 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of an increase in average freight rates due to strong demand and the global shortage of vessels, and higher cargo volumes. In 2020, cargo volumes were lower due to many of Seaboard Marine’s customers temporarily shutting down due to government orders associated with the COVID-19 pandemic and the recovery of operations taking time.

Operating income for the Marine segment increased $176 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of higher voyage revenue, partially offset by higher fuel costs due to the increase in both price and consumption, higher charter-hire costs due to increased rates, and higher terminal and intermodal trucking costs related to the increase in cargo volumes.

Sugar and Alcohol Segment

Net sales for the Sugar and Alcohol segment increased $6 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher prices of sugar and alcohol sold, partially offset by lower volumes of alcohol, sugar and energy sold as a result of low inventory levels from recent harvests. Sugar and alcohol sales are denominated in Argentine pesos, and an increase in local sales prices may be offset by exchange rate changes in the Argentine peso against the U.S. dollar.

Operating income for the Sugar and Alcohol segment increased $9 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on sugar and alcohol sales, partially offset by lower volumes sold. Management cannot predict local sugar and alcohol prices or the volatility in the currency exchange rate for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2023.

Net sales for the Sugar and Alcohol segment increased $17 million for the year ended December 31, 2021 compared to 2020. The increase primarily reflected higher prices and volumes of alcohol sold related to strong demand post the COVID-19 pandemic lockdown, partially offset by lower sugar sales.

Operating income for the Sugar and Alcohol segment remained the same for the year ended December 31, 2021 compared to 2020. Higher margins on alcohol sales were primarily offset by lower sugar sales and higher sugar production costs.

Power Segment

Net sales for the Power segment increased $98 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected more power generation with EDM III also in operation, and to a lesser extent, higher spot market rates as a result of higher fuel prices. During the second quarter of 2022, EDM III was placed in service with capacity to generate 148 megawatts of electricity.

Operating income for the Power segment increased $23 million for the year ended December 31, 2022 compared to 2021, primarily due to higher revenues, partially offset by higher fuel and other operational costs. Management cannot predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods; however, management anticipates this segment will be profitable in 2023. While EDM II remains in operation in the Dominican Republic, Seaboard continues to explore strategic alternatives for this barge, including a sale or relocation.

Net sales for the Power segment decreased $4 million for the year ended December 31, 2021 compared to 2020. The decrease primarily reflected lower production related to the installation of EDM III, temporary fuel constraints and more power generation from lower variable-cost producers, offset by an increase in spot market rates as a result of higher fuel prices. Typically, lower cost power plants are dispatched before those with higher costs.

Operating income for the Power segment decreased $12 million for the year ended December 31, 2021 compared to 2020 primarily due to lower revenues and higher operational costs related to increased fuel, maintenance and labor costs associated with the installation of EDM III.

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Turkey Segment

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball. The increase in income from affiliate for 2022 compared to 2021 was primarily the result of higher selling prices, partially offset by lower volumes of turkey products sold and higher feed and plant production costs. The decrease in income from affiliate for 2021 compared to 2020 was primarily the result of lower sales volumes and higher live and plant production costs due to increased feed and labor prices, partially offset by higher sales due to increased prices. Management is unable to predict market prices for turkey products or the cost of feed for future periods; however, management anticipates this segment will be profitable in 2023.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2022 increased $13 million compared to 2021. The increase was primarily the result of higher consulting, travel and other office expenses, partially offset by lower costs associated with Seaboard’s deferred compensation program. Higher personnel costs related to wages and other benefits were offset with lower pension settlements. SG&A expenses for the year ended December 31, 2021 increased $31 million compared to 2020. The increase was primarily the result of higher personnel costs including annual raises and bonuses associated with improved financial performance, more consulting fees associated with legal and other advisory matters, an increase in travel costs as vaccinations became available and bad debt expense. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recoded in other investment income (loss), net.

Interest Expense

Interest expense totaled $40 million, $13 million and $19 million for the years ended December 31, 2022, 2021 and 2020, respectively. The increase in interest expense for 2022 compared to 2021 primarily related to higher interest rates on outstanding debt and mark-to-market gains on interest rate swap agreements in the prior year. The decrease in interest expense for 2021 compared to 2020 primarily related to mark-to-market fluctuations on interest rate swap agreements and lower interest rates on outstanding debt, partially offset by less capitalized interest related to capital expenditure investments. During the third quarter of 2021, Seaboard terminated all of its interest rate swap agreements.

Interest Income

Interest income totaled $32 million, $22 million and $22 million for the years ended December 31, 2022, 2021 and 2020, respectively. Interest income primarily includes interest earned on debt securities.

Other Investment Income (Loss), Net

Other investment income (loss), net totaled ($239) million, $133 million and $84 million for the years ended December 31, 2022, 2021 and 2020, respectively. The decrease in other investment income for 2022 compared to 2021 primarily reflected mark-to-market losses on short-term investments and a $46 million charge recorded during 2022 related to a long-term solar energy investment discussed further in Note 12 to the consolidated financial statements. The charge on this long-term investment is offset with the benefit of the investment tax credits recorded in income tax benefit (expense). The increase in other investment income for 2021 compared to 2020 primarily reflected realized gains on short-term investments, partially offset by mark-to-market losses.

Foreign Currency Gains (Losses), Net

Foreign currency gains (losses), net totaled $5 million, $16 million and ($31) million for the years ended December 31, 2022, 2021 and 2020, respectively. The decrease in foreign currency gains for 2022 compared to 2021 primarily reflected fluctuations in the euro, among fluctuations of other currency exchange rates in several foreign countries. The increase in foreign currency gains for 2021 compared to 2020 primarily reflected gains in the euro, Zambian kwacha and South African rand, among fluctuations of other currency exchange rates in several foreign countries.

Income Tax Expense

The 2022 effective tax rate was lower than the 2021 effective tax rate primarily due to an increase in federal investment tax credits available in 2022 and a change in mix of foreign and domestic earnings, with foreign earnings generally taxed at lower rates. The 2021 effective tax rate was higher than the 2020 effective tax rate primarily due to increased earnings which decreased the proportional effect of tax credits available to offset the associated income tax. See Note 12 to the consolidated financial statements for further information on Seaboard’s income taxes.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of Seaboard’s consolidated financial statements requires Seaboard to make estimates, judgments, and assumptions. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard’s financial condition and results of operations, and those that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would be an increase in pension expense of approximately $1 million per year. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods if it exceeds the 10% corridor and, therefore, could affect Seaboard’s recognized pension expense in such future periods, as permitted under GAAP. See Note 9 to the consolidated financial statements for discussion of the pension rates and assumptions.

Income Taxes – Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard’s various business units based on management’s interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management’s attention that could alter previous conclusions, if tax laws change or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse or favorable impact on the financial statements. An increase in the future U.S. federal income tax rate of 5% would decrease tax expense on the reversal of timing differences by approximately $3 million as a one-time adjustment, which would be fully reflected in the period of enactment.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes in Item 8. Certain statements in this report contain forward-looking statements. See the introduction in Item 1 for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

OVERVIEW

Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations in commodity prices and changes in foreign political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and a different geographic location, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s CEO to determine allocation of resources and assess performance, in his capacity as chief operating decision maker.

Pork Segment

The Pork segment primarily produces hogs to process and sells fresh and frozen pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. Within the portfolio of Seaboard’s businesses, management believes profitability of the Pork segment is most susceptible to commodity price fluctuations. As a result, this segment’s operating income and cash flows can materially fluctuate from year to year, significantly affecting Seaboard’s consolidated operating income and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 61% of Seaboard’s total fixed assets, in addition to approximately 42% of total inventories, as of December 31, 2021. With the plant generally operating at capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher value-added products. This segment also produces biodiesel for sale to third parties, and is expected to begin producing renewable diesel in 2022. Sales prices are affected by the supply and demand of diesel and environmental credit initiatives.

CT&M Segment

The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of the CT&M segment’s sales are derived from sourcing agricultural commodities from multiple origins which are delivered to third-party and affiliate customers in various international locations. This segment’s sales are also significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions that may have a significant impact on this segment’s sales and operating income. Profit margins are sometimes protected by using commodity derivatives and other risk management practices. The execution of these purchase and delivery transactions have long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 53% of Seaboard’s total inventories as of December 31, 2021. Consolidated and non-consolidated affiliates operate the grain processing mills in foreign countries that are, in most cases, lesser developed and can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates. The CT&M segment has invested in several entities in recent years and continues to seek opportunities to expand its business.

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Marine Segment

The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, cargo rates can fluctuate depending on regional supply and demand for shipping services. Since the Marine segment time-charters the majority of its ocean cargo vessels, it is affected by fluctuations in charter hire rates as well as fuel costs. This segment continues to explore ways to increase volumes on existing routes while seeking opportunities to broaden its route structure in the regions it serves.

Sugar and Alcohol Segment

The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. The Sugar and Alcohol segment’s sales and operating income are significantly affected by local sugar and alcohol prices, and domestic sugar production levels and government regulations affect these local prices. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows.

Power Segment

The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.

Turkey Segment

The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can significantly affect the profitability and cash flows of Butterball.

LIQUIDITY AND CAPITAL RESOURCES

Management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations in both the short-term and long-term.

Summary of Sources and Uses of Cash

Seaboard’s principal funding source is cash from operating activities and principal cash requirements include primarily operating expenses and capital expenditures. As of December 31, 2021, Seaboard had cash and short-term investments of nearly $1.5 billion and additional total working capital of $1.0 billion. The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

As of December 31, 2021, $63 million of the $1.5 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. Seaboard intends to continue permanently reinvesting these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations. For any planned repatriation to the U.S., Seaboard would record applicable deferred taxes for state or foreign withholding taxes.

Cash and short-term investments as of December 31, 2021 decreased $50 million from December 31, 2020. The decrease was primarily the result of lower cash from operations and greater investments in capital expenditures, partially offset by higher draws under lines of credit. Cash from operating activities decreased $199 million primarily due to additional working capital needs, partially offset by higher cash earnings. Inventories were higher as of December 31, 2021 than December 31, 2020, associated with price volatility in the commodity markets. Also outstanding receivables were higher due to more sales in the fourth quarter of 2021 compared to the fourth quarter of 2020. During 2021, the short-term investment portfolio was repositioned to reduce equity price risk and utilize short-term investment proceeds to partially fund capital expenditures.

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Capital Expenditures, Acquisitions and Other Investing Activities

During 2021, Seaboard invested $460 million in property, plant and equipment, of which $343 million was in the Pork segment, $44 million in the Marine segment and $43 million in the Power segment. The Pork segment expenditures were primarily to complete construction of a renewable diesel plant, purchase and improve a fuel storage and distribution facility and fund biogas recovery projects and other investments. The Marine segment expenditures primarily related to the purchase of a used vessel to increase its company-owned fleet. The Power segment expenditures were primarily for construction of a barge expected to be completed in 2022, commonly referred to as Estrella Del Mar III (“EDM III”). All other capital expenditures were primarily of a normal recurring nature such as replacements of machinery and equipment and general facility modernizations and upgrades.

The total budget for 2022 capital expenditures is approximately $700 million, with $450 million planned in the Pork segment and $200 million in the Marine segment. The Pork segment’s budget primarily includes continued investment in biogas recovery projects, normal replacement of breeding herd and other investments. At certain hog farms, the Pork segment is covering lagoons and constructing biogas upgrade facilities to capture methane and inject renewable gas to the local pipeline infrastructure. The Marine segment’s budget primarily includes the purchase of two used vessels, that are currently chartered, and installment payments on three vessels that are being constructed with completion expected in 2024. The new ships are estimated to cost $60 million each for a total cash outlay of approximately $180 million that is payable in accordance with milestones achieved over the course of construction. As of December 31, 2021, long-term capital expenditure cash requirements include approximately $20 million in 2023 and $90 million in 2024 primarily related to the Marine segment’s vessels under construction. Management anticipates paying for these capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

Seaboard has acquired businesses in 2021, 2020 and 2019, and intends to continue to look for opportunities to further grow and diversify its operations, but there are no definitive plans at this time. Management intends to utilize existing liquidity, available borrowing capacity and other financing alternatives to fund these opportunities. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous. Also, Seaboard may fund capital calls and issue borrowings for its equity method investments based on the specific facts and circumstances.

From time to time, proceeds from the sale of short-term investments may be used to fund capital expenditure purchases or working capital needs. Asset reallocation intended to reduce equity exposure resulted in $2 billion of gross cash flows related to both the sale and purchase of short-term investments in the consolidated statement of cash flows for the year ended December 31, 2021. Seaboard continues to make investments, including $98 million in long-term investments for the year-ended December 31, 2021, to effectively manage its assets. As of December 31, 2021, Seaboard is committed to invest approximately $20 million in certain long-term investments in 2022, primarily real-estate related.

Financing Activities

Seaboard believes it has adequate available borrowings to meet short-term and long-term operating needs. Draws under lines of credit have increased compared to prior years to fund working capital and greater investments in capital expenditures. Seaboard had long-term debt of $717 million as of December 31, 2021, which includes a term loan due 2028 of $677 million. Current maturities on long-term debt was $8 million as of December 31, 2021, with expected annual interest payments of approximately $12 million based on interest rates as of year-end. During 2021, Seaboard repaid foreign subsidiary debt related to a 2018 acquisition of $46 million upon its maturity. See Note 7 to the consolidated financial statements for further discussion of debt.

Future Contractual Obligations

Other than those obligations discussed above, future obligations mostly include normal operating expenses. For operating and finance leases, Seaboard has a current undiscounted obligation of $217 million and a long-term undiscounted obligation of $537 million as noted in Note 5 to the consolidated financial statements. The majority of Seaboard’s purchase commitments for materials or supplies are related to hog, grain, feedstock and fuel procurement contracts with a current obligation of approximately $1.7 billion and a long-term obligation of approximately $1.5 billion as noted in Note 8 to the consolidated financial statements. Also, Seaboard is subject to obligations under its existing defined benefit pension plans. As of December 31, 2021, the accounting unfunded status of all plans was $135 million. Anticipated employer payments related to the unfunded nonqualified executive plans in 2022 are $18 million. For additional information about Seaboard’s pension plans, see Note 9 to the consolidated financial statements.

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RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2021, 2020 and 2019 were $9.2 billion, $7.1 billion and $6.8 billion, respectively. The increase for 2021 compared to 2020 primarily reflected higher prices of commodities sold in the CT&M segment, higher prices for pork products, market hogs and biodiesel sold in the Pork segment and higher cargo volumes and rates in the Marine segment. The increase for 2020 compared to 2019 primarily reflected higher volumes of certain commodities in the CT&M segment and higher volumes for pork products and hogs sold in the Pork segment, partially offset by lower cargo volumes in the Marine segment and lower spot prices and generation in the Power segment.

Operating income for the years ended December 31, 2021, 2020 and 2019 was $458 million, $245 million and $110 million, respectively. The increase for 2021 compared to 2020 primarily reflected higher voyage revenue in the Marine segment, increased margins on pork product and market hog sales in the Pork segment, and higher commodity prices, partially offset by derivative commodity contract losses and other operational costs in the CT&M segment. The increase for 2020 compared to 2019 primarily reflected lower derivative contract losses and higher margins on pork product sales in the Pork segment and higher margins on third-party sales and derivative contract gains in the CT&M segment, partially offset by lower revenues in the Power segment.

Seaboard’s operations have been impacted by the COVID-19 pandemic, with 2020 financial results impacted more than 2021 financial results, especially with regards to cargo volumes at Seaboard’s Marine segment. Continued challenges remain with labor availability and labor costs, resulting in higher production costs. The near and long-term impacts of COVID-19, including variants, on Seaboard’s operations and the global economy are unknown and impossible to predict with any level of certainty.

Pork Segment

Net sales for the Pork segment increased $540 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of higher prices of pork products sold, and to a lesser extent, higher prices and volumes of market hogs and higher biodiesel prices, partially offset by lower volumes of pork products sold.

Operating income for the Pork segment increased $96 million for the year ended December 31, 2021 compared to 2020. The increase was primarily due to higher margins on pork product sales and market hogs due to higher sales prices, partially offset by higher hog costs related to feed and higher selling, general and administrative expenses. Management is unable to predict market prices for pork products, the cost of feed or third-party hogs, biodiesel prices or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. However, management anticipates this segment will be profitable in 2022. The uncertainties and the volatility of the commodity grain markets could have a significant impact on this segment’s profitability.

Income from affiliates has increased due to improved results at both STF and Daily’s primarily related to the commodity markets and return of sales volumes post COVID-19 disruptions. In January 2022, the Pork segment sold 50% of its ham-boning operations in Mexico. The Pork segment will continue to sell raw materials for further processing to this affiliate, and earnings from the Mexico operations will be reflected in Income (loss) from affiliates effective in the first quarter of 2022.

Net sales for the Pork segment increased $90 million for the year ended December 31, 2020 compared to 2019. The increase was primarily the result of higher volumes of pork products, market hogs and biodiesel sold and the recognition of more federal blender’s credits than the prior year, partially offset by lower biodiesel prices. In December 2019, the President of the U.S. signed into law the Further Consolidated Appropriations Act that extended the federal blender’s credits through 2022.

Operating income for the Pork segment increased $71 million for the year ended December 31, 2020 compared to 2019. The increase was primarily due to lower derivative contract losses, higher pork product sales, lower costs for feed and third-party hogs, more income associated with the federal blender’s credits received, and no expense related to the withdrawal liability from a multi-employer pension fund recorded in 2019, partially offset by higher plant processing costs and lower margins on biodiesel sales.

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CT&M Segment

Net sales for the CT&M segment increased $1.2 billion for the year ended December 31, 2021 compared to 2020. The increase primarily reflected higher sales prices of most commodities, and to a lesser extent, higher volumes to third-party customers, partially offset by lower volumes to affiliates due to timing of shipments.

Operating income for the CT&M segment decreased $57 million for the year ended December 31, 2021 compared to 2020. The decrease primarily reflected derivative contract losses of $22 million related to the change in mark-to-market adjustments, $18 million of goodwill and property, plant and equipment impairment charges related to plans to dispose of immaterial businesses, and higher selling, general and administrative expenses. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates, the volatility in the commodity markets and the ongoing impacts of the COVID-19 pandemic, including variants, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment in 2022, excluding the effects of marking to market derivative contracts.

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been higher by $7 million and $5 million in 2021 and 2019, respectively, and lower by $15 million in 2020. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes. Accordingly, while the changes in fair value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these existing marked-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time and therefore, these marked-to-market adjustments could reverse in fiscal 2022. Management believes eliminating these marked-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

Income from affiliates increased $20 million for year ended December 31, 2021 compared to 2020 primarily due to improved results from several of this segment’s affiliates related to a return of sales volumes post COVID-19 disruptions.

Net sales for the CT&M segment increased $322 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher volumes of certain commodities for third-party customers, including sales from a business acquired in October 2019, and higher corn, soybean and other commodity prices, partially offset by lower volumes to affiliates.

Operating income for the CT&M segment increased $56 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher margins on third-party sales, including margins for a business acquired in October 2019, from higher prices and volumes, derivative contract gains of $20 million related to the change in mark-to-market adjustments and lower selling, general and administrative expenses.

Marine Segment

Net sales for the Marine segment increased $391 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of an increase in average freight rates due to strong demand and the current global shortage of vessels, and higher cargo volumes. In 2020, cargo volumes were lower due to many of Seaboard Marine’s customers temporarily shutting down due to government orders associated with the COVID-19 pandemic and the recovery of operations taking time.

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Operating income for the Marine segment increased $176 million for the year ended December 31, 2021 compared to 2020. The increase was primarily the result of higher voyage revenue, partially offset by higher fuel costs due to the increase in both price and consumption, higher charter hire costs due to increased rates, and higher terminal and intermodal trucking costs related to the increase in cargo volumes. Management cannot predict changes in fuel costs, cargo volumes and cargo rates, the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. However, management anticipates this segment will be profitable in 2022, including consideration of continued high charter hire rates.

Net sales for the Marine segment decreased $56 million for the year ended December 31, 2020 compared to 2019. The decrease was primarily the result of lower cargo volumes, partially offset by higher rates due to a change in cargo mix with more refrigerated containers that generally have a higher freight rate.

Operating income for the Marine segment increased $17 million for the year ended December 31, 2020 compared to 2019. The increase was primarily the result of lower fuel costs due to the decrease in price and consumption and lower other voyage costs and terminal costs related to the reduction in cargo volumes.

Sugar and Alcohol Segment

Net sales for the Sugar and Alcohol segment increased $17 million for the year ended December 31, 2021 compared to 2020. The increase primarily reflected higher prices and volumes of alcohol sold related to strong demand post the COVID-19 pandemic lockdown, partially offset by lower sugar sales. Sugar and alcohol sales are denominated in Argentine pesos, and an increase in local sales prices may be offset by exchange rate changes in the Argentine peso against the U.S. dollar. This segment’s functional currency is the U.S. dollar, which will continue to be effective as long as the Argentine economy is considered highly inflationary.

Operating income for the Sugar and Alcohol segment remained the same for the year ended December 31, 2021 compared to 2020. Higher margins on alcohol sales were primarily offset by lower sugar sales and higher sugar production costs. Management cannot predict local sugar and alcohol prices, the volatility in the currency exchange rate or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2022.

Net sales for the Sugar and Alcohol segment decreased $15 million for the year ended December 31, 2020 compared to 2019. The decrease primarily reflected lower volumes and prices of alcohol sold as a result of less demand for fuels with the lengthy COVID-19 pandemic lockdown, partially offset by higher sugar prices.

Operating income for the Sugar and Alcohol segment increased $18 million for the year ended December 31, 2020 compared to 2019. The increase primarily reflected higher margins on sugar due to higher prices and lower alcohol and sugar production costs.

Power Segment

Net sales for the Power segment decreased $4 million for the year ended December 31, 2021 compared to 2020. The decrease primarily reflected lower production related to reduced operations associated with relocating and connecting the existing barge at a new site, temporary fuel constraints and more power generation from lower variable-cost producers, offset by an increase in spot market rates as a result of higher fuel prices. Typically, lower cost power plants are dispatched before those with higher costs.

Operating income for the Power segment decreased $12 million for the year ended December 31, 2021 compared to 2020, primarily due to lower revenues and higher operational costs related to increased fuel, maintenance and labor costs associated with the installation of EDM III. The commercial operations for EDM III are expected to begin in 2022.

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Management cannot predict fuel costs, the extent that spot market rates will fluctuate compared to fuel costs or other power producers, or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions and the timing of EDM III’s commercial operations, management cannot predict if this segment will be profitable in 2022.

Net sales for the Power segment decreased $53 million for the year ended December 31, 2020 compared to 2019. The decrease primarily reflected lower spot market rates as a result of lower fuel prices and lower production related to more power generation from lower variable-cost producers.

Operating income for the Power segment decreased $24 million for the year ended December 31, 2020 compared to 2019 primarily due to lower revenues, partially offset by lower fuel costs due to lower prices and fuel consumption.

Turkey Segment

The Turkey segment, accounted for using the equity method, represents Seaboard’s investment in Butterball. The increase in loss from affiliate for 2021 compared to 2020 was primarily the result of lower sales volumes and higher live and plant production costs due to increased feed and labor prices, partially offset by higher sales due to increased prices. The decrease in loss from affiliate for 2020 compared to 2019 was primarily the result of higher sales attributable to more whole bird volumes and increased prices related to a stronger sales mix of value-added products sold and less interest expense, partially offset by higher live and production costs. Management is unable to predict market prices for turkey products, the cost of feed or the ongoing impacts of the COVID-19 pandemic, including variants, for future periods. Based on these conditions, management cannot predict if this segment will be profitable in 2022. The uncertainties and the volatility of the commodity grain markets could have a significant impact on this segment’s profitability.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2021 increased $31 million compared to 2020. The increase was primarily the result of higher personnel costs including annual raises and bonuses associated with improved financial performance, more consulting fees associated with legal and other advisory matters, an increase in travel costs as vaccinations became available and bad debt expense. SG&A expenses for the year ended December 31, 2020 decreased $7 million compared to 2019. The decrease was primarily the result of lower costs related to Seaboard’s deferred compensation program, recovery of bad debt expense and lower travel costs and other cost reduction efforts, partially offset by higher personnel costs, which included higher pension settlement charges in 2020. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss).

Interest Expense

Interest expense totaled $13 million, $19 million and $36 million for the years ended December 31, 2021, 2020 and 2019, respectively. The decrease in interest expense for 2021 compared to 2020 primarily related to mark-to-market fluctuations on interest rate swap agreements and lower interest rates on outstanding debt, partially offset by less capitalized interest related to capital expenditure investments. The decrease in interest expense for 2020 compared to 2019 was primarily related to lower interest rates on outstanding debt and increased capitalized interest.

Interest Income

Interest income totaled $22 million, $22 million and $30 million for the years ended December 31, 2021, 2020 and 2019, respectively. Interest income primarily includes interest earned on debt securities.

Other Investment Income (Loss), Net

Other investment income (loss), net totaled $133 million, $84 million and $225 million for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in other investment income for 2021 compared to 2020 primarily reflected realized gains on short-term investments, partially offset by mark-to-market losses on short-term investments. The decrease in other investment income for 2020 compared to 2019 was primarily due to mark-to-market fluctuations on short-term investments.

Foreign Currency Gains (Losses), Net

Foreign currency gains (losses), net totaled $16 million, $(31) million and $0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in foreign currency gains for 2021 compared to 2020 primarily reflected gains in the euro, Zambian kwacha and South African rand, among fluctuations of other currency

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exchange rates in several foreign countries. The decrease in foreign currency gains for 2020 compared to 2019 primarily reflected losses in the euro, Zambian kwacha and South African rand, among fluctuations of other currency exchange rates in several foreign countries.

Income Tax Expense

The 2021 effective tax rate was higher than the 2020 effective tax rate primarily due to increased earnings which decreased the proportional effect of tax credits available to offset the associated income tax. The 2020 effective tax rate was higher than the 2019 effective tax rate primarily due to decreased tax-exempt income and federal investment tax credits, partially offset by a decrease in foreign tax expense related to a change in the mix of domestic and foreign earnings as compared to the prior year. See Note 12 to the consolidated financial statements for further information on Seaboard’s income taxes.

CRITICAL ACCOUNTING ESTIMATES

This discussion and analysis of financial condition and results of operations is based upon Seaboard’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires Seaboard to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimates believed to be the most important to the portrayal of Seaboard’s financial condition and results, and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would be an increase in pension expense of approximately $4 million per year. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods if it exceeds the 10% corridor and, therefore, could affect Seaboard’s recognized pension expense in such future periods, as permitted under GAAP. See Note 9 to the consolidated financial statements for discussion of the pension rates and assumptions.

Income Taxes – Income taxes are determined by management based on current tax regulations in the various worldwide taxing jurisdictions in which Seaboard conducts its business. In various situations, accruals have been made for estimates of the tax effects for certain transactions, business structures, the estimated reversal of timing differences and future projected profitability of Seaboard’s various business units based on management’s interpretation of existing facts, circumstances and tax regulations. Should new evidence come to management’s attention that could alter previous conclusions, if tax laws change or if taxing authorities disagree with the positions taken by Seaboard, the change in estimate could result in a material adverse or favorable impact on the financial statements. An increase in the future U.S. federal income tax rate of 5% would increase tax expense on the reversal of timing differences by approximately $23 million as a one-time adjustment, which would be fully reflected in the period of enactment.

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