Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 14 - Income Taxes

Earnings before income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2019		2018		2017
United States	$	174	$	(109)	$	273
Foreign		110		93		155
Total earnings (loss) excluding noncontrolling interests		284		(16)		428
Net loss attributable to noncontrolling interests		—		—		1
Total earnings (loss) before income taxes	$	284	$	(16)	$	427

The components of total income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2019		2018		2017
Current:
Federal	$	12	$	(20)	$	118
Foreign		39		32		19
State and local		(1)		—		2
Deferred:
Federal		(41)		5		20
Foreign		(1)		(5)		10
State and local		(7)		(11)		12
Income tax expense		1		1		181
Unrealized changes in other comprehensive income (loss)		(4)		2		(3)
Total income taxes	$	(3)	$	3	$	178

Income taxes for the years ended December 31, 2019, 2018 and 2017 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% for 2019 and 2018 and 35% for 2017 to earnings (loss) before income taxes excluding noncontrolling interests for the following reasons:

	Years ended December 31,
(Millions of dollars)	2019		2018		2017
Computed “expected” tax expense (benefit) excluding noncontrolling interests	$	60	$	(3)	$	150
Adjustments to tax expense (benefit) attributable to:
Foreign tax differences		14		12		(22)
Tax-exempt income		(29)		(13)		—
State income taxes, net of federal benefit		(4)		(8)		9
Repatriation tax		—		14		112
Effect on deferreds of federal rate reduction		—		—		(47)
Foreign entity tax status change		—		22		—
Federal tax credits		(47)		(23)		(18)
Federal rate reduction effect on capital loss carryback		—		(3)		—
Domestic manufacturing deduction		—		—		(2)
Other		7		3		(1)
Total income tax expense	$	1	$	1	$	181

In December 2019, the President of the U.S. signed into law the Further Consolidated Appropriations Act (the “2019 Tax Act”) that extended the federal blender’s credits through 2022, with retroactive recognition for 2018 and 2019. As a result, in the fourth quarter of 2019, Seaboard recognized non-taxable revenue of $136 million related to the 2018 and 2019 federal blender’s credits on the biodiesel the Pork segment blends. In February 2018, Congress retroactively extended the federal blender’s credits for 2017 and Seaboard recognized a one-time tax benefit of $4 million and non-taxable revenue of $61 million in the first quarter of 2018. There was no federal blender credit revenue recognized in 2017. In accordance

with GAAP, the effects of changes in tax laws, including retroactive changes, are recognized in the financial statements in the period that the changes are enacted.

Seaboard has certain investments in various entities that are expected to enable Seaboard to obtain certain investment tax credits. Seaboard has invested in three limited liability companies that operate refined coal processing plants that generate federal income tax credits based on production levels. Seaboard’s total contributions to these long-term investments were $15 million, $17 million and $10 million during 2019, 2018 and 2017, respectively. Additionally, Seaboard invested $20 million during 2019 in two limited liability companies involved in a biogas fueled power project that will generate federal income tax credits. These alternative long-term investments, accounted for using the equity method of accounting, generated in aggregate $34 million of investment tax credits for 2019.

During 2018, Seaboard elected to change the tax status of a wholly owned subsidiary from a partnership to a corporation. This change in tax status resulted in an estimated $22 million of additional tax expense and deferred tax liabilities.

On December 22, 2017, the President of the U.S. signed into law the Tax Cuts and Job Act (“2017 Tax Act”). Among other things, the 2017 Tax Act lowered corporate income tax rates from a maximum of 35% to a flat 21% rate effective January 1, 2018, imposed a tax on mandatory deemed repatriated earnings of foreign subsidiaries and implemented a territorial tax system. Seaboard recognized $112 million of tax expense related to mandatory deemed repatriated earnings and a $47 million benefit from the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. Seaboard recorded additional tax expense of $16 million related primarily to repatriation and, to a lesser extent, executive compensation items for the year ended December 31, 2018. The 2017 Tax Act also imposed two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provision and the base-erosion and anti-abuse tax (“BEAT”) provision effective January 1, 2018. Seaboard accounts for the GILTI and BEAT taxes in the period incurred.

As of December 31, 2019 and 2018, Seaboard had income taxes receivable of $14 million and $39 million, respectively, primarily related to domestic tax jurisdictions, and had income taxes payable of $16 million and $14 million, respectively, primarily related to foreign tax jurisdictions. As of December 31, 2019, Seaboard has $62 million of long-term income tax liability related to the 2017 Tax Act mandatory deemed repatriated earnings. Expected future payments on this liability were as follows: $2 million in 2021, $6 million in 2022, $6 million in 2023, $12 million in 2024 and $36 million thereafter. The 2017 Tax Act permitted the tax on mandatory deemed repatriated earnings to be paid over eight years.

Seaboard provided for U.S. federal income tax on $1.3 billion of undistributed earnings from foreign operations in conjunction with the 2017 Tax Act. 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 the majority of these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard’s U.S. operations and therefore, Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation to the U.S. Determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical. If Seaboard decided to repatriate these permanently reinvested earnings to the U.S., Seaboard would be required to provide for the net tax effects on these amounts.

Components of the net deferred income tax liability were as follows:

	December 31,
(Millions of dollars)	2019		2018
Deferred income tax liabilities:
Depreciation	$	119	$	140
Domestic partnerships		65		78
Unrealized gain on investments		36		—
Other		4		8
	$	224	$	226
Deferred income tax assets:
Reserves/accruals	$	73	$	70
Net operating and capital loss carry-forwards		63		56
LIFO		2		7
Tax credit carry-forwards		75		21
Other		4		4
		217		158
Valuation allowance		68		59
Net deferred income tax liability	$	75	$	127

The activity within the valuation allowance account was as follows:

	Balance at		Charge (credit)	Balance at
(Millions of dollars)	beginning of year		to expense	end of year
Allowance for Deferred Tax Assets:
Year Ended December 31, 2019	$	59	9	$	68
Year Ended December 31, 2018	$	59	—	$	59
Year Ended December 31, 2017	$	58	1	$	59

Management believes Seaboard’s future taxable income will be sufficient for full realization of the net deferred tax assets. The valuation allowance relates to the tax benefits from state net operating losses and foreign net operating losses and tax credits. Management does not believe these benefits are more likely than not to be realized due to limitations imposed on the utilization of these losses and credits. As of December 31, 2019, Seaboard had state net operating loss carry-forwards of approximately $179 million and foreign net operating loss carry-forwards of approximately $171 million, a portion of which expire in varying amounts between 2020 and 2039, while others have indefinite expiration periods. As of December 31, 2019, Seaboard had state tax credit carry-forwards of approximately $22 million, net of valuation allowance, all of which carry-forward indefinitely.

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments. Seaboard’s 2013, 2014, 2015 and 2016 U.S. income tax returns are currently under Internal Revenue Service examination. Tax years prior to 2013 are generally no longer subject to U.S. tax assessment. In Seaboard’s major non-U.S. jurisdictions, including Argentina, the Dominican Republic, Ivory Coast and Senegal, tax years are typically subject to examination for three to six years.

As of December 31, 2019 and 2018, Seaboard had $31 million and $25 million, respectively, in total unrecognized tax benefits, all of which if recognized would affect the effective tax rate. Seaboard does not have any material uncertain tax positions in which it is reasonably possible that the total amounts of the unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

The following table is a reconciliation of the beginning and ending amount of unrecognized tax benefits:

(Millions of dollars)	2019		2018
Beginning balance at January 1	$	25	$	18
Additions for uncertain tax positions of prior years		4		2
Decreases for uncertain tax positions of prior years		(3)		—
Additions for uncertain tax positions of current year		6		6
Lapse of statute of limitations		(1)		(1)
Ending balance as of December 31	$	31	$	25

Seaboard accrues interest related to unrecognized tax benefits and penalties in income tax expense and had approximately $8 million and $6 million accrued for the payment of interest and penalties as of December 31, 2019 and 2018, respectively.