Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 14 - Income Taxes

Earnings before income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2020		2019 ADJUSTED		2018 ADJUSTED
United States	$	138	$	180	$	(82)
Foreign		148		110		93
Total earnings excluding noncontrolling interests		286		290		11
Net loss attributable to noncontrolling interests		—		—		—
Total earnings before income taxes	$	286	$	290	$	11

The components of total income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2020		2019 ADJUSTED		2018 ADJUSTED
Current:
Federal	$	(50)	$	12	$	(20)
Foreign		35		39		32
State and local		2		(1)		—
Deferred:
Federal		26		(39)		10
Foreign		(3)		(1)		(5)
State and local		(7)		(7)		(9)
Income tax expense		3		3		8
Unrealized changes in other comprehensive income (loss)		(3)		(4)		2
Total income taxes	$	—	$	(1)	$	10

Income taxes for the years ended December 31, 2020, 2019 and 2018 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to earnings (loss) before income taxes excluding noncontrolling interests for the following reasons:

	Years ended December 31,
(Millions of dollars)	2020		2019 ADJUSTED		2018 ADJUSTED
Computed “expected” tax expense (benefit) excluding noncontrolling interests	$	60	$	61	$	2
Adjustments to tax expense (benefit) attributable to:
Foreign tax differences		(4)		14		12
Tax-exempt income		(17)		(29)		(13)
State income taxes, net of federal benefit		(3)		(4)		(6)
Repatriation tax		—		—		14
Foreign entity tax status change		—		—		22
Federal tax credits		(34)		(47)		(23)
Federal rate reduction effect on capital loss carryback		—		—		(3)
Other		1		8		3
Total income tax expense	$	3	$	3	$	8

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. 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 $17 million, $15 million and $17 million during 2020, 2019 and 2018, respectively. Additionally, Seaboard invested $20 million during 2019 in 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 $22 million and $34 million of investment tax credits for 2020 and 2019, respectively.

Certain of Seaboard’s foreign operations are subject to no income tax or a tax rate that is lower than the U.S. corporate tax rate. Fluctuation of earnings or losses incurred from certain foreign operations conducting business in these jurisdictions impact the mix of taxable earnings.

In 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. In 2017, Seaboard recognized $112 million of tax expense related to mandatory deemed repatriated earnings associated with the Tax Cuts and Job Act (“2017 Tax Act”). Seaboard recorded additional tax expense of $16 million related primarily to repatriation and, to a lesser extent, executive compensation items in 2018.

As of December 31, 2020 and 2019, Seaboard had income taxes receivable of $18 million and $14 million, respectively, primarily related to domestic tax jurisdictions, and had income taxes payable of $14 million and $16 million, respectively, primarily related to foreign tax jurisdictions. As of December 31, 2020, Seaboard has $6 million of long-term income tax liability related to the 2017 Tax Act mandatory deemed repatriated earnings that is due April 15, 2026. The decrease in the long-term income tax liability is related to a carryback of tax credits and reclass of overpayments.

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 of these funds to the U.S. Determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical.

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

	December 31,
(Millions of dollars)	2020		2019 ADJUSTED
Deferred income tax liabilities:
Depreciation	$	100	$	119
Domestic partnerships		59		65
Unrealized gain on investments		52		36
Inventory		10		15
Other		3		4
	$	224	$	239
Deferred income tax assets:
Reserves/accruals	$	74	$	73
Net operating and capital loss carry-forwards		52		63
Tax credit carry-forwards		49		75
Other		5		4
		180		215
Valuation allowance		55		68
Net deferred income tax liability	$	99	$	92

During the fourth quarter of 2020, Seaboard elected to change its method for valuing the inventories of its Seaboard Foods LLC subsidiary from the LIFO method to the FIFO method.  For tax purposes, prior to this change, Seaboard had a Tax LIFO reserve of approximately $51 million. This Tax LIFO reserve will be recognized as taxable income ratably over a four-year period beginning in 2020.  A deferred tax liability has been established for the future reversal amount and is included in the inventory lines in the table above, with adjustments for the retrospective presentation.

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, 2020	$	68	(13)	$	55
Year Ended December 31, 2019	$	59	9	$	68
Year Ended December 31, 2018	$	59	—	$	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, 2020, Seaboard had state net operating loss carry-forwards of approximately $203 million and foreign net operating loss carry-forwards of approximately $111 million, a portion of which expire in varying amounts between 2021 and 2040, while others have indefinite expiration periods. As of December 31, 2020, 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 and 2015 IRS audit was finalized during the fourth quarter of 2020 with a settlement reached on an issue previously reserved as an uncertain tax position. The settlement resulted in the reversal of uncertain tax positions in the amount of approximately $6 million, and the recording of expense on IRS audit settlement of approximately $6 million. Seaboard’s 2016 U.S. income tax return is currently under IRS examination. U.S. federal tax years prior to 2013 are generally no longer subject to IRS tax assessment. In the U.S., typically the three most recent tax years are subject to IRS audits, unless an agreement is made to extend the statute of limitations for an audit in progress. 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, 2020 and 2019, Seaboard had $30 million and $31 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)	2020		2019
Beginning balance at January 1	$	31	$	25
Additions for uncertain tax positions of prior years		2		4
Decreases for uncertain tax positions of prior years		(7)		(3)
Additions for uncertain tax positions of current year		5		6
Lapse of statute of limitations		(1)		(1)
Ending balance as of December 31	$	30	$	31

Seaboard accrues interest related to unrecognized tax benefits and penalties in income tax expense and had approximately $8 million accrued for the payment of interest and penalties as of December 31, 2020 and 2019.