Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 12 − Income Taxes

Earnings before income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2021		2020		2019
United States	$	337	$	138	$	180
Foreign		298		148		110
Total earnings before income taxes excluding noncontrolling interests		635		286		290
Net income attributable to noncontrolling interests		1		—		—
Total earnings before income taxes	$	636	$	286	$	290

The components of total income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2021		2020		2019
Current:
Federal	$	35	$	(50)	$	12
Foreign		33		35		39
State and local		10		2		(1)
Deferred:
Federal		3		26		(39)
Foreign		(7)		(3)		(1)
State and local		(9)		(7)		(7)
Income tax expense		65		3		3
Unrealized changes in other comprehensive income (loss)		8		(3)		(4)
Total income taxes	$	73	$	—	$	(1)

Income taxes for the years ended December 31, 2021, 2020 and 2019 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to earnings before income taxes excluding noncontrolling interests for the following reasons:

	Years ended December 31,
(Millions of dollars)	2021		2020		2019
Computed “expected” tax expense excluding noncontrolling interests	$	133	$	60	$	61
Adjustments to tax expense attributable to:
Foreign tax differences		(30)		(4)		14
Tax-exempt income		(15)		(17)		(29)
Federal tax credits		(39)		(34)		(47)
Unrecognized tax benefits		14		—		—
Other		2		(2)		4
Total income tax expense	$	65	$	3	$	3

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.

Tax-exempt income is primarily related to federal blender’s credits on the biodiesel that the Pork segment blends. 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, 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. 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 federal investment tax credits. Seaboard has invested in 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 $11 million, $17 million and $15 million during 2021, 2020 and 2019, respectively. Additionally, Seaboard invested $4 million and $20 million during 2021 and 2019, respectively, in limited liability companies involved in a biogas fueled power project that generated federal income tax credits. These alternative long-term investments, accounted for using the equity method of accounting, generated in aggregate $24 million, $22 million and $34 million of investment tax credits for 2021, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, Seaboard had income taxes receivable of $46 million and $18 million, respectively, primarily related to domestic tax jurisdictions, and had income taxes payable of $13 million and $14 million, respectively, primarily related to foreign tax jurisdictions.

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 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)	2021		2020
Deferred income tax liabilities:
Depreciation	$	121	$	100
Domestic partnerships		62		59
Unrealized gain on investments		13		52
Inventory		7		10
Other		4		3
Gross deferred income tax liabilities	$	207	$	224
Deferred income tax assets:
Reserves/accruals	$	66	$	74
Net operating and capital loss carry-forwards		67		52
Tax credit carry-forwards		32		49
Other		5		5
Gross deferred income tax assets before valuation allowance		170		180
Less: Valuation allowance		60		55
Net deferred income tax liability	$	97	$	99

In 2020, Seaboard elected to change its method for valuing certain 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 last-in, first-out (“LIFO”) reserve of approximately $51 million. This Tax LIFO reserve is being recognized as taxable income ratably over a four-year period effective 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.

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, 2021	$	55	5	$	60
Year Ended December 31, 2020	$	68	(13)	$	55
Year Ended December 31, 2019	$	59	9	$	68

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, 2021, Seaboard had state net operating loss carry-forwards of approximately $195 million and foreign net operating loss carry-forwards of approximately $185 million, a portion of which expire in varying amounts between 2022 and 2041, while others have indefinite expiration periods. As of December 31, 2021, Seaboard had state tax credit carry-forwards of approximately $28 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 2016 U.S. income tax return is currently under IRS examination. U.S. federal tax years prior to 2016 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, 2021 and 2020, Seaboard had $41 million and $30 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)	2021		2020
Beginning balance at January 1	$	30	$	31
Additions for uncertain tax positions of prior years		7		2
Decreases for uncertain tax positions of prior years		(1)		(7)
Additions for uncertain tax positions of current year		6		5
Lapse of statute of limitations		(1)		(1)
Ending balance as of December 31	$	41	$	30

Seaboard accrues interest related to unrecognized tax benefits and penalties in income tax expense and had approximately $10 million and $8 million accrued for the payment of interest and penalties as of December 31, 2021 and 2020, respectively.