Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 12 − Income Taxes

Earnings before income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2022		2021		2020
United States	$	(205)	$	337	$	138
Foreign		782		298		148
Total earnings before income taxes excluding noncontrolling interests		577		635		286
Net earnings attributable to noncontrolling interests		2		1		—
Total earnings before income taxes	$	579	$	636	$	286

The components of total income taxes were as follows:

	Years ended December 31,
(Millions of dollars)	2022		2021		2020
Current:
Federal	$	54	$	35	$	(50)
Foreign		42		33		35
State and local		12		10		2
Deferred:
Federal		(94)		3		26
Foreign		5		(7)		(3)
State and local		(22)		(9)		(7)
Income tax expense (benefit)		(3)		65		3
Unrealized changes in other comprehensive income (loss)		8		8		(3)
Total income taxes	$	5	$	73	$	—

Income taxes for the years ended December 31, 2022, 2021 and 2020 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)	2022		2021		2020
Computed “expected” tax expense excluding noncontrolling interests	$	121	$	133	$	60
Adjustments to tax expense attributable to:
Foreign tax differences		(60)		(35)		10
Tax-exempt income		(17)		(15)		(17)
Foreign entity repatriation		10		—		—
Federal tax credits		(57)		(39)		(34)
Unrecognized tax benefits		7		14		—
Valuation allowance		(7)		6		(14)
Other		—		1		(2)
Total income tax expense (benefit)	$	(3)	$	65	$	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. As a result of these credits, Seaboard recognized non-taxable revenue of $79 million, $69 million and $79 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively. The receivable from the U.S. government was $53 million and $20 million as of December 31, 2022 and 2021, respectively, included in other receivables. The federal blender’s credits are available through 2024.

Seaboard has certain investments in various entities that are expected to enable Seaboard to obtain certain federal investment tax credits. During 2022, Seaboard invested $52 million in a solar renewable energy project in Guam and received $46 million of federal investment tax credits. Seaboard accounts for this solar investment using the flow-through method and recognized the impact of the investment tax credits in the period earned on a gross basis, with the charge related to the reduction of the investment recorded in other investment income (loss) offset by the benefit of the credits recorded in income tax benefit (expense). Also, Seaboard invested $11 million and $17 million during 2021 and 2020, respectively, in limited liability companies that operated refined coal processing plants that generated federal income tax credits based on production levels. These alternative long-term investments, accounted for using the equity method of accounting, generated in aggregate $46 million, $24 million and $22 million of investment tax credits for 2022, 2021 and 2020, respectively.

As of December 31, 2022 and 2021, Seaboard had income taxes receivable of $54 million and $46 million, respectively, primarily related to domestic tax jurisdictions, and had income taxes payable of $18 million and $13 million, respectively, primarily related to foreign tax jurisdictions.

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

	December 31,
(Millions of dollars)	2022		2021
Deferred income tax liabilities:
Depreciation	$	106	$	121
Domestic partnerships		59		62
Unrealized gain on investments		—		13
Inventory		14		7
Foreign basis difference		13		—
Other		2		4
Gross deferred income tax liabilities	$	194	$	207
Deferred income tax assets:
Reserves/accruals	$	68	$	66
Sec. 174 capitalization		75		—
Unrealized loss on investments		40		—
Deferred earnings of foreign subsidiaries		3		—
Net operating and capital loss carry-forwards		28		67
Tax credit carry-forwards		22		32
Other		8		5
Gross deferred income tax assets before valuation allowance		244		170
Less: Valuation allowance		33		60
Net deferred income tax liability (asset)	$	(17)	$	97

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, 2022	$	60	(27)	$	33
Year Ended December 31, 2021	$	55	5	$	60
Year Ended December 31, 2020	$	68	(13)	$	55

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, 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, 2022, Seaboard had state net operating loss carry-forwards

of approximately $181 million and foreign net operating loss carry-forwards of approximately $57 million, a portion of which expire in varying amounts between 2023 and 2042, while others have indefinite expiration periods. As of December 31, 2022, Seaboard had state tax credit carry-forwards of approximately $27 million, all of which carry-forward indefinitely.

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.

Seaboard’s tax returns are regularly audited by federal, state and foreign tax authorities, which may result in material adjustments. Seaboard’s 2018 and 2019 U.S. income tax returns are currently under IRS examination. U.S. federal tax years prior to 2017 are no longer subject to IRS tax assessment as certain provisions under the Tax Cuts and Jobs Act have a statute of six years. 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 or the statute is specifically extended by law for certain specialized items. 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, 2022 and 2021, Seaboard had $51 million and $41 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)	2022		2021
Beginning balance at January 1	$	41	$	30
Additions for uncertain tax positions of prior years		1		7
Decreases for uncertain tax positions of prior years		(4)		(1)
Additions for uncertain tax positions of current year		23		6
Lapse of statute of limitations		(10)		(1)
Ending balance as of December 31	$	51	$	41

Seaboard accrues interest and penalties related to unrecognized tax benefits in income tax expense and had approximately $9 million and $10 million accrued as of December 31, 2022 and 2021, respectively.