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
18
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.
Total amount
(Millions of dollars) available
Short-term uncommitted and committed lines $ 1,125
Amounts drawn against lines (457)
Available borrowing capacity as of December 31, 2022 $ 668
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.
19
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.
20
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
(Millions of dollars) 2022 2021 2020
Net sales $ 2,605 $ 2,481 $ 1,941
Operating income (loss) $ (96) $ 227 $ 131
Income (loss) from affiliates $ 24 $ 3 $ (9)
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.
21
CT&M Segment
(Millions of dollars) 2022 2021 2020
Net sales $ 6,290 $ 5,154 $ 3,994
Operating income as reported $ 151 $ 61 $ 118
Marked-to-market adjustments (7) 7 (15)
Operating income excluding marked-to-market adjustments $ 144 $ 68 $ 103
Income (loss) from affiliates
$ 21 $ 18 $ (2)
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
(Millions of dollars) 2022 2021 2020
Net sales $ 2,043 $ 1,396 $ 1,005
Operating income $ 591 $ 197 $ 21
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.
22
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
(Millions of dollars) 2022 2021 2020
Net sales $ 129 $ 123 $ 106
Operating income $ 11 $ 2 $ 2
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
(Millions of dollars) 2022 2021 2020
Net sales $ 158 $ 60 $ 64
Operating income (loss) $ 14 $ (9) $ 3
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.
23
Turkey Segment
(Millions of dollars) 2022 2021 2020
Income (loss) from affiliate $ 103 $ (20) $ (10)
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.
24
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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