Archer Daniels Midland 2009 Annual Report Download - page 37

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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Employee Benefit Plans
The Company provides substantially all domestic employees and employees at certain international subsidiaries
with pension benefits. Eligible domestic employees with five or more years of service prior to January 1, 2009
participate in a defined benefit pension plan. Eligible domestic employees hired on or after January 1, 2009 (and
eligible salaried employees with less than five years of service prior to January 1, 2009) participate in a “cash
balance” pension formula. The Company provides eligible domestic employees who retire under qualifying
conditions with access to postretirement health care, at full cost to the retiree (certain employees are
“grandfathered” into subsidized coverage). In order to measure the expense and funded status of these employee
benefit plans, management makes several estimates and assumptions, including interest rates used to discount
certain liabilities, rates of return on assets set aside to fund these plans, rates of compensation increases, employee
turnover rates, anticipated mortality rates, and anticipated future health care costs. These estimates and
assumptions are based on the Company’s historical experience combined with management’s knowledge and
understanding of current facts and circumstances. Management also uses third-party actuaries to assist in
measuring the expense and funded status of these employee benefit plans. If management used different estimates
and assumptions regarding these plans, the funded status of the plans could vary significantly, and the Company
could recognize different amounts of expense over future periods.
Income Taxes
The Company frequently faces challenges from domestic and foreign tax authorities regarding the amount of taxes
due. These challenges include questions regarding the timing and amount of deductions and the allocation of
income among various tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the
Company records reserves for estimates of potential additional tax owed by the Company. Deferred tax assets
represent items to be used as tax deductions or credits in future tax returns, and the related tax benefit has already
been recognized in the Company’s income statement. Realization of certain deferred tax assets reflects the
Company’s tax planning strategies. Valuation allowances related to these deferred tax assets have been established
to the extent the realization of the tax benefit is not probable. Based on management’s evaluation of the
Company’s tax position, it is believed the amounts related to these tax exposures are appropriately accrued. To the
extent the Company were to favorably resolve matters for which accruals have been established or be required to
pay amounts in excess of the aforementioned reserves, the Company’s effective tax rate in a given financial
statement period may be impacted.
Undistributed earnings of the Company’s foreign subsidiaries and affiliated corporate joint ventures accounted for
on the equity method are considered to be permanently reinvested, and accordingly, no provision for U.S. income
taxes has been provided thereon. If the Company were to receive distributions from any of these foreign
subsidiaries or affiliates or determine the undistributed earnings of these foreign subsidiaries or affiliates to not be
permanently reinvested, the Company could be subject to U.S. tax liabilities which have not been provided for in
the consolidated financial statements.