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Income Taxes | 6 Months Ended
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Dec. 31, 2012
Income Taxes [Abstract] |
Income Taxes | Note 14. Income Taxes The following table sets forth the geographic split of earnings before income taxes:
|  |  | Six Months Ended |  | Year Ended
(In millions) |  |  | December 31 |  | June 30
|  |  | 2012 |  | 2011 |  | 2012 |  | 2011 |  | 2010
|  |  |  |  |  | (Unaudited) |  |  |  |  |  |  |  |  |
United States |  |  | $ | 611 |  | $ | 592 |  | $ | 1,035 |  | $ | 2,035 |  | $ | 1,453
Foreign |  |  |  | 386 |  |  | 189 |  |  | 730 |  |  | 980 |  |  | 1,132
|  |  | $ | 997 |  | $ | 781 |  | $ | 1,765 |  | $ | 3,015 |  | $ | 2,585
Significant components of income tax are as follows:
|  |  | Six Months Ended |  | Year Ended
(In millions) |  |  | December 31 |  | June 30
|  |  | 2012 |  | 2011 |  | 2012 |  | 2011 |  | 2010
|  |  |  |  |  | (Unaudited) |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | $ | 92 |  | $ | 179 |  | $ | 300 |  | $ | 251 |  | $ | 422
State |  |  |  | 9 |  |  | 19 |  |  | 21 |  |  | 10 |  |  | 18
Foreign |  |  |  | 83 |  |  | 7 |  |  | 118 |  |  | 222 |  |  | 195
Deferred |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  | 92 |  |  | 14 |  |  | 66 |  |  | 483 |  |  | 107
State |  |  |  | 20 |  |  | 3 |  |  | 9 |  |  | 43 |  |  | (4)
Foreign |  |  |  | 7 |  |  | 15 |  |  | 9 |  |  | (12) |  |  | (72)
|  |  | $ | 303 |  | $ | 237 |  | $ | 523 |  | $ | 997 |  | $ | 666
Significant components of deferred tax liabilities and assets are as follows:
|  | December 31 |  | June 30 |  | June 30
|  | 2012 |  | 2012 |  | 2011
|  | (In millions)
Deferred tax liabilities |  |  |  |  |  |  |  |  |
Property, plant, and equipment |  | $ | 1,163 |  | $ | 1,085 |  | $ | 1,016
Equity in earnings of affiliates |  |  | 329 |  |  | 334 |  |  | 255
Debt exchange |  |  | 140 |  |  | 58 |  |  | -
Inventories |  |  | 89 |  |  | 81 |  |  | 324
Other |  |  | 141 |  |  | 92 |  |  | 104
|  | $ | 1,862 |  | $ | 1,650 |  | $ | 1,699
Deferred tax assets |  |  |  |  |  |  |  |  |
Pension and postretirement benefits |  | $ | 373 |  | $ | 487 |  | $ | 307
Stock compensation |  |  | 67 |  |  | 63 |  |  | 58
Foreign tax credit carryforwards |  |  | 32 |  |  | 31 |  |  | 46
Foreign tax loss carryforwards |  |  | 344 |  |  | 241 |  |  | 220
Capital loss carryforwards |  |  | 25 |  |  | - |  |  | -
State tax attributes |  |  | 79 |  |  | 67 |  |  | 57
Other |  |  | 105 |  |  | 126 |  |  | 129
Gross deferred tax assets |  |  | 1,025 |  |  | 1,015 |  |  | 817
Valuation allowances |  |  | (173) |  |  | (145) |  |  | (95)
Net deferred tax assets |  | $ | 852 |  | $ | 870 |  | $ | 722
Net deferred tax liabilities |  | $ | 1,010 |  | $ | 780 |  | $ | 977
The net deferred tax liabilities are classified as follows: |  |  |  |  |  |  |  |  |
Current assets |  | $ | 36 |  | $ | - |  | $ | -
Current assets (foreign) |  |  | - |  |  | - |  |  | 57
Current liabilities |  |  | - |  |  | (6) |  |  | (175)
Current liabilities (foreign) |  |  | (97) |  |  | (54) |  |  | -
Noncurrent assets (foreign) |  |  | 318 |  |  | 281 |  |  | 106
Noncurrent liabilities |  |  | (1,267) |  |  | (1,001) |  |  | (965)
|  | $ | (1,010) |  | $ | (780) |  | $ | (977)
Reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on earnings is as follows:
|  | Six Months Ended |  | Year Ended
|  | December 31 |  |  | June 30
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |  | 2010
|  |  |  |  | (Unaudited) |  |  |  |  |  |  |  |  |
Statutory rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
federal tax benefit |  | 2.4 |  |  | 2.4 |  |  | 1.4 |  |  | 1.1 |  |  | 0.3 |
Foreign earnings taxed at rates |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
other than the U.S. statutory rate |  | (7.6) |  |  | (7.2) |  |  | (4.8) |  |  | (5.0) |  |  | (8.4) |
Foreign currency remeasurement |  | 2.6 |  |  | (0.3) |  |  | (3.3) |  |  | 0.9 |  |  | (0.7) |
Income tax adjustment to filed returns |  | (1.5) |  |  | (0.7) |  |  | 0.9 |  |  | (0.2) |  |  | - |
Other |  | (0.5) |  |  | 1.1 |  |  | 0.4 |  |  | 1.3 |  |  | (0.4) |
Effective income tax rate |  | 30.4 | % |  | 30.3 | % |  | 29.6 | % |  | 33.1 | % |  | 25.8 | %
The Company has $34 4 million, $241 million, and $220 million of tax assets related to net operating loss carry-forwards of certain international subsidiaries at December 31, 2012, June 30, 2012, and 2011, respectively. As of December 31, 2012, approximately $321 million of these assets have no expiration date, and the remaining $23 million expire at v arious times through fiscal 2030. The annual usage of certain of these assets is limited to a percentage of taxable income of the respective foreign subsidiary for the year. The Company has recorded a valuation allowance of $1 02 million, $96 million, and $52 million against these tax assets at December 31, 2012, June 30, 2012, and 2011, respectively, due to the uncertainty of their realization. The Company has $25 million of tax assets related to foreign and domestic capital loss carryforwards at December 31, 2012. The Company has recorded a valuation allowance of $15 million against these tax assets at December 31, 2012. The Company has $32 million, $31 million, and $46 million of tax assets related to excess foreign tax credits at December 31, 2012 and June 30, 2012 and 2011, respectively, which begin to ex pire in 2013. The Company has $79 million, $67 million, and $57 million of tax assets related to state income tax attributes (incentive credits and net operating loss carryforwards), net of federal tax benefit, at December 31, 2012 and June 30, 2012 and 2011, respectively, which will expire at v arious times through fiscal 2032. The Company has not rec orded a valuation allowance against the exces s foreign tax credits at December 31, 2012. The Company has recorded a valuation allowance against the state income tax assets of $56 million, net of fe deral tax benefit as of December 31, 2012. Due to the uncertainty of realization, the Company had $4 million and $7 million of valuation allowance recorded related to the excess foreign tax credits as of June 30, 2012 and 2011, respectively, and $45 million and $36 million valuation allowance related to st ate income tax assets net of federal tax benefit as of June 30, 2011 and 2011, respectively. The Company remains subject to federal examination in the U.S. for the calendar tax year 2012. Undistributed earnings of the Company’s foreign subsidiaries and the Company’s share of the undistributed earnings of affiliated corporate joint venture companies accounted for on the equity method amounting to approximately $7.7 billion at December 31, 2012, are considered to be permanently reinvested, and accordingly, no provision for U.S. income taxes has been provided thereon. It is not practicable to determine the deferred tax liability for temporary differences related to these undistributed earnings. The Company accounts for its income tax positions under the provisions of ASC Topic 740, Income Taxes (ASC 740). ASC 740 prescribes a minimum threshold a tax position is required to meet before being recognized in the consolidated financial statements. This interpretation requires the Company to recognize in the consolidated financial statements tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the position. A rollforward of activity of unrecognized tax benefits for the six months ended December 31, 2012 and the year s ended June 30, 2012 and 2011 are as follows:
|  | Unrecognized Tax Benefits
|  | December 31, 2012 | June 30, 2012 | June 30, 2011
|  | (In millions)
Beginning balance |  | $ | 80 | $ | 79 | $ | 84
Additions related to current year’s tax positions |  |  | - |  | - |  | 4
Additions related to prior years’ tax positions |  |  | 6 |  | 26 |  | -
Reductions related to prior years’ tax positions |  |  | (1) |  | (21) |  | (7)
Reductions due to lapse of statute of limitations |  |  | (1) |  | - |  | -
Settlements with tax authorities |  |  | (7) |  | (4) |  | (2)
Ending balance |  | $ | 77 | $ | 80 | $ | 79
The additions and reductions in unrecognized tax benefits shown in the table include effects related to net income and shareholders’ equity. The changes in unrecognized tax benefits did not have a material effect on the Company’s net income or cash flow. The Company classifies interest on income tax-related balances as interest expense and classifies tax-related penalties as selling, general and administrative expenses. At December 31, 2012 and June 30, 2012 and 2011, the Company had accrued interest and penalties on unrecognized tax benefits of $17 million, $16 million, and $27 million, respectively. The Company is subject to income taxation in many jurisdictions around the world. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions. However, the Company does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect that the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period. If the total amount of unrecognized tax benefits were recognized by the Company at one time, there would be a reduction of $56 million on the tax expense for that period. The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), received three separate tax assessments from the Brazilian Federal Revenue Service (BFRS) challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006 and 2007 in the amounts of $474 million, $20 million, and $83 million, respectively (inclusive of interest and adjusted for variation in currency exchange rates). ADM do Brasil’s tax return for 2005 was also audited and no assessment was received. The statute of limitations for 2005 has expired. If the BFRS were to challenge commodity hedging deductions in tax years after 2007, the Company estimates it could receive additional claims of approximately $102 million (as of December 31, 2012 and subject to variation in currency exchange rates). ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS. ADM do Brasil filed an administrative appeal for each of the assessments. During the second quarter of fiscal 2011, a decision in favor of the BFRS on the 2004 assessment was received and a second level administrative appeal has been filed. In January of 2012, a decision in favor of the BFRS on the 2006 and 2007 assessments was received and a second level administrative appeal has been filed. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, further appeals are available in the Brazilian federal courts. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2007. The Company’s subsidiaries in Argentina have received tax assessments challenging transfer prices used to price grain exports totaling $63 million (inclusive of interest and adjusted for variation in currency exchange rates) for the tax years 2004, 2005 and 2006. The Argentine tax authorities have been conducting a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of i ncome tax evasion. While the Company believes that it has complied with all Ar gentine tax laws, it cannot rule out receiving additional assessments, which could be material to the Company, challenging transfer pric es used to price grain exports for years subsequent to 2006. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2006. The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, the Company has not recorded a tax liability for these assessments. In accordance with the accounting requirements for uncertain tax positions, the Company has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits. The Company has not recorded an uncertain tax liability for these assessments partly because the taxing juridictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in the payment and expense of up to the entire amount of these assessments.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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