Archer Daniels Midland 2010 Annual Report Download - page 73

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69
Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 12.
Income Taxes (Continued)
The Company has $135 million and $55 million of tax assets for net operating loss carry-forwards related to certain
international subsidiaries at June 30, 2010 and 2009, respectively. As of June 30, 2010, approximately $132
million of these assets have no expiration date, and the remaining $3 million expire at various times through fiscal
2019. The annual usage of certain of these assets is limited to a percentage of taxable income of the respective
international subsidiary for the year. The Company has recorded a valuation allowance of $38 million and $51
million against these tax assets at June 30, 2010 and 2009, respectively, due to the uncertainty of their realization.
The Company has $41 million and $38 million of tax assets related to excess foreign tax credits at June 30, 2010
and 2009, respectively, which begin to expire in fiscal 2013. The Company has $50 million and $9 million of tax
assets related to state income tax attributes (incentive credits and net operating loss carryforwards) net of federal
benefit at June 30, 2010 and 2009, respectively, which will expire at various times through fiscal 2016. The
Company has recorded a valuation allowance of $7 million against the excess foreign tax credits at June 30, 2010,
due to the uncertainty of realization. The Company has recorded a valuation allowance against the state income tax
assets of $26 million net of federal benefit as of June 30, 2010. As of June 30, 2009, the Company had an $11
million valuation allowance recorded related to the excess foreign tax credits and a $2 million valuation allowance
related to state income tax attributes, due to the uncertainty of realization.
The Company remains subject to examination in the U.S. for the calendar tax years 2007, 2008 and 2009.
Undistributed earnings of the Company‘s foreign subsidiaries and affiliated corporate joint venture companies
accounted for on the equity method amounting to approximately $6.6 billion at June 30, 2010, 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.
During 2009, approximately $158 million of income tax expense was incurred related to the Company‘s investment
in Wilmar International Holdings, Limited (WIHL), a subsidiary of ADM Asia Pacific, Limited (ADMAP), a
wholly-owned subsidiary of the Company. Through WIHL, ADMAP holds an indirect ownership interest in
Wilmar.
Historically, the Company considered the retained earnings of its investment in ADMAP to be permanently
reinvested outside the U.S. Therefore, the Company provided no deferred tax liability associated with the
undistributed earnings of this investment prior to the third quarter of 2009. On February 3, 2009, the shareholders
of WIHL approved a plan of voluntary liquidation which was followed by a partial liquidating distribution on April
1, 2009. Pursuant to this distribution, ADMAP received publicly traded shares of Wilmar that represented
approximately 40% of the Wilmar shares indirectly held by WIHL. The distribution caused the market value
of the Wilmar shares received to be subject to U.S. income tax as a deemed distribution from ADMAP to the
Company. Consequently, the Company concluded that a portion of its investment in ADMAP related to its
investment in WIHL was not permanently reinvested. Accordingly, the Company recorded approximately $97
million of income tax expense and deferred income tax liability in the third quarter of 2009 to reflect the book-tax
basis difference of its investment in WIHL as of March 31, 2009. On April 1, 2009, the income tax gain generated
by the distribution of WIHL triggered additional U.S. income tax expense of approximately $61 million which was
recorded in the Company‘s fourth quarter 2009 and established a new tax basis in the U.S. for the Company‘s
WIHL investment.
In fiscal 2010, the liquidation process of WIHL was terminated, without any further liquidating distributions. As a
result of the formal termination proceedings in 2010, the Company recognized $12 million of additional income tax
expense in 2010 related to the original 2009 deemed and liquidating distributions. Previously, the Company has
anticipated that the liquidation of WIHL could have resulted in additional income tax expense of approximately
$590 million in the period that the liquidation would have occurred. As a result of the termination of the liquidation
proceedings, we currently do not anticipate any further distributions which would result in additional income tax
expense. However, in the event that such distributions occur in the future, it could result in a material expense and
payment of income taxes by the Company.