Archer Daniels Midland 2009 Annual Report Download - page 71

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65
Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 12.
Income Taxes (Continued)
The Company has $55 million and $69 million of tax assets for net operating loss carry-forwards related to certain
international subsidiaries at June 30, 2009 and 2008, respectively. As of June 30, 2009, approximately $48 million
of these assets have no expiration date, and the remaining $7 million expire at various times through fiscal 2018.
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 $51 million and $60
million against these tax assets at June 30, 2009 and 2008, respectively, due to the uncertainty of their realization.
The Company also has $38 million of tax assets related to excess foreign tax credits which begin to expire in fiscal
2013 and $12 million of tax assets related to state income tax attributes (incentive credits and net operating loss
carryforwards) net of federal benefit which will expire at various times through fiscal 2015. The Company has
recorded a valuation allowance of $11 million against the excess foreign tax credits at June 30, 2009, due to the
uncertainty of realization. The Company has recorded a valuation allowance against the state income tax assets of
$2 million as of June 30, 2009. As of June 30, 2008, the Company had a $24 million valuation allowance recorded
related to the excess foreign tax credits and a $1 million valuation allowance related to state income tax incentive
credits, 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 billion at June 30, 2009, 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 International Ltd. (WIL).
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 WIL that represented
approximately 40% of the WIL shares indirectly held by WIHL. The liquidation caused the difference between the
market value of the WIL shares received and the tax basis of ADMAP’s investment in WIHL to be subject to U.S.
income tax as a deemed distribution from ADMAP to the Company. Consequently, as of March 31, 2009, 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 partial
liquidating 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.
The finalization of the liquidation process is expected to take up to 15 months and is contingent on certain
regulatory approvals. While the ultimate impact of the transaction is uncertain, based on the August 26, 2009
market value of WIL shares and certain other assumptions, including the applicable foreign currency exchange rate
and the U.S. income tax rate, the finalization of the liquidation could result in additional income tax expense for the
Company of approximately $560 million in the period(s) that it occurs.