Walmart 2007 Annual Report Download - page 52

Wal-Mart 2007 Annual Report 50
5 Income Taxes
The income tax provision consists of the following (in millions):
Fiscal Year Ended January 31, 2007 2006 2005
Current:
Federal $4,871 $4,646 $4,116
State and local 522 449 640
International 883 837 570
Total current tax provision 6,276 5,932 5,326
Deferred:
Federal (15) (62) 311
State and local 4 56 (71)
International 100 (123) 23
Total deferred tax provision 89 (129) 263
Total provision for income taxes $6,365 $5,803 $5,589
Income from continuing operations before income taxes and minority
interest by jurisdiction is as follows (in millions):
Fiscal Year Ended January 31, 2007 2006 2005
United States $15,158 $14,447 $13,599
Outside the United States 3,810 3,088 2,721
Total income from continuing
operations before income
taxes and minority interest $18,968 $17,535 $16,320
Items that give rise to signi cant portions of the deferred tax accounts
are as follows (in millions):
January 31, 2007 2006
Deferred tax liabilities
Property and equipment $3,153 $2,816
Inventory 600 551
Other 282 392
Total deferred tax liabilities $4,035 $3,759
Deferred tax assets
Net operating loss carryforwards $ 865 $ 892
Amounts accrued for  nancial
reporting purposes not yet
deductible for tax purposes 1,847 1,668
Share-based compensation 300 248
Other 846 737
Total deferred tax assets 3,858 3,545
Valuation allowance (921) (912)
Total deferred tax assets,
net of valuation allowance $2,937 $2,633
Net deferred tax liabilities $1,098 $1,126
The change in the Company’s net deferred tax liability is impacted by
foreign currency translation.
A reconciliation of the signi cant di erences between the e ective
income tax rate and the federal statutory rate on pretax income is
as follows:
Fiscal Year Ended January 31, 2007 2006 2005
Statutory tax rate 35.00% 35.00% 35.00%
State income taxes, net of
federal income tax bene t 1.80% 1.85% 2.27%
Income taxes outside the
United States (1.84%) (2.09%) (2.21%)
Other (1.40%) (1.67%) (0.81%)
E ective income tax rate 33.56% 33.09% 34.25%
Federal and state income taxes have not been provided on
accumulated but undistributed earnings of foreign subsidiaries
aggregating approximately $8.7 billion at January 31, 2007 and
$6.8 billion at January 31, 2006, as such earnings have been per-
manently reinvested in the business. The determination of the
amount of the unrecognized deferred tax liability related to the
undistributed earnings is not practicable.
The Company had foreign net operating loss carryforwards of
$2.3 billion and $2.4 billion at January 31, 2007 and 2006, respectively.
Of these amounts, $2.0 billion relates to pre-acquisition losses at
January 31, 2007 and 2006. Any tax bene t ultimately realized from
these pre-acquisition net operating loss carryforwards will adjust good-
will. Net operating loss carryforwards of $1.3 billion expire in various
years through 2014. Prior year amounts have been restated for losses
of the discontinued operations and for certain pre-acquisition losses
now included.
During  scal 2007, the Company recorded a pretax loss of $918 million
on the disposition of its German operations. In addition, the Company
recognized a tax bene t of $126 million related to this transaction.
See Note 6, Acquisitions and Disposals, for additional information about
this transaction. The Company plans to deduct the tax loss realized
on the disposition of its German operations as an ordinary worthless
stock deduction. Final resolution of the amount and character of the
deduction may result in the recognition of additional tax bene ts of
up to $1.6 billion which may be included in discontinued operations
in future periods. The Internal Revenue Service often challenges the
characterization of such deductions. If the loss is recharacterized as
a capital loss, any such capital loss could only be realized by o set
against future capital gains and would expire in 2012. Any deferred
tax asset, net of its related valuation allowance, resulting from the
characterization of the loss as capital may be included with the
Company’s non-current assets of discontinued operations.
Notes to Consolidated Financial Statements