Walmart 2009 Annual Report Download - page 44

42 Wal-Mart 2009 Annual Report
Notes to Consolidated Financial Statements
continuing operations and a $28 million increase in the related liability
for interest and penalties for a total of $264 million. Of this amount,
$160 million was accounted for as a reduction to the February 1, 2007
balance of retained earnings, $70 million as an increase to non-current
deferred tax assets, and $34 million as an increase to current deferred
tax assets.
The Company classi es interest on uncertain tax bene ts as interest
expense and income tax penalties as operating, selling, general and
administrative expenses. At February 1, 2007, before any tax bene ts,
the Company had $177 million of accrued interest and penalties on
unrecognized tax bene ts.
In the normal course of business, the Company provides for uncertain
tax positions and the related interest and adjusts its unrecognized tax
bene ts and accrued interest accordingly. Unrecognized tax bene ts
related to continuing operations increased by $149 million and $89 mil-
lion for  scal 2009 and 2008, respectively. Accrued interest increased
by $47 million and $65 million for  scal 2009 and 2008, respectively.
Penalties decreased by $12 million for  scal 2009. During the next
twelve months, it is reasonably possible that tax audit resolutions could
reduce unrecognized tax bene ts by $150 million to $230 million,
either because the tax positions are sustained on audit or because the
Company agrees to their disallowance. Such unrecognized taxed
bene ts relate primarily to timing recognition issues.
A reconciliation of unrecognized tax bene ts from continuing opera-
tions is as follows:
Unrecognized
(Amounts in millions) Tax Bene ts
Balance at February 1, 2007 $ 779
Increases related to prior year tax positions 125
Decreases related to prior year tax positions (82)
Increases related to current year tax positions 106
Settlements during the period (50)
Lapse of statute of limitations (10)
Balance at January 31, 2008 $ 868
Increases related to prior year tax positions 296
Decreases related to prior year tax positions (34)
Increases related to current year tax positions 129
Settlements during the period (238)
Lapse of statute of limitations (4)
Balance at January 31, 2009 $1,017
The amount, if recognized, which is included in the balance at
January 31, 2009, that would a ect the Company’s e ective tax rate
is $582 million. The di erence represents the amount of unrecognized
tax bene ts for which the ultimate tax consequence is certain, but
for which there is uncertainty about the timing of the tax conse-
quence recognition. Because of the impact of deferred tax account-
ing, the timing would not impact the annual e ective tax rate but
could accelerate the payment of cash to the taxing authority to an
earlier period.
As of February 1, 2007, and at January 31, 2009, the Company had
unrecognized tax bene ts of $1.7 billion which are related to a worth-
less stock deduction the Company has claimed on its disposition of its
German operations in the second quarter of  scal 2007, as mentioned
above. Of this, $63 million was recognized in discontinued operations
during the second quarter of  scal 2009 following the resolution of a
gain determination on a discontinued operation that was sold in  scal
2004. The remaining balance, when settled, will be recorded as dis-
continued operations. The Company cannot predict the ultimate
outcome of this matter, nor can it predict with reasonable certainty if
it will be resolved within the next twelve months.
The Company is subject to income tax examinations for its U.S. federal
income taxes generally for the  scal years 2008 and 2009, with  scal
years 2004 through 2007 remaining open for a limited number of
issues, for non-U.S. income taxes for the tax years 2003 through 2009,
and for state and local income taxes for the  scal years generally
2004 through 2008 and from 1998 for a limited number of issues.
Non-Income Taxes
Additionally, the Company is subject to tax examinations for payroll,
value added, sales-based and other taxes. A number of these exami-
nations are ongoing and, in certain cases, have resulted in assessments
from the taxing authorities. Where appropriate, the Company has
made accruals for these matters which are re ected in the Company’s
Consolidated Financial Statements. While these matters are individu-
ally immaterial, a group of related matters, if decided adversely to the
Company, may result in liability material to the Company’s  nancial
condition or results of operations.
6 Acquisitions, Investments and Disposals
Acquisitions and Investments
In February 2007, the Company announced the purchase of a 35%
interest in BCL. BCL operates 101 hypermarkets in 34 cities in China
under the Trust-Mart banner. The purchase price for the 35% interest
was $264 million. As additional consideration, the Company paid
$376 million to extinguish a loan issued to the selling BCL shareholders
that is secured by the pledge of the remaining equity of BCL. Con-
current with its initial investment in BCL, the Company entered into
a stockholders agreement which provides the Company with voting
rights associated with a portion of the common stock of BCL securing
the loan, amounting to an additional 30% of the aggregate outstand-
ing shares. Pursuant to the purchase agreement, the Company is
committed to purchase the remaining interest in BCL on or before
February 2010 subject to certain conditions. The  nal purchase price
for the remaining interest will be approximately $320 million, net of
loan repayments and subject to reduction under certain circumstances.
After closing the acquisition, the Company began consolidating BCL
using a December 31  scal year-end. The Company’s Consolidated
Statements of Income for  scal 2008 include the results of BCL for the
period commencing upon the acquisition of the Company’s interest
in BCL and ending December 31, 2007. BCL’s results of operations were
not material to the Company in  scal 2008. Assets recorded in the
acquisition were approximately $1.6 billion, including approximately
$1.1 billion in goodwill, and liabilities assumed were approximately
$1.0 billion.
In August 2007, the Company announced an agreement between
Wal-Mart and Bharti Enterprises, an Indian company, to establish a
joint venture called Bharti Wal-Mart Private Limited to conduct whole-
sale cash-and-carry and back-end supply chain management opera-