Walmart 2010 Annual Report Download - page 45

Uncertain Tax Positions
As of February 1, 2007, the company adopted a new accounting policy
for recording uncertain tax positions. The benefits of uncertain tax
positions are recorded in our financial statements only after determin-
ing a more-likely-than-not probability that the uncertain tax positions
will withstand challenge, if any, from taxing authorities.
As of January 31, 2010 and 2009, the amount of unrecognized tax benefits
related to continuing operations was $1.0 billion, of which, the amount
of unrecognized tax benefits that would affect the company’s effective
tax rate is $671 million and $582 million for January 31, 2010 and
2009, respectively.
A reconciliation of unrecognized tax benefits from continuing operations
is as follows:
January 31,
(Amounts in millions) 2010 2009
Beginning balance $1,017 $ 868
Increases related to prior year
tax positions 129 296
Decreases related to prior year
tax positions (33) (34)
Increases related to current year
tax positions 246 129
Settlements during the period (340) (238)
Lapse of statute of limitation — (4)
Ending balance $1,019 $1,017
Unrecognized tax benefits related to continuing operations increased
by approximately $2 million and $149 million for fiscal years 2010 and
2009, respectively.
The company classifies interest and penalties related to uncertain tax
benefits as interest expense and as operating, selling, general and
administrative expenses, respectively. Accrued interest decreased by
$29 million during fiscal 2010 and increased by $47 million during
fiscal 2009. During the fiscal years ended January 31, 2010 and 2009, the
company recorded accrued interest of $231 million and $260 million,
respectively. Accrued penalties totaled $2 million at January 31, 2010
and 2009. There were no changes to accrued penalties during the year.
During the next 12 months, it is reasonably possible that tax audit
resolutions could reduce unrecognized tax benefits by between
$350 million and $500 million, either because the tax positions are
sustained on audit or because the company agrees to their disallow-
ance. The company does not expect any change to have a significant
impact on its results of operations or financial position.
At January 31, 2010 and 2009, the company had an unrecognized tax
benefit of $1.7 billion, which is related to an ordinary worthless stock
deduction from the fiscal 2007 disposition of its German operations.
Of this, $63 million was recognized in discontinued operations during
fiscal 2009 following the resolution of a gain contingency on a discontinued
operation sold in fiscal 2004. When effectively settled, any additional
benefit will be recorded in discontinued operations. If some portion of
the ordinary loss is determined to be a capital loss, the resulting deferred
tax asset will be included with the company’s non-current assets of
discontinued operations. The company cannot predict the ultimate
outcome of this matter; however, it is reasonably possible it will be
resolved in the next twelve months.
The company is subject to income tax examinations for its U.S. federal
income taxes generally for the fiscal years 2009 and 2010, with fiscal
years 2004 through 2008 remaining open for a limited number of issues.
The company is also subject to income tax examinations for non-U.S.
income taxes for the tax years 2003 through 2010, and for state and local
income taxes for the fiscal years generally 2006 through 2009 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 examinations 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 reflected in the company’s Consolidated
Financial Statements. While these matters are individually immaterial,
a group of related matters, if decided adversely to the company, may
result in a liability material to the company’s financial condition or
results of operations.
9 Acquisitions, Investments and Disposals
Acquisitions and Investments
In February 2007, the company announced the purchase of a 35%
interest in Bounteous Company Limited (“BCL”). BCL operated 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 third-
party loan issued to the selling BCL shareholders that is secured by the
pledge of the remaining equity of BCL. Concurrent with its initial
investment in BCL, the company entered into a stockholders’ agree-
ment, 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 outstanding shares. Pursuant to
the purchase agreement, which was recently amended, the company
is committed to purchase the remaining interest in BCL on or before
November 26, 2010, subject to certain conditions. Under the terms
of the original share purchase agreement, the final purchase price for
the remaining interest will be approximately $320 million, net of loan
repayments and subject to reduction under certain circumstances.
Notes to Consolidated Financial Statements
Walmart 2010 Annual Report 43