Walmart 2012 Annual Report Download - page 51
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The Company classifi es interest and penalties related to uncertain tax
benefi ts as interest expense and as operating, selling, general and
administrative expenses, respectively. During fi scal 2012, 2011 and 2010,
the Company recognized interest and penalty (benefi t) expense related
to uncertain tax positions of $(19) million, $45 million and $88 million,
respectively. At January 31, 2012 and 2011, the Company had accrued
interest related to uncertain tax positions of $166 million and $205 million,
respectively, and $0 million and $2 million of accrued penalties, respectively.
During the next twelve months, it is reasonably possible that tax audit
resolutions could reduce unrecognized tax benefi ts by between
$15 million and $43 million, either because the tax positions are sustained
on audit or because the Company agrees to their disallowance. The
Company does not expect any change to have a signifi cant impact in
its Consolidated Financial Statements.
The Company remains subject to income tax examinations for its
U.S. federal income taxes generally for fi scal 2009 through 2012. The
Company also remains subject to income tax examinations for
international income taxes for fi scal 2003 through 2012, and for U.S. state
and local income taxes generally for fi scal 2006 through 2012.
Discontinued Operations
At January 31, 2010, the Company had an unrecognized tax benefi t of
$1.7 billion related to an ordinary worthless stock deduction from the fi scal
2007 disposition of its German operations. During the fourth quarter of
fi scal 2011, this matter was eff ectively settled with the Internal Revenue
Service, which resulted in the reclassifi cation of the deduction as an
ordinary loss, a capital loss that the Company has fully off set with a
valuation allowance, and a reduction in the accumulated but undistributed
earnings of an international subsidiary. In connection with this settlement,
the Company recorded a $1.0 billion tax benefi t in discontinued opera-
tions in the Company’s Consolidated Statements of Income (see Note 14)
and a reduction of its accrued income tax liability in the Company’s
Consolidated Balance Sheet at January 31, 2011. In addition, during fi scal
2012, tax and related interest expense of $67 million was recorded to
discontinued operations related to audit adjustments and amended
returns from this settlement for U.S. federal and state income tax purposes.
Other Taxes
Additionally, the Company is subject to tax examinations for payroll,
value added, sales-based and other non-income 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 refl ected 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
Consolidated Financial Statements.
11 Legal Proceedings
The Company is involved in a number of legal proceedings. The Company
has made accruals with respect to these matters, where appropriate,
which are refl ected in the Company’s Consolidated Financial Statements.
For some matters, the amount of liability is not probable or the amount
cannot be reasonably estimated and therefore accruals have not been
made. However, where a liability is reasonably possible and material,
such matters have been disclosed. The Company may enter into
discussions regarding settlement of these matters, and may enter into
settlement agreements, if it believes settlement is in the best interest of
the Company’s shareholders. The matters, or groups of related matters,
discussed below, if decided adversely to or settled by the Company,
individually or in the aggregate, may result in a liability material to the
Company’s fi nancial condition or results of operations.
Wage-and-Hour Class Action: The Company is a defendant in
Braun/Hummel v. Wal-Mart Stores, Inc., a class action lawsuit commenced
in March 2002 in the Court of Common Pleas in Philadelphia, Pennsylvania.
The plaintiff s allege that the Company failed to pay class members for all
hours worked and prevented class members from taking their full meal and
rest breaks. On October 13, 2006, a jury awarded back-pay damages to
the plaintiff s of approximately $78 million on their claims for off -the-clock
work and missed rest breaks. The jury found in favor of the Company on
the plaintiff s’ meal-period claims. On November 14, 2007, the trial judge
entered a fi nal judgment in the approximate amount of $188 million, which
included the jury’s back-pay award plus statutory penalties, prejudgment
interest and attorneys’ fees. By operation of law, post-judgment interest
accrues on the judgment amount at the rate of six percent per annum
from the date of entry of the judgment, which was November 14, 2007,
until the judgment is paid, unless the judgment is set aside on appeal. On
December 7, 2007, the Company fi led its Notice of Appeal. The Company
fi led its opening appellate brief on February 17, 2009, plaintiff s fi led their
response brief on April 20, 2009, and the Company fi led its reply brief
on June 5, 2009. Oral argument was held before the Superior Court of
Appeals on August 19, 2009. On June 10, 2011, the Superior Court of
Appeals issued an opinion upholding the trial court’s certifi cation of the
class, the jury’s back pay award, and the awards of statutory penalties
and prejudgment interest, but reversing the award of attorneys’ fees and
remanding it back to the trial court for a downward adjustment. On July
10, 2011, the Company fi led an Application for Rehearing En Banc with
regard to the portions of the opinion that held in favor of the plaintiff s,
which was denied on August 11, 2011. On September 9, 2011, the Company
fi led a Petition for Allowance of Appeal with the Pennsylvania Supreme
Court. The plaintiffs filed a response on September 23, 2011, and the
Company fi led a reply brief on September 30, 2011. The Company believes
it has substantial factual and legal defenses to the claims at issue, and
plans to continue pursuing appellate review.
Gender Discrimination Class Actions: The Company is a defendant
in Dukes v. Wal-Mart Stores, Inc., which was commenced as a class-action
lawsuit in June 2001 in the United States District Court for the Northern
District of California, asserting that the Company had engaged in a pattern
and practice of discriminating against women in promotions, pay,
Notes to Consolidated Financial Statements