Walmart 2014 Annual Report Download - page 56

As of January 31, 2014 and 2013, the Company had valuation allowances
recorded of approximately $1.8 billion and $2.2 billion, respectively, on
deferred tax assets associated primarily with net operating loss carry-
forwards for which management has determined it is more likely than
not that the deferred tax asset will not be realized. The $0.4 billion net
decrease in the valuation allowance during scal 2014 related to releases
arising from the use of deferred tax assets, changes in judgment regarding
the future realization of deferred tax assets, increases from certain net
operating losses and deductible temporary dierences arising in scal 2014,
decreases due to operating and capital loss expirations and uctuations
in currency exchange rates. Management believes that it is more likely
than not that the remaining net deferred tax assets will be fully realized.
Uncertain Tax Positions
The benets of uncertain tax positions are recorded in the Company’s
Consolidated Financial Statements only after determining a more likely
than not probability that the uncertain tax positions will withstand
challenge, if any, from taxing authorities.
As of January 31, 2014 and 2013, the amount of unrecognized tax
benets related to continuing operations was $763 million and $818 million,
respectively. The amount of unrecognized tax benets that would aect
the Company’s eective income tax rate was $698 million and $741 million
for January 31, 2014 and 2013, respectively.
A reconciliation of unrecognized tax benets from continuing operations
was as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2014 2013 2012
Unrecognized tax benets,
beginning of year $ 818 $ 611 $ 795
Increases related to prior year
tax positions 41 88 87
Decreases related to prior year
tax positions (112) (232) (162)
Increases related to current year
tax positions 133 431 56
Settlements during the period (117) (80) (161)
Lapse in statutes of limitations — — (4)
Unrecognized tax benets,
end of year $ 763 $ 818 $ 611
The Company classies interest and penalties related to uncertain tax
benets as interest expense and as operating, selling, general and
administrative expenses, respectively. During scal 2014, 2013 and 2012,
the Company recognized interest and penalty expense (benet) related
to uncertain tax positions of $(7) million, $2 million and $(19) million,
respectively. As of January 31, 2014 and 2013, accrued interest related to
uncertain tax positions of $40 million and $139 million, respectively, was
recorded in the Company’s Consolidated Balance Sheets. The Company
did not have any accrued penalties recorded for income taxes as of
January 31, 2014 or 2013.
During the next twelve months, it is reasonably possible that tax audit
resolutions could reduce unrecognized tax benets by between
$50 million and $250 million, either because the tax positions are sustained
on audit or because the Company agrees to their disallowance. The
Company is focused on resolving tax audits as expeditiously as possible.
As a result of these eorts, unrecognized tax benets could potentially
be reduced beyond the provided range during the next twelve months.
The Company does not expect any change to have a signicant impact
to its Consolidated Financial Statements.
The Company remains subject to income tax examinations for its U.S.
federal income taxes generally for scal 2012 through 2014. The Company
also remains subject to income tax examinations for international
income taxes for scal 2006 through 2014, and for U.S. state and local
income taxes generally for the scal years ended 2009 through 2014.
Other Taxes
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 in various jurisdictions, including Brazil. In certain cases,
the Company has received assessments from the taxing authorities in
connection with these examinations. Where a probable loss has occurred,
the Company has made accruals, which are reected in the Company’s
Consolidated Financial Statements. While the possible losses or
range of possible losses associated with these matters are individually
immaterial, a group of related matters, if decided adversely to the
Company, could result in a liability material to the Company’s Consolidated
Financial Statements.
10 Contingencies
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 reected in the Company’s Consolidated Financial Statements.
For some matters, a liability is not probable or the amount cannot be
reasonably estimated, and therefore an accrual has 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.
Unless stated otherwise, 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 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 plainti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 plaintis of approximately $78 million on their claims for o-the-
clock work and missed rest breaks. The jury found in favor of the Company
on the plaintis’ meal-period claims. On November 14, 2007, the trial
judge entered a nal judgment in the approximate amount of $188 million,
which included the jury’s back-pay award plus statutory penalties, pre-
judgment 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 led its Notice of Appeal.
The Company led its opening appellate brief on February 17, 2009,
plaintis led their response brief on April 20, 2009, and the Company
54 Walmart 2014 Annual Report
Notes to Consolidated Financial Statements