Walmart 2015 Annual Report Download - page 56

54 2015 Annual Report
As of January 31, 2015 and 2014, the Company had valuation allowances
recorded of approximately $1.5 billion and $1.8 billion, respectively,
on deferred tax assets associated primarily with net operating loss
carryforwards for which management has determined it is more likely
than not that the deferred tax asset will not be realized. The $0.3 billion
net decrease in the valuation allowance during fiscal 2015 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 differences
arising in fiscal 2015, decreases due to operating loss expirations and
fluctuations 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 benefits 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, 2015 and 2014, the amount of unrecognized tax benefits
related to continuing operations was $838 million and $763 million,
respectively. The amount of unrecognized tax benefits that would affect
the Company’s effective income tax rate was $763 million and $698 million
for January 31, 2015 and 2014, respectively.
A reconciliation of unrecognized tax benefits from continuing operations
was as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Unrecognized tax benefits,
beginning of year $763 $ 818 $ 611
Increases related to prior year
tax positions 7 41 88
Decreases related to prior year
tax positions (17) (112) (232)
Increases related to current year
tax positions 174 133 431
Settlements during the period (89) (117) (80)
Lapse in statutes of limitations — — —
Unrecognized tax benefits,
end of year $838 $ 763 $ 818
The Company classifies interest and penalties related to uncertain
tax benefits as interest expense and as operating, selling, general and
administrative expenses, respectively. During fiscal 2015, 2014 and 2013,
the Company recognized interest and penalty expense (benefit) related
to uncertain tax positions of $18 million, $(7) million and $2 million,
respectively. As of January 31, 2015 and 2014, accrued interest related to
uncertain tax positions of $57 million and $40 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, 2015 or 2014.
During the next twelve months, it is reasonably possible that tax audit
resolutions could reduce unrecognized tax benefits by between $50 million
and $350 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 efforts, unrecognized tax benefits could potentially be reduced
beyond the provided range during the next twelve months. The Company
does not expect any change to have a significant impact to its
Consolidated Financial Statements.
The Company remains subject to income tax examinations for its
U.S. federal income taxes generally for fiscal 2013 through 2015.
The Company also remains subject to income tax examinations for
international income taxes for fiscal 2000 through 2015, and for
U.S. state and local income taxes generally for the fiscal years ended
2006 through 2015.
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 respective taxing authorities
in connection with these examinations. Where a probable loss has
occurred, the Company has made accruals, which are reflected 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 reflected 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 may be 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 financial 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 plaintiffs 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 plaintiffs 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 plaintiffs’ meal-period claims.
Notes to Consolidated Financial Statements