Walmart 1998 Annual Report Download - page 24

24
International Operations
A portion of our operations consists of sales activities
in foreign jurisdictions. We operate wholly owned operations
in Argentina, Canada, Germany and Puerto Rico, through
joint ventures in China and through majority-owned
subsidiaries in Brazil and Mexico. As a result, our financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the
foreign markets in which we do business. We minimize the
exposure to the risk of devaluation of foreign currencies by
operating in local currencies and through buying forward
contracts, where feasible, on known transactions.
All foreign operations are measured in their local
currencies with the exception of Brazil and Mexico, which
operate in highly-inflationary economies and report operations
using U.S. Dollars. Beginning in fiscal 1999, Brazil will no
longer be considered a highly-inflationary economy and will
begin reporting its operations in its local currency. In fiscal
1998, the foreign currency translation adjustment increased
by $73 million to $473 million primarily due to the exchange
rate in Canada. In fiscal 1997, the foreign currency
translation adjustment decreased by $12 million to $400
million primarily due to a favorable exchange rate in Canada.
The cumulative foreign currency translation adjustment of $412
million in fiscal 1996 was due primarily to operations in Mexico.
Foreign Currency Exchange Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Fair value
(Amounts in millions) 1999 2000 2001 2002 2003 Thereafter Total 1/31/98
Forward Contracts to Sell Foreign Currencies for US $
Canadian Dollars
Notional amount 24 – – – – – 24 –
Average contract rate 1.4 – – – – – 1.4
German Deutschmarks
Notional amount 2 – – – – – 2 –
Average contract rate 1.8 – – – – – 1.8
Forward Contracts to Sell Foreign Currencies for Hong Kong $
German Deutschmarks (DEM)
Notional amount 1 – – – – – 1 –
Average contract rate 0.2 – – – – – 0.2
Average currency exchange rate
(DEM to US$) 1.8 – – – – – 1.8
Currency Swap Agreements
Payment of German Deutschmarks
Notional amount – – – – 1,101 – 1,101 30
Average contract rate – – – – 1.8 – 1.8
The Company routinely enters into forward currency
exchange contracts in the regular course of business to
manage its exposure against foreign currency fluctuations on
inventory purchases denominated in foreign currencies. These
contracts are for short durations, generally less than six
months. In addition, we have entered into a foreign currency
swap to hedge our investment in Germany. Under the
agreement, the Company will pay 1,960 million in German
Deutschmarks in 2003 and will receive $1,101 million in
United States Dollars.
The following table provides information about the
Company’s derivative financial instruments, including foreign
currency forward exchange agreements and currency swap
agreements by functional currency and presents the information
in U.S. dollar equivalents. For foreign currency forward
exchange agreements, the table presents the notional amounts
and average exchange rates by contractual maturity dates.