Walmart 1999 Annual Report Download - page 25

included both information technology, such as point-of-sale com-
puter systems, as well as non-information technology equipment,
such as warehouse conveyor systems. All internal coding conver-
sions are complete. Some third-party applications representing
less than 1% of the total application inventory remain to be con-
verted, these applications are dependent on vendor upgrade avail-
ability and will be completed by October 1999. Virtually all the
conversions were performed or are expected to be performed by
Company associates.
The next phase of the Company’s Year 2000 project, complete sys-
tem testing, began during the second quarter of fiscal 1999. The
first phase of testing has been completed on critical systems. Thus
far, no significant issues have been detected in the testing. A sec-
ond, more comprehensive phase of testing, is scheduled for the
March 1999 to July 1999 timeframe. A final test cycle is planned
for October 1999 to ensure all version levels, upgrades, new releas-
es and enhancements are Year 2000 compliant.
The total incremental estimated cost directly related to the Year
2000 remedy is $27 million. Approximately $17.5 million of the
cost is related to reprogramming, replacement, extensive testing
and validation of software, which is being expensed as incurred,
while approximately $9.5 million is related to acquisition of hard-
ware. Approximately $8 million of the $27 million cost of conver-
sion has been incurred as of the end of the fourth quarter of fiscal
1999. The majority of the remaining costs include future testing of
the systems and the purchase of additional equipment. All of these
costs are being funded through operating cash flows. These costs
are not a significant component of the Company’s overall informa-
tion technology budget. The Company’s Information Systems
Division did not defer any information technology projects last
year to address the Year 2000 issue. During fiscal 2000 the
Company still plans to complete and implement over half of the
normal project load in priority sequence.
In addition to internal Year 2000 implementation activities, the
Company is communicating with other companies with which our
systems interface or on which it relies to determine the extent to
which those companies are addressing their Year 2000 compli-
ance. Testing began during the third quarter of fiscal year 1999
and will be substantially complete by October 31, 1999. Thus far,
no significant issues have been detected in the testing process.
There can be no assurance that there will not be an adverse effect
on the Company if third parties, such as utility companies or mer-
chandise suppliers, do not convert their systems in a timely man-
ner and in a way that is compatible with the Company’s systems.
However, management believes that ongoing communication with
and assessment of these third parties should minimize these risks.
The Company anticipates minimal business disruption will occur
as a result of Year 2000 issues; however, possible consequences
include, but are not limited to, loss of communications links with
certain store locations, loss of electric power, inability to process
transactions, send purchase orders, or engage in similar normal
business activities. In addition, since there is no uniform defini-
tion of Year 2000 compliance and not all customer situations can
be anticipated, the Company may experience an increase in sales
returns of merchandise that may contain hardware or software
components. If returns of merchandise increase, such returns are
not expected to be material to the Company’s financial condition.
Although the Company has not finalized its contingency plans for
possible Year 2000 issues, initial analysis and planning is under-
way. Where needed, the Company will establish contingency plans
based on its actual testing experience with its supplier base and
assessment of outside risks. The Company anticipates the majority
of its contingency plans to be in place by October 31, 1999.
The cost of the conversions and the completion dates are based on
management’s best estimates and may be updated as additional
information becomes available. Readers are referred to the next
section of this report, which addresses forward-looking state-
ments made by the Company.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by or on behalf
of the Company. Certain statements contained in Management’s
Discussion and Analysis and in other Company filings are forward-
looking statements. These statements discuss, among other
things, expected growth, future revenues, future cash flows and
future performance. The forward-looking statements are subject
to risks and uncertainties including but not limited to the cost of
goods, competitive pressures, inflation, consumer debt levels, cur-
rency exchange fluctuations, trade restrictions, changes in tariff
and freight rates, Year 2000 issues, interest rate fluctuations and
other capital market conditions, and other risks indicated in the
Company’s filings with the United States Securities and Exchange
Commission. Actual results may materially differ from anticipated
results described in these statements.
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