Walmart 1999 Annual Report Download - page 30

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of sub-
sidiaries. Significant intercompany transactions have been eliminat-
ed in consolidation.
Cash and cash equivalents
The Company considers investments with a maturity of three months
or less when purchased to be cash equivalents.
Inventories
The Company uses the retail last in first out (LIFO) method for
domestic Wal-Mart discount stores and Supercenters and cost LIFO
for SAM’S Clubs. International inventories are on other cost meth-
ods. Inventories are not in excess of market value.
Pre-opening costs
During fiscal 1999, the Company adopted Statement of Position
(SOP) 98-5, “Reporting on the Costs of Start-Up Activities.” The SOP
requires that the costs of start-up activities, including organization
costs, be expensed as incurred. The impact of the adoption of SOP 98-
5 was $8 million net of taxes. Due to the immateriality to the
Company’s results of operations, the initial application was not
reported as a cumulative effect of a change in an accounting princi-
ple. The impact of the change did not have a material effect on any
of the years presented.
Interest during construction
In order that interest costs properly reflect only that portion relating
to current operations, interest on borrowed funds during the con-
struction of property, plant and equipment is capitalized. Interest
costs capitalized were $41 million, $33 million and $44 million in
1999, 1998 and 1997, respectively.
Financial instruments
The Company uses derivative financial instruments for purposes
other than trading to reduce its exposure to fluctuations in foreign
currencies and to minimize the risk and cost associated with financ-
ing and global operating activities. Contracts that effectively meet
risk reduction and correlation criteria are recorded using hedge
accounting. Unrealized gains and losses resulting from market move-
ments are not recognized. Hedges of firm commitments are deferred
and recognized when the hedged transaction occurs.
Goodwill and other acquired intangible assets
Goodwill and other acquired intangible assets are amortized on a
straight-line basis over the periods that expected economic benefits
will be provided. Management estimates such periods of economic
benefits using factors such as entry barriers in certain countries,
operating rights and estimated lives of other operating assets
acquired. The realizability of goodwill and other intangibles is evalu-
ated periodically when events or circumstances indicate a possible
inability to recover the carrying amount. Such evaluation is based on
cash flow and profitability projections that incorporate the impact of
existing Company businesses. The analyses necessarily involve sig-
nificant management judgment to evaluate the capacity of an
acquired business to perform within projections. Historically, the
Company has generated sufficient returns from acquired businesses
to recover the cost of the goodwill and other intangible assets.
Goodwill and other acquired intangible assets, net of accumulated
amortization, included in the consolidated balance sheets is $2,538
million and $1,887 million in 1999 and 1998, respectively.
Long-lived assets
The Company periodically reviews long-lived assets and certain
intangible assets when indicators of impairments exist and if the
value of the assets is impaired, an impairment loss would be
recognized.
Comprehensive income
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, “Reporting Comprehensive Income.”
This statement establishes standards for reporting and display of
comprehensive income and its components. The Company has
reclassified all years presented to reflect comprehensive income
and its components in the consolidated statements of shareholders’
equity.
Stock split
On March 4, 1999, the Company announced a two-for-one stock split
issued in the form of a 100% stock dividend. The date of record is
March 19, 1999, and it will be distributed April 19, 1999.
Consequently, the stock option data and per share data have been
restated to reflect the stock split.
Advertising costs
Advertising costs are expensed as incurred and were $405 million,
$292 million and $249 million in 1999, 1998 and 1997, respectively.
Operating, selling and general and administrative expenses
Buying, warehousing and occupancy costs are included in operating,
selling and general and administrative expenses.
Depreciation and amortization
Depreciation and amortization for financial statement purposes is
provided on the straight-line method over the estimated useful lives
of the various assets. For income tax purposes, accelerated methods
are used with recognition of deferred income taxes for the resulting
temporary differences. Estimated useful lives are as follows:
Costs of computer software
In March 1998, the Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-1, “Accounting For the Costs
of Computer Software Developed For or Obtained For Internal Use.”
The SOP will be effective for the Company beginning February 1,
1999. The SOP will require the capitalization of certain costs
incurred in connection with developing or obtaining software for
internal use. Currently, costs related to developing internal-use soft-
ware are expensed as incurred. The Company does not anticipate
there will be a material impact on the results of operations or finan-
cial position after SOP 98-1 is adopted.
Building and improvements 5-33 years
Fixtures and equipment 5-12 years
Transportation equipment 2-5 years
Goodwill and other acquired intangible assets 20-40 years