Walmart 2004 Annual Report Download - page 39

1 Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Wal-Mart Stores, Inc. (“Wal-Mart”) and its subsidiaries. Significant
intercompany transactions have been eliminated in consolidation. Investments in which the Company has a 20 percent to 50 percent
voting interest and which Management does not have management control are accounted for using the equity method.
Cash and Cash Equivalents
The Company considers investments with a maturity of three months or less when purchased to be cash equivalents. The majority of
payments due from banks for third-party credit card, debit card and electronic benefit transactions (“EBT”) process within 24-48 hours,
except for transactions occurring on a Friday, which are generally processed the following Monday. All credit card, debit card and EBT
transactions that process in less than seven days are classified as cash and cash equivalents. Amounts due from banks for these
transactions classified as cash totaled $866 million and $367 million at January 31, 2004 and 2003, respectively.
Receivables
Accounts receivable consist primarily of receivables from insurance companies generated by our pharmacy sales, receivables from real
estate transactions and receivables from suppliers for marketing or incentive programs. Additionally, amounts due from banks for
customer credit card, debit card and EBT transactions that take in excess of seven days to process are classified as accounts receivable.
Inventories
The Company values inventories at the lower of cost or market as determined primarily by the retail method of accounting, using the
last-in, first-out (“LIFO”) method for substantially all domestic merchandise inventories, except SAM’S CLUB merchandise, which is
based on average cost using the LIFO method. Inventories of foreign operations are primarily valued by the retail method of accounting,
using the first-in, first-out (“FIFO”) method. Our inventories at FIFO did not exceed inventories at LIFO by a significant amount.
Financial Instruments
The Company uses derivative financial instruments for purposes other than trading to manage its exposure to interest and foreign
exchange rates, as well as to maintain an appropriate mix of fixed- and floating-rate debt. Contract terms of a hedge instrument closely
mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the
risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the
nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings.
Instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting
are marked to fair value with unrealized gains or losses reported in earnings.
Capitalized Interest
Interest costs capitalized on construction projects were $144 million, $124 million, and $130 million in 2004, 2003 and
2002, respectively.
Long-lived Assets
Management reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The evaluation is done at the lowest level of cash flows, which is typically at the individual store
level. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life based on updated projections.
If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based
on a projected discounted cash flow method using a discount rate that is considered to be commensurate with the risk inherent in the
Company’s current business model.
Goodwill and Other Acquired Intangible Assets
Under the provisions of Financial Accounting Standards Board Statement No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”),
which was adopted in fiscal 2003, goodwill is no longer amortized. Goodwill is evaluated for impairment annually or whenever events or
changes in circumstances indicate that the value of certain goodwill may be impaired. Other acquired intangible assets are amortized on
a straight-line basis over the periods that expected economic benefits will be provided. These evaluations are based on discounted cash
flows and incorporate the impact of existing Company businesses. The analyses require significant Management judgment to evaluate
the capacity of an acquired business to perform within projections. Historically, the Company has generated sufficient returns to recover
the cost of the goodwill and other intangible assets.
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