Walmart 2009 Annual Report Download - page 40

38 Wal-Mart 2009 Annual Report
Notes to Consolidated Financial Statements
Long-term debt is unsecured except for $335 million, which is coll-
ateralized by property with an aggregate carrying amount of
approximately $1.2 billion. Annual maturities of long-term debt
during the next  ve years and thereafter are:
(Amounts in millions)
Fiscal Year Annual Maturity
2010 $ 5,848
2011 3,077
2012 5,474
2013 648
2014 5,075
Thereafter 17,075
Total $37,197
The Company has entered into sale/leaseback transactions involving
buildings while retaining title to the underlying land. These transac-
tions were accounted for as  nancings and are included in long-term
debt and the annual maturities schedules above. The resulting obli-
gations mature as follows during the next  ve years and thereafter:
(Amounts in millions)
Fiscal Year Annual Maturity
2010 $ 10
2011 10
2012 10
2013 10
2014 7
Thereafter 284
Total $331
3 Financial Instruments
The Company uses derivative  nancial instruments for hedging and
non-trading purposes to manage its exposure to changes in interest
and foreign exchange rates. Use of derivative  nancial instruments
in hedging programs subjects the Company to certain risks, such as
market and credit risks. Market risk represents the possibility that the
value of the derivative instrument will change. In a hedging relation-
ship, the change in the value of the derivative is o set to a great extent
by the change in the value of the underlying hedged item. Credit risk
related to derivatives represents the possibility that the counterparty
will not ful ll the terms of the contract. The notional, or contractual,
amount of the Company’s derivative  nancial instruments is used to
measure interest to be paid or received and does not represent the
Company’s exposure due to credit risk. Credit risk is monitored through
established approval procedures, including setting concentration
limits by counterparty, reviewing credit ratings and requiring collateral
(generally cash) when appropriate. The majority of the Company’s
transactions are with counterparties rated “AA-” or better by nationally
recognized credit rating agencies. In connection with various derivative
agreements with counterparties, the Company is holding $440 million
in cash collateral from these counterparties at January 31, 2009.
Fair Value Instruments
The Company uses derivative  nancial 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  xed
and  oating-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 e ective 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 o set against the change in fair value of the hedged assets,
liabilities or  rm commitments through earnings or be recognized
in other comprehensive income until the hedged item is recognized
in earnings. The ine ective 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 valued at fair
value with unrealized gains or losses reported in earnings during the
period of change.
Net Investment Instruments
At January 31, 2009 and 2008, the Company is party to cross-currency
interest rate swaps that hedge its net investment in the United King-
dom. The agreements are contracts to exchange  xed-rate payments
in one currency for  xed-rate payments in another currency.
The Company has approximately £3.0 billion of outstanding debt that
is designated as a hedge of the Company’s net investment in the
United Kingdom as of January 31, 2009 and 2008. The Company also
has outstanding approximately ¥437.4 and ¥142.1 billion of debt that
is designated as a hedge of the Company’s net investment in Japan
at January 31, 2009 and 2008, respectively. All changes in the fair value
of these instruments are recorded in accumulated other comprehen-
sive income, o setting the foreign currency translation adjustment
that is also recorded in accumulated other comprehensive income.
Cash Flow Instruments
The Company is party to receive  oating-rate, pay  xed-rate interest rate
swaps to hedge the interest rate risk of certain foreign-denominated
debt. The swaps are designated as cash  ow hedges of interest expense
risk. The agreement is a contract to exchange  xed-rate payments of
interest for  oating-rate payments of interest. Changes in the foreign
benchmark interest rate result in reclassi cation of amounts from
accumulated other comprehensive income to earnings to o set the
 oating-rate interest expense.
Fair Value of Financial Instruments
In September 2006, the FASB issued Statement of Financial Accounting
Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”).
SFAS 157 de nes fair value, establishes a framework for measuring
fair value within generally accepted accounting principles (“GAAP”)
and expands required disclosures about fair value measurements. In
November 2007, the FASB provided a one year deferral for the imple-
mentation of SFAS 157 for non nancial assets and liabilities. The
Company adopted SFAS 157 as of February 1, 2008, as required. The
adoption of SFAS 157 did not have a material impact on the Company’s
 nancial condition and results of operations. E ective February 1, 2009,
the Company adopted SFAS 157 for its non nancial assets and liabilities
and does not anticipate a material impact to its  nancial condition,
results of operations or cash  ows.