Walmart 2012 Annual Report Download - page 40
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Please find page 40 of the 2012 Walmart annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.38 Walmart 2012 Annual Report
Income Taxes
Income taxes are accounted for under the liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to diff erences between the fi nancial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in eff ect for the year in which those temporary diff erences are
expected to be recovered or settled. The eff ect on deferred tax assets
and liabilities of a change in tax rate is recognized in income in the period
that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts more likely
than not to be realized.
The Company records a liability for unrecognized tax benefi ts resulting
from uncertain tax positions taken or expected to be taken in a tax return.
The Company records interest and penalties related to unrecognized
tax benefi ts in interest expense and operating, selling, general and
administrative expenses, respectively, in the Company’s Consolidated
Statements of Income.
Revenue Recognition
Sales
The Company recognizes sales revenue net of sales taxes and estimated
sales returns at the time it sells merchandise to the customer.
Shopping Cards
Customer purchases of shopping cards are not recognized as revenue
until the card is redeemed and the customer purchases merchandise
using the shopping card. Shopping cards in the U.S. do not carry an
expiration date and, therefore, customers and members can redeem
their shopping cards for merchandise indefi nitely. Shopping cards in
certain foreign countries where the Company does business may have
expiration dates. A certain amount of shopping cards, both with and
without expiration dates, will not be redeemed. The Company estimates
unredeemed shopping cards and recognizes revenue for these amounts
over shopping card historical usage periods based on historical redemp-
tion rates. The Company periodically reviews and updates its estimates of
usage periods and redemption rates.
Financial and Other Services
The Company recognizes revenue from financial and other service
transactions at the time the service is performed. Generally, revenue
from services is classifi ed as a component of net sales in the Company’s
Consolidated Statements of Income.
Membership Fee
The Company recognizes membership fee revenue both in the United
States and internationally over the term of the membership, which is
12 months. The following table summarizes membership fee activity for
fi scal 2012, 2011 and 2010.
Fiscal Years Ended January 31,
(Amounts in millions)
2012 2011 2010
Deferred membership fee revenue,
beginning of year $ 542 $ 532 $ 541
Cash received from members 1,111 1,074 1,048
Membership fee revenue recognized (1,094) (1,064) (1,057)
Deferred membership fee revenue,
end of year $ 559 $ 542 $ 532
Membership fee revenue is included in membership and other income
in the Company’s Consolidated Statements of Income. The deferred
membership fee is included in accrued liabilities in the Company’s
Consolidated Balance Sheets.
Cost of Sales
Cost of sales includes actual product cost, the cost of transportation to
the Company’s warehouses, stores and clubs from suppliers, the cost of
transportation from the Company’s warehouses to the stores, clubs and
customers and the cost of warehousing for its Sam’s Club segment and
import distribution centers.
Payments from Suppliers
Walmart receives consideration from suppliers for various programs,
primarily volume incentives, warehouse allowances and reimbursements
for specifi c programs such as markdowns, margin protection, advertising
and supplier-specifi c fi xtures. Substantially all payments from suppliers
are accounted for as a reduction of cost of sales and are recognized in
the Company’s Consolidated Statements of Income when the related
inventory is sold.
Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include all
operating costs of the Company, except cost of sales, as described
above. As a result, the majority of the cost of warehousing and occu-
pancy for the Walmart U.S. and Walmart International segments’ distribu-
tion facilities is included in operating, selling, general and administrative
expenses. Because the Company does not include most of the cost of its
Walmart U.S. and Walmart International segments’ distribution facilities
in cost of sales, its gross profi t and gross profi t as a percentage of net
sales (“gross profi t margin”) may not be comparable to those of other
retailers that may include all costs related to their distribution facilities
in cost of sales and in the calculation of gross profi t.
Advertising Costs
Advertising costs are expensed as incurred and were $2.3 billion,
$2.5 billion and $2.4 billion in fi scal 2012, 2011 and 2010, respectively.
Advertising costs consist primarily of print, television and digital
advertisements and are recorded in operating, selling, general and
administrative expenses in the Company’s Consolidated Statements
of Income. Advertising reimbursements received from suppliers are
generally accounted for as a reduction of cost of sales and recognized in
the Company’s Consolidated Statements of Income when the related
inventory is sold. When advertising reimbursements are directly related
to specifi c advertising activities and meet the criteria in ASC Topic 605,
they are recognized as a reduction of advertising expenses in operating,
selling, general and administrative expenses.
Leases
The Company estimates the expected term of a lease by assuming
the exercise of renewal options where an economic penalty exists that
would preclude the abandonment of the lease at the end of the initial
non- cancelable term and the exercise of such renewal is at the sole dis-
cretion of the Company. The expected term is used in the determination
of whether a store or club lease is a capital or operating lease and in the
calculation of straight-line rent expense. Additionally, the useful life of
leasehold improvements is limited by the expected lease term or the
economic life of the asset, whichever is shorter. If signifi cant expenditures
are made for leasehold improvements late in the expected term of a
lease and renewal is reasonably assured, the useful life of the leasehold
improvement is limited to the end of the renewal period or economic life
of the asset, whichever is shorter.
Notes to Consolidated Financial Statements