Walmart 2013 Annual Report Download - page 41

Walmart 2013 Annual Report || 39
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 occupancy for
the Walmart U.S. and Walmart International segments’ distribution
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 pro t and gross pro t as a percentage of net
sales (“gross pro 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 pro t.
Advertising Costs
Advertising costs are expensed as incurred and were $2.3 billion for
both  scal 2013 and 2012, and $2.5 billion for  scal 2011. 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 speci c advertising activities,
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 signi 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.
Rent abatements and escalations are considered in the calculation
of minimum lease payments in the Company’s capital lease tests and
in determining straight-line rent expense for operating leases.
Pre-Opening Costs
The cost of start-up activities, including organization costs, related
to new store openings, store remodels, expansions and relocations are
expensed as incurred and included in operating, selling, general and
administrative expenses in the Company’s Consolidated Statements
of Income. Pre-opening costs totaled $316 million, $308 million and
$320 million for fiscal 2013, 2012 and 2011, respectively.
Currency Translation
The assets and liabilities of all international subsidiaries are translated
from the respective local currency to the U.S. dollar using exchange rates
at the balance sheet date. Related translation adjustments are recorded
as a component of accumulated other comprehensive income (loss). The
income statements of international subsidiaries are translated from the
respective local currencies to the U.S. dollar using average exchange
rates for the period covered by the income statements.
Reclassi cations
Certain reclassi cations have been made to prior  scal year amounts
and balances to conform to the presentation in the current  scal year.
These reclassi cations did not impact consolidated operating income
or net income. Additionally, certain segment asset and expense
allocations have been reclassi ed among segments in the current
period. See Note 14 for further discussion of the Company’s segments.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2013-02, which requires
entities to present information about signi cant items reclassi ed out of
accumulated other comprehensive income (loss) by component either
on the face of the statement where net income is presented or as a
separate disclosure in the notes to the  nancial statements. This ASU is
e ective for the Company in the  rst quarter of  scal 2014. The adoption
of this ASU is not expected to impact the Company’s consolidated net
income,  nancial position or cash  ows.
In July 2012, the FASB issued ASU 2012-02, which amends how companies
test for impairment of inde nite-lived intangible assets. The new guidance
permits a company to assess qualitative factors to determine whether it
is more likely than not that the fair value of an inde nite-lived intangible
asset is less than its carrying amount as a basis for determining whether
it is necessary to perform the annual impairment test. The ASU is e ective
for the Company in the  rst quarter of  scal 2014. The adoption of this
ASU is not expected to impact the Company’s consolidated net income,
 nancial position or cash  ows.
In 2011, the FASB issued two ASUs which amend guidance for the
presentation of comprehensive income. The amended guidance
requires an entity to present components of net income and other
comprehensive income in one continuous statement, referred to as the
statement of comprehensive income, or in two separate, but consecutive
statements. The previous option to report other comprehensive income
and its components in the statement of shareholders’ equity was
eliminated. Although the new guidance changes the presentation of
comprehensive income, there are no changes to the components that
are recognized in net income or other comprehensive income under
existing guidance. Beginning with the quarter ended April 30, 2012,
the Company elected to report other comprehensive income and its
components in a separate statement of comprehensive income. The
adoption of these ASUs did not impact the Company’s consolidated
net income,  nancial position or cash  ows.
In 2011, the FASB issued ASU 2011-04 to clarify the intent of the application
of existing fair value measurement and disclosure requirements, as
well as change certain measurement requirements and disclosures. The
Company adopted ASU 2011-04 e ective February 1, 2012. In connection
with the adoption, the Company made an accounting policy election
to measure the credit risk of its derivative  nancial instruments that are
subject to master netting agreements on a net basis by counterparty
portfolio, consistent with how the Company previously had been
measuring credit risk for these instruments. The adoption of ASU 2011-04
did not impact the Company’s consolidated net income,  nancial
position or cash  ows.
Notes to Consolidated Financial Statements