Walmart 2014 Annual Report Download - page 33

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Interest Rate Risk
We are exposed to changes in interest rates as a result of our short-term borrowings and long-term debt issuances. We hedge a portion of our interest
rate risk by managing the mix of xed and variable rate debt. We also enter into interest rate swaps and for scal 2014, the net fair value of our derivatives
increased approximately $107 million primarily due to uctuations in market interest rates, which helped reduce the Company’s overall exposure to
interest rate risk.
The table below provides information about our nancial instruments that are sensitive to changes in interest rates. For debt obligations, the table
represents the principal cash ows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, including forward
starting interest rate swaps, the table represents the contractual cash ows and weighted-average interest rates by the contractual maturity date,
unless otherwise noted. The notional amounts are used to calculate contractual cash ows to be exchanged under the contracts. The weighted-average
variable rates are based upon prevailing market rates at January 31, 2014.
Expected Maturity Date
(Amounts in millions) Fiscal 2015 Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Thereafter Total
Liabilities
Short-term borrowings:
Variable rate $7,670 $ — $ — $ — $ — $ — $ 7,670
Weighted-average interest rate 0.1% —% —% —% —% —% 0.1%
Long-term debt
(1)
:
Fixed rate $3,309 $4,084 $2,000 $1,000 $3,500 $30,223 $44,116
Weighted-average interest rate 2.3% 2.4% 1.7% 5.4% 3.0% 5.1% 4.3%
Variable rate $665 $ 292 $ — $ — $ — $ — $ 957
Weighted-average interest rate 4.3% 0.6% —% —% —% —% 3.2%
Interest rate derivatives
Interest rate swaps:
Variable to xed
(2)
$2,665 $ 292 $ — $ — $ — $ — $ 2,957
Weighted-average pay rate 2.7% 0.9% —% —% —% —% 2.5%
Weighted-average receive rate 0.3% 0.6% —% —% —% —% 0.3%
Fixed to variable $1,000 $ — $ — $ — $ — $ — $ 1,000
Weighted-average pay rate 0.3% —% —% —% —% —% 0.3%
Weighted-average receive rate 3.1% —% —% —% —% —% 3.1%
(1) The long-term debt amounts in the table exclude the Company’s derivatives classified as fair value hedges.
(2) Forward starting interest rate swaps have been included in the fiscal 2015 maturity category based on when the related hedged forecasted debt issuances, and corresponding
swap terminations, are expected to occur.
As of January 31, 2014, our variable rate borrowings, including the eect
of our commercial paper and interest rate swaps, represented 18% of
our total short-term and long-term debt. Based on January 31, 2014 debt
levels, a 100 basis point change in prevailing market rates would cause
our annual interest costs to change by approximately $78 million.
Foreign Currency Risk
We are exposed to uctuations in foreign currency exchange rates as a
result of our net investments and operations in countries other than the
United States. For scal 2014, movements in currency exchange rates
and the related impact on the translation of the balance sheets of the
Company’s subsidiaries in Japan, Canada, Brazil and Africa were the pri-
mary cause of a $2.8 billion net loss in the currency translation and other
category of accumulated other comprehensive income (loss). We hedge
a portion of our foreign currency risk by entering into currency swaps
and designating certain foreign-currency-denominated long-term debt
as net investment hedges.
We hold currency swaps to hedge the currency exchange component
of our net investments and also to hedge the currency exchange rate
uctuation exposure associated with the forecasted payments of princi-
pal and interest of non-U.S. denominated debt. The aggregate fair value
of these swaps was in an asset position of $550 million and $453 million
at January 31, 2014 and 2013, respectively. A hypothetical 10% increase or
decrease in the currency exchange rates underlying these swaps from
the market rate at January 31, 2014 would have resulted in a loss or gain
in the value of the swaps of $274 million. A hypothetical 10% change in
interest rates underlying these swaps from the market rates in eect at
January 31, 2014 would have resulted in a loss or gain in value of the
swaps of $7 million.
Walmart 2014 Annual Report 31