Walmart 2014 Annual Report Download - page 35

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
qualitative factors, that the fair value of the reporting unit is more likely
than not less than the carrying amount, or that a fair value of the reporting
unit substantially in excess of the carrying amount cannot be assured,
then a quantitative impairment test would be performed. The quantitative
test for impairment requires management to make judgments relating
to future cash ows, growth rates and economic and market conditions.
These evaluations are based on determining the fair value of a reporting
unit or asset using a valuation method such as discounted cash ow or
a relative, market-based approach. Historically, our reporting units have
generated sucient returns to recover the cost of goodwill and other
indenite-lived acquired intangible assets. Because of the nature of the
factors used in these tests, if dierent conditions occur in future periods,
future operating results could be materially impacted.
Income Taxes
Income taxes have a signicant eect on our net earnings. We are
subject to income taxes in the U.S. and numerous foreign jurisdictions.
Accordingly, the determination of our provision for income taxes requires
signicant judgment, the use of estimates and the interpretation and
application of complex tax laws. Our eective income tax rate is aected
by many factors, including changes in our assessment of certain tax
contingencies, increases and decreases in valuation allowances, changes in
tax law, outcomes of administrative audits, the impact of discrete items
and the mix of earnings among our U.S. and international operations
where the statutory rates are generally lower than the U.S. statutory rate,
and may uctuate as a result.
Our tax returns are routinely audited and settlements of issues raised
in these audits sometimes aect our tax provisions. The benets of
uncertain tax positions are recorded in our nancial statements only
after determining a more likely than not probability that the uncertain
tax positions will withstand challenge, if any, from taxing authorities.
When facts and circumstances change, we reassess these probabilities
and record any changes in the nancial statements as appropriate.
We account for uncertain tax positions by determining the minimum
recognition threshold that a tax position is required to meet before
being recognized in the nancial statements. This determination requires
the use of signicant judgment in evaluating our tax positions and
assessing the timing and amounts of deductible and taxable items.
Deferred tax assets represent amounts available to reduce income taxes
payable on taxable income in future years. Such assets arise because
of temporary dierences between the nancial reporting and tax bases
of assets and liabilities, as well as from net operating loss and tax credit
carryforwards. Deferred tax assets are evaluated for future realization
and reduced by a valuation allowance to the extent that a portion is not
more likely than not to be realized. Many factors are considered when
assessing whether it is more likely than not that the deferred tax assets
will be realized, including recent cumulative earnings, expectations of
future taxable income, carryforward periods and other relevant quantita-
tive and qualitative factors. The recoverability of the deferred tax assets is
evaluated by assessing the adequacy of future expected taxable income
from all sources, including reversal of taxable temporary dierences,
forecasted operating earnings and available tax planning strategies.
This evaluation relies heavily on estimates.
Forward-Looking Statements
This Annual Report contains statements that Walmart believes are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Those statements are
intended to enjoy the protection of the safe harbor for forward-looking
statements provided by that Act. Those forward-looking statements
include statements in Management’s Discussion and Analysis of Financial
Condition and Results of Operations: under the caption “Overview” with
respect to the volatility of currency exchange rates possibly aecting
the results, including net sales and operating income, of Walmart and
its Walmart International segment in the future; under the captions
“Company Performance Metrics” and “Company Performance Metrics –
Leverage – Operating Income” with respect to Walmart’s objectives of
growing net sales at a faster rate than operating expenses and growing
operating income at a faster rate than net sales and that strategic growth
investments may cause Walmart’s operating expenses to grow at a faster
rate than net sales and resulting in Walmart’s operating income growing at
a slower rate than net sales; under the caption “Results of Operations –
Consolidated Results of Operations” regarding the possible uctuation of
our eective tax rate over future periods; under the caption “Results of
Operations – Sam’s Club Segment” with respect to the volatility of fuel
prices possibly continuing to aect the operating results of Walmart’s
Sam’s Club segment in the future; under the caption “Liquidity and
Capital Resources – Cash Flows Provided by Operating Activities – Cash
Equivalents and Working Capital,” as well as in Note 1 to our Consolidated
Financial Statements, regarding our ability to meet our liquidity needs
through sources other than the cash we hold outside of the United
States, our intention to permanently reinvest cash held outside of the
United States, and our ability to repatriate cash held outside of the
United States; under the caption “Liquidity and Capital Resources – Cash
Flows Used in Investing Activities – Global Expansion Activities” and also in
the letter of Walmart’s President and CEO to our shareholders, associates
and customers contained in this Annual Report (the “CEO Letter”) with
respect to Walmart’s scal 2015 global expansion plans, including a
signicant increase in the number of Neighborhood Markets and other
small format stores, growing our retail square feet and expanding our
e-commerce capabilities and our plans to nance that expansion primarily
through cash ows and future debt nancings, with respect to Walmart’s
estimated range of capital expenditures (including e-commerce capital
expenditures) in scal 2015 for the Walmart U.S. segment, the Walmart
International segment, the Sam’s Club segment, in the “other unallocated”
category and in total, with respect to the estimated/projected growth
in retail square feet in total and by reportable segment in scal 2015;
under the caption “Liquidity and Capital Resources – Cash Flows Used in
Investing Activities – Pending Transactions” regarding the expectation that
the Company will record a net gain on the sale of the Vips restaurant
operations by Walmex; under the caption “Liquidity and Capital
Resources – Cash Flows Used in Financing Activities – Dividends,” as well
as in Note 15 to our Consolidated Financial Statements and elsewhere
in this Annual Report under the caption “Dividends payable per share,”
regarding the payment of the dividend on our shares of common stock
in scal 2015, the expected payment of certain installments of the divi-
dend on our shares of common stock on certain dates in scal 2015 and
the expected total amount of the dividend per share to be paid in scal
Walmart 2014 Annual Report 33