Walmart 2014 Annual Report Download - page 44

Indenite-lived intangible assets are included in other assets and
deferred charges in the Company’s Consolidated Balance Sheets. These
assets are evaluated for impairment based on their fair values using valu-
ation techniques which are updated annually based on the most recent
variables and assumptions. There were no impairment charges related to
indenite-lived intangible assets recorded for scal 2014, 2013 and 2012.
Self-Insurance Reserves
The Company uses a combination of insurance, self-insured retention
and self-insurance for a number of risks, including, but not limited to,
workers’ compensation, general liability, vehicle liability, property and
the Company’s obligation for employee-related health care benets.
Liabilities relating to these claims associated with these risks are esti-
mated by considering historical claims experience, frequency, severity,
demographic factors and other actuarial assumptions, including
incurred but not reported claims. In estimating its liability for such claims,
the Company periodically analyzes its historical trends, including loss
development, and applies appropriate loss development factors to the
incurred costs associated with the claims. The Company also maintains
stop-loss insurance coverage for workers’ compensation and general
liability of $5 million and $15 million, respectively, per occurrence, to limit
exposure to certain risks.
Income Taxes
Income taxes are accounted for under the balance sheet method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to dierences between the nancial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (“temporary dierences”). Deferred tax assets and
liabilities are measured using enacted tax rates in eect for the year in
which those temporary dierences are expected to be recovered or settled.
The e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.
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 quantitative and quali-
tative 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. These sources
of income rely heavily on estimates.
In determining the provision for income taxes, an annual eective
income tax rate is used based on annual income, permanent dierences
between book and tax income, and statutory income tax rates. Discrete
events such as audit settlements or changes in tax laws are recognized in
the period in which they occur.
The Company records a liability for unrecognized tax bene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
benets in interest expense and operating, selling, general and adminis-
trative expenses, respectively, in the Company’s Consolidated Statements
of Income. Refer to Note 9 for additional income tax disclosures.
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.
Membership Fee Revenue
The Company recognizes membership fee revenue both in the United
States and internationally over the term of the membership, which is
typically 12 months. The following table summarizes membership fee
activity for scal 2014, 2013 and 2012:
Fiscal Years Ended January 31,
(Amounts in millions) 2014 2013 2012
Deferred membership fee revenue,
beginning of year $ 575 $ 559 $ 542
Cash received from members 1,249 1,133 1,111
Membership fee revenue recognized (1,183) (1,117) (1,094)
Deferred membership fee revenue,
end of year $ 641 $ 575 $ 559
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.
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; therefore, customers and members can redeem their
shopping cards for merchandise inde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 expi-
ration dates, will not be redeemed. Management estimates unredeemed
shopping cards and recognizes revenue for these amounts over shopping
card historical usage periods based on historical redemption rates.
Management periodically reviews and updates its estimates of usage
periods and redemption rates.
Financial and Other Services
The Company recognizes revenue from service transactions at the time
the service is performed. Generally, revenue from services is classied
as a component of net sales in the Company’s Consolidated Statements
of Income.
Cost of Sales
Cost of sales includes actual product cost, the cost of transportation to
the Company’s distribution facilities, stores and clubs from suppliers, the
cost of transportation from the Company’s distribution facilities to the
stores, clubs and customers and the cost of warehousing for the Sam’s
Club segment and import distribution centers. Cost of sales is reduced by
supplier payments that are not a reimbursement of specic, incremental
and identiable costs.
42 Walmart 2014 Annual Report
Notes to Consolidated Financial Statements