Walmart 2014 Annual Report Download - page 53

Walmart 2014 Annual Report 51
Net Investment Instruments
The Company is a party to cross-currency interest rate swaps that the
Company uses to hedge its net investments. The agreements are
contracts to exchange xed-rate payments in one currency for xed-rate
payments in another currency. All changes in the fair value of these
instruments are recorded in accumulated other comprehensive income
(loss), osetting the currency translation adjustment of the related
investment that is also recorded in accumulated other comprehensive
income (loss). These instruments will mature on dates ranging from
October 2023 to February 2030.
The Company has issued foreign-currency-denominated long-term debt
as hedges of net investments of certain of its foreign operations. These
foreign-currency-denominated long-term debt issuances are designated
and qualify as nonderivative hedging instruments. Accordingly, the
foreign currency translation of these debt instruments is recorded in
accumulated other comprehensive income (loss), osetting the foreign
currency translation adjustment of the related net investments that is
also recorded in accumulated other comprehensive income (loss). At
January 31, 2014 and January 31, 2013, the Company had ¥200 billion and
¥275 billion, respectively, of outstanding long-term debt designated as
a hedge of its net investment in Japan, as well as outstanding long-term
debt of £2.5 billion at January 31, 2014 and January 31, 2013, that was
designated as a hedge of its net investment in the United Kingdom.
These nonderivative net investment hedges will mature on dates
ranging from August 2014 to January 2039.
Cash Flow Instruments
The Company is a party to receive variable-rate, pay xed-rate interest
rate swaps that the Company uses to hedge the interest rate risk of certain
non-U.S. denominated debt. The swaps are designated as cash ow
hedges of interest expense risk. Amounts reported in accumulated other
comprehensive income (loss) related to these derivatives are reclassied
from accumulated other comprehensive income (loss) to earnings as
interest is expensed for the Company’s variable-rate debt, converting the
variable-rate interest expense into xed-rate interest expense. These
cash ow instruments will mature on dates ranging from August 2014
to July 2015.
The Company is also a party to receive xed-rate, pay xed-rate cross-
currency interest rate swaps to hedge the currency exposure associated
with the forecasted payments of principal and interest of certain non-U.S.
denominated debt. The swaps are designated as cash ow hedges of
the currency risk related to payments on the non-U.S. denominated
debt. The eective portion of changes in the fair value of derivatives
designated as cash ow hedges of foreign exchange risk is recorded in
accumulated other comprehensive income (loss) and is subsequently
reclassied into earnings in the period that the hedged forecasted
transaction aects earnings. The hedged items are recognized foreign
currency-denominated liabilities that are remeasured at spot exchange
rates each period, and the assessment of eectiveness (and measure-
ment of any ineectiveness) is based on total changes in the related
derivative’s cash ows. As a result, the amount reclassied into earnings
each period includes an amount that osets the related transaction gain
or loss arising from that remeasurement and the adjustment to earnings
for the period’s allocable portion of the initial spot-forward dierence
associated with the hedging instrument. These cash ow instruments
will mature on dates ranging from September 2029 to March 2034.
The Company also uses forward starting receive variable-rate, pay
xed-rate swaps (“forward starting swaps”), to hedge its exposure to
the variability in future cash ows due to changes in the LIBOR swap rate
for 10- and 30-year debt issuances forecasted to occur in the future.
Amounts reported in accumulated other comprehensive income (loss)
related to these derivatives will be reclassied from accumulated other
comprehensive income (loss) to earnings as interest expense is incurred
on the forecasted hedged xed-rate debt, adjusting interest expense to
reect the xed-rate entered into by the forward starting swaps. These
cash ow instruments hedge forecasted interest payments to be made
through May 2044. These forward starting swaps will be terminated on
the day the hedged forecasted debt issuances occur, but no later than
October 31, 2014, if the hedged forecasted debt issuances do not occur.
The Company terminated forward starting swaps with an aggregate
notional amount of $2.5 billion by making a cash payment to the related
counterparties of $74 million in connection with the April 2013 debt
issuances described in Note 6. The $74 million loss was recorded in
accumulated other comprehensive income (loss) and will be reclassied
to earnings over the life of the related debt, eectively adjusting
interest expense to reect the xed-rate entered into by the forward
starting swaps.
Notes to Consolidated Financial Statements