Walmart 2015 Annual Report Download - page 33

31
2015 Annual Report
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 fixed and variable rate debt and by entering into interest rate swaps. For fiscal 2015, the net fair value of
our interest rate swaps decreased approximately $158 million primarily due to fluctuations in market interest rates and the termination of forward
starting receive variable-rate, pay fixed-rate swaps in October and April 2014 concurrently with the issuance of debt.
The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table
represents the principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table
represents the contractual cash flows and weighted-average interest rates by the contractual maturity date, unless otherwise noted. The notional
amounts are used to calculate contractual cash flows to be exchanged under the contracts. The weighted-average variable rates are based upon
prevailing market rates at January 31, 2015.
Expected Maturity Date
(Amounts in millions) Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter Total
Liabilities
Short-term borrowings:
Variable rate $1,592 $ — $ — $ — $ — $ — $ 1,592
Weighted-average interest rate 0.5% —% —% —% —% —% 0.5%
Long-term debt
(1)
:
Fixed rate $4,055 $2,055 $1,523 $3,518 $514 $33,219 $44,884
Weighted-average interest rate 2.5% 1.9% 4.0% 3.1% 4.3% 4.9% 4.4%
Variable rate $ 755 $ 257 $ — $ — $ — $ — $ 1,012
Weighted-average interest rate 3.8% 4.2% —% —% —% —% 3.9%
Interest rate derivatives
Interest rate swaps:
Variable to fixed $ 255 $ — $ — $ — $ — $ — $ 255
Weighted-average pay rate 0.9% —% —% —% —% —% 0.9%
Weighted-average receive rate 0.6% —% —% —% —% —% 0.6%
Fixed to variable $ — $ — $ — $ — $ — $ 500 $ 500
Weighted-average pay rate —% —% —% —% —% 1.5% 1.5%
Weighted-average receive rate —% —% —% —% —% 3.3% 3.3%
(1) The long-term debt amounts in the table exclude the Company’s derivatives classified as fair value hedges.
As of January 31, 2015, our variable rate borrowings, including the effect
of our commercial paper and interest rate swaps, represented 7% of our
total short-term and long-term debt. Based on January 31, 2015 debt
levels, a 100 basis point change in prevailing market rates would cause
our annual interest costs to change by approximately $23 million.
Foreign Currency Risk
We are exposed to fluctuations in foreign currency exchange rates as a
result of our net investments and operations in countries other than the
U.S. For fiscal 2015, movements in currency exchange rates and the
related impact on the translation of the balance sheets of the Company’s
subsidiaries in Canada, the United Kingdom, Japan, Mexico and Chile
were the primary cause of the $3.6 billion net loss in the currency transla-
tion 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 fluc-
tuation exposure associated with the forecasted payments of principal
and interest of non-U.S. denominated debt. The aggregate fair value of
these swaps was in a liability position of $110 million at January 31, 2015
and in an asset position of $550 million at January 31, 2014. The change in
the fair value of these swaps was due to fluctuations in currency exchange
rates, primarily the strengthening of the U.S. dollar relative to other curren-
cies in the latter half of fiscal 2015. A hypothetical 10% increase or decrease
in the currency exchange rates underlying these swaps from the market
rate at January 31, 2015 would have resulted in a loss or gain in the value
of the swaps of $435 million. A hypothetical 10% change in interest rates
underlying these swaps from the market rates in effect at January 31, 2015
would have resulted in a loss or gain in value of the swaps of $20 million.