Walmart 2015 Annual Report Download - page 35

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2015 Annual Report
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Impairment of Assets
We evaluate long-lived assets other than goodwill and assets with
indefinite lives for indicators of impairment whenever events or changes
in circumstances indicate their carrying amounts may not be recover-
able. Management’s judgments regarding the existence of impairment
indicators are based on market conditions and operational performance,
such as operating income and cash flows. The evaluation for long-lived
assets is performed at the lowest level of identifiable cash flows, which is
generally at the individual store level or, in certain markets, at the market
group level. The variability of these factors depends on a number of
conditions, including uncertainty about future events and changes in
demographics. Thus, our accounting estimates may change from period
to period. These factors could cause management to conclude that
indicators of impairment exist and require impairment tests be
performed, which could result in management determining the value
of long-lived assets is impaired, resulting in a write-down of the related
long-lived assets.
Goodwill and other indefinite-lived acquired intangible assets are
not amortized, but are evaluated for impairment annually or whenever
events or changes in circumstances indicate that the value of a certain
asset may be impaired. Generally, this evaluation begins with a qualitative
assessment to determine whether a quantitative impairment test is
necessary. If we determine, after performing an assessment based on
the 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 flows, 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 flow or a relative, market-based approach. Historically,
our reporting units have generated sufficient returns to recover the
cost of goodwill and other indefinite-lived acquired intangible assets.
Because of the nature of the factors used in these tests, if different
conditions occur in future periods, future operating results could be
materially impacted.
As of January 31, 2015, the fair value of certain recently acquired
indefinite-lived intangible assets approximated their carrying value of
$419 million. Any deterioration in the fair value of these assets would
result in a related impairment charge. Management will continue to
monitor the fair value of these assets in future periods.
Income Taxes
Income taxes have a significant effect 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
significant judgment, the use of estimates and the interpretation and
application of complex tax laws. Our effective income tax rate is affected
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 fluctuate as a result.
Our tax returns are routinely audited and settlements of issues raised
in these audits sometimes affect our tax provisions. The benefits of
uncertain tax positions are recorded in our financial 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 financial 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 financial statements. This determination
requires the use of significant 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 differences between the financial 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 quan-
titative 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
differences, forecasted operating earnings and available tax planning
strategies. This evaluation relies heavily on estimates.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report to Shareholders contains statements that we believe
are “forward-looking statements” entitled to the protection of the safe
harbor for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995, as amended.
Forward-looking Statements
Those forward-looking statements include statements:
in our Management’s Discussion and Analysis of Financial Condition and
Results of Operations regarding:
• volatility of currency exchange rates possibly affecting future results of
Walmart and Walmart International;
• our objectives of growing net sales at a faster rate than operating
expenses and operating income at a faster rate than net sales and our
strategic growth investments affecting those metrics in certain ways;
• the possible fluctuation of our effective tax rate for future periods;
• volatility of fuel prices possibly affecting the operating results of our
Sam’s Club segment in the future;
• meeting our liquidity needs through sources other than cash held
outside of the U.S., intending to permanently reinvest such cash outside
of the U.S., and our ability to repatriate cash held outside of the
U.S. (which statements also appear in Note 1 to our Consolidated
Financial Statements);
• the recently announced new associate wage structure and comprehensive
associate training and educational programs adversely affecting Walmart’s
ability to leverage in the future and cash provided by operating activities
being sufficient to fund those programs;