Walmart 2016 Annual Report Download - page 42

2016 Annual Report40
1. Summary of Significant Accounting Policies
General
Wal-Mart Stores, Inc. (“Walmart” or the “Company”) helps people around
the world save money and live better – anytime and anywhere – in retail
stores or through the Company’s e-commerce and mobile capabilities.
Through innovation, the Company is striving to create a customer-centric
experience that seamlessly integrates digital and physical shopping.
Each week, the Company serves nearly 260 million customers who visit
its over 11,500 stores under 63 banners in 28 countries and e-commerce
websites in 11 countries. The Company’s strategy is to lead on price,
invest to differentiate on access, be competitive on assortment and
deliver a great experience.
The Company’s operations comprise three reportable segments:
Walmart U.S., Walmart International and Sam’s Club.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Walmart
and its subsidiaries as of and for the fiscal years ended January 31, 2016
(“fiscal 2016”), January 31, 2015 (“fiscal 2015”) and January 31, 2014 (“fiscal
2014”). All material intercompany accounts and transactions have been
eliminated in consolidation. Investments in unconsolidated affiliates,
which are 50% or less owned and do not otherwise meet consolidation
requirements, are accounted for primarily using the equity method.
These investments are immaterial to the Company’s Consolidated
Financial Statements.
The Company’s Consolidated Financial Statements are based on a fiscal
year ending on January 31, for the United States (“U.S.”) and Canadian
operations. The Company consolidates all other operations generally
using a one-month lag and based on a calendar year. There were no
significant intervening events during January 2016 that materially
affected the Consolidated Financial Statements.
Use of Estimates
The Consolidated Financial Statements have been prepared in conformity
with U.S. generally accepted accounting principles. Those principles
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities. Management’s estimates and
assumptions also affect the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may
differ from those estimates.
Cash and Cash Equivalents
The Company considers investments with a maturity when purchased
of three months or less to be cash equivalents. All credit card, debit card
and electronic benefits transfer transactions that process in less than
seven days are classified as cash and cash equivalents. The amounts due
from banks for these transactions classified as cash and cash equivalents
totaled $3.4 billion and $2.9 billion at January 31, 2016 and 2015, respec-
tively. In addition, cash and cash equivalents included restricted cash of
$362 million and $345 million at January 31, 2016 and 2015, respectively,
which was primarily related to cash collateral holdings from various
counterparties, as required by certain derivative and trust agreements.
The Company’s cash balances are held in various locations around the
world. Of the Company’s $8.7 billion and $9.1 billion of cash and cash
equivalents at January 31, 2016 and 2015, respectively, $4.5 billion and
$6.3 billion, respectively, were held outside of the U.S. and were generally
utilized to support liquidity needs in the Company’s non-U.S. operations.
The Company uses intercompany financing arrangements in an effort to
ensure cash can be made available in the country in which it is needed
with the minimum cost possible. Management does not believe it will be
necessary to repatriate earnings held outside of the U.S. and anticipates
the Company’s domestic liquidity needs will be met through cash flows
provided by operating activities, supplemented with long-term debt
and short-term borrowings. Accordingly, the Company intends, with only
certain exceptions, to continue to indefinitely reinvest the Company’s
earnings held outside of the U.S. in our foreign operations. When the
income earned, either from operations or through intercompany financing
arrangements, and indefinitely reinvested outside of the U.S. is taxed at
local country tax rates, which are generally lower than the U.S. statutory
rate, the Company realizes an effective tax rate benefit. If the Company’s
intentions with respect to reinvestment were to change, most of the
amounts held within the Company’s foreign operations could be
repatriated to the U.S., although any repatriation under current U.S. tax
laws would be subject to U.S. federal income taxes, less applicable
foreign tax credits. The Company does not expect local laws, other
limitations or potential taxes on anticipated future repatriations of earnings
held outside of the U.S. to have a material effect on the Company’s overall
liquidity, financial condition or results of operations.
As of January 31, 2016 and 2015, cash and cash equivalents of approximately
$1.1 billion and $1.7 billion, respectively, may not be freely transferable to
the U.S. due to local laws or other restrictions.
Receivables
Receivables are stated at their carrying values, net of a reserve for
doubtful accounts. Receivables consist primarily of amounts due from:
• insurance companies resulting from pharmacy sales;
• banks for customer credit and debit cards and electronic bank transfers
that take in excess of seven days to process;
• consumer financing programs in certain international operations;
• suppliers for marketing or incentive programs; and
• real estate transactions.
The Walmart International segment offers a limited number of consumer
credit products, primarily through its financial institutions in select
countries. The receivable balance from consumer credit products was
$1.0 billion, net of a reserve for doubtful accounts of $70 million at
January 31, 2016, compared to a receivable balance of $1.2 billion, net
of a reserve for doubtful accounts of $114 million at January 31, 2015.
These balances are included in receivables, net, in the Company’s
Consolidated Balance Sheets.
Inventories
The Company values inventories at the lower of cost or market as
determined primarily by the retail inventory method of accounting,
using the last-in, first-out (“LIFO”) method for substantially all of the
Walmart U.S. segment’s inventories. The inventory at the Walmart
International segment is valued primarily by the retail inventory method
of accounting, using the first-in, first-out (“FIFO”) method. The retail
inventory method of accounting results in inventory being valued at the
lower of cost or market since permanent markdowns are immediately
recorded as a reduction of the retail value of inventory. The inventory
Notes to Consolidated Financial Statements