Walmart 2016 Annual Report Download - page 52

2016 Annual Report50
Recurring Fair Value Measurements
The Company holds derivative instruments that are required to be measured at fair value on a recurring basis. The fair values are the estimated
amounts the Company would receive or pay upon termination of the related derivative agreements as of the reporting dates. The fair values have
been measured using the income approach and Level 2 inputs, which include the relevant interest rate and foreign currency forward curves. As of
January 31, 2016 and 2015, the notional amounts and fair values of these derivatives were as follows:
January 31, 2016 January 31, 2015
(Amounts in millions) Notional Amount Fair Value Notional Amount Fair Value
Receive fixed-rate, pay variable-rate interest rate swaps
designated as fair value hedges $ 5,000 $ 173 $ 500 $ 12
Receive fixed-rate, pay fixed-rate cross-currency swaps
designated as net investment hedges 1,250 319 1,250 207
Receive fixed-rate, pay fixed-rate cross-currency swaps
designated as cash flow hedges 4,132 (609) 4,329 (317)
Receive variable-rate, pay fixed-rate interest rate swaps
designated as cash flow hedges — — 255 (1)
Total $10,382 $(117) $6,334 $ (99)
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company’s assets and liabilities are also subject to
nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.
The Company did not record any significant impairment charges to assets measured at fair value on a nonrecurring basis during the fiscal years
ended January 31, 2016 or 2015.
Other Fair Value Disclosures
The Company records cash and cash equivalents and short-term borrowings at cost. The carrying values of these instruments approximate their
fair value due to their short-term maturities.
The Company’s long-term debt is also recorded at cost. The fair value is estimated using Level 2 inputs based on the Company’s current incremental
borrowing rate for similar types of borrowing arrangements. The carrying value and fair value of the Company’s long-term debt as of January 31, 2016
and 2015, are as follows:
January 31, 2016 January 31, 2015
(Amounts in millions) Carrying Value Fair Value Carrying Value Fair Value
Long-term debt, including amounts due within one year $40,959 $46,965 $45,896 $56,237
8. Derivative Financial Instruments
The Company uses derivative financial instruments for hedging and
non-trading purposes to manage its exposure to changes in interest
and currency exchange rates, as well as to maintain an appropriate mix
of fixed- and variable-rate debt. Use of derivative financial instruments in
hedging programs subjects the Company to certain risks, such as market
and credit risks. Market risk represents the possibility that the value of the
derivative financial instrument will change. In a hedging relationship, the
change in the value of the derivative financial instrument is offset to a great
extent by the change in the value of the underlying hedged item. Credit
risk related to a derivative financial instrument represents the possibility
that the counterparty will not fulfill the terms of the contract. The notional,
or contractual, amount of the Company’s derivative financial instruments
is used to measure interest to be paid or received and does not represent
the Company’s exposure due to credit risk. Credit risk is monitored through
established approval procedures, including setting concentration limits
by counterparty, reviewing credit ratings and requiring collateral (gener-
ally cash) from the counterparty when appropriate.
The Company only enters into derivative transactions with counterparties
rated “A-” or better by nationally recognized credit rating agencies.
Subsequent to entering into derivative transactions, the Company regularly
monitors the credit ratings of its counterparties. In connection with various
derivative agreements, including master netting arrangements, the
Company held cash collateral from counterparties of $345 million and
$323 million at January 31, 2016 and January 31, 2015, respectively. The
Company records cash collateral received as amounts due to the counter-
parties exclusive of any derivative asset. Furthermore, as part of the master
netting arrangements with each of these counterparties, the Company
is also required to post collateral with a counterparty if the Company’s net
derivative liability position exceeds $150 million with such counterparties.
The Company had an insignificant amount of cash collateral posted with
counterparties at January 31, 2016 and did not have any cash collateral
posted with counterparties at January 31, 2015. The Company records
cash collateral it posts with counterparties as amounts receivable from
those counterparties exclusive of any derivative liability.
Notes to Consolidated Financial Statements