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Purpose of Assignment
The purpose of this assignment is to evaluate the inventory section of two companies using basic comparative analysis, and to interpret the data to gain insight about the company’s inventory management.
Assignment Steps
Resources: Appendices D and E located in Financial Accounting: Tools for Business Decision Making
Note: While the data are not from the same year, inferences can be drawn regarding inventory management of the two companies.
Write a 1,050-word comparative analysis using the financial statements of Amazon.com, Inc. presented in Appendix D, and the financial statements for Wal-Mart Stores, Inc., presented in Appendix E, including the following:
- Compute the 2014 values for Amazon.com and the 2015 values for Wal-Mart based on the information in the financial statements:
Inventory turnover (Use cost of sales and inventories)
Days of inventory - Conclusions concerning the management of the inventory can you draw from this data.
Show work on Excel® spreadsheet and submit with analysis.
40 2015 Annual Report
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
11,000 stores under 72 banners in 27 countries and e-commerce websites in
11 countries. The Company’s strategy is to lead on price, invest to differenti-
ate 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,
2015 (“fiscal 2015”), January 31, 2014 (“fiscal 2014”) and January 31, 2013
(“fiscal 2013”). 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 2015 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 $2.9 billion and $1.6 billion at January 31, 2015 and 2014, respec-
tively. In addition, cash and cash equivalents included restricted cash of
$345 million and $654 million at January 31, 2015 and 2014, 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 $9.1 billion and $7.3 billion of cash and cash
equivalents at January 31, 2015 and 2014, respectively, $6.3 billion and
$5.8 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 cash and cash equivalents 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 cash and cash equivalents 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. As of January 31,
2015 and 2014, cash and cash equivalents of approximately $1.7 billion
and $1.9 billion, respectively, may not be freely transferable to the U.S.
due to local laws or other restrictions. The Company does not expect
local laws, other limitations or potential taxes on anticipated future
repatriations of cash amounts held outside of the U.S. to have a material
effect on the Company’s overall liquidity, financial condition or results
of operations.
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
markets. The receivable balance from consumer credit products was
$1.2 billion, net of a reserve for doubtful accounts of $114 million at
January 31, 2015, compared to a receivable balance of $1.3 billion, net
of a reserve for doubtful accounts of $119 million at January 31, 2014.
These balances are included in receivables, net, in the Company’s
Consolidated Balance Sheets.
Notes to Consolidated Financial Statements
412015 Annual Report
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 at
the Sam’s Club segment is valued based on the weighted-average cost
using the LIFO method. At January 31, 2015 and January 31, 2014, the
Company’s inventories valued at LIFO approximated those inventories
as if they were valued at FIFO.
Property and Equipment
Property and equipment are stated at cost. Gains or losses on disposition
are recognized as earned or incurred. Costs of major improvements are
capitalized, while costs of normal repairs and maintenance are charged
to expense as incurred. The following table summarizes the Company’s
property and equipment balances and includes the estimated useful lives
that are generally used to depreciate the assets on a straight-line basis:
Fiscal Years Ended
Estimated January 31,
(Amounts in millions) Useful Lives 2015 2014
Land N/A $ 26,261 $ 26,184
Buildings and improvements 3-40 years 97,496 95,488
Fixtures and equipment 2-30 years 45,044 42,971
Transportation equipment 3-15 years 2,807 2,785
Construction in progress N/A 5,787 5,661
Property and equipment $177,395 $173,089
Accumulated depreciation (63,115) (57,725)
Property and equipment, net $114,280 $115,364
Leasehold improvements are depreciated over the shorter of the estimated
useful life of the asset or the remaining expected lease term. Depreciation
expense for property and equipment, including amortization of property
under capital leases, for fiscal 2015, 2014 and 2013 was $9.1 billion,
$8.8 billion and $8.4 billion, respectively. Interest costs capitalized on
construction projects were $59 million, $78 million and $74 million
in fiscal 2015, 2014 and 2013, respectively.
Long-Lived Assets
Long-lived assets are stated at cost. Management reviews long-lived
assets for indicators of impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
The evaluation is performed at the lowest level of identifiable cash flows,
which is at the individual store or club level or, in certain circumstances,
a market group of stores. Undiscounted cash flows expected to be
generated by the related assets are estimated over the assets’ useful lives
based on updated projections. If the evaluation indicates that the carrying
amount of the assets may not be recoverable, any potential impairment
is measured based upon the fair value of the related asset or asset group
as determined by an appropriate market appraisal or other valuation
technique. Impairment charges of long-lived assets for fiscal 2015, 2014
and 2013 were not significant.
Goodwill and Other Acquired Intangible Assets
Goodwill represents the excess of the purchase price over the fair value
of net assets acquired in business combinations and is allocated to the
appropriate reporting unit when acquired. Other acquired intangible
assets are stated at the fair value acquired as determined by a valuation
technique commensurate with the intended use of the related asset.
Goodwill and indefinite-lived intangible assets are not amortized; rather,
they are evaluated for impairment annually and whenever events or
changes in circumstances indicate that the value of the asset may be
impaired. Definite-lived intangible assets are considered long-lived
assets and are amortized on a straight-line basis over the periods that
expected economic benefits will be provided.
Goodwill is evaluated for impairment using either a qualitative or
quantitative approach for each of the Company’s reporting units.
Generally, a qualitative assessment is first performed to determine
whether a quantitative goodwill impairment test is necessary. If man-
agement determines, 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 goodwill impairment test would be required.
The quantitative test for goodwill impairment is performed by
determining the fair value of the related reporting units. Fair value is
measured based on the discounted cash flow method and relative
market-based approaches.
The Company’s reporting units were evaluated using a quantitative
impairment test. Management determined the fair value of each reporting
unit is greater than the carrying amount and, accordingly, the Company
has not recorded any impairment charges related to goodwill.
The following table reflects goodwill activity, by reportable segment,
for fiscal 2015 and 2014:
Walmart
(Amounts in millions) Walmart U.S. International Sam’s Club Total
Balances as of
February 1, 2013 $443 $19,741 $313 $20,497
Changes in currency
translation and other — (1,000) — (1,000)
Acquisitions (1) 8 5 — 13
Balances as of
January 31, 2014 451 18,746 313 19,510
Changes in currency
translation and other — (1,418) — (1,418)
Acquisitions (1) 10 — — 10
Balances as of
January 31, 2015 $461 $17,328 $313 $18,102
(1) Goodwill recorded for fiscal 2015 and 2014 acquisitions relates to acquisitions that
are not significant, individually or in the aggregate, to the Company’s Consolidated
Financial Statements.
Notes to Consolidated Financial Statements
42 2015 Annual Report
Indefinite-lived intangible assets are included in other assets and
deferred charges in the Company’s Consolidated Balance Sheets. These
assets are evaluated for impairment based on their fair values using valu-
ation techniques which are updated annually based on the most recent
variables and assumptions. There were no impairment charges related to
indefinite-lived intangible assets recorded for fiscal 2015, 2014 and 2013.
Self Insurance Reserves
The Company uses a combination of insurance and self insurance for a
number of risks, including, but not limited to, workers’ compensation,
general liability, auto liability, product liability and the Company’s obliga-
tion for employee-related health care benefits. Liabilities relating to the
claims associated with these risks are estimated by considering historical
claims experience, frequency, severity, demographic factors and other
actuarial assumptions, including incurred but not reported claims. In
estimating its liability for such claims, the Company periodically analyzes
its historical trends, including loss development, and applies appropriate
loss development factors to the incurred costs associated with the
claims. To limit exposure to certain risks, the Company maintains
stop-loss insurance coverage for workers’ compensation of $5 million
per occurrence, and in most instances, $15 million per occurrence for
general liability.
Income Taxes
Income taxes are accounted for under the balance sheet method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (“temporary differences”). Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or set-
tled. The effect on deferred tax assets and liabilities of a change in tax rate
is recognized in income in the period that includes the enactment date.
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 quantitative and quali-
tative 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. These sources
of income rely heavily on estimates.
In determining the provision for income taxes, an annual effective
income tax rate is used based on annual income, permanent differences
between book and tax income, and statutory income tax rates. Discrete
events such as audit settlements or changes in tax laws are recognized
in the period in which they occur.
The Company records a liability for unrecognized tax benefits resulting
from uncertain tax positions taken or expected to be taken in a tax return.
The Company records interest and penalties related to unrecognized tax
benefits in interest expense and operating, selling, general and administra-
tive expenses, respectively, in the Company’s Consolidated Statements
of Income. Refer to Note 9 for additional income tax disclosures.
Revenue Recognition
Sales
The Company recognizes sales revenue, net of sales taxes and estimated
sales returns, at the time it sells merchandise to the customer.
Membership Fee Revenue
The Company recognizes membership fee revenue both in the U.S.
and internationally over the term of the membership, which is typically
12 months. The following table summarizes membership fee activity
for fiscal 2015, 2014 and 2013:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Deferred membership fee revenue,
beginning of year $ 641 $ 575 $ 559
Cash received from members 1,410 1,249 1,133
Membership fee revenue recognized (1,292) (1,183) (1,117)
Deferred membership fee revenue,
end of year $ 759 $ 641 $ 575
Membership fee revenue is included in membership and other income
in the Company’s Consolidated Statements of Income. The deferred
membership fee is included in accrued liabilities in the Company’s
Consolidated Balance Sheets.
Shopping Cards
Customer purchases of shopping cards are not recognized as revenue
until the card is redeemed and the customer purchases merchandise
using the shopping card. Shopping cards in the U.S. do not carry an
expiration date; therefore, customers and members can redeem their
shopping cards for merchandise indefinitely. Shopping cards in certain
foreign countries where the Company does business may have expiration
dates. A certain number of shopping cards, both with and without
expiration dates, will not be fully redeemed. Management estimates
unredeemed shopping cards and recognizes revenue for these
amounts over shopping card historical usage periods based on historical
redemption rates. Management periodically reviews and updates its
estimates of usage periods and redemption rates.
Financial and Other Services
The Company recognizes revenue from service transactions at the time
the service is performed. Generally, revenue from services is classified
as a component of net sales in the Company’s Consolidated Statements
of Income.
Cost of Sales
Cost of sales includes actual product cost, the cost of transportation to
the Company’s distribution facilities, stores and clubs from suppliers, the
cost of transportation from the Company’s distribution facilities to the
stores, clubs and customers and the cost of warehousing for the Sam’s
Club segment and import distribution centers. Cost of sales is reduced
by supplier payments that are not a reimbursement of specific,
incremental and identifiable costs.
Notes to Consolidated Financial Statements
432015 Annual Report
Payments from Suppliers
The Company receives consideration from suppliers for various programs,
primarily volume incentives, warehouse allowances and reimbursements
for specific programs such as markdowns, margin protection, advertising
and supplier-specific fixtures. Payments from suppliers are accounted
for as a reduction of cost of sales and are recognized in the Company’s
Consolidated Statements of Income when the related inventory is sold,
except when the payment is a reimbursement of specific, incremental
and identifiable costs.
Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include all
operating costs of the Company, except cost of sales, as described above.
As a result, the majority of the cost of warehousing and occupancy for
the Walmart U.S. and Walmart International segments’ distribution
facilities is included in operating, selling, general and administrative
expenses. Because the Company does not include most of the cost of its
Walmart U.S. and Walmart International segments’ distribution facilities
in cost of sales, its gross profit and gross profit as a percentage of net
sales may not be comparable to those of other retailers that may include
all costs related to their distribution facilities in cost of sales and in the
calculation of gross profit.
Advertising Costs
Advertising costs are expensed as incurred and were $2.4 billion for both
fiscal 2015 and fiscal 2014 and $2.3 billion for fiscal 2013. Advertising costs
consist primarily of print, television and digital advertisements and are
recorded in operating, selling, general and administrative expenses in
the Company’s Consolidated Statements of Income. Reimbursements
from suppliers that are for specific, incremental and identifiable advertis-
ing costs are recognized as a reduction of advertising costs in operating,
selling, general and administrative expenses.
Leases
The Company estimates the expected term of a lease by assuming the
exercise of renewal options where an economic penalty exists that
would preclude the abandonment of the lease at the end of the initial
non-cancelable term and the exercise of such renewal is at the sole dis-
cretion of the Company. The expected term is used in the determination
of whether a store or club lease is a capital or operating lease and in the
calculation of straight-line rent expense. Additionally, the useful life of
leasehold improvements is limited by the expected lease term or the
economic life of the asset, whichever is shorter. If significant expenditures
are made for leasehold improvements late in the expected term of a
lease and renewal is reasonably assured, the useful life of the leasehold
improvement is limited to the end of the renewal period or economic
life of the asset, whichever is shorter.
Rent abatements and escalations are considered in the calculation of
minimum lease payments in the Company’s capital lease tests and in
determining straight-line rent expense for operating leases.
Pre-Opening Costs
The cost of start-up activities, including organization costs, related to new
store openings, store remodels, relocations, expansions and conversions
are expensed as incurred and included in operating, selling, general
and administrative expenses in the Company’s Consolidated Statements
of Income. Pre-opening costs totaled $317 million, $338 million and
$316 million for fiscal 2015, 2014 and 2013, respectively.
Currency Translation
The assets and liabilities of all international subsidiaries are translated
from the respective local currency to the U.S. dollar using exchange rates
at the balance sheet date. Related translation adjustments are recorded
as a component of accumulated other comprehensive income (loss). The
income statements of all international subsidiaries are translated from
the respective local currencies to the U.S. dollar using average exchange
rates for the period covered by the income statements.
Reclassifications
Certain reclassifications have been made to previous fiscal year amounts
and balances to conform to the presentation in the current fiscal year.
These reclassifications did not impact consolidated operating income or
net income. Additionally, certain segment asset and expense allocations
have been reclassified among segments in the current period. See
Note 14 for further discussion of the Company’s segments.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board issued
Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity, which
provides guidance for the recognition of discontinued operations,
changes the requirements for reporting discontinued operations and
requires additional disclosures about discontinued operations. This ASU
applies to prospective transactions beginning on or after December 15,
2014, with early adoption permitted. The Company adopted this ASU for
the fiscal year ended January 31, 2015 and adoption did not materially
impact the Company’s consolidated net income, financial position or
cash flows.
In May 2014, the Financial Accounting Standards Board issued ASU 2014-09,
Revenue from Contracts with Customers. This ASU is a comprehensive
new revenue recognition model that requires a company to recognize
revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange
for those goods or services. This ASU is effective for annual reporting
periods beginning after December 15, 2016 and early adoption is not
permitted. Accordingly, the Company will adopt this ASU on February 1,
2017. Companies may use either a full retrospective or a modified
retrospective approach to adopt this ASU. Management is currently
evaluating this standard, including which transition approach to use,
and does not expect this ASU to materially impact the Company’s
consolidated net income, financial position or cash flows.
Notes to Consolidated Financial Statements
44 2015 Annual Report
2 Net Income Per Common Share
Basic income per common share from continuing operations
attributable to Walmart is based on the weighted-average common
shares outstanding during the relevant period. Diluted income per
common share from continuing operations attributable to Walmart is
based on the weighted-average common shares outstanding during the
relevant period adjusted for the dilutive effect of share-based awards.
The Company did not have significant share-based awards outstanding
that were antidilutive and not included in the calculation of diluted
income per common share from continuing operations attributable to
Walmart for fiscal 2015, 2014 and 2013.
The following table provides a reconciliation of the numerators and
denominators used to determine basic and diluted income per common
share from continuing operations attributable to Walmart:
Fiscal Years Ended
January 31,
(Amounts in millions, except per share data) 2015 2014 2013
Numerator
Income from continuing operations $16,814 $16,551 $17,704
Less income from continuing
operations attributable to
noncontrolling interest (632) (633) (741)
Income from continuing operations
attributable to Walmart $16,182 $15,918 $16,963
Denominator
Weighted-average common shares
outstanding, basic 3,230 3,269 3,374
Dilutive impact of stock options
and other share-based awards 13 14 15
Weighted-average common shares
outstanding, diluted 3,243 3,283 3,389
Income per common share
from continuing operations
attributable to Walmart
Basic $ 5.01 $ 4.87 $ 5.03
Diluted 4.99 4.85 5.01
3 Shareholders’ Equity
Share-Based Compensation
The Company has awarded share-based compensation to associates and
nonemployee directors of the Company. The compensation expense
recognized for all plans was $462 million, $388 million and $378 million
for fiscal 2015, 2014 and 2013, respectively. Share-based compensation
expense is included in operating, selling, general and administrative
expenses in the Company’s Consolidated Statements of Income. The
total income tax benefit recognized for share-based compensation was
$173 million, $145 million and $142 million for fiscal 2015, 2014 and 2013,
respectively. The following table summarizes the Company’s share-based
compensation expense by award type:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Restricted stock and performance
share units $157 $141 $152
Restricted stock units 277 224 195
Other 28 23 31
Share-based compensation
expense $462 $388 $378
The Company’s shareholder-approved Stock Incentive Plan of 2010
(the “Plan”) became effective June 4, 2010 and amended and restated
the Company’s Stock Incentive Plan of 2005. The Plan was established to
grant stock options, restricted (non-vested) stock, performance share
units and other equity compensation awards for which 210 million shares
of common stock issued or to be issued under the Plan have been
registered under the Securities Act of 1933, as amended. The Company
believes that such awards serve to align the interests of its associates
with those of its shareholders.
The Plan’s award types are summarized as follows:
• Restricted Stock and Performance Share Units. Restricted stock awards are
for shares that vest based on the passage of time and include restric-
tions related to employment. Performance share units vest based on
the passage of time and achievement of performance criteria and may
range from 0% to 150% of the original award amount. Vesting periods
for these awards are generally between one and three years. Restricted
stock and performance share units may be settled or deferred in stock
and are accounted for as equity in the Company’s Consolidated Balance
Sheets. The fair value of restricted stock awards is determined on the date
of grant and is expensed ratably over the vesting period. The fair value
of performance share units is determined on the date of grant using the
Company’s stock price discounted for the expected dividend yield
through the vesting period and is recognized over the vesting period.
• Restricted Stock Units. Restricted stock units provide rights to Company
stock after a specified service period; 50% vest three years from the grant
date and the remaining 50% vest five years from the grant date. The fair
value of each restricted stock unit is determined on the date of grant
using the stock price discounted for the expected dividend yield through
the vesting period and is recognized ratably over the vesting period. The
expected dividend yield is based on the anticipated dividends over the
vesting period. The weighted-average discount for the dividend yield
used to determine the fair value of restricted stock units granted in fiscal
2015, 2014 and 2013 was 9.5%, 10.3% and 12.2%, respectively.
In addition to the Plan, the Company’s subsidiary in the United Kingdom
has stock option plans for certain colleagues which generally vest over
three years. The stock option share-based compensation expense is
included in the other line in the table above.
Notes to Consolidated Financial Statements
452015 Annual Report
The following table shows the activity for restricted stock and performance share units and restricted stock units during fiscal 2015:
Restricted Stock and
Performance Share Units (1) Restricted Stock Units
Weighted-Average Weighted-Average
Grant-Date Grant-Date
Fair Value Fair Value
(Shares in thousands) Shares Per Share Shares Per Share
Outstanding at February 1, 2014 9,951 $63.26 17,785 $55.87
Granted 3,328 75.30 5,671 69.39
Vested/exercised (2,799) 55.64 (4,554) 47.81
Forfeited or expired (1,757) 62.35 (1,334) 61.63
Outstanding at January 31, 2015 8,723 $68.89 17,568 $61.00
(1) Assumes payout rate at 100% for Performance Share Units.
The following table includes additional information related to restricted
stock and performance share units and restricted stock units:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Fair value of restricted stock and
performance share units vested $156 $116 $155
Fair value of restricted stock units vested 218 189 168
Unrecognized compensation cost
for restricted stock and
performance share units 154 200 233
Unrecognized compensation cost
for restricted stock units 570 497 437
Weighted average remaining period
to expense for restricted stock and
performance share units (years) 1.3 2.0 2.0
Weighted average remaining period
to expense for restricted stock
units (years) 1.7 2.1 1.7
Share Repurchase Program
From time to time, the Company repurchases shares of its common stock
under share repurchase programs authorized by the Board of Directors.
On June 6, 2013, the Company’s Board of Directors replaced the previous
$15.0 billion share repurchase program, which had approximately
$712 million of remaining authorization for share repurchases as of that
date, with a new $15.0 billion share repurchase program, which was
announced on June 7, 2013. As was the case with the replaced share
repurchase program, the current share repurchase program has no
expiration date or other restrictions limiting the period over which the
Company can make share repurchases. At January 31, 2015, authorization
for $10.3 billion of share repurchases remained under the current share
repurchase program. Any repurchased shares are constructively retired
and returned to an unissued status.
The Company considers several factors in determining when to execute
share repurchases, including, among other things, current cash needs,
capacity for leverage, cost of borrowings, its results of operations and
the market price of its common stock. The following table provides, on a
settlement date basis, the number of shares repurchased, average price
paid per share and total cash paid for share repurchases for fiscal 2015,
2014 and 2013:
Fiscal Years Ended January 31,
(Amounts in millions, except per share data) 2015 2014 2013
Total number of shares repurchased 13.4 89.1 113.2
Average price paid per share $75.82 $74.99 $67.15
Total cash paid for share repurchases $1,015 $6,683 $7,600
Notes to Consolidated Financial Statements
46 2015 Annual Report
4 Accumulated Other Comprehensive Income (Loss)
The following table provides the fiscal 2015, 2014 and 2013 changes in the composition of total accumulated other comprehensive income (loss),
including the amounts reclassified out of accumulated other comprehensive income (loss) by component for fiscal 2015 and 2014:
Currency Translation Derivative Minimum
(Amounts in millions and net of income taxes) and Other Instruments Pension Liability Total
Balances as of January 31, 2012 $ (806) $ (7) $(597) $(1,410)
Other comprehensive income (loss) before reclassifications 853 136 (166) 823
Balances as of January 31, 2013 47 129 (763) (587)
Other comprehensive income (loss) before reclassifications (2,769) 194 149 (2,426)
Amounts reclassified from accumulated other comprehensive income (loss) — 13 4 17
Balances as of January 31, 2014 (2,722) 336 (610) (2,996)
Other comprehensive income (loss) before reclassifications (3,633) (496) (58) (4,187)
Amounts reclassified from accumulated other comprehensive income (loss) — 26 (11) 15
Balances as of January 31, 2015 $(6,355) $(134) $(679) $(7,168)
Amounts reclassified from accumulated other comprehensive income (loss) for derivative instruments are recorded in interest, net, in the Company’s
Consolidated Statements of Income, and the amounts for the minimum pension liability are recorded in operating, selling, general and administrative
expenses in the Company’s Consolidated Statements of Income.
The Company’s unrealized net gains and losses on net investment hedges, included in the currency translation and other category of accumulated
other comprehensive income (loss), were not significant as of January 31, 2015 and January 31, 2014.
5 Accrued Liabilities
The Company’s accrued liabilities consist of the following:
As of January 31,
(Amounts in millions) 2015 2014
Accrued wages and benefits (1) $ 4,954 $ 4,652
Self-insurance (2) 3,306 3,477
Accrued non-income taxes (3) 2,592 2,554
Other (4) 8,300 8,110
Total accrued liabilities $19,152 $18,793
(1) Accrued wages and benefits include accrued wages, salaries, vacation, bonuses and other incentive plans.
(2) Self-insurance consists of all insurance-related liabilities, such as workers’ compensation, general liability, vehicle liability, property liability and employee-related
health care benefits.
(3) Accrued non-income taxes include accrued payroll, value added, sales and miscellaneous other taxes.
(4) Other accrued liabilities consist of various items such as maintenance, utilities, advertising and interest.
Notes to Consolidated Financial Statements
472015 Annual Report
6 Short-term Borrowings and Long-term Debt
Short-term borrowings consist of commercial paper and lines of credit. Short-term borrowings outstanding at January 31, 2015 and 2014 were
$1.6 billion and $7.7 billion, respectively. The following table includes additional information related to the Company’s short-term borrowings for
fiscal 2015, 2014 and 2013:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Maximum amount outstanding at any month-end $11,581 $13,318 $8,740
Average daily short-term borrowings 7,009 8,971 6,007
Weighted-average interest rate 0.5% 0.1% 0.1%
The Company has various committed lines of credit, committed with 23 financial institutions, totaling $15.0 billion as of January 31, 2015 and with 24 financial
institutions, totaling $15.4 billion as of January 31, 2014. The committed lines of credit are summarized in the following table:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014
Available Drawn Undrawn Available Drawn Undrawn
Five-year credit facility (1) $ 6,000 $ — $ 6,000 $ 6,000 $ — $ 6,000
364-day revolving credit facility (2) 9,000 — 9,000 9,400 — 9,400
Total $15,000 $ — $15,000 $15,400 $ — $15,400
(1) In June 2014, the Company renewed and extended its existing five-year credit facility, which is used to support its commercial paper program.
(2) In June 2014, the Company renewed and extended its existing 364-day revolving credit facility, which is used to support its commercial paper program.
The committed lines of credit mature at various times between June 2015 and June 2019, carry interest rates generally ranging between LIBOR plus 10
basis points and LIBOR plus 75 basis points, and incur commitment fees ranging between 1.5 and 4.0 basis points. In conjunction with the lines of
credit listed in the table above, the Company has agreed to observe certain covenants, the most restrictive of which relates to the maximum amount
of secured debt.
Apart from the committed lines of credit, the Company has trade and stand-by letters of credit totaling $4.6 billion and $4.7 billion at January 31, 2015
and 2014, respectively. These letters of credit are utilized in normal business activities.
Notes to Consolidated Financial Statements
48 2015 Annual Report
The Company’s long-term debt, which includes the fair value instruments further discussed in Note 8, consists of the following:
January 31, 2015 January 31, 2014
Maturity Dates Average Average
(Amounts in millions) By Fiscal Year Amount Rate (1) Amount Rate (1)
Unsecured debt
Fixed 2016-2045 $36,000 4.3% $35,500 4.3%
Variable 2019 500 5.4% 500 5.4%
Total U.S. dollar denominated 36,500 36,000
Fixed 2023-2030 2,821 3.3% 1,356 4.9%
Variable — —
Total Euro denominated 2,821 1,356
Fixed 2031-2039 5,271 5.3% 5,770 5.3%
Variable — —
Total Sterling denominated 5,271 5,770
Fixed 2016-2021 596 1.0% 1,490 1.3%
Variable 2016 255 0.6% 457 0.7%
Total Yen denominated 851 1,947
Total unsecured debt 45,443 45,073
Total other debt (in USD) (2) 453 801
Total debt 45,896 45,874
Less amounts due within one year (4,810) (4,103)
Long-term debt $41,086 $41,771
(1) The average rate represents the weighted-average stated rate for each corresponding debt category, based on year-end balances and year-end interest rates. Interest costs
are also impacted by certain derivative financial instruments described in Note 8.
(2) A portion of other debt at January 31, 2015 and 2014 includes secured debt in the amount of $139 million and $572 million, respectively, which was collateralized by property
that had an aggregate carrying amount of approximately $19 million and $471 million, respectively.
At January 31, 2015 and 2014, the Company had $500 million in debt with embedded put options. The issuance of money market puttable reset
securities in the amount of $500 million is structured to be remarketed in connection with the annual reset of the interest rate. If, for any reason, the
remarketing of the notes does not occur at the time of any interest rate reset, the holders of the notes must sell, and the Company must repurchase,
the notes at par. Accordingly, this issuance has been classified as long-term debt due within one year in the Company’s Consolidated Balance Sheets.
Annual maturities of long-term debt during the next five years and thereafter are as follows:
(Amounts in millions) Annual
Fiscal Year Maturities
2016 $ 4,810
2017 2,312
2018 1,523
2019 3,518
2020 514
Thereafter 33,219
Total $45,896
Notes to Consolidated Financial Statements
492015 Annual Report
Debt Issuances
Information on significant long-term debt issued during fiscal 2015 is as follows:
(Amounts in millions)
Issue Date Principal Amount Maturity Date Fixed vs. Floating Interest Rate Proceeds
April 8, 2014 850 Euro April 8, 2022 Fixed 1.900% $ 1,161
April 8, 2014 650 Euro April 8, 2026 Fixed 2.550% 885
April 22, 2014 500 USD April 21, 2017 Fixed 1.000% 499
April 22, 2014 1,000 USD April 22, 2024 Fixed 3.300% 992
April 22, 2014 1,000 USD April 22, 2044 Fixed 4.300% 985
October 22, 2014 500 USD April 22, 2024 Fixed 3.300% 508
Total $5,030
Information on significant long-term debt issued during fiscal 2014 is as follows:
(Amounts in millions)
Issue Date Principal Amount Maturity Date Fixed vs. Floating Interest Rate Proceeds
April 11, 2013 1,000 USD April 11, 2016 Fixed 0.600% $ 997
April 11, 2013 1,250 USD April 11, 2018 Fixed 1.130% 1,244
April 11, 2013 1,750 USD April 11, 2023 Fixed 2.550% 1,738
April 11, 2013 1,000 USD April 11, 2043 Fixed 4.000% 988
October 2, 2013 1,000 USD December 15, 2018 Fixed 1.950% 995
October 2, 2013 750 USD October 2, 2043 Fixed 4.750% 738
Total $6,700
During fiscal 2015 and 2014, the Company also received additional proceeds from other, smaller long-term debt issuances by several of its non-U.S.
operations. The proceeds in both fiscal years were used to pay down and refinance existing debt and for other general corporate purposes.
Maturities
On February 3, 2014, $500 million of 3.000% Notes matured and were repaid; on April 14, 2014, $1.0 billion of 1.625% Notes matured and were repaid;
on May 15, 2014, $1.0 billion of 3.200% Notes matured and were repaid; and on August 6, 2014, ¥100 billion of floating rate Notes matured and were repaid.
On April 15, 2013, $1.0 billion of 4.250% Notes matured and were repaid; on May 1, 2013, $1.5 billion of 4.550% Notes matured and were repaid; on
June 1, 2013, $500 million of 7.250% Notes matured and were repaid; on August 5, 2013, ¥25 billion of 2.010% and ¥50 billion of floating rate Notes
matured and were repaid; and on October 25, 2013, $750 million of 0.750% Notes matured and were repaid.
During fiscal 2015 and 2014, the Company also repaid other, smaller long-term debt as it matured in several of its non-U.S. operations.
7 Fair Value Measurements
The Company records and discloses certain financial and non-financial assets and liabilities at fair value. The fair value of an asset is the price at which
the asset could be sold in an ordinary transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. The fair
value of a liability is the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that
would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using the fair value hierarchy, which
prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
• Level 1: observable inputs such as quoted prices in active markets;
• Level 2: inputs other than quoted prices in active markets that are either directly or indirectly observable; and
• Level 3: unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions.
Notes to Consolidated Financial Statements
50 2015 Annual Report
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, 2015 and 2014, the notional amounts and fair values of these derivatives were as follows:
January 31, 2015 January 31, 2014
(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 $ 500 $ 12 $1,000 $ 5
Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps
designated as net investment hedges 1,250 207 1,250 97
Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps
designated as cash flow hedges 4,329 (317) 3,004 453
Receive variable-rate, pay fixed-rate interest rate swaps
designated as cash flow hedges 255 (1) 457 (2)
Receive variable-rate, pay fixed-rate forward starting interest rate swaps
designated as cash flow hedges — — 2,500 166
Total $6,334 $ (99) $8,211 $719
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, 2015, or 2014.
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, 2015
and 2014, are as follows:
January 31, 2015 January 31, 2014
(Amounts in millions) Carrying Value Fair Value Carrying Value Fair Value
Long-term debt, including amounts due within one year $45,896 $56,237 $45,874 $50,757
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 pos-
sibility 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 (generally 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 regu-
larly 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 $323 million
and $641 million at January 31, 2015 and January 31, 2014, respectively.
The Company records cash collateral received as amounts due to the
counterparties exclusive of any derivative asset. Furthermore, as part
of the master netting arrangements with these counterparties, the
Company is also required to post collateral if the Company’s net
derivative liability position exceeds $150 million with any counterparty.
The Company did not have any cash collateral posted with counterparties
at January 31, 2015 or January 31, 2014. 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
512015 Annual Report
The Company uses derivative financial instruments for the purpose of
hedging its exposure to interest and currency exchange rate risks and,
accordingly, the contractual terms of a hedged instrument closely mirror
those of the hedged item, providing a high degree of risk reduction and
correlation. Contracts that are effective at meeting the risk reduction and
correlation criteria are recorded using hedge accounting. If a derivative
financial instrument is recorded using hedge accounting, depending on
the nature of the hedge, changes in the fair value of the instrument will
either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or be recognized in
accumulated other comprehensive income (loss) until the hedged item
is recognized in earnings. Any hedge ineffectiveness is immediately
recognized in earnings. The Company’s net investment and cash flow
instruments are highly effective hedges and the ineffective portion has
not been, and is not expected to be, significant. Instruments that do not
meet the criteria for hedge accounting, or contracts for which the
Company has not elected hedge accounting, are recorded at fair value
with unrealized gains or losses reported in earnings during the period
of the change.
Fair Value Instruments
The Company is a party to receive fixed-rate, pay variable-rate interest
rate swaps that the Company uses to hedge the fair value of fixed-rate
debt. The notional amounts are used to measure interest to be paid or
received and do not represent the Company’s exposure due to credit
loss. The Company’s interest rate swaps that receive fixed-interest rate
payments and pay variable-interest rate payments are designated as
fair value hedges. As the specific terms and notional amounts of the
derivative instruments match those of the fixed-rate debt being hedged,
the derivative instruments are assumed to be perfectly effective hedges.
Changes in the fair values of these derivative instruments are recorded
in earnings, but are offset by corresponding changes in the fair values
of the hedged items, also recorded in earnings, and, accordingly, do not
impact the Company’s Consolidated Statements of Income. These fair
value instruments will mature in October 2020.
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 con-
tracts to exchange fixed-rate payments in one currency for fixed-rate
payments in another currency. All changes in the fair value of these
instruments are recorded in accumulated other comprehensive income
(loss), offsetting 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), offsetting the foreign
currency translation adjustment of the related net investments that is
also recorded in accumulated other comprehensive income (loss).
At January 31, 2015 and January 31, 2014, the Company had ¥100 billion
and ¥200 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, 2015 and 2014 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 July 2015 to
January 2039.
Cash Flow Instruments
The Company is a party to receive variable-rate, pay fixed-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 flow
hedges of interest expense risk. Amounts reported in accumulated other
comprehensive income (loss) related to these derivatives are reclassified
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 fixed-rate interest expense.
These cash flow instruments will mature in July 2015.
The Company is also a party to receive fixed-rate, pay fixed-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
flow hedges of the currency risk related to payments on the non-U.S.
denominated debt. The effective portion of changes in the fair value of
derivatives designated as cash flow hedges of foreign exchange risk is
recorded in accumulated other comprehensive income (loss) and is
subsequently reclassified into earnings in the period that the hedged
forecasted transaction affects earnings. The hedged items are recog-
nized foreign currency-denominated liabilities that are remeasured at
spot exchange rates each period, and the assessment of effectiveness
(and measurement of any ineffectiveness) is based on total changes in
the related derivative’s cash flows. As a result, the amount reclassified
into earnings each period includes an amount that offsets 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 difference associated with the hedging instrument. These
cash flow instruments will mature on dates ranging from April 2022
to March 2034.
The Company used forward starting receive variable-rate, pay fixed-rate
swaps (“forward starting swaps”) to hedge its exposure to the variability
in future cash flows due to changes in the LIBOR swap rate for debt
issuances forecasted to occur in the future. These forward starting swaps
were terminated in October 2014, April 2014 and April 2013 concurrently
with the issuance of the hedged debt. Upon termination of the forward
starting swaps, the Company received net cash payments from the
related counterparties of $96 million in fiscal 2015 and made net cash
payments to the related counterparties of $74 million in fiscal 2014. The
payments were recorded in accumulated other comprehensive income
(loss) and will be reclassified to earnings over the life of the related debt
through May 2044, effectively adjusting interest expense to reflect the
fixed interest rates entered into by the forward starting swaps.
Notes to Consolidated Financial Statements
52 2015 Annual Report
Financial Statement Presentation
Although subject to master netting arrangements, the Company does not offset derivative assets and derivative liabilities in its Consolidated Balance
Sheets. Derivative instruments with an unrealized gain are recorded in the Company’s Consolidated Balance Sheets as either current or non-current
assets, based on maturity date, and those hedging instruments with an unrealized loss are recorded as either current or non-current liabilities, based
on maturity date.
The Company’s derivative instruments, as well as its nonderivative debt instruments designated and qualifying as net investment hedges, were classified
as follows in the Company’s Consolidated Balance Sheets:
January 31, 2015 January 31, 2014
Fair Value Net Investment Cash Flow Fair Value Net Investment Cash Flow
(Amounts in millions) Instruments Instruments Instruments Instruments Instruments Instruments
Derivative instruments
Prepaid expenses and other $— $ — $ — $ 5 $ — $ —
Other assets and deferred charges 12 207 293 — 97 619
Derivative asset subtotals $12 $ 207 $293 $ 5 $ 97 $619
Accrued liabilities $— $ — $ 1 $— $ — $ 1
Deferred income taxes and other — — 610 — — 1
Derivative liability subtotals $— $ — $611 $— $ — $ 2
Nonderivative hedging instruments
Long-term debt due within one year $— $ 766 $ — $— $ 973 $ —
Long-term debt — 3,850 — — 5,095 —
Nonderivative hedge
liability subtotals $— $4,616 $ — $— $6,068 $ —
Gains and losses related to the Company’s derivatives primarily relate to interest rate hedges, which are recorded in interest, net, in the
Company’s Consolidated Statements of Income. Amounts related to the Company’s derivatives expected to be reclassified from accumulated
other comprehensive income (loss) to net income during the next 12 months are not significant.
9 Taxes
Income from Continuing Operations
The components of income from continuing operations before income
taxes are as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
U.S. $18,610 $19,412 $19,352
Non-U.S. 6,189 5,244 6,310
Total income from continuing
operations before income taxes $24,799 $24,656 $25,662
A summary of the provision for income taxes is as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Current:
U.S. federal $6,165 $6,377 $5,611
U.S. state and local 810 719 622
International 1,529 1,523 1,743
Total current tax provision 8,504 8,619 7,976
Deferred:
U.S. federal (387) (72) 38
U.S. state and local (55) 37 (8)
International (77) (479) (48)
Total deferred tax expense (benefit) (519) (514) (18)
Total provision for income taxes $7,985 $8,105 $7,958
Notes to Consolidated Financial Statements
532015 Annual Report
Effective Income Tax Rate Reconciliation
The Company’s effective income tax rate is typically lower than the U.S.
statutory tax rate primarily because of benefits from lower-taxed global
operations, including the use of global funding structures and certain
U.S. tax credits as further discussed in the “Cash and Cash Equivalents”
section of the Company’s significant accounting policies in Note 1. The
Company’s non-U.S. income is generally subject to local country tax rates
that are below the 35% U.S. statutory tax rate. Certain non-U.S. earnings
have been indefinitely reinvested outside the U.S. and are not subject to
current U.S. income tax. A reconciliation of the significant differences
between the U.S. statutory tax rate and the effective income tax rate on
pretax income from continuing operations is as follows:
Fiscal Years Ended January 31,
2015 2014 2013
U.S. statutory tax rate 35.0% 35.0% 35.0%
U.S. state income taxes, net of
federal income tax benefit 1.8% 2.0% 1.7%
Income taxed outside the U.S. (2.7)% (2.8)% (2.6)%
Net impact of repatriated
international earnings (1.5)% (1.4)% (2.5)%
Other, net (0.4)% 0.1% (0.6)%
Effective income tax rate 32.2% 32.9% 31.0%
Deferred Taxes
The significant components of the Company’s deferred tax account
balances are as follows:
January 31,
(Amounts in millions) 2015 2014
Deferred tax assets:
Loss and tax credit carryforwards $ 3,255 $ 3,566
Accrued liabilities 3,395 2,986
Share-based compensation 184 126
Other 1,119 1,573
Total deferred tax assets 7,953 8,251
Valuation allowances (1,504) (1,801)
Deferred tax assets, net of
valuation allowance 6,449 6,450
Deferred tax liabilities:
Property and equipment 5,972 6,295
Inventories 1,825 1,641
Other 1,618 1,827
Total deferred tax liabilities 9,415 9,763
Net deferred tax liabilities $ 2,966 $ 3,313
The deferred taxes are classified as follows in the Company’s
Consolidated Balance Sheets:
January 31,
(Amounts in millions) 2015 2014
Balance Sheet classification:
Assets:
Prepaid expenses and other $ 728 $ 822
Other assets and deferred charges 1,033 1,151
Asset subtotals 1,761 1,973
Liabilities:
Accrued liabilities 56 176
Deferred income taxes and other 4,671 5,110
Liability subtotals 4,727 5,286
Net deferred tax liabilities $2,966 $3,313
Unremitted Earnings
U.S. income taxes have not been provided on accumulated but
undistributed earnings of the Company’s international subsidiaries of
approximately $23.3 billion and $21.4 billion as of January 31, 2015 and
2014, respectively, as the Company intends to permanently reinvest
these amounts outside of the U.S. However, if any portion were to be
distributed, the related U.S. tax liability may be reduced by foreign
income taxes paid on those earnings. Determination of the unrecog-
nized deferred tax liability related to these undistributed earnings is not
practicable because of the complexities with its hypothetical calculation.
The Company provides deferred or current income taxes on earnings of
international subsidiaries in the period that the Company determines it
will remit those earnings.
Net Operating Losses, Tax Credit Carryforwards
and Valuation Allowances
At January 31, 2015, the Company had net operating loss and capital loss
carryforwards totaling approximately $5.6 billion. Of these carryforwards,
approximately $2.9 billion will expire, if not utilized, in various years
through 2033. The remaining carryforwards have no expiration. At
January 31, 2015, the Company had foreign tax credit carryforwards of
$2.0 billion, which will expire in various years through 2025, if not utilized.
The recoverability of these future tax deductions and credits is evaluated
by assessing the adequacy of future expected taxable income from all
sources, including taxable income in prior carryback years, reversal of
taxable temporary differences, forecasted operating earnings and available
tax planning strategies. To the extent management does not consider it
more likely than not that a deferred tax asset will be realized, a valuation
allowance is established. If a valuation allowance has been established
and management subsequently determines that it is more likely than
not that the deferred tax assets will be realized, the valuation allowance
is released.
Notes to Consolidated Financial Statements
54 2015 Annual Report
As of January 31, 2015 and 2014, the Company had valuation allowances
recorded of approximately $1.5 billion and $1.8 billion, respectively,
on deferred tax assets associated primarily with net operating loss
carryforwards for which management has determined it is more likely
than not that the deferred tax asset will not be realized. The $0.3 billion
net decrease in the valuation allowance during fiscal 2015 related to
releases arising from the use of deferred tax assets, changes in judgment
regarding the future realization of deferred tax assets, increases from
certain net operating losses and deductible temporary differences
arising in fiscal 2015, decreases due to operating loss expirations and
fluctuations in currency exchange rates. Management believes that it
is more likely than not that the remaining net deferred tax assets will
be fully realized.
Uncertain Tax Positions
The benefits of uncertain tax positions are recorded in the Company’s
Consolidated Financial Statements only after determining a more likely
than not probability that the uncertain tax positions will withstand
challenge, if any, from taxing authorities.
As of January 31, 2015 and 2014, the amount of unrecognized tax benefits
related to continuing operations was $838 million and $763 million,
respectively. The amount of unrecognized tax benefits that would affect
the Company’s effective income tax rate was $763 million and $698 million
for January 31, 2015 and 2014, respectively.
A reconciliation of unrecognized tax benefits from continuing operations
was as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Unrecognized tax benefits,
beginning of year $763 $ 818 $ 611
Increases related to prior year
tax positions 7 41 88
Decreases related to prior year
tax positions (17) (112) (232)
Increases related to current year
tax positions 174 133 431
Settlements during the period (89) (117) (80)
Lapse in statutes of limitations — — —
Unrecognized tax benefits,
end of year $838 $ 763 $ 818
The Company classifies interest and penalties related to uncertain
tax benefits as interest expense and as operating, selling, general and
administrative expenses, respectively. During fiscal 2015, 2014 and 2013,
the Company recognized interest and penalty expense (benefit) related
to uncertain tax positions of $18 million, $(7) million and $2 million,
respectively. As of January 31, 2015 and 2014, accrued interest related to
uncertain tax positions of $57 million and $40 million, respectively, was
recorded in the Company’s Consolidated Balance Sheets. The Company
did not have any accrued penalties recorded for income taxes as of
January 31, 2015 or 2014.
During the next twelve months, it is reasonably possible that tax audit
resolutions could reduce unrecognized tax benefits by between $50 million
and $350 million, either because the tax positions are sustained on audit
or because the Company agrees to their disallowance. The Company is
focused on resolving tax audits as expeditiously as possible. As a result
of these efforts, unrecognized tax benefits could potentially be reduced
beyond the provided range during the next twelve months. The Company
does not expect any change to have a significant impact to its
Consolidated Financial Statements.
The Company remains subject to income tax examinations for its
U.S. federal income taxes generally for fiscal 2013 through 2015.
The Company also remains subject to income tax examinations for
international income taxes for fiscal 2000 through 2015, and for
U.S. state and local income taxes generally for the fiscal years ended
2006 through 2015.
Other Taxes
The Company is subject to tax examinations for payroll, value added,
sales-based and other non-income taxes. A number of these examinations
are ongoing in various jurisdictions, including Brazil. In certain cases, the
Company has received assessments from the respective taxing authorities
in connection with these examinations. Where a probable loss has
occurred, the Company has made accruals, which are reflected in the
Company’s Consolidated Financial Statements. While the possible losses
or range of possible losses associated with these matters are individually
immaterial, a group of related matters, if decided adversely to the Company,
could result in a liability material to the Company’s Consolidated
Financial Statements.
10 Contingencies
Legal Proceedings
The Company is involved in a number of legal proceedings. The Company
has made accruals with respect to these matters, where appropriate,
which are reflected in the Company’s Consolidated Financial Statements.
For some matters, a liability is not probable or the amount cannot be
reasonably estimated and therefore an accrual has not been made.
However, where a liability is reasonably possible and may be material,
such matters have been disclosed. The Company may enter into
discussions regarding settlement of these matters, and may enter into
settlement agreements, if it believes settlement is in the best interest
of the Company’s shareholders.
Unless stated otherwise, the matters, or groups of related matters,
discussed below, if decided adversely to or settled by the Company,
individually or in the aggregate, may result in a liability material to the
Company’s financial condition or results of operations.
Wage-and-Hour Class Action: The Company is a defendant in
Braun/Hummel v. Wal-Mart Stores, Inc., a class-action lawsuit commenced
in March 2002 in the Court of Common Pleas in Philadelphia,
Pennsylvania. The plaintiffs allege that the Company failed to pay class
members for all hours worked and prevented class members from taking
their full meal and rest breaks. On October 13, 2006, a jury awarded
back-pay damages to the plaintiffs of approximately $78 million on
their claims for off-the-clock work and missed rest breaks. The jury
found in favor of the Company on the plaintiffs’ meal-period claims.
Notes to Consolidated Financial Statements
552015 Annual Report
On November 14, 2007, the trial judge entered a final judgment in the
approximate amount of $188 million, which included the jury’s back-pay
award plus statutory penalties, prejudgment interest and attorneys’ fees.
By operation of law, post-judgment interest accrues on the judgment
amount at the rate of six percent per annum from the date of entry of the
judgment, which was November 14, 2007, until the judgment is paid,
unless the judgment is set aside on appeal. On December 7, 2007, the
Company filed its Notice of Appeal. On June 10, 2011, the Pennsylvania
Superior Court of Appeals issued an opinion upholding the trial court’s
certification of the class, the jury’s back pay award, and the awards of
statutory penalties and prejudgment interest, but reversing the award of
attorneys’ fees. On September 9, 2011, the Company filed a Petition for
Allowance of Appeal with the Pennsylvania Supreme Court. On July 2,
2012, the Pennsylvania Supreme Court granted the Company’s Petition.
On December 15, 2014, the Pennsylvania Supreme Court issued its
opinion affirming the Superior Court of Appeals’ decision. At that time,
the Company recorded expenses of $249 million for the judgment amount
and post-judgment interest incurred to date. The Company will continue
to accrue for the post-judgment interest until final resolution. However, the
Company continues to believe it has substantial factual and legal defenses
to the claims at issue and, on March 13, 2015, the Company filed a petition
for writ of certiorari with the U.S. Supreme Court.
ASDA Equal Value Claims: ASDA Stores, Ltd. (“ASDA”), a wholly-owned
subsidiary of the Company, is a defendant in over 4,000 “equal value”
claims that are proceeding before an Employment Tribunal in
Manchester (the “Employment Tribunal”) in the United Kingdom (“UK”)
on behalf of current and former ASDA store employees, who allege that
the work performed by female employees in ASDA’s retail stores is of
equal value in terms of, among other things, the demands of their jobs to
that of male employees working in ASDA’s warehouse and distribution
facilities, and that the disparity in pay between these different job positions
is not objectively justified. Claimants are requesting differential back pay
based on higher wage rates in the warehouse and distribution facilities and
those higher wage rates on a prospective basis as part of these equal value
proceedings. ASDA believes that further claims may be asserted in the near
future. On March 23, 2015, ASDA asked the Employment Tribunal to stay all
proceedings, contending that the High Court, which is the superior first
instance civil court in the UK that is headquartered in the Royal Courts of
Justice in the City of London, is the more convenient and appropriate forum
to hear these claims. On March 23, 2015, ASDA also asked the Employment
Tribunal to “strike out” substantially all of the claims for failing to comply
with Employment Tribunal rules. At present, the Company cannot predict
the number of such claims that may be filed, and cannot reasonably esti-
mate any loss or range of loss that may arise from these proceedings. The
Company believes it has substantial factual and legal defenses to these
claims, and intends to defend the claims vigorously
FCPA Investigation and Related Matters
The Audit Committee (the “Audit Committee”) of the Board of Directors
of the Company, which is composed solely of independent directors, is
conducting an internal investigation into, among other things, alleged
violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other
alleged crimes or misconduct in connection with foreign subsidiaries,
including Wal-Mart de México, S.A.B. de C.V. (“Walmex”), and whether
prior allegations of such violations and/or misconduct were appropriately
handled by the Company. The Audit Committee and the Company have
engaged outside counsel from a number of law firms and other advisors
who are assisting in the on-going investigation of these matters.
The Company is also conducting a voluntary global review of its policies,
practices and internal controls for FCPA compliance. The Company is
engaged in strengthening its global anti-corruption compliance program
through appropriate remedial anti-corruption measures. In November 2011,
the Company voluntarily disclosed that investigative activity to the
U.S. Department of Justice (the “DOJ”) and the Securities and Exchange
Commission (the “SEC”). Since the implementation of the global review
and the enhanced anti-corruption compliance program, the Audit
Committee and the Company have identified or been made aware of
additional allegations regarding potential violations of the FCPA. When
such allegations are reported or identified, the Audit Committee and the
Company, together with their third party advisors, conduct inquiries and
when warranted based on those inquiries, open investigations. Inquiries
or investigations regarding allegations of potential FCPA violations have
been commenced in a number of foreign markets where the Company
operates, including, but not limited to, Brazil, China and India.
The Company has been informed by the DOJ and the SEC that it is also
the subject of their respective investigations into possible violations of
the FCPA. The Company is cooperating with the investigations by the
DOJ and the SEC. A number of federal and local government agencies
in Mexico have also initiated investigations of these matters. Walmex is
cooperating with the Mexican governmental agencies conducting
these investigations. Furthermore, lawsuits relating to the matters under
investigation have been filed by several of the Company’s shareholders
against it, certain of its current directors, certain of its former directors,
certain of its current and former officers and certain of Walmex’s current
and former officers.
The Company could be exposed to a variety of negative consequences
as a result of the matters noted above. There could be one or more
enforcement actions in respect of the matters that are the subject of
some or all of the on-going government investigations, and such
actions, if brought, may result in judgments, settlements, fines, penalties,
injunctions, cease and desist orders, debarment or other relief, criminal
convictions and/or penalties. The shareholder lawsuits may result in
judgments against the Company and its current and former directors
and officers named in those proceedings. The Company cannot predict
at this time the outcome or impact of the government investigations,
the shareholder lawsuits, or its own internal investigations and review.
In addition, the Company has incurred and expects to continue to incur
costs in responding to requests for information or subpoenas seeking
documents, testimony and other information in connection with the
government investigations, in defending the shareholder lawsuits, and in
conducting the review and investigations. These costs will be expensed
as incurred. For the fiscal years ended January 31, 2015, 2014 and 2013,
the Company incurred the following third-party expenses in connection
with the FCPA investigation and related matters:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Ongoing inquiries and investigations $121 $173 $100
Global compliance program and
organizational enhancements 52 109 57
Total $173 $282 $157
Notes to Consolidated Financial Statements
56 2015 Annual Report
These matters may require the involvement of certain members of the
Company’s senior management that could impinge on the time they
have available to devote to other matters relating to the business. The
Company expects that there will be on-going media and governmental
interest, including additional news articles from media publications on
these matters, which could impact the perception among certain
audiences of the Company’s role as a corporate citizen.
The Company’s process of assessing and responding to the governmental
investigations and the shareholder lawsuits continues. While the Company
believes that it is probable that it will incur a loss from these matters,
given the on-going nature and complexity of the review, inquiries and
investigations, the Company cannot reasonably estimate any loss or
range of loss that may arise from these matters. Although the Company
does not presently believe that these matters will have a material adverse
effect on its business, given the inherent uncertainties in such situations,
the Company can provide no assurance that these matters will not be
material to its business in the future.
11 Commitments
The Company has long-term leases for stores and equipment. Rentals
(including amounts applicable to taxes, insurance, maintenance, other
operating expenses and contingent rentals) under operating leases and
other short-term rental arrangements were $2.8 billion in both fiscal 2015
and 2014 and $2.6 billion in fiscal 2013.
Aggregate minimum annual rentals at January 31, 2015, under
non-cancelable leases are as follows:
(Amounts in millions) Operating Capital
Fiscal Year Leases Leases
2016 $ 1,759 $ 504
2017 1,615 476
2018 1,482 444
2019 1,354 408
2020 1,236 370
Thereafter 10,464 3,252
Total minimum rentals $17,910 $5,454
Less estimated executory costs 49
Net minimum lease payments 5,405
Less imputed interest 2,512
Present value of minimum lease payments $2,893
Certain of the Company’s leases provide for the payment of contingent
rentals based on a percentage of sales. Such contingent rentals were not
material for fiscal 2015, 2014 and 2013. Substantially all of the Company’s
store leases have renewal options, some of which may trigger an escalation
in rentals.
The Company has future lease commitments for land and buildings for
approximately 282 future locations. These lease commitments have lease
terms ranging from 1 to 30 years and provide for certain minimum
rentals. If executed, payments under operating leases would increase
by $58 million for fiscal 2016, based on current cost estimates.
In connection with certain long-term debt issuances, the Company
could be liable for early termination payments if certain unlikely events
were to occur. At January 31, 2015, the aggregate termination payment
would have been $64 million. The arrangement pursuant to which this
payment could be made will expire in fiscal 2019.
12 Retirement-Related Benefits
The Company offers a 401(k) plan for associates in the U.S. under which
eligible associates can begin contributing to the plan immediately upon
hire. The Company also offers a 401(k) type plan for associates in Puerto
Rico under which associates can begin to contribute generally after one
year of employment. Under these plans, after one year of employment,
the Company matches 100% of participant contributions up to 6% of
annual eligible earnings. The matching contributions immediately vest at
100% for each associate. Participants can contribute up to 50% of their
pretax earnings, but not more than the statutory limits. Participants age
50 or older may defer additional earnings in catch-up contributions
up to the maximum statutory limits.
Associates in international countries who are not U.S. citizens are covered
by various defined contribution post-employment benefit arrangements.
These plans are administered based upon the legislative and tax
requirements in the countries in which they are established.
Additionally, the Company’s subsidiaries in the United Kingdom and
Japan have sponsored defined benefit pension plans. The plan in the
United Kingdom was underfunded by $85 million and $69 million at
January 31, 2015 and 2014, respectively. The plan in Japan was under-
funded by $223 million and $281 million at January 31, 2015 and 2014,
respectively. These underfunded amounts are recorded as liabilities in
the Company’s Consolidated Balance Sheets in deferred income taxes
and other. Certain other international operations also have defined
benefit arrangements that are not significant.
The following table summarizes the contribution expense related to the
Company’s retirement-related benefits for fiscal 2015, 2014 and 2013:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Defined contribution plans:
U.S. $ 898 $ 877 $ 818
International 167 165 166
Defined benefit plans:
International 5 20 26
Total contribution expense for
retirement-related benefits $1,070 $1,062 $1,010
Notes to Consolidated Financial Statements
572015 Annual Report
13 Acquisitions, Disposals and Related Items
In fiscal 2015, the Company completed the following transactions that
impact the operations of Walmart International:
Walmart Chile
In fiscal 2014, the redeemable noncontrolling interest shareholders
exercised put options that required the Company to purchase their
shares in Walmart Chile. At that time, the Company recorded an
increase to redeemable noncontrolling interest of $1.0 billion, with a
corresponding decrease to capital in excess of par value, to reflect
the redemption value of the redeemable noncontrolling interest at
$1.5 billion. In February 2014, the Company completed this transaction
using existing cash of the Company, increasing its ownership interest in
Walmart Chile to 99.7 percent. In March 2014, the Company completed a
tender offer for most of the remaining noncontrolling interest shares at
the same value per share as was paid to the redeemable noncontrolling
interest shareholders. As a result of completing these transactions, the
Company owns substantially all of Walmart Chile.
Vips Restaurant Business in Mexico
In September 2013, Walmex, a majority-owned subsidiary of the Company,
entered into a definitive agreement with Alsea S.A.B. de C.V. to sell the
Vips restaurant business (“Vips”) in Mexico. The sale of Vips was completed
on May 12, 2014. Upon completion of the sale, the Company received
$671 million of cash and recognized a net gain of $262 million, which is
recorded in discontinued operations in the Company’s Consolidated
Statements of Income for the fiscal year ended January 31, 2015.
14 Segments
The Company is engaged in the operation of retail, wholesale and
other units located in the U.S., Africa, Argentina, Brazil, Canada, Central
America, Chile, China, India, Japan, Mexico and the United Kingdom.
The Company’s operations are conducted in three business segments:
Walmart U.S., Walmart International and Sam’s Club. The Company
defines its segments as those operations whose results its chief operating
decision maker (“CODM”) regularly reviews to analyze performance and
allocate resources. The Company sells similar individual products and
services in each of its segments. It is impractical to segregate and identify
revenues for each of these individual products and services.
The Walmart U.S. segment includes the Company’s mass merchant
concept in the U.S. operating under the “Walmart” or “Wal-Mart” brands,
as well as walmart.com. The Walmart International segment consists of
the Company’s operations outside of the U.S., including various retail
websites. The Sam’s Club segment includes the warehouse membership
clubs in the U.S., as well as samsclub.com. Corporate and support con-
sists of corporate overhead and other items not allocated to any of the
Company’s segments.
The Company measures the results of its segments using, among other
measures, each segment’s net sales and operating income, which
includes certain corporate overhead allocations. From time to time, the
Company revises the measurement of each segment’s operating
income, including any corporate overhead allocations, as determined by
the information regularly reviewed by its CODM. When the measure-
ment of a segment changes, previous period amounts and balances are
reclassified to be comparable to the current period’s presentation.
Notes to Consolidated Financial Statements
58 2015 Annual Report
Information for the Company’s segments, as well as for Corporate and support, including the reconciliation to income from continuing operations
before income taxes, is provided in the following table:
Walmart Corporate and
(Amounts in millions) Walmart U.S. International Sam’s Club support Consolidated
Fiscal Year Ended January 31, 2015
Net sales $288,049 $136,160 $58,020 $ — $482,229
Operating income (loss) 21,336 6,171 1,976 (2,336) 27,147
Interest expense, net (2,348)
Income from continuing operations before income taxes $ 24,799
Total assets 101,381 80,505 13,995 7,825 $203,706
Depreciation and amortization 2,665 2,665 473 3,370 9,173
Capital expenditures 6,286 3,936 753 1,199 12,174
Fiscal Year Ended January 31, 2014
Net sales $279,406 $136,513 $57,157 $ — $473,076
Operating income (loss) 21,787 5,153 1,843 (1,911) 26,872
Interest expense, net (2,216)
Income from continuing operations before income taxes $ 24,656
Total assets $ 98,745 $ 85,370 $14,053 $ 6,583 $204,751
Depreciation and amortization 2,640 2,658 437 3,135 8,870
Capital expenditures 6,378 4,463 1,071 1,203 13,115
Fiscal Year Ended January 31, 2013
Net sales $274,433 $134,748 $56,423 $ — $465,604
Operating income (loss) 21,103 6,365 1,859 (1,602) 27,725
Interest expense, net (2,063)
Income from continuing operations before income taxes $ 25,662
Total assets $ 96,234 $ 85,695 $13,479 $ 7,697 $203,105
Depreciation and amortization 2,644 2,605 410 2,819 8,478
Capital expenditures 5,994 4,640 868 1,396 12,898
Total revenues, consisting of net sales and membership and other income,
and long-lived assets, consisting primarily of property and equipment,
net, aggregated by the Company’s U.S. and non-U.S. operations for fiscal
2015, 2014 and 2013, are as follows:
Fiscal Years Ended January 31,
(Amounts in millions) 2015 2014 2013
Total revenues
U.S. operations $348,227 $338,681 $332,788
Non-U.S. operations 137,424 137,613 135,863
Total revenues $485,651 $476,294 $468,651
Long-lived assets
U.S. operations $ 80,879 $ 79,644 $ 77,692
Non-U.S. operations 35,776 38,263 38,989
Total long-lived assets $116,655 $117,907 $116,681
No individual country outside of the U.S. had total revenues or
long-lived assets that were material to the consolidated totals.
Additionally, the Company did not generate material total revenues
from any single customer.
15 Subsequent Event
Dividends Declared
On February 19, 2015, the Board of Directors approved the fiscal 2016
annual dividend at $1.96 per share, an increase from the fiscal 2015
dividend of $1.92 per share. For fiscal 2016, the annual dividend will be
paid in four quarterly installments of $0.49 per share, according to the
following record and payable dates:
Record Date Payable Date
March 13, 2015 April 6, 2015
May 8, 2015 June 1, 2015
August 7, 2015 September 8, 2015
December 4, 2015 January 4, 2016
Notes to Consolidated Financial Statements
592015 Annual Report
16 Quarterly Financial Data (Unaudited)
Fiscal Year Ended January 31, 2015
(Amounts in millions, except per share data) Q1 Q2 Q3 Q4 Total
Total revenues $114,960 $120,125 $119,001 $131,565 $485,651
Net sales 114,167 119,336 118,076 130,650 482,229
Cost of sales 86,714 90,010 89,247 99,115 365,086
Income from continuing operations 3,711 4,089 3,826 5,188 16,814
Consolidated net income 3,726 4,359 3,826 5,188 17,099
Consolidated net income attributable to Walmart 3,593 4,093 3,711 4,966 16,363
Basic net income per common share (1):
Basic income per common share from continuing
operations attributable to Walmart 1.10 1.22 1.15 1.54 5.01
Basic income (loss) per common share from discontinued
operations attributable to Walmart 0.01 0.05 — — 0.06
Basic net income per common share attributable to Walmart 1.11 1.27 1.15 1.54 5.07
Diluted net income per common share (1):
Diluted income per common share from continuing
operations attributable to Walmart 1.10 1.21 1.15 1.53 4.99
Diluted income (loss) per common share from discontinued
operations attributable to Walmart 0.01 0.05 — — 0.06
Diluted net income per common share attributable to Walmart 1.11 1.26 1.15 1.53 5.05
Fiscal Year Ended January 31, 2014
Q1 Q2 Q3 Q4 Total
Total revenues $114,071 $116,829 $115,688 $129,706 $476,294
Net sales 113,313 116,101 114,876 128,786 473,076
Cost of sales 85,991 87,420 86,687 97,971 358,069
Income from continuing operations 3,932 4,205 3,870 4,544 16,551
Consolidated net income 3,944 4,216 3,885 4,650 16,695
Consolidated net income attributable to Walmart 3,784 4,069 3,738 4,431 16,022
Basic net income per common share (1):
Basic income per common share from continuing
operations attributable to Walmart 1.14 1.24 1.14 1.35 4.87
Basic income (loss) per common share from discontinued
operations attributable to Walmart 0.01 — 0.01 0.02 0.03
Basic net income per common share attributable to Walmart 1.15 1.24 1.15 1.37 4.90
Diluted net income per common share (1):
Diluted income per common share from continuing
operations attributable to Walmart 1.14 1.23 1.14 1.34 4.85
Diluted income (loss) per common share from discontinued
operations attributable to Walmart — 0.01 — 0.02 0.03
Diluted net income per common share attributable to Walmart 1.14 1.24 1.14 1.36 4.88
(1) The sum of quarterly income per common share attributable to Walmart data may not agree to annual amounts due to rounding.
Notes to Consolidated Financial Statements
43
Income Taxes
Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, we do not
provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend
to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for our
U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings. Undistributed
earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $2.5 billion as of December 31, 2013.
Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not
practicable.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or
recovered.
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe a
portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax
assets, including our recent cumulative earnings experience and expectations of future taxable income and capital gains by
taxing jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. We allocate
our valuation allowance to current and long-term deferred tax assets on a pro-rata basis.
We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second
step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate
settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require
periodic adjustments and which may not accurately forecast actual outcomes. We include interest and penalties related to our
tax contingencies in income tax expense.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. To increase the comparability of fair value measures, the
following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably
available assumptions made by other market participants. These valuations require significant judgment.
We measure the fair value of money market funds and equity securities based on quoted prices in active markets for
identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive
markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by
observable market data. We did not hold any cash, cash equivalents, or marketable securities categorized as Level 3 as of
December 31, 2013, or December 31, 2012.
Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash
equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the FIFO method, and are valued
at the lower of cost or market value. This valuation requires us to make judgments, based on currently-available information,
about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or
liquidations, and expected recoverable values of each disposition category.
44
We provide Fulfillment by Amazon services in connection with certain of our sellers’ programs. Third-party sellers
maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and
therefore these products are not included in our inventories.
Accounts Receivable, Net and Other
Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to
vendor and customer receivables. As of December 31, 2013 and 2012, vendor receivables, net, were $1.3 billion and $1.1
billion, and customer receivables, net, were $1.7 billion and $1.5 billion.
Allowance for Doubtful Accounts
We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred.
Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected
in accordance with the terms of the agreement. The allowance for doubtful accounts was $153 million, $116 million, and $82
million as of December 31, 2013, 2012, and 2011. Additions to the allowance were $172 million, $136 million, and $87
million, and deductions to the allowance were $135 million, $102 million, and $82 million as of December 31, 2013, 2012, and
2011.
Internal-use Software and Website Development
Costs incurred to develop software for internal use and our websites are capitalized and amortized over the estimated
useful life of the software. Costs related to design or maintenance of internal-use software and website development are
expensed as incurred. For the years ended 2013, 2012, and 2011, we capitalized $581 million (including $87 million of stock-
based compensation), $454 million (including $74 million of stock-based compensation), and $307 million (including $51
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $451 million, $327 million, and $236 million for 2013, 2012, and 2011.
Property and Equipment,
Net
Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we
own, along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes
assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and
website development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally
the lesser of 40 years or the remaining life of the underlying building, two years for assets such as internal-use software, three
years for our servers, five years for networking equipment, five years for furniture and fixtures, and ten years for heavy
equipment). Depreciation expense is classified within the corresponding operating expense categories on our consolidated
statements of operations.
Leases and Asset Retirement Obligations
We categorize leases at their inception as either operating or capital leases. On certain of our lease agreements, we may
receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment
terms, such as rent holidays that defer the commencement date of required payments. Additionally, incentives we receive are
treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and
amortized over the lesser of their expected useful life or the non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to
the extent we are involved in the construction of structural improvements or take construction risk prior to commencement of a
lease. Upon occupancy of facilities under build-to-suit leases, we assess whether these arrangements qualify for sales
recognition under the sale-leaseback accounting guidance. If we continue to be the deemed owner, the facilities are accounted
for as financing leases.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the
termination or expiration of a lease. Such assets are depreciated over the lease period into operating expense, and the recorded
liabilities are accreted to the future value of the estimated retirement costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of
net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative
45
factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of
impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of
the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales
and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic
conditions.
We conduct our annual impairment test as of October 1 of each year, and have determined there to be no impairment for
any of the periods presented. There were no triggering events identified from the date of our assessment through December 31,
2013 that would require an update to our annual impairment test. See “Note 4—Acquisitions, Goodwill, and Acquired
Intangible Assets.”
Other Assets
Included in “Other assets” on our consolidated balance sheets are amounts primarily related to acquired intangible assets,
net of amortization; digital video content, net of amortization; long-term deferred tax assets; certain equity investments;
marketable securities restricted for longer than one year, the majority of which are attributable to collateralization of bank
guarantees and debt related to our international operations; and intellectual property rights, net of amortization.
Content Costs
We obtain digital video content through licensing agreements that have a wide range of licensing provisions and
generally have terms from one to five years with fixed payment schedules. When the license fee for a specific movie or
television title is determinable or reasonably estimable and available for streaming, we recognize an asset representing the fee
per title and a corresponding liability for the amounts owed. We relieve the liability as payments are made and we amortize the
asset as cost of sales on a straight-line basis over each title’s contractual window of availability, which typically ranges from six
months to five years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing
costs are expensed as incurred.
Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-
rated money market funds. Such investments are included in “Cash and cash equivalents,” or “Marketable securities” on the
accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and
losses included in “Accumulated other comprehensive loss.”
Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to
exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees,
including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our
consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the
related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on
our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes
operating and non-operating gains and charges, which can have a significant impact on our reported equity-method investment
activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method
investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted
for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We
regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider
whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their
obligations and repay their liabilities when they come due.
We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our
ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between
fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer
have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the
investment under the equity method.
Equity investments without readily determinable fair values for which we do not have the ability to exercise significant
influence are accounted for using the cost method of accounting and classified as “Other assets” on our consolidated balance
sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair
value, certain distributions, and additional investments.
46
Equity investments that have readily determinable fair values are classified as available-for-sale and are included in
“Marketable securities” in our consolidated balance sheets and are recorded at fair value with unrealized gains and losses, net
of tax, included in “Accumulated other comprehensive loss.”
We periodically evaluate whether declines in fair values of our investments below their book value are other-than-
temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the
unrealized loss as well as our ability and intent to hold the investment until a forecasted recovery occurs. Additionally, we
assess whether we have plans to sell the security or it is more likely than not we will be required to sell any investment before
recovery of its amortized cost basis. Factors considered include quoted market prices; recent financial results and operating
trends; implied values from any recent transactions or offers of investee securities; credit quality of debt instrument issuers;
other publicly available information that may affect the value of our investments; duration and severity of the decline in value;
and our strategy and intentions for holding the investment.
Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner
in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or
group of assets may not be recoverable.
For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not
recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the
difference between the carrying amount and estimated fair value. Long-lived assets are considered held for sale when certain
criteria are met, including when management has committed to a plan to sell the asset, the asset is available for sale in its
immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the
lower of cost or fair value less costs to sell. Assets held for sale were not significant as of December 31, 2013 or 2012.
Accrued Expenses and Other
Included in “Accrued expenses and other” as of December 31, 2013 and 2012 were liabilities of $1.4 billion and $1.1
billion for unredeemed gift cards. We reduce the liability for a gift card when redeemed by a customer. If a gift card is not
redeemed, we recognize revenue when it expires or when the likelihood of its redemption becomes remote, generally two years
from the date of issuance.
Unearned Revenue
Unearned revenue is recorded when payments are received in advance of performing our service obligations and is
recognized over the service period. Unearned revenue primarily relates to Amazon Prime memberships and AWS.
Foreign Currency
We have internationally-focused websites for the United Kingdom, Germany, France, Japan, Canada, China, Italy, Spain,
Brazil, India, Mexico, and Australia. Net sales generated from these websites, as well as most of the related expenses directly
incurred from those operations, are denominated in local functional currencies. The functional currency of our subsidiaries that
either operate or support these websites is the same as the local currency. Assets and liabilities of these subsidiaries are
translated into U.S. Dollars at period-end exchange rates, and revenues and expenses are translated at average rates prevailing
throughout the period. Translation adjustments are included in “Accumulated other comprehensive loss,” a separate component
of stockholders’ equity, and in the “Foreign-currency effect on cash and cash equivalents,” on our consolidated statements of
cash flows. Transaction gains and losses including intercompany transactions denominated in a currency other than the
functional currency of the entity involved are included in “Other income (expense), net” on our consolidated statements of
operations. In connection with the settlement and remeasurement of intercompany balances, we recorded gains (losses) of $(84)
million, $(95) million, and $70 million in 2013, 2012, and 2011.
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Note 2—CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
As of December 31, 2013 and 2012, our cash, cash equivalents, and marketable securities primarily consisted of cash,
U.S. and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities.
Cash equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type,
our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized
using the fair value hierarchy (in millions):
December 31, 2013
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Cash $ 3,008 $ — $ — $ 3,008
Level 1 securities:
Money market funds 5,914 — — 5,914
Equity securities 3 1 — 4
Level 2 securities:
Foreign government and agency securities 757 2 (1) 758
U.S. government and agency securities 2,224 1 (3) 2,222
Corporate debt securities 739 3 (1) 741
Asset-backed securities 65 — — 65
Other fixed income securities 36 — — 36
$ 12,746 $ 7 $ (5) $ 12,7
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Less: Restricted cash, cash equivalents, and marketable
securities (1) (301)
Total cash, cash equivalents, and marketable securities $ 12,447
December 31, 2012
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Cash $ 2,595 $ — $ — $ 2,595
Level 1 securities:
Money market funds 5,561 — — 5,561
Equity securities 2 — — 2
Level 2 securities:
Foreign government and agency securities 763 9 — 772
U.S. government and agency securities 1,809 3 (2) 1,810
Corporate debt securities 719 6 — 725
Asset-backed securities 49 — —
49
Other fixed income securities 33 — — 33
$ 11,531 $ 18 $ (2) $ 11,547
Less: Restricted cash, cash equivalents, and marketable
securities (1) (99)
Total cash, cash equivalents, and marketable securities $ 11,448
___________________
(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as
collateral for standby and trade letters of credit, guarantees, debt, and real estate lease agreements. We classify cash and
marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of
twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 8—Commitments
and Contingencies.”
48
The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities
(in millions):
Year Ended December 31,
2013 2012 2011
Realized gains $ 6 $ 20 $ 15
Realized losses (7) 10 11
The following table summarizes the contractual maturities of our cash equivalent and marketable fixed income securities
as of December 31, 2013 (in millions):
Amortized
Cost
Estimated
Fair Value
Due within one year $ 7,226 $ 7,227
Due after one year through five years 2,115 2,118
Due after five years through ten years 133 132
Due after ten years 261 259
$ 9,735 $ 9,736
Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.
Note 3—PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following (in millions):
December 31,
2013 2012
Gross property and equipment (1):
Land and buildings $ 4,584 $ 2,966
Equipment and internal-use software (2) 9,274 6,228
Other corporate assets 231 174
Construction in progress 720 214
Gross property and equipment 14,809 9,582
Total accumulated depreciation (1) 3,860 2,522
Total property and equipment, net $ 10,949 $ 7,060
___________________
(1) Excludes the original cost and accumulated depreciation of fully-depreciated assets.
(2) Includes internal-use software of $1.1 billion and $866 million as of December 31, 2013 and 2012.
In December 2012, we acquired our corporate headquarters for $1.2 billion consisting of land and 11 buildings that were
previously accounted for as financing leases. The acquired building assets will be depreciated over their estimated useful lives
of 40 years. We also acquired three city blocks of land for the expansion of our corporate headquarters for approximately $210
million.
Depreciation expense on property and equipment was $2.5 billion, $1.7 billion, and $1.0 billion, which includes
amortization of property and equipment acquired under capital lease obligations of $826 million, $510 million, and $335
million for 2013, 2012, and 2011. Gross assets remaining under capital leases were $4.2 billion and $2.3 billion as of
December 31, 2013 and 2012. Accumulated depreciation associated with capital leases was $1.9 billion and $1.1 billion as of
December 31, 2013 and 2012. Cash paid for interest on capital leases was $41 million, $51 million, and $44 million for 2013,
2012, and 2011.
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner, for accounting purposes, during the construction period. For buildings under build-to-suit
lease arrangements where we have taken occupancy, which do not qualify for sales recognition under the sale-leaseback
accounting guidance, we determined that we continue to be the deemed owner of these buildings. This is principally due to our
49
significant investment in tenant improvements. As a result, the buildings are being depreciated over the shorter of their useful
lives or the related leases’ terms. Additionally, certain build-to-suit lease arrangements and financing leases provide purchase
options. Upon occupancy, the long-term construction obligations are considered long-term financing lease obligations with
amounts payable during the next 12 months recorded as “Accrued expenses and other.” Gross assets remaining under financing
leases were $578 million and $9 million as of December 31, 2013 and 2012. Accumulated depreciation associated with
financing leases was $22 million and $5 million as of December 31, 2013 and 2012.
Note 4—ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
2013 Acquisition Activity
In 2013, we acquired several companies in cash transactions for an aggregate purchase price of $195 million, resulting in
goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to
expand our customer base and sales channels and to obtain certain technologies to be used in product development. We
determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost
approaches. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to
operating expenses on a straight-line or accelerated basis over their estimated useful lives. Acquisition-related costs were
expensed as incurred and were not significant.
Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the
aggregate, were not material to our consolidated results of operations.
2012 Acquisition Activity
In May 2012, we acquired Kiva Systems, Inc. (“Kiva”) for a purchase price of $678 million. The primary reason for this
acquisition was to improve fulfillment center productivity. Acquisition-related costs were expensed as incurred and were not
significant. The aggregate purchase price of this acquisition was allocated as follows (in millions):
Purchase Price
Cash paid, net of cash acquired $ 613
Stock options assumed 65
$ 678
Allocation
Goodwill $ 560
Intangible assets (1):
Marketing-related 5
Contract-based 3
Technology-based 168
Customer-related 17
193
Property and equipment 9
Deferred tax assets 34
Other assets acquired 41
Deferred tax liabilities (81)
Other liabilities assumed (78)
$ 678
___________________
(1) Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average
amortization period of five years.
The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair
value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included
within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or
accelerated basis over their estimated useful lives.
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Pro Forma Financial Information – 2012 Acquisition Activity (unaudited)
Kiva was consolidated into our financial statements starting on its acquisition date. The net sales and operating loss of
Kiva recorded in our consolidated statement of operations from its acquisition date through December 31, 2012, were $61
million and $(62) million. The following pro forma financial information presents our results as if the Kiva acquisition had
occurred at the beginning of 2011 (in millions):
Year Ended
December 31,
2012 2011
Net sales $ 61,118 $ 48,157
Net income (loss) (2) 499
2011 Acquisition Activity
In 2011, we acquired certain companies for an aggregate purchase price of $771 million. The primary reasons for these
acquisitions, none of which was individually material to our consolidated financial statements, were to expand our customer
base and sales channels, including our consumer channels and subscription entertainment services. Acquisition-related costs
were expensed as incurred and were not significant. The aggregate purchase price of these acquisitions was allocated as follows
(in millions):
Purchase Price
Cash paid, net of cash acquired $ 637
Existing equity interest 89
Indemnification holdbacks 25
Stock options assumed 20
$ 771
Allocation
Goodwill $ 615
Intangible assets (1):
Marketing-related 130
Customer-related 94
Contract-based 6
230
Property and equipment 119
Deferred tax assets 49
Other assets acquired 68
Accounts payable (65)
Debt (70)
Deferred tax liabilities (75)
Other liabilities assumed (100)
$ 771
___________________
(1) Amortization periods range from two to 10 years, with a weighted-average amortization period of eight years.
In addition to cash consideration and the fair value of vested stock options, the aggregate purchase price included the
estimated fair value of our previous, noncontrolling interest in one of the acquired companies. We remeasured this equity
interest to fair value at the acquisition date and recognized a non-cash gain of $6 million in “Equity-method investment activity,
net of tax,” in our 2011 consolidated statement of operations. The fair value of assumed stock options was estimated using the
Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the
income and cost approaches. Purchased identifiable intangible assets are included within “Other assets” on our consolidated
balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful
lives.
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Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the
aggregate, were not material to our consolidated results of operations.
Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected
improvements in fulfillment center productivity and sales growth from future product offerings and customers, together with
certain intangible assets that do not qualify for separate recognition.
The following summarizes our goodwill activity in 2013 and 2012 by segment (in millions):
North
America International Consolidated
Goodwill – January 1, 2012 $ 1,533 $ 422 $ 1,9
55
New acquisitions (1) 403 184 587
Other adjustments (2) 1 9 10
Goodwill – December 31, 2012 1,937 615 2,5
52
New acquisitions 99 4 103
Other adjustments (2) (3) 3 —
Goodwill – December 31, 2013 $ 2,033 $ 622 $ 2,655
___________________
(1) Primarily consists of the goodwill of Kiva.
(2) Primarily consists of changes in foreign exchange.
Intangible Assets
Acquired intangible assets, included within “Other assets” on our consolidated balance sheets, consist of the following (in
millions):
December 31,
2013 2012
Weighted
Average Life
Remaining
Acquired
Intangibles,
Gross
(1)
Accumulated
Amortization
(1)
Acquired
Intangibles,
Net
Acquired
Intangibles,
Gross (1)
Accumulated
Amortization
(1)
Acquired
Intangibles,
Net
Marketing-related 6.3 $ 429 $ (156) $ 273 $ 422 $ (113) $ 309
Contract-based 3.0 173 (110) 63 177 (89) 88
Technology- and
content-based 4.4 278 (74) 204 231 (30) 201
Customer-related 2.4 368 (263) 105 332 (205) 127
Acquired
intangibles (2) 4.2 $ 1,248 $ (603) $ 645 $ 1,162 $ (437) $ 725
___________________
(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
(2) Intangible assets have estimated useful lives of between one and 10 years.
52
Amortization expense for acquired intangibles was $168 million, $163 million, and $149 million in 2013, 2012, and
2011. Expected future amortization expense of acquired intangible assets as of December 31, 2013 is as follows (in millions):
Year Ended December 31,
2014 $ 157
2015 140
2016 121
2017 101
2018
54
Thereafter 72
$ 645
Note 5—EQUITY-METHOD INVESTMENTS
LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in
millions):
Year Ended December 31,
2013 2012 2011
Statement of Operations:
Revenue $ 399 $ 455 $ 238
Operating expense 461 666 613
Impairment charge 41 579 —
Operating loss from continuing operations (103) (790) (375)
Net loss from continuing operations (1) (101) (532) (417)
Loss from discontinued operations, net of tax (2) (82) (121) (82)
Net loss $ (183) $ (653) $ (499)
___________________
(1) The difference between operating loss from continuing operations and net loss from continuing operations for 2012 is
primarily due to non-operating, non-cash gains on previously held equity positions in companies that LivingSocial
acquired during Q1 2012.
(2) In November 2013, LivingSocial announced that it had reached an agreement to sell its Korean operations for $260
million. The transaction closed in January 2014. The statement of operations information above has been recast to
present its Korean operations as discontinued operations.
December 31,
2013 2012
Balance Sheet:
Current assets $ 81 $ 74
Non-current assets 152 216
Current liabilities 298 336
Non-current liabilities 36 14
Redeemable stock 315 205
Balance sheet financial information as of December 31, 2013 includes $146 million in assets and $122 million in
liabilities that LivingSocial has classified as held for sale for its Korean operations.
As of December 31, 2013, the book value of our equity-method investment in LivingSocial has been reduced to zero due
to our recognition of equity-method losses over time. In Q1 2013 we made a $56 million investment in LivingSocial that we
have recorded as a cost method investment, bringing our total investment in LivingSocial to approximately 31% of voting
stock. In Q4 2013, we recognized additional equity-method losses and reduced this cost method investment to $38 million as of
December 31, 2013.
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Note 6—LONG-TERM DEBT
In November 2012, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below
(collectively, the “Notes”). As of December 31, 2013 and 2012, the unamortized discount on the Notes was $23 million and
$27 million. We also have other long-term debt with a carrying amount, including the current portion, of $967 million and $691
million as of December 31, 2013 and 2012. The face value of our total long-term debt obligations is as follows (in millions):
December 31,
2013 2012
0.65% Notes due on November 27, 2015 $ 750 $ 750
1.20% Notes due on November 29, 2017 1,000 1,000
2.50% Notes due on November 29, 2022 1,250 1,250
Other long-term debt 967 691
Total debt 3,967 3,691
Less current portion of long-term debt (753) (579)
Face value of long-term debt $ 3,214 $ 3,112
The effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%. Interest on the Notes is
payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time,
in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds
from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9
billion and $3.0 billion as of December 31, 2013 and 2012, which is based on quoted prices for our publicly-traded debt as of
that date.
The other debt, including the current portion, had a weighted average interest rate of 5.5% and 6.4% as of December 31,
2013 and 2012. We used the net proceeds from the issuance of the debt to primarily fund certain international operations. The
estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of
December 31, 2013 and 2012.
As of December 31, 2013, future principal payments for debt were as follows (in millions):
Year Ended December 31,
2014 $ 753
2015 853
2016 36
2017 1,037
2018 38
Thereafter 1,250
$ 3,967
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Note 7—OTHER LONG-TERM LIABILITIES
Our other long-term liabilities are summarized as follows (in millions):
December 31,
2013 2012
Long-term capital lease obligations $ 1,435 $ 737
Long-term financing lease obligations 555 9
Construction liabilities 385 87
Tax contingencies 457 336
Long-term deferred tax liabilities 571 476
Other 839 632
$ 4,242 $ 2,277
Capital Leases
Certain of our equipment, primarily related to technology infrastructure, and buildings have been acquired under capital
leases. Long-term capital lease obligations are as follows (in millions):
December 31, 2013
Gross capital lease obligations $ 2,437
Less imputed interest (47)
Present value of net minimum lease payments 2,390
Less current portion of capital lease obligations (955)
Total long-term capital lease obligations $ 1,435
Financing Leases
We continue to be the deemed owner after occupancy of certain facilities that were constructed as build-to-suit lease
arrangements and previously reflected as “Construction liabilities.” As such, these arrangements are accounted for as financing
leases. Long-term finance lease obligations are as follows (in millions):
December 31, 2013
Gross financing lease obligations $ 783
Less imputed interest (200)
Present value of net minimum lease payments 583
Less current portion of financing lease obligations (28)
Total long-term financing lease obligations $ 555
Construction Liabilities
We capitalize construction in progress and record a corresponding long-term liability for build-to-suit lease agreements
where we are considered the owner during the construction period for accounting purposes.
Tax Contingencies
We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, of approximately $457
million as of December 31, 2013, and $336 million as of December 31, 2012, for U.S. and foreign income taxes. These
contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See “Note 11—
Income Taxes” for discussion of tax contingencies.
55
Note 8—COMMITMENTS AND CONTINGENCIES
Commitments
We have entered into non-cancellable operating, capital, and financing leases for equipment and office, fulfillment center,
and data center facilities. Rental expense under operating lease agreements was $759 million, $561 million, and $381 million
for 2013, 2012, and 2011.
The following summarizes our principal contractual commitments, excluding open orders for purchases that support
normal operations, as of December 31, 2013 (in millions):
Year Ended December 31,
2014 2015 2016 2017 2018 Thereafter Total
Operating and capital commitments:
Debt principal and interest $ 835 $ 906 $ 81 $ 1,081 $ 69 $ 1,375 $ 4,347
Capital leases, including interest 963 883 361 71 42 117 2,437
Financing lease obligations, including
interest 49 48 52 52 53 529 783
Operating leases 752 654 604 539 470 2,116 5,135
Unconditional purchase obligations (1) 539 386 80 37 29 27 1,098
Other commitments (2) (3) 746 275 167 137 110 1,194 2,629
Total commitments $ 3,884 $ 3,152 $ 1,345 $ 1,917 $ 773 $ 5,358 $ 16,429
___________________
(1) Includes unconditional purchase obligations related to agreements to acquire and license digital video content that
represent long-term liabilities or are not reflected on the consolidated balance sheets. For those agreements with
variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as
of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content
provider are included to the extent such commitments are fixed or a minimum amount is specified.
(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit
lease arrangements that have not been placed in service.
(3) Excludes $407 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and
period of payment, if any.
Pledged Assets
As of December 31, 2013 and 2012, we have pledged or otherwise restricted $482 million and $99 million of our cash,
marketable securities, and certain fixed assets as collateral for standby and trade letters of credit, guarantees, debt, and real
estate leases.
Suppliers
During 2013, no vendor accounted for 10% or more of our purchases. We generally do not have long-term contracts or
arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit
limits.
Legal Proceedings
The Company is involved from time to time in claims, proceedings, and litigation, including the following:
In November 2007, an Austrian copyright collection society, Austro-Mechana, filed lawsuits against Amazon.com
International Sales, Inc., Amazon EU Sarl, Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik in the Commercial
Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a tariff on blank digital media sold by
our EU-based retail websites to customers located in Austria. In July 2008, the German court stayed the German case pending a
final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and ordered us to report
all sales of products to which the tariff potentially applies for a determination of damages. We contested Austro-Mechana’s
claim and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this appeal and in March 2011
commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian Supreme Court referred the case to the
European Court of Justice (ECJ). In July 2013, the European Court of Justice ruled that EU law does not preclude application
Ch 6 Comp Analysis Prob 2
| Name | Chapter 6 Comparative Analysis Problem 2 | |||||||||||||||||||||||||
| Section | ||||||||||||||||||||||||||
| Date | Amazon.com | Wal-Mart | ||||||||||||||||||||||||
| (a) | ||||||||||||||||||||||||||
| Inventory turnover: | ||||||||||||||||||||||||||
| Days in inventory: | ||||||||||||||||||||||||||
| (b) |
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