Notes to Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Walmart Inc. and its subsidiaries ("Walmart" or the "Company") and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019 ("fiscal 2019"). Therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K.
The Company's Consolidated Financial Statements are based on a fiscal year ending 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 the month of July related to the operations consolidated using a lag that materially affected the Condensed Consolidated Financial Statements.
The Company's business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, the Company's highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
Restricted Cash
Restricted cash held outside of cash and cash equivalents was $37 million and $34 million as of July 31, 2019 and January 31, 2019, respectively, and was primarily recorded in prepaid expenses and other in the Condensed Consolidated Balance Sheets. Restricted cash not classified as part of cash and cash equivalents was $22 million and approximately $0.3 billion as of July 31, 2018 and January 31, 2018, respectively, and was primarily recorded in other long-term assets in the Condensed Consolidated Balance Sheets.
Inventories
At July 31, 2019 and January 31, 2019, the Company's inventories valued at LIFO approximated those inventories as if they were valued at FIFO.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lease assets and liabilities to be recorded on the balance sheet. The Company adopted this ASU and related amendments as of February 1, 2019 under the modified retrospective approach and elected certain practical expedients permitted under the transition guidance, including to retain the historical lease classification as well as relief from reviewing expired or existing contracts to determine if they contain leases. For leases subject to index or rate adjustments, the most current index or rate adjustments were included in the measurement of operating lease obligations at adoption.
The adoption of this ASU and related amendments resulted in a $14.8 billion increase to total assets and a $15.1 billion increase to total liabilities in the first quarter of the fiscal year ending January 31, 2020 ("fiscal 2020"). In the first quarter of fiscal 2020, the Company recognized $16.8 billion and $17.5 billion of operating lease right-of-use assets and operating lease obligations, respectively, and removed $2.2 billion and $1.7 billion, respectively, of assets and liabilities related to financial obligations connected with the construction of leased stores. Several other asset and liability line items in the Company's Condensed Consolidated Balance Sheet were also impacted by immaterial amounts. Additionally, the adoption resulted in a cumulative-effect adjustment to retained earnings of approximately $0.3 billion, net of tax, which primarily consisted of the recognition of impairment. The Company’s Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flows were immaterially impacted. Updated accounting policies as a result of the adoption of this ASU are described below. Note 10 provides additional lease disclosures.
For any new or modified lease, the Company, at the inception of the contract, determines whether a contract is or contains a lease. The Company records right-of-use ("ROU") assets and lease obligations for its finance and operating leases, which are initially recognized based on the discounted future minimum lease payments over the term of the lease. As the rate implicit in the Company's leases is not easily determinable, the Company’s applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments.
Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company has elected not to recognize ROU asset and lease obligations for its short-term leases, which are defined as leases with an initial term of 12 months or less.
For a majority of all classes of underlying assets, the Company has elected to not separate lease from non-lease components. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance.
Revenue Recognition
Contract Balances
Contract balances as a result of transactions with customers primarily consist of receivables included in receivables, net, and deferred gift card revenue included in accrued liabilities in the Company's Condensed Consolidated Balance Sheets. The following table provides the Company's receivables and deferred gift card revenue from transactions with customers:
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 31, 2019
|
|
January 31, 2019
|
Assets:
|
|
|
|
|
Receivables from transactions with customers, net
|
|
$
|
2,483
|
|
|
$
|
2,538
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred gift card revenue
|
|
$
|
1,765
|
|
|
$
|
1,932
|
|
Derivatives
In fiscal 2020, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The adoption of the standard had no current or historical impact on the Company's Condensed Consolidated Financial Statements. The Company continues to use qualitative methods to assess the effectiveness of its designated hedging relationships. Upon adopting ASU 2017-12, the Company modified its existing hedge documentation to use a quantitative method for assessing effectiveness when the hedge is subsequently determined to be ineffective under the qualitative method. There were no other significant changes to the Company's accounting policies for derivatives.
Recent Accounting Pronouncements
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326), which modifies the measurement of expected credit losses of certain financial instruments. The Company will adopt this ASU on February 1, 2020. Management is currently evaluating this ASU to determine its impact to the Company's Consolidated Financial Statements.
Note 2. Net Income or Loss Per Common Share
Basic net income (loss) per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted net income (loss) per common share 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 anti-dilutive and not included in the calculation of diluted net income (loss) per common share attributable to Walmart for the three and six months ended July 31, 2019 and 2018. Further, the calculation of diluted net loss per common share attributable to Walmart for the three months ended July 31, 2018 does not include the effect of stock options and other share-based awards as their inclusion would be anti-dilutive, and would reduce the net loss per common share.
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income (loss) per common share attributable to Walmart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
(Amounts in millions, except per share data)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
3,680
|
|
|
$
|
(727
|
)
|
|
$
|
7,586
|
|
|
$
|
1,549
|
|
Consolidated net income attributable to noncontrolling interest
|
|
(70
|
)
|
|
(134
|
)
|
|
(134
|
)
|
|
(276
|
)
|
Consolidated net income (loss) attributable to Walmart
|
|
$
|
3,610
|
|
|
$
|
(861
|
)
|
|
$
|
7,452
|
|
|
$
|
1,273
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic
|
|
2,853
|
|
|
2,946
|
|
|
2,861
|
|
|
2,948
|
|
Dilutive impact of share-based awards
|
|
16
|
|
|
—
|
|
|
17
|
|
|
15
|
|
Weighted-average common shares outstanding, diluted
|
|
2,869
|
|
|
2,946
|
|
|
2,878
|
|
|
2,963
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Walmart
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.27
|
|
|
$
|
(0.29
|
)
|
|
$
|
2.60
|
|
|
$
|
0.43
|
|
Diluted
|
|
1.26
|
|
|
(0.29
|
)
|
|
2.59
|
|
|
0.43
|
|
Note 3. Accumulated Other Comprehensive Loss
The following table provides the changes in the composition of total accumulated other comprehensive loss for the three months ended April 30, 2019 and July 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions and net of income taxes)
|
|
Currency
Translation and Other
|
|
Net Investment Hedges
|
|
Cash Flow Hedges
|
|
Minimum
Pension
Liability
|
|
Total
|
Balances as of February 1, 2019
|
|
$
|
(12,085
|
)
|
|
$
|
1,395
|
|
|
$
|
(140
|
)
|
|
$
|
(712
|
)
|
|
$
|
(11,542
|
)
|
Other comprehensive income (loss) before reclassifications, net(1)
|
|
496
|
|
|
108
|
|
|
(145
|
)
|
|
(7
|
)
|
|
452
|
|
Reclassifications to income, net(1)
|
|
(23
|
)
|
|
—
|
|
|
14
|
|
|
8
|
|
|
(1
|
)
|
Balances as of April 30, 2019
|
|
$
|
(11,612
|
)
|
|
$
|
1,503
|
|
|
$
|
(271
|
)
|
|
$
|
(711
|
)
|
|
$
|
(11,091
|
)
|
Other comprehensive income (loss) before reclassifications, net(1)
|
|
(165
|
)
|
|
140
|
|
|
(172
|
)
|
|
(5
|
)
|
|
(202
|
)
|
Reclassifications to income, net(1)
|
|
—
|
|
|
—
|
|
|
14
|
|
|
9
|
|
|
23
|
|
Balances as of July 31, 2019
|
|
$
|
(11,777
|
)
|
|
$
|
1,643
|
|
|
$
|
(429
|
)
|
|
$
|
(707
|
)
|
|
$
|
(11,270
|
)
|
(1) Income tax impact is immaterial.
The following table provides the changes in the composition of total accumulated other comprehensive loss for the three months ended April 30, 2018 and July 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions and net of income taxes)
|
|
Currency
Translation and Other
|
|
Unrealized Gain on Available-for-Sale Securities
|
|
Net Investment Hedges
|
|
Cash Flow Hedges
|
|
Minimum
Pension
Liability
|
|
Total
|
Balances as of February 1, 2018
|
|
$
|
(12,136
|
)
|
|
$
|
1,646
|
|
|
$
|
1,030
|
|
|
$
|
122
|
|
|
$
|
(843
|
)
|
|
$
|
(10,181
|
)
|
Adoption of new accounting standards on February 1, 2018, net(1) (2)
|
|
89
|
|
|
(1,646
|
)
|
|
93
|
|
|
28
|
|
|
—
|
|
|
(1,436
|
)
|
Other comprehensive income (loss) before reclassifications, net(1)
|
|
1,302
|
|
|
—
|
|
|
68
|
|
|
(86
|
)
|
|
32
|
|
|
1,316
|
|
Reclassifications to income, net(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
11
|
|
|
20
|
|
Balances as of April 30, 2018
|
|
$
|
(10,745
|
)
|
|
$
|
—
|
|
|
$
|
1,191
|
|
|
$
|
73
|
|
|
$
|
(800
|
)
|
|
$
|
(10,281
|
)
|
Other comprehensive income (loss) before reclassifications, net(1)
|
|
(2,395
|
)
|
|
—
|
|
|
193
|
|
|
(171
|
)
|
|
(3
|
)
|
|
(2,376
|
)
|
Reclassifications to income, net(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
12
|
|
|
28
|
|
Balances as of July 31, 2018
|
|
$
|
(13,140
|
)
|
|
$
|
—
|
|
|
$
|
1,384
|
|
|
$
|
(82
|
)
|
|
$
|
(791
|
)
|
|
$
|
(12,629
|
)
|
(1) Income tax impact is immaterial.
(2) Primarily relates to the adoption of ASU 2016-01, Financial Instruments–Overall and ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
Amounts reclassified from accumulated other comprehensive loss to net income for derivative instruments are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income. Amounts reclassified from accumulated other comprehensive loss to net income for the minimum pension liability, as well as the cumulative translation resulting from the disposition of a business, are recorded in other gains and losses in the Company's Condensed Consolidated Statements of Income.
Note 4. Short-term Borrowings and Long-term Debt
The Company has various committed lines of credit in the U.S., committed with 22 financial institutions, used to support its commercial paper program. In May 2019, the Company renewed and extended its existing five year credit facility of $5 billion and its 364-day revolving credit facility of $10 billion. In total, the Company has committed lines of credit in the U.S. of $15 billion at July 31, 2019 and January 31, 2019, all undrawn.
The following table provides the changes in the Company's long-term debt for the six months ended July 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Long-term debt due within one year
|
|
Long-term debt
|
|
Total
|
Balances as of February 1, 2019
|
|
$
|
1,876
|
|
|
$
|
43,520
|
|
|
$
|
45,396
|
|
Proceeds from issuance of long-term debt
|
|
—
|
|
|
4,020
|
|
|
4,020
|
|
Repayments of long-term debt
|
|
(407
|
)
|
|
—
|
|
|
(407
|
)
|
Reclassifications of long-term debt
|
|
2,932
|
|
|
(2,932
|
)
|
|
—
|
|
Other
|
|
(5
|
)
|
|
(204
|
)
|
|
(209
|
)
|
Balances as of July 31, 2019
|
|
$
|
4,396
|
|
|
$
|
44,404
|
|
|
$
|
48,800
|
|
Debt Issuances
Information on long-term debt issued during the six months ended July 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Principal Amount
|
|
Maturity Date
|
|
Fixed vs. Floating
|
|
Interest Rate
|
|
Net Proceeds
|
April 23, 2019
|
|
1,500 USD
|
|
July 8, 2024
|
|
Fixed
|
|
2.850%
|
|
$
|
1,493
|
|
April 23, 2019
|
|
1,250 USD
|
|
July 8, 2026
|
|
Fixed
|
|
3.050%
|
|
1,242
|
|
April 23, 2019
|
|
1,250 USD
|
|
July 8, 2029
|
|
Fixed
|
|
3.250%
|
|
1,243
|
|
Various
|
|
42 USD
|
|
Various
|
|
Various
|
|
Various
|
|
42
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
4,020
|
|
These issuances, which are used for general corporate purposes, are senior, unsecured notes which rank equally with all other senior, unsecured debt obligations of the Company, and are not convertible or exchangeable. These issuances do not contain any financial covenants and do not restrict the Company's ability to pay dividends or repurchase company stock.
Maturities
The following table provides details of debt repayments during the six months ended July 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
Original Amount
|
|
Fixed vs. Floating
|
|
Interest Rate
|
|
Repayment
|
February 1, 2019
|
|
500 USD
|
|
Fixed
|
|
4.125%
|
|
$
|
364
|
|
Various
|
|
43 USD
|
|
Various
|
|
Various
|
|
43
|
|
Total repayment of matured debt
|
|
|
|
|
|
|
|
$
|
407
|
|
Note 5. Fair Value Measurements
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.
|
The Company has equity investments, primarily its investment in JD.com, Inc. ("JD"), measured at fair value on a recurring basis included in other long-term assets in the accompanying Condensed Consolidated Balance Sheet as follows:
|
|
•
|
The purchased portion of the investment in JD measured using Level 1 inputs, and
|
|
|
•
|
The portion of the investment in JD received in exchange for selling certain assets related to Yihaodian, the Company's former eCommerce operations in China, measured using Level 2 inputs. Fair value is determined primarily using quoted prices in active markets for similar assets.
|
Information for the fair value of the Company's investment in JD is as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Fair Value as of July 31, 2019
|
|
Fair Value as of January 31, 2019
|
Investment in JD measured using Level 1 inputs
|
|
$
|
2,155
|
|
|
$
|
1,791
|
|
Investment in JD measured using Level 2 inputs
|
|
2,159
|
|
|
1,792
|
|
Total
|
|
$
|
4,314
|
|
|
$
|
3,583
|
|
The changes in fair value for the Company's investment in JD is included in other gains and losses in the Company's Condensed Consolidated Statements of Income.
The Company also holds derivative instruments. Derivative 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 yield and foreign currency forward curves. As of July 31, 2019 and January 31, 2019, the notional amounts and fair values of these derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
January 31, 2019
|
(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
|
$
|
4,000
|
|
|
$
|
30
|
|
|
$
|
4,000
|
|
|
$
|
(78
|
)
|
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as net investment hedges
|
2,250
|
|
|
473
|
|
|
2,250
|
|
|
334
|
|
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as cash flow hedges
|
4,004
|
|
|
(617
|
)
|
|
4,173
|
|
|
(272
|
)
|
Total
|
$
|
10,254
|
|
|
$
|
(114
|
)
|
|
$
|
10,423
|
|
|
$
|
(16
|
)
|
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, fair value measurements on a nonrecurring basis are required as a result of a qualitative assessment of the Company's assets indicating a potential impairment or due to a business acquisition. Impairment charges to assets measured at fair value on a nonrecurring basis during the six months ended July 31, 2019 were immaterial.
As discussed in Note 8, the Company met the criteria to recognize Walmart Brazil as held for sale in the second quarter of fiscal 2019. Prior to meeting the held for sale criteria, the carrying values of the long-lived assets were concluded to be recoverable based upon cash flows expected to be generated over the assets' useful lives. When the sale of Walmart Brazil became probable, the Company reclassified the related assets and liabilities to held for sale and measured the disposal group at fair value, less costs to sell. The assets of the disposal group totaled $3.3 billion and were comprised of $1.0 billion in current assets, $1.6 billion in property and equipment and property under capital lease and financing obligations, net, and $0.7 billion of other long-term assets. These assets were fully impaired during the second quarter of fiscal 2019 as the carrying value of the disposal group exceeded the fair value, less costs to sell. This impairment charge was included in the $4.8 billion loss recorded in other gains and losses in the Company's Condensed Consolidated Statements of Income as part of the Walmart International segment for the three and six months ended July 31, 2018.
Other Fair Value Disclosures
The Company records cash and cash equivalents, restricted cash, 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 July 31, 2019 and January 31, 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
January 31, 2019
|
(Amounts in millions)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Long-term debt, including amounts due within one year
|
|
$
|
48,800
|
|
|
$
|
55,680
|
|
|
$
|
45,396
|
|
|
$
|
49,570
|
|
Note 6. Derivative Financial Instruments
In connection with various derivative agreements, including master netting arrangements, the Company held cash collateral from counterparties of $216 million and $220 million at July 31, 2019 and January 31, 2019, respectively. Furthermore, as part of the master netting arrangements with each of these counterparties, the Company is also required to post collateral with a counterparty if the Company's net derivative liability position exceeds $150 million with such counterparties. The Company did not have any cash collateral posted with counterparties at July 31, 2019 or January 31, 2019.
At July 31, 2019 and January 31, 2019, the Company had ¥180 billion of outstanding long-term debt designated as a hedge of its net investment in Japan, as well as outstanding long-term debt of £1.7 billion at July 31, 2019 and January 31, 2019, 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 2020 to January 2039.
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 Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
January 31, 2019
|
(Amounts in millions)
|
Fair Value
Instruments
|
|
Net Investment
Instruments
|
|
Cash Flow
Instruments
|
|
Fair Value
Instruments
|
|
Net Investment
Instruments
|
|
Cash Flow
Instruments
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets
|
$
|
33
|
|
|
$
|
473
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
334
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes and other
|
3
|
|
|
—
|
|
|
617
|
|
|
78
|
|
|
—
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonderivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
3,707
|
|
|
—
|
|
|
—
|
|
|
3,863
|
|
|
—
|
|
Amounts related to the Company's derivatives expected to be reclassified from accumulated other comprehensive loss to net income during the next 12 months are not significant.
Note 7. 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 Condensed 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 and its shareholders.
Unless stated otherwise, the 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, results of operations or cash flows.
ASDA Equal Value Claims
ASDA Stores Ltd. ("Asda"), a wholly-owned subsidiary of the Company, is a defendant in over 30,000 equal value ("Equal Value") claims that began in 2008 and 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, and further claims may be asserted in the future. The claimants 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 compared 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. As a result, claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities and higher wage rates on a prospective basis.
In March 2015, Asda asked the Employment Tribunal to stay all proceedings and to "strike out" substantially all of the claims because the claimants had not adhered to the Tribunal's procedural rule for including multiple claimants on the same claim form. Ultimately, the Court of Appeals declined to strike out any claims relying on the Employment Tribunal’s finding that claimants had not deliberately disregarded the Tribunal’s procedural rule.
As to the initial phase of the Equal Value claims, in October 2016 following a preliminary hearing, the Employment Tribunal ruled that claimants could compare their positions in Asda's retail stores with those of employees in Asda's warehouse and distribution facilities. In August 2017, the Employment Appeal Tribunal affirmed the Employment Tribunal's ruling and also granted permission for Asda to appeal substantially all of its findings. Asda sought permission to appeal the remainder of the Employment Appeal Tribunal's findings to the Court of Appeals and a hearing before the Court of Appeals on the comparability findings was held in October 2018. The Court of Appeals upheld the Employment Tribunal’s findings. The Supreme Court granted Asda's application to appeal the Court of Appeals decision on July 31, 2019.
Claimants are proceeding in the next phase of their claims. That phase will determine whether the work performed by the claimants is of equal value to the work performed by employees in Asda's warehouse and distribution facilities.
At present, the Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate 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.
National Prescription Opiate Litigation and Related Matters
In December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous lawsuits filed against a wide array of defendants by various plaintiffs, including counties, cities, healthcare providers, Native American tribes, individuals, and third-party payors, asserting claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation is entitled In re National Prescription Opiate Litigation (MDL No. 2804) and is pending in the U.S. District Court for the Northern District of Ohio. The Company is named as a defendant in some of the cases included in this multidistrict litigation. Similar cases that name the Company have also been filed in state courts by state, local and tribal governments, health care providers and other plaintiffs. Plaintiffs are seeking compensatory and punitive damages, as well as injunctive relief including abatement. The Company cannot predict the number of such claims that may be filed, but believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously. The Company has also been responding to subpoenas, information requests and investigations from governmental entities related to nationwide controlled substance dispensing and distribution practices involving opioids. The Company cannot reasonably estimate any loss or range of loss that may arise from these matters. Accordingly, the Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business, financial position, results of operations or cash flows will not be materially adversely affected.
FCPA Investigation and Related Matters
As previously disclosed, the Company was under investigation by the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC") regarding possible violations of the U.S. Foreign Corrupt Practices Act (the "FCPA"). Throughout the investigative process, the Company cooperated with the DOJ and the SEC, and on June 20, 2019, the Company announced the resolution of the investigations with the DOJ and the SEC and paid $283 million in June 2019 consisting of a combination of penalties, disgorgement and interest as further described below (the "Settlement Amount"). The Company previously recorded the Settlement Amount in the Company's fiscal 2018 consolidated financial statements in anticipated settlement of these matters.
The resolution of the investigations with the DOJ and SEC included:
|
|
1.
|
A non-prosecution agreement (the "NPA") between the DOJ and the Company for a three-year term. Pursuant to the NPA, the Company paid a $138 million penalty and agreed to maintain the Company's anti-corruption compliance program for three years, certain reporting obligations for three years, and a limited monitorship with a third party for two years regarding the Company's anti-corruption compliance program, with the possibility of a third year pending the results of the monitorship during the initial two-year period. The DOJ agreed that it will not prosecute the Company for any conduct described in the NPA provided that the Company performs its obligations under the NPA for the three-year term.
|
|
|
2.
|
A plea agreement (the "Plea Agreement") entered into for a three-year term by the DOJ and WMT Brasilia S.a.r.l., an indirect wholly-owned foreign subsidiary of the Company ("WMT Brasilia") that previously owned a majority stake of the Company's Brazilian business. Through the Plea Agreement, entered in the United States District Court for the Eastern District of Virginia, WMT Brasilia pled guilty to one count of causing a books and records violation of the FCPA. The Company on behalf of WMT Brasilia was assessed a $4 million penalty, including forfeiture, that was deducted from the amount paid by the Company under the NPA.
|
|
|
3.
|
A Cease-and-Desist Order entered into by the SEC in a civil administrative proceeding (the "SEC Order"), the entry of which the Company consented to with respect to certain violations of the books and records and internal controls provisions of the FCPA. The Company paid $145 million in disgorgement and interest, and agreed to make certain reports to the SEC on its anti-corruption compliance and remediation efforts for two years, and cease and desist any violations of the books and records and internal controls provisions of the FCPA.
|
On June 20, 2019, the Company also entered into an Administrative Agreement with the U.S. Environmental Protection Agency (the "EPA") for a three-year term, which replaces the interim administrative agreement between the Company and the EPA dated May 28, 2013. The May 28, 2013 agreement arose as part of a settlement by the Company regarding certain hazardous waste materials matters with several governmental authorities. The new EPA agreement, among other things, resolved any debarment or suspension as to participation in federal government programs by the Company due to the NPA, the Plea Agreement, and the SEC Order, provided that the Company fulfills the terms and conditions of the new EPA agreement, which requires reporting by the Company to the EPA periodically during the three-year term, and requires a new, limited two-year monitorship. The monitor referenced above that has been engaged by the Company under the NPA will also monitor compliance with the new EPA agreement. If the DOJ monitorship is extended as referenced above, the EPA monitorship may also be extended for an additional year.
In addition, the Company expects to incur costs in implementing the settlement and may incur costs in responding to any new civil or regulatory actions. The Company does not presently believe that these matters will have a material adverse effect on its business, financial position, results of operations, or cash flows.
Note 8. Disposals, Acquisitions and Related Items
The following disposals, acquisitions and related items pertain to the Company's Walmart International segment. Other immaterial transactions have also occurred or have been announced.
Walmart Brazil
In August 2018, the Company sold an 80 percent stake of Walmart Brazil to Advent International ("Advent"). Under the terms, Advent agreed to contribute additional capital to the business over a three-year period and Walmart agreed to indemnify Advent for certain matters.
As a result, the Company recorded a pre-tax net loss of $4.8 billion during the second quarter of fiscal 2019 in other gains and losses in the Company's Condensed Consolidated Statement of Income. In calculating the loss, the fair value of the disposal group was reduced by $0.8 billion related to an indemnity, for which a liability was recognized upon closing and is recorded in deferred income taxes and other in the Company's Condensed Consolidated Balance Sheets. The Company indemnified Advent for certain pre-closing tax and legal contingencies and other matters for up to R$2.3 billion, adjusted for interest based on the Brazilian interbank deposit rate.
The Company deconsolidated the financial statements of Walmart Brazil during the third quarter of fiscal 2019 and began accounting for its remaining 20 percent ownership interest using the equity method of accounting. This equity method investment was determined to have no fair value and continues to have no carrying value.
Flipkart Private Limited ("Flipkart")
In August 2018, the Company acquired 81 percent of the outstanding shares, or 77 percent of the diluted shares, of Flipkart, an Indian-based eCommerce marketplace, for cash consideration of approximately $16 billion. The acquisition increased the Company's investment in India, a large, growing economy. The Company has finalized the valuation of assets acquired and liabilities assumed for the Flipkart acquisition as follows:
|
|
•
|
Assets of $24.1 billion, which comprise primarily of $2.2 billion in cash and cash equivalents, $2.8 billion in other current assets, $5.0 billion in intangible assets and $13.5 billion in goodwill. Of the intangible assets, $4.7 billion represents the fair value of trade names, each with an indefinite life, which were estimated using the income approach based on Level 3 unobservable inputs. The remaining $0.3 billion of intangible assets primarily relate to acquired technology with a life of 3 years. The goodwill arising from the acquisition consists largely of anticipated synergies and economies of scale primarily related to procurement and logistics and is not expected to be deductible for tax purposes;
|
|
|
•
|
Liabilities of $3.7 billion, which comprise primarily of $1.8 billion of current liabilities and $1.7 billion of deferred income taxes; and
|
|
|
•
|
Noncontrolling interest of $4.3 billion, for which the fair value was estimated using the income approach based on Level 3 unobservable inputs.
|
Note 9. Segments and Disaggregated Revenue
Segments
The Company is engaged in the operation of retail, wholesale and other units, as well as eCommerce websites, located throughout the U.S., Africa, Argentina, Canada, Central America, Chile, China, India, Japan, Mexico, and the United Kingdom, as well as Brazil until the sale of the majority stake discussed in Note 8. The Company's operations are conducted in three reportable segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results the 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., as well as eCommerce and omni-channel initiatives. The Walmart International segment consists of the Company's operations outside of the U.S., as well as eCommerce and omni-channel initiatives. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com and omni-channel initiatives. Corporate and support consists 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 measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.
Net sales by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
(Amounts in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net sales:
|
|
|
|
|
|
|
|
|
Walmart U.S.
|
|
$
|
85,200
|
|
|
$
|
82,815
|
|
|
$
|
165,544
|
|
|
$
|
160,563
|
|
Walmart International
|
|
29,139
|
|
|
29,454
|
|
|
57,914
|
|
|
59,714
|
|
Sam's Club
|
|
15,049
|
|
|
14,790
|
|
|
28,879
|
|
|
28,412
|
|
Net sales
|
|
$
|
129,388
|
|
|
$
|
127,059
|
|
|
$
|
252,337
|
|
|
$
|
248,689
|
|
Operating income by segment, as well as operating loss for corporate and support, interest, net and other gains and losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
(Amounts in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Walmart U.S.
|
|
$
|
4,659
|
|
|
$
|
4,479
|
|
|
$
|
8,801
|
|
|
$
|
8,406
|
|
Walmart International
|
|
893
|
|
|
1,269
|
|
|
1,631
|
|
|
2,534
|
|
Sam's Club
|
|
480
|
|
|
402
|
|
|
931
|
|
|
727
|
|
Corporate and support
|
|
(449
|
)
|
|
(400
|
)
|
|
(835
|
)
|
|
(763
|
)
|
Operating income
|
|
5,583
|
|
|
5,750
|
|
|
10,528
|
|
|
10,904
|
|
Interest, net
|
|
585
|
|
|
503
|
|
|
1,210
|
|
|
990
|
|
Other (gains) and losses
|
|
85
|
|
|
4,849
|
|
|
(752
|
)
|
|
6,694
|
|
Income before income taxes
|
|
$
|
4,913
|
|
|
$
|
398
|
|
|
$
|
10,070
|
|
|
$
|
3,220
|
|
Disaggregated Revenues
In the following tables, segment net sales are disaggregated by either merchandise category or market. In addition, net sales related to eCommerce are provided for each segment, which include omni-channel sales, where a customer initiates an order online and the order is fulfilled through a store or club.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
Walmart U.S. net sales by merchandise category
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Grocery
|
|
$
|
47,687
|
|
|
$
|
45,991
|
|
|
$
|
93,091
|
|
|
$
|
89,851
|
|
General merchandise
|
|
27,466
|
|
|
27,305
|
|
|
52,073
|
|
|
51,479
|
|
Health and wellness
|
|
9,238
|
|
|
8,837
|
|
|
18,756
|
|
|
17,965
|
|
Other categories
|
|
809
|
|
|
682
|
|
|
1,624
|
|
|
1,268
|
|
Total
|
|
$
|
85,200
|
|
|
$
|
82,815
|
|
|
$
|
165,544
|
|
|
$
|
160,563
|
|
Of Walmart U.S.'s total net sales, approximately $4.8 billion and $3.5 billion related to eCommerce for the three months ended July 31, 2019 and 2018, respectively. Approximately $9.0 billion and $6.6 billion related to eCommerce for the six months ended July 31, 2019 and 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
Walmart International net sales by market
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Mexico and Central America
|
|
$
|
8,014
|
|
|
$
|
7,510
|
|
|
$
|
15,852
|
|
|
$
|
15,194
|
|
United Kingdom
|
|
7,316
|
|
|
7,650
|
|
|
14,393
|
|
|
15,165
|
|
Canada
|
|
4,635
|
|
|
4,703
|
|
|
8,758
|
|
|
8,957
|
|
China
|
|
2,428
|
|
|
2,480
|
|
|
5,491
|
|
|
5,685
|
|
Other
|
|
6,746
|
|
|
7,111
|
|
|
13,420
|
|
|
14,713
|
|
Total
|
|
$
|
29,139
|
|
|
$
|
29,454
|
|
|
$
|
57,914
|
|
|
$
|
59,714
|
|
Of International's total net sales, approximately $2.6 billion and $1.0 billion related to eCommerce for the three months ended July 31, 2019 and 2018, respectively. Approximately $5.1 billion and $1.9 billion related to eCommerce for the six months ended July 31, 2019 and 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
Sam’s Club net sales by merchandise category
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Grocery and consumables
|
|
$
|
9,000
|
|
|
$
|
8,585
|
|
|
$
|
17,374
|
|
|
$
|
16,597
|
|
Fuel, tobacco and other categories
|
|
3,039
|
|
|
3,261
|
|
|
5,816
|
|
|
6,180
|
|
Home and apparel
|
|
1,445
|
|
|
1,398
|
|
|
2,623
|
|
|
2,600
|
|
Health and wellness
|
|
842
|
|
|
789
|
|
|
1,668
|
|
|
1,590
|
|
Technology, office and entertainment
|
|
723
|
|
|
757
|
|
|
1,398
|
|
|
1,445
|
|
Total
|
|
$
|
15,049
|
|
|
$
|
14,790
|
|
|
$
|
28,879
|
|
|
$
|
28,412
|
|
Of Sam's Club's total net sales, approximately $0.9 billion and $0.7 billion related to eCommerce for the three months ended July 31, 2019 and 2018, respectively. Approximately $1.6 billion and $1.2 billion related to eCommerce for the six months ended July 31, 2019 and 2018, respectively.
Note 10. Leases
The Company leases certain retail locations, distribution and fulfillment centers, warehouses, office spaces, land and equipment throughout the U.S. and internationally.
The Company's lease cost consists of the following:
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Three Months Ended July 31, 2019
|
|
Six Months Ended July 31, 2019
|
Operating lease cost
|
|
$
|
661
|
|
|
$
|
1,297
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
|
116
|
|
|
227
|
|
Interest on lease obligations
|
|
75
|
|
|
152
|
|
Variable lease cost
|
|
168
|
|
|
335
|
|
Other lease information is as follows:
|
|
|
|
|
|
(Dollar amounts in millions)
|
|
Six Months Ended July 31, 2019
|
Cash paid for amounts included in measurement of lease obligations:
|
|
|
Operating cash flows from operating leases
|
|
$
|
1,294
|
|
Operating cash flows from finance leases
|
|
132
|
|
Financing cash flows from finance leases
|
|
245
|
|
Assets obtained in exchange for operating lease obligations
|
|
1,119
|
|
Assets obtained in exchange for finance lease obligations
|
|
319
|
|
Weighted-average remaining lease term - operating leases
|
|
15.7 years
|
|
Weighted-average remaining lease term - finance leases
|
|
14.7 years
|
|
Weighted-average discount rate - operating leases
|
|
5.3
|
%
|
Weighted-average discount rate - finance leases
|
|
9.2
|
%
|
The aggregate annual lease obligations at July 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
Fiscal Year
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2020
|
|
$
|
1,237
|
|
|
$
|
356
|
|
2021
|
|
2,462
|
|
|
707
|
|
2022
|
|
2,230
|
|
|
653
|
|
2023
|
|
2,008
|
|
|
536
|
|
2024
|
|
1,820
|
|
|
470
|
|
Thereafter
|
|
16,319
|
|
|
5,676
|
|
Total undiscounted lease obligations
|
|
26,076
|
|
|
8,398
|
|
Less imputed interest
|
|
(8,202
|
)
|
|
(4,044
|
)
|
Net lease obligations
|
|
$
|
17,874
|
|
|
$
|
4,354
|
|
Upon adoption of ASU 2016-02, Leases (Topic 842), the Company's aggregate annual lease obligations includes leases with reasonably assured renewals. The aggregate minimum annual lease rentals as of January 31, 2019 for the remaining contractual term of non-cancelable leases under ASC 840 were as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
Fiscal Year
|
|
Operating Leases(1)
|
|
Capital Lease and Financing Obligations
|
2020
|
|
$
|
1,856
|
|
|
$
|
917
|
|
2021
|
|
1,655
|
|
|
856
|
|
2022
|
|
1,420
|
|
|
794
|
|
2023
|
|
1,233
|
|
|
667
|
|
2024
|
|
1,063
|
|
|
593
|
|
Thereafter
|
|
6,891
|
|
|
6,069
|
|
Total minimum rentals
|
|
$
|
14,118
|
|
|
$
|
9,896
|
|
Less estimated executory costs
|
|
|
|
23
|
|
Net minimum lease payments
|
|
|
|
9,873
|
|
Financing obligation noncash gains and other
|
|
|
|
2,278
|
|
Less imputed interest
|
|
|
|
(4,739
|
)
|
Present value of minimum lease payments
|
|
|
|
$
|
7,412
|
|
|
|
(1)
|
Represents minimum contractual obligation for non-cancelable leases with initial or remaining terms greater than 12 months as of January 31, 2019.
|