Walmart 2003 Annual Report Download - page 43

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hedged item are not completely offset by gains and losses in the hedge instrument. No ineffectiveness was recognized in
fiscal 2003 related to these instruments. The fair value of these contracts is included in the balance sheet in the line titled
‘Other assets and deferred charges.’
Net Investment Instruments
At January 31, 2003, the Company is a party to cross-currency interest rate swaps that hedge its net investment in
the United Kingdom. The agreements are contracts to exchange fixed rate payments in one currency for fixed rate
payments in another currency. The Company also holds approximately GBP 1 billion of debt that is designated as hedges
of net investment.
During the fourth quarter of fiscal 2002, the Company terminated or sold cross currency instruments that hedged
portions of the Company’s investments in Canada, Germany and the United Kingdom. These instruments had notional
amounts of $6.7 billion. The Company received $1.1 billion in cash related to the fair value of the instruments at the
time of the terminations. Prior to the terminations, these instruments were classified as net investment hedges and had
been recorded at fair value as current assets on the balance sheet with a like amount recorded on the balance sheet
shareholders’ equity section in the line “other accumulated comprehensive income.” No gain related to the terminations
was recorded in the Company’s income statement. The fair value of these contracts is included in the balance sheet in the
line titled “Other assets and deferred charges.”
Cash Flow Hedge
The Company entered into a cross-currency interest rate swap to hedge the foreign currency risk of certain yen
denominated intercompany debt. The Company has entered into a cross-currency interest rate swap related to U.S. dollar
denominated debt securities issued by a Canadian subsidiary of the Company. These swaps are designated as cash flow
hedges of foreign currency exchange risk. No ineffectiveness was recognized during fiscal 2003 related to these
instruments. The Company expects that the amount of gain existing in other comprehensive income that is expected
to be reclassified into earnings within the next 12 months will not be significant. Changes in the foreign currency spot
exchange rate result in reclassification of amounts from other comprehensive income to earnings to offset transaction
gains or losses on foreign denominated debt. The fair value of these hedges are included in the balance sheet in the line
titled “Other assets and deferred charges.”
Instruments Not Designated for Hedging
The Company enters into forward currency exchange contracts in the regular course of business to manage its exposure
against foreign currency fluctuations on cross-border purchases of inventory. These contracts are generally for short
durations of six months or less. Although these instruments are economic hedges, the Company did not designate these
contracts as hedges as required in order to obtain hedge accounting. As a result, the Company marks the contracts to
market through earnings. The fair value of these contracts is included in the balance sheet in the line titled “Prepaid
expenses and other.”
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