Overview
This discussion, which presents our results for the fiscal years endedJanuary 31, 2022 ("fiscal 2022"),January 31, 2021 ("fiscal 2021") andJanuary 31, 2020 ("fiscal 2020"), should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments to provide a better understanding of how each of those segments and its results of operations affect the financial position and results of operations of the Company as a whole. Throughout this Item 7, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker. Management also measures the results of comparable store and club sales, or comparable sales, a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period from the corresponding period in the previous year.Walmart 's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated digitally, including omni-channel transactions which are fulfilled through our stores and clubs. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Sales related to divested businesses are excluded from comparable sales, and sales related to acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies. In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not theU.S. dollar intoU.S. dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior year period's currency exchange rates. Additionally, no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and theWalmart International segment in the future. We have taken certain strategic actions to strengthen ourWalmart International portfolio for the long-term, including the following highlights over the last three years:
•In
•InFebruary 2021 , we completed the sale of Asda for net consideration of$9.6 billion , for which we recognized an estimated pre-tax loss in fiscal 2021 of$5.5 billion , and an incremental loss of$0.2 billion in fiscal 2022 upon closing of the transaction. Refer to Note 11 and Note 12 . •InMarch 2021 , we completed the sale of Seiyu for net consideration of$1.2 billion , for which we recognized an estimated pre-tax loss in fiscal 2021 of$1.9 billion , and an incremental loss of$0.2 billion in fiscal 2022 upon closing of the transaction. Refer to Note 12 . We operate in the highly competitive omni-channel retail industry in all of the markets we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce, health and wellness, financial services, advertising, and data service businesses. Many of these competitors are national, regional or international chains or have a national or international omni-channel or eCommerce presence. We compete with a number of companies for attracting and retaining quality associates. We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events, weather and other risks related to climate change, global health epidemics, including the COVID-19 pandemic, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, supply chain disruptions, cost and availability of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, 34 -------------------------------------------------------------------------------- general economic conditions, insurance costs, interest rates, labor availability and costs, tax rates, the imposition of tariffs, cybersecurity attacks and unemployment. Further information on the factors that can affect our operating results and on certain risks to our Company and an investment in its securities can be found herein under " Item 1A. Risk Factors ." We expect continued uncertainty in our business and the global economy due to the duration and intensity of the COVID-19 pandemic; the duration and extent of economic stimulus measures; effectiveness and extent of administration of vaccinations and medical treatment; supply chain disruptions; and volatility in employment trends and consumer confidence which may impact our results. For a detailed discussion on results of operations by reportable segment, refer to " Results of Ope rations " below. Company Performance Metrics We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs. At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate. We define our financial framework as:
•strong, efficient growth;
•consistent operating discipline; and
•strategic capital allocation.
As we execute on this financial framework, we believe our returns on capital will improve over time.
Strong, Efficient Growth Our objective of prioritizing strong, efficient growth means we will focus on the most productive growth opportunities, increasing comparable store and club sales, accelerating eCommerce sales growth and expanding omni-channel initiatives that complement our flywheel strategy while slowing the rate of growth of new stores and clubs. At times, we make strategic investments which are focused on the long-term growth of the Company. Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar, which may result in differences when compared to comparable sales using the retail calendar. Calendar comparable sales, including the impact of fuel, for fiscal 2022 and 2021, were as follows: Fiscal Years Ended January 31, 2022 2021 2022 2021 With Fuel Fuel ImpactWalmart U.S . 6.4% 8.7% 0.3% (0.2)% Sam's Club 15.0% 8.7% 5.5% (3.4)% Total U.S. 7.7% 8.7% 1.2% (0.6)% Comparable sales in theU.S. , including fuel, increased 7.7% and 8.7% in fiscal 2022 and 2021, respectively, when compared to the previous fiscal year.Walmart U.S . comparable sales increased 6.4% and 8.7% in fiscal 2022 and 2021, respectively. For fiscal 2022, comparable sales growth was driven by growth in average ticket and transactions, which includes strong consumer spending from government stimulus and some higher inflation impacts in certain merchandise categories compared to recent years. In the first quarter of fiscal 2022, average ticket increased while transactions decreased as customers consolidated shopping trips and purchased larger baskets. Transaction growth turned positive inApril 2021 and continued with strong growth through the rest of the year as customers' pre-pandemic behaviors largely resumed. For fiscal 2021, comparable sales growth was driven by growth in average ticket primarily resulting from meeting the increased demand due to economic conditions related to the COVID-19 pandemic while transactions decreased as customers consolidated shopping trips.Walmart U.S . eCommerce sales positively contributed approximately 0.7% and 5.4% to comparable sales for fiscal 2022 and 2021, respectively, as we continue to focus on a seamless omni-channel experience for our customers.Sam's Club comparable sales increased 15.0% and 8.7% in fiscal 2022 and 2021, respectively. For fiscal 2022,Sam's Club comparable sales benefited from growth in transactions and average ticket and was aided by consumer spending due to government stimulus, and also includes some higher inflation impacts in certain merchandise categories compared to recent years. The growth in comparable sales was partially offset by our decision to remove tobacco from certain club locations.Sam's Club comparable sales for fiscal 2021 benefited from growth in transactions and average ticket resulting from the COVID-19 pandemic, partially offset by both our decision to remove tobacco from certain club locations and by lower fuel sales.Sam's Club eCommerce sales positively contributed approximately 1.3% and 2.2% to comparable sales for fiscal 2022 and 2021, respectively. 35 --------------------------------------------------------------------------------
Consistent Operating Discipline
We operate with discipline by managing expenses, optimizing the efficiency of how we work and creating an environment in which we have sustainable lowest cost to serve. We invest in technology and process improvements to increase productivity, manage inventory and reduce costs. We measure operating discipline through expense leverage, which we define as net sales growing at a faster rate than operating, selling, general and administrative ("operating") expenses. Fiscal Years Ended January 31, (Amounts in millions, except unit counts) 2022 2021 Net sales$ 567,762 $ 555,233 Percentage change from comparable period 2.3 % 6.8 % Operating, selling, general and administrative expenses$ 117,812 $ 116,288 Percentage change from comparable period 1.3 % 6.9 % Operating, selling, general and administrative expenses as a 20.8 % 20.9 %
percentage of net sales
For fiscal 2022, operating expenses as a percentage of net sales decreased 19 basis points when compared to the previous fiscal year. Operating expenses as a percentage of net sales benefited from growth in comparable sales and lower incremental COVID-19 related costs of$2.5 billion as compared to the previous year, partially offset by increased wage investments primarily in theWalmart U.S . segment. For fiscal 2021, operating expenses as a percentage of net sales was flat when compared to the previous fiscal year. Operating expenses as a percentage of net sales benefited from strong growth in comparable sales, offset by$4.0 billion of incremental costs related to the COVID-19 pandemic.
Strategic Capital Allocation
Our strategy includes improving our customer-facing initiatives in stores and clubs and creating a seamless omni-channel experience for our customers. As such, we continue to allocate more capital to supply chain, omni-channel initiatives, technology and store remodels and less to new store and club openings. The following table provides additional detail:
(Amounts in millions) Fiscal Years Ended January 31, Allocation of Capital Expenditures 2022 2021 Supply chain, omni-channel, technology and other$ 7,197 $ 5,681 Remodels 3,278 2,013 New stores and clubs, including expansions and relocations 134 134 Total U.S.$ 10,609 $ 7,828 Walmart International 2,497 2,436 Total capital expenditures$ 13,106 $ 10,264 Returns As we execute our financial framework, we believe our return on capital will improve over time. We measure return on capital with our return on assets, return on investment and free cash flow metrics. We also provide returns in the form of share repurchases and dividends, which are discussed in the Liquidity and Capital Resources section.
Return on Assets and Return on Investment
We include Return on Assets ("ROA"), the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in theU.S. ("GAAP"), and Return on Investment ("ROI") as metrics to assess returns on assets. While ROI is considered a non-GAAP financial measure, management believes ROI is a meaningful metric to share with investors because it helps investors assess how effectivelyWalmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. ROA was 5.6% for both fiscal 2022 and 2021, respectively. ROI was 14.9% and 14.0% for fiscal 2022 and 2021, respectively, which increased primarily due to the increase in operating income. We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the trailing twelve months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and average amortization, less average accounts payable and average accrued liabilities for that period. Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure. For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. As mentioned above, we consider ROA to be the financial measure computed in accordance with GAAP most directly comparable to our calculation of ROI. ROI differs from ROA (which is consolidated net income for the period divided by average total assets for the period) because ROI: adjusts operating income to exclude certain 36 -------------------------------------------------------------------------------- expense items and adds interest income; and adjusts total assets for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities to arrive at total invested capital. Because of the adjustments mentioned above, we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA. Although ROI is a standard financial measure, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.
The calculation of ROA and ROI, along with a reconciliation of ROI to the calculation of ROA, the most comparable GAAP financial measure, is as follows:
Fiscal Years Ended January 31, (Amounts in millions) 2022 2021 CALCULATION OF RETURN ON ASSETS Numerator Consolidated net income$ 13,940 $ 13,706
Denominator
Average total assets(1)$ 248,678 $ 244,496 Return on assets (ROA) 5.6 % 5.6 % CALCULATION OF RETURN ON INVESTMENT Numerator Operating income$ 25,942 $ 22,548 + Interest income 158 121 + Depreciation and amortization 10,658 11,152 + Rent 2,274 2,626 ROI operating income$ 39,032 $ 36,447 Denominator Average total assets(1)$ 248,678 $ 244,496 + Average accumulated depreciation and amortization(1) 98,199 94,351 - Average accounts payable(1) 52,201 48,057 - Average accrued liabilities(1) 32,013 30,131 Average invested capital$ 262,663 $ 260,659 Return on investment (ROI) 14.9 % 14.0 % (1) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2. As of January 31, 2022 2021 2020 Certain Balance Sheet Data Total assets$ 244,860 $ 252,496 $ 236,495 Accumulated depreciation and amortization 102,211 94,187 94,514 Accounts payable 55,261 49,141 46,973 Accrued liabilities 26,060 37,966 22,296 Free Cash Flow Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. See " Liquidity and Capital Resources " for discussions of GAAP metrics including net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities. We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period. We had net cash provided by operating activities of$24.2 billion ,$36.1 billion and$25.3 billion for fiscal 2022, 2021 and 2020, respectively. We generated free cash flow of$11.1 billion ,$25.8 billion and$14.6 billion for fiscal 2022, 2021 and 2020, respectively. Net cash provided by operating activities for fiscal 2022 decreased when compared to fiscal 2021 primarily due to an increase in inventory costs and purchases to support strong sales and lapping the impact of accelerated inventory sell-through in fiscal 2021, as well as timing and payment of wages. Free cash flow for fiscal 2022 decreased when compared to fiscal 2021 due to the same reasons as the decrease in net cash provided by operating activities, as well as$2.8 billion in increased capital expenditures. Net cash provided by operating activities for fiscal 2021 increased when compared to fiscal 2020 primarily due to the impact of the global health crisis which accelerated inventory sell-through, as well as the timing and payment of inventory purchases, incremental COVID-19 related expenses and certain benefit payments. Free cash flow for 37 --------------------------------------------------------------------------------
fiscal 2021 increased when compared to fiscal 2020 due to the same reasons as
the increase in net cash provided by operating activities, as well as
Walmart 's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Consolidated Statements of Cash Flows . Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow. The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash used in financing activities. Fiscal Years
Ended
(Amounts in millions) 2022 2021 2020 Net cash provided by operating activities$ 24,181 $
36,074
Payments for property and equipment (13,106)
(10,264) (10,705)
Free cash flow$ 11,075 $
25,810
Net cash used in investing activities(1)
Net cash used in financing activities (22,828)
(16,117) (14,299)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.
Results of Operations
Consolidated Results of Operations
Fiscal Years
Ended
(Amounts in millions, except unit counts) 2022 2021 2020 Total revenues$ 572,754 $
559,151
Percentage change from comparable period 2.4 %
6.7 % 1.9 %
Net sales$ 567,762 $
555,233
Percentage change from comparable period 2.3 %
6.8 % 1.9 %
Total U.S. calendar comparable sales increase 7.7 % 8.7 % 2.7 % Gross profit rate 24.4 % 24.3 % 24.1 % Operating income$ 25,942 $ 22,548 $ 20,568 Operating income as a percentage of net sales 4.6 %
4.1 % 4.0 %
Loss on extinguishment of debt$ 2,410 $ - $ - Other (gains) and losses$ 3,000 $ (210) $ (1,958) Consolidated net income$ 13,940 $ 13,706 $ 15,201 Unit counts at period end(1) 10,593
11,443 11,501
Retail square feet at period end(1) 1,060 1,121 1,129 (1) Unit counts and associated retail square feet are presented for stores and clubs generally open as of period end, and reflects the removal of stores in theU.K. andJapan subsequent to closing the divestitures in fiscal 2022. Permanently closed locations are not included. Our total revenues, which includes net sales and membership and other income, increased$13.6 billion or 2.4% and$35.2 billion or 6.7% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. These increases in revenues were primarily due to increases in net sales, which increased$12.5 billion or 2.3% and$35.3 billion or 6.8% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the increase was primarily due to strong positive comparable sales for theWalmart U.S . andSam's Club segments which benefited from strongU.S. consumer spending and some inflation, along with positive comparable sales in most of our remaining international markets. The increase was partially offset by a$32.6 billion net sales decrease primarily related to the divestiture of our operations in theU.K. andJapan , which closed in the first quarter of fiscal 2022. Net sales also benefited from a$4.5 billion positive impact of fluctuations in currency exchange rates during fiscal 2022. For fiscal 2021, the increase was primarily due to strong positive comparable sales for theWalmart U.S . andSam's Club segments as well as positive comparable sales in the majority of our international markets resulting from increased demand stemming from the COVID-19 pandemic. Overall net sales growth was strong despite certain operating limitations in several international markets in the second quarter of fiscal 2021 due to government regulations and precautionary measures taken as a result of the COVID-19 pandemic. The net sales increase was partially offset by a negative impact from fluctuations in currency exchange rates of$5.0 billion . Our gross profit rate increased 14 and 20 basis points for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the increase was primarily due to price management in theWalmart U.S . segment driven by cost 38 -------------------------------------------------------------------------------- inflation as well as merchandise mix, partially offset by increased supply chain costs. For fiscal 2021, the increase was primarily due to strategic sourcing initiatives, strong sales in higher margin categories, and fewer markdowns. This was partially offset in theWalmart U.S . segment by carryover of prior year price investment as well as the temporary closure of ourAuto Care Centers and Vision Centers in response to the COVID-19 pandemic. For fiscal 2022, operating expenses as a percentage of net sales decreased 19 basis points when compared to the previous fiscal year. Operating expenses as a percentage of net sales benefited from growth in comparable sales and lower incremental COVID-19 related costs of$2.5 billion as compared to the previous year, partially offset by increased wage investments primarily in theWalmart U.S . segment. For fiscal 2021, operating expenses as a percentage of net sales was flat when compared to the previous fiscal year. Operating expenses as a percentage of net sales benefited from strong growth in comparable sales, offset by$4.0 billion of incremental costs related to the COVID-19 pandemic. Loss on extinguishment of debt was$2.4 billion in fiscal 2022 due to the early retirement of certain higher rate long-term debt to reduce interest expense in future periods. Other gains and losses consisted of a net loss of$3.0 billion and a net gain of$0.2 billion for fiscal 2022 and 2021, respectively. The loss in fiscal 2022 primarily reflects net losses associated with the fair value changes of our equity investments, as well as$0.4 billion in incremental losses associated with the divestiture of certain international operations which closed in the first quarter of fiscal 2022. The gain in fiscal 2021 primarily reflects$8.7 billion in net gains associated with the fair value changes of our equity investments, partially offset by the$8.3 billion pre-tax loss related to the divestiture of certain international operations classified as held for sale or sold in fiscal 2021. Our effective income tax rate was 25.4% for fiscal 2022, 33.3% for fiscal 2021, and 24.4% for fiscal 2020. The decrease in our effective tax rate for fiscal 2022 as compared to fiscal 2021, and the increase in our effective tax rate for fiscal 2021 as compared to fiscal 2020, is primarily due to the$8.3 billion loss related to the divestiture of certain international operations classified as held for sale or sold in fiscal 2021, which provided minimal realizable tax benefit. Our effective income tax rate may also fluctuate as a result of various factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix and size of earnings among ourU.S. operations and international operations, which are subject to statutory rates that are generally higher than theU.S. statutory rate. The reconciliation from theU.S. statutory rate to the effective income tax rates for fiscal 2022, 2021 and 2020 is presented in Note 9 . As a result of the factors discussed above, we reported$13.9 billion and$13.7 billion of consolidated net income for fiscal 2022 and 2021, respectively, which represents an increase of$0.2 billion and a decrease of$1.5 billion for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. Diluted net income per common share attributable toWalmart ("EPS") was$4.87 ,$4.75 and$5.19 for fiscal 2022, 2021 and 2020, respectively.
Fiscal Years
Ended
(Amounts in millions, except unit counts) 2022 2021 2020 Net sales$ 393,247 $
369,963
Percentage change from comparable period 6.3 %
8.5 % 2.8 %
Calendar comparable sales increase 6.4 %
8.7 % 2.9 %
Operating income$ 21,587 $
19,116
Operating income as a percentage of net sales 5.5 %
5.2 % 5.1 %
Unit counts at period end 4,742 4,743 4,756 Retail square feet at period end 703 703 703 Net sales for theWalmart U.S . segment increased$23.3 billion or 6.3% and$29.0 billion or 8.5% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. The increases in net sales were primarily due to increases in comparable sales of 6.4% and 8.7% for fiscal 2022 and 2021, respectively. Comparable sales in fiscal 2022 were driven by growth in average ticket and transactions, which includes strong consumer spending from government stimulus and some higher inflation impacts in certain merchandise categories compared to recent years. In the first quarter of fiscal 2022, average ticket increased while transactions decreased as customers consolidated shopping trips and purchased larger baskets. Transaction growth turned positive inApril 2021 and continued with strong growth through the rest of the year as customers' pre-pandemic behaviors largely resumed. Comparable sales in fiscal 2021 were driven by growth in average ticket primarily resulting from meeting the increased demand due to economic conditions related to the COVID-19 pandemic while transactions decreased as customers consolidated shopping trips.Walmart U.S . eCommerce sales positively contributed approximately 0.7% and 5.4% to comparable sales for fiscal 2022 and 2021, respectively, as we continue to focus on a seamless omni-channel experience for our customers. Gross profit rate increased 51 basis points for fiscal 2022 and was flat for fiscal 2021, when compared to the respective previous fiscal year. The increase in fiscal 2022 gross profit rate was primarily due to price management driven by cost inflation as well merchandise mix, which includes lapping the temporary closures of ourAuto Care and Vision Centers and 39 -------------------------------------------------------------------------------- growth in our advertising business, partially offset by increased supply chain costs. Gross profit rate for fiscal 2021 benefited from strategic sourcing initiatives and fewer markdowns, but was offset by a change in merchandise mix, the carryover effect of prior price investment and the temporary closure of ourAuto Care and Vision Centers in response to the COVID-19 pandemic. Operating expenses as a percentage of segment net sales increased 31 basis points for fiscal 2022 when compared to the previous fiscal year. Despite the strong sales growth described above, fiscal 2022 operating expenses as a percentage of segment net sales increased primarily due to investments in wages, partially offset by lower incremental COVID-19 related costs of$1.9 billion . For fiscal 2021, operating expenses as a percentage of segment net sales decreased 15 basis points primarily due to strong sales, which were partially offset by$3.2 billion of incremental costs related to the COVID-19 pandemic including special bonuses, expanded sick and emergency leave pay, costs associated with outfitting our stores and associates with masks, gloves and sanitizer, and expanded cleaning practices. As a result of the factors discussed above, segment operating income increased$2.5 billion and increased$1.7 billion for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year.
Fiscal Years
Ended
(Amounts in millions, except unit counts) 2022 2021 2020 Net sales$ 100,959 $
121,360
Percentage change from comparable period (16.8) %
1.0 % (0.6) %
Operating income$ 3,758 $
3,660
Operating income as a percentage of net sales 3.7 %
3.0 % 2.8 %
Unit counts at period end 5,251 6,101 6,146 Retail square feet at period end 277 337 345 Net sales for theWalmart International segment decreased$20.4 billion or 16.8% and increased$1.2 billion or 1.0% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the reduction in net sales was driven by a$32.6 billion decrease primarily related to the divestitures of Asda and Seiyu, which closed during the first quarter of fiscal 2022. This decrease was partially offset by positive comparable sales in most of our remaining markets, as well as positive fluctuations in currency exchange rates of$4.5 billion . For fiscal 2021, the increase was primarily due to positive comparable sales growth in the majority of our markets driven by changes in consumer behavior in response to the COVID-19 pandemic, partially offset by negative fluctuations in currency exchange rates of$5.0 billion . The pandemic led to significant economic pressures and channel and mix shifts due to changes in consumer behavior, including accelerated growth in eCommerce in several markets. While several of our markets experienced extensive store and operational closures in the second quarter of fiscal 2021 as a result of government mandates, most closed stores and warehouses had resumed operations by the third quarter of fiscal 2021. Gross profit rate decreased 55 basis points and increased 50 basis points for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the decrease was primarily driven by shifts into lower margin formats and the impact related to our divested markets. For fiscal 2021, the increase was primarily due toFlipkart 's improved margin mix and reduced fuel sales in theU.K. Operating expenses as a percentage of segment net sales decreased 71 basis points and increased 14 basis points for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. The decrease in operating expenses as a percentage of segment net sales for fiscal 2022 was primarily due to impacts from the divested markets and$0.4 billion of lower incremental COVID-19 related costs. Operating expenses as a percentage of net sales benefited from depreciation and amortization expense not having been recorded for our operations in theU.K. andJapan subsequent to their held for sale classification at the end of fiscal 2021 and prior to closing during the first quarter of fiscal 2022. For fiscal 2021, the increase was primarily due to$0.5 billion of incremental costs related to the COVID-19 pandemic, partially offset by positive comparable sales in the majority of our markets and lapping a$0.4 billion non-cash impairment charge recorded in fiscal 2020. Operating income for fiscal 2022 included a$0.3 billion impact from positive fluctuations in currency exchange rates, and fiscal 2021 included a$0.2 billion impact from negative fluctuations in currency exchange rates. As a result of the factors discussed above, segment operating income increased$0.1 billion and$0.3 billion for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. 40 --------------------------------------------------------------------------------
Sam's Club Segment
Fiscal Years
Ended
(Amounts in millions, except unit counts) 2022 2021 2020
Including Fuel
Net sales$ 73,556 $
63,910
Percentage change from comparable period 15.1 %
8.7 % 1.6 %
Calendar comparable sales increase 15.0 %
8.7 % 1.6 %
Operating income$ 2,259 $
1,906
Operating income as a percentage of net sales 3.1 %
3.0 % 2.8 %
Unit counts at period end 600 599 599 Retail square feet at period end 80 80 80 Excluding Fuel (1) Net sales$ 64,860 $ 59,184 $ 52,792 Percentage change from comparable period 9.6 %
12.1 % 0.9 %
Operating income$ 1,923 $
1,645
Operating income as a percentage of net sales 3.0 %
2.8 % 2.8 %
(1) We believe the "Excluding Fuel" information is useful to investors because it permits investors to understand the effect of theSam's Club segment's fuel sales on its results of operations, which are impacted by the volatility of fuel prices. Volatility in fuel prices may continue to impact the operating results of theSam's Club segment in the future. Management uses such information to better measure underlying operating results in the segment. Net sales for theSam's Club segment increased$9.6 billion or 15.1% and$5.1 billion or 8.7% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the increase was primarily due to comparable sales growth, including fuel, of 15.0%. Comparable sales benefited from growth in transactions and average ticket due to increased consumer spending, which was aided by government stimulus, and also includes some higher inflation impacts in certain merchandise categories compared to recent years. The growth in comparable sales was partially offset by our decision to remove tobacco from certain club locations.Sam's Club eCommerce sales positively contributed approximately 1.3% to comparable sales. For fiscal 2021, the increase was primarily due to comparable sales, including fuel, of 8.7%. Comparable sales benefited from growth in transactions and average ticket resulting from the COVID-19 pandemic, partially offset by our decision to remove tobacco from certain club locations and by lower fuel sales.Sam's Club eCommerce sales positively contributed approximately 2.2% to comparable sales. Gross profit rate decreased 68 basis points and increased 65 basis points for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the decrease in gross profit rate was primarily due to increased fuel sales which have lower margins, cost inflation, and higher supply chain costs, partially offset by favorable sales mix, including reduced tobacco sales. For fiscal 2021, gross profit rate increased due to favorable sales mix, including lower fuel and tobacco sales, and improvement in inventory losses which was partially offset by price investment and higher eCommerce fulfillment costs. Membership and other income increased 13.1% and 6.8% for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. For fiscal 2022, the increase was primarily due to growth in total members and increased Plus Member penetration. For fiscal 2021, the increase was primarily due to growth in total members, which benefited from higher overall renewal rates and higher Plus Member penetration. Operating expenses as a percentage of segment net sales decreased 82 basis points and increased 42 basis points for fiscal 2022 and 2021, respectively, when compared to the previous fiscal year. Fiscal 2022 operating expenses as a percentage of net sales decreased primarily due to higher sales as well as a benefit from$0.2 billion of lower incremental COVID-19 related costs, partially offset by reduced tobacco sales. Despite the increased sales growth described above, fiscal 2021 operating expenses as a percentage of net sales increased primarily due to$0.3 billion of incremental costs related to the pandemic, which included additional costs such as special bonuses, expanded cleaning practices and security, expanded sick and emergency leave pay, and outfitting our associates with masks and gloves. Additionally, the increase in operating expense as a percentage of segment net sales was affected by reduced tobacco and fuel sales.
As a result of the factors discussed above, segment operating income increased
Liquidity and Capital Resources
Liquidity
The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to fund dividends on our common stock and share repurchases. We believe our sources of liquidity will continue to be sufficient to fund operations, finance our global investment activities, pay dividends and fund our share repurchases for at least the next 12 months and thereafter for the foreseeable future. 41 --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities
Fiscal Years
Ended
(Amounts in millions) 2022
2021 2020
Net cash provided by operating activities$ 24,181 $
36,074
Net cash provided by operating activities was$24.2 billion ,$36.1 billion and$25.3 billion for fiscal 2022, 2021 and 2020, respectively. Net cash provided by operating activities for fiscal 2022 decreased when compared to the previous fiscal year primarily due to an increase in inventory costs and purchases to support strong sales and lapping the impact of accelerated inventory sell-through in fiscal 2021, as well as timing and payment of wages. The increase in net cash provided by operating activities for fiscal 2021, when compared to the previous fiscal year, was primarily due to the impact of the global health crisis which accelerated inventory sell-through, as well as the timing and payment of inventory purchases, incremental COVID-19 related expenses and certain benefit payments.
Cash Equivalents and Working Capital Deficit
Cash and cash equivalents were$14.8 billion and$17.7 billion as ofJanuary 31, 2022 and 2021, respectively. Our working capital deficit, defined as total current assets less total current liabilities, was$6.3 billion and$2.6 billion as ofJanuary 31, 2022 and 2021, respectively. We generally operate with a working capital deficit due to our efficient use of cash in funding operations, consistent access to the capital markets and returns provided to our shareholders in the form of payments of cash dividends and share repurchases. We use 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. Additionally, from time-to-time, we repatriate earnings and related cash from jurisdictions outside of theU.S. Historically,U.S. taxes were due upon repatriation of foreign earnings. Due to the enactment ofU.S. tax reform, repatriations of foreign earnings will generally be free ofU.S. federal tax, but may incur other taxes such as withholding or state taxes. While we are currently evaluating recent regulations issued from the Internal Revenue Service ("IRS") and theU.S. Treasury Department , we do not expect current local laws, other existing limitations on anticipated future repatriations of cash amounts held outside theU.S. to have a material effect on our overall liquidity, financial position or results of operations. As ofJanuary 31, 2022 and 2021, cash and cash equivalents of$4.3 billion and$2.8 billion , respectively, may not be freely transferable to theU.S. due to local laws or other restrictions. Of the$4.3 billion as ofJanuary 31, 2022 , approximately$2.2 billion can only be accessed through dividends or intercompany financing arrangements subject to approval of theFlipkart minority shareholders; however, this cash is expected to be utilized byFlipkart .
Fiscal Years Ended
(Amounts in millions) 2022 2021 2020
Net cash used in investing activities
Net cash used in investing activities was$6.0 billion ,$10.1 billion and$9.1 billion for fiscal 2022, 2021 and 2020, respectively, and generally consisted of capital expenditures. Net cash used in investing activities decreased$4.1 billion for fiscal 2022 when compared to the previous fiscal year primarily due to the net proceeds received from the divestitures of Asda and Seiyu, partially offset by increased capital expenditures. Net cash used in investing activities increased$0.9 billion for fiscal 2021 when compared to the previous fiscal year, primarily as a result of lapping the net proceeds received from the sale of our banking operations inWalmart Canada and the change in other investing activities, partially offset by decreased capital expenditures.
Capital expenditures
Refer to the " Strategic Capital Allocation " section in our Company Performance Metrics for capital expenditure detail for fiscal 2022 and 2021. For the fiscal year endingJanuary 31, 2023 ("fiscal 2023"), we project capital expenditures will be approximately$18 billion , with a focus on supply chain, automation, customer-facing initiatives and technology.
Fiscal Years Ended
(Amounts in millions) 2022 2021
2020
Net cash used in financing activities
Net cash from financing activities generally consists of transactions related to our short-term and long-term debt, financing obligations, dividends paid and the repurchase of Company stock. Transactions with noncontrolling interest shareholders are also classified as cash flows from financing activities. Fiscal 2022 net cash used in financing activities increased$6.7 billion when compared to the previous fiscal year. The increase is primarily due to repayments of long-term debt and related payment 42 -------------------------------------------------------------------------------- of premiums for the early extinguishment of certain notes, as well as increased share repurchases, partially offset by new long-term debt issuances in the current year and equity funding from the sale of subsidiary stock. Fiscal 2021 net cash used in financing activities increased$1.8 billion for fiscal 2021 when compared to the previous fiscal year. The increase was primarily due to the timing of issuances and repayments of long-term debt, partially offset by both a reduction in cash used to pay down short-term borrowings as well as share repurchases.
Sale of Subsidiary Stock
During fiscal 2022, the Company received$3.2 billion primarily related to a new equity funding for the Company's majority-ownedFlipkart subsidiary, which reduced the Company's ownership from approximately 83% as ofJanuary 31, 2021 to approximately 75%. Short-term Borrowings We generally utilize the liquidity provided by short-term borrowings to provide funding for our operations, dividend payments, share repurchases, capital expenditures and other cash requirements. The following table includes additional information related to the Company's short-term borrowings for fiscal 2022, 2021 and 2020: Fiscal Years Ended January 31, (Amounts in millions) 2022 2021 2020 Maximum amount outstanding at any month-end$ 716 $ 4,048 $ 13,315 Average daily short-term borrowings 626 1,577 7,120 Annual weighted-average interest rate 3.7 %
3.1 % 2.5 %
Short-term borrowings as ofJanuary 31, 2022 and 2021 were$0.4 billion and$0.2 billion , respectively, with weighted-average interest rates of 2.9% and 1.9%, respectively. We also have$15.0 billion of various undrawn committed lines of credit in theU.S. as ofJanuary 31, 2022 that provide additional liquidity, if needed. Additionally, we maintain access to various credit facilities outside of theU.S. to further support ourWalmart International segment operations, as needed.
As of
Long-term Debt
The following table provides the changes in our long-term debt for fiscal 2022: Long-term debt due within one (Amounts in millions) year Long-term debt Total Balances as of February 1, 2021$ 3,115 $ 41,194 $ 44,309 Proceeds from issuance of long-term debt - 6,945 6,945 Repayments of long-term debt (3,010) (10,000) (13,010) Reclassifications of long-term debt 2,687 (2,687) - Currency and other adjustments 11 (588) (577) Balances as of January 31, 2022$ 2,803
Our total outstanding long-term debt decreased$6.6 billion during fiscal 2022, primarily due to the extinguishment and maturities of certain long-term debt, partially offset by the issuance of new long-term debt inSeptember 2021 . Refer to Note 6 to our Consolidated Financial Statements for details on the maturities, extinguishment and issuances of long-term debt. The early extinguishment of certain long-term debt allowed us to retire higher rate debt to reduce interest expense in future periods. In connection with this early extinguishment of debt, the Company paid premiums of$2.3 billion , which represents the majority of the$2.4 billion loss recorded on the transaction during fiscal 2022. Estimated contractual interest payments associated with our long-term debt amount to$16.0 billion , with approximately$1.3 billion expected to be paid in fiscal 2023. Estimated interest payments are based on our principal amounts and expected maturities of all debt outstanding as ofJanuary 31, 2022 and assumes interest rates remain at current levels for our variable rate instruments.
Dividends
Our total dividend payments were$6.2 billion ,$6.1 billion and$6.0 billion for fiscal 2022, 2021 and 2020, respectively. EffectiveFebruary 17, 2022 , the Board of Directors approved the fiscal 2023 annual dividend of$2.24 per share, an increase over the fiscal 2022 annual dividend of$2.20 per share. For fiscal 2023, the annual dividend will be paid in four quarterly installments of$0.56 per share, according to the following record and payable dates: 43 --------------------------------------------------------------------------------
Record Date Payable DateMarch 18, 2022 April 4, 2022 May 6, 2022 May 31, 2022 August 12, 2022 September 6, 2022 December 9, 2022 January 3, 2023
Company Share Repurchase Program
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made prior toFebruary 22, 2021 were made under the plan in effect at the beginning of fiscal 2022. OnFebruary 18, 2021 , the Board of Directors approved a new$20.0 billion share repurchase program which has no expiration date or other restrictions limiting the period over which the Company can make repurchases, and beginningFebruary 22, 2021 , replaced the previous share repurchase program. As ofJanuary 31, 2022 , authorization for$10.6 billion of share repurchases remained under the share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status. We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow. In fiscal 2023, we plan to spend at least$10 billion in share repurchases.
The following table provides, on a settlement date basis, the number of shares repurchased, average price paid per share and total amount paid for share repurchases for fiscal 2022, 2021 and 2020:
Fiscal Years Ended January 31, (Amounts in millions, except per share data) 2022 2021 2020 Total number of shares repurchased 69.7 19.4 53.9 Average price paid per share$ 140.45 $ 135.20 $ 105.98 Total amount paid for share repurchases$ 9,787 $ 2,625 $ 5,717 Material Cash Requirements Material cash requirements from operating activities primarily consist of inventory purchases, employee related costs, taxes, interest and other general operating expenses, which we expect to be primarily satisfied by our cash from operations. Other material cash requirements from known contractual and other obligations include short-term borrowings, long-term debt and related interest payments, leases and purchase obligations. See Note 6 and Note 7 to our Consolidated Financial Statements for information regarding outstanding short-term borrowings and long-term debt, and leases, respectively. As ofJanuary 31, 2022 , the Company has$27.9 billion of unrecorded purchase obligations outstanding, of which$9.3 billion is due within one year. Purchase obligations include legally binding contracts, such as firm commitments for inventory and utility purchases, as well as commitments to make capital expenditures, software acquisition and license commitments and legally binding service contracts. Contractual obligations for the purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Contracts that specify the Company will purchase all or a portion of its requirements of a specific product or service from a supplier, but do not include a fixed or minimum quantity, are excluded from the obligations quantified above. Accordingly, purchase orders for inventory are also excluded as purchase orders represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current inventory needs and are fulfilled by our suppliers within short time periods. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. Timing of payments and actual amounts paid may be different depending on the timing of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Capital Resources
We believe our cash flows from operations, current cash position, short-term borrowings and access to capital markets will continue to be sufficient to meet our anticipated cash requirements and contractual obligations, which includes funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases. We have strong commercial paper and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets. As ofJanuary 31, 2022 , the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows: 44 -------------------------------------------------------------------------------- Rating agency Commercial paper
Long-term debt
Standard & Poor's A-1+ AA Moody's Investors Service P-1 Aa2 Fitch Ratings F1+ AA Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain consistent over time. Factors that could affect our credit ratings include changes in our operating performance, the general economic environment, conditions in the retail industry, our financial position, including our total debt and capitalization, and changes in our business strategy. Any downgrade of our credit ratings by a credit rating agency could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper markets with the same flexibility that we have experienced historically, potentially requiring us to rely more heavily on more expensive types of debt financing. The credit rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
Other Matters
In Note 10 to our Consolidated Financial Statements, which is captioned "Contingencies" and appears in Part I I of this Annual Report on Form 10-K under the caption " Item 8. Financial Statements and Supplementary Data ," we discuss, under the sub-caption "Opioids Litigation," the Prescription Opiate Litigation and other matters, including certain risks arising therefrom. In that Note 10 , we also discuss, under the sub-caption "Asda Equal Value Claims," the Company's indemnification obligation for the Asda Equal Value Claims matter. We discuss various legal proceedings related to the Federal and State Prescription Opiate Litigation, DOJ Opioid Civil Litigation and Opioids Related Securities Class Actions and Derivative Litigation in Part I of this Annual Report on Form 10-K under the caption " Item 3. Legal Proceedings ," under the sub-caption "I. Supplemental Information." We also discuss items related to the Asda Equal Value Claims matter, the Money Transfer Agent Services Proceedings matter and theForeign Direct Investment matters in Part I of this Annual Report on Form 10-K under the caption " Item 3. Legal Proceedings ," under the sub-caption "II. Certain Other Matters." We also discuss an environmental matter with the State of California in Part I of this Annual Report on Form 10-K under the caption " Item 3. Legal Proceedings ," under the sub-caption "III. Environmental Matters." The foregoing matters and other matters described elsewhere in this Annual Report on Form 10-K represent contingent liabilities of the Company that may or may not result in the incurrence of a material liability by the Company upon their final resolution.
Summary of Critical Accounting Estimates
Management strives to report our financial results in a clear and understandable manner, although in some cases accounting and disclosure rules are complex and require us to use technical terminology. In preparing the Company's Consolidated Financial Statements, we follow accounting principles generally accepted in theU.S. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our financial statements. These judgments and estimates are based on past events and expectations of future outcomes. Actual results may differ from our estimates. Management continually reviews our accounting policies, how they are applied and how they are reported and disclosed in our financial statements. Following is a summary of our critical accounting estimates and how they are applied in preparation of the financial statements.
Inventories
We value 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 forWalmart U.S . segment's inventories. The inventory at theSam's Club segment is valued using the weighted-average cost LIFO method. When necessary, we record a LIFO provision for the estimated annual effect of inflation, and these estimates are adjusted to actual results determined at year-end. Our LIFO provision is calculated based on inventory levels, markup rates and internally generated retail price indices. As a measure of sensitivity, a 1% increase to our retail price indices would not have resulted in a decrease to the carrying value of inventory. As ofJanuary 31, 2022 and 2021, our inventories valued at LIFO approximated those inventories as if they were valued at first-in, first-out ("FIFO"). 45 --------------------------------------------------------------------------------
Impairment of Assets
We evaluate long-lived assets for indicators of impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. Management's judgments regarding the existence of impairment indicators are based on market conditions and financial performance. The evaluation of long-lived assets is performed at the lowest level of identifiable cash flows, which is generally at the individual store level. The variability of these factors depends on a number of conditions, including uncertainty about future events and changes in demographics. Thus, our accounting estimates may change from period to period. These factors could cause management to conclude that indicators of impairment exist and require impairment tests be performed, which could result in management determining the value of long-lived assets is impaired, resulting in a write-down of the related long-lived assets. Impairment charges on assets held and used were immaterial in fiscal 2022, 2021 and 2020. As a measure of sensitivity, fiscal 2022 impairment would not change materially with a 10% decrease in the undiscounted cash flows for the stores or clubs with indicators of impairment. In fiscal 2021, the Company's operations inArgentina , theUnited Kingdom andJapan met the held for sale criteria. As a result, the individual disposal groups were measured at fair value, less costs to sell, which resulted in impairment charges that were included in the total estimated pre-tax loss of$8.3 billion recorded in fiscal 2021, as well as$0.4 billion in incremental charges associated with theUnited Kingdom andJapan divestitures upon closing of the transactions during the first quarter of fiscal 2022. Refer to Note 12 .
Business Combinations,
We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when market value is not readily available. For intangible assets acquired in a business combination, we typically use the income method. Significant estimates in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates, discount rates and useful lives. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill.Goodwill is typically assigned to the reporting unit which consolidates the acquisition. Components within the same reportable segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics. As ofJanuary 31, 2022 , our reporting units consisted ofWalmart U.S .,Walmart International andSam's Club .Goodwill and other indefinite-lived acquired intangible assets are not amortized but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of a certain asset may be impaired. Generally, this evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If we determine, 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 impairment test would be performed. The quantitative test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. These evaluations are based on determining the fair value of a reporting unit or asset using a valuation method such as discounted cash flow or a relative, market-based approach. Historically, our reporting units have generated sufficient returns to recover the cost of goodwill, as the fair value significantly exceeded the carrying value. Our indefinite-lived acquired intangible assets have also historically generated sufficient returns to recover their cost. Because of the nature of the factors used in these tests, if different conditions occur in future periods, future operating results could be materially impacted. Due to certain strategic restructuring decisions, we recorded approximately$0.7 billion in impairment in fiscal 2020 related to acquired trade names and acquired developed software.
Contingencies
We are involved in a number of legal proceedings. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. We also perform an assessment of the materiality of loss contingencies where a loss is either not probable or it is reasonably possible that a loss could be incurred in excess of amounts accrued. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the financial statements would be material, we provide disclosure of the loss contingency in the footnotes to our financial statements. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made. Although we are not able to predict the outcome or reasonably estimate a range of possible losses in certain matters described in Note 10 to our Consolidated Financial Statements and have not recorded an associated accrual related to these matters, an adverse judgment or negotiated resolution in any of these matters could have a material adverse effect on our business, reputation, financial position, results of operations or cash flows. 46 --------------------------------------------------------------------------------
Income Taxes
Income taxes have a significant effect on our net earnings. We are subject to income taxes in theU.S. and numerous foreign jurisdictions. Accordingly, the determination of our provision for income taxes requires judgment, the use of estimates in certain cases and the interpretation and application of complex tax laws. Our effective income tax rate is affected by many factors, including changes in our assessment of certain tax contingencies, increases and decreases in valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix of earnings among ourU.S. and international operations where the statutory rates are generally higher than theU.S. statutory rate, and may fluctuate as a result. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax provisions. The benefits of uncertain tax positions are recorded in our financial statements only after determining a more likely than not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. We account for uncertain tax positions by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This determination requires the use of judgment in evaluating our tax positions and assessing the timing and amounts of deductible and taxable items. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. 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 qualitative 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. This evaluation relies on estimates.
As guidance is issued by the
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