WAL MART STORES INC, 10-K filed on 3/30/2010
Annual Report
Statement Of Income Alternative - Audited (USD $)
In Millions, except Per Share data
Year Ended
Jan. 31,
2010
2009
2008
Revenues:
 
 
 
Net sales
$ 405,046 
$ 401,087 
$ 373,821 
Membership and other income
3,168 
3,287 
3,202 
Revenues, Total
408,214 
404,374 
377,023 
Costs and expenses:
 
 
 
Cost of sales
304,657 
304,056 
284,137 
Operating, selling, general and administrative expenses
79,607 
77,520 
70,934 
Operating income
23,950 
22,798 
21,952 
Interest:
 
 
 
Debt
1,787 
1,896 
1,863 
Capital leases
278 
288 
240 
Interest income
(181)
(284)
(309)
Interest, net
1,884 
1,900 
1,794 
Income from continuing operations before income taxes
22,066 
20,898 
20,158 
Provision for income taxes:
 
 
 
Current
7,643 
6,564 
6,897 
Deferred
(504)
581 
(8)
Income Tax Expense (Benefit), Total
7,139 
7,145 
6,889 
Income from continuing operations
14,927 
13,753 
13,269 
Income (loss) from discontinued operations, net of tax
(79)
146 
(132)
Consolidated net income
14,848 1
13,899 1
13,137 1
Less consolidated net income attributable to noncontrolling interest
(513)1
(499)1
(406)1
Consolidated net income attributable to Walmart
14,335 
13,400 
12,731 
Basic net income per common share:
 
 
 
Basic income per common share from continuing operations attributable to Walmart
3.73 
3.36 
3.16 
Basic income (loss) per common share from discontinued operations attributable to Walmart
(0.02)
0.04 
(0.03)
Basic net income per common share attributable to Walmart
3.71 
3.40 
3.13 
Diluted net income per common share:
 
 
 
Diluted income per common share from continuing operations attributable to Walmart
3.72 
3.35 
3.16 
Diluted income (loss) per common share from discontinued operations attributable to Walmart
(0.02)
0.04 
(0.03)
Diluted net income per common share attributable to Walmart
3.70 
3.39 
3.13 
Weighted-average number of common shares:
 
 
 
Basic
3,866 
3,939 
4,066 
Diluted
3,877 
3,951 
4,072 
Dividends declared per common share
$ 1.09 
$ 0.95 
$ 0.88 
Statement Of Financial Position Classified - Audited (USD $)
In Millions
Jan. 31, 2010
Jan. 31, 2009
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$ 7,907 
$ 7,275 
Receivables, net
4,144 
3,905 
Inventories
33,160 
34,511 
Prepaid expenses and other
2,980 
3,063 
Current assets of discontinued operations
140 
195 
Total current assets
48,331 
48,949 
Property and equipment:
 
 
Land
22,591 
19,852 
Buildings and improvements
77,452 
73,810 
Fixtures and equipment
35,450 
29,851 
Transportation equipment
2,355 
2,307 
Property and equipment
137,848 
125,820 
Less accumulated depreciation
(38,304)
(32,964)
Property and equipment, net
99,544 
92,856 
Property under capital leases:
 
 
Property under capital leases
5,669 
5,341 
Less accumulated amortization
(2,906)
(2,544)
Property under capital leases, net
2,763 
2,797 
Goodwill
16,126 
15,260 
Other assets and deferred charges
3,942 
3,567 
Total assets
170,706 
163,429 
LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Short-term borrowings
523 
1,506 
Accounts payable
30,451 
28,849 
Accrued liabilities
18,734 
18,112 
Accrued income taxes
1,365 
677 
Long-term debt due within one year
4,050 
5,848 
Obligations under capital leases due within one year
346 
315 
Current liabilities of discontinued operations
92 
83 
Total current liabilities
55,561 
55,390 
Long-term debt
33,231 
31,349 
Long-term obligations under capital leases
3,170 
3,200 
Deferred income taxes and other
5,508 
6,014 
Redeemable noncontrolling interest
307 
397 
Commitments and contingencies
 
 
Equity:
 
 
Preferred stock ($0.10 par value; 100 shares authorized, none issued)
Common stock ($0.10 par value; 11,000 shares authorized, 3,786 and 3,925 issued and outstanding at January 31, 2010 and January 31, 2009, respectively)
378 
393 
Capital in excess of par value
3,803 
3,920 
Retained earnings
66,638 
63,660 
Accumulated other comprehensive loss
(70)
(2,688)
Total Walmart shareholders' equity
70,749 
65,285 
Noncontrolling interest
2,180 
1,794 
Total equity
72,929 
67,079 
Total liabilities and equity
$ 170,706 
$ 163,429 
Statement Of Financial Position Classified - Audited (Parenthetical) (USD $)
Share data in Millions, except Per Share data
Jan. 31, 2010
Jan. 31, 2009
Preferred stock, par value
$ 0.10 
$ 0.10 
Preferred stock, shares authorized
100 
100 
Preferred stock, issued
Common stock, par value
0.10 
0.10 
Common stock, shares authorized
11,000 
11,000 
Common stock, issued
3,786 
3,925 
Common stock, outstanding
3,786 
3,925 
Statement Of Shareholders Equity And Other Comprehensive Income (USD $)
In Millions
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Walmart Shareholders' Equity
Noncontrolling Interest
Total
2/1/2007 - 1/31/2008
 
 
 
 
 
 
 
Beginning Balance (in shares)
4,131 
 
 
 
 
 
 
Beginning Balance
413 
2,834 
55,818 
2,508 
61,573 
2,160 
63,733 
Consolidated net income (excludes redeemable noncontrolling interest)
 
 
 
 
 
 
 
Consolidated net income
 
 
12,731 
 
12,731 
406 
13,137 1
Other comprehensive income
 
 
 
1,356 
1,356 
1,364 
Cash dividends ($1.09 in 2010, $0.95 in 2009 and $0.88 in 2008 per share)
 
 
(3,586)
 
(3,586)
 
(3,586)
Purchase of Company stock (in shares)
(166)
 
 
 
 
 
 
Purchase of Company stock
(17)
(190)
(7,484)
 
(7,691)
 
(7,691)
Purchase of redeemable noncontrolling interest
 
 
 
 
 
 
 
Other (in shares)
 
 
 
 
 
 
Other
384 
 
 
385 
(635)
(250)
Adoption of accounting for uncertainty in income taxes
 
 
(160)
 
(160)
 
(160)
Ending Balance (in shares)
3,973 
 
 
 
 
 
 
Ending Balance
397 
3,028 
57,319 
3,864 
64,608 
1,939 
66,547 
2/1/2008 - 1/31/2009
 
 
 
 
 
 
 
Beginning Balance (in shares)
3,973 
 
 
 
 
 
 
Beginning Balance
397 
3,028 
57,319 
3,864 
64,608 
1,939 
66,547 
Consolidated net income (excludes redeemable noncontrolling interest)
 
 
 
 
 
 
 
Consolidated net income
 
 
13,400 
 
13,400 
499 
13,899 1
Other comprehensive income
 
 
 
(6,552)
(6,552)
(371)
(6,923)
Cash dividends ($1.09 in 2010, $0.95 in 2009 and $0.88 in 2008 per share)
 
 
(3,746)
 
(3,746)
 
(3,746)
Purchase of Company stock (in shares)
(61)
 
 
 
 
 
 
Purchase of Company stock
(6)
(95)
(3,315)
 
(3,416)
 
(3,416)
Purchase of redeemable noncontrolling interest
 
 
 
 
 
 
 
Other (in shares)
13 
 
 
 
 
 
 
Other
987 
 
991 
(273)
718 
Adoption of accounting for uncertainty in income taxes
 
 
 
 
 
 
 
Ending Balance (in shares)
3,925 
 
 
 
 
 
 
Ending Balance
393 
3,920 
63,660 
(2,688)
65,285 
1,794 
67,079 
2/1/2009 - 1/31/2010
 
 
 
 
 
 
 
Beginning Balance (in shares)
3,925 
 
 
 
 
 
 
Beginning Balance
393 
3,920 
63,660 
(2,688)
65,285 
1,794 
67,079 
Consolidated net income (excludes redeemable noncontrolling interest)
 
 
14,335 
 
14,335 
499 
14,834 
Consolidated net income
 
 
 
 
 
 
14,848 1
Other comprehensive income
 
 
 
2,618 
2,618 
64 
2,682 
Cash dividends ($1.09 in 2010, $0.95 in 2009 and $0.88 in 2008 per share)
 
 
(4,217)
 
(4,217)
 
(4,217)
Purchase of Company stock (in shares)
(145)
 
 
 
 
 
 
Purchase of Company stock
(15)
(246)
(7,136)
 
(7,397)
 
(7,397)
Purchase of redeemable noncontrolling interest
 
(288)
 
 
(288)
 
(288)
Other (in shares)
 
 
 
 
 
 
Other
 
417 
(4)
 
413 
(177)
236 
Adoption of accounting for uncertainty in income taxes
 
 
 
 
 
 
 
Ending Balance (in shares)
3,786 
 
 
 
 
 
 
Ending Balance
$ 378 
$ 3,803 
$ 66,638 
$ (70)
$ 70,749 
$ 2,180 
$ 72,929 
Statement Of Shareholders Equity And Other Comprehensive Income (Parenthetical) (USD $)
Year Ended
Jan. 31,
2010
2009
2008
Cash dividends, per share
$ 1.09 
$ 0.95 
$ 0.88 
Statement Of Other Comprehensive Income (USD $)
In Millions
Year Ended
Jan. 31,
2010
2009
2008
Comprehensive Income:
 
 
 
Consolidated net income
$ 14,848 1
$ 13,899 1
$ 13,137 1
Other comprehensive income:
 
 
 
Currency translation
2,854 2
(6,860)2
1,226 2
Net change in fair values of derivatives
94 
(17)
Minimum pension liability
(220)
(46)
138 
Total comprehensive income
17,576 
6,976 
14,501 
Less amounts attributable to the noncontrolling interest:
 
 
 
Less consolidated net income attributable to noncontrolling interest
(513)1
(499)1
(406)1
Currency translation
(110)2
371 2
(8)2
Amounts attributable to the noncontrolling interest
(623)
(128)
(414)
Comprehensive income attributable to Walmart
$ 16,953 
$ 6,848 
$ 14,087 
Statement Of Other Comprehensive Income (Parenthetical) (USD $)
In Millions
Year Ended
Jan. 31,
2010
2009
2008
Consolidated net income, redeemable noncontrolling interest
$ 14 
$ 0 
$ 0 
Foreign currency translation, redeemable noncontrolling interest
$ 46 
$ 0 
$ 0 
Statement Of Cash Flows Indirect - Audited (USD $)
In Millions
Year Ended
Jan. 31,
2010
2009
2008
Cash flows from operating activities:
 
 
 
Consolidated net income
$ 14,848 1
$ 13,899 1
$ 13,137 1
Loss (income) from discontinued operations, net of tax
79 
(146)
132 
Income from continuing operations
14,927 
13,753 
13,269 
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,157 
6,739 
6,317 
Deferred income taxes
(504)
581 
(8)
Other operating activities
301 
769 
504 
Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
Increase in accounts receivable
(297)
(101)
(564)
Decrease (increase) in inventories
2,265 
(220)
(775)
Increase (decrease) in accounts payable
1,052 
(410)
865 
Increase in accrued liabilities
1,348 
2,036 
1,034 
Net cash provided by operating activities
26,249 
23,147 
20,642 
Cash flows from investing activities:
 
 
 
Payments for property and equipment
(12,184)
(11,499)
(14,937)
Proceeds from disposal of property and equipment
1,002 
714 
957 
Proceeds from (payments for) disposal of certain international operations, net
838 
(257)
Investment in international operations, net of cash acquired
(1,576)
(1,338)
Other investing activities
(438)
781 
(95)
Net cash used in investing activities
(11,620)
(10,742)
(15,670)
Cash flows from financing activities:
 
 
 
Increase (decrease) in short-term borrowings, net
(1,033)
(3,745)
2,376 
Proceeds from issuance of long-term debt
5,546 
6,566 
11,167 
Payment of long-term debt
(6,033)
(5,387)
(8,723)
Dividends paid
(4,217)
(3,746)
(3,586)
Purchase of Company stock
(7,276)
(3,521)
(7,691)
Purchase of redeemable noncontrolling interest
(436)
Payment of capital lease obligations
(346)
(352)
(343)
Other financing activities
(396)
267 
(622)
Net cash used in financing activities
(14,191)
(9,918)
(7,422)
Effect of exchange rates on cash and cash equivalents
194 
(781)
252 
Net increase (decrease) in cash and cash equivalents
632 
1,706 
(2,198)
Cash and cash equivalents at beginning of year
7,275 2 3
5,569 2 3
7,767 2
Cash and cash equivalents at end of year
7,907 3
7,275 2 3
5,569 2 3
Supplemental disclosure of cash flow information
 
 
 
Income tax paid
7,389 
6,596 
6,299 
Interest paid
2,141 
1,787 
1,622 
Capital lease obligations incurred
$ 61 
$ 284 
$ 447 
Statement Of Cash Flows Indirect - Audited (Parenthetical) (USD $)
In Millions
Jan. 31, 2010
Jan. 31, 2009
Jan. 31, 2008
Jan. 31, 2007
Cash and cash equivalents at beginning of year, discontinued operations
 
 
 
$ 51 
Cash and cash equivalents at end of year, discontinued operations
$ 0 
$ 0 
$ 77 
 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

General

Wal-Mart Stores, Inc. (“Walmart,” the “company” or “we”) operates retail stores in various formats around the world and is committed to saving people money so they can live better. We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at every day low prices (“EDLP”) while fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Our fiscal year ends on January 31.

Consolidation

The Consolidated Financial Statements include the accounts of Wal-Mart Stores, Inc. and its subsidiaries. Intercompany transactions have been eliminated in consolidation. Investments in which the company has a 20% to 50% voting interest and where the company exercises significant influence over the investee are accounted for using the equity method. These investments are immaterial to our company.

The company’s operations in Argentina, Brazil, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua and the United Kingdom are consolidated using a December 31 fiscal year-end, generally due to statutory reporting requirements. There were no significant intervening events in January 2010 which materially affected the financial statements. The company’s operations in Canada and Puerto Rico are consolidated using a January 31 fiscal year-end.

The company consolidates the accounts of certain variable interest entities where it has been determined that Walmart is the primary beneficiary of those entities’ operations. The assets, liabilities and results of operations of these entities are not material to the company.

Cash and Cash Equivalents

The company considers investments with a maturity of three months or less when purchased to be cash equivalents. The majority of payments due from banks for third-party credit card, debit card and electronic benefit transactions (“EBT”) process within 24-48 hours, except for transactions occurring on a Friday, which are generally processed the following Monday. All credit card, debit card and EBT transactions that process in less than seven days are classified as cash and cash equivalents. The amounts due from banks for these transactions classified as cash totaled $2.6 billion and $2.0 billion at January 31, 2010 and 2009, respectively. In addition, cash and cash equivalents includes restricted cash related to cash collateral holdings from various counterparties as required by certain derivative and trust agreements of $469 million and $577 million at January 31, 2010 and 2009, respectively.

Receivables

Receivables consist primarily of amounts due from:

 

   

insurance companies resulting from our pharmacy sales;

 

   

banks for customer credit card, debit card and EBT transactions that take in excess of seven days to process;

 

   

suppliers for marketing or incentive programs;

 

   

consumer financing programs in certain international subsidiaries; and

 

   

real estate transactions.

We establish a reserve for uncollectible receivables based on historical trends in collection of past due amounts and write-off history. Our reserve for uncollectible receivables, which relates primarily to our consumer financing programs, was $298 million and $188 million at January 31, 2010 and 2009, respectively.

Inventories

The company values inventories at the lower of cost or market as determined primarily by the retail method of accounting, using the last-in, first-out (“LIFO”) method for substantially all of the Walmart U.S. segment’s merchandise inventories. Sam’s Club merchandise and merchandise in our distribution warehouses are valued based on the weighted average cost using the LIFO method. Inventories of International operations are primarily valued by the retail method of accounting, using the first-in, first-out (“FIFO”) method. At January 31, 2010 and 2009, our inventories valued at LIFO approximate those inventories as if they were valued at FIFO.

Capitalized Interest

Interest costs capitalized on construction projects were $85 million, $88 million and $150 million in fiscal 2010, 2009 and 2008, respectively.

Long-Lived Assets

Long-lived assets are stated at cost. Management reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows, which is at the individual store level or in certain circumstances a market group of stores. Undiscounted cash flows expected to be generated by the related assets are estimated over the asset’s useful life based on updated projections. If the evaluation indicates that the carrying amount of the asset may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique. Impairment charges were $429 million, $262 million and $210 million for fiscal years 2010, 2009 and 2008, respectively, and are classified in operating, selling, general and administrative expenses on the accompanying Consolidated Statements of Income. See Note 15 for further information regarding the impairment charges recorded in fiscal 2010.

Goodwill and Other Acquired Intangible Assets

Goodwill represents the excess of purchase price over fair value of net assets acquired, and is allocated to the appropriate segment when acquired. Other acquired intangible assets are stated at the fair value acquired as determined by a valuation technique commensurate with the intended use of the related asset. Goodwill and indefinite-lived other acquired intangible assets are not amortized; rather they are evaluated for impairment annually during our fourth fiscal quarter, or whenever events or changes in circumstances indicate that the value of the asset may be impaired. Definite-lived other acquired intangible assets are considered long-lived assets and are amortized on a straight-line basis over the periods that expected economic benefits will be provided.

Indefinite-lived other acquired intangible assets are included in other assets and deferred charges on the accompanying Consolidated Balance Sheets. These assets are evaluated for impairment based on their fair values using valuation techniques which are updated annually based on the most recent variables and assumptions. There were no impairment charges related to indefinite-lived intangible assets recorded during the fiscal years ended January 31, 2010, 2009 and 2008.

Goodwill is evaluated for impairment by determining the fair value of the related reporting unit. Fair value is measured based on discounted cash flow method and relative market-based approaches. The analyses require significant management judgment to evaluate the capacity of an acquired business to perform within projections. The company has never recorded impairment charges related to goodwill.

The following table reflects goodwill activity for fiscal years 2010 and 2009:

 

(Amounts in millions)

   International     Sam’s Club    Total  

February 1, 2008

   $ 15,574      $ 305    $ 15,879   

Currency translation

     (2,020     —        (2,020

Acquisitions

     1,500        —        1,500   

Other

     (99     —        (99
                       

January 31, 2009

   $ 14,955      $ 305    $ 15,260   

Currency translation

     970        —        970   

Other

     (104     —        (104
                       

January 31, 2010

   $ 15,821      $ 305    $ 16,126   
                       

During fiscal 2010, the International segment’s goodwill balance increased $970 million related to currency exchange fluctuations. Other goodwill activity of $104 million includes adjustments made in finalizing the allocation of the purchase price for Distribución y Servicio (“D&S”) . During fiscal 2009, the International segment’s goodwill balance decreased $619 million primarily from the strengthening of the U.S. dollar against most major currencies, partially offset by goodwill recorded in connection with the acquisition of a majority interest in D&S and the purchase of the remaining minority shares of The Seiyu Ltd. These acquisitions and disposal are discussed in further detail in Note 9.

Leases

The company estimates the expected term of a lease by assuming the exercise of renewal options where an economic penalty exists that would preclude the abandonment of the lease at the end of the initial non-cancelable term and the exercise of such renewal is at the sole discretion of the company. This expected term is used in the determination of whether a store lease is a capital or operating lease and in the calculation of straight-line rent expense. Additionally, the useful life of leasehold improvements is limited by the expected lease term or the economic life of the asset, whichever is shorter. If significant expenditures are made for leasehold improvements late in the expected term of a lease and renewal is reasonably assumed, the useful life of the leasehold improvement is limited to the end of the renewal period or economic life of the asset, whichever is shorter.

Rent abatements and escalations are considered in the calculation of minimum lease payments in the company’s capital lease tests and in determining straight-line rent expense for operating leases.

Currency Translation

The assets and liabilities of all international subsidiaries are translated from the respective local currency to the U.S. dollar using exchange rates at the balance sheet date. The income statements of international subsidiaries are translated from the respective local currency to the U.S. dollar using average exchange rates for the period. Related translation adjustments are recorded as a component of accumulated other comprehensive income (loss).

Revenue Recognition

The company recognizes sales revenue net of sales taxes and estimated sales returns at the time it sells merchandise to the customer. Customer purchases of shopping cards are not recognized as revenue until the card is redeemed and the customer purchases merchandise by using the shopping card. The company also recognizes revenue from service transactions at the time the service is performed. Generally, revenue from services is classified as a component of net sales on our consolidated statements of income.

Sam’s Club Membership Fee Revenue Recognition

The company recognizes Sam’s Club membership fee revenue both in the United States and internationally over the term of the membership, which is 12 months. The following table details deferred revenue, membership fees received from members and the amount of revenue recognized in earnings for each of the fiscal years 2010, 2009 and 2008.

 

(Amounts in millions)

   Deferred
Membership
Fee Revenue
 

Balance at February 1, 2007

   $ 535   

Membership fees received

     1,054   

Membership fee revenue recognized

     (1,038
        

Balance at January 31, 2008

   $ 551   

Membership fees received

     1,044   

Membership fee revenue recognized

     (1,054
        

Balance at January 31, 2009

   $ 541   

Membership fees received

     1,048   

Membership fee revenue recognized

     (1,057
        

Balance at January 31, 2010

   $ 532   
        

Sam’s Club membership fee revenue is included in membership and other income in the revenues section of the accompanying Consolidated Statements of Income. The deferred membership fee is included in accrued liabilities on the accompanying Consolidated Balance Sheets.

 

Cost of Sales

Cost of sales includes actual product cost, the cost of transportation to the company’s warehouses, stores and clubs from suppliers, the cost of transportation from the company’s warehouses to the stores and clubs and the cost of warehousing for our Sam’s Club segment.

Payments from Suppliers

Walmart receives money from suppliers for various programs, primarily volume incentives, warehouse allowances and reimbursements for specific programs such as markdowns, margin protection and advertising. Substantially all payments from suppliers are accounted for as a reduction of purchases and recognized in our Consolidated Statements of Income when the related inventory is sold.

Operating, Selling, General and Administrative Expenses

Operating, selling, general and administrative expenses include all operating costs of the company except those costs related to the transportation of products from the supplier to the warehouses, stores or clubs, the costs related to the transportation of products from the warehouses to the stores or clubs and the cost of warehousing for our Sam’s Club segment. As a result, the cost of warehousing and occupancy for our Walmart U.S. and International segments’ distribution facilities is included in operating, selling, general and administrative expenses. Because we do not include the cost of our Walmart U.S. and International segments’ distribution facilities in cost of sales, our gross profit and gross profit as a percentage of net sales (our “gross profit margin”) may not be comparable to those of other retailers that may include all costs related to their distribution facilities in cost of sales and in the calculation of gross profit.

Advertising Costs

Advertising costs are expensed as incurred and were $2.4 billion, $2.1 billion and $1.8 billion in fiscal 2010, 2009 and 2008, respectively. Advertising costs consist primarily of print, television and digital advertisements. Advertising reimbursements received from suppliers are generally accounted for as a reduction of purchases and recognized in our Consolidated Statements of Income when the related inventory is sold.

Pre-Opening Costs

The costs of start-up activities, including organization costs, related to new store openings, store remodels, expansions and relocations are expensed as incurred. Pre-opening costs totaled $227 million, $289 million and $353 million for the years ended January 31, 2010, 2009 and 2008, respectively.

Depreciation and Amortization

Depreciation and amortization for financial statement purposes are provided on the straight-line method over the estimated useful lives of the various assets. Depreciation expense, including amortization of property under lease, for fiscal years 2010, 2009 and 2008 was $7.2 billion, $6.7 billion and $6.3 billion, respectively. For income tax purposes, accelerated methods of depreciation are used with recognition of deferred income taxes for the resulting temporary differences. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining expected lease term. Estimated useful lives for financial statement purposes are as follows:

 

Buildings and improvements

   5–40 years

Fixtures and equipment

   3–20 years

Transportation equipment

   4–15 years

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

 

The company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The company records interest and penalties related to unrecognized tax benefits in interest expense and operating, selling, general and administrative expenses, respectively, in the company’s Consolidated Statements of Income.

Estimates and Assumptions

The preparation of our Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities. They also affect the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Reclassifications

In connection with the company’s finance transformation project, we reviewed and adjusted the classification of certain revenue and expense items within our Consolidated Statements of Income for financial reporting purposes. The reclassifications did not impact operating income or consolidated net income attributable to Walmart. The changes were effective February 1, 2009 and have been reflected in all periods presented.

Subsequent Events

On March 4, 2010, the company’s Board of Directors approved an increase in the annual dividend for fiscal 2011 to $1.21 per share, an increase of 11% over the dividend paid in fiscal 2010. The annual dividend will be paid in four quarterly installments on April 5, 2010, June 1, 2010, September 7, 2010 and January 3, 2011 to holders of record on March 12, May 14, August 13 and December 10, 2010, respectively.

Accrued Liabilities
Accrued Liabilities

Note 2. Accrued Liabilities

Accrued liabilities consist of the following:

 

     January 31,

(Amounts in millions)

   2010    2009

Accrued wages and benefits

   $ 5,986    $ 5,577

Self-insurance

     3,224      3,108

Other

     9,524      9,427
             

Total accrued liabilities

   $ 18,734    $ 18,112
             

Self-Insurance

The company uses a combination of insurance, self-insured retention and self-insurance for a number of risks, including, but not limited to, workers’ compensation, general liability, vehicle liability, property and the company’s obligation for employee-related health care benefits. Liabilities associated with these risks are estimated by considering historical claims experience, demographic factors, frequency and severity factors and other actuarial assumptions. In estimating our liability for such claims, we periodically analyze our historical trends, including loss development, and apply appropriate loss development factors to the incurred costs associated with the claims.

Net Income Per Common Share
Net Income Per Common Share

Note 3. Net Income Per Common Share

Basic net income per common share attributable to Walmart is based on the weighted-average number of outstanding common shares. Diluted net income per common share attributable to Walmart is based on the weighted-average number of outstanding common shares adjusted for the dilutive effect of stock options and other share-based awards. The dilutive effect of stock options and other share-based awards was 11 million, 12 million and 6 million shares in fiscal 2010, 2009 and 2008, respectively. The company had approximately 5 million, 6 million and 62 million option shares outstanding at January 31, 2010, 2009 and 2008, respectively, which were not included in the diluted net income per share calculation because their effect would be antidilutive.

For purposes of determining consolidated net income per common share attributable to Walmart, income from continuing operations attributable to Walmart and the (loss) gain from discontinued operations, net of tax, are as follows:

 

     Fiscal Year Ended January 31,  

(Amounts in millions)

   2010     2009     2008  

Income from continuing operations

   $ 14,927      $ 13,753      $ 13,269   

Less consolidated net income attributable to noncontrolling interest

     (513     (499     (406
                        

Income from continuing operations attributable to Walmart

     14,414        13,254        12,863   

Income (loss) from discontinued operations, net of tax

     (79     146        (132
                        

Consolidated net income attributable to Walmart

   $ 14,335      $ 13,400      $ 12,731   
                        

 

Short-term Borrowings and Long-term Debt
Short-term Borrowings and Long-term Debt

Note 4. Short-term Borrowings and Long-term Debt

Information on short-term borrowings and interest rates is as follows:

 

     Fiscal Year Ended January 31,  

(Dollar amounts in millions)

   2010     2009     2008  

Maximum amount outstanding at any month-end

   $ 4,536      $ 7,866      $ 9,176   

Average daily short-term borrowings

     1,596        4,520        5,657   

Weighted-average interest rate

     0.5     2.1     4.9

Short-term borrowings consist of commercial paper and lines of credit. Short term borrowings outstanding at January 31, 2010 and 2009 were $523 million and $1.5 billion, respectively. The company has certain lines of credit totaling $9.0 billion, most of which were undrawn as of January 31, 2010. Of the $9.0 billion in lines of credit, $8.6 billion is committed with 34 financial institutions. In conjunction with these lines of credit, the company has agreed to observe certain covenants, the most restrictive of which relates to maximum amounts of secured debt and long-term leases. Committed lines of credit are primarily used to support commercial paper. The portion of committed lines of credit used to support commercial paper remained undrawn as of January 31, 2010. The committed lines of credit mature at various times starting between June 2010 and June 2012, carry interest rates in some cases equal to the company’s one-year credit default swap mid-rate spread and in other cases LIBOR plus 15 basis points and incur commitment fees of 4.0 to 10.0 basis points on undrawn amounts.

The company had trade letters of credit outstanding totaling $2.4 billion at January 31, 2010 and 2009. At January 31, 2010 and 2009, the company had standby letters of credit outstanding totaling $2.4 billion and $2.0 billion, respectively. These letters of credit were issued primarily for the purchase of inventory and self-insurance purposes.

 

Long-term debt consists of:

 

(Dollar amounts in millions)         January 31,

Interest Rate

  

Maturity Date by Fiscal Year

   2010    2009

1.200 – 10.96%

   Notes due 2010    $ —      $ 5,656

5.250%

   Notes due 2036      4,098      3,954

0.184 – 10.880%

   Notes due 2011(1)      3,972      2,952

5.625%

   Notes due 2035      1,598      —  

6.500%

   Notes due 2038      3,000      3,000

0.750 – 15.27%

   Notes due 2014      3,919      4,822

1.200 – 4.125%

   Notes due 2012      4,481      5,353

5.750 – 7.550%

   Notes due 2031      1,799      1,727

4.875 – 6.200%

   Notes due 2039      3,598      2,954

2.950 – 6.500%

   Notes due 2019(1)      1,769      1,305

3.750 – 5.375%

   Notes due 2018      1,032      1,006

3.150 – 6.630%

   Notes due 2016      766      940

5.875%

   Notes due 2028      777      772

1.600 – 5.000%

   Notes due 2013      1,363      561

6.750%

   Notes due 2024      262      263

2.300 – 3.000%

   Notes due 2015      2,704      575

2.000 – 2.500%

   Notes due 2017      27      32

4.125%

   Notes due 2020      6      507

4.200 – 5.500%

   Notes due 2021      6      7

4.200 – 5.500%

   Notes due 2022      6      8

4.200 – 5.500%

   Notes due 2023      8      10

4.200 – 5.500%

   Notes due 2025      16      17

4.200 – 5.500%

   Notes due 2026      20      20

4.200 – 5.500%

   Notes due 2027      23      19

4.200 – 5.500%

   Notes due 2029      1,401      12

Other (mortgages and sale/leasebacks) (2)

   Due 2011 – 2038      630      725
                

Total

      $ 37,281    $ 37,197
                

 

(1)

Notes due in 2011 and 2019 both include $500 million put options. Contains early termination arrangements totaling $109 million.

 

(2)

Includes adjustments to debt hedged by derivatives.

The company has $1.0 billion in debt with embedded put options. The holders of one $500 million debt issuance may require the company to repurchase the debt at par plus accrued interest at any time. One issuance of money market puttable reset securities in the amount of $500 million is structured to be remarketed in connection with the annual reset of the interest rate. If, for any reason, the remarketing of the notes does not occur at the time of any interest rate reset, the holders of the notes must sell, and the company must repurchase, the notes at par. All of these issuances have been classified as long-term debt due within one year in the Consolidated Balance Sheets.

Long-term debt is unsecured except for $267 million, which is collateralized by property with an aggregate carrying amount of approximately $1.2 billion. Annual maturities of long-term debt during the next five years and thereafter are:

 

(Amounts in millions)

Fiscal Year

   Annual
Maturity

2011

   $ 4,050

2012

     4,611

2013

     1,438

2014

     4,150

2015

     2,749

Thereafter

     20,283
      

Total

   $ 37,281
      

 

The company has entered into sale/leaseback transactions involving buildings while retaining title to the underlying land. These transactions were accounted for as financings and are included in long-term debt and the annual maturities schedules above. The resulting obligations mature as follows during the next five years and thereafter:

 

(Amounts in millions)

Fiscal Year

   Annual
Maturity

2011

   $ 10

2012

     10

2013

     10

2014

     7

2015

     7

Thereafter

     277
      

Total

   $ 321
      
Fair Value Measurements
Fair Value Measurements

Note 5. Fair Value Measurements

The company records and discloses certain financial and non-financial assets and liabilities at their fair value. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

   

Level 1, defined as observable inputs such as quoted prices in active markets;

 

   

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

 

   

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the company to develop our own assumptions.

The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:

Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.

Long-term debt: The fair value is based on the company’s current incremental borrowing rate for similar types of borrowing arrangements or, where applicable, quoted market prices. The cost and fair value of our debt as of January 31, 2010 and 2009 is as follows:

 

     January 31, 2010    January 31, 2009

(Amounts in millions)

   Cost    Fair Value    Cost    Fair Value

Long-term debt

   $ 37,281    $ 39,055    $ 37,197    $ 37,862

 

Additionally, as of January 31, 2010 and 2009, the company held certain derivative asset and liability positions that are required to be measured at fair value on a recurring basis. The majority of the Company’s derivative instruments relate to interest rate swaps. The fair values of these interest rate swaps have been measured in accordance with Level 2 inputs of the fair value hierarchy. As of January 31, 2010 and 2009, the notional amounts and fair values of these interest rate swaps are as follows (asset/(liability)):

 

(Amounts in millions)    January 31, 2010     January 31, 2009  

Derivative financial instruments designated for hedging:

   Notional Amount    Fair Value     Notional Amount    Fair Value  

Receive fixed-rate, pay floating rate interest rate swaps designated as fair value hedges

   $ 4,445    $ 260      $ 5,195    $ 321   

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as net investment hedges (Cross-currency notional amount: GBP 795 at January 31, 2010 and 2009)

     1,250      189        1,250      526   

Receive floating-rate, pay fixed-rate interest rate swaps designated as cash flow hedges

     638      (20     462      (17

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as cash flow hedges

     2,902      286        —        —     
                              

Total

   $ 9,235    $ 715      $ 6,907    $ 830   
                              

The fair values above are the estimated amounts the company would receive or pay upon a termination of the agreements relating to such instruments as of the reporting dates.

Derivative Financial Instruments
Derivative Financial Instruments

Note 6. Derivative Financial Instruments

The company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates, as well as to maintain an appropriate mix of fixed- and floating-rate debt. Use of derivative financial instruments in hedging programs subjects the company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative instrument will change. In a hedging relationship, the change in the value of the derivative is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to derivatives represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty, reviewing credit ratings and requiring collateral (generally cash) from the counterparty when appropriate.

The company’s transactions are with counterparties rated “A+” or better by nationally recognized credit rating agencies. In connection with various derivative agreements with counterparties, the company held cash collateral from these counterparties of $323 million and $440 million at January 31, 2010 and 2009, respectively. It is our policy to record cash collateral exclusive of any derivative asset, and any collateral holdings are reflected in our accrued liabilities as amounts due to the counterparties. Furthermore, as part of the master netting arrangements with these counterparties, the company is also required to post collateral if the derivative liability position exceeds $150 million. The company has no outstanding collateral postings and in the event of providing cash collateral, the company would record the posting as a receivable exclusive of any derivative liability.

When the company uses derivative financial instruments for purposes of hedging its exposure to interest and currency exchange rates, the contract terms of a hedge instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings. Instruments that do not meet the criteria for hedge accounting, or contracts for which the company has not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of change.

Fair Value Instruments

The company is party to receive fixed-rate, pay floating-rate interest rate swaps to hedge the fair value of fixed-rate debt. Under certain swap agreements, the company pays floating-rate interest and receives fixed-rate interest payments periodically over the life of the instruments. The notional amounts are used to measure interest to be paid or received and do not represent the exposure due to credit loss. The company’s interest rate swaps that receive fixed-interest rate payments and pay floating-interest rate payments are designated as fair value hedges. As the specific terms and notional amounts of the derivative instruments match those of the instruments being hedged, the derivative instruments were assumed to be perfectly effective hedges and all changes in fair value of the hedges were recorded in long-term debt and accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets with no net impact on the income statement. These fair value instruments will mature on various dates ranging from February 2011 to May 2014.

 

Net Investment Instruments

At January 31, 2010 and 2009, the company is 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. All changes in the fair value of these instruments are recorded in accumulated other comprehensive loss, offsetting the currency translation adjustment that is also recorded in accumulated other comprehensive loss. These instruments will mature on dates ranging from 2029 to March 2034.

The company has approximately £3.0 billion of outstanding debt that is designated as a hedge of the company’s net investment in the United Kingdom as of January 31, 2010 and 2009. The company also has outstanding approximately ¥437.4 billion of debt that is designated as a hedge of the company’s net investment in Japan at January 31, 2010 and 2009. Any translation of non-U.S.-denominated debt is recorded in accumulated other comprehensive loss, offsetting the currency translation adjustment that is also recorded in accumulated other comprehensive loss. These instruments will mature on dates ranging from January 2011 to January 2039.

Cash Flow Instruments

The company is party to receive floating-rate, pay fixed-rate interest rate swaps to hedge the interest rate risk of certain non-U.S.-denominated debt. The swaps are designated as cash flow hedges of interest expense risk. Changes in the non-U.S. benchmark interest rate result in reclassification of amounts from accumulated other comprehensive loss to earnings to offset the floating-rate interest expense. These cash flow instruments will mature on dates ranging from August 2013 to August 2014.

The company is also party to receive fixed-rate, pay fixed-rate cross-currency interest rate swaps to hedge the currency exposure associated with the forecasted payments of principal and interest of non-U.S.-denominated debt. The swaps are designated as cash flow hedges of the currency risk related to payments on the non-U.S.-denominated debt. Changes in the currency exchange rate result in reclassification of amounts from accumulated other comprehensive loss to earnings to offset the re-measurement (loss) gain on the non-U.S.-denominated debt. These cash flow instruments will mature on dates ranging from September 2029 to March 2034. Any ineffectiveness with these instruments is expected to be immaterial.

Financial Statement Presentation

Hedging instruments with an unrealized gain are recorded on the Consolidated Balance Sheets in other assets and deferred charges, based on maturity date. Those instruments with an unrealized loss are recorded in accrued liabilities or deferred income taxes and other, based on maturity date.

As of January 31, 2010 and 2009, our financial instruments were classified as follows in the accompanying Consolidated Balance Sheets:

 

     January 31, 2010    January 31, 2009

(Amounts in millions)

   Fair Value
Instruments
   Net Investment
Hedge
   Cash Flow
Instruments
   Fair Value
Instruments
   Net Investment
Hedge
   Cash Flow
Instruments

Balance Sheet Classification:

                 

Other assets and deferred charges

   $ 260    $ 189    $ 286    $ 321    $ 526    $ —  
                                         

Total assets

   $ 260    $ 189    $ 286    $ 321    $ 526    $ —  
                                         

Long-term debt

   $ 260    $ —      $ —      $ 321    $ —      $ —  

Deferred income taxes and other

     —        —        20      —        —        17
                                         

Total liabilities

   $ 260    $ —      $ 20    $ 321    $ —      $ 17
                                         
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income

Note 7. Accumulated Other Comprehensive Income

Amounts included in accumulated other comprehensive income (loss) for the company’s derivative instruments and minimum pension liabilities are recorded net of the related income tax effects. The following table provides further detail regarding changes in the composition of accumulated other comprehensive income (loss) for the fiscal years ended January 31, 2010, 2009 and 2008:

 

(Amounts in millions)

   Currency
Translation
    Derivative
Instruments
    Minimum
Pension Liability
    Total  

Balances at February 1, 2007

   $ 2,875      $ —        $ (367   $ 2,508   

Currency translation adjustment

     1,218        —          —          1,218   

Subsidiary minimum pension liability

     —          —          138        138   
                                

Balances at February 1, 2008

   $ 4,093      $ —        $ (229   $ 3,864   

Currency translation adjustment

     (6,489     —          —          (6,489

Net change in fair value of derivatives

     —          (17     —          (17

Subsidiary minimum pension liability

     —          —          (46     (46
                                

Balances at February 1, 2009

   $ (2,396   $ (17   $ (275   $ (2,688

Currency translation adjustment

     2,744        —          —          2,744   

Net change in fair value of derivatives

     —          94        —          94   

Subsidiary minimum pension liability

     —          —          (220     (220
                                

Balances at January 31, 2010

   $ 348      $ 77      $ (495   $ (70
                                

The currency translation adjustment includes a net translation loss of $545 million, a gain of $1.2 billion and a loss of $9 million at January 31, 2010, 2009 and 2008, respectively, related to net investment hedges of our operations in the United Kingdom and Japan. For fiscal 2010, we reclassified $83 million from accumulated other comprehensive loss to earnings to offset currency translation losses on the re-measurement of non-U.S. denominated debt.

Income Taxes
Income Taxes

Note 8. Income Taxes

A summary of the provision for income taxes is as follows:

 

     Fiscal Year Ended January 31,  

(Amounts in millions)

   2010     2009     2008  

Current:

      

U.S. federal

   $ 5,798      $ 4,771      $ 5,145   

U.S. state and local

     599        564        524   

International

     1,246        1,229        1,228   
                        

Total current tax provision

     7,643        6,564        6,897   
                        

Deferred:

      

U.S. federal

     (449     614        12   

U.S. state and local

     78        41        6   

International

     (133     (74     (26
                        

Total deferred tax provision

     (504     581        (8
                        

Total provision for income taxes

   $ 7,139      $ 7,145      $ 6,889   
                        

Income from Continuing Operations

The components of income from continuing operations before income taxes is as follows:

 

     Fiscal Year Ended January 31,

(Amounts in millions)

   2010    2009    2008

U.S.

   $ 17,652    $ 16,239    $ 15,820

International

     4,414      4,659      4,338
                    

Total income from continuing operations before income taxes

   $ 22,066    $ 20,898    $ 20,158
                    

 

Deferred Taxes

The significant components of our deferred tax account balances are as follows:

 

     January 31,  

(Amounts in millions)

   2010     2009  

Deferred tax assets:

    

Loss and tax credit carryforwards

   $ 2,713      $ 1,603   

Accrued liabilities

     3,141        2,548   

Equity compensation

     267        206   

Other

     751        437   
                

Total deferred tax assets

     6,872        4,794   

Valuation allowance

     (2,167     (1,852
                

Deferred tax assets, net of valuation allowance

     4,705        2,942   
                

Deferred tax liabilities:

    

Property and equipment

     4,015        3,257   

Inventories

     1,120        1,079   

Other

     609        211   
                

Total deferred tax liabilities

     5,744        4,547   
                

Net deferred tax liabilities

   $ 1,039      $ 1,605   
                

The deferred taxes noted above are classified as follows in the accompanying Consolidated Balance Sheets:

 

     January 31,

(Amounts in millions)

   2010    2009

Balance Sheet Classification:

     

Assets:

     

Prepaid expenses and other

   $ 1,386    $ 1,293

Other assets and deferred charges

     331      202
             

Asset subtotals

     1,717      1,495

Liabilities:

     

Accrued liabilities

     34      24

Deferred income taxes and other

     2,722      3,076
             

Liability subtotals

     2,756      3,100
             

Net deferred tax liabilities

   $ 1,039    $ 1,605
             

Effective Tax Rate Reconciliation

A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on pretax income is as follows:

 

     Fiscal Year Ended January 31,  
     2010     2009     2008  

U.S. statutory tax rate

   35.0   35.0   35.0

U.S. state income taxes, net of federal income tax benefit

   2.0   1.9   1.7

Income taxes outside the U.S.

   -1.6   -1.7   -1.7

Net impact of repatriated foreign earnings

   -3.4   -1.1   -0.7

Other, net

   0.4   0.1   -0.1
                  

Effective income tax rate

   32.4   34.2   34.2
                  

Unremitted Earnings

United States income taxes have not been provided on accumulated but undistributed earnings of its non-U.S. subsidiaries of approximately $13.7 billion and $12.7 billion as of January 31, 2010 and 2009, respectively, as the company intends to permanently reinvest these amounts. However, if any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable because of the complexities with its hypothetical calculation.

 

Net Operating Losses, Tax Credit Carryforwards and Valuation Allowances

At January 31, 2010, the company had international net operating loss and capital loss carryforwards totaling approximately $4.6 billion. Of these carryforwards, approximately $3.0 billion will expire, if not utilized, in various years through 2020. The remaining carryforwards have no expiration. At January 31, 2010, the company had foreign tax credit carryforwards of $1.1 billion, which will expire in various years through 2020 if not utilized.

As of January 31, 2010, the company has provided a valuation allowance of approximately $2.2 billion on deferred tax assets associated primarily with net operating loss and capital loss carryforwards from our international operations for which management has determined it is more likely than not that the deferred tax asset will not be realized. The $315 million net change in the valuation allowance during fiscal 2010 related to releases arising from the use of net operating loss carryforwards, increases in foreign net operating losses arising in fiscal 2010 and fluctuations in currency exchange rates. Management believes that it is more likely than not that we will fully realize the remaining domestic and international deferred tax assets.

Uncertain Tax Positions

As of February 1, 2007, the company adopted a new accounting policy for recording uncertain tax positions. 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.

As of January 31, 2010 and 2009, the amount of unrecognized tax benefits related to continuing operations was $1.0 billion, of which, the amount of unrecognized tax benefits that would affect the company’s effective tax rate is $671 million and $582 million for January 31, 2010 and 2009, respectively.

A reconciliation of unrecognized tax benefits from continuing operations is as follows:

 

     January 31,  

(Amounts in millions)

   2010     2009  

Beginning balance

   $ 1,017      $ 868   

Increases related to prior year tax positions

     129        296   

Decreases related to prior year tax positions

     (33     (34

Increases related to current year tax positions

     246        129   

Settlements during the period

     (340     (238

Lapse of statute of limitation

     —          (4
                

Ending balance

   $ 1,019      $ 1,017   
                

Unrecognized tax benefits related to continuing operations increased by approximately $2 million and $149 million for fiscal years 2010 and 2009, respectively.

The company classifies interest and penalties related to uncertain tax benefits as interest expense and as operating, selling, general and administrative expenses, respectively. Accrued interest decreased by $29 million during fiscal 2010 and increased by $47 million during fiscal 2009. During the fiscal years ended January 31, 2010 and 2009, the company recorded accrued interest of $231 million and $260 million, respectively. Accrued penalties totaled $2 million at January 31, 2010 and 2009. There were no changes to accrued penalties during the year.

During the next twelve months, it is reasonably possible that tax audit resolutions could reduce unrecognized tax benefits by between $350 million and $500 million, either because the tax positions are sustained on audit or because the company agrees to their disallowance. The company does not expect any change to have a significant impact on its results of operations or financial position.

At January 31, 2010 and 2009, the company had an unrecognized tax benefit of $1.7 billion which is related to an ordinary worthless stock deduction from the fiscal 2007 disposition of its German operations. Of this, $63 million was recognized in discontinued operations during fiscal 2009 following the resolution of a gain contingency on a discontinued operation sold in fiscal 2004. When effectively settled, any additional benefit will be recorded in discontinued operations. If some portion of the ordinary loss is determined to be a capital loss, the resulting deferred tax asset will be included with the company's non-current assets of discontinued operations. The company cannot predict the ultimate outcome of this matter; however, it is reasonably possible it will be resolved in the next twelve months.

 

The company is subject to income tax examinations for its U.S. federal income taxes generally for the fiscal years 2009 and 2010, with fiscal years 2004 through 2008 remaining open for a limited number of issues. The company is also subject to income tax examinations for non-U.S. income taxes for the tax years 2003 through 2010, and for state and local income taxes for the fiscal years generally 2006 through 2009 and from 1998 for a limited number of issues.

Non-Income Taxes

Additionally, the company is subject to tax examinations for payroll, value added, sales-based and other taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from the taxing authorities. Where appropriate, the company has made accruals for these matters which are reflected in the company’s Consolidated Financial Statements. While these matters are individually immaterial, a group of related matters, if decided adversely to the company, may result in a liability material to the company's financial condition or results of operations.

Acquisitions, Investments and Disposals
Acquisitions, Investments and Disposals

Note 9. Acquisitions, Investments and Disposals

Acquisitions and Investments

In February 2007, the company announced the purchase of a 35% interest in Bounteous Company Limited (“BCL”). BCL operated 101 hypermarkets in 34 cities in China under the Trust-Mart banner. The purchase price for the 35% interest was $264 million. As additional consideration, the company paid $376 million to extinguish a third party loan issued to the selling BCL shareholders that is secured by the pledge of the remaining equity of BCL. Concurrent with its initial investment in BCL, the company entered into a stockholders agreement which provides the company with voting rights associated with a portion of the common stock of BCL securing the loan, amounting to an additional 30% of the aggregate outstanding shares. Pursuant to the purchase agreement, which was recently amended, the company is committed to purchase the remaining interest in BCL on or before November 26, 2010, subject to certain conditions. Under the terms of the original share purchase agreement, the final purchase price for the remaining interest will be approximately $320 million, net of loan repayments and subject to reduction under certain circumstances.

After closing the acquisition, the company began consolidating BCL using a December 31 fiscal year-end. The company’s Consolidated Statements of Income for fiscal 2008 include the results of BCL for the period commencing upon the acquisition of the company’s interest in BCL and ending December 31, 2007. BCL’s results of operations were not material to the company in fiscal 2008. Assets recorded in the acquisition were approximately $1.6 billion, including approximately $1.1 billion in goodwill, and liabilities assumed were approximately $1.0 billion.

In August 2007, Walmart and Bharti Enterprises, an Indian company, established a joint venture called Bharti Walmart Private Limited to conduct wholesale cash-and-carry and back-end supply chain management operations in India in compliance with Government of India guidelines. The first wholesale facility opened in fiscal 2010. The joint venture supplies merchandise to Bharti Retail, an affiliate of Bharti Enterprises that is developing a chain of retail stores in India. Bharti Retail has entered into a franchise agreement with an Indian subsidiary of Walmart under which such subsidiary provides technical support to Bharti Retail’s retail business.

In January 2009, the company completed a tender offer for the shares of D&S, acquiring approximately 58.2% of the outstanding D&S shares. As of the acquisition date, D&S had 197 stores, 10 shopping centers and 85 PRESTO financial services branches throughout Chile. The purchase price for the D&S shares in the offer was approximately $1.55 billion. As of January 31, 2009, the preliminary allocation of the purchase price resulted in recording approximately $3.6 billion in assets, including approximately $1.0 billion in goodwill and liabilities assumed of approximately $1.7 billion. The noncontrolling interest was approximately $395 million, all of which was redeemable. The final purchase price allocation had an insignificant impact to the preliminary assets and liabilities recorded at the time of acquisition. In March 2009, the company paid $436 million to acquire a portion of the redeemable noncontrolling interest in D&S through a second tender offer as required by the Chilean securities laws increasing its ownership stake in D&S to 74.6%. This transaction resulted in a $148 million acquisition of that portion of the redeemable noncontrolling interest and the remaining $288 million is reflected as a reduction of Walmart shareholders’ equity. Additionally, the former D&S controlling shareholders still hold a put option that is exercisable beginning in January 2011 through January 2016. During the exercise period, the put option allows each former controlling shareholder the right to require the company to purchase up to all of their shares of D&S (approximately 25.1%) owned at fair market value at the time of an exercise, if any.

 

On February 15, 2010, our majority-owned subsidiary Wal-Mart de Mexico (“Walmex”) completed the acquisition of the noncontrolling interest in our Central American subsidiary that had been held by third parties. The consideration paid consisted of $111 million in cash and $2.3 billion in shares in our majority-owned subsidiary Walmex. The effect of this transaction on the consolidated company will be a purchase of the outstanding noncontrolling interest of our Central American business, with the company’s ownership of Walmex at approximately 68.5%.

Disposals

In fiscal 2008, the company recorded a charge of $153 million to discontinued operations related to the settlement of a post-closing adjustment and certain other indemnification obligations resulting from the disposal of its German operations in fiscal 2007.

During fiscal 2009, the company disposed of Gazeley Limited (“Gazeley”), an ASDA commercial property development subsidiary in the United Kingdom. Consequently, the results of operations associated with Gazeley are presented as discontinued operations in our Consolidated Statements of Income and Consolidated Balance Sheets for all periods presented. The cash flows related to this operation were insignificant for all periods presented. In the third quarter of fiscal 2009, the company recognized approximately $212 million, after tax, in operating profits and gains from the sale of Gazeley. The transaction continues to remain subject to certain indemnification obligations. The company’s operations in the United Kingdom are consolidated using a December 31 fiscal year-end. Since the sale of Gazeley closed in July 2008, the company recorded the gain to discontinued operations in the third quarter of fiscal 2009.

During the third quarter of fiscal 2009, the company initiated a restructuring program under which the company’s Japanese subsidiary, The Seiyu Ltd., to close approximately 23 stores and dispose of certain excess properties and was substantially completed in fiscal 2010. This restructuring involved incurring costs associated with lease termination obligations, asset impairment charges and employee separation benefits. The costs associated with this restructuring are presented as discontinued operations in our Consolidated Statements of Income and Consolidated Balance Sheets for all periods presented. The cash flows and accrued liabilities related to this restructuring were insignificant for all periods presented. The company recognized approximately $79 million and $122 million, after tax, in restructuring expenses and operating results as discontinued operations, for the fiscal years ended January 31, 2010 and 2009, respectively. Costs were recorded for lease termination obligations and employee separation benefits; additional costs are not expected to be material.

In addition, the company recorded a $63 million benefit to discontinued operations in fiscal 2009, from the successful resolution of a tax contingency related to McLane Company, Inc., a former Walmart subsidiary sold in fiscal 2004.

Net sales related to our discontinued operations were not significant during fiscal years 2010, 2009 and 2008. The net income or losses related to our discontinued operations, including the gain and (losses) upon disposition, are as follows:

 

     January 31,  

(Amounts in millions)

   2010     2009     2008  

Germany

   $ —        $ —        $ (153

McLane

     —          63        —     

Gazeley

     —          212        39   

Seiyu

     (79     (122     (18

Other

     —          (7     —     
                        
   $ (79   $ 146      $ (132
                        
Share-Based Compensation Plans
Share-Based Compensation Plans

Note 10. Share-Based Compensation Plans

As of January 31, 2010, the company has awarded share-based compensation to executives and other associates of the company through various share-based compensation plans. The compensation cost recognized for all plans was $335 million, $302 million and $276 million for fiscal 2010, 2009 and 2008, respectively, and is included in operating, selling, general and administrative expenses in the accompanying Consolidated Statements of Income. The total income tax benefit recognized for all share-based compensation plans was $126 million, $112 million and $102 million for fiscal 2010, 2009 and 2008, respectively.

The company’s Stock Incentive Plan of 2005 (the “Plan”), which is shareholder-approved, was established to grant stock options, restricted (non-vested) stock, performance shares and other equity compensation awards to its associates for which 210 million shares of common stock to be issued under the Plan have been registered under the Securities Act of 1933, as amended. The company believes that such awards serve to align the interests of its associates with those of its shareholders.

 

Under the Plan and prior plans, substantially all stock option awards have been granted with an exercise price equal to the market price of the company’s stock at the date of grant. Generally, outstanding options granted before fiscal 2001 vest over seven years. Options granted after fiscal 2001 generally vest over five years. Options granted generally have a contractual term of 10 years.

The company’s United Kingdom subsidiary, ASDA, also offers two other stock option plans to its colleagues. The first plan, The ASDA Colleague Share Ownership Plan 1999 (the “CSOP”), grants options to certain colleagues. The initial CSOP grants have both a three year and a six year vesting with subsequent grants vesting over six years. The CSOP shares have an exercise period of two months immediately following the vesting date. The second plan, The ASDA Sharesave Plan 2000 (the “Sharesave Plan”), grants options to certain colleagues at 80% of the average market value of the three days preceding the date of grant. Sharesave options become exercisable after three years and generally expire six months after becoming exercisable. A combined 34 million shares of common stock were registered under the Securities Act of 1933, as amended, for issuance upon the exercise of stock options granted under the CSOP and the Sharesave Plan.

Stock Options

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model that uses various assumptions for inputs, which are noted in the following table. Generally, the company uses expected volatilities and risk-free interest rates that correlate with the expected term of the option when estimating an option’s fair value. To determine the expected life of the option, the company bases its estimates on historical exercise and expiration activity of grants with similar vesting periods. Expected volatility is based on historical volatility of our stock. The expected risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant. The expected dividend yield over the vesting period is based on the expected dividend yield rate over the life of the grant. The following table represents the weighted-average assumptions used by the company to estimate the fair values of the company’s stock options at the grant dates:

 

     Fiscal Year Ended January 31,  
     2010     2009     2008  

Dividend yield

   2.1   1.9   2.1

Volatility

   18.7   16.7   18.6

Risk-free interest rate

   1.4   2.0   4.5

Expected life in years

   3.1      3.4      5.6   

A summary of the stock option award activity for fiscal 2010 is presented below:

 

Stock Options

   Shares     Weighted-Average
Exercise Price
   Weighted-Average
Remaining Life in Years
   Aggregate
Intrinsic Value

Outstanding at January 31, 2009

   48,722,000      $ 49.11      

Granted

   1,804,000        40.16      

Exercised

   (4,833,000     43.94      

Forfeited or expired

   (3,734,000     49.44      
                  

Outstanding at January 31, 2010

   41,959,000        49.32    4.8    $ 186,595,000
                        

Exercisable at January 31, 2010

   28,441,000      $ 51.35    3.8    $ 73,432,000
                        

As of January 31, 2010, there was $94 million of total unrecognized compensation cost related to stock options granted under the Plan, which is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of options vested during the fiscal years ended January 31, 2010, 2009 and 2008, was $79 million, $107 million and $102 million, respectively.

The weighted-average grant-date fair value of options granted during the fiscal years ended January 31, 2010, 2009 and 2008, was $10.41, $9.97 and $11.00, respectively. Stock options granted in fiscal 2010 were primarily issued under the Sharesave Plan. The total intrinsic value of options exercised during the years ended January 31, 2010, 2009 and 2008, was $39 million, $173 million and $60 million, respectively. During fiscal 2010 and 2009, the company received $111 million and $585 million, respectively, in cash from the exercise of stock options.

Restricted Stock Rights

In fiscal 2007, the company began issuing restricted stock rights to most associates in lieu of stock option awards. Restricted stock rights are associate rights to company stock after a specified service period. Grants issued before fiscal 2009 typically vest over five years with 40% vesting three years from grant date and the remaining 60% vesting five years from grant date. Beginning in fiscal 2009, the vesting schedule was adjusted for new grants to 50% vesting three years from grant date and the remaining 50% vesting five years from grant date. The fair value of each restricted stock right is determined on the date of grant using the stock price discounted for the expected dividend yield through the vesting period and is recognized ratably over the vesting period. Expected dividend yield over the vesting period is based on the expected dividend yield rate over the life of the grant. The weighted average discount for dividend yield used to determine the fair value of restricted stock rights granted in fiscal 2010, 2009 and 2008 was 8.5%, 6.8% and 8.4%, respectively.

A summary of the company’s restricted stock rights activity for fiscal 2010 presented below represents the maximum number of shares that could be earned or vested under the Plan:

 

Restricted Stock Rights

   Shares     Weighted-Average
Grant-Date Fair Value

Restricted Stock Rights at January 31, 2009

   11,154,000      $ 46.28

Granted

   5,061,000        46.34

Vested

   (1,181,000     41.86

Forfeited

   (1,010,000     46.57
            

Restricted Stock Rights at January 31, 2010

   14,024,000      $ 46.50
            

As of January 31, 2010, there was $335 million of total unrecognized compensation cost related to restricted stock rights granted under the Plan, which is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock and Performance Share Awards

Under the Plan, the company grants various types of awards of restricted (non-vested) stock to certain associates. These grants include awards for shares that vest based on the passage of time, performance criteria, or both. Vesting periods vary. Restricted stock awards granted before January 1, 2008 may be settled in stock, or deferred as stock or cash, based upon the associate’s election. Consequently, these awards are classified as liabilities in the accompanying Consolidated Balance Sheets unless the associate has elected for the award to be settled or deferred in stock. Restricted stock awards issued in fiscal 2009 and later generally are settled or deferred in stock.

During fiscal 2006, the company began issuing performance share awards under the Plan that vest based on the passage of time and achievement of performance criteria. Based on the extent to which the targets are achieved, vested shares may range from 0% to 150% of the original award amount. Because the performance shares issued before January 1, 2008 may be settled in stock or cash, the performance shares are included in accrued liabilities and deferred income taxes and other in the accompanying Consolidated Balance Sheets unless the associate has elected for the award to be settled or deferred in stock. Beginning in fiscal 2009, performance shares issued are settled or deferred in stock; therefore, they are accounted for as equity in the accompanying Consolidated Balance Sheets. The fair value of performance share awards accounted for as equity are determined on the date of grant using the stock price discounted for the expected dividend yield through the vesting period and is recognized ratably over the vesting period.

The fair value of the restricted stock and performance share liabilities are remeasured each reporting period. The total liability for restricted stock and performance share awards at January 31, 2010 and 2009, was $63 million and $126 million, respectively.

A summary of the company’s non-vested restricted stock and performance share award activity for fiscal 2010 presented below represents the maximum number of shares that could be earned or vested under the Plan:

 

Non-Vested Restricted Stock and Performance Share Awards

   Shares     Weighted-Average
Grant-Date Fair Value

Restricted Stock and Performance Share Awards at January 31, 2009

   13,705,000      $ 49.28

Granted

   4,422,000        51.59

Vested

   (2,067,000     48.23

Forfeited

   (1,736,000     49.03
            

Restricted Stock and Performance Share Awards at January 31, 2010

   14,324,000      $ 50.18
            

 

As of January 31, 2010, there was $334 million of total unrecognized compensation cost related to restricted stock and performance share awards granted under the Plan, which is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of shares vested during the fiscal years ended January 31, 2010, 2009 and 2008, was $110 million, $55 million and $24 million, respectively.

Legal Proceedings
Legal Proceedings

Note 11. Legal Proceedings

The company is involved in a number of legal proceedings. The company has made accruals with respect to these matters, where appropriate, which are reflected in the company’s Consolidated Financial Statements. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made. However, where a liability is reasonably possible and material, such matters have been disclosed. The company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the company’s shareholders. The matters, or groups of related matters, discussed below, if decided adversely to or settled by the company, individually or in the aggregate, may result in liability material to the company’s financial condition or results of operations.

Wage-and-Hour Class Actions: The company is a defendant in various cases containing class-action allegations in which the plaintiffs are current and former hourly associates who allege that the company committed wage-and-hour violations by failing to provide rest breaks, meal periods, or other benefits, or otherwise by failing to pay them correctly. The complaints generally seek unspecified monetary damages, injunctive relief, or both. The company cannot reasonably estimate the possible loss or range of loss that may arise from these lawsuits, except where the lawsuit has been settled or otherwise as noted below.

In one of the wage-and-hour lawsuits, Braun/Hummel v. Wal-Mart Stores, Inc., a trial was commenced in September 2006, in Philadelphia, Pennsylvania. The plaintiffs allege that the company failed to pay class members for all hours worked and prevented class members from taking their full meal and rest breaks. On October 13, 2006, the jury awarded back-pay damages to the plaintiffs of approximately $78 million on their claims for off-the-clock work and missed rest breaks. The jury found in favor of the company on the plaintiffs’ meal-period claims. On November 14, 2007, the trial judge entered a final judgment in the approximate amount of $188 million, which included the jury’s back-pay award plus statutory penalties, prejudgment interest and attorneys’ fees. The company believes it has substantial factual and legal defenses to the claims at issue, and on December 7, 2007, the company filed its Notice of Appeal.

Exempt Status Cases: The company is a defendant in several cases in which the plaintiffs seek class or collective certification of various groups of salaried managers, and challenge their exempt status under state and federal laws. In one of those cases (Sepulveda v. Wal-Mart Stores, Inc.), class certification was denied by the trial court on May 5, 2006. On April 25, 2008, a three-judge panel of the United States Court of Appeals for the Ninth Circuit affirmed the trial court’s ruling in part and reversed it in part, and remanded the case for further proceedings. On May 16, 2008, the company filed a petition seeking review of that ruling by a larger panel of the court. On October 10, 2008, the court entered an Order staying all proceedings in the Sepulveda appeal pending the final disposition of the appeal in Dukes v. Wal-Mart Stores, Inc., discussed below. Class certification has not been addressed in the other cases. The company cannot reasonably estimate the possible loss or range of loss that may arise from these lawsuits.

Gender Discrimination Cases: The company is a defendant in Dukes v. Wal-Mart Stores, Inc., a class-action lawsuit commenced in June 2001 in the United States District Court for the Northern District of California. The case was brought on behalf of all past and present female employees in all of the company’s retail stores and warehouse clubs in the United States. The complaint alleges that the company has engaged in a pattern and practice of discriminating against women in promotions, pay, training and job assignments. The complaint seeks, among other things, injunctive relief, front pay, back pay, punitive damages and attorneys’ fees. On June 21, 2004, the district court issued an order granting in part and denying in part the plaintiffs’ motion for class certification. The class, which was certified by the district court for purposes of liability, injunctive and declaratory relief, punitive damages and lost pay, subject to certain exceptions, includes all women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to the pay and management track promotions policies and practices challenged by the plaintiffs.

The company believes that the district court’s ruling is incorrect. On August 31, 2004, the United States Court of Appeals for the Ninth Circuit granted the company’s petition for discretionary review of the ruling. On February 6, 2007, a divided three-judge panel of the court of appeals issued a decision affirming the district court’s certification order. On February 20, 2007, the company filed a petition asking that the decision be reconsidered by a larger panel of the court. On December 11, 2007, the three-judge panel withdrew its opinion of February 6, 2007, and issued a revised opinion. As a result, the company’s Petition for Rehearing En Banc was denied as moot. The company filed a new Petition for Rehearing En Banc on January 8, 2008. On February 13, 2009, the court of appeals issued an Order granting the Petition. The court heard oral argument on the Petition on March 24, 2009. If the company is not successful in its appeal of class certification, or an appellate court issues a ruling that allows for the certification of a class or classes with a different size or scope, and if there is a subsequent adverse verdict on the merits from which there is no successful appeal, or in the event of a negotiated settlement of the litigation, the resulting liability could be material to the company’s financial condition or results of operations. The plaintiffs also seek punitive damages which, if awarded, could result in the payment of additional amounts material to the company’s financial condition or results of operations. However, because of the uncertainty of the outcome of the appeal from the district court’s certification decision, because of the uncertainty of the balance of the proceedings contemplated by the district court, and because the company’s liability, if any, arising from the litigation, including the size of any damages award if plaintiffs are successful in the litigation or any negotiated settlement, could vary widely, the company cannot reasonably estimate the possible loss or range of loss that may arise from the litigation.

Since August 2001, the company has been a defendant in a lawsuit that was filed by the Equal Employment Opportunity Commission (“EEOC”) on August 24, 2001, in the United States District Court for the Eastern District of Kentucky on behalf of Janice Smith and all other females who made application or transfer requests at the London, Kentucky, distribution center from 1998 to the present, and who were not hired or transferred into the warehouse positions for which they applied. On February 26, 2010, the company and the EEOC entered into an agreement to settle the case for $12 million plus related taxes and expenses, and on March 1, 2010, the court entered an agreed Consent Decree memorializing the settlement.

Hazardous Materials Investigations: On November 8, 2005, the company received a grand jury subpoena from the United States Attorney’s Office for the Central District of California, seeking documents and information relating to the company’s receipt, transportation, handling, identification, recycling, treatment, storage and disposal of certain merchandise that constitutes hazardous materials or hazardous waste. The company has been informed by the U.S. Attorney’s Office for the Central District of California that it is a target of a criminal investigation into potential violations of the Resource Conservation and Recovery Act (“RCRA”), the Clean Water Act and the Hazardous Materials Transportation Statute. This U.S. Attorney’s Office contends, among other things, that the use of company trucks to transport certain returned merchandise from the company’s stores to its return centers is prohibited by RCRA because those materials may be considered hazardous waste. The government alleges that, to comply with RCRA, the company must ship from the store certain materials as “hazardous waste” directly to a certified disposal facility using a certified hazardous waste carrier. The company contends that the practice of transporting returned merchandise to its return centers for subsequent disposition, including disposal by certified facilities, is compliant with applicable laws and regulations. While management cannot predict the ultimate outcome of this matter, management does not believe the outcome will have a material effect on the company’s financial condition or results of operations.

Additionally, the U.S. Attorney’s Office in the Northern District of California has initiated its own investigation regarding the company’s handling of hazardous materials and hazardous waste and the company has received administrative document requests from the California Department of Toxic Substances Control requesting documents and information with respect to two of the company’s distribution facilities. Further, the company also received a subpoena from the Los Angeles County District Attorney’s Office for documents and administrative interrogatories requesting information, among other things, regarding the company’s handling of materials and hazardous waste. California state and local government authorities also initiated investigations into these matters. The company is cooperating fully with the respective authorities. While management cannot predict the ultimate outcome of this matter, management does not believe the outcome will have a material effect on the company’s financial condition or results of operations.

Commitments
Commitments

Note 12. Commitments

The company and certain of its subsidiaries have long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $1.8 billion in each of fiscal 2010 and 2009, and $1.6 billion in 2008. Aggregate minimum annual rentals at January 31, 2010, under non-cancelable leases are as follows:

 

(Amounts in millions)

Fiscal Year

   Operating
Leases
   Capital
Leases

2011

   $ 1,275    $ 607

2012

     1,212      568

2013

     1,106      535

2014

     1,043      504

2015

     986      455

Thereafter

     7,477      2,915
             

Total minimum rentals

   $ 13,099    $ 5,584
         

Less estimated executory costs

        50
         

Net minimum lease payments

        5,534

Less imputed interest at rates ranging from 3.0% to 12.6%

        2,018
         

Present value of minimum lease payments

      $ 3,516
         

Certain of the company’s leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were immaterial for fiscal years 2010, 2009 and 2008. Substantially all of the company’s store leases have renewal options, some of which may trigger an escalation in rentals.

In connection with certain debt financing, we could be liable for early termination payments if certain unlikely events were to occur. At January 31, 2010, the aggregate termination payment would have been $109 million. The two arrangements pursuant to which these payments could be made expire in fiscal 2011 and fiscal 2019.

In connection with the development of our grocery distribution network in the United States, we have agreements with third parties which would require us to purchase or assume the leases on certain unique equipment in the event the agreements are terminated. These agreements, which can be terminated by either party at will, cover up to a five-year period and obligate the company to pay up to approximately $41 million upon termination of some or all of these agreements.

The company has potential future lease commitments for land and buildings for approximately 348 future locations. These lease commitments have lease terms ranging from 1 to 40 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $59 million for fiscal 2011, based on current cost estimates.

Segments
Segments

Note 14. Segments

The company is engaged in the operations of retail stores located in all 50 states of the United States, our wholly-owned subsidiaries in Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, our majority-owned subsidiaries in Central America, Chile and Mexico and our joint ventures in China and India and our other controlled subsidiaries in China. The company defines our segments as those business units whose operating results our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We sell similar individual products and services in each of our segments. It is impractical to segregate and identify revenue and profits for each of these individual products and services.

The Walmart U.S. segment includes the company’s mass merchant concept in the United States operating under the “Walmart” or “Wal-Mart” brand, as well as walmart.com. The International segment consists of the company’s operations outside of the 50 United States. The Sam’s Club segment includes the warehouse membership clubs in the United States, as well as samsclub.com. The amounts under the caption “Other” in the table below relating to operating income are unallocated corporate overhead items.

 

The company measures the results of its segments using, among other measures, each segment’s operating income which includes certain corporate overhead allocations. From time to time, we revise the measurement of each segment’s operating income, including any corporate overhead allocations, as dictated by the information regularly reviewed by our CODM. When we do so, the segment operating income for each segment affected by the revisions is restated for all periods presented to maintain comparability. Information for our segments and the reconciliation to consolidated income from continuing operations before income taxes appear in the following table:

 

(Amounts in millions)

Fiscal Year Ended January 31, 2010

   Walmart U.S.    International    Sam’s Club    Other     Consolidated  

Net revenues from external customers

   $ 258,229    $ 100,107    $ 46,710    $ —        $ 405,046   

Operating income (loss)

     19,522      5,033      1,512      (2,117     23,950   

Interest expense, net

                (1,884
                   

Income from continuing operations before income taxes

              $ 22,066   
                   

Total assets of continuing operations

   $ 84,480    $ 67,558    $ 12,073    $ 6,455      $ 170,566   

Depreciation and amortization

   $ 4,206    $ 2,003    $ 541    $ 407      $ 7,157   

Fiscal Year Ended January 31, 2009

   Walmart U.S.    International    Sam’s Club    Other     Consolidated  

Net revenues from external customers

   $ 255,348    $ 98,840    $ 46,899    $ —        $ 401,087   

Operating income (loss)

     18,562      4,940      1,646      (2,350     22,798   

Interest expense, net

                (1,900
                   

Income from continuing operations before income taxes

              $ 20,898   
                   

Total assets of continuing operations

   $ 84,361    $ 59,903    $ 12,339    $ 6,631      $ 163,234   

Depreciation and amortization

   $ 4,013    $ 1,872    $ 527    $ 327      $ 6,739   

Fiscal Year Ended January 31, 2008

   Walmart U.S.    International    Sam’s Club    Other     Consolidated  

Net revenues from external customers

   $ 238,915    $ 90,570    $ 44,336    $ —        $ 373,821   

Operating income (loss)

     17,383      4,725      1,648      (1,804     21,952   

Interest expense, net

                (1,794
                   

Income from continuing operations before income taxes

              $ 20,158   
                   

Total assets of continuing operations

   $ 84,286    $ 61,994    $ 11,722    $ 4,545      $ 162,547   

Depreciation and amortization

   $ 3,813    $ 1,684    $ 507    $ 313      $ 6,317   

In the United States, long-lived assets, net, excluding goodwill and other assets and deferred charges were $70.2 billion, $68.0 billion and $66.8 billion as of January 31, 2010, 2009 and 2008, respectively. In the United States, cash additions to long-lived assets were $8.2 billion, $7.5 billion and $10.4 billion in fiscal 2010, 2009 and 2008, respectively.

Outside of the United States, long-lived assets, net, excluding goodwill and other assets and deferred charges were $32.1 billion, $27.6 billion and $30.1 billion as of fiscal 2010, 2009 and 2008, respectively. Outside of the United States, cash additions to long-lived assets were $4.0 billion in fiscal 2010 and 2009, respectively, and $4.5 billion in fiscal 2008. The International segment includes all real estate outside the United States. The net revenues and long-lived assets of the company’s ASDA subsidiary are significant to the International segment. ASDA’s net revenues during fiscal 2010, 2009 and 2008 were $31.2 billion, $34.0 billion and $33.4 billion, respectively. Currency exchange rate fluctuations during fiscal 2010 compared to fiscal 2009 negatively impacted ASDA’s sales in by $5.3 billion. ASDA’s long-lived assets, consisting primarily of property and equipment, net, totaled $12.2 billion, $10.8 billion and $14.2 billion at January 31, 2010, 2009 and 2008, respectively.

Restructuring Charges
Restructuring Charges

Note 15. Restructuring Charges

In the fourth quarter of fiscal 2010, the company announced several organizational changes, including the closure of 10 Sam’s Clubs, designed to strengthen and streamline our operations. As a result, we recorded $260 million in pre-tax restructuring charges as follows:

 

     Fiscal Year Ended January 31, 2010

(Amounts in millions)

   Asset
Impairment
   Severance    Total

Walmart U.S.

   $ —      $ 73    $ 73

Sam’s Club

     133      41      174

Other

     —        13      13
                    

Total

   $ 133    $ 127    $ 260
                    

 

The asset impairment charges generally relate to the real estate of the Sam’s Club closures, which were written down to their estimated fair value of $46 million. The fair value was determined based on comparable market values of similar properties or on a rental income approach, using Level 2 inputs of the three-tier fair value hierarchy.

The total pre-tax restructuring charge of $260 million is classified in operating, selling, general and administrative expenses on the accompanying Consolidated Statements of Income. At January 31, 2010, we had $127 million of severance included in accrued liabilities on the accompanying Consolidated Balance Sheets, the majority of which is expected to be paid by the first quarter of fiscal 2011.

Recent Accounting Pronouncements
Recent Accounting Pronouncements

Note 16. Recent Accounting Pronouncements

The company adopts new accounting policies or adjust existing accounting policies to comply with new accounting standards promulgated by the Financial Accounting Standards Board (“FASB”) or the SEC. The following subcaptions provide a discussion of the company’s adoption of new accounting policies as required by new accounting standards that became effective February 1, 2009 or will become effective in future periods.

Accounting for Acquisitions

The company accounts for all consolidated acquisitions and business combinations using the purchase method of accounting. As a result of new accounting standards effective February 1, 2009, the company changed some of its accounting for business combinations on February 1, 2009. Therefore, certain accounting policies differ when accounting for acquisitions occurring before and after February 1, 2009, as discussed below.

The company applied the following policies in accounting for business combinations that occurred prior to February 1, 2009:

 

   

acquisition costs were included as part of the purchase price;

 

   

purchase accounting was applied to only the company’s proportionate share in the fair value of assets and liabilities acquired in a partial acquisition (less than 100% control was acquired);

 

   

goodwill was recorded only to the extent of the company’s proportionate share in a partial acquired entity;

 

   

contingent consideration, if any, is recorded as additional purchase price when settled;

 

   

adjustments to income tax valuation allowances or uncertain tax positions are recognized as adjustments to the accounting for the business combination; and

 

   

contingent liabilities acquired were recorded at acquisition if probable and reasonably estimable.

Subsequent to February 1, 2009, the company applies the following policies in accounting for business combinations, when applicable:

 

   

costs related to an acquisition are expensed as incurred;

 

   

regardless of the level of ownership acquired, the company records the full fair value of all assets and liabilities acquired as part of the purchase price allocation;

 

   

goodwill includes any noncontrolling interest portion and is recorded as the excess of the cost of the acquisition over the total fair value of all assets and liabilities acquired and any noncontrolling interest;

 

   

contingent consideration, if any, is included at fair value as part of initial purchase price;

 

   

adjustments to income tax valuation allowances or uncertain tax positions after the acquisition date are generally recognized as income tax expense; and

 

   

contingent liabilities acquired are recorded at fair value. If fair value is not determinable, a reasonably estimable amount is recorded, provided the incurrence of the liability is probable.

No acquisitions have occurred subsequent to February 1, 2009. However, if any adjustments to income tax valuation allowances and uncertain tax positions that relate to acquisitions prior to February 1, 2009 occur within a one year period from the acquisition date due to revised facts and circumstances that existed at the acquisition date, then the adjustment will be recorded to goodwill. Adjustments outside the one year measurement period are typically recorded to income tax expense.

 

Noncontrolling Interests

Effective February 1, 2009, the company generally reports noncontrolling interests in subsidiaries in the equity section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. Consolidated net income is also reduced by the amount attributable to the noncontrolling interest to arrive at net income attributable to Walmart. Accordingly, the changes have been retroactively applied in the company’s Consolidated Financial Statements. Furthermore, when the company acquires some or all of the noncontrolling interest, the transaction is accounted for as an equity transaction and any amount paid in excess of the noncontrolling interest’s cost basis acquired is recorded to additional paid in capital.

All noncontrolling interests where the company may be required to repurchase a portion of the noncontrolling interest under a put option or other contractual redemption requirement are presented in the mezzanine section of the balance sheet between liabilities and equity, as redeemable noncontrolling interest.

Future Accounting Policy Adoptions

A new accounting standard, effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period, changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”) and requires companies to more frequently assess whether they must consolidate VIEs. The company adopted this new standard on February 1, 2010. We do not expect the adoption of this new standard to have a material impact on our Consolidated Financial Statements.

Quarterly Financial Data (Unaudited)
Quarterly Financial Data (Unaudited)

Note 17. Quarterly Financial Data (Unaudited)

 

     Quarters Ended  

(Amounts in millions except per share data)

   April 30,     July 31,     October 31,     January 31,  

Fiscal 2010

        

Net sales

   $ 93,471      $ 100,082      $ 98,667      $ 112,826   

Cost of sales

     70,388        75,153        73,805        85,311   
                                

Gross profit

     23,083        24,929        24,862        27,515   

Income from continuing operations

     3,147        3,556        3,360        4,864   

Loss from discontinued operations, net of tax

     (8     (7     (7     (57
                                

Consolidated net income

   $ 3,139      $ 3,549      $ 3,353      $ 4,807   

Less consolidated net income attributable to noncontrolling interest

     (117     (107     (114     (175
                                

Consolidated net income attributable to Walmart

   $ 3,022      $ 3,442      $ 3,239      $ 4,632   
                                

Income from continuing operations attributable to Walmart:

        

Income from continuing operations

   $ 3,147      $ 3,556      $ 3,360      $ 4,864   

Less consolidated net income attributable to noncontrolling interest

     (117     (107     (114     (175
                                

Income from continuing operations attributable to Walmart

   $ 3,030      $ 3,449      $ 3,246      $ 4,689   
                                

Loss from discontinued operations, net of tax

     (8     (7     (7     (57
                                

Consolidated net income attributable to Walmart

   $ 3,022      $ 3,442      $ 3,239      $ 4,632   
                                

Basic net income per common share:

        

Basic income per common share from continuing operations attributable to Walmart

   $ 0.77      $ 0.89      $ 0.84      $ 1.23   

Basic loss per common share from discontinued operations attributable to Walmart

     —          (0.01     —          (0.01
                                

Basic net income per common share attributable to Walmart

   $ 0.77      $ 0.88      $ 0.84      $ 1.22   
                                

Diluted net income per common share:

        

Diluted income per common share from continuing operations attributable to Walmart

   $ 0.77      $ 0.88      $ 0.84      $ 1.23   

Diluted loss per common share from discontinued operations attributable to Walmart

     —          —          —          (0.02
                                

Diluted net income per common share attributable to Walmart

   $ 0.77      $ 0.88      $ 0.84      $ 1.21   
                                

Fiscal 2009

        

Net sales

   $ 94,042      $ 101,546      $ 97,619      $ 107,880   

Cost of sales

     71,372        77,118        73,621        81,945   
                                

Gross profit

     22,670        24,428        23,998        25,935   

Income from continuing operations

     3,151        3,531        3,146        3,926   

Income (loss) from discontinued operations, net of tax

     (7     48        105        —     
                                

Consolidated net income

   $ 3,144      $ 3,579      $ 3,251      $ 3,926   

Less consolidated net income attributable to noncontrolling interest

     (122     (130     (113     (134
                                

Consolidated net income attributable to Walmart

   $ 3,022      $ 3,449      $ 3,138      $ 3,792   
                                

Income from continuing operations attributable to Walmart:

        

Income from continuing operations

   $ 3,151      $ 3,531      $ 3,146      $ 3,926   

Less consolidated net income attributable to noncontrolling interest

     (122     (130     (113     (134
                                

Income from continuing operations attributable to Walmart

   $ 3,029      $ 3,401      $ 3,033      $ 3,792   
                                

Income (loss) from discontinued operations, net of tax

     (7     48        105        —     
                                

Consolidated net income attributable to Walmart

   $ 3,022      $ 3,449      $ 3,138      $ 3,792   
                                

Basic net income per common share:

        

Basic income per common share from continuing operations attributable to Walmart

   $ 0.77      $ 0.86      $ 0.77      $ 0.97   

Basic income (loss) per common share from discontinued operations attributable to Walmart

     (0.01     0.01        0.03        —     
                                

Basic net income per common share attributable to Walmart

   $ 0.76      $ 0.87      $ 0.80      $ 0.97   
                                

Diluted net income per common share:

        

Diluted income per common share from continuing operations attributable to Walmart

   $ 0.76      $ 0.86      $ 0.77      $ 0.96   

Diluted income per common share from discontinued operations attributable to Walmart

     —          0.01        0.03        —     
                                

Diluted net income per common share attributable to Walmart

   $ 0.76      $ 0.87      $ 0.80      $ 0.96   
                                

The sum of quarterly financial data may not agree to annual amounts due to rounding.

Document Information
Year Ended
Jan. 31, 2010
Document Type
10-K 
Amendment Flag
FALSE 
Document Period End Date
01/31/2010 
Entity Information (USD $)
Mar. 26, 2010
Year Ended
Jan. 31, 2010
Jul. 31, 2009
Trading Symbol
 
WMT 
 
Entity Registrant Name
 
WAL MART STORES INC 
 
Entity Central Index Key
 
0000104169 
 
Current Fiscal Year End Date
 
01/31 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Current Reporting Status
 
Yes 
 
Entity Voluntary Filers
 
No 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
3,759,007,514 
 
 
Entity Public Float
 
 
$ 107,499,377,333