WAL MART STORES INC, 10-Q filed on 9/9/2009
Quarterly Report
Statement Of Income Alternative (USD $)
In Millions, except Per Share data
3 Months Ended
Jul. 31, 2009
6 Months Ended
Jul. 31, 2009
3 Months Ended
Jul. 31, 2008
6 Months Ended
Jul. 31, 2008
Revenues:
 
 
 
 
Net sales
$ 100,082 
$ 193,553 
$ 101,546 
$ 195,588 
Membership and other income
828 
1,599 
796 
1,694 
Revenues, Total
100,910 
195,152 
102,342 
197,282 
Costs and expenses:
 
 
 
 
Cost of sales
75,153 
145,541 
77,118 
148,490 
Operating, selling, general and administrative expenses
19,875 
38,512 
19,411 
37,662 
Operating income
5,882 
11,099 
5,813 
11,130 
Interest:
 
 
 
 
Debt
447 
895 
450 
938 
Capital leases
68 
138 
77 
149 
Interest income
(42)
(93)
(71)
(135)
Interest, net
473 
940 
456 
952 
Income from continuing operations before income taxes
5,409 
10,159 
5,357 
10,178 
Provision for income taxes
1,853 
3,456 
1,826 
3,496 
Income from continuing operations
3,556 
6,703 
3,531 
6,682 
(Loss) income from discontinued operations, net of tax
(7)
(15)
48 
41 
Consolidated net income
3,549 
6,688 
3,579 
6,723 
Less consolidated net income attributable to noncontrolling interest
(107)
(224)
(130)
(252)
Consolidated net income attributable to Walmart
3,442 
6,464 
3,449 
6,471 
Basic net income per common share:
 
 
 
 
Basic income per share from continuing operations attributable to Walmart
0.89 
1.66 
0.86 
1.63 
Basic (loss) income per share from discontinued operations attributable to Walmart
(0.01)
0.00 
0.01 
0.01 
Basic net income per share attributable to Walmart
0.88 
1.66 
0.87 
1.64 
Diluted net income per common share:
 
 
 
 
Diluted income per share from continuing operations attributable to Walmart
0.88 
1.65 
0.86 
1.62 
Diluted income per share from discontinued operations attributable to Walmart
0.00 
0.00 
0.01 
0.01 
Diluted net income per share attributable to Walmart
0.88 
1.65 
0.87 
1.63 
Weighted-average number of common shares:
 
 
 
 
Basic
3,891 
3,905 
3,945 
3,951 
Diluted
3,900 
3,915 
3,958 
3,962 
Dividends declared per common share
$ 0.00 
$ 1.09 
$ 0.00 
$ 0.95 
Statement Of Financial Position Classified (USD $)
In Millions
Jul. 31, 2009
Jan. 31, 2009
Jul. 31, 2008
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$ 7,997 
$ 7,275 
$ 6,903 
Receivables
3,684 
3,905 
3,221 
Inventories
33,861 
34,511 
35,365 
Prepaid expenses and other
3,336 
3,063 
3,311 
Current assets of discontinued operations
147 
195 
974 
Total current assets
49,025 
48,949 
49,774 
Property and equipment, at cost:
 
 
 
Property and equipment, at cost
133,070 
125,820 
126,289 
Less accumulated depreciation
(35,707)
(32,964)
(31,335)
Property and equipment, net
97,363 
92,856 
94,954 
Property under capital lease:
 
 
 
Property under capital lease
5,583 
5,341 
5,740 
Less accumulated amortization
(2,759)
(2,544)
(2,645)
Property under capital lease, net
2,824 
2,797 
3,095 
Goodwill
16,149 
15,260 
16,400 
Other assets and deferred charges
3,581 
3,567 
2,672 
Total assets
168,942 
163,429 
166,895 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Commercial paper and other short-term borrowings
1,122 
1,506 
4,347 
Accounts payable
28,797 
28,849 
29,912 
Dividends payable
2,073 
1,927 
Accrued liabilities
16,706 
18,112 
15,607 
Accrued income taxes
1,162 
677 
555 
Long-term debt due within one year
6,959 
5,848 
2,180 
Obligations under capital leases due within one year
336 
315 
324 
Current liabilities of discontinued operations
41 
83 
77 
Total current liabilities
57,196 
55,390 
54,929 
Long-term debt
33,579 
31,349 
34,168 
Long-term obligations under capital leases
3,246 
3,200 
3,544 
Deferred income taxes and other
5,773 
6,014 
5,386 
Redeemable noncontrolling interest
326 
397 
Commitments and contingencies
Equity:
 
 
 
Common stock and capital in excess of par value
4,173 
4,313 
3,986 
Retained earnings
63,153 
63,660 
57,883 
Accumulated other comprehensive (loss) income
(318)
(2,688)
4,924 
Total Walmart shareholders' equity
67,008 
65,285 
66,793 
Noncontrolling interest
1,814 
1,794 
2,075 
Total equity
68,822 
67,079 
68,868 
Total liabilities and equity
$ 168,942 
$ 163,429 
$ 166,895 
Statement Of Cash Flows Indirect (USD $)
In Millions
6 Months Ended
Jul. 31,
2009
2008
Cash flows from operating activities:
 
 
Consolidated net income
$ 6,688 
$ 6,723 
Loss (gain) from discontinued operations, net of tax
15 
(41)
Income from continuing operations
6,703 
6,682 
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
Depreciation and amortization
3,457 
3,366 
Other
(246)
219 
Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
Decrease in accounts receivable
575 
578 
Decrease in inventories
1,394 
95 
Decrease in accounts payable
(1,131)
(150)
Decrease in accrued liabilities
(857)
(626)
Net cash provided by operating activities
9,895 
10,164 
Cash flows from investing activities:
 
 
Payments for property and equipment
(5,744)
(5,074)
Proceeds from disposal of property and equipment
172 
492 
Investment in international operations, net of cash acquired
(74)
Other investing activities
(176)
129 
Net cash used in investing activities
(5,748)
(4,527)
Cash flows from financing activities:
 
 
Decrease in commercial paper and other short-term borrowings, net
(654)
(639)
Proceeds from issuance of long-term debt
2,956 
4,648 
Payment of long-term debt
(95)
(4,061)
Dividends paid
(2,129)
(1,878)
Purchase of Company stock
(2,792)
(2,184)
Purchase of redeemable noncontrolling interest
(456)
Other financing activities
(264)
(266)
Net cash used in financing activities
(3,434)
(4,380)
Effect of exchange rates on cash
115 
Net increase in cash and cash equivalents
722 
1,372 
Cash and cash equivalents at beginning of year
7,275 2
5,569 2
Cash and cash equivalents at end of period
$ 7,997 1
$ 6,941 1
Notes to Financial Statements
6 Months Ended
Jul. 31, 2009
1 Basis of Presentation
2 Net Income Per Common Share
3 Inventories
4 Long-Term Debt
5 Fair Value Measurements
6 Derivative Financial Instruments
7 Segments
8 Comprehensive Income
9 Common Stock Dividends
10 Income and Other Taxes
11 Legal Proceedings
12 Recent Accounting Pronouncements
13 Discontinued Operations
14 Subsequent Events

1 Basis of Presentation

The Condensed Consolidated Balance Sheets of Wal-Mart Stores, Inc. and its subsidiaries (“Walmart,” the “Company” or “we”) as of July 31, 2009 and 2008, the related Condensed Consolidated Statements of Income for the three- and six-month periods ended July 31, 2009 and 2008, and the related Condensed Consolidated Statements of Cash Flows for the six-month periods ended July 31, 2009 and 2008, are unaudited. The Condensed Consolidated Balance Sheet as of January 31, 2009, is derived from the Company’s audited Consolidated Balance Sheet at that date.

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. The Company’s operations in Canada and Puerto Rico are consolidated using a January 31 fiscal year end.

In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year.

The Condensed Consolidated Financial Statements and notes thereto are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not contain certain information included in the Company’s Annual Report to Shareholders for the fiscal year ended January 31, 2009. Therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report to Shareholders.

In connection with the Company’s finance transformation project, we reviewed and adjusted the classification of certain revenue and expense items within our Condensed 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 prior periods presented.

2 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 shares adjusted for the dilutive effect of stock options and other share-based awards. The dilutive effect of outstanding stock options and other share-based awards was 9 million and 10 million shares for the three and six months ended July 31, 2009, respectively; and 13 million and 11 million shares for the three and six months ended July 31, 2008, respectively. The Company had approximately 29 million and 1 million stock options outstanding at July 31, 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 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:

 

     Three Months Ended
July 31,
   Six Months Ended
July 31,
(Amounts in millions)    2009     2008    2009     2008

Income from continuing operations attributable to Walmart

   $ 3,449      $ 3,401    $ 6,479      $ 6,430

(Loss) income from discontinued operations, net of tax

     (7     48      (15     41
                             

Consolidated net income attributable to Walmart

   $ 3,442      $ 3,449    $ 6,464      $ 6,471
                             

In June 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position EITF 03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-06-1”). FSP EITF 03-06-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method in Statement of Financial Account Standards (“SFAS”) No. 128, “Earnings per Share”. The Company adopted FSP EITF 03-06-1 on February 1, 2009. The adoption did not have, and is not expected to have, a material impact on basic or diluted earnings per share.

3 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. The Sam’s Club segment’s merchandise and merchandise in our distribution warehouses are valued based on the weighted-average cost using the LIFO method. Inventories of foreign operations are primarily valued by the retail method of accounting, using the first-in, first-out (“FIFO”) method. At July 31, 2009 and 2008, our inventories valued at LIFO approximate those inventories as if they were valued at FIFO.

4 Long-Term Debt

On March 27, 2009, the Company issued and sold £1.0 billion of 5.625% Notes Due 2034 at an issue price equal to 98.981% of the notes’ aggregate principal amount. Interest started accruing on the notes on March 27, 2009. The Company will pay interest on the notes on March 27 and September 27 of each year, commencing on September 27, 2009. The notes will mature on March 27, 2034. The notes are senior, unsecured obligations of Walmart.

On May 21, 2009, the Company issued and sold $1.0 billion of 3.20% Notes Due 2014 at an issue price equal to 99.987% of the notes’ aggregate principal amount. Interest started accruing on the notes on May 21, 2009. The Company will pay interest on the notes on May 15 and November 15 of each year, commencing on November 15, 2009. The notes will mature on May 15, 2014. The notes are senior, unsecured obligations of Walmart.

On July 27, 2009, the Company issued and sold $500 million of 6.200% Notes Due 2038 at an issue price equal to 106.001% of the notes’ aggregate principal amount. Interest started accruing on the notes on April 15, 2009. The Company will pay interest on the notes on April 15 and October 15 of each year, commencing on October 15, 2009. The notes will mature on April 15, 2038. The notes are senior, unsecured obligations of Walmart.

5 Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value within generally accepted accounting principles (“GAAP”) and expands required disclosures about fair value measurements. In November 2007, the FASB provided a one year deferral for the implementation of SFAS 157 for nonfinancial assets and liabilities. The Company adopted SFAS 157 on February 1, 2008, as required. The adoption of SFAS 157 did not have a material impact on the Company’s financial condition and results of operations. Effective February 1, 2009, the Company adopted SFAS 157 for its nonfinancial assets and liabilities, and it did not have a material impact to its financial condition or results of operations.

 

SFAS 157 establishes 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 an entity to develop its own assumptions. As of July 31, 2009 and 2008, 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 related to interest rate swaps. The fair values of these interest rate swaps have been measured in accordance with Level 2 inputs in the fair value hierarchy, and as of July 31, 2009 and 2008, are as follows (asset/(liability)):

 

     July 31, 2009     July 31, 2008  
(Amounts in millions)    Notional Amount    Fair Value     Notional Amount    Fair Value  

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

   $ 5,195    $ 261      $ 5,195    $ 209   

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as net investment hedges

     1,250      212        1,250      (137

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

     461      (17     —        —     

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

     1,445      231        —        —     
                              

Total

   $ 8,351    $ 687      $ 6,445    $ 72   
                              

The fair values above are the estimated amounts the Company would receive or pay to terminate the agreements relating to such instruments as of the reporting dates.

On April 1, 2009, the FASB issued FASB Staff Position SFAS 107-1 and Accounting Principles Board 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“SFAS 107-1 and APB 28-1”). SFAS 107-1 and APB 28-1 require disclosures about the fair value of financial instruments in both annual and interim financial statements. The Company adopted SFAS 107-1 and APB 28-1 and its adoption did not have a material impact on the Condensed Consolidated Financial Statements. We determine the fair values for the following assets and liabilities accordingly:

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 July 31, 2009 is as follows:

 

(Amounts in millions)    Cost    Fair Value

Long-term debt

   $ 40,538    $ 42,207

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 foreign 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 is holding $184 million in cash collateral from these counterparties at July 31, 2009. 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.

        The Company uses derivative financial instruments for purposes other than trading to manage its exposure to interest and foreign exchange rates, as well as to maintain an appropriate mix of fixed and floating-rate debt. 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) income 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 on the balance sheet with no net impact on the income statement. These fair value instruments will mature on August 10, 2010, May 1, 2013 and June 1, 2013.

Net Investment Instruments

At July 31, 2009 and 2008, 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) income, offsetting the foreign currency translation adjustment that is also recorded in accumulated other comprehensive (loss) income.

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 July 31, 2009 and 2008. The Company also has outstanding approximately ¥437.4 billion and ¥142.1 billion of debt that is designated as a hedge of the Company’s net investment in Japan at July 31, 2009 and 2008, respectively. Any translation of foreign-denominated debt is recorded in accumulated other comprehensive (loss) income, offsetting the foreign currency translation adjustment that is also recorded in accumulated other comprehensive (loss) income.

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 foreign-denominated debt. The swaps are designated as cash flow hedges of interest expense risk. Changes in the foreign benchmark interest rate result in reclassification of amounts from accumulated other comprehensive (loss) income to earnings to offset the floating-rate interest expense. These cash flow instruments will mature on August 5, 2013.

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 foreign-denominated debt. The swaps are designated as cash flow hedges of the currency risk related to payments on the foreign-denominated debt. Changes in the currency exchange rate result in reclassification of amounts from accumulated other comprehensive (loss) income to earnings to offset the re-measurement (loss) gain on the foreign-denominated debt. These cash flow instruments will mature on March 27, 2034.

Financial Statement Presentation

Hedging instruments with an unrealized gain are recorded on the Condensed Consolidated Balance Sheets in prepaid expenses and other or 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 July 31, 2009, our financial instruments were classified as follows in the Condensed Consolidated Balance Sheets:

 

     July 31, 2009
(Amounts in millions)    Fair Value
Instruments
   Net Investment
Hedge
   Cash Flow
Instruments

Balance Sheet Classification:

        

Prepaid expenses and other

   $ 60    $ —      $ —  

Other assets and deferred charges

     201      212      231
                    

Total assets

   $ 261    $ 212    $ 231
                    

Long-term debt due within one year

   $ 60    $ —      $ —  

Long-term debt

     201      —        —  

Deferred income taxes and other

     —        —        17
                    

Total liabilities

   $ 261    $ —      $ 17
                    

 

During the first half of fiscal 2010, we reclassified $227 million from accumulated other comprehensive (loss) income to earnings to offset currency translation losses on the re-measurement of foreign denominated debt.

7 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 identifies segments in accordance with the criteria set forth in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. As a result, we define our segments as those business units whose operating results our chief operating decision maker regularly reviews to analyze performance and allocate resources.

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

The Company measures the profit of its segments as “segment operating income,” which is defined as operating income for each operating segment and excludes unallocated corporate overhead. From time to time, we revise the allocation of corporate overhead and the measurement of each segment’s operating income as changes in business needs dictate. When we do, we restate all periods presented for comparative purposes.

Net sales by operating segment were as follows:

 

     Three Months Ended
July 31,
   Six Months Ended
July 31,
(Amounts in millions)    2009    2008    2009    2008

Net Sales:

           

Walmart U.S.

   $ 64,209    $ 63,989    $ 125,453    $ 122,980

International

     23,965      25,257      45,228      49,184

Sam’s Club

     11,908      12,300      22,872      23,424
                           

Total Company

   $ 100,082    $ 101,546    $ 193,553    $ 195,588
                           

Segment operating income was as follows:

 

     Three Months Ended
July 31,
    Six Months Ended
July 31,
 
(Amounts in millions)    2009     2008     2009     2008  

Operating Income:

        

Walmart U.S.

   $ 4,901      $ 4,667      $ 9,365      $ 8,987   

International

     1,143        1,218        2,023        2,268   

Sam’s Club

     419        441        812        834   

Other

     (581     (513     (1,101     (959
                                

Operating income

   $ 5,882      $ 5,813      $ 11,099      $ 11,130   

Interest expense, net

     (473     (456     (940     (952
                                

Income from continuing operations before income taxes

   $ 5,409      $ 5,357      $ 10,159      $ 10,178   
                                

Goodwill is recorded on the Condensed Consolidated Balance Sheets for the operating segments as follows:

 

(Amounts in millions)    July 31,
2009
   July 31,
2008
   January 31,
2009

International

   $ 15,844    $ 16,095    $ 14,955

Sam’s Club

     305      305      305
                    

Total goodwill

   $ 16,149    $ 16,400    $ 15,260
                    

 

The increase in the International segment’s goodwill since January 31, 2009, primarily resulted from currency exchange rate fluctuations.

8 Comprehensive Income

Comprehensive income is consolidated net income plus certain other items that are recorded directly to total equity. Amounts included in accumulated other comprehensive (loss) income for the Company’s derivative instruments and minimum pension liabilities are recorded net of the related income tax effects. Comprehensive income was $6.6 billion and $4.2 billion for the three months ended July 31, 2009 and 2008, respectively. Of the comprehensive income recognized for the three months ended July 31, 2009 and 2008, approximately $100 million and $1 million, respectively, related to the noncontrolling interest. Comprehensive income was $9.0 billion and $7.9 billion for the six months ended July 31, 2009 and 2008, respectively, of which approximately $200 million related to the noncontrolling interest in each period. The following table provides further detail regarding changes in the composition of accumulated other comprehensive loss through the first six months of fiscal 2010:

 

(Amounts in millions)    Currency
Translation
    Derivative
Instruments
    Minimum Pension
Liability
    Total  

Balance at January 31, 2009

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

Foreign currency translation adjustment

     2,487        —          —          2,487   

Change in fair value of hedge instruments

     —          (117     —          (117
                                

Balance at July 31, 2009

   $ 91      $ (134   $ (275   $ (318
                                

The currency translation amount includes a net translation gain of $613 million and $1.2 billion at July 31, 2009 and January 31, 2009, respectively, related to net investment hedges of our operations in the United Kingdom and Japan.

9 Common Stock Dividends

On March 5, 2009, the Company’s Board of Directors approved an increase in the annual dividend for fiscal 2010 to $1.09 per share, an increase of 15% over the dividends paid in fiscal 2009. The annual dividend is payable in four quarterly installments on April 6, 2009, June 1, 2009, September 8, 2009, and January 4, 2010 to holders of record on March 13, May 15, August 14 and December 11, 2009, respectively. The dividend installments payable on April 6, 2009 and June 1, 2009 were paid as scheduled.

10 Income and Other Taxes

The Company’s effective tax rate was 34.3% for the three months ended July 31, 2009, compared to 34.2% for fiscal 2009. The Company expects the fiscal 2010 annual effective tax rate to be approximately 34-35%. Significant factors that could impact the annual effective tax rate include management’s assessment of certain tax matters and the composition of taxable income between domestic and international operations.

In determining the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate based on forecasted annual income and permanent items, statutory tax rates and tax planning opportunities in the various jurisdictions in which the Company operates. The impact of significant discrete items is separately recognized in the quarter in which they occur.

In the normal course of its business the Company provides for uncertain tax positions, and the related interest and penalties, and adjusts its unrecognized tax benefits, accrued interest and penalties accordingly. During the second quarter of fiscal 2010, unrecognized tax benefits related to continuing operations and accrued interest decreased by $32 million and $4 million respectively, and accrued penalties increased by $10 million. For the first six months of fiscal 2010, unrecognized tax benefits related to continuing operations decreased by $83 million and accrued interest and penalties increased by $19 million and $10 million respectively. As of July 31, 2009 the Company’s unrecognized tax benefits relating to continuing operations were $934 million, of which $535 million would, if recognized, affect the Company’s effective tax rate.

During the next twelve months, it is reasonably possible that tax audit resolutions could reduce unrecognized tax benefits by $330 million to $410 million, either because our tax positions are sustained on audit or because the Company agrees to their disallowance. The Company does not expect any such audit resolutions to cause a significant change in its effective tax rate.

Additionally, at January 31, 2008 the Company had unrecognized tax benefits of up to $1.8 billion which, if recognized, would be recorded as discontinued operations. Of this, $63 million was recognized in discontinued operations during the second quarter of fiscal year 2009 following the resolution of a gain determination on a discontinued operation that was sold in fiscal year 2004. The balance of $1.7 billion at July 31, 2009 relates to a worthless stock deduction which the Company has claimed for the its fiscal year 2007 disposition of its German operations. The Company believes it is reasonably possible this matter will be resolved within the next twelve months.

 

The Company classifies interest on uncertain tax benefits as interest expense and income tax penalties as operating, selling, general and administrative costs. At July 31, 2009, before any tax benefits, the Company had $291 million of accrued interest and penalties on unrecognized tax benefits.

The Company is subject to income tax examinations for its U.S. federal income taxes generally for the fiscal year 2008, with fiscal years 2004 through 2008 remaining open for a limited number of U.S. income tax issues. Non-U.S. income taxes are subject to income tax examination for the tax years 2002 through 2009, and U.S. state and local income taxes are open for the fiscal years 2004 through 2008 generally and for the fiscal years 1997 through 2003 for a limited number of issues.

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 Condensed Consolidated Financial Statements. While these matters are individually immaterial, a group of related matters, if decided adversely to the Company, may result in liability material to the Company’s financial condition or results of operations.

11 Legal Proceedings

The Company is involved in a number of legal proceedings. In accordance with SFAS No. 5, “Accounting for Contingencies,” the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s Condensed Consolidated Financial Statements. 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 numerous cases containing class-action allegations in which the plaintiffs are current and former hourly associates who allege that the Company forced or encouraged them to work “off the clock,” failed to provide rest breaks or meal periods, or otherwise failed 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.

On December 23, 2008, the Company and the attorneys for the plaintiffs in 63 of the wage-and-hour class actions described above announced that they had entered into a series of settlement agreements in connection with those matters. Each of the settlements is subject to approval by the court in which the matter is pending. The total amount to be paid by the Company under the settlement agreements will depend on whether such approvals are granted, as well as on the number and amount of claims that are submitted by class members in each matter. If all of the agreements are approved by the courts, the total to be paid by the Company under the settlement agreements will be at least $352 million, but no more than $640 million, depending on the number and amount of claims. The Company may also incur additional administrative expenses and other costs in the process of concluding the settlements.

One of the remaining wage-and-hour lawsuits is Savaglio v. Wal-Mart Stores, Inc., a class-action lawsuit in which the plaintiffs allege that they were not provided meal and rest breaks in accordance with California law, and seek monetary damages and injunctive relief. On July 13, 2009, the Company entered into an agreement to settle this matter, which is subject to approval by the court. The total amount to be paid by the Company will depend on whether such approval is granted, as well as on the number and amount of claims that are submitted by class members. If the court approves the settlement, the Company will pay at least $77 million but no more than $152 million, depending on the number and amount of claims. The Company may also incur additional administrative expenses and other costs in the process of concluding the settlement.

In another of the remaining 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.

 

In another wage-and-hour lawsuit, Braun v. Wal-Mart Stores, Inc., the Company agreed in October 2008 to settle the case. On June 1, 2009, the trial court entered an Order granting final approval of the settlement. On August 11, 2009, the Company paid $46 million to settle this matter, part of which was paid to the State of Minnesota and part to the class members and their counsel.

Another of the class-action lawsuits described above, Salvas v. Wal-Mart Stores, Inc., is scheduled for jury trial beginning on October 5, 2009, in the Superior Court of Middlesex County, Massachusetts. The plaintiffs allege that class members worked off the clock and were not provided meal and rest breaks in accordance with Massachusetts law, and seek compensatory damages in the amount of $30 million, plus statutory treble damages, interest, costs of court and attorneys’ fees. The trial court granted class certification in December 2004, then decertified the class in November 2006. In September 2008, the Massachusetts Supreme Judicial Court reversed the decertification and remanded the case for trial. The Company believes that it has substantial factual and legal defenses to the claims at issue. The Company cannot reasonably estimate the possible loss or range of loss that may arise from this litigation.

Exempt Status Cases: The Company is currently a defendant in four cases in which the plaintiffs seek class 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 Walmart 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.

The Company is 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. The complaint alleges that the Company based hiring decisions on gender in violation of Title VII of the 1964 Civil Rights Act as amended. The EEOC can maintain this action as a class without certification. The EEOC seeks back pay and front pay for those females not selected for hire or transfer during the relevant time period, plus compensatory and punitive damages and injunctive relief. The EEOC has asserted that the hiring practices in question resulted in a shortfall of 245 positions. The claims for compensatory and punitive damages are capped by statute at $300,000 per shortfall position. The amounts of back pay and front pay that are being sought have not been specified. The case has been set for trial on March 1, 2010.

 

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 and the State of Nevada have 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.

12 Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS 141, “Business Combinations,” but retains the requirement that the purchase method of accounting for acquisitions be used for all business combinations. SFAS 141(R) expands on the disclosures previously required by SFAS 141, better defines the acquirer and the acquisition date in a business combination and establishes principles for recognizing and measuring the assets acquired (including goodwill), the liabilities assumed and any noncontrolling interests in the acquired business. SFAS 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation allowances or uncertain tax positions related to acquired businesses. SFAS 141(R) is effective for all business combinations with an acquisition date in the first annual period following December 1, 2008; early adoption is not permitted. The Company adopted this statement as of February 1, 2009 and it did not have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires that noncontrolling (i.e., minority) interests in subsidiaries be reported in the equity section of the Company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement and establishes guidelines for accounting for changes in ownership percentages and for de-consolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years. The Company adopted the presentation and disclosure requirements of SFAS 160 retrospectively and adopted all other provisions of SFAS 160 prospectively on February 1, 2009. Accordingly, “attributable to Walmart” refers to operating results exclusive of any noncontrolling interest.

The Company also adopted Emerging Issues Task Force Topic No. D-98, “Classification and Measurement of Redeemable Securities” in conjunction with its adoption of SFAS 160. This standard is applicable for all noncontrolling interests where the Company is or may be required to repurchase an interest in a consolidated subsidiary from the noncontrolling interest holder under a put option or other contractual redemption requirement. Because the Company has certain redeemable noncontrolling interests, noncontrolling interests are presented in both the equity section and the mezzanine section of the balance sheet between liabilities and equity.

In March 2009, the Company paid $436 million to acquire a portion of the redeemable noncontrolling interest in Distribución y Servicio D&S S.A. (“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 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.

 

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which 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. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt SFAS 167 on February 1, 2010 and is currently assessing the potential impacts, if any, on its financial statements and disclosures.

In June 2009, the FASB issued SFAS No. 168, FASB Accounting Standards Codification (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) – a replacement of FASB Statement No. 162 (“SFAS 168”). The purpose of the Codification is to provide a single source of authoritative U.S. GAAP. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Accordingly, the Company will adopt SFAS 168 in the third quarter of fiscal year 2010. As the Codification was not intended to change or alter existing GAAP, the adoption of SFAS 168 is not expected to have a material effect on the Company’s financial statements.

13 Discontinued Operations

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 Condensed Consolidated Statements of Income and Condensed 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., has closed or will close approximately 23 stores and dispose of certain excess properties. This restructuring involves 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 Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets for all periods presented. In the third quarter of fiscal 2009, the Company recognized approximately $107 million, after tax, in restructuring expenses and operating results as discontinued operations. The cash flows and accrued liabilities related to this restructuring were insignificant for all periods presented. The Company recognized approximately $7 million and $15 million, after tax, in operating losses as discontinued operations for the three and six months ended July 31, 2009, respectively. Additional costs will be recorded in future periods for lease termination obligations and employee separation benefits and are not expected to be material.

14 Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, (“SFAS 165”). SFAS 165 establishes principles and requirements for reviewing and reporting subsequent events. SFAS 165 requires disclosure of the date through which subsequent events are evaluated and whether the date corresponds with the time at which the financial statements were available for issue (as defined) or were issued. SFAS 165 is effective for interim reporting periods ending after June 15, 2009. The Company adopted SFAS 165 and its adoption did not have a material impact on its Condensed Consolidated Financial Statements. Subsequent events have been evaluated through September 9, 2009, the date of issuance of the financial statements.

On August 6, 2009, the Company issued and sold ¥83.1 billion of its Japanese Yen Bonds - Third Series (2009) (the “Fixed Rate Bonds”) and its ¥16.9 billion of its Japanese Yen Floating Rate Bonds - Second Series (2009) (the “Floating Rate Bonds”) at an issue price, in the case of each issue of bonds, equal to the face amount of the bonds and used the proceeds to reduce a portion of its outstanding Yen credit facility. The Fixed Rate Bonds bear interest at a rate of 1.49% per annum. The Floating Rate Bonds bear interest at a floating rate of interest equal to an applicable six-month Yen LIBOR for each interest period plus 0.60%, with an initial interest rate of 1.235%. Interest started accruing on the bonds on August 6, 2009. The Company will pay interest on the bonds on February 6 and August 6 of each year, commencing on February 6, 2010. The notes will mature on August 6, 2014. The notes are senior, unsecured obligations of Walmart.

Document Information
6 Months Ended
Jul. 31, 2009
Document Information [Text Block]
 
Document Type
10-Q 
Amendment Flag
FALSE 
Amendment Description
N.A. 
Document Period End Date
07/31/2009 
Entity Information (USD $)
Sep. 4, 2009
6 Months Ended
Jul. 31, 2009
Jul. 31, 2008
Entity [Text Block]
 
 
 
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
3,856,826,597 
 
 
Entity Public Float
 
 
$ 130,849,375,750