WAL MART STORES INC, 10-K filed on 3/30/2011
Annual Report
Document and Entity Information
Year Ended
Jan. 31, 2011
Mar. 21, 2011
Jul. 30, 2010
Document and Entity Information
 
 
 
Document Type
10-K 
 
 
Amendment Flag
FALSE 
 
 
Document Period End Date
2011-01-31 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
WAL MART STORES INC 
 
 
Entity Central Index Key
0000104169 
 
 
Current Fiscal Year End Date
01/31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Common Stock, Shares Outstanding
 
3,491,198,520 
 
Entity Public Float
 
 
99,339,978,808 
Consolidated Statements of Income (Audited) (USD $)
In Millions, except Per Share data
Year Ended
Jan. 31,
2011
2010
2009
Revenues:
 
 
 
Net sales
$ 418,952 
$ 405,132 
$ 401,087 
Membership and other income
2,897 
2,953 2
3,167 2
Revenues, total
421,849 
408,085 2
404,254 2
Costs and expenses:
 
 
 
Cost of sales
315,287 
304,444 2
303,941 2
Operating, selling, general and administrative expenses
81,020 
76,639 2
77,546 2
Operating income
25,542 
24,002 
22,767 
Interest:
 
 
 
Debt
1,928 
1,787 2
1,896 2
Capital leases
277 
278 2
288 2
Interest income
(201)
(181)2
(284)2
Interest, net
2,004 
1,884 2
1,900 2
Income from continuing operations before income taxes
23,538 
22,118 
20,867 
Provision for income taxes:
 
 
 
Current
6,703 
7,643 2
6,564 2
Deferred
876 
(487)2
569 2
Provision for income taxes, total
7,579 
7,156 2
7,133 2
Income from continuing operations
15,959 
14,962 2
13,734 2
Income (loss) from discontinued operations, net of tax
1,034 
(79)2
146 2
Consolidated net income
16,993 3
14,883 
13,880 
Less consolidated net income attributable to noncontrolling interest
(604)3
(513)
(499)
Consolidated net income attributable to Walmart
16,389 
14,370 2
13,381 2
Basic net income per common share:
 
 
 
Basic income per common share from continuing operations attributable to Walmart
4.2 
3.74 2
3.36 2
Basic income (loss) per common share from discontinued operations attributable to Walmart
0.28 
(0.02)2
0.04 2
Basic net income per common share attributable to Walmart
4.48 
3.72 2
3.4 2
Diluted net income per common share:
 
 
 
Diluted income per common share from continuing operations attributable to Walmart
4.18 
3.73 2
3.35 2
Diluted income (loss) per common share from discontinued operations attributable to Walmart
0.29 
(0.02)2
0.04 2
Diluted net income per common share attributable to Walmart
4.47 
3.71 2
3.39 2
Weighted-average number of common shares:
 
 
 
Basic
3,656 
3,866 2
3,939 2
Diluted
3,670 
3,877 2
3,951 2
Dividends declared per common share
$ 1.21 
$ 1.09 2
$ 0.95 2
Consolidated Balance Sheets (Audited) (USD $)
In Millions
Year Ended
Jan. 31,
2011
2010
Current assets:
 
 
Cash and cash equivalents
$ 7,395 
$ 7,907 1
Receivables, net
5,089 
4,144 1
Inventories
36,318 
32,713 1
Prepaid expenses and other
2,960 
3,128 1
Current assets of discontinued operations
131 
140 1
Total current assets
51,893 
48,032 1
Property and equipment:
 
 
Land
24,386 
22,591 1
Buildings and improvements
79,051 
73,657 1
Fixtures and equipment
38,290 
34,035 1
Transportation equipment
2,595 
2,355 1
Construction in process
4,262 
5,210 1
Property and equipment
148,584 
137,848 1
Less accumulated depreciation
(43,486)
(38,304)1
Property and equipment, net
105,098 
99,544 1
Property under capital leases:
 
 
Property under capital leases
5,905 
5,669 1
Less accumulated amortization
(3,125)
(2,906)1
Property under capital leases, net
2,780 
2,763 1
Goodwill
16,763 
16,126 1
Other assets and deferred charges
4,129 
3,942 1
Total assets
180,663 
170,407 1
Current liabilities:
 
 
Short-term borrowings
1,031 
523 1
Accounts payable
33,557 
30,451 1
Accrued liabilities
18,701 
18,734 1
Accrued income taxes
157 
1,347 1
Long-term debt due within one year
4,655 
4,050 1
Obligations under capital leases due within one year
336 
346 1
Current liabilities of discontinued operations
47 
92 1
Total current liabilities
58,484 
55,543 1
Long-term debt
40,692 
33,231 1
Long-term obligations under capital leases
3,150 
3,170 1
Deferred income taxes and other
6,682 
5,508 1
Redeemable noncontrolling interest
408 
307 1
Commitments and contingencies
 
 1
Equity:
 
 
Preferred stock ($0.10 par value; 100 shares authorized, none issued)
 
 1
Common stock ($0.10 par value; 11,000 shares authorized, 3,516 and 3,786 issued and outstanding at January 31, 2011 and 2010, respectively)
352 
378 1
Capital in excess of par value
3,577 
3,803 1
Retained earnings
63,967 
66,357 1
Accumulated other comprehensive income (loss)
646 
(70)1
Total Walmart shareholders' equity
68,542 
70,468 1
Noncontrolling interest
2,705 
2,180 1
Total equity
71,247 
72,648 1
Total liabilities and equity
$ 180,663 
$ 170,407 1
Consolidated Balance Sheets (Parenthetical) (Audited) (USD $)
Jan. 31, 2011
Jan. 31, 2010
Preferred stock, par value
$ 0.10 
$ 0.10 1
Preferred stock, shares authorized
100,000,000 
100,000,000 1
Preferred stock, shares issued
1
Common stock, par value
$ 0.10 
$ 0.10 1
Common stock, shares authorized
11,000,000,000 
11,000,000,000 1
Common stock, shares issued
3,516,000,000 
3,786,000,000 1
Common stock, shares outstanding
3,516,000,000 
3,786,000,000 1
Consolidated Statements of Shareholders' Equity (Audited) (USD $)
In Millions
Common Stock [Member]
Capital in Excess of Par Value [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total Walmart Shareholders' Equity [Member]
Noncontrolling Interest [Member]
Total
Balances, in shares (As Adjusted) at Jan. 31, 2008
3,973 
 
 
 
 
 
 
Balances (As Adjusted) at Jan. 31, 2008
$ 397 
$ 3,028 
$ 57,022 
$ 3,864 
$ 64,311 1
$ 1,939 
$ 66,250 
Consolidated net income
 
 
13,381 
 
13,381 1
499 
13,880 
Other comprehensive income
 
 
 
(6,552)
(6,552)1
(371)
(6,923)
Cash dividends
 
 
(3,746)
 
(3,746)1
 
(3,746)
Purchase of Company stock (in shares)
(61)
 
 
 
 
 
 
Purchase of Company stock
(6)
(95)
(3,315)
 
(3,416)1
 
(3,416)
Other (in shares)
13 
 
 
 
 
 
 
Other
987 
 
991 1
(273)
718 
Balances (in shares) at Jan. 31, 2009
3,925 
 
 
 
 
 
 
Balances (As Adjusted) at Jan. 31, 2009
393 
3,920 
63,344 
(2,688)
64,969 1
1,794 
66,763 
Consolidated net income (excludes redeemable noncontrolling interest)
 
 
14,370 
 
14,370 1
499 
14,869 
Other comprehensive income
 
 
 
2,618 
2,618 1
64 
2,682 
Cash dividends
 
 
(4,217)
 
(4,217)1
 
(4,217)
Purchase of Company stock (in shares)
(145)
 
 
 
 
 
 
Purchase of Company stock
(15)
(246)
(7,136)
 
(7,397)1
 
(7,397)
Purchase of redeemable noncontrolling interest
 
(288)
 
 
(288)1
 
(288)
Other (in shares)
 
 
 
 
 
 
Other
 
417 
(4)
 
413 1
(177)
236 
Balances (in shares) at Jan. 31, 2010
3,786 
 
 
 
 
 
 
Balances (As Adjusted) at Jan. 31, 2010
378 
3,803 
66,357 
(70)
70,468 1
2,180 
72,648 2
Consolidated net income (excludes redeemable noncontrolling interest)
 
 
16,389 
 
16,389 1
584 
16,973 
Other comprehensive income
 
 
 
716 
716 1
162 
878 
Cash dividends
 
 
(4,437)
 
(4,437)1
 
(4,437)
Purchase of Company stock (in shares)
(280)
 
 
 
 1
 
 
Purchase of Company stock
(28)
(487)
(14,319)
 
(14,834)1
 
(14,834)
Other (in shares)
10 
 
 
 
 
 
 
Other
261 
(23)
 
240 1
(221)
19 
Balances (in shares) at Jan. 31, 2011
3,516 
 
 
 
 
 
 
Balances (As Adjusted) at Jan. 31, 2011
$ 352 
$ 3,577 
$ 63,967 
$ 646 
$ 68,542 1
$ 2,705 
$ 71,247 
Consolidated Statements of Shareholders' Equity (Parenthetical) (Audited) (USD $)
Year Ended
Jan. 31,
2011
2010
2009
Cash dividends, per share
$ 1.21 
$ 1.09 1
$ 0.95 1
Comprehensive Income (Audited) (USD $)
In Millions
Year Ended
Jan. 31,
2011
2010
2009
Consolidated net income:
 
 
 
Consolidated net income
$ 16,993 1
$ 14,883 
$ 13,880 
Other comprehensive income:
 
 
 
Currency translation
1,137 3
2,854 
(6,860)
Net change in fair value of derivatives
(17)
94 2
(17)2
Minimum pension liability
(145)
(220)2
(46)2
Total comprehensive income
17,968 
17,611 2
6,957 2
Less amounts attributable to the noncontrolling interest:
 
 
 
Consolidated net income
(604)1
(513)
(499)
Currency translation
(259)3
(110)
371 
Amounts attributable to the noncontrolling interest
(863)
(623)2
(128)2
Comprehensive income attributable to Walmart
$ 17,105 
$ 16,988 2
$ 6,829 2
Comprehensive Income (Parenthetical) (Audited) (USD $)
In Millions
Year Ended
Jan. 31,
2011
2010
Comprehensive Income (Unaudited)
 
 
Consolidated net income, redeemable noncontrolling interest
$ 20 
$ 14 1
Foreign currency translation, redeemable noncontrolling interest
$ 97 
$ 46 1
Consolidated Statements of Cash Flows (Audited) (USD $)
In Millions
Year Ended
Jan. 31,
2011
2010
2009
Cash flows from operating activities:
 
 
 
Consolidated net income
$ 16,993 1
$ 14,883 
$ 13,880 
Loss (income) from discontinued operations, net of tax
(1,034)
79 2
(146)2
Income from continuing operations
15,959 
14,962 2
13,734 2
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,641 
7,157 2
6,739 2
Deferred income taxes
651 
(504)2
581 2
Other operating activities
1,087 
318 2
752 2
Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(733)
(297)2
(101)2
Inventories
(3,086)
2,213 2
(184)2
Accounts payable
2,557 
1,052 2
(410)2
Accrued liabilities
(433)
1,348 2
2,036 2
Net cash provided by operating activities
23,643 
26,249 2
23,147 2
Cash flows from investing activities:
 
 
 
Payments for property and equipment
(12,699)
(12,184)2
(11,499)2
Proceeds from disposal of property and equipment
489 
1,002 2
714 2
Proceeds from disposal of certain international operations, net
 
 
838 2
Investments and business acquisitions, net of cash acquired
(202)
 
(1,576)2
Other investing activities
219 
(438)2
781 2
Net cash used in investing activities
(12,193)
(11,620)2
(10,742)2
Cash flows from financing activities:
 
 
 
Net change in short-term borrowings
503 
(1,033)2
(3,745)2
Proceeds from issuance of long-term debt
11,396 
5,546 2
6,566 2
Payments of long-term debt
(4,080)
(6,033)2
(5,387)2
Dividends paid
(4,437)
(4,217)2
(3,746)2
Purchase of Company stock
(14,776)
(7,276)2
(3,521)2
Purchase of redeemable noncontrolling interest
 
(436)2
 
Payment of capital lease obligations
(363)
(346)2
(352)2
Other financing activities
(271)
(396)2
267 2
Net cash used in financing activities
(12,028)
(14,191)2
(9,918)2
Effect of exchange rates on cash and cash equivalents
66 
194 2
(781)2
Net increase (decrease) in cash and cash equivalents
(512)
632 2
1,706 2
Cash and cash equivalents at beginning of year
7,907 2
7,275 2
5,569 2
Cash and cash equivalents at end of year
7,395 
7,907 2
7,275 2
Supplemental disclosure of cash flow information:
 
 
 
Income tax paid
6,984 
7,389 2
6,596 2
Interest paid
2,163 
2,141 2
1,787 2
Capital lease obligations incurred
$ 49 
$ 61 2
$ 284 2
Note 1. 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, aggregated into three reportable segments: (1) the Walmart U.S. segment; (2) the Walmart International segment; and (3) the Sam's Club segment. We are 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Wal-Mart Stores, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Investments in unconsolidated affiliates, which are 50% or less owned and do not meet the consolidation criteria of Topic 810 of the Financial Accounting Standards Codification ("ASC") are accounted for using the equity method. These investments are immaterial to our consolidated financial statements.

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 during January 2011 which materially affected the consolidated financial statements. The Company's operations in the United States and Canada are consolidated using a January 31 fiscal year-end.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. Those principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Management's estimates and assumptions also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Cash and Cash Equivalents

The Company considers investments with a maturity of three months or less when purchased to be cash equivalents. 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 $1.2 billion and $2.6 billion at January 31, 2011 and 2010, 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 $504 million and $469 million at January 31, 2011 and 2010, respectively.

 
Receivables

Receivables consist primarily of amounts due from:

 

   

insurance companies resulting from our pharmacy sales;

 

   

banks for customer credit card, debit card and electronic bank transfers 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 overall reserve for uncollectible receivables was $252 million and $298 million at January 31, 2011 and 2010, respectively.

 

Our Walmart International segment offers a limited amount of consumer credit products, principally through our subsidiaries in Chile, Canada and Mexico. At January 31, 2011, the balance of these receivables was $673 million, net of its reserve for doubtful accounts of $83 million, and is included in receivables, net on the accompanying consolidated balance sheet.

Property and Equipment

Property and equipment are stated at cost. Gains or losses on disposition are recognized as earned or incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Property and equipment are generally depreciated over the following estimated useful lives on a straight line basis:

 

         

Buildings and improvements

     340 years   

Fixtures and equipment

     325 years   

Transportation equipment

     415 years   

Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining expected lease term. If significant expenditures are made for leasehold improvements late in the expected term of a lease and renewal is reasonably assured, 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. Depreciation expense, including amortization of property under capital leases, for fiscal years 2011, 2010 and 2009 was $7.6 billion, $7.2 billion and $6.7 billion, respectively.

Capitalized Interest

The interest costs associated with construction projects are capitalized and included as part of the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project is substantially complete. Interest costs capitalized on construction projects were $63 million, $85 million and $88 million in fiscal 2011, 2010 and 2009, 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.

Goodwill and Other Acquired Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations 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 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 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.

 

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 not recorded impairment charges related to goodwill.

The following table reflects goodwill activity, by operating segment, for fiscal years 2011 and 2010:

 

                                 
(Amounts in millions)    Walmart U.S.      Walmart
International
     Sam's Club      Total  

February 1, 2009

   $ 207       $ 14,740       $ 313       $ 15,260   

Currency translation and other

     —           866         —           866   
                                     

January 31, 2010

     207         15,606         313         16,126   

Currency translation and other

     —           605         —           605   

Acquisitions

     32         —           —           32   
                                     

January 31, 2011

   $ 239       $ 16,211       $ 313       $ 16,763   
                                     

During fiscal 2011, Walmart U.S. completed an immaterial business acquisition that resulted in the recognition of $32 million in goodwill.

Indefinite-lived 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, 2011, 2010 and 2009.

 

Income Taxes

Income taxes are accounted for under the 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 records 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.

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 summarizes membership fee activity for each of the fiscal years 2011, 2010 and 2009.

 

                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011     2010     2009  

Deferred membership fee revenue, beginning of year

   $ 532      $ 541      $ 551   

Cash received from members

     1,074        1,048        1,044   

Membership fee revenue recognized

     (1,064     (1,057     (1,054
                          

Deferred membership fee revenue, end of year

   $ 542      $ 532      $ 541   
                          

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 and import distribution centers.

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 and import distribution centers. As a result, the majority of the cost of warehousing and occupancy for our Walmart U.S. and Walmart International segments' distribution facilities is included in operating, selling, general and administrative expenses. Because we do not include most of the cost of our Walmart U.S. and Walmart 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 $2.5 billion, $2.4 billion and $2.1 billion in fiscal 2011, 2010 and 2009, 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 and included in operating, selling, general and administrative expenses on our Consolidated Statements of Income. Pre-opening costs totaled $320 million, $227 million and $289 million for the years ended January 31, 2011, 2010 and 2009, respectively.

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 currencies to the U.S. dollar using average exchange rates for the period covered by the income statements. Related translation adjustments are recorded as a component of accumulated other comprehensive income (loss).

Recent Accounting Pronouncements

A new accounting standard, effective for and adopted by the Company on February 1, 2010, changes the approach to determining the primary beneficiary of a variable interest entity ("VIE") and requires companies to assess more frequently whether they must consolidate VIEs. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Note 2. Accounting Change
Accounting Change

Note 2. Accounting Change

Effective May 1, 2010, the Company implemented a new financial system for its operations in the United States, Canada and Puerto Rico. Concurrent with this implementation and the increased system capabilities, the Company changed the level at which it applies the retail method of accounting for inventory in these operations from 13 divisions to 49 departments. The Company believes the change is preferable because applying the retail method of accounting for inventory at the departmental level better segregates merchandise with similar cost-to-retail ratios and turnover, as well as providing a more accurate cost of goods sold and ending inventory value at the lower of cost or market for each reporting period. The retrospective application of this accounting change impacted both segment and consolidated operating income, as well as consolidated net income for all comparable periods presented.

The retrospective application of the accounting change impacted the following financial statement line items:

 

 

     Fiscal Year Ended January 31, 2010  

(Amounts in millions)

   As Reported      Adjustments     As Adjusted  

Consolidated Balance Sheets:

       

Inventories

   $ 33,160       $ (447   $ 32,713   

Prepaid expenses and other

     2,980         148        3,128   

Accrued income taxes

     1,365         (18     1,347   

Retained earnings

     66,638         (281     66,357  
Note 3. 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 share-based awards. The dilutive effect of share-based awards was 14 million, 11 million and 12 million shares in fiscal 2011, 2010 and 2009, respectively. The Company had approximately 4 million, 5 million and 6 million stock options outstanding at January 31, 2011, 2010 and 2009, respectively, which were not included in the diluted net income per common 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 income (loss) from discontinued operations, net of tax, are as follows:

 

     Fiscal Years Ended January 31,  

(Amounts in millions)

   2011     2010     2009  

Income from continuing operations

   $ 15,959      $ 14,962      $ 13,734   

Less consolidated net income attributable to noncontrolling interest

     (604     (513     (499
                        

Income from continuing operations attributable to Walmart

     15,355        14,449        13,235   

Income (loss) from discontinued operations, net of tax

     1,034        (79     146   
                        

Consolidated net income attributable to Walmart

   $ 16,389      $ 14,370      $ 13,381   
                        
Note 4. Share-Based Compensation
Share-Based Compensation

Note 4. Share-Based Compensation

As of January 31, 2011, 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 $371 million, $335 million and $302 million for fiscal 2011, 2010 and 2009, respectively. Virtually all of our share based compensation costs are classified as 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 $141 million, $126 million and $112 million for fiscal 2011, 2010 and 2009, respectively. The following table summarizes our share-based compensation expense by award type:

 

     Fiscal Years Ended January 31,  
(Amounts in millions)    2011      2010      2009  

Restricted stock and performance share awards

   $ 162       $ 140       $ 134   

Restricted stock rights

     157         111         74   

Stock options

     52         84         94   
                          

Share based compensation expense

   $ 371       $ 335       $ 302   
                          

The Company's shareholder-approved Stock Incentive Plan of 2010 (the "Plan"), which amended and restated the Company's Stock Incentive Plan of 2005, effective June 4, 2010, was established to grant stock options, restricted (non-vested) stock, performance shares and other equity compensation awards to its associates and nonemployee directors for which 210 million shares of common stock issued or 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. Options granted generally vest over five years and 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 49 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.

Restricted Stock and Performance Share Awards

Under the Plan, the Company grants various types of awards of restricted 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 thereafter generally are settled or deferred in stock.

Performance share awards under the Plan 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 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.

The fair value of the restricted stock and performance share liabilities is remeasured each reporting period. The total liability for restricted stock and performance share awards at January 31, 2011 and 2010 was $12 million and $63 million, respectively.

 

A summary of the Company's restricted stock and performance share award activity for fiscal 2011 presented below represents the maximum number of shares that could be earned or vested under the Plan (in thousands, except per share prices):

 

Restricted Stock and Performance Share Awards    Shares     Weighted-
Average
Grant-Date
Fair Value
Per Share
 

Restricted Stock and Performance Share Awards at February 1, 2010

     14,324      $ 50.18   

Granted

     4,842        55.52   

Vested

     (3,533     48.90   

Forfeited

     (2,016     50.88   
                

Restricted Stock and Performance Share Awards at January 31, 2011

     13,617      $ 52.33   
                

As of January 31, 2011, there was $331 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 2.3 years. The total fair value of shares vested during the fiscal years ended January 31, 2011, 2010 and 2009, was $142 million, $110 million and $55 million, respectively.

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 the dividend yield used to determine the fair value of restricted stock rights granted in fiscal 2011, 2010 and 2009 was 9.1%, 8.5% and 6.8%, respectively.

A summary of the Company's restricted stock rights activity for fiscal 2011 presented below represents the maximum number of shares that could be earned or vested under the Plan (in thousands, except per share prices):

 

Restricted Stock Rights    Shares     Weighted-
Average

Grant-Date
Fair Value
Per Share
 

Restricted Stock Rights at February 1, 2010

     14,024      $ 46.50   

Granted

     5,520        50.04   

Vested

     (1,177     42.72   

Forfeited

     (1,529     47.38   
                

Restricted Stock Rights at January 31, 2011

     16,838      $ 47.71   
                

As of January 31, 2011, there was $397 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 2.3 years. The fair value of the restricted stock rights vested in fiscal 2011, 2010 and 2009, was $50 million, $49 million, and $0 million, respectively.

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 Years Ended January 31,  
     2011     2010     2009  

Dividend yield

     2.3     2.1     1.9

Volatility

     17.1     18.7     16.7

Risk-free interest rate

     1.8     1.4     2.0

Expected life in years

     3.1        3.1        3.4   

Weighted average fair value of options granted

   $ 12.53      $ 10.41      $ 9.97   

 

Stock options granted during fiscal 2011 were primarily issued under the Sharesave Plan. A summary of the stock option award activity for fiscal 2011 is presented below (in thousands, except years and per share prices):

 

Stock Options    Shares     Weighted-
Average

Exercise
Price

Per Share
     Weighted-
Average

Remaining
Life in Years
     Aggregate
Intrinsic
Value
 

Outstanding at February 1, 2010

     41,959      $ 49.32         

Granted

     1,921        43.79         

Exercised

     (7,868     47.66         

Forfeited or expired

     (2,626     49.85         
                      

Outstanding at January 31, 2011

     33,386        49.35         4.2       $ 228,076   
                                  

Exercisable at January 31, 2011

     23,793      $ 51.31         3.2       $ 117,319   
                                  

As of January 31, 2011, there was $42 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 1.2 years. The following table includes additional information related to stock options:

 

     Fiscal Years Ended January 31,  
(Amounts in millions)    2011      2010      2009  

Fair value of stock options vested

   $ 54       $ 79       $ 107   

Intrinsic value of stock options excercised

     51         39         173   

Proceeds from stock option exercised

     205         111         585   

 

Note 5. Restructuring Charges
Restructuring Charges

Note 5. 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, the Company recorded $260 million in pre-tax restructuring charges as follows:

 

     Fiscal Year Ended January 31, 2010  
(Amounts in millions)    Asset
Impairment
     Severance
Costs
     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 was 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 discussed in Note 8.

The pre-tax restructuring charges of $260 million are classified in operating, selling, general and administrative expenses on the accompanying Consolidated Statement of Income for the fiscal year ended January 31, 2010. At January 31, 2010, we had $127 million of severance costs included in accrued liabilities on the accompanying Consolidated Balance Sheet. These severance costs were paid during fiscal 2011.

Note 6. Accrued Liabilities
Accrued Liabilities

Note 6. Accrued Liabilities

Accrued liabilities consist of the following:

 

As of January 31,  
(Amounts in millions)    2011      2010  

Accrued wages and benefits(1)

   $ 5,895       $ 5,986   

Self-insurance(2)

     3,447         3,224   

Other(3)

     9,359         9,524   
                 

Total accrued liabilities

   $ 18,701       $ 18,734   
                 

 

Note 7. Short-term Borrowings and Long-term Debt
Short-term Borrowings and Long-term Debt

Note 7. Short-term Borrowings and Long-term Debt

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

 
                         
     Fiscal Years Ended January 31,  
(Dollar amounts in millions)    2011     2010     2009  

Maximum amount outstanding at any month-end

   $ 9,282      $ 4,536      $ 7,866   

Average daily short-term borrowings

     4,020        1,596        4,520   

Weighted-average interest rate

     0.2     0.5     2.1

Short-term borrowings consist of commercial paper and lines of credit. Short-term borrowings outstanding at January 31, 2011 and 2010 were $1.0 billion and $523 million, respectively. The Company has certain lines of credit totaling $11.5 billion, most of which were undrawn as of January 31, 2011 and is committed with 28 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, 2011. The committed lines of credit mature at various times between June 2011 and June 2012, carry interest rates in some cases equal to the Company's one-year credit default swap mid-rate spread and is constricted between LIBOR plus 10 basis and LIBOR plus 75 basis points, and incur commitment fees of 2.5 to 10.0 basis points.

The Company had trade letters of credit outstanding totaling $2.6 billion and $2.4 billion at January 31, 2011 and 2010, respectively. At January 31, 2011 and 2010, the Company had standby letters of credit outstanding totaling $2.0 billion and $2.4 billion, respectively. These letters of credit were issued primarily for the purchase of inventory and self-insurance purposes.

 

Long-term debt consists of the following:

 

The Company has $500 million in debt with embedded put options. The 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. This issuance has been classified as long-term debt due within one year in the Consolidated Balance Sheets. Annual maturities of long-term debt during the next five years and thereafter are as follows:

 

         
(Amounts in millions)    Annual  
Fiscal Year    Maturity  

2012

   $ 4,655   

2013

     1,744   

2014

     5,113   

2015

     2,832   

2016

     4,662   

Thereafter

     26,074   
          

Total

   $ 45,080   
          

 

Note 8. Fair Value Measurements
Fair Value Measurements

Note 8. 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 - observable inputs such as quoted prices in active markets;

 

   

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

 

   

Level 3 - unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions.

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

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

Short-term debt: The carrying value 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 carrying value and fair value of the Company's debt as of January 31, 2011 and 2010 is as follows:

 

     January 31, 2011      January 31, 2010  
(Amounts in millions)    Carrying Value      Fair Value      Carrying Value      Fair Value  

Long-term debt, including amounts due within one year

   $ 45,347       $ 47,012       $ 37,281       $ 39,055   

Additionally, as of January 31, 2011 and 2010, 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, using the income approach. Related inputs include the relevant interest rate and foreign currency forward curves. As of January 31, 2011 and 2010, the notional amounts and fair values of these interest rate swaps are as follows (asset/(liability)):

 

(Amounts in millions)    January 31, 2011     January 31, 2010  
     Notional Amount      Fair Value     Notional Amount      Fair Value  

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

   $ 4,445       $ 267      $ 4,445       $ 260   

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, 2011 and 2010)

     1,250         233        1,250         189   

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

     1,182         (18     638         (20

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

     2,902         238        2,902         286   
                                  

Total

   $ 9,779       $ 720      $ 9,235       $ 715   
                                  

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.

Note 9. Derivative Financial Instruments
Derivative Financial Instruments

Note 9. 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 $344 million and $323 million at January 31, 2011 and 2010, respectively. It is the Company's policy to record cash collateral exclusive of any derivative asset, and any collateral holdings are reflected in the Company's 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 the purpose of hedging its exposure to interest and currency exchange rates, the contract terms of a hedged 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 income (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 during the period. 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 income (loss) on the accompanying Consolidated Balance Sheets with no net impact on the Consolidated Statements of Income. These fair value instruments will mature on various dates ranging from February 2011 to May 2014.

Net Investment Instruments

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 income (loss), offsetting the currency translation adjustment that is also recorded in accumulated other comprehensive income (loss). These instruments will mature on dates ranging from October 2023 to February 2030.

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, 2011 and 2010. The Company also has outstanding, approximately ¥437.0 billion of debt that is designated as a hedge of the Company's net investment in Japan at January 31, 2011 and 2010. Any translation of non-U.S.-denominated debt is recorded in accumulated other comprehensive income (loss), offsetting the currency translation adjustment that is also recorded in accumulated other comprehensive income (loss). These instruments will mature on dates ranging from May 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 income (loss) to earnings to offset the floating-rate interest expense. These cash flow instruments will mature on dates ranging from August 2013 to July 2015.

 

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 income (loss) to earnings to offset the remeasurement gain (loss) 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 has been and is expected to be immaterial.

Financial Statement Presentation

Hedging instruments with an unrealized gain are recorded on the Consolidated Balance Sheets as either a current or a non-current asset, based on maturity date, and those hedging instruments with an unrealized loss are recorded as either a current or a non-current liability, based on maturity date.

As of January 31, 2011 and 2010, our financial instruments were classified as follows in the accompanying Consolidated Balance Sheets:

 

     January 31, 2011      January 31, 2010  
(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

   $ 267       $ 233       $ 238       $ 260       $ 189       $ 286   
                                                     

Assets subtotals

   $ 267       $ 233       $ 238       $ 260       $ 189       $ 286   
                                                     

Long-term debt

   $ 267       $ —         $ —         $ 260       $ —         $ —     

Deferred income taxes and other

     —           —           18         —           —           20   
                                                     

Liability subtotals

   $ 267       $ —         $ 18       $ 260       $ —         $ 20   
                                                     
Note 10. Taxes
Taxes

Note 10. Taxes

Income from Continuing Operations

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

 

                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011      2010      2009  

U.S.

   $ 18,398       $ 17,705       $ 16,212   

Non-U.S.

     5,140         4,413         4,655   
                            

Total income from continuing operations before income taxes

   $ 23,538       $ 22,118       $ 20,867   
                            

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

 

                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011      2010
As Adjusted
    2009
As Adjusted
 

Current:

                         

U.S. federal

   $ 4,600       $ 5,798      $ 4,771   

U.S. state and local

     637         599        564   

International

     1,466         1,246        1,229   
                           

Total current tax provision

     6,703         7,643        6,564   
                           

Deferred:

                         

U.S. federal

     818         (432     603   

U.S. state and local

     39         78        41   

International

     19         (133     (75
                           

Total deferred tax provision

     876         (487     569   
                           

Total provision for income taxes

   $ 7,579       $ 7,156      $ 7,133   
                           

 

Effective Tax Rate Reconciliation

A reconciliation of the significant differences between the U.S. statutory tax rate and the effective income tax rate on pretax income from continuing operations is as follows:

 

                         
     Fiscal Years Ended January 31,  
     2011     2010     2009  

U.S. statutory tax rate

     35.0     35.0     35.0

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

     1.9     2.0     1.9

Income taxed outside the U.S.

     -2.2     -1.6     -1.7

Net impact of repatriated international earnings

     -1.5     -3.4     -1.1

Other, net

     -1.0     0.4     0.1
                          

Effective income tax rate

     32.2     32.4     34.2
                          

Deferred Taxes

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

 

                 
     January 31,  
(Amounts in millions)    2011     2010  

Deferred tax assets:

                

Loss and tax credit carryforwards

   $ 2,968      $ 2,713   

Accrued liabilities

     3,532        3,141   

Share-based compensation

     332        267   

Other

     708        751   
                  

Total deferred tax assets

     7,540        6,872   

Valuation allowance

     (2,899     (2,167
                  

Deferred tax assets, net of valuation allowance

   $ 4,641      $ 4,705   
                  
     

Deferred tax liabilities:

                

Property and equipment

   $ 4,848      $ 4,015   

Inventories

     1,014        972   

Other

     474        609   
                  

Total deferred tax liabilities

     6,336        5,596   
                  

Net deferred tax liabilities

   $ 1,695      $ 891   
                  

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

 

                 
      January 31,  
(Amounts in millions)    2011      2010  

Balance Sheet Classification:

                 

Assets:

                 

Prepaid expenses and other

   $ 1,636       $ 1,534   

Other assets and deferred charges

     327         331   
                   

Asset subtotals

     1,963         1,865   
                   

Liabilities:

                 

Accrued liabilities

     17         34   

Deferred income taxes and other

     3,641         2,722   
                   

Liability subtotals

     3,658         2,756   
                   

Net deferred tax liabilities

   $ 1,695       $ 891   
                   

Unremitted Earnings

United States income taxes have not been provided on accumulated but undistributed earnings of the Company's international subsidiaries of approximately $17.0 billion and $13.7 billion as of January 31, 2011 and 2010, respectively, as the Company intends to permanently reinvest these amounts outside of the United States. 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, 2011, the Company had U.S. capital loss carryforwards of $776 million and international net operating loss and capital loss carryforwards totaling approximately $4.1 billion. The U.S. capital loss carryforward will expire, if not utilized, in 2012. Of the international carryforwards, approximately $2.3 billion will expire, if not utilized, in various years through 2021. The remaining international carryforwards have no expiration. At January 31, 2011, the Company had foreign tax credit carryforwards of $1.3 billion, which will expire in various years through 2021 if not utilized.

As of January 31, 2011, the Company has provided a valuation allowance of approximately $2.9 billion on deferred tax assets associated primarily with net operating loss and capital loss carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. The $732 million net change in the valuation allowance during fiscal 2011 related to releases arising from the use of net operating loss carryforwards, increases in capital loss carryforwards, international net operating losses arising in fiscal 2011 and fluctuations in currency exchange rates. Management believes that it is more likely than not that the remaining deferred tax assets will be fully realized.

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, 2011 and 2010, the amount of unrecognized tax benefits related to continuing operations was $795 million and $1.0 billion, respectively, of which, the amount of unrecognized tax benefits that would affect the Company's effective tax rate is $687 million and $671 million for January 31, 2011 and 2010, respectively.

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

 

                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011     2010     2009  

Unrecognized tax benefit, beginning of year

   $ 1,019      $ 1,017      $ 868   

Increases related to prior year tax positions

     101        129        296   

Decreases related to prior year tax positions

     (61     (33     (34

Increases related to current year tax positions

     199        246        129   

Settlements during the period

     (453     (340     (238

Lapse in statutes of limitations

     (10     —          (4
                          

Unrecognized tax benefit, end of year

   $ 795      $ 1,019      $ 1,017   
                          

The Company classifies interest and penalties related to uncertain tax benefits as interest expense and as operating, selling, general and administrative expenses, respectively. During fiscal 2011, 2010 and 2009, the Company recognized interest related to uncertain tax positions of $45 million, $88 million and $109 million, respectively. At January 31, 2011 and 2010, the Company had accrued interest related to uncertain tax positions of $205 million and $231 million, respectively, and $2 million of accrued penalties. There were no changes to accrued penalties recognized during the year.

During the next twelve months, it is reasonably possible that tax audit resolutions could reduce unrecognized tax benefits by between $330 million and $420 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 our consolidated financial statements.

The Company is subject to income tax examinations for its U.S. federal income taxes generally for the fiscal years 2009 through 2011. The Company is also subject to income tax examinations for international income taxes for the tax years 2003 through 2010, and for state and local income taxes for the fiscal years generally 2006 through 2009.

Discontinued Operations

At January 31, 2010, the Company had an unrecognized tax benefit of $1.7 billion related to an ordinary worthless stock deduction from the fiscal 2007 disposition of its German operations. During the fourth quarter of fiscal 2011, this matter was effectively settled with the Internal Revenue Service, which resulted in the reclassification of the deduction as an ordinary loss, a capital loss that the Company has fully offset with a valuation allowance, and a reduction in the accumulated but undistributed earnings of an international subsidiary. In connection with this settlement, the Company recorded a $1.0 billion tax benefit in discontinued operations on our Consolidated Statements of Income (see Note 15) and a reduction of our accrued income tax liability in our Consolidated Balance Sheet at January 31, 2011.

 

Other Taxes

Additionally, the Company is subject to tax examinations for payroll, value added, sales-based and other non-income 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 consolidated financial statements.

Note 11. Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

Note 11. Accumulated Other Comprehensive Income (Loss)

Amounts included in accumulated other comprehensive income (loss) for the Company's derivative instruments and minimum pension liabilities are recorded net of their 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, 2011, 2010 and 2009:

 

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

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 January 31, 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

Currency translation adjustment

     878        —          —          878   

Net change in fair value of derivatives

     —          (17     —          (17

Subsidiary minimum pension liability

     —          —          (145     (145
                                

Balances at January 31, 2011

   $ 1,226      $ 60      $ (640   $ 646   
                                

The currency translation adjustment includes a net translation loss of $1.0 billion and $545 million and a gain of $1.2 billion at January 31, 2011, 2010 and 2009, respectively, related to net investment hedges of our operations in the United Kingdom and Japan. We reclassified $(14) million and $83 million, respectively, in fiscal 2011 and 2010 from accumulated other comprehensive income (loss) to earnings to offset currency translation losses on the re-measurement of non-U.S. denominated debt.

Note 13. Commitments
Commitments

Note 13. 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 $2.0 billion in fiscal 2011 and $1.8 billion in each of fiscal 2010 and 2009. Aggregate minimum annual rentals at January 31, 2011, under non-cancelable leases are as follows:

 

(Amounts in millions)              
Fiscal Year    Operating
Leases
     Capital
Leases
 

2012

   $ 1,406       $ 609   

2013

     1,336         574   

2014

     1,271         545   

2015

     1,205         496   

2016

     1,120         462   

Thereafter

     7,785         3,230   
                 

Total minimum rentals

   $ 14,123       $ 5,916   
           

Less estimated executory costs

        (51
           

Net minimum lease payments

        5,865   

Less imputed interest

        (2,379
           

Present value of minimum lease payments

      $ 3,486   
           

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 2011, 2010 and 2009. 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, 2011, the aggregate termination payment would have been $84 million. The arrangements pursuant to which these payments could be made expire in fiscal 2019.

The Company has future lease commitments for land and buildings for approximately 424 future locations. These lease commitments have lease terms ranging from 4 to 30 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $109 million for fiscal 2012, based on current cost estimates.

Note 15. Acquisitions, Investments and Disposals
Acquisitions, Investments and Disposals

Note 15. Acquisitions, Investments and Disposals

Acquisitions and Investments

Bounteous Company Limited ("BCL"): In February 2007, the Company purchased an initial 35% interest in BCL, which operates in China under the Trust-Mart banner. The Company paid $264 million for its initial 35% interest and, as additional consideration, paid $376 million to extinguish a third-party loan issued to the selling BCL shareholders that was secured by the pledge of the remaining equity of BCL. Concurrent with its initial investment in BCL, the Company entered into a Shareholders' 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 Share Purchase Agreement, the Company was committed to purchase the remaining interest in BCL on or before November 26, 2010, subject to certain conditions. In October 2010, the Company and the selling shareholder mutually agreed to extend the closing to May 26, 2011, while certain conditions of the contract are being completed.

D&S: 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, allocated as follows:

 

   

tangible and other assets, $2.25 billion;

 

   

goodwill, $1.4 billion;

 

   

liabilities assumed, $1.7 billion; and

 

   

redeemable noncontrolling interest of $395 million.

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 hold a put option that is exercisable 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%) at fair market value at the time of an exercise, if any.

Netto: On May 27, 2010, the Company announced an agreement with Dansk Supermarked A/S, whereby ASDA, our subsidiary in the United Kingdom, will purchase Netto Foodstores Limited. Netto operates 193 units, each averaging 8,000 square feet. On March 9, 2011, the UK Office of Fair Trading confirmed its clearance of ASDA's proposed purchase of Netto, subject to the requirement that ASDA divest 47 Netto units. The original estimated purchase price was approximately £778 million ($1.2 billion), subject to finalizing any divestitures. The transaction is expected to close in fiscal 2012.

Massmart: On November 29, 2010, the Company announced an offer to purchase 51% of Massmart, for approximately ZAR 17 billion ($2.3 billion). Massmart operates 288 units under several wholesale and retail banners in South Africa and 13 other sub-Saharan African countries. The transaction is subject to final regulatory approval.

 

Disposals

At January 31, 2010, the Company had an unrecognized tax benefit of $1.7 billion related to a worthless stock deduction from the final 2007 disposition of its German operations. This matter was effectively settled with the Internal Revenue Service, during the fourth quarter of fiscal 2011, resulting in a $1.0 billion tax benefit recorded in discontinued operations in our Consolidated Statement of Income. See Note 10.

During fiscal 2009, the Company initiated a restructuring program for our Japanese subsidiary, The Seiyu Ltd., to close approximately 23 stores and dispose of certain excess properties, which was substantially completed in fiscal 2010. This restructuring involved incurring costs associated with lease termination obligations, asset impairment charges and employee separation benefits. The operating results, including the restructuring and impairment charges were approximately $79 million and $122 million, net of tax, for the fiscal years ended January 31, 2010 and 2009, respectively, and are presented as discontinued operations in our Consolidated Statements of Income.

During fiscal 2009, the Company recognized approximately $212 million, after tax, in operating profits and gains from the sale of Gazely Limited ("Gazely"), our commercial property development subsidiary in the United Kingdom. The operating results and gain on sale of Gazely are presented as discontinued operations on our Consolidated Statement of Income for the year ended January 31, 2009. The transaction continues to remain subject to certain indemnification obligations.

The assets, liabilities, net sales and cash flows related to our discontinued operations were not significant during fiscal years 2011, 2010 and 2009. The net income or losses related to our discontinued operations, including the gain and (losses) upon disposition, are as follows:

 

     Fiscal Years Ended January 31,  
(Amounts in millions)    2011     2010     2009  

Germany

   $ 1,041      $ —        $ —     

Gazeley

     —          —          212   

Seiyu

     (7     (79     (122

Other

     —          —          56   
                        
   $ 1,034      $ (79   $ 146   
                        

 

Note 16. Segments
Segments

Note 16. Segments

The Company is engaged in the operations of retail stores located in all 50 states of the United States and Puerto Rico, Argentina, Brazil, Canada, Japan, the United Kingdom, Chile, Mexico and Central America, China and India. The Company's operations are conducted in three reportable segments: (1) the Walmart U.S. segment; (2) the Walmart International segment; and (3) the Sam's Club segment. The Company defines its segments as those business units whose operating results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The Company sells similar individual products and services in each of its segments. It is impractical to segregate and identify revenue and profits for each individual product and service.

As part of an operational realignment in fiscal 2011, the Puerto Rico operations shifted from the Walmart International segment to the respective Walmart U.S. and Sam's Club segments. The Walmart U.S. segment includes the Company's mass merchant concept in the United States and Puerto Rico operating under the "Walmart" or "Wal-Mart" brand, as well as walmart.com. The Walmart International segment consists of the Company's operations outside of the United States and Puerto Rico. The Sam's Club segment includes the warehouse membership clubs in the United States and Puerto Rico, as well as samsclub.com. All prior period segment amounts have been reclassified to conform to the current period's presentation. The amounts under the caption "Other" in the table below relating to operating income (loss) 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, the Company revises the measurement of each segment's operating income, including any corporate overhead allocations, as dictated by the information regularly reviewed by its CODM. In the first quarter of fiscal 2011, certain information systems' expenses previously included in unallocated corporate overhead have been allocated to the segment that is directly benefitting from those costs. The segment operating income is reclassified for all periods presented to conform to the current period's presentation. 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, 2011    Walmart U.S.      Walmart
International
     Sam's Club      Other     Consolidated  

Net sales

   $ 260,261       $ 109,232       $ 49,459       $ —        $ 418,952   

Operating income (loss)

     19,914         5,606         1,711         (1,689     25,542   

Interest expense, net

                (2,004
                   

Income from continuing operations before income taxes

              $ 23,538   
                   

Total assets of continuing operations

   $ 89,725       $ 72,021       $ 12,531       $ 6,255      $ 180,532   

Depreciation and amortization

   4,619       2,184       594       244      7,641   
Fiscal Year Ended January 31, 2010    Walmart U.S.      Walmart
International
     Sam's Club      Other     Consolidated  

Net sales (1)

   $ 259,919       $ 97,407       $ 47,806       $ —        $ 405,132   

Operating income (loss) (1)

     19,313         4,901         1,515         (1,727     24,002   

Interest expense, net

                (1,884
                   

Income from continuing operations before income taxes (1)

              $ 22,118   
                   

Total assets of continuing operations (1)

   $ 84,238       $ 66,515       $ 12,050       $ 7,464      $ 170,267   

Depreciation and amortization

   4,352       1,979       558       268      7,157   
Fiscal Year Ended January 31, 2009    Walmart U.S.      Walmart
International
     Sam's Club      Other     Consolidated  

Net sales (1)

   $ 256,970       $ 96,141       $ 47,976       $ —        $ 401,087   

Operating income (loss) (1)

     18,310         4,832         1,649         (2,024     22,767   

Interest expense, net

                (1,900
                   

Income from continuing operations before income taxes (1)

              $ 20,867   
                   

Total assets of continuing operations (1)

   $ 84,362       $ 59,071       $ 12,388       $ 7,080      $ 162,901   

Depreciation and amortization

   4,148       1,845       543       203      6,739   

 

In the United States and Puerto Rico, long-lived assets, net, excluding goodwill and other assets and deferred charges were $73.6 billion, $70.7 billion and $68.5 billion as of January 31, 2011, 2010 and 2009, respectively. In the United States and Puerto Rico, cash additions to long-lived assets were $8.7 billion, $8.2 billion and $7.5 billion in fiscal 2011, 2010 and 2009, respectively.

Outside of the United States, long-lived assets, net, excluding goodwill and other assets and deferred charges were $34.3 billion, $31.7 billion and $27.2 billion as of fiscal 2011, 2010 and 2009, respectively. Outside of the United States and Puerto Rico, cash additions to long-lived assets were $4.0 billion in fiscal 2011, fiscal 2010 and 2009, respectively. The Walmart International segment includes all real estate outside the United States and Puerto Rico. The net revenues and long-lived assets of the Company's ASDA subsidiary are significant to the Walmart International segment. ASDA's net sales during fiscal 2011, 2010 and 2009 were $31.8 billion, $31.2 billion and $34.0 billion, respectively. Currency exchange rate fluctuations during fiscal 2011 negatively impacted ASDA's sales by $502 million. ASDA's long-lived assets, consisting primarily of property and equipment, net, totaled $11.9 billion, $12.2 billion and $10.8 billion at January 31, 2011, 2010 and 2009, respectively.

Note 17. Subsequent Events
Subsequent Events

Note 17. Subsequent Events

Dividends Declared

On March 3, 2011, our Board of Directors approved an increase in the annual dividend for fiscal 2012 to $1.46 per share, an increase of approximately 21% over the dividends paid in fiscal 2011. Dividends per share were $1.21 and $1.09 in fiscal 2011 and 2010, respectively. For the fiscal year ending January 31, 2012, the annual dividend will be paid in four quarterly installments according to the following record and payable dates:

 

Record Date

  

Payable Date

March 11, 2011    April 4, 2011
May 13, 2011    June 6, 2011
August 12, 2011    September 6, 2011
December 9, 2011    January 3, 2012

Earthquake in Japan

On March 11, 2011, an earthquake of 9.0 magnitude occurred near the Northeastern coast of Japan, creating extremely destructive tsunami waves. The earthquake and tsunami waves caused extensive damage in Northeastern Japan and also affected other regions in Japan through a lack of electricity, water and transportation. We are currently unable to estimate the value of damages and the corresponding insurance recovery regarding our business in Japan although we do not believe that any damages would be material to our financial position.

Note 18. Quarterly Financial Data (Unaudited)
Quarterly Financial Data (Unaudited)

Note 18. Quarterly Financial Data (Unaudited)

 

(Amounts in millions except per share data)    Fiscal Year Ended January 31, 2011  
      Q1
As Adjusted(1)
     Q2      Q3      Q4      Total  

Net sales

   $ 99,097       $ 103,016       $ 101,239       $ 115,600       $ 418,952   

Cost of sales

     74,700         77,523         75,906         87,158         315,287   

Income from continuing operations

   $ 3,444       $ 3,747       $ 3,590       $ 5,178         15,959   

Consolidated net income

     3,444         3,747         3,590         6,212         16,993   

Consolidated net income attributable to Walmart

     3,301         3,596         3,436         6,056         16,389   

Basic net income per common share attributable to Walmart

   $ 0.88       $ 0.97       $ 0.95       $ 1.71       $ 4.48   

Diluted net income per common share attributable to Walmart

     0.87         0.97         0.95         1.70         4.47   
     Fiscal Year Ended January 31, 2010  
     Q1
As Adjusted(1)
     Q2      Q3      Q4
As Adjusted(1)
     Total  

Net sales

   $ 93,471       $ 100,168       $ 98,667       $ 112,826       $ 405,132   

Cost of sales

     70,395         75,056         73,915         85,078         304,444   

Income from continuing operations

   $ 3,121       $ 3,586       $ 3,265       $ 4,990       $ 14,962   

Consolidated net income

     3,113         3,579         3,258         4,933         14,883   

Consolidated net income attributable to Walmart

     2,996         3,472         3,144         4,758         14,370   

Basic net income per common share attributable to Walmart

   $ 0.76       $ 0.89       $ 0.82       $ 1.25       $ 3.72   

Diluted net income per common share attributable to Walmart

     0.76         0.89         0.81         1.25         3.71   

The sum of per share data may not agree to annual amounts due to rounding.

 

A reconciliation of the accounting change for the second and third quarters of fiscal 2010 has been reflected in the quarterly reports filed with the SEC in the respective quarters in fiscal 2011. The retrospective application of the accounting change impacted the following financial statement line items for the first quarter ended April 30, 2010 and 2009.

 

     Quarter Ended April 30, 2010      Quarter Ended April 30, 2009  
(Amounts in millions except per share data)    As Reported      Adjustments     As Adjusted      As Reported      Adjustments     As Adjusted  

Condensed Consolidated Statements of Income:

               

Cost of sales (1)

   $ 74,703       $ (3   $ 74,700       $ 70,388       $ 7      $ 70,395   

Operating income

     5,772         (35     5,737         5,217         (44     5,173   

Provision for income taxes

     1,834         (12     1,822         1,603         (18     1,585   

Income from continuing operations

     3,467         (23     3,444         3,147         (26     3,121   

Consolidated net income attributable to Walmart

     3,324         (23     3,301         3,022         (26     2,996   

Basic net income per share attributable to Walmart

     0.88         (0.01     0.88         0.77         (0.01     0.76   

Diluted net income per share attributable to Walmart

     0.88         (0.01     0.87         0.77         (0.01     0.76   

 

 

     Quarter Ended April 30, 2010      Quarter Ended April 30, 2009  
(Amounts in millions)    As Reported      Adjustments     As Adjusted      As Reported      Adjustments     As Adjusted  

Condensed Consolidated Balance Sheets:

               

Inventories

   $ 35,503       $ (482   $ 35,021       $ 34,391       $ (542   $ 33,849   

Prepaid expenses and other

     3,291         154        3,445         3,266         179        3,445   

Accrued income taxes

     2,726         (22     2,704         1,810         (22     1,788   

Retained earnings

     62,486         (306     62,180         61,556         (341     61,215   

 

Note 1. Summary of Significant Accounting Policies (Policy)

General

Wal-Mart Stores, Inc. ("Walmart," the "Company" or "we") operates retail stores in various formats around the world, aggregated into three reportable segments: (1) the Walmart U.S. segment; (2) the Walmart International segment; and (3) the Sam's Club segment. We are 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Wal-Mart Stores, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Investments in unconsolidated affiliates, which are 50% or less owned and do not meet the consolidation criteria of Topic 810 of the Financial Accounting Standards Codification ("ASC") are accounted for using the equity method. These investments are immaterial to our consolidated financial statements.

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 during January 2011 which materially affected the consolidated financial statements. The Company's operations in the United States and Canada are consolidated using a January 31 fiscal year-end.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. Those principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Management's estimates and assumptions also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Cash and Cash Equivalents

The Company considers investments with a maturity of three months or less when purchased to be cash equivalents. 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 $1.2 billion and $2.6 billion at January 31, 2011 and 2010, 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 $504 million and $469 million at January 31, 2011 and 2010, respectively.

 
Receivables

Receivables consist primarily of amounts due from:

 

   

insurance companies resulting from our pharmacy sales;

 

   

banks for customer credit card, debit card and electronic bank transfers 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 overall reserve for uncollectible receivables was $252 million and $298 million at January 31, 2011 and 2010, respectively.

 

Our Walmart International segment offers a limited amount of consumer credit products, principally through our subsidiaries in Chile, Canada and Mexico. At January 31, 2011, the balance of these receivables was $673 million, net of its reserve for doubtful accounts of $83 million, and is included in receivables, net on the accompanying consolidated balance sheet.

Property and Equipment

Property and equipment are stated at cost. Gains or losses on disposition are recognized as earned or incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Property and equipment are generally depreciated over the following estimated useful lives on a straight line basis:

 

         

Buildings and improvements

     340 years   

Fixtures and equipment

     325 years   

Transportation equipment

     415 years   

Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining expected lease term. If significant expenditures are made for leasehold improvements late in the expected term of a lease and renewal is reasonably assured, 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. Depreciation expense, including amortization of property under capital leases, for fiscal years 2011, 2010 and 2009 was $7.6 billion, $7.2 billion and $6.7 billion, respectively.

Capitalized Interest

The interest costs associated with construction projects are capitalized and included as part of the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project is substantially complete. Interest costs capitalized on construction projects were $63 million, $85 million and $88 million in fiscal 2011, 2010 and 2009, 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.

Goodwill and Other Acquired Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations 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 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 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.

 

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 not recorded impairment charges related to goodwill.

The following table reflects goodwill activity, by operating segment, for fiscal years 2011 and 2010:

 

                                 
(Amounts in millions)    Walmart U.S.      Walmart
International
     Sam's Club      Total  

February 1, 2009

   $ 207       $ 14,740       $ 313       $ 15,260   

Currency translation and other

     —           866         —           866   
                                     

January 31, 2010

     207         15,606         313         16,126   

Currency translation and other

     —           605         —           605   

Acquisitions

     32         —           —           32   
                                     

January 31, 2011

   $ 239       $ 16,211       $ 313       $ 16,763   
                                     

During fiscal 2011, Walmart U.S. completed an immaterial business acquisition that resulted in the recognition of $32 million in goodwill.

Indefinite-lived 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, 2011, 2010 and 2009.

 

Income Taxes

Income taxes are accounted for under the 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 records 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.

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 summarizes membership fee activity for each of the fiscal years 2011, 2010 and 2009.

 

                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011     2010     2009  

Deferred membership fee revenue, beginning of year

   $ 532      $ 541      $ 551   

Cash received from members

     1,074        1,048        1,044   

Membership fee revenue recognized

     (1,064     (1,057     (1,054
                          

Deferred membership fee revenue, end of year

   $ 542      $ 532      $ 541   
                          

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 and import distribution centers.

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 and import distribution centers. As a result, the majority of the cost of warehousing and occupancy for our Walmart U.S. and Walmart International segments' distribution facilities is included in operating, selling, general and administrative expenses. Because we do not include most of the cost of our Walmart U.S. and Walmart 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 $2.5 billion, $2.4 billion and $2.1 billion in fiscal 2011, 2010 and 2009, 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 and included in operating, selling, general and administrative expenses on our Consolidated Statements of Income. Pre-opening costs totaled $320 million, $227 million and $289 million for the years ended January 31, 2011, 2010 and 2009, respectively.

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 currencies to the U.S. dollar using average exchange rates for the period covered by the income statements. Related translation adjustments are recorded as a component of accumulated other comprehensive income (loss).

Recent Accounting Pronouncements

A new accounting standard, effective for and adopted by the Company on February 1, 2010, changes the approach to determining the primary beneficiary of a variable interest entity ("VIE") and requires companies to assess more frequently whether they must consolidate VIEs. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Note 1. Summary of Significant Accounting Policies (Tables)
         

Buildings and improvements

     340 years   

Fixtures and equipment

     325 years   

Transportation equipment

     415 years   
                                 
(Amounts in millions)    Walmart U.S.      Walmart
International
     Sam's Club      Total  

February 1, 2009

   $ 207       $ 14,740       $ 313       $ 15,260   

Currency translation and other

     —           866         —           866   
                                     

January 31, 2010

     207         15,606         313         16,126   

Currency translation and other

     —           605         —           605   

Acquisitions

     32         —           —           32   
                                     

January 31, 2011

   $ 239       $ 16,211       $ 313       $ 16,763   
                                     
                         
     Fiscal Years Ended January 31,  
(Amounts in millions)    2011     2010     2009  

Deferred membership fee revenue, beginning of year

   $ 532      $ 541