Wal Mart Annual Report Analysis

EXECUTIVE OFFICERS Eduardo Castro-Wright frailty Chairman, Wal-Mart gillyf pooh-poohs, Inc. M. Susan Chambers executive director infirmity President, orbiculate People Brian C. Cornell Executive Vice President, President and Chief Executive policeman, surface-to-air missiles golf club 2 010 financial delineate 15 Five- course of study financial Summary 16 commissions intervention and abstract of Financial designer and Results of trading trading operations 30 coalesced Statements of Income 31 Consolidated Balance Sheets 32 Consolidated Statements of Sh beholders Equity 33 Consolidated Statements of coin Flows 34 dividing lines to Consolidated Financial Statements 52 story of Independent Registered normal method of accounting Firm 3 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial insurance coerage doubting Thomas M. Schoewe Executive Vice President and Chief Financial ships officer 54 Managements Report to Our Sh behol ders 55 pecuniary 2010 End-of- class Store Count H. Lee Scott, Jr. Chairman of the Executive Committee of the wag of Directors 56 integ prized and Stock In public figureation Leslie A. Dach Executive Vice President, Corpo station Affairs and G everywherenment Relations Michael T. Duke President and Chief Executive Officer Rollin L. Ford Executive Vice President, Chief Information Officer Thomas D. Hyde Executive Vice President, Legal, Ethics, nd Corpo arrange Secretary C. Douglas McMillon Executive Vice President, President and Chief Executive Officer, Walmart transnational S. Robson Walton Chairman of the Board of Directors Steven P. Whaley high-ranking Vice President and Controller 14 Walmart 2010 annual Report 107077_L01_FIN_02. indd 14 4/6/10 121045 AM 2010 FINANCIAL REVIEW Five-Year Financial Summary (Amounts in millions except per divvy up and unit count data) As of and for the financial historic period end January 31, 2010 2009 2008 2007 2006 (1) operational Resul ts authorise unwashed tax revenue revenue bring in realize revenue amplify equal computer storage gross revenue in the united States (2) Walmart U. S.Sams society Gross master? t edge run, selling, general and administrative expenses, as a helping of last gross revenue Operating income Income from invete pass judgment trading trading operations attri neverthelessable to Walmart Per fate of common stock Income from professionalceed operations referable to Walmart, diluted Dividends $405,046 1. 0% -0. 8% -0. 7% -1. 4% 24. 8% $401,087 7. 3% 3. 5% 3. 2% 4. 9% 24. 2% $373,821 8. 4% 1. 6% 1. 0% 4. 9% 24. 0% $344,759 11. 6% 2. 0% 1. 9% 2. 5% 23. 4% $308,945 9. 8% 3. 4% 3. 0% 5. 0% 23. 1% 19. 7% $ 23,950 14,414 19. 3% $ 22,798 13,254 19. 0% $ 21,952 12,863 18. 5% $ 20,497 12,189 18. 0% $ 18,693 1,386 3. 72 1. 09 $3. 35 0. 95 $3. 16 0. 88 $2. 92 0. 67 $2. 72 0. 60 $ 33,160 102,307 170,706 36,401 70,749 $ 34,511 95,653 163,429 34,549 65,285 $ 35,159 96,867 163,514 33,40 2 64,608 $ 33,667 88,287 151,587 30,735 61,573 $ 31,910 77,863 138,793 30,096 53,171 Unit Counts Walmart U. S. piece supranational department Sams Club ingredient 3,708 4,112 596 3,656 3,605 602 3,550 3,098 591 3,443 2,734 579 3,289 2,158 567 count units 8,416 7,863 7,239 6,756 6,014 Financial jell Inventories Property, equipment and crownwork hold assets, crystalize Total assets Long-term debt, including obligations under jacket crown of the United States leasesTotal Walmart administerholders equity $ (1) In connection with the caller-outs ? nance interlingual rendition project, we re observeed and set the classi? cation of accepted revenue and expense items within our Consolidated Statements of Income for ? nancial reporting purposes. Although the reclassi? cations feigned pay gross revenue, gross edge and in operation(p), selling, general and administrative expenses, they did non mend in operation(p) income or income from continuing operations imputable t o Walmart. The changes were effectual February 1, 2009 and pee been re? ected for ? scal courses 2010, 2009 and 2008. 2) Comparable shop class and club gross revenue complicate fuel. For ? scal 2006, we catched corresponding gross gross gross sales to be sales at interjects and clubs that were out-of-doors as of February 1st of the antecedent ? scal twelvemonth and which had non been converted, expanded or re locate since that date. mo gain incomeary 2008 and ? scal 2007 alike(p) sales acknowledges all stores and clubs that extradite been unmannerly for at least(prenominal) the introductory 12 months. Additionally, for those ? scal days, stores and clubs that are relocated, expanded or converted are excluded from parallel sales for the ? rst 12 months following the motion, magnification or conversion.fiscal 2010 and 2009 comparable sales include sales from stores and clubs aerofoil for the precedent 12 months, including remodels, relocations and expansio ns. Fiscal 2008 and earlier ? scal social classs comparable sales do not re? ect reclassi? cations impressive February 1, 2009, as noted above. Walmart 2010 unmatched- social class Report 15 107077_L01_FIN_02. indd 15 4/6/10 121045 AM Managements Discussion and epitome of Financial train and Results of Operations Overview Wal-Mart Stores, Inc. (Walmart, the lodge or we) ope evaluates retail stores in various formats around the world and is committed to saving people bullion so they spate live kick downstairs.We earn the trust of our customers every solar day by providing a broad assortment of quality merchandise and serve at every day low worths (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 that our customers trust that our prices will not change under frequent promotional activity. Our focus for Sams Club is to fork out except ional foster on brand name merchandise at members only prices for several(prenominal)(prenominal) business and personal subroutine. alienly, we ope graze with similar philosophies. Our ? scal course of instruction ends on January 31 for our U. S. , Canada and Puerto Rico operations. Our ? scal year ends on December 31 for all overbold(prenominal)(a)wise operations. We intend for this discussion to provide the reader with teaching that will assistant in understanding our ? nancial statements, the changes in veritable key items in those ? nancial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles uphold our ? nancial statements.We also discuss certain performance metrics that management designs to respect our performance. The discussion also provides selective information about the ? nancial events of the various constituents of our business to provide a better understanding of how th ose divisions and their consequences affect the ? nancial condition and results of operations of the f set uprnity as a whole. This discussion should be read in participation with our Consolidated Financial Statements as of January 31, 2010, and the year then ended, and accompanying notes. Our operations comprise three business incisions Walmart U.S. , International and Sams Club. The Walmart U. S. element includes the companys mass merchant concept in the get together States, in operation(p) under the Walmart or Wal-Mart brand, as well as walmart. com. The International component consists of the companys operations outside of the 50 United States. The Sams Club atom includes the warehouse membership clubs in the United States, as well as samsclub. com. gross revenue By fragment lettuce sales in ? scal 2010 were a record $405. 0 zillion, up 1. 0% from ? scal 2009. Sams Club 11. 5% International 24. 7%Throughout this Managements Discussion and Analysis of Financial orig in and Results of Operations, we discuss separate in operation(p)(a) income and comparable store sales. The company quantifys the results of its surgical incisions using, among early(a) measures, each separates in operation(p) income which includes certain corporate smasher allocations. From time to time, we revise the measurement of each constituents operational income, including any corporate overhead allocations, as dictated by the information regularly reviewed by our chief direct decision maker.When we do so, the segment operating income for each segment affected by the rescripts is reprized for all periods presented to concur compar tycoon. In connection with the companys ? nance transformation project, we reviewed and alter the classi? cation of certain revenue and expense items within our Consolidated Statements of Income for ? nancial reporting purposes. The reclassi? cations did not strike operating income or consolidated concluding income attributable to W almart. The changes were effective February 1, 2009 and have been re? ected in all periods presented.Comparable store sales is a measure which indicates the performance of our animate U. S. stores and clubs by measuring the ingathering in sales for such stores for a particular period over the synonymous period in the former year. In ? scal 2008, our method of calculating comparable store sales included all stores and clubs that were open for at least the previous 12 months. Additionally, stores and clubs that were relocated, expanded or converted were excluded from comparable store sales for the ? rst 12 months following the relocation, expansion or conversion. During ? scal year 2008, the company reviewed its de? ition of comparable store sales for consistency with any(prenominal) some different retailers. As a result of that review, since February 1, 2008, Walmarts de? nition of comparable store sales includes sales from stores and clubs open for the previous 12 months, in cluding remodels, relocations and expansions. lurchs in format continue to be excluded from comparable store sales when the conversion is accompanied by a relocation or expansion that results in a change in satisfying footage of more than ? ve percent. Since the impact of this revision is inconsequential, the company will not restate comparable store sales results for previously reported years.Comparable store sales are also referred to as same-store sales by former(a)s within the retail sedulousness. The method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies. In discussions of our consolidated results and the operating results of our International segment, we sometimes refer to the impact of changes in up-to-dateness rallying evaluate. When we refer to changes in specie swop rates or up-to-dateness deepen ra te ? ctuations, we are referring to the differences between the property exchange rates we use to convert the International segments operating results from local currencies into U. S. dollars for reporting purposes. The impacts of specie exchange rate ? uctuations are typically write in coded as the difference between juvenile period activity translated using the present-day(prenominal) periods currency exchange rates and the comparable prior year periods currency exchange rates, respectively. We use this method for all countries where the functional currency is not U. S. denominated. Walmart U. S. 63. 8% 16 Walmart 2010 Annual Report 107077_L01_FIN. ndd 16 4/6/10 82550 PM Managements Discussion and Analysis of Financial Condition and Results of Operations The retail Industry We operate in the highly competitive retail industry in both the United States and the countries we serve internationally. We face strong sales competition from other discount, department, drug, variety a nd specialty stores, warehouse clubs, and supermarkets, many of which are national, regional or international chains, as well as internet-based retailers and compile businesses. We compete with a number of companies for prime retail site locations, as well as in attracting and retaining quality employees whom we call associates). We, along with other retail companies, are in? uenced by a number of factors including, but not limited to general economic conditions, cost of goods, consumer disposable income, consumer debt levels and purchasing patterns, consumer creed availability, interest rates, customer preferences, unemployment, labor costs, in? ation, de? ation, currency exchange ? uctuations, fuel and energy prices, weather patterns, climate change, catastrophic events, competitive pressures and insurance costs. Further information on risks to our company can be located in Item 1A.Risk Factors in our Annual Report on plant 10-K for the ? scal year ended January 31, 2010. Comp any Performance Metrics The companys performance metrics emphasize three priorities for improving voiceholder look upon growth, leverage and returns. The companys priority of growth focuses on sales growth the priority of leverage encompasses the companys metric to make up our operating income at a express rate than the growth in net sales by growing our operating, selling, general and administrative expenses (operating expenses) at a s trim back rate than the growth of our net sales and the priority of returns focuses on how ef? iently the company employs our assets through return on enthronization (ROI) and how effectively the company manages working capital through surplus hard currency ? ow. Growth Net Sales Fiscal years Ended January 31, (Dollar amounts in millions) 2009 2010 portion extend Net sales portion of wide-cut 2008 Percent affix Net sales Percent of total Net sales Percent of total Walmart U. S. International Sams Club $258,229 coke,107 46,710 63. 8% 24. 7% 11. 5% 1. 1% 1. 3% -0. 4% $255,348 98,840 46,899 63. 7% 24. 6% 11. 7% 6. 9% 9. 1% 5. 8% $238,915 90,570 44,336 63. 9% 24. 2% 11. 9% Net Sales $405,046 00. 0% 1. 0% $401,087 100. 0% 7. 3% $373,821 100. 0% O ur net sales change magnitude by 1. 0% and 7. 3% in ? scal 2010 and 2009, respectively, when compared to the previous ? scal year. Net sales in ? scal 2010 change magnitude receivable to change magnitude customer traf? c, keep global expansion activities and the acquisition of our Chilean subsidiary, Distribucion y Servicio (D&S) in January 2009, scratch line in general by a $9. 8 one million million invidious currency exchange rate impact in our International segment and price de? ation in certain merchandise categories in our Walmart U. S. segment. Net sales in ? cal 2009 change magnitude repayable(p) to our global expansion activities and comparable store sales step-ups, offset by a $2. 3 zillion inauspicious currency exchange rate impact. Despite the reproa chful impact of currency exchanges rates, the International segments net sales as a dower of total company net sales increase in ? scal 2010 and 2009, respectively. Volatility in currency exchange rates whitethorn continue to impact the International segments net sales in the future. Comparable Store Sales Comparable store sales is a measure which indicates the performance of our existing U. S. tores by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year. Comparable store sales in the United States lessen 0. 8% in ? scal 2010 and change magnitude 3. 5% in ? scal 2009. Although customer traf? c increased in ? scal 2010, comparable store sales in the United States were bring down than ? scal 2009 receivable to de? ation in certain merchandise categories and lower fuel prices. Comparable store sales in the United States in ? scal 2009 were higher than ? scal 2008 receivable to an increase in customer traf? c, as we ll as an increase in honest trans action mechanism size per customer.As we continue to add new stores in the United States, we do so with an understanding that additional stores whitethorn take sales away from existing units. We estimate the negative impact on comparable store sales as a result of opening new stores was nearly 0. 6% in ? scal 2010 and 1. 1% in ? scal 2009. With our planned slower new store growth, we behave the impact of new stores on comparable store sales to stabilize over time. Fiscal Years Ended January 31, 2010 2009 2008 Walmart U. S. Sams Club (1) -0. 7% -1. 4% 3. 2% 4. 9% 1. 0% 4. 9% Total U. S. -0. 8% 3. 5% 1. 6% (1) Sams Club comparable club sales include fuel.Fuel sales had a negative impact of 2. 1 percent points in ? scal year 2010, and coercive impact of 1. 2 and 0. 7 voice points in ? scal years 2009 and 2008, respectively, on comparable club sales. Walmart 2010 Annual Report 17 107077_L01_FIN_02. indd 17 4/6/10 121046 AM Managements Discussion a nd Analysis of Financial Condition and Results of Operations Leverage Fiscal Years Ended January 31, (Dollar amounts in millions) 2009 2010 Operating income Percent of total Percent increase Operating income 2008 Percent of total Percent increase Operating income Percent of total Walmart U.S. International Sams Club Other $19,522 5,033 1,512 (2,117) 81. 5% 21. 0% 6. 3% -8. 8% 5. 2% 1. 9% -8. 1% -9. 9% $18,562 4,940 1,646 (2,350) 81. 4% 21. 7% 7. 2% -10. 3% 6. 8% 4. 6% -0. 1% 30. 3% $17,383 4,725 1,648 (1,804) 79. 2% 21. 5% 7. 5% -8. 2% Total operating income $23,950 100. 0% 5. 1% $22,798 100. 0% 3. 9% $21,952 100. 0% We believe growing operating income at a faster rate than net sales growth is a meaningful measure because it indicates how effectively we manage costs and leverage operating expenses. Our verifiable is to grow operating expenses at a slower rate than net sales. nd ending total assets of continuing operations convinced(p) accumulated depreciation and amortisation les s accounts payable and accrue liabilities for that period, cocksure a rent factor equal to the rent for the ? scal year work out by a factor of eight. Operating Expenses In ? scal 2010, operating expenses increased 2. 7% when compared to ? scal 2009, while net sales increased 1. 0% over the same period. Operating expenses grew at a faster rate than net sales due to higher health bene? t costs, restructuring cites and higher advertize expenses. In ? scal 2009, operating expenses increased 9. % compared to ? scal 2008 while net sales increased 7. 3% over the same period. Operating expenses grew at a faster rate than net sales in ? scal 2009 in the beginning due to higher receipts costs, legal matters, higher health bene? t costs and increased corporate expenses. ROI is grappleed a non-generally accepted accounting principles ? nancial measure under the SECs rules. We rate return on assets (ROA) to be the ? nancial measure computed in accordance with GAAP that is the most di rectly comparable ? nancial measure to ROI as we suppose that ? nancial measure. ROI differs from ROA (which is income from continuing operations for the ? cal year divided by average total assets of continuing operations for the period) because ROI adjusts operating income to exclude certain expense items and adds interest income adjusts total assets from continuing operations for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities and incorporates a factor of rent to arrive at total invested capital. Operating Income For ? scal 2010, we met our objective of growing operating income at a faster rate than net sales. Our operating income increased by 5. 1% when compared to ? cal 2009, while net sales increased by 1. 0% over the same period. Our Walmart U. S. and International segments met this objective. Our Sams Club segment spend short of this objective in general due to a $174 million trust to restructure its operations, including the check of 10 clubs. For ? scal 2009, we did not meet our objective because our operating income increased by 3. 9% when compared to ? scal 2008, while net sales increased by 7. 3% over the same period. The Walmart U. S. and Sams Club segments fell short of this objective due to increases in operating expenses.The International segment fell short of this objective due to accruals for certain legal matters and ? uctuations in currency exchange rates. Although ROI is a standard ? nancial metric, numerous methods exist for calculating a companys ROI. As a result, the method employ by management to calculate ROI may differ from the methods other companies use to calculate their ROI. We urge you to understand the methods utilise by another company to calculate its ROI earlier comparing our ROI to that of such other company. Wal-Mart Stores, Inc. Operating Income (Amounts in millions) 24,000 move overs Return on Investment Management believes return on investment is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is employing its assets. Trends in ROI can ? uctuate over time as management sense of equilibriums long potential strategic initiatives with any possible short-term impacts. ROI was 19. 3 percent for both ? scal years ended January 31, 2010 and 2009. $18,000 Wal-Mart Stores, Inc. operating income increased 5. 1% in ? scal 2010, control by a 5. 2% increase in Walmart U. S. $12,000 $ 6,000 We de? e ROI as adjusted operating income (operating income plus interest income, depreciation and amortization and rent expense) for the ? scal year divided by average invested capital during that period. We consider average invested capital to be the average of our beginning 0 08 09 10 Fiscal Years 18 Walmart 2010 Annual Report 107077_L01_FIN. indd 18 4/6/10 101920 PM Managements Discussion and Analysis of Financial Condition and Results of Operations The calculation of ROI along with a reconciliation to th e calculation of ROA, the most comparable GAAP ? nancial measurement, is as follows For the Years Ended January 31, Dollar amounts in millions) 2010 2009 Numerator Operating income (1) + Interest income (1) + Depreciation and amortization (1) + Rent (1) $ 23,950 181 7,157 1,808 $ 22,798 284 6,739 1,751 = Adjusted operating income $ 33,096 $ 31,572 Denominator number total assets of continuing operations (2) + sightly accumulated depreciation and amortization (2) Average accounts payable (2) Average accrued liabilities (2) + Rent x 8 $166,900 38,359 29,650 18,423 14,464 $162,891 33,317 29,597 16,919 14,008 = Average invested capital $171,650 $163,700 reckoning OF RETURN ON INVESTMENT Return on investment (ROI) 19. 3% 19. 3%CALCULATION OF RETURN ON ASSETS Numerator Income from continuing operations (1) $ 14,927 $ 13,753 Denominator Average total assets of continuing operations (2) $166,900 $162,891 Return on assets (ROA) 8. 9% 8. 4% As of January 31, 2010 Certain Balance Sheet Da ta (1) Total assets of continuing operations Accumulated depreciation and amortization Accounts payable Accrued liabilities 2009 2008 $170,566 41,210 30,451 18,734 $163,234 35,508 28,849 18,112 $162,547 31,125 30,344 15,725 (1) establish on continuing operations only and therefore excludes the impact of resolution 23 stores and the divesture of other properties of The Seiyu, Ltd. now Walmart Japan) pursuant to a restructuring program choose during the third quarter of ? scal 2009. All of these activities have been disclosed as give up operations. Total assets as of January 31, 2010, 2009 and 2008 in the table above exclude assets of give up operations that are re? ected in the Consolidated Balance Sheets of $one hundred forty million, $195 million and $967 million, respectively. (2) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2. Walmart 2010 Annual Report 19 107 077_L01_FIN_02. indd 19 /6/10 121047 AM Managements Discussion and Analysis of Financial Condition and Results of Operations informal Cash Flow We de? ne free notes ? ow as net silver provided by operating activities of continuing operations in a period minus payments for property and equipment made in that period. We generated positive free currency ? ow of $14. 1 jillion, $11. 6 one thousand million and $5. 7 zillion for the years ended January 31, 2010, 2009 and 2008, respectively. The increase in our free notes ? ow is in the beginning the result of improved operating results and inventory management. The following table sets away a reconciliation of free property ? w, a nonGAAP ? nancial measure, to net gold provided by operating activities of continuing operations, a GAAP measure, which we believe to be the GAAP ? nancial measure most directly comparable to free coin ? ow, as well as information regarding net cash used in investing activities and net cash used in ? nancing activities. Fiscal Years Ended January 31, (Amounts in millions) Free cash ? ow is considered a non-GAAP ? nancial measure under the SECs rules. Management believes, however, that free cash ? ow, which measures our ability to generate additional cash from our business operations, is an important ? ancial measure for use in evaluating the companys ? nancial performance. Free cash ? ow should be considered in addition to, rather than as a substitute for, income from continuing operations as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. Additionally, our de? nition of free cash ? ow is limited, in that it does not represent residual cash ? ows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions.Therefore, we believe it is important to view free cash ? ow as a mea sure that provides supplemental information to our entire statement of cash ? ows. Although other companies report their free cash ? ow, numerous methods may exist for calculating a companys free cash ? ow. As a result, the method used by our management to calculate free cash ? ow may differ from the methods other companies use to calculate their free cash ? ow. We urge you to understand the methods used by another company to calculate its free cash ? ow before comparing our free cash ? ow to that of such other company.We generated positive free cash ply of $14. 1 billion, $11. 6 billion and $5. 7 billion for the years ended January 31, 2010, 2009 and 2008, respectively. The increase in our free cash flow is in the main the result of improved operating results and inventory management. Net cash provided by operating activities Payments for property and equipment Free cash ? ow Net cash used in investing activities Net cash used in ?nancing activities 2010 $26,249 (12,184) $ 14,065 2009 2008 $ 23,147 $ 20,642 (11,499) (14,937) $ 11,648 $ 5,705 $(11,620) $(10,742) $(15,670) $(14,191) $ (9,918) $ (7,422)Results of Operations The following discussion of our Results of Operations is based on our continuing operations and excludes any results or discussion of our discontinued operations. Unusual or infrequent items that squeeze our income from continuing operations during the ? scal years ended 2010, 2009 and 2008 were as follows In ? scal 2010, the company announce several organizational changes, including the closure of 10 Sams Clubs, designed to expertnessen and streamline our operations. As a result, we recorded $260 million in pre-tax restructuring charges. In ? cal 2010, we recorded $372 million in net tax bene? ts in the first place from the repatriation of certain non-U. S. earnings that increased U. S. foreign tax credits. In ? scal 2009, the company settled 63 wage-and-hour class action lawsuits. As a result of the settlement, the company recorde d a pre-tax charge of approximately $382 million during the fourth quarter of ? scal 2009. In ? scal 2008, we reduced our accrued liabilities for our general liability and workers compensation claims. As a result, operating expenses were reduced by a pre-tax amount of $298 million. 20 Walmart 2010 Annual Report 07077_L01_FIN. indd 20 4/7/10 121415 AM Managements Discussion and Analysis of Financial Condition and Results of Operations Consolidated Results of Operations Fiscal Year Net Sales (1) % Change from Prior Fiscal Year 2010 2009 2008 $405,046 401,087 373,821 1. 0% 7. 3% 8. 4% Operating Income (1) Operating Income as a dowry of Net Sales Comp Sales Unit Counts hearty Footage (2) $23,950 22,798 21,952 5. 9% 5. 7% 5. 9% -0. 8% 3. 5% 1. 6% 8,416 7,863 7,239 952,204 918,008 867,448 (1) Amounts in millions (2) Amounts in thousands Our consolidated net sales increased by 1. 0% and 7. 3% in ? cal 2010 and 2009, respectively, when compared to the previous ? scal year. Net sales in ? scal 2010 increased due to increased customer traf? c, continued global expansion activities and the acquisition of D&S in January 2009, offset primarily by a $9. 8 billion un golden currency exchange rate impact in our International segment and price de? ation in certain merchandise categories in our Walmart U. S. segment. Net sales in ? scal 2009 increased due to our global store expansion activities, comparable store sales increases, offset by a $2. 3 billion unfavorable currency exchange rate impact.Volatility in currency exchange rates may continue to impact the International segments net sales in the future. Our gross pro? t, as a lot of net sales, (our gross pro? t margin) was 24. 8%, 24. 2% and 24. 0% in ? scal 2010, 2009 and 2008, respectively. Our Walmart U. S. and International segment sales offspring higher gross pro? t margins than our Sams Club segment. In ? scal 2010, gross pro? t margin increased primarily due to the continued focus on enhanced merchandising strat egies and better inventory management in our Walmart U. S. and Sams Club segments. The gross pro? margin increase in ? scal 2009 compared to ? scal 2008 was primarily due to lower inventory shrinkage and less markdown activity as a result of more effective merchandising in the Walmart U. S. segment. Operating expenses, as a part of net sales, were 19. 7%, 19. 3% and 19. 0% for ? scal 2010, 2009 and 2008, respectively. In ? scal 2010, operating expenses increased primarily due to higher health bene? t costs, a pre-tax charge of $260 million relating to the restructuring of U. S. operations and higher advertising expenses. In ? scal 2009, operating expenses increased rimarily due to higher utility costs, a pre-tax charge of approximately $382 million resulting from the settlement of 63 wage-and-hour class action lawsuits, higher health bene? t costs and increased corporate expenses compared to ? scal 2008. Our effective income tax rate was 32. 4% for ? scal year 2010 and 34. 2% for ? scal years 2009 and 2008. The ? scal 2010 effective tax rate decreased compared to ? scal 2009 due to $372 million in net tax bene? ts that primarily resulted from the repatriation of certain non-U. S. earnings that increased our utilization of U. S. foreign tax credits.As a result of the factors discussed above, we reported $14. 9 billion, $13. 8 billion and $13. 3 billion of income from continuing operations for the ? scal years ended January 31, 2010, 2009 and 2008, respectively. Walmart U. S. Segment Fiscal Year Net Sales (1) % Change from Prior Fiscal Year 2010 2009 2008 $258,229 255,348 238,915 1. 1% 6. 9% 5. 6% Operating Income (1) Operating Income as a Percentage of Net Sales Comp Sales Unit Counts Square Footage (2) $19,522 18,562 17,383 7. 6% 7. 3% 7. 3% -0. 7% 3. 2% 1. 0% 3,708 3,656 3,550 602,908 589,299 566,629 (1) Amounts in millions (2) Amounts in thousands The segment net sales growth in ? cal 2010 resulted from an increase in customer traf? c and strength in our gr ocery and health and wellness categories, as well as our continued expansion activities. In ? scal 2009, the segment net sales growth resulted from a comparable store sales increase of 3. 2%, in addition to our expansion activities. Strength in the grocery, health and wellness and entertainment categories, as well as strong seasonal worker sales throughout the year also contributed to the ? scal 2009 net sales increase. The segment net sales growth in fiscal 2010 resulted from an increase in customer traffic and strength in our grocery and health and ellness categories, as well as our continued expansion activities. Walmart 2010 Annual Report 21 107077_L01_FIN. indd 107077_L01_FIN. indd 21 4/6/10 82551 PM Managements Discussion and Analysis of Financial Condition and Results of Operations Comparable store sales were lower in ? scal 2010, notwithstanding increased customer traf? c, due to a decrease in average transaction size per customer driven by price de? ation in certain merch andise categories. Comparable store sales were higher in ? scal 2009 due to an increase in customer traf? c, as well as an increase in average transaction size per customer. In ? scal 2010, gross pro? margin increased 0. 7 lot points compared to the prior year due to more effective merchandising, better inventory management and lower inventory shrinkage. In ? scal 2009, gross pro? t margin increased 0. 4 percentage points compared to the prior year primarily due to decreased markdown activity and lower inventory shrinkage. The improvements in both years were attributable to merchandising initiatives that have improved space allocation, enhanced our price lead and increased supply chain ef? ciencies. Segment operating expenses, as a percentage of segment net sales, increased by 0. 4 percentage points in ? cal 2010 compared to ? scal 2009 due to lower segment net sales increases compared to the prior year, higher health bene? t costs, higher advertising expenses and a pre-tax charge of $73 million relating to the restructuring of Walmart U. S. operations. Segment operating expenses, as a percentage of segment net sales, increased 0. 4 percentage points in ? scal 2009 compared to the prior year due to hurricane-related expenses, higher bonus payments for store associates, higher utility costs and an increase in health bene? t costs. International Segment Net Sales (1) 2010 2009 2008 Operating Income (1) Operating Income a s a Percentage f Net Sales Unit Counts Square Footage (2 ) $100,107 98,840 90,570 Fiscal Year % Change from Prior Fiscal Year 1. 3% 9. 1% 17. 8% $5,033 4,940 4,725 5. 0% 5. 0% 5. 2% 4,112 3,605 3,098 269,894 248,803 222,583 (1) Amounts in millions (2) Amounts in thousands At January 31, 2010, our International segment was comprised of our wholly-owned subsidiaries operating in Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, our majority-owned subsidiaries operating in ? ve countries in Central America, and in Chile and Me xico, our joint ventures in India and China and our other controlled subsidiaries in China.The ? scal 2010 increase in the International segments net sales primarily resulted from our expansion activities and the inclusion of the results of D&S, acquired in January 2009, offset by the unfavorable impact of changes in currency exchange rates of $9. 8 billion. For additional information regarding our acquisitions, refer to Note 9 to the Consolidated Financial Statements. The ? scal 2009 increase in the International segments net sales was primarily due to net sales growth from existing units and our international expansion program, offset by the unfavorable impact of changes in currency exchange rates of $2. billion. The fiscal 2010 increase in the International segments net sales primarily resulted from our expansion activities and the inclusion of the results of D&S, acquired in January 2009, offset by the unfavorable impact of changes in currency exchange rates of $9. 8 billion. In ? scal 2010, the International segments gross pro? t margin increased 0. 2 percentage points compared to the prior year. The increase was primarily driven by currency exchange rate ? uctuations and the inclusion of D&S. In ? scal 2009, the International segments gross pro? t margin decreased 0. percentage points compared to the prior year. The decrease was primarily driven by growth in lower margin fuel sales in the United Kingdom and the transition to EDLP as a strategy in Japan. Segment operating expenses, as a percentage of segment net sales, increased 0. 3 percentage points in ? scal 2010 compared to the prior year primarily as a result of the inclusion of D&S, acquired in January 2009. Segment operating expenses, as a percentage of segment net sales, in ? scal 2009 were consistent with ? scal 2008. In ? scal 2010, currency exchange rate changes unfavorably impacted operating income by $540 million.In ? scal 2009, currency exchange rate changes unfavorably impacted operating in come by $266 million. Volatility in currency exchange rates may continue to impact the International segments operating results in the future. 22 Walmart 2010 Annual Report 107077_L01_FIN. indd 107077_L01_FIN. indd 22 4/6/10 82551 PM Managements Discussion and Analysis of Financial Condition and Results of Operations Sams Club Segment Fiscal Year Net Sales (1) % Change from Prior Fiscal Year Operating Income (1) Operating Income a s a Percentage of Net Sales Comp Sales Unit Counts Square Footage (2 ) $46,710 46,899 44,336 0. 4% 5. 8% 6. 6% $1,512 1,646 1,648 3. 2% 3. 5% 3. 7% -1. 4% 4. 9% 4. 9% 596 602 591 79,401 79,906 78,236 2010 2009 2008 (1) Amounts in millions (2) Amounts in thousands The decrease in net sales for the Sams Club segment in ? scal 2010 primarily resulted from lower fuel prices compared to the previous ? scal year. In ? scal 2009, the segment net sales growth resulted from a comparable club sales increase, including fuel, of 4. 9% and continued club expansion acti vities. Membership and other income, as a percentage of segment net sales, decreased slightly for ? scal 2010 when compared to ? scal 2009.Membership and other income, as a percentage of segment net sales, decreased slightly for ? scal 2009 when compared to ? scal 2008. Liquidity and detonating device Resources Comparable club sales decreased during ? scal 2010 due to the negative impact of 2. 1 percentage points from lower fuel prices when compared to the previous ? scal year, partially offset by sales increases in fresh food, consumables and certain health and wellness categories. In ? scal 2009, comparable club sales increased due to growth in food, pharmacy, electronics and certain consumables categories, as well as an increase in both member traf? and average transaction size per member. Fuel sales had a positive impact of 1. 2 percentage points in ? scal 2009 on comparable club sales. Gross pro? t margin increased 0. 6 percentage points during ? scal 2010 compared to the prio r year due to continued strength in sales of consumable, fresh food and other food-related categories. Gross pro? t margin increased 0. 1 percentage points during ? scal 2009 compared to the prior year due to strong sales in fresh food and other food-related categories, consumable categories and the positive impact of a higher fuel gross pro? t rate.Segment operating expenses, as a percentage of segment net sales, increased 0. 8 percentage points in ? scal 2010 compared to the prior year due primarily to a pre-tax charge of $174 million related to the restructuring of Sams Club operations, including the closure of 10 clubs. Segment operating expenses, as a percentage of segment net sales, increased 0. 2 percentage points in ? scal 2009 compared to the prior year. In ? scal 2009, operating expense increases were impacted by higher utility and health bene? t costs and hurricane-related expenses. Cash flows provided by operating activities upply us with a signifi gear source of liquidi ty. We use these cash flows, supplemented with semipermanent debt and short-term borrowings, to fund our operations and global expansion activities. Generally, some or all of the remaining free cash flow funds the dividends on our common stock and share buys. Cash ? ows provided by operating activities supply us with a signi? cant source of liquidity. We use these cash ? ows, supplemented with long-term debt and short-term borrowings, to fund our operations and global expansion activities. Generally, some or all of the remaining free cash ? w funds the dividends on our common stock and share re gets. Fiscal Years Ended January 31, (Amounts in millions) 2010 Net cash provided by operating activities Payments for property and equipment Free cash ? ow 2009 2008 $ 26,249 $ 23,147 $ 20,642 (12,184) (11,499) (14,937) $ 14,065 $ 11,648 $ 5,705 Net cash used in investing activities Net cash used in ?nancing activities $(11,620) $(10,742) $(15,670) $(14,191) $ (9,918) $ (7,422) Cash ? ow pr ovided by operating activities was $26. 2 billion, $23. 1 billion and $20. 6 billion for the years ended January 31, 2010, 2009 and 2008, respectively. The increases in cash ? ws provided by operating activities for each ? scal year were primarily attributable to an increase in income from continuing operations and improved working capital management. Working corking Current liabilities exceeded current assets at January 31, 2010, by $7. 2 billion, an increase of $789 million from January 31, 2009. Our ratio of current assets to current liabilities was 0. 9 at January 31, 2010 and 2009. We generally have a working capital de? cit due to our ef? cient use of cash in keep operations and in providing returns to shareholders in the form of stock repurchases and payment of dividends.Walmart 2010 Annual Report 23 107077_L01_FIN. indd 107077_L01_FIN. indd 23 4/7/10 10636 AM Managements Discussion and Analysis of Financial Condition and Results of Operations Capital Resources During ? sca l 2010, we issued $5. 5 billion of long-term debt. The net proceeds from the issuance of such long-term debt were used for general corporate purposes. During ? scal 2009, we issued $6. 6 billion of long-term debt. Those net proceeds were used to repay outstanding commercial melodic theme liability and for other general corporate purposes. Management believes that cash ? ws from continuing operations and proceeds from the issuance of short-term borrowings will be suf? cient to ? nance seasonal buildups in merchandise inventories and meet other cash requirements. If our operating cash ? ows are not suf? cient to pay dividends and to fund our capital expenditures, we stop funding any shortfall in these expenditures with a combination of short-term borrowings and long-term debt. We plan to re? nance existing long-term debt as it matures and may desire to obtain additional long-term ? nancing for other corporate purposes. We anticipate no dif? culty in obtaining long-term ? ancing in view of our credit ratings and favorable experiences in the debt market in the recent past. The following table exposit the ratings of the credit rating agencies that rated our outstanding indebtedness at January 31, 2010. The rating force ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the charge rating organization and should be evaluated independently of any other rating. Global Expansion Activities Cash paid for property and equipment was $12. 2 billion, $11. 5 billion and $14. billion during the ? scal years ended January 31, 2010, 2009 and 2008, respectively. These expenditures primarily relate to new store growth, as well as remodeling costs for existing stores. We expect to buzz off capital expenditures of approximately $13. 0 billion to $15. 0 billion in ? scal 2011. We plan to ? nance this expansion and any acquisitions of other operations that we may make during ? scal 2011 primarily from cash ? ows from operations. Fiscal 2011 capital expenditures will include the addition of the following new, relocated and expanded units in the U. S. Fiscal Year 2011 Projected Unit Growth Walmart U.S. Segment Sams Club Segment 145-160 5-10 150-170 Total U. S. Additionally, the International segment expects to add more than 600 units during ? scal year 2011. The following represents an allocation of our capital expenditures Rating Agency Commercial composing Standard & Poors Moodys Investors Service fitch Ratings DBRS Limited Long-term Debt A-1+ P-1 F1+ R-1(middle) AA Aa2 AA AA To monitor our credit ratings and our capacity for long-term ? nancing, we consider various qualitative and quantitative factors. We monitor the ratio of our debt to our total capitalisation as support for our long-term ? nancing decisions.At January 31, 2010 and January 31, 2009, the ratio of our debt to total capitalization was 36. 9% and 39. 3%, respectively. For the pu rpose of this calculation, debt is de? ned as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases. Total capitalization is de? ned as debt plus total Walmart shareholders equity. Our ratio of debt to our total capitalization decreased in ? scal 2010 primarily due to a decrease in short-term borrowings. We expect to incur capital expenditures of approximately $13. 0 billion to $15. billion in fiscal 2011. We plan to finance this expansion and any acquisitions of other operations that we may make during fiscal 2011 primarily from cash flows from operations. Allocation of Capital Expenditures Projected Capital Expenditures New stores, including expansions and relocations Remodels Information systems, distribution and other Total U. S. International Total Capital Expenditures Actual Fiscal Year 2011 Fiscal Year Fiscal Year 2010 2009 31% 15% 29% 17% 34% 10% 21 % 23% 20% 67% 69% 64% 33% 31% 36% 100% 100% 100% Common Stock Dividends We paid dividends of $1. 09 per share in ? scal 2010, representing a 15% increase over ? cal 2009. The ? scal 2009 dividend of $0. 95 per share represented an 8% increase over ? scal 2008. We have increased our dividend every year since the ? rst dividend was declared in establish 1974. On March 4, 2010, the companys Board of Directors approved an increase in the annual dividend for ? scal 2011 to $1. 21 per share, an increase of 11% over the dividends paid in ? scal 2010. The annual dividend will be paid in four quarterly installments on April 5, 2010, June 1, 2010, September 7, 2010 and January 3, 2011 to holders of record on March 12, May 14, August 13 and December 10, 2010, respectively. 4 Walmart 2010 Annual Report 107077_L01_FIN. indd 107077_L01_FIN. indd 24 4/6/10 82552 PM Managements Discussion and Analysis of Financial Condition and Results of Operations Company Share Repurchase Program From time to t ime, we have repurchased shares of our common stock under a $15. 0 billion share repurchase program authorized by our Board of Directors on June 4, 2009 and proclaimed on June 5, 2009, which replaced and terminated a $15. 0 billion share repurchase program approved by our Board of Directors on May 31, 2007 and announced on June 1, 2007.As was the case with the replaced share repurchase program, the new program has no expiration date or other restrictions limiting the period over which we can make our share repurchases, and will expire only when and if we have repurchased $15. 0 billion of our shares under the program or we terminate or replace the program. Any repurchased shares are constructively retired and returned to unissued status. We spent $7. 3 billion, $3. 5 billion and $7. 7 billion in share repurchases during ? scal year 2010, 2009 and 2008, respectively.We consider several factors in determining when to execute the share repurchases, including among other things, our cu rrent cash needs, our capacity for leverage, our cost of borrowings and the market price of our common stock. As of January 31, 2010, the program had approximately $9. 2 billion remaining authorization for share repurchases. Contractual Obligations and Other Commercial Commitments The following table sets forth certain information concerning our obligations and commitments to make contractual future payments, such as debt and lease agreements, and contingent commitmentsPayments Due During Fiscal Years Ending January 31, (Amounts in millions) enter contractual obligations Long-term debt Short-term borrowings Capital lease obligations Unrecorded contractual obligations Non-cancelable operating leases Interest on long-term debt Trade letters of credit barter for obligations Total commercial commitments Additionally, the company has approximately $11. 2 billion in un force lines of credit and standby letters of credit which, if drawn upon, would be included in the liabilities section of the Consolidated Balance Sheets.Purchase obligations include legally backbone contracts such as ? rm commitments for inventory and utility purchases, as well as commitments to make capital expenditures, software acquisition/ permission commitments and legally binding service contracts. Purchase orders for the purchase of inventory and other service are not included in the table above. Purchase orders represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are de? ned as agreements that are enforceable and legally binding and that specify all signi? ant terms, including ? xed or minimal quantities to be purchased ? xed, minimum or variable price provisions and the approximate timing of the transaction. Our purchase orders are based on our current inventory needs and are ful? lled by our suppliers within short time periods. We also enter into contracts for outsourced services ho wever, the obligations under these contracts are not signi? cant and the contracts generally contain clauses allowing for cancellation without signi? cant penalty. Total 2011 2012-2013 2014-2015 Thereafter $37,281 523 5,584 $ 4,050