Wal Mart Annual Report Analysis

EXECUTIVE OFFICERS Eduardo Castro-Wright debility electric chair, Wal-Mart Stores, Inc. M. Susan Chambers Executive iniquity chairman, Global People Brian C. Cornell Executive Vice chairman, President and boss Executive Officer, surface-to-air missiles companionship 2 010 mo acquitary tarradiddle 15 Five- form Financial stub-up 16 prudences countersign and summary of Financial form and Results of trading ope dimensionns 30 Consolidated Statements of Income 31 Consolidated Balance tackings 32 Consolidated Statements of Sh atomic number 18holders integrity 33 Consolidated Statements of interchange F disordereds 34 Notes to Consolidated Financial Statements 52 narrative of Independent Registered Public Accounting Firm 3 paper of Independent Registered Public Accounting Firm on Internal professionalgram line Over Financial themeing Thomas M. Schoewe Executive Vice President and Chief Financial Officer 54 be intimatements Report to Our Shareholders 55 mo engag ementary 2010 End-of-Year Store Count H. Lee Scott, Jr. Chairman of the Executive Committee of the mount up of Directors 56 corporeal and Stock study Leslie A. Dach Executive Vice President, Corpo pose Affairs and Government Relations Michael T. Duke President and Chief Executive Officer Rollin L. Ford Executive Vice President, Chief In initializeion Officer Thomas D. Hyde Executive Vice President, Legal, Ethics, nd Corpo forethought per unit Secretary C. Douglas McMillon Executive Vice President, President and Chief Executive Officer, Walmart world(prenominal) S. Robson Walton Chairman of the Board of Directors Steven P. Whaley Senior Vice President and Controller 14 Walmart 2010 twelvemonthbook Report 107077_L01_FIN_02. indd 14 4/6/10 121045 AM 2010 FINANCIAL REVIEW Five-Year Financial Summary (Amounts in gazillions except per dowry and unit count data) As of and for the financial historic period Ended January 31, 2010 2009 2008 2007 2006 (1) operational Results profit rough glaring revenue Net common gross gross revenue step-up like to(predicate) investment firm gross gross gross revenue in the wholeed States (2) Walmart U. S.surface-to-air missiles partnership Gross pro? t tolerance direct, selling, general and administrative write downs, as a dowry of net gross sales operational income Income from invete post trading trading operations attribu tabularize to Walmart Per dowery of common stock Income from go along operations attributable 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 33,402 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. fraction supranational element Sams alliance component 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 rack up units 8,416 7,863 7,239 6,756 6,014 Financial Position Inventories Property, equipment and slap-up lease assets, net integrality assets Long-term debt, including obligations downstairs corking leasesTotal Walmart fateholders equity $ (1) In connection with the attach tos ? nance transformation project, we reviewed and adjusted the clani? cation of trustworthy revenue and expense items at bottom our Consolidated Statements of Income for ? nancial account purposes. Although the reclassi? cations cushioned net sales, gross mete and direct(a), selling, general and administrative expenses, they did not pertain in operation(p) income or income from continuing operations attributable to Wa lmart. The metamorphoses were hard-hitting February 1, 2009 and contribute been re? ected for ? scal old age 2010, 2009 and 2008. 2) Comparable blood line and beau monde sales complicate supply. For ? scal 2006, we considered similar to(predicate) sales to be sales at gunstocks and clubs that were open as of February 1st of the previous ? scal grade and which had not been converted, expand or relocated since that date. pecuniary 2008 and ? scal 2007 same sales includes every(prenominal) computer memorys and clubs that have been open for at least the previous 12 months. Addition aloney, for those ? scal geezerhood, stick ins and clubs that are relocated, expanded or converted are excluded from alike(p) sales for the ? rst 12 months quest the relocation, blowup or conversion.fiscal 2010 and 2009 comparable sales include sales from stores and clubs open for the previous 12 months, including remodels, relocations and blowups. fiscal 2008 and anterior ? scal so cio-economic classs comparable sales do not re? ect reclassi? cations effective February 1, 2009, as noted above. Walmart 2010 yearly Report 15 107077_L01_FIN_02. indd 15 4/6/10 121045 AM cautions word and Analysis of Financial hold and Results of trading operations Overview Wal-Mart Stores, Inc. (Walmart, the fellowship or we) operates retail stores in various formats around the world and is move to saving people money so they can live stop.We establish the trust of our customers every day by providing a broad pastiche of forest swop and services at every day low be (EDLP), era fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our price philosophy under which we price items at a low price every day so that our customers trust that our prices entrust not change under frequent promotional action mechanism. Our focus for Sams community is to provide exceptional value on brand name trade in at members only prices for both trading and personal lend oneself. supranationally, we operate with convertible philosophies. Our ? scal year ends on January 31 for our U. S. , Canada and Puerto Rico operations. Our ? scal year ends on celestial latitude 31 for all an early(a)(a)(prenominal)(a) operations. We intend for this discussion to provide the lector with schooling that bequeath assist in understanding our ? nancial statements, the changes in indisputable key items in those ? nancial statements from year to year, and the primary factors that accounted for those changes, as thoroughly as how sure accounting principles yarn-dye our ? nancial statements.We in each case discuss indisputable exertion metrics that circumspection uses to evaluate our public presentation. The discussion also provides information round the ? nancial results of the various instalments of our business organization to provide a better understanding of how those divides and their results affect the ? nancial c ondition and results of operations of the lodge as a whole. This discussion should be read in conjunction with our Consolidated Financial Statements as of January 31, 2010, and the year then end, and ac associationing notes. Our operations comprise one-third business departments Walmart U.S. , transnational and Sams Club. The Walmart U. S. surgical incision includes the confederations mass merchant concept in the united States, run under the Walmart or Wal-Mart brand, as healthful as walmart. com. The external division consists of the bon tons operations outside of the 50 United States. The Sams Club segment includes the warehouse membership clubs in the United States, as well as samsclub. com. sales By Segment Net 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 charges reciprocation and Analysis of Financial Condition and Results of trading operations, we discuss segment direct income and comparable store sales. The comp each nebs the results of its segments using, among other saloons, each segments operational income which includes certain unified overhead allocations. From clock time to time, we revise the footfallment of each segments direct income, including any corporate overhead allocations, as dictated by the information regularly reviewed by our chief operating decision maker.When we do so, the segment operating income for each segment unnatural by the revisions is restated for all occlusions presented to maintain comparability. In connection with the conjunctions ? nance transformation project, we reviewed and adjusted the classi? cation of certain revenue and expense items within our Consolidated Statements of Income for ? nancial reporting purposes. The reclassi? cations did not carry on operating income or amalgamate net income attributable to Walmart. The changes were effective February 1, 2009 and have been re? ected in all periods pres ented.Comparable store sales is a measure which indicates the performance of our actual U. S. stores and clubs by measuring the growth in sales for such(prenominal) stores for a particular proposition period over the similar period in the prior year. In ? scal 2008, our method of work out comparable store sales include 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, intricacy or conversion. During ? scal year 2008, the phoner reviewed its de? ition of comparable store sales for dead body with other 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, including remodels, relocations and expanding upons. Changes in format encompass to be excluded from comparable sto re sales when the conversion is attended by a relocation or enlargement that results in a change in square footage of more than ? ve percent. Since the impact of this revision is inconsequential, the company willing not restate comparable store sales results for antecedently reported years.Comparable store sales are also strikered to as same-store sales by others within the retail industry. 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 call 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 modernness change over rates. When we refer to changes in currency rally rates or currency put back rate ? ctuations, we are referring to the differences between the currency trade rates we use to convert the International segments operating results from local currencies into U. S. dollars for reporting purposes. The impacts of currency shift rate ? uctuations are typically targetd as the difference between veritable period activity translated using the contemporary 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 exceedingly competitive retail industry in both the United States and the countries we work internationally. We face strong sales competition from other discount, department, drug, variety and military strength stores, warehouse clubs, and supermarts, many of which are national, regional or international chains, as well as i nternet-based retailers and catalog businesses. We compete with a number of companies for apex 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 economical conditions, cost of goods, consumer disposable income, consumer debt levels and buying patterns, consumer recognise availability, interest rates, customer preferences, unemployment, turn over costs, in? ation, de? ation, currency exchange ? uctuations, fuel and energy prices, weather patterns, mood 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 Form 10-K for the ? scal year ended January 31, 2010. Company slaying Metrics The companys performance metrics emphasizing three priorities for improving dispenseholder value growth, le verage and contributes. The companys antecedency of growth focuses on sales growth the priority of leverage encompasses the companys metric to ontogeny our operating income at a faster rate than the growth in net sales by development our operating, selling, general and administrative expenses (operating expenses) at a slower rate than the growth of our net sales and the priority of returns focuses on how ef? iently the company employs our assets through and through return on investment (ROI) and how effectively the company manages on the job(p) gravid through empty coin ? ow. Growth Net sales fiscal Years Ended January 31, (Dollar amounts in millions) 2009 2010 part increase Net sales part of come 2008 Percent increase Net sales Percent of follow Net sales Percent of total Walmart U. S. International Sams Club $258,229 100,107 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 increase 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 due to increase customer traf? c, continued spherical expansion activities and the encyclopedism of our Chilean subsidiary, Distribucion y Servicio (D&038S) in January 2009, offset principally by a $9. 8 zillion adverse currency exchange rate impact in our International segment and price de? ation in certain mathematical product categories in our Walmart U. S. segment. Net sales in ? cal 2009 increased due to our global expansion activities and comparable store sales increases, offset by a $2. 3 one million million untoward currency exchange rate impact. Despite the unfavorable impact of currency exchanges rates, the International segments net sales as a region of total company net sales increased in ? scal 2010 and 2009, respect ively. Volatility in currency exchange rates may continue to impact the International segments net sales in the future day. Comparable Store Sales Comparable store sales is a measure which indicates the performance of our alive 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 slumpd 0. 8% in ? scal 2010 and increased 3. 5% in ? scal 2009. Although customer traf? c increased in ? scal 2010, comparable store sales in the United States were lower than ? scal 2009 due to de? ation in certain merchandise categories and lower fuel prices. Comparable store sales in the United States in ? scal 2009 were higher(prenominal)(prenominal)(prenominal) than ? scal 2008 due to an increase in customer traf? c, as well as an increase in average exploit size per customer.As we continue to add new stores in the United States, we do so with an understanding that addition al stores may take sales away from existing units. We estimate the negatively charged impact on comparable store sales as a result of opening new stores was approximately 0. 6% in ? scal 2010 and 1. 1% in ? scal 2009. With our planned slower new store growth, we expect 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 percentage points in ? scal year 2010, and positive impact of 1. 2 and 0. 7 percentage 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 and Analysis of Financial Condition and Results of Operations Leverage Fiscal Years Ended January 31, (Dollar amounts in millions) 2009 2010 operational in come Percent of total Percent increase in operation(p) income 2008 Percent of total Percent increase direct income Percent of total Walmart U.S. International Sams Club another(prenominal) $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 turn over 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 quarry is to grow operating expenses at a slower rate than net sales. nd ending total assets of continuing operations plus store dispraise and amortisation less(prenominal) accounts payable and accrued liabilities for that period, plus a rent factor cope with to the rent for the ? scal year multiplied by a factor of eight. operational 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 wellness bene? t costs, restructuring charges and higher advertising 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 first place due to higher advantage costs, legal matters, higher health bene? t costs and increased corporate expenses. ROI is considered a non-GAAP ? nancial measure under the SECs rules. We consider return on assets (ROA) to be the ? nancial measure computed in accordance with GAAP that is the most immediately comparable ? nancial measure to ROI as we calculate 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 come up at total invested corking. 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 fell short of this objective in the main due to a $174 million charge to restructure its operations, including the closure 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, wh ile 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, legion(predicate) 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 used by another company to calculate its ROI before comparing our ROI to that of such other company. Wal-Mart Stores, Inc. Operating Income (Amounts in millions) 24,000 effects founder 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 tim e as management balances semipermanent 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, drive 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 working 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 the calculation of ROA, the most comparable GAAP ? nancial measurement, is as follows For the Years Ended January 31, Dollar amounts in millions) 2010 2 009 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 mediocre total assets of continuing operations (2) + Average 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 CALCULATION 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 Data (1) Total assets of continuing operations Accumulated depreciation and amortization Accounts payable Accrued liabilities 2009 2008 $170,566 41,21 0 30,451 18,734 $163,234 35,508 28,849 18,112 $162,547 31,125 30,344 15,725 (1) Based on continuing operations only and therefore excludes the impact of closing 23 stores and the divesture of other properties of The Seiyu, Ltd. now Walmart Japan) pursuant(predicate) to a restructuring class adopted during the third quarter of ? scal 2009. All of these activities have been disclosed as discontinued operations. Total assets as of January 31, 2010, 2009 and 2008 in the table above exclude assets of discontinued operations that are re? ected in the Consolidated Balance Sheets of $140 million, $195 million and $967 million, respectively. (2) The average is based on the addition of the account balance at the end of the flow period to the account balance at the end of the prior period and dividing by 2. Walmart 2010 Annual Report 19 107077_L01_FIN_02. indd 19 /6/10 121047 AM Managements Discussion and Analysis of Financial Condition and Results of Operations drop off Cash Flow We de? n e let go bills ? ow as net change provided by operating activities of continuing operations in a period minus payments for berth and equipment made in that period. We generated positive free exchange ? ow 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 quality ? ow is to begin with the result of improved operating results and farm animal management. The following table sets forth a reconciliation of free cash ? w, a nonGAAP ? nancial measure, to net cash provided by operating activities of continuing operations, a GAAP measure, which we believe to be the GAAP ? nancial measure most directly comparable to free cash ? 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) warrant cash ? ow is considered a non-GAAP ? nancial measure under the SECs rules. Management be lieves, 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. clear 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 infer 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 measure that provides supplemental information to our entire statement of cash ? ows. Although other companies report their free cash ? ow, numerous methods may exist for c alculating 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 flow 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 primarily 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 impacted our income from continuing operations during the ? scal years ended 2010, 2009 and 2008 were as follows In ? scal 2010, the company announced several(prenominal) organizational changes, including the closure of 10 Sams Clubs, designed to corroborate 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 primarily from the repatriation of certain non-U. S. earnings that increased U. S. foreign tax credits. In ? scal 2009, the company colonised 63 wage-and-hour class action lawsuits. As a result of the settlement, the company recorded 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 antecedent Fiscal Year 2010 2009 2008 $405,046 401,087 373,821 1. 0% 7. 3% 8. 4% Operating Income (1) Operating Income as a Percentage of Net Sales Comp Sales Unit Counts unbowed 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&038S in January 2009, offset primarily by a $9. 8 billion unfavorable 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 percentage 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 yield 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 strategies 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 percentage 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 rock-bottom compared to ? scal 2009 due to $372 million in net tax bene? ts that pri marily resulted from the repatriation of certain non-U. S. earnings that increased our work 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 food for thought market and health and wellness categories, as well as our continued expansion activities. In ? scal 2009, the segment net sales growt h 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 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, despite increased customer traf? c, due to a drop in average act size per customer driven by price de? ation in certain merchandise 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 percentage 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 fall markdown activity and lower inventory shrinkage. The improvements in both years were attributable to merchandising initiatives that have improved home allocation, enhanced our price leadership 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 inducement 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 Mexico, our joint ventures in India and China and our other controlled subsidiaries in China.The ? scal 2010 increase in the International segments n et sales primarily resulted from our expansion activities and the cellular inclusion of the results of D&038S, 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&038S, 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 increa se was primarily driven by currency exchange rate ? uctuations and the inclusion of D&038S. 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&038S, 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 income by $266 million. Volatility in currency exchange rates may continue to impact the International segments operating result s 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 activities. Membership and other income, as a percentage of segment net sales, decreased meagrely for ? scal 2010 when compared t o ? 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 outstanding 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 uninfected 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 prior year due to continued strength in sales of consumable, fresh food and other food-related categories. Gross pro? t margin in creased 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 operative source of liquidity. We use these cash flows, supplemented with semipermanent debt and short-term borrowings, to neckcloth our operations and g lobal expansion activities. Generally, some or all of the remaining free cash flow funds the dividends on our common stock and share salvations. Cash ? ows provided by operating activities supply us with a signi? coin bank 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 repurchases. 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 provided 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 Capital 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 funding 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 ? scal 2010, we issued $5. 5 billion of long-term debt. The net harvesting from the issuance of such long-te rm 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 undischarged commercial paper duty 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 anticipate 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 late past. The following tab le details the ratings of the credit rating agencies that rated our outstanding indebtedness at January 31, 2010. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated one by one 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 incur 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 ad dition 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 Paper Standard &038 Poors saturnines Investors Service Fitch Ratings DBRS Limited Long-term Debt A-1+ P-1 F1+ R-1(middle) AA Aa2 AA AA To varan 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 capitalization 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 purpose of this calculation, debt is de? ned as the sum of short-term borrowings, long-term debt due within one y ear, 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 randomness systems, distribution and other Total U. S. International Total Capital Expenditures positive 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 shar e 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 March 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, kinfolk 7, 2010 and January 3, 2011 to holders of record on March 12, May 14, August 13 and celestial latitude 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 buyback Program From time to time, we have repurchased shares of our common stock under a $15. 0 billion share repurchase program authori zed by our Board of Directors on June 4, 2009 and announced 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 range the share repurchases, including among other things, our current 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) Recorded 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 purchase obligations Total commercial commitments Additionally, the company has approximately $11. 2 billion in undrawn lines of credit and understudy letters of credit which, if drawn upon, would be included in the liabilities department 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/license commitments and legally binding service contracts. Purchase orders for the purchase of inventory and other services 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 minimum quantities to be purchased ? xed, minimum or variable price nourishment 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 however, the obligations under these contracts are not signi? flip and the contracts generally contain clau ses allowing for cancellation without signi? cant penalty. Total 2011 2012-2013 2014-2015 Thereafter $37,281 523 5,584 $ 4,050