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2 0 0 5 A N N U A L R E P O R T
Vested Interest

Table of contents

  • Page 1
    2005 ANNUAL REPORT Vested Interest

  • Page 2
    ... vest in one of our stores, shop our aisles, work in our support centers, drive our trucks, help us as a supplier, or own shares in our company, we all have a vested interest in Wal-Mart's ongoing success. This success will come from our continued allegiance to Sam Walton's lifelong belief that our...

  • Page 3
    Sam Walton, Founder of Wal-Mart Stores, Inc. WAL-MART 2005 ANNUAL REPORT 1

  • Page 4
    2 WAL-MART 2005 ANNUAL REPORT

  • Page 5
    ... Of Life In Baldwin Hills, California. Impressive numbers can describe our business, but individual lives account for our success. We look at every new location as an opportunity to improve the standard of living for the community we will serve. Consider Baldwin Hills in South Los Angeles. When...

  • Page 6
    ...always been about - understanding what the customer wants in each of these markets. If this sounds familiar, it's because we've found that our three basic beliefs - respecting the individual, servicing our customers and striving for excellence - travel amazingly well. 4 WAL-MART 2005 ANNUAL REPORT

  • Page 7
    ... our economy's most powerful engines - small businesses. This means stocking the merchandise small businesses need at every day low prices and providing services tailored to their unique needs. Take Jessica and Francisco Mejías, who successfully operate Los Andes Bakery, a Chilean bakery in Sleepy...

  • Page 8
    ... In Lilburn, GA. Ask a member of our store management team where they started, and they are likely to point toward a cash register, a store aisle or a stock room. The fact is, 76 percent of our store management started in hourly positions. Thanks to our practice of internal promotion, thousands of...

  • Page 9
    STORE MANAGER, TINA WADLEIGH (IN FOREGROUND), WITH ASSOCIATES ON HER TEAM WAL-MART 2005 ANNUAL REPORT 7

  • Page 10
    .... It worked so well that she brought it to us. We decided to take a chance on it. This year, Victoria KnightMcDowell and Wal-Mart sold nearly a million bottles of Airborne® and we were able to meet the demands of customers who wanted this product at a great Wal-Mart price. 8 WAL-MART 2005 ANNUAL...

  • Page 11
    Our Data Center Tracks Over 680 Million SKU's Weekly.* Vested Interest: Delivering More Kellogg's® Pop-Tart®* Toaster Pastries To Pensacola. *© 2005 Kellogg NA Co. Thanks to over 75,000 associates in Logistics and in our Information Systems Division, Wal-Mart has "the firepower" behind our ...

  • Page 12
    Wal-Mart Is America's Largest Corporate Charitable Contributor. Vested Interest: Supporting Carol Olney's Belief That "Nothing Is Impossible." This is the approach Carol Olney brings to her job as a special needs teacher in Mt. Pleasant, SC and one that earned her recognition as our national Teacher...

  • Page 13
    ... crystal clear to you as a shareholder: Wal-Mart's health and future growth prospects have never been stronger. Record Financial Results We ended our 2005 fiscal year with record sales and earnings. We opened a record number of stores. We promoted a record number of associates. We made significant...

  • Page 14
    ... the square footage of our For example, even with the size and success we have distribution centers. achieved, today Wal-Mart has earned less than three Our ability to add successfully this many stores to percent of the global retail market share. In other words, our business, year after year, is...

  • Page 15
    ... standards, it is encouraging to hear them talk with pride about the inherent strength of the Wal-Mart culture Lee Scott and the fact that integrity applies to everyone at Wal-Mart, President and Chief Executive Officer no matter what job or position with the company. WAL-MART 2005 ANNUAL REPORT...

  • Page 16
    ... are representative questions from Wal-Mart shareholders which provide an opportunity for Rob Walton, Chairman of the Board of Wal-Mart Stores, Inc., to share his perspective in a few key areas. What are your thoughts on why Wal-Mart ran full-page ads in more than 100 newspapers this past January...

  • Page 17
    ... outstanding career opportunities available today at Wal-Mart. Could you please comment on Wal-Mart's priorities as the company continues to grow? Over the long term, our stock price will track our earnings performance. However, over the short term, numerous other factors, like stock market trends...

  • Page 18
    ... West," a project spearheaded by the mayor's wife, which contributes time and money towards children's literacy efforts. And when LaQuinta threw its annual "Birthday Bash," store #1805 was an enthusiastic sponsor and an active participant in the celebration. 16 WAL-MART 2005 ANNUAL REPORT...

  • Page 19
    ... with Wal-Mart. Our distribution centers are state-of-the-art facilities that regularly increase their capacity and productivity. Annually, our distribution centers will process over five billion cases through our entire network to Stores and Clubs, often with one of our 7,800 plus truck drivers...

  • Page 20
    ... to provide restaurants, childcare facilities, clinics, offices and more with the items they needed to remain operational and limit their downtime losses. Ken Lord, with key associates, Lisa Varney and Elizabeth Couch along with the Fire Department of Port Charlotte, FL 18 WAL-MART 2005 ANNUAL...

  • Page 21
    ... Throughout the year we invite business owners in targeted industries to our Clubs to showcase new items and services that will help them save time and money. The key business segments we focus on are restaurants, convenience stores, offices, contractors, child care and learning centers, religious...

  • Page 22
    ... his community, Billy has been known to jump off the bus to collect abandoned ASDA shopping carts and bring them back to the store. We salute associates like Billy who are truly raising the bar for all of us. Billy Main and David Beale ASDA, West Bridgford, England 20 WAL-MART 2005 ANNUAL REPORT

  • Page 23
    ...inches (Symbol is LARGER in relation to ty forecast their sales demand and efficiently plan production and delivery schedules. We share real-time store and product data with our suppliers, including sales of individual products by store. Our suppliers aid us in better understanding new markets and...

  • Page 24
    ... 1995 was not affected by the adoption. In fiscal 2003, the company adopted Financial Accounting Standards Board Statement No. 142, "Goodwill and Other Intangible Assets." In years prior to adoption, the company recorded amortization expense related to goodwill. 22 WAL-MART 2005 ANNUAL REPORT

  • Page 25
    ... change would not have a material impact on this summary. The cumulative effect for this accounting change recorded in fiscal 2000 amounted to $198 million net of tax. Certain reclassifications have been made to prior periods to conform to current presentations. WAL-MART 2005 ANNUAL REPORT 23

  • Page 26
    ... $10.3 billion. Foreign currency exchange rates favorably impacted sales by $3.2 billion in fiscal 2005. • Net operating cash provided by operating activities was $15.0 billion for fiscal 2005. During fiscal 2005 we repurchased $4.5 billion of our common stock under our share repurchase program...

  • Page 27
    ... in the SAM'S CLUB segment's net sales as a percent of total company sales in fiscal 2005 and 2004 when compared to fiscal 2003 resulted from the more rapid development of new stores in the International and Wal-Mart Stores segments than the SAM'S CLUB segment. WAL-MART 2005 ANNUAL REPORT 25

  • Page 28
    ... by the Wal-Mart Stores and SAM'S CLUB segments' implementation of a new job classification and pay structure for hourly field associates in the United States. The job classification and pay structure, which was implemented in the second quarter of fiscal 2005, was designed to help maintain...

  • Page 29
    ... program and the impact of foreign currency exchange rate changes. In fiscal 2005, the International segment opened 232 units, net of relocations and closings, which added 18 million, or 15.6%, of additional unit square footage. This includes the acquisition of Bompreço S.A. Supermercados do...

  • Page 30
    Management's Discussion and Analysis of Results of Operations and Financial Condition WAL-MART Fiscal 2005 sales at our United Kingdom subsidiary, ASDA, were 46.2% of the International segment net sales. Sales for ASDA included in our consolidated income statement during fiscal 2005, 2004, and ...

  • Page 31
    ... cost estimates, will approximate $30 million annually over the lease terms. Capital Resources During fiscal 2005, we sold $5.8 billion of notes. The proceeds from the sale of these notes were used to repay commercial paper and for other general corporate purposes. WAL-MART 2005 ANNUAL REPORT...

  • Page 32
    ...nancing for other corporate purposes. We anticipate no difficulty in obtaining long-term financing in view of our credit rating and favorable experiences in the debt market in the recent past. At January 31, 2005, S&P , Moody's Investors Services, Inc. and Fitch Ratings rated our commercial paper...

  • Page 33
    ... factors would increase or decrease our self-insurance accrual by $21 million and $53 million, respectively. A 1% increase or decrease in employee-related health care costs would increase or decrease our self-insured employee health care expense by $16 million. WAL-MART 2005 ANNUAL REPORT...

  • Page 34
    ... and Analysis of Results of Operations and Financial Condition WAL-MART For a listing of our significant accounting policies, please see Note 1 to our consolidated financial statements that appear after this discussion. New Accounting Pronouncement On February 1, 2003, the company adopted...

  • Page 35
    Consolidated Statements of Income WAL-MART (Amounts in millions except per share data) Fiscal years ended January 31, Revenues: Net sales Other income, net Costs and expenses: Cost of sales Operating, selling, general and administrative expenses Operating income Interest: Debt Capital leases ...

  • Page 36
    ... and deferred charges Total assets Liabilities and shareholders' equity Current liabilities: Commercial paper Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year 2005 2004 $ 5,488 1,715 29,447 1,841 38...

  • Page 37
    Consolidated Statements of Shareholders' Equity WAL-MART (Amounts in millions except per share data) Number of Shares Common Stock Capital in Excess of Par Value Other Accumulated Comprehensive Income Retained Earnings Total Balance - January 31, 2002 Comprehensive income: Net income from ...

  • Page 38
    ...paper Proceeds from issuance of long-term debt Purchase of company stock Dividends paid Payment of long-term debt Payment of capital lease obligations Other financing activities Net cash used in financing activities Effect of exchange rate changes on cash Net increase in cash and cash equivalents...

  • Page 39
    ... $ 10,498 305 $ 10,803 The change in the International segment's goodwill is primarily the result of foreign currency exchange rate ï¬,uctuations. The fiscal 2005 acquisition of Bompreço S.A. Supermercados do Nordeste also resulted in an increase to goodwill. WAL-MART 2005 ANNUAL REPORT 37

  • Page 40
    ... actual product cost, change in inventory, the cost of transportation to the company's warehouses from suppliers, the cost of transportation from the company's warehouses to the stores and Clubs and the cost of warehousing for our SAM'S CLUB segment. Payments from Suppliers Wal-Mart receives money...

  • Page 41
    ... period of the related stock-based compensation award. The fair value of the company's stock options was estimated at the date of the grant using the following assumptions: 2005 In determining the quarterly provision for income taxes, the company uses an annual effective tax rate based on expected...

  • Page 42
    ... lines of credit totaling $4.5 billion which were undrawn as of January 31, 2005, the company has agreed to observe certain covenants, the most restrictive of which relates to minimum net worth levels and amounts of additional secured debt and long-term leases. The company was not in violation...

  • Page 43
    ...(87) (54) 432 1,500 $11,549 432 1,500 (68) (5) $ 303 (46) (16) Receive ï¬,oating rate, pay fixed-rate interest rate swap designated as a cash ï¬,ow hedge $11,799 $ 610 Non-derivative financial instruments: Long-term debt $23,846 $20,006 $25,016 $21,349 WAL-MART 2005 ANNUAL REPORT 41

  • Page 44
    ...instruments: The fair values are estimated amounts the company would receive or pay to terminate the agreements as of the reporting dates. 4 Other Accumulated Comprehensive Income Comprehensive income is net income plus certain other items that are recorded directly to shareholders' equity. Amounts...

  • Page 45
    ..., as the result of new tax legislation in Germany, we re-evaluated the recoverability of the deferred tax asset related to our German operations. Based on the results of our review, we recorded a valuation allowance resulting in a charge of $150 million. 151 $ 193 $ WAL-MART 2005 ANNUAL REPORT 43

  • Page 46
    ...to Consolidated Financial Statements WAL-MART The effective tax rate on the gain from the sale of McLane was 49% as a result of the non-deductibility of $99 million of goodwill recorded in the original McLane acquisition. 7 Stock-Based Compensation Plans On February 1, 2003, the company adopted the...

  • Page 47
    ... the exempt status of Wal-Mart assistant store managers under California law has been filed in Los Angeles County Superior Court. No determination has been made as to class certification in any of these cases. The company is a defendant in Dukes v. Wal-Mart Stores, Inc., a classaction lawsuit...

  • Page 48
    ... Financial Statements WAL-MART The company is a defendant in four putative class-action lawsuits, three of which are pending in Texas, and one in Oklahoma. In each lawsuit, the plaintiffs seek a declaratory judgment that Wal-Mart and the other defendants who purchased Corporate-Owned Life Insurance...

  • Page 49
    ...Stores and Neighborhood Markets in the United States as well as Walmart.com. The SAM'S CLUB segment includes the warehouse membership clubs in the United States as well as samsclub.com. The International segment consists of the company's operations in Argentina, Brazil, China, Germany, Mexico, South...

  • Page 50
    ...2005, 2004 and 2003 were $26.0 billion, $21.7 billion and $18.1 billion, respectively. At January 31, 2005 and 2004, ASDA long-lived assets, consisting primarily of property and equipment, net, and goodwill, net, totaled $18.9 billion and $16.3 billion, respectively. 48 WAL-MART 2005 ANNUAL REPORT

  • Page 51
    ...Board of Directors approved an annual dividend of $0.60 per share. The annual dividend will be paid in four quarterly installments on April 4, 2005, June 6, 2005, September 6, 2005, and January 3, 2006 to holders of record on March 18, May 20, August 19 and December 16, 2005, respectively. WAL-MART...

  • Page 52
    ... of Wal-Mart Stores, Inc. as of January 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and cash ï¬,ows for each of the three years in the period ended January 31, 2005. These financial statements are the responsibility of the company's management. Our...

  • Page 53
    ... have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Wal-Mart Stores, Inc. as of January 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and cash ï¬,ows for each...

  • Page 54
    ... helps Management be aware of and address issues in a timely and effective manner. Through the open door policy all associates are encouraged to inform Management at the appropriate level when they are concerned about any matter pertaining to Wal-Mart. Wal-Mart has adopted a Statement of Ethics...

  • Page 55
    ...* Brazil includes 2 Todo Dias, 118 Bompreço. †Mexico includes 162 Bodegas, 50 Suburbias, 48 Superamas, 269 Vips and does not include Vips franchises. ** Puerto Rico includes 32 Amigos. § United Kingdom includes 256 ASDA Stores, 6 George Stores and 1 ASDA Living. WAL-MART 2005 ANNUAL REPORT 53

  • Page 56
    ..., Risk Management, Insurance and Benefits Administration Executive Vice President, Logistics and Supply Chain Thomas M. Schoewe Executive Vice President and Chief Financial Officer David D. Glass Robert F. Connolly Executive Vice President, Marketing and Consumer Communications, Wal-Mart Stores...

  • Page 57
    ...of J-COM, Inc., a consulting company, a retired Wal-Mart executive and a rancher. Roland A. Hernandez Mr. Hernandez is the retired Chief Executive Officer and Chairman of the Board of Directors of Telemundo Group, Inc., a Spanish-language television station company. WAL-MART 2005 ANNUAL REPORT 55

  • Page 58
    Stock Information WAL-MART Market Price of Common Stock Fiscal year ended January 31, 2004 High Low 2005 High Low Shareholders As of March 30, 2005, there were 328,620 holders of record of Wal-Mart's Common Stock. Dividends Paid Per Share 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $56.58 $...

  • Page 59
    ... request by writing the company c/o Investor Relations or by calling (479) 273-8446. These reports are also available via the corporate website. Annual Report on Form 10-K Quarterly Reports on Form 10-Q Current Sales and Earnings Releases Copy of Proxy Statement Supplier Standards Report Trustees...

  • Page 60
    ... of freight to our Stores and Clubs; create over 120,000 more jobs worldwide; contribute to numerous charitable causes; help families save hundreds of dollars; add approximately 55 million more square feet of retail space; promote more associates and still realize that, as Mr. Sam said, "We've just...