Walmart 2008 Annual Report Download - page 27

In addition to currency swaps, we have designated debt of
approximately £3.0 billion as of January 31, 2008 and 2007, as a
hedge of our net investment in the United Kingdom. At January 31,
2008, a hypothetical 10% increase (or decrease) in value of the U.S.
dollar relative to the British pound would have resulted in a gain
(or loss) in the value of the debt of $601 million. At January 31, 2007,
a hypothetical 10% increase (or decrease) in value of the U.S. dollar
relative to the British pound would have resulted in a gain (or loss)
in the value of the debt of $594 million. In addition, we have desig-
nated debt of approximately ¥142.1 billion as of January 31, 2008
and 2007, as a hedge of our net investment in Japan. At January 31,
2008, a hypothetical 10% increase (or decrease) in value of the U.S.
dollar relative to the Japanese yen would have resulted in a gain
(or loss) in the value of the debt of $216 million. At January 31, 2007,
a hypothetical 10% increase (or decrease) in value of the U.S. dollar
relative to the Japanese yen would have resulted in a gain (or loss)
in the value of the debt of $103 million.
Summary of Critical Accounting Policies
Management strives to report the nancial results of the Company
in a clear and understandable manner, although in some cases
accounting and disclosure rules are complex and require us to use
technical terminology. In preparing our Consolidated Financial State-
ments, we follow accounting principles generally accepted in the
United States. These principles require us to make certain estimates
and apply judgments that aect our nancial position and results of
operations as reected in our nancial statements. These judgments
and estimates are based on past events and expectations of future
outcomes. Actual results may dier from our estimates.
Management continually reviews its accounting policies, how they
are applied and how they are reported and disclosed in our nan-
cial statements. Following is a summary of our more signicant
accounting policies and how they are applied in preparation of the
nancial statements.
Inventories
We value our inventories at the lower of cost or market as determined
primarily by the retail method of accounting, using the last-in, rst-out
(“LIFO”) method for substantially all our Wal-Mart Stores segment’s
merchandise. Sam’s Club merchandise and merchandise in our dis-
tribution warehouses are valued based on weighted average cost
using the LIFO method. Inventories for international operations are
primarily valued by the retail method of accounting and are stated
using the rst-in, rst-out (“FIFO”) method.
Under the retail method, inventory is stated at cost, which is determined
by applying a cost-to-retail ratio to each merchandise grouping’s
retail value. The FIFO cost-to-retail ratio is based on the initial margin
of beginning inventory plus the scal year purchase activity. The
cost-to-retail ratio for measuring any LIFO reserves is based on the
initial margin of the scal year purchase activity less the impact of
any markdowns. The retail method requires management to make
certain judgments and estimates that may signicantly impact the
ending inventory valuation at cost as well as the amount of gross
margin recognized. Judgments made include recording markdowns
used to sell through inventory and shrinkage. When management
determines the salability of inventory has diminished, markdowns
for clearance activity and the related cost impact are recorded at
the time the price change decision is made. Factors considered in
the determination of markdowns include current and anticipated
demand, customer preferences and age of merchandise, as well as
seasonal and fashion trends. Changes in weather patterns and cus-
tomer preferences related to fashion trends could cause material
changes in the amount and timing of markdowns from year to year.
When necessary, the Company records a LIFO provision for a quarter
for the estimated annual eect of ination, and these estimates are
adjusted to actual results determined at year-end. Our LIFO provision
is calculated based on inventory levels, markup rates and internally
generated retail price indices. At January 31, 2008 and 2007, our
inventories valued at LIFO approximated those inventories as if they
were valued at FIFO.
The Company provides for estimated inventory losses (“shrinkage”)
between physical inventory counts on the basis of a percentage of
sales. The provision is adjusted annually to reect the historical trend
of the actual physical inventory count results.
Impairment of Assets
We evaluate long-lived assets other than goodwill and assets with
indenite lives for indicators of impairment whenever events or
changes in circumstances indicate their carrying amounts may not
be recoverable. Management’s judgments regarding the existence
of impairment indicators are based on market conditions and our
operational performance, such as operating income and cash ows.
The evaluation for long-lived assets is performed at the lowest level
of identiable cash ows, which is generally at the individual store
level or, in certain circumstances, at the market group level. The vari-
ability of these factors depends on a number of conditions, including
uncertainty about future events and changes in demographics. Thus
our accounting estimates may change from period to period. These
factors could cause management to conclude that impairment indi-
cators exist and require that impairment tests be performed, which
could result in management determining that the value of long-lived
assets is impaired, resulting in a writedown of the long-lived assets.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
WAL-MART 2008 ANNUAL REPORT 25