Walmart 2008 Annual Report Download - page 34

32 WAL-MART 2008 ANNUAL REPORT
Notes to Consolidated Financial Statements
1 Summary of Signicant Accounting Policies
General
Wal-Mart Stores, Inc. (“Wal-Mart,” the “Company” or “we”) operates
retail stores in various formats around the world and is committed
to saving people money so they can live better. We earn the trust of
our customers every day by providing a broad assortment of quality
merchandise and services at every day low prices (“EDLP”) while
fostering a culture that rewards and embraces mutual respect, integ-
rity 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
scal year ends on January 31. During the scal year ended January
31, 2008, we had net sales of $374.5 billion.
Consolidation
The Consolidated Financial Statements include the accounts of
Wal-Mart Stores, Inc. and its subsidiaries. Signicant intercompany
transactions have been eliminated in consolidation. Investments in
which the Company has a 20% to 50% voting interest and where
the Company exercises signicant inuence over the investee are
accounted for using the equity method.
The Company’s operations in Argentina, Brazil, China, Costa Rica,
El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua and
the United Kingdom are consolidated using a December 31 scal
year-end, generally due to statutory reporting requirements. There
were no significant intervening events in January 2008 which
materially aected the nancial statements. The Company’s opera-
tions in Canada and Puerto Rico are consolidated using a January 31
scal year-end.
The Company consolidates the accounts of certain variable interest
entities where it has been determined that Wal-Mart is the primary
beneciary of those entities’ operations. The assets, liabilities and
results of operations of these entities are not material to the Company.
Cash and Cash Equivalents
The Company considers investments with a maturity of three months
or less when purchased to be cash equivalents. The majority of pay-
ments due from banks for third-party credit card, debit card and
electronic benet transactions (“EBT”) process within 24-48 hours,
except for transactions occurring on a Friday, which are generally
processed the following Monday. All credit card, debit card and EBT
transactions that process in less than seven days are classied as
cash and cash equivalents. Amounts due from banks for these trans-
actions classied as cash totaled $826 million and $882 million at
January 31, 2008 and 2007, respectively.
Receivables
Accounts receivable consist primarily of receivables from insurance
companies resulting from our pharmacy sales, receivables from
suppliers for marketing or incentive programs, receivables from real
estate transactions and receivables from property insurance claims.
Additionally, amounts due from banks for customer credit card, debit
card and EBT transactions that take in excess of seven days to process
are classied as accounts receivable.
Inventories
The Company values 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 of the Wal-Mart
Stores segment’s merchandise inventories. Sam’s Club merchandise
and merchandise in our distribution warehouses are valued based
on the weighted average cost using the LIFO method. Inventories
of foreign operations are primarily valued by the retail method of
accounting, using the rst-in, rst-out (“FIFO”) method. At January 31,
2008 and 2007, our inventories valued at LIFO approximate those
inventories as if they were valued at FIFO.
Financial Instruments
The Company uses derivative nancial instruments for purposes other
than trading to manage its exposure to interest and foreign exchange
rates, as well as to maintain an appropriate mix of xed and oating-
rate debt. Contract terms of a hedge instrument closely mirror those
of the hedged item, providing a high degree of risk reduction and
correlation. Contracts that are eective at meeting the risk reduction
and correlation criteria are recorded using hedge accounting. If a
derivative instrument is a hedge, depending on the nature of the
hedge, changes in the fair value of the instrument will either be o-
set against the change in fair value of the hedged assets, liabilities
or rm commitments through earnings or be recognized in other
comprehensive income until the hedged item is recognized in earn-
ings. The ineective portion of an instrument’s change in fair value
will be immediately recognized in earnings. Instruments that do not
meet the criteria for hedge accounting, or contracts for which the
Company has not elected hedge accounting, are valued at fair value
with unrealized gains or losses reported in earnings during the
period of change.
Capitalized Interest
Interest costs capitalized on construction projects were $150 million,
$182 million and $157 million in scal 2008, 2007 and 2006, respectively.
Long-Lived Assets
Long-lived assets are stated at cost. Management reviews long-lived
assets for indicators of impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recov-
erable. The evaluation is performed at the lowest level of identiable
cash ows, which is at the individual store level or in certain circum-
stances a market group of stores. Undiscounted cash ows expected
to be generated by the related assets are estimated over the asset’s
useful life based on updated projections. If the evaluation indicates
that the carrying amount of the asset may not be recoverable, any
potential impairment is measured based upon the fair value of the
related asset or asset group as determined by an appropriate market
appraisal or other valuation technique.
Goodwill and Other Acquired Intangible Assets
Goodwill represents the excess of purchase price over fair value of
net assets acquired, and is allocated to the appropriate reporting
unit when acquired. Other acquired intangible assets are stated at
the fair value acquired as determined by a valuation technique com-
mensurate with the intended use of the related asset. Goodwill and
indenite-lived other acquired intangible assets are not amortized;
rather they are evaluated for impairment annually or whenever
events or changes in circumstances indicate that the value of the
asset may be impaired. Denite-lived other acquired intangible