Walmart 2009 Annual Report Download - page 26

24 Wal-Mart 2009 Annual Report
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
In addition to the amounts shown in the table above, $1.0 billion of
unrecognized tax bene ts have been recorded as liabilities in accor-
dance with Financial Accounting Standards Board Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), the
timing of which is uncertain. FIN 48, which was adopted in  scal year
2008, set out criteria for the use of judgment in assessing the timing
and amounts of deductible and taxable items. Refer to Note 5 to
the Consolidated Financial Statements for additional discussion on
unrecognized tax bene ts.
O Balance Sheet Arrangements
In addition to the unrecorded contractual obligations discussed and
presented above, the Company has made certain guarantees as dis-
cussed below for which the timing of payment, if any, is unknown.
In connection with certain debt  nancing, we could be liable for early
termination payments if certain unlikely events were to occur. At Jan-
uary 31, 2009, the aggregate termination payment would have been
$153 million. The two arrangements pursuant to which these payments
could be made expire in  scal 2011 and  scal 2019.
In connection with the development of our grocery distribution
network in the United States, we have agreements with third parties
which would require us to purchase or assume the leases on certain
unique equipment in the event the agreements are terminated. These
agreements, which can be terminated by either party at will, cover up
to a  ve-year period and obligate the Company to pay up to approxi-
mately $66 million upon termination of some or all of these agreements.
The Company has potential future lease commitments for land and
buildings for approximately 321 future locations. These lease com-
mitments have lease terms ranging from 1 to 35 years and provide
for certain minimum rentals. If executed, payments under operat-
ing leases would increase by $72 million for  scal 2010, based on cur-
rent cost estimates.
Capital Resources
During  scal 2009, we issued $6.6 billion of long-term debt. The net
proceeds from the issuance of such long-term debt were used to
repay outstanding commercial paper indebtedness and for other
general corporate purposes.
Management believes that cash  ows from continuing operations
and proceeds from the sale of commercial paper will be su cient to
 nance seasonal buildups in merchandise inventories and meet other
cash requirements. If our operating cash  ows are not su cient to
pay dividends and to fund our capital expenditures, we anticipate
funding any shortfall in these expenditures with a combination of
commercial paper 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
di culty in obtaining long-term  nancing in view of our credit rating
and favorable experiences in the debt market in the recent past. The
following table details the ratings of the credit rating agencies that
rated our outstanding indebtedness at January 31, 2009. 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 organiza-
tion and should be evaluated independently of any other rating.
Rating Agency Commercial Paper Long-Term Debt
Standard & Poor’s A-1+ AA
Moody’s Investors Service P-1 Aa2
Fitch Ratings F1+ AA
DBRS Limited R-1(middle) AA
To monitor our credit rating 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, 2009 and January 31, 2008, the
ratio of our debt to total capitalization was 39.3% and 40.9%, respec-
tively. For the purpose of this calculation, debt is de ned as the sum of
commercial paper, 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 shareholders’ equity. Our ratio of debt to our total capitalization
decreased in  scal 2009 primarily due to decreased borrowing levels.
We also use the ratio of adjusted cash  ow from continuing opera-
tions to adjusted average debt as another metric to review leverage.
Adjusted cash  ow from continuing operations as the numerator is
de ned as cash  ow from operations of continuing operations for the
current year plus two-thirds of the current year operating rent expense
less current year capitalized interest expense. Adjusted average debt
as the denominator is de ned as average debt plus eight times average
operating rent expense. Average debt is the simple average of begin-
ning and ending commercial paper, 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. Average operating rent
expense is the simple average of current year and prior year operating
rent expense. We believe this metric is useful to investors as it provides
them with a tool to measure our leverage. This metric was 43% for  scal
2009 and 40% for  scal 2008. The increase in the metric is primarily
due to the increase in net cash  ow from continuing operations.
The ratio of adjusted cash  ow to adjusted average debt is considered
a non-GAAP  nancial measure under the SEC’s rules. The most recog-
nized directly comparable GAAP measure is the ratio of cash  ow from
operations of continuing operations for the current year to average
total debt (which excludes any e ect of operating leases or capital-
ized interest), which was 53% for  scal 2009 and 49% for  scal 2008.