Walmart 2009 Annual Report Download - page 29

27Wal-Mart 2009 Annual Report
as a hedge of our net investment in Japan. At January 31, 2009,
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 $443 million. At January 31, 2008, a hypo-
thetical 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.
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 account-
ing and disclosure rules are complex and require us to use technical
terminology. In preparing our Consolidated Financial Statements, we
follow accounting principles generally accepted in the United States.
These principles require us to make certain estimates and apply judg-
ments 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  nancial
statements. Following is a summary of our more signi cant account-
ing 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 Walmart U.S. segment’s
merchandise. Sam’s Club merchandise and merchandise in our distri-
bution 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 deter-
mined by applying a cost-to-retail ratio to each merchandise group-
ing’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
pro t 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 customer pref-
erences 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, 2009 and 2008, 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 write-down of the long-lived assets.
Goodwill and other inde nite-lived acquired intangible assets are not
amortized, but are evaluated for impairment annually or whenever
events or changes in circumstances indicate that the value of a certain
asset may be impaired. This evaluation requires management to make
judgments relating to future cash  ows, growth rates, and economic
and market conditions. These evaluations are based on determining
the fair value of a reporting unit or asset using a valuation method
such as discounted cash  ow or a relative, market-based approach.
Historically, the Company has generated su cient returns to recover
the cost of goodwill and other inde nite-lived acquired intangible
assets. Because of the nature of the factors used in these tests, if dif-
ferent conditions occur in future periods, future operating results
could be materially impacted.
Income Taxes
The determination of our provision for income taxes requires signi -
cant judgment, the use of estimates, and the interpretation and
application of complex tax laws. Signi cant judgment is required in
assessing the timing and amounts of deductible and taxable items
and the probability of sustaining uncertain tax positions. The bene ts
of uncertain tax positions are recorded in our  nancial statements
only after determining a more-likely-than-not probability that the
uncertain tax positions will withstand challenge, if any, from taxing
authorities. When facts and circumstances change, we reassess these
probabilities and record any changes in the  nancial statements as
appropriate. We account for uncertain tax positions under the provi-
sions of Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” which sets out criteria
for the use of judgment in assessing the timing and amounts of
deductible and taxable items.