Walmart 2010 Annual Report Download - page 38

Payments from Suppliers
Walmart receives money from suppliers for various programs, primarily
volume incentives, warehouse allowances and reimbursements for spe-
cific programs such as markdowns, margin protection and advertising.
Substantially all payments from suppliers are accounted for as a reduction
of purchases and recognized in our Consolidated Statements of Income
when the related inventory is sold.
Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include all
operating costs of the company except those costs related to the trans-
portation of products from the supplier to the warehouses, stores or clubs,
the costs related to the transportation of products from the warehouses
to the stores or clubs and the cost of warehousing for our Sam’s Club
segment. As a result, the cost of warehousing and occupancy for our
Walmart U.S. and International segments’ distribution facilities is
included in operating, selling, general and administrative expenses. Because
we do not include the cost of our Walmart U.S. and International seg-
ments’ distribution facilities in cost of sales, our gross profit and gross
profit as a percentage of net sales (our “gross profit margin”) may not be
comparable to those of other retailers that may include all costs related
to their distribution facilities in cost of sales and in the calculation of
gross profit.
Advertising Costs
Advertising costs are expensed as incurred and were $2.4 billion, $2.1
billion and $1.8 billion in fiscal 2010, 2009 and 2008, respectively.
Advertising costs consist primarily of print, television and digital adver-
tisements. Advertising reimbursements received from suppliers are
generally accounted for as a reduction of purchases and recognized in our
Consolidated Statements of Income when the related inventory is sold.
Pre-Opening Costs
The costs of start-up activities, including organization costs, related
to new store openings, store remodels, expansions and relocations are
expensed as incurred. Pre-opening costs totaled $227 million, $289
million and $353 million for the years ended January 31, 2010, 2009
and 2008, respectively.
Depreciation and Amortization
Depreciation and amortization for financial statement purposes are
provided on the straight-line method over the estimated useful lives of
the various assets. Depreciation expense, including amortization of
property under lease, for fiscal years 2010, 2009 and 2008 was $7.2 billion,
$6.7 billion and $6.3 billion, respectively. For income tax purposes,
accelerated methods of depreciation are used with recognition of deferred
income taxes for the resulting temporary differences. Leasehold improve-
ments are depreciated over the shorter of the estimated useful life of the
asset or the remaining expected lease term. Estimated useful lives for
financial statement purposes are as follows:
Buildings and improvements 5–40 years
Fixtures and equipment 3–20 years
Transportation equipment 4–15 years
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial state-
ment carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period
that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts more likely
than not to be realized.
The company reports a liability for unrecognized tax benefits resulting
from uncertain tax positions taken or expected to be taken in a tax return.
The company records interest and penalties related to unrecognized
tax benefits in interest expense and operating, selling, general and
administrative expenses, respectively, in the company’s Consolidated
Statements of Income.
Estimates and Assumptions
The preparation of our Consolidated Financial Statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities. They also affect the
disclosure of contingent assets and liabilities at the date of the Consoli-
dated Financial Statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
Reclassifications
In connection with the company’s finance transformation project, we
reviewed and adjusted the classification of certain revenue and expense
items within our Consolidated Statements of Income for financial
reporting purposes. The reclassifications did not impact operating
income or consolidated net income attributable to Walmart. The
changes were effective February 1, 2009 and have been reflected in all
periods presented.
Subsequent Events
On March 4, 2010, the company’s Board of Directors approved an
increase in the annual dividend for fiscal 2011 to $1.21 per share, an
increase of 11% over the dividend paid in fiscal 2010. The annual divi-
dend will be paid in four quarterly installments on April 5, 2010, June 1,
2010, September 7, 2010 and January 3, 2011 to holders of record on
March 12, May 14, August 13 and December 10, 2010, respectively.
Notes to Consolidated Financial Statements
36 Walmart 2010 Annual Report