Summary of WAL MART STORES INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Wal-Mart Stores, Inc. ("Walmart," 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 everyday low prices ("EDLP"), while fostering a culture that rewards and embraces mutual respect, integrity 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 activities. Our focus for Sam's Club is to provide exceptional value on brand name and private label merchandise at "members only" prices for both business and personal use. Internationally, we operate with similar philosophies.
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess our performance. Additionally, the discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of the Company as a whole.
This discussion relates to Walmart and its consolidated subsidiaries and should be read in conjunction with our Condensed Consolidated Financial Statements as of April 30, 2012, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of January 31, 2012, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report to Shareholders for the year ended January 31, 2012, and incorporated by reference in, and included as an exhibit to, our Annual Report on Form 10-K for the year ended January 31, 2012.
Our fiscal year ends on January 31 for our United States ("U.S.") and Canadian operations and on December 31 for all other operations.
Currently, our operations consist of three reportable business segments: Walmart U.S., Walmart International, and Sam's Club. The Walmart U.S. segment includes the Company's mass merchant concept in the U.S., operating under the "Walmart" or "Wal-Mart" brand, as well as walmart.com. The Walmart International segment consists of the Company's operations outside of the U.S., including various websites. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com.
Our business is seasonal to a certain extent due to different calendar events and national and religious holidays, as well as different climatic conditions. Historically, the highest sales volume and operating income occur in the fiscal quarter ending January 31, which includes the holiday season, and the lowest sales volume and operating income occur during the fiscal quarter ending April 30.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income and comparable store and club sales. The Company measures the results of its segments using, among other measures, each segment's operating income, including certain corporate overhead allocations. From time to time, we revise the measurement of each segment's operating income, including any corporate overhead allocations, as dictated by the information regularly reviewed by our chief operating decision maker. When we do so, the prior period amounts for segment operating income are reclassified to conform to the current period's presentation. The amounts representing "Other unallocated" in the leverage discussion of the Company's performance metrics include unallocated corporate overhead and other items. Comparable store and club sales is a metric which indicates the performance of our existing U.S. stores and clubs by measuring the change in sales for such stores and clubs for a particular period from the corresponding period in the prior year. Walmart's definition of comparable store and club sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations and expansions, as well as sales initiated online. Changes in format continue to be excluded from comparable store and club sales when the conversion is accompanied by a relocation or expansion that results in a change in retail square feet of more than five percent. Comparable store and club sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable store and club sales varies across the retail industry. As a result, our calculation of comparable store and club sales is not necessarily comparable to similarly titled measures reported by other companies. In discussing our operating results, we sometimes refer to the impact of changes in currency exchange rates that we use to convert the operating results for all countries where the functional currency is not the U.S. dollar. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior year's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. When we refer to constant currency operating results, we are referring to our operating results without the impact of the currency exchange rate fluctuations and without the impact of acquisitions until the acquisitions are included in both comparable periods. The disclosure of constant currency amounts or results, excluding the effect of acquisitions, permits investors to understand better our underlying performance

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without the effects of currency exchange rate fluctuations or acquisitions. We made certain reclassifications to prior period amounts or balances to conform to the presentation in the current fiscal year. These reclassifications did not impact the Company's operating income or consolidated net income. Additionally, certain segment asset and expense allocations have been reclassified among segments in the current period.
Company Performance Metrics
The Company's performance metrics emphasize three priorities for improving shareholder value: growth, leverage and returns. The Company's priority of growth focuses on sales through comparable store or club sales and unit square feet growth; the priority of leverage encompasses the Company's objective to increase its operating income at a faster rate than the growth in net sales by growing its operating, selling, general and administrative expenses ("operating expenses") at a slower rate than the growth of its net sales; and the priority of returns focuses on how efficiently the Company employs its assets through return on investment ("ROI") and how effectively the Company manages working capital through free cash flow.

Growth
Net Sales
                                               Three Months Ended April 30,
                                              2012                           2011
                                             Percent     Percent                  Percent
(Dollar amounts in millions)    Net Sales    of Total     Change     Net Sales    of Total
Walmart U.S.                   $   66,341       59.1 %      5.9 %   $   62,669       60.6 %
Walmart International              32,077       28.6 %     15.0 %       27,905       27.0 %
Sam's Club                         13,854       12.3 %      7.9 %       12,841       12.4 %
Net sales                      $  112,272      100.0 %      8.6 %   $  103,415      100.0 %

Our consolidated net sales increased 8.6% for the three months ended April 30, 2012, when compared to the three months ended April 30, 2011. The increase in net sales is primarily a result of growth in retail square feet of 5.3%, sales from acquisitions of $1.9 billion and positive comparable store and club sales. The extra day from leap year during the three months ended April 30, 2012, also added approximately 100 basis points to net sales. These increases were partially offset by $800 million of negative impact from fluctuations in currency exchange rates.
Calendar Comparable Store and Club Sales Comparable store and club sales is a measure which indicates the performance of our existing U.S. stores and clubs by measuring the growth in sales for such stores and clubs for a particular period over the corresponding period in the previous fiscal year. The retail industry generally reports comparable store and club sales using the retail calendar (also known as the 4-5-4 calendar) and, to be consistent with the retail industry, we provide comparable store and club sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable store and club sales below, we are referring to our calendar comparable store and club sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our calendar comparable store and club sales also differ from the retail calendar comparable store and club sales provided in our quarterly earnings releases. Calendar comparable store and club sales, as well as the impact of fuel, for the three months ended April 30, 2012 and 2011, are as follows:

Three Months Ended April 30,

                2012         2011        2012     2011
                     With Fuel            Fuel Impact
Walmart U.S.    4.2 %       (0.9 )%      0.0 %    0.0 %
Sam's Club      7.5 %        8.8  %      0.8 %    4.4 %
Total U.S.      4.8 %        0.7  %      0.2 %    0.8 %

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Leverage
Operating Income
                                                               Three Months Ended April 30,
                                                          2012                                   2011
                                                             Percent     Percent                          Percent
(Dollar amounts in millions)            Operating Income     of Total     Change     Operating Income     of Total
Walmart U.S.                           $          5,033        78.7  %      8.1 %   $          4,657        79.0  %
Walmart International                             1,319        20.7  %     21.2 %              1,088        18.5  %
Sam's Club                                          490         7.7  %      7.7 %                455         7.7  %
Other unallocated                                  (455 )      (7.1 )%     49.7 %               (304 )      (5.2 )%
Total operating income                 $          6,387       100.0  %      8.3 %   $          5,896       100.0  %

We believe comparing the growth of our operating expenses to the growth of our net sales and comparing the growth of our operating income to the growth of our net sales are meaningful measures as they indicate how effectively we manage costs and leverage operating expenses. Our objective is to grow operating expenses at a slower rate than net sales and to grow operating income at a faster rate than net sales. On occasion, we may make strategic growth investments that may, at times, cause our operating expenses to grow at a faster rate than net sales and that may result in our operating income growing at a slower rate than net sales.
Operating Expenses
For the three months ended April 30, 2012, operating expenses increased 6.6% when compared to the same period in the previous year, while net sales increased 8.6% over the same period. Operating expenses increased due to acquisitions, additional associate incentive payments and continued investment in our Global eCommerce initiatives. For the three months ended April 30, 2012, we leveraged operating expenses.
Operating Income
Our operating income grew by 8.3% for the three months ended April 30, 2012, when compared to the same period in the previous year, while net sales increased by 8.6% when compared to the same period in the previous year. Although operating income increased in the current period, we did not meet our objective of growing operating income at a faster rate than net sales primarily because we experienced a decline in our gross profit, as a percentage of net sales ("gross profit rate"). Our gross profit rate declined due to price investment as we are reinvesting expense savings back into prices for our customers and not passing on the full impact of cost inflation. This price investment strategy gradually reduces what our customers pay and, accordingly, causes our gross margin rate to decline. Additionally, operating income for the three months ended April 30, 2012 was negatively impacted by $50 million due to fluctuations in currency exchange rates. Volatility in currency exchange rates may continue to impact the Company's operating income in the future. Returns
Return on Investment
Management believes return on investment ("ROI") is a meaningful metric to share with investors, because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term potential strategic initiatives with possible short-term impacts. ROI was 18.1% and 18.5% for the trailing 12-month periods ended April 30, 2012 and 2011, respectively. ROI was negatively impacted by capital expenditures and acquisition-related activities, partially offset by positive currency exchange rate fluctuations.
We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the fiscal year or trailing twelve months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets of continuing operations, plus average accumulated depreciation and average amortization less average accounts payable and average accrued liabilities for that period, plus a rent factor equal to the rent for the fiscal year or trailing twelve months multiplied by a factor of eight. ROI is considered a non-GAAP financial measure. We consider return on assets ("ROA") to be the financial measure computed in accordance with generally accepted accounting principles ("GAAP") that is the most directly comparable financial measure to ROI as we calculate that financial measure. ROI differs from ROA (which is income from continuing operations for the fiscal year or trailing twelve months divided by average total assets of continuing operations for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; adjusts total assets from continuing operations for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities; and incorporates a factor of rent to arrive at total invested capital.

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Although ROI is a standard financial metric, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate ROI may differ from the methods other companies use to calculate their ROI. We urge you to understand the methods used by other companies to calculate their ROI before comparing our ROI to that of such other companies. The calculation of ROI, along with a reconciliation to the calculation of ROA, the most comparable GAAP financial measure, is as follows:

                                                                      For the Trailing
                                                                     Twelve Months Ended
                                                                          April 30,
(Dollar amounts in millions)                                        2012             2011
CALCULATION OF RETURN ON INVESTMENT
Numerator
Operating income                                                $   27,049       $   25,701
+ Interest income                                                      157              194
+ Depreciation and amortization                                      8,251            7,762
+ Rent                                                               2,515            2,002
= Adjusted operating income                                     $   37,972       $   35,659

Denominator
Average total assets of continuing operations (1)               $  191,569       $  180,016
+ Average accumulated depreciation and amortization (1)             49,761           45,641
- Average accounts payable (1)                                      35,775           32,927
- Average accrued liabilities (1)                                   16,300           15,790
+ Rent x 8                                                          20,120           16,016
= Average invested capital                                      $  209,375       $  192,956
Return on investment (ROI)                                            18.1 %           18.5 %

CALCULATION OF RETURN ON ASSETS
Numerator
Income from continuing operations                               $   16,770       $   16,093
Denominator
Average total assets of continuing operations (1)               $  191,569       $  180,016
Return on assets (ROA)                                                 8.8 %            8.9 %



                                                      As of April 30,
                                               2012         2011         2010
Certain Balance Sheet Data
Total assets of continuing operations (2)   $ 197,020    $ 186,117    $ 173,914
Accumulated depreciation and amortization      50,835       48,686       42,596
Accounts payable                               37,068       34,481       31,372
Accrued liabilities                            16,637       15,962       15,617

(1) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2.
(2) Total assets of continuing operations as of April 30, 2012, 2011 and 2010 in the table above exclude assets of discontinued operations that are reflected in the Company's Condensed Consolidated Balance Sheets of $80 million, $108 million and $129 million, respectively.

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Free Cash Flow
We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period. We generated free cash flow of $3.1 billion compared to negative $415 million for the three months ended April 30, 2012 and 2011, respectively. The increase in free cash flow was primarily due to improvement in inventory management, timing related to associate incentive payments and strong operating performance. Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, income from continuing operations as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.
Additionally, our definition of free cash flow is limited, in that it does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statement of cash flows.
Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by our management to calculate free cash flow may differ from the methods other companies use to calculate their free cash flow. We urge you to understand the methods used by other companies to calculate their free cash flow before comparing our free cash flow to that of such other companies.
The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash provided by (used in) financing activities.

                                                                   Three Months Ended April 30,
(Amounts in millions)                                                 2012               2011
Net cash provided by operating activities                       $       5,434       $       1,974
Payments for property and equipment                                    (2,375 )            (2,389 )
Free cash flow                                                  $       3,059       $        (415 )

Net cash used in investing activities (1)                       $      (2,436 )     $      (1,869 )
Net cash provided by (used in) financing activities             $      (1,807 )     $       1,666

(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

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