A n n u a l R e p o r t 2 0 0 2 Table of Contents A Look at 2002 2 A Letter from Lee Scott The Company We Keep 4 End-of-Year Store Count 5 We 9re Merchants First 6 What 9s in Store for 8 Our Global Community United by Compassion 10 New SAM 9S CLUB Format 12 Wal-Mart in the News 13 Financials 14 Financial Highlights Net Sales Earnings Per Share Return On Shareholders 9 Equity Return On Assets 2002 2001 2000 1999 1998 $191.3 $165.0 $137.6 $118.0 $217.8 2002 2001 2000 1999 1998 $1.41 $1.21 $.99 $.78 $1.49 2002 2001 2000 1999 1998 8.7% 9.5%* 9.6% 8.5% 8.5% 2002 2001 2000 1999 1998 22.0% 22.9% 22.4% 19.8% 20.1% Directors James W. Breyer John T. Chambers Thomas M.
Coughlin Stephen Friedman Stanley C. Gault David D. Glass Roland Hernandez Dawn G.
Lepore J. Paul Reason Elizabeth A. Sanders H.
Lee Scott Jack C. Shewmaker Donald G. Soderquist Jose Villarreal John T.
Walton S. Robson Walton *Calculated giving effect to the amount by which a lawsuit settlement exceeded established reserves. If this settlement were not considered, the return would have been 9.8%.
1 S. Robson Walton Chairman of the Board H. ... more. less.
Lee Scott President & CEO David D.<br><br> Glass Chairman of the Executive Committee of the Board Thomas M. Coughlin Executive Vice President; President & CEO, Wal-Mart Stores Division Michael Duke Executive Vice President, Administration Thomas Grimm Executive Vice President; President & CEO, SAM 9S CLUB Division Thomas Hyde Executive Vice President, Legal and Corporate Affairs John B. Menzer Executive Vice President; President & CEO, International Division Coleman Peterson Executive Vice President, People Division Thomas M.<br><br> Schoewe Executive Vice President & CFO Inside this annual report you 9ll see that our goal is to provide exceptional value for our customers, our shareholders, our Associates, and our communities 3 Always . We strive to follow the tradition of service established by Sam Walton and are inspired by his spirit of innovation 3 Always . Like our goals, our expectations of ourselves and of our Company are high, and in order to meet them we must perform 3 Always .<br><br> In a year when absolutely anything seemed both possible and impossible, we remember what is most important 3 our families, our customers, our shareholders, our Associates, and our communities 3 Always . Senior Officers 2 A Look at 2002 and Beyond. Reflecting on the events of last year, I am struck not only by how difficult a year it was, but also by how well our Associates responded.<br><br> We began the year following one of the worst holiday seasons in recent memory. Sluggish consumer spending, rising unemployment, the energy crisis and the events of September 11 all converged to make the year a very challenging time in retailing. While other companies struggled to increase sales in this environment, we gained market share and added more than $26 billion in revenues, for a 13.8 percent increase over the prior year 9s sales.<br><br> Sales for the year ending January 31, 2002 were just under $218 billion, making us the largest company in the world as measured by annual revenue. A lot has been said about us becoming the world 9s largest company. Our goal was never to be the biggest, but rather to be the best as measured by our stakeholders, who are our customers, our Associates, our suppliers, our communities and importantly, our shareholders.<br><br> Our stated goal is for earnings to grow at a rate equal to or better than sales. We did not achieve that goal in the last fiscal year, but we did end a difficult year with improved earnings momentum. Net income for the fourth quarter was almost $2.2 billion, more than 9 percent over the similar prior-year quarter.<br><br> Our earnings growth in the second half of the year was 8.8 percent, significantly better than the 2.7 percent earnings growth rate experienced in the first six months. Earnings for the total year exceeded $6.6 billion and cash flow from operations was over $10 billion. This cash position allowed us to give almost $2.5 billion back to our shareholders in the form of dividends and share repurchases in the last fiscal year.<br><br> Almost five years ago, we set a ctotal shareholder return target d of 15 percent. We did not achieve our goal in the last fiscal year. However, since we established this objective, our compound annual return has averaged 17.9 percent.<br><br> With success comes the obligation to do what is right for all of our stakeholders; and in this area, I would stack our performance against any business in the world. There are a couple of distinctions we received recently that are far more important than those awarded based on size. First, Fortune magazine named us as one of the c100 Best Places to Work. d We were the only discount retailer to achieve this distinction, and we have now earned a place on this list in four of the last five years.<br><br> Sam Walton knew that if we treated our Associates well, they would provide great customer service, and run the business as if they were the owners. Our second honor was ranking number three in Fortune 9s annual list of cAmerica 9s Lee Scott Dear Shareholders, Associates and Customers: 3 Most Admired Companies. d This is the tenth time in the last 20 years that we ranked in the top 10. The poll was taken by asking 10,000 executives, directors and security analysts to select the 10 companies they admired most.<br><br> Each day we are tested, as consumers vote for their favorite store with the dollars they spend. A recent WSL Strategic Retail survey quoted in The New York Times said a plurality of Americans chose Wal-Mart as their favorite store. Another survey cited in the article was conducted by Teenage Research Unlimited and found that 58 percent of children 8 to 18 declared Wal-Mart as their favorite place to shop for clothes.<br><br> These are the survey results we cherish most. Our Company has core competencies and hidden advantages that allow us to fulfill our promise of cLow Prices 3 Always. d They include our expertise in logistics and information technology. A recent study by the McKinsey Global Institute finds that in terms of sheer economic impact, the single most important, dynamic, defining technological innovation in America hasn 9t been from Silicon Valley; it 9s the relentless promise of ceveryday low prices d by Wal-Mart.<br><br> The study says, cToday 9s economic reality is that high-tech decisions made in Arkansas play a larger role in boosting America 9s productivity than decisions made in Silicon Valley or Seattle. d The New York Times said in an article citing this study that, cBy making goods cheap and available, Wal-Mart has raised the standard of living of average Americans. d Recently, many investors were surprised to find the companies whose stocks and bonds they owned were not honest about their results and businesses. We work very hard to educate investors about our financial results and condition. Maintaining the integrity of our disclosures is extremely important to us.<br><br> The financial results reported here will provide you, the stakeholders, with a review of our Company, and will provide a detailed discussion about those financial matters that are significant to your Company. Although it is not the most exciting reading, our team has worked hard to make these reports comprehensive, yet simple, and I would encourage you to review them. As a company, Wal-Mart is known for offering consumers low prices.<br><br> Essential to our relationship with consumers is their trust. We take that trust quite seriously, and we would never consciously do anything to violate it. We take just as seriously the trust our shareholders and Associates have in the integrity of our financial statements.<br><br> Last year was challenging. The economy and the events of September 11 impacted us all. Although we had a good year relative to many other companies, it was not a typical Wal-Mart year.<br><br> This year began on a much better note. All of us at Wal-Mart are working to achieve our 15 percent total- shareholder-return target. I look forward to reporting another record year in 2003.<br><br> I want to close this letter with a special thanks to our Associates. It is through your efforts that we succeed as a Company, and it is because of you that I am excited about the future. cWith success comes a serious obligation to do what is right. d 4 The Company We Keep Associates Keep Wal-Mart Thriving in a Difficult Year for Retail It was not a typical year.<br><br> Then again, our Associates are not typical people. In a rough year for the U.S. economy 3 and a miserable one for the retail industry 3 the 1.4 million hard-working Associates at Wal-Mart and SAM 9S CLUBS managed to achieve two very impressive feats: increasing revenue by 13.8 percent over the previous year in the face of economic adversity, and constructing almost 200 new stores.<br><br> How did Wal-Mart Associates do it? They simply provided amazing customer service, kept costs down so we could continue to offer low prices, and created a comfortable shopping environment where customers feel safe, no matter what is going on outside in the world. Compared to recent years, when the economy was more robust and the world was not yet at war with terrorism, Wal-Mart 9s fiscal 2002 financial performance is not as impressive on paper.<br><br> But when you consider that the country fell into a recession during the year, with consumers retreating after the terrorist attacks of September 11, it is clear that fiscal 2002 was a good year for Wal-Mart. Best of all, our opportunities for growth still seem abundant. As many retailers reported stagnant or declining sales, cancelled their plans for new stores and even filed for bankruptcy, Wal-Mart moved forward with its growth plans, knowing that it was building long- term market share, and creating great opportunities to serve customers, Associates and investors.<br><br> Wal-Mart spent nearly $8.3 billion last year to build stores, distribution centers and make other capital investments to continue the growth of this business. But the most important capital we have is the Human Capital invested in our business. Our Associates keep Wal-Mart thriving during the difficult times.<br><br> For this Company 9s success to continue, we must constantly develop future leaders who understand our goals, especially in relation to our customers. To do that, we nurture these leaders from their earliest days with the Company. More than 60 percent of our store managers were cgrown d through the Wal-Mart organization, starting as store Associates who served customers as part of their daily responsibilities.<br><br> As the Company moves forward, it is even more important that we help develop from within the talent needed to run these stores, clubs and distribution centers. 5 Wal-Mart Stores, Inc. runs a very diverse set of stores that require a broad range of skills, preparing Associates to be everything from food merchants to distribution specialists to information-systems experts.<br><br> In size, our stores range from very large to intimate. Many Supercenters have 500 Associates and more than $100 million in annual sales. At the same time, the Company has stores as small as 10,000 square feet in Mexico.<br><br> Cutting across all of these job roles and store formats are the core values that apply to our Associates worldwide: cRespect for the Individual, d cService to Customers, d and cStrive for Excellence. dWe truly believe that our Associates make the difference, and that our greatest responsibility as a Company is to ensure the continued development of this invaluable asset. If we succeed in this, we can be confident that we are doing our best for our stakeholders: customers, Associates and investors. This is the Company we keep.<br><br> State Discount Stores Neighborhood Markets Supercenters SAM 9S CLUBS Mexico 443 62 46 0 Puerto Rico 9 1 7 0 United Kingdom 0 250! 0 0 International Totals: 648 455 64 3 Grand Totals: 2295 1521 564 34 Argentina 0 11 0 0 Brazil 0 12 8 2* Canada 196 0 0 0 China 0 15 3 1 Germany 0 95 0 0 South Korea 0 9 0 0 Alabama 40 43 9 0 Alaska 6 0 3 0 Arizona 26 14 9 0 Arkansas 39 40 4 6 California 125 0 29 0 Colorado 20 22 12 0 Connecticut 21 2 3 0 Delaware 3 3 1 0 Florida 78 69 35 0 Georgia 44 53 18 0 Hawaii 6 0 1 0 Idaho 5 10 1 0 Illinois 83 30 27 0 Indiana 44 39 14 0 Iowa 32 19 7 0 Kansas 32 19 6 0 Kentucky 35 39 5 0 Louisiana 37 43 11 0 Maine 15 5 3 0 Maryland 28 4 11 0 Massachusetts 38 1 3 0 Michigan 51 8 21 0 Minnesota 34 7 11 0 Mississippi 27 34 5 0 Missouri 61 53 14 0 Montana 5 6 1 0 Nebraska 11 10 3 0 Nevada 12 5 4 0 New Hampshire 18 5 4 0 New Jersey 27 0 7 0 New Mexico 9 13 4 0 New York 51 17 18 0 North Carolina 53 43 16 0 North Dakota 8 0 2 0 Ohio 72 19 25 0 Oklahoma 44 36 7 11 Oregon 23 3 0 0 Pennsylvania 49 34 19 0 Rhode Island 8 0 1 0 South Carolina 25 34 9 0 South Dakota 7 2 2 0 Tennessee 40 49 15 0 Texas 129 135 64 14 Utah 8 11 6 0 Vermont 4 0 0 0 Virginia 24 45 12 0 Washington 29 3 2 0 West Virginia 8 20 3 0 Wisconsin 50 13 11 0 Wyoming 3 6 2 0 U.S.Totals 1647 1066 500 31 International/Worldwide Fiscal 2002 End-of-Year Store Count State Discount Stores Neighborhood Markets Supercenters SAM 9S CLUBS * Brazil includes Todo Dia * Mexico includes106 Bodegas,51Suburbias,44 Superamas,242 VIPS * !United Kingdom includes 244 ASDA Stores,six Supercenters 6 We 9re Merchants First Deep in the heart of Wal-Mart is the simple idea that our Associates are merchants first 3 loyal customer advocates and skilled shopkeepers who take pride in the products they sell. To keep customer-service levels high and sales increasing, Wal-Mart encourages Associates to think creatively about how they merchandise products, and gives them the training they need to positively impact their corner of the Wal-Mart world.<br><br> But at Wal-Mart, merchant skills often reveal themselves long before an item is ever displayed for sale. Frequently, these skills actually come into play when the item is manufactured and shipped. Over the last few years, Wal-Mart has improved the quality of its goods 3 as well as its supply logistics and retail prices 3 by acquiring certain products for all of its stores around the world from a single source.<br><br> Wal-Mart calls this cglobal sourcing. d Thinking Globally The concept works with items that are global in scope and need, whether they 9re items for sale or for use by Associates. Items like copy paper, light bulbs, hangers, fabric or clothing zippers, are typical candidates for global sourcing. The savings go right back to the customer, improving both prices and the quality of goods.<br><br> Coupled with improved logistics, these changes create improved value for customers. In fiscal 2002, Wal-Mart 9s Global Sourcing Team discovered that stores in Argentina were selling an entry-level microwave oven at twice the price of those sold by the Company elsewhere in the world. The situation was quickly rectified when the Argentine Wal-Mart stores contacted the Company 9s global microwave supplier.<br><br> Though the new microwave oven costs half as much, it has the same quality as the old one, and all the same features. Global sourcing also helped the Company negotiate prices for fans and air conditioners, allowing its ASDA stores in the United Kingdom to cut prices on the items by 50 percent, and tripling sales of the products. But global sourcing isn 9t just about U.S.<br><br> suppliers helping out stores in other countries; Wal-Mart also sources items At Wal-Mart, merchant skills often reveal themselves long before an item is ever displayed for sale. 7 from Europe and other regions of the world for sale in the U.S. and elsewhere.<br><br> Thinking Locally One of the best things about global sourcing is that it frees up local buyers to work on other projects that are essential to Wal-Mart 9s merchant-centered culture. A good example is the cStore of the Community d program, which ensures that the mix of retail goods sold at each store closely reflects the needs of the community it serves. From allowing local climates to guide the selection of apparel and nursery plants, to adding cosmetic items desired by particular ethnic groups, Wal-Mart buyers, store managers and other Associates ensure that each store is tailored for its community.<br><br> Merchant skills are also fostered by Wal-Mart 9s Store-Within-a- Store concept, which gives Associates the freedom to manage and merchandise their departments 3 electronics, sporting goods, etc. 3 as if they were separate shops under one roof. Thinking Creatively Perhaps the most intriguing way that Associates hone their merchant skills is through the (Volume Producing Item) contest.<br><br> In 1976, Sam Walton started VPI as an opportunity for Associates to creatively showcase their ability to promote items they thought could be top-sellers. Today, Associates choose the VPI item, order it, design an eye-catching display, conduct promotional activities and track and report sales progress. Awards and praise are given to both local and regional winners of the contest.<br><br> Shoppers see the results of the VPI contest in every Wal-Mart store around the world whenever they spot the cMy Super Item d sign bearing the Associate 9s photograph. Five years ago, Tom Coughlin, President of the Wal-Mart Stores Division, launched one of the most successful VPI programs ever when he chose DuckTape" as his item and created a comprehensive system of promotions to help sell it. Store managers across the country filled giant, 10- to 20-foot-tall display cases with DuckTape," and one Associate even used a Volkswagen Beetle as a creative display.<br><br> Store managers also created enthusiasm for the product outside of the stores by holding contests to reveal the cMost Imaginative Uses of DuckTape." d The national contest was won by The Kansas City Zoo, which used DuckTape" to keep a baby kangaroo in its mother 9s pouch. In the end, sales of DuckTape" quadrupled over the previous year. And that 9s the spirit of the VPI contest: finding creative ways to turn products with potential into big sellers.<br><br> From global sourcing to the VPI contest, these associate-driven techniques are simply part of a day in the merchant-centered life of Wal-Mart. 8 What 9s in Store for Our Global Community Wal-Mart International continues to prove that sound business strategy and a focus on core Wal-Mart values provide the formula for success worldwide. In fiscal 2002, more than 300,000 Wal-Mart Associates worked together to exceed our customers 9 expectations in nine countries outside the United States.<br><br> They did it by delivering on the Wal-Mart values of cService to the Customer, d cRespect for the Individual, d and cStrive for Excellence. d And the results speak for themselves. In fiscal 2002, Wal-Mart International sales grew 10.5 percent to $35.5 billion, while operating income increased 31 percent over the previous year. We added 107 new stores in multiple retail formats throughout Brazil, Canada, China, Germany, Mexico, Puerto Rico, South Korea and the United Kingdom.<br><br> We also expanded our specialty operations, including jewelry, one-hour photo and optical labs. cEvery day low prices, quality assortment, and exceptional service are Wal-Mart principles that transcend borders, languages and cultural differences, d says Craig Herkert, Senior Vice President and Chief Operating Officer for Wal-Mart International. cOur customers trust us to deliver on that promise around the corner, and around the globe. d From market to market, country to country, Wal-Mart International continues to roll out new products and services.<br><br> Testing innovations like new Shoe Department merchandising approaches and online home-delivery programs has also contributed to our international success. Other innovations include the introduction of 5,000 new general- merchandise items in the U.K., and Brazil 9s launch of the new Todo Dia discount store concept to serve metro markets there. Germany built and opened its first two completely new Supercenters since we entered the country through acquisition.<br><br> Argentina 9s innovative wine department is being replicated in our new stores in Germany. Great Value ® and Equate ® private-label products are now on Wal-Mart shelves across Asia, Europe, the Americas and the Caribbean. 9 Most important, though, is the competitive advantage Wal-Mart has achieved through the growth and development of our global Associates.<br><br> These Associates are as diverse as the customers we serve 3 including people from each local store 9s community, the home office, and from countries around the globe. Our Associates represent the faces and perspectives of their local communities, of our customers, and of long-term Wal-Mart leadership. They provide unique insight into the history and culture of Wal-Mart, as well as what it takes to be the best in each community where we operate our stores.<br><br> The dynamic Wal-Mart culture is strong in all of our international operations, where our Associates have set the standard for using cretailtainment d to drive store traffic and increase sales. One place where customers are responding is Canada, where dozens of communities have petitioned to have a Wal-Mart store built in their town. cPeople Development d programs and advancements in communications between our Associates played a pivotal role in maintaining Wal-Mart 9s competitive edge globally.<br><br> In June 2001, we launched an International Leadership Development Program (ILDP) to ensure that an ample pool of operations teams and store managers are prepared to support our growth in the years to come. The program provides intensive, cross- continental training in Wal-Mart systems, processes and our unique Wal-Mart culture. Already, dozens of ILDP participants from Supercenter Operations, Sam 9s Operations and Home Office Merchandising are using their new skills to achieve our business and revenue objectives.<br><br> The program serves as a dynamic motivation and career-development tool, as well as a vital strategy for improving upon this year 9s accomplishments and achieving our future business goals. cToday, Wal-Mart International Associates share ideas, expertise, best practices and customer feedback at all levels of our organization, d says John B. Menzer, President and Chief Executive Officer of Wal-Mart International.<br><br> cThis exchange of experience and intellectual capital allows Wal-Mart to anticipate retail trends, capture new opportunities and transfer global knowledge into real value for our customers. d 10 United by Compassion Making the World a Better Place 3 One Community at a Time One morning last September, Shawn Saphore, assistant manager of Store 1591 in Harrisburg, Pennsylvania, climbed onto the roof in a rainstorm and refused to come down until Associates and customers raised $5,000 for the victims of the September 11 tragedy. The citizens of Harrisburg met the challenge so quickly that he upped the ante to $10,000 before crawling into a sleeping bag to brave a soggy 36-degree night. Cold, damp,but ecstatic, Shawn came down the next evening after learning the community had chipped in nearly $13,000.<br><br> Shawn 9s efforts were echoed thousands of times in Wal-Mart communities across America and around the world in the wake of the September 11 tragedy, as Wal-Mart Stores, Inc., our Associates and customers donated nearly $16 million to help the victims and their families in a joint effort called Together We Stand. Unexpected? Yes.<br><br> But not uncommon. Associates of Wal-Mart stores, SAM 9S CLUBS and distribution centers consistently perform imaginative and thoughtful deeds to make the world a better place 3 one community at a time. Wal-Mart 9s Good.Works .<br><br> community involvement program is based on the philosophy of operating globally and giving back locally. We rely on our Associates to know which organizations are most important to their hometowns, and we empower them to determine how community involvement dollars will be spent. As a result, 100 percent of our funding initiatives are channeled directly into local communities.<br><br> In fiscal 2002, the Company, our Associates and our customers raised and contributed a record $204 million to causes like Children 9s Miracle Network, United Way, community matching grants, student scholarships and environmental projects. Donations were made to more than 75,000 organizations. cOur founder, Sam Walton, believed in servant leadership, d says President and CEO Lee Scott.<br><br> cHe taught it so passionately and wove it so skillfully into our culture that our Associates are naturally committed to community service with compassion and integrity. Our emphasis is in four areas: children, communities, education and the environment. It 9s here we believe we can make the greatest impact. d That impact became even greater in some key areas in fiscal 2002.<br><br> For example, Wal-Mart stores joined SAM 9S CLUBS in an existing literacy program that provides $1,000 grants to support local literacy education programs. This year, our Company will donate about $3.5 million to improve reading skills in 3,500 communities. Also in fiscal 2002, the Wal-Mart Foundation developed a new program called Safe Neighborhood Heroes, in which every Wal-Mart store and 11 SAM 9S CLUB directs a $1,200 grant to local police, fire, rescue and emergency management organizations.<br><br> Wal-Mart 9s community involvement is truly an international effort, as the Company 9s 300,000 Associates outside the United States enrich their communities. Last year, our Company, our Associates and customers in eight countries and Puerto Rico raised and contributed nearly $15 million to their communities. In Canada, for example, Wal-Mart stores nationwide launched a campaign to support the building of The Juno Beach Centre, a memorial museum and information center commemorating the important role Canadians played in World War II.<br><br> And after the September 11 tragedy, Associates opened their homes, took merchandise to Canadian airports and kept Wal-Mart stores open longer 3 all to help airline passengers stranded in Canada by grounded flights. In Mexico, each store partnered with a local orphanage or home for the elderly and collected Christmas gifts for more than 32,000 residents. SAM 9S CLUB Associates also purchased 19,000 toys that were given to needy children on Three Kings Day.<br><br> And in the United Kingdom, ASDA Colleagues spent nearly 68,000 hours volunteering in their communities. They also raised $800,000 for a breast cancer-care program called cTickled Pink. d And they raised and contributed another $860,000 for disadvantaged children through the BBC Children in Need Appeal. Because Wal-Mart stores and SAM 9S CLUBS are located in so many communities, our Associates have a unique opportunity to respond to a diversity of local needs and enrich the lives of people around the world 3 one community at a time.<br><br> Community Matching Grants $77,303,474 Children's Miracle Network $31,778,955 Store Contribution Account $33,018,212 United Way $18,605,163 Other Contributions $14,827,963 Education $12,275,888 In-Kind Contributions $3,400,000 Volunteerism Always Pays $3,335,000 Environment $1,720,549 Community Involvement 2002 Total Giving $196,265,204 12 Want a glimpse at the future of SAM 9S CLUB? Just take a spin through the colorful new club in East Plano, Texas, packed with new value for members, from aromatic caramel corn to cozy café Internet kiosks. At 154,000 square feet, the East Plano club at 1200 East Spring Creek Parkway is the second-largest SAM 9S CLUB in the United States, but delighted members say the invitingly open club layout and easy-to- read signs make the shopping experience flow better than ever.<br><br> From the ground up, the new SAM 9S CLUB was built with the comments and advice of members in mind. We call it the cMember 9s Club. d The steel casings of the building have been pushed to the sides, giving it an even more inviting, open feel. When you walk in the door and pick up your cart, you can see the entire layout of the club, from the pharmacy to the freezer section, the meat department and the cfresh d area.<br><br> Every department is clearly announced by large, brightly colored signs featuring pictures of the items offered there. And there is a relaxing café where members can enjoy baked pretzels, root-beer floats and gourmet pizza, and shop at the www.sams.com website from an Internet kiosk. In the fresh-food section, a large copper kettle churns out caramel popcorn with delicious nut clusters.<br><br> Many of the ideas introduced in the East Plano club are destined to be rolled out across the entire SAM 9S CLUB enterprise. For example, the club has added a huge new wooden display fixture of premium wines, often featuring hard-to-find selections from top wineries around the world. Many of these selections are later proclaimed cbest buys d by national wine magazines.<br><br> Because of the club 9s unusually large size, there is an area near the back of the club reserved for furniture and other retail road- shows offering high-end, member-pleasing items. In the club 9s first month, member purchases included a $10,500, 10-foot-tall Remington sculpture and a pair of $40,000 diamond-stud earrings as part of two different roadshows. Also, the new freezer section is a wonder to behold.<br><br> Before, when standing in front of the freezer section, members could only see 18 different windows of merchandise. But the new, innovative freezer design now allows members to see 37 different windows of merchandise. Other features of the new format include new fresh goods like rotisserie chicken, steamed shrimp and bagels, fresh floral, an optical department, a one-hour photo lab and a gas station.<br><br> As the new SAM 9S CLUB slogan says, cIt 9s a Big Deal! d New SAM 9 S CLUB Format Champions Member Desires Members are Wild About Innovative Texas Club 13 Wal-Mart was recently ranked 17th on a list of cAmerica 9s most visible companies with the best reputations, d based on research conducted with Harris Interactive in partnership with the Reputation Institute, a New York research group. Harris, the worldwide research firm known for Harris Polls, released the list in January 2002, after asking more than 10,000 randomly selected people to identify companies with good reputations. After that, Harris took the top 60 companies and asked 21,630 respondents to do a more detailed ranking, scoring the companies in six categories, from workplace environment to products and services.<br><br> The study placed Wal-Mart third in csocial responsibility d behind Johnson & Johnson and Coca-Cola, both of which are Wal-Mart vendors. Wal-Mart Associates have once again ranked their Company as one of the c100 best to work for d in Fortune magazine 9s prestigious annual poll. Wal-Mart placed 94th in the latest Fortune poll, released in January 2002.<br><br> The Company was the only discount retailer to make the c100 best d list, and it has now made the list four of the last five years. To be considered for the ranking, companies must invite the Great Place to Work Institute to privately survey randomly selected employees on issues ranging from trust in management to camaraderie and pride in work and company. cThis survey is meaningful to us because it reflects how our Associates actually feel about working for Wal-Mart, d said Lee Scott, President and Chief Executive Officer of Wal-Mart.<br><br> cThe secret, as Sam Walton figured out many years ago, is to treat people with respect. If you do that, everything else has a way of falling into place. d Among the many unique policies and practices that helped Wal-Mart make Fortune 9s list is the fact that Wal-Mart is one of only a few companies that offer health benefits to part-time employees, as well as incentive bonuses and other benefits normally reserved for full-timers. Study Credits Wal-Mart with Boost in U.S.Productivity Fortune Lists Wal-Mart as Great Place to Work Reputation Survey Features Wal-Mart Wal-Mart in the News A new study of U.S.<br><br> labor productivity released in October credited managerial improvements and the freedom to innovate as playing a larger role in America 9s productivity miracle of the late 1990s than all the expensive business investment in high-speed computers and fiber-optic cable. The McKinsey Global Institute study singled out Wal-Mart as an innovator helping to drive U.S. productivity.<br><br> The Institute points out in the study that the U.S. experienced a sharp improvement in its underlying economic performance between 1995 and 2000; however, the Institute says the change is primarily explained by growth in only a few key business sectors. The improvement in productivity was not, McKinsey said, simply related to the burst of investment in information technology experienced over the same time period, as many Americans previously believed.<br><br> Almost a quarter of the improvement in productivity came from retail trade, McKinsey said, noting that the retail surge was dominated by impressive gains at Wal-Mart. McKinsey said that Wal-Mart, with its emphasis on large stores and discount pricing, increased efficiency in sales and forced other companies to follow best practices. 14 (Dollar amounts in millions except per share data) 2002 2001 2000 Net sales $ 217,799 $ 191,329 $ 165,013 Net sales increase 14% 16% 20% Domestic comparative store sales increase 6% 5% 8% Other income-net 2,013 1,966 1,796 Cost of sales 171,562 150,255 129,664 Operating, selling and general and administrative expenses 36,173 31,550 27,040 Interest costs: Debt 1,052 1,095 756 Capital leases 274 279 266 Provision for income taxes 3,897 3,692 3,338 Minority interest and equity in unconsolidated subsidiaries (183) (129) (170) Cumulative effect of accounting change, net of tax 3 3 (198) Net income 6,671 6,295 5,377 Per share of common stock: Basic net income 1.49 1.41 1.21 Diluted net income 1.49 1.40 1.20 Dividends 0.28 0.24 0.20 Financial Position Current assets $ 28,246 $ 26,555 $ 24,356 Inventories at replacement cost 22,749 21,644 20,171 Less LIFO reserve 135 202 378 Inventories at LIFO cost 22,614 21,442 19,793 Net property, plant and equipment and capital leases 45,750 40,934 35,969 Total assets 83,451 78,130 70,349 Current liabilities 27,282 28,949 25,803 Long-term debt 15,687 12,501 13,672 Long-term obligations under capital leases 3,045 3,154 3,002 Shareholders 9 equity 35,102 31,343 25,834 Financial Ratios Current ratio 1.0 0.9 0.9 Inventories/working capital 23.5 (9.0) (13.7) Return on assets* 8.5% 8.7% 9.5%*** Return on shareholders 9 equity** 20.1% 22.0% 22.9% Other Year-End Data Number of U.S.<br><br> Wal-Mart stores 1,647 1,736 1,801 Number of U.S. Supercenters 1,066 888 721 Number of U.S. SAM 9S CLUBS 500 475 463 Number of U.S.<br><br> Neighborhood Markets 31 19 7 International units 1,170 1,071 1,004 Number of Associates 1,383,000 1,244,000 1,140,000 Number of Shareholders of record (as of March 31) 324,000 317,000 307,000 * Net income before minority interest, equity in unconsolidated subsidiaries and cumulative effect of accounting change/average assets ** Net income/average shareholders 9 equity *** Calculated giving effect to the amount by which a lawsuit settlement exceeded established reserves. If this settlement were not considered, the return would have been 9.8%. 11-Year Financial Summary 15 1999 1998 1997 1996 1995 1994 1993 1992 $ 137,634 $ 117,958 $ 104,859 $ 93,627 $ 82,494 $ 67,344 $ 55,484 $ 43,887 17% 12% 12% 13% 22% 21% 26% 35% 9% 6% 5% 4% 7% 6% 11% 10% 1,574 1,341 1,319 1,146 914 645 497 404 108,725 93,438 83,510 74,505 65,586 53,444 44,175 34,786 22,363 19,358 16,946 15,021 12,858 10,333 8,321 6,684 529 555 629 692 520 331 143 113 268 229 216 196 186 186 180 153 2,740 2,115 1,794 1,606 1,581 1,358 1,171 945 (153) (78) (27) (13) 4 (4) 4 (1) 3 3 3 3 3 3 3 3 4,430 3,526 3,056 2,740 2,681 2,333 1,995 1,609 0.99 0.78 0.67 0.60 0.59 0.51 0.44 0.35 0.99 0.78 0.67 0.60 0.59 0.51 0.44 0.35 0.16 0.14 0.11 0.10 0.09 0.07 0.05 0.04 $ 21,132 $ 19,352 $ 17,993 $ 17,331 $ 15,338 $ 12,114 $ 10,198 $ 8,575 17,549 16,845 16,193 16,300 14,415 11,483 9,780 7,857 473 348 296 311 351 469 512 473 17,076 16,497 15,897 15,989 14,064 11,014 9,268 7,384 25,973 23,606 20,324 18,894 15,874 13,176 9,793 6,434 49,996 45,384 39,604 37,541 32,819 26,441 20,565 15,443 16,762 14,460 10,957 11,454 9,973 7,406 6,754 5,004 6,908 7,191 7,709 8,508 7,871 6,156 3,073 1,722 2,699 2,483 2,307 2,092 1,838 1,804 1,772 1,556 21,112 18,503 17,143 14,756 12,726 10,753 8,759 6,990 1.3 1.3 1.6 1.5 1.5 1.6 1.5 1.7 3.9 3.4 2.3 2.7 2.6 2.3 2.7 2.1 9.6% 8.5% 7.9% 7.8% 9.0% 9.9% 11.1% 12.0% 22.4% 19.8% 19.2% 19.9% 22.8% 23.9% 25.3% 26.0% 1,869 1,921 1,960 1,995 1,985 1,950 1,848 1,714 564 441 344 239 147 72 34 10 451 443 436 433 426 417 256 208 4 3 3 3 3 3 3 3 715 601 314 276 226 24 10 3 910,000 825,000 728,000 675,000 622,000 528,000 434,000 371,000 261,000 246,000 257,000 244,000 259,000 258,000 181,000 150,000 Years prior to1998 have not been restated for the effects of the change in accounting method for SAM 9S CLUB membership revenue recognition as the effects of this change would not have a material impact on this summary.<br><br> Therefore, pro forma information as if the accounting change had been in effect for all years presented has not been provided. The acquisition of the ASDA Group PLC and the Company 9s related debt issuance had a significant impact on the fiscal 2000 amoun ts in this summary. See Note 7 to the Consolidated Financial Statements.<br><br> 16 Wal-Mart is a large but straightforward business. In the United States, our operations are centered around retail stores and me mbership warehouse clubs. Internationally, our operations are centered on retail stores, warehouse clubs and restaurants.<br><br> We have built our business by o ffering our customers quality merchandise at low prices. We are able to lower the cost of merchandise through our negotiations with suppliers and by efficiently managing our distribution network. The key to our success is our ability to grow our base business.<br><br> In the U.S. we grow our base business by aggressively building new stores and by increasing sales in our existing stores. Internationally, we grow our business by building new stores, increasing sales in our existing stores and through acquisitions.<br><br> We intend to continue to expand both domestically and internationally. Because we are a large company, we do enter into some complex transactions. One complex area is our derivatives program.<br><br> We do not use derivative instruments for speculation or for the purpose of creating additional revenues; however, we do enter into derivative transactio ns to limit our exposure to known business risks. Examples of these business risks include changes in interest rates and movements in foreign currency e xchange rates. The discussion of our derivative transactions has been given a great deal of space in the financial section of this Annual Report.<br><br> The Market Risk section of this Management 9s Discussion and Analysis and Note 4 to the Consolidated Financial Statements give you more information on t hese transactions. Please remember that the accounting and disclosure rules for derivative transactions are very specific and any discussion of th em requires the use of technical terminology. Net Sales The Company and each of its operating segments had net sales (in millions) for the three fiscal years ended January 31, 2002 as follows: Fiscal Year Wal-Mart Stores SAM 9S CLUB International Other Total Company Total Company Increase from Prior Fiscal Year 2002 $ 139,131 $ 29,395 $ 35,485 $ 13,788 $ 217,799 14% 2001 121,889 26,798 32,100 10,542 191,329 16% 2000 108,721 24,801 22,728 8,763 165,013 20% Our net sales grew by14% in fiscal 2002 when compared with fiscal 2001.<br><br> That increase resulted from our domestic and internatio nal expansion programs, and a domestic comparative store sales increase of 6% when compared with fiscal 2001. The sales increase of16% in fis cal 2001, when compared with fiscal 2000, resulted from our domestic and international expansion programs, and a domestic comparative store sa les increase of 5%. The Wal-Mart Stores and SAM 9S CLUB segments include domestic units only.<br><br> Wal-Mart stores and SAM 9S CLUBS located outside the Un ited States are included in the International segment. Costs and Expenses For fiscal 2002, our cost of sales increased as a percentage of total net sales when compared to fiscal 2001, resulting in an o verall decrease of 0.24% in the Company 9s gross margin from 21.47% in the fiscal year 2001 to a gross margin of 21.23% in fiscal 2002. This decrease in gross margin occurred primarily due to a shift in customer buying patterns to products that carry lower margins and an increase in food sale s as a percent of our total sales.<br><br> Food products generally carry lower margins than general merchandise. Management expects our gross margins to cont inue to decrease as food sales continue to increase as a percentage of total Company sales both domestically and internationally. Management also e xpects the Company 9s program to convert many of our Wal-Mart discount stores to Supercenters, which have full-line food departments, and the opening of additional Neighborhood Markets to result in continuing increases in the percentage that food sales contribute to our total net sales.<br><br> Par tially offsetting the overall decrease in gross margin in fiscal 2002, the Company reduced cost of sales by $67 million as a result of a LIFO invento ry adjustment. A LIFO inventory adjustment that reduces cost of sales indicates that the current economic environment is deflationary, meaning that o n average, identical products that we sold in both fiscal 2002 and 2001 decreased in price from fiscal 2001 to 2002. The balance in the LIFO reserve on the Company 9s balance sheet is attributable to food inventories and other inventories held by our subsidiary, McLane Company, Inc.<br><br> Management believes that these categories will not be disinflationary in the near future and that future gross margins may not benefit from a LIFO adjustment, such as that which occurred in fiscal 2002. Our total cost of sales as a percentage of our total net sales decreased for fiscal 2001when compared to fiscal 2000, resulting in increases in gross margin of 0.05% for fiscal 2001 to 21.47% from 21.42% in fiscal 2000. This improvement in gross margin resulted primarily from a $176 million LIFO inventory adjustment that reduced our cost of sales.<br><br> This LIFO adjustment was offset by continued price rollbacks and increased International sales and increased food sales. Our operating, selling, general and administrative expenses increased 0.12% as a percentage of total net sales to16.61% in fisc al 2002 when compared with fiscal 2001. This increase was primarily due to increased utility and insurance costs, including Associate medical, proper ty and casualty insurance.<br><br> Management believes that the trend of increasing insurance costs will continue for at least the near future. Operating, selling , general and administrative expenses increased 0.10% as a percentage of sales in fiscal 2001when compared with fiscal 2000. This increase was primarily due to increased maintenance and repair costs and depreciation charges incurred during the year.<br><br> Interest Costs Our interest costs for corporate debt decreased 0.09% as a percentage of net sales from 0.57% in fiscal 2001to 0.48% in fiscal 2002. This decrease resulted from lower interest rates, less need for debt financing of the Company 9s operations due to the Company 9s inventory red uction efforts and the positive impacts of the Company 9s fixed rate to variable rate interest rate swap program. For fiscal 2002, total Company in ventory increased approximately 5% on a total Company sales increase of14%.<br><br> Interest costs increased 0.11% as a percentage of sales from 0.46% in fiscal 2000 to 0.57% in fiscal 2001. This increase resulted from additional debt issuances made to finance a part of the ASDA acquisition cost s, but was somewhat offset by reductions in debt resulting from the Company 9s inventory control efforts. See the Market Risk section of this discus sion for further detail regarding the Company 9s fixed to floating interest rate swaps.<br><br> Management 9 s Discussion and Analysis 17 Net Income In fiscal 2002, we earned net income of $6,671billion, a 6.0% increase over the aggregate net income of the Company in fiscal 2 001. Our net income did not grow in fiscal 2002 by the same percentage as our total net sales grew in fiscal 2002 largely as a result of the reduct ion in the overall gross margin and increased costs and expenses of the Company in fiscal 2002 as discussed above. In fiscal 2001, we earned net income of $6,295 billion, a 17.1% increase over the Company 9s net income in 2000.<br><br> This increase resulted primarily from the growth in the Company 9s total n et sales and a slight improvement in the Company 9s overall gross margin. During July 2001, we acquired the outstanding minority interest in Wal-Mart.com, Inc. from Accel Partners and a small group of other investors.<br><br> A reorganization resulting from the acquisition resulted in a charge against the earnings of the Company during fiscal 2002 of slightly less than $0.01per share. Wal-Mart Stores Segment Segment sales increase Segment operating Segment operating income Operating income as a Fiscal year from prior fiscal year income (in billions) increase from prior year percentage of segment sales 2002 14.1% $ 10.3 6.0% 7.4% 2001 12.1% 9.7 11.5% 8.0% 2000 14.0% 8.7 20.2% 8.0% The Wal-Mart Stores segment sales amounted to 63.9% of total Company sales in fiscal 2002, which compares to 63.7% and 65.9% in fiscal 2001and 2000, respectively. The segment sales increases in fiscal 2002 and fiscal 2001from the prior fiscal years resulted from comparative store sales inc reases and our expansion program in the Wal-Mart Stores segment.<br><br> Segment expansion during fiscal 2002 included the opening of 33 Wal-Mart stores,12 Neig hborhood Markets and178 Supercenters (including the conversion of121existing Wal-Mart stores into Supercenters). Segment expansion durin g fiscal 2001 included the opening of 41Wal-Mart stores,12 Neighborhood Markets and167 Supercenters (including the conversion of104 existing Wal-Mart stores into Supercenters). A reduction in gross margin and an increase in operating expenses caused the decrease in segment operating income as a percent of segment sales in fiscal 2002.<br><br> The gross margin reduction was driven primarily by an increase in lower-margin food sales as a percentage of total segment sales, a change in customer buying patterns to lower-margin merchandise and competitive pressures. Segment expenses in fiscal 2002 as a percent of sales were higher than fiscal 2001 due primarily to increased Associate wages, utility, repairs and maintenance expenses and insurance costs. The increase in segment operating income for fiscal 2001 was driven by margin improvements that resulted from decreased markdowns and improved inventor y shrinkage experience during the fiscal year.<br><br> Offsetting these margin improvements were increased distribution costs, resulting from highe r fuel, utility and payroll charges and overall payroll costs that were higher as a percentage of fiscal 2001 sales which were adversely affected b y a fiscal 2001 holiday season with lower than anticipated sales. Operating income information for fiscal years 2000 and 2001 has been reclassified to conform to the current year presentation. SAM 9S CLUB Segment Segment sales increase Segment operating Segment operating income Operating income as a Fiscal year from prior fiscal year income (in billions) increase from prior year percentage of segment sales 2002 9.7% $ 1,028 9.1% 3.5% 2001 8.1% 942 10.8% 3.5% 2000 8.4% 850 22.7% 3.4% The SAM 9S CLUB segment net sales amounted to13.5% of total Company net sales in fiscal 2002, which compares to14.0% and15.0% in fiscal 2001and 2000, respectively.<br><br> The decrease in this segment 9s sales as a percent of total Company sales in fiscal 2002 and 2001whe n compared to fiscal 2000 resulted primarily from the increased International segment sales generated by our ASDA subsidiary that we acquired in the third quarter of fiscal 2000, as well as, for fiscal 2002, domestic growth in the Wal-Mart Stores segment. Growth in net sales and operating income for the SAM 9S CLUB segment in fiscal 2002 and fiscal 2001resulted from comparative clu b sales increases and our expansion program. Segment expansion during fiscal 2002 and 2001consisted of the opening of 25 and13 new clubs, respect ively.<br><br> This segment gross margin increased slightly during fiscal 2002; however, an increase in operating expense as a percent of sale s offset this margin increase, leaving segment operating income as a percent of sales unchanged from fiscal 2001. The main expense pressures in fisc al 2002 in the SAM 9S CLUB segment occurred in the areas of utility and maintenance and repair costs. Operating income for the segment in fiscal 2001 increased slightly due to margin improvements.<br><br> International Segment Segment sales increase Segment operating Segment operating income Operating income as a Fiscal year from prior fiscal year income (in billions) increase from prior year percentage of segment sales 2002 10.5% $ 1,458 31.1% 4.1% 2001 41.2% 1,112 36.1% 3.5% 2000 85.6% 817 48.8% 3.6% Our International segment is comprised of wholly-owned operations in Argentina, Canada, Germany, South Korea, Puerto Rico and t he United Kingdom; operations through joint ventures in China; and operations through majority-owned subsidiaries in Brazil and Mexico. I nternational sales accounted for approximately16.3% of total Company sales in fiscal 2002 compared with16.8% in fiscal 2001and13.8% in fiscal 2000 . 18 The fiscal 2002 increase in international sales and operating income primarily resulted from both improved operating results an d our international expansion program.<br><br> In fiscal 2002, the International segment opened107units. Partially offsetting the impact of the expansion p rogram, changes in foreign currency exchange rates negatively affected the translation of International segment sales into U.S. dollars by an a ggregate of $1.1billion in fiscal 2002.<br><br> The largest portion of the increase in the International segment 9s net sales in fiscal 2001primarily resulted from the International segment 9s expansion that consisted of the opening of 77units. Also affecting the comparison between fiscal 2002 and 2001and fiscal 2000 w as the acquisition of the ASDA Group PLC, which consisted of 229 stores when its acquisition was completed during the third quarter of fiscal 2000. S ales included in the Company 9s consolidated income statement for ASDA during fiscal 2002, 2001and 2000 were $15.3 billion, $14.5 billion and $7.2 bi llion, respectively.<br><br> The positive effects of the expansion program on the International segment 9s net sales in fiscal 2001were partially offset by c hanges in foreign currency exchange rates which negatively affected the translation of International segment sales into U.S. dollars by $1.3 billion in fi scal 2001. The fiscal 2002 increase in segment operating profit as a percentage of segment sales resulted from an improvement in gross mar gin and a reduction in operating expenses as a percentage of segment sales in fiscal 2002.<br><br> The decrease in the International segment 9s operating in come as a percentage of segment sales in fiscal 2001resulted primarily from the continued negative impact of store remodeling costs, costs related t o the start-up of a new distribution system, excess inventory and transition related expenses in the Company 9s Germany units. Partially offsetting thes e negative effects were operating profit increases in Mexico, Canada and the United Kingdom in fiscal 2001compared with fiscal 2000. Our financial results from our foreign operations could be affected by factors such as changes in foreign currency exchange rat es or weak economic conditions in the foreign markets in which the Company does business.<br><br> The Company minimizes exposure to the risk of devaluation of foreign currencies by operating in local currencies and through buying forward currency contracts, where feasible, for certain known fu nding requirements. The economic environment in Argentina has deteriorated during the last fiscal year, including the devaluation of the Argentine peso. We will continue to monitor the economic situation but do not believe the Company 9s investment in operations in Argentina, which is not signific ant, has been impaired.<br><br> In fiscal 2002, the foreign currency translation adjustment changed from the fiscal 2001level by $472 million to $2.2 billion i n fiscal 2002 primarily due to a strengthening in the United States dollar against the local currencies of the countries in which the company has opera tions with the exception of Mexico where the peso strengthened against the dollar. In fiscal 2001, the foreign currency translation adjustment changed f rom the fiscal 2000 level by $1.1billion, primarily due to the dollar strengthening against the British pound and the German mark. Other Segment sales increase Segment operating Segment operating income Operating income as a Fiscal year from prior fiscal year income (in billions) increase from prior year percentage of segment sales 2002 30.8% ($ 714) (147.9%) (5.2%) 2001 20.3% (288) (9.5%) (2.7%) 2000 23.2% (263) 37.2% (3.0%) Sales in the Other category comprise sales to third parties by the Company 9s wholly-owned subsidiary McLane Company, Inc., a wh olesale distributor.<br><br> McLane offers a wide variety of grocery and non-grocery products, which it sells to a variety of retailers including the Compan y 9s Wal-Mart Stores and SAM 9S CLUB segments. McLane 9s sales to other Wal-Mart companies are not included in the total sales of the Company. McLane net sales to unaffiliated purchasers account for approximately 6.3% of total Company sales in fiscal 2002 compared with 5.5% in fiscal 2001 and 5.3% in fiscal 2000.<br><br> The increase in McLane sales is the result of its acquisition of AmeriServe Food Distribution, Inc. (A meriServe), which was completed late in fiscal 2001. Losses for the segment in each of the fiscal years presented primarily resulted from corporate overhead expenses including insu rance costs, corporate bonuses and various other expenses, which are partially offset by McLane operating income and the favorable impact of the LIFO adjustment of $67 and $176 million in fiscal 2002 and 2001, respectively.<br><br> The segment operating loss increased from fiscal 2001due to an incr ease in insurance costs, bonuses and a reduction in the LIFO benefit in comparison to the prior year. Summary of Significant Accounting Policies Management strives to report the financial results of the Company in a clear and understandable manner, even though in some cas es accounting and disclosure rules are complex and require technical terminology. We follow generally accepted accounting principles in the U .S.<br><br> in preparing our consolidated financial statements, which require us to make certain estimates and apply judgements that affect our financial po sition and results of operations. Management continually reviews its accounting policies, how they are applied and how they are reported and disclose d in the financial statements. Following is a summary of our more significant accounting policies and how they are applied in preparation of the f inancial statements.<br><br> Inventories We use the retail last-in, first-out (LIFO) inventory accounting method for the Wal-Mart Stores segment, cost LIFO for the SAM 9 S CLUB segment and other cost methods, including the retail first-in, first-out (FIFO) and average cost methods, for the International segment. In ventories are not recorded in excess of market value. Historically, we have rarely experienced significant occurrences of obsolescence or slow moving inve ntory.<br><br> However, future changes in circumstances, such as changes in customer merchandise preference or unseasonable weather patterns, could cause the Company 9s inventory to be exposed to obsolescence or slow moving merchandise. Financial Instruments We use derivative financial instruments for purposes other than trading to reduce our exposure to fluctuations in foreign curre ncies and to minimize the risk and cost associated with financial and global operating activities. Generally, the contract terms of a hedge instrumen t closely mirror those of the item being hedged providing a high degree of risk reduction and correlation.<br><br> Contracts that are highly effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. On February1, 2001, we adopted Financial Accounting Standards Board ( FASB) Statements No.133,137 and138 (collectively cSFAS133 d) pertaining to the accounting for derivatives and hedging activities. SFAS133 require s all derivatives, which are financial instruments used by the Company to protect (hedge) itself from certain risks, to be recorded on the balance sheet at fair value and establishes accounting treatment for hedges.<br><br> If a derivative instrument is a hedge, depending on the nature of the hedge, chang es in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitment through earnings or recognized in 19 other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of an instrument 9s change i n fair value will be immediately recognized in earnings. All of the Company 9s fair value hedges qualify for the use of the cshort-cut d method of acc ounting to assess hedge effectiveness.<br><br> The Company uses the hypothetical derivative method to assess the effectiveness of its net investment and cash f low hedges. Instruments that do not meet the criteria for hedge accounting or contracts for which we have not elected hedge accounting are marked to fa ir value with unrealized gains or losses reported currently in earnings. Fair values are based upon management 9s expectation of future interest rate cur ves and may change based upon changes in those expectations.<br><br> Impairment of Assets We periodically evaluate long-lived assets and acquired businesses for indicators of impairment. Management 9s judgements regard ing the existence of impairment indicators are based on market conditions and operational performance. Future events could cause management to co nclude that impairment indicators exist and that the value of long-lived assets and goodwill associated with acquired businesses is impaire d.<br><br> Revenue Recognition We recognize sales revenue at the time a sale is made to the customer, except for the following types of transactions. Layaway transactions are recognized when the customer satisfies all payment obligations and takes possession of the merchandise. We recognize SAM 9S CLUB membership fee revenue over the12-month term of the membership.<br><br> Customer purchases of Wal-Mart/SAM 9S CLUB shopping cards are not recognized until the card is redeemed and the customer purchases merchandise using the shopping card. Defective merchandise returned by customers is either returned to the supplier or is destroyed and reimbursement is sought from the supplier. Supplier allowances and discounts received by the Company are included in the income statement when the purpose for which those monies were designated is fulfilled.<br><br> Insurance/Self-Insurance We use a combination of insurance, self-insured retention, and/or self-insurance for a number of risks including workers 9 compe nsation, general liability, vehicle liability and employee-related health care benefits, a portion of which is paid by the Associates. Liabilities associat ed with the risks that we retain are estimated in part by considering historical claims experience, demographic factors, severity factors and other actuarial as sumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions a nd historical trends.<br><br> For a complete listing of our significant accounting policies, please see Note1to our consolidated financial statements that ap pear after this discussion. Liquidity and Capital Resources Cash Flows Information Our cash flows from operating activities were $10.3 billion in fiscal 2002, up from $9.6 billion in fiscal 2001. In fiscal 2002 , we invested $8.4 billion in capital assets, paid dividends of $1.2 billion, paid $1.2 billion to repurchase Company stock, received $1.1 billion from the t ermination of certain net investment hedges, received $4.6 billion from the issuance of long-term debt and paid $3.5 billion in the repayment of long-ter m debt at its maturity.<br><br> Company Stock Purchase and Common Stock Dividends During fiscal 2001, the Company announced plans to increase its existing common stock repurchase program by $1billion, resultin g in a total authorization of $3 billion. During fiscal 2002, the Company repurchased 24.5 million of its common shares for a total approxim ate amount of $1.2 billion. In March 2002, the Company 9s Board of Directors reset the common stock repurchase program authorization so that t he Company may make future repurchases of its stock of up to $3 billion.<br><br> The Company paid dividends totaling $0.28 per share in fiscal 2002. I n March 2002, the Company increased its dividend 7% to $0.30 per share for fiscal 2003. The Company has increased its dividend every year since i t first declared a dividend in March1974.<br><br> Contractual Obligations and Other Commercial Commitments The following tables set forth certain information concerning our obligations and commitments to make future payments under con tracts, such as debt and lease agreements, and under contingent commitments. Payments due by period Contractual obligations Less than 1 3 3 4 3 5 After (in millions) Total 1 year years years 5 years Long-term debt $ 17,944 $ 2,257 $ 5,448 $ 2,939 $ 7,300 Commercial paper 743 743 0 0 0 Capital lease obligations 5,514 425 847 828 3,414 Non-cancelable operating leases 8,054 623 1,188 1,112 5,131 Total contractual cash obligations $ 32,255 $ 4,048 $ 7,483 $ 4,879 $ 15,845 Amount of commitment expiration per period Other commercial commitments Less than 1 3 3 4 3 5 After (in millions) Total 1 year years years 5 years Lines of credit $ 3,811 $ 1,561 $ 0 $ 2,250 $ 0 Informal lines of credit 694 694 0 0 0 Trade letters of credit 1,578 1,578 0 0 0 Standby letters of credit 743 743 0 0 0 Other 273 147 0 0 126 Total commercial commitments $ 7,099 $ 4,723 $ 0 $ 2,250 $ 126 20 The Company has entered into lease commitments for land and buildings for 20 future locations. These lease commitments with rea l estate developers provide for minimum rentals for10 to 20 years, excluding renewal options, which, if consummated based on current cost estimates , will approximate $25 million annually over the lease terms.<br><br> Management believes that cash flows from operations and proceeds from the sale of commercial paper will be sufficient to financ e any seasonal buildups in merchandise inventories and meet other cash requirements. If the operating cash flow we generate is not sufficient to pay di vidends and to fund all capital expenditures, the Company anticipates funding any shortfall in these expenditures with a combination of commercial pape r and long-term debt. We plan to refinance existing long-term debt as it matures.<br><br> We may also desire to obtain additional long-term financing for oth er corporate purposes. We anticipate no difficulty in obtaining long-term financing in view of an excellent credit rating and favorable experiences in the debt market in the recent past. During fiscal 2002, the Company issued $4.6 billion of long-term debt.<br><br> The proceeds from the issuance of this debt were used to reduce short-term borrowings, to refinance existing debt, financing expansion activities and other corporate purposes. At January 31, 2002, the Company 9s ratio of debt to total capitalization, including commercial paper borrowings, was 38.4%. Thi s is in line with management 9s objective to maintain a debt to total capitalization ratio of approximately 40%.<br><br> In March 2002, the Company sold notes totaling $500 million under its existing shelf registration statement. These notes bear i nterest at 4.15% and are due in June 2005. The proceeds from the sale of these notes will be used for general corporate purposes, which could include fi nancing the repurchase of shares of our common stock pursuant to our existing stock repurchase program.<br><br> After consideration of this debt issuance and the debt issued in fiscal 2002, the Company is permitted to sell up to $2 billion of public debt under a shelf registration statement previously filed wi th the United States Securities and Exchange Commission. Expansion In the United States, we plan to open approximately 50 new Wal-Mart stor