WAL-MART DE MÉXICO, S.A.B. DE C.V. BLVD. MANUEL AVILA CAMACHO # 647, COLONIA PERIODISTAS DELEGACION MIGUEL HIDALGO, ZIP. 11220 MEXICO, D.F. PH. (52) 55 5283-0100 www.walmartmexico.com.mx
REPRESENTATIVE SHARES OF CAPITAL STOCK FOR WAL-MART DE MÉXICO, S.A.B. DE C.V., ARE: COMMON REGISTERED NO-PAR VALUE
TICKER SYMBOL: WALMEX
SAID SHARES ARE REGISTERED WITH THE NATIONAL REGISTRY FOR SECURITIES AND ARE TRADED IN THE MEXICAN STOCK EXCHANGE.
REGISTRATION WITH THE NATIONAL REGISTRY FOR SECURITIES DOES NOT IMPLY CERTIFICATION REGARDING THE SOUNDNESS OF THE SECURITY OR THE FINANCIAL STANDING OF THE ISSUER, OR ACCURACY OR VERACITY OF THE INFORMATION CONTAINED IN THE PROSPECT, NOR DOES IT CONFIRM ANY ACTIONS THAT MAY, OR MAY NOT, HAVE BEEN CONDUCTED IN VIOLATION OF THE LAW.
ANNUAL REPORT PRESENTED IN KEEPING WITH GENERAL PROVISIONS APPLICABLE TO SECURITIES ISSUERS AND OTHER MARKET PLAYERS: YEAR ENDING DECEMBER 31, 2009.
TABLE OF CONTENTS
1) GENERAL INFORMATION...... 4 A) GLOSSARY OF TERMS AND DEFINITIONS ...... 4 B) EXECUTIVE SUMMARY...... 6 I) WALMEX IN THE STOCK MARKET...... 7 C) RISK FACTORS...... 7 D) OTHER SECURITIES ...... 8 E) PUBLIC DOCUMENTS...... 8
2) THE COMPANY...... 10 A) ISSUER BACKGROUND AND DEVELOPMENT ...... 10 B) BUSINESS DESCRIPTION ...... 11 I) MAIN ACTIVITY...... 11 II) DISTRIBUTION CHANNELS...... 19 III) PATENTS, PERMITS, BRANDS AND OTHER CONTRACTS...... 20 IV) PRIMARY CUSTOMERS...... 21 V) APPLICABLE LEGISLATION AND TAX SYSTEM...... 22 VI) HUMAN RESOURCES...... 23 VII) ENVIRONMENTAL PERFORMANCE ...... 23 VIII) MARKET INFORMATION ...... 26 IX) CORPORATE STRUCTURE ...... 27 X) DESCRIPTION OF MAIN ASSETS ...... 29 XI) LEGAL, ADMINISTRATIVE OR ARBITRATION CASES...... 30 XII) REPRESENTATIVE SHARES OF CAPITAL STOCK...... 30 XIII) DIVIDENDS ...... 31
3) FINANCIAL INFORMATION...... 32 A) SELECTED FINANCIAL INFORMATION ...... 32 B) FINANCIAL INFORMATION BY LINE OF BUSINESS AND GEOGRAPHICAL REGION...... 33 C) MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS ...... 34 I) OPERATION RESULTS ...... 35 II) FINANCIAL SITUATION, LIQUIDITY AND CAPITAL RESOURCE ...... 36 III) INTERNAL CONTROL ...... 37 D) CRITICAL ACCOUNTING POLICIES...... 38
4) ADMINISTRATION...... 39 A) INDEPENDENT AUDITORS ...... 39 B) CONFLICTS OF INTEREST ...... 39 C) ADMINISTRATORS AND SHAREHOLDERS...... 40 D) CORPORATE BYLAWS (IN FORCE AS OF MARCH 11, 2010) ...... 50
Page 2 of 85 5) STOCK MARKET ...... 61 A) STOCK STRUCTURE...... 61 B) STOCK PERFORMANCE IN THE SECURITIES MARKET ...... 61
6) PEOPLE IN CHARGE ...... 63
7) ATTACHMENTS...... 65 A) CONSOLIDATED FINANCIAL STATEMENTS AND OPINION OF THE STATUTORY AUDITOR...... 65
Page 3 of 85 1) GENERAL INFORMATION
A) GLOSSARY OF TERMS AND DEFINITIONS
ADR American Depositary Receipt.
ANTAD National Retailers Association.
ASDA Wal-Mart Stores, Inc. self-service chain in the United Kingdom.
Associate Employee who works at Walmart de México. Bodega Aurrerá Austere discount stores offering basic merchandise, food and household items at the best prices. Center Consisting of the following states: Aguascalientes, Colima, Hidalgo, State of Mexico, Guanajuato, Jalisco, Michoacan, Morelos, Puebla, Queretaro, San Luis Potosi and Tlaxcala.
ClubCo Warehouse membership clubs, where members can purchase large volumes in institutional-size packages.
CNBV Mexican National Banking and Securities Commission.
Despensa Familiar, Discount stores that offer limited assortment at very low prices. Palí
Devaluation Mexican Peso devaluation against US dollar.
Distribution center Location for the receipt of goods from suppliers and store distribution.
Dollar, Dollars, or Dollar, American legal currency. US$
EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization.
Every Day Low Permanent philosophy which focuses on contributing towards improving the quality of Prices life for families in Mexico and Central America.
GDP Gross Domestic Product.
Hiper Paiz, Hiper Más Hypermarkets that operate under the premise of one-stop shopping. Located in the periphery of, or main entrances to, large cities throughout Central America.
IETU Mexican flat-rate business tax.
IPC Price and Quotation Index.
ISR Income Tax.
ISSSTE Stores Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Social Security and Services Institute for Government Employees).
IVA Value Added Tax.
Maxi Bodega Warehouse–type stores, which are a different style of discount stores, larger in size and with a wider assortment, at equally competitive prices.
Metropolitan Area Consisting of the following: Mexico City Federal District and the Metropolitan Area.
NCPI National Consumer Price Index.
Net sales Goods sold in our stores.
North Consisting of the following states: Coahuila, Chihuahua, Durango and Zacatecas.
Northeast Consisting of the following states: Nuevo Leon and Tamaulipas.
Northwest Consisting of the following states: Baja California Norte, Baja California Sur, Nayarit, Sinaloa and Sonora.
Page 4 of 85 Paiz, La Despensa Supermarkets focused on customer service in large urban centers, or the surrounding de Don Juan, La areas. Unión, Más x Menos
PTU Employee Profit Sharing.
Sales floor Appointed area for merchandise retail.
SKUs Stock Keeping Units.
SME Small and Medium Enterprise
Southeast Consisting of the following states: Campeche, Quintana Roo, Tabasco, Veracruz and Yucatán.
Southwest Consisting of the following states: Guerrero, Chiapas and Oaxaca .
Total Revenue Net sales plus other income.
UNAM Stores Universidad Nacional Autonoma de México (National Autonomous University of Mexico).
Walmart de México Universal banking institution aimed at Walmart de México customers, with an initial Bank offering of basic banking and financial products and services.
WALMEX Stock symbol for Wal-Mart de México, S.A.B. de C.V.
Notes:
1. For comparison purposes, all securities are shown with an adjustment due to the 2-to-1 split which took place on April 23, 2010, except in audited financial statements. 2. The purchasing of Walmart Centroamérica took place in February 2010, and therefore the information on Walmart Centroamérica is purely informative and is not consolidated in the audited financial statements as of December 31, 2008 y 2009..
Page 5 of 85 B) EXECUTIVE SUMMARY
Walmart de México is one of the most important retail chains in our country. It operates 1,472 units, including self-service stores, warehouse membership clubs, apparel stores, and restaurants as well as 190 bank branches, all of which are located in 265 cities throughout the 32 states of Mexico. During 2009, Walmart de México achieved once again, its best results.
Financial Data Million pesos Growth 2009 2008 (%) RESULTS Net sales Ps. 269,397 Ps. 244,029 10.4 Other income 1,054 888 18.7 Total revenues 270,451 244,917 10.4 Gross profit 58,600 53,284 10.0 General expenses 36,332 33,533 8.3 Operating income 22,268 19,751 12.7 EBITDA 26,915 23,887 12.7 Income before taxes 23,018 19,857 15.9 Income Tax 6,212 5,184 19.8 Net income Ps. 16,806 Ps. 14,673 14.5 FINANCIAL POSITION Cash Ps. 19,483 Ps. 11,350 71.7 Inventories 22,520 22,808 (1.3) Other assets 6,243 5,020 24.4 Fixed assets 84,893 79,286 7.1 Total assets Ps. 133,139 Ps. 118,464 12.4 Suppliers Ps. 30,378 Ps. 27,005 12.5 Other liabilities 19,613 17,183 14.1 Shareholders’ equity 83,148 74,276 11.9 Total liabilities and shareholders’ equity Ps. 133,139 Ps. 118,464 12.4
The sales generated throughout this year totaled $269.4 billion pesos, once again establishing a new record for our Company. We recorded 10.4% sales growth for total units in nominal terms and 3.4% for comp units, that is, stores that have been opened for more than a year. But with the unfavorable economic situation, we noted that our consumers were more cautious in their spending, which was reflected in a drop of 3.0% in the average ticket. Throughout the year, we have concentrated much of our efforts on achieving greater efficiencies, which translate to even lower prices, and further increase our price gap vis–a–vis our competitors, with the ensuing savings in excess of $11.4 billion pesos for our customers. We have a very sound financial situation. Following investments made with our own resources, that is, over $9.7 billion pesos in modernizing and expanding our installed capacity, we have $19.5 billion pesos in cash and our balance has no debt. Throughout the year, the year we opened 275 units from all our business formats, 23 more than those considered at the beginning of the year, thus totaling 1,472 units by the close of the year. All our business formats grew, each one meeting the unique needs of their specific target markets. For Bodega Aurrerá –the best in meeting the needs of low- income segments- we opened 246 stores among the three prototypes: Bodega Aurrerá, Mi Bodega Aurrerá and Bodega Aurrerá Express. In the case of Walmart, we launched 16 new stores. Likewise, Sam’s Club opened 7 new units, Superama now has 3 new units and Suburbia added 3 additional apparel stores to its list of operating units. The bank, on the other hand, successfully opened 152 branches.
Page 6 of 85 In December 2009 we approved the acquisition of 100% of Walmart Centroamérica’s operation and in February 2010 we completed the transaction.
I) WALMEX IN THE STOCK MARKET
Walmart de México (WALMEX) is listed in the Mexican Stock Exchange since 1977. It is one of the most important companies in the Mexican Stock Exchange index and in capitalization value. Its market value as of December 31, 2009 was $ 491.7 billion pesos, represented by 16,753 million shares. Wal-Mart Stores, Inc., through one of its subsidiaries (Intersalt, S. de R.L. de C.V.), is the majority shareholder of Wal-Mart de México S.A.B. de C.V. and as of December 31, 2009, its equity interest represented 69.6% of the capital stock.
Top ten companies in the MSE1 Million pesos Capitalization Total Revenues Stock Symbol Value 2009 Employees 1. América Móvil AMX Ps. 993,802 Ps. 394,711 55,627 2. Walmart de México WALMEX 491,671 269,397 176,463 3. Grupo Modelo GMODELO 236,003 81,862 36,707 4. Grupo México GMEXICO 233,628 65,597 23,002 5. FEMSA FEMSA 213,335 197,033 126,300 6. Telmex Internacional TELINT 209,462 92,540 24,769 7. Carso Global Telecom TELECOM 202,465 209,539 77,729 8. Teléfonos de México TELMEX 199,410 119,100 52,946 9. Grupo Televisa TLEVISA 159,904 52,353 24,362 10. Coca Cola Femsa KOF 158,968 102,767 67,502
C) RISK FACTORS
México is exposed to factors that affect the purchasing power and/or consumer habits of the population. These factors can be economic, political or social, and among the most important are the following: • Employment and wages. A positive or negative variation in employment rates and/or in real wages could affect per capita income, thereby impacting sales figures. • Interest rates, exchange rates and inflation. Historically Walmart de México has generated surplus cash, enabling it to create financial income. A drop in interest rates could cause a reduction in said income, thus affecting the growth in earnings. Nevertheless, the Company feels that a drop in interest rates has a positive effect in the medium and long terms because it serves to improve the purchasing power of the population. On the other hand, fluctuation in exchange rates may impact inflation forecasts and consumer purchasing power, which in turn may have an adverse effect on Company sales figures. It should be noted that the Company has no liabilities with cost, in either domestic or foreign currency, except those represented by the capitalization of property leasing to third parties, pursuant to Financial Information standards. In accordance with our corporate governance standards, does not deal in derivatives. • Competition. The Retail sector became extremely competitive during the last few years, forcing the participants to search for new ways to differentiate from each other. Centroamérica is exposed to events that could affect the purchasing power and/or shopping habits of its consumers. Said events may be economic, political or social in nature. Many Latin American countries have faced economic, political and social crisis, natural disasters and major weather conditions in the past and these same events could reoccur in the future. It could be affected by several factors, including, among others, the following:
1 Source: Mexican Stock Exchange (MSE). Figures as of December 31, 2009.
Page 7 of 85 − Significant government interference in local economies; − Economic slowdowns; − High inflation levels; − Wage and price controls; − Changes in economic or tax policies enforced by the government; − Natural disasters and severe climate conditions; − Imposed trade barriers; − Unexpected regulatory changes; and − Overall political, social and economic instability. Adverse events and conditions in Central America may inhibit demand and create uncertainly in the operations, which in turn could have material impacts on México. We have the conviction at Walmart de México y Centroamérica to not only focus on volume as our competitive advantage, but on a long-term strategy focused in our clients along with a significant and relevant value offer. This strategy, supported by investments in technology and distribution centers, allows us to deliver Every Day Low Prices to our customers.
• Inflation Some countries in Central America have historically experienced high inflation levels. Elevated inflation rates could undermine the financial atmosphere for the Company and its results. This would produce a direct impact on customer purchasing power, and on the demand for products and services.
D) OTHER SECURITIES
Walmart de México with its sponsored level 1 ADR program that has Bank of New York as depositary bank is one of the three first international issuers to trade in “International OTCQX Market Tier” (www.otcqx.com ). The “International OTCQX Market Tier” recognizes the companies that have ADRs trading in the Over the Counter market in the U.S., who distinguished themselves by providing credible information to investors, and meet the financial qualifications of the NYSE listing standards. Among the main benefits is the electronic quotation and trading system, and an online financial information system. Walmart de México has complied, during the last eight fiscal periods, in form and time with the requirements of Mexican and foreign legislations regarding relevant matters and periodical information such as quarterly and yearly reports on results.
E) PUBLIC DOCUMENTS
The following documents are available to the Investor Public at large, through the MSE website, www.bmv.com.mx, and Walmart de México’s website, www.walmartmexico.com.mx : • Annual report – MSE format • Notification of important events • Monthly sales report • Quarterly report on results: Consolidated Financial Statements (Financial Statements compared against the same quarter of the previous year) • Annual Report, including the Consolidated and Audited Financial Statements for the latest fiscal periods, as well as a comparison of the previous period. • Social Responsibility and Sustainable Development Report is based on the methodology used in Global Reporting Initiative (GRI). • Code of Corporate Best Practices • Authenticated copy of the bylaws
Page 8 of 85 CONTACTS
INVESTOR RELATIONS:
Mariana Rodríguez de García ([email protected]) Telephone: (52)55 5283 0289
Paulina Clark Guzmán ([email protected]) Telephone: (52)55 5283 0100 ext. 8540
CORPORATE AFFAIRS:
Raúl Argüelles ([email protected]) Telephone: (52)55 5283 0928
Antonio Ocaranza ([email protected]) Telephone: (52)55 5283 0271
WALMART DE MÉXICO FOUNDATION:
María Gisela Noble ([email protected]) Telephone: (52)55 5283 0100 ext. 8996
Page 9 of 85 2) THE COMPANY
A) ISSUER BACKGROUND AND DEVELOPMENT
1958 The first Aurrerá store was opened to the public in Mexico City. 1960 Superama begins operations. 1964 Vips begins operations. 1970 Suburbia and Bodega Aurrerá initiate operations. 1977 Company shares were first traded in the Mexican Stock Exchange. Its Stock Symbol was AURRERÁ. 1986 The company changes its name to Cifra, S.A. de C.V. (Cifra). 1991 A joint venture agreement is signed with Wal-Mart Stores, Inc. (50%-50%) to open Sam’s Club in Mexico. The first club opened its doors in December of the same year. 1992 Joining the agreement are the new Aurrerá, Bodega Aurrerá and Superama units, in addition to the Walmart Supercenters. With this purpose in mind, two companies are created: Cifra-Mart and WMHCM, of which Cifra owns 50% and Wal-Mart Stores, Inc., the other 50%. Cifra keeps 100% of its units opened prior to May 1992. 1993 Walmart Supercenter initiates operations. 1994 The new Suburbia and Vips units are incorporated into the agreement. 1997 The joint venture companies merge into Cifra. Walmart Stores makes a public tender offer in the Mexican Stock Exchange acquiring control of the Company. Cifra remains a public company that operates all the businesses in Mexico (Sam’s Club, Bodega Aurrerá, Walmart Supercenter, Aurrerá, Superama, Suburbia and Vips). 2000 The General Shareholders’ Assembly approved the change in name from Cifra, S.A. de C.V., to Wal-Mart de México, S.A. de C.V. Its Stock Symbol is WALMEX. 2001 All Aurrerá stores are converted to either Walmart Supercenter or Bodega Aurrerá. 2004 Our Shareholders’ Assembly granted voting rights to holders of Series “C” shares, and converted them to Series “V”. The conversion was par value, that is, a Series “V” share for each share of Series “C”. All capital stock for Walmart de México is represented by a single series, thus giving all Shareholders equal voting rights. 2006 The General Shareholders’ Assembly approved the official name change from Wal-Mart de México, S.A. de C.V. to Wal-Mart de México, S.A.B. de C.V. 2007 Walmart Bank begins operations. 2009 We approved the acquisition of 100% of Walmart Centroamérica’s operation, the leading retailer in the region, with 519 operating units throughout Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. 2010 On February 15, the acquisition of Walmart Centroamérica was completed, changing the commercial brand name to Walmart de México y Centroamérica.
Investment in fixed assets 2009 2008 2007 Openings (number of units) 275 182 136 Investment (million pesos) Ps. 9,735 Ps.11,316 Ps.11,097
During 2009 we invested $9.7 billion pesos and increased our installed capacity in all of our business formats with the opening of 275 new stores. Said growth has allowed us to offer our value added service to 41 new communities where we had no presence. These openings have increased our installed capacity in 10.6% in sales floor. During 2008 we opened 182 new stores, representing an increase in installed capacity of 11.7% in sales floor and 3.2% in restaurant seating. During 2007 we opened 136 new stores, increasing of 13.3% in sales floor installed capacity and 10.9% in restaurant seating.
Page 10 of 85 B) BUSINESS DESCRIPTION
I) MAIN ACTIVITY As of December 31, 2009, Walmart de México operates 1,472 units, including self-service stores, warehouse membership clubs, apparel stores, and restaurants as well as 190 bank branches , all of which are located in 265 cities throughout the 32 states of Mexico.
Austere discount stores offering basic 35.6% of total sales merchandise, food and household $ 96.0 billion pesos in sales items at the best prices 16,794,317 sq. ft. of sales area 32,000 SKUs Value proposition: price. 66,126 Associates 684 Units 244 cities nationwide 246 Grand openings during 2009 Hypermarkets providing the widest 27.8% of total sales assortment of goods from groceries and $ 74.9 billion pesos in sales fresh, to apparel and general 14,769,014 sq. ft. of sales area merchandise. 90,000 SKUs 47,531 Associates Value proposition: price and 169 Units assortment. 64 cities nationwide 16 Grand openings during 2009 Membership warehouse clubs focused 26.5% of total sales on businesses and consumers who seek $ 71.3 billion pesos in sales the best possible prices. 7,841,264 sq. ft. of sale area 4,500 SKUs Value proposition: price leader, 23,647 Associates volume, new and unique merchandise. 98 Units 60 cities nationwide 7 Grand openings during 2009 Supermarkets located in residential 4.9% share over total sales areas. $ 13.2 billion pesos in sales 1,219,310 sq. ft. of sales area Value proposition: quality, convenience 30,000 SKUs
and service. 9,949 Associates 69 Units 14 cities nationwide 3 Grand openings during 2009 Apparel stores offering the best in 3.3% of total sales fashion for the whole family at the best $ 8.8 billion pesos in sales possible price. 3,839,584 sq. ft. of sales area 7,765 Associates Value proposition: fashion with the best 86 Units
value, price-quality ratio 31 cities nationwide 3 Grand openings during 2009 1.9% share over total sales Leading restaurant chain in the restaurant-cafeteria segment. It $ 5.2 billion pesos in sales includes Mexican cuisine as 83,542 seats represented by El Porton. 20,028 Associates 366 Units Value proposition: convenience, flavor 65 cities nationwide and quality.
Universal banking institution aimed at 400,000 account holders Walmart de México customers, with an 1,417 associates initial offering of basic banking and 190 branches financial products and services. 14 cities nationwide 152 Grand openings in 2009 Value proposition: convenience, simplicity and price.
Page 11 of 85
The Company is present in 265 cities throughout the country.
Presence by geographical region
Total Metropolitan Area Center Southeast Northeast North Northwest Southwest
Bodega Aurrerá 684 270 215 56 44 36 24 39 Walmart 169 43 44 17 19 18 22 6 Sam’s Club 98 20 27 15 9 8 12 7 Superama 69 44 21 4 - - - - Total Self-service 1,020 377 307 92 72 62 58 52 Suburbia 86 40 23 10 6 3 1 3 Vips 366 179 80 43 18 15 17 14 TOTAL 1,472 596 410 145 96 80 76 69
NORTH
NORTHEAST NORTHWEST
SOUTHEAST
CENTER
METROPOLITAN AREA SOUTHWEST
Page 12 of 85 CYCLICAL PERFORMANCE
The demand for goods and services increases significantly during the last few months of each year as result of the holiday season. The fourth quarter represented 29.7% of the year’s total revenues.
Revenues by Quarter 2009 Total revenues Contribution
(Million pesos) (%) 1st Quarter Ps. 61,663 22.8 2nd Quarter 63,894 23.6 3rd Quarter 64,589 23.9 4th Quarter 80,305 29.7 Total Ps. 270,451 100.0
Vacations and Bank holidays also have a significant impact on sales performance.
SHOPPING EXPERIENCE
We are a multi-format company, and we have strategies that are specially designed for each of our different types of customers, underscoring our vision of helping to improve the quality of life of Mexican families.
BODEGA AURRERÁ “Highlighting why we are the champions of low prices.” In a year in which the wallets of our customers were under the greatest pressure, Bodega Aurrerá, together with Mamá Lucha, drove our strategy of Every Day Low Prices more than ever. We reinforced our value proposition by further slashing thousands of prices throughout the store, offering large volumes of the products that sell the most; we increased the programs for low price points, such as $1-$2-$3 and $9.90, and we combined them with special buys for highly valued items at very low prices, such as individual rolls of 400-ply toilet paper at $3 pesos each and 100% cotton t-shirts at $15 pesos apiece. All these measures allowed us to help our customers’ family budgets stretch further. We emphasized communication with our consumers through simple, sound and definitive campaigns, highlighting our value proposition: the best prices and the best products. An example of this is: “Unmasking Prices” where we exhibit the price charged by our competitors. Growth is a constant so an ever greater number of people may benefit from our value proposition. This year, we opened 246 units from all our prototypes: 29 Bodega Aurrerá, 37 Mi Bodega Aurrerá and 180 Bodega Aurrerá Express stores, which is equivalent to opening one unit every 1.5 days, thus totaling over 680 units in operation. Thanks to acceptance by our customers, Bodega Aurrerá Express experienced accelerated growth, going from 4 to 243 units in a mere two years, with units located in Mexico City, Puebla, Guadalajara and Monterrey.
WALMART “10 years offering Every Day Low Prices, Always.” To celebrate the tenth anniversary of the cornerstone of our value proposition: Every Day Low Prices, Always, we reinforced our commitment to our customers so they can save money and live better. In keeping with this, we offered over 15,000 prestige brand products at just $10 pesos each and, through the Multi-Savings and Rollback programs, we maintained the best prices for the products most in demand. In addition, our new campaign –Downward Prices- allowed us to establish closer and sounder communication with our customers.
Page 13 of 85 We also developed a new planning and merchandising program that enabled us to better understand and serve the different shopping occasions that our consumers have. These new processes have been applied in the shopping concepts for different seasons and in the assortment offered for specific occasions. In this manner we hope to maintain our competitive edge as the hypermarket with the widest assortment. Moreover, we continue working hard to provide our customers with the best possible shopping experience and therefore we have focused on three pillars –speedy service, friendly associates, and special programs to ensure cleaner and neater self-service units.
SAM’S CLUB “Price, product and service: the three pillars of value of our membership.” “Where can you get the best prices in the market? Here, at Sam’s Club.” With this TV campaign we compare the amount charged for the most important products for our customers versus those of our primary competitors, reconfirming that we are the price leaders in Mexico. We continue being committed to offering electronic and computer items of great innovation and state-of-the-art technology. With this purpose in mind, we opened 8 Apple Shop stores within our clubs and launched, before anyone else, products such as the new LED TVs and three-dimension cameras, among others. As further reinforcement of our service, we published the Sam’s Member magazine, with editorial content by renowned authors and articles of interest for our members who can obtain the publication bimonthly, free of charge, in our clubs. Likewise, we relaunched our website and offered the new Sam’s Benefits membership, which allows our members to obtain additional benefits in our clubs and in over 4,000 establishments.
SUPERAMA “We pamper our customers, offering the greatest freshness, quality, service and convenience.” In 2009, we implemented the “Merchant Program” through which we offer our customers a wide assortment of exotic and in-season fruit with over 50 new varieties. Superama’s Express Delivery service continues growing by leaps and bounds, and this year we launched a new internet portal, which supplies a simpler, safer, and more comprehensive shopping experience. We have reinforced our value proposition through programs such as: Incredible Prices on Mondays and Tuesdays; Wines at $60 and Liquor at $100; Super Savings; Create your Pair; and our Pharmacy Loyalty Card; among others.
SUBURBIA “We strengthened our commercial strategy, adapting to the needs of our customers.” To better identify with our customers, we launched the image campaign titled “Real Life Fashion”, with which we created closer ties with them, repositioning ourselves as the best shopping option for the entire family. We applied permanent markdowns for thousands of items in all departments, focusing especially on basic products most wanted by all our customers. There were special events hosted, such as “Jeansmania”, in which we offered large volumes of novelty items at the lowest prices. Our assortment was revamped with the incorporation of new brands, including Everlast and Converse One-Star. Likewise, we reemphasized support for brands such as Mossimo and Emmanuel 19, offering as always, the best value, price, assortment and quality ratio.
Page 14 of 85 VIPS “We have been able to offer our customers more value and an enhanced eating experience.” During 2009, we improved our offering of complete breakfasts, lunches and dinners at affordable prices. With “What is New” and “The Classics”, we launched new products and brought back our customer’s favorites. At El Portón, we innovated our offerings of Mexican dishes, Food Festivals such as Lent, Corn, and Rump Roast, and we suggested traditional national desserts. Moreover, together with the Cloisters of Sor Juana, we developed the Mexican Fiesta and the Christmas Festival, to great acceptance by our customers. Last April 2009, during the influenza outbreak, our top priority was to protect the health of our customers, enforcing strict compliance with all recommendations issued by the Secretary of Health. We implemented and followed high standards of sanitization and prevention, with the purpose of maintaining maximum hygiene in all restaurants in benefit of our customers and associates. With our consumers’ interests always at heart, we launched promotions at very attractive prices, added value to every flavor offering, and rewarded our customers for their loyalty.
BANCO WALMART “We set the groundwork for continuous, measured and profitable growth.” 2009 was a year of changes for the bank, which served to solidify our long-term vision. Among the primary achievements are: • More than 400,000 account holders and 190 bank branches. • The launching of our payroll product. • Our credit card has been piloted, offering unique benefits to customers for in-store transactions. • We launched our credit product for working capital, thereby benefiting SME suppliers for Walmart de México. An example of success 4E de México, S.A. de C.V., –an antibacterial gel and liquid soap manufacturer- has tripled its sales in the last few years. In order to support its growing needs for working capital, Banco Walmart decided to lend a hand through “Credimpulsa”, short-term unsecured loans for Walmart de México suppliers that have proven excellent commercial performance standards. This has allowed 4E de México to better manage its cash flow, in addition to diminishing costs thanks to the financial resources that enable better negotiations with their suppliers. With financial programs such as this one, Banco Walmart reaffirms its conviction of being a strategic partner for Walmart de México customers and suppliers.
Page 15 of 85 ACQUISITION OF WALMART CENTROAMÉRICA
In December 2009 we approved the acquisition of 100% of Walmart Centroamérica’s operation and in February 2010 we completed the transaction. Walmart Centroamérica is the leading retailer in the region, with 519 operating units throughout Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. The similarity between Walmart Centroamérica’s and Walmart de México’s multi-format structure is shown as follows:
Page 16 of 85 As of December 31, 2009, Walmart Centroamérica operates 519 units.
Discount stores that offer limited 44.1% of total sales assortment at very low prices. Located 1,911,363 sq. ft. of sales area 10,839 Associates within or near pedestrian markets, in urban and/or rural areas, as well as 377 Units suburban communities. 72 cities Value proposition: price. 26.2% of total sales Supermarkets that focus on customer service in large urban centers, or the 1,385,391 sq. ft. of sales area surrounding areas. 9,684 Associates 92 Units Value proposition: quality, service and 26 cities convenience.
Hypermarkets that operate under the 20.9% of total sales premise of one-stop shopping. Located 1,017,381 sq. ft. of sales area in the periphery of, or main entrances 6,266 Associates to large cities throughout Central 16 Units America. The product offering includes 8 cities a wide assortment in products and brands, in addition to supplementary services such as gas stations, vision centers, bank branches, etc. Value proposition: price and assortment.
Warehouse type stores, they are a 7.5% of total sales different style of discount stores, larger 582,451 sq. ft. of sales area in size and with a wider assortment, at 2,139 Associates equally competitive prices. They are 32 Units 16 cities located in urban areas and have successfully opened –with considerable acceptance from their customer base- new units in shopping centers in the countryside of the Central American countries where they operate. Value proposition: price.
Warehouse membership clubs, where 1.3% of total sales members can purchase large volumes 79,578 sq. ft. of sales area in instructional-size packages. They are 297 Associates located close to the entryways of the 2 Units capital city. 1 city
Value proposition: price leader, volume, new and unique merchandise.
Page 17 of 85
Presence by country
Total Costa rica Guatemala El salvador Nicaragua Honduras Discount stores: 377 Despensa Familiar 202 - 113 50 - 39 Palí 175 127 - - 48 - Supermarkets: 92 Paiz 35 - 28 - - 7 La despensa de Don Juan 25 - - 25 - - Más x Menos 25 25 - - - - La Unión 7 - - - 7 - Hypermarkets: 16 Hiper Paiz 10 - 7 2 - 1 Hiper Más 6 6 - - - - Discount warehouses: 32 MaxiBodega 32 12 14 - - 6 Clubs: 2 ClubCo 2 - 2 - - - TOTAL 519 170 164 77 55 53
GUATEMALA HONDURAS
EL SALVADOR NICARAGUA
COSTA RICA
Page 18 of 85 II) DISTRIBUTION CHANNELS The 13 distribution centers currently have an installed capacity of more than 18.4 million square feet, allowing us to move more than 4.1 million cases to our stores, clubs and restaurants each day. • We continue to achieve greater operating efficiency by lowering inventory levels in our stores and reducing days-on-hand. In self-service alone, we have reduced inventory by one day. • An improvement of 15% in productivity of the number of cases moved per man-hour in our 13 distribution centers has allowed us to better serve all our operating units. • Likewise, we have reduced the trips by 10% to ship merchandise to our units. This in turn has contributed towards improving the environment thanks to the considerable reduction in pollutants emitted into the atmosphere.
Distribution Centers
City Name Service Mexico Cuautitlan Dry goods La Naranja Apparel distribution for Suburbia San Martin Obispo (2) Dry goods / Perishables Centralized Kitchen Distribution for Vips Santa Barbara Dry goods Chalco Dry goods Monterrey Dry Dry goods Perishables Produce Guadalajara Dry Dry goods Perishables Produce Villahermosa Dry Dry goods Perishables Produce Culiacan Dry Dry goods
The 11 distribution centers in Central America have an installed capacity of more than 1.5 million square feet, allowing to move more than 200 thousand cases to the 519 stores in the region.
Distribution Centers
Country Name Service
Guatemala Amatitlán General Merchandise
Barcenas Perishables Integrada General Merchandise El Salvador Apopa Food / General Merchandise Arboledas General Merchandise Honduras San Pedro (2) Food / General Merchandise
Tegucigalpa Food
Nicaragua Managua Food / General Merchandise Costa Rica Desamparados General Merchandise Santa Ana Food
Page 19 of 85 • AGROINDUSTRIAL DIVISION
Walmart Centroamérica has an Agroindustrial Division consisting of a portfolio of companies specializing in supplying, processing and distributing fresh products, and developing private label grocery and consumer items. Their mission is to be “a competitive advantage for Walmart Centroamérica, allowing our customers to save money and live better.” The role of agroindustrial development is to: • Act regionally, taking into account interaction among the markets. • Ensure a unique competitive advantage for the retail operation. • Strike a balance between supply and prices throughout the region. • Optimize regional and international supply . • Standardize product processing through centralization. • Maintain positive relations with governments and different associations. • Quality assurance and environmental protection. Walmart Centroamérica enjoys different benefits by operating with this division: • Competitiveness with important competitors for each format. • Organization dedicated to retail operations. • Freshness guarantee. • Daily distribution and high fill-rate. • Elimination of processes at store level. • Greater capacity for new product development. • Quality standards for all food items. • Environmental responsibility. • Control over supply chain
III) PATENTS, PERMITS, BRANDS AND OTHER CONTRACTS All commercial brands for the different business formats in Mexico (Walmart, Sam’s Club, Superama, Bodega Aurrerá, Mi Bodega Aurrerá, Bodega Aurrerá Express, Prichos, Suburbia, Vips, El Porton, Ragazzi, La Finca, San Remo Café and Banco Walmart Adelante), as well as the products bearing the private labels (Great Value, Equate, Members Mark, Medimart, Aurrerá, GRX, Week End, MC Metropolis Company, Non Stop, etc.), are registered trademarks property of Wal-Mart Stores, Inc. and Wal-Mart de México, S.A.B. de C.V. Said trademarks are used by the operating companies under license agreements and/or sub-license agreements for an indefinite term. The Company also uses brands registered to third parties through license agreements that guarantee use and compliance with the applicable legislation. “Vips” is one of the main brands of the group under which several restaurants operate. Six of these restaurants are franchises that are located in four different cities (Merida, Tampico, Veracruz y Xalapa). These franchises expire from 2011 to 2013 with no industrial contract. “Banco Walmart Adelante”, which operates a low cost bank in order to serve better our customers. All the banners for the different retail formats in Central America(Despensas Familiar, Pali, la Despensa de Don Juan, La Unión, Paiz, Más x Menos, Maxi Bodega, Híper Más, and Híper Paiz and ClubCo), as well as the different private labels (Great Value, Equate, SAM’s Choice, George & Design, SABEMAS, SuperMax, Suli, etc.), are registered trademarks owned by Wal-Mart Stores, Inc., Broadstreet Global Activities Ltd. Liab. Co., Ahold Retail Services Ag, and different subsidiaries of TFB Corporation N.V., that operates throughout Central America. Included among the distinct banners of the Group are the various brands owned by the subsidiaries of the Agroindustrial Division, an operation that was created with the purpose of supporting the Wal- Mart Centroamérica retail operations, through the supply, distribution and sale of fresh products and, separately, the development of private label grocery and consumer products.
Page 20 of 85 The legal use and preservation of the rights of the private labels is of great importance to WALMEX, they grant value to the Company and in some way are responsible for the prestige of the Corporation. The customer identifies the products related to these private labels as quality goods.
IV) PRIMARY CUSTOMERS Our principal customer is the public in general. Throughout 2009, we had more than 1,219 million transactions in México and in Central America more than 284 million transactions. Mexico is a country with great diversity, differing demographics, preferences and socioeconomic levels. Our multi-format strategy allows us sufficient flexibility to efficiently meet the needs of the different population sectors.
Central America represents a population of over 38 million inhabitants and a retail market of $44 billion dollars, each with different demographic characteristics, preferences and income levels. The multiformat strategy of Walmart Centroamérica provides the flexibility needed to efficiently serve the needs of the different population sectors throughout the region. The Walmart Centroamérica customer is the general public; the majority, however, pertain to “E” level income groups.
Socioeconomic sectors
10%A-B 13% C
23% D
% E 54
The diversity in demographic characteristics and income levels in each of the countries are best served by the multiformat approach, wherein the needs of all customers are more efficiently met.
Page 21 of 85 Format Target Sector
Discount stores Mid-low / Low
Supermarkets High / Mid-high
Hypermarkets Mid-high / Mid-low
Warehouses Medium / Low
Clubs Medium / Low
V) APPLICABLE LEGISLATION AND TAX SYSTEM Wal-Mart de México, S.A.B de C.V., is a corporation established under Mexican law that complies with all the legal provisions for the construction and operation of its units, with special emphasis on: environmental and ecological constructions, urban development, operation, hygiene, the sale of alcoholic beverages, animal and pest control, and advertisements, pursuant to all applicable federal, state and municipal regulations. Furthermore, Walmart de México complies with the commercial basic principles ruling the relation between suppliers and consumers established by the Federal Consumer Protection Law. México is registered in the Ministry of Finance and Public Credit under the regime for major contributors and consolidates for fiscal proposes except the bank; WALMEX complies with all the fiscal dispositions regarding the development of the Corporation. The primary laws that regulate WALMEX in México are: the Securities Market Law, General Corporation and Partnership Law, Income Tax Law, Value-Added Tax Law, Tax on Cash Deposit Law, Luxury Tax Law, Intellectual Property Law, Federal Consumer Protection Law, Federal Anti-Trust Law, Foreign Investment Law, Banking Law and Single Rate Business Tax Law. The operation known as Wal-Mart Centroamérica is consolidated under TFB Corporation, N.V., an indirect subsidiary of Wal-Mart Stores, Inc. (the majority shareholder). TFB Corporation, N.V., was incorporated on September 20, 2005, with the purpose of serving as the holding Company for a number of subsidiaries that operate stores and run agroindustrial operations, and incorporated in Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica. All companies comply with each and every legal provision under administrative law, to build and operate its different units, in full compliance with the following types of legislation: construction, environmental and ecological, road and urban development, operations, health, the sale of alcoholic beverages, plant health, and signage, both at federal and local levels, pursuant to the different jurisdictions of the differing federal, state, and municipal authorities in the respective countries. Likewise, there is full compliance with the basic principles of commercial relations between suppliers and established consumers in each of the countries served. Regarding the tax position of TFB Corporation, N.V. and its operating subsidiaries are subject to each country Fiscal Bylaws and are registered in their Tax ID and in compliance with any and all tax requirements related to the development of their respective businesses operation.
Page 22 of 85
VI) HUMAN RESOURCES Walmart de México and Centroamérica culture centers on three basic beliefs: Respect for the Individual, Customer Service, the Pursuit for Excellence, principles which were the source of inspiration for the Company founders and which today are shared throughout the organization at all levels. Talent development is one of our strategies priority and a core part of the business. Our associate headcount adds up to 176,463 and, 29,225 asoociates in Central America, which confirms we are one of the largest private sector employers. More importantly, the jobs we create represent an opportunity for our new associates to develop and grow in an atmosphere of respect and equality. During 2009, in México we invested over 8.3 million man-hours in training, of which an ever growing amount of 3.6 million was distance learning (e-learning). As a result of these business practices and the continuous motivation of our associates, 15,287 were promoted throughout the year, and 6,694 were transferred to work centers closer to their homes. In addition to the previously mentioned, we realized a calibration process between more than 1,800 executives, with the objective of identifying potential candidates to fill out positions with more responsibility. This new exercise of classifying potential talent, allowed us to increase by 35% our high performance associates data base. In Central America, we invested over 570,000 man-hours in training and 3,080 associates were promoted.In 2009. It was created the Female Leaders Council, a global innovation of the Company that is a part of the initiatives dealing with the issues of inclusion, gender and diversity. The primary objective of this forum is the creation of proposals and ideas that promote professional development among women.
Gender Parity Mexico Central America
Women 53% 42% Men 47% 58%
VII) ENVIRONMENTAL PERFORMANCE Walmart de México y Centroamérica, in its constant search for innovation and leadership in sustainability, has worked to find solutions for the generation of renewable energy through technological projects in all its units. The continuous improvements in our supply chain processes have generated good results, by implementing efficient and environment-friendly measures in our processes, facilities and services. Promoting sustainability and best environmental practices among associates, suppliers and customers is, and will continue being, a responsibility for the company. In Mexico, our sustainability program is based on 4 main guidelines: 1) Reduce energy consumption and greenhouse gas emissions. Our commitment for 2012 is to reduce greenhouse gas emissions by 20% through several initiatives including efficiency in logistics, transportation, lighting and energy-saving refrigerators, among others, and our goal for 2025 is to have 100% supply of renewable energy, in order to accomplish them, this year: • We opened our second eco-friendly store that uses photovoltaic cells to produce energy. Photovoltaic energy at Sam’s Club Cola de Ballena, located in La Paz, in the state of Baja California Sur, will produce 20% of the electricity used by the unit. Solar panels transform sun- generated energy into electrical energy, preventing the emission of 140 tons of CO2 into the environment every year. • Due to all the energy-savings initiatives installed in the units, we won a national award in the category of Building and Commerce. Furthermore, in January 2009, the National Association
Page 23 of 85 of Solar Energy recognized the photovoltaic installation of the first store with this technology opened last year –Bodega Aurrerá Convención in Aguascalientes- as the largest one in Latin America and in October, the Secretary of Energy granted the National Energy Savings and Renewable Energy Award, in the category of Renewable Energy. • By the end of December 2009, we finished the construction of the first wind-energy park of its class, to serve a company in the retail sector at Juchitán, Oaxaca. The park will begin supplying clean energy to 348 of our units at the beginning of 2010 and we expect to reduce approximately 137,240 tons of CO2 emissions. • We designed prototypes for new units in each business format that include energy-saving avant-garde technologies in lighting, refrigeration and air conditioning. Walmart prototypes reduce energy consumption by 25% on average, compared with 2005 prototypes, with approximate savings of 1.1 million kWh and the elimination of 526 tons of CO2 emissions a year per store. In 2009, we opened five stores with this new prototype. • We connected a larger number of stores to the energy grid, eliminating the use of mobile energy plants. This helped reduce 34,146 tons of CO2. • By means of efficiencies in our logistic network, we have achieved an important reduction in the number of trips, kilometers covered and, consequently, emissions produced by diesel. In 2009, we reduced the equivalent to 130 diesel tank trucks due to efficiency in operations. • We voluntarily published, for the third consecutive year, the inventory of greenhouse gas emissions (corresponding to 2008), with Walmart de México becoming the only company in the sector to do so. • We saved 41 million kWh compared to 2008, equivalent to the annual consumption of 22,700 households. In Centroamérica, all of the energy-saving initiatives put forth by Walmart Centroamérica in the region have allowed the operation to save a total of $2,697,428 during 2009. This translates to electrical power savings equivalent to the annual consumption of 5,178 Centro American families, or 15,534,508 kW/hrs. Also, the Agro-industrial Development plants have implemented various environmental programs related to informing the associates of the need to turn off lights, improvements in electrical installations, changing of light bulbs, reduction in the consumption of water and fuels, and the installation of tanks for the recuperation of rain water, among others. 2) Be more efficient in the use of water. Aligned with our program to generate zero discharges of pollutant waters by 2025; during 2009 we launched several initiatives, such as: • We installed 52 water treatment plants at our large format new stores, where water can be reused for toilet services, gardening and cleaning purposes. At 2009 year end, we had a total of 390 devices of this type.
• We treated 1.3 millions of m3 of wastewater, equivalent to the annual consumption of 4,767 households. 3) Reduce wastes. Our goal for 2025 is to generate zero wastes through the reduction, reuse and recycling of pollutant materials, to achieve it, this year: • We reduced the amount of plastic bags used by 3% during 2009, which was achieved with the adoption of the 3R scope (reduce, reuse and recycle). • We included 30% of post-industrial recycled material in the plastic bags used at all self- service stores, and we became more efficient when packing products in the bags. • We are eliminating the use of plastic bags with the green bag, which takes the place of 3 plastic bags in use. • We started a bag recycling collection program at 47 Superamas.
Page 24 of 85 • We updated the program began in 2008 to recycle plastic hangers used by our Suburbia stores. The program was updated to return the hangers to procurement to be reused. • We launched the Sustainable Packaging Scorecard program in June 2009. This program offers information about the packaging of each and every one of the 90,000 items our suppliers list in the company’s catalog so as to make them more sustainable and follow the reduce-reuse-recycle focus. This initiative will allow our customers to have more information to make their purchasing decisions, and will help with the transportation of a larger volume of products in fewer amounts of trips, thus reducing CO2 emissions. • We continued the recycling of wastes generated at stores during 2009 (cardboard, shrink wrap, used cooking oil, fat and organic residues). Some 155,808 tons of wastes have stopped being sent for final disposal. • We opened the first waste collection center for customers at Walmart Taxqueña in July 2009. This is a project established by Grupo Transforma, a sustainability initiative formed by Coca-Cola, Natura, Philips, Unilever and Walmart de México. The collection center receives cardboard, plastic, plastic bottles, laminated cardboard packages, plastic packages and cans. It’s important to mention that the center is operated by a senior citizen. In Central America launched several initiatives: • Recycling Program: Walmart Centroamérica has been one of the pioneer companies in establishing a regional recycling program, collecting cardboard and plastics generated by its stores, distribution centers, and agro-industrial production Plants. Said materials are compacted at the Distribution Centers for transportation to recycling centers, where they are converted to new products. In 2009, these recycling actions prevented the felling of 248,753 trees and saved us from buying 19,300 barrels of oil. Furthermore, the Agro-industrial Development Plants and the offices participate in various recycling programs, such as of organic waste, aluminum, glass, PET bottles, wood, electronic equipment, etc. In 2009, for example, 2,458 tons of organic waste and 220 tons of other materials were recycled. The practice of recycling, apart form reducing the use of natural resources, generates myriad benefits for the environment in terms of water and energy savings, as well as the reduction in landfill use and the emission of greenhouse gases. Reduction in Emissions: During 2009, Walmart Centroamérica’s operations emitted 118,825 tons of CO2 resulting from electrical energy use, refrigerants, and the use of fuels such as diesel, gasoline and liquefied petroleum gas. The emissions generated by 519 service stores, 16 agro-industrial production plants, 11 distribution centers and six administrative offices are included in this calculation. • Reduction in the Consumption of Plastics: The introduction and promotion of the use of reusable fabric bags, together with the standardization of the size and weight of plastic bags, has allowed Walmart Centroamérica’s regional operations to save a total of 327,242 kg of plastic resin during 2009.
4) Develop and sell sustainable products. Growing our catalog with environmentally-friendly products continues to be a priority. At Walmart de México we work together with our suppliers to promote the development of sustainable products. Furthermore, we drive sales through social awareness campaigns with our customers. • We continue looking for and developing products that help us protect the environment. • This year we presented the eco-friendly version of our Great Value private label, called Great Value Terra, which includes 5 products in so far: multipurpose cleaning product, multipurpose powder detergent, toilet cleaner, tar removal cleaner, and garbage bags. • With the celebration of Earth Month, during April, we launched an awareness campaign together with our suppliers, inviting Mexicans to adopt shopping habits that help preserve our
Page 25 of 85 planet by buying sustainable products, such as: organic, recycled, nonpollutant, biodegradable and water or energy saving products. This environmental awareness campaign is part of the Sustainability Agreement signed in 2007 with the Secretary of the Environment and Natural Resources (Semarnat), aligned with Walmart de México’s commitment to increase the amount of eco-friendly products in its catalog, which, to date, represent over 1,096 products. Year after year, Walmart Centroamérica stores add new products that save resources and the environment. Articles using less packaging and/or using recycle materials are promoted as well. Also, all of the general consumption products participating in Earth Month 2009 had to present evidence demonstrating their environmentally-friendly nature. In perishables, offers organic vegetables and promotes the development of hydroponic agriculture, which drastically reduces the use of fertilizers, agro-chemicals and water. Lettuces and other hydroponic produce is regularly sold at its stores. In seafood, 60% of the production for Costa Rica comes from fish farms. Endangered species are not sold and seasonal restrictions are respected in Central America. Within this framework, and seeking to more effectively integrate sustainability in its operations, Walmart Centroamérica launched its “Sustainability for a Better World” program in 2009. This proposal promotes the performance of actions in line with the Company’s sustainability objectives and is centered on efforts that generate the greatest impact for the benefit of the environment and the community. In 2009, with the aim of reinforcing its path towards sustainability, Walmart took on new commitments: • Started selling only concentrated detergent in its US store. • Committed to a 70% reduction in phosphates used in laundry and dishwashing detergents in the Americas region in 2011. • Announced a 5% reduction in packaging in Latin America by the end of 2013, with the aim of offering more sustainable packaging. • Will develop a Sustainable Products Index on a global level. This index will allow us to know which products are the most efficient, most effective, and the best for the people and the planet. This initiative consists of three stages. The first stage is in development, and consists of a 15 question survey of the over 100,000 Walmart suppliers around the world. These questions focus on four important areas: - Energy and Climate: Reduction in the use/cost of energy and in greenhouse gas emissions. - Efficiency of Materials: Reduction in waste and an improvementin quality. - Natural Resources: Responsible use of high-quality raw materials. - People and Community: Production of goods in an ethical and responsible manner.
VIII) MARKET INFORMATION Walmart de México is a publicly-held retail company that operates self-service stores, membership wholesale clubs, apparel stores, restaurants and bank. Walmart de México competition consists of: • Establishments with a sales area of more than 6,458 square feet, three or more exit lanes and scanning technology, as well as independent self-service stores with one or two exit lanes an a sales area no greater than 6,458 square feet, such as: Soriana, Comercial Mexicana, Fresko, Chedraui, Casa Ley, Futurama, San Francisco de Asis, HEB, Almacenes Zaragoza, Casa Chapa, Central Detallista, Comercial V.H., among others. • Convenience stores, opened 15 or more hours a day, such as: Oxxo, 7 Eleven, Extra, Super 7, Mode, Super Rapiditos, Bip-Bip, Mercados Mexicali, Super Flash, Super K, Super Deli, Supers del Río, Super Tiendas del Hogar, Super Fiesta, Círculo K, Super Dos, Comextra, JV, Matador, On the Run, Super Tip, etc. • Apparel and specialized stores, such as: Coppel, El Palacio de Hierro, El Puerto de Liverpool, Sears Roebuck, Sanborns Hermanos, Famsa, Elektra, Home Depot, Office Max, Office Depot, Zara, Radio Shack, Singer, Deportes Marti y Best Buy.
Page 26 of 85 • Membership warehouse clubs, such as: Costco, City Club and Chesuma. • Establishments operated by public agencies, such as: ISSSTE, UNAM, etc.
As of December 2009, ANTAD membership included 93 retail chains with 17,136 stores, of which 2,815 are self-service, 1,365 are apparel and 12,956 specialized chains. Its installed capacity reached 187.3 million square feet and through out 2009 posted sales for $839.6 billion pesos.2 Nevertheless, a major part of the population in our country customarily shops in traditional establishments, such as municipal markets, open-air markets, grocery stores and mom-and-pop businesses, or through the informal sector of the economy. Both maintain a high market share since they are able to supply populations that, due to mere numbers, cannot access other establishments. Growth, systems, logistics and distribution investments are focused on increasing and modernizing our installed capacity and distribution. This leads to a more efficient operation, with lower costs, allowing us to serve our customers better every day. Walmart de México maintains its position within the industry by maintaining the competitive advantages. On the other hand, Walmart Centroamérica is a retail chain, which primarily operates self-service units throughout five countries in the region. The market where it competes is described as follows: • Supermarkets with over 13,993 square feet of sales floor, with three or more lines of cash registers, developed scanning technology, as well as mini-supermarkets, which are independent self- service units with one or two lines of cash registers, and a maximum of 3,983 square feet of sales floor. Among them are retail chains such as La Torre (Guatemala), La Colonia (Honduras), Súper Selectos (El Salvador), La Colonia (Nicaragua), Perimercados, Auto Mercados, Súper Compro, Jumbo (Costa Rica), and Price Smart (clubs in Costa Rica, Guatemala, El Salvador, Honduras, and Nicaragua), among others. • Department and specialty stores such as Carrion, Siman, Cemaco, EPA, Monolit, ACE, Grupo M, Elektra, Curacao, Bullock’s and Pequeño Mundo. The formal market in the five countries where Walmart Centroamérica operates is estimated at having 6,000 supermarkets and mini-supermarkets, 8,900 pharmacies, 1,000 general merchandise stores and large category killers, and 15,000 small-sized stores. According to estimates, the formal market represents 34% of the total retail market. The region has a strong informal market that represents 66% of the retail market. This market includes traditional establishments such as municipal markets, flea markets, grocery stores, second-hand clothing, and general merchandise, in addition to a large number of street vendors. Both sectors have considerable market share as they are able to supply communities that, due to mere size, restrict the entry of other establishments. The investment made by Walmart Centroamérica in growth, systems, logistics and distribution are meant to increase and modernize both installed capacity and distribution, thus resulting in a more efficient operation, reduced costs and ever improving service for its customers.
IX) CORPORATE STRUCTURE
Wal-Mart de México S.A.B. de C.V., is listed in the Mexican Stock Exchange whose major shareholder is Wal-Mart Stores, Inc., through Intersalt, S. de R.L. de C.V. one of its subsidiaries, holding 69.6% of the shares. As of December 31, 2009, the company’s market value was $491.7 billion pesos.
2 Source: ANTAD (Media report 2010)
Page 27 of 85 WALMEX has a 99.9% equity interest in the following groups of companies:
Group Line of business Nueva Walmart Operation of 684 (442 in 2008) Bodega Aurrerá discount stores, 169 (153 in 2008) Walmart hypermarkets, 98 (91 in 2008) Sam’s Club membership self- service wholesale stores and 69 (67 in 2008) Superama supermarkets. Suburbia Operation of 86 (84 in 2008) Suburbia stores with apparel and accessories for the entire family. Vips Operation of 266 (267 in 2008) Vips restaurants serving international cuisine, 93 El Porton restaurants serving Mexican food, and 7 Raggazi restaurants specializing in Italian food during both years. Comercializadora Import of goods for sale. México Americana Real estate Real estate developments and management of real estate companies. Services companies Rendering of professional services to Group companies, not-for-profit services to the community at large and shareholding. Walmart de México Operation of 190 (38 en 2008) bank branches. Bank Walmart Operation of 377 discount stores (Despensa Familiar and Palí), 92 Centroamérica supermarkets (Paiz, La Despensa de Don Juan, La Unión and Más x Menos), 16 hypermarkets (Hiper Paiz and Hiper Más), 32 discount warehouses (Maxi Bodega), and 2 ClubCo membership self-service wholesale stores.
WAL-MART STORES, INC.
Wal-Mart Stores, Inc. American Society, through Intersalt, S. de R.L. de C.V., Mexican Society, one of its subsidiaries, is the majority shareholder for Wal-Mart de México, S.A.B. de C.V. As of January 31, 2010, Wal-Mart Stores, Inc. operated 8,422 commercial units throughout the world, of which 4,304 are in the United States, 1,475 in Mexico3, 371 in the United Kingdom, 317 in Canada, 56 in Puerto Rico, 279 in China, 434 in Brazil, 371 in Japan, 252 in Chile, 1 in India and 43 in Argentina. In February 2010, Walmart de México acquired 100% of Walmart Centroamérica´s operatation, with 519 units throughout Central America, of which 170 are in Costa Rica, 77 in El Salvador, 164 in Guatemala, 53 in Honduras and 55 in Nicaragua. Since February 1, 2010, Walmart and Sam´s Club stores in Puerto Rico became part of the U.S. corresponding segment. Sales for Wal-Mart Stores, Inc. during the last fiscal period amounted to $405 billion dollars, an increase of 1.0% over the similar prior year period. Walmart Stores common stock is listed on the New York and Pacific Stock Exchanges under ticker symbol WMT.
3 Includes 6 Vips franchises
Page 28 of 85 X) DESCRIPTION OF MAIN ASSETS
As of December 31, 2009, our cash ($ 19.5 billion pesos), inventories ($ 22.5 billion pesos) and fixed assets such as real estate, stores, restaurants, distribution centers, fixtures and equipment ($ 84.9 billion pesos). We must point out that cash represents 14.6% of our assets, is wisely and carefully invested following highly conservative standards, and always based on security, liquidity, and yield criteria established by our Treasury Committee, in that order of importance. Some of the units are owned and others are leased. Fixed assets are formed by business units, as described:
Description by Business Format Sales area Format Description Units (square feet) Mexico Bodega Aurrerá Austere discount stores 684 16,794,317 Walmart Supercenters 169 14,769,014 Sam's Club Membership warehouse clubs. 98 7,841,264 Superama Supermarkets 69 1,219,310 Suburbia Apparel stores 86 3,839,584 4 Vips Restaurant chains. This division includes 366 83,542 Vips, el Porton, and Ragazzi restaurants. Walmart Bank Universal banking institution aimed at 190 N/A Walmart de México customers, with an initial offering of basic banking and financial products and services. Central America Despensa Familiar y Palí Discount stores. 377 1,911,363 Paiz, La despensa de Supermarkets. 92 1,385,391 Don Juan, La Unión and Más x Menos Hiper Paiz and Hiper Hypermarkets. 16 1,017,381 Más MaxiBodega Discount warehouses. 32 582,451
ClubCo Membership warehouse clubs. 2 79,578
WALMART DE MÉXICO Y CENTROAMÉRICA GROWTH PLAN
Mexico and Central America offer considerable growth opportunities, since they have almost 1085 and 406 million inhabitants respectively, with a market value of $241 million dollars. In Mexico, 40% of the population is below the age of 21, and 28.4% under 15 years of age5, and in the Central American countries where Walmart is present, 46.8% is below the age of 21, and 36.0% under
4 Seats 5 Source: National Population Committee (CONAPO) – Projections of Mexico’s population 2005-2050 6 Source: Boletín Observatorio Demográfico No. 3: Proyección de Población. CELADE (April 2007)
Page 29 of 85 15 years of age6. It is worth mentioning that 1/3 of the Central American population lives in Guatemala. Our multi-format operation enables us to serve practically all income levels in Mexico and Central America and meet their different buying needs, either for use at home or outside the home. Going one step further, we have developed different prototypes within the existing formats, thus allowing us to efficiently serve different types of communities. These strategies have served to increase the number of cities with potential for one or more units of our different formats to 640; of these, there are still 300 communities where we are not present. We will continue investing in growth and productivity. The growth plan for the next 12 months considers the opening of 300 operating units in Mexico and 30 in Central America; we estimate an 11% growth in installed capacity for Walmart de México and a 3.5% for Walmart Centroamérica. This will require an investment of over $ 12.5 billion pesos for Mexico.
XI) LEGAL, ADMINISTRATIVE OR ARBITRATION CASES
There are currently no cases of this type that could substantially affect the operation of the corporation.
XII) REPRESENTATIVE SHARES OF CAPITAL STOCK
As of December 31, 2009, 2008 and 2007, nominal capital stock was as follows:
Capital Stock Thousand pesos 2009 2008 2007 Fixed Ps. 1,844,173 Ps. 1,844,173 Ps. 1,631,224 Variable 12,525,307 12,625,520 11,270,607 Total Ps.14,369,480 Ps.14,469,693 Ps.12,901,831
On February 11, 2010, the Board of Directors agreed to the splitting of two new shares for every share on the market. Said split was done on April 23, 2010, handing in each share with coupon 49 in the market. Capital stock at December 31, 2009, 2008 and 2007 consisted of the following registered shares with no par value:
Stock Structure Number of shares Series 2009 2008 2007
Serie “V” free subscription common shares 16,752,528,446 16,869,360,846 16,946,570,372
Page 30 of 85 XIII) DIVIDENDS During recent years the Company has decreed dividend payments in stock or in cash, to be decided by each shareholder.
Dividend payments
Decided by each shareholder In stock Cash One stock for each: 2006 Ps. 0.19 160.10 2007 0.26 178.74 2008 0.30 154.24 2009 0.31 -
As a result of 2009’s dividend payment, $ 5.0 billion pesos were paid in cash. The Company intends to continue paying yearly dividends, the amount of which will depend upon growth opportunities, the economic situation, and the competitive environment, among other factors.
RELEVANT MATTERS SUBSEQUENT TO THE CLOSE OF THE FISCAL YEAR • On February 11, 2010, the Board of Directors for Walmart de México agreed to have a new split of two new shares for each existing share. The split took place con April 23, 2010 upon receipt of coupon 49. • On February 15, 2010 the acquisition of Walmart Centroamérica was completed. With to the merger of both companies, $1.4 billion pesos were paid and 1,207,937,278 shares were issued.
Stock Situation as of May 12, 2010 Millions of % Shares Intersalt, S. de R.L. de C.V. 12,218 68.3 Personnel Stock Option Plan Fund 289 1.6 Subtotal 12,507 69.9 Market 5,393 30.1 Total 17,900 100.0
• The Annual Shareholders Assembly of Wal-Mart de Mexico S.A.B. de C.V. took place on March 11, 2010 where among other concepts, the following were approved: − Grant a dividend payment allowing each shareholder in cash payment of Ps. 0.35 per share. − As a result, cash payment was granted for a total of $ 5.8 billion pesos.
Page 31 of 85 3) FINANCIAL INFORMATION
A) SELECTED FINANCIAL INFORMATION
Millions of pesos
2009 2008 2007 2006 2005 GDP (Growth, %) ( 6.5) 1.3 3.2 4.9 3.1 Annual Inflation (%) 3.6 6.5 3.8 4.1 3.3 Peso Devaluation (%) ( 4.5) 25.5 0.8 1.7 ( 4.7) Average Exchange Rate 13.4 11.2 10.9 10.9 10.9 Year-end Exchange Rate 13.1 13.7 10.9 10.8 10.6 Average Interest Rate (28 Day Cetes,%) 5.4 7.7 7.2 7.2 9.2 RESULTS NET SALES 269,397 244,029 219,714 193,969 161,423 % of growth total units 10 11 13 20 18 %of growth comp units 3 5 6 10 10 OTHER INCOME 1,054 888 787 711 640 % of growth 19 13 11 11 10 TOTAL REVENUES 270,451 244,917 220,501 194,680 162,063 % of growth 10 11 13 20 18 GROSS PROFIT 58,600 53,284 47,751 42,032 34,540 % of profit margin 21.7 21.8 21.7 21.6 21.3 GENERAL EXPENSES 36,332 33,533 29,428 26,237 22,480 % of total revenues 13.4 13.7 13.3 13.5 13.9 OPERATING INCOME 22,268 19,751 18,323 15,795 12,060 % of total revenues 8.2 8.1 8.3 8.1 7.4 % of growth 13 8 16 31 29 EBITDA 26,915 23,887 21,973 19,019 15,109 % of total revenues 10.0 9.8 10.0 9.8 9.3 COMPREHENSIVE FINANCING INCOME 662 474 1,468 1,378 1,369 INCOME BEFORE INCOME TAX 23,018 19,857 19,536 17,119 13,110 INCOME TAX 6,212 5,184 5,574 4,943 3,796 NET INCOME 16,806 14,673 13,962 12,176 9,314 % of growth 15 5 15 31 21 FINANCIAL POSITION CASH 19,483 11,350 8,984 14,985 14,161 INVENTORIES 22,520 22,808 20,883 18,058 14,098 OTHER ASSETS 6,243 5,020 5,355 4,370 3,124 FIXED ASSETS 84,893 79,286 71,522 61,449 53,396 TOTAL ASSETS 133,139 118,464 106,744 98,862 84,779 SUPPLIERS 30,378 27,005 25,381 25,864 20,429 OTHER LIABILITIES 19,613 17,183 15,179 13,502 12,549 SHAREHOLDERS’ EQUITY 83,148 74,276 66,184 59,496 51,801 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 133,139 118,464 106,744 98,862 84,779
NUMBER OF UNITS Bodega Aurrerá 684 442 313 258 203 Walmart 169 153 136 118 105 Sam’s Club 98 91 83 77 69 Superama 69 67 64 60 55 Suburbia 86 84 76 62 53 Restaurants Vips1 366 367 355 318 298 TOTAL 1,472 1,204 1,027 893 783 Walmart de México Bank Bank Branches 190 38 16 - - OTHER INFORMATION AT THE END OF THE YEAR Number of Associates 176,463 170,014 157,432 141,704 124,295 Share Price2 (pesos) 29.35 18.50 18.85 23.78 14.76 Number of Outstanding Shares2 (millions) 16,753 16,869 16,947 17,145 17,292 Market Value 491,671 312,095 319,347 407,684 255,143 Earnings per Share2 (pesos) 1.000 0.866 0.817 0.705 0.532 Payment of Dividends 5,040 4,902 4,313 3,223 2,708 Number of Shares Repurchased2 (millions) 116 152 288 306 410 Investment in Share Repurchasing Operations 2,509 2,869 6,065 4,842 4,663
1 Including Franchises 2 Adjusted according to split conducted in April 23, 2010
Page 32 of 85 B) FINANCIAL INFORMATION BY LINE OF BUSINESS AND GEOGRAPHICAL REGION
As of December 31, 2009, Mexico had 1,472 operating units, representing 44,463,489 square feet of sales floor and 83,542 restaurant seats. Central America had 519 operating units, representing 4,976,164 square feet of sales floor.
Shares in sales by business format in Mexico 2009 2008 2007 Bodega Aurrerá 36% 34% 33% Walmart 28% 28% 28% Sam’s Club 26% 27% 27% Superama 5% 5% 5% Suburbia 3% 4% 4% Vips 2% 2% 3% Net sales (million pesos) Ps. 269,397 Ps. 244,029 Ps. 219,714
Shares in sales by business format in Central America 2009 Discount Stores 44% Supermerkets 26% Hypermarkets 21% Discount warehouses 8% Clubs 1% Net sales (million of dollars) $ 3,303
The geographical breakdown of the business units for México and Central America is as follows:
Breakdown of units by geographical region in Mexico 2009 2008 2007 Metropolitan Area 40.4% 37.6% 37.7% Center 27.9% 29.4% 29.4% Northeast 6.5% 5.5% 5.6% North 5.4% 5.6% 5.4% Northwest 5.2% 5.6% 5.5% Southeast 9.9% 11.3% 11.4% Southwest 4.7% 5.0% 5.0% Total Units 1,472 1,204 1,027
Page 33 of 85 Breakdown of units by geographical region in Central America
2009 Costa Rica 32.8% Guatemala 31.6% El Salvador 14.8% Nicaragua 10.6% Honduras 10.2% Total Units 519
As of December 31, 2009, the installed capacity for the company by geographical region is as follow:
Breakdown of units by geographical region and by business format in Mexico Self-service + Units Suburbia Vips Metropolitan area 596 37.7 % 49.0 % Center 410 29.8 % 21.9 % Northeast 96 7.1 % 4.9 % North 80 5.9 % 4.1 % Northwest 76 5.3 % 4.6 % Southeast 145 9.2 % 11.7 % Southwest 69 5.0 % 3.8 % 1,472 44,463,489 83,542 Total square feet restaurant seats
Breakdown of units by geographical region and by business format in Central America Unit Self-service Costa Rica 170 34.5 % Guatemala 164 36.3 % El Salvador 77 14.3 % Nicaragua 55 5.2 % Honduras 53 9.7 % Total 519 4,976,164 square feet
Page 34 of 85 C) MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
I) OPERATION RESULTS
SALES Total sales for 2009 amounted to $269.4 billion pesos, $25.4 billion pesos more than the previous year. This represented an increase of 10.4%. Throughout the year we opened 275 units among our different business formats, increasing the sales floor by 10.6%. This increase contributed considerably to the growth in total sales, as did the performance by our stores in operation over a year, which recorded 3.4% growth in sales, as compared to figures posted for 2008. This was also a year in which we better served our customers and adapted to their shopping needs. Prices were reduced aggressively and consistently, placing greater emphasis on those departments and products most important to our customers. With these decisions, a powerful and transparent price message was sent. Our value propositions for the different business formats were reinforced, thus increasing customer loyalty. In addition, customer traffic to our stores, clubs and restaurants increased by 13.8% as compared to the previous year, and 3.3% in units in operation over a year. The average ticket increased 0.1% in our stores in operation over a year. This is a clear reflection both of the economic situation that caused less discretionary spending, and of our aggressiveness in prices. Our sales mix for self-service performed better than that reported for WALMEX, with an increase of 3.9% in our stores in operation over a year. The increase in customer count for self-service was also better than that reported for WALMEX. Both our totals as well as our comp sales were clearly above market growth. Unlike previous crisis faced by our country, this was a year in which we gained market growth share from the informal market. The percentage of sales for all our formats is as follows:
Business Format % Sales Share Bodega Aurrerá 35.6 Walmart 27.8 Sam’s Club 26.5 Superama 4.9 Suburbia 3.3 Vips 1.9
GROSS MARGIN Our gross margin was 21.7%, some 10 basis points lower than that posted in 2008, despite price aggressiveness and the change in share of total sales by the different business formats, as was the case of Suburbia and Vips, whose gross margin was greater than that of the self-service businesses.
GENERAL EXPENSES General expenses increased 8.3%. This compares positively with the 10.4% increase in sales and the 11.1% growth in average installed capacity. These results stem from our passion for productivity and for the constant search for greater efficiency. New heights were reached in logistics, associate productivity, and energy savings, among others.
Page 35 of 85 EARNINGS PER SHARE Net income increased 14.5% throughout the year, whereas earnings per share grew 15.4%. This differential was brought about by our ongoing program for the repurchase of shares. A total of 116.8 million shares were repurchased during 2009.
II) FINANCIAL SITUATION, LIQUIDITY AND CAPITAL RESOURCE
BALANCE
CASH AND CASH EQUIVALENTS
Our cash position at closing 2009 amounted to $19.5 billion pesos, $8.1 billion pesos more than the previous year, even after having invested $9.7 billion pesos in fixed assets, repurchased shares in the amount of $2.5 billion pesos, and paid a cash dividend of $5.0 billion pesos. Cash is invested in short-term debt securities. The Company neither conducts transactions with derivatives, nor does it invest in the stock market. The Company has not conducted any transactions not recorded in the Financial Statements. Our cash generation and sound finances allowed us to invest aggressively in prices, open 275 new stores throughout 2009, remodel existing units, in addition to paying dividends and repurchasing own shares.
USES OF CASH • Investment in Fixed Assets: We continue reinvesting our earnings in projects that allow us to modernize our operating structure, from information systems to logistics networks and the renovation of our stores, clubs and restaurants, including the opening of new and profitable stores. Over the course of the last five years, we have invested $49.2 billion pesos in fixed assets, thereby representing the reinvestment of 85% of our earnings. • Dividends: We have consistently paid dividends, offering the choice of receiving payment in cash or in stock, so that our shareholders who so desire may have the opportunity to participate in our growth. The following chart shows the dividends paid during the last four years (with values adjusted by the split conducted in 2010).
Year 2006 2007 2008 2009 Dividend Per share (pesos) Ps. 0.19 Ps. 0.26 Ps. 0.30 Ps. 0.31 % of earnings for the previous year 35% 35% 35% 34% Choice for the One share for One share for One share for shareholder every 160.10 every 178.74 every 154.24 shares owned shares owned shares owned - % of shareholders that requested dividends in shares 75% 48% 35% - Cash spent (millon of pesos) Ps. 793 Ps. 2,236 Ps. 3,208 Ps. 5,040
• Repurchase of Shares: The shareholders authorize the maximum amount available for the repurchase of shares. Repurchased shares are subtracted from the equity of its theoretical value at the moment of repurchase and are formally cancelled during the Shareholders’ Annual Meeting. The following chart shows the investment in the repurchase of shares during the last four years (with values adjusted from the split conducted in 2010).
Program Repurchased shares Invested amount (millions) (millions of pesos)
Page 36 of 85 2006 306 Ps. 4,842 2007 288 Ps. 6,065 2008 152 Ps. 2,869 2009 116 Ps. 2,509
WORKING CAPITAL
In 2009, the Company continued operating with negative working capital requirements, which has historically allowed for the self–financing of growth and modernization. The inventory balance as of December 31st amounted to $22.5 billion pesos, which was financed by accounts payable to suppliers totaling $30.4 billion pesos. By year-end, inventory levels dropped by 1.3%, whereas accounts payable to suppliers increased 12.5%.
PROFITABILITY
In 2009, the Return on Capital Employed (ROCE) was 28.1%, that is, 110 basis points higher than the previous year. The Return on Equity (ROE) for the year was 24.5%, some 60 basis points greater than that obtained last year.
WALMEX SHARE
Stock yield for 2009 was 59%, which compares favorably to the 43% generated by the Mexican Stock Exchange Index. Since we began operations in the stock market some 33 years ago, we have always been one of the most consistent and professionally managed companies, always respectful of our minority shareholder rights. These sound corporate governance practices, together with the results obtained from the operation of the company, have allowed us to become the second most important company in the Mexican Stock Exchange Index and one of the top four in marketability on the Mexican exchange.
III) INTERNAL CONTROL Having the highest regulation standards and an appropriate control atmosphere is fundamental to achieving the objectives established by Walmart de México. The company’s internal control assures: • Assets safety • Compliment of established policies • Proper operations registry • Reliable and timely information • Prevention, identification and detection of frauds The control of our operation is supported in several administrative systems in order to comply with fiscal requirements and obtain detailed information. Our control processes are dynamic, continuously adapting to the changes in our environment: 1. Policies and procedures • Restrictive regulatory environment 2. Accounting control • Account catalog • Accounting guidelines and allocation of balance accounts
Page 37 of 85 • Monthly conciliations and exception reports 3. Duties segregation As a Public Corporation, Walmart de México operates with the Corporate Best Practices • Ethics Code • Board of Directors integrated in terms for Securities Market Law • Audit Committee • Executive Committee • Corporative Practices Committee • Financial transparency and communication of relevant information • Open-door policy; any associate can inform irregularities to higher hierarchy levels • The company adopted the Sarbanes-Oxley law for its main Balance Sheet and P&L accounts. No significant gaps in internal control have been found.
D) CRITICAL ACCOUNTING POLICIES
We follow Mexican Financial Reporting Standards in preparing our financial statements. These principles require us to make certain estimates in some of the items. However, we do not have any Critical Accounting Policies.
Page 38 of 85 4) ADMINISTRATION
A) INDEPENDENT AUDITORS
The Consolidated Financial Statements for the company and its subsidiaries as of December 31 of each year have been audited by Mancera, S.C., a member of Ernst & Young Global since 1998, and there were no adverse comments for any of the periods audited. Approval of the Independent Auditor is the sole domain of the Board of Directors for WALMEX, after receiving the opinion of the Audit Committee. The fees paid in 2009 to the Independent Auditor amounted to $ 16.4 million pesos for auditing and other services rendered.
B) OPERATIONS WITH RELATED PARTIES AND CONFLICTS OF INTEREST
There are operations conducted with Wal-Mart Stores, Inc., and other related parties. These consist of the purchasing of merchandise and the payment of services and royalties. Accounts payable to suppliers and other accounts payable include the following balances owed related parties:
Accounts payable due to related parties as of December 31, 2009 2008 2007 Accounts payable to suppliers: C.M.A. – U.S.A., L.L.C. (affiliated company) Ps. 467,582 Ps. 715,474 Ps. 784,902 Global George, L.T.D. (affiliated company) 5,320 5,290 - Ps. 472,902 Ps. 720,764 Ps. 784,902 Other accounts payable: Wal-Mart Stores, Inc (holding company) Ps. 363,229 Ps. 329,641 Ps. 312,458 Global George, LTD. (affiliated company) 33,065 22,582 - Ps. 396,294 Ps. 352,223 Ps. 312,458
During the fiscal periods that ended on December 31st, the following operations were conducted with related parties:
Operations with related parties as of December 31,
2009 2008 2007 Imported merchandise for sale Ps. 2,717,272 Ps. 3,930,879 Ps. 4,812,824 Technical assistance, services and royalties Ps. 1,539,110 Ps. 1,350,920 Ps. 1,226,543
During the year ended December 31, 2009, the Company paid its primary officers compensations aggregating Ps. 480,635 (Ps.418,185 in 2008). Such compensation is primarily comprised of direct short-term benefits as defined in Mexican FRS D-3.
Page 39 of 85 C) ADMINISTRATORS AND SHAREHOLDERS
The structure and responsibilities of the Board of Directors, our Code of Ethics and in general all the activities performed by our company follow good corporate governance best practices. Board of Directors Our Board of Directors is charged with overseeing the management of the business. Composition • All the members are appointed on a yearly basis by the shareholders at the annual meeting • Independent Directors must comprise a minimum of 25% of the total number of Board Directors • Minority shareholders whose shares represent at least 10% of total owners’ equity shall have the right to appointa Director and the corresponding Alternate, neither may be removed until the other members of the Board ofDirectors are also removed • The Board meets a minimum of four times a year Primary Responsibilities • Choosing the Chief Executive Officer • Acting as consultant/counsel for Company top management • Working actively with the CEO to develop general corporate strategies for the Company and any organizations the Company controls • Overseeing the performance of Company Officers • Approve all information policies and communication with shareholders and the market Other Practices • The duties of Chairman of the Board of Directors and of the CEO are kept separate • The Board evaluates the performance of each Director • Independent Directors have experience in the line of business of the Company • The Board has access to independent consultants • The Chairman of the Board is forbidden from acting as Secretary or presiding over Board committees The Board of Directors has three committees, whose duties include detailed analysis of matters pertaining to its sphere of action and making suggestions to the Board so it may study the information and make the decision most suitable to creating the best possible value for all the shareholders.
Audit Committee There are three Directors, all of them independent. Included among the primary responsibilities are appointing the Independent Auditor for the Company; establishing the fees; overseeing internal controls and ensuring they meet all applicable legal and accounting regulations; and reviewing related-party transactions conducted by the Company. The Audit Committee is also empowered to review Financial Statements to ensure they reflect a true and accurate overview of the financial situation of the Company. This Committee has the necessary procedures to receive, keep and respond to all complaints regarding accounting practices and controls, and all audit-related matters. There is a system in place that protects the anonymity of any and all persons who make complaints regarding accounting issues. The Audit Committee is authorized and has the resources needed to retain legal counsel and any other outside consultant service required to meet its obligations. The following are Audit Committee practices: • All Audit Committee members are Independent Directors • All members have experience in finance
Page 40 of 85 • Independent auditors are not allowed to perform consultancy services for the Company • The partner from the Independent Audit firm who renders an opinion on Financial Statements for the Company must be periodically changed • The Audit Committee holds private meetings and receives periodic reports from Internal Audit, Legal and Compliance, and Ethical Behavior
Corporate Practices Committee There are three Directors, all of them independent. The purpose of this committee is to reduce potential risks of conducting transactions that could compromise Company assets or that could favor a specific group of shareholders. Its primary responsibilities are: • Approving policies that govern the use and possession of Company assets • Authorizing related-party transactions, total compensation for the CEO, and all policies regarding total compensation for top management • Assisting the Board of Directors in its duty to produce reports on accounting practices • Calling shareholder meetings and including all pertinent matters in the order of business for the meeting Members of the Audit and Corporate Practices Committee: Martha Miller 7 Blanca Treviño 7 Ernesto Vega 7
Executive Committee There are three Directors. Among their duties is that of strategic planning for the Company. Executive Committee Members: Doug McMillon Scot Rank Eduardo Solórzano
7 Independent Director
Page 41 of 85 Code of Ethics For Walmart de México, honesty and integrity continue being non-negotiable core values, and we always ensure that they permeate and govern all our activities. The following are some of the primary points covered in our Code of Ethics: • Open-door policy • Supplier relations • Non-discrimination • Conflicts of interest • No gifts and gratuities • Privileged information • Health, safety and the environment • Inappropriate behavior • No repercussions • Financial investments • Fair trade practices • Financial integrity • Anticorruption • No political involvement • International trade Walmart de México’s Ethics and Compliance area, which reports to the Senior Vice President of Legal and Compliance, is charged with communicating and fostering observance of our ethical behavior policies and corporate governance, and strict adherence to the statutes governing our Company. The Audit Committee periodically receives reports from this area. Each year we reply and send to the Mexican Stock Exchange the Code of Corporate Best Practices, which is available on the institution’s website.
Page 42 of 85
Board of Directors, as of March 11, 2010
CHAIRMAN Eduardo Solórzano Board member since 2000
DIRECTORS SECRETARY Ann Bordelon Jose Luis Rodriguezmacedo Board member since 2009
ALTERNATE SECRETARY Susan Chambers Enrique Ponzanelli Board member since 2006
CORPORATIVE PRACTICES COMMITTEE David Cheesewright 9 Board member since 2009 Ernesto Vega , Chairperson 9 Blanca Treviño 9 Wan Ling Martello Martha Miller Board member since 2006 AUDIT COMMITTEE Rafael Matute Ernesto Vega9, Chairperson Board member since 1998 Blanca Treviño9 Martha Miller 9
Doug McMillon Board member since 2009 EXECUTIVE COMMITTEE
Doug McMillon, Chairperson Salvador Paiz 8 Board member since 2010 Eduardo Solórzano
Scot Rank
Scot Rank Board member since 2009
Blanca Treviño9 Board member since 2006
Ernesto Vega9 Board member since 2001
ALTERNATE DIRECTORS Antonio Echebarrena9 Board member since 2006
Renzo Casillo Board member since 2009
José Ángel Gallegos Board member since 2004
Marc N. Rosen Board member since 2001
8 Independent Director
Page 43 of 85 Board of Directors
EDUARDO SOLÓRZANO (CHAIRMAN) President and CEO, Walmart Latin America 20 years of experience in the Company Member of the Board for Walmart de México, since 2000 Born in Managua, Nicaragua in 1957. He has a degree in Economics from the Monterrey Institute of Technology, with a Master’s Degree in Economics from the University of the Americas. Since he joined Walmart de México, from 1989 to 1994, Eduardo held several management positions in Operations, Merchandising and Logistics. From 1994 to 1998 he was Commercial Director for Soriana. In 1998 he returned to Walmart and held several positions: Director of Food for Supercenter, Vice President for Supercenter, Executive Vice President and COO, and from 2005 to 2010 he was CEO for Walmart de México. In January 2010, he was appointed Chairman of the Board of the Company, as well as, President and CEO of Walmart Latin America. Additionally, he is a member of the Board of Directors for Walmart Centroamérica, for the Walmart de México Foundation and he is also a member of the advisory board for IMCO (Mexican Institute for Competitiveness).
ANN BORDELON Senior Vice President and Chief Audit Executive, Walmart Stores, Inc. 7 years of experience in the Company Member of the Board for Walmart de México, since 2009 Ann has a bachelor’s degree in accounting and computer information systems. She joined Walmart Stores, Inc. in January 2003. Ann currently serves as the Chief Audit Executive of Walmart Stores, Inc. a role she has held since June 2007. Prior to her current role, Ann was the Vice President – Finance for Walmart’s U.S. real estate division. Before joining Walmart, Ann served as Senior Manager in Ernst & Young’s Assurance and Advisory Services Business where she managed Fortune 100 clients and other clients in the retail and consumer products industry. Ann is a member of the American Institute of Certified Public Accountants, Institute of Internal Auditors and Finance Executives International. Currently, Ann is serving on the U.S. Financial Accounting Standards Board and International Accounting Standards Board Joint Working Group on Lease Accounting. Ann is also a trustee for the Delta Gamma Foundation.
SUSAN CHAMBERS Executive Vice President, People Division, Walmart Stores, Inc. 10 years of experience in the Company Member of the Board for Walmart de México, since 2006 Born in St. Joseph, MO in 1957. Susan has a bachelor’s degree in systems and data processing from William Jewell College in Liberty, Missouri. She joined Walmart Stores, Inc. in 1999. Since April 2006 she is the Executive Vice President for the People Division at Walmart Stores, Inc. Susan is on the Kansas State University Business Advisory Board, the Advisory Council for Women Impacting Public Policy, and Leadership Council for New America Foundation. She is a board member of Arvest Bank.
Page 44 of 85 DAVID CHEESEWRIGHT President and CEO, Walmart Canada 10 years of experience in the Company Member of the Board for Walmart de México, since 2009 Born in Beaconsfield, England in 1962. He has a First Class Bachelors’ degree in Mathematics and Sports Science from Loughborough University. Cheesewright took his current position in February 2008, following a term as Chief Operating Officer of ASDA, and a prior term as Chief Operating Officer of Walmart Canada in 2004 and 2005. His career spans more than 20 years in the retail and manufacturing sectors. He joined ASDA in 1999 and held leadership positions in operations, merchandising, logistics, strategy, and format development. Prior to his career with ASDA, Cheesewright held a range of key positions with Mars Confectionary in the United Kingdom in sales, marketing, supply chain and manufacturing. He is member of the boards of Retail Council of Canada and Ryerson University.
DOUG MCMILLON President and CEO, Walmart International 19 years of experience in the Company Member of the Board for Walmart de México, since 2009 McMillon graduated from the University of Arkansas in Fayetteville, with a bachelor of science in business. He received his MBA in finance at the University of Tulsa. From 2006 to February 2009, McMillon served as President and Chief Executive Officer of Sam’s Club. He served as Executive Vice President of Sam’s Club Merchandising and Replenishment for three years before he was promoted to CEO. Currently, Doug is President and CEO of Walmart International, a fast-growing part of Walmart’s overall operations with more than 4,100 stores and 680,000 associates in 15 markets outside the continental United States. McMillon serves on the Executive Committee and Board of Directors for the National Chapter of Students in Free Enterprise (SIFE) and on the Board of Directors for the U.S. China Business Council. He also serves on the Dean’s Advisory Board for the Walton College of Business at the University of Arkansas and as Director Emeritus of the Sunshine School in Bentonville, Arkansas. Doug also serves on the board of Crystal Bridges, a museum of American art.
WAN LING MARTELLO Senior Vice President and CFO & Strategy, Walmart International 3 years of experience in the Company Member of the Board for Walmart de México, since 2006 Born and raised in the Philippines, Wan Ling is a Chinese American and speaks and writes multiple languages including Mandarin Chinese and Tagalog. Before she joined Walmart Stores, Inc. she was U.S. president of NCH Marketing Services, Inc. Prior to NCH, Wan Ling spent most of her career with consumer packaged goods companies. She was Corporate Controller for Borden Foods during the turn-around years when it was owned by Kohlberg Kravis Roberts & Co. She also spent 10 years with Kraft. She joined Walmart Stores, Inc. in November 2005, appointed Senior Vice President and CFO and Strategy for Walmart International. She is a Board member of Committee of 100, an International Women´s Forum and a trustee of the Museum of Chinese in America.
Page 45 of 85 RAFAEL MATUTE Executive Vice President and CFO for Walmart de México 22 years of experience in the Company Member of the Board for Walmart de México, since 1998 Born in Mexico City. He earned his degree in Industrial Engineering from the Panamerican University in Mexico City. He also has an MBA from IESE in Barcelona, Spain. He studied Top Management at IMD in Lausanne, Switzerland, and at the Chicago University Graduate School of Business. He joined Walmart de México in 1987. In 1998 he was promoted to Chief Financial Officer. He participated as member of the Advisory Board for Nacional Financiera, Banorte and Banco Nacional de México (Banamex/Citibank). Currently he is a member of the Board of Directors of Banco Walmart de México, Walmart de México Foundation and Desarrolladora Homex.
SALVADOR PAIZ Member of the Board for Walmart de México, since 2010 He obtained his Bachelors degree with honors from the Wharton School at the University of Pennsylvania, and graduated as a Martin Trust Merit Scholar MBA from the MIT School of business. He worked in the financial sector in New York, at Credit Agricole Indosuez, and Chase Capital Partners. He is President and CEO of Teculutan Investments, Inc., one of the minority shareholders of Walmart Centroamérica prior to its acquisition by Walmart de México. He is a member of the board of Grupo PDC, a private equity investment company with a portfolio of investments in several industries including waste recycling, real estate and distribution and of Central American Paper Group, a recycling paper plant. President of FUNDESA, Foundation for the Development of Guatemala; and he leads the alliance “Tecnología para Educar(TPE)”.
SCOT RANK CEO, Walmart de México 9 years of experience in the Company Member of the Board for Walmart de México, since 2009 He has two degrees –Biology and Economics- from the University of California at Davis, and an MBA from UCLA. He has 25 years of close ties with Mexico. He has ample experience in the consumer industry and the selfservice sector, having worked for Coca-Cola Company, Grupo Crisoba, the McKinsey consulting firm and Aca Joe. He joined Walmart de México in 2000, where he worked as Deputy Vice President for Bodega Aurrerá and where he was appointed Vice President six months later. In 2003, he became Senior Vice President of Self-service and oversaw all Bodega Aurrerá, Walmart and Superama units. By January 2005, he had been promoted to Executive Vice President and Chief Operating Officer, in charge of the six businesses comprising the Group. In January 2010, he was appointed CEO of Walmart de México.
Page 46 of 85 BLANCA TREVIÑO Member of the Board for Walmart de México, since 2006 Born in Monterrey, Mexico in 1959. She has a degree in Computer Science from the Monterrey Institute of Technology. She has worked for Softtek for more than 20 years. Softtek is the largest regional, private, IT service provider in all of Latin America. She co-founded Softtek and has been CEO for the same company since August 2000. Under her leadership, Softtek registered Near Shore® as a trademark –now widely used throughout the industry- to define outsourcing services provided from neighboring countries. She is a member of the Board of Directors of University de Monterrey and Tec Milenio (part of the ITESM system). She is also advisor for the government of the state of Nuevo León. In October 2007, Fortune magazine’s 50 Most Powerful Business Women named her as one of four “Rising Stars”.
ERNESTO VEGA Member of the Board for Walmart de México, since 2001 Born in Valle de Santiago, Guanajuato in 1937. He is a Public Accountant from the Autonomous Technological Institute of Mexico, with further business management studies from IPADE. He received the Rafael Mancera Ortiz award for Public Accountants. He was awarded ITAM’s “Race to the Universe” for his outstanding career. He has more than fifty years of experience in the financial sector, government agencies and private companies. From 1971 to date he has held several positions at DESC Group, where he became Vice President in charge of General Management. He is currently retired, and is an Independent Director and member of the Audit and Corporate Practices Committees for Walmart de México. He also serves on the following Boards: Grupo Aeroportuario del Pacífico, América Móvil, Impulsora de Desarrollo y el Empleo en América Latina, and Industrias Peñoles (as an alternate director).
Page 47 of 85 Senior Officers as of June 14, 2010
SCOT RANK Chief Executive Officer 50 years old and 9 years of experience in the Company
VICTORIA ÁLVAREZ MARÍA GUADALUPE MORALES Vice President, Merchandising and Integration Centroamérica Vice President, Operations, Walmart 58 years old and 28 years of experience in the Company 57 years old and 39 years of experience in the Company RAÚL ARGÜELLES GIAN CARLO NUCCI Senior Vice President, Corporate Affairs and People Division Executive Vice President and Chief Operating Officer 47 years old and 6 years of experience in the Company 40 years old and 17 years of experience in the Company MAURICIO ARNÁBAR LAURENCE PEPPING Vice President, Merchandising, Bodega Aurrerá Vice President, General Merchandising and Apparel, Self-Service 40 years old and 13 years of experience in the Company Division ÁLVARO ARRIGUNAGA 45 years old and 3 years of experience in the Company Vice President, Suburbia GUILLERMO PESCHARD 45 years old and 16 years of experience in the Company Vice President, Strategic Planning MIGUEL BALTAZAR 37 years old and 9 months of experience in the Company Senior Vice President, Walmart JOSÉ LUIS RODRÍGUEZMACEDO 57 years old and 33 years of experience in the Company Senior Vice President, General Counsel FEDERICO CASILLAS 54 years old and 6 years of experience in the Company Vice President, Finance, Banco Walmart PILAR ROJAS 48 years old and 21 years of experience in the Company Vice President, Systems GERARDO CICERO 41 years old and 15 years of experience in the Company Vice President, Legal, Real Estate MARIO ROMERO 61 years old and 35 years of experience in the Company Vice President, Distribution and Logistics DAVID DÁGER 48 years old and 6 years of experience in the Company Vice President, Centralized Negotiations JESÚS RUIZ 51 years old and 24 years of experience in the Company Vice President, Retail Development and Productivity XAVIER DEL RÍO 32 years old and 4 years of experience in the Company Senior Vice President, Real Estate Negotiations MARCOS SAMAHA 62 years old and 32 years of experience in the Company Chief Executive Officer, Walmart Centroamérica ALBERTO EBRARD 43 years old and 11 years of experience in the Company Senior Vice President, Bodega Aurrerá FARLEY SEQUEIRA 49 years old and 17 years of experience in the Company Vice President, Real Estate, Bodega Aurrerá EUGENIO EBRARD 46 years old and 17 years of experience in the Company Vice President, Merchandising, Grocery, Walmart ROBERTO SUCRE 42 years old and 13 years of experience in the Company Executive Vice President and Chief Financial Officer, Walmart XAVIER EZETA Centroamérica 55 years old and 14 years of experience in the Company Senior Vice President, Real Estate Development MAURICIO TERRAZAS 43 years old and 21 years of experience in the Company JOSÉ ÁNGEL GALLEGOS Vice President, Merchandising, Sam´s Club 43 years old and 16 years of experience in the Company EVP and Chief Officer, Business Development, Realty Admin., Logistics and Asset Protection JOSÉ LUIS TORRES 59 years old and 30 years of experience in the Company Vice President, Operations, Bodega Aurrerá SERGIO GUILLIN 51 years old and 35 years of experience in the Company Vice President, Commercial, Banco Walmart and Financial JOSÉ MARÍA URQUIZA Services Senior Vice President and Executive Officer, Banco Walmart 46 years old and 6 years of experience in the Company 51 years old and 1 year of experience in the Company JOSÉ LUIS JOSÉ ROQUE VELASCO Vice President, Operations, Sam´s Club Vice President, Administration 48 years old and 28 years of experience in the Company 48 years old and 3 years of experience in the Company MÓNICA LOAIZA MARIANO VENTURA Vice President, Internal Audit Vice President, Vips and El Portón 48 years old and 1 year of experience in the Company 41 years old and 2 years of experience in the Company RAFAEL MATUTE RODOLFO VON DER MEDEN Executive Vice President and Chief Financial Officer Senior Vice President, Sam´s Club 50 years old and 23 years of experience in the Company 47 years old and 20 years of experience in the Company IVONNE MONTEAGUDO MANUEL ZÚÑIGA Vice President, Superama Executive Vice President and Chief Operating Officer, Walmart 43 years old and 2 years of experience in the Company Centroamérica 37 years old and 12 years of experience in the Company
Page 48 of 85 No members of the Board or Executives are related to each other. No Director or Executive has significant holdings in the Company, either as individuals or as a group. The total payment made from the Company to its Directors and main Executives during the year ended December 31, 2009 amounted to $ 480.6 million pesos. The payment made by the Company to the totality of its personnel, including its main Executives but excluding its Directors, consists of a fixed part and a variable component, represented by a bonus for results, whose amount depends on accomplishing the goals stated in the Business Plan for the year in question. As of December 31, 2009, the Company had a Personnel Stock Option Plan, constituted by 288,505,354 WALMEX shares presented in the Balance Sheet of the Company at their purchase cost and restated according to the National Consumer Price Index. Said fund is to offer stock purchase programs to company Executives, pursuant to the authorization granted by the National Bank and Securities Commission and to that outlined in the company bylaws. During the period from January 1 to December 31, 2009, a total of 61,526,870 shares were assigned, and 39,272,738 shares were exercised. The Company purchased the stock necessary for this plan through the Mexican Stock Exchange. The stock holdings in the Personnel Stock Option Plan Fund represent only 1.7% of outstanding shares as of December 31, 2009. Intersalt, S. de R.L. de C.V. is the majority shareholder of Wal-Mart de México, S.A.B. de C.V., and its equity interests as of December 31, 2009 amount to 69.6% of the representative shares of the Capital Stock. The remaining shares trade freely in the Mexican Stock Exchange.
Stock Situation as of December 31, 2009 Millions of % Shares Intersalt, S. de R.L. de C.V. 11,656 69.6 Personnel Stock Option Plan Fund 289 1.7 Subtotal 11,945 71.3 Market 4,808 28.7 Total 16,753 100.0
In turn, Wal-Mart Stores, Inc. is the majority shareholder of Intersalt, S. de R.L. de C.V. Wal-Mart Stores, Inc. is a U.S. Corporation listed in the New York and Pacific Stock Exchanges; its ticker symbol is WMT.
Page 49 of 85 D) CORPORATE BYLAWS (IN FORCE AS OF MARCH 11, 2010)
1) Changed Corporate Bylaws It was reformed the five clause on the Corporative bylaws of Wal-Mart de México S.A.B de C.V. in order to modify the amount of the Capital stock shall be variable with a fixed minimum of FIVE BILLION, FIVE HUNDRED AND SEVENTY-FOUR MILLION, EIGHT HUNDRED THOUSAND, SEVEN HUNDRED AND THIRTY Mexican Pesos, without the right to withdrawal, represented by Two billion, three hundred and five million, three hundred and fifty-seven thousand eight hundred and eighty-eight series “V” shares. 2) Corporate Bylaws
CHAPTER ONE NAME, ADDRESS, PURPOSE, AND TERM ONE.- The Corporation is to be named WALMART DE MÉXICO. This name shall be employed always followed by the words SOCIEDAD ANONIMA BURSATIL DE CAPITAL VARIABLE, or with its abbreviation S.A.B. DE C.V. TWO.- The legal domicile for the company shall be in Mexico City, Federal District, but representations or branch offices may be established or conventional domiciles may be stipulated in any other place within the Republic of Mexico or abroad. THREE.- The purpose of the corporation is: 1. To build, acquire, or transfer property and use it, transfer it and lease it, and in general conduct any operation allowed by law with regards to said property. 2. Establish and use, lease out or be leased, purchase or transfer by means of any negotiable instrument, one or more businesses such as those known as stores, department stores, supermarkets, restaurants, Cafes, cafeterias, soda fountains or similar establishments, as well as any other business whose use is not the exclusive domain of the State, or Mexican corporations with an exclusion clause for foreign nationals, or which requires more than fifty-one percent of Mexican capital. 3. To purchase, sell, manufacture, outsource, import and export any manner of national and foreign products or merchandise, or market the same either directly or through third parties. 4. Enter into general commercial transactions with any type of negotiable instruments, issued either by Mexican or foreign corporations and in particular the purchasing of stock or corporate shares in commercial or industrial ventures, including the temporary purchase of stock issued by the Corporation itself, charged to the capital stock and if the case, a reserve fund stemming from net earnings for the purpose of purchasing own shares, in compliance with legal requirements regarding the purchase of stock or shares. Any companies in which Wal-Mart de México, S.A.B. de C.V., is a majority shareholder shall not directly nor indirectly invest in shares of the same, nor in any other company who is a majority shareholder for Wal-Mart de México, S. A. B. de C.V., except in the case when the shares are purchased to comply with granted stock options or which can be given to the employees of said companies, if and only if the shares held do not exceed twenty-five percent of the total shares in stock of the corporation. 5. Conduct all manner of commercial commission operations and mediation in commercial businesses, pursuant to that outlined in the previous paragraphs. 6. Directly or through third parties, build, install and operate workshops, laboratories, retail shops and warehouses with the purposes outlined in the previous paragraphs. 7. Render legal, financial, economic and administrative professional services, and in general services of any type to all manner of companies, either commercial or industrial, as well as to individuals or corporations. 8. Execute all manner of contracts with individuals or corporations to direct, manage, finance, establish or run any type of commercial or industrial company.
Page 50 of 85 9. Sign all manner of contracts as corporations or partnerships with individuals or corporations required to meet the purposes of the Company. 10. Issue, purchase, sell and endorse all manner of credit instruments and securities permitted by law; give all manner of real or personal guarantees, and enter into mortgage, guarantee and surety agreements. 11. Perform all legal proceedings and enter into any and all agreements and contracts that are directly or indirectly related to the purpose of the Company. FOUR. – The term of the Corporation shall be ninety-nine years beginning on the eighth day of March, in the year nineteen hundred and ninety-three.
CHAPTER TWO CAPITAL STOCK AND SHARES IN STOCK FIVE. – Capital stock shall be variable with a fixed minimum of FIVE BILLION, FIVE HUNDRED AND SEVENTY-FOUR MILLION, EIGHT HUNDRED THOUSAND, SEVEN HUNDRED AND THIRTY Mexican Pesos, without the right to withdrawal, and an unlimited variable amount. Capital stock shall be divided into two classes of shares: A).- Class one, consisting of representative shares of minimum capital, and B).- Class two, comprising representative shares of variable capital. The aforementioned classes correspond to a single series, free subscription nominal shares, identified as Series “V”, which shall represent one hundred percent of the shares and which may be subscribed or purchased by local or foreign individuals or companies. The minimum capital stock shall be represented by Two billion, three hundred and five million, three hundred and fifty-seven thousand eight hundred and eighty-eight series “V” shares, non par value, wholly subscribed and paid in full. Said amounts may vary due to the repurchase of own shares by the Company, informing the Annual Regular Shareholders’ Assembly of said decision. Capital shall be subject to increases due to later contributions from partners or from admitting new partners, and due to the presumptions set forth in Article one hundred and sixteen of the General Corporation and Partnership Law. Moreover, the capital can be subject to reductions due to partial or complete withdrawals of contributions and because of reimbursements to shareholders and to absorb losses. Increases and/or reductions to the capital stock shall be approved by the General Regular or Special Shareholders’ Assembly, as deemed best. Said increase or reduction shall then be included in the minutes of the corresponding meeting, except in those cases when the increases or reductions derived from the purchase of the Corporation’s own shares. The amount resulting from increases and decreases approved by the Shareholders’ Committee, both in class one and class two, must be reflected on stock and provisional certificates.
SIX. 1. All the shares into which the capital stock is divided are registered, indivisible, and with no par value. Shares confer rights on the holders and make them liable to those obligations corresponding to common stock. The Corporation shall keep a shares record containing the data required by article one hundred and twenty-eight of the General Law on Comercial Enterprises. The Corporation will consider as owner of said registered shares whomever appears as such in the aforementioned record. To this end, the corporation must record the transfers performed at the request of any holder. 2. Printed instruments shall represent all shares. Provisional certificates may be issued until definitive instruments are printed. 3. The provisional certificates and definitive instruments for the shares representing the capital stock must be consecutively numbered and may guarantee one or several shares. They must contain all that is required by article one hundred and twenty-five of the General Law on Commercial
Page 51 of 85 Enterprises. Clauses five, six and twenty-five herein must be printed to the letter on them. They must have two written or facsimile signatures of either the Chairman or CEO if a board member, or secretary or alternate secretary for the Board of Directors of the corporation, or that of two members of said board as appointed by the board for said purpose. They shall also include an attachment of coupons duly numbered upon request of the owner. The instruments or provisional stock certificates may be exchanged for others of different denominations, but only if the new instruments or certificates guarantee the same number of shares as those given in exchange. Should the instruments or provisional certificates be lost, stolen or destroyed, they may be replaced pursuant to that set forth under Heading One, Chapter Roman Numeral One, Paragraph Two of the General Law on Credit Instruments and Operations, where expenses for said replacement to be covered by the owner of said certificates or instruments.
CHAPTER THREE GENERAL SHAREHOLDERS’ ASSEMBLY SEVEN. 1. The supreme authority for the Corporation is the General Shareholder Assembly, who shall hold either regular or special meetings. 2. The regular shareholder assembly should meet: I. To become familiarized with the matters outlined under article one hundred and eighty-one of the General Law on Commercial Enterprises. II. To approve the purchase or transfer of shares and in exercise of the right of withdrawal under the following circumstances: a) When the purchase value for shares from another corporation, due to one or several simultaneous or successive purchases, exceeds twenty percent of the book value for Wal-Mart de México Sociedad Anonima Bursatil de Capital Variable, according to the latest financial statement for the Corporation. Assembly approval is not required when purchasing shares from other corporations whose activities are similar to the industrial, commercial or service-related activities of Wal-Mart de México Sociedad Anonima Bursatil de Capital Variable. b) When the transfer value for stock from another corporation, due to one or several simultaneous or successive transfers, exceeds twenty percent of book value according to the latest financial statement for Wal-Mart de México, Sociedad Anonima Bursatil de Capital Variable. Prior approval by the assembly shall be required if the share transfer implies, due to one or several simultaneous or successive operations, the loss in control by the Corporation, whose activities are similar to the industrial, commercial or service-related activities of Wal-Mart de México, Sociedad Anonima Bursatil de Capital Variable. c) When the right to withdraw variable capital of another corporation, due to one or several simultaneous or successive transactions, and the reimbursement of shares whose value exceeds twenty percent of the book value according to the latest financial statement for Wal-Mart de México, Sociedad Anonima Bursatil de Capital Variable, prior approval from the Assembly shall also be required when said withdrawal implies, due to several simultaneous or successive transactions, loss of control over the Corporation, whose activities coincide with the industrial, commercial or service- related activities conducted by Wal-Mart de México, Sociedad Anonima Bursatil de Capital Variable. III. In cases required, to present the amount of capital stock that could be affected by the purchase of own shares as well as the maximum net equity amount, with the only limitation being that the sum of the resources allocated for that purpose shall under no circumstances exceed the total balance for net earnings for the Corporation. IV. To appoint and remove the Chairman of the Audit Committee Chairman as well as the Chairman of the Corporate Practices Committee. V. Any other matter not established by law or by the Bylaws herein as being the sole domain of the General Special Shareholders’ Assembly. 3. The general Regular Assembly Meetings may be held at any time but must meet at least once a year within four months after the close of the corporate period. The general regular assembly that is
Page 52 of 85 informed of the results of the period must in turn present a report pursuant to that outlined under article one hundred and seventy-two of the General Law on Commercial Enterprises. Said report shall be in regards to the prior corporate period for the company or companies for which Wal-Mart de México, Sociedad Anonima Bursatil de Capital Variable owns fifty percent or more of shares and when the purchase value has exceeded twenty percent of the book value for the controlling company upon close of the corporate period. In addition, the shareholders shall receive a report from the Audit Committee and the Corporate Practices Committee. Both may hold sessions together with the same attendees. 4. The General Regular Assembly meetings shall be considered legally held at the first call to the same when at least half of the shares in capital stock are represented and the decisions made shall be considered valid when arrived at through a majority of votes of those present at said meetings. Should it not be possible for the Assembly to meet on the date designated, a second call shall be made and shall be designated as such. Said meeting may be held and considered as legal with as many shares that are represented and decisions made shall be considered as valid when arrived at through a majority vote of those present. 5. Special General Assembly meetings shall deal with the following matters as per that outlined under article one hundred and eighty-two of the General Law on Commercial Enterprises: I. An extension of Corporate duration; II. Termination of the Corporation in advance of agreed upon date; III. Increase or reduction in Capital Stock; IV. Changes to the Corporate purpose; V. A change in Corporate nationality; VI. Transformation of the Corporation; VII. Corporate mergers or break-up; VIII. Issuance of preferred stock; IX. Amortization by the Corporation of own shares, issuance of common stock for preferred stock called in; X. Issuance of bonds; and XI. Any other change to the corporate contract. In addition to the matters listed above, the Special General Assembly meetings must deal with the following: a) Legal restructuring of the corporation. b) Changes to the rights of any corporate stock. Special General Shareholder meetings are considered legally constituted, in the case of a first call, when at least seventy-five percent of shares are represented. The decisions made are considered valid if approved by shareholders holding at least half of said shares. In the case of second or later calls, the Special General Shareholder meetings are considered legally constituted when at least fifty percent of shares are present. Their decisions are considered valid if approved by shareholders representing at least fifty percent of stock. 6. Should the General Regular Assembly need to deal with matters that according to the Bylaws herein are the domain of the special shareholders’ assemblies due to reforms made to articles one hundred and eighty-one and one hundred and eighty-two of the General Law on Commercial Enterprises, the same quorum and the same majority rule as that outlined under paragraph five above are required for decisions to be deemed valid. EIGHT.- General Shareholders’ Assemblies shall be held according to the following rules: 1. - Meetings are to be held at the corporate legal domicile, with the exception of unforeseeable circumstances or cases of force majeure. The call to meeting shall be made by the Board of Directors. Said call shall be published in the Official Daily Gazette or in a major newspaper obtained in the place of the legal domicile. Said call is to be published at least fifteen days prior to the
Page 53 of 85 meeting, with the exception of that set forth under clause seven, paragraph two, subparagraph Roman numeral two of the Bylaws herein, whereby the minimum notice shall be five days prior to the meeting. The call to meeting shall include the date, time and place of the assembly, the Order of Business, and shall be signed by whom makes said call. During the aforementioned period of time, the books and documents related to the purpose of the Assembly meeting shall be made available at corporate offices for any and all shareholders to be able to consult and, if applicable, shall include the Financial Information Document with its corresponding attachments. 2. - When the attendees at the Assembly represent the totality of stock issued, the call shall not be necessary. Nor shall it be necessary when an Assembly is suspended for whatever reason and is to continue on a different date and time. In both cases, it shall be noted in the corresponding Minutes. 3. - The owners of stock may attend assembly meetings in person or through general or special proxy, where in the latter case only a power of attorney signed by said Shareholder is required. 4. - In order to attend the Assembly meetings, shareholders must present, a minimum of two days prior to the date of the meeting, proof of ownership of one or more shares. Said proof may be the instrument itself or certification from some National or Official Credit Institution authorized for deposit in the sense that said instrument or instruments are in deposit and that the person mentioned in the proof of deposit issued by the institution has the right to represent the stock registered by the instrument or instruments. 5. Before calling the meeting to order, the presiding official shall appoint one or more examiners who shall verify the number of shares in stock represented and shall make a list of the attendees, listing the number of shares each represents. 6. Once necessary attendance or quorum is established, the Chairman shall call the Assembly meeting to order and shall proceed to cover the Order of Business, presiding over all agreements and debates. 7. The Chairman of the Board of Directors shall preside over the Assembly meeting and should he be absent, the person elected by the Assembly itself. The Secretary for the Assembly shall be the Secretary of the Board of Directors. If absent, the person elected by the Assembly itself. 8. The Secretary shall keep the Minutes and create a file for the same. The file shall contain the following: a) A copy of the newspaper in which the call to meeting was published, should it be the case. b) The attendance list of owners of stock. c) The powers of attorney presented or the extract of the document used as proof certified by the Secretary or Examiner. d) A copy of the minutes of the Assembly meeting. e) All reports, opinions and any and all documents presented during the Assembly meeting. f) Certification by the Secretary that provisions in paragraph III of Article 49 in the Securities Market Law has been observed. 9. - Should for any reason the call to order for a legally established Assembly meeting not be performed, a document stating the same with the corresponding reasons is required. A file of the same shall be kept as per paragraph eight above. 10. - The decisions made by the General Assembly are legally binding for all shareholders in terms of the document herein. This includes opposing votes and those not present. There shall be no later recourse and the decisions are considered definitive. The Board of Directors is thereby authorized to act on the agreements, pronounce judgment and conduct the necessary measures or enter into the necessary contracts that are required for full compliance with agreements approved by the Assembly. 11. Shareholders who own twenty percent or more of the capital stock may judicially oppose to the decisions reached by the Assembly. 12. Shareholders that own ten percent of the Corporation’s capital stock may request that the vote of an issue, for which they deem no sufficient information has been provided, is postponed for three calendar days without the need for a new call.
Page 54 of 85 13.- If a General Regular or Special Shareholders’ Assembly, duly called, were not to have the necessary quorum, the call would be repeated with the same requirements and the same time periods outlined under paragraph one of this clause. An Assembly meeting stemming from a second or later call shall be held if and only if the numbers of shares in stock represented are those established under clause seven of these Bylaws, and shall be applicable for all types of Assembly meetings.
CHAPTER FOUR CORPORATE ADMINISTRATION NINE.- The corporate administration shall be conducted by a Board of Directors and the CEO. Said board shall consist of the number of directors determined by the General Regular Shareholders’ Assembly, and they shall be no more than twenty-one, at least twenty-five percent of which shall be independent directors. Moreover, for each director, a corresponding alternate shall also be appointed. Alternates for independent directors shall be independent as well. TEN.- The Board of Directors shall be in charge of Corporate business, operations, actions and contracts related to the corporate purpose, with the exception of those deemed the sole domain of the General Regular or Special Assemblies by law or by the bylaws herein. Said Board shall represent the Corporation before any and all administrative and judicial authorities, with general proxy for acts of ownership and management and for collections, with no limits as per article two thousand five hundred and fifty-four of the Civil Code for Mexico City. It is also authorized to perform those duties stipulated by law as requiring special clause, including, but not limited to, the following powers: a) Perform actions strictly pertaining to ownership such as, sell, mortgage or in any other manner perform a transfer or lien, as well as lease or affect, corporation property. b) Accept money as a loan, pay guarantees, buy in installments and conduct credit operations without any limitations, including the signing and accepting of any manner of negotiable instruments and become a surety on behalf of the Corporation. c) Direct, manage and in general control corporate businesses and the administration of all its properties, overseeing compliance of all contracts and agreements that have been signed with the purpose of meeting corporate objectives. d) Prepare, approve and present to shareholders the yearly financial information document as required by law, and present to the shareholders the resolutions deemed appropriate with regards to income, profits and losses. e) Suggest plans and standards to be followed by the Corporation, especially with regards to purchase, sale, leasing, liens, mortgages and transfers of all manner of properties, real estate, rights and concessions, franchises, the securing of loans, and all other major administrative proceedings and problems. f) Freely appoint and remove proxies and other corporation officials and employees, grant them powers and modify the same but always setting the limits outlined under the Clause Seventeen, establish the emoluments and set the personal guaranty that should be paid to secure absolute compliance with obligations and approve the outside auditor the corporation, prior recommendation by the Audit Committee. g) Establish and close branch and agency offices for the Corporation. h) With limits established under Clause Seventeen, wholly or partially delegate powers to any person, entity, group of persons, managers or any other official or proxy, as well as granting general or special powers, legal mandates or administrative proxy for any period of time, and delegate to any person, whether a member or not of the Board of Directors, the power to confer or revoke general and special powers, and to perform any other proceeding that should be completed. i) To issue and convert shares when it does not imply changes to the Capital Stock. j) The non-delegable power to resolve the purchasing of representative shares of Capital Stock, through the Mexican Stock Exchange, at current market price, chargeable to Net Equity and, should the case arise, to Capital Stock; and its later placement among the investor community.
Page 55 of 85 k) The non-delegable power of the Board to approve operations not falling under the regular line of business and which would take place between the corporation and its partners with persons who are part of the corporate management, or with whom said persons have equity ties, or if applicable, blood ties or ties to the second degree, the spouse or common law spouse, and those transactions representing more than one percent of corporate assets. The purchase or sale of five percent or more of assets and the granting of guarantees for amounts exceeding five percent of assets. l) After having first received an opinion from the Audit and Corporate Practices Committees, decide on and approve those transactions that the Corporation or its Subsidiaries wish to execute with related parties or which compromise corporate wealth. m) Appoint among proprietary members the members for the Audit and Corporate Practices Committees. It shall be understood that both Committees can act as one, provided, however that provisions in Articles 41, 42 and 43 of the Securities Market Law are observed. n) All others conferred by national law and Company Bylaws that are not reserved as the sole domain of the shareholders. ELEVEN. 1. The members of the Board of Directors shall be appointed as outlined under Clause Nine and shall hold that position for the time period established by the assembly, until such time as replacements have been elected and assume their duties. Notwithstanding, a duly called Shareholders’ Assembly may revoke the appointment of one or more Directors. The Board of Directors may appoint provisional directors pursuant to, and for the purposes set forth in Article 24 in the Securities Law. 2. The members of the Board of Directors shall deposit with the Corporation Treasury the amount of one thousand pesos or shall produce a guarantee for said amount, to the satisfaction of the Assembly. Said amount deposited or in guarantee is to cover the liability that could be incurred during the performance of their duties. Notwithstanding, the shareholders may demand a larger or different amount. 3. The directors shall be appointed through the majority rule of stock present during the General Regular Shareholders’ Assembly. 4. The minority of shareholders representing at least ten percentage of the capital stock of subscribed shares shall be entitled to: a) Appoint or remove a member of the Board of Directors. Such appointment may only be revoked when the other members of the Board of Directors are removed, in which case, removed members shall not be appointed as such for a period of 12 months immediately following the date of removal. b) Request the Chairman of the Board of Directors or the Chairman of the Committees to enforce corporate and audit practices, at any moment, and call for a general shareholders’ assembly. 5. If upon holding elections as per that outlined under paragraph three of this clause, a minority shareholder or group of minority shareholders exercise the right during any shareholder assembly, as outlined under paragraph four above regarding the appointment of a Director and the corresponding Alternate Director for a given corporate period or part of one, said minority shareholder or group of minority shareholders may not vote during the appointment of the rest of the Directors for the same complete or partial period. TWELVE. 1. The Board of Director meetings shall be held at the corporate domicile, in the branch offices or agencies that have been set up anywhere else in Mexico that the board may designate. Decisions may be unanimously made outside of board sessions, and these decisions shall have the same validity as if they had been made during board meetings. In this case, these decisions may be made regardless of the location of each board member, and of the means used for communication. Said decisions should be confirmed in writing, and shall be set down in the book containing board minutes and be duly signed by the chairman and secretary or alternate secretary. 2. Board of Director meetings may take place at any moment called by the chairman, the secretary, the alternate secretary, the Audit and Corporate Practices Committees or twenty-five percent of the
Page 56 of 85 directors, either in writing or through any other means at least five days prior to the meeting date, specifying the time, date and the Order of Business. The Board of Directors must meet at least four times a year. 3. The Board members may waive in writing the need for a call to meeting and when a Director is present, it shall be considered as a waiver to the call. 4. With the exception of cases that will be outlined further in this same paragraph regarding the establishing of a quorum for any Board of Directors meeting, a minimum of one half plus one directors or alternates for the same must be present. Decisions regarding all matters in the domain of the Board and listed on the Order of Business shall be considered approved when at least one half plus one of Directors or Alternates issues a positive vote. To deal with and legally arrive at a decision on the matters listed below, the Chairman of the Board must be present, in addition to at least half of the Directors or Alternate Directors. Decisions are considered approved with a positive vote of the Chairman and at least half of the Directors or Alternate Directors. These matters are: a) Any operation meant to purchase or acquire by whatever instrument, to sell or transfer any instrument regarding fixed assets of corporate property or to enter into any permanent investment exceeding twenty-five percent of book value according to the latest Financial Information statement approved by the shareholders. b) Incur debts with an expiration date beyond twelve months and in excess of twenty-five percent of Net Equity according to the latest Financial Information document approved by the shareholders. c) Grant guarantees, 1iens, mortgages and other securities of any kind in excess of twenty-five percent of Net Equity according to the latest financial information document approved by the shareholders. d) The appointment or removal of the Chairman of the Board and the company CEO, as well as the granting or revoking of their respective powers. e) Supply instructions regarding the form and terms for issuing votes on shares pertaining to the Corporation, in General Regular and Special Assemblies, for those companies where it is majority shareholder. In the case of a tie, the Chairman of the Board shall have the deciding vote. 5. There is to be official Minutes recorded for every Board of Directors meeting and the same is to be kept in the Document Book, and is to be signed by the Chairman and Secretary or alternate Secretary of the Board. 6. The Directors are to receive fees for their services as such. Said fees are to be set by the General Shareholders’ Assembly. In addition, travel expenses incurred by Company operations are to be paid, as well as travel expenses to and from the place where the meeting is to be held. 7. Board members are in charge of decisions made regarding matters outlined under section k) of clause ten, with the exception of that stated under article one hundred and fifty-nine of the General Law on Commercial Enterprises. 8. The members of the Board of Directors and the CEO shall meet due diligence and loyalty duties as set forth in Articles 30, 31, 32, 34, and 35 of the Securities Market Law, and shall refrain from engaging in behaviors that may be deemed illicit deeds or actions pursuant to Article 36 of the Securities Market Law.
CHAPTER FIVE OFFICIALS THIRTEEN.- Once the Board of Directors is duly formed, in its first meeting it should appoint among its members a Chairman. In addition, a secretary, an alternate secretary can be appointed, and a treasurer is optional, none of them shall be a Board member. FOURTEEN.- The duties and obligations for the Chairman of the Board are as follows: I. Preside over General Shareholder Assemblies and ensure compliance with resolutions when a special executor is not appointed. II. Make calls to Board of Director meetings, preside over the same and ensure compliance with resolutions when a special executor is not appointed.
Page 57 of 85 III. Sign Minutes for Shareholder Assemblies and Board meetings presided over, as well as copies of said documents when issued upon request of interested parties. IV. Supervise strict compliance with the Corporation Bylaws and all agreements approved by board assemblies and committees. V. On a yearly basis, produce a detailed report for the Shareholders on the state of affairs of the Corporation. VI. Any other duties and obligations granted or imposed by the Board of Directors. FIFTEEN.- Should the Board of Directors decide to create the position of Treasurer, the latter shall have the following duties and obligations: I. The safekeeping of corporate funds and supervises management and investment of the same. II. The safekeeping of shares and cash deposited by the Directors, CEO and other officials, guaranteeing proper management, or the security policies and issuing the corresponding receipts. III. Supervise that corporation accounting be properly conducted and that applicable tax provisions be strictly followed. IV. Ensure that the annual Financial Information document be properly prepared and presented in a timely manner to the Board for approval, who in turn must obtain the opinion of the legal entity who is to prepare the audit for the Corporation and present information to the General Regular Shareholders’ Assembly. SIXTEEN.- The Secretary and the alternate secretary for the Board of Directors shall be in charge of the following: 1. Perform the duties appointed during Shareholder Assemblies and Board meetings, in addition to taking the Minutes for both, and signing the same together with the Chairman of the Board. 2. Keep the record book for Shareholder Assemblies and Board of Director meetings, as well as the Record for Registered Shares and the Record for Increases and Reductions in Capital Stock. 3. Supply, upon request, to those with right to the same, copies of documents recorded in said books, and documentation related to the corporation, as well as to subscribe certificates and communiqués in compliance with regulations applicable to limited liability stock corporations trading in the stock market. 4. Notarize the decisions reached by the Board of Directors and Shareholders’ Assemblies, and those decisions that under the applicable law are required to be notarized. SEVENTEEN.- The Board of Directors may freely appoint and remove the CEO and relevant executive officers, who may or may not be a shareholder, and who shall have the obligations, rights and compensation allocated and those stated by law; additionally they shall guarantee the proper management in keeping with the same manner conduct observed by Directors. The attributions granted to said CEO as well as to any other official employed by the corporation shall always be limited to prior authorization by the Board, as per that contained under clause twelve, paragraph four of the bylaws herein. The duties for the Directors and CEO shall be compatible and may be performed by one same person, and in such case, the aforementioned guarantee need only be produced one single time. The CEO shall perform management, administrative and business execution activities on behalf of the Corporation and the legal entities controlled by the same, as well as those activities described in Articles 44, 45, 46 and those applicable under the Securities Market Law. EIGHTEEN.- The CEO, or in his absence, the Board, may freely appoint and remove one or more Managers, Assistant Managers and Proxies for the corporation, and who may or may not be shareholders. They are to be instructed on their authorizations, obligations and emoluments, with clear indication given of the scope of their attributes so their duties may be properly conducted in the businesses and places that the Board itself designates.
Page 58 of 85 CHAPTER SIX SUPERVISION OVER THE CORPORATION NINETEEN.- Supervision over the corporation shall be the responsibility of the Board of Directors, through the Audit and Corporate Practices Committees, which shall consist of at least three regular directors, who shall be independent. In addition, they shall perform surveillance activities on the legal entity that conducts the outside audit for the Corporation. The members of the Audit and Corporate Practices Committees shall be annually appointed by the Board of Directors and shall perform the activities contemplated in Articles 42 and 43 in the Securities Market Law. They shall hold their positions for one year or until proper replacements have been appointed and can assume the position.
CHAPTER SEVEN PROFITS AND RESERVE FUND TWENTY. - Upon close of each fiscal year, the Financial Information document shall be prepared within the following three months, presenting the same to the General Shareholders’ Assembly for their approval regarding net profits. Once the Shareholders’ Assembly has approved inventory and the financial information document, the following distribution is in order: a) A minimum of five percent is to be set aside for the reserve fund as per that stipulated under article twenty of the General Law on Commercial Enterprises, until said fund amounts to twenty percent of capital stock. Said amounts are also to be used to create any other fund approved by the General Assembly. b) The remaining profits shall be used as agreed by the General Regular Shareholders’ Assembly. When so instructed to do so, the Board of Directors may at any time pay dividends on profits earned according to the Financial Information documents approved by the shareholders. All dividends decreed and not collected by shareholders within a period of five years shall be deemed waived in favor of the corporation. c) When so decreed by the General Special Shareholders’ Assembly, the corporation may proceed to amortize shares with distributable profits by following the rules set forth under the General Law on Commercial Enterprises.
CHAPTER EIGHT CORPORATION TERMINATION AND SETTLEMENT TWENTY-ONE.- The corporation shall be terminated upon expiration of the time period mentioned under clause four, unless said period is extended prior to its expiration date by agreement reached during a Special Shareholders’ Assembly meeting or prior to said expiration for any of the reasons outlined under article two hundred and twenty-nine of the General Law on Commercial Enterprises. TWENTY-TWO.- After completing the termination of the Corporation by the Shareholders’ Assembly, one or two liquidators shall be appointed. They shall conduct settlement procedures for the same and distribute the products among the shareholders in the exact same proportion of the shares in stock each possesses. Said liquidators shall be fully empowered to perform the settlement, collect all amounts due the Corporation and pay all amounts owed. They are to initiate any and all forms of suits and follow through on the same to conclusion with the full general legal powers of attorney pursuant to articles two thousand five hundred and fifty-four and two thousand five hundred and eighty-seven of the Civil Code for Mexico City. They are equally authorized to cancel mortgages and other liens; settle disputes and sell properties or securities of any kind. With regards to any powers and obligations not specifically set forth in these bylaws, the liquidators shall have all those conferred by articles two hundred and forty-two and those that follow under the Law on Commercial Enterprises. . TWENTY-THREE.- The shareholders shall be responsible for corporation losses only in the amount of the value of their respective subscribed shares in stock, regardless of non-payment of the same. TWENTY-FOUR.- The founding partners as such do not set aside any special sharing of profits.
Page 59 of 85 CHAPTER NINE GENERAL PROVISIONS TWENTY-FIVE.- Any foreigner who during the incorporation or at any later period acquires interests or shares in the Corporation shall, by virtue of either fact, be considered as a Mexican and it shall be understood that said foreigner agrees not to invoke the protection of his/her government. Should this condition be breached, he/she shall lose said interests or shares in favor of the Mexican nation. TWENTY-SIX.- Corporate periods for the Corporation shall begin on January first and end on December thirty-first of each year. TWENTY-SEVEN.- For the purpose of canceling stock of the Registry, pursuant to terms in Article 108, section II in the Securities Market Law, the Corporation shall be excluded from tendering the public offering set forth in said legal provision; provided however the Corporation proves to the Commission that shareholders, representing at least ninety-five percent of the Corporate Capital Stock, have given their consent through agreement reached by the assembly, that the amount offered for publicly traded shares is less than 300,000 investment units. In addition to the fact that, the Corporation shall create a trust as contemplated in the last paragraph of section II of Article one hundred and eight, and notify that the cancellation and creation of the hereinbefore mentioned trust through the SEDI. TWENTY-EIGHT.- In addition to the legal provisions under which the Corporation can be dissolved, a special cause for dissolution shall be that the Capital Stock of the Corporation, set forth in Clause Five herein, drops below Fifty Thousand Pesos. TWENTY-NINE.- Any case not specifically contemplated in this document, the provisions in the Securities Market Law and the General Law shall apply.
Page 60 of 85 5) STOCK MARKET
A) STOCK STRUCTURE
Walmart de México stock trades in the Mexican Stock Exchange under the WALMEX ticker symbol.
Stock Structure As of December 31, 2009 Millions of Shares Series Number of Shares % “V” Free subscription, with voting rights 16,753 100
The company has a sponsored ADR program on its series “V” shares. The depositary bank is The Bank of New York.
B) STOCK PERFORMANCE IN THE SECURITIES MARKET
Relevant Stock Indicators 2009 2008 2007 2006 2005 Maximum Price 30.05 23.69 24.68 23.78 15.59 Minimum Price 13.82 14.28 17.16 13.12 9.46 Closing Price 29.35 18.50 18.85 23.78 14.76
Volume (millions) 5,015.8 6,093.4 6,447.6 4,426.4 4,847.8
Relevant Stock Indicators 2009
QUARTER 1st 2nd 3rd 4th Maximum Price 18.99 20.12 24.80 30.05 Minimum Price 13.82 16.94 18.97 22.80 Closing Price 16.54 19.48 23.47 29.35 Volume (millions) 1,737.0 1,227.6 1,006.9 1,044.1
Relevant Stock Indicators 2008
QUARTER 1st 2nd 3rd 4th Maximum Price 22.53 23.69 20.75 18.77 Minimum Price 17.45 20.15 17.99 14.28 Closing Price 22.53 20.44 18.81 18.50 Volume (millions) 1,762.0 1,309.8 1,243.6 1,778.0
Page 61 of 85 Relevant Stock Indicators (December 2009- May 2010) December January February March April May Maximum Price 30.05 31.05 31.85 32.50 31.88 29.98 Minimum Price 27.22 29.00 27.98 30.66 28.66 27.87 Closing Price 29.35 29.00 31.85 31.56 28.66 28.77 Volume (millions) 310.8 296.3 280.7 342.3 395.6 400.7
Page 62 of 85 6) PEOPLE IN CHARGE
“The undersigned hereby swear that in the scope of our respective duties, we have prepared information on the issuer contained in the present yearly report and it is to the best of our knowledge a reasonable reflection of its situation. In addition, we hereby claim to know of no deliberate omission or altering of relevant information in this annual report, which could lead to errors by investors.”
Jose Luis Rodriguezmacedo Rafael Matute Senior Vice President and Executive Vice President and Legal Director CFO
Scot Rank Chief Executive Officer
Date: June 25, 2010
Page 63 of 85
“The undersigned hereby swears that opinion was rendered on the financial statements contained in the present annual report for Wal-Mart de México,
S.A.B. de C.V., and subsidiaries, as of December 31, 2009 and 2008 and for the years ending on these dates, according to generally accepted auditing standards in Mexico. In addition, I hereby claim that within the scope of the work performed to render the aforementioned opinion, to my knowledge no relevant financial information contained in this annual report was deliberately omitted or altered, and that said report contains no information that could lead to errors by investors.”
Enrique García Independent Auditor
Date: June 25, 2010
Page 64 of 85 7) ATTACHMENTS
A) CONSOLIDATED FINANCIAL STATEMENTS AND OPINION OF THE STATUTORY AUDITOR
Audit and Corporate Practice Committee Report
To the Board of Directors of Wal-Mart de México, S.A.B. de C.V.
Dear Directors:
In keeping with Article 43 of the Securities Market Law in effect, and the internal regulation approved by the Board of Directors, we wish to inform you of the activities undertaken during the year ended on December 31, 2009. In carrying out our work, we have adhered not only to the Mexican Securities Market law but also to the recommendations contained in the Company’s Code for Better Corporate Practices and the Code of Ethics. In order to comply with our supervision process, we performed the following: I. As concerns Corporate Practices: a) We were informed of: 1. The process to assess the performance of relevant executives. 2. Processes followed during the year to conduct operations with related parties, and the comprehensive compensation packages for the CEO and other relevant executives listed under Note 7 of the Company’s financial statements. There are no observations to report. b) During extraordinary meetings, we advised the Board on the following matters: 1. On November 23rd, 2009, approval for the acquisition of Walmart Centroamérica, taking into account that negotiations, operation terms and conditions were agreed upon as per market conditions, and that the operation is beneficial for all Wal-Mart de México, S.A.B. de C.V. shareholders. 2. On December 17th, 2009, Scot Rank was appointed Chief Executive Officer as of January 18, 2010. c) The Board of Directors granted no waivers to any board member, relevant executive nor anyone else in the chain of command for any privilege listed under article 28, section III, paragraph f) of the Mexican Securities Market Law. II. Related to Audit: a) We analyzed the status of the internal control system, and we were informed in detail of the programs and work done by Internal and Independent Audit, as well as the main aspects requiring improvement and follow-up on implemented preventive and corrective measures. Therefore it is our opinion that all effectiveness requirements are being met to ensure that the Company operates within a general environment of control. b) We evaluated the performance of the independent auditors, who are responsible for rendering an opinion on the reasonability of the Company’s financial statements and the compliance with the Mexican Financial Reporting Standards. We conclude that the partners of Mancera, S.C. (a member of Ernst & Young Global) meet the necessary professional skills, as well as independence in all intellectual and economic actions required, and therefore we recommend their appointment to examine and issue an opinion on the financial statements of Wal-Mart de México, S.A.B. de C.V. and Subsidiaries, as of December 31, 2009. c) We attended a number of meetings to review the Company’s quarterly and annual financial statements and recommended to release the financial information.
Page 65 of 85 d) We followed up on the investment plan of the year; we were informed of ongoing legal proceedings to which the Company is a party thereof, and verified compliance with the corresponding standards and legal provisions. Results were satisfactory. e) We were informed of accounting policies approved in 2009, finding no changes that would affect figures in the financial statements. f) We followed up on the decisions reached at Shareholders’ and Board Meetings. Based on the work performed, and on the report of independent auditors, it is our opinion that accounting and reporting policies and criteria followed by the Company are adequate and sufficient and have been applied consistently, as a result of which, the information presented by the CEO reasonably reflects the financial position and results of the Company. In light of the above, we recommend that the Board of Directors submit the financial statements for Wal-Mart de México, S.A.B. de C.V. and Subsidiaries for the year ended December 31, 2009 to the Company’s Shareholders’ Assembly for approval.
Sincerely,
Blanca Treviño Chairwoman Audit and Corporate Practices Committee
Mexico City, February 11, 2010
Page 66 of 85 Report of Independent Auditors
To the Shareholders of Wal-Mart de México, S.A.B. de C.V.
We have audited the accompanying consolidated balance sheets of Wal-Mart de México, S.A.B. de C.V. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in conformity with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wal-Mart de México, S.A.B. de C.V. and Subsidiaries at December 31, 2009 and 2008, the consolidated results of their operations, changes in their shareholders’ equity and cash flows for the years then ended, in conformity with Mexican Financial Reporting Standards. Our audit opinion and the accompanying financial statements and footnotes have been translated from original Spanish version into English for convenience purposes only.
Mancera, S.C. A Member Practice of Ernst & Young Global
Enrique García
Mexico City, January 29, 2010; Note 18 referring to final approval of financial statements is dated February 11, 2010
Page 67 of 85 Wal-Mart de México, S.A.B. de C.V. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Notes 1, 2 and 3) Thousands of Mexican pesos
December 31 2009 2008
ASSETS
Current assets: Cash and cash equivalents Ps. 19,482,716 Ps. 11,349,798 Accounts receivable, net (Note 4) 5,540,699 4,487,796 Inventories, net 22,519,684 22,807,943 Prepaid expenses 703,322 531,933 Total current assets 48,246,421 39,177,470 Property and equipment, net (Note 5) 84,892,733 79,286,447 Total assets Ps. 133,139,154 Ps. 118,463,917 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable to suppliers (Note 7) Ps. 30,377,580 Ps. 27,005,122 Other accounts payable (Notes 7, 8, 10 and 12) 9,535,022 8,071,532 Total current liabilities 39,912,602 35,076,654 Long-term other liabilities (Note 10) 4,451,132 3,526,022 Deferred income tax (Note 11) 5,476,165 5,516,357 Labor obligations (Note 12) 151,477 68,690 Total liabilities 49,991,376 44,187,723 Shareholders’ equity (Note 13): Capital stock 23,427,611 23,590,996 Legal reserve 4,718,199 4,421,048 Retained earnings 56,563,193 47,535,428 Premium on sale of shares 2,260,365 2,274,854 Employee stock option plan fund ( 3,821,590) ( 3,546,132) Total shareholders’ equity 83,147,778 74,276,194 Total liabilities and shareholders’ equity Ps. 133,139,154 Ps. 118,463,917
The accompanying notes are an integral part of these financial statements.
Page 68 of 85 Wal-Mart de México, S.A.B. de C.V. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Notes 1, 2 and 3) Thousands of Mexican pesos
Year ended December 31 2009 2008 Net sales Ps. 269,396,831 Ps. 244,029,030 Other income 1,054,320 887,980 Total revenues 270,451,151 244,917,010 Cost of sales ( 211,850,788) ( 191,632,968) Gross profit 58,600,363 53,284,042 General expenses ( 36,331,864) ( 33,532,968) Operating income 22,268,499 19,751,074 Other income (expenses) non-operating, net 87,793 ( 368,871) Comprehensive financing result (Note 14) 662,090 474,447 Income before income tax 23,018,382 19,856,650 Income tax (Note 11) ( 6,212,239) ( 5,183,822) Net income Ps. 16,806,143 Ps. 14,672,828
Earnings per share (in Mexican pesos) Ps. 1.999 Ps. 1.732
The accompanying notes are an integral part of these financial statements.
Page 69 of 85 Wal-Mart de México, S.A.B. de C.V. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the years ended December 31, 2009 and 2008 (Notes 1, 2, 3 and 13) Thousands of Mexican pesos
Accumulated result of Premium on sale Employee stock Capital stock Legal reserve Retained earnings restatement of shares option plan fund Total
Balance at December 31, 2007 22,105,239 4,068,913 53,313,827 ( 12,515,273) 2,302,669 ( 3,091,370) 66,184,005 Reclassification of the accumulated result of restatement to retained earnings ( 12,535,877) 12,535,877 - Movements in employee stock option plan fund ( 27,815) ( 454,762) ( 482,577) Increase in legal reserve 352,135 ( 352,135) - Repurchase of shares ( 208,151) ( 2,661,168) ( 2,869,319) Dividends capitalized and paid 1,693,908 ( 4,902,047) ( 3,208,139) Comprehensive income 14,672,828 (20,604) 14,652,224 Balances at December 31, 2008 Ps. 23,590,996 Ps. 4,421,048 Ps. 47,535,428 - Ps. 2,274,854 Ps. ( 3,546,132) Ps. 74,276,194 Movements in employee stock option plan fund ( 14,489) ( 275,458) ( 289,947) Increase in legal reserve 297,151 ( 297,151) - Repurchase of shares ( 163,385) ( 2,345,647) ( 2,509,032) Dividends paid ( 5,039,743) ( 5,039,743) Income tax on subsidiary dividends ( 73,357) ( 73,357) Translation adjustment ( 22,480) ( 22,480) Comprehensive income 16,806,143 16,806,143 Balances at December 31, 2009 Ps. 23,427,611 Ps. 4,718,199 Ps. 56,563,193 Ps. - Ps. 2,260,365 Ps. ( 3,821,590) Ps. 83,147,778
The accompanying notes are an integral part of these financial statements.
Page 70 of 85 Wal-Mart de México, S.A.B. de C.V. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Notes 1, 2 and 3) Thousands of Mexican pesos
Year ended December 31
2009 2008
Operating activities Income before Income tax Ps. 23,018,382 Ps. 19,856,650 Items related to investing activities: Depreciation 4,646,212 4,136,073 Loss from retirement of property and equipment 193,384 223,631 Stock option compensation expense 205,954 91,453 Items related to financing activities: Interest payable under capital leases 261,082 169,179
Gross cash flows 28,325,014 24,476,986 Variances in: Accounts receivable ( 1,778,833) 962,872 Inventories 288,259 ( 1,924,812) Prepaid expenses ( 171,389) 123,256 Accounts payable to suppliers 3,372,458 1,624,126 Other accounts payable 779,263 2,036,770 Income tax ( 4,521,730) ( 6,713,351) Labor obligations 24,057 19,420
Net cash flows provided by operating activities 26,317,099 20,605,267
Investing activities Purchase of property and equipment ( 9,734,557) ( 11,315,980) Proceeds from the sale of property and equipment 122,392 105,045 Employee stock option plan fund, net ( 495,901) ( 574,030)
Net cash flows used in investing activities ( 10,108,066) ( 11,784,965)
Cash surplus to be applied to financing activities 16,209,033 8,820,302
Financing activities Dividends paid ( 5,039,743) ( 3,208,139) Repurchase of shares ( 2,509,032) ( 2,869,319) Payments for property and equipment under capital leases ( 504,860) ( 376,863)
Net cash flow used in financing activities ( 8,053,635) ( 6,454,321)
Net increase in cash and cash equivalents 8,155,398 2,365,981 Adjustment to cash flows for changes in exchange rate (22,480) -
Cash and cash equivalents at beginning of year 11,349,798 8,983,817
Cash and cash equivalents at end of year Ps. 19,482,716 Ps. 11,349,798
The accompanying notes are an integral part of these financial statements
Page 71 of 85 Wal-Mart de México, S.A.B. de C.V. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2009 and 2008 Thousands of Mexican pesos, unless otherwise indicated
NOTE 1 DESCRIPTION OF THE BUSINESS: Wal-Mart de México, S.A.B. de C.V. (WALMEX or “the Company”) is a company incorporated under the laws of Mexico and listed on the Mexican Stock Exchange. The principal shareholder of WALMEX is Wal-Mart Stores, Inc., a U.S. corporation, through Intersalt, S. de R.L. de C.V., a Mexican company.
WALMEX has a 99.9% equity interest in the following groups of companies:
Group Line of Business
Nueva Walmart Operation of 684 (442 in 2008) Bodega Aurrerá, discount stores, 169 (153 in 2008) Walmart hypermarkets, 98 (91 in 2008) Sam's Club membership self- service wholesale stores, and 69 (67 in 2008) Superama supermarkets.
Suburbia Operation of 86 (84 in 2008) Suburbia stores with apparel and accessories for the entire family.
Vips Operation of 266 (267 in 2008) Vips restaurants serving international cuisine, 93 El Portón restaurants serving Mexican food, and 7 Ragazzi restaurants specializing in Italian food during both years.
Comercializadora Import of goods for sale. México Americana
Real estate Real estate developments and management of real estate companies.
Services companies Rendering of professional services to Group companies, not-for-profit services to the community at large and shareholding.
Walmart Bank Operation of 190 (38 in 2008) bank branches.
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NOTE 2 NEW FINANCIAL REPORTING STANDARDS: In 2008, the Mexican Financial Reporting Standards Research and Development Board (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera, A.C. or CINIF) issued five new Mexican Financial Reporting Standards (Mexican FRS) that came into effect as of January 1st, 2009: Mexican FRS B-7, Business Combinations; Mexican FRS B-8, Consolidated and Combined Financial Statements; Mexican FRS C-7, Investments in Associated and Other Long-Term Equity Investments; Mexican FRS C-8, Intangible Assets, and Mexican FRS D-8, Share-Based Payments. The application of the new accounting requirements did not have a material effect on the Company’s financial statements.
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES: The significant accounting policies and practices observed by the Company in the preparation of the consolidated financial statements, in conformity with the Mexican FRS issued by the CINIF, are described below. Mexican FRS are understood to encompass the new standards issued by the CINIF and the bulletins issued by the Accounting Principles Board of the Mexican Institute of Public Accountants that have not been modified, replaced or abolished by Mexican FRS and that were transferred to the CINIF. As such, any of the documents comprising Mexican FRS will hereinafter be referred to by their original name or rather, either as “Mexican FRS” or as “accounting Bulletin”, as the case may be. a. The accompanying consolidated financial statements include the statements of WALMEX and those of its subsidiaries, which are grouped as described in Note 1. All related party balances and transactions were eliminated in the consolidation, in conformity with Mexican FRS B-8, Consolidated and Combined Financial Statements. b. As defined under Mexican FRS B-10, Effects of Inflation, the Company is considered to operate in a non-inflationary environment, since the cumulative inflation rate in Mexico over the past three years was 15.01%, and accordingly, the Company presents its financial information in thousands of nominal Mexican pesos. c. In order to provide a better understanding of the Company’s business performance, the consolidated statements of income were prepared on a functional basis, which allows for the disclosure of the cost of sales separately from other costs and expenses, and of operating income as well, as established under Mexican FRS B-3, Statements of Income. d. The Walmart Bank’s financial statements, which are included in the Company’s consolidated financial statements, were prepared based on the accounting criteria established by the National Banking and Securities Commission (CNBV), as issued as part of the General Provisions for Credit Institutions, which consider the guidelines of Mexican FRS. At date, there are no significant differences between these two sets of standards. e. The preparation of financial statements in conformity with Mexican FRS requires the use of estimates in some items. Actual results might differ from these estimates. f. Cash and cash equivalents consist basically of bank deposits and highly liquid investments. Such investments are stated at acquisition cost plus accrued interest, not in excess of market value. Walmart Bank makes the monetary regulation deposits required by Banco de México, the amounts of which are determined based on traditional deposits in Mexican pesos. The Company has no transactions with derivative financial instruments. g. The balance of the Walmart Bank’s receivables portfolio is represented by amounts actually given to borrowers, plus uncollected earned interest. The preventive allowance for credit risks is presented net of the portfolio balances. h. WALMEX recognizes bad debt reserves at the time the legal collection process begins in conformity with its internal procedures.
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i. Inventories are stated at average cost, determined largely using the retail method. Due to the rapid turnover of inventories, the cost so determined is considered to be similar to replacement cost at the balance sheet date, not in excess of market value. The buying allowances are charged to operations based on the turnover of inventories that gave rise to them. j. Property and equipment are recorded initially at acquisition cost. Fixed asset depreciation is computed using the straight-line method, at annual rates ranging from 3% to 33%. k. The Company classifies its operating and capital leases for the rental of property following the guidelines established in accounting Bulletin D-5, Leases. l. Based on the guidelines of Mexican accounting Bulletin C-15, impairment in the value of long-lived assets and disposal of such is recognized by applying the expected present value method to determine value in use, considering each store or restaurant as the minimum cash generating unit. m. Foreign currency denominated monetary assets and liabilities are translated to Mexican pesos at the prevailing exchange rate as of the balance sheet date. Exchange differences determined are charged or credited to income and are presented as part of comprehensive financing result, as required by Mexican FRS B-15, Foreign Currency Translation. The cumulative translation adjustment is the effect of translating the financial statements of the Company’s foreign subsidiaries into Mexican pesos. This item is recorded directly in shareholders’ equity as part of retained earnings. n. Liabilities for traditional deposits of the Walmart Bank are comprised of demand deposits in debit card accounts. These liabilities are recorded at either deposit or placement cost, plus accrued interest. o. Liability provisions are recognized whenever the Company has current obligations (legal or assumed) derived from past events that can be reasonably estimated and that will most likely give rise to a future cash disbursement for their settlement. p. Deferred income tax is determined using the asset and liability method established in Mexican FRS D-4, Taxes on Profits. Under this method, deferred income tax is recognized on all temporary differences between the financial reporting and tax bases of assets and liabilities, applying the enacted income tax rate or the flat-rate business tax rate effective as of the balance sheet date, or the enacted rate at the balance sheet date that will be in effect when the deferred tax assets and liabilities are expected to be recovered or settled. Deferred tax assets are evaluated periodically in order to determine their recoverability. q. Seniority premiums accruing to employees under the Mexican Labor Law and termination payments made at the end of employment, except when resulting from corporate restructuring, are recognized as a cost of the years in which services are rendered, based on actuarial computations made by an independent expert, using the projected unit-credit method, in conformity with Mexican FRS D-3, Employee Benefits. Actuarial gains and losses are amortized based on the expected remaining working life of the Company’s employees. All other payments accruing to employees or their beneficiaries in the event of involuntary retirement or death, in terms of the Mexican Labor Law, are expensed as incurred. Employee profit sharing is presented in the income statement under the other income (expenses) non-operating, net caption and represents a liability due and payable in less than one year. r. In conformity with the Mexican Corporations Act, the Company is required to appropriate at least 5% of the net income of each year to increase the legal reserve. This practice must be continued until the legal reserve reaches 20% of capital stock. s. The employee stock option plan fund is comprised of WALMEX shares presented at acquisition cost. The plan is designed to grant stock options to executives of the companies in the Group, as approved by the CNBV.
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All employee stock options are granted to executives of subsidiary companies at a value that is no less than the market value on the date of grant. In accordance with current policies, WALMEX executives may exercise their option to acquire the shares in equal parts over five years. The right to exercise an employee stock option expires in a period of ten years from the date the option is granted, or up to sixty days following the executive’s labor termination with the Company. Stock-based compensation is determined using the Black-Scholes financial valuation technique, in conformity with Mexican FRS D-8, Share-Based Payments. t. The premium on the sale of shares represents the difference between the cost of the shares, restated through December 31, 2007 based on the Mexican National Consumer Price Index (NCPI), and the value at which such shares were assigned to executives of companies in the Group, net of the corresponding income tax. u. Comprehensive income consists of the current year net income. v. Sales revenues are recognized at the time the customer takes ownership of the products, in conformity with International Accounting Standard No. 18, issued by the International Accounting Standards Committee, applied on a supplementary basis. Sam’s Club membership revenues are deferred over the twelve-month term of the membership, in conformity with the requirements of Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, issued by the U.S. Securities and Exchange Commission, applied on a supplementary basis. Such revenues are presented in the other income caption in the statement of income. The Walmart Bank’s interest and fee revenues are recognized in the other income caption in the statement of income. w. The Company determined earnings per share by dividing the net income by the weighted average number of shares outstanding. x. Segment financial information has been prepared using the management approach established in accounting Bulletin B-5, which is based on the information used by Company management to make business decisions and monitor the Company’s performance.
NOTE 4 ACCOUNTS RECEIVABLE, NET: An analysis of accounts receivable is as follows:
December 31 2009 2008 Trade receivables Ps. 2,902,040 Ps. 1,860,273 Recoverable taxes 2,222,536 2,374,815 Other accounts receivable 551,614 324,477 Allowance for bad debts ( 135,491) ( 71,769)
Total Ps. 5,540,699 Ps. 4,487,796
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NOTE 5 PROPERTY AND EQUIPMENT, NET: An analysis of property and equipment is as follows:
December 31 2009 2008 Investments subject to depreciation: Buildings Ps. 29,114,493 Ps. 27,999,265 Facilities and leasehold improvements 24,462,360 21,035,129 53,576,853 49,034,394 Less: Accumulated depreciation ( 15,139,162) ( 13,424,189) Property, net 38,437,691 35,610,205
Fixtures and equipment 32,260,293 27,930,767 Less: Accumulated depreciation ( 15,865,572) ( 13,691,512) Fixtures and equipment, net 16,394,721 14,239,255
Capital lease: Property 5,438,747 4,369,203 Fixtures and equipment 878,132 855,073 6,316,879 5,224,276 Less: Accumulated depreciation ( 1,344,036) ( 1,210,417) Capital lease, net 4,972,843 4,013,859 Investments subject to depreciation, net Ps. 59,805,255 Ps. 53,863,319
Investments not subject to depreciation: Land Ps. 23,221,885 Ps. 22,750,274 Construction in progress 1,865,593 2,672,854 Investments not subject to depreciation Ps. 25,087,478 Ps. 25,423,128
Total Ps. 84,892,733 Ps. 79,286,447
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NOTE 6 FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES: An analysis of the balances in foreign currency is as follows:
(Thousands of U.S. dollars) December 31
2009 2008 Current assets $ 103,437 $ 36,934
Current liabilities $ 118,193 $ 176,211
The Company had the following U.S. dollar denominated transactions (excluding property and equipment):
(Thousands of U.S. dollars) December 31
2009 2008 Imported merchandise for sale $ 691,698 $ 1,043,656
Technical assistance, services and royalties $ 124,566 $ 125,582
The exchange rate at December 31, 2009, used to translate U.S. dollar denominated balances was Ps. 13.0903 (Ps. 13.6944 at December 31, 2008) pesos per U.S. dollar. At the date of these financial statements, the exchange rate was Ps. 13.0950 pesos per U.S. dollar.
NOTE 7 RELATED PARTY BALANCES AND TRANSACTIONS: Accounts payable to suppliers and other accounts payable include the following balances due to related parties:
December 31 2009 2008
Accounts payable to suppliers: C.M.A – U.S.A., L.L.C. (affiliated company) Ps. 467,582 Ps. 715,474 Global George, L.T.D. (affiliated company) 5,320 5,290 Ps. 472,902 Ps. 720,764
Other accounts payable: Wal-Mart Stores, Inc. (holding company) Ps. 363,229 Ps. 329,641 Global George, LTD. (affiliated company) 33,065 22,582 Ps. 396,294 Ps. 352,223
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The Company carried out the following transactions with related parties:
December 31 2009 2008
Imported merchandise for sale Ps. 2,717,272 Ps. 3,930,879
Technical assistance, services and royalties Ps. 1,539,110 Ps. 1,350,920
During the year ended December 31, 2009, the Company paid its primary officers compensations aggregating Ps. 480,635 (Ps. 418,185 in 2008). Such compensation is primarily comprised of direct short- term benefits as defined in Mexican FRS D-3.
NOTE 8 OTHER ACCOUNTS PAYABLE: An analysis of other accounts payable is as follows:
December 31 2009 2008
Accrued liabilities and others Ps. 7,790,968 Ps. 7,364,774 Taxes payable 1,728,056 632,030 Labor obligations 15,998 74,728
Total Ps. 9,535,022 Ps. 8,071,532
The Accrued liabilities and others caption includes provisions in the amount of Ps. 671,013 (Ps. 748,437 in 2008).
NOTE 9 COMMITMENTS: At December 31, 2009, the Company has entered into commitments for the purchase of inventory, property and equipment and maintenance services for Ps. 6,751,765 (Ps. 4,709,435 in 2008).
NOTE 10 LEASES: The Company has entered into operating leases with third parties for compulsory terms ranging from 2 to 15 years. Rent paid under capital leases may either be fixed or variable, based on a percentage of sales. The Company has entered into capital leases for the rental of real estate. Such leases are recorded at the lesser of either the present value of minimum rental payments or the market value of the property under lease and are amortized over the useful life of each property (up to 33 years). The Company has also entered into capital leases for the rental of residual water treatment plants used to meet environmental protection standards. The term of payment ranges from 7 to 10 years.
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Future rental payments are as follows:
Year Operating Capital lease lease (Minimum (Compulsory payments) term) 2010 Ps. 221,567 Ps. 261,639 2011 Ps. 212,001 Ps. 269,866 2012 Ps. 202,466 Ps. 277,477 2013 Ps. 191,565 Ps. 259,854 2014 Ps. 176,780 Ps. 222,912 2015 and thereafter Ps. 481,238 Ps. 3,421,023
Total rent under operating leases charged to results of operations for the years ended December 31, 2009 and 2008 was Ps. 2,039,433 and Ps. 1,801,929, respectively.
NOTE 11 INCOME TAX: The Company and its subsidiaries, except for the Walmart Bank, have been authorized by the Ministry of Finance and Public Credit to determine their tax results on a consolidated basis. An analysis of taxes charged to results of operations of the years ended December 31, 2009 and 2008 is as follows:
December 31 2009 2008
Current year income tax Ps. 6,252,431 Ps. 5,365,353 Deferred income tax ( 40,192) ( 181,531)
Total Ps. 6,212,239 Ps. 5,183,822
An analysis of the deferred tax liabilities (assets) derived from temporary differences is as follows:
December 31 2009 2008
Property and equipment Ps. 6,862,736 Ps. 5,889,508 Inventories 33,934 636,300 Unamortized tax loss for the Walmart Bank ( 468,864) ( 230,042) Other items, net ( 951,641) ( 779,409)
Total Ps. 5,476,165 Ps. 5,516,357
At December 31, 2009, the effective tax rate of WALMEX is similar than the 28% corporate income tax rate established in the Income Tax Law. In conformity with the Mexican Income Tax Law, the corporate income tax rate of 28% for 2009 will increase to 30% for 2010 to 2012, and then decrease to 29% for 2013 and return to 28% as of 2014. The Company’s 2009 income tax includes the partial taxation of the inventory held at December 31, 2004, since the Company opted to consider such inventories as taxable over a number of years, for purposes of deducting cost of sales. The last year of taxation of the inventories will be 2012.
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As a result of the 2010 tax reform, which included changes to the tax consolidation regime, the Company is now required to pay income tax related to the tax consolidation benefits obtained as of 1999. The effects of this change are not deemed to be material. The Walmart Bank has tax losses from prior years which, in conformity with the current Mexican Income Tax Law, may be carried forward against taxable income generated in the next ten years. An analysis of the available tax loss carryforward at December 31, 2009 is as follows:
Year of expiration Amount 2016 Ps. 24,124 2017 240,862 2018 585,279 2019 712,616 Ps. 1,562,881
Based on the forecast of its taxable income, the Company will continue generating income tax in upcoming years.
NOTE 12 LABOR OBLIGATIONS: The Company has set up a defined benefits trust fund to cover seniority premiums accruing to employees. Workers make no contributions to this fund. The Company also recognizes the liability for employee termination payments. Both these obligations are computed using the projected unit credit method. At December 31, the Company’s assets, liabilities and costs related to seniority premiums and employee termination payments for reasons other than corporate restructuring are as follows:
Seniority premiums Employee termination payments
2009 2008 2009 2008
Vested benefit obligation Ps. 185,204 Ps. 155,538 Ps. 44,616 Ps. 59,211
Defined benefit obligation Ps. 448,637 Ps. 382,977 Ps. 122,375 Ps. 108,543 Plan assets ( 421,623) ( 367,145) - - Unamortized items 12,844 11,438 5,242 7,605
Net projected liability Ps. 39,858 Ps. 27,270 Ps. 127,617 Ps. 116,148
Labor cost for current service Ps. 61,621 Ps. 57,124 Ps. 8,975 Ps. 8,679 Financial cost 33,947 28,337 9,354 8,338 Return on plan assets ( 32,485) ( 25,989) - - Actuarial loss (gain) 3,782 3,952 ( 6,815) ( 408)
Net period cost Ps. 66,865 Ps. 63,424 Ps. 11,514 Ps. 16,609
Benefits paid from the trust for seniority premiums for the year ended December 31, 2009 aggregated Ps. 32,822 (Ps. 25,040 in 2008), while contributions made to the trust during the year aggregated Ps. 53,760 (Ps. 60,761 in 2008). At December 31, 2009, the plan assets have been invested through the trust as follows: 98% in the money market and 2% in mutual funds.
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At December 31, 2009 the discount rate used to calculate the present value of labor obligations is 9.0% (9.25% in 2008). The salary increase rate is 5.25% (5.0% in 2008) and the return rate for the plan assets was 8.75% (9.25% in 2008). The following is an analysis at December 31 of the Company’s assets and liabilities that make up its labor obligations related to seniority premiums and employee termination payments for reasons other than corporate restructuring:
Seniority premiums Employee termination payments
Defined Defined Year benefit Unamortized benefit Unamortized obligation Plan assets Plan status items obligation items 2009 Ps. 448,637 Ps. ( 421,623) Ps. 27,014 Ps. 12,844 Ps. 122,375 Ps. 5,242 2008 Ps. 382,977 Ps. ( 367,145) Ps. 15,832 Ps. 11,438 Ps. 108,543 Ps. 7,605 2007 Ps. 347,421 Ps. ( 319,792) Ps. 27,629 Ps. ( 3,009) Ps. 99,378 - 20061 Ps. 298,380 Ps. ( 279,399) Ps. 18,981 Ps. 6,349 Ps. 42,600 - 20051 Ps. 261,673 Ps. ( 246,614) Ps. 15,059 Ps. 11,336 - -
(¹) Figures in thousands of Mexican pesos with purchasing power at December 31, 2007.
The Company computed deferred employee profit sharing for the years ended December 31, 2009 and 2008 using the asset and liability method, as required by Mexican FRS D-3. The result of the computation is that the Company had no deferred employee profit sharing in such years.
NOTE 13 SHAREHOLDERS’ EQUITY: a. Ordinary shareholders’ meeting: At an ordinary meeting held on March 12, 2009, the shareholders adopted the following resolutions: 1. Approval of a cap of Ps. 8,000,000 on the amount the Company will use in 2009 to repurchase its own shares. 2. Cancellation of 69,940,100 series “V” shares resulting from the repurchase of shares. 3. Increase in the legal reserve of Ps. 297,151, charged to retained earnings. 4. A declared dividend, for which shareholders will receive a cash payment at the rate of $ 0.61 pesos per share. Such dividend will be paid on April 30, 2009. At an ordinary meeting held on March 12, 2008, the shareholders adopted the following resolutions: 1. Approval of a cap of Ps. 8,000,000 on the amount the Company will use in 2008, to repurchase its own shares. 2. Cancellation of 152,018,400 series “V” shares resulting from the repurchase of shares. 3. Increase in the legal reserve of Ps. 352,135, charged to retained earnings. 4. A declared dividend, for which shareholders may receive payment either in cash or in Company shares at an exchange factor determined based on both the closing market price of the Company’s shares on April 2, 2008 and the cash dividend of $ 0.59 pesos per share. Such dividend will be paid on April 18, 2008. 5. Increase in variable portion of capital stock for up to Ps. 4,991,590. This capital increase will be covered by issuing a maximum of 178,271,066 common ordinary shares to be used solely for payment of the stock dividend. Those shares that are not subscribed and delivered to the shareholders shall be cancelled and the proposed capital increase shall be reduced proportionally. In conformity with the resolutions adopted at the ordinary shareholders’ meeting held on March 12, 2008, the deadline for the shareholders to decide whether they would receive the dividend in cash or in Company shares, expired on April 15, 2008. As a result, 37,228,737 new series “V” shares, representing capital stock of Ps. 1,693,908, were delivered to the shareholders and 141,042,329
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unsubscribed shares were cancelled, giving rise to a decrease of Ps. 3,297,682 in the unsubscribed portion of capital stock. b. The Company’s capital stock is comprised of unlimited registered shares with no par value. At December 31, unrestated capital and the number of shares are as follows:
Capital stock 2009 2008
Fixed Ps. 1,844,173 Ps. 1,844,173 Variable 12,525,307 12,625,520
Total Ps. 14,369,480 Ps. 14,469,693
Number of freely subscribed common series “V” shares 2009 2008
Fixed (class 1) 1,075,006,074 1,075,006,074 Variable (class 2) 7,301,258,149 7,359,674,349
Total 8,376,264,223 8,434,680,423
Capital stock at December 31, 2009 and 2008 includes in both years capitalized earnings of Ps. 11,451,328 and Ps. 899,636 in capitalized restatement accounts. During the year ended December 31, 2009, WALMEX repurchased 58,416,200 (75,833,500 in 2008) of its own shares, of which 7,070,000 (12,963,400 in 2008) were cancelled as per the resolution adopted at the shareholders’ meeting held on March 12, 2009 (March 12, 2008). As a result of the share repurchases, historical capital stock was reduced by Ps. 100,213 (Ps. 126,046 in 2008). The difference between the theoretical value and the repurchase cost of the shares acquired was applied against retained earnings. c. Distributed earnings and capital reductions in excess of the balance of the net tax profit account (CUFIN) and the restated contributed capital account (CUCA) will be subject to taxation in terms of Articles 11 and 89 of the Mexican Income Tax Law. At December 31, 2009 and 2008, the total balance of the aforesaid tax accounts is Ps. 76,682,126 and Ps. 66,246,839, respectively. d. The employee stock option plan fund consists of 144,252,677 WALMEX shares, of which 138,389,521 shares have been placed in a trust created for such purpose. All employee stock options are granted to executives of subsidiary companies at a value that is no less than the market value on the date of grant. The amount charged to results of operations for this item aggregates Ps. 205,954 in 2009 and Ps. 91,453 in 2008, which represents no cash disbursement.
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An analysis of movements in the Company’s employee stock option plan is as follows:
Weighted average price per share Number of shares (pesos) Balance at December 31, 2007 124,157,538 22.00 Granted 25,402,584 38.70 Exercised ( 13,113,293) 17.19 Cancelled ( 3,050,172) 35.51 Balance at December 31, 2008 133,396,657 25.34 Granted 30,763,435 31.69 Exercised ( 19,636,369) 18.51 Cancelled ( 2,360,088) 40.12
Balance at December 31, 2009 142,163,635 27.41
Shares available for option grant:
December 31, 2009 2,089,042
December 31, 2008 2,734,789
At December 31, 2009, the employee stock options granted and exercisable and included in the employee stock option plan fund were as shown below:
Granted Exercisable
Range of Average Weighted average Weighted average exercise price Number remaining life price per share Number price per share (pesos) of shares (in years) (pesos) of shares (pesos)
9.96 – 11.41 5,863,156 1.0 11.10 5,863,156 11.10 10.73 – 12.64 7,332,306 2.2 12.55 7,332,306 12.55 11.55 – 13.75 11,373,337 3.2 12.57 11,373,337 12.57 16.90 – 18.18 13,783,526 4.2 16.93 13,783,526 16.93 19.80 17,909,504 5.2 19.80 12,851,595 19.80 28.79– 30.03 16,943,896 6.2 28.80 8,449,636 28.80 43.09 15,664,387 7.2 43.09 5,910,246 43.09 38.70 22,530,088 8.2 38.70 3,981,407 38.70 31.69 30,763,435 9.2 31.69 - -
142,163,635 6.3 27.42 69,545,209 20.71
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NOTE 14 COMPREHENSIVE FINANCING RESULT: An analysis of comprehensive financing result is as follows:
December 31 2009 2008 Financial income, net Ps. 672,723 Ps. 783,214 Exchange loss, net ( 10,633) ( 308,767)
Total Ps. 662,090 Ps. 474,447
NOTE 15 SEGMENT INFORMATION: The Company’s segment financial information was prepared based on a managerial approach and the criteria established in accounting Bulletin B-5. The Company operates in Mexico, makes sales to the general public, and is primarily engaged in operating self-service. The Company has identified the following operating segments: • Self-service: Operation of discount stores, hypermarkets, membership self-service wholesale stores and supermarkets. • Financial services: Operation of bank branches to provide banking and credit services. • Other: Consists of department stores, restaurants and the real estate transactions with third parties. An analysis of segment financial information at December 31 is as follows:
Segment Total revenues Operating income
2009 2008 2009 2008
Self service Ps. 256,313,101 Ps. 230,312,982 Ps. 21,429,255 Ps.18,319,562 Financial services 173,081 32,090 ( 745,328) ( 623,838) Other 13,964,969 14,571,938 1,584,572 2,055,350
Consolidated Ps. 270,451,151 Ps. 244,917,010 Ps. 22,268,499 Ps.19,751,074
Segment Purchase of property and equipment Depreciation
2009 2008 2009 2008
Self service Ps. 9,107,442 Ps. 9,953,133 Ps. 3,895,827 Ps. 3,421,219 Financial services 203,344 168,983 64,837 51,072 Other 423,771 1,193,864 685,548 663,782
Consolidated Ps. 9,734,557 Ps. 11,315,980 Ps. 4,646,212 Ps. 4,136,073
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Segment Total assets Current liabilities
2009 2008 2009 2008
Self service Ps.109,641,979 Ps. 95,730,567 Ps. 33,859,456 Ps.31,523,608 Financial services 1,399,093 623,103 541,748 233,812 Other 14,483,375 13,373,320 2,033,073 2,022,833 Unassignable items 7,614,707 8,736,927 3,478,325 1,296,401
Consolidated Ps.133,139,154 Ps.118,463,917 Ps. 39,912,602 Ps.35,076,654
Unassignable items refer primarily to reserve land, cash and cash equivalents of the parent and real estate companies, as well as income tax payable.
NOTE 16 SUBSEQUENT EVENTS: At an extraordinary shareholders’ meeting held on December 22, 2009, the shareholders approved the acquisition of the shares of TFB Corporation N.V. and Subsidiaries (Walmart Central America) through the merger of such company into WALMEX via a related party. As a result of this transaction, the Company will acquire the assets and assume the liabilities of Walmart Central America as of the date the acquisition is effective. For book purposes, this transaction shall be recorded as a business combination in conformity with Mexican FRS B-7. The Company is in the process of evaluating the effects of this transaction.
NOTE 17 NEW ACCOUNTING PRONOUNCEMENTS: On December 18, 2009, the CINIF approved Mexican FRS B-16, Financial Statements of Not-For-Profit Organizations; Mexican FRS C-1, Cash and Cash Equivalents; and Mexican FRS E-2, Donations Received or Made by Not-For-Profit Organizations, all of which take effect as of January 1st, 2010. The CINIF also approved Mexican FRS B-5, Financial Information by Segment, and Mexican FRS B-9, Interim Financial Information, which become effective as of January 1st, 2011. The application of these new standards will have no material effect on the Company’s financial statements.
NOTE 18 APPROVAL OF FINANCIAL STATEMENTS: The accompanying financial statements and these notes at and for the years ended December 31, 2009 and 2008 were approved by the Company’s Board of Directors at a meeting held on February 11, 2010.
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