2.	Restatement

We are restating our previously issued consolidated financial statements for the year ended January 29, 2011 to correct various errors in our accounting for leases.

The most significant of the corrections resulted from improper application of the sale-leaseback provisions of ASC 840, Leases. We are often involved extensively in the construction of leased stores. In many cases, we are responsible for construction cost over runs or construct non-standard tenant improvements (e.g. roof or HVAC systems). As a result of this involvement, we are deemed the "owner" for accounting purposes during the construction period, so are required to capitalize the construction costs on our Balance Sheet. Upon completion of the project, we must perform a sale-leaseback analysis pursuant to ASC 840 to determine if we can remove the assets from our Balance Sheet. In many of our leases, we are reimbursed a portion of the construction costs via adjusted rental and/or cash payments or have terms which fix the rental payments for a significant percentage of the leased asset's economic life. These items are generally considered "continuing involvement" which preclude us from derecognizing the constructed assets from our Balance Sheet when construction is complete.

Additionally, certain store and equipment leases were improperly recorded as operating leases, rather than capital leases.

To correct the accounting errors, we have recorded additional property and the related capital lease and financing obligations on our Balance Sheets. In our Statements of Income, lease payments related to these properties are now recognized as depreciation and interest expense, rather than rent expense (which we record in Selling, General and Administrative Expense). The corrections impact the classification of cash flows from operations, financing activities and investing activities, but have no impact on the net increase or decrease in cash and cash equivalents reported in our Statements of Cash Flows. As part of the restatement, we also reversed a $31 million cumulative lease accounting correction to net income which was recorded in the quarterly period ended October 30, 2010 (as disclosed in our quarterly report on Form 10-Q which was filed on December 9, 2010) and recorded the adjustment in the proper accounting periods.

The following tables summarize the corrections by financial statement line item.


	January 29, 2011
	Previously Reported (1)		Adjustments			Restated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	2,277	$	—		$	2,277
Merchandise inventories		3,036		—			3,036
Deferred income taxes		77		—			77
Other		255		(3	)		252

Total current assets		5,645		(3	)		5,642
Property and equipment, net		7,256		1,436			8,692
Long-term investments		277		—			277
Other assets		386		(218	)		168


Total assets	$	13,564	$	1,215		$	14,779


Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,138	$	—		$	1,138
Accrued liabilities		1,027		3			1,030
Income taxes payable		127		—			127
Current portion of long-term debt		400		—			400
Current portion of capital lease and financing obligations		18		68			86

Total current liabilities		2,710		71			2,781

Long-term debt		1,494		—			1,494
Capital lease and financing obligations		184		1,834			2,018
Deferred income taxes		418		(162	)		256
Other long-term liabilities		656		(276	)		380
Shareholders' equity		8,102		(252	)		7,850


Total liabilities and shareholders' equity	$	13,564	$	1,215		$	14,779

(1)	Includes certain reclassifications to conform to the current presentation


	January 30, 2010
	Previously Reported (1)		Adjustments			Restated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	2,267	$	—		$	2,267
Merchandise inventories		2,923		—			2,923
Deferred income taxes		73		—			73
Other		222		—			222

Total current assets		5,485		—			5,485

Property and equipment, net		7,018		1,488			8,506
Long-term investments		321		—			321
Other assets		336		(183	)		153

Total assets	$	13,160	$	1,305		$	14,465


Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,188	$	—		$	1,188
Accrued liabilities		1,002		3			1,005
Income taxes payable		184		—			184
Current portion of capital lease and financing obligations		16		62			78

Total current liabilities		2,390		65			2,455

Long-term debt		1,894		—			1,894
Capital lease and financing obligations		158		1,810			1,968
Deferred income taxes		377		(163	)		214
Other long-term liabilities		488		(149	)		339
Shareholders' equity		7,853		(258	)		7,595

Total liabilities and shareholders' equity	$	13,160	$	1,305		$	14,465

(1)	Includes certain reclassifications to conform to the current presentation.


	2010
	Previously Reported		Adjustments			Restated
	(In Millions, Except per Share Data)
Sales	$	18,391	$	—		$	18,391
Cost of merchandise sold		11,359		—			11,359

Gross margin		7,032		—			7,032
Operating expenses:
Selling, general, and administrative		4,462		(272	)		4,190
Depreciation and amortization		656		94			750

Operating income		1,914		178			2,092
Interest expense, net		132		172			304

Income before income taxes		1,782		6			1,788
Provision for income taxes		668		—			668

Net income	$	1,114	$	6		$	1,120

Net income per share:
Basic	$	3.67	$	0.02		$	3.69
Diluted	$	3.65	$	0.01		$	3.66

	2009
	Previously Reported		Adjustments			Restated
	(In Millions, Except per Share Data)
Sales	$	17,178	$	—		$	17,178
Cost of merchandise sold		10,680		—			10,680

Gross margin		6,498		—			6,498
Operating expenses:
Selling, general, and administrative		4,196		(245	)		3,951
Depreciation and amortization		590		98			688

Operating income		1,712		147			1,859
Interest expense, net		124		177			301

Income before income taxes		1,588		(30	)		1,558
Provision for income taxes		597		(12	)		585

Net income	$	991	$	(18	)	$	973

Net income per share:
Basic	$	3.25	$	(0.06	)	$	3.19
Diluted	$	3.23	$	(0.06	)	$	3.17


	2008
	Previously Reported		Adjustments			Restated
	(In Millions, Except per Share Data)
Sales	$	16,389	$	—		$	16,389
Cost of merchandise sold		10,334		—			10,334


Gross margin		6,055		—			6,055
Operating expenses:
Selling, general, and administrative		3,978		(209	)		3,769
Depreciation and amortization		541		91			632

Operating income		1,536		118			1,654
Interest expense, net		111		164			275

Income before income taxes		1,425		(46	)		1,379
Provision for income taxes		540		(18	)		522

Net income	$	885	$	(28	)	$	857


Net income per share:
Basic	$	2.89	$	(0.09	)	$	2.80
Diluted	$	2.89	$	(0.09	)	$	2.80

The cumulative effect of the restatement on retained earnings for all periods prior to February 2, 2008 was $212 million.


	2010
	Previously Reported			Adjustments			Restated
	(In Millions)
Operating activities
Net income	$	1,114		$	6		$	1,120
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation and amortization		656			94			750
Share-based compensation		66			—			66
Excess tax benefits from share-based compensation		3			—			3
Deferred income taxes		38			1			39
Other non-cash revenues and expenses		66			(31	)		35
Changes in operating assets and liabilities:
Merchandise inventories		(107	)		—			(107	)
Other current and long-term assets		(50	)		—			(50	)
Accounts payable		(50	)		—			(50	)
Accrued and other long-term liabilities		3			10			13
Income taxes		(63	)		—			(63	)

Net cash provided by operating activities		1,676			80			1,756


Investing activities
Acquisition of property and equipment		(761	)		(40	)		(801	)
Sales of investments in auction rate securities		42			—			42
Other		2			—			2

Net cash used in investing activities		(717	)		(40	)		(757	)


Financing activities
Treasury stock purchases		(1,004	)		—			(1,004	)
Capital lease and financing obligation payments		(17	)		(67	)		(84	)
Proceeds from financing obligations		—			27			27
Proceeds from stock option exercises		75			—			75
Excess tax benefits from share-based compensation		(3	)		—			(3	)

Net cash used in financing activities		(949	)		(40	)		(989	)

Net increase in cash and cash equivalents		10			—			10
Cash and cash equivalents at beginning of period		2,267			—			2,267

Cash and cash equivalents at end of period	$	2,277		$	—		$	2,277


	2009
	Previously Reported			Adjustments			Restated
	(In Millions)
Operating activities
Net income	$	991		$	(18	)	$	973
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation and amortization		590			98			688
Share-based compensation		64			—			64
Excess tax benefits from share-based compensation		3			—			3
Deferred income taxes		52			(12	)		40
Other non-cash revenues and expenses		52			(17	)		35
Changes in operating assets and liabilities:
Merchandise inventories		(119	)		—			(119	)
Other current and long-term assets		(13	)		—			(13	)
Accounts payable		306			—			306
Accrued and other long-term liabilities		234			1			235
Income taxes		74			—			74

Net cash provided by operating activities		2,234			52			2,286


Investing activities
Acquisition of property and equipment		(666	)		(9	)		(675	)
Sales of investments in auction rate securities		28			—			28
Other		(2	)		—			(2	)

Net cash used in investing activities		(640	)		(9	)		(649	)


Financing activities
Treasury stock purchases		(1	)		—			(1	)
Capital lease and financing obligation payments		(17	)		(53	)		(70	)
Proceeds from financing obligations		—			10			10
Proceeds from stock option exercises		51			—			51
Excess tax benefits from share-based compensation		(3	)		—			(3	)

Net cash provided by (used in) financing activities		30			(43	)		(13	)

Net increase in cash and cash equivalents		1,624			—			1,624
Cash and cash equivalents at beginning of period		643			—			643

Cash and cash equivalents at end of period	$	2,267		$	—		$	2,267


	2008
	Previously Reported			Adjustments			Restated
	(In Millions)
Operating activities
Net income	$	885		$	(28	)	$	857
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation and amortization		541			91			632
Share-based compensation		55			—			55
Deferred income taxes		84			(18	)		66
Other non-cash revenues and expenses		49			8			57
Changes in operating assets and liabilities:
Merchandise inventories		60			—			60
Other current and long-term assets		(40	)		—			(40	)
Accounts payable		48			—			48
Accrued and other long-term liabilities		42			1			43
Income taxes		(26	)		—			(26	)

Net cash provided by operating activities		1,698			54			1,752


Investing activities
Acquisition of property and equipment		(1,014	)		(52	)		(1,066	)
Purchases of investments in auction rate securities		(53	)		—			(53	)
Sales of investments in auction rate securities		93			—			93
Other		11			—			11

Net cash used in investing activities		(963	)		(52	)		(1,015	)


Financing activities
Treasury stock purchases		(262	)		—			(262	)
Capital lease and financing obligation payments		(16	)		(46	)		(62	)
Proceeds from financing obligations		—			44			44
Proceeds from stock option exercises		5			—			5

Net cash used in financing activities		(273	)		(2	)		(275	)

Net increase in cash and cash equivalents		462			—			462
Cash and cash equivalents at beginning of period		181			—			181

Cash and cash equivalents at end of period	$	643		$	—		$	643