Page 10 of 10(Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______to______.
Commission file number 1-6991
WAL-MART STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware ___________71-0415188__________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 S.W. Eighth Street
Bentonville, Arkansas ____________72716______________
(Address of principal executive offices)
(501) 273-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter periods that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No _____
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by the court.
Yes _____ No _____
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $.10 Par Value -- 2,293,855,353 shares as of October 31,
1996.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
<CAPTION>
October 31, January 31,
1996 1996
ASSETS (Unaudited) (*Note)
<S> <C> <C>
Cash and cash equivalents $ 76 $ 83
Receivables 1,171 853
Inventories 19,044 15,989
Other current assets 733 406
Total current assets 21,024 17,331
Property, plant and equipment 22,744 20,850
Less accumulated depreciation 4,598 3,752
Net property, plant and equipment 18,146 17,098
Property under capital leases 2,663 2,476
Less accumulated amortization 760 680
Net property under capital leases 1,903 1,796
Other assets and deferred charges 1,134 1,316
Total assets $42,207 $37,541
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 1,112 $ 2,458
Accounts payable 9,367 6,442
Other current liabilities 3,698 2,554
Total current liabilities 14,177 11,454
Long-term debt 7,884 8,508
Long-term obligations under capital leases 2,223 2,092
Deferred income taxes and other 1,542 731
Common stock and capital in excess of par value 775 774
Retained earnings 15,992 14,394
Foreign currency translation adjustment ( 386) ( 412)
Total shareholders' equity 16,381 14,756
Total liabilities and shareholders'
equity $42,207 $37,541
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements.
<F2>
*Note: The balance sheet at January 31, 1996, has been taken from the
audited financial statements at that date and condensed.
<TABLE>
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in millions except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $25,644 $22,913 $74,003 $66,077
Other income - net 433 268 920 763
26,077 23,181 74,923 66,840
Costs and expenses:
Cost of sales 20,450 18,176 58,891 52,467
Operating, selling
and general and
administrative
expenses 4,329 3,801 12,269 10,871
Interest costs:
Debt 158 182 490 502
Capital leases 54 49 160 141
24,991 22,208 71,810 63,981
Income before income taxes 1,086 973 3,113 2,859
Provision for income taxes 402 361 1,152 1,061
Net income $ 684 $ 612 $ 1,961 $ 1,798
Net income per share $ .30 $ .27 $ .86 $ .78
Dividends per share $ .0525 $ .05 $ .1575 $ .15
Beginning of the year
shareholders' equity $14,756 $12,726 $14,756 $12,726
Return for the period
on beginning of the
year shareholders'
equity 4.64% 4.81% 13.29% 14.13%
Average number of
common shares
outstanding 2,294 2,296 2,293 2,296
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
<CAPTION>
Nine Months Ended October 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,961 $ 1,798
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,061 938
Increase in inventories ( 3,036) ( 4,141)
Increase in accounts payable 3,014 2,496
Noncash items and other ( 37) ( 547)
Net cash provided by operating activities 2,963 544
Cash flows from investing activities:
Net capital additions ( 2,217) ( 2,832)
Proceeds from sale of photo finishing plants 464 -
Other investing activities 271 154
Net cash used in investing activities ( 1,482) ( 2,678)
Cash flows from financing activities:
(Decrease)increase in commercial paper ( 1,346) 1,886
Proceeds from issuance of long-term debt - 822
Net proceeds from formation of real estate
investment trust (REIT) 632 -
Payment of long-term debt ( 371) ( 131)
Dividends paid ( 361) ( 344)
Other financing activities ( 42) ( 131)
Net cash (used in) provided by financing
activities ( 1,488) 2,102
Net decrease in cash and cash equivalents ( 7) ( 32)
Cash and cash equivalents at beginning
of year 83 45
Cash and cash equivalents at end of
period $ 76 $ 13
Supplemental Disclosure of Cash Flow Information:
Income tax paid $ 1,278 $ 1,285
Interest paid 669 644
Capital lease obligations incurred 213 137
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements.
WAL-MART STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of October 31, 1996, and the
related condensed consolidated statements of income and cash flows for
the periods ended October 31, 1996 and 1995 are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Such adjustments
consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do
not contain certain information included in the Company's annual report.
Therefore, the interim statements should be read with the annual report.
NOTE B. INVENTORIES
Inventories are valued at the lower of cost or market value, using the
last-in, first-out (LIFO) method for substantially all inventories.
Quarterly inventory determinations under LIFO are partially based on
assumptions as to inventory levels at the end of the fiscal year, sales
and the rate of inflation for the year. If the first-in, first-out
(FIFO) method of accounting had been used by the Company, inventories at
October 31, 1996, would have been $321 million higher than reported, an
increase in the LIFO reserve of $10 million from January 31, 1996. If the
FIFO method had been used at October 31, 1995, inventories would have
been $364 million higher than reported, an increase in the LIFO reserve
of $13 million from January 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Increased sales for the nine month period ending October 31, 1996, were
attributable to an increase in comparable sales in the Wal-Mart stores
and Supercenters of 5%, an increase in Sam's Clubs' comparable sales of
2%, and to the Company's expansion activities. Domestic expansion for
the nine month period included 40 new Wal-Mart stores, nine new
Supercenters, eight new Sam's Clubs (four were closed), along with the
conversion of 87 Wal-Mart stores to Supercenters, and the relocation or
expansion of 13 Wal-Mart stores. International expansion included the
addition of one Supercenter in Argentina, four Wal-Mart stores in
Canada, two units in China and 13 Mexican units. International sales
accounted for 5% of total sales in fiscal 1997 compared with 4% in fiscal
1996. Sam's Clubs sales as a percentage of total sales fell from 21% in
fiscal 1996 to 19% in fiscal 1997.
At October 31, 1996, the Company had 1,948 Wal-Mart stores, 335
Supercenters, and 437 Sam's Clubs in the United States , along with four
units in Argentina, five units in Brazil, 135 Wal-Mart stores in Canada,
two units in China, 139 units in Mexico and 11 units in Puerto Rico.
This compares with 1,965 Wal-Mart stores, 234 Supercenters and 432 Sam's
Clubs in the United States, along with one unit in Argentina, two units
in Brazil, 129 Wal-Mart stores in Canada, 120 units in Mexico, and 11
units in Puerto Rico at the same time last year.
The Company's gross profit as a percentage of sales was 20.25% in the
third quarter of fiscal 1997, down from 20.67% in the third quarter of
fiscal 1996, and down from 20.60% for the first nine months in fiscal
1996 to 20.42% in fiscal 1997. During the quarter, the Company made a
strategic decision to reduce the merchandise assortment in selected
categories that resulted in one-time markdowns. Before these markdowns,
the gross profit percentage was relatively flat with the prior year's
periods.
Operating, selling, general, and administrative expenses increased as a
percentage of sales from 16.59% during the third quarter of fiscal 1996
to 16.88% during the third quarter of fiscal 1997, and increased from
16.45% for the nine month period ended October 31, 1995, to 16.58% for
the nine month period ended October 31, 1996. The increase is primarily
due to insurance reserve adjustments in the prior year's periods.
Other income increased as a percentage of sales from 1.17% during the
third quarter of fiscal 1996 to 1.69% during the third quarter of fiscal
1997, and increased from 1.15% during the nine month period ended October
31, 1995, to 1.24% for the nine month period ended October 31, 1996. This
increase is attributable principally to a gain recognized on the sale of
the photo finishing plants and accompanying distribution network.
In the first quarter of fiscal 1997, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The statement requires entities to review long-lived assets and
certain intangible assets in certain circumstances, and if the value of
the assets is impaired, an impairment loss shall be recognized. Due to
the Company's previous accounting policies, this pronouncement had no
effect on the Company's financial position or results of operations.
The Company also adopted SFAS No. 123 "Accounting for Stock-Based
Compensation" in the first quarter of fiscal 1997. The statement relates
to the measurement of compensation of stock options issued to employees.
The statement gives entities a choice of recognizing related compensation
expense by adopting a new fair value method determination or continuing
to measure compensation using the former standard. If the former
standard for measurement is elected, SFAS No. 123 requires supplemental
disclosure to show the effects of using the new measurement criteria.
The Company elected to continue to use the measurement prescribed by the
former standard, and accordingly, the pronouncement had no effect on the
Company's financial position or results of operations. The Company will
present the supplemental disclosure in the fiscal 1997 annual report.
Interest expense decreased $19 million in the third quarter of fiscal
1997 and increased $7 million in the nine month period ended October 31,
1996, when compared with the same periods in fiscal 1996. As a
percentage of sales, interest expense is down for both the quarter and
nine month period ended October 31, 1996. Interest expense is trending
downward primarily due to lower short term borrowings.
Liquidity and Capital Resources
Cash flows provided by operating activities were $2,963 million during
the first nine months of fiscal 1997 compared with $544 million in the
first nine months of fiscal 1996. The increase is primarily due to a
greater emphasis on inventory management that resulted in lowering unit
inventory levels and improving payables to inventory ratios. The
increased operating cash flow provided an excess of $385 million after
investing $2,217 million in capital assets and paying dividends of $361
million.
During the third quarter, the Company received proceeds of $464 million
from the sale of its six photo finishing plants and accompanying
distribution network. The Company also entered into long-term photo
finishing services and supply agreements with the purchaser. A
significant portion of the proceeds were allocated to long-term service
and supply agreements and will be recognized in income in future periods.
Also, during the quarter, the Company acquired certain stock of a real
estate investment trust (REIT) and third party investors acquired the
balance of the REIT's stock. Net proceeds received by the Company from
this transaction were $632 million.
Cash flow provided by operations and the Company's ability to obtain
short term financing should be adequate to fund the Company's expansion
program and to provide for other cash needs. Also, the Company may issue
debt securities aggregating $751 million under shelf registration
statements previously filed with the Securities and Exchange Commission.
At October 31, 1996, the Company had total assets of $42,207 million
compared with $37,541 million at January 31, 1996. Working capital at
October 31, 1996, was $6,847 million up $970 million from January 31,
1996. The ratio of current assets to current liabilities was 1.5 to 1.0
at October 31, 1996, and January 31, 1996, and was 1.4 to 1.0 at October
31, 1995.
PART II. OTHER INFORMATION
Item 5. Other Information
The Private Securities Litigation Reform Act of 1995 ("the Act") provides
a safe harbor for forward-looking statements made by or on behalf of the
Company. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof),
expansion and other development trends of industry segments in which the
Company is active, business strategy, expansion and growth of the
Company's business and operations and other such matters are forward-
looking statements. To take advantage of the safe harbor provided by the
Act, Wal-Mart is identifying certain factors that could cause actual
results to differ materially from those expressed in any forward-looking
statements, whether oral or written, made by or on behalf of the Company.
Many of these factors have previously been identified in filings or
statements made by or on behalf of the Company.
All phases of The Company's operations are subject to influences outside
its control. Any one, or a combination, of these factors could materially
affect the results of the Company's operations. These factors include:
competitive pressures, inflation, consumer debt levels, currency exchange
fluctuations, trade restrictions, changes in tariff and freight rates,
political instability, interest rate fluctuations and other capital
market conditions. Forward-looking statements made by or on behalf of the
Company are based on a knowledge of its business and the environment in
which it operates, but because of the factors listed above, actual
results may differ from those in the forward-looking statements.
Consequently, all of the forward-looking statements made are qualified by
these cautionary statements and there can be no assurance that the actual
results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business or operations.
Item 6. Exhibits and Reports on Form 8-K
(a) The following document is filed as an exhibit to this Form
10-Q:
Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed for the quarter ended
October 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAL-MART STORES, INC.
Date: December 10, 1996 /s/David D. Glass______________
David D. Glass
President and
Chief Executive Officer
Date: December 10, 1996 /s/John B. Menzer______________
John B. Menzer
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 1,171
<ALLOWANCES> 0
<INVENTORY> 19,044
<CURRENT-ASSETS> 21,024
<PP&E> 22,744
<DEPRECIATION> 4,598
<TOTAL-ASSETS> 42,207
<CURRENT-LIABILITIES> 14,177
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 16,151
<TOTAL-LIABILITY-AND-EQUITY> 42,207
<SALES> 74,003
<TOTAL-REVENUES> 74,923
<CGS> 58,891
<TOTAL-COSTS> 71,810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 650
<INCOME-PRETAX> 3,113
<INCOME-TAX> 1,152
<INCOME-CONTINUING> 1,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,961
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
