Page 13 of 13 (Form 10-Q)
UNITED STATES
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 July 31, 1997.
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 -- 2,253,460,633 shares as of July 31, 1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
<CAPTION>
July 31, January 31,
1997 1997
ASSETS (Unaudited) (*Note)
<S> <C> <C>
Cash and cash equivalents $ 930 $ 883
Receivables 919 845
Inventories 16,397 15,897
Other current assets 288 368
Total current assets 18,534 17,993
Property, plant and equipment 24,275 23,182
Less accumulated depreciation 5,502 4,849
Net property, plant and equipment 18,773 18,333
Property under capital leases 2,822 2,782
Less accumulated amortization 848 791
Net property under capital leases 1,974 1,991
Other assets and deferred charges 1,392 1,287
Total assets $40,673 $39,604
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 7,885 $ 7,628
Long-term debt due within one year 1,274 523
Other current liabilities 3,376 2,806
Total current liabilities 12,535 10,957
Long-term debt 6,943 7,709
Long-term obligations under capital leases 2,306 2,307
Deferred income taxes and other 467 463
Minority Interest 1,159 1,025
Common stock and capital in excess of par value 776 775
Retained earnings 16,907 16,768
Foreign currency translation adjustment ( 420) ( 400)
Total shareholders' equity 17,263 17,143
Total liabilities and shareholders'
equity $40,673 $39,604
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements.
<F2>
*Note: The balance sheet at January 31, 1997, has been derived 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 Six Months Ended
July 31, July 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $28,386 $25,587 $53,795 $48,359
Other income - net 313 267 588 502
28,699 25,854 54,383 48,861
Costs and expenses:
Cost of sales 22,478 20,336 42,605 38,368
Operating, selling
and general and
administrative
expenses 4,767 4,180 9,100 8,028
Interest costs:
Debt 137 163 271 332
Capital leases 55 55 110 106
27,437 24,734 52,086 46,834
Income before income taxes 1,262 1,120 2,297 2,027
Provision for income taxes 467 414 850 750
Net income $ 795 $ 706 $ 1,447 $ 1,277
Net income per share $ .35 $ .31 $ .64 $ .56
Dividends per share $ .0675 $ .0525 $ .135 $ .105
Average shareholders'
equity $17,123 $15,504 $17,203 $15,274
Return for the period
on average
shareholders' equity 4.64% 4.55% 8.41% 8.36%
Average number of
common shares
outstanding 2,260 2,294 2,268 2,293
</TABLE>
[FN]
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>
Six Months Ended July 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,447 $ 1,277
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 770 707
Increase in inventories ( 514) ( 385)
Increase in accounts payable 248 778
Increase in accrued liabilities 603 383
Noncash items and other ( 44) ( 315)
Net cash provided by operating activities 2,510 2,445
Cash flows from investing activities:
Payments for property, plant and equipment ( 1,178) ( 1,395)
Other investing activities ( 41) 40
Net cash used in investing activities ( 1,219) ( 1,355)
Cash flows from financing activities:
Decrease in commercial paper - ( 614)
Payment of long-term debt ( 19) ( 259)
Dividends paid ( 307) ( 241)
Purchase of Company stock ( 1,037) ( 2)
Other financing activities 119 ( 33)
Net cash used in financing
activities ( 1,244) ( 1,149)
Net increase (decrease) in
cash and cash equivalents 47 ( 59)
Cash and cash equivalents at beginning
of year 883 83
Cash and cash equivalents at end of
period $ 930 $ 24
Supplemental Disclosure of Cash Flow Information:
Income tax paid $ 990 $ 784
Interest paid 395 454
Capital lease obligations incurred 59 170
</TABLE>
[FN]
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 July 31, 1997, and
the related condensed consolidated statements of income and cash flows
for the periods ended July 31, 1997 and 1996 are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Adjustments consisted
only of normal recurring items, except the one-time charge for closing
the majority of the Bud's stores discussed in Item 2 of this Form 10-Q.
Interim results are not necessarily indicative of results for a full
year. Certain reclassifications have been made to the prior year's income
statement to conform to current presentation.
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 in conjunction
with the consolidated financial statements and notes thereto contained in
the Company's 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
July 31, 1997, would have been $314 million higher than reported, an
increase in the LIFO reserve of $18 million from January 31, 1997, and an
increase of $10 million from April 30, 1997. If the FIFO method had been
used at July 31, 1996, inventories would have been $321 million higher
than reported, an increase in the LIFO reserve of $10 million from
January 31, 1996, and an increase of $5 million from April 30, 1996.
NOTE C. SUBSEQUENT EVENT
A merger of the Mexican joint venture companies owned by Wal-Mart
Stores, Inc. and Cifra, S.A. de C.V.(Cifra) with and into Cifra was
consummated with an effective merger date of September 1, 1997. A
Mexican trust (the "Trust") of which Wal-Mart is the sole beneficiary,
received voting shares of Cifra equaling approximately 33.5% of the
outstanding voting shares of Cifra in exchange for the Company's joint
venture interests having a net book value of approximately $639 million.
In connection with the merger, the Trust made a public tender offer to
acquire 593,100,000 shares of the Series "A" Common Shares and Series "B"
Common Shares of Cifra, which was consummated successfully on August 22,
1997. The purchase price of approximately $1.2 billion was paid on
September 8, 1997, for the Cifra shares purchased in the tender offer.
The Company funded the Trust purchase of Cifra shares out of its
available cash. As a result of the merger and tender offer, Wal-Mart
will hold approximately 51% of the outstanding voting shares of Cifra.
The transaction will be accounted for using the purchase method and
Cifra's financial results will be consolidated in the Company's
consolidated financial statements during the third quarter of fiscal
1998. Cifra is not a significant subsidiary and the transaction should
not have a material impact on the Company's consolidated operating
results.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Increased sales for the six month period ending July 31, 1997, were
attributable to an increase in comparable sales in the Wal-Mart stores
and Supercenters of 6%, an increase in Sam's Clubs comparable sales of
3%, and to the Company's expansion activities. Domestic expansion for
the six month period included ten new Wal-Mart stores, five new
Supercenters, five new Sam's Clubs, along with the conversion of 34 Wal-
Mart stores to Supercenters. International expansion included the
addition of one Wal-Mart store in Canada, one Supercenter in Brazil and
four Mexican units. International sales accounted for 5% of total
Company sales in the quarter and the six month period ended July 31,
1997, compared with 4% in the same periods of fiscal 1997. Sam's Clubs
sales as a percentage of total Company sales fell from 19% in the quarter
and the six month period ended July 31, 1996, to 18% for the same periods
in fiscal 1998.
At July 31, 1997, the Company had 1,935 Wal-Mart stores, 383
Supercenters, and 441 Sam's Clubs in the United States, along with six
units in Argentina, six units in Brazil, 137 Wal-Mart stores in Canada,
two units in China, two Indonesian Supercenters (operated under a
franchise agreement), 156 units in Mexico, and 11 units in Puerto Rico.
This compares with 1,958 Wal-Mart stores, 303 Supercenters and 434 Sam's
Clubs in the United States, along with four units in Argentina, five
units in Brazil, 134 Wal-Mart stores in Canada, 134 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 20.81% in
the second quarter of fiscal 1998, compared with 20.52% in the second
quarter of fiscal 1997; and increased from 20.66% for the first six
months in fiscal 1997 to 20.80% in fiscal 1998. The increases are due
primarily to changes in the percentages of total sales generated by
certain operating units and to changes in the mix of merchandise sold.
The decrease in Sam's Clubs' sales as a percentage of total sales
favorably impacts the gross profit percentage as Sam's Clubs' gross
profit percentage is lower than the Company's overall gross profit
percentage. Additionally, improvements are due to stronger food margins
and sales of summer seasonal merchandise with fewer markdowns this year
when compared to the previous year periods.
Operating, selling and general, and administrative expenses
increased as a percentage of sales from 16.34% during the second quarter
of fiscal 1997 to 16.79% during the second quarter of fiscal 1998, and
increased from 16.60% for the six month period ended July 31, 1996, to
16.92% for the six month period ended July 31, 1997. During the second
quarter of fiscal 1998, the Company took a one-time charge of $50 million
for closing the majority of the Bud's Discount City stores. This charge
was reflected in operating income due to its immateriality to the
Company's results of operations and since the Company continues to
operate eight Bud's Discount City stores. Without the one-time charge,
expenses would have been 16.62% of sales for the second quarter and
16.82% for the six month period ended July 31, 1997. The remainder of
the increase is primarily due to payroll and related benefit costs.
Interest expense decreased $26 million in the second quarter of
fiscal 1998 and $57 million in the six month period ended July 31, 1997,
when compared with the same periods in fiscal 1997. The decrease is
primarily due to the elimination of commercial paper enabled by enhanced
cash flows, reduced capital spending and lower inventory levels.
Liquidity and Capital Resources
Cash flows provided by operating activities were $2,510 million in
the first six months of fiscal 1998 compared to $2,445 million in the
same period of fiscal 1997. The Company continues to generate
substantial operating cash flow through greater emphasis on inventory
management. The Company utilized its operating cash flow and cash balance
at the beginning of the year to purchase $1,037 million of Company stock,
pay dividends of $307 million, and invest $1,178 million in capital
expenditures.
At July 31, 1997, the Company had total assets of $40,673 million
compared with $39,604 million at January 31, 1997. Working capital at
July 31, 1997, was $5,999 million, down $1,037 million from January 31,
1997. The ratio of current assets to current liabilities was 1.5 to 1.0
at July 31, 1997, and July 31, 1996, and 1.6 to 1.0 at January 31, 1997.
The decrease in working capital and the current ratio is primarily due to
the current classification of $750 million of debt that matures in the
first quarter of fiscal 1999. Additionally, the Company has $500 million
of debt maturing in September 1997.
In March 1997, the Company announced its intention to purchase up to
$2 billion of its common stock over the next 18 months. The Company also
increased dividends by 29% in fiscal 1998 to $.27 per share.
As described in the notes to the condensed consolidated financial
statements, the Company paid approximately $1.2 billion on September 8,
1997, to acquire 593,100,000 common shares of Cifra. The Company funded
the purchase with its available cash. The transaction should not have a
material impact on the Company's consolidated operating results.
The Company anticipates that it will continue to generate
significant operating cash flow. The Company foresees no difficulty in
obtaining long-term financing in view of its excellent credit rating and
favorable experiences in the debt market in the past few years. Under
shelf registration statements previously filed with the Securities and
Exchange Commission, the Company may issue debt securities aggregating
$751 million. Operating cash flow along with the Company's ability to
obtain short-term or long-term financing should provide sufficient cash
to use for capital expenditures, pay dividends, meet maturing debt
demands, and continue the common stock purchase plan.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASO)
issued Statement No. 128, `Earnings per Share', which is required to be
adopted on January 31, 1998. At that time, the Company will be required
to change the method used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be
excluded. The impact of adopting the new standard will not result in a
change to earnings per share for the quarter or six month periods ended
July 31, 1997, and July 31, 1996, as presented.
In June 1997, the FASB issued Statement No. 130, `Reporting
Comprehensive Income', which is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components. The
Company anticipates adopting this Statement in fiscal 1999. Since this
Statement requires only additional disclosure, there will be no effect on
the Company's results of operation or financial position.
Also in June, the FASB issued Statement No. 131, `Disclosures about
Segments of an Enterprise and Related Information', which is effective
for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting information about operating segments
in annual financial statements and interim financial reports. It also
establishes standards for disclosures about products and services,
geographic areas and major customers. The Company anticipates adopting
this Statement in fiscal 1999. Since this Statement requires only
additional disclosure, there will be no effect on the Company's results
of operation or financial position.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Shareholders' Meeting was held June 6, 1997,
in Fayetteville, Arkansas.
Election of Directors:
At that meeting, the shareholders elected for one-year terms all
persons nominated for directors as set forth in the Company's proxy
statement dated April 10, 1997.
<TABLE>
Against or Broker
For Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
Paul R. Carter 2,025,557,447 14,469,930 0 0
John A. Cooper, Jr. 2,025,570,067 14,457,310 0 0
Stephen Friedman 2,025,536,353 14,491,024 0 0
Stanley C. Gault 2,022,263,065 17,764,312 0 0
David D. Glass 2,025,225,847 14,801,530 0 0
Dr. Frederick S. Humphries 2,024,914,038 15,113,339 0 0
E. Stanley Kroenke 2,025,265,511 14,761,866 0 0
Elizabeth A. Sanders 2,025,412,717 14,614,660 0 0
Jack C. Shewmaker 2,022,162,071 17,865,306 0 0
Donald G. Soderquist 2,025,521,589 14,505,788 0 0
Dr. Paula Stern 2,024,954,950 15,072,427 0 0
John T. Walton 2,025,489,788 14,537,589 0 0
S. Robson Walton 2,025,504,021 14,523,356 0 0
</TABLE>
Proposal to Adopt the Director Compensation Plan:
The shareholders approved the adoption of the Director Compensation
Plan. The Plan requires each director to take at least one-half of his or
her retainer in the form of Wal-Mart stock or deferred stock units. The
stock units are equivalent in value to Wal-Mart stock. The number of
shares of Wal-Mart stock issued or stock units credited to a director is
determined based on the stock price on the last business day of each
calendar quarter. The remainder of the retainer may be taken in either
of these two ways, or it may be taken in cash or deferred in an interest-
bearing account. Upon retirement, a director may elect to receive
deferred amounts in a single lump sum payment or in installment payments
over a ten-year period. The Plan will be administered by the
Compensation and Nominating Committee of the Board of Directors.
<TABLE>
Against or Broker
For Withheld Abstentions Non-Votes
<S> <C> <C> <C>
2,008,924,977 23,565,227 7,537,173 0
</TABLE>
Shareholder Proposal:
The Shareholders rejected a shareholder proposal requesting the Board
of Directors to report, without confidential information and at
reasonable cost, on its Standards for Vendor Partners, and review
compliance mechanisms for vendors, subcontractors and buying agents in
the countries where it sources.
<TABLE>
Against or Broker
For Withheld Abstentions Non-Votes
<S> <C> <C> <C>
57,421,653 1,744,237,072 77,138,551 161,230,101
</TABLE>
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. Certain statements contained in Management's
Discussion and Analysis and in other Company filings are forward-looking
statements. These statements discuss among other things, expected growth,
future revenues, future cash flows and future performance. The forward
looking statements are subject to risks and uncertainties including but
not limited to competitive pressures, inflation, consumer debt levels,
currency exchange fluctuations, trade restrictions, changes in tariff and
freight rates, capital market conditions, and other risks indicated in
the Company's filings with the Securities and Exchange Commission.
Actual results may materially differ from anticipated results described
in these statements.
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
July 31, 1997.
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: September 9, 1997 /s/David D. Glass________________
David D. Glass
President and
Chief Executive Officer
Date: September 9, 1997 /s/John B. Menzer________________
John B. Menzer
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 930
<SECURITIES> 0
<RECEIVABLES> 919
<ALLOWANCES> 0
<INVENTORY> 16,397
<CURRENT-ASSETS> 18,534
<PP&E> 24,275
<DEPRECIATION> 5,502
<TOTAL-ASSETS> 40,673
<CURRENT-LIABILITIES> 12,535
<BONDS> 0
0
0
<COMMON> 225
<OTHER-SE> 17,038
<TOTAL-LIABILITY-AND-EQUITY> 40,673
<SALES> 53,795
<TOTAL-REVENUES> 54,383
<CGS> 42,605
<TOTAL-COSTS> 52,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 2,297
<INCOME-TAX> 850
<INCOME-CONTINUING> 1,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,447
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
