Page 10 of 10 (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 October 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) (Zip Code)
(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 -- 2,245,907,170 shares as of October 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>
October 31, January 31,
1997 1997
ASSETS (Unaudited) (*Note)
<S> <C> <C>
Cash and cash equivalents $ 728 $ 883
Receivables 1,310 845
Inventories 19,303 15,897
Other current assets 293 368
Total current assets 21,634 17,993
Property, plant and equipment 26,540 23,182
Less accumulated depreciation 5,832 4,849
Net property, plant and equipment 20,708 18,333
Property under capital leases 2,926 2,782
Less accumulated amortization 874 791
Net property under capital leases 2,052 1,991
Other assets and deferred charges 1,778 1,287
Total assets $46,172 $39,604
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 1,530 $ -
Accounts payable 10,518 7,628
Long-term debt due within one year 1,023 523
Other current liabilities 3,794 2,806
Total current liabilities 16,865 10,957
Long-term debt 6,690 7,709
Long-term obligations under capital leases 2,395 2,307
Deferred income taxes and other 758 463
Minority interest 1,909 1,025
Common stock and capital in excess of par value 775 775
Retained earnings 17,226 16,768
Foreign currency translation adjustment ( 446) ( 400)
Total shareholders' equity 17,555 17,143
</TABLE>
[FN]
<F1>
Total liabilities and shareholders'
equity $46,172 $39,604
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 Nine Months Ended
October 31, October 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $28,777 $25,644 $82,572 $74,003
Other income - net 341 434 954 926
29,118 26,078 83,526 74,929
Costs and expenses:
Cost of sales 22,680 20,416 65,285 58,784
Operating, selling
and general and
administrative
expenses 4,958 4,365 14,058 12,393
Interest costs:
Debt 142 158 413 490
Capital leases 56 54 166 160
27,836 24,993 79,922 71,827
Income before income taxes
and minority interest 1,282 1,085 3,604 3,102
Provision for income taxes 474 402 1,333 1,152
Income before minority
interest 808 683 2,271 1,950
Minority interest ( 16) 1 ( 32) 11
Net income $ 792 $ 684 $ 2,239 $ 1,961
Net income per share $ .35 $ .30 $ .99 $ .86
Dividends per share $ .0675 $ .0525 $ .2025 $ .1575
Average shareholders'
equity $17,409 $16,086 $17,349 $15,569
Return for the period
on average
shareholders' equity 4.55% 4.25% 12.91% 12.60%
Average number of
common shares
outstanding 2,253 2,294 2,262 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>
Nine Months Ended October 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,239 $ 1,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,178 1,061
Increase in inventories ( 3,221) ( 3,036)
Increase in accounts payable 2,405 3,014
Noncash items and other 647 ( 37)
Net cash provided by operating activities 3,248 2,963
Cash flows from investing activities:
Net capital additions ( 1,894) ( 2,217)
Proceeds from sale of photo finishing plants - 464
Acquisition of controlling interest
of Cifra, S.A. de C.V. ( 770) -
Other investing activities 72 271
Net cash used in investing activities ( 2,592) ( 1,482)
Cash flows from financing activities:
Increase (decrease) in commercial paper 1,523 ( 1,346)
Net proceeds from formation of real estate
investment trust (REIT) - 632
Payment of long-term debt ( 523) ( 371)
Dividends paid ( 459) ( 361)
Purchase of Company stock ( 1,367) ( 2)
Other financing activities 15 ( 40)
Net cash used in financing activities ( 811) ( 1,488)
Net decrease in cash and cash equivalents ( 155) ( 7)
Cash and cash equivalents at beginning
of year 883 83
Cash and cash equivalents at end of
period $ 728 $ 76
Supplemental Disclosure of Cash Flow Information:
Income tax paid $ 1,396 $ 1,278
Interest paid 598 669
Capital lease obligations incurred 176 213
</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 October 31, 1997, and
the related condensed consolidated statements of income and cash flows
for the periods ended October 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. Such adjustments
consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year. Certain
reclassifications have been made to the prior year's income statement for
the quarter and year-to-date 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 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, 1997, would have been $344 million higher than reported, an
increase in the LIFO reserve of $48 million from January 31, 1997, and an
increase of $30 million from July 31, 1997. If the FIFO method had been
used at October 31, 1996, inventories would have been $321 million higher
than reported, an increase in the LIFO reserve of $10 million from
January 31, 1996.
NOTE C. ACQUISITION
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 $644 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, closed successfully on August 22, 1997, for
approximately $1.2 billion. The impact from the Cifra transaction was a
net decrease in cash of $770 million after consolidation of Cifra's cash
balance. The transaction has been accounted for as a purchase. The net
assets and liabilities acquired are recorded at fair value as follows (in
millions):
Receivables $ 83
Inventories 199
Net property, plant and equipment 1,606
Goodwill 592
Accounts payable ( 448)
Deferred income taxes ( 262)
Minority interest ( 778)
Other 4
996
Investment in unconsolidated
subsidiary exchanged ( 226)
Net cash outlay $ 770
The goodwill is being amortized over 40 years. As a result of the merger
and tender offer, Wal-Mart holds approximately 51% of the outstanding
voting shares of Cifra. The results of operations for Cifra since the
effective merger date have been included in the Company's results. Pro
forma results of operations are not presented due to the insignificant
differences from the historical results.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The 12% sales increase for both the quarter and nine-month period
ending October 31, 1997, were attributable to an increase in comparable
sales in the Wal-Mart stores and Supercenters of 7%, an increase in
Sam's Clubs' comparable sales of 3%, and to the Company's expansion
activities. Domestic expansion for the nine-month period included 20 new
Wal-Mart stores, 17 new Supercenters, eight new Sam's Clubs, along with
the conversion of 75 Wal-Mart stores to Supercenters, and the relocation
or expansion of three Wal-Mart stores (one was closed). International
expansion included the addition of two Supercenters in Argentina, three
Supercenters in Brazil, eight Wal-Mart stores in Canada, one unit in
China, 244 Mexican units (including 232 Cifra acquisition units) and one
Wal-Mart store in Puerto Rico. International sales accounted for 6% of
total Company sales in the quarter and the nine-month period ended
October 31, 1997, compared with 5% in the same periods in fiscal 1997.
Sam's Clubs sales as a percentage of total Company sales fell from 19% in
the quarter and the nine-month period ended October 31, 1996, to 18% for
the same periods in fiscal 1998.
At October 31, 1997, the Company had 1,904 Wal-Mart stores, 436
Supercenters, and 444 Sam's Clubs in the United States, along with eight
units in Argentina, eight units in Brazil, 144 Wal-Mart stores in Canada,
three units in China, 396 units in Mexico and 12 units in Puerto Rico.
This compares with 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 at the same time last year.
The Company's gross profit as a percentage of sales was 21.19% in
the third quarter of fiscal 1998, up from 20.39% in the third quarter of
fiscal 1997, and was 20.94% for the first nine months in fiscal 1998, up
from 20.57% for the same period in fiscal 1997. During the third quarter
of fiscal 1997, the Company made a strategic decision to reduce the
merchandise assortment in selected categories that resulted in one-time
markdowns. Without these charges, the gross profit percentage would have
been up .39% as a percentage of sales for the third quarter and up .26%
as a percentage of sales for the nine-month period. These increases
resulted from improvements in the mix of merchandise sold and from better
inventory management. The strong emphasis placed on inventory management
has reduced markdowns and shrinkage.
Operating, selling, general, and administrative expenses increased
as a percentage of sales from 17.02% during the third quarter of fiscal
1997 to 17.23% during the third quarter of fiscal 1998, and increased
from 16.75% for the nine-month period ended October 31, 1996, to 17.03%
for the nine-month period ended October 31, 1997. A contributing factor
in the increase for the year is the one-time charge of $50 million for
closing the majority of the Bud's Discount City stores during the second
quarter of fiscal 1998. 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
this charge, year to date expenses as a percentage of sales would have
been 16.97%, up .22% from a year ago. The increase in operating expenses
for both the quarter and year to date are primarily attributable to
associate compensation and related benefit costs.
The Company has been evaluating and adjusting all date-sensitive
systems and equipment for compliance with the year 2000. The majority of
the compliance is expected to be performed by Company associates. Through
the end of the third quarter, approximately 41% of the required
conversions have occurred. The Company anticipates completing all
remaining conversions during fiscal 1999. The total estimated cost of the
conversion is $12 million, which is being expensed as incurred.
Other income decreased as a percentage of sales from 1.69% during
the third quarter of fiscal 1997 to 1.18% during the third quarter of
fiscal 1998, and decreased from 1.25% during the nine-month period ended
October 31, 1996, to 1.16% for the nine-month period ended October 31,
1997. This decrease is attributable principally to a gain recognized in
the third quarter of fiscal 1997 on the sale of the photo finishing
plants and accompanying distribution network.
Interest expense decreased $14 million in the third quarter of
fiscal 1998 and decreased $71 million in the nine-month period ended
October 31, 1997, when compared with the same periods in fiscal 1997. The
Company incurred short-term borrowings during the third quarter of fiscal
1998 when additional cash was required to acquire the controlling
interest in Cifra, repay maturing long-term debt and continue with the
Company's stock repurchase program.
Liquidity and Capital Resources
Cash flows provided by operating activities were $3,248 million
during the first nine months of fiscal 1998 compared with $2,963 million
in the first nine months of fiscal 1997. As described in Note C to the
condensed consolidated financial statements on pages 5 and 6 of this Form
10-Q, during the third quarter of fiscal 1998, the Company acquired the
controlling interest in Cifra pursuant to the merger of the Mexican joint
venture companies owned by the Company and Cifra into Cifra and the
purchase of $1,205 million of Cifra shares. The impact from the Cifra
transaction was a net decrease in cash of $770 million after
consolidation of Cifra's cash balance. For the year, the Company has
invested $1,894 million in capital assets and purchased $1,367 million of
Company stock.
At October 31, 1997, the Company had total assets of $46,172 million
compared with $39,604 million at January 31, 1997. Working capital at
October 31, 1997, was $4,769 million, down $2,267 million from January
31, 1997. The ratio of current assets to current liabilities was 1.3 to
1.0 at October 31, 1997, 1.5 to 1.0 at October 31, 1996 and 1.6 to 1.0 at
January 31, 1997. The decrease in working capital and the current ratio
is due to the current classification of $750 million of debt that matures
in first quarter of fiscal 1999 and the use of short-term financing for
investment in non-current assets, repurchasing Company stock and repaying
maturing long-term debt.
The Company anticipates that it will continue to generate
significant operating cash flow. The Company foresees no difficulty in
obtaining financing in view of its excellent credit rating and favorable
experiences in the debt market in the past few years. Cash flow provided
by operations and the Company's ability to obtain short-term or long-term
financing should be adequate to fund the Company's expansion program, pay
dividends, meet maturing debt demand and continue the Company stock
repurchase program. Also, the Company may issue debt securities
aggregating $751 million under shelf registration statements previously
filed with the Securities and Exchange Commission.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB)
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 nine-month periods ended
October 31, 1997, and October 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 operations 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 operations or financial position.
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. 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
October 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: December 8, 1997 /s/David D. Glass______________
David D. Glass
President and
Chief Executive Officer
Date: December 8, 1997 /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-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 728
<SECURITIES> 0
<RECEIVABLES> 1,310
<ALLOWANCES> 0
<INVENTORY> 19,303
<CURRENT-ASSETS> 21,634
<PP&E> 26,540
<DEPRECIATION> 5,832
<TOTAL-ASSETS> 46,172
<CURRENT-LIABILITIES> 16,865
<BONDS> 0
0
0
<COMMON> 225
<OTHER-SE> 17,330
<TOTAL-LIABILITY-AND-EQUITY> 46,172
<SALES> 82,572
<TOTAL-REVENUES> 83,526
<CGS> 65,285
<TOTAL-COSTS> 79,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579
<INCOME-PRETAX> 3,604
<INCOME-TAX> 1,333
<INCOME-CONTINUING> 2,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,239
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
