Page 1 of 11 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 April 30,1998.
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 -- 2,235,710,587 shares as of April 30,
1998.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
<CAPTION>
April 30, January 31,
1998 1998
ASSETS (Unaudited) (*Note)
<S> <C> <C>
Cash and cash equivalents $ 771 $ 1,447
Receivables 1,009 976
Inventories 17,512 16,497
Other current assets 398 432
Total current assets 19,690 19,352
Property, plant and equipment 28,097 27,376
Less accumulated depreciation 6,282 5,907
Net property, plant and equipment 21,815 21,469
Property under capital leases 3,128 3,040
Less accumulated amortization 939 903
Net property under capital leases 2,189 2,137
Other assets and deferred charges 2,350 2,426
Total assets $ 46,044 $45,384
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 527 $ -
Accounts payable 9,765 9,126
Long-term debt due within one year 281 1,039
Other current liabilities 4,260 4,295
Total current liabilities 14,833 14,460
Long-term debt 7,193 7,191
Long-term obligations under capital leases 2,555 2,483
Deferred income taxes and other 802 809
Minority Interest 1,842 1,938
Common stock and capital in excess of par value 818 809
Retained earnings 18,462 18,167
Other accumulated comprehensive income ( 461) ( 473)
Total shareholders' equity 18,819 18,503
Total liabilities and shareholders'
equity $ 46,044 $ 45,384
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements
<F2>
*Note: The balance sheet at January 31, 1998, 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 April 30,
1998 1997
<S> <C> <C>
Revenues:
Net sales $29,819 $25,409
Other income - net 338 286
30,157 25,695
Costs and expenses:
Cost of sales 23,526 20,127
Operating, selling and general
and administrative expenses 5,073 4,333
Interest costs:
Debt 122 134
Capital leases 72 55
28,793 24,649
Income before income taxes,
minority interest and equity
in unconsolidated subsidiaries 1,364 1,046
Provision for income taxes 505 383
Income before minority interest and
equity in unconsolidated subsidiaries 859 663
Minority interest and equity
in unconsolidated subsidiaries (31) (11)
Net income $ 828 $ 652
Net income per share - Basic and dilutive $ .37 $ .29
Dividends per share $ .0775 $ .0675
Average shareholders' equity $18,661 $17,063
Return for the period on average
shareholders' equity 4.44% 3.82%
Average number of common shares outstanding:
Basic 2,241 2,276
Dilutive 2,255 2,281
</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>
Three Months Ended April 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 828 $ 652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 441 366
Increase in inventories ( 998) ( 44)
Increase in accounts payable 645 92
Noncash items and other ( 58) 217
Net cash provided by operating activities 858 1,283
Cash flows from investing activities:
Payments for property, plant & equipment ( 760) ( 512)
Other investing activities 34 ( 169)
Net cash used in investing activities ( 726) ( 681)
Cash flows from financing activities:
Increase in commercial paper 527 -
Dividends paid ( 174) ( 150)
Payment of long-term debt ( 765) ( 6)
Purchase of Company Stock ( 372) ( 638)
Other financing activities ( 24) 35
Net cash used in financing
activities ( 808) ( 759)
Net decrease in cash and
cash equivalents ( 676) ( 157)
Cash and cash equivalents at beginning
of year 1,447 883
Cash and cash equivalents at end of
period $ 771 $ 726
Supplemental Disclosure of Cash Flow Information:
Income tax paid $ 560 $ 260
Interest paid 195 200
Capital lease obligations incurred 89 32
</TABLE>
[FN]
<F1>
See accompanying notes to condensed consolidated financial statements.
WAL-MART STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The condensed consolidated balance sheet as of April 30, 1998, and
the related condensed consolidated statements of income and cash flows
for the three month periods ended April 30, 1998 and 1997, 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 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 2. Inventories
The Company uses the retail last-in, first-out (LIFO) method for the
Wal-Mart Stores segment and cost LIFO for the Sam's Club segment. The
International segment's inventories are on other cost methods.
Inventories are not in excess of market value. 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 April 30, 1998,
would have been $363 million higher than reported, an increase in the
LIFO reserve of $15 million from January 31, 1998. If the FIFO method had
been used at April 30, 1997, inventories would have been $304 million
higher than reported, an increase in the LIFO reserve of $8 million from
January 31, 1997.
NOTE 3. Net Income Per Share
The Company presents basic and dilutive earnings per share according
to guidance established in Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." Statement 128 replaces primary and fully
dilutive earnings per share with basic and dilutive earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effect of options. Basic and dilutive earnings per share for all
periods presented are the same as previously reported. Basic net income
per share is based on the weighted average outstanding common shares.
Dilutive net income per share is based on the weighted average
outstanding shares reduced by the dilutive effect of stock options.
NOTE 4. Segments
The Company is principally engaged in the operation of mass
merchandising stores that serve customers primarily through the operation
of three segments. We identify our segments based on management
responsibility within the United States and geographically for all
international units. The Wal-Mart Stores segment includes the Company's
discount stores and Supercenters in the United States. The Sam's Club
segment includes the warehouse membership clubs in the United States. The
International segment includes all operations in Argentina, Brazil,
Canada, China, Germany, Mexico and Puerto Rico. The revenues in the
"other" category result from sales to third parties by McLane Company,
Inc., a wholesale distributor. Information on segments and reconciliation
to income before income taxes, minority interest and equity in
unconsolidated subsidiaries are as follows (in millions):
<TABLE>
Quarter ended April 30, 1998
<CAPTION>
Wal-Mart
Stores Sam's Clubs International Other Consolidated
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $20,737 $ 5,040 $ 2,605 $ 1,437 $29,819
Operating income 1,400 126 82 (50) 1,558
Interest expense 194
Income before income taxes,
minority interest and
equity in unconsolidated
subsidiaries $ 1,364
</TABLE>
<TABLE>
Quarter ended April 30, 1997
<CAPTION>
Wal-Mart
Stores Sam's Clubs International Other Consolidated
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $18,187 $ 4,642 $ 1,314 $ 1,266 $25,409
Operating income 1,104 115 6 10 1,235
Interest expense 189
Income before income taxes,
minority interest and
equity in unconsolidated
subsidiaries interest $ 1,046
</TABLE>
NOTE 5. Comprehensive Income
As of February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is net
income, plus certain other items that are recorded directly to
shareholders' equity, bypassing net income. The only such item currently
applicable to the Company is foreign currency translation adjustments.
During the quarters ended April 30, 1998 and 1997, total
comprehensive income was $840 million and $619 million, respectively. The
adoption of this Statement had no effect on the Company's results of
operations or financial position.
NOTE 6. Subsequent Event
Subsequent to April 30, 1998, the Company sold $500 million of bonds
due June 1, 2018 pursuant to its previously filed shelf registration
statements. The bonds bear interest at 5.85% until June 1, 2000. At that
date and every second June 1 thereafter (Reset Date), the interest rate
may be reset. The bonds have put options imbedded that, if exercised,
would require the Company to purchase the outstanding bonds at 100% of
the principal amount. The put options may be exercised on each Reset
Date.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The 17% sales increase for the quarter ending April 30, 1998, was
attributable to an increase in comparable sales in the Wal-Mart Stores
segment of 9%, an increase in comparable sales in the Sam's Club segment
of 8% and to the Company's expansion activities. The increase in the
International segment's sales was due principally to the merger o our
Mexican joint venture and public tender offer that increased the
Company's ownership in Cifra, S. A. de C. V. (Cifra) and the acquisition
of the Wertkauf hypermarket chain in Germany. Since both of these
acquisitions occurred during the last half of fiscal 1998, the additional
sales generated by these acquisitions during this quarter are not
comparable to sales during the first quarter of fiscal 1998. Sam's Clubs
sales as a percentage of total sales fell from 18% in last year's quarter
to 17% this quarter. International sales accounted for 9% of total sales
in the first quarter of fiscal 1999 compared with 5% in the first
quarter of fiscal 1998. Domestic expansion activity in the first quarter
of fiscal 1999 included four new Wal-Mart stores, the conversion of 17
Wal-Mart stores to Supercenters and one new Sam's Club. International
expansion included the addition of two units in Argentina, one unit in
Brazil, one unit in Canada and two units in Mexico.
At April 30, 1998, the Company had 1,908 Wal-Mart stores, 458
Supercenters and 444 Sam's Clubs in the United States, along with 11
units in Argentina, nine units in Brazil, 145 Wal-Mart stores in Canada,
three units in China (operated under joint venture agreements), 21 units
in Germany, 404 units in Mexico, and 14 units in Puerto Rico. This
compares with 1,945 Wal-Mart stores, 362 Supercenters, and 438 Sam's
Clubs in the United States, along with six units in Argentina, five
units in Brazil, 136 Wal-Mart stores in Canada, two units in China, 153
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 increased from
20.79% in the first quarter of fiscal 1998 to 21.10% during the first
quarter of fiscal 1999. Gross profit as a percentage of sales improved in
the Wal-Mart and International operating segments despite competitive
pricing and growth in the lower margin food business. Sam's Clubs gross
profit as a percentage of sales decreased due to price rollbacks on over
10% of its assortment to enhance member value. Changes in the operating
segments' gross profit as a percent of sales accounted for approximately
50% of the improvement in our consolidated gross margin percent. The
remainder of the increase was primarily due to changes in the total sales
mix of the operating segments. As the Sam's Club segment comprises a
lower percentage of consolidated Company sales, the gross profit stated
as a percentage of sales is positively impacted since its contribution to
gross margin is a lower percentage when compared with the Wal-Mart and
International operating segments.
Operating, selling, general, and administrative expenses decreased
as a percentage of sales from 17.05% during the first quarter of fiscal
1998 to 17.01% for the first quarter of fiscal 1999. Although the Wal-
Mart, Sam's and International operating segments made improvements in
their expense percentages when compared to the previous period, the
expense leverage was mitigated in the consolidated results due to the
percentage of our total volume decreasing in the Sam's Clubs segment,
which has lower expenses as a percentage of sales, while the percentage
of total volume increased in the International segment, which has higher
expenses as a percentage of sales than Sam's Clubs. Also, the Company was
impacted by the tighter labor markets and the increase in the minimum
wage that occurred subsequent to last year's first quarter.
The International segment's operating profit increased from $6
million in the first quarter of last year to $82 million this year, with
most countries improving their operating performance over last year. As
noted above, the first quarter of fiscal 1999 includes the operating
profit of Cifra and Wertkauf. Because the acquisitions occurred after
the first quarter of last year, the additional operating profit resulting
from these acquisitions accounts for a large part of the increase in the
International segment operating profit.
Liquidity and Capital Resources
Cash flows provided by operating activities were $858 million in the
first quarter of fiscal 1999 compared to $1,283 million in the first
quarter of fiscal 1998. Operating cash flow is down in fiscal 1999
primarily due to the addition of $998 million in inventory compared with
a smaller increase in inventory in fiscal 1998. During the quarter, the
Company repurchased $372 million of its common stock, paid dividends of
$174 million and invested $760 million in capital expenditures.
At April 30, 1998, the Company had total assets of $46,044 million
compared with $45,384 million at January 31, 1998. Working capital at
April 30, 1998 was $4,857 million down $35 million from January 31, 1998.
The ratio of current assets to current liabilities was 1.3 to 1.0 at
April 30, 1998, 1.5 to 1.0 at April 30, 1997, and 1.3 to 1.0 at January
31, 1998.
In March 1998, the Company announced its intention to increase the
size of its existing share repurchase program by approximately $1.6
billion to an anticipated share repurchase of another $2 billion. The
Company also increased dividends by 15% in fiscal 1999 to $.31 per share.
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 credit rating and favorable
experiences in the debt market in the past few years. On May 7, 1998, the
Company filed with the Securities and Exchange Commission a registration
statement for debt securities aggregating $750 million. Along with this
and previously filed shelf registration statements, the Company may issue
debt securities aggregating $1,001 million. In June 1998, the Company
sold $500 million of bonds pursuant to these registration statements. The
proceeds of the sale will be used to meet general working capital
requirements. See Note 6 of the Notes to Condensed Consolidated Financial
Statements for further discussion.
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 March 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use". The SOP
will be effective for the Company beginning February 1, 1999. The SOP
will require the capitalization of certain costs incurred in connection
with developing or obtaining software for internal-use. Currently, costs
related to developing internal-use software are expensed as incurred. We
anticipate there will not be a material impact on the Company's results
of operations or financial position after the SOP is adopted.
In April 1998, AcSEC issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities". The SOP will be
effective for the Company beginning February 1, 1999. The SOP will
require that the costs of start-up activities, including organization
costs, should be expensed as incurred. Currently, costs associated with
the opening of stores are expensed during the first full month of
operations. The costs are carried as prepaid expenses prior to the store
opening. We anticipate there will not be a material impact on the
Company's results of operations or financial position after the SOP is
adopted.
Year 2000
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.
Approximately 72% 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. The cost of the conversions and the completion
dates are based on management's best estimates and may be updated as
additional information becomes available. In addition, communications are
ongoing with other companies with which our systems interface or rely on
to determine the extent to which those companies are addressing their year
2000 compliance.
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 the cost of goods, competitive pressures, inflation,
consumer debt levels, currency exchange fluctuations, trade restrictions,
changes in tariff and freight rates, interest rate fluctuations and other
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) A Form 8-K was filed on February 5, 1998, to file the form of
the Remarketed Put Bonds due February 1, 2010, and the
Calculation Agency Agreement and certain other documents
related to the Company's public offering of $500 million
aggregate principal amount.
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: June 11, 1998 /s/David D. Glass
David D. Glass
President and
Chief Executive Officer
Date: June 11, 1998 /s/John B. Menzer
John B. Menzer
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 771
<SECURITIES> 0
<RECEIVABLES> 1,009
<ALLOWANCES> 0
<INVENTORY> 17,512
<CURRENT-ASSETS> 19,690
<PP&E> 28,097
<DEPRECIATION> 6,282
<TOTAL-ASSETS> 46,044
<CURRENT-LIABILITIES> 14,833
<BONDS> 0
0
0
<COMMON> 224
<OTHER-SE> 18,595
<TOTAL-LIABILITY-AND-EQUITY> 46,044
<SALES> 29,819
<TOTAL-REVENUES> 30,157
<CGS> 23,526
<TOTAL-COSTS> 28,793
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</TABLE>
