1996 End of Year Store Counts
Wal-Mart SAM'S
Stores Supercenters Clubs
Alabama 65 11 8
Alaska 3 3
Arizona 31 6
Arkansas 58 19 4
California 88 26
Colorado 34 2 9
Connecticut 6 3
Delaware 2 1
Florida 116 16 34
Georgia 79 6 15
Hawaii 4 1
Idaho 7 1
Illinois 101 3 24
Indiana 66 6 14
Iowa 45 6
Kansas 43 3 5
Kentucky 60 8 5
Louisiana 62 13 9
Maine 19 3
Maryland 19 10
Massachusetts 23 5
Michigan 39 21
Minnesota 33 9
Mississippi 47 10 4
Missouri 81 27 11
Montana 6 1
Nebraska 13 4 3
Nevada 9 2
New Hampshire 15 4
New Jersey 14 6
New Mexico 19 3
New York 46 4 17
North Carolina 82 1 13
North Dakota 8 2
Ohio 70 22
Oklahoma 61 17 6
Oregon 17
Pennsylvania 47 5 14
Rhode Island 4 1
South Carolina 49 3 8
South Dakota 8 1
Tennessee 69 19 9
Texas 185 56 51
Utah 13 5
Vermont 1
Virginia 43 4 10
Washington 13 2
West Virginia 12 2 3
Wisconsin 51 11
Wyoming 9 2
TOTAL U.S.A. 1,995 239 433
Argentina 1 2
Brazil 2 3
Mexico 85* 13 28
Puerto Rico 7 4
CANADA
Alberta 14
British Columbia 12
Manitoba 9
New Brunswick 4
Newfoundland 7
Nova Scotia 6
NW Territories 1
Ontario 48
Quebec 22
Saskatchewan 8
TOTAL CANADA 131
GRAND TOTAL 2,218 255 470
[FN]
* Includes 3 Superamas, 25 Bodegas, 4 Aurreras, 48 Vips and 5 Suburbias
11-Year Financial Summary
(Dollar amounts in millions except per share data)
1996 1995 1994 1993 1992 1991
Operating Results
Net sales $93,627 $82,494 $67,344 $55,484 $43,887 $32,602
Net sales increase 13% 22% 21% 26% 35% 26%
Comparative store
sales increase 4% 7% 6% 11% 10% 10%
Other income - net 1,122 918 641 501 403 262
Cost of sales 74,564 65,586 53,444 44,175 34,786 25,500
Operating, selling,
and general and
administrative
expenses 14,951 12,858 10,333 8,321 6,684 5,152
Interest costs:
Debt 692 520 331 143 113 43
Capital leases 196 186 186 180 153 126
Provision for income
taxes 1,606 1,581 1,358 1,171 945 752
Net income 2,740 2,681 2,333 1,995 1,609 1,291
Per share of common stock:
Net income 1.19 1.17 1.02 .87 .70 .57
Dividends .20 .17 .13 .11 .09 .07
Financial Position
Current assets $17,331 $15,338 $12,114 $10,198 $ 8,575 $ 6,415
Inventories at
replacement cost 16,300 14,415 11,483 9,780 7,857 6,207
Less LIFO reserve 311 351 469 512 473 399
Inventories at
LIFO cost 15,989 14,064 11,014 9,268 7,384 5,808
Net property, plant,
and equipment and
capital leases 18,894 15,874 13,176 9,793 6,434 4,712
Total assets 37,541 32,819 26,441 20,565 15,443 11,389
Current liabilities 11,454 9,973 7,406 6,754 5,004 3,990
Long-term debt 8,508 7,871 6,156 3,073 1,722 740
Long-term obligations
under capital leases 2,092 1,838 1,804 1,772 1,556 1,159
Shareholders' equity 14,756 12,726 10,753 8,759 6,990 5,366
Financial Ratios
Current ratio 1.5 1.5 1.6 1.5 1.7 1.6
Inventories/
working capital 2.7 2.6 2.3 2.7 2.1 2.4
Return on assets* 8.3% 10.1% 11.3% 12.9% 14.1% 15.7%
Return on shareholders'
equity* 21.5% 24.9% 26.6% 28.5% 30.0% 32.6%
Other Year-End Data
Number of domestic
Wal-Mart Stores 1,995 1,985 1,950 1,848 1,714 1,568
Number of domestic
Supercenters 239 147 72 34 10 9
Number of domestic
SAM'S Clubs 433 426 417 256 208 148
International units 276 226 24 10
Average Wal-Mart
store size 91,100 87,600 83,900 79,800 74,700 70,700
Number of associates 675,000 622,000 528,000 434,000 371,000 328,000
Number of shareholders
of record 244,483 259,286 257,946 180,584 150,242 122,414
[FN]
* On beginning of year balances.
11-Year Financial Summary
(Dollar amounts in millions except per share data)
1990 1989 1988 1987 1986
Operating Results
Net sales $25,811 $20,649 $15,959 $11,909 $ 8,451
Net sales increase 25% 29% 34% 41% 32%
Comparative store
sales increase 11% 12% 11% 13% 9%
Other income - net 175 137 105 85 55
Cost of sales 20,070 16,057 12,282 9,053 6,361
Operating, selling,
and general and
administrative
expenses 4,070 3,268 2,599 2,008 1,485
Interest costs:
Debt 20 36 25 10 2
Capital leases 118 99 89 76 55
Provision for income
taxes 632 488 441 396 276
Net income 1,076 838 628 451 327
Per share of common stock:
Net income .48 .37 .28 .20 .15
Dividends .06 .04 .03 .02 .02
Financial Position
Current assets $ 4,713 $ 3,631 $ 2,905 $ 2,353 $ 1,784
Inventories at
replacement cost 4,751 3,642 2,855 2,185 1,528
Less LIFO reserve 323 291 203 154 140
Inventories at
LIFO cost 4,428 3,351 2,652 2,031 1,388
Net property, plant,
and equipment and
capital leases 3,430 2,662 2,145 1,676 1,303
Total assets 8,198 6,360 5,132 4,049 3,104
Current liabilities 2,845 2,066 1,744 1,340 993
Long-term debt 185 184 186 179 181
Long-term obligations
under capital leases 1,087 1,009 867 764 595
Shareholders' equity 3,966 3,008 2,257 1,690 1,278
Financial Ratios
Current ratio 1.7 1.8 1.7 1.8 1.8
Inventories/
working capital 2.4 2.1 2.3 2.0 1.8
Return on assets* 16.9% 16.3% 15.5% 14.5% 14.8%
Return on shareholders'
equity* 35.8% 37.1% 37.1% 35.2% 33.3%
Other Year-End Data
Number of domestic
Wal-Mart Stores 1,399 1,259 1,114 980 859
Number of domestic
Supercenters 6 3 2
Number of domestic
SAM'S Clubs 123 105 84 49 23
International units
Average Wal-Mart
store size 66,400 63,500 61,500 59,000 57,000
Number of associates 271,000 223,000 183,000 141,000 104,000
Number of shareholders
of record 79,929 80,270 79,777 32,896 21,828
[FN]
* On beginning of year balances.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Revenues
Sales for the three fiscal years ended January 31, and the respective total and
comparable store percentage increases over the prior year were:
Total Comparable
Fiscal Sales Company Store
Year (in millions) Increases Increases
1996 $93,627 13% 4%
1995 82,494 22% 7%
1994 67,344 21% 6%
The sales increase of 13% in fiscal 1996 compared with fiscal 1995 was
attributable to the Company's expansion program and comparative store sales
increases of 4%. Expansion for fiscal 1996 included the opening of 92 Wal-Mart
stores, 92 Supercenters (including the conversion of 80 Wal-Mart stores), 9
SAM'S Clubs and 50 International units. International sales accounted for
approximately 2.1% of the sales increase with the remainder primarily
attributed to Wal-Mart stores and Supercenters. SAM'S Clubs sales as a
percentage of total sales decreased from 22.9% in fiscal 1995 to 20.4% in fiscal
1996.
The sales increase of 22% in fiscal 1995 compared with fiscal 1994 was
attributable to the Company's domestic expansion of 109 Wal-Mart stores, 75
Supercenters (including the conversion of 69 Wal-Mart stores), and 21 SAM'S
Clubs; comparative store sales increases of 7%; and the entry into the Canadian
market through the purchase of 122 stores from Woolworth Canada, Inc., a
subsidiary of Woolworth Corporation. SAM'S Clubs sales as a percentage of
total sales increased by 1.1%, part of which was attributable to the PACE
units acquired in the fourth quarter of fiscal 1994. Canadian store sales
accounted for 1.5% of total sales in fiscal 1995.
New Operating Locations 1996 1995 1994
Domestic units
New Wal-Mart stores 92 109 141
New Supercenters 12 6 1
Wal-Mart stores relocated or expanded to Supercenters 80 69 37
New SAM'S Clubs 9 21 63
Acquired PACE Clubs 99
Total new domestic units 193 205 341
International units
Acquired Canada Woolco stores 122
Other new international units 50 80 14
Total new international units 50 202 14
Total new units 243 407 355
Costs and Expenses
Cost of sales as a percentage of sales increased .1% in both fiscal 1996
and fiscal 1995 when compared to the preceding year. The change in fiscal
1996 is comprised of an increase of approximately .3% due to a larger
percentage of consolidated sales from departments within Wal-Mart stores
which have lower markon percents, and to the Company's continuing
commitment to always providing low prices. This increase is offset
because the SAM'S Clubs comprised a lower percentage of consolidated
sales in 1996 at a lower contribution to gross margin than the stores.
The increase in fiscal 1995 is primarily due to a larger percentage of
consolidated sales attributable to SAM'S Clubs resulting in part from the
addition of the PACEClubs. The cost of sales in SAM'S Clubs is
significantly higher as a percentage of sales than in Wal-Mart stores due
to a lower markon on purchases.
Operating, selling, and general and administrative expenses as a
percentage of sales increased .4% and .2%, respectively, in each of the
last two fiscal years when compared to the previous year. Approximately
.2% of the increase in fiscal 1996 was due to increases in payroll and
related benefit costs. The remainder of the increase resulted primarily
from a lower percentage of sales attributable to SAM'S Clubs and a higher
percentage of sales attributable to international operations. SAM'S Clubs
operating, selling, and general and administrative expenses as a
percentage of sales are lower than the Wal-Mart stores and Supercenters
while international expenses are slightly higher. The increase in fiscal
1995 was primarily attributable to the acquisition of the Canadian stores
and higher payroll and related benefit costs.
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" was issued in March 1995. 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. This statement will be
effective for the Company's fiscal year ending January 31, 1997. The
Company's existing accounting policie s are such that this pronouncement
will not have a material effect on the Company's financial position or
results of operations.
"Accounting for Stock-Based Compensation," SFAS No. 123, was
issued in October 1995 and will be effective for the Company's fiscal
year ending January 31, 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 to continue 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
intends to continue using the measurement prescribed by the former
standard, and accordingly, this pronouncement will not have an effect on
the Company's financial position or results of operations.
Interest Cost
Interest cost increased in fiscal 1996 and 1995 due to increased
indebtedness and increased average short-term borrowing rates in each of
the years. The increased indebtedness is due to the Company's expansion
program. See Note 2 of Notes to Consolidated Financial Statements for
additional information on interest and debt.
Income Taxes
The effective income tax rate was 37.0% and 37.1% in fiscal 1996 and 1995
respectively. See Note 4 of Notes to Consolidated Financial Statements
for additional information on income taxes.
Liquidity and Capital Resources
Cash Flow Information
Cash flow provided from operations was $2.4 billion in fiscal 1996. These
funds combined with long-term borrowings of $1 billion and net short-term
borrowings of $.7 billion were used to finance capital expenditures of
$3.6 billion, to pay dividends, provide working capital, and to fund the
operation of subsidiaries.
Borrowing Information
The Company had committed lines of credit of $1,900 million and informal
lines totaling an additional $2,450 million with 35 banks which were used
to support short-term borrowing and commercial paper. These lines of
credit and their anticipated cyclical increases will be sufficient to
finance the seasonal buildups in merchandise inventories and interim
financing requirements for stores developed with sale/leaseback or other
long-term financing objectives.
Favorable debt market conditions combined with the Company's
ability to generate significant cash flows from operations have allowed
the Company to aggressively expand during the past three years. In fiscal
1996, the Company borrowed $1 billion at interest rates ranging from 6
1/8% to 7% for terms of three to seven years. Although the Company has
borrowed to support the expansion, debt and equity have increased
proportionately during the past three years. The Company's debt
(including obligations under capital leases) to equity ratio was .74:1 at
the end of fiscal 1996 compared to .77:1 and .75:1 at the end of fiscal
1995 and 1994, respectively. In view of the Company's significant working
capital, its consistent ability to generate working capital from
operations and the availability of external financing, the Company
foresees no difficulty in providing funds necessary to fulfill its
working capital needs and to finance its estimated $3.5 billion capital
expansion plan in fiscal 1997.
Foreign Currency Translation
The Company has operations in Puerto Rico, Canada, and Argentina, and
through joint ventures in Mexico and Brazil. All foreign operations are
measured in their local currencies with the exception of Brazil,
operating in a highly inflationary economy, which reports operations
using U.S. dollars. All foreign operations as a group are insignificant
to the Company's consolidated results of operations and financial
position. The foreign currency translation adjustment of $412 and $256
million in fiscal 1996 and 1995, respectively, is primarily due to
operations in Mexico. In fiscal 1995 the value of the peso dropped
significantly in relation to the dollar and continued to decline in
fiscal 1996. The Company continues to evaluate strategies to minimize the
financial risk of currency devaluation. Although exposure to this risk
exists, any further devaluation of the peso or other currencies should
not significantly impact the Company's consolidated operations or
financial position.
Expansion
Domestically, the Company plans to open 60 to 70 new Wal-Mart stores, and
100 to 110 Supercenters. Approximately 90 of the Supercenters will come
from relocations or expansions of existing Wal-Mart stores. The Company
also plans to open 10 new SAM'S Clubs and three distribution centers.
International expansion includes 25 to 30 new Wal-Mart stores,
Supercenters, and SAM'S Clubs in Argentina, Brazil, Canada, China,
Indonesia, Mexico and Puerto Rico.
Total capital expenditures for 1997 are not expected to exceed $3.5
billion. The Company plans to primarily finance expansion with operating
cash flows. The Company may also provide for cash needs through short-
term borrowings backed up by the credit lines discussed above and also
may sell $751 million of public debt utilizing shelf registration
statements previously filed with the Securities and Exchange Commission
to provide for other cash needs.
Consolidated Statements of Income
(Amounts in millions except per share data)
Fiscal years ended January 31, 1996 1995 1994
Revenues:
Net sales $93,627 $82,494 $67,344
Other income - net 1,122 918 641
94,749 83,412 67,985
Costs and Expenses:
Cost of sales 74,564 65,586 53,444
Operating, selling, and
general and administrative
expenses 14,951 12,858 10,333
Interest Costs:
Debt 692 520 331
Capital leases 196 186 186
90,403 79,150 64,294
Income Before Income Taxes 4,346 4,262 3,691
Provision for Income Taxes:
Current 1,530 1,572 1,325
Deferred 76 9 33
1,606 1,581 1,358
Net Income $ 2,740 $ 2,681 $ 2,333
Net Income Per Share $ 1.19 $ 1.17 $ 1.02
[FN]
See accompanying notes.
Net Income
(Millions of Dollars) (Graph)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
451 628 838 1,076 1,291 1,609 1,995 2,333 2,681 2,740
Consolidated Balance Sheets
(Amounts in millions)
January 31, 1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 83 $ 45
Receivables 853 900
Inventories:
At replacement cost 16,300 14,415
Less LIFO reserve 311 351
Inventories at LIFO cost 15,989 14,064
Prepaid expenses and other 406 329
Total Current Assets 17,331 15,338
Property, Plant, and Equipment, at Cost:
Land 3,559 3,036
Buildings and improvements 11,290 8,973
Fixtures and equipment 5,665 4,768
Transportation equipment 336 313
20,850 17,090
Less accumulated depreciation 3,752 2,782
Net property, plant, and equipment 17,098 14,308
Property under capital leases 2,476 2,147
Less accumulated amortization 680 581
Net property under capital leases 1,796 1,566
Other Assets and Deferred Charges 1,316 1,607
Total Assets $37,541 $32,819
Liabilities and Shareholders' Equity
Current Liabilities:
Commercial paper $ 2,458 $ 1,795
Accounts payable 6,442 5,907
Accrued liabilities 2,091 1,819
Accrued federal and state income taxes 123 365
Long-term debt due within one year 271 23
Obligations under capital leases
due within one year 69 64
Total Current Liabilities 11,454 9,973
Long-Term Debt 8,508 7,871
Long-Term Obligations Under Capital Leases 2,092 1,838
Deferred Income Taxes and Other 731 411
Shareholders' Equity:
Preferred stock ($.10 par value;
100 shares authorized, none issued)
Common stock ($.10 par value;
5,500 shares authorized, 2,293 and 2,297
issued and outstanding in 1996 and 1995,
respectively) 229 230
Capital in excess of par value 545 539
Retained earnings 14,394 12,213
Foreign currency translation adjustment (412) (256)
Total Shareholders' Equity 14,756 12,726
Total Liabilities and Shareholders' Equity $37,541 $32,819
[FN]
See accompanying notes.
Consolidated Statements of Shareholders'Equity
(Amounts in millions except per share data)
Foreign
Capital in currency
Number Common excess of Retained translation
of shares stock par value earnings adjustment Total
Balance - January 31, 1993 2,300 $230 $527 $ 8,003 $ - $ 8,760
Net income 2,333 2,333
Cash dividends
($.13 per share) (299) (299)
Other (1) 9 (50) (41)
Balance - January 31, 1994 2,299 230 536 9,987 - 10,753
Net income 2,681 2,681
Cash dividends
($.17 per share) (391) (391)
Foreign currency
translation adjustment (256) (256)
Other (2) 3 (64) (61)
Balance - January 31, 1995 2,297 230 539 12,213 (256) 12,726
Net income 2,740 2,740
Cash dividends
($.20 per share) (458) (458)
Foreign currency
translation adjustment (156) (156)
Other (4) (1) 6 (101) (96)
Balance - January 31, 1996 2,293 $229 $545 $14,394 $(412) $14,756
[FN]
See accompanying notes.
Consolidated Statements of Cash Flows
(Amounts in millions)
Fiscal years ended January 31, 1996 1995 1994
Cash flows from operating activities:
Net income $ 2,740 $ 2,681 $ 2,333
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,304 1,070 849
Increase in accounts receivable (61) (84) (165)
Increase in inventories (1,850) (3,053) (1,324)
Increase in accounts payable 448 1,914 230
Increase in accrued liabilities 29 496 327
Other (227) (118) (55)
Net cash provided by operating activities 2,383 2,906 2,195
Cash flows from investing activities:
Payments for property, plant, and equipment (3,566) (3,734) (3,644)
Acquisition of assets from PACE
Membership Warehouses, Inc. - - (830)
Acquisition of assets from Woolworth
Canada, Inc. - (352) -
Sale/leaseback arrangements - 502 272
Investment in international operations (57) (434) (198)
Other investing activities 291 226 (86)
Net cash used in investing activities (3,332) (3,792) (4,486)
Cash flows from financing activities:
Increase (decrease) in commercial paper 660 220 (14)
Proceeds from issuance of long-term debt 1,004 1,250 3,108
Dividends paid (458) (391) (299)
Payment of long-term debt (126) (37) (19)
Payment of capital lease obligations (81) (70) (437)
Other financing activities (12) (61) (40)
Net cash provided by financing activities 987 911 2,299
Net increase in cash and cash equivalents 38 25 8
Cash and cash equivalents at beginning of year 45 20 12
Cash and cash equivalents at end of year $ 83 $ 45 $ 20
Supplemental disclosure of cash flow information:
Income tax paid $ 1,785 $ 1,390 $ 1,366
Interest paid 866 658 450
Capital lease obligations incurred 365 193 162
[FN]
See accompanying notes.
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
Segment information
The Company and its subsidiaries are principally engaged in the operation
of mass merchandising stores located in all 50 states, Puerto Rico,
Canada, and Argentina, and through joint ventures in Mexico and Brazil.
Consolidation
The consolidated financial statements include the accounts of
subsidiaries. Significant intercompany transactions have been eliminated
in consolidation.
Cash and cash equivalents
The Company considers investments with a maturity of three months or less
when purchased to be "cash equivalents."
Inventories
Inventories are stated principally at cost (last-in, first-out), which is
not in excess of market, using the retail method for inventories in
stores.
Pre-opening costs
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.
Interest during construction
In order that interest costs properly reflect only that portion relating
to current operations, interest on borrowed funds during the construction
of property, plant, and equipment is capitalized. Interest costs
capitalized were $50 million, $70 million, and $65 million in 1996, 1995,
and 1994, respectively.
Depreciation and amortization
Depreciation and amortization for financial statement purposes is
provided on the straight-line method over the estimated useful lives of
the various assets. For income tax purposes, accelerated methods are used
with recognition of deferred income taxes for the resulting temporary
differences.
Long-lived assets
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Company will adopt Statement 121 in
the first quarter of 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
Operating, selling, and general and administrative expenses
Buying, warehousing, and occupancy costs are included in operating,
selling, and general and administrative expenses.
Net income per share
Net income per share is based on the weighted average outstanding common
shares. The dilutive effect of stock options is insignificant and
consequently has been excluded from the earnings per share computations.
Stock options
Proceeds from the sale of common stock issued under the stock option
plans and related tax benefits which accrue to the Company are accounted
for as capital transactions, and no charges or credits are made to income
in connection with the plans.
Estimates and assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2 Commercial Paper and Long-term Debt
Information on short-term borrowings and interest rates is as follows
(dollar amounts in millions):
Fiscal years ended January 31, 1996 1995 1994
Maximum amount outstanding at month-end $3,686 $2,729 $2,395
Average daily short-term borrowings 2,106 1,693 1,247
Weighted average interest rate 5.9% 4.4% 3.0%
On January 31, 1996, the Company had committed lines of credit of
$1,900 million and informal lines of credit totaling an additional $2,450
million with 35 banks, which were used to support short-term borrowings
and commercial paper.
Short-term borrowings under these lines of credit bear interest at or
below the prime rate.
Long-term debt at January 31 consists of
(amounts in millions):
1996 1995
8 5\8% Notes due April 2001 $ 750 $ 750
5 7\8% Notes due October 2005 750 750
9 1\10% Notes due July 2000 500 500
5 1\2% Notes due September 1997 500 500
6 1\8% Notes due October 1999 500 500
5 1\2% Notes due March 1998 500 500
6 1\2% Notes due June 2003 500 500
7 1\4% Notes due June 2013 500 500
7 1\2% Notes due May 2004 500 500
7 8\10%-8 1\4% Obligations from sale/leaseback
transactions due 2014 478 484
7% - 8% Obligations from sale/leaseback
transactions due 2013 318 322
6 3\4% Notes due May 2002 300 -
6 3\8% Notes due March 2003 250 250
6 3\4% Notes due October 2023 250 250
8% Notes due September 2006 250 250
8 1\2% Notes due September 2024 250 250
6 7\8% Eurobond due June 1999 250 250
5 1\8% Eurobond due October 1998 250 250
7% Eurobond due April 1998 250 -
6 1\8% Eurobond due November 2000 250 -
6 3\4% Eurobond due May 2002 200 -
8% Notes due May 1996 - 250
10 7\8% Debentures due August 2000 - 100
Other 212 215
$8,508 $7,871
Long-term debt is unsecured except for $213 million which is
collateralized by property with an aggregate carrying value of
approximately $351 million. Annual maturities of long-term debt during
the next five years are (in millions):
Fiscal years ending Annual
January 31, maturity
1997 $ 271
1998 525
1999 1,025
2000 807
2001 2,065
Thereafter 4,086
The Company has agreed to observe certain covenants under the terms
of its note and debenture agreements the most restrictive of which
relates to amounts of additional secured debt and long-term leases.
The Company has entered into sale/leaseback transactions involving
buildings while retaining title to the underlying land. These
transactions were accounted for as financings and are included in long-
term debt and the annual maturities schedules above. The resulting
obligations are amortized over the lease terms. Future minimum lease
payments for each of the five succeeding years as of January 31, 1996 are
(in millions):
Fiscal years ending Minimum
January 31, Rentals
1997 $ 72
1998 76
1999 76
2000 104
2001 100
Thereafter 1,009
The fair value of the Company's long-term debt approximates $8,960
million based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements. The carrying amount of the short-
term borrowings approximates fair value.
As of January 31, 1996 and 1995, the Company had letters of credit
outstanding totaling $551 and $580 million, respectively. These letters
of credit were issued primarily for the purchase of inventory.
The Company has guaranteed the indebtedness of a joint venture for
the development of real estate in Puerto Rico. On January 31, 1996, the
amount guaranteed was approximately $85 million. The Company does not
anticipate any joint venture defaults.
Under shelf registration statements previously filed with the
Securities and Exchange Commission, the Company may issue debt securities
aggregating $751 million.
3 Defined Contribution Plan
The Company maintains a profit sharing plan under which most full and
many part-time Associates become participants following one year of
employment. Annual contributions, based on the profitability of the
Company, are made at the sole discretion of the Company. Contributions
were $204 million, $175 million, and $166 million in 1996, 1995, and 1994,
respectively.
4 Income Taxes
The income tax provision consists of the following
(in millions):
1996 1995 1994
Current:
Federal $1,342 $1,394 $1,193
State and local 188 178 132
Total current tax provision 1,530 1,572 1,325
Deferred:
Federal 61 7 30
State and local 15 2 3
Total deferred tax provision 76 9 33
Total provision for income taxes $1,606 $1,581 $1,358
Items that give rise to significant portions of the deferred
tax accounts at January 31 are as follows (in millions):
1996 1995 1994
Deferred tax liabilities:
Property, plant, and equipment $617 $518 $408
Inventory 135 88 38
Other 19 8 9
Total deferred tax liabilities 771 614 455
Deferred tax assets:
Amounts accrued for financial
reporting purposes not yet
deductible for tax purposes 204 230 114
Capital leases 147 114 95
Other 150 33 18
Total deferred tax assets 501 377 227
Net deferred tax liabilities $270 $237 $228
A reconciliation of the significant differences between
the effective income tax rate and the federal statutory rate
on pretax income follows:
1996 1995 1994
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal income tax benefit 3.1 2.7 2.4
Other (1.1) (0.6) (0.6)
Effective tax rate 37.0% 37.1% 36.8%
5 Acquisitions
In two unrelated cash transactions during fiscal 1994, the Company
acquired selected assets of PACE Membership Warehouses, Inc., including
the right to operate 107 of PACE's former locations, for $830 million,
recording $336 million of goodwill which is being amortized over 25
years.
In fiscal 1995, the Company acquired selected assets related to 122
Woolco stores in Canada from Woolworth Canada, Inc., a subsidiary of
Woolworth Corporation, for approximately $352 million, recording $221
million of leasehold and location value which is being amortized over 20
years. These transactions have been accounted for as purchases. The
results of operations for the acquired units since the dates of their
acquisitions have been included in the Company's results. Pro forma
results of operations are not presented due to insignificant differences
from the historical results.
6 Stock Option Plans
At January 31, 1996, 75 million shares of common stock were reserved for
issuance under stock option plans. The options granted under the stock
option plans expire 10 years from the date of grant. Options granted
prior to November 1995 may be exercised in nine annual installments.
Options granted after November 1995 may be exercised in seven annual
installments. Further information concerning the options is as follows:
Option price
Shares per share Total
Shares under option
January 31, 1993 14,464,000 $ 1.43-30.82 $234,860,000
Options Granted 3,550,000 25.00-27.25 90,377,000
Options Cancelled (803,000) 1.43-30.82 (17,325,000)
Options Exercised (1,335,000) 1.43-30.82 (9,664,000)
January 31, 1994 15,876,000 1.43-30.82 298,248,000
Options Granted 4,125,000 21.63-26.75 95,689,000
Options Cancelled (1,013,000) 1.43-30.82 (23,127,000)
Options Exercised (1,019,000) 2.08-27.25 (7,829,000)
January 31, 1995 17,969,000 2.78-30.82 362,981,000
Options Granted 7,114,000 23.50-24.75 167,959,000
Options Cancelled (1,953,000) 3.75-30.82 (43,873,000)
Options Exercised (1,101,000) 2.78-25.38 (9,678,000)
January 31, 1996 22,029,000 $ 2.78-30.82 $477,389,000
(5,011,000 shares exerciseable)
Shares available for option
January 31, 1995 58,107,000
January 31, 1996 52,946,000
7 Long-term Lease Obligations
The Company and certain of its subsidiaries have long-term leases for
stores and equipment. Rentals (including, for certain leases, amounts
applicable to taxes, insurance, maintenance, other operating expenses,
and contingent rentals) under all operating leases were $531 million in
1996, $479 million in 1995, and $361 million in 1994. Aggregate minimum
annual rentals at January 31, 1996, under non-cancelable leases are as
follows (in millions):
Fiscal Operating Capital
years leases leases
1997 $ 382 $ 263
1998 417 285
1999 358 284
2000 343 282
2001 317 279
Thereafter 3,117 3,087
Total minimum rentals $4,934 4,480
Less estimated executory costs 83
Net minimum lease payments 4,397
Less imputed interest at rates
ranging from 6.1% to 14.0% 2,236
Present value of minimum lease payments $2,161
Certain of the leases provide for contingent additional rentals based on
percentage of sales. Such additional rentals amounted to $41 million, $42
million, and $27 million in 1996, 1995, and 1994, respectively.
Substantially all of the store leases have renewal options for additional
terms from five to 25 years at comparable rentals.
The Company has entered into lease commitments for land and buildings
for 34 future locations. These lease commitments with real estate
developers or through sale/leaseback arrangements provide for minimum
rentals for 20 to 25 years, excluding renewal options, which, if
consummated based on current cost estimates, will approximate $32 million
annually over the lease terms.
8 Quarterly Financial Data (Unaudited)
Quarters ended
Amounts in millions
(except per share information)
1996 April 30, July 31, October 31, January 31,
Net sales $20,440 $22,723 $22,913 $27,551
Cost of sales 16,196 18,095 18,176 22,097
Net income 553 633 612 942
Net income per share $ .24 $ .28 $ .27 $ .41
1995
Net sales $17,686 $19,942 $20,418 $24,448
Cost of sales 14,063 15,960 16,201 19,362
Net income 498 565 588 1,030
Net income per share $ .22 $ .25 $ .26 $ .45
Market Price Of Common Stock
Fiscal years ended January 31,
1996 1995
Quarter High Low High Low
April 30 $26.00 $23.13 $29.13 $24.00
July 31 27.50 23.00 25.88 22.75
October 31 26.00 21.63 26.00 22.75
January 31 24.75 19.25 24.13 20.88
Dividends Paid Per Share
Fiscal years ended January 31,
Quarterly
1996 1995
April 14 $0.0500 April 14 $0.0425
July 10 0.0500 July 8 0.0425
October 3 0.0500 October 3 0.0425
January 5 0.0500 January 5 0.0425