Wal-Mart Stores, Inc. Annual Report - Page 19
Fiscal 1997 End of Year Store Counts
Discount Sam's
Stores Supercenters Clubs
Alabama 54 22 8
Alaska 3 0 3
Arizona 33 0 6
Arkansas 54 22 4
California 95 0 24
Colorado 32 4 10
Connecticut 9 0 3
Delaware 2 1 1
Florida 109 23 31
Georgia 65 22 15
Hawaii 5 0 1
Idaho 9 0 1
Illinois 98 8 24
Indiana 62 11 14
Iowa 45 0 7
Kansas 44 3 5
Kentucky 53 15 5
Louisiana 58 17 9
Maine 19 0 3
Maryland 21 0 10
Massachusetts 25 0 4
Michigan 44 0 21
Minnesota 33 0 9
Mississippi 45 11 4
Missouri 79 29 11
Montana 7 0 1
Nebraska 13 4 3
Nevada 10 0 2
New Hampshire 16 0 4
New Jersey 14 0 6
New Mexico 19 0 3
New York 48 5 17
North Carolina 82 3 14
North Dakota 8 0 2
Ohio 77 0 22
Oklahoma 61 17 6
Oregon 20 0 0
Pennsylvania 49 10 18
Rhode Island 5 0 1
South Carolina 46 6 8
South Dakota 8 0 2
Tennessee 63 25 10
Texas 173 69 51
Utah 14 0 5
Vermont 3 0 0
Virginia 35 14 10
Washington 18 0 2
West Virginia 12 3 3
Wisconsin 54 0 11
Wyoming 9 0 2
U.S. TOTAL 1,960 344 436
Alberta 14 0 0
British Columbia 12 0 0
Manitoba 9 0 0
New Brunswick 4 0 0
Newfoundland 7 0 0
Nova Scotia 7 0 0
NW Territories 1 0 0
Ontario 50 0 0
Quebec 24 0 0
Saskatchewan 8 0 0
CANADA TOTAL 136 0 0
Argentina 0 3 3
Brazil 0 2 3
Mexico 106* 18 28
Puerto Rico 7 0 4
China 0 1 1
Indonesia 0 2 0
INT'L. TOTAL 249 26 39
GRAND TOTAL 2,209 370 475
[FN]
*Includes 3 Superamas, 25 Bodegas, 4 Aurreras, 67 Vips and 7 Suburbias
Wal-Mart Stores, Inc. Annual Report - Pages 22-23
11-Year Financial Summary
(Dollar amounts in millions except per share data)
1997 1996 1995 1994 1993
Operating Results
Net sales $104,859 $93,627 $82,494 $67,344 $55,484
Net sales increase 12% 13% 22% 21% 26%
Comparative store
sales increase 5% 4% 7% 6% 11%
Other income-net 1,287 1,122 918 641 501
Cost of sales 83,663 74,564 65,586 53,444 44,175
Operating, selling,
and general and
administrative
expenses 16,788 14,951 12,858 10,333 8,321
Interest costs:
Debt 629 692 520 331 143
Capital leases 216 196 186 186 180
Provision for income
taxes 1,794 1,606 1,581 1,358 1,171
Net income 3,056 2,740 2,681 2,333 1,995
Per share of common stock:
Net income $1.33 1.19 1.17 1.02 .87
Dividends .21 .20 .17 .13 .11
Financial Position
Current assets $17,993 $17,331 $15,338 $12,114 $10,198
Inventories at
replacement cost 16,193 16,300 14,415 11,483 9,780
Less LIFO reserve 296 311 351 469 512
Inventories at
LIFO cost 15,897 15,989 14,064 11,014 9,268
Net property, plant
and equipment and
capital leases 20,324 18,894 15,874 13,176 9,793
Total assets 39,604 37,541 32,819 26,441 20,565
Current liabilities 10,957 11,454 9,973 7,406 6,754
Long-term debt 7,709 8,508 7,871 6,156 3,073
Long-term obligations
under capital leases 2,307 2,092 1,838 1,804 1,772
Shareholders' equity 17,143 14,756 12,726 10,753 8,759
Financial Ratios
Current ratio 1.6 1.5 1.5 1.6 1.5
Inventories/
working capital 2.3 2.7 2.6 2.3 2.7
Return on assets* 7.9% 7.8% 9.0% 9.9% 11.1%
Return on shareholders'
equity* 19.2% 19.9% 22.8% 23.9% 25.3%
Other Year-End Data
Number of Domestic
Wal-Mart stores 1,960 1,995 1,985 1,950 1,848
Number of Domestic
Supercenters 344 239 147 72 34
Number of Domestic
SAM'S Clubs 436 433 426 417 256
International units 314 276 226 24 10
Average Wal-Mart
store size 92,600 91,100 87,600 83,900 79,800
Number of Associates 728,000 675,000 622,000 528,000 434,000
Number of Shareholders
of Record 257,215 244,483 259,286 257,946 180,584
[FN]
* On average balances.
11-Year Financial Summary
(Dollar amounts in millions except per share data)
1992 1991 1990 1989 1988 1987
Operating Results
Net sales $43,887 $32,602 $25,811 $20,649 $15,959 $11,909
Net sales increase 35% 26% 25% 29% 34% 41%
Comparative store
sales increase 10% 10% 11% 12% 11% 13%
Other income-net 403 262 175 137 105 85
Cost of sales 34,786 25,500 20,070 16,057 12,282 9,053
Operating, selling,
and general and
administrative
expenses 6,684 5,152 4,070 3,268 2,599 2,008
Interest costs:
Debt 113 43 20 36 25 10
Capital leases 153 126 118 99 89 76
Provision for income
taxes 945 752 632 488 441 396
Net income 1,609 1,291 1,076 838 628 451
Per share of common stock:
Net income .70 .57 .48 .37 .28 .20
Dividends .09 .07 .06 .04 .03 .02
Financial Position
Current assets $8,575 $6,415 $4,713 $3,631 $2,905 $2,353
Inventories at
replacement cost 7,857 6,207 4,751 3,642 2,855 2,185
Less LIFO reserve 473 399 323 291 203 154
Inventories at
LIFO cost 7,384 5,808 4,428 3,351 2,652 2,031
Net property, plant
and equipment and
capital leases 6,434 4,712 3,430 2,662 2,145 1,676
Total assets 15,443 11,389 8,198 6,360 5,132 4,049
Current liabilities 5,004 3,990 2,845 2,066 1,744 1,340
Long-term debt 1,722 740 185 184 186 179
Long-term obligations
under capital leases 1,556 1,159 1,087 1,009 867 764
Shareholders' equity 6,990 5,366 3,966 3,008 2,257 1,690
Financial Ratios
Current ratio 1.7 1.6 1.7 1.8 1.7 1.8
Inventories/
working capital 2.1 2.4 2.4 2.1 2.3 2.0
Return on assets* 12.0% 13.2% 14.8% 14.6% 13.7% 12.6%
Return on shareholders'
equity* 26.0% 27.7% 30.9% 31.8% 31.8% 30.4%
Other Year-End Data
Number of Domestic
Wal-Mart stores 1,714 1,568 1,399 1,259 1,114 980
Number of Domestic
Supercenters 10 9 6 3 2
Number of Domestic
SAM'S Clubs 208 148 123 105 84 49
International units
Average Wal-Mart
store size 74,700 70,700 66,400 63,500 61,500 59,000
Number of Associates 371,000 328,000 271,000 223,000 183,000 141,000
Number of Shareholders
of Record 150,242 122,414 79,929 80,270 79,777 32,896
[FN]
* On average balances.
Wal-Mart Stores, Inc. Annual Report - Page 24-26
Management's Discussion and Analysis
Results of Operations
Increases (Decreases) In Consolidated Operating Results Over Prior Year
(Dollars in millions, except per share data)
1997 1996
Amount % Amount %
Revenues:
Net sales $11,232 12% $11,133 13%
Other income-net 165 15% 204 22%
11,397 12% 11,337 14%
Costs and Expenses:
Cost of sales 9,099 12% 8,978 14%
Operating, selling and general
and administrative expenses 1,837 12% 2,093 16%
Interest Costs:
Debt (63) (9%) 172 33%
Capital leases 20 10% 10 5%
10,893 12% 11,253 14%
Income Before Income Taxes 504 12% 84 2%
Provision for Income Taxes 188 12% 25 2%
Net Income $316 12% $59 2%
Net Income Per Share $.14 12% $.02 2%
Net Sales
The sales increase in fiscal 1997 was attributable to the Company's
expansion program and comparative store sales increases of 5%. Expansion for
fiscal 1997 included the opening of 59 Wal-Mart stores, 105 Supercenters
(including the conversion of 92 Wal-Mart stores), 9 SAM'S Clubs, and 38
international units. The majority of the sales increase resulted from
Wal-Mart stores and Supercenters while International sales grew to
approximately 4.8% of the total sales in fiscal 1997 from 4.0% in fiscal 1996.
SAM'S Club sales as a percentage of total sales decreased from 20.4% in
fiscal 1996 to 18.9% in fiscal 1997.
The sales increase of 13% in fiscal 1996 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 attributable to
Wal-Mart stores and Supercenters. SAM'S Club sales as a percentage of total
sales decreased from 22.9% in fiscal 1995 to 20.4% in fiscal 1996.
Costs and Expenses
Cost of sales as a percentage of sales increased .2% in fiscal 1997 and
.1% in fiscal 1996 when compared to the preceding year. The increase in
fiscal 1997 is due in part to one-time markdowns in the third quarter
resulting from a strategic decision to reduce the merchandise assortment in
selected categories. Cost of sales also increased 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 of always providing low prices. These increases were offset by
approximately .2% because SAM'S Club comprised a lower percentage of
consolidated sales in 1997 at a lower contribution to gross margin than the
stores. The increase in fiscal 1996 was due to lower initial markons and a
larger percentage of consolidated sales from departments within Wal-Mart
stores which have lower markon percents. This increase is offset by
approximately .3% because SAM'S Club comprised a lower percentage of
consolidated sales in 1996 at a lower contribution to gross margin than the
stores.
Operating, selling and general and administrative expenses as a
percentage of sales were flat in fiscal 1997 when compared to fiscal 1996 and
increased .4% in fiscal 1996 when compared to fiscal 1995. As sales in SAM'S
Club decreased as a percentage of total sales, the Company's operating,
selling and general and administrative expenses as a percentage of sales
increased approximately .1% due to a lower expense to sales percentage at
SAM'S Club compared to the stores and Supercenters. This increase was offset
through expense control in all of the operating formats. 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 Club and a higher percentage of
sales attributable to international operations. SAM'S Club operating, selling
and general and administrative expenses as a percentage of sales were lower
than the Wal-Mart stores and Supercenters while international expenses were
slightly higher.
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in fiscal 1997. 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. The Company's existing accounting policies were such
that this pronouncement did not materially affect the Company's financial
position or results of operations.
Interest Cost
Interest cost decreased in fiscal 1997 compared to fiscal 1996 due to
lower average daily short-term borrowings and through retirement of maturing
debt. The Company was able to reduce short-term debt through enhanced
operating cash flows and lower capital spending. Interest cost increased in
fiscal 1996 compared to 1995 due to increased indebtedness and increased
average short-term borrowing rates. The increased indebtedness was primarily
due to the Company's expansion program. See Note 2 of Notes to Consolidated
Financial Statements for additional information on interest and debt.
International Operations
The Company has wholly owned operations in Argentina, Canada and Puerto
Rico, and through joint ventures in Brazil, China and Mexico. International
operations remain immaterial to total Company operations. However, their
sales growth in fiscal 1997 exceeded all other operating formats. As a group,
the international operations were profitable in fiscal 1997.
Liquidity and Capital Resources
Cash Flow Information
Cash flow provided from operations was $5.9 billion in fiscal 1997, up
from $2.4 billion in fiscal 1996. The increase was primarily due to a greater
emphasis on inventory management that resulted in lowering unit inventory
levels. Although consolidated net sales increased by 12% in fiscal 1997,
consolidated inventories decreased slightly from the prior year end. After
funding capital expenditures of more than $2.6 billion, operating cash flow
provided an excess of almost $3.3 billion. This enabled the Company to reduce
short-term borrowings, retire maturing debt and pay dividends. At January 31,
1997, the Company eliminated short term borrowings and had $883 million
invested in cash and cash equivalents. The Company anticipates that cash
flows from operations will continue to exceed future capital expenditures.
The excess cash flows generated may be used to purchase Company stock, pay
dividends or for other investing or financing needs.
Company Stock Purchases and Common Stock Dividends
In fiscal 1997, the Company purchased over 8 million shares of its
common stock for $208 million. Subsequent to January 31, 1997, the Company
announced plans to purchase up to $2 billion of its common stock over the
next 18 months. Additionally, the Company increased the dividend 29% to $.27
per share for fiscal 1998.
Expansion
Domestically, the Company plans to open approximately 50 new Wal-Mart
stores, and 100 Supercenters. Approximately 70 of the Supercenters will come
from relocations or expansions of existing Wal-Mart stores. The Company also
plans to open 5 to 10 new SAM'S Clubs and 4 distribution centers.
International expansion includes 30 to 35 new Wal-Mart stores, Supercenters,
and SAM'S Clubs in Argentina, Brazil, Canada, China, Mexico and Puerto Rico.
Total planned capital expenditures for 1998 approximates $3 billion. The
Company plans to primarily finance expansion with operating cash flows.
Borrowing Information
The Company had committed lines of credit of $2,450 million with 34
banks and informal lines with various banks totaling an additional $2,450
million 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
for other cash requirements.
The Company anticipates generating sufficient operating cash flow to
fund all capital expenditures and accordingly, does not plan to finance
future capital expenditures with debt. However, the Company may desire to
obtain long-term financing for other uses of cash or for strategic reasons.
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. In addition to the available credit lines mentioned
above, the Company may sell up to $751 million of public debt under shelf
registration statements previously filed with the Securities and Exchange
Commission.
Foreign Currency Translation
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. Beginning in fiscal 1998, Mexico will
report as a highly inflationary economy. All foreign operations as a group
are immaterial to the Company's consolidated results of operations and
financial position. In fiscal 1997, the foreign currency translation
adjustment decreased by $12 million to $400 million primarily due to a
favorable exchange rate in Canada. The cumulative foreign currency
translation adjustments of $412 and $256 million in fiscal 1996 and 1995,
respectively, were primarily due to operations in Mexico. The Company
periodically purchases forward contracts on firm commitments to minimize the
risk of foreign currency fluctuations. None of these contracts were
significant during the year, and those outstanding at January 31, 1997 were
insignificant to the Company's financial position. The Company minimizes its
exposure to the risk of devaluation of foreign currencies by operating in
local currencies and through buying forward contracts on some known
transactions.
Forward-Looking Statements
Certain statements contained in Management's Discussion and Analysis and
elsewhere in this annual report are forward-looking statements. These
statements discuss, among other things, expected growth, future revenues 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.
Wal-Mart Stores, Inc. Annual Report - Page 26
Consolidated Statements of Income
(Amounts in millions except per share data)
Fiscal years ended January 31, 1997 1996 1995
Revenues:
Net sales $104,859 $93,627 $82,494
Other income-net 1,287 1,122 918
106,146 94,749 83,412
Costs and Expenses:
Cost of sales 83,663 74,564 65,586
Operating, selling and general
and administrative expenses 16,788 14,951 12,858
Interest Costs:
Debt 629 692 520
Capital leases 216 196 186
101,296 90,403 79,150
Income Before Income Taxes 4,850 4,346 4,262
Provision for Income Taxes
Current 1,974 1,530 1,572
Deferred (180) 76 9
1,794 1,606 1,581
Net Income $3,056 $2,740 $2,681
Net Income Per Share $1.33 $1.19 $1.17
[FN]
See accompanying notes.
Wal-Mart Stores, Inc. Annual Report - Page 27
Consolidated Balance Sheets
(Amounts in millions)
January 31, 1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 883 $ 83
Receivables 845 853
Inventories
At replacement cost 16,193 16,300
Less LIFO reserve 296 311
Inventories at LIFO 15,897 15,989
Prepaid expenses and other 368 406
Total Current Assets 17,993 17,331
Property, Plant and Equipment, at Cost:
Land 3,689 3,559
Building and improvements 12,724 11,290
Fixtures and equipment 6,390 5,665
Transportation equipment 379 336
23,182 20,850
Less accumulated depreciation 4,849 3,752
Net property, plant and equipment 18,333 17,098
Property under capital lease 2,782 2,476
Less accumulated amortization 791 680
Net property under capital leases 1,991 1,796
Other Assets and Deferred Charges 1,287 1,316
Total Assets $39,604 $37,541
Liabilities and Shareholders' Equity
Current Liabilities:
Commercial paper $ - $2,458
Accounts payable 7,628 6,442
Accrued liabilities 2,413 2,091
Accrued income taxes 298 123
Long-term debt due within one year 523 271
Obligations under capital leases
due within one year 95 69
Total Current Liabilities 10,957 11,454
Long-Term Debt 7,709 8,508
Long-Term Obligations Under Capital Leases 2,307 2,092
Deferred Income Taxes and Other 463 400
Minority Interest 1,025 331
Shareholders' Equity
Preferred stock ($.10 par value;
100 shares authorized, none issued)
Common stock ($.10 par value;
5,500 shares authorized, 2,285
and 2,293 issued and outstanding
in 1997 and 1996, respectively) 228 229
Capital in excess of par value 547 545
Retained earnings 16,768 14,394
Foreign currency translation adjustment (400) (412)
Total Shareholders' Equity 17,143 14,756
Total Liabilities and Shareholders' Equity $39,604 $37,541
[FN]
See accompanying notes.
Wal-Mart Stores, Inc. Annual Report - Page 28
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, 1994 2,299 $230 $536 $9,987 $ - $10,753
Net income 2,681 2,681
Cash dividends
$.17 per share) (391) (391)
Purchase of Company stock (3) (4) (64) (68)
Foreign currency
translation adjustment (256) (256)
Other 1 7 7
Balance - January 31, 1995 2,297 230 539 12,213 (256) 12,726
Net income 2,740 2,740
Cash dividends
($.20 per share) (458) (458)
Purchase of Company stock (5) (4) (101) (105)
Foreign currency
translation adjustment (156) (156)
Other 1 (1) 10 9
Balance - January 31, 1996 2,293 229 545 14,394 (412) 14,756
Net income 3,056 3,056
Cash dividends
($.21 per share) (481) (481)
Purchase of Company stock (8) (7) (201) (208)
Foreign currency
translation adjustment 12 12
Other (1) 9 8
Balance - January 31, 1997 2,285 $228 $547 $16,768 $(400) $17,143
[FN]
See accompanying notes.
Wal-Mart Stores, Inc. Annual Report - Page 29
Consolidated Statements of Cash Flows
(Amounts in millions)
Fiscal years ended January 31, 1997 1996 1995
Cash flows from operating activities
Net income $ 3,056 $ 2,740 $ 2,681
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,463 1,304 1,070
Increase in accounts receivable (58) (61) (84)
Decrease/(increase) in inventories 99 (1,850) (3,053)
Increase in accounts payable 1,208 448 1,914
Increase in accrued liabilities 430 29 496
Deferred income taxes (180) 76 9
Other (88) (303) (127)
Net cash provided by operating activities 5,930 2,383 2,906
Cash flows from investing activities
Payments for property, plant
and equipment (2,643) (3,566) (3,734)
Proceeds from sale of photo
finishing plants 464
Acquisition of assets from
Woolworth Canada, Inc. (352)
Sale/leaseback arrangements 502
Other investing activities 111 234 (208)
Net cash used in investing activities (2,068) (3,332) (3,792)
Cash flows from financing activities
(Decrease)/increase in commercial paper (2,458) 660 220
Proceeds from issuance of long-term debt 1,004 1,250
Net proceeds from formation of real
estate investment trust (REIT) 632
Purchase of Company stock (208) (105) (68)
Dividends paid (481) (458) (391)
Payment of long-term debt (541) (126) (37)
Payment of capital lease obligations (74) (81) (70)
Other financing activities 68 93 7
Net cash (used in)/provided by
financing activities (3,062) 987 911
Net increase in cash and cash equivalents 800 38 25
Cash and cash equivalents at beginning
of year 83 45 20
Cash and cash equivalents at end of year $ 883 $ 83 $ 45
Supplemental disclosure of cash flow
information
Income tax paid $ 1,791 $ 1,785 $ 1,390
Interest paid 851 866 658
Capital lease obligations incurred 326 365 193
[FN]
See accompanying notes.
Wal-Mart Stores, Inc. Annual Report - Pages 30-34
Notes To Consolidated Financial Statements
1 Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of subsidiaries.
Significant intercompany transactions have been eliminated in consolidation.
Segment Information
The Company and its subsidiaries are principally engaged in the operation of
mass merchandising stores located in all 50 states, Argentina, Canada and Puerto
Rico, and through joint ventures in Brazil, China and Mexico.
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 Wal-Mart stores and
Supercenters.
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
$44 million, $50 million and $70 million in 1997, 1996 and 1995,
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 fiscal 1997, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The statement requires entities to review long-lived
assets and certain intangible assets in certain circumstances, and if the value
of the assets is impaired, an impairment loss shall be recognized. Due to the
Company's previous accounting policies, this pronouncement had no material
effect on the Company's financial position or results of operations.
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, 1997 1996 1995
Maximum amount outstanding at month-end $ 2,209 $ 3,686 $ 2,729
Average daily short-term borrowings 1,091 2,106 1,693
Weighted average interest rate 5.3% 5.9% 4.4%
At January 31, 1997, the Company had committed lines of credit of $2,450 million
with 34 banks and informal lines of credit with various banks totaling an
additional $2,450 million, 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, 1997, consist of (amounts in millions):
1997 1996
8 5/8% Notes due April 2001 $ 750 $ 750
5 7/8% Notes due October 2005 597 750
7 1/2% Notes due May 2004 500 500
9 1/10% Notes due July 2000 500 500
6 1/8% Notes due October 1999 500 500
5 1/2% Notes due March 1998 500 500
7 8/10%-8 1/4% Obligations from sale/leaseback
transactions due 201 4 466 478
6 1/2% Notes due June 2003 454 500
7 1/4% Notes due June 2013 445 500
7% - 8% Obligations from sale/leaseback
transactions due 2013 314 318
6 3/4% Notes due May 2002 300 300
8 1/2% Notes due September 2024 250 250
6 3/4% Notes due October 2023 250 250
8% Notes due September 2006 250 250
6 1/8% Eurobond due November 2000 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 250 250
6 3/8% Notes due March 2003 228 250
6 3/4% Eurobond due May 2002 200 200
5 1/2% Notes due September 1997 500
Other 205 212
$ 7,709 $ 8,508
Long-term debt is unsecured except for $206 million which is collateralized by
property with an aggregate carrying value of approximately $347 million. Annual
maturities of long-term debt during the next 5 years are
(in millions):
Fiscal year ending Annual
January 31, maturity
1998 $ 523
1999 1,024
2000 806
2001 2,018
2002 52
Thereafter 3,809
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, 1997 are (in millions):
Fiscal years ending Minimum
January 31, rentals
1998 $ 76
1999 76
2000 104
2001 100
2002 94
Thereafter 915
The fair value of the Company's long-term debt approximates $7,836 million based
on the Company's current incremental borrowing rate for similar types of
borrowing arrangements.
At January 31, 1997 and 1996, the Company had letters of credit outstanding
totaling $811 million and $551 million, respectively. These letters of credit
were issued primarily for the purchase of inventory.
Under shelf registration statements previously filed with the Securities and
Exchange Commission the Company may issue debt securities aggregating $751
million.
The Company has entered into an interest rate swap on an obligation which
amortizes through 2006.
The Company swapped a fixed rate of 6.97% for a variable short-term rate on a
notional amount of $630 million amortizing down to $203 million with semi annual
settlements. The variable rate was 5.45% at the last settlement. This interest
rate swap is accounted for by recording the net interest received or paid as an
adjustment to interest expense on a current basis. Gains or losses resulting
from market movements are not recognized. An increase in short term rates would
cause the Company an insignificant additional interest cost.
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 $247 million, $204 million and
$175 million in 1997, 1996 and 1995, respectively.
4 Income Taxes
The income tax provision consists of the following(in millions):
1997 1996 1995
Current
Federal $ 1,769 $ 1,342 $ 1,394
State and local 201 188 178
International 4
Total current tax provision 1,974 1,530 1,572
Deferred
Federal (97) 119 7
State and local (9) 15 2
International (74) (58)
Total deferred tax (benefit) provision (180) 76 9
Total provision for income taxes $ 1,794 $ 1,606 $ 1,581
Items that give rise to significant portions of the deferred tax
accounts at January 31, 1997, are as follows (in millions):
1997 1996 1995
Deferred tax liabilities:
Property, plant and equipment $ 721 $ 617 $ 518
Inventory 145 135 88
Other 45 19 8
Total deferred tax liabilities 911 771 614
Deferred tax assets:
Amounts accrued for financial
reporting purposes not yet
deductible for tax purposes 295 204 230
International, principally
asset basis difference 231 101
Capital leases 169 147 114
Deferred revenue 113
Other 68 49 33
Total deferred tax assets 876 501 377
Net deferred tax liabilities $ 35 $ 270 $ 237
A reconciliation of the significant differences between the effective income tax
rate and the federal statutory rate on pretax income follows:
1997 1996 1995
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal income tax benefit 2.2% 3.1% 2.7%
International (1.3%) (0.8%)
Other 1.1% (0.3%) (0.6%)
37.0% 37.0% 37.1%
5 Acquisitions
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.
This transaction has been accounted for as a purchase. 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 the insignificant differences from the historical results.
6 Stock Option Plans
At January 31, 1997, 74 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
17, 1995, may be exercised in nine annual installments. Options granted on or
after November 17, 1995, may be exercised in seven annual installments. The
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided under FASB Statement 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized. The effect of applying the fair value method of Statement 123 to the
Company's option plan would result in net income and net income per share that
are not materially different from the amounts reported in the Company's
consolidated financial statements.
Further information concerning the options is as follows:
Option price
Shares per share Total
Shares under option
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 canceled (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 canceled (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 4.94-30.82 477,389,000
Options granted 11,466,000 22.25-25.25 265,931,000
Options canceled (2,110,000) 5.78-30.82 (49,109,000)
Options exercised (999,000) 4.94-25.75 (10,327,000)
January 31, 1997 30,386,000 $ 6.50-30.82 $683,884,000
(6,448,000 shares exerciseable)
Shares available for option
January 31, 1996 52,946,000
January 31, 1997 43,590,000
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 $561 million, $531 million and $479 million in 1997,
1996 and 1995. Aggregate minimum annual rentals at January 31, 1997, under non-
cancelable leases are as follows (in millions):
7 Long-term Lease Obligations
Fiscal Operating Capital
year leases leases
1998 $ 435 $ 317
1999 379 316
2000 364 314
2001 332 311
2002 321 311
Thereafter 2,913 3,245
Total minimum rentals $ 4,744 4,814
Less estimated executory costs 79
Net minimum lease payments 4,735
Less imputed interest at rates ranging from 6.1% to 14.0% 2,333
Present value of minimum lease payments $ 2,402
Certain of the leases provide for contingent additional rentals based on
percentage of sales. Such additional rentals amounted to $51 million, $41
million and $42 million in 1997, 1996 and 1995, 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 30
future locations. These lease commitments with real estate developers provide
for minimum rentals for 20 years, excluding renewal options. If consummated
based on current cost estimates, they will approximate $27 million annually over
the lease terms.
8 Quarterly Financial Data (Unaudited)
Amounts in millions Quarters ended
(except per share information) April 30, July 31, October 31, January 31,
1997
Net sales $ 22,772 $ 25,587 $ 25,644 $ 30,856
Cost of sales 18,064 20,376 20,450 24,773
Net income 571 706 684 1,095
Net income per share $.25 $.31 $.30 $.48
1996
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
Wal-Mart Stores, Inc. Annual Report - Page 35
Report of
Independent Auditors
The Board of Directors and Shareholders
Wal-Mart Stores, Inc.
We have audited the accompanying consolidated balance sheets of Wal-Mart
Stores, Inc. and Subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wal-Mart
Stores, Inc. and Subsidiaries at January 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1997, in conformity with generally accepted
accounting principles.
/s/Ernst & Young
Tulsa, Oklahoma
March 21, 1997
Wal-Mart Stores, Inc. Annual Report - Page 37
Listings Stock Symbol: WMT
New York Stock Exchange
Pacific Stock Exchange
Toronto Stock Exchange
Market Price of Common Stock
Fiscal years ended January 31,
1997 1996
Quarter Hi Low Hi Low
April 30 $24.50 $20.88 $26.00 $23.13
July 31 $26.25 $22.88 $27.50 $23.00
October 31 $28.13 $24.50 $26.00 $21.63
January 31 $27.00 $22.13 $24.75 $19.25
Dividends Paid Per Share
Fiscal years ended January 31,
Quarterly
1997 1996
April 8 $ 0.0525 April 14 $ 0.05
July 8 $ 0.0525 July 10 $ 0.05
October 7 $ 0.0525 October 3 $ 0.05
January 17 $ 0.0525 January 5 $ 0.05