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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES FORM 10-Q (Mark One) Commission file number 1-6991 WAL-MART STORES, INC. Delaware
71-0415188 702 S.W. Eighth Street (501) 273-4000 Not applicable 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. Applicable Only to Issuers Involved in Bankruptcy 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. Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practical date. Common Stock, $.10 Par Value 4,466,664,364 shares as of October
31, 2000. Page 1 of 18 (Form 10-Q) PART I. FINANCIAL INFORMATION Item 1. Financial Statements WAL-MART
STORES, INC. AND SUBSIDIARIES ASSETS October
31, January
31, Cash and
cash equivalents $ 1,311 $ 1,856 Receivables 1,468 1,341 Inventories 24,975 19,793 Prepaid
expenses and other 1,675 1,366 29,429 24,356 Property,
plant and equipment, at cost 45,833 41,063 Less
accumulated depreciation 9,619 8,224 36,214 32,839 Property
under capital leases 4,385 4,285 Less
accumulated amortization 1,273 1,155 3,112 3,130 8,994 9,392 Other
assets and deferred charges 1,302 632 $
79,051 $
70,349 LIABILITIES
AND SHAREHOLDERS' EQUITY Commercial
paper $ 5,751 $ 3,323 Accounts
payable 15,872 13,105 Accrued
liabilities 6,373 6,161 Other
current liabilities 3,470 3,214 31,466 25,803 Long-term
debt 13,412 13,672 Long-term
obligations under capital 2,973 3,002 Deferred
income taxes and other 884 759 Minority
interest 1,082 1,279 Common
stock and capital in excess of par 1,736 1,160 Retained
earnings 28,433 25,129 Other
accumulated comprehensive income (935) (455) 29,234 25,834 $
79,051 $
70,349 See accompanying notes to condensed consolidated financial statements. * Note: The balance sheet at January 31, 2000, has been derived from the audited
financial statements at that date, and condensed. Page 2 of 18 (Form 10-Q) WAL-MART
STORES, INC. AND SUBSIDIARIES Three Months Ended Nine Months Ended $ 45,676 $ 40,432 $ 134,773 $ 113,619 505 466 1,443 1,322 46,181 40,898 136,216 114,941 35,694 31,606 105,403 88,970 7,918 6,907 22,862 19,368 307 251 842 502 68 66 206 197 43,987 38,830 129,313 109,037 2,194 2,068 6,903 5,904 807 757 2,540 2,161 1,387 1,311 4,363 3,743 (18) (17) (72) (84) 1,369 1,294 4,291 3,659 - - - (198) $
1,369 $
1,294 $
4,291 $
3,461 $ 0.31 $ 0.29 $ 0.96 $ 0.82 - - - (0.04) $
0.31 $
0.29 $
0.96 $
0.78 4,468 4,454 4,463 4,451 $ 0.31 $ 0.29 $ 0.96 $ 0.82 - - - (0.04) $ 0.31 $ 0.29 $ 0.96 $ 0.77 4,487 4,475 4,484 4,473 $0.0600 $ 0.0500 $ 0.1800 $ 0.1500 See accompanying notes condensed consolidated financial statements. Page 3 of 18 (Form 10-Q) WAL-MART STORES, INC. AND SUBSIDIARIES Nine Months Ended $ 4,291 $ 3,461 2,014 1,612 - 198 (5,315) (4,621) 3,007 2,699 (184) 412 3,813 3,761 (5,846) (4,013) (617) (10,653) 53 (179) (6,410) (14,845) 2,441 6,709 1,523 5,755 (802) (668) (1,292) (838) (193) (101) 582 - (207) (217) 2,052 10,640 (545) (444) 1,856 1,879 $ 1,311 $ 1,435 $ 2,588 $ 1,895 1,123 614 - 175 254 266 - 65 See accompanying notes to condensed consolidated financial statements. Page 4 of 18 (Form 10-Q) WAL-MART STORES, INC. AND SUBSIDIARIES NOTE 1. Basis of Presentation The condensed consolidated balance sheet as of
October 31, 2000, and the related condensed consolidated statements of income for the
three and nine month periods ended October 31, 2000, and 1999, and the condensed
consolidated statements of cash flows for the nine month periods ended October 31, 2000,
and 1999, are unaudited. In the opinion of management, all adjustments necessary for a
fair presentation of the financial statements have been included. The adjustments
consisted only of normal recurring items. Interim results are not necessarily indicative
of results for a full year. 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 Companys annual report. Therefore,
the interim statements should be read in conjunction with the Company's annual report for
the fiscal year ended January 31, 2000. Certain reclassifications have been made to prior
periods to conform to current presentations. NOTE 2. Net Income Per Share Basic net income per share is based on the weighted
average outstanding common shares. Diluted net income per share is based on the weighted
average outstanding common shares reduced by the dilutive effect of stock options (19
million and 21 million shares for the quarters ended October 31, 2000 and 1999, and 21
million and 22 million for the nine month periods ended October 31, 2000 and 1999,
respectively). NOTE 3. Inventories The Company uses the retail last-in, first-out
(LIFO) method for the Wal-Mart Stores segment, cost LIFO for the Sams Club segment,
and other cost methods, including the retail first-in, first-out (FIFO) and average cost
methods, for the International segment. 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 for the year and the rate of
inflation for the year. If the FIFO method of accounting had been used by the Company,
inventories at October 31, 2000, would have been $408 million higher than reported, which
is an increase in the LIFO reserve of $30 million from January 31, 2000, and an increase
of $10 million from July 31 , 2000. If the FIFO method had been used at October 31, 1999,
inventories would have been $413 million higher than reported, a decrease in the LIFO
reserve of $60 million from January 31, 1999, and a decrease of $20 million from July 31,
1999. Page 5 of 18 (Form 10-Q) The Company is principally engaged in the operation
of mass merchandising stores that serve customers primarily through the operation of three
segments. The Company identifies its segments based on management responsibility within
the United States and geographically for all international units. The Wal-Mart Stores
segment includes the Companys discount stores, Supercenters and Neighborhood Market
stores in the United States. The Sams Club segment includes the warehouse membership
clubs in the United States. The International segment includes all operations in
Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico and the United
Kingdom. The revenues in the "Other" category result from sales to third parties
by McLane Company, Inc., a wholesale distributor. Net sales by operating segment were as follows (in millions): Three
Months Ended Nine
Months Ended Wal-Mart Stores $ 29,226 $ 26,460 $ 86,413 $ 77,000 Sam's Club 6,573 6,011 19,317 17,747 International 7,437 5,910 22,038 12,883 Other 2,440 2,051 7,005 5,989 Total Net Sales $ 45,676 $ 40,432 $
134,773 $
113,619 Three
Months Ended Nine
Months Ended Wal-Mart Stores $ 2,249 $ 1,993 $ 6,969 $ 5,977 Sam's Club 219 194 648 579 International 241 192 622 367 Other (140) 6 (288) (320) Operating profit $ 2,569 $ 2,385 $ 7,951 $ 6,603 Interest expense 375 317 1,048 699 $ 2,194 $ 2,068 $ 6,903 $ 5,904 Page 6 of 18 (Form 10-Q) Operating profit information for the three and nine
months ended October 31, 1999, has been reclassified to conform to current year
presentation. For this reclassification, certain intercompany operating profits and
corporate expenses have been moved from the other category to the operating segments. NOTE 5. Comprehensive Income Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," 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. Comprehensive income was $1,388 million and $1,376
million for the quarters ended October 31, 2000 and 1999, respectively and was $3,811
million and $3,567 million for the nine months ended October 31, 2000 and 1999,
respectively. NOTE 6. Acquisition of Additional Interest in Wal-Mart de Mexico On April 19, 2000, the Company purchased 271.3
million shares of stock in Wal-Mart de Mexico S.A. de C.V. (formerly Cifra S.A. de C.V.)
at a total cash cost of $587 million. This transaction increased the Companys
ownership percentage by approximately 6% and resulted in goodwill of $422 million, which
is being amortized over a 40-year life. In a separate transaction on April 19, 2000, the
Company also issued 10.8 million shares of its common stock to two private investors and
received proceeds of $582 million. These proceeds were used to replenish operating cash,
which was reduced as a result of our purchase of Wal-Mart de Mexico stock described above. NOTE 7. Accounting Changes In fiscal 2000, the Company changed its method of
accounting for Sams membership fee revenue both domestically and internationally.
Previously, the Company had recognized membership fee revenues when received. Under the
new accounting method, the Company recognizes membership fee revenues over the term of the
membership, which is 12 months. The Company recorded a non-cash charge of $198 million
(after reduction for income taxes of $119 million), or $.04 per share to reflect the
cumulative effect of the accounting change as of the beginning of fiscal 2000. The
comparative financial statements presented in this Form 10-Q reflect the effects of the
membership fee revenue accounting change required by Securities and Exchange Commission
Staff Accounting Bulletin No. 101 (SAB 101). An additional requirement of SAB 101 is that layaway transactions be
recognized upon delivery of the merchandise to the customer rather than at the time that
the merchandise is placed on layaway. The Company offers a layaway program that allows
customers to purchase certain items and make payments on these purchases over a specific
period. Until the first quarter of fiscal 2001, the Company recognized revenues from these
layaway transactions at the time that the merchandise was placed on layaway. Page 7 of 18 (Form 10-Q) During the first quarter of fiscal 2001, the Company changed its accounting method for
layaway transactions so that the revenue from these transactions is not recognized until
the customer satisfies all payment obligations and takes possession of the merchandise.
The impact of this accounting change was not material and did not impact earnings per
share in the first or second quarter of fiscal 2001. Since layaway transactions are a
small portion of the Companys revenue, the Company does not anticipate that this
accounting change will have a material impact on the results for the fiscal year. However,
due to the seasonality of the retail industry, the accounting change did result in a
reduction of revenues and earnings in the third quarter. Based on historical trends in
layaway transactions, management believes that the layaway accounting change will increase
fourth quarter earnings by approximately one and one half cents per share. Due to the de
minimis impact of this accounting change, prior fiscal year quarters have not been
restated. NOTE 8. Commitments and Contingencies On October 31, 2000, the Company entered into a $500
million revolving credit facility. The facility allows the Company to borrow up to $500
million at an interest rate of either the Federal Funds Rate plus one half percent, the
Prime Rate or the Eurodollar rate plus 12 basis points. Additionally, when used, the
facility requires the Company to comply with various covenants. At October 31, 2000, the
Company had not made any borrowing under the facility. NOTE 9. Subsequent Event On November 3, 2000, the Company sold notes totaling
$500 million. These notes bear interest at LIBOR minus 0.10% and will be due on November
30, 2001. On November 30, 2000, the Company sold notes totaling $500 million. These
notes bear interest at LIBOR minus 0.10% and will be due on December 27, 2001. The
proceeds from the sale of these notes were used to reduce the short-term commercial paper
debt and, therefore, the Company classified $1 billion of commercial paper as long-term
debt on the October 31, 2000 balance sheet. On November 16, 2000, the board of directors
declared a quarterly cash dividend on common stock of six cents per share, payable January
8, 2001 to shareholders of record on December 22, 2000. Item 2. Managements Discussion and Analysis of Financial Condition Results of Operations The Company had 13.0% and 18.6% sales increases for
the quarter and the nine months ended October 31, 2000, respectively, when compared
to the same periods in fiscal 2000. These sales increases were attributable to the
Companys domestic and international expansion programs and domestic comparative
store sales increases of 4.9% and 6.4% for the quarter and the nine months ended October
31, 2000, respectively. Page 8 of 18 (Form 10-Q) Domestic expansion activity during the first nine months of fiscal
2001 included the addition of 19 new Wal-Mart stores, 49 new Supercenters, six new
Sams Clubs and the conversion of 96 Wal-Mart stores to Supercenters. Also, during
the last 12 months, the Company added 11 new distribution centers. Additionally, the
Company continued to develop its Neighborhood Market concept, increasing the number of
Neighborhood Market stores to 15. International expansion during the first nine months of
fiscal 2001 included the addition of one unit in Argentina, four units in Brazil, three
units in Canada, two units in China, one unit in Korea, 25 units in Mexico and eight units
in the United Kingdom. At October 31, 2000, the Company had 1,723 Wal-Mart
stores, 866 Supercenters, 469 Sams Clubs and 15 Neighborhood Markets in the United
States. Internationally, the Company operated units in Argentina(11), Brazil(18),
Canada(169), Germany(95), Korea (6), Mexico(483), Puerto Rico(15), the United Kingdom
(240) and under joint venture agreements in China (8). At October 31, 1999, the Company
had 1,803 Wal-Mart stores, 682 Supercenters, and 456 Sams Clubs in the United
States. Internationally, the Company operated units in Argentina(13), Brazil(14),
Canada(163), Germany(95), Mexico(444) and Puerto Rico(15), the United Kingdom (229) and
under joint venture agreements in China(6) and Korea (5). The Companys gross profit as a percentage of
sales increased from 21.8% in the third quarter of fiscal 2000 to 21.9% during the third
quarter of fiscal 2001. For the nine-month period ended October 31, 2000, gross profit as
a percentage of sales was 21.8%, up from 21.7% in last years comparable period. The
improvements in gross profit occurred despite the continuation of the Companys price
rollback program, continued strong growth in the lower margin food business and a LIFO
inventory charge in the current year compared to a LIFO inventory credit last year. The
Sams Clubs segment comprises a lower percentage of consolidated Company sales. As a
result, the gross profit stated as a percentage of sales for the Company as a whole, is
positively impacted since Sams Clubs contribution to gross profit is a lower
percentage of sales than that of the Wal-Mart and International operating segments.
Additionally, markdowns for the quarter and first nine months of fiscal 2001 were down as
a percentage of sales when compared to the same period in fiscal 2000. Operating, selling, general and administrative
expenses, as a percentage of sales, were 17.3% for the third quarter of fiscal 2001, up
from 17.1% in the corresponding period in fiscal 2000 and were 17.0% for the nine-month
period in fiscal 2001 down from 17.1% in the corresponding period in fiscal 2000. Expenses
for the nine-month period in fiscal 2000 were impacted by the May 16, 1999, settlement of
a lawsuit, which resulted in a charge in the second quarter of fiscal 2000. Disregarding
the charge taken in connection with this settlement, expenses as a percentage of sales,
would have increased by 13 basis points for the nine-month period ended October 31, 2000.
Expenses as a percentage of sales are negatively affected in the consolidated results due
to the change in percentages of the total volume generated by Sams Club and the
International segments. The volume generated by the Sams Club segment, which has
lower expenses as a percent of sales, decreased as a proportion of the total volume and
the percentage of the total volume generated by the International segment, which has
higher expenses as a percent of sales, increased. Page 9 of 18 (Form 10-Q) Interest expense as a percent of sales was .8% for
the quarter ended October 31 in both fiscal 2001 and 2000. Interest expense as a percent
of sales for the nine-month period ended October 31 increased from .6% in fiscal 2000 to
.8% in fiscal 2001. The increase in interest expense is due to increased borrowing to fund
the Companys expansion activities. Wal-Mart Stores segment The Wal-Mart Stores segment had 10.5% and 12.2%
sales increases for the quarter and nine months ended October 31, 2000, respectively, when
compared to the sales in the same periods in fiscal 2000. These increases were due to
continued expansion activities within the segment and sales increases in comparable
stores. Comparative store sales increases for the segment were 4.5% and 6.4% for the
quarter and nine months ended October 31, 2000, respectively. The Wal-Mart Stores segment
sales as a percentage of total Company sales decreased from 65.4% and 67.8% in the quarter
and nine months ended October 31, 1999, to 64.0% and 64.1% for the quarter and nine months
ended October 31, 2000, respectively. This decrease is a result of international sales
growth resulting primarily from the ASDA Group PLC (ASDA) acquisition which was completed
in the third quarter of fiscal 2000. The Wal-Mart Stores segments operating profit
increased from $2.0 billion in the third quarter of fiscal 2000 to $2.2 billion in the
third quarter of fiscal 2001. For the quarter ended October 31, segment operating profit
as a percent of sales increased from 7.5% in fiscal 2000 to 7.7% in fiscal 2001. Operating
profit increased by $992 million for the nine-month period ended October 31, 2000 when
compared to the same period of the previous year. For the nine-months ended October 31,
2000, operating profit, as a percent of sales, increased from 7.8% in fiscal 2000 to 8.1%
in fiscal 2001. The operating profit improvements for the quarter and nine-month periods
were primarily the result of increased gross margins for the segment. Sams Club segment The Sams Clubs segment had 9.3% and 8.8% sales
increases for the quarter and nine months ended October 31, 2000, respectively, when
compared to the sales in the same periods in fiscal 2000. These increases were due to
continued expansion activities within the segment and sales increases in comparable clubs.
For the segment the comparative sales increases were 6.6% and 6.5% for the quarter and
nine months ended October 31, 2000, respectively. Sams Clubs sales as a percentage
of total Company sales fell from 14.9% and 15.6% in the quarter and nine months ended
October 31, 1999, to 14.4% and 14.3% for the quarter and nine months ended October 31,
2000, respectively. This decrease is largely due to the ASDA acquisition and more units
being added in other segments. The Sams Club segments operating profit
increased from $194 million in the third quarter of fiscal 2000 to $219 million in the
third quarter of fiscal 2001. For the quarter ended October 31, segment operating profit
as a percent of sales increased from 3.2% in fiscal 2000 to 3.3% in fiscal 2001. This
increase in operating profit is primarily the result of gross margin improvement and an
increase in membership revenue for the quarter. Operating profit increased by $69 million
for the nine-month period ended October 31, 2000, when compared to the same period of the
previous year. For the nine-months ended October 31, 2000, operating profit, as a percent
of sales, increased from 3.3% in fiscal 2000 to 3.4% in fiscal 2001. For the nine-month
period, the increase in operating profit is primarily due to gross margin improvement. Page 10 of 18 (Form 10-Q) International segment The International segment had 25.8% and 71.1% sales
increases for the quarter and nine months ended October 31, 2000, respectively, when
compared to the sales in the same periods in fiscal 2000. These increases were due
principally to expansion activities which included the acquisition of ASDA, which was
completed in the third quarter of fiscal 2000. Disregarding the ASDA results, the
International segment sales increase was 12.9% and 14.2% for the quarter and nine months
ended October 31, 2000, respectively. International sales accounted for 16.3% and 16.4% of
total Company sales in the quarter and first nine months of fiscal 2001, respectively,
compared with 14.6% and 11.3% during the same periods in fiscal 2000. The International segments operating profit
increased from $192 million in the third quarter of fiscal 2000 to $241 million in the
third quarter of fiscal 2001. For the quarter ended October 31, segment operating profit
as a percent of sales was unchanged at 3.2% in both fiscal 2000 and fiscal 2001. For the
nine-months ended October 31, operating profit increased $255 million, from $367 million
in fiscal 2000 to $622 million in fiscal 2001. For the nine-months ended October 31,
operating profit, as a percent of sales, was unchanged at 2.8% in both fiscal 2000 and
fiscal 2001. The increase in operating profit dollars is due to the inclusion of the
operating results of ASDA in the three and nine month periods ending October 31, 2000,
which are only partially included in comparable periods in fiscal 2000. Partially
offsetting the increase resulting from the ASDA acquisition are the negative impacts of
store remodeling costs, start-up costs for a new distribution system, excess inventory and
transition related expenses in the Companys units in Germany. Liquidity and Capital Resources Cash flows provided by operating activities were
$3.8 billion for the first nine-months of fiscal 2001, which is unchanged from the
comparable period in fiscal 2000. The major components of operating cash flow were a $5.3
billion increase in inventory for the first nine months of fiscal 2001 compared with a
$4.6 billion increase for the comparable period in fiscal 2000 and an increase in accounts
payable of $3.0 billion for fiscal 2001 compared with a $2.7 billion increase for the
comparable period in fiscal 2000. Additionally, net income and depreciation and
amortization were $830 million and $402 million higher, respectively, in the first nine
months of fiscal 2001 compared to the same period in fiscal 2000. Page 11 of 18 (Form 10-Q) Cash and cash equivalents decreased by 9%, or $124
million, when compared with the end of the same period in fiscal 2000. During the first
nine months of fiscal 2001, the Company paid $193 million to repurchase its common stock,
issued common stock for proceeds of $582 million, paid dividends of $802 million, invested
$5.8 billion in capital expenditures and paid $617 million for additional interests in its
Korean subsidiary and in Wal-Mart de Mexico, S.A. de C.V. Additionally, during the
nine-months ended October 31, 2000, the Company increased its commercial paper borrowings
by $2.4 billion and received proceeds from the issuance of long-term debt in the amount of
$1.5 billion. The Company made scheduled payments of long-term debt totaling $1.3 billion
during the first nine months of fiscal 2001. On April 19, 2000, the Company sold to two private
offshore investors for cash, 10,810,837 shares of its common stock, $0.10 par value per
share (the "Common Stock"), for an aggregate price of $582 million. The Company
sold the shares of common stock to such purchasers in reliance on the exemption contained
in Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"). The sales were not underwritten, and the Company paid no commissions or
discounts in connection with those sales. The Company used the proceeds of the sales to
replenish its operating cash, which was reduced as a result of its purchase earlier on
April 19, 2000, of a block of Class V common shares of its subsidiary, Wal-Mart de Mexico,
S.A. de C.V., over the Mexican Stock Exchange. At October 31, 2000, the Company had total assets of
$79 billion compared with total assets of $70 billion at January 31, 2000. The increase in
total assets primarily resulted from capital spending for property, plant and equipment
and increased inventory levels needed in preparation for the holiday season and to fill
the 11 new distribution centers added in the last 12 months. Working capital deficit at
October 31 was $2.0 billion, an increase of $600 million from $1.4 billion at January 31,
2000. The increase in the working capital deficit was the result of the $5.2 billion
increase in accounts payable and commercial paper and the $545 million decrease in cash
and cash equivalent, which more than offsets the $5.2 million increase in inventory. The
ratio of current assets to current liabilities was 0.9 to 1.0 at October 31, 2000, January
31, 2000 and October 31, 1999. In June 2000, the call option on $500 million of
outstanding debt with imbedded call and put options was exercised and all of the
outstanding bonds were purchased from the bondholders. The bonds were then remarketed. The
remarketed bonds are due June 2018, bear interest at an initial rate of 5.955% and will be
subject to annual put/call options which can be exercised every June 1. The interest rate,
if the bonds are not put to the Company, will be reset as a fixed rate on June 1 of every
year through 2017. The Company received no proceeds from the resale of the bonds and will
continue to pay the interest on the bonds annually each June. On October 31, 2000, the Company entered into a $500
million revolving credit facility. The facility allows the Company to borrow up to $500
million at an interest rate of either the Federal Funds Rate plus one half percent, the
Prime Rate or the Eurodollar rate plus 12 basis points. Additionally, when used, the
facility requires the Company to comply with various covenants. At October 31, 2000, the
Company had not made any borrowing under the facility. Page 12 of 18 (Form 10-Q) On November 3, 2000, the Company sold notes totaling
$500 million. These notes bear interest at LIBOR minus 0.10% and will be due on November
30, 2001. On November 30, 2000, the Company sold notes totaling $500 million. These notes
bear interest at LIBOR minus 0.10% and will be due on December 27, 2001. The proceeds from
the sale of these notes were used to reduce the short-term commercial paper debt and,
therefore, the Company classified $1 billion of commercial paper as long-term debt on the
October 31, 2000 balance sheet. The Company anticipates generating sufficient
operating cash flow to pay dividends and to fund all capital expenditures. The Company
plans to refinance existing long-term debt as it matures and may desire to obtain
additional long-term financing for other purposes or for strategic reasons. The Company
anticipates no difficulty in obtaining long-term financing in view of its excellent credit
rating and favorable experiences in the debt market in the recent past. After the November
debt issuance, the Company has a shelf registration under which it can sell up to $2.0
billion of additional debt securities in the public markets. Accounting Pronouncements On February 1, 2001, the Company will adopt
Financial Accounting Standards Board (FASB) Statements No. 133, 137 and 138 (collectively
"SFAS 133") pertaining to the accounting for derivatives and hedging activities.
SFAS 133 requires all derivatives to be recorded on the balance sheet at fair value and
establishes accounting treatment for three types of hedges: hedges of changes in the fair
value of assets, liabilities, or firm commitments; hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net investments in
foreign operations.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended October 31, 2000.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from ______to______.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
Bentonville, Arkansas
72716
(Address of principal executive offices)
(Zip Code)
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Yes __X__ No _____
Proceedings During the Preceding Five Years
Yes _____ No _____
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
2000
(Unaudited)
2000
(*Note)
Total
current assets
Net
property, plant and equipment
Net
property under capital leases
Net goodwill and other
acquired
intangible assets
Total
assets
Total
current liabilities
Leases
Value
Total
shareholders' equity
Total
liabilities and shareholders'
Equity
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in millions except per share data)
October 31,
2000 1999
October 31,
2000 1999
Revenues:
Net
sales
Other income - net
Costs and expenses:
Cost of
sales
Operating, selling and general and administrative
expenses
Interest
costs:
Debt
Capital leases
Income before income
taxes, minority
interest, equity in unconsolidated
subsidiaries and cumulative effect
of accounting change
Provision for income taxes
Income before minority
interest,
equity in unconsolidated
subsidiaries and cumulative effect
of accounting change
Minority interest and
equity in
unconsolidated subsidiaries
Income before cumulative
effect of
accounting change
Cumulative effect of
accounting
change, net of tax benefit of $119
Net income
Net income per common
share:
Basic
net income per common share
Income before cumulative effect
of accounting change
Cumulative effect of accounting
change, net of tax
Net
income per common share
Average
number of common shares
Dilutive
net income per common share
Income before cumulative effect
of accounting change
Cumulative effect of accounting
change, net of tax
Net income per common share
Average number of common shares
Dividends per share
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
October 31,
2000 1999
Cash flows
from operating activities:
Net income
Adjustments
to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Cumulative effect of accounting change (net of tax)
Increase in inventories
Increase in accounts payable
Other
Net cash
provided by operating activities
Cash flows
from investing activities:
Payments for property, plant & equipment
Investment in international operations (net of cash
acquired, $195 million in 1999)
Other investing activities
Net cash
used in investing activities
Cash flows
from financing activities:
Increase in commercial paper
Proceeds from issuance of long-term debt
Dividends paid
Payment of long-term debt
Purchase of Company stock
Proceeds from issuance of common stock
Other financing activities
Net cash
provided by financing activities
Net decrease
in cash and cash equivalents
Cash and
cash equivalents at beginning of year
Cash and
cash equivalents at end of period
Supplemental
disclosure of cash flow information:
Income taxes
paid
Interest
paid
ASDA
acquisition cost satisfied with Wal-Mart stock
Capital
lease obligations incurred
Property,
plant and equipment acquired with debt
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. Segments
October 31,
2000 1999
October 31,
2000 1999
Operating profit and reconciliation to income before income taxes, minority interest,
equity in unconsolidated subsidiaries and cumulative effect of accounting change are as
follows (in millions):
October 31,
2000 1999
October 31,
2000 1999
Income before income
taxes, minority
interest, equity
in unconsolidated
subsidiaries and
cumulative effect
of accounting change
and Results of Operations
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting of Certain Transactions involving Stock Compensation - An interpretation of APB Opinion No. 25." FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination.
Page 13 of 18 (Form 10-Q)
FIN 44 became effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. FIN 44 did not have a material effect on the financial position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Market risks relating to the Companys operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Companys market risks at October 31, 2000 are similar to those disclosed in the Companys Form 10-K for the year ended January 31, 2000. However, during the first nine-months of fiscal 2001, the Company increased the notional amount of Great Britain Pound based cross currency swaps by $1.25 billion and added Canadian Dollar based cross currency swaps with a notional amount of $1.25 billion. The Great Britain Pound based swaps mature in fiscal 2031 ($1 billion notional) and 2024 ($250 million notional) and the Canadian Dollar based swaps mature in fiscal 2005. The additional Great Britain Pound and Canadian Dollar based cross currency swaps had favorable fair values at October 31, 2000 of $142 million and $61 million, respectively. The Company also added two fixed to floating interest rate swaps in the first nine-months of the fiscal year. These interest rate swaps have a combined notional amount of $500 million, mature in fiscal 2003 and had a favorable fair value of $9 million at October 31, 2000. The total fair value of the Companys derivative financial instruments, including the instruments added during the first nine months of the fiscal year, increased from a favorable $152 million at January 31, 2000 to a favorable $1 billion at October 31, 2000. The information concerning market risk under the sub-caption "Market Risk" of the caption "Managements Discussion and Analysis" on pages 21 through 24 of the Annual Report to Shareholders for the year ended January 31, 2000, is hereby incorporated by reference in this Quarterly Report on Form 10-Q.
Page 14 of 18 (Form 10-Q)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. Neither the Company nor any of its properties is subject to any material pending legal proceeding, other than routine litigation incidental to the Companys business.
The Company recently opened a Supercenter in Honesdale, Pennsylvania. In February 1999, the Company settled claims made by the Pennsylvania Department of Environmental Protection (PDEP) that a subcontractors acts and omissions relating to the construction of the Supercenter led to excess erosion and sedimentation of a nearby creek. In the settlement, the Company agreed to pay a fine of $25,000 and to perform a $75,000 community environmental project in the Honesdale area. The Company is negotiating settlement of a claim by the United States Army Corps of Engineers that the construction resulted in the filling of approximately 0.76 acres in excess of the permitted fill area of waters and wetlands at the site. The proposed settlement with the Corps will require the Company to pay $200,000 to a non-profit corporation for the purchase of local wetlands conservation areas and easements. The Company has been reimbursed for these amounts by the contractor on the project.
The United States Environmental Protection Agency (EPA) is threatening to bring suit against the Company and five of its contractors over alleged violations of a 1992 storm water permit issued with respect to various Wal-Mart development sites in Texas, New Mexico and Oklahoma. The EPA has presented the Company with penalty calculations of $5.6 million.
During the first quarter of fiscal 2001, the State of Connecticut filed suit against the Company in the State of Connecticut Superior Court for the Judicial District of Hartford for various violations of state environmental laws alleging the Company failed to adequately permit and or maintain records relating to storm water management practices at 12 stores. The suit seeks to ensure the Company's compliance with the general permit for the discharge of stormwater associated with the those stores. The Company will vigorously defend against these allegations.
Item 2. Changes in Securities and Use of Proceeds.
As noted in "Managements Discussion and Analysis of Financial Condition and Results of OperationLiquidity and Capital Resources", on April 19, 2000, the Company sold 10,810,837 shares of its Common Stock. The shares were sold to two private offshore investors for an aggregate cash price of $582,450,449. The shares were sold to those investors in reliance on the exemption from the registration requirements of the Securities Act contained in Section 4(2) of the Securities Act. The offer and sale of the shares was made in negotiated transactions that did not involve any public solicitation or advertising of the offer of the shares. The Company offered and sold the shares only to sophisticated investors who could evaluate the merits and risks of an investment in shares of the Common Stock. The Company put into place the usual restrictive legends on the share certificates and those other precautions to prevent the resale or other disposition of the shares except pursuant to an effective registration statement or an available exemption from the registration requirements of the Securities Act. The offer and sale of those shares was not underwritten, and no underwriting discounts or commissions were paid by the Company in connection with the offer and sale of those shares.
Page 15 of 18 (Form 10-Q)
Item 5. Other Information
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Certain statements contained in Managements 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 Companys filings with the United States 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 documents are filed as an exhibit to this
Form 10-Q:
Exhibit 4(a) - The
Form of 6.875% Notes due August 1,
2002 is incorporated
herein by reference to the
Current Report on Form
8-K, dated August 3, 2000.
Exhibit 4(b) - The
Form of Floating Rate Notes
due November 30, 2001
is incorporated herein by
reference to the
Current Report on Form 8-K,
dated November 6, 2000.
Exhibit 12
Statement Re Computation of Ratios
Exhibit 27 - Financial
Data Schedule
(b) Reports on Form 8-K
Report on Form 8K,
dated August 3, 2000, with respect
to the Companys
August 1, 2000 sale of $500,000,000
6.875% Notes due August
1, 2002.
Report on Form 8K,
dated October 20, 2000, with respect
to the Companys
periodic communications with its
shareholders and other
members of the investment
community about the
Companys operations.
Report on Form 8-K,
dated November 6, 2000, with respect
to the Companys
November 3, 2000 sale of $500,000,000
Floating Rate Notes due
November 30, 2001.
Page 16 of 18 (Form 10-Q)
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: November 30, 2000
/s/ H. Lee Scott, Jr.
H. Lee Scott, Jr.
President and
Chief Executive Officer
Date: November 30, 2000
/S/ Thomas M. Schoewe
Thomas M. Schoewe
Executive Vice President
and Chief
Page 17 of 18 (Form 10-Q)
Index to Exhibits |
|
Exhibit |
Description of Document |
4(a) |
Form of 6.875% Notes due August 2002 (incorporated herein by reference to the Current Report on Form 8-K, dated August 3, 2000) |
4(b) |
Form of Floating Rate Notes due November 30, 2001 (incorporated herein by reference to the Current Report on Form 8-K, dated November 6, 2000) |
12 |
Statement Re Computation of Ratios |
27 |
Financial Data Schedule |
Exhibit 12 |
|||||||
|
Nine Months |
Fiscal Years Ended |
|||||
|
2000 |
1999 |
2000 |
1999 |
1998 |
1997 |
1996 |
Income before income taxes |
6,903 |
5,904** |
9,083 |
7,323 |
5,719 |
4,877 |
4,359 |
Capitalized interest |
(43) |
(30) |
(57) |
(41) |
(33) |
(44) |
(50) |
Minority interest |
(72) |
(84) |
(170) |
(153) |
(78) |
(27) |
(13) |
Adjusted profit before tax* |
6,788 |
5,790 |
8,856 |
7,129 |
5,608 |
4,806 |
4,296 |
|
|||||||
Fixed charges |
|
||||||
Debt interest |
842 |
502 |
756 |
529 |
555 |
629 |
692 |
Capital lease interest |
206 |
197 |
266 |
268 |
229 |
216 |
196 |
Capitalized interest |
43 |
30 |
57 |
41 |
33 |
44 |
50 |
Interest component of rent |
514 |
379 |
458 |
523 |
477 |
449 |
425 |
Total fixed expense |
1,605 |
1,108 |
1,537 |
1,361 |
1,294 |
1,338 |
1,363 |
|
|||||||
Profit before taxes and fixed expenses |
8,393 |
6,898 |
10,393 |
8,490 |
6,902 |
6,144 |
5,659 |
|
|||||||
Fixed charge coverage |
5.23 |
6.23 |
6.76 |
6.24 |
5.33 |
4.59 |
4.15 |
* Does not include the cumulative effect of accounting change recorded by the
Company in Fiscal 2000
** Restated to reflect the impact on the nine months ended October 31, 1999 of the
accounting change recorded by the Company in fiscal 2000.