EXCHANGE OFFER
Published on January 9, 2003
Exhibit I.1.
OFFERING MEMORANDUM
Wal-Mart Stores, Inc.
(Incorporated and registered in the State of Delaware with charter number
0732109)
Offer to Exchange
Fixed Rate Notes Due 2013 for all of the outstanding securities that are part
of the following series of debt securities of Asda Group Limited
Wal-Mart Stores, Inc., a corporation incorporated under the laws of the
State of Delaware (the "Company " or "Wal-Mart "), hereby offers to exchange
(the "Exchange Offer ") Fixed Rate Notes Due 2013 of the Company, denominated
in pounds sterling (the "Wal-Mart Notes "), for any and all outstanding 8.375%
Notes due 2007 (the "2007 Notes "), 10.875% Bonds due 2010 (the "2010 Bonds ")
and 6.625% Notes due 2015 (the "2015 Notes" and, together with the 2010 Bonds
and the 2007 Notes, the "Asda Debt Securities", and each such series, a "Series
of Asda Debt Securities ") of Asda Group Limited ("Asda"), a company
incorporated under the laws of England and Wales. Asda is an indirect
wholly-owned subsidiary of the Company. The Exchange Offer is being made upon
the terms and subject to the conditions set forth in this Offering Memorandum
(as it may be amended from time to time, the "Offering Memorandum"). Except
under certain circumstances, the Company, in its sole discretion, may terminate
the Exchange Offer at any time on or prior to the Expiration Date.
Application has been made by the Company to the Financial Services Authority
in its capacity as United Kingdom Listing Authority (the "UK Listing
Authority ") for the Wal-Mart Notes to be admitted to the Official List of the
UK Listing Authority (the "Official List ") and to the London Stock Exchange
plc (the "London Stock Exchange") for the Wal-Mart Notes to be admitted to
trading by the London Stock Exchange which together will constitute official
listing on the London Stock Exchange. Copies of this document, which comprises
an approved prospectus and listing particulars with regard to the Company and
to the issue of the Wal-Mart Notes in accordance with the listing rules made
under Part VI of the Financial Services and Markets Act 2000 ("FSMA"), have
been delivered to the Registrar of Companies in England and Wales for
registration in accordance with Section 83 of the FSMA.
The amount of Wal-Mart Notes offered in exchange for each (Pounds)1,000 in
outstanding principal amount of Asda Debt Securities will be determined based
on exchange ratios calculated as described below. The exchange ratios
applicable to each Series of Asda Debt Securities and the issue price and
interest rate for the Wal-Mart Notes will be announced by the Company by notice
through the Clearing Systems (as defined below) and by Asda by a notice through
the London Stock Exchange's Regulatory News Service (the "Regulatory News
Service") on or about the fourth Business Day (as defined herein) prior to the
Expiration Date (as defined herein) of the Exchange Offer (the "Pricing
Date "). On the same date those details will also be published in a
supplementary prospectus comprising supplementary listing particulars. The
exchange ratios and interest rate for the Wal-Mart Notes will be based upon
spreads over the yield on the relevant benchmark Exchequer or Treasury Stock
(each, a "U.K. Gilt "), as described herein. See "The Exchange Offer--Exchange
Ratios for the Asda Debt Securities" below.
To participate in the Exchange Offer, holders of Asda Debt Securities (the
"Holders") must validly tender (and not validly withdraw) Asda Debt Securities
pursuant to the Exchange Offer. See "The Exchange Offer--Procedures for
Tendering Asda Debt Securities" below.
The Exchange Offer for the outstanding Asda Debt Securities will expire at
4 p.m., London time, on January 24, 2003, unless extended or earlier
terminated by the Company (the "Expiration Date"). Tenders of any Asda Debt
Securities may be withdrawn at any time prior to 9:00 a.m., London time, on
the second Business Day prior to the Expiration Date.
See "Risk Factors Related to the Exchange Offer" beginning on page 10 for a
discussion of risks that Holders of Asda Debt Securities should consider in
evaluating whether to exchange their Asda Debt Securities for Wal-Mart Notes.
The Wal-Mart Notes will be transferable as described in "Summary--The
Exchange Offer--Consequences of Exchanging Asda Debt Securities Pursuant to the
Exchange Offer", and "The Exchange Offer--Resales of the Wal-Mart Notes".
The exchange agent for the Exchange Offer is Bank One, NA (the "Exchange
Agent ").
The Dealer Manager for the Exchange Offer is:
Credit Suisse First Boston
January 7, 2003
(Cover continued from previous page)
The information agent for the Exchange Offer is Georgeson Shareholder
Communications Limited (the "Information Agent").
The Wal-Mart Notes will be issued only in denominations of (Pounds)1,000 and
integral multiples of (Pounds)1,000. If, as a result of the application of the
relevant exchange ratio, a Holder would be entitled to receive a Wal-Mart Note
with a principal amount that is not (Pounds)1,000 or an integral multiple of
(Pounds)1,000, the Company will issue to the Holder a Wal-Mart Note with a
principal amount equal to the next lower integral multiple of (Pounds)1,000 and
pay to that Holder in cash the remaining difference between the aggregate
Exchange Price (as defined herein) of all of the Asda Debt Securities to be
acquired from that Holder in the Exchange Offer and the New Issue Price (as
defined herein) of the Wal-Mart Note to be issued to that Holder in the
Exchange Offer (the "Cash Ro unding Amount").
The Company may, at its option, redeem any and all the Wal-Mart Notes at any
time and from time to time after their issuance at the price specified under
"Description of the Wal-Mart Notes - Optional Redemption."
The Wal-Mart Notes will be senior, unsecured and unsubordinated debt
obligations of the Company and will rank equally among themselves and with all
of the Company's other existing and future senior, unsecured and unsubordinated
debt. The Wal-Mart Notes will be the obligation of the Company and will not be
the obligation of any other person.
This document together with its four appendices comprises a prospectus and
listing particulars given in compliance with the listing rules made by the UK
Listing Authority under Part VI of the FSMA for the purpose of giving
information with regard to the Company and the Wal-Mart Notes.
Any reference in this document to the listing particulars means this
document and all its appendices excluding all information incorporated by
reference. The Company has confirmed that any information incorporated by
reference, including any such information to which readers of this document are
expressly referred, has not been and does not need to be included in the
listing particulars to satisfy the requirements of the FSMA or the Listing
Rules. The Company believes that none of the information incorporated therein
by reference conflicts in any material respect with the information included in
the listing particulars.
The Company accepts responsibility for the information contained in this
document. To the best of the knowledge and belief of the Company (which has
taken all reasonable care to ensure such is the case) the information contained
in this document is in accordance with the facts and does not omit anything
likely to affect the import of such information.
Attention U.S. Holders of Asda Debt Securities: This Exchange Offer is made
for the securities of a non-U.S. company. The offer is subject to disclosure
requirements of a country other than the U.S. that are different from those of
the United States.
No person has been authorised to make any recommendation on behalf of the
Company or Asda as to whether Holders should tender Asda Debt Securities
pursuant to the Exchange Offer. No person has been authorised to give any
information or to make any representation in connection therewith other than
those contained in this Offering Memorandum. If made or given, any such
recommendation, information or representation must not be relied upon as having
been authorised by the Company or Asda.
The Company is offering the Wal-Mart Notes pursuant to an exemption from the
registration requirements of the U.S. Securities Act of 1933, as amended (the
"Securities Act "), provided by Rule 802 thereunder ("Rule 802 ") and,
accordingly, the offer of the Wal-Mart Notes has not been registered with the
U.S. Securities and Exchange Commission (the "SEC ").
Other than the approval of this document as a prospectus and listing
particulars in accordance with the listing rules made under Part VI of the
FSMA, the application for listing to the Official List of the UK Listing
Authority, the application for trading to the London Stock Exchange and the
delivery of copies of this document to the Registrar of Companies in England
and Wales, for registration in accordance with Section 83 of the FSMA, no
action has been or will be taken to permit a public offering of the Wal-Mart
Notes or the distribution of this document in any jurisdiction.
The distribution of this Offering Memorandum and the offering of the
Wal-Mart Notes in certain jurisdictions may be restricted by law. Persons into
whose possession the Offering Memorandum comes are required by the Company to
inform themselves about and to observe any such restrictions.
This Offering Memorandum does not constitute an offer to any person in any
jurisdiction in which the Exchange Offer would be unlawful, and the Exchange
Offer is not being made to, and tenders will not be accepted from, Holders in
jurisdictions in which the Exchange Offer or acceptance thereof would
constitute a violation of the securities laws of such jurisdiction.
Accordingly, the Wal-Mart Notes may not be offered or sold directly or
indirectly, and neither this document nor any part hereof, nor any offering
document, form of application, advertisement, other offering material or other
information relating to the Company or the Wal-Mart Notes may be issued,
distributed or published in any country or jurisdiction (including the United
Kingdom and the United States of America), except under circumstances that will
result in compliance with all applicable laws, orders, rules and regulations.
The series of Wal-Mart Notes will be created pursuant to and will be
governed by the Indenture, dated as of December 11, 2002, between Bank One
Trust Company, NA, as trustee (the "Trustee") and the Company (the "Indenture")
and a certificate of an officer of the Company, executed pursuant to the terms
of the Indenture, which sets forth the terms and conditions of the Wal-Mart
Notes (the "Series Terms Certificate").
EXPECTED EXCHANGE OFFER SCHEDULE
- --------------------
(1)This date is subject to extension or earlier termination at the Company's
option.
(2)This date is expected to be three Business Days after the Expiration Date.
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TABLE OF CONTENTS
ii
CERTAIN EXCHANGE OFFER MATTERS
The Company is conducting the Exchange Offer to reduce outstanding Asda debt
securities held by the public and replace those securities with an issue of
intermediate term Wal-Mart notes denominated in pounds sterling.
The Company reserves the right, in its sole discretion, to terminate the
Exchange Offer on or prior to the Expiration Date. If the Company terminates
the Exchange Offer on or prior to the Expiration Date, then any Asda Debt
Securities validly tendered will not be exchanged and each Series of Asda Debt
Securities will continue to be governed by its corresponding trust deed,
including any trust deed supplemental thereto, and will continue to be listed
by the UK Listing Authority and admitted to trading on the London Stock
Exchange. In the event of such a termination of the Exchange Offer, the Company
will promptly give notice of that termination to the Exchange Agent, and the
Exchange Agent will (i) instruct Euroclear Bank S.A./N.V., as operator of the
Euroclear System ("Euroclear") and Clearstream Banking, societe anonyme
("Clearstream, Luxembourg" and, together with Euroclear, the "Clearing
Systems"), to remove the restrictions on transfer imposed on the Asda Debt
Securities by any Electronic Communications (as defined herein) and (ii) return
any Asda Debt Securities previously the subject of Physical Delivery (as
defined herein) to the Exchange Agent.
If, for any reason, acceptance for exchange of Asda Debt Securities validly
tendered pursuant to the Exchange Offer is delayed or the Company is unable to
accept for exchange, or pay for, Asda Debt Securities validly tendered pursuant
to the Exchange Offer, then, to the extent applicable, the Asda Debt Securities
will retain the restrictions imposed on their transfer by the Electronic
Communication or Physical Delivery, as the case may be, until the Company
either (i) is able to consummate the Exchange Offer, without prejudice to the
rights of the Company described under "The Exchange Offer--Expiration Date;
Extension; Termination; Amendments" and "--Withdrawal of Tenders," or (ii)
terminates the Exchange Offer and instructs the Exchange Agent to (i) instruct
the Clearing Systems to remove the restrictions on transfer imposed on such
Asda Debt Securities and (ii) return any Asda Debt Securities previously the
subject of Physical Delivery to the Exchange Agent.
Neither the Company nor Asda will receive any proceeds from the Exchange
Offer. The Company will pay all of the expenses incidental to the Exchange
Offer. Tenders of Asda Debt Securities pursuant to the Exchange Offer may be
withdrawn by written notice to the Exchange Agent, which notice must be
received by the Exchange Agent prior to 9:00 a.m., London time, on the second
Business Day immediately preceding the originally scheduled Expiration Date. As
used herein, other than in the section "Description of the Wal-Mart Notes", the
term "Business Day" means any day other than a Saturday or Sunday on which
banks are open for business in London and Luxembourg.
A Holder will not be able to transfer any interest in Asda Debt Securities
with respect to which an Electronic Communication has been given or Physical
Delivery has been made during the period beginning on the date such Holder
effects such Electronic Communication or Physical Delivery, as the case may be,
and ending on (i) the date of a valid withdrawal of such Electronic
Communication or Physical Delivery, as the case may be, or (ii) the date on
which the Exchange Offer is terminated by the Company.
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IMPORTANT INFORMATION
Any Holder desiring to tender Asda Debt Securities in exchange for the
Wal-Mart Notes should follow the procedures set forth under "The Exchange
Offer--Procedures for Tendering Asda Debt Securities." Any person who
beneficially owns Asda Debt Securities (a "Beneficial Owner") that are held by
a financial adviser, broker, dealer, commercial bank, trust company or other
nominee must contact such nominee, if such Beneficial Owner desires to tender
any of its Asda Debt Securities, and instruct that person to tender such Asda
Debt Securities on behalf of the Beneficial Owner.
Requests for copies of this Offering Memorandum may be directed to the
Information Agent. Requests for assistance regarding the procedure for
exchanging Asda Debt Securities may be directed to the Exchange Agent. Other
questions may be directed to the Dealer Manager. See the back cover of this
Offering Memorandum for information on how to contact the Exchange Agent, the
Information Agent and the Dealer Manager. Holders may also contact their
financial adviser, broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND THE TERMS SET
FORTH IN THIS OFFERING MEMORANDUM, THE COMPANY RESERVES THE RIGHT, IN ITS SOLE
DISCRETION, TO EXTEND OR TERMINATE THE EXCHANGE OFFER, OR, PRIOR TO THE TIME
HOLDERS MAY NO LONGER WITHDRAW THEIR TENDERS OF ASDA DEBT SECURITIES, TO
OTHERWISE AMEND THE EXCHANGE OFFER IN ANY RESPECT.
THIS OFFERING MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY ANY
SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY COUNTRY OTHER THAN THE
UNITED KINGDOM, NOR HAS ANY SUCH COMMISSION OR AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL AND MAY BE A CRIMINAL OFFENCE IN THAT COUNTRY EXCEPT THAT
THE COMPANY HAS FILED THIS OFFERING MEMORANDUM WITH THE SEC AS REQUIRED BY RULE
802.
THIS OFFERING MEMORANDUM CONTAINS IMPORTANT INFORMATION THAT SHOULD BE READ
BEFORE ANY DECISION IS MADE WITH RESPECT TO THE EXCHANGE OFFER.
AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. These reports and other information
previously filed or that the Company files with the SEC in the future can be
inspected without charge directly from the SEC. Holders may either:
.. read and copy any materials the Company files with the SEC at the SEC's
public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549
U.S.A. and at its offices in New York, New York at 233 Broadway, New York,
New York 10279, and Chicago, Illinois at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; or
.. visit the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding issuers
that file electronically.
Holders can obtain more information about the SEC's public reference rooms
by calling the SEC in the United States at 1-800-SEC-0330.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offering Memorandum includes and incorporates by reference certain
statements that may be deemed to be "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 that are
intended to enjoy the protection of the safe harbor for forward-looking
statements provided by that Act. Forward-looking statements may be included,
for example, under "Wal-Mart Stores, Inc." and in certain portions of the
Company's reports and other information included in Appendices III and IV to,
and incorporated by reference in, this Offering Memorandum and generally can be
identified by use of words such as "believe," "expect," "anticipate," "intend,"
"plan," "foresee" or other similar words or phrases. These forward-looking
statements may include statements that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including:
.. future capital expenditures, including the amount and nature of those
expenditures;
.. expansion and other development trends of industry segments in which the
Company and its subsidiaries are active;
.. future revenues and cash flows;
.. future performance;
.. the Company's business strategy;
.. the Company's financing strategy;
.. expansion and growth of the Company's business;
.. the Company's operations and other similar matters; and
.. the Company's management's anticipation and expectations as to future
occurrences and trends.
Although the Company believes the expectations expressed in the
forward-looking statements are based on reasonable assumptions within the
bounds of the knowledge of the Company's management about the Company's
business, a number of risks, uncertainties and factors, domestically and
internationally, could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by
the Company or on its behalf. The Company has previously identified many of
these factors in filings or statements it has made or that were made on its
behalf.
The Company's business operations are subject to risks, uncertainties and
factors outside its control. Any one, or a combination, of these could
materially affect the Company's financial performance. These risks,
uncertainties and factors include:
.. the costs of goods;
.. the cost of electricity and other energy requirements;
.. competitive pressures;
.. inflation;
.. consumer spending patterns;
.. consumer debt levels;
.. currency exchange fluctuations;
.. trade restrictions;
.. changes in tariff and freight rates;
3
.. unemployment levels;
.. interest rate fluctuations; and
.. other capital market and economic conditions.
Forward-looking statements that the Company makes or that are made by others
on its behalf are based on a knowledge of the Company's business and the
environment in which it operates but, because of the risks, uncertainties and
factors listed above and other similar factors, actual results may differ from
those in the forward-looking statements. Consequently, all of the
forward-looking statements made are qualified by these cautionary statements.
The Company cannot assure you that the results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or on its business
or operations. Prospective investors are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company assumes no obligation to update any of the forward-looking statements.
4
SUMMARY
The following summary is provided solely for the convenience of the Holders
of the Asda Debt Securities. This summary is not intended to be complete and
is qualified in its entirety by reference to the full text and more specific
details contained elsewhere in this Offering Memorandum and any amendments
hereto. Holders of the Asda Debt Securities are urged to read this Offering
Memorandum in its entirety. Each of the capitalised terms used in this
summary and not defined herein has the meaning set forth elsewhere in this
Offering Memorandum.
Wal-Mart
Wal-Mart Stores, Inc. is the world's largest retailer as measured by its
revenues for its fiscal year ended January 31, 2002, which were approximately
US$217.8 billion. Wal-Mart has operations in the United States, the United
Kingdom, seven other countries and Puerto Rico. At November 30, 2002, it
operated 3,371 stores in the United States in the Wal-Mart discount store,
Wal-Mart Supercenter, Neighborhood Market and Sam's Club formats, 258 Asda
stores in the United Kingdom and 982 units in a variety of formats elsewhere.
Wal-Mart was incorporated in 1969 in the State of Delaware. See "Wal-Mart
Stores, Inc." and the Company's Annual Report on Form 10-K for its fiscal year
ended January 31, 2002 and Quarterly Report on Form 10-Q for its fiscal quarter
ended October 31, 2002 as filed with the SEC, which are Appendices III and IV
hereto, for a more detailed description of Wal-Mart's operations.
The Exchange Offer
The Company................. Wal-Mart Stores, Inc.
Asda........................ Asda Group Limited, an indirect wholly-owned
subsidiary of the Company.
The Wal-Mart Notes.......... The Company's Fixed Rate Notes. The Wal-Mart
Notes will be the senior, unsecured and
unsubordinated debt obligations of the Company
and will rank equally among themselves and with
all of the Company's other existing and future
senior, unsecured and unsubordinated debt.
The Asda Debt Securities.... The outstanding 8.375% Notes due 2007 (the "2007
Notes"), 10.875% Bonds due 2010 (the "2010
Bonds") and 6.625% Notes due 2015 (the "2015
Notes" and, together with the 2010 Bonds and the
2007 Notes, the "Asda Debt Securities" and each a
"Series of Asda Debt Securities") of Asda.
The Exchange Offer.......... The Company is offering to exchange Wal-Mart
Notes for any and all of the outstanding Asda
Debt Securities upon the terms and conditions set
forth in this Offering Memorandum. A Holder may
tender all or any part of its holdings of Asda
Debt Securities, including all or any part of its
holdings of any Series of Asda Debt Securities.
The Wal-Mart Notes are being offered pursuant to
an exemption from the registration requirements
of the Securities Act provided by Rule 802
thereunder and, accordingly, the offer of the
Wal-Mart Notes has not been registered with the
SEC under the Securities Act.
The Wal-Mart Notes will be transferable as
described in "Summary--The Exchange
Offer--Consequences of Exchanging Asda Debt
Securities Pursuant to the Exchange Offer" and
"The Exchange Offer--Resales of the Wal-Mart
Notes."
5
Application has been made for the Wal-Mart Notes
to be admitted to the Official List and to be
admitted to trading by the London Stock Exchange.
Exchange Ratios for the Asda
Debt Securities........... Each tendering Holder of Asda Debt Securities
accepted in the Exchange Offer will receive
Wal-Mart Notes in exchange for each (Pounds)1,000
principal amount of Asda Debt Securities equal to
the product of (Pounds)1,000 and the relevant
exchange ratio for the corresponding Series of
Asda Debt Securities. The applicable exchange
ratio for each Series of Asda Debt Securities
will be set forth in a supplementary prospectus
comprising supplementary listing particulars and
announced through the Clearing Systems and the
Regulatory News Service on or about the Pricing
Date, which is expected to be the fourth Business
Day prior to the Expiration Date. The exchange
ratios will be as described under "The Exchange
Offer--Exchange Ratios for the Asda Debt
Securities."
Expiration Date............. The Exchange Offer will expire at 4:00 p.m.,
London time, on January 24, 2003, unless extended
or earlier terminated by the Company.
Termination................. Except in certain circumstances, the Company
reserves the right, in its sole discretion, to
terminate the Exchange Offer on or prior to the
Expiration Date. See "The Exchange
Offer-Expiration Date; Extension; Termination;
Amendments."
How to Tender Asda Debt
Securities................ In order to receive the Wal-Mart Notes, a Holder
must (i) in the case of Asda Debt Securities held
through a Clearing System, arrange for the
dispatch of an electronic communication by tested
telex or authenticated swift message or such
other authenticated means as is the normally
accepted working practice of the Clearing Systems
(an "Electronic Communication") to be delivered
to the relevant Clearing System through which the
Holder's Asda Debt Securities are held (and not
subsequently validly withdraw that tender) and
(ii) in the case of Asda Debt Securities that are
held in definitive form otherwise than through a
Clearing System ("Non-Clearing System Debt
Securities"), arrange for the delivery of a Form
of Tender (as defined herein) and the relevant
Asda Debt Securities, together with all coupons,
rights to receive interest in respect thereof and
talons relating thereto (each such delivery, a
"Physical Delivery") to the Exchange Agent, and
not subsequently validly withdraw such tender.
See "The Exchange Offer--Procedures for Tendering
Asda Debt Securities." For further information or
assistance, Holders should contact the Exchange
Agent or their financial adviser, broker, dealer,
commercial bank, trust company or other nominee.
See "The Exchange Offer--Exchange Agent" for
information on how to contact the Exchange Agent.
Withdrawal of Tenders....... Tenders of Asda Debt Securities may be withdrawn
at any time after an Electronic Communication has
been given to the relevant Clearing System or
following Physical Delivery of validly tendered
Asda Debt
6
Securities by written notice to the Exchange
Agent, which notice must be received by the
Exchange Agent prior to 9:00 a.m., London time,
on the second Business Day immediately preceding
the originally scheduled Expiration Date. See
"The Exchange Offer--Withdrawal of Tenders."
Settlement Date............. The settlement date of the Exchange Offer (the
"Settlement Date") is the date on which the
Company is able to deliver Wal-Mart Notes in
exchange for Asda Debt Securities, which is
expected to be the third Business Day after the
Expiration Date.
Certain Tax Considerations.. For a summary of United Kingdom tax consequences
of the Exchange Offer, see "Certain Tax
Consequences--Certain U.K. Tax Consequences."
For a summary of the United States federal income
tax consequences of the Exchange Offer, see
"Certain Tax Consequences--Certain U.S. Federal
Income Tax Consequences."
Consequences of Exchanging
Asda Debt Securities
Pursuant to the Exchange
Offer..................... The Wal-Mart Notes issued in exchange for
particular Asda Debt Securities will not be
considered for the purposes of the Securites Act
to be ''restricted securities'' (as defined in
Rule 144(a)(3) of the Securites Act) unless the
Asda Debt Securities for which they were
exchanged are considered to be ''restricted
securities'' under the Securites Act immediately
prior to the Exchange Offer. Holders of Wal-Mart
Notes that are ''restricted securities'' may not
sell or trade their Wal-Mart Notes in the United
States except pursuant to a transaction under
Rule 144 or another available exemption from the
registration requirements of the Securities Act.
Wal-Mart Notes exchanged for Asda Debt Securites
that are not ''restricted securities'' may
generally be resold in the United States by a
holder who is not (1) an ''affiliate'' of the
Company within the meaning of Rule 144 under the
Securities Act or (2) a broker-dealer without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Wal-Mart Notes were acquired
in the ordinary course of such holders' business
and such holders have no arrangement or
understanding with any person to participate in
the distribution of such Wal-Mart Notes. If any
holder has any arrangement or understanding with
respect to the distribution of the Wal-Mart
Notes, such holder (1) could not rely on the
applicable interpretations of the staff of the
SEC and (2) must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. Under the Securities Act,
only the Company may register the Wal-Mart Notes
with the SEC for resale by holders of Wal-Mart
Notes. The Company has no obligation to register
any resale of the Wal-Mart Notes with the SEC on
behalf of any holder. See "The Exchange
Offer--Resales of the Wal-Mart Notes."
7
Brokerage Commissions....... No brokerage commissions are payable by Holders
to the Company, Asda or the Exchange Agent.
Use of Proceeds............. Neither the Company nor Asda will receive any
proceeds from the Exchange Offer.
Exchange Agent.............. Bank One, NA. The address and telephone number of
the Exchange Agent are set forth on the back
cover of this Offering Memorandum.
Information Agent........... Georgeson Shareholder Communications Limited. The
address and telephone number of the Information
Agent are set forth on the back cover of this
Offering Memorandum.
Dealer Manager.............. Credit Suisse First Boston (Europe) Limited. The
address and telephone number of the Dealer
Manager are set forth on the back cover of this
Offering Memorandum.
Further Information......... Additional copies of this Offering Memorandum may
be obtained by contacting the Information Agent.
Requests for assistance regarding the procedure
for exchanging Asda Debt Securities may be
directed to the Exchange Agent. Other questions
may be directed to the Dealer Manager.
The Wal-Mart Notes
Issuer...................... Wal-Mart Stores, Inc.
Aggregate Amount............ The aggregate principal amount of the Wal-Mart
Notes to be issued pursuant to the Exchange Offer
will be announced by press release on or after
the Expiration Date.
Maturity.................... January 29, 2013, unless the Expiration Date is
extended. If the Expiration Date is extended, the
maturity date will be moved correspondingly, and
the new maturity date will be set forth in a
supplementary prospectus comprising supplementary
listing particulars and announced through the
Clearing Systems and the Regulatory News Service.
Interest.................... The Wal-Mart Notes will bear interest at a fixed
rate to be set forth in a supplementary
prospectus comprising supplementary listing
particulars and announced through the Clearing
Systems and the Regulatory News Service on or
about the Pricing Date. Interest will be payable
semi-annually in arrears on January 29 and July
29 of each year to the persons in whose names the
Wal-Mart Notes are registered at the close of
business on the corresponding January 20 and July
20, unless the Expiration Date is extended. If
the Expiration Date is extended, the interest
payment dates and record dates for interest
payments will be moved correspondingly, and those
new dates will be set forth in a supplementary
prospectus comprising supplementary listing
particulars and announced through the Clearing
Systems and the Regulatory News Service.
Ranking..................... The Wal-Mart Notes will be the senior, unsecured
and unsubordinated debt obligations of the
Company and will rank equally among themselves
and with the Company's other existing and future
senior, unsecured and unsubordinated debt.
8
Debt Ratings................ The long-term senior, unsecured and
unsubordinated debt of the Company was rated, as
of the date of this Offering Memorandum, "AA" by
Standard and Poor's, a Division of the
McGraw-Hill Companies, Inc., and "Aa2" by Moody's
Investor Services, Inc. The Wal-Mart Notes have
not been specifically rated by either of those
rating agencies. The long-term senior, unsecured
and unsubordinated debt of Asda was rated, as of
the date of this Offering Memorandum, "Aa3" by
Moody's Investor Services, Inc. Each Series of
Asda Debt Securities is rated AA- by Fitch
Ratings. None of Asda's debt securities are rated
by Standard and Poor's.
Optional Redemption......... Wal-Mart may redeem all or any part of the
Wal-Mart Notes at any time and from time to time
after their issuance at a redemption price equal
to the greater of (i) 100% of the principal
amount of the Wal-Mart Notes to be redeemed and
(ii) the price at which the yield on the
outstanding principal amount of the Wal-Mart
Notes on the Reference Date (as defined herein)
is equal to the yield on the benchmark U.K. Gilt
as of that date, as determined by reference to
the middle-market price on the benchmark U.K.
Gilt at 3:00 p.m., London time, on that date, in
either case, plus accrued and unpaid interest on
the Wal-Mart Notes redeemed up to, but excluding,
the date specified as the redemption date.
Optional Tax Redemption..... Wal-Mart may redeem the Wal-Mart Notes at par if
certain changes to the tax laws occur after the
Settlement Date.
Events of Default........... Events of default include failure to pay
principal when due and payable, failure to pay
interest when due and payable and that failure
continues for 30 days, breach of covenants and
certain bankruptcy events. If the Wal-Mart Notes
are accelerated as a result of an Event of
Default, they will be immediately payable at par.
Withholding Tax............. For information relating to certain withholding
tax matters, see "The Exchange Offer--Procedures
for Tendering Asda Debt Securities--Backup United
States Federal Income Tax Withholding" and
"Certain Tax Consequences".
Form and Denomination....... The Wal-Mart Notes will be issued in registered
book-entry form in denominations of (Pounds)1,000
and integral multiples of (Pounds)1,000.
Governing Law............... The Wal-Mart Notes and the Indenture pursuant to
which the Wal-Mart Notes will be issued will be
governed by and construed in accordance with the
laws of the State of New York.
Trustee, U.S. Paying Agent
and U.S. Transfer Agent... Bank One Trust Company, NA, is the Trustee under
the Indenture and will be the paying agent in the
United States.
Registrar, London Paying
Agent and Transfer Agent.. Bank One, NA, will be the registrar, paying agent
and transfer agent in London.
London Authorised Advisor... Credit Suisse First Boston (Europe) Limited will
be the authorised advisor in London.
9
RISK FACTORS RELATED TO THE EXCHANGE OFFER
Holders should consider carefully, in addition to other information
contained or incorporated by reference in this Offering Memorandum, the
following factors in connection with a decision to tender Asda Debt Securities
in exchange for the Wal-Mart Notes.
Potential Adverse Effect on the Market for Asda Debt Securities Not Tendered
The Asda Debt Securities are listed by the U.K. Listing Authority, and are
admitted to trading on the London Stock Exchange and have been accepted for
clearance through the Clearing Systems. Quotations for the Asda Debt Securities
may differ from actual trading prices and should be viewed as approximations.
Holders of Asda Debt Securities are urged to contact their financial advisers
for current trading information in respect of the Asda Debt Securities. To the
extent that Asda Debt Securities are tendered (without subsequent withdrawal)
and accepted for exchange in the Exchange Offer, the trading market for any
Asda Debt Securities that remain outstanding may be significantly more limited,
which might adversely affect the liquidity of such Asda Debt Securities. An
issue of securities with a smaller outstanding market value available for
trading (the "float") may command a lower price than would a comparable issue
of securities with a greater float. Therefore, the market price for Asda Debt
Securities that remain outstanding after the successful consummation of the
Exchange Offer may be adversely affected as a result of the reduced float. Any
reduced float also may tend to make the trading prices of the Asda Debt
Securities that remain outstanding more volatile. Holders of Asda Debt
Securities not tendered (or tendered and subsequently validly withdrawn and not
retendered) may attempt to obtain quotations for the Asda Debt Securities from
their brokers or financial advisers. However, there can be no assurance that
any trading market will exist, and the availability of price quotations would
depend upon a number of factors, including the number of Holders of the Asda
Debt Securities remaining at such time, the remaining outstanding principal
amount of Asda Debt Securities after consummation of the Exchange Offer and the
interest in maintaining a market in the Asda Debt Securities on the part of
securities firms. As a result, there can be no assurance that any trading
market for the Asda Debt Securities will exist after consummation of the
Exchange Offer. As a consequence of these factors, the market value of any Asda
Debt Securities that remain outstanding after the successful consummation of
the Exchange Offer may be materially less than the market value would be if the
Exchange Offer were not made or successfully consummated.
Holders Must Comply with the Procedures for Tendering Asda Debt Securities
Holders are responsible for complying with all of the procedures for
tendering the Asda Debt Securities. Holders will only receive the Wal-Mart
Notes if, prior to the Expiration Date, (i) in the case of Asda Debt Securities
that are held through a Clearing System, an Electronic Communication has been
issued to (and not subsequently validly withdrawn from) the relevant Clearing
System with respect to such Holder's Asda Debt Securities or (ii) in the case
of Non-Clearing System Debt Securities, Physical Delivery of such Asda Debt
Securities has been made to (and not subsequently validly withdrawn from) the
Exchange Agent pursuant to this Offering Memorandum.
None of the Company, Asda or the Exchange Agent has any obligation to inform
a Holder of defects or irregularities with respect to the tender of Asda Debt
Securities. See "The Exchange Offer--Procedures for Tendering Asda Debt
Securities."
Lack of Public Market
The Wal-Mart Notes are securities for which there currently is no market and
for which there may be no or only limited market making activity. If a market
for the Wal-Mart Notes should develop, such Wal-Mart Notes could trade at a
discount from the principal amount. The Company does not intend to apply for
listing of the Wal-Mart Notes on any securities exchange other than the London
Stock Exchange, or to seek approval for quotation through any automated
quotation system, and no active public market for the Wal-Mart Notes may exist.
No assurance can be given as to the liquidity of the trading market for the
Wal-Mart Notes. The liquidity of, and trading market for, the Wal-Mart Notes
also may be adversely affected by general declines in the market for similar
securities, which may occur independently of the financial performance of, and
prospects for, the Company.
10
THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions set forth in this Offering
Memorandum and any supplements or amendments hereto, the Company hereby offers
to exchange Wal-Mart Notes for all outstanding Asda Debt Securities at the
relevant exchange ratio for each (Pounds)1,000 principal amount of Asda Debt
Securities validly tendered (and not validly withdrawn) on or prior to the
Expiration Date. The terms of the Wal-Mart Notes, other than the rate at which
they bear interest and their issue price, are summarized under "Description of
the Wal-Mart Notes." The Company is conducting the Exchange Offer to reduce
outstanding Asda debt securities held by the public and replace those
securities with an issue of intermediate term Wal-Mart notes denominated in
pounds sterling.
The exchange ratio for each Series of Asda Debt Securities will be set forth
in a supplementary prospectus comprising supplementary listing particulars and
announced through the Clearing Systems and the Regulatory News Service on or
about the Pricing Date and will be determined by reference to the yield on the
benchmark U.K. Gilt for each Series of Asda Debt Securities on the Pricing
Date, the relevant exchange spread over that yield as set by the Company, the
issue price of the Wal-Mart Notes and the rate at which the Wal-Mart Notes will
bear interest. The method for determining the exchange ratios is described in
detail under "--Exchange Ratios for the Asda Debt Securities." The method for
determining the interest rate on the Wal-Mart Notes is described in detail
under "--New Issue Price and Interest Rate for the Wal-Mart Notes".
By tendering (and not validly withdrawing) Asda Debt Securities to the
Company, and assuming that such Asda Debt Securities are accepted for exchange
by the Company upon the successful completion of the Exchange Offer, the
tendering Holders will transfer such Asda Debt Securities to the Company in
exchange for the Wal-Mart Notes. Each tendering Holder will receive Wal-Mart
Notes for each (Pounds)1,000 principal amount of Asda Debt Securities at the
applicable exchange ratio corresponding to the applicable Series of Asda Debt
Securities as described more fully below. The Wal-Mart Notes will be issued
only in denominations of (Pounds)1,000 and integral multiples of (Pounds)1,000.
If, as a result of the application of the relevant exchange ratio, a Holder
would be entitled to receive a Wal-Mart Note with a principal amount that is
not (Pounds)1,000 or an integral multiple of (Pounds)1,000, the Company will
issue the Holder a Wal-Mart Note with a principal amount equal to the next
lower integral multiple of (Pounds)1,000 and pay the Cash Rounding Amount to
the Holder in cash. Any rights to payment of accrued and unpaid interest
pursuant to any Asda Debt Securities will be tendered by the Holder as part of
the tender of such Holder's Asda Debt Securities, including any rights in any
related interest coupons or talons, and any such Holder whose Asda Debt
Securities are accepted in the Exchange Offer will be paid accrued and unpaid
interest on those Asda Debt Securities in cash through the Settlement Date,
which is expected to be the third Business Day after the Expiration Date. All
payments made to Holders in connection with the Exchange Offer will be paid in
pounds sterling.
A Holder may tender all or any part of its holdings of any Series of Asda
Debt Securities, including all or any part of its holdings of any Series of
Asda Debt Securities. See "--Acceptance of Asda Debt Securities for Exchange."
A Holder's tender (without a valid withdrawal) of Asda Debt Securities and
the Company's acceptance of such Asda Debt Securities will constitute a binding
agreement between such Holder and the Company subject to the terms and
conditions set forth in this Offering Memorandum. The method for tendering the
Asda Debt Securities is described in detail under "--Procedures for Tendering
Asda Debt Securities."
The Company reserves the right to terminate the Exchange Offer on or prior
to the Expiration Date, except as otherwise set forth herein, or to extend or
amend the Exchange Offer. If the Company terminates the Exchange Offer on or
prior to the Expiration Date, then any Asda Debt Securities validly tendered
will not be exchanged and each Series of Asda Debt Securities will continue to
be governed by its corresponding trust deed, including
11
any trust deed supplemental thereto, and will continue to be listed by the U.K.
Listing Authority and admitted to listing on the London Stock Exchange. See
"--Expiration Date; Extensions; Termination; Amendments" below.
The Exchange Offer will expire at 4:00 p.m., London time, on January 24,
2003 unless extended or earlier terminated by the Company.
The Company does not currently intend to cause the Asda Debt Securities it
acquires in the Exchange Offer to be transferred to Asda and cancelled, but
rather will hold or have one of its subsidiaries other than Asda or a
subsidiary of Asda hold those Asda Debt Securities. Unlike the trust deed
governing the 2007 Notes and the 2015 Notes, the trust deed governing the 2010
Bonds does not provide that any securities issued under that trust deed held by
the holding company of Asda or a subsidiary of that holding company will not be
treated as "outstanding" for certain purposes. As a consequence, the Company or
a subsidiary of the Company, other than Asda and any of its subsidiaries,
holding 2010 Bonds may vote those 2010 Bonds on any matter submitted for a vote
of the holders of the 2010 Bonds and those 2010 Bonds may be considered in
determining whether quorums are present at meetings of bondholders or the
holders of a proper amount of the 2010 Bonds have acted, or given the trustee
instructions to act, as to certain matters. The Company believes that the
Holders of all Asda Debt Securities should be treated similarly in this respect
and that the Company should provide any Holders of 2010 Bonds who continue to
hold their 2010 Bonds after a successful completion of the Exchange Offer with
the same protection in this regard that the Holders of the 2007 Notes and the
2015 Notes currently have. Accordingly, upon a successful completion of the
Exchange Offer, if the Company has not acquired all of the outstanding 2010
Bonds, it will request that Asda and the trustee under the trust deed governing
the 2010 Bonds enter into a supplemental trust deed to amend the definition of
the term "outstanding" in that trust deed to ensure that any 2010 Bonds held by
the Company or any of its subsidiaries are treated as not being outstanding to
the same extent as if those 2010 Bonds were held by Asda.
None of the board of directors of the Company, Asda, the Exchange Agent, the
Information Agent or the Dealer Manager makes any recommendation as to whether
to tender or refrain from tendering all or any portion of the Asda Debt
Securities pursuant to the Exchange Offer. In addition, no one has been
authorised to make any such recommendation.
Exchange Ratios for the Asda Debt Securities
The Holder of each (Pounds)1,000 principal amount of Asda Debt Securities
validly tendered (and not validly withdrawn) and accepted in the Exchange Offer
will receive, in exchange for those Asda Debt Securities, Wal-Mart Notes in an
amount equal to the product of (Pounds)1,000 and the exchange ratio for the
corresponding Series of Asda Debt Securities. A single Wal-Mart Note will be
issued to each such Holder in exchange for all of the Holder's Asda Debt
Securities accepted in the Exchange Offer, with such Wal-Mart Note and all
other Wal-Mart Notes issued in the Exchange Offer being initially represented
by a beneficial interest in a Global Note. Each Holder will have a particular
principal amount of the Wal-Mart Notes credited to its securities account in
the records of Clearstream, Luxembourg or Euroclear or, if that Holder does not
have an account at Clearstream, Luxembourg or Euroclear, to its securities
account with its financial adviser, broker, dealer, financial institution or
other custodian through which that Holder will hold its Wal-Mart Note at
Clearstream, Luxembourg or Euroclear. If, as a result of the application of the
relevant exchange ratio, the Wal-Mart Note the Holder would be entitled to
receive would have a principal amount that is not (Pounds)1,000 or an integral
multiple of (Pounds)1,000, the Company will issue the Holder a Wal-Mart Note
with a principal amount equal to the next lower integral multiple of
(Pounds)1,000 and pay the Cash Rounding Amount to the Holder in cash. The Cash
Rounding Amount to be paid to any Holder will be the remaining difference
between the aggregate Exchange Price for all Asda Debt Securities to be
acquired by the Company from that Holder in the Exchange Offer and the New
Issue Price of the Wal-Mart Note to be issued to that Holder in the Exchange
Offer.
The exchange ratio applicable to each Series of Asda Debt Securities (an
"Exchange Ratio") will be (1) the present value of the future cash flows per
(Pounds)1,000 principal amount of Asda Debt Securities of that Series (as of
the expected Settlement Date less accrued interest) calculated by the Dealer
Manager on the Pricing Date in
12
accordance with standard market practice on the basis of a yield to maturity
equal to the sum of the yield on the benchmark U.K. Gilt plus the relevant
exchange spread (the result of such calculation for a Series of Asda Debt
Securities is the "Exchange Price"), divided by (2) the issue price of the
Wal-Mart Notes to be determined on the Pricing Date by Wal-Mart and the Dealer
Manager on the basis of a coupon rate for the Wal-Mart Notes rounded to the
nearest multiple of 1/8 of one percent with a minimum issue price of 98% and a
maximum issue price of 102% of the par amount of the Wal-Mart Notes (the
foregoing issue price of the Wal-Mart Notes is the "New Issue Price").
The relevant yield on the benchmark U.K. Gilt will be calculated by the
Dealer Manager in accordance with standard market practice based on the price
for such reference security, as of 2:00 p.m., London time, on the Pricing Date,
on the U.K. DMO Page as displayed on the Bloomberg Pricing Monitor, or any
other recognized quotation source selected by the Dealer Manager. The yield to
maturity used to calculate the applicable exchange ratio for each Series of
Asda Debt Securities will be an annual yield obtained by converting the sum of
the semi-annual yield on the benchmark U.K. Gilt plus the exchange spread to an
annual basis in accordance with standard market practice.
The benchmark U.K. Gilt with respect to each Series of Asda Debt Securities
is set forth in the table below and has been selected to approximate the
maturity characteristics for the corresponding Series of Asda Debt Securities.
For current yield information for a particular U.K. Gilt security, Holders
should consult publicly available sources.
New Issue Price and Interest Rate for the Wal-Mart Notes
The interest rate and New Issue Price for the Wal-Mart Notes will be
announced through the Clearing Systems and the Regulatory News Service on the
Pricing Date and published in a supplementary prospectus comprising
supplementary listing particulars on or about the Pricing Date. The interest
rate and the New Issue Price will be based on the yield on the relevant
reference benchmark U.K. Gilt plus a credit spread to be determined on the
Pricing Date. The credit spread will be determined by the Company, upon
consultation with the Dealer Manager. The yield on the benchmark U.K. Gilt with
respect to the Wal-Mart Notes will be calculated by the Dealer Manager in
accordance with standard market practice based on the price of the relevant
benchmark U.K. Gilt as listed on the relevant U.K. DMO Page as displayed on the
Bloomberg Pricing Monitor or any other recognized quotation source selected by
the Dealer Manager at 2:00 p.m., London time, on the Pricing Date. The
benchmark U.K. Gilt will be selected to approximate the maturity
characteristics of the Wal-Mart Notes.
13
Hypothetical Exchange Pricing
The following table sets forth a hypothetical example for (Pounds)100,000
principal amount of Asda Debt Securities of each Series of Asda Debt Securities
assuming the applicable yields on the relevant benchmark U.K. Gilt as of 11:00
a.m., London time, January 3, 2003 plus the applicable exchange spread. The
calculations also assume a hypothetical New Issue Price and yield as
illustrated below and a Settlement Date of January 29, 2003 for the Exchange
Offer. The hypothetical exchange pricing shown below is included to provide an
example of how the exchange pricing will be calculated. The hypothetical
exchange ratios shown below should not be construed as indicative of, or an
approximation of, the actual exchange ratios.
Hypothetical Pricing Table
- --------
(1)Indicative only and subject to change. Will be announced through the
Clearing Systems and the Regulatory News Service made on or about the
Pricing Date.
(2)The figures given are expressed in terms of a percentage, being a percentage
of (Pounds)1,000 of principal amount of an Asda Debt Security.
(3)For purposes of calculating the Exchange Ratio of each Series of Asda Debt
Securities and the Cash Rounding Amount for each Holder, the value of a
Wal-Mart Note will be equal to the New Issue Price for that Wal-Mart Note
expressed as an amount in pounds sterling.
Procedures for Tendering Asda Debt Securities
To tender Asda Debt Securities and receive Wal-Mart Notes in exchange
therefor:
(i)in the case of Asda Debt Securities held through a Clearing System, the
Clearing System will distribute a Notice of the Offer to Exchange (the
"tender offer") substantially in the form set forth in Appendix I.1 once
they receive notification from the Exchange Agent to do so.
Upon receipt of the tender offer, a Holder who wishes to accept the
Exchange Offer must arrange for an Electronic Communication by tested telex
or authenticated SWIFT message, or such other authenticated means as is the
normally accepted working practice of the Clearing Systems to be delivered
to the relevant Clearing System indicating the Holder's acceptance of the
Exchange Offer. Upon receipt of such communication, a Clearing System will
block such Asda Debt Securities, effectively immobilising the Holder's
position within the system preventing any trading activity until the
Settlement Date at which time the Holder's Asda Debt Securities acquired in
the Exchange Offer will be delivered to an account holder at Euroclear or
Clearstream, Luxembourg to hold on behalf of the Company.
An Electronic Communication may only be made by (a) a Holder that is a
direct account holder in Euroclear or Clearstream, Luxembourg or (b) by a
custodian holding Asda Debt Securities on behalf of a Holder, which
custodian has instructed the direct account holder in Euroclear or
Clearstream, Luxembourg to dispatch an Electronic Communication on its
behalf. Holders who are direct account holders in Euroclear or Clearstream,
Luxembourg may have more than one customer who is a Beneficial Owner of a
part of the Asda Debt Securities shown to be held by that direct account
holder on the books of Euroclear or Clearstream, Luxembourg. Any such
Holders may tender all or less than all of the Asda Debt Securities of any
Series of Asda Debt Securities credited to it on the books of Euroclear or
Clearstream, Luxembourg. Any such Holder may also make multiple tenders.
14
All Electronic Communications should be sent to the relevant Clearing
System according to its normal procedures with an instruction to that
Clearing System for onward transmission to the Exchange Agent.
Each Electronic Communication to the relevant Clearing System accepting
the tender offer will constitute acceptance of the matters specified on page
53 of this Offering Memorandum and must duly provide or be accompanied by
the appropriate U.S. withholding tax documents.
(ii)In the case of Non-Clearing System Debt Securities, a Holder must arrange
for the following documents to be delivered to and received by the Exchange
Agent ("Physical Delivery"), at any time prior to the Expiration Date, at
the address set out herein by Registered or Special Delivery: (a) a duly
executed Form of Tender (a "Form of Tender"), the form of which is set out
at Appendix I.2 hereto, and (b) the certificates representing such
Non-Clearing System Debt Securities (together with all outstanding coupons,
rights to receive interest in respect thereof and talons). Such delivery
shall constitute a tender of the Non-Clearing System Debt Securities so
delivered, once the Exchange Agent has confirmed the validity of the Asda
Debt Securities and that the relevant documentation and declarations have
been properly completed.
Each Form of Tender must state the following information:
(a)that the Holder has agreed to participate in the Exchange Offer pursuant
to the Offering Memorandum and is delivering Non-Clearing System Debt
Securities;
(b)the Holder is the owner of all of the Non-Clearing System Debt
Securities so tendered by it;
(c)the numbers, amounts and the serial numbers of the Non-Clearing System
Debt Securities so tendered;
(d)the account number at the relevant Clearing System to which the Wal-Mart
Notes and any Interest Amount in respect of accrued interest and any
Cash Rounding Amount are to be credited; and
(e)that any agent, custodian or intermediary acting on behalf of the Holder
is authorised to execute and deliver the Form of Tender and to deliver
the Non-Clearing System Debt Securities that are the subject thereof.
Any Form of Tender delivered to the Exchange Agent that does not include all
of the above statements will be automatically rejected.
Any Electronic Communication or Physical Delivery exchange instructions that
are given without making the statements required above will be automatically
rejected.
Delivery may be withdrawn at any time prior to 9:00 a.m., London time, on
the second Business Day immediately preceding the originally scheduled
Expiration Date, in accordance with the procedures described below under
"--Withdrawal of Tenders."
Asda Debt Securities may be validly tendered only pursuant to the terms of
the Exchange Offer. No conditional tenders of Asda Debt Securities will be
accepted.
In all cases, notwithstanding any other provision hereof, the exchange of
the Wal-Mart Notes for the Asda Debt Securities tendered and accepted for
exchange will be made only after (i) in the case of Asda Debt Securities held
through the Clearing Systems, timely receipt by the Exchange Agent of details
of valid Electronic Communications received by the Clearing Systems (that are
not validly withdrawn) or (ii) in the case of Non-Clearing System Debt
Securities, timely Physical Delivery that is not validly withdrawn.
A Holder will not be able to transfer any interest in Asda Debt Securities
with respect to which an Electronic Communication has been given or Physical
Delivery has been made during the period beginning on the date such Holder
effects such Electronic Communication or Physical Delivery, as the case may be,
and ending on (i) the date of a valid withdrawal of such Electronic
Communication or Physical Delivery or (ii) the date on which the Exchange Offer
is terminated by the Company.
15
Backup United States Federal Income Tax Withholding. Under United States
federal income tax laws, any payments made to certain United States holders
pursuant to the Exchange Offer may be subject to withholding at a rate of 30%
of the amount paid. To avoid such backup withholding with respect to cash
received by such a Holder pursuant to the Exchange Offer, a tendering Holder
must provide its correct taxpayer identification number and certify that such
Holder is not subject to backup withholding. For a discussion of other U.S.
federal income tax consequences to Holders, see "Certain Income Tax
Consequences--Certain U.S. Federal Income Tax Consequences" below.
By tendering its Asda Debt Securities, a Holder that is not a broker-dealer
will represent that (1) the Wal-Mart Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the Holder, (2)
it is not engaged in a distribution of the Wal-Mart Notes and has no
arrangement or understanding with any person to participate in such a
distribution, (3) it is not an "affiliate," as defined under Rule 144 of the
Securities Act, of the Company (i.e., it does not control, is not controlled by
and is not subject to common control with, the Company) and (4) it is not
acting on behalf of a person who could not make any of the foregoing
representations. Each broker-dealer that receives Wal-Mart Notes for its own
account in exchange for Asda Debt Securities, where the Asda Debt Securities
were acquired by the broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it must comply with special
rules under the Securities Act in connection with any resale of the Wal-Mart
Notes.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for exchange of tendered Asda Debt
Securities will be determined by the Company, in its sole discretion, and its
determination will be final and binding. The Company reserves the absolute
right to reject any and all tenders of Asda Debt Securities that it determines
are not in proper form or the acceptance for exchange of or exchange for which
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right in its sole discretion to waive any defect or
irregularity in the tender of Asda Debt Securities of any particular Holder,
whether or not similar defects or irregularities are waived in the case of any
other Holder. The Company's interpretation of the terms and conditions of the
Exchange Offer will be final and binding. None of the Company, Asda, the
Exchange Agent, the Information Agent, the Dealer Manger, the Trustee or any
other person will be under any duty to give notification of, or assist in the
correction of, any defects or irregularities in tenders, or incur any liability
for failure to give any such notification or assistance.
Withdrawal of Tenders
Any tender pursuant to an Electronic Communication or Physical Delivery, as
the case may be, may be withdrawn as to all or less than all of any Asda Debt
Securities tendered at any time prior to 9:00 a.m., London time, on the second
Business Day immediately preceding the originally scheduled Expiration Date,
but not thereafter, unless the Expiration Date is extended as a result of an
amendment to the terms of the Exchange Offer, in which case the Company may
change the date by which tenders may be withdrawn. Any such change will be
announced as part of any announcement of the extension of the Expiration Date.
Holders who validly withdraw any tender pursuant to an Electronic Communication
or Physical Delivery will not receive Wal-Mart Notes or otherwise participate
in the Exchange Offer as to the Asda Debt Securities as to which the tender is
validly withdrawn, unless the relevant Asda Debt Securities are validly
retendered on or before the Expiration Date.
Holders who wish to exercise their right to withdraw their tender with
respect to any Electronic Communication must give notice of that withdrawal
through the standard procedures of the relevant Clearing System prior to 9:00
a.m., London time, on the second Business Day immediately preceding the
originally scheduled Expiration Date, specifying in that notice of withdrawal
the Asda Debt Securities as to which the tender is withdrawn.
Holders who wish to exercise their right to withdraw their tender with
respect to any Physical Delivery must give written notice of that withdrawal by
Registered or Special Delivery or hand delivery, and such notice must
16
specify the particular Asda Debt Securities being withdrawn and must be
received by the Exchange Agent at its address set forth on the back cover of
this Offering Memorandum prior to 9:00 a.m., London time, on the second
Business Day immediately preceding the originally scheduled Expiration Date.
Such Asda Debt Securities tendered will only be returned in accordance with
Appendix I.2, "Form of Tender"; without exception.
In order to be valid, a notice of withdrawal must specify the Holder whose
name appears as the owner of the Asda Debt Securities to which the withdrawal
relates and the nominal amount of each Series of Asda Debt Securities in
respect of which the tender is to be withdrawn. In the case of Physical
Delivery, such notice of withdrawal must be signed and executed by the Holder
in the same manner as the original Form of Tender. Any Asda Debt Securities in
respect of which an Electronic Communication or Physical Delivery is validly
withdrawn may be re-tendered in the Exchange Offer by following the procedures
described for tender in this Offering Memorandum at any time on or before the
Expiration Date.
Before Holders may subsequently transfer any Asda Debt Securities in respect
of which an Electronic Communication or Physical Delivery has been withdrawn,
in the case of any Electronic Communication, authority must be sought from the
Exchange Agent to, in accordance with standard procedures of the relevant
Clearing System, remove the block placed on such Asda Debt Securities by the
relevant Clearing System, if such a block had been imposed, and, in the case of
any Physical Delivery, the relevant Asda Debt Securities must be returned to
the Holder by the Exchange Agent in accordance with the appropriate Form of
Tender as set out in Appendix I.2.
Expiration Date; Extension; Termination; Amendments
The Exchange Offer will expire at 4:00 p.m., London time, on the Expiration
Date, January 24, 2003, unless extended. The Company expressly reserves the
right to extend the Exchange Offer for such period or periods as it may
determine in its sole discretion, such period or periods not to exceed twenty
Business Days in the aggregate, from time to time by giving written or oral
notice, promptly followed by written notice to the Exchange Agent, and by
making a public announcement by notice through the Clearing Systems and by Asda
through the Regulatory News Service prior to 9:00 a.m., London time, on the
next Business Day following the previously scheduled Expiration Date. During
any extension of the Exchange Offer, all Asda Debt Securities previously
tendered and not accepted for exchange will remain subject to the Exchange
Offer. If the Expiration Date is extended prior to the Pricing Date, the
Pricing Date will occur on the fourth Business Day prior to the extended
Expiration Date. If the Expiration Date is extended after the originally
scheduled Pricing Date has occurred and the exchange ratios have been set on
that date, a new Pricing Date will not be set and the exchange ratios will
remain as set on the Pricing Date.
The Company expressly reserves the absolute right, in its sole discretion,
to amend any terms of the Exchange Offer, provided that no such amendment or
modification shall be material and adverse to Holders' interests. Any amendment
applicable to the Exchange Offer will apply to all Asda Debt Securities validly
tendered (and not validly withdrawn) in the Exchange Offer, regardless of when
or in what order the Asda Debt Securities were tendered. If the Company makes a
material change in the terms of the Exchange Offer or in the information
concerning the Exchange Offer, the Company will disseminate additional Exchange
Offer materials and, to the extent it considers it appropriate, will extend the
Exchange Offer for a further period of up to, but not exceeding, four Business
Days by giving written or oral notice, promptly followed by written notice to
the Exchange Agent, and by making a public announcement by notice through the
Clearing Systems and by Asda through the Regulatory News Service prior to 9:00
a.m., London time, on the next Business Day following the previously scheduled
Expiration Date. See "--Withdrawal of Tenders."
Except as otherwise set forth herein, the Company expressly reserves the
right, in its sole discretion, to terminate the Exchange Offer on or prior to
the Expiration Date. Any such termination will be followed promptly by public
announcement from the Company thereof. If the Company terminates the Exchange
Offer, it will give immediate notice thereof to the Exchange Agent and the
Exchange Agent will instruct the Clearing Systems to remove the restrictions on
transfer imposed on the Asda Debt Securities by the Electronic Communications
previously received, and return the Asda Debt Securities received by it through
Physical Delivery, in accordance
17
with the appropriate Form of Tender as set out in Appendix I. The Company may
not terminate the Exchange Offer for a Series of Asda Debt Securities in
respect of which it has received valid tenders, which have not been validly
withdrawn, for 100% of the outstanding Asda Debt Securities of that particular
Series except upon the occurrence of one or more of the events described in the
second paragraph following this paragraph. This limitation on the Company's
right to terminate the Exchange Offer as to any Series of Asda Debt Securities
will apply on a series-by-series basis. Accordingly, the limitation may apply
to some but not all of the Series of Asda Debt Securities, depending, in the
instance of any particular Series of Asda Debt Securities, on whether the
conditions to the application of that limitation have been met with respect to
that Series of Asda Debt Securities.
Any extension, delay, termination or amendment of the Exchange Offer will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be issued no later than 9:00 a.m.,
London time, on the next Business Day after the previously scheduled Expiration
Date. Without limiting the manner by which the Company may choose to make such
announcement, the Company will not, unless otherwise required by law, have any
obligation to publish, advertise in or otherwise communicate any such public
announcement other than by notice through the Clearing Systems and by Asda
through the Regulatory News Service, a copy of which will be posted promptly
after release on the Company's website.
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to accept for exchange, or to exchange Wal-Mart Notes for, Asda
Debt Securities tendered and not validly withdrawn pursuant to the Exchange
Offer, and may terminate the Exchange Offer and withdraw its acceptance for
exchange of Asda Debt Securities so tendered, if any of the following events
has occurred on or prior to the Settlement Date:
(a)any action, proceeding or litigation seeking to enjoin, make illegal,
delay the completion of or challenge in any respect the transactions
contemplated hereby or otherwise relating in any manner to the
transactions contemplated hereby is pending, instituted or threatened;
(b)any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect or any statute, rule, regulation, governmental order or
injunction shall have been proposed, enacted, enforced or deemed
applicable to the transactions contemplated hereby, any of which would
or might restrain, prohibit or delay completion of the Exchange Offer or
impair the transactions contemplated hereby or the benefits of the
Exchange Offer to the Company or Asda; or
(c)there has occurred
(i)any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States or the European Union,
(ii)any change in the general political, market, economic, financial or
regulatory conditions in the United States or in the European Union
that could, in the Company's judgment, have an adverse effect on the
business, condition (financial or other), income, operations, assets,
liabilities, properties, securities ownership or prospects of the
Company and its subsidiaries, including Asda and its subsidiaries,
taken as a whole, or otherwise may adversely affect, or may impair in
any way the contemplated future conduct of the business of, the
Company and its subsidiaries, including Asda and its subsidiaries,
taken as a whole, or that otherwise may materially affect the
expected benefits of the Exchange Offer to the Company or Asda or the
transactions contemplated hereby, or
(iii)any event or events that have resulted or may result, in the
Company's judgment, in an actual or threatened change in the business
condition (financial or other), income, operations, assets,
liabilities, properties, securities ownership or prospects of the
Company and its subsidiaries, including Asda and its subsidiaries,
taken as a whole, or that otherwise may adversely affect, or may
impair in any way the contemplated future conduct of the business of,
the Company and its subsidiaries, including Asda and its
subsidiaries, taken as a whole, or otherwise may materially affect
the expected benefits of the Exchange Offer to the Company or Asda or
the transactions contemplated hereby.
18
The foregoing rights are for the sole benefit of the Company, any of which
may be asserted by the Company in its sole discretion regardless of the
circumstances giving rise to any such condition (including any action or
inaction by the Company) and may be waived by the Company, in whole or in part,
at any time and from time to time in its sole discretion. The failure by the
Company at any time to exercise any of the foregoing rights will not be deemed
a waiver of any such right and each such right will be deemed an ongoing right
that the Company may assert at any time and from time to time. Any
determination by the Company concerning the events described in this section
will be final and binding upon all persons.
Acceptance of Asda Debt Securities for Exchange
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange, and on the Settlement Date will deliver
Wal-Mart Notes in exchange for, and pay any Cash Rounding Amount amounts
payable and interest accrued and unpaid through (but not including) the
Settlement Date on, all Asda Debt Securities validly tendered (and not validly
withdrawn) and accepted under the Exchange Offer. The Company will not accept
tenders of any Asda Debt Securities for exchange prior to the Expiration Date.
The Company expressly reserves the right, in its sole discretion, to delay
acceptance for exchange of Asda Debt Securities tendered (and not validly
withdrawn) under the Exchange Offer or the exchange of Wal-Mart Notes for Asda
Debt Securities accepted for exchange, or to terminate the Exchange Offer and
not accept for exchange any Asda Debt Securities not theretofore accepted for
exchange. See "--Expiration Date; Extension; Termination; Amendments" and
"--Withdrawal of Tenders." In all cases, exchange of Wal-Mart Notes for Asda
Debt Securities validly tendered for exchange (and not validly withdrawn)
pursuant to the Exchange Offer will be made only after timely receipt (without
subsequent valid withdrawal) by the Exchange Agent of details of valid
Electronic Communications received by the Clearing Systems and, in the case of
Non-Clearing System Debt Securities, of timely Physical Delivery (without
subsequent valid withdrawal). See "--Procedures for Tendering Asda Debt
Securities" for a description of the procedures for tendering Asda Debt
Securities pursuant to the Exchange Offer.
A Holder may tender all or any part of its holdings of Asda Debt Securities,
including all or any part of its holdings of any Series of Asda Debt
Securities. For purposes of the Exchange Offer, the Company will be deemed to
have accepted for exchange validly tendered (and not validly withdrawn) Asda
Debt Securities in the Exchange Offer, as and when the Company gives written
notice of its acceptance to the Exchange Agent. The Wal-Mart Notes will be
issued only in denominations of (Pounds)1,000 and integral multiples of
(Pounds)1,000. Each Holder will receive a single Wal-Mart Note in exchange for
all Asda Debt Securities tendered by such Holder and accepted by the Company in
the Exchange Offer. If any Holder would, as a result of the application of the
exchange ratios for each Series of Asda Debt Securities, be entitled to receive
upon the completion of the Exchange Offer a Wal-Mart Note having a principal
amount that is not an integral multiple of (Pounds)1,000, the Wal-Mart Note
issued will be of a principal amount equal to the next lower integral multiple
of (Pounds)1,000, and the Company will pay to the Holder in cash an amount
equal to the Cash Rounding Amount, that is, the remaining difference between
the principal amount payable, based solely on the application of the exchange
ratios, and the principal amount of the Wal-Mart Note issued to that Holder in
the Exchange Offer.
The issuance of Wal-Mart Notes in exchange for Asda Debt Securities accepted
for exchange pursuant to the Exchange Offer will be made by the deposit of a
global note representing all of the Wal-Mart Notes issuable to the tendering
Holders with Bank One, NA, as common depositary for Euroclear and Clearstream,
Luxembourg and by the deposit of such cash funds as may be required for payment
of any Cash Rounding Amount amounts payable and accrued interest on the Asda
Debt Securities, if any, with the Exchange Agent, which will act as agent for
the tendering Holders for the purpose of receiving Wal-Mart Notes from the
Company and transmitting the Wal-Mart Notes and any applicable cash payments to
the tendering Holders on the Settlement Date, which is expected to be the third
Business Day after the Expiration Date.
If, for any reason, acceptance for exchange for validly tendered (and not
validly withdrawn) Asda Debt Securities pursuant to the Exchange Offer is
delayed or the Company is unable to accept for exchange validly
19
tendered (and not validly withdrawn) Asda Debt Securities pursuant to the
Exchange Offer, then the Asda Debt Securities will retain the restrictions
imposed on their transfer by the Electronic Communications or Physical
Delivery, as the case may be, until the Company is able to consummate the
Exchange Offer, without prejudice to the rights of the Company and the Holders
described under "--Expiration Date; Extension; Termination; Amendments" and
"--Withdrawal of Tenders," or the Company terminates the Exchange Offer and
instructs the Exchange Agent to instruct the Clearing Systems to remove the
restrictions on transfer imposed on such Asda Debt Securities and to return any
Non-Clearing System Debt Securities received as a result of Physical Delivery.
Holders whose Asda Debt Securities are accepted in the Exchange Offer will
be paid by Wal-Mart in an amount equal to accrued interest on such Asda Debt
Securities in cash through the Settlement Date (the "Interest Amount "). Under
no circumstances will any additional interest be payable because of any delay
by the Exchange Agent in the transmission of Wal-Mart Notes or cash to the
Holder of exchanged Asda Debt Securities. If any tendered (and not validly
withdrawn) Asda Debt Securities are not accepted for exchange for any reason
pursuant to the terms and conditions of the Exchange Offer, the Company will
give immediate notice thereof to the Exchange Agent and the Exchange Agent will
(i) in the case of Asda Debt Securities held through the Clearing Systems,
instruct the Clearing Systems to remove the restrictions on transfer imposed on
such Asda Debt Securities by the Electronic Communications previously received
relating thereto and (ii) return any Non-Clearing System Debt Securities
received as a result of Physical Delivery.
The Company will pay all charges and expenses in connection with the mailing
and delivery of the Exchange Offer material. See "--Fees and Expenses".
Resales of the Wal-Mart Notes
The Wal-Mart Notes issued in exchange for particular Asda Debt Securities
will not be considered for the purposes of the Securities Act to be "restricted
securities" (as defined in Rule 144(a)(3) of the Securities Act) unless the
Asda Debt Securities for which they were exchanged are considered to be
"restricted securities" under the Securities Act immediately prior to the
Exchange Offer. Holders of Wal-Mart Notes that are "restricted securities" may
not sell or trade their Wal-Mart Notes in the United States except pursuant to
a transaction under Rule 144 or another available exemption from the
registration requirements of the Securities Act.
Wal-Mart Notes exchanged for Asda Debt Securities that are not "restricted
securities" may generally be resold in the United States by a holder who is not
(1) an "affiliate" of the Company within the meaning of Rule 144 under the
Securities Act or (2) a broker-dealer without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Wal-Mart Notes were acquired in the ordinary course of such holders' business
and such holders have no arrangement or understanding with any person to
participate in the distribution of such Wal-Mart Notes. If any holder has any
arrangement or understanding with respect to the distribution of the Wal-Mart
Notes, such holder (1) could not rely on the applicable interpretations of the
staff of the SEC and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Under the Securities Act, only the Company may register the
Wal-Mart Notes with the SEC for resale by holders of Wal-Mart Notes. The
Company has no obligation to register any resale of the Wal-Mart Notes with the
SEC on behalf of any holder.
A broker-dealer who holds Asda Debt Securities that were acquired for its
own account as a result of market-making or other trading activities must
comply with special rules under the Securities Act in connection with any
resale of Wal-Mart Notes received in exchange for such Asda Debt Securities. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Wal-Mart Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.
20
Exchange Agent
Bank One, NA, acting through its London branch, has been appointed as the
Exchange Agent for the Exchange Offer. Requests for assistance regarding the
procedure for exchanging Asda Debt Securities can be directed to the Exchange
Agent addressed as follows:
By Facsimile
44-207-867-9186
By Telephone
44-207-903-4913
By Registered or Special Delivery Mail
Bank One, NA
27 Leadenhall Street
London EC3A 1AA
England
Attention: Corporate Trust Operations
Holders of Non-Clearing System Debt Securities should arrange timely
Physical Delivery to the Exchange Agent at the address set forth herein by
registered or special delivery mail pursuant to this Offering Memorandum. See
"--Procedures for Tendering Asda Debt Securities." All deliveries sent or
presented to the Exchange Agent relating to the Exchange Offer should be
directed to the addresses set forth above. None of the Company, Asda or the
Exchange Agent will have any liability for the loss of any Asda Debt Securities
sent to the Exchange Agent that are not received. Tenders of Asda Debt
Securities should not be sent to the Company or Asda.
Information Agent
Georgeson Shareholder Communications Limited has been appointed as the
Information Agent for the Exchange Offer. Requests for copies of this Offering
Memorandum and additional information concerning the Exchange Offer may be
directed to the Information Agent addressed as follows:
By Facsimile
44-207-335-8773
By Telephone
44-207-335-8700
By Registered or Special Delivery Mail
38 Bishopsgate, Crosby Court
London, EC2N 4AF
England
Attention: Angelika Horstmeier
21
Other questions may be directed to the Dealer Manager as set forth in the
back cover page of this Offering Memorandum. Holders of Asda Debt Securities
may also contact their financial adviser, broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
Fees and Expenses
The Company has not and will not pay any fees or commissions to any broker
or dealer or any other person for soliciting tenders of Asda Debt Securities
pursuant to the Exchange Offer.
The Company will pay the reasonable and customary expenses to be incurred in
connection with the Exchange Offer, which include fees and expenses of the
Exchange Agent, the Dealer Manager, the Trustee under the Indenture, the
Information Agent and the Paying Agents, and accounting, legal, printing and
related fees and expenses.
Transfer Taxes
Holders who tender their Asda Debt Securities for exchange will not be
obligated to pay any U.K. transfer taxes in connection therewith.
Consequences of Failure to Exchange
Asda Debt Securities that are not tendered, or are tendered but not
accepted, in the Exchange Offer will remain outstanding and will continue to be
governed by their corresponding trust deed, including any deed supplemental
thereto, and will continue to be listed by the U.K. Listing Authority and
admitted to trading on the London Stock Exchange. See also "Risk Factors
Related to the Exchange Offer--Potential Adverse Effect on the Market for Asda
Debt Securities Not Tendered."
The Dealer Manager
The Company has retained Credit Suisse First Boston (Europe) Limited to act
as Dealer Manager in connection with the Exchange Offer.
The principal solicitation in connection with the Exchange Offer is being
made by Electronic Communications effected through the Clearing Systems.
However, additional solicitation may be made by telephone, mail, facsimile,
electronic media or in person by the Dealer Manager, and its officers, regular
employees and affiliates.
Affiliates of the Dealer Manager have provided, and the Company expects that
they will provide in the future, investment banking, advisory and commercial
banking services to the Company, for which those affiliates received, and the
Company expects that they will receive, customary fees.
The Company has entered into a dealer manager agreement with the Dealer
Manager. In that agreement, the Company agrees to indemnify the Dealer Manager
for certain liabilities under the U.S. securities laws and certain other laws.
From time to time, the Dealer Manager may trade one or more Series of the
Asda Debt Securities for its own account or for the accounts of its customers,
and hold a long or short position in one or more Series of the Asda Debt
Securities, in each case in accordance with applicable law. In addition,
affiliates of the Dealer Manger, or funds managed by affiliates of the Dealer
Manager, may own Asda Debt Securities on behalf of asset management clients, in
each case in accordance with applicable law. At any given time, the Dealer
Manager may trade the Wal-Mart Notes for its own account or for the accounts of
its customers, and accordingly, may hold a long or a short position in the
Wal-Mart Notes, in each case in accordance with applicable law.
22
The Dealer Manager does not assume any responsibility for the accuracy or
completeness of the information concerning the Exchange Offer or the Company
contained in this Offering Memorandum or any documents incorporated herein by
reference or for any failure by the Company to disclose events that may have
occurred and may affect the significance or accuracy of such information.
Questions regarding the terms of the Exchange Offer can be directed to the
Dealer Manager at the addresses and telephone numbers set forth on the back
cover of this Offering Memorandum.
Undertakings by Exchange Agent and Dealer Manager
Each of the Exchange Agent and the Dealer Manager has represented, warranted
and agreed that:
. it has only communicated or caused to be communicated, and it will only
communicate or cause to be communicated, any invitation or inducement to
engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000 ("FSMA")) received by it in
connection with the issue or sale of any Wal-Mart Notes in circumstances
in which section 21(1) of the FSMA does not apply to the Company; and
. it has complied and will comply with all applicable provisions of the FSMA
with respect to anything done by it in relation to the Wal-Mart Notes in,
from or otherwise involving the United Kingdom.
Governing Law
The Exchange Offer shall be construed in accordance with, and governed by,
English law, except for the Indenture under which the series of Wal-Mart Notes
are created (which will be governed by New York law).
23
WAL-MART STORES, INC.
Wal-Mart is the world's largest retailer as measured by total net sales for
fiscal 2002. Wal-Mart's total net sales exceeded $217 billion in fiscal 2002,
over 83% of which was generated in the United States. Wal-Mart operates mass
merchandising stores that serve its customers primarily through the operation
of three segments:
. Wal-Mart stores, which include discount stores, Supercenters and
Neighborhood Markets in the United States;
. SAM'S Clubs, which include warehouse membership clubs in the United
States; and
. the international segment of Wal-Mart's business.
Wal-Mart currently operates in all 50 states of the United States,
Argentina, Brazil, Canada, Germany, Mexico, Puerto Rico, South Korea and the
United Kingdom, and in China under joint venture agreements. In addition,
through its subsidiary, McLane Company, Inc., Wal-Mart provides products and
distribution services to retail industry and institutional food service
customers. As of November 30, 2002, Wal-Mart operated in the United States:
. 1,566 Wal-Mart stores;
. 1,244 Supercenters;
. 39 Neighborhood Markets; and
. 522 SAM'S Clubs.
As of November 30, 2002, Wal-Mart also operated 207 Canadian Wal-Mart
stores, 11 units in Argentina, 22 units in Brazil, 22 units in China, 95 units
in Germany, 592 units in Mexico, 19 units in Puerto Rico, 14 units in South
Korea and 258 units in the United Kingdom. The units operated by Wal-Mart's
International Division represent a variety of retail formats. As of November
30, 2002, Wal-Mart employed more than 1,000,000 associates in the United States
and 300,000 associates internationally.
Wal-Mart also owns approximately 34.0% of the equity interests in The Seiyu,
Ltd. and options to purchase additional equity interests in The Seiyu, Ltd.
that will permit Wal-Mart to own up to 66.7% of The Seiyu Ltd.'s equity
interests. The Seiyu, Ltd. operates over 400 stores located throughout Japan.
Wal-Mart Stores, Inc. is the parent company of a group of subsidiary
companies, including McLane Company, Inc., Wal-Mart.com, Inc., Wal-Mart de
Mexico, S.A. de C.V., Asda Group Limited, Sam's West, Inc., Sam's East, Inc.,
Wal-Mart Stores East, Inc., Wal-Mart Stores East, LP, Sam's Property Co.,
Wal-Mart Property Co., Wal-Mart Real Estate Business Trust, Sam's Real Estate
Business Trust and Wares Delaware Corporation. The information presented above
relates to Wal-Mart's operations and its subsidiaries on a consolidated basis.
Wal-Mart Stores, Inc. was incorporated in the State of Delaware in the
United States of America on October 31, 1969 under charter number 0732109.
Wal-Mart's principal executive offices are located at 702 S.W. Eighth
Street, Bentonville, Arkansas 72716, United States of America. Wal-Mart's
telephone number is 1-479-273-4000, and its Internet address is
www.wal-martstores.com. Information contained in Wal-Mart's website is not a
part of this Offering Memorandum.
24
CAPITALIZATION AND INDEBTEDNESS
The following table presents the consolidated capitalization and
indebtedness of Wal-Mart and its subsidiaries at October 31, 2002.
Commercial paper, long-term debt due within one year and other long-term
debt was unsecured as of October 31, 2002 except for $88 million which is
collateralised by property. In addition, the Company is a party to
sale/leaseback transactions with future minimum lease payments as of October
31, 2002 of $579 million, which have been accounted for as financings and form
a part of the Company's long-term debt.
No short-term debt was guaranteed at October 31, 2002. Of the Company's
long-term consolidated debt, $325 million was guaranteed at October 31, 2002
with the remainder unguaranteed.
As at October 31, 2002 the Company and its subsidiaries had contingent
liabilities under guarantees given in respect of third parties which amounted
to $110 million. The Company is involved in a large number of legal
proceedings, including antitrust, consumer, employment, tort and other
litigation, and it is not possible to specify the eventual liability of the
Company in those proceedings, which may result in substantial liability. For
information regarding certain pending legal proceedings, see page 7 of the
Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002,
which is included in this Offering Memorandum as Appendix IV.
Since October 31, 2002, there has been no material change in the total
amount of indebtedness, the total amount of any contingent liabilities or
guarantees or in the total unaudited consolidated capitalization of Wal-Mart
and its subsidiaries.
25
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of Wal-Mart's earnings to fixed
charges, for the periods indicated:
For the purpose of computing Wal-Mart's ratios of earnings to fixed charges,
"earnings" is defined to mean Wal-Mart's earnings before income taxes and fixed
charges, excluding capitalized interest and earnings attributable to minority
interests owned by others in Wal-Mart's subsidiaries.
"Fixed charges" is defined to mean:
. the interest that Wal-Mart pays; plus
. the capitalized interest that Wal-Mart shows on its accounting records;
plus
. amortized premiums, discounts and capitalized expenses related to
indebtedness; plus
. the portion of the rental expense for real and personal property that
Wal-Mart believes represents the interest factor in those rentals.
Ratios of earnings to fixed charges and preferred stock dividends are not
disclosed because Wal-Mart does not have any shares of preferred stock
outstanding.
26
FINANCIAL INFORMATION RELATING TO WAL-MART STORES, INC.
Appendix III to this document, which forms part of this Offering Memorandum,
contains the text of Wal-Mart's Annual Report on Form 10-K for its fiscal year
ended January 31, 2002 as filed with the SEC. Appendix IV to this document,
which forms part of this Offering Memorandum, contains the text of Wal-Mart's
Quarterly Report on Form 10-Q for its fiscal quarter ended October 31, 2002 as
filed with the SEC.
The exhibits to the Form 10-K include the audited Consolidated Balance
sheets of Wal-Mart Stores, Inc. as of January 31, 2002 and 2001, and the
related Consolidated Statements of Income, Consolidated Statements of
Shareholders' Equity and Consolidated Statements of Cash Flow for each of the
three years in the period ended January 31, 2002.
The financial statements are prepared in accordance with generally accepted
accounting principles as in effect in the United States of America. All amounts
set forth therein are stated in U.S. dollars.
The Form 10-K, as filed, incorporated by reference certain materials and
included certain exhibits. Only those items described on page 10K-20 at
paragraphs 12, 13, 21 and 23 are included in Appendix III and the other
documents incorporated by reference into the Form 10-K or the exhibits when the
Form 10-K was filed are not material for the purposes of the issue of the
Wal-Mart Notes. The Form 10-Q refers to certain materials and includes as
exhibits those items described on page 10Q-20 in item 6(a). Those exhibits are
included in Appendix IV, but no other material is included as it is not
material for the purpose of the issue of the Wal-Mart Notes.
27
EXCHANGE RATE INFORMATION
The table below sets forth, for the periods and dates indicated, information
concerning the noon buying rate in New York City for cable transfers as
announced by the U.S. Federal Reserve Bank of New York for pounds sterling
(expressed in U.S. dollars per pound). The rates in this table are provided for
your reference only.
- --------
(1)The average of the noon buying rates on the last day of each month during
the period.
28
DIRECTORS AND EXECUTIVE OFFICERS OF WAL-MART
The directors and executive officers of Wal-Mart are as follows:
29
Executive Officers
30
DESCRIPTION OF THE WAL-MART NOTES
The Company will issue the Wal-Mart Notes under the Indenture, dated as of
December 11, 2002, between Wal-Mart and Bank One Trust Company, NA, as the
Trustee. This Offering Memorandum summarizes material provisions of the
Wal-Mart Notes that the Company is offering pursuant hereto and material
provisions of the Indenture. However, prospective participants in the Exchange
Offer should understand that this is only a summary. This Offering Memorandum
does not describe all of the provisions of the Indenture. The Indenture is on
file with the SEC as an exhibit to the Company's registration statement No.
333-101847 which is accessible through the SEC's website at www.sec.gov. All
references to the Indenture contained in this Offering Memorandum are qualified
in their entirety by the provisions of the Indenture.
The Wal-Mart Notes will be issued in registered book-entry form without
interest coupons in denominations of (Pounds)1,000 and integral multiples of
(Pounds)1,000. The Wal-Mart Notes will constitute the Company's senior,
unsecured and unsubordinated debt obligations and will rank equally among
themselves and with all of Wal-Mart's other existing and future senior,
unsecured and unsubordinated debt.
The Wal-Mart Notes will mature on January 29, 2013, unless the Expiration
Date is extended. If the Expiration Date is extended, the maturity date of the
Wal-Mart Notes will be the tenth anniversary of the Settlement Date. The
Company will pay principal of, interest on and any other amounts payable under
the Wal-Mart Notes in pounds sterling or, if the United Kingdom adopts the euro
as its currency, in euro.
If all of the Asda Debt Securities are tendered (and not subsequently
validly withdrawn) and accepted for exchange, provided that the exchange ratio
applicable to each Series of Asda Debt Securities is the exchange ratio set
forth in the example provided in "The Exchange Offer--Hypothetical Exchange
Pricing," Wal-Mart would initially issue Wal-Mart Notes in an aggregate
principal amount of approximately (Pounds)511,000,000.
Wal-Mart may, without the consent of the holders of the Wal-Mart Notes,
create and issue additional notes ranking equally with the Wal-Mart Notes and
otherwise similar in all respects to the Wal-Mart Notes (except for the issue
date and offer price) so that those additional notes will be consolidated and
form a single series with the Wal-Mart Notes. No additional Wal-Mart Notes may
be issued if an event of default under the Indenture has occurred.
The Company may, at its option, redeem the Wal-Mart Notes at any time after
their issuance at the price specified under "--Optional Redemption," or upon
the occurrence of certain tax events, as described under "--Redemption upon a
Tax Event." The Wal-Mart Notes will not be subject to a sinking fund, and will
not be convertible or exchangeable. The Wal-Mart Notes will not be subject to
defeasance.
The Wal-Mart Notes will bear interest from the Settlement Date at a rate to
be announced on the Pricing Date. Interest will be payable semi-annually in
arrears on January 29 and July 29 of each year, beginning on July 29, 2003, to
the persons in whose names the Wal-Mart Notes are registered at the close of
business on the preceding January 20 or July 20, as the case may be, unless the
Expiration Date is extended. If the Expiration Date is extended, interest will
be payable on the anniversary date of the Settlement Date in each year and the
date in each year that is six months after that anniversary date and will be
payable to the persons in whose names the Wal-Mart Notes are registered at the
close of business on the eighth calendar day preceding each such interest
payment date. Interest on the Wal-Mart Notes will be computed on the basis of a
360-day year of twelve 30-day months.
The terms and conditions of the Wal-Mart Notes, including, among other
provisions, the covenants and events of defaults, differ from the terms and
conditions of some of Wal-Mart's outstanding debt securities. For example, the
Wal-Mart Notes do not have the covenant restricting the grant of liens and
cross-default event of default provisions that are contained in some of
Wal-Mart's outstanding debt securities. In addition, the Wal-Mart Notes do not
have covenants, such as restrictions on the incurrence of additional debt or
the disposition of assets of the kind contained in the trust deed governing the
2010 Bonds. Appendix II to this Offering Memorandum includes a chart that
summarizes and compares the key provisions of the Wal-Mart Notes and each
Series of Asda Debt Securities.
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If, prior to the maturity of the Wal-Mart Notes, the United Kingdom adopts
the euro as its lawful currency in accordance with the Treaty establishing the
European Communities, as amended by the Treaty on European Union, the Wal-Mart
Notes will be re-denominated into euros, and the regulations of the European
Commission relating to the euro shall apply to the Wal-Mart Notes. Upon any
re-denomination into euros, the principal amount of the Wal-Mart Notes would be
converted into an equivalent amount of euros based on the official conversion
rate for pounds into euros upon the euro's adoption. The circumstances and
consequences described in this paragraph will not entitle Wal-Mart, the Trustee
or any holder of the Wal-Mart Notes to redeem early, rescind or receive notice
relating to the Wal-Mart Notes, repudiate the terms of the Wal-Mart Notes or
the Indenture, raise any defense, request any compensation or make any claim,
nor will these circumstances and consequences affect any of Wal-Mart's other
obligations under the Wal-Mart Notes or the Indenture.
While the Wal-Mart Notes are represented by a Global Note deposited with the
common depositary for Clearstream, Luxembourg and Euroclear, notices to holders
may be given by delivery to Clearstream, Luxembourg and Euroclear and such
notices shall be deemed to be given on the date of delivery to Clearstream,
Luxembourg and Euroclear. The Trustee will mail notices by first-class mail,
postage prepaid, to each registered holder's last known address as it appears
in the security register that the Trustee maintains. The Trustee will only mail
these notices to the registered holder of the Wal-Mart Notes. Holders will not
receive notices regarding the Wal-Mart Notes directly from Wal-Mart unless
Wal-Mart reissues the Wal-Mart Notes to the holders in fully certificated form.
The Trustee will also publish notices regarding the Wal-Mart Notes in a
daily newspaper of general circulation in The City of New York and in London.
Wal-Mart expects that publication will be made in The City of New York in The
Wall Street Journal and in London in the Financial Times. Published notices
will be deemed to have been given on the date they are published or, if
published more than once, on the date of first publication. If publication as
described above becomes impossible, the Trustee may publish sufficient notice
by alternate means that approximate the terms and conditions described in this
paragraph.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. and Moody's
Investor Services, Inc. have rated the long-term senior, unsecured,
unsubordinated debt securities of the Company as AA and Aa2, respectively, as
of the date of this Offering Memorandum. The Wal-Mart Notes have not been
specifically rated by either rating agency. The long-term senior, unsecured,
unsubordinated debt of Asda was rated, as of the date of this Offering
Memorandum, "Aa3" by Moody's Investor Services, Inc. Each Series of Asda Debt
Securities is rated AA- by Fitch Ratings. None of Asda's debt securities are
rated by Standard and Poor's.
Application has been made for the Wal-Mart Notes to be admitted on the
Official List and to be admitted to trading by the London Stock Exchange.
Bank One Trust Company, NA, is the Trustee under the Indenture governing the
Wal-Mart Notes and will be the paying agent in the United States. Bank One, NA,
London Branch, will be the registrar, paying agent and transfer agent in
London. Credit Suisse First Boston (Europe) Limited will be the Authorised
Adviser in London.
The Indenture is, and the Wal-Mart Notes will be, governed by New York law.
Neither the Indenture nor the other indentures to which the Company is a party
in its capacity as an issuer limit the amount of debt securities that may be
issued thereunder, and each provides that debt securities may be issued
thereunder from time to time in one or more series.
Optional Redemption
The Company may, at its option, redeem the Wal-Mart Notes, in whole or in
part, at any time and from time to time after their issuance at a redemption
price equal to the greater of (i) 100% of the principal amount of the Wal-Mart
Notes to be redeemed, and (ii) as determined by the Exchange Agent, the price
at which the yield on the outstanding principal amount of the Wal-Mart Notes on
the Reference Date (as defined herein) is equal to the
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yield on the benchmark U.K. Gilt as of that date, as determined by reference to
the middle-market price on the benchmark U.K. Gilt at 3:00 p.m., London time,
on that date, in either case, plus accrued and unpaid interest on the Wal-Mart
Notes up to, but excluding, the date specified as the redemption date. The
benchmark U.K. Gilt for the purpose of the optional redemption right will be
designated on the Pricing Date and announced when the exchange ratios are
announced. "Reference Date" means the date that is the first dealing day in
London prior to the publication of the notice of redemption referred to below.
Wal-Mart will give notice of any redemption between 30 and 60 days preceding
the redemption date to each holder of the Wal-Mart Notes to be redeemed as
described above.
In the case of any partial redemption, selection of the Wal-Mart Notes for
redemption will be made by the Trustee in compliance with the rules and
requirements of the London Stock Exchange or, if different, the principal
securities exchange on which the Wal-Mart Notes are listed or, if the Wal-Mart
Notes are not so listed or that exchange prescribes no method of selection, on
a pro rata basis, by lot or by any other method as the Trustee in its sold
discretion deems to be fair and appropriate, although no Wal-Mart Note of
(Pounds)1,000 in original principal amount shall be redeemed in part. If any
Wal-Mart Note is to be redeemed in part only, the notice of redemption relating
to the Wal-Mart Note will state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued and delivered to the Trustee, or its nominee, or in the
case of notes in definitive form, issued in the name of the holder thereof, in
each case upon cancellation of the original Wal-Mart Note.
Unless the Company defaults in payment of the redemption price of the
Wal-Mart Notes redeemed, on and after the redemption date, interest will cease
to accrue on the Wal-Mart Notes or portions of Wal-Mart Notes that have been
called for redemption.
Payment of Additional Amounts
Wal-Mart will pay to the holder of any Wal-Mart Note who is a United States
Alien, as defined below, additional amounts as may be necessary so that every
net payment of principal and interest on that Wal-Mart Note, after deduction or
withholding for or on account of any present or future tax, assessment or other
governmental charge imposed upon that holder by the United States or any taxing
authority thereof or therein, will not be less than the amount provided in that
Wal-Mart Note to be then due and payable. Wal-Mart will not be required,
however, to make any payment of additional amounts for or on account of:
(a)any tax, assessment or other governmental charge that would not have
been imposed but for (1) the existence of any present or former
connection between that holder, or between a fiduciary, settlor,
beneficiary of, member or shareholder of, or possessor of a power over,
that holder, if that holder is an estate, trust, partnership or
corporation, and the United States including, without limitation, that
holder, or that fiduciary, settlor, beneficiary, member, shareholder or
possessor, being or having been a citizen or resident or treated as a
resident of the United States or being or having been engaged in trade
or business or present in the United States or (2) the presentation of a
Wal-Mart Note for payment on a date more than 30 days after the later of
the date on which that payment becomes due and payable and the date on
which payment is duly provided for;
(b)any estate, inheritance, gift, sales, transfer, excise, personal
property or similar tax, assessment or other governmental charge;
(c)any tax, assessment or other governmental charge imposed by reason of
that holder's past or present status as a passive foreign investment
company, a controlled foreign corporation, a personal holding company or
foreign personal holding company with respect to the United States, or
as a corporation which accumulates earnings to avoid United States
federal income tax;
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(d)any tax, assessment or other governmental charge which is payable
otherwise than by withholding from payment of principal or interest on
that Wal-Mart Note;
(e)any tax, assessment or other governmental charge required to be withheld
by any paying agent from any payment of principal of or interest on any
Wal-Mart Note if that payment can be made without withholding by any
other paying agent;
(f)any tax, assessment or other governmental charge which would not have
been imposed but for the failure to comply with certification,
information, documentation or other reporting requirements concerning
the nationality, residence, identity or connections with the United
States of the holder or beneficial owner of that Wal-Mart Note, if such
compliance is required by statute or by regulation of the U.S. Treasury
Department as a precondition to relief or exemption from such tax,
assessment or other governmental charge;
(g)any tax, assessment or other governmental charge imposed on interest
received by (1) a 10% shareholder (as defined in Section 871(h)(3)(B) of
the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations that may be promulgated thereunder) of the Company or (2) a
controlled foreign corporation with respect to the Company within the
meaning of the Code;
(h)any withholding or deduction which is imposed on a payment to an
individual and is required to be made pursuant to any European Union
Directive on the taxation of savings implementing the conclusions of the
ECOFIN Council meeting of 26-27 November 2000 or any law implementing or
complying with, or introduced in order to conform to, such Directive; or
(i)any combination of items (a), (b), (c), (d), (e), (f), (g) and (h);
nor will Wal-Mart pay any additional amounts to any holder who is a fiduciary
or partnership other than the sole beneficial owner of that Wal-Mart Note to
the extent that a beneficiary or settlor with respect to that fiduciary, or a
member of that partnership or a beneficial owner thereof would not have been
entitled to the payment of those additional amounts had that beneficiary,
settlor, member or beneficial owner been the holder of that Wal-Mart Note.
"United States Alien" means any corporation, partnership, individual or
fiduciary that is, as to the United States, a foreign corporation, a
non-resident alien individual who has not made a valid election to be treated
as a United States resident, a non-resident fiduciary of a foreign estate or
trust, or a foreign partnership one or more of the members of which is, as to
the United States, a foreign corporation, a non-resident alien individual or a
non-resident fiduciary of a foreign estate or trust.
Redemption upon a Tax Event
The Wal-Mart Notes may be redeemed at Wal-Mart's option in whole, but not in
part, on not more than 60 days' and not less than 30 days' notice, at a
redemption price equal to 100% of their principal amount, plus accrued and
unpaid interest, if Wal-Mart determines that as a result of any change or
amendment to the laws, treaties, regulations or rulings of the United States or
any political subdivision or taxing authority thereof, or any proposed change
in such laws, treaties, regulations or rulings, or any change in the official
application, enforcement or interpretation of those laws, treaties, regulations
or rulings, including a holding by a court of competent jurisdiction in the
United States, or any other action, other than an action predicated on law
generally known on or before the Settlement Date except for proposals before
the Congress before that date, taken by any taxing authority or a court of
competent jurisdiction in the United States, or the official proposal of any
action, whether or not such action or proposal was taken or made with respect
to Wal-Mart, (A) Wal-Mart has or will become obligated to pay additional
amounts as described under "--Payment of Additional Amounts" on any Wal-Mart
Note or (B) there is a substantial possibility that Wal-Mart will be required
to pay those additional amounts. Prior to the publication of any notice of
redemption, Wal-Mart will deliver to the Trustee (1) an officers' certificate
stating that Wal-Mart is entitled to effect a redemption and setting forth a
statement of facts
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showing that the conditions precedent to Wal-Mart's right to so redeem have
occurred and (2) an opinion of counsel to that effect based on that statement
of facts.
Events of Default and Waiver
An event of default with respect to the Wal-Mart Notes will occur if:
. Wal-Mart fails to pay interest on the Wal-Mart Notes when it is due and
payable and that failure continues for 30 days;
. Wal-Mart fails to pay principal on the Wal-Mart Notes when it is due and
payable;
. Wal-Mart fails to perform or breaches any covenant or warranty in the
Indenture with respect to the Wal-Mart Notes and that failure continues
for 90 days after Wal-Mart receives written notice of that default; or
. certain events of bankruptcy, insolvency or reorganization occur with
respect to Wal-Mart.
If an event of default with respect to the Wal-Mart Notes occurs and is
continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Wal-Mart Notes may declare the principal amount of the
Wal-Mart Notes to be immediately due and payable. The holders of a majority in
aggregate principal amount of the Wal-Mart Notes may waive an event of default
resulting in acceleration of the Wal-Mart Notes, and rescind and annul that
acceleration, but only if all other events of default with respect to the
Wal-Mart Notes have been remedied or waived and all payments due with respect
to the Wal-Mart Notes, other than those due as a result of acceleration, have
been made. If an event of default occurs and is continuing with respect to the
Wal-Mart Notes, the Trustee may, in its discretion, and at the written request
of holders of not less than a majority in aggregate principal amount of the
Wal-Mart Notes and upon reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request and subject to
certain other conditions set forth in the Indenture will, proceed to protect
the rights of the holders of the Wal-Mart Notes. The holders of a majority in
aggregate principal amount of the Wal-Mart Notes may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of, premium, if any, or interest on, the Wal-Mart Notes and any
covenant or provision of the Indenture that cannot be waived without the
consent of each holder of the Wal-Mart Notes. Upon such a waiver, the default
and any event of default arising out of the default will be deemed cured for
all purposes.
The Indenture provides that upon the occurrence of an event of default
described in the first two bullet points in the first paragraph under "--Events
of Default and Waiver" with respect to the Wal-Mart Notes, Wal-Mart will, upon
the Trustee's demand, pay to the Trustee for the benefit of the holders of the
Wal-Mart Notes, the whole amount then due and payable on the Wal-Mart Notes for
principal and interest. The Indenture also provides that if Wal-Mart fails to
pay such amount forthwith upon such demand, the Trustee may, among other
things, institute a judicial proceeding for the collection of those amounts.
The Indenture also provides that, notwithstanding any other provision of the
Indenture, any holder of the Wal-Mart Notes will have the right to institute
suit for the enforcement of any payment of principal of, and interest on, the
Wal-Mart Notes or any redemption price or repurchase price when due and that
that right will not be impaired without the consent of that holder.
The Trustee is required, within 90 days after the occurrence of a default
with respect to the Wal-Mart Notes, to give to the holders of the Wal-Mart
Notes notice of all uncured defaults known to it. However, except in the case
of default in the payment of principal or interest on the Wal-Mart Notes, the
Trustee will be protected in withholding that notice if the Trustee in good
faith determines that the withholding of that notice is in the interest of the
holders of the Wal-Mart Notes. The term "default," for the purpose of this
provision only, means the occurrence of any of the events of default specified
above excluding any grace periods.
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Wal-Mart is required to file annually with the Trustee a written statement
as to the existence or non-existence of defaults under the Indenture or the
Wal-Mart Notes.
Legal Defeasance and Covenant Defeasance
The Wal-Mart Notes will not be subject to legal defeasance or covenant
defeasance as provided for in the Indenture.
Satisfaction and Discharge
If Wal-Mart so requests, the Indenture will cease to be of further effect,
other than as to certain rights of registration of transfer or exchange of the
notes issued pursuant thereto, as provided for in the Indenture, and the
Trustee, at Wal-Mart's expense, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture and the notes when:
. either all the debt securities previously authenticated and delivered
under the Indenture, other than destroyed, lost or stolen securities
that have been replaced or paid, have been delivered to the Trustee for
cancellation; or
. all of the securities issued under the Indenture not previously
delivered to the Trustee for cancellation have become due and payable,
will become due and payable at their stated maturity within 60 days or
will become due and payable at redemption (provided the applicable
series of debt securities permits redemption) within 60 days under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in Wal-Mart's name and expense; and
. in each of the foregoing cases, Wal-Mart has irrevocably deposited or
caused to be deposited with the Trustee cash in U.S. dollars, certain
United States government securities, or a combination thereof, in trust
for the purpose and in an amount sufficient to pay and discharge the
entire indebtedness arising under the debt securities issued pursuant to
the Indenture not previously delivered to the Trustee for cancellation,
for principal, and premium, if any, on and interest on these securities
to the date of such deposit (in the case of notes that have become due
and payable) or to the stated maturity of these securities or redemption
date, as the case may be; and
. Wal-Mart has paid or caused to be paid all sums payable by it under the
Indenture; and
. no default or event of default then exists; and
. Wal-Mart has delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided
in the Indenture relating to the satisfaction and discharge of the
Indenture and the securities issued under the Indenture have been
complied with.
Modification of the Indenture
The Indenture provides that, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding debt
securities of each affected series, modifications and alterations of the
Indenture may be made which affect the rights of the holders of such debt
securities. However, no such modification or alteration may be made without the
consent of the holder of each debt security affected if the modification or
alteration would, among other things:
. change the maturity or the principal of, or any installment of interest
on, any debt security, or reduce the principal amount of any debt
security, or change the method of calculation of interest or the
currency of payment of principal or interest on, or reduce the minimum
rate of interest thereon, or impair the right to institute suit for the
enforcement of any such payment on or with respect to any such debt
security, or
36
. reduce the above-stated percentage in principal amount of outstanding
debt securities required to modify or alter the Indenture.
The Trustee and Wal-Mart, without the consent of the holders of the debt
securities, may execute a supplemental indenture to, among other things:
. evidence the succession of another corporation to Wal-Mart and the
successor's assumption to Wal-Mart's respective agreements and
obligations with respect to the debt securities and the Indenture;
. add to Wal-Mart's covenants further restrictions or conditions that its
board of directors and the Trustee consider to be for the protection of
holders of all or any series of the debt securities and to make the
occurrence of a default in any of those additional covenants,
restrictions or conditions a default or an event of default under the
Indenture subject to certain limitations;
. cure ambiguities or correct or supplement any provision contained in the
Indenture or any supplemental indenture that may be defective or
inconsistent with another provision;
. provide for the issuance of debt securities whether or not then
outstanding under the Indenture in coupon form and to provide for
exchangeability of the coupon form securities with other debt securities
issued under the Indenture in fully registered form;
. establish new series of debt securities and the form or terms of such
series of debt securities and to provide for the issuance of securities
of any series so established; and
. evidence and provide for the acceptance of appointment of a successor
trustee and to change the Indenture as necessary to have more than one
trustee under the Indenture.
Amalgamation, Consolidation, Merger or Sale of Assets
The Indenture provides that Wal-Mart may, without the consent of the holders
of any of the outstanding debt securities of any series, amalgamate,
consolidate with, merge into or transfer its assets substantially as an
entirety to any person, provided that:
. any successor to Wal-Mart assumes its obligations on the debt securities
and under the Indenture;
. any successor to Wal-Mart must be an entity incorporated or organized
under the laws of the United States;
. after giving effect thereto, no event of default, as defined in the
Indenture, shall have occurred and be continuing; and
. certain other conditions under the Indenture are met.
Any such amalgamation, consolidation, merger or transfer of assets
substantially as an entirety that meets the conditions described above would
not constitute a default or event of default that would entitle holders of the
debt securities or the Trustee, on their behalf, to take any of the actions
described above under "--Events of Default and Waiver."
No Limitations on Additional Debt and Liens
The Indenture and the Wal-Mart Notes do not contain any covenants or other
provisions that would limit Wal-Mart's right to incur additional indebtedness,
enter into any sale and leaseback transaction, grant liens on its assets or
dispose of its assets.
37
Prescription
Under New York's statute of limitations, any legal action to enforce
Wal-Mart's payment obligations evidenced by the Wal-Mart Notes must be
commenced within six years after payment is due. Thereafter, Wal-Mart's payment
obligations will generally become unenforceable.
Replacement of Wal-Mart Notes
If any mutilated Wal-Mart Note is surrendered to the Trustee, or if the
Trustee and the Company receive evidence to the Company's satisfaction of the
destruction, loss or theft of any Wal-Mart Note accompanied by any security or
indemnity required by them, the Company will execute and the Trustee will
authenticate and deliver in exchange for such mutilated, destroyed, lost or
stolen Wal-Mart Note a new Wal-Mart Note of the same series and principal
amount. All expenses associated with issuing the new Wal-Mart Note will be
borne by the owner of the mutilated, destroyed, lost or stolen Wal-Mart Note.
The Indenture Trustee
Bank One Trust Company, NA is the Trustee under the Indenture governing the
Wal-Mart Notes and will also be the paying agent in the United States. The
Trustee is a national banking association with its principal offices in
Chicago, Illinois.
The Trustee has two main roles under the Indenture. First, the Trustee can
enforce the rights of holders of the Wal-Mart Notes against Wal-Mart if any of
the actions described above under "Events of Default and Waiver" occurs.
Second, the Trustee performs certain administrative duties for Wal-Mart. The
Trustee is entitled, subject to the duty of the Trustee during a default to act
with the required standard of care, to be indemnified by the holders of the
Wal-Mart Notes before proceeding to exercise any right or power under the
Indenture at the request of those holders. The Indenture provides that the
holders of a majority in principal amount of the Wal-Mart Notes may direct,
with regard to the Wal-Mart Notes, the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, with respect to the Wal-Mart Notes, although
the Trustee may decline to act if that direction is contrary to law or if the
Trustee determines in good faith that the proceeding so directed would be
illegal or would result in personal liability to it.
Bank One Trust Company, NA also serves as trustee under an indenture, dated
as of July 5, 2001, between it, Wal-Mart, and three of Wal-Mart's finance
subsidiaries, Wal-Mart Cayman (Euro) Finance Co., Wal-Mart Cayman (Canadian)
Finance Co., and Wal-Mart Cayman (Sterling) Finance Co. As of November 30,
2002, Wal-Mart had issued a total of $5.5 billion of its senior unsecured
securities under that indenture. Bank One Trust Company, NA also serves as
trustee under an indenture, dated as of April 1, 1991, between it and Wal-Mart.
As of May 31, 2001, Wal-Mart had issued a total of $17.46 billion of its senior
unsecured securities under that indenture as supplemented through the date of
this Offering Memorandum. Bank One Trust Company, NA also serves as trustee
under an indenture, dated as of December 1, 1986, covering secured bonds issued
in the aggregate principal amount of $137,082,000 by the owner trustees of
approximately 24 SAM'S Clubs store properties that are leased to one of
Wal-Mart's subsidiaries. Bank One Leasing Corporation, an affiliate of Bank One
Trust Company, NA, established a business trust that purchased 15 Wal-Mart
discount stores for $53,661,785 and leased the stores back to Wal-Mart for an
initial term of 20 years in a transaction consummated on December 22, 1992. On
November 10, 1994, a second business trust of which Bank One Leasing
Corporation is a beneficiary purchased an additional 23 Wal-Mart discount
stores for $128,842,500 and leased the stores back to Wal-Mart for an initial
term of 20 years. Bank One Trust Company, NA also serves as trustee under an
indenture, dated as of April 27, 2001 between Wal-Mart Canada Venture Corp.,
one of Wal-Mart's subsidiaries, Wal-Mart, as guarantor, and it. On April 27,
2001, Wal-Mart Canada Venture Corp. issued a total of $325,000,000 of its
senior unsecured debt securities under that indenture, which are guaranteed by
Wal-Mart.
Wal-Mart expects to maintain banking relationships in the ordinary course of
business with Bank One, NA, an affiliate of Bank One Trust Company, NA.
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BOOK-ENTRY ISSUANCE
Wal-Mart will issue the Wal-Mart Notes as one or more Global Notes
registered in the name of a common depositary for Clearstream, Luxembourg and
Euroclear. Investors may hold book-entry interests in the Global Notes through
organizations that participate, directly or indirectly, in Clearstream,
Luxembourg and/or Euroclear. Book-entry interests in the Wal-Mart Notes and all
transfers relating to the Wal-Mart Notes will be reflected in the book-entry
records of Clearstream, Luxembourg and Euroclear.
The distribution of the Wal-Mart Notes will be cleared through Clearstream,
Luxembourg and Euroclear. Any secondary market trading of book-entry interests
in the Wal-Mart Notes will take place through participants in Clearstream,
Luxembourg and Euroclear and will settle in same-day funds. Owners of
book-entry interests in the Wal-Mart Notes will receive payments relating to
their Wal-Mart Notes in pounds sterling. Clearstream, Luxembourg and Euroclear
have established electronic securities and payment transfer, processing,
depositary and custodial links among themselves and others, either directly or
through custodians and depositaries. These links allow securities to be issued,
held and transferred among the clearing systems without the physical transfer
of certificates. Special procedures to facilitate clearance and settlement have
been established among these clearing systems to trade securities across
borders in the secondary market.
The policies of Clearstream, Luxembourg and Euroclear will govern payments,
transfers, exchange and other matters relating to the investor's interest in
securities held by them. Wal-Mart has no responsibility for any aspect of the
records kept by Clearstream, Luxembourg or Euroclear or any of their direct or
indirect participants. Wal-Mart does not supervise these systems in any way.
Clearstream, Luxembourg and Euroclear and their participants perform these
clearance and settlement functions under agreements they have made with one
another or with their customers. Owners of beneficial interests in the Wal-Mart
Notes should be aware that the Clearing Systems are not obligated to perform or
continue to perform these procedures and may modify or discontinue them at any
time.
Except as provided below, owners of beneficial interests in the Wal-Mart
Notes will not be entitled to have the Wal-Mart Notes registered in their
names, will not receive or be entitled to receive physical delivery of the
Wal-Mart Notes in definitive form, unless Euroclear or Clearstream Luxembourg
is closed for business for a continuous period of 14 days (other than by reason
of legal holidays) or announces an intention permanently to cease business and
will not be considered the owners or holders of the Wal-Mart Notes under the
Indenture, including for purposes of receiving any reports delivered by us or
the Trustee pursuant to the Indenture. Accordingly, each person owning a
beneficial interest in a Wal-Mart Note must rely on the procedures of the
depositary and, if that person is not a participant, on the procedures of the
participant through which that person owns its interest, in order to exercise
any rights of a holder of Wal-Mart Notes.
This description of the Clearing Systems reflects Wal-Mart's understanding
of the rules and procedures of Clearstream, Luxembourg and Euroclear as they
are currently in effect. The Clearing Systems could change their rules and
procedures at any time. Wal-Mart has obtained the information in this section
concerning Clearstream, Luxembourg and Euroclear and their book-entry systems
and procedures from sources that Wal-Mart believes to be reliable, but Wal-Mart
takes no responsibility for the accuracy of this information.
Clearstream, Luxembourg
Clearstream, Luxembourg is incorporated as a professional depositary under
Luxembourg law. Clearstream, Luxembourg holds securities for its customers and
facilitates the clearance and settlement of securities transactions between
Clearstream, Luxembourg customers through electronic book-entry changes in
customer accounts, thus eliminating the need for physical movement of
certificates. Clearstream, Luxembourg provides to its customers, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with
39
domestic markets in a number of countries. Clearstream, Luxembourg has
established an electronic bridge with Euroclear Bank S.A./N.V. to facilitate
settlement of trades between Clearstream, Luxembourg and Euroclear.
As a registered professional depositary in Luxembourg, Clearstream,
Luxembourg is subject to regulation by the Luxembourg Commission for the
Supervision of the Financial Sector. Clearstream, Luxembourg customers are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations. In the United States, Clearstream, Luxembourg customers are
limited to securities brokers and dealers. Clearstream, Luxembourg customers
may include the underwriters. Other institutions that maintain a custodial
relationship with a Clearstream, Luxembourg customer may obtain indirect access
to Clearstream, Luxembourg.
Euroclear
The Euroclear system was created in 1968 to hold securities for participants
of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thus eliminating the need for physical movement of certificates and
the risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in many currencies, including U.S. dollars.
Euroclear includes various other services including securities lending and
borrowing, and interfaces with domestic markets in several countries.
Euroclear is operated by Euroclear Bank S.A./N.V., which is known as the
"Euroclear Operator," under a contract with Euroclear Clearance System, S.C., a
Belgian cooperative corporation. The Euroclear Operator conducts all
operations, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the cooperative. The
cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks, including central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The "Terms and Conditions Governing Use of Euroclear" and the related
"Operating Procedures of the Euroclear System" and applicable Belgian law
govern securities clearance accounts and cash accounts with the Euroclear
Operator. Specifically, these terms and conditions govern:
. transfers of securities and cash within Euroclear;
. withdrawal of securities and cash from Euroclear; and
. receipts of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without attribution
of specific certificates to specific securities clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear participants and has no record of or relationship with persons
holding securities through Euroclear participants.
Clearance and Settlement Procedures
Wal-Mart understands that investors that hold their debt securities through
Clearstream, Luxembourg or Euroclear accounts will follow the settlement
procedures that are applicable to eurobonds in registered form. Debt securities
will be credited to the securities custody accounts of Clearstream, Luxembourg
and Euroclear participants on the Business Day following the Settlement Date
for value on the Settlement Date in accordance with the normal working
practices of the Clearing System. They will be credited free of payment for
value on the Settlement Date given that the conditions to the consummation of
the Exchange Offer described herein will have been met.
40
Wal-Mart understands that secondary market trading between Clearstream,
Luxembourg and/or Euroclear participants will occur in the ordinary way
following the applicable rules and operating procedures of Clearstream,
Luxembourg and Euroclear. Secondary market trading will be settled using
procedures applicable to eurobonds in registered form.
Investors should be aware that they will only be able to make and receive
deliveries, payments and other communications involving the Wal-Mart Notes
through Clearstream, Luxembourg and Euroclear on Business Days. Those systems
may not be open for business on days when banks, brokers and other institutions
are open for business in the United States.
In addition, because of time zone differences, there may be problems with
completing transactions involving Clearstream, Luxembourg and Euroclear on the
same Business Day as in the United States. U.S. investors who wish to transfer
their interests in the Wal-Mart Notes, or to make or receive a payment or
delivery of the Wal-Mart Notes, on a particular day may find that the
transactions will not be performed until the next Business Day in Luxembourg or
Brussels, depending on whether Clearstream, Luxembourg or Euroclear is used.
Clearstream, Luxembourg or Euroclear will credit payments received
respecting the Wal-Mart Notes to the cash accounts of participants in
Clearstream, Luxembourg or Euroclear in accordance with the relevant system
rules and procedures. Clearstream, Luxembourg or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a holder under
the Indenture on behalf of a Clearstream, Luxembourg or Euroclear participant
only in accordance with its relevant rules and procedures.
Clearstream, Luxembourg and Euroclear have agreed to the exchange procedures
set out in this document in order to facilitate transfers of the Wal-Mart Notes
among participants of Clearstream, Luxembourg and Euroclear. However, they are
under no obligation to perform or continue to perform those procedures, and
they may discontinue those procedures at any time.
Same-Day Settlement and Payment
Wal-Mart will make payments of principal, interest and any other amounts
payable on the Wal-Mart Notes in immediately available funds or the equivalent.
Secondary market trading between Clearstream, Luxembourg and Euroclear
participants will occur in accordance with the applicable rules and operating
procedures of the Clearing Systems and will be settled using the procedures
applicable to eurobonds in immediately available funds. Wal-Mart can give no
assurance as to the effect, if any, of settlement in immediately available
funds on trading activity, if any, in the Wal-Mart Notes.
Certificated Notes
Wal-Mart will issue Wal-Mart Notes in certificated registered form only if:
. the depositary is no longer willing or able to discharge its
responsibilities properly, and neither the Trustee nor Wal-Mart has
appointed a qualified successor within 90 days; or
. an event of default has occurred and is continuing under the Indenture; or
. Wal-Mart decides to discontinue the book-entry system.
If any of these three events occurs, the Trustee will reissue the Wal-Mart
Notes in fully certificated registered form and will recognize the registered
holders of the certificated Wal-Mart Notes as holders under the Indenture.
In the event that Wal-Mart issues certificated securities under the limited
circumstances described above, and the Wal-Mart Notes are listed on the London
Stock Exchange at that time, then holders of certificated
41
securities may transfer their Wal-Mart Notes in whole or in part upon the
surrender of the certificate to be transferred, together with a completed and
executed assignment form endorsed on the definitive note, at, as the case may
be, the offices of the transfer agent in The City of New York or London. Copies
of this assignment form may be obtained at the offices of the transfer agents
in The City of New York or London. Each time that Wal-Mart transfers or
exchanges a new note in certificated form for another note in certificated
form, and after the transfer agent receives a completed assignment form,
Wal-Mart will make available for delivery the new definitive note at, as the
case may be, the offices of the transfer agent in The City of New York or
London. Alternatively, at the option of the person requesting the transfer or
exchange, Wal-Mart will mail, at that person's risk, the new definitive note to
the address of that person that is specified in the assignment form. In
addition, if Wal-Mart issues notes in certificated form and the Wal-Mart Notes
are listed on the London Stock Exchange at that time, then Wal-Mart will make
payments of principal of, interest on and any other amounts payable under the
Wal-Mart Notes to holders in whose names the Wal-Mart Notes in certificated
form are registered at the close of business on the record date for these
payments. If the Wal-Mart Notes are issued in certificated form, Wal-Mart will
make payments of principal and any redemption payments against the surrender of
these certificated Wal-Mart Notes at, as the case may be, the offices of the
paying agent in The City of New York or London. Wal-Mart will make payments to
holders of Wal-Mart Notes by check delivered to the addresses of the holders as
their addresses appear on Wal-Mart's register or by transfer to an account
maintained by that holder with a bank located in the United Kingdom.
Unless and until Wal-Mart issues the Wal-Mart Notes in fully certificated,
registered form,
. investors will not be entitled to receive certificates representing their
interests in the Wal-Mart Notes;
. all references in this Offering Memorandum to actions by holders will
refer to actions taken by the depositary upon instructions from their
direct participants; and
. all references in this Offering Memorandum to payments and notices to
holders will refer to payments and notices to the depositary, as the
registered holder of the Wal-Mart Notes, for distribution to you in
accordance with its policies and procedures.
If Wal-Mart issues the Wal-Mart Notes in certificated registered form, so
long as the Wal-Mart Notes are listed on the London Stock Exchange, Wal-Mart
will maintain a paying agent and a transfer agent in London.
42
CERTAIN TAX CONSEQUENCES
Certain United Kingdom Tax Consequences
The comments below regarding the principal tax consequences in the United
Kingdom ("U.K.") of the exchange of Asda Debt Securities for Wal-Mart Notes and
the U.K. taxation of the Wal-Mart Notes are of a general nature based on
current law and published Inland Revenue practice in the United Kingdom. They
relate only to the position of such Holders who are absolute beneficial owners
and may not apply to certain classes of persons such as dealers or persons
connected with Asda Group Limited or Wal-Mart.
Any Holders in the United Kingdom who are in any doubt as to their own tax
position should consult their professional advisers.
U.K. Corporation Tax Payers
Holders within the charge to U.K. corporation tax in respect of any Asda
Debt Securities (including a Holder so chargeable in relation to a branch or
agency in the United Kingdom) will generally be liable to U.K. corporation tax
on any gains arising on the disposal of their Asda Debt Securities pursuant to
the Exchange Offer (and be entitled to obtain relief for permitted losses). Any
such gains (or permitted losses) will generally be chargeable (or allowable, as
appropriate) for each accounting period on an authorised accruals or mark to
market basis, in accordance with such Holders' statutory accounts.
Other U.K. Taxpayers
The Asda Debt Securities constitute "qualifying corporate bonds" for the
purposes of U.K. tax on chargeable gains. Accordingly, the disposal of the Asda
Debt Securities by Holders not within the charge to U.K. corporation tax
pursuant to the Exchange Offer will give rise to neither a chargeable gain nor
an allowable loss for the purposes of U.K. tax on chargeable gains.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax is payable on the disposal of
the Asda Debt Securities or on the issue of the Wal-Mart Notes pursuant to the
Exchange Offer.
U.K. Taxation of the Wal-Mart Notes
U.K. withholding taxes. Interest on the Wal-Mart Notes will not be
considered to have a "U.K. source" for U.K. tax purposes. Accordingly, payments
of interest on the Wal-Mart Notes may be made without withholding or deduction
on account of U.K. income tax.
Taxation of holders - U.K. corporation tax payers. Holders of the Wal-Mart
Notes within the charge to U.K. corporation tax in respect of the Wal-Mart
Notes (including a holder of the Wal-Mart Notes so chargeable in relation to a
branch or agency in the United Kingdom) will generally be liable to U.K.
corporation tax on any interest, profits, returns or other gains on, or
fluctuations in value of, the Wal-Mart Notes (and be entitled to obtain relief
for permitted losses). Any such profits (including interest) or permitted
losses will generally be chargeable (or allowable, as appropriate) for each
accounting period on an authorised accruals or mark to market basis, in
accordance with holders' statutory accounts. For such holders, the "accrued
income scheme" (described below) will not apply to such a Wal-Mart Note.
Taxation of holders - other U.K. taxpayers. The Wal-Mart Notes will
constitute "qualifying corporate bonds" within the meaning of section 117 of
the Taxation of Chargeable Gains Act 1992. Accordingly, neither a chargeable
gain nor an allowable loss will arise on a disposal or redemption by a holder
of the Wal-Mart Notes
43
not within the charge to U.K. corporation tax for the purposes of U.K. taxation
of chargeable gains. Interest on the Wal-Mart Notes will generally be subject
to U.K. income tax.
The "accrued income scheme." A transfer of a Wal-Mart Note by a holder
(other than a holder within the charge to U.K. corporation tax in respect
thereof as described above) resident or ordinarily resident in the United
Kingdom, or who carries on a trade in the United Kingdom for the purposes of
which the Wal-Mart Note is used or held, may give rise to a charge to U.K.
income tax in respect of the interest on the Wal-Mart Note which has accrued
since the preceding interest payment date, under the provisions of the "accrued
income scheme."
Stamp Duty and Stamp Duty Reserve Tax. No U.K. stamp duty or U.K. stamp
duty reserve tax is payable on the transfer by delivery or redemption of the
Wal-Mart Notes.
Possible EU information exchange and withholding requirements. On 13
December 2001 the Council of the European Union published a revised draft
directive regarding the taxation of savings income. It is proposed that a
Member State will be required to provide to the tax authorities of another
Member State details of payments of interest or other similar income paid by a
person within its jurisdiction to an individual resident in that other Member
State, except that Austria, Belgium and Luxembourg will instead operate a
withholding system for a transitional period in relation to such payments. The
proposals are not yet final, and they may be subject to further amendment
and/or clarification. Consequently, it is not possible to predict what effect,
if any, the adoption of the proposed directive would have on the Wal-Mart Notes
or on the payments of the principal or interest on the Wal-Mart Notes. Holders
of Wal-Mart Notes who are individuals should note that, if this proposal is
adopted as currently envisaged, no additional amounts would be payable by
Wal-Mart in respect of any withholding tax imposed as a result thereof.
Certain U.S. Federal Income Tax Consequences
This discussion summarizes certain United States federal income tax
consequences of the exchange of Asda Debt Securities for Wal-Mart Notes
pursuant to the Exchange Offer and of the ownership of Wal-Mart Notes received
pursuant to the Exchange Offer under United States' laws in effect on the date
of this Offering Memorandum. The discussion addresses only holders who hold the
Asda Debt Securities and Wal-Mart Notes as capital assets and whose functional
currency is the United States dollar. The discussion is based upon the Code,
U.S. Treasury Regulations ("Treasury Regulations"), published administrative
interpretations of the Internal Revenue Service ("IRS") and judicial decisions
as in effect on the date hereof, all of which are subject to change, possibly
on a retroactive basis. The discussion does not purport to consider all aspects
of United States federal income taxation that may be relevant to a particular
holder, certain of which (such as insurance companies, tax-exempt
organizations, employee stock ownership plans, financial institutions,
corporations that accumulate earnings to avoid federal income tax, in some
cases, expatriates of the United States or nonresident alien individuals who
have made valid elections to be treated as United States residents, "controlled
foreign corporations," "passive foreign investment companies," "foreign
personal holding companies," brokers, dealers, regulated investment companies,
real estate investment trusts, partnerships, subchapter S corporations, persons
who hold Asda Debt Securities as a hedge, "straddle," "conversion," or other
integrated transaction, and persons who use the mark-to-market method of
accounting) may be subject to special rules not discussed below. No ruling has
been sought from the IRS regarding the matters discussed herein and there can
be no assurance that the IRS or a court will agree with the conclusions
expressed.
For purposes of this discussion, "United States holder" means a beneficial
owner of Asda Debt Securities or Wal-Mart Notes who or which is (i) an
individual who is a citizen or resident of the United States; (ii) a
corporation or other entity taxable as a corporation created or organized in or
under the laws of the United States or any political subdivision thereof; (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source; or (iv) a trust subject to the primary
supervision of a United States court and the control of one or more United
States persons or that otherwise has validly elected to be treated as a United
States person. "Non-United States holder" means any holder that is not a United
States holder.
44
Taxation of United States Holders Who Participate in the Exchange
Treatment of the Exchange
Treatment of Accrued Interest. Proceeds attributable to accrued and unpaid
interest not previously included in income will be treated as interest income.
References in the following discussion to cash or other proceeds of the
Exchange Offer do not include amounts attributable to accrued and unpaid
interest and included in income by cash-method holders and accrual-method
holders generally in accordance with the rules described below for such
categories of holders in "Consequences of Holding Wal-Mart Notes--Interest and
Original Issue Discount."
Exchange of Asda Debt Securities for Wal-Mart Notes. The exchange of Asda
Debt Securities for Wal-Mart Notes and cash, if any, will be a taxable event.
United States holders who surrender Asda Debt Securities in exchange for
Wal-Mart Notes will recognize taxable gain or loss in an amount equal to the
difference between the amount realized and such United States holder's tax
basis in the Asda Debt Securities surrendered. The amount realized on the
exchange will be the issue price of the Wal-Mart Notes (determined as described
below under "Issue Price of Wal-Mart Notes") plus cash received, if any,
translated into United States dollars at the spot rate on the date of the
exchange. United States holders should consult their tax advisers regarding
their tax basis in the Asda Debt Securities for this purpose. Subject to the
rules discussed below governing market discount and concerning certain
obligations not in registered form, any gain or loss recognized on the exchange
that exceeds the gain or loss attributable to fluctuations in foreign currency
exchange rates would be capital gain or loss and would be long-term capital
gain or loss if the Asda Debt Securities have been held for more than one year.
The Asda Debt Securities appear not to be in registered form for U.S. income
tax purposes. If the Asda Debt Securities are registration-required obligations
that are not in registered form, unless a holder qualifies under one of certain
exceptions set forth in regulations promulgated pursuant to Section 165(j) of
the Code, any such gain would be ordinary income, not capital gain, and any
such loss may not be deducted by the holder. United States holders should
consult their tax advisers regarding their eligibility for such exceptions. Any
gain or loss attributable to fluctuations in foreign currency exchange rates
("Currency Gain" or "Currency Loss") would be ordinary income or loss.
The amount of Currency Gain or Currency Loss generally will be the
difference between the United States dollar value of the issue price of the
Asda Debt Securities (based on the spot rate on the date the United States
holder purchased such Asda Debt Securities) and the United States dollar value
of the issue price of the Asda Debt Securities on the date of the exchange
(based on the spot rate on such date). However, the sum of any Currency Gain or
Currency Loss with respect to the principal and accrued interest of the Asda
Debt Securities should be realized only to the extent of the total gain or loss
realized on the exchange of Asda Debt Securities for Wal-Mart Notes and cash.
In general, if a United States holder acquired the Asda Debt Securities with
market discount, any gain realized on the exchange would be treated as ordinary
income to the extent of the market discount that accrued while the holder held
such Asda Debt Securities, unless the holder elected to include market discount
in income currently as it accrued. Any such accrued market discount for which
no such election has been made shall be translated into United States dollars
at the spot rate on the date of exchange. United States holders should consult
their own tax advisers about the accrual of market discount on the Asda Debt
Securities.
A United States holder's tax basis in the Wal-Mart Notes should be equal
their issue price (determined as described below under "Issue Price of Wal-Mart
Notes") translated into United States dollars at the spot rate on the date of
the exchange. The holding period for the Wal-Mart Notes will begin on the date
following the date of the exchange.
Issue Price of Wal-Mart Notes. As described above under "Exchange of Asda
Debt Securities for Wal-Mart Notes", the amount of gain or loss recognized on
the exchange, if any, will depend in part on the issue price
45
of the Wal-Mart Notes. The issue price of the Wal-Mart Notes also is relevant
to the application of the original issue discount and related rules, as
described below under "Consequences of Holding Wal-Mart Notes."
The issue price of the Wal-Mart Notes depends on whether a substantial
amount of the Wal-Mart Notes is treated as "traded on an established market"
within the meaning of the applicable Treasury Regulations. Because the Wal-Mart
Notes will be listed on the London Stock Exchange, the Company believes the
Wal-Mart Notes should be treated as "traded on an established market."
Consequently the issue price of the Wal-Mart Notes should be their fair market
value on the date of the exchange, and the Company intends to report
information to the IRS on that basis.
Consequences of Holding Wal-Mart Notes
Interest and Original Issue Discount. A Wal-Mart Note will be treated as
issued with original issue discount for United States federal income tax
purposes to the extent that its stated redemption price at maturity (as defined
herein) exceeds its issue price by more than a de minimis amount. Discount
generally is de minimis if it does not exceed an amount equal to 1/4 of 1% of
the note's "stated redemption price at maturity" multiplied by the number of
complete years to its maturity.
The issue price of the Wal-Mart Notes will be determined as described above
under "The Exchange Offer - Maturity Date, New Issue Price and Interest Rate
for the Wal-Mart Notes." The Wal-Mart Notes' stated redemption price at
maturity is the sum of all payments due under the Wal-Mart Notes other than
payments of qualified stated interest. The term "qualified stated interest"
means stated interest that is unconditionally payable in cash or in property
(other than debt instruments of the issuer) at least annually at a single fixed
rate.
A United States holder of a Wal-Mart Note that uses the cash method of
accounting will be required to include in income the U.S. dollar value of each
interest payment (determined on the date such payment is received) regardless
of whether the payment is in fact converted to U.S. dollars at that time. Such
U.S. dollar value will be the United States holder's tax basis in the foreign
currency received and it will recognize Currency Gain or Currency Loss to the
extent the U.S. dollar value of proceeds from a subsequent disposition of the
foreign currency differs from such tax basis.
A United States holder of a Wal-Mart Note that uses the accrual method of
accounting, and solely as to any original issue discount, a United States
holder that uses the cash method of accounting, will be required to include in
income the U.S. dollar value of the amount of interest income and original
issue discount that has accrued with respect to a Wal-Mart Note during the
relevant accrual period. The U.S. dollar value of such accrued income will be
determined by translating such income at the average spot rate of exchange for
the accrual period or, with respect to an accrual period that spans two taxable
years, at the average spot rate for the partial period within the taxable year.
Such United States holder will recognize Currency Gain or Currency Loss with
respect to accrued interest income on the date such interest is actually
received. The amount of Currency Gain or Currency Loss recognized will equal
the difference between the U.S. dollar value of the foreign currency payment
received (determined using the spot rate on the date such payment is received)
in respect of such accrual period and the U.S. dollar value of interest income
that has accrued during such accrual period (as determined above). A United
States holder may elect instead to translate interest income into U.S. dollars
at the spot rate on the last day of the interest accrual period (or, in the
case of a partial accrual period, the spot rate on the last day of the taxable
year) or, if the date of receipt is within five business days of the last day
of the interest accrual period, the spot rate on the date of receipt. A United
States holder that makes this election must apply it consistently to all debt
instruments from year to year and cannot change the election without the
consent of the IRS.
Bond Premium. If the issue price of a Wal-Mart Note exceeds the stated
redemption price at maturity, a United States holder will be considered to have
purchased the Wal-Mart Note with "amortizable bond premium" equal to such
excess. A United States holder may elect to amortize such premium using a
constant yield method over the remaining term of the Wal-Mart Note and, if a
United States holder makes such an election, that holder
46
will offset interest or original issue discount otherwise required to be
included in respect of the Wal-Mart Note during any taxable year by the
amortized amount of such excess for the taxable year in units of foreign
currency. Currency Gain or Currency Loss is recognized with respect to bond
premium by treating the portion of the premium amortized during the period as a
return of principal and is equal to the difference between such amount
translated at the spot rate on the date the Wal-Mart Note was acquired and the
spot rate on the date the premium is returned as part of the stated interest.
Any election to amortize bond premium applies to all taxable debt instruments
acquired by the United States holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Sale, Exchange and Retirement of the Wal-Mart Notes subsequent to the
Exchange. Upon the sale, exchange, redemption or retirement of a Wal-Mart
Note, a United States holder generally will recognize gain or loss equal to the
difference, if any, between (i) the amount of cash proceeds (translated into
United States dollars at the spot rate on such date) and the fair market value
of property received (except to the extent such amount is attributable to
accrued interest income or original issue discount taken into account under the
rules described above) and (ii) such Holder's adjusted tax basis in the
Wal-Mart Note. Except to the extent attributable to Currency Gain or Currency
Loss, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the United States holder's holding period for the
Wal-Mart Note is more than one year.
The amount of Currency Gain or Currency Loss generally will be the
difference between the United States dollar value of the issue price of the
Wal-Mart Notes on the date the United States holder received such Wal-Mart
Notes in the exchange (based on the spot rate on such date), reduced by any
amortized bond premium as to which Currency Gain or Currency Loss has been
recognized as discussed above, and the United States dollar value of such issue
price on the date of the disposition (based on the spot rate on such date).
A United States holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Wal-Mart Note equal to the
U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Any gain or loss realized by a United States
holder on a subsequent sale or other disposition of foreign currency received
in respect of Wal-Mart Notes (including its exchange for U.S. dollars) will be
ordinary Currency Gain or Currency Loss.
Backup Withholding and Information Reporting
The exchange of Asda Debt Securities by a United States holder pursuant to
the offers generally will be subject to information reporting requirements and
backup withholding. To avoid the imposition of backup withholding, a United
States holder should complete an IRS Form W-9 and either (i) provide its
correct taxpayer identification number which, in the case of an individual
United States holder, is his or her social security number, and certain other
information, or (ii) establish a basis for an exemption from backup
withholding. Certain holders (including, among others, corporations and
individual retirement accounts) are exempt from backup withholding and
information reporting requirements.
Payments on the Wal-Mart Notes (including amounts that are considered
original issue discount for federal tax purposes ("OID")), and proceeds of sale
of the Wal-Mart Notes, also are subject to information reporting requirements,
and to backup withholding unless the United States holder is exempt from backup
withholding or provides its taxpayer identification number as described above.
If backup withholding results in an overpayment of taxes, a refund or credit
may be obtained, provided that the required information is timely provided to
the IRS.
United States Holders of Asda Debt Securities Not Participating in the Exchange
Offers
Holders who do not tender (or who tender but subsequently withdraw and do
not retender) their Asda Debt Securities pursuant to the Exchange Offer, or
whose Asda Debt Securities are tendered but not accepted, should not recognize
income, gain or loss as a result of the Exchange Offer.
47
United States Taxation of Non-United States Holders
Income and Withholding Tax
Interest on Wal-Mart Notes paid to a Non-United States holder generally will
not be subject to United States income tax if the interest is not effectively
connected with such Holder's conduct of a trade or business in the United
States. Interest paid to a Non-United States holder that is not effectively
connected with the payee's conduct of a United States trade or business is
subject to United States withholding tax at a 30% rate (or a lower rate
provided under an applicable income tax treaty). However, interest on a
Wal-Mart Note paid to a Non-United States holder generally will not be subject
to United States federal withholding tax, provided that (i) the Non-United
States holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of Wal-Mart's voting stock within the
meaning of Section 871(h)(3) of the Code and related Treasury Regulations, (ii)
the Non-United States holder is not a controlled foreign corporation related to
the Company, (iii) the Non-United States holder is not a bank which acquired
the Wal-Mart Note in consideration for an extension of credit made pursuant to
a loan agreement entered into in the ordinary course of business and (iv) the
person otherwise required to withhold has received certification meeting the
requirements of applicable regulations that the beneficial owner of the
interest is a Non-United States holder. This requirement generally will be
satisfied if (i) the Non-United States holder that is the beneficial owner of
the interest provides a Form W-8 BEN (or substitute form) signed under
penalties of perjury that includes its name and address and certifies as to its
non-United States status or (ii) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business holds the Wal-Mart Note and provides to the
person otherwise required to withhold a statement under penalties of perjury in
which it certifies that such a Form W-8 BEN (or substitute form) has been
received by it or another intermediary in the chain of ownership and furnishes
a copy thereof. Special certification rules apply to certain Non-United States
holders that are entities rather than individuals.
Gain realized by a Non-United States holder on the disposition of a Wal-Mart
Notes will generally not be subject to United States federal income tax unless
(i) the gain is effectively connected with its conduct of a United States trade
or business or (ii) such Holder is an individual present in the United States
for at least 183 days during the taxable year of disposition and certain other
conditions are met.
Backup Withholding and Information Reporting
The exchange of Asda Debt Securities, payments on the Wal-Mart Notes
(including OID), and proceeds of sale of the Wal-Mart Notes may be subject to
information reporting requirements and to backup withholding unless the
Non-United States holder is exempt from information reporting and backup
withholding or otherwise establishes a basis for exemption (generally by
providing the certification described in the preceding section).
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISERS TO DETERMINE THE TAX
CONSEQUENCES OF THE OFFERS IN YOUR PARTICULAR CIRCUMSTANCES, INCLUDING THE
APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
VALIDITY OF THE WAL-MART NOTES
The validity of the Wal-Mart Notes will be passed upon for the Company by
Hughes & Luce, L.L.P., Dallas, Texas.
48
INDEPENDENT AUDITORS
The consolidated financial statements of the Company and its subsidiaries
incorporated by reference in Wal-Mart Stores Inc.'s Annual Report on Form 10-K
for the three years ended January 31, 2002, and set out in Appendix III to this
document have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon incorporated by reference in that Annual Report
on Form 10-K and set out in Appendix III to this document. The report did not
include any qualifications of the accounts.
GENERAL INFORMATION
1. The admission of the Notes to the Official List of the UK Listing
Authority and to trading on the London Stock Exchange will be expressed as a
percentage of their principal amount (excluding accrued interest) in pounds
sterling. Any transactions will be effected for settlement in sterling and,
under current practice, for delivery on the third business day in London after
the date of the transaction. It is expected that admission to listing of the
Wal-Mart Notes to the Official List of the UK Listing Authority and admission
to trading on the London Stock Exchange will be granted on or around the
Settlement Date subject only to the issue of the Wal-Mart Notes. The listing of
the Wal-Mart Notes to the Official List of the UK Listing Authority will not
become effective if the Wal-Mart Notes are not issued. Prior to official
listing, however, dealings in the Wal-Mart Notes will be permitted by the UK
Listing Authority and the London Stock Exchange in accordance with their
respective rules.
2. The Wal-Mart Notes have been accepted for clearance through the
Clearstream, Luxembourg and Euroclear systems with a common code of 016067326.
The International Securities Identification Number (ISIN) for the Wal-Mart
Notes is XS0160673264.
3. The Company has obtained all necessary consents, approvals and
authorisations required in the United Kingdom in connection with the issue and
performance of the Wal-Mart Notes. The issue of the Wal-Mart Notes was
authorised by a resolution of the executive committee of the Board of Directors
of the Company adopted on 20 December 2002.
4. The Company is involved in a large number of legal proceedings,
including antitrust, consumer, employment, tort and other litigation. Save as
disclosed in Note 7 to the Company's consolidated financial statements that
appears on page 10Q-7 and following of the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002, which is included in this Offering
Memorandum as Appendix IV, neither the Company nor its subsidiaries are subject
to any legal or arbitration proceedings (including any such proceedings which
are pending or threatened of which the Company is aware) which may have or have
had during the recent past (covering at least the twelve months prior to the
date of this Offering Memorandum) a significant effect on the Company and its
consolidated subsidiaries financial position, taken as a whole.
5. Copies of the following documents (in English) may be inspected at the
specified office of the London Paying Agent during normal business hours on any
weekday (Saturdays, Sundays and public holidays excepted) during the period of
14 days from the date of this document:
. the auditor's report and the annual report and audited consolidated
financial statements of the Company for the last 2 fiscal years ending
January 31, 2001 and January 31, 2002;
. the Company's Quarterly Report filed with the SEC on Form 10-Q for the
fiscal quarter ended October 31, 2002;
. the Indenture;
. the form of Series Terms Certificate;
49
. the form of the Global Note(s) representing the Wal-Mart Notes;
. the Exchange Agency Agreement;
. the Paying Agency Agreement;
. the Company's Restated Certificate of Incorporation, as amended;
. the Dealer Manager Agreement; and
. the Company's Bylaws.
6. So long as the Notes are admitted to trading on the London Stock
Exchange, the most recently published audited annual accounts of Wal-Mart from
time to time together with the most recently published quarterly report on Form
10-Q will be available at the specified office of the London Paying Agent.
7. There has been no material adverse change in the financial position or
prospects of the Company and its subsidiaries taken as a whole since January
31, 2002, being the date at and to which the latest audited accounts of the
Company are stated and no significant change in the financial or trading
position of the Company and its subsidiaries taken as a whole since October 31,
2002, being the date at and to which the unaudited consolidated accounts of the
Company contained in the Company's Quarterly Report on Form 10-Q for the
quarter ending on that date are stated.
8. Ernst & Young LLP have given and not withdrawn its written consent to
the inclusion in the Offering Memorandum of their report in the form and
context in which it is included and authorised their report on the Company and
its subsidiaries and references to their name included herein in the form and
context in which they appear for the purposes of Regulation 6(1)(e) of The
Financial Services and Markets Act 2000 (Official Listing of Securities)
Regulations 2001.
50
Questions and requests for assistance and requests for additional copies of
this Offering Memorandum and other related documents may be addressed to the
Exchange Agent or the Information Agent as follows:
The Exchange Agent for the Exchange Offer is:
Bank One, NA
By Facsimile
44-207-867-9186
By Telephone
44-207-903-4913
By Registered or Special Delivery Mail
Bank One, NA
27 Leadenhall Street
London EC3A 1AA
England
Attention: Corporate Trust Operations
The Information Agent for the Exchange Offer is:
Georgeson Shareholder Communications Limited
Facsimile:
44-207-335-8773
Telephone:
44-207-335-8700
By Registered or Special Delivery:
38 Bishopsgate, Crosby Court
London, EC2N 4AF
England
Attention: Angelika Horstmeier
The Dealer Manager for the Exchange Offer is:
Credit Suisse First Boston (Europe) Limited
Facsimile:
44-207-890-2367
Telephone:
44-207-883-6748
One Cabot Square
London E14 4Q5
ENGLAND
Attention: Michael Saron/Andrew Karsh
51
APPENDIX I.1
FORM OF NOTICE BY EUROCLEAR AND CLEARSTREAM, LUXEMBOURG TO THEIR PARTICIPANTS
Notice of Offer to Exchange
Fixed Rate Notes Due 2013 of Wal-Mart Stores, Inc. for
all of the outstanding securities that are part of the following series of debt
securities of
Asda Group Limited
Asda 8.375% Notes due 2007
(of which (Pounds)200,000,000 are outstanding)
(Common Code: 007548753 ISIN: XS0075487537 Sedol: 5234064)
Asda 10.875% Bonds due 2010
(of which (Pounds)75,840,000 are outstanding)
(Common Code: 001066382 ISIN: GB0000525401 Sedol: 0052540)
Asda 6.625% Notes due 2015
(of which (Pounds)150,000,000 are outstanding)
(Common Code: 008892873 ISIN: XS0088928733 Sedol: 5530171)
(collectively the "Asda Debt Securities" and each a "Series of Asda Debt
Securities")
Wal-Mart Stores, Inc., a corporation incorporated under the laws of the
State of Delaware ("Wal-Mart"), is making an offer to exchange (the "Exchange
Offer") Fixed Rate Notes of Wal-Mart denominated in pounds sterling (the
"Wal-Mart Notes"), for any and all outstanding Asda Debt Securities of Asda
Group Limited ("Asda"), a company incorporated under the laws of England and
Wales. Application has been made for the Wal-Mart Notes to be listed on the
Official List of the UK Listing Authority (the "Official List") and to be
admitted to trading on the London Stock Exchange plc ("London Stock Exchange").
The Exchange Offer is made upon the terms and subject to the conditions set
forth in an offering memorandum which comprises an approved prospectus and
listing particulars with regard to Wal-Mart and the issue of the Wal-Mart Notes
which has been published on January 7, 2003 (the "Offering Memorandum"). This
notice is subject in all respects to the Offering Memorandum.
Wal-Mart is conducting the Exchange Offer to reduce outstanding Asda debt
securities held by the public and replace those securities with an issue of
intermediate term Wal-Mart notes denominated in pounds sterling. All holders of
Asda Debt Securities (the "Holders") are advised to read the Offering
Memorandum and in particular, the investment considerations detailed in the
section of the Offering Memorandum entitled "Risk Factors Related to the
Exchange Offer", before any decision is made with respect to the Exchange Offer.
The amount of Wal-Mart Notes offered in exchange for each (Pounds)1,000 in
outstanding principal amount of Asda Debt Securities will be determined based
on exchange ratios calculated as described in the Offering Memorandum. The
exchange ratio will be the relevant Exchange Price divided by the New Issue
Price. The Benchmark U.K. Gilt and Exchange Spreads to be used to determine the
relevant Exchange Price is set forth in the table below:
52
The interest rate and New Issue Price for the Wal-Mart Notes will be based
on the yield on the benchmark U.K. Gilt plus a credit spread to be determined
on the Pricing Date. Wal-Mart will publish by means of a supplementary
prospectus comprising supplementary listing particulars and announce by notice
through the Clearing Systems and by Asda through the Regulatory News Service
the exchange ratios applicable to each Series of Asda Debt Securities, the
issue price for the Wal-Mart Notes and the interest rate to be borne by the
Wal-Mart Notes, together with their maturity date, on or about the fourth
Business Day prior to the Expiration Date (the "Pricing Date") of the Exchange
Offer. The maturity of the Wal-Mart Notes will be between seven and ten years.
HOW TO TENDER ASDA DEBT SECURITIES
To participate in the Exchange Offer, Holders must send an authenticated
message to the relevant Clearing System confirming their wish to tender validly
their Asda Debt Securities pursuant to the Exchange Offer confirming their
position subject to the terms detailed below.
For specific instructions on how to tender the Asda Debt Securities Holders
should refer to the section entitled "Procedures for Tendering Asda Debt
Securities" in the Offering Memorandum.
By tendering its position, the Holder accepts the terms and conditions of
the exchange as set out in the Offering Memorandum dated January 7, 2003. In
addition, the Holder accepts
(1)the Holder has agreed to participate in the Exchange Offer pursuant to the
Offering Memorandum, and is hereby delivering such Asda Debt Securities;
(2)the Holder is the owner of such Asda Debt Securities.
(3)the Holder authorises the relevant Clearing System to block its account with
respect to all such Asda Debt Securities;
(4)the direct account holder authorises the relevant Clearing System to debit
its account for all its Asda Debt Securities; and
(5)the Holder authorises Euroclear/ Clearstream to provide details of the name,
account details, US tax status and any other information relevant to the
settlement of the exchange to the Exchange Agent.
TIMING
The Exchange Offer will commence as of the date of this notice and will
expire at 4 p.m., London time; on January 24, 2003, unless otherwise extended
or earlier terminated by Wal-Mart in its sole discretion (the "Expiration
Date"). Tenders of any Asda Debt Securities may be withdrawn at any time prior
to 9:00 a.m., London time, on the second Business Day prior to the Expiration
Date. Important dates for the Exchange Offer (assuming that the Exchange Offer
is not extended or earlier terminated by Wal-Mart) are:
January 8. Transaction announced
January 20 New issue coupon and exchange ratios announced
January 24 Clearstream expiration for receipt of instructions
January 24 Euroclear expiration for receipt of instructions
January 24 Expiration Date
January 27 Announcement of results
January 29 Settlement Date
As used in this notice, the term "Business Day" means any day other than a
Saturday or Sunday on which banks are open for business in London and
Luxembourg.
53
WHO TO CONTACT
The Offering Memorandum may be obtained during usual business hours from the
Document Viewing Facility at the Financial Services Authority, 25 The North
Colonnade, Canary Wharf, London E14 5HS. The Offering Memorandum may also be
obtained from the Information Agent.
Neither Wal-Mart nor the Dealer Manager, the Exchange Agent, the Information
Agent, nor any other person, makes any recommendation as to whether any Holders
of Asda Debt Securities should tender them under the Exchange Offer.
The contents of this notice have been approved solely for the purposes of
Section 21 of the Financial Securities and Markets Act 2000 by Credit Suisse
First Boston (Europe) Limited of One Cabot Square, London E14 4QJ.
54
APPENDIX I.2
FORM OF TENDER
TO: Bank One NA (the "Exchange Agent")
27 Leadenhall Street
London EC3A 1AA
Attn: Corporate Trust Operations
FROM: [Holder's/Custodian's name and address]
Wal-Mart/Asda Exchange Offer
1. We own the Non-Clearing System Debt Securities specified below and delivered
herewith.
Non-Clearing System Debt Securities:
Coupon & Maturity Principal Amount Number Serial Number
----------------- ---------------- ------ -------------
2. (a)The Wal-Mart Notes are to be credited to our Account no. [account
number] with [Clearing System], and
(b)The Interest Amount (and Cash Rounding Amount, if any) are to be
credited to our Account with [Bank name and city], Sort Code: [ ],
Account Number [account number], Reference: [ ].
3. We acknowledge that:
(a)this form of tender and the delivery effected hereby shall become
irrevocable at 9:00 a.m. on the second Business Day immediately
preceding the originally scheduled Expiration Date and may not be
withdrawn after such time;
(b)the date of receipt of the Wal-Mart Notes and the payment of the
Interest Amount and any Cash Rounding Amount payable to us will be the
Settlement Date (the "Settlement Date").
4. We hereby confirm our acceptance of the Exchange Offer as set out in the
Offering Memorandum dated January 7, 2003 and all of the terms thereof and
confirm that such acceptance is in compliance with the terms of the Exchange
Offer and with all the applicable laws of all relevant jurisdictions.
5. We hereby agree that we will indemnify the Company from and against any and
all losses, liabilities, costs, claims, damages, expenses or demands which
the Company may incur or which may be made against them insofar as such
losses, liabilities, costs, claims, damages, expenses or demands arise
directly or indirectly out of or as a result of any failure by us to perform
any of our obligations in relation to the Exchange Offer. This indemnity
will be in addition to any liability which we may otherwise have.
6. We confirm that we have read the Note to the Form of Tender and the
documents referred to therein and that this Form of Tender is subject to the
provisions of such Note to the Form of Tender.
7. We confirm that we are the owner of the Non-Clearing System Debt Securities
mentioned in 1 above, together with all the outstanding coupons or rights to
receive interest and talons relating thereto. We confirm that we are
delivering them all for exchange free from all liens, charges and
encumbrances and together with all rights attached thereto.
55
8. We confirm that we are authorized/we have been authorized by [the Holder]*
to complete this Form of Tender and perform the functions stated herein.
9. In the event that we withdraw our notes from the tender, we hereby request
that such notes attached herewith be returned to us by Registered or Special
Delivery at the following address. We recognise that such delivery will only
be made to the following address and will be paid by us and any risk will be
solely borne by us:
Company Name/ Name: -----------------------------------
Address: -----------------------------------
-----------------------------------
-----------------------------------
Post code/ ZIP: -----------------------------------
Country: -----------------------------------
For Attention of: -----------------------------------
Contact Tel number: -----------------------------------
Signed
For and on behalf of Dated
* Delete as appropriate
NOTE TO THE FORM OF TENDER
Words and expressions defined in the Offering Memorandum containing certain
terms of the Exchange Offer and dated January 7, 2003 shall have the same
meanings when used in the Form of Tender. The terms of the Exchange Offer are
contained in the Offering Memorandum, and the Form of Tender is subject to, and
will only be effective in accordance with, the terms of the Exchange Offer.
Copies of the Offering Memorandum will be delivered on request by the
Exchange Agent and will be available for inspection at the offices of the
Exchange Agent and acceptance of the Exchange Offer is subject to the detailed
provisions set out in the Offering Memorandum.
56
APPENDIX II
Summary and Comparison of Certain Terms of the Wal-Mart Notes, the 2010 Bonds,
the 2007 Notes and the 2015 Notes
The following chart sets forth a summary and comparison of certain terms of
the Wal-Mart Notes, the 2010 Bonds, the 2007 Notes and the 2015 Notes. The
information contained in the chart is a summary only and should not be deemed
to be a complete description of the particular term summarized. Each summary is
qualified by reference to the Indenture and the trust deeds and each
supplemental trust deed relating to the Asda Debt Securities, which you should
read in conjunction with the following chart.
57
58
59
60
61
62
63
APPENDIX III
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED JANUARY 31, 2002,
SECTIONS OF THE ANNUAL REPORT
TO SHAREHOLDERS AND THE PROXY STATEMENT FOR THE COMPANY'S 2002 ANNUAL
MEETING OF SHAREHOLDERS THAT ARE INCORPORATED THEREIN BY REFERENCE
AND CERTAIN OTHER EXHIBITS THERETO
Table of Contents
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 31, 2002, or
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-6991.
WAL-MART STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0415188
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Bentonville, Arkansas 72716
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (479) 273-4000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting common stock of the registrant held
by non-affiliates of the registrant, based on the closing price of these shares
on the New York Stock Exchange on March 28, 2002, was $165,992,346,506. For the
purposes of this disclosure only, the registrant has assumed that its
directors, officers and beneficial owners of 5% or more of the registrant's
common stock are the affiliates of the registrant.
The registrant had 4,451,225,876 shares of common stock outstanding as of
March 31, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended January 31, 2002, are incorporated by reference into Parts I and II
of this Form 10-K.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held June 7, 2002, are incorporated by reference
into Part III and IV of this Form 10-K.
================================================================================
10K-1
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-K includes and incorporates by reference certain statements
that may be deemed to be "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The forward-looking
statements included or incorporated by reference in this Form 10-K which
address activities, events or developments that Wal-Mart Stores, Inc. (together
with its subsidiaries hereinafter referred to as the "Company") expects or
anticipates will or may occur in the future, including:
. future capital expenditures, including the amount and nature of those
expenditures;
. expansion and other development trends of industry segments in which we
and our subsidiaries are active;
. our business strategy;
. our financing strategy;
. expansion and growth of our business; and
. operations and other similar matters.
Although we believe the expectations expressed in the forward-looking
statements are based on reasonable assumptions within the bounds of our
knowledge of our business, a number of factors could cause actual results to
differ materially from those expressed in any forward-looking statements,
whether oral or written, made by us or on our behalf. Many of these factors
have previously been identified in filings or statements made by us or on our
behalf.
Our business operations are subject to factors outside our control. Any one,
or a combination, of these factors could materially affect our financial
performance. These factors include:
. the costs of goods;
. the cost of electricity and other energy requirements;
. competitive pressures;
. inflation;
. consumer debt levels;
. currency exchange fluctuations;
. trade restrictions;
. changes in tariff and freight rates;
. unemployment levels;
. interest rate fluctuations; and
. other capital market and economic conditions.
Forward-looking statements that we make or that are made by others on our
behalf are based on a knowledge of our business and the environment in which we
operate, but because of the factors listed above, actual results may differ
from those in the forward-looking statements. Consequently, these cautionary
statements qualify all of the forward-looking statements we make herein. We
cannot assure you that the results or developments anticipated by us will be
realized or, even if substantially realized, that those results or developments
will result in the expected consequences for us or affect us, our business or
our operations in the way we expect. We caution readers not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. We assume no obligation to update any of the forward-looking statements.
10K-2
WAL-MART STORES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 31, 2002
PART I
ITEM 1. BUSINESS
General.
We are the world's largest retailer as measured by total revenues. During
the fiscal year ended January 31, 2002, we had net sales of $217.8 billion. We
maintain our principal offices at 702 S.W. 8/th/ Street, Bentonville, Arkansas
72716.
Although Wal-Mart Stores, Inc. was incorporated in Delaware in October 1969,
the businesses conducted by our predecessors began in 1945 when Sam M. Walton
opened a franchise Ben Franklin variety store in Newport, Arkansas. In 1946,
his brother, James L. Walton, opened a similar store in Versailles, Missouri.
Until 1962, our predecessors' business was devoted entirely to the operation of
variety stores. In that year, the first Wal-Mart Discount City, which was a
discount store, was opened. In fiscal 1984, we opened our first three SAM'S
Clubs, and in fiscal 1988, our first Wal-Mart Supercenter, a format that
combines a full-line supermarket with a general merchandise discount store. We
currently operate in all 50 states in the United States.
In fiscal 1992, we began our first international initiative when we entered
into a joint venture in Mexico, in which we had a 50% interest, with Cifra S.A.
de C.V. In fiscal 1998, we acquired the controlling interest in Cifra as
described below, and in February 2000, Cifra officially changed its name to
Wal-Mart de Mexico, S.A. de C.V. Since fiscal 1992, our international presence
has continued to expand and at January 31, 2002, we had international
operations in Argentina, Brazil, Canada, Germany, South Korea, Mexico, Puerto
Rico and the United Kingdom and, through joint venture agreements, in China.
The Development of Our Company in Recent Years.
At January 31, 2002, we operated in the United States, 1,647 discount
stores, 1,066 Supercenters, 500 SAM'S Clubs and 31 Neighborhood Markets.
Internationally, at January 31, 2002, the Company operated units in Argentina
(11), Brazil (22), Canada (196), Germany (95), South Korea (9) Mexico (551),
Puerto Rico (17) and the United Kingdom (250), and, under joint venture
agreements, in China (19). Our growth, measured both by our net sales and net
income, occurs in large measure as a result of the increase in the number of
stores we have, both in the United States and internationally, and the increase
from year to year of the sales in our existing stores. The following tables
provide summary information concerning the additions of units and square
footage for domestic discount stores, Supercenters, SAM'S Clubs, Neighborhood
Markets and international units in each of our fiscal years from 1997 through
2002.
10K-3
WAL-MART STORES SEGMENT STORE COUNT
YEARS ENDED JANUARY 31, 1997 THROUGH 2002
STORE COUNT
(1)Wal-Mart discount store locations relocated or expanded as Wal-Mart
Supercenters.
(2)Includes conversions or relocations of Wal-Mart discount stores to Wal-Mart
Supercenters.
(3)Total opened net of conversions of Wal-Mart discount stores to Wal-Mart
Supercenters.
10K-4
WAL-MART STORES SEGMENT NET SQUARE FOOTAGE GROWTH
YEARS ENDED JANUARY 31, 1997 THROUGH 2002
NET SQUARE FOOTAGE
(1)Includes the square footage of new discount stores opened, net of discount
stores closed or converted or expanded into Supercenters.
(2)Includes square footage of Wal-Mart Supercenters created by the conversion
or relocation of Wal-Mart discount stores.
10K-5
SAM'S CLUB SEGMENT CLUB COUNT
AND NET SQUARE FOOTAGE GROWTH
YEARS ENDED JANUARY 31, 1997 THROUGH 2002
CLUB COUNT
NET SQUARE FOOTAGE
10K-6
INTERNATIONAL SEGMENT UNIT COUNT
YEARS ENDED JANUARY 31, 1997 THROUGH 2002
STORE COUNT
* At January 31, 2002, includes 106 Bodegas (discount stores), 51 Suburbias
(specialty department stores), 44 Superamas (traditional supermarkets), and
242 Vips (restaurants). During fiscal 2002 all of the Aurrera format stores
were converted to either Supercenters or Bodegas.
** One Germany unit was damaged by fire and closed in fiscal 2001.
10K-7
INTERNATIONAL NET SQUARE FOOTAGE GROWTH
YEARS ENDED JANUARY 31, 1997 THROUGH 2002
NET SQUARE FOOTAGE
Fiscal 2002 net additions contain an adjustment to the previously reported
square footage based on a reassessment of the various foreign country totals.
This adjustment has been made to state the total square footage amounts at
January 31, 2002. The adjustments made on an individual country basis are: for
Canada a reduction of 21,506 square feet, for China an increase of 27,849
square feet, for Germany an increase of 4,419,932 square feet, for South Korea
an increase of 300,645 square feet, for Mexico an increase of 4,293,932 square
feet and for the United Kingdom an increase of 134,088 square feet. No
adjustments were made to the square footage previously reported in Argentina,
Brazil and Puerto Rico as a result of the reassessment.
Much of our growth internationally in recent years has resulted from our
acquisition of existing operations in various countries. In the third quarter
of fiscal 1998, we acquired approximately 51% of the voting shares in Wal-Mart
de Mexico, which was formerly known as "Cifra," by means of a tender offer
pursuant to which we acquired a total of 593,100,000 shares of Wal-Mart de
Mexico's voting stock and a merger of certain joint ventures between us and
Wal-Mart de Mexico into Wal-Mart de Mexico. We acquired another 1,609,000,000
shares of Wal-Mart de Mexico's voting stock pursuant to that merger. We paid a
total of approximately US$1.2 billion for the shares of Cifra voting stock
acquired in the tender offer. In fiscal 2001, we purchased an additional 271.3
million shares of stock in Wal-Mart de Mexico from other shareholders of
Wal-Mart de Mexico at a cost of approximately $587 million. As a result of that
acquisition and Wal-Mart de Mexico's share repurchase program, we hold
approximately 61.4% of the outstanding voting shares of Wal-Mart de Mexico at
the end of fiscal 2002.
10K-8
In the third quarter of fiscal, 2000, we acquired all of the stock of ASDA
Group PLC, the third largest retailer in the United Kingdom, for a purchase
price of approximately US$11 billion. ASDA had 229 stores at the time of the
acquisition. The acquisition of ASDA marked our entry into the United Kingdom.
We announced on March 14, 2002, that we intend to acquire 6.1% of the stock
of The Seiyu Ltd., a Japanese retail chain, for 6 billion yen, or approximately
$46 million based on an exchange rate of 130 yen per United States dollar.
Under the terms of the proposed acquisition, we will also have the right to
contribute up to 260 billion yen, or approximately $2 billion, based on the
exchange rate discussed above, for additional shares of stock in Seiyu. If we
contribute the full 260 billion yen to Seiyu, we will own approximately 66.7%
of the stock of Seiyu. This transaction is subject to the approval of Seiyu's
stockholders and other approvals. In addition, in February 2002, we also
announced that we intend to acquire 35 Supermercado Amigo supermarkets in
Puerto Rico. That acquisition is subject to the receipt of certain regulatory
approvals.
We have provided additional information regarding the accounting treatment
of certain of the acquisitions discussed above in Note 6 of Notes to
Consolidated Financial Statements, which appear in our Annual Report to
Shareholders, are incorporated by reference herein and have been included as an
exhibit to this annual report.
Our Industry Segments
Our mass merchandising operations serve our customers primarily through the
operation of three segments. We identify those segments based on management
responsibility within the United States and geographically for all
international units. The Wal-Mart Stores segment includes our discount stores,
Supercenters and Neighborhood Markets in the United States. The SAM'S Club
segment includes the warehouse membership clubs in the United States. The
International segment includes all of our operations in Argentina, Brazil,
Canada, China, Germany, Korea, Mexico, Puerto Rico and the United Kingdom. We
do not treat the operations of our subsidiary, McLane Company, Inc. ("McLane"),
as a separate operating segment as a result of the size of its operations
relative to the other segments of our business, but show its results of
operations under the heading "Other" in our segment financial data. McLane
provides products and distribution services to retail industry and
institutional food services customers. You will find information concerning the
financial results of our operating segments and the total assets of each of
those segments in Note 9 of the Notes to Consolidated Financial Statements. We
have incorporated our Consolidated Financial Statements as of January 31, 2002
and for the year then ended and the Notes to the Consolidated Financial
Statements by reference herein to our Annual Report to our Shareholders and
included them as an exhibit to this annual report.
Wal-Mart Stores Operating Segment. The Wal-Mart Stores segment had net sales
of $139.1 billion, $121.9 billion and $108.7 billion for the three fiscal years
ended January 31, 2002, 2001, and 2000, respectively. During the most recent
fiscal year, no single discount store or Supercenter location accounted for as
much as 1% of total Company sales or net income. We have provided additional
information about the Wal-Mart Stores segment in Management's Discussion and
Analysis of Results of Operations, which we have incorporated by reference
herein and has been included as an exhibit to this annual report. In addition,
you should read Note 9 of the Notes to Consolidated Financial Statements, which
we have incorporated by reference herein and which contain additional
information regarding our operating segments.
General. The Company operates Wal-Mart discount stores in all 50 states.
Discount stores range in size from 30,000 square feet to 158,000 square feet,
with the average size of a discount store being approximately 95,741 square
feet. Wal-Mart Supercenters are located in 43 states. Supercenters range in
size from 90,000 square feet to 246,000 square feet, with the average size of a
Supercenter being approximately 185,218 square feet The Company operates
Neighborhood Market stores in Arkansas, Oklahoma and Texas. Neighborhood Market
stores range in size from 40,000 square feet to 64,000 square feet, with the
average size being 45,742 square feet.
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Merchandise. Wal-Mart discount stores and the general merchandise area of
the Supercenters are generally organized with 40 departments and offer a wide
variety of merchandise, including apparel for women, girls, men, boys and
infants. Each store also carries domestics, fabrics and notions, stationery and
books, shoes, housewares, hardware, electronics, home furnishings, small
appliances, automotive accessories, horticulture and accessories, sporting
goods, toys, pet food and accessories, cameras and supplies, health and beauty
aids, pharmaceuticals and jewelry. In addition, the stores offer an assortment
of grocery merchandise, with the grocery assortment in Supercenters being
broader and including meat, produce, deli, bakery, dairy, frozen foods and dry
grocery.
Nationally advertised merchandise accounts for a majority of sales in the
stores. We market lines of merchandise under store brands including "Sam's
American Choice," "One Source," "Great Value," "Ol' Roy," "Puritan," and
"Equate." The Company also markets lines of merchandise under licensed brands,
some of which include "Faded Glory," "General Electric," "Stanley," "White
Stag," "Catalina" and "McKids."
During the fiscal year ended January 31, 2002, sales in discount stores and
Supercenters (which are subject to seasonal variance) by product category were
as follows:
Operations. Hours of operation for nearly all Supercenters and an
increasing number of discount stores are 24 hours each day. Hours of operation
for the remaining discount stores vary by location, but generally range from
7:00 a.m. to 11:00 p.m., six days a week, and from 10:00 a.m. to 8:00 p.m. on
Sundays. Wal-Mart discount stores and Supercenters maintain uniform prices,
except where lower prices are necessary to meet local competition. Sales are
primarily on a self-service, cash-and-carry basis with the objective of
maximizing sales volume and inventory turnover while minimizing expenses. Bank
credit card programs, operated without recourse to the Company, are available
in all stores.
Seasonal Aspects of Operations. The Wal-Mart Stores operating segment's
business is seasonal to a certain extent. Generally, our highest volume of
sales occurs in our fourth fiscal quarter, which includes the holiday season,
and the lowest volume occurs during its first fiscal quarter.
Competition. Our Wal-Mart discount stores compete with other discount,
department, drug, variety and specialty stores, many of which are national
chains. Our Wal-Mart Supercenters compete with other supercenter-type stores,
discount stores, supermarkets and specialty stores, many of which are national
or regional chains. We also compete with others for new store sites. As of
January 31, 2002, based on net sales, the Wal-Mart Stores segment ranked first
among all retail department store chains and among all discount department
store chains.
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Our ability to offer value and service to our customers largely determines
our competitive position within the retail industry. We employ many programs
designed to meet the competitive pressures within our industry. These include
our "Everyday Low Price", "Item Merchandising", "Store-Within-a-Store" "Price
Rollbacks", and "Store of the Community" programs. Although we believe we have
had a major influence in most of the retail markets in which our stores are
located, we cannot assure you that this influence will continue.
Distribution. During fiscal 2002, approximately 84% of the Wal-Mart
discount stores' and Supercenters' purchases of merchandise were shipped from
Wal-Mart's 72 distribution centers of which 32 are general merchandise
distribution centers, 20 are grocery distribution centers, eight are clothing
distribution centers, and nine are specialty distribution centers. The
specialty distribution centers ship items such as jewelry, tires and optical.
The balance of merchandise purchased was shipped directly to the stores from
suppliers. Additionally, the Company operates three import distribution centers
in the United States. The 72 distribution centers are located throughout the
continental United States. Eight distribution centers are located in each of
Arkansas and Georgia; seven in Texas; five in Indiana; four in California;
three in each of New York and South Carolina; two in each of Alabama, Florida,
Illinois, Louisiana, Mississippi, Montana, Pennsylvania, Tennessee, Utah,
Wisconsin; and one in each of Arizona, Colorado, Iowa, Kansas, Kentucky,
Maryland, Michigan, New Hampshire, New Mexico, North Carolina, Ohio, Oklahoma,
Oregon and Virginia. During fiscal 2002, Wal-Mart.com utilized two third-party
distribution centers and one located in Utah and one in Ohio to fulfill orders
for goods placed through its website.
Sam's Club Operating Segment. The SAM'S Club segment had net sales of $29.4
billion, $26.8 billion and $24.8 billion for the three fiscal years ended
January 31, 2002, 2001, and 2000, respectively. During the most recent fiscal
year, no single club location accounted for as much as 1% of total Company
sales or net income. We have provided additional information the SAM'S Club
segment in Management's Discussion and Analysis of Results of Operations, which
appears in our Annual Report to Shareholders, is incorporated by reference
herein and has been included as an exhibit to this annual report. In addition,
you should read Note 9 of the Notes to Consolidated Financial Statements, which
we have incorporated by reference herein, which contain additional information
regarding each of our operating segments.
General. We operate SAM'S Clubs in 48 states. SAM'S Clubs facility sizes
generally range between 90,000 and 190,000 square feet of building area, with
the average SAM'S Club facility being approximately 123,558 square feet.
Merchandise. SAM'S Clubs offer bulk displays of name brand hardgood
merchandise, some softgoods and institutional size grocery items, and selected
items under the "Member's Mark" store brand. Generally, each SAM'S Club also
carries software, electronic goods, jewelry, sporting goods, toys, tires,
stationery and books. Most clubs have fresh food departments, which include
bakery, meat and produce. In addition, some clubs offer one-hour photo,
embroidery departments, pharmaceuticals, optical departments and gasoline
stations.
During the fiscal year ended January 31, 2002, sales in the SAM'S Clubs
segment, which are subject to seasonal variance, by product category were as
follows:
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Operations. Operating hours vary among SAM'S Clubs, but are generally
Monday through Friday from 10:00 a.m. to 8:30 p.m., Saturday from 9:30 a.m. to
8:30 p.m. and Sunday from 11:00 a.m. to 6:00 p.m.
SAM'S Clubs are membership only, cash-and-carry operations. However, a
financial service credit card program, the Discover Card, is available in all
clubs and we make the "SAM'S Direct" commercial finance program and "Business
Revolving Credit" available to qualifying business members. Also, we make a
"Personal Credit" program available to qualifying club members. All credit
extended to members under these programs is without recourse to us. Club
members include businesses and those individuals who are members of certain
qualifying organizations, such as federal and state government employees and
credit union members. In fiscal 2002, business members paid an annual
membership fee of $30 for the primary membership card with a spouse card
available at no additional cost. The annual membership fee for an individual
member is $35 for the primary membership card with a spouse card available at
no additional cost. SAM'S Clubs Elite Membership program offers additional
benefits and services such as automotive extended service contracts, roadside
assistance, home improvement, auto brokering, and pharmacy discounts in
addition to the regular suite of benefits including SAM'S CLUB Travel Services,
Boat and RV Program and Mail Order Pharmacy. The annual membership fee for an
Elite Member is $100.
Seasonal Aspects of Operations. The SAM'S Club operating segment's business
is seasonal to a certain extent. Generally, its highest volume of sales occurs
in the Company's fourth fiscal quarter, which includes the holiday season, and
the lowest volume occurs during its first fiscal quarter.
Competition. SAM'S Clubs compete with other warehouse clubs, as well as
with discount retailers, wholesale grocers and general merchandise wholesalers
and distributors. We also compete with others for new club sites. As of January
31, 2002, based on domestic U.S. net sales, the SAM'S Club segment ranked first
among all warehouse clubs. Our ability to offer low prices and quality
merchandise determines our competitive position in the warehouse club industry.
Distribution. During fiscal 2002, approximately 62.2% of the SAM'S Club
purchases were shipped from the SAM'S Clubs segment's dedicated distribution
facilities. Suppliers shipped the balance of the SAM'S Club purchases directly
to the SAM'S Clubs' locations. The principal focus of our SAM'S Clubs'
distribution operations is on crossdocking product, while stored inventory is
minimized. A combination of six Company owned and operated facilities and 13
third-party owned and operated facilities constitute the overall distribution
structure for the SAM'S Club segment. Two of the Company owned and operated
facilities are located in Texas with one located in each of Arkansas, Colorado,
Minnesota and Indiana. Of the third party owned and operated facilities, one of
each is located in each of Arizona, California, Florida, Georgia, Illinois,
Maryland, Michigan, Missouri, New Hampshire, North Carolina, Ohio, Pennsylvania
and Washington. Additionally, the SAM'S Club segment is serviced by 12 Wal-Mart
owned freezer/cooler facilities which service both Wal-Mart stores and SAM'S
Clubs, two Wal-Mart owned specialty distribution facilities which service both
Wal-Mart stores and SAM'S Clubs and one third-party owned freezer/cooler
facility.
International Operating Segment. Our International Segment comprises our
operations through wholly-owned subsidiaries in Argentina, Canada, Germany,
South Korea, Puerto Rico and the United Kingdom; our operations through
majority-owned subsidiaries in Brazil and Mexico and our operations through
joint ventures in China. The International segment's net sales for the three
fiscal years ended January 31, 2002, 2001 and 2000, were $35.5 billion, $32.1
billion and $22.7 billion, respectively. During the most recent fiscal year, no
single location accounted for as much as 1% of total Company sales or net
income. We have provided additional information about the International segment
in Management's Discussion and Analysis of Results of Operations, which appears
in our Annual Report to Shareholders, is incorporated by reference herein and
has been included as an exhibit to this annual report. In addition, you should
read Note 9 of Notes to Consolidated Financial Statements, which we have
incorporated by reference herein, which contains additional information
regarding our operating segments.
10K-12
General. Operating formats vary by country, but include Wal-Mart discount
stores in Canada and Puerto Rico; Supercenters in Argentina, Brazil, China,
Germany, South Korea, Mexico and the United Kingdom; SAM'S Clubs in Brazil,
China, Mexico, and Puerto Rico; Superamas (traditional supermarket), Bodegas
(discount store), Suburbias (specialty department store) and Vips (restaurant)
in Mexico; Todo Dias (traditional supermarket) in Brazil; Neighborhood Markets
(traditional supermarkets) in South Korea and ASDA stores (combination grocery
and apparel store) in the United Kingdom.
Merchandise. The merchandising strategy for the International operating
segment is similar to that of domestic segments in the breadth and scope of
merchandise offered for sale. While brand name merchandise accounts for a
majority of sales, several store brands not found in the United States have
been developed to serve customers in the different markets in which the
International segment operates. In addition, steps have been taken to develop
relationships with local suppliers in each country to ensure reliable sources
of quality merchandise.
Operations. The hours of operation for operating units in the International
segment vary by country and by individual markets within countries, depending
upon local and national ordinances governing hours of operation. While sales
are primarily on a cash-and-carry basis, credit cards or other consumer finance
programs exist in certain markets to facilitate the purchase of goods by the
customer.
Seasonal Aspects of Operations. The International operating segment's
business is seasonal to a certain extent. Generally, the highest volume of
sales occurs in the Company's fourth fiscal quarter. The seasonality of the
business varies by country due to different national and religious holidays,
festivals and customs, as well as different climatic conditions.
Competition. The International operating segment competes with a variety of
local, national and international chains in the discount, department, drug,
variety, specialty and wholesale sectors of the retail market in each of the
countries in which we operate and, in Mexico, with local, national and
international restaurant chains. Our ability to offer our customers low prices
on quality merchandise that offers exceptional value in the international
segment determines, to a large extent, our competitive position. In our
international Supercenters, our ability to effectively operate the food
departments has a major impact on the segment's competitive position in the
markets where we operate.
Distribution. The International segment operates export consolidation
facilities in Los Angeles, California; Jacksonville, Florida; and Laredo, Texas
in support of product flow to its Mexican, Asian, and Latin American markets.
We operate a total of 35 distribution facilities that are located in Argentina,
Brazil, Canada, China, Germany, Puerto Rico, the United Kingdom and Mexico.
Through these facilities, we process and distribute both imported and domestic
product to the operating units. During fiscal 2002, approximately 71% of the
International merchandise purchases flowed through these distribution
facilities. Suppliers ship the balance of the International segment's
merchandise purchases directly to our stores in the various countries in which
we operate. A combination of Company owned and operated facilities and
third-party facilities makes up the overall distribution structure for
International logistics.
Other Operations. The sales reported in the "Other" category result from sales
to third parties by McLane. McLane, which is a wholly-owned subsidiary of
Wal-Mart Stores, Inc., is a wholesale distributor that sells its merchandise to
a variety of retailers, primarily in the convenience store and food service
industries. McLane also services Wal-Mart discount stores, Supercenters,
Neighborhood Markets and SAM'S Clubs. McLane offers a wide variety of grocery
and non-grocery products, including perishable and non-perishable items. The
non-grocery products consist primarily of tobacco products, general
merchandise, health and beauty aids, toys and stationery. McLane's net sales
for the three fiscal years ended January 31, 2002, 2001 and 2000 were $13.8
billion, $10.5 billion and $8.8 billion, respectively.
During fiscal 2002, McLane operated 18 grocery distribution facilities, 17
of which we owned and one of which we leased. These grocery distribution
facilities are located as follows: two in each of California and Texas,
10K-13
and one each in Arizona, Alabama, Colorado, Florida, Georgia, Illinois,
Indiana, Kentucky, Mississippi, New Hampshire, New York, North Carolina,
Virginia and Washington. Additionally, McLane operated 17 foodservice
distribution facilities, one of which we owned and 16 of which we leased. These
foodservice distribution facilities are located as follows: two or each in
California and Texas and one in each of Arizona, Colorado, Florida, Georgia,
Kansas, Kentucky, New Jersey, New York, North Carolina, Oregon, Tennessee,
Virginia and Wisconsin.
Employees (Associates).
As of January 31, 2002, the Company employed approximately 1,383,000
associates worldwide, with approximately 1,080,000 associates in the United
States and 303,000 associates in foreign countries. Most associates participate
in incentive programs, which provide the opportunity to receive additional
compensation based upon the Company's productivity or profitability.
ITEM 2. PROPERTIES
The number and location of domestic and international Wal-Mart discount
stores, Supercenters and SAM'S Clubs is incorporated by reference to the table
under the caption "Fiscal 2002 End-of-Year Store Count" on page 5 of the Annual
Report to Shareholders for the year ended January 31, 2002, which information
we have included as an exhibit to this annual report.
We own 1,680 of the properties on which our domestic discount stores,
Neighborhood Markets and Supercenters are located and 331 of the properties on
which our domestic SAM'S Clubs are located. In some cases, we own the land
associated with leased buildings in which our discount stores, Neighborhood
Markets, Supercenters and SAM'S Clubs are located.
We either lease the remaining buildings in which our present domestic
locations are located from a commercial property developer, pursuant to a
sale/leaseback arrangement or from a local governmental entity in connection
with an industrial revenue bond financing arrangement. All of our leases of our
stores provide for fixed annual rentals and, in many cases, the leases provide
for additional rent based on sales volume.
We use independent contractors to construct the new buildings, both leased
and owned, that we build.
Domestically, we operated 72 Wal-Mart distribution facilities and 35 McLane
distribution facilities as of January 31, 2002. With the exception of the 16
leased McLane foodservice distribution facilities, we primarily own these
distribution facilities, several of which are subject to mortgages granted to
secure loans obtained to finance their development. We also lease some of the
distribution facilities under industrial development bond financing
arrangements that provide us with the option to purchase those facilities at
the end of the lease term for nominal amounts.
We own the office facilities in Bentonville, Arkansas that serve as our home
office and corporate headquarters and an office facility in Temple, Texas that
serves as the home office for McLane. We lease an office facility in Brisbane,
California that serves as the home office for Wal-Mart.com
We operate our International segment stores and restaurants in a combination
of owned and leased properties in each country in which our International
segment operates. We own 9 properties in Argentina, 14 properties in Brazil, 23
properties in Canada, one property in China through joint venture, 19
properties in Germany, 9 properties in South Korea, 247 properties in Mexico,
five properties in Puerto Rico and 165 properties in the United Kingdom in
which the operating units are located, with the remaining units in each country
being leased. We utilize both owned and leased properties for office facilities
in each country in which we are conducting business. Outside the United States,
we utilized 35 distribution facilities as of January 31, 2002. Of these 35
distribution facilities, we owned nine and leased 17. Third parties own the
remaining nine distribution facilities.
10K-14
ITEM 3. LEGAL PROCEEDINGS
We are not a party to nor are any of our properties subject to any material
pending legal proceeding other than routine litigation incidental to the
Company's business.
We recently opened a Supercenter in Honesdale, Pennsylvania. In February
1999, we settled claims made by the Pennsylvania Department of Environmental
Protection (PDEP) that a subcontractor's acts and omissions relating to the
construction of the Supercenter led to excess erosion and sedimentation of a
nearby creek. In the settlement, we agreed to pay a fine of $25,000 and to
perform a $75,000 community environmental project in the Honesdale area. We are
negotiating a 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 of Engineers would require us to pay
$200,000 to a non-profit corporation for the purchase of local wetlands
conservation areas and easements. The contractor on the project has reimbursed
us for the amounts we have paid in connection with this matter.
During fiscal 2001, the State of Connecticut filed suit against us in the
State of Connecticut Superior Court for the Judicial District of Hartford
alleging various violations of state environmental laws and alleging that we
failed to obtain the appropriate permits or maintain required records relating
to storm water management practices at 12 stores. The suit seeks to ensure our
compliance with the general permit for the discharge of stormwater associated
with those stores. We intend to vigorously defend against these allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of the year ended January 31, 2002.
10K-15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information required by this item is incorporated by reference to the
information "Number of Shareholders of record" under the caption "11-Year
Financial Summary" on pages 14 and 15, and all the information under the
captions "Market Price of Common Stock," "Listings--Stock Symbol: WMT" and
"Dividends Paid Per Share" on page 41 of the Annual Report to Shareholders for
the year ended January 31, 2002. Such information is included in an exhibit to
this annual report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to all
information under the caption "11-Year Financial Summary" on pages 14 and 15 of
the Annual Report to Shareholders for the year ended January 31, 2002. Such
information is included in an exhibit to this annual report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is furnished by incorporation by
reference to all information under the caption "Management's Discussion and
Analysis" on pages 16 through 23 of the Annual Report to Shareholders for the
year ended January 31, 2002. Such information is included in an exhibit to this
annual report.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item is furnished by incorporation by
reference to all information under the sub-caption "Market Risk" of the caption
"Management's Discussion and Analysis" on pages 20 through 23 of the Annual
Report to Shareholders for the year ended January 31, 2002. Such information is
included in an exhibit to this annual report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is furnished by incorporation by
reference to all information under the captions "Consolidated Statements of
Income," "Consolidated Balance Sheets," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements" and "Report of Independent Auditors" on
pages 24 through 40 of the Annual Report to Shareholders for the year ended
January 31, 2002. Such information is included in an exhibit to this annual
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10K-16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to the Company's directors
and compliance by the Company's directors, executive officers and certain
beneficial owners of the Company's Common Stock with Section 16(a) of the
Securities Exchange Act of 1934 is furnished by incorporation by reference to
all information under the captions entitled "Nominees for Directors" on pages 2
and 3 and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 14
of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on Friday, June 7, 2002 (the "Proxy Statement").
EXECUTIVE OFFICERS OF THE REGISTRANT
The following chart names each of the executive officers of the Company,
each of whom is elected by and serves at the pleasure of the Board of
Directors. The business experience shown for each officer has been his
principal occupation for at least the past five years.
10K-17
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is furnished by incorporation by
reference to all information under the caption entitled "Compensation of
Directors" on page 4, "Compensation and Nominating Committee Report on
Executive Compensation" on pages 6 through 8, and "Summary Compensation,"
"Option Grants In Last Fiscal Year," and "Option Exercises and Fiscal Year End
Option Values" on pages 9 through 11 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is furnished by incorporation by
reference to all information under the caption entitled "Stock Ownership",
subcaptions "Holdings of Major Shareholders" and "Holdings of Officers and
Directors" on pages 11 through 13 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is furnished by incorporation by
reference to all information under the caption "Related-Party Transactions with
Wal-Mart" on page 5 of the Proxy Statement.
10K-18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. & 2. Consolidated Financial Statements [and Financial Statement
Schedules]
The financial statements listed in the Index to Consolidated Financial
Statements, which appears on page 19 of this annual report, are incorporated by
reference herein or filed as part of this Form 10-K.
3. Exhibits
The following documents are filed as exhibits to this Form 10-K:
10K-19
* Filed herewith as an Exhibit.
+ Management contract or compensatory plan or arrangement.
(b)Reports on Form 8-K
None.
10K-20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
All schedules have been omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
10K-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
10K-22
10K-23
EXHIBIT 12
* Does not include the cumulative effect of accounting change recorded by the
Company in Fiscal 2000
10K-24
EXHIBIT 21
SUBSIDIARIES OF WAL-MART STORES, INC.
10K-25
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Wal-Mart Stores, Inc. of our report dated March 22, 2002 included in
the 2002 Annual Report to Shareholders of Wal-Mart Stores, Inc.
We also consent to the incorporation by reference of our report dated March
22, 2002, with respect to the consolidated financial statements of Wal-Mart
Stores, Inc. incorporated by reference in this Annual Report (Form 10-K) for
the year ended January 31, 2002, in the following registration statements and
related prospectuses:
10K-26
Ernst & Young LLP (signature)
Tulsa, Oklahoma
April 15, 2002
10K-27
EXHIBIT 13
Portions of the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 2002, that are incorporated by reference into Part I and II
of the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 2002.
10K-28
11-YEAR FINANCIAL SUMMARY
- --------
* Net income before minority interest, equity in unconsolidated subsidiaries
and cumulative effect of accounting change/average assets
** Net income/average shareholders' equity
*** Calculated giving effect to the amount by which a lawsuit settlement
exceeded established reserves. If this settlement were not considered, the
return would have been 9.8%.
Years prior to 1998 have not been restated for the effects of the change in
accounting method for SAM'S CLUB membership revenue recognition as the effects
of this change would not have a material impact on this summary. Therefore, pro
forma information as if the accounting change had been in effect for all years
presented has not been provided.
The acquisition of the ASDA Group PLC and the Company's related debt
issuance had a significant impact on the fiscal 2000 amounts in this summary.
See Note 7 to the Consolidated Financial Statements.
10K-29
MANAGEMENT'S DISCUSSION AND ANALYSIS
Wal-Mart is a large but straightforward business. In the United States, our
operations are centered around retail stores and membership warehouse clubs.
Internationally, our operations are centered on retail stores, warehouse clubs
and restaurants. We have built our business by offering our customers quality
merchandise at low prices. We are able to lower the cost of merchandise through
our negotiations with suppliers and by efficiently managing our distribution
network. The key to our success is our ability to grow our base business. In
the U.S. we grow our base business by aggressively building new stores and by
increasing sales in our existing stores. Internationally, we grow our business
by building new stores, increasing sales in our existing stores and through
acquisitions. We intend to continue to expand both domestically and
internationally.
Because we are a large company, we do enter into some complex transactions.
One complex area is our derivatives program. We do not use derivative
instruments for speculation or for the purpose of creating additional revenues;
however, we do enter into derivative transactions to limit our exposure to
known business risks. Examples of these business risks include changes in
interest rates and movements in foreign currency exchange rates. The discussion
of our derivative transactions has been given a great deal of space in the
financial section of this Annual Report. The Market Risk section of this
Management's Discussion and Analysis and Note 4 to the Consolidated Financial
Statements give you more information on these transactions. Please remember
that the accounting and disclosure rules for derivative transactions are very
specific and any discussion of them requires the use of technical terminology.
Net Sales
The Company and each of its operating segments had net sales (in millions)
for the three fiscal years ended January 31, 2002 as follows:
Our net sales grew by 14% in fiscal 2002 when compared with fiscal 2001.
That increase resulted from our domestic and international expansion programs,
and a domestic comparative store sales increase of 6% when compared with fiscal
2001. The sales increase of 16% in fiscal 2001, when compared with fiscal 2000,
resulted from our domestic and international expansion programs, and a domestic
comparative store sales increase of 5%. The Wal-Mart Stores and SAM'S CLUB
segments include domestic units only. Wal-Mart stores and SAM'S CLUBS located
outside the United States are included in the International segment.
Costs and Expenses
For fiscal 2002, our cost of sales increased as a percentage of total net
sales when compared to fiscal 2001, resulting in an overall decrease of 0.24%
in the Company's gross margin from 21.47% in the fiscal year 2001 to a gross
margin of 21.23% in fiscal 2002. This decrease in gross margin occurred
primarily due to a shift in customer buying patterns to products that carry
lower margins and an increase in food sales as a percent of our total sales.
Food products generally carry lower margins than general merchandise.
Management expects our gross margins to continue to decrease as food sales
continue to increase as a percentage of total Company sales both domestically
and internationally. Management also expects the Company's program to convert
many of our Wal-Mart discount stores to Supercenters, which have full-line food
departments, and the opening of additional Neighborhood Markets to result in
continuing increases in the percentage that food sales contribute to our total
net sales. Partially offsetting the overall decrease in gross margin in fiscal
2002, the Company reduced cost of sales by $67 million as a result of a LIFO
inventory adjustment. A LIFO inventory adjustment that reduces cost of sales
indicates that the current economic environment is deflationary, meaning that
on average, identical products that we sold in both fiscal 2002 and 2001
decreased in price from fiscal 2001 to 2002. The balance in
10K-30
the LIFO reserve on the Company's balance sheet is attributable to food
inventories and other inventories held by our subsidiary, McLane Company, Inc.
Management believes that these categories will not be disinflationary in the
near future and that future gross margins may not benefit from a LIFO
adjustment, such as that which occurred in fiscal 2002.
Our total cost of sales as a percentage of our total net sales decreased for
fiscal 2001 when compared to fiscal 2000, resulting in increases in gross
margin of 0.05% for fiscal 2001 to 21.47% from 21.42% in fiscal 2000. This
improvement in gross margin resulted primarily from a $176 million LIFO
inventory adjustment that reduced our cost of sales. This LIFO adjustment was
offset by continued price rollbacks and increased International sales and
increased food sales.
Our operating, selling, general and administrative expenses increased 0.12%
as a percentage of total net sales to 16.61% in fiscal 2002 when compared with
fiscal 2001. This increase was primarily due to increased utility and insurance
costs, including Associate medical, property and casualty insurance. Management
believes that the trend of increasing insurance costs will continue for at
least the near future. Operating, selling, general and administrative expenses
increased 0.10% as a percentage of sales in fiscal 2001 when compared with
fiscal 2000. This increase was primarily due to increased maintenance and
repair costs and depreciation charges incurred during the year.
Interest Costs
Our interest costs for corporate debt decreased 0.09% as a percentage of net
sales from 0.57% in fiscal 2001 to 0.48% in fiscal 2002. This decrease resulted
from lower interest rates, less need for debt financing of the Company's
operations due to the Company's inventory reduction efforts and the positive
impacts of the Company's fixed rate to variable rate interest rate swap
program. For fiscal 2002, total Company inventory increased approximately 5% on
a total Company sales increase of 14%. Interest costs increased 0.11% as a
percentage of sales from 0.46% in fiscal 2000 to 0.57% in fiscal 2001. This
increase resulted from additional debt issuances made to finance a part of the
ASDA acquisition costs, but was somewhat offset by reductions in debt resulting
from the Company's inventory control efforts. See the Market Risk section of
this discussion for further detail regarding the Company's fixed to floating
interest rate swaps.
Net Income
In fiscal 2002, we earned net income of $6,671 billion, a 6.0% increase over
the aggregate net income of the Company in fiscal 2001. Our net income did not
grow in fiscal 2002 by the same percentage as our total net sales grew in
fiscal 2002 largely as a result of the reduction in the overall gross margin
and increased costs and expenses of the Company in fiscal 2002 as discussed
above. In fiscal 2001, we earned net income of $6,295 billion, a 17.1% increase
over the Company's net income in 2000. This increase resulted primarily from
the growth in the Company's total net sales and a slight improvement in the
Company's overall gross margin.
During July 2001, we acquired the outstanding minority interest in
Wal-Mart.com, Inc. from Accel Partners and a small group of other investors. A
reorganization resulting from the acquisition resulted in a charge against the
earnings of the Company during fiscal 2002 of slightly less than $0.01 per
share.
Wal-Mart Stores Segment
The Wal-Mart Stores segment sales amounted to 63.9% of total Company sales
in fiscal 2002, which compares to 63.7% and 65.9% in fiscal 2001 and 2000,
respectively.
10K-31
The segment sales increases in fiscal 2002 and fiscal 2001 from the prior
fiscal years resulted from comparative store sales increases and our expansion
program in the Wal-Mart Stores segment. Segment expansion during fiscal 2002
included the opening of 33 Wal-Mart stores, 12 Neighborhood Markets and
178 Supercenters (including the conversion of 121 existing Wal-Mart stores into
Supercenters). Segment expansion during fiscal 2001 included the opening of 41
Wal-Mart stores, 12 Neighborhood Markets and 167 Supercenters (including the
conversion of 104 existing Wal-Mart stores into Supercenters).
A reduction in gross margin and an increase in operating expenses caused the
decrease in segment operating income as a percent of segment sales in fiscal
2002. The gross margin reduction was driven primarily by an increase in
lower-margin food sales as a percentage of total segment sales, a change in
customer buying patterns to lower-margin merchandise and competitive pressures.
Segment expenses in fiscal 2002 as a percent of sales were higher than fiscal
2001 due primarily to increased Associate wages, utility, repairs and
maintenance expenses and insurance costs. The increase in segment operating
income for fiscal 2001 was driven by margin improvements that resulted from
decreased markdowns and improved inventory shrinkage experience during the
fiscal year. Offsetting these margin improvements were increased distribution
costs, resulting from higher fuel, utility and payroll charges and overall
payroll costs that were higher as a percentage of fiscal 2001 sales which were
adversely affected by a fiscal 2001 holiday season with lower than anticipated
sales. Operating income information for fiscal years 2000 and 2001 has been
reclassified to conform to the current year presentation.
SAM'S CLUB Segment
The SAM'S CLUB segment net sales amounted to 13.5% of total Company net
sales in fiscal 2002, which compares to 14.0% and 15.0% in fiscal 2001 and
2000, respectively. The decrease in this segment's sales as a percent of total
Company sales in fiscal 2002 and 2001 when compared to fiscal 2000 resulted
primarily from the increased International segment sales generated by our ASDA
subsidiary that we acquired in the third quarter of fiscal 2000, as well as,
for fiscal 2002, domestic growth in the Wal-Mart Stores segment.
Growth in net sales and operating income for the SAM'S CLUB segment in
fiscal 2002 and fiscal 2001 resulted from comparative club sales increases and
our expansion program. Segment expansion during fiscal 2002 and 2001 consisted
of the opening of 25 and 13 new clubs, respectively.
This segment gross margin increased slightly during fiscal 2002; however, an
increase in operating expense as a percent of sales offset this margin
increase, leaving segment operating income as a percent of sales unchanged from
fiscal 2001. The main expense pressures in fiscal 2002 in the SAM'S CLUB
segment occurred in the areas of utility and maintenance and repair costs.
Operating income for the segment in fiscal 2001 increased slightly due to
margin improvements.
International Segment
Our International segment is comprised of wholly-owned operations in
Argentina, Canada, Germany, South Korea, Puerto Rico and the United Kingdom;
operations through joint ventures in China; and operations through
majority-owned subsidiaries in Brazil and Mexico. International sales accounted
for approximately 16.3% of total Company sales in fiscal 2002 compared with
16.8% in fiscal 2001 and 13.8% in fiscal 2000.
10K-32
The fiscal 2002 increase in international sales and operating income
primarily resulted from both improved operating results and our international
expansion program. In fiscal 2002, the International segment opened 107 units.
Partially offsetting the impact of the expansion program, changes in foreign
currency exchange rates negatively affected the translation of International
segment sales into U.S. dollars by an aggregate of $1.1 billion in fiscal 2002.
The largest portion of the increase in the International segment's net sales in
fiscal 2001 primarily resulted from the International segment's expansion that
consisted of the opening of 77 units. Also affecting the comparison between
fiscal 2002 and 2001 and fiscal 2000 was the acquisition of the ASDA Group PLC,
which consisted of 229 stores when its acquisition was completed during the
third quarter of fiscal 2000. Sales included in the Company's consolidated
income statement for ASDA during fiscal 2002, 2001 and 2000 were $15.3 billion,
$14.5 billion and $7.2 billion, respectively. The positive effects of the
expansion program on the International segment's net sales in fiscal 2001 were
partially offset by changes in foreign currency exchange rates which negatively
affected the translation of International segment sales into U.S. dollars by
$1.3 billion in fiscal 2001.
The fiscal 2002 increase in segment operating profit as a percentage of
segment sales resulted from an improvement in gross margin and a reduction in
operating expenses as a percentage of segment sales in fiscal 2002. The
decrease in the International segment's operating income as a percentage of
segment sales in fiscal 2001 resulted primarily from the continued negative
impact of store remodeling costs, costs related to the start-up of a new
distribution system, excess inventory and transition related expenses in the
Company's Germany units. Partially offsetting these negative effects were
operating profit increases in Mexico, Canada and the United Kingdom in fiscal
2001 compared with fiscal 2000.
Our financial results from our foreign operations could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company does business. The
Company minimizes exposure to the risk of devaluation of foreign currencies by
operating in local currencies and through buying forward currency contracts,
where feasible, for certain known funding requirements. The economic
environment in Argentina has deteriorated during the last fiscal year,
including the devaluation of the Argentine peso. We will continue to monitor
the economic situation but do not believe the Company's investment in
operations in Argentina, which is not significant, has been impaired.
In fiscal 2002, the foreign currency translation adjustment changed from the
fiscal 2001 level by $472 million to $2.2 billion in fiscal 2002 primarily due
to a strengthening in the United States dollar against the local currencies of
the countries in which the company has operations with the exception of Mexico
where the peso strengthened against the dollar. In fiscal 2001, the foreign
currency translation adjustment changed from the fiscal 2000 level by $1.1
billion, primarily due to the dollar strengthening against the British pound
and the German mark.
Other
Sales in the Other category comprise sales to third parties by the Company's
wholly-owned subsidiary McLane Company, Inc., a wholesale distributor. McLane
offers a wide variety of grocery and non-grocery products, which it sells to a
variety of retailers including the Company's Wal-Mart Stores and SAM'S CLUB
segments. McLane's sales to other Wal-Mart companies are not included in the
total sales of the Company.
McLane net sales to unaffiliated purchasers account for approximately 6.3%
of total Company sales in fiscal 2002 compared with 5.5% in fiscal 2001 and
5.3% in fiscal 2000. The increase in McLane sales is the result of its
acquisition of AmeriServe Food Distribution, Inc. (AmeriServe), which was
completed late in fiscal 2001.
10K-33
Losses for the segment in each of the fiscal years presented primarily
resulted from corporate overhead expenses including insurance costs, corporate
bonuses and various other expenses, which are partially offset by McLane
operating income and the favorable impact of the LIFO adjustment of $67 and
$176 million in fiscal 2002 and 2001, respectively. The segment operating loss
increased from fiscal 2001 due to an increase in insurance costs, bonuses and a
reduction in the LIFO benefit in comparison to the prior year.
Summary of Significant Accounting Policies
Management strives to report the financial results of the Company in a clear
and understandable manner, even though in some cases accounting and disclosure
rules are complex and require technical terminology. We follow generally
accepted accounting principles in the U.S. in preparing our consolidated
financial statements, which require us to make certain estimates and apply
judgements that affect our financial position and results of operations.
Management continually reviews its accounting policies, how they are applied
and how they are reported and disclosed in the financial statements. Following
is a summary of our more significant accounting policies and how they are
applied in preparation of the financial statements.
Inventories
We use the retail last-in, first-out (LIFO) inventory accounting method for
the Wal-Mart Stores segment, cost LIFO for the SAM'S 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 recorded in excess
of market value. Historically, we have rarely experienced significant
occurrences of obsolescence or slow moving inventory. However, future changes
in circumstances, such as changes in customer merchandise preference or
unseasonable weather patterns, could cause the Company's inventory to be
exposed to obsolescence or slow moving merchandise.
Financial Instruments
We use derivative financial instruments for purposes other than trading to
reduce our exposure to fluctuations in foreign currencies and to minimize the
risk and cost associated with financial and global operating activities.
Generally, the contract terms of a hedge instrument closely mirror those of the
item being hedged providing a high degree of risk reduction and correlation.
Contracts that are highly effective at meeting the risk reduction and
correlation criteria are recorded using hedge accounting. On February 1, 2001,
we adopted 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, which are financial
instruments used by the Company to protect (hedge) itself from certain risks,
to be recorded on the balance sheet at fair value and establishes accounting
treatment for hedges. If a derivative instrument is a hedge, depending on the
nature of the hedge, changes in the fair value of the instrument will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitment through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of an
instrument's change in fair value will be immediately recognized in earnings.
All of the Company's fair value hedges qualify for the use of the "short-cut"
method of accounting to assess hedge effectiveness. The Company uses the
hypothetical derivative method to assess the effectiveness of its net
investment and cash flow hedges. Instruments that do not meet the criteria for
hedge accounting or contracts for which we have not elected hedge accounting
are marked to fair value with unrealized gains or losses reported currently in
earnings. Fair values are based upon management's expectation of future
interest rate curves and may change based upon changes in those expectations.
Impairment of Assets
We periodically evaluate long-lived assets and acquired businesses for
indicators of impairment. Management's judgements regarding the existence of
impairment indicators are based on market conditions and operational
performance. Future events could cause management to conclude that impairment
indicators exist and that the value of long-lived assets and goodwill
associated with acquired businesses is impaired.
10K-34
Revenue Recognition
We recognize sales revenue at the time a sale is made to the customer,
except for the following types of transactions. Layaway transactions are
recognized when the customer satisfies all payment obligations and takes
possession of the merchandise. We recognize SAM'S CLUB membership fee revenue
over the 12-month term of the membership. Customer purchases of Wal-Mart/SAM'S
CLUB shopping cards are not recognized until the card is redeemed and the
customer purchases merchandise using the shopping card. Defective merchandise
returned by customers is either returned to the supplier or is destroyed and
reimbursement is sought from the supplier. Supplier allowances and discounts
received by the Company are included in the income statement when the purpose
for which those monies were designated is fulfilled.
Insurance/Self-Insurance
We use a combination of insurance, self-insured retention, and/or
self-insurance for a number of risks including workers' compensation, general
liability, vehicle liability and employee-related health care benefits, a
portion of which is paid by the Associates. Liabilities associated with the
risks that we retain are estimated in part by considering historical claims
experience, demographic factors, severity factors and other actuarial
assumptions. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these
assumptions and historical trends.
For a complete listing of our significant accounting policies, please see
Note 1 to our consolidated financial statements that appear after this
discussion.
Liquidity and Capital Resources Cash Flows Information
Our cash flows from operating activities were $10.3 billion in fiscal 2002,
up from $9.6 billion in fiscal 2001. In fiscal 2002, we invested $8.4 billion
in capital assets, paid dividends of $1.2 billion, paid $1.2 billion to
repurchase Company stock, received $1.1 billion from the termination of certain
net investment hedges, received $4.6 billion from the issuance of long-term
debt and paid $3.5 billion in the repayment of long-term debt at its maturity.
Company Stock Purchase and Common Stock Dividends
During fiscal 2001, the Company announced plans to increase its existing
common stock repurchase program by $1 billion, resulting in a total
authorization of $3 billion. During fiscal 2002, the Company repurchased 24.5
million of its common shares for a total approximate amount of $1.2 billion. In
March 2002, the Company's Board of Directors reset the common stock repurchase
program authorization so that the Company may make future repurchases of its
stock of up to $3 billion. The Company paid dividends totaling $0.28 per share
in fiscal 2002. In March 2002, the Company increased its dividend 7% to $0.30
per share for fiscal 2003. The Company has increased its dividend every year
since it first declared a dividend in March 1974.
10K-35
Contractual Obligations and Other Commercial Commitments
The following tables set forth certain information concerning our
obligations and commitments to make future payments under contracts, such as
debt and lease agreements, and under contingent commitments.
The Company has entered into lease commitments for land and buildings for 20
future locations. These lease commitments with real estate developers provide
for minimum rentals for 10 to 20 years, excluding renewal options, which, if
consummated based on current cost estimates, will approximate $25 million
annually over the lease terms.
Management believes that cash flows from operations and proceeds from the
sale of commercial paper will be sufficient to finance any seasonal buildups in
merchandise inventories and meet other cash requirements. If the operating cash
flow we generate is not sufficient to pay dividends and to fund all capital
expenditures, the Company anticipates funding any shortfall in these
expenditures with a combination of commercial paper and long-term debt. We plan
to refinance existing long-term debt as it matures. We may also desire to
obtain additional long-term financing for other corporate purposes. We
anticipate no difficulty in obtaining long-term financing in view of an
excellent credit rating and favorable experiences in the debt market in the
recent past. During fiscal 2002, the Company issued $4.6 billion of long-term
debt. The proceeds from the issuance of this debt were used to reduce
short-term borrowings, to refinance existing debt, financing expansion
activities and other corporate purposes.
At January 31, 2002, the Company's ratio of debt to total capitalization,
including commercial paper borrowings, was 38.4%. This is in line with
management's objective to maintain a debt to total capitalization ratio of
approximately 40%.
In March 2002, the Company sold notes totaling $500 million under its
existing shelf registration statement. These notes bear interest at 4.15% and
are due in June 2005. The proceeds from the sale of these notes will be used
for general corporate purposes, which could include financing the repurchase of
shares of our common stock pursuant to our existing stock repurchase program.
After consideration of this debt issuance and the debt issued in fiscal 2002,
the Company is permitted to sell up to $2 billion of public debt under a shelf
registration statement previously filed with the United States Securities and
Exchange Commission.
10K-36
Expansion
In the United States, we plan to open approximately 50 new Wal-Mart stores
and approximately 180 to 185 new Supercenters in fiscal 2003. Relocations or
expansions of existing discount stores will account for 110 to 115 of the new
Supercenters, with the balance being new locations. We also plan to further
expand our Neighborhood Market concept by adding 15 to 20 units during fiscal
2003. The SAM'S CLUB segment plans to open 50 to 55 Clubs during fiscal 2003,
approximately half of which will be relocations or expansions of existing
clubs. The SAM'S CLUB segment will also continue its remodeling program, with
approximately 100 projects expected to be completed during fiscal 2003. In
order to serve these and future developments, the Company plans to construct
seven new distribution centers in the next fiscal year. Internationally, the
Company plans to open 120 to 130 new units. Projects are scheduled to open
within the international operating group and will include new stores and clubs
as well as relocations of a few existing units. The units also include several
restaurants, department stores and supermarkets in Mexico. In addition, the
Company's German operation will continue to remodel its supercenter units.
Total planned growth represents approximately 46 million square feet of net
additional retail space. Not included in the planned expansion discussed above
is the Company's recently announced Puerto Rico supermarket chain acquisition.
In February 2002, we announced our intent to purchase 35 Supermercado Amigo
supermarkets in Puerto Rico. The transaction is scheduled to be completed once
necessary regulatory approval is obtained. Also not included in the above
discussion is the Company's planned acquisition of 6.1% of the stock of The
Seiyu Ltd. (Seiyu), a Japanese retail chain. Under the terms of the proposed
purchase agreement, which was announced in March 2002, Wal-Mart will pay 6
billion yen or $46 million for an initial 6.1% ownership interest and will have
the ability to invest up to 260 billion yen or $2 billion in Seiyu which would
increase our ownership to 66.7% over time. The transaction is subject to
approval from Seiyu's shareholders and other approvals. Total planned capital
expenditures for fiscal 2003 approximate $10.2 billion. We plan to finance
expansion primarily with a combination of commercial paper and the issuance of
long-term debt.
Market Risk
Market risks relating to our operations include changes in interest rates
and changes in foreign exchange rates. We enter into interest rate swaps to
minimize the risk and costs associated with financing activities, as well as to
attain an appropriate mix of fixed and floating rate debt. The swap agreements
are contracts to exchange fixed or variable rates for variable or fixed
interest rate payments periodically over the life of the instruments. The
following tables provide information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest
rates. For debt obligations, the table presents principal cash flows and
related weighted-average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional amounts and interest rates by
contractual maturity dates. The applicable floating rate index is included for
variable rate instruments. All amounts are stated in United States dollar
equivalents.
INTEREST RATE SENSITIVITY AS OF JANUARY 31, 2002
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
10K-37
INTEREST RATE SENSITIVITY AS OF JANUARY 31, 2002
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
Rate A - one-month U.S. LIBOR
Rate B - three-month U.S. LIBOR
Rate C - U.S. commercial paper
INTEREST RATE SENSITIVITY AS OF JANUARY 31, 2001
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
Rate A - one-month U.S. LIBOR minus 0.15%
Rate B - 30-day U.S. dollar commercial paper non-financial
Rate C - U.S. commercial paper
10K-38
The Company holds currency swaps to hedge its net investment in the United
Kingdom. The following tables provide information about our cross-currency
interest rate swap agreements by functional currency, and presents the
information in United States dollar equivalents. For these instruments the
tables present notional amounts, exchange rates and interest rates by
contractual maturity date.
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY AS OF JANUARY 31, 2002
Principal (Notional) Amount by Expected Maturity
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY AS OF JANUARY 31, 2001
Principal (Notional) Amount by Expected Maturity
During the fourth quarter of fiscal 2002, the Company terminated certain
cross currency instruments that hedged portions of the Company's investments in
Canada, Germany and the United Kingdom. The instruments terminated had notional
amounts of $6.7 billion. The Company received $1.1 billion in cash related to
the fair value of the instruments at the time of the terminations. Prior to the
terminations, these instruments were classified as net investment hedges and
were recorded at fair value as current assets on the balance sheet with a like
amount recorded in the shareholders' equity section of the balance sheet in
line "other accumulated comprehensive income." No gain related to the
terminations was recorded in the Company's income statement.
10K-39
We routinely enter into forward currency exchange contracts in the regular
course of business to manage our exposure against foreign currency fluctuations
on cross-border purchases of inventory. These contracts are generally for
durations of six months or less. At January 31, 2002 and 2001, we held
contracts to purchase and sell various currencies with notional amounts of $118
million and $292 million, respectively, and net fair values of $0 and $6
million, respectively. The fair values of the currency swap agreements are
recorded in the consolidated balance sheets within the line "other assets and
deferred charges."
On February 1, 2001, we adopted 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. At the date of adoption, the majority of our
derivatives were hedges of net investments in foreign operations, and as such,
the fair value of these derivatives had been recorded on the balance sheet as
either assets or liabilities and on the balance sheet in other accumulated
comprehensive income under the previous accounting guidance. As the majority of
our derivative portfolio had already been recorded on the balance sheet,
adoption of SFAS 133 did not materially impact our Consolidated Financial
Statements taken as a whole. However, certain swap cash flows amounting to $86
million in fiscal 2002, which would have been recorded in the income statement
under the previous accounting guidance, were recorded on the balance sheet in
other accumulated comprehensive income. In fiscal 2001, prior to the adoption
of SFAS 133, the Company recorded $112 million of earnings benefit in the
income statement from the receipt of similar cash flows. Under Statement 133,
cash flows from fixed to variable interest rate swaps continue to be recorded
in the interest expense line of the income statement. For fiscal 2002, the
effects of fixed to variable interest rate swaps reduced interest expense by
$62 million. Management is uncertain of the future impacts of the Company's
fixed to variable interest rate swaps on interest expense.
With the adoption of SFAS 133 and the termination of a significant portion
of Company's net investment hedges, the Company is currently reevaluating its
hedging strategy regarding its net investment in overseas operations.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with those Statements. Other
intangible assets will continue to be amortized over their useful lives.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal 2003. Application of the
nonamortization provisions of the Statement is expected to result in an
increase in net income of approximately $250 million for fiscal 2002. Prior to
the completion of the second quarter of fiscal 2003, we will complete a
transitional impairment review for goodwill and indefinite lived intangible
assets as of the date of adoption. Subsequently, we will perform similar
impairment reviews on an annual basis. Management does not believe that the
adoption of the impairment review provisions of the statement will have a
material effect on the earnings and financial position of the Company.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
Disposal of a Segment of a Business. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. We will
adopt SFAS 144 as of February 1, 2002 and do not believe that the adoption of
SFAS 144 will have a material impact on our financial position or results of
operations.
10K-40
In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on
Issue 00-14, Accounting for Certain Sales Incentives. This issue involves the
accounting and income statement classification for sales subject to rebates and
revenue sharing arrangements as well as coupons and discounts. The EITF
concluded that sales incentives offered to customers to buy a product should be
classified as a reduction of sales. This issue is effective for fiscal quarters
beginning after December 15, 2001. We anticipate implementing this issue in the
first quarter of fiscal 2003; however, we do not expect any reclassification
because of our Every Day Low Price Strategy and because rebates and coupons
accepted by the Company's stores are offered by the product supplier and not by
the Company. As a result, the adoption of this guidance is not expected to have
a significant impact on the Company's financial position or results of
operations.
Forward-Looking Statements
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 this Management's Discussion and Analysis, in other
parts of this report and in our other filings are forward-looking statements.
These statements discuss, among other things, expected growth, future revenues,
future cash flows and future performance, the anticipation and expectations of
the Company and its management for future occurrences. The forward-looking
statements are subject to risks, uncertainties and other factors, including:
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 that the Company discusses more fully in its filings with the
SEC, including the Company's Annual Report on Form 10-K. We filed our Annual
Report on Form 10-K for our fiscal year 2002 with the SEC on or about April 15,
2002. Actual results may materially differ from anticipated results described
in these statements as a result of changes in facts, assumptions not being
realized or other circumstances.
10K-41
CONSOLIDATED STATEMENTS OF INCOME
See accompanying notes.
10K-42
CONSOLIDATED BALANCE SHEETS
See accompanying notes.
10K-43
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
10K-44
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes.
10K-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Accounting Policies
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
The Company uses the retail last-in, first-out (LIFO) method for the
Wal-Mart Stores segment, cost LIFO for the SAM'S 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 recorded in excess
of market value.
Financial Instruments
The Company uses derivative financial instruments for purposes other than
trading to reduce its exposure to fluctuations in foreign currencies and to
minimize the risk and cost associated with financial and global operating
activities. Generally, contract terms of a hedge instrument closely mirror
those of the item it hedges providing a high degree of risk reduction and
correlation. Contracts that are highly effective at meeting the risk reduction
and correlation criteria are recorded using hedge accounting. On February 1,
2001, the Company adopted Financial Accounting Standards Board (FASB)
Statements No. 133, 137 and 138 (collectively "SFAS 133") pertaining to
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 hedges. If a derivative instrument is a hedge,
depending on the nature of the hedge, changes in the fair value of the
instrument will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitment through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion, if any, of an instrument's change in fair value will be
immediately recognized in earnings. All of the Company's fair value hedges
qualify for the use of the "short-cut" method of accounting to assess hedge
effectiveness. The Company uses the hypothetical derivative method to assess
the effectiveness of its net investment and cash flow hedges. Instruments that
do not meet the criteria for hedge accounting and contracts for which the
Company has not elected hedge accounting are marked to fair value with
unrealized gains or losses reported currently in earnings. At February 1, 2001,
the majority of the Company's derivatives were hedges of net investments in
foreign operations. As such, the fair value of these derivatives had already
been recorded on the balance sheet as either assets or liabilities and in other
comprehensive income under the previous accounting guidance. As the majority of
the Company's derivative portfolio was already recorded on the balance sheet,
the adoption of SFAS 133 did not have a material impact on the Company's
consolidated financial statements.
Interest during construction
For interest costs to 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 $130
million, $93 million and $57 million in 2002, 2001 and 2000, respectively.
Long-lived assets
The Company periodically reviews long-lived assets. If indicators of
impairments exist and if the value of the assets is impaired, an impairment
loss would be recognized.
10K-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Goodwill and other acquired intangible assets
Goodwill and other acquired intangible assets are amortized on a
straight-line basis over the periods that expected economic benefits will be
provided. These amortization periods range from 20 to 40 years. Management
estimates these periods of economic benefit using factors such as entry
barriers in certain countries, operating rights and estimated lives of other
operating assets acquired. The realizability of goodwill and other intangibles
is evaluated periodically when events or circumstances indicate a possible
inability to recover the carrying amount. These evaluations are based on
undiscounted cash flow and profitability projections that incorporate the
impact of existing Company businesses. The analyses require significant
management judgment to evaluate the capacity of an acquired business to perform
within projections. Historically, the Company has generated sufficient returns
from acquired businesses to recover the cost of the goodwill and other
intangible assets.
Foreign currency translation
The assets and liabilities of all foreign subsidiaries are translated at
current exchange rates. Related translation adjustments are recorded as a
component of other accumulated comprehensive income.
Revenue Recognition
The Company recognizes sales revenue at the time it sells merchandise to the
customer, except for layaway transactions. The Company recognizes layaway
transactions when the customer satisfies all payment obligations and takes
possession of the merchandise. The Company recognizes SAM'S CLUB membership fee
revenue over the 12-month term of the membership. Customer purchases of
Wal-Mart/SAM'S CLUB shopping cards are not recognized until the card is
redeemed and the customer purchases merchandise by using the shopping card.
Defective merchandise returned by customers is either returned to the supplier
or is destroyed and reimbursement is sought from the supplier.
Supplier rebates and discounts received by the Company are included in the
income statement when the purpose for which those monies were designated is
fulfilled.
Operating, selling and general and administrative expenses
Buying, warehousing and occupancy costs are included in operating, selling
and general and administrative expenses.
Advertising costs
Advertising costs are expensed as incurred and were $618 million, $574
million and $523 million in 2002, 2001 and 2000, respectively. Advertising
costs consist primarily of expenditures for print and television advertisements.
Pre-opening costs
The costs of start-up activities, including organization costs, are expensed
as incurred.
Insurance/Self-Insurance
The Company uses a combination of insurance, self-insured retention, and
self-insurance for a number of risks including workers' compensation, general
liability, vehicle liability and employee related health care benefits, a
portion of which is paid by the Associates. Liabilities associated with these
risks are estimated in part by considering historical claims experience,
demographic factors, severity factors and other actuarial assumptions.
10K-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Depreciation and amortization
Depreciation and amortization for financial statement purposes are provided
on the straight-line method over the estimated useful lives of the assets.
Depreciation expense, including amortization of properties under capital
leases, for the years 2002, 2001 and 2000 was $2.7 billion, $2.4 billion and
$2.0 billion, respectively. For income tax purposes, accelerated methods are
used with recognition of deferred income taxes for the resulting temporary
differences. Estimated useful lives for financial statements purposes are as
follows:
Building and improvements. 5 - 50 years
Fixtures and equipment.... 5 - 12 years
Transportation equipment.. 2 - 5 years
Internally developed
software................ 3 years
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 shares adjusted for the dilutive effect of stock options (16
million, 19 million and 23 million shares in 2002, 2001 and 2000,
respectively). The Company had approximately 3.5 million, 2.0 million and 0.5
million option shares outstanding at January 31, 2002, 2001 and 2000,
respectively, that were not included in the dilutive earnings per share
calculation because the effect would have been antidilutive.
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. They also affect the 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 may differ from these estimates.
Accounting principle change
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 dealt with revenue recognition issues, several of which are
common within the retail industry. As a result of the issuance of SAB 101, the
Company changed its method of accounting for SAM'S CLUB membership fee revenue
both domestically and internationally in fiscal 2000. 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 the fiscal year. The effect of this change on the year ended January 31,
2000, before the cumulative effect of the accounting change was to decrease net
income $12 million.
10K-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The following table provides unearned revenues, membership fees received
from members and the amount of revenues recognized in earnings for each of the
fiscal years ended 2000, 2001 and 2002 as if the accounting change had been in
effect for each of those years (in millions):
The Company's deferred revenue is included in accrued liabilities in the
consolidated balance sheet. The Company's analysis of historical membership fee
refunds indicates that refunds have been minimal. Accordingly, no reserve
exists for membership fee refunds at January 31, 2002.
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 make payments on items 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. 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. Layaway transactions are a
small portion of the Company's revenue. Due to the minimal impact of this
accounting change, prior fiscal year results have not been restated.
New accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized, but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003. Application of
the nonamortization provisions of the Statement is expected to result in an
increase in net income of approximately $250 million for fiscal 2003. Prior to
the completion of the second quarter of fiscal 2003, the Company will complete
a transitional impairment review for goodwill and indefinite lived intangible
assets as of the date of adoption. Subsequently, the Company will perform
similar impairment reviews annually. Management does not believe that the
adoption of the impairment review provisions of the standard will have a
material effect on the Company's financial position or results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. FAS 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
10K-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Disposal of a Segment of a Business. The Company will adopt FAS 144 as of
February 1, 2002 and does not believe that the adoption of FAS 144 will have a
material impact on the Company's financial position or results of operations.
In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on
Issue 00-14, Accounting for Certain Sales Incentives. This issue involves the
accounting and income statement classification for sales subject to rebates and
revenue sharing arrangements as well as coupons and discounts. The EITF
concluded that sales incentives offered to customers to buy a product should be
classified as a reduction of sales. The Company will implement Issue 00-14 in
the first quarter of fiscal 2003. The Company does not expect any
reclassification because of its Every Day Low Price strategy and because
rebates and coupons accepted by the Company's stores are offered by the
product's supplier and not by the Company. As a result, the adoption of this
guidance is not expected to have a significant impact on the Company's
financial position or results of operations.
Reclassifications
Certain reclassifications have been made to prior periods to conform to
current presentations.
2 Defined Contribution Plans
In the United States, the Company maintains a Profit Sharing Plan under
which most full-time and many part-time Associates become participants
following one year of employment and 401(k) retirement savings plans to which
Associates may elect to contribute a percentage of their earnings. During
fiscal 2002 most participants could contribute up to 15% of their pretax
earnings, but not more than statutory limits.
The Company made annual contributions in cash to these plans on behalf of
all eligible Associates, including those who did not elect to contribute to the
401(k) plan. During fiscal 2002, eligible Associates could choose to receive a
cash payout equal to one-half of the Company contribution that otherwise would
have been made into the 401(k) plan. Those who did not choose a cash option had
their money contributed into their 401(k) plan. Associates may choose from
among 14 different 401(k) investment options. For Associates who do not make
any election, their 401(k) balance is placed in a conservative balanced fund.
Associates are immediately vested in their 401(k) funds and may change their
investment options at any time.
Additionally, the Company maintains various plans internationally. These
plans are administered based upon the legislative and tax requirements in the
country in which they are established.
Annual contributions to the 401(k) and profit sharing plans and the various
international plans are made at the sole discretion of the Company, and were
$555 million, $486 million and $429 million in 2002, 2001 and 2000,
respectively. In addition, in fiscal 2002 the Company paid $34 million in cash
to Associates in lieu of Company contributions to the 401(k) plan.
3 Commercial Paper and Long-term Debt
Information on short-term borrowings and interest rates is as follows
(dollar amounts in millions):
At January 31, 2002 and 2001, short-term borrowings consisting of $743
million and $2,286 million of commercial paper were outstanding, respectively.
At January 31, 2002, the Company had committed lines of $3,811 million with 70
firms and banks and informal lines of credit with various banks totaling an
additional $694 million, which were used to support commercial paper.
10K-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Long-term debt at January 31, consisted of (amounts in millions):
The Company has two separate issuances of $500 million debt with embedded
put options. For the first issuance, beginning June 2001, and each year
thereafter, the holders of $500 million of the debt may require the Company to
repurchase the debt at face value, in addition to accrued and unpaid interest.
The holders of the other $500 million issuance may put the debt back to the
Company at any time. Both of these issuances have been classified as a current
liability in the January 31, 2002 consolidated balance sheet.
Long-term debt is unsecured except for $161 million, which is collateralized
by property with an aggregate carrying value of approximately $413 million.
Annual maturities of long-term debt during the next five years are (in
millions):
10K-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The Company has agreed to observe certain covenants under the terms of its
note 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 maturity
schedule on the previous page. The resulting obligations are amortized over the
lease terms. Future minimum lease payments for each of the five succeeding
years as of January 31, 2002 are (in millions):
At January 31, 2002 and 2001, the Company had letters of credit outstanding
totaling $1,578 million and $1,129 million, respectively. These letters of
credit were issued primarily for the purchase of inventory.
In July 2001, the Company filed a shelf registration statement with the
United States Securities and Exchange Commission under which it could issue up
to a total of $6 billion in debt securities. During fiscal 2002 the Company
issued $3.5 billion under this shelf registration statement. In March 2002, the
Company sold notes totaling $500 million pursuant to the shelf registration
statement. These notes bear interest at 4.15% and are due in June 2005. The
proceeds from the sale of these notes will be used for general corporate
purposes, which could include financing the repurchase of shares of the
Company's stock pursuant to its existing stock repurchase program. After
consideration of this debt issuance and the $3.5 billion debt issued during
fiscal 2002, the Company is permitted to sell up to $2 billion of public debt
under the shelf registration statement.
4 Financial Instruments
The Company uses derivative financial instruments for hedging and
non-trading purposes to manage its exposure to interest and foreign exchange
rates. Use of derivative financial instruments in hedging programs subjects the
Company to certain risks, such as market and credit risks. Market risk
represents the possibility that the value of the derivative instrument will
change. In a hedging relationship, the change in the value of the derivative is
offset to a great extent by the change in the value of the underlying hedged
item. Credit risk related to derivatives represents the possibility that the
counterparty will not fulfill the terms of the contract. Credit risk is
monitored through established approval procedures, including setting
concentration limits by counterparty, reviewing credit ratings and requiring
collateral (generally cash) when appropriate. The majority of the Company's
transactions are with counterparties rated A or better by nationally recognized
credit rating agencies.
Adoption of FASB 133
On February 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 133, "Accounting for Derivative and Hedging Activities"
(FASB 133), as amended. Because most of the derivatives used by the Company at
the date of adoption were designated as net investment hedges, the fair value
of these instruments was included in the balance sheet prior to adoption of the
standard. As a result, the adoption of this standard did not have a significant
effect on the consolidated financial statements of the Company.
Interest rate instruments
The Company enters into interest rate swaps to minimize the risks and costs
associated with its financing activities. Under the swap agreements, the
Company pays variable rate interest and receives fixed interest rate
10K-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
payments periodically over the life of the instruments. The notional amounts
are used to measure interest to be paid or received and do not represent the
exposure due to credit loss. All of the Company's interest rate swaps are
designated as fair value hedges. In a fair value hedge, the gain or loss on the
derivative instrument as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk are recognized in earnings in the current
period. Ineffectiveness results when gains and losses on the hedged item are
not completely offset by gains and losses in the hedge instrument. No
ineffectiveness was recognized in fiscal 2002 related to these instruments. The
fair value of these contracts is included in the balance sheet in the line
titled "Other assets and deferred charges."
Net Investment instruments
At January 31, 2002, the Company is a party to cross-currency interest rate
swaps which hedge its net investment in the United Kingdom. The agreements are
contracts to exchange fixed rate payments in one currency for fixed rate
payments in another currency. During the fourth quarter of fiscal 2002, the
Company terminated cross-currency instruments that hedged portions of the
Company's net investments in Canada, Germany and the United Kingdom. These
instruments had notional amounts of $6.7 billion. The Company received $1.1
billion in cash related to the fair value of the instruments at the time of the
terminations. Prior to the terminations, these instruments were classified as
net investment hedges and were recorded at fair value as current assets on the
balance sheet with a like amount recorded on the balance sheet shareholders'
equity section in the line "other accumulated comprehensive income." No gain
related to the terminations was recorded in the Company's income statement. The
fair value of these contracts is included in the balance sheet in the line
titled "Other assets and deferred charges."
Cash Flow Hedge
The Company has entered into a cross-currency interest rate swap related to
$325 million of U.S. dollar denominated debt securities issued by a Canadian
subsidiary of the Company during fiscal 2002. The swap is designated as a cash
flow hedge of foreign currency exchange risk. No ineffectiveness was recognized
during fiscal 2002 related to this instrument. The Company expects that the
amount of gain existing in other comprehensive income that is expected to be
reclassified into earnings within the next 12 months will not be significant.
Changes in the foreign currency spot exchange rate result in reclassification
of amounts from other comprehensive income to earnings to offset transaction
gains or loss on foreign denominated debt. The fair value of this hedge is
included in the balance sheet in the line titled "Other assets and deferred
charges."
Instruments Not Designated for Hedging
The Company enters into forward currency exchange contracts in the regular
course of business to manage its exposure against foreign currency fluctuations
on cross-border purchases of inventory. These contracts are generally for
durations of six months or less. Although these instruments are economic
hedges, the Company did not designate these contracts as hedges as required in
order to obtain hedge accounting. As a result, the Company marks the contracts
to market through earnings. The fair value of these contracts is included in
the balance sheet in the line titled "Prepaid expenses and other."
10K-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Fair value of financial instruments
Cash and cash equivalents: The carrying amount approximates fair value due
to the short maturity of these instruments.
Long-term debt: Fair value is based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
Interest rate instruments and net investment instruments: The fair values
are estimated amounts the Company would receive or pay to terminate the
agreements as of the reporting dates.
Foreign currency contracts: The fair value of foreign currency contracts
are estimated by obtaining quotes from external sources.
10K-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
5 Other Accumulated Comprehensive Income
Comprehensive income is net income plus certain other items that are
recorded directly to shareholders' equity. The only items currently applicable
to the Company are foreign currency translation adjustments and hedge
accounting adjustments. The following table gives further detail regarding the
changes in the composition of other accumulated comprehensive income during
fiscal 2002, 2001 and 2000:
6 Income Taxes
The income tax provision consists of the following (in millions):
- --------
(a)Total provision for income tax includes a provision on income before the
cumulative effect of accounting change of $3,338 million and a tax benefit
of $119 million resulting from the cumulative effect of the accounting
change.
Earnings before income taxes are as follows (in millions):
10K-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Items that give rise to significant portions of the deferred tax accounts at
January 31 are as follows (in millions):
A reconciliation of the significant differences between the effective income
tax rate and the federal statutory rate on pretax income follows:
Federal and state income taxes have not been provided on accumulated but
undistributed earnings of certain foreign subsidiaries aggregating
approximately $1 billion at January 31, 2002, as such earnings have been
reinvested in the business. The determination of the amount of the unrecognized
deferred tax liability related to the undistributed earnings is not practicable.
7 Acquisitions
In fiscal 2001, 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 Company's ownership
percentage by approximately 6% and resulted in goodwill of $422 million, which
was amortized over a 40-year life. Beginning in the first quarter of fiscal
2003, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests under FASB
Standard 142. See Note 1 of Notes to Consolidated Financial Statements for
additional information on New Accounting Pronouncements.
In December 1999, the Company acquired most of the minority interest of its
operation in South Korea from its joint venture partner with the remaining
minority interest being acquired during the first quarter of fiscal 2001.
During the third quarter of fiscal 2000, the Company acquired ASDA Group PLC
(ASDA), the third-largest retailer in the United Kingdom with 229 stores. The
transaction was accounted for as a purchase. The results of operations are
included in the consolidated Company results since the date of acquisition. The
purchase price of
10K-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
approximately $11 billion was allocated to the net assets acquired and
liabilities assumed based on their estimated fair value. The resulting goodwill
and other acquired intangible assets of approximately $7 billion are being
amortized over 40 years prior to the adoption of FASB 142.
The following table presents unaudited pro forma results as if the ASDA
acquisition had occurred at the beginning of the fiscal year ended January 31,
2000. Adjustments to net income are primarily related to the amortization of
goodwill and other acquired intangible assets and additional interest expense
on the debt incurred to finance the acquisition. The ASDA results were
converted from Great Britain pounds to United States dollars at the average
exchange rate for the period presented. The conversion rates range from 1.61 to
1.66. The aggregate impact of other acquisitions in this period are not
presented due to the insignificant differences from historical results (amounts
in millions except per share data):
8 Stock Option Plans
The Company follows 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," (FAS No. 123) requires the use of option valuation models that
were not developed for use in valuing employee stock options. 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 options granted under the stock option plans generally expire
ten years from the date of grant. Options granted prior to November 17, 1995,
may be exercised in nine annual installments. Generally, options granted on or
after November 17, 1995 and before fiscal 2001 may be exercised in seven annual
installments. Options granted after fiscal 2001 may be exercised in five annual
installments.
Pro forma information regarding net income and income per share is required
by FAS No. 123 and has been determined as if the Company had accounted for its
employee stock option plans under the fair value method of that statement. The
fair value of these options was estimated at the date of the grant using the
Black-Scholes option pricing model with the following assumption ranges:
risk-free interest rates between 4.4% and 7.2%, dividend yields between .4% and
1.3%, volatility factors between .23 and .41, and an expected life of the
option of 7.4 years for the options issued prior to November 17, 1995, 5.8
years for options issued thereafter and 2.0 to 4.0 years for options converted
from ASDA stock options.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation methods require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. Using the
Black-Scholes option evaluation model, the weighted average value of options
granted during the years ending January 31, 2002, 2001, and 2000, were $24,
$22, and $13, per option, respectively.
10K-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The effect of applying the fair value method of FAS No. 123 to the stock
option grants subsequent to February 1, 1995, results in the following net
income and net income per share (amounts in millions except per share data):
Pro forma disclosures are not likely to be representative of the effects on
reported net income for future years.
The following table summarizes information about stock options outstanding
as of January 31, 2002:
Further information concerning the options is as follows:
Income tax benefit recorded as a result of the tax deductions triggered by
employee exercise of stock options amounted to $106 million, $118 million and
$125 million in fiscal 2002, 2001 and 2000, respectively.
10K-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
9 Commitments and Contingencies
The Company and its subsidiaries are involved from time to time in claims,
proceedings and litigation arising from the operation of its business. The
Company does not believe that any such claim, proceeding or litigation, either
alone or in the aggregate, will have a material adverse effect on the Company's
financial position or results of its operations.
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 $1,043 million, $893 million, and $762 million
in 2002, 2001, and 2000, respectively. Aggregate minimum annual rentals at
January 31, 2002, under non-cancelable leases are as follows (in millions):
Certain of the leases provide for contingent additional rentals based on
percentage of sales. The additional rentals amounted to $63 million, $56
million and $51 million in 2002, 2001 and 2000, respectively. Substantially all
of the store leases have renewal options for additional terms of from 5 to 80
years at comparable rentals.
The Company has entered into lease commitments for land and buildings for 20
future locations. These lease commitments with real estate developers provide
for minimum rentals for 10 to 20 years, excluding renewal options, which if
consummated based on current cost estimates, will approximate $25 million
annually over the lease terms.
10 Segments
The Company and its subsidiaries are principally engaged in the operation of
mass merchandising stores located in all 50 states, Argentina, Canada, Germany,
South Korea, Puerto Rico, and the United Kingdom; through joint ventures in
China; and through majority-owned subsidiaries in Brazil and Mexico. The
Company identifies segments based on management responsibility within the
United States and geographically for all international units. The Wal-Mart
Stores segment includes the Company's discount stores, Supercenters and
Neighborhood Markets in the United States. The SAM'S CLUB segment includes the
warehouse membership clubs in the United States. The Company's operations in
Argentina, Brazil, China, Germany, South Korea, Mexico and the United Kingdom
are consolidated using a December 31 fiscal year end, generally due to
statutory reporting requirements. There were no significant intervening events
which materially affected the financial statements. The Company's operations in
Canada and Puerto Rico are consolidated using a January 31 fiscal year end. The
Company measures segment profit as operating income, which is defined as income
before interest expense, income taxes, minority interest and cumulative effect
of accounting change. Information on segments
10K-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
and a reconciliation to income, before income taxes, minority interest and
cumulative effect of accounting change, are as follows (in millions):
Operating income information for fiscal years 2000 and 2001 has been
reclassified to conform to current-year presentation. For this
reclassification, certain corporate expenses have been moved from the "other"
category to the operating segments.
Domestic long-lived assets excluding goodwill were $33,612 million, $29,741
million and $25,227 million in 2002, 2001 and 2000, respectively. Additions to
domestic long-lived assets were $4,749 million, $6,374 million and $3,814
million in 2002, 2001 and 2000, respectively. International long-lived assets
excluding goodwill were $12,138 million, $11,193 million and $10,742 million in
2002, 2001 and 2000, respectively. Additions to International long-lived assets
were $1,436 million, $711 million and $7,070 million in 2002, 2001 and 2000,
respectively. The International segment includes all international real estate.
The operations of the Company's ASDA subsidiary are significant in comparison
to the total operations of the International segment. ASDA sales during fiscal
2002, 2001 and 2000 were $15.3 billion, $14.5 billion and $7.2 billion,
respectively. At January 31, 2002 and 2001, ASDA long-lived assets, including
primarily net plant, property and equipment and net goodwill, totaled $12.4
billion in each year.
10K-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
All of the real estate in the United States is included in the "Other"
category and is leased to Wal-Mart Stores and SAM'S CLUB. The revenues in the
"Other" category result from sales to third parties by McLane Company, Inc., a
wholesale distributor.
McLane offers a wide variety of grocery and non-grocery products, which it
sells to a variety of retailers including the Company's Wal-Mart Stores and
SAM'S CLUB segments. McLane is not a significant segment and therefore, results
are not presented separately.
11 Quarterly Financial Data (Unaudited)
10K-61
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. as of January 31, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended January 31, 2002. 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 auditing standards generally
accepted in the United States. 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. at January 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2002, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG, LLP (Signature)
Tulsa, Oklahoma
March 22, 2002
10K-62
Listings--Stock Symbol: WMT
Market Price of Common Stock
Dividends Paid Per Share
10K-63
Portions of the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders held on
June 7, 2002, that are incorporated by reference into Part III and IV of the
Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2002.
NOMINEES FOR DIRECTOR
The following candidates are nominated by the Board. They have held the
positions shown for at least five years unless otherwise noted. They were
selected on the basis of outstanding achievement in their careers, broad
experience, wisdom, integrity, understanding of the business environment,
willingness to devote adequate time to Board duties, and ability to make
independent, analytical inquiries. The Board is committed to diversified
membership. The Board does not discriminate on the basis of race, color,
national origin, gender, religion or disability in selecting nominees.
James Breyer, 40
Managing Partner of Accel Partners, a leading venture capital firm. He is also
a director of RealNetworks, Inc. and Lightspan, Inc. Member since 2001.
John T. Chambers, 52
President and CEO of Cisco Systems, Inc., a leading manufacturer of computer
network equipment. Member since 2000.
Thomas M. Coughlin, 52
Executive Vice President of Wal-Mart Stores, Inc. President and Chief Executive
Officer of Wal-Mart Stores Division since January 1999. Prior to this
appointment, he held various executive positions with Wal-Mart Stores, Inc.
Member since 2001.
Stephen Friedman, 64
Retired in 1994 as Chairman of Goldman Sachs & Co. From 1994 to 1998, he held
the title of Senior Chairman of Goldman Sachs & Co. Since 1998, he has been a
Senior Principal of Marsh & McLennan Capital Corp. He is also Chairman Emeritus
of the Board of Columbia University and a director of Fannie Mae. Member since
1996.
Stanley C. Gault, 76
Retired Chairman of the Goodyear Tire & Rubber Company from June 1991 to June
1996 and Chief Executive Officer of the Goodyear Tire & Rubber Company from
June 1991 to January 1996. Mr. Gault previously served as Chairman and Chief
Executive Officer of Rubbermaid Incorporated. He is also a director of Avon
Products, Inc. and The Timken Company. Member since 1996.
David D. Glass, 66
Chairman of the Executive Committee of the Board of Directors of Wal-Mart
Stores, Inc. Mr. Glass served as Wal-Mart's President and Chief Executive
Officer from January 1988 to January 2000. Member since 1977.
Roland A. Hernandez, 44
Retired Chief Executive Officer and Chairman of Telemundo Group, Inc., a
Spanish-language television station company from August 1998 to December 2000.
From March 1995 to August 1998, he served as President and
10K-64
Chief Executive Officer of Telemundo Group, Inc. He was previously the
President of Interspan Communications, Inc. He is also a director of The Ryland
Group, Inc. Member since 1998.
Dawn G. Lepore, 48
Vice Chairman of Technology, Operations and Administration for The Charles
Schwab Corporation since December 2001. From July 1999 to December 2001, she
served as Vice Chairman and Chief Information Officer for The Charles Schwab
Corporation and served as Executive Vice President and Chief Information
Officer for The Charles Schwab Corporation from October 1993 to July 1999. She
is also a director of eBay, Inc. Member since 2001.
J. Paul Reason, 61
President and Chief Operating Officer of Metro Machine Corporation, an employee
owned ship repair company, since July 2000. From December 1999 to June 2000, he
served as Vice President-Ship Systems for Syntek Technologies, Inc. He is a
retired four-star Admiral in the U.S. Navy. He served as Commander-in-Chief of
the U.S. Atlantic Fleet from December 1996 to September 1999. He served as
Deputy Chief of Naval Operations from August 1994 to November 1996. He is also
a director of AMGEN, Inc. and Norfolk Southern Corporation. Member since 2001.
Elizabeth A. Sanders, 56
Management consultant with The Sanders Partnership. She was previously a Vice
President and General Manager for Nordstrom, Inc. She is also a director of
Advantica Restaurant Group, Inc., Washington Mutual, Inc., and Wellpoint, Inc.
Member since 1992.
H. Lee Scott, Jr., 53
President and CEO of Wal-Mart Stores, Inc. since January 2000. Prior to this
appointment, Mr. Scott held various executive positions with Wal-Mart Stores,
Inc. Mr. Scott is also a director of Cooper Industries, Inc. Member since 1999.
Jack C. Shewmaker, 64
International consultant, rancher and retired Wal-Mart executive. Member since
1977.
Jose H. Villarreal, 48
Partner in the San Antonio office of the law firm of Akin, Gump, Strauss, Hauer
& Feld, L.L.P. Member since 1998.
John T. Walton,* 55
Chairman of True North Partners, L.L.C., which holds investments in technology
companies. Member since 1992.
S. Robson Walton,* 57
Chairman of the Board of Wal-Mart. Member since 1978.
- --------
* S. Robson Walton and John T. Walton are brothers.
10K-65
COMPENSATION OF DIRECTORS
During the calendar year ended December 31, 2001, outside directors were
paid $50,000. At least one-half of the retainer was paid in Wal-Mart stock or
stock units. Chairpersons of board committees received an additional retainer
of $3,000. Outside directors were paid $1,500 per day, not to exceed 30 days
per year, for Board-related work outside of the scope of their regular director
duties. Directors were not paid for meeting attendance but were reimbursed for
expenses incurred in attending the meetings.
In June 2001, each outside director also received options to purchase 3,867
shares of Company stock to link more closely his or her compensation to the
interests of shareholders. The grant vests one year from the date of grant and
has a term of ten years.
During the fiscal year ended January 31, 2002, Jack Shewmaker received
certain benefits available to Company executives, and a portion of his health
insurance costs were paid by the Company.
RELATED-PARTY TRANSACTIONS
Frank Robson held various ownership interests in six store locations leased
by Wal-Mart. Mr. Robson is the brother of Helen R. Walton, a beneficial owner
of more than 5% of Wal-Mart stock. The Company paid rents and maintenance fees
of $2,034,964 under the leases for the fiscal year ended January 31, 2002. The
Company believes that the rents and maintenance fees paid under the leases are
competitive with rents and maintenance fees that would be paid to a third party
to lease similar space.
During the past fiscal year Manhattan Products, Inc., which is owned by
members of director Steve Friedman's family, had sales to Wal-Mart of
$8,690,368. The Company believes that the amounts paid to Manhattan Products in
these transactions were competitive with amounts that would be paid to third
parties in similar transactions.
During the past fiscal year Springdale Card & Comic Wholesale, which is
owned by the son of director David D. Glass, had sales to the Company of
$363,492. The Company believes that the amounts paid to Springdale Card & Comic
Wholesale in these transactions were competitive with amounts that would be
paid to third parties in similar transactions.
COMPENSATION AND NOMINATING COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy: Wal-Mart's executive compensation program is
designed to: (1) provide fair compensation to executives based on their
performance and contributions to Wal-Mart; (2) provide incentives to attract
and retain key executives; and (3) instill a long-term commitment to Wal-Mart
and develop pride and a sense of Company ownership, all in a manner consistent
with shareholders' interests.
The Compensation and Nominating Committee set the salaries of Lee Scott,
President and Chief Executive Officer, David Glass, Chairman of the Executive
Committee of the Board of Directors and Rob Walton, Chairman of the Board of
Directors. As a part of its oversight of the Company's compensation programs,
the Committee also reviewed the salaries paid to certain other Wal-Mart
executives.
The executive officers' compensation package has three main parts: (1) base
salary, which is reviewed annually; (2) equity compensation consisting of stock
options and, for certain executives, restricted stock; and (3) incentive
payments under the Company's Management Incentive Plan, which may be earned
annually depending on the Company's achievement of pre-established goals
relating to increases in pre-tax profits. Wal-Mart has a
10K-66
Deferred Compensation Plan under which executives may defer compensation, with
interest accruing on amounts deferred. Incentive payments on the amounts
deferred are accrued annually starting 10 years after the initial deferral.
Company executives also participate in the Company's 401(k) Plan and its Profit
Sharing Plan, which is a defined contribution retirement plan with its assets
primarily invested in Wal-Mart stock.
Base Salary: Base salaries of Company executives are based on Wal-Mart's
performance for the prior fiscal year and upon a subjective evaluation of each
executive's contribution to that performance. In evaluating overall Company
performance, the primary focus is on Wal-Mart's financial performance for the
year as measured by net income, total sales, comparable store sales and return
on shareholders' equity. Other criteria, including equal employment performance
and whether Wal-Mart conducts its operations in accordance with the business
and social standards expected by its associates, shareholders and the
communities in which it operates are also considered.
Equity Participation: Stock options are generally granted annually under
Wal-Mart's Stock Incentive Plan in order to link executives' compensation to
the long-term financial success of Wal-Mart, as measured by stock performance.
Options are generally priced at 100% of the closing price of Wal-Mart stock on
the day of grant. They typically vest in equal annual increments, beginning one
year from the date of grant. Options granted prior to November 17, 1995, vest
in nine annual installments. Those granted between November 17, 1995, and
January 27, 2000, are exercisable in seven annual installments. Options granted
on or after January 28, 2000, are exercisable in five annual installments.
The total number of options awarded to each executive is generally based on
an option grant dollar amount divided by the option's exercise price. The
option grant dollar amount is the product of the executive's base salary
multiplied by the appropriate stock option grant percentage. For example, if an
executive makes $100,000 per year and the percentage applied is 150%, the
option grant dollar amount for the executive is $150,000. This amount is
divided by the stock price on the date of grant. In this example, $150,000
divided by a stock price of $50 will result in a grant of options to purchase
3,000 shares at $50 per share.
The Committee establishes the percentages for, and makes awards of options
to, executive officers required to file reports with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
("Section 16 persons"). These percentages are based on a subjective evaluation
of the performance of each executive without regard to the number of options
held by or previously granted to the executive.
In addition to stock options, certain executives are from time to time
granted restricted stock under Wal-Mart's Stock Incentive Plan. Any award of
restricted stock to Section 16 persons will be made by the Committee, which
sets the vesting criteria. Awards may be made to provide incentives to enhance
the job performance of certain executives or to induce them to remain with or
to become associated with the Company.
Incentive Payments: Incentive payments are made under Wal-Mart's Management
Incentive Plan upon achievement of pre-established performance criteria. For
the 2002 fiscal year, the Committee set three levels of overall performance
objectives for the Company: threshold, business plan and maximum.
Corresponding incentive levels for the 2002 fiscal year were assigned to
participants in the plan by the Committee as percentages of base salary. These
incentive levels are tied directly to the achievement of specific levels of
performance objectives. Incentive percentages ranging from a low of 53.9% of
base salary at the threshold performance level to a high of 250% at the maximum
level were payable under the plan to an executive group including, among
others, the Chief Executive Officer, the Chairman of the Executive Committee of
the Board and Chief Financial Officer. For these officers, performance goals
are based on overall corporate performance. For divisional executives,
performance goals are based on a combination of corporate and divisional
performance.
10K-67
For the fiscal year ended January 31, 2002, excluding extraordinary
expenses, corporate pre-tax profits represent 64.9% of the maximum profit
improvement target set by the Committee. As a result, incentive payments were
made under the Management Incentive Plan in March of 2002 for performance in
the fiscal year ended January 31, 2002.
Compensation of the Chief Executive Officer: Lee Scott was appointed
President and Chief Executive Officer of the Company, effective January 13,
2000. Mr. Scott's base salary as Chief Executive Officer was set at $1,100,000,
effective March 24, 2001. On March 6, 2002, he was granted options to purchase
521,634 shares of Wal-Mart stock relating to performance under the Stock
Incentive Plan of 1998 during the January 31, 2002 fiscal year. During the
January 31, 2002 fiscal year, Mr. Scott received an award of 98,620 shares of
restricted stock. On March 7, 2002, Mr. Scott also received an award of 107,527
shares of restricted stock. The Committee determined the amount of Mr. Scott's
base salary as well as the number of restricted stock and stock options after
considering the following: competitive levels of compensation for CEOs managing
operations of similar size, complexity and performance level; Mr. Scott's
general knowledge of the retail business and his contribution to the Company's
past business success; and the Committee's belief that Mr. Scott has the vision
and managerial capabilities to ensure the Company's continued growth into the
foreseeable future.
Mr. Scott also received an incentive payment of $1,784,750 under Wal-Mart's
Management Incentive Plan. The bonus was based on Wal-Mart's achievement of the
pre-tax profit performance goals established by the Committee and was paid in
the current fiscal year but relates to performance in the fiscal year ended
January 31, 2002.
Deductibility of Compensation: Internal Revenue Code Section 162(m)
provides that compensation in excess of $1 million paid to an executive officer
is not deductible unless it is performance based. Base salary does not qualify
as performance-based compensation under Section 162(m).
Mr. Scott deferred a portion of his compensation during the fiscal year
ended January 31, 2002, so that during the year he actually received less than
$1 million in compensation. Because his base salary for the fiscal year ending
on January 31, 2003, will exceed $1 million, Mr. Scott has volunteered to defer
receipt of that portion of his base salary in excess of $1 million until after
his retirement. This allows Wal-Mart to deduct the deferred portion of his base
salary when it is paid after his retirement.
During the fiscal year ended January 31, 2002, John Menzer was awarded an
additional 15% incentive opportunity, effective August 1, 2001. This incentive
was based on performance and the growing complexity of the position. Although
this award was performance based, it was set more than 120 days after the
beginning of the fiscal year, and is not deductible.
This report is submitted by the Compensation and Nominating Committee:
Stanley Gault, Chairperson
Betsy Sanders
Don Soderquist
Jose Villarreal
10K-68
Summary Compensation
This table shows the compensation during each of the Company's last three
fiscal years paid to Wal-Mart's Chief Executive Officer and the four other most
highly compensated executive officers based on compensation earned during the
fiscal year ended January 31, 2002.
- --------
(1) This column includes compensation earned during the fiscal year, but
deferred. This column also includes compensation for an additional pay
period because fiscal year 2002 had 27 pay periods rather than the normal
26 pay periods.
(2) Incentive payments in this column were made under the Management Incentive
Plan in connection with the Company's performance in the January 31, 2000,
2001 and 2002 fiscal years but were paid during the January 31, 2001, 2002
and 2003 fiscal years, respectively.
(3) The total amount of other annual compensation for H. Lee Scott, Jr. is for
personal use of a Company aircraft. All amounts for the other named
officers are incentive interest payments on amounts deferred under the
Officer Deferred Compensation Plan. For these other officers, the amounts
do not include the value of perquisites and other personal benefits because
they do not exceed the lesser of $50,000 or 10% of any such officer's total
annual salary and bonus.
(4) The options shown for 2002 were granted on March 6, 2002, after the end of
the fiscal year but in respect of the prior fiscal year.
(5) "All other compensation" for the fiscal year ended January 31, 2002,
includes Company contributions to Wal-Mart's Profit Sharing, Supplemental
Executive Retirement and 401(k) plans, above-market interest credited on
deferred compensation, and term life insurance premiums paid by Wal-Mart
for the benefit of each officer. These amounts are shown in the following
table:
10K-69
Option Grants in Last Fiscal Year
This table shows all options to acquire shares of Wal-Mart stock granted to
the named executive officers during the fiscal year ended January 31, 2002.
- --------
(1)These options were granted on March 6, 2002, after the end of the fiscal
year but in respect of the prior fiscal year. Options were granted to other
associates on January 10, 2002.
(2)The exercise price generally equals the closing price of Wal-Mart stock on
the date of grant. The options are exercisable in five equal annual
installments beginning one year after the date of the grant. They expire ten
years after the date of the grant.
(3)The fair value of these options at the date of grant was estimated using a
Black-Scholes option pricing model. The following weighted-average
assumptions were used to estimate the value of options granted on March 6,
2002: a 6.00 year expected life of the options; a dividend yield of 0.73%;
expected volatility for Wal-Mart stock of 0.393%; and a risk-free rate of
return of 4.91%.
Option Exercises and Fiscal Year End Option Values: This table shows all
stock options exercised by the named executives during the fiscal year ended
January 31, 2002, and the number and value of options they held at fiscal year
end.
- --------
(1)The value realized equals the difference between the option exercise price
and the closing price of Wal-Mart stock on the date of exercise, multiplied
by the number of shares to which the exercise relates.
(2)The value of unexercised in-the-money options equals the difference between
the option exercise price and the closing price of Wal-Mart stock at fiscal
year end, multiplied by the number of shares underlying the options. The
closing price of Wal-Mart stock on Thursday, January 31, 2002, as reported
in The Wall Street Journal, was $59.98.
10K-70
STOCK OWNERSHIP
The following tables set forth ownership of Wal-Mart stock by major
shareholders, directors and executive officers of the Company.
Holdings of Major Shareholders(1)
There were 4,451,225,876 shares of Wal-Mart stock issued and outstanding on
March 31, 2002. The following table lists the beneficial owners of 5% or more
of Wal-Mart stock as of March 31, 2002.
- --------
(1)The shares listed as beneficially owned by each person include 1,695,746,480
shares held by Walton Enterprises, L.P. Helen R. Walton, S. Robson Walton,
John T. Walton, Jim C. Walton and Alice L. Walton share voting and
dispositive power, either individually as general partners or as trustees of
trusts that are general partners of Walton Enterprises, L.P. The general
partners have the power to sell and vote the shares. The business address of
each partner is P.O. Box 1508, Bentonville, Arkansas 72712.
(2)The number includes 9,434 shares that John T. Walton had a right to acquire
within 60 days after March 31, 2002, through the exercise of stock options.
It also includes 7,799 phantom stock shares received as director
compensation.
(3)The number includes 28,026 shares that S. Robson Walton had a right to
acquire within 60 days after March 31, 2002, through the exercise of stock
options. It also includes 57,360 shares held in the Company's Profit Sharing
Plan on behalf of Mr. Walton. He has sole voting power, but no investment
power, with respect to these shares.
(4)The percent of class held was calculated based on the number of shares
outstanding plus those shares John T. Walton and S. Robson Walton had a
right to acquire within 60 days of March 31, 2002, in the amounts of 9,434
shares and 28,026 shares, respectively.
10K-71
Holdings of Officers and Directors
This table shows the amount of Wal-Mart stock held by each director,
Wal-Mart's Chief Executive Officer, and the four other most highly compensated
officers on March 31, 2002. It also shows the stock held by all of Wal-Mart's
directors and executive officers as a group on that date.
- --------
* Less than one percent
(1) These amounts include shares that the following persons had a right to
acquire within 60 days after March 31, 2002, through the exercise of stock
options and vested shares they hold in the Company's Profit Sharing Plan.
These share numbers are shown in the following table:
The Holdings of Officers and Directors also include phantom stock received
by Wal-Mart's outside directors as part of their compensation, as follows:
Steve Friedman (7,800 shares), Stanley Gault (8,807 shares), Roland
Hernandez (4,438 shares), Dawn Lepore (203 shares), Elizabeth Sanders
(1,055 shares), Don Soderquist (209 shares), Jose Villarreal (4,284 shares)
and John Walton (7,799 shares).
(2) Amounts shown for Stephen Friedman include 40,000 shares held by the
Stephen and Barbara Friedman Foundation.
(3) Amounts shown for S. Robson Walton and John T. Walton in this column
include 1,695,746,480 shares held by Walton Enterprises, L.P.
(4) The percent of class held was calculated based on the number of shares
outstanding plus those shares John T. Walton and S. Robson Walton had a
right to acquire within 60 days of March 31, 2002, in the amounts of 9,434
shares and 28,026 shares, respectively.
10K-72
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Wal-Mart's
executive officers, directors and persons who own more than 10% of the
Company's stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). These reports are also filed with
the New York Stock Exchange. A copy of each report is furnished to Wal-Mart.
SEC regulations require Wal-Mart to identify anyone who filed a required
report late during the most recent fiscal year. Based solely on review of
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended January 31, 2002, all
Section 16(a) filing requirements were met except that five of our executive
officers filed late reports regarding transactions relating to shares of
restricted stock. Thomas M. Coughlin filed one late report relating to two
exchanges of restricted shares in connection with tax payments. David D. Glass
filed two late reports, the first for conversion of restricted shares to cash
in order to defer compensation and the second for two transactions, one
relating to an exchange of restricted shares in connection with tax payments
and another for the conversion of restricted shares to cash in order to defer
compensation. Thomas R. Grimm filed one late report relating to an exchange of
restricted shares in connection with tax payments. John B. Menzer filed two
late reports, each relating to a conversion of restricted shares to cash in
order to defer compensation. James A. Walker, Jr. filed one late report
relating to the conversion of restricted shares to cash in order to defer
compensation. All of these transactions were reported to the SEC in April 2002.
10K-73
APPENDIX IV
QUARTERLY REPORT ON FORM 10-Q FOR THE
FISCAL QUARTER ENDED OCTOBER 31, 2002
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
(Mark One)
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 31, 2002.
Or
[_]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
Commission file number 1-6991
-------------
WAL-MART STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0415188
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 S.W. Eighth Street 72716
Bentonville, Arkansas (Zip Code)
(Address of principal executive offices)
(479) 273-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes [_] No [_]
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 Par Value--4,413,963,363 shares as of November 30, 2002.
================================================================================
10Q-1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
- --------
* Note: The balance sheet at January 31, 2002, has been derived from
the audited consolidated financial statements of the Company at
that date, and condensed.
See accompanying notes to condensed consolidated financial statements.
10Q-2
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in millions except per share data)
See accompanying notes to condensed consolidated financial statements.
10Q-3
WAL-MART STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
See accompanying notes to condensed consolidated financial statements.
10Q-4
WAL-MART STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The condensed consolidated balance sheet as of October 31, 2002, and the
related condensed consolidated statements of income for the three and
nine-month periods ended October 31, 2002, and 2001, and the condensed
consolidated statements of cash flows for the nine-month periods ended October
31, 2002, and 2001, are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the financial statements have
been included. 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 Company's annual report to
shareholders. Therefore, the interim statements should be read in conjunction
with the Company's annual report to shareholders for the fiscal year ended
January 31, 2002. Certain reclassifications have been made to prior periods in
order 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 and reflects basic net income per share reduced by
the dilutive effect of stock options and restricted stock grants (a weighted
average of 13 million and 15 million shares for the quarters ended October 31,
2002 and 2001, respectively, and 15 million and 16 million shares for the
nine-month periods ended October 31, 2002 and 2001, 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 Sam's 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 the LIFO method are partially
based on assumptions as to projected 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,
2002, would have been $165 million higher than reported, resulting in an
increase in the LIFO reserve of $30 million from January 31, 2002, and an
increase of $10 million from July 31, 2002. If the FIFO method had been used at
October 31, 2001, inventories would have been $172 million higher than
reported, resulting in a decrease in the LIFO reserve of $30 million from
January 31, 2001, and a decrease of $10 million from July 31, 2001.
NOTE 4. Segments
The Company is principally engaged in the operation of mass merchandising
stores that serve customers primarily through the operation of three segments.
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 Company's discount stores, Supercenters and
Neighborhood Markets in the United States. The Sam's Club segment includes the
warehouse membership clubs in the United States. The International segment
includes all operations in Argentina, Brazil, Canada, China, Germany, South
Korea, Mexico, Puerto Rico and the United Kingdom. The sales in the "Other"
segment result from sales to third parties by the Company's wholly-owned
subsidiary, McLane Company, Inc., ("McLane") a wholesale distributor. Operating
losses in the "Other" category are the result of expenses recorded at the
corporate level which are partially offset by McLane's operating profits.
10Q-5
Net sales by operating segment were as follows (in millions):
Operating profit and reconciliation to income before income taxes and
minority interest are as follows (in millions):
Interest income for the three and nine-month periods ending October 31,
2001, has been combined with interest expense to conform to current year
presentation.
Goodwill is recorded on the balance sheet in the operating segments as
follows (in millions):
Changes in International segment goodwill are the result of foreign currency
exchange rate fluctuations.
NOTE 5. Comprehensive Income
Comprehensive income is net income, plus certain other items that are
recorded directly to shareholders' equity. The only such items currently
applicable to the Company are currency translation adjustments and hedge
accounting adjustments.
Comprehensive income was $2.0 billion for both of the quarters ended October
31, 2002 and 2001, respectively, and was $6.2 billion and $4.7 billion for the
nine months ended October 31, 2002 and 2001, respectively.
10Q-6
NOTE 6. New Accounting Pronouncements
On February 1, 2002, the Company adopted Financial Accounting Standards
Board Statements of Financial Accounting Standards No. 141, Business
Combinations ("FAS 141"), and No. 142, Goodwill and Other Intangible Assets
("FAS 142"). Under FAS 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to annual impairment
reviews. The following tables adjust certain information for the three-month
and nine-month periods ended October 31, 2001, as if the non-amortization
provisions of FAS 142 had been in place at that time and compares that adjusted
information to the comparable information for the three-month and nine-month
periods ended October 31, 2002:
The Company has performed the goodwill impairment reviews required by FAS
142 and the results of these reviews did not require the Company's existing
goodwill to be written down.
FAS 141 addresses the accounting and reporting for business combinations.
The adoption of FAS 141 did not have a material impact on the Company's
financial results for the three-month or nine-month periods ended October 31,
2002. On February 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("FAS 144"), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The adoption of
this standard did not have a material impact on the Company's financial results
for the three-month or nine-month periods ended October 31, 2002.
NOTE 7. Contingencies
The Company is involved in a large number of legal proceedings, including
antitrust, consumer, employment, tort, and other litigation. The following
lawsuits are among the matters pending against the Company which, if decided
adversely, may result in substantial liability:
The Company is a defendant in thirty-three putative class action lawsuits,
in twenty-six states, in which the plaintiffs allege that the Company violated
the Fair Labor Standards Act, corresponding state laws, or both. The plaintiffs
are hourly associates who allege, among other things, that the Company forced
them to work "off the clock" and failed to provide work breaks. The complaints
generally seek unspecified actual damages, injunctive relief, or both. The
complaints were filed between June 1998 and November 2002. Class certification
has been addressed in four cases: in Texas, Ohio and Louisiana the state trial
or appellate courts have denied class certification. In Oregon a Federal Court
has denied statewide certification as to state contract claims but allowed a
limited class of opt-in plaintiffs to proceed with Fair Labor Standards Act and
state statutory claims.
10Q-7
The Company is a defendant in three putative class action lawsuits brought
on behalf of pharmacists who allege, among other things, that the Company
failed to pay overtime in violation of the Fair Labor Standards Act or in
breach of contract. The complaints seek actual damages, injunctive relief, or
both. Two of these cases are pending in the United States District Court for
the District of Colorado (Presley, et al. v. Wal-Mart Stores, Inc. and Yates,
et al. v. Wal-Mart Stores, Inc.)and one is pending in the District Court,
County of Denver, Colorado (Culver, et al. v. Wal-Mart). In each of these
cases, the trial court has certified a class.
The Company is a defendant in Dukes v. Wal-Mart Stores, Inc., a putative
class action lawsuit commenced in June 2001 and pending in the United States
District Court for the Northern District of California. The case was brought on
behalf of all past, present and future female employees in all of the Company's
retail stores in the United States. The complaint alleges that the Company has
a pattern and practice of discriminating against women in promotions, pay,
training, and job assignment. The complaint seeks, among other things,
injunctive relief, compensatory damages including front pay and back pay,
punitive damages, and attorney fees. Class certification has not yet been
decided, and we cannot predict whether a class will be certified and, if a
class is certified, the geographic or other scope of such a class. If the Court
certifies a class in this action and there is an adverse verdict on the merits,
the Company may be subject to, in addition to liability for damages that could
be material to the Company, employment-related injunctive measures. Any
injunctive measures could result in increased costs of operations on an ongoing
basis.
The Company is a defendant in three putative class action lawsuits in Texas
and one in New Hampshire. In each of the lawsuits, the plaintiffs seek a
declaratory judgment that Wal-Mart and the other defendants who purchased
Corporate Owned Life Insurance (COLI) policies lack an insurable interest in
the lives of the class-members, who were the insureds under the policies, and
seek to recover the proceeds of the policies under theories of unjust
enrichment and constructive trust. The lead suit, Mayo, et al. v. Wal-Mart
Stores, Inc. was filed on June 26, 2001, in the United States District Court,
Southern District of Texas. The court in Mayo recently denied the Company's
motion for summary judgment, and granted partial summary judgment in favor of
the plaintiffs on certain issues. The litigation has been stayed while the
Fifth Circuit Court of Appeals reviews these rulings. Class certification has
not been decided in any of these cases.
The Company is a defendant in Lisa Smith Mauldin v. Wal-Mart Stores, Inc. a
lawsuit that was filed on October 16, 2001, in the United States District Court
for the Northern District of Georgia, Atlanta Division. The lawsuit was
certified by the court as a class action on August 30, 2002. The class is
composed of female Wal-Mart associates who were participants in the Associates
Health and Welfare Plan from March 8, 2001 to the present and who were using
prescription contraceptives during the relevant time period. The class seeks
amendment of the Plan to include coverage for prescriptive contraceptives, back
pay for all members in the form of reimbursement of the cost of prescription
contraceptives (from no earlier than September 5, 1999), pre-judgment interest
and attorney's fees and coverage of prescriptive contraceptives and attendant
office visits. The complaint alleges that the Company's Health Plan violates
Title VII's prohibition against gender discrimination in that the Reproductive
Systems provision does not provide coverage for contraceptives.
The Company is a defendant in a lawsuit that was filed on August 31, 2001,
in the United States District Court for the Eastern District of Kentucky. EEOC
(Janice Smith) v. Wal-Mart Stores, Inc. is a Rule 23 class action brought by
the EEOC on behalf of Janice Smith and all other females who made
application/transfer requests at the London, KY Distribution Center from 1995
to the present and who were not hired. The class seeks back pay for those
females not selected for hire or transfer into warehouse positions for the
relevant time period. The class also seeks injunctive and prospective
affirmative relief. The complaint alleges that the Company based hiring
decisions on gender in violation of Title VII of the 1964 Civil Rights Act as
amended. The EEOC is exempted from the requirements of Rule 23 and can maintain
this action as a class without certification from the Court.
The Company is a defendant in four putative class action lawsuits brought by
associates who allege that the Company failed to pay overtime in violation of
the Fair Labor Standards Act. Two cases regarding Sam's Clubs managers are
pending in California state court (Lewis v. Wal-Mart Stores, Inc. and Bartlett
v. Sam's West, Inc.).
10Q-8
One case regarding Loss Prevention associates is pending in federal court in
Texas (Michell v. Wal-Mart Stores, Inc.). One case regarding managers is
pending in federal court in Arkansas (Freeman v. Wal-Mart Stores, Inc.). No
determination has been made as to certification in these cases.
NOTE 8. Accounting Changes
In August 2002, the Company announced that on February 1, 2003, it will
adopt the expense recognition provisions of the Financial Accounting Standards
Board Statement No. 123 Accounting and Disclosure of Stock-Based Compensation
("FAS 123"). Under FAS 123, compensation expense is recognized based on the
fair value of stock options granted. Under the accounting transition rules
currently in place for adopting FAS 123, the impact on the Company's income
statement will be less than $0.01 per share in the year of adoption. The
accounting standard setters are currently reconsidering the transition
provision for adopting FAS 123 and plan to provide alternative accounting
methods when adopting FAS 123. Based on the Company's understanding of the
accounting methods currently under consideration, it does not believe that the
impact of changing the accounting method for the adoption of FAS 123 would have
an impact of greater than $0.01 to $0.02 per share on earnings per share in the
year of adoption.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Wal-Mart is a very large but straightforward business. In the United States,
our operations are centered on retail stores and membership warehouse clubs.
Internationally, our operations are centered on retail stores, warehouse clubs
and restaurants. We have built our business by offering our customers quality
merchandise at low prices. We are able to obtain lower merchandise costs and
pass them on to our customers through our negotiations with suppliers and by
efficiently managing our distribution network. The key to our success is our
ability to grow our base business. In the United States, we grow our base
business by building new stores and by increasing sales in our existing stores,
including offering new kinds of goods and services to our customers.
Internationally, we grow our business by building new stores, increasing sales
in our existing stores, through acquisitions and by offering new goods and
services to our customers. We intend to continue to expand both in the United
States and internationally.
At October 31, 2002, the Company had 1,567 Wal-Mart stores, 1,243
Supercenters, 39 Neighborhood Markets and 522 Sam's Clubs in the United States.
Internationally, the Company operated units in Argentina(11), Brazil(22),
Canada(201), Germany(95), South Korea (14), Mexico(587), Puerto Rico(19), the
United Kingdom (256) and under joint venture agreements in China (22). During
May 2002 we completed our acquisition of 6.1% of the stock of The Seiyu, Ltd.,
a Japanese retail chain for 6 billion yen, or approximately $46 million. Under
the terms of the acquisition, we will also have the right to contribute up to
260 billion yen, or approximately $2 billion for additional shares of stock in
Seiyu. If we contribute the full 260 billion yen to Seiyu, we will own
approximately 66.7% of the stock of Seiyu. This investment represents our entry
into the Japanese retail market.
Results of Operations
We had 11.5% and 12.9% sales increases for the quarter and the nine months
ended October 31, 2002, respectively, when compared to the same periods in
fiscal 2002. These sales increases were attributable to our U.S. and
international expansion programs and our U.S. comparative store sales increases
of 3.5% and 6.1% for the quarter and the nine months ended October 31, 2002,
respectively, over the same periods in fiscal 2002. We consider comparative
stores sales to be sales at stores that were open as of February 1st of the
prior fiscal year and have not been expanded or relocated since February 1st of
the prior fiscal year. Stores that have been expanded or relocated during that
period are not included in the calculation of comparative store sales.
Comparative store sales are also referred to as "same-store" sales within the
retail industry.
Our gross profit as a percentage of sales (our "gross margin") increased
from 21.5% in the third quarter of fiscal 2002 to 21.9% during the third
quarter of fiscal 2003. For the nine-month period ended October 31, 2002,
10Q-9
gross margin was 21.8%, up from 21.5% in the same period in fiscal 2002. The
improvement in gross margin resulted from lower markdowns, reduced shrinkage
and improved merchandising which led to increased sales of items which carry
higher margins. Additionally, the percentage of total sales generated by the
Wal-Mart Stores and International segments increased for both the three-month
and nine-month periods ended October 31, 2002, when compared to the same
periods in the prior fiscal year. Because the Wal-Mart segment and
International segment sales yield higher gross margins than does the Sam's Club
segment, this change in sales mix increased the Company's total gross margin.
Operating, selling, general and administrative expenses, as a percentage of
sales, were 17.6% and 17.3% for the third quarter and first nine months of
fiscal 2003, up from 17.3% and 17.0% in the same periods in fiscal 2002,
respectively. These increases were due primarily to an increase in our
insurance, legal, benefits, and store pre-opening costs. The change in
accounting for goodwill required by the Company's adoption of FAS 142 also
affected the comparison of the third quarter and first nine months of fiscal
2003 with the third quarter and first nine months of fiscal 2002. FAS 142
requires that companies no longer amortize goodwill. Instead, an annual review
is to be performed to determine if goodwill is impaired and should be
written-off. The comparison of the third quarter and first nine months of this
fiscal year to the same periods in the last fiscal year is positively impacted
by this accounting change since we have not recorded any goodwill amortization
expense since January 31, 2002. If our operating, selling, general and
administrative expense for the third quarter and first nine months of fiscal
year 2002 were adjusted to add back the goodwill amortization recorded for
those periods (but which would not have been recorded had FAS 142 been in place
during the prior year), operating expenses would have been reduced by $59
million for the third quarter of fiscal 2002 and $176 million for the first
nine months of fiscal 2002. If the third quarter fiscal 2002 operating expenses
were adjusted to remove that goodwill amortization, our operating expenses as a
percent of sales would be reduced from 17.3% as disclosed above to 17.2%. If
the operating expenses for the first nine months of fiscal 2002 were adjusted
to remove that goodwill amortization, our operating expenses as a percent of
sales for that period would be reduced from 17.0% as disclosed above to 16.9%.
Interest costs on debt and capital leases, net of interest income, as a
percentage of sales decreased 0.17% and 0.19% for the third quarter and first
nine months of fiscal 2003, respectively, when compared to the same periods in
fiscal 2002. These decreases resulted from lower average interest rates on our
outstanding indebtedness, less need for debt financing due to inventory
reduction efforts and the positive impacts of our fixed to variable interest
rate swap program. To better aid the reader in understanding our financial
statements, we have begun classifying interest income in the interest expense
section of the income statement. Both our U.S. and international operating
units generate interest income; however, the largest contributor of interest
income is our operation in Mexico. Interest income was flat when comparing the
third quarter of fiscal 2003 to the third quarter of fiscal 2002. For the first
nine months of fiscal 2003, interest income decreased by $31 million in
comparison to the first nine months of fiscal 2002, this decrease was caused
primarily by a reduction in interest rates in Mexico.
In the third quarter of fiscal 2003, we earned net income of $1.820 billion,
a 22.9% increase over our net income in the third quarter of fiscal 2002. As
discussed above, the comparison of net income earned in the third quarter of
fiscal 2003 with the net income earned in the third quarter of fiscal 2002 is
positively impacted by an accounting change related to goodwill amortization.
As the tax impact of not amortizing goodwill would have been minimal in
dollars, increasing tax expense by only $3 million for the quarter, our prior
year third quarter net income would have been increased by $56 million and
basic earnings per share would have increased by $0.01 if we had not amortized
goodwill in fiscal 2002. If the prior year third quarter is adjusted to add
back goodwill amortization that would not have been recorded under the new
accounting standard, our net income for the third quarter of fiscal 2003 would
have increased by 18.4% over our net income in the third quarter of fiscal 2002.
The non-amortization provisions of FAS 142 had an overall positive impact on
our effective income tax rate for the third quarter and first nine months of
fiscal 2003. Our effective income tax rate for the third quarter of fiscal 2003
was 35.25% compared with an effective income tax rate of 36.5% for the third
quarter of fiscal 2002. Had the accounting standard been in place for the third
quarter of fiscal 2002, the effective income tax rate would have been reduced
by 0.8% from 36.5% to 35.7% for that quarter. The remainder of the reduction in
the effective income tax rate resulted from a variety of factors, but
predominately from the changing mix of results of operations of our
subsidiaries in foreign countries that have disparate tax rates.
10Q-10
For the first nine months of fiscal 2003, we earned net income of $5.510
billion, a 22.9% increase over our net income in the first nine months of
fiscal 2002. As discussed above, the comparison of net income earned in the
first nine months of fiscal 2003 with the net income earned in the first nine
months of fiscal 2002 is positively impacted by the accounting change related
to goodwill amortization. As the tax impact of not amortizing goodwill would
have been minimal in dollars, increasing tax expense by only $8 million for the
nine-month period ended October 31, 2001, our net income for that period would
have been increased by $168 million and basic earnings per share would have
increased by $0.04 if we had not amortized goodwill in fiscal 2002. If the
prior year first nine months are adjusted to add back goodwill amortization
that would not have been recorded under the new accounting standard, our net
income for the first nine months of fiscal 2003 would have increased by 18.5%
over our net income in the prior fiscal year's first nine months.
The non-amortization provisions of FAS 142 had an overall positive impact on
our effective income tax rate for the first nine months of fiscal 2003. Our
effective income tax rate for the first nine months of fiscal 2003 was 35.3%
compared with an effective income tax rate of 36.5% for the first nine months
of fiscal 2002. Had the accounting standard been in place for the third quarter
of fiscal 2002, the effective income tax rate would have been reduced by 0.8%
from 36.5% to 35.7% for that nine month period. The remainder of the reduction
in the effective income tax rate resulted from a variety of factors, but
predominately from the changing mix of results of operations of our
subsidiaries in foreign countries that have disparate tax rates.
In mid-October, the German government proposed a number of tax law changes
and spending cuts. The proposed tax changes include provisions which would
place limitations on the utilization of tax loss carryforwards. We have
previously recorded a deferred tax asset related to our tax loss carryforwards
in Germany. However, depending upon the ultimate outcome of the proposed
changes, it is possible that a non-cash charge to earnings would need to be
taken to establish a valuation allowance for the deferred tax asset provided
for Germany tax operating losses to date.
A labor dispute between the International Longshore and Warehouse Union
(ILWU) and the Pacific Maritime Association (PMA) caused a work stoppage at
west coast ports. This work stoppage disrupted trade between the United States
and Asia causing some interruption in the flow of merchandise to Wal-Mart's
distribution centers, stores and Sam's Clubs. Although the impact was not
significant during the quarter ended October 31, a preliminary injunction
issued at the request of President Bush will expire on December 27 following an
80-day cooling off period. Although a tentative agreement has been reached
between the ILWU and the PMA, certain issues remain. While we do not believe
that any further work stoppages would have a material impact on the flow of
merchandise to Wal-Mart's stores, the actual effect of any future work stoppage
on the Company would depend on the timing and duration of the stoppage.
Wal-Mart Stores Segment
Three months ended October 31, 2002
The following table gives selected financial information for the three
months ended October 31, 2002 and 2001 (in million except for percentages):
The third quarter fiscal 2003 sales increase resulted from our continued
expansion activities within the Wal-Mart Stores segment and sales increases in
comparable stores. Expansion during the third quarter of fiscal 2003 included
the opening of 15 Wal-Mart stores, 5 Neighborhood Markets and 87 Supercenters
(including the
10Q-11
conversion of 59 existing Wal-Mart stores into Supercenters) and added
13,726,000 (or 3.7%) of additional store square footage. The comparative store
sales increase for the segment was 4.2% for the third quarter of fiscal 2003
over those in the comparable period in fiscal 2002. Segment sales as a
percentage of our total sales increased from 63.7% in the quarter ended October
31, 2001, to 63.9% for the quarter ended October 31, 2002 as a result of the
expansion in the Wal-Mart Stores segment and its greater increase in
comparative store sales than the increases of the Sam's Clubs and International
segments.
The increase in the Wal-Mart Stores segment's operating income for the third
quarter of fiscal 2003 resulted primarily from gross margin improvements
partially offset by an increase in operating expenses as a percentage of sales.
Operating expenses as a percentage of segment sales increased by 0.2% when
compared to the third quarter of the prior fiscal year. This increase was
primarily a result of increased insurance, store pre-opening and property tax
costs as a percentage of sales. Gross margin as a percentage of segment sales
improved by 0.3% when compared to gross margin for the third quarter of the
prior fiscal year. This improvement in gross margin resulted from a change in
customer purchasing preferences to items which carry higher margins and
improvements in shrinkage and markdowns as a percentage of sales when compared
to the same period in the last fiscal year.
Nine months ended October 31, 2002
The following table gives selected financial information for the nine months
ended October 31, 2002 and 2001 (in millions except for percentages):
The sales increase for the first nine months of fiscal 2003 resulted from
our continued expansion activities within the Wal-Mart Stores segment and sales
increases in comparable stores. Expansion during the first nine months of
fiscal 2003 included the opening of 36 Wal-Mart stores, 8 Neighborhood Markets
and 177 Supercenters (including the conversion of 116 existing Wal-Mart stores
into Supercenters) and added 28,155,000 (or 7.9%) of additional store square
footage. The comparative store sales increase for the segment was 6.6% for the
first nine months of fiscal 2003. Segment sales as a percentage of our total
sales increased from 64.0% in the nine-month period ended October 31, 2001, to
64.4% for the nine-month period ended October 31, 2002.
The increase in the Wal-Mart Stores segment's operating profit as a
percentage of segment sales for the first nine months of fiscal 2003 resulted
primarily from gross margin improvements. Gross margin improved by 0.2% when
compared to gross margin for the first nine months of the prior fiscal year.
This improvement in our gross margin resulted from a change in customer
purchasing preferences to items which carry higher margins, and improvements in
shrinkage and markdowns as a percentage of sales when compared to the same
period in the last fiscal year. A 0.1% increase in operating expenses stated as
a percentage of segment sales partially offset the improved margin. The
increase in operating expenses as a percentage of sales was the result of
increased insurance, store pre-opening and property tax costs as a percentage
of sales.
Sam's Club Segment
Three months ended October 31, 2002
The following table gives selected financial information for the three
months ended October 31, 2002 and 2001 (in millions except for percentages):
10Q-12
The Sam's Clubs segment sales increase for the quarter ended October 31,
2002 resulted from the Sam's Clubs segment's continued expansion activities and
sales increases in comparable clubs. Expansion during the third quarter of
fiscal 2003 consisted of the opening of 10 new clubs and added 1,688,000 (or
2.7%) of additional club square footage. For the segment, the comparative sales
increase was 0.4% for the quarter ended October 31, 2002. Segment sales as a
percentage of our total Company sales decreased from 13.8% in the quarter ended
October 31, 2001, to 13.2% for the quarter ended October 31, 2002. The
reduction in the Sam's Clubs segment's sales as a percentage of total Company
sales resulted from greater growth in the Wal-Mart Stores and International
segments than the growth in the Sam's Clubs segment in the three months ended
October 31, 2002.
The decrease in the segments operating income as a percentage of segment
sales for the third quarter of fiscal 2003 is the result of an increase in
operating expenses as a percentage of segment sales offset by an increase in
other income as a percentage of sales. Operating expense as a percentage of
sales increased by 0.4% for the quarter ended October 31, 2002 when compared to
the prior fiscal year third quarter. This increase in operating expense was
driven primarily by increased insurance, payroll and property tax costs. Other
income, which consists mainly of club membership revenue, as a percentage of
segment sales increased by 0.1%. Gross margin as a percentage of segment sales
remained stable when compared to the prior year third quarter.
Nine months ended October 31, 2002
The following table gives selected financial information for the nine months
ended October 31, 2002 and 2001 (in millions except for percentages):
The Sam's Clubs segment sales increase for the nine months ended October 31,
2002 resulted from the Sam's Clubs segment's continued expansion activities and
sales increases in comparable clubs. Expansion during the first nine months of
fiscal 2003 consisted of the opening of 22 new clubs and added 3,534,000 (or
5.7%) of additional club square footage. For the segment, the comparative sales
increase for the nine months ended October 31, 2002 was 3.4% over the
comparable period in fiscal 2002. Segment sales as a percentage of our total
Company sales decreased from 13.7% in the nine months ended October 31, 2001,
to 13.3% for the nine months ended October 31, 2002. The reduction in the Sam's
Clubs segment's sales as a percentage of total Company sales resulted from
greater growth in the Wal-Mart Stores and International segments than the
growth in the Sam's Clubs segment.
The decrease in segment operating profit as a percentage of segment sales
for the first nine months of fiscal 2003 is the result of an increase in
operating expenses as compared to the results of the comparable period in
fiscal 2002. Operating expense as a percentage of segment sales increased by
0.3% for the nine months ended October 31, 2002, when compared to the nine
months ended October 31, 2001. The increase in operating expenses was driven
primarily by increased insurance, payroll and property tax costs. Other income
as a percentage of segment sales and gross margin as a percentage of segment
sales both remained stable as compared to the prior year nine-month period.
International Segment
Three months ended October 31, 2002
The following table gives selected financial information for the three
months ended October 31, 2002 and 2001 (in millions except for percentages):
10Q-13
The International segment sales for the quarter ended October 31, 2002 when
compared to segment sales in the same period in fiscal 2002 increased as a
result of continued expansion activities within the segment, comparative store
sales increases, and an expansion of the types of products and services
offered. During the third quarter of fiscal 2003, expansion in the
International segment added 23 units in 6 countries and 2,366,000 (or 2.3%) of
additional square footage. Our strongest comparative stores sales increases
were in the UK and Canada. International sales as a percentage of total Company
sales increased from 16.5% in the quarter ended October 31, 2001, to 16.9% for
the quarter ended October 31, 2002. This increase results from the comparative
stores increase, the expansion program in the International segment, and a $98
million positive impact of currency conversion on segment sales.
The International segment operating income for the quarter ended October 31,
2002, increased as a percent of the segment's sales from quarter ended October
31, 2001, primarily as the result of a 0.4% increase in gross margin and a 0.5%
reduction in operating expenses stated as a percentage of segment sales between
those periods. The adoption of FAS 142 positively affected the comparison of
operating income between the third quarter of fiscal 2003 and the third quarter
of fiscal 2002 because, in accordance with FAS 142, the Company did not record
any goodwill amortization expenses in the third quarter of fiscal 2003. If the
International segment's expenses for the third quarter of fiscal 2002 were
adjusted to remove the goodwill amortization expense recorded for that period
(but which would not have been recorded if FAS 142 had been in place in the
prior year), the reduction of operating expenses stated as a percentage of
segment sales would have changed from the 0.5% reduction discussed above to a
0.1% increase and the International segment's operating income would have
increased by $51 million to be $365 million for the third quarter of fiscal
2002. If FAS 142 had been effective in fiscal 2002 and that adjustment had been
made, the segment's operating income increase from the prior fiscal year's
third quarter would have been reduced from 42.4% to 22.5%.
Nine months ended October 31, 2002
The following table gives selected financial information for the nine months
ended October 31, 2002 and 2001 (in millions except for percentages):
The International segment sales for the nine-month period ended October 31,
2002, when compared to the sales in the same period in fiscal 2002 increased as
a result of continued expansion activities within the segment, comparative
store sales increases, and an expansion of the types of products and services
offered. During the first nine months of fiscal 2003, expansion in the
International segment added 60 units in 7 countries and 5,494,000 (or 5.6%) of
additional square footage. Our strongest comparative store sales increases were
in the United Kingdom and Canada. International sales as a percentage of total
Company sales increased from 16.1% in the nine month period ended October 31,
2001, to 16.5% for the nine-month period ended October 31, 2002. This increase
results from the comparative stores increase, the expansion program and was
slightly offset by a $39 million negative impact of currency conversion on
segment sales.
The International segment operating income increased as a percent of the
segment's sales from the first nine months of fiscal 2002 to the first nine
months of fiscal 2003 primarily as the result of a 0.5% increase in gross
margin and a 0.8% reduction in operating expenses stated as a percentage of
segment sales. The adoption of FAS 142 affected the comparison of operating
income between the first nine months of fiscal 2003 and the first nine months
of fiscal 2002 because, in accordance with FAS 142, the Company did not record
any goodwill
10Q-14
amortization expenses in the first nine months of fiscal 2003. If the
International segment's expenses for the first nine months of fiscal 2002 are
adjusted to remove the goodwill amortization expense recorded for that period
(but which would not have been recorded if FAS 142 had been in place in the
prior year), the reduction of operating expenses stated as a percentage of
segment sales would have been reduced from the 0.8% reduction discussed above
to 0.2% reduction and the International segment's operating income would have
increased $154 million to be $908 million for the nine month period of fiscal
2002. If FAS 142 had been effective in fiscal 2002 and that adjustment had been
made, the segment's operating income increase from the prior fiscal year's
first nine months would have been reduced from 69.4% to 40.5%.
Other Segment
Sales in the Other segment result from sales to third parties by the
Company's wholly owned subsidiary McLane Company, Inc., ("McLane") a wholesale
distributor. McLane offers a wide variety of grocery and non-grocery products,
which it sells to a variety of retailers including the Company's Wal-Mart
Stores and Sam's Club segments.
Operating losses for the segment in each of the periods presented are
primarily the result of corporate overhead expenses of Wal-Mart Stores, Inc.
including insurance costs, bonus accruals, legal costs and various other costs,
which are partially offset by McLane operating income.
Three months ended October 31, 2002
The following table gives selected financial information for the three
months ended October 31, 2002 (in millions except for percentages):
McLane's sales accounted for approximately 6.0% of total Company sales in
the three-month period ended October 31, 2002, compared with 6.0% in same
period in fiscal 2002.
The large increase in McLane sales in the third quarter of fiscal 2002 from
fiscal 2001, when compared to the increase experienced in the third quarter of
fiscal 2003 from the previous quarter of fiscal year 2002, is due to its
acquisition of AmeriServe Food Distribution, Inc. in late fiscal 2001.
Operating losses for the segment in each of the periods presented are
primarily the result of corporate overhead expenses for Wal-Mart Stores, Inc.
including insurance costs, bonus accruals, legal costs and various other costs,
which are partially offset by McLane operating income.
Nine months ended October 31, 2002
The following table gives selected financial information for the nine months
ended October 31, 2002 and 2001 (in million except for percentages):
10Q-15
McLane's sales accounted for approximately 5.9% of total Company sales in
the first nine months of fiscal 2003, compared with 6.2% in the same period in
fiscal 2002. The decrease is attributable to greater increases in the sales in
other segments of our operations.
The increase in McLane sales in the first nine months of fiscal 2002 as
compared to the prior fiscal year is the result of its acquisition of
AmeriServe Food Distribution, Inc. (AmeriServe), which was completed late in
fiscal 2001.
Operating losses for the segment in each of the periods presented are
primarily the result of corporate overhead expenses for Wal-Mart Stores, Inc.
including insurance costs, bonus accruals, legal costs and various other costs,
which are partially offset by McLane operating income.
Liquidity and Capital Resources
Cash flows provided by operating activities were $5.5 billion for the first
nine months of fiscal 2003, compared with $3.9 billion for the comparable
period in fiscal 2002. Operating cash flow increased for the nine months ended
October 31, 2002, primarily due to an increase of $3.2 billion in accounts
payable compared with an increase in accounts payable of $2.8 billion in the
first nine months of fiscal 2002, offset by the addition of $6.9 billion in
inventory in the first nine months of fiscal 2003 compared with an increase in
inventory of $6.2 billion in the comparable period in fiscal 2002.
Additionally, accrued liabilities increased by $836 million in the first nine
months of fiscal 2003 compared with an increase of $487 million in the
comparable period of the prior fiscal year. The increases in accounts payable
and inventory are due to the seasonal build-up of inventory for the holiday
season. The greater increase in accrued liabilities is due to a number of
reasons, the most significant of which were increases in accruals for insurance
and taxes other than income taxes.
During the first nine months of fiscal 2003, we paid dividends of $997
million, made capital expenditures of $6.9 billion, repurchased $2.3 billion of
our common stock, made principal payments on long-term debt of $1.2 billion,
issued long-term debt totaling $2.0 billion and increased our commercial paper
borrowings by $3.6 billion.
At October 31, 2002, we had total assets of $95.7 billion compared with
total assets of $83.5 billion at January 31, 2002. Our working capital deficit
at October 31, 2002, was $2.4 billion, a decrease of $3.4 billion from the $964
million positive working capital at January 31, 2002. Our ratio of current
assets to current liabilities was 0.9 to 1, at October 31, 2002, and 1 to 1 at
January 31, 2002 and October 31, 2001.
In March 2002, we sold $500 million of 4.15% notes that will mature in
calendar 2005. In July 2002, we sold $1 billion of 4.375% notes that will
mature in calendar 2007. In September 2002, we sold an additional $500 million
of 4.375% notes, with an effective rate of 3.537%, that will mature in calendar
2007.
During August 2002, our Board of Directors approved a new $5 billion share
repurchase program replacing the previous $3 billion program. Shares purchased
under our share repurchase program are constructively retired and returned to
unissued status. We consider several factors in determining when to make share
repurchases, including among other things our current cash needs, our cost of
borrowing, and the market price of the stock. There is no expiration date
governing the period over which we can make our share repurchases. At October
31, 2002 $4.4 billion of authorized purchases remain available under this
repurchase program.
On December 5, 2002 we completed our purchase of Supermercados Amigo, Inc.
(Amigo), a supermarket chain located in Puerto Rico. This acquisition was
completed at a cash cost of approximately $225 million and was financed by
commercial paper.
During December of 2002 we have the right, but not the obligation, to
exercise a warrant which allows us to purchase an additional interest in The
Seiyu Ltd. Assuming that we exercise this warrant our ownership percentage in
that company would increase to approximately 34% on a fully diluted basis.
Exercising the warrant would require us to pay 52 billion yen, or approximately
$416 million at an exchange rate of 125 yen per dollar which would be financed
by commercial paper.
10Q-16
If our operating cash flows are not sufficient to pay the dividend payable
on our common stock (which is currently $0.30 per share annually) and to fund
all of our capital expenditures, we anticipate funding any shortfall in these
expenditures by selling a combination of commercial paper and long-term debt
securities. We plan to refinance existing long-term debt as it matures and may
desire to obtain additional long-term financing for other corporate purposes.
We anticipate no difficulty in obtaining long-term financing in view of our
credit rating and favorable experiences in the debt market in the recent past.
As of October 31, 2002, we may issue up to $500 million of debt securities in
the public markets under a shelf registration statement previously filed with
the United States Securities and Exchange Commission. As we foresee the need to
publicly offer and sell in the future debt securities in excess of our capacity
under current registrations, we will register for the shelf additional debt
securities. In December 2002, we intend to file with the SEC a shelf
registration statement to register an additional $10 billion of our debt
securities. Our objective is to maintain a debt to total capitalization ratio
of approximately 40%. At October 31, 2002 and January 31, 2002, the ratio of
our debt to our total capitalization was 41.3% and 38.4%, respectively.
Recently Announced Change in Accounting Method
In August 2002, we announced that on February 1, 2003 we will adopt the
expense recognition provisions of the Financial Accounting Standards Board
Statement No. 123 Accounting and Disclosure of Stock-Based Compensation ("FAS
123"). Under FAS 123, compensation expense is recognized based on the fair
value of stock options granted. Under the accounting transition rules currently
in place for adopting FAS 123, the impact on our income statement will be less
than $0.01 per share in the year of adoption. The accounting standard setters
are currently reconsidering the transition provision for adopting FAS 123 and
may provide alternative accounting methods when adopting FAS 123. Based on our
understanding of the accounting methods currently under consideration, we do
not believe that the impact of changing the accounting method for the adoption
of FASB 123 would have an impact of greater than $0.01 to $0.02 per share on
our earnings per share in the year of adoption.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Market risks relating to our operations result primarily from changes in
interest rates and changes in currency exchange rates. Our market risks at
October 31, 2002 are similar to those disclosed in our Annual Report on Form
10-K for the year ended January 31, 2002. However, we added the $5 billion
notional interest rate swaps designated as fair value hedges disclosed in the
following table during the first nine months of fiscal 2003.
During the first nine months of fiscal 2003, interest rate swaps with a
notional amount of $500 million that had been in existence at January 31, 2002
matured. The fair value of the $3.3 billion notional amount of remaining
interest rate swaps designated as fair value hedges at January 31, 2002
increased from $144 million at
10Q-17
January 31, 2002 to $340 million at October 31, 2002. The fair value of our
cross-currency derivative instruments designated as net investment hedges
increased from $192 million at January 31, 2002 to $216 million at October 31,
2002. Our $325 million cross-currency interest rate swap designated as a cash
flow hedge increased in fair value from $8 million at January 31, 2002 to $15
million at October 31, 2002. We continue to evaluate our risk management
strategies in light of the adoption of FAS 133.
At October 31, 2002, the percentage of our total variable interest rate debt
instruments (including both interest rate swaps and commercial paper) to total
debt (including commercial paper) was 57%. We have evaluated the appropriate
mix of fixed rate versus variable rate debt and believe that the appropriate
amount of average total debt (including commercial paper) for the year that
should be subject to variable interest rates is between 40% to 60%, with a
current target in the middle of that range.
The information concerning market risk under the sub-caption "Market Risk"
of the caption "Management's Discussion and Analysis" on pages 20 through 23 of
the Annual Report to Shareholders for the year ended January 31, 2002, that is
an exhibit to our Annual Report on Form 10-K for the year ended January 31,
2002, and which exhibit is hereby incorporated by reference into this Quarterly
Report on Form 10-Q.
Item 4. Controls and Procedures.
We maintain a set of disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the reports filed by
us under the Securities Exchange Act of 1934, as amended ("Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Within the 90 days prior to the date of this
report, we carried out an evaluation, under the supervision of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
13a-14 of the Exchange Act. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective.
There have been no significant changes in our internal controls or other
factors that could significantly affect those controls subsequent to the date
of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
10Q-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We discussed certain legal proceedings pending against us in Part I of this
Quarterly Report on Form 10-Q under the caption "Item 1. Financial Statements,
Note 7: Contingencies" and refer you to that discussion for important
information concerning those legal proceedings.
Item 103 of the Securities and Exchange Commission's Regulation S-K requires
disclosure of any proceeding brought for the purpose of protecting the
environment to which a governmental authority is a party and in which the
potential monetary sanctions involved exceed $100,000. We are disclosing the
following items in accordance with Item 103.
In February 1999, the Company settled claims made by the Pennsylvania
Department of Environmental Protection (PDEP) regarding a store in Honesdale,
Pennsylvania. The PDEP alleged that a subcontractor's acts and omissions
relating to the construction of the store 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 a settlement of a claim by the
United States Army Corps of Engineers that the construction of the Honesdale
store 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 of Engineers would require the Company to pay $200,000 to a
non-profit corporation for the purchase of local wetlands conservation areas
and easements. The contractor on the project has reimbursed the Company for the
amounts paid in connection with the settlement matter.
During fiscal 2001, the State of Connecticut filed suit against the Company
in the State of Connecticut Superior Court for the Judicial District of
Hartford alleging various violations of state environmental laws and alleging
that the Company failed to obtain the appropriate permits or failed to maintain
required 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 those stores.
Item 5. Other Information
This Quarterly Report contains statements that Wal-Mart believes are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and intended to enjoy the protection of the safe
harbor for forward-looking statements provided by that Act. These
forward-looking statements generally can be identified by use of phrases such
as "believe," "expect," "anticipate," "intend," "plan," "foresee" or other
similar words or phrases. Similarly, descriptions of our objectives,
strategies, plans, goals or targets are also forward-looking statements. These
statements discuss, among other things, expected growth, future revenues,
future cash flows, future performance and the anticipation and expectations of
Wal-Mart and its management as to future occurrences and trends. These
forward-looking statements are subject to risks, uncertainties and other
factors, in the United States and internationally, including, the cost of
goods, competitive pressures, inflation, consumer spending patterns and debt
levels, currency exchange fluctuations, trade restrictions, changes in tariff
and freight rates, interest rate fluctuations and other capital market
conditions, and other risks. We discuss certain of these matters more fully in
other of our filings with the SEC, including our Annual Report on Form 10-K for
our fiscal year 2002, which was filed with the SEC on April 15, 2002; this
Quarterly Report should be read in conjunction with our Annual Report on Form
10-K, and together with all our other filings, including Current Reports on
Form 8-K, made with the SEC through the date of this report. You are urged to
consider all of these risks, uncertainties and other factors carefully in
evaluating the forward-looking statements. As a result of these matters,
including changes in facts, assumptions not being realized or other
circumstances, our actual results may differ materially from historical results
or from anticipated results expressed or implied in these forward-looking
statements. The forward-looking statements included in this Quarterly Report
are made only as of the date of this report and we undertake no obligation to
update these forward-looking statements to reflect subsequent events or
circumstances.
10Q-19
Item 6. Exhibits and Reports on Form 8-K
(a)The following documents are filed as an exhibit to this Form 10-Q:
Exhibit 12--Statement Re Computation of Ratios
Exhibit 99--Information concerning market risk under the sub-caption
"Market Risk" of the caption "Management's Discussion and Analysis" on
pages 20 through 23 of the Annual Report to Shareholders for the year
ended January 31, 2002, that is an exhibit to the our Annual Report on
Form 10-K for the year ended January 31, 2002, and which exhibit has
been incorporated by reference into this Quarterly Report on Form 10-Q.
(b)Reports on Form 8-K
Report on Form 8-K, dated August 14, 2002, with respect to the Company's
filing on August 14, 2002, of the principal executive officers and
principal financial officers signing and submission to the Securities
and Exchange Commission of the sworn statements required by Commission
Order No. 4-460.
Report on Form 8-K, dated September 20, 2002, with respect to the
Company's completion on September 20, 2002, of the sale of $500 million
4.375% notes due in calendar year 2007.
10Q-20
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.
/s/ H. LEE SCOTT, JR.
Date: December 6, 2002 ---------------------------
H. Lee Scott, Jr.
President and
Chief Executive Officer
/s/ THOMAS M. SCHOEWE
Date: December 6, 2002 ---------------------------
Thomas M. Schoewe
Executive Vice President
and Chief Financial Officer
10Q-21
CERTIFICATIONS
I, H. Lee Scott, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wal-Mart Stores, Inc.
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002
/s/ H. LEE SCOTT, JR.
-----------------------------
H. Lee Scott, Jr.
President and
Chief Executive Officer
10Q-22
I, Thomas M. Schoewe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wal-Mart Stores, Inc.
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002
/s/ THOMAS M. SCHOEWE
-----------------------------
Thomas M. Schoewe
Executive Vice President
and Chief Financial Officer
10Q-23
Exhibit 12
Statement re computation of ratios
- --------
* Does not include the cumulative effect of accounting change recorded by the
Company in Fiscal 2000
Exhibit 99
Market Risk
Market risks relating to our operations include changes in interest rates
and changes in foreign exchange rates. We enter into interest rate swaps to
minimize the risk and costs associated with financing activities, as well as to
attain an appropriate mix of fixed and floating rate debt. The swap agreements
are contracts to exchange fixed or variable rates for variable or fixed
interest rate payments periodically over the life of the instruments. The
following tables provide information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest
rates. For debt obligations, the table presents principal cash flows and
related weighted-average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional amounts and interest rates by
contractual maturity dates. The applicable floating rate index is included for
variable rate instruments. All amounts are stated in United States dollar
equivalents.
Interest Rate Sensitivity as of January 31, 2002
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
10Q-24
Interest Rate Sensitivity as of January 31, 2002
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
- --------
Rate A--one-month U.S. LIBOR
Rate B--three-month U.S. LIBOR
Rate C--U.S. commercial paper
10Q-25
Interest Rate Sensitivity as of January 31, 2001
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
- --------
Rate A--one-month U.S. LIBOR minus 0.15%
Rate B--30-day U.S. dollar commercial paper non-financial
Rate C--U.S. commercial paper
10Q-26
The Company holds currency swaps to hedge its net investment in the United
Kingdom. The following tables provide information about our cross-currency
interest rate swap agreements by functional currency, and presents the
information in United States dollar equivalents. For these instruments the
tables present notional amounts, exchange rates and interest rates by
contractual maturity date.
Foreign Currency Exchange Rate Sensitivity as of January 31, 2002
Principal (Notional) Amount by Expected Maturity
10Q-27
Foreign Currency Exchange Rate Sensitivity as of January 31, 2001
Principal (Notional) Amount by Expected Maturity
During the fourth quarter of fiscal 2002, the Company terminated certain
cross currency instruments that hedged portions of the Company's investments in
Canada, Germany and the United Kingdom. The instruments terminated had notional
amounts of $6.7 billion. The Company received $1.1 billion in cash related to
the fair value of the instruments at the time of the terminations. Prior to the
terminations, these instruments were classified as net investment hedges and
were recorded at fair value as current assets on the balance sheet with a like
amount recorded in the shareholders' equity section of the balance sheet in
line "other accumulated comprehensive income." No gain related to the
terminations was recorded in the Company's income statement.
We routinely enter into forward currency exchange contracts in the regular
course of business to manage our exposure against foreign currency fluctuations
on cross-border purchases of inventory. These contracts are generally for
durations of six months or less. At January 31, 2002 and 2001, we held
contracts to purchase and sell various currencies with notional amounts of $118
million and $292 million, respectively, and net fair values of $0 and $6
million, respectively. The fair values of the currency swap agreements are
recorded in the consolidated balance sheets within the line "other assets and
deferred charges."
10Q-28
PRINCIPAL EXECUTIVE OFFICES OF WAL-MART STORES, INC.
Wal-Mart Stores, Inc.
702 S.W. 8/th/ Street
Bentonville, Arkansas 72716
U.S.A.
TRUSTEE, U.S. PAYING AGENT
AND U.S. TRANSFER AGENT
Bank One Trust Company, NA
One North State Street
9/th/ Floor, Chicago, Illinois 60670
U.S.A.
REGISTRAR, DEALER MANAGER
LONDON PAYING AGENT Credit Suisse First Boston
AND (Europe) Limited
LONDON TRANSFER AGENT One Cabot Square
Bank One, NA London E14 4QJ England
27 Leadenhall Street Telephone: 44 (0) 20 7883 5423
London EC3A 1AA Facsimile: 44 (0) 20 7890 2367
England
Attn: Corporate Trust Operations
Facsimile: 44 (0) 20 7867 9186
Telephone: 44 (0) 20 7903 4913
INFORMATION AGENT EXCHANGE AGENT
Georgeson Shareholder BankOne, NA
Communications Limited 27 Leadenhall Street
38 Bishopsgate, Crosby Court London EC3A 1AA
London, EC2N 4AF England
England Attn: Corporate Trust Operations
Telephone: 44 (0) 20 7335 8700 Facsimile: 44 (0) 20 7867 9186
Telephone: 44 (0) 20 7903 4913
LEGAL ADVISERS
To Wal-Mart as to U.S. Law To the Dealer Manager as to U.S.
Hughes & Luce, L.L.P. Law
1717 Main Street Dallas, Texas Milbank, Tweed, Hadley &
75201 U.S.A. McCloy, LLP
One Chase Manhattan Plaza New
York, New York 10005 U.S.A.
To Wal-Mart as to English Law To the Dealer Manager as to
Simmons & Simmons English Law
CityPoint One Ropemaker Street Milbank, Tweed, Hadley &
London, EC2Y 9SS England McCloy
69 Old Broad Street
London EC2M 1QS
England
INDEPENDENT AUDITORS AUTHORISED ADVISOR
Ernst & Young LLP Credit Suisse First Boston
3900 One Williams Center (Europe) Limited
Tulsa, Oklahoma 74172 One Cabot Square
U.S.A. London E14 4QJ England