1-4 INTEGRATIVE CASE 1.1 Walmart The first case at the end of this chapter and numerous subsequent chapters is a series of integrative cases involving Wal-Mart Stores, Inc. (Walmart). The series of cases applies the concepts and analytical tools discussed in each chapter to Walmart's financial statements and notes. The prepara- tion of responses to the questions in these cases results in an integrated illustration of the six se- quential steps in financial statement analysis discussed in this chapter and throughout the book. Introduction Walmart is a very large chain of retail stores selling consumer goods. As it states in its Form 10- K for fiscal 2015: Wal-Mart Stores, Inc. ("Walmart," the "Company" or "we") helps people around the world save money and live betteranytime and anywhere-in retail stores or through our e-commerce and mobile capabilities. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping. Physical retail encompasses our brick and mortar presence in each market where we operate. Digital retail is comprised of our e-commerce websites and mobile commerce applications. Each week, we serve nearly 260 million customers who visit our over 11,500 stores under 63 banners in 28 countries and e-commerce websites in 11 countries. Our strategy is to lead on price, differentiate on access, be competitive on assort- ment and deliver a great experience. Leading on price is designed to earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Price leadership is core to who we are. Everyday low cost ("EDLC") is our commitment to control expenses so those cost sav- ings can be passed along to our customers. Our digital and physical presence provides customers access to our broad assortment anytime and anywhere. We strive to give our customers and members a great digital and physical shopping experience. For more detailed discussion of Walmart's stores, products, customers, and business model, visit the company's website: www.corporate.walmart.com.13 Financial Statements Exhibit 1.19 presents comparative balance sheets, Exhibit 1.20 presents comparative income statements, and Exhibit 1.21 (pages 62-63) presents comparative statements of cash flows for Walmart for the three fiscal years ending January 31, 2014, 2015, and 2016. Walmart prepares its financial statements in accordance with U.S. GAAP. For more detail on Walmart financial statements, or to download the fiscal 2015 Form 10-K, you can visit Walmart's investor relations page: www.stock.walmart.com/investors/default.aspx. 14 Exhibit 1.19 Wal-Mart Stores, Inc. Balance Sheets as of January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 2016 $ $ 9,135 6,778 45,141 2,224 8,705 5,624 44,469 1,441 $ 7,281 6,677 44,858 1,909 460 $ 61,185 178,678 (60,771) 19,510 6,149 $204,751 $ 63,278 182,634 (65,979) 18,102 5,455 $203,490 $ 60,239 188,054 (71,538) 16,695 6,131 $199,581 Assets: Cash and cash equivalents Accounts and notes receivablenet Inventories Prepaid expenses and other current assets Current assets of discontinued segments Current Assets Property, plant, and equipment-at cost Accumulated depreciation Goodwill Other assets Total Assets Liabilities and Equities: Accounts payable Current accrued expenses Notes payable and short-term debt Current maturities of long-term debt Income taxes payable Current liabilities of discontinued operations Current Liabilities Long-term debt obligations Deferred tax liabilities-noncurrent Redeemable noncontrolling interest Total Liabilities Common stock + Additional paid-in capital Retained earnings Accum. other comprehensive income (loss) Total Common Shareholders' Equity Noncontrolling interests Total Equity Total Liabilities and Equities $ 38,410 19,152 1,592 5,078 1,021 $ 38,487 19,607 2,708 3,296 521 $ 65,253 43,495 8,805 $ 64,619 44,030 7,321 $ 37,415 18,793 7,670 4,412 966 89 $ 69,345 44,559 8,017 1,491 $123,412 2,685 76,566 (2,996) $ 76,255 5,084 $ 81,339 $204,751 $117,553 2,785 85,777 (7,168) $ 81,394 4,543 $ 85,937 $203,490 $115,970 2,122 90,021 (11,597) $ 80,546 3,065 $ 83,611 $199,581 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. Exhibit 1.20 Wal-Mart Stores, Inc. Income Statements for the Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 2016 Revenues Cost of goods sold Gross Profit Selling, general, and administrative expenses Operating Profit Interest income Interest expense Income before Tax Income tax expense Income (Loss) from discontinued operations Net Income Net income attributable to noncontrolling interests Net Income Attributable to Common Shareholders Other comprehensive income items Comprehensive Income $ 476,294 358,069 $118,225 91,353 $ 26,872 119 (2,335) $ 24,656 8,105 144 $ 16,695 (673) $ 16,022 (2,409) $ 13,613 $ 485,651 365,086 $120,565 93,418 $ 27,147 113 (2,461) $ 24,799 7,985 285 $ 17,099 (736) $ 16,363 (4,172) $ 12,191 $ 482,130 360,984 $121,146 97,041 $ 24,105 81 (2,548) $ 21,638 6,558 $ 15,080 (386) $ 14,694 (4,429) $ 10,265 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. Exhibit 1.21 Wal-Mart Stores, Inc. Statements of Cash Flows for the Three Fiscal Years Ended January 31 (amounts in millions; allow for rounding) (Integrative Case 1.1) 2014 2015 2016 (19) Net Income $ 16,695 $ 17,099 $ 15,080 Add back depreciation and amortization expenses 8,870 9,173 9,454 Deferred income taxes (279) (503) (672) (Increase) Decrease in accounts receivable (566) (569) (Increase) Decrease in inventories (1,667) (1,229) (703) Increase (Decrease) in accounts payable 531 2,678 2,008 Increase (Decrease) in income taxes payable (1,224) 166 (472) Increase (Decrease) in other current liabilities 103 1,249 1,303 (Income) Loss from discontinued segments (144) (285) Other operating cash flows 938 785 1,410 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WEN 02-200-203 Net Cash Flow from Operating Activities $ 23,257 $ 28,564 $ 27,389 (Continued) Exhibit 1.21 (Continued) 727 (13,115) 570 (12,174) 635 (11,477) Proceeds from sales of property, plant, and equipment Property, plant, and equipment acquired Investments acquired Other investment transactions Net Cash Flow from Investing Activities Increase (Decrease) in short-term borrowing Increase (Decrease) in long-term borrowing Share repurchasestreasury stock Dividend payments Other financing activities Net Cash Flow from Financing Activities Effects of exchange rate changes on cash Net Change in Cash Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (138) $(12,526) 911 2,104 (6,683) (6,139) (982) $(10,789) (442) $ (500) $ 7,781 $ 7,281 479 $(11,125) (6,288) 1,270 (1,015) (6,185) (2,853) $(15,071) (514) $ 1,854 $ 7,281 $ 9,135 167 $(10,675) 1,235 (4,393) (4,112) (6,294) (2,558) $(16,122) (1,022) $ (430) $ 9,135 $ 8,705 Source: Wal-Mart Stores, Inc. Forms 10-K for the three fiscal years ended January 31, 2014, 2015, and 2016. Balance Sheet C. Describe how "cash differs from "cash equivalents." d. What are Walmart's two largest assets on the balance sheet (in dollar amounts)? How do these assets reflect Walmart's strategy? e. Walmart reports accounts receivable net of an allowance for uncollectible accounts. Why? Identify the events or transactions that cause accounts receivable to increase and decrease. Also identify the events or transactions that cause the allowance account to increase and decrease. f. How does accumulated depreciation on the balance sheet differ from depreciation expense on the income statement? g. What is Walmart's largest current liability in dollar amount? What does it represent? h. What is Walmart's largest liability in dollar amount? In what types of assets did Walmart likely invest this financing? i. What does Walmart report in accumulated other comprehensive income (loss)? What does this amount represent? When, if ever, will these gains and losses appear in net income