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MANAGEMENT 120A CASE 2 Target versus Wal-Mart DEPRECIATION DIFFERENCES Objective: Depreciation differences and financial statement analysis. Target...

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MANAGEMENT 120A CASE 2 Target versus Wal-Mart DEPRECIATION DIFFERENCES Objective: Depreciation differences and financial statement analysis. Target Corporation is a general merchandise retailer. Its Target and Supertarget stores are part of the upscale discount chain. Wal-Mart Stores, Inc. operates retail stores in various retailing format in all 50 states in the United States. The company’s merchandising operations serve its customers primarily through the operation of three segments: the Wal-Mart stores segment includes its 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 its operations in Argentina, Brazil, Canada, China, Japan, Germany, Korea, Mexico, Puerto Rico, and the United Kingdom. Information taken from both firms’ 2003 annual reports to shareholders follows: CONSOLIDATED RESULTS OF OPERATIONS (millions, except per share data) 2002 2001 2000 Sales $ 42,722 $ 39,114 $ 36,310 Net credit card revenues 1,195 712 541 Total revenues 43,917 39,826 36,851 Cost of sales 29,260 27,143 25,214 Selling, general and administrative expense 9,416 8,461 7,928 Credit card expense 765 463 290 Depreciation and amortization 1,212 1,079 940 Interest expense 588 473 426 Earnings before income taxes 2,676 2,207 2,053 Provision for income taxes 1,022 839 789 Net earnings 1,654 1,368 1,264 Basic earnings per share $ 1.82 $ 1.52 $ 1.40 Diluted earnings per share $ 1.81 $ 1.50 $ 1.38 Weighted average common shares outstanding: Basic 908.0 901.5 903.5 Diluted 914.0 909.8 913.0 Page | 1
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Management 120A Page | 2 (millions) February 1, 2003 February 2, 2002 Property and equipment Land 3,236 2,833 Buildings and improvements 11,527 10,103 Fixtures and equipment 4,983 4,290 Construction-in-progress 1,190 1,216 Accumulated depreciation (5,629 ) (4,909 ) Property and equipment, net 15,307 13,533 Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives. Depreciation expense for the years 2002, 2001 and 2000 was $1,183 million, $1,049 million and $913 million, respectively. Accelerated depreciation methods are generally used for income tax purposes. Estimated useful lives by major asset category are as follows: Asset Life (in years) Buildings and improvements 8-50 Fixtures and equipment 4-8 Computer hardware and software 4
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