Walmart 1998 Annual Report Download - page 30

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts
of subsidiaries. Significant intercompany transactions have
been eliminated in consolidation.
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 domestic Wal-Mart discount stores and
Supercenters and cost LIFO for SAM’S Clubs. International
inventories are on other cost methods. Inventories are not in
excess of market value.
Pre-opening costs
Costs associated with the opening of stores are expensed
during the first full month of operations. The costs are carried
as prepaid expenses prior to the store opening. If the
Company had expensed these costs as incurred, net income
would have been reduced by $2 million, $9 million and
$2 million in fiscal 1998, 1997 and 1996, respectively.
Interest during construction
In order that interest costs properly reflect only that
portion relating to current operations, interest on borrowed
funds during the construction of property, plant and
equipment is capitalized. Interest costs capitalized were
$33 million, $44 million and $50 million in 1998, 1997 and
1996, respectively.
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. Settlements of interest rate swaps are accounted for
by recording the net interest received or paid as an
adjustment to interest expense on a current basis. Gains or
losses resulting from market movements are not recognized.
Contracts that effectively meet risk reduction and correlation
criteria are recorded using hedge accounting. Hedges of firm
commitments or anticipated transactions are deferred and
recognized when the hedged transaction occurs.
Advertising costs
Advertising costs are expensed as incurred and were $292
million, $249 million and $219 million in 1998, 1997 and 1996,
respectively.
Operating, selling and general and administrative expenses
Buying, warehousing and occupancy costs are included
in operating, selling and general and administrative expenses.
Depreciation and amortization
Depreciation and amortization for financial statement
purposes are provided on the straight-line method over the
estimated useful lives of the various assets. For income tax
purposes, accelerated methods are used with recognition of
deferred income taxes for the resulting temporary differences.
Estimated useful lives are as follows:
Long-lived assets
In fiscal 1997, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. The statement requires entities to review long-
lived assets and certain intangible assets in certain
circumstances, and if the value of the assets is impaired,
an impairment loss shall be recognized. Due to the
Company’s previous accounting policies, this pronouncement
had no material effect on the Company’s financial position or
results of operations.
Comprehensive income
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement No. 130, “Reporting Comprehensive
Income,” which is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its
components. The Company anticipates adopting this
Statement in fiscal 1999. Since this Statement requires only
additional disclosure, there will be no effect on the Company’s
results of operations or financial position.
Net income per share
In fiscal 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, Earnings Per
Share. Statement 128 replaces primary and fully dilutive
earnings per share with basic and dilutive earnings per share.
Unlike primary earnings per share, basic earnings per share
excludes any dilutive effect of options. Basic earnings per
share for all periods presented are the same as previously
reported. Basic net income per share is based on the weighted
average outstanding common shares. Dilutive net income per
share is based on the weighted average outstanding shares
reduced by the effect of stock options.
The shares used in the computations for basic and dilutive
net income per share are as follows (in millions):
1998 1997 1996
Basic 2,258 2,292 2,296
Dilutive 2,267 2,296 2,299
Building and improvements 5-33 years
Fixtures and equipment 5-12 years
Transportation equipment 2-5 years
Goodwill 20-40 years