Walmart 1998 Annual Report Download - page 34

6 Acquisitions
A merger of the Mexican joint venture companies owned
by Wal-Mart Stores, Inc. and Cifra, S.A. de C.V. (Cifra) with,
and into Cifra, was consummated with an effective merger
date of September 1, 1997. The Company received voting
shares of Cifra equaling approximately 33.5% of the
outstanding voting shares of Cifra in exchange for the
Company’s joint venture interests having a net book value of
approximately $644 million. No gain or loss was recognized
on the exchange of the joint venture interest. The Company
then acquired 593,100,000 shares of the Series “A” Common
Shares and Series “B” Common Shares of Cifra, in a cash
tender offer. The transaction has been accounted for as a
purchase. The net assets and liabilities acquired are recorded
at fair value. Resulting goodwill is being amortized over 40
years. As a result of the merger and tender offer, Wal-Mart
holds approximately 51% of the outstanding voting shares of
Cifra. The results of operations for Cifra, since the effective
merger date, have been included in the Company’s results.
In December 1997, the Company acquired the Wertkauf
hypermarket chain in Germany, as well as certain real estate.
The 21 hypermarkets are one-stop shopping centers that offer
a broad assortment of high-quality general merchandise and
food and are similar to the Wal-Mart Supercenter format in
the United States. The transaction has been accounted for as a
purchase. Net assets and liabilities of Wertkauf and the real
estate are recorded at fair value. The goodwill is being
amortized over 40 years. The transaction closed on December
30, 1997; therefore, the assets are included in the January 31,
1998 consolidated balance sheet and the results of operations
will be included beginning in fiscal 1999.
In December 1997, the Company acquired the 40%
minority interest in its Brazilian joint venture from Lojas
Americanas, and then sold a 5% share to an individual. The
purchase price of the minority interest approximated book
value. Because the transaction closed on December 30, 1997,
the results of operations for fiscal 1998 include the Company’s
original ownership percentage of the joint venture.
Pro forma results of operations are not presented due to
the insignificant differences from historical results, both
individually and in the aggregate.
The fair value of the assets and liabilities recorded as
a result of these transactions is as follows (in millions):
7 Stock Option Plans
At January 31, 1998, 70 million shares of common stock
were reserved for issuance under stock option plans.
The options granted under the stock option plans expire
ten years from the date of grant. Options granted prior to
November 17, 1995, may be exercised in nine annual
installments. Options granted on or after November 17, 1995,
may be exercised in seven annual installments. The Company
has elected to follow 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,” requires the use of option valuation
models that were not developed for use in valuing employee
stock options. Under APB 25, 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.
Pro forma information, regarding net income and income
per share, is required by Statement 123 and has been
determined as if the Company had accounted for its associate
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 7.2% and 5.6%, dividend yields between 0.7%
and 1.0%, volatility factors between .23 and .27, and an
expected life of the option of 7.4 years for the options issued
prior to November 17, 1995 and 5.8 years for options issued
thereafter.
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 transferrable.
In addition, option valuation methods require the input of
highly subjective assumptions including the expected stock
price volatility. Because the Company’s associate 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
Cash and cash equivalents $ 500
Receivables 97
Inventories 266
Net property, plant and equipment 2,105
Goodwill 1,213
Accounts payable (431)
Accrued liabilities (132)
Deferred income taxes (353)
Minority interest (705)
Other 31
2,591
Investment in unconsolidated Mexican
subsidiary exchanged (226)
Total cash purchase price $ 2,365
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