Walmart 1999 Annual Report Download - page 35

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In December 1997, the Company acquired the minority interest in
its Brazilian joint venture from Lojas Americanas, and then sold a
lesser 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, 1999, 131 million shares of common stock were
reserved for issuance under stock option plans. The options grant-
ed under the stock option plans expire ten years from the date of
grant. Options granted prior to November 17, 1995, may be exer-
cised in nine annual installments. Generally, options granted on or
after November 17, 1995, may be exercised in seven annual install-
ments. 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 employ-
ee stock options because the alternative fair value accounting pro-
vided 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. 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 FAS No.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 4.4%, dividend
yields between 0.4% and 1.2%, volatility factors between .23 and
.29, 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 valua-
tion methods require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company’s associate stock options have characteristics signifi-
cantly 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 associate stock options. Using the Black-Scholes option eval-
uation model, the weighted average value of options granted dur-
ing the years ending January 31, 1999, 1998 and 1997, were $14, $7
and $4 per option, respectively.
The effect of applying the fair value method of FAS No. 123 to the
stock option grants subsequent to February 1, 1995, does not result
in net income and net income per share that are materially differ-
ent from the amounts reported in the Company’s consolidated
financial statements as demonstrated below: (Amounts in
millions except per share data)
1999--- 1998
Cash and cash equivalents $137 $ 500
Receivables – 97
Inventories 200 266
Net property, plant and equipment 219 2,105
Goodwill and other acquired
intangible assets 576 1,213
Accounts payable (112) (431)
Accrued liabilities (60) (132)
Deferred income taxes 32 (353)
Minority interest (22) (705)
Other 22 31
992 2,591
Investment in unconsolidated
Mexican subsidiary exchanged – (226)
Total cash purchase price $992 $ 2,365
1999 1998 1997
Pro forma net income $ 4,397 $ 3,504 $ 3,042
Pro forma earnings
per share – basic $ 0.98 $ 0.78 $ 0.66
– dilutive $ 0.98 $ 0.77 $ 0.66
Weighted average Weighted average
Number of exercise price of Number of exercise price
outstanding Weighted average outstanding options of exercisable
Range of exercise prices options remaining life (Years) options exercisable options
$ 4.39 to 5.33 1,544,000 1.0 $ 5.30 1,538,000 $ 5.30
6.63 to 8.84 1,155,000 1.9 7.25 831,000 7.25
10.00 to 14.88 35,277,000 6.5 12.03 8,869,000 12.37
15.41 to 19.97 11,726,000 9.0 19.30 1,113,000 19.13
20.88 to 34.53 716,000 9.5 28.79 6,000 20.88
39.88 to 43.00 5,740,000 10.0 39.90 – –
$ 4.39 to 43.00 56,158,000 7.2 $16.32 12,357,000 $12.78
The following table summarizes information about stock options outstanding as of January 31, 1999.