Walmart 2005 Annual Report Download - page 45

WAL-MART 2005 ANNUAL REPORT 43
Items that give rise to significant portions of the deferred tax
accounts are as follows (in millions):
January 31, 2005 2004
Deferred tax liabilities
Property and equipment $2,045 $1,581
International, principally asset
basis difference 1,054 1,087
Inventory 187 419
Capital leases 165 92
Other 230 146
Total deferred tax liabilities $3,681 $3,325
Deferred tax assets
Amounts accrued for financial
reporting purposes not yet
deductible for tax purposes $1,361 $1,280
International loss carryforwards 1,460 1,186
Deferred revenue 15 140
Other 506 298
Total deferred tax assets 3,342 2,904
Valuation allowance (526) (344)
Total deferred tax assets, net of
valuation allowance $2,816 $2,560
Net deferred tax liabilities $ 865 $ 765
A reconciliation of the significant differences between the effective
income tax rate and the federal statutory rate on pretax income is
as follows:
Fiscal years ended January 31, 2005 2004 2003
Statutory tax rate 35.00% 35.00% 35.00%
State income taxes, net of
federal income tax benefit 2.30% 1.53% 1.36%
Income taxes outside the
United States (1.81%) (0.20%) (1.29%)
Other (0.79%) (0.27%) 0.16%
Effective income tax rate 34.70% 36.06% 35.23%
Federal and state income taxes have not been provided on accumu-
lated but undistributed earnings of foreign subsidiaries aggregating
approximately $5.3 billion at January 31, 2005 and $4.0 billion at
January 31, 2004, as such earnings have been permanently reinvested
in the business. The determination of the amount of the unrecognized
deferred tax liability related to the undistributed earnings is not
practicable. The American Jobs Creation Act, which was signed
into law on October 22, 2004, created a special one-time tax
deduction relating to the repatriation of certain foreign earnings.
The company has not completed its evaluation of the likelihood of
repatriation of our foreign earnings and the resulting effect of the
one-time tax deduction.
A valuation allowance has been established to reduce certain foreign
subsidiaries’ deferred tax assets relating primarily to net operating
loss carryforwards. During the fourth quarter of fiscal 2004, as the
result of new tax legislation in Germany, we re-evaluated the recov-
erability of the deferred tax asset related to our German operations.
Based on the results of our review, we recorded a valuation allow-
ance resulting in a charge of $150 million.
6 Acquisitions and Disposal
Acquisitions
In February 2004, the company completed its purchase of
Bompreço S.A. Supermercados do Nordeste (“Bompreço”), a
supermarket chain in northern Brazil with 118 hypermarkets,
supermarkets and mini-markets. The purchase price was approxi-
mately $315 million, net of cash acquired. The results of opera-
tions for Bompreço, which were not material to the company, have
been included in the company’s consolidated financial
statements since the date of acquisition.
During May 2002, the company acquired its initial 6.1% stake in
The Seiyu, Ltd. (“Seiyu”), a Japanese retail chain, for approximately
$51 million. In December 2002, the company exercised in full the
first in the series of warrants granted allowing us to acquire 192.8
million new shares in Seiyu for approximately $432 million.
Following this exercise and our purchase of 29.3 million additional
Seiyu shares in other Seiyu securities offerings, our ownership per-
centage in Seiyu increased to approximately 37%. Through a series
of warrants exercisable through 2007, the company can contribute
approximately ¥235 billion, or $2.3 billion at a January 31, 2005,
exchange rate of 103.68 yen per dollar, for additional shares of
Seiyu stock. If all the warrants are exercised, we will own approxi-
mately 70% of the stock of Seiyu by the end of December 2007. If
the next tranche of warrants is exercised in December 2005, the
company will own more than 50% of Seiyu.
Also, in December 2002, the company completed its purchase of
Supermercados Amigo, Inc. (“Amigo”), a supermarket chain located
in Puerto Rico with 37 supermarkets, six of which were subsequently
sold. The purchase price of approximately $242 million was financed
by commercial paper. The transaction resulted in approximately
$197 million of goodwill. The results of operations, which were
not material, are included in the consolidated company results
since the date of acquisition.
Disposal
On May 23, 2003, the company completed the sale of McLane
Company, Inc. (“McLane”). The company received $1.5 billion in
cash for the sale. The accompanying consolidated financial state-
ments and notes reflect the gain on the sale and the operations
of McLane as a discontinued operation.
Following is summarized financial information for McLane
(in millions):
Fiscal years ended January 31, 2004 2003
Net sales $4,328 $14,907
Income from discontinued operation $ 67 $ 221
Income tax expense 25 84
Net operating income from
discontinued operation $ 42 $ 137
Gain on sale of McLane, net of
$147 income tax expense 151 –
Income from discontinued operation, net of tax $ 193 $ 137