Walmart 2006 Annual Report Download - page 43

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In September 2005, the Company acquired a 33.3% interest in
Central American Retail Holding Company (“CARHCO”), a retailer
with more than 360 supermarkets and other stores in Costa Rica,
El Salvador, Guatemala, Honduras and Nicaragua. The purchase
price was approximately $318 million, including transaction costs. In
fi scal 2006, the Company accounted for its investment in CARHCO
under the equity method. Concurrent with the purchase of the
investment in CARHCO, the Company entered into an agreement to
purchase an additional 17.7% of CARHCO in the fi rst quarter of fi s-
cal 2007 and an option agreement that will allow the Company to
purchase up to an additional 24% beginning in September 2010.
To the extent that the Company does not exercise its option to pur-
chase the additional 24% of CARHCO, the minority shareholders will
have certain put rights that could require the Company to purchase
the additional 24% after September 2012. In February 2006, the
Company purchased the additional 17.7% of CARHCO for a
purchase price of approximately $212 million.
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 fi nancial
statements 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 fi nancial
statements and notes refl ect the gain on the sale and the opera-
tions of McLane as a discontinued operation.
Following is summarized fi nancial information for McLane
(in millions):
Fiscal Year Ended January 31, 2004
Net sales $4,328
Income from discontinued operation $ 67
Income tax expense 25
Net operating income from
discontinued operation 42
Gain on sale of McLane, net of
$147 income tax expense 151
Income from discontinued operation, net of tax $ 193
The effective tax rate on the gain from the sale of McLane was
49% as a result of the non-deductibility of $99 million of goodwill
recorded in the original McLane acquisition.
7 SHARE-BASED COMPENSATION PLANS
As of January 31, 2006, the Company has awarded share-based
compensation to executives and other associates of the Company
through various share-based compensation plans. The compensa-
tion cost recognized for all plans was $244 million, $204 million,
and $183 million for fi scal 2006, 2005, and 2004, respectively.
The total income tax benefi t recognized for all share-based com-
pensation plans was $82 million, $71 million, and $66 million
for fi scal 2006, 2005, and 2004, respectively.
On February 1, 2003, the Company adopted the expense recog-
nition provisions of Statement of Financial Accounting Standards
No. 123 (“SFAS 123”), restating results for prior periods. In
December 2004, the Financial Accounting Standards Board issued
a revision of SFAS 123 (“SFAS 123(R)”). The Company adopted
the provisions of SFAS 123(R) upon its release. The adoption of
SFAS 123(R) did not have a material impact on our results of oper-
ations, fi nancial position or cash fl ows. All share-based compensa-
tion is accounted for in accordance with the fair-value based
method of SFAS 123(R).
The Company’s Stock Incentive Plan of 2005 (the “Plan”), which is
shareholder-approved, permits the grant of stock options, restricted
(non-vested) stock and performance share compensation awards to
its associates for up to 210 million shares of common stock. The
Company believes that such awards better align the interests of its
associates with those of its shareholders.
Under the Plan and prior plans, stock option awards have been
granted with an exercise price equal to the market price of the
Company’s stock at the date of grant. Generally, outstanding options
granted before fi scal 2001 vest over seven years. Options granted
after fi scal 2001 generally vest over fi ve years. Shares issued upon
the exercise of options are newly issued. Options granted generally
have a contractual term of 10 years. The fair value of each stock
option award is estimated on the date of grant using the Black-
Scholes-Merton option valuation model that uses various assump-
tions for inputs, which are noted in the following table. Generally,
the Company uses historical volatilities and risk free interest rates
that correlate with the expected term of the option. To determine
the expected life of the option, the Company bases its estimates on
historical grants with similar vesting periods. The following tables
represents a weighted-average of the assumptions used by the com-
pany to estimate the fair values of the Company’s stock options at
the grant dates:
Fiscal Year Ended January 31, 2006 2005 2004
Dividend yield 1.9% 1.1% 0.9%
Volatility 24.9% 26.2% 32.3%
Risk-free interest rate 4.2% 3.5% 2.8%
Expected life in years 6.1 5.3 4.5