Increases/Decreases in Deferred Taxes
Typically, companies are able to defer paying some portion of the income tax expense shown on their income statement. Recall our earlier discussion about deferred tax liabilities: They are created and reported on the balance sheet when an income or expense item is treated differently on GAAP financial statements than it is on the company’s (IRS) tax returns, and that difference results in a greater tax expense on the financial statements than taxes payable on the tax return.
Accordingly, these deferred taxes, which have not been paid out in cash and yet are recorded as an expense on the income statement, must be added back to net income on the cash flow statement.
Notice that Wal-Mart indicates on its income statement the portion of taxes it has deferred paying in 2004 ($177 m), and that those deferred taxes are therefore added to net income on the company’s cash flow statement (Exhibit 7.13).
| Consolidated Statements of Income | ||||
| WAL-MART | ||||
| (Amounts in millions except per share data) | ||||
| Fiscal Year Ended January 31, | 2006 | 2005 | 2004 | |
| Revenues: | ||||
| Net sales | $312,427 | $285,222 | $256,329 | |
| Other income, net | 3,227 | 2,910 | 2,352 | |
| 315,654 | 288,132 | 258,681 | ||
| Costs and expenses: | ||||
| Cost of sales | 240,391 | 219,793 | 198,747 | |
| Operating, selling, general and administrative expenses | 56,733 | 51,248 | 44,909 | |
| Operating income | 18,530 | 17,091 | 15,025 | |
| Interest: | ||||
| Debt | 1,171 | 934 | 729 | |
| Capital leases | 249 | 253 | 267 | |
| Interest income | (248) | (201) | (164) | |
| Interest, net | 1,172 | 986 | 832 | |
| Income from continuing operations before income taxes and minority interest | 17,358 | 16,105 | 14,193 | |
| Provision for income taxes: | ||||
| Current | 5,932 | 5,326 | 4,941 | |
| Deferred | (129) | 263 | 177 | |
| 5,803 | 5,589 | 5,118 | ||
| Income from continuing operations before minority interest | 11,555 | 10,516 | 9,075 | |
| Minority interest | (324) | (249) | (214) | |
| Income from continuing operations | 11,231 | 10,267 | 8,861 | |
| Income from discontinued operation, net of tax | — | — | 193 | |
| Net income | $ 11,231 | $ 10,267 | $ 9,054 | |
| Basic net income per common share: | ||||
| Income from continuing operations | $ 2.68 | $ 2.41 | $ 2.03 | |
| Income from discontinued operation | — | — | 0.05 | |
| Basic net income per common share | $ 2.68 | $ 2.41 | $ 2.08 | |
| Diluted net income per common share: | ||||
| Income from continuing operations | $ 2.68 | $2.41 | $ 2.03 | |
| Income from discontinued operation | — | — | 0.04 | |
| Diluted net income per common share | $ 2.68 | $ 2.41 | $ 2.07 | |
| Weighted-average number of common shares: | ||||
| Basic | 4,183 | 4,259 | 4,363 | |
| Diluted | 4,188 | 4,266 | 4,373 | |
| Dividends per common share | $ 0.60 | $ 0.52 | $ 0.36 | |
Source: Used with permission of Wal-Mart Inc.
| Consolidated Statements of Cash Flows | ||||||
| WAL-MART | ||||||
| (Amounts in millions) | ||||||
| Fiscal Year Ended January 31, | 2006 | 2005 | 2004 | |||
| Cash flows from operating activities | ||||||
| Income from continuing operations | $ 11,231 | $ 10,267 | $ 8,861 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 4,717 | 4,264 | 3,852 | |||
| Deferred income taxes | (129) | 263 | 177 | |||
| Other operating activities | 620 | 378 | 173 | |||
| Changes in certain assets and liabilities, net of effects of acquisitions: | ||||||
| Decrease (increase) in accounts receivable | (456) | (304) | 373 | |||
| Increase in inventories | (1,733) | (2,494) | (1,973) | |||
| Increase in accounts payable | 2,390 | 1,694 | 2,587 | |||
| Increase in accrued liabilities | 993 | 976 | 1,896 | |||
| Net cash provided by operating activities of continuing operations | 17,633 | 15,044 | 15,946 | |||
| Net cash provided by operating activities of discontinued operation | — | — | 50 | |||
| Net cash provided by operating activities | 17,633 | 15,044 | 15,996 | |||
| Cash flows from investing activities | ||||||
| Payments for property and equipment | (14,563) | (12,893) | (10,308) | |||
| Investment in international operations, net of cash acquired | (601) | (315) | (38) | |||
| Proceeds from the disposal of fixed assets | 1,049 | 953 | 481 | |||
| Proceeds from the sale of McLane | — | — | 1,500 | |||
| Other investing activities | (68) | (96) | 78 | |||
| Net cash used in investing activities of continuing operations | (14,183) | (12,351) | (8,287) | |||
| Net cash used in investing activities of discontinued operation | — | — | (25) | |||
| Net cash used in investing activities | (14,183) | (12,351) | (8.312) | |||
| Cash flows from financing activities | ||||||
| Increase (decrease) in commercial paper | (704) | 544 | 688 | |||
| Proceeds from issuance of long-term debt | 7,691 | 5,832 | 4,099 | |||
| Purchase of Company stock | (3,580) | (4,549) | (5,046) | |||
| Dividends paid | (2,511) | (2,214) | (1,569) | |||
| Payment of long-term debt | (2,724) | (2,131) | (3,541) | |||
| Payment of capital lease obligations | (245) | (204) | (305) | |||
| Other financing activities | (349) | 113 | 111 | |||
| Net cash used in financing activities | (2,422) | (2,609) | (5,563) | |||
| Effect of exchange rate changes on cash | (102) | 205 | 320 | |||
| Net increase in cash and cash equivalents | 926 | 289 | 2,441 | |||
| Cash and cash equivalents at beginning of year | 5,488 | 5,199 | 2,758 | |||
| Cash and cash equivalents at end of year | $ 6,414 | $ 5,488 | $ 5,199 | |||
| Supplemental disclosure of cash flow information | ||||||
| Income tax paid | $ 5,962 | $ 5,593 | $ 4,538 | |||
| Interest paid | 1,390 | 1,163 | 1,024 | |||
| Capital lease obligations incurred | 286 | 377 | 252 | |||
Source: Used with permission of Wal-Mart Inc.
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