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EX-32.2 - CHIEF FINANCIAL OFFICER SECTION 906 CERTIFICATION - Walmart Inc.wmt3224302018.htm
EX-32.1 - CHIEF EXECUTIVE OFFICER SECTION 906 CERTIFICATION - Walmart Inc.wmt3214302018.htm
EX-31.2 - CHIEF FINANCIAL OFFICER SECTION 302 CERTIFICATION - Walmart Inc.wmt3124302018.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION - Walmart Inc.wmt3114302018.htm
EX-12.1 - STATEMENT REGARDING COMPUTATION OF THE EARNINGS TO FIXED CHARGES RATIOS - Walmart Inc.wmt1214302018.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended April 30, 2018.
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from              to             .
Commission File Number 001-6991
image2a19.jpg
WALMART INC.
(Exact name of registrant as specified in its charter)
Delaware
 
71-0415188
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
702 S.W. 8th Street
Bentonville, Arkansas
 
72716
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (479) 273-4000
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
o
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
 
o
 
 
 
 
Emerging Growth Company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  ý
The registrant had 2,950,844,393 shares of common stock outstanding as of May 31, 2018.




Walmart Inc.
Form 10-Q
For the Quarterly Period Ended April 30, 2018



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2



PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Walmart Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended April 30,
(Amounts in millions, except per share data)
 
2018
 
2017
Revenues:
 
 
 
 
Net sales
 
$
121,630

 
$
116,526

Membership and other income
 
1,060

 
1,016

Total revenues
 
122,690

 
117,542

Costs and expenses:
 
 
 
 
Cost of sales
 
91,707

 
87,688

Operating, selling, general and administrative expenses
 
25,829

 
24,617

Operating income
 
5,154

 
5,237

Interest:
 
 
 
 
Debt
 
437

 
506

Capital lease and financing obligations
 
93

 
92

Interest income
 
(43
)
 
(35
)
Interest, net
 
487

 
563

Unrealized (gains) and losses
 
1,845

 

Income before income taxes
 
2,822

 
4,674

Provision for income taxes
 
546

 
1,522

Consolidated net income
 
2,276

 
3,152

Consolidated net income attributable to noncontrolling interest
 
(142
)
 
(113
)
Consolidated net income attributable to Walmart
 
$
2,134

 
$
3,039

 
 
 
 
 
Net income per common share:
 
 
 
 
Basic net income per common share attributable to Walmart
 
$
0.72

 
$
1.00

Diluted net income per common share attributable to Walmart
 
0.72

 
1.00

 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
Basic
 
2,950

 
3,035

Diluted
 
2,967

 
3,047

 
 
 
 
 
Dividends declared per common share
 
$
2.08

 
$
2.04

See accompanying notes.

3



Walmart Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended April 30,
(Amounts in millions)
2018
 
2017
Consolidated net income
$
2,276

 
$
3,152

Consolidated net income attributable to noncontrolling interest
(142
)
 
(113
)
Consolidated net income attributable to Walmart
2,134

 
3,039

 
 
 
 
Other comprehensive income (loss), net of income taxes
 
 
 
Currency translation and other
1,465

 
1,159

Net investment hedges
68

 
(113
)
Cash flow hedges
(77
)
 
28

Minimum pension liability
43

 
5

Unrealized gain on available-for-sale securities

 
481

Other comprehensive income (loss), net of income taxes
1,499

 
1,560

Other comprehensive (income) loss attributable to noncontrolling interest
(163
)
 
(282
)
Other comprehensive income (loss) attributable to Walmart
1,336

 
1,278

 
 
 
 
Comprehensive income, net of income taxes
3,775

 
4,712

Comprehensive (income) loss attributable to noncontrolling interest
(305
)
 
(395
)
Comprehensive income attributable to Walmart
$
3,470

 
$
4,317

See accompanying notes.

4



Walmart Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
April 30,
 
January 31,
 
April 30,
(Amounts in millions)
 
2018
 
2018
 
2017
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,885

 
$
6,756

 
$
6,545

Receivables, net
 
4,568

 
5,614

 
5,252

Inventories
 
43,303

 
43,783

 
43,361

Prepaid expenses and other
 
3,486

 
3,511

 
2,178

Total current assets
 
59,242

 
59,664

 
57,336

Property and equipment:
 
 
 
 
 
 
Property and equipment
 
187,029

 
185,154

 
181,075

Less accumulated depreciation
 
(79,407
)
 
(77,479
)
 
(73,625
)
Property and equipment, net
 
107,622

 
107,675

 
107,450

Property under capital lease and financing obligations:
 
 
 
 
 
 
Property under capital lease and financing obligations
 
12,735

 
12,703

 
11,854

Less accumulated amortization
 
(5,557
)
 
(5,560
)
 
(5,135
)
Property under capital lease and financing obligations, net
 
7,178

 
7,143

 
6,719

 
 
 
 
 
 
 
Goodwill
 
18,850

 
18,242

 
17,575

Other long-term assets
 
12,035

 
11,798

 
10,638

Total assets
 
$
204,927

 
$
204,522

 
$
199,718

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term borrowings
 
$
7,762

 
$
5,257

 
$
2,617

Accounts payable
 
44,612

 
46,092

 
41,367

Dividends payable
 
4,607

 

 
4,628

Accrued liabilities
 
20,782

 
22,122

 
19,708

Accrued income taxes
 
718

 
645

 
2,018

Long-term debt due within one year
 
1,576

 
3,738

 
3,256

Capital lease and financing obligations due within one year
 
700

 
667

 
599

Total current liabilities
 
80,757

 
78,521

 
74,193

 
 
 
 
 
 
 
Long-term debt
 
29,477

 
30,045

 
33,774

Long-term capital lease and financing obligations
 
6,828

 
6,780

 
6,251

Deferred income taxes and other
 
9,541

 
8,354

 
9,386

 
 
 
 
 
 
 
Commitments and contingencies
 

 

 

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
294

 
295

 
302

Capital in excess of par value
 
2,557

 
2,648

 
2,223

Retained earnings
 
82,982

 
85,107

 
84,120

Accumulated other comprehensive loss
 
(10,281
)
 
(10,181
)
 
(12,954
)
Total Walmart shareholders' equity
 
75,552

 
77,869

 
73,691

Noncontrolling interest
 
2,772

 
2,953

 
2,423

Total equity
 
78,324

 
80,822

 
76,114

Total liabilities and equity
 
$
204,927

 
$
204,522

 
$
199,718

See accompanying notes.

5



Walmart Inc.
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
Accumulated
 
Total
 
 
 
 
 
 
 
 
 
Capital in
 
 
 
Other
 
Walmart
 
 
 
 
(Amounts in millions)
Common Stock
 
Excess of
 
Retained
 
Comprehensive
 
Shareholders'
 
Noncontrolling
 
Total
Shares
 
Amount
 
Par Value
 
Earnings
 
Loss
 
Equity
 
Interest
 
Equity
Balances as of February 1, 2018
2,952

 
$
295

 
$
2,648

 
$
85,107

 
$
(10,181
)
 
$
77,869

 
$
2,953

 
$
80,822

Adoption of new accounting standards on February 1, 2018, net of income taxes

 

 

 
2,361

 
(1,436
)
 
925

 
(1
)
 
924

Consolidated net income

 

 

 
2,134

 

 
2,134

 
142

 
2,276

Other comprehensive income (loss), net of income taxes

 

 

 

 
1,336

 
1,336

 
163

 
1,499

Cash dividends declared ($2.08 per share)

 

 

 
(6,135
)
 

 
(6,135
)
 

 
(6,135
)
Purchase of Company stock
(5
)
 
(1
)
 
(15
)
 
(492
)
 

 
(508
)
 

 
(508
)
Cash dividend declared to noncontrolling interest

 

 

 

 

 

 
(489
)
 
(489
)
Other
4

 

 
(76
)
 
7

 

 
(69
)
 
4

 
(65
)
Balances as of April 30, 2018
2,951

 
$
294

 
$
2,557

 
$
82,982

 
$
(10,281
)
 
$
75,552

 
$
2,772

 
$
78,324

See accompanying notes.

6



Walmart Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
2,276

 
$
3,152

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
2,678

 
2,551

Deferred income taxes
 
(50
)
 
2

Unrealized (gains) and losses
 
1,845

 

Other operating activities
 
265

 
(170
)
Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
 
Receivables, net
 
1,134

 
726

Inventories
 
547

 
66

Accounts payable
 
(1,770
)
 
(155
)
Accrued liabilities
 
(1,813
)
 
(1,838
)
Accrued income taxes
 
49

 
1,051

Net cash provided by operating activities
 
5,161

 
5,385

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Payments for property and equipment
 
(1,818
)
 
(1,990
)
Proceeds from the disposal of property and equipment
 
198

 
196

Payments for business acquisitions, net of cash acquired
 

 
(88
)
Other investing activities
 
(62
)
 
21

Net cash used in investing activities
 
(1,682
)
 
(1,861
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Net change in short-term borrowings
 
2,501

 
1,482

Repayments of long-term debt
 
(2,521
)
 
(1,513
)
Dividends paid
 
(1,533
)
 
(1,549
)
Purchase of Company stock
 
(539
)
 
(2,185
)
Dividends paid to noncontrolling interest
 
(66
)
 
(54
)
Purchase of noncontrolling interest
 

 
(8
)
Other financing activities
 
(328
)
 
(145
)
Net cash used in financing activities
 
(2,486
)
 
(3,972
)
 
 
 
 
 
Effect of exchange rates on cash, cash equivalents and restricted cash(1)
 
143

 
139

 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash(1)
 
1,136

 
(309
)
Cash, cash equivalents and restricted cash(1) at beginning of year
 
7,014

 
7,144

Cash, cash equivalents and restricted cash(1) at end of period
 
$
8,150

 
$
6,835

(1) Restricted cash held outside of cash and cash equivalents is primarily recorded in other-long term assets.
See accompanying notes.

7



Walmart Inc.
Notes to Condensed Consolidated Financial Statements


Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Walmart Inc. and its subsidiaries ("Walmart" or the "Company") and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2018 ("fiscal 2018"). Therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K.
The Company's Condensed Consolidated Financial Statements are based on a fiscal year ending January 31 for the United States ("U.S.") and Canadian operations. The Company consolidates all other operations generally using a one-month lag and based on a calendar year. There were no intervening events during the month of April related to the operations consolidated using a lag that materially affected the Condensed Consolidated Financial Statements.
The Company's business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, the Company's highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
Inventories
At April 30, 2018 and January 31, 2018, the Company's inventories valued at LIFO approximated those inventories as if they were valued at FIFO.
Fair Value Measurement
In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-01, Financial Instruments–Overall (Topic 825), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments ("ASU 2016-01"). The Company adopted this ASU on February 1, 2018, which primarily impacts the Company's accounting for its investment in JD.com ("JD") and resulted in a positive adjustment to retained earnings of approximately $2.6 billion, net of tax, based on the market value of the Company's investment in JD at January 31, 2018. The adoption requires changes in fair value of the Company's investment in JD to be recorded in the Condensed Consolidated Statement of Income.
The Company records and discloses certain financial and non-financial assets and liabilities at fair value. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. The fair value of a liability is the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor. Refer to Note 5 for additional fair value disclosures.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company adopted the ASU on February 1, 2018, using the modified retrospective approach and applied the ASU only to contracts not completed as of February 1, 2018. Updated accounting policies and other disclosures are below. Note 11 provides the related disaggregated revenue disclosures. The impact of adopting the ASU was not material to the Condensed Consolidated Financial Statements.
Sales
The Company recognizes sales revenue, net of sales taxes and estimated sales returns, at the time it sells merchandise to the customer. eCommerce sales include shipping revenue and are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on expected returns.

8



Membership Fee Revenue
The Company recognizes membership fee revenue both in the U.S. and internationally over the term of the membership, which is typically 12 months. Membership fee revenue is included in membership and other income in the Company's Condensed Consolidated Statements of Income. The deferred membership fee is included in accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
Gift cards
Customer purchases of gift cards, to be utilized at the Company's stores or eCommerce websites, are not recognized as sales until the card is redeemed and the customer purchases merchandise using the gift card. Gift cards in the U.S. and some countries do not carry an expiration date; therefore, customers and members can redeem their gift cards for merchandise indefinitely. Gift cards in some foreign countries where the Company does business have expiration dates. While gift cards are generally redeemed within 12 months, a certain number of gift cards, both with and without expiration dates, will not be fully redeemed. Management estimates unredeemed gift cards and recognizes revenue for these amounts in membership and other income in the Company's Condensed Consolidated Statements of Income over the expected redemption period. Management periodically reviews and updates its estimates.
Financial and Other Services
The Company recognizes revenue from service transactions at the time the service is performed. Generally, revenue from services is classified as a component of net sales in the Company's Condensed Consolidated Statements of Income.
Contract Balances
Contract balances as a result of transactions with customers primarily consist of receivables included in receivables, net, and deferred gift card revenue included in accrued liabilities in the Company's Condensed Consolidated Balance Sheets. The following table provides the Company's receivables and deferred gift card revenue from transactions with customers:
(Amounts in millions)
 
As of April 30, 2018
Assets:
 
 
Receivables from transactions with customers, net
 
$
2,025

Liabilities:
 
 
Deferred gift card revenue
 
$
2,014

The Company did not record any significant impairment charges to receivables from transactions with customers during the three months ended April 30, 2018. An immaterial amount of the February 1, 2018, deferred gift card revenue liability was recognized into revenue during the three months ended April 30, 2018.
Income taxes
In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), in response to the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Company recorded a provisional benefit, as allowed by SAB 118, of $207 million during fiscal 2018 and an additional provisional benefit of $142 million during the three months ended April 30, 2018. Management is still evaluating the Tax Act, but expects to complete the analysis within the allowable measurement period of one year from the enactment date.
In February 2018, the FASB issued Accounting Standards Update ASU 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The Company adopted this ASU on February 1, 2018, which resulted in an immaterial negative adjustment to retained earnings.
Restricted cash
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows–Restricted Cash (Topic 230), which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The Company adopted this ASU on February 1, 2018. Restricted cash held outside of cash and cash equivalents is primarily recorded in other-long term assets in the Condensed Consolidated Balance Sheets and was approximately $0.3 billion as of April 30, 2018, January 31, 2018 and April 30, 2017.

9




Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lease assets and liabilities to be recorded on the balance sheet. Certain qualitative and quantitative disclosures are also required, as well as retrospective recognition and measurement of impacted leases. The Company will adopt this ASU on February 1, 2019 and is implementing new lease systems in connection with the adoption. Management is progressing with implementation and continuing to evaluate the effect to the Company's Condensed Consolidated Financial Statements and disclosures. Management expects a material impact to the Company's Condensed Consolidated Balance Sheet.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326), which modifies the measurement of expected credit losses of certain financial instruments. The Company will adopt this ASU on February 1, 2020. Management is currently evaluating this ASU to determine its impact to the Company's Condensed Consolidated Financial Statements and disclosures.

Note 2. Net Income Per Common Share
Basic net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not have significant share-based awards outstanding that were anti-dilutive and not included in the calculation of diluted net income per common share attributable to Walmart for the three months ended April 30, 2018 and 2017. The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income per common share attributable to Walmart:
 
 
Three Months Ended April 30,
(Amounts in millions, except per share data)
 
2018
 
2017
Numerator
 
 
 
 
Consolidated net income
 
$
2,276

 
$
3,152

Consolidated net income attributable to noncontrolling interest
 
(142
)
 
(113
)
Consolidated net income attributable to Walmart
 
$
2,134

 
$
3,039

 
 
 
 
 
Denominator
 
 
 
 
Weighted-average common shares outstanding, basic
 
2,950

 
3,035

Dilutive impact of stock options and other share-based awards
 
17

 
12

Weighted-average common shares outstanding, diluted
 
2,967

 
3,047


 
 
 
 
Net income per common share attributable to Walmart
 
 
 
 
Basic
 
$
0.72

 
$
1.00

Diluted
 
0.72

 
1.00


10



Note 3. Accumulated Other Comprehensive Loss
The following table provides the changes in the composition of total accumulated other comprehensive loss for the three months ended April 30, 2018:
(Amounts in millions and net of income taxes)
 
Currency 
Translation and Other
 
Unrealized Gain on Available-for-Sale Securities
 
Net Investment Hedges
 
Cash Flow Hedges
 
Minimum
Pension 
Liability
 
Total
Balances as of February 1, 2018
 
$
(12,136
)
 
$
1,646

 
$
1,030

 
$
122

 
$
(843
)
 
$
(10,181
)
Adoption of new accounting standards on February 1, 2018(1) (2)
 
89

 
(1,646
)
 
93

 
28

 

 
(1,436
)
Other comprehensive income (loss) before reclassifications, net(1)
 
1,302

 

 
68

 
(86
)
 
32

 
1,316

Reclassifications to income, net(1)
 

 

 

 
9

 
11

 
20

Balances as of April 30, 2018
 
$
(10,745
)
 
$

 
$
1,191

 
$
73

 
$
(800
)
 
$
(10,281
)
(1) Income tax impact is immaterial
(2) Primarily relates to the adoption of ASU 2016-01 and ASU 2018-02
Amounts reclassified from accumulated other comprehensive loss to net income for derivative instruments are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income, and amounts reclassified for the minimum pension liability are recorded in unrealized gains and losses in the Company's Condensed Consolidated Statements of Income.

Note 4. Long-term Debt
The following table provides the changes in the Company's long-term debt for the three months ended April 30, 2018:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2018
 
$
3,738

 
$
30,045

 
$
33,783

Repayments of long-term debt
 
(2,521
)
 

 
(2,521
)
Reclassifications of long-term debt
 
364

 
(364
)
 

Other
 
(5
)
 
(204
)
 
(209
)
Balances as of April 30, 2018
 
$
1,576

 
$
29,477

 
$
31,053

Maturities
The following table provides details of debt repayments during the three months ended April 30, 2018:
(Amounts in millions)
 
 
 
 
 
 
 
 
Maturity Date
 
Principal Amount
 
Fixed vs. Floating
 
Interest Rate
 
Repayment
February 15, 2018
 
500 USD
 
Fixed
 
5.800%
 
$
500

February 15, 2018
 
750 USD
 
Fixed
 
5.800%
 
750

April 11, 2018
 
1,250 USD
 
Fixed
 
1.125%
 
1,250

Various
 
21 USD
 
Various
 
Various
 
21

Total repayment of matured debt
 
 
 
 
 
 
 
$
2,521



11



Note 5. Fair Value Measurements
Assets and liabilities recorded at fair value are measured using the fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
Level 1: observable inputs such as quoted prices in active markets;
Level 2: inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3: unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions.
The Company has equity investments, primarily its investment in JD, measured at fair value on a recurring basis included in other long-term assets in the accompanying Condensed Consolidated Balance Sheet. Beginning in fiscal 2019 due to the adoption of the new financial instrument standard, changes in fair value are recorded in unrealized gains and losses on the Condensed Consolidated Statements of Income. Additional detail about the Company's two portions of the investment in JD are as follows:
The purchased portion of the investment in JD is measured using Level 1 inputs, which prior to fiscal 2019 was classified as available-for-sale with changes in fair value recognized through other comprehensive income; and
The portion of the investment in JD received in exchange for selling certain assets related to Yihaodian, the Company's former eCommerce operations in China, is measured using Level 2 inputs. Fair value is determined primarily using quoted prices in active markets for similar assets. Prior to fiscal 2019, the investment was carried at cost.
The investment in JD cost basis, fair value at April 30, 2018 and February 1, 2018, and carrying value at January 31, 2018, are as follows:
(Amounts in millions)
 
Cost Basis
 
Carrying Value as of January 31, 2018
 
Fair Value as of February 1, 2018
 
 
Fair Value as of April 30, 2018
 
Investment in JD measured using Level 1 inputs
 
$
1,901

 
$
3,547

 
$
3,547

(1) 
 
$
2,631

 
Investment in JD measured using Level 2 inputs
 
1,490

 
1,490

 
3,559

(2) 
 
2,637

 
Total
 
$
3,391

 
$
5,037

 
$
7,106

 
 
$
5,268

(3) 
(1) Fair value was already recognized on the balance sheet. Upon adoption of the new financial instrument standard on February 1, 2018, the excess of fair value over cost was reclassified from accumulated other comprehensive loss to retained earnings.
(2) Upon adoption of the new financial instrument standard on February 1, 2018, the excess of fair value over cost was recognized by increasing the carrying value of the asset and retained earnings.
(3) The decrease in fair value from February 1, 2018 to April 30, 2018 of $1.8 billion was recognized in net income and included in unrealized gains and losses on the Condensed Consolidated Statements of Income.
The Company also holds derivative instruments. Derivative fair values are the estimated amounts the Company would receive or pay upon termination of the related derivative agreements as of the reporting dates. The fair values have been measured using the income approach and Level 2 inputs, which include the relevant interest rate and foreign currency forward curves. As of April 30, 2018 and January 31, 2018, the notional amounts and fair values of these derivatives were as follows:
 
April 30, 2018
 
January 31, 2018
(Amounts in millions)
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Receive fixed-rate, pay variable-rate interest rate swaps designated as fair value hedges
$
4,000

 
$
(145
)
 
$
4,000

 
$
(91
)
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as net investment hedges
2,250

 
217

 
2,250

 
208

Receive fixed-rate, pay fixed-rate cross-currency swaps designated as cash flow hedges
4,395

 
131

 
4,523

 
205

Total
$
10,645

 
$
203

 
$
10,773

 
$
322

Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company did not record any significant impairment charges to assets measured at fair value on a nonrecurring basis during the three months ended April 30, 2018. For the fiscal year ended January 31, 2018, the Company recorded impairment charges related to assets measured at fair value on a non-recurring basis of approximately $1.4 billion primarily related to restructuring charges for the Sam's Club closures and the wind-down of the Brazil first-party eCommerce business, as well as discontinued real estate projects in the U.S. and decisions to exit certain international properties.

12



Other Fair Value Disclosures
The Company records cash and cash equivalents, restricted cash, and short-term borrowings at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company's long-term debt is also recorded at cost. The fair value is estimated using Level 2 inputs based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. The carrying value and fair value of the Company's long-term debt as of April 30, 2018 and January 31, 2018, are as follows: 
 
 
April 30, 2018
 
January 31, 2018
(Amounts in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Long-term debt, including amounts due within one year
 
$
31,053

 
$
34,770

 
$
33,783

 
$
38,766


Note 6. Derivative Financial Instruments
The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates, as well as to maintain an appropriate mix of fixed- and variable-rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company's derivative financial instruments is used to measure interest to be paid or received and does not represent the Company's exposure due to credit risk. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty, reviewing credit ratings and requiring collateral (generally cash) from the counterparty when appropriate.
The Company only enters into derivative transactions with counterparties rated "A-" or better by nationally recognized credit rating agencies. Subsequent to entering into derivative transactions, the Company regularly monitors the credit ratings of its counterparties. In connection with various derivative agreements, including master netting arrangements, the Company held cash collateral from counterparties of $256 million and $279 million at April 30, 2018 and January 31, 2018, respectively. The Company records cash collateral received as amounts due to the counterparties exclusive of any derivative asset. Furthermore, as part of the master netting arrangements with each of these counterparties, the Company is also required to post collateral with a counterparty if the Company's net derivative liability position exceeds $150 million with such counterparties. The Company did not have any cash collateral posted with counterparties at April 30, 2018 or January 31, 2018. The Company records cash collateral it posts with counterparties as amounts receivable from those counterparties exclusive of any derivative liability.
The contractual terms of the Company's hedged instruments closely mirror those of the hedged items, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative financial instrument is recorded using hedge accounting, depending on the nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. Any hedge ineffectiveness is immediately recognized in earnings. The Company's net investment and cash flow instruments are highly effective hedges and the ineffective portion has not been, and is not expected to be, significant. Instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting, are recorded at fair value with unrealized gains or losses reported in earnings during the period of the change.
Fair Value Instruments
The Company is a party to receive fixed-rate, pay variable-rate interest rate swaps that the Company uses to hedge the fair value of fixed-rate debt. The notional amounts are used to measure interest to be paid or received and do not represent the Company's exposure due to credit loss. The Company's interest rate swaps that receive fixed-interest rate payments and pay variable-interest rate payments are designated as fair value hedges. As the specific terms and notional amounts of the derivative instruments match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges. Changes in the fair values of these derivative instruments are recorded in earnings, but are offset by corresponding changes in the fair values of the hedged items, also recorded in earnings, and, accordingly, do not impact the Company's Condensed Consolidated Statements of Income. These fair value instruments will mature on dates ranging from October 2020 to April 2024.

13



Net Investment Instruments
The Company is a party to cross-currency interest rate swaps that the Company uses to hedge its net investments. The agreements are contracts to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. All changes in the fair value of these instruments are recorded in accumulated other comprehensive loss, offsetting the currency translation adjustment of the related investment that is also recorded in accumulated other comprehensive loss. These instruments will mature on dates ranging from July 2020 to February 2030.
The Company has issued foreign-currency-denominated long-term debt as hedges of net investments of certain of its foreign operations. These foreign-currency-denominated long-term debt issuances are designated and qualify as nonderivative hedging instruments. Accordingly, the foreign currency translation of these debt instruments is recorded in accumulated other comprehensive loss, offsetting the foreign currency translation adjustment of the related net investments that is also recorded in accumulated other comprehensive loss. At April 30, 2018 and January 31, 2018, the Company had ¥180 billion of outstanding long-term debt designated as a hedge of its net investment in Japan, as well as outstanding long-term debt of £1.7 billion at April 30, 2018 and January 31, 2018, that was designated as a hedge of its net investment in the United Kingdom. These nonderivative net investment hedges will mature on dates ranging from July 2020 to January 2039.
Cash Flow Instruments
The Company is a party to receive fixed-rate, pay fixed-rate cross-currency interest rate swaps to hedge the currency exposure associated with the forecasted payments of principal and interest of certain non-U.S. denominated debt. The swaps are designated as cash flow hedges of the currency risk related to payments on the non-U.S. denominated debt. The effective portion of changes in the fair value of derivatives designated as cash flow hedges of foreign exchange risk is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The hedged items are recognized foreign currency-denominated liabilities that are re-measured at spot exchange rates each period, and the assessment of effectiveness (and measurement of any ineffectiveness) is based on total changes in the related derivative's cash flows. As a result, the amount reclassified into earnings each period includes an amount that offsets the related transaction gain or loss arising from that re-measurement and the adjustment to earnings for the period's allocable portion of the initial spot-forward difference associated with the hedging instrument. These cash flow instruments will mature on dates ranging from April 2022 to March 2034.
Financial Statement Presentation
Although subject to master netting arrangements, the Company does not offset derivative assets and derivative liabilities in its Condensed Consolidated Balance Sheets. Derivative instruments with an unrealized gain are recorded in the Company's Condensed Consolidated Balance Sheets as either current or non-current assets, based on maturity date, and those hedging instruments with an unrealized loss are recorded as either current or non-current liabilities, based on maturity date. Refer to Note 5 for the net presentation of the Company's derivative instruments.
The Company's derivative instruments, as well as its nonderivative debt instruments designated and qualifying as net investment hedges, were classified as follows in the Company's Condensed Consolidated Balance Sheets:
 
April 30, 2018
 
January 31, 2018
(Amounts in millions)
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
 
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
Derivative instruments
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Other long-term assets
$

 
$
217

 
$
252

 
$

 
$
208

 
$
300

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes and other
145

 

 
121

 
91

 

 
95

 
 
 
 
 
 
 
 
 
 
 
 
Nonderivative hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Long-term debt

 
3,975

 

 

 
4,041

 

Gains and losses related to the Company's derivatives primarily relate to interest rate hedges, which are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income. Amounts related to the Company's derivatives expected to be reclassified from accumulated other comprehensive loss to net income during the next 12 months are not significant.


14



Note 7. Share Repurchases
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three months ended April 30, 2018 were made under the plan in effect at the beginning of the fiscal year. The current $20.0 billion share repurchase program approved in October 2017 has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. As of April 30, 2018, authorization for $18.3 billion of share repurchases remained under the current share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.
The Company considers several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings and the market price of its common stock. The following table provides, on a settlement date basis, the number of shares repurchased, average price paid per share and total amount paid for share repurchases for the three months ended April 30, 2018 and 2017:
 
 
Three Months Ended April 30,
(Amounts in millions, except per share data)
 
2018
 
2017
Total number of shares repurchased
 
5.5

 
31.1

Average price paid per share
 
$
97.75

 
$
70.25

Total amount paid for share repurchases
 
$
539

 
$
2,185


Note 8. Common Stock Dividends
Dividends Declared
On February 20, 2018, the Board of Directors approved the fiscal year ending January 31, 2019 ("fiscal 2019") annual dividend of $2.08 per share, an increase over the fiscal 2018 annual dividend of $2.04 per share. For fiscal 2019, the annual dividend will be paid in four quarterly installments of $0.52 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 9, 2018
  
April 2, 2018
May 11, 2018
  
June 4, 2018
August 10, 2018
  
September 4, 2018
December 7, 2018
  
January 2, 2019

The dividend installments payable on April 2, 2018 and June 4, 2018 were paid as scheduled.

Note 9. Contingencies
Legal Proceedings
The Company is involved in a number of legal proceedings. The Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company's Condensed Consolidated Financial Statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made. However, where a liability is reasonably possible and may be material, such matters have been disclosed. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company and its shareholders.
Unless stated otherwise, the matters discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in a liability material to the Company's financial condition or results of operations.
ASDA Equal Value Claims
ASDA Stores Ltd. ("Asda"), a wholly-owned subsidiary of the Company, is a defendant in over 10,000 equal value ("Equal Value") claims that begun in 2008 and are proceeding before an Employment Tribunal in Manchester (the "Employment Tribunal") in the United Kingdom ("UK") on behalf of current and former Asda store employees, and further claims may be asserted in the future. The claimants allege that the work performed by female employees in Asda's retail stores is of equal value in terms of, among other things, the demands of their jobs compared to that of male employees working in Asda's warehouse and distribution facilities, and that the disparity in pay between these different job positions is not objectively justified. As a result, claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities and higher wage rates on a prospective basis.
On March 23, 2015, Asda asked the Employment Tribunal to stay all proceedings and to "strike out" substantially all of the claims because the claimants had not adhered to the Tribunal's procedural rule for including multiple claimants on the same claim form. On July 23, 2015, the Employment Tribunal denied Asda's requests. Following additional proceedings, on June 20, 2017, the Employment Appeal Tribunal ruled in favor of Asda on the "strike out" issue and remitted the matter to the

15



Employment Tribunal to determine whether the improperly filed claims should be struck out. On July 12, 2017, claimants sought permission from the Court of Appeals to appeal this ruling, which was granted on October 3, 2017. A hearing before the Court of Appeals is scheduled for October 23, 2018.
As to the initial phase of the Equal Value claims, on October 14, 2016, following a preliminary hearing, the Employment Tribunal ruled that claimants could compare their positions in Asda's retail stores with those of employees in Asda's warehouse and distribution facilities. On August 31, 2017, the Employment Appeal Tribunal affirmed the Employment Tribunal's ruling. The Employment Appeal Tribunal also granted permission for Asda to appeal substantially all of its findings on August 31, 2017. Asda sought permission to appeal the remainder of the Employment Appeal Tribunal's findings to the Court of Appeals on September 21, 2017. A hearing before the Court of Appeals is scheduled for October 10, 2018.
Claimants are now proceeding in the next phase of their claims. That phase will determine whether the work performed by the claimants is of equal value to the work performed by employees in Asda's warehouse and distribution facilities.
At present, the Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate any loss or range of loss that may arise from these proceedings. The Company believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously.
National Prescription Opiate Litigation and Related Matters
In December 2017, the United States Judicial Panel on Multidistrict Litigation ordered numerous lawsuits filed against a wide array of defendants by various plaintiffs be consolidated, including counties, cities, healthcare providers, Native American tribes, and third-party payors, asserting claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation is entitled In re National Prescription Opiate Litigation (MDL No. 2804), and is pending in the U.S. District Court for the Northern District of Ohio. The Company is named as a defendant in some of the cases included in this multidistrict litigation. Similar cases that name the Company have been filed in state courts by various counties and municipalities; by health care providers; and by various Native American Tribes. The relief sought by various plaintiffs is compensatory and punitive damages, as well as injunctive relief including abatement. The Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate any loss or range of loss that may arise from such claims. The Company believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously. The Company has also been responding to subpoenas, information requests and investigations from governmental entities related to nationwide controlled substance dispensing practices involving the sale of opioids. The Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business, financial condition or results of operations will not be materially adversely affected.
FCPA Investigation and Related Matters
The Audit Committee (the "Audit Committee") of the Board of Directors of the Company has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act ("FCPA") and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. ("Walmex"), and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company. The Audit Committee and the Company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters.
The Company has also been conducting a voluntary global review of its policies, practices and internal controls for anti-corruption compliance. The Company is engaged in strengthening its global anti-corruption compliance program through appropriate remedial anti-corruption measures.  In November 2011, the Company voluntarily disclosed that investigative activity to the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC"). Since the implementation of the global review and the enhanced anti-corruption compliance program, the Audit Committee and the Company have identified or been made aware of additional allegations regarding potential violations of the FCPA. When such allegations have been reported or identified, the Audit Committee and the Company, together with their third party advisors, have conducted inquiries and when warranted based on those inquiries, opened investigations. Inquiries or investigations regarding allegations of potential FCPA violations were commenced in a number of foreign markets where the Company operates, including, but not limited to, Brazil, China and India.
As previously disclosed, the Company is under investigation by the DOJ and the SEC regarding possible violations of the FCPA. The Company has been cooperating with the agencies and discussions have been ongoing regarding the resolution of these matters. These discussions have progressed to a point that, in fiscal 2018, the Company reasonably estimated a probable loss and has recorded an aggregate accrual of $283 million with respect to these matters (the "Accrual"). As the discussions are continuing, there can be no assurance as to the timing or the terms of the final resolution of these matters.
A number of federal and local government agencies in Mexico have also initiated investigations of these matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation have been filed by several of the Company's shareholders against it, certain of its current directors, and certain of its former directors, certain of its former officers and certain of Walmex's former officers.

16



The Company could be exposed to a variety of negative consequences as a result of the matters noted above. There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the on-going government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties and the shareholder lawsuits referenced above may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company's role as a corporate citizen.
In addition, the Company has incurred and expects to continue to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting the review and investigations. These costs will be expensed as incurred. For the three months ended April 30, 2018 and 2017, the Company incurred the following third-party expenses in connection with the FCPA investigation and related matters:
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Ongoing inquiries and investigations
 
$
4

 
$
13

Global compliance program and organizational enhancements
 
3

 
3

Total
 
$
7

 
$
16

The Company does not presently believe that these matters, including the Accrual (and the payment of the Accrual at some point-in-time in the future), will have a material adverse effect on its business, although given the inherent uncertainties in such situations, the Company can provide no assurance that these matters will not be material to its business in the future.

Note 10. Acquisitions, Disposals and Subsequent Events
The following significant transactions impact, or are expected to impact, the operations of the Company's Walmart International segment. Other immaterial transactions have also occurred or been announced.
Asda
In April 2018, the Company entered into a definitive agreement and announced the combination of J Sainsbury plc and Asda Group Limited ("Asda Group"), the Company's wholly owned UK retail subsidiary. Under the terms of the combination, the Company would receive approximately 42 percent of the share capital of the combined business. In addition, the Company would receive approximately £3 billion in cash, subject to customary closing adjustments, and retain obligations under the Asda Group defined benefit pension plan. Due to a complex regulatory review process, the outcome of which is uncertain and may take some time to complete, the held for sale classification criteria for the disposal group has not been met as of April 30, 2018. Upon the transaction closing, the Company would deconsolidate the financial statements of the Asda Group and the ongoing investment in the combined company would be accounted for as an equity method investment.
Suburbia
In April 2017, the Company sold Suburbia, the apparel retail division in Mexico, for $1.0 billion.  As part of the sales agreement, the Company is also leasing certain real estate to the purchaser. The sale resulted in a pre-tax gain of $0.7 billion, of which $0.4 billion was recognized in the second quarter of fiscal 2018 in membership and other income, and the remainder was deferred and is being recognized over the lease terms of approximately 20 years.
Subsequent Events
In May 2018, the Company announced it will pay approximately $16 billion in exchange for approximately 77 percent of the outstanding shares of Flipkart Group ("Flipkart"). The investment includes $2 billion of new equity funding. Closing is expected later this calendar year, and is subject to regulatory approval. To finance the acquisition, the Company intends to use a combination of newly issued debt and cash on hand.  Upon regulatory approval and the transaction closing, the Company would consolidate the financial statements of Flipkart with the Company's Condensed Consolidated Financial Statements.
In June 2018, the Company agreed to sell an 80 percent stake of Walmart Brazil to Advent International ("Advent").  Under the terms, the Company would receive up to $250 million in contingent consideration, Advent would contribute additional capital to the business over a three-year period, and Walmart would provide an indemnification for pre-closing tax and legal contingencies, as well as certain other matters.  Due to its decision to sell, the Company will record an estimated net loss of approximately $4.5 billion in the second quarter of fiscal 2019, a significant portion of which is due to the recognition of cumulative foreign currency translation losses.  The transaction is subject to regulatory approval and is expected to close in the second half of fiscal 2019.  Upon closing, the Company would deconsolidate the financial statements of Walmart Brazil and account for its remaining 20 percent ownership interest as an equity method investment.


17



Note 11. Segments and Disaggregated Revenue
Segments
The Company is engaged in the operation of retail, wholesale and other units, as well as eCommerce websites, located throughout the U.S., Africa, Argentina, Brazil, Canada, Central America, Chile, China, India, Japan, Mexico and the United Kingdom. The Company's operations are conducted in three reportable segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results the chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The Company sells similar individual products and services in each of its segments. It is impractical to segregate and identify revenues for each of these individual products and services entity wide.
The Walmart U.S. segment includes the Company's mass merchant concept in the U.S., as well as eCommerce. The Walmart International segment consists of the Company's operations outside of the U.S., as well as eCommerce. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as eCommerce. Corporate and support consists of corporate overhead and other items not allocated to any of the Company's segments.
The Company measures the results of its segments using, among other measures, each segment's net sales and operating income, which includes certain corporate overhead allocations. From time to time, the Company revises the measurement of each segment's operating income, including any corporate overhead allocations, as determined by the information regularly reviewed by its CODM. In fiscal 2019, the Company revised certain of its corporate overhead allocations to the operating segments and, accordingly, revised prior period amounts for comparability.
Net sales by segment are as follows:
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018

2017
Net sales:
 
 
 
 
Walmart U.S.
 
$
77,748

 
$
75,436

Walmart International
 
30,260

 
27,097

Sam's Club
 
13,622

 
13,993

Net sales
 
$
121,630

 
$
116,526

Operating income by segment, as well as operating loss for corporate and support, interest, net, and unrealized (gains) and losses are as follows:
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018

2017
Operating income (loss):
 
 
 
 
Walmart U.S.
 
$
3,927

 
$
4,052

Walmart International
 
1,265

 
1,139

Sam's Club
 
325

 
399

Corporate and support
 
(363
)
 
(353
)
Operating income
 
5,154

 
5,237

Interest, net
 
487

 
563

Unrealized (gains) and losses
 
1,845

 

Income before income taxes
 
$
2,822

 
$
4,674

Disaggregated Revenues
In the following tables, segment net sales are disaggregated by either merchandise category or market. In addition, net sales related to eCommerce are provided for each segment, which include omni-channel sales, where a customer initiates an order online and the order is fulfilled through a store or club.
(Amounts in millions)
 
Three Months Ended
April 30, 2018
Walmart U.S. net sales by merchandise category
 
Grocery
 
$
43,860

General merchandise
 
24,174

Health and wellness
 
9,128

Other categories
 
586

Total
 
$
77,748

Of Walmart U.S.'s total net sales, approximately $3.2 billion relates to eCommerce for the three months ended April 30, 2018.

18



(Amounts in millions)
 
Three Months Ended
 April 30, 2018
Walmart International net sales by market
 
Mexico and Central America
 
$
7,684

United Kingdom
 
7,515

Canada
 
4,254

China
 
3,205

Other
 
7,602

Total
 
$
30,260

Of International's total net sales, approximately $1.0 billion relates to eCommerce for the three months ended April 30, 2018.
(Amounts in millions)
 
Three Months Ended
 April 30, 2018
Sam’s Club net sales by merchandise category
 
Grocery and consumables
 
$
8,012

Fuel, tobacco and other categories
 
2,919

Home and apparel
 
1,202

Health and wellness
 
801

Technology, office and entertainment
 
688

Total
 
$
13,622

Of Sam's Club's total net sales, approximately $0.6 billion relates to eCommerce for the three months ended April 30, 2018.


19



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Walmart Inc. ("Walmart," the "Company" or "we") is engaged in retail and wholesale operations in various formats around the world. Through our operations, we help people around the world save money and live better – anytime and anywhere – in retail stores and through eCommerce. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping into an omni-channel offering that saves time for our customers. Physical retail encompasses our brick and mortar presence in each of the markets in which we operate. Digital retail, or eCommerce, is comprised of our eCommerce websites, mobile commerce applications and transactions involving both an eCommerce platform and a physical format, which we refer to as omni-channel. Each week, we serve nearly 270 million customers who visit our more than 11,700 stores and numerous eCommerce websites under 65 banners in 28 countries. Our strategy is to lead on price, invest to differentiate on access, be competitive on assortment and deliver a great experience. By leading on price we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Price leadership is core to who we are. Everyday low cost ("EDLC") is our commitment to control expenses so our cost savings can be passed along to our customers. Our physical and digital presence, in which we are investing to integrate into a seamless omni-channel, provides customers convenient access to our broad assortment anytime and anywhere. We strive to give our customers and members a great shopping experience through whichever shopping method they prefer.
Our operations consist of three reportable segments: Walmart U.S., Walmart International and Sam's Club.
Walmart U.S. is our largest segment with three primary store formats and eCommerce, as well as an omni-channel offering. Of our three reportable segments, Walmart U.S. has historically had the highest gross profit as a percentage of net sales ("gross profit rate"). In addition, it has historically contributed the greatest amount to the Company's net sales and operating income.
Walmart International consists of our operations outside of the U.S. and includes retail, wholesale and other businesses. These categories, including eCommerce, consist of many formats, including: supercenters, supermarkets, hypermarkets, warehouse clubs (including Sam's Clubs) and cash & carry. Overall gross profit rate for Walmart International is lower than that of Walmart U.S. primarily because of its merchandise mix. Walmart International is our second largest segment and has grown in recent years by adding retail, wholesale and other units, and expanding eCommerce.
Sam's Club consists of membership-only warehouse clubs as well as eCommerce through samsclub.com. As a membership-only warehouse club, membership income is a significant component of the segment's operating income. Sam's Club operates with a lower gross profit rate and lower operating expenses as a percentage of net sales than our other segments.
Each of our segments contributes to the Company's operating results differently. Each, however, has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years other than minor changes to the contribution rate for the Walmart International segment due to fluctuations in currency exchange rates. Recently, including events subsequent to April 30, 2018, we took some strategic actions to further position our portfolio for long-term growth. These actions included the recently announced:
Acquisition of Flipkart Group ("Flipkart"), an Indian eCommerce company, for approximately $16 billion in exchange for approximately 77 percent of the outstanding shares of Flipkart Group. Closing is expected later this calendar year, and is subject to regulatory approval. Upon closing and consolidating the financial statements of Flipkart, we expect the ongoing operations of Flipkart to negatively impact fiscal 2019 net income.
Combination of J Sainsbury plc and Asda Group Limited ("Asda"), our wholly owned United Kingdom retail subsidiary. Under the terms, we would receive approximately 42 percent of the share capital of the combined business and approximately £3.0 billion in cash, subject to customary closing adjustments, while retaining obligations under the Asda defined benefit pension plan. Due to a complex regulatory review process, the outcome of which is uncertain and may take some time to complete, the held for sale classification criteria for the disposal group has not been met as of April 30, 2018. Upon meeting the held for sale classification criteria for the disposal group, we expect to recognize a loss, the amount of which may fluctuate based on the changes in the value of share capital received and foreign exchange rates.
Divestiture of 80% of Walmart Brazil to Advent International (“Advent”).  Under the terms, we would receive up to $250 million in contingent consideration, Advent would contribute additional capital to the business over a three-year period, and we would provide an indemnification for pre-closing tax and legal contingencies, as well as certain other matters.  Due to our decision to sell, we will record an estimated net loss of approximately $4.5 billion in the second quarter of fiscal 2019, a significant portion of which is due to the recognition of cumulative foreign currency

20



translation  losses.  The transaction is subject to regulatory approval and is expected to close in the second half of fiscal 2019.
Pending divestitures of banking operations in Walmart Canada and Walmart Chile, both classified as held for sale as of April 30, 2018, and subject to closing procedures, consistent with our focus on core retail capabilities.
Our fiscal year ends on January 31 for our U.S. and Canadian operations. We consolidate all other operations generally using a one-month lag and on a calendar year basis. Our business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, our highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
This discussion, which presents our results for periods occurring in the fiscal year ending January 31, 2019 ("fiscal 2019") and the fiscal year ended January 31, 2018 ("fiscal 2018"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three months ended April 30, 2018, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended January 31, 2018, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report of Form 10-K for the year ended January 31, 2018 incorporated by reference.
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker. In fiscal 2019, the Company revised certain of its corporate overhead allocations to the operating segments and, accordingly, revised prior period amounts for comparability.
Comparable store and club sales, or comparable sales, is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period from the corresponding period in the previous year. Walmart's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated online or though mobile applications, including omni-channel transactions which are fulfilled through our stores and clubs. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Additionally, sales related to eCommerce acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, we use the term "currency exchange rates" to refer to the currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. dollar into U.S. dollars for financial reporting purposes. We calculate the effect of changes in currency exchange rates from the prior period to the current period as the difference between current period activity translated using the current period's currency exchange rates, and current period activity translated using the comparable prior year period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and the Walmart International segment in the future.
The Retail Industry
We operate in the highly competitive retail industry in all of the markets we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses. Many of these competitors are national, regional or international chains or have a national or international online presence. We compete with a number of companies for prime retail site locations, as well as in attracting and retaining quality employees ("associates"). We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events, weather, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, cost of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, general economic conditions, insurance costs, interest rates, labor costs, tax rates, cybersecurity attacks and unemployment.

21



Company Performance Metrics
We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs.  At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate.  We define our financial framework as:
strong, efficient growth;
operating discipline; and
strategic capital allocation.
As we execute on this financial framework, we believe our returns on capital will improve over time.
Strong, Efficient Growth
Our objective of prioritizing strong, efficient growth means we will focus on increasing comparable store and club sales and accelerating eCommerce sales growth while slowing the rate of growth of new stores and clubs. At times, we make strategic investments which are focused on the long-term growth of the Company.
Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our fiscal calendar comparable sales also differ from the retail calendar comparable sales provided in our quarterly earnings releases. Calendar comparable sales, as well as the impact of fuel, for the three months ended April 30, 2018 and 2017, were as follows:
 
 
Three Months Ended April 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
With Fuel
 
Fuel Impact
Walmart U.S.
 
2.4
%
 
1.1
%
 
0.1
%
 
0.1
%
Sam's Club
 
5.3
%
 
2.1
%
 
1.4
%
 
1.4
%
Total U.S.
 
2.8
%
 
1.2
%
 
0.3
%
 
0.2
%
Comparable sales in the U.S., including fuel, increased 2.8% for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. Total U.S. comparable sales were positively impacted by continued traffic improvement and higher eCommerce sales at both Walmart U.S. and Sam's Club. eCommerce sales positively impacted comparable sales by approximately 1.0% and 0.8% for the three months ended April 30, 2018 for Walmart U.S. and Sam's Club, respectively.

22



Operating Discipline
We operate with discipline by managing expenses and optimizing the efficiency of how we work. We measure operating discipline through expense leverage, which we define as net sales growing at a faster rate than operating expenses.
 
 
Three Months Ended April 30,
(Amounts in millions, except unit counts)
 
2018
 
2017
Net sales
 
$
121,630

 
$
116,526

Percentage change from comparable period
 
4.4
%
 
1.3
%
Operating, selling, general and administrative expenses
 
$
25,829

 
$
24,617

Percentage change from comparable period
 
4.9
%
 
2.2
%
Operating, selling, general and administrative expenses as a percentage of net sales
 
21.2
%
 
21.1
%

For the three months ended April 30, 2018, operating, selling, general and administrative ("operating") expenses as a percentage of net sales increased 11 basis points when compared to the same periods in the previous fiscal year. As a result, we did not leverage expenses primarily due to investments we are making in eCommerce and technology as well as a charge related to the pending divestiture of our banking operations in Canada and continuing expenses related to disposal and closure events, which began in the fourth quarter of fiscal 2018.
Strategic Capital Allocation
We are allocating more capital to store remodels, eCommerce, technology and supply chain and less to new store and club openings, when compared to prior years. This allocation aligns with our initiatives of improving our customer proposition in stores and clubs and integrating digital and physical shopping. The following table provides additional detail:
(Amounts in millions)
 
Three Months Ended April 30,
Allocation of Capital Expenditures
 
2018
 
2017
Remodels
 
$
475

 
$
447

eCommerce, technology, supply chain and other
 
805

 
767

New stores and clubs, including expansions and relocations
 
103

 
305

Total U.S.
 
1,383

 
1,519

Walmart International
 
435

 
471

Total capital expenditures
 
$
1,818

 
$
1,990


Although capital expenditures remained relatively flat in total, how we expended capital varied consistent with our shift in capital allocation strategy.

23



Returns
As we execute our financial framework, we believe our return on capital will improve over time. We measure return on capital with our return on investment and free cash flow metrics. In addition, we provide returns in the form of share repurchases and dividends, which are discussed in the Liquidity and Capital Resources section.
Return on Assets and Return on Investment
We include Return on Assets ("ROA"), the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), and Return on Investment ("ROI") as metrics to assess returns on assets. While ROI is considered a non-GAAP financial measure, management believes ROI is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term potential strategic initiatives with possible short-term impacts. ROA was 4.8% and 7.1% for the trailing twelve months ended April 30, 2018 and 2017, respectively. The decline in ROA was primarily due to the losses on extinguishment of debt of $3.1 billion and the decrease in operating income over the trailing twelve months ended April 30, 2018. ROI was 13.9% and 15.1% for the trailing twelve months ended April 30, 2018 and 2017, respectively. The decline in ROI was primarily due to the decrease in operating income over the trailing twelve months ended April 30, 2018.
We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the trailing 12 months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and average amortization, less average accounts payable and average accrued liabilities for that period, plus a rent factor equal to the rent for the fiscal year or trailing 12 months multiplied by a factor of 8. When we have discontinued operations, we exclude the impact of the discontinued operations.
Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure. For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. In addition, we include a factor of 8 for rent expense that estimates the hypothetical capitalization of our operating leases. As mentioned above, we consider return on assets to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of ROI. ROI differs from ROA (which is consolidated net income for the period divided by average total assets for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; adjusts total assets for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities; and incorporates a factor of rent to arrive at total invested capital. Because of the adjustments mentioned above, we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.
Although ROI is a standard financial measure, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.



24



The calculation of ROA and ROI, along with a reconciliation of ROI to the calculation of ROA, the most comparable GAAP financial measure, is as follows:
 
 
For the Trailing Twelve Months Ending April 30,
(Amounts in millions)
 
2018
 
2017
CALCULATION OF RETURN ON ASSETS
Numerator
 
 
 
 
Consolidated net income
 
$
9,647

 
$
14,229

Denominator
 
 
 
 
Average total assets(1)
 
$
202,323

 
$
199,212

Return on assets (ROA)
 
4.8
%
 
7.1
%
 
 
 
 
 
CALCULATION OF RETURN ON INVESTMENT
Numerator
 
 
 
 
Operating income
 
$
20,354

 
$
22,726

+ Interest income
 
160

 
111

+ Depreciation and amortization
 
10,656

 
10,243

+ Rent
 
3,036

 
2,601

= Adjusted operating income
 
$
34,206

 
$
35,681

 
 
 
 
 
Denominator
 
 
 
 
Average total assets(1)
 
$
202,323

 
$
199,212

+ Average accumulated depreciation and amortization(1)
 
81,862

 
76,115

- Average accounts payable(1)
 
42,990

 
39,682

- Average accrued liabilities(1)
 
20,245

 
19,657

+ Rent x 8
 
24,288

 
20,808

= Average invested capital
 
$
245,238

 
$
236,796

Return on investment (ROI)
 
13.9
%
 
15.1
%
 
 
 
As of April 30,
 
 
2018
 
2017
 
2016
Certain Balance Sheet Data
 
 
 
 
 
 
Total assets
 
$
204,927

 
$
199,718

 
$
198,705

Accumulated depreciation and amortization
 
84,964

 
78,760

 
73,469

Accounts payable
 
44,612

 
41,367

 
37,997

Accrued liabilities
 
20,782

 
19,708

 
19,605

 
(1) The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2.

25



Free Cash Flow
Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. See Liquidity and Capital Resources for discussions of GAAP metrics including net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities.
We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in the same period. We had net cash provided by operating activities of $5.2 billion and $5.4 billion for the three months ended April 30, 2018 and 2017, respectively. The decrease in net cash provided by operating activities was due to the timing of payments. We generated free cash flow of $3.3 billion for the three months ended April 30, 2018, which was relatively flat compared to $3.4 billion for the three months ended April 30, 2017.
Walmart's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.
Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by Walmart's management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.
The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow, as well as information regarding net cash used in investing activities and net cash used in financing activities.
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Net cash provided by operating activities
 
$
5,161

 
$
5,385

Payments for property and equipment
 
(1,818
)
 
(1,990
)
Free cash flow
 
$
3,343

 
$
3,395

 
 
 
 
 
Net cash used in investing activities(1)
 
$
(1,682
)
 
$
(1,861
)
Net cash used in financing activities
 
(2,486
)
 
(3,972
)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

26



Results of Operations
Consolidated Results of Operations
 
 
Three Months Ended April 30,
(Amounts in millions, except unit counts)
 
2018
 
2017
Total revenues
 
$
122,690

 
$
117,542

Percentage change from comparable period
 
4.4
%

1.4
%
Net sales
 
$
121,630

 
$
116,526

Percentage change from comparable period
 
4.4
%

1.3
%
Total U.S. calendar comparable sales increase
 
2.8
%
 
1.2
%
Gross profit margin as a percentage of net sales
 
24.6
%
 
24.8
%
Operating income
 
$
5,154

 
$
5,237

Operating income as a percentage of net sales
 
4.2
%
 
4.5
%
Unrealized (gains) and losses
 
$
1,845

 

Consolidated net income
 
$
2,276

 
$
3,152

Unit counts at period end
 
11,717


11,723

Retail square feet at period end
 
1,157


1,166

Our total revenues, which are mostly comprised of net sales, but also include membership and other income, increased $5.1 billion or 4.4% for the three months ended April 30, 2018. when compared to the same periods in the previous fiscal year. The increase in revenues was due to an increase in net sales, which was primarily due to overall positive comparable sales in all of our segments and year-over-year net growth in retail square feet of 0.6% in the Walmart U.S. segment, partially offset by club closures in the Sam's Club segment. Additionally, for the three months ended April 30, 2018, fluctuations in currency exchange rates positively impacted net sales by $1.9 billion.
Our gross profit rate decreased 15 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease for the three months ended April 30, 2018 was due to strategic price investments and higher fuel costs at the Walmart U.S. and Sam's Club segments.
Operating expenses as a percentage of net sales increased 11 basis points for the three months ended April 30, 2018, when compared to the same periods in the previous fiscal year, primarily due to continued investments in eCommerce and technology and the charge related to the pending divestiture of our Canada banking operations of approximately $81 million. Currency fluctuations partially offset these charges.
Unrealized losses were $1.8 billion for the three months ended April 30, 2018, primarily as a result of the decrease in the market value of our investment in JD.com. Beginning in fiscal 2019 due to the adoption of the new financial instrument standard, changes in fair value are recognized in unrealized gains and losses in the Condensed Consolidated Statements of Income.
Our effective income tax rate was 19.3% for the three months ended April 30, 2018, compared to 32.6%, for the same period in the previous fiscal year. The decrease in the effective income tax rate for the three months ended April 30, 2018 was primarily due to the Tax Cuts and Jobs Act of 2017 and related accounting standards updates. Our effective income tax rate may fluctuate from quarter to quarter as a result of factors including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix of earnings among our U.S. operations and international operations, which are subject to statutory rates that are generally lower than the U.S. statutory rate.
Consolidated net income decreased $0.9 billion for three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease was due to the unrealized loss on our investment in JD.com, which was partially offset by the other factors discussed above. Diluted net income per common share attributable to Walmart was $0.72 for the three months ended April 30, 2018, which represents a decline of $0.28, when compared to the same period in the previous fiscal year.


27



Walmart U.S. Segment
 
 
Three Months Ended April 30,
(Amounts in millions, except unit counts)
 
2018
 
2017
Net sales
 
$
77,748

 
$
75,436

Percentage change from comparable period
 
3.1
%

2.9
%
Calendar comparable sales increase
 
2.4
%
 
1.1
%
Operating income
 
$
3,927

 
$
4,052

Operating income as a percentage of net sales
 
5.1
%
 
5.4
%
Unit counts at period end
 
4,761


4,692

Retail square feet at period end
 
705


701

Net sales for the Walmart U.S. segment increased $2.3 billion or 3.1% for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The increase in net sales was primarily due to increases in comparable sales of 2.4% and year-over-year net growth in retail square feet of 0.6%.
Gross profit rate decreased 23 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease was primarily due to price investments as well as higher transportation expenses, resulting from higher fuel costs and third-party trucking rates.
Operating expenses as a percentage of net sales increased 11 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year, primarily due to continued investments in eCommerce and technology.
As a result of the factors discussed above, operating income decreased $125 million for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year.

28



Walmart International Segment
 
 
Three Months Ended April 30,
(Amounts in millions, except unit counts)
 
2018
 
2017
Net sales
 
$
30,260

 
$
27,097

Percentage change from comparable period
 
11.7
%
 
(3.5
)%
Operating income
 
$
1,265

 
$
1,139

Operating income as a percentage of net sales
 
4.2
%
 
4.2
 %
Unit counts at period end
 
6,359


6,369

Retail square feet at period end
 
372


376

Net sales for the Walmart International segment increased $3.2 billion or 11.7% for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The increase in net sales was primarily due to a $1.9 billion positive impact from fluctuations in currency exchange rates, positive comparable sales in the majority of our markets and the timing of Easter compared to the same period in the previous fiscal year. The positive impacts were partially offset by a reduction in net sales of approximately $200 million due to divesting our Suburbia business in the second quarter of fiscal 2018 and a reduction in net sales due to the wind down of the first party Brazil eCommerce operations.
Gross profit rate decreased 10 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease in the gross profit rate was primarily due to price investments.
Operating expenses as a percentage of net sales decreased 7 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease in operating expenses as a percentage of net sales was primarily due to currency fluctuations of 23 basis points. The decrease was offset by the charge related to the pending divestiture of our Canada banking operations of approximately $81 million and the wind down of the first party Brazil eCommerce operations.
As a result of the factors discussed above, operating income increased $126 million for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year.

29



Sam's Club Segment
We believe the information in the following table under the caption "Excluding Fuel" is useful to investors because it permits investors to understand the effect of the Sam's Club segment's fuel sales on its results of operations, which are impacted by the volatility of fuel prices. Volatility in fuel prices may continue to impact the operating results of the Sam's Club segment in the future. 
 
 
Three Months Ended April 30,
(Amounts in millions, except unit counts)
 
2018
 
2017
Including Fuel
 
 
 
 
Net sales
 
$
13,622

 
$
13,993

Percentage change from comparable period
 
(2.7
)%
 
2.8
%
Calendar comparable sales increase (decrease)
 
5.3
 %
 
2.1
%
Operating income
 
$
325

 
$
399

Operating income as a percentage of net sales
 
2.4
 %
 
2.9
%
Unit counts at period end
 
597


662

Retail square feet at period end
 
80


89

 
 
 
 
 
Excluding Fuel
 
 
 
 
Net sales
 
$
12,380

 
$
12,909

Percentage change from comparable period
 
(4.1
)%
 
1.4
%
Operating income
 
$
313

 
$
391

Operating income as a percentage of net sales
 
2.5
 %
 
3.0
%
Net sales for the Sam's Club segment decreased $371 million or 2.7% for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The decrease in net sales was primarily due to the net closure of 63 clubs in fiscal 2018. The decrease in net sales was partially offset by an increase in comparable sales of 5.3% of which fuel positively impacted by approximately 1.4% due to higher fuel prices.
Gross profit rate decreased 34 basis points for the three months ended April 30, 2018 when compared to the same period in the previous fiscal year, primarily due to higher inventory shrink partially related to the above mentioned club closures, higher transportation costs, increased shipping costs at samsclub.com, and price investments.
Membership and other income decreased 0.9% for the three months ended April 30, 2018 when compared to the same period in the previous fiscal year. The decrease was primarily due to lower recycling income, partially offset by an increase in membership income driven by an increase in Plus memberships.
Operating expenses as a percentage of segment net sales increased 17 basis points for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year. The increase was primarily due to charges related to the exit of leased clubs, which were closed as part of the club closures in fiscal 2018.
As a result of the factors discussed above, operating income decreased $74 million for the three months ended April 30, 2018 when compared to the same period in the previous fiscal year.

30



Liquidity and Capital Resources
Liquidity
The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. For example, to finance the recently announced Flipkart acquisition, which is subject to regulatory approval, we intend to use a combination of newly issued debt and cash on hand. Generally, some or all of the remaining available cash flow has been used to fund the dividends on our common stock and share repurchases. We believe our sources of liquidity will continue to be adequate to fund operations, finance our global investment and expansion activities, pay dividends and fund our share repurchases for the foreseeable future.
Net Cash Provided by Operating Activities
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Net cash provided by operating activities
 
$
5,161

 
$
5,385

Net cash provided by operating activities was $5.2 billion and $5.4 billion for the three months ended April 30, 2018 and 2017, respectively. The decrease in net cash provided by operating activities was due to the timing of payments.
Cash Equivalents and Working Capital
Cash and cash equivalents were $7.9 billion and $6.5 billion at April 30, 2018 and 2017, respectively. Our working capital deficit was $21.5 billion and $16.9 billion at April 30, 2018 and 2017, respectively. We generally operate with a working capital deficit due to our efficient use of cash in funding operations, consistent access to the capital markets and returns provided to our shareholders in the form of payments of cash dividends and share repurchases.
We use intercompany financing arrangements in an effort to ensure cash can be made available in the country in which it is needed with the minimum cost possible. We do not believe it will be necessary to repatriate earnings held outside of the U.S. and anticipate our domestic liquidity needs will be met through cash flows provided by domestic operating activities, supplemented with long-term debt and short-term borrowings. Accordingly, we intend, with only certain exceptions, to continue to indefinitely reinvest our earnings held outside of the U.S. in our foreign operations. As part of Tax Reform and Jobs Act of 2017, we continue to assess the impact of the new U.S. tax laws, which can in turn, impact our assertion regarding any potential future repatriation. If our intentions with respect to reinvestment were to change, most of the amounts held within our foreign operations could be repatriated to the U.S., although any repatriation under new U.S. tax laws could be subject to incremental withholding taxes. We do not expect current local laws, other existing limitations or potential taxes on anticipated future repatriations of cash amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations.
As of April 30, 2018 and January 31, 2018, cash and cash equivalents of approximately $1.4 billion may not be freely transferable to the U.S. due to local laws or other restrictions.

Net Cash Used in Investing Activities
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Net cash used in investing activities
 
$
(1,682
)
 
$
(1,861
)
Net cash used in investing activities was $1.7 billion and $1.9 billion for the three months ended April 30, 2018 and 2017, respectively, and generally consisted of payments to remodel existing stores and clubs, expand our eCommerce capabilities, invest in other technologies and add stores and clubs. Net cash used in investing activities decreased $0.2 billion for the three months ended April 30, 2018 due to fewer capital expenditures.
Net Cash Used in Financing Activities
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2018
 
2017
Net cash used in financing activities
 
$
(2,486
)
 
$
(3,972
)
Net cash used in financing activities generally consists of transactions related to our short-term and long-term debt, financing obligations, dividends paid and the repurchase of Company stock. Transactions with noncontrolling interest shareholders are also classified as cash flows from financing activities. Net cash used in financing activities decreased $1.5 billion for the three months ended April 30, 2018, when compared to the same period in the previous fiscal year, primarily due to decreased repurchases of Company stock as we suspended repurchases in anticipation of the Flipkart announcement.

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Long-term Debt
The following table provides the changes in our long-term debt for the three months ended April 30, 2018:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2018
 
$
3,738

 
$
30,045

 
$
33,783

Proceeds from issuance of long-term debt
 

 

 

Repayments of long-term debt
 
(2,521
)
 

 
(2,521
)
Reclassifications of long-term debt
 
364

 
(364
)
 

Other
 
(5
)
 
(204
)
 
(209
)
Balances as of April 30, 2018
 
$
1,576

 
$
29,477

 
$
31,053

Our total outstanding long-term debt balance decreased $2.7 billion for the three months ended April 30, 2018, primarily due to repayments of long-term debt. Additionally, we expect our long–term debt balances will increase later in the year in order to fund the recently announced $16 billion Flipkart acquisition, which is subject to regulatory approval.
Dividends
On February 20, 2018, the Board of Directors approved the fiscal 2019 annual dividend of $2.08 per share, an increase over the fiscal 2018 annual dividend of $2.04 per share. For fiscal 2019, the annual dividend will be paid in four quarterly installments of $0.52 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 9, 2018
  
April 2, 2018
May 11, 2018
  
June 4, 2018
August 10, 2018
  
September 4, 2018
December 7, 2018
  
January 2, 2019
The dividend installments payable on April 2, 2018 and June 4, 2018 were paid as scheduled.
Company Share Repurchase Program
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three months ended April 30, 2018 were made under the plan in effect at the beginning of the fiscal year. The current $20.0 billion share repurchase program approved in October 2017 has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. As of April 30, 2018, authorization for $18.3 billion of share repurchases remained under the current share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.
We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow. The following table provides, on a settlement date basis, the number of shares repurchased, average price paid per share and total amount paid for share repurchases for the three months ended April 30, 2018 and 2017:
 
 
Three Months Ended April 30,
(Amounts in millions, except per share data)
 
2018
 
2017
Total number of shares repurchased
 
5.5

 
31.1

Average price paid per share
 
$
97.75

 
$
70.25

Total amount paid for share repurchases
 
$
539

 
$
2,185

Share repurchases decreased $1.6 billion for the three months ended April 30, 2018, when compared to the same period in the previous year, primarily due to suspended repurchases in anticipation of the Flipkart announcement.
Capital Resources
We intend to fund the acquisition of Flipkart with a combination of newly issued debt and cash on hand.  We believe cash flows from operations, our current cash position and access to capital markets will continue to be sufficient to meet our anticipated operating cash needs, which include funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases.

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We have strong commercial paper and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets. At April 30, 2018, the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows:
Rating agency
  
Commercial paper
  
Long-term debt
Standard & Poor's
  
A-1+
  
AA
Moody's Investors Service
  
P-1
  
Aa2
Fitch Ratings
  
F1+
  
AA
Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain consistent over time. Factors that could affect our credit ratings include changes in our operating performance, the general economic environment, conditions in the retail industry, our financial position, including our total debt and capitalization, and changes in our business strategy. Any downgrade of our credit ratings by a credit rating agency could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper markets with the same flexibility that we have experienced historically, potentially requiring us to rely more heavily on more expensive types of debt financing. The credit rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
Other Matters
In Note 9 to our Condensed Consolidated Financial Statements, which is captioned "Contingencies" and appears in Part I of this Quarterly Report on Form 10-Q under the caption "Item 1. Financial Statements," we discuss, under the sub-caption "FCPA Investigation and Related Matters," our existing FCPA investigation and related matters and possible effects of those matters on Walmart's business. In that Note 9, we also discuss, under the sub-caption "ASDA Equal Value Claims," certain existing employment claims against ASDA. Further, in that Note 9, we also discuss, under the sub-caption "National Prescription Opiate Litigation", the national prescription opiate litigation including certain risks arising therefrom. We also discuss various legal proceedings related to the FCPA investigation, ASDA Equal Value Claims, and National Prescription Opiate Litigation, in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1. Legal Proceedings," under the sub-caption "II. Certain Other Proceedings." The foregoing matters and other matters described elsewhere in this Quarterly Report on Form 10-Q represent contingent liabilities of the Company that may or may not result in the incurrence of a material liability by the Company upon their final resolution.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to our operations result primarily from changes in interest rates or currency exchange rates, as well as changes in the market value of our investments. Our market risks at April 30, 2018, are similar to those disclosed in our Form 10-K for the fiscal year ended January 31, 2018.
Interest Rate Risk
At April 30, 2018, the fair value of our derivative instruments decreased approximately $0.1 billion since January 31, 2018, primarily due to fluctuations in market interest rates and currency rates during the three months ended April 30, 2018.
Foreign Currency Risk
Movements in currency exchange rates and the related impact on the translation of the balance sheets of the Company's subsidiaries in the UK and Mexico were the primary cause of the $1.3 billion net gain for the three months ended April 30, 2018, in the currency translation and other category of accumulated other comprehensive loss.
Investment Risk
We are exposed to changes in the JD.com ("JD") stock price as a result of our equity investment in JD. At April 30, 2018, the fair value of our equity investment in JD was $5.3 billion. Since February 1, 2018, when we adopted the new financial instrument accounting standard, the fair value decreased approximately $1.8 billion due to a decrease in the stock price of JD.
The information concerning market risk under the sub-caption "Market Risk" of the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 and 20 of the parts of our Annual Report to Shareholders for the fiscal year ended January 31, 2018, which is incorporated in and included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, is hereby incorporated by reference into this Quarterly Report on Form 10-Q.

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Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures. Also, we have investments in unconsolidated entities. Since we do not control or manage those entities, our controls and procedures with respect to those entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.
In the ordinary course of business, we review our internal control over fin