Document
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 July 31, 2017.
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 1-6991
image2a16.jpg
WAL-MART STORES, 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 2,987,201,643 shares of common stock outstanding as of August 29, 2017.


Table of Contents

Wal-Mart Stores, Inc.
Form 10-Q
For the Quarterly Period Ended July 31, 2017



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions, except per share data)
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Net sales
 
$
121,949

 
$
119,405

 
$
238,475

 
$
234,391

Membership and other income
 
1,406

 
1,449

 
2,422

 
2,367

Total revenues
 
123,355

 
120,854

 
240,897

 
236,758

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
91,521

 
89,485

 
179,209

 
176,029

Operating, selling, general and administrative expenses
 
25,865

 
25,204

 
50,482

 
49,289

Operating income
 
5,969

 
6,165

 
11,206

 
11,440

Interest:
 
 
 
 
 
 
 
 
Debt
 
522

 
509

 
1,028

 
1,008

Capital lease and financing obligations
 
91

 
79

 
183

 
165

Interest income
 
(38
)
 
(22
)
 
(73
)
 
(46
)
Interest, net
 
575

 
566

 
1,138

 
1,127

Loss on extinguishment of debt
 
788

 
—

 
788

 
—

Income before income taxes
 
4,606

 
5,599

 
9,280

 
10,313

Provision for income taxes
 
1,502

 
1,710

 
3,024

 
3,208

Consolidated net income
 
3,104

 
3,889

 
6,256

 
7,105

Consolidated net income attributable to noncontrolling interest
 
(205
)
 
(116
)
 
(318
)
 
(253
)
Consolidated net income attributable to Walmart
 
$
2,899

 
$
3,773

 
$
5,938

 
$
6,852

 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
Basic net income per common share attributable to Walmart
 
$
0.96

 
$
1.21

 
$
1.97

 
$
2.19

Diluted net income per common share attributable to Walmart
 
0.96

 
1.21

 
1.96

 
2.18

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
3,008

 
3,109

 
3,021

 
3,126

Diluted
 
3,021

 
3,119

 
3,034

 
3,136

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
—

 
$
—

 
$
2.04

 
$
2.00

See accompanying notes.

3

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions)
2017
 
2016
 
2017
 
2016
Consolidated net income
$
3,104

 
$
3,889

 
$
6,256

 
$
7,105

Less consolidated net income attributable to noncontrolling interest
(205
)
 
(116
)
 
(318
)
 
(253
)
Consolidated net income attributable to Walmart
2,899

 
3,773

 
5,938

 
6,852

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of income taxes
 
 
 
 
 
 
 
Currency translation and other
1,026

 
(950
)
 
2,185

 
(329
)
Unrealized gain on available-for-sale securities
727

 
—

 
1,208

 
—

Net investment hedges
(36
)
 
288

 
(149
)
 
210

Cash flow hedges
115

 
(87
)
 
143

 
56

Minimum pension liability
27

 
(7
)
 
32

 
(106
)
Other comprehensive income (loss), net of income taxes
1,859

 
(756
)
 
3,419

 
(169
)
Less other comprehensive income (loss) attributable to noncontrolling interest
(5
)
 
79

 
(287
)
 
94

Other comprehensive income (loss) attributable to Walmart
1,854

 
(677
)
 
3,132

 
(75
)
 
 
 
 
 
 
 
 
Comprehensive income, net of income taxes
4,963

 
3,133

 
9,675

 
6,936

Less comprehensive income (loss) attributable to noncontrolling interest
(210
)
 
(37
)
 
(605
)
 
(159
)
Comprehensive income attributable to Walmart
$
4,753

 
$
3,096

 
$
9,070

 
$
6,777

See accompanying notes.

4

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
July 31,
 
January 31,
 
July 31,
(Amounts in millions)
 
2017
 
2017
 
2016
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,469

 
$
6,867

 
$
7,676

Receivables, net
 
5,395

 
5,835

 
5,275

Inventories
 
43,442

 
43,046

 
43,453

Prepaid expenses and other
 
1,457

 
1,941

 
1,828

Total current assets
 
56,763

 
57,689

 
58,232

Property and equipment:
 
 
 
 
 
 
Property and equipment
 
183,545

 
179,492

 
178,596

Less accumulated depreciation
 
(75,375
)
 
(71,782
)
 
(69,729
)
Property and equipment, net
 
108,170

 
107,710

 
108,867

Property under capital lease and financing obligations:
 
 
 
 
 
 
Property under capital lease and financing obligations
 
12,581

 
11,637

 
11,544

Less accumulated amortization
 
(5,398
)
 
(5,169
)
 
(5,001
)
Property under capital lease and financing obligations, net
 
7,183

 
6,468

 
6,543

 
 
 
 
 
 
 
Goodwill
 
18,037

 
17,037

 
16,339

Other assets and deferred charges
 
11,413

 
9,921

 
7,905

Total assets
 
$
201,566

 
$
198,825

 
$
197,886

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term borrowings
 
$
3,262

 
$
1,099

 
$
1,932

Accounts payable
 
42,389

 
41,433

 
39,902

Dividends payable
 
3,057

 
—

 
3,101

Accrued liabilities
 
19,686

 
20,654

 
19,651

Accrued income taxes
 
505

 
921

 
720

Long-term debt due within one year
 
3,254

 
2,256

 
2,265

Capital lease and financing obligations due within one year
 
658

 
565

 
551

Total current liabilities
 
72,811

 
66,928

 
68,122

 
 
 
 
 
 
 
Long-term debt
 
33,706

 
36,015

 
36,673

Long-term capital lease and financing obligations
 
6,763

 
6,003

 
6,070

Deferred income taxes and other
 
9,240

 
9,344

 
7,877

 
 
 
 
 
 
 
Commitments and contingencies
 

 

 

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
299

 
305

 
310

Capital in excess of par value
 
2,352

 
2,371

 
1,915

Retained earnings
 
84,838

 
89,354

 
85,972

Accumulated other comprehensive loss
 
(11,100
)
 
(14,232
)
 
(11,672
)
Total Walmart shareholders' equity
 
76,389

 
77,798

 
76,525

Noncontrolling interest
 
2,657

 
2,737

 
2,619

Total equity
 
79,046

 
80,535

 
79,144

Total liabilities and equity
 
$
201,566

 
$
198,825

 
$
197,886

See accompanying notes.

5

Table of Contents

Wal-Mart Stores, 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, 2017
3,048

 
$
305

 
$
2,371

 
$
89,354

 
$
(14,232
)
 
$
77,798

 
$
2,737

 
$
80,535

Consolidated net income
—

 
—

 
—

 
5,938

 
—

 
5,938

 
318

 
6,256

Other comprehensive income (loss), net of income taxes
—

 
—

 
—

 
—

 
3,132

 
3,132

 
287

 
3,419

Cash dividends declared ($2.04 per share)
—

 
—

 
—

 
(6,142
)
 
—

 
(6,142
)
 
—

 
(6,142
)
Purchase of Company stock
(60
)
 
(6
)
 
(114
)
 
(4,306
)
 
—

 
(4,426
)
 
—

 
(4,426
)
Cash dividend declared to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(679
)
 
(679
)
Other
5

 
—

 
95

 
(6
)
 
—

 
89

 
(6
)
 
83

Balances as of July 31, 2017
2,993

 
$
299

 
$
2,352

 
$
84,838

 
$
(11,100
)
 
$
76,389

 
$
2,657

 
$
79,046

See accompanying notes.

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Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended July 31,
(Amounts in millions)
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
6,256

 
$
7,105

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
5,169

 
4,905

Deferred income taxes
 
94

 
33

Other operating activities
 
772

 
(361
)
Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
 
Receivables, net
 
585

 
443

Inventories
 
233

 
1,055

Accounts payable
 
535

 
1,864

Accrued liabilities
 
(1,720
)
 
(387
)
Accrued income taxes
 
(564
)
 
274

Net cash provided by operating activities
 
11,360

 
14,931

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Payments for property and equipment
 
(4,423
)
 
(4,619
)
Proceeds from the disposal of property and equipment
 
212

 
260

Proceeds from the disposal of certain operations
 
1,012

 
—

Business acquisitions, net of cash acquired
 
(363
)
 
—

Other investing activities
 
3

 
(57
)
Net cash used in investing activities
 
(3,559
)
 
(4,416
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Net change in short-term borrowings
 
2,144

 
(857
)
Proceeds from issuance of long-term debt
 
1,503

 
130

Repayments of long-term debt
 
(4,177
)
 
(2,026
)
Dividends paid
 
(3,088
)
 
(3,133
)
Purchase of Company stock
 
(4,447
)
 
(4,852
)
Dividends paid to noncontrolling interest
 
(473
)
 
(270
)
Purchase of noncontrolling interest
 
(8
)
 
(103
)
Other financing activities
 
(85
)
 
(103
)
Net cash used in financing activities
 
(8,631
)
 
(11,214
)
 
 
 
 
 
Effect of exchange rates on cash and cash equivalents
 
432

 
(330
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(398
)
 
(1,029
)
Cash and cash equivalents at beginning of year
 
6,867

 
8,705

Cash and cash equivalents at end of period
 
$
6,469

 
$
7,676

See accompanying notes.

7

Table of Contents

Wal-Mart Stores, Inc.
Notes to Condensed Consolidated Financial Statements


Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Wal-Mart Stores, 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, 2017 ("fiscal 2017"). 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 on 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 July 2017 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.
Receivables
Receivables are stated at their carrying values, net of a reserve for doubtful accounts. Receivables consist primarily of amounts due from:
•
insurance companies resulting from pharmacy sales;
•
banks for customer credit and debit cards and electronic bank transfers that take in excess of seven days to process;
•
consumer financing programs in certain international operations;
•
suppliers for marketing or incentive programs; and
•
real estate transactions.
The Walmart International segment offers a limited number of consumer credit products, primarily through its financial institutions in Canada and Chile to customers in those markets. The receivable balance from consumer credit products was $1.3 billion, net of a reserve for doubtful accounts of $87 million at July 31, 2017, compared to a receivable balance of $1.2 billion, net of a reserve for doubtful accounts of $79 million at January 31, 2017. These balances are included in receivables, net, in the Company's Condensed Consolidated Balance Sheets.
Inventories
The Company values inventories at the lower of cost or market as determined primarily by the retail inventory method of accounting, using the last-in, first-out ("LIFO") method for substantially all of the Walmart U.S. segment's inventories. The inventory at the Walmart International segment is valued primarily by the retail inventory method of accounting, using the first-in, first-out ("FIFO") method. The retail inventory method of accounting results in inventory being valued at the lower of cost or market, since permanent markdowns are immediately recorded as a reduction of the retail value of inventory. The inventory at the Sam's Club segment is valued using the LIFO method. At July 31, 2017 and January 31, 2017, the Company's inventories valued at LIFO approximated those inventories as if they were valued at FIFO.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. While management continues to evaluate the impact of this ASU, it is not expected to materially impact the Company's consolidated net income, balance sheet or cash flows. Although not material, the ASU will impact the timing of recognition of revenue associated with the unredeemed portion of Company issued gift cards, which will be recognized over the expected redemption period of the gift card rather than waiting until the likelihood of redemption becomes remote or waiting for the gift card to expire. Additionally, management continues to evaluate certain contracts to determine whether gross presentation will continue to be appropriate under this ASU and is still

8

Table of Contents

evaluating the required disclosures. The Company will adopt this ASU on February 1, 2018 under the modified retrospective approach, which will result in a cumulative adjustment to retained earnings.
Leases
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 the ASU on February 1, 2019 and is implementing new lease systems in connection with the adoption. Management is evaluating this ASU and expects it will have a material impact on the Company's consolidated balance sheet. Management is still evaluating the effect on consolidated net income, cash flows and disclosures.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall (Topic 825), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The Company will adopt the ASU on February 1, 2018. Management is evaluating this ASU and expects it to primarily impact the Company's accounting for its investment in JD.com ("JD"). Subsequent to adoption, changes in the value of the Company's investment in JD will be recorded in consolidated net income.
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 the ASU on February 1, 2020. Management is currently evaluating this ASU to determine its impact on the Company's consolidated net income, balance sheet, cash flows and disclosures.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation (Topic 718), which is intended to simplify accounting for share-based payment transactions. The ASU changed several aspects of the accounting for share-based payment award transactions, including accounting for income taxes, forfeitures and minimum statutory tax withholding requirements. Management adopted this ASU beginning February 1, 2017, with an immaterial impact to the Company's consolidated net income and cash flows.

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 antidilutive and not included in the calculation of diluted net income per common share attributable to Walmart for the three and six months ended July 31, 2017 and 2016.
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 July 31,
 
Six Months Ended July 31,
(Amounts in millions, except per share data)
 
2017
 
2016
 
2017
 
2016
Numerator
 
 
 
 
 
 
 
 
Consolidated net income
 
$
3,104

 
$
3,889

 
$
6,256

 
$
7,105

Consolidated net income attributable to noncontrolling interest
 
(205
)
 
(116
)
 
(318
)
 
(253
)
Consolidated net income attributable to Walmart
 
$
2,899

 
$
3,773

 
$
5,938

 
$
6,852

 
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding, basic
 
3,008

 
3,109

 
3,021

 
3,126

Dilutive impact of stock options and other share-based awards
 
13

 
10

 
13

 
10

Weighted-average common shares outstanding, diluted
 
3,021

 
3,119

 
3,034

 
3,136


 
 
 
 
 
 
 
 
Net income per common share attributable to Walmart
 
 
 
 
 
 
 
 
Basic
 
$
0.96

 
$
1.21

 
$
1.97

 
$
2.19

Diluted
 
0.96

 
1.21

 
1.96

 
2.18


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Note 3. Accumulated Other Comprehensive Loss
The following table provides the changes in the composition of total accumulated other comprehensive loss for the six months ended July 31, 2017:
(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, 2017
 
$
(14,507
)
 
$
145

 
$
1,435

 
$
(315
)
 
$
(990
)
 
$
(14,232
)
Other comprehensive income (loss) before reclassifications, net(1)
 
1,898

 
1,208

 
(149
)
 
128

 
3

 
3,088

Amounts reclassified from accumulated other comprehensive loss, net(1)
 
—

 
—

 
—

 
15

 
29

 
44

Balances as of July 31, 2017
 
$
(12,609
)
 
$
1,353

 
$
1,286

 
$
(172
)
 
$
(958
)
 
$
(11,100
)
(1) Income tax impact is immaterial.
Amounts reclassified from accumulated other comprehensive loss for derivative instruments are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income, and the amounts for the minimum pension liability are recorded in operating, selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Income.


10

Table of Contents

Note 4. Long-term Debt
The following table provides the changes in the Company's long-term debt for the six months ended July 31, 2017:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2017
 
$
2,256

 
$
36,015

 
$
38,271

Proceeds from long-term debt
 
—

 
1,503

 
1,503

Repayments of long-term debt(1)
 
(1,526
)
 
(1,875
)
 
(3,401
)
Reclassifications of long-term debt
 
2,500

 
(2,500
)
 
—

Other
 
24

 
563

 
587

Balances as of July 31, 2017
 
$
3,254

 
$
33,706

 
$
36,960

(1) Total repayments of long-term debt excludes $0.8 billion of premiums paid to extinguish debt.
Debt Issuances
Information on significant long-term debt issued during the six months ended July 31, 2017, is as follows:
(Amounts in millions)
 
 
 
 
 
 
 
 
 
 
Issue Date
 
Principal Amount
 
Maturity Date
 
Fixed vs. Floating
 
Interest Rate
 
Proceeds
July 18, 2017
 
70,000 JPY
 
July 15, 2022
 
Fixed
 
0.183%
 
$
619

July 18, 2017
 
40,000 JPY
 
July 18, 2024
 
Fixed
 
0.298%
 
354

July 18, 2017
 
60,000 JPY
 
July 16, 2027
 
Fixed
 
0.520%
 
530

Total
 
 
 
 
 
 
 
 
 
$
1,503

As described in Note 6, these issuances of foreign-currency-denominated long-term debt are designated as a hedge of the Company's net investment in Japan.
Maturities and Extinguishments
The following table provides details of debt repayments during the six months ended July 31, 2017:
(Amounts in millions)
 
 
 
 
 
 
 
 
Maturity Date
 
Principal Amount
 
Fixed vs. Floating
 
Interest Rate
 
Repayment(1)
April 5, 2017
 
1,000 USD
 
Fixed
 
5.375%
 
$
1,000

April 21, 2017
 
500 USD
 
Fixed
 
1.000%
 
500

Total repayment of matured debt
 
 
 
 
 
 
 
1,500

 
 
 
 
 
 
 
 
 
August 15, 2037
 
3,000 USD
 
Fixed
 
6.500%
 
1,238

April 15, 2038
 
2,000 USD
 
Fixed
 
6.200%
 
178

January 19, 2039
 
1,000 GBP
 
Fixed
 
4.875%
 
459

Total repayment of extinguished debt
 
 
 
 
 
 
 
1,875

Total
 
 
 
 
 
 
 
$
3,375

(1) Represents portion of the principal amount repaid during the six months ended July 31, 2017.
In connection with extinguishing debt, the Company recorded a loss of $0.8 billion which is included in loss on extinguishment of debt in the Condensed Consolidated Statements of Income.
The Company also repaid other, smaller long-term debt as it matured in its non-U.S. markets.


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Note 5. Fair Value Measurements
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 ordinary 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. 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.
Recurring Fair Value Measurements
The Company holds derivative instruments that are required to be measured at fair value on a recurring basis. The 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 July 31, 2017 and January 31, 2017, the notional amounts and fair values of these derivatives were as follows:
 
July 31, 2017
 
January 31, 2017
(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
$
5,000

 
$
27

 
$
5,000

 
$
(4
)
Receive fixed-rate, pay fixed-rate cross-currency swaps designated as net investment hedges
2,250

 
390

 
2,250

 
471

Receive fixed-rate, pay fixed-rate cross-currency swaps designated as cash flow hedges
4,282

 
(269
)
 
3,957

 
(618
)
Total
$
11,532

 
$
148

 
$
11,207

 
$
(151
)
Additionally, the Company's available-for-sale securities are measured at fair value on a recurring basis using Level 1 inputs. Changes in fair value are recorded in accumulated other comprehensive loss. The cost basis and fair value of the Company's available-for-sale securities as of July 31, 2017 and January 31, 2017, are as follows:
 
 
July 31, 2017
 
January 31, 2017
(Amounts in millions)
 
Cost Basis
 
Fair Value
 
Cost Basis
 
Fair Value
Available-for-sale securities
 
$
1,901

 
$
3,254

 
$
1,901

 
$
2,046

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 and six months ended July 31, 2017 or for the fiscal year ended January 31, 2017.
Other Fair Value Disclosures
The Company records cash and cash equivalents 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 July 31, 2017 and January 31, 2017, are as follows: 
 
 
July 31, 2017
 
January 31, 2017
(Amounts in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Long-term debt, including amounts due within one year
 
$
36,960

 
$
44,000

 
$
38,271

 
$
44,602



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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 $279 million and $242 million at July 31, 2017 and January 31, 2017, 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 July 31, 2017 and January 31, 2017, respectively. The Company records cash collateral it posts with counterparties as amounts receivable from those counterparties exclusive of any derivative liability.
The Company uses derivative financial instruments for the purpose of hedging its exposure to interest and currency exchange rate risks and, accordingly, the contractual terms of a hedged instrument closely mirror those of the hedged item, 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.
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 July 31, 2017 and January 31, 2017, the Company had ¥180 billion and ¥10 billion, respectively, of outstanding long-term debt designated as a hedge of its net investment in Japan, as well as outstanding long-term debt of £2.1 billion and £2.5 billion at July 31, 2017 and January 31, 2017, respectively, 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.

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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:
 
July 31, 2017
 
January 31, 2017
(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 assets and deferred charges
$
30

 
$
390

 
$
79

 
$
8

 
$
471

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes and other
3

 
—

 
348

 
12

 
—

 
618

 
 
 
 
 
 
 
 
 
 
 
 
Nonderivative hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
4,444

 
—

 
—

 
3,209

 
—

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.


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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. The current $20.0 billion share repurchase program has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. At July 31, 2017, authorization for $4.8 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 six months ended July 31, 2017 and 2016:
 
 
Six Months Ended July 31,
(Amounts in millions, except per share data)
 
2017
 
2016
Total number of shares repurchased
 
60.6

 
71.0

Average price paid per share
 
$
73.38

 
$
68.39

Total amount paid for share repurchases
 
$
4,447

 
$
4,852


Note 8. Common Stock Dividends
Dividends Declared
On February 21, 2017, the Board of Directors approved the fiscal year ending January 31, 2018 ("fiscal 2018") annual dividend of $2.04 per share, an increase over the fiscal 2017 annual dividend of $2.00 per share. For fiscal 2018, the annual dividend will be paid in four quarterly installments of $0.51 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 10, 2017
  
April 3, 2017
May 12, 2017
  
June 5, 2017
August 11, 2017
  
September 5, 2017
December 8, 2017
  
January 2, 2018

The dividend installments payable on April 3, 2017 and June 5, 2017 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" claims that 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. 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 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. Claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities. The claimants are also requesting higher wage rates on a prospective basis as part of these equal value proceedings. ASDA believes that further claims may be asserted in the future.
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 a 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

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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.
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. 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.
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. As these discussions are ongoing, the Company cannot currently predict the timing, the outcome or the impact of a possible 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, certain of its former directors, certain of its former officers and certain of Walmex's former officers.
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 and six months ended July 31, 2017 and 2016, the Company incurred the following third-party expenses in connection with the FCPA investigation and related matters:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions)
 
2017
 
2016
 
2017
 
2016
Ongoing inquiries and investigations
 
$
7

 
$
23

 
$
20

 
$
44

Global compliance program and organizational enhancements
 
5

 
5

 
8

 
9

Total
 
$
12

 
$
28

 
$
28

 
$
53


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While the Company believes that it is probable that it will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, the Company cannot yet reasonably estimate a loss or range of loss that may arise from the conclusion of these matters. Although the Company does not presently believe that these matters will have a material adverse effect on its business, 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 Related Items
The Company completed certain e-commerce acquisitions during the three and six months ended July 31, 2017, which were immaterial, individually and in the aggregate, to the Company's Condensed Consolidated Financial Statements.
The following significant transaction primarily impacts the operations of the Company's Walmart U.S. segment:
Jet.com, Inc. ("jet.com")
In September 2016, the Company completed the acquisition of jet.com, a U.S.-based e-commerce company. The integration of jet.com into the Walmart U.S. segment is building upon the current e-commerce foundation, allowing for synergies from talent, logistical operations and access to a broader customer base. The total purchase price for the acquisition was $2.4 billion, net of cash acquired. The preliminary allocation of the purchase price includes $1.7 billion in goodwill and $0.6 billion in intangible assets. As part of the transaction, the Company will pay additional compensation of approximately $0.8 billion over a five-year period.
The following significant transactions impact the operations of the Company's Walmart International segment:
Suburbia
In April 2017, one of the Company's subsidiaries 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.
Yihaodian and JD
In June 2016, the Company sold certain assets relating to Yihaodian, its e-commerce operations in China, including the Yihaodian brand, website and application, to JD in exchange for Class A ordinary shares of JD representing approximately five percent of JD's outstanding ordinary shares on a fully diluted basis. The $1.5 billion investment in JD is carried at cost and is included in other assets and deferred charges in the accompanying Consolidated Balance Sheets. The sale resulted in the recognition of a $535 million noncash gain, which was included in membership and other income. Subsequently, during fiscal 2017, the Company purchased $1.9 billion of additional JD shares classified as available for sale securities, representing an incremental ownership percentage of approximately five percent, for a total ownership of approximately ten percent of JD's outstanding ordinary shares.

Note 11. Segments
The Company is engaged in retail and wholesale operations located in the U.S., Argentina, Brazil, Canada, Chile, China, India, Japan, Mexico and the United Kingdom, as well as countries located in Africa and Central America. The Company's operations are conducted in three business segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results its 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.
The Walmart U.S. segment includes the Company's mass merchant concept in the U.S. operating under the "Walmart" or "Wal-Mart" brands, as well as digital retail. The Walmart International segment consists of the Company's operations outside of the U.S., including various retail websites. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com. 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. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.

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Net sales by segment are as follows:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions)
 
2017

2016
 
2017
 
2016
Net sales:
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
78,738

 
$
76,241

 
$
154,174

 
$
149,536

Walmart International
 
28,331

 
28,621

 
55,428

 
56,704

Sam's Club
 
14,880

 
14,543

 
28,873

 
28,151

Net sales
 
$
121,949

 
$
119,405

 
$
238,475

 
$
234,391

Operating income by segment, as well as operating loss for corporate and support, and interest, net, are as follows:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions)
 
2017

2016
 
2017
 
2016
Operating income (loss):
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
4,618

 
$
4,519

 
$
8,887

 
$
8,751

Walmart International
 
1,592

 
1,727

 
2,755

 
2,891

Sam's Club
 
404

 
472

 
818

 
885

Corporate and support
 
(645
)
 
(553
)
 
(1,254
)
 
(1,087
)
Operating income
 
5,969

 
6,165

 
11,206

 
11,440

Interest, net
 
575

 
566

 
1,138

 
1,127

Loss on extinguishment of debt
 
788

 
—

 
788

 
—

Income before income taxes
 
$
4,606

 
$
5,599

 
$
9,280

 
$
10,313



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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Wal-Mart Stores, 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 or through our e-commerce and mobile capabilities. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping and saves time for our customers. Physical retail encompasses our brick and mortar presence in each of the markets in which we operate. Digital retail is comprised of our e-commerce websites and mobile commerce applications. Each week, we serve over 260 million customers who visit our more than 11,600 stores under 59 banners in 28 countries and e-commerce websites in 11 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 digital and physical presence, which we continue to integrate, provides customers access to our broad assortment anytime and anywhere. We strive to give our customers and members a great digital and physical shopping experience.
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, as well as digital retail, including recent acquisitions of several e-commerce entities such as Jet.com, Inc. 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 businesses consist of numerous formats, including supercenters, supermarkets, hypermarkets, warehouse clubs, including Sam's Clubs, cash & carry, home improvement, specialty electronics, drug stores and convenience stores, as well as digital retail. The 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 through acquisitions, as well as by adding retail, wholesale and other units, and expanding digital retail.
•
Sam's Club consists of membership-only warehouse clubs as well as digital retail. 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.
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, 2018 ("fiscal 2018") and the fiscal year ended January 31, 2017 ("fiscal 2017"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three and six months ended July 31, 2017, 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, 2017, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report to Shareholders for the year ended January 31, 2017, and incorporated by reference in, and included as Exhibit 13 to, our Annual Report of Form 10-K for the fiscal year ended January 31, 2017.
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 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, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by our chief operating decision maker. When we do so, the previous period amounts and balances are reclassified to conform to the current period's presentation.

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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 e-commerce 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 e-commerce sales. We measure the e-commerce sales impact by including those sales initiated through websites and mobile commerce applications and fulfilled through our e-commerce distribution facilities, as well as an estimate for sales initiated online and on our mobile commerce applications, but fulfilled through our stores and clubs. Sales of 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 e-commerce acquisitions are excluded from comparable sales 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 e-commerce and catalog 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 (whom we call "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.

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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 recently redefined our financial framework as:
•
strong, efficient growth;
•
operating discipline; and
•
strategic capital allocation.
As we execute on this financial framework, particularly in the U.S., 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 e-commerce 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, which may not benefit comparable sales in the near term.
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 e-commerce 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 and six months ended July 31, 2017 and 2016, were as follows:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
With Fuel
 
Fuel Impact
 
With Fuel
 
Fuel Impact
Walmart U.S.
 
1.7
%
 
1.4
 %
 
0.1
%
 
0.0
 %
 
1.4
%
 
2.1
 %
 
0.1
%
 
0.0
 %
Sam's Club
 
1.5
%
 
(1.7
)%
 
0.2
%
 
(1.7
)%
 
1.8
%
 
(0.8
)%
 
0.8
%
 
(1.9
)%
Total U.S.
 
1.6
%
 
0.9
 %
 
0.1
%
 
(0.3
)%
 
1.4
%
 
1.6
 %
 
0.1
%
 
(0.4
)%
Comparable sales in the U.S., including fuel, increased 1.6% and 1.4% for the three and six months ended July 31, 2017, respectively, when compared to the same periods in the previous fiscal year. Total U.S. comparable sales were positively impacted by continued traffic improvement and higher e-commerce sales at both Walmart U.S. and Sam's Club. E-commerce sales positively impacted comparable sales by approximately 0.8% and 0.7% for the three months ended July 31, 2017 for Walmart U.S. and Sam's Club, respectively, and by approximately 0.8% and 0.7% for the six months ended July 31, 2017 for Walmart U.S. and Sam's Club, respectively.

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Operating Discipline
We prioritize disciplined expense management 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 July 31,
 
Six Months Ended July 31,
(Amounts in millions, except unit counts)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
121,949

 
$
119,405

 
$
238,475

 
$
234,391

Percentage change from comparable period
 
2.1
%
 
0.1
%
 
1.7
%
 
0.5
%
Operating, selling, general and administrative expenses
 
$
25,865

 
$
25,204

 
$
50,482

 
$
49,289

Percentage change from comparable period
 
2.6
%
 
4.6
%
 
2.4
%
 
5.4
%
Operating, selling, general and administrative expenses as a percentage of net sales
 
21.2
%
 
21.1
%
 
21.2
%
 
21.0
%

For the three and six months ended July 31, 2017, operating, selling, general and administrative ("operating") expenses as a percentage of net sales increased 10 and 14 basis points, respectively, when compared to the same periods in the previous fiscal year. For both the three and six months ended July 31, 2017 we did not leverage expenses primarily due to our continued investments in e-commerce and technology.
Strategic Capital Allocation
We are allocating more capital to remodels, e-commerce, 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)
 
Six Months Ended July 31,
Allocation of Capital Expenditures
 
2017
 
2016
New stores and clubs, including expansions and relocations
 
$
520

 
$
1,170

Remodels
 
1,124

 
863

E-commerce, technology, supply chain and other
 
1,776

 
1,515

Total U.S.
 
3,420

 
3,548

Walmart International
 
1,003

 
1,071

Total capital expenditures
 
$
4,423

 
$
4,619


Total U.S. capital expenditures decreased $128 million for the six months ended July 31, 2017, when compared to the same period in the previous fiscal year. Capital expenditures related to new stores and clubs, including expansions and relocations, decreased $650 million, partially offset by increases to capital expenditures for remodels and for e-commerce, technology, supply chain and other. These changes were a result of our shift in capital allocation strategy to support growth in comparable store and club sales and e-commerce, while slowing the rate at which we open new stores and clubs.

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Table of Contents

Returns
As we execute our financial framework, we believe our returns on capital will improve over time. We measure returns 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 6.7% and 7.7% for the trailing twelve months ended July 31, 2017 and 2016, respectively. ROI was 15.0% and 15.5% for the trailing twelve months ended July 31, 2017 and 2016, respectively. The decline in ROA was primarily due to the decrease in operating income over the trailing twelve months ended July 31, 2017 and the loss on extinguishment of debt. The decline in ROI was primarily due to the decrease in operating income over the trailing twelve months ended July 31, 2017.
We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the fiscal year or 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 accumulated 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 eight. 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 financial measure calculated and presented in accordance with GAAP. 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 eight for rent expense that estimates the hypothetical capitalization of our operating leases. As mentioned above, we consider ROA to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure 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 metric, 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.


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Table of Contents

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 July 31,
(Amounts in millions)
 
2017
 
2016
CALCULATION OF RETURN ON ASSETS
Numerator
 
 
 
 
Consolidated net income
 
$
13,444

 
$
15,267

Denominator
 
 
 
 
Average total assets(1)
 
$
199,726

 
$
198,253

Return on assets (ROA)
 
6.7
%
 
7.7
%
 
 
 
 
 
CALCULATION OF RETURN ON INVESTMENT
Numerator
 
 
 
 
Operating income
 
$
22,530

 
$
23,796

+ Interest income
 
127

 
83

+ Depreciation and amortization
 
10,344

 
9,701

+ Rent
 
2,608

 
2,453

= Adjusted operating income
 
$
35,609

 
$
36,033

 
 
 
 
 
Denominator
 
 
 
 
Average total assets(1)
 
$
199,726

 
$
198,253

+ Average accumulated depreciation and amortization(1)
 
77,752

 
72,156

- Average accounts payable(1)
 
41,146

 
38,564

- Average accrued liabilities(1)
 
19,669

 
18,971

+ Rent x 8
 
20,864

 
19,624

= Average invested capital
 
$
237,527

 
$
232,498

Return on investment (ROI)
 
15.0
%
 
15.5
%
 
 
 
As of July 31,
 
 
2017
 
2016
 
2015
Certain Balance Sheet Data
 
 
 
 
 
 
Total assets
 
$
201,566

 
$
197,886

 
$
198,620

Accumulated depreciation and amortization
 
80,773

 
74,730

 
69,582

Accounts payable
 
42,389

 
39,902

 
37,225

Accrued liabilities
 
19,686

 
19,651

 
18,290

 
(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.

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Table of Contents

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 that period. We had net cash provided by operating activities of $11.4 billion and $14.9 billion for the six months ended July 31, 2017 and 2016, respectively. We generated free cash flow of $6.9 billion and $10.3 billion for the six months ended July 31, 2017 and 2016, respectively. The decreases in net cash provided by operating activities and free cash flow were primarily due to an increase in incentive payments and timing of other payments. Additionally, the six months ended July 31, 2016 included a greater benefit from improvement in working capital management.
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.
 
 
Six Months Ended July 31,
(Amounts in millions)
 
2017
 
2016
Net cash provided by operating activities
 
$
11,360

 
$
14,931

Payments for property and equipment
 
(4,423
)
 
(4,619
)
Free cash flow
 
$
6,937

 
$
10,312

 
 
 
 
 
Net cash used in investing activities(1)
 
$
(3,559
)
 
$
(4,416
)
Net cash used in financing activities
 
(8,631
)
 
(11,214
)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

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Table of Contents

Results of Operations
Consolidated Results of Operations
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions, except unit counts)
 
2017
 
2016
 
2017
 
2016
Total revenues
 
$
123,355

 
$
120,854

 
$
240,897

 
$
236,758

Percentage change from comparable period
 
2.1
%

0.5
%
 
1.7
%
 
0.7
%
Net sales
 
$
121,949

 
$
119,405

 
$
238,475

 
$
234,391

Percentage change from comparable period
 
2.1
%

0.1
%
 
1.7
%
 
0.5
%
Total U.S. calendar comparable store and club sales increase
 
1.6
%
 
0.9
%
 
1.4
%
 
1.6
%
Gross profit margin as a percentage of net sales
 
25.0
%
 
25.1
%
 
24.9
%
 
24.9
%
Operating income
 
$
5,969

 
$
6,165

 
$
11,206

 
$
11,440

Operating income as a percentage of net sales
 
4.9
%
 
5.2
%
 
4.7
%
 
4.9
%
Consolidated net income
 
$
3,104

 
$
3,889

 
$
6,256

 
$
7,105

Unit counts at period end
 
11,652


11,539

 
11,652

 
11,539

Retail square feet at period end
 
1,159


1,153

 
1,159

 
1,153

Our total revenues, which are mostly comprised of net sales, but also include membership and other income, increased $2.5 billion or 2.1% and $4.1 billion or 1.7% for the three and six months ended July 31, 2017, when compared to the same periods in the previous fiscal year. Net sales increased 2.1% and 1.7% for the three and six months ended July 31, 2017, when compared to the same periods in the previous fiscal year. Net sales for both the three and six months ended July 31, 2017 were positively impacted by overall positive comparable sales and a 0.5% year-over-year growth in consolidated retail square feet. Partially offsetting these increases was the negative impact of fluctuations in currency exchange rates of $1.0 billion and $2.2 billion for the three and six months ended July 31, 2017, respectively.
Our gross profit rate decreased 11 basis points for the three months ended July 31, 2017, when compared to the same period in the previous fiscal year. The decrease was primarily due to strategic price investments in key markets and the mix impact from e-commerce. Our gross profit rate was relatively flat for the six months ended July 31, 2017, when compared to the same period in the previous fiscal year.
Membership and other income decreased $43 million for the three months ended July 31, 2017, when compared to the same period in the previous fiscal year. The decrease in membership and other income for the three months ended July 31, 2017 was primarily due to the prior year recognition of a $535 million gain from the sale of certain assets relating to Yihaodian, which included the Yihaodian brand, website and application, partially offset by the recognition of a $387 million gain from the sale of Suburbia in the current year and higher recycling income from our sustainability efforts. Membership and other income increased $55 million for the six months ended July 31, 2017, when compared to the same period in the previous year. The increase in membership and other income for the six months ended July 31, 2017 was primarily due to the recognition of a $387 million gain from the sale of Suburbia, higher recycling income from our sustainability efforts and a $47 million gain from a land sale, partially offset by the prior year recognition of a $535 million gain from the sale of certain assets relating to Yihaodian.
For the three and six months ended July 31, 2017, operating expenses as a percentage of net sales increased 10 and 14 basis points, respectively, when compared to the same periods in the previous fiscal year, primarily due to our continued investments in e-commerce and technology.
Our effective income tax rate was 32.6% for both the three and six months ended July 31, 2017, compared to 30.5% and 31.1%, respectively, for the same periods in the previous fiscal year. 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.
As a result of the factors discussed above, as well as a $788 million loss on extinguishment of debt, we reported $3.1 billion and $6.3 billion of consolidated net income for the three and six months ended July 31, 2017, respectively, a decrease of $0.8 billion, respectively, when compared to the same periods in the previous fiscal year. Diluted net income per common share attributable to Walmart ("EPS") was $0.96 and $1.96 for the three and six months ended July 31, 2017, respectively, decreases of $0.25 and $0.22, respectively, when compared to the same period in the previous fiscal year.

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Table of Contents

Walmart U.S. Segment
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions, except unit counts)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
78,738

 
$
76,241

 
$
154,174

 
$
149,536

Percentage change from comparable period
 
3.3
%

3.1
%
 
3.1
%
 
3.7
%
Calendar comparable sales increase
 
1.7
%
 
1.4
%
 
1.4
%
 
2.1
%
Operating income
 
$
4,618

 
$
4,519

 
$
8,887

 
$
8,751

Operating income as a percentage of net sales
 
5.9
%
 
5.9
%
 
5.8
%
 
5.9
%
Unit counts at period end
 
4,741


4,629

 
4,741

 
4,629

Retail square feet at period end
 
703


695

 
703

 
695

Net sales for the Walmart U.S. segment increased $2.5 billion or 3.3% and $4.6 billion or 3.1% for the three and six months ended July 31, 2017, respectively, when compared to the same periods in the previous fiscal year. The increases in net sales were primarily due to increases in comparable sales of 1.7% and 1.4% for the three and six months ended July 31, 2017, respectively, year-over-year growth in retail square feet of 1.1% and sales from recent e-commerce acquisitions.
Gross profit rate was relatively flat for the three and six months ended July 31, 2017, when compared to the same periods in the previous fiscal year, due to continued investments in price and the mix impact from e-commerce, which were mostly offset by the impact of savings from procuring merchandise.
For the three and six months ended July 31, 2017, operating expenses as a percentage of segment net sales increased 13 and 14 basis points, respectively, when compared to the same periods in the previous fiscal year. The increases in operating expenses as a percentage of segment net sales were primarily driven by our continued investments in e-commerce and technology.
As a result of the factors discussed above, segment operating income increased $99 million and $136 million for the three and six months ended July 31, 2017, respectively, when compared to the same periods in the previous fiscal year.

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Table of Contents

Walmart International Segment
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(Amounts in millions, except unit counts)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
28,331

 
$
28,621

 
$
55,428

 
$
56,704

Percentage change from comparable period
 
(1.0
)%
 
(6.6
)%
 
(2.3
)%
 
(6.9
)%
Operating income
 
$
1,592

 
$
1,727

 
$
2,755

 
$
2,891

Operating income as a percentage of net sales
 
5.6
 %
 
6.0
 %
 
5.0
 %
 
5.1
 %
Unit counts at period end
 
6,250


6,256

 
6,250

 
6,256

Retail square feet at period end
 
368


371

 
368

 
371

Net sales for the Walmart International segment decreased $0.3 billion or 1.0% and $1.3 billion or 2.3% for the three and six months ended July 31, 2017, respectively, when compared to the same periods in the previous fiscal year. The decreases in net sales for the three and six months ended July 31, 2017 were due to $1.0 billion