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Wal-Mart 10-Q 2014
WMT 4/30/14 10-Q

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, 2014.
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
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 or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
o
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
 
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 3,223,604,679 shares of common stock outstanding as of June 4, 2014.



Wal-Mart Stores, Inc.
Form 10-Q
For the Quarterly Period Ended April 30, 2014



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Income
(Unaudited) 
 
 
Three Months Ended
 
 
April 30,
(Amounts in millions, except per share data)
 
2014
 
2013
Revenues:
 
 
 
 
Net sales
 
$
114,167

 
$
113,313

Membership and other income
 
793

 
757

Total revenues
 
114,960

 
114,070

Costs and expenses:
 
 
 
 
Cost of sales
 
86,714

 
85,991

Operating, selling, general and administrative expenses
 
22,053

 
21,641

Operating income
 
6,193

 
6,438

Interest:
 
 
 
 
Debt
 
531

 
507

Capital leases
 
61

 
66

Interest income
 
(24
)
 
(43
)
Interest, net
 
568

 
530

Income from continuing operations before income taxes
 
5,625

 
5,908

Provision for income taxes
 
1,914

 
1,976

Income from continuing operations
 
3,711

 
3,932

Income from discontinued operations, net of income taxes
 
15

 
13

Consolidated net income
 
3,726

 
3,945

Less consolidated net income attributable to noncontrolling interest
 
(133
)
 
(161
)
Consolidated net income attributable to Walmart
 
$
3,593

 
$
3,784

 
 
 
 
 
Basic net income per common share:
 
 
 
 
Basic income per common share from continuing operations attributable to Walmart
 
$
1.10

 
$
1.14

Basic income per common share from discontinued operations attributable to Walmart
 
0.01

 
0.01

Basic net income per common share attributable to Walmart
 
$
1.11

 
$
1.15

 
 
 
 
 
Diluted net income per common share:
 
 
 
 
Diluted income per common share from continuing operations attributable to Walmart
 
$
1.10

 
$
1.14

Diluted income per common share from discontinued operations attributable to Walmart
 
0.01

 

Diluted net income per common share attributable to Walmart
 
$
1.11

 
$
1.14

 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
Basic
 
3,233

 
3,301

Diluted
 
3,248

 
3,318

 
 
 
 
 
Dividends declared per common share
 
$
1.92

 
$
1.88

See accompanying notes.

2


Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended
 
 
April 30,
(Amounts in millions)
 
2014
 
2013
Consolidated net income
 
$
3,726

 
$
3,945

Less consolidated net income attributable to nonredeemable noncontrolling interest
 
(133
)
 
(144
)
Less consolidated net income attributable to redeemable noncontrolling interest
 

 
(17
)
Consolidated net income attributable to Walmart
 
3,593

 
3,784

 
 
 
 
 
Other comprehensive income (loss), net of income taxes
 
 
 
 
Currency translation and other
 
234

 
(1,392
)
Derivative instruments
 
4

 
(81
)
Minimum pension liability
 
4

 
108

Other comprehensive income (loss), net of income taxes
 
242

 
(1,365
)
Less other comprehensive income (loss) attributable to nonredeemable noncontrolling interest
 
42

 
(9
)
Less other comprehensive income (loss) attributable to redeemable noncontrolling interest
 

 
(7
)
Other comprehensive income (loss) attributable to Walmart
 
284

 
(1,381
)
 
 
 
 
 
Comprehensive income, net of income taxes
 
3,968

 
2,580

Less comprehensive income attributable to nonredeemable noncontrolling interest
 
(91
)
 
(153
)
Less comprehensive income attributable to redeemable noncontrolling interest
 

 
(24
)
Comprehensive income attributable to Walmart
 
$
3,877

 
$
2,403

See accompanying notes.

3


Wal-Mart Stores, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
April 30,
 
January 31,
 
April 30,
(Amounts in millions)
 
2014
 
2014
 
2013
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,012

 
$
7,281

 
$
8,855

Receivables, net
 
6,096

 
6,677

 
6,191

Inventories
 
45,315

 
44,858

 
43,138

Prepaid expenses and other
 
1,811

 
1,909

 
1,992

Current assets of discontinued operations
 
453

 
460

 

Total current assets
 
59,687

 
61,185

 
60,176

Property and equipment:
 
 
 
 
 
 
Property and equipment
 
174,731

 
173,089

 
167,087

Less accumulated depreciation
 
(59,585
)
 
(57,725
)
 
(53,395
)
Property and equipment, net
 
115,146

 
115,364

 
113,692

Property under capital leases:
 
 
 
 
 
 
Property under capital leases
 
5,529

 
5,589

 
5,893

Less accumulated amortization
 
(3,032
)
 
(3,046
)
 
(3,154
)
Property under capital leases, net
 
2,497

 
2,543

 
2,739

 
 
 
 
 
 
 
Goodwill
 
19,515

 
19,510

 
19,734

Other assets and deferred charges
 
5,901

 
6,149

 
5,846

Total assets
 
$
202,746

 
$
204,751

 
$
202,187

 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term borrowings
 
$
3,517

 
$
7,670

 
$
6,255

Accounts payable
 
36,347

 
37,415

 
36,770

Dividends payable
 
4,648

 

 
4,649

Accrued liabilities
 
17,807

 
18,793

 
17,282

Accrued income taxes
 
1,966

 
966

 
2,318

Long-term debt due within one year
 
3,287

 
4,103

 
5,967

Obligations under capital leases due within one year
 
300

 
309

 
311

Current liabilities of discontinued operations
 
70

 
89

 

Total current liabilities
 
67,942

 
69,345

 
73,552

 
 
 
 
 
 
 
Long-term debt
 
45,699

 
41,771

 
41,536

Long-term obligations under capital leases
 
2,742

 
2,788

 
3,015

Deferred income taxes and other
 
8,164

 
8,017

 
7,694

 
 
 
 
 
 
 
Redeemable noncontrolling interest
 

 
1,491

 
549

 
 
 
 
 
 
 
Commitments and contingencies
 

 

 

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
323

 
323

 
329

Capital in excess of par value
 
2,111

 
2,362

 
3,399

Retained earnings
 
73,366

 
76,566

 
68,489

Accumulated other comprehensive income (loss)
 
(2,712
)
 
(2,996
)
 
(1,968
)
Total Walmart shareholders' equity
 
73,088

 
76,255

 
70,249

Nonredeemable noncontrolling interest
 
5,111

 
5,084

 
5,592

Total equity
 
78,199

 
81,339

 
75,841

Total liabilities, redeemable noncontrolling interest, and equity
 
$
202,746

 
$
204,751

 
$
202,187

See accompanying notes.

4


Wal-Mart Stores, Inc.
Condensed Consolidated Statement of Shareholders' Equity and Redeemable Noncontrolling Interest
(Unaudited)
 
 
 
 
 
 
 
 
 
Accumulated
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Capital in
 
 
 
Other
 
Walmart
 
Nonredeemable
 
 
 
 
Redeemable
(Amounts in millions)
Common Stock
 
Excess of
 
Retained
 
Comprehensive
 
Shareholders'
 
Noncontrolling
 
Total
 
 
Noncontrolling
Shares
 
Amount
 
Par Value
 
Earnings
 
Income (Loss)
 
Equity
 
Interest
 
Equity
 
 
Interest
Balances as of February 1, 2014
3,233

 
$
323

 
$
2,362

 
$
76,566

 
$
(2,996
)
 
$
76,255

 
$
5,084

 
$
81,339

 
 
$
1,491

Consolidated net income

 

 

 
3,593

 

 
3,593

 
133

 
3,726

 
 

Other comprehensive income, net of income taxes

 

 

 

 
284

 
284

 
(42
)
 
242

 
 

Cash dividends declared ($1.92 per share)

 

 

 
(6,189
)
 

 
(6,189
)
 

 
(6,189
)
 
 

Purchase of Company stock
(8
)
 
(1
)
 
(18
)
 
(596
)
 

 
(615
)
 

 
(615
)
 
 

Purchase of redeemable noncontrolling interest

 

 

 

 

 

 

 

 
 
(1,491
)
Other
5

 
1

 
(233
)
 
(8
)
 

 
(240
)
 
(64
)
 
(304
)
 
 

Balances as of April 30, 2014
3,230

 
$
323

 
$
2,111

 
$
73,366

 
$
(2,712
)
 
$
73,088

 
$
5,111

 
$
78,199

 
 
$

See accompanying notes.

5


Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) 
 
 
Three Months Ended
 
 
April 30,
(Amounts in millions)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
3,726

 
$
3,945

Income from discontinued operations, net of income taxes
 
(15
)
 
(13
)
Income from continuing operations
 
3,711

 
3,932

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 

 
 
Depreciation and amortization
 
2,250

 
2,187

Deferred income taxes
 
26

 
128

Other operating activities
 
543

 
(350
)
Changes in certain assets and liabilities:
 

 
 
Receivables, net
 
613

 
567

Inventories
 
(423
)
 
584

Accounts payable
 
(831
)
 
(743
)
Accrued liabilities
 
(942
)
 
(1,527
)
Accrued income taxes
 
992

 
116

Net cash provided by operating activities
 
5,939

 
4,894

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Payments for property and equipment
 
(2,157
)
 
(2,968
)
Proceeds from the disposal of property and equipment
 
48

 
35

Other investing activities
 
(12
)
 
(49
)
Net cash used in investing activities
 
(2,121
)
 
(2,982
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Net change in short-term borrowings
 
(4,129
)
 
(551
)
Proceeds from issuance of long-term debt
 
4,519

 
4,977

Payments of long-term debt
 
(1,574
)
 
(1,088
)
Dividends paid
 
(1,547
)
 
(1,549
)
Purchase of Company stock
 
(626
)
 
(2,246
)
Dividends paid to noncontrolling interest
 
(28
)
 

Purchase of noncontrolling interest
 
(1,626
)
 
(81
)
Other financing activities
 
(166
)
 
(217
)
Net cash used in financing activities
 
(5,177
)
 
(755
)
 
 
 
 
 
Effect of exchange rates on cash and cash equivalents
 
90

 
(83
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(1,269
)
 
1,074

Cash and cash equivalents at beginning of year
 
7,281

 
7,781

Cash and cash equivalents at end of period
 
$
6,012

 
$
8,855

See accompanying notes.

6


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, 2014. 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 significant intervening events during April 2014 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.
Certain prior period amounts have been reclassified to conform to the current period's presentation. These reclassifications did not impact the Company's operating income or consolidated net income.
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 select countries. The receivable balance from consumer credit products was $1.2 billion, net of a reserve for doubtful accounts of $98 million at April 30, 2014, compared to a receivable balance of $1.3 billion, net of a reserve for doubtful accounts of $119 million at January 31, 2014. 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 method of accounting, using the last-in, first-out ("LIFO") method for substantially all of the Walmart U.S. segment's inventories. The Walmart International segment's inventories are primarily valued by the retail method of accounting, using the first-in, first-out ("FIFO") method. The retail 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 Sam's Club segment's inventories are valued based on the weighted-average cost using the LIFO method. At April 30, 2014 and January 31, 2014, the Company's inventories valued at LIFO approximate those inventories as if they were valued at FIFO.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers. 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. This ASU is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. Accordingly, the Company will adopt this ASU on February 1, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU and management is currently evaluating which transition approach to use. Management does not expect this ASU to materially impact the Company's consolidated net income, financial position or cash flows.

7


Note 2. Net Income Per Common Share
Basic income per common share from continuing operations attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted income per common share from continuing operations attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period adjusted for the dilutive effect of outstanding stock options and other share-based awards. The Company did not have significant stock options or other share-based awards outstanding that were antidilutive and not included in the calculation of diluted income per common share from continuing operations attributable to Walmart for the three months ended April 30, 2014 and 2013.
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted income per common share from continuing operations attributable to Walmart:
 
 
Three Months Ended
 
 
April 30,
(Amounts in millions, except per share data)
 
2014
 
2013
Numerator
 
 
 
 
Income from continuing operations
 
$
3,711

 
$
3,932

Less income from continuing operations attributable to noncontrolling interest
 
(129
)
 
(157
)
Income from continuing operations attributable to Walmart
 
$
3,582

 
$
3,775

 
 
 
 
 
Denominator
 
 
 
 
Weighted-average common shares outstanding, basic
 
3,233

 
3,301

Dilutive impact of stock options and other share-based awards
 
15

 
17

Weighted-average common shares outstanding, diluted
 
3,248

 
3,318

 
 
 
 
 
Income per common share from continuing operations attributable to Walmart
 
 
 
 
Basic
 
$
1.10

 
$
1.14

Diluted
 
1.10

 
1.14


8


Note 3. Accumulated Other Comprehensive Income (Loss)
The following table provides the changes in the composition of total Walmart accumulated other comprehensive income (loss) for the three months ended April 30, 2014:
(Amounts in millions and net of income taxes)
 
Currency Translation
and Other
 
Derivative
Instruments
 
Minimum
Pension Liability
 
Total
Balances as of February 1, 2014
 
$
(2,722
)
 
$
336

 
$
(610
)
 
$
(2,996
)
Other comprehensive income (loss) before reclassifications
 
276

 
2

 
6

 
284

Amounts reclassified from accumulated other comprehensive income (loss)
 

 
2

 
(2
)
 

Balances as of April 30, 2014
 
$
(2,446
)
 
$
340

 
$
(606
)
 
$
(2,712
)
Amounts reclassified from accumulated other comprehensive income (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.
The Company's unrealized net gains and losses on net investment hedges, included in the currency translation and other category of accumulated other comprehensive income (loss), were not significant as of April 30, 2014 and January 31, 2014.
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, 2014:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2014
 
$
4,103

 
$
41,771

 
$
45,874

          Proceeds from long-term debt
 

 
4,519

 
4,519

          Repayments of long-term debt
 
(1,574
)
 

 
(1,574
)
          Reclassifications of long-term debt
 
750

 
(750
)
 

          Other
 
8

 
159

 
167

Balances as of April 30, 2014
 
$
3,287

 
$
45,699

 
$
48,986

Issuances
On April 8, 2014, the Company issued €1.5 billion aggregate principal amount of fixed rate notes resulting in cash proceeds that were the equivalent of approximately $2.0 billion, net of discounts and issuance costs. The issuances consisted of €850 million aggregate principal amount of 1.900% Notes due 2022 and €650 million aggregate principal amount of 2.550% Notes due 2026. The proceeds were used to pay down and refinance existing debt and for other general corporate purposes.
On April 22, 2014, the Company issued $2.5 billion aggregate principal amount of fixed rate notes resulting in cash proceeds of approximately $2.5 billion, net of discounts and issuance costs. The issuances consisted of $500 million aggregate principal amount of 1.000% Notes due 2017, $1.0 billion aggregate principal amount of 3.300% Notes due 2024 and $1.0 billion aggregate principal amount of 4.300% Notes due 2044. The proceeds were used to pay down and refinance existing debt and for other general corporate purposes.
The Company also received additional proceeds from other, smaller long-term debt issuances by several of its international operations.
Maturities
On February 3, 2014, $500 million of 3.000% Notes matured and were repaid and on April 14, 2014, $1.0 billion of 1.625% Notes matured and were repaid.
The Company also repaid other, smaller long-term debt as it matured in several of its international operations.

9


Note 5. Fair Value Measurements
The Company records and discloses certain financial and non-financial assets and liabilities at their 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. A liability's fair value is defined as 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 April 30, 2014 and January 31, 2014, the notional amounts and fair values of these derivatives are as follows:
 
April 30, 2014
 
January 31, 2014
(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
$
500

 
$

 
$
1,000

 
$
5

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as net investment hedges
1,250

 
78

 
1,250

 
97

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as cash flow hedges
5,154

 
513

 
3,004

 
453

Receive variable-rate, pay fixed-rate interest rate swaps designated as cash flow hedges
459

 
(1
)
 
457

 
(2
)
Receive variable-rate, pay fixed-rate forward starting interest rate swaps designated as cash flow hedges
500

 
6

 
2,500

 
166

Total
$
7,863

 
$
596

 
$
8,211

 
$
719

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 for the three months ended April 30, 2014, or for the fiscal year ended January 31, 2014.
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 April 30, 2014 and January 31, 2014, are as follows: 
 
 
April 30, 2014
 
January 31, 2014
(Amounts in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Long-term debt, including amounts due within one year
 
$
48,986

 
$
54,362

 
$
45,874

 
$
50,757


10


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 $511 million and $641 million at April 30, 2014 and January 31, 2014, 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 these counterparties, the Company is also required to post collateral if the Company's net derivative liability position exceeds $150 million with any counterparty. The Company did not have any cash collateral posted with counterparties at April 30, 2014 or January 31, 2014. 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 income (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 matured subsequent to period end in May 2014.
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 income (loss), offsetting the currency translation adjustment of the related investment that is also recorded in accumulated other comprehensive income (loss). These instruments will mature on dates ranging from October 2023 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 income (loss), offsetting the foreign currency translation adjustment of the related net investments that is also recorded in accumulated other comprehensive income (loss). At April 30, 2014 and January 31, 2014, the Company had £2.5 billion and ¥200 billion of outstanding long-term debt designated as hedges of its net investments in the United Kingdom and Japan, respectively. These nonderivative net investment hedges will mature on dates ranging from August 2014 to January 2039.

11


Cash Flow Instruments
The Company is a party to receive variable-rate, pay fixed-rate interest rate swaps that the Company uses to hedge the interest rate risk of certain non-U.S. denominated debt. The swaps are designated as cash flow hedges of interest expense risk. Amounts reported in accumulated other comprehensive income (loss) related to these derivatives are reclassified from accumulated other comprehensive income (loss) to earnings as interest is expensed for the Company's variable-rate debt, converting the variable-rate interest expense into fixed-rate interest expense. These cash flow instruments will mature on dates ranging from August 2014 to July 2015.
The Company is also 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 income (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 remeasured 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 remeasurement 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.
The Company also uses forward starting receive variable-rate, pay fixed-rate swaps ("forward starting swaps"), to hedge its exposure to the variability in future cash flows due to changes in the LIBOR swap rate for debt issuances forecasted to occur in the future. Amounts reported in accumulated other comprehensive income (loss) related to these derivatives will be reclassified from accumulated other comprehensive income (loss) to earnings as interest expense is incurred on the forecasted hedged fixed-rate debt, adjusting interest expense to reflect the fixed-rate entered into by the forward starting swaps. These cash flow instruments hedge forecasted interest payments to be made through May 2024. These forward starting swaps will be terminated on the day the hedged forecasted debt issuances occur, but no later than October 31, 2014, if the hedged forecasted debt issuances do not occur. The Company terminated forward starting swaps with an aggregate notional amount of $2.0 billion in connection with the April 22, 2014 debt issuances described in Note 4. Upon termination of those forward starting swaps, the Company received a cash payment from the related counterparties of $107 million, which was recorded in accumulated other comprehensive income (loss) and will be reclassified to earnings over the life of the related debt, effectively adjusting interest expense to reflect the fixed-rate entered into by the forward starting swaps.
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.
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, 2014
 
January 31, 2014
(Amounts in millions)
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
 
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
Derivative instruments
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other
$

 
$

 
$

 
$
5

 
$

 
$

Other assets and deferred charges

 
82

 
535

 

 
97

 
619

Derivative asset subtotals
$

 
$
82

 
$
535

 
$
5

 
$
97

 
$
619

 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
$

 
$

 
$
1

 
$

 
$

 
$
1

Deferred income taxes and other

 
4

 
16

 

 

 
1

Derivative liability subtotals
$

 
$
4

 
$
17

 
$

 
$

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
Nonderivative hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Long-term debt due within one year
$

 
$
974

 
$

 
$

 
$
973

 
$

Long-term debt

 
5,181

 

 

 
5,095

 

Nonderivative hedge liability subtotals
$

 
$
6,155

 
$

 
$

 
$
6,068

 
$

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 income (loss) to net income during the next 12 months, are not significant.

12


Note 7. Share Repurchases
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Board of Directors. The current $15.0 billion share repurchase program has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. At April 30, 2014, authorization for $10.7 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 cash paid for share repurchases for the three months ended April 30, 2014 and 2013:

 
Three Months Ended April 30,
(Amounts in millions, except per share data)
 
2014
 
2013
Total number of shares repurchased
 
8.3

 
30.8

Average price paid per share
 
$
75.37

 
$
72.87

Total cash paid for share repurchases
 
$
626

 
$
2,246

Note 8. Common Stock Dividends
On February 20, 2014, the Board of Directors approved the fiscal 2015 annual dividend of $1.92 per share, an increase compared to the fiscal 2014 annual dividend of $1.88 per share. For fiscal 2015, the annual dividend will be paid in four quarterly installments of $0.48 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 11, 2014
  
April 1, 2014
May 9, 2014
  
June 2, 2014
August 8, 2014
  
September 3, 2014
December 5, 2014
  
January 5, 2015
The dividend installments payable on April 1, 2014 and June 2, 2014, were paid as scheduled.

13


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's shareholders.
In previous filings, the Company has disclosed certain legal proceedings related to the Dukes litigation, including several gender discrimination complaints that were filed after the Supreme Court decertified the Dukes class in June 2011.  These later-filed cases are smaller in size and scope than the Dukes case, and the courts have now dismissed all class allegations from these smaller cases.  Management does not believe that a material loss is reasonably possible in connection with these legal proceedings, individually or in the aggregate. Accordingly, these legal proceedings will no longer be disclosed in the Notes to Condensed Consolidated Financial Statements.
Unless stated otherwise, the matters, or groups of related 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.
Wage-and-Hour Class Action: The Company is a defendant in Braun/Hummel v. Wal-Mart Stores, Inc., a class-action lawsuit commenced in March 2002 in the Court of Common Pleas in Philadelphia, Pennsylvania. The plaintiffs allege that the Company failed to pay class members for all hours worked and prevented class members from taking their full meal and rest breaks. On October 13, 2006, a jury awarded back-pay damages to the plaintiffs of approximately $78 million on their claims for off-the-clock work and missed rest breaks. The jury found in favor of the Company on the plaintiffs' meal-period claims. On November 14, 2007, the trial judge entered a final judgment in the approximate amount of $188 million, which included the jury's back-pay award plus statutory penalties, prejudgment interest and attorneys' fees. By operation of law, post-judgment interest accrues on the judgment amount at the rate of six percent per annum from the date of entry of the judgment, which was November 14, 2007, until the judgment is paid, unless the judgment is set aside on appeal. On December 7, 2007, the Company filed its Notice of Appeal. The Company filed its opening appellate brief on February 17, 2009, plaintiffs filed their response brief on April 20, 2009, and the Company filed its reply brief on June 5, 2009. Oral argument was held before the Pennsylvania Superior Court of Appeals on August 19, 2009. On June 10, 2011, the court issued an opinion upholding the trial court's certification of the class, the jury's back pay award, and the awards of statutory penalties and prejudgment interest, but reversing the award of attorneys' fees. On September 9, 2011, the Company filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court. On July 2, 2012, the Pennsylvania Supreme Court granted the Company's Petition. The Company served its opening brief in the Pennsylvania Supreme Court on October 22, 2012, plaintiffs served their response brief on January 22, 2013, and the Company served its reply on February 28, 2013. Oral argument was held in the Pennsylvania Supreme Court on May 8, 2013. No decision has been issued. The Company believes it has substantial factual and legal defenses to the claims at issue, and plans to continue pursuing appellate review.
ASDA Equal Value Claims: ASDA Stores, Ltd., a wholly-owned subsidiary of the Company, is a defendant in twenty-three "equal value claim" proceedings that have been filed in the Manchester Employment Tribunal, United Kingdom, on behalf of twenty-three individual, female, current or former ASDA store employees, who allege that their work in the stores is of equal value in terms of the demands of their jobs to those of male employees working at ASDA's warehouse and distribution facilities, and that the disparity in pay between these different job positions is not objectively justified. ASDA believes that further claims may be asserted in the near future, a possibility that was recently reported in the UK media, as well as from the law firm representing twenty of the twenty-three claimants. 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.

14


FCPA Investigation and Related Matters
The Audit Committee (the "Audit Committee") of the Board of Directors of the Company, which is composed solely of independent directors, is 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 is also conducting a voluntary global review of its policies, practices and internal controls for FCPA 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 are reported or identified, the Audit Committee and the Company, together with their third party advisors, conduct inquiries and when warranted based on those inquiries, open investigations. Inquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where the Company operates, including, but not limited to, Brazil, China and India.
The Company has been informed by the DOJ and the SEC that it is also the subject of their respective investigations into possible violations of the FCPA. The Company is cooperating with the investigations by the DOJ and the SEC. 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 current and former officers and certain of Walmex's current and 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. The shareholder lawsuits may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review. In addition, the Company expects 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, 2014 and 2013, 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)
 
2014
 
2013
Ongoing inquiries and investigations
 
$
34

 
$
44

Global compliance program and organizational enhancements
 
19

 
29

Total
 
$
53

 
$
73

These matters may require the involvement of certain members of the Company's senior management that could impinge on the time they have available to devote to other matters relating to the business. 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.    
The Company's process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. 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 reasonably estimate any loss or range of loss that may arise from 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.

15


Note 10. Acquisitions, Disposals and Related Items
The Company has completed the following transactions that impact the operations of Walmart International:
Walmart Chile
In fiscal 2014, the redeemable noncontrolling interest shareholders exercised put options that required the Company to purchase their shares in Walmart Chile. At that time, the Company recorded an increase to redeemable noncontrolling interest of $1.0 billion, with a corresponding decrease to capital in excess of par value, to reflect the redemption value of the redeemable noncontrolling interest at $1.5 billion. In February 2014, the Company completed this transaction using its existing cash, increasing its ownership interest in Walmart Chile to 99.7 percent. In March 2014, the Company completed a tender offer for the remaining noncontrolling interest shares at the same value per share as was paid to the redeemable noncontrolling interest shareholders. As a result of completing these transactions, the Company owns substantially all of Walmart Chile.
Vips Restaurant Business in Mexico
In September 2013, Walmex, a majority-owned subsidiary of the Company, entered into a definitive agreement with Alsea S.A.B. de C.V. to sell the Vips restaurant business ("Vips") in Mexico for approximately $625 million. Accordingly, the Vips operating results are presented as discontinued operations in the Company's Condensed Consolidated Statements of Income. Additionally, the Vips assets and liabilities to be disposed of are reported separately in the Company's Condensed Consolidated Balance Sheets as of April 30, 2014 and January 31, 2014. Subsequent to period end, the Vips sale received approval from Mexican regulatory authorities and closed in May 2014. Accordingly, the Company will record a net gain in discontinued operations in the Company's Condensed Consolidated Statements of Income in the second quarter of fiscal 2015.

16


Note 11. Segments
The Company is engaged in the operation of retail, wholesale and other units located in 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 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 walmart.com. 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.
Net sales by segment are as follows:
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2014
 
2013
Net sales:
 
 
 
 
Walmart U.S.
 
$
67,852

 
$
66,553

Walmart International
 
32,424

 
32,889

Sam's Club
 
13,891

 
13,871

Net sales
 
$
114,167

 
$
113,313

Operating income by segment, as well as for corporate and support, and interest, net, are as follows:
 
 
Three Months Ended April 30,
(Amounts in millions)
 
2014
 
2013
Operating income (loss):
 
 
 
 
Walmart U.S.
 
$
4,975

 
$
5,197

Walmart International
 
1,202

 
1,163

Sam's Club
 
479

 
490

Corporate and support
 
(463
)
 
(412
)
Operating income
 
6,193

 
6,438

Interest, net
 
568

 
530

Income from continuing operations before income taxes
 
$
5,625

 
$
5,908


17


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 the operation of retail, wholesale and other units in various formats around the world. Our operations consist of three reportable segments: Walmart U.S., Walmart International and Sam's Club.
The Walmart U.S. segment includes the Company's mass merchant concept in the United States ("U.S."), operating under the "Walmart" or "Wal-Mart" brand with various formats, including supercenters, discount stores, Neighborhood Markets and other small stores, as well as walmart.com. Of our three segments, Walmart U.S. is the largest and has historically had the highest gross profit as a percentage of net sales ("gross profit rate"). In addition, Walmart U.S. has historically contributed the greatest amount to the Company's net sales and operating income.
The Walmart International segment consists of the Company's operations outside of the U.S. Walmart International operates retail, wholesale and other types of units, including various retail websites. The overall gross profit rate for Walmart International is lower than that of Walmart U.S. because of its merchandise mix. Walmart International is our second largest segment and, in recent years, has grown through acquisitions, as well as by adding retail, wholesale and other units.
The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com. Sam's Club operates as a membership club warehouse 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, but each has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years.
Through the operations in each of our segments, we are committed to saving people money so they can live better. At Walmart U.S., we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"), while fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our pricing philosophy under which we price items at a low price every day so that our customers trust that our prices will not change under frequent promotional activities. Our focus for Sam's Club is to provide exceptional value on brand name and private label merchandise at "members only" prices for both business and personal use. Internationally, we operate with similar philosophies.
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 years ended January 31, 2015 ("fiscal 2015") and January 31, 2014 ("fiscal 2014"), should be read in conjunction with our Condensed Consolidated Financial Statements as of April 30, 2014, 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 January 31, 2014, 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, 2014, and incorporated by reference in, and included as Exhibit 13 to, our Annual Report on Form 10-K for the fiscal year ended January 31, 2014.
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 various segments of our business to provide a better understanding of how those segments and their results 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 or other measures, including certain corporate overhead allocations, 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. The amounts disclosed for "Corporate and support" in the leverage discussion of the Company's performance metrics consist of corporate overhead and other items not allocated to any of the Company's segments.
Comparable store and club sales is a metric that indicates the performance of our existing U.S. 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 store and club sales includes sales from stores and clubs open for the

18


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 our websites and fulfilled through our dedicated e-commerce distribution facilities, as well as an estimate for sales initiated online, but fulfilled through our stores and clubs. Changes in format are excluded from comparable store and club sales when the conversion is accompanied by a relocation or expansion that results in a change in retail square feet of more than five percent. Comparable store and club sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable store and club sales varies across the retail industry. As a result, our calculation of comparable store and club sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, the term currency exchange rates refers 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. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates, and 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. When we refer to constant currency operating results, we are referring to our operating results without the impact of the currency exchange rate fluctuations and without the impact of acquisitions until the acquisitions are included in both comparable periods. The disclosure of constant currency amounts or results permits investors to understand better Walmart's underlying performance without the effects of currency exchange rate fluctuations or acquisitions. 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.
We made certain reclassifications to prior period amounts or balances to conform to the presentation in the current fiscal year. These reclassifications did not impact the Company's operating income or consolidated net income. Additionally, certain prior period segment asset and expense allocations have been reclassified among segments to be comparable with the current period presentation.
Company Performance Metrics
Our performance metrics emphasize three priorities for improving shareholder value: growth, leverage and returns. Our priority of growth focuses on sales through comparable store and club sales, including e-commerce sales, and unit square feet growth; the priority of leverage encompasses our objective to increase our operating income at a faster rate than the growth in net sales by growing our operating, selling, general and administrative expenses ("operating expenses") at a slower rate than the growth of our net sales; and the priority of returns focuses on how efficiently we employ assets through return on investment and how effectively we manage working capital through free cash flow.
Growth
Net Sales
 
 
Three Months Ended April 30,
 
 
2014
 
2013
(Amounts in millions)
 
Net Sales
 
Percent 
of Total
 
Percent
Change
 
Net Sales
 
Percent 
of Total
Walmart U.S.
 
$
67,852

 
59.4
%
 
2.0
 %
 
$
66,553

 
58.7
%
Walmart International
 
32,424

 
28.4
%
 
(1.4
)%
 
32,889

 
29.0
%
Sam's Club
 
13,891

 
12.2
%
 
0.1
 %
 
13,871

 
12.3
%
Net sales
 
$
114,167

 
100.0
%
 
0.8
 %
 
$
113,313

 
100.0
%
Our consolidated net sales increased 0.8% for the three months ended April 30, 2014, when compared to the same period in the previous fiscal year. The increase in net sales was primarily due to 2.9% year-over-year growth in retail square feet and higher e-commerce sales, partially offset by $1.6 billion of negative impact from fluctuations in currency exchange rates and decreases in comparable store sales at Walmart U.S. and Sam's Club.

19


Calendar Comparable Store and Club Sales
Comparable store and club sales is a metric which indicates the performance of our existing U.S. 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 store and club sales using the retail calendar (also known as the 4-5-4 calendar) and, to be consistent with the retail industry, we provide comparable store and club sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable store and club sales below, we are referring to our calendar comparable store and club sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our calendar comparable store and club sales also differ from the retail calendar comparable store and club sales provided in our quarterly earnings releases. Calendar comparable store and club sales, as well as the impact of fuel, for the three months ended April 30, 2014 and 2013, were as follows:
 
 
Three Months Ended April 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
With Fuel
 
Fuel Impact
Walmart U.S.
 
(0.4
)%
 
(1.9
)%
 
0.0
 %
 
0.0
 %
Sam's Club
 
(1.2
)%
 
(0.9
)%
 
(0.4
)%
 
(0.4
)%
Total U.S.
 
(0.6
)%
 
(1.7
)%
 
(0.1
)%
 
0.0
 %

Comparable store and club sales in the U.S., including fuel, decreased 0.6% for the three months ended April 30, 2014, when compared to the same period in the previous fiscal year. The total U.S. comparable store and club sales were negatively impacted by severe winter storms and the reduction in government food benefits. Additionally, e-commerce sales positively impacted Walmart U.S. comparable store and Sam's Club comparable club sales percentages by approximately 0.3% and 0.2%, respectively.

20


Leverage
Operating Income
 
Three Months Ended April 30,
 
2014
 
2013
(Amounts in millions)
Operating Income
 
Percent 
of Total
 
Percent
Change
 
Operating Income
 
Percent 
of Total
Walmart U.S.
$
4,975

 
80.3
 %
 
(4.3
)%
 
$
5,197

 
80.7
 %
Walmart International
1,202

 
19.4
 %
 
3.4
 %
 
1,163

 
18.1
 %
Sam's Club
479

 
7.8
 %
 
(2.2
)%
 
490

 
7.6
 %
Corporate and support
(463
)
 
(7.5
)%
 
12.4
 %
 
(412
)
 
(6.4
)%
Operating income
$
6,193

 
100.0
 %
 
(3.8
)%
 
$
6,438

 
100.0
 %
We believe comparing both the growth of our operating expenses and our operating income to the growth of our net sales are meaningful measures as they indicate how effectively we manage costs and leverage operating expenses. Our objective for a fiscal year is to grow operating expenses at a slower rate than net sales and to grow operating income at a faster rate than net sales. On occasion, we may make strategic growth investments that may, at times, cause our operating expenses to grow at a faster rate than net sales and that may result in our operating income growing at a slower rate than net sales.
Operating Expenses
For the three months ended April 30, 2014, operating expenses increased 1.9% when compared to the same period in the previous fiscal year, while net sales increased 0.8% when compared to the same period in the previous fiscal year. Accordingly, we did not meet our objective of growing operating expenses at a slower rate than net sales for the period. Expenses related to severe winter storms in the U.S. and higher healthcare costs were the primary factors that caused us not to leverage operating expenses for the three months ended April 30, 2014.
Operating Income
For the three months ended April 30, 2014, we did not meet our objective of growing operating income at a faster rate than net sales as operating income decreased 3.8% while net sales increased 0.8% when compared to the same period in the previous fiscal year. This was primarily due to the factors we discussed for not leveraging operating expenses, as well as a lower gross profit rate.

21


Returns
Return on Investment
Management believes return on investment ("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.
ROI was 16.7% and 17.8% for the trailing twelve months ended April 30, 2014 and 2013, respectively. The decline in ROI was primarily due to a decrease in operating income, as well as our continued capital investment in store growth and e-commerce.
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 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 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 eight for rent expense that estimates the hypothetical capitalization of our operating leases. We consider return on assets ("ROA") to be the financial measure computed in accordance with generally accepted accounting principles ("GAAP") that is the most directly comparable financial measure to our calculation of ROI. ROI differs from ROA (which is consolidated income from continuing operations for the period divided by average total assets of continuing operations for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; adjusts total assets of continuing operations 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.
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. We urge you to understand the methods used by other companies to calculate their ROI before comparing our ROI to that of such other companies.

22


The calculation of ROI, along with a reconciliation 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)
 
2014
 
2013
CALCULATION OF RETURN ON INVESTMENT
Numerator
 
 
 
 
Operating income
 
$
26,627

 
$
27,793

+ Interest income
 
100

 
190

+ Depreciation and amortization
 
8,933

 
8,564

+ Rent
 
2,859

 
2,610

= Adjusted operating income
 
$
38,519

 
$
39,157

 
 
 
 
 
Denominator
 
 
 
 
Average total assets of continuing operations(1)
 
$
202,240

 
$
199,604

+ Average accumulated depreciation and amortization(1)
 
59,583

 
53,692

- Average accounts payable(1)
 
36,559

 
36,919

- Average accrued liabilities(1)
 
17,545

 
16,972

+ Rent x 8
 
22,872

 
20,880

= Average invested capital
 
$
230,591

 
$
220,285

Return on investment (ROI)
 
16.7
%
 
17.8
%
 
 
 
 
 
CALCULATION OF RETURN ON ASSETS
Numerator
 
 
 
 
Income from continuing operations
 
$
16,330

 
$
17,754