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 October 31, 2018.
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from              to             .
Commission File Number 001-6991
image2a19.jpg
WALMART INC.
(Exact name of registrant as specified in its charter)
Delaware
 
71-0415188
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
702 S.W. 8th Street
Bentonville, Arkansas
 
72716
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (479) 273-4000
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 2,905,260,059 shares of common stock outstanding as of November 28, 2018.


Table of Contents

Walmart Inc.
Form 10-Q
For the Quarterly Period Ended October 31, 2018



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Walmart Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Net sales
 
$
123,897

 
$
122,136

 
$
372,586

 
$
360,611

Membership and other income
 
997

 
1,043

 
3,026

 
3,465

Total revenues
 
124,894

 
123,179

 
375,612

 
364,076

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
93,116

 
91,547

 
280,394

 
270,756

Operating, selling, general and administrative expenses
 
26,792

 
26,868

 
79,328

 
77,350

Operating income
 
4,986

 
4,764

 
15,890

 
15,970

Interest:
 
 
 
 
 
 
 
 
Debt
 
501

 
502

 
1,398

 
1,530

Capital lease and financing obligations
 
92

 
81

 
279

 
264

Interest income
 
(59
)
 
(42
)
 
(153
)
 
(115
)
Interest, net
 
534

 
541

 
1,524

 
1,679

Loss on extinguishment of debt
 
—

 
1,344

 
—

 
2,132

Other (gains) and losses
 
1,876

 
—

 
8,570

 
—

Income before income taxes
 
2,576

 
2,879

 
5,796

 
12,159

Provision for income taxes
 
759

 
975

 
2,430

 
3,999

Consolidated net income
 
1,817

 
1,904

 
3,366

 
8,160

Consolidated net income attributable to noncontrolling interest
 
(107
)
 
(155
)
 
(383
)
 
(473
)
Consolidated net income attributable to Walmart
 
$
1,710

 
$
1,749

 
$
2,983

 
$
7,687

 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
Basic net income per common share attributable to Walmart
 
$
0.58

 
$
0.59

 
$
1.01

 
$
2.56

Diluted net income per common share attributable to Walmart
 
0.58

 
0.58

 
1.01

 
2.54

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
2,924

 
2,981

 
2,940

 
3,008

Diluted
 
2,941

 
2,996

 
2,956

 
3,021

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
—

 
$
—

 
$
2.08

 
$
2.04

See accompanying notes.

3

Table of Contents

Walmart Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
2018
 
2017
 
2018
 
2017
Consolidated net income
$
1,817

 
$
1,904

 
$
3,366

 
$
8,160

Consolidated net income attributable to noncontrolling interest
(107
)
 
(155
)
 
(383
)
 
(473
)
Consolidated net income attributable to Walmart
1,710

 
1,749

 
2,983

 
7,687

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of income taxes
 
 
 
 
 
 
 
Currency translation and other
1,020

 
422

 
(200
)
 
2,607

Net investment hedges
114

 
28

 
375

 
(121
)
Cash flow hedges
(109
)
 
—

 
(341
)
 
143

Minimum pension liability
12

 
14

 
64

 
46

Unrealized gain on available-for-sale securities
—

 
(551
)
 
—

 
657

Other comprehensive income (loss), net of income taxes
1,037

 
(87
)
 
(102
)
 
3,332

Other comprehensive (income) loss attributable to noncontrolling interest
123

 
54

 
250

 
(233
)
Other comprehensive income (loss) attributable to Walmart
1,160

 
(33
)
 
148

 
3,099

 
 
 
 
 
 
 
 
Comprehensive income, net of income taxes
2,854

 
1,817

 
3,264

 
11,492

Comprehensive (income) loss attributable to noncontrolling interest
16

 
(101
)
 
(133
)
 
(706
)
Comprehensive income attributable to Walmart
$
2,870

 
$
1,716

 
$
3,131

 
$
10,786

See accompanying notes.

4

Table of Contents

Walmart Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
October 31,
 
January 31,
 
October 31,
(Amounts in millions)
 
2018
 
2018
 
2017
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,174

 
$
6,756

 
$
7,026

Receivables, net
 
5,785

 
5,614

 
5,865

Inventories
 
50,380

 
43,783

 
50,147

Prepaid expenses and other
 
4,107

 
3,511

 
2,330

Total current assets
 
69,446

 
59,664

 
65,368

Property and equipment:
 
 
 
 
 
 
Property and equipment
 
184,484

 
185,154

 
185,103

Less accumulated depreciation
 
(80,126
)
 
(77,479
)
 
(76,948
)
Property and equipment, net
 
104,358

 
107,675

 
108,155

Property under capital lease and financing obligations:
 
 
 
 
 
 
Property under capital lease and financing obligations
 
12,692

 
12,703

 
12,641

Less accumulated amortization
 
(5,701
)
 
(5,560
)
 
(5,497
)
Property under capital lease and financing obligations, net
 
6,991

 
7,143

 
7,144

 
 
 
 
 
 
 
Goodwill
 
31,044

 
18,242

 
18,204

Other long-term assets
 
14,744

 
11,798

 
10,543

Total assets
 
$
226,583

 
$
204,522

 
$
209,414

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term borrowings
 
$
7,795

 
$
5,257

 
$
5,114

Accounts payable
 
49,729

 
46,092

 
47,587

Dividends payable
 
1,516

 
—

 
1,530

Accrued liabilities
 
22,795

 
22,122

 
21,757

Accrued income taxes
 
616

 
645

 
540

Long-term debt due within one year
 
2,591

 
3,738

 
3,257

Capital lease and financing obligations due within one year
 
709

 
667

 
650

Total current liabilities
 
85,751

 
78,521

 
80,435

 
 
 
 
 
 
 
Long-term debt
 
43,275

 
30,045

 
34,206

Long-term capital lease and financing obligations
 
6,621

 
6,780

 
6,700

Deferred income taxes and other
 
11,467

 
8,354

 
9,167

 
 
 
 
 
 
 
Commitments and contingencies
 

 

 

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
291

 
295

 
297

Capital in excess of par value
 
2,887

 
2,648

 
2,501

Retained earnings
 
80,287

 
85,107

 
84,480

Accumulated other comprehensive loss
 
(11,469
)
 
(10,181
)
 
(11,133
)
Total Walmart shareholders' equity
 
71,996

 
77,869

 
76,145

Noncontrolling interest
 
7,473

 
2,953

 
2,761

Total equity
 
79,469

 
80,822

 
78,906

Total liabilities and equity
 
$
226,583

 
$
204,522

 
$
209,414

See accompanying notes.

5

Table of Contents

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

 
$
295

 
$
2,648

 
$
85,107

 
$
(10,181
)
 
$
77,869

 
$
2,953

 
$
80,822

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

 
—

 
—

 
2,361

 
(1,436
)
 
925

 
(1
)
 
924

Consolidated net income
—

 
—

 
—

 
2,983

 
—

 
2,983

 
383

 
3,366

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

 
—

 
—

 
—

 
148

 
148

 
(250
)
 
(102
)
Cash dividends declared ($2.08 per share)
—

 
—

 
—

 
(6,107
)
 
—

 
(6,107
)
 
—

 
(6,107
)
Purchase of Company stock
(46
)
 
(5
)
 
(131
)
 
(4,058
)
 
—

 
(4,194
)
 
—

 
(4,194
)
Cash dividend declared to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(483
)
 
(483
)
Noncontrolling interest of acquired entity
—

 
—

 
—

 
—

 
—

 
—

 
4,852

 
4,852

Other
6

 
1

 
370

 
1

 
—

 
372

 
19

 
391

Balances as of October 31, 2018
2,912

 
$
291

 
$
2,887

 
$
80,287

 
$
(11,469
)
 
$
71,996

 
$
7,473

 
$
79,469

See accompanying notes.

6

Table of Contents

Walmart Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
3,366

 
$
8,160

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
7,947

 
7,827

Unrealized (gains) and losses
 
3,727

 
—

(Gains) and losses for disposal of business operations
 
4,846

 
—

Deferred income taxes
 
(346
)
 
231

Loss on extinguishment of debt
 
—

 
2,132

Other operating activities
 
735

 
144

Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
 
Receivables, net
 
178

 
(529
)
Inventories
 
(7,279
)
 
(6,446
)
Accounts payable
 
4,137

 
5,630

Accrued liabilities
 
103

 
510

Accrued income taxes
 
(106
)
 
(599
)
Net cash provided by operating activities
 
17,308

 
17,060

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Payments for property and equipment
 
(7,014
)
 
(6,908
)
Proceeds from the disposal of property and equipment
 
308

 
301

Proceeds from the disposal of certain operations
 
—

 
1,046

Payments for business acquisitions, net of cash acquired
 
(13,269
)
 
(372
)
Other investing activities
 
(579
)
 
79

Net cash used in investing activities
 
(20,554
)
 
(5,854
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Net change in short-term borrowings
 
2,611

 
4,004

Proceeds from issuance of long-term debt
 
15,851

 
7,476

Repayments of long-term debt
 
(3,050
)
 
(8,859
)
Premiums paid to extinguish debt
 
—

 
(2,067
)
Dividends paid
 
(4,597
)
 
(4,614
)
Purchase of Company stock
 
(4,161
)
 
(6,656
)
Dividends paid to noncontrolling interest
 
(252
)
 
(536
)
Purchase of noncontrolling interest
 
—

 
(8
)
Other financing activities
 
(481
)
 
(156
)
Net cash provided by (used in) financing activities
 
5,921

 
(11,416
)
 
 
 
 
 
Effect of exchange rates on cash, cash equivalents and restricted cash
 
(485
)
 
386

 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
2,190

 
176

Cash, cash equivalents and restricted cash at beginning of year
 
7,014

 
7,144

Cash, cash equivalents and restricted cash at end of period
 
$
9,204

 
$
7,320

See accompanying notes.

7

Table of Contents

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

8

Table of Contents

Membership Fee Revenue
The Company recognizes membership fee revenue both in the U.S. and internationally over the term of the membership, which is typically 12 months. Membership fee revenue is included in membership and other income in the Company's Condensed Consolidated Statements of Income. The deferred membership fee is included in accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
Gift Cards
Customer purchases of gift cards, to be utilized at the Company's stores or eCommerce websites, are not recognized as sales until the card is redeemed and the customer purchases merchandise using the gift card. Gift cards in the U.S. and some countries do not carry an expiration date; therefore, customers and members can redeem their gift cards for merchandise and services indefinitely. Gift cards in some countries where the Company does business have expiration dates. While gift cards are generally redeemed within 12 months, a certain number of gift cards, both with and without expiration dates, will not be fully redeemed. Management estimates unredeemed balances and recognizes revenue for these amounts in membership and other income in the Company's Condensed Consolidated Statements of Income over the expected redemption period. Management periodically reviews and updates its estimates.
Financial and Other Services
The Company recognizes revenue from service transactions at the time the service is performed. Generally, revenue from services is classified as a component of net sales in the Company's Condensed Consolidated Statements of Income.
Contract Balances
Contract balances as a result of transactions with customers primarily consist of receivables included in receivables, net, and deferred gift card revenue included in accrued liabilities in the Company's Condensed Consolidated Balance Sheets. The following table provides the Company's receivables and deferred gift card revenue from transactions with customers:
(Amounts in millions)
 
As of October 31, 2018
Assets:
 
 
Receivables from transactions with customers, net
 
$
1,949

 
 
 
Liabilities:
 
 
Deferred gift card revenue
 
$
1,968

The deferred gift card revenue liability was $2.0 billion at January 31, 2018.
Income Taxes
In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), in response to the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Company recorded a provisional benefit, as allowed by SAB 118, of $207 million during fiscal 2018 and an additional provisional benefit of $47 million and $66 million during the three and nine months ended October 31, 2018, respectively. The adjustments to the provisional amounts are related to refinements of the transition tax for changes in assumptions and to the remeasurement of deferred taxes.
The Tax Act created a new requirement that certain income (i.e., global intangible low-taxed income or "GILTI") earned by controlled foreign corporations ("CFCs") must be included currently in the gross income of the CFCs’ U.S. shareholder. Due to the complexity of the new GILTI tax rules, the Company is not yet able to reasonably estimate the long-term effects of this provision. Therefore, the Company has not yet recorded any potential deferred tax effects related to GILTI in the Condensed Consolidated Financial Statements and has not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method. The Company has, however, included an estimate of the current GILTI impact in the annual effective tax rate for fiscal 2019.
The Company has previously asserted all its unremitted earnings offshore were permanently reinvested. In the second quarter of fiscal 2019, the Company changed its repatriation assertion for certain historical and fiscal 2019 earnings. The Company plans to repatriate approximately $5 billion of cash at a cost of approximately $80 million. The tax cost of repatriating historical earnings was recorded as a discrete tax charge in second quarter of fiscal 2019, while the tax cost of repatriating current year earnings was included in the annualized effective tax rate.  The Company is continuing its analysis and awaits anticipated technical guidance surrounding any potential repatriation plans beyond fiscal 2019. Final determination and disclosure will be made as more information is received, including guidance from the IRS and Treasury.

9

Table of Contents

In addition to the GILTI and repatriation evaluations, management is also still evaluating the Tax Act with respect to the deferred tax remeasurement, transition tax and certain policy elections. The ultimate impacts of the Tax Act may differ from provisional amounts due to additional information being accumulated to more precisely compute the amount of tax, changes in interpretations and assumptions, and additional regulatory guidance that may be issued. The Company expects to continue to revise the provisional amounts during the allowable measurement period of one year from the enactment as the Company refines its analysis of the new rules and as new guidance is issued.
In February 2018, the FASB issued Accounting Standards Update ASU 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The Company adopted this ASU on February 1, 2018, which resulted in an immaterial adjustment to retained earnings.
The Company's U.S. statutory tax rate is 21%. The Company's effective income tax rate was 29.5% and 41.9% for the three and nine months ended October 31, 2018, respectively. For the nine months ended October 31, 2018, the loss related to the sale of a majority stake in the Company's retail operations in Brazil ("Walmart Brazil") increased the effective tax rate 17%, as it provided minimal realizable tax benefit.
Restricted Cash
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows–Restricted Cash (Topic 230), which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The Company adopted this ASU on February 1, 2018. Restricted cash held outside of cash and cash equivalents is primarily recorded in other-long term assets in the Condensed Consolidated Balance Sheets and was $30 million as of October 31, 2018 and was approximately $0.3 billion as of January 31, 2018 and October 31, 2017.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lease assets and liabilities to be recorded on the balance sheet.  Certain qualitative and quantitative disclosures are also required.  The Company will adopt this ASU and related amendments on February 1, 2019 and expects to elect certain practical expedients permitted under the transition guidance.  Additionally, the Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods.  Management is implementing new lease systems in connection with the adoption of this ASU; however, these systems are still being developed to comply with the new ASU and, as a result, the Company has implemented a temporary solution for initial adoption and until these systems are fully implemented. 
Although management continues to evaluate the effect to the Company's Condensed Consolidated Financial Statements and disclosures, management currently estimates total assets and liabilities will increase approximately $14.5 billion to $16.5 billion upon adoption, before considering deferred taxes.  This estimate could change as the Company continues to progress with implementation and will also fluctuate based on the lease portfolio, discount rates and currency exchange rates as of the adoption date.  Management does not expect a material impact to the Company’s Condensed Consolidated Statements of Income or Cash Flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326), which modifies the measurement of expected credit losses of certain financial instruments. The Company will adopt this ASU on February 1, 2020. Management is currently evaluating this ASU to determine its impact to the Company's Condensed Consolidated Financial Statements and disclosures.


Note 2. Net Income Per Common Share
Basic net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted net income per common share attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not have significant share-based awards outstanding that were anti-dilutive and not included in the calculation of diluted net income per common share attributable to Walmart for the three and nine months ended October 31, 2018 and 2017.

10

Table of Contents

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 October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2018
 
2017
 
2018
 
2017
Numerator
 
 
 
 
 
 
 
 
Consolidated net income
 
$
1,817

 
$
1,904

 
$
3,366

 
$
8,160

Consolidated net income attributable to noncontrolling interest
 
(107
)
 
(155
)
 
(383
)
 
(473
)
Consolidated net income attributable to Walmart
 
$
1,710

 
$
1,749

 
$
2,983

 
$
7,687

 
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding, basic
 
2,924

 
2,981

 
2,940

 
3,008

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

 
15

 
16

 
13

Weighted-average common shares outstanding, diluted
 
2,941

 
2,996

 
2,956

 
3,021


 
 
 
 
 
 
 
 
Net income per common share attributable to Walmart
 
 
 
 
 
 
 
 
Basic
 
$
0.58

 
$
0.59

 
$
1.01

 
$
2.56

Diluted
 
0.58

 
0.58

 
1.01

 
2.54


Note 3. Accumulated Other Comprehensive Loss
The following table provides the changes in the composition of total accumulated other comprehensive loss for the nine months ended October 31, 2018:
(Amounts in millions and net of income taxes)
 
Currency 
Translation and Other
 
Unrealized Gain on Available-for-Sale Securities
 
Net Investment Hedges
 
Cash Flow Hedges
 
Minimum
Pension 
Liability
 
Total
Balances as of February 1, 2018
 
$
(12,136
)
 
$
1,646

 
$
1,030

 
$
122

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

 
(1,646
)
 
93

 
28

 
—

 
(1,436
)
Other comprehensive income (loss) before reclassifications, net(1)
 
(1,981
)
 
—

 
375

 
(378
)
 
31

 
(1,953
)
Reclassifications to income, net(1)(3)
 
2,031

 
—

 
—

 
37

 
33

 
2,101

Balances as of October 31, 2018
 
$
(11,997
)
 
$
—

 
$
1,498

 
$
(191
)
 
$
(779
)
 
$
(11,469
)
(1) Income tax impact is immaterial
(2) Primarily relates to the adoption of ASU 2016-01 and ASU 2018-02
(3) Includes a cumulative foreign currency translation loss of $2.0 billion, for which there was no related income taxes. This amount was reclassified from accumulated other comprehensive loss upon closure of the sale of a majority stake in Walmart Brazil (see Note 10).
Amounts reclassified from accumulated other comprehensive loss to net income for derivative instruments are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income. Amounts reclassified from accumulated other comprehensive loss to net income for the minimum pension liability, as well as the cumulative translation resulting from the disposition of a business, are recorded in other gains and losses in the Company's Condensed Consolidated Statements of Income.


Note 4. Short-term Borrowings and Long-term Debt
The Company has various committed lines of credit in the U.S., committed with 22 financial institutions, used to support its commercial paper program. In total, the Company has committed lines of credit in the U.S. of $15.0 billion at October 31, 2018 and $12.5 billion at January 31, 2018, all undrawn.
The following table provides the changes in the Company's long-term debt for the nine months ended October 31, 2018:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2018
 
$
3,738


$
30,045


$
33,783

Proceeds from issuance of long-term debt
 
—


15,851


15,851

Repayments of long-term debt
 
(3,029
)

(21
)

(3,050
)
Reclassifications of long-term debt
 
1,864


(1,864
)

—

Other
 
18


(736
)

(718
)
Balances as of October 31, 2018
 
$
2,591


$
43,275


$
45,866


11

Table of Contents

Debt Issuances
Information on long-term debt issued during the nine months ended October 31, 2018, to fund a portion of the purchase price for the Flipkart acquisition discussed in Note 10 and for general corporate purposes, is as follows:
(Amounts in millions)
 
 
 
 
 
 
 
 
 
 
Issue Date
 
Principal Amount
 
Maturity Date
 
Fixed vs. Floating
 
Interest Rate
 
Net Proceeds
June 27, 2018
 
750 USD
 
June 23, 2020
 
Floating
 
Floating
 
$
748

June 27, 2018
 
1,250 USD
 
June 23, 2020
 
Fixed
 
2.850%
 
1,247

June 27, 2018
 
750 USD
 
June 23, 2021
 
Floating
 
Floating
 
748

June 27, 2018
 
1,750 USD
 
June 23, 2021
 
Fixed
 
3.125%
 
1,745

June 27, 2018
 
2,750 USD
 
June 26, 2023
 
Fixed
 
3.400%
 
2,740

June 27, 2018
 
1,500 USD
 
June 26, 2025
 
Fixed
 
3.550%
 
1,490

June 27, 2018
 
2,750 USD
 
June 26, 2028
 
Fixed
 
3.700%
 
2,725

June 27, 2018
 
1,500 USD
 
June 28, 2038
 
Fixed
 
3.950%
 
1,473

June 27, 2018
 
3,000 USD
 
June 29, 2048
 
Fixed
 
4.050%
 
2,935

Total
 
 
 
 
 
 
 
 
 
$
15,851

These issuances are senior, unsecured notes which rank equally with all other senior, unsecured debt obligations of the Company, and are not convertible or exchangeable. These issuances do not contain any financial covenants and do not restrict the Company's ability to pay dividends or repurchase company stock.
Maturities
The following table provides details of debt repayments during the nine months ended October 31, 2018:
(Amounts in millions)
 
 
 
 
 
 
 
 
Maturity Date
 
Principal Amount
 
Fixed vs. Floating
 
Interest Rate
 
Repayment
February 15, 2018
 
1,250 USD
 
Fixed
 
5.800%
 
$
1,250

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

June 1, 2018
 
500 USD
 
Floating
 
5.498%
 
500

Various
 
50 USD
 
Various
 
Various
 
50

Total repayment of matured debt
 
 
 
 
 
 
 
$
3,050

Annual maturities of long-term debt for the remainder of fiscal 2019, the next five years and thereafter are as follows:
(Amounts in millions)
 
 
Fiscal year
 
Maturities
Remainder of 2019
 
$
707

2020
 
1,941

2021
 
5,322

2022
 
3,082

2023
 
2,809

Thereafter
 
32,005

Total
 
$
45,866

 
Note 5. Fair Value Measurements
Assets and liabilities recorded at fair value are measured using the fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
•
Level 1: observable inputs such as quoted prices in active markets;
•
Level 2: inputs other than quoted prices in active markets that are either directly or indirectly observable; and
•
Level 3: unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions.

12

Table of Contents

The Company has equity investments, primarily its investment in JD, measured at fair value on a recurring basis included in other long-term assets in the accompanying Condensed Consolidated Balance Sheet. Beginning in fiscal 2019 due to the adoption of the new financial instrument standard, changes in fair value are recorded in other gains and losses in the Condensed Consolidated Statements of Income. Additional detail about the Company's two portions of the investment in JD are as follows:
•
The purchased portion of the investment in JD measured using Level 1 inputs, which prior to fiscal 2019 was classified as available-for-sale with changes in fair value recognized through other comprehensive income; and
•
The portion of the investment in JD received in exchange for selling certain assets related to Yihaodian, the Company's former eCommerce operations in China, measured using Level 2 inputs. Fair value is determined primarily using quoted prices in active markets for similar assets. Prior to fiscal 2019, the investment was carried at cost.
Information for the cost basis, carrying value and fair value of the Company's investment in JD is as follows:
(Amounts in millions)
 
Cost Basis
 
Carrying Value as of January 31, 2018
 
Fair Value as of February 1, 2018
 
 
Fair Value as of October 31, 2018
 
Investment in JD measured using Level 1 inputs
 
$
1,901

 
$
3,547

 
$
3,547

(1) 
 
$
1,694

 
Investment in JD measured using Level 2 inputs
 
1,490

 
1,490

 
3,559

(2) 
 
1,696

 
Total
 
$
3,391

 
$
5,037

 
$
7,106

 
 
$
3,390

(3) 
(1) Fair value was already recognized on the balance sheet. Upon adoption of the new financial instrument standard on February 1, 2018, the excess of fair value over cost was reclassified from accumulated other comprehensive loss to retained earnings.
(2) Upon adoption of the new financial instrument standard on February 1, 2018, the excess of fair value over cost was recognized by increasing the carrying value of the asset and retained earnings.
(3) The decreases in fair value for the three and nine months ended October 31, 2018 of $1.8 billion and $3.7 billion, respectively, were recognized in net income and included in other gains and losses in the Company's Condensed Consolidated Statements of Income.
The Company also holds derivative instruments. Derivative fair values are the estimated amounts the Company would receive or pay upon termination of the related derivative agreements as of the reporting dates. The fair values have been measured using the income approach and Level 2 inputs, which include the relevant interest rate and foreign currency forward curves. As of October 31, 2018 and January 31, 2018, the notional amounts and fair values of these derivatives were as follows:
 
October 31, 2018
 
January 31, 2018
(Amounts in millions)
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Receive fixed-rate, pay variable-rate interest rate swaps designated as fair value hedges
$
4,000

 
$
(160
)
 
$
4,000

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

 
353

 
2,250

 
208

Receive fixed-rate, pay fixed-rate cross-currency swaps designated as cash flow hedges
4,105

 
(237
)
 
4,523

 
205

Total
$
10,355

 
$
(44
)
 
$
10,773

 
$
322

Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, fair value measurements on a nonrecurring basis are required as a result of impairment charges or business acquisitions.
As discussed in Note 10, the Company met the criteria to recognize Walmart Brazil as held for sale in the second quarter of fiscal 2019. Prior to meeting the held for sale criteria, the carrying values of the long-lived assets were concluded to be recoverable based upon cash flows expected to be generated over the assets' useful lives. When the sale of a majority stake in Walmart Brazil became probable, the Company reclassified the related assets and liabilities to held for sale and measured the disposal group at fair value, less costs to sell. As of the date of reclassification, the assets of the disposal group totaled $3.3 billion and were comprised of $1.0 billion in current assets, $1.6 billion in property and equipment and property under capital lease and financing obligations, net, and $0.7 billion of other long-term assets. These assets were fully impaired as the carrying value of the disposal group exceeded the fair value, less costs to sell. The Company recorded a pre-tax net loss of approximately $4.8 billion during the nine months ended October 31, 2018, in other gains and losses in the Company's Condensed Consolidated Statement of Income. In the third quarter of fiscal 2019, the sale was completed as discussed in Note 10.
Other impairment charges to assets measured at fair value on a nonrecurring basis during the nine months ended October 31, 2018 were immaterial.

13

Table of Contents

For the fiscal year ended January 31, 2018, the Company recorded impairment charges related to assets measured at fair value on a non-recurring basis of approximately $1.4 billion primarily related to the following:
•
in the Sam's Club segment, $0.6 billion for restructuring charges for the Sam's Club closures for underperforming stores; the impaired assets consisted primarily of buildings and related store fixtures, and leased assets of its retail operations;
•
in the Walmart International segment, $0.2 billion for restructuring charges for the wind-down of the Brazil first-party eCommerce business; the impaired assets consisted primarily of fixtures and equipment; and
•
immaterial discontinued real estate projects in the Walmart U.S. and Sam's Club segments and decisions to exit certain international properties in the Walmart International segment.
Other Fair Value Disclosures
The Company records cash and cash equivalents, restricted cash, and short-term borrowings at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company's long-term debt is also recorded at cost. The fair value is estimated using Level 2 inputs based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. The carrying value and fair value of the Company's long-term debt as of October 31, 2018 and January 31, 2018, are as follows: 
 
 
October 31, 2018
 
January 31, 2018
(Amounts in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Long-term debt, including amounts due within one year
 
$
45,866

 
$
48,505

 
$
33,783

 
$
38,766


Note 6. Derivative Financial Instruments
The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates, as well as to maintain an appropriate mix of fixed- and variable-rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company's derivative financial instruments is used to measure interest to be paid or received and does not represent the Company's exposure due to credit risk. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty, reviewing credit ratings and requiring collateral (generally cash) from the counterparty when appropriate.
The Company only enters into derivative transactions with counterparties rated "A-" or better by nationally recognized credit rating agencies. Subsequent to entering into derivative transactions, the Company regularly monitors the credit ratings of its counterparties. In connection with various derivative agreements, including master netting arrangements, the Company held cash collateral from counterparties of $202 million and $279 million at October 31, 2018 and January 31, 2018, respectively. The Company records cash collateral received as amounts due to the counterparties exclusive of any derivative asset. Furthermore, as part of the master netting arrangements with each of these counterparties, the Company is also required to post collateral with a counterparty if the Company's net derivative liability position exceeds $150 million with such counterparties. The Company did not have any cash collateral posted with counterparties at October 31, 2018 or January 31, 2018. The Company records cash collateral it posts with counterparties as amounts receivable from those counterparties exclusive of any derivative liability.
The contractual terms of the Company's hedged instruments closely mirror those of the hedged items, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative financial instrument is recorded using hedge accounting, depending on the nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. Any hedge ineffectiveness is immediately recognized in earnings. The Company's net investment and cash flow instruments are highly effective hedges and the ineffective portion has not been, and is not expected to be, significant. Instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting, are recorded at fair value with unrealized gains or losses reported in earnings during the period of the change.

14

Table of Contents

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

 
$
353

 
$
73

 
$
—

 
$
208

 
$
300

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes and other
160

 
—

 
310

 
91

 
—

 
95

 
 
 
 
 
 
 
 
 
 
 
 
Nonderivative hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
3,735

 
—

 
—

 
4,041

 
—


15

Table of Contents

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.

Note 7. Share Repurchases
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three and nine months ended October 31, 2018, were made under the plan in effect at the beginning of the fiscal year. The current $20 billion share repurchase program approved in October 2017 has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. As of October 31, 2018, authorization for $14.6 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 nine months ended October 31, 2018 and 2017:
 
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2018
 
2017
Total number of shares repurchased
 
45.3

 
87.8

Average price paid per share
 
$
92.01

 
$
75.76

Total amount paid for share repurchases
 
$
4,161

 
$
6,656


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

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

Note 9. Contingencies
Legal Proceedings
The Company is involved in a number of legal proceedings. The Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company's Condensed Consolidated Financial Statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made. However, where a liability is reasonably possible and may be material, such matters have been disclosed. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company and its shareholders.
Unless stated otherwise, the matters discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in a liability material to the Company's financial condition or results of operations.
ASDA Equal Value Claims
ASDA Stores Ltd. ("Asda"), a wholly-owned subsidiary of the Company, is a defendant in over 26,000 equal value ("Equal Value") claims that began in 2008 and are proceeding before an Employment Tribunal in Manchester (the "Employment Tribunal") in the United Kingdom ("UK") on behalf of current and former Asda store employees, and further claims may be asserted in the future. The claimants allege that the work performed by female employees in Asda's retail stores is of equal value in terms of, among other things, the demands of their jobs compared to that of male employees working in Asda's warehouse and distribution facilities, and that the disparity in pay between these different job positions is not objectively

16

Table of Contents

justified. As a result, claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities and higher wage rates on a prospective basis.
On March 23, 2015, Asda asked the Employment Tribunal to stay all proceedings and to "strike out" substantially all of the claims because the claimants had not adhered to the Tribunal's procedural rule for including multiple claimants on the same claim form. On July 23, 2015, the Employment Tribunal denied Asda's requests. Following additional proceedings, on June 20, 2017, the Employment Appeal Tribunal ruled in favor of Asda on the "strike out" issue and remitted the matter to the Employment Tribunal to determine whether the improperly filed claims should be struck out. On July 12, 2017, claimants sought permission from the Court of Appeals to appeal this ruling, which was granted on October 3, 2017. A hearing before the Court of Appeals on the "strike out" issue was held on October 23, 2018 and the parties are awaiting a decision.
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 and also granted permission for Asda to appeal substantially all of its findings. Asda sought permission to appeal the remainder of the Employment Appeal Tribunal's findings to the Court of Appeals on September 21, 2017. A hearing before the Court of Appeals on the comparability findings was held on October 10, 2018 and the parties are awaiting a decision.
Claimants are now proceeding in the next phase of their claims. That phase will determine whether the work performed by the claimants is of equal value to the work performed by employees in Asda's warehouse and distribution facilities.
At present, the Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate any loss or range of loss that may arise from these proceedings. The Company believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously.
National Prescription Opiate Litigation and Related Matters
In December 2017, the United States Judicial Panel on Multidistrict Litigation ordered numerous lawsuits filed against a wide array of defendants by various plaintiffs be consolidated, including counties, cities, healthcare providers, Native American tribes, and third-party payors, asserting claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation is entitled In re National Prescription Opiate Litigation (MDL No. 2804), and is pending in the U.S. District Court for the Northern District of Ohio. The Company is named as a defendant in some of the cases included in this multidistrict litigation. Similar cases that name the Company have been filed in state courts by various counties and municipalities; by health care providers; and by various Native American Tribes. The relief sought by various plaintiffs is compensatory and punitive damages, as well as injunctive relief including abatement. The Company cannot predict the number of such claims that may be filed, and cannot reasonably estimate any loss or range of loss that may arise from such claims. The Company believes it has substantial factual and legal defenses to these claims, and intends to defend the claims vigorously. The Company has also been responding to subpoenas, information requests and investigations from governmental entities related to nationwide controlled substance dispensing practices involving the sale of opioids. The Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business, financial position, results of operations or cash flows will not be materially adversely affected.
FCPA Investigation and Related Matters
The Audit Committee (the "Audit Committee") of the Board of Directors of the Company has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act ("FCPA") and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. ("Walmex"), and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company. The Audit Committee and the Company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters.
The Company has also been conducting a voluntary global review of its policies, practices and internal controls for anti-corruption compliance. The Company is engaged in strengthening its global anti-corruption compliance program through appropriate remedial anti-corruption measures.  In November 2011, the Company voluntarily disclosed that investigative activity to the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC"). Since the implementation of the global review and the enhanced anti-corruption compliance program, the Audit Committee and the Company have identified or been made aware of additional allegations regarding potential violations of the FCPA. When such allegations have been reported or identified, the Audit Committee and the Company, together with their third party advisors, have conducted inquiries and when warranted based on those inquiries, opened investigations. Inquiries or investigations regarding allegations of potential FCPA violations were commenced in a number of foreign markets where the Company operates or has operated, including, but not limited to, Brazil, China and India.
As previously disclosed, the Company is under investigation by the DOJ and the SEC regarding possible violations of the FCPA. The Company has been cooperating with the agencies and discussions have been ongoing regarding the resolution of these matters. These discussions have progressed to a point that, in fiscal 2018, the Company reasonably estimated a probable

17

Table of Contents

loss and recorded an aggregate accrual of $283 million with respect to these matters (the "Accrual"). As the discussions are continuing, there can be no assurance as to the timing or the terms of the final resolution of these matters.
A number of federal and local government agencies in Mexico carried out investigations of these matters. Walmex cooperated with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation were filed by several of the Company's shareholders against it, certain of its current directors, and certain of its former directors, certain of its former officers and certain of Walmex's former officers. Some of these matters have been resolved or immaterial accruals have been made for proposed settlements.
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 nine months ended October 31, 2018 and 2017, the Company incurred the following third-party expenses in connection with the FCPA investigation and related matters:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
 
2018
 
2017
Ongoing inquiries and investigations
 
$
6

 
$
2

 
$
14

 
$
22

Global compliance program and organizational enhancements
 
3

 
3

 
10

 
11

Total
 
$
9

 
$
5

 
$
24

 
$
33

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

Note 10. Acquisitions, Disposals and Related Items
The following significant transactions impact, or are expected to impact, the operations of the Company's Walmart International segment. Other immaterial transactions have also occurred or been announced.
Walmart Brazil
In June 2018, the Company agreed to sell an 80 percent stake of Walmart Brazil to Advent International ("Advent"), and in August 2018 the sale was completed. Under the terms, Advent will contribute additional capital to the business over a three-year period and Walmart agreed to indemnify Advent for certain matters. Additionally, the Company may receive up to $250 million in contingent consideration.  In the second quarter of fiscal 2019, the disposal group was classified as held for sale, which consisted of the following:
•
Assets of $3.3 billion, which were fully impaired as discussed in Note 5 upon meeting the held for sale criteria in the second quarter of fiscal 2019;
•
Liabilities of $1.3 billion, consisting of $0.7 billion in accounts payable and accrued liabilities, $0.1 billion of capital lease and financing obligations, and $0.5 billion of deferred taxes and other long-term liabilities; and
•
Cumulative foreign currency translation loss of $2.0 billion, which was reclassified from accumulated other comprehensive loss in the third quarter of fiscal 2019 upon closure of the sale (see Note 3).
As a result, the Company recorded a pre-tax net loss of approximately $4.8 billion during the nine months ended October 31, 2018, in other gains and losses in the Company's Condensed Consolidated Statement of Income. Substantially all of this charge was recorded during the second quarter of fiscal 2019 upon meeting the held for sale criteria, and an additional immaterial amount was recorded during the third quarter of fiscal 2019 upon closure of the sale. In calculating the loss, the fair value of the disposal group was reduced by $0.8 billion related to an indemnity, for which a liability was recognized upon closing and is included in deferred income taxes and other in the Company's Condensed Consolidated Balance Sheet. Under the indemnity, the Company will indemnify Advent for certain pre-closing tax and legal contingencies and other matters for up to R$2.3 billion, adjusted for interest based on the Brazilian interbank deposit rate.

18

Table of Contents

The Company deconsolidated the financial statements of Walmart Brazil during the third quarter of fiscal 2019 and began accounting for its remaining 20 percent ownership interest, determined to have no initial fair value, using the equity method of accounting.
Flipkart
In August 2018, the Company acquired approximately 77 percent of the diluted shares of Flipkart Private Limited ("Flipkart"), an Indian-based eCommerce marketplace, for cash consideration of approximately $16 billion. The acquisition increases the Company's investment in India, a large, growing economy. The preliminary purchase price allocation currently consists of the following:
•
Assets of $24.7 billion, which comprise primarily of $2.9 billion in cash and cash equivalents, $2.3 billion in other current assets, $5.4 billion in intangible assets and $13.7 billion in goodwill. Of the intangible assets, $4.9 billion represents the fair value of trade names, each with an indefinite life, which were estimated using the income approach based on Level 3 unobservable inputs. The remaining $0.5 billion of intangible assets primarily relate to acquired technology with a life of three years. The goodwill arising from the acquisition consists largely of anticipated synergies and economies of scale primarily related to procurement and logistics and is not expected to be deductible for tax purposes;
•
Liabilities of $3.8 billion, which comprise of $1.9 billion of current liabilities and $1.9 billion of deferred income taxes; and
•
Noncontrolling interest of $4.9 billion, for which the fair value was estimated using the income approach based on Level 3 unobservable inputs. 
The Company began consolidating the financial statements of Flipkart in the third quarter of fiscal 2019, using a one-month lag. To finance the acquisition, the Company used a combination of cash provided by long-term debt as discussed in Note 4 and cash on hand. The Flipkart results of operations since acquisition and the pro forma financial information are immaterial.
Asda
In April 2018, the Company entered into a definitive agreement and announced the proposed combination of J Sainsbury plc and Asda Group Limited ("Asda Group"), the Company's wholly owned UK retail subsidiary. Under the terms of the combination, the Company would receive approximately 42 percent of the share capital of the combined company. In addition, the Company would receive approximately £3 billion in cash, subject to customary closing adjustments, and retain obligations under the Asda Group defined benefit pension plan. Due to a complex regulatory review process, the outcome of which is uncertain and may take some time to complete, the held for sale classification criteria for the disposal group has not been met as of October 31, 2018. Upon the transaction closing, the Company would deconsolidate the financial statements of Asda Group and account for the ongoing investment in the combined company using the equity method of accounting.
Suburbia
In April 2017, the Company sold Suburbia, the apparel retail division in Mexico, for $1.0 billion.  As part of the sales agreement, the Company is also leasing certain real estate to the purchaser. The sale resulted in a pre-tax gain of $0.7 billion, of which $0.4 billion was recognized in the second quarter of fiscal 2018 in membership and other income, and the remainder was deferred and is being recognized over the lease terms of approximately 20 years.

Note 11. Segments and Disaggregated Revenue
Segments
The Company is engaged in the operation of retail, wholesale and other units, as well as eCommerce websites, located throughout the U.S., Africa, Argentina, Canada, Central America, Chile, China, India, Japan, Mexico, and the United Kingdom, as well as Brazil until the sale of a majority stake discussed in Note 10. The Company's operations are conducted in three reportable segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results the chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The Company sells similar individual products and services in each of its segments. It is impractical to segregate and identify revenues for each of these individual products and services entity-wide.
The Walmart U.S. segment includes the Company's mass merchant concept in the U.S., as well as eCommerce. The Walmart International segment consists of the Company's operations outside of the U.S., as well as eCommerce. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as eCommerce. Corporate and support consists of corporate overhead and other items not allocated to any of the Company's segments.

19

Table of Contents

The Company measures the results of its segments using, among other measures, each segment's net sales and operating income, which includes certain corporate overhead allocations. From time to time, the Company revises the measurement of each segment's operating income, including any corporate overhead allocations, as determined by the information regularly reviewed by its CODM. In fiscal 2019, the Company revised certain of its corporate overhead allocations to the operating segments and, accordingly, revised prior period amounts for comparability.
Net sales by segment are as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018

2017
 
2018

2017
Net sales:
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
80,583

 
$
77,724

 
$
241,146

 
$
231,898

Walmart International
 
28,793

 
29,548

 
88,507

 
84,976

Sam's Club
 
14,521

 
14,864

 
42,933

 
43,737

Net sales
 
$
123,897

 
$
122,136

 
$
372,586

 
$
360,611

Operating income by segment, as well as operating loss for corporate and support, interest, net, loss on extinguishment of debt and other gains and losses are as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018

2017
 
2018
 
2017
Operating income (loss):
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
3,937

 
$
3,825

 
$
12,343

 
$
12,294

Walmart International
 
1,179

 
1,224

 
3,713

 
3,931

Sam's Club
 
379

 
433

 
1,106

 
1,223

Corporate and support
 
(509
)
 
(718
)
 
(1,272
)
 
(1,478
)
Operating income
 
4,986

 
4,764

 
15,890

 
15,970

Interest, net
 
534

 
541

 
1,524

 
1,679

Loss on extinguishment of debt
 
—

 
1,344

 
—

 
2,132

Other (gains) and losses
 
1,876

 
—

 
8,570

 
—

Income before income taxes
 
$
2,576

 
$
2,879

 
$
5,796

 
$
12,159

Disaggregated Revenues
In the following tables, segment net sales are disaggregated by either merchandise category or market. In addition, net sales related to eCommerce are provided for each segment, which include omni-channel sales, where a customer initiates an order online and the order is fulfilled through a store or club.
(Amounts in millions)
 
Three Months Ended October 31, 2018
 
Nine Months Ended October 31, 2018
Walmart U.S. net sales by merchandise category
 
 
Grocery
 
$
46,183

 
$
136,034

General merchandise
 
24,838

 
76,317

Health and wellness
 
8,869

 
26,834

Other categories
 
693

 
1,961

Total
 
$
80,583

 
$
241,146

Of Walmart U.S.'s total net sales, approximately $3.6 billion and $10.2 billion related to eCommerce for the three and nine months ended October 31, 2018, respectively.

20

Table of Contents

(Amounts in millions)
 
Three Months Ended October 31, 2018
 
Nine Months Ended October 31, 2018
Walmart International net sales by market
 
 
Mexico and Central America
 
$
7,740

 
$
22,934

United Kingdom
 
7,407

 
22,572

Canada
 
4,639

 
13,596

China
 
2,637

 
8,322

Other
 
6,370

 
21,083

Total
 
$
28,793

 
$
88,507

Of International's total net sales, approximately $1.5 billion and $3.4 billion related to eCommerce for the three and nine months ended October 31, 2018, respectively.
(Amounts in millions)
 
Three Months Ended October 31, 2018

Nine Months Ended October 31, 2018
Sam’s Club net sales by merchandise category
 

Grocery and consumables
 
$
8,570

 
$
25,167

Fuel, tobacco and other categories
 
3,168

 
9,348

Home and apparel
 
1,209

 
3,809

Health and wellness
 
813

 
2,403

Technology, office and entertainment
 
761

 
2,206

Total
 
$
14,521

 
$
42,933

Of Sam's Club's total net sales, approximately $0.7 billion and $1.9 billion related to eCommerce for the three and nine months ended October 31, 2018, respectively.

21

Table of Contents


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Walmart Inc. ("Walmart," the "Company," "our," or "we") is engaged in retail and wholesale operations in various formats around the world. Through our operations, we help people around the world save money and live better – anytime and anywhere – in retail stores and through eCommerce. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping into an omni-channel offering that saves time for our customers. Physical retail encompasses our brick and mortar presence in each of the markets in which we operate. Digital retail, or eCommerce, is comprised of our eCommerce websites, mobile commerce applications and transactions involving both an eCommerce platform and a physical format, which we refer to as omni-channel. Each week, we served nearly 265 million customers who visit our more than 11,200 stores and numerous eCommerce websites under 55 banners in 27 countries. Our strategy is to lead on price, invest to differentiate on access, be competitive on assortment and deliver a great experience. By leading on price we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Price leadership is core to who we are. Everyday low cost ("EDLC") is our commitment to control expenses so our cost savings can be passed along to our customers. Our physical and digital presence, in which we are investing to integrate into a seamless omni-channel, provides customers convenient access to our broad assortment anytime and anywhere. We strive to give our customers and members a great shopping experience through whichever shopping method they prefer.
Our operations consist of three reportable segments: Walmart U.S., Walmart International and Sam's Club.
•
Walmart U.S. is our largest segment with three primary store formats and eCommerce, as well as an omni-channel offering. Of our three reportable segments, Walmart U.S. has historically had the highest gross profit as a percentage of net sales ("gross profit rate"). In addition, it has historically contributed the greatest amount to the Company's net sales and operating income.
•
Walmart International consists of our operations outside of the U.S. and includes retail, wholesale and other businesses. These categories, including eCommerce, consist of many formats, including: supercenters, supermarkets, hypermarkets, warehouse clubs (including Sam's Clubs) and cash & carry. Overall gross profit rate for Walmart International is lower than that of Walmart U.S. primarily because of its merchandise mix. Walmart International is our second largest segment and has grown in recent years by adding retail, wholesale and other units, and expanding eCommerce.
•
Sam's Club consists of membership-only warehouse clubs as well as eCommerce through samsclub.com. As a membership-only warehouse club, membership income is a significant component of the segment's operating income. Sam's Club operates with a lower gross profit rate and lower operating expenses as a percentage of net sales than our other segments.
Each of our segments contributes to the Company's operating results differently. Each, however, has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years other than minor changes to the contribution rate for the Walmart International segment due to fluctuations in currency exchange rates. Recently, we took some strategic actions to further position our portfolio for long-term growth, including:
•
Acquisition of approximately 77 percent of the outstanding shares of Flipkart Private Limited ("Flipkart"), an Indian-based eCommerce marketplace, in August 2018 for $16 billion, or $13.1 billion net of cash acquired (the "Flipkart Acquisition"). We began consolidating Flipkart's results in the third quarter of fiscal 2019, using a one-month lag. Given the recent closure of the transaction, the purchase price allocation is currently provisional. We expect the ongoing operations of Flipkart to negatively impact the remainder of fiscal 2019 and fiscal 2020 net income.
•
Proposed combination of J Sainsbury plc and Asda Group Limited ("Asda"), our wholly owned United Kingdom retail subsidiary. Under the terms, we would receive approximately 42 percent of the share capital of the combined company and approximately £3.0 billion in cash, subject to customary closing adjustments, while retaining obligations under the Asda defined benefit pension plan. Due to a complex regulatory review process, the outcome of which is uncertain and may take some time to complete, the held for sale classification criteria for the disposal group has not been met as of October 31, 2018. Upon meeting the held for sale classification criteria for the disposal group, we expect to recognize a loss, the amount of which may fluctuate based on the changes in the value of share capital received and foreign exchange rates.

22

Table of Contents

•
Divestiture of 80 percent of Walmart Brazil to Advent International (“Advent”) in August 2018.  Under the terms, Advent will contribute additional capital to the business over a three-year period and we agreed to indemnify Advent for certain pre-closing tax and legal contingencies and other matters. When the sale became probable, we recorded a pre-tax net loss of approximately $4.8 billion in the second quarter of fiscal 2019 and an additional immaterial amount in the third quarter of fiscal 2019 upon closure of the sale.  Of the $4.8 billion pre-tax net loss, $2.0 billion related to cumulative foreign currency translation loss which was reclassified from accumulated other comprehensive loss upon closure of the sale.
•
Proposed divestitures of the banking operations in Walmart Canada and Walmart Chile, both classified as held for sale as of October 31, 2018, and subject to closing procedures, consistent with our focus on core retail capabilities.
Our fiscal year ends on January 31 for our U.S. and Canadian operations. We consolidate all other operations generally using a one-month lag and on a calendar year basis. Our business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, our highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
This discussion, which presents our results for periods occurring in the fiscal year ending January 31, 2019 ("fiscal 2019") and the fiscal year ended January 31, 2018 ("fiscal 2018"), should be read in conjunction with our Condensed Consolidated Financial Statements as of and for the three and nine months ended October 31, 2018, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended January 31, 2018, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report of Form 10-K for the year ended January 31, 2018 incorporated by reference.
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of each of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income and other measures as determined by the information regularly reviewed by our chief operating decision maker. In fiscal 2019, the Company revised certain of its corporate overhead allocations to the operating segments and, accordingly, revised prior period amounts for comparability.
Comparable store and club sales, or comparable sales, is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period from the corresponding period in the previous year. Walmart's definition of comparable sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as eCommerce sales. We measure the eCommerce sales impact by including all sales initiated online or though mobile applications, including omni-channel transactions which are fulfilled through our stores and clubs. Sales at a store that has changed in format are excluded from comparable sales when the conversion of that store is accompanied by a relocation or expansion that results in a change in the store's retail square feet of more than five percent. Additionally, sales related to eCommerce acquisitions are excluded until such acquisitions have been owned for 12 months. Comparable sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable sales varies across the retail industry. As a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S. dollar into U.S. dollars or for countries experiencing hyperinflation. 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. Additionally, no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months. 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.

23

Table of Contents

The Retail Industry
We operate in the highly competitive retail industry in all of the markets we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets, as well as eCommerce businesses. Many of these competitors are national, regional or international chains or have a national or international online presence. We compete with a number of companies for prime retail site locations, as well as in attracting and retaining quality employees ("associates"). We, along with other retail companies, are influenced by a number of factors including, but not limited to: catastrophic events, weather, competitive pressures, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, cost of goods, currency exchange rate fluctuations, customer preferences, deflation, inflation, fuel and energy prices, general economic conditions, insurance costs, interest rates, labor costs, tax rates, cybersecurity attacks and unemployment.
Company Performance Metrics
We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs.  At times, we adjust our business strategies to maintain and strengthen our competitive positions in the countries in which we operate.  We define our financial framework as:
•
strong, efficient growth;
•
operating discipline; and
•
strategic capital allocation.
As we execute on this financial framework, we believe our returns on capital will improve over time.
Strong, Efficient Growth
Our objective of prioritizing strong, efficient growth means we will focus on increasing comparable store and club sales and accelerating eCommerce sales growth while slowing the rate of growth of new stores and clubs. At times, we make strategic investments which are focused on the long-term growth of the Company.
Comparable sales is a metric that indicates the performance of our existing stores and clubs by measuring the change in sales for such stores and clubs, including eCommerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable sales below, we are referring to our calendar comparable sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our fiscal calendar comparable sales also differ from the retail calendar comparable sales provided in our quarterly earnings releases. Calendar comparable sales, as well as the impact of fuel, for the three and nine months ended October 31, 2018, were as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
 
With Fuel
 
Fuel Impact
 
With Fuel
 
Fuel Impact
Walmart U.S.
 
3.4
%
 
2.9
%
 
0.1
%
 
0.1
%
 
3.5
%
 
1.9
%
 
0.1
%
 
0.1
%
Sam's Club
 
5.4
%
 
4.2
%
 
2.1
%
 
1.2
%
 
6.1
%
 
2.6
%
 
2.1
%
 
0.9
%
Total U.S.
 
3.7
%
 
3.1
%
 
0.4
%
 
0.2
%
 
3.9
%
 
2.0
%
 
0.4
%
 
0.2
%
The Walmart U.S. segment had growth of 3.4% and 3.5% for the three and nine months ended October 31, 2018, respectively, driven by ticket and traffic growth. For the three and nine months ended October 31, 2018, the Walmart U.S. segment's eCommerce sales contributed approximately 1.3% and 1.1% to comparable sales, respectively. Comparable sales at the Sam's Club segment were 5.4% and 6.1% for the three and nine months ended October 31, 2018, respectively, driven by strong traffic, which was aided by transfers of sales from our closed clubs to our existing clubs, and fuel sales. The increase in comparable sales at the Sam's Club segment was partially offset by reduced tobacco sales due to our decision to remove tobacco from certain locations. For the three and nine months ended October 31, 2018, the Sam's Club segment's eCommerce sales positively contributed approximately 1.2% and 1.0% to comparable sales, respectively.

24

Table of Contents

Operating Discipline
We operate with discipline by managing expenses and optimizing the efficiency of how we work. We measure operating discipline through expense leverage, which we define as net sales growing at a faster rate than operating, selling, general and administrative ("operating") expenses.
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
123,897

 
$
122,136

 
$
372,586

 
$
360,611

Percentage change from comparable period
 
1.4
 %
 
4.2
%
 
3.3
%
 
2.6
%
Operating, selling, general and administrative expenses
 
$
26,792

 
$
26,868

 
$
79,328

 
$
77,350

Percentage change from comparable period
 
(0.3
)%
 
5.1
%
 
2.6
%
 
3.3
%
Operating, selling, general and administrative expenses as a percentage of net sales
 
21.6
 %
 
22.0
%
 
21.3
%
 
21.4
%

For the three and nine months ended October 31, 2018, we leveraged operating expenses, decreasing operating expenses as a percentage of net sales by 38 and 16 basis points, respectively, when compared to the same periods in the previous fiscal year. The primary drivers of the expense leverage for the three and nine months ended October 31, 2018 was Walmart U.S. strong sales performance in conjunction with productivity improvements, and the prior year comparable period including the legal accrual of $283 million related to the FCPA matter, the impact from hurricanes at Walmart U.S. and an impairment of $150 million due to the decision to exit certain properties in one of our international markets. These improvements were partially offset by our additional investments in eCommerce and technology, as well as a $160 million charge related to a proposed settlement of a securities class action lawsuit.
Strategic Capital Allocation
We are allocating more capital to store remodels, eCommerce, technology and supply chain and less to new store and club openings, when compared to prior years. This allocation aligns with our initiatives of improving our customer proposition in stores and clubs and integrating digital and physical shopping. The following table provides additional detail:
(Amounts in millions)
 
Nine Months Ended October 31,
Allocation of Capital Expenditures
 
2018
 
2017
eCommerce, technology, supply chain and other
 
$
3,355

 
$
2,863

Remodels
 
1,734

 
1,660

New stores and clubs, including expansions and relocations
 
230

 
712

Total U.S.
 
5,319

 
5,235

Walmart International
 
1,695

 
1,673

Total capital expenditures
 
$
7,014

 
$
6,908


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

Returns
As we execute our financial framework, we believe our return on capital will improve over time. We measure return on capital with our return on investment and free cash flow metrics. In addition, we provide returns in the form of share repurchases and dividends, which are discussed in the Liquidity and Capital Resources section.
Return on Assets and Return on Investment
We include Return on Assets ("ROA"), the most directly comparable measure based on our financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), and Return on Investment ("ROI") as metrics to assess returns on assets. While ROI is considered a non-GAAP financial measure, management believes ROI is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. ROA was 2.6% and 5.8% for the trailing twelve months ended October 31, 2018 and 2017, respectively. The decline in ROA was primarily due to the decrease in consolidated net income over the trailing twelve months which was the result of the $4.5 billion net loss related to the sale of a majority stake in Walmart Brazil, unrealized loss on our JD.com investment, restructuring and impairment charges in the fourth quarter of fiscal 2018 and loss on extinguishment of debt in the fourth quarter of fiscal 2018. ROI was 13.4% and 14.7% for the trailing twelve months ended October 31, 2018 and 2017, respectively. The decline in ROI was due to the decrease in operating income over the trailing twelve months, primarily driven by the restructuring and impairment charges in the fourth quarter of fiscal 2018, as well as the increase in average total assets, primarily driven by the Flipkart Acquisition.

25

Table of Contents

We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the trailing 12 months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and average amortization, less average accounts payable and average accrued liabilities for that period, plus a rent factor equal to the rent for the fiscal year or trailing 12 months multiplied by a factor of 8. When we have discontinued operations, we exclude the impact of the discontinued operations.
Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure. For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. In addition, we include a factor of 8 for rent expense that estimates the hypothetical capitalization of our operating leases. As mentioned above, we consider ROA to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of ROI. ROI differs from ROA (which is consolidated net income for the period divided by average total assets for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; adjusts total assets for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities; and incorporates a factor of rent to arrive at total invested capital. Because of the adjustments mentioned above, we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.
Although ROI is a standard financial measure, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.
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 October 31,
(Amounts in millions)
 
2018
 
2017
CALCULATION OF RETURN ON ASSETS
Numerator
 
 
 
 
Consolidated net income
 
$
5,729

 
$
12,146

Denominator
 
 
 
 
Average total assets(1)
 
$
217,999

 
$
208,136

Return on assets (ROA)
 
2.6
%
 
5.8
%
 
 
 
 
 
CALCULATION OF RETURN ON INVESTMENT
Numerator
 
 
 
 
Operating income
 
$
20,357

 
$
22,175

+ Interest income
 
190

 
145

+ Depreciation and amortization
 
10,649

 
10,533

+ Rent
 
3,053

 
2,667

= Adjusted operating income
 
$
34,249

 
$
35,520

 
 
 
 
 
Denominator
 
 
 
 
Average total assets(1)
 
$
217,999

 
$
208,136

+ Average accumulated depreciation and amortization(1)
 
84,136

 
79,253

- Average accounts payable(1)
 
48,658

 
45,289

- Average accrued liabilities(1)
 
22,276

 
21,500

+ Rent x 8
 
24,424

 
21,336

= Average invested capital
 
$
255,625

 
$
241,936

Return on investment (ROI)
 
13.4
%
 
14.7
%
 
 
 
As of October 31,
 
 
2018
 
2017
 
2016
Certain Balance Sheet Data
 
 
 
 
 
 
Total assets
 
$
226,583

 
$
209,414

 
$
206,857

Accumulated depreciation and amortization
 
85,827

 
82,445

 
76,061

Accounts payable
 
49,729

 
47,587

 
42,990

Accrued liabilities
 
22,795

 
21,757

 
21,243

 
(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.



26

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 the same period. We had net cash provided by operating activities of $17.3 billion for the nine months ended October 31, 2018, which was relatively flat compared to $17.1 billion for the nine months ended October 31, 2017. We generated free cash flow of $10.3 billion for the nine months ended October 31, 2018, which was also relatively flat compared to $10.2 billion for the nine months ended October 31, 2017. Net cash provided by operating activities and free cash flow for the nine months ended October 31, 2018, were benefited by a decrease in tax payments primarily as a result of tax reform, offset by the timing of vendor payments, when compared to the same period in the previous fiscal year.
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 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.
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
Net cash provided by operating activities
 
$
17,308

 
$
17,060

Payments for property and equipment
 
(7,014
)
 
(6,908
)
Free cash flow
 
$
10,294

 
$
10,152

 
 
 
 
 
Net cash used in investing activities(1)
 
$
(20,554
)
 
$
(5,854
)
Net cash provided by (used in) financing activities
 
5,921

 
(11,416
)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

27

Table of Contents

Results of Operations
Consolidated Results of Operations
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2018
 
2017
 
2018
 
2017
Total revenues
 
$
124,894

 
$
123,179

 
$
375,612

 
$
364,076

Percentage change from comparable period
 
1.4
%

4.2
%
 
3.2
%
 
2.6
%
Net sales
 
$
123,897

 
$
122,136

 
$
372,586

 
$
360,611

Percentage change from comparable period
 
1.4
%

4.2
%
 
3.3
%
 
2.6
%
Total U.S. calendar comparable sales increase
 
3.7
%
 
3.1
%
 
3.9
%
 
2.0
%
Gross profit margin as a percentage of net sales
 
24.8
%
 
25.0
%
 
24.7
%
 
24.9
%
Operating income
 
$
4,986

 
$
4,764

 
$
15,890

 
$
15,970

Operating income as a percentage of net sales
 
4.0
%
 
3.9
%
 
4.3
%
 
4.4
%
Other (gains) and losses
 
$
1,876

 
—

 
$
8,570

 
$
—

Consolidated net income
 
$
1,817

 
$
1,904

 
$
3,366

 
$
8,160

Unit counts at period end
 
11,277


11,703

 
11,277

 
11,703

Retail square feet at period end
 
1,125


1,160

 
1,125

 
1,160

Our total revenues, which are mostly comprised of net sales, but also include membership and other income, increased $1.7 billion or 1.4% and $11.5 billion or 3.2% for the three and nine months ended October 31, 2018, when compared to the same periods in the previous fiscal year. The increase in revenues for the three months ended October 31, 2018 was due to an increase in net sales, which was primarily due to overall positive comparable sales for the Walmart U.S. and Sam's Club segments along with positive comparable sales in the majority of our International markets, partially offset by a $1.3 billion reduction in net sales due to our sale of a majority stake in Walmart Brazil in the International segment, a $1.2 billion negative impact of fluctuations in currency exchange rates and club closures in the Sam's Club segment.
The increase in revenues for the nine months ended October 31, 2018 was due to an increase in net sales, primarily due to overall positive comparable sales for Walmart U.S. and Sam's Club segments along with positive comparable sales in the majority of our International markets and $1.0 billion of positive fluctuations in currency exchange rates, partially offset by a $1.3 billion reduction in net sales due to our sale of a majority stake in Walmart Brazil in the International segment and a decrease in net sales due to club closures in the Sam's Club segment.
Our gross profit rate decreased 21 and 18 basis points for the three and nine months ended October 31, 2018, when compared to the same periods in the previous fiscal year. The decrease for the three and nine months ended October 31, 2018 was due to our planned pricing strategy, increased transportation expenses, and the mix effects from our growing eCommerce business.
Membership and other income was relatively flat for the three months ended October 31, 2018 and decreased $439 million for the nine months ended October 31, 2018, when compared to the same periods in the previous fiscal year. The decrease in membership and other income for the nine months ended October 31, 2018 was primarily due to the prior year recognition of a $387 million gain from the sale of Suburbia in our International Segment.
Operating expenses as a percentage of net sales decreased 38 and 16 basis points for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The primary drivers of the expense leverage for the three and nine months ended October 31, 2018 were strong sales performance in conjunction with productivity improvements, and the prior year comparable period including the legal accrual of $283 million related to the FCPA matter, the impact of hurricanes at Walmart U.S. and an impairment of $150 million due to the decision to exit certain properties in one of our international markets. These improvements were partially offset by our additional investments in eCommerce and technology, as well as a $160 million charge related to a proposed settlement of a securities class action lawsuit.
Other losses were $1.9 billion and $8.6 billion for the three and nine months ended October 31, 2018, respectively. The loss for the three months ended October 31, 2018 was a result of a $1.8 billion pre-tax decrease in the market value of our investment in JD.com. The loss for the nine months ended October 31, 2018 was primarily the result of the $4.8 billion pre-tax loss on the sale of a majority stake in Walmart Brazil and a $3.7 billion pre-tax decrease in the market value of our investment in JD.com.
The comparable prior year periods included loss on extinguishment of debt of $1.3 billion and $2.1 billion for the three and nine months ended October 31, 2017, respectively.
Our effective income tax rate was 29.5% and 41.9% for the three and nine months ended October 31, 2018, respectively, compared to 33.9% and 32.9%, respectively, for each of the same periods in the previous fiscal year. The decrease in the effective income tax rate for the three months ended October 31, 2018 was primarily due to the Tax Cuts and Jobs Act of 2017. Although the U.S. statutory rate was lowered due to tax reform, our effective income tax rate increased for the nine months ended October 31, 2018 due to the sale of a majority stake in Walmart Brazil, which increased the effective tax rate 17%, as it provided minimal realizable tax benefit. Our effective income tax rate may also 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

28

Table of Contents

administrative audits, the impact of discrete items and the mix and size of earnings among our U.S. operations and international operations, which are subject to statutory rates that are generally higher than the U.S. statutory rate.
As a result of the factors discussed above, consolidated net income declined $0.1 billion and $4.8 billion for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. Diluted net income per common share attributable to Walmart was $0.58 for the three months ended October 31, 2018, which was flat when compared to the same period in the previous fiscal year. Diluted net income per common share attributable to Walmart was $1.01 for the nine months ended October 31, 2018, which represents a decline of $1.53 when compared to the same period in the previous fiscal year.

Walmart U.S. Segment
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
80,583

 
$
77,724

 
$
241,146

 
$
231,898

Percentage change from comparable period
 
3.7
%

4.3
%
 
4.0
%
 
3.5
%
Calendar comparable sales increase
 
3.4
%
 
2.9
%
 
3.5
%
 
1.9
%
Operating income
 
$
3,937

 
$
3,825

 
$
12,343

 
$
12,294

Operating income as a percentage of net sales
 
4.9
%
 
4.9
%
 
5.1
%
 
5.3
%
Unit counts at period end
 
4,755


4,752

 
4,755

 
4,752

Retail square feet at period end
 
705


703

 
705

 
703

Net sales for the Walmart U.S. segment increased $2.9 billion or 3.7% and $9.2 billion or 4.0% for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The increases in net sales for the three and nine months ended October 31, 2018 were primarily due to increases in comparable sales of 3.4% and 3.5%, respectively, driven by ticket and traffic growth. Walmart U.S. eCommerce sales positively contributed approximately 1.3% and 1.1% to comparable sales for the three and nine months ended October 31, 2018, respectively, and were driven by online grocery and ship-to-home.
Gross profit rate decreased 28 and 29 basis points for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year, primarily due to our pricing strategy, increased transportation expenses, and the mix effects from our growing eCommerce business, which were partially offset by the overlap from last year's hurricanes.
Operating expenses as a percentage of net sales decreased 28 and 15 basis points for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year, primarily due to strong sales performance in conjunction with productivity improvements and the prior year comparable periods including the impact of hurricanes. These improvements more than offset investments in eCommerce and technology and raising the starting wage rate at the beginning of fiscal 2019.
As a result of the factors discussed above, operating income increased $112 million and $49 million for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year.

Walmart International Segment
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
28,793

 
$
29,548

 
$
88,507

 
$
84,976

Percentage change from comparable period
 
(2.6
)%
 
4.1
%
 
4.2
%
 
(0.1
)%
Operating income
 
$
1,179

 
$
1,224

 
$
3,713

 
$
3,931

Operating income as a percentage of net sales
 
4.1
 %
 
4.1
%
 
4.2
%
 
4.6
 %
Unit counts at period end
 
5,925


6,291

 
5,925

 
6,291

Retail square feet at period end
 
340


369

 
340

 
369

Net sales for the Walmart International segment decreased $0.8 billion or 2.6% for the three months ended October 31, 2018, when compared to the same periods in the previous fiscal year. This decrease was primarily due to a $1.3 billion reduction in net sales due to our sale of a majority stake in Walmart Brazil and $1.2 billion of negative fluctuations in currency exchange rates. The decreases were partially offset by positive comparable sales growth in the majority of our markets and the addition of Flipkart's net sales for approximately half of the third quarter.

29

Table of Contents

Net sales increased $3.5 billion or 4.2% for the nine months ended October 31, 2018, when compared to the same period in the previous fiscal year. This increase was primarily due to positive comparable sales in the majority of our markets, $1.0 billion of positive fluctuations in currency exchange rates and net sales from Flipkart for approximately half of the third quarter. These increases were partially offset by a $1.3 billion reduction in net sales sales due to our sale of a majority stake in Walmart Brazil as well as the continued wind down of our first party Brazil eCommerce operations and a reduction in net sales of $140 million due to divesting our Suburbia business in the second quarter of fiscal 2018.
Gross profit rate decreased 42 and 14 basis points for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The decrease in the gross profit rate for the three and nine months ended October 31, 2018 was due to investments in price and growth in eCommerce, including the Flipkart Acquisition.
Membership and other income was relatively flat for the three months ended October 31, 2018 and decreased $0.3 billion for the nine months ended October 31, 2018, when compared to the same periods in the previous fiscal year. The decrease in membership and other income for the nine months ended October 31, 2018 was primarily due to the prior year recognition of a $387 million gain from the sale of Suburbia.
Operating expenses as a percentage of net sales decreased 46 and 17 basis points for the three and nine months ended October 31, 2018, when compared to the same periods in the previous fiscal year. The decrease in operating expenses as a percentage of net sales was primarily due the prior year's comparable period including a $150 million impairment charge from our decision to exit certain properties in one of our markets.
As a result of the factors discussed above, operating income decreased $45 million and $218 million for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year.

Sam's Club Segment
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2018
 
2017
 
2018
 
2017
Including Fuel
 
 
 
 
 
 
 
 
Net sales
 
$
14,521

 
$
14,864

 
$
42,933

 
$
43,737

Percentage change from comparable period
 
(2.3
)%
 
4.4
%
 
(1.8
)%
 
3.2
%
Calendar comparable sales increase
 
5.4
 %
 
4.2
%
 
6.1
 %
 
2.6
%
Operating income
 
$
379

 
$
433

 
$
1,106

 
$
1,223

Operating income as a percentage of net sales
 
2.6
 %
 
2.9
%
 
2.6
 %
 
2.8
%
Unit counts at period end
 
597


660

 
597

 
660

Retail square feet at period end
 
80


88

 
80

 
88

 
 
 
 
 
 
 
 
 
Excluding Fuel (1)
 
 
 
 
 
 
 
 
Net sales
 
$
13,002

 
$
13,584

 
$
38,675

 
$
40,218

Percentage change from comparable period
 
(4.3
)%
 
3.2
%
 
(3.8
)%
 
2.2
%
Operating income
 
$
345

 
$
383

 
$
1,027

 
$
1,129

Operating income as a percentage of net sales
 
2.7
 %
 
2.8
%
 
2.7
 %
 
2.8
%
(1) We believe the "Excluding Fuel" information is useful to investors because it permits investors to understand the effect of the Sam's Club segment's fuel sales on its results of operations, which are impacted by the volatility of fuel prices. Volatility in fuel prices may continue to impact the operating results of the Sam's Club segment in the future.
Net sales for the Sam's Club segment decreased $0.3 billion or 2.3% and $0.8 billion or 1.8% for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The decreases in net sales for the three and nine months ended were primarily due to the net closure of 63 clubs from the comparable periods, as well as reduced tobacco sales due to our decision to remove tobacco from certain locations. These decreases were partially offset by increases in comparable sales, which were benefited by transfers of sales from our closed clubs to our existing clubs. Sam's Club eCommerce sales positively contributed approximately 1.2% and 1.0% to comparable sales for the three and nine months ended October 31, 2018, respectively. Additional fuel sales of $239 million and $739 million also partially offset the decreases in net sales for the three and nine months ended October 31, 2018, respectively.
Gross profit rate decreased 27 and 37 basis points for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The decrease was primarily due to reduced margin on fuel sales, increased shrink, investments in price, increased shipping costs at samsclub.com and higher transportation costs. The decrease in gross profit rate was partially offset by the decrease of tobacco sales, which have lower margins.
Membership and other income increased 3.8% and 1.4% for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year. The increases were due to increased Plus memberships and gains on property sales recognized during the three months ended October 31, 2018. These increases were partially offset by lower recycling income when compared to the same periods in the previous fiscal year.

30

Table of Contents

Operating expenses as a percentage of segment net sales increased 18 basis points for the three months ended October 31, 2018, when compared to the same period in the previous fiscal year, primarily as a result of reduced tobacco sales and increased incentives, wages and associate benefits. Operating expenses as a percentage of segment net sales decreased 8 basis points for the nine months ended October 31, 2018, when compared to the same period in the previous fiscal year, primarily as a result of higher fuel sales.
As a result of the factors discussed above, operating income decreased $54 million and $117 million for the three and nine months ended October 31, 2018, respectively, when compared to the same periods in the previous fiscal year.

Liquidity and Capital Resources
Liquidity
The strength and stability of our operations have historically supplied us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to fund the dividends on our common stock and share repurchases. We believe our sources of liquidity will continue to be adequate to fund operations, finance our global investment and expansion activities, pay dividends and fund our share repurchases for the foreseeable future.
Net Cash Provided by Operating Activities
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
Net cash provided by operating activities
 
$
17,308

 
$
17,060

We had net cash provided by operating activities of $17.3 billion for the nine months ended October 31, 2018, which was relatively flat compared to $17.1 billion for the nine months ended October 31, 2017. Net cash provided by operating activities for the nine months ended October 31, 2018 was benefited by a decrease in tax payments primarily as a result of tax reform, offset by the timing of vendor payments, when compared to the same period in the previous fiscal year.
Cash Equivalents and Working Capital
Cash and cash equivalents were $9.2 billion and $7.0 billion at October 31, 2018 and 2017, respectively. Our working capital deficit was $16.3 billion and $15.1 billion at October 31, 2018 and 2017, respectively. We generally operate with a working capital deficit due to our efficient use of cash in funding operations, consistent access to the capital markets and returns provided to our shareholders in the form of payments of cash dividends and share repurchases. The increased working capital deficit at October 31, 2018 compared to October 31, 2017 was due to timing of vendor payments.
We use intercompany financing arrangements in an effort to ensure cash can be made available in the country in which it is needed with the minimum cost possible. We previously asserted all our unremitted earnings offshore were permanently reinvested. In the second quarter of fiscal 2019, we changed our repatriation assertion for certain historical and fiscal 2019 earnings. We plan to repatriate approximately $5 billion of cash at a cost of approximately $80 million. The tax cost of repatriating historical earnings was recorded as a discrete tax charge in the second quarter of fiscal 2019, while the tax cost of repatriating current year earnings was included in the annualized effective tax rate.  We are continuing our analysis and await anticipated technical guidance surrounding any potential repatriation plans beyond fiscal 2019. Final determination and disclosure will be made as more information is received, including guidance from the IRS and Treasury.
As of October 31, 2018 and January 31, 2018, cash and cash equivalents of $4.1 billion and $1.4 billion, respectively, may not be freely transferable to the U.S. due to local laws or other restrictions. Of the $4.1 billion at October 31, 2018, approximately $2.6 billion can only be accessed through dividends or intercompany financing arrangements subject to approval of the Flipkart minority shareholders; however, this cash is expected to be utilized to fund the operations of Flipkart.

Net Cash Used in Investing Activities
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
Net cash used in investing activities
 
$
(20,554
)
 
$
(5,854
)
Net cash used in investing activities was $20.6 billion and $5.9 billion for the nine months ended October 31, 2018 and 2017, respectively. Net cash used in investing activities increased $14.7 billion for the nine months ended October 31, 2018, primarily as a result of the $13.1 billion payment for the Flipkart Acquisition, net of cash acquired. Additionally, payments were to remodel existing stores and clubs, expand our eCommerce capabilities, invest in other technologies and add stores and clubs.

31

Table of Contents

Net Cash Provided By or Used in Financing Activities
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2018
 
2017
Net cash provided by (used in) financing activities
 
$
5,921

 
$
(11,416
)
Net cash provided by or used in financing activities generally consists of transactions related to our short-term and long-term debt, financing obligations, dividends paid and the repurchase of Company stock. Transactions with noncontrolling interest shareholders are also classified as cash flows from financing activities. Net cash provided by financing activities increased $17.3 billion for the nine months ended October 31, 2018, when compared to the same period in the previous fiscal year, primarily due to the $15.9 billion net proceeds from issuance of long-term debt to fund a portion of the purchase price for the Flipkart Acquisition and for general corporate purposes, as well as the decrease in share repurchases, when compared to the same period in the previous fiscal year, due to the suspension of repurchases in anticipation of the Flipkart announcement. These increases in net cash provided by financing activities were partially offset by timing of short term borrowings.
Additionally, the Company has committed lines of credit in the U.S. of $15.0 billion as of October 31, 2018 and $12.5 billion as of January 31, 2018, all undrawn.
Long-term Debt
The following table provides the changes in our long-term debt for the nine months ended October 31, 2018:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2018
 
$
3,738

 
$
30,045

 
$
33,783

Proceeds from issuance of long-term debt
 
—

 
15,851

 
15,851

Repayments of long-term debt
 
(3,029
)
 
(21
)
 
(3,050
)
Reclassifications of long-term debt
 
1,864

 
(1,864
)
 
—

Other
 
18

 
(736
)
 
(718
)
Balances as of October 31, 2018
 
$
2,591

 
$
43,275

 
$
45,866

Our total outstanding long-term debt balance increased $12.1 billion for the nine months ended October 31, 2018, primarily due to the net proceeds from issuance of long-term debt to fund a portion of the purchase price for the Flipkart Acquisition and for general corporate purposes.
Dividends
On February 20, 2018, the Board of Directors approved the fiscal 2019 annual dividend of $2.08 per share, an increase over the fiscal 2018 annual dividend of $2.04 per share. For fiscal 2019, the annual dividend will be paid in four quarterly installments of $0.52 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 9, 2018
  
April 2, 2018
May 11, 2018
  
June 4, 2018
August 10, 2018
  
September 4, 2018
December 7, 2018
  
January 2, 2019
The dividend installments payable on April 2, 2018, June 4, 2018 and September 4, 2018 were paid as scheduled.
Company Share Repurchase Program
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three and nine months ended October 31, 2018, were made under the plan in effect at the beginning of the fiscal year. The current $20 billion share repurchase program approved in October 2017 has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. As of October 31, 2018, authorization for $14.6 billion of share repurchases remained under the current share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.

32

Table of Contents

We regularly review share repurchase activity and consider several factors in determining when to execute share repurchases, including, among other things, current cash needs, capacity for leverage, cost of borrowings, our results of operations and the market price of our common stock. We anticipate that a majority of the ongoing share repurchase program will be funded through the Company's free cash flow. The following table provides, on a settlement date basis, the number of shares repurchased, average price paid per share and total amount paid for share repurchases for the nine months ended October 31, 2018 and 2017:
 
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2018
 
2017
Total number of shares repurchased
 
45.3

 
87.8

Average price paid per share
 
$
92.01

 
$
75.76

Total amount paid for share repurchases
 
$
4,161

 
$
6,656

Share repurchases decreased $2.5 billion for the nine months ended October 31, 2018, when compared to the same period in the previous fiscal year, due to the suspension of repurchases in anticipation of the Flipkart announcement. Repurchases of Company stock returned to a more normalized level in the latter half of the second quarter of fiscal 2019.
Capital Resources
We believe cash flows from operations, our current cash position and access to capital markets will continue to be sufficient to meet our anticipated operating cash needs, which include funding seasonal buildups in merchandise inventories and funding our capital expenditures, acquisitions, dividend payments and share repurchases.
We have strong commercial paper and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in capital markets. At October 31, 2018, the ratings assigned to our commercial paper and rated series of our outstanding long-term debt were as follows:
Rating agency
  
Commercial paper
  
Long-term debt
Standard & Poor's
  
A-1+
  
AA
Moody's Investors Service
  
P-1
  
Aa2
Fitch Ratings
  
F1+
  
AA
Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain consistent over time. Factors that could affect our credit ratings include changes in our operating performance, the general economic environment, conditions in the retail industry, our financial position, including our total debt and capitalization, and changes in our business strategy. Any downgrade of our credit ratings by a credit rating agency could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper markets with the same flexibility that we have experienced historically, potentially requiring us to rely more heavily on more expensive types of debt financing. The credit rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
Other Matters
In Note 9 to our Condensed Consolidated Financial Statements, which is captioned "Contingencies" and appears in Part I of this Quarterly Report on Form 10-Q under the caption "Item 1. Financial Statements," we discuss, under the sub-caption "FCPA Investigation and Related Matters," our existing FCPA investigation and related matters and possible effects of those matters on Walmart's business. In that Note 9, we also discuss, under the sub-caption "ASDA Equal Value Claims," certain existing employment claims against ASDA. Further, in that Note 9, we also discuss, under the sub-caption "National Prescription Opiate Litigation and Related Matters," the national prescription opiate litigation including certain risks arising therefrom, as well as certain other matters. We also discuss various legal proceedings related to the FCPA investigation, ASDA Equal Value Claims, and National Prescription Opiate Litigation in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1. Legal Proceedings," under the sub-caption "II. Certain Other Proceedings." The foregoing matters and other matters described elsewhere in this Quarterly Report on Form 10-Q represent contingent liabilities of the Company that may or may not result in the incurrence of a material liability by the Company upon their final resolution.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to our operations result primarily from changes in interest rates, currency exchange rates or the market value of our investments. Our market risks at October 31, 2018 are similar to those disclosed in our Form 10-K for the fiscal year ended January 31, 2018.

33

Table of Contents

Interest Rate Risk
The fair value of our derivative instruments decreased approximately $0.4 billion during the nine months ended October 31, 2018, primarily due to fluctuations in market interest rates and currency rates .
Foreign Currency Risk
Movements in currency exchange rates and the related impact on the translation of the balance sheets of the Company's subsidiaries in the UK, India, Canada and Chile were the primary cause of the $2.0 billion decrease for the nine months ended October 31, 2018, in the currency translation and other category of accumulated other comprehensive loss.
Investment Risk
We are exposed to changes in the JD.com ("JD") stock price as a result of our equity investment in JD. At October 31, 2018, the fair value of our equity investment in JD was $3.4 billion. Since February 1, 2018, when we adopted the new financial instrument accounting standard, the fair value has decreased approximately $3.7 billion due to a decrease in the stock price of JD.
The information concerning market risk under the sub-caption "Market Risk" of the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 and 20 of the parts of our Annual Report to Shareholders for the fiscal year ended January 31, 2018, which is incorporated in and included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, is hereby incorporated by reference into this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures. Also, we have investments in unconsolidated entities. Since we do not control or manage those entities, our controls and procedures with respect to those entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.
In the ordinary course of business, we review our internal control over financial reporting and make changes to our systems and processes to improve such controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, updating existing systems, automating manual processes, standardizing controls globally, migrating certain processes to our shared services organizations and increasing monitoring controls. We recently announced an agreement to outsource select accounting transaction-processing activities which is part of our ongoing initiatives to enhance our shared service model.  These changes have not materially affected, and are not reasonably likely to materially affect, the Company's internal control over financial reporting. However, they allow us to continue to enhance our internal controls over financial reporting and ensure that they remain effective.
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.
There has been no change in the Company's internal control over financial reporting as of October 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

34

Table of Contents

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
I. SUPPLEMENTAL INFORMATION: We discuss certain legal proceedings in Part I of this Quarterly Report on Form 10-Q under the caption "Item 1. Financial Statements," in Note 9 to our Condensed Consolidated Financial Statements, which is captioned "Contingencies," under the sub-caption "Legal Proceedings." We refer you to that discussion for important information concerning those legal proceedings, including the basis for such actions and, where known, the relief sought. We provide the following additional information concerning those legal proceedings, including the name of the lawsuit, the court in which the lawsuit is pending, and the date on which the petition commencing the lawsuit was filed.
ASDA Equal Value Claims: Ms S Brierley & Others v ASDA Stores Ltd (2406372/2008 & Others - Manchester Employment Tribunal); ASDA Stores Ltd v Brierley & Ors (A2/2016/0973 - United Kingdom Court of Appeal); ASDA Stores Ltd v Ms S Brierley & Others (UKEAT/0059/16/DM - United Kingdom Employment Appeal Tribunal); ASDA Stores Ltd v Ms S Brierley & Others (UKEAT/0009/16/JOJ - United Kingdom Employment Appeal Tribunal).
National Prescription Opiate Litigation: In re National Prescription Opiate Litigation (MDL No. 2804) (the "MDL"). The MDL is pending in the U.S. District Court for the Northern District of Ohio and includes 334 cases as of November 23, 2018; 23 cases are in the process of being transferred to the MDL or have remand motions pending; and there are 59 additional state cases pending as of November 23, 2018. The case citations for the state cases are listed on Exhibit 99.2 to this Form 10-Q.
II. CERTAIN OTHER PROCEEDINGS: The Company has been a defendant in several lawsuits in which the complaints have closely tracked the allegations set forth in a news story that appeared in The New York Times (the "Times") on April 21, 2012. One of these is a securities lawsuit that was filed on May 7, 2012, in the United States District Court for the Middle District of Tennessee, and subsequently transferred to the Western District of Arkansas, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the "FCPA") beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff represents a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and has sought damages and other relief based on allegations that the defendants' conduct affected the value of such stock. On September 20, 2016, the court granted plaintiff's motion for class certification. On October 6, 2016, the defendants filed a petition to appeal the class certification ruling to the U.S. Court of Appeals for the Eighth Circuit. On November 7, 2016, the U.S. Court of Appeals for the Eighth Circuit denied the Company's petition. On October 26, 2018, the parties filed a motion asking the court to approve a proposed settlement under which the Company would pay $160 million to resolve the claims of all class members. The court has set a hearing to consider preliminary approval of the settlement on December 4, 2018. The proposed settlement does not include or constitute an admission, concession, or finding of any fault, liability, or wrongdoing by the Company or any defendant.
In addition, a number of derivative complaints were filed in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former directors and certain former officers as additional defendants. The plaintiffs in the derivative suits (in which the Company was a nominal defendant) alleged, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with their oversight of FCPA compliance. All of the derivative suits were combined into two consolidated proceedings, one of which was consolidated in the United States District Court for the Western District of Arkansas and the other in the Delaware Court of Chancery. On March 31, 2015, the Western District of Arkansas granted the defendants' motion to dismiss the consolidated derivative proceedings in that court. On April 15, 2015, plaintiffs filed their notice of appeal with the United States Court of Appeals for the Eighth Circuit. On July 22, 2016, the United States Court of Appeals for the Eighth Circuit affirmed the dismissal of the consolidated derivative proceedings in Arkansas. There was no appeal from that ruling. On May 13, 2016, the Delaware Court of Chancery granted the defendants' motion to dismiss the consolidated derivative proceedings in that court. On June 10, 2016, plaintiffs in the Delaware consolidated derivative proceedings filed their notice of appeal to the Delaware Supreme Court. On January 25, 2018, the Delaware Supreme Court affirmed the dismissal of the consolidated derivative proceedings in Delaware. On June 21, 2018, plaintiff's petitioned the U.S. Supreme Court to review this decision. On October 1, 2018, the U.S. Supreme Court denied the Delaware plaintiffs’ petition to review the dismissal of their suits.
Management does not believe any possible loss or the range of any possible loss that may be incurred in connection with these proceedings will be material to the Company's business, financial position, results of operations or cash flows.
Securities Class Action: City of Pontiac General Employees Retirement System v. Wal-Mart Stores, Inc., USDC, Western Dist. of AR; 5/7/12.
Derivative Lawsuits: In re Wal-Mart Stores, Inc. Delaware Derivative Litigation, Delaware Ct. of Chancery, 4/25/12; Delaware Supreme Court, Dover, DE, 6/10/16.

35

Table of Contents

III. ENVIRONMENTAL MATTERS: Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters. The following matters are disclosed in accordance with that requirement. For the matters listed below, management does not believe any possible loss or the range of any possible loss that may be incurred in connection with each matter, individually or in the aggregate, will be material to the Company's financial condition or results of operations.
On September 19, 2018 the United States Environmental Protection Agency - Region 6 (“EPA”) notified the Company that it had initiated an administrative penalty action by issuing a Draft Consent Agreement and Final Order (Docket No. FIFRA-06-2018-0302). The letter accompanying the Draft Consent Agreement and Final Order alleges that the Company distributed and/or sold three unregistered pesticide products from March 1, 2017 through June 23, 2017. The EPA is seeking a penalty of $960,000. The manufacturer of the product is responsible for ensuring that a FIFRA-regulated product is properly registered prior to its sale and the Company is cooperating with the EPA.
On January 25, 2018, the Environmental Prosecutor of the State of Chiapas (Procuraduría Ambiental del Estado de Chiapas) in Mexico imposed a fine of $163,000 for the absence of an Environmental Impact Authorization License related to the store Mi Bodega Las Rosas. The Company is challenging the fine.
In April 2017, the California Air Resources Board ("ARB") notified the Company that it had taken the position that retailers are required to use unclaimed deposits collected on sales of small containers of automotive refrigerant to fund certain consumer education programs. The ARB alleged that the Company had improperly retained approximately $4.2 million in unclaimed deposits and has sought reimbursement. The Company has denied any wrongdoing.
In April 2013, a subsidiary of the Company, Corporacion de Compañias Agroindustriales, operating in Costa Rica, became aware that the Municipality of Curridabat is seeking a penalty of approximately $380,000 in connection with the construction of a retaining wall for a perishables distribution center that is situated along a protected river bank. The subsidiary obtained permits from the Municipality and the Secretaria Técnica Nacional Ambiental at the time of construction, but the Municipality now alleges that the wall is non-conforming.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, which risks could materially and adversely affect our business, results of operations, financial condition, and liquidity. No material change in the risk factors discussed in such Form 10-K has occurred. Such risk factors do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. All repurchases made during the three and nine months ended October 31, 2018, were made under the plan in effect at the beginning of the fiscal year. The current $20.0 billion share repurchase program approved in October 2017 has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. As of October 31, 2018, authorization for $14.6 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 regularly reviews its share repurchase activity and 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. Share repurchase activity under our share repurchase program, on a trade date basis, for the three months ended October 31, 2018, was as follows:
Fiscal Period
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar 
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs(1)
(billions)
August 1 - 31, 2018
 
7,878,692

 
$
93.08

 
7,878,692

 
$
16.2

September 1 - 30, 2018
 
7,628,353

 
95.58

 
7,628,353

 
15.5

October 1 - 31, 2018
 
8,895,420

 
96.38

 
8,895,420

 
14.6

Total
 
24,402,465

 
 
 
24,402,465

 
 
(1) Represents approximate dollar value of shares that could have been purchased under the plan in effect at the end of the month.

36

Table of Contents

Item 5. Other Information
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that Walmart believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act.
Forward-looking Statements
The forward-looking statements in this report include:
•
statements in Note 1 to Walmart's Condensed Consolidated Financial Statements as of and for the three and nine months ended October 31, 2018, regarding management's expectations regarding or estimates of the amount of, or determinations regarding the materiality of the impact of, certain ASUs issued by the FASB; statements in Note 6 to those Condensed Consolidated Financial Statements regarding the expected insignificance of any ineffective portion of certain net investment and cash flow derivative financial instruments to which Walmart is a party and of the amounts relating to such derivative financial instruments expected to be reclassified from accumulated other comprehensive loss to net income in the next 12 months; a statement in Note 8 to those Condensed Consolidated Financial Statements regarding the payment of dividends in fiscal 2019; statements in Note 9 to those Condensed Consolidated Financial Statements regarding the possible outcome of, and future effect on Walmart's financial condition and results of operations of, certain litigation and other proceedings to which Walmart is a party, the possible outcome of, and future effect on Walmart's business of, certain other matters to which Walmart is subject, including Walmart's existing FCPA matters, the National Opiate Litigation and related matters, and the liabilities, losses, expenses and costs that Walmart may incur in connection with such matters; and statements in Note 10 to the anticipated impact to the operations of the Company and its Walmart International segment of the Walmart Brazil, Flipkart and Asda transactions;
•
in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations": statements under the caption "Overview" relating to the possible impact of volatility in currency exchange rates on the results, including net sales and operating income, of Walmart and the Walmart International segment; statements regarding the provisional allocation of the purchase price for Flipkart and the negative impact of such acquisition on fiscal 2019 and 2020 net income; statements under the caption "Company Performance Metrics - Strong, Efficient Growth" regarding the focus of our investments and the impact of such investments; statements under the caption "Company Performance Metrics", and the "- Returns" sub-heading under that caption, regarding our belief that returns on capital will improve as we execute on our strategic framework; statements under the caption "Results of Operations - Consolidated Results of Operations" regarding the possibility of fluctuations in Walmart's effective income tax rate from quarter to quarter and the factors that may cause those fluctuations; a statement under the caption "Results of Operations - Sam's Club Segment" relating to the possible continuing impact of volatility in fuel prices on the future operating results of the Sam's Club segment; a statement under the caption "Liquidity and Capital Resources - Liquidity" that Walmart's sources of liquidity will be adequate to fund its operations, finance its global investment and expansion activities, pay dividends and fund share repurchases; statements under the caption "Liquidity and Capital Resources - Liquidity - Net Cash Provided by Operating Activities - Cash Equivalents and Working Capital" regarding management's expectation that cash in market will be utilized to fund Flipkart's operations; a statement under the caption "Liquidity and Capital Resources Liquidity - Net Cash Provided By or Used in Financing Activities - Dividends" regarding the payment of dividends in fiscal 2019; and statements under the caption "Liquidity and Capital Resources - Capital Resources" regarding management's expectations regarding the Company's cash flows from operations, current cash position and access to capital markets continuing to be sufficient to meet its anticipated operating cash needs, the Company's commercial paper and long-term debt ratings continuing to enable it to refinance its debts at favorable rates, factors that could affect its credit ratings, and the effect that lower credit ratings would have on its access to capital and credit markets and borrowing costs;
•
in Part I, Item 4 "Controls and Procedures": the statements regarding the effect of changes to systems and processes on our internal control over financial reporting; and
•
statements in Part II, Item 1 "Legal Proceedings" regarding the effect that possible losses or the range of possible losses that might be incurred in connection with the legal proceedings and other matters discussed therein may have on our financial condition or results of operations.

37

Table of Contents

Risks, Factors and Uncertainties Regarding our Business
These forward-looking statements are subject to risks, uncertainties and other factors, domestically and internationally, including:
Economic Factors
•
economic, geo-political, capital markets and business conditions, trends and events around the world and in the markets in which Walmart operates;
•
currency exchange rate fluctuations;
•
changes in market rates of interest;
•
changes in market levels of wages;
•
changes in the size of various markets, including eCommerce markets;
•
unemployment levels;
•
inflation or deflation, generally and in certain product categories;
•
transportation, energy and utility costs;
•
commodity prices, including the prices of oil and natural gas;
•
consumer confidence, disposable income, credit availability, spending levels, shopping patterns, debt levels, and demand for certain merchandise;
•
trends in consumer shopping habits around the world and in the markets in which Walmart operates;
•
consumer enrollment in health and drug insurance programs and such programs' reimbursement rates and drug formularies; and
•
initiatives of competitors, competitors' entry into and expansion in Walmart's markets, and competitive pressures;
Operating Factors
•
the amount of Walmart's net sales and operating expenses denominated in U.S. dollar and various foreign currencies;
•
the financial performance of Walmart and each of its segments, including the amounts of Walmart's cash flow during various periods;
•
Walmart's need to repatriate earnings held outside of the United States and changes in U.S. and international tax regulations;
•
customer traffic and average ticket in Walmart's stores and clubs and on its eCommerce platforms;
•
the mix of merchandise Walmart sells and its customers purchase;
•
the availability of goods from suppliers and the cost of goods acquired from suppliers;
•
the effectiveness of the implementation and operation of Walmart's strategies, plans, programs and initiatives;
•
the impact of acquisitions, divestitures, store or club closures, and other strategic decisions;
•
Walmart's ability to successfully integrate acquired businesses, including within the eCommerce space;
•
unexpected changes in Walmart's objectives and plans;
•
the amount of shrinkage Walmart experiences;
•
consumer acceptance of and response to Walmart's stores and clubs, eCommerce platforms and merchandise offerings, including the Walmart U.S. segment's Grocery Pickup program;
•
new methods of delivery of purchased merchandise to customers;
•
Walmart's gross profit margins, including pharmacy margins and margins of other product categories;
•
the selling prices of gasoline and diesel fuel;
•
disruption of seasonal buying patterns in Walmart's markets;
•
Walmart's expenditures for FCPA and other compliance-related costs, including the adequacy of our accrual for the FCPA matter;
•
disruptions in Walmart's supply chain;
•
cybersecurity events affecting Walmart and related costs and impact of any disruption in business;
•
Walmart's labor costs, including healthcare and other benefit costs;
•
Walmart's casualty and accident-related costs and insurance costs;
•
the size of and turnover in Walmart's workforce and the number of associates at various pay levels within that workforce;
•
the availability of necessary personnel to staff Walmart's stores, clubs and other facilities;
•
delays in the opening of new, expanded or relocated units;
•
developments in, and the outcome of, legal and regulatory proceedings and investigations to which Walmart is a party or is subject, and the liabilities, obligations and expenses, if any, that Walmart may incur in connection therewith;
•
changes in the credit ratings assigned to the Company's commercial paper and debt securities by credit rating agencies;
•
Walmart's effective tax rate; and
•
unanticipated changes in accounting judgments and estimates;

38

Table of Contents

Regulatory and Other Factors
•
changes in existing, tax, labor and other laws and changes in tax rates, including the enactment of laws and the adoption and interpretation of administrative rules and regulations;
•
the imposition of new taxes on imports, new tariffs and trade restrictions, and changes in existing tariff rates and trade restrictions;
•
adoption or creation of new, and modification of existing, governmental policies, programs, initiatives and actions in the markets in which Walmart operates and elsewhere and actions with respect to such policies, programs and initiatives;
•
changes in currency control laws;
•
changes in the level of public assistance payments;
•
the timing of federal income tax refunds;
•
natural disasters, public health emergencies, civil disturbances, and terrorist attacks; and
•
changes in generally accepted accounting principles in the United States.
Other Risk Factors; No Duty to Update
This Quarterly Report on Form 10-Q should be read in conjunction with Walmart's Annual Report on Form 10-K for the fiscal year ended January 31, 2018 and all of Walmart's subsequent other filings, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, made with the SEC. Walmart urges the reader to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. The Company cannot assure you that the results or developments anticipated by the Company and reflected or implied by any forward-looking statement contained in this Quarterly Report on Form 10-Q will be realized or, even if substantially realized, that those results or developments will result in the forecasted or expected consequences for the Company or affect the Company, its operations or its financial performance as the Company has forecasted or expected. As a result of the matters discussed above and other matters, including changes in facts, assumptions not being realized or other factors, the actual results relating to the subject matter of any forward-looking statement in this Quarterly Report on Form 10-Q may differ materially from the anticipated results expressed or implied in that forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and Walmart undertakes no obligation to update any such statements to reflect subsequent events or circumstances.

39

Table of Contents

Item 6. Exhibits
The following documents are filed as an exhibit to this Quarterly Report on Form 10-Q:
Exhibit 3.1
 

 
 
 
Exhibit 3.2
 
 
 
Exhibit 31.1*
 
 
 
Exhibit 31.2*
 
 
 
Exhibit 32.1**
 
 
 
Exhibit 32.2**
 
 
 
Exhibit 99.1
 
 
 
 
Exhibit 99.2*
 
 
 
Exhibit 101.INS*
 
XBRL Instance Document
 
 
Exhibit 101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
 
Exhibit 101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
Exhibit 101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
Exhibit 101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
Exhibit 101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Filed herewith as an Exhibit.
**
Furnished herewith as an Exhibit.


40

Table of Contents


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
WALMART INC.

Date: November 30, 2018
By:
 
/s/ C. Douglas McMillon
 
 
 
C. Douglas McMillon
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
Date: November 30, 2018
By:
 
/s/ M. Brett Biggs
 
 
 
M. Brett Biggs
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
Date: November 30, 2018
By:
 
/s/ David M. Chojnowski
 
 
 
David M. Chojnowski
Senior Vice President and Controller
(Principal Accounting Officer)


41