10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended October 31, 2015.
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from              to             .
Commission file number 1-6991
WAL-MART STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
71-0415188
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
702 S.W. 8th Street
Bentonville, Arkansas
 
72716
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (479) 273-4000
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
o
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
 
o
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  ý
The registrant had 3,201,893,234 shares of common stock outstanding as of November 30, 2015.


Table of Contents

Wal-Mart Stores, Inc.
Form 10-Q
For the Quarterly Period Ended October 31, 2015



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
 
Net sales
 
$
116,598

 
$
118,076

 
$
349,930

 
$
351,579

Membership and other income
 
810

 
925

 
2,533

 
2,507

Total revenues
 
117,408

 
119,001

 
352,463

 
354,086

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
87,446

 
89,247

 
263,985

 
265,971

Operating, selling, general and administrative expenses
 
24,248

 
23,489

 
71,015

 
68,917

Operating income
 
5,714

 
6,265

 
17,463

 
19,198

Interest:
 
 
 
 
 
 
 
 
Debt
 
509

 
561

 
1,555

 
1,601

Capital lease and financing obligations
 
64

 
115

 
428

 
237

Interest income
 
(21
)
 
(20
)
 
(64
)
 
(76
)
Interest, net
 
552

 
656

 
1,919

 
1,762

Income from continuing operations before income taxes
 
5,162

 
5,609

 
15,544

 
17,436

Provision for income taxes
 
1,748

 
1,783

 
5,212

 
5,810

Income from continuing operations
 
3,414

 
3,826

 
10,332

 
11,626

Income from discontinued operations, net of income taxes
 
—

 
—

 
—

 
285

Consolidated net income
 
3,414

 
3,826

 
10,332

 
11,911

Consolidated net income attributable to noncontrolling interest
 
(110
)
 
(115
)
 
(212
)
 
(514
)
Consolidated net income attributable to Walmart
 
$
3,304

 
$
3,711

 
$
10,120

 
$
11,397

 
 
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 
 
 
 
 
 
Basic income per common share from continuing operations attributable to Walmart
 
$
1.03

 
$
1.15

 
$
3.14

 
$
3.47

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

 
—

 
—

 
0.06

Basic net income per common share attributable to Walmart
 
$
1.03

 
$
1.15

 
$
3.14

 
$
3.53

 
 
 
 
 
 
 
 
 
Diluted net income per common share:
 
 
 
 
 
 
 
 
Diluted income per common share from continuing operations attributable to Walmart
 
$
1.03

 
$
1.15

 
$
3.13

 
$
3.46

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

 
—

 
—

 
0.05

Diluted net income per common share attributable to Walmart
 
$
1.03

 
$
1.15

 
$
3.13

 
$
3.51

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
3,210

 
3,229

 
3,221

 
3,231

Diluted
 
3,219

 
3,240

 
3,231

 
3,243

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
—

 
$
—

 
$
1.96

 
$
1.92

See accompanying notes.

3

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
2015
 
2014
 
2015
 
2014
Consolidated net income
$
3,414

 
$
3,826

 
$
10,332

 
$
11,911

Less consolidated net income attributable to nonredeemable noncontrolling interest
(110
)
 
(115
)
 
(212
)
 
(514
)
Consolidated net income attributable to Walmart
3,304

 
3,711

 
10,120

 
11,397

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of income taxes
 
 
 
 
 
 
 
Currency translation and other
(2,694
)
 
(2,509
)
 
(3,941
)
 
(1,429
)
Net investment hedges
182

 
169

 
101

 
101

Cash flow hedges
(56
)
 
(161
)
 
(75
)
 
(165
)
Minimum pension liability
(1
)
 
10

 
73

 
16

Other comprehensive income (loss), net of income taxes
(2,569
)
 
(2,491
)
 
(3,842
)
 
(1,477
)
Less other comprehensive income (loss) attributable to nonredeemable noncontrolling interest
298

 
197

 
351

 
222

Other comprehensive income (loss) attributable to Walmart
(2,271
)
 
(2,294
)
 
(3,491
)
 
(1,255
)
 
 
 
 
 
 
 
 
Comprehensive income, net of income taxes
845

 
1,335

 
6,490

 
10,434

Less comprehensive income (loss) attributable to nonredeemable noncontrolling interest
188

 
82

 
139

 
(292
)
Comprehensive income attributable to Walmart
$
1,033

 
$
1,417

 
$
6,629

 
$
10,142

See accompanying notes.

4

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
October 31,
 
January 31,
 
October 31,
(Amounts in millions)
 
2015
 
2015
 
2014
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,990

 
$
9,135

 
$
6,718

Receivables, net
 
5,012

 
6,778

 
6,091

Inventories
 
50,706

 
45,141

 
51,501

Prepaid expenses and other
 
2,404

 
2,224

 
1,531

Total current assets
 
65,112

 
63,278

 
65,841

Property and equipment:
 
 
 
 
 
 
Property and equipment
 
176,660

 
177,395

 
177,494

Less accumulated depreciation
 
(65,825
)
 
(63,115
)
 
(62,519
)
Property and equipment, net
 
110,835

 
114,280

 
114,975

Property under capital lease and financing obligations:
 
 
 
 
 
 
Property under capital lease and financing obligations
 
10,948

 
5,239

 
5,632

Less accumulated amortization
 
(4,827
)
 
(2,864
)
 
(3,115
)
Property under capital lease and financing obligations, net
 
6,121

 
2,375

 
2,517

 
 
 
 
 
 
 
Goodwill
 
17,051

 
18,102

 
18,888

Other assets and deferred charges
 
6,025

 
5,455

 
5,447

Total assets
 
$
205,144

 
$
203,490

 
$
207,668

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term borrowings
 
$
4,960

 
$
1,592

 
$
6,019

Accounts payable
 
40,553

 
38,410

 
39,656

Dividends payable
 
1,589

 
—

 
1,553

Accrued liabilities
 
19,499

 
19,152

 
18,773

Accrued income taxes
 
587

 
1,021

 
383

Long-term debt due within one year
 
2,746

 
4,791

 
4,854

Capital lease and financing obligations due within one year
 
558

 
287

 
302

Total current liabilities
 
70,492

 
65,253

 
71,540

 
 
 
 
 
 
 
Long-term debt
 
38,617

 
40,889

 
41,519

Long-term capital lease and financing obligations
 
5,581

 
2,606

 
2,767

Deferred income taxes and other
 
7,824

 
8,805

 
7,789

 
 
 
 
 
 
 
Commitments and contingencies
 

 

 

 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
321

 
323

 
323

Capital in excess of par value
 
2,006

 
2,462

 
2,223

Retained earnings
 
87,903

 
85,777

 
80,814

Accumulated other comprehensive income (loss)
 
(10,659
)
 
(7,168
)
 
(4,251
)
Total Walmart shareholders' equity
 
79,571

 
81,394

 
79,109

Nonredeemable noncontrolling interest
 
3,059

 
4,543

 
4,944

Total equity
 
82,630

 
85,937

 
84,053

Total liabilities and equity
 
$
205,144

 
$
203,490

 
$
207,668

See accompanying notes.

5

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
Accumulated
 
Total
 
 
 
 
 
 
 
 
 
Capital in
 
 
 
Other
 
Walmart
 
Nonredeemable
 
 
(Amounts in millions)
Common Stock
 
Excess of
 
Retained
 
Comprehensive
 
Shareholders'
 
Noncontrolling
 
Total
Shares
 
Amount
 
Par Value
 
Earnings
 
Income (Loss)
 
Equity
 
Interest
 
Equity
Balances as of February 1, 2015
3,228

 
$
323

 
$
2,462

 
$
85,777

 
$
(7,168
)
 
$
81,394

 
$
4,543

 
$
85,937

Consolidated net income
—

 
—

 
—

 
10,120

 
—

 
10,120

 
212

 
10,332

Other comprehensive income, net of income taxes
—

 
—

 
—

 
—

 
(3,491
)
 
(3,491
)
 
(351
)
 
(3,842
)
Cash dividends declared ($1.96 per share)
—

 
—

 
—

 
(6,314
)
 
—

 
(6,314
)
 
—

 
(6,314
)
Purchase of Company stock
(23
)
 
(2
)
 
(46
)
 
(1,672
)
 
—

 
(1,720
)
 
—

 
(1,720
)
Cash dividend declared to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(794
)
 
(794
)
Other
5

 
—

 
(410
)
 
(8
)
 
—

 
(418
)
 
(551
)
 
(969
)
Balances as of October 31, 2015
3,210

 
$
321

 
$
2,006

 
$
87,903

 
$
(10,659
)
 
$
79,571

 
$
3,059

 
$
82,630

See accompanying notes.

6

Table of Contents

Wal-Mart Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended October 31,
(Amounts in millions)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
10,332

 
$
11,911

Income from discontinued operations, net of income taxes
 
—

 
(285
)
Income from continuing operations
 
10,332

 
11,626

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
7,023

 
6,881

Deferred income taxes
 
(987
)
 
(233
)
Other operating activities
 
644

 
592

Changes in certain assets and liabilities, net of effects of acquisitions:
 
 
 
 
Receivables, net
 
783

 
459

Inventories
 
(6,637
)
 
(6,929
)
Accounts payable
 
3,603

 
3,068

Accrued liabilities
 
662

 
583

Accrued income taxes
 
(418
)
 
(577
)
Net cash provided by operating activities
 
15,005

 
15,470

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Payments for property and equipment
 
(8,223
)
 
(8,243
)
Proceeds from the disposal of property and equipment
 
362

 
459

Proceeds from the disposal of certain operations
 
246

 
671

Other investing activities
 
48

 
(44
)
Net cash used in investing activities
 
(7,567
)
 
(7,157
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Net change in short-term borrowings
 
3,537

 
(1,843
)
Proceeds from issuance of long-term debt
 
41

 
5,120

Payments of long-term debt
 
(4,422
)
 
(3,883
)
Dividends paid
 
(4,728
)
 
(4,639
)
Purchase of Company stock
 
(1,720
)
 
(1,015
)
Dividends paid to noncontrolling interest
 
(609
)
 
(401
)
Purchase of noncontrolling interest
 
(890
)
 
(1,804
)
Other financing activities
 
(468
)
 
(393
)
Net cash used in financing activities
 
(9,259
)
 
(8,858
)
 
 
 
 
 
Effect of exchange rates on cash and cash equivalents
 
(324
)
 
(18
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(2,145
)
 
(563
)
Cash and cash equivalents at beginning of year
 
9,135

 
7,281

Cash and cash equivalents at end of period
 
$
6,990

 
$
6,718

See accompanying notes.

7

Table of Contents

Wal-Mart Stores, Inc.
Notes to Condensed Consolidated Financial Statements
Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Wal-Mart Stores, Inc. and its subsidiaries ("Walmart" or the "Company") and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2015. Therefore, the interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K.
The Company's Condensed Consolidated Financial Statements are based on a fiscal year ending on January 31 for the United States ("U.S.") and Canadian operations. The Company consolidates all other operations generally using a one-month lag and based on a calendar year. There were no significant intervening events during the month of October 2015 related to the operations consolidated using a lag that materially affected the Condensed Consolidated Financial Statements.
The Company's business is seasonal to a certain extent due to calendar events and national and religious holidays, as well as weather patterns. Historically, the Company's highest sales volume and operating income have occurred in the fiscal quarter ending January 31.
Certain prior period amounts have been reclassified to conform to the current period's presentation. These reclassifications did not impact the Company's operating income or consolidated net income.
Receivables
Receivables are stated at their carrying values, net of a reserve for doubtful accounts. Receivables consist primarily of amounts due from:
•
insurance companies resulting from pharmacy sales;
•
banks for customer credit and debit cards and electronic bank transfers that take in excess of seven days to process;
•
consumer financing programs in certain international operations;
•
suppliers for marketing or incentive programs; and
•
real estate transactions.
The Walmart International segment offers a limited number of consumer credit products, primarily through its financial institutions in select countries. The receivable balance from consumer credit products was $944 million, net of a reserve for doubtful accounts of $71 million at October 31, 2015, compared to a receivable balance of $1.2 billion, net of a reserve for doubtful accounts of $114 million at January 31, 2015. These balances are included in receivables, net, in the Company's Condensed Consolidated Balance Sheets.
Inventories
The Company values inventories at the lower of cost or market as determined primarily by the retail inventory method of accounting, using the last-in, first-out ("LIFO") method for substantially all of the Walmart U.S. segment's inventories. The inventory at the Walmart International segment is valued primarily by the retail inventory method of accounting, using the first-in, first-out ("FIFO") method. The retail inventory method of accounting results in inventory being valued at the lower of cost or market, since permanent markdowns are immediately recorded as a reduction of the retail value of inventory. The inventory at the Sam's Club segment is valued based on the weighted-average cost using the LIFO method. At October 31, 2015 and January 31, 2015, the Company's inventories valued at LIFO approximated those inventories as if they were valued at FIFO.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016.  The Company will adopt this ASU on February 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. Management is currently evaluating this standard, including which transition approach to use, and does not expect this ASU to materially impact the Company's consolidated net income, financial position or cash flows.

8

Table of Contents

In April 2015, FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost. FASB issued ASU 2015-03 to simplify the presentation of debt issuance costs related to a recognized debt liability to present the debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as a deferred charge on the balance sheet. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted. Management elected to early adopt this new guidance effective for the first quarter of fiscal year 2016, and has applied the changes retrospectively to all periods presented. Adoption of this ASU did not materially impact the Company's consolidated net income, financial position or cash flows.
Note 2. Net Income Per Common Share
Basic income per common share from continuing operations attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period. Diluted income per common share from continuing operations attributable to Walmart is based on the weighted-average common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not have significant share-based awards outstanding that were antidilutive and not included in the calculation of diluted income per common share from continuing operations attributable to Walmart for the three and nine months ended October 31, 2015 and 2014.
The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted income per common share from continuing operations attributable to Walmart:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
3,414

 
$
3,826

 
$
10,332

 
$
11,626

Income from continuing operations attributable to noncontrolling interest
 
(110
)
 
(115
)
 
(212
)
 
(410
)
Income from continuing operations attributable to Walmart
 
$
3,304

 
$
3,711

 
$
10,120

 
$
11,216

 
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding, basic
 
3,210

 
3,229

 
3,221

 
3,231

Dilutive impact of stock options and other share-based awards
 
9

 
11

 
10

 
12

Weighted-average common shares outstanding, diluted
 
3,219

 
3,240

 
3,231

 
3,243


 
 
 
 
 
 
 
 
Income per common share from continuing operations attributable to Walmart
 
 
 
 
 
 
 
 
Basic
 
$
1.03

 
$
1.15

 
$
3.14

 
$
3.47

Diluted
 
1.03

 
1.15

 
3.13

 
3.46


9

Table of Contents

Note 3. Accumulated Other Comprehensive Income (Loss)
The following table provides the changes in the composition of total accumulated other comprehensive income (loss) for the nine months ended October 31, 2015:
(Amounts in millions and net of income taxes)
 
Currency Translation
and Other
 
Net Investment Hedges
 
Cash Flow Hedges
 
Minimum
Pension Liability
 
Total
Balances as of February 1, 2015
 
$
(7,011
)
 
$
656

 
$
(134
)
 
$
(679
)
 
$
(7,168
)
Other comprehensive income (loss) before reclassifications
 
(3,590
)
 
101

 
(104
)
 
81

 
(3,512
)
Amounts reclassified from accumulated other comprehensive income (loss)
 
—

 
—

 
29

 
(8
)
 
21

Balances as of October 31, 2015
 
$
(10,601
)
 
$
757

 
$
(209
)
 
$
(606
)
 
$
(10,659
)
Amounts reclassified from accumulated other comprehensive income (loss) for derivative instruments are recorded in interest, net, in the Company's Condensed Consolidated Statements of Income, and the amounts for the minimum pension liability are recorded in operating, selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Income.
Note 4. Long-term Debt
The following table provides the changes in the Company's long-term debt for the nine months ended October 31, 2015:
(Amounts in millions)
 
Long-term debt due within one year
 
Long-term debt
 
Total
Balances as of February 1, 2015
 
$
4,791

 
$
40,889

 
$
45,680

Proceeds from long-term debt
 
—

 
41

 
41

Repayments of long-term debt
 
(4,422
)
 
—

 
(4,422
)
Reclassifications of long-term debt
 
2,000

 
(2,000
)
 
—

Other
 
377

 
(313
)
 
64

Balances as of October 31, 2015
 
$
2,746

 
$
38,617

 
$
41,363

Issuances
The Company did not have any material long-term debt issuances during the nine months ended October 31, 2015, but received proceeds from a number of small, immaterial long-term debt issuances by several of its non-U.S. operations.
Maturities
During the nine months ended October 31, 2015, the following long-term debt matured and was repaid:
(Amounts in millions)
 
 
 
 
 
 
 
 
Maturity Date
 
Principal Amount
 
Fixed vs. Floating
 
Interest Rate
 
Repayment
April 1, 2015
 
750 USD
 
Fixed
 
2.875%
 
$
750

July 1, 2015
 
750 USD
 
Fixed
 
4.500%
 
750

July 8, 2015
 
750 USD
 
Fixed
 
2.250%
 
750

July 28, 2015
 
30,000 JPY
 
Floating
 
Floating
 
243

July 28, 2015
 
60,000 JPY
 
Fixed
 
0.940%
 
487

October 25, 2015
 
1,250 USD
 
Fixed
 
1.500%
 
1,250

 
 
 
 
 
 
 
 
$
4,230

The Company also repaid other, smaller long-term debt as it matured in several of its non-U.S. operations.


10

Table of Contents

Note 5. Fair Value Measurements
The Company records and discloses certain financial and non-financial assets and liabilities at fair value. The fair value of an asset is the price at which the asset could be sold in an ordinary transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. The fair value of a liability is the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using the fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
•
Level 1: observable inputs such as quoted prices in active markets;
•
Level 2: inputs other than quoted prices in active markets that are either directly or indirectly observable; and
•
Level 3: unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions.
Recurring Fair Value Measurements
The Company holds derivative instruments that are required to be measured at fair value on a recurring basis. The fair values are the estimated amounts the Company would receive or pay upon termination of the related derivative agreements as of the reporting dates. The fair values have been measured using the income approach and Level 2 inputs, which include the relevant interest rate and foreign currency forward curves. As of October 31, 2015 and January 31, 2015, the notional amounts and fair values of these derivatives were as follows:
 
October 31, 2015
 
January 31, 2015
(Amounts in millions)
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Receive fixed-rate, pay variable-rate interest rate swaps designated as fair value hedges
$
5,000

 
$
91

 
$
500

 
$
12

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

 
192

 
1,250

 
207

Receive fixed-rate, pay fixed-rate cross-currency interest rate swaps designated as cash flow hedges
4,294

 
(370
)
 
4,329

 
(317
)
Receive variable-rate, pay fixed-rate interest rate swaps designated as cash flow hedges
—

 
—

 
255

 
(1
)
Total
$
10,544

 
$
(87
)
 
$
6,334

 
$
(99
)
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company did not record any significant impairment charges to assets measured at fair value on a nonrecurring basis during the three and nine months ended October 31, 2015, or for the fiscal year ended January 31, 2015.
Other Fair Value Disclosures
The Company records cash and cash equivalents and short-term borrowings at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company's long-term debt is also recorded at cost. The fair value is estimated using Level 2 inputs based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. The carrying value and fair value of the Company's long-term debt as of October 31, 2015 and January 31, 2015, are as follows: 
 
 
October 31, 2015
 
January 31, 2015
(Amounts in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Long-term debt, including amounts due within one year
 
$
41,363

 
$
47,280

 
$
45,680

 
$
56,237


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Note 6. Derivative Financial Instruments
The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates, as well as to maintain an appropriate mix of fixed- and variable-rate debt. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company's derivative financial instruments is used to measure interest to be paid or received and does not represent the Company's exposure due to credit risk. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty, reviewing credit ratings and requiring collateral (generally cash) from the counterparty when appropriate.
The Company only enters into derivative transactions with counterparties rated "A-" or better by nationally recognized credit rating agencies. Subsequent to entering into derivative transactions, the Company regularly monitors the credit ratings of its counterparties. In connection with various derivative agreements, including master netting arrangements, the Company held cash collateral from counterparties of $341 million and $323 million at October 31, 2015 and January 31, 2015, respectively. The Company records cash collateral received as amounts due to the counterparties exclusive of any derivative asset. Furthermore, as part of the master netting arrangements with these counterparties, the Company is also required to post collateral if the Company's net derivative liability position exceeds $150 million with any counterparty. The Company did not have any cash collateral posted with counterparties at October 31, 2015 or January 31, 2015. The Company records cash collateral it posts with counterparties as amounts receivable from those counterparties exclusive of any derivative liability.
The Company uses derivative financial instruments for the purpose of hedging its exposure to interest and currency exchange rate risks and, accordingly, the contractual terms of a hedged instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative financial instrument is recorded using hedge accounting, depending on the nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. Any hedge ineffectiveness is immediately recognized in earnings. The Company's net investment and cash flow instruments are highly effective hedges and the ineffective portion has not been, and is not expected to be, significant. Instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting, are recorded at fair value with unrealized gains or losses reported in earnings during the period of the change.
Fair Value Instruments
The Company is a party to receive fixed-rate, pay variable-rate interest rate swaps that the Company uses to hedge the fair value of fixed-rate debt. The notional amounts are used to measure interest to be paid or received and do not represent the Company's exposure due to credit loss. The Company's interest rate swaps that receive fixed-interest rate payments and pay variable-interest rate payments are designated as fair value hedges. As the specific terms and notional amounts of the derivative instruments match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges. Changes in the fair values of these derivative instruments are recorded in earnings, but are offset by corresponding changes in the fair values of the hedged items, also recorded in earnings, and, accordingly, do not impact the Company's Condensed Consolidated Statements of Income. These fair value instruments 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 income (loss), offsetting the currency translation adjustment of the related investment that is also recorded in accumulated other comprehensive income (loss). These instruments will mature on dates ranging from October 2023 to February 2030.
The Company has issued foreign-currency-denominated long-term debt as hedges of net investments of certain of its foreign operations. These foreign-currency-denominated long-term debt issuances are designated and qualify as nonderivative hedging instruments. Accordingly, the foreign currency translation of these debt instruments is recorded in accumulated other comprehensive income (loss), offsetting the foreign currency translation adjustment of the related net investments that is also recorded in accumulated other comprehensive income (loss). At October 31, 2015 and January 31, 2015, the Company had ¥10 billion and ¥100 billion, respectively, of outstanding long-term debt designated as a hedge of its net investment in Japan, as well as outstanding long-term debt of £2.5 billion at October 31, 2015 and January 31, 2015 that was designated as a hedge of its net investment in the United Kingdom. These nonderivative net investment hedges will mature on dates ranging from July 2020 to January 2039.

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Cash Flow Instruments
The Company was a party to receive variable-rate, pay fixed-rate interest rate swaps that matured in July 2015. The Company used these interest rate swaps to hedge the interest rate risk of certain non-U.S. denominated debt. The swaps were designated as cash flow hedges of interest expense risk. Amounts reported in accumulated other comprehensive income (loss) related to these derivatives were reclassified from accumulated other comprehensive income (loss) to earnings as interest was expensed for the Company's variable-rate debt, converting the variable-rate interest expense into fixed-rate interest expense.
The Company is also a party to receive fixed-rate, pay fixed-rate cross-currency interest rate swaps to hedge the currency exposure associated with the forecasted payments of principal and interest of certain non-U.S. denominated debt. The swaps are designated as cash flow hedges of the currency risk related to payments on the non-U.S. denominated debt. The effective portion of changes in the fair value of derivatives designated as cash flow hedges of foreign exchange risk is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The hedged items are recognized foreign currency-denominated liabilities that are re-measured at spot exchange rates each period, and the assessment of effectiveness (and measurement of any ineffectiveness) is based on total changes in the related derivative's cash flows. As a result, the amount reclassified into earnings each period includes an amount that offsets the related transaction gain or loss arising from that re-measurement and the adjustment to earnings for the period's allocable portion of the initial spot-forward difference associated with the hedging instrument. These cash flow instruments will mature on dates ranging from April 2022 to March 2034.
Financial Statement Presentation
Although subject to master netting arrangements, the Company does not offset derivative assets and derivative liabilities in its Condensed Consolidated Balance Sheets. Derivative instruments with an unrealized gain are recorded in the Company's Condensed Consolidated Balance Sheets as either current or non-current assets, based on maturity date, and those hedging instruments with an unrealized loss are recorded as either current or non-current liabilities, based on maturity date.
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, 2015
 
January 31, 2015
(Amounts in millions)
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
 
Fair Value
Instruments
 
Net Investment
Instruments
 
Cash Flow
Instruments
Derivative instruments
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Other assets and deferred charges
91

 
192

 
292

 
12

 
207

 
293

Derivative asset subtotals
$
91

 
$
192

 
$
292

 
$
12

 
$
207

 
$
293

 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1

Deferred income taxes and other
—

 
—

 
662

 
—

 
—

 
610

Derivative liability subtotals
$
—

 
$
—

 
$
662

 
$
—

 
$
—

 
$
611

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

 
$
—

 
$
—

 
$
—

 
$
766

 
$
—

Long-term debt
—

 
3,940

 
—

 
—

 
3,850

 
—

Nonderivative hedge liability subtotals
$
—

 
$
3,940

 
$
—

 
$
—

 
$
4,616

 
$
—

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

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Note 7. Share Repurchases
From time to time, the Company repurchases shares of its common stock under share repurchase programs authorized by the Company's Board of Directors. On October 13, 2015, the Board of Directors replaced the previous $15.0 billion share repurchase program, which had approximately $8.6 billion of remaining authorization for share repurchases as of that date, with a new $20.0 billion share repurchase program. All of the share repurchases the Company made in the nine months ended October 31, 2015 were made on the share repurchase program that was replaced on October 13, 2015. As was the case with the replaced share repurchase program, the new share repurchase program has no expiration date or other restrictions limiting the period over which the Company can make share repurchases. At October 31, 2015, authorization for $20.0 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 trade 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, 2015 and 2014:
 
 
Nine Months Ended October 31,
(Amounts in millions, except per share data)
 
2015
 
2014
Total number of shares repurchased
 
23.2

 
13.4

Average price paid per share
 
$
74.20

 
$
75.82

Total amount paid for share repurchases
 
$
1,720

 
$
1,015


Note 8. Common Stock Dividends
Dividends Declared
On February 19, 2015, the Board of Directors approved the fiscal 2016 annual dividend at $1.96 per share, an increase from the fiscal 2015 dividend of $1.92 per share. For fiscal 2016, the annual dividend will be paid in four quarterly installments of $0.49 per share, according to the following record and payable dates:
Record Date
  
Payable Date
March 13, 2015
  
April 6, 2015
May 8, 2015
  
June 1, 2015
August 7, 2015
  
September 8, 2015
December 4, 2015
  
January 4, 2016

The dividend installments payable on April 6, 2015, June 1, 2015 and September 8, 2015, were paid as scheduled.


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Note 9. Contingencies
Legal Proceedings
The Company is involved in a number of legal proceedings. The Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company's Condensed Consolidated Financial Statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made. However, where a liability is reasonably possible and may be material, such matters have been disclosed. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company's shareholders.
Unless stated otherwise, the matters, or groups of related matters, discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in a liability material to the Company's financial condition or results of operations.
Wage-and-Hour Class Action: The Company is a defendant in Braun/Hummel v. Wal-Mart Stores, Inc., a class-action lawsuit commenced in March 2002 in the Court of Common Pleas in Philadelphia, Pennsylvania. The plaintiffs allege that the Company failed to pay class members for all hours worked and prevented class members from taking their full meal and rest breaks. On October 13, 2006, a jury awarded back-pay damages to the plaintiffs of approximately $78 million on their claims for off-the-clock work and missed rest breaks. The jury found in favor of the Company on the plaintiffs' meal-period claims. On November 14, 2007, the trial judge entered a final judgment in the approximate amount of $188 million, which included the jury's back-pay award plus statutory penalties, prejudgment interest and attorneys' fees. By operation of law, post-judgment interest accrues on the judgment amount at the rate of six percent per annum from the date of entry of the judgment, which was November 14, 2007, until the judgment is paid, unless the judgment is set aside on appeal. On December 7, 2007, the Company filed its Notice of Appeal. On June 10, 2011, the Pennsylvania Superior Court of Appeals issued an opinion upholding the trial court's certification of the class, the jury's back pay award, and the awards of statutory penalties and prejudgment interest, but reversing the award of attorneys' fees. On September 9, 2011, the Company filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court. On July 2, 2012, the Pennsylvania Supreme Court granted the Company's Petition. On December 15, 2014, the Pennsylvania Supreme Court issued its opinion affirming the Superior Court of Appeals' decision. At that time, the Company recorded expenses of $249 million for the judgment amount and post-judgment interest incurred to date. The Company will continue to accrue for the post-judgment interest until final resolution. However, the Company continues to believe it has substantial factual and legal defenses to the claims at issue, and, on March 13, 2015, the Company filed a petition for writ of certiorari with the U.S. Supreme Court. On April 20, 2015, the plaintiffs filed their response in opposition and on May 4, 2015, the Company filed its reply brief.
ASDA Equal Value Claims: ASDA Stores, Ltd. ("ASDA"), a wholly-owned subsidiary of the Company, is a defendant in over 6,000 "equal value" claims that are proceeding before an Employment Tribunal in Manchester (the "Employment Tribunal") in the United Kingdom ("UK") on behalf of current and former ASDA store employees, who allege that the work performed by female employees in ASDA's retail stores is of equal value in terms of, among other things, the demands of their jobs to that of male employees working in ASDA's warehouse and distribution facilities, and that the disparity in pay between these different job positions is not objectively justified. Claimants are requesting differential back pay based on higher wage rates in the warehouse and distribution facilities and those higher wage rates on a prospective basis as part of these equal value proceedings. ASDA believes that further claims may be asserted in the near future. On March 23, 2015, ASDA asked the Employment Tribunal to stay all proceedings, contending that the High Court, which is the superior first instance civil court in the UK that is headquartered in the Royal Courts of Justice in the City of London, is the more convenient and appropriate forum to hear these claims. On March 23, 2015, ASDA also asked the Employment Tribunal to "strike out" substantially all of the claims for failing to comply with Employment Tribunal rules. On July 23, 2015, the Employment Tribunal denied ASDA's requests to stay all proceedings and to "strike out" substantially all of the claims. On September 2, 2015, ASDA filed a Notice of Appeal with the Employment Appeal Tribunal seeking to appeal both rulings. On October 14, 2015, the Employment Appeal Tribunal denied ASDA's requests for an appeal. 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.

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Table of Contents

FCPA Investigation and Related Matters
The Audit Committee (the "Audit Committee") of the Board of Directors of the Company, which is composed solely of independent directors, is conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act ("FCPA") and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. ("Walmex"), and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company. The Audit Committee and the Company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters.
The Company is also conducting a voluntary global review of its policies, practices and internal controls for FCPA compliance. The Company is engaged in strengthening its global anti-corruption compliance program through appropriate remedial anti-corruption measures.  In November 2011, the Company voluntarily disclosed that investigative activity to the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC"). Since the implementation of the global review and the enhanced anti-corruption compliance program, the Audit Committee and the Company have identified or been made aware of additional allegations regarding potential violations of the FCPA. When such allegations are reported or identified, the Audit Committee and the Company, together with their third party advisors, conduct inquiries and when warranted based on those inquiries, open investigations. Inquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where the Company operates, including, but not limited to, Brazil, China and India.
The Company has been informed by the DOJ and the SEC that it is also the subject of their respective investigations into possible violations of the FCPA. The Company is cooperating with the investigations by the DOJ and the SEC. A number of federal and local government agencies in Mexico have also initiated investigations of these matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation have been filed by several of the Company's shareholders against it, certain of its current directors, certain of its former directors, certain of its current and former officers and certain of Walmex's current and former officers.
The Company could be exposed to a variety of negative consequences as a result of the matters noted above. There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the on-going government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties. The shareholder lawsuits may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review. In addition, the Company 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, 2015 and 2014, 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)
 
2015
 
2014
 
2015
 
2014
Ongoing inquiries and investigations
 
$
22

 
$
30

 
$
70

 
$
95

Global compliance program and organizational enhancements
 
8

 
11

 
23

 
42

Total
 
$
30

 
$
41

 
$
93

 
$
137

These matters may require the involvement of certain members of the Company's senior management that could impinge on the time they have available to devote to other matters relating to the business. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company's role as a corporate citizen.    
The Company's process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. While the Company believes that it is probable that it will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, the Company cannot reasonably estimate any loss or range of loss that may arise from these matters. Although the Company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the Company can provide no assurance that these matters will not be material to its business in the future.

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Table of Contents

Note 10. Acquisitions, Disposals and Related Items
During the nine months ended October 31, 2015, the Company completed the following transaction that impacts the operations of Walmart International:
Yihaodian
In July 2015, the Company completed the purchase of all of the remaining noncontrolling interest in Yihaodian, our e-commerce operations in China, for approximately $760 million, using existing cash to complete this transaction.
In fiscal 2015, the Company completed the following transactions that impact the operations of Walmart International:
Walmart Chile
In fiscal 2014, the redeemable noncontrolling interest shareholders exercised put options that required the Company to purchase their shares in Walmart Chile. In February 2014, the Company completed this transaction for approximately $1.5 billion using existing cash of the Company, increasing its ownership interest in Walmart Chile to 99.7 percent. In March 2014, the Company completed a tender offer for most of the remaining noncontrolling interest shares at the same value per share as was paid to the redeemable noncontrolling interest shareholders. As a result of completing these transactions, the Company owns substantially all of Walmart Chile.
Vips Restaurant Business in Mexico
In fiscal 2014, Walmex, a majority-owned subsidiary of the Company, entered into a definitive agreement with Alsea S.A.B. de C.V. to sell the Vips restaurant business ("Vips") in Mexico. The sale of Vips was completed on May 12, 2014. The Company received $671 million of cash and recognized a net gain of $262 million in discontinued operations at the time of the sale.

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Table of Contents

Note 11. Segments
The Company is engaged in retail and wholesale operations located in the U.S., Argentina, Brazil, Canada, Chile, China, India, Japan, Mexico and the United Kingdom, as well as countries located in Africa and Central America. The Company's operations are conducted in three business segments: Walmart U.S., Walmart International and Sam's Club. The Company defines its segments as those operations whose results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The Company sells similar individual products and services in each of its segments. It is impractical to segregate and identify revenues for each of these individual products and services.
The Walmart U.S. segment includes the Company's mass merchant concept in the U.S. operating under the "Walmart" or "Wal-Mart" brands, as well as walmart.com. The Walmart International segment consists of the Company's operations outside of the U.S., including various retail websites. The Sam's Club segment includes the warehouse membership clubs in the U.S., as well as samsclub.com. Corporate and support consists of corporate overhead and other items not allocated to any of the Company's segments.
The Company measures the results of its segments using, among other measures, each segment's net sales and operating income, which includes certain corporate overhead allocations. From time to time, the Company revises the measurement of each segment's operating income, including any corporate overhead allocations, as determined by the information regularly reviewed by its CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.
Net sales by segment are as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
 
2015
 
2014
 
2015
 
2014
Net sales:
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
72,712

 
$
70,025

 
$
216,916

 
$
208,478

Walmart International
 
29,811

 
33,659

 
90,726

 
99,955

Sam's Club
 
14,075

 
14,392

 
42,288

 
43,146

Net sales
 
$
116,598

 
$
118,076

 
$
349,930

 
$
351,579

Operating income by segment, as well as operating loss for corporate and support, and interest, net, are as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions)
 
2015
 
2014
 
2015
 
2014
Operating income (loss):
 
 
 
 
 
 
 
 
Walmart U.S.
 
$
4,506

 
$
4,932

 
$
13,964

 
$
15,159

Walmart International
 
1,338

 
1,430

 
3,685

 
4,121

Sam's Club
 
539

 
493

 
1,394

 
1,466

Corporate and support
 
(669
)
 
(590
)
 
(1,580
)
 
(1,548
)
Operating income
 
5,714

 
6,265

 
17,463

 
19,198

Interest, net
 
552

 
656

 
1,919

 
1,762

Income from continuing operations before income taxes
 
$
5,162

 
$
5,609

 
$
15,544

 
$
17,436


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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Wal-Mart Stores, Inc. ("Walmart," the "Company" or "we") is engaged in retail and wholesale operations in various formats around the world. Through our operations, we help people around the world save money and live better – anytime and anywhere – in retail stores or through our e-commerce and mobile capabilities. Through innovation, we are striving to create a customer-centric experience that seamlessly integrates digital and physical shopping. Physical retail encompasses our brick and mortar presence in each of the markets in which we operate. Digital retail is comprised of our e-commerce websites and mobile commerce applications. Each week, we serve nearly 260 million customers who visit our over 11,000 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. Our strategy is to lead on price, invest to differentiate on access, be competitive on assortment and deliver a great experience. By leading on price we earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices ("EDLP"), while fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our pricing philosophy under which we price items at a low price every day so 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 those cost savings can be passed along to our customers. Our digital and physical presence, which we are investing in to integrate, provides customers access to our broad assortment anytime and anywhere. We strive to give our customers and members a great digital and physical shopping experience.
Our operations consist of three reportable segments: Walmart U.S., Walmart International and Sam's Club.
•
Walmart U.S. is our largest segment with three primary store formats, as well as digital retail. Of our three 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 operations outside of the U.S. and includes retail, wholesale and other businesses. These businesses consist of numerous formats, including supercenters, supermarkets, hypermarkets, warehouse clubs, including Sam's Clubs, cash & carry, home improvement, specialty electronics, restaurants, apparel stores, drug stores and convenience stores, as well as digital retail. The overall gross profit rate for Walmart International is lower than that of Walmart U.S. because of its merchandise mix. Walmart International is our second largest segment and has grown through acquisitions, as well as by adding retail, wholesale and other units, and expanding digital retail.
•
Sam's Club consists of membership-only warehouse clubs as well as digital retail. As a membership-only warehouse club, membership income is a significant component of the segment's operating income. Sam's Club operates with a lower gross profit rate and lower operating expenses as a percentage of net sales than our other segments.
Each of our segments contributes to the Company's operating results differently, but each has generally maintained a consistent contribution rate to the Company's net sales and operating income in recent years.
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.
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Additionally, the discussion provides information about the financial results of the three segments of our business to provide a better understanding of how each of those segments and its results of operations affect the financial condition and results of operations of the Company as a whole.

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As previously disclosed in our Form 10-Q for the quarter ended July 31, 2015 filed on September 9, 2015, we engaged in a review of the accounting treatment of leases. As part of that global review, we assessed our historical application of Accounting Standards Codification 840, Leases, ("ASC 840") regarding lessee involvement in the construction of leased assets, and identified immaterial errors in our accounting for these leases. These immaterial errors resulted from the failure to appropriately interpret and apply ASC 840 with respect to lessee involvement in the construction of leased assets. In a number of our leases, payments we have made for certain structural components included in the lessor's construction of the leased assets result in the Company being deemed the owner of the leased assets for accounting purposes. As a result, regardless of the significance of the payments, ASC 840 defines those payments as automatic indicators of ownership and requires us to capitalize the lessor's total project cost on the balance sheet with a corresponding financing obligation. Generally, in these situations, we have not historically accounted for the total project costs of the lessor as owned assets. Additionally, upon completion of the lessor's project, we must perform a sale-leaseback analysis pursuant to ASC 840 to determine if we can derecognize these assets and the related financing obligation from our balance sheet. In a substantial number of our leases, due to many of the same factors that require us to account for the total project costs as owned assets during the construction period (for example, a portion of the construction costs is reimbursed to us via lowered rental payments), we are deemed to have "continuing involvement," which precludes us from derecognizing these leased assets when construction is complete. In such cases, the leased assets and the related financing obligation remain on the balance sheet and are amortized over the lease term.
Upon conclusion of the global review, we recorded an immaterial cumulative adjustment for all affected leases resulting in a $1.7 billion increase to total consolidated assets, primarily property under capital leases and financing obligations, a $1.6 billion increase to total consolidated liabilities, primarily current and long-term capital lease and financing obligations, and an approximately $100 million increase to consolidated net income attributable to Walmart. This adjustment had no impact on the net increase or decrease in cash and cash equivalents. We determined that the impact of this correction was not material to any of the prior years' financial statements or to any period presented herein and accordingly, recorded the cumulative adjustment in the fiscal quarter ended October 31, 2015.
This discussion, which presents our results for periods occurring in the fiscal years ended January 31, 2016 ("fiscal 2016") and January 31, 2015 ("fiscal 2015"), should be read in conjunction with our Condensed Consolidated Financial Statements as of October 31, 2015, and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of January 31, 2015, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report to Shareholders for the year ended January 31, 2015, and incorporated by reference in, and included as Exhibit 13 to, our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.
Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss segment operating income, comparable store and club sales and other measures. Management measures the results of the Company's segments using each segment's operating income, including certain corporate overhead allocations, as well as other measures. From time to time, we revise the measurement of each segment's operating income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by our chief operating decision maker. When we do so, the previous period amounts and balances are reclassified to conform to the current period's presentation.
Comparable store and club sales is a metric that indicates the performance of our existing U.S. stores and clubs by measuring the change in sales for such stores and clubs, including e-commerce sales, for a particular period from the corresponding period in the previous year. Walmart's definition of comparable store and club sales includes sales from stores and clubs open for the previous 12 months, including remodels, relocations, expansions and conversions, as well as e-commerce sales. We measure the e-commerce sales impact by including those sales initiated through our websites and fulfilled through our e-commerce distribution facilities, as well as an estimate for sales initiated online, but fulfilled through our stores and clubs. Sales of a store that has changed in format are excluded from comparable store and club 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. Comparable store and club sales are also referred to as "same-store" sales by others within the retail industry. The method of calculating comparable store and club sales varies across the retail industry. As a result, our calculation of comparable store and club sales is not necessarily comparable to similarly titled measures reported by other companies.
In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. dollar. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current period's currency exchange rates, and the comparable prior year period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company and the Walmart International segment in the future.
We made certain reclassifications to prior period amounts or balances to conform to the presentation in the current fiscal year. These reclassifications did not impact the Company's operating income or consolidated net income.

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Company Performance Metrics
We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs.  At times, we adjust our business strategies to ensure we maintain our strong leadership position around the world and in the countries in which we operate.  For several years, our performance metrics have emphasized three financial priorities:  growth, leverage and returns.  We are currently making strategic investments in our associates and in the integration of digital and physical retail.  These investments support long-term growth while we maintain our heritage of everyday low prices which are supported by everyday low cost.  During this time of increased investments, we have shifted our financial priorities to focus primarily on growth, balanced by returns.  We will continue to grow through new stores and clubs, and through increasing comparable store and club sales, which include our e-commerce sales.  While leverage remains important to everyday low cost, during this time of increased investments, operating expenses may grow greater than or equal to our sales growth, and operating income may grow equal to or less than sales growth.
Our objective of balancing growth with returns means that we are focused on efficiently employing assets for return on investment and more effectively managing working capital to deliver strong free cash flow. We will also continue to provide returns to our shareholders through share repurchases and dividends.

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Growth
We measure growth primarily by monitoring net sales and comparable store and club sales. We also review the progress of our digital retail investments by measuring the impact e-commerce sales have on our comparable store and club sales. At times, we make strategic investments which are focused on the long-term growth of the Company. These strategic investments may not benefit net sales and comparable store and club sales in the near term.
Net Sales
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
 
2015
 
2014
 
2015
 
2014
(Amounts in millions)
 
Net Sales
 
Percent 
of Total
 
Percent
Change
 
Net Sales
 
Percent 
of Total
 
Net Sales
 
Percent 
of Total
 
Percent
Change
 
Net Sales
 
Percent 
of Total
Walmart U.S.
 
$
72,712

 
62.3
%
 
3.8
 %
 
$
70,025

 
59.3
%
 
$
216,916

 
62.0
%
 
4.0
 %
 
$
208,478

 
59.3
%
Walmart International
 
29,811

 
25.6
%
 
(11.4
)%
 
33,659

 
28.5
%
 
90,726

 
25.9
%
 
(9.2
)%
 
99,955

 
28.4
%
Sam's Club
 
14,075

 
12.1
%
 
(2.2
)%
 
14,392

 
12.2
%
 
42,288

 
12.1
%
 
(2.0
)%
 
43,146

 
12.3
%
Net sales
 
$
116,598

 
100.0
%
 
(1.3
)%
 
$
118,076

 
100.0
%
 
$
349,930

 
100.0
%
 
(0.5
)%
 
$
351,579

 
100.0
%
Our consolidated net sales decreased 1.3% and 0.5% for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. Net sales were negatively impacted by $4.9 billion and $12.3 billion of fluctuations in currency exchange rates and $515 million and $1.6 billion of decreases in fuel sales due to lower fuel prices for the three and nine months ended October 31, 2015, respectively. The negative effect of such factors were offset by 2.2% year-over-year growth in retail square feet, positive comparable sales in the Walmart U.S. segment and higher e-commerce sales across the Company.
Calendar Comparable Store and Club Sales
Comparable store and club sales is a metric which indicates the performance of our existing U.S. stores and clubs by measuring the change in sales for such stores and clubs, including e-commerce sales, for a particular period over the corresponding period in the previous year. The retail industry generally reports comparable store and club sales using the retail calendar (also known as the 4-5-4 calendar). To be consistent with the retail industry, we provide comparable store and club sales using the retail calendar in our quarterly earnings releases. However, when we discuss our comparable store and club sales below, we are referring to our calendar comparable store and club sales calculated using our fiscal calendar. As our fiscal calendar differs from the retail calendar, our calendar comparable store and club sales also differ from the retail calendar comparable store and club sales provided in our quarterly earnings releases. Calendar comparable store and club sales, as well as the impact of fuel, for the three and nine months ended October 31, 2015 and 2014, were as follows:
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015

2014
 
 
With Fuel
 
Fuel Impact
 
With Fuel
 
Fuel Impact
Walmart U.S.
 
1.4
 %
 
0.8
%
 
0.0
 %
 
0.0
 %
 
1.3
 %
 
0.2
%
 
0.0
 %
 
0.0
%
Sam's Club
 
(3.2
)%
 
0.5
%
 
(3.8
)%
 
(0.1
)%
 
(3.2
)%
 
0.0
%
 
(3.8
)%
 
0.0
%
Total U.S.
 
0.6
 %
 
0.7
%
 
(0.7
)%
 
0.0
 %
 
0.5
 %
 
0.1
%
 
(0.7
)%
 
0.0
%

Comparable store and club sales in the U.S., including fuel, increased 0.6% and 0.5% for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. The total U.S. comparable store and club sales were positively impacted by continued traffic improvement and higher e-commerce sales at the Walmart U.S. segment, offset to a significant degree by the negative impact of lower fuel sales due to lower fuel prices at the Sam's Club segment. E-commerce sales positively impacted Walmart U.S. comparable sales approximately 0.1% and 0.2% for the three and nine months ended October 31, 2015, respectively, compared to positive impacts of approximately 0.2% for both the three and nine months ended October 31, 2014. E-commerce sales positively impacted Sam's Club comparable sales approximately 0.6% and 0.5% for the three and nine months ended October 31, 2015, respectively, compared to positive impacts of approximately 0.2% for both the three and nine months ended October 31, 2014.
Strategic Growth Investments
During the nine months ended October 31, 2015, we made capital investments globally of $8.2 billion. These capital investments primarily consisted of payments to add new stores and clubs, remodel existing stores and clubs, construct distribution centers and invest in technology. In addition, we made operational investments of approximately $1.0 billion in e-commerce, compared to approximately $740 million in the same period in the previous fiscal year. We also made operational investments of approximately $1.0 billion in connection with the new associate wage structure and comprehensive associate training and educational programs announced during the nine months ended October 31, 2015.

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Returns
While we are focused primarily on growth, we also place a priority on generating returns to ensure our approach is appropriately balanced. We generate returns by efficiently deploying assets and effectively managing working capital. We monitor these efforts through our return on investment and free cash flow metrics, which we discuss below. In addition, we are focused on providing returns to our shareholders in the form of share repurchases and dividends, which are discussed in the liquidity and capital resources section.
Return on Investment
Management believes return on investment ("ROI") is a meaningful metric to share with investors because it helps investors assess how effectively Walmart is deploying its assets. Trends in ROI can fluctuate over time as management balances long-term potential strategic initiatives with possible short-term impacts.
ROI was 15.9% and 16.4% for the trailing twelve months ended October 31, 2015 and 2014, respectively. The decline in ROI was primarily due to our decrease in operating income, as well as continued capital investments.
We define ROI as adjusted operating income (operating income plus interest income, depreciation and amortization, and rent expense) for the fiscal year or trailing 12 months divided by average invested capital during that period. We consider average invested capital to be the average of our beginning and ending total assets, plus average accumulated depreciation and average accumulated amortization, less average accounts payable and average accrued liabilities for that period, plus a rent factor equal to the rent for the fiscal year or trailing 12 months multiplied by a factor of eight. When we have discontinued operations, we exclude the impact of the discontinued operations.
Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"). For example, we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI. In addition, we include a factor of eight for rent expense that estimates the hypothetical capitalization of our operating leases. We consider return on assets ("ROA") to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of ROI. ROI differs from ROA (which is consolidated income from continuing operations for the period divided by average total assets of continuing operations for the period) because ROI: adjusts operating income to exclude certain expense items and adds interest income; adjusts total assets of continuing operations for the impact of accumulated depreciation and amortization, accounts payable and accrued liabilities; and incorporates a factor of rent to arrive at total invested capital.
Although ROI is a standard financial metric, numerous methods exist for calculating a company's ROI. As a result, the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI. We urge you to understand the methods used by other companies to calculate their ROI before comparing our ROI to that of such other companies.

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The calculation of ROI, along with a reconciliation to the calculation of ROA, the most comparable GAAP financial measure, is as follows:
 
 
For the Trailing Twelve Months Ending October 31,
(Amounts in millions)
 
2015
 
2014
CALCULATION OF RETURN ON INVESTMENT
Numerator
 
 
 
 
Operating income
 
$
25,412

 
$
26,545

+ Interest income
 
101

 
103

+ Depreciation and amortization
 
9,315

 
9,151

+ Rent
 
2,579

 
2,898

= Adjusted operating income
 
$
37,407

 
$
38,697

 
 
 
 
 
Denominator
 
 
 
 
Average total assets of continuing operations(1)
 
$
206,406

 
$
208,481

+ Average accumulated depreciation and amortization(1)
 
68,143

 
62,521

- Average accounts payable(1)
 
40,105

 
39,439

- Average accrued liabilities(1)
 
19,136

 
18,690

+ Rent x 8
 
20,632

 
23,184

= Average invested capital
 
$
235,940

 
$
236,057

Return on investment (ROI)
 
15.9
%
 
16.4
%
 
 
 
 
 
CALCULATION OF RETURN ON ASSETS
Numerator
 
 
 
 
Income from continuing operations
 
$
15,520

 
$
16,170

Denominator
 
 
 
 
Average total assets of continuing operations(1)
 
$
206,406

 
$
208,481

Return on assets (ROA)
 
7.5
%
 
7.8
%
 
 
 
As of October 31,
 
 
2015
 
2014
 
2013
Certain Balance Sheet Data
 
 
 
 
 
 
Total assets of continuing operations
 
$
205,144

 
$
207,668

 
$
209,295

Accumulated depreciation and amortization
 
70,652

 
65,634

 
59,408

Accounts payable
 
40,553

 
39,656

 
39,221

Accrued liabilities
 
19,499

 
18,773

 
18,606

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

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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 income from continuing operations as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.
We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period. We generated free cash flow of $6.8 billion for the nine months ended October 31, 2015, compared to free cash flow of $7.2 billion for the nine months ended October 31, 2014. The decrease in free cash flow was primarily due to lower income from continuing operations offset by the timing of payments.
Walmart's definition of free cash flow is limited in that it does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.
Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method used by Walmart's management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow. We urge you to understand the methods used by other companies to calculate their free cash flow before comparing our free cash flow to that of such other companies.
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)
 
2015
 
2014
Net cash provided by operating activities
 
$
15,005

 
$
15,470

Payments for property and equipment
 
(8,223
)
 
(8,243
)
Free cash flow
 
$
6,782

 
$
7,227

 
 
 
 
 
Net cash used in investing activities(1)
 
$
(7,567
)
 
$
(7,157
)
Net cash used in financing activities
 
(9,259
)
 
(8,858
)
(1) "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow.

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Table of Contents

Results of Operations
Consolidated Results of Operations
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2015
 
2014
 
2015
 
2014
Total revenues
 
$
117,408

 
$
119,001

 
$
352,463

 
$
354,086

Percentage change from comparable period
 
(1.3
)%

2.9
%
 
(0.5
)%
 
2.2
%
Net sales
 
$
116,598

 
$
118,076

 
$
349,930

 
$
351,579

Percentage change from comparable period
 
(1.3
)%

2.8
%
 
(0.5
)%
 
2.1
%
Total U.S. calendar comparable store and club sales increase
 
0.6
 %
 
0.7
%
 
0.5
 %
 
0.1
%
Gross profit margin as a percentage of net sales
 
25.0
 %
 
24.4
%
 
24.6
 %
 
24.4
%
Operating income
 
$
5,714

 
$
6,265

 
$
17,463

 
$
19,198

Operating income as a percentage of net sales
 
4.9
 %
 
5.3
%
 
5.0
 %
 
5.5
%
Income from continuing operations
 
$
3,414

 
$
3,826

 
$
10,332

 
$
11,626

Unit counts at period end
 
11,554


11,156

 
11,554

 
11,156

Retail square feet at period end
 
1,145


1,121

 
1,145

 
1,121

Our total revenues, which are mostly comprised of net sales, but also include membership and other income, decreased 1.3% and 0.5% for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. Net sales decreased 1.3% and 0.5% for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. Net sales were negatively impacted by $4.9 billion and $12.3 billion of fluctuations in currency exchange rates and $515 million and $1.6 billion of decreases in fuel sales due to lower fuel prices for the three and nine months ended October 31, 2015, respectively. The negative effect of such factors on our consolidated net sales was partially offset by the 2.2% year-over-year growth in retail square feet, positive comparable sales in the Walmart U.S. segment and higher e-commerce sales across the Company.
Our gross profit rate increased 58 and 21 basis points for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. Improved margins in food, general merchandise, and consumables in the Walmart U.S. segment positively impacted our gross profit rate. Changes in the merchandise mix in the Walmart International segment and a reduction in low margin fuel sales in the Sam's Club segment also positively impacted our gross profit rate, while continued pharmacy reimbursement pressure at the Walmart U.S. segment negatively impacted our gross profit rate.
For the three and nine months ended October 31, 2015, operating expenses as a percentage of net sales increased 91 and 69 basis points, respectively, when compared to the same periods in the previous fiscal year, primarily due to an increase in wage expense at the Walmart U.S. segment due to the new associate wage structure, increased associate hours to improve the overall customer experience and our continued investments in digital retail and information technology.
As a result of the factors discussed above, operating income decreased $551 million and $1.7 billion for the three and nine months ended October 31, 2015, respectively, compared to the same periods in the previous fiscal year.
Our effective income tax rate was 33.9% and 33.5% for the three and nine months ended October 31, 2015, respectively, compared to 31.8% and 33.3%, respectively, for the same periods in the previous fiscal year. Our effective income tax rate may fluctuate from quarter to quarter as a result of factors including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix of earnings among our U.S. operations and international operations, which are subject to statutory rates that are generally lower than the U.S. statutory rate.
As a result of the factors discussed above, we reported $3.4 billion and $10.3 billion of consolidated income from continuing operations for the three and nine months ended October 31, 2015, respectively, a decrease of $412 million and $1.3 billion, respectively, when compared to the same periods in the previous fiscal year. Diluted income from continuing operations per common share attributable to Walmart ("EPS") was $1.03 and $3.13 for the three and nine months ended October 31, 2015, respectively, a decrease compared to EPS of $1.15 and $3.46 for the three and nine months ended October 31, 2014, respectively.

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Walmart U.S. Segment
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
72,712

 
$
70,025

 
$
216,916

 
$
208,478

Percentage change from comparable period
 
3.8
%

3.4
%
 
4.0
%
 
2.7
%
Calendar comparable store sales increase
 
1.4
%
 
0.8
%
 
1.3
%
 
0.2
%
Operating income
 
$
4,506

 
$
4,932

 
$
13,964

 
$
15,159

Operating income as a percentage of net sales
 
6.2
%
 
7.0
%
 
6.4
%
 
7.3
%
Unit counts at period end
 
4,631


4,344

 
4,631

 
4,344

Retail square feet at period end
 
688


674

 
688

 
674

Net sales for the Walmart U.S. segment increased 3.8% and 4.0% for the three and nine months ended October 31, 2015, respectively, when compared to the same periods in the previous fiscal year. The increases in net sales were primarily due to year-over-year growth in retail square feet of 2.1%, as well as increases in comparable store sales of 1.4% and 1.3% for the three and nine months ended October 31, 2015, respectively. Positive customer traffic and higher e-commerce sales contributed to the increases in comparable store sales in both periods.
Gross profit rate increased 32 basis points for the three months ended October 31, 2015, when compared to the same period in the previous fiscal year, primarily due to improved margin in food, general merchandise, and consumables, partially offset by declines in pharmacy profits as a result of continued pressure on reimbursement levels. Gross profit rate decreased 8 basis points for the nine months ended October 31, 2015, compared to the same periods in the previous fiscal year, primarily due to continued reimbursement pressure within pharmacy and higher overall inventory shrink.
For the three and nine months ended October 31, 2015, operating expenses as a percentage of segment net sales increased 116 and 76 basis points, respectively, when compared to the same periods in the previous fiscal year. The increases were primarily driven by an increase in wage expense due to the new associate wage structure, and increased associate hours and maintenance expenses related to the customer-facing areas of the store to improve the overall customer experience. In addition, increases in store associate incentive expense and our continued investments in digital retail and information technology contributed to the increases in operating expenses as a percentage of segment net sales. The increases in operating expenses as a percentage of segment net sales for the three and nine months ended October 31, 2015 were partially offset by a decrease in health-care expenses due to recent favorable claim activity.
As a result of the factors discussed above, segment operating income decreased $426 million and $1.2 billion for the three and nine months ended October 31, 2015, respectively, compared to the same periods in the previous fiscal year.

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Table of Contents

Walmart International Segment
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
(Amounts in millions, except unit counts)
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
29,811

 
$
33,659

 
$
90,726

 
$
99,955

Percentage change from comparable period
 
(11.4
)%
 
1.7
%
 
(9.2
)%
 
1.1
%
Operating income
 
$
1,338