Walmart 2009 Annual Report Download - page 21

Free Cash Flow
We de ne free cash  ow as net cash provided by operating activities
of continuing operations in the period minus payments for property
and equipment made in the period. Our free cash  ow increased in
 scal 2009 from  scal 2008 due to the increase in net cash provided
by operating activities of continuing operations and the reduction
in our capital expenditures primarily associated with our planned
slowing of store expansion in the United States.
Free cash  ow is considered a non-GAAP  nancial measure under
the SEC’s rules. Management believes, however, that free cash  ow is
an important  nancial measure for use in evaluating the Company’s
 nancial performance, which measures our ability to generate addi-
tional cash from our business operations. Free cash  ow should be
considered in addition to, rather than as a substitute for, income
from continuing operations as a measure of our performance or net
cash provided by operating activities of continuing operations as a
measure of our liquidity. Additionally, our de nition of free cash  ow
is limited and does not represent residual cash  ows available for
discretionary expenditures due to the fact that the measure does
not deduct the payments required for debt service and other obli-
gations or payments made for business acquisitions. Therefore, we
believe it is important to view free cash  ow as supplemental to our
entire statement of cash  ows.
The following table reconciles net cash provided by operating activi-
ties of continuing operations, a GAAP measure, to free cash  ow, a
non-GAAP measure.
Fiscal Year Ended January 31,
(Amounts in millions) 2009 2008 2007
Net cash provided by
operating activities of
continuing operations $ 23,147 $ 20,642 $ 20,280
Payments for property
and equipment (11,499) (14,937) (15,666)
Free cash  ow $ 11,648 $ 5,705 $4,614
Net cash used in
investing activities of
continuing operations $(10,742) $(15,670) $(14,507)
Net cash used in
 nancing activities $ (9,918) $ (7,422) $ (5,122)
Results of Operations
The following discussion of our Result of Operations is based on our
continuing operations and excludes any results or discussion of our
discontinued operations.
Consolidated Results of Operations
Our total net sales increased by 7.2% and 8.6% in  scal 2009 and  scal
2008 when compared to the previous  scal year. Those increases
resulted from our global expansion programs, comparable store
sales increases and acquisitions. During  scal 2009, foreign currency
exchange rates had a $2.3 billion unfavorable impact on the Interna-
tional segment’s net sales, however, the International segment’s net
sales as a percentage of total Company net sales increased slightly.
In  scal 2008, foreign currency exchange rates had a $4.5 billion
favorable impact on the International segment’s net sales, causing an
increase in the International segment’s net sales as a percentage of
total net sales relative to the Walmart U.S. and Sam’s Club segments.
Our gross pro t as a percentage of net sales (our “gross pro t margin”)
was 23.7%, 23.5% and 23.4% in  scal 2009, 2008 and 2007, respectively.
Our Walmart U.S. and International segment sales yield higher gross
pro t margins than our Sam’s Club segment. However, our International
segment produced lower segment net sales increases in  scal 2009
compared to sales increases in  scal 2008 due to unfavorable  uctua-
tions in foreign currency exchange rates in  scal 2009. The gross pro t
margin increase in  scal 2009 compared to  scal 2008 was primarily
due to lower inventory shrinkage and less markdown activity as a
result of more e ective merchandising in the Walmart U.S. segment.
Additionally, the increase in gross pro t margin in  scal 2008 included
a $97 million refund of excise taxes previously paid on past merchan-
dise sales of prepaid phone cards.
Operating expenses as a percentage of net sales were 19.1%, 18.8%
and 18.5% for  scal 2009, 2008 and 2007, respectively. In  scal 2009,
operating expenses increased primarily due to higher utility costs,
a pre-tax charge of approximately $352 million resulting from the
settlement of 63 wage and hour class action lawsuits, higher health
bene t costs and increased corporate expenses compared to  scal
2008. Corporate expenses have increased primarily due to our long-
term transformation projects to enhance our information systems
for merchandising,  nance and human resources. We expect these
increased expenses from the transformation projects to continue
in the foreseeable future.
Operating expenses as a percentage of net sales were higher in  scal
2008 than the preceding year primarily due to lower segment net
sales increases for our Walmart U.S. and International segments, as
well as increases in certain operating expenses in each segment. In
 scal 2008, operating expenses were favorably a ected by the
change in estimated losses associated with our general liability and
workers’ compensation claims, which reduced accrued liabilities for
such claims by $298 million before tax, partially offset by pre-tax
charges of $183 million for certain legal and other contingencies.
Additionally, the fourth quarter of  scal 2008 included $106 million of
pre-tax charges related to U.S. real estate projects dropped as a result
of our capital e ciency program. The net impact of these items had
no e ect on our operating expenses as a percentage of net sales in
 s c a l 2 0 0 8 .
19Wal-Mart 2009 Annual Report
Our total net sales increased by 7.2% and
8.6% in fiscal 2009 and fiscal 2008 when
compared to the previous fiscal year.
Those increases resulted from our global
expansion programs, comparable store
sales increases and acquisitions.