Results of Operations

The following discussion and analysis, consistent with all other financial data throughout this Annual Report on Form 10-K, focuses on the results of operations and financial condition from our continuing operations.

(1) 2006 contained 53 weeks. Total net sales percent includes the effect of the 53 ^rd week in 2006. Excluding sales of $254 million for the 53 ^rd week in 2006, total net sales increased 1.1% and 4.6% for 2007 and 2006, respectively.

(2) Comparable store sales are presented on a 52-week basis and include sales from new and relocated stores that have been opened for 12 consecutive full fiscal months and online sales through jcp.com. Stores closed for an extended period are not included in comparable store sales calculations, while stores remodeled and minor expansions not requiring store closures remain in the calculations.

Income from continuing operations was $567 million in 2008, compared to $1,105 million in 2007 and $1,134 million in 2006. Our 2008 results were impacted by pressure on gross margins in a highly promotional selling environment, particularly during the holiday season. Gross margin declined both in dollars and as a percentage of sales from the pressure of declining sales levels that resulted from the slowdown in consumer spending. The impact on operating income from lower gross margin was somewhat mitigated by effective control over operating expenses, despite incremental expenses related to new store openings.

EPS from continuing operations in 2008 was $2.54, compared to $4.90 in 2007 and $4.88 in 2006. EPS in 2007 benefited from the reduction in average shares outstanding compared to the prior year due to the 2007 and 2006 common stock repurchase programs. Additionally, the 2007 results reflected tax credits of $38 million, or $0.17 per share, while 2006 results reflected a tax credit of $32 million, or

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$0.14 per share, both of which were due to the release of income tax reserves resulting from the favorable resolution of prior year tax matters.

Our 2007 results were impacted by gross margin pressure from the onset of the economic downturn that began in the second half of the year. Our 2006 earnings increased as a result of strong sales and gross margin improvement, combined with lower interest expense and bond premiums.

2008 Compared to 2007

Total Net Sales

Our year-to-year change in total net sales is comprised of (a) sales from new stores net of closings and relocations including catalog print media and outlet store sales, referred to as non-comparable store sales and (b) sales of stores opened in both years as well as online sales from jcp.com, referred to as comparable store sales. We consider comparable store sales to be a key indicator of our current performance measuring the growth in sales and sales productivity of existing stores. Positive comparable store sales contribute to greater leveraging of operating costs, particularly payroll and occupancy costs, while negative comparable store sales contribute to de-leveraging of costs. Comparable store sales also have a direct impact on our total net sales and the level of cash flow.

(1) Calculation includes the sales of stores that were open for the full fiscal year as of each year end, as well as online sales from jcp.com.

Total net sales in 2008 decreased $1,374 million as a result of a sharp slow down in consumer spending. The decline was mainly attributed to a comparable store sales decline of 8.5% and a decrease, as expected, in catalog print media and outlet store sales in our Direct channel. While comparable store sales decreased, sales from non-comparable stores opened in 2008 and 2007, net of closings, added $434 million. In 2008, we opened 26 net new stores (35 stores, net of 9 closings and relocations) and in 2007 we opened 34 net new stores (50 stores, net of 16 closings and relocations.) Over the course of 2008, the worsening consumer spending environment resulted in reduced sales from lower traffic in our mall stores, which decreased 5.4% from prior year traffic levels. Our off-mall traffic was also down compared to last year but had stronger traffic trends than our mall stores. Consistent with the difficult retail environment and the pronounced decrease in consumer spending, the number of transactions and the number of units sold declined for the year. Geographically, the best performing regions for the year were the central and northwest regions, while the southeast and southwest regions, which were more heavily impacted by declining home values, delivered the weakest performance. Sales of jcp.com, which are included in comparable stores sales, were essentially flat with last year at about $1.5 billion.

Although consumer spending steadily decreased over the year, we continued our leadership position in apparel, bringing style and newness through the launch of several private and exclusive brands. For the year, family shoes, along with women’s apparel and accessories were the best performing divisions. By contrast, and consistent with industry results, fine jewelry and home were the weakest businesses.

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Private and exclusive brands found only at JCPenney totaled approximately 52% and 49% of total merchandise sales for 2008 and 2007, respectively.

Total Net Sales Mix

The following percentages represent the mix of total net sales:

Merchandise Initiatives

We remain committed to offering our customers compelling merchandise with the combination of style, quality and smart prices that they desire. In February 2008, we launched American Living™, a new updated traditional lifestyle brand created exclusively for JCPenney by Polo Ralph Lauren’s Global Brand Concepts. American Living™ is in the higher quality and pricing segment of our offerings across 40 merchandise categories for women, men and children, as well as shoes, accessories and home goods.

In April 2008, we launched Linden Street™, which was the most comprehensive home brand launch in our history. It is a blend of traditional and contemporary styles offering a classic, timeless design.

For the Back-to-School season, in junior’s, we launched private brand Decree ^® , a denim-inspired line of apparel for girls and young women, and two new exclusive brands: LeTigre™ from Kenneth Cole Productions and Fabulosity™, a complete line of sportswear designed by Kimora Lee Simmons. For young men’s, we extended the exclusive American Living™ brand with new denim, graphic t-shirts and jackets, and launched White Tag™, a new “urban rock” inspired national brand of premium denim and art-driven t-shirts. In addition to the new fashion brands for Back-to-School, we introduced Dorm Life™, a new private modern lifestyle brand in the home division featuring merchandise to furnish a college dorm or off-campus housing.

In October 2008, we announced the significant enhancement of the longstanding and highly successful career brands Worthington ^® for women and Stafford ^® for men, to retain longtime customers and to attract new shoppers. We updated the private brands with new categories, fits and fabrics that overlap seasons.

Also in October 2008, we announced the spring 2009 launches of two new exclusive designer brands, I “Heart” Ronson™, a complete women’s fashion sportswear line designed by Charlotte Ronson, an innovator in the fashion industry; and ALLEN B. ^® , a complete women’s fashion sportswear and dress collection by Allen B. Schwartz, a designer with talent in bringing the latest trends to market in record time. I “Heart” Ronson™ and ALLEN B. ^® are exciting additions to our growing portfolio of exclusive designer brands, which continue to offer our customers coveted designer brands at smart prices.

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Marketing Initiatives

In July and November 2008, we supported the apparel launches with integrated marketing campaigns featuring the new brands. The campaigns targeted teens and included both traditional ads and non-traditional media components, such as in-cinema ads and mobile phone marketing, emails, web search and targeted direct mail and catalog. The messages were coordinated across all lines of the business, stores and Direct that represent an alignment of our offerings and provide a seamless shopping experience for customers.

Customer Service Initiatives

During 2008, store associates participated in CustomerFIRST, a training program focused on delivering extraordinary customer service that empowers associates to exceed customers’ expectations when they shop at our stores. Results of the CustomerFIRST program have been positive. Based on consumer research, customers rank us number one when asked about customer service, sales associate availability and whether they are treated with respect by sales associates. In January 2009, the National Retail Federation (NRF) Foundation/American Express 2008 Customer Service Survey, which placed us first in customer service among department store retailers, confirmed our leading customer service ranking and improved our overall ranking by five spots to seventh place.

Gross Margin

Gross margin is a measure of profitability of a retail company at the most fundamental level of buying and selling merchandise and measures a company’s ability to effectively manage the total costs of sourcing and allocating merchandise against the corresponding retail pricing designed to offer quality merchandise at smart prices. Gross margins not only cover marketing, selling and other operating expenses, but also must include a profit element to reinvest back into the business. Gross margin is the difference between total net sales and cost of the merchandise sold and is typically expressed as a percentage of total net sales. The cost of merchandise sold includes all direct costs of bringing merchandise to its final selling destination. These costs include:

Gross margin declined by $756 million, or 120 basis points as a percentage of sales in 2008. The decline was a result of a decrease in unit sales, as well as a decrease in average unit retail. The lower average unit retail reflected higher markdowns from increased clearance activity in response to softer sales and to achieve desired levels of inventory.

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Selling, General and Administrative (SG&A) Expenses

The following costs are included in SG&A expenses except if related to merchandise buying, sourcing, warehousing or distribution activities:

SG&A expenses were well managed across the entire organization in 2008, decreasing $7 million despite the addition of 26 net new stores since last year. In 2008, we realized the first full year of benefit from our workforce management tool that facilitates efficient staffing levels. The rollout of this tool provided a positive impact on associate productivity, as well as stores payroll expense. Store salaries declined on a dollar basis, but were not leveraged against sales and increased about 40 basis points as a percent of sales. Total marketing costs were slightly under the prior year, but as a percent of sales increased 50 basis points. Likewise, store occupancy and utility expenses were also well managed, but were up about 50 basis points. Total SG&A expenses as a percent of sales experienced approximately 200 basis points of de-leveraging as a result of the sales decline.

During 2008 and 2007, advertising allowances that offset gross advertising expense were $167 million and $210 million, respectively. The year-over-year decrease was primarily due to lower merchandise receipts.

Pension (Income)/Expense

Pension income doubled to $90 million in 2008 from $45 million in the prior year primarily from the pension credit from our qualified pension plan (primary plan), which is a defined benefit funded plan. The net pension income of $90 million is comprised of the qualified pension plan income of $133 million and pension expense of $43 million from the defined benefit supplemental pension plans, which are unfunded. Our 2008 pension income was measured on February 3, 2008, in accordance with the adoption of the measurement date provisions of Statement of Financial Accounting Standards (SFAS) 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” The primary driver of the 2008 pension income was the result of strong capital market returns associated with the primary plan assets.

Depreciation and Amortization Expenses

Depreciation and amortization expenses in 2008 increased to $469 million, or approximately 40 basis points as a percent of sales, reflecting new store openings and store renovations.

Pre-Opening Expense

Pre-opening expense includes advertising, hiring and training costs for new associates, processing and stocking initial merchandise inventory and rental costs prior to store opening. During 2008, we opened 35 new stores compared to 50 in 2007. As a result, pre-opening expense decreased to $31 million from $46 million.

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Real estate and other consists primarily of ongoing operating income from our real estate subsidiaries, as well as net gains from the sale of facilities and equipment that are no longer used in our operations, other non-operating corporate charges and credits and asset impairments.

Real estate and other was a net credit of $25 million in 2008 and decreased $21 million compared to 2007. The decline was primarily a result of impairments related to a department store, a real estate joint venture and other corporate assets. In addition to ongoing operating income from real estate subsidiaries, 2008 included net gains of $10 million from the sale of non-operating real estate properties, comparable to the prior year.

Operating Income

Operating income decreased $753 million, or 340 basis points as a percent of sales, reflecting pressure from the weak sales environment and increased promotional levels throughout the year and holiday season. Operating income is the key measurement management uses to evaluate the financial performance of our retail operations.

Net Interest Expense

Net interest expense consists principally of interest expense on long-term debt, net of interest income earned on cash and cash equivalents. Net interest expense was $225 million, an increase of $72 million, or 47.1%, from 2007. The increase in net interest expense was due primarily to a decrease in the weighted-average annual interest rate earned on short-term investment balances to 1.6% in 2008 from 5.0% in 2007, combined with a decrease in average outstanding short-term investments. Interest income on short-term investments was $32 million in 2008 compared to $113 million in 2007.

Income Taxes

The effective income tax rate for continuing operations for 2008 was 37.7% compared with 35.9% for 2007. The 2007 effective tax rate was favorably impacted by the release of $38 million, or $0.17 per share, of income tax reserves resulting from the favorable resolution of prior year tax matters.

Discontinued Operations

Discontinued operations in 2008 was a credit of $5 million, or $0.03 per share, compared to $6 million, or $0.03 per share in 2007, and was primarily the result of our ongoing review and true-up of reserves related to previous discontinued operations. These previous discontinued operations are no longer expected to have a future material impact on our results of operations, financial condition or liquidity.

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(1) Includes the effect of the 53rd week in 2006. Excluding sales of $254 million for the 53rd week in 2006, total net sales increased 1.1% and 4.6% in 2007 and 2006, respectively.

(2) Calculation includes the sales of stores that were open for the full fiscal year as of each year end, as well as online sales from jcp.com. The 2006 calculation excludes sales of the 53 ^rd week.

Total net sales decreased $43 million, or 0.2%, in 2007, primarily as a result of the 53 ^rd week in 2006 and the expected decline in catalog print media and outlet store sales. Excluding sales of $254 million for the 53 ^rd week of 2006, total net sales increased 1.1%. Comparable store sales, including online sales, were flat with 2006. Sales from non-comparable stores opened in 2007 and 2006, net of closings, were $456 million. In 2007, we opened 34 net new stores (50 stores, net of 16 closings and relocations) and in 2006 we opened 14 net new stores (28 stores, net of 14 closings and relocations.) Comparable store sales were negatively impacted by a decline in JCPenney mall store traffic of approximately 4%, consistent with overall mall traffic trends, while the average unit retail and the number of transactions remained at comparable levels to the prior year. Although sales were soft across most merchandise categories, our best performing categories were women’s and children’s apparel. The weakest sales results were in most home categories, men’s and fine jewelry. Geographically, the western regions reported sales gains during 2007, while decreases were reported in the eastern and central regions of the country.

Private and exclusive brands found only at JCPenney totaled approximately 49% and 48% of total merchandise sales for 2007 and 2006, respectively.

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Merchandise and Shopping Experience Initiatives

Throughout 2007, we launched a number of private and exclusive brands designed to add newness and excitement to our merchandise offerings. The private brands included Ambrielle ^® , a new lingerie brand. The exclusive brands included Liz & Co. ^® , a traditional casual women’s apparel and accessories line, and CONCEPTS by Claiborne™, by Liz Claiborne, Inc. featuring casual sportswear, as well as suits and accessories for the modern male customer, C7P ^® , a Chip & Pepper ^® Production, a denim and sportswear line for juniors and young men and Messages from the Heart ^® , an infant apparel and gift brand by author and artist Sandra Magsamen. We expanded Sephora inside JCPenney locations to 47 stores and opened 50 new and relocated stores in 2007, 42 of which were off-mall. We also launched a “Know Before You Go” initiative on jcp.com, which provides customers with innovative features, such as enhanced search capabilities and product information, merchandise availability at local stores and the ability to view weekly sales circulars online, making shopping at JCPenney easier and more efficient.

Gross Margin

Through the first half of 2007, gross margin increased 70 basis points to 39.8% of sales, or $3,481 million on a dollar basis, compared to 39.1%, or $3,305 million, for the comparable 2006 period. Gross margin was pressured in the third and fourth quarters by an inventory plan that anticipated higher sales and thus resulted in more promotional selling and higher levels of clearance merchandise. As a result, 2007 full year gross margin declined 70 basis points, as a percent of sales, following a 100 basis-point improvement in 2006.

For 2007, SG&A expenses were 27.2% of sales, an improvement of 30 basis points, compared to 27.5% of sales for 2006. On a dollar basis, SG&A expenses for 2007 were down 1.2% from 2006. Advertising expenses, as a percent of sales, were consistent with the prior year. While overall SG&A expenses were well controlled, the two primary contributors to the year-over-year improvement were lower salary and related expenses, as well as lower incentive compensation expense.

During 2007 and 2006, advertising allowances offset gross advertising expense by $210 million and $163 million, respectively.

Pension (Income)/Expense

Pension income in 2007 was driven primarily from our qualified pension plan. Strong market returns in 2006, as well as cash contributions of $1.2 billion on a pre-tax basis, or $300 million per year in 2006, 2004, 2003 and 2002, resulted in pension income of $45 million in 2007 compared to pension expense of $51 million in 2006.

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Depreciation and Amortization

As expected with the accelerated store growth and investments in improving and modernizing existing facilities, depreciation and amortization expenses increased to $426 million in 2007, compared to $389 million in 2006. As a percent of sales, depreciation and amortization expenses were consistent from year to year at approximately 2%.

Pre-Opening Expense

With the launch of the Company’s accelerated store growth strategy in 2006, pre-opening expense increased to $46 million in 2007, compared to $27 million in 2006. The Company opened 50 and 28 new stores in 2007 and 2006, respectively.

Real Estate and Other (Income), Net

In 2006, other included charges of $7 million associated with a senior management transition.

Operating Income

In 2007, operating income declined by 20 basis points as a percent of sales, driven by a negative trend in sales and gross margin rates. While we continued to make significant improvements in merchandise assortments, as well as further refinements to our planning and allocation systems to ensure that the merchandise is in the right place at the right time, the challenging retail environment in the second half of 2007 led to a softening in sales and a related increase in markdowns.

Net Interest Expense

The 2007 increase in net interest expense was primarily the result of an increase in average long-term debt, combined with a decrease in cash and cash equivalents and a decrease in corresponding short-term interest rates. The weighted-average interest rate on long-term debt declined to 7.5% in 2007, compared to 7.8% in 2006. Interest income earned on short-term investment balances remained about the same in 2007 as the prior year at an average annual interest rate of 5.0%.

Bond Premiums and Unamortized Costs

We incurred premiums, commissions and unamortized costs of $12 million in 2007 related to the early redemption of JCP’s 8.125% Debentures Due 2027.

Income Taxes

The overall effective tax rates for continuing operations were 35.9% for 2007 and 36.7% for 2006. The 2007 effective tax rate was favorably impacted by the release of $38 million, or $0.17 per share, of income tax reserves resulting from the favorable resolution of prior year tax matters. The 2006 rate was favorably impacted by the release of $32 million, or $0.14 per share, of income tax reserves resulting from the favorable resolution of prior year tax matters.

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Discontinued Operations

Discontinued operations added $0.03 per share to net income in 2007 resulting from our ongoing review and true-up of reserves for discontinued operations. For 2006, discontinued operations added $0.08 per share to net income and were primarily related to positive variances on tax reserves that had been provided for in connection with the sale of previously owned businesses.

2009 Outlook

Operating Performance

For 2009, we anticipate weak consumer spending to continue. Consequently, we are planning for full-year comparable stores sales to decline approximately 10% and for total sales to decrease high-single digits. We expect a modest improvement in the gross margin rate for 2009 resulting from better alignment of our inventory at year-end 2008 with current sales trends, combined with our plan to manage future inventory receipts to a low-double digit decrease. Excluding pension expense, which is discussed below, we expect operating expenses for 2009 to be relatively flat with 2008.

Pension Expense

Total pension expense in 2009 is expected to be $363 million, as compared to a credit of $90 million in 2008. Pension expense for 2009 is comprised of $322 million non-cash expense for the primary plan and $41 million expense for the supplemental pension plans. This compares with the 2008 pension credit of $133 million and $43 million expense, respectively. The increase in total pension expense in 2009 versus 2008 is due almost entirely to the swing in the primary plan. Pension expense in 2009 for the primary plan is negatively impacted by the amortization of unrecognized losses that resulted from the sharp decline in plan assets during 2008. At the measurement date of January 31, 2009, which was used to set the pension expense, the unrecognized loss balance was $2.3 billion. Under SFAS 87, “Employers Accounting for Pensions,” any unrecognized losses outside the allowable “corridor” are amortized over the average remaining service period of the current work force – seven years for our Company. The amortization component of the 2009 pension expense for the primary plan amounts to $277 million. The remaining $45 million of the $322 million of primary plan expense in 2009 represents the net of other components of pension expense – service cost, interest and expected return on assets. The expected return on assets for 2009 was negatively impacted by the lowering of the expected rate of return assumption to 8.4% from 8.9%.

Pension Funding

Based on the funded status of our primary pension plan, we are not required to make mandatory pension plan contributions in 2009 or 2010 as determined under the Employee Retirement Income Security Act of 1974 (ERISA) rules, as amended by the Pension Protection Act of 2006.

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Financial Condition and Liquidity

Overview

In 2008, despite the sharp deterioration in consumer spending, we continued to maintain our strong financial position, improved our cash flow metrics and retained the flexibility to continue the execution of our Bridge Plan initiatives. Our ability to sustain a strong financial position and financial flexibility further enhanced our competitive position and, going forward, will allow us to take advantage of future opportunities as the economic environment improves.

The foundation of our strong liquidity position is our cash and cash equivalent balances and our ability to generate positive cash flow from operating activities of continuing operations in excess of capital expenditures and dividend payments, net of proceeds from the sale of assets (defined as free cash flow, a non-GAAP financial measure discussed on page 28.) For 2008, we ended the year with approximately $2.4 billion of cash and cash equivalent balances and had positive free cash flow of $21 million, an improvement of $163 million compared to 2007. Moreover, we expect this measure to further improve in 2009 as we moderate capital expenditures, control expenses and manage inventory in line with expected sales trends.

In addition to cash flow and cash and cash equivalent balances, which are sufficient to meet our liquidity needs, our existing credit facility provides an additional $1.2 billion source of liquidity. Other than the issuance of trade and standby letters of credit, which totaled $152 million at year-end 2008, we have not utilized this facility nor do we expect to do so.

Our liquidity position is further enhanced by two additional factors: we have no debt maturing during 2009 and we are not required to make a mandatory cash contribution to our qualified pension plan. While the funded status of our primary pension plan weakened during 2008 as a result of the decline in the capital markets, the plan remains well funded relative to other large corporate pension plans. As a result of our funded status, we are not required to make mandatory pension plan contributions in 2009 or 2010 as determined under ERISA rules, as amended by the Pension Protection Act of 2006. In August 2008, we paid a $200 million debt maturity from our cash and cash equivalent balances. Our next debt maturity is in March 2010 for approximately $500 million, which we plan to fund from our cash and cash equivalent balances.

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The following table provides a summary of our key components and ratios of financial condition and liquidity:

(1) Includes $300 million discretionary cash contribution to our qualified pension plan in 2006. The approximately $110 million tax benefit related to the 2006 contribution was realized in 2007. No such contributions were made in 2008 or 2007.

(2) See page 28 for a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP measure and further information on its uses and limitations.

(3) Long-term debt, including current maturities divided by total capitalization.

(4) Cash and cash equivalents divided by long-term debt, including current maturities.

Bridge Plan

At our April 2008 financial analyst meeting, we discussed modifications to our financial and business plans, referred to as the Company’s Bridge Plan. The Bridge Plan is designed to enable us to effectively navigate through the challenging retail environment, while working to maintain our financial strength and flexibility. The Bridge Plan outlines our initiatives between those items we expect to moderate, such as store growth and renovations, inventory levels and expenses; items we expect to maintain, such as our focus on the customer, our associates and our investors; and items we plan to accelerate, like Sephora inside JCPenney, “CustomerFIRST” initiatives and merchandise innovation.

Since April, we have announced updates to our Bridge Plan in response to the continuing downturn of the economic environment in order to maintain our strong financial position. The updated Bridge Plan targets for 2009 include a reduction in capital expenditures to approximately $600 million, versus $969 million for 2008. This reflects plans to open 17 new stores, including one relocated store in 2009, compared to 35 new or relocated stores that we opened in 2008, including 31 in the off-mall format. We expect to open 64 additional Sephora inside JCPenney locations during 2009, bringing our total to 155 locations. For 2010, we are planning capital expenditures at approximately $400 million to focus on improvements to existing stores and information technology infrastructure. In addition, we have reduced the store renovation plans for 2009 and 2010, as compared to the 24 renovations completed in 2008. We expect to fund capital expenditures for 2009 and 2010 with cash flow from operations and existing cash and cash equivalents. We continue to focus on aligning inventory levels with expected sales trends and carefully managing our operating expenses. Our Bridge Plan initiatives are designed to

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put us back on the trajectory of our long-range plan for growth and leadership in the retail industry when the economic environment improves.

Cash and Cash Equivalents

At year-end 2008, we had approximately $2.4 billion of cash and cash equivalents, which represented approximately 67% of our $3.5 billion of outstanding long-term debt. As of January 31, 2009, we had no current maturities. Cash and cash equivalents decreased $180 million in 2008, including a $200 million repayment of long-term debt at maturity. Our cash investments are held in U.S. Treasury money market funds and a portfolio of highly rated bank deposits.

In addition to cash and cash equivalents, our liquidity position includes a five-year $1.2 billion unsecured revolving credit facility that was put in place in April 2005 (2005 Credit Agreement). See further discussion on the credit agreement on page 33. Our liquidity is further enhanced by the fact that our current debt portfolio and material lease agreements contain no provisions that could trigger acceleration of payments or collateral support in the event of adverse changes in our financial condition. However, our 2007 debt issuances contain a change of control provision that would obligate us, at the holders’ option, to repurchase the debt at a price of 101% if there was a beneficial ownership change of 50% or more of our common stock and the debt was rated non-investment grade. This provision applies to $1 billion of our debt.

Free Cash Flow (Non-GAAP Financial Measure)

We define free cash flow as net cash provided by operating activities of continuing operations less capital expenditures and dividends paid, plus proceeds from sale of assets. Free cash flow is considered a non-GAAP financial measure under the rules of the Securities and Exchange Commission. We believe that free cash flow is a relevant indicator of our ability to repay maturing debt, revise our dividend policy or fund other uses of capital that we believe will enhance stockholder value. Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities and other obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow in addition to, rather than as a substitute for, our entire statement of cash flows and those measures prepared in accordance with GAAP.

The following table reconciles net cash provided by operating activities of continuing operations, the most directly comparable GAAP measure, to free cash flow, a non-GAAP financial measure.