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Table of Contents
Key Performance Metrics — Although our cash conversion cycle deteriorated from February 1, 2008, and February 2, 2007, our direct business
model allows us to maintain an efficient cash conversion cycle, which compares favorably with that of others in our industry. As our growth
stabilizes, more typical cash generation and a resulting cash conversion cycle are expected to resume.
The following table presents the components of our cash conversion cycle for the fourth quarter of each of the past three fiscal years:
January 30, February 1, February 2,
2009 2008 2007
Days of sales outstanding(a) 35 36 31
Days of supply in inventory(b) 7 8 5
Days in accounts payable(c) (67) (80) (78)
Cash conversion cycle (25) (36) (42)
(a) Days of sales outstanding ("DSO") calculates the average collection period of our receivables. DSO is based on the ending net trade receivables and the most recent quarterly
revenue for each period. DSO also includes the effect of product costs related to customer shipments not yet recognized as revenue that are classified in other current assets.
DSO is calculated by adding accounts receivable, net of allowance for doubtful accounts, and customer shipments in transit and dividing that sum by average net revenue per
day for the current quarter (90 days). At January 30, 2009, February 1, 2008, and February 2, 2007, DSO and days of customer shipments not yet recognized were 31 and
4 days, 33 and 3 days, and 28 and 3 days, respectively.
(b) Days of supply in inventory ("DSI") measures the average number of days from procurement to sale of our product. DSI is based on ending inventory and most recent
quarterly cost of sales for each period. DSI is calculated by dividing inventory by average cost of goods sold per day for the current quarter (90 days).
(c) Days in accounts payable ("DPO") calculates the average number of days our payables remain outstanding before payment. DPO is based on ending accounts payable and
most recent quarterly cost of sales for each period. DPO is calculated by dividing accounts payable by average cost of goods sold per day for the current quarter (90 days).
Our cash conversion cycle contracted by eleven days at January 30, 2009, from February 1, 2008, driven by a thirteen day decrease in DPO offset by
a one day decrease in DSO and a one day decrease in DSI. The decrease in DPO from February 1, 2008, is attributable to procurement throughput
declines as a result of declining demand, reduction in inventory levels, and a decrease in non-production supplier payables as we continue to control
our operating expense spending and the timing of purchases from and payments to suppliers during the fourth quarter of Fiscal 2009 as compared to
the fourth quarter of Fiscal 2008. The decrease in DSO from February 1, 2008, is attributable to the timing of revenue due to seasonal impact,
partially offset by a shift to customers with longer payment terms.
Our cash conversion cycle contracted by six days at February 1, 2008 compared to February 2, 2007. This deterioration was driven by a five day
increase in DSO largely attributed to timing of payments from customers, a continued shift in sales mix from domestic to international, and an
increased presence in the retail channel. In addition, DSI increased by three days, which was primarily due to strategic materials purchases. The
DSO and DSI declines were offset by a two-day increase in DPO largely attributed to an increase in the amount of strategic material purchases in
inventory at the end of Fiscal 2008 and the number of suppliers with extended payment terms as compared to Fiscal 2007.
We defer the cost of revenue associated with customer shipments not yet recognized as revenue until they are delivered. These deferred costs are
included in our reported DSO because we believe it presents a more accurate presentation of our DSO and cash conversion cycle. These deferred
costs are recorded in other current assets in our Consolidated Statements of Financial Position and totaled $556 million, $519 million, and
$424 million at January 30, 2009, February 1, 2008, and February 2, 2007, respectively.
Investing Activities — Cash provided by investing activities during Fiscal 2009 was $177 million, as compared to $1.8 billion cash used by investing
activities during Fiscal 2008 and $1.0 billion provided in Fiscal 2007. Cash generated or used in investing activities principally consists of the net of
sales and maturities and purchases of investments; net capital expenditures for property, plant, and equipment; and cash used to fund strategic
acquisitions, which was approximately $176 million during Fiscal 2009 compared to $2.2 billion during Fiscal 2008. In light of continued capital
market and interest rate volatility, we decided to increase liquidity and change the overall interest rate profile of the portfolio. As a result, during
Fiscal 2009 we began repositioning our investment portfolio to shorter duration securities, thus impacting the volume of our sales and purchases of
securities. In Fiscal 2009 as compared to Fiscal 2008, lower cash flow from operating activities and lower yields on investments resulted in lower
net proceeds from maturities, sales, and purchases. In Fiscal 2008 as compared to Fiscal 2007, we re-invested a lower amount of our proceeds from
the maturity or sales of investments to build liquidity for share repurchases and for cash payments made in connection with acquisitions.
Financing Activities — Cash used in financing activities during Fiscal 2009 was $1.4 billion, as compared to $4.1 billion in Fiscal 2008 and
$2.6 billion in Fiscal 2007. Financing activities primarily consist of the repurchase of our common stock, partially offset by proceeds
42