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38
Management’s Discussion
Xerox 2010 Annual Report
RD&E2010
The decrease in RD&E spending for 2010 primarily reflects the savings
from restructuring and productivity improvements.
SAG2010
SAG as a percent of revenue decreased 6.1-percentage points on an
actual basis, primarily due to the ACS acquisition. ACS, as a typical
services-based company, had lower SAG as a percent of revenue as
compared to a technology-based company, which typified Xerox before
the acquisition. Since actual comparisons are not meaningful, SAG is
primarily discussed on a pro-forma basis, with ACS’s 2009 estimated
results from February 6 through December 31 included in our historical
2009 results (see “Non-GAAP Financial Measures” section for additional
discussion of this non-GAAP measure).
RD&E2009
The decrease in RD&E spending for 2009 reflects our restructuring and
cost actions which consolidated the development and engineering
infrastructures within our Technology segment.
SAG of $4,594 million was $445 million higher than 2009, or $57
million lower on a pro-forma(1) basis, including a negligible impact from
currency. The pro-forma(1) SAG decrease reflects the following:
$137 million increase in selling expenses, reflecting increased demand
•
generation and brand advertising and higher commissions, partially
offset by restructuring savings and productivity improvements
$86 million decrease in general and administrative expenses, reflecting
•
benefits from restructuring and operational improvements
$108 million decrease in bad debt expense, reflecting an improving
•
write-off trend
Research, Development and Engineering Expenses (“RD&E”)
We invest in technological research and development, particularly in
color, software and services. We believe our R&D spending is sufficient to
remain technologically competitive. Our R&D is strategically coordinated
with that of Fuji Xerox.
Pro-forma(1)
Year Ended December 31, Change Change
(in millions) 2010 2009 2008 2010 2009 2010
R&D $ 653 $ 713 $ 750 $ (60) $ (37) $ (60)
Sustaining Engineering 128 127 134 1 (7) 1
Total RD&E Expenses $ 781 $ 840 $ 884 $ (59) $ (44) $ (59)
RD&E % Revenue 3.6% 5.5% 5.0% (1.9) pts 0.5 pts (0.4) pts
R&D Investment by Fuji Xerox(2) $ 821 $ 796 $ 788 $ 25 $ 8 n/a
(1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the Pro-forma non-GAAP financial measure.
(2) Increase in Fuji Xerox R&D was primarily due to changes in foreign exchange rates.
Selling, Administrative and General Expenses (“SAG”)
Pro-forma(1)
Year Ended December 31, Change Change
(in millions) 2010 2009 2008 2010 2009 2010
Total SAG $ 4,594 $ 4,149 $ 4,534 $ 445 $ (385) $ (57)
SAG as a % of revenue 21.2% 27.3% 25.7% (6.1) pts 1.6 pts (0.9) pts
Bad Debt Expense $ 188 $ 291 $ 188 $ (103) $ 103 $ (108)
Bad Debt as a % of revenue 0.9% 1.9% 1.1% (1.0) pts 0.8 pts (0.5) pts
(1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the Pro-forma non-GAAP financial measure.