Xerox 2011 Annual Report Download - page 38

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Management’s Discussion
36
productivities and restructuring savings which reflect our continued
focus on cost management.
Technology gross margin for the year ended December 31, 2010
decreased by 0.8-percentage points as compared to 2009. Cost
improvements and positive mix partially offset a 0.5-percentage point
adverse impact from transaction currency and price declines of about
1-percentage point.
Selling, Administrative and General Expenses (“SAG”)
SAG as a percentage of revenue of 19.9% decreased 1.3-percentage
points, or 1.0-percentage points on a pro-forma(1) basis, for the year
ended December 31, 2011. In addition to spending reductions and lower
compensation, the decrease was also driven by the positive mix impact
from the continued growth in Services revenue, which historically has a
lower SAG percentage of revenue.
SAG expenses of $4,497 million for the year ended December 31, 2011
were $97 million lower than the prior year period, or $156 million lower on
a pro-forma(1) basis, both including a $68 million unfavorable impact from
currency. The pro-forma SAG expense decrease reflects the following:
•$68 million decrease in selling expenses reflecting the benefits from
restructuring, productivity improvements and decrease in brand
advertising, partially offset by the impact of acquisitions
•$54 million decrease in general and administrative expenses
primarily reflecting lower compensation as well as the benefits from
restructuring and operational improvements
•$31 million decrease in bad debt expenses to $157 million, as
improvements in write-off trends in North America were more than
offset by higher write-offs in southern Europe.
SAG as a percentage of revenue of 21.2% decreased 6.1-percentage
points, or 0.9-percentage points on a pro-forma(1) basis, for the year ended
December 31, 2010.
Services gross margin for the year ended December 31, 2010 decreased
5.8-percentage points, but was essentially flat on a pro-forma(1) basis, as
compared to 2009.
Technology gross margin for the year ended December 31, 2011
decreased by 0.9-percentage points as compared to 2010 due to
the impact of price declines and the negative year-over-year impact
of transaction currency. The decline was partially offset by cost
RD&E as a percentage of revenue for the year ended December 31,
2011 of 3.2% decreased 0.4-percentage points. In addition to lower
spending, the decrease was also driven by the positive mix impact of
the continued growth in Services revenue, which historically has a lower
RD&E percentage of revenue.
RD&E of $721 million for the year ended December 31, 2011 was
$60 million lower, reflecting the impact of restructuring and productivity
improvements. Innovation is one of our core strengths and we continue
to invest at levels that enhance this core strength, particularly in color,
software and services. Xerox R&D is strategically coordinated with
Fuji Xerox.
RD&E as a percentage of revenue for the year ended December 31,
2010 of 3.6% decreased 1.9-percentage points, reflecting savings from
restructuring and productivity improvements.
RD&E of $781 million for the year ended December 31, 2010 was $59
million lower, reflecting the impact of restructuring cost actions which
consolidated the development and engineering infrastructures within our
Technology segment.
Research, Development and Engineering Expenses (“RD&E”)
Year Ended December 31, Change
(in millions) 2011 2010 2009 2011 2010
R&D $ 613 $ 653 $ 713 $ (40) $ (60)
Sustaining engineering 108 128 127 (20) 1
Total RD&E Expenses $ 721 $ 781 $ 840 $ (60) $ (59)
R&D Investment by Fuji Xerox(1) $ 880 $ 821 $ 796 $ 59 $ 25
(1) Increase in Fuji Xerox R&D was primarily due to changes in foreign exchange rates.