Although we began to see some improvements in our markets in the fourth quarter 2009, we faced significant external challenges in 2009 including:
- A worldwide recession driving down demand and volumes;
- A credit market crisis impacting access, rates and creating liquidity pressures on our channels and customers; and
- The negative effects of currency changes on our revenue and costs.
The overall slowdown in business activity reduced print volumes, especially in heavily document-driven processes, and our customers, in an effort to manage costs, are delaying spending on technology upgrades until there are stronger signs of economic improvement. The weak economies in developing markets, like Russia and Eurasia, where access to credit is still quite limited, also impacted our revenues. We reacted to these challenges by prioritizing cash generation and taking actions on cost and expense to help mitigate the effects of lower revenue.
The following is a summary of key 2009 highlights:
- Delivered strong operating cash flow and reduced spending;
- Operational performance continues to improve sequentially;
- Competitive position strengthened through innovative technology and industry-leading Managed Print Services offering; and
- ACS acquisition opens new market opportunities and strengthens financial position.
Total revenue of $15,179 million for 2009 declined 14% from the prior year, including a 3-percentage point negative impact from currency. Equipment sales of $3,550 million for 2009 decreased 24% from the prior year, primarily reflecting the continued industry-wide slowdown in technology spending. Post sale revenue of $11,629 million for 2009 was down 10% from the prior year, primarily reflecting lower supplies revenue as distributors maintained lower inventory levels and businesses implemented their own cost-cutting measures.
The benefits from restructuring and operational cost improvements helped to relieve the pressure from revenue declines. Gross margins of 39.7% for 2009 increased 0.8-percentage points from the prior year despite the continued effect of higher product costs due to the strength of the Japanese Yen. Selling, administrative and general expenses (“SAG”) for 2009 declined $385 million, reflecting favorable currency, the benefits from restructuring and operational cost improvements, partially offset by increased bad debt expense.
Cash flows from operations of $2,208 million in 2009 were primarily driven by working capital improvements. Cash used in investing activities of $343 million reflected well-controlled capital expenditures of $193 million, as well as $145 million for GIS’s acquisition of ComDoc in the first quarter of 2009.
We continue to maintain debt levels primarily to support our customer financing operations and, at the end of 2009, to fund the ACS acquisition. Total Debt at December 31, 2009 of $9,264 million increased $880 million from the prior year as net debt repayments of approximately $1.8 billion were more than offset by the issuance of $2,750 million in Senior Notes. Our 2009 public offerings included $750 million of Senior Notes issued in May and $2.0 billion of Senior Notes issued in December. The net proceeds from the December Senior Notes offering were used in connection with the acquisition of ACS. We finished the year with cash and cash equivalents of $3,799 billion, which included funds subsequently used for the acquisition of ACS.
Our 2010 priorities include:
- Effective ACS transition, including synergies capture;
- Grow revenue and maintain leadership in innovation;
- Continue to aggressively manage spending and resize our cost base to align to current revenues; and
- Drive operating cash flow and achieve debt reduction goals.
Our 2010 balance sheet and cash flow strategy includes: sustaining our working capital improvements; maintaining our investment-grade credit ratings; achieving an optimal cost of capital; and effectively deploying cash to deliver and maximize shareholder value through acquisitions and dividends. Our strategy also includes appropriately leveraging our financing assets (finance receivables and equipment on operating leases).