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37
Results of Operations—2010 Compared to 2009
Net Sales
Net sales were $7.6 billion in 2010, an increase of 10% compared to net sales of $6.9 billion in 2009. The
increase in net sales reflects: (i) a $417 million, or 19%, increase in net sales in the Enterprise segment, and (ii) a
$253 million, or 5%, increase in net sales in the Government segment.
Gross Margin
Gross margin was $3.8 billion, or 50.0% of net sales, in 2010, compared to $3.5 billion, or 50.1% of net sales,
in 2009. Gross margin dollars increased in both segments, primarily driven by the increase in net sales. Gross
margin as a percent of sales was slightly lower in 2010, driven by a slight decrease in gross margin percentage in the
Enterprise segment, while gross margin as a percent of sales remained flat in the Government segment.
Selling, General and Administrative Expenses
SG&A expenses increased 13% to $1.9 billion, or 24.5% of net sales, in 2010, compared to $1.7 billion, or
23.9% of net sales, in 2009. SG&A expenses increased in both segments, primarily due to: (i) increased selling and
marketing expenses related to the increase in net sales, and (ii) increased employee benefit-related expenses. The
increases in employee benefit-related expenses are primarily due to: (i) an increase in pension-related expenses, and
(ii) the reinstatement of our 401(k) matching contributions in the third quarter of 2010.
Research and Development Expenditures
R&D expenditures increased 4% to $1.0 billion, or 13.6% of net sales, in 2010, compared to $1.0 billion, or
14.3% of net sales, in 2009. R&D expenditures as a percentage of net sales decreased in both segments. R&D
expenditures increased in both segments, primarily due to: (i) developmental engineering expenditures and
investment in next generation technologies, and (ii)increased employee benefit-related expenses.
Other Charges
We recorded net charges of $150 million in Other charges in 2010, compared to net charges of $255 million in
2009. The charges in 2010 included: (i) $203 million of charges relating to the amortization of intangibles, and
(ii) $54 million of net reorganization of business charges, partially offset by (i) $78 million of gains related to
intellectual property settlements and reserve adjustments, and (ii) $29 million of income related to a legal settlement.
The charges in 2009 included: (i) $218 million of charges relating to the amortization of intangibles, (ii) $88 million
of net reorganization of businesses, and (iii) $24 million of charges related to an environmental reserve, partially
offset by $75 million gain related to a legal settlement. The net reorganization of business charges are discussed in
further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $129 million in 2010, compared to net interest expense of $133 million in 2009. Net
interest expense in 2010 included interest expense of $217 million, partially offset by interest income of $88 million.
Net interest expense in 2009 includes interest expense of $207 million, partially offset by interest income of $74
million. The increase in net interest expense in 2010 compared to 2009 is primarily attributable to the absence of
reversals of interest expense accruals that were no longer needed as a result of the settlement of certain tax audits
during 2009, partially offset by increased interest income from long-term receivables.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $49 million in 2010, compared to gains of $108 million in
2009. In 2010, the net gain was primarily comprised of a gain attributed to a single investment. In 2009, the net
gain primarily relates to sales of certain of our equity investments, of which $32 million of gain was attributed to a
single investment.
Other
Net Other expense was $7 million in 2010, compared to net Other income of $91 million in 2009. The net
expense in 2010 was primarily comprised of: (i) $21 million of investment impairments, and (ii) a $12 million loss