Raytheon 2010 Annual Report Download - page 51

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Research and Development Expenses
Research and development expenses remained relatively consistent as a percent of total net sales in 2010, 2009 and 2008.
Total Operating Expenses
The increase in total operating expenses of $737 million in 2010 compared to 2009 was primarily due to $299 million of
increased costs, the primary drivers of which are described above in Total Net Sales and below in Segment Results, and
higher expense of $257 million related to the FAS/CAS Pension Adjustment described below in Segment Results.
The increase in total operating expenses of $1,285 million in 2009 compared to 2008 was primarily due to $1,435 million
of increased costs, the primary drivers of which are described above in Total Net Sales and in Segment Results below,
offset by lower expense of $150 million related to the FAS/CAS Pension Adjustment described below in Segment Results.
Operating Income
The decrease in operating income of $435 million in 2010 compared to 2009 was primarily due to the $419 million
impact of the UK Border Agency Program, as described in Commitments and Contingencies on page 64, driven
principally by the $395 million adjustment recorded in the second quarter of 2010 from a change in our estimated
revenue and costs and higher expense of $257 million related to the FAS/CAS Pension Adjustment. These decreases were
partially offset by improved program performance, which had approximately a $140 million impact on operating income
and increased volume, which had approximately a $90 million impact on operating income, the primary drivers of which
are described below in Segment Results.
The increase in operating income of $422 million in 2009 compared to 2008 was primarily due to lower expense of $150
million related to the FAS/CAS Pension Adjustment and increased volume, which had an impact of approximately $150
million and $69 million due to the increase in estimated future CAS pension costs at December 31, 2008 described below
in Segment Results. For a discussion of the drivers of individual business operating income and related margin, see
Segment Results below.
Non-Operating Expense, Net
The increase in non-operating expense, net of $63 million in 2010 compared to 2009 was primarily due to the $73 million
pretax charge associated with the make-whole provision on the early repurchase of long-term debt in the fourth quarter
of 2010 compared to the $22 million pretax charge associated with the make-whole provision on the early repurchase of
long-term debt in the fourth quarter of 2009, and $11 million of lower year-over-year returns on investments held in
rabbi trusts associated with certain of our non-qualified deferred compensation plans due to net gains of $17 million in
2010 compared to net gains of $28 million in 2009.
The increase in non-operating expense, net of $14 million in 2009 compared to 2008 was primarily due to the decrease in
interest income of $50 million which was principally due to a decrease in interest rates driven by a shift in our strategy to
invest more of our cash in U.S. Treasury bills, partially offset by a decrease of $30 million in other expense, net. The
decrease in other expense, net was primarily due to a $58 million favorable year-over-year change in the fair value of
investments held in rabbi trusts associated with certain of our non-qualified deferred compensation plans due to net
gains of $28 million in 2009 compared to net losses of $30 million in 2008, partially offset by a $22 million pretax charge
associated with the make-whole provision on early repurchase of long-term debt in the fourth quarter of 2009.
Federal and Foreign Income Taxes
Our effective tax rate, which is used to determine federal and foreign income tax expense, differs from the U.S. statutory
rate due to the following:
2010 2009 2008
Statutory tax rate 35.0% 35.0% 35.0%
Research and development tax credit -1.1% -0.9% -1.0%
Tax settlements and refund claims -8.0% -0.9% -0.5%
Domestic manufacturing deduction benefit -1.7% -0.9% -0.5%
Other items, net —% 0.2% -0.3%
Effective tax rate 24.2% 32.5% 32.7%
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