Raytheon 2011 Annual Report Download - page 50

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primarily due to higher external service cost of sales of $129 million at SAS, driven principally by the activity on intelligence,
surveillance and reconnaissance systems programs and RAST described above in Total Net Sales, and $118 million at IIS,
driven principally by the activity on classified programs described above in Total Net Sales. The increase in service cost of
sales was partially offset by lower external service cost of sales of $95 million at IDS, which was spread across numerous
programs with no individual or common significant driver.
Total Cost of Sales - 2010 vs. 2009—The increase in total cost of sales of $556 million in 2010 compared to 2009 was primarily
due to increased external costs of $219 million at SAS, driven primarily by the activity on certain classified business and the
multi-spectral targeting system program described above in Total Net Sales, partially offset by the activity on the advanced
targeting program described above in Total Net Sales, $194 million at TS, driven primarily by the activity on TS' training
programs and the programs with the Transportation Security Administration (TSA) described above in Total Net Sales, and
higher expense of $267 million related to the FAS/CAS Adjustment described below in Segment Results.
Products and Services Cost of Sales - 2010 vs. 2009—Product cost of sales in 2010 remained relatively consistent compared
to 2009. The increase of $605 million in service cost of sales was primarily due to higher external service costs of sales of
$229 million at TS, principally from the activity in training programs described above, $152 million at IIS, principally from
the activity on classified programs described above in Total Net Sales, and $120 million at NCS, principally from the activity
on command and control systems programs described above in Total Net Sales.
Administrative and Selling Expenses
The increase in administrative and selling expenses of $30 million in 2011 compared to 2010 was primarily due to $62 million
of acquisition related expenses and $35 million of increased marketing and selling costs, the largest increase of which was
for opportunities on electronic warfare, airborne radar programs, NASA programs and certain classified programs, partially
offset by a decrease of $43 million in state income tax.
Administrative and selling expenses remained relatively consistent as a percentage of sales in 2010 compared to 2009.
The provision for state income taxes can generally be recovered through the pricing of products and services to the U.S.
Government. Net state income taxes allocated to our contracts were $16 million, $59 million and $25 million in 2011, 2010,
and 2009, respectively.
Research and Development Expenses
Research and development expenses remained relatively consistent as a percent of total net sales in 2011, 2010 and 2009.
Total Operating Expenses
The decrease in total operating expenses of $576 million in 2011 compared to 2010 was primarily due to the decrease in cost
of sales of $606 million, the primary drivers of which are described above in Total Cost of Sales, partially offset by the increase
in administrative and selling expenses of $30 million, the primary drivers of which are described above in Administrative and
Selling Expenses.
The increase in total operating expenses of $737 million in 2010 compared to 2009 was primarily due to the increase in cost
of sales of $556 million, the primary drivers of which are described above in Total Cost of Sales.
Operating Income
The increase in operating income of $250 million in 2011 compared to 2010 was primarily due to the decrease in operating
expenses of $576 million, the primary drivers of which are described above in Total Operating Expenses.
The decrease in operating income of $435 million in 2010 compared to 2009 was primarily due to the increase in operating
expenses of $737 million, the primary drivers of which are described above in Total Operating Expenses, partially offset by
the increase in total net sales of $302 million, the primary drivers of which are described above in Total Net Sales.
Non-Operating (Income) Expense, Net
The decrease in non-operating (income) expense, net of $8 million in 2011 compared to 2010 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, partially offset by $46 million of higher interest expense, principally due to the issuance of $2.0 billion of fixed rate
long-term debt in the fourth quarter of 2010, and an $18 million change in the fair value of investments held in rabbi trusts