Raytheon 2004 Annual Report Download - page 59

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41
military applications. SAS had 2004 sales of $4.1 billion versus $3.7 billion 2003 and $3.2 billion in 2002. The
increase in sales in 2004 was due to growth in classified and international programs. The increase in sales in 2003
was due to higher sales on classified and Airborne Radar programs for the Air Force such as Multi-Platform Radar
Technology Insertion Program, B-2 Radar Modernization Program, F-15 Korea, and increased production of the
F/A-22 Radar. Operating income was $568 million in 2004 versus $492 million in 2003 and $428 million in 2002.
Operating income was higher in 2004 due primarily to productivity improvements on production programs and
higher volume, partially offset by a $55 million charge on an international program as a result of a qualification test
failure.
Technical Services (TS) provides technical, scientific, and professional services for defense, federal, and
commercial customers worldwide. TS had 2004 sales of $2.1 billion versus $2.0 billion in 2003 and $2.1 billion in
2002. The decrease in sales in 2003 was due to the loss of several key programs. Operating income was $151 million
in 2004 versus $107 million in 2003 and $116 million in 2002. The decrease in operating income in 2003 was
primarily due to write-offs of $39 million related to an unfavorable change in scope on a long-term contract of $22
million and a provision for the collectibility of certain unbilled costs of $17 million. Included in operating income
for 2002 was a $28 million write-off of contract costs that the Company determined to be unbillable.
IDS, MS, NCS, SAS, and TS had sales growth rates in 2004 that were higher than the growth rates expected for
2005. The current market environment is consistent with the Company’s planning assumptions and performance
for the defense businesses, however, in the longer term, rising budget deficits, costs associated with current U.S.
Department of Defense operations overseas, and other issues affecting the U.S. Department of Defense budget may
represent a risk to future performance.
Raytheon Aircraft Company (RAC) designs, manufactures, markets, and provides after-market support for
business jets, turbo-props, and piston-powered aircraft for the world’s commercial, fractional ownership, and
military aircraft markets. RAC had 2004 sales of $2.4 billion versus $2.1 billion in 2003 and $2.0 billion in 2002. The
increase in sales in 2004 was primarily due to higher new aircraft sales. Operating income was $63 million in 2004
versus $2 million in 2003 and an operating loss of $39 million in 2002. The increase in operating income in 2004
was due to higher volume on new aircraft sales as well as productivity and cost savings initiatives implemented
throughout 2003 and 2004. The increase in operating income in 2003 was due to higher productivity and cost
saving initiatives implemented during 2003. Included in 2004 operating income was a $34 million favorable profit
adjustment on the T-6A Texan II military training aircraft (T-6A) program. Included in 2003 operating income was
a $50 million favorable profit adjustment on the T-6A program partially offset by a $22 million charge on the
Premier program reflecting cost estimate increases. Included in 2002 operating income was a $22 million favorable
profit adjustment on the T-6A program. The favorable profit adjustments on the T-6A program in 2004, 2003, and
2002 were due to option exercises and productivity improvements.
The Company has made significant investments in its Premier and Horizon aircrafts, the realization of which is
contingent upon future sales at forecasted prices and reductions in production costs on future deliveries. During
the fourth quarter of 2004, the Federal Aviation Administration granted a provisional type certification for the
Horizon aircraft. Revenue has not been recognized on the first Horizon aircraft as the Company leased this aircraft
back from the customer for demonstration and operational evaluation purposes.
The Other segment, which is comprised of Flight Options LLC (FO), Raytheon Airline Aviation Services LLC
(RAAS), and Raytheon Professional Services LLC (RPS) had 2004 sales of $675 million versus $573 million in 2003
and $210 million in 2002. FO offers services in the aircraft fractional ownership industry. RAAS manages the
Company’s commuter aircraft business. RPS works with customers to design and execute learning solutions. The
increase in sales in 2004 and 2003 was primarily due to the consolidation of FO in June 2003 as described below in
Major Affiliated Entities. The Other segment had an operating loss of $40 million in 2004 versus $34 million in
2003 and $12 million in 2002.