Raytheon 2006 Annual Report Download - page 71

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Net Sales. The increase in sales in 2006 was primarily due to the ramp up on several development programs including
Non-Line of Sight Launch System (NLOS) and Standard Missile 6. Sales also increased due to production on Advanced
Medium Range Air-to-Air Missile (AMRAAM) and Standard Missile 2, which received various international awards in
2006 and Tube-launched Optically-guided Wire-controlled missile (TOW) which returned to full rate production
following a gap in 2005. These sales increases were partially offset by lower Paveway guided munitions production and
the completion of several classified programs. The increase in sales in 2005 was due primarily to increased quantities on
Tactical Tomahawk resulting from the transition to full rate production and the gradual increases in support of
requirements for several development programs including Kinetic Energy Interceptor (KEI), SM-3, Standard Missile 6
and NLOS. Sales growth is expected to slow in 2007 as a number of development programs reach peak levels prior to
transitioning to production.
Operating Income and Margin. The increase in operating income in 2006 was due to increased sales on several production
and development programs. Operating income in 2006 also included an award fee from a successful SM-3 flight test. The
decline in operating margin in 2005 was due to the wind-down of cost recovery for prior restructuring actions.
Bookings and Backlog. In 2006, MS booked $780 million for additional development on KEI for the Missile Defense
Agency, $678 million for the EKV contract and $625 million on SM-3. In 2004, MS booked $2.1 billion for the KEI
system contract, $544 million for the NLOS contract and $500 million on SM-3.
Network Centric Systems (NCS)
% Change
(In millions except percentages) 2006 2005 2004
2006
versus
2005
2005
versus
2004
Net Sales $3,561 $3,205 $3,050 11.1% 5.1%
Operating Income 379 333 269 13.8% 23.8%
Operating Margin 10.6% 10.4% 8.8%
Gross Bookings 4,037 3,698 3,219 9.2% 14.9%
Total Backlog 5,059 4,307 3,587 17.5% 20.1%
NCS develops and produces net-centric mission solutions for networked sensors, command and control
communications, air traffic management and homeland security. During 2006, NCS acquired Houston Associates, Inc.
and Virtual Technology Corporation. Both companies complement NCS’ network systems capabilities portfolio. NCS
also expanded its business in the emerging homeland security market for border and perimeter security, winning a
contract to develop and implement the Perimeter Intrusion Detection System (PIDS) for the Port Authority of New York
and New Jersey.
Net Sales. The increase in sales in 2006 was due to accelerated production on certain contracts at the customer’s request in
support of the Iraqi Freedom campaign mainly in the Combat Systems business. The increase in sales was also due to the
continued ramp up in the Future Combat System Ground Sensor Integrator program (FCS-GSI). This growth was
partially offset by the continued ramp down on Thermal Weapon Site (TWS) and by a slowing in the secondary air traffic
radar market. The increase in sales in 2005 was due to growth in development and communications programs. This
growth was offset by TWS and DDG 1000 programs and the divestiture of Raytheon Commercial Infrared. The 2007 sales
growth rate is expected to be lower than that experienced in 2006 as a result of the accelerated production on certain
programs in 2006 related to the Iraqi Freedom campaign.
Operating Income and Margin. The increase in operating income and margin in 2006 was driven by increased volume and
continued program performance improvements. The increase in operating margin in 2005 related to program
performance improvements on production programs.
Bookings and Backlog. In 2006 NCS booked $363 million to provide Horizontal Technology Integration (HTI) forward-
looking infrared kits and systems to the U.S. Army. In addition, in 2006 NCS booked two contracts for its Improved
Target Acquisition System (ITAS) for the U.S. Army and Marines which totaled $447 million. In 2005, NCS booked
$484 million for the FCS-GSI contract.
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