Raytheon 2009 Annual Report Download - page 55

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external net sales was primarily due to higher volume on the Advanced Medium-Range Air-to-Air Missile (AMRAAM),
Rolling Airframe Missile (RAM), Phalanx, Paveway TM and Tube-launched Optically guided Wire controlled missile
(TOW) programs as discussed below in MS segment results. The increase in IIS external net sales was primarily due to
higher volume on an international advanced border control and security program and a competitive design program for
the U.S. Air Force’s next generation global positioning ground system as discussed below in IIS segment results. The
increase in NCS external net sales was primarily due to higher volume on certain U.S. Army programs as discussed below
in NCS segment results. The increase in TS external net sales was primarily due to higher volume on training programs,
principally the Warfighter FOCUS activities, as discussed below in TS segment results. The increase in product net sales
of $1,468 million in 2008 compared to 2007 was primarily due to the higher external net sales at MS, IIS, NCS and IDS.
The increase in service net sales of $405 million in 2008 compared to 2007 was primarily due to the higher external net
sales at TS.
Sales to the U.S. DoD were 84%, 83% and 81% of total net sales in 2009, 2008 and 2007, respectively. Total sales to the
U.S. Government were 88%, 87% and 86% of total net sales in 2009, 2008 and 2007, respectively. Included in U.S.
Government sales and U.S. DoD sales were foreign military sales through the U.S. Government of $2.8 billion, $1.8
billion and $1.5 billion in 2009, 2008 and 2007, respectively. We currently expect defense market trends to continue to
positively impact our sales in 2010. However, as discussed above in Industry Considerations, projected defense spending
levels are uncertain and become increasingly difficult to predict for periods beyond the near-term due to numerous
factors, such as U.S. Government budget appropriation decisions and geo-political events and macroeconomic
conditions, which are beyond our control. Total international sales, including foreign military sales, were $5.3 billion or
21% of total net sales, $4.6 billion or 20% of total net sales and $4.2 billion or 20% of sales in 2009, 2008 and 2007,
respectively. Total classified sales were 13%, 12% and 13% of total net sales in 2009, 2008 and 2007, respectively.
Cost of Sales
The increase in cost of sales of $1,258 million in 2009 compared to 2008 was primarily due to $1,408 million of increased
costs, the primary drivers of which are discussed above in Total Net Sales and in Segment Results below, offset by lower
expense of $150 million related to the FAS/CAS Pension Adjustment discussed below. The increase in cost of product
sales of $501 million in 2009 compared to 2008 was primarily due to increased costs at IDS, SAS and MS, the primary
drivers of which are discussed above in Total Net Sales and in Segment Results below. The increase in cost of service sales
of $757 million in 2009 compared to 2008 was primarily due to increased costs at TS, the primary drivers of which are
discussed below in TS segment results.
The increase in cost of sales of $1,478 million in 2008 compared to 2007 was primarily due to $1,614 million of increased
costs, the primary drivers of which are discussed above in Total Net Sales and in Segment Results below, offset by lower
expense of $136 million related to the FAS/CAS Pension Adjustment discussed below. The increase in cost of product
sales of $1,139 million in 2008 compared to 2007 was primarily due to increased costs at IIS, MS, NCS and IDS, the
primary drivers of which are discussed above in Total Net Sales and in Segment Results below. The increase in cost of
service sales of $339 million in 2008 compared to 2007 was primarily due to increased costs at TS, the primary drivers of
which are discussed below in TS segment results.
The FAS/CAS Pension Adjustment was $27 million of income, $123 million of expense and $259 million of expense in
2009, 2008 and 2007, respectively. The FAS/CAS Pension Adjustment, which we report as a separate line item in our
segment results, represents the difference between our pension expense or income under FAS in accordance with GAAP
and our pension expense under CAS. The results of each segment only include pension expense under CAS that we
generally recover through the pricing of our products and services to the U.S. Government. For more information on the
FAS/CAS Pension Adjustment, see our discussion below in Segment Results.
Administrative and Selling Expenses
The decrease in administrative and selling expenses of $21 million in 2009 compared to 2008 was primarily due to lower
state tax payments driven by the utilization of overpayment credits from 2008. Administrative and selling expenses
remained consistent as a percent of total net sales in 2008 compared to 2007. 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 $25 million, $122 million and $81 million in 2009, 2008 and 2007, respectively.
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