Raytheon 2009 Annual Report Download - page 59

funding has not been appropriated. We believe bookings are an important measure of future performance and are an
indicator of potential future changes in net sales since we cannot record revenues under a new contract without first
having a booking in the current or preceding period (i.e., a contract award).
Total Net Sales and Total Operating Expenses: We generally express changes in net sales in terms of volume. Volume
generally refers to increases or decreases in revenues related to varying amounts of total operating expenses, which are
comprised of cost of sales, administrative and selling expense and research and development expense, incurred on
individual contracts (i.e., from performance against contractual commitments on our bookings related to engineering,
production or service activity). Therefore, we discuss volume changes attributable principally to individual programs
unless there is a discrete event (e.g., a major contract termination, natural disaster or major labor strike, etc.), or some
other unusual item that has a material effect on changes in a segment’s volume for a reported period. Due to the nature of
our contracts, the amount of costs incurred and related revenues will naturally fluctuate over the life of the contracts. As a
result, in any reporting period, the changes in volume on numerous contracts are likely to be due to normal fluctuations
in our production activity or service levels.
Operating Income (and the related operating margin percentage): We generally express changes in segment operating
income in terms of volume, changes in program performance or changes in contract mix. Changes in volume discussed
in net sales typically drive corresponding changes in our operating income based on the profit rate for a particular
contract. Changes in program performance typically relate to profit recognition associated with revisions to total
estimated costs at completion that reflect improved or deteriorated operating performance or award fee rates. Changes in
contract mix refer to changes in operating margin due to a change in the relative volume of contracts with higher or lower
fee rates such that the overall average margin rate for the segment changes. Because each segment has thousands of
contracts, in any reporting period, changes in operating income and margin are likely to be due to normal changes in
volume, program performance and mix on many contracts with no single change or series of related changes materially
driving a segment’s change in operating income or operating margin percentage.
Backlog: We disclose period ending backlog for each segment. Backlog represents the dollar value of contracts awarded for
which work has not been performed. Backlog generally increases with bookings and generally converts into sales as we
incur costs under the related contractual commitments. We therefore discuss changes in backlog, including any
significant cancellations, for each of our segments, as we believe such discussion provides an understanding of the
awarded but not executed portion of our contracts.
Segment financial results were as follows:
Total Net Sales (In millions) 2009 2008 2007
Integrated Defense Systems $ 5,525 $ 5,148 $ 4,695
Intelligence and Information Systems 3,204 3,132 2,742
Missile Systems 5,561 5,408 5,026
Network Centric Systems 4,822 4,510 4,164
Space and Airborne Systems 4,582 4,280 4,202
Technical Services 3,161 2,601 2,174
Corporate and Eliminations (1,974) (1,905) (1,702)
Total $24,881 $23,174 $21,301
Operating Income (In millions) 2009 2008 2007
Integrated Defense Systems $ 859 $ 870 $ 828
Intelligence and Information Systems 259 253 248
Missile Systems 604 584 543
Network Centric Systems 674 575 532
Space and Airborne Systems 647 569 556
Technical Services 215 174 139
FAS/CAS Pension Adjustment 27 (123) (259)
Corporate and Eliminations (243) (282) (233)
Total $ 3,042 $2,620 $2,354
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