Raytheon 2009 Annual Report Download - page 65

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Network Centric Systems
% Change
(In millions, except percentages) 2009 2008 2007
2009
compared
to 2008
2008
compared
to 2007
Total Net Sales $4,822 $4,510 $4,164 6.9% 8.3%
Total Operating Expenses 4,148 3,935 3,632 5.4% 8.3%
Operating Income 674 575 532 17.2% 8.1%
Operating Margin 14.0% 12.7% 12.8%
Bookings $3,933 $4,938 $3,904 -20.4% 26.5%
Total Backlog 5,501 5,733 5,102 -4.0% 12.4%
NCS is a leading provider of net-centric mission solutions for government and civil customers. NCS leverages its
capabilities in networking, command and control, and communications to develop and produce solutions for customers
including the U.S. Army, Air Force, Navy and Marine Corps and other government customers, as well as numerous
international customers. On October 26, 2009, NCS acquired BBN, a strategic research partner with the DoD and a
provider of critical solutions for national defense and security missions.
Total Net Sales and Total Operating Expenses—The increase in net sales of $312 million in 2009 was primarily due to $261
million of higher net sales across various production programs, primarily certain U.S. Army programs, principally from
higher volume driven by increases in production to meet program delivery schedule requirements, as anticipated, as well
as $112 million of higher intersegment sales related to precision mechanical products and related design engineering. The
increase in net sales was also due to $53 million of higher net sales, principally from higher volume on a precision
approach and landing program for the U.S. Navy awarded in the third quarter of 2008 and $41 million of higher net sales
related to BBN. The increase in net sales was partially offset by $144 million of lower net sales, principally from lower
volume on a U.S. Army communications program that substantially completed production efforts on the initial contract,
as planned, in the third quarter of 2008. The increase in operating expenses of $213 million in 2009 was driven primarily
by the activity described above.
The increase in net sales of $346 million in 2008 was primarily due to $374 million of higher net sales on certain U.S.
Army programs, principally from higher volume, as anticipated, driven by increases in production to meet program
delivery schedule requirements, including $89 million on an integrated ground combat surveillance program, $88 million
on a communications program and $68 million on a long-range multi-sensor system program. The increase in operating
expenses of $303 million in 2008 was driven primarily by the activity in the programs described above.
Operating Income and Margin—The increase in operating income of $99 million in 2009 was primarily due to improved
program performance on a broad range of programs of $76 million and higher volume, which had an $18 million impact
on operating income. Of the $76 million in improved program performance, $29 million is attributable to the production
programs discussed above, driven by lower estimated labor and material costs at completion from achieved production
efficiencies. These production efficiencies were the result of increased production volume across these programs which
allowed us to leverage existing capacity, incur lower production labor hours and experience improved yields. The
remaining improved program performance included overhead cost improvement initiatives and other program
performance that was spread across numerous contracts with no other individual or common significant driver. The
improvement in operating margin in 2009 was primarily due to the improved program performance.
The increase in operating income of $43 million in 2008 was primarily due to increased volume, principally on certain
U.S. Army programs, which had a $38 million impact on operating income. Operating margin in 2008 remained
relatively consistent with 2007.
Backlog and Bookings—The decrease in backlog of $232 million at December 31, 2009 compared to December 31, 2008
was primarily due to lower bookings in 2009. Backlog at December 31, 2009 includes $300 million related to BBN. The
increase in backlog of $631 million at December 31, 2008 compared to December 31, 2007 was primarily due to an
increase in U.S. Army awards in 2008.
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