Raytheon 2010 Annual Report Download - page 61

NCS is a leading provider of net-centric mission solutions for federal, state and local government and civil customers.
NCS leverages its capabilities in networking, sensors, command and control, and communications to develop and
produce solutions for customers in key markets such as U.S. Army modernization, international and domestic homeland
security, civil communications, and transportation solutions. NCS customers include the DoD and other U.S.
government customers, as well as numerous international customers.
Total Net Sales and Total Operating Expenses—The increase in net sales of $96 million in 2010 compared to 2009 was
primarily due to $223 million of higher net sales related to programs associated with Raytheon BBN Technologies (BBN),
which was acquired in the fourth quarter of 2009, primarily due to increased DoD research activities and force protection
awards, and $127 million of higher net sales, as planned due to a scheduled increase in design and production efforts on a
classified international program awarded in the fourth quarter of 2009. The increase in net sales was partially offset by
$144 million of lower net sales on a U.S. Army sensor program due to a planned decline in production and $81 million of
lower net sales on a combat vehicle sensor program, principally from lower volume, due to a program restructuring. The
increase in operating expenses of $69 million in 2010 compared to 2009 was driven primarily by the activity described
above.
The increase in net sales of $312 million in 2009 compared to 2008 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 compared to 2008 was driven primarily by
the activity described above.
Operating Income and Margin—The increase in operating income of $27 million in 2010 compared to 2009 was primarily
due to improved program performance spread across numerous programs, with no individual or common significant
driver, which had an $18 million impact on operating income and increased volume, which had a $13 million impact on
operating income, partially offset by a change in contract mix, which had a $4 million negative impact on operating
income, driven principally by lower volume on a U.S. Army sensor program. Operating margin in 2010 remained
relatively consistent with 2009.
The increase in operating income of $99 million in 2009 compared to 2008 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 described 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 compared to 2008 was primarily due to the improved program performance
described above.
Backlog and Bookings—The decrease in backlog of $589 million at December 31, 2010 compared to December 31, 2009
was primarily due to external sales in excess of bookings in 2010, principally within our Combat Systems product line.
The decrease in backlog of $232 million at December 31, 2009 compared to December 31, 2008 was primarily due to
lower bookings in 2009.
Bookings in 2010 remained relatively consistent with bookings in 2009. In 2010, NCS booked $254 million on the Standard
Terminal Automation Replacement System (STARS) program for the Federal Aviation Agency (FAA) and the DoD, $250
million for the Long Range Advanced Scout Surveillance Systems (LRAS3) program for the U.S. Army, $146 million on a
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