Raytheon 2011 Annual Report Download - page 49

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principally from higher volume driven by scheduled higher production build rates, and higher net sales on the Paveway™
program, principally from higher volume driven by scheduled production efforts on an international award. The increase in
external net sales at MS was partially offset by lower net sales on a non line-of-sight missile program, principally from lower
volume as the program received a stop work-order in the second quarter of 2010, and lower net sales on the KEI program,
which was terminated for convenience in the second quarter of 2009. The decrease in external net sales at IIS was primarily
due to $385 million of lower net sales on the UKBA Program, as described above and in Commitments and Contingencies
on page 68, driven principally by the $316 million adjustment recorded in the second quarter of 2010 from a change in our
estimated revenue and costs.
Products and Services Net Sales - 2010 vs. 2009—The decrease in product net sales of $375 million in 2010 compared to
2009 was primarily due to lower external product net sales of $576 million at IIS primarily due to lower net sales on the UKBA
Program, described above, partially offset by higher external product net sales of $179 million at SAS and $137 million at
MS, both principally due to the activity in the programs described above. The increase in service net sales of $677 million in
2010 compared to 2009 was primarily due to higher external service net sales of $312 million at TS, principally due to higher
service net sales from growth on TS’ training programs described above, $144 million at NCS, principally due to higher service
net sales related to command and control systems programs, and $136 million at IIS, principally due to higher service net
sales on classified programs.
Sales to Major Customers—Sales to the DoD were 82%, 85% and 84% of total net sales in 2011, 2010 and 2009, respectively.
Sales to the U.S. Government were 86% of total net sales in 2011, and 88% of total net sales in 2010 and 2009. Included in
both DoD and U.S. Government sales were foreign military sales through the U.S. Government of $3.0 billion, $3.3 billion
and $2.8 billion in 2011, 2010 and 2009, respectively. As described above in Industry Considerations, U.S. defense spending
levels are difficult to predict due to numerous factors, including U.S. Government budget appropriation decisions and geo-
political events and macroeconomic conditions. Total international sales, including foreign military sales through the U.S.
Government, were $6.2 billion or 25% of total net sales, $5.8 billion or 23% of total net sales and $5.3 billion or 21% of total
net sales in 2011, 2010 and 2009, respectively.
Total Cost of Sales
Cost of sales, for both products and services, consists of material, labor, and subcontract costs, as well as related allocated
costs. For each of our contracts, we manage the nature and amount of direct costs at the contract level, and manage indirect
costs through cost pools as required by government accounting regulations. The estimate of the actual amount of direct costs
and indirect costs form the basis for estimating our total costs at completion of the contract.
Total Cost of Sales - 2011 vs. 2010—The decrease in total cost of sales of $606 million in 2011 compared to 2010 was primarily
due to decreased external costs of $479 million at IDS, driven primarily by the activity on the U.S. Navy combat systems
program and international Patriot program described above in Total Net Sales, $340 million at NCS, driven primarily by the
activity on the U.S. Army sensor programs, combat vehicle sensor program and a U.S. Army radar support program described
above in Total Net Sales, partially offset by the activity on numerous other programs, including acoustic sensor system sales
and combat vehicle sensor program sales for domestic and international customers described above in Total Net Sales, and
$146 million at TS driven primarily by the activity on the DTRA program and training programs described above in Total Net
Sales, partially offset by the activity on depot services operation programs described above in Total Net Sales. The decreases
in external costs were partially offset by increased external costs of $395 million at SAS driven primarily by the activity on
RAST programs, the intelligence, surveillance and reconnaissance systems programs, and the international airborne tactical
radar program described above in Total Net Sales, and $150 million of higher expense in 2011 compared to 2010 related to
the FAS/CAS Adjustment described below in Segment Results. Included in cost of sales in the 2011 was $80 million related
to the drawdown by the UKBA on letters of credit provided by RSL (UKBA LOC Adjustment), as described in Commitments
and Contingencies on page 68. Included in cost of sales in 2010 was $79 million related to the UKBA Program Adjustment
described above in Total Net Sales.
Products and Services Cost of Sales - 2011 vs. 2010—The decrease in product cost of sales of $747 million in 2011 compared
to 2010 was primarily due to lower external product cost of sales of $384 million at IDS and $349 million at NCS, driven
principally by the activity on the programs described above, $188 million at IIS, driven primarily by activity on the UKBA
Program described above in Total Net Sales and lower external product net sales on various classified programs, and $152
million at MS, driven principally by the activity on the programs described above in Total Net Sales. The decrease in product
cost of sales was partially offset by higher external product cost of sales of $266 million at SAS, driven primarily by the
activity in the programs described above. The increase in service cost of sales of $141 million in 2011 compared to 2010 was