Raytheon 2011 Annual Report Download - page 60

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IIS is a leader in intelligence, surveillance and reconnaissance (ISR), advanced cyber solutions, and U.S. Department of
Defense (DoD) space, weather and environmental solutions. Approximately half of its business is for classified customers.
Key customers include the U.S. Intelligence Community, DoD agencies, the National Oceanic and Atmospheric
Administration, the Department of Homeland Security, the Federal Bureau of Investigation and the National Aeronautics and
Space Administration (NASA).
Total Net Sales—The increase in net sales of $258 million in 2011 compared to 2010 was primarily due to the difference in
net sales from the UKBA Program. Net sales from the UKBA Program in 2010 were lower than 2011 by $240 million,
primarily due to the UKBA Program Adjustment, as described in Commitments and Contingencies on page 68, which negatively
impacted 2010 net sales by $316 million. Also included in the increase in net sales was $85 million of higher net sales on a
GPS command, control, and mission capabilities program awarded in the first quarter of 2010, primarily as a result of scheduled
design and build efforts. The remaining change in net sales was primarily spread across numerous domestic programs.
The decrease in net sales of $447 million in 2010 compared to 2009 was primarily due to $385 million of lower net sales on
the UKBA Program driven principally by the UKBA Program Adjustment, which had a $316 million impact on net sales, $68
million of lower net sales on a distributed ground systems program for the U.S. Air Force principally from lower volume as
a result of the planned program schedule, and $65 million of lower net sales on certain classified programs. The decrease in
net sales was partially offset by $104 million of higher net sales, as a result of scheduled design and build efforts on a GPS
command, control, and mission capabilities program.
Total Operating Expenses—The decrease in operating expenses of $58 million in 2011 compared to 2010 was driven primarily
by a reduction in operating expenses related to the UKBA Program. Included in other cost of sales and other operating expenses
in 2011 was $80 million related to the UKBA LOC Adjustment, as described in Commitments and Contingencies on page 68.
Included in other cost of sales and other operating expenses in 2010 was $79 million related to the UKBA Program Adjustment.
The decrease in operating expenses of $38 million in 2010 compared to 2009 was primarily due to lower volume on the
distributed ground systems program for the U.S. Air Force and certain classified programs for the reasons described above in
Total Net Sales, partially offset by higher volume on GPS command, control, and mission capabilities program for the reasons
described above in Total Net Sales. The decrease of $153 million in materials and subcontractor costs in 2010 compared to
2009 was driven primarily by the net lower volume on these programs and $91 million related to lower volume on the UKBA
Program. The increase of $111 million in other cost of sales and other operating expenses in 2010 compared to 2009 was
primarily due to the UKBA Program Adjustment, which had a $79 million impact on operating expenses.
Operating Income and Margin—The increase in operating income of $316 million and the related increase in operating margin
in 2011 compared to 2010 was primarily due to a net change in EAC adjustments of $297 million, principally driven by the
UKBA Program Adjustment in 2010, which had an impact of $395 million, partially offset by the UKBA LOC Adjustment
in 2011, which had an impact of $80 million. Operating income in 2011 included $21 million of legal and other period expenses
in connection with the UKBA Program dispute and arbitration compared to $10 million of legal and other period costs in
2010. Operating income in 2011 included $9 million relating to an insurance recovery. IIS' operating income was also reduced
by approximately $14 million in 2011 and $17 million in 2010 by certain cyber security related acquisition costs and
investments.
The decrease in operating income of $409 million in 2010 compared to 2009 and the related decrease in operating margin
was primarily due to a net change in EAC adjustments of $379 million, principally driven by $395 million related to the UKBA
Program Adjustment recorded in the second quarter of 2010, partially offset by $16 million of favorable net change in EAC
adjustments spread across numerous programs, and a change in contract mix and other performance of $24 million, principally
driven by the UKBA Program. Operating income was also reduced by approximately $17 million in 2010 and 2009 by certain
cybersecurity-related acquisition costs and investments.
Backlog and Bookings—Backlog remained relatively consistent and was $4,366 million, $4,319 million and $4,360 million
at December 31, 2011, 2010 and 2009, respectively.
Bookings decreased $492 million in 2011 compared to 2010. In 2011, IIS booked $520 million on the JPSS program for
NASA, $183 million on a contract to provide ISR support to the U.S. Air Force and $134 million for development on the
Global Positioning System Advanced Control Segment (GPS-OCX) program for the U.S. Air Force. IIS also booked $1,554
million on a number of classified contracts.