Raytheon 2012 Annual Report Download - page 51

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IDS was spread across numerous programs with no individual or common significant driver.
Sales to Major Customers—Sales to the DoD were 82%, 82% and 85% of total net sales in 2012, 2011 and 2010, respectively.
Sales to the U.S. Government were 86% of total net sales in 2012 and 2011, and 89% of total net sales in 2010. Included in
both DoD and U.S. Government sales were foreign military sales through the U.S. Government of $3.2 billion, $3.0 billion
and $3.3 billion in 2012, 2011 and 2010, 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 26% of total net sales, $6.1 billion or 25% of total net sales and $5.8 billion or 23% of total
net sales in 2012, 2011 and 2010, respectively.
Total Cost of Sales
Cost of sales, for both products and services, consists of labor, material 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 - 2012 vs. 2011—The decrease in total cost of sales of $572 million in 2012 compared to 2011 was primarily
due to decreased external costs of $196 million at NCS and $132 million at TS, and $82 million of lower expense in 2012
compared to 2011 related to the FAS/CAS Adjustment described below in Segment Results. The decrease in external costs at
NCS was driven primarily by the activity on the programs described above in Total Net Sales. The decrease in external costs
at TS was driven primarily by the activity on the NSF Polar contract described above in Total Net Sales. Included in cost of
sales in 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, beginning on page 72.
Products and Services Cost of Sales - 2012 vs. 2011—The decrease in products cost of sales of $533 million in 2012 compared
to 2011 was primarily due to lower external product cost of sales of $188 million at IIS, $147 million at NCS, and $120 million
at SAS. The decrease in external product cost of sales at IIS was driven principally by activity on the UKBA Program, including
$80 million related to the UKBA LOC Adjustment in the first quarter of 2011, as described in Commitments and Contingencies
beginning on page 72. The decrease in external product cost of sales at NCS was driven principally by the activity on the
programs described above in Total Net Sales. The decrease in external product cost of sales at SAS was primarily due to
activity on various classified programs. Service cost of sales in 2012 was relatively consistent with 2011. Included in services
cost of sales in 2012 was higher external service cost of sales of $107 million at IIS, driven principally by the activity on the
programs described above in Total Net Sales, partially offset by lower external service cost of sales of $101 million at TS,
driven principally by the activity on the NSF Polar contract described above in Total Net Sales.
Total Cost of Sales - 2011 vs. 2010—The decrease in total cost of sales of $609 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 ISR 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, beginning on page 72.
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 $755 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