Raytheon 2012 Annual Report Download - page 52

44
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 $146 million in 2011 compared to 2010 was
primarily due to higher external service cost of sales of $129 million at SAS, driven principally by the activity on ISR systems
programs and RAST described above in Total Net Sales, and $118 million at IIS, driven principally by the activity on classified
programs described above in Total Net Sales. The increase in service cost of sales was partially offset by lower external service
cost of sales of $95 million at IDS, which was spread across numerous programs with no individual or common significant
driver.
Administrative and Selling Expenses
The decrease in administrative and selling expenses of $43 million in 2012 compared to 2011 was primarily due to decreases
in marketing and selling expenses of $47 million, $27 million lower of acquisition-related costs for RAST, and a $15 million
increase in insurance recovery, net of legal and period expenses, in connection with the UKBA Program dispute and arbitration
at IIS, partially offset by an increase of $62 million in state taxes allocated to our contracts.
The increase in administrative and selling expenses of $33 million in 2011 compared to 2010 was primarily due to $62 million
of acquisition-related expenses and $35 million of increased marketing and selling costs, the largest increase of which was
for opportunities on electronic warfare, airborne radar, NASA and certain classified programs, partially offset by a decrease
of $43 million in state taxes allocated to our contracts.
The provision for state income taxes can generally be recovered through the pricing of products and services to the U.S.
Government. Net state income taxes allocated to our contracts were $78 million, $16 million and $59 million in 2012, 2011,
and 2010, respectively.
Research and Development Expenses
The increase in research and development expenses of $79 million in 2012 compared to 2011 was primarily related to increased
bid and proposal expenses due to the timing of various radar, classified, electronic warfare and communications programs.
Research and development expenses remained relatively consistent in 2011 compared to 2010.
Total Operating Expenses
The decrease in total operating expenses of $536 million in 2012 compared to 2011 was primarily due to the decrease in total
cost of sales of $572 million, the primary drivers of which are described above in Total Cost of Sales.
The decrease in total operating expenses of $576 million in 2011 compared to 2010 was primarily due to the decrease in total
cost of sales of $609 million, the primary drivers of which are described above in Total Cost of Sales, partially offset by the
increase in administrative and selling expenses of $33 million, the primary drivers of which are described above in
Administrative and Selling Expenses.
Operating Income
The increase in operating income of $159 million in 2012 compared to 2011 was primarily due to the decrease in total operating
expenses of $536 million, the primary drivers of which are described above in Total Operating Expenses, partially offset by
the decrease in total net sales of $377 million, the primary drivers of which are described above in Total Net Sales. Included
in the change in operating income were the remaining net EAC adjustments described in Segment Results beginning on page
48.
The increase in operating income of $217 million in 2011 compared to 2010 was primarily due to the decrease in total operating
expenses of $576 million, the primary drivers of which are described above in Total Operating Expenses, partially offset by
the decrease in total net sales of $359 million, the primary drivers of which are described above in Total Net Sales.