Raytheon 2013 Annual Report Download - page 59

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circumstances indicate that our previously estimated amounts are no longer reasonable. The timing of awards that may cover
multiple fiscal years influences the size of bookings in each year. Bookings exclude unexercised contract options and potential
orders under ordering-type contracts (e.g., indefinite delivery/indefinite quantity (IDIQ) type contracts), and are reduced for
contract cancellations and terminations of bookings recognized in the current year. We reflect contract cancellations and
terminations from prior year bookings, as well as the impact of changes in foreign exchange rates, directly as an adjustment
to backlog in the period in which the cancellation or termination occurs and the impact is determinable.
Backlog—We disclose period-ending backlog for each segment. Backlog represents the dollar value of firm orders for which
work has not been performed. Backlog generally increases with bookings and generally converts into sales as we incur costs
under the related contractual commitments. Therefore, we discuss changes in backlog, including any significant cancellations,
for each of our segments, as we believe such discussion provides an understanding of the awarded but not executed portions
of our contracts.
Funded Backlog Total Backlog
Backlog at December 31 (In millions) 2013 2012 2011 2013 2012 2011
Integrated Defense Systems $ 9,397 $ 9,188 $ 8,512 $10,916 $11,656 $11,547
Intelligence, Information and Services 2,592 2,848 2,821 5,856 6,409 7,027
Missile Systems 6,859 7,535 6,957 9,162 10,676 9,446
Space and Airborne Systems 4,166 4,476 4,172 7,751 7,440 7,292
Total $23,014 $24,047 $22,462 $33,685 $36,181 $35,312
Total backlog includes both funded backlog (firm orders for which funding is authorized, appropriated and contractually
obligated by the customer for which work has not been performed) and unfunded backlog (firm orders for which funding has
not been appropriated and/or contractually obligated by the customer for which work has not been performed). Revenue is
generally not recognized on backlog until funded. Backlog excludes unexercised contract options and potential orders under
ordering-type contracts (e.g., IDIQ). Both funded and unfunded backlog are affected by changes in foreign exchange rates.
Total Net Sales—We generally express changes in net sales in terms of volume. Volume generally refers to increases or
decreases in revenues related to varying amounts of total operating expenses, which are comprised of cost of sales and general
and administrative expenses, which include administrative and selling expenses (including bid and proposal costs) and research
and development expenses, incurred on individual contracts (i.e., from performance against contractual commitments on our
bookings related to engineering, production or service activity). Therefore, we discuss volume changes attributable principally
to individual programs unless there is a discrete event (e.g., a major contract termination, natural disaster or major labor strike),
or some other unusual item that has a material effect on changes in a segment's volume for a reported period. Due to the nature
of our contracts, the amount of costs incurred and related revenues will naturally fluctuate over the lives of our contracts. As
a result, in any reporting period, the changes in volume on numerous contracts are likely to be due to normal fluctuations in
our engineering, production or service activities.
Total net sales by segment were as follows:
Total Net Sales (In millions) 2013 2012 2011
Integrated Defense Systems $ 6,489 $ 6,492 $ 6,441
Intelligence, Information and Services 6,045 6,335 6,470
Missile Systems 6,599 6,639 6,801
Space and Airborne Systems 6,371 6,823 6,818
Corporate and Eliminations (1,798)(1,875)(1,739)
Total $23,706 $24,414 $24,791
Total Operating Expenses—We generally disclose operating expenses for each segment in terms of the following: 1) cost of
sales—labor; 2) cost of sales—materials and subcontractors; and 3) other costs of sales and other operating expenses. Included
in cost of sales—labor is the incurred direct labor associated with the performance of contracts in the current period and any
applicable overhead and fringe costs. Included in cost of sales—materials and subcontractors is the incurred direct materials,
subcontractor costs (which could include effort performed by other Raytheon segments or locations), and applicable overhead
allocations in the current period. Included in other cost of sales and other operating expenses is other direct costs not captured