Raytheon 2014 Annual Report Download - page 52

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on land warfare systems programs driven principally by planned declines in production due to the U.S. Army budget
environment.
Products and Services Net Sales - 2014 vs. 2013—The decrease in products net sales of $729 million in 2014 compared to
2013 was primarily due to lower external products net sales of $403 million at IDS and $263 million at MS, both driven
principally by the programs described above. The decrease in services net sales of $151 million in 2014 compared to 2013
was primarily due to lower external services net sales at IIS of $111 million, driven principally by lower net sales on training
programs supporting the U.S. Army's Warfighter FOCUS activities resulting from a decrease in customer-determined activity
levels.
Total Net Sales - 2013 vs. 2012—The decrease in total net sales of $708 million in 2013 compared to 2012 was primarily due
to lower external net sales of $324 million at SAS and $323 million at IIS. The decrease in external net sales at SAS was
primarily due to lower net sales on certain classified programs and on certain intelligence, surveillance and reconnaissance
programs due to reduced program requirements. The decrease in external net sales at IIS was primarily due to lower net sales
on classified programs, lower net sales on training programs supporting the U.S. Army’s Warfighter FOCUS activities due to
a decrease in customer determined activity levels, and lower net sales on the National Science Foundation (NSF) Polar program,
which was completed in the first quarter of 2012.
Products and Services Net Sales - 2013 vs. 2012—The decrease in products net sales of $525 million in 2013 compared to
2012 was primarily due to lower external products net sales of $306 million at SAS, principally driven by the programs and
for the reasons described above. The decrease in services net sales of $183 million in 2013 compared to 2012 was primarily
due to lower external services net sales of $207 million at IIS, principally driven by the training programs supporting the U.S.
Army's Warfighter FOCUS activities and the NSF Polar program described above.
Sales to Major Customers—The following is a breakdown of net sales to major customers:
% of Total Net Sales
(In millions, except percentages) 2014 2013 2012 2014 2013 2012
Sales to the U.S. Government(1) $ 16,083 $ 17,019 $ 17,861 70% 72% 73%
Sales to the U.S. Department of Defense(1) 15,059 16,015 16,818 66% 68% 69%
Total international sales(2) 6,541 6,446 6,232 29% 27% 26%
Foreign direct commercial sales(1) 3,579 3,384 3,036 16% 14% 12%
Foreign military sales through the U.S.
Government 2,962 3,062 3,196 13% 13% 13%
(1) Excludes foreign military sales through the U.S. Government.
(2) Includes foreign military sales through the U.S. Government.
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, geopolitical events and macroeconomic conditions.
Total Cost of Sales
Cost of sales, for both products and services, consists of labor, materials and subcontractors 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 and
indirect costs forms the basis for estimating our total costs at completion of the contract.
% of Total Net Sales
(In millions, except percentages) 2014 2013 2012 2014 2013 2012
Cost of sales
Products $ 14,260 $ 15,292 $ 15,712 62.5% 64.5% 64.4%
Services 3,035 3,240 3,380 13.3% 13.7% 13.8%
Total cost of sales $ 17,295 $ 18,532 $ 19,092 75.8% 78.2% 78.2%