Raytheon 2015 Annual Report Download - page 52

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in external products net sales at MS and IDS was primarily due to the programs discussed above. The increase in external
products net sales at Forcepoint was principally driven by the acquisition of Websense. The decrease in external products net
sales at IIS was primarily due to lower net sales on a classified program for an international customer. The decrease in external
products net sales at SAS was primarily due to the international tactical radar systems programs discussed above. The increase
in services net sales of $104 million in 2015 compared to 2014 was primarily due to higher external services net sales of $142
million at IDS, driven principally by higher services net sales on radar sustainment programs for the Missile Defense Agency
(MDA) and new service program awards, partially offset by lower services net sales on various other programs.
Total Net Sales - 2014 vs. 2013—The decrease in total net sales of $880 million in 2014 compared to 2013 was primarily due
to lower external net sales of $404 million at IDS and $267 million at MS. The decrease in external net sales at IDS was
primarily due to lower net sales from the scheduled completion of certain production phases on various Patriot programs for
international customers, lower net sales on a close combat tactical radar program due to planned decreases in production and
lower net sales on a missile defense radar program for an international customer also due to planned decreases in production.
The decrease in external net sales at IDS was partially offset by higher net sales from an international air defense system
program awarded in the fourth quarter of 2013, higher net sales from an international Patriot program awarded in the first
quarter of 2014 and higher net sales from an international Patriot program awarded in the fourth quarter of 2014 driven
primarily by previously deferred precontract costs. The remaining decrease at IDS was spread across numerous programs
with no individual or common significant driver. The decrease in external net sales at MS was primarily due to lower net sales
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 service net sales at IIS of $118 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.
Sales to Major Customers—The following is a breakdown of net sales to major customers:
% of Total Net Sales
(In millions, except percentages) 2015 2014 2013 2015 2014 2013
Sales to the U.S. government(1) $ 15,767 $ 16,083 $ 17,019 68% 70% 72%
Sales to the U.S. Department of Defense(1) 14,876 15,059 16,015 64% 66% 68%
Total international sales(2) 7,150 6,541 6,446 31% 29% 27%
Foreign direct commercial sales(1) 4,336 3,579 3,384 19% 16% 14%
Foreign military sales through the U.S.
government 2,814 2,962 3,062 12% 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.