Raytheon 2015 Annual Report Download - page 63

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change in mix and other performance was principally driven by lower volume on the various Patriot programs for international
customers, partially offset by higher volume on the international Patriot program awarded in the second quarter of 2015, both
of which are described above in Total Net Sales. The increase in volume was primarily due to the activity on the programs
described above in Total Net Sales.
The net change in EAC adjustments in 2015 compared to 2014 was primarily due to net EAC adjustments of approximately
$72 million in 2014 driven primarily by the reduction of expected costs to fulfill contractual commitments on nine contracts
related to industrial cooperation agreements for an international customer as further discussed below, partially offset by a net
increase in EAC adjustments of $59 million on our AWD program primarily driven by the adjustments discussed below. Prior
to a contract modification and restructure of the AWD program in the fourth quarter of 2015, our incentives fees were tied
directly to both our cost performance and the cost performance of the shipyard. This resulted in an unfavorable EAC adjustment
in the second quarter of 2014 of $38 million from a decrease in estimated incentive fees driven by an increase in expected
costs by the shipbuilder to complete its portion of the program and a further EAC adjustment in the second quarter of 2015
of $33 million to eliminate all remaining estimated incentive fees due to the shipbuilder further extending the planned schedule
and a related increase in costs to complete its portion of the program. The contract modification and restructure of the AWD
program in the fourth quarter of 2015 resulted in a change in the incentive fee structure such that almost all of our incentive
fees are now tied solely to our performance which resulted in a favorable $53 million EAC adjustment in the fourth quarter
of 2015. The decrease in operating margin in 2015 compared to 2014 was primarily due to the change in mix and other
performance.
The decrease in operating income of $141 million in 2014 compared to 2013 was due to net change in EAC adjustments of
$55 million, decreased volume of $47 million and a change in mix and other performance of $39 million. The net change in
EAC adjustments was primarily due to a $35 million change in net adjustments on the AWD program primarily driven by a
$38 million adjustment for a decrease in estimated incentive fees in the second quarter of 2014 due to an increase in expected
costs by the shipbuilder to complete their portion of the program, and a $28 million change in net adjustments on an integrated
air and missile defense program driven by an increase in estimated costs due to higher expected effort than previously planned,
partially offset by a $30 million change in net adjustments related to the industrial cooperation agreements for an international
customer discussed below. The remaining change in net EAC adjustments was spread across numerous programs with no
individual or common significant driver.
Included in net EAC adjustments was approximately $72 million in 2014 compared to $42 million in 2013 driven primarily
by the reduction of expected costs to fulfill contractual commitments on nine contracts related to industrial cooperation
agreements for an international customer driven by favorable experience in the fourth quarters of 2014 and 2013. One of these
contracts in the fourth quarter of 2014 had an adjustment of $36 million, driven almost entirely by the reduction of expected
costs related to the industrial cooperation agreements. Another one of these contracts in the fourth quarter of 2014 had an
adjustment of $35 million, of which $22 million was driven by the reduction of expected costs related to the industrial
cooperation agreements and the remainder of which was driven by favorable cost performance.
The decrease in volume in 2014 compared to 2013 was driven principally by the programs described above in Total Net Sales.
The change in mix and other performance in 2014 compared to 2013 was principally driven by lower net sales on various
Patriot programs for international customers described above in Total Net Sales. The decrease in operating margin in 2014
compared to 2013 was primarily due to the net change in EAC adjustments and the change in mix and other performance.
Backlog and Bookings—Backlog was $11,842 million, $11,495 million and $10,916 million at December 31, 2015, 2014 and
2013, respectively. The increase in backlog of $347 million or 3% at December 31, 2015 compared to December 31, 2014
was primarily due to the 2015 international Patriot bookings in our Integrated Air and Missile Defense (IAMD) product line
described below, partially offset by sales in excess of bookings spread across our other product lines. The increase in backlog
of $579 million at December 31, 2014 compared to December 31, 2013 was primarily due to bookings in excess of sales in
2014, principally across our IAMD product line.
Bookings in 2015 were relatively consistent with 2014. In 2015, IDS booked $2.0 billion to provide advanced Patriot air and
missile defense capability for the Kingdom of Saudi Arabia and $769 million to provide advanced Patriot air and missile
defense capability for the Republic of Korea. IDS also booked $366 million on the Zumwalt-class destroyer program for the
U.S. Navy; $266 million to provide Patriot engineering services support for U.S. and international customers; $245 million
to provide Consolidated Contractor Logistics Support (CCLS) and $141 million for a radar sustainment contract for the MDA;