Raytheon 2015 Annual Report Download - page 70

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expenses of $56 million. The decrease in material and subcontractors costs was driven principally by activity on intersegment
contracts supporting radar programs and activity on the international tactical radar programs described above in Total Net
Sales, partially offset by activity on the classified programs described above in Total Net Sales. The remaining change in
materials and subcontractors costs was spread across numerous programs with no individual or common significant driver.
The decrease in other cost of sales and other operating expenses was primarily due to the timing and amount of adjustments
for loss contracts, which had an impact of $31 million, and the timing of costs applied to contracts through rates, which had
an impact of $29 million.
The decrease in total operating expenses of $225 million in 2014 compared to 2013 was due to decreases in labor costs of
$225 million and materials and subcontractors costs of $159 million, partially offset by an increase in other cost of sales and
other operating expenses of $159 million. The decrease in labor costs was principally driven by the activity on the programs
described above in Total Net Sales. The decrease in materials and subcontractors costs was driven by the activity on the
programs described above in Total Net Sales, with the remaining change spread across numerous programs with no individual
or common significant driver. The increase in other cost of sales and other operating expenses was primarily driven by a
change in previously deferred precontract costs based on contract awards or funding, which had an impact of $42 million,
higher general and administrative expenses of $35 million driven by higher independent research and development activity
related to electronic warfare technology, and an $18 million legal reserve for a contractual dispute.
Operating Income and Margin—The decrease in operating income of $52 million in 2015 compared to 2014 was primarily
due to a net change in EAC adjustments of $93 million and decreased volume of $33 million, partially offset by a change in
mix and other performance of $74 million. The net change in EAC adjustments was principally driven by labor and material
production efficiencies throughout 2014 on two international tactical radar systems programs which amounted to $58 million,
with the remainder of the change driven by efficiencies on certain classified programs in 2014. The decrease in volume was
spread across numerous programs with no individual or common significant driver. The change in mix and other performance
was primarily driven by international F-15 Radar programs. Also included in mix and other performance were $35 million
and $40 million for acquisition-related costs, primarily related to the amortization of acquired intangible assets, in 2015 and
2014, respectively, and an $11 million gain on a real estate transaction in the second quarter of 2015. The decrease in operating
margin in 2015 compared to 2014 was primarily due to the net change in EAC adjustments, partially offset by the change in
mix and other performance.
The decrease in operating income of $74 million in 2014 compared to 2013 was due to a change in mix and other performance
of $40 million and a decrease in volume of $33 million. The decrease in mix and other performance was principally due to
$7 million of income in 2014 from certain license royalties based on third-party usage compared to $34 million in 2013 and
an $18 million legal reserve for a contractual dispute. Also included in mix and other performance in 2014 and 2013 was $40
million and $45 million, respectively, for acquisition-related costs primarily related to the amortization of acquired intangible
assets. The decrease in volume was principally driven by the programs described above in Total Net Sales. The decrease in
operating margin in 2014 compared to 2013 was primarily driven by the change in mix and other performance.
Backlog and Bookings—Backlog was $6,309 million, $6,930 million and $7,751 million at December 31, 2015, 2014 and
2013, respectively. The decrease in backlog of $621 million or 9% at December 31, 2015 compared to December 31, 2014
was primarily due to sales in excess of bookings, principally within our Intelligence, Surveillance, and Reconnaissance Systems
and Tactical Airborne Systems product lines. The decrease in backlog of $821 million at December 31, 2014 compared to
December 31, 2013 was primarily due to a backlog adjustment of approximately $450 million for a contract that was terminated
for convenience.
The bookings decrease of $474 million in 2015 compared to 2014 was driven primarily by lower bookings in our Intelligence,
Surveillance and Reconnaissance Systems (ISRS) and Tactical Airborne Systems (TAS) product lines, partially offset by
higher bookings in our Electronic Warfare Systems (EWS) product line. In 2015, SAS booked $153 million on a multi-mission
radar program for the U.S. Navy and an international customer, $106 million for the production of Active Electronically
Scanned Array (AESA) radars for the U.S. Air Force, $102 million on the Navy Multiband Terminal (NMT) program, $99
million on an AESA radar Performance Based Logistics (PBL) contract for an international customer, $92 million to provide
radar spares for an international customer, $92 million for the production of AESA radars for an international customer, $88
million to provide radar components for the U.S. Air Force, and $82 million to provide communication subsystems for the
U.S. Navy and an international customer. SAS also booked $1,213 million on a number of classified contracts.