UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended June 30, 2007. Commission file number
1-16445.
Rockwell
Collins, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
52-2314475
|
(State
or other jurisdiction
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|
(I.R.S.
Employer
|
of
incorporation or organization)
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|
Identification
No.)
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|
|
|
400
Collins Road NE
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|
52498
|
Cedar
Rapids, Iowa
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|
(Zip
Code)
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(Address
of principal executive offices)
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|
|
Registrant's
telephone number, including area code: (319) 295-1000
(Office
of the Corporate Secretary)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
|
|
Accelerated
filer o
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|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
166,670,200
shares of registrant's Common Stock, par value $.01 per share, were outstanding
on July 16, 2007.
ROCKWELL
COLLINS, INC.
INDEX
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Page
No.
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PART
I.
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FINANCIAL
INFORMATION:
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Item
1.
|
Condensed
Consolidated Financial Statements:
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|
Condensed
Consolidated Statement of Financial Position (Unaudited)
--
|
|
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|
June
30, 2007 and September 30, 2006
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2
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|
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|
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Condensed
Consolidated Statement of Operations (Unaudited) --
|
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|
|
Three
and Nine Months Ended June 30, 2007 and 2006
|
3
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|
|
|
|
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|
Condensed
Consolidated Statement of Cash Flows (Unaudited) --
|
|
|
|
Nine
Months Ended June 30, 2007 and 2006
|
4
|
|
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|
|
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|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
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|
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|
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|
Item
2.
|
Management's
Discussion and Analysis of
|
|
|
|
Financial
Condition and Results of Operations
|
20
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|
|
|
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|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
28
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|
|
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|
Item
4.
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Controls
and Procedures
|
29
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PART
II.
|
OTHER
INFORMATION:
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|
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|
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|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
29
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|
|
|
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|
Item
6.
|
Exhibits
|
30
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|
|
|
|
Signatures
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31
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PART
I. FINANCIAL
INFORMATION
Item
1. Condensed
Consolidated Financial Statements
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
(in
millions, except per share amounts)
|
|
June
30,
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|
September
30,
|
|
|
|
2007
|
|
2006
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|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
135
|
|
$
|
144
|
|
Receivables
|
|
|
885
|
|
|
821
|
|
Inventories
|
|
|
867
|
|
|
727
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|
Current
deferred income taxes
|
|
|
176
|
|
|
168
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|
Other
current assets
|
|
|
59
|
|
|
67
|
|
|
|
|
|
|
|
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|
Total
current assets
|
|
|
2,122
|
|
|
1,927
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
569
|
|
|
552
|
|
Intangible
Assets
|
|
|
124
|
|
|
137
|
|
Goodwill
|
|
|
517
|
|
|
517
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|
Other
Assets
|
|
|
213
|
|
|
145
|
|
|
|
|
|
|
|
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TOTAL
ASSETS
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|
$
|
3,545
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|
$
|
3,278
|
|
|
|
|
|
|
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LIABILITIES
AND SHAREOWNERS' EQUITY
|
|
|
|
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|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
344
|
|
$
|
324
|
|
Compensation
and benefits
|
|
|
292
|
|
|
268
|
|
Advance
payments from customers
|
|
|
315
|
|
|
246
|
|
Product
warranty costs
|
|
|
213
|
|
|
189
|
|
Income
taxes payable
|
|
|
25
|
|
|
54
|
|
Other
current liabilities
|
|
|
219
|
|
|
243
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,408
|
|
|
1,324
|
|
|
|
|
|
|
|
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|
Long-Term
Debt
|
|
|
219
|
|
|
245
|
|
Retirement
Benefits
|
|
|
403
|
|
|
421
|
|
Other
Liabilities
|
|
|
92
|
|
|
82
|
|
|
|
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Shareowners'
Equity:
|
|
|
|
|
|
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|
Common
stock ($0.01 par value; shares authorized: 1,000;
|
|
|
|
|
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|
shares
issued: 183.8)
|
|
|
2
|
|
|
2
|
|
Additional
paid-in capital
|
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|
1,345
|
|
|
1,305
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|
Retained
earnings
|
|
|
1,407
|
|
|
1,105
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|
Accumulated
other comprehensive loss
|
|
|
(431
|
)
|
|
(393
|
)
|
Common
stock in treasury, at cost (shares held: June 30, 2007,
17.0;
|
|
|
|
|
|
|
|
September
30, 2006, 16.7)
|
|
|
(900
|
)
|
|
(813
|
)
|
Total
shareowners' equity
|
|
|
1,423
|
|
|
1,206
|
|
|
|
|
|
|
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TOTAL
LIABILITIES AND SHAREOWNERS’ EQUITY
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|
$
|
3,545
|
|
$
|
3,278
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|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in
millions, except per share amounts)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
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June
30
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June
30
|
|
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|
2007
|
|
2006
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2007
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|
2006
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Sales:
|
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|
|
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Product
sales
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|
$
|
1,011
|
|
$
|
872
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|
$
|
2,886
|
|
$
|
2,525
|
|
Service
sales
|
|
|
102
|
|
|
92
|
|
|
303
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total
sales
|
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|
1,113
|
|
|
964
|
|
|
3,189
|
|
|
2,802
|
|
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|
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|
|
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Costs,
expenses and other:
|
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|
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|
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|
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|
Product
cost of sales
|
|
|
710
|
|
|
614
|
|
|
2,022
|
|
|
1,798
|
|
Service
cost of sales
|
|
|
70
|
|
|
62
|
|
|
204
|
|
|
189
|
|
Selling,
general, and administrative expenses
|
|
|
124
|
|
|
112
|
|
|
352
|
|
|
321
|
|
Interest
expense
|
|
|
3
|
|
|
3
|
|
|
10
|
|
|
9
|
|
Other
income, net
|
|
|
(3
|
)
|
|
(4
|
)
|
|
(13
|
)
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
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|
Total
costs, expenses and other
|
|
|
904
|
|
|
787
|
|
|
2,575
|
|
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
209
|
|
|
177
|
|
|
614
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
63
|
|
|
56
|
|
|
185
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
146
|
|
$
|
121
|
|
$
|
429
|
|
$
|
339
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.87
|
|
$
|
0.71
|
|
$
|
2.56
|
|
$
|
1.97
|
|
Diluted
|
|
$
|
0.86
|
|
$
|
0.70
|
|
$
|
2.52
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
167.0
|
|
|
171.2
|
|
|
167.5
|
|
|
172.2
|
|
Diluted
|
|
|
169.6
|
|
|
173.8
|
|
|
170.1
|
|
|
175.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
0.16
|
|
$
|
0.16
|
|
$
|
0.48
|
|
$
|
0.40
|
|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in
millions)
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
Operating
Activities:
|
|
|
|
|
|
Net
income
|
|
$
|
429
|
|
$
|
339
|
|
Adjustments
to arrive at cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
71
|
|
|
62
|
|
Amortization
of intangible assets
|
|
|
16
|
|
|
14
|
|
Stock-based
compensation
|
|
|
13
|
|
|
13
|
|
Compensation
and benefits paid in common stock
|
|
|
42
|
|
|
37
|
|
Tax
benefit from the exercise of stock options
|
|
|
29
|
|
|
26
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(29
|
)
|
|
(26
|
)
|
Deferred
income taxes
|
|
|
3
|
|
|
3
|
|
Pension
plan contributions
|
|
|
(85
|
)
|
|
(60
|
)
|
Changes
in assets and liabilities, excluding effects of
acquisitions
|
|
|
|
|
|
|
|
and
foreign currency adjustments:
|
|
|
|
|
|
|
|
Receivables
|
|
|
(106
|
)
|
|
(44
|
)
|
Inventories
|
|
|
(163
|
)
|
|
(66
|
)
|
Accounts
payable
|
|
|
22
|
|
|
(27
|
)
|
Advance
payments from customers
|
|
|
70
|
|
|
31
|
|
Compensation
and benefits
|
|
|
24
|
|
|
(30
|
)
|
Income
taxes
|
|
|
(27
|
)
|
|
(7
|
)
|
Other
assets and liabilities
|
|
|
(11
|
)
|
|
48
|
|
Cash
Provided by Operating Activities
|
|
|
298
|
|
|
313
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(86
|
)
|
|
(104
|
)
|
Acquisition
of intangible assets
|
|
|
(3
|
)
|
|
-
|
|
Acquisition
of businesses, net of cash acquired
|
|
|
5
|
|
|
(71
|
)
|
Proceeds
from settlement of discontinued license agreement
|
|
|
14
|
|
|
-
|
|
Other
|
|
|
(1
|
)
|
|
-
|
|
Cash
Used for Investing Activities
|
|
|
(71
|
)
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
(222
|
)
|
|
(236
|
)
|
Cash
dividends
|
|
|
(81
|
)
|
|
(69
|
)
|
Decrease
in long-term borrowings
|
|
|
(27
|
)
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
56
|
|
|
69
|
|
Excess
tax benefit from stock-based compensation
|
|
|
29
|
|
|
26
|
|
Proceeds
from issuance of long-term debt
|
|
|
-
|
|
|
46
|
|
Increase
in short-term borrowings
|
|
|
4
|
|
|
-
|
|
Cash
Used for Financing Activities
|
|
|
(241
|
)
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
|
|
(9
|
)
|
|
(24
|
)
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
144
|
|
|
145
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
135
|
|
$
|
121
|
|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. |
Business
Description and Basis of
Presentation
|
Rockwell
Collins, Inc. (the Company or Rockwell Collins) provides design, production,
and
support of communications and aviation electronics solutions for commercial
and
military customers worldwide.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and with the instructions to Form 10-Q of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements have been condensed or omitted.
These financial statements should be read in conjunction with the Company’s
Annual Report on Form 10-K for the year ended September 30, 2006, including
the
financial statements in Exhibit 13 incorporated by reference in the Form
10-K.
In
the
opinion of management, the unaudited financial statements contain all
adjustments, consisting of adjustments of a normal recurring nature, necessary
to present fairly the financial position, results of operations, and cash flows
for the periods presented. The results of operations for the three and nine
months ended June 30, 2007 are not necessarily indicative of the results that
may be expected for the full year.
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates and
assumptions.
2. |
New
Accounting Standards
|
In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(SFAS
159). SFAS 159 permits entities to choose to measure certain eligible financial
assets and financial liabilities at fair value (the fair value option). SFAS
159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. Unrealized gains and losses on items
for which the fair value option is elected would be reported in earnings. SFAS
159 is effective for the Company's year ending September 30, 2009. The Company
is currently evaluating whether to elect the fair value option and the impact,
if any, of SFAS 159 on the Company’s financial statements.
In
September 2006, the FASB issued SFAS No.
158,
Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)
(SFAS
158).
Under
SFAS 158, companies must: a) recognize a net liability or asset to report the
funded status of their plans on their statement of financial position, b)
measure a plan’s assets and its obligations that determine its funded status as
of the end of the employer’s fiscal year, and c) recognize changes in the funded
status of a defined benefit postretirement plan in the year in which the changes
occur in comprehensive income. During the first quarter of 2007, the Company
completed its evaluation of SFAS 158 and elected to adopt the measurement date
provisions of SFAS 158 effective October 1, 2006. The Company will adopt the
recognition provisions of SFAS 158 as of the end of fiscal year 2007 as required
by SFAS 158. See Note 11 for further information regarding the Company’s
adoption of SFAS 158.
In
September 2006, the FASB issued SFAS No.
157,
Fair
Value Measurements
(SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements. SFAS 157 indicates, among other
things, a fair value measurement assumes that the transaction to sell an asset
or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. SFAS 157 is effective for the Company's year ending
September 30, 2009. The Company is currently evaluating the impact of SFAS
157
on the Company's financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN
48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an
entity's financial statements. FIN 48 prescribes a comprehensive model for
how a
company should recognize, measure, present, and disclose in its financial
statements uncertain tax positions that a company has taken or expects to take
on a tax return. FIN 48 is effective for the Company no later than October
1,
2007. The Company is currently evaluating the impact of FIN 48 on the Company’s
financial statements.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Anzus,
Inc.
On
September 25, 2006, the Company acquired 100 percent of the shares of Anzus,
Inc. (Anzus). Anzus, located in Poway, California, is a developer of software
that enables high-speed tactical data link processing and sensor correlation
for
the U.S. Department of Defense as well as foreign governments. The total cash
purchase price was $19 million. The Company is in the process of allocating
the
purchase price and obtaining a valuation for acquired intangible assets. Based
on the Company’s preliminary allocation of purchase price, $13 million has been
allocated to goodwill and $7 million to intangible assets with a weighted
average life of approximately 6 years. The excess purchase price over net assets
acquired reflects the Company’s view that this acquisition will enhance
the Company’s tactical data link integration solutions.
None of
the goodwill resulting from the acquisition is tax deductible. Goodwill is
included within the assets of the Government Systems segment.
IP
Unwired, Inc.
On
September 5, 2006, the Company acquired 100 percent of the shares of IP Unwired,
Inc., located in Ottawa, Canada, a provider of advanced digital communications
and networking technology for U.S. and international military customers. The
total cash purchase price was $10 million. The Company is in the process of
allocating the purchase price and obtaining a valuation for acquired intangible
assets. Based on the Company’s preliminary allocation of purchase price, $7
million has been allocated to goodwill and $3 million to intangible assets
with
a weighted average life of approximately 10 years. The excess purchase price
over net assets acquired reflects the Company’s view that this acquisition will
strengthen the Company’s network-centric operational capabilities. None of the
goodwill resulting from the acquisition is tax deductible. Goodwill is included
within the assets of the Government Systems segment.
E&S
Simulation Business
On
May
26, 2006, the Company acquired Evans & Sutherland Computer Corporation’s
(E&S) military and commercial simulation assets and certain liabilities,
including operations in the United States and United Kingdom (the E&S
Simulation Business). The E&S Simulation Business produces hardware and
software to create visual images for simulation, training, engineering, and
other applications throughout the world. In connection with this transaction,
the Company also entered into a laser projection systems agreement with Evans
& Sutherland whereby the Company has exclusive and non-exclusive rights to
laser projectors for the acquired business and certain of the Company’s other
related businesses.
The
total
cash purchase price was approximately $66 million, which is net of a $5 million
post-closing purchase price adjustment received by the Company in March 2007.
During the third quarter of 2007, the purchase price and purchase price
allocation were finalized with $33 million of the purchase price allocated
to
goodwill and $22 million to intangible assets with a weighted average life
of
approximately 9 years. The excess purchase price over net assets acquired
reflects the Company’s view that this acquisition will further enhance the
Company’s simulation and training capabilities and provide more robust solutions
for the Company’s customers. All goodwill resulting from the acquisition is tax
deductible. $22 million of goodwill is included in the Government Systems
segment and $11 million of goodwill is included in the Commercial Systems
segment.
Receivables
are summarized as follows (in millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Billed
|
|
$
|
718
|
|
$
|
665
|
|
Unbilled
|
|
|
210
|
|
|
203
|
|
Less
progress payments
|
|
|
(32
|
)
|
|
(35
|
)
|
Total
|
|
|
896
|
|
|
833
|
|
Less
allowance for doubtful accounts
|
|
|
(11
|
)
|
|
(12
|
)
|
Receivables
|
|
$
|
885
|
|
$
|
821
|
|
The
Company expects to bill and collect all receivables outstanding as of June
30,
2007 within the next twelve months. As of September 30, 2006, the portion of
receivables outstanding that were not expected to be collected within the next
twelve months was approximately $7 million.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unbilled
receivables principally represent sales recorded under the
percentage-of-completion method of accounting that have not been billed to
customers in accordance with applicable contract terms.
Inventories
are summarized as follows (in millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
162
|
|
$
|
172
|
|
Work
in process
|
|
|
395
|
|
|
318
|
|
Raw
materials, parts, and supplies
|
|
|
375
|
|
|
329
|
|
Total
|
|
|
932
|
|
|
819
|
|
Less
progress payments
|
|
|
(65
|
)
|
|
(92
|
)
|
Inventories
|
|
$
|
867
|
|
$
|
727
|
|
The
Company defers certain pre-production engineering costs as work-in-process
inventory in connection with long-term supply arrangements that contain
contractual guarantees for reimbursement from customers. Such customer
guarantees typically take the form of a minimum order quantity with quantified
reimbursement amounts if the minimum order quantity is not taken by the
customer. Deferred pre-production engineering costs were $119 million and $96
million at June 30, 2007 and September 30, 2006, respectively.
Property
is summarized as follows (in millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Land
|
|
$
|
30
|
|
$
|
30
|
|
Buildings
and improvements
|
|
|
301
|
|
|
281
|
|
Machinery
and equipment
|
|
|
731
|
|
|
709
|
|
Information
systems software and hardware
|
|
|
272
|
|
|
264
|
|
Construction
in progress
|
|
|
71
|
|
|
63
|
|
Total
|
|
|
1,405
|
|
|
1,347
|
|
Less
accumulated depreciation
|
|
|
(836
|
)
|
|
(795
|
)
|
Property
|
|
$
|
569
|
|
$
|
552
|
|
7. |
Goodwill
and Intangible Assets
|
Changes
in the carrying amount of goodwill for the nine months ended June 30, 2007
are
summarized as follows (in millions):
|
|
Government
|
|
Commercial
|
|
|
|
|
|
Systems
|
|
Systems
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
$
|
323
|
|
$
|
194
|
|
$
|
517
|
|
Purchase
price allocation adjustments
|
|
|
-
|
|
|
(3
|
)
|
|
(3
|
)
|
Foreign
currency translation adjustment
|
|
|
3
|
|
|
-
|
|
|
3
|
|
Balance
at June 30, 2007
|
|
$
|
326
|
|
$
|
191
|
|
$
|
517
|
|
The
Company performs an annual impairment test of goodwill and indefinite-lived
intangible assets during the second quarter of each fiscal year, or at any
time
there is an indication of potential impairment. The Company’s 2007 impairment
tests yielded no impairment.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible
assets are summarized as follows (in millions):
|
|
June
30, 2007
|
|
September
30, 2006
|
|
|
|
|
|
Accum
|
|
|
|
|
|
Accum
|
|
|
|
|
|
Gross
|
|
Amort
|
|
Net
|
|
Gross
|
|
Amort
|
|
Net
|
|
Intangible
assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
technology and patents
|
|
$
|
144
|
|
$
|
(69
|
)
|
$
|
75
|
|
$
|
143
|
|
$
|
(58
|
)
|
$
|
85
|
|
License
agreements
|
|
|
13
|
|
|
(6
|
)
|
|
7
|
|
|
24
|
|
|
(6
|
)
|
|
18
|
|
Customer
relationships
|
|
|
53
|
|
|
(17
|
)
|
|
36
|
|
|
41
|
|
|
(14
|
)
|
|
27
|
|
Trademarks
and tradenames
|
|
|
11
|
|
|
(7
|
)
|
|
4
|
|
|
11
|
|
|
(6
|
)
|
|
5
|
|
Intangible
assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and tradenames
|
|
|
2
|
|
|
-
|
|
|
2
|
|
|
2
|
|
|
-
|
|
|
2
|
|
Intangible
assets
|
|
$
|
223
|
|
$
|
(99
|
)
|
$
|
124
|
|
$
|
221
|
|
$
|
(84
|
)
|
$
|
137
|
|
The
Company paid $14 million for a license fee in prior years related to a strategic
agreement with The Boeing Company (Boeing) to provide a global broadband
connectivity solution for business aircraft through the Company’s Collins
eXchange product. In August of 2006, Boeing announced they would exit the
high-speed broadband communications connectivity markets. During the nine months
ended June 30, 2007, the Company and Boeing reached a settlement that included,
among other things, repayment of $14 million to the Company representing the
carrying value of the license agreement.
Amortization
expense for intangible assets for the three and nine months ended June 30,
2007
was $6 million and $16 million, respectively, compared to $5 million and $14
million for the three and nine months ended June 30, 2006. Annual amortization
expense for intangible assets for 2007, 2008, 2009, 2010, and 2011 is expected
to be $23 million, $22 million, $21 million, $23 million, and $20 million,
respectively.
Other
assets are summarized as follows (in millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Long-term
deferred income taxes
|
|
$
|
50
|
|
$
|
34
|
|
Long-term
receivables
|
|
|
46
|
|
|
9
|
|
Exchange
and rental assets, net of accumulated depreciation of $101
at
|
|
|
|
|
|
|
|
June
30, 2007 and $91 at September 30, 2006
|
|
|
35
|
|
|
37
|
|
Investments
in equity affiliates
|
|
|
9
|
|
|
13
|
|
Other
|
|
|
73
|
|
|
52
|
|
Other
assets
|
|
$
|
213
|
|
$
|
145
|
|
Investments
in equity affiliates consist of investments in four joint ventures, each of
which is 50 percent owned by the Company and accounted for under the equity
method. The Company’s joint ventures consist of Vision Systems International,
LLC (VSI), Data Link Solutions, LLC (DLS), Integrated Guidance Systems, LLC
(IGS), and Quest Flight Training Limited (Quest).
In
the
normal course of business or pursuant to the underlying joint venture
agreements, the Company may sell products or services to equity affiliates.
The
Company defers a portion of the profit generated from these sales equal to
its
ownership interest in the equity affiliates until the underlying product is
ultimately sold to an unrelated third party. Sales to equity affiliates were
$28
million and $92 million for the three and nine months ended June 30, 2007,
respectively, compared to $29 million and $99 million for the three and nine
months ended June 30, 2006, respectively. The deferred portion of profit
generated from sales to equity affiliates was $4 million at June 30, 2007 and
$7
million at September 30, 2006.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. |
Other
Current Liabilities
|
Other
current liabilities are summarized as follows (in millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Customer
incentives
|
|
$
|
118
|
|
$
|
125
|
|
Contract
reserves
|
|
|
21
|
|
|
37
|
|
Other
|
|
|
80
|
|
|
81
|
|
Other
current liabilities
|
|
$
|
219
|
|
$
|
243
|
|
Revolving
Credit Facility
On
May
24, 2005, the Company entered into an $850 million five-year unsecured revolving
credit facility with various banks (the Revolving Credit Facility). The credit
facility includes one financial covenant requiring the Company to maintain
a
consolidated debt to total capitalization ratio of not greater than 60 percent.
The ratio was 14 percent as of June 30, 2007. There were no borrowings under
the
revolving credit facility at June 30, 2007.
On
March
7, 2007, the Company amended the Revolving Credit Facility to extend the term
by
approximately two years, with options to further extend the term for up to
two
one-year periods and/or increase the aggregate principal amount up to $1.2
billion. These options are subject to the approval of the lenders. The amendment
also lowered certain margins on interest rates, reduced the facility fee rate,
and modified the financial covenant to exclude certain pension obligations
from
the calculation of the consolidated debt to total capitalization
ratio.
Long-Term
Debt
In
June
2006, the Company entered into a five-year unsecured variable rate loan facility
agreement for 20.4 million euros ($25 million). The interest rate is variable
at
the Euro Interbank Offered Rate (EURIBOR) plus 35 basis points and interest
is
payable quarterly. As of June 30, 2007 the outstanding balance of the loan
facility agreement was 17 million euros ($23 million) and the interest rate
was
4.51 percent.
In
June
2006, the Company entered into a five-year unsecured variable rate loan facility
agreement for 11.5 million British pounds ($21 million). As of June 30, 2007
this loan facility had been repaid.
Long-term
debt and a reconciliation to the carrying amount is summarized as follows (in
millions):
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Principal
amount of notes due December 1, 2013
|
|
$
|
200
|
|
$
|
200
|
|
Principal
amount of variable rate loan facilities due June 2011
|
|
|
23
|
|
|
47
|
|
Fair
value swap adjustment (Note 16)
|
|
|
(4
|
)
|
|
(2
|
)
|
Long-term
debt
|
|
$
|
219
|
|
$
|
245
|
|
Interest
paid on debt for the nine months ended June 30, 2007 and 2006 was $12 million
and $11 million, respectively.
The
Company sponsors defined benefit pension (Pension Benefits) and other
postretirement (Other Retirement Benefits) plans covering most of its U.S.
employees and certain employees in foreign countries which provide monthly
pension and other benefits to eligible employees upon retirement. During the
first quarter of 2007, the Company changed its measurement date from June 30
to
September 30 for all of the Company’s benefit plans. In accordance with the
measurement date transition provisions of SFAS 158, the Company remeasured
benefit obligations and plan assets as of the beginning of the fiscal year.
As a
result of this remeasurement, retirement benefit liabilities increased $141
million, primarily due to a decline in the discount rate for Pension Benefits
from 6.5 percent to 6.1 percent. The Company also recorded an adjustment to
Retained Earnings of $5 million, after tax, which was the net benefit cost
for
the period from July 1, 2006 to September 30, 2006. In addition, the
remeasurement will decrease overall retirement net benefit cost by $1 million
for fiscal 2007.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Effective
September 30, 2007 pursuant to the recognition provisions of SFAS 158, the
Company must recognize a net liability on the Statement of Financial Position
to
report the funded status of the Company’s retirement benefit plans. If the
Company adopted the recognition provisions of SFAS 158 based on the October
1,
2006 measurement of benefit obligations and plan assets, Accumulated Other
Comprehensive Loss would increase by $56 million.
Pension
Benefits
The
components of expense for pension benefits for the three and nine months ended
June 30, 2007 and 2006 are as follows (in millions):
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Service
cost
|
|
$
|
2
|
|
$
|
12
|
|
$
|
6
|
|
$
|
37
|
|
Interest
cost
|
|
|
38
|
|
|
35
|
|
|
113
|
|
|
105
|
|
Expected
return on plan assets
|
|
|
(48
|
)
|
|
(46
|
)
|
|
(141
|
)
|
|
(136
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(5
|
)
|
|
(4
|
)
|
|
(14
|
)
|
|
(13
|
)
|
Net
actuarial loss
|
|
|
14
|
|
|
20
|
|
|
43
|
|
|
59
|
|
Net
benefit expense
|
|
$
|
1
|
|
$
|
17
|
|
$
|
7
|
|
$
|
52
|
|
Other
Retirement Benefits
The
components of expense (income) for other retirement benefits for the three
and
nine months ended June 30, 2007 and 2006 are as follows (in
millions):
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Service
cost
|
|
$
|
1
|
|
$
|
1
|
|
$
|
3
|
|
$
|
3
|
|
Interest
cost
|
|
|
4
|
|
|
3
|
|
|
12
|
|
|
11
|
|
Expected
return on plan assets
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
(1
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(10
|
)
|
|
(9
|
)
|
|
(29
|
)
|
|
(29
|
)
|
Net
actuarial loss
|
|
|
4
|
|
|
4
|
|
|
12
|
|
|
14
|
|
Net
benefit expense (income)
|
|
$
|
(1
|
)
|
$
|
(1
|
)
|
$
|
(3
|
)
|
$
|
(2
|
)
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following table reconciles the projected benefit obligations, plan assets,
funded status, and net asset (liability) for the Company’s Pension Benefits and
the Other Retirement Benefits (in millions):
|
|
|
|
Other
|
|
|
|
Pension
Benefits
|
|
Retirement
Benefits
|
|
|
|
|
|
|
|
Projected
benefit obligation at June 30, 2006
|
|
$
|
2,423
|
|
$
|
271
|
|
Service
cost
|
|
|
9
|
|
|
4
|
|
Interest
cost
|
|
|
38
|
|
|
1
|
|
Discount
rate change
|
|
|
119
|
|
|
9
|
|
Actuarial
losses (gains)
|
|
|
1
|
|
|
(2
|
)
|
Benefits
paid
|
|
|
(34
|
)
|
|
(5
|
)
|
Other
|
|
|
1
|
|
|
-
|
|
Projected
benefit obligation at October 1, 2006
|
|
|
2,557
|
|
|
278
|
|
Plan
assets at June 30, 2006
|
|
|
2,148
|
|
|
15
|
|
Actual
return on plan assets
|
|
|
90
|
|
|
-
|
|
Company
contributions
|
|
|
3
|
|
|
5
|
|
Benefits
paid
|
|
|
(34
|
)
|
|
(5
|
)
|
Plan
assets at October 1, 2006
|
|
|
2,207
|
|
|
15
|
|
Funded
status of plans at October 1, 2006
|
|
|
(350
|
)
|
|
(263
|
)
|
Unamortized
amounts:
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(153
|
)
|
|
(164
|
)
|
Net
actuarial loss
|
|
|
866
|
|
|
245
|
|
Net
asset (liability) in the Statement of Financial Position at
|
|
|
|
|
|
|
|
October
1, 2006
|
|
$
|
363
|
|
$
|
(182
|
)
|
Net
asset (liability) at October 1, 2006 consists of:
|
|
|
|
|
|
|
|
Deferred
tax asset
|
|
$
|
262
|
|
$
|
-
|
|
Accrued
benefit liability
|
|
|
(346
|
)
|
|
(182
|
)
|
Accumulated
other comprehensive loss
|
|
|
447
|
|
|
-
|
|
Net
asset (liability) in the Statement of Financial Position
|
|
$
|
363
|
|
$
|
(182
|
)
|
The
accumulated benefit obligation for all defined benefit pension plans was $2,548
million at October 1, 2006.
Actuarial
Assumptions
Significant
assumptions used in determining the benefit obligations are as
follows:
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Retirement
Benefits
|
|
|
|
October
1,
|
|
June
30,
|
|
October
1,
|
|
June
30,
|
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
Assumptions
used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.10
|
%
|
|
6.50
|
%
|
|
6.00
|
%
|
|
6.50
|
%
|
Compensation
increase rate
|
|
|
4.50
|
%
|
|
4.50
|
%
|
|
-
|
|
|
-
|
|
The
discount rates used to determine benefit obligations were based on individual
bond-matching models comprised of portfolios of high-quality corporate bonds
with projected cash flows and maturity dates reflecting the expected time
horizon that benefits will be paid. Bonds included in the model portfolios
are
from a cross-section of different issuers, are rated AA- or better, are
non-callable, and have at least $25 million outstanding at the measurement
date.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Significant
assumptions used in determining the Retained Earnings adjustment resulting
from
the change in measurement date for the period July 1, 2006 to September 30,
2006
pursuant to the provisions of SFAS 158 are as follows:
|
|
|
|
Other
|
|
|
|
Pension
Benefits
|
|
Retirement
Benefits
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.50
|
%
|
|
6.50
|
%
|
Expected
long-term return on plan assets
|
|
|
8.75
|
%
|
|
8.75
|
%
|
Compensation
increase rate
|
|
|
4.50
|
%
|
|
-
|
|
Pre-65
health care cost gross trend rate *
|
|
|
-
|
|
|
11.00
|
%
|
Post-65
health care cost gross trend rate *
|
|
|
-
|
|
|
11.00
|
%
|
Ultimate
trend rate *
|
|
|
-
|
|
|
5.50
|
%
|
Year
that trend reaches ultimate rate
|
|
|
-
|
|
|
2012
|
|
*
Due
to
the effect of the fixed Company contribution, the net impact of any changes
in
trend rate is not significant.
Expected
long-term return on plan assets is based on both historical long-term actual
and
expected future investment returns considering the current investment mix of
plan assets. Actuarial gains and losses in excess of 10 percent of the greater
of the projected benefit obligation or market-related value of assets are
amortized on a straight-line basis over the average remaining service period
of
active participants. Prior service costs resulting from plan amendments are
amortized in equal annual amounts over the average remaining service period
of
affected active participants or over the remaining life expectancy of affected
retired participants. The Company uses a five-year, market-related value asset
method of amortizing the difference between actual and expected returns on
plan
assets.
Pension
Plan Freeze
In
June
2003, the Company’s U.S. qualified and non-qualified defined benefit pension
plans were amended to discontinue benefit accruals for salary increases and
services rendered after September 30, 2006. These changes affect all of the
Company’s domestic pension plans for all salaried and hourly employees not
covered by collective bargaining agreements. The Company supplemented its
existing defined contribution savings plan effective October 1, 2006 to include
additional Company contributions which are expected to approximate $30 million
in 2007.
Pension
Plan Funding
The
Company’s objective with respect to the funding of its pension plans is to
provide adequate assets for the payment of future benefits. Pursuant to this
objective, the Company will fund its pension plans as required by governmental
regulations and may consider discretionary contributions as conditions warrant.
Although not required to make any contributions to its U.S. qualified pension
plan by governmental regulations, the Company made a discretionary contribution
of $75 million in 2007 to improve the funded status of this plan. Contributions
to the Company’s international plans and the U.S. non-qualified plan are
expected to total $13 million in 2007.
12. |
Stock-Based
Compensation
|
Total
stock-based compensation expense included within the condensed consolidated
statement of operations is as follows (in millions, except per share
amounts):
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Product
cost of sales
|
|
$
|
1
|
|
$
|
1
|
|
$
|
3
|
|
$
|
3
|
|
Service
cost of sales
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
Selling,
general and administrative expenses
|
|
|
3
|
|
|
3
|
|
|
9
|
|
|
9
|
|
Income
before income taxes
|
|
$
|
4
|
|
$
|
4
|
|
$
|
13
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3
|
|
$
|
3
|
|
$
|
9
|
|
$
|
8
|
|
Basic
and diluted earnings per share
|
|
$
|
0.02
|
|
$
|
0.02
|
|
$
|
0.05
|
|
$
|
0.05
|
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company issued awards of equity instruments under the Company’s various
incentive plans for the three and nine months ended June 30, 2007 and 2006
as
follows:
|
|
Options
|
|
Performance
Shares
|
|
Restricted
Stock
|
|
Restricted
Stock Units
|
|
|
|
Number
Issued
|
|
Weighted
Average Fair Value
|
|
Number
Issued
|
|
Weighted
Average Fair Value
|
|
Number
Issued
|
|
Weighted
Average Fair Value
|
|
Number
Issued
|
|
Weighted
Average Fair Value
|
|
Three
months ended June 30, 2007
|
|
|
13,360
|
|
$
|
20.26
|
|
|
1,900
|
|
$
|
69.92
|
|
|
-
|
|
$
|
-
|
|
|
3,439
|
|
$
|
68.91
|
|
Three
months ended June 30, 2006
|
|
|
11,520
|
|
$
|
17.23
|
|
|
979
|
|
$
|
56.14
|
|
|
600
|
|
$
|
54.00
|
|
|
6,811
|
|
$
|
55.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended June 30, 2007
|
|
|
454,930
|
|
$
|
16.70
|
|
|
64,285
|
|
$
|
58.35
|
|
|
39,520
|
|
$
|
57.97
|
|
|
19,726
|
|
$
|
64.82
|
|
Nine
months ended June 30, 2006
|
|
|
584,050
|
|
$
|
13.43
|
|
|
78,323
|
|
$
|
46.26
|
|
|
55,875
|
|
$
|
46.26
|
|
|
17,335
|
|
$
|
46.26
|
|
The
maximum number of performance shares that can be issued for 2007 grants based
on
the achievement of performance targets for fiscal years 2007 through 2009
is
154,284. The maximum number of performance shares that can be issued for
2006
grants based on the achievement of performance targets for fiscal years 2006
through 2008 is 187,975.
The
fair
value of each option granted by the Company was estimated using a binomial
lattice pricing model and the following assumptions for the three and nine
months ended June 30:
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
Grants
|
|
2006
Grants
|
|
2007
Grants
|
|
2006
Grants
|
|
Risk-free
interest rate (U.S. Treasury zero coupon issues)
|
|
|
4.87
|
%
|
|
4.38
|
%
|
|
4.56
|
%
|
|
4.38
|
%
|
Expected
dividend yield
|
|
|
1.09
|
%
|
|
1.08
|
%
|
|
1.09
|
%
|
|
1.08
|
%
|
Expected
volatility
|
|
|
0.28
|
|
|
0.30
|
|
|
0.28
|
|
|
0.30
|
|
Expected
life
|
|
|
5
years
|
|
|
5
years
|
|
|
5
years
|
|
|
5
years
|
|
Employee
Benefits Paid in Company Stock
|
During
the nine months ended June 30, 2007 and 2006, 0.6 million and 0.7
million
shares, respectively, of Company common stock for each period were
issued
to employees under the Company’s employee stock purchase and defined
contribution savings plans at a value of $42 million and $37 million,
respectively.
|
Comprehensive
income consists of the following (in millions):
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
146
|
|
$
|
121
|
|
$
|
429
|
|
$
|
339
|
|
Unrealized
foreign currency translation adjustment
|
|
|
3
|
|
|
8
|
|
|
10
|
|
|
8
|
|
Foreign
currency cash flow hedge adjustment
|
|
|
-
|
|
|
(2
|
)
|
|
(1
|
)
|
|
-
|
|
Minimum
pension liability adjustment
|
|
|
-
|
|
|
-
|
|
|
(47
|
)
|
|
-
|
|
Comprehensive
income
|
|
$
|
149
|
|
$
|
127
|
|
$
|
391
|
|
$
|
347
|
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other
income, net consists of the following (in millions):
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Earnings
from equity affiliates
|
|
$
|
1
|
|
$
|
3
|
|
$
|
6
|
|
$
|
7
|
|
Interest
income
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
Royalty
income
|
|
|
1
|
|
|
1
|
|
|
6
|
|
|
4
|
|
Other,
net
|
|
|
-
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(7
|
)
|
Other
income, net
|
|
$
|
3
|
|
$
|
4
|
|
$
|
13
|
|
$
|
7
|
|
At
the
end of each interim reporting period, the Company makes an estimate of the
annual effective income tax rate. Tax items included in the annual effective
tax
rate are pro-rated for the full year and tax items discrete to a specific
quarter are included in the effective tax rate for that quarter. The estimate
used in providing for income taxes on a year-to-date basis may change in
subsequent interim periods. During the three months ended June 30, 2007 and
2006, the effective income tax rate was 30.1 percent and 31.6 percent,
respectively. During the nine months ended June 30, 2007 and 2006, the effective
income tax rate was 30.1 percent and 31.1 percent, respectively.
The
federal Research and Development Tax Credit expired December 31, 2005. On
December 20, 2006, the Tax Relief and Health Care Act of 2006 was enacted,
which
retroactively reinstated and extended the Research and Development Tax Credit
from January 1, 2006 to December 31, 2007. The retroactive benefit for the
previously expired period from January 1, 2006 to September 30, 2006 is
reflected as a discrete item which lowered the Company’s effective tax rate by
about 2 percentage points for the nine months ended June 30, 2007.
The
phase-out period for the federal Extraterritorial Income Exclusion (ETI)
tax
benefit ended on December 31, 2006. The enacted federal replacement tax benefit
for ETI, the Domestic Manufacturing Deduction (DMD), will apply to the full
2007
year. For 2007, the available DMD tax benefit is one-third of the full benefit
that will be available in 2011. The amount of DMD tax benefit available in
2008,
2009 and 2010 will be two-thirds of the full benefit.
The
IRS
is currently auditing the Company’s tax returns for the years ended September
30, 2004 and 2005 as well as certain claims the Company filed for prior years
related to the ETI. The Company has received certain proposed audit adjustments
from the IRS which are not expected to have a material effect on the Company’s
results of operations, financial condition, or cash flows.
The
Company paid income taxes, net of refunds, of $182 million and $130 million
during the nine months ended June 30, 2007 and 2006, respectively.
16.
|
Financial
Instruments
|
Fair
Value of Financial Instruments
The
carrying amounts and fair values of the Company’s financial instruments are as
follows (in millions):
|
|
Asset
(Liability)
|
|
|
|
June
30, 2007
|
|
September
30, 2006
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash
and cash equivalents
|
|
$
|
135
|
|
$
|
135
|
|
$
|
144
|
|
$
|
144
|
|
Short-term
borrowings
|
|
|
(4
|
)
|
|
(4
|
)
|
|
-
|
|
|
-
|
|
Long-term
debt
|
|
|
(219
|
)
|
|
(212
|
)
|
|
(245
|
)
|
|
(240
|
)
|
Interest
rate swaps
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Foreign
currency forward exchange contracts
|
|
|
(5
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Accelerated
share repurchase agreements
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
fair
value of cash and cash equivalents and short-term borrowings approximate
their
carrying values due to the short-term nature of the instruments. Fair value
information for long-term debt and interest rate swaps is obtained from third
parties and is based on current market interest rates and estimates of current
market conditions for instruments with similar terms, maturities, and degree
of
risk. The fair value of foreign currency forward exchange contracts is estimated
based on quoted market prices for contracts with similar maturities. The
fair
value of the accelerated share repurchase agreement is based on the estimated
settlement amount of the agreement as discussed in Note 17. These fair value
estimates do not necessarily reflect the amounts the Company would realize
in a
current market exchange.
The
Company uses derivative financial instruments in the form of interest rate
swaps
and foreign currency forward exchange contracts to manage interest rate risk
and
foreign currency risk, respectively. The Company’s policy is to execute such
instruments with creditworthy financial institutions and not enter into
derivative financial instruments for speculative purposes.
On
November 20, 2003, the Company entered into two interest rate swap contracts
(the Swaps) which expire on December 1, 2013 and effectively converted $100
million aggregate principal amount of the Company’s notes due December 1, 2013
to floating rate debt based on six-month LIBOR less 7.5 basis points. The
Company has designated the Swaps as fair value hedges. Accordingly, the fair
values of the Swaps are recorded in Other Assets or Other Liabilities on
the
Condensed Consolidated Statement of Financial Position and the carrying value
of
the underlying debt is adjusted by an equal amount.
Foreign
currency forward exchange contracts provide for the purchase or sale of foreign
currencies at specified future dates at specified exchange rates and are
used to
offset changes in the fair value of certain assets or liabilities or forecasted
cash flows resulting from transactions denominated in foreign currencies.
At
June 30, 2007 and September 30, 2006, the Company had outstanding foreign
currency forward exchange contracts with notional amounts of $234 million
and
$190 million, respectively. These notional values consist primarily of contracts
for the European euro, British pound sterling and Japanese yen, and are stated
in U.S. dollar equivalents at spot exchange rates at the respective dates.
17.
|
Guarantees
and Indemnifications
|
Product
warranty costs
Accrued
liabilities are recorded to reflect the Company’s contractual obligations
relating to warranty commitments to customers. Warranty coverage of various
lengths and terms is provided to customers depending on standard offerings
and
negotiated contractual agreements. An estimate for warranty expense is recorded
at the time of sale based on the length of the warranty and historical warranty
return rates and repair costs.
Changes
in the carrying amount of accrued product warranty costs are summarized as
follows (in millions):
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
Balance
at beginning of year
|
|
$
|
189
|
|
$
|
172
|
|
Warranty
costs incurred
|
|
|
(39
|
)
|
|
(39
|
)
|
Product
warranty accrual
|
|
|
56
|
|
|
50
|
|
Reclassification
|
|
|
7
|
|
|
-
|
|
Pre-existing
warranty adjustments
|
|
|
-
|
|
|
2
|
|
Acquisitions
|
|
|
-
|
|
|
1
|
|
Balance
at June 30
|
|
$
|
213
|
|
$
|
186
|
|
Guarantees
In
connection with the acquisition of Quest from Evans & Sutherland, the
Company entered into certain guarantees related to various obligations of
Quest.
The Company has guaranteed, jointly and severally with Quadrant Group plc
(the
other joint venture partner), the performance of Quest in relation to its
contract with the United Kingdom Ministry of Defense, the performance of
certain
Quest subcontractors (up to $2 million), and the payment by Quest of a loan
agreement executed by Quest. As of June 30, 2007, the outstanding loan balance
was approximately $9 million.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Should
Quest fail to meet its obligations under these agreements, these guarantees
may
become a liability of the Company. As of June 30, 2007, the Quest guarantees
are
not reflected on the Company’s Condensed Consolidated Statement of Financial
Position because the Company believes that Quest will meet all of its
performance and financial obligations in relation to its contract with the
United Kingdom Ministry of Defense and the loan agreement.
Letters
of credit
The
Company has contingent commitments in the form of commercial letters of credit.
Outstanding letters of credit are issued by banks on the Company’s behalf to
support certain contractual obligations to its customers. If the Company
fails
to meet these contractual obligations, these letters of credit may become
liabilities of the Company. Total outstanding letters of credit at June 30,
2007
were $120 million. These commitments are not reflected as liabilities on
the
Company’s Condensed Consolidated Statement of Financial Position.
Accelerated
Share Repurchase
In
September 2006, the Company entered into an accelerated share repurchase
agreement with an investment bank under which the Company repurchased 4.7
million shares of its outstanding common shares at an initial price of $54.63
per share, representing the September 28, 2006 closing price of the Company’s
common shares. Initial consideration paid to repurchase the shares of $257
million was recorded as a treasury stock repurchase in fiscal 2006 which
resulted in a reduction of Shareowners’ Equity.
The
agreement contained a forward sale contract whereby the 4.7 million borrowed
shares held by the investment bank that were sold to the Company were covered
by
share purchases by the investment bank in the open market over a subsequent
period of time that ended no later than December 29, 2006. The initial purchase
price was subject to a purchase price adjustment based on the volume-weighted
average price of the Company’s shares purchased by the investment bank during
the period less a discount as defined in the agreement. In December 2006,
the
Company, at its option, elected to pay $19 million in cash to the investment
bank in full settlement of the agreement and recorded the transaction as
a
reduction of Shareowners’ Equity. The $19 million was paid to the investment
bank in January 2007.
Indemnifications
The
Company enters into indemnifications with lenders, counterparties in
transactions such as administration of employee benefit plans, and other
customary indemnifications with third parties in the normal course of business.
The following are other than customary indemnifications based on the judgment
of
management.
The
Company became an independent, publicly held company on June 29, 2001, when
Rockwell International Corporation (Rockwell), renamed Rockwell Automation,
spun
off its former avionics and communications business and certain other assets
and
liabilities of Rockwell by means of a distribution of all the Company’s
outstanding shares of common stock to the shareowners of Rockwell in a tax-free
spin-off (the spin-off). In connection with the spin-off,
the
Company may be required to indemnify certain insurers against claims made
by
third parties in connection with the Company’s legacy insurance policies.
In
connection with agreements for the sale of portions of its business, the
Company
at times retains the liabilities of a business of varying amounts which relate
to events occurring prior to its sale, such as tax, environmental, litigation
and employment matters. The Company at times indemnifies the purchaser of
a
Rockwell Collins’ business in the event that a third party asserts a claim that
relates to a liability retained by the Company.
The
Company also provides indemnifications of varying scope and amounts to certain
customers against claims of product liability or intellectual property
infringement made by third parties arising from the use of Company or customer
products or intellectual property. These indemnifications generally require
the
Company to compensate the other party for certain damages and costs incurred
as
a result of third party product liability or intellectual property claims
arising from these transactions.
The
amount the Company could be required to pay under its indemnification agreements
is generally limited based on amounts specified in the underlying agreements,
or
in the case of some agreements, the maximum potential amount of future payments
that could be required is not limited. When a potential claim arises under
these
agreements, the Company considers such factors as the degree of probability
of
an unfavorable outcome and the ability to make a reasonable estimate of the
amount of loss. A liability is recorded when a potential claim is both probable
and estimable. The nature of these agreements prevents the Company from making
a
reasonable estimate of the maximum potential amount it could be required
to pay
should counterparties to these agreements assert a claim; however, the Company
currently has no material claims pending related to such
agreements.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
18.
|
Environmental
Matters
|
The
Company is subject to federal, state and local regulations relating to the
discharge of substances into the environment, the disposal of hazardous wastes,
and other activities affecting the environment that have had and will continue
to have an impact on the Company’s manufacturing operations. These environmental
protection regulations may require the investigation and remediation of
environmental impairments at current and previously owned or leased properties.
In addition, lawsuits, claims and proceedings have been asserted on occasion
against the Company alleging violations of environmental protection regulations,
or seeking remediation of alleged environmental impairments, principally
at
previously owned or leased properties. As of June 30, 2007, the Company is
involved in the investigation or remediation of seven sites under these
regulations or pursuant to lawsuits asserted by third parties. Management
estimates that the total reasonably possible future costs the Company could
incur for six of these sites is not significant. Management estimates that
the
total reasonably possible future costs the Company could incur from one of
these
sites to be approximately $9 million. The Company has recorded environmental
reserves for this site of $2 million as of June 30, 2007, which represents
management’s best estimate of the probable future cost for this site.
In
addition, the Company is currently involved in investigation or remediation
of
three sites related to properties purchased in connection with the Company’s
acquisition of Kaiser Aerospace & Electronics Corporation (Kaiser). Rockwell
Collins has certain rights to indemnification from escrow funds set aside
at the
time of acquisition that management believes are sufficient to address the
Company’s potential liability for the Kaiser related environmental
matters.
To
date,
compliance with environmental regulations and resolution of environmental
claims
has been accomplished without material effect on the Company’s liquidity and
capital resources, competitive position or financial condition. Management
believes that expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection
and other expenditures for the resolution of environmental claims will not
have
a material adverse effect on the Company’s business or financial position, but
could possibly be material to the results of operations or cash flows of
any one
period.
The
Company is subject to various lawsuits, claims and proceedings that have
been or
may be instituted or asserted against the Company relating to the conduct
of the
Company’s business, including those pertaining to product liability,
intellectual property, safety and health, exporting and importing, contract,
employment and regulatory matters. Although the outcome of these matters
cannot
be predicted with certainty and some lawsuits, claims or proceedings may
be
disposed of unfavorably to the Company, management believes the disposition
of
matters that are pending or asserted will not have a material adverse effect
on
the Company’s business or financial position, but could possibly be material to
the results of operations or cash flows of any one period.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
20.
|
2006
Restructuring Charge
|
The
September 2006 restructuring charge was related to decisions to implement
certain business realignment and facility rationalization actions. As a result
of these decisions, the Company recorded charges of $14 million in the fourth
quarter of 2006 which was comprised of $11 million of employee separation
costs
and $3 million of facility exit costs. During the nine months ended June
30,
2007, the Company adjusted the restructuring reserve by $4 million primarily
due
to lower than expected employee separation costs.
Change
in
the restructuring reserve during the nine months ended June 30, 2007 is as
follows (in millions):
|
|
Employee
Separation
Costs
|
|
Facility
Exit
Costs
|
|
Total
|
|
Balance
at September 30, 2006
|
|
$
|
11
|
|
$
|
3
|
|
$
|
14
|
|
Reserve
adjustment
|
|
|
(4
|
)
|
|
-
|
|
|
(4
|
)
|
Cash
payments
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(6
|
)
|
Balance
at June 30, 2007
|
|
$
|
4
|
|
$
|
-
|
|
$
|
4
|
|
21.
|
Business
Segment Information
|
|
|
The
sales and results of operations of the Company’s operating segments are
summarized as follows (in
millions):
|
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
$
|
568
|
|
$
|
499
|
|
$
|
1,610
|
|
$
|
1,485
|
|
Commercial
Systems
|
|
|
545
|
|
|
465
|
|
|
1,579
|
|
|
1,317
|
|
Total
sales
|
|
$
|
1,113
|
|
$
|
964
|
|
$
|
3,189
|
|
$
|
2,802
|
|
Segment
operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
$
|
111
|
|
$
|
99
|
|
$
|
320
|
|
$
|
292
|
|
Commercial
Systems
|
|
|
119
|
|
|
100
|
|
|
355
|
|
|
264
|
|
Total
segment operating earnings
|
|
|
230
|
|
|
199
|
|
|
675
|
|
|
556
|
|
Interest
expense
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(10
|
)
|
|
(9
|
)
|
Earnings
from corporate-level equity affiliate
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
2
|
|
Stock-based
compensation
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(13
|
)
|
|
(13
|
)
|
Restructuring
adjustment
|
|
|
1
|
|
|
-
|
|
|
4
|
|
|
-
|
|
General
corporate, net
|
|
|
(15
|
)
|
|
(16
|
)
|
|
(42
|
)
|
|
(44
|
)
|
Income
before income taxes
|
|
|
209
|
|
|
177
|
|
|
614
|
|
|
492
|
|
Income
tax provision
|
|
|
(63
|
)
|
|
(56
|
)
|
|
(185
|
)
|
|
(153
|
)
|
Net
income
|
|
$
|
146
|
|
$
|
121
|
|
$
|
429
|
|
$
|
339
|
|
The
Company evaluates performance and allocates resources based upon, among other
considerations, segment operating earnings. The Company’s definition of segment
operating earnings excludes income taxes, stock-based compensation, unallocated
general corporate expenses, interest expense, gains and losses from the
disposition of businesses, non-recurring charges resulting from purchase
accounting such as purchased research and development charges, earnings and
losses from corporate-level equity affiliates, asset impairment charges,
and
other special items as identified by management from time to time. Intersegment
sales are not material and have been eliminated.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following table summarizes sales by product category for the three and nine
months ended June 30, 2007 and 2006 (in millions):
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Defense
electronics
|
|
$
|
375
|
|
$
|
335
|
|
$
|
1,089
|
|
$
|
1,035
|
|
Defense
communications
|
|
|
193
|
|
|
164
|
|
|
521
|
|
|
450
|
|
Air
transport aviation electronics
|
|
|
303
|
|
|
251
|
|
|
861
|
|
|
716
|
|
Business
and regional aviation electronics
|
|
|
242
|
|
|
214
|
|
|
718
|
|
|
601
|
|
Total
|
|
$
|
1,113
|
|
$
|
964
|
|
$
|
3,189
|
|
$
|
2,802
|
|
Product
line disclosures for defense-related products are delineated based upon their
underlying technologies while the air transport and business and regional
aviation electronics product lines are generally delineated based upon the
difference in underlying customer base, size of aircraft, and markets
served.
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS
OF OPERATIONS
The
following management discussion and analysis is based on financial results
for
the three and nine months ended June 30, 2007 and 2006 and should be read
in
conjunction with the unaudited condensed consolidated financial statements
and
notes thereto in Item 1 of Part I of this quarterly report.
Three
Months Ended June 30, 2007 and 2006
Sales
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
1,113
|
|
$
|
964
|
|
Percent
increase
|
|
|
15
|
%
|
|
|
|
Total
sales for the three months ended June 30, 2007 increased 15 percent to $1,113
million compared to the three months ended June 30, 2006. Sales from acquired
businesses, primarily the E&S Simulation Business, contributed $14 million,
or 1 percentage point of the sales growth. The remainder of the sales increase
resulted from 16 percent organic revenue growth in our Commercial Systems
business and 12 percent organic revenue growth in our Government Systems
business. See the following operating segment sections for further discussion
of
sales for the three months ended June 30, 2007 and 2006.
Net
Income and Diluted Earnings Per Share
|
|
Three
Months Ended June
30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
146
|
|
$
|
121
|
|
Net
income as a percent of sales
|
|
|
13.1
|
%
|
|
12.6
|
%
|
Diluted
earnings per share
|
|
$
|
0.86
|
|
$
|
0.70
|
|
Net
income for the three months ended June 30, 2007 increased 21 percent to $146
million, or 13.1 percent of sales, from net income of $121 million, or 12.6
percent of sales, for the three months ended June 30, 2006. Diluted earnings
per
share increased 23 percent to 86 cents for the three months ended June 30,
2007
from 70 cents for the three months ended June 30, 2006. The increase in net
income and diluted earnings per share was primarily the result of a
combination of increased sales volume, productivity improvements, lower
retirement benefit costs, and a lower effective tax rate, partially offset
by
higher research and development and incentive compensation costs. Diluted
earnings per share for the three months ended June 30, 2007 also benefited
from
our share repurchase program.
Government
Systems Financial Results
Government
Systems’ Sales
The
following table presents Government Systems’ sales by product
category:
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Defense
electronics
|
|
$
|
375
|
|
$
|
335
|
|
Defense
communications
|
|
|
193
|
|
|
164
|
|
Total
|
|
$
|
568
|
|
$
|
499
|
|
Percent
increase
|
|
|
14
|
%
|
|
|
|
Defense
electronics sales increased $40 million, or 12 percent, for the three months
ended June 30, 2007 compared to the three months ended June 30, 2006. Sales
from
acquired businesses, primarily the E&S Simulation Business, contributed $8
million, or 2 percentage points of the sales growth while organic sales
increased $32 million, or 10 percent. The increase in organic sales was due
primarily to higher Defense Advanced GPS Receiver (DAGR) equipment sales
and
higher revenues from various rotary and fixed wing aircraft electronics systems
programs.
Defense
communications sales increased $29 million, or 18 percent, for the three
months
ended June 30, 2007 compared to the same period last year. This increase
was due
primarily to higher revenues from Joint Tactical Radio System and other
networked communication development programs as well as higher ARC-210 radio
hardware and development program revenues.
Government
Systems’ Segment Operating Earnings
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
111
|
|
$
|
99
|
|
Percent
of sales
|
|
|
19.5
|
%
|
|
19.8
|
%
|
Government
Systems’ operating earnings increased 12 percent to $111 million, or 19.5
percent of sales, for the three months ended June 30, 2007 compared to operating
earnings of $99 million, or 19.8 percent of sales, for the same period a
year
ago. Operating earnings were higher as the positive impact of the higher
sales,
a favorable contract termination settlement, productivity improvements, and
lower retirement benefit costs were partially offset by higher incentive
compensation costs. In addition, a slightly higher proportion of lower margin
development program and acquired business revenues contributed to the nominal
decline in operating margin.
Commercial
Systems Financial Results
Commercial
Systems’ Sales
The
following table presents Commercial Systems’ sales by product
category:
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$
|
303
|
|
$
|
251
|
|
Business
and regional aviation electronics
|
|
|
242
|
|
|
214
|
|
Total
|
|
$
|
545
|
|
$
|
465
|
|
Percent
increase
|
|
|
17
|
%
|
|
|
|
Air
transport aviation electronics sales increased $52 million, or 21 percent,
for
the three months ended June 30, 2007 compared to the three months ended June
30,
2006. Incremental sales from the E&S Simulation Business contributed $5
million, or 2 percentage points of the revenue growth. The 19 percent air
transport organic sales increase is due primarily to higher aftermarket avionics
equipment and service and support revenues, including initial sales of equipment
for Boeing 787 simulators, as well as higher avionics products and systems
sales
to original equipment manufacturers (OEMs).
Business
and regional aviation electronics sales increased $28 million, or 13 percent,
for the three months ended June 30, 2007 compared to the same period in the
prior year. This sales growth is attributed primarily to higher avionics
products and systems sales to business jet OEMs and higher aftermarket equipment
and service and support revenues.
The
following table presents Commercial Systems’ sales based on the type of product
or service:
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Original
equipment
|
|
$
|
274
|
|
$
|
249
|
|
Aftermarket
|
|
|
271
|
|
|
216
|
|
Total
|
|
$
|
545
|
|
$
|
465
|
|
Original
equipment sales increased $25 million, or 10 percent, for the three months
ended
June 30, 2007 compared to the same period in the prior year due primarily
to
higher new business jet aircraft and air transport aircraft avionics products
and systems sales.
Aftermarket
sales increased $55 million, or 25 percent, for the three months ended June
30,
2007 compared to the three months ended June 30, 2006. Incremental sales
from
the E&S Simulation Business contributed $5 million, or 2 percentage points
of the revenue growth. Organic aftermarket sales grew $50 million, or 23
percent, due primarily to initial sales of equipment for Boeing 787 simulators,
as well as higher business and regional and air transport avionics service
and
support revenues.
Commercial
Systems’ Segment Operating Earnings
|
|
Three
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
119
|
|
$
|
100
|
|
Percent
of sales
|
|
|
21.8
|
%
|
|
21.5
|
%
|
Commercial
Systems’ operating earnings increased 19 percent to $119 million, or 21.8
percent of sales, for the three months ended June 30, 2007 compared to operating
earnings of $100 million, or 21.5 percent of sales for the three months ended
June 30, 2006. The increase in operating earnings and operating margin was
primarily due to the combination of higher organic revenues, productivity
improvements, and lower retirement benefit costs, partially offset
by
higher
research and development and incentive compensation costs.
Nine
Months Ended June 30, 2007 and 2006
Sales
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
3,189
|
|
$
|
2,802
|
|
Percent
increase
|
|
|
14
|
%
|
|
|
|
Total
sales for the nine months ended June 30, 2007 increased 14 percent to $3,189
million compared to the nine months ended June 30, 2006. Sales from acquired
businesses, primarily the E&S Simulation Business, contributed $55 million,
or 2 percentage points of the sales growth. The remainder of the sales increase
resulted from 18 percent organic revenue growth in our Commercial Systems
business and 6 percent organic revenue growth in our Government Systems
business. See the following operating segment sections for further discussion
of
sales for the nine months ended June 30, 2007 and 2006.
Net
Income and Diluted Earnings Per Share
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
429
|
|
$
|
339
|
|
Net
income as a percent of sales
|
|
|
13.5
|
%
|
|
12.1
|
%
|
Diluted
earnings per share
|
|
$
|
2.52
|
|
$
|
1.93
|
|
Net
income for the nine months ended June 30, 2007 increased 27 percent to $429
million, or 13.5 percent of sales, from net income of $339 million, or 12.1
percent of sales, for the nine months ended June 30, 2006. Diluted earnings
per
share increased 31 percent to $2.52 for the nine months ended June 30, 2007
compared to $1.93 for the nine months ended June 30, 2006. The increase in
net
income and diluted earnings per share for the nine months ended June 30,
2007
compared to the same period last year was primarily the result of a
combination of increased sales volume, productivity improvements, lower
retirement benefit costs, and a lower effective tax rate, partially offset
by
higher research and development and incentive compensation costs. Diluted
earnings per share for the nine months ended June 30, 2007 also benefited
from
our share repurchase program.
Government
Systems Financial Results
Government
Systems’ Sales
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Defense
electronics
|
|
$
|
1,089
|
|
$
|
1,035
|
|
Defense
communications
|
|
|
521
|
|
|
450
|
|
Total
|
|
$
|
1,610
|
|
$
|
1,485
|
|
Percent
increase
|
|
|
8
|
%
|
|
|
|
Defense
electronics sales increased $54 million, or 5 percent, for the nine months
ended
June 30, 2007 compared to the nine months ended June 30, 2006. Sales from
acquired businesses, primarily the E&S Simulation Business, contributed $33
million, or 3 percentage points of the sales growth while organic sales
increased $21 million, or 2 percent. The increase in organic sales was due
primarily to higher Defense Advanced GPS Receiver (DAGR) equipment sales
and
higher revenues from various rotary and fixed wing aircraft electronics systems
programs, partially offset by lower sales from simulation and training programs
and certain European programs that have completed.
Defense
communications sales increased $71 million, or 16 percent, for the nine months
ended June 30, 2007 compared to the nine months ended June 30, 2006. This
increase was due primarily to higher revenues from Joint Tactical Radio System
and other networked communication development programs as well as higher
ARC-210
radio hardware and development program revenues.
Government
Systems’ Segment Operating Earnings
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
320
|
|
$
|
292
|
|
Percent
of sales
|
|
|
19.9
|
%
|
|
19.7
|
%
|
Government
Systems’ operating earnings increased 10 percent to $320 million, or 19.9
percent of sales for the nine months ended June 30, 2007, compared to operating
earnings of $292 million, or 19.7 percent of sales for the same period a
year
ago. The higher operating earnings and operating margin were primarily
attributable to the combination of the higher sales, productivity improvements,
net favorable contract adjustments, and lower retirement benefit costs, offset
by higher research and development and incentive compensation
costs.
Commercial
Systems Financial Results
Commercial
Systems’ Sales
The
following table represents Commercial Systems’ sales by product
category:
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$
|
861
|
|
$
|
716
|
|
Business
and regional aviation electronics
|
|
|
718
|
|
|
601
|
|
Total
|
|
$
|
1,579
|
|
$
|
1,317
|
|
Percent
increase
|
|
|
20
|
%
|
|
|
|
Air
transport aviation electronics sales increased $145 million, or 20 percent,
for
the nine months ended June 30, 2007 compared to the nine months ended June
30,
2006. Incremental sales from the E&S Simulation Business contributed $20
million, or 3 percentage points of the revenue growth. The 17 percent air
transport organic sales increase is due primarily to higher avionics products
and systems sales to airlines and OEMs and higher aftermarket revenues,
including initial sales of equipment for Boeing 787 simulators, and higher
service and support and in-flight entertainment revenues.
Business
and regional aviation electronics sales increased $117 million, or 19 percent,
for the nine months ended June 30, 2007 compared to the same period in the
prior
year. This sales growth is attributed primarily to higher avionics and cabin
electronics sales to business jet OEMs and higher aftermarket revenues.
The
following table represents Commercial Systems’ sales based on the type of
product or service:
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Original
equipment
|
|
$
|
783
|
|
$
|
676
|
|
Aftermarket
|
|
|
796
|
|
|
641
|
|
Total
|
|
$
|
1,579
|
|
$
|
1,317
|
|
Original
equipment sales increased $107 million, or 16 percent, for the nine months
ended
June 30, 2007 compared to the same period in the prior year. This increase
was
primarily due to higher air transport avionics sales as well as higher business
jet avionics and cabin electronics products and systems sales, partially
offset
by lower in-flight entertainment systems sales.
Aftermarket
sales increased $155 million, or 24 percent, for the nine months ended June
30,
2007 compared to the same period in the prior year. Incremental sales from
the
E&S Simulation Business contributed $20 million, or 3 percentage points of
the revenue growth. Higher organic aftermarket sales increased $135 million,
or
21 percent, due to higher sales across all product lines, with particular
strength in air transport avionics spares sales resulting from the initial
sales
of equipment for Boeing 787 simulators as well as business and regional and
in-flight entertainment aftermarket activities.
Commercial
Systems’ Segment Operating Earnings
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
355
|
|
$
|
264
|
|
Percent
of sales
|
|
|
22.5
|
%
|
|
20.0
|
%
|
Commercial
Systems’ operating earnings increased $91 million, or 34 percent, to $355
million, or 22.5 percent of sales, compared to $264 million, or 20.0 percent
of
sales, for the nine months ended June 30, 2006. The increase in operating
earnings and operating margin was primarily due to the combination of higher
organic revenues, productivity improvements, and lower retirement benefit
costs,
partially offset by
higher
research and development and incentive compensation costs.
Retirement
Benefits
Net
benefit expense for pension benefits and other retirement benefits are as
follows (in millions):
|
|
Three
Months Ended June 30
|
|
Nine
Months Ended June 30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1
|
|
$
|
17
|
|
$
|
7
|
|
$
|
52
|
|
Other
retirement benefits
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
|
$
|
-
|
|
$
|
16
|
|
$
|
4
|
|
$
|
50
|
|
Pension
Benefits
We
amended our U.S.
qualified and non-qualified pension plans in 2003 covering all salary and
hourly
employees not covered by collective bargaining agreements to discontinue
benefit
accruals for salary increases and services rendered after September 30, 2006.
As
a result, we expect the defined benefit pension expense to decrease from
$70
million in 2006 to $8 million in 2007. Concurrently, we plan to make additional
company contributions of approximately $30 million to our existing defined
contribution savings plan in 2007.
Other
Retirement Benefits
We
expect
Other Retirement Benefits income of approximately $4 million for the full
year
2007 compared to the full year 2006 income of $2 million.
Income
Taxes
At
the
end of each interim reporting period, we make an estimate of the annual
effective income tax rate. Tax items included in the annual effective tax rate
are pro-rated for the full year and tax items discrete to a specific quarter
are
included in the effective tax rate for that quarter. The estimate used in
providing for income taxes on a year-to-date basis may change in subsequent
interim periods.
The
federal Research and Development Tax Credit expired December 31, 2005. On
December 20, 2006, the Tax Relief and Health Care Act of 2006 was enacted,
which
retroactively reinstated and extended the Research and Development Tax Credit
from January 1, 2006 to December 31, 2007. The retroactive benefit for the
previously expired period from January 1, 2006 to September 30, 2006 is
reflected as a discrete item which lowered our effective tax rate by about
2
percentage points for the nine months ended June 30, 2007.
The
phase-out period for the federal Extraterritorial Income Exclusion (ETI) tax
benefit ended on December 31, 2006. The enacted federal replacement tax benefit
for ETI, the Domestic Manufacturing Deduction (DMD), will apply to the full
2007
year. For 2007, the available DMD tax benefit is one-third of the full benefit
that will be available in 2011. The amount of DMD tax benefit available in
2008,
2009 and 2010 will be two-thirds of the full benefit.
During
the three months ended June 30, 2007 and 2006, our effective income tax rate
was
30.1 percent and 31.6 percent, respectively. During the nine months ended June
30, 2007 and 2006, our effective income tax rate was 30.1 percent and 31.1
percent, respectively. The effective tax rate was lower for the three and nine
months ended June 30, 2007 than the same periods in the prior year primarily
due
to the reinstatement of the Research and Development Tax Credit partially offset
by the combined impact of lower tax benefits from the ETI and DMD and
incremental pre-tax earnings. Including the impact of these items, we currently
expect our annual effective income tax rate to be about 31.5 percent in
2007.
Outlook
A
summary
of our 2007 anticipated results is as follows:
|
·
|
Total
sales of about $4.35 billion.
|
|
·
|
Diluted
earnings per share of about $3.40.
|
|
·
|
Government
Systems’ sales are expected to increase by about 8 percent over 2006 sales
with operating margins of about 20
percent.
|
|
·
|
Commercial
Systems’ sales are expected to increase by about 18 percent over 2006
sales, with operating margins of about 22.5
percent.
|
|
·
|
Cash
provided by operating activities of about $600 million, which includes
a
discretionary contribution to our U.S. qualified pension plan of
$75
million that was made during the third
quarter.
|
|
·
|
Capital
expenditures of about $140 million.
|
|
·
|
Total
company and customer-funded research and development expenditures
of about
$815 million, or approximately 19 percent of total
sales.
|
FINANCIAL
CONDITION AND LIQUIDITY
Cash
Flow Summary
Operating
Activities
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$
|
298
|
|
$
|
313
|
|
The
decrease in operating cash flows during the nine months ended June 30, 2007
compared to the same period last year was principally due to increases in
receivables and inventory to support higher sales volume and new aircraft
programs, an increase in receivables as a result of slower collections on U.S.
government receivables, as well as higher income tax and pension payments,
partially offset by higher net income.
Investing
Activities
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
Cash
used for investing activities
|
|
$
|
(71
|
)
|
$
|
(175
|
)
|
Decrease
in cash used for investing activities during the nine months ended June 30,
2007
compared to the same period last year was due to the following:
|
·
|
A
$5 million purchase price adjustment received in the current period
related to the E&S Simulation Business compared to the $71 million in
cash paid for the acquisition of the E&S Simulation Business in the
same period last year.
|
|
·
|
In
the current period, we received a $14 million recovery of a license
fee
paid to Boeing in prior years as a result of Boeing exiting the high-speed
broadband communication connectivity markets.
|
|
·
|
Capital
expenditures were $86 million in the nine months ended June 30, 2007
compared to $104 million for the same period last year. We expect
capital
expenditures for the full year 2007 to be approximately $140 million
compared to full year 2006 capital expenditures of $144
million.
|
Financing
Activities
|
|
Nine
Months Ended
|
|
|
|
June
30
|
|
|
|
2007
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
Cash
used for financing activities
|
|
$
|
(241
|
)
|
$
|
(164
|
)
|
Factors
impacting cash used for financing activities for the nine months ended June
30,
2007 compared to the same period last year include the following:
|
·
|
In
the current period we repurchased 3.1 million shares of common stock
at a
cost of $222 million compared to 4.4 million shares at a cost of
$236
million for the same period last year.
|
|
·
|
In
the current period we received $56 million from the exercise of stock
options compared to $69 million for the same period last year.
|
|
·
|
We
paid cash dividends of $81 million during the nine months ended June
30,
2007 compared to $69 million for the same period last year.
|
|
·
|
We
paid $27 million to reduce long-term borrowings for the nine months
ended
June 30, 2007 compared to the receipt of $46 million from the issuance
of
long-term borrowings in the same period last
year.
|
|
·
|
We
received a $29 million excess tax benefit from the exercise of stock
options for the nine months ended June 30, 2007 compared to $26 million
for the same period last year.
|
Cash
generated by operations combined with our borrowing capacity is expected to
meet
our operating cash flow, capital expenditure, dividend payment, acquisition,
and
share repurchase plans and our cash flow requirements for contractual
commitments for the foreseeable future.
Liquidity
In
addition to cash provided by normal operating activities, we utilize a
combination of short-term and long-term debt to finance operations. Our primary
source of short-term liquidity is through borrowings in the commercial paper
market. Our access to that market is facilitated by the strength of our credit
ratings and an $850 million committed credit facility with several banks
(Revolving Credit Facility). Our current ratings as provided by Moody’s
Investors Service, Standard & Poor’s and Fitch, Inc. are A-1 / A / A,
respectively, for long-term debt and P-1 / A-1 / F-1, respectively, for
short-term debt. All three agencies have stable outlooks on our credit
rating.
Under
our
commercial paper program, we may sell up to $850 million face amount of
unsecured short-term promissory notes in the commercial paper market. The
commercial paper notes may bear interest or may be sold at a discount and have
a
maturity of not more than 364 days from time of issuance. Borrowings under
the
commercial paper program are available for working capital needs and other
general corporate purposes. There were no commercial paper borrowings
outstanding at June 30, 2007.
Our
Revolving Credit Facility consists of an $850 million five-year unsecured
revolving credit agreement entered into on May 24, 2005. The Revolving Credit
Facility exists primarily to support our commercial paper program, but is
available to us in the event our access to the commercial paper market is
impaired or eliminated. Our only financial covenant under the Revolving Credit
Facility requires that we maintain a consolidated debt to total capitalization
ratio of not greater than 60 percent. Our debt to total capitalization ratio
at
June 30, 2007 was 14 percent. The Revolving Credit Facility contains covenants
that require us to satisfy certain conditions in order to incur debt secured
by
liens, engage in sale/leaseback transactions, or merge or consolidate with
another entity. The Revolving Credit Facility does not contain any rating
downgrade triggers that would accelerate the maturity of our indebtedness.
In
addition short-term credit facilities available to foreign subsidiaries amounted
to $60 million as of June 30, 2007, of which $28 million was utilized to support
commitments in the form of commercial letters of credit. There were no
significant commitment fees or compensating balance requirements under any
of
our credit facilities. At June 30, 2007, there were $4 million of borrowings
outstanding under our foreign subsidiaries’ facilities.
In
addition to our credit facilities and commercial paper program, we have a shelf
registration statement filed with the Securities and Exchange Commission
covering up to $750 million in debt securities, common stock, preferred stock
or
warrants that may be offered in one or more offerings on terms to be determined
at the time of sale. On November 20, 2003, we issued $200 million of debt due
December 1, 2013 (the Notes) under the shelf registration statement. The Notes
contain covenants that require us to satisfy certain conditions in order to
incur debt secured by liens, engage in sale/leaseback transactions, or merge
or
consolidate with another entity. At June 30, 2007, $550 million of the shelf
registration was available for future use.
During
June 2006 we entered into two variable rate loan agreements to facilitate our
implementation of the cash repatriation provisions of the American Jobs Creation
Act of 2004 as follows:
|
·
|
Five-year
unsecured variable rate loan facility agreement for 20.4 million
euros
($25 million).
|
|
·
|
Five-year
unsecured variable rate loan facility agreement for 11.5 million
British
pounds ($21 million).
|
The
variable rate loan facility agreements contain customary loan covenants, none
of
which are financial. Failure to comply with customary covenants or the
occurrence of customary events of default contained in the agreements would
require the repayment of any outstanding borrowings under such agreements.
As of
June 30, 2007, $23 million was outstanding under the variable rate loan facility
agreements.
If
our
credit ratings were to be adjusted downward by the rating agencies, the
implications of such actions could include elimination of access to the
commercial paper market and an increase in the cost of borrowing. In the event
that we do not have access to the commercial paper market, alternative sources
of funding could include borrowings under the Revolving Credit Facility, funds
available from the issuance of securities under our shelf registration, and
potential asset securitization strategies.
ENVIRONMENTAL
For
information related to environmental claims, remediation efforts and related
matters, see Note 18 of the condensed consolidated financial
statements.
CRITICAL
ACCOUNTING POLICIES
Preparation
of the Company's financial statements in accordance with accounting principles
generally accepted in the United States of America requires management of
Rockwell Collins to make estimates, judgments, and assumptions that affect
our
financial condition and results of operations that are reported in the
accompanying condensed consolidated financial statements as well as the related
disclosure of assets and liabilities contingent upon future events. The critical
accounting policies used in preparation of the Company’s financial statements
are described in Management's Discussion and Analysis in the Company's Annual
Report on Form 10-K for the year ended September 30, 2006. Actual results in
these areas could differ from management's estimates.
CAUTIONARY
STATEMENT
This
quarterly
report contains statements, including certain projections and business trends,
accompanied by such phrases as "believes", "estimates", "expects", "could",
"likely", "anticipates", "will", "intends", and other similar expressions,
that
are forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as
a result of certain risks and uncertainties, including but not limited to the
potential impacts of geopolitical events; the financial condition of our
customers (including major U.S. airlines); the
health
of the global economy; rising interest rates; U.S. dollar significantly
strengthens; worldwide recession; the continued support for military
transformation and modernization programs; the potential adverse impact of
oil
prices on the commercial aerospace industry; the cost of the global war on
terrorism on U.S. government military procurement expenditures and program
budgets; systematic decline in U.S. defense spending; changes in domestic and
foreign government spending, budgetary and trade policies adverse to our
businesses; market acceptance of our new and existing technologies, products
and
services; reliability of and customer satisfaction with our products and
services; favorable outcomes on or potential cancellation
or restructuring of contracts, orders or program priorities by our customers;
customer bankruptcies and profitability; recruitment and retention of qualified
personnel; regulatory restrictions on air travel due to environmental concerns;
effective negotiation of collective bargaining agreements by us and our
customers; performance of our suppliers and subcontractors; risks inherent
in
fixed price contracts, particularly the risk of cost overruns; risk of
significant disruption to air travel; our ability to execute to our internal
performance plans such as our productivity improvement and cost reduction
initiatives; achievement of our acquisition and related integration plans;
continuing to maintain our planned effective tax rates; our ability to develop
contract compliant systems and products on schedule and within anticipated
cost
estimates; risk of fines and penalties related to noncompliance with export
control regulations; risk of asset impairments and government claims related
to
our pension plan freeze; and
the
uncertainties of the outcome of litigation,
as well
as other risks and uncertainties, including but not limited to those detailed
herein and from time to time in our Securities and Exchange Commission filings.
These forward-looking statements are made only as of the date
hereof.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk
In
addition to using cash provided by normal operating activities, we utilize
a
combination of short-term and long-term debt to finance operations. Our
operating results and cash flows are exposed to changes in interest rates that
could adversely affect the amount of interest expense incurred and paid on
debt
obligations in any given period. In addition, changes in interest rates can
affect the fair value of our debt obligations. Such changes in fair value are
only relevant to the extent these debt obligations are settled prior to
maturity. We manage our exposure to interest rate risk by maintaining an
appropriate mix of fixed and variable rate debt and when considered necessary,
we may employ financial instruments in the form of interest rate swaps to help
meet this objective.
At
June
30, 2007, we had $200 million of 4.75 percent fixed rate long-term debt
obligations outstanding with a carrying value of $196 million and a fair value
of $189 million. We converted $100 million of this fixed rate debt to floating
rate debt bearing interest at six-month LIBOR less 7.5 basis points by executing
“receive fixed, pay variable” interest rate swap contracts. A 10 percent
increase or decrease in average market interest rates would have decreased
or
increased the fair value of our long-term debt, exclusive of the effects of
the
interest rate swap contracts, by $5 million and $5 million, respectively. The
$100 million notional value of interest rate swap contracts had a carrying
and
fair value of $4 million at June 30, 2007. A 10 percent increase or decrease
in
average market interest rates would decrease or increase the fair value of
our
interest rate swap contracts by $3 million and $3 million, respectively. At
June
30, 2007, we also had $23 million of variable rate long-term debt outstanding
and variable rate short-term borrowings of $4 million. Our
results of operations are affected by changes in market interest rates related
to the variable rate debt. Inclusive
of the effect of the interest rate swaps, a 10 percent increase or decrease
in
average market interest rates would not have a material effect on our results
of
operations or cash flows. For more information related to outstanding debt
obligations and derivative financial instruments, see Notes 10 and 16 in the
condensed consolidated financial statements.
Foreign
Currency Risk
We
transact business in various foreign currencies which subjects our cash flows
and earnings to exposure related to changes to foreign currency exchange rates.
We attempt to manage this exposure through operational strategies and the use
of
foreign currency forward exchange contracts (foreign currency contracts). All
foreign currency contracts are executed with creditworthy banks and are
denominated in currencies of major industrial countries. The majority of our
non-functional currency firm and anticipated receivables and payables are hedged
using foreign currency contracts. It is our policy not to manage exposure to
net
investments in foreign subsidiaries or enter into derivative financial
instruments for speculative purposes. Notional amounts of outstanding foreign
currency forward exchange contracts were $234 million and $190 million at June
30, 2007 and September 30, 2006, respectively. Notional amounts are stated
in
U.S. dollar equivalents at spot exchange rates at the respective dates.
Principal currencies that are hedged include the European euro, British pound
sterling, and Japanese yen. The duration of foreign currency contracts is
generally two years or less. The net fair value of these foreign currency
contracts at June 30, 2007 and September 30, 2006 were net liabilities of $5
million and $3 million, respectively. If the U.S. dollar increased or decreased
in value against all currencies by 10 percent, the effect on the fair value
of
the foreign currency contracts, our results of operations, cash flows, or
financial condition would not be significant at June 30, 2007.
Item
4. Controls
and Procedures
As
required by Rule 13a-15(b) under the Securities Exchange Act of 1934, we carried
out an evaluation of the effectiveness, as of June 30, 2007, of the design
and
operation of our disclosure controls and procedures. This evaluation was carried
out under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer. Based on
that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are adequate and effective
as of June 30, 2007 to ensure that information required to be disclosed in
our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.
There
were no changes in our internal control over financial reporting (as defined
in
Exchange Act Rule 13a-15(f)) that occurred during our last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
PART
II. OTHER
INFORMATION
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
The
following table provides information about our purchases of shares of our common
stock during the quarter pursuant to our board authorized stock repurchase
program:
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price Paid per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
Maximum
Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs 1
|
|
April
1, 2007 through April 30, 2007
|
|
|
500,000
|
|
$
|
66.66
|
|
|
500,000
|
|
$
|
421
million
|
|
May
1, 2007 through
May
31, 2007
|
|
|
575,000
|
|
$
|
67.79
|
|
|
575,000
|
|
$
|
382
million
|
|
June
1, 2007 through
June
30, 2007
|
|
|
500,000
|
|
$
|
70.38
|
|
|
500,000
|
|
$
|
347
million
|
|
Total
|
|
|
1,575,000
|
|
$
|
68.25
|
|
|
1,575,000
|
|
$
|
347
million
|
|
1 |
On
February 13, 2007 we announced that our Board authorized the repurchase
of
an additional $500 million of our common stock. This authorization
has no
stated expiration.
|
Item
6.
Exhibits
12
|
|
Computation
of Ratio of Earnings to Fixed Charges for the nine months ended June
30,
2007.
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification
by Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification
by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
ROCKWELL
COLLINS, INC.
|
|
(Registrant) |
|
|
|
Date: July
26, 2007 |
By |
/s/
M.
A. Schulte |
|
M.
A. Schulte |
|
Vice
President, Finance and Controller
(Principal
Accounting Officer)
|
|
|
|
|
|
|
Date: July
26, 2007 |
By |
/s/
G.
R. Chadick |
|
G.
R. Chadick |
|
Senior
Vice President,
General
Counsel and Secretary
|