Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
file number 001-16445
Rockwell Collins,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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52-2314475
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(State
or other jurisdiction
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(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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400
Collins Road NE
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Cedar
Rapids, Iowa
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52498
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (319) 295-1000
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.
Yes þ No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files)
Yes þ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do not check if a smaller
reporting company)
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨
No þ
157,394,676
shares of registrant's Common Stock, par value $.01 per share, were outstanding
on April 19, 2010.
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.
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Condensed
Consolidated Financial Statements:
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Condensed
Consolidated Statement of Financial Position (Unaudited) — March 31, 2010
and September 30, 2009
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2 |
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Condensed
Consolidated Statement of Operations (Unaudited) — Three and Six Months
Ended March 31, 2010 and 2009
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3 |
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Condensed
Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended March
31, 2010 and 2009
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4 |
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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5 |
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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22 |
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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35 |
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Item
4.
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Controls
and Procedures
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36 |
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PART
II.
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OTHER
INFORMATION:
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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37 |
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Item
5.
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Other
Information
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37 |
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Item
6.
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Exhibits
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39 |
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Signatures
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40 |
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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)
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March 31,
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September 30,
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2010
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2009
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$ |
246 |
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$ |
235 |
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Receivables,
net
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842 |
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913 |
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Inventories,
net
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1,011 |
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943 |
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Current
deferred income taxes
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144 |
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154 |
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Other
current assets
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89 |
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117 |
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Total
current assets
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2,332 |
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2,362 |
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Property
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718 |
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719 |
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Goodwill
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753 |
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695 |
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Intangible
Assets
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310 |
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269 |
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Long-term
Deferred Income Taxes
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334 |
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371 |
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Other
Assets
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218 |
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229 |
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TOTAL
ASSETS
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$ |
4,665 |
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$ |
4,645 |
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LIABILITIES
AND EQUITY
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Current
Liabilities:
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Accounts
payable
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$ |
360 |
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$ |
366 |
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Compensation
and benefits
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215 |
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199 |
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Advance
payments from customers
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340 |
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349 |
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Product
warranty costs
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199 |
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217 |
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Other
current liabilities
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232 |
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228 |
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Total
current liabilities
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1,346 |
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1,359 |
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Long-term
Debt, Net
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527 |
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532 |
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Retirement
Benefits
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1,121 |
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1,254 |
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Other
Liabilities
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175 |
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205 |
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Equity:
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Common
stock ($0.01 par value; shares authorized: 1,000; shares issued:
183.8)
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2 |
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2 |
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Additional
paid-in capital
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1,398 |
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1,395 |
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Retained
earnings
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2,622 |
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2,444 |
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Accumulated
other comprehensive loss
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(1,076 |
) |
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(1,080 |
) |
Common
stock in treasury, at cost (shares held: March 31, 2010, 26.3; September
30, 2009, 26.7)
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(1,453 |
) |
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(1,469 |
) |
Total
shareowners’ equity
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1,493 |
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1,292 |
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Noncontrolling
interest
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3 |
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3 |
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Total
equity
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1,496 |
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1,295 |
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TOTAL
LIABILITIES AND EQUITY
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$ |
4,665 |
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$ |
4,645 |
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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)
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Three Months Ended
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Six Months Ended
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March 31
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March 31
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2010
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2009
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2010
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2009
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Sales:
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Product
sales
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$ |
1,034 |
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$ |
1,029 |
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$ |
1,961 |
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$ |
1,987 |
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Service
sales
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108 |
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109 |
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208 |
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209 |
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Total
sales
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1,142 |
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1,138 |
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2,169 |
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2,196 |
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Costs,
expenses and other:
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Product
cost of sales
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756 |
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711 |
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1,422 |
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1,375 |
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Service
cost of sales
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72 |
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74 |
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140 |
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142 |
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Selling,
general and administrative expenses
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119 |
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118 |
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228 |
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223 |
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Interest
expense
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4 |
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3 |
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10 |
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7 |
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Other
income, net
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(5
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) |
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(8
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) |
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(8
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) |
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(13
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) |
Total
costs, expenses and other
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946 |
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898 |
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1,792 |
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1,734 |
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Income
before income taxes
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196 |
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240 |
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377 |
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462 |
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Income
tax provision
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|
48 |
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|
76 |
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|
108 |
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|
147 |
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Net
income
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$ |
148 |
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$ |
164 |
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$ |
269 |
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$ |
315 |
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Earnings
per share:
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Basic
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$ |
0.94 |
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$ |
1.04 |
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$ |
1.71 |
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$ |
1.99 |
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Diluted
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$ |
0.93 |
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$ |
1.03 |
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$ |
1.69 |
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$ |
1.98 |
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Weighted
average common shares:
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Basic
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157.1 |
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158.1 |
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157.1 |
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158.1 |
|
Diluted
|
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|
159.4 |
|
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|
159.3 |
|
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|
159.3 |
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159.2 |
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Cash
dividends per share
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$ |
0.24 |
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|
$ |
0.24 |
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$ |
0.48 |
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|
$ |
0.48 |
|
See Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in
millions)
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Six Months Ended
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March 31
|
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2010
|
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|
2009
|
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Operating
Activities:
|
|
|
|
|
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|
Net
income
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|
$ |
269 |
|
|
$ |
315 |
|
Adjustments
to arrive at cash provided by operating activities:
|
|
|
|
|
|
|
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|
Depreciation
|
|
|
55 |
|
|
|
54 |
|
Amortization
of intangible assets
|
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|
18 |
|
|
|
12 |
|
Stock-based
compensation expense
|
|
|
11 |
|
|
|
10 |
|
Compensation
and benefits paid in common stock
|
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|
31 |
|
|
|
32 |
|
Tax
benefit from stock-based compensation
|
|
|
8 |
|
|
|
0 |
|
Excess
tax benefit from stock-based compensation
|
|
|
(7
|
) |
|
|
0 |
|
Deferred
income taxes
|
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|
(5
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) |
|
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19 |
|
Pension
plan contributions
|
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|
(105
|
) |
|
|
(84
|
) |
Changes
in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
|
|
|
|
|
|
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Receivables
|
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|
95 |
|
|
|
35 |
|
Inventories
|
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|
(85
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) |
|
|
(43
|
) |
Accounts
payable
|
|
|
(10
|
) |
|
|
(75
|
) |
Compensation
and benefits
|
|
|
16 |
|
|
|
(108
|
) |
Advance
payments from customers
|
|
|
(10
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) |
|
|
(14
|
) |
Income
taxes
|
|
|
66 |
|
|
|
39 |
|
Other
assets and liabilities
|
|
|
(67
|
) |
|
|
(55
|
) |
Cash
Provided by Operating Activities
|
|
|
280 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(59
|
) |
|
|
(74
|
) |
Acquisition
of businesses, net of cash acquired
|
|
|
(94
|
) |
|
|
(28
|
) |
Acquisition
of intangible assets
|
|
|
(3
|
) |
|
|
(1
|
) |
Cash
Used for Investing Activities
|
|
|
(156
|
) |
|
|
(103
|
) |
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
(66
|
) |
|
|
(43
|
) |
Cash
dividends
|
|
|
(75
|
) |
|
|
(76
|
) |
Increase
in short-term borrowings
|
|
|
0 |
|
|
|
98 |
|
Proceeds
from the exercise of stock options
|
|
|
21 |
|
|
|
2 |
|
Excess
tax benefit from stock-based compensation
|
|
|
7 |
|
|
|
0 |
|
Cash
Used for Financing Activities
|
|
|
(113
|
) |
|
|
(19
|
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
|
|
11 |
|
|
|
15 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
235 |
|
|
|
175 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
246 |
|
|
$ |
190 |
|
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) designs, produces and supports
communications and aviation electronics for commercial and military customers
worldwide.
The
Company operates on a 52/53 week fiscal year, with fiscal quarters ending on the
Friday closest to the last day of the calendar quarter. For ease of
presentation, March 31 and September 30 are utilized consistently throughout
these financial statements and notes to represent the period end
date.
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, 2009.
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 six
months ended March 31, 2010 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.
|
Recently
Issued Accounting Standards
|
In
January 2010, the Financial Accounting Standards Board (FASB) revised its
guidance regarding fair value measurement disclosures. The guidance requires new
disclosure about transfers between the levels of the fair value hierarchy as
well as expanded disclosure regarding activity within Level 3 of the fair value
hierarchy. The Company adopted this guidance in the second quarter of 2010 with
no impact to the Company’s financial statements.
In
September 2009, the FASB amended the guidance for allocating revenue to multiple
deliverables in a contract. The amendment is effective for the Company at the
beginning of fiscal year 2011, with early adoption permitted. In accordance with
the amendment, companies can allocate consideration in a multiple element
arrangement in a manner that better reflects the transaction
economics. When vendor specific objective evidence or third party evidence
for deliverables in an arrangement cannot be determined, companies will now be
allowed to develop a best estimate of the selling price to separate deliverables
and allocate arrangement consideration using the relative selling price
method. Additionally, use of the residual method has been
eliminated. The adoption of this amendment is not expected to materially
affect the Company's financial position, results of operations or cash flows as
the Company generally allocates revenue to deliverables based on the prices
charged when sold separately by the Company.
In
November 2008, the FASB ratified guidance related to accounting for defensive
intangible assets subsequent to their acquisition. The new guidance also
discusses the treatment of the estimated useful life for such
assets. Acquired defensive intangible assets include assets that an entity
does not intend to actively use, but does intend to hold or “lock up” such that
others are prevented from using the asset. The Company adopted this guidance in
the first quarter of fiscal year 2010 with no impact to the Company’s financial
statements. However, the standard could have a significant effect on any
defensive intangible assets the Company acquires in the future.
In June
2008, the FASB issued a position specifying that unvested share-based awards
that contain nonforfeitable rights to dividends or dividend equivalents are
participating securities and should therefore be included in the computation of
earnings per share (EPS) pursuant to the two-class method. The Company adopted
this standard in the first quarter of fiscal year 2010 with no material effect
on the Company’s financial statements or EPS computation.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
December 2007, the FASB issued a standard that significantly changes the way
companies account for business combinations and will generally require more
assets acquired and liabilities assumed to be measured at their acquisition-date
fair value. Under the standard, legal fees and other transaction-related costs
are expensed as incurred and are no longer included in goodwill as a cost of
acquiring the business. The standard also requires acquirers to estimate the
acquisition-date fair value of any contingent consideration and to recognize any
subsequent changes in the fair value of contingent consideration in
earnings. In addition, restructuring costs the acquirer expects, but is not
obligated to incur, will be recognized separately from the business acquisition.
The Company adopted this standard in the first quarter of fiscal year 2010. The
new standard is applied prospectively to all business combinations with an
acquisition date on or after October 1, 2009.
In
December 2007, the FASB issued a standard that changes the way companies account
for and report noncontrolling interests (minority interests) of consolidated
subsidiaries. The Company adopted this standard in the first quarter of fiscal
year 2010 with no impact to the Company’s financial statements other than
the Company has changed the presentation of noncontrolling interests on the
Condensed Consolidated Statement of Financial Position. Noncontrolling interests
of $3 million at March 31, 2010 and at September 30, 2009 are now included
within Equity. Previously, noncontrolling interests were included within Other
Liabilities.
AR
Group, Inc.
On
December 31, 2009, the Company acquired all the shares of AR Group, Inc. (Air
Routing). Air Routing, with headquarters located in Houston, Texas, is a leading
global provider of trip support services for business aircraft flight
operations. The cash purchase price, net of cash acquired, was $91 million. The
Company is in the process of allocating the purchase price and finalizing a
valuation for acquired intangible assets and their useful lives. Based on the
Company’s preliminary allocation of the purchase price, $56 million has been
allocated to goodwill and $39 million to finite-lived intangible assets with a
weighted average life of approximately 22 years. The excess purchase price over
net assets acquired reflects the Company’s view that this acquisition will
broaden the Company’s information management flight operations'
capabilities.
The Company is currently evaluating the portion of the goodwill that may be tax
deductible. Air Routing goodwill is included within the Commercial Systems
segment.
DataPath,
Inc.
On May
29, 2009, the Company acquired all the shares of DataPath, Inc. (DataPath).
DataPath, with operations in the U.S. and Sweden, is a global leader in creating
satellite-based communication solutions, primarily for military applications.
The purchase price, net of cash acquired, was $125 million, of which $118
million was paid in cash during the third fiscal quarter of 2009 and $3 million
was paid in cash during the six months ended March 31, 2010. The remaining $4
million is to be paid through 2011. The Company is in the process of allocating
the purchase price and finalizing the pre-acquisition income tax calculation.
Based on the Company’s preliminary allocation of the purchase price, $61 million
has been allocated to goodwill and $28 million to finite-lived 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
augment the Company’s networked communication offerings. The Company currently
estimates that none of the goodwill resulting from the acquisition is tax
deductible. The goodwill is included within the Government Systems
segment.
SEOS
Group Limited
On
November 24, 2008, the Company acquired all the shares of SEOS Group Limited
(SEOS). SEOS, with operations in the United Kingdom and the U.S., is a
leading global supplier of highly realistic visual display solutions for
commercial and military flight simulators. SEOS is included within the results
of both the Government Systems and Commercial Systems segments. The cash
purchase price, net of cash acquired, was $28 million. Additional consideration
of up to $8 million may be paid post-closing, contingent upon the achievement of
certain milestones. Any such additional consideration will be accounted for as
goodwill. In the first quarter of 2010, the purchase price allocation was
finalized with $28 million allocated to goodwill and $9 million to finite-lived
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 innovative and integrated solutions for the
Company’s customers. None of the goodwill resulting from the acquisition is tax
deductible. The goodwill is allocated to the Government Systems and Commercial
Systems segments in the amounts of $20 million and $8 million,
respectively.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Receivables,
net are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Billed
|
|
$ |
641 |
|
|
$ |
734 |
|
Unbilled
|
|
|
257 |
|
|
|
217 |
|
Less
progress payments
|
|
|
(44
|
) |
|
|
(27
|
) |
Total
|
|
|
854 |
|
|
|
924 |
|
Less
allowance for doubtful accounts
|
|
|
(12
|
) |
|
|
(11
|
) |
Receivables,
net
|
|
$ |
842 |
|
|
$ |
913 |
|
Receivables
not expected to be collected during the next twelve months are classified as
long-term and are included within Other Assets.
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,
net are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Finished
goods
|
|
$ |
186 |
|
|
$ |
177 |
|
Work
in process
|
|
|
291 |
|
|
|
262 |
|
Raw
materials, parts and supplies
|
|
|
337 |
|
|
|
341 |
|
Less
progress payments
|
|
|
(77
|
) |
|
|
(77
|
) |
Total
|
|
|
737 |
|
|
|
703 |
|
Pre-production
engineering costs
|
|
|
274 |
|
|
|
240 |
|
Inventories,
net
|
|
$ |
1,011 |
|
|
$ |
943 |
|
The
Company defers certain pre-production engineering costs during the development
phase of an aircraft program in connection with long-term supply arrangements
that contain contractual guarantees for reimbursement from customers. Such
customer guarantees generally take the form of a minimum order quantity with
quantified reimbursement amounts if the minimum order quantity is not taken by
the customer. These costs are deferred to the extent of the contractual
guarantees and are amortized over their estimated useful lives, up to 15 years,
as a component of cost of sales. The estimated useful life is limited to the
amount of time the Company is virtually assured to earn revenues through a
contractually enforceable right included in long-term supply arrangements with
the Company’s customers. Pre-production engineering costs incurred pursuant to
supply arrangements that do not contain customer guarantees for reimbursement
are expensed as incurred.
Property
is summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Land
|
|
$ |
30 |
|
|
$ |
30 |
|
Buildings
and improvements
|
|
|
352 |
|
|
|
349 |
|
Machinery
and equipment
|
|
|
930 |
|
|
|
891 |
|
Information
systems software and hardware
|
|
|
272 |
|
|
|
259 |
|
Furniture
and fixtures
|
|
|
62 |
|
|
|
62 |
|
Construction
in progress
|
|
|
71 |
|
|
|
88 |
|
Total
|
|
|
1,717 |
|
|
|
1,679 |
|
Less
accumulated depreciation
|
|
|
(999
|
) |
|
|
(960
|
) |
Property
|
|
$ |
718 |
|
|
$ |
719 |
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.
|
Goodwill
and Intangible Assets
|
Changes
in the carrying amount of goodwill for the six months ended March 31, 2010 are
summarized as follows:
|
|
Government
|
|
|
Commercial
|
|
|
|
|
(in millions)
|
|
Systems
|
|
|
Systems
|
|
|
Total
|
|
Balance
at September 30, 2009
|
|
$ |
496 |
|
|
$ |
199 |
|
|
$ |
695 |
|
Air
Routing acquisition
|
|
|
0 |
|
|
|
56 |
|
|
|
56 |
|
DataPath
adjustment
|
|
|
8 |
|
|
|
0 |
|
|
|
8 |
|
Foreign
currency translation adjustments
|
|
|
(6
|
) |
|
|
0 |
|
|
|
(6
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2010
|
|
$ |
498 |
|
|
$ |
255 |
|
|
$ |
753 |
|
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 2010 and 2009
impairment tests resulted in no impairment.
Intangible
assets are summarized as follows:
|
|
March 31, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Accum
|
|
|
|
|
|
|
|
|
Accum
|
|
|
|
|
(in millions)
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
|
Gross
|
|
|
Amort
|
|
|
Net
|
|
Intangible
assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
technology and patents
|
|
$ |
212 |
|
|
$ |
(113 |
) |
|
$ |
99 |
|
|
$ |
214 |
|
|
$ |
(104 |
) |
|
$ |
110 |
|
Customer
relationships
|
|
|
232 |
|
|
|
(43
|
) |
|
|
189 |
|
|
|
174 |
|
|
|
(36
|
) |
|
|
138 |
|
License
agreements
|
|
|
20 |
|
|
|
(5
|
) |
|
|
15 |
|
|
|
17 |
|
|
|
(4
|
) |
|
|
13 |
|
Trademarks
and tradenames
|
|
|
15 |
|
|
|
(10
|
) |
|
|
5 |
|
|
|
15 |
|
|
|
(9
|
) |
|
|
6 |
|
Intangible
assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and tradenames
|
|
|
2 |
|
|
|
0 |
|
|
|
2 |
|
|
|
2 |
|
|
|
0 |
|
|
|
2 |
|
Intangible
assets
|
|
$ |
481 |
|
|
$ |
(171 |
) |
|
$ |
310 |
|
|
$ |
422 |
|
|
$ |
(153 |
) |
|
$ |
269 |
|
The
Company provides up-front sales incentives prior to delivering products or
performing services to certain commercial customers in connection with sales
contracts. Up-front sales incentives are recorded as a Customer Relationship
Intangible Asset and amortized over the period the Company has received a
contractually enforceable right related to the incentives. Up-front sales
incentives consisting of cash payments or customer account credits are amortized
as a reduction of sales whereas incentives consisting of free products are
amortized as cost of sales. The net book value of sales incentives included in
Customer Relationship Intangible Assets was $133 million and $109 million
at March 31, 2010 and September 30, 2009, respectively.
Amortization
expense for intangible assets for the three and six months ended March 31, 2010
was $9 million and $18 million, respectively, compared to $6 million and $12
million for the three and six months ended March 31, 2009. Annual amortization
expense for intangible assets for 2010, 2011, 2012, 2013 and 2014 is expected to
be $38 million, $34 million, $35 million, $29 million and $29 million,
respectively.
Other
assets are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Long-term
receivables
|
|
$ |
85 |
|
|
$ |
97 |
|
Investments
in equity affiliates
|
|
|
11 |
|
|
|
10 |
|
Exchange
and rental assets, net of accumulated depreciation of $105 at March
31, 2010 and $103 at September 30, 2009
|
|
|
51 |
|
|
|
50 |
|
Other
|
|
|
71 |
|
|
|
72 |
|
Other
assets
|
|
$ |
218 |
|
|
$ |
229 |
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Investments
in equity affiliates primarily consist of four joint ventures:
|
·
|
Vision
Systems International, LLC (VSI): VSI is a joint venture with
Elbit Systems, Ltd. for the joint pursuit of helmet mounted cueing systems
for the worldwide military fixed wing aircraft
market
|
|
·
|
Data
Link Solutions LLC (DLS): DLS is a joint venture with BAE
Systems, plc for the joint pursuit of the worldwide military data link
market
|
|
·
|
Integrated
Guidance Systems LLC (IGS): IGS is a joint venture with
Honeywell International Inc. for the joint pursuit of integrated precision
guidance solutions for worldwide guided weapons
systems
|
|
·
|
Quest
Flight Training Limited (Quest): Quest is a joint venture with
Quadrant Group plc (Quadrant) that provides aircrew training services
primarily for the United Kingdom Ministry of
Defence
|
Each
joint venture is 50 percent owned by the Company and accounted for under the
equity method. Under the equity method of accounting for investments, the
Company’s proportionate share of the earnings or losses of its equity affiliates
are included in Net Income and classified as Other Income, Net in the Condensed
Consolidated Statement of Operations. For segment performance reporting
purposes, the Company’s share of earnings or losses of VSI, DLS, IGS and Quest
are included in the operating results of the Government Systems
segment.
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 $19
million and $39 million for the three and six months ended March 31, 2010,
respectively, and $19 million and $37 million for the three and six months ended
March 31, 2009, respectively. The deferred portion of profit generated from
sales to equity affiliates was $2 million at March 31, 2010 and $3 million at
September 30, 2009.
9.
|
Other
Current Liabilities
|
Other
current liabilities are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Customer
incentives
|
|
$ |
125 |
|
|
$ |
122 |
|
Contract
reserves
|
|
|
12 |
|
|
|
11 |
|
Income
taxes payable
|
|
|
18 |
|
|
|
4 |
|
Other
|
|
|
77 |
|
|
|
91 |
|
Other
current liabilities
|
|
$ |
232 |
|
|
$ |
228 |
|
The
Company provides sales incentives to certain commercial customers in connection
with sales contracts. Incentives earned by customers based on purchases of
Company products or services are recognized as a liability when the related sale
is recorded. Incentives consisting of cash payments or customer account credits
are recognized as a reduction of sales while incentives consisting of
free-of-charge hardware and account credits where the customer’s use is
restricted to future purchases are recognized as cost of sales.
Short-term
Debt
Under the
Company’s commercial paper program, the Company 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 the time of issuance. At March
31, 2010 and September 30, 2009, there were no outstanding short-term commercial
paper borrowings.
Revolving
Credit Facilities
The
Company has an $850 million unsecured revolving credit facility with various
banks that matures in March 2012. The credit facility has options to 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. This credit facility exists primarily to support the Company’s
commercial paper program, but may be used for other purposes in the event access
to the commercial paper market is impaired or eliminated. 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
excludes the accumulated other comprehensive loss equity impact related to
defined benefit retirements plans. The ratio was 17 percent as of March 31,
2010. In addition, the credit facility contains other non-financial covenants
that require the Company to satisfy certain conditions in order to incur debt
secured by liens, engage in sale/leaseback transactions or merge or consolidate
with another entity. Borrowings under this credit facility bear interest at the
London Interbank Offered Rate (LIBOR) plus a variable margin based on the
Company’s unsecured long-term debt rating or, at the Company’s option, rates
determined by competitive bid. At March 31, 2010 and September 30, 2009, there
were no outstanding borrowings under this revolving credit
facility.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
addition, short-term credit facilities available to non-U.S. subsidiaries
amounted to $58 million as of March 31, 2010, of which $32 million was utilized
to support commitments in the form of commercial letters of credit. As of March
31, 2010 and September 30, 2009, there were no short-term borrowings outstanding
under the Company’s non-U.S. subsidiaries’ credit facilities.
At March
31, 2010 and September 30, 2009, there were no significant commitment fees or
compensating balance requirements under any of the Company’s credit
facilities.
Long-term
Debt
In
addition to the Company’s credit facilities and commercial paper program, the
Company has a shelf registration statement filed with the Securities and
Exchange Commission pursuant to which the Company can publicly offer and sell
securities from time to time. This shelf registration covers an unlimited amount
of 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 May 6,
2009, the Company issued $300 million of 5.25 percent fixed rate unsecured debt
due July 15, 2019 (the 2019 Notes). The net proceeds to the Company from the
sale of the 2019 Notes, after deducting a $2 million discount and $2 million of
debt issuance costs, were $296 million. The 2019 Notes are included in the
Condensed Consolidated Statement of Financial Position net of the unamortized
discount within the caption Long-term Debt, net. The debt issuance costs are
capitalized within Other Assets on the Condensed Consolidated Statement of
Financial Position. The discount and debt issuance costs will be amortized over
the life of the 2019 Notes and recorded in Interest Expense. In January 2010,
the Company entered into interest rate swap contracts which effectively
converted $150 million of the 2019 Notes to floating rate debt based on
six-month LIBOR plus 1.235 percent. See Notes 16 and 17 for additional
information relating to the interest rate swap contracts.
On
November 20, 2003, the Company issued $200 million of 4.75 percent fixed rate
unsecured debt due December 1, 2013 (the 2013 Notes). At the time of the debt
issuance, the Company entered into interest rate swap contracts which
effectively converted $100 million of the 2013 Notes to floating rate debt based
on six-month LIBOR less .075 percent. See Notes 16 and 17 for additional
information relating to the interest rate swap contracts.
The 2019
and 2013 Notes each contain covenants that require the Company to satisfy
certain conditions in order to incur debt secured by liens, engage in
sales/leaseback transactions, merge or consolidate with another entity or
transfer substantially all of the Company’s assets.
As of
March 31, 2010, $24 million was outstanding under a five-year unsecured variable
rate loan agreement for a non-U.S. subsidiary that was entered into in June
2006. The variable rate loan facility agreement contains customary loan
covenants, none of which are financial covenants. Failure to comply with
customary covenants or the occurrence of customary events of default contained
in the agreement would require the repayment of any outstanding borrowings under
the agreement.
Long-term
debt and a reconciliation to the carrying amount is summarized as
follows:
|
|
March 31,
|
|
|
September 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
Principal
amount of 2019 Notes, net of discount
|
|
$ |
298 |
|
|
$ |
298 |
|
Principal
amount of 2013 Notes
|
|
|
200 |
|
|
|
200 |
|
Principal
amount of variable rate loan due June 2011
|
|
|
24 |
|
|
|
26 |
|
Fair
value swap adjustment (Notes 16 and 17)
|
|
|
5 |
|
|
|
8 |
|
Long-term
debt, net
|
|
$ |
527 |
|
|
$ |
532 |
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company was in compliance with all debt covenants at March 31, 2010 and
September 30, 2009. Interest
paid on debt for the six months ended March 31, 2010 and 2009 was $11 million
and $6 million, respectively.
The
Company sponsors defined benefit pension (Pension Benefits) and other
postretirement (Other Retirement Benefits) plans which provide monthly pension
and other benefits to eligible employees upon retirement.
Pension
Benefits
The
components of expense (income) for Pension Benefits for the three and six months
ended March 31, 2010 and 2009 are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
3 |
|
Interest
cost
|
|
|
39 |
|
|
|
42 |
|
|
|
79 |
|
|
|
84 |
|
Expected
return on plan assets
|
|
|
(52
|
) |
|
|
(51
|
) |
|
|
(105
|
) |
|
|
(100
|
) |
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(4
|
) |
|
|
(4
|
) |
|
|
(9
|
) |
|
|
(9
|
) |
Net
actuarial loss
|
|
|
22 |
|
|
|
7 |
|
|
|
45 |
|
|
|
14 |
|
Net
benefit expense (income)
|
|
$ |
6 |
|
|
$ |
(5
|
) |
|
$ |
13 |
|
|
$ |
(8
|
) |
Other
Retirement Benefits
The
components of expense (income) for Other Retirement Benefits for the three and
six months ended March 31, 2010 and 2009 are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$ |
1 |
|
|
$ |
0 |
|
|
$ |
2 |
|
|
$ |
1 |
|
Interest
cost
|
|
|
3 |
|
|
|
4 |
|
|
|
6 |
|
|
|
7 |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service credit
|
|
|
(5
|
) |
|
|
(5
|
) |
|
|
(11
|
) |
|
|
(11
|
) |
Net
actuarial loss
|
|
|
3 |
|
|
|
2 |
|
|
|
6 |
|
|
|
5 |
|
Net
benefit expense
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
2 |
|
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.
In October 2009, the Company made a $98 million contribution to the U.S.
qualified pension plan. The Company does not currently anticipate that it will
be required by governmental regulations to make any additional contributions to
the U.S. qualified pension plan in 2010. Any additional future contributions
necessary to satisfy the minimum statutory funding requirements are dependent
upon actual plan asset returns, interest rates and any changes to the U.S.
pension funding legislation. The Company may elect to make additional
discretionary contributions during 2010 to further improve the funded status of
this plan. Contributions to the non-U.S. plans and the U.S. non-qualified plan
are expected to total $13 million in 2010. For the six months ended March
31, 2010 and 2009, the Company made contributions of $7 million and $9 million,
respectively, to the non-U.S. plans and the U.S. non-qualified pension
plan.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12.
|
Stock-Based
Compensation
|
Total
stock-based compensation expense included within the Condensed Consolidated
Statement of Operations is as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Stock-based
compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
cost of sales
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Service
cost of sales
|
|
|
1 |
|
|
|
0 |
|
|
|
1 |
|
|
|
1 |
|
Selling,
general and administrative expenses
|
|
|
4 |
|
|
|
4 |
|
|
|
8 |
|
|
|
7 |
|
Total
|
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
11 |
|
|
$ |
10 |
|
The
Company issued awards of equity instruments under the Company’s various
incentive plans for the six months ended March 31, 2010 and 2009 as
follows:
|
|
|
|
|
Performance
|
|
|
Restricted
|
|
|
Restricted
|
|
|
|
Options
|
|
|
Shares
|
|
|
Stock
|
|
|
Stock Units
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
(shares in thousands)
|
|
Issued
|
|
|
Fair Value
|
|
|
Issued
|
|
|
Fair Value
|
|
|
Issued
|
|
|
Fair Value
|
|
|
Issued
|
|
|
Fair Value
|
|
Six
months ended March 31, 2010
|
|
|
790.9 |
|
|
$ |
12.80 |
|
|
|
190.3 |
|
|
$ |
53.08 |
|
|
|
56.6 |
|
|
$ |
53.08 |
|
|
|
24.1 |
|
|
$ |
53.09 |
|
Six
months ended March 31, 2009
|
|
|
1,305.9 |
|
|
$ |
7.09 |
|
|
|
303.5 |
|
|
$ |
30.47 |
|
|
|
98.7 |
|
|
$ |
30.39 |
|
|
|
37.5 |
|
|
$ |
35.86 |
|
The
maximum number of shares of common stock that can be issued with respect to the
performance shares granted in 2010 based on the achievement of performance
targets for fiscal years 2010 through 2012 is 454 thousand.
The fair
value of each option granted by the Company was estimated using a binomial
lattice pricing model and the following assumptions:
|
|
2010
|
|
|
2009
|
|
|
|
Grants
|
|
|
Grants
|
|
Risk-free
interest rate (U.S. Treasury zero coupon issues)
|
|
|
2.69% |
|
|
|
2.37% |
|
Expected
dividend yield
|
|
|
2.33% |
|
|
|
1.59% |
|
Expected
volatility
|
|
|
27.00% |
|
|
|
24.00% |
|
Expected
life
|
|
7
years
|
|
|
6
years
|
|
Employee
Benefits Paid in Company Stock
During
the six months ended March 31, 2010 and 2009, 0.6 million and 0.9 million
shares, respectively, of Company common stock were issued to employees under the
Company’s employee stock purchase and defined contribution savings plans at a
value of $31 million and $32 million for the respective
periods.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings
Per Share and Diluted Share Equivalents
The
computation of basic and diluted earnings per share is as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted earnings per share – Net
income
|
|
$ |
148 |
|
|
$ |
164 |
|
|
$ |
269 |
|
|
$ |
315 |
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share – weighted
average common shares
|
|
|
157.1 |
|
|
|
158.1 |
|
|
|
157.1 |
|
|
|
158.1 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
1.8 |
|
|
|
0.9 |
|
|
|
1.7 |
|
|
|
0.9 |
|
Performance
shares, restricted shares and restricted stock units
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.2 |
|
Dilutive
potential common shares
|
|
|
2.3 |
|
|
|
1.2 |
|
|
|
2.2 |
|
|
|
1.1 |
|
Denominator
for diluted earnings per share – adjusted
weighted average shares and assumed conversion
|
|
|
159.4 |
|
|
|
159.3 |
|
|
|
159.3 |
|
|
|
159.2 |
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.94 |
|
|
$ |
1.04 |
|
|
$ |
1.71 |
|
|
$ |
1.99 |
|
Diluted
|
|
$ |
0.93 |
|
|
$ |
1.03 |
|
|
$ |
1.69 |
|
|
$ |
1.98 |
|
The
average outstanding diluted shares calculation excludes options with an exercise
price that exceeds the average market price of shares during the period. Stock
options excluded from the average outstanding diluted shares calculation were
0.8 million and 2.3 million for the three months ended March 31, 2010 and 2009,
respectively, and 0.8 million and 2.3 million for the six months ended March 31,
2010 and 2009, respectively.
Comprehensive
income consists of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
148 |
|
|
$ |
164 |
|
|
$ |
269 |
|
|
$ |
315 |
|
Unrealized
foreign currency translation adjustment
|
|
|
(8
|
) |
|
|
(7
|
) |
|
|
(12
|
) |
|
|
(14
|
) |
Foreign
currency cash flow hedge adjustment
|
|
|
(3
|
) |
|
|
3 |
|
|
|
(3
|
) |
|
|
(2
|
) |
Amortization
of defined benefit plan costs
|
|
|
10 |
|
|
|
0 |
|
|
|
19 |
|
|
|
0 |
|
Comprehensive
income
|
|
$ |
147 |
|
|
$ |
160 |
|
|
$ |
273 |
|
|
$ |
299 |
|
The
Company has one consolidated subsidiary with income attributable to a
noncontrolling interest. The net income and comprehensive income attributable to
the noncontrolling interest is insignificant.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other
income, net consists of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Royalty
income
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Earnings
from equity affiliates
|
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
Interest
income
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
Other
|
|
|
(1
|
) |
|
|
2 |
|
|
|
(3
|
) |
|
|
2 |
|
Other
income, net
|
|
$ |
5 |
|
|
$ |
8 |
|
|
$ |
8 |
|
|
$ |
13 |
|
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
income tax rate are pro-rated for the full year and tax items discrete to a
specific quarter are included in the effective income 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 March 31,
2010 and 2009, the effective income tax rate was 24.5 percent and 31.7 percent,
respectively. During the six months ended March 31, 2010 and 2009, the effective
income tax rate was 28.6 percent and 31.8 percent, respectively.
The
effective income tax rate for the three and six months ended March 31, 2010
reflects a benefit to the effective income tax rate of about 10 and 5 percentage
points, respectively, due to the favorable impact of the Internal Revenue
Service (IRS) completing its examination of the taxable years ended September
30, 2006 and 2007.
The
Federal Research and Development Tax Credit (Federal R&D Tax Credit) expired
December 31, 2009. The effective income tax rate for the three and six months
ended March 31, 2010 reflects the unfavorable impact of lower Federal R&D
Tax Credits as a result of pro-rating the three months of available Federal
R&D Tax Credits over the full 2010 fiscal year. This resulted in an increase
to the Company’s effective income tax rate of approximately 2 percentage points,
or $4 million, and 2 percentage points, or $7 million, for the three and six
months ended March 31, 2010, respectively. In addition, changes to the tax
treatment of the Medicare part D retiree subsidy related to the Patient
Protection and Affordable Care Act (H.R. 3590) signed into law on March 23, 2010
resulted in an unfavorable impact to the Company’s effective income tax rate for
the three months ended March 31, 2010 of about 1 percentage point, or $1
million.
The
Company paid income taxes, net of refunds, of $54 million and $77 million during
the six months ended March 31, 2010 and 2009, respectively.
At
September 30, 2009, the Company had gross unrecognized tax benefits of $98
million recorded within Other Liabilities in the Condensed Consolidated
Statement of Financial Position, of which $56 million would affect the effective
income tax rate if recognized. At March 31, 2010, the Company had gross
unrecognized tax benefits of $73 million recorded within Other Liabilities in
the Condensed Consolidated Statement of Financial Position, of which $48 million
would affect the effective income tax rate if recognized. Although the timing
and outcome of tax settlements are uncertain, it is reasonably possible that
during the next 12 months a reduction in unrecognized tax benefits may occur in
the range of $0 to $3 million.
The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense. The total amount of interest and penalties recognized
within Other Liabilities in the Condensed Consolidated Statement of Financial
Position was $3 million and $9 million as of March 31, 2010 and September 30,
2009, respectively.
The
Company’s U.S. Federal income tax returns for the tax years ended September 30,
2007 and prior have been audited and are closed to further adjustments by the
IRS. The Company is currently under audit in various U.S. state and non-U.S.
jurisdictions. The U.S. state and non-U.S. jurisdictions have statutes of
limitations generally ranging from 3 to 5 years. The Company believes it has
adequately provided for any tax adjustments that may result from the various
audits.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16.
|
Fair
Value Measurements
|
The FASB
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the
measurement date. The FASB’s guidance classifies the inputs used to measure fair
value into the following hierarchy:
|
Level
1 -
|
quoted
prices (unadjusted) in active markets for identical assets or
liabilities
|
|
Level
2 -
|
quoted
prices for similar assets and liabilities in active markets or inputs that
are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the
financial instrument
|
|
Level
3 -
|
unobservable
inputs based on the Company’s own assumptions used to measure assets and
liabilities at fair value
|
A
financial asset or liability’s classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value
measurement.
The fair
value of the Company’s financial assets and liabilities measured at fair value
on a recurring basis as of March 31, 2010 and September 30, 2009 are as
follows:
|
|
|
|
March 31, 2010
|
|
|
September 30, 2009
|
|
|
|
Fair Value
|
|
Fair
Value
|
|
|
Fair
Value
|
|
(in
millions)
|
|
Hierarchy
|
|
Asset (Liability)
|
|
|
Asset (Liability)
|
|
Deferred
compensation plan investments
|
|
Level
1
|
|
$ |
35 |
|
|
$ |
35 |
|
Interest
rate swap assets
|
|
Level
2
|
|
|
7 |
|
|
|
8 |
|
Interest
rate swap liabilities
|
|
Level
2
|
|
|
(2 |
) |
|
|
0 |
|
Foreign
currency forward exchange contract
assets
|
|
Level
2
|
|
|
4 |
|
|
|
8 |
|
Foreign
currency forward exchange contract
liabilities
|
|
Level
2
|
|
|
(11 |
) |
|
|
(11 |
) |
There
were no nonfinancial assets or nonfinancial liabilities recognized at fair value
on a nonrecurring basis and there were no transfers between Levels of the fair
value hierarchy during the six months ended March 31, 2010.
The
carrying amounts and fair values of the Company’s financial instruments are as
follows:
|
|
Asset
(Liability)
|
|
|
|
March
31, 2010
|
|
|
September
30, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(in
millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Cash
and cash equivalents
|
|
$ |
246 |
|
|
$ |
246 |
|
|
$ |
235 |
|
|
$ |
235 |
|
Long-term
debt
|
|
|
(527 |
) |
|
|
(553 |
) |
|
|
(532 |
) |
|
|
(559 |
) |
The fair
value of cash and cash equivalents approximate their carrying value due to the
short-term nature of the instruments. Fair value information for long-term debt
is based on current market interest rates and estimates of current market
conditions for instruments with similar terms, maturities and degree of risk.
These fair value estimates do not necessarily reflect the amounts the Company
would realize in a current market exchange.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
Derivative
Financial Instruments
|
The
Company uses derivative financial instruments in the form of foreign currency
forward exchange contracts and interest rate swap contracts for the purpose of
minimizing exposure to changes in foreign currency exchange rates on business
transactions and interest rates, respectively. The Company’s policy is to
execute such instruments with banks the Company believes to be creditworthy and
not to enter into derivative financial instruments for speculative purposes or
to manage exposure for net investments in non-U.S. subsidiaries. These
derivative financial instruments do not subject the Company to undue risk as
gains and losses on these instruments generally offset gains and losses on the
underlying assets, liabilities, or anticipated transactions that are being
hedged.
All
derivative financial instruments are recorded at fair value in the Condensed
Consolidated Statement of Financial Position. For a derivative that has not been
designated as an accounting hedge, the change in the fair value is recognized
immediately through earnings. For a derivative that has been designated as an
accounting hedge of an existing asset or liability (a fair value hedge), the
change in the fair value of both the derivative and underlying asset or
liability is recognized immediately through earnings. For a derivative
designated as an accounting hedge of an anticipated transaction (a cash flow
hedge), the change in the fair value net of deferred tax impacts is recorded on
the Condensed Consolidated Statement of Financial Position in Accumulated Other
Comprehensive Loss (AOCL) to the extent the derivative is effective in
mitigating the exposure related to the anticipated transaction. The change in
the fair value related to the ineffective portion of the hedge, if any, is
immediately recognized in earnings. The amount recorded within AOCL is
reclassified into earnings in the same period during which the underlying hedged
transaction affects earnings. The Company does not exclude any amounts from the
measure of effectiveness for both fair value and cash flow hedges. All of the
Company’s derivatives were designated as accounting hedges as of March 31,
2010.
The fair
values of derivative instruments are presented on a gross basis as the Company
does not have any derivative contracts which are subject to master netting
arrangements. The Company did not have any hedges with credit-risk-related
contingent features or that required the posting of collateral as of March 31,
2010. The cash flows from derivative contracts are recorded in operating
activities in the Condensed Consolidated Statement of Cash Flows.
Interest
Rate Swaps
The
Company manages its exposure to interest rate risk by maintaining an appropriate
mix of fixed and variable rate debt, which over time should moderate the costs
of debt financing. When considered necessary, the Company may use financial
instruments in the form of interest rate swaps to help meet this objective. In
January 2010, the Company entered into two interest rate swap contracts (the
2019 Swaps) which expire on July 15, 2019 and effectively converted $150 million
of the 2019 Notes to floating rate debt based on six-month LIBOR plus 1.235
percent. On November 20, 2003, the Company entered into two interest rate swap
contracts (the 2013 Swaps) which expire on December 1, 2013 and effectively
convert $100 million of the 2013 Notes to floating rate debt based on six-month
LIBOR less .075 percent.
The
Company has designated the 2019 and 2013 Swaps (the Swaps) as fair value hedges.
At March 31, 2010 and September 30, 2009, interest rate swaps were recorded
within Other Assets at a fair value of $7 million and $8 million, respectively,
and were recorded within Other Liabilities at a fair value of $2 million and $0,
respectively, offset by a fair value adjustment to Long-Term Debt (Note 10) of
$5 million and $8 million, respectively. Cash payments or receipts between the
Company and the counterparties to the Swaps are recorded as an adjustment to
interest expense.
Foreign
Currency Forward Exchange Contracts
The
Company transacts business in various foreign currencies which subjects the
Company’s cash flows and earnings to exposure related to changes in foreign
currency exchange rates. These exposures arise primarily from purchases or sales
of products and services from third parties and intercompany transactions.
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. As of March 31, 2010 and September 30, 2009, the Company had
outstanding foreign currency forward exchange contracts with notional amounts of
$387 million and $353 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.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair
Value of Derivative Instruments
Fair
values of derivative instruments in the Condensed Consolidated Statement of
Financial Position as of March 31, 2010 are as follows:
|
|
|
|
Asset
Derivatives
|
|
|
|
|
|
March
31,
|
|
|
September
30,
|
|
(in
millions)
|
|
Classification
|
|
2010
|
|
|
2009
|
|
Foreign
currency forward exchange
contracts
|
|
Other
current assets
|
|
$
|
4
|
|
|
$
|
8
|
|
Interest
rate swaps
|
|
Other
assets
|
|
|
7
|
|
|
|
8
|
|
Total
|
|
|
|
$
|
11
|
|
|
$
|
16
|
|
|
|
|
|
Liability
Derivatives
|
|
|
|
|
|
March
31,
|
|
|
September
30,
|
|
(in
millions)
|
|
Classification
|
|
2010
|
|
|
2009
|
|
Foreign
currency forward exchange
contracts
|
|
Other
current liabilities
|
|
$
|
11
|
|
|
$
|
11
|
|
Interest
rate swaps
|
|
Other
liabilities
|
|
|
2
|
|
|
|
0
|
|
Total
|
|
|
|
$
|
13
|
|
|
$
|
11
|
|
The
effect of derivative instruments on the Condensed Consolidated Statement of
Operations for the six months ended March 31, 2010 and 2009 is as
follows:
|
|
|
|
Amount
of Gain (Loss)
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
Location
of
|
|
March
31
|
|
|
March
31
|
|
(in
millions)
|
|
Gain
(Loss)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Fair
Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts
|
|
Cost
of sales
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
0
|
|
Interest
rate swaps
|
|
Interest
expense
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
of loss recognized in AOCL (effective portion, before deferred tax
impact)
|
|
AOCL
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
(6
|
)
|
Amount
of loss reclassified from AOCL into income
|
|
Cost
of sales
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
(2
|
)
|
There was
no significant impact to the Company’s earnings related to the ineffective
portion of any hedging instruments during the three and six months ended March
31, 2010 and 2009. In addition, there was no significant impact to the Company’s
earnings when a hedged firm commitment no longer qualified as a fair value hedge
or when a hedged forecasted transaction no longer qualified as a cash flow hedge
during the three and six months ended March 31, 2010 and 2009.
Cash flow
hedges are designated as fair value hedges once the underlying transaction is
recorded on the balance sheet, or approximately 60 days from the maturity date
of the hedge. The Company expects to reclassify approximately $2 million of net
losses into earnings over the next 12 months. The maximum duration of a foreign
currency cash flow hedge contract at March 31, 2010 was 124
months.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
18.
|
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:
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
Balance
at beginning of year
|
|
$ |
217 |
|
|
$ |
226 |
|
Warranty
costs incurred
|
|
|
(25
|
) |
|
|
(26
|
) |
Product
warranty accrual
|
|
|
14 |
|
|
|
20 |
|
Pre-existing
warranty adjustments
|
|
|
(7
|
) |
|
|
(2
|
) |
Balance
at March 31
|
|
$ |
199 |
|
|
$ |
218 |
|
Guarantees
In
connection with the 2006 acquisition of the Quest joint venture (see Note
8) the Company entered into a parent company guarantee related to various
obligations of Quest. The Company has guaranteed, jointly and severally with
Quadrant Group plc (Quadrant), the other joint venture partner, the performance
of Quest in relation to its contract with the United Kingdom Ministry of Defence
(which expires in 2030) and the performance of certain Quest subcontractors (up
to $2 million). In addition, the Company has also pledged equity shares in Quest
to guarantee payment by Quest of a loan agreement executed by Quest. In the
event of default on this loan agreement, the lending institution can request
that the trustee holding such equity shares surrender them to the lending
institution in order to satisfy all amounts then outstanding under the loan
agreement. As of March 31, 2010, the outstanding loan balance was approximately
$6 million. Quadrant has made an identical pledge to guarantee this obligation
of Quest.
Should
Quest fail to meet its obligations under these agreements, these guarantees may
become a liability of the Company. As of March 31, 2010 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 Defence and the loan agreement.
Letters
of credit
The
Company has contingent commitments in the form of 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 March 31, 2010 were $84 million.
These commitments are not reflected as liabilities on the Company’s Condensed
Consolidated Statement of Financial Position.
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 Inc.,
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.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
connection with agreements for the sale of portions of its business, the Company
at times retains various liabilities of a business that 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 is asserted 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.
19.
|
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 March 31, 2010, the Company is
involved in the investigation or remediation of eight 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 seven 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 $8 million. The Company has recorded environmental
reserves for this site of $3 million as of March 31, 2010, which represents
management’s best estimate of the probable future cost for this
site.
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
quarter.
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, antitrust,
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 are not expected to 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
quarter.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
21.
|
2009
Restructuring and Asset Impairment
Charges
|
In
September 2009, the Company recorded restructuring and asset impairment charges
totaling $21 million. The charges were primarily comprised of employee
separation costs of $10 million and a non-cash real estate impairment charge
related to the Company’s plans to close its Government Systems facility in San
Jose, California and relocate engineering, production and service work to other
existing facilities.
During
the first fiscal quarter of 2010, the Company reduced the employee severance
restructuring reserve by $1 million primarily due to lower than expected
employee separation costs. The employee severance restructuring reserve is
included within Compensation and Benefits on the Condensed Consolidated
Statement of Financial Position.
Changes
in the employee severance reserve during the six months ended March 31, 2010 are
as follows:
|
|
Employee
|
|
(in
millions)
|
|
Separation
Costs
|
|
Balance
at September 30, 2009
|
|
$ |
10 |
|
Cash
payments
|
|
|
(7
|
) |
Reserve
adjustment
|
|
|
(1
|
) |
Balance
at March 31, 2010
|
|
$ |
2 |
|
22.
|
Business
Segment Information
|
The sales
and results of operations of the Company’s operating segments are summarized as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
$ |
693 |
|
|
$ |
613 |
|
|
$ |
1,309 |
|
|
$ |
1,187 |
|
Commercial
Systems
|
|
|
449 |
|
|
|
525 |
|
|
|
860 |
|
|
|
1,009 |
|
Total
sales
|
|
$ |
1,142 |
|
|
$ |
1,138 |
|
|
$ |
2,169 |
|
|
$ |
2,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
$ |
150 |
|
|
$ |
145 |
|
|
$ |
284 |
|
|
$ |
285 |
|
Commercial
Systems
|
|
|
69 |
|
|
|
110 |
|
|
|
137 |
|
|
|
207 |
|
Total
segment operating earnings
|
|
|
219 |
|
|
|
255 |
|
|
|
421 |
|
|
|
492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(4
|
) |
|
|
(3
|
) |
|
|
(10
|
) |
|
|
(7
|
) |
Stock-based
compensation
|
|
|
(6
|
) |
|
|
(5
|
) |
|
|
(11
|
) |
|
|
(10
|
) |
General
corporate, net
|
|
|
(13
|
) |
|
|
(7
|
) |
|
|
(24
|
) |
|
|
(13
|
) |
Restructuring
adjustment
|
|
|
0 |
|
|
|
0 |
|
|
|
1 |
|
|
|
0 |
|
Income
before income taxes
|
|
|
196 |
|
|
|
240 |
|
|
|
377 |
|
|
|
462 |
|
Income
tax provision
|
|
|
(48
|
) |
|
|
(76
|
) |
|
|
(108
|
) |
|
|
(147 |
) |
Net
income
|
|
$ |
148 |
|
|
$ |
164 |
|
|
$ |
269 |
|
|
$ |
315 |
|
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, restructuring and 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 six
months ended March 31, 2010 and 2009:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Government
Systems product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
Airborne
solutions
|
|
$ |
455 |
|
|
$ |
431 |
|
|
$ |
865 |
|
|
$ |
834 |
|
Surface
solutions
|
|
|
238 |
|
|
|
182 |
|
|
|
444 |
|
|
|
353 |
|
Government
Systems sales
|
|
$ |
693 |
|
|
$ |
613 |
|
|
$ |
1,309 |
|
|
$ |
1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Systems product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$ |
251 |
|
|
$ |
259 |
|
|
$ |
492 |
|
|
$ |
479 |
|
Business
and regional aviation electronics
|
|
|
198 |
|
|
|
266 |
|
|
|
368 |
|
|
|
530 |
|
Commercial
Systems sales
|
|
$ |
449 |
|
|
$ |
525 |
|
|
$ |
860 |
|
|
$ |
1,009 |
|
Product
category sales for defense-related products in the Government Systems segment
are delineated based upon the difference in underlying customer base and market
served.
The air
transport and business and regional aviation electronics product categories are
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
|
The
following management discussion and analysis is based on financial results for
the three and six months ended March 31, 2010 and 2009 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 March 31, 2010 and 2009
Sales
|
|
Three
Months Ended
|
|
|
|
March
31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Total
sales
|
|
$ |
1,142 |
|
|
$ |
1,138 |
|
Total
sales for the three months ended March 31, 2010 increased $4 million compared to
the three months ended March 31, 2009 as the $80 million increase in Government
Systems sales was largely offset by a $76 million decrease in Commercial Systems
sales. Incremental sales from the May 2009 acquisition of DataPath, Inc.
(DataPath) and the December 2009 acquisition of AR Group, Inc. (Air Routing)
contributed a total of $87 million, or 8 percentage points of revenue growth.
See the following Government Systems and Commercial Systems Financial Results
sections for further discussion of sales.
Cost of
Sales
Total
cost of sales is summarized as follows:
|
|
Three Months Ended
|
|
|
|
March
31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Total
cost of sales
|
|
$ |
828 |
|
|
$ |
785 |
|
Percent
of total sales
|
|
|
72.5
|
% |
|
|
69.0
|
% |
Cost of
sales consists of all costs incurred to design and manufacture our products and
includes research and development (R&D), raw material, labor, facility,
product warranty and other related expenses.
Total
cost of sales for the three months ended March 31, 2010 increased $43 million,
or 5 percent, from the same period of 2009 primarily due to the
following:
|
·
|
A
$28 million increase attributable to the combined impact of higher
employee incentive compensation costs, increased defined benefit pension
expense and higher employee salaries. Employee incentive compensation and
merit pay increases were eliminated in 2009 and partially reinstated in
2010. See the Retirement Plans section for further discussion of pension
expense.
|
|
·
|
The
remaining increase of $15 million was primarily due to the combined impact
of incremental cost of sales from higher Government Systems revenues,
partially offset by a $48 million reduction in cost of sales from lower
Commercial Systems sales volume. See the Government Systems and
Commercial Systems Financial Results sections below for further
discussion.
|
R&D
expense is included as a component of cost of sales and is summarized as
follows:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Customer-funded
|
|
$ |
133 |
|
|
$ |
135 |
|
Company-funded
|
|
|
87 |
|
|
|
87 |
|
Total
|
|
$ |
220 |
|
|
$ |
222 |
|
Percent
of total sales
|
|
|
19.3 |
% |
|
|
19.5 |
% |
R&D
expense consists primarily of payroll-related expenses of employees engaged in
R&D activities, engineering related product materials and equipment and
subcontracting costs.
R&D
expense for the three months ended March 31, 2010 decreased slightly from the
same period last year due to a decrease in customer-funded R&D expense.
Company-funded R&D was flat during the three months ended March 31, 2010
compared to the same period last year as a $7 million decrease in company-funded
R&D expense within Commercial Systems was offset by increased company-funded
R&D expense within Government Systems. The lower company-funded R&D
expense within Commercial Systems was primarily due to reduced spending as
certain projects near completion and the timing of other efforts are delayed as
we continue to manage our cost structure and adjust to market demands. The
higher company-funded R&D expense within Government Systems was primarily
related to the DataPath acquisition and increased spending on other recently
awarded and anticipated programs.
Selling, General and
Administrative Expenses
Total
selling, general and administrative (SG&A) expense is summarized as
follows:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Selling,
general and administrative expenses
|
|
$ |
119 |
|
|
$ |
118 |
|
Percent
of total sales
|
|
|
10.4 |
% |
|
|
10.4 |
% |
SG&A
expenses consist primarily of personnel, facility and other expenses related to
employees not directly engaged in manufacturing, research or development
activities. These activities include marketing and business development,
finance, legal, information technology and other administrative and management
functions.
Total
SG&A expenses were relatively flat for the three months ended March 31, 2010
compared to the same period of 2009. The $1 million increase was primarily due
to the following:
|
·
|
A
$14 million increase in SG&A expense due to the combined impact of
incremental SG&A expense from the DataPath and Air Routing
acquisitions, higher employee incentive compensation costs, and an
increase in defined benefit pension
expense.
|
|
·
|
A
$13 million decrease in SG&A expense primarily comprised of reductions
in employee headcount, lower bid and proposal costs, and other cost
savings.
|
Net Income and Diluted
Earnings Per Share
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
148 |
|
|
$ |
164 |
|
Net
income as a percent of sales
|
|
|
13.0 |
% |
|
|
14.4 |
% |
Diluted
earnings per share
|
|
$ |
0.93 |
|
|
$ |
1.03 |
|
Net
income for the three months ended March 31, 2010 decreased 10 percent to $148
million, or 13.0 percent of sales, from net income of $164 million, or 14.4
percent of sales, for the three months ended March 31, 2009. Diluted earnings
per share decreased 10 percent to $0.93 for the three months ended March 31,
2010 compared to $1.03 for the three months ended March 31, 2009. The decrease
in net income and diluted earnings per share was primarily the result of lower
earnings from reduced Commercial Systems sales volume partially offset by a
decrease in the effective income tax rate due to the Internal Revenue Service
(IRS) completing its exam of the taxable years ended September 30, 2006 and
2007. See the Commercial Systems Financial Results section for further
discussion of Commercial Systems sales and earnings and the Income Taxes section
for further discussion regarding the effective income tax rate.
Government
Systems Financial Results
Government Systems
Sales
The
following table presents Government Systems sales by product
category:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Airborne
solutions
|
|
$ |
455 |
|
|
$ |
431 |
|
Surface
solutions
|
|
|
238 |
|
|
|
182 |
|
Total
|
|
$ |
693 |
|
|
$ |
613 |
|
Percent
increase
|
|
|
13 |
% |
|
|
|
|
Airborne
solutions sales increased $24 million, or 6 percent, for the three months ended
March 31, 2010 compared to the same period in the prior year, primarily due to
the following:
|
·
|
An
$18 million increase in tanker and transport program revenues primarily
due to recent contract awards on KC-135 and international C-130
programs.
|
|
·
|
$12
million of higher revenue related to special mission aircraft such as the
P-3.
|
|
·
|
A
decrease of $11 million in fighter jet program revenues due to the
wind-down of several legacy
platforms.
|
Surface
solutions sales increased $56 million, or 31 percent, for the three months ended
March 31, 2010 compared to the same period in the prior year due to the
following:
|
·
|
Incremental
sales from the DataPath acquisition contributed $78 million, or 43
percentage points of revenue
growth.
|
|
·
|
Organic
sales decreased $22 million, or 12 percent, primarily due to a $20 million
reduction in sales for the Defense Advanced GPS Receiver (DAGR)
program. The reduction in DAGR volume was consistent with our
planned production schedule to support the U.S. Department of Defense
fielding requirements for this
product.
|
Government Systems Segment
Operating Earnings
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Segment
operating earnings
|
|
$ |
150 |
|
|
$ |
145 |
|
Percent
of sales
|
|
|
21.6 |
% |
|
|
23.7 |
% |
Government
Systems operating earnings increased 3 percent to $150 million, or 21.6 percent
of sales, for the three months ended March 31, 2010 compared to operating
earnings of $145 million, or 23.7 percent of sales, for the same period one year
ago. The $5 million increase in Government Systems operating earnings was
primarily due to the following:
|
·
|
Incremental
operating earnings of $25 million from higher overall sales as discussed
in the Government Systems Sales section
above.
|
|
·
|
A
$6 million increase to operating earnings related to non-cash adjustments
to reduce warranty reserves for tanker transport aircraft
programs.
|
|
·
|
A
decrease in operating earnings of $13 million attributable to the combined
impact of higher employee incentive compensation costs and an increase in
defined benefit pension expense. See the Cost of Sales section
and Retirement Plans section for further discussion of the higher employee
incentive compensation and pension expense,
respectively.
|
|
·
|
A
$7 million reduction in operating earnings related to higher
company-funded R&D expense, as explained in the Cost of Sales section
above.
|
|
·
|
A $6 million unfavorable non-cash
adjustment related to certain simulation and training solution
contracts.
|
Commercial
Systems Financial Results
Commercial Systems
Sales
The
following table presents Commercial Systems sales by product category and type
of product or service:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Air
transport aviation electronics:
|
|
|
|
|
|
|
Original
equipment
|
|
$ |
113 |
|
|
$ |
102 |
|
Aftermarket
|
|
|
127 |
|
|
|
140 |
|
Wide-body
in-flight entertainment products
|
|
|
11 |
|
|
|
17 |
|
Total
air transport aviation electronics
|
|
|
251 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
Business
and regional aviation electronics:
|
|
|
|
|
|
|
|
|
Original
equipment
|
|
|
120 |
|
|
|
193 |
|
Aftermarket
|
|
|
78 |
|
|
|
73 |
|
Total
business and regional aviation electronics
|
|
|
198 |
|
|
|
266 |
|
Total
|
|
$ |
449 |
|
|
$ |
525 |
|
Percent
(decrease)
|
|
|
(14 |
)% |
|
|
|
|
Total air
transport aviation electronics sales decreased $8 million, or 3 percent, for the
three months ended March 31, 2010 compared to the same period in the prior year
due to the following:
|
·
|
Air
transport original equipment manufacturer (OEM) revenues increased $11
million, or 11 percent, due primarily to higher sales of airline
selectable equipment and slightly higher shipset delivery rates to
Boeing.
|
|
·
|
Air
transport aftermarket sales decreased $13 million, or 9 percent, due to an
$11 million reduction in aftermarket hardware sales and a $2 million
reduction in service revenue. The service revenue decrease was primarily
related to lower wide-body in-flight entertainment (IFE)
services.
|
|
·
|
Wide-body
in-flight entertainment products (Wide-body IFE) decreased $6 million, or
35 percent. Wide-body IFE relates to sales of twin-aisle IFE products and
systems to customers in the air transport aviation electronics market. In
September 2005 we announced our strategic decision to shift research and
development resources away from traditional IFE systems for next
generation wide-body aircraft.
|
Business
and regional aviation electronics sales decreased $68 million, or 26 percent,
for the three months ended March 31, 2010 compared to the same period in the
prior year due to the following:
|
·
|
Business
jet OEM sales decreased $65 million, or 41 percent, primarily due to
depressed business jet OEM production
rates.
|
|
·
|
Regional
jet OEM sales decreased $8 million, or 22 percent, primarily due to
depressed regional jet OEM production
rates.
|
|
·
|
Organic
aftermarket sales decreased $4 million as an $8 million reduction in
aftermarket hardware sales was only partially offset by a $4 million
increase in service sales.
|
|
·
|
Incremental
revenue from the Air Routing acquisition contributed $9 million to
business and regional aviation electronics aftermarket
sales.
|
Commercial Systems Segment
Operating Earnings
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Segment
operating earnings
|
|
$ |
69 |
|
|
$ |
110 |
|
Percent
of sales
|
|
|
15.4 |
% |
|
|
21.0 |
% |
Commercial
Systems operating earnings decreased 37 percent to $69 million, or 15.4 percent
of sales, for the three months ended March 31, 2010 compared to operating
earnings of $110 million, or 21.0 percent, for the three months ended March 31,
2009. The $41 million decrease in Commercial Systems operating earnings was
primarily due to the following:
|
·
|
A
$40 million decrease attributable to the lower earnings from reduced sales
volume as discussed in the Commercial Systems Sales section
above.
|
|
·
|
A
$10 million reduction in operating earnings attributable to the combined
impact of higher employee incentive compensation costs and an increase in
defined benefit pension expenses. See the Cost of Sales section and
Retirement Plans section for further discussion of the higher employee
incentive compensation and pension expense,
respectively.
|
|
·
|
A
$7 million increase in operating earnings due to lower company-funded
R&D expense, as explained in the Cost of Sales section
above.
|
General Corporate,
Net
General
corporate expenses that are not allocated to our business segments are included
in general corporate, net, which is summarized as follows:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
General
corporate, net
|
|
$ |
13 |
|
|
$ |
7 |
|
General
corporate, net increased $6 million during the three months ended March 31, 2010
compared to the same period of 2009 primarily due to an increase in defined
benefit pension expense and higher employee incentive compensation costs. See
the Cost of Sales section and Retirement Plans section for further discussion of
the increases in employee incentive pay and pension expense,
respectively.
Six
Months Ended March 31, 2010 and 2009
Sales
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Total
sales
|
|
$ |
2,169 |
|
|
$ |
2,196 |
|
Percent
(decrease)
|
|
|
(1 |
)% |
|
|
|
|
Total
sales for the six months ended March 31, 2010 decreased 1 percent to $2,169
million compared to the six months ended March 31, 2009, as a $149 million
decrease in Commercial Systems sales was largely offset by the $122 million
increase in Government Systems sales. Incremental sales from the May 2009
acquisition of DataPath, the December 2009 acquisition of Air Routing, and the
November 2008 acquisition of SEOS Group Limited (SEOS), contributed a total of
$156 million, or 7 percentage points of revenue growth. See the following
Government Systems and Commercial Systems Financial Results sections for further
discussion of sales for the six months ended March 31, 2010 and
2009.
Cost of
Sales
Total
cost of sales is summarized as follows:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Total
cost of sales
|
|
$ |
1,562 |
|
|
$ |
1,517 |
|
Percent
of total sales
|
|
|
72.0 |
% |
|
|
69.1 |
% |
Total
cost of sales for the six months ended March 31, 2010 increased $45 million, or
3 percent, from the same period of 2009 primarily due to the
following:
|
·
|
A
$38 million increase attributable to the combined impact of higher
employee incentive compensation costs, increased defined benefit pension
expense and higher employee salaries. Employee incentive compensation and
merit pay increases were eliminated in 2009 and partially reinstated in
2010. See the Retirement Plans section for further discussion of
pension expense.
|
|
·
|
An
$18 million increase primarily due to the combined impact of incremental
cost of sales from higher Government Systems revenues, partially offset by
a $77 million reduction in cost of sales from lower Commercial Systems
sales volume. See the Government Systems and Commercial Systems
Financial Results sections below for further
discussion.
|
|
·
|
An
$11 million decrease was due to lower R&D expense as explained
below.
|
R&D
expense is included as a component of cost of sales and is summarized as
follows:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Customer-funded
|
|
$ |
248 |
|
|
$ |
256 |
|
Company-funded
|
|
|
167 |
|
|
|
170 |
|
Total
|
|
$ |
415 |
|
|
$ |
426 |
|
Percent
of total sales
|
|
|
19.1 |
% |
|
|
19.4 |
% |
Total
R&D expense for the six months ended March 31, 2010 decreased $11 million,
or 3 percent, from the same period last year and was relatively flat as a
percent of total sales. Company-funded R&D expense decreased slightly as a
$17 million reduction in company-funded R&D expense within Commercial
Systems was offset by a $14 million increase in company-funded R&D expense
within Government Systems. The lower company-funded R&D expense within
Commercial Systems was primarily due to reduced spending as certain projects
near completion and the timing of other efforts are delayed as we continue to
manage our cost structure and adjust to market demands. The higher
company-funded R&D expense within Government Systems was primarily related
to the DataPath acquisition and increased spending on other recently awarded and
anticipated programs.
Selling, General and
Administrative Expenses
Total
SG&A expense is summarized as follows:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Selling,
general and administrative expenses
|
|
$ |
228 |
|
|
$ |
223 |
|
Percent
of total sales
|
|
|
10.5 |
% |
|
|
10.2 |
% |
Total
SG&A expenses increased $5 million, or 2 percent, for the six months ended
March 31, 2010 compared to the same period of 2009, primarily due to the
following:
|
·
|
A
$23 million increase due to the combined impact of incremental SG&A
expense from the DataPath, Air Routing, and SEOS acquisitions, higher
employee incentive compensation costs, and an increase in defined benefit
pension expense.
|
|
·
|
An
$18 million decrease in SG&A expense primarily comprised of reductions
in employee headcount, lower bid and proposal costs, and other cost
savings.
|
Net Income and Diluted
Earnings Per Share
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
269 |
|
|
$ |
315 |
|
Net
income as a percent of sales
|
|
|
12.4 |
% |
|
|
14.3 |
% |
Diluted
earnings per share
|
|
$ |
1.69 |
|
|
$ |
1.98 |
|
Net
income for the six months ended March 31, 2010 decreased 15 percent to $269
million, or 12.4 percent of sales, from net income of $315 million, or 14.3
percent of sales, for the six months ended March 31, 2009. Diluted earnings per
share decreased 15 percent to $1.69 for the six months ended March 31, 2010
compared to $1.98 for the six months ended March 31, 2009. The decrease in net
income and diluted earnings per share was primarily the result of lower earnings
from reduced Commercial Systems sales volume partially offset by a decrease in
the effective income tax rate due to the IRS completing its exam of the taxable
years ended September 30, 2006 and 2007. See the Commercial Systems Financial
Results section for further discussion of Commercial Systems sales and earnings
and see the Income Taxes section for further discussion regarding the effective
income tax rate.
Government
Systems Financial Results
Government Systems
Sales
The
following table presents Government Systems sales by product
category:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Airborne
solutions
|
|
$ |
865 |
|
|
$ |
834 |
|
Surface
solutions
|
|
|
444 |
|
|
|
353 |
|
Total
|
|
$ |
1,309 |
|
|
$ |
1,187 |
|
Percent
increase
|
|
|
10 |
% |
|
|
|
|
Airborne
solutions sales increased $31 million, or 4 percent, for the six months ended
March 31, 2010 compared to the same period in the prior year, primarily due to
the following:
|
·
|
Incremental
sales from the SEOS acquisition contributed $5 million, or 1 percentage
point of revenue growth.
|
|
·
|
A
$23 million increase in tanker and transport and special mission program
revenues was primarily due to three recent international program wins to
upgrade P-3 and C-130 aircraft.
|
|
·
|
A
$14 million increase in mission systems program revenues was primarily
related to higher development work on the U.S. Navy E-6 upgrade program
and other various items.
|
|
·
|
The
above items were partially offset by a $20 million reduction in fighter
jet program revenues due to the wind-down of several legacy
platforms.
|
Surface
solutions sales increased $91 million, or 26 percent, for the six months ended
March 31, 2010 compared to the same period in the prior year due to the
following:
|
·
|
Incremental
sales from the DataPath acquisition contributed $138 million, or 39
percentage points of revenue
growth.
|
|
·
|
Organic
sales decreased $47 million, or 13 percent, primarily due to a $40 million
reduction in sales for the DAGR program. The reduction in DAGR volume was
consistent with our planned production schedule to support the U.S.
Department of Defense fielding requirements for this
product.
|
Government Systems Segment
Operating Earnings
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Segment
operating earnings
|
|
$ |
284 |
|
|
$ |
285 |
|
Percent
of sales
|
|
|
21.7 |
% |
|
|
24.0 |
% |
Government
Systems operating earnings decreased $1 million to $284 million, or 21.7 percent
of sales, for the six months ended March 31, 2010 compared to operating earnings
of $285 million, or 24.0 percent of sales, for the same period one year ago. The
$1 million decrease in Government Systems operating earnings was primarily due
to the following:
|
·
|
A
$19 million reduction in operating earnings attributable to the combined
impact of higher employee incentive compensation costs and an increase in
defined benefit pension expense. See the Cost of Sales section
and Retirement Plans section for further discussion of the higher employee
incentive compensation and pension expense,
respectively.
|
|
·
|
A
$14 million reduction in operating earnings due to higher company-funded
R&D expense, as explained in the Cost of Sales section
above.
|
|
·
|
A
$32 million increase related to incremental operating earnings from higher
overall sales as discussed in the Government Systems Sales section
above.
|
Commercial
Systems Financial Results
Commercial Systems
Sales
The
following table presents Commercial Systems sales by product category and type
of product or service:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
Air
transport aviation electronics:
|
|
|
|
|
|
|
Original
equipment
|
|
$ |
211 |
|
|
$ |
169 |
|
Aftermarket
|
|
|
252 |
|
|
|
272 |
|
Wide-body
in-flight entertainment products
|
|
|
29 |
|
|
|
38 |
|
Total
air transport aviation electronics
|
|
|
492 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
Business
and regional aviation electronics:
|
|
|
|
|
|
|
|
|
Original
equipment
|
|
|
223 |
|
|
|
370 |
|
Aftermarket
|
|
|
145 |
|
|
|
160 |
|
Total
business and regional aviation electronics
|
|
|
368 |
|
|
|
530 |
|
Total
|
|
$ |
860 |
|
|
$ |
1,009 |
|
Percent
(decrease)
|
|
|
(15 |
)% |
|
|
|
|
Total air
transport aviation electronics sales increased $13 million, or 3 percent, for
the six months ended March 31, 2010 compared to the same period in the prior
year due to the following:
|
·
|
Air
transport OEM sales increased $42 million, or 25 percent, as sales in the
prior year were adversely impacted by Boeing’s labor
strike.
|
|
·
|
Air
transport aftermarket sales decreased $20 million, or 7 percent, due to a
$15 million reduction in aftermarket hardware sales and an $5 million
reduction in service revenue. The service revenue decrease is primarily
related to lower IFE services.
|
|
·
|
Wide-body
in-flight entertainment products (Wide-body IFE) decreased $9 million, or
24 percent. Wide-body IFE relates to sales of twin-aisle IFE products and
systems to customers in the air transport aviation electronics market. In
September 2005 we announced our strategic decision to shift research and
development resources away from traditional IFE systems for next
generation wide-body aircraft.
|
Business
and regional aviation electronics sales decreased $162 million, or 31 percent,
for the six months ended March 31, 2010 compared to the same period in the prior
year due to the following:
|
·
|
Business
jet OEM sales decreased $134 million, or 44 percent, primarily due to
depressed business jet OEM production
rates.
|
|
·
|
Regional
jet OEM sales decreased $13 million, or 20 percent, primarily due to
depressed business jet OEM production
rates.
|
|
·
|
Organic
business and regional aftermarket sales decreased $24 million, or 15
percent, as a $26 million reduction in aftermarket hardware sales was
partially offset by a $2 million increase in service
revenues.
|
|
·
|
The
above items were partially offset by $9 million of aftermarket growth from
the Air Routing acquisition.
|
Commercial Systems Segment
Operating Earnings
|
|
Six
Months Ended
|
|
|
|
March 31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Segment
operating earnings
|
|
$ |
137 |
|
|
$ |
207 |
|
Percent
of sales
|
|
|
15.9 |
% |
|
|
20.5
|
% |
Commercial
Systems operating earnings decreased 34 percent to $137 million, or 15.9 percent
of sales, for the six months ended March 31, 2010 compared to operating earnings
of $207 million, or 20.5 percent of sales, for the six months ended March 31,
2009. The $70 million decrease in Commercial Systems operating earnings was
primarily due to the following:
|
·
|
An
$83 million decrease attributable to the lower earnings from reduced sales
volume as discussed in the Commercial Systems Sales section
above.
|
|
·
|
A
$14 million reduction in operating earnings attributable to the combined
impact of higher employee incentive compensation costs and an increase in
defined benefit pension expenses. See the Cost of Sales section and
Retirement Plans section for further discussion of the higher employee
incentive compensation and pension expense,
respectively.
|
|
·
|
A
$17 million benefit to operating earnings due to lower company-funded
R&D expense, as explained in the Cost of Sales section
above.
|
|
·
|
A
$10 million benefit to operating earnings primarily due to lower SG&A
expenses from reduced head count and other cost saving
initiatives.
|
General Corporate,
Net
General
corporate expenses that are not allocated to our business segments are included
in general corporate, net, which is summarized as follows:
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
General
corporate, net
|
|
$ |
24 |
|
|
$ |
13 |
|
General
corporate, net increased $11 million during the six months ended March 31, 2010
as compared to the same period of 2009 primarily due to an increase in defined
benefit pension expense and higher employee incentive compensation costs. See
the Cost of Sales section and Retirement Plans section for further discussion
surrounding the increases in employee incentive pay and pension expense,
respectively.
Retirement
Plans
Net
benefit expense (income) for pension benefits and other retirement benefits are
as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Pension
benefits
|
|
$ |
6 |
|
|
$ |
(5 |
) |
|
$ |
13 |
|
|
$ |
(8 |
) |
Other
retirement benefits
|
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
Net
benefit expense (income)
|
|
$ |
8 |
|
|
$ |
(4 |
) |
|
$ |
16 |
|
|
$ |
(6 |
) |
Pension
Benefits
In 2003,
we amended our U.S. qualified and non-qualified pension plans (the Pension
Amendment) 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. Concurrently, we replaced this
benefit by supplementing our existing defined contribution savings plan to
include an additional Company contribution effective October 1, 2006. We believe
this benefit structure achieves our objective of providing benefits that are
valued by our employees and provides more consistency and predictability in
estimating future costs and funding requirements over the long
term.
For the
full year 2010, defined benefit pension plan expense will increase by
approximately $44 million to $26 million of expense, compared to $(18) million
of income for the full year 2009. The increase is primarily due to the
unfavorable impact of a decrease in the defined benefit pension plan valuation
discount rate used to measure our U.S. pension expense from 7.60 percent in 2009
to 5.47 percent in 2010.
Our
objective with respect to the funding of our pension plans is to provide
adequate assets for the payment of future benefits. Pursuant to this objective,
we will fund our pension plans as required by governmental regulations and may
consider discretionary contributions as conditions warrant. We believe our
strong financial position continues to provide us the opportunity to make
contributions to our pension fund without inhibiting our ability to pursue
strategic investments.
In
October 2009, we made a $98 million contribution to our U.S. qualified pension
plan. We do not currently anticipate that we will be required by governmental
regulations to make any additional contributions to the U.S. qualified pension
plan in 2010. Any additional future contributions necessary to satisfy the
minimum statutory funding requirements are dependent upon actual plan asset
returns, interest rates and any changes to U.S. pension funding legislation. We
may elect to make additional discretionary contributions during 2010 to further
improve the funded status of this plan. Contributions to our non-U.S. plans and
our U.S. non-qualified plan are expected to total $13 million in
2010.
Our
pension expense (income) is significantly impacted by the market performance of
our pension plan assets, our expected long-term return on plan assets and the
discount rates used to determine our pension obligations. If our pension plan
assets do not achieve positive rates of return consistent with our long-term
asset return assumptions or if discount rates trend down, we may experience
unfavorable changes in our pension expense and could be required to make
significant contributions to our U.S. qualified pension plan. While we believe
the actions taken under the Pension Amendment have had a positive effect on
pension expense (income) and future funding requirements, our plan assets and
discount rates are significantly impacted by changes in the financial
markets.
Other
Retirement Benefits
We expect
other retirement benefits expense of approximately $5 million in 2010 compared
to the full year 2009 expense of $4 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 income tax rate are
pro-rated for the full year and tax items discrete to a specific quarter are
included in the effective income 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 difference between our effective income tax rate and the
statutory income tax rate is primarily the result of the tax benefits derived
from the Federal Research and Development Tax Credit (Federal R&D Tax
Credit) and state research and development tax credits, which provide tax
benefits on certain incremental R&D expenditures, and the Domestic
Manufacturing Deduction (DMD), which provides a tax benefit on U.S. based
manufacturing.
During
the three months ended March 31, 2010 and 2009, our effective income tax rate
was 24.5 percent and 31.7 percent, respectively. The effective income tax rate
was lower for the three months ended March 31, 2010 than the same period in the
prior year due to the completion of the IRS examination of taxable years
ended September 30, 2006 and 2007 which resulted in a benefit to the effective
income tax rate of about 10 percentage points. This benefit to our effective
income tax rate was partially offset by an increase to our effective income
tax rate of about 2 percentage points, or $4 million, related to the unfavorable
impact of lower Federal R&D Tax Credits as a result of pro-rating the three
months of available Federal R&D Tax Credits over the full 2010 fiscal
year. In addition, the unfavorable impact of certain changes to the
tax treatment of the Medicare part D retiree subsidy related to the Patient
Protection and Affordable Care Act (H.R. 3590) that was signed into law on March
23, 2010 resulted in an increase to our effective income tax rate of
about 1 percentage point, or $1 million.
During
the six months ended March 31, 2010 and 2009, our effective income tax rate was
28.6 percent and 31.8 percent, respectively. The effective income tax rate was
lower for the six months ended March 31, 2010 than the same period in the prior
year primarily due to the benefit from the completion of the IRS examination
during the six months ended March 31, 2010, which reduced our effective income
tax rate by about 5 percentage points, partially offset by the lack of available
Federal R&D Tax Credits past December 31, 2009 which increased our effective
income tax rate by about 2 percentage points, or $7 million.
The
effective income tax rate for the three and six months ended March 31, 2010 and
March 31, 2009 include a tax benefit related to the DMD. The DMD tax benefit
available in fiscal year 2009 and fiscal year 2008 is two-thirds of the full
benefit that will be available beginning in fiscal year 2011.
For
fiscal year 2010, our effective income tax rate is projected to be in the range
of 30 percent to 31 percent. The projected rate for 2010 no longer requires the
extension of the Federal R&D Tax Credit before the end of our September 30,
2010 fiscal year. If the Federal R&D Tax Credit is extended
before the end of our 2010 fiscal year, the impact to our effective tax rate
guidance would be a decrease of approximately 1.5 percentage
points.
Outlook
The
following table is a complete summary of our fiscal year 2010 financial
guidance, which is unchanged from the financial guidance initially provided on
September 17, 2009:
|
·
|
total
sales in the range of $4.6 billion to $4.8
billion
|
|
·
|
diluted
earnings per share in the range of $3.35 to
$3.55
|
|
·
|
cash
provided by operating activities in the range of $600 million to $700
million
|
|
·
|
capital
expenditures of approximately $135
million
|
|
·
|
total
company and customer-funded R&D expenditures in the range of $870
million to $900 million, or about 19 percent of
sales
|
FINANCIAL
CONDITION AND LIQUIDITY
Cash
Flow Summary
Operating
Activities
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
Cash
provided by operating activities
|
|
$ |
280 |
|
|
$ |
137 |
|
The
increase in cash provided by operating activities during the six months ended
March 31, 2010 compared to the same period last year was primarily due to the
following:
|
·
|
Payments
for incentive pay decreased $113 million in 2010 compared to 2009.
Incentive pay is expensed in the year it is incurred and paid in the first
fiscal quarter of the following year. For the full fiscal year 2009, no
incentive pay costs were incurred; accordingly, there was no 2010 payment
for incentive pay.
|
|
·
|
Cash
receipts from customers increased $37 million for the first six months of
2010 compared to the same period in 2009. Strong working
capital management of receivables and customer advances resulted in a $64
million increase of customer cash receipts in 2010 compared to 2009
partially offset by $27 million of lower sales
volume.
|
Investing
Activities
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
Cash
used for investing activities
|
|
$ |
(156
|
) |
|
$ |
(103
|
) |
The
increase in cash used for investing activities during the six months ended March
31, 2010 compared to the same period last year was primarily due to the
following:
|
·
|
In
the first six months of 2010 we acquired Air Routing for $91 million
compared to the 2009 acquisition of SEOS for $28
million.
|
|
·
|
$15
million reduction in property additions in 2010 compared to
2009.
|
Financing
Activities
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
Cash
used for financing activities
|
|
$ |
(113
|
) |
|
$ |
(19
|
) |
The
increase in cash used for financing activities during the six months ended March
31, 2010 compared to the same period last year was primarily due to lower net
borrowings of short-term debt. There were no net short-term borrowings in 2010
compared to $98 million in 2009.
Financial
Condition and Liquidity
We have
historically maintained a financial structure characterized by conservative
levels of debt outstanding that enables us sufficient access to credit markets.
When combined with our ability to generate strong levels of cash flow from our
operations, this capital structure provides the strength and flexibility
necessary to pursue strategic growth opportunities and to return value to our
shareowners. A comparison of key elements of our financial condition as of March
31, 2010 and September 30, 2009 are as follows:
|
|
March
31,
|
|
|
September
30,
|
|
(dollars
in millions)
|
|
2010
|
|
|
2009
|
|
Cash
and cash equivalents
|
|
$ |
246 |
|
|
$ |
235 |
|
Long-term
debt, net
|
|
|
(527
|
) |
|
|
(532
|
) |
Net
debt (1)
|
|
$ |
(281
|
) |
|
$ |
(297
|
) |
Total
shareowners’ equity
|
|
$ |
1,496 |
|
|
$ |
1,295 |
|
Debt
to total capitalization (2)
|
|
|
26
|
% |
|
|
29
|
% |
(1)
Calculated as total of short-term and long-term debt, net (Total Debt), less
cash and cash equivalents
(2)
Calculated as Total Debt divided by the sum of Total Debt plus total
equity
We primarily fund our contractual
obligations, capital expenditures, small to medium sized acquisitions, dividends
and share repurchases from cash generated from operating activities. Due to the
fluctuations of cash flows, we
supplement our internally generated cash flow from time to time by issuing
short-term commercial paper. 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 have maturities of not more than 364 days from the date
of issuance. At March 31, 2010 and September 30, 2009, there were no short-term
commercial paper borrowings outstanding.
In the
event our access to the commercial paper markets is impaired, we have access to
an $850 million Revolving Credit Facility through a network of banks that
matures in 2012, 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. 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, excluding the
accumulated other comprehensive loss equity impact related to defined benefit
retirement plans. Our debt to total capitalization ratio at March 31, 2010 based
on this financial covenant was 17 percent. We had no borrowings at March 31,
2010 under our Revolving Credit Facility.
In
addition, alternative sources of liquidity could include funds available from
the issuance of equity securities, debt securities and potential asset
securitization strategies. We have a shelf registration statement filed with the
Securities and Exchange Commission pursuant to which we can publicly offer and
sell securities from time to time. This shelf registration covers an unlimited
amount of debt securities, common stock and preferred stock or warrants
that may be offered in one or more offerings on terms to be determined at the
time of sale. To
date, we have not raised capital through the issuance of equity securities as we
prefer to use debt financing to lower our overall cost of capital and increase
our return on shareowners' equity.
Credit
ratings are a significant factor in determining our ability to access short-term
and long-term financing as well as the cost of such financing in terms of
interest rates. Our strong credit ratings have enabled continued access to both
short and long-term credit markets despite difficult market conditions during
2009. If our credit ratings were to be adjusted downward by the rating agencies,
the implications of such actions could include impairment or elimination of our
access to credit markets and an increase in the cost of borrowing. The following
is a summary of our credit ratings as of March 31, 2010:
Credit
Rating Agency
|
|
Short-Term
Rating
|
|
Long-Term
Rating
|
|
Outlook
|
Fitch
Ratings
|
|
F1
|
|
A
|
|
Stable
|
Moody’s
Investors Service
|
|
P-1
|
|
A1
|
|
Stable
|
Standard
& Poor’s
|
|
A-1
|
|
A
|
|
Stable
|
We were
in compliance with all debt covenants at March 31, 2010 and September 30,
2009.
ENVIRONMENTAL
For
information related to environmental claims, remediation efforts and related
matters, see Note 19 of the condensed consolidated financial
statements.
CRITICAL
ACCOUNTING POLICIES
Preparation
of our 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 our financial statements are described in Management's
Discussion and Analysis in our Annual Report on Form 10-K for the year ended
September 30, 2009. Actual results in these areas could differ from management's
estimates.
CAUTIONARY
STATEMENT
This
quarterly report contains statements, including certain projections and business
trends, 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 financial condition of our customers (including major U.S.
airlines); the health of the global economy, including potential deterioration
in economic and financial market conditions; the rate of recovery of the
commercial aftermarket; delays related to the award of domestic and
international contracts; the continued support for military transformation and
modernization programs; potential adverse impact of oil prices on the commercial
aerospace industry; the impact of the global war on terrorism and declining
defense budgets on government military procurement expenditures and budgets;
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 customers and subcontractors; risks inherent in
development and fixed-price contracts, particularly the risk of cost overruns;
risk of significant reduction to air travel or aircraft capacity beyond our
forecasts; 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; our ability to win new business and convert those orders to
sales within the fiscal year in accordance with our annual operating plan; 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 March
31, 2010, we had $200 million of 4.75 percent fixed rate long-term debt
obligations outstanding with a carrying value of $200 million and a fair value
of $216 million. In 2004 we converted $100 million of this fixed rate debt to
floating rate debt bearing interest at six-month LIBOR less .075 percent by
executing “receive fixed, pay variable” interest rate swap contracts. At March
31, 2010, we also had $300 million of 5.25 percent fixed rate long-term debt
obligations outstanding with a carrying value of $298 million and a fair value
of $313 million. In January 2010 we converted $150 million of this fixed rate
debt to floating rate debt based on six-month LIBOR plus 1.235
percent.
A
hypothetical 10 percent increase or decrease in average market interest rates
would have decreased or increased the fair value of our long-term fixed rate
debt, exclusive of the effects of the interest rate swap contracts, by $10
million and $11 million, respectively. The fair value of the $250 million
notional value of interest rate swap contracts was a $5 million net asset at
March 31, 2010. A hypothetical 10 percent increase or decrease in average market
interest rates would decrease or increase the fair value of our interest rate
swap contracts by $6 million and $6 million, respectively. At March 31, 2010, we
also had $24 million of variable rate long-term debt outstanding. Our results of
operations are affected by changes in market interest rates related to variable
rate debt. Inclusive of the effect of the interest rate swaps, a hypothetical 10
percent increase or decrease in average market interest rates would not have a
material effect on our operations or cash flows. For more information related to
outstanding debt obligations and derivative financial instruments, see Notes 10,
16 and 17 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 banks we believe to be creditworthy
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 non-U.S. subsidiaries or enter into derivative financial
instruments for speculative purposes. Notional amounts of outstanding foreign
currency forward exchange contracts were $387 million and $353 million at March
31, 2010 and September 30, 2009, 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 five years or less. The net fair value of these foreign currency
contracts was a net liability of $7 million and a net liability of $3 million at
March 31, 2010 and September 30, 2009, respectively. A 10 percent increase or
decrease in the value of the U.S. dollar against all currencies would decrease
or increase the fair value of our foreign currency contracts at March 31, 2010
by $6 million.
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 March 31 2010, 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 March 31, 2010 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2010 through January 31, 2010
|
|
|
190,000 |
|
|
$ |
55.62 |
|
|
|
190,000 |
|
|
$ |
170
million |
|
February
1, 2010 through February 28, 2010
|
|
|
195,000 |
|
|
|
54.20 |
|
|
|
195,000 |
|
|
|
160
million |
|
March
1, 2010 through March 31, 2010
|
|
|
270,000 |
|
|
|
61.16 |
|
|
|
270,000 |
|
|
|
143
million
|
|
Total
|
|
|
655,000 |
|
|
$ |
57.49 |
|
|
|
655,000 |
|
|
$ |
143
million |
|
(1)
|
On
September 16, 2009, our Board authorized the repurchase of an additional
$200 million of our common stock. This authorization has no stated
expiration.
|
Item 5.
Other Information
|
(a)
|
The
annual meeting of shareowners of the Company was held on February 9, 2010
and the number of voting shares outstanding as of the record date was
157,481,130. The meeting was duly held and a quorum was
present.
|
|
(b)
|
At
the meeting, the shareowners:
|
|
i.
|
voted
to elect three directors of the Company. Each nominee for director was
elected to a term expiring in 2013 by a vote of the shareowners as
follows:
|
|
|
Affirmative
|
|
|
Votes
|
|
|
|
Votes
|
|
|
Withheld
|
|
|
|
|
|
|
|
|
Donald
R. Beall
|
|
115,498,009
|
|
|
2,336,985
|
|
Mark
Donegan
|
|
112,306,488
|
|
|
5,528,506
|
|
Andrew
J. Policano
|
|
111,865,195
|
|
|
5,969,799
|
|
In
addition to the directors elected above, the Company’s Board of Directors also
include the following continuing directors with terms expiring in 2011 or
2012: Chris A. Davis, Ralph E. Eberhart, David Lilley, Anthony J.
Carbone, Clayton M. Jones and Cheryl L. Shavers.
|
ii.
|
voted
on a proposal to approve the selection by the Audit Committee of the Board
of Directors of the firm Deloitte & Touche LLP as auditors of the
Company. The proposal was approved by a vote of the shareowners as
follows:
|
Affirmative
votes
|
|
|
135,800,632 |
|
Negative
votes
|
|
|
1,883,524 |
|
Abstentions
|
|
|
465,217 |
|
|
iii.
|
voted
on a proposal to approve amendments to the Company’s 2006 Long-Term
Incentives Plan. The proposal was approved by a vote of the shareowners as
follows:
|
Affirmative
votes
|
|
|
102,570,582 |
|
Negative
votes
|
|
|
14,387,986 |
|
Abstentions
|
|
|
876,426 |
|
|
iv.
|
voted
on a shareowner proposal requesting a vote on executive pay. The proposal
was not approved by a vote of the shareowners as
follows:
|
Affirmative
votes
|
|
|
52,182,446 |
|
Negative
votes
|
|
|
64,042,397 |
|
Abstentions
|
|
|
1,610,151 |
|
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.
|
|
|
101.INS
|
XBRL
Instance Document
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema
|
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation
Linkbase
|
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: April
23, 2010
|
By
|
/s/ M. A. Schulte
|
|
|
M.
A. Schulte
|
|
|
Vice
President, Finance and Controller
|
|
|
(Principal
Accounting Officer)
|
|
|
|
Date: April
23, 2010
|
By
|
/s/ G. R. Chadick
|
|
|
G.
R. Chadick
|
|
|
Senior
Vice President,
|
|
|
General
Counsel and Secretary
|