UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended March 31, 2008. Commission file number
1-16445.
Rockwell
Collins, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
52-2314475
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
|
|
400
Collins Road NE
|
52498
|
Cedar
Rapids, Iowa
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
Registrant's
telephone number, including area code: (319) 295-1000
(Office
of the Corporate Secretary)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
|
x
|
Accelerated
filer
|
o |
Non-accelerated
filer
|
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
160,742,704
shares of registrant's Common Stock, par value $.01 per share, were outstanding
on April 11, 2008.
ROCKWELL
COLLINS, INC.
INDEX
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Page
No.
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PART
I.
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FINANCIAL
INFORMATION:
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Item
1.
|
Condensed
Consolidated Financial Statements:
|
|
|
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|
Condensed
Consolidated Statement of Financial Position (Unaudited) —
|
|
|
|
March
31, 2008 and September 30, 2007
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Operations (Unaudited) —
|
|
|
|
Three
and Six Months Ended March 31, 2008 and 2007
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Cash Flows (Unaudited) —
|
|
|
|
Six
Months Ended March 31, 2008 and 2007
|
4
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of
|
|
|
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Financial
Condition and Results of Operations
|
18
|
|
|
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|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
27
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|
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|
|
|
Item
4.
|
Controls
and Procedures
|
27
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|
|
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PART
II.
|
OTHER
INFORMATION:
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
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|
|
|
|
|
Item
4.
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Submission
of Matters to a Vote of Security Holders
|
28
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|
Item
6.
|
Exhibits
|
29
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|
|
|
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Signatures
|
|
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30
|
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)
|
|
March
31,
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
198
|
|
$
|
231
|
|
Receivables
|
|
|
923
|
|
|
883
|
|
Inventories
|
|
|
918
|
|
|
823
|
|
Current
deferred income taxes
|
|
|
167
|
|
|
176
|
|
Other
current assets
|
|
|
64
|
|
|
56
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,270
|
|
|
2,169
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
624
|
|
|
607
|
|
Intangible
Assets
|
|
|
157
|
|
|
147
|
|
Goodwill
|
|
|
550
|
|
|
544
|
|
Prepaid
Pension Asset
|
|
|
109
|
|
|
88
|
|
Other
Assets
|
|
|
233
|
|
|
195
|
|
|
|
|
|
|
|
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TOTAL
ASSETS
|
|
$
|
3,943
|
|
$
|
3,750
|
|
|
|
|
|
|
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LIABILITIES
AND SHAREOWNERS' EQUITY
|
|
|
|
|
|
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|
Current
Liabilities:
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$
|
361
|
|
$
|
-
|
|
Accounts
payable
|
|
|
370
|
|
|
395
|
|
Compensation
and benefits
|
|
|
231
|
|
|
305
|
|
Advance
payments from customers
|
|
|
316
|
|
|
304
|
|
Product
warranty costs
|
|
|
220
|
|
|
213
|
|
Income
taxes payable
|
|
|
10
|
|
|
29
|
|
Other
current liabilities
|
|
|
186
|
|
|
213
|
|
|
|
|
|
|
|
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|
Total
current liabilities
|
|
|
1,694
|
|
|
1,459
|
|
|
|
|
|
|
|
|
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Long-Term
Debt
|
|
|
233
|
|
|
223
|
|
Retirement
Benefits
|
|
|
364
|
|
|
359
|
|
Other
Liabilities
|
|
|
159
|
|
|
136
|
|
|
|
|
|
|
|
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Shareowners'
Equity:
|
|
|
|
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|
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Common
stock ($0.01 par value; shares authorized: 1,000;
|
|
|
|
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|
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|
shares
issued: 183.8)
|
|
|
2
|
|
|
2
|
|
Additional
paid-in capital
|
|
|
1,366
|
|
|
1,353
|
|
Retained
earnings
|
|
|
1,790
|
|
|
1,533
|
|
Accumulated
other comprehensive loss
|
|
|
(323
|
)
|
|
(336
|
)
|
Common
stock in treasury, at cost (shares held: March 31, 2008,
23.1;
|
|
|
|
|
|
|
|
September
30, 2007, 18.0)
|
|
|
(1,342
|
)
|
|
(979
|
)
|
Total
shareowners' equity
|
|
|
1,493
|
|
|
1,573
|
|
|
|
|
|
|
|
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TOTAL
LIABILITIES AND SHAREOWNERS’ EQUITY
|
|
$
|
3,943
|
|
$
|
3,750
|
|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in
millions, except per share amounts)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
March
31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
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|
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Sales:
|
|
|
|
|
|
|
|
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Product
sales
|
|
$
|
1,074
|
|
$
|
978
|
|
$
|
2,084
|
|
$
|
1,875
|
|
Service
sales
|
|
|
112
|
|
|
105
|
|
|
214
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
sales
|
|
|
1,186
|
|
|
1,083
|
|
|
2,298
|
|
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
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Costs,
expenses and other:
|
|
|
|
|
|
|
|
|
|
|
|
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Product
cost of sales
|
|
|
763
|
|
|
687
|
|
|
1,464
|
|
|
1,312
|
|
Service
cost of sales
|
|
|
77
|
|
|
69
|
|
|
145
|
|
|
134
|
|
Selling,
general, and administrative expenses
|
|
|
120
|
|
|
119
|
|
|
231
|
|
|
228
|
|
Interest
expense
|
|
|
5
|
|
|
3
|
|
|
10
|
|
|
7
|
|
Other
income, net
|
|
|
(11
|
)
|
|
(5
|
)
|
|
(16
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs, expenses and other
|
|
|
954
|
|
|
873
|
|
|
1,834
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
232
|
|
|
210
|
|
|
464
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
64
|
|
|
70
|
|
|
142
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
168
|
|
$
|
140
|
|
$
|
322
|
|
$
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.04
|
|
$
|
0.83
|
|
$
|
1.99
|
|
$
|
1.69
|
|
Diluted
|
|
$
|
1.03
|
|
$
|
0.82
|
|
$
|
1.96
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
161.1
|
|
|
167.9
|
|
|
162.0
|
|
|
167.7
|
|
Diluted
|
|
|
163.2
|
|
|
170.6
|
|
|
164.3
|
|
|
170.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
0.16
|
|
$
|
0.16
|
|
$
|
0.32
|
|
$
|
0.32
|
|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in
millions)
|
|
Six
Months Ended
|
|
|
|
March
31
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
Net
income
|
|
$
|
322
|
|
$
|
283
|
|
Adjustments
to arrive at cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
50
|
|
|
47
|
|
Amortization
of intangible assets
|
|
|
12
|
|
|
10
|
|
Stock-based
compensation
|
|
|
10
|
|
|
9
|
|
Compensation
and benefits paid in common stock
|
|
|
31
|
|
|
28
|
|
Tax
benefit from the exercise of stock options
|
|
|
6
|
|
|
19
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(6
|
)
|
|
(19
|
)
|
Deferred
income taxes
|
|
|
29
|
|
|
3
|
|
Pension
plan contributions
|
|
|
(5
|
)
|
|
(5
|
)
|
Changes
in assets and liabilities, excluding effects of
acquisitions
|
|
|
|
|
|
|
|
and
foreign currency adjustments:
|
|
|
|
|
|
|
|
Receivables
|
|
|
(57
|
)
|
|
(65
|
)
|
Inventories
|
|
|
(116
|
)
|
|
(65
|
)
|
Accounts
payable
|
|
|
(7
|
)
|
|
4
|
|
Advance
payments from customers
|
|
|
12
|
|
|
31
|
|
Compensation
and benefits
|
|
|
(74
|
)
|
|
(33
|
)
|
Income
taxes
|
|
|
(44
|
)
|
|
(32
|
)
|
Other
assets and liabilities
|
|
|
(33
|
)
|
|
(29
|
)
|
Cash
Provided by Operating Activities
|
|
|
130
|
|
|
186
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
Property
additions
|
|
|
(75
|
)
|
|
(57
|
)
|
Acquisition
of intangible assets
|
|
|
(5
|
)
|
|
(3
|
)
|
Proceeds
from settlement of discontinued license agreement
|
|
|
-
|
|
|
14
|
|
Proceeds
from purchase price settlement related to business
acquisition
|
|
|
-
|
|
|
5
|
|
Other
investing activities
|
|
|
(1
|
)
|
|
-
|
|
Cash
Used for Investing Activities
|
|
|
(81
|
)
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
(415
|
)
|
|
(113
|
)
|
Cash
dividends
|
|
|
(52
|
)
|
|
(54
|
)
|
Decrease
in long-term borrowings
|
|
|
-
|
|
|
(22
|
)
|
Increase
in short-term borrowings
|
|
|
361
|
|
|
3
|
|
Proceeds
from exercise of stock options
|
|
|
11
|
|
|
40
|
|
Excess
tax benefit from stock-based compensation
|
|
|
6
|
|
|
19
|
|
Cash
Used for Financing Activities
|
|
|
(89
|
)
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
7
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
|
|
(33
|
)
|
|
23
|
|
|
|
|
231
|
|
|
144
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
198
|
|
$
|
167
|
|
See
Notes
to Condensed Consolidated Financial Statements.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
Business
Description and Basis of
Presentation
|
Rockwell
Collins, Inc. (the Company or Rockwell Collins) provides design, production,
and
support of communications and aviation electronics solutions for commercial
and
military customers worldwide.
The
Company operates on a 52/53 week fiscal year ending on the Friday closest to
the
last day of the 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, 2007, including
the
financial statements in Exhibit 13 incorporated by reference in the Form
10-K.
In
the
opinion of management, the unaudited financial statements contain all
adjustments, consisting of adjustments of a normal recurring nature, necessary
to present fairly the financial position, results of operations, and cash flows
for the periods presented. The results of operations for the three and six
months ended March 31, 2008 are not necessarily indicative of the results that
may be expected for the full year.
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates and
assumptions.
2.
|
New
Accounting Standards
|
In
March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133
(SFAS
161). SFAS 161 requires, among other things, enhanced disclosure about the
volume and nature of derivative and hedging activities and a tabular summary
showing the fair value of derivative instruments included in the statement
of
financial position and statement of operations. SFAS 161 also requires expanded
disclosure of contingencies included in derivative instruments related to
credit-risk. SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently evaluating the
impact of SFAS 161’s disclosure requirements on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations
(SFAS
141R). SFAS 141R 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 SFAS 141R,
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. SFAS 141R
also requires, among other things, 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 expected, but was not obligated to incur,
will
be recognized separately from the business acquisition. This accounting standard
is effective for the Company’s year ending September 30, 2010. The Company is
currently evaluating the impact of SFAS 141R on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51
(SFAS
160). SFAS 160 requires all entities to report noncontrolling interests in
subsidiaries as a separate component of equity in the consolidated financial
statements. SFAS 160 establishes a single method of accounting for changes
in a
parent’s ownership interest in a subsidiary that do not result in
deconsolidation. Companies will no longer recognize a gain or loss on partial
disposals of a subsidiary where control is retained. In addition, in partial
acquisitions, where control is obtained, the acquiring company will recognize
and measure at fair value 100 percent of the assets and liabilities, including
goodwill, as if the entire target company had been acquired. SFAS 160 is
effective for the Company's year ending September 30, 2010. The Company is
currently evaluating the impact of SFAS 160 on the Company’s financial
statements.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(SFAS
159). SFAS 159 permits entities to choose to measure certain eligible financial
assets and financial liabilities at fair value (the fair value option). SFAS
159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. Unrealized gains and losses on items
for which the fair value option is elected would be reported in earnings. SFAS
159 is effective for the Company's year ending September 30, 2009. The Company
is currently evaluating whether to elect the fair value option for eligible
financial assets and/or financial liabilities and the impact, if any, of SFAS
159 on the Company’s financial statements.
In
September 2006, the FASB issued SFAS No.
157,
Fair
Value Measurements
(SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements. SFAS 157 indicates, among other
things, a fair value measurement assumes that the transaction to sell an asset
or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. SFAS 157 is effective for the Company's year ending
September 30, 2009, with the exception of certain non-financial assets and
liabilities for which the effective date is the Company’s year ending September
30, 2010. The Company is currently evaluating the impact of SFAS 157 on the
Company's financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109
(FIN
48).
See Note 15 for further information regarding the Company’s adoption of FIN
48.
On
August
10, 2007, the Company acquired all of the shares of Information Technology
&
Applications Corporation (ITAC). ITAC, located in Reston, Virginia, is a
provider of intelligence, surveillance, reconnaissance and communications
solutions to support the global war on terror and homeland security. The total
cash purchase price, net of cash acquired, was $37 million. The Company is
in
the process of finalizing the pre-acquisition income tax return and its
implications on the purchase price allocation. Based on the Company’s
preliminary allocation of the purchase price, $27 million has been allocated
to
goodwill and $12 million to finite-lived intangible assets with a weighted
average life of approximately 7 years. The excess purchase price over net assets
acquired reflects the Company’s view that this acquisition will enhance
the Company’s communications intelligence capabilities.
None of
the goodwill resulting from the acquisition is tax deductible. Goodwill is
included within the assets of the Government Systems segment.
Receivables
are summarized as follows (in millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Billed
|
|
$
|
754
|
|
$
|
715
|
|
Unbilled
|
|
|
197
|
|
|
207
|
|
Less
progress payments
|
|
|
(20
|
)
|
|
(30
|
)
|
Total
|
|
|
931
|
|
|
892
|
|
Less
allowance for doubtful accounts
|
|
|
(8
|
)
|
|
(9
|
)
|
Receivables
|
|
$
|
923
|
|
$
|
883
|
|
The
Company expects to bill and collect receivables outstanding as of March 31,
2008
within the next twelve months.
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.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inventories
are summarized as follows (in millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
183
|
|
$
|
187
|
|
Work
in process
|
|
|
421
|
|
|
362
|
|
Raw
materials, parts, and supplies
|
|
|
406
|
|
|
371
|
|
Total
|
|
|
1,010
|
|
|
920
|
|
Less
progress payments
|
|
|
(92
|
)
|
|
(97
|
)
|
Inventories
|
|
$
|
918
|
|
$
|
823
|
|
The
Company defers certain pre-production engineering costs as work-in-process
inventory in connection with long-term supply arrangements that contain
contractual guarantees for reimbursement from customers. Such customer
guarantees typically take the form of a minimum order quantity with quantified
reimbursement amounts if the minimum order quantity is not taken by the
customer. Such costs are typically deferred to the extent of the contractual
guarantees and are generally amortized over a period of 2 to 6 years as a
component of Cost of Sales as revenue is recognized on the minimum order
quantity. Pre-production engineering costs incurred pursuant to supply
arrangements that do not contain customer guarantees for reimbursement are
expensed as incurred. Deferred pre-production engineering costs were $143
million and $126 million at March 31, 2008 and September 30, 2007, respectively.
Property
is summarized as follows (in millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Land
|
|
$
|
31
|
|
$
|
31
|
|
Buildings
and improvements
|
|
|
314
|
|
|
307
|
|
Machinery
and equipment
|
|
|
796
|
|
|
769
|
|
Information
systems software and hardware
|
|
|
230
|
|
|
224
|
|
Furniture
and fixtures
|
|
|
54
|
|
|
52
|
|
Construction
in progress
|
|
|
86
|
|
|
72
|
|
Total
|
|
|
1,511
|
|
|
1,455
|
|
Less
accumulated depreciation
|
|
|
(887
|
)
|
|
(848
|
)
|
Property
|
|
$
|
624
|
|
$
|
607
|
|
In
the
current year, furniture and fixtures have been presented separately within
Property. In prior years, such amounts had been presented within information
systems software and hardware. Prior year amounts have been reclassified to
conform to the current year presentation.
7. |
Goodwill
and Intangible Assets
|
Changes
in the carrying amount of goodwill for the six months ended March 31, 2008
are
summarized as follows (in millions):
|
|
Government
|
|
Commercial
|
|
|
|
|
|
Systems
|
|
Systems
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007
|
|
$
|
353
|
|
$
|
191
|
|
$
|
544
|
|
Foreign
currency translation adjustment
|
|
|
4
|
|
|
-
|
|
|
4
|
|
Other
adjustments to goodwill
|
|
|
2
|
|
|
-
|
|
|
2
|
|
Balance
at March 31, 2008
|
|
$
|
359
|
|
$
|
191
|
|
$
|
550
|
|
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 2008 impairment
tests yielded no impairment.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible
assets are summarized as follows (in millions):
|
|
March 31, 2008
|
|
September 30, 2007
|
|
|
|
|
|
Accum
|
|
|
|
|
|
Accum
|
|
|
|
|
|
Gross
|
|
Amort
|
|
Net
|
|
Gross
|
|
Amort
|
|
Net
|
|
Intangible
assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
technology and patents
|
|
$
|
151
|
|
$
|
(80
|
)
|
$
|
71
|
|
$
|
156
|
|
$
|
(72
|
)
|
$
|
84
|
|
License
agreements
|
|
|
18
|
|
|
(3
|
)
|
|
15
|
|
|
11
|
|
|
(3
|
)
|
|
8
|
|
Customer
relationships
|
|
|
87
|
|
|
(22
|
)
|
|
65
|
|
|
67
|
|
|
(19
|
)
|
|
48
|
|
Trademarks
and tradenames
|
|
|
12
|
|
|
(8
|
)
|
|
4
|
|
|
12
|
|
|
(7
|
)
|
|
5
|
|
Intangible
assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and tradenames
|
|
|
2
|
|
|
-
|
|
|
2
|
|
|
2
|
|
|
-
|
|
|
2
|
|
Intangible
assets
|
|
$
|
270
|
|
$
|
(113
|
)
|
$
|
157
|
|
$
|
248
|
|
$
|
(101
|
)
|
$
|
147
|
|
Rockwell
Collins provides sales incentives to certain commercial customers in connection
with sales contracts. Incentives consisting of cash payments or customer account
credits are recognized as a reduction of sales and incentives consisting of
free
product are recognized as cost of sales. Incentives given to customers prior
to
delivering products or performing services are recorded as a Customer
Relationship Intangible Asset and amortized over the period the Company has
received a contractually enforceable right related to the incentive. Incentives
included in Customer Relationship Intangible Assets were $50 million and $36
million at March 31, 2008 and September 30, 2007, respectively.
In
December 2007, the Commercial Systems segment acquired a license agreement
in
connection with its purchase of the SKYLink broadband terminal product line
from
ARINC Incorporated (ARINC). Under the terms of the six-year agreement, the
Company will sell and support broadband terminals to the business jet market
under the Company’s eXchange brand and ARINC will provide certain satellite
connectivity services. The initial purchase price was $7 million, of which
$4
million was paid during the six months ended March 31, 2008, and is subject
to
adjustment based on future sales volume of the product line. In connection
with
executing the license agreement, the Company committed to purchase approximately
$36 million of hardware, subject to certain limitations in the event of a
contract termination, from a key supplier over the term of the six-year
agreement with ARINC.
In
prior
years, the Company paid $14 million for a license fee related to a strategic
agreement with The Boeing Company to provide a global broadband connectivity
solution for business aircraft through the Company’s Collins eXchange product.
In August of 2006, The Boeing Company announced they would exit the high-speed
broadband communications connectivity markets. During the six months ended
March
31, 2007, the Company and The Boeing Company reached a settlement that included,
among other things, repayment of $14 million to the Company representing the
carrying value of the license agreement.
Amortization
expense for intangible assets for the three and six months ended March 31,
2008
was $6 million and $12 million, respectively, compared to $4 million and $10
million for the three and six months ended March 31, 2007. Annual amortization
expense for intangible assets for 2008, 2009, 2010, 2011, and 2012 is expected
to be $24 million, $25 million, $29 million, $28 million, and $26 million,
respectively.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other
assets are summarized as follows (in millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Long-term
receivables
|
|
$
|
91
|
|
$
|
73
|
|
Long-term
deferred income taxes
|
|
|
24
|
|
|
1
|
|
Investment
in equity affiliates
|
|
|
10
|
|
|
10
|
|
Exchange
and rental assets, net of accumulated depreciation of $96
at
|
|
|
|
|
|
|
|
March
31, 2008 and $95 at September 30, 2007
|
|
|
41
|
|
|
37
|
|
Other
|
|
|
67
|
|
|
74
|
|
Other
assets
|
|
$
|
233
|
|
$
|
195
|
|
Investments
in equity affiliates primarily consist of four joint ventures; Vision Systems
International, LLC (VSI), Data Link Solutions, LLC (DLS), Integrated Guidance
Systems, LLC (IGS), and Quest Flight Training Limited (Quest). Each joint
venture is 50 percent owned by the Company and accounted for under the equity
method.
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
$32
million and $64 million for the three and six months ended March 31, 2008,
respectively, and $32 million and $64 million for the three and six months
ended
March 31, 2007, respectively. The deferred portion of profit generated from
sales to equity affiliates was $3 million at March 31, 2008 and $6 million
at
September 30, 2007.
9.
|
Other
Current Liabilities
|
Other
current liabilities are summarized as follows (in millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Customer
incentives
|
|
$
|
106
|
|
$
|
117
|
|
Contract
reserves
|
|
|
14
|
|
|
18
|
|
Other
|
|
|
66
|
|
|
78
|
|
Other
current liabilities
|
|
$
|
186
|
|
$
|
213
|
|
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
will have a maturity of not more than 364 days from the time of issuance. At
March 31, 2008 short-term commercial paper borrowings outstanding were $349
million with a weighted average interest rate and maturity period of 3.28
percent and 12 days, respectively.
Revolving
Credit Facility
The
Company has an $850 million unsecured revolving credit facility with various
banks through March 2012. The credit facility has options to further extend
the
term for up to two one-year periods and/or increase the aggregate principal
amount up to $1.2 billion. These options are subject to the approval of the
lenders. The 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 plans. The ratio was 24 percent
as
of March 31, 2008. In addition, short-term credit facilities available to
foreign subsidiaries amounted to $67 million as of March 31, 2008, of which
$21
million was utilized to support commitments in the form of commercial letters
of
credit. There were no significant commitment fees or compensating balance
requirements under any of the Company’s credit facilities. As of March 31, 2008,
there were $12 million of short-term borrowings outstanding under the Company’s
foreign subsidiaries’ credit facilities.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-term
debt and a reconciliation to the carrying amount is summarized as follows (in
millions):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Principal
amount of notes due December 1, 2013
|
|
$
|
200
|
|
$
|
200
|
|
Principal
amount of variable rate loan facility due June 2011
|
|
|
27
|
|
|
24
|
|
Fair
value swap adjustment (Note 16)
|
|
|
6
|
|
|
(1
|
)
|
Long-term
debt
|
|
$
|
233
|
|
$
|
223
|
|
Interest
paid on debt for the six months ended March 31, 2008 and 2007 was $10 million
and $6 million, respectively.
The
Company sponsors defined benefit pension (Pension Benefits) and other
postretirement (Other Retirement Benefits) plans covering most of its U.S.
employees and certain employees in foreign countries that 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, 2008 and 2007 are as follows (in millions):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2
|
|
$
|
2
|
|
$
|
4
|
|
$
|
4
|
|
Interest
cost
|
|
|
41
|
|
|
38
|
|
|
81
|
|
|
75
|
|
Expected
return on plan assets
|
|
|
(51
|
)
|
|
(47
|
)
|
|
(101
|
)
|
|
(93
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(4
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(9
|
)
|
Net
actuarial loss
|
|
|
11
|
|
|
15
|
|
|
23
|
|
|
29
|
|
Net
benefit expense / (income)
|
|
$
|
(1
|
)
|
$
|
3
|
|
$
|
(2
|
)
|
$
|
6
|
|
Other
Retirement Benefits
The
components of expense / (income) for Other Retirement Benefits for the three
and
six months ended March 31, 2008 and 2007 are as follows (in
millions):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1
|
|
$
|
1
|
|
$
|
2
|
|
$
|
2
|
|
Interest
cost
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
8
|
|
Expected
return on plan assets
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(8
|
)
|
|
(9
|
)
|
|
(17
|
)
|
|
(19
|
)
|
Net
actuarial loss
|
|
|
4
|
|
|
4
|
|
|
7
|
|
|
8
|
|
Net
benefit expense / (income)
|
|
$
|
-
|
|
$
|
(1
|
)
|
$
|
(1
|
)
|
$
|
(2
|
)
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pension
Plan Funding
The
Company’s objective with respect to the funding of its pension plans is to
provide adequate assets for the payment of future benefits. Pursuant to this
objective, the Company will fund its pension plans as required by governmental
regulations and may consider discretionary contributions as conditions warrant.
Although not required to make any contributions to its U.S. qualified pension
plan by governmental regulations, the Company is contemplating making a
discretionary contribution of up to $75 million in 2008 to further improve
the funded status of this plan. Contributions to the Company’s international
plans and the U.S. non-qualified plan are expected to total $14 million in
2008. During each of the six months ended March 31, 2008 and 2007, the Company
made contributions to its international plans and the U.S. non-qualified pension
plan of $5 million.
12.
|
Stock-Based
Compensation
|
Total
stock-based compensation expense included within the condensed consolidated
statement of operations is as follows (in millions, except per share
amounts):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
cost of sales
|
|
$
|
1
|
|
$
|
1
|
|
$
|
2
|
|
$
|
2
|
|
Service
cost of sales
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Selling,
general and administrative expenses
|
|
|
4
|
|
|
3
|
|
|
7
|
|
|
6
|
|
Income
before income taxes
|
|
$
|
5
|
|
$
|
5
|
|
$
|
10
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4
|
|
$
|
3
|
|
$
|
7
|
|
$
|
6
|
|
Basic
and diluted earnings per share
|
|
$
|
0.02
|
|
$
|
0.02
|
|
$
|
0.04
|
|
$
|
0.04
|
|
The
Company issued awards of equity instruments under the Company’s various
incentive plans for the six months ended March 31, 2008 and 2007 as
follows:
|
|
|
|
|
|
Performance
|
|
Restricted
|
|
Restricted
|
|
|
|
Options
|
|
Shares
|
|
Stock
|
|
Stock Units
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Average
|
|
Number
|
|
Average
|
|
Number
|
|
Average
|
|
Number
|
|
Average
|
|
|
|
Issued
|
|
Fair Value
|
|
Issued
|
|
Fair Value
|
|
Issued
|
|
Fair Value
|
|
Issued
|
|
Fair Value
|
|
Six
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
350,000
|
|
$
|
23.46
|
|
|
110,794
|
(a)
|
$
|
73.67
|
|
|
38,900
|
|
$
|
74.05
|
|
|
18,049
|
|
$
|
67.03
|
|
Six
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
441,570
|
|
$
|
16.59
|
|
|
61,763
|
|
$
|
57.99
|
|
|
39,520
|
|
$
|
57.97
|
|
|
16,287
|
|
$
|
63.96
|
|
|
(a)
|
The
maximum number of performance shares that can be issued based on
the
achievement of performance targets for fiscal years 2008 through
2010 is
265,906.
|
|
(b)
|
The
maximum number of performance shares that can be issued based on
the
achievement of performance targets for fiscal years 2007 through
2009 is
148,231.
|
The
fair
value of each option granted by the Company was estimated using a binomial
lattice pricing model and the following assumptions for the six months ended
March 31:
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
Grants
|
|
Grants
|
|
|
|
|
|
|
|
Risk-free
interest rate (U.S. Treasury zero coupon issues)
|
|
|
3.90
|
%
|
|
4.55
|
%
|
Expected
dividend yield
|
|
|
0.98
|
%
|
|
1.09
|
%
|
Expected
volatility
|
|
|
0.30
|
|
|
0.28
|
|
Expected
life
|
|
|
6
years
|
|
|
5
years
|
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Employee
Benefits Paid in Company Stock
|
During
the six months ended March 31, 2008 and 2007, 0.5 million and 0.4
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 $28 million,
respectively.
|
Comprehensive
income consists of the following (in millions):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
168
|
|
$
|
140
|
|
$
|
322
|
|
$
|
283
|
|
Unrealized
foreign currency translation adjustment
|
|
|
8
|
|
|
1
|
|
|
11
|
|
|
7
|
|
Foreign
currency cash flow hedge adjustment
|
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
Amortization
of defined benefit plan costs
|
|
|
1
|
|
|
-
|
|
|
2
|
|
|
-
|
|
Minimum
pension liability adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(47
|
)
|
Comprehensive
income
|
|
$
|
176
|
|
$
|
141
|
|
$
|
335
|
|
$
|
242
|
|
Other
income, net consists of the following (in millions):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity affiliates
|
|
$
|
1
|
|
$
|
2
|
|
$
|
4
|
|
$
|
5
|
|
Interest
income
|
|
|
2
|
|
|
-
|
|
|
4
|
|
|
2
|
|
Royalty
income
|
|
|
7
|
|
|
3
|
|
|
9
|
|
|
5
|
|
Other
|
|
|
1
|
|
|
-
|
|
|
(1
|
)
|
|
(2
|
)
|
Other
income, net
|
|
$
|
11
|
|
$
|
5
|
|
$
|
16
|
|
$
|
10
|
|
At
the
end of each interim reporting period, the Company makes an estimate of the
annual effective income tax rate. Tax items included in the annual effective
tax
rate are pro-rated for the full year and tax items discrete to a specific
quarter are included in the effective tax rate for that quarter. The estimate
used in providing for income taxes on a year-to-date basis may change in
subsequent interim periods. During the three months ended March 31, 2008 and
2007, the effective income tax rate was 27.6 percent and 33.3 percent,
respectively. During the six months ended March 31, 2008 and 2007 the effective
income tax rate was 30.6 percent and 30.1 percent, respectively.
During
the three months ended March 31, 2008 the Internal Revenue Service (IRS)
completed its examination of the taxable years ended September 30, 2004 and
2005
as well as the amended returns for the years ended September 30, 2002 and 2003
resulting in a benefit to the effective income tax rate for the three months
ended March 31, 2008 of about 7 percentage points. The settlement is subject
to
review by the Joint Committee on Taxation.
The
federal Research and Development Tax Credit (R&D Tax Credit) expired
December 31, 2007. The effective tax rate for the three and six months ended
March 31, 2008 reflects the unfavorable impact of lower R&D Tax Credits as a
result of pro-rating the three months of available R&D Tax Credits over the
full 2008 fiscal year.
The
effective tax rate for the six months ended March 31, 2007 reflects the
retroactive reinstatement of the R&D Tax Credit which had previously expired
December 31, 2005. On December 20, 2006, the Tax Relief and Health Care Act
of
2006 was enacted, which retroactively reinstated and extended the R&D Tax
Credit from January 1, 2006 to December 31, 2007. The retroactive benefit for
the previously expired period from January 1, 2006 to September 30, 2006 was
recognized as a discrete item for the six months ended March 31, 2007 and
lowered the Company’s effective tax rate by about 3 percentage points.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
phase-out period for the federal Extraterritorial Income Exclusion (ETI) tax
benefit ended on December 31, 2006. The enacted federal replacement tax benefit
for ETI, the Domestic Manufacturing Deduction (DMD), applied to the full 2007
year. For 2007, the available DMD tax benefit was one-third of the full benefit
that will be available in 2011. The amount of DMD tax benefit available in
2008,
2009 and 2010 will be two-thirds of the full benefit.
In
June
2006, the FASB issued FIN 48. FIN 48 clarifies the accounting for uncertainty
in
income taxes by establishing a minimum recognition threshold a tax position
is
required to meet before being recognized in the financial statements. FIN 48
prescribes a comprehensive model for how a company should recognize,
derecognize, measure, present, and disclose in its financial statements
uncertain tax positions that a company has taken or expects to take on a tax
return. In addition, FIN 48 provides guidance on interest and penalties,
accounting in interim periods, and transition.
The
Company adopted the provisions of FIN 48 effective October 1, 2007. The $5
million cumulative effect of adopting FIN 48 was recorded as a reduction to
retained earnings in the first quarter of 2008. As of October 1, 2007, the
Company had gross unrecognized tax benefits of $84 million recorded within
Other
Liabilities in the Condensed Consolidated Statement of Financial Position,
of
which $52 million would affect the effective income tax rate if recognized.
At
March 31, 2008, the Company had gross unrecognized tax benefits of $60 million
recorded within Other Liabilities in the Condensed Consolidated Statement of
Financial Position, of which $34 million would affect the effective income
tax
rate if recognized. It is reasonably possible that during the next 12 months
the
amount of previously unrecognized tax benefits may decrease approximately $5
million due to the resolution of certain tax matters.
The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense. As of October 1, 2007, the total amount of interest
and
penalties recognized within Other Liabilities in the Condensed Consolidated
Statement of Financial Position was $9 million. As of March 31, 2008, the total
amount of interest and penalties recognized within Other Liabilities in the
Condensed Consolidated Statement of Financial Position was $5 million.
Except
for certain claims filed, related to ETI, the Company's U.S federal income
tax
returns for the tax years ended September 30, 2003 and prior have been audited
by the IRS and are closed to further adjustments by the IRS. The Company is
also
currently under audit in various U.S. state and foreign jurisdictions. The
U.S.
state and foreign 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.
The
Company paid income taxes, net of refunds, of $139 million and $132 million
during the six months ended March 31, 2008 and 2007, respectively.
16.
|
Financial
Instruments
|
Fair
Value of Financial Instruments
The
carrying amounts and fair values of the Company’s financial instruments are as
follows (in millions):
|
|
Asset (Liability)
|
|
|
|
March 31, 2008
|
|
September 30, 2007
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Cash
and cash equivalents
|
|
$
|
198
|
|
$
|
198
|
|
$
|
231
|
|
$
|
231
|
|
Deferred
compensation plan investments
|
|
|
36
|
|
|
36
|
|
|
39
|
|
|
39
|
|
Short-term
debt
|
|
|
(361
|
)
|
|
(361
|
)
|
|
-
|
|
|
-
|
|
Long-term
debt
|
|
|
(233
|
)
|
|
(225
|
)
|
|
(223
|
)
|
|
(216
|
)
|
Interest
rate swaps
|
|
|
6
|
|
|
6
|
|
|
(1
|
)
|
|
(1
|
)
|
Foreign
currency forward exchange contracts
|
|
|
(7
|
)
|
|
(7
|
)
|
|
(5
|
)
|
|
(5
|
)
|
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
fair
value of cash and cash equivalents approximate its carrying value due to the
short-term nature of the instruments. The fair value for deferred compensation
plan investments is based on quoted market prices and is recorded at fair value
within Other Assets. The fair value of short-term debt approximates its carrying
value due to the short-term nature of the debt. The fair value of long-term
debt
is based on quoted market prices for debt with similar terms and maturities.
The
Company uses derivative financial instruments in the form of interest rate
swaps
and foreign currency forward exchange contracts to manage interest rate risk
and
foreign currency risk, respectively. The Company’s policy is to execute such
instruments with creditworthy financial institutions and not enter into
derivative financial instruments for speculative purposes.
On
November 20, 2003, the Company entered into two interest rate swap contracts
(the Swaps) that expire on December 1, 2013 and effectively converted $100
million aggregate principal amount of the notes due December 1, 2013 to floating
rate debt based on six-month LIBOR less 7.5 basis points. The Company has
designated the Swaps as fair value hedges. Accordingly, the fair values of
the
Swaps are recorded in Other Assets or Other Liabilities on the Condensed
Consolidated Statement of Financial Position and the carrying value of the
underlying debt is adjusted by an equal amount. The fair value of the interest
rate swaps is based on quoted market prices for contracts with similar
maturities.
Foreign
currency forward exchange contracts provide for the purchase or sale of foreign
currencies at specified future dates at specified exchange rates and are used
to
offset changes in the fair value of certain assets or liabilities or forecasted
cash flows resulting from transactions denominated in foreign currencies. At
March 31, 2008 and September 30, 2007, the Company had outstanding foreign
currency forward exchange contracts with notional amounts of $134 million and
$205 million, respectively. These notional values consist primarily of contracts
for the European euro, British pound sterling and Japanese yen, and are stated
in U.S. dollar equivalents at spot exchange rates at the respective
dates.
17.
|
Guarantees
and Indemnifications
|
Product
warranty costs
Accrued
liabilities are recorded to reflect the Company’s contractual obligations
relating to warranty commitments to customers. Warranty coverage of various
lengths and terms is provided to customers depending on standard offerings
and
negotiated contractual agreements. An estimate for warranty expense is recorded
at the time of sale based on the length of the warranty and historical warranty
return rates and repair costs.
Changes
in the carrying amount of accrued product warranty costs are summarized as
follows (in millions):
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
Balance
at beginning of year
|
|
$
|
213
|
|
$
|
189
|
|
Warranty
costs incurred
|
|
|
(25
|
)
|
|
(26
|
)
|
Product
warranty accrual
|
|
|
33
|
|
|
39
|
|
Reclassifications
|
|
|
-
|
|
|
7
|
|
Pre-existing
warranty adjustments
|
|
|
(1
|
)
|
|
1
|
|
Balance
at March 31
|
|
$
|
220
|
|
$
|
210
|
|
Guarantees
In
connection with the acquisition of the Quest joint
venture
from
Evans & Sutherland, 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 Defense (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, 2008, the outstanding loan balance
was
approximately $9 million. Quadrant has made an identical pledge to
guarantee this obligation of Quest.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Should
Quest fail to meet its obligations under these agreements, these guarantees
may
become a liability of the Company. As of March 31, 2008, the Quest guarantees
are not reflected on the Company’s Condensed Consolidated Statement of Financial
Position because the Company believes that Quest will meet all of its
performance and financial obligations in relation to its contract with the
United Kingdom Ministry of Defense and the loan agreement.
Letters
of credit
The
Company has contingent commitments in the form of commercial letters of credit.
Outstanding letters of credit are issued by banks on the Company’s behalf to
support certain contractual obligations to its customers. If the Company fails
to meet these contractual obligations, these letters of credit may become
liabilities of the Company. Total outstanding letters of credit at March 31,
2008 were $112 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.
In
connection with agreements for the sale of portions of its business, the Company
at times retains the liabilities of a business of varying amounts 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.
18.
|
Environmental
Matters
|
The
Company is subject to federal, state and local regulations relating to the
discharge of substances into the environment, the disposal of hazardous wastes,
and other activities affecting the environment that have had and will continue
to have an impact on the Company’s manufacturing operations. These environmental
protection regulations may require the investigation and remediation of
environmental impairments at current and previously owned or leased properties.
In addition, lawsuits, claims and proceedings have been asserted on occasion
against the Company alleging violations of environmental protection regulations,
or seeking remediation of alleged environmental impairments, principally at
previously owned or leased properties. As of March 31, 2008, the Company is
involved in the investigation or remediation of seven sites under these
regulations or pursuant to lawsuits asserted by third parties. Management
estimates that the total reasonably possible future costs the Company could
incur for six of these sites is not significant. Management estimates that
the
total reasonably possible future costs the Company could incur from one of
these
sites to be approximately $9 million. The Company has recorded environmental
reserves for this site of $2 million as of March 31, 2008, which represents
management’s best estimate of the probable future cost for this site.
ROCKWELL
COLLINS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
addition, the Company is currently involved in investigation or remediation
of
two sites related to properties purchased in connection with the Company’s
acquisition of Kaiser Aerospace & Electronics Corporation (Kaiser). Rockwell
Collins has certain rights to indemnification from escrow funds set aside at
the
time of acquisition that management believes are sufficient to address the
Company’s potential liability for the Kaiser related environmental
matters.
To
date,
compliance with environmental regulations and resolution of environmental claims
has been accomplished without material effect on the Company’s liquidity and
capital resources, competitive position or financial condition. Management
believes that expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection
and other expenditures for the resolution of environmental claims will not
have
a material adverse effect on the Company’s business or financial position, but
could possibly be material to the results of operations or cash flows of any
one
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,
intellectual property, safety and health, exporting and importing, contract,
employment and regulatory matters. Although the outcome of these matters cannot
be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes the disposition
of
matters that are pending or asserted will not have a material adverse effect
on
the Company’s business or financial position, but could possibly be material to
the results of operations or cash flows of any one quarter.
20.
|
Business
Segment Information
|
|
|
The
sales and results of operations of the Company’s operating segments are
summarized as follows (in
millions):
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Systems
|
|
$
|
610
|
|
$
|
542
|
|
$
|
1,175
|
|
$
|
1,034
|
|
Government
Systems
|
|
|
576
|
|
|
541
|
|
|
1,123
|
|
|
1,042
|
|
Total
sales
|
|
$
|
1,186
|
|
$
|
1,083
|
|
$
|
2,298
|
|
$
|
2,076
|
|
Segment
operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Systems
|
|
$
|
140
|
|
$
|
122
|
|
$
|
277
|
|
$
|
236
|
|
Government
Systems
|
|
|
115
|
|
|
107
|
|
|
230
|
|
|
209
|
|
Total
segment operating earnings
|
|
|
255
|
|
|
229
|
|
|
507
|
|
|
445
|
|
Interest
expense
|
|
|
(5
|
)
|
|
(3
|
)
|
|
(10
|
)
|
|
(7
|
)
|
Stock-based
compensation
|
|
|
(5
|
)
|
|
(5
|
)
|
|
(10
|
)
|
|
(9
|
)
|
Restructuring
adjustment
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
3
|
|
General
corporate, net
|
|
|
(13
|
)
|
|
(14
|
)
|
|
(23
|
)
|
|
(27
|
)
|
Income
before income taxes
|
|
|
232
|
|
|
210
|
|
|
464
|
|
|
405
|
|
Income
tax provision
|
|
|
(64
|
)
|
|
(70
|
)
|
|
(142
|
)
|
|
(122
|
)
|
Net
income
|
|
$
|
168
|
|
$
|
140
|
|
$
|
322
|
|
$
|
283
|
|
During
the three months ended March 31, 2007, the Company lowered a previously
established restructuring reserve by $3 million primarily due to lower than
expected employee separation costs.
The
Company evaluates performance and allocates resources based upon, among other
considerations, segment operating earnings. The Company’s definition of segment
operating earnings excludes income taxes, stock-based compensation, unallocated
general corporate expenses, interest expense, gains and losses from the
disposition of businesses, non-recurring charges resulting from purchase
accounting such as purchased research and development charges, 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, 2008 and 2007 (in millions):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Commercial
Systems product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$
|
320
|
|
$
|
288
|
|
$
|
621
|
|
$
|
538
|
|
Business
and regional aviation electronics
|
|
|
290
|
|
|
254
|
|
|
554
|
|
|
496
|
|
Total
Commercial Systems sales
|
|
$
|
610
|
|
$
|
542
|
|
$
|
1,175
|
|
$
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
399
|
|
$
|
387
|
|
$
|
774
|
|
$
|
744
|
|
Surface
Solutions
|
|
|
177
|
|
|
154
|
|
|
349
|
|
|
298
|
|
Total
Government Systems sales
|
|
$
|
576
|
|
$
|
541
|
|
$
|
1,123
|
|
$
|
1,042
|
|
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. Beginning in the fourth quarter of 2007, product
category sales for Commercial Systems were reclassified to better align sales
for products serving both product categories. Sales for the three and six months
ended March 31, 2007 for the air transport aviation electronics and business
and
regional aviation electronics product categories have been reclassified to
conform to the current year presentation.
Beginning
in 2008, 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. In prior years, defense-related product categories
were
delineated based upon their underlying technologies. Sales for the three and
six
months ended March 31, 2007 for the Government Systems segment product
categories have been reclassified to conform to the current year
presentation.
In
April
2008, subsequent to the Company’s second fiscal quarter ended March 31, 2008,
the Company acquired Athena Technologies, Inc. (Athena). Athena, located in
Warrenton, Virginia, is a provider of navigation and control solutions,
primarily to the Unmanned Aerial Vehicle (UAV) market segment. Athena will
be
included within the results of the Government Systems segment. The total cash
purchase price, net of cash acquired, was $107 million. Athena was acquired
in
the third quarter of fiscal 2008; therefore, results of operations from Athena
are not included in the Company’s Condensed Consolidated Statement of Operations
for the three and six months ended March 31, 2008 and the assets and liabilities
of Athena are not included in the Company’s Condensed Consolidated Statement of
Financial Position as of March 31, 2008.
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, 2008 and 2007 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, 2008 and 2007
Sales
(dollars in millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
1,186
|
|
$
|
1,083
|
|
Percent
increase
|
|
|
10
|
%
|
|
|
|
Total
sales for the three months ended March 31, 2008 increased 10 percent to $1,186
million compared to the three months ended March 31, 2007. Commercial Systems
sales increased 13 percent and Government Systems sales increased 6 percent
for
the three months ended March 31, 2008 compared to the same period a year ago.
See the following operating segment sections for further discussion of sales
for
the three months ended March 31, 2008 and 2007.
Net
Income and Diluted Earnings Per Share
(dollars
in millions, except per share amounts)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
168
|
|
$
|
140
|
|
Net
income as a percent of sales
|
|
|
14.2
|
%
|
|
12.9
|
%
|
Diluted
earnings per share
|
|
$
|
1.03
|
|
$
|
0.82
|
|
Net
income for the three months ended March 31, 2008 increased 20 percent to $168
million, or 14.2 percent of sales, from net income of $140 million, or 12.9
percent of sales, for the three months ended March 31, 2007. Diluted
earnings per share increased 26 percent to $1.03
for
the three months ended March 31, 2008 from 82 cents for the three months ended
March 31, 2007. The increase in net income and diluted earnings per share for
the three months ended March 31, 2008 compared to the same period last year
was
primarily the result of a combination of increased sales volume and productivity
improvements as well as the impact of a lower effective income tax rate. See
the
Income Taxes section for further discussion of income taxes for the three months
ended March 31, 2008 and 2007. Diluted earnings per share for the three months
ended March 31, 2008 grew 6 percentage points higher than the rate of net income
due to the impact of our share repurchase program.
Commercial
Systems Financial Results
Commercial
Systems’ Sales
The
following table presents Commercial Systems’ sales by product
category:
(dollars
in millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$
|
320
|
|
$
|
288
|
|
Business
and regional aviation electronics
|
|
|
290
|
|
|
254
|
|
Total
|
|
$
|
610
|
|
$
|
542
|
|
Percent
increase
|
|
|
13
|
%
|
|
|
|
Beginning
in the fourth quarter of 2007, product category sales for Commercial Systems
were reclassified to better align sales for products serving both product
categories. Sales for the three months ended March 31, 2007 for our air
transport aviation electronics and business and regional aviation electronics
product categories have been reclassified to conform to the current year
presentation.
Air
transport aviation electronics sales increased $32 million, or 11 percent,
for
the three months ended March 31, 2008 compared to the three months ended March
31, 2007. This sales growth is primarily attributed to higher avionics and
in-flight entertainment systems sales to airlines and original equipment
manufacturers (OEMs) for new aircraft production as well as higher sales of
equipment for Boeing 787 simulators, and service and support activities,
partially offset by lower sales of in-flight entertainment systems retrofits
and
spares.
Business
and regional aviation electronics sales increased $36 million, or 14 percent,
for the three months ended March 31, 2008 compared to the same period in the
prior year. This sales growth is attributed primarily to market share gains
and
increased demand for new business and regional aircraft avionics and cabin
electronics systems, partially offset by lower aftermarket sales due to lower
regulatory mandate program and business aircraft retrofits and spares revenues.
The
following table presents Commercial Systems’ sales based on the type of product
or service:
(in
millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Original
equipment
|
|
$
|
351
|
|
$
|
272
|
|
Aftermarket
|
|
|
259
|
|
|
270
|
|
Total
|
|
$
|
610
|
|
$
|
542
|
|
Percent
increase
|
|
|
13
|
%
|
|
|
|
Original
equipment sales increased $79 million, or 29 percent, for the three months
ended
March 31, 2008 compared to the same period in the prior year. Share gains and
increased demand for new air transport, business and regional aircraft led
to
higher avionics sales, with particularly strong growth in sales to business
and
regional aircraft OEMs. In-flight entertainment system sales were also
higher.
Aftermarket
sales decreased $11 million, or 4 percent, for the three months ended March
31,
2008 compared to the three months ended March 31, 2007. Higher revenues from
service and support activities and sales of equipment for Boeing 787 simulators
were more than offset by the anticipated impact of lower in-flight entertainment
and business aircraft retrofits and spares revenues as well as lower regulatory
mandate program revenues.
Commercial
Systems’ Segment Operating Earnings
(dollars
in millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
140
|
|
$
|
122
|
|
Percent
of sales
|
|
|
23.0
|
%
|
|
22.5
|
%
|
Commercial
Systems’ operating earnings increased 15 percent to $140 million, or 23.0
percent of sales, for the three months ended March 31, 2008 compared to
operating earnings of $122 million, or 22.5 percent of sales for the three
months ended March 31, 2007. The increase in operating earnings and operating
margin was primarily due to the combination of higher revenues, productivity
improvements, and higher royalty income, partially offset by higher research
and
development costs and the absence of an adjustment related to favorable contract
option exercises recognized in the three months ended March 31, 2007.
Government
Systems Financial Results
Government
Systems’ Sales
The
following table presents Government Systems’ sales by product
category:
(dollars
in millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Airborne
solutions
|
|
$
|
399
|
|
$
|
387
|
|
Surface
solutions
|
|
|
177
|
|
|
154
|
|
Total
|
|
$
|
576
|
|
$
|
541
|
|
Percent
increase
|
|
|
6
|
%
|
|
|
|
Beginning
in 2008, product category sales for defense-related products in our Government
Systems segment are delineated based upon the difference in underlying customer
base and market served. In prior years, defense-related product categories
were
delineated based upon their underlying technologies. Sales for the three months
ended March 31, 2007 for our Government Systems segment product categories
have
been reclassified to conform to the current year presentation.
Airborne
solutions sales increased $12 million, or 3 percent, for the three months ended
March 31, 2008 compared to the three months ended March 31, 2007. This increase
was primarily due to higher integrated electronics systems revenues from
international C-130 upgrade programs and the German Army CH-53 G helicopter
program.
Surface
solutions sales increased $23 million, or 15 percent, for the three months
ended
March 31, 2008 compared to the three months ended March 31, 2007. Incremental
sales from the acquisition of Information Technology & Applications
Corporation contributed $4 million, or 3 percentage points of the revenue
growth. The 12 percent organic sales increase is related primarily to a United
Kingdom Ministry of Defense precision targeting system program and higher
Defense Advanced GPS Receiver (DAGR) and Ground-Based GPS Receiver Application
Module (GB-GRAM) program sales.
Government
Systems’ Segment Operating Earnings
(dollars
in millions)
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
115
|
|
$
|
107
|
|
Percent
of sales
|
|
|
20.0
|
%
|
|
19.8
|
%
|
Government
Systems’ operating earnings increased 7 percent to $115 million, or 20.0 percent
of sales, for the three months ended March 31, 2008 compared to operating
earnings of $107 million, or 19.8 percent of sales, for the same period a year
ago. The increase in operating earnings and operating margin is primarily
attributable to higher sales.
Six
Months Ended March 31, 2008 and 2007
Sales
(dollars
in millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Total
sales
|
|
$
|
2,298
|
|
$
|
2,076
|
|
Percent
increase
|
|
|
11
|
%
|
|
|
|
Total
sales for the six months ended March 31, 2008 increased 11 percent to $2,298
million compared to the six months ended March 31, 2007. Commercial Systems
sales increased 14 percent and Government Systems sales increased 8 percent
for
the six months ended March 31, 2008 compared to the same period a year ago.
See
the following operating segment sections for further discussion of sales for
the
six months ended March 31, 2008 and 2007.
Net
Income and Diluted Earnings Per Share
(dollars
in millions, except per share amounts)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
322
|
|
$
|
283
|
|
Net
income as a percent of sales
|
|
|
14.0
|
%
|
|
13.6
|
%
|
Diluted
earnings per share
|
|
$
|
1.96
|
|
$
|
1.66
|
|
Net
income for the six months ended March 31, 2008 increased 14 percent to $322
million, or 14.0 percent of sales, from net income of $283 million, or 13.6
percent of sales, for the six months ended March 31, 2007. Diluted
earnings per share increased 18 percent to $1.96
for the
six months ended March 31, 2008 from $1.66 for the six months ended March 31,
2007. The increase in net income and diluted earnings per share for the six
months ended March 31, 2008 compared to the same period last year was primarily
the result of a combination of increased sales volume and productivity
improvements, partially offset by the impact of a slightly higher effective
income tax rate. See the Income Taxes section for further discussion of income
taxes for the six months ended March 31, 2008 and 2007. Diluted earnings per
share for the three months ended March 31, 2008 also benefited from our share
repurchase program.
Commercial
Systems Financial Results
Commercial
Systems’ Sales
The
following table represents Commercial Systems’ sales by product
category:
(dollars
in millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Air
transport aviation electronics
|
|
$
|
621
|
|
$
|
538
|
|
Business
and regional aviation electronics
|
|
|
554
|
|
|
496
|
|
Total
|
|
$
|
1,175
|
|
$
|
1,034
|
|
Percent
increase
|
|
|
14
|
%
|
|
|
|
Beginning
in the fourth quarter of 2007, product category sales for Commercial Systems
were reclassified to better align sales for products serving both product
categories. Sales for the six months ended March 31, 2007 for our air transport
aviation electronics and business and regional aviation electronics product
categories have been reclassified to conform to the current year
presentation.
Air
transport aviation electronics sales increased $83 million, or 15 percent,
for
the six months ended March 31, 2008 compared to the six months ended March
31,
2007. This sales growth is primarily attributed to higher avionics and in-flight
entertainment systems sales to airlines and OEMs for new aircraft production
as
well as higher sales of equipment for Boeing 787 simulators, and service and
support activities, partially offset by lower sales of in-flight entertainment
systems retrofits and spares.
Business
and regional aviation electronics sales increased $58 million, or 12 percent,
for the six months ended March 31, 2008 compared to the six months ended March
31, 2007. This sales growth is attributed primarily to market share gains and
increased demand for new business and regional aircraft partially offset by
lower business and regional retrofits and spares sales.
The
following table represents Commercial Systems’ sales based on the type of
product or service:
(in
millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Original
equipment
|
|
$
|
643
|
|
$
|
509
|
|
Aftermarket
|
|
|
532
|
|
|
525
|
|
Total
|
|
$
|
1,175
|
|
$
|
1,034
|
|
Percent
increase
|
|
|
14
|
%
|
|
|
|
Original
equipment sales increased $134 million, or 26 percent, for the six months ended
March 31, 2008 compared to the six months ended March 31, 2007. This
sales growth is attributed to higher business and regional and air transport
flight deck avionics sales as well as higher air transport in-flight
entertainment systems sales.
Aftermarket
sales increased $7 million, or 1 percent, for the six months ended March 31,
2008 compared to the six months ended March 31, 2007. Higher revenues from
service and support activities and sales of equipment for Boeing 787 simulators
were partially offset by the anticipated impact of lower in-flight entertainment
and business aircraft retrofits and spares revenues as well as lower regulatory
mandate program revenues.
Commercial
Systems’ Segment Operating Earnings
(dollars
in millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
277
|
|
$
|
236
|
|
Percent
of sales
|
|
|
23.6
|
%
|
|
22.8
|
%
|
Commercial
Systems’ operating earnings increased 17 percent to $277 million, or 23.6
percent of sales, for the six months ended March 31, 2008 compared to operating
earnings of $236 million, or 22.8 percent of sales for the six months ended
March 31, 2007. The increase in operating earnings and operating margin was
primarily due to the combination of higher revenues and productivity
improvements, partially offset by higher research and development costs
Government
Systems Financial Results
Government
Systems’ Sales
(dollars
in millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Airborne
solutions
|
|
$
|
774
|
|
$
|
744
|
|
Surface
solutions
|
|
|
349
|
|
|
298
|
|
Total
|
|
$
|
1,123
|
|
$
|
1,042
|
|
Percent
increase
|
|
|
8
|
%
|
|
|
|
Beginning
in 2008, product category sales for defense-related products in our Government
Systems segment are delineated based upon the difference in underlying customer
base and market served. In prior years, defense-related product categories
were
delineated based upon their underlying technologies. Sales for the six months
ended March 31, 2008 for our Government Systems segment product categories
have
been reclassified to conform to the current year presentation.
Airborne
solutions sales increased $30 million, or 4 percent, for the six months ended
March 31, 2008 compared to the six months ended March 31, 2007. This increase
was primarily due to higher integrated electronics systems revenues from
international C-130 upgrade programs and the German Army CH-53 G helicopter
program.
Surface
solutions sales increased $51 million, or 17 percent, for the six months ended
March 31, 2008 compared to the six months ended March 31, 2007. Incremental
sales from the acquisition of Information Technology & Applications
Corporation contributed $10 million, or 3 percentage points of the revenue
growth. The 14 percent organic sales increase is related primarily to a United
Kingdom Ministry of Defense precision targeting system program and higher DAGR
and GB-GRAM program sales.
Government
Systems’ Segment Operating Earnings
(dollars
in millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$
|
230
|
|
$
|
209
|
|
Percent
of sales
|
|
|
20.5
|
%
|
|
20.1
|
%
|
Government
Systems’ operating earnings increased $21 million, or 10 percent, for the six
months ended March 31, 2008, compared to the same period a year ago. The
positive impact of higher sales and productivity improvements more than offset
the absence of net favorable contract profit rate adjustments recorded in the
six months ended March 31, 2007.
Retirement
Benefits
Net
benefit expense / (income) for pension benefits and other retirement benefits
are as follows:
(in
millions)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Pension
benefits
|
|
$
|
(1
|
)
|
$
|
3
|
|
$
|
(2
|
)
|
$
|
6
|
|
Other
retirement benefits
|
|
|
-
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Net
benefit expense / (income)
|
|
$
|
(1
|
)
|
$
|
2
|
|
$
|
(3
|
)
|
$
|
4
|
|
Pension
Benefits
Pension
income for the full year 2008 is expected to be $4 million compared to pension
expense of $9 million for the full year 2007. The change is due primarily to
the
favorable impact of an increase in the defined benefit pension plan valuation
discount rate from 6.1 percent in 2007 to 6.6 percent in 2008 used to measure
our pension expense.
Other
Retirement Benefits
We
expect
Other Retirement Benefits income of approximately $2 million for the full year
2008 compared to the full year 2007 income of $5 million.
Income
Taxes
At
the
end of each interim reporting period, we make an estimate of the annual
effective income tax rate. Tax items included in the annual effective tax rate
are pro-rated for the full year and tax items discrete to a specific quarter
are
included in the effective tax rate for that quarter. The estimate used in
providing for income taxes on a year-to-date basis may change in subsequent
interim periods. The difference between our effective tax rate and the statutory
tax rate is primarily the result of the tax benefits derived from the federal
Research and Development Tax Credit (R&D Tax Credit), which provides a tax
benefit on certain incremental R&D expenditures, the Domestic Manufacturing
Deduction under Section 199 (DMD), which provides a tax benefit on U.S. based
manufacturing, and certain other discrete matters.
The
phase-out period for the Extraterritorial Income Exclusion (ETI), which provides
a tax benefit on export sales, ended on December 31, 2006. The enacted federal
replacement tax benefit for ETI, the DMD, applied to the full 2007 year. For
2007, the available DMD tax benefit was one-third of the full benefit that
will
be available in 2011. The amount of DMD tax benefit available in 2008, 2009
and
2010 will be two-thirds of the full benefit.
During
the three months ended March 31, 2008 and 2007, our effective income tax rate
was 27.6 percent and 33.3 percent, respectively. The effective tax rate was
lower for the three months ended March 31, 2008 than the same period in the
prior year primarily due to the resolution of certain tax maters during the
current period related to the completion of the Internal Revenue Service (IRS)
examination of taxable years ended September 30, 2004 and 2005 as well as the
amended returns for the years ended September 30, 2002 and 2003. The completion
of the IRS examination lowered our effective tax rate by about 7 percentage
points during the three months ended March 31, 2008. The benefit from the
completion of the IRS examination was partially offset by incremental pre-tax
earnings and differences in the availability of R&D Tax Credits. Federal
legislation extending the availability of R&D Tax Credits beyond December
31, 2007 has not been enacted. The effective tax rate for the three months
ended
March 31, 2008 reflects the unfavorable impact of lower R&D Tax Credits as a
result of pro-rating the three months of available R&D Tax Credits during
our fiscal year over the full 2008 fiscal year.
During
the six months ended March 31, 2008 and 2007, our effective income tax rate
was
30.6 percent and 30.1 percent, respectively. The effective tax rate was higher
for the six months ended March 31, 2008 than the same period in the prior year
primarily due to the retroactive reinstatement of R&D Tax Credits during the
six months ended March 31, 2007, incremental increase in pre-tax earnings,
and
the lack of available of R&D Tax Credits past December 31, 2007, partially
offset by the resolution of certain tax matters as a result of the completion
of
the IRS examination during the six months ended March 31, 2008. Including the
impact of these items, we currently expect our annual effective income tax
rate
to be in the range of 31.5 percent to 32.5 percent in 2008.
Outlook
A
summary
of our 2008 anticipated results is as follows:
|
·
|
Total
sales of about $4.75 billion.
|
|
·
|
Earnings
per share in the range of $3.95 to
$4.05.
|
|
·
|
Cash
flow from operating activities in the range of $675 million to $725
million.
|
|
·
|
Research
and development expenditures in the range of $925 million to $950
million.
|
The
range
of projected cash flow from operating activities accommodates a
discretionary qualified defined benefit pension plan contribution of up to
$75
million. In addition, the range of projected cash flow from operating
activities anticipates the collection of approximately $70 million to $80
million of receivables related to the Boeing 787 program. Collection of these
receivables during fiscal year 2008 may be at risk due to the current projected
delivery date of the first aircraft occurring in the fourth quarter of our
2009
fiscal year.
FINANCIAL
CONDITION AND LIQUIDITY
Cash
Flow Summary
Operating
Activities
(in
millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$
|
130
|
|
$
|
186
|
|
The
decrease in cash provided by operating activities during the six months ended
March 31, 2008 compared to the same period last year was primarily due to
increased levels of inventory to support higher sales volume and new aircraft
platforms and higher incentive compensation payments, partially offset by higher
net income.
Investing
Activities
(in
millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Cash
used for investing activities
|
|
$
|
(81
|
)
|
$
|
(41
|
)
|
The
$40
million increase in cash used for investing activities during the six months
ended March 31, 2008 compared to the same period last year was primarily due
to
the following:
· |
$18
million of additional capital expenditures during the six months
ended
March 31, 2008.
|
· |
The
six months ended March 31, 2007 benefited from a $14 million recovery
of a
license fee paid to The Boeing Company in prior years as a result
of The
Boeing Company exiting the high-speed broadband communication connectivity
markets.
|
· |
During
the six months ended March 31, 2007, we received $5 million as a
result of
a purchase price adjustment related to the E&S Simulation
Business.
|
We
expect
capital expenditures for the full year 2008 to be approximately $170 million
compared to full year 2007 capital expenditures of $125 million. The higher
level of projected spending in 2008 is primarily due to the construction of
new
engineering facilities in Cedar Rapids, Iowa and Richardson, Texas as well
as an
increased level of investment in test equipment, all in support of recent and
anticipated program wins.
Financing
Activities
(in
millions)
|
|
Six Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Cash
used for financing activities
|
|
$
|
(89
|
)
|
$
|
(127
|
)
|
The
decrease in cash used for financing activities during the six months ended
March
31, 2008 compared to the same period of the prior year was impacted by the
following:
|
·
|
We
had proceeds from short-term borrowings of $361 million for the six
months
ended March 31, 2008 compared to net payments on borrowings in the
same
period last year of $19 million.
|
|
·
|
Share
repurchases increased during the six months ended March 31, 2008
to $415
million compared to $113 million paid for share repurchases during
the
same period last year.
|
|
·
|
We
received $11 million from the exercise of stock options for the six
months
ended March 31, 2008 compared to $40 million for the same period
last
year.
|
|
·
|
We
received a $6 million excess tax benefit from the exercise of stock
options for the six months ended March 31, 2008 compared to $19 million
for the same period last year.
|
|
·
|
We
paid cash dividends of $52 million during the six months ended March
31,
2008 compared to $54 million for the same period last year.
|
Cash
generated by operations combined with our borrowing capacity is expected to
meet
the foreseeable future cash flow needs for capital expenditures, dividend
payments, contractual commitments, acquisitions, and share repurchases.
Liquidity
In
addition to cash provided by normal operating activities, we utilize a
combination of short-term and long-term debt to finance operations. Our primary
source of short-term liquidity is through borrowings in the commercial paper
market. Our access to that market is facilitated by the strength of our credit
ratings and an $850 million committed credit facility with several banks
(Revolving Credit Facility). Our current ratings as provided by Moody’s
Investors Service, Standard & Poor’s and Fitch, Inc. are A-1 / A / A,
respectively, for long-term debt and P-1 / A-1 / F-1, respectively, for
short-term debt. All three agencies have stable outlooks on our credit
rating.
Under
our
commercial paper program, we may sell up to $850 million face amount of
unsecured short-term promissory notes in the commercial paper market. The
commercial paper notes may bear interest or may be sold at a discount and have
a
maturity of not more than 364 days from time of issuance. Borrowings under
the
commercial paper program are available for working capital needs and other
general corporate purposes. At March 31, 2008 short-term commercial paper
borrowings outstanding were $349 million with a weighted average interest rate
and maturity period of 3.28 percent and 12 days, respectively.
Our
Revolving Credit Facility consists of an $850 million facility with various
banks through March 2012. The Revolving Credit Facility exists primarily to
support our commercial paper program, but is available to us in the event our
access to the commercial paper market is impaired or eliminated. Our only
financial covenant under the Revolving Credit Facility requires that we maintain
a consolidated debt to total capitalization ratio of not greater than 60
percent. The ratio excludes the accumulated other comprehensive loss equity
impact related to defined benefit plans. Our debt to total capitalization ratio
at March 31, 2008 was 24 percent. The Revolving Credit Facility contains
covenants that require us to satisfy certain conditions in order to incur debt
secured by liens, engage in sale/leaseback transactions, or merge or consolidate
with another entity. The Revolving Credit Facility does not contain any rating
downgrade triggers that would accelerate the maturity of our indebtedness.
In
addition short-term credit facilities available to foreign subsidiaries amounted
to $67 million as of March 31, 2008, of which $21 million was utilized to
support commitments in the form of commercial letters of credit. There were
no
significant commitment fees or compensating balance requirements under any
of
our credit facilities. There were $12 million of short-term borrowings
outstanding under our foreign subsidiaries credit facilities as of March 31,
2008.
In
addition to our credit facilities and commercial paper program, we have a shelf
registration statement filed with the Securities and Exchange Commission
covering up to $750 million in debt securities, common stock, preferred stock
or
warrants that may be offered in one or more offerings on terms to be determined
at the time of sale. On November 20, 2003, we issued $200 million of debt due
December 1, 2013 (the Notes) under the shelf registration statement. The Notes
contain covenants that require us to satisfy certain conditions in order to
incur debt secured by liens, engage in sale/leaseback transactions, or merge
or
consolidate with another entity. At March 31, 2008, $550 million of the shelf
registration was available for future use.
During
June 2006 we entered into a five-year unsecured variable rate loan facility
agreement for 20.4 million euros ($25 million) to facilitate our implementation
of the cash repatriation provisions of the American Jobs Creation Act of
2004.
The
variable rate loan facility agreement contains customary loan covenants, none
of
which are financial. Failure to comply with customary covenants or the
occurrence of customary events of default contained in the agreement would
require the repayment of any outstanding borrowings under the agreement. As
of
March 31, 2008, 17.4 million euros ($27 million) was outstanding under the
variable rate loan facility agreement.
If
our
credit ratings were to be adjusted downward by the rating agencies, the
implications of such actions could include elimination of access to the
commercial paper market and an increase in the cost of borrowing. In the event
that we do not have access to the commercial paper market, alternative sources
of funding could include borrowings under the Revolving Credit Facility, funds
available from the issuance of securities under our shelf registration, and
potential asset securitization strategies.
For
information related to environmental claims, remediation efforts and related
matters, see Note 18 of the condensed consolidated financial
statements.
CRITICAL
ACCOUNTING POLICIES
Preparation
of the Company's financial statements in accordance with accounting principles
generally accepted in the United States of America requires management of
Rockwell Collins to make estimates, judgments, and assumptions that affect
our
financial condition and results of operations that are reported in the
accompanying condensed consolidated financial statements as well as the related
disclosure of assets and liabilities contingent upon future events. The critical
accounting policies used in preparation of the Company’s financial statements
are described in Management's Discussion and Analysis in the Company's Annual
Report on Form 10-K for the year ended September 30, 2007. Actual results in
these areas could differ from management's estimates.
This
quarterly
report contains statements, including certain projections and business trends,
accompanied by such phrases as "believes", "estimates", "expects", "could",
"likely", "anticipates", "will", "intends", and other similar expressions,
that
are forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as
a result of certain risks and uncertainties, including but not limited to the
potential impacts of geopolitical events; the financial condition of our
customers (including major U.S. airlines); the
health
of the global economy; the continued recovery of the commercial aerospace
industry and the continued support for military transformation and modernization
programs; delays related to the award of domestic and international contracts;
the potential adverse impact of oil prices on the commercial aerospace industry;
the cost of the global war on terrorism on U.S. government military procurement
expenditures and program budgets; 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; recruitment and retention of qualified personnel; risk
of
a labor strike and its potential impact on results of operations and cash flows
as collective bargaining agreements covering over 2,000 manufacturing-related
employees expire in May 2008; performance of our suppliers and subcontractors;
risks inherent in fixed price contracts, particularly the risk of cost overruns;
risk of significant disruption to air travel; our ability to execute to our
internal performance plans such as our productivity improvement and cost
reduction initiatives; achievement of our acquisition and related integration
plans; continuing to maintain our planned effective tax rates; our ability
to
develop contract compliant systems and products and satisfy our contractual
commitments; risk of fines and penalties related to noncompliance with export
control regulations; risk of asset impairments; government claims related to
our
pension plan freeze; 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, 2008, we had $200 million of 4.75 percent fixed rate long-term debt
obligations outstanding with a carrying value of $206 million and a fair value
of $198 million. We converted $100 million of this fixed rate debt to floating
rate debt bearing interest at six-month LIBOR less 7.5 basis points by executing
“receive fixed, pay variable” interest rate swap contracts. A 10 percent
increase or decrease in average market interest rates would have decreased
or
increased the fair value of our long-term debt, exclusive of the effects of
the
interest rate swap contracts, by $3 million and $3 million, respectively. The
$100 million notional value of interest rate swap contracts had a carrying
and
fair value of $6 million at March 31, 2008. A 10 percent increase or decrease
in
average market interest rates would decrease or increase the fair value of
our
interest rate swap contracts by $1 million and $2 million, respectively. At
March 31, 2008, we also had $27 million of variable rate long-term debt
outstanding and variable rate short-term borrowings of $361 million.
Our
results of operations are affected by changes in market interest rates related
to the variable rate debt. Inclusive
of the effect of the interest rate swaps, a 10 percent increase or decrease
in
average market interest rates would not have a significant effect on our results
of operations or cash flows. For more information related to outstanding debt
obligations and derivative financial instruments, see Notes 10 and 16 in the
condensed consolidated financial statements.
Foreign
Currency Risk
We
transact business in various foreign currencies which subjects our cash flows
and earnings to exposure related to changes to foreign currency exchange rates.
We attempt to manage this exposure through operational strategies and the use
of
foreign currency forward exchange contracts (foreign currency contracts). All
foreign currency contracts are executed with creditworthy banks and are
denominated in currencies of major industrial countries. The majority of our
non-functional currency firm and anticipated receivables and payables are hedged
using foreign currency contracts. It is our policy not to manage exposure to
net
investments in foreign subsidiaries or enter into derivative financial
instruments for speculative purposes. Notional amounts of outstanding foreign
currency forward exchange contracts were $134 million and $205 million at March
31, 2008 and September 30, 2007, respectively. Notional amounts are stated
in
U.S. dollar equivalents at spot exchange rates at the respective dates.
Principal currencies that are hedged include the European euro, British pound
sterling, and Japanese yen. The duration of foreign currency contracts is
generally two years or less. The net fair value of these foreign currency
contracts at March 31, 2008 and September 30, 2007 were net liabilities of
$7
million and $5 million, 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 by $8 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, 2008, 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, 2008 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
|
|
January
1, 2008 through
January
31, 2008
|
|
|
2,177,100
|
|
$
|
64.79
|
|
|
2,177,100
|
|
$
|
375
million
|
|
February
1, 2008 through
February
29, 2008
|
|
|
800,000
|
|
$
|
61.72
|
|
|
800,000
|
|
$
|
326
million
|
|
March
1, 2008 through
March
31, 2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
326
million
|
|
Total
|
|
|
2,977,100
|
|
$
|
63.97
|
|
|
2,977,100
|
|
$
|
326
million
|
|
Item
4.
Submission
of Matters to a Vote of Security Holders
|
(a)
|
The
annual meeting of shareowners of the Company was held on February
12, 2008
and the number of voting shares outstanding as of the record date
was
163,140,766.
|
|
(b) |
At
the meeting, the shareowners:
|
|
i.
|
voted
to elect two directors of the Company. Each nominee for director
was
elected to a term expiring in 2011 by a vote of the shareowners as
follows:
|
|
|
Affirmative
|
|
Votes
|
|
|
|
Votes
|
|
Withheld
|
|
|
|
|
|
|
|
Chris
A. Davis
|
|
|
143,590,300
|
|
|
5,716,444
|
|
Ralph
E. Eberhart
|
|
|
144,506,465
|
|
|
4,800,279
|
|
In
addition to the directors elected above, the Company’s Board of Directors also
include the following continuing directors with terms expiring in 2009 or 2010:
Anthony J. Carbone, Clayton M. Jones, Cheryl L. Shavers, Donald R. Beall, Mark
Donegan and Andrew J. Policano.
|
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
|
|
|
146,840,428
|
|
Negative
votes
|
|
|
746,501
|
|
Abstentions
|
|
|
1,719,815
|
|
Item
6.
Exhibits
|
10-S-2 |
Letter
agreement between the Company and Donald R. Beall dated March 19,
2008
|
|
|
12
|
Computation
of Ratio of Earnings to Fixed Charges for the six months ended March
31, 2008.
|
|
31.1
|
Certification
by Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
31.2
|
Certification
by Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
32.1
|
Certification
by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
ROCKWELL
COLLINS, INC.
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
Date: April
24, 2008
|
By
|
/s/
M. A. Schulte
|
|
|
|
M.
A. Schulte
|
|
|
|
Vice
President, Finance and Controller
|
|
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
Date: April
24, 2008
|
By
|
/s/
G. R. Chadick
|
|
|
|
G.
R. Chadick
|
|
|
|
Senior
Vice President,
|
|
|
|
General
Counsel and Secretary
|
|