|
Delaware
|
52-2314475
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
400
Collins Road NE
|
|
Cedar
Rapids, Iowa
|
52498
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer þ
|
Accelerated filer ¨
|
Non-accelerated
filer ¨ (Do not check if a smaller
reporting company)
|
Smaller reporting company
¨
|
Page No.
|
|||
PART
I.
|
FINANCIAL
INFORMATION:
|
||
Item
1.
|
Condensed
Consolidated Financial Statements:
|
||
Condensed
Consolidated Statement of Financial Position (Unaudited) — December 31,
2010 and September 30, 2010
|
2
|
||
Condensed
Consolidated Statement of Operations (Unaudited) — Three Months Ended
December 31, 2010 and 2009
|
3
|
||
Condensed
Consolidated Statement of Cash Flows (Unaudited) — Three Months Ended
December 31, 2010 and 2009
|
4
|
||
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
|
||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
29
|
|
Item
4.
|
Controls
and Procedures
|
30
|
|
PART
II.
|
OTHER
INFORMATION:
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
31
|
|
Item
6.
|
Exhibits
|
32
|
|
Signatures
|
33
|
PART
I.
|
FINANCIAL
INFORMATION
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
December 31,
|
September 30,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 263 | $ | 435 | ||||
Receivables,
net
|
959 | 1,024 | ||||||
Inventories,
net
|
1,093 | 1,004 | ||||||
Current
deferred income taxes
|
127 | 129 | ||||||
Other
current assets
|
104 | 97 | ||||||
Total
current assets
|
2,546 | 2,689 | ||||||
Property
|
703 | 707 | ||||||
Goodwill
|
767 | 766 | ||||||
Intangible
Assets
|
318 | 306 | ||||||
Long-term
Deferred Income Taxes
|
374 | 389 | ||||||
Other
Assets
|
196 | 207 | ||||||
TOTAL
ASSETS
|
$ | 4,904 | $ | 5,064 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Short-term
debt
|
$ | 12 | $ | 24 | ||||
Accounts
payable
|
371 | 420 | ||||||
Compensation
and benefits
|
195 | 259 | ||||||
Advance
payments from customers
|
316 | 324 | ||||||
Product
warranty costs
|
178 | 183 | ||||||
Other
current liabilities
|
244 | 242 | ||||||
Total
current liabilities
|
1,316 | 1,452 | ||||||
Long-term
Debt, Net
|
512 | 525 | ||||||
Retirement
Benefits
|
1,403 | 1,420 | ||||||
Other
Liabilities
|
194 | 181 | ||||||
Equity:
|
||||||||
Common
stock ($0.01 par value; shares authorized: 1,000; shares issued:
183.8)
|
2 | 2 | ||||||
Additional
paid-in capital
|
1,415 | 1,420 | ||||||
Retained
earnings
|
2,930 | 2,816 | ||||||
Accumulated
other comprehensive loss
|
(1,256 | ) | (1,259 | ) | ||||
Common
stock in treasury, at cost (shares held: December 31, 2010, 29.1;
September 30, 2010, 27.0)
|
(1,615 | ) | (1,497 | ) | ||||
Total
shareowners’ equity
|
1,476 | 1,482 | ||||||
Noncontrolling
interest
|
3 | 4 | ||||||
Total
equity
|
1,479 | 1,486 | ||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 4,904 | $ | 5,064 |
Three Months Ended
|
||||||||
December 31
|
||||||||
2010
|
2009
|
|||||||
Sales:
|
||||||||
Product
sales
|
$ | 974 | $ | 906 | ||||
Service
sales
|
136 | 121 | ||||||
Total
sales
|
1,110 | 1,027 | ||||||
Costs,
expenses and other:
|
||||||||
Product
cost of sales
|
706 | 653 | ||||||
Service
cost of sales
|
89 | 81 | ||||||
Selling,
general and administrative expenses
|
124 | 109 | ||||||
Interest
expense
|
5 | 6 | ||||||
Other
income, net
|
(7 | ) | (3 | ) | ||||
Total
costs, expenses and other
|
917 | 846 | ||||||
Income
before income taxes
|
193 | 181 | ||||||
Income
tax expense
|
42 | 60 | ||||||
Net
income
|
$ | 151 | $ | 121 | ||||
Earnings
per share:
|
||||||||
Basic
|
$ | 0.97 | $ | 0.77 | ||||
Diluted
|
$ | 0.96 | $ | 0.76 | ||||
Weighted
average common shares:
|
||||||||
Basic
|
155.6 | 157.1 | ||||||
Diluted
|
157.5 | 159.2 | ||||||
Cash
dividends per share
|
$ | 0.24 | $ | 0.24 |
Three Months Ended
|
||||||||
December 31
|
||||||||
2010
|
2009
|
|||||||
Operating
Activities:
|
||||||||
Net
income
|
$ | 151 | $ | 121 | ||||
Adjustments
to arrive at cash provided by operating activities:
|
||||||||
Depreciation
|
26 | 27 | ||||||
Amortization
of intangible assets
|
8 | 9 | ||||||
Stock-based
compensation expense
|
5 | 5 | ||||||
Compensation
and benefits paid in common stock
|
17 | 17 | ||||||
Excess
tax benefit from stock-based compensation
|
0 | (2 | ) | |||||
Deferred
income taxes
|
15 | 5 | ||||||
Pension
plan contributions
|
(3 | ) | (101 | ) | ||||
Changes
in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
|
||||||||
Receivables
|
63 | 118 | ||||||
Inventories
|
(101 | ) | (87 | ) | ||||
Accounts
payable
|
(38 | ) | (31 | ) | ||||
Compensation
and benefits
|
(63 | ) | (13 | ) | ||||
Advance
payments from customers
|
(8 | ) | (7 | ) | ||||
Product
warranty costs
|
(5 | ) | (7 | ) | ||||
Income
taxes
|
23 | 50 | ||||||
Other
assets and liabilities
|
(33 | ) | (20 | ) | ||||
Cash
Provided by Operating Activities
|
57 | 84 | ||||||
Investing
Activities:
|
||||||||
Property
additions
|
(32 | ) | (26 | ) | ||||
Acquisition
of businesses, net of cash acquired
|
(7 | ) | (92 | ) | ||||
Other
investing activities
|
2 | (1 | ) | |||||
Cash
Used for Investing Activities
|
(37 | ) | (119 | ) | ||||
Financing
Activities:
|
||||||||
Purchases
of treasury stock
|
(149 | ) | (28 | ) | ||||
Cash
dividends
|
(38 | ) | (38 | ) | ||||
(Decrease)
increase in short-term borrowings
|
(10 | ) | 62 | |||||
Proceeds
from the exercise of stock options
|
4 | 7 | ||||||
Excess
tax benefit from stock-based compensation
|
0 | 2 | ||||||
Cash
(Used for) Provided by Financing Activities
|
(193 | ) | 5 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
1 | 1 | ||||||
Net
Change in Cash and Cash Equivalents
|
(172 | ) | (29 | ) | ||||
Cash
and Cash Equivalents at Beginning of Period
|
435 | 235 | ||||||
Cash
and Cash Equivalents at End of Period
|
$ | 263 | $ | 206 |
1.
|
Business
Description and Basis of
Presentation
|
2.
|
Recently
Issued and Adopted Accounting
Standards
|
3.
|
Acquisitions
|
4.
|
Receivables,
Net
|
December 31,
|
September 30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Billed
|
$ | 633 | $ | 743 | ||||
Unbilled
|
381 | 339 | ||||||
Less
progress payments
|
(45 | ) | (48 | ) | ||||
Total
|
969 | 1,034 | ||||||
Less
allowance for doubtful accounts
|
(10 | ) | (10 | ) | ||||
Receivables,
net
|
$ | 959 | $ | 1,024 |
5.
|
Inventories,
Net
|
December 31,
|
September 30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Finished
goods
|
$ | 169 | $ | 162 | ||||
Work
in process
|
278 | 242 | ||||||
Raw
materials, parts and supplies
|
342 | 336 | ||||||
Less
progress payments
|
(49 | ) | (56 | ) | ||||
Total
|
740 | 684 | ||||||
Pre-production
engineering costs
|
353 | 320 | ||||||
Inventories,
net
|
$ | 1,093 | $ | 1,004 |
6.
|
Property
|
December 31,
|
September 30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Land
|
$ | 14 | $ | 14 | ||||
Buildings
and improvements
|
364 | 362 | ||||||
Machinery
and equipment
|
965 | 959 | ||||||
Information
systems software and hardware
|
284 | 282 | ||||||
Furniture
and fixtures
|
63 | 63 | ||||||
Construction
in progress
|
72 | 64 | ||||||
Total
|
1,762 | 1,744 | ||||||
Less
accumulated depreciation
|
(1,059 | ) | (1,037 | ) | ||||
Property
|
$ | 703 | $ | 707 |
7.
|
Goodwill
and Intangible Assets
|
Government
|
Commercial
|
|||||||||||
(in millions)
|
Systems
|
Systems
|
Total
|
|||||||||
Balance
at September 30, 2010
|
$ | 509 | $ | 257 | $ | 766 | ||||||
Blue
Ridge Simulation acquisition
|
3 | 0 | 3 | |||||||||
Foreign
currency translation adjustments
|
(2 | ) | 0 | (2 | ) | |||||||
Balance
at December 31, 2010
|
$ | 510 | $ | 257 | $ | 767 |
December 31, 2010
|
September 30, 2010
|
|||||||||||||||||||||||
Accum
|
Accum
|
|||||||||||||||||||||||
(in millions)
|
Gross
|
Amort
|
Net
|
Gross
|
Amort
|
Net
|
||||||||||||||||||
Intangible
assets with finite lives:
|
||||||||||||||||||||||||
Developed
technology and patents
|
$ | 216 | $ | (127 | ) | $ | 89 | $ | 214 | $ | (123 | ) | $ | 91 | ||||||||||
Customer
relationships:
|
||||||||||||||||||||||||
Acquired
|
90 | (42 | ) | 48 | 90 | (40 | ) | 50 | ||||||||||||||||
Up-front
sales incentives
|
170 | (11 | ) | 159 | 153 | (11 | ) | 142 | ||||||||||||||||
License
agreements
|
23 | (6 | ) | 17 | 22 | (6 | ) | 16 | ||||||||||||||||
Trademarks
and tradenames
|
15 | (12 | ) | 3 | 15 | (10 | ) | 5 | ||||||||||||||||
Intangible
assets with indefinite lives:
|
||||||||||||||||||||||||
Trademarks
and tradenames
|
2 | 0 | 2 | 2 | 0 | 2 | ||||||||||||||||||
Intangible
assets
|
$ | 516 | $ | (198 | ) | $ | 318 | $ | 496 | $ | (190 | ) | $ | 306 |
8.
|
Other
Assets
|
December 31,
|
September 30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Long-term
receivables
|
$ | 28 | $ | 27 | ||||
Investments
in equity affiliates
|
9 | 10 | ||||||
Exchange
and rental assets (net of accumulated depreciation of $108 at December 31,
2010 and $106 at September 30, 2010)
|
50 | 51 | ||||||
Assets
held-for-sale
|
14 | 14 | ||||||
Other
|
95 | 105 | ||||||
Other
assets
|
$ | 196 | $ | 207 |
9.
|
Other
Current Liabilities
|
December 31,
|
September 30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Customer
incentives
|
$ | 123 | $ | 132 | ||||
Contract
reserves
|
17 | 19 | ||||||
Income
taxes payable
|
21 | 8 | ||||||
Other
|
83 | 83 | ||||||
Other
current liabilities
|
$ | 244 | $ | 242 |
10.
|
Debt
|
December
31,
|
September
30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Principal
amount of 2019 Notes, net of discount
|
$ | 299 | $ | 299 | ||||
Principal
amount of 2013 Notes
|
200 | 200 | ||||||
Principal
amount of variable rate loan due June 2011
|
12 | 24 | ||||||
Fair
value swap adjustment (Notes 16 and 17)
|
13 | 26 | ||||||
Total
|
524 | 549 | ||||||
Less
current portion
|
(12 | ) | (24 | ) | ||||
Long-term
debt, net
|
$ | 512 | $ | 525 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Service
cost
|
$ | 2 | $ | 2 | ||||
Interest
cost
|
40 | 40 | ||||||
Expected
return on plan assets
|
(53 | ) | (53 | ) | ||||
Amortization:
|
||||||||
Prior
service cost
|
(5 | ) | (5 | ) | ||||
Net
actuarial loss
|
12 | 23 | ||||||
Net
benefit expense (income)
|
$ | (4 | ) | $ | 7 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Service
cost
|
$ | 1 | $ | 1 | ||||
Interest
cost
|
3 | 3 | ||||||
Amortization:
|
||||||||
Prior
service cost
|
(4 | ) | (6 | ) | ||||
Net
actuarial loss
|
3 | 3 | ||||||
Net
benefit expense
|
$ | 3 | $ | 1 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Stock-based
compensation expense included in:
|
||||||||
Product
cost of sales
|
$ | 1 | $ | 1 | ||||
Selling,
general and administrative expenses
|
4 | 4 | ||||||
Total
|
$ | 5 | $ | 5 | ||||
Income
tax benefit
|
$ | 2 | $ | 2 |
Performance
|
Restricted
|
Restricted
|
||||||||||||||||||||||||||||||
Options
|
Shares
|
Stock
|
Stock
Units
|
|||||||||||||||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||
(shares
in thousands)
|
Number
|
Average
|
Number
|
Average
|
Number
|
Average
|
Number
|
Average
|
||||||||||||||||||||||||
Issued
|
Fair
Value
|
Issued
|
Fair
Value
|
Issued
|
Fair
Value
|
Issued
|
Fair
Value
|
|||||||||||||||||||||||||
Three
months ended
December
31, 2010
|
728.1 | $ | 14.71 | 191.9 | $ | 55.75 | 0 | $ | 0 | 60.0 | $ | 55.83 | ||||||||||||||||||||
Three
months ended
December
31, 2009
|
790.9 | $ | 12.80 | 190.3 | $ | 53.08 | 56.6 | $ | 53.08 | 6.8 | $ | 51.90 |
2011
|
2010
|
|||||||
Grants
|
Grants
|
|||||||
Risk-free
interest rate
|
0.5% - 3.1 | % | 2.7 | % | ||||
Expected
dividend yield
|
1.7 | % | 2.3 | % | ||||
Expected
volatility
|
27.0 | % | 27.0 |
%
|
||||
Expected
life
|
8
years
|
7
years
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions, except per share amounts)
|
2010
|
2009
|
||||||
Numerator:
|
||||||||
Numerator
for basic and diluted earnings per share –
Net
income
|
$ | 151 | $ | 121 | ||||
Denominator:
|
||||||||
Denominator
for basic earnings per share –
weighted
average common shares
|
155.6 | 157.1 | ||||||
Effect
of dilutive securities:
|
||||||||
Stock
options
|
1.5 | 1.7 | ||||||
Performance
shares, restricted shares and restricted stock units
|
0.4 | 0.4 | ||||||
Dilutive
potential common shares
|
1.9 | 2.1 | ||||||
Denominator
for diluted earnings per share –
adjusted
weighted average shares and assumed conversion
|
157.5 | 159.2 | ||||||
Earnings
per share:
|
||||||||
Basic
|
$ | 0.97 | $ | 0.77 | ||||
Diluted
|
$ | 0.96 | $ | 0.76 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Net
income
|
$ | 151 | $ | 121 | ||||
Unrealized
foreign currency translation adjustment
|
(3 | ) | (4 | ) | ||||
Foreign
currency cash flow hedge adjustment
|
2 | 0 | ||||||
Amortization
of defined benefit plan costs
|
4 | 9 | ||||||
Comprehensive
income
|
$ | 154 | $ | 126 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Royalty
income
|
$ | 0 | $ | 2 | ||||
Earnings
from equity affiliates
|
2 | 2 | ||||||
Interest
income
|
1 | 1 | ||||||
Other,
net
|
4 | (2 | ) | |||||
Other
income, net
|
$ | 7 | $ | 3 |
|
Level
1 -
|
quoted
prices (unadjusted) in active markets for identical assets or
liabilities
|
|
Level
2 -
|
quoted
prices for similar assets and liabilities in active markets or inputs that
are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the
financial instrument
|
|
Level
3 -
|
unobservable
inputs based on the Company’s own assumptions used to measure assets and
liabilities at fair value
|
December
31, 2010
|
September
30, 2010
|
|||||||||
Fair
Value
|
Fair
Value
|
Fair
Value
|
||||||||
(in
millions)
|
Hierarchy
|
Asset
(Liability)
|
Asset
(Liability)
|
|||||||
Deferred
compensation plan investments
|
Level
1
|
$ | 41 | $ | 37 | |||||
Interest
rate swap assets
|
Level
2
|
13 | 26 | |||||||
Foreign
currency forward exchange contract assets
|
Level
2
|
7 | 9 | |||||||
Foreign
currency forward exchange contract liabilities
|
Level
2
|
(4 | ) | (8 | ) |
Asset (Liability)
|
||||||||||||||||
December 31, 2010
|
September 30, 2010
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
(in
millions)
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||
Cash
and cash equivalents
|
$ | 263 | $ | 263 | $ | 435 | $ | 435 | ||||||||
Short-term
investments
|
20 | 20 | 20 | 20 | ||||||||||||
Short-term
debt
|
12 | 12 | (24 | ) | (24 | ) | ||||||||||
Long-term
debt
|
(499 | ) | (531 | ) | (499 | ) | (558 | ) |
Asset
Derivatives
|
||||||||||
December
31,
|
September
30,
|
|||||||||
(in
millions)
|
Classification
|
2010
|
2010
|
|||||||
Foreign
currency forward exchange contracts
|
Other
current assets
|
$ | 7 | $ | 9 | |||||
Interest
rate swaps
|
Other
assets
|
13 | 26 | |||||||
Total
|
$ | 20 | $ | 35 |
Liability
Derivatives
|
||||||||||
December
31,
|
September
30,
|
|||||||||
(in
millions)
|
Classification
|
2010
|
2010
|
|||||||
Foreign
currency forward exchange contracts
|
Other
current liabilities
|
$
|
4
|
$
|
8
|
Amount
of Gain (Loss)
|
||||||||||
Three
Months Ended
|
||||||||||
(in
millions)
|
Location
of
|
December
31
|
||||||||
Gain
(Loss)
|
2010
|
2009
|
||||||||
Derivatives
Designated as Hedging Instruments:
|
||||||||||
Fair
Value Hedges
|
||||||||||
Foreign
currency forward exchange contracts
|
Cost
of sales
|
$ | 0 | $ | (2 | ) | ||||
Interest
rate swaps
|
Interest
expense
|
2 | 1 | |||||||
Cash
Flow Hedges
|
||||||||||
Foreign
currency forward exchange contracts:
|
||||||||||
Amount
of gain recognized in AOCL (effective portion, before deferred tax
impact)
|
AOCL
|
$ | 2 | $ | 3 | |||||
Amount
of gain (loss) reclassified from AOCL into income
|
Cost
of sales
|
(1 | ) | 3 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Balance
at beginning of year
|
$ | 183 | $ | 217 | ||||
Warranty
costs incurred
|
(12 | ) | (14 | ) | ||||
Product
warranty accrual
|
11 | 7 | ||||||
Pre-existing
warranty adjustments
|
(4 | ) | 0 | |||||
Balance
at December 31
|
$ | 178 | $ | 210 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Sales:
|
||||||||
Government
Systems
|
$ | 650 | $ | 616 | ||||
Commercial
Systems
|
460 | 411 | ||||||
Total
sales
|
$ | 1,110 | $ | 1,027 | ||||
Segment
operating earnings:
|
||||||||
Government
Systems
|
$ | 131 | $ | 134 | ||||
Commercial
Systems
|
84 | 68 | ||||||
Total
segment operating earnings
|
215 | 202 | ||||||
Interest
expense
|
(5 | ) | (6 | ) | ||||
Stock-based
compensation
|
(5 | ) | (5 | ) | ||||
General
corporate, net
|
(12 | ) | (11 | ) | ||||
Restructuring
adjustment
|
0 | 1 | ||||||
Income
before income taxes
|
193 | 181 | ||||||
Income
tax provision
|
(42 | ) | (60 | ) | ||||
Net
income
|
$ | 151 | $ | 121 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Government
Systems product categories:
|
||||||||
Airborne
solutions
|
$ | 438 | $ | 410 | ||||
Surface
solutions
|
212 | 206 | ||||||
Government
Systems sales
|
$ | 650 | $ | 616 | ||||
Commercial
Systems product categories:
|
||||||||
Air
transport aviation electronics
|
$ | 250 | $ | 241 | ||||
Business
and regional aviation electronics
|
210 | 170 | ||||||
Commercial
Systems sales
|
$ | 460 | $ | 411 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Total
sales
|
$ | 1,110 | $ | 1,027 | ||||
Percent
increase
|
8 | % |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Total
cost of sales
|
$ | 795 | $ | 734 | ||||
Percent
of total sales
|
71.6 | % | 71.5 | % |
|
·
|
A
$48 million increase associated with the $72 million of organic sales
growth in Government Systems and Commercial Systems. See the Government
Systems and Commercial Systems Financial Results sections below for
further discussion.
|
|
·
|
A
$15 million increase attributable to higher employee incentive
compensation expenses. Employee incentive compensation expense included
within cost of sales was $22 million and $7 million for the three months
ended December 31, 2010 and 2009,
respectively.
|
|
·
|
Incremental
cost of sales from the Air Routing acquisition of $6
million.
|
|
·
|
The
above items are partially offset by an $8 million reduction to cost of
sales attributable to lower defined benefit pension expense. As discussed
in the Retirement Plans section below, the reduction in pension expense
was primarily due to a change in the period of time over which actuarial
gains and losses are amortized. For the three months ended December 31,
2010, pension income reduced cost of sales by $4 million, compared to $4
million of pension expense during the same period last
year.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Customer-funded:
|
||||||||
Government
Systems
|
$ | 109 | $ | 96 | ||||
Commercial
Systems
|
20 | 19 | ||||||
Total
customer-funded
|
129 | 115 | ||||||
Company-funded:
|
||||||||
Government
Systems
|
21 | 22 | ||||||
Commercial
Systems
|
58 | 58 | ||||||
Total
company-funded
|
79 | 80 | ||||||
Total
research and development expense
|
$ | 208 | $ | 195 | ||||
Percent
of total sales
|
18.7 | % | 19.0 | % |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Selling,
general and administrative expenses
|
$ | 124 | $ | 109 | ||||
Percent
of total sales
|
11.2 | % | 10.6 | % |
|
·
|
$4
million of higher employee incentive compensation
costs.
|
|
·
|
$3
million of incremental SG&A expenses from the Air Routing acquisition
within Commercial Systems.
|
|
·
|
$3
million increase from bid and proposal costs associated with new pursuits
and other selling activities.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions, except per share amounts)
|
2010
|
2009
|
||||||
Net
income
|
$ | 151 | $ | 121 | ||||
Net
income as a percent of sales
|
13.6 | % | 11.8 | % | ||||
Diluted
earnings per share
|
$ | 0.96 | $ | 0.76 |
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Airborne
solutions
|
$ | 438 | $ | 410 | ||||
Surface
solutions
|
212 | 206 | ||||||
Total
|
$ | 650 | $ | 616 | ||||
Percent
increase
|
6 | % |
|
·
|
A
$22 million increase from rotary wing avionics sales on various
platforms.
|
|
·
|
A
$10 million increase comprised of higher simulation and training revenues
primarily from recent programs for the E-2 aircraft and increased
development effort on the CRIIS
program.
|
|
·
|
The
above items were partially offset by an $8 million reduction in sales from
the KC-135 Global Air Traffic Management program which is expected to
complete this year.
|
|
·
|
An
$18 million increase to sales resulting from higher deliveries of iForce
systems to the California Highway
Patrol.
|
|
·
|
Partially
offset by a $13 million reduction in revenue resulting from a recently
completed satellite communication upgrade
program.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Operating
earnings
|
$ | 131 | $ | 134 | ||||
Percent
of sales
|
20.2 | % | 21.8 | % |
|
·
|
A
$6 million reduction in operating earnings attributable to the combined
impact of a $10 million increase in employee incentive compensation costs
and a $4 million decrease in pension expense as discussed in the
Retirement Plans section below.
|
|
·
|
The
$34 million increase in sales discussed in the Government Systems sales
section above resulted in a $31 million increase to costs and incremental
operating earnings of $3 million. The higher costs primarily resulted from
a lower margin mix of customer-funded development programs and higher
deliveries of iForce systems discussed in the Government Systems Sales
section above.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Air
transport aviation electronics:
|
||||||||
Original
equipment
|
$ | 115 | $ | 98 | ||||
Aftermarket
|
108 | 100 | ||||||
Wide-body
in-flight entertainment products and services
|
27 | 43 | ||||||
Total
air transport aviation electronics
|
250 | 241 | ||||||
Business
and regional aviation electronics:
|
||||||||
Original
equipment
|
118 | 103 | ||||||
Aftermarket
|
92 | 67 | ||||||
Total
business and regional aviation electronics
|
210 | 170 | ||||||
Total
|
$ | 460 | $ | 411 | ||||
Percent
increase
|
12 | % |
|
·
|
Air
transport original equipment manufacturer (OEM) revenues increased $17
million, or 17 percent, driven by higher Boeing 787 revenues and
deliveries of single-aisle in-flight entertainment
products.
|
|
·
|
Air
transport aftermarket sales increased $8 million, or 8 percent, primarily
related to service and support
sales.
|
|
·
|
Wide-body
in-flight entertainment products and services (Wide-body IFE) decreased
$16 million. Wide-body IFE includes sales of twin-aisle IFE products and
systems to customers in the air transport aviation electronics market and
also includes related revenue from wide-body service and support
activities. Previously, revenues from Wide-body IFE service and support
activities were included in air transport aftermarket sales. For the three
months ended December 31, 2009, $25 million was reclassified out of air
transport aftermarket sales and into Wide-body IFE products and services
in order to conform to the current period presentation. We expect revenue
from Wide-body IFE products and services to continue to decline based upon
the Company’s previously announced decision to cease R&D investment in
this product area and as customers continue to retire older aircraft or
replace their IFE systems.
|
|
·
|
Business
and regional OEM sales increased $15 million, or 15 percent, primarily due
to the combined impact of higher avionics sales for Cessna’s CJ-4 aircraft
which had limited production in the prior year and higher product
deliveries to Bombardier on various
platforms.
|
|
·
|
Incremental
revenue from the Air Routing acquisition contributed $11 million to
business and regional aftermarket
sales.
|
|
·
|
Organic
business and regional aftermarket sales increased $14 million, or 21
percent, due to $8 million of higher retrofits and spares sales and $6
million of higher service and support revenues resulting from improved
aircraft utilization.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
Operating
earnings
|
$ | 84 | $ | 68 | ||||
Percent
of sales
|
18.3 | % | 16.5 | % |
|
·
|
The
$49 million increase in sales discussed in the Commercial Systems sales
section above resulted in a $27 million increase to costs and incremental
operating earnings of $22 million.
|
|
·
|
Operating
earnings included a $7 million benefit related to a change in estimate
recorded in 2011 to reduce the provision for certain customer incentives.
This benefit was offset by the absence of a $4 million favorable contract
settlement which occurred in 2010.
|
|
·
|
The
above items were offset by a $9 million reduction in operating earnings
primarily attributable to the combined impact of an increase in selling,
general and administrative expense and higher employee incentive
compensation costs, partially offset by lower pension expenses as
discussed in the Retirement Plans section
below.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(dollars
in millions)
|
2010
|
2009
|
||||||
General
corporate, net
|
$ | 12 | $ | 11 |
Three
Months Ended
|
||||||||
December
31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Pension
benefits
|
$ | (4 | ) | $ | 7 | |||
Other
retirement benefits
|
3 | 1 | ||||||
Net
benefit expense (income)
|
$ | (1 | ) | $ | 8 |
|
·
|
total
sales in the range of $4.8 billion to $5.0
billion
|
|
·
|
diluted
earnings per share in the range of $3.85 to
$4.05
|
|
·
|
cash
provided by operating activities in the range of $650 million to $750
million
|
|
·
|
capital
expenditures of about $150 million
|
|
·
|
total
company and customer-funded R&D expenditures in the range of $900
million to $950 million, or about 19 percent of
sales
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Cash
provided by operating activities
|
$ | 57 | $ | 84 |
|
·
|
Payments
for inventory and other operating costs increased $97 million to $1,023
million in 2011 compared to $926 in 2010. The increase was primarily due
to higher costs associated with organic sales growth in 2011 as discussed
in the Results of Operations section above, as well as inventory purchases
for anticipated production volume and higher pre-production engineering
effort.
|
|
·
|
Payments
for incentive pay increased $71 million in 2011 compared to 2010.
Incentive pay is expensed in the year it is incurred and paid in the first
fiscal quarter of the following year. During the first three months of
2011, $71 million was paid for employee incentive pay costs incurred
during 2010. For the full fiscal year 2009, no incentive pay costs were
incurred; accordingly, there was no 2010 payment for incentive
pay.
|
|
·
|
Contributions
to our pension plans decreased $98 million in 2011 compared to 2010.
During the first three months of 2011, $3 million was contributed compared
to $101 million during the same period last year. Subsequent to our first
quarter of 2011, we made a $100 million contribution to our U.S. qualified
pension plan. See discussion in Retirement Plans section
above.
|
|
·
|
Cash
receipts from customers increased $40 million to $1,158 million in 2011
compared to $1,118 million in 2010, primarily due to the higher sales in
2011 discussed in the Results of Operations section
above.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Cash
used for investing activities
|
$ | (37 | ) | $ | (119 | ) |
|
·
|
In
the first three months of 2011 we acquired Blue Ridge Simulation, Inc.
(Blue Ridge Simulation) for $6 million compared to the 2010 acquisition of
Air Routing for $91 million.
|
|
·
|
Partially
offset by a $6 million increase in property additions in 2011 compared to
2010.
|
Three
Months Ended
|
||||||||
December 31
|
||||||||
(in
millions)
|
2010
|
2009
|
||||||
Cash
provided by (used for) financing activities
|
$ | (193 | ) | $ | 5 |
|
·
|
Repurchases
of common stock increased $121 million in 2011 compared to 2010. During
the three months ended December 31, 2010, we had $149 million of cash
repurchases of common stock compared to $28 million during the same period
last year.
|
|
·
|
$72
million of the increase is due to changes in net-borrowings. During the
three months ended December 31, 2010 we had $10 million of net short-term
debt repayments compared to net-borrowings of $62 million during the same
period last year.
|
December
31,
|
September
30,
|
|||||||
(in
millions)
|
2010
|
2010
|
||||||
Cash
and cash equivalents
|
$ | 263 | $ | 435 | ||||
Short-term
investments
|
20 | 20 | ||||||
Short-term
debt
|
(12 | ) | (24 | ) | ||||
Long-term
debt, net
|
(512 | ) | (525 | ) | ||||
Net debt (1)
|
$ | (241 | ) | $ | (94 | ) | ||
Total
equity
|
$ | 1,479 | $ | 1,486 | ||||
Debt to total
capitalization (2)
|
26 | % | 27 | % | ||||
Net debt to total
capitalization (3)
|
14 | % | 6 | % |
|
(1)
|
Calculated
as total of short-term and long-term debt, net (Total Debt), less cash and
cash equivalents and short-term
investments
|
|
(2)
|
Calculated
as Total Debt divided by the sum of Total Debt plus Total
equity
|
|
(3)
|
Calculated
as Net debt divided by the sum of Net debt plus Total
equity
|
Credit Rating Agency
|
Short-Term Rating
|
Long-Term Rating
|
Outlook
|
|||
Fitch
Ratings
|
F1
|
A
|
Stable
|
|||
Moody’s
Investors Service
|
P-1
|
A1
|
Stable
|
|||
Standard
& Poor’s
|
A-1
|
A
|
Stable
|
Period
|
Total Number
of Shares
Purchased
|
Average Price
Paid per Share
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
Maximum Number
(or Appropriate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or
Programs 1
|
||||||||||||
October
1, 2010 through October 31, 2010
|
300,000 | $ | 60.27 | 300,000 | $ | 308 million | ||||||||||
November
1, 2010 through November 30, 2010
|
1,900,000 | 56.75 | 1,900,000 | 200 million | ||||||||||||
December
1, 2010 through December 31, 2010
|
300,000 | 58.21 | 300,000 | 182 million | ||||||||||||
Total
|
2,500,000 | $ | 57.35 | 2,500,000 | $ | 182 million |
(1)
|
On
September 16, 2010, our Board authorized the repurchase of an additional
$300 million of our common stock. This authorization has no stated
expiration.
|
(a)
|
Exhibits
|
|
10-g-3
|
The
Company’s 2005 Non-Qualified Retirement Savings Plan, as
amended.
|
|
10-h-6
|
The
Company’s 2005 Non-Qualified Pension Plan, as
amended.
|
|
31.1
|
Certification
by Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
31.2
|
Certification
by Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
|
|
32.1
|
Certification
by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
101.INS
|
XBRL
Instance Document
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation
Linkbase
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition
Linkbase
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation
Linkbase
|
ROCKWELL COLLINS, INC.
|
|||
(Registrant)
|
|||
Date:
|
January
28, 2011
|
By
|
/s/ M. A. Schulte
|
M.
A. Schulte
|
|||
Vice
President, Finance and Controller
|
|||
(Principal
Accounting Officer)
|
|||
Date:
|
January
28, 2011
|
By
|
/s/ G. R. Chadick
|
G.
R. Chadick
|
|||
Senior
Vice President,
|
|||
General
Counsel and
Secretary
|