Rockwell Collins Third Quarter 2012 Earnings Per Share Increases 13% to $1.14
Rockwell Collins Third Quarter 2012 Earnings Per Share Increases 13% to
$1.14
Business Wire
CEDAR RAPIDS, Iowa -- July 24, 2012
Rockwell Collins, Inc. (NYSE: COL) today reported third quarter fiscal year
2012 income from continuing operations of $166 million, an increase of 6%,
compared to $157 million in the same period last year. Earnings per share for
the quarter were $1.14, an increase of $0.13, or 13%, from earnings per share
of $1.01 in the third quarter of 2011. Earnings per share growth was twice the
rate of net income growth due to the favorable effect of the company's share
repurchase program. Income and earnings per share from continuing operations
include a benefit from the lower income tax rate of $7 million, or 5 cents per
share, which partially offset the adverse impact of $8 million, or 6 cents per
share resulting from the recent bankruptcy and production delays at Hawker
Beechcraft.
The company reported total sales of $1.21 billion for the third quarter of
2012, an increase of 1%, while sales reported for the same period last year
were $1.19 billion. Total segment operating earnings increased to $253 million
compared to $248 million last year, and total segment operating margins
increased to 21.0% of sales, up from 20.8% in the third quarter of 2011.
Cash provided by operating activities for the first nine months of 2012 and
2011 totaled $192 million and $246 million, respectively. The $54 million
reduction in cash from operations was primarily driven by higher payments for
employee incentive compensation and higher income tax payments, partially
offset by higher receipts for customer advances.
“In the current challenging market conditions, our balanced business model and
capital deployment strategies are providing the stability and shareowner focus
that you would expect from Rockwell Collins,” said Rockwell Collins Chairman,
President and Chief Executive Officer, Clay Jones. “For the first time in five
quarters, Government Systems sales increased to complement moderating revenue
in Commercial Systems due to difficult comparables and the impacts from a
recent bankruptcy filing by one of our customers. However, despite this modest
sales increase, earnings per share increased by double digits due to the
increased level of share repurchases that has reduced share count by 7% this
year. In addition, we increased our dividend this quarter by 25% to further
enhance the return of value to our shareowners.”
Jones went on to state, “The slowdown in the global economic recovery and
bankruptcy of Hawker Beechcraft continues to impact our initial projections of
the business aviation growth. As a result, we have revised our 2012 sales, EPS
and cash flow guidance. However, these near-term conditions have not
diminished our confidence in longer term commercial growth as we look forward
to several new product introductions in the years ahead.”
Following is a discussion of fiscal year 2012 third quarter sales and earnings
for each business segment.
Commercial Systems
Commercial Systems, which provides aviation electronics systems, products and
services to air transport, business and regional aircraft manufacturers and
airlines worldwide, achieved 2012 third quarter sales of $526 million, an
increase of $4 million, or 1%, compared to sales of $522 million reported for
the same period last year.
Sales related to aircraft original equipment manufacturers increased $10
million, or 4%, to $295 million driven by increased sales to Airbus and Boeing
resulting from higher production rates for the 787, 737 and A320 aircraft,
partially offset by lower deliveries to Hawker Beechcraft as a result of a
temporary production shutdown. Aftermarket sales decreased $1 million to $208
million driven by lower sales of spares.
Commercial Systems third quarter operating earnings decreased $2 million, or
2%, to $105 million, resulting in an operating margin of 20.0%, compared to
operating earnings of $107 million, and an operating margin of 20.5%, for the
same period a year ago. The decrease in operating earnings and margin was
primarily due to increased bad debt expense related to the Hawker Beechcraft
bankruptcy.
Government Systems
Government Systems provides a broad range of electronic products, systems and
services to customers including the U.S. Department of Defense, state and
local governments, other government agencies, civil agencies, defense
contractors and ministries of defense around the world. Sales in the third
quarter of 2012 were $679 million, an increase of $11 million, or 2%, compared
to the $668 million reported for the same period last year.
Avionics sales increased $40 million, or 11%, from the third quarter of 2011
due to higher sales for Saudi F-15 fighters and the KC-46, KC-10 and KC-390
tanker programs. Communication product sales improved $14 million, or 9%, due
to higher sales of networked communication and data link products. Surface
solutions sales decreased $32 million, or 39%, resulting from the impact of
two programs terminated for convenience in 2011, lower sales on the Joint
Precision Approach and Landing System program as it transitions from
development to production and reductions in deliveries of optical products for
surface based programs. Sales of Navigation products declined by $11 million,
or 16%, driven primarily by fewer deliveries of Defense Advanced GPS Receiver
products.
Government Systems third quarter operating earnings of $148 million resulted
in an operating margin of 21.8%, compared to operating earnings of $141
million, and an operating margin of 21.1%, for the same period last year. The
increase in operating earnings and margin was primarily due to lower
discretionary spending partially offset by the absence of a favorable warranty
adjustment made last year.
Corporate and Financial Highlights
General corporate expenses not allocated to the company's business segments
were flat at $10 million and include a $6 million restructuring charge, which
was mostly offset by a gain on sale of a facility in Irvine, California. The
company's effective income tax rate was 27.8% for the third quarter of 2012
compared to a rate of 30.8% for the same period last year. The lower tax rate
was primarily due to a favorable adjustment to certain tax reserves partially
offset by the unfavorable impact due to differences in the availability of the
Federal R&D Tax Credit.
During the third quarter of 2012, the company repurchased 3.8 million shares
of common stock at a total cost of $204 million. Additionally, the Board of
Directors increased the share repurchase authorization by $500 million. The
company increased the dividend on its common stock by 25%, resulting in a
payment of $43 million, or 30 cents per share.
Discontinued Operations
During the fourth quarter of 2011, the company sold the Rollmet product line.
The divestiture has been accounted for as a discontinued operation for all
periods presented.
Fiscal Year 2012 Outlook
Revenue, earnings per share and operating cash flow guidance for fiscal year
2012 are being revised as a result of a temporary shutdown in aircraft
production and bankruptcy filing at Hawker Beechcraft during the quarter as
well as softening of the business aviation aftermarket. Operating cash flow
guidance is also impacted by higher income tax payments resulting from changes
in future expected pension contributions.
The following table is a complete summary of the company's updated fiscal year
2012 financial guidance:
-- Total sales About $4.80 Bil. (From About
$4.85 Bil.)
-- Total segment operating margins About 21.5% (From 20.5% to
21.5%)
-- Earnings per share from continuing $4.40 to $4.50 (From $4.40 to
operations $4.60)
-- Cash flow from operations About $600 Mil. (From $625 Mil.
to $725 Mil.)
-- Research & development costs About $850 Mil. (From About $900
Mil.)
-- Capital expenditures About $150 Mil.
Business Highlights
Rockwell Collins establishing joint venture with AVIC LETRI in China
Rockwell Collins and China Leihua Electronic Technology Research Institute
(LETRI) a subsidiary of Aviation Industry Corporation of China (AVIC), are
establishing AVIC Leihua Rockwell Collins Avionics Company. This joint venture
will focus on bringing the latest surveillance products to the Commercial
Aircraft Corporation of China Ltd. C919 aircraft.
Rockwell Collins awarded Australian Defence Force Land 17 program
Rockwell Collins was selected as the prime contractor for the Australian
Defence Force Land 17 Digital Terminal Control Systems program. The company
will be delivering a total of 152 systems valued at $68 million.
Data Link Solutions awarded contracts for MIDS Joint Tactical Radio Systems
and Link-16 terminals
Data Link Solutions (DLS), a joint venture between Rockwell Collins and BAE
Systems, was awarded three contracts this quarter:
* A $25.8 million contract by the Space and Naval Warfare System Command for
the first full production and fielding of the Multifunctional Information
Distribution System Joint Tactical Radio System Terminals (MIDS JTRS).
* A $13.5 million task order to provide MIDS JTRS for large ship and ground
based applications for the U. S. Navy.
* A $5.4 million contract for Multifunctional Information Distribution
System - Low Volume Terminals for the Taiwan ground Link-16 Program.
Rockwell Collins AN/ARC-210 Gen5 became the first software-defined radio
certified to run SRW
U.S. warfighters can now fully network ground troops with aircraft after
Rockwell Collins AN/ARC-210 Gen 5 radio incorporated the Soldier Radio
Waveform (SRW). The networked airborne v/UHF, software-defined, tactical radio
is the first to be able to run SRW in both electronic warfare and combat
communications modes at all four established data rates required by the Joint
Tactical Radio Systems Joint Program Executive Office.
FAA selected Rockwell Collins Head-up Guidance Systems to support NextGen
efforts
The Federal Aviation Administration (FAA) selected Rockwell Collins Head-up
Guidance System with synthetic and enhanced vision to support its Next Gen
research efforts. The technology, which is being installed on the Boeing 737
flight simulator in the FAA’s Flight Operations Simulation Laboratory in
Oklahoma City, will be used to study how operators can safely achieve benefits
such as lower landing minima by using head-up displays with synthetic and
enhanced vision during different phases of flight in low visibility
conditions. The technology will also support the approvals and development of
the guidance material necessary to implement those new operations.
Conference Call and Webcast Details
Rockwell Collins Chairman, President and CEO, Clay Jones, and Senior Vice
President and CFO, Patrick Allen, will conduct an earnings conference call at
9:00 a.m. Eastern Time on July 24, 2012. Individuals may listen to the call
and view management's supporting slide presentation on the Internet at
www.rockwellcollins.com. Listeners are encouraged to go to the Investor
Relations portion of the web site at least 15 minutes prior to the call to
download and install any necessary software. The call will be available for
replay on the Internet at www.rockwellcollins.com through September 25, 2012.
Rockwell Collins is a pioneer in the development and deployment of innovative
communication and aviation electronics solutions for both commercial and
government applications. Our expertise in flight deck avionics, cabin
electronics, mission communications, information management and simulation and
training is delivered by 20,000 employees through a global service and support
network that crosses 27 countries. To find out more, please visit
www.rockwellcollins.com.
This press release contains statements, including certain projections and
business trends, that are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to the financial condition of our customers, including
bankruptcies; the health of the global economy, including potential
deterioration in economic and financial market conditions; the rate of
recovery of the commercial OEM production rates and the aftermarket; the
impacts of natural disasters, including operational disruption, potential
supply shortages and other economic impacts; cybersecurity threats, including
the potential misappropriation of assets or sensitive information, corruption
of data or operational disruption; delays related to the award of domestic and
international contracts; the impact of sequestration and other provisions of
the Budget Control Act of 2011 that are set to be implemented in January of
2013; the continued support for military transformation and modernization
programs; potential adverse impact of oil prices on the commercial aerospace
industry; the impact of terrorist events on the commercial aerospace industry;
declining defense budgets resulting from budget deficits in the U.S. and
abroad; changes in domestic and foreign government spending, budgetary,
procurement 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; timing of international contract awards;
recruitment and retention of qualified personnel; regulatory restrictions on
air travel due to environmental concerns; effective negotiation of collective
bargaining agreements by us and our customers; performance of our customers
and subcontractors; risks inherent in development and fixed-price contracts,
particularly the risk of cost overruns; risk of significant reduction to air
travel or aircraft capacity beyond our forecasts; our ability to execute to
our internal performance plans such as our productivity and quality
improvements and cost reduction initiatives; achievement of our acquisition
and related integration plans; continuing to maintain our planned effective
tax rates; our ability to develop contract compliant systems and products on
schedule and within anticipated cost estimates; risk of fines and penalties
related to noncompliance with laws and regulations including export control
and environmental regulations; risk of asset impairments; our ability to win
new business and convert those orders to sales within the fiscal year in
accordance with our annual operating plan; and the uncertainties of the
outcome of lawsuits, claims and legal proceedings, 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 and the company
assumes no obligation to update any forward-looking statement.
ROCKWELL COLLINS, INC.
SEGMENT SALES AND EARNINGS INFORMATION
(Unaudited)
(in millions, except per share amounts)
For the three and nine months ended June 30, 2011, results for the company's
Rollmet business are reported as discontinued operations. Rollmet was
previously reported in the Commercial Systems segment.
Three Months Ended Nine Months Ended
June 30 June 30
2012 2011 2012 2011
Sales
Government Systems $ 679 $ 668 $ 1,890 $ 2,034
Commercial Systems 526 522 1,570 1,476
Total sales $ 1,205 $ 1,190 $ 3,460 $ 3,510
Segment operating earnings
Government Systems $ 148 $ 141 $ 393 $ 422
Commercial Systems 105 107 318 280
Total segment operating 253 248 711 702
earnings
Interest expense (7 ) (5 ) (20 ) (14 )
Stock-based compensation (6 ) (6 ) (19 ) (18 )
General corporate, net (10 ) (10 ) (35 ) (34 )
Income from continuing 230 227 637 636
operations before income taxes
Income tax expense (64 ) (70 ) (180 ) (179 )
Income from continuing 166 157 457 457
operations
Income from discontinued — 1 — 2
operations, net of taxes
Net income $ 166 $ 158 $ 457 $ 459
Diluted earnings per share:
Continuing operations $ 1.14 $ 1.01 $ 3.09 $ 2.92
Discontinued operations — — — 0.01
Diluted earnings per share $ 1.14 $ 1.01 $ 3.09 $ 2.93
Weighted average diluted 145.0 155.9 147.9 156.6
shares outstanding
The following tables summarize sales by product category and by type of
product or service for the three and nine months ended June 30, 2012 and 2011
(unaudited, in millions):
Three Months Ended Nine Months Ended
June 30 June 30
2012 2011 2012 2011
Government Systems sales by product
category:
Avionics $ 393 $ 353 $ 1,082 $ 1,020
Communication products 178 164 476 510
Surface solutions 50 82 168 280
Navigation products 58 69 164 224
Total Government Systems sales $ 679 $ 668 $ 1,890 $ 2,034
Commercial Systems sales by product
category:
Air transport aviation electronics:
Original equipment $ 150 $ 126 $ 415 $ 373
Aftermarket 109 109 351 319
Wide-body in-flight entertainment 23 28 72 84
products and services
Total air transport aviation 282 263 838 776
electronics
Business and regional aviation
electronics:
Original equipment 145 159 434 415
Aftermarket 99 100 298 285
Total business and regional 244 259 732 700
aviation electronics
Total Commercial Systems sales $ 526 $ 522 $ 1,570 $ 1,476
Commercial Systems sales by type of
product or service:
Total original equipment $ 295 $ 285 $ 849 $ 788
Total aftermarket 208 209 649 604
Wide-body in-flight entertainment 23 28 72 84
products and services
Total Commercial Systems sales $ 526 $ 522 $ 1,570 $ 1,476
The following table summarizes total Research & Development expenses by
segment and funding type for the three and nine months ended June 30, 2012 and
2011 (unaudited, dollars in millions):
Three Months Ended Nine Months Ended
June 30 June 30
2012 2011 2012 2011
Research and Development
Expense:
Customer-funded:
Government Systems $ 102 $ 110 $ 322 $ 336
Commercial Systems 20 27 61 70
Total Customer-funded 122 137 383 406
Company-funded:
Government Systems 20 33 63 82
Commercial Systems 59 57 178 175
Total Company-funded 79 90 241 257
Total Research and $ 201 $ 227 $ 624 $ 663
Development Expense
Percent of Total Sales 16.7 % 19.1 % 18.0 % 18.9 %
ROCKWELL COLLINS, INC.
SUMMARY BALANCE SHEET
(Unaudited)
(in millions)
June 30, September 30,
2012 2011
Assets
Cash and cash equivalents $ 265 $ 530
Receivables, net 967 969
Inventories, net 1,353 1,195
Current deferred income taxes 68 106
Other current assets 100 89
Total current assets 2,753 2,889
Property 750 754
Goodwill 775 780
Intangible assets 293 308
Long-term deferred income taxes 355 448
Other assets 222 210
Total assets $ 5,148 $ 5,389
Liabilities and equity
Short-term debt $ 201 $ —
Accounts payable 400 485
Compensation and benefits 229 324
Advance payments from customers 274 269
Accrued customer incentives 155 128
Product warranty costs 125 148
Other current liabilities 101 141
Total current liabilities 1,485 1,495
Long-term debt, net 778 528
Retirement benefits 1,461 1,633
Other liabilities 146 205
Equity 1,278 1,528
Total liabilities and equity $ 5,148 $ 5,389
ROCKWELL COLLINS, INC.
CONDENSED CASH FLOW INFORMATION
(Unaudited)
(in millions)
Nine Months Ended
June 30
2012 2011
Operating Activities:
Net income $ 457 $ 459
Adjustments to arrive at cash provided by operating
activities:
Depreciation 82 78
Amortization of intangible assets 29 28
Stock-based compensation expense 19 18
Compensation and benefits paid in common stock 53 53
Excess tax benefit from stock-based compensation (7 ) (7 )
Deferred income taxes 119 68
Pension plan contributions (120 ) (110 )
Changes in assets and liabilities, excluding effects of
acquisitions and foreign currency adjustments:
Receivables 3 (12 )
Inventories (200 ) (245 )
Accounts payable (71 ) 5
Compensation and benefits (92 ) 10
Advance payments from customers 12 (47 )
Accrued customer incentives 27 (5 )
Product warranty costs (21 ) (28 )
Income taxes (85 ) 30
Other assets and liabilities (13 ) (49 )
Cash Provided by Operating Activities 192 246
Investing Activities:
Property additions (102 ) (104 )
Proceeds from disposition of property 17 —
Acquisition of businesses, net of cash acquired — (17 )
Cash provided to customer — (237 )
Collection of cash provided to customer — 237
Proceeds from sale of short-term investments — 18
Acquisition of intangible assets (2 ) (3 )
Other investing activities (4 ) 3
Cash Used for Investing Activities (91 ) (103 )
Financing Activities:
Purchases of treasury stock (710 ) (277 )
Cash dividends (114 ) (112 )
Increase in short-term commercial paper borrowings, net 201 70
Decrease in short-term borrowings — (24 )
Increase in long-term borrowings 247 —
Proceeds from the exercise of stock options 17 19
Excess tax benefit from stock-based compensation 7 7
Cash Used for Financing Activities (352 ) (317 )
Effect of exchange rate changes on cash and cash (14 ) 7
equivalents
Net Change in Cash and Cash Equivalents (265 ) (167 )
Cash and Cash Equivalents at Beginning of Period 530 435
Cash and Cash Equivalents at End of Period $ 265 $ 268
Contact:
Rockwell Collins, Inc.
Media Contact:
Pam Tvrdy, 319-295-0591
pjtvrdy@rockwellcollins.com
or
Investor Contact:
Steve Buesing, 319-295-7575
investorrelations@rockwellcollins.com
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