Document and Entity Information
Document and Entity Information | ||
6 Months Ended
Mar. 31, 2010 | Apr. 19, 2010
| |
Entity Registrant Name | ROCKWELL COLLINS INC | |
Entity Central Index Key | 0001137411 | |
Trading Symbol | COL | |
Current Fiscal Year End Date | --09-30 | |
Entity Filer Category | Large Accelerated Filer | |
Common Stock Shares Outstanding | 157,394,676 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q2 |
Condensed Consolidated Statemen
Condensed Consolidated Statement of Financial Position (USD $) | ||
In Millions | Mar. 31, 2010
| Sep. 30, 2009
|
Current Assets: | ||
Cash and cash equivalents | $246 | $235 |
Receivables, net | 842 | 913 |
Inventories, net | 1,011 | 943 |
Current deferred income taxes | 144 | 154 |
Other current assets | 89 | 117 |
Total current assets | 2,332 | 2,362 |
Property | 718 | 719 |
Goodwill | 753 | 695 |
Intangible Assets | 310 | 269 |
Long-term Deferred Income Taxes | 334 | 371 |
Other Assets | 218 | 229 |
TOTAL ASSETS | 4,665 | 4,645 |
Current Liabilities: | ||
Accounts payable | 360 | 366 |
Compensation and benefits | 215 | 199 |
Advance payments from customers | 340 | 349 |
Product warranty costs | 199 | 217 |
Other current liabilities | 232 | 228 |
Total current liabilities | 1,346 | 1,359 |
Long-term Debt, net | 527 | 532 |
Retirement Benefits | 1,121 | 1,254 |
Other Liabilities | 175 | 205 |
Equity: | ||
Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 183.8) | 2 | 2 |
Additional paid-in capital | 1,398 | 1,395 |
Retained earnings | 2,622 | 2,444 |
Accumulated other comprehensive loss | (1,076) | (1,080) |
Common stock in treasury, at cost (shares held: March 31, 2010, 26.3; September 30, 2009, 26.7) | (1,453) | (1,469) |
Total shareowners' equity | 1,493 | 1,292 |
Noncontrolling interest | 3 | 3 |
Total equity | 1,496 | 1,295 |
TOTAL LIABILITIES AND EQUITY | $4,665 | $4,645 |
1_Condensed Consolidated Statem
Condensed Consolidated Statement of Financial Position (Parenthetical) (USD $) | ||
Share data in Millions, except Per Share data | Mar. 31, 2010
| Sep. 30, 2009
|
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 1,000 | 1,000 |
Common stock, shares issued | 183.8 | 183.8 |
Common stock shares held in treasury | 26.3 | 26.7 |
2_Condensed Consolidated Statem
Condensed Consolidated Statement of Operations (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 | 6 Months Ended
Mar. 31, 2010 | 6 Months Ended
Mar. 31, 2009 |
Sales: | ||||
Product sales | $1,034 | $1,029 | $1,961 | $1,987 |
Service sales | 108 | 109 | 208 | 209 |
Total sales | 1,142 | 1,138 | 2,169 | 2,196 |
Costs, expenses and other: | ||||
Product cost of sales | 756 | 711 | 1,422 | 1,375 |
Service cost of sales | 72 | 74 | 140 | 142 |
Selling, general and administrative expenses | 119 | 118 | 228 | 223 |
Interest expense | 4 | 3 | 10 | 7 |
Other income, net | (5) | (8) | (8) | (13) |
Total costs, expenses and other | 946 | 898 | 1,792 | 1,734 |
Income before income taxes | 196 | 240 | 377 | 462 |
Income tax provision | 48 | 76 | 108 | 147 |
Net income | $148 | $164 | $269 | $315 |
Earnings per share: | ||||
Basic | 0.94 | 1.04 | 1.71 | 1.99 |
Diluted | 0.93 | 1.03 | 1.69 | 1.98 |
Weighted average common shares: | ||||
Basic | 157.1 | 158.1 | 157.1 | 158.1 |
Diluted | 159.4 | 159.3 | 159.3 | 159.2 |
Cash dividends per share | 0.24 | 0.24 | 0.48 | 0.48 |
3_Condensed Consolidated Statem
Condensed Consolidated Statement of Cash Flows (USD $) | ||
In Millions | 6 Months Ended
Mar. 31, 2010 | 6 Months Ended
Mar. 31, 2009 |
Operating Activities: | ||
Net income | $269 | $315 |
Adjustments to arrive at cash provided by operating activities: | ||
Depreciation | 55 | 54 |
Amortization of intangible assets | 18 | 12 |
Stock-based compensation expense | 11 | 10 |
Compensation and benefits paid in common stock | 31 | 32 |
Tax benefit from stock-based compensation | 8 | 0 |
Excess tax benefit from stock-based compensation | (7) | 0 |
Deferred income taxes | (5) | 19 |
Pension plan contributions | (105) | (84) |
Change in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments: | ||
Receivables | 95 | 35 |
Inventories | (85) | (43) |
Accounts payable | (10) | (75) |
Compensation and benefits | 16 | (108) |
Advance payments from customers | (10) | (14) |
Income taxes | 66 | 39 |
Other assets and liabilities | (67) | (55) |
Cash Provided by Operating Activities | 280 | 137 |
Investing Activities: | ||
Property additions | (59) | (74) |
Acquisition of businesses, net of cash acquired | (94) | (28) |
Acquisition of intangible assets | (3) | (1) |
Cash Used for Investing Activities | (156) | (103) |
Financing Activities: | ||
Purchases of treasury stock | (66) | (43) |
Cash dividends | (75) | (76) |
Increase in short-term borrowings | 0 | 98 |
Proceeds from the exercise of stock options | 21 | 2 |
Excess tax benefit from stock-based compensation | 7 | 0 |
Cash Used for Financing Activities | (113) | (19) |
Effect of exchange rate changes on cash and cash equivalents | 0 | 0 |
Net Change in Cash and Cash Equivalents | 11 | 15 |
Cash and Cash Equivalents at Beginning of Period | 235 | 175 |
Cash and Cash Equivalents at End of Period | $246 | $190 |
Business Description and Basis
Business Description and Basis of Presentation | |
6 Months Ended
Mar. 31, 2010 | |
Business Description and Basis of Presentation | 1. Business Description and Basis of Presentation Rockwell Collins, Inc. (the Company or Rockwell Collins) designs, produces and supports communications and aviation electronics for commercial and military customers worldwide. The Company operates on a 52/53 week fiscal year, with fiscal quarters ending on the Friday closest to the last day of the calendar quarter. For ease of presentation, March 31 and September 30 are utilized consistently throughout these financial statements and notes to represent the period end date. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. These financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended September 30, 2009. In the opinion of management, the unaudited financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the three and six months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions. |
Recently Issued Accounting Stan
Recently Issued Accounting Standards | |
6 Months Ended
Mar. 31, 2010 | |
Recently Issued Accounting Standards | 2. Recently Issued Accounting Standards In January 2010, the Financial Accounting Standards Board (FASB) revised its guidance regarding fair value measurement disclosures. The guidance requires new disclosure about transfers between the levels of the fair value hierarchy as well as expanded disclosure regarding activity within Level 3 of the fair value hierarchy. The Company adopted this guidance in the second quarter of 2010 with no impact to the Companys financial statements. In September 2009, the FASB amended the guidance for allocating revenue to multiple deliverables in a contract. The amendment is effective for the Company at the beginning of fiscal year 2011, with early adoption permitted. In accordance with the amendment, companies can allocate consideration in a multiple element arrangement in a manner that better reflects the transaction economics. When vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will now be allowed to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, use of the residual method has been eliminated. The adoption of this amendment is not expected to materially affect the Company's financial position, results of operations or cash flows as the Company generally allocates revenue to deliverables based on the prices charged when sold separately by the Company. In November 2008, the FASB ratified guidance related to accounting for defensive intangible assets subsequent to their acquisition. The new guidance also discusses the treatment of the estimated useful life for such assets. Acquired defensive intangible assets include assets that an entity does not intend to actively use, but does intend to hold or lock up such that others are prevented from using the asset. The Company adopted this guidance in the first quarter of fiscal year 2010 with no impact to the Companys financial statements. However, the standard could have a significant effect on any defensive intangible assets the Company acquires in the future. In June 2008, the FASB issued a position specifying that unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and should therefore be included in the computation of earnings per share (EPS) pursuant to the two-class method. The Company adopted this standard in the first quarter of fiscal year 2010 with no material effect on the Companys financial statements or EPS computation. In December 2007, the FASB issued a standard that significantly changes the way companies account for business combinations and will generally require more assets acquired and liabilities assumed to be measured at their acquisition-date fair value. Under the standard, legal fees and other transaction-related costs are expensed as incurred and are no longer included in goodwill as a cost of acquiring the business. The standard also requires acquirers to estimate the acquisition-date fair value of any contingent consideration an |
Acquisitions
Acquisitions | |
6 Months Ended
Mar. 31, 2010 | |
Acquisitions | 3. Acquisitions AR Group, Inc. On December 31, 2009, the Company acquired all the shares of AR Group, Inc. (Air Routing). Air Routing, with headquarters located in Houston, Texas, is a leading global provider of trip support services for business aircraft flight operations. The cash purchase price, net of cash acquired, was $91 million. The Company is in the process of allocating the purchase price and finalizing a valuation for acquired intangible assets and their useful lives. Based on the Companys preliminary allocation of the purchase price, $56 million has been allocated to goodwill and $39 million to finite-lived intangible assets with a weighted average life of approximately 22 years. The excess purchase price over net assets acquired reflects the Companys view that this acquisition will broaden the Companys information management flight operations' capabilities. The Company is currently evaluating the portion of the goodwill that may be tax deductible. Air Routing goodwill is included within the Commercial Systems segment. DataPath, Inc. On May 29, 2009, the Company acquired all the shares of DataPath, Inc. (DataPath). DataPath, with operations in the U.S. and Sweden, is a global leader in creating satellite-based communication solutions, primarily for military applications. The purchase price, net of cash acquired, was $125 million, of which $118 million was paid in cash during the third fiscal quarter of 2009 and $3 million was paid in cash during the six months ended March 31, 2010. The remaining $4 million is to be paid through 2011. The Company is in the process of allocating the purchase price and finalizing the pre-acquisition income tax calculation. Based on the Companys preliminary allocation of the purchase price, $61 million has been allocated to goodwill and $28 million to finite-lived intangible assets with a weighted average life of approximately 6 years. The excess purchase price over net assets acquired reflects the Companys view that this acquisition will augment the Companys networked communication offerings. The Company currently estimates that none of the goodwill resulting from the acquisition is tax deductible. The goodwill is included within the Government Systems segment. SEOS Group Limited On November 24, 2008, the Company acquired all the shares of SEOS Group Limited (SEOS). SEOS, with operations in the United Kingdom and the U.S., is a leading global supplier of highly realistic visual display solutions for commercial and military flight simulators. SEOS is included within the results of both the Government Systems and Commercial Systems segments. The cash purchase price, net of cash acquired, was $28 million. Additional consideration of up to $8 million may be paid post-closing, contingent upon the achievement of certain milestones. Any such additional consideration will be accounted for as goodwill. In the first quarter of 2010, the purchase price allocation was finalized with $28 million allocated to goodwill and $9 million to finite-lived intangible assets with a weighted average life of approximately 9 years. The excess purchase price over net assets acquired refle |
Receivables, Net
Receivables, Net | |
6 Months Ended
Mar. 31, 2010 | |
Receivables, Net | 4. Receivables, Net Receivables, net are summarized as follows: March 31, September 30, (in millions) 2010 2009 Billed $ 641 $ 734 Unbilled 257 217 Less progress payments (44 ) (27 ) Total 854 924 Less allowance for doubtful accounts (12 ) (11 ) Receivables, net $ 842 $ 913 Receivables not expected to be collected during the next twelve months are classified as long-term and are included within Other Assets. Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that have not been billed to customers in accordance with applicable contract terms. |
Inventories, Net
Inventories, Net | |
6 Months Ended
Mar. 31, 2010 | |
Inventories, Net | 5. Inventories, Net Inventories, net are summarized as follows: March 31, September 30, (in millions) 2010 2009 Finished goods $ 186 $ 177 Work in process 291 262 Raw materials, parts and supplies 337 341 Less progress payments (77 ) (77 ) Total 737 703 Pre-production engineering costs 274 240 Inventories, net $ 1,011 $ 943 The Company defers certain pre-production engineering costs during the development phase of an aircraft program in connection with long-term supply arrangements that contain contractual guarantees for reimbursement from customers. Such customer guarantees generally take the form of a minimum order quantity with quantified reimbursement amounts if the minimum order quantity is not taken by the customer. These costs are deferred to the extent of the contractual guarantees and are amortized over their estimated useful lives, up to 15 years, as a component of cost of sales. The estimated useful life is limited to the amount of time the Company is virtually assured to earn revenues through a contractually enforceable right included in long-term supply arrangements with the Companys customers. Pre-production engineering costs incurred pursuant to supply arrangements that do not contain customer guarantees for reimbursement are expensed as incurred. |
Property
Property | |
6 Months Ended
Mar. 31, 2010 | |
Property | 6. Property Property is summarized as follows: March 31, September 30, (in millions) 2010 2009 Land $ 30 $ 30 Buildings and improvements 352 349 Machinery and equipment 930 891 Information systems software and hardware 272 259 Furniture and fixtures 62 62 Construction in progress 71 88 Total 1,717 1,679 Less accumulated depreciation (999 ) (960 ) Property $ 718 $ 719 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | |
6 Months Ended
Mar. 31, 2010 | |
Goodwill and Intangible Assets | 7. Goodwill and Intangible Assets Changes in the carrying amount of goodwill for the six months ended March 31, 2010 are summarized as follows: Government Commercial (in millions) Systems Systems Total Balance at September 30, 2009 $ 496 $ 199 $ 695 Air Routing acquisition 0 56 56 DataPath adjustment 8 0 8 Foreign currency translation adjustments (6 ) 0 (6 ) Balance at March 31, 2010 $ 498 $ 255 $ 753 The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets during the second quarter of each fiscal year, or at any time there is an indication of potential impairment. The Companys 2010 and 2009 impairment tests resulted in no impairment. Intangible assets are summarized as follows: March 31, 2010 September 30, 2009 Accum Accum (in millions) Gross Amort Net Gross Amort Net Intangible assets with finite lives: Developed technology and patents $ 212 $ (113 ) $ 99 $ 214 $ (104 ) $ 110 Customer relationships 232 (43 ) 189 174 (36 ) 138 License agreements 20 (5 ) 15 17 (4 ) 13 Trademarks and tradenames 15 (10 ) 5 15 (9 ) 6 Intangible assets with indefinite lives: Trademarks and tradenames 2 0 2 2 0 2 Intangible assets $ 481 $ (171 ) $ 310 $ 422 $ (153 ) $ 269 The Company provides up-front sales incentives prior to delivering products or performing services to certain commercial customers in connection with sales contracts. Up-front sales incentives are recorded as a Customer Relationship Intangible Asset and amortized over the period the Company has received a contractually enforceable right related to the incentives. Up-front sales incentives consisting of cash payments or customer account credits are amortized as a reduction of sales whereas incentives consisting of free products are amortized as cost of sales. The net book value of sales incentives included in Customer Relationship Intangible Assets was $133 million and $109 million at March 31, 2010 and September 30, 2009, respectively. Amortization expense for intangible assets for the three and six months ended March 31, 2010 was $9 million and $18 million, respectively, compared to $6 million and $12 million for the three and six months ended March 31, 2009. Annual amortization expense for intangible assets for 2010, 2011, 2012, 2013 and 201 |
Other Assets
Other Assets | |
6 Months Ended
Mar. 31, 2010 | |
Other Assets | 8. Other Assets Other assets are summarized as follows: March 31, September 30, (in millions) 2010 2009 Long-term receivables $ 85 $ 97 Investments in equity affiliates 11 10 Exchange and rental assets, net of accumulated depreciation of $105 at March 31, 2010 and $103 at September 30, 2009 51 50 Other 71 72 Other assets $ 218 $ 229 Investments in equity affiliates primarily consist of four joint ventures: Vision Systems International, LLC (VSI): VSI is a joint venture with Elbit Systems, Ltd. for the joint pursuit of helmet mounted cueing systems for the worldwide military fixed wing aircraft market Data Link Solutions LLC (DLS): DLS is a joint venture with BAE Systems, plc for the joint pursuit of the worldwide military data link market Integrated Guidance Systems LLC (IGS): IGS is a joint venture with Honeywell International Inc. for the joint pursuit of integrated precision guidance solutions for worldwide guided weapons systems Quest Flight Training Limited (Quest): Quest is a joint venture with Quadrant Group plc (Quadrant) that provides aircrew training services primarily for the United Kingdom Ministry of Defence Each joint venture is 50 percent owned by the Company and accounted for under the equity method. Under the equity method of accounting for investments, the Companys proportionate share of the earnings or losses of its equity affiliates are included in Net Income and classified as Other Income, Net in the Condensed Consolidated Statement of Operations. For segment performance reporting purposes, the Companys share of earnings or losses of VSI, DLS, IGS and Quest are included in the operating results of the Government Systems segment. In the normal course of business or pursuant to the underlying joint venture agreements, the Company may sell products or services to equity affiliates. The Company defers a portion of the profit generated from these sales equal to its ownership interest in the equity affiliates until the underlying product is ultimately sold to an unrelated third party. Sales to equity affiliates were $19 million and $39 million for the three and six months ended March 31, 2010, respectively, and $19 million and $37 million for the three and six months ended March 31, 2009, respectively. The deferred portion of profit generated from sales to equity affiliates was $2 million at March 31, 2010 and $3 million at September 30, 2009. |
Other Current Liabilities
Other Current Liabilities | |
6 Months Ended
Mar. 31, 2010 | |
Other Current Liabilities | 9. Other Current Liabilities Other current liabilities are summarized as follows: March 31, September 30, (in millions) 2010 2009 Customer incentives $ 125 $ 122 Contract reserves 12 11 Income taxes payable 18 4 Other 77 91 Other current liabilities $ 232 $ 228 The Company provides sales incentives to certain commercial customers in connection with sales contracts. Incentives earned by customers based on purchases of Company products or services are recognized as a liability when the related sale is recorded. Incentives consisting of cash payments or customer account credits are recognized as a reduction of sales while incentives consisting of free-of-charge hardware and account credits where the customers use is restricted to future purchases are recognized as cost of sales. |
Debt
Debt | |
6 Months Ended
Mar. 31, 2010 | |
Debt | 10. Debt Short-term Debt Under the Companys commercial paper program, the Company may sell up to $850 million face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount, and have a maturity of not more than 364 days from the time of issuance. At March 31, 2010 and September 30, 2009, there were no outstanding short-term commercial paper borrowings. Revolving Credit Facilities The Company has an $850 million unsecured revolving credit facility with various banks that matures in March 2012. The credit facility has options to extend the term for up to two one-year periods and/or increase the aggregate principal amount up to $1.2 billion. These options are subject to the approval of the lenders. This credit facility exists primarily to support the Companys commercial paper program, but may be used for other purposes in the event access to the commercial paper market is impaired or eliminated. The credit facility includes one financial covenant requiring the Company to maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. The ratio excludes the accumulated other comprehensive loss equity impact related to defined benefit retirements plans. The ratio was 17 percent as of March 31, 2010. In addition, the credit facility contains other non-financial covenants that require the Company to satisfy certain conditions in order to incur debt secured by liens, engage in sale/leaseback transactions or merge or consolidate with another entity. Borrowings under this credit facility bear interest at the London Interbank Offered Rate (LIBOR) plus a variable margin based on the Companys unsecured long-term debt rating or, at the Companys option, rates determined by competitive bid. At March 31, 2010 and September 30, 2009, there were no outstanding borrowings under this revolving credit facility. In addition, short-term credit facilities available to non-U.S. subsidiaries amounted to $58 million as of March 31, 2010, of which $32 million was utilized to support commitments in the form of commercial letters of credit. As of March 31, 2010 and September 30, 2009, there were no short-term borrowings outstanding under the Companys non-U.S. subsidiaries credit facilities. At March 31, 2010 and September 30, 2009, there were no significant commitment fees or compensating balance requirements under any of the Companys credit facilities. Long-term Debt In addition to the Companys credit facilities and commercial paper program, the Company has a shelf registration statement filed with the Securities and Exchange Commission pursuant to which the Company can publicly offer and sell securities from time to time. This shelf registration covers an unlimited amount of debt securities, common stock, preferred stock or warrants that may be offered in one or more offerings on terms to be determined at the time of sale. On May 6, 2009, the Company issued $300 million of 5.25 percent fixed rate unsecured debt due July 15, 2019 (the 2019 Notes). The net proceeds to the Company from the sale |
Retirement Benefits
Retirement Benefits | |
6 Months Ended
Mar. 31, 2010 | |
Retirement Benefits | 11. Retirement Benefits The Company sponsors defined benefit pension (Pension Benefits) and other postretirement (Other Retirement Benefits) plans which provide monthly pension and other benefits to eligible employees upon retirement. Pension Benefits The components of expense (income) for Pension Benefits for the three and six months ended March 31, 2010 and 2009 are as follows: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Service cost $ 1 $ 1 $ 3 $ 3 Interest cost 39 42 79 84 Expected return on plan assets (52 ) (51 ) (105 ) (100 ) Amortization: Prior service credit (4 ) (4 ) (9 ) (9 ) Net actuarial loss 22 7 45 14 Net benefit expense (income) $ 6 $ (5 ) $ 13 $ (8 ) Other Retirement Benefits The components of expense (income) for Other Retirement Benefits for the three and six months ended March 31, 2010 and 2009 are as follows: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Service cost $ 1 $ 0 $ 2 $ 1 Interest cost 3 4 6 7 Amortization: Prior service credit (5 ) (5 ) (11 ) (11 ) Net actuarial loss 3 2 6 5 Net benefit expense $ 2 $ 1 $ 3 $ 2 Pension Plan Funding The Companys objective with respect to the funding of its pension plans is to provide adequate assets for the payment of future benefits. Pursuant to this objective, the Company will fund its pension plans as required by governmental regulations and may consider discretionary contributions as conditions warrant. In October 2009, the Company made a $98 million contribution to the U.S. qualified pension plan. The Company does not currently anticipate that it will be required by governmental regulations to make any additional contributions to the U.S. qualified pension plan in 2010. Any additional future contributions necessary to satisfy the minimum statutory funding requirements are dependent upon actual plan asset returns, interest rates and any changes to the U.S. pension funding legislation. The Company may elect to make additional discretionary contributions during 2010 to further improve the funded status of this plan. Contributions to the non-U.S. plans and the U.S. non-qualified plan are expected to total $13 million in 2010. For the six months ended March 31, 2010 and 2009, the Company made contributions of $7 million and $9 million, respectively, to the non-U.S. plans and the U.S. non-qualified pension plan. |
Stock-Based Compensation
Stock-Based Compensation | |
6 Months Ended
Mar. 31, 2010 | |
Stock-Based Compensation | 12. Stock-Based Compensation Total stock-based compensation expense included within the Condensed Consolidated Statement of Operations is as follows: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Stock-based compensation expense included in: Product cost of sales $ 1 $ 1 $ 2 $ 2 Service cost of sales 1 0 1 1 Selling, general and administrative expenses 4 4 8 7 Total $ 6 $ 5 $ 11 $ 10 The Company issued awards of equity instruments under the Companys various incentive plans for the six months ended March 31, 2010 and 2009 as follows: Performance Restricted Restricted Options Shares Stock Stock Units Weighted Weighted Weighted Weighted Number Average Number Average Number Average Number Average (shares in thousands) Issued Fair Value Issued Fair Value Issued Fair Value Issued Fair Value Six months ended March 31, 2010 790.9 $ 12.80 190.3 $ 53.08 56.6 $ 53.08 24.1 $ 53.09 Six months ended March 31, 2009 1,305.9 $ 7.09 303.5 $ 30.47 98.7 $ 30.39 37.5 $ 35.86 The maximum number of shares of common stock that can be issued with respect to the performance shares granted in 2010 based on the achievement of performance targets for fiscal years 2010 through 2012 is 454 thousand. The fair value of each option granted by the Company was estimated using a binomial lattice pricing model and the following assumptions: 2010 2009 Grants Grants Risk-free interest rate (U.S. Treasury zero coupon issues) 2.69% 2.37% Expected dividend yield 2.33% 1.59% Expected volatility 27.00% 24.00% Expected life 7 years 6 years Employee Benefits Paid in Company Stock During the six months ended March 31, 2010 and 2009, 0.6 million and 0.9 million shares, respectively, of Company common stock were issued to employees under the Companys employee stock purchase and defined contribution savings plans at a value of $31 million and $32 million for the respective periods. Earnings Per Share and Diluted Share Equivalents The computation of basic and diluted earnings per share is as follows: Three Months Ended Six Months Ended March 31 March 31 (in millions, except per share amounts) 2010 2009 2010 2009 Numerator: Numerator for basic and diluted earnings per share Net income $ 148 $ 164 $ |
Comprehensive Income
Comprehensive Income | |
6 Months Ended
Mar. 31, 2010 | |
Comprehensive Income | 13. Comprehensive Income Comprehensive income consists of the following: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Net income $ 148 $ 164 $ 269 $ 315 Unrealized foreign currency translation adjustment (8 ) (7 ) (12 ) (14 ) Foreign currency cash flow hedge adjustment (3 ) 3 (3 ) (2 ) Amortization of defined benefit plan costs 10 0 19 0 Comprehensive income $ 147 $ 160 $ 273 $ 299 The Company has one consolidated subsidiary with income attributable to a noncontrolling interest. The net income and comprehensive income attributable to the noncontrolling interest is insignificant. |
Other Income, Net
Other Income, Net | |
6 Months Ended
Mar. 31, 2010 | |
Other Income, Net | 14. Other Income, Net Other income, net consists of the following: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Royalty income $ 2 $ 3 $ 4 $ 4 Earnings from equity affiliates 3 2 5 4 Interest income 1 1 2 3 Other (1 ) 2 (3 ) 2 Other income, net $ 5 $ 8 $ 8 $ 13 |
Income Taxes
Income Taxes | |
6 Months Ended
Mar. 31, 2010 | |
Income Taxes | 15. Income Taxes At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods. During the three months ended March 31, 2010 and 2009, the effective income tax rate was 24.5 percent and 31.7 percent, respectively. During the six months ended March 31, 2010 and 2009, the effective income tax rate was 28.6 percent and 31.8 percent, respectively. The effective income tax rate for the three and six months ended March 31, 2010 reflects a benefit to the effective income tax rate of about 10 and 5 percentage points, respectively, due to the favorable impact of the Internal Revenue Service (IRS) completing its examination of the taxable years ended September 30, 2006 and 2007. The Federal Research and Development Tax Credit (Federal RD Tax Credit) expired December 31, 2009. The effective income tax rate for the three and six months ended March 31, 2010 reflects the unfavorable impact of lower Federal RD Tax Credits as a result of pro-rating the three months of available Federal RD Tax Credits over the full 2010 fiscal year. This resulted in an increase to the Companys effective income tax rate of approximately 2 percentage points, or $4 million, and 2 percentage points, or $7 million, for the three and six months ended March 31, 2010, respectively. In addition, changes to the tax treatment of the Medicare part D retiree subsidy related to the Patient Protection and Affordable Care Act (H.R. 3590) signed into law on March 23, 2010 resulted in an unfavorable impact to the Companys effective income tax rate for the three months ended March 31, 2010 of about 1 percentage point, or $1 million. The Company paid income taxes, net of refunds, of $54 million and $77 million during the six months ended March 31, 2010 and 2009, respectively. At September 30, 2009, the Company had gross unrecognized tax benefits of $98 million recorded within Other Liabilities in the Condensed Consolidated Statement of Financial Position, of which $56 million would affect the effective income tax rate if recognized. At March 31, 2010, the Company had gross unrecognized tax benefits of $73 million recorded within Other Liabilities in the Condensed Consolidated Statement of Financial Position, of which $48 million would affect the effective income tax rate if recognized. Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur in the range of $0 to $3 million. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of interest and penalties recognized within Other Liabilities in the Condensed Consolidated Statement of Financial Position was $3 million and $9 million as of March 31, 2010 and September 3 |
Fair Value Measurements
Fair Value Measurements | |
6 Months Ended
Mar. 31, 2010 | |
Fair Value Measurements | 16. Fair Value Measurements The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The FASBs guidance classifies the inputs used to measure fair value into the following hierarchy: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument Level 3 - unobservable inputs based on the Companys own assumptions used to measure assets and liabilities at fair value A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The fair value of the Companys financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and September 30, 2009 are as follows: March 31, 2010 September 30, 2009 Fair Value Fair Value Fair Value (in millions) Hierarchy Asset (Liability) Asset (Liability) Deferred compensation plan investments Level 1 $ 35 $ 35 Interest rate swap assets Level 2 7 8 Interest rate swap liabilities Level 2 (2 ) 0 Foreign currency forward exchange contract assets Level 2 4 8 Foreign currency forward exchange contract liabilities Level 2 (11 ) (11 ) There were no nonfinancial assets or nonfinancial liabilities recognized at fair value on a nonrecurring basis and there were no transfers between Levels of the fair value hierarchy during the six months ended March 31, 2010. The carrying amounts and fair values of the Companys financial instruments are as follows: Asset (Liability) March 31, 2010 September 30, 2009 Carrying Fair Carrying Fair (in millions) Amount Value Amount Value Cash and cash equivalents $ 246 $ 246 $ 235 $ 235 Long-term debt (527 ) (553 ) (532 ) (559 ) The fair value of cash and cash equivalents approximate their carrying value due to the short-term nature of the instruments. Fair value information for long-term debt is based on current market interest rates and estimates of current market conditions for instruments with similar terms, maturities and degree of risk. These fair value estimates do not necessarily reflect the amounts the Company would realize in a current market exchange. |
Derivative Financial Instrument
Derivative Financial Instruments | |
6 Months Ended
Mar. 31, 2010 | |
Derivative Financial Instruments | 17. Derivative Financial Instruments The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and interest rate swap contracts for the purpose of minimizing exposure to changes in foreign currency exchange rates on business transactions and interest rates, respectively. The Companys policy is to execute such instruments with banks the Company believes to be creditworthy and not to enter into derivative financial instruments for speculative purposes or to manage exposure for net investments in non-U.S. subsidiaries. These derivative financial instruments do not subject the Company to undue risk as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged. All derivative financial instruments are recorded at fair value in the Condensed Consolidated Statement of Financial Position. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value net of deferred tax impacts is recorded on the Condensed Consolidated Statement of Financial Position in Accumulated Other Comprehensive Loss (AOCL) to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The change in the fair value related to the ineffective portion of the hedge, if any, is immediately recognized in earnings. The amount recorded within AOCL is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The Company does not exclude any amounts from the measure of effectiveness for both fair value and cash flow hedges. All of the Companys derivatives were designated as accounting hedges as of March 31, 2010. The fair values of derivative instruments are presented on a gross basis as the Company does not have any derivative contracts which are subject to master netting arrangements. The Company did not have any hedges with credit-risk-related contingent features or that required the posting of collateral as of March 31, 2010. The cash flows from derivative contracts are recorded in operating activities in the Condensed Consolidated Statement of Cash Flows. Interest Rate Swaps The Company manages its exposure to interest rate risk by maintaining an appropriate mix of fixed and variable rate debt, which over time should moderate the costs of debt financing. When considered necessary, the Company may use financial instruments in the form of interest rate swaps to help meet this objective. In January 2010, the Company entered into two interest rate swap contracts (the 2019 Swaps) which expire on July 15, 2019 and effectively converted $150 million of |
Guarantees and Indemnifications
Guarantees and Indemnifications | |
6 Months Ended
Mar. 31, 2010 | |
Guarantees and Indemnifications | 18. Guarantees and Indemnifications Product warranty costs Accrued liabilities are recorded to reflect the Companys contractual obligations relating to warranty commitments to customers. Warranty coverage of various lengths and terms is provided to customers depending on standard offerings and negotiated contractual agreements. An estimate for warranty expense is recorded at the time of sale based on the length of the warranty and historical warranty return rates and repair costs. Changes in the carrying amount of accrued product warranty costs are summarized as follows: Six Months Ended March 31 (in millions) 2010 2009 Balance at beginning of year $ 217 $ 226 Warranty costs incurred (25 ) (26 ) Product warranty accrual 14 20 Pre-existing warranty adjustments (7 ) (2 ) Balance at March 31 $ 199 $ 218 Guarantees In connection with the 2006 acquisition of the Quest joint venture (see Note 8) the Company entered into a parent company guarantee related to various obligations of Quest. The Company has guaranteed, jointly and severally with Quadrant Group plc (Quadrant), the other joint venture partner, the performance of Quest in relation to its contract with the United Kingdom Ministry of Defence (which expires in 2030) and the performance of certain Quest subcontractors (up to $2 million). In addition, the Company has also pledged equity shares in Quest to guarantee payment by Quest of a loan agreement executed by Quest. In the event of default on this loan agreement, the lending institution can request that the trustee holding such equity shares surrender them to the lending institution in order to satisfy all amounts then outstanding under the loan agreement. As of March 31, 2010, the outstanding loan balance was approximately $6 million. Quadrant has made an identical pledge to guarantee this obligation of Quest. Should Quest fail to meet its obligations under these agreements, these guarantees may become a liability of the Company. As of March 31, 2010 the Quest guarantees are not reflected on the Companys Condensed Consolidated Statement of Financial Position because the Company believes that Quest will meet all of its performance and financial obligations in relation to its contract with the United Kingdom Ministry of Defence and the loan agreement. Letters of credit The Company has contingent commitments in the form of letters of credit. Outstanding letters of credit are issued by banks on the Companys behalf to support certain contractual obligations to its customers. If the Company fails to meet these contractual obligations, these letters of credit may become liabilities of the Company. Total outstanding letters of credit at March 31, 2010 were $84 million. These commitments are not reflected as liabilities on the Companys Condensed Consolidated Statement of Financial Position. Indemnifications The Company enters into indemnifications with lenders, counterparties in transactions such as |
Environmental Matters
Environmental Matters | |
6 Months Ended
Mar. 31, 2010 | |
Environmental Matters | 19. Environmental Matters The Company is subject to federal, state and local regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment that have had and will continue to have an impact on the Companys manufacturing operations. These environmental protection regulations may require the investigation and remediation of environmental impairments at current and previously owned or leased properties. In addition, lawsuits, claims and proceedings have been asserted on occasion against the Company alleging violations of environmental protection regulations, or seeking remediation of alleged environmental impairments, principally at previously owned or leased properties. As of March 31, 2010, the Company is involved in the investigation or remediation of eight sites under these regulations or pursuant to lawsuits asserted by third parties. Management estimates that the total reasonably possible future costs the Company could incur for seven of these sites is not significant. Management estimates that the total reasonably possible future costs the Company could incur from one of these sites to be approximately $8 million. The Company has recorded environmental reserves for this site of $3 million as of March 31, 2010, which represents managements best estimate of the probable future cost for this site. To date, compliance with environmental regulations and resolution of environmental claims has been accomplished without material effect on the Companys 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 Companys business or financial position, but could possibly be material to the results of operations or cash flows of any one quarter. |
Legal Matters
Legal Matters | |
6 Months Ended
Mar. 31, 2010 | |
Legal Matters | 20. Legal Matters 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 Companys business, including those pertaining to product liability, antitrust, intellectual property, safety and health, exporting and importing, contract, employment and regulatory matters. Although the outcome of these matters cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters that are pending or asserted are not expected to have a material adverse effect on the Companys business or financial position, but could possibly be material to the results of operations or cash flows of any one quarter. |
2009 Restructuring and Asset Im
2009 Restructuring and Asset Impairment Charges | |
6 Months Ended
Mar. 31, 2010 | |
2009 Restructuring and Asset Impairment Charges | 21. 2009 Restructuring and Asset Impairment Charges In September 2009, the Company recorded restructuring and asset impairment charges totaling $21 million. The charges were primarily comprised of employee separation costs of $10 million and a non-cash real estate impairment charge related to the Companys plans to close its Government Systems facility in San Jose, California and relocate engineering, production and service work to other existing facilities. During the first fiscal quarter of 2010, the Company reduced the employee severance restructuring reserve by $1 million primarily due to lower than expected employee separation costs. The employee severance restructuring reserve is included within Compensation and Benefits on the Condensed Consolidated Statement of Financial Position. Changes in the employee severance reserve during the six months ended March 31, 2010 are as follows: Employee (in millions) Separation Costs Balance at September 30, 2009 $ 10 Cash payments (7 ) Reserve adjustment (1 ) Balance at March 31, 2010 $ 2 |
Business Segment Information
Business Segment Information | |
6 Months Ended
Mar. 31, 2010 | |
Business Segment Information | 22. Business Segment Information The sales and results of operations of the Companys operating segments are summarized as follows: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Sales: Government Systems $ 693 $ 613 $ 1,309 $ 1,187 Commercial Systems 449 525 860 1,009 Total sales $ 1,142 $ 1,138 $ 2,169 $ 2,196 Segment operating earnings: Government Systems $ 150 $ 145 $ 284 $ 285 Commercial Systems 69 110 137 207 Total segment operating earnings 219 255 421 492 Interest expense (4 ) (3 ) (10 ) (7 ) Stock-based compensation (6 ) (5 ) (11 ) (10 ) General corporate, net (13 ) (7 ) (24 ) (13 ) Restructuring adjustment 0 0 1 0 Income before income taxes 196 240 377 462 Income tax provision (48 ) (76 ) (108 ) (147 ) Net income $ 148 $ 164 $ 269 $ 315 The Company evaluates performance and allocates resources based upon, among other considerations, segment operating earnings. The Companys definition of segment operating earnings excludes income taxes, stock-based compensation, unallocated general corporate expenses, interest expense, gains and losses from the disposition of businesses, restructuring and asset impairment charges and other special items as identified by management from time to time. Intersegment sales are not material and have been eliminated. The following table summarizes sales by product category for the three and six months ended March 31, 2010 and 2009: Three Months Ended Six Months Ended March 31 March 31 (in millions) 2010 2009 2010 2009 Government Systems product categories: Airborne solutions $ 455 $ 431 $ 865 $ 834 Surface solutions 238 182 444 353 Government Systems sales $ 693 $ 613 $ 1,309 $ 1,187 Commercial Systems product categories: Air transport aviation electronics $ 251 $ 259 $ 492 $ 479 Business and regional aviation electronics 198 266 368 530 Commercial Systems sales $ 449 $ 525 $ 860 $ 1,009 Product category sales for defense-related products in the Government Systems segment are delineated based upon the difference in underlying customer base and market served. The |