Rockwell Collins, Inc. reported fourth quarter fiscal year 2011 net income of $175 million, an increase of $25 million, or 17%, from $150 million in the same period last year. Earnings per share for the quarter were $1.13, an increase of $0.19, or 20%, from earnings per share of $0.94 in the fourth quarter of 2010. Earnings per share and net income for the fourth quarter of 2011 include an $0.11, or $17 million gain ($27 million before income taxes) from the divestiture of the Rollmet business and an offsetting restructuring charge of $0.11, or $17 million ($27 million before income taxes).
The company reported a sales increase of $25 million, or 2%, to $1.296 billion for the fourth quarter of 2011 compared to sales of $1.271 billion for the same period a year ago. Total segment operating earnings increased 9% to $271 million, or 20.9% of sales, for the fourth quarter of 2011 compared to $248 million, or 19.5% of sales, for the fourth quarter of 2010.
Full year 2011 earnings per share increased 15% to $4.06 compared to $3.52 last year. The increase in earnings per share resulted from higher sales, increased segment operating margins, a lower effective income tax rate and the favorable impact from share repurchases. Total company sales for fiscal year 2011 increased $175 million, or 4% to $4.806 billion driven by a 13% increase in Commercial Systems sales partially offset by a 2% reduction in Government Systems.
Cash provided by operating activities for fiscal year 2011 totaled $657 million driven by $411 million of operating cash flow during the fourth quarter of 2011. Operating cash flow as a percent of net income was 104% for fiscal year 2011.
"I am pleased with the performance of our business as we closed out fiscal year 2011, especially related to cash flow generation and increased operating margins," said Rockwell Collins Chairman, President and Chief Executive Officer Clay Jones. "Commercial Systems continued to realize strong revenue growth and rapidly expanding operating margins, while Government Systems sustained its robust operating margins in the face of modestly declining sales."
Jones went on to state, “The balance and diversity of our business should enable continued revenue growth for fiscal year 2012 driven by the strength of commercial markets. We also expect to realize additional operating margin expansion, cash flow generation aligned with our long-term goals, and earnings per share growth at more than three times the rate of sales growth.”
Following is a discussion of fiscal year 2011 fourth quarter sales and earnings for each business segment. Commercial Systems' segment results exclude the results of the Rollmet business for all periods presented. The divestiture of Rollmet closed during the fourth quarter of fiscal year 2011 and is classified as a discontinued operation.
Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide, achieved 2011 fourth quarter sales of $517 million, an increase of $44 million, or 9%, compared to sales of $473 million reported for the same period last year.
Sales related to aircraft original equipment manufacturers increased $37 million, or 16%, to $268 million driven by higher product deliveries for the Bombardier Global platform and increased sales of avionics to air transport OEMs resulting from higher aircraft production rates. Aftermarket sales increased $6 million, or 3%, to $214 million primarily driven by increased service and support sales partially offset by the absence of Project Liberty spares delivered in same period last year.
Commercial Systems fourth quarter operating earnings increased $22 million, or 28%, to $101 million, resulting in an operating margin of 19.5%, compared to operating earnings of $79 million, and an operating margin of 16.7%, for the same period a year ago. The increase in operating earnings and margin was primarily attributable to higher sales volume, partially offset by higher company-funded research and development and selling, general and administrative expenses.
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 foreign ministries of defense around the world. Beginning in the fourth quarter of fiscal year 2011, Government Systems sales have been reclassified into Avionics, Communication products, Surface solutions and Navigation products to provide enhanced clarity of the sales drivers of the business. Presentation of sales by the new product categories has been provided for certain prior periods in the Supplemental Information table of this press release.
Sales in the fourth quarter of 2011 were $779 million, a decrease of $19 million, or 2%, compared to the $798 million reported for the same period last year. Avionics sales increased $4 million, or 1%, from the fourth quarter of 2010 due to increased sales for the KC-46A tanker and the E-6 aircraft upgrade programs, offset by a decline resulting from the completion of deliveries for the KC-135 GATM program. Communication product sales declined by $14 million, or 7%, primarily due to the completion of deliveries last year for two satellite communication upgrade programs. Surface solutions sales increased $2 million, or 2%, resulting from increased deliveries of public safety vehicle systems and increased revenue for the Common Range Integrated Instrumentation System program, partially offset by two programs terminated for convenience in the third quarter. Sales of Navigation products decreased by $11 million, or 12%, primarily driven by fewer deliveries of Defense Advanced GPS Receiver products.
Government Systems fourth quarter operating earnings increased $1 million to $170 million, resulting in an operating margin of 21.8%, compared to operating earnings of $169 million, and an operating margin of 21.2%, for the same period last year. The increase in operating earnings and margin was primarily the result of improved operating efficiency partially offset by lower sales.
Corporate and Financial Highlights
General corporate expenses that are not allocated to the company's business segments were $14 million for the fourth quarter of 2011 compared to $18 million in the same period last year. The reduction was primarily driven by lower pension expenses. During the fourth quarter of 2011, the company recorded a restructuring charge of $27 million ($17 million after income taxes), or $0.11 per share, related to certain asset impairment charges, facility rationalization and employee severance costs.
The company's effective income tax rate was 27.9% for the fourth quarter of 2011 compared to a rate of 32.1% for the same period last year. The lower tax rate was primarily driven by the extension of the Federal Research and Development Tax Credit and the increased benefit from the Domestic Manufacturing Deduction.
The company repurchased 0.9 million shares of its common stock in the fourth quarter of 2011 at a total cost of $48 million and in September the company's Board of Directors increased the share repurchase authorization by $700 million. The company also paid dividends on its common stock totaling $36 million, or 24 cents per share.
During the fourth quarter of 2011, the company sold the Rollmet product line for a pre-tax gain of $27 million ($17 million after income taxes). The divestiture and related gain on sale has been accounted for as a discontinued operation for all periods presented. Certain prior period amounts have been reclassified to conform to the current year presentation. For the three and twelve months ended September 30, 2010, Commercial Systems sales have been reduced by $11 million and $34 million, respectively, and Commercial Systems operating earnings have been reduced by $2 million and $6 million, respectively.