Rockwell Collins Earnings Call Nuggets: Sequestration and Deferred Engineering

Rockwell Collins, Inc. (NYSE:COL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Sequestration

Robert Spingarn – Credit Suisse: Clay, I know we get one more quarter with you, but congratulations to you and to Kelly. Just on sequestration and you were one of the only companies to embed this in the guidance, but what I wanted to ask you is, given that that outlook is a little better, we’re allowing for better Government Systems results and you are offsetting that a little bit on the Commercial side, if sequestration comes to fruition, it’s possible that the full effect of it would be compressed into the backend to the government fiscal year, which matches your fiscal year. So, might not still see the full $120 million?

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Clayton M. Jones – Chairman, President and CEO: That is possible. We could see that Rob, but the reason we – I only adjusted the Government Systems one point is really because the first half of the year was a little stronger than we would have said. Remember, when we first gave guidance, we thought that the average reduction in Government Systems sales would be about 10% a quarter, and obviously we’ve done better than that in the first two quarters. The back half of the year was loaded primarily with the sequestration impact that drove that back down as we’re seeing lift from international programs and development programs that were actually picking up such as our surface solutions, I mentioned earlier. So, the adjustment is just because of the first half results and we still are waiting to see what that back half guidance is. So, you are correct. If we see the full $120 million impact will still be on our current guidance. If we see less than that, that’s the improvement, I alluded to that we possibly could see.

Deferred Engineering

Cai von Rumohr – Cowen & Co.: Let me definitely join in and say, Clay terrific job done. It’s been terrific working with you over the years.

Clayton M. Jones – Chairman, President and CEO: You are very kind, as Rob said you will still have one more quarter to kick me around. So, don’t lose that event.

Cai von Rumohr – Cowen & Co.: So, a quick one, you’ve said that R&D is down $50 million, but my numbers is about 330 of that is deferred engineering, how much of the rest is Company R&D and are you still looking because that was an offset to incentive comp. Are you still looking for $110 million of incentive comps for the year? Thank you.

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Clayton M. Jones – Chairman, President and CEO: What I would think Cai is that – about $40 million of the $50 million drop is related to deferred engineering and the rest is a mix of company and customer funded. And as for Incentive compensation, we really haven’t changed our targeted payout this quarter, because we haven’t changed our guidance.