This year, we celebrated Rockwell Collins' 10th anniversary as an independent, publicly traded company. It was a decade marked by exciting growth but tremendous volatility as world events — beginning on September 11, 2001, and continuing through the most recent financial crisis — impacted our markets in a variety of ways.
However, over the past 10 fiscal years, on average, our revenues have grown 8 percent annually, while earnings per share increased 14 percent. Total return to shareowners over that period has been 163 percent compared to a relatively flat S&P 500.
Key to that performance are Rockwell Collins' fundamental strategies: the balance between our Commercial Systems and Government Systems businesses; the diversity of our customer base and product offerings; and the benefits — in technology sharing, innovation and business practices — that our integrated business model provides.
In fiscal year 2011, these strategies served us well as revenues increased 4 percent over fiscal year 2010 to $4.8 billion, and we delivered operating cash flow of $657 million. Earnings per share grew 15 percent to $4.06, driven in large part by a 90 basis point increase in total segment operating margins to 20.2 percent.
Commercial Systems achieved sales growth of 13 percent, which more than offset the lingering impacts of the U.S. government's deficit reduction actions on Government Systems, where sales declined by 2 percent. Indicative of our strong operational performance, Commercial Systems increased its operating margin by 290 basis points to 19.1 percent, while Government Systems maintained robust margins of 21 percent.
Despite the global volatility we've witnessed over the past decade, our company remains fundamentally solid, and we're positioned for continued growth even in today's uncertain climate.
Despite the global volatility we've witnessed over the past decade, our company remains fundamentally solid, and we're positioned for continued growth even in today's uncertain climate. Here's why:
Reliability customers can count on
Rockwell Collins' reliability and quality have earned us a strong reputation and repeat customers. For example, with this year's win for systems integration and avionics for the KC-10 cockpit modernization program, Rockwell Collins is now the primary avionics provider for all U.S. Air Force tankers.
This achievement is a result of our relentless drive to meet and exceed customer expectations. In July, the U.S. Air Force commemorated the delivery of the 419th and final KC-135 Global Air Traffic Management equipped aircraft — all of which were delivered on time and on budget. It was a very satisfying finish to an important program, and that program's success led to another: Rockwell Collins is further modernizing the KC-135 fleet over the next 10 years as part of the Block 45 upgrade program to provide the latest-generation autopilot, flight director, radar altimeter and electronic engine display.
It's also very gratifying when our performance is formally recognized by customers. In 2011, we received a Gold Award from Airbus for consistent delivery of "exceptional customer support performance"; a Supplier of the Year award from Embraer for the development and integration of our Pro Line Fusion avionics on their Legacy 450/500 mid-sized jets; a Gold Medal award from the Commercial Aircraft Corporation of China for providing outstanding support on the ARJ-21 flight test and certification program; and Golden Supplier status from Xi'an Aircraft Corporation for our performance on the MA-60 and MA-600 aircraft programs. These successes aside, our people continue to apply the tools and techniques of Lean ElectronicsSM to achieve even higher levels of customer satisfaction.
Balanced business serves us well
Celebrating Rockwell Collins' 10th anniversary as an independent, publicly traded company during the NYSE Closing Bell on June 29, 2011.
For much of the past decade, Government Systems generated double-digit revenue growth, while the impact of two recessionary periods held Commercial Systems' growth to low single digits. However, market conditions have shifted considerably over the past year. A modest decline in government business was offset by increased commercial sales, with indicators pointing to continued rapid expansion within that market.
The balance between our government and commercial businesses positions Rockwell Collins to take advantage of this market shift. This unique model allows us to capitalize on share gains and growth within our commercial business segments, while continuing to optimize our government business in an effort to maintain its industry-leading margins in the face of more challenging growth prospects.
This model also allows technological advancements developed by one side of our business to be shared with the other. For example, innovations developed for the Boeing 787 Dreamliner have already found a new home in the government market through a recent contract with Boeing to provide a full range of mission systems for the KC-46 tanker aircraft. Similarly, our flight control technology for military unmanned aerial vehicles has found its way onto civilian business aircraft in the form of autonomous backup control for emergency situations. This technology-sharing approach maximizes value for our customers and shareowners.
Investments for future growth
To ensure that our customers benefit from the latest technological advancements, we remain committed to a very high level of investment in research and development. In fact, over the past several years, that investment has averaged 19 percent of sales each year — one of the highest levels in the industry.
We've made this commitment consistently, through a wide range of economic conditions, because we believe it correlates directly with long-term success. Our investments are paying strong dividends through significant market share gains, with many of the returns still in front of us.
The Boeing 787 Dreamliner was delivered to its first customer in September, the culmination of years of work and investment. Featuring more Rockwell Collins content than any other commercial aircraft in our history, the Dreamliner represents some of the most innovative engineering our company has to offer, and will become a significant source of revenue over the next 15 to 20 years. Similar success on the Boeing 747-8 and the Airbus A350 should provide strong, predictable revenue growth in this sector for years to come.
To ensure that our customers benefit from the latest technological advancements, we remain committed to a very high level of investment in research and development.
We marked a major milestone this year with the certification of our Pro Line Fusion integrated avionics system on Bombardier's Global Vision flight deck for their Global 5000 and 6000 business jets. The system will enter service early in 2012. The momentum provided by Pro Line Fusion will continue with the certification of nine additional aircraft in the coming years, the next being Gulfstream's G280, also in 2012.
This year, we introduced several new capabilities for Pro Line Fusion, all of which represent industry firsts for the business aircraft market. These innovations include touch-screen primary flight displays, autonomous backup control and the industry's only head-up guidance system designed to fit in light- to mid-sized business aircraft.
Flying an aircraft in low visibility can be a pilot's most challenging task. To aid pilots in these crucial situations, we announced the debut of the industry's first synthetic vision on a head-up display — providing real-time, computer-generated terrain and flight information in the pilot's forward field of view. This capability will debut on Bombardier's Global 5000 business jet.
Our investment in software-defined radios led to the U.S. Navy's order for a fifth generation of ARC-210 radios, offering networking and modern cryptographic functionality for a wide range of Navy airborne platforms. These first-to-market radios will provide immediate communication superiority as well as a clear upgrade path for additional waveforms as technologies mature and budgets allow.
Stakeholders are also benefiting from investments in our people. Rockwell Collins University continues to heighten our employees' professional development and build the skills of our leadership. Our diversity and inclusion strategy was recognized by DiversityInc, which named us to their 2011 Top 50 Companies for Diversity®. And our emphasis on ethical business practices was recognized by the Ethisphere Institute, which named us among their "2011 World's Most Ethical Companies."
Expansion in global markets
This year, we grew sales outside the U.S. 8 percent by expanding existing relationships, introducing new services and capabilities, and increasing our presence in key regions of the world.
Our strong relationship with Embraer — resulting from previous successes on the commercial side of our business — led to an agreement to provide Pro Line Fusion avionics systems for the Brazilian Air Force's fleet of new KC-390 tanker/transport aircraft. We also added European Regional Trip Support — as well as scheduling and dispatch services through the acquisition of Computing Technologies for Aviation (CTA) — to our Ascend™ flight information solutions. These new capabilities further advance our strategy to become the single source for end-to-end flight information management solutions for business aircraft operators worldwide.
Nevertheless, we recognize great potential remains. In fact, we project that our international revenues should grow from about a third of revenues today to roughly 40 percent by 2020. In our ongoing efforts to achieve that goal, Rockwell Collins this year opened new offices or expanded existing facilities in Brazil, China, France, India and the United Arab Emirates. The experience and insights gained from sales, engineering and Life Cycle Value Stream Management teams around the world will help us better serve customers and realize projected gains.
Looking ahead
As we look ahead to 2012 and beyond, we expect that the dynamic conditions that have characterized our markets over the past few years will continue and, in fact, accelerate. I believe Rockwell Collins and its people are ready for the challenge.
Our company has met equally challenging conditions head-on over the past decade and came out stronger each time. Our approach remains the same: focus on our customers and meet or exceed their expectations; remain committed to innovative investments that fuel new growth; drive efficiencies in structure and process to better serve all stakeholders; and unleash the considerable energy of our people to achieve their full potential.
Thank you for your confidence in our company. I am optimistic about the future and, along with our employees and directors, remain committed to earning your trust — every day.
Sincerely,
Clayton M. Jones
Chairman, President and
Chief Executive Officer