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Fitch Ratings Affirms Rockwell Collins.

NEW YORK -- Fitch Ratings has affirmed Rockwell Collins, Inc. (COL) credit ratings as follows:

-- Senior unsecured debt and bank facilities 'A';

-- Commercial paper program 'F1'.

The Rating Outlook is Stable.

COL's ratings benefit from the company's position as a leading supplier of commercial and military communication, navigation and electronic products and systems; COL's balance between commercial and military sales; and its significant level of aftermarket sales. Increased global airline traffic, which drives commercial aftermarket sales; improvement in the business jet market; healthy military budgets; and COL's position in some of the most favorable parts of the DOD budget also support the ratings.

Additional support for the ratings is derived from COL's high operating margins and strong cash generation, which has allowed COL to maintain a strong balance sheet and a solid liquidity position despite increased share repurchases, discretionary pension contributions and the acquisition of NLX LLC in December 2003.

Concerns center on COL's cash deployment strategy, including acquisitions; the underfunded pension fund; and exposure to Bombardier Inc.'s regional jet production rates. The fragility of the commercial aviation recovery remains a concern, but COL's successful weathering of the most recent downturn indicates management's ability and willingness to take the necessary actions to maintain financial strength in difficult markets. COL's underfunded pension plans are becoming less of a concern as discretionary contributions in the past two fiscal years, modifications of terms, and strong returns in the past year have caused the underfunded status to decline approximately 50% to $386 million as of June 30, 2004 (the most recent measurement date). As a result, plans were 83% funded as of June 30, 2004. With only approximately 7% of revenues from regional jet activity and COL's ability to shift workers and assets among platforms according to demand, COL should be able to more than offset declining regional jet business from Bombardier with additional business generated by production increases in business jets and large commercial aircraft.

Fitch expects that cash deployment will focus on share repurchases and acquisitions. Given the improving profile of COL's pension obligations, we do not expect discretionary pension contributions to be a primary focus. With only $201 million in debt, Fitch does not expect debt reduction to be a focus of cash deployment either. During the past three fiscal years COL repurchased shares totaling $435 million, and COL still has board authorization to repurchase up to $164 million of stock. Fitch expects that COL will manage share repurchases in conjunction with potential acquisitions with the goal of minimizing the effect on its credit profile.

At Sept. 30, 2004, COL had a liquidity position of $990 million, consisting of $196 million of cash, $767 million in availability under its $850 million domestic credit line (utilization consisting of $83 million in letters of credit and surety bond guarantees) and $27 million in availability under $37 million in overseas credit lines (utilization consisting of $10 million in letters of credit). While COL's credit ratios remain strong for the rating category, COL has seen its key ratios deteriorate modestly as the result of issuing $200 million in debt in November 2003 to partially fund the acquisition of NLX LLC and make a discretionary pension contribution. For the fiscal year ending Sept. 30, 2004, COL's leverage, as defined by debt to EBITDAP and adjusted debt to EBITDAPR, increased to 0.4 times (x) and 0.7x from 0.1x from 0.4x in 2003, respectively. Interest coverage, as defined by EBITDAP/interest and EBITDAPR/ (interest plus rents) decreased to 71.0x and 17.5x from 163.0x and 19.7x in 2003, respectively.
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Publication:Business Wire
Date:Dec 17, 2004
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