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Final q3 fy14 quarterly earnings presentation
- 1. © 2014 Rockwell Collins
All rights reserved.
Insert pictures into these angled boxes. Height should be 3.44 inches.
3rd Quarter FY 2014
Conference Call
July 22, 2014
- 2. © 2014 Rockwell Collins
All rights reserved.
2
Safe Harbor Statement
This presentation contains statements, including certain projections and business trends, that are forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result
of certain risks and uncertainties, including but not limited to the financial condition of our customers, including bankruptcies; the
health of the global economy, including potential deterioration in economic and financial market conditions; adjustments to the
commercial OEM production rates and the aftermarket; the impacts of natural disasters, including operational disruption, potential
supply shortages and other economic impacts; cybersecurity threats, including the potential misappropriation of assets or sensitive
information, corruption of data or operational disruption; delays related to the award of domestic and international contracts;
delays in customer programs; unanticipated impacts of sequestration and other provisions of the Budget Control Act of 2011 as
modified by the Bipartisan Budget Act of 2013; the continued support for military transformation and modernization programs;
potential adverse impact of oil prices on the commercial aerospace industry; the impact of terrorist events on the commercial
aerospace industry; declining defense budgets resulting from budget deficits in the U.S. and abroad; changes in domestic and
foreign government spending, budgetary, procurement and trade policies adverse to our businesses; market acceptance of our
new and existing technologies, products and services; reliability of and customer satisfaction with our products and services;
potential unavailability of our mission-critical data and voice communication networks; favorable outcomes on or potential
cancellation or restructuring of contracts, orders or program priorities by our customers; recruitment and retention of qualified
personnel; regulatory restrictions on air travel due to environmental concerns; effective negotiation of collective bargaining
agreements by us and our customers; performance of our customers and subcontractors; risks inherent in development and fixed-
price contracts, particularly the risk of cost overruns; risk of significant reduction to air travel or aircraft capacity beyond our
forecasts; our ability to execute to our internal performance plans such as our productivity and quality improvements and cost
reduction initiatives; achievement of ARINC integration and synergy plans as well as our other acquisition and related integration
plans; continuing to maintain our planned effective tax rates; our ability to develop contract compliant systems and products on
schedule and within anticipated cost estimates; risk of fines and penalties related to noncompliance with laws and regulations
including export control and environmental regulations; risk of asset impairments; our ability to win new business and convert
those orders to sales within the fiscal year in accordance with our annual operating plan; and the uncertainties of the outcome of
lawsuits, claims and legal proceedings, as well as other risks and uncertainties, including but not limited to those detailed herein
and from time to time in our Securities and Exchange Commission filings. These forward-looking statements are made only as of
the date hereof and the company assumes no obligation to update any forward-looking statement.
- 3. © 2014 Rockwell Collins
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3
(in millions except EPS amounts)
3rd Quarter FY 2014 Results
$1,132
$1,264
3Q FY13 3Q FY14
Sales
12% increase
$161 $163
3Q FY13 3Q FY14
Income from Continuing
Operations, net of taxes
1% increase
137.2 136.9
3Q FY13 3Q FY14
Diluted Average Shares
Outstanding
$1.18 $1.19
3Q FY13 3Q FY14
EPS from Continuing Operations
1% increase
(1)
(1)
(1)
(1) Prior year amounts have been revised to exclude discontinued operations.
- 4. © 2014 Rockwell Collins
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(1)
4
($ in millions)
Sales
$29 million OEM growth: 9%
• Higher delivery rates for Boeing 787
• Increased customer funded development
• Lower sales in light business jets
$5 million Aftermarket increase: 2%
• Increased service and support
• Higher Boeing 747-8 and 787 spares sales
• Lower retrofit sales
Operating Earnings
$1 million decrease in operating earnings
• Higher employee related costs and
unfavorable mix
• Lower company-funded R&D expenses
Commercial Systems
22.3%23.8%
Operating
Margins
(1) Certain prior year amounts have been reclassified to the Information Management
Services segment. See the supplemental schedule included in the press release filed
on Form 8-K dated January 21, 2014 for a reconciliation of amounts reclassified.
(1)
$551
$583
3Q FY13 3Q FY14
CS Sales
6% increase
$131 $130
3Q FY13 3Q FY14
CS Operating Earnings
1% decrease
- 5. © 2014 Rockwell Collins
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5
22.0% 20.9%
($ in millions)
Government Systems
Sales
Sales decline $34 million: (6%)
• Lower sales for the E-6, KC-46 and KC-10
programs
• Lower deliveries of JTRS Manpack radios
Sales by product category:
• Avionics decrease (7)%
• Communication Products decrease (11)%
• Surface Solutions increase 10%
• Navigation Products decrease (7)%
Operating Earnings
Decrease in operating earnings and operating
margin primarily due to:
• Lower sales
• Higher employee benefit related costs
• The absence of certain favorable program
adjustments that benefited the prior year
• Partially offset by a better mix of higher margin
hardware sales and cost savings initiatives
Operating
Margins
$569
$535
3Q FY13 3Q FY14
GS Sales
6% decrease
$125
$112
3Q FY13 3Q FY14
GS Operating Earnings
10% decrease
(1) Prior year amounts have been revised to exclude the military satellite communications systems
business (formerly known as Datapath), which is now reported as a discontinued operation.
(1)
(1)
- 6. © 2014 Rockwell Collins
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6
($ in millions)
Sales
• $134 million sales from ARINC
Operating Earnings
Increase in operating earnings and operating
margin primarily due to the acquisition of
ARINC
Information Management Services
14.4%8.3%
Operating
Margins
$12
$146
3Q FY13 3Q FY14
IMS Sales
$1
$21
3Q FY13 3Q FY14
IMS Operating Earnings
- 7. © 2014 Rockwell Collins
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7
($ in millions except EPS amounts)
Nine Month FY 2014 Results
$3,255
$3,577
3Q FY13 YTD 3Q FY14 YTD
Sales
10% increase
$309
$237
3Q FY13 YTD 3Q FY14 YTD
Operating Cash Flow
23% decrease
$3.29 $3.25
3Q FY13 YTD 3Q FY14 YTD
EPS from Continuing Operations
1% decrease
$455 $445
3Q FY13 YTD 3Q FY14 YTD
Income from Continuing
Operations, net of taxes
2% decrease
(1)
(1)
(1)
(1) Prior year amounts have been revised to exclude discontinued operations.
- 8. © 2014 Rockwell Collins
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113 132
368 357
206 194
3Q FY13 YTD 3Q FY14 YTD
R & D Investment
Company Funded R&D
Customer Funded R&D
Pre-production Engineering, Net
8
$687 $683
($ in millions)
Research and Development
• Company-funded R&D efforts declined on
various next generation business jets
• Customer funded R&D declined due to
development programs winding down in
Government Systems, partially offset by an
increase in Commercial Systems customer
funded development programs
• Increased investment in pre-production
engineering programs driven by:
• Boeing 737MAX
• Airbus CSeries
• Bombardier CSeries and Global
7000/8000
21.1% 19.1%
% of
Sales
- 9. © 2014 Rockwell Collins
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9
9/30/13 6/30/14
Cash and cash equivalents 391$ 450$
Short-term Debt (436) (855)
Long-term Debt (563) (1,663)
Net Debt (608)$ (2,068)$
Equity 1,623$ 1,953$
Debt To Total Capital 38% 56%
Debt To EBITDA
(1)
0.9x 2.2x
($ in millions)
Capital Structure Status
(1) See slide 12 for non-GAAP disclosures
- 10. © 2014 Rockwell Collins
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10
(shares in millions)
Status of Share Repurchases
650,000 shares repurchased in fiscal year
2014 third quarter
• Cost of Purchases - $50.7 Million
• Average Cost per Share - $77.99
87.6 million shares repurchased since January
2002
• Cost of Purchases - $4.4 Billion
$305 million authorization remaining at the
end of Q3
135.3 135.1
3Q FY13 3Q FY14
Common Shares Outstanding
- 11. © 2014 Rockwell Collins
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11
Total Sales
$4.90 Bil. to $4.95 Bil.
(From $4.95 Bil. to $5.05 Bil.)
Total Segment Operating Margins
About 21%
(From 20% to 21%)
Earnings Per Share
$4.45 to $4.55
(From $4.40 to $4.55)
Cash Provided by Operating Activities
About $650 Mil.
(From $600 Mil. to $700 Mil.)
Research & Development Investment About $950 Mil.
Capital Expenditures About $160 Mil.
FY 2014 Guidance (1)
(1) - This slide represents a summary of the company's fiscal year 2014 financial guidance for continuing operations. The fiscal year 2014 outlook has been
updated due to the pending sale of Datapath and to narrow the ranges from the previous financial guidance.
- 12. © 2014 Rockwell Collins
All rights reserved.
12
The Non-GAAP ratio of debt to EBITDA information included on slide nine is believed to be useful to
investors’ understanding and assessment of the Company’s total capital structure and liquidity. The
Company does not intend for the information to be considered in isolation or as a substitute for the
related GAAP measures. The table below explains the debt to EBITDA calculation in more detail for the
twelve-month period from October 1, 2012 through September 30, 2013 and the twelve-month period
from July 1, 2013 through June 30, 2014 (unaudited, in millions). All businesses reported as
discontinued operations have been excluded from the debt to EBITDA calculation.
Non-GAAP Financial Information
12 months ended
9/30/13 6/30/14
Income from continuing operations before income taxes $ 865 $ 878
Interest expense 28 50
Depreciation 123 134
Amortization of intangible assets and pre-production engineering
costs 53 73
Earnings before interest, taxes, depreciation and amortization
(EBITDA) $ 1,069 $ 1,135
9/30/13 6/30/14
Total debt $ 999 $ 2,518
Debt to EBITDA 0.9x 2.2x
- 13. © 2014 Rockwell Collins
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13
($ in millions)
Third Quarter 2014 ARINC Results
Three months ended June 30, 2014
ARINC
Corporate
Costs(a)
Total
Sales 134$ -$ 134$
Income before income taxes 20$ (9)$ 11$
Depreciation and amortization expense 10 - 10
Interest expense - 8 8
EBITDA 30 (1) 29
Transaction and integration costs - - -
EBITDA, adjusted 30$ (1)$ 29$
Total EBITDA, adjusted as a percentage of sales 21.6%
The Non-GAAP financial information included in the table below for earnings before interest, taxes, depreciation,
and amortization (EBITDA) and adjusted EBITDA are believed to be useful to an investor's understanding and
assessment of the recently completed ARINC acquisition. The Company does not intend for the Non-GAAP
information to be considered in isolation or as a substitute for the related GAAP measures. The table below
explains the impact that certain non-cash depreciation and amortization charges, and certain transaction and
integration expenses, had on the financial results for ARINC during the three months ended June 30, 2014. The
ASES business is treated as discontinued operations and is therefore excluded from the table (unaudited, in
millions).
(a) The Company’s definition of segment operating earnings excludes certain items, including interest and other
general corporate expenses not allocated to business segments. Corporate costs for the three months ended
June 30, 2014 include $8 million of interest expense from the incremental interest on the debt issued in
December 2013 to finance the acquisition. The remaining corporate costs of $1 million represent selling, general
and administrative expenses related to ARINC that were incurred at the corporate level.