Q3 fy15 quarterly earnings presentation

© 2015 Rockwell Collins All rights reserved.

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3rd Quarter FY 2015 Conference Call July 24, 2015


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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 and suppliers, 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 and pandemics, 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, including new aircraft programs entering service later than anticipated; the continued support for military transformation and modernization programs; potential impact of volatility in oil prices, currency exchange rates or interest rates on the commercial aerospace industry or our business; 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; unfavorable 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, our customers, and our suppliers; 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 internal performance plans such as 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.


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(in millions except EPS amounts) 3rd Quarter FY 2015 Results

$1,264 $1,293

3Q FY14 3Q FY15

Sales

2% increase $163

$178

3Q FY14 3Q FY15

Income from Continuing Operations, net of taxes

9% increase

$1.19 $1.33

3Q FY14 3Q FY15

EPS from Continuing Operations

12% increase

136.9 133.6

3Q FY14 3Q FY15

Diluted Average Shares Outstanding

2% decrease


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($ in millions)

Sales $35 million OEM growth: 10%

• Higher customer funded development program sales

• Improved share of airline selectable equipment • Higher deliveries in support of Airbus A350 and

Legacy 500 entry into service • Higher hardware sales for Chinese regional

aircraft

$3 million Aftermarket decrease: (1)% • Lower spares provisioning for Boeing 787 • Partially offset by higher regulatory mandate

sales

Operating Earnings Increase in operating earnings due to higher sales volume and favorable contract adjustments

Commercial Systems

23.1% 22.3% Operating Margins

$583 $611

3Q FY14 3Q FY15

CS Sales

5% increase

$130 $141

3Q FY14 3Q FY15

CS Operating Earnings

8% increase


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20.9% 20.4%

($ in millions) Government Systems

Sales Sales decrease 5 million: (1)% • Lower deliveries of Firestorm targeting systems

and JTRS Manpack radios • Lower development sales for the CRIIS program • Lower simulation and training sales • Lower sales due to the impact of a stronger U.S.

dollar • Partially offset by higher hardware deliveries on

rotary wing platforms, higher KC-10 retrofit and data link development program sales, and increased sales due to development effort on modernized GPS products

Sales by category: • Avionics increase 3% • Communication Products flat • Surface Solutions decrease (37)% • Navigation Products increase 21% Operating Earnings Decrease in operating earnings due to lower sales, higher investment in company-funded R&D, and higher bid and proposal costs

Operating Margins

$535 $530

3Q FY14 3Q FY15

GS Sales

1% decrease

$112 $108

3Q FY14 3Q FY15

GS Operating Earnings

4% decrease


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($ in millions)

Sales Sales increase $6 million: 4% • 8% increase in aviation related connectivity

services • Partially offset by lower sales due to the exit of

certain government programs

Operating Earnings Increase in operating earnings and operating margin primarily due to higher sales volume and the absence of certain licensing costs incurred in the prior year, partially offset by higher business development costs

Information Management Services

15.1% 14.4% Operating Margins

$146 $152

3Q FY14 3Q FY15

IMS Sales

4% increase

$21 $23

3Q FY14 3Q FY15

IMS Operating Earnings

10% increase


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($ in millions except EPS amounts) Nine Month FY 2015 Results

(1) Prior year amount has been revised to exclude discontinued operations.

$3,577 $3,860

3Q FY14 YTD 3Q FY15 YTD

Sales

8% increase

$445 $510


Income from Continuing Operations, net of taxes

15% increase

$3.25

$3.81


EPS from Continuing Operations

17% increase

$265

$341


Operating Cash Flow from Continuing Operations

29% increase

(1)


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$683 $731

($ in millions) Research and Development

• Company-funded R&D increased due to

efforts associated with positioning Government Systems business for new growth opportunities

• Customer funded R&D increased primarily

due to the following: • Higher costs for international

development programs in Commercial Systems

• Increased costs for data link development programs in Government Systems

• Higher amortization of pre-production engineering costs

• Decreased investment in pre-production

engineering driven by lower A350 spend and higher amortization expense

19.1% 18.9% % of Sales

132 99

357 431

194 201


R & D Investment

Company Funded R&DCustomer Funded R&DIncrease in Pre-production Engineering, Net


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09/30/14 06/30/15

Cash and cash equivalents 323$ 294$

Short-term Debt (504) (745)

Long-term Debt (1,663) (1,667)

Net Debt (1,844)$ (2,118)$

Equity 1,889$ 2,055$

Debt To Total Capital 53% 54%

Debt To EBITDA (1) 1.9x 1.9x

($ in millions) Capital Structure Status

(1) See slide 12 for non-GAAP disclosures.


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(shares in millions) Status of Share Repurchases

0.9 million shares repurchased in fiscal year 2015 third quarter

• Cost of Purchases - $88 Million • Average Cost per Share - $96.06

$380 million authorization remaining at the end of the third quarter

135.1 131.7

3Q FY14 3Q FY15

Common Shares Outstanding


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Total Sales $5.25 Bil. To $5.3 Bil. (From $5.2 Bil. to $5.3 Bil.)

Total Segment Operating Margins About 21.0% (From 20.5% to 21.5%)

Earnings Per Share $5.15 to $5.25 (From $5.10 to $5.30)

Cash Flow from Operations $725 Mil. To $775 Mil. (From $700 Mil. To $800 Mil.)

Research & Development Investment About $1 Bil.

Capital Expenditures About $200 Mil.

FY 2015 Guidance for Continuing Operations


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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, 2013 through September 30, 2014 and the twelve-month period from July 1, 2014 through June 30, 2015 (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 9/30/14 6/30/15 Income from continuing operations before income taxes $ 882 $ 949 Interest expense 59 61 Depreciation 141 153

Amortization of intangible assets and pre-production engineering costs 84 101

Earnings before interest, taxes, depreciation and amortization (EBITDA)

$ 1,166 $ 1,264

9/30/14 6/30/15 Total debt $ 2,167 $ 2,412 Debt to EBITDA 1.9x 1.9x


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Investor Relations

Q3 fy15 quarterly earnings presentation