Download - Q4 fy14 quarterly earnings presentation
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4th Quarter FY 2014Conference Call
October 31, 2014
© 2014 Rockwell Collins All rights reserved.
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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, 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; 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 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.
© 2014 Rockwell Collins All rights reserved.
$1.28 $1.27
4Q FY13 4Q FY14
EPS from Continuing Operations
1% decrease
$175 $173
4Q FY13 4Q FY14
Income from Continuing Operations, net of taxes
1% decrease
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(in millions except EPS amounts)
4th Quarter FY 2014 Results
(1)
(1)
(1) Prior year amounts have been revised to exclude discontinued operations.
(2) See slide 15 for non-GAAP disclosures.
$1,219 $1,402
4Q FY13 4Q FY14
Sales
15% increase
(1) (2)
(2)
136.7 136.2
4Q FY13 4Q FY14
Diluted Average SharesOutstanding
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(1)
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($ in millions)
Sales
$70 million OEM growth: 23%
• Higher delivery rates for Boeing 787 and 737
• Increased customer funded development
• Higher sales for Chinese regional aircraft
OEM programs
• Initial deliveries of equipment to support the
Airbus A350 entry into service
$1 million Aftermarket increase
• Increased service and support
• Offset by the completion of a large head-up
display retrofit and a large sale of simulation
and training equipment, which both occurred
in the fourth quarter of fiscal 2013
Operating Earnings
$21 million increase in operating earnings
• Higher sales volume
• Shift from company-funded R&D to customer-
funded R&D
Commercial Systems
22.1%21.0%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)
$571 $639
4Q FY13 4Q FY14
CS Sales
12% increase
$120
$141
4Q FY13 4Q FY14
CS Operating Earnings
18% increase
© 2014 Rockwell Collins All rights reserved.
$151 $137
4Q FY13 4Q FY14
GS Operating Earnings
9% decrease
$636 $605
4Q FY13 4Q FY14
GS Sales
5% decrease
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23.7% 22.6%
($ in millions)
Government Systems
Sales
Sales decline $31 million: (5)%
• Lower sales for the KC-46, KC-10 and E-2
programs
• Lower deliveries of international targeting systems
• Partially offset by increased Joint Helmet Mounted
Cueing System sales and higher deliveries of JTRS
Manpack radios
Sales by product category:
• Avionics decrease (7)%
• Communication Products increase 11%
• Surface Solutions decrease (17)%
• Navigation Products decrease (7)%
Operating Earnings
Decrease in operating earnings and operating
margin primarily due to:
• Lower sales
• Higher bid and proposal expense
Operating Margins
(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)
© 2014 Rockwell Collins All rights reserved.
$12
$158
4Q FY13 4Q FY14
IMS Sales
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($ in millions)
Sales
• $144 million in sales from ARINC
• $14 million in sales from legacy flight
services business
Operating Earnings
Increase in operating earnings primarily due
to the acquisition of ARINC
Information Management Services
13.3%16.7%Operating Margins
$2
$21
4Q FY13 4Q FY14
IMS Operating Earnings
(1)
(1)
(1) See slide 13 for non-GAAP disclosures.
© 2014 Rockwell Collins All rights reserved.
$593 $660
FY13 FY14
Operating Cash Flow from Continuing Operations
11% increase
$630 $618
FY13 FY14
Income from Continuing Operations, net of taxes
2% decrease
$4.56 $4.52
FY13 FY14
EPS from Continuing Operations
1% decrease
$4,474 $4,979
FY13 FY14
Sales
11% increase
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($ in millions except EPS amounts)
FY 2014 Results
(1)
(1)
(1)
(1) Prior year amounts have been revised to exclude discontinued operations.
(2) See slide 15 for non-GAAP disclosures.
(1)
(2)
(2)
© 2014 Rockwell Collins All rights reserved.
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$917 $934
($ in millions)
Research and Development
• Company-funded R&D efforts declined on
various next generation business jet
development programs
• Customer funded R&D increased due to the
following:
• Higher international development
programs in Commercial Systems
• Higher amortization of pre-production
engineering costs
• Incremental R&D from ARINC
acquisition
• Offset by development programs
winding down in Government Systems
• Increased investment in pre-production
engineering programs driven by:
• Boeing 737MAX
• Bombardier CSeries and Global
7000/800020.5% 18.8%
% of Sales
145 162
481504
291268
FY13 FY14
R & D Investment
Company Funded R&D
Customer Funded R&D
Increase in Pre-production Engineering, Net
© 2014 Rockwell Collins All rights reserved.
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9/30/13 9/30/14
Cash and cash equivalents 391$ 323$
Short-term Debt (436) (504)
Long-term Debt (563) (1,663)
Net Debt (608)$ (1,844)$
Equity 1,623$ 1,889$
Debt To Total Capital 38% 53%
Debt To EBITDA (1)
0.9x 1.9x
($ in millions)
Capital Structure Status
(1) See slide 12 for non-GAAP disclosures.
© 2014 Rockwell Collins All rights reserved.
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(shares in millions)
Status of Share Repurchases
1.3 million shares repurchased in fiscal year
2014 fourth quarter
• Cost of Purchases - $100 Million
• Average Cost per Share - $75.53
$705 million authorization remaining at the
end of the fourth quarter
135.1 134.0
4Q FY13 4Q FY14
Common Shares Outstanding
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Total Sales $5.2 Bil. to $5.3 Bil.
Total Segment Operating Margins 20.5% to 21.5%
Earnings Per Share $4.90 to $5.10
Cash Flow from Operations $675 Mil. to $775 Mil.
Research & Development Investment About $950 Mil.
Capital Expenditures About $200 Mil.
FY 2015 Guidance for Continuing Operations
© 2014 Rockwell Collins All rights reserved.
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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, 2012 through September 30, 2013 and the twelve-month period
from October 1, 2013 through September 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 9/30/14
Income from continuing operations before income taxes $ 865 $ 882
Interest expense 28 59
Depreciation 124 141
Amortization of intangible assets and pre-production engineering costs 53 84
Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 1,070 $ 1,166
9/30/13 9/30/14
Total debt $ 999 $ 2,167
Debt to EBITDA 0.9x 1.9x
© 2014 Rockwell Collins All rights reserved.
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($ in millions)
Fourth Quarter 2014 ARINC Results
Three months ended September 30, 2014
ARINC
Corporate
Costs(a) Total
Sales 144$ -$ 144$
Income before income taxes 18$ (10)$ 8$
Depreciation and amortization expense 12 - 12
Interest expense - 9 9
EBITDA 30 (1) 29
Transaction and integration costs 1 - 1
EBITDA, adjusted 31$ (1)$ 30$
Total EBITDA, adjusted as a percentage of sales 20.8%
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 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 September 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 September 30, 2014 include $9 million of interest expense primarily from the incremental interest on the debt issued in December 2013 to finance the acquisition. The remaining corporate costs of $1 million represent selling, general and administrative expenses related to ARINC that were incurred at the corporate level.
© 2014 Rockwell Collins All rights reserved.
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($ in millions)
2014 ARINC Results
Twelve months ended September 30, 2014(b)
ARINC
Corporate
Costs(a) Total
Sales 421$ -$ 421$
Income before income taxes 56$ (45)$ 11$
Depreciation and amortization expense 33 - 33
Interest expense - 29 29
EBITDA 89 (16) 73
Transaction and integration costs 1 14 15
EBITDA, adjusted 90$ (2)$ 88$
Total EBITDA, adjusted as a percentage of sales 20.9%
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 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 twelve months ended September 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 twelve months ended September 30, 2014 include $14 million of deal related transaction and integration costs (primarily consisting of legal, accounting and advisory fees) and $29 million of interest expense primarily from the incremental interest on the debt issued in December 2013 to finance the acquisition. The remaining corporate costs of $2 million represent selling, general and administrative expenses related to ARINC that were incurred at the corporate level.(b)The Company acquired ARINC on December 23, 2013. Results for ARINC reflected in the table above are for periods subsequent to the completion of the acquisition
© 2014 Rockwell Collins All rights reserved.
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($ in millions, except per share amounts)
Non-GAAP Information
Net Income EPS Net Income EPS
Net income and EPS from continuing operations, as reported 173$ 1.27$ 175$ 1.28$
Less: Benefit in income taxes from Federal R&D Tax Credit (2) (0.01) (7) (0.05)
Less: Forfeitures of senior executive stock based compensation(1) — — (4) (0.03)
Add: Service center consolidation and pension settlement charges 6 0.04 — —
Net income and EPS from continuing operations, as adjusted 177$ 1.30$ 164$ 1.20$
Net Income EPS Net Income EPS
Net income and EPS from continuing operations, as reported 618$ 4.52$ 630$ 4.56$
Less: Benefit in income taxes from Federal R&D Tax Credit (10) (0.07) (44) (0.32)
Less: Gain on KOSI divestiture (9) (0.07) — —
Less: Forfeitures of senior executive stock based compensation(1) — — (4) (0.03)
Add: ARINC transaction costs 12 0.09 1 0.01
Add: Service center consolidation and pension settlement charges 6 0.04 — —
Net income and EPS from continuing operations, as adjusted 617$ 4.51$ 583$ 4.22$
(1) In the fourth quarter of fiscal year 2013, stock-based compensation included a benefit related to the retirement of a senior
executive and a favorable adjustment related to the Company's performance against targets on its long-term incentive plan.
Three Months Ended
Year Ended
September 30, 2014 September 30, 2013
September 30, 2014 September 30, 2013
The Non-GAAP information included in the table below is believed to be useful to an investor's understanding and assessment of the Company’s on-going operations and to reflect certain non-operating items impacting comparability between periods. 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 Non-GAAP information is intended to clarify the impact certain items had on our year-over-year comparative results. ARINC's results of operations are included in the Company's operating results for the period subsequent to the completion of the acquisition on December 23, 2013. The table below reconciles the non-GAAP financial measures used to reported GAAP financial measures (in millions, except per share amounts):
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