final q3 fy16 quarterly earnings presentation

© 2016 Rockwell Collins All rights reserved.

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3rd Quarter FY 2016 Conference Call July 25, 2016


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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 restructuring activities, 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 compliance requirements associated with U.S. Government work, 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.


$1.33

$1.63

3Q FY15 3Q FY16

EPS from Continuing Operations

23% increase

$1,293 $1,334

3Q FY15 3Q FY16

Sales

3% increase

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(in millions, except EPS amounts) 3rd Quarter FY 2016 Results

$178 $214

3Q FY15 3Q FY16

Income from Continuing Operations, net of taxes

20% increase

133.6 131.5

3Q FY15 3Q FY16

Diluted Average Shares Outstanding

2% decrease


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($ in millions)

Sales $6 million OEM decrease: (2)%

• Lower business aircraft OEM production rates • Lower product deliveries to a Chinese regional

aircraft manufacturer • Lower Airbus A330 production rates • Mostly offset by higher product deliveries in support

of Airbus A350 and Boeing 787 production ramps, favorable customer timing for airline selectable equipment, higher product deliveries for CSeries and higher customer-funded development program revenues

$11 million Aftermarket increase: 5%

• Higher simulation hardware deliveries • Higher inorganic sales from the acquisition of

International Communications Group • Higher flight deck retrofits • Partially offset by lower spares provisioning and

lower cabin retrofits

Operating Earnings Operating earnings and operating margin were about flat with the prior year as benefits from cost savings initiatives from previously announced restructuring plans were offset by unfavorable sales mix as lower margin customer-funded development sales increased and higher margin business jet OEM sales decreased

Commercial Systems

23.0% 23.1% Operating Margins

$611 $612

3Q FY15 3Q FY16

CS Sales

$141 $141

3Q FY15 3Q FY16

CS Operating Earnings


$108 $115

3Q FY15 3Q FY16

GS Operating Earnings

6% increase

$530 $555

3Q FY15 3Q FY16

GS Sales

5% increase

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20.4% 20.7%

($ in millions) Government Systems

Sales Sales increase $25 million: 5%

• Higher fixed-wing platform revenues • Higher simulation and training sales • Partially offset by lower rotary wing platform

deliveries, the wind-down of an international electronic warfare program and lower international targeting system deliveries

Sales by category:

• Avionics increase 11% • Communication and navigation decrease (7)%

Operating Earnings Operating earnings and operating margin increased due to higher sales volume and cost savings initiatives from previously announced restructuring plans, partially offset by unfavorable development program adjustments

Operating Margins


$23 $26

3Q FY15 3Q FY16

IMS Operating Earnings

13% increase

$152 $167

3Q FY15 3Q FY16

IMS Sales

10% increase

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($ in millions)

Sales Sales increase $15 million: 10%

• 9% growth in aviation-related sales • 11% increase in non-aviation sales primarily

due to higher airport and rail program sales

Operating Earnings Operating earnings and operating margin increased due to incremental earnings on higher sales volume

Information Management Services

15.6% 15.1% Operating Margins


$341

$223

3Q FY15 YTD 3Q FY16 YTD

Operating Cash Flow from Continuing Operations

35% decrease

$3.81 $3.92


EPS from Continuing Operations

3% increase

$510 $519


Income from Continuing Operations, net of taxes

2% increase

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(in millions, except EPS amounts) Nine Month FY 2016 Results

(1)

(1) Includes a $28 million after-tax, or 21 cent earnings per share, restructuring charge primarily related to headcount actions the company has taken as a result of certain challenging market conditions, particularly in business aviation.

$3,860 $3,814


Sales

1% decrease


99 104

431 456

201 154


R & D Investment

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

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$731 $714

($ in millions) Research and Development

• Company funded R&D decreased due to lower

business jet development costs in Commercial Systems and lower software-defined radio program development costs in Government Systems

• Customer funded R&D increased primarily due to higher development costs in Commercial Systems for international regional jet programs, partially offset by the wind-down of an international electronic warfare program in Government Systems

• Increased investment in pre-production engineering driven by higher costs incurred for certain military transport programs in Government Systems, the 737MAX and the Global 7000/8000 program, partially offset by lower spend on the CSeries program

18.9% 18.7% % of Sales


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09/30/15 06/30/16

Cash and cash equivalents 252$ 307$

Short-term Debt (448) (1,112)

Long-term Debt (1,680) (1,387)

Net Debt (1,876)$ (2,192)$

Equity 1,880$ 2,114$

Debt To Total Capital 53% 54%

Debt To EBITDA (1) 1.7x 2.0x

($ in millions) Capital Structure Status

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


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(shares in millions) Status of Share Repurchases

0.7 million shares repurchased in fiscal year 2016 third quarter

• Cost of purchases - $67 Million • Average cost per share - $90.71

$125 million authorization remaining at the end of the third quarter

131.7 129.9

3Q FY15 3Q FY16

Common Shares Outstanding


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Total Sales About $5.3 Bil. (From $5.3 Bil. to $5.4 Bil.)

Total Segment Operating Margins About 21.0%

Earnings Per Share $5.50 to $5.55 (From $5.45 to $5.65)

Cash Flow from Operations About $750 Mil. (From $750 Mil. To $850 Mil.)

Research & Development Investment About $1 Bil.

Capital Expenditures About $200 Mil.

FY 2016 Guidance


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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, 2014 through September 30, 2015 and the twelve-month period from July 1, 2015 through June 30, 2016 (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 9/30/15 6/30/16 Income from continuing operations before income taxes $ 962 $ 905 Interest expense 61 64 Depreciation 152 145

Amortization of intangible assets and pre-production engineering costs 100 108

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

$ 1,275 $ 1,222

9/30/15 6/30/16 Total debt $ 2,128 $ 2,499 Debt to EBITDA 1.7x 2.0x


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final q3 fy16 quarterly earnings presentation

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