q4 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

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4th Quarter FY 2014Conference Call

October 31, 2014


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 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.


$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

3

(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


(1)

4

($ 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


$151 $137

4Q FY13 4Q FY14

GS Operating Earnings

9% decrease

$636 $605

4Q FY13 4Q FY14

GS Sales

5% decrease

5

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)


$12

$158

4Q FY13 4Q FY14

IMS Sales

6

($ 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)



$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

7

($ in millions except EPS amounts)

FY 2014 Results

(1)

(1)

(1)

(1) Prior year amounts have been revised to exclude discontinued operations.


(1)

(2)

(2)


8

$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


9

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



10

(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


11

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


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 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


13

($ 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.


14

($ 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


15

($ 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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q4 fy14 quarterly earnings presentation

Investor Relations

q fy134q fy14sales15

q fy134q fy14income

q fy134q fy14eps

rockwell collinsall

potential cancellation

potential deterioration

q fy134q fy14cs sales12

customers performance