final q2 fy16 quarterly earnings presentation
TRANSCRIPT
© 2016 Rockwell Collins All rights reserved.
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2nd Quarter FY 2016Conference Call
April 21, 2016
© 2016 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 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.
© 2016 Rockwell Collins All rights reserved.
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(in millions, except EPS amounts)2nd Quarter FY 2016 Results
$1,341 $1,311
2Q FY15 2Q FY16
Sales
2% decrease
$163 $172
2Q FY15 2Q FY16
Income from Continuing Operations, net of taxes
6% increase
$1.22 $1.30
2Q FY15 2Q FY16
EPS from Continuing Operations
7% increase
133.7 132.3
2Q FY15 2Q FY16
Diluted Average Shares Outstanding
1% decrease
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$619 $611
2Q FY15 2Q FY16
CS Sales
1% decrease
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($ in millions)
Sales$17 million OEM decrease: (5)%
• Lower business aircraft OEM production rates
• Unfavorable airline selectable equipment mix
• Lower Airbus A330 production rates
• Partially offset by higher customer-funded
development program sales, higher deliveries in
support of the Airbus A350 and Boeing 787
production ramps, and higher Bombardier
CSeries sales in support of its entry into service
$14 million Aftermarket increase: 6%
• Higher business jet avionics retrofit and mandate
sales
• Higher inorganic sales
Operating EarningsOperating earnings and operating margin decreased
due to:
• Sales mix
• Higher inorganic SG&A costs
• Partially offset by lower company-funded R&D
expense and cost savings initiatives
Commercial Systems
22.1%22.9%Operating Margins
$142 $135
2Q FY15 2Q FY16
CS Operating Earnings
5% decrease
© 2016 Rockwell Collins All rights reserved.
$567 $538
2Q FY15 2Q FY16
GS Sales
5% decrease
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20.1% 20.1%
($ in millions)
Government Systems
SalesSales decrease $29 million: (5)%
• Lower rotary wing hardware deliveries
• Lower sales from simulation and training programs
• Wind-down of an international electronic warfare
program
• Lower international targeting system deliveries
Sales by category:
• Avionics decrease (4)%
• Communication and Navigation decrease (8)%
Operating EarningsDecrease in operating earnings primarily due to lower
sales volume, partially offset by lower company-funded
R&D expense and cost savings initiatives
Operating Margins
$114 $108
2Q FY15 2Q FY16
GS Operating Earnings
5% decrease
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$22
$29
2Q FY15 2Q FY16
IMS Operating Earnings
32% increase
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($ in millions)
SalesSales increase $7 million: 5%
• 8% growth in aviation-related business
Operating EarningsIncrease in operating earnings and operating margin
due to incremental earnings on the higher sales
volume as well as the favorable resolution of certain
prior year claims associated with international
business jet support services
Information Management Services
17.9%14.2%Operating Margins
$155 $162
2Q FY15 2Q FY16
IMS Sales
5% increase
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(in millions, except EPS amounts)Six Month FY 2016 Results
$2,567 $2,480
2Q FY15 YTD 2Q FY16 YTD
Sales
3% decrease
$332 $305
2Q FY15 YTD 2Q FY16 YTD
Income from Continuing Operations, net of taxes
8% decrease
$2.48 $2.30
2Q FY15 YTD 2Q FY16 YTD
EPS from Continuing Operations
7% decrease
$132
$45
2Q FY15 YTD 2Q FY16 YTD
Operating Cash Flow from Continuing Operations
(1)
(1) Includes a $28 million after-tax, or 21 cent earnings per share, restructuring charge primarily related to reduced headcount as a result of certain challenging market conditions, particularly in business aviation.
© 2016 Rockwell Collins All rights reserved.
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$489$470
($ 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
a military program in Government Systems
19.0% 19.0%% of Sales
65 74
283298
141 98
2Q FY15 YTD 2Q FY16 YTD
R & D Investment
Company Funded R&D
Customer Funded R&D
Increase in Pre-production Engineering, Net
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09/30/15 03/31/16
Cash and cash equivalents 252$ 300$
Short-term Debt (448) (1,120)
Long-term Debt (1,680) (1,383)
Net Debt (1,876)$ (2,203)$
Equity 1,880$ 1,989$
Debt To Total Capital 53% 56%
Debt To EBITDA (1)
1.7x 2.1x
($ in millions)
Capital Structure Status
(1) See slide 12 for non-GAAP disclosures.
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(shares in millions)
Status of Share Repurchases
1.2 million shares repurchased in fiscal year
2016 second quarter
• Cost of purchases - $98 Million
• Average cost per share - $85.03
$192 million authorization remaining at the
end of the second quarter
132.2 130.4
2Q FY15 2Q FY16
Common Shares Outstanding
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Total Sales $5.3 Bil. to $5.4 Bil.
Total Segment Operating Margins About 21.0%
Earnings Per Share $5.45 to $5.65
Cash Flow from Operations $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 April 1, 2015 through March 31, 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 3/31/16
Income from continuing operations before income taxes $ 962 $ 895
Interest expense 61 63
Depreciation 152 147
Amortization of intangible assets and pre-production engineering costs 100 108
Earnings before interest, taxes, depreciation and amortization (EBITDA)
$ 1,275 $ 1,213
9/30/15 3/31/16
Total debt $ 2,128 $ 2,503
Debt to EBITDA 1.7x 2.1x
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