Q2 fy14 quarterly earnings presentation

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  • 1. © 2014 Rockwell Collins All rights reserved. Proprietary Information Insert pictures into these angled boxes. Height should be 3.44 inches. 2nd Quarter FY 2014 Conference Call April 17, 2014
  • 2. © 2014 Rockwell Collins All rights reserved. Proprietary Information 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, including operational disruption, potential supply shortages and other economic impacts; cybersecurity threats, including the potential misappropriation of assets or other 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 discontinuance of 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 our internal performance plans such as our 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.
  • 3. © 2014 Rockwell Collins All rights reserved. Proprietary Information 3 ($ in millions except EPS amounts) 2nd Quarter FY 2014 Results $1,131 $1,272 2Q FY13 2Q FY14 Sales 12% increase $161 $147 2Q FY13 2Q FY14 Income from Continuing Operations, net of taxes 9% decrease $1.17 $1.07 2Q FY13 2Q FY14 EPS from Continuing Operations 9% decrease 137.8 137.2 2Q FY13 2Q FY14 Diluted Average Shares Outstanding
  • 4. © 2014 Rockwell Collins All rights reserved. Proprietary Information (1) 4 ($ in millions) Sales $9 million Aftermarket increase: 4% • Increased service and support • Increased revenue from regulatory airspace mandates $5 million OEM growth: 2% • Higher hardware delivery rates for Boeing 787 aircraft • Partially offset by reduction in sales at light- end of business jet market Operating Earnings $11 million Increase in operating earnings • Higher sales • Lower company-funded R&D expenses • Savings from cost reduction initiatives Commercial Systems 22.8%21.4% 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) $542 $556 2Q FY13 2Q FY14 CS Sales 3% increase $116 $127 2Q FY13 2Q FY14 CS Operating Earnings 9% increase
  • 5. © 2014 Rockwell Collins All rights reserved. Proprietary Information 5 19.4% 19.2% ($ in millions) Government Systems Sales Sales decline $11 million: (2%) • Lower satellite communication sales • Lower KC-46 and KC-10 development program sales • Partially offset by increased hardware sales: • E-6B aircraft upgrade • International platforms Sales by product category: • Avionics increase 3% • Communication Products decrease (13)% • Surface Solutions decrease (2)% • Navigation Products increase 2% Operating Earnings Decrease in operating earnings and operating margin primarily due to lower sales Operating Margins $578 $567 2Q FY13 2Q FY14 GS Sales 2% decrease $112 $109 2Q FY13 2Q FY14 GS Operating Earnings 3% decrease
  • 6. © 2014 Rockwell Collins All rights reserved. Proprietary Information 6 ($ in millions) Sales • $137 million sales from ARINC • $1 million organic sales growth Operating Earnings Increase in operating earnings and operating margin primarily due to the acquisition of ARINC Information Management Services 12.1%9.1% Operating Margins $11 $149 2Q FY13 2Q FY14 IMS Sales $1 $18 2Q FY13 2Q FY14 IMS Operating Earnings
  • 7. © 2014 Rockwell Collins All rights reserved. Proprietary Information 7 ($ in millions except EPS amounts) Six Month FY 2014 Results $2,193 $2,343 2Q FY13 YTD 2Q FY14 YTD Sales 7% increase $293 $278 2Q FY13 YTD 2Q FY14 YTD Income from Continuing Operations, net of taxes 5% decrease $2.10 $2.03 2Q FY13 YTD 2Q FY14 YTD EPS from Continuing Operations 3% decrease $179 $63 2Q FY13 YTD 2Q FY14 YTD Operating Cash Flow 65% decrease
  • 8. © 2014 Rockwell Collins All rights reserved. Proprietary Information 76 89 246 230 142 132 2Q FY13 YTD 2Q FY14 YTD R & D Investment Company Funded R&D Customer Funded R&D Increase in Pre-production Engineering, Net 8 $464 $451 ($ in millions) Research and Development • Company-funded R&D declined due to a reduction in R&D efforts on various next generation business jet avionics development programs • Customer funded R&D declined due to development programs winding down in Government Systems • Increased investment in pre-production engineering programs driven by: • Boeing 737MAX • Bombardier C-Series • Global 7000/8000 21.2% 19.2% % of Sales
  • 9. © 2014 Rockwell Collins All rights reserved. Proprietary Information 9 9/30/13 3/31/2014 Cash and cash equivalents 391$ 410$ Short-term Debt (436) (866) Long-term Debt (563) (1,658) Net Debt (608)$ (2,114)$ Equity 1,623$ 1,852$ Debt To Total Capital 38% 58% Debt To EBITDA (1) 0.9x 2.3x ($ in millions) Capital Structure Status (1) See slide 12 for non-GAAP disclosures
  • 10. © 2014 Rockwell Collins All rights reserved. Proprietary Information 10 (shares in millions) Status of Share Repurchases 0.5 million shares repurchased in fiscal year 2014 second quarter • Cost of Purchases - $39 Million • Average Cost per Share - $81.57 87 million shares repurchased since January 2002 • Cost of Purchases - $4.3 Billion $356 million authorization remaining at the end of Q2 135.9 135.5 2Q FY13 2Q FY14 Common Shares Outstanding
  • 11. © 2014 Rockwell Collins All rights reserved. Proprietary Information 11 Total Sales $4.95 Bil. to $5.05 Bil. Total Segment Operating Margins 20% to 21% Earnings Per Share $4.40 to $4.55 (from $4.35 to $4.55) Cash Provided by Operating Activities $600 Mil. to $700 Mil. Research & Development Investment About $950 Mil. Capital Expenditures About $160 Mil. FY 2014 Guidance
  • 12. © 2014 Rockwell Collins All rights reserved. Proprietary Information 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 April 1, 2013 through March 31, 2014 (unaudited, in millions): Non-GAAP Financial Information 12 months ended 9/30/13 3/31/14 Income from continuing operations before income taxes $ 868 $ 877 Interest expense 28 42 Depreciation 124 130 Amortization of intangible assets and pre-production engineering costs 56 66 Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 1,076 $ 1,115 9/30/13 3/31/14 Total debt $ 999 $ 2,524 Debt to EBITDA 0.9x 2.3x
  • 13. © 2014 Rockwell Collins All rights reserved. Proprietary Information 13 ($ in millions) Second Quarter 2014 ARINC Results Three months ended March 31, 2014 ARINC Corporate Costs(a) Total Sales 137$ -$ 137$ Income before income taxes 17$ (10)$ 7$ Depreciation and amortization expense 11 - 11 Interest expense - 8 8 EBITDA 28 (2) 26 Transaction and integration costs - 1 1 EBITDA, adjusted 28$ (1)$ 27$ Total EBITDA, adjusted as a percentage of sales 20% 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 recently completed 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 March 31, 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 March 31, 2014 include $8 million of interest expense, primarily attributable to incremental interest on the debt we issued in December 2013 to finance the acquisition, and $1 million of deal related transaction costs. The remaining corporate costs of $1 million represent selling, general and administrative expenses related to ARINC that were incurred at the corporate level.
  • 14. © 2014 Rockwell Collins All rights reserved. Proprietary Information 14