CEDAR RAPIDS, Iowa (July 27, 2018) - Rockwell Collins, Inc.
(NYSE: COL) today reported sales for the third quarter of fiscal year 2018 of
$2.208 billion, a 5% increase from the same period in fiscal year 2017. Third
quarter fiscal year 2018 earnings per share were $1.66 compared to $1.12 in the
prior year's third quarter. Earnings per share in the third quarter of fiscal
year 2018 includes a 23 cent charge relating to the settlement of a contract
matter and the write-down to fair value of assets associated with an engineered
components business classified as held for sale as of June 30, 2018. In
addition, earnings per share in the third quarter of fiscal year 2018 includes a
42 cent discrete benefit from the enactment of the Tax Cuts and Jobs Act.
Adjusted earnings per share for the third quarter of fiscal year 2018 was
$1.73 compared to $1.64 in the prior year's third quarter (see the supplemental
schedule in this press release for a reconciliation between GAAP earnings per
share and adjusted earnings per share).
"In addition to the solid business performance for the quarter, we have spent
significant energy preparing for the upcoming merger with United Technologies
Corporation," said Rockwell Collins Chief Executive Officer and President, Kelly
Ortberg. "I'm confident that those efforts, along with strong market conditions,
will allow us to hit the ground running at the anticipated close."
Following is a discussion of fiscal year 2018 third quarter sales and
earnings for each business segment.
Commercial Systems
Commercial Systems, which provides aviation electronics systems, products and
services to air transport, business and regional aircraft manufacturers and
airlines worldwide, achieved 2018 third quarter results as summarized below.
(dollars in millions) | Q3 FY
18 | | Q3 FY
17 | | Inc/(Dec) |
Commercial Systems sales | | | | | |
Original equipment | $ | 393 | | | $ | 374 | | | 5 | % |
Aftermarket | 273 | | | 279 | | | (2 | )% |
Wide-body in-flight
entertainment | 3 | | | 5 | | | (40 | )% |
Total Commercial Systems sales | $ | 669 | | | $ | 658 | | | 2 | % |
| | | | | |
Operating earnings | $ | 148 | | | $ | 144 | | | 3 | % |
Operating margin rate | 22.1 | % | | 21.9 | % | | 20 bps |
- Original equipment sales increased due to higher air transport
narrow-body and business jet product deliveries, partially offset by lower
legacy wide-body production rates and customer-funded development program
revenues.
- Aftermarket sales decreased due to lower used aircraft equipment sales
of $22 million, partially offset by higher service and support and
regulatory mandate upgrade activity.
- Commercial Systems operating earnings increased $4 million and operating
margin increased 20 basis points over the prior year due to increased
earnings from higher sales volume and favorable sales mix, as higher margin
equipment sales increased and lower margin customer-funded development
revenues and used equipment sales decreased, partially offset by higher
company-funded R&D expense and higher pre-production engineering
amortization.
Interior Systems
Our Interior Systems segment was created with the acquisition of B/E
Aerospace on April 13, 2017. Interior Systems supplies a comprehensive portfolio
of cabin interior products and services to aircraft manufacturers and airlines
worldwide. Beginning in 2018, thermal and electronic systems product lines
previously included in Interior products and services within the Interior
Systems segment are now being reported in the Government Systems segment. See
the supplemental schedule included in this press release for revised fiscal year
2017 quarterly sales that conform to the current presentation. Results from the
third quarter of 2018 are summarized below.
(dollars in millions) | Q3
FY 18 | | Q3
FY 17 | | Inc/(Dec) |
Interior Systems
sales | | | | | |
Interior products and
services | $ | 366 | | | $ | 352 | | | 4 | % |
Aircraft seating | 293 | | | 295 | | | (1 | )% |
Total Interior Systems sales | $ | 659 | | | $ | 647 | | | 2 | % |
| | | | | |
Operating earnings | $ | 106 | | | $ | 72 | | | 47 | % |
Operating margin rate | 16.1 | % | | 11.1 | % | | 500 bps |
- Interior products and services sales increased $14 million due primarily
to the benefit of a full quarter of sales in the current year, partially
offset by lower original equipment galley deliveries and the absence of
oxygen equipment retrofit deliveries in the prior year.
- Aircraft seating sales decreased $2 million due to the timing of linefit
seating sales partially offset by the benefit of a full quarter of sales in
the current year.
- Operating earnings increased $34 million and operating margin increased
500 basis points over the prior year. Operating earnings and margin were
favorably impacted by:
- The absence of a $44 million inventory fair value purchase
accounting adjustment in the prior year
- Cost synergy savings
- Favorable foreign currency exchange rates
- The benefit of higher sales volume
The above items were partially offset by a $19
million increase to certain product quality reserves and an $11 million increase
in intangible asset amortization expense.
Government Systems
Government Systems provides a broad range of electronic products, systems and
services to customers including the U.S. Department of Defense, other government
agencies, civil agencies, defense contractors and ministries of defense around
the world. Beginning in 2018, the product lines referenced above previously
included in the Interior Systems segment are now being reported in Communication
and navigation within the Government Systems segment. See the supplemental
schedule included in this press release for revised fiscal year 2017 quarterly
sales that conform to the current presentation. Results from the third quarter
of 2018 are summarized below.
(dollars in millions) | Q3 FY
18 | | Q3 FY
17 | | Inc/(Dec) |
Government Systems sales | | | | | |
Avionics | $ | 395 | | | $ | 342 | | | 15 | % |
Communication and
navigation | 289 | | | 264 | | | 9 | % |
Total Government Systems sales | $ | 684 | | | $ | 606 | | | 13 | % |
| | | | | |
Operating earnings | $ | 130 | | | $ | 131 | | | (1 | )% |
Operating margin rate | 19.0 | % | | 21.6 | % | | (260) bps |
- Avionics sales increased $53 million due primarily to higher development
program revenues, higher deliveries for various fighter platforms, and
higher simulation and training sales.
- Communication and navigation sales increased $25 million due to higher
thermal and electronics sales and higher test and training range sales,
partially offset by lower legacy communication product deliveries.
- Operating earnings decreased $1 million and operating margin declined
260 basis points from the prior year due to higher company-funded R&D
expense. In addition, increased earnings from higher sales volume was
unfavorably impacted by lower margins on higher development program revenues
and thermal and electronic systems sales.
Information Management Services
Information Management Services (IMS) provides communication services,
systems integration and security solutions across the aviation, airport, rail
and nuclear security markets. Results from the third quarter of 2018 are
summarized below.
(dollars in millions) | Q3 FY
18 | | Q3 FY
17 | | Inc/(Dec) |
Information Management
Services sales | $ | 196 | | | $ | 183 | | | 7 | % |
| | | | | |
Operating earnings | $ | 37 | | | $ | 39 | | | (5 | )% |
Operating margin rate | 18.9 | % | | 21.3 | % | | (240) bps |
- IMS sales increased due to 7% growth in aviation related revenues driven
by increased usage of connectivity services. In addition, non-aviation
revenues increased 7% as higher airport program revenues were partially
offset by the completion of nuclear security mandate revenues.
- IMS operating earnings and operating margin declined due to the absence
of the favorable resolution of certain international business jet support
services claims in the prior year as well as an increase in the allowance
for doubtful accounts related to specific customer collection risks in the
current year, partially offset by increased earnings from higher sales
volume.
Corporate and Financial Highlights
Income Taxes
The company's effective income tax rate on GAAP earnings was (2.2)% for the
third quarter of fiscal year 2018 compared to a rate of 19.0% for the same
period last year. The lower current year effective income tax rate was primarily
due to a $70 million reduction in deferred tax liabilities as a result of the
enactment of the Tax Cuts and Jobs Act ("the Act"), including the impact of a
$387 million discretionary pension contribution made in July of 2018. In
addition, the current year effective income tax rate was lower due to a lower
U.S. Federal statutory tax rate under the Act, as well as benefits from the
jurisdictional mix of income as a result of the B/E Aerospace acquisition.
The company's effective income tax rate on adjusted earnings was 20.7% in the
third quarter of 2018, compared to 27.1% in the same period in the prior year.
See the supplemental schedule included in this press release for a
reconciliation between GAAP earnings and adjusted earnings.
Cash Flow
Cash provided by operating activities was $196 million for the first nine
months of fiscal year 2018, compared to cash provided by operating activities of
$416 million in the first nine months of fiscal year 2017. The decrease in cash
provided operating activities was due primarily to higher payments for
production inventory and other operating costs, as well as higher employee
incentive payments, partially offset by higher cash receipts from customers and
lower income tax payments.
The Company paid a dividend on its common stock of 33 cent per share, or $54
million, in the third quarter of 2018.
Conference Call
In light of the pending acquisition of Rockwell Collins by United
Technologies Corporation ("UTC"), the Company will not hold a conference call
for its quarterly results for the third quarter of fiscal year 2018. The Company
plans to file its Form 10-Q for the third quarter with the SEC on or about July
27, 2018.
Non-GAAP Financial Information
See the supplemental schedule included in this press release for a
reconciliation of non-GAAP measures including adjusted earnings per share,
adjusted income, and effective income tax rate on adjusted earnings.
Business Highlights
U.S. Air Force selected Rockwell Collins for expanded avionics
support on KC-135s
Rockwell Collins was awarded multiple repair contracts by the U.S. Air Force
to support Global Air Traffic Management components on the entire KC-135 tanker
fleet.
Los Angeles County Sheriff’s Department selected UrgentLink® for
disaster communications
Rockwell Collins has deployed its UrgentLink® disaster communications network
to the Los Angeles (LA) County area for the LA County Sheriff’s Department to
provide a countywide backup communications system for use during man-made or
natural disasters.
Australian Army extended contract with Rockwell Collins for avionics
support on CH-47F Chinooks
Rockwell Collins was selected by the Australian Army to provide extended
avionics support for its fleet of CH-47F Chinook helicopters through a
performance-based logistics contract.
Rockwell Collins awarded contract from CAE to provide training
display for CC-295 full-flight simulator
Rockwell Collins was selected by CAE to provide its Panorama™ collimated
display for the CC-295 full-flight simulator that CAE will deliver in support of
the Royal Canadian Air Force’s Fixed-Wing Search and Rescue program.
Cascade Aerospace selects Rockwell Collins weather radar for Royal
Canadian Air Force C-130H fleet
Rockwell Collins was selected by Cascade Aerospace to provide a modern
weather radar for the Royal Canadian Air Force C-130H fleet. The upgrade will
provide an enhanced level of weather threat detection to help RCAF pilots
perform unique search and rescue missions using the C-130.
Rockwell Collins signed agreement with Comlux to provide complete
solutions for VIP aircraft
Rockwell Collins and Comlux signed a general terms agreement in which
Rockwell Collins will provide its VIP customers with a comprehensive product
portfolio, including avionics, cabin management, content and entertainment
options, seating, lighting and galley products, as well as ARINCDirectSM
connectivity and flight services.
Rockwell Collins’ expanded cabin portfolio selected for first Airbus
ACJ320neo VIP aircraft
Switzerland-based AMAC Aerospace has selected a full suite of Rockwell
Collins’ cabin products for the world’s first Airbus ACJ320neo VIP aircraft.
TRU Simulation + Training selected Rockwell Collins to provide
integrated visual systems on its commercial full flight simulators
TRU Simulation + Training selected Rockwell Collins to provide its integrated
visual systems for 15 systems over the next three years for several of TRU’s
commercial full flight simulator clients for commercial airlines and airframe
manufacturers.
About Rockwell Collins
Rockwell Collins (NYSE: COL) is a leader in aviation and high-integrity
solutions for commercial and military customers around the world. Every day we
help pilots safely and reliably navigate to the far corners of the earth; keep
warfighters aware and informed in battle; deliver millions of messages for
airlines and airports; and help passengers stay connected and comfortable
throughout their journey. As experts in flight deck avionics, cabin electronics,
cabin interiors, information management, mission communications, and simulation
and training, we offer a comprehensive portfolio of products and services that
can transform our customers' futures. To find out more, please visit
www.rockwellcollins.com.
Safe Harbor Statement
This press release contains statements, including statements regarding
certain projections, business trends and the proposed acquisition of Rockwell
Collins by United Technologies 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,
regional conflicts, or governmental sanctions on other nations on the commercial
aerospace industry; 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 B/E
Aerospace integration and synergy 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,
anticorruption 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; the uncertainties of the
outcome of lawsuits, claims and legal proceedings; the ability of Rockwell
Collins and United Technologies to receive the required regulatory approvals for
the proposed acquisition of Rockwell Collins by United Technologies (and the
risk that such approvals may result in the imposition of conditions that could
adversely affect the combined company or the expected benefits of the
transaction) and to satisfy the other conditions to the closing of the
transaction on a timely basis or at all; the occurrence of events that may give
rise to a right of one or both of the parties to terminate the merger agreement;
negative effects of the announcement or the consummation of the transaction on
the market price of United Technologies and/or Rockwell Collins common stock
and/or on their respective businesses, financial conditions, results of
operations and financial performance; risks relating to the value of United
Technologies’s shares to be issued in the transaction, significant transaction
costs and/or unknown liabilities; the possibility that the anticipated benefits
from the proposed transaction cannot be realized in full or at all or may take
longer to realize than expected; risks associated with third party contracts
containing consent and/or other provisions that may be triggered by the proposed
transaction; risks associated with transaction-related litigation; the
possibility that costs or difficulties related to the integration of Rockwell
Collins’ operations with those of United Technologies will be greater than
expected; the outcome of legally required consultation with employees, their
works councils or other employee representatives; and the ability of Rockwell
Collins and the combined company to retain and hire key personnel. There can be
no assurance that the proposed acquisition will in fact be consummated in the
manner described or at all. For additional information on identifying factors
that may cause actual results to vary materially from those stated in
forward-looking statements, see the reports of United Technologies and Rockwell
Collins on forms 10-K, 10-Q and 8-K filed with or furnished to the SEC from time
to time. These forward-looking statements are made only as of the date hereof.
Additional Information
In connection with the proposed transaction, United Technologies has filed a
registration statement on Form S-4 (File No. 333-220883), which includes a
prospectus of United Technologies and a proxy statement of Rockwell Collins (the
"proxy statement/prospectus"), and each party will file other documents
regarding the proposed transaction with the SEC. The proxy statement/prospectus
was declared effective by the SEC and was mailed to Rockwell Collins
shareowners. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS FILED THERETO)
AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders
may obtain the proxy statement/prospectus free of charge from the SEC's website
or from United Technologies or Rockwell Collins. The documents filed by United
Technologies with the SEC may be obtained free of charge at United Technologies'
website at www.utc.com or at the SEC's website at www.sec.gov. These documents
may also be obtained free of charge from United Technologies by requesting them
by mail at UTC Corporate Secretary, 10 Farm Springs Road, Farmington, CT, 06032,
by telephone at 1-860-728-7870 or by email at corpsec@corphq.utc.com. The
documents filed by Rockwell Collins with the SEC may be obtained free of charge
at Rockwell Collins' website at www.rockwellcollins.com or at the SEC's website
at www.sec.gov. These documents may also be obtained free of charge from
Rockwell Collins by requesting them by mail at Investor Relations, 400 Collins
Road NE, Cedar Rapids, Iowa 52498, or by telephone at 1-319-295-7575.
No Offer or Solicitation
This communication shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the U.S. Securities Act of
1933, as amended.
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