Rockwell Collins Fourth Quarter Fiscal Year 2014 Sales Increase 15%

CEDAR RAPIDS, Iowa—(BUSINESS WIRE)—Rockwell Collins, Inc. (NYSE: COL) today reported total sales for the fourth quarter of fiscal year 2014 of $1.4 billion, a 15% increase from the same period in fiscal year 2013. Total segment operating margin for the fourth quarter was 21.3% and total segment operating earnings increased 10% to $299 million. Fourth quarter fiscal year 2014 earnings per share from continuing operations was $1.27 compared to $1.28 in the prior year. Adjusted for certain non-operating items impacting comparability, earnings per share from continuing operations improved 10 cents or 8% (see the Non-GAAP table at the end of this release for a reconciliation of adjusted earnings per share). ARINC, which was acquired on December 23, 2013, and is included in the Information Management Services segment, contributed $144 million of sales and $18 million of operating earnings to the fourth quarter of fiscal 2014.

Full year fiscal 2014 sales were $4.98 billion, an 11% increase from fiscal year 2013. Fiscal year 2014 earnings per share from continuing operations was $4.52 compared to $4.56 in the prior year. Adjusted for certain non-operating items impacting comparability, earnings per share from continuing operations improved 29 cents or 7% (see the Non-GAAP table at the end of this release for a reconciliation of adjusted earnings per share). ARINC contributed $421 million of sales and $56 million of operating earnings to fiscal year 2014. Cash provided by operating activities from continuing operations totaled $660 million in fiscal year 2014 compared to $593 million in fiscal year 2013.

“An excellent fourth quarter capped off a solid year of financial performance for Rockwell Collins,” said Rockwell Collins Chief Executive Officer and President, Kelly Ortberg. “These financial results, which included double digit sales and cash flow growth, met or exceeded our guidance ranges that we established at the beginning of the year and are on track with the long-term expectations we shared at our investor day last March. Not only do we see improving market conditions for our company, but the acquisition and integration of ARINC is exceeding our expectations and adds a growth engine to our portfolio.”

Ortberg continued, “In September we announced an additional $500 million share repurchase authorization. This authorization combined with an improving outlook for our business should allow us the flexibility to execute share repurchases along with debt pay down.”

Following is a discussion of fiscal year 2014 fourth 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 2014 fourth quarter results as summarized below.

Sales to aircraft original equipment manufacturers increased due to higher hardware delivery rates for the Boeing 787 and 737 aircraft, higher customer funded development program sales, higher sales for Chinese regional aircraft OEM programs, and initial hardware deliveries to support the Airbus A350 entry into service.
Aftermarket sales were about flat as higher service and support sales were offset by lower head-up display retrofits and lower simulation and training equipment sales.
Operating margin increased due to lower company-funded research & development expense and the benefit of higher sales volume, partially offset by an increase in lower margin customer-funded development program sales.
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. Results from the fourth quarter of 2014 are summarized below.

On July 25, 2014, the Company sold its satellite communications systems business formerly known as DataPath, Inc. (DataPath), which designs, manufactures and services ground-based satellite communication systems primarily for military customers. The results of DataPath have been classified as discontinued operations and are excluded from the results below.

Avionics sales decreased due to the wind down of development effort on programs such as KC-46, KC-10 and E-2, partially offset by increased Joint Helmet Mounted Cueing System sales.
Communication product sales increased due to higher deliveries of JTRS Manpack radios.
Surface solutions sales decreased due to the timing of deliveries for international targeting systems.
Navigation product sales declined due to lower deliveries of GPS-related products.
Operating earnings and margin decreased primarily due to lower sales and higher bid and proposal expense.
Information Management Services

Information Management Services (IMS) enables mission-critical data and voice communications throughout the world to customers including the U.S. Federal Aviation Administration (FAA), commercial airlines, business aircraft operators, airport and critical infrastructure operators and major passenger and freight railroads. These communications are enabled by the Company’s high-performance, high-quality and high-assurance proprietary radio and terrestrial networks, enhancing customer efficiency, safety and connectivity.

The company previously announced its intent to divest ARINC’s Aerospace Systems Engineering and Support business (ASES), which provides military aircraft integration and modification services. As such, the results of ASES have been classified as discontinued operations and are excluded from the results below.

Sales for ARINC, which was acquired on December 23, 2013, were $144 million in the fourth quarter of fiscal 2014. All remaining sales in fiscal 2014 and 2013 are related to the Rockwell Collins flight services business. IMS operating earnings include $13 million and $1 million of depreciation and amortization expense for the three months ended September 30, 2014 and 2013, respectively.

On a pro forma basis, IMS sales increased 16% to $158 million. The increase was driven by higher aviation related sales including GLOBALinkSM and ARINCDirectSM, as well as increased airport network installations and maintenance.

Corporate and Financial Highlights

Service Center Consolidation and Pension Settlement Charges
The company recorded $9 million in charges during the fourth quarter of fiscal 2014 related to service center consolidations and pension settlements. The company announced that service centers in Portland, Oregon and Melbourne, Australia would be consolidated into other service centers as part of a plan to optimize the efficiency of the company’s global service center footprint. The pension settlement charges relate primarily to the retirement of certain senior executives.

Interest Expense
Interest expense increased from $7 million in the fourth quarter of fiscal year 2013 to $16 million in the fourth quarter of fiscal year 2014 due to incremental interest expense on debt issued to fund the ARINC acquisition.

Income Taxes
The company’s effective income tax rate was 31.6% for the fourth quarter of 2014 compared to a rate of 29.7% for the same period last year. The higher effective tax rate was due to differences in the availability of the Federal Research & Development Tax Credit.

Cash Flow
Cash provided by operating activities from continuing operations was $660 million in fiscal year 2014, compared to $593 million in fiscal year 2013. The $67 million increase was primarily due to improvements in working capital and the acquisition of ARINC as well as $47 million in lower pension plan contributions, partially offset by $76 million in higher income tax payments and $60 million in higher employee incentive payments.

During the fourth quarter of 2014, the company repurchased 1.3 million shares of common stock at a total cost of $100 million. The company also paid a dividend on its common stock of 30 cents per share, or $40 million, in the fourth quarter of 2014.