CEDAR RAPIDS, Iowa—(BUSINESS WIRE)—Rockwell Collins, Inc. (NYSE: COL) today reported third quarter 2011 net income of $158 million, an increase of $16 million, or 11%, from the third quarter of fiscal year 2010 of $142 million. Earnings per share for the quarter were $1.01, an increase of $0.12, or 13%, from earnings per share of $0.89 for the same period in 2010.

“Indicative of our strong operating performance this quarter, Commercial Systems increased their operating margins by 420 basis points on double-digit revenue growth while Government Systems increased margins as well despite an 11% decrease in sales.”

The company reported a sales decrease of $18 million, or 1%, to $1.190 billion for its third quarter ended June 30, 2011 compared to sales of $1.208 billion for the same period a year ago. Total segment operating earnings increased 9% to $248 million, or 20.8% of sales, for the third quarter of 2011 compared to $227 million, or 18.8% of sales, for the third quarter of 2010.

”Very strong earnings growth in Commercial Systems more than offset the lingering impacts of the continuing resolution on our Government Systems business allowing the company to achieve a 13 percent increase in earnings per share on relatively flat sales,” said Rockwell Collins Chairman, President and Chief Executive Officer Clay Jones. “Indicative of our strong operating performance this quarter, Commercial Systems increased their operating margins by 420 basis points on double-digit revenue growth while Government Systems increased margins as well despite an 11% decrease in sales.”

Jones went on to state, “The balance and diversity of our business is once again proving its value with continued strength in Commercial Systems fueling our growth as Government Systems adjusts to slower and dynamic market conditions. Our confidence in this business mix and unit operating performance enables us to narrow earnings guidance to the upper end of the previous range.”

Following is a discussion of fiscal year 2011 third quarter sales and earnings for each business segment. Commercial Systems’ segment results exclude the results of the Rollmet business for all periods presented. The divestiture is expected to close during the fourth quarter of fiscal year 2011 and is classified as a discontinued operation. The attached supplemental information includes a revised presentation of certain prior period disclosures, which have also been adjusted to reflect Rollmet as a discontinued operation.

Commercial Systems

Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide, achieved 2011 third quarter sales of $522 million, an increase of $68 million, or 15%, compared to sales of $454 million reported for the same period last year.

Sales related to aircraft original equipment manufacturers increased $45 million, or 19%, to $285 million driven by higher product deliveries for the Bombardier Global platform, increased air transport aircraft delivery rates and higher sales for customer-funded development programs. Aftermarket sales increased $28 million, or 15%, to $209 million primarily driven by increased service and support sales and higher air transport spare hardware revenue.

Commercial Systems third quarter operating earnings increased $33 million, or 45%, to $107 million, resulting in an operating margin of 20.5%, compared to operating earnings of $74 million, or an operating margin of 16.3%, for the same period a year ago. The increase in operating earnings and margin was primarily attributable to higher sales volume and a $9 million favorable adjustment to customer incentive reserves, partially offset by an increase in selling, general and administrative expense.

Government Systems

Government Systems, which provides communication and electronic systems, products and services for airborne and surface applications to the U.S. Department of Defense, state and local governments, other government agencies, civil agencies, defense contractors and foreign ministries of defense, achieved 2011 third quarter sales of $668 million, a decrease of $86 million, or 11%, compared to the $754 million reported for the same period last year. The decrease in sales was primarily driven by the adverse impacts to customer orders as a result of U.S. Government delayed funding authorizations and lower deliveries of iForceTM public safety vehicle systems.

Airborne solutions sales increased $28 million, or 6%, to $488 million driven by higher revenue for the E-6 aircraft upgrade, the Common Range Integrated Instrumentation System and KC-46A tanker programs as well as higher revenue for rotary wing platforms. These items were partially offset by lower sales on the KC-135 GATM program. Surface solutions sales decreased $114 million, or 39%, to $180 million driven by fewer deliveries of iForceTM systems, the adverse impact from delayed funding authorization and certain programs that were terminated by the government for convenience due to budget priorities.

Government Systems third quarter operating earnings decreased $12 million to $141 million, resulting in an operating margin of 21.1%, compared to operating earnings of $153, or an operating margin of 20.3%, for the same period last year. The decrease in operating earnings was primarily the result of lower sales and higher company-funded research and development costs, partially offset by the absence of certain facility closure costs incurred last year. The improvement in operating margins when compared to the prior year, primarily resulted from a more favorable product sales mix.

Corporate and Financial Highlights

General corporate expenses that are not allocated to the company’s business segments were $10 million for the third quarter 2011 compared to $12 million in the same period last year. The company’s effective income tax rate of 30.8% for the third quarter of 2011 was relatively flat when compared to the rate of 30.4% for the prior year.

Cash provided by operating activities for the first nine months of 2011 totaled $246 million compared to $440 million reported in the same period last year. The decrease in operating cash flow resulted from higher payments for employee incentive compensation of $71 million and $52 million related to increased pre-production engineering effort. The remaining $71 million was primarily driven by higher production inventory from government funding delays, increased safety stock purchases associated with the recent events in Japan, anticipated production volume increases and new programs.

During the third quarter of 2011 the company repurchased 1.1 million shares of its common stock at a total cost of $66 million, leaving $51 million available for authorized share repurchases. The company also paid dividends totaling $38 million, or 24 cents per share, on its common stock.

Discontinued Operations

During the third quarter of 2011, the company reached a definitive agreement to sell the Rollmet product line. The sale is expected to close during the fourth quarter of 2011. Rollmet has been accounted for as a discontinued operation for all periods presented and therefore certain prior period amounts have been reclassified to conform to the current year presentation. For the three and nine months ended June 30, 2010, Commercial Systems sales have been reduced by $6 million and $23 million, respectively, and Commercial Systems operating earnings have been reduced by $1 million and $4 million, respectively.

Fiscal Year 2011 Outlook

The following table is a complete summary of the company’s updated fiscal year 2011 financial guidance and reflects an approximately $35 million reduction to sales as a result of classifying Rollmet as a discontinued operation:

- Total sales $4.80 Bil. to $4.85 Bil.
- Updated from $4.8 Bil. to $5.0 Bil.

- Total segment operating margins 20.0% to 20.5%
- Updated from 19.5% to 20.5%

- Earnings per share from continuing operations $4.00 to $4.10
- Updated from $3.90 to $4.10

- Cash flow from operations About $650 Million
- Updated from $650 Mil. to $750 Mil.

- Research & development costs About $925 Million
- Updated from $900 Mil. to $950 Mil.

— Capital expenditures About $150 Mil.

Business Highlights

Rockwell Collins selected for the KC-10 tanker cockpit upgrade program
The U.S. Air Force awarded Rockwell Collins a contract to provide systems integration and avionics for the KC-10 Cockpit Modernization Program. The contract, valued at more than $160 million over the life of the program, calls for Rockwell Collins to provide the flight management system, displays, data link communications and surveillance capabilities.

Embraer selected Rockwell Collins advanced avionics system for Brazilian Air Force KC-390 fleet
Embraer Defense and Security selected Rockwell Collins to provide its Pro Line Fusion® flight deck for the KC-390 tanker/transport aircraft. This is the first application of the Pro Line Fusion architecture in the military market. The Brazilian Air Force has committed to purchasing 28 KC-390 aircraft.

Rockwell Collins avionics and mission equipment selected for KC-46 Tanker
Rockwell Collins will provide a wide range of the most advanced technologies for the warfighter to Boeing on the KC-46 Tanker. A recently signed contract with Boeing calls for Rockwell Collins to provide the flight deck, aircraft networks, surveillance/air traffic management equipment, communications and navigation gear, as well as the advanced situational awareness and vision systems required for aerial refueling. The flight deck will utilize the same technology that Rockwell Collins is supplying for Boeing’s 787 Dreamliner jet.

U.S. Navy ordered $25 million of 5th Generation ARC-210 radios
Rockwell Collins received $25 million in orders for ARC-210 Gen5 radios, providing much-needed networking and interoperability solutions to warfighters. In the wake of the first production delivery to the Program Office in April, this order will provide hundreds of production terminals featuring software defined networking capabilities that provide a growth path to host the Soldier Radio Waveform, and eventually, Mobile User Objective System waveforms.

Rockwell Collins Pro Line Fusion® granted Transport Canada certification on Bombardier’s Global Vision flight deck
Rockwell Collins announced that its Pro Line Fusion integrated avionics system was granted certification from Transport Canada on Bombardier Aerospace’s Global Vision flight deck. This marks the first certification of Pro Line Fusion on a customer aircraft. The Global Vision flight deck with Pro Line Fusion will be featured on Bombardier’s Global 5000 and Global 6000 business jets.

LAN Airlines selected Rockwell Collins avionics for 80 Airbus A320s
Chile-based LAN Airlines selected a full suite of Rockwell Collins avionics, including its WXR-2100 MultiScan™ Threat Detection System and GLU-925 Multi-Mode Receiver, for 80 Airbus A320s, which is one of the largest aircraft orders for an airline in South America. Deliveries will begin later this year and continue through 2016.

Rockwell Collins initiated a project to validate ADS-B airworthiness requirements for helicopters in Europe
Rockwell Collins, in collaboration with multiple helicopter operators, the European Aviation Safety Agency (EASA), Eurocontrol, and the Netherlands Civil Aviation Administration, completed an operational evaluation to successfully validate automatic dependent surveillance broadcast (ADS-B) out airworthiness requirements for helicopters operating over the North Sea. The multi-year project, of which Rockwell Collins was a leading participant, consisted of flight tests using Rockwell Collins TDR-94D transponder and, in some instances, the Rockwell Collins GPS-4000S GPS Sensor. Based on the project’s results, Rockwell Collins and its collaborators proposed new ADS-B equipment configurations for helicopters to EASA and approval is expected later this year.

Rockwell Collins brings the safety benefits of head-up flying to light business aircraft
Rockwell Collins introduced its HGS-3500™, the industry’s first Head-up Guidance System available for light- to mid-size business aircraft. The new HGS-3500 empowers flight crews to achieve greater precision at all times by presenting information in the pilot’s forward field of view, eliminating the need to continually transition from head-down instruments to a head-up, out-the window view during critical phases of flight.

Rockwell Collins divested Rollmet business
Rockwell Collins has reached an agreement to sell its Rollmet product line to Precision Castparts Corp. The sale is expected to close during the fiscal fourth quarter of 2011.