Market Overview

Rockwell Collins Reports 48% Increase in Third Quarter Earnings Per Share

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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.

ROCKWELL COLLINS, INC.

SEGMENT SALES AND EARNINGS INFORMATION

(Unaudited)

(in millions, except per share amounts)

   
Three Months Ended Nine Months Ended
June 30 June 30
2018   2017 2018   2017
Sales:
Interior Systems $ 659 $ 647 $ 2,016 $ 647
Commercial Systems 669 658 1,921 1,801
Government Systems 684 606 1,911 1,646
Information Management Services 196   183   551   535  
Total sales $ 2,208   $ 2,094   $ 6,399   $ 4,629  
 
Segment operating earnings:
Interior Systems $ 106 $ 72 $ 305 $ 72
Commercial Systems 148 144 438 401
Government Systems 130 131 370 341
Information Management Services 37   39   107   105  
Total segment operating earnings 421 386 1,220 919
 
Interest expense(1) (66 ) (77 ) (196 ) (122 )
Stock-based compensation (8 ) (8 ) (27 ) (21 )
General corporate, net (18 ) (16 ) (43 ) (39 )
Impairment charges and settlement of a contract matter(2) (31 ) (31 )
Transaction and integration costs(1) (29 ) (64 ) (91 ) (80 )
Income before income taxes 269 221 832 657
Income tax benefit (expense) 6   (42 ) (40 ) (165 )
Net income $ 275   $ 179   $ 792   $ 492  
 
Diluted earnings per share $ 1.66 $ 1.12 $ 4.78 $ 3.48
 
Weighted average diluted shares outstanding 165.9 159.9 165.7 141.4

(1) During the three and nine months ended June 30, 2018, the
Company incurred $23 million and $64 million of transaction and
integration costs related to the B/E Aerospace acquisition,
respectively, and $6 million and $27 million of transaction costs
related to the proposed acquisition of Rockwell Collins by UTC,
respectively. During the three and nine months ended June 30, 2017, the
Company incurred $64 million and $80 million of transaction and
integration costs related to the B/E Aerospace acquisition. During this
period, the Company also incurred $18 million and $29 million of bridge
facility fees related to the B/E Aerospace acquisition, respectively,
which are included in Interest expense. Therefore, total transaction,
integration and financing costs were $82 million and $109 million in the
three and nine months ended June 30, 2017, respectively.
(2)
During the three months ended June 30, 2018, the Company recorded $31
million of charges. A $22 million charge due to the settlement of a
contract matter triggered by the anticipated divestiture of the
ElectroMechanical Systems business was recorded in Cost of sales. The
$22 million charge included an impairment of $7 million and $4 million
of Commercial Systems Pre-production engineering costs and Property,
net, respectively. A $9 million charge due to the planned sale of SMR
Technologies was recorded in Other income, net.

The following table summarizes sales by category for the three and nine
months ended June 30, 2018 and 2017 (unaudited, in millions):

  Three Months Ended   Nine Months Ended
June 30 June 30
2018   2017 2018   2017
Interior Systems sales:
Interior products and services $ 366 $ 352 $ 1,092 $ 352
Aircraft seating 293 295 924 295
Total Interior Systems sales $ 659 $ 647 $ 2,016 $ 647
 
Commercial Systems sales:
Air transport aviation electronics:
Original equipment $ 262 $ 245 $ 710 $ 669
Aftermarket 138 155 444 414
Wide-body in-flight entertainment 3 5 11 15
Total air transport aviation electronics 403 405 1,165 1,098
 
Business and regional aviation electronics:
Original equipment 131 129 377 360
Aftermarket 135 124 379 343
Total business and regional aviation electronics 266 253 756 703
Total Commercial Systems sales $ 669 $ 658 $ 1,921 $ 1,801
 
Commercial Systems sales:
Total original equipment $ 393 $ 374 $ 1,087 $ 1,029
Total aftermarket 273 279 823 757
Wide-body in-flight entertainment 3 5 11 15
Total Commercial Systems sales $ 669 $ 658 $ 1,921 $ 1,801
 
Government Systems sales:
Avionics $ 395 $ 342 $ 1,087 $ 1,028
Communication and navigation 289 264 824 618
Total Government Systems sales $ 684 $ 606 $ 1,911 $ 1,646
 
Information Management Services sales $ 196 $ 183 $ 551 $ 535
 
Total sales $ 2,208 $ 2,094 $ 6,399 $ 4,629
 

The following table summarizes total Research and Development Investment
by segment and funding type for the three and nine months ended June 30,
2018 and 2017 (unaudited, dollars in millions):

  Three Months Ended   Nine Months Ended
June 30 June 30
2018   2017 2018   2017
Research and Development Investment
Customer-funded:
Interior Systems $ 32 $ 15 $ 85 $ 15
Commercial Systems 69 68 190 199
Government Systems 122 103 359 316
Information Management Services 2   3   5   7  
Total Customer-funded 225   189   639   537  
 
Company-funded:
Interior Systems 48 55 158 55
Commercial Systems 54 37 142 94
Government Systems 24 18 66 54

Information Management Services (1)

       
Total Company-funded 126   110   366   203  
Total Research and Development Expense 351 299 1,005 740
Increase (Decrease) in Pre-production Engineering Costs, Net (13 ) 4   (3 ) 28  
Total Research and Development Investment $ 338   $ 303   $ 1,002   $ 768  
 
Percent of Total Sales 15.3 % 14.5 % 15.7 % 16.6 %

(1) Research and development expenses for the Information
Management Services segment do not include costs of internally developed
software and other costs associated with the expansion and construction
of network-related assets. These costs are capitalized as Property, net
on the Summary Balance Sheet.

ROCKWELL COLLINS, INC.

SUMMARY BALANCE SHEET

(Unaudited)

(in millions)

   
June 30, September 30,
2018 2017
Current Assets:
Cash and cash equivalents $ 621 $ 703
Receivables, net 1,811 1,426
Inventories, net(1) 2,641 2,451
Business held for sale 66
Other current assets 258   180
Total current assets 5,397 4,760
 
Property, Net 1,402 1,398
Goodwill 9,103 9,158
Customer Relationship Intangible Assets 1,358 1,525
Other Intangible Assets 553 604
Deferred Income Tax Asset 22 21
Other Assets 524   531
TOTAL ASSETS $ 18,359   $ 17,997
 
Current Liabilities:
Short-term debt $ 864 $ 479
Accounts payable 832 927
Compensation and benefits 353 385
Advance payments from customers 325 361
Accrued customer incentives 274 287
Product warranty costs 192 186
Other current liabilities 434   444
Total current liabilities 3,274 3,069
 
Long-term Debt, Net 6,317 6,676
Retirement Benefits 1,046 1,208
Deferred Income Tax Liability 277 331
Other Liabilities 647 663
Equity 6,798   6,050
TOTAL LIABILITIES AND EQUITY $ 18,359   $ 17,997
 
(1) Inventories, net is comprised of the following:
June 30, September 30,
2018 2017
Inventories, net:
Production inventory $ 1,469 $ 1,276
Pre-production engineering costs 1,172   1,175
Total Inventories, net $ 2,641   $ 2,451
 

Pre-production engineering costs include costs incurred during the
development phase of a program in connection with long-term supply
arrangements that contain contractual guarantees for reimbursement from
customers. These costs are deferred in Inventories, net to the extent of
the contractual guarantees and are amortized to customer-funded research
and development expense within cost of sales over their estimated useful
lives using a units-of-delivery method, up to 15 years.

ROCKWELL COLLINS, INC.

CONDENSED CASH FLOW INFORMATION

(Unaudited, in millions)

 
Nine Months Ended
June 30
2018   2017
Operating Activities:
Net income $ 792 $ 492
Adjustments to arrive at cash provided by operating activities:
Depreciation 153 118
Amortization of intangible assets, pre-production engineering costs
and other
284 132
Amortization of acquired contract liability (100 ) (42 )
Amortization of inventory fair value adjustment 44
Non-cash impairment charges and settlement of a contract matter 31
Stock-based compensation expense 27 21
Compensation and benefits paid in common stock 43 48
Deferred income taxes (60 ) 18
Pension plan contributions (77 ) (66 )
Changes in assets and liabilities, excluding effects of acquisitions
and foreign currency adjustments:
Receivables (393 ) (60 )
Production inventory (216 ) (88 )
Pre-production engineering costs (65 ) (108 )
Accounts payable (76 ) 21
Compensation and benefits (31 ) (19 )
Advance payments from customers (35 ) 1
Accrued customer incentives (12 ) (17 )
Product warranty costs 6 (4 )
Income taxes (7 ) (56 )
Other assets and liabilities (68 ) (19 )
Cash Provided by Operating Activities 196   416  
Investing Activities:
Property additions (190 ) (165 )
Acquisition of business, net of cash acquired (3,429 )
Other investing activities 4   (5 )
Cash (Used for) Investing Activities (186 ) (3,599 )
Financing Activities:
Repayment of long-term debt, including current portion (351 ) (338 )
Repayment of acquired long-term debt (2,119 )
Purchases of treasury stock(1) (11 ) (46 )
Cash dividends (162 ) (140 )
Increase in long-term borrowings 6,099
Increase (decrease) in short-term commercial paper borrowings, net 385 (78 )
Proceeds from the exercise of stock options 60 41
Other financing activities (4 ) (4 )
Cash Provided by (Used for) Financing Activities (83 ) 3,415  
Effect of exchange rate changes on cash and cash equivalents (9 ) 6  
Net Change in Cash and Cash Equivalents (82 ) 238
Cash and Cash Equivalents at Beginning of Period 703   340  
Cash and Cash Equivalents at End of Period $ 621   $ 578  

(1) Includes net settlement of employee
tax withholding upon vesting of share-based payment awards.

 

ROCKWELL COLLINS, INC.
NON-GAAP FINANCIAL INFORMATION
(Unaudited)
(in
millions, except per share amounts)

Adjusted earnings per share is a non-GAAP metric and is believed to be
useful to investors' understanding and assessment of our ongoing
operations and performance of the B/E Aerospace acquisition, which
occurred on April 13, 2017. Adjusted earnings per share excludes certain
one-time and non-cash expenses that we believe are not indicative of our
ongoing operating results. The Company believes these measures are
important indicators of the Company's operations for purposes of
period-to-period comparison of our operating results. The non-GAAP
information is not intended to be considered in isolation or as a
substitute for the related GAAP measures.

A reconciliation between GAAP earnings per share and adjusted earnings
per share is presented below for the three and nine months ended
June 30, 2018 and June 30, 2017.

  Three Months Ended   Nine Months Ended
June 30 June 30
2018   2017 2018   2017
Earnings per share (GAAP) $ 1.66 $ 1.12 $ 4.78 $ 3.48
B/E Aerospace acquisition-related expenses 0.10 0.34 0.28 0.52
United Technologies transaction expenses 0.03 0.12
Amortization of acquisition-related intangible assets 0.31 0.24 0.94 0.35
Amortization of B/E Aerospace acquired contract liability (0.18 ) (0.25 ) (0.55 ) (0.27 )
Amortization of B/E Aerospace inventory fair value 0.19 0.22
Impairment charges and settlement of a contract matter 0.23 0.23
Discrete income tax impact from Tax Cuts and Jobs Act and pension
contribution
(0.42 )   (0.67 )  
Adjusted earnings per share $ 1.73   $ 1.64   $ 5.13   $ 4.30  
 

The below tables reconcile pre- and post-tax income on a GAAP basis with
pre- and post-tax adjusted income for the three and nine months ended
June 30, 2018 and June 30, 2017.

  Three Months Ended   Nine Months Ended
June 30, 2018 June 30, 2018
Pre-   Tax     Tax Pre-   Tax     Tax
(dollars in millions) tax Expense Net Rate tax Expense Net Rate
Income (GAAP) $ 269 $ (6 ) $ 275 (2.2 )% $ 832 $ 40 $ 792 4.8 %
B/E Aerospace acquisition-related expenses 23 6 17 64 17 47
United Technologies transaction expenses 6 1 5 27 7 20
Amortization of acquisition-related intangible assets 65 15 50 201 45 156
Amortization of B/E Aerospace acquired contract liability (32 ) (3 ) (29 ) (100 ) (9 ) (91 )
Impairment charges and settlement of a contract matter 31 (7 ) 38 31 (7 ) 38
Discrete income tax impact from Tax Cuts and Jobs Act and pension
contribution
  69   (69 )   112   (112 )
Adjusted income $ 362   $ 75   $ 287   20.7 % $ 1,055   $ 205   $ 850   19.4 %
 
  Three Months Ended   Nine Months Ended
June 30, 2017 June 30, 2017
Pre-   Tax     Tax Pre-   Tax     Tax
(dollars in millions) tax Expense Net Rate tax Expense Net Rate
Income (GAAP) $ 221 $ 42 $ 179 19.0 % $ 657 $ 165 $ 492 25.1 %
B/E Aerospace acquisition-related expenses 82 28 54 109 35 74
Amortization of acquisition-related intangible assets 56 18 38 75 25 50
Amortization of acquired contract liability (42 ) (3 ) (39 ) (42 ) (3 ) (39 )
Amortization of inventory fair value adjustment 44   13   31   44   13   31  
Adjusted income $ 361   $ 98   $ 263   27.1 % $ 843   $ 235   $ 608   27.9 %
 

With the acquisition of B/E Aerospace in the third quarter of 2017, the
Interior Systems segment was formed. Beginning in calendar year 2018,
two B/E Aerospace product lines previously included in the Interior
Systems segment are now being reported in the Government Systems
segment. To further enhance comparability and analysis, the following
table provides the revised presentation of Interior Systems and
Government Systems segment sales, by quarter, for the year ended
September 30, 2017.

  Three Months Ended  
Dec. 31,   Mar. 31,   Jun. 30,   Sept. 30, Full Year
2016 2017 2017 2017 2017
Interior Systems sales:
Interior products and services $ $ $ 352 $ 365 $ 717
Aircraft seating     295   290   585
Total Interior Systems sales $   $   $ 647   $ 655   $ 1,302
 
Government Systems sales:
Avionics $ 319 $ 367 $ 342 $ 444 $ 1,472
Communication and navigation 156   198   264   294   912
Total Government Systems sales $ 475   $ 565   $ 606   $ 738   $ 2,384

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