Rockwell Collins Reports Third Quarter Fiscal 2016 Earnings

• Earnings per share increase 23% to $1.63
• Financial outlook for fiscal 2016 updated

Rockwell Collins, Inc. (NYSE: COL) today reported third quarter fiscal year 2016 earnings per share from continuing operations increased 23% to $1.63 compared to $1.33 in the prior year. Total sales in the third quarter of fiscal year 2016 were $1.33 billion, a 3% increase from the same period in fiscal year 2015. Total segment operating margins increased 10 basis points to 21.1%.

"All of our business segments posted solid operating performance during the quarter, highlighted by a return to growth in Government Systems and 10% revenue growth in Information Management Services," said Rockwell Collins Chairman, President, and Chief Executive Officer, Kelly Ortberg. "Directionally, fiscal 2016 continues to progress as we expected, and our restructuring actions announced in the first quarter are delivering the savings we anticipated. As a result, we are narrowing our financial guidance for the year."

The Company narrowed the ranges for its financial outlook for fiscal year 2016 as follows:

• Total sales are now expected to be about $5.3 billion (from $5.3 billion to $5.4 billion).
• Earnings per share is now expected to be in the range of $5.50 to $5.55 (from $5.45 to $5.65).
• Cash flow from operations is now expected to be about $750 million (from $750 million to $850 million).
• The full year income tax rate is now expected to be about 22.5% (from 22% to 23%).

"Lower-than-anticipated business aircraft OEM production rates and air transport aftermarket service and support sales have impacted our Commercial Systems revenue outlook," added Ortberg. "We now expect Commercial Systems sales to be down about 1% for the year. In addition, we now forecast our cash flow from operations at the lower end of the previously guided range due to the timing of receivable collections and higher spending for pre-production engineering costs. In spite of these market challenges, our strong operational performance has allowed us to narrow our earnings per share estimate for fiscal year 2016 within the previously guided range."

Following is a discussion of fiscal year 2016 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 2016 third quarter results as summarized below.

• Original equipment sales decreased due to lower business aircraft OEM production rates, lower product deliveries to a Chinese regional aircraft manufacturer, and lower Airbus A330 production rates. These decreases were mostly offset by higher product deliveries in support of the Airbus A350 and Boeing 787 production ramps, favorable customer timing for airline selectable equipment, higher product deliveries for the Bombardier CSeries program, and higher customer-funded development program revenues.
• Aftermarket sales increased due to higher simulation hardware deliveries, higher inorganic sales from the acquisition of International Communications Group, and higher flight deck retrofits, partially offset by lower spares provisioning and lower cabin retrofits.
• Operating earnings and operating margin were about flat with the prior year as benefits from cost savings initiatives from previously announced restructuring plans were offset by unfavorable sales mix as lower margin customer-funded development sales increased and higher margin business jet OEM sales decreased.

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 with the first quarter of fiscal year 2016, Government Systems sales categories have been consolidated as a result of an internal reorganization and are delineated based on the underlying product technologies. The previously reported sales categories of Communication products, Surface solutions and Navigation products are now primarily consolidated into Communication and Navigation. Government Systems sales for the third quarter of fiscal year 2015 has been reclassified to the current year presentation.

Results from the third quarter of 2016 are summarized below.

• Avionics sales increased due to higher fixed-wing platform revenues and higher simulation and training sales, partially offset by lower deliveries on various rotary wing platforms.
• Communication and Navigation sales decreased due to the wind-down of an international electronic warfare program and lower international deliveries of targeting systems.
• Operating earnings and operating margin increased due to higher sales volume and cost savings initiatives from previously announced restructuring plans, partially offset by unfavorable development program adjustments.

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 2016 are summarized below.

• IMS sales increased due to 9% growth in aviation related sales, including GLOBALinkSM and ARINCDirectSM. In addition, non-aviation related sales increased 11% due primarily to higher airport and rail program sales.
• IMS operating earnings and operating margin increased due to incremental earnings on higher sales volume.

Corporate and Financial Highlights

Income Taxes
The company's effective income tax rate from continuing operations was 13.4% for the third quarter of fiscal year 2016 compared to a rate of 24.9% for the same period last year. The lower current year effective income tax rate from continuing operations was primarily due to the release of a $41 million valuation allowance related to a U.S. capital loss carryforward. This tax benefit was partially offset by favorable adjustments recorded in the prior year related to the remeasurement of certain tax positions.

Cash Flow
Cash provided by operating activities from continuing operations was $223 million for the first nine months of fiscal year 2016, compared to $341 million in the first nine months of fiscal year 2015. The decrease in cash provided by operating activities was due primarily to unfavorable net working capital changes, partially offset by lower tax payments.

During the third quarter of 2016, the company repurchased 0.7 million shares of common stock at a total cost of $67 million. The company also paid a dividend on its common stock of 33 cents per share, or $43 million, in the third quarter of 2016.

Fiscal Year 2016 Outlook

The following table is a summary of the company's updated financial guidance for continuing operations for fiscal year 2016:

(1) - Total research and development investment consists of company and customer-funded research & development expenditures as well as the net increase in pre-production engineering costs capitalized within inventory.

Non-GAAP Financial Information
Total segment operating margin is a non-GAAP measure and is reconciled to the related GAAP measure, Income from continuing operations before income taxes, in the Segment Sales and Earnings Information schedule in this press release. Total segment operating margin is calculated as total segment operating earnings divided by total sales. The non-GAAP total segment operating margin information included in this disclosure is believed to be useful to investors' understanding and assessment of the company's ongoing operations.

Conference Call and Webcast Details
Rockwell Collins Chairman, President and CEO, Kelly Ortberg, and Senior Vice President and CFO, Patrick Allen, will conduct an earnings conference call at 9:00 a.m. Eastern Time on July 25, 2016. Individuals may listen to the call and view management's supporting slide presentation on the Internet at www.rockwellcollins.com. Listeners are encouraged to go to the Investor Relations portion of the web site at least 15 minutes prior to the call to download and install any necessary software. The call will be available for replay on the Internet at www.rockwellcollins.com.

Business Highlights

Airbus survey ranks Rockwell Collins No. 1 for avionics supplier support
Rockwell Collins was named by Airbus as its top supplier in the Supplier-Furnished Equipment category and received an Excellent In-Service Performance award. The company was honored at a special ceremony at the Farnborough Airshow.

Rockwell Collins completes critical CRIIS milestone for production
Rockwell Collins completed the Production Readiness Review (PRR) for Common Range Integrated Instrumentation System (CRIIS), paving the way for the U.S. Department of Defense to award Production Lot 1. The PRR was done in cooperation with the Test Resource Management Center and CRIIS System Program Office at Eglin Air Force Base.

Mexican Navy selected Rockwell Collins to deliver Transportable Blackhawk Operations Simulator (T-BOS)
Rockwell Collins will deliver one Transportable Blackhawk Operations Simulator and associated services to the Mexican Navy in Veracruz, Mexico, making this delivery the seventeenth T-BOS delivered to domestic and international customers for the UH-60M Blackhawk helicopter.

Bombardier CSeries first delivery marks airline debut of Rockwell Collins' Pro Line Fusion®
Rockwell Collins' Pro Line Fusion® avionics made its airline debut following first delivery of Bombardier's CSeries to Swiss International Air Lines. The aircraft also features Rockwell Collins' Primary Flight Control Computer, industry-leading MultiScan™ weather radar with predictive windshear and dual Head-Up Display.

Rockwell Collins' advanced avionics and IFE selected for 44 Shenzhen Airlines' Boeing 737s
Rockwell Collins was selected by China-based Shenzhen Airlines to provide its full suite of advanced avionics and PAVES™ Broadcast overhead In-Flight Entertainment on 44 new airplanes, including 37 Boeing 737 MAX and seven Next-Generation Boeing 737 aircraft.

Rockwell Collins recognized by Bombardier as 2015 In-Service STAR Award winner
Bombardier Commercial Aircraft recognized Rockwell Collins' exceptional achievements on the CRJ aircraft program throughout the past year with its 2015 In-Service Supplier Top Achievement Recognition (STAR) Award. The STAR Award recognizes suppliers with performance scores of at least 90 percent in areas such as product performance, airline support, and customer focus.

Rockwell Collins provides Venue™-based cabin system on Bombardier Global 5000 and Global 6000 aircraft
Rockwell Collins' Venue™ high-definition cabin management and entertainment system will be featured on new Bombardier Global 5000 and Global 6000 aircraft beginning in Q3 of 2016. It will also be available as a retrofit solution on in-service Global aircraft models through Bombardier Service Centers.

Rockwell Collins flight controls to be featured on Cessna Citation Longitude
Rockwell Collins' horizontal stabilizer trim and flap actuation systems will be featured on the new Cessna Citation Longitude super-midsize business jet. Rockwell Collins' horizontal stabilizer trim actuator controls the pitch of the horizontal stabilizer in order to reduce drag and trim the aircraft for optimal efficient flight. The flap actuator system from Rockwell Collins extends and retracts the trailing-edge flap system, which is used to increase lift during slow flight.

U.S. Secretary of Defense recognizes Rockwell Collins for excellence in Performance Based Logistics
The AN/ARC-210 PBL team implemented a 10-year PBL solution between Naval Supply Systems Command (NAVSUP) and Rockwell Collins that improved battlefield interoperability and mission availability. The award was presented to Rockwell Collins and NAVSUP by the Deputy Assistant to the Secretary of Defense Terry Emmert during a ceremony at the DoD Product Support Conference at Ft. Belvoir, Virginia.

Rockwell Collins MicroGRAM selected for U.S. Navy's bomb disposal robots
Rockwell Collins will provide up to 2,000 of its MicroGRAM GPS receivers to Neya Systems and Northrop Grumman for integration in Neya's Autonomous Behavior Capability Module, in support of Increment 1 of the Naval Surface Warfare Center's Advanced Explosive Ordnance Disposal Robotic System.

New Zealand's three largest airports select Rockwell Collins common use passenger processing solution
Wellington Airport and the Common Use Terminal Equipment clubs at both Auckland and Christchurch International Airports selected Rockwell Collins common use passenger processing solutions, enabling the airports to reduce costs and passengers to experience faster check-in times.

Rockwell Collins to provide fleet-wide international trip support services for Hong Kong based Metrojet
Metrojet, a Hong Kong based six-star business aviation services company, engaged Rockwell Collins' ARINCDirectSM to provide international trip support services for its fleet of business aircraft. The new contract expands Metrojet's relationship with Rockwell Collins, which is currently using a number of ARINCDirect's integrated services.

Zetta Jet signs fleet-wide cabin connectivity agreement with Rockwell Collins
Zetta Jet selected Rockwell Collins' ARINCDirect to provide its customers with the fastest internet speeds available through Viasat Yonder over KU band and Inmarsat Jet ConneX (JX) over KA band. Zetta Jet is the first business jet provider in Asia to offer high-speed connectivity across its fleet of aircraft.

Airbus selects Rockwell Collins as a lead supplier for high-bandwidth connectivity
Airbus has selected Rockwell Collins as a lead supplier of High-Bandwidth Connectivity for the Airbus A320 single-aisle family of aircraft, and long-range A330 and A380 aircraft.