"With these market dynamics — coupled with our firm strategic direction and balanced business model — we expect Rockwell Collins to return to growth in fiscal year 2015, with accelerating gains in the years to follow."

Dear Shareowners:

When I took the reins of Rockwell Collins as chief executive officer and president on August 1, 2013, I told shareowners and employees that my top priority is to accelerate our company’s return to growth. This letter and annual report will illustrate why, today, I feel more confident than ever that we will accomplish that goal.

In fiscal year 2013, Rockwell Collins delivered strong operating performance despite a challenging market. The measures we implemented to respond to those uncertainties allowed us to retain 21 percent total segment operating margins while improving operating cash flows by 16 percent to $617 million. Earnings per share grew 10 percent, from $4.15 to $4.58, as we continued to return capital to shareowners through our share repurchase program.

Total revenue came within our original guidance for the year but, as anticipated, declined slightly to $4.61 billion. A
4 percent increase in Commercial Systems revenue – driven by robust air transport sales — partially offset the 8 percent decline in Government Systems, which reflected the impacts of sequestration and sluggish domestic defense spending.

Looking forward, fiscal year 2014 will mark a critical juncture in Rockwell Collins’ return to growth. Air transport revenue will continue to rise as Boeing 787 Dreamliner production increases and the Airbus A350 XWB enters the market. Growth in the light end of the business aviation market will likely remain slow, but we anticipate continued strength in our positions on larger business aircraft. While we expect 2014 to mark the bottom of the domestic defense cycle, we still see an opportunity to gain share in key international markets.

The Airbus A350 XWB features a comprehensive package of our
information management, communication, navigation, electromechanical and avionics data network systems.

$921 million

invested in R&D in 2013

Longer term, the outlook improves even further: Continued growth in air transport and a market recovery in business aviation; a leveling and return to growth in U.S. defense budgets; and increased opportunities internationally. With these market dynamics — coupled with our firm strategic direction and balanced business model — we expect Rockwell Collins to return to growth in fiscal year 2015, with accelerating gains in the years to follow. Looking to the future, I believe we are well positioned to increase operating earnings, generate even stronger cash flow and deliver improved shareowner value. Here's how:

Enhance and expand our addressed markets

We're dedicated to serving our core markets through exceptional execution of current commitments, while leveraging that performance to gain new business opportunities. This year marked the first flight of the A350 and the continuing production ramp-up of the 787 — both important platforms for success — and significant new wins including additional A350 content and the large-format flight displays on the Boeing 737 MAX.

In the business and regional aviation segment, our Pro Line Fusion® integrated avionics system reached a landmark 100 aircraft in service. The first flight of the Bombardier CSeries was the latest in a wave of more than 15 new Pro Line Fusion equipped aircraft — from turboprops to helicopters — scheduled to enter service by 2017.

"Last year, 36 percent of our sales were outside of the United States … we project that we will reach about 50 percent by the end of the decade."

We remain focused on delivering increased value and capability across the entire Government Systems portfolio. For example, as part of our ongoing commitment as the primary avionics provider for all U.S. Air Force tanker programs, this year we achieved on-time development of equipment for the KC-46 tanker program. We also attained similar strong results for the Brazilian Embraer KC-390 tanker transport program. And at the Paris Air Show in June, we introduced the HeliSure™ family of rotary wing situational awareness products, including the HeliSure synthetic vision and terrain awareness and warning system that was selected by AgustaWestland for their AW149, AW189, AW101 and AW169 platforms.

Beyond organic growth, we continue to look for smart ways to enhance Rockwell Collins' overall value by expanding our addressed markets. The ARINC acquisition positions us as a leader in a sector with tremendous growth and revenue potential, broadening the scope of our information management capabilities to encompass the entire aviation ecosystem and beyond through ARINC’s communications network, systems integration, rail solutions and critical infrastructure security solutions.

Grow our international business

International growth — in 2014 and beyond — will play an important role in Rockwell Collins' growth strategy. Last year, 36 percent of sales were outside of the United States, and that number continues to increase: We project that we will reach about 50 percent by the end of the decade. Among the fiscal year 2013 highlights:

  • We expanded upon our 40-year commitment to Brazil in recent years, increasing our workforce to support business development, systems engineering, program management and the ongoing development of Pro Line Fusion for the Brazilian Air Force's KC-390 tanker/transport aircraft — including in-country production of displays — as well as the fiscal year 2013 selection of the Talon™ airborne radio as the standard for Army Aviation communication.
  • In the Middle East, we enhanced a customer's forward air command capabilities through a $40 million contract for the FireStorm™ integrated targeting system. And in Australia, we were honored for "Excellence in Project Management" on the Patrol Persistent Surveillance System for the Australian Defence Forces.
  • We celebrated 30 years in China in fiscal year 2013, highlighting our long ties with this important and growing market. This year we added to Rockwell Collins' joint venture pursuits by signing a Memorandum of Agreement to establish a joint venture with Blue Sky Aviation to design, manufacture and market commercial aviation flight simulators. We also continue to partner with the Civil Aviation Administration of China as it refines its roadmap for head-up displays on all in-service airline fleets by 2025.

Maintain our strong commitment to innovation

Innovation is at the heart of how we best serve our customers, and Rockwell Collins annually dedicates roughly 20 percent of its annual revenue to investment in research and development — $921 million in fiscal year 2013. This drives the innovations necessary to bring new aviation developments to market on platforms like the 737 MAX and the KC-46 next-generation tanker. This also allows us to gain the essential competitive advantage in emerging technologies such as software-defined radio enhancements and high-integrity communications necessary to integrate unmanned aircraft systems (UAS) into the shared civil airspace.

HeliSure™ combines
3D visualization, displays, sensors and databases together to provide unprecedented situational awareness for helicopters.

And these investments have yielded results: This year we saw the first flight of Pro Line Fusion with a touch screen primary flight display, while our advances in the Tactical Targeting Network Technology (TTNT) allowed the U.S. Navy to successfully land a UAS on the deck of an aircraft carrier.

Full speed ahead

I'm proud of Rockwell Collins’ performance in fiscal year 2013: We achieved a number of key business goals, and were proactive in planning our business and controlling costs to sustain profitability and enhance shareowner value, even in challenging times. But more importantly, as we’ve discussed and examined the strategies necessary to accelerate our return to growth, employees around the globe have come to embrace a phrase that has become nearly a mantra within our company: Full speed ahead.

Those words embody a spirit crucial to this company’s path forward: We are dedicated to delivering on our promises. We share a determination to take full advantage of growth opportunities. We are aligned in our view of the road ahead and the bright future to follow. And we strive to live up to the values that have made Rockwell Collins an industry leader for the last 80 years — the same values that allow us to build trust, every day.

Thank you for your continued confidence in our company.

Kelly Ortberg
CEO and President