- Letter to shareowners
- Focused on a high growth future
- At-a-glance
- Financial highlights
- Leadership
- Corporate information
After one of the most exciting years in Rockwell Collins’ history, I’m proud to report that our business is well positioned for a new and promising future.
Kelly Ortberg
Chairman, President and Chief Executive Officer
In fiscal year 2017, Rockwell Collins’ total revenue rose to a record $6.8 billion. Cash provided by operating activities was $1.3 billion – another record. Our new Interior Systems business unit – formed from our April 2017 acquisition of B/E Aerospace – contributed $1.4 billion in revenue to our top line in its first two quarters as part of our company.
Earnings per share from continuing operations was $4.79 compared to $5.50 in the prior year. Adjusted earnings per share for fiscal year 2017 increased 8 percent to $6.15 compared to $5.70 in the prior year, reflecting our healthy operating performance.1 We also delivered total segment operating margins of 19.4 percent.
This success sets the stage for the next chapter in our growth story. In September, Rockwell Collins reached an agreement with United Technologies Corporation (UTC) whereby UTC will acquire our company and combine it with UTC Aerospace Systems, pending shareowner and regulatory approvals.
We plan to unite our capabilities with UTC Aerospace Systems’ offerings – which include electric systems, engine and environmental controls, wheels and brakes and landing gear. Together, we will create a new United Technologies business called Collins Aerospace Systems. The combination will give us a greater ability to offer innovative products and services, enabling us to better satisfy our customers. It will also enable us to invest in new innovations and provide more integrated product offerings to meet customer demand.
All of this aligns with the strategy of growth we have pursued since our spin-off from Rockwell International in 2001. In fact, in those 16 years, Rockwell Collins has delivered returns of over four times the S&P 500 and Dow Jones averages.
A clear vision, favorable market conditions and hard work drove our revenue and cash flow performance in fiscal year 2017. For the first time in several years, we achieved organic growth across each of our legacy business units.
Commercial Systems’ growth was led by rate increases on a number of air transport platforms, including the Boeing 737 and Airbus A350 XWB. In May, our teams supported the entry into service of the Boeing 737 MAX, our largest Commercial Systems program. At the Paris Air Show, we announced that Airbus selected Rockwell Collins for the flight operations and maintenance exchanger (FOMAX) solution on the A320 family. This connectivity system will enable A320 operators to quickly and securely gather and transmit the full range of aircraft health data to ground-based operations, enabling new gains in efficiency and maintenance. During the year, we also saw strengthening aftermarket sales largely due to airspace modernization mandates and increased business jet cockpit retrofits.
Government Systems achieved an impressive string of strategic wins in the improved U.S. defense budget environment. For example, the U.S. Navy selected Rockwell Collins for its Tactical Combat Training System Increment II (TCTS Inc-II) program, a $142 million initial contract win. Leveraging our position on the Common Range Integrated Instrumentation System (CRIIS), TCTS Inc-II will provide the Navy with advanced airborne-, ground- and ship-based encrypted training capability. The Government Systems team also won a follow-on order from the U.S. Army for Handheld, Manpack and Small Form Factor (HMS) Manpack radios, which are based on our company’s TruNet™ networked communications solution. This award came after rigorous customer testing, and now we’re one of the two companies selected to compete for a potential 10-year, multibillion-dollar program.
Information Management Services continues to be our fastest-growing business unit, driven by the ongoing demand for aviation connectivity services for both the flight deck and cabin. For instance, this year we signed an agreement with a major Asian carrier to be its exclusive line fit provider for nose-to-tail communications for more than 125 aircraft. This win represented another significant air transport connectivity selection, on the heels of the Norwegian Air Shuttle selection that I mentioned in last year’s letter.
Our $6.5 billion acquisition of B/E Aerospace, a leading manufacturer of aircraft cabin interior systems, was a significant leap forward in our growth strategy, enabling us to bring an impressive set of new capabilities – including seating, lighting and oxygen systems – to our commercial, business aviation and defense customers. Equally important, it also provided us new opportunities for industry leadership in networking technologies and connectivity solutions, offering possibilities of “smart” cabin systems from seats to galleys and more.
We are off to a great start in executing our B/E Aerospace integration plan. I expect we will exceed our initial commitment of $160 million in run-rate cost synergies, and we’re already seeing revenue synergies beyond our initial plan.
Now, with the agreement we’ve reached with UTC, we’re taking another leap to accelerate our growth even further. I look forward to serving as the CEO of Collins Aerospace Systems upon completion of the transaction, which is expected by the third quarter of calendar year 2018, based on the expected timing of approvals.
As I look ahead to the future, it’s with confidence – and for three good reasons.
Thank you for your investment in us. We’re honored to have your support as we continue to build trust every day.
Kelly Ortberg
Chairman, President and Chief Executive Officer
1 For the reconciliation between GAAP measures and non-GAAP measures, including adjusted earnings per share, see page 11 of Exhibit 99.1 of our Form 8-K filed on October 27, 2017.