Rockwell Collins’ second quarter sales increase 7%

The company reported second quarter 2011 net income of $150 million, an increase of $2 million, or 1%, from fiscal year 2010 second quarter net income of $148 million. Earnings per share for the quarter was $0.96, an increase of $0.03, or 3%, from earnings per share of $0.93 for the same period in 2010. Excluding a $15 million, or 9 cents per share, net benefit of certain prior year tax-related matters discussed in greater detail below, net income increased by 13% and earnings per share increased by 14%.

"As expected, we were able to deliver solid growth across both our businesses with Commercial Systems leading the way," said Rockwell Collins Chairman, President and Chief Executive Officer Clay Jones. "Indicative of our operating leverage, Commercial Systems delivered operating earnings growth at almost three times the rate of sales while Government Systems demonstrated it could maintain an exceptionally high rate of profitability despite slower, albeit positive, growth."

Jones went on to state, "Once again our balanced business model proved its resilience and ability to achieve strong performance in transitional markets. Halfway through our fiscal year, we see continued improving market conditions and sufficient reductions in areas of risk that we are again raising earnings guidance expectations."

Following is a discussion of fiscal year 2011 second 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 2011 second quarter sales of $507 million, an increase of $58 million, or 13%, compared to sales of $449 million reported for the same period last year.

Sales related to aircraft original equipment manufacturers increased $37 million, or 16%, to $270 million driven by higher product deliveries for the Boeing 737 and 787, Bombardier Global and Cessna CJ-4 platforms as well as increased deliveries of single-aisle in-flight entertainment products. Aftermarket sales increased $27 million, or 15%, to $208 million primarily driven by a 25% increase in retrofit and spares and a 9% increase in service and support sales. Sales related to wide-body in-flight entertainment products and services decreased $6 million to $29 million.

Commercial Systems second quarter operating earnings increased 33% to $92 million, resulting in an operating margin of 18.1%, compared to operating earnings of $69 million, or an operating margin of 15.4%, for the same period a year ago. The increase in operating earnings and margin was primarily attributable to higher sales volume partially offset by an increase in selling, general and administrative expense, employee incentive compensation and company funded research and development costs.

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 second quarter sales of $716 million, an increase of $23 million, or 3%, compared to the $693 million reported for the same period last year.

Airborne solutions sales increased $42 million, or 9%, to $497 million from higher revenue for rotary wing platforms, the Common Range Integrated Instrumentation System program and an E-6 aircraft upgrade program partially offset by lower sales on the KC-135 GATM program. Surface solutions sales decreased $19 million, or 8%, to $219 million driven by the completion of a satellite communication upgrade program last year and fewer deliveries of iForce^TM systems to the California Highway Patrol partially offset by revenue from a program to provide transportable cellular capabilities in Afghanistan.

Government Systems second quarter operating earnings were flat at $150 million, resulting in an operating margin of 20.9%, compared to an operating margin of 21.6%, for the same period last year. The decrease in operating margin was primarily the result of higher employee incentive compensation costs partially offset by higher sales volume.

Corporate and Financial Highlights

General corporate expenses that are not allocated to the company's business segments were $12 million, $1 million lower than last year. The company's effective income tax rate of 31.5% for the second quarter of 2011 was higher than the rate of 24.5% for the prior year. The lower rate for the second quarter of 2010 was primarily due to favorable adjustments resulting from the completion of an IRS examination partially offset by the difference in availability of the Federal R&D Tax Credit. The net benefit of these tax-related matters to net income and earnings per share for the second quarter of 2010 was $15 million and 9 cents, respectively.

Cash provided by operating activities for the first six months of 2011 totaled $127 million compared to $280 million reported in the same period last year. The decrease in operating cash flow resulted primarily from higher payments for pre-production engineering effort, employee incentive compensation and inventory purchases for anticipated production volume.

During the second quarter of 2011 the company repurchased 1.0 million shares of its common stock at a total cost of $65 million, leaving $117 million available for authorized share repurchases. The company also paid dividends totaling $38 million, or 24 cents per share, on its common stock.

Fiscal Year 2011 Outlook

The company is making the following adjustment to its full fiscal year 2011 guidance:

• Earnings per share are projected to be in the range of $3.90 to $4.10 (previously in the range of $3.85 to $4.05).

The following table is a complete summary of the company's fiscal year 2011 financial guidance:

Total sales	$4.8 Bil. to $5.0 Bil.
Total segment operating margins	19.5% to 20.5%
Earnings per share	$3.90 to $4.10
Cash flow from operations	$650 Mil. to $750 Mil.
Research & development costs	$900 Mil. to $950 Mil.
Capital expenditures	about $150 Mil.

Business Highlights

Data Link Solutions received production award for MIDS JTRS
Data Link Solutions, a joint venture between Rockwell Collins and BAE Systems, was awarded an $8.2 million contract by the Space and Naval Warfare Systems Command for limited production of Multifunctional Information Distribution System Joint Tactical Radio System (MIDS JTRS) terminals.

New secure, miniature GPS made available for all types of military equipment
Rockwell Collins released its MicroGRAM GPS receiver, which is 90 percent smaller than the earlier version of its Miniature Precision Lightweight GPS Receiver Engine SAASM. The extraordinary size reduction means that equipment such as handheld radios, ruggedized field computers, laser range finders, gun scopes and small unmanned aircraft can be equipped with secure GPS capability.

Rockwell Collins guidance and navigation systems exceed 1 million hours flying unmanned systems
Rockwell Collins' Athena family of flight control and navigation systems exceeded 1 million flight hours on several Unmanned Aerial Vehicles performing surveillance operations primarily in the Middle East.

Rockwell Collins supported the first flight of the U.S. Navy X-47B Unmanned Combat Air System Demonstration Program
Rockwell Collins announced that its ARC-210 radios provided critical communications in support of the historic first flight of the U.S. Navy/Northrop Grumman X-47B Unmanned Combat Air System (UCAS) on Feb. 4 at Edwards Air Force Base, Calif. Rockwell Collins is a contractor to Northrop Grumman under the U.S. Navy UCAS Demonstration program.

Rockwell Collins received COMAC's Gold Medal for ARJ-21 support
Rockwell Collins received a Gold Medal honor from Commercial Aircraft Corporation of China, Ltd. (COMAC) for providing outstanding support of the ARJ-21 flight test and certification program, and was the only supplier to receive the Gold Medal out of nearly 50 other suppliers on the ARJ-21 program.

Rockwell Collins' LPV upgrade available for Falcon 50 and Beechjet 400A/Hawker 400XP aircraft
Operators of Dassault Falcon 50 aircraft equipped with Rockwell Collins Pro Line 21™ avionics and Beechjet 400A/Hawker 400XP aircraft equipped with Pro Line 4™ avionics can broaden their access to more than 2,300 airports with Localizer Performance with Vertical guidance (LPV) approaches through LPV upgrade Supplemental Type Certificates (STCs) from Rockwell Collins. With 22 LPV STCs, Rockwell Collins is the leading provider of Wide Area Augmentation System LPV solutions for Part 25 aircraft manufactured by Bombardier, Cessna, Dassault, Gulfstream, and Hawker Beechcraft.

Rockwell Collins achieved STC for Pro Line 4™ to Pro Line 21™ upgrade on Falcon 50EX
Falcon 50EX business jet operators with Rockwell Collins Pro Line 4 avionics can now upgrade to Pro Line 21 by utilizing a STC from Rockwell Collins. The Pro Line 4 to Pro Line 21 major retrofit solution for the Falcon 50EX flight deck features four large, configurable 10- by 8-inch liquid crystal displays that includes Rockwell Collins' Integrated Flight Information System (IFIS). With IFIS, pilots will have access to high resolution electronic charts, XM graphical weather, including but not limited to NEXRAD, lightning data, satellite images and winds aloft, and enhanced navigation maps.

Rockwell Collins extended Pro Line 21™ IDS with S-61 helicopter installation
Rockwell Collins announced the successful installation of its proven Pro Line 21 Integrated Display System into a Sikorsky S-61 long-range helicopter. This retrofit, which was a collaborative effort with Toronto, Canada-based Vector Aerospace, is the first installation of a Pro Line 21 avionics system on a rotary wing aircraft. Helicopter pilots using Pro Line 21's configurable, crystal clear flight display will experience increased situational awareness and a greater sense of security, especially when flying under strict instrument flight rule conditions.

Rockwell Collins continued global expansion with new office openings

• Rockwell Collins established a new office in Paris
  The new Paris office will serve to further support our well-established presence in the region. Its strategic location will enable the company to expand in international markets with high growth potential.
• China System Support Center (CSSC) signified continued investment in China
  The CSSC is housed within Rockwell Collins' recently built Shanghai office − the third facility opened in Shanghai by Rockwell Collins and the company's fifth in China. The CSSC offers Original Equipment Manufacturer (OEM) on-site engineering support, fundamental and advanced engineering and program management training at customer-preferred locations, overall system integration support, and avionics system consulting to customers and partners in China.
• Middle East office providing enhanced support for local customer needs
  Rockwell Collins has expanded its presence in the United Arab Emirates to support growing opportunities in the Middle East. The new office, which opened in February, houses Rockwell Collins' business development functions and will quickly expand to include program management, systems engineering and related support activities for customers in the region.