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Edited Transcript of COL earnings conference call or presentation 21-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Rockwell Collins Inc Earnings Call

CEDAR RAPIDS Apr 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Rockwell Collins Inc earnings conference call or presentation Friday, April 21, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Patrick E. Allen

Rockwell Collins, Inc. - CFO and SVP

* Robert K. Ortberg

Rockwell Collins, Inc. - Chairman, CEO and President

* Ryan D. Miller

Rockwell Collins, Inc. - VP of IR

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Conference Call Participants

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* Cai Von Rumohr

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* David Egon Strauss

UBS Investment Bank, Research Division - MD and Senior Research Analyst

* George D. Shapiro

Shapiro Research - CEO and Managing Partner

* Hunter Kent Keay

Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace and Defense

* Kenneth George Herbert

Canaccord Genuity Limited, Research Division - MD and Senior Aerospace and Defense Analyst

* Kristine Tan Liwag

BofA Merrill Lynch, Research Division - VP

* Matthew W. McConnell

RBC Capital Markets, LLC, Research Division - Associate Analyst

* Michael Frank Ciarmoli

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Myles Alexander Walton

Deutsche Bank AG, Research Division - Director and Senior Research Analyst

* Peter J. Arment

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Peter John Skibitski

Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst

* Phillip Carter Copeland

Barclays PLC, Research Division - Associate Director and Senior Analyst

* Rajeev Lalwani

Morgan Stanley, Research Division - Executive Director

* Richard Tobie Safran

The Buckingham Research Group Incorporated - Research Analyst

* Robert Alan Stallard

Vertical Research Partners, LLC - Partner

* Robert Michael Spingarn

Crédit Suisse AG, Research Division - Aerospace and Defense Analyst

* Samuel J. Pearlstein

Wells Fargo Securities, LLC, Research Division - MD, Co-Head of Equity Research, and Senior Analyst

* Seth Michael Seifman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Rockwell Collins Second Quarter Fiscal Year 2017 Earnings Conference Call. Today's call is being recorded.

For opening remarks and management introductions, I would like to turn the call over to Rockwell Collins' Vice President of Investor Relations, Ryan Miller. Please go ahead, sir.

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Ryan D. Miller, Rockwell Collins, Inc. - VP of IR [2]

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Thank you, Anisse, and good morning to all of you on the call. With me on the line this morning are Rockwell Collins' Chairman, President and Chief Executive Officer, Kelly Ortberg; and Senior Vice President and chief Financial Officer, Patrick Allen.

Today's call is being webcast, and you can view the slides we'll be presenting today on our website at www.rockwellcollins.com under the Investor Relations tab. These slides include certain non-GAAP financial information and a reconciliation to the related GAAP measure.

Please note, today's presentation and webcast will include certain projections and statements that are forward-looking. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including those detailed on Slide 2 of this webcast presentation and from time to time in our company's Securities and Exchange Commission filings. These forward-looking statements are made as of today, and the company assumes no obligation to update any forward-looking statement.

With that, I'll now turn the call over to Kelly.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [3]

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Thanks, Ryan, and good morning, everyone. Well, as you know, this will be the last quarter we report without the results of the newly acquired B/E Aerospace. And I'm pleased that we go into the merger with our legacy businesses performing very well.

We delivered another quarter of solid operating performance, highlighted by 30 basis points of total segment operating margin improvement. Strong growth from our Information Management Services, Air Transport and Government Systems businesses was partially offset by expected headwinds from lower business jet OEM production. If you'll recall, this is pretty much what we forecasted in our initial guidance. So through the first half of the year, fiscal 2017 is playing out about as we expected.

Now before I talk about B/E Aerospace and the acquisition, let me first provide a quick update on each of our businesses.

And I'll start with Government Systems, which is now becoming a steady-growth engine for our company. This was the fourth consecutive quarter of at least 5% sales growth. In addition, our Government Systems business has been able to maintain very strong margins while continuing to invest in new development programs and pursue new opportunities that are expected to continue to drive growth.

A great example of one of these new opportunities is our award for the Tactical Combat Training System program, or TCTS, which we just announced a few weeks ago. TCTS will provide an advanced airborne, ground and ship-based encryption training capability for the U.S. Navy. It builds on our successful CRIIS test and evaluation instrumentation program. And these 2 programs now allow us to address both the test and training range markets as we go forward through upgrades to support fifth-generation fighter aircraft. And this is a market we just haven't previously addressed and is a good example of how we're applying our capabilities in new ways to capture opportunities in this improving defense market.

In the near term, we're all focused on what happens with the fiscal year '17 appropriations when the CR expires at the end of the month. And with the current continuing resolution, we've already realized about $30 million of impact to sales for the year. And if it were to extend through the full fiscal year, I think that impact would more than double. With that said, with or without an extended continuing resolution, I still expect low to mid-single-digit growth in our Government Systems business in fiscal year 2017.

Moving on to Commercial Systems. Sales are playing out about as we expected when we set our original guidance back in October. As a reminder, we thought we'd be down a little in the first half and up a little in the second half. And for the full year, we're expecting sales to be about flat.

On the OEM front, air transport continues to be strong, and we expect that strength will continue over the balance of the year as the A350 rates ramp, Boeing and Airbus continue to ramp up their narrow-body rates and our share gains on the 737 MAX begin to kick in.

In business aviation, OEM sales continue to be weak, as expected.

In the Commercial Systems aftermarket, ADS-B mandates are picking up, and the biz jet and cockpit retrofits are actually a little stronger than I expected. We continue to anticipate aftermarket to strengthen over the second half of the year.

Moving now to Information Management Services. This was another strong quarter, with operating margins of almost 20% and 13% top line sales growth. I remain very optimistic about our ability to capture this growing market opportunity driven by the connected airplane.

So in summary, looking at our base Rockwell Collins business, there's no doubt that we have some nice momentum as we enter the new chapter for our company with the acquisition of B/E Aerospace. As you know, we had overwhelming support from both Rockwell Collins and B/E shareowners as they approved the merger. We also cleared all of the regulatory reviews with no provisos. And we successfully funded the acquisition while still maintaining our investment-grade credit rating. And were able to close the deal right when we thought we would when we announced it last October.

Last week, we had a great first day with the B/E employees. There's lots of excitement across the board. And I'm very pleased to have such a wealth of talent joining our team. As I've reported, we've had integration teams planning, working hand in hand for the last several months, focused on our synergy plans. And I still feel very confident we'll achieve the $160 million in run rate cost synergies. And remember, 90% of those are expected to be in place by the end of our fiscal 2019. In fact, we've taken on an internal stretch goal of $200 million in run rate cost synergies and we are identifying opportunities beyond the original target.

So things continue to look really good there. And we now can start sharing the details that were somewhat limited pre-close. Today, we're providing updated financial guidance for fiscal 2017, including B/E Aerospace, which will operate as a separate segment within Rockwell Collins called Interior Systems. The business will continue to be led by Werner Lieberherr, B/E's former CEO. The updated financial guidance includes higher GAAP sales, cash flow and a higher adjusted earnings per share guidance for fiscal 2017. And Patrick's going to walk us through the details of that revised guidance in his prepared remarks.

Looking now to the future, I'm excited about the growth potential of our new combined company. As our integration teams are working together to achieve our synergy plans, new ideas and best practices are coming to light that make one thing very clear. Both companies are very high-performing businesses, and I'm confident that we're going to create value that would not have been realized separately. To that end, we're planning an Investor Day this fall to provide you more insight to our longer-term plans and the outlook for our business. And we'll let you know the specific date and logistics as we get those firmed up here.

So with that, let me turn the call over to Patrick and have him walk us through the financial.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [4]

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Thanks, Kelly, and good morning to everyone as well. I'd now like you to walk [sic] [ to walk you ] through today's presentation slides that summarize our results for the second quarter of fiscal year 2017.

I'll begin on Slide 3 where we highlight our total company second quarter sales, income from continuing operations, earnings per share and diluted average shares outstanding. Total company sales for the quarter increased $31 million or 2% compared to the second quarter of last year due to higher Government Systems and Information Management Services sales, partially offset by lower Commercial Systems sales.

Income from continuing operations was $168 million and earnings per share was $1.27 in the second quarter of the current year compared with income from continuing operations of $172 million and earnings per share of 130 [sic] [ $1.30 ] in the same period last year. Excluding $0.07 of acquisition-related expenses from the acquisition of B/E Aerospace in the second quarter of the current year, earnings per share increased $0.04 or 3% compared to the same period last year.

As we turn to Slide 4, Commercial Systems achieved revenue of $594 million in the second quarter, down 3% compared to the same period last year. Sales related to aircraft OEMs decreased $16 million or 5% to $337 million, primarily due to lower business aircraft OEM production rates, partially offset by higher product deliveries in support of Airbus A350 rate increases and favorable customer timing for airline-selectable equipment.

Aftermarket sales increased $5 million or 2% due to higher regulatory mandate sales, partially offset by lower spares provisioning for Boeing 787 aircraft.

Commercial Systems operating earnings were $132 million and operating margin improved 10 basis points to 22.2%. Commercial Systems was able to expand margins despite lower sales volume and higher company-funded research and development expense due to cost-savings initiatives.

Moving to Slide 5. Government Systems overall revenue increased by 5% to $565 million. Second quarter Avionics sales increased 3% over the prior year, driven by higher simulation and training program revenues and higher fixed-wing development program sales, partially offset by the wind down of legacy tanker hardware deliveries.

Communication and Navigation sales increased 9% over the prior year due to higher data link program sales and higher deliveries of GPS-related products.

Government Systems second quarter operating earnings increased $6 million to $114 million, resulting in an operating margin of 20.2%, a 10 basis point improvement compared to the second quarter of the prior year. The increased operating earnings and operating margin were due to higher sales volume and cost savings initiatives, partially offset by an unfavorable mix of higher development program sales.

Turning to Slide 6. Information Management Services sales increased 13% over the prior year. IMS sales increased due to double digit sales growth in aviation-related revenues, driven by increased use of connectivity services and the timing of certain equipment deliveries. In addition, non-aviation revenues increased double digits as well due primarily to higher equipment sales for nuclear security programs.

Information Management Services second quarter operating earnings increased $7 million to $36 million, resulting in an operating margin of 19.7% compared to 17.9% in the second quarter of last year. The increase in operating earnings and margin was due primarily to higher sales volume.

Looking next to Slide 7. We show our year-to-date results for revenue, income from continuing operations, earnings per share and operating cash flow. Through the second quarter, we generated $1 million of operating cash flow compared to $45 million last year. The decrease in cash generation was due primarily to higher income tax payments and acquisition-related expenses, partially offset by higher cash collections from customers.

Slide 8 provides some additional color about our anticipated near-term capital deployment in light of the B/E Aerospace acquisition. As always, we'll continue to invest in organic growth by investing in R&D, and our capital expenditures are expected to be in the range of 3% to 3.5% of sales.

We plan to use a significant portion of our free cash flow to deleverage over the next few years. Since we have levered up to fund the acquisition of B/E Aerospace, our debt-to-EBITDA is a little over 4x. We expect our debt-to-EBITDA ratio to be under 3 within 2 years. And we remain focused on shareowner return and plan to maintain a dividend payout ratio of approximately 25% of net income.

We do not expect significant share repurchases over the next couple of years, just enough to offset dilution. Over time, as our leverage normalizes in the range of 2 to 2.5x, we expect to resume our normal share repurchase program.

We are committed to maintaining a strong liquidity and flexibility and preserving our solid investment-grade credit rating, which I'm pleased to report will remain investment-grade, as planned, subsequent to placing all of the debt to fund the B/E acquisition.

The weighted average interest rate on the debt we placed in the last few weeks was about 3.4%, which was in the range we expected when we announced the deal last October.

Now on to Slide 9, where we provide a summary of our fiscal year 2017 financial guidance, updated for the acquisition of B/E Aerospace, which we've renamed Interior Systems. That acquisition closed on April 13.

Total sales are projected to be in the range of $6.7 billion to $6.8 billion, which includes estimated sales of about $1.4 billion for Interior Systems. Total segment operating margins are projected to be in the range of 19% to 20%, down from the original guidance of about 21%. Our expectations for total segment operating margins has not changed for our legacy Rockwell Collins business. The lower total segment operating margin guidance is due to the inclusion of expected margins for Interior Systems in the range of 11% to 12%, which includes about 700 basis points of estimated margin headwind from acquisition-related intangible asset amortization.

On a stand-alone basis, our GAAP earnings per share guidance for Rockwell Collins before adjusting for the B/E acquisition would be in the range of $5.35 to $5.50. Our GAAP earnings per share guidance includes all -- including all of the impacts from the B/E Aerospace acquisition is $4.50 to $4.70. And our adjusted earnings per share guidance is $5.95 to $6.15. We provided a roll-forward of our estimated GAAP earnings per share as well as the reconciling items to our newly defined adjusted earnings per share guidance on Slide 10 in this presentation as well as in the non-GAAP table in our earnings release issued earlier this morning.

As you look at this guidance for the first time, I want to remind you that the adjusted earnings per share guidance is based on a preliminary purchase accounting allocation and is subject to potential adjustments that could be material. In addition, adjusted earnings per share is based on the weighted average shares for fiscal 2017, which includes the issuance of 31.2 million shares of Rockwell Collins common stock on April 13 in connection with the acquisition.

Due to the timing of the share issuance, the earnings per share impact of the acquisition of B/E Aerospace will be different in our annual results compared with our quarterly results. We are currently planning that weighted average diluted shares for fiscal year 2017 will be around 147 million shares. During the third and fourth quarters, we're planning the weighted average diluted shares outstanding will be about 163 million.

Now let's walk through the -- talk through the bridge we have provided for stand-alone GAAP earnings per share guidance to our new GAAP earnings per share guidance. There are a number of moving pieces, including the dilutive impact of adjusting for the 31.2 million shares issued, which has an impact of about $0.55. In addition, we've included about $0.70 of B/E Aerospace acquisition-related expenses, $0.55 of new B/E acquisition-related intangible asset amortization and $0.40 of new interest expense. Excluding these items, we are estimating B/E Aerospace will provide net income in the range of $200 million to $210 million in our fiscal year 2017 or between $1.35 and $1.40 of earnings per share.

Now I'd like to walk through our thought process providing the new adjusted earnings per share guidance, which excludes estimated B/E Aerospace acquisition-related expenses as well as amortization of total combined acquisition-related intangible asset amortization.

We spent a lot of time talking to investors and internally evaluating the most relevant metric investors are focused on in evaluating the performance of Rockwell Collins. It became very clear. In today's environment, investors are keenly focused on our cash flow performance. And as a result, guiding and reporting on a more cash flow based earnings per share metric is preferred by most investors. Not to mention the fact that with the significant amount of transaction amortization, we believe there will likely be different analysts using different non-GAAP numbers in their estimates, and we were hoping to drive uniformity in how analysts talk to our earnings performance.

Now I'd like to move on to our free cash flow guidance, where we've increased our guidance $50 million with the acquisition of B/E Aerospace. We now expect free cash flow in the range of $650 million to $750 million in fiscal year 2017. Research and development investment is projected to be $1.05 billion to $1.15 billion, which increased from the previous range of $900 million to $950 million. Our full year income tax rate is now expected to be 27% to 28%, down from the previous range from 28% to 29%.

Before I hand the call back over, I wanted of give you a quick update on the revenue recognition standard. Our interpretation of the new standard is substantially complete and our assessment of the impacts of adoption is beginning to take shape. Some of the larger changes under the new standard include accounting for preproduction engineering costs, customer funding related to commercial contracts, increased use of overtime revenue recognition based on costs incurred for government contracts and the elimination of customer-related intangible assets related to free products provided to customers as upfront sales incentives.

Of the anticipated changes, the company expects the change in accounting for preproduction engineering costs and customer funding for commercial contracts will have the most significant impact on the financial statements. Customer funding received for the development effort is currently recognized as revenue as the development activities are performed. Under the new standard, that development effort does not qualify as revenue as the effort is expended. Therefore, customer funding specific to the development effort must be deferred as a contract liability and recognized as revenue when products are delivered to the customer, thus delaying the timing of the revenue recognition.

We currently expense development costs associated with commercial contracts unless the arrangement includes a contractual guarantee for reimbursement from the customer. Upon adoption of the new standard, development costs will be expensed as incurred, except for those costs incurred pursuant to customer funding which will be capitalized. Development costs incurred pursuant to contractual guarantees for reimbursement, today reported in inventory as preproduction engineering costs, will no longer be capitalized. At the time of the adoption, we will basically restate our financial statements to eliminate our preproduction engineering balance.

The company continues to evaluate the impacts associated with the new standard and we are assessing the implications of the B/E Aerospace acquisition on our implementation plan. The new standard is effective for the company in 2019, with early adoption permitted but not earlier than 2018. The guidance permits the use of either a retrospective or cumulative effect transition method. We are still contemplating our adoption method, and we'll provide more updates over the balance of this year.

Now that completes my review of the financial results and projections. But before we go to Ryan for the Q&A section, I wanted to hand it back to Kelly for one final comment.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [5]

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Thanks, Patrick. I want to acknowledge a transition that we -- will be taking place in our Investor Relations function. You likely saw an announcement last week that Ryan Miller is moving on to be our Vice President and Controller of our Commercial Systems business. And I've received feedback from many of you about the very professional job that Ryan has done over the past 3.5 years already, and I'd like to publicly acknowledge his great work and thank him on behalf of the company and our shareowners.

The previous controller of our Commercial Systems business was Steve Buesing, who many of you remember was our last Investor Relations lead. Steve is moving on to be the Vice President and Controller of our newly created Interior Systems business.

And then beginning May 1, our new Investor Relations lead will be Adam Palmer. Adam comes out of our finance organization, where he's held a number of leadership positions over the last 10-plus years. Most recently, Adam was our Senior Director of External Financial Reporting. And one thing I do know for sure is if you want to talk and dive into new revenue recognition standards or pension accountings or any other technical accounting details, Adam is your guy.

Adam and Ryan have been working very closely over the last few months, and my expectation is that we won't miss a beat in terms of providing the kind of service that you all expect from our company. So Ryan, thank you very much, and Adam, welcome aboard.

And with that, Ryan, let's move on to Q&A.

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Ryan D. Miller, Rockwell Collins, Inc. - VP of IR [6]

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Thank you, Kelly. I really appreciate those nice words. (Operator Instructions). Operator, we are now ready to open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Rajeev Lalwani with Morgan Stanley.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [2]

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Hello Rajeev?

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Operator [3]

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(Operator Instructions)

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Rajeev Lalwani, Morgan Stanley, Research Division - Executive Director [4]

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Hello?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [5]

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Hello. We've got you now.

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Rajeev Lalwani, Morgan Stanley, Research Division - Executive Director [6]

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Okay. Sorry. in terms of the accretion associated with the B/E transaction, can you just provide some updated figures? It seems like, based on the full year guide, the numbers might be a little higher. So some color would be great.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [7]

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Well, let me have -- let me give you a little bit of color. I'm not sure what additional detail you want. But we're looking at B/E adding $1.35 to $1.40 kind of in core operations, which implies about $1.4 billion of sales at an operating margin of 11% to 12%. That 11% to 12% includes 750 basis points of amortization headwind, so you're talking about kind of a core operating margin of 19% to 20%, which is pretty much in line with the B/E kind of legacy operating margins with a little bit of synergies thrown in because we are going to start seeing some synergies, particularly some of the corporate synergies, kind of fold in, in the back half of our year.

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Rajeev Lalwani, Morgan Stanley, Research Division - Executive Director [8]

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Sorry Patrick. I was referring to the double-digit earnings accretion, just an update on those numbers.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [9]

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You mean the double-digit earnings accretion in '18? Yes, I would say we're still on track to achieving double-digit earnings accretion in '18. And I really don't have an update on '18 at this point.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [10]

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Yes, again, in my prepared comments, I talked about the cost synergy capture. I feel really good about that, that's a key element of achieving that double-digit accretion. And so we're very much on track and very bullish about our ability to achieve that in fiscal year '18.

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Operator [11]

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Your next question comes from Hunter Keay with Wolfe Research.

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Hunter Kent Keay, Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace and Defense [12]

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When we give consideration to the new revenue recognition and the impact of the deal amortization, are you still forecasting free cash flow conversion of great than 100% fiscal '18? The way you were guiding to it before those accounting noises maybe altered the way you're going to actually report it, so I understand question.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [13]

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What I'd say is we're still tracking to 100% free cash flow conversion, yes, in '18.

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Hunter Kent Keay, Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace and Defense [14]

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Okay. And the way you had been guiding to it before this accounting noise, so it's going to be some sort of like adjusted (inaudible).

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [15]

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No, no. I'd say, clearly, the way we had been accounting for it prior to the revenue recognition standard, yes, we're still on track for 100% free cash flow conversion.

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Operator [16]

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Your next question comes from Carter Copeland with Barclays.

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Phillip Carter Copeland, Barclays PLC, Research Division - Associate Director and Senior Analyst [17]

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A couple of -- just clarifications, Patrick, because I think the math is important. On the double-digit accretion number, I just want to be clear here. So we're not doing 1.1x yet on a new adjusted EPS number. There's a clean apples-to-apples '17 number that adds back the deal expenses and the incremental interest but takes out the share issuance, which would get you to something, I think, in the high 5s as opposed to the low 6s, which is then, if you put 10% on that, it's a different number than something in the high 5s. And then the second one, can you clarify again on the -- it sounds like you're going to, at some point, write down the deferred engineering balance either at once or over an extended period of time. Can you just clarify that for us?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [18]

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Yes, Carter. What I wanted to say -- what I'd say is, related to the double-digit accretion, just to be clear on that, when we talked about double-digit accretion, we're talking about relative to our standalone '18 numbers. Now we haven't shared what those numbers are, but I think you have a -- probably have a pretty good sense as to where we would be on a stand-alone basis. And we -- so the 1.1x would be times that base. And I'm sorry, and I missed the second half of your question.

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Phillip Carter Copeland, Barclays PLC, Research Division - Associate Director and Senior Analyst [19]

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It really just relates to the accounting change. And it sounded as if you will write off that balance and no longer have that amortization. But you said there were 2 ways to recognize that. I just wondered if you could give us some more color and clarify that.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [20]

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Just to be clear. The 2 biggest changes, one you just referred to, which is we will effectively write off the preproduction engineering balance and will not amortize that in the future upon adoption of the standard. The other big change is related to our customer-funded engineering. As you know, we've been very successful on the commercial side of the business in negotiating customer funding. And historically, we've treated that as revenue as we've expended the effort. We can no longer do that under the new standard. We'll actually be deferring revenue associated with all of our customer-funded effort and then recognizing that over time as shipments occur. And so we're -- those are the 2 biggest changes. Now the timing of when we adopt that revenue recognition standard, we're still sorting through. We may do it either in 2018 using a modified retrospective method or do it in 2019 on kind of a full retrospective method. Now we're still evaluating those 2 alternatives.

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Phillip Carter Copeland, Barclays PLC, Research Division - Associate Director and Senior Analyst [21]

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But either way, the combination of those 2 things is going to have a pretty solid uplift on your margins.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [22]

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It should be a positive for the margins, yes.

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Operator [23]

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Your next question comes from Robert Stallard with Vertical Research.

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Robert Alan Stallard, Vertical Research Partners, LLC - Partner [24]

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Patrick, I hate to belabor these numbers issues, but when you're talking about the free cash flow conversion, was that looking at a GAAP number? Or was that looking at a new Rockwell Collins-defined adjusted number?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [25]

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It was really looking at a GAAP number.

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Robert Alan Stallard, Vertical Research Partners, LLC - Partner [26]

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Okay. That's all right. And then an actual, real question. Kelly, one of the other aerospace suppliers yesterday said they'd seen some impact from destocking on what they called legacy programs, like 777-300 coming down and A380. Have you seen any signs of that in your business?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [27]

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No. Not in air transport. But recognize that when others have seen that, we have historically not seen that in air transport. Just probably, our commodity set is different. As you know, we are seeing the destocking play out pretty significantly in our biz jet OEM market space. But I haven't seen anything -- and I wouldn't anticipate, even if there is heavy destocking, that, that would flow through our portfolio.

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Operator [28]

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Your next question comes from Matt McConnell with RBC Capital Markets.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [29]

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Matt, do you have your mic muted?

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Matthew W. McConnell, RBC Capital Markets, LLC, Research Division - Associate Analyst [30]

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Sorry about that. Can you hear me, guys?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [31]

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Yes, we can.

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Matthew W. McConnell, RBC Capital Markets, LLC, Research Division - Associate Analyst [32]

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Okay, great. Could you just provide an update on B/E's underlying operating performance since the deal was announced? And you had given some good disclosure in your deal docs on, I think, you were looking for like 6.5% revenue growth in 2017. Has that changed at all since October? And just give us an update on how the revenue outlook looks for 2017.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [33]

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Well, Patrick gave you the top line number. Just a couple of comments. First of all, we're not through an audited set of financials for the last quarter, so I can't speak to the -- any detailed numbers relative to last quarter. The other thing I'd do is I'd probably caution you on, if you're talking about the S-4 numbers, recognize that those were calendar year, not fiscal year. Those were point-in-time, not guidance estimates going forward. Having said that, I think our revenues, our growth, are probably a little shy of the top line numbers you saw in the S-4, more low to mid-single-digit growth. And that -- if I point to any variance there, it'd just be the timing of some of the business related to the Emirates moving out their A380 deliveries, which were announced here earlier this year. As far as the EBIT performance, we're pretty close on that. In spite of some -- a little bit of softening at the top line, I think we’re pretty close to those numbers on EBIT performance.

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Operator [34]

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Your next question comes from Cai Von Rumohr with Cowen and Company.

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Cai Von Rumohr, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [35]

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Could you comment on how much of cost synergies you expect in fiscal '17? And how much of integration expense items [ you'll ] be? And then maybe a clarification on this double-digit accretion. Are we talking apples-to-apples, i.e., Rockwell Collins pre the accounting change, plus over 10%, and Rockwell Collins after the accounting change plus 10%?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [36]

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What I would say, is Cai, it is apples-to-apples. It's what I'll describe old GAAP to old GAAP. So none of that double-digit accretion reflects any benefit from the revenue recognition adoption. As it relates to the synergies and the costs to achieve, I'd say there are both of those things in our numbers, probably almost in equal measures, actually, for FY '17. So we're seeing about half of the benefit from our -- the corporate cost takeout, but a little bit less than half of that in the back half of 2017, half of the annual run rate, and the costs to achieve almost offset that.

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Operator [37]

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Your next question comes from Peter Arment with Baird.

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Peter J. Arment, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [38]

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Just a question. Kelly, I guess, you mentioned it briefly, and I'm sure you'll probably want to save this for the Investor Day. But kind of the stretch goals on the synergies, the $160 million, any update of just kind of how you're feeling about those different buckets? And then is this, the stretch goals, is just an expansion of those categories? Or is it a new category since your due diligence?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [39]

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Well, it's a little of both, Peter. As we've done more detailed planning, we found some additional synergies, I'd say, in the same categories. I'll give you a couple examples. Some of our indirect material and supply spend, some of our tax-planning strategies are showing opportunity beyond our original plan. And we detailed out our SAP implementations now. We've been in detailed planning with B/E through the quarter. And those now with -- now that we have a detailed plan, are proving to provide some additional savings from what we originally anticipated. So some in there. The others that I would say we didn't anticipate is some opportunities to vertically integrate some capability on some of the programs. They've got some really nice positions and capabilities in things like panels and wiring harnesses and stuff that we're finding opportunities here to go do more collectively together. So again, I'm pretty encouraged. This is a work in process. One thing we haven't been able to do pre-close is exchange any proprietary data around supply agreements. So we brought in consultants to help us get that off and rolling to kind of be the intermediary. This week, we're peeling all those back now that we can exchange that information and get off and get those things in place. So look, I feel good about both the absolute value, the $160 million, but also, the time phasing looks pretty good right now. So everything's as expected going forward.

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Operator [40]

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Your next question comes from George Shapiro with Shapiro Research.

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George D. Shapiro, Shapiro Research - CEO and Managing Partner [41]

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I just wanted to follow up. Did you ever give an answer to what synergies we'll be seeing in '17? And also, previously, you had mentioned purchase accounting benefits that we would -- to get [ some ] formal accounting, that we would see. I was wondering whether any of that's in your guidance. And the last one, on the free cash flow conversion of 1 on a GAAP basis, that seems low to me, given that you're going to have the $0.75 of estimated amortization continuing, which is almost like 15% of the earnings. So if you could just explain that a little bit further.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [42]

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I'll hit the synergy one and then have Pat answer the rest of your questions. Again, the major cost synergies that are incorporated in our fiscal '17 guide are associated with the reduction of a duplicate corporate function. That actually happened day 1. And so there's both severance costs or costs to achieve those synergies. And obviously, the lack of that payroll and those costs for the balance of the year. And they pretty much wash out in our fiscal '17.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [43]

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And on your free cash flow question, George. What I'd say is what we've said is we're going to have free cash flow in excess of 100%. So I agree, I think 100% would be pretty conservative. I think we’re pretty comfortably above that.

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Operator [44]

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Your next question comes from Pete Skibitski with Drexel Hamilton.

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Peter John Skibitski, Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst [45]

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Kelly, I just -- I wanted to ask one nonfinancial question on B/E. I'm wondering how you -- in looking at the deal and the pricing, kind how you judge the level of IP resident at B/E, is it especially in commercial seating when you kind of look around and think about the problems that Zodiac has and some of the new seating companies kind of popping up around the world. How do you think about things like barrier to entry and IP in seating when you're thinking about the deal and the pricing?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [46]

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Well, I think it's a little different than our core avionics. One of the things that is very different is, particularly in some of the business and first-class seating, is the proprietary nature of the customization that they do hand-in-hand with their customers. And that's a big barrier to entry for anybody to come in because they're partnering in helping design that. And of course, the airlines want that unique because it differentiates their brand delivery to their overall customer. Having said that, they've got a pretty decent patent portfolio of patents across their product lines, on techniques to implement the seating. I don't think their -- I don't think IP is a major barrier for someone that wants to do interior products in the marketplace. I think certification, customer affinity are major barriers. But I don't think it's probably a big IP barrier.

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Operator [47]

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Your next question comes from Myles Walton with Deutsche Bank.

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Myles Alexander Walton, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [48]

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I think we're all trying to beat around the same bush on cash flow conversion, but wanted to ask it a different way. So you're moving to this adjusted pro forma number that's excluding intangible amortization. So Patrick, are you going to be able to convert 100% of this new number to free cash flow? It seems like your intent is to better align it to cash. It's (inaudible).

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [49]

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I would say we'll be very close.

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Myles Alexander Walton, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [50]

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Okay. All right. That's good. Kelly, on the IMS. The margins are pretty striking there, and yet you had really good growth in the non-aviation piece, which I usually think of as being someone dilutive. So is the non-aviation piece, I guess, associated with this nuclear service business, actually good-margin business?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [51]

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I'd say no. I think it's still -- we still are going to have mix issues. That non-aviation piece is lower-margin. We just had a very strong margin quarter from the Aviation business.

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Myles Alexander Walton, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [52]

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Anything that was one-off in terms of retentions? Or...

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [53]

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There really was. And we had some hardware deliveries that were at pretty good margins, but there nothing I'd say, no reserve adjustments or anything else, no noise in the numbers. It was just strong performance.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [54]

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Yes. Again, we had good top line performance in the connectivity component in both air transport and the biz av market. If you recall, we invested. Since we made the acquisition of ARINC, we've been investing and building out our VHF ground network, particularly in the Middle East and Africa. And that investment's returning here. We're seeing a good payback. It's giving us growth. And as you know, the incremental margins in that core aviation are pretty good. So I'm really pleased with that investment. We're still doing some buildout this year as well and spending some capital to do that. But I'm pleased with how we're getting return on that in the market.

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Operator [55]

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Your next question comes from Robert Spingarn with Crédit Suisse.

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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [56]

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Congrats on closing the deal.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [57]

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Thanks.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [58]

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Thanks.

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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [59]

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Just on that, as a follow-up to that, then I have a specific question on commercial OE, but with regard to the IMS, how do we think about this growth continuing, remainder of this year and into next year, given the buildout which you just talked about? And separate question is going to be, Patrick, can you parse out the minus 5% on the commercial OE with regard to the end markets? In other words, how much was biz jet down and how much was commercial or air transport up?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [60]

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Well, as far as the IMS growth, I can't say we're going to sit here and post these kind of growth numbers every quarter. But look, we have historically been performing high single-digit growth. Our long-term plan has always been to drive that high single digit, get some synergies and get it to double digit. And so we're tracking to that. I think you should continue to view our core Aviation business as high single-digit growth. And then we've been working on trying to get more stable growth out of the non-aviation businesses in the last few quarters. As you can see, we're doing a pretty good job on that. So IMS business continues to be the highest-growth portfolio in the company, and I don't see that changing.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [61]

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And as it relates to commercial OE, Rob, biz jets are down 19%. And I would say that's going to be our worst quarter from a comparability perspective. It'll improve in the back half of the year. And the air transport is up about 5%.

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Operator [62]

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Your next question comes from Ron Epstein with Bank of America.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [63]

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It's Kristine Liwag calling in for Ron. We've heard from some airlines that they're looking at refurbishing widebodies because pricing in the used market is now very attractive. And so assuming the best case scenario for you guys, how much content per aircraft could you get if you're able to leverage revenue synergies and get upgrades for premium seats, interiors, electronics and pretty much the whole enchilada?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [64]

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Well, that's a big spread. Depends on what they do. I mean, it can go from millions to multiple millions per aircraft depending on the extent of the retrofits. But I'd say, on average, the retrofit revenue per airplane would probably be a little bit less than the new build revenue per airplane because they're not going to replace everything in the retrofit market. Having said that, I'm pretty encouraged. We had a really good Hamburg interior show. There's a lot of opportunities. In fact we, at that show every year, the interiors team really does a detailed forecast of the opportunities over the next 18 months. And they sit down which each one of their customers and go through their forward-fit and retrofit plans. And that looked pretty encouraging. And I will say that the retrofit was a higher component of that outlook than it was last year. So people are planning more retrofits in widebodies. And I think we've got a really good product line and a strong relationship with the end market customers that we'll be able to go capture some of that.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [65]

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Would you be able to quantify how much of the opportunity is for the next 18 months?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [66]

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No, not yet. We'll see how those play out. We'll quantify it once we've captured the programs.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [67]

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Sure. And maybe a follow-up on the seat market. I guess at Hamburg, too, we've seen a lot of new seat and interiors players enter the market, with Adient from the automotive industry. And it looks like LIFT by EnCore extended their offerings, too. So with Zodiac's operational issues, can you provide color on what you're seeing in the competitive environment and maybe opportunities for market share gain for BEAV?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [68]

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Well, not a lot of change in the competitive environment. I mean, there's been other players. Some of the players you named are not new to this space. And so we feel really good about the competitiveness of our product. I feel pretty good that the combined entity is going to even create more value for the end customers. And we feel like we'll be able to compete fine. I will also say that I've been saying all along that I believe there are opportunities for us to do more standard equipment with the OEMs across the board. And what you're seeing is the OEMs looking at doing more standard equipment. And believe me, we know those OEMs quite well. And I think this presents an opportunity. I think that what you're seeing in the market validates that, that's an opportunity for us.

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Operator [69]

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Your next question comes from Richard Safran with Buckingham.

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Richard Tobie Safran, The Buckingham Research Group Incorporated - Research Analyst [70]

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So I thought I would ask a question here about Intertrade and some comments you've made previously. I think you've been talking about more tempered growth there, if I'm not mistaken. And what I was wondering, is this -- if the used aircraft installed base is growing, we're getting a lot of the deliveries made in 2010 and 2011 coming due, then why Intertrade wouldn't keep pace with that? And I was wondering if we should maybe be expecting a step up in demand for recertified parts as a result of the installed base growth? So if possible, could you explain why, if we're seeing the aircraft installed base grow, Intertrade's growth might temper here? And in your answer, maybe discuss what growth rates you're actually thinking about now?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [71]

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Well, I'm glad you asked that question. Historically, over the last couple of years, we've been seeing double-digit growth out of our Intertrade business. And I think I've said in the previous calls that, that has slowed down and I'm not expecting much growth this year. I think I'm going to be wrong on that. I think that we are going to see a stronger Intertrade. As I look, there are a lot more opportunities than what we saw when we entered into the year. So Intertrade growth is -- we're going to see some Intertrade growth, I think, in the back half of the year. And the phenomenon is driven by what you're talking about, is there are more opportunities, and particularly, larger opportunities for us in Intertrade, which they've become a little lumpy. Whether it's an engine or it's a fuselage, they've become a little lumpy for us, but they're pretty large sales opportunities. And we've got several of those that we're working right now for the balance of the year.

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Operator [72]

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Your next question comes from Sam Pearlstein with Wells Fargo.

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Samuel J. Pearlstein, Wells Fargo Securities, LLC, Research Division - MD, Co-Head of Equity Research, and Senior Analyst [73]

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Just a couple of things. Can you -- the $50 million increase in free cash flow, are those both only B/E? Or did any of the kind of core legacy Rockwell Collins change?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [74]

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No, Sam. That's all B/E.

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Samuel J. Pearlstein, Wells Fargo Securities, LLC, Research Division - MD, Co-Head of Equity Research, and Senior Analyst [75]

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Okay. And since this balance sheet that you provided is of course March 31, where are you right now from a cash and a debt and even an equity standpoint?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [76]

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We have about $8 billion of debt in total, $6 billion to finance the acquisition and $2 billion kind of legacy from Rockwell Collins. That's our current debt position. Cash, I don't think has changed much. We've spent most of it on the acquisition, of course.

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Samuel J. Pearlstein, Wells Fargo Securities, LLC, Research Division - MD, Co-Head of Equity Research, and Senior Analyst [77]

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Okay. All right. Just because we obviously don't know what March 31 for B/E would look like. And then just, Kelly, from your discussions, have you seen any change in plans or production rates for business jet OE from when you would have last talked to us in January with regard to the guidance?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [78]

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No, not really. I mean, look, we had a pretty soft quarter obviously here. And it was pretty much across the board. I think you heard Textron report pretty weak King Air sales here earlier in the week, and that played through our portfolio. It continues to be a watch area. We're very hopeful that we get to the bottom of the market here in fiscal '19. Pat -- as Pat said, we think probably this quarter is going to be our -- comparable, our worst quarter in biz av. So I'm not seeing anything that's indicative of a significant improvement in the market space right now. And as you know, I've said this and I'll say it again, I'm going to remain pretty conservative in my outlook on business aviation until I actually see strong signs of orders and rate increases. And I don't -- I just don't see that yet.

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Operator [79]

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Your next question comes from Seth Seifman with JPMorgan.

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Seth Michael Seifman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [80]

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I was wondering if you could talk about the interior segment, and maybe over the next couple of years, the sort of relative growth rates you expect for the different pieces in terms of maybe sort of the legacy seating and interiors business versus some of the big SFE programs versus retrofits, versus spares. And kind of obviously not numbers, but just sort of it in a relative sense, how those growth opportunities stack up over the next, let's say, I don't know, 2 to 3 years?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [81]

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Yes. So there's a lot of moving parts there. On the widebody, we're going to see the rate improvement on the A350. We've got really good share on the 787. So widebody, new widebody aircraft, is a good growth driver for us. We're obviously going to see rate reductions on the legacy widebodies like the 777 legacy aircraft playing in and the A380 as well as the 747 rate. So it's kind of a mix. The narrow-body is very strong, and we're going to see continued growth. Also with the larger narrow-bodies, it gives us opportunities to up-gauge the interiors, more business-class opportunities as well as just more seating in the market going forward. I think we are going to see headwinds in super first-class. That really ties to the very large aircraft and that's clearly a market that's not strong. And I don't think that's going to change until we get the very larger -- much larger 777X and A350 into the market. So we are experiencing a decline in the super first-class, and I think that's going to continue. So our job is to go transition and capture the single aisle and narrow-body marketplace as well as the growing widebody 787 and A350 market. Now you know we've got new standard positions as well on the A350 and the new standard [ lav ] positions on the 737. And so as those kind of ramp up, that will give us some good standard position growth as well.

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Operator [82]

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Your next question comes from the line of David Straup -- Strauss, sorry, with UBS.

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David Egon Strauss, UBS Investment Bank, Research Division - MD and Senior Research Analyst [83]

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Patrick, the $100 million in after-tax acquisition-related expenses, how much of that is cash this year? And what is the outlook for that in '18? And then an update on expectation for future book tax rate. And also, any color you could give around cash taxes as well.

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [84]

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Sure. As it relates to the transaction costs, the $100 million after tax, first of all, almost all of that is cash. As a matter of fact, I think all of it's cash. And most of it is nonrecurring. You won't see it next year. The only piece that you're going to see returning is, let's call it, costs to achieve synergies. We had a little bit of that in that $100 million dollars. And that will continue next year as we continue to integrate the business and realize the synergies. As it relates to going forward taxes, I think what I've said in the current tax environment, look for tax -- the tax rate kind of in the 26% range on a combined basis. I think cash taxes are generally in the 90% to 100% of our provision, at least at this point.

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Operator [85]

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Your next question comes from Ken Herbert with Canaccord.

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Kenneth George Herbert, Canaccord Genuity Limited, Research Division - MD and Senior Aerospace and Defense Analyst [86]

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I just wanted to follow up on Government Systems. Obviously not as big a mix of the portfolio now moving forward, but you had another 5% growth in the quarter. You start to anniversary some more difficult comps. Can you just provide, Kelly, any commentary on, one, your view of the CR and how that gets resolved? And any impact on the business you see moving forward? But then second, as you get into the second half of the fiscal year, maybe some of the key moving pieces from a program standpoint and confidence here in the full year number for that segment.

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [87]

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Yes, well, the CR, I mentioned in my prepared remarks that we've already seen a few program slips while we're under the CR. I'm hopeful that we'll get a, like, a week extension and then we'll get some sort of a bill here. If that doesn't happen, I think we'll see more impact in our business, as I mentioned. Having said that, if -- without a CR, we would have had really good growth in our government portfolio. And the orders are tracking to support the sales that we need for the back half of the year. Some areas of relative strength in our GPS area, advanced GPS work, as well as missiles and munitions, our JDAM businesses has been a good growth driver for us and we expect that to continue. We've had really good demand for our advanced data links as we're putting new networks and new waveforms into that marketplace. I expect that to continue. We've got -- we're starting to see the revenues pick up from some of these international C-130 programs, and if you recall, were important to our last year, second half growth. So look, I feel pretty good about the backlog. We've got a lot of programs out there. We're capturing them. This TCTS was a big program. It's over -- well over $100 million program for us, and that will drive revenues. And we're positioned on things like the tanker and the F-35 and all those other areas that are growing as well. So our government portfolio's looking pretty good right now.

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Operator [88]

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Your last question comes from Michael Ciarmoli with SunTrust.

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Michael Frank Ciarmoli, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [89]

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Maybe just one housekeeping, Patrick. The amortization of the other intangible, I think the add-back is about $0.75 and the B/E-related is about $0.55. What's sort of the delta there that's [ not ] getting through to...?

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Patrick E. Allen, Rockwell Collins, Inc. - CFO and SVP [90]

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The biggest chunk there is the amortization of our ARINC acquisition amortization. As we kind of moved to this adjusted earnings per share metric, didn't make sense to us to just exclude the B/E amortization, but really include amortization from all of our acquisitions. And obviously, the biggest component is ARINC, now IMS.

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Michael Frank Ciarmoli, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [91]

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Got it. Okay, that makes sense. And then just, Kelly, if I may, back to B/E outlook. The $1.4 billion, I know there's timing with the calendar year. You talked about the one -- the Emirates order sliding out. Is there any other concern there, just given the widebody weakness that may have moderated that outlook? Or what you're seeing from airlines and maybe their desire to revisit their order books? I mean, has the confidence level changed at all in BEAV's backlog visibility?

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Robert K. Ortberg, Rockwell Collins, Inc. - Chairman, CEO and President [92]

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No, I don't think the backlog has. But that's something we've got to continue to watch, any adjustments that happen to backlog plan rates. I particularly focus, and I am particularly focused, on the Middle East and whether there's any further adjustments there. And you heard -- we've heard from Delta that they're going to revisit their widebody plan. The extent to which that moves backlog to the right will have some impact on us and then we'll just have to look to other opportunities to offset that. But those are the 2 areas, I guess, I'll be watching for the balance of the year and probably more impactful to what's our growth rate for next year for that business.

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Ryan D. Miller, Rockwell Collins, Inc. - VP of IR [93]

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This concludes the question-and-answer session. I'd now like to turn the call back over to Ryan Miller for any closing remarks.

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Ryan D. Miller, Rockwell Collins, Inc. - VP of IR [94]

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Thank you all for joining us and participating on today's conference call. We plan to file our 10-Q later today, so please read that document for additional disclosures.

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Operator [95]

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This concludes today's conference call. You may now disconnect.