10-K

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2002. Commission file number 001-16445

Rockwell Collins, Inc.
(Exact name of registrant as specified in its charter)

Delaware	52-2314475
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 Collins Road NE Cedar Rapids, Iowa	52498 (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (319) 295-6835

SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share (including the associated Preferred Share Purchase Rights)	New York Stock Exchange

SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT: None

              Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X   No         

              Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [      ]

              The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant on November 30, 2002 was approximately $3.8 billion.

              179,912,065 shares of the registrant's Common Stock were outstanding on November 30, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

(1)

Certain information contained in the Annual Report to Shareowners of the registrant for the fiscal year ended September 30, 2002 is incorporated by reference into Part I, Part II and Part IV.

(2)

Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of the registrant to be held on February 11, 2003 is incorporated by reference into Part III.

PART I

Item 1.      Business.

General

              Our company, Rockwell Collins, Inc., is a world leader in providing design, production and support of communications and aviation electronics for commercial and military customers worldwide. We are headquartered in Cedar Rapids, Iowa.

              We operate in multiple countries and serve our worldwide customer base through our Commercial Systems and Government Systems business segments. The Commercial Systems business supplies flight deck electronic products and systems, including communications, navigation, surveillance, displays and automatic flight control and flight management systems, as well as in-flight entertainment, cabin electronics and information management systems. Commercial Systems customers include manufacturers of commercial air transport and business and regional aircraft, commercial airlines, regional airlines and business jet owners/operators. The Government Systems business supplies defense electronics products and integrated systems, including communications, navigation and displays, for airborne, ground and shipboard applications to the U.S. Department of Defense, foreign militaries and manufacturers of military aircraft and helicopters. In addition, both the Commercial Systems and Government Systems businesses provide a wide array of services and support to customers through our network of over 60 service locations worldwide.

              Whenever reference is made in any Item of this Annual Report on Form 10-K to information under specific captions of our 2002 Annual Report to Shareowners (the "2002 Annual Report") or to information in our Proxy Statement for the Annual Meeting of Shareowners to be held on February 11, 2003 (the "2003 Proxy Statement"), such information shall be deemed to be incorporated herein by such reference.

              Financial information with respect to our business segments, including their contributions to sales and operating earnings for each of the three years in the period ended September 30, 2002, is contained under the caption Segment Performance in Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 28-29 of the 2002 Annual Report, and in Note 22 of the Notes to Consolidated Financial Statements in the 2002 Annual Report. Effective October 1, 2001, we changed our method of evaluating segment performance and changed the composition of the Commercial Systems segment to include a business acquired as part of the Kaiser Aerospace and Electronics Corporation acquisition, which was previously reported as part of Government Systems. Prior period amounts have been reclassified to conform to the current year presentation.

              Rockwell Collins, Inc. was incorporated in Delaware in March 2001 in connection with the June 29, 2001 distribution of our shares (the "Distribution") by Rockwell International Corporation (now named Rockwell Automation, Inc. and referred to herein as "Rockwell") to Rockwell shareowners. In the Distribution, Rockwell shareowners received one share of our common stock for each share of Rockwell common stock. Prior to the Distribution, Rockwell transferred substantially all of its operations, assets and liabilities related to the avionics and communications businesses owned and operated by Rockwell (the "Avionics and Communications Business") and certain other assets and liabilities to us or to our subsidiaries.

              The financial information included or incorporated by reference in this Annual Report on Form 10-K contains information for periods while we were operated as a business of Rockwell prior to the Distribution, and may not necessarily reflect what the financial position, results of operations and cash flows would have been had we been operated independently during such periods. As used herein, the terms "we", "us", "our" or the "Company" include subsidiaries and predecessors unless the context indicates otherwise.

1

Available Information

              We maintain an Internet website at http://www.rockwellcollins.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on this site as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission. We also post webcast presentations and other documents containing a substantial amount of additional information related to our company on this site. We intend to disclose on this site changes to, or waivers of, our code of ethics if and to the extent applicable law requires disclosure of these matters. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

Products and Services

              We design, develop, manufacture, market, distribute, sell, service and support a broad range of aviation electronics and airborne and mobile communications products and systems for commercial and military applications. While our products and systems are primarily focused on aviation applications, the Government Systems business also offers products and systems for ground and shipboard applications. We also provide a wide range of services and support to our customers, including equipment repair and overhaul, service parts, field service engineering, training services, technical information services and aftermarket used equipment sales.

Commercial Systems

              We are one of the world's leading suppliers of aviation electronics equipment to customers located throughout the world. Our customers include manufacturers of commercial air transport and business and regional aircraft, commercial airlines, regional airlines and business jet owners/operators. Our aviation electronics equipment includes:

•

communications products and systems, such as data links, High Frequency, Very High Frequency and Ultra High Frequency communications systems and satellite communications systems;



•

navigation products and systems, including a broad range of navigation sensors and flight management systems;



•

situational awareness and surveillance products and systems, such as weather radar, traffic alert collision avoidance systems and Mode S transponders, which aid pilots and airtraffic control in awareness of airborne obstacles and resolve flight path conflicts;



•

flight deck products and systems, which include a broad offering of multi-function cockpit liquid crystal display units, CRT display units and Head-Up Displays (HUDs);



•

automatic flight control systems, which perform manual and automatic pilot and automatic landing functions;



•

integrated avionics systems, such as the Pro Line 21 system, which integrate communications and navigation sensors, displays and flight control systems;



•

integrated information systems, such as the I²S system, which are focused on providing information management solutions that help improve flight operations, maintenance and cabin services;



•

in-flight entertainment products and systems, including the enhanced Total Entertainment System (eTES), as well as a full line of audio and video entertainment solutions for standard and widebody aircraft;

2

•

cabin electronics products and solutions for the business jet market, including lighting and other environmental controls, passenger information and entertainment, business support systems, network capabilities and passenger flight information systems; and



•

moving map systems for the commercial airlines and business and regional jets that provide on-board viewing of topographical/satellite maps combined with geopolitical borders, city names and points of interest.

Government Systems

              We provide defense electronics equipment to all branches of the U.S. Department of Defense (Air Force, Army, Navy and Marines), the U.S. Coast Guard, Ministries of Defense throughout the world and manufacturers of military aircraft and helicopters. Our defense electronics equipment includes:

•

communications products and systems designed to help customers transfer information across the communications spectrum, ranging from Low and Very Low Frequency to High, Very High and Ultra High Frequency to satellite communications;



•

military data link products and systems;



•

navigation products and systems, including radio navigation systems, global positioning systems, handheld navigation systems and multi-mode receivers;



•

integrated systems for the flight deck, such as the Flight2 system, that combine flight operations with navigation and guidance functions and that can include flight controls and displays, information/data processing and communications, navigation and/or safety and surveillance systems; and



•

cockpit display systems, including flat panel, multipurpose, wide fields of view, head up, head down and helmet mounted displays for tactical fighter and attack aircraft.

Product and Service Sales

              Our sales by product class for the three fiscal years ended September 30, 2002 were as follows (in millions):

			Fiscal Year Ended September 30
			2002		2001		2000
Commercial Systems:
	Commercial Avionics and Other		$	1,036	$	1,330	$	1,231
	In-Flight Entertainment			341		422		355
Government Systems:
	Defense Electronics			1,115		1,068		924
		Total	$	2,492	$	2,820	$	2,510

Customers; Sales and Marketing

              We serve a broad range of customers worldwide, including commercial air transport, business and regional aircraft manufacturers, military aircraft and helicopter manufacturers, commercial and regional airlines, business jet owners, the U.S. Department of Defense, other governmental agencies and foreign militaries. We market our products, systems and services directly to Commercial Systems and Government Systems customers through an internal marketing and sales force. In addition, we utilize a worldwide dealer network to distribute our products and international sales representatives to assist with international sales and marketing. In fiscal 2002, various branches of the U.S. Government accounted for

3

36% of our total sales while The Boeing Company accounted for 7% and Bombardier, Inc. accounted for 6% of our total sales.

              Our largest customers have substantial bargaining power with respect to price and other commercial terms. Although we believe that we generally enjoy good relations with our customers, the loss of all or a substantial portion of our sales to any of our large volume customers for any reason, including the loss of contracts, bankruptcy, reduced or delayed customer requirements or strikes or other work stoppages affecting production by these customers, could have a material adverse effect on our business, financial condition and results of operations.

Competition

              We operate in a highly competitive environment. Principal competitive factors include total cost of ownership, product and system performance, quality, service, warranty terms, technology and design engineering capabilities, new product innovation and timely delivery. We compete worldwide with a number of United States and international companies, including approximately ten principal competitors in each of our Commercial Systems and Government Systems businesses, that are both larger and smaller than us in terms of resources and market share, and some of which are also our customers. Some of our competitors have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products. Furthermore, competitors who have greater financial resources may be better able to provide a broader range of financing alternatives to their customers in connection with sales of their products.

              Industry consolidation has had a major impact on the competitive environment in which we operate. Over the past several years, our competitors have undertaken a number of mergers, alliances and realignments that have contributed to a very dynamic competitive landscape. During the past three years, we have completed four acquisitions and entered into several strategic alliances and joint ventures to improve our competitive position and expand our market reach.

Raw Materials, Supplies and Working Capital

              We believe we have adequate sources for the supply of raw materials and components for our manufacturing and service needs with suppliers located around the world. Electronic components and other raw materials used in the manufacture of our products are generally available from several suppliers. We continue to work with our supply base for raw materials and components to ensure an adequate source of supply, including strategic alliances, dual sourcing, identification of substitute or alternate parts that meet performance requirements and life-time buys. These life-time buys involve purchases of multiple years of supply in order to meet production and service requirements over the life span of a product. Life-time buy inventories as of September 30, 2002 were $86 million. Although historically we have not experienced any significant difficulties in obtaining an adequate supply of raw materials and components necessary for our manufacturing operations or service needs, the loss of a significant supplier or the inability of a supplier to meet performance and quality specifications or delivery schedules could have a material adverse effect on our business, financial condition and results of operations.

              Our investment in inventory is a significant part of our working capital and historically we have maintained sufficient inventory to meet our customers' requirements on a timely basis. This investment includes finished goods, spare parts and goods on consignment with airlines. Our accounts receivable also constitute a significant part of our working capital. We have received numerous requests for extended payment terms from our customers. We have been granting these requests on a selective basis, depending upon our relationship with and our assessment of the credit quality of the customer.

4

Backlog

              The following table summarizes our backlog (in millions):

		September 30
		2002		2001
Commercial Systems		$	454	$	573
Government Systems:
Funded Orders			1,490		1,220
Unfunded Orders			163		132
	Total Backlog	$	2,107	$	1,925

              Our backlog represents the aggregate of the sales price of orders received from customers, but not recognized as revenue, and excludes unexercised options. Although we believe that the orders included in backlog are firm, some orders may be canceled by the customer without penalty, and we may elect to permit cancellation of orders without penalty where management believes that it is in our best interest to do so. Our backlog includes approximately $841 million of orders not expected to be filled by us in fiscal year 2003, principally in our Government Systems business.

Joint Ventures and Strategic Investments

              Joint ventures, strategic investments and other cooperative arrangements are part of our business strategies to broaden the market for our products and develop new technologies. We currently have interests in three joint ventures and one strategic investment. In accordance with generally accepted accounting principles in the United States, these ventures and investments are accounted for under the equity method. We have a 50% owned joint venture with BAE Systems, plc for joint pursuit of the worldwide military data link market. We have a 50% owned joint venture with Elbit Systems, Ltd. for joint pursuit of helmet mounted viewing systems for the worldwide military fixed wing marketplace. We and Rockwell each own a 50% equity interest in Rockwell Scientific Company LLC ("Rockwell Scientific"), which is engaged in advanced research and development of technologies in electronics, imaging and optics, material and computational sciences and information technology. Rockwell Scientific provides research and development services to us, as well as to The Boeing Company, Rockwell, the U.S. Government and other customers. Rockwell Scientific is also pursuing the commercialization of its technologies through licensing, low rate production and strategic alliances.

              We recently announced an agreement to enter into a 65% owned joint venture with China Eastern Airlines to provide aftermarket services to commercial airlines in China.

              We also have a strategic investment (representing a 9% ownership stake as of September 30, 2002) in Tenzing Communication, Inc., which is developing next-generation passenger connectivity onboard commercial aircraft.

Acquisitions and Dispositions

              We continually consider various business opportunities, including strategic acquisitions and alliances, licenses and marketing arrangements, and we review the prospects of our existing businesses to determine whether any of them should be modified, sold or otherwise discontinued.

              We completed four cash acquisitions in the past three years to augment our internal growth plans. These acquisitions were:

•

in-flight entertainment systems: the July 2000 acquisition of Sony Trans Com;

5

•

displays technology: the December 2000 acquisition of Kaiser Aerospace and Electronics Corporation (Kaiser);



•

signals intelligence and surveillance solutions: the March 2002 acquisition of Communication Solutions, Inc. (ComSol); and



•

cabin electronics systems: the August 2002 acquisition of Airshow, Inc. (Airshow).

In March 2002 we completed the disposition of Kaiser Fluid Technologies, Inc., a non-core business.

              Additional information relating to our acquisitions is contained in Note 4 of the Notes to Consolidated Financial Statements in the 2002 Annual Report.

Research and Development

              We have significant research, development, engineering and product design capabilities. At September 30, 2002, we employed approximately 3,500 engineers, scientists and supporting technical personnel.

              We spent $253 million, $295 million and $265 million in fiscal 2002, 2001 and 2000, respectively, on company funded research and development. In addition, customer-sponsored research and development was $231 million, $217 million and $203 million in fiscal 2002, 2001 and 2000, respectively. Customer-sponsored research and development include activities relating to the development of new products and the improvement of existing products.

Intellectual Property

              We own more than 700 United States and foreign patents and numerous pending patent applications, including patents and patent applications purchased in our acquisitions. We also license certain patents relating to our manufacturing and other activities. While in the aggregate we consider our patents and licenses important to the operation of our business, we do not consider any individual patent or license to be of such importance that the loss or termination of any one patent or license would materially affect us.

              Rockwell continues to own the Rockwell name. In connection with the Distribution, we were granted the exclusive right to continue to use the Rockwell Collins name other than in connection with industrial automation products. This exclusive right would terminate following certain change of control events applicable to us as described in the distribution agreement among Rockwell, Rockwell Scientific and us.

Employees

              As of November 1, 2002, we had approximately 14,500 full-time employees. Approximately 2,100 of our employees in the United States are covered by collective bargaining agreements.

              Collective bargaining agreements expire on May 2, 2003 with each of (1) International Brotherhood of Electrical Workers, Local Union No. 1362, (2) International Brotherhood of Electrical Workers, Local Union No. 1634 and (3) International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, Local Union No. 787, which as of September 30, 2002 covered in the aggregate 1,932 employees located throughout the United States. Failure to reach new agreements with these bargaining units could result in work stoppages which could adversely affect our business, financial condition and operating results.

Cyclicality and Seasonality

              The avionics and communications markets in which we sell our products are, to varying degrees, cyclical and have experienced periodic downturns. For example, markets for our commercial aviation

6

electronic products have experienced downturns during periods of slowdowns in the commercial airline industry and during periods of weak conditions in the economy in general, as demand for new aircraft generally declines during these periods. Although we believe that aftermarket demand for many of our products and our Government Systems business reduce our exposure to these business downturns, we are currently experiencing adverse market conditions in much of our Commercial Systems business and may experience similar downturns in the future. The events of September 11, 2001 exacerbated the most recent cyclical downturn in our commercial markets.

              Our business tends to be seasonal with our quarter ending September 30 usually producing relatively higher sales and our quarter ending December 31 usually producing relatively lower sales. A large part of this seasonality variance is attributable to our Government Systems business and relates to the U.S. Government procurement cycle.

Regulatory Matters

              The continued sale, installation and operation of our products in commercial aviation applications is subject to continued compliance with applicable regulatory requirements and future changes to those requirements. In the U.S., our commercial aviation products are required to comply with Federal Aviation Administration regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. Some of our products, such as radio frequency transmitters and receivers, must also comply with Federal Communications Commission regulations governing authorization and operational approval of telecommunications equipment.

              Internationally, similar requirements exist for airworthiness, installation and operational approvals. These requirements are administered by the national aviation authorities of each country and, in the case of Europe, coordinated by the European Joint Aviation Authorities. Many countries also impose specific telecommunications equipment requirements, administered through their national aviation authorities or telecommunications authority. In Europe, approval to import products also requires compliance with European Commission directives, such as those associated with electrical safety, electro-magnetic compatibility and the use of metric units of measurement.

              Products already in service may also become subject to mandatory changes for continued regulatory compliance as a result of any identified safety issue, which can arise from an aircraft accident, incident or service difficulty report.

Environmental Matters

              Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on our manufacturing operations. Compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on our liquidity and capital resources, competitive position or financial condition. Management believes that our expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on our business or financial condition, but could possibly be material to the results of operations of any one period. Management cannot assess the possible effect of compliance with future environmental requirements. Additional information on environmental matters is provided under the caption Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 32-33 of the 2002 Annual Report.

Geographic Information

              Our principal markets outside the United States are in France, Canada, the United Kingdom, Australia, Japan, Germany, Israel, Singapore, China and Brazil. In addition to normal business risks,

7

operations outside the United States are subject to other risks including, among other factors, political, economic and social environments, governmental laws and regulations, and currency revaluations and fluctuations.

              Selected financial information by major geographic area for each of the three years in the period ended September 30, 2002 is contained in Note 22 of the Notes to Consolidated Financial Statements in the 2002 Annual Report.

Certain Business Risks

              Our business, financial condition and operating results can be impacted by a number of factors, including but not limited to those set forth below and elsewhere in this Annual Report on Form 10-K, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

We are currently operating in a generally depressed market for our commercial aviation electronics products and services.

              Current business conditions in our commercial air transport, in-flight entertainment and business jet markets are depressed. Reduced aircraft build rates at original equipment manufacturers of air transport and business jets are adversely affecting our sales of flight deck electronic products and systems to these manufacturers. In addition, the difficult current business environment for many U.S. commercial airlines adversely affects our sales of in-flight entertainment products and systems, our sales of maintenance services and potentially our ability to collect our receivables associated with these customers. It is difficult to estimate when these markets will improve since they are impacted in part by the decline in air travel after the unprecedented terrorist attacks of September 11, 2001. These prevailing uncertainties make it more difficult than usual for us to predict future sales, expenditures, income and cash flows.

Possible future terrorist attacks, global responses or other conflicts may further adversely affect our business.

              The terrorist attacks which took place on September 11, 2001 caused significant uncertainty with respect to U.S. and other business and financial markets and adversely affected our business. National and global responses to these terrorist attacks and other significant conflicts cause further uncertainty and instability in these markets. Although our Government Systems business may experience greater demand for its products as a result of increased government defense spending, factors arising (directly or indirectly) from terrorist attacks or other conflicts which have adversely affected our business and which may further adversely affect our business include:

•

the impact of declines in air travel on the financial condition of our commercial airline and aircraft manufacturer customers. For example, a significant amount of cancellations of aircraft orders from aircraft manufacturers would adversely impact our future results;



•

reduction in spending on business jets;



•

sustained losses and the deteriorating financial condition of airlines results in a reduction of discretionary spending for aircraft upgrades of avionics and in-flight entertainment equipment;



•

reductions in the need for aircraft maintenance due to declines in air travel; and



•

increase in the cost of property and aviation products insurance and increased restrictions placed on our policies. Furthermore, we currently hold only nominal insurance related to the effects of terrorist acts on our assets and our aircraft products.

8

We depend to a significant degree on U.S. Government contracts, which are subject to unique risks.

              In fiscal 2002, 36% of our sales were derived from United States government contracts. In addition to normal business risks, companies engaged in supplying equipment to the United States government are subject to unique risks which are largely beyond our control. These risks include:

•

dependence on Congressional appropriations and administrative allotment of funds;



•

the ability of the U.S. government to terminate, without prior notice, partially completed government programs that were previously authorized;



•

changes in governmental procurement legislation and regulations and other policies which may reflect military and political developments;



•

significant changes in contract scheduling;



•

intense competition for available United States government business necessitating increases in time and investment for design and development;



•

difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work;



•

changes over the life of United States government contracts, particularly development contracts, which generally result in adjustments of contract prices; and



•

claims based on United States government work, which may result in fines, the cancellation or suspension of payments or suspension or debarment proceedings affecting potential further business with the United States government.

New airspace management technologies may impact future sales.

              The aerospace industry is experiencing a global transition from traditional communications, navigation, surveillance and air traffic control systems to air traffic management systems utilizing satellite-based technologies that will allow pilots to fly at desired paths and speeds selected in real time, while still complying with instrument flight regulations. The transition to these technologies will require the use of digital communications systems, global positioning system navigation, satellite surveillance techniques and ground surveillance systems. These technologies are expected to result in more direct and efficient flight routes, fewer flight delays and reduced airport congestion. Although we believe that we are well positioned to participate in this market evolution, our ability to capitalize on the transition to these airspace management technologies is subject to various risks, including:

•

delays in the development of the necessary satellite and ground infrastructure by U.S. and foreign governments;



•

delays in adopting national and international regulatory standards;



•

failure of our product development investments in communications, navigation and surveillance products that enable airspace management technologies to coincide with market evolution to, and demand for, these products; and



•

the ability and desire of customers to invest in products enabling airspace management technologies.

We derive a significant portion of our revenues from international sales and are subject to the risks of doing business in foreign countries.

              In fiscal 2002, revenues from products and services exported from the U.S. or manufactured and serviced abroad were 36% of our total sales. We expect that international sales will continue to account for

9

a significant portion of our total sales. As a result, we are subject to risks of doing business internationally, including:

•

currency exchange controls, fluctuations of currency and currency revaluations;



•

laws, regulations and policies of foreign governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad;



•

changes in regulatory requirements, including imposition of tariffs or embargoes, export controls and other trade restrictions;



•

uncertainties and restrictions concerning the availability of funding, credit or guarantees;



•

import and export licensing requirements and regulations;



•

taxes;



•

uncertainties as to local laws and enforcement of contract and intellectual property rights; and



•

rapid changes in government, economic and political policies, political or civil unrest or the threat of international boycotts or U.S. anti-boycott legislation.

              While these factors or the impact of these factors are difficult to predict, any one or more of them could adversely affect our operations in the future.

We have made, and expect to continue to make, strategic acquisitions that involve significant risks and uncertainties.

              We completed two acquisitions in fiscal 2002 and we intend to enter into acquisitions in the future in an effort to enhance shareowner value. Acquisitions involve a certain amount of risks and uncertainties such as:

•

the difficulty in integrating newly-acquired businesses and operations in an efficient and cost-effective manner and the risk that we encounter significant unanticipated costs or other problems associated with integration;



•

the challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions;



•

the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;



•

the risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties;



•

the potential loss of key employees of the acquired businesses; and



•

the risk of diverting the attention of senior management from our existing operations.

We enter into fixed-price contracts that could subject us to losses in the event that we have cost overruns.

              During fiscal 2002 approximately 95% of our total sales were from firm, fixed-price contracts. This allows us to benefit from cost savings, but it carries the burden of potential cost overruns since we assume all of the cost risk. If our initial estimates are incorrect, we can lose money on these contracts. Government contracts can expose us to potentially large losses because the government can compel us to complete a project or, in the event of a termination for default, pay the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these projects involve new technologies and applications and can last for years, the following items can result in the contractual price becoming less favorable or even unprofitable to us over

10

time: unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with other contractors and cost overruns. Furthermore, if we do not meet project deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts we may not realize their full benefits. Our results of operations are dependent on our ability to maximize our earnings from our contracts. Lower earnings caused by cost overruns would have an adverse impact on our financial results.

We may be responsible for federal income tax liabilities that relate to our spin-off from Rockwell.

              In connection with our spin-off from Rockwell, the Internal Revenue Service (the IRS) issued a tax ruling to Rockwell stating that the spin-off would qualify as a tax-free reorganization for U.S. federal income tax purposes. While the tax ruling generally is binding on the IRS, the continuing validity of the ruling is subject to certain factual representations and assumptions. We are not aware of any facts or circumstances that would cause these representations and assumptions to be untrue.

              The tax allocation agreement entered into between Rockwell and us in connection with the spin-off provides that we will be responsible for any taxes imposed on Rockwell, us or Rockwell shareowners as a result of either:

•

the failure of the spin-off to qualify as a tax-free reorganization for U.S. federal income tax purposes, or



•

the subsequent disqualification of the spin-off as a tax-free transaction to Rockwell for U.S. federal income tax purposes,

if the failure or disqualification is attributable to specific post-spin-off actions by or in respect of us, our subsidiaries or our shareowners. Subject to certain broad-based safe harbor exceptions, it is possible that an acquisition of 50% or more of our stock prior to July 2003 could cause the disqualification of the spin-off as a tax-free transaction. The process for determining where a particular acquisition of our stock could cause the disqualification of the spin-off as a tax-free transaction is complex and contains significant uncertainties.

              If we were required to pay any of the taxes described above, the payment would be substantial and would have a material adverse effect on our business, financial condition and results of operations.

Costs of certain employee and retiree benefits may continue to rise.

              Over the last few years, we have experienced significant increases in the costs of retiree, medical and pension benefits. Although we have taken action seeking to contain these cost increases, including making changes to our medical plan and implementing a fixed company contribution to retiree medical, there are risks that our costs for these benefits will increase as a result of:

•

continued increases in medical costs due to increased usage of medical benefits and medical inflation in the United States;



•

higher contributions to the pension plan and other pension expenses due to the effects of the decline in the U.S. stock market on the performance of our pension plan assets; and



•

further reductions in the discount rate used to determine the present value of our benefit obligations.

Cautionary Statement

              This Annual Report on Form 10-K, and documents that are incorporated by reference in this Annual Report on Form 10-K, contain statements, including certain projections and business trends,

11

accompanied by such phrases as "believes", "estimates", "expects", "could", "likely", "anticipates", "will", "intends", and other similar expressions, that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the consequence of past and future terrorist attacks; political turmoil in the Middle East; the timing related to restoring consumer confidence in air travel; the health of the global economy as well as the commercial aerospace industry; domestic and foreign government spending, budgetary and trade policies; economic and political changes in international markets where we compete; demand for and acceptance of new and existing products; potential cancellation or delay of orders by commercial customers; customer bankruptcy; labor work stoppages; market performance of our pension assets; our medical plan expenses; recruitment and retention of qualified personnel; our ability to successfully execute to our internal performance plans; favorable outcomes of certain customer procurements; changes to government policies and regulations; new aircraft build rates; product reliability and cost of repairs; the cyclical nature of our businesses; factors that result in significant disruption to air travel or reduction to airline profitability; our customers' willingness to outsource avionics maintenance and service; successful execution of our acquisition, strategic and integration plans; our ability to remain competitive in a highly competitive and rapidly changing marketplace; award of production contracts at the current projected quantities; our ability to handle production rate increases and decreases; and the uncertainties of the outcome of litigation, as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in our other SEC filings. These forward-looking statements are made only as of the date hereof.

Item 2.      Properties.

              As of September 30, 2002, we operated twelve manufacturing facilities throughout the United States and one manufacturing facility each in Mexico, France and the United Kingdom. The Company also had engineering facilities, sales offices, warehouses and service locations in approximately 75 cities. These facilities have aggregate floor space of approximately 5.6 million square feet, substantially all of which is in use. Of this floor space, approximately 62% is owned and approximately 38% is leased. There are no major encumbrances on any of our plants or equipment, other than financing arrangements which in the aggregate are not material. In the opinion of management, our properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels. A summary of floor space of these facilities at September 30, 2002 is as follows:

Location		Owned Facilities	Leased Facilities	Total
		(in thousands of square feet)
United States		3,437	1,720	5,157
Canada and Mexico		—	112	112
Europe		90	205	295
Asia Pacific		—	79	79
South America		—	6	6
	Total	3,527	2,122	5,649

Type of Facility		Owned Facilities	Leased Facilities	Total
		(in thousands of square feet)
Manufacturing		1,329	585	1,914
Sales, Engineering, Service and General Office Space		2,198	1,537	3,735
	Total	3,527	2,122	5,649

12

              We have facilities with a total of at least 100,000 square feet in the following cities: Cedar Rapids, Iowa (2,490,000 square feet), Richardson, Texas (280,000 square feet), Melbourne, Florida (300,000 square feet), Coralville, Iowa (180,000 square feet), Irvine, California (260,000 square feet), Pomona, California (270,000 square feet), San Jose, California (210,000 square feet), Toulouse, France (120,000 square feet) and Mexicali, Mexico (110,000 square feet). Most of our facilities are generally shared for the benefit of the Commercial Systems and Government Systems businesses.

              Certain of our facilities, including those located in California and Mexicali, Mexico, are located near major earthquake fault lines. We maintain earthquake insurance with a $50 million deductible with respect to these facilities.

Item 3.      Legal Proceedings.

              We assumed all responsibility for current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of our business in connection with the Distribution.

              On January 15, 1997, a civil action was filed against us in the United States District Court for the District of Arizona in Tucson, Universal Avionics Systems Corp. v. Rockwell International Corp. and Rockwell Collins, Inc., in which Universal, a manufacturer and marketer of aviation electronics, including Flight Management Systems (FMS), asserted four claims against us arising out of our participation in the FMS business: (1) attempted monopolization under Section 2 of the Sherman Act; (2) anticompetitive conduct (exclusive dealing and tying) under Section 1 of the Sherman Act and Section 3 of the Clayton Act; (3) tortious interference with business relationships and prospective economic business advantage under the common law of Arizona; and (4) unfair competition under the common law of Arizona. Universal seeks damages of approximately $35 million before trebling for the alleged antitrust violations; actual damages of an unspecified amount for the alleged common law violations; punitive damages; attorneys' fees and injunctive relief. We and Rockwell have denied the allegations and have asserted counterclaims against Universal for defamation and unfair competition. On July 17, 2001, the district court granted defendants' motion for partial summary judgment for failure to allege a relevant market entitling plaintiff to relief, certified that ruling for appeal, dismissed as moot other motions for summary judgment filed by defendants challenging plaintiff's attempted monopolization, exclusive dealing and tying, and stayed further proceedings, including rulings on motions for summary judgment filed by defendants as to plaintiff's other claims, pending appeal. On July 19, 2001, plaintiff filed a notice of appeal with the Ninth Circuit Court of Appeals. On December 6, 2002, the Ninth Circuit Court of Appeals affirmed the District Court's grant of the motion by Rockwell and us for partial summary judgment.

              On April 3, 2000, a civil action was filed against us in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., asserting various claims arising out of the plaintiff's purchase of our former Railroad Electronics business on October 5, 1998 pursuant to a sale agreement. Specifically, the plaintiff alleged that it was entitled under provisions of the sale agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it was entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by us to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to the provisions of the sale agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. On June 18, 2002 the arbitrator issued a ruling in our favor and denying in its entirety plaintiff's claims for a post-closing adjustment to the purchase price. With respect to the litigation, the parties are in the early stages of discovery.

              On June 18, 2001, Thales Avionics In-Flight Systems, Inc. ("Thales") sued our employee, Calvin Fang ("Fang"), for conversion, breach of contract, misappropriation of trade secrets, interference with

13

prospective economic advantage, fraud and conspiracy (the "Lawsuit") in Orange County Superior Court, Orange County, California. In the Lawsuit, Thales alleges that in 2001, Fang left his employment with us, obtained employment at Thales, misappropriated certain alleged trade secrets, left his employment at Thales, returned to employment with us and disclosed the alleged trade secrets to our employees. We terminated Fang's employment in August 2001. On September 6, 2001, Thales filed a first Amended Complaint ("Amended Complaint") against Fang and named as additional defendants us and eight of our employees: Greg Nelson, Chris Jameson, Shawn Kathol, Robert Troxel, James Whitehouse, Kathy Garcia, Wayne Hitchcock and Gregory Piponius (collectively, the "Individual Defendants"). The Amended Complaint contains six causes of action against us and the Individual Defendants: misappropriation of trade secrets, fraud, unfair competition, conspiracy, conversion, and interference with prospective economic advantage. In the Lawsuit, Thales has asked the court to: (a) order us and the Individual Defendants to return Thales' trade secrets allegedly misappropriated by Fang; (b) enjoin us and the Individual Defendants from using, retaining, and disseminating the allegedly misappropriated trade secrets, (c) assess damages in the amount equal to the alleged unjust enrichment, (d) assess restitutionary damages, (e) order us to pay reasonable royalties if no unjust enrichment and restitution amounts are provable, (f) assess exemplary and punitive damages in an amount according to proof, and (g) order us and the Individual Defendants to pay Thales' attorneys' fees and costs. On September 11, 2002, Thales filed a motion seeking permission to file a second Amended Complaint ("Second Amended Complaint") which added a new cause of action against us and two Individual Defendants for violation of the Computer Fraud and Abuse Act, a federal statute. Pursuant to the parties' stipulation, the Second Amended Complaint was deemed filed on September 20, 2002. On September 25, 2002, we removed the case to the U.S. District Court for the Central District of California, Southern Division, and were joined in the removal action by all other defendants, including the Individual Defendants. On October 2, 2002, we filed an answer and affirmative defenses to the Second Amended Complaint in which we denied the allegations set forth therein and asserted various defenses. We also asserted a counterclaim against Thales alleging that Thales' in-flight entertainment systems infringe our patent. Our patent counterclaim seeks an injunction against infringing activity by Thales as well as monetary damages. The federal court has ordered a scheduling conference for December 16, 2002. There currently is no trial date set.

              In addition, various other lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, intellectual property, environmental, safety and health, contract and employment matters.

              Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on our business or financial condition, but could possibly be material to the results of operations of any one period.

Item 4.      Submission of Matters to a Vote of Security Holders.

              No matters were submitted to a vote of security holders during the fourth quarter of 2002.

14

PART II

Item 5.      Market for the Company's Common Equity and Related Stockholder Matters.

Market Information

              Our Common Stock, par value $.01 per share, is listed on the New York Stock Exchange and trades under the symbol "COL". On December 1, 2002, there were 44,299 shareowners of record of our Common Stock.

              The following table sets forth the high and low sales price of our Common Stock on the New York Stock Exchange — Composite Transactions reporting system during each quarter of the Company's fiscal years ended September 30, 2002 and 2001:

	2002				2001(1)
Fiscal Quarters
	High		Low		High		Low
First	$	19.98	$	12.99	$	—	$	—
Second		25.80		18.51		—		—
Third		27.70		21.26		—		—
Fourth		27.15		18.50		24.23		11.80

⁽¹⁾

Our Common Stock began trading "regular way" on the New York Stock Exchange on July 2, 2001. Prior to the Distribution, our Common Stock traded on a "when-issued" basis from June 15, 2001 to June 29, 2001.

Dividends

              The following table sets forth the cash dividends per share paid by us during each quarter of our fiscal years ended September 30, 2002 and 2001:

Fiscal Quarters	2002		2001(1)
First	$	0.09	$	—
Second		0.09		—
Third		0.09		—
Fourth		0.09		0.09

⁽¹⁾

Prior to the Distribution, on June 29, 2001, we paid a cash dividend to Rockwell, then our sole shareowner, in the amount of $300 million.

              We anticipate that we will pay quarterly cash dividends which, on an annual basis, will equal $0.36 per share. The declaration and payment of dividends by us, however, will be at the sole discretion of our Board of Directors.

Repurchases

              Our Board of Directors authorized in December 2001 the repurchase of up to $200 million of our Common Stock. During fiscal 2002, we repurchased approximately 4.5 million shares in open-market transactions at a total cost of approximately $102 million, which resulted in an average cost of $22.74 per share.

15

Item 6.      Selected Financial Data.

              See the information in the table captioned Selected Financial Data on page 66 of the 2002 Annual Report.

Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations.

              See the discussion and analysis under the caption Management's Discussion and Analysis of Financial Condition and Result of Operations on pages 23-37 of the 2002 Annual Report.

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.

              See the discussion and analysis under the caption Management's Discussion and Analysis of Financial Condition and Result of Operations on page 36 of the 2002 Annual Report.

Item 8.      Financial Statements and Supplementary Data.

              See Independent Auditors' Report, Consolidated Statement of Financial Position, Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Shareowners' Equity and Comprehensive Income, and Notes to Consolidated Financial Statements on pages 39-65 of the 2002 Annual Report.

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

              None.

PART III

Item 10.      Directors and Executive Officers of the Company.

              See the information under the captions Election of Directors, Information as to Nominees for Directors and Continuing Directors and Compliance with Section 16(a) of the Securities Exchange Act on pages 1-4 and 20 of the 2003 Proxy Statement.

              No nominee for director was selected pursuant to any arrangement or understanding between the nominee and any person other than us pursuant to which such person is or was to be selected as a director or nominee.

              The name, age, office and position held with us, and principal occupations and employment during the past five years of each of our executive officers as of December 1, 2002 are as follows:

Name, Office and Position, and Principal Occupations and Employment	Age
Clayton M. Jones — Chairman of the Board of Rockwell Collins since June 2002; President and Chief Executive Officer of Rockwell Collins since June 2001; Senior Vice President of Rockwell (electronic controls and communications) and President of Rockwell Collins, Inc., a subsidiary of Rockwell, from January 1999 to May 2001; Executive Vice President of Rockwell Collins, Inc. prior thereto	53
Barry M. Abzug — Senior Vice President, Corporate Development of Rockwell Collins since October 2001; President and General Manager, Aerospace/Communications Division of ITT Industries, Inc. (engineering and manufacturing) from October 1998 to August 2000; Vice President and Director, Communications Systems Business Unit of the Aerospace/Communications Division of ITT Industries, Inc. prior thereto	50

16

Patrick E. Allen — Vice President, Finance and Treasurer of Rockwell Collins since June 2001; Vice President and Treasurer of Rockwell from June 2000 to May 2001; Vice President, Financial Planning and Analysis of Rockwell from June 1999 to May 2000; Assistant Controller of Rockwell prior thereto	38
Gary R. Chadick — Senior Vice President, General Counsel and Secretary of Rockwell Collins since July 2001; Assistant General Counsel of Operations of Litton Industries,  Inc. (advanced electronics, information systems, electronic components and ship systems) from September 1999 to July 2001; Group Counsel, Litton Advanced Electronics Systems Group prior thereto	41
Robert M. Chiusano — Executive Vice President and Chief Operating Officer, Commercial Systems of Rockwell Collins since May 2002; Executive Vice President and Chief Operating Officer, Government Systems of Rockwell Collins from June 2001 to May 2002; Vice President and General Manager, Government Systems of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	52
Gregory S. Churchill — Executive Vice President and Chief Operating Officer, Government Systems of Rockwell Collins since May 2002; Vice President and General Manager of Business and Regional Systems for Commercial Systems from June 2001 to May 2002; Vice President of Business Development for Government Systems of Rockwell Collins, Inc., a subsidiary of Rockwell, from February 2001 to June 2001; Vice President, Integrated Applications and Navigation Programs of Rockwell Collins, Inc. from October 1999 to February 2000; Vice President, Program Management thereof prior thereto	45
Lawrence A. Erickson — Senior Vice President and Chief Financial Officer of Rockwell Collins since June 2001; Vice President and Controller, Finance and Strategic Development of Rockwell Collins, Inc., a subsidiary of Rockwell, from October 1999 to May 2001; Vice President and Controller of Rockwell Collins, Inc. prior thereto	53
Jerome J. Gaspar — Senior Vice President, Engineering and Technology of Rockwell Collins since June 2001; Vice President, Engineering and Technology of Rockwell Collins,  Inc., a subsidiary of Rockwell, from January 2000 to May 2001; Vice President, Displays Center of Excellence of Rockwell Collins, Inc. prior thereto	57
Herman M. Reininga — Senior Vice President, Operations of Rockwell Collins since June 2001; Vice President, Operations of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	61
Alfred J. Spigarelli — Vice President, Benefits and Administrative Services of Rockwell Collins since June 2001; Vice President, Benefits and Administrative Services of Rockwell from July 1999 to May 2001; Vice President, Compensation and Benefits of Rockwell prior thereto	62
Derek R. Wimmer — Vice President and General Auditor of Rockwell Collins since June 2001; Controller of Rockwell Collins Air Transport Systems from November 2000 to May 2001; Senior Director, Commercial and Business Compliance of Rockwell Collins, Inc., a subsidiary of Rockwell, from October 1998 to November 2000; Vice President, International Planning and Development of Rockwell prior thereto	56

              There are no family relationships, as defined, between any of the above executive officers. No officer was selected pursuant to any arrangement or understanding between him and any person other than us. All executive officers are elected annually.

17

Item 11.      Executive Compensation.

              See the information under the caption Compensation of Directors on page 7 of the 2003 Proxy Statement and under the captions Executive Compensation, Option Grants, Aggregated Option Exercises and Fiscal Year-End Values, Long-Term Incentive Plans — Awards in Last Fiscal Year, Retirement Benefits, Compensation Committee Report on Executive Compensation and Shareowner Return Performance Presentation on pages 11-19 of the 2003 Proxy Statement.

Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

              See the information under the captions Voting Securities and Equity Ownership of Certain Beneficial Owners and Management on pages 1 and 9-10, respectively, of the 2003 Proxy Statement.

              The following table gives information about our Common Stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of September 30, 2002, including our 2001 Stock Option Plan, 2001 Long-Term Incentives Plan and Directors Stock Plan:

Equity Compensation Plan Information⁽¹⁾

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders(2)	16,286,436	$	22.37	17,694,971
Equity compensation plans not approved by security holders	None		None	None
Total	16,286,436	$	22.37	17,694,971

⁽¹⁾

Includes in column (c) shares available under our Employee Stock Purchase Plan, which allows employees to have withheld up to 15 percent of their base compensation toward the purchase of our Common Stock. Under this plan, shares may be purchased at six-month intervals at 85 percent of the lower of the fair market value on the first or the last day of the six month offering period. We are authorized to issue 9.0 million shares under this plan, of which 8.3 million shares are available as of September 30, 2002 for future grant. This plan was approved by our sole shareowner at the time, Rockwell, prior to the Distribution.

⁽²⁾

Our 2001 Stock Option Plan was approved by our sole shareowner at the time, Rockwell, prior to the Distribution. Options to purchase 12.9 million shares of our Common Stock were issued under this plan in connection with the conversion of Rockwell options. No further stock options may be granted under this plan.

Item 13.      Certain Relationships and Related Transactions.

              See the information under the caption Corporate Governance; Board of Directors and Committees and Certain Transactions and Other Relationships on pages 5-8 of the 2003 Proxy Statement.

18

Item 14.      Controls and Procedures.

(a)

Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, our principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in SEC rules) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in SEC rules and forms.



(b)

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses noted in our most recent evaluation, and therefore there were no corrective actions taken with respect thereto.

PART IV

Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.

        (a)  Financial Statements, Financial Statement Schedules and Exhibits.

        (1)  Financial Statements (all financial statements listed below are those of the Company and its consolidated subsidiaries and are incorporated by reference in Item 8 of this Form 10-K from the 2002 Annual Report).

Consolidated Statement of Financial Position, September 30, 2002 and 2001.

Consolidated Statement of Operations, years ended September 30, 2002, 2001 and 2000.

Consolidated Statement of Cash Flows, years ended September 30, 2002, 2001 and 2000.

Consolidated Statement of Shareowners' Equity and Comprehensive Income, years ended September 30, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

Independent Auditors' Report.

        (2)  Financial Statement Schedule for the years ended September 30, 2002, 2001 and 2000.

	Page
Independent Auditors' Report	S-1
Schedule II — Valuation and Qualifying Accounts	S-2
Schedules not filed herewith are omitted because of the absence of conditions under which they are required or because the information called for is shown in the financial statements or notes thereto.

        (3)  Exhibits

3-a-1	Restated Certificate of Incorporation of the Company, as amended, filed as Exhibit 3-a-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
3-a-2	Certificate of Merger effecting name change of the Company from "New Rockwell Collins, Inc." to "Rockwell Collins, Inc.", filed as Exhibit 3-a-2 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.

19

3-b-1	Amended By-Laws of the Company.
4-a-1	Rights Agreement dated as of June 28, 2001 by and between the Company and Mellon Investor Services LLC, as Rights Agent, filed as Exhibit 4.1 to the Company's current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
4-a-2	Indenture dated as of November 1, 2001 between the Company and Citibank, N.A., as Trustee, filed as Exhibit 4.b to the Company's Registration Statement on Form S-3 (No. 333-72914), is incorporated herein by reference.
*10-a-1	The Company's 2001 Long-Term Incentives Plan, adopted by the Company's Board of Directors on June 1, 2001 and approved by the Company's shareowners at the 2002 Annual Meeting of Shareowners, filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8 (No. 333-63120), is incorporated herein by reference.
*10-a-2	Forms of Stock Option Agreements under the Company's 2001 Long-Term Incentives Plan, filed as Exhibit 10-a-2 to the Company's Form 10-K for fiscal year ended September 30, 2001, are incorporated herein by reference.
*10-a-3	Form of Stock Option Agreement under the Company's 2001 Long-Term Incentives Plan for stock option grants to the non-executive Chairman of the Board of Directors, filed as Exhibit 10-a-3 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-a-4	Form of Restricted Stock Agreement under the Company's 2001 Long-Term Incentives Plan for restricted stock grants to the non-executive Chairman of the Board of Directors, filed as Exhibit 10-a-4 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-b-1	The Company's Directors Stock Plan, adopted by the Company's Board of Directors on June 1, 2001 and approved by the Company's shareowners at the 2002 Annual Meeting of Shareowners, filed as Exhibit 10.2 to the Company's Registration Statement on Form 10 (File No. 001-16445) (the "Form 10"), is incorporated herein by reference.
*10-b-2	Form of Stock Option Agreement under the Company's Directors Stock Plan, filed as Exhibit 10-b-2 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-b-3	Form of Restricted Stock Agreement under the Company's Directors Stock Plan, filed as Exhibit 10-b-3 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-c-1	The Company's Annual Incentive Compensation Plan for Senior Executive Officers, adopted by the Company's Board of Directors on June 1, 2001 and approved by the Company's shareowners at the 2002 Annual Meeting of Shareowners, filed as Exhibit 10.4 to the Form 10, is incorporated herein by reference.
*10-d-1	The Company's Incentive Compensation Plan, adopted by the Company's Board of Directors on September 12, 2001, filed as Exhibit 10-d-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-e-1	The Company's 2001 Stock Option Plan, adopted by the Company's Board of Directors on June 1, 2001, filed as Exhibit 10.3 to the Form 10, is incorporated herein by reference.
*10-f-1	The Company's Deferred Compensation Plan, adopted by the Company's Board of Directors on June 13, 2001, filed as Exhibit 10-f-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.

20

*10-g-1	The Company's Non-Qualified Savings Plan, adopted by the Company's Board of Directors on June 13, 2001, filed as Exhibit 10-g-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-h-1	The Company's Non-Qualified Pension Plan, adopted by the Company's Board of Directors on June 13, 2001, filed as Exhibit 10-h-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
*10-i-1	The Company's Master Trust — Deferred Compensation and Non-Qualified Savings and Non-Qualified Pension Plans, adopted by the Company's Board of Directors on June 13, 2001, filed as Exhibit 10-i-1 to the Company's Form 10-K for fiscal year ended September 30, 2001, is incorporated herein by reference.
10-j-1	Five-Year Credit Agreement dated as of May 30, 2001 among the Company, the Banks listed therein and The Chase Manhattan Bank, as Agent, filed as Exhibit 10.9.2 to the Form 10, is incorporated herein by reference.
10-k-1	Distribution Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, the Company and Rockwell Scientific Company LLC, filed as Exhibit 2.1 to the Company's current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
10-l-1	Employee Matters Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, the Company and Rockwell Scientific Company LLC, filed as Exhibit 2.2 to the Company's current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
10-m-1	Tax Allocation Agreement dated as of June 29, 2001 by and between Rockwell International Corporation and the Company, filed as Exhibit 2.3 to the Company's current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
*10-n-1	Form of Change of Control Agreement between the Company and certain executives of the Company, filed as Exhibit 10.7.1 to the Form 10, is incorporated herein by reference.
*10-n-2	Amended Schedule identifying executives of the Company who are party to a Change of Control Agreement in the form set forth as Exhibit 10.7.1 to the Form 10, filed as Exhibit 10-o-2 to the Company's Form 10-Q for the period ending June 30, 2002, is incorporated herein by reference.
*10-n-3	Form of Change of Control Agreement between the Company and certain executives of the Company, filed as Exhibit 10.8.1 to the Form 10, is incorporated herein by reference.
*10-n-4	Schedule identifying executives of the Company who are party to a Change of Control Agreement in the form set forth as Exhibit 10-n-3 to this Annual Report on Form 10-K, filed as Exhibit 10.8.2 to the Form 10, is incorporated herein by reference.
10-o-1	364-day Credit Agreement dated as of May 29, 2002 among the Company, the Banks listed therein and JPMorgan Chase Bank, as Agent, filed as Exhibit 10-p-1 to the Company's Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
*10-p-1	Form of Performance Unit Agreement for FY02-03 for Persons With a Change of Control Agreement, filed as Exhibit 10-q-1 to the Company's Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
*10-p-2	Form of Performance Unit Agreement for FY02-03 for Persons Not With a Change of Control Agreement, filed as Exhibit 10-q-2 to the Company's Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.

21

*10-p-3	Form of Performance Unit Agreement for FY03-05 for Persons With a Change of Control Agreement.
*10-p-4	Form of Performance Unit Agreement for FY03-05 for Persons Not With a Change of Control Agreement.
*10-q-1	Agreement and General Release between the Company and Neal J. Keating dated July 16, 2002, filed as Exhibit 10-r-1 to the Company's Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10-r-1	Transition Agreement between the Company and Donald R. Beall dated July 9, 2002, filed as Exhibit 10-s-1 to the Company's Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
12	Statement re: Computation of Ratio of Earnings to Fixed Charges.
13	Portions of the 2002 Annual Report to Shareowners of the Company incorporated herein by reference.
21	List of subsidiaries of the Company.
23	Independent Auditors' Consent.
24	Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the Company.
99.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Management contract or compensatory plan or arrangement.

(b)

Reports on Form 8-K.

              The company filed a current report on Form 8-K dated August 5, 2002 with respect to the sworn statements executed by our Chief Executive Officer and Chief Financial Officer as required by Securities and Exchange Commission Order No. 4-460.

22

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ROCKWELL COLLINS, INC.
By:	/s/  GARY R. CHADICK Gary R. Chadick Senior Vice President, General Counsel and Secretary

Dated:    December 18, 2002

              Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 18th day of December, 2002 by the following persons on behalf of the registrant and in the capacities indicated.

/s/  CLAYTON M. JONES Clayton M. Jones	Chairman of the Board, President and Chief Executive Officer (principal executive officer)
DONALD R. BEALL*	Director
ANTHONY J. CARBONE*	Director
MICHAEL P.C. CARNS*	Director
CHRIS A. DAVIS*	Director
RICHARD J. FERRIS*	Director
CHERYL L. SHAVERS*	Director
JOSEPH F. TOOT, JR.*	Director
/s/  LAWRENCE A. ERICKSON Lawrence A. Erickson	Senior Vice President and Chief Financial Officer (principal financial officer)
/s/  PATRICK E. ALLEN Patrick E. Allen	Vice President Finance and Treasurer (principal accounting officer)

*By	/s/  GARY R. CHADICK Gary R. Chadick, Attorney-in-fact**
**	By authority of the powers of attorney filed herewith.

23

CERTIFICATION

        I, Clayton M. Jones, Chairman, President and Chief Executive Officer of Rockwell Collins, Inc., certify that:

        1.    I have reviewed this annual report on Form 10-K of Rockwell Collins, Inc.;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

        4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

        b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

        c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

        a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

        6.    The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	December 18, 2002
		/s/  CLAYTON M. JONES Clayton M. Jones Chairman, President and Chief Executive Officer

24

CERTIFICATION

        I, Lawrence A. Erickson, Senior Vice President and Chief Financial Officer of Rockwell Collins, Inc., certify that:

        1.    I have reviewed this annual report on Form 10-K of Rockwell Collins, Inc.;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

        4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

        b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

        c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

        a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

        6.    The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	December 18, 2002
		/s/  LAWRENCE A. ERICKSON Lawrence A. Erickson Senior Vice President and Chief Financial Officer

25

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareowners of Rockwell Collins, Inc.

We have audited the consolidated financial statements of Rockwell Collins, Inc. and subsidiaries (the "Company") (formerly the avionics and communications business of Rockwell Automation, Inc.) as of September 30, 2002 and 2001, and for each of the three years in the period ended September 30, 2002. We have issued our report thereon dated October 29, 2002, which report includes two explanatory paragraphs noting that the Company had not previously operated as a stand-alone entity during all the periods presented and changed its method of accounting for goodwill and certain other intangible assets effective October 1, 2001. Such consolidated financial statements and report are included in your 2002 Annual Report to Shareowners and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 15(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/  DELOITTE & TOUCHE LLP

Chicago, Illinois
October 29, 2002

S-1

SCHEDULE II

ROCKWELL COLLINS, INC.

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended September 30, 2002, 2001 and 2000
(in millions)

Description		Balance at Beginning of Year(a)		Charged to Costs and Expenses			Other(b)		Deductions(c)			Balance at End of Year(a)
Year ended September 30, 2002:
	Allowance for doubtful accounts	$	20	$	(3	)	$	--	$	(1	)	$	16
	Allowance for excess and obsolete inventories		113		33			3		(47	)		102
Year ended September 30, 2001:
	Allowance for doubtful accounts		9		11			1		(1	)		20
	Allowance for excess and obsolete inventories		92		31			3		(13	)		113
Year ended September 30, 2000:
	Allowance for doubtful accounts		8		--			1		--			9
	Allowance for excess and obsolete inventories		89		7			13		(17	)		92

(a)

Includes allowances for trade and other long-term receivables.

(b)

Consists principally of amounts relating to businesses acquired and businesses disposed of.

(c)

Amounts written off.

S-2

EXHIBIT INDEX

Exhibit Number	Description
3-b-1	Amended By-Laws of the Company.
10-p-3	Form of Performance Unit Agreement for FY03-05 for Persons With a Change of Control Agreement.
10-p-4	Form of Performance Unit Agreement for FY03-05 for Persons Not With a Change of Control Agreement.
12	Statement re: Computation of Ratio of Earnings to Fixed Charges.
13	Portions of the 2002 Annual Report to Shareowners of the Company incorporated herein by reference.
21	List of subsidiaries of the Company.
23	Independent Auditors' Consent.
24	Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the Company.
99.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

QuickLinks

PART I

Item 1. Business.

Item 2. Properties .
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.

PART II

Item 5. Market for the Company's Common Equity and Related Stockholder Matters .
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

PART III

Item 10. Directors and Executive Officers of the Company.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions.

Item 14. Controls and Procedures.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

SIGNATURES
CERTIFICATION
CERTIFICATION

SCHEDULE II

ROCKWELL COLLINS, INC. VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 2002, 2001 and 2000 (in millions)
EXHIBIT INDEX

EX-3.B1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 3-b-1

AMENDED AND RESTATED
BY-LAWS OF
ROCKWELL COLLINS, INC.

ARTICLE I.
Offices

        SECTION 1. Registered Office in Delaware; Resident Agent.    The address of the Corporation's registered office in the State of Delaware and the name and address of its resident agent in charge thereof are as filed with the Secretary of State of the State of Delaware.

        SECTION 2. Other Offices.    The Corporation may also have an office or offices at such other place or places either within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation requires.

ARTICLE II.
Meetings Of Shareowners

        SECTION 1. Place of Meetings.    All meetings of the shareowners of the Corporation shall be held at such place, within or without the State of Delaware, as may from time to time be designated by resolution passed by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meetings shall not be held at any place, but may instead be held solely by means of remote communication.

        SECTION 2. Annual Meeting.    An annual meeting of the shareowners for the election of directors and for the transaction of such other proper business, notice of which was given in the notice of meeting, shall be held on a date and at a time as may from time to time be designated by resolution passed by the Board of Directors.

        SECTION 3. Special Meetings.    A special meeting of the shareowners for any purpose or purposes shall be called only by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board.

        SECTION 4. Notice of Meetings.    Except as otherwise provided by law, written notice of each meeting of the shareowners, whether annual or special, shall be mailed, postage prepaid, or sent by electronic transmission not less than ten nor more than sixty days before the date of the meeting, to each shareowner entitled to vote at such meeting, at the shareowner's address as it appears on the records of the Corporation. Every such notice shall state the place, date and hour of the meeting the means of remote communications, if any, by which shareowners and proxy holders may be deemed to be present in person or by proxy and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice of any adjourned meeting of the shareowners shall not be required to be given, except when expressly required by law.

        SECTION 5. List of Shareowners.    The Secretary shall, from information obtained from the transfer agent, prepare and make, at least ten days before every meeting of shareowners, a complete list of the shareowners entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareowner and the number of shares registered in the name of each shareowner. Such list shall be open to the examination of any shareowner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to shareowners of the Corporation. If the meeting is to be held at a specified place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareowner who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any shareowner during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence as to who are the shareowners entitled to examine the stock ledger, the list referred to in this section or the books of the Corporation, or to vote in person or by proxy at any meeting of shareowners.

        SECTION 6. Quorum.    At each meeting of the shareowners, the holders of a majority of the issued and outstanding stock of the Corporation present either in person or by proxy shall constitute a quorum for the

transaction of business except where otherwise provided by law or by the Certificate of Incorporation or by these By-Laws for a specified action. Except as otherwise provided by law, in the absence of a quorum, a majority in interest of the shareowners of the Corporation present in person or by proxy and entitled to vote shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until shareowners holding the requisite amount of stock shall be present or represented. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at a meeting as originally called, and only those shareowners entitled to vote at the meeting as originally called shall be entitled to vote at any adjournment or adjournments thereof. The absence from any meeting of the number of shareowners required by law or by the Certificate of Incorporation or by these By-Laws for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if the number of shareowners required in respect of such other matter or matters shall be present.

        SECTION 7. Organization.    At every meeting of the shareowners the Chairman of the Board, or in the absence of the Chairman of the Board, a director or an officer of the Corporation designated by the Board, shall act as Chairman of the meeting. The Secretary, or, in the Secretary's absence, an Assistant Secretary, shall act as Secretary at all meetings of the shareowners. In the absence from any such meeting of the Secretary and the Assistant Secretaries, the Chairman may appoint any person to act as Secretary of the meeting. The Chairman presiding at meetings of the shareowners shall enforce the observance of the rules of order for the meetings of the shareowners.

SECTION 8. Notice of Shareowner Business and Nominations.

        (A)    Annual Meetings of Shareowners.    (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an annual meeting of shareowners (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any shareowner of the Corporation who was a shareowner of record at the time of giving of notice provided for in this by-law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law.    

        (2) For nominations or other business to be properly brought before an annual meeting by a shareowner pursuant to clause (c) of paragraph (A)(1) of this by-law, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareowner action. To be timely, a shareowner's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the case of the annual meeting to be held in 2002 or in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareowner to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareowner's notice as described above. Such shareowner's notice shall set forth (a) as to each person whom the shareowner proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareowner proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareowner and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareowner giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareowner, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareowner and such beneficial owner.

        Notwithstanding anything in the second sentence of paragraph (A)(2) of this by-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size

2

of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year's annual meeting, a shareowner's notice required by this by-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.

        (B)    Special Meetings of Shareowners.    Only such business shall be conducted at a special meeting of shareowners as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareowners at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this by-law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this by-law. In the event the Corporation calls a special meeting of shareowners for the purpose of electing one or more directors to the Board of Directors, any shareowner who shall be entitled to vote at the meeting may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareowner's notice required by paragraph (A)(2) of this by-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareowner's notice as described above.

        (C)    General.

        (1)  Only such persons who are nominated in accordance with the procedures set forth in this by-law shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareowners as shall have been brought before the meeting in accordance with the procedures set forth in this by-law. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this by-law and, if any proposed nomination or business is not in compliance with this by-law, to declare that such defective proposal or nomination shall be disregarded.

        (2)  For purposes of this by-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

        (3)  Notwithstanding the foregoing provisions of this by-law, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this by-law. Nothing in this by-law shall be deemed to affect any rights (i) of shareowners to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances.

        SECTION 9. Business and Order of Business.    At each meeting of the shareowners such business may be transacted as may properly be brought before such meeting, except as otherwise provided by law or in these By-Laws. The order of business at all meetings of the shareowners shall be as determined by the Chairman of the meeting, unless otherwise determined by a majority in interest of the shareowners present in person or by proxy at such meeting and entitled to vote thereat.

        SECTION 10. Voting.    Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, each shareowner shall at every meeting of the shareowners be entitled to one vote for each share of stock held by such shareowner. Any vote on stock may be given by the shareowner entitled thereto in person or by proxy appointed by an instrument in writing, subscribed (or transmitted by electronic means and authenticated as provided by law) by such shareowner or by the shareowner's attorney thereunto authorized, and delivered to the Secretary; provided, however, that no proxy shall be voted after three years from its date unless the proxy provides for a longer period. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the shareowners, all matters shall be decided by the vote (which need not be by ballot)

3

of a majority in interest of the shareowners present in person or by proxy and entitled to vote thereat, a quorum being present.

        SECTION 11. Participation at Meetings Held by Remote Communication.    If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, shareowners and proxy holders not physically present at a meeting of shareowners may, by means of remote communication: (A) participate in a meeting of shareowners; and (B) be deemed present in person and vote at a meeting of shareowners whether such meeting is to be held at a designated place or solely by means of remote communication.

ARTICLE III.
Board of Directors

        SECTION 1. General Powers.    The property, affairs and business of the Corporation shall be managed by or under the direction of its Board of Directors.

        SECTION 2. Number, Qualifications, and Term of Office.    Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. A director need not be a shareowner.

        The directors, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation (as defined in the Certificate of Incorporation), shall be divided into three classes, as nearly equal in number as possible. One class of directors shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2002, another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2003, and another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2004. Members of each class shall hold office until their successors are elected and shall have qualified. At each annual meeting of the shareowners of the Corporation, commencing with the 2002 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast for the election of directors at such meeting to hold office for a term expiring at the annual meeting of shareowners held in the third year following the year of their election.

        SECTION 3. Election of Directors.    At each meeting of the shareowners for the election of directors, at which a quorum is present, the directors shall be elected by a plurality vote of all votes cast for the election of directors at such meeting.

SECTION 4. Quorum and Manner of Acting. A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business at any meeting, and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum shall be obtained. Notice of any adjourned meeting need not be given. The directors shall act only as a board and the individual directors shall have no power as such.

        SECTION 5. Place of Meetings.    The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.

        SECTION 6. First Meeting.    Promptly after each annual election of directors, the Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, at the same place as that at which the annual meeting of shareowners was held or as otherwise determined by the Board. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

        SECTION 7. Regular Meetings.    Regular meetings of the Board of Directors shall be held at such places and at such times as the Board shall from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given.

4

        SECTION 8. Special Meetings; Notice.    Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board and shall be called by the Chairman of the Board or the Secretary of the Corporation at the written request of three directors. Notice of each such meeting stating the time and place of the meeting shall be given to each director by mail, telephone, other electronic transmission or personally. If by mail, such notice shall be given not less than five days before the meeting; and if by telephone, other electronic transmission or personally, not less than two days before the meeting. A notice mailed at least two weeks before the meeting need not state the purpose thereof except as otherwise provided in these By-Laws. In all other cases the notice shall state the principal purpose or purposes of the meeting. Notice of any meeting of the Board need not be given to a director, however, if waived by the director in writing before or after such meeting or if the director shall be present at the meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

        SECTION 9. Organization.    At each meeting of the Board of Directors, the Chairman of the Board, or, in the absence of the Chairman of the Board, the Chairman of the Executive Committee, or, in his or her absence, a director or an officer of the Corporation designated by the Board shall act as Chairman of the meeting. The Secretary, or, in the Secretary's absence, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting.

        SECTION 10. Order of Business.    At all meetings of the Board of Directors, business shall be transacted in the order determined by the Board.

        SECTION 11. Resignations.    Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board or the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

        SECTION 12. Compensation.    Each director shall be paid such compensation, if any, as shall be fixed by the Board of Directors.

SECTION 13. Indemnification.

        (A)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

        (B)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and

5

except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper.

        (C)  To the extent that a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (A) and (B), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection therewith. If any such person is not wholly successful in any such action, suit or proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters therein, the Corporation shall indemnify such person against all expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection with each claim, issue or matter that is successfully resolved. For purposes of this subsection and without limitation, the termination of any claim, issue or matter by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

        (D)  Notwithstanding any other provision of this section, to the extent any person is a witness in, but not a party to, any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries, or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under this section) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise, such person shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by or on behalf of such person in connection therewith.

        (E)  Indemnification under subsections (A) and (B) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (A) and (B). Such determination shall be made (1) if a Change of Control (as hereinafter defined) shall not have occurred, (a) with respect to a person who is a present or former director or officer of the Corporation, (i) by the Board of Directors by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum, or (ii) if there are no Disinterested Directors or, even if there are Disinterested Directors, a majority of such Disinterested Directors so directs, by (x) Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (y) the shareowners of the Corporation; or (b) with respect to a person who is not a present or former director or officer of the Corporation, by the chief executive officer of the Corporation or by such other officer of the Corporation as shall be designated from time to time by the Board of Directors; or (2) if a Change of Control shall have occurred, by Independent Counsel selected by the claimant in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, unless the claimant shall request that such determination be made by or at the direction of the Board of Directors (in the case of a claimant who is a present or former director or officer of the Corporation) or by an officer of the Corporation authorized to make such determination (in the case of a claimant who is not a present or former director or officer of the Corporation), in which case it shall be made in accordance with clause (1) of this sentence. Any claimant shall be entitled to be indemnified against the expenses (including attorneys' fees) actually and reasonably incurred by such claimant in cooperating with the person or entity making the determination of entitlement to indemnification (irrespective of the determination as to the claimant's entitlement to indemnification) and, to the extent successful, in connection with any litigation or arbitration with respect to such claim or the enforcement thereof.

        (F)  If a Change of Control shall not have occurred, or if a Change of Control shall have occurred and a director, officer, employee or agent requests pursuant to clause (2) of the second sentence in subsection (E) that the determination as to whether the claimant is entitled to indemnification be made by or at the direction of the Board of Directors (in the case of a claimant who is a present or former director or officer of the Corporation) or by an officer of the Corporation authorized to make such determination (in the case of a claimant who is not a present or former director or officer of the Corporation), the claimant shall be conclusively presumed to have been determined pursuant to subsection (E) to be entitled to indemnification if (1) in the case of a claimant who is a present or former director or officer of the Corporation, (a)(i) within fifteen days after the next regularly

6

scheduled meeting of the Board of Directors following receipt by the Corporation of the request therefor, the Board of Directors shall not have resolved by majority vote of the Disinterested Directors to submit such determination to (x) Independent Counsel for its determination or (y) the shareowners for their determination at the next annual meeting, or any special meeting that may be held earlier, after such receipt, and (ii) within sixty days after receipt by the Corporation of the request therefor (or within ninety days after such receipt if the Board of Directors in good faith determines that additional time is required by it for the determination and, prior to expiration of such sixty-day period, notifies the claimant thereof), the Board of Directors shall not have made the determination by a majority vote of the Disinterested Directors, or (b) after a resolution of the Board of Directors, timely made pursuant to clause (a)(i)(y) above, to submit the determination to the shareowners, the shareowners meeting at which the determination is to be made shall not have been held on or before the date prescribed (or on or before a later date, not to exceed sixty days beyond the original date, to which such meeting may have been postponed or adjourned on good cause by the Board of Directors acting in good faith), or (2) in the case of a claimant who is not a present or former director or officer of the Corporation, within sixty days after receipt by the Corporation of the request therefor (or within ninety days after such receipt if an officer of the Corporation authorized to make such determination in good faith determines that additional time is required for the determination and, prior to expiration of such sixty-day period, notifies the claimant thereof), an officer of the Corporation authorized to make such determination shall not have made the determination; provided, however, that this sentence shall not apply if the claimant has misstated or failed to state a material fact in connection with his or her request for indemnification. Such presumed determination that a claimant is entitled to indemnification shall be deemed to have been made (I) at the end of the sixty-day or ninety-day period (as the case may be) referred to in clause (1)(a)(ii) or (2) of the immediately preceding sentence or (II) if the Board of Directors has resolved on a timely basis to submit the determination to the shareowners, on the last date within the period prescribed by law for holding such shareowners meeting (or a postponement or adjournment thereof as permitted above).

        (G)  Expenses (including attorneys' fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding to a present or former director or officer of the Corporation, promptly after receipt of a request therefor stating in reasonable detail the expenses incurred, and to a person who is not a present or former director or officer of the Corporation as authorized by the chief executive officer of the Corporation or such other officer of the Corporation as shall be designated from time to time by the Board of Directors; provided that in each case the Corporation shall have received an undertaking by or on behalf of the present or former director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this section.

        (H)  The Board of Directors shall establish reasonable procedures for the submission of claims for indemnification pursuant to this section, determination of the entitlement of any person thereto and review of any such determination. Such procedures shall be set forth in an appendix to these By-Laws and shall be deemed for all purposes to be a part hereof.

        (I)  For purposes of this section,

        (1)  "Change of Control" means any of the following occurring at any time after the distribution of the shares of capital stock of the Corporation to the holders of capital stock of Rockwell International Corporation (the "Distribution"):

        (a)  The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subparagraph (a), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Corporation, (x) any acquisition by the Corporation, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation, Rockwell International Corporation or any corporation controlled by the Corporation or Rockwell International Corporation or (z) any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Paragraph 13(I)(1); or

7

        (b)  Individuals who, as of the date of the Distribution, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Corporation's shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or

        (c)  Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or the acquisition of assets of another entity (a "Corporate Transaction"), in each case, unless, following such Corporate Transaction, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Corporation, of Rockwell International Corporation or of such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Corporate Transaction; or

        (d)  Approval by the Corporation's shareowners of a complete liquidation or dissolution of the Corporation.

        (2)  "Disinterested Director" means a director of the Corporation who is not and was not a party to an action, suit or proceeding in respect of which indemnification is sought by a director, officer, employee or agent.

        (3)  "Independent Counsel" means a law firm, or a member of a law firm, that (i) is experienced in matters of corporation law; (ii) neither presently is, nor in the past five years has been, retained to represent the Corporation, the director, officer, employee or agent claiming indemnification or any other party to the action, suit or proceeding giving rise to a claim for indemnification under this section, in any matter material to the Corporation, the claimant or any such other party; and (iii) would not, under applicable standards of professional conduct then prevailing, have a conflict of interest in representing either the Corporation or such director, officer, employee or agent in an action to determine the Corporation's or such person's rights under this section.

        (J)  The indemnification and advancement of expenses herein provided, or granted pursuant hereto, shall not be deemed exclusive of any other rights to which any of those indemnified or eligible for advancement of expenses may be entitled under any agreement, vote of shareowners or Disinterested Directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Notwithstanding any amendment, alteration or repeal of this section or any of its provisions, or of any of the procedures established by the Board of Directors pursuant to subsection (H) hereof, any person who is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of any partnership, joint venture, employee benefit plan or other enterprise shall be entitled to indemnification in accordance with the provisions hereof and thereof with respect to any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law.

8

        (K)  No indemnification shall be payable pursuant to this section with respect to any action against the Corporation commenced by an officer, director, employee or agent unless the Board of Directors shall have authorized the commencement thereof or unless and to the extent that this section or the procedures established pursuant to subsection (H) shall specifically provide for indemnification of expenses relating to the enforcement of rights under this section and such procedures.

ARTICLE IV.
Committees

        SECTION 1. Appointment and Powers.    The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more directors of the Corporation (or in the case of a special-purpose committee, one or more directors of the Corporation), which, to the extent provided in said resolution or in these By-Laws and not inconsistent with Section 141 of the Delaware General Corporation Law, as amended, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.

        SECTION 2. Term of Office and Vacancies.    Each member of a committee shall continue in office until a director to succeed him or her shall have been elected and shall have qualified, or until he or she ceases to be a director or until he or she shall have resigned or shall have been removed in the manner hereinafter provided. Any vacancy in a committee shall be filled by the vote of a majority of the whole Board of Directors at any regular or special meeting thereof.

        SECTION 3. Alternates.    The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

        SECTION 4. Organization.    Unless otherwise provided by the Board of Directors, each committee shall appoint a chairman. Each committee shall keep a record of its acts and proceedings and report the same from time to time to the Board of Directors.

        SECTION 5. Resignations.    Any regular or alternate member of a committee may resign at any time by giving written notice to the Chairman of the Board or the Secretary of the Corporation. Such resignation shall take effect at the time of the receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

        SECTION 6. Removal.    Any regular or alternate member of a committee may be removed with or without cause at any time by resolution passed by a majority of the whole Board of Directors at any regular or special meeting.

        SECTION 7. Meetings.    Regular meetings of each committee, of which no notice shall be necessary, shall be held on such days and at such places as the chairman of the committee shall determine or as shall be fixed by a resolution passed by a majority of all the members of such committee. Special meetings of each committee will be called by the Secretary at the request of any two members of such committee, or in such other manner as may be determined by the committee. Notice of each special meeting of a committee shall be mailed to each member thereof at least two days before the meeting or shall be given personally or by telephone or other electronic transmission at least one day before the meeting. Every such notice shall state the time and place, but need not state the purposes of the meeting. No notice of any meeting of a committee shall be required to be given to any alternate.

        SECTION 8. Quorum and Manner of Acting.    Unless otherwise provided by resolution of the Board of Directors, a majority of a committee (including alternates when acting in lieu of regular members of such committee) shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of such committee. The members of each committee shall act only as a committee and the individual members shall have no power as such.

        SECTION 9. Compensation.    Each regular or alternate member of a committee shall be paid such compensation, if any, as shall be fixed by the Board of Directors.

9

ARTICLE V.
Officers

        SECTION 1. Officers.    The officers of the Corporation shall be a President and Chief Executive Officer, one or more Vice Presidents (one or more of whom may be Executive Vice Presidents, Senior Vice Presidents or otherwise as may be designated by the Board), a Secretary and a Treasurer, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. The Board of Directors may also from time to time elect such other officers as it deems necessary.

        SECTION 2. Term of Office.    Each officer shall hold office until his or her successor shall have been duly elected and qualified in his or her stead, or until his or her death or until he or she shall have resigned or shall have been removed in the manner hereinafter provided.

        SECTION 3. Additional Officers; Agents.    The President and Chief Executive Officer may from time to time appoint and remove such additional officers and agents as may be deemed necessary. Such persons shall hold office for such period, have such authority, and perform such duties as provided in these By-Laws or as the President and Chief Executive Officer may from time to time prescribe. The Board of Directors or the President and Chief Executive Officer may from time to time authorize any officer to appoint and remove agents and employees and to prescribe their powers and duties.

        SECTION 4. Salaries.    Unless otherwise provided by resolution passed by a majority of the whole Board, the salaries of all officers elected by the Board of Directors shall be fixed by the Board of Directors.

        SECTION 5. Removal.    Except where otherwise expressly provided in a contract authorized by the Board of Directors, any officer may be removed, either with or without cause, by the vote of a majority of the Board at any regular or special meeting or, except in the case of an officer elected by the Board, by any superior officer upon whom the power of removal may be conferred by the Board or by these By-Laws.

        SECTION 6. Resignations.    Any officer elected by the Board of Directors may resign at any time by giving written notice to the President and Chief Executive Officer or the Secretary. Any other officer may resign at any time by giving written notice to the President and Chief Executive Officer. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

        SECTION 7. Vacancies.    A vacancy in any office because of death, resignation, removal or otherwise, shall be filled for the unexpired portion of the term in the manner provided in these By-Laws for regular election or appointment to such office.

        SECTION 8. President and Chief Executive Officer.    The President and Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general and overall charge of the business and affairs of the Corporation and of its officers. The President and Chief Executive Officer shall keep the Board of Directors appropriately informed on the business and affairs of the Corporation. The President and Chief Executive Officer shall enforce the observance of the By-Laws of the Corporation.

        SECTION 9. Executive and Senior Vice Presidents.    One or more Executive or Senior Vice Presidents shall, subject to the control of the President and Chief Executive Officer, have lead accountability for components or functions of the Corporation as and to the extent designated by the President and Chief Executive Officer. Each Executive or Senior Vice President shall keep the President and Chief Executive Officer appropriately informed on the business and affairs of the designated components or functions of the Corporation.

        SECTION 10. Vice Presidents.    The Vice Presidents shall perform such duties as may from time to time be assigned to them or any of them by the President and Chief Executive Officer.

        SECTION 11. Secretary.    The Secretary shall keep or cause to be kept in books provided for the purpose the minutes of the meetings of the shareowners, of the Board of Directors and of any committee constituted pursuant to Article IV of these By-Laws. The Secretary shall be custodian of the corporate seal and see that it is affixed to all documents as required and attest the same. The Secretary shall perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her.

10

        SECTION 12. Assistant Secretaries.    At the request of the Secretary, or in the Secretary's absence or disability, the Assistant Secretary designated by the Secretary shall perform all the duties of the Secretary and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them.

        SECTION 13. Treasurer.    The Treasurer shall have charge of and be responsible for the receipt, disbursement and safekeeping of all funds and securities of the Corporation. The Treasurer shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of these By-Laws. From time to time and whenever requested to do so, the Treasurer shall render statements of the condition of the finances of the Corporation to the Board of Directors. The Treasurer shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her.

        SECTION 14. Assistant Treasurers.    At the request of the Treasurer, or in the Treasurer's absence or disability, the Assistant Treasurer designated by the Treasurer shall perform all the duties of the Treasurer and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them.

        SECTION 15. Certain Agreements.    The Board of Directors shall have power to authorize or direct the proper officers of the Corporation, on behalf of the Corporation, to enter into valid and binding agreements in respect of employment, incentive or deferred compensation, stock options, and similar or related matters, notwithstanding the fact that a person with whom the Corporation so contracts may be a member of its Board of Directors. Any such agreement may validly and lawfully bind the Corporation for a term of more than one year, in accordance with its terms, notwithstanding the fact that one of the elements of any such agreement may involve the employment by the Corporation of an officer, as such, for such term.

ARTICLE VI.
Authorizations

        SECTION 1. Contracts.    The Board of Directors, except as in these By-Laws otherwise provided, may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

        SECTION 2. Loans.    No loan shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name, unless authorized by the Board of Directors.

        SECTION 3. Checks, Drafts, Etc.    All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined in accordance with authorization of the Board of Directors.

        SECTION 4. Deposits.    All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may from time to time designate, or as may be designated by any officer or officers of the Corporation to whom such power may be delegated by the Board, and for the purpose of such deposit the officers and employees who have been authorized to do so in accordance with the determinations of the Board may endorse, assign and deliver checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation.

        SECTION 5. Proxies.    Except as otherwise provided in these By-Laws or in the Certificate of Incorporation, and unless otherwise provided by resolution of the Board of Directors, the President and Chief Executive Officer or any other officer may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareowner or otherwise in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporations, or to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such vote or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as such officer may deem necessary or proper in the premises.

11

ARTICLE VII.
Shares and Their Transfer

        SECTION 1. Shares of Stock.    Certificates for shares of the stock of the Corporation shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issue, by class and series, and shall be signed by the President and Chief Executive Officer or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation. If a share certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a share certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. The Board of Directors may by resolution or resolutions provide that some or all of any or all classes or series of the shares of stock of the Corporation shall be uncertificated shares. Notwithstanding the preceding sentence, every holder of uncertificated shares, upon request, shall be entitled to receive from the Corporation a certificate representing the number of shares registered in such shareowner's name on the books of the Corporation.

        SECTION 2. Record Ownership.    A record of the name and address of each holder of the shares of the Corporation, the number of shares held by such shareowner, the number or numbers of any share certificate or certificates issued to such shareowner and the number of shares represented thereby, and the date of issuance of the shares held by such shareowner shall be made on the Corporation's books. The Corporation shall be entitled to treat the holder of record of any share of stock (including any holder registered in a book-entry or direct registration system maintained by the Corporation or a transfer agent or a registrar designated by the Board of Directors) as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by law.

        SECTION 3. Transfer of Stock.    Shares of stock shall be transferable on the books of the Corporation by the holder of record of such stock in person or by such person's attorney or other duly constituted representative, pursuant to applicable law and such rules and regulations as the Board of Directors shall from time to time prescribe. Any shares represented by a certificate shall be transferable upon surrender of such certificate with an assignment endorsed thereon or attached thereto duly executed and with such guarantee of signature as the Corporation may reasonably require.

        SECTION 4. Lost, Stolen and Destroyed Certificates.    The Corporation may issue a new certificate of stock or may register uncertificated shares, if then authorized by the Board of Directors, in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate, the issuance of such new certificate or the registration of such uncertificated shares.

        SECTION 5. Transfer Agent and Registrar; Regulations.    The Corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where the shares of the stock of the Corporation shall be directly transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the stock of the Corporation, in respect of which a registrar and transfer agent shall have been designated, shall be valid unless countersigned by such transfer agent and registered by such registrar. The Board of Directors may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of shares of stock of the Corporation and concerning the registration of pledges of uncertificated shares.

        SECTION 6. Fixing Record Date.    For the purpose of determining the shareowners entitled to notice of or to vote at any meeting of shareowners or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed (1) the record date for determining

12

shareowners entitled to notice of or to vote at a meeting of shareowners shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining shareowners for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of shareowners of record entitled to notice of or to vote at a meeting of shareowners shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

        SECTION 7. Examination of Books by Shareowners.    The Board of Directors shall, subject to the laws of the State of Delaware, have power to determine from time to time, whether and to what extent and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the shareowners; and no shareowner shall have any right to inspect any book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the shareowners of the Corporation.

ARTICLE VIII.
Notice

SECTION 1. Manner of Giving Written Notice.

        (A)  Any notice in writing required by law or by these By-Laws to be given to any person shall be effective if delivered personally, given by depositing the same in the post office or letter box in a postpaid envelope addressed to such person at such address as appears on the books of the Corporation or given by a form of electronic transmission consented to by such person to whom the notice is to be given. Any such consent shall be deemed revoked if (i) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

        (B)  Notice by mail shall be deemed to be given at the time when the same shall be mailed and notice by other means shall be deemed given when actually delivered (and in the case of notice transmitted by a form of electronic transmission, such notice shall be deemed given (i) if by facsimile telecommunication, when directed to a number at which the shareowner has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the shareowner has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the shareowner of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the shareowner).

        SECTION 2. Waiver of Notice.    Whenever any notice is required to be given to any person, a waiver thereof by such person in writing or transmitted by electronic means (and authenticated if and as required by law), whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE IX.
Seal

        The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal" and "Delaware".

ARTICLE X.
Fiscal Year

        The fiscal year of the Corporation shall end on September 30 in each year.

13

APPENDIX
Procedures for Submission and
Determination of Claims for Indemnification
Pursuant to Article III, Section 13 of the By-Laws.

        SECTION 1. Purpose.    The Procedures for Submission and Determination of Claims for Indemnification Pursuant to Article III, Section 13 of the By-Laws (the "Procedures") are to implement the provisions of Article III, Section 13 of the By-Laws of the Corporation (the "By-Laws") in compliance with the requirement of subsection (H) thereof.

        SECTION 2. Definitions.    For purposes of these Procedures:

        (A)  All terms that are defined in Article III, Section 13 of the By-Laws shall have the meanings ascribed to them therein when used in these Procedures unless otherwise defined herein.

        (B)  "Expenses" include all reasonable attorneys' fees, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in, a Proceeding; and shall also include such retainers as counsel may reasonably require in advance of undertaking the representation of an Indemnitee in a Proceeding.

        (C)  "Indemnitee" includes any person who was or is, or is threatened to be made, a witness in or a party to any Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or any of its majority-owned subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee or agent (except in each of the foregoing situations to the extent any agreement, arrangement or understanding of agency contains provisions that supersede or abrogate indemnification under Article III, Section 13 of the By-Laws) of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise.

        (D)  "Proceeding" includes any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee unless the Board of Directors shall have authorized the commencement thereof.

SECTION 3. Submission and Determination of Claims.

        (A)  To obtain indemnification or advancement of Expenses under Article III, Section 13 of the By-Laws, an Indemnitee shall submit to the Secretary of the Corporation a written request therefor, including therein or therewith such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to permit a determination as to whether and what extent the Indemnitee is entitled to indemnification or advancement of Expenses, as the case may be. The Secretary shall, promptly upon receipt of a request for indemnification, advise the Board of Directors (if the Indemnitee is a present or former director or officer of the Corporation) or the officer of the Corporation authorized to make the determination as to whether an Indemnitee is entitled to indemnification (if the Indemnitee is not a present or former director or officer of the Corporation) thereof in writing if a determination in accordance with Article III, Section 13(E) of the By-Laws is required.

        (B)  Upon written request by an Indemnitee for indemnification pursuant to Section 3(A) hereof, a determination with respect to the Indemnitee's entitlement thereto in the specific case, if required by the By-Laws, shall be made in accordance with Article III, Section 13(E) of the By-Laws, and, if it is so determined that the Indemnitee is entitled to indemnification, payment to the Indemnitee shall be made within ten days after such determination. The Indemnitee shall cooperate with the person, persons or entity making such determination, with respect to the Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination.

        (C)  If entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the By-Laws, the Independent Counsel shall be selected as provided in this Section 3(C). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Corporation shall give written notice to the Indemnitee advising the Indemnitee of the identity of the

14

Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors, in which event the immediately preceding sentence shall apply), and the Indemnitee shall give written notice to the Corporation advising it of the identity of the Independent Counsel so selected. In either event, the Indemnitee or the Corporation, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the Corporation or to the Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Article III, Section 13 of the By-Laws, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty days after the next regularly scheduled Board of Directors meeting following submission by the Indemnitee of a written request for indemnification pursuant to Section 3(A) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel under Article III, Section 13(E) of the By-Laws. The Corporation shall pay any and all reasonable fees and expenses (including without limitation any advance retainers reasonably required by counsel) of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Article III, Section 13(E) of the By-Laws, and the Corporation shall pay all reasonable fees and expenses (including without limitation any advance retainers reasonably required by counsel) incident to the procedures of Article III, Section 13(E) of the By-Laws and this Section 3(C), regardless of the manner in which Independent Counsel was selected or appointed. Upon the delivery of its opinion pursuant to Article III, Section 13 of the By-Laws or, if earlier, the due commencement of any judicial proceeding or arbitration pursuant to Section 4(A)(3) of these Procedures, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

        (D)  If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification under the By-Laws, the person, persons or entity making such determination shall presume that an Indemnitee is entitled to indemnification under the By-Laws if the Indemnitee has submitted a request for indemnification in accordance with Section 3(A) hereof, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.

SECTION 4. Review and Enforcement of Determination.

        (A)  In the event that (1) advancement of Expenses is not timely made pursuant to Article III, Section 13(G) of the By-Laws, (2) payment of indemnification is not made pursuant to Article III, Section 13(C) or (D) of the By-Laws within ten days after receipt by the Corporation of written request therefor, (3) a determination is made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is not entitled to indemnification under the By-Laws, (4) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Article III, Section 13(E) of the By-Laws and such determination shall not have been made and delivered in a written opinion within ninety days after receipt by the Corporation of the written request for indemnification, or (5) payment of indemnification is not made within ten days after a determination has been made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is entitled to indemnification or within ten days after such determination is deemed to have been made pursuant to Article III, Section 13(F) of the By-Laws, the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of the Indemnitee's entitlement to such indemnification or advancement of Expenses. Alternatively, the Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one year following the date on which the Indemnitee first has the right to commence such proceeding pursuant to this Section 4(A). The Corporation shall not oppose the Indemnitee's right to seek any such adjudication or award in arbitration.

        (B)  In the event that a determination shall have been made pursuant to Article III, Section 13(E) of the By-Laws that an Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced

15

pursuant to this Section 4 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and the Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, the Corporation shall have the burden of proving in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

        (C)  If a determination shall have been made or deemed to have been made pursuant to Article III, Section 13(E) or (F) of the By-Laws that an Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 4, absent (1) a misstatement or omission of a material fact in connection with the Indemnitee's request for indemnification, or (2) a prohibition of such indemnification under applicable law.

        (D)  The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the procedures and presumptions of these Procedures are not valid, binding and enforceable, and shall stipulate in any such judicial proceeding or arbitration that the Corporation is bound by all the provisions of these Procedures.

        (E)  In the event that an Indemnitee, pursuant to this Section 4, seeks to enforce the Indemnitee's rights under, or to recover damages for breach of, Article III, Section 13 of the By-Laws or these Procedures in a judicial proceeding or arbitration, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses (of the types described in the definition of Expenses in Section 2 of these Procedures) actually and reasonably incurred in such judicial proceeding or arbitration, but only if the Indemnitee prevails therein. If it shall be determined in such judicial proceeding or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by the Indemnitee in connection with such judicial proceeding or arbitration shall be appropriately prorated.

        SECTION 5. Amendments.    These Procedures may be amended at any time and from time to time in the same manner as any by-law of the Corporation in accordance with the Certificate of Incorporation; provided, however, that notwithstanding any amendment, alteration or repeal of these Procedures or any provision hereof, any Indemnitee shall be entitled to utilize these Procedures with respect to any claim for indemnification arising out of any action taken or omitted prior to such amendment, alteration or repeal except to the extent otherwise required by law.

16

QuickLinks

Exhibit 3-b-1

EX-10.P3

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10-p-3

For Persons With a Change of Control Agreement

ROCKWELL COLLINS, INC.

PERFORMANCE UNIT AGREEMENT

                             , 2002

Target Payment:
$                  

(PERSONAL AND CONFIDENTIAL)

(Name and Title)

Dear (Salutation):

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries ("Rockwell Collins" or the "Company"), you have been granted a performance unit award payable in a lump sum cash amount under the Rockwell Collins 2001 Long-Term Incentives Plan (the "Plan"). Any payout of your performance unit is based on the achievement by Rockwell Collins of the goals for Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales for its fiscal years of 2003 through 2005 (the "Performance Period") as set forth in the matrix attached as Exhibit A (the "Matrix"). The terms and conditions of your award are as set forth in more detail below.

        1.    Confirmation of Award.    This performance unit agreement (this "Agreement") confirms your award in accordance with the terms as set forth herein. There is no need on your part to sign or return any documentation to confirm your acceptance of this award. If you send any correspondence to the Company in connection with this Agreement, please direct it to Rockwell Collins, 400 Collins Road, N.E., M/S 124-323, Cedar Rapids, Iowa 52498, Attention: Corporate Secretary.

        2.    Amount of Cash Payable Pursuant to Award.    Subject to the provisions of paragraphs 5 through 11, the amount of cash payable to you pursuant to your award shall be determined as follows:

        (a)  The percentage of target award earned will be the percentage found at the intersection in the Matrix of the final results achieved for Annual Sales Growth Rate (and required Cumulative Sales) and for Return on Sales for the Performance Period (as determined pursuant to paragraph 3).

        (b)  If the final results achieved for the Performance Period fall between the levels of performance specified in the Matrix, the percentage of target award payable will be interpolated consistent with the range in which the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales falls as conclusively determined by the Committee (as defined below).

        (c)  No cash shall be payable for the Performance Period if the Annual Sales Growth (and required Cumulative Sales) or Return on Sales (as determined pursuant to paragraph 3) for the Performance Period is less than the minimum level for the Performance Period as indicated in the Matrix.

        (d)  The cash payment as determined for achievement against goals for annual Sales Growth Rate (and required Cumulative Sales) and for Return on Sales for the Performance Period will be further adjusted for the Company's Total Return to Shareowner performance (as determined pursuant to paragraph 3) relative to the 10 peer companies listed on Exhibit B. If relative performance is among the top 3 of the peer companies, the cash payment will be adjusted upward by 20%. If relative performance is among the middle 4 of the peer companies, there will be no adjustment to the cash payment. If relative performance is among the lowest 3 of the peer companies, the cash payment will be reduced by 20%.

        Subject to the provisions of paragraphs 5 through 11, the cash payable to you pursuant to this performance award with respect to the Performance Period shall be paid in a lump sum, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountants' letter for the Performance Period pursuant to paragraph 12.

        3.    Definitions and Determination of Financial Performance.    "Annual Sales Growth Rate" means, for the Performance Period, the Company's cumulative average growth rate for the three year period. This is determined by comparing FY2002 Sales to the FY2005 Sales and adjusting for annual compounding. "Cumulative Sales" means, for the Performance Period, the total Sales as reported by the Company in its audited financial statements. "Return on Sales" means, for the Performance Period, the rate determined by dividing Net Income by Sales. Both

Net Income and Sales will be the three year cumulative values as reported in the Company's audited financial statements after adjusting for extraordinary income and expense items. The foregoing definitions and measures will exclude major acquisitions and divestitures, however, they will include post-acquisition growth.

Total Return to Shareowners is measured by adding (i) the total stock price growth for the Performance Period, measured by comparing the average stock price during October 2003 to the average stock price during September 2005, and (ii) dividends paid, measured as if reinvested in stock at the payment date. In the event of substantial changes causing an inability to calculate Total Return to Shareowners for one or more of the peer companies listed on Exhibit B (or in the event of spinoffs or similar transactions causing a peer company to split into two or more peer companies), the list of peer companies shall be adjusted accordingly to take such events into account and the new group of peer companies shall for purposes of paragraph 2(d) be divided into a top, middle and lowest third; provided, however, that if such new group of peer companies is not equally divisible into three parts, then the excess number of peer companies shall be assigned to the middle third.

In connection with the receipt of the accountants' letter for the Performance Period pursuant to paragraph 12, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the "Committee" and which, on the date hereof, is the Compensation Committee) shall determine the Annual Sales Growth Rate, Cumulative Sales, Return on Sales and the Total Return to Shareowners results and ranking for the Performance Period after taking into account any adjustment as contemplated in paragraph 9.

        4.    Transferability of Award.    This performance award shall not be transferable by you except by will or by the laws of descent and distribution.

        5.    Termination of Employment for Death, Disability, Retirement or Elimination of Position.    If your employment by the Company terminates during the Performance Period by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will be entitled to receive as soon as practicable after the end of the Performance Period and after receipt of the accountants' letter for the Performance Period pursuant to paragraph 12 a payment of cash, if any, that would otherwise be payable pursuant to paragraph 2, but such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.

        6.    Termination of Employment for Other Reasons.    Except as otherwise provided in paragraphs 8 through 11, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will not be entitled to any payment of cash pursuant to paragraph 2 with respect to the Performance Period.

        7.    Forfeiture of Award for Detrimental Activity.    If you engage in detrimental activity (as defined in this paragraph 7) at any time (whether before or after termination of your employment), you will not be entitled to any payment of cash hereunder and you will forfeit all rights with respect to the performance award under this Agreement. For purposes of this paragraph 7, "detrimental activity" shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company. Any such determination of the Committee shall be final and binding for all purposes. Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 7 on or after the date of a Change of Control (as defined in the Plan) unless the "Cause" standard set forth in paragraph 10(b) is satisfied.

        8.    Transfer of Employment; Leave of Absence.    For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or vice versa, or from one subsidiary of Rockwell Collins to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence.

        9.    Adjustments.    (a) Adjustments (which may be increases or decreases) may be made by the Committee in the Annual Sales Growth (and required Cumulative Sales) and Return on Sales as well as in the Total Return to Shareowners and list of peer companies, to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances, including, without limitation, acquisitions or divestitures by or other material changes in the Company or peer companies, provided that no adjustment shall be made which would result in an increase in your compensation if your compensation is subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code, as amended, or any successor provision, for the year with respect to which the adjustment occurs.

2

        (b)  Subject to the provisions of paragraph 10, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 9 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

        10.    Change of Control.    (a) Notwithstanding any other provision, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 10(b)) or (ii) by you for Good Reason (as defined in paragraph 10(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated as if the Performance Period hereunder had been completed or satisfied and as if the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowner for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the cash that is equal to your 360% of your "Target Payment" set forth on the first page of this letter.

        (b)  For purposes of paragraphs 7 and 10(a), termination for "Cause" shall mean:

        (i)    your willful and continued failure to perform substantially your duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that you have not substantially performed your duties, or

        (ii)  your willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

        For purposes of this provision, no act or failure to act, on the part of you, shall be considered "willful" unless it is done, or omitted to be done, by you in bad faith or without reasonable belief that your action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. The cessation of employment of you shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

        (c)  For purposes of this Agreement, "Good Reason" shall mean:

        (i)    the assignment to you of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities generally in effect prior to any Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

        (ii)  any failure by the Company to maintain your compensation at a level consistent with that generally in effect prior to any Change of Control, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

        (iii)  the Company's requiring you to be based at any office or location other than as provided on the day preceding the Change of Control hereof or the Company's requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Change of Control;

        (iv)  any purported termination by the Company of your employment otherwise than for Cause; or

        (v)  any failure by the Company to comply with and satisfy Section 16(b) of this Agreement.

        For purposes of this paragraph 10(c), any good faith determination of "Good Reason" made by you shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by you for any reason during the 30-day period immediately following the first anniversary of the Change of Control shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

3

        (d)  Notwithstanding any other provision, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales for the Company for the Performance Period shall be deemed to be not less than the 100% level set forth in the attached Matrix and the Company's Total Return to Shareowners shall be deemed to rank among the top 3 of the peer companies.

        11.    Divestiture.    In the event that your principal employer is a subsidiary of Rockwell Collins that ceases to be such, then your employment shall be deemed to be terminated for all purposes as of the date on which your principal employer ceases to be a subsidiary of Rockwell Collins (herein called the Divestiture Date) and your award shall become nonforfeitable and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowner for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the cash that is equal to 100% of your "Target Payment" set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.

        12.    Accountants' Letter.    As soon as practicable after the end of the Performance Period, the Committee shall obtain a letter or other communication from the Company's Senior Vice President and Chief Financial Officer or the Vice President, Finance and Treasurer, or one of their successors or designees, to the effect that such person has reviewed the determination for the Performance Period of the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowners results and ranking of the Company and that in such person's opinion such determinations have been made in accordance with paragraph 3.

        13.    Employment Rights.    You shall not have any rights of continued employment with the Company as a result of this award, other than the payment rights expressly contemplated herein.

        14.    Tax Withholding.    Upon any payment to you of cash hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you. The Company may withhold such required amounts from your payments.

        15.    Governing Law.    This Agreement and the award provided for hereunder shall be governed by and construed in accordance with the laws of the State of Iowa.

        16.    Successors.

        (a)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

        (b)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

        17.    Entire Agreement.    This Agreement and the other terms applicable to performance units granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the performance units, and there are no representations, promises, covenants, agreements or understandings with respect to the performance units other than those expressly set forth in this Agreement and the Plan.

Sincerely yours,
ROCKWELL COLLINS, INC.
By:	Gary R. Chadick, Senior Vice President, General Counsel and Secretary

4

QuickLinks

Exhibit 10-p-3

EX-10.P4

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10-p-4

ROCKWELL COLLINS, INC.

PERFORMANCE UNIT AGREEMENT

                             , 2002

Target Payment:
$                  

(PERSONAL AND CONFIDENTIAL)

(Name and Title)

Dear (Salutation):

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries ("Rockwell Collins" or the "Company"), you have been granted a performance unit award payable in a lump sum cash amount under the Rockwell Collins 2001 Long-Term Incentives Plan (the "Plan"). Any payout of your performance unit is based on the achievement by Rockwell Collins of the goals for Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales for its fiscal years of 2003 through 2005 (the "Performance Period") as set forth in the matrix attached as Exhibit A (the "Matrix"). The terms and conditions of your award are as set forth in more detail below.

        1.    Confirmation of Award.    This performance unit agreement (this "Agreement") confirms your award in accordance with the terms as set forth herein. There is no need on your part to sign or return any documentation to confirm your acceptance of this award. If you send any correspondence to the Company in connection with this Agreement, please direct it to Rockwell Collins, 400 Collins Road, N.E., M/S 124-323, Cedar Rapids, Iowa 52498, Attention: Corporate Secretary.

        2.    Amount of Cash Payable Pursuant to Award.    Subject to the provisions of paragraphs 5 through 11, the amount of cash payable to you pursuant to your award shall be determined as follows:

        (a)  The percentage of target award earned will be the percentage found at the intersection in the Matrix of the final results achieved for Annual Sales Growth Rate (and required Cumulative Sales) and for Return on Sales for the Performance Period (as determined pursuant to paragraph 3).

        (b)  If the final results achieved for the Performance Period fall between the levels of performance specified in the Matrix, the percentage of target award payable will be interpolated consistent with the range in which the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales falls as conclusively determined by the Committee (as defined below).

        (c)  No cash shall be payable for the Performance Period if the Annual Sales Growth (and required Cumulative Sales) or Return on Sales (as determined pursuant to paragraph 3) for the Performance Period is less than the minimum level for the Performance Period as indicated in the Matrix.

        (d)  The cash payment as determined for achievement against goals for annual Sales Growth Rate (and required Cumulative Sales) and for Return on Sales for the Performance Period will be further adjusted for the Company's Total Return to Shareowner performance (as determined pursuant to paragraph 3) relative to the 10 peer companies listed on Exhibit B. If relative performance is among the top 3 of the peer companies, the cash payment will be adjusted upward by 20%. If relative performance is among the middle 4 of the peer companies, there will be no adjustment to the cash payment. If relative performance is among the lowest 3 of the peer companies, the cash payment will be reduced by 20%.

        Subject to the provisions of paragraphs 5 through 11, the cash payable to you pursuant to this performance award with respect to the Performance Period shall be paid in a lump sum, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountants' letter for the Performance Period pursuant to paragraph 12.

        3.    Definitions and Determination of Financial Performance.    "Annual Sales Growth Rate" means, for the Performance Period, the Company's cumulative average growth rate for the three year period. This is determined by comparing FY2002 Sales to the FY2005 Sales and adjusting for annual compounding. "Cumulative Sales" means, for the Performance Period, the total Sales as reported by the Company in its audited financial statements. "Return on Sales" means, for the Performance Period, the rate determined by dividing Net Income by Sales. Both Net Income and Sales will be the three year cumulative values as reported in the Company's audited financial

statements after adjusting for extraordinary income and expense items. The foregoing definitions and measures will exclude major acquisitions and divestitures, however, they will include post-acquisition growth.

Total Return to Shareowners is measured by adding (i) the total stock price growth for the Performance Period, measured by comparing the average stock price during October 2003 to the average stock price during September 2005, and (ii) dividends paid measured as if reinvested in stock at the payment date. In the event of substantial changes causing an inability to calculate Total Return to Shareowners for one or more of the peer companies listed on Exhibit B (or in the event of spinoffs or similar transactions causing a peer company to split into two or more peer companies), the list of peer companies shall be adjusted accordingly to take such events into account and the new group of peer companies shall for purposes of paragraph 2(d) be divided into a top, middle and lowest third; provided, however, that if such new group of peer companies is not equally divisible into three parts, then the excess number of peer companies shall be assigned to the middle third.

In connection with the receipt of the accountants' letter for the Performance Period pursuant to paragraph 12, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the "Committee" and which, on the date hereof, is the Compensation Committee) shall determine the Annual Sales Growth Rate, Cumulative Sales, Return on Sales and the Total Return to Shareowners results and ranking for the Performance Period after taking into account any adjustment as contemplated in paragraph 9.

        4.    Transferability of Award.    This performance award shall not be transferable by you except by will or by the laws of descent and distribution.

        5.    Termination of Employment for Death, Disability, Retirement or Elimination of Position.    If your employment by the Company terminates during the Performance Period by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will be entitled to receive as soon as practicable after the end of the Performance Period and after receipt of the accountants' letter for the Performance Period pursuant to paragraph 12 a payment of cash, if any, that would otherwise be payable pursuant to paragraph 2, but such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.

        6.    Termination of Employment for Other Reasons.    Except as otherwise provided in paragraphs 8 through 11, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, retirement under a retirement plan of the Company or the elimination of your position, you will not be entitled to any payment of cash pursuant to paragraph 2 with respect to the Performance Period.

        7.    Forfeiture of Award for Detrimental Activity.    If you engage in detrimental activity (as defined in this paragraph 7) at any time (whether before or after termination of your employment), you will not be entitled to any payment of cash hereunder and you will forfeit all rights with respect to the performance award under this Agreement. For purposes of this paragraph 7, "detrimental activity" shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company. Any such determination of the Committee shall be final and binding for all purposes. Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 7 on or after the date of a Change of Control (as defined in the Plan) unless the "Cause" standard set forth in paragraph 10(b) is satisfied.

        8.    Transfer of Employment; Leave of Absence.    For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or vice versa, or from one subsidiary of Rockwell Collins to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence.

        9.    Adjustments.    (a) Adjustments (which may be increases or decreases) may be made by the Committee in the Annual Sales Growth (and required Cumulative Sales) and Return on Sales as well as in the Total Return to Shareowners and list of peer companies, to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances, including, without limitation, acquisitions or divestitures by or other material changes in the Company or peer companies, provided that no adjustment shall be made which would result in an increase in your compensation if your compensation is subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code, as amended, or any successor provision, for the year with respect to which the adjustment occurs.

2

        (b)  Subject to the provisions of paragraph 10, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 9 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

        10.    Change of Control.    (a) Notwithstanding any other provision, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 10(b)) or (ii) by you for Good Reason (as defined in paragraph 10(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated as if the Performance Period hereunder had been completed or satisfied and as if the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowner for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the cash that is equal to your 360% of your "Target Payment" set forth on the first page of this letter.

        (b)  For purposes of paragraphs 7 and 10(a), termination for "Cause" shall mean:

        (i)    your willful and continued failure to perform substantially your duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Company which specifically identifies the manner in which the Company believes that you have not substantially performed your duties, or

        (ii)  your willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

        For purposes of this provision, no act or failure to act, on the part of you, shall be considered "willful" unless it is done, or omitted to be done, by you in bad faith or without reasonable belief that your action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company.

        (c)  For purposes of this Agreement, "Good Reason" shall mean:

        (i)    the assignment to you of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities generally in effect prior to any Change of Control, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

        (ii)  any failure by the Company to maintain your compensation at a level consistent with that generally in effect prior to any Change of Control, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

        (iii)  the Company's requiring you to be based at any office or location other than as provided on the day preceding the Change of Control hereof or the Company's requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Change of Control;

        (iv)  any purported termination by the Company of your employment otherwise than for Cause; or

        (v)  any failure by the Company to comply with and satisfy Section 16(b) of this Agreement.

        For purposes of this paragraph 10(c), any good faith determination of "Good Reason" made by you shall be conclusive.

        (d)  Notwithstanding any other provision, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales for the Company for the Performance Period shall be deemed to be not less than the 100% level set forth in the attached Matrix and the Company's Total Return to Shareowners shall be deemed to rank among the top 3 of the peer companies.

        11.    Divestiture.    In the event that your principal employer is a subsidiary of Rockwell Collins that ceases to be such, then your employment shall be deemed to be terminated for all purposes as of the date on which your principal employer ceases to be a subsidiary of Rockwell Collins (herein called the Divestiture Date) and your

3

award shall become nonforfeitable and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowner for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the cash that is equal to 100% of your "Target Payment" set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.

        12.    Accountants' Letter.    As soon as practicable after the end of the Performance Period, the Committee shall obtain a letter or other communication from the Company's Senior Vice President and Chief Financial Officer or the Vice President, Finance and Treasurer, or one of their successors or designees, to the effect that such person has reviewed the determination for the Performance Period of the Annual Sales Growth Rate (and required Cumulative Sales) and Return on Sales as well as Total Return to Shareowners results and ranking of the Company and that in such person's opinion such determinations have been made in accordance with paragraph 3.

        13.    Employment Rights.    You shall not have any rights of continued employment with the Company as a result of this award, other than the payment rights expressly contemplated herein.

        14.    Tax Withholding.    Upon any payment to you of cash hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you. The Company may withhold such required amounts from your payments.

        15.    Governing Law.    This Agreement and the award provided for hereunder shall be governed by and construed in accordance with the laws of the State of Iowa.

        16.    Successors.

        (a)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

        (b)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

        17.    Entire Agreement.    This Agreement and the other terms applicable to performance units granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the performance units, and there are no representations, promises, covenants, agreements or understandings with respect to the performance units other than those expressly set forth in this Agreement and the Plan.

Sincerely yours,
ROCKWELL COLLINS, INC.
By:	Gary R. Chadick, Senior Vice President, General Counsel and Secretary

4

QuickLinks

Exhibit 10-p-4

EX-12

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 12

ROCKWELL COLLINS, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED SEPTEMBER 30, 2002
(in millions, except ratio)

EARNINGS AVAILABLE FOR FIXED CHARGES:
	Income before income taxes		$	341
	Add fixed charges included in earnings:
		Interest expense		6
		Interest element of rentals		8
	Total earnings available for fixed charges		$	355
FIXED CHARGES:
	Fixed charges included in earnings		$	14
	Capitalized interest			—
		Total fixed charges	$	14
RATIO OF EARNINGS TO FIXED CHARGES(1)				25.4

(1)

In computing the ratio of earnings to fixed charges, earnings are defined as income before income taxes and accounting change, adjusted for income or loss attributable to minority interests in subsidiaries, undistributed earnings of less than majority owned subsidiaries, and fixed charges excluding capitalized interest. Fixed charges are defined as interest on borrowings (whether expensed or capitalized) and that portion of rental expense applicable to interest. Our ratio of earnings to combined fixed charges and preferred stock dividends for the period above are the same as our ratio of earnings to fixed charges because we had no shares of preferred stock outstanding for the period presented and currently have no shares of preferred stock outstanding.

QuickLinks

Exhibit 12

EX-13

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 13

Portions of the Rockwell Collins, Inc.—2002 Annual Report to Shareowners
incorporated by reference in our Form 10-K

Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto as well as our Annual Report on Form 10-K for the year ended September 30, 2002 filed with the Securities and Exchange Commission (SEC). The following discussion and analysis contains forward-looking statements and estimates that involve risks and uncertainties. Actual results could differ materially from these estimates. Factors that could cause or contribute to the differences in estimates include those discussed under "Cautionary Statement" below and under "Certain Business Risks" in our Annual Report on Form 10-K for the year ended September 30, 2002.

        Our fiscal year ends on September 30. For discussion purposes, all date references to years contained herein relate to our fiscal year ending September 30 unless otherwise stated.

Overview

        For many years, Rockwell Collins benefited from having a diversified and balanced business, serving both commercial and government markets. During our first full year as a public company, this balance was tested like never before. Following September 11, 2001, our Commercial Systems and Government Systems businesses diverged radically. The Commercial Systems marketplace reacted with a sudden and severe decline in demand. Our Government Systems business saw a surge in near term demand and a longer term outlook of continued growth. We acted quickly to address these changing market conditions by redeploying resources where possible and by making difficult decisions where necessary, which helped to preserve the financial strength and growth prospects of our company. The actions included a comprehensive restructuring program, along with other cost saving and strategic initiatives, to better align our resources and cost structure with this new environment. Our company and employees responded well to the challenges of this new environment and delivered financial results that met the goals outlined to shareowners at the beginning of 2002:

•

We achieved sales of $2.5 billion in 2002. Weakness in the commercial aerospace market in the wake of September 11, 2001 drove a 21 percent decline in sales in our Commercial Systems business. Despite the weak market conditions in our largest business, our overall sales decreased only 12 percent in 2002 due to our balanced mix of products that includes a well-positioned defense business. Strong performance by our Government Systems business helped to lessen the impact of these events with sales for this business increasing 4 percent in 2002, resulting from acquisition-related volume and higher defense spending.



•

We delivered earnings per share of $1.28 in 2002. Pre-tax cost savings of approximately $200 million related to our comprehensive restructuring program and other cost reduction initiatives helped to partially offset the decrease in operating earnings and related margins in our Commercial Systems business resulting from the significant decline in sales volume.



•

We generated free cash flow of $397 million in 2002. Our focus on working capital management yielded a company record for free cash flow. Our ability to generate cash flow, combined with our low debt-to-total capital ratio of 12 percent, affords us the flexibility to make strategic investments, and to return value to our shareowners through dividends and share repurchases. We made approximately $200 million of strategic acquisitions and investments in 2002, including Airshow, Inc. (Airshow) and Communications Solutions, Inc. (ComSol).



•

We continued to invest in research and development in 2002. We believe that investments in research and development are key to positioning the company for future growth. We remained committed to these investments in 2002 through company and customer-funded research and development expenditures of $484 million, or 19.4 percent of sales.

        We believe Rockwell Collins has emerged from the challenges of 2002 as a stronger, leaner company that has proven its ability to both react quickly to changing business conditions and to execute its business plans. In addition, we believe our strategy of balance between commercial and government business was validated in 2002, yielding stability in an unstable business environment.

1

Business Conditions

Commercial Systems

        Our Commercial Systems business is a supplier of aviation electronics to customers located throughout the world. The customer base is comprised of manufacturers of commercial air transport aircraft, manufacturers of business and regional aircraft, commercial airlines, and owners of business and regional jets. Key indicators of the near and long-term performance of our Commercial Systems business include commercial airline traffic as measured by revenue passenger miles and load factors, the financial condition of airlines worldwide, as well as corporate profits.

        During 2002, the commercial aerospace industry in the United States experienced a dramatic downturn, exacerbated by the events of September 11, 2001. The air transport market was affected directly as passenger traffic declined significantly over the past year. Demand for our products decreased as airlines' flight schedules were reduced, the production of new aircraft declined, the number of idle aircraft increased, and the financial condition of many of the U.S. commercial airlines deteriorated. The demand for in-flight entertainment products, particularly from our U.S. customers, was hardest hit due to the discretionary nature of these products. In addition, the weakness in the general economy resulted in reduced corporate profits and demand for business aircraft. The commercial air transport markets outside the U.S. were less affected by these events, with commercial airlines in other countries performing relatively well, particularly in Asia and Europe.

        Looking forward, we believe that the air transport market will recover gradually over the next several years. Air travel has been the transportation mode of choice over the past few decades, and this trend will inevitably continue over the longer term. Increasing flight schedules and the number of active aircraft will drive higher activity for aircraft maintenance and spare parts. The financial condition of commercial airlines in the U.S. should improve as air travel increases and capacity utilization and yields improve. This will first lead to higher retrofit activity in the aftermarket for technology upgrades driven by the need to improve reliability and safety. Further strengthening of the commercial aerospace market and the economy as a whole will drive orders for new aircraft and demand for in-flight entertainment products.

Government Systems

        Our Government Systems business supplies defense electronic equipment to all branches of the U.S. Department of Defense (DoD), the U.S. Coast Guard, Ministries of Defense throughout the world and manufacturers of military aircraft and helicopters. Key indicators of near and long-term performance of our Government Systems business include the amount and prioritization of defense spending by the U.S. and other foreign governments which are generally based upon the underlying political landscape, security environment, and budgetary considerations.

        During the 1990's, defense budgets, both in the U.S. and abroad, were relatively flat. While international defense spending is not anticipated to grow substantially over the next three to five years, expenditures by the DoD are forecasted to increase significantly in the wake of September 11, 2001, as the U.S. wages its war on terrorism, upgrades its aging equipment, and invests in homeland security. In addition, an increasing amount of the U.S. defense budget is being allocated to increase capabilities in such areas as precision guided munitions, situational awareness, signals intelligence, surveillance, and other communications equipment which play to the strengths of Rockwell Collins. The product offerings of our Government Systems business are well positioned to meet these emerging needs of the U.S. and foreign governments. Recent contract wins for Cluster One of the Joint Tactical Radio Systems (JTRS) and the Defense Advanced GPS Receiver (DAGR) first article phase, as well as continuing programs such as the KC-135 Global Air Traffic Management (GATM) upgrade, validate the strength of our product offerings and position Rockwell Collins favorably in subsequent phases of these programs. In addition, we have strong positions on all of the next generation aircraft programs, including the F-15, F-18, F-22 and Joint Strike Fighter. As a result of these and other contract wins, we believe our Government Systems business is positioned for continued growth.

Outlook for 2003

        Based upon the assumptions outlined below, we currently anticipate the following financial results for 2003:

•

Sales of approximately $2.6 billion. Sales in our Commercial Systems business are expected to decline approximately 2 percent and represent 51 percent of total sales. Our Commercial Systems sales projection assumes new aircraft production at Boeing and Airbus will be approximately 550 in the aggregate.

2

Aftermarket sales in our air transport avionics product line are expected to increase 10 percent due to strengthening service and support as well as retrofit activity. Continued weakness in the in-flight entertainment (IFE) market is expected to result in a decline of 25 percent in IFE sales. Sales to business and regional jet manufacturers are forecasted to increase 10 percent as higher regional jet build rates and our recent Airshow acquisition more than offset anticipated declines in business jet build rates. Aftermarket sales in the business and regional jet market are also expected to increase 10 percent as a result of the Airshow acquisition and higher service and support activity. Sales in our Government Systems business are forecasted to increase 13 percent and represent 49 percent of total sales. We anticipate significant growth in our integrated applications product line due to the KC-135 retrofit program entering into initial production along with several C-130 and helicopter programs. We also expect continued sales growth for our communication, navigation, and display product lines in several next generation aircraft programs such as the Joint Strike Fighter, F-22 and F-18.

•

Earnings per share of $1.33 to $1.38. Our earnings per share estimate is based upon our projected sales, anticipated savings resulting from our comprehensive restructuring program carried out in 2002, and our continued focus on streamlining business processes within our organization. Our projection assumes operating margins in our Commercial Systems business will improve to approximately 14 to 15 percent. In addition, we anticipate continued strong operating margin performance in our Government Systems business in the range of 16 to 17 percent.



•

Free Cash Flow of $225 to $275 million. Our projection is dependent on achieving our earnings target as well as maintaining current levels of working capital and achieving our capital spending projections. We define free cash flow as cash provided by operating activities and dispositions of property, reduced by capital expenditures. Our strong free cash flow generation, combined with our borrowing capacity, is expected to meet future operating cash flow needs, capital expenditures, dividend payments, acquisitions and share repurchases for the foreseeable future.



•

Company and customer-funded research and development as a percentage of sales approximating 21 percent. We remain committed to our research and development investment activity, which is based on a strategy of technology and design solutions that serve multiple markets. Our internally funded research and development efforts continue to be leveraged and complemented by customer-funded engineering.

Results of Operations

        The following management discussion and analysis of results of operations is based upon reported financial results for 2002 and pro forma financial results for 2001 and 2000 and should be read in conjunction with our consolidated financial statements and the notes thereto. Pro forma financial information for 2001 and 2000 includes adjustments necessary to present our results of operations as if the spin-off transaction and the adoption of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS 141), and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), had occurred on October 1, 1999. The financial information for periods prior to the spin-off are not necessarily indicative of what our financial condition, results of operations or cash flows would have been if we had been an independent public company during each of the periods presented.

        Pro forma adjustments related to the spin-off transaction include interest expense on $300 million of commercial paper borrowings used to fund the pre-distribution dividend to Rockwell and income and costs related to retirement benefit assets and obligations related to former Rockwell employees that were assumed by us in connection with the spin-off. Pro forma adjustments related to our adoption of SFAS 141 and SFAS 142 include adjustments to eliminate amortization expense related to goodwill, trademarks and tradenames with indefinite lives, as well as adjustments to eliminate amortization related to assembled workforce as this intangible asset has been reclassified to goodwill and is no longer being amortized.

3

Consolidated Financial Results

        The following table presents reported consolidated results of operations for the years ended September 30, 2002, 2001, and 2000 and pro forma consolidated results of operations for the years ended September 30, 2001 and 2000 (in millions, except per share amounts):

			Year Ended September 30
			Reported									Pro Forma
			2002			2001			2000			2001			2000
Product sales			$	2,238		$	2,562		$	2,280		$	2,562		$	2,280
Service sales				254			258			230			258			230
	Total sales			2,492			2,820			2,510			2,820			2,510
Costs, expenses and other:
	Product cost of sales			1,678			1,922			1,677			1,901			1,670
	Service cost of sales			185			186			168			186			168
	Selling, general, and administrative expenses			307			351			274			351			274
	Goodwill and asset impairment charges			—			149			—			149			—
	Interest expense			6			3			—			17			20
	Other income			(25	)		(15	)		(8	)		(20	)		(10	)
		Total costs, expenses and other		2,151			2,596			2,111			2,584			2,122
Income before income taxes				341			224			399			236			388
Income tax provision				(105	)		(85	)		(130	)		(87	)		(126	)
Net income			$	236		$	139		$	269		$	149		$	262
Earnings per share:
	Basic		$	1.29								$	0.81		$	1.40
	Diluted		$	1.28								$	0.80		$	1.38
Weighted average common shares:
	Basic			183.1									182.9			187.8
	Diluted			184.1									185.5			190.6

Consolidated Financial Results for 2002 Compared to Consolidated Pro Forma Financial Results for 2001

        Total sales declined $328 million, or 12 percent, to $2,492 million in 2002 compared to total sales of $2,820 million in 2001. Our Commercial Systems sales were down 21 percent from the prior year resulting primarily from weakness in the commercial aerospace market, partially offset by sales growth of 4 percent in our Government Systems business.

        Service sales were $254 million in 2002 compared with $258 million in 2001. Service sales increased to 10 percent of our total sales in 2002 as we maintained our service volume levels while overall sales were declining from the prior year. Service sales were 9 percent of our total sales in 2001. International sales, including U.S. export sales, were $890 million in 2002 compared to $948 million in 2001. The international commercial markets were impacted less severely by the commercial aircraft industry downturn than the U.S. commercial market. Overall, international sales were 36 percent of total sales in 2002 compared with 34 percent of total sales in 2001.

        Product cost of sales were $1,678 million in 2002, or 75.0 percent of product sales, compared with product cost of sales of $1,901 million in 2001, or 74.2 percent of product sales. Excluding 2001 restructuring charges of $27 million, product cost of sales were $1,874 million in 2001, or 73.1 percent of product sales. The increase in cost of sales as a percentage of sales in 2002 results primarily from less favorable sales mix based on volume declines in traditionally strong margin commercial avionics product lines. Service cost of sales were $185 million in 2002, or 72.8 percent of service sales, compared to service cost of sales of $186 million in 2001, or 72.1 percent of service sales.

        Selling, general and administrative costs were $307 million, or 12.3 percent of sales, in 2002 compared to $351 million, or 12.4 percent of sales, in 2001. Selling, general and administrative costs in 2001 contained $7 million of restructuring charges and $7 million of additional provisions for bad debts as a result of increased

4

collection risks associated with the commercial airline industry. Excluding these items, selling, general and administrative costs were $337 million in 2001, or 11.9 percent of sales.

        Interest expense was $6 million in 2002 compared to $17 million in 2001. The lower interest expense in 2002 is the result of lower interest rates as well as a reduction in our short-term debt.

        Other income generally includes royalty income, earnings and losses from corporate-level equity affiliates, gains and losses on the sale of property and businesses, and other miscellaneous income and expenses. Other income was $25 million in 2002 compared with $20 million in 2001. Other income in 2002 includes $12 million of net gains related to the favorable resolution of legal matters related to our in-flight entertainment acquisition in 1998 and the sale of a business several years ago, partially offset by reserves recorded for certain other legal matters. Other income also includes pension and other retirement benefit expenses associated with obligations related to certain former employees of Rockwell that were assumed in connection with the spin-off. Pension and other retirement benefit expense associated with these obligations increased $9 million in 2002.

        Net income in 2002 was $236 million, or 9.5 percent of sales, compared with net income of $149 million, or 5.3 percent of sales, in 2001. Net income in 2002 includes a net gain of $12 million ($7 million after taxes) related to certain legal matters and a favorable restructuring adjustment of $4 million ($2 million after taxes) related to lower severance costs resulting from higher than expected employee attrition. Net income in 2001 includes restructuring, goodwill and asset impairment charges of $183 million ($130 million after taxes). Excluding these items, net income in 2002 was $227 million, or 9.1 percent of sales compared with $279 million, or 9.9 percent of sales, in 2001. The decline in net income in 2002, excluding the special items, resulted from the lower sales volume and less favorable mix in our Commercial Systems business, partially offset by higher earnings in our Government Systems business, savings from our restructuring and other cost saving initiatives, lower interest expense, and a lower effective income tax rate.

        Earnings per share in 2002 was $1.28 compared to $0.80 in 2001. Excluding the effects of the special items, earnings per share in 2002 was $1.23 compared to $1.50 in 2001.

        On an as reported basis, net income in 2001 was $139 million after giving effect to $183 million ($130 million after taxes) of restructuring, goodwill and asset impairment charges. Excluding these items, net income on an as reported basis was $269 million in 2001.

Consolidated Pro Forma Financial Results for 2001 Compared to 2000

        Total sales increased $310 million, or 12 percent, to $2,820 million in 2001 compared to sales of $2,510 million in 2000. This increase resulted primarily from our acquisitions of the Sony Trans Com in-flight entertainment business in the fourth quarter of 2000 and Kaiser Aerospace & Electronics Corporation (Kaiser) in the first quarter of 2001. Excluding these acquisitions, sales in 2001 increased slightly to $2,517 million.

        In 2001, our service sales increased to $258 million from $230 million in 2000. The increase resulted primarily from the acquisition of Sony Trans Com, and the increasing installed base of in-flight entertainment systems. International sales, which include U.S. export sales, declined 7 percent to $948 million in 2001 compared to $1,015 million in 2000. The sales decline resulted primarily from lower sales of commercial avionics and in-flight entertainment equipment to Asian and European customers and the completion of certain European government mandated retrofit programs. This decline was partially offset by increased sales to a Canadian manufacturer of business and regional jets.

        Product cost of sales were $1,901 million in 2001, including $27 million of restructuring charges. Excluding restructuring charges, product cost of sales of $1,874 million were 73.1 percent of product sales in 2001, compared to $1,670 million, or 73.2 percent of product sales in 2000. Service cost of sales were $186 million in 2001, or 72.1 percent of service sales, compared to $168 million, or 73.0 percent of service sales, in 2000.

        Selling, general and administrative costs were $351 million in 2001, including $7 million of restructuring charges and $7 million of additional provisions for bad debts as a result of increased collection risks associated with the commercial airline industry. Excluding these items, selling, general and administrative costs were $337 million, or 11.9 percent of sales in 2001, compared to $274 million, or 10.9 percent of sales in 2000. This increase was driven primarily by higher marketing costs of recently acquired businesses and expenses associated with the spin-off from Rockwell.

        Interest expense of $17 million in 2001 is based upon pro forma interest expense for the first nine months of 2001 associated with the $300 million of short-term debt incurred to fund the pre-distribution dividend to

5

Rockwell in connection with the spin-off and actual interest expense for the last three months of 2001. Interest expense of $20 million in 2000 is entirely pro forma interest associated with the $300 million of short-term debt. The lower interest expense in 2001 is the result of lower interest rates as well as a reduction in our short-term debt during the last three months of 2001.

        Other income generally includes royalty income, earnings and losses from corporate-level equity affiliates, gains and losses on the sale of property and businesses, pension and other retirement benefit expenses associated with obligations related to certain former employees of Rockwell that were assumed in connection with the spin-off, and other miscellaneous income and expenses. Other income increased to $20 million in 2001 from $10 million in 2000 primarily as a result of higher pension income associated with pension assets and obligations assumed in connection with the spin-off.

        Net income in 2001 was $149 million after giving effect to $183 million ($130 million after taxes) of restructuring and asset impairment charges. Excluding these items, net income in 2001 was $279 million compared to $262 million in 2000. Net income as a percentage of sales in 2001, excluding the restructuring and asset impairment charges, decreased to 9.9 percent from 10.4 percent in 2000. This decrease resulted from higher warranty and product development costs primarily related to our in-flight entertainment product line, and a higher effective income tax rate.

        Earnings per share in 2001 was $0.80 compared to $1.38 in 2000. Excluding the restructuring and asset impairment charges, earnings per share in 2001 was $1.50 compared to $1.38 in 2000. Earnings per share in 2001 reflect the benefits of lower shares outstanding.

        On an as reported basis, net income for 2001 was $139 million after giving effect to $183 million ($130 million after taxes) of restructuring and asset impairment charges. Excluding these items, net income on an as reported basis was $269 million in 2001, equal to the $269 million of as reported net income in 2000.

Segment Performance

        The following table presents reported and pro forma segment sales and operating earnings information (in millions):

		Year Ended September 30
		Reported									Pro Forma
		2002			2001			2000			2001			2000
Sales(1):
Commercial Systems		$	1,377		$	1,752		$	1,586		$	1,752		$	1,586
Government Systems			1,115			1,068			924			1,068			924
	Total sales	$	2,492		$	2,820		$	2,510		$	2,820		$	2,510
Segment operating earnings(1)(2):
Commercial Systems		$	174		$	275		$	281		$	291		$	288
Government Systems			193			165			144			170			144
	Total segment operating earnings		367			440			425			461			432
Interest expense			(6	)		(3	)		—			(17	)		(20	)
Earnings (losses) from corporate-level equity affiliates			2			1			(3	)		1			(3	)
Restructuring, goodwill and asset impairment charges			4			(183	)		—			(183	)		—
General corporate, net			(26	)		(31	)		(23	)		(26	)		(21	)
Income before income taxes			341			224			399			236			388
Income tax provision			(105	)		(85	)		(130	)		(87	)		(126	)
Net income		$	236		$	139		$	269		$	149		$	262

(1)

Effective October 1, 2001 management changed its method of evaluating segment performance and changed the composition of the Commercial Systems segment to include a business acquired as part of the Kaiser acquisition, which was previously reported as part of Government Systems. Prior period amounts have been reclassified to conform to the current year presentation.

(2)

Segment operating earnings, an internal performance measure, excludes income taxes; unallocated general corporate expenses; interest expense; gains and losses from the disposition of businesses; non-recurring

6

charges resulting from purchase accounting such as purchased in-process research and development charges; earnings and losses from corporate-level equity affiliates; special charges related to comprehensive restructuring actions; and other special items as identified by management from time to time. Our definition of segment operating earnings may be different from definitions used by other companies.

Segment Financial Results for 2002 Compared to Pro Forma Financial Results for 2001

        Commercial Systems sales of $1,377 million in 2002 declined $375 million, or 21 percent, from sales of $1,752 million in 2001. This decrease resulted primarily from the downturn in the commercial aerospace industry following the events of September 11, 2001. Commercial avionics sales of $1,036 million in 2002 declined $294 million, or 22 percent, compared to commercial avionics sales of $1,330 million in 2001. Sales of in-flight entertainment products declined $81 million, or 19 percent, to $341 million in 2002 compared with $422 million in 2001. Our Airshow acquisition, completed in August of 2002, added $8 million of sales in 2002. Commercial Systems segment operating earnings were $174 million in 2002 compared with $291 million in 2001. Commercial Systems segment operating earnings as a percentage of sales in 2002 were 12.6 percent compared with 16.6 percent in 2001. This decrease was primarily due to the lower sales volume, a less favorable commercial avionics sales mix, higher development costs related to our in-flight entertainment and integrated information systems, and higher warranty costs related to our in-flight entertainment product line, partially offset by savings from our comprehensive restructuring plan and other cost savings initiatives.

        Government Systems sales were $1,115 million in 2002, an increase of $47 million, or 4 percent, compared to sales of $1,068 million in 2001. Increased sales from data links, global positioning products, and integrated applications solutions related to several C-130 and helicopter programs more than offset a $78 million decline in sales on the KC-135 aircraft retrofit program that was completed in the third quarter of 2001. In addition, our Kaiser acquisition, which was completed in December 2000 accounted for a $25 million increase in 2002 sales compared to the previous year. Government Systems segment operating earnings were $193 million in 2002 compared with $170 million in 2001. Segment operating earnings as a percentage of sales in 2002 increased to 17.3 percent from 15.9 percent in 2001. This increase was primarily due to a favorable sales mix and favorable engineering performance in 2002.

        General corporate, net was $26 million in both 2002 and 2001. General corporate, net in 2002 includes a $12 million net gain related to the favorable resolution of certain legal matters related to our in-flight entertainment acquisition in 1998 and the sale of a business several years ago, partially offset by reserves recorded for certain other legal matters. General corporate, net also includes pension and other retirement benefit expenses related to certain former employees of Rockwell that were assumed in connection with the spin-off. Pension and retirement benefit expense associated with these obligations increased $9 million in 2002.

Segment Pro Forma Financial Results for 2001 Compared to 2000

        In 2001, Commercial Systems sales were $1,752 million, an increase of $166 million, or 10 percent, compared to $1,586 million of sales in 2000. Our Sony Trans Com and Kaiser acquisitions contributed $96 million and $56 million to the sales increase in 2001, respectively. Excluding these acquisitions, sales in 2001 increased $14 million over the prior year. Sales of commercial avionics and other products were up 8 percent during this period resulting from continued demand in the air transport market, increased regional jet production, and the Kaiser acquisition, but were partially offset by lower sales of wide-body in-flight entertainment products. Segment operating earnings for Commercial Systems were $291 million in 2001 compared with $288 million in 2000. Commercial Systems segment operating earnings as a percentage of sales in 2001 were 16.6 percent compared with 18.2 percent in 2000. This decrease was due to higher warranty and product development costs related primarily to our in-flight entertainment product line and higher provisions for bad debts as a result of increased collection risks associated with the commercial airline industry.

        Government Systems reported sales of $1,068 million in 2001 compared with $924 million in 2000, an increase of $144 million or 16 percent. Kaiser, which was acquired in the first quarter of 2001, accounted for $151 million of sales in 2001. Excluding this acquisition, sales in 2001 were $7 million lower than in the prior year primarily due to the completion of the KC-135 flight deck retrofit program in 2001, which was substantially offset by increased sales from global positioning system and data link programs. Government Systems segment operating earnings were $170 million in 2001 compared with $144 million in the prior year. Segment operating earnings as a percentage of sales in 2001 increased to 15.9 percent from 15.6 percent in 2000. This increase was primarily due to the favorable resolution of a U.S. government contract matter.

7

        Restructuring and asset impairment charges relating to Commercial Systems and Government Systems were $177 million and $6 million, respectively, in 2001.

        General corporate, net increased to $26 million in 2001 compared with $21 million in 2000, primarily resulting from costs associated with the spin-off from Rockwell. General corporate, net in 2001 includes an allocation from Rockwell for the first nine months of 2001 prior to the spin-off and three months of actual costs after the spin-off. General corporate, net also includes income related to pension assets and obligations from certain former employees of Rockwell that were assumed in connection with the spin-off.

Income Taxes

        Our effective income tax rate for 2002 was 31.0 percent, compared to pro forma effective income tax rates of 36.9 percent in 2001 and 32.5 percent in 2000. Excluding the effects of the asset impairment charges in 2001, the pro forma effective income tax rate in 2001 was 33.4 percent. The lower effective tax rate in 2002 is due primarily to the benefits resulting from a research and development tax credit study.

        The Extraterritorial Income Exclusion ("ETI") provides a tax benefit that is an important component of our overall tax rate. In August 2001, the World Trade Organization ("WTO") determined that the ETI provisions of the Foreign Sales Corporation Repeal and Extraterritorial Income Exclusion Act of 2000 constitute an export subsidy prohibited by the WTO. The U.S. Government appealed this decision, but lost its appeal, and on January 29, 2002 the WTO Dispute Settlement Body finalized the original determination. In July 2002, the American Competitiveness and Corporate Accountability Act of 2002 was introduced into Congress, which if enacted, would bring the United States into compliance with the WTO ruling by repealing the ETI regime and creating broad-based reform of U.S. taxation of international transactions. If the ETI regime is repealed, the loss of the tax benefit to our company could significantly increase our effective income tax rate.

Pension Benefits

        We provide pension benefits to most of our employees in the form of defined benefit pension plans. In addition, we assumed assets and obligations for pension benefits in connection with the spin-off transaction for certain former employees of Rockwell. Over the past few years, the combination of the weak economy and weak financial markets have resulted in falling discount rates and lower actual returns on pension plan assets. As a result, the funded status of our pension plans has declined from an overfunded position two years ago to a deficit of $482 million at September 30, 2002, of which $400 million relates to our qualified pension plans. The funded status of our plans includes the effect of a tax-deductible cash contribution to the pension plan of $38 million in 2002 in order to satisfy certain U.S. Government requirements resulting from the spin-off transaction. We are not required to make additional contributions to our pension plans in 2003; however, we are currently evaluating the merits of a discretionary contribution based upon the outlook for the funded status of our pension plans and other strategic considerations. We believe our strong financial position provides us the opportunity to make discretionary contributions to our pension fund without inhibiting our ability to pursue other strategic investments.

        In connection with the decline in the funded status of our qualified plans, our minimum pension liability increased $189 million in 2002 to $265 million at September 30, 2002, compared to $76 million at September 30, 2001. The reduction in shareowners' equity resulting from the minimum pension liability, net of deferred taxes, was $240 million at September 30, 2002 compared to $11 million at September 30, 2001. The minimum liability represents the unfunded accumulated benefit obligation of our plans.

        Pension expense in 2002 was $6 million, compared to pro forma pension income of $11 million in 2001, and pro forma pension expense of $3 million in 2000. This increase is primarily the result of a reduction in the discount rate and our decision to lower the expected rate of return assumption on pension plan assets to 9.00 percent in 2002 from 9.75 percent in 2001 based upon the current investment mix and market outlook.

        We expect pension expense to increase to $20 million in 2003, which reflects the impact of the decline in the funded status of our plans. Unless investment performance improves or discount rates rise, we will likely experience increased pension expense and possible non-discretionary pension plan contributions in years beyond 2003.

Retiree Medical Benefits

        We provide retiree medical benefits to substantially all of our employees and retirees. In addition, we assumed assets and obligations for retiree medical benefits in connection with the spin-off transaction for certain

8

former employees of Rockwell. After several years of modest increases in health care costs in the mid-to-late 1990s, these costs have begun to rise again at significant rates, with many experts expecting annual increases approaching 15 percent over the next few years. As a result of this trend, retiree medical expense increased to $19 million in 2002, excluding a curtailment gain of $14 million related to the workforce reductions associated with our 2001 comprehensive restructuring program. Pro forma retiree medical expense in both 2001 and 2000 was $6 million.

        As a result of these and expected future cost increases, we amended our retiree medical plans in 2002 to, among other plan design changes, establish a fixed company contribution equal to our portion of estimated per capita health care costs in calendar year 2003. Additional contributions will be required from participants for all costs in excess of our fixed contribution amount. This amendment has effectively eliminated the risk related to health care cost trend rates for retiree medical benefits going forward and we expect retiree medical expense in 2003 to be approximately $19 million.

9

2001 Restructuring, Goodwill and Asset Impairment Charges

Restructuring

        In September 2001, we announced a comprehensive restructuring plan to reduce our workforce and streamline certain operations. These actions were undertaken in response to the sudden and severe decline in anticipated sales volumes in the commercial aerospace market resulting from the September 11, 2001 terrorist attacks. The restructuring plan anticipated involuntary separations of approximately 2,800 employees, or 16 percent of our workforce. These employee separations were broad based and affected all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. The restructuring plan also included the consolidation of the in-flight entertainment business into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, and Southeast Asia; and the consolidation of certain manufacturing operations. As a result of this plan, we recorded a restructuring charge of $34 million ($22 million after taxes, or 12 cents per share) in the fourth quarter of 2001. This charge was comprised of $28 million of employee separation costs, $4 million of facility exit costs, and $2 million of asset write-downs.

        In the second quarter of 2002, we determined that the cost of these restructuring actions was expected to be $4 million ($2 million after taxes, or 1 cent per share) lower than originally planned, and recorded favorable adjustments of $3 million to Cost of Sales and $1 million to Selling, General and Administrative Expenses. The primary reason for the reduction in cost related to lower than expected severance costs resulting from employee attrition.

        All of the employee separations have been completed and $19 million of employee separation costs have been paid in 2002, with the remaining employee separations costs expected to be paid in early 2003. Facility exit actions are complete. Exit costs associated with these facility actions of $2 million have been paid as of September 30, 2002, and payments will continue through the term of the lease periods for these facilities. We funded the restructuring plan using cash generated by operations.

        Our restructuring plan, combined with other cost saving initiatives, resulted in pre-tax savings of approximately $200 million in 2002. These savings partially offset the operating earnings impact of the sharp decline in sales volume in our Commercial Systems business in 2002.

Goodwill and Asset Impairment Charges

        In connection with our assessment of the business impact of the unexpected decline in the commercial aerospace market as a result of the September 11, 2001 terrorist attacks, we performed reviews of the carrying values of long-lived assets, including related goodwill, to be held and used that were associated with the Commercial Systems business and recorded a total of $149 million ($108 million after taxes, or 58 cents per share) of non-cash asset impairment charges in the fourth quarter of 2001, primarily related to our in-flight entertainment product line.

        These reviews focused on the long-lived assets recorded in connection with the Sony Trans Com and Hughes-Avicom acquisitions, which now comprise the in-flight entertainment product line. The financial instability of commercial airlines combined with the discretionary nature of expenditures on in-flight entertainment equipment resulted in significantly lower demand for these products. As a result of our review, we recorded asset impairment charges of $136 million related to the goodwill, intangible assets, and property of the in-flight entertainment product line. In addition, we recorded $13 million of charges related to software license agreements used in certain other product lines serving the commercial aerospace market. Sales of these products were adversely affected by the downturn in the commercial aerospace market with technological obsolescence expected to outpace any recovery in demand.

Financial Condition and Liquidity

Cash Flow Summary

        Cash provided by operations was $453 million in 2002, $193 million in 2001 and $281 million in 2000. Free cash flow was $397 million in 2002, $83 million in 2001 and $183 million in 2000. We define free cash flow, an internal performance measure, as cash provided by operating activities and proceeds from dispositions of property, reduced by capital expenditures. Our definition of free cash flow may be different from definitions used by other companies. Cash provided by operations and free cash flow were significantly higher in 2002 due to improved

10

working capital performance, primarily from strong cash collections, improved inventory management, and the successful deployment of our enterprise resource planning system at two of our businesses. Reductions in capital expenditures also had a favorable impact to free cash flow in 2002. Cash provided by operations and free cash flow were lower in 2001 compared to 2000 primarily as a result of working capital growth in receivables and inventories. Receivables increased in 2001 primarily due to the timing of sales as we posted record sales in the fourth quarter of 2001. Inventories increased in 2001 primarily as a result of higher sales volumes combined with planned inventory builds associated with the implementation of our enterprise resource planning system.

        Cash used for investing activities was $239 million in 2002, compared to $405 million in 2001, and $221 million in 2000. Capital expenditures were $62 million in 2002, $110 million in 2001, and $98 million in 2000. The decrease in capital expenditures in 2002 was in response to the downturn in the commercial aerospace markets. We expect capital expenditures to be approximately $110 million in 2003. Cash investments for acquisitions were $193 million in 2002, $292 million in 2001, and $123 million in 2000. Acquisitions over the past three years included the purchase of Airshow and ComSol in 2002, Kaiser in 2001, and Sony Trans Com in 2000. We continuously evaluate acquisition opportunities and expect to continue to acquire businesses and capabilities as an integral component of our overall growth strategy. We expect to finance future acquisitions using cash generated from operations, issuance of debt, issuance of common stock or other securities, or a combination thereof.

        Cash used for financing activities was $221 million in 2002. Strong free cash flow generation not only provided a source of funding for our acquisitions in 2002, but also provided funds to repurchase $102 million, or 4.5 million shares, of Rockwell Collins common stock at an average price of $22.74 per share under our share repurchase program and enabled us to reduce our outstanding commercial paper borrowings by $70 million. In addition, we declared and paid cash dividends of $0.36 per share, totaling $66 million, in 2002. We expect annual dividends to be $0.36 per share in 2003 and expect to fund these dividends using cash generated by operations. The declaration and payment of dividends, however, will be at the sole discretion of the Board of Directors.

        Cash provided by financing activities in 2001 was $251 million and included the issuance of $300 million in commercial paper used to fund a pre-distribution dividend to Rockwell in connection with the spin-off transaction. Cash used for financing activities in 2000 was $52 million.

Liquidity

        Our primary source of liquidity is through short-term borrowings in the commercial paper market. Our access to that market is facilitated by the strength of our credit ratings and $1 billion of committed credit facilities with several banks (Revolving Credit Facilities). Our current ratings as provided by Moody's Investors Service, Standard & Poor's and Fitch, Inc. are A-2 / A / A, respectively, for long-term debt and P-1 / A-1 / F-1, respectively, for short-term debt. Moody's and Standard & Poor's placed a "negative outlook" on our credit ratings shortly after September 11, 2001 due to the adverse impact of this event on the commercial aerospace industry. The "negative outlook" ratings have not impaired our access to the commercial paper markets. Our ratings with Fitch, Inc. continue to have a "stable outlook".

        Under our commercial paper program, we may sell up to $1 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount and have a maturity of not more than 364 days from time of issuance. Borrowings under the commercial paper program are available for working capital needs and other general corporate purposes. Commercial paper borrowings outstanding were $132 million at September 30, 2002.

        Our Revolving Credit Facilities consist of a five-year $500 million portion expiring in May 2006 and a 364-day $500 million portion which expires May 28, 2003. The Revolving Credit Facilities exist primarily to support our commercial paper program, but are available to the Company in the event our access to the commercial paper market is impaired or eliminated. Our only financial covenant under the Revolving Credit Facilities requires that our company maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. Our debt to total capital ratio at September 30, 2002 was 12 percent. At our election, the 364-day portion of the Revolving Credit Facilities can be converted to a one-year term loan. Our credit facilities do not contain any rating downgrade triggers that would accelerate the maturity of our indebtedness. There were no borrowings outstanding under our Revolving Credit Facilities as of September 30, 2002.

        In addition to our Revolving Credit Facilities and commercial paper program, we have a shelf registration statement filed with the Securities and Exchange Commission covering up to $750 million in debt securities,

11

common stock, preferred stock or warrants that may be offered in one or more offerings on terms to be determined at the time of sale. Net proceeds of any offering will be used for general corporate purposes, with possible uses including repayment of existing indebtedness, capital expenditures, acquisitions and share repurchases.

        If our credit ratings were to be adjusted downward by the rating agencies, the implications of such actions could include elimination of access to the commercial paper market and an increase in the cost of borrowing. In the event that we do not have access to the commercial paper market, alternative sources of funding could include borrowings under the Revolving Credit Facilities, funds available from the issuance of securities under our shelf registration, and potential asset securitization strategies.

Contractual Obligations and Other Commitments

        The following table reflects certain of our contractual obligations and other commitments as of September 30, 2002 (in millions):

	Payments Due By Period
	Total		Less than 1 Year		1 - 3 Years		Thereafter
Non-cancelable operating leases	$	51	$	17	$	26	$	8
Research and development arrangement		18		9		9		—
Commercial paper borrowings		132		132		—		—
Total	$	201	$	158	$	35	$	8

        We lease certain office and manufacturing facilities as well as certain machinery and equipment under various lease contracts with terms that meet the accounting definition of operating leases. Our commitments under these operating leases, in the form of non-cancelable future lease payments, are not reflected as a liability on our Statement of Financial Position. In connection with our 50 percent equity investment in Rockwell Scientific, we have guaranteed the lease obligation of a Rockwell Scientific facility in the amount of $4 million that expires ratably through December 2011. We have no other material outstanding guarantees of debt relating to our customers, suppliers, joint venture affiliates, or any other party.

        As of September 30, 2002, we had outstanding letters of credit totaling $92 million issued by banks to support certain contractual obligations to our customers. If we fail to meet these contractual obligations, these letters of credit may become a liability of our company.

12

Environmental

        We are subject to federal, state and local regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment that have had and will continue to have an impact on our manufacturing operations. These environmental protection regulations may require the investigation and remediation of environmental impairments at current and previously owned or leased properties. In addition, lawsuits, claims and proceedings have been asserted on occasion against us alleging violations of environmental protection regulations, or seeking remediation of alleged environmental impairments, principally at previously owned or leased properties. We are currently involved in the investigation or remediation of seven sites under these regulations or pursuant to lawsuits asserted by third parties. As of September 30, 2002, management estimates that the total reasonably possible cost we could incur from these matters to be about $12 million. We have recorded $3 million of environmental reserves for these matters as of September 30, 2002, which represents management's estimate of the probable future cost for these matters.

        In addition, we assumed liabilities for certain environmental matters relating to properties acquired in connection with our purchase of Kaiser. We have rights to indemnification for these matters from the escrow funds set aside at the time of acquisition. At September 30, 2002, we have filed claims against the escrow fund for these matters in the amount of $2 million. In addition, we may be liable for environmental matters related to certain other properties previously owned or leased by Kaiser. Liability for these matters is subordinated to third parties; however, failure of these third parties to satisfy their obligations related to these properties could cause these liabilities to revert to us. We have rights to indemnification for these matters from the escrow funds in the amount of $8 million set aside at the time of acquisition. We believe the amount of these escrow funds are sufficient to address these matters.

        To date, compliance with environmental regulations and resolution of environmental claims have been accomplished without material effect on our liquidity and capital resources, competitive position or financial condition. Management believes that expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on our business or financial condition, but could possibly be material to the results of operations of any one period. We cannot assess the possible effect of compliance with future environmental regulations.

Recently Issued Accounting Standards

        In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 requires the recording of the fair value of liabilities associated with the retirement of long-lived assets when there is a legal or contractual requirement to incur such costs. We will adopt SFAS 143 effective October 1, 2002, and this adoption is not expected to have a material effect on our results of operations or financial position.

        In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS 144 also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. We will adopt SFAS 144 effective October 1, 2002. SFAS 144 is not expected to materially change the methods used to measure impairment losses on long-lived assets, but may result in more matters being reported as discontinued operations than is permitted under current accounting principles.

        In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 requires liabilities associated with exit or disposal activities to be recognized at the time they are incurred rather than at the date of a commitment by management to an exit or disposal plan. SFAS 146 is required to be applied prospectively to any exit or disposal activities initiated subsequent to December 31, 2002, and may change the timing of when certain charges are recorded by the Company in connection with future exit, disposal, or restructuring activities.

13

Critical Accounting Policies

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management of Rockwell Collins to make estimates, judgements, and assumptions that affect our financial condition and results of operations that are reported in the accompanying consolidated financial statements as well as the related disclosure of assets and liabilities contingent upon future events.

        Understanding of the critical accounting policies discussed below and risks associated therewith are important in evaluating the financial condition and results of operations of Rockwell Collins. Management believes the following accounting policies used in the preparation of the consolidated financial statements are critical to the portrayal of our financial condition and results of operations as they involve a significant use of management judgement on matters that are inherently uncertain. If actual results differ significantly from management's estimates, there could be a material effect on our financial condition, results of operations and cash flows. Management has discussed the identification and development of these critical accounting policies with the Audit Committee of the Board of Directors.

Allowance for Doubtful Accounts

        Allowances are established in order to report receivables at net realizable value on our Statement of Financial Position. The determination of these allowances requires management to make estimates and judgements as to the collectibility of customer account balances. These allowances are estimated by reviewing the financial condition and collection experience with our customers, and by considering both current and projected economic and market conditions. Receivables from customers who file bankruptcy are generally reserved for at 100 percent with the uncollectible portion written off upon resolution from the bankruptcy court. Management currently believes that our commercial customers, especially those in the commercial airline industry, are the primary source of risk for uncollectible receivables. Commercial Systems receivables at September 30, 2002 were $254 million, of which approximately $116 million was associated with commercial airlines.

        At September 30, 2002, we have $16 million in allowances for doubtful accounts recorded on a total accounts receivable balance of $540 million. Although management believes this allowance to be adequate, we are not able to predict with certainty the changes in the financial stability of our customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on our results of operations in the period in which additional allowances are required.

Inventory Valuation Reserves

        Inventory valuation reserves are recorded in order to report inventories at the lower of cost or market on our Statement of Financial Position. The determination of valuation reserves requires management to make estimates and judgements on the future salability of inventories. Valuation reserves for excess, obsolete, and slow moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory that is unlikely to be sold above cost. Other factors that management considers in determining these reserves include overall market conditions and other inventory management initiatives. Management can generally react to reduce the likelihood of severe excess and slow-moving inventory issues by changing purchasing behavior and practices provided there are no abrupt changes in market conditions. Sudden and prolonged changes in market conditions, however, can result in levels of inventories that exceed future production requirements or sales forecasts requiring the need for additional valuation reserves.

        Management believes its primary source of risk for excess and obsolete inventory stems from our in-flight entertainment product line that tends to experience quicker technological obsolescence than our other products. In addition, higher risk is also associated with the purchase of "life-time buy" inventory, which is inventory that is typically no longer being produced by our vendors but for which we purchase multiple years of supply in order to meet production and service requirements over the life span of a product. Life-time buy inventory on hand at September 30, 2002 is approximately $86 million.

        At September 30, 2002, we have $102 million of inventory valuation reserves recorded on $755 million of total inventory on hand. Although management believes these reserves are adequate, any abrupt changes in market conditions may require us to record additional inventory valuation reserves which could have a material adverse effect on our results of operations in the period in which these additional reserves are required.

14

Accounting for Long-Term Contracts

        A substantial portion of our sales to government related customers and certain of our sales to commercial customers are made pursuant to long-term contracts requiring development and delivery of products over several years and often contain fixed-price purchase options for additional products. Certain of these contracts are accounted for under the percentage-of-completion method of accounting under the American Institute of Certified Public Accountants' Statement of Position 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Sales and earnings under these contracts are recorded either as products are shipped under the units-of-delivery method (for production effort), or based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method (for development effort).

        The percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract. The estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract. These projections require management to make numerous assumptions and estimates relating to such items as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead and capital costs, and manufacturing efficiency. Other variables include purchase options for additional quantities and the recoverability of costs associated with customer change orders for additional or revised product functionality. Sales and costs related to profitable purchase options are included in our estimates only when the options are exercised while sales and costs related to unprofitable purchase options are included in our estimates when exercise is determined to be probable. Change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item. Sales related to change orders are included in profit estimates only if they can be reliably estimated and collectibility is reasonably assured. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. We combine or segment contracts only when the criteria under SOP 81-1 are met.

        Estimates of profit margins for contracts are typically reviewed by management on a quarterly basis. Assuming the initial estimates of sales and costs under a contract are accurate, the percentage-of-completion method results in the profit margin being recorded evenly over the term of the contract. Changes in these underlying estimates due to revisions in sales and cost estimates, the combining of contracts, or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for using the cumulative catch-up method. Significant changes in estimate related to accounting for long-term contracts may have a material adverse effect on our results of operations in the period in which the revised estimate is made.

Warranty

        Reserves are recorded on our Statement of Financial Position to reflect our contractual liabilities relating to warranty commitments to our customers. We provide warranty coverage of various lengths and terms to our customers depending on standard offerings and negotiated contractual agreements. We record an estimate for warranty expense at the time of sale based on historical warranty return rates and repair costs. We believe our primary source of risk related to warranty obligations relates to our in-flight entertainment products and extended warranty terms across all businesses. At September 30, 2002 we have recorded $141 million of warranty reserves that were determined based upon historical warranty return rates and repair costs. Should future experience differ materially from our historical experience, we may be required to record additional warranty reserves which could have a material adverse effect on our results of operations in the period in which these additional reserves are required.

Retiree Benefits

        We provide retirement benefits to most of our employees in the form of defined benefit pension plans (Pension Benefits) and retiree medical and other insurance plans (Other Retirement Benefits). Accounting standards require the cost of providing these benefit programs be measured on an actuarial basis. These accounting standards will generally reduce the volatility of the reported benefit obligations and related benefit expense as actuarial gains and losses resulting from both normal year-to-year changes in valuation assumptions and the differences from actual experience are deferred and amortized. The application of these accounting standards requires management to make numerous assumptions and judgments that can significantly affect these

15

measurements. Critical assumptions made by management in performing these actuarial valuations include the selection of discount rates, expectations on the future rate of return on pension plan assets, and estimates of future health care cost trend rates.

        Discount rates are used to determine the present values of our benefit obligations and also affect the amount of benefit expense recorded in any given period. We estimate this discount rate based on the rates of return of high quality, fixed-income investment indexes with maturity dates that reflect the expected time horizon that benefits will be paid. Changes in the discount rate could have a material effect on our reported benefit obligations and related benefit expense. Over the past three years, discount rates have decreased from 8.0 percent to 7.0 percent, which has significantly increased our reported benefit obligations and have contributed to an increase in our benefit expense for both Pension Benefit and Other Retirement Benefits.

        The expected rate of return is our estimate of the long-term earnings rate on our pension plan assets. Our current expected long-term rate of return assumption is 9.0 percent and we believe this rate of return is appropriate given our investment mix, the expected time horizon that benefits will be paid, and our historical investment performance. Our actual average return on pension plan assets over the past ten, fifteen and twenty-year periods has approximated this expected rate of return. Over the past three years, our actual rate of return on pension plan assets has been less than our expected rate of return which has contributed to an increase in our benefit expense for Pension Benefits. Should our actual rate of return continue to remain below our expected return rate of 9.0 percent, our benefit expense for Pension Benefits will likely continue to increase.

        Health care cost trend rates for retiree medical insurance are a significant driver of our overall Other Retirement Benefits obligation and related benefit expense. These trend rates are estimated based upon historical experience and future expectations. In recent years, we have experienced higher than anticipated trend rates resulting in an increased benefit obligation and increased benefit expense for Other Retirement Benefits. In the fourth quarter of 2002 and in addition to other plan design changes, we amended our retiree medical plans to establish a fixed company contribution equal to our portion of estimated per capita health care costs in calendar year 2003. This amendment has effectively eliminated the risk related to health care cost trend rates for retiree medical insurance.

Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to market risk during the course of business from changes in interest rates and foreign currency exchange rates. The exposure to these risks is managed through a combination of normal operating and financial activities and in the case of risk associated with foreign currency exchange rates, derivative financial instruments in the form of foreign currency forward exchange contracts.

Interest Rate Risk

        In addition to using cash provided by normal operating activities, we utilize short-term commercial paper borrowings to finance operations and business acquisitions. At September 30, 2002, commercial paper borrowings outstanding were $132 million compared with $202 million at September 30, 2001. Although the interest rates are fixed through the maturity date, we are exposed to interest rate risk upon maturity of commercial paper borrowings as we will generally refinance all or a portion of this debt by issuing new commercial paper at market interest rates that may be higher or lower at that time. If market interest rates would have averaged 25 percent higher in either 2002 or 2001, the effect on results of operations would not have been material. Due to the short-term nature of commercial paper outstanding, the fair value of these obligations approximated its carrying value at September 30, 2002.

Foreign Currency Risk

        We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities (by requiring, where possible, export sales to be denominated in United States dollars) and utilizing foreign currency forward exchange contracts to manage our exposure on transactions denominated in currencies other than the applicable functional currency. For the year ended September 30, 2002, approximately 36 percent of our total sales consisted of sales outside of the United States, with less than 10 percent of total sales denominated in currencies other than the United States dollar. Foreign currency forward exchange contracts are executed with creditworthy banks and are denominated in currencies of major industrial

16

countries. It is our policy not to enter into derivative financial instruments for speculative purposes. We do not hedge our exposure to the translation of reported results of our foreign subsidiaries from the local currency to the United States dollar.

        At September 30, 2002, we had outstanding foreign currency forward exchange contracts with notional amounts of $141 million compared with $156 million at September 30, 2001, primarily consisting of contracts to exchange the euro and pound sterling. Notional amounts are stated in the U.S. dollar equivalents at spot exchange rates at the respective dates. The use of these contracts allows us to manage transactional exposure to exchange rate fluctuations as the gains and losses incurred on the foreign currency forward exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. As of September 30, 2002 and 2001, the foreign currency forward exchange contracts are recorded at fair value in Other Current Assets in the amounts of $4 million and $4 million, respectively, and Other Current Liabilities in the amounts of $2 million and $4 million, respectively. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates associated with these contracts would not be material to our financial condition, results of operations, or cash flows.

Cautionary Statement

        This Annual Report to Shareowners, and documents that are incorporated by reference to our Annual Report on Form 10-K filed with the SEC, contain statements, including certain projections and business trends, accompanied by such phrases as "believes", "estimates", "expects", "could", "likely", "anticipates", "will", "intends", and other similar expressions, that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the consequence of past and future terrorist attacks; political turmoil in the Middle East; the timing related to restoring consumer confidence in air travel; the health of the global economy as well as the commercial aerospace industry; domestic and foreign government spending, budgetary and trade policies; economic and political changes in international markets where we compete; demand for and market acceptance of new and existing products; potential cancellation or delay of orders by commercial customers; customer bankruptcy; labor work stoppages; market performance of our pension assets; medical plan expenses; recruitment and retention of qualified personnel; our ability to successfully execute to our internal performance plans; favorable outcomes of certain customer procurements; changes to government policies and regulations; new aircraft build rates; product reliability and cost of repairs; the cyclical nature of our businesses; factors that result in significant disruption to air travel or reduction to airline profitability; our customers' willingness to outsource avionics maintenance and service; successful execution of our acquisition, strategic and integration plans; our ability to remain competitive in a highly competitive and rapidly changing marketplace; award of production contracts at the current projected quantities; our ability to handle production rate increases and decreases; and the uncertainties of the outcome of litigation, as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in our other SEC filings. These forward-looking statements are made only as of the date hereof.

17

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

        We, the management team of Rockwell Collins, are responsible for the preparation, integrity and objectivity of the financial statements and other financial information we have presented in this report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, applying our estimates and judgments.

        Our internal controls are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets. These controls are based on established written policies and procedures, are implemented by trained, skilled personnel with an appropriate segregation of duties and are monitored through a comprehensive internal audit program. Rockwell Collins is committed to maintaining the highest ethical standards and business practices throughout the world.

        Deloitte & Touche LLP, our independent auditors, are retained to audit our financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards generally accepted in the United States of America, which include the consideration of our internal controls to establish a basis for reliance in determining the nature, timing and extent of audit tests to be applied.

        Our Board of Directors exercises its responsibility for these financial statements through its Audit Committee, which consists entirely of independent, non-management, Board members. The Audit Committee meets regularly with the independent auditors and with the Company's internal auditors, both privately and with management present, to review accounting, auditing, internal controls and financial reporting matters.

/s/ Clayton M. Jones Clayton M. Jones
Chairman, President &
Chief Executive Officer /s/ Lawrence A. Erickson Lawrence A. Erickson
Senior Vice President &
Chief Financial Officer

18

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareowners of
Rockwell Collins, Inc.

        We have audited the accompanying consolidated statement of financial position of Rockwell Collins, Inc. and subsidiaries (the "Company") (formerly the avionics and communications business of Rockwell Automation, Inc.—see Note 1) as of September 30, 2002 and 2001, and the related consolidated statements of operations, of cash flows, and of shareowners' equity and comprehensive income for each of the three years in the period ended September 30, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        The accompanying consolidated financial statements for the years ended September 30, 2001 and 2000 were prepared to present the results of operations and cash flows of the Company, as described in Note 1 to the consolidated financial statements, and may not necessarily be indicative of the results of operations and cash flows if the Company had been operated as a stand-alone entity during such periods.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Notes 8 and 23 to the consolidated financial statements, the Company changed its method of accounting for goodwill and certain other intangible assets effective October 1, 2001.

/s/  DELOITTE & TOUCHE LLP

Chicago, Illinois
October 29, 2002

19

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except per share amounts)

				September 30
				2002			2001
ASSETS
Current Assets:
	Cash			$	49		$	60
	Receivables				524			637
	Inventories				653			727
	Current deferred income taxes				191			189
	Other current assets				21			24
		Total current assets			1,438			1,637
Property					411			439
Intangible Assets					124			101
Goodwill					332			184
Other Assets					255			276
			TOTAL ASSETS	$	2,560		$	2,637
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
	Short-term debt			$	132		$	202
	Accounts payable				204			227
	Compensation and benefits				219			231
	Income taxes payable				20			15
	Product warranty costs				141			146
	Other current liabilities				327			323
		Total current liabilities			1,043			1,144
Retirement Benefits					495			341
Other Liabilities					35			42
Shareowners' Equity:
	Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 2002, 183.8; 2001, 183.6)				2			2
	Additional paid-in capital				1,208			1,201
	Retained earnings (accumulated deficit)				91			(65	)
	Accumulated other comprehensive loss				(252	)		(28	)
	Common stock in treasury, at cost (shares held: 2002, 2.8; 2001, -)				(62	)		—
		Total shareowners' equity			987			1,110
			TOTAL LIABILITIES AND SHAREOWNERS' EQUITY	$	2,560		$	2,637

See Notes to Consolidated Financial Statements.

20

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)

			Year Ended September 30
			2002			2001			2000
Sales:
	Product sales		$	2,238		$	2,562		$	2,280
	Service sales			254			258			230
		Total sales		2,492			2,820			2,510
Costs, expenses and other:
	Product cost of sales			1,678			1,922			1,677
	Service cost of sales			185			186			168
	Selling, general and administrative expenses			307			351			274
	Asset impairment charges (Note 16)			—			75			—
	Goodwill impairment charges (Note 16)			—			74			—
	Interest expense			6			3			—
	Other income			(25	)		(15	)		(8	)
		Total costs, expenses and other		2,151			2,596			2,111
Income before income taxes				341			224			399
Income tax provision				105			85			130
Net income			$	236		$	139		$	269
Earnings per share:
	Basic		$	1.29
	Diluted		$	1.28
Weighted average common shares:
	Basic			183.1
	Diluted			184.1
Cash dividends per share			$	0.36

See Notes to Consolidated Financial Statements.

21

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)

				Year Ended September 30
				2002			2001			2000
Operating Activities:
Net income				$	236		$	139		$	269
Adjustments to arrive at cash provided by operating activities:
	Depreciation				98			98			90
	Amortization of intangible assets				7			40			16
	Pension plan contributions				(46	)		(7	)		(6	)
	Deferred income taxes				50			(26	)		24
	Asset impairment charges (Note 16)				—			75			—
	Goodwill impairment charges (Note 16)				—			74			—
	Tax benefit from exercise of stock options				4			—			—
	Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency adjustments:
		Receivables			122			(104	)		34
		Inventories			78			(49	)		17
		Accounts payable			(32	)		19			(46	)
		Income taxes payable			5			8			(2	)
		Compensation and benefits			(3	)		9			(16	)
		Other assets and liabilities			(66	)		(83	)		(99	)
			Cash Provided by Operating Activities		453			193			281
Investing Activities:
Property additions					(62	)		(110	)		(98	)
Acquisition of businesses, net of cash acquired					(193	)		(292	)		(123	)
Investment in equity affiliates					(5	)		(3	)		—
Proceeds from the disposition of businesses					15			—			—
Proceeds from the disposition of property					6			—			—
			Cash Used for Investing Activities		(239	)		(405	)		(221	)
Financing Activities:
Increase (decrease) in short-term borrowings, net					(70	)		202			—
Purchase of treasury stock					(102	)		—			—
Cash dividends					(66	)		(17	)		—
Pre-Distribution dividend to Rockwell International (Note 1)					—			(300	)		—
Proceeds from exercise of stock options					17			—			—
Net transfers from (to) Rockwell International					—			366			(52	)
			Cash (Used for) Provided by Financing Activities		(221	)		251			(52	)
Effect of exchange rate changes on cash					(4	)		1			(8	)
Net Change in Cash					(11	)		40			—
Cash at Beginning of Year					60			20			20
Cash at End of Year				$	49		$	60		$	20

See Notes to Consolidated Financial Statements.

22

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
AND COMPREHENSIVE INCOME
(in millions)

	Year Ended September 30
	2002			2001			2000
Common Stock
Beginning balance	$	2		$	—		$	—
Common stock issued in connection with the Distribution		—			2			—
Ending balance		2			2			—
Additional Paid-In Capital
Beginning balance		1,201			—			—
Shares issued under incentive plans		5			—			—
Common stock issued in connection with the Distribution		—			1,188			—
Other Distribution adjustments		2			13			—
Ending balance		1,208			1,201			—
Retained Earnings (Accumulated Deficit)
Beginning balance		(65	)		—			—
Net earnings (loss) after the Distribution		236			(48	)		—
Shares issued under incentive plans		(14	)		—			—
Cash dividends		(66	)		(17	)		—
Ending balance		91			(65	)		—
Accumulated Other Comprehensive Loss
Beginning balance		(28	)		(29	)		(25	)
Currency translation gain (loss)		5			3			(8	)
Minimum pension liability adjustment		(229	)		(2	)		4
Ending balance		(252	)		(28	)		(29	)
Common Stock in Treasury
Beginning balance		—			—			—
Share repurchases		(102	)		—			—
Shares issued from treasury		40			—			—
Ending balance		(62	)		—			—
Rockwell International's Net Investment
Beginning balance		—			937			720
Net income prior to the Distribution		—			187			269
Net transfers from (to) Rockwell International		—			366			(52	)
Pre-Distribution dividend to Rockwell International		—			(300	)		—
Common stock issued in connection with the Distribution		—			(1,190	)		—
Ending balance		—			—			937
Total Shareowners' Equity	$	987		$	1,110		$	908
Comprehensive Income
Net income	$	236		$	139		$	269
Other comprehensive (loss) income, net of deferred taxes (2002, $135; 2001, $1; 2000, $(1))		(224	)		1			(4	)
Comprehensive income	$	12		$	140		$	265

See Notes to Consolidated Financial Statements.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

        Rockwell Collins, Inc. (the Company or Rockwell Collins) provides aviation electronics and airborne and mobile communications products and systems for commercial and military applications. Rockwell Collins became an independent, publicly held company on June 29, 2001, when Rockwell International Corporation, renamed Rockwell Automation, Inc. (Rockwell), spun off its former avionics and communications business (Avionics and Communications) and certain other assets and liabilities of Rockwell by means of a distribution (the Distribution) of all the outstanding shares of common stock of the Company to the shareowners of Rockwell in a tax-free spin-off. In connection with the Distribution, the Company paid a pre-Distribution dividend of $300 million to Rockwell, which was funded through the issuance of commercial paper.

        The financial statements as of, and for the periods subsequent to, the Distribution reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries on a basis that reflects the historical assets, liabilities, and operations of the business contributed to the Company by Rockwell.

        The financial statements for periods prior to the Distribution reflect the financial position, results of operations and cash flows of Avionics and Communications as operated by Rockwell prior to the Distribution, as well as the Company's share of earnings and losses from its 50 percent ownership interest in Rockwell Scientific Company, LLC (Rockwell Scientific) that was transferred to the Company in connection with the Distribution. These financial statements also include an allocation for management and other services provided by Rockwell to the Company including, but not limited to, corporate oversight, financial, legal, tax, payroll, and employee benefits administration services. Total costs allocated to the Company for these services were $27 million and $36 million for the years ended September 30, 2001 and 2000, respectively. Management believes that the method used to allocate these costs to the Company was reasonable and the amounts approximate the costs that would have been incurred by the Company on a stand-alone basis. The financial statements for periods prior to the Distribution are not necessarily indicative of what the financial position, results of operations and cash flows would have been if Rockwell Collins had been an independent public company during such periods.

        Certain prior year amounts have been reclassified to conform to the current year presentation.

2.    Significant Accounting Policies

Consolidation

        The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries in which the Company has control. The Company's investments in non-controlled entities in which it has the ability to exercise significant influence over operating and financial policies are accounted for under the equity method and are classified as Other Assets in the Statement of Financial Position. All significant intercompany transactions have been eliminated.

Revenue Recognition

        Sales related to certain long-term contracts requiring development and delivery of products over several years are accounted for under the percentage-of-completion method of accounting under the American Institute of Certified Public Accountants' Statement of Position 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Sales and earnings under these contracts are recorded either as products are shipped under the units-of-delivery method (for production effort), or based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method (for development effort). Sales and costs related to profitable purchase options are included in estimates only when the options are exercised while sales and costs related to unprofitable purchase options are included in estimates when exercise is determined to be probable. Change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item. Sales related to change orders are included in profit estimates only if they can be reliably estimated and collectibility is reasonably assured. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. Changes in estimates of profit or loss on contracts are included in earnings under the cumulative catch- up method.

24

        The Company recognizes sales for products or services not meeting the criteria of SOP 81-1 when all of the following criteria are met: an agreement of sale exists, product delivery and acceptance has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured.

        The Company provides maintenance, logistics support, and other services to certain customers under long-term contracts. Certain contracts are fixed price contracts with sales recognized ratably over the contractual life, while other contracts have a fixed hourly rate with sales recognized based upon actual labor or flight hours incurred.

Research and Development

        Research and development expenditures under Company-initiated programs are expensed as incurred. Customer-funded research and development expenditures include activities relating to the development of new products and the improvement of existing products which are accounted for as contract costs, and the reimbursement is accounted for as a sale.

Foreign Currency Translation

        Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars using exchange rates at the end of the respective period. Sales, costs and expenses are translated at average exchange rates effective during the respective period. Foreign currency translation gains and losses are included as a component of Accumulated Other Comprehensive Loss. Foreign currency transaction gains and losses are included in the Statement of Operations in the period incurred.

Earnings Per Share Information

        Earnings per share information for 2001 and 2000 has not been presented in the Statement of Operations, as the Company was not an independent company during each of these years. Earnings per share information has been presented on a pro forma basis in Note 23 for 2001 and 2000 as if the Distribution had taken place on October 1, 1999 and giving effect to new accounting standards recently adopted.

Cash

        Cash includes time deposits and certificates of deposit with original maturity dates of three months or less.

Inventories

        Inventories are stated at the lower of cost or market using standard costs which approximate the first-in, first-out method, less related progress payments received. Market is determined on the basis of estimated realizable values on a part level basis in order to establish inventory valuation reserves. Inventoried costs include direct costs of manufacturing, engineering and tooling, and allocable overhead costs.

Property

        Property is stated at acquisition cost. Depreciation of property is generally provided using accelerated and straight-line methods over the following estimated useful lives: buildings and improvements, fifteen to forty years; machinery and equipment, eight years; and information systems software and hardware, three to ten years. Significant renewals and betterments are capitalized and replaced units are written off. Maintenance and repairs, as well as renewals of minor amounts, are charged to expense in the period incurred.

Goodwill and Intangible Assets

        Goodwill and other intangible assets generally result from business acquisitions. Effective October 1, 2001, the Company accounts for goodwill and purchased intangible assets under Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS 141), and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). Business acquisitions are accounted for under the purchase method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed, including research and development projects which have not yet reached technological feasibility and have no alternative future use (purchased research and development). Assets acquired and liabilities assumed are recorded at their fair values; the appraised value of purchased research and development is immediately charged to expense; and the excess of the purchase price over the amounts assigned is recorded as goodwill. Assets acquired and liabilities assumed are allocated to

25

the Company's "reportable units" based upon the Company's integration plans and internal reporting structure. Purchased intangible assets with finite lives are amortized over the estimated useful lives. Goodwill and intangible assets with indefinite lives are not amortized, but reviewed at least annually for impairment. Prior to the adoption of SFAS 141 and SFAS 142, all goodwill and intangible assets were amortized over their estimated useful lives ranging from three to forty years.

Impairment of Long-Lived Assets

        The Company assesses the impairment of long-lived assets, excluding goodwill and indefinite-lived intangible assets, in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of (SFAS 121). Under SFAS 121, long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable and for all assets to be disposed. Long-lived assets held for use are reviewed for impairment by comparing the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. Management determines fair value using discounted future cash flow analysis or other accepted valuation techniques. In September 2001, the Company recorded asset impairment charges of $136 million related to its in-flight entertainment product line and $13 million related to certain software license agreements (see Note 16).

        Effective October 1, 2001, the Company assesses the impairment of goodwill and intangible assets with indefinite lives under the provisions of SFAS 142, which requires goodwill and indefinite lived intangible assets to be tested annually for impairment with more frequent tests required if indications of impairment exist. Under SFAS 142, impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. Goodwill is considered to be impaired under SFAS 142 if the carrying value of a "reporting unit" exceeds its estimated fair value. Management determines fair value using discounted future cash flow analysis or other accepted valuation techniques.

Customer Incentives

        Rockwell Collins provides sales incentives to certain commercial customers in connection with sales contracts. These incentives are recognized as a reduction of the sales price for customer account credits or charged to cost of sales for products or services to be provided. The liability for these incentives is included in Other Current Liabilities in the Statement of Financial Position.

Environmental

        Liabilities for environmental matters are recorded in the period in which it is probable that an obligation has been incurred and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the Company records a liability for its estimated allocable share of costs related to its involvement with the site as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties. At environmental sites in which the Company is the only responsible party, the Company records a liability for the total estimated costs of remediation. Costs of future expenditures for environmental remediation obligations do not consider inflation and are not discounted to present values. If recovery from insurers or other third parties is determined to be probable, the Company records a receivable for the estimated recovery. Revisions to the estimate of liabilities incurred are made in the periods in which the estimated costs of remediation change.

Stock-Based Compensation

        The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25). As the Company's various incentive plans require stock options to be granted at prices equal to or above the fair market value of the Company's common stock on the grant dates, no compensation expense is recognized in connection with stock options granted to employees. Additionally, the Company sponsors an Employee Stock Purchase Plan that is considered a non-compensatory plan under APB 25 and no compensation expense is recorded in connection with this benefit.

26

Derivative Financial Instruments

        The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts to manage foreign currency risks. Foreign currency forward exchange contracts are used to offset changes in the fair value of certain assets and liabilities resulting from intercompany loans and transactions with third parties denominated in foreign currencies. Company policy is to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. All foreign currency forward exchange contracts are denominated in currencies of major industrial countries. All of the foreign currency forward exchange contracts entered into by the Company, although effective hedges from an economic perspective, have not been designated as hedges for accounting purposes. These contracts are recognized in the Statement of Financial Position at fair value with the changes in the fair value recognized in earnings as a component of Cost of Sales.

Use of Estimates

        The financial statements of Rockwell Collins have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, long-term contracts, allowances for doubtful accounts, inventory obsolescence, product warranty costs, customer incentives, retirement benefits, income taxes, environmental matters, and contingencies. Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in the Statement of Operations in the period that they are determined.

Concentration of Risks

        The Company's customers consist primarily of commercial and military aircraft manufacturers, commercial airlines, and the United States and other foreign governments. The Company is subject to certain risks associated with these industries. The commercial aerospace market has been historically cyclical and subject to downturns during periods of weak economic conditions. In addition, the terrorist acts of September 11, 2001 have resulted in sharp reductions in air travel, which resulted in reduced demand for the products and services of the Commercial Systems business and adversely affected the financial condition of many of its customers. The Company performs ongoing credit evaluations on the financial condition of its customers and maintains allowances for uncollectible accounts receivable based upon expected collectibility. Although management believes its allowances are adequate, the Company is not able to predict with certainty the changes in the financial stability of its customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on the Company's results of operations. Commercial Systems receivables at September 30, 2002 were $254 million, of which approximately $116 million were associated with commercial airlines.

        Sales to the United States and other foreign governments, either directly or indirectly as a subcontractor, may be affected by changes in budget appropriations, procurement policies, political developments both domestically and abroad, and other factors. While management believes the Company's product offerings are well positioned to meet the needs of the United States and other foreign governments, any material changes in any of these requirements could have a material adverse effect on the Company's results of operations or financial position.

3.    Recently Issued Accounting Standards

        In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 requires the recording of the fair value of liabilities associated with the retirement of long-lived assets when there is a legal or contractual requirement to incur such costs. The Company will adopt SFAS 143 effective October 1, 2002, and this adoption is not expected to have a material effect on the Company's results of operations or financial position.

        In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS 144 also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. The Company will adopt SFAS 144 effective October 1, 2002. SFAS 144 is not expected to materially change the methods used by the Company to measure impairment losses on

27

long-lived assets, but may result in more matters being reported as discontinued operations than is permitted under current accounting principles.

        In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 requires that the Company recognize liabilities associated with exit or disposal activities at the time they are incurred rather than at the date of a commitment by Company management to an exit or disposal plan. SFAS 146 is required to be applied prospectively to any exit or disposal activities initiated subsequent to December 31, 2002, and may change the timing of when certain charges are recorded by the Company in connection with future exit, disposal, or restructuring activities.

4.    Acquisitions and Divestitures of Businesses

        During the years ended September 30, 2002, 2001 and 2000, the Company completed four acquisitions that were accounted for using the purchase method and are summarized as follows (amounts in millions, life in years):

						Intangible Assets
	Fiscal Year Acquired	Cash Purchase Price		Goodwill		Finite Lived		Weighted Average Life	Indefinite Lived
Airshow, Inc.	2002	$	162	$	108	$	50	9	$	—
Communication Solutions, Inc.	2002		24		14		5	8		—
Kaiser Aerospace & Electronics Corporation	2001		300		199		46	11		19
Sony Trans Com Inc.	2000		117		57		26	6		—

        In August 2002, Rockwell Collins acquired Airshow, Inc. (Airshow), a provider of integrated cabin electronics system solutions for business aircraft, including cabin environment controls, passenger information and entertainment, and business support systems. The acquisition of Airshow expands the Company's capabilities for providing airborne electronics solutions to business aviation and commercial aircraft, and will increase the Company's ability to provide integrated solutions that bridge flight deck and cabin electronics. The Company is currently evaluating its product line, workforce, and facility integration plans for this acquisition. Integration plans resulting from these evaluations may result in adjustments to the purchase price allocation. Goodwill resulting from the acquisition is deductible for tax purposes and is included within the Commercial Systems segment.

        In March 2002, Rockwell Collins acquired Communication Solutions, Inc. (ComSol), a provider of signals intelligence technology that is used worldwide in defense and security-related applications. The acquisition of ComSol expands the Company's product portfolio in the areas of signals intelligence and surveillance solutions and enhances the electronic warfare capabilities of Rockwell Collins. Goodwill resulting from this acquisition is non-deductible for tax purposes and is included within the Government Systems segment.

        In December 2000, Rockwell Collins acquired Kaiser Aerospace & Electronics Corporation (Kaiser). Kaiser is a leading supplier of flight deck display solutions for tactical aircraft, optical technologies for instrumentation and communication, and specialized aircraft products for the defense and aerospace industry. Total purchase price was $300 million of which $7 million and $292 million was paid in 2002 and 2001, respectively, with the remaining balance expected to be paid in 2003. Goodwill resulting from the Kaiser acquisition is non-deductible for tax purposes and was identified to the Company's operating segments based upon the internal reporting structure, which resulted in $62 million and $137 million allocated to the Commercial Systems segment and the Government Systems segment, respectively.

        In July 2000, Rockwell Collins acquired substantially all of the assets and assumed substantially all of the liabilities of Sony Trans Com Inc. (Sony Trans Com), a producer of in-flight entertainment systems for commercial aircraft. In September of 2001, the Company recorded asset impairment charges related to its in-flight entertainment product lines which included certain assets acquired from Sony Trans Com (see Note 16).

        In March 2002, Rockwell Collins sold Kaiser Fluid Technologies, Inc. (KFT) for $15 million in cash. KFT's product lines included valves, actuators and dampers for landing gear, brake, engine, bleed air, flight control and utility control systems for aircraft. There was no gain or loss recorded by the Company in connection with this divestiture. Prior to the divestiture, KFT generated sales for the Government Systems segment in the amount of $8 million for 2002.

28

        The results of operations of these acquired businesses are included in the Statement of Operations since their respective dates of acquisition. Pro forma financial information is not presented, as the combined effect of these acquisitions is not material to the Company's results of operations or financial position.

5.    Receivables

        Receivables are summarized as follows (in millions):

	September 30
	2002			2001
Billed	$	445		$	560
Unbilled		159			139
Less progress payments		(64	)		(42	)
Total		540			657
Less allowance for doubtful accounts		(16	)		(20	)
Receivables	$	524		$	637

        Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that are billed to customers in accordance with applicable contract terms.

6.    Inventories

        Inventories are summarized as follows (in millions):

	September 30
	2002			2001
Finished goods	$	166		$	165
Work in process		236			281
Raw materials, parts, and supplies		310			331
Total		712			777
Less progress payments		(59	)		(50	)
Inventories	$	653		$	727

        In accordance with industry practice, inventories include amounts which are not expected to be realized within one year. These amounts primarily relate to life-time buy inventory, which is inventory that is typically no longer being produced by the Company's vendors but for which multiple years of supply are purchased in order to meet production and service requirements over the life span of a product. Life-time buy inventory was $86 million and $66 million at September 30, 2002 and 2001, respectively.

7.    Property

        Property is summarized as follows (in millions):

	September 30
	2002			2001
Land	$	26		$	27
Buildings and improvements		214			208
Machinery and equipment		531			503
Information systems software and hardware		241			250
Construction in progress		24			51
Total		1,036			1,039
Less accumulated depreciation		(625	)		(600	)
Property	$	411		$	439

29

8.    Goodwill and Intangible Assets

        The Company adopted SFAS 141 and SFAS 142 on October 1, 2001. SFAS 141 requires all acquisitions to be accounted for under the purchase method and requires all assets acquired and liabilities assumed to be assigned to a "reportable unit". In addition, SFAS 141 further clarifies the criteria to recognize identifiable intangible assets separately from goodwill. SFAS 142 provides that goodwill and intangible assets with indefinite lives will no longer be amortized, but reviewed at least annually for impairment.

        In connection with the adoption of the new accounting standards, the Company reclassified an intangible asset for assembled workforce with a carrying value of $18 million ($12 million net of deferred taxes) to goodwill as assembled workforce does not meet the criteria for a separately identifiable intangible asset. The Company also reviewed the remaining estimated useful lives of all recorded intangible assets and determined that the trademarks and tradenames related to the Kaiser acquisition are indefinite lived.

        In addition, impairment tests on goodwill and indefinite lived intangible assets were performed both on the adoption date of October 1, 2001 as well as on the Company's annual testing date in the second quarter of 2002. The impairment tests for goodwill were performed by comparing the current fair values of the Company's reportable units containing goodwill balances to their carrying values. The impairment tests for indefinite lived intangible assets were performed by comparing the fair values of these assets to their carrying values. Fair values were determined by management utilizing generally accepted valuation techniques and with consideration of advice from outside valuation experts. These tests yielded no impairments.

        Pro forma financial information for the years ended September 30, 2001 and 2000, reflecting adjustments relating to the adoption of SFAS 141 and SFAS 142, is presented in Note 23.

        Changes in the carrying amount of goodwill for the years ended September 30, 2002 and 2001 are summarized as follows (in millions):

		Commercial Systems			Government Systems			Total
Balance at September 30, 2000		$	55		$	—		$	55
	Sony Trans Com acquisition adjustments		50			—			50
	Kaiser acquisition		60			111			171
	Amortization expense		(14	)		(4	)		(18	)
	Goodwill impairment charge (Note 16)		(74	)		—			(74	)
Balance at September 30, 2001			77			107			184
	Assembled workforce reclass, net of deferred taxes of $6 million		3			9			12
	Kaiser acquisition adjustments		1			17			18
	ComSol acquisition		—			14			14
	Airshow acquisition		108			—			108
	KFT divestiture		—			(4	)		(4	)
Balance at September 30, 2002		$	189		$	143		$	332

        Intangible assets at September 30, 2002 and 2001 are summarized as follows (in millions):

		September 30, 2002						September 30, 2001
		Gross		Accum Amort		Net		Gross		Accum Amort		Net
Intangible assets with finite lives:
	Developed technology and patents	$	107	$	13	$	94	$	66	$	6	$	60
	Assembled workforce		—		—		—		20		2		18
	Trademarks and tradenames		9		—		9		—		—		—
	License agreements		3		3		—		3		3		—
Intangible assets with indefinite lives:
	Trademarks and tradenames		18		1		17		19		1		18
Intangible asset related to minimum pension liability			4		—		4		5		—		5
Intangible assets		$	141	$	17	$	124	$	113	$	12	$	101

30

        Amortization expense for goodwill and intangible assets for the years ended September 30, 2002, 2001 and 2000 was $7 million, $40 million and $16 million, respectively. Annual estimated amortization expense for 2003 and 2004 is $12 million per year and $11 million per year for 2005, 2006, and 2007.

9.    Other Assets

        Other assets are summarized as follows (in millions):

	September 30
	2002		2001
Long-term deferred income taxes (Note 18)	$	103	$	8
Investments in equity affiliates		62		53
Exchange and rental assets, net of accumulated depreciation of $52 million at September 30, 2002 and $40 million at September 30, 2001		61		65
Prepaid pension cost (Note 12)		7		141
Other		22		9
Other assets	$	255	$	276

Exchange and Rental Assets

        Exchange and rental assets consist of Company products that are either loaned or rented to customers on a short-term basis in connection with warranty and other service related activities or under long-term operating leases. These assets are stated at acquisition or production cost and depreciated using the straight-line method over five to eleven years.

Investments in Equity Affiliates

        Investments in equity affiliates consist of investments in three joint ventures and one strategic investment, each of which is accounted for under the equity method. In the normal course of business or pursuant to the underlying joint venture agreements, the Company may sell products or services to equity affiliates. The Company defers a portion of the profit generated from these sales equal to its ownership interest in the equity affiliates until the underlying product is ultimately sold to an unrelated third party. Sales to equity affiliates were $65 million, $38 million, and $8 million for the years ending September 30, 2002, 2001, and 2000, respectively.

        Rockwell Scientific is engaged in advanced research and development of technologies in electronics, imaging and optics, material and computational sciences and information technology. In connection with the Distribution, the Company received a 50 percent ownership interest in Rockwell Scientific and entered into an agreement under which Rockwell Scientific will perform research and development services for the Company through September 30, 2004, subject to renewal options. Rockwell Scientific performed research and development efforts on behalf of the Company in the amount of $8 million in 2002, and $9 million in each of 2001 and 2000. The Company is obligated to pay Rockwell Scientific a minimum of $9 million per year for these research and development services in 2003 and 2004. In addition, the Company shares equally with Rockwell in providing a $4 million line-of-credit to Rockwell Scientific, which bears interest at the greater of the Company's or Rockwell's commercial paper borrowing rate. At September 30, 2002, no borrowings were due from Rockwell Scientific under this line-of-credit. The Company and Rockwell also jointly guarantee the lease obligation of a Rockwell Scientific facility in the amount of $4 million each that expires ratably through December 2011.

        Vision Systems International, LLC (VSI) is a 50 percent owned joint venture with Elbit Systems, Ltd. (formerly EFW Inc.) for the joint pursuit of helmet mounted viewing systems for the worldwide military fixed wing marketplace.

        BAE Systems/Rockwell Collins Data Link Solutions, LLC (Data Links Solutions) is a 50 percent owned joint venture with BAE Systems, pcl (formerly Marconi Electronic Systems) for the joint pursuit of the worldwide military data link market.

        In July 2002, Rockwell Collins made an investment in Tenzing Communications, Inc. (Tenzing), a developer of next-generation passenger connectivity solutions for commercial aircraft. The investment agreement with Tenzing included an initial $5 million investment by Rockwell Collins in Tenzing with an additional $5 million investment expected in 2003, subject to certain conditions. At September 30, 2002, the Company's ownership interest in

31

Tenzing was 9 percent, with the potential to increase with the additional investment scheduled in 2003. The Company accounts for its investment in Tenzing using the equity method as it has the ability to exercise significant influence over the operating and financial policies of Tenzing.

        Under the equity method of accounting for investments, Rockwell Collins' proportionate share of the earnings or losses of its equity affiliates are included in net income and classified as Other Income in the Statement of Operations. For segment performance reporting purposes, Rockwell Collins' share of earnings or losses of Tenzing are included in the operating results of the Commercial Systems operating segment while Rockwell Collins' share of earnings or losses of VSI and Data Links Solutions are included in the operating results of the Government Systems operating segment. Rockwell Scientific is considered a corporate-level investment.

10.  Debt

        The Company has $1 billion of senior unsecured revolving credit facilities with various banks consisting of a five-year $500 million facility expiring in May of 2006, and a 364-day $500 million facility expiring on May 28, 2003. These credit facilities primarily support the Company's commercial paper program, but may be used for other corporate purposes in the event access to the commercial paper market is impaired or eliminated. These credit facilities contain customary representations and warranties and events of default for facilities of this type. These credit facilities include one financial covenant requiring the Company to maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. Borrowings under these credit facilities bear interest at the London Interbank Offered Rate (LIBOR) plus a variable margin based on the Company's unsecured long-term debt rating or, at the Company's option, rates determined by competitive bid. In addition, short-term credit facilities available to foreign subsidiaries amounted to $30 million as of September 30, 2002. There were no significant commitment fees or compensating balance requirements under these facilities. At September 30, 2002, there were no borrowings outstanding under any of the Company's credit facilities.

        Under the Company's commercial paper program, the Company may sell up to $1 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount, and will have a maturity of not more than 364 days from the time of issuance. Commercial paper borrowings outstanding were $132 million and $202 million at September 30, 2002 and 2001, respectively. The weighted average interest rate and maturity period of the commercial paper outstanding at September 30, 2002 was 1.8 percent and 16 days, respectively, compared with 3.5 percent and 44 days at September 30, 2001.

        In addition to the credit facilities and commercial paper program, the Company has a shelf registration statement covering up to $750 million in debt securities, common stock, preferred stock or warrants that may be offered in one or more offerings on terms to be determined at the time of sale. Net proceeds of any offering will be used for general corporate purposes, with possible uses including repayment of existing indebtedness, capital expenditures, acquisitions and share repurchases.

        As of September 30, 2002, the Company had outstanding letters of credit totaling $92 million issued by banks to support certain contractual obligations to customers. Failure to meet these contractual obligations may cause these letters of credit to become a liability of the Company.

        Interest paid for the years ended September 30, 2002, 2001 and 2000 was $6 million, $2 million and $0 million, respectively.

11.  Other Current Liabilities

        Other current liabilities are summarized as follows (in millions):

	September 30,
	2002		2001
Customer incentives	$	92	$	101
Advance payments from customers		86		66
Contract reserves		75		86
Other		74		70
Other current liabilities	$	327	$	323

32

12.  Retirement Benefits

        The Company sponsors defined benefit pension (Pension Benefits) and other postretirement (Other Retirement Benefits) plans covering substantially all of its U.S. employees and certain employees in foreign countries which provide monthly pension and other benefits to eligible employees upon retirement. In addition, the Company assumed assets and obligations for Pension Benefits and Other Retirement Benefits in connection with the Distribution related to certain former Rockwell employees (Non-Rockwell Collins Participants). The accumulated benefit obligation associated with Non-Rockwell Collins Participants that was assumed by the Company as of June 29, 2001 in connection with the Distribution was $628 million for Pension Benefits and $99 million for Other Retirement Benefits. The Company also sponsors a defined contribution savings plan.

        The components of the Company's expense (income) for Pension Benefits and Other Retirement Benefits, excluding pro forma adjustments in 2001 and 2000 for assets and liabilities assumed in connection with the Distribution (Note 23), are summarized as follows (in millions):

		Pension Benefits									Other Retirement Benefits
		2002			2001			2000			2002			2001			2000
Service cost		$	38		$	32		$	29		$	5		$	4		$	4
Interest cost			132			113			96			24			16			14
Expected return on plan assets			(168	)		(154	)		(121	)		(2	)		(2	)		(1	)
Amortization:
	Prior service cost		2			4			4			(18	)		(13	)		(9	)
	Net transition asset		—			—			(3	)		—			—			—
	Net actuarial loss		2			—			—			10			2			1
Net periodic benefit expense (income)		$	6		$	(5	)	$	5		$	19		$	7		$	9

        The Company also recognized a curtailment gain of $14 million during the year ended September 30, 2002 in connection with workforce reductions resulting from the Company's 2001 comprehensive restructuring plan.

33

        The following table reconciles the benefit obligations, plan assets, funded status, and net asset (liability) information of the Company's Pension Benefits and the Other Retirement Benefits (in millions):

		Pension Benefits						Other Retirement Benefits
		2002			2001			2002			2001
Benefit obligation at beginning of year		$	1,809		$	1,499		$	340		$	272
Service cost			38			32			5			4
Interest cost			132			113			24			16
Discount rate change			123			105			19			19
Actuarial losses			49			42			147			53
Acquisitions			—			112			—			13
Curtailments			—			(26	)		4			—
Benefits paid			(91	)		(79	)		(41	)		(41	)
Other (including currency translation)			2			11			(1	)		4
Benefit obligation at end of year			2,062			1,809			497			340
Plan assets at beginning of year			1,723			1,704			16			18
Actual return on plan assets			(100	)		(51	)		—			(1	)
Company contributions			46			7			40			39
Acquisitions			—			142			—			—
Benefits paid			(91	)		(79	)		(41	)		(41	)
Other (including currency translation)			2			—			—			1
Plan assets at end of year			1,580			1,723			15			16
Funded status of plans			(482	)		(86	)		(482	)		(324	)
Unamortized amounts:
	Prior service cost		4			5			(101	)		(138	)
	Net actuarial loss		605			168			318			162
Net asset (liability) in the Statement of Financial Position		$	127		$	87		$	(265	)	$	(300	)
Net asset (liability) consists of:
Prepaid benefit cost		$	7		$	141		$	—		$	—
Accrued benefit liability			(265	)		(76	)		(265	)		(300	)
Deferred tax asset			141			6			—			—
Intangible asset			4			5			—			—
Accumulated other comprehensive loss			240			11			—			—
Net asset (liability) in the Statement of Financial Position		$	127		$	87		$	(265	)	$	(300	)

        Plan assets and obligations are measured on an annual basis using a measurement date of June 30 each year. Significant assumptions used in determining these benefit obligations are summarized as follows:

	Pension Benefits				Other Retirement Benefits
	2002		2001		2002		2001
Discount rate	7.00	%	7.50	%	7.00	%	7.50	%
Compensation increase rate	4.50	%	4.50	%	—		—
Pre-65 health care cost trend rate*	—		—		7.80	%	8.00	%
Post-65 health care cost trend rate*	—		—		9.30	%	9.60	%

*

Decreasing gradually to 5.5 percent after 2016

        The Company lowered its expected rate of return on plan assets in 2002 to 9.00 percent from 9.75 percent in 2001 based upon the current investment mix and market outlook. This adjustment reduced the expected return on plan assets in 2002 for Pension Benefits by $14 million and had a minimal effect on Other Retirement Benefits.

        Actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or market-related value of assets are amortized on a straight-line basis over the average remaining service period of active participants. Prior service costs resulting from plan amendments are amortized over the average remaining service period of affected active participants or over the remaining life expectancy of affected retired participants. The

34

Company uses a five-year, market-related value asset method of amortizing the difference between actual and expected returns on plan assets.

Pension Benefits

        The Company provides pension benefits to substantially all of its U.S. employees in the form of non-contributory, defined benefit plans that are considered qualified plans under applicable laws. The benefits provided under these plans for salaried employees are generally based on years of service and average compensation. The benefits provided under these plans for hourly employees are generally based on specified benefit amounts and years of service. Pension Benefits are funded through a trust in conformity with the funding requirements of applicable laws and governmental regulations plus any additional amounts that the Company may consider to be appropriate. In addition, the Company sponsors an unfunded non-qualified defined benefit plan for certain employees. The Company also maintains two pension plans in foreign countries, one of which is unfunded.

        The Company recorded a minimum pension liability of $265 million for underfunded plans as of September 30, 2002. This liability represents the amount by which the accumulated benefit obligation exceeds the fair market value of plan assets for those plans that are underfunded, offset by an intangible asset of $4 million to the extent of previously unrecognized prior service cost. The projected benefit obligation, accumulated benefit obligation and the fair value of plan assets for underfunded plans were $2,056 million, $1,836 million, and $1,571 million, respectively, as of September 30, 2002, and $104 million, $93 million, and $17 million, respectively, as of September 30, 2001.

        In addition to annual contributions for certain non-qualified and foreign pension plans, the Company made a tax-deductible cash contribution to its qualified domestic pension plan of $38 million during the first quarter of 2002 in order to satisfy certain U.S. Government requirements resulting from the Distribution.

Other Retirement Benefits

        The Company provides Other Retirement Benefits primarily in the form of health care and life insurance benefits to substantially all of its domestic employees and covered dependents. Employees generally become eligible to receive these benefits if they retire after age 55 with at least 10 years of service. Most plans are contributory with retiree contributions generally based upon years of service and adjusted annually by the Company. These plans pay a stated percentage of expenses reduced by deductibles and other coverage, principally Medicare. The Company generally funds all the plans to pay covered expenses as costs are incurred.

        In the fourth quarter of 2002 and in addition to other plan design changes, the retiree health care plans were amended to establish a fixed contribution by the Company equal to its portion of estimated per capita health care costs in calendar year 2003. Additional contributions will be required from participants for all costs in excess of the Company's fixed contribution amount. In addition to the normal annual measurement at June 30, 2002, the Company remeasured its obligation for Other Retirement Benefits at July 31, 2002 to reflect the effects of this plan amendment and other plan design changes. The actuarial assumptions used in performing this remeasurement were the same as those assumptions used at June 30, 2002 except for the health care cost trend rate which was assumed to be zero percent after 2003 as a direct result of the plan amendment. The effect of the remeasurement was to reduce the benefit plan obligation by $121 million.

        As a result of the workforce reductions associated with the Company's 2001 comprehensive restructuring plan (Note 16), the Company remeasured its liability for Other Retirement Benefits at November 30, 2001 and recorded a curtailment gain of $14 million during 2002 as the workforce reductions were completed. The curtailment gain resulted from the accelerated recognition of a deferred gain related to previous plan amendments. The actuarial assumptions used in performing this remeasurement were the same as those assumptions used at the June 30, 2001 measurement date except for the discount rate which was reduced to 7.0 percent.

        The actuarial assumption concerning assumed health care cost trend rates has a significant effect on amounts reported for Other Retirement Benefits. Increasing the rate by one percentage point would increase the benefit obligation as of September 30, 2002 by $32 million and increase the total of service and interest cost components of net periodic benefit expense for Other Retirement Benefits for 2002 by $3 million. Conversely, decreasing the rate by one percentage point would decrease the benefit obligation as of September 30, 2002 by $26 million and decrease the total of service and interest cost components of net periodic benefit expense for Other Retirement Benefits for 2002 by $2 million.

35

Defined Contribution Savings Plans

        The majority of employees participate in Company-sponsored defined contribution savings plans. The plans allow employees to contribute a portion of their compensation on a pre-tax and/or after-tax basis in accordance with specified guidelines. The Company matches a percentage of employee contributions in Company common stock up to certain limits. Employees may transfer at any time all or a portion of their balance in Company common stock to any of the alternative investment options offered within the plan. The Company's expense related to these savings plans was $30 million, $29 million and $23 million for 2002, 2001, and 2000, respectively.

13.  Shareowners' Equity

Common Stock

        The Company is authorized to issue one billion shares of common stock, par value $0.01 per share, and 25 million shares of preferred stock, without par value, of which 2.5 million shares are designated as Series A Junior Participating Preferred Stock for issuance in connection with the exercise of preferred share purchase rights. At September 30, 2002, 17.7 million shares of common stock were reserved for issuance under various employee incentive plans.

Preferred Share Purchase Rights

        Each outstanding share of common stock provides the holder with one Preferred Share Purchase Right (Right). The Rights will become exercisable only if a person or group acquires, or offers to acquire, without prior approval of the Board of Directors, 15 percent or more of the Company's common stock. However, the Board of Directors is authorized to reduce the 15 percent threshold for triggering the Rights to not less than 10 percent. Upon exercise, each Right entitles the holder to 1/100^th of a share of Series A Junior Participating Preferred Stock of the Company (Junior Preferred Stock) at a price of $125, subject to adjustment.

        Upon acquisition of the Company, each Right (other than Rights held by the acquirer) will generally be exercisable for $250 worth of either common stock of the Company or common stock of the acquirer for $125. In certain circumstances, each Right may be exchanged by the Company for one share of common stock or 1/100^th of a share of Junior Preferred Stock. The Rights will expire on June 30, 2011, unless earlier exchanged or redeemed at $0.01 per Right. The rights have the effect of substantially increasing the cost of acquiring the Company in a transaction not approved by the Board of Directors.

Treasury Stock

        In December 2001, the Board of Directors approved a resolution authorizing the repurchase of up to $200 million of the Company's issued and outstanding common stock (Share Repurchase Program). During 2002, the Company repurchased 4.5 million shares of common stock into treasury for $102 million. At September 30, 2002, the Company was authorized to repurchase an additional $98 million of outstanding common stock under the Share Repurchase Program.

Accumulated Other Comprehensive Loss

        Accumulated other comprehensive loss consisted of the following (in millions):

	September 30
	2002			2001
Foreign currency translation adjustments	$	(12	)	$	(17	)
Minimum pension liability adjustment, net of taxes of $141 million for 2002 and $6 million for 2001		(240	)		(11	)
Accumulated other comprehensive loss	$	(252	)	$	(28	)

14.  Stock Based Compensation

Stock Options

        Options to purchase common stock of the Company have been granted under various incentive plans to directors, officers and other key employees. All of the Company's stock-based incentive plans require options to

36

be granted at prices equal to or above the fair market value of the common stock on the dates the options are granted. The plans provide that the option price for certain options granted under the plans may be paid in cash, shares of common stock utilizing a third-party broker arrangement or a combination thereof. Stock options generally expire ten years from the date they are granted and vest over three years.

        Under the Company's 2001 Long-Term Incentives Plan and Directors Stock Plan, up to 14.3 million shares of common stock may be issued by the Company as non-qualified options, incentive stock options, performance units, stock appreciation rights, and restricted stock. Shares available for future grant or payment under these plans were 9.4 million at September 30, 2002. Neither of these plans permits options to be granted after June 29, 2011. In connection with the Distribution, the Board of Directors approved the 2001 Stock Option Plan under which options to purchase 12.9 million shares of the Company's common stock were issued upon the conversion of Rockwell options. No further stock options may be granted under the 2001 Stock Option Plan.

        In periods prior to the Distribution, certain employees of the Company were granted options to purchase common stock under Rockwell's various stock-based compensation plans. At the time of the Distribution, Rockwell options held by employees of the Company, as well as certain other current and former employees of Rockwell, were converted either in whole or in part to options to purchase common stock of the Company based on a formula designed to preserve the intrinsic value of the options. The Rockwell Collins stock options issued, as converted, have the same vesting provisions, option periods, and other terms and conditions as the Rockwell options and awards they replaced and are substantially similar to options issued under the Company's current incentive plans, except certain options have different vesting provisions. Approximately 2.0 million of these options are performance-vesting options that vest at the earlier of (a) the date the market price of the Company's common stock reaches a specified level for a pre-determined period of time or certain other financial performance criteria are met, or (b) a period of six to nine years from the date they are granted.

        The following summarizes the activity of the Company's stock options for 2002 and 2001 (shares in thousands):

			2002				2001
			Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Number of shares under option:
Outstanding at beginning of year			15,787		$	22.14	—		$	—
	Converted in connection with the Distribution:
		Time-vesting	—			—	10,929			21.89
		Performance-vesting	—			—	2,010			23.09
	Granted		1,997			20.88	2,990			22.35
	Exercised		(1,142	)		15.00	(52	)		14.29
	Canceled or expired		(356	)		26.33	(90	)		25.76
Outstanding at end of year			16,286			22.37	15,787			22.14
Exercisable at end of year			9,952			21.91	9,157			20.63

        The following table summarizes the status of the Company's stock options outstanding at September 30, 2002 (shares in thousands; remaining life in years):

	Options Outstanding				Options Exercisable
		Weighted Average
						Weighted Average Exercise Price
Range of Exercise Prices	Shares	Remaining Life	Exercise Price		Shares
$12.71 to $16.97	3,224	3.6	$	15.86	3,186	$	15.86
$16.98 to $22.08	5,823	7.4		20.14	2,660		20.28
$22.09 to $27.41	3,743	7.8		23.01	1,816		23.63
$27.42 to $37.78	3,496	5.8		31.41	2,290		30.84
Total	16,286	6.4		22.37	9,952		21.91

37

        For 2002, dilutive stock options outstanding resulted in an increase in average outstanding shares of 1.0 million.

Employee Stock Purchase Plan

        The Company offers an Employee Stock Purchase Plan (ESPP) which allows employees to have withheld up to 15 percent of their base compensation toward the purchase of the Company's stock. Under the ESPP, shares of the Company's common stock may be purchased at six-month intervals at 85 percent of the lower of the fair market value on the first or the last day of the offering period. There are two offering periods during the year, each lasting six months, beginning on December 1 and June 1. The Company is authorized to issue 9.0 million shares under the ESPP, of which 8.3 million shares are available for future grant at September 30, 2002. During 2002, approximately 0.7 million shares were issued under this plan for aggregate consideration of $10 million. This transaction was treated as a non-cash transaction and not reflected in the Statement of Cash Flows.

SFAS 123 Pro Forma Disclosures

        The Company accounts for stock-based compensation in accordance with APB 25. Accordingly, no compensation expense has been recognized for either stock options granted to employees or common shares issued in connection with the ESPP. If the Company accounted for its stock-based compensation plans using the fair value method provided by SFAS No. 123, Accounting for Stock Based Compensation, net income and earnings per share in 2002 would have been reduced by approximately $18 million or 10 cents per share, respectively, which includes a reduction to net income of $3 million or 2 cents per share, respectively, for the ESPP. In 2001, pro forma net income and pro forma earnings per share (Note 23) would have been reduced by approximately $14 million and 7 cents per share, respectively.

        The fair values of converted Rockwell options in 2001 were calculated using the Black-Scholes pricing model as determined by Rockwell, adjusted for the previously described conversion. The weighted average fair value of these options, as converted, was $8.73 per option. The weighted average fair value of options granted by the Company after the Distribution was $6.69 and $7.27 per option in 2002 and 2001, respectively. The fair value of each option granted by the Company was estimated using the Black-Scholes pricing model and the following weighted average assumptions:

	2002 Grants		2001 Grants
Risk-free interest rate	3.61	%	5.32	%
Expected dividend yield	1.73	%	1.77	%
Expected volatility	0.40		0.35
Expected life	6 years		5 years

15.  Research and Development

        The Company performs research and development for its products and under contracts with customers. Research and development under contracts with customers is generally performed by the Government Systems business. Total Company-initiated research and development expenditures in 2002, 2001, and 2000 were $253 million, $295 million and $265 million, respectively, and are recorded in Cost of Sales. Total customer-funded research and development expenditures were $231 million, $217 million, and $203 million in 2002, 2001, and 2000, respectively.

        Customer-funded research and development is generally performed under long-term fixed price contracts with the U.S. Government and includes activities relating to the development of new products and the improvement of existing products. These contracts generally require the production of initial prototype units or limited production quantities to the government's specifications. The Company accounts for such contracts under the percentage-of-completion method of accounting using the cost-to-cost method.

16.  2001 Restructuring, Goodwill and Asset Impairment Charges

2001 Restructuring

        In September 2001, the Company announced a comprehensive restructuring plan to reduce its workforce and streamline certain operations. These actions were undertaken in response to the sudden and severe decline in anticipated sales volumes in the commercial aerospace market resulting from the September 11, 2001 terrorist

38

acts. As a result of this plan, the Company recorded charges of $34 million in the fourth quarter of 2001 which was comprised of $28 million of employee separation costs, $4 million of facility exit costs, and $2 million of asset write-downs. These charges were recorded in Cost of Sales and Selling, General, and Administrative Expenses in the amounts of $27 million and $7 million, respectively, in the Statement of Operations.

        The restructuring plan anticipated involuntary separations of approximately 2,800 employees. These employee separations were broad based and affected all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. All of the employee separations have been completed and $19 million of employee separation costs have been paid as of September 30, 2002 with the remaining employee separation costs expected to be paid in early 2003. Employee separation costs include severance, fringe benefits during the severance period, and outplacement costs.

        The restructuring plan also included the consolidation of the in-flight entertainment product line into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, and Southeast Asia; and the consolidation of certain manufacturing operations. Facility exit costs are comprised primarily of lease payments or cancellation costs pursuant to contractual obligations. Facility exit actions have been completed. Exit costs associated with these facility actions of $2 million have been paid as of September 30, 2002, and payments will continue through the term of the lease periods for these facilities.

        In the second quarter of 2002, the Company determined that the cost of these restructuring actions would be $4 million lower than originally planned and recorded favorable adjustments of $3 million to Cost of Sales and $1 million to Selling, General and Administrative expenses. The primary reason for the reduction in costs relates to lower than expected severance costs resulting from higher than expected employee attrition.

        The changes in the restructuring reserves during the year ended September 30, 2002 are as follows (in millions):

	Reserve at September 30, 2001		Cash Payments			Reserve Adjustment			Reserve at September 30, 2002
Employee separation costs	$	28	$	(19	)	$	(4	)	$	5
Facility exit costs		4		(2	)		—			2
Restructuring reserves	$	32	$	(21	)	$	(4	)	$	7

2001 Goodwill and Asset Impairment Charges

        In connection with the Company's assessment of the business impact of the unexpected decline in the commercial aerospace market, a review was performed in September 2001 of the carrying values of long-lived assets, including goodwill, to be held and used that are associated with the Commercial Systems business. These reviews were performed pursuant to the provisions of SFAS 121.

        As a result of these reviews, the Company recorded impairment charges in 2001 of $149 million related to property, intangible assets and goodwill. The components of these asset impairment charges were as follows (in millions):

Property and intangible asset impairment charges:
	Developed technology and patents	$	30
	Property		22
	Software license agreements		13
	Assembled workforce		9
	Non-compete agreements		1
Total property and intangible asset impairment charges			75
Goodwill impairment charges			74
Total goodwill and asset impairment charges		$	149

        The reviews in 2001 focused on the long-lived assets recorded in connection with the Sony Trans Com and Hughes-Avicom acquisitions which comprise the in-flight entertainment product line. The financial instability of commercial airlines combined with the discretionary nature of expenditures on in-flight entertainment equipment resulted in significantly lower demand for these products.

39

        In addition to the asset impairment charges related to the in-flight entertainment product line, the Company recorded $13 million of asset impairment charges related to software license agreements used in certain other product lines serving the commercial air transport market. Sales of these products were adversely affected by the downturn in the commercial aerospace market with technological obsolescence outpacing any expected recovery in demand.

        These charges were determined by measuring the amount by which the carrying amount of these assets exceeded their fair values. Fair values were determined by management utilizing accepted valuation techniques, and with consideration of advice from outside valuation experts.

17.  Other Income

        Other income is summarized as follows (in millions):

	2002		2001		2000
Interest income	$	2	$	3	$	3
Royalty income		5		4		4
Earnings (loss) from equity affiliates		4		2		(3	)
Legal matters, net		12		—		—
Other		2		6		4
Other income	$	25	$	15	$	8

        Legal matters, net in 2002 includes a $22 million cash gain and a $4 million reversal of a reserve associated with favorable resolutions of legal matters related to an in-flight entertainment acquisition in 1998 and the sale of a business several years ago, respectively, partially offset by reserves for other legal matters.

18.  Income Taxes

        The components of the income tax provision are as follows (in millions):

		2002			2001			2000
Current:
	United States	$	51		$	97		$	94
	Non-United States		5			5			4
	State and local		(1	)		9			8
Total current			55			111			106
Deferred:
	United States		42			(24	)		22
	Non-United States		2			—			—
	State and local		6			(2	)		2
Total deferred			50			(26	)		24
Income tax provision		$	105		$	85		$	130

        For periods prior to the Distribution, the income tax provisions have been determined as if the Company was a separate taxpayer.

        Prior to the Distribution, substantially all of the Company's operations were included in the consolidated or combined income tax returns of Rockwell. Rockwell is required to indemnify Rockwell Collins for all income tax liabilities and retains rights to all tax refunds related to substantially all operations included in consolidated or combined tax returns for periods through the date of the Distribution.

40

        Net current deferred income tax benefits consist of the tax effects of temporary differences related to the following (in millions):

	September 30
	2002		2001
Inventory	$	49	$	49
Product warranty costs		48		50
Compensation and benefits		27		30
Customer incentives		23		—
Contract reserves		19		23
Other, net		25		37
Current deferred income taxes	$	191	$	189

        Net long-term deferred income tax benefits included in Other Assets in the Statement of Financial Position consist of the tax effects of temporary differences related to the following (in millions):

	September 30
	2002			2001
Retirement benefits	$	200		$	70
Property		(41	)		(34	)
Other, net		(56	)		(28	)
Long-term deferred income taxes	$	103		$	8

        Management believes it is more likely than not that the current and long-term deferred tax assets will be realized through the reduction of future taxable income. Significant factors considered by management in its determination of the probability of the realization of the deferred tax assets include: (a) the historical operating results of Rockwell Collins ($737 million of United States taxable income over the past three years), (b) expectations of future earnings, and (c) the extended period of time over which the retirement benefit liabilities will be paid.

        The effective income tax rate differed from the United States statutory tax rate for the reasons set forth below:

	2002		2001		2000
Statutory tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	0.9		2.0		1.6
Extraterritorial income exclusion / foreign sales corporation benefit	(2.3	)	(6.2	)	(3.9	)
Non-deductible goodwill amortization	—		1.9		—
Non-deductible goodwill impairment charge	—		5.8		—
Research and development credit	(3.1	)	(0.9	)	—
Other	0.5		0.3		(0.2	)
Effective income tax rate	31.0	%	37.9	%	32.5	%

        The income tax provisions were calculated based upon the following components of income before income taxes (in millions):

	2002		2001		2000
United States income	$	318	$	209	$	388
Non-United States income		23		15		11
Total	$	341	$	224	$	399

        No provision has been made for United States, state, or additional foreign income taxes related to approximately $51 million of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested.

41

        Income taxes paid in 2002 totaled $51 million, and were not significant in 2001 and 2000. All tax payments related to the Company for periods prior to the Distribution were made by Rockwell.

19.  Financial Instruments

        The Company's financial instruments include cash and cash equivalents, foreign currency forward exchange contracts and short-term commercial paper borrowings. The fair values of cash and cash equivalents and short-term commercial paper borrowings were approximately equal to their carrying values at September 30, 2002 and 2001.

        Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates. At September 30, 2002 and 2001, the Company had outstanding foreign currency forward exchange contracts with notional amounts of $141 million and $156 million, respectively. These notional values consist primarily of contracts for the euro and pound sterling, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. As of September 30, 2002 and 2001, the foreign currency forward exchange contracts are recorded at their fair value based upon quoted market prices for contracts with similar maturities in Other Current Assets in the amounts of $4 million and $4 million, respectively, and Other Current Liabilities in the amounts of $2 million and $4 million, respectively. Management does not anticipate any material adverse effect on its financial position or results of operations relating to these foreign currency forward exchange contracts.

42

20.  Lease Commitments

        The Company leases certain office and manufacturing facilities as well as certain machinery and equipment under various non-cancelable operating lease commitments. Some leases include renewal options, which permit extensions of the expiration dates at rates approximating fair market rental rates.

        Minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year aggregated $51 million at September 30, 2002 and are payable as follows: 2003, $17 million; 2004, $14 million; 2005, $12 million; 2006, $3 million; 2007, $2 million; and after 2007, $3 million.

        Rent expense for the years ended September 30, 2002, 2001, and 2000 was $24 million, $22 million, and $18 million, respectively.

21.  Contingent Liabilities

        Pursuant to the terms of the distribution agreement entered into among Rockwell, the Company and Rockwell Scientific, the Company assumed responsibility for all current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of the Company's business.

Litigation

        On January 15, 1997, a civil action was filed against the Company in the United States District Court for the District of Arizona in Tucson, Universal Avionics Systems Corp. v. Rockwell International Corp. and Rockwell Collins, Inc., in which Universal, a manufacturer and marketer of aviation electronics, including Flight Management Systems (FMS), asserted four claims against the Company arising out of its participation in the FMS business: (1) attempted monopolization under Section 2 of the Sherman Act; (2) anticompetitive conduct (exclusive dealing and tying) under Section 1 of the Sherman Act and Section 3 of the Clayton Act; (3) tortious interference with business relationships and prospective economic business advantage under the common law of Arizona; and (4) unfair competition under the common law of Arizona. Universal seeks damages of approximately $35 million before trebling for the alleged antitrust violations; actual damages of an unspecified amount for the alleged common law violations; punitive damages; attorneys' fees and injunctive relief. The Company and Rockwell have denied the allegations and have asserted counterclaims against Universal for defamation and unfair competition. On July 17, 2001, the district court granted defendants' motion for partial summary judgment for failure to allege a relevant market entitling plaintiff to relief, certified that ruling for appeal, dismissed as moot other motions for summary judgment filed by defendants challenging plaintiff's attempted monopolization, exclusive dealing and tying, and stayed further proceedings, including rulings on motions for summary judgment filed by defendants as to plaintiff's other claims, pending appeal. On July 19, 2001, plaintiff filed a notice of appeal with the Ninth Circuit Court of Appeals. The parties have submitted written briefs to the appellate court.

        On April 3, 2000, a civil action was filed against the Company in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., asserting various claims arising out of the plaintiff's purchase of the Company's former Railroad Electronics Business pursuant to a sale agreement on October 5, 1998. Specifically, the plaintiff alleged that it was entitled under provisions of the sale agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it was entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by the Company to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to the provisions of the sale agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. On June 18, 2002 the arbitrator issued a ruling in the Company's favor and denying in its entirety the plaintiff's claims for a post-closing adjustment to the purchase price. With respect to the litigation, the parties are in the early stages of discovery.

        On June 18, 2001, Thales Avionics In-Flight Systems, Inc. ("Thales") sued a Company employee, Calvin Fang ("Fang"), for conversion, breach of contract, misappropriation of trade secrets, interference with prospective economic advantage, fraud and conspiracy ("Lawsuit") in Orange County Superior Court, Orange County, California. In the Lawsuit, Thales alleges that in 2001, Fang left his employment with the Company, obtained employment at Thales, misappropriated certain alleged trade secrets, left his employment at Thales, returned to the Company and disclosed the alleged trade secrets to other of its employees. The Company terminated Fang's employment in August 2001. On September 6, 2001, Thales filed a first Amended Complaint ("Amended

43

Complaint") against Fang and named as additional defendants Rockwell Collins and eight of the Company's employees: Greg Nelson, Chris Jameson, Shawn Kathol, Robert Troxel, James Whitehouse, Kathy Garcia, Wayne Hitchcock and Gregory Piponius (collectively, the "Individual Defendants"). The Amended Complaint contains six causes of action against the Company and the Individual Defendants: misappropriation of trade secrets, fraud, unfair competition, conspiracy, conversion, and interference with prospective economic advantage. In this Lawsuit, Thales has asked the court to: (a) order the Company and the Individual Defendants to return Thales' trade secrets allegedly misappropriated by Fang; (b) enjoin the Company and the Individual Defendants from using, retaining, and disseminating the allegedly misappropriated trade secrets, (c) assess damages in the amount equal to the alleged unjust enrichment, (d) assess restitutionary damages, (e) order the Company to pay reasonable royalties if no unjust enrichment and restitution amounts are provable, (f) assess exemplary and punitive damages in an amount according to proof, and (g) order the Company and the Individual Defendants to pay Thales' attorneys' fees and costs. On September 11, 2002, Thales filed a motion seeking permission to file a second Amended Complaint ("Second Amended Complaint") which added a new cause of action against the Company and two Individual Defendants for violation of the Computer Fraud and Abuse Act, a federal statute. Pursuant to the parties' stipulation, Thales Second Amended Complaint was deemed filed on September 20, 2002. On September 25, 2002, the case was removed by the Company to the U.S. District Court for the Central District of California, Southern Division, and were joined in the removal action by all other defendants, including the Individual Defendants. On October 2, 2002, the Company filed an answer and affirmative defenses to the Second Amended Complaint in which the Company denied the allegations set forth therein and asserted various defenses. The Company also asserted a counterclaim against Thales alleging that Thales' in-flight entertainment systems infringe Rockwell Collins' patent. The Company's patent counterclaim seeks an injunction against infringing activity by Thales as well as monetary damages. The federal court has ordered a scheduling conference for December 16, 2002. There currently is no trial date set.

        In addition, various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, intellectual property, safety and health, contract and employment matters.

        Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company's business or financial condition, but could possibly be material to the results of operations of any one period.

Environmental

        The Company is subject to federal, state and local regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment that have had and will continue to have an impact on the Company's manufacturing operations. These environmental protection regulations may require the investigation and remediation of environmental impairments at current and previously owned or leased properties. In addition, lawsuits, claims and proceedings have been asserted on occasion against the Company alleging violations of environmental protection regulations, or seeking remediation of alleged environmental impairments, principally at previously owned or leased properties. The Company is currently involved in the investigation or remediation of seven sites under these regulations or pursuant to lawsuits asserted by third parties. As of September 30, 2002, management estimates that the total reasonably possible costs the Company could incur from these matters to be approximately $12 million. The Company has recorded environmental reserves for these matters of $3 million as of September 30, 2002, which represents management's estimate of the probable future cost for these matters.

        In addition, Rockwell Collins assumed liabilities for certain environmental matters relating to properties purchased in connection with the acquisition of Kaiser. Rockwell Collins has rights to indemnification for these matters from the escrow funds set aside at the time of acquisition. At September 30, 2002, Rockwell Collins has filed claims against the escrow fund in the amount of $2 million for these matters. In addition, Rockwell Collins may be contingently liable for environmental matters related to certain other properties previously owned or leased by Kaiser. Liability for these matters is subordinated to third parties; however, failure of these third parties to satisfy their obligations related to these properties could cause these liabilities to revert to Rockwell Collins. Rockwell Collins has rights to indemnification for these other matters from the escrow funds in the amount of $8 million set aside at the time of acquisition. We believe the amount of these escrow funds are sufficient to address these matters.

44

        To date, compliance with environmental regulations and resolution of environmental claims have been accomplished without material effect on the Company's liquidity and capital resources, competitive position or financial condition. Management believes that expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the Company's business or financial condition, but could possibly be material to the results of operations of any one period. Management cannot assess the possible effect of compliance with future environmental regulations.

Other Matters

        Various claims (whether based upon United States Government or Company audits and investigations or otherwise) have been or may be instituted or asserted against the Company related to its United States Government contract work, including claims based on business practices and cost classifications. Although such claims are usually resolved by detailed fact-finding and negotiation, on those occasions when they are not resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, the cancellation of or suspension of payments under one or more United States government contracts, suspension or debarment proceedings affecting the Company's potential future business with the United States Government, or alteration of the Company's procedures relating to the performance or obtaining of United States Government contracts. Management of the Company believes there are no claims, audits or investigations currently pending which will have a material adverse effect on the Company's business, financial condition, or the results of operations.

22.  Business Segment Information

        Rockwell Collins is a supplier of aviation electronics and airborne and mobile communication products and systems for commercial and military applications. The Company has two operating segments consisting of the Commercial Systems and Government Systems businesses.

        Products sold by the Commercial Systems business include flight deck electronic products and systems, including communications, navigation, displays and automatic flight control systems, as well as in-flight entertainment, cabin electronics and information management systems. Customers include commercial aircraft manufacturers, commercial airlines and business and regional jet owners.

        The Government Systems business supplies defense electronics products and integrated systems including advanced communication, navigation and displays, for airborne, ground and shipboard applications. Major customers are the United States Department of Defense, foreign militaries, and manufacturers of military aircraft and helicopters.

        Sales made to the United States Government by all segments (primarily the Government Systems segment) were 36 percent, 28 percent, and 27 percent of sales for the years ending September 30, 2002, 2001, and 2000, respectively. Sales made to The Boeing Company by all segments (primarily the Commercial Systems segment) were 7 percent, 8 percent, and 9 percent of sales for the years ending September 30, 2002, 2001, and 2000, respectively. Sales made to Bombardier, Inc. by all segments (primarily the Commercial Systems segment) were 6 percent, 7 percent, and 6 percent of sales for the years ending September 30, 2002, 2001, and 2000, respectively.

45

        The following table reflects the sales and operating results for each of the Company's operating segments (in millions):

			2002			2001			2000
Sales:
Commercial Systems			$	1,377		$	1,752		$	1,586
Government Systems				1,115			1,068			924
	Total sales		$	2,492		$	2,820		$	2,510
Segment operating earnings:
Commercial Systems			$	174		$	275		$	281
Government Systems				193			165			144
		Total segment operating earnings		367			440			425
Interest expense				(6	)		(3	)		—
Earnings (losses) from corporate-level equity affiliates				2			1			(3	)
Restructuring, goodwill and asset impairment charges (Note 16)				4			(183	)		—
General corporate, net				(26	)		(31	)		(23	)
Income before income taxes			$	341		$	224		$	399

        Effective October 1, 2001, management changed its method of evaluating segment performance and changed the composition of the Commercial Systems segment to include a business acquired as part of the Kaiser acquisition, which was previously reported as part of Government Systems. Prior period amounts have been reclassified to conform to the current year presentation.

        The Company evaluates performance and allocates resources based upon, among other considerations, segment operating earnings before income taxes; unallocated general corporate expenses; interest expense; gains and losses from the disposition of businesses; non-recurring charges resulting from purchase accounting such as purchased research and development charges; earnings and losses from corporate-level equity affiliates; special charges related to comprehensive restructuring actions; and other special items as identified by management from time to time. Intersegment sales are not material and have been eliminated. The accounting policies used in preparing the segment information are consistent with the policies described in Note 2.

        Restructuring, goodwill, and asset impairment charges in 2001 related to the operating segments are as follows: Commercial Systems, $177 million; Government Systems, $6 million.

        The following tables summarize the identifiable assets at September 30, as well as the provision for depreciation and amortization and the amount of capital expenditures for property for the years ended September 30, for each of the operating segments and Corporate (in millions):

	2002		2001		2000
Identifiable assets:
Commercial Systems	$	1,334	$	1,402	$	1,297
Government Systems		822		785		450
Corporate		404		450		353
Total identifiable assets	$	2,560	$	2,637	$	2,100
Depreciation and amortization:
Commercial Systems	$	71	$	93	$	84
Government Systems		34		45		22
Total depreciation and amortization	$	105	$	138	$	106
Capital expenditures for property:
Commercial Systems	$	39	$	70	$	72
Government Systems		23		40		26
Total capital expenditures for property	$	62	$	110	$	98

46

        The majority of the Company's businesses are centrally located and share many common resources, infrastructures and assets in the normal course of business. Certain assets have been allocated between the operating segments primarily based upon occupancy or usage, principally property, plant and equipment. Identifiable assets at Corporate consist principally of cash, net deferred income tax assets, prepaid pension cost and the investment in Rockwell Scientific.

        The following table summarizes sales by product category for the years ended September 30 (in millions):

	2002		2001		2000
Commercial avionics and other	$	1,036	$	1,330	$	1,231
In-flight entertainment		341		422		355
Defense electronics		1,115		1,068		924
Total sales	$	2,492	$	2,820	$	2,510

        The following table reflects sales for the years ended September 30 and property at September 30 by geographic region (in millions):

	Sales						Property
	2002		2001		2000		2002		2001		2000
United States	$	1,602	$	1,872	$	1,495	$	383	$	408	$	355
Europe		425		484		552		17		17		18
Asia-Pacific		201		188		234		8		10		11
Canada		174		205		156		—		—		—
Africa / Middle East		70		47		47		—		—		—
Latin America		20		24		26		3		4		4
Total	$	2,492	$	2,820	$	2,510	$	411	$	439	$	388

        Sales are attributed to the geographic regions based on the country of destination.

23.  Pro Forma Financial Information (Unaudited)

        The following pro forma financial information is presented as though both the Distribution and the adoption of SFAS 141 and SFAS 142 occurred on October 1, 1999. The as reported and pro forma financial information presented below reflects the changes in the definition of segment operating earnings and the composition of segments as discussed in Note 22. Pro forma financial information is not necessarily indicative of the financial results of the Company had the Distribution occurred at October 1, 1999.

        Pro forma adjustments related to the Distribution include interest expense on $300 million of commercial paper borrowings used to fund the special dividend to Rockwell and income and costs related to employee benefit obligations, including pension and other retirement benefits, related to former employees of Rockwell. Interest expense, including debt issuance costs, was estimated to be 6.0 percent for the first nine months of 2001 and 6.8 percent for the year ended September 30, 2000.

        SFAS 141 and SFAS 142 pro forma financial information includes the adjustments to eliminate amortization expense related to goodwill, and trademarks and tradenames with indefinite lives, as these intangibles are no longer being amortized. Pro forma financial information also includes adjustments to eliminate amortization expense related to assembled workforce as this intangible asset has been reclassified to goodwill and is no longer being amortized.

        For the year ended September 30, 2000, the number of pro forma weighted average shares outstanding used in the basic and diluted earnings per share calculation were based upon the weighted average number of Rockwell shares outstanding for the applicable period and the Distribution ratio of one share of the Company's common stock for each share of Rockwell common stock. The number of pro forma weighted average common share equivalents used in the diluted earnings per share calculation were based upon the number of Rockwell common share equivalents outstanding for the applicable period, adjusted for the conversion pursuant to the Distribution.

        For the year ended September 30, 2001, pro forma weighted average shares outstanding and common share equivalents were determined based upon the weighted average of (1) Rockwell's shares outstanding and common

47

share equivalents for the first through third quarters adjusted for the conversion pursuant to the Distribution, and (2) the actual Rockwell Collins share activity for the fourth quarter.

        Pro forma financial information for the year ended September 30, 2001 is as follows (in millions, except per share amounts):

		Pro Forma Adjustments
		Reported			Distribution			SFAS 141/142			Pro Forma
					(unaudited)						(unaudited)
Sales:
Commercial Systems		$	1,752		$	—		$	—		$	1,752
Government Systems			1,068			—			—			1,068
	Total sales	$	2,820		$	—		$	—		$	2,820
Segment operating earnings:
Commercial Systems		$	275		$	—		$	16		$	291
Government Systems			165			—			5			170
	Total segment operating earnings		440			—			21			461
Interest expense			(3	)		(14	)		—			(17	)
Earnings from corporate-level equity affiliates			1			—			—			1
Restructuring, goodwill and asset impairment charges			(183	)		—			—			(183	)
General corporate, net			(31	)		5			—			(26	)
Income before income taxes			224			(9	)		21			236
Income tax provision			(85	)		3			(5	)		(87	)
Net income		$	139		$	(6	)	$	16		$	149
Pro forma earnings per share:
	Basic										$	0.81
	Diluted										$	0.80
Pro forma weighted average common shares:
	Basic											182.9
	Diluted											185.5

        Pro forma financial information for the year ended September 30, 2000 is as follows (in millions, except per share amounts):

		Pro Forma Adjustments
		Reported			Distribution			SFAS 141/142			Pro Forma
					(unaudited)						(unaudited)
Sales:
Commercial Systems		$	1,586		$	—		$	—		$	1,586
Government Systems			924			—			—			924
	Total sales	$	2,510		$	—		$	—		$	2,510
Segment operating earnings:
Commercial Systems		$	281		$	—		$	7		$	288
Government Systems			144			—			—			144
	Total segment operating earnings		425			—			7			432
Interest expense			—			(20	)		—			(20	)
Losses from corporate-level equity affiliates			(3	)		—			—			(3	)
General corporate, net			(23	)		2			—			(21	)
Income before income taxes			399			(18	)		7			388
Income tax provision			(130	)		6			(2	)		(126	)
Net income		$	269		$	(12	)	$	5		$	262
Pro forma earnings per share:
	Basic										$	1.40
	Diluted										$	1.38
Pro forma weighted average common shares:
	Basic											187.8
	Diluted											190.6

48

24.  Quarterly Financial Information (Unaudited)

        Quarterly financial information for the years ending September 30, 2002 and 2001 is summarized as follows (in millions, except per share amounts):

		2002 Quarters
		First		Second		Third		Fourth		2002
Sales		$	563	$	608	$	623	$	698	$	2,492
Cost of sales			420		458		460		525		1,863
Net income			48		58		60		70		236
Earnings per share:
	Basic		0.26		0.31		0.33		0.38		1.29
	Diluted		0.26		0.31		0.33		0.38		1.28

        Net income in the second quarter of 2002 includes a $4 million ($2 million after taxes, or 1 cent per share) reversal of a restructuring reserve. Third quarter net income for 2002 includes a $4 million ($2 million after taxes, or 1 cent per share) favorable settlement of a legal matter associated with the sale of a business several years ago. Net income in the fourth quarter of 2002 includes a net gain of $8 million ($5 million after taxes, or 3 cents per share) related to the resolution of a legal matter, offset by reserves for other legal matters.

		2001 Quarters
		First		Second		Third		Fourth			2001
Sales		$	587	$	690	$	727	$	816		$	2,820
Cost of sales			429		515		535		629			2,108
Net income			58		61		68		(48	)		139
Pro forma information:
	Net income		60		62		71		(44	)		149
	Basic earnings per share		0.33		0.34		0.39		(0.24	)		0.81
	Diluted earnings per share		0.32		0.33		0.38		(0.24	)		0.80

        Net loss in the fourth quarter of 2001 includes; (a) a $34 million ($22 million after taxes, or 12 cents per share) restructuring charge and (b) a $149 million ($108 million after taxes, or 59 cents per share) charge for goodwill and asset impairments (see Note 16). Stock options in the fourth quarter are anti-dilutive due to the net loss, resulting in identical basic and diluted earnings per share amounts.

        Per share information is calculated for each quarterly and annual period using average outstanding shares for that period. Therefore, the sum of the quarterly per share amounts will not necessarily equal the annual per share amounts presented.

Selected Financial Data.

        The following selected financial data has been derived from our consolidated financial statements. The data should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report. The Statement of Operations data for the years ended September 30, 2002, 2001, 2000, 1999 and 1998, and the Statement of Financial Position data as of September 30, 2002, 2001, 2000 and 1999 has been

49

derived from our audited financial statements. The Statement of Financial Position data as of September 30, 1998 has been derived from our unaudited financial information.

	Years Ended September 30
	2002(1)		2001(2)		2000		1999(4)		1998(5,6)
	(in millions, except per share amounts)
Statement of Operations Data:
Sales	$	2,492	$	2,820	$	2,510	$	2,438	$	2,026
Cost of sales		1,863		2,108		1,845		1,782		1,603
Selling, general and administrative expenses		307		351		274		278		256
Goodwill and asset impairment charges(3)		—		149		—		—		—
Purchased research and development(7)		—		—		—		—		103
Income before income taxes and accounting change		341		224		399		437		73
Net income		236		139		269		291		32
Diluted earnings per share		1.28		—		—		—		—
Statement of Financial Position Data:
Working capital(8)	$	395	$	493	$	508	$	451	$	334
Property		411		439		393		365		322
Goodwill and intangible assets		456		285		148		126		119
Total assets		2,560		2,637		2,100		2,033		1,841
Short-term debt		132		202		—		—		—
Shareowners' equity		987		1,110		908		695		503
Other Data:
Capital expenditures	$	62	$	110	$	98	$	127	$	143
Goodwill amortization		—		18		6		4		4
Other depreciation and amortization		105		120		100		82		62
Dividends per share		0.36		0.09		—		—		—
Stock Price:
High	$	27.70		24.23	$	—	$	—	$	—
Low		13.00		11.80		—		—		—
Pro Forma Financial Information:(9)
Net income	$	—	$	149	$	262	$	—	$	—
Diluted earnings per share		—		0.80		1.38		—		—

(1)

Includes (a) $12 million ($7 million after taxes) net gain related to certain legal matters, and (b) $4 million ($2 million after taxes) reversal of a portion of the 2001 restructuring charge.

(2)

Includes (a) $34 million ($22 million after taxes) restructuring charge, and (b) $149 million ($108 million after taxes) of goodwill and asset impairment charges.

(3)

Goodwill and asset impairment charges of $149 million ($108 million after taxes) include $136 million related to the in-flight entertainment product line and $13 million related to certain software license agreements.

(4)

Includes a $32 million ($20 million after taxes) gain on sale of a business.

(5)

Includes (a) $65 million ($43 million after taxes) of realignment charges and (b) $53 million ($33 million after taxes) of charges for estimated losses on two government contracts.

(6)

Effective October 1, 1997, we changed our method of accounting for certain inventoriable general and administrative costs related to government contracts. The cumulative effect of this change in accounting principle was a $17 million reduction of net income.

(7)

Purchased research and development of $103 million ($65 million after taxes) relates to the acquisition of the in-flight entertainment business of Hughes-Avicom International, Inc. in December 1997.

(8)

Working capital consists of all current assets and liabilities, including cash and short-term debt.

(9)

Pro forma financial information is presented as if the adoption of SFAS 141, SFAS 142 and the Distribution occurred on October 1, 1999. Pro forma adjustments related to the adoption of SFAS 141 and SFAS 142 include the elimination of amortization expense related to goodwill, assembled workforce, and trademarks and tradenames with indefinite lives as these intangibles are no longer being amortized. Pro forma adjustments related to the Distribution include interest expense on $300 million of commercial paper borrowings used to fund a pre-Distribution dividend to Rockwell International and income and costs related to employee benefit plan obligations related to active and former Rockwell International employees not associated with the Avionics and Communications business that were assumed by us in connection with the Distribution. Pro forma information prior to 2000 is not presented.

50

QuickLinks

Exhibit 13

EX-21

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 21

List of Subsidiaries of Rockwell Collins, Inc.

Name	State/Country of Incorporation
Airshow, Inc.	Delaware
Intertrade Limited	Iowa
K-Systems, Inc.	California
Kaiser Aerospace & Electronics Corporation (d/b/a Kaiser Electroprecision)	Nevada
Kaiser Electro-Optics, Inc.	California
Kaiser Optical Systems, Inc.	Michigan
Rockwell Collins Aerospace & Electronics, Inc. (d/b/a Flight Dynamics and Kaiser Electronics)	Delaware
Rockwell-Collins France S.A.S.	France
Rockwell-Collins (U.K.) Limited	United Kingdom

Listed above are certain consolidated subsidiaries included in the consolidated financial statements of the Company. Unlisted subsidiaries, considered in the aggregate, do not constitute a significant subsidiary.

QuickLinks

Exhibit 21

EX-23

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 333-63100, 333-63120, and 333-72814 on Form S-8 and Nos. 333-63142 and 333-72914 on Form S-3 of Rockwell Collins, Inc. and subsidiaries (the "Company") of our reports dated October 29, 2002 (which report on the consolidated financial statements expresses an unqualified opinion and includes two explanatory paragraphs noting that the Company had not previously operated as a stand-alone entity during all the periods presented and changed its method of accounting for goodwill and certain other intangible assets effective October 1, 2001), appearing in and incorporated by reference in the Annual Report on Form 10-K of the Company for the year ended September 30, 2002.

/s/  DELOITTE & TOUCHE LLP

Chicago, Illinois
October 29, 2002

QuickLinks

Exhibit 23

EX-24

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 24

POWER OF ATTORNEY

        I, the undersigned Director of Rockwell Collins, Inc., a Delaware corporation (the "Company"), hereby constitute GARY R. CHADICK, LAWRENCE A. ERICKSON and PATRICK E. ALLEN, and each of them singly, my true and lawful attorneys with full power to them and each of them to sign for me, and in my name and in the capacity or capacities indicated below, the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002, and any amendments thereto.

Signature	Title	Date
/s/  DONALD R. BEALL Donald R. Beall	Director	November 25, 2002
/s/  ANTHONY J. CARBONE Anthony J. Carbone	Director	November 25, 2002
/s/  MICHAEL P.C. CARNS Michael P.C. Carns	Director	December 11, 2002
/s/  CHRIS A. DAVIS Chris A. Davis	Director	December 2, 2002
/s/  RICHARD J. FERRIS Richard J. Ferris	Director	November 22, 2002
/s/  CHERYL L. SHAVERS Cheryl L. Shavers	Director	December 11, 2002
/s/  JOSEPH F. TOOT, JR. Joseph F. Toot, Jr.	Director	November 26, 2002

QuickLinks

Exhibit 24

EX-99.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Rockwell Collins, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2002 (the "Report") filed with the Securities and Exchange Commission, I, Clayton M. Jones, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Company's Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

December 18, 2002
/s/  CLAYTON M. JONES Clayton M. Jones
Chairman, President and
Chief Executive Officer

QuickLinks

Exhibit 99.1

EX-99.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Rockwell Collins, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2002 (the "Report") filed with the Securities and Exchange Commission, I, Lawrence A. Erickson, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Company's Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

December 18, 2002
/s/  LAWRENCE A. ERICKSON Lawrence A. Erickson
Senior Vice President and
Chief Financial Officer

QuickLinks

Exhibit 99.2