10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004.

Commission file number 1-16445.

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
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (319) 295-1000

(Office of the Corporate Secretary)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

177,036,770 shares of registrant’s Common Stock, par value $.01 per share, were outstanding on July 28, 2004.

ROCKWELL COLLINS, INC.

INDEX

			Page No.
PART I.	FINANCIAL INFORMATION:
	Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Statement of Financial Position (Unaudited) — June 30, 2004 and September 30, 2003	2
		Condensed Consolidated Statement of Operations (Unaudited) — Three and Nine Months Ended June 30, 2004 and 2003	3
		Condensed Consolidated Statement of Cash Flows (Unaudited) — Nine Months Ended June 30, 2004 and 2003	4
		Notes to Condensed Consolidated Financial Statements (Unaudited)	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 4.	Controls and Procedures	22
PART II.	OTHER INFORMATION:
	Item 1.	Legal Proceedings	22
	Item 2.	Issuer Purchases of Equity Securities	23
	Item 6.	Exhibits and Reports on Form 8-K	23
Signatures			24

1

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

(in millions, except per share amounts)

	June 30, 2004			September 30, 2003
ASSETS
Current Assets:
Cash	$	57		$	66
Receivables		600			525
Inventories		688			618
Current deferred income taxes		179			178
Income taxes receivable		6			17
Other current assets		34			23
Total current assets		1,564			1,427
Property		395			401
Intangible Assets		133			110
Goodwill		434			330
Other Assets		287			323
TOTAL ASSETS	$	2,813		$	2,591
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Short-term debt	$	—		$	42
Accounts payable		186			198
Compensation and benefits		221			216
Income taxes payable		24			3
Product warranty costs		151			144
Other current liabilities		363			298
Total current liabilities		945			901
Long-Term Debt		196			—
Retirement Benefits		708			824
Other Liabilities		26			33
Shareowners’ Equity:
Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 183.8)		2			2
Additional paid-in capital		1,222			1,213
Retained earnings		412			273
Accumulated other comprehensive loss		(511	)		(516	)
Common stock in treasury, at cost (shares held: June 30, 2004, 7.0; September 30, 2003, 6.0)		(187	)		(139	)
Total shareowners’ equity		938			833
TOTAL LIABILITIES AND SHAREOWNERS’ EQUITY	$	2,813		$	2,591

See Notes to Condensed Consolidated Financial Statements.

2

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Sales
Product sales	$	666		$	550		$	1,858		$	1,602
Service sales		78			70			233			197
Total sales		744			620			2,091			1,799
Costs, expenses and other:
Product cost of sales		492			397			1,362			1,173
Service cost of sales		55			53			166			146
Selling, general, and administrative expenses		88			81			255			245
Interest expense		2			1			6			3
Other income, net		(1	)		(22	)		(5	)		(32	)
Total costs, expenses and other		636			510			1,784			1,535
Income before income taxes		108			110			307			264
Income tax provision		32			33			92			79
Net income	$	76		$	77		$	215		$	185
Earnings per share:
Basic	$	0.43		$	0.43		$	1.21		$	1.03
Diluted	$	0.42		$	0.43		$	1.19		$	1.03
Weighted average common shares:
Basic		176.8			178.3			177.6			179.2
Diluted		179.3			179.1			179.9			180.0
Cash dividends per share	$	0.09		$	0.09		$	0.27		$	0.27

See Notes to Condensed Consolidated Financial Statements.

3

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(in millions)

	Nine Months Ended June 30
	2004			2003
Operating Activities:
Net income	$	215		$	185
Adjustments to arrive at cash provided by operating activities:
Depreciation		69			70
Amortization of intangible assets		12			9
Pension plan contributions		(130	)		(45	)
Compensation and benefits paid in common stock		48			30
Deferred income taxes		30			67
Tax benefit from the exercise of stock options		7			5
Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments:
Receivables		(39	)		43
Inventories		(68	)		(17	)
Accounts payable		(27	)		(56	)
Income taxes		34			(41	)
Compensation and benefits		4			(22	)
Other assets and liabilities		22			(25	)
Cash Provided by Operating Activities		177			203
Investing Activities:
Acquisition of businesses, net of cash acquired		(126	)		2
Property additions		(50	)		(44	)
Proceeds from the disposition of property		1			4
Acquisition of intangible assets		(11	)		—
Investment in equity affiliates		—			(5	)
Cash Used for Investing Activities		(186	)		(43	)
Financing Activities:
Proceeds from issuance of long-term debt		198			—
Net decrease in short-term borrowings		(42	)		(18	)
Purchases of treasury stock		(134	)		(93	)
Cash dividends		(48	)		(48	)
Proceeds from the exercise of stock options		30			15
Cash Provided by (Used for) Financing Activities		4			(144	)
Effect of exchange rate changes on cash		(4	)		(7	)
Net Change in Cash		(9	)		9
Cash at Beginning of Period		66			49
Cash at End of Period	$	57		$	58

See Notes to Condensed Consolidated Financial Statements.

4

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Rockwell Collins, Inc. (the Company or Rockwell Collins) have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2003, including the financial statements in Exhibit 13 incorporated by reference in the Form 10-K.

In the opinion of management, the unaudited financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. The results of operations for the three and nine months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions.

Prior to 2004, the Company operated on a fiscal year basis with the fiscal year ending on September 30. Beginning with the Company’s 2004 fiscal year, the Company has changed to a fiscal 52/53 week year ending on the Friday nearest to September 30. The Company’s 2004 fiscal year will end on October 1, 2004. All date references contained herein relate to the Company’s fiscal year unless otherwise stated.

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

On April 30, 2004, the Board of Directors of the Company declared a quarterly dividend of nine cents per share on its common stock, paid on June 7, 2004 to shareowners of record on May 17, 2004. On June 30, 2004, the Board of Directors of the Company declared a quarterly dividend of twelve cents per share on its common stock, payable on September 7, 2004 to shareowners of record on August 12, 2004.

2. Acquisitions

In December 2003, the Company acquired NLX Holding Corporation (NLX), a provider of integrated training and simulation systems. NLX provides simulators ranging from full motion full flight simulators to desktop simulators, training, upgrades, modifications, and engineering and technical services primarily to branches of the United States military.

In March 2004, the Company finalized the purchase price for NLX, which resulted in a $1 million reduction in the purchase price to $126 million. The Company adjusted its purchase price allocation during the three months ended June 30, 2004, which resulted in an allocation of $104 million to goodwill; $17 million to intangible assets with finite lives, including customer relationships, developed technology, and trademarks; and $5 million to other acquired assets and liabilities. The purchase price allocations are expected to be finalized during 2004. The weighted average useful life of intangible assets with finite lives is approximately 5 years. Goodwill resulting from the acquisition is included in the Government Systems segment. Approximately 20 percent of the goodwill resulting from the acquisition is tax deductible.

5

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Receivables

Receivables are summarized as follows (in millions):

	June 30, 2004			September 30, 2003
Billed	$	473		$	460
Unbilled		253			200
Less progress payments		(110	)		(118	)
Total		616			542
Less allowance for doubtful accounts		(16	)		(17	)
Receivables	$	600		$	525

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

4. Inventories

Inventories are summarized as follows (in millions):

	June 30, 2004			September 30, 2003
Finished goods	$	134		$	155
Work in process		254			215
Raw materials, parts, and supplies		341			322
Total		729			692
Less progress payments		(41	)		(74	)
Inventories	$	688		$	618

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 $111 million and $106 million at June 30, 2004 and September 30, 2003, respectively.

5. Property

Property is summarized as follows (in millions):

	June 30, 2004			September 30, 2003
Land	$	25		$	25
Buildings and improvements		229			222
Machinery and equipment		591			566
Information systems software and hardware		231			226
Construction in progress		27			25
Total		1,103			1,064
Less accumulated depreciation		(708	)		(663	)
Property	$	395		$	401

6

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended June 30, 2004 are summarized as follows (in millions):

	Commercial Systems		Government Systems		Total
Balance at September 30, 2003	$	187	$	143	$	330
NLX acquisition		—		104		104
Balance at June 30, 2004	$	187	$	247	$	434

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets during the second quarter of each fiscal year, or at any time there is an indication of potential impairment. The Company’s 2004 impairment tests yielded no impairments.

Intangible assets are summarized as follows (in millions):

	June 30, 2004						September 30, 2003
	Accum						Accum
	Gross		Amort		Net		Gross		Amort		Net
Intangible assets with finite lives:
Developed technology and patents	$	116	$	32	$	84	$	109	$	24	$	85
Customer relationships		9		2		7		—		—		—
License agreements		21		3		18		3		3		—
Trademarks and tradenames		10		3		7		9		1		8
Intangible assets with indefinite lives:
Trademarks and tradenames		18		1		17		18		1		17
Intangible assets	$	174	$	41	$	133	$	139	$	29	$	110

During the nine months ended June 30, 2004, the Commercial Systems segment acquired license agreements for $18 million, of which $11 million was paid during the nine months ended June 30, 2004. These license agreements relate primarily to a strategic agreement with Boeing to provide a global broadband connectivity solution for business aircraft through the Company’s Collins eXchange product.

Annual amortization expense for intangible assets for 2004, 2005, 2006, 2007, and 2008 is expected to be $17 million, $17 million, $22 million, $20 million, and $13 million, respectively.

7. Other Assets

Other assets are summarized as follows (in millions):

	June 30, 2004		September 30, 2003
Long-term deferred income taxes	$	138	$	173
Investments in equity affiliates		67		71
Exchange and rental assets, net of accumulated depreciation of $76 million at June 30, 2004 and $67 million at September 30, 2003		49		56
Other		33		23
Other assets	$	287	$	323

Investments in equity affiliates consist of investments in three joint ventures, each of which is 50 percent owned by the Company and accounted for under the equity method. The Company’s joint ventures consist of Rockwell Scientific, LLC (Rockwell Scientific), Vision Systems International, LLC, and BAE Systems/Rockwell Collins Data Link Solutions.

7

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition to these 50 percent owned joint ventures, the Company also has a 16 percent ownership investment in Tenzing Communications (Tenzing). Tenzing is a developer of passenger connectivity solutions for commercial aircraft. In July 2004, Tenzing entered into a non-binding letter of intent with Airbus and Sita, Inc. to form a new entity which will offer aircraft data and voice connectivity. This potential transaction could reasonably be completed by October 2004 at which time the Company’s ownership percentage in the new entity is expected to be approximately 3 percent. The terms of this potential transaction indicate the fair value of the Company’s investment in Tenzing is lower than the carrying amount recorded. This decline in value is believed to be other-than-temporary in nature and accordingly, the Company recorded a $7 million loss related to this investment during the three months ended June 30, 2004. This loss is reflected in Other Income, Net in the Company’s Condensed Consolidated Statement of Operations.

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 $30 million and $85 million for the three and nine months ended June 30, 2004, respectively, compared to $33 million and $75 million for the three and nine months ended June 30, 2003, respectively.

The Company shares equally with Rockwell Automation, Inc. (Rockwell Automation) in providing a $6 million line-of-credit to Rockwell Scientific, which bears interest at the greater of the Company’s or Rockwell Automation’s commercial paper borrowing rate. At June 30, 2004, $2 million was due to the Company from Rockwell Scientific under this line-of-credit.

8. Other Current Liabilities

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

	June 30, 2004		September 30, 2003
Advance payments from customers	$	135	$	92
Customer incentives		103		91
Contract reserves		53		56
Dividends		21		—
Other		51		59
Other current liabilities	$	363	$	298

9. Debt

Short-term debt

There were no short-term commercial paper borrowings outstanding at June 30, 2004. At September 30, 2003, short-term commercial paper borrowings outstanding were $42 million with a weighted average interest rate and maturity period of 1.08 percent and 66 days, respectively.

Long-term debt

On November 20, 2003, the Company issued $200 million of 4.75 percent fixed rate unsecured debt due December 1, 2013 (the Notes). Interest payments on the Notes are due on June 1 and December 1 of each year, commencing June 1, 2004. The Notes contain certain covenants and events of default, including requirements that the Company satisfy certain conditions in order to incur debt secured by liens, engage in sale/leaseback transactions, or merge or consolidate with another entity. In addition, on November 20, 2003, the Company entered into interest rate swap contracts which effectively converted $100 million aggregate principal amount of the Notes to floating rate debt based on six-month LIBOR less 7.5 basis points.

8

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Long-term debt is summarized as follows (in millions):

	June 30, 2004
Notes due December 1, 2013	$	200
Fair value adjustment (Note 15)		(4	)
Long-term debt	$	196

Interest paid on short and long-term debt for the nine months ended June 30, 2004 and 2003 was $7 million and $1 million, respectively.

10. Retirement Benefits

Pension Benefits

The components of net periodic pension expense are as follows for the three and nine months ended June 30, 2004 and 2003 (in millions):

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Service cost	$	10		$	9		$	30		$	28
Interest cost		34			35			102			105
Expected return on plan assets		(44	)		(42	)		(132	)		(125	)
Amortization:
Prior service cost		(4	)		1			(12	)		1
Net actuarial loss		12			2			36			6
Net periodic benefit expense	$	8		$	5		$	24		$	15

During the nine months ended June 30, 2004, the Company made $130 million of contributions to its pension plans, of which $125 million related to voluntary contributions to its qualified plans and $5 million related to contributions to its non-qualified plans. The Company is not required to make any mandatory contributions pursuant to federal regulations in calendar 2004. However, the Company continues to monitor the funded status of its pension plans and will consider additional voluntary contributions. At this time, the Company expects total pension plan contributions for the year ended September 30, 2004 to approximate $132 million.

Other Retirement Benefits

Other retirement benefits consist primarily of retiree health care and life insurance benefits that are provided to substantially all of the Company’s 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. In 2002, the Company amended its retiree medical plans to establish a fixed amount that it will contribute toward retiree medical coverage. Additional contributions are required from participants for all costs in excess of the Company’s fixed contribution amount. Retiree medical plans pay a stated percentage of expenses reduced by deductibles and other coverage, principally Medicare.

The components of net periodic other retirement benefit expense are as follows for the three and nine months ended June 30, 2004 and 2003 (in millions):

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Service cost	$	1		$	1		$	3		$	3
Interest cost		6			7			18			20
Expected return on plan assets		(1	)		—			(1	)		(1	)
Amortization:
Prior service cost		(7	)		(8	)		(21	)		(23	)
Net actuarial loss		5			5			15			15
Net periodic benefit expense	$	4		$	5		$	14		$	14

9

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. During the three months ended June 30, 2004, the Company completed its review of the Act and remeasured its retiree medical liability as of December 8, 2003 pursuant to Financial Accounting Standards Board (FASB) Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This remeasurement was performed based upon the plan design in effect on December 8, 2003 using the same actuarial assumptions used in the Company’s prior actuarial valuation on June 30, 2003, as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003, including the financial statements in Exhibit 13 incorporated by reference in the Form 10-K. The effect of the Act on the Company’s retiree medical obligation as of December 8, 2003 and related expense in 2004 was not material. This is a direct result of the Company’s fixed contribution plan design.

As a result of the Act, the Company amended its retiree medical plans on June 30, 2004 to discontinue post-65 prescription drug coverage effective January 1, 2008. This action is expected to reduce our benefit obligation related to Other Retirement Benefits by approximately $99 million at September 30, 2004 and Other Retirement Benefits expense by approximately $15 million in 2005.

11. Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Under the intrinsic value method, compensation expense is recorded for the excess of the stock’s quoted market price at the time of grant over the amount an employee must pay to acquire the stock. 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 recorded in connection with stock options granted to employees.

The fair value method is an alternative method for accounting for stock-based compensation that is permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Under the fair value method, compensation expense is recorded over the vesting periods based on the estimated fair value of the stock-based compensation. The following table illustrates the effect on net income and earnings per share if the Company had accounted for its stock-based compensation plans using the fair value method (in millions, except per share amounts):

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Net income, as reported	$	76		$	77		$	215		$	185
Stock-based compensation expense included in reported net income		—			—			—			—
Stock-based compensation expense determined under the fair value based method, net of tax		(3	)		(4	)		(11	)		(12	)
Pro forma net income	$	73		$	73		$	204		$	173
Earnings per share:
Basic – as reported	$	0.43		$	0.43		$	1.21		$	1.03
Basic – pro forma	$	0.41		$	0.41		$	1.15		$	0.97
Diluted – as reported	$	0.42		$	0.43		$	1.19		$	1.03
Diluted – pro forma	$	0.40		$	0.41		$	1.13		$	0.96

10

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the nine months ended June 30, 2004 and 2003, 1.9 million and 1.6 million shares, respectively, of Company common stock were issued to employees under the Company’s employee stock purchase and defined contribution savings plans at a value of $48 million and $30 million for the respective periods. These transactions are non-cash transactions and therefore are not reflected in the Condensed Consolidated Statement of Cash Flows.

12. Comprehensive Income

Comprehensive income consists of the following (in millions):

	Three Months Ended June 30					Nine Months Ended June 30
	2004			2003		2004		2003
Net income	$	76		$	77	$	215	$	185
Unrealized currency translation adjustment		(1	)		9		5		10
Comprehensive income	$	75		$	86	$	220	$	195

13. Other Income, Net

Other income, net consists of the following (in millions):

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Contract dispute settlement (A)	$	(7	)	$	—		$	(7	)	$	—
Insurance settlements (B)		—			—			(5	)		—
Loss on equity investment (C)		7			—			7			—
Gain on life insurance reserve fund (D)		—			(20	)		—			(20	)
Royalty income		(1	)		(2	)		(3	)		(8	)
Earnings from equity affiliates		(2	)		(1	)		(5	)		(4	)
Interest income		(1	)		—			(2	)		(1	)
Other, net		3			1			10			1
Other income, net	$	(1	)	$	(22	)	$	(5	)	$	(32	)

(A) The contract dispute settlement gain relates to the resolution of a legal matter brought by the Company prior to the Company’s spin-off from Rockwell Automation in 2001.

(B) The insurance settlements gain consists of favorable settlements related to insurance matters that originated prior to the Company’s spin-off from Rockwell Automation.

(C) The loss on equity investment relates to the Company’s investment in Tenzing. See Note 7 for further detail.

(D) The gain on life insurance reserve fund relates to a favorable tax ruling from the Internal Revenue Service regarding an over funded life insurance reserve trust fund. The ruling allowed the Company to use funds from the trust to pay for other employee health and welfare benefits without incurring an excise tax.

14. Income Taxes

At the end of each interim reporting period, the Company makes an estimate of the effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. During the three and nine months ended June 30, 2004 and 2003, the effective income tax rate was 30 percent. During the nine months ended June 30, 2004 and 2003 the Company paid income taxes of $17 million and $45 million, respectively.

11

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15. Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments are as follows (in millions):

	June 30, 2004						September 30, 2003
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash	$	57		$	57		$	66		$	66
Short-term commercial paper borrowings		—			—			(42	)		(42	)
Long-term debt		196			194			—			—
Interest rate swaps		(4	)		(4	)		—			—
Foreign currency forward exchange contracts		(4	)		(4	)		(2	)		(2	)

The fair value of cash and short-term commercial paper borrowings approximate their carrying value due to their short-term nature. The fair value of long-term debt is based on quoted market prices for debt with similar terms and maturities.

The Company uses derivative financial instruments in the form of interest rate swaps and foreign currency forward exchange contracts to manage interest rate risk and foreign currency risk, respectively. The Company’s policy is to execute such instruments with creditworthy financial institutions and not enter into derivative financial instruments for speculative purposes.

On November 20, 2003, the Company entered into interest rate swap contracts (the Swaps) which effectively converted $100 million aggregate principal amount of the Notes to floating rate debt based on six-month LIBOR less 7.5 basis points. As permitted by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company has designated the Swaps as fair value hedges. Accordingly, the fair values of the Swaps are recorded in Other Liabilities on the Condensed Consolidated Statement of Financial Position and the carrying value of the underlying debt is adjusted by an equal amount. The fair value of the interest rate swaps is based on quoted market prices for contracts with similar maturities.

Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. At June 30, 2004 and September 30, 2003, the Company had outstanding foreign currency forward exchange contracts with notional amounts of $72 million and $101 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 June 30, 2004 and September 30, 2003, the foreign currency forward exchange contracts are recorded at their fair values based on quoted market prices for contracts with similar maturities in Other Current Assets in the amounts of $2 million and $2 million, respectively, and Other Current Liabilities in the amounts of $6 million and $4 million, respectively.

16. Guarantees and Indemnifications

Product warranty costs

Reserves are recorded on the Statement of Financial Position to reflect the Company’s contractual liabilities relating to warranty commitments to customers. Warranty coverage of various lengths and terms is provided to customers depending on standard offerings and negotiated contractual agreements. An estimate for warranty expense is recorded at the time of sale based on historical warranty return rates and repair costs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Changes in the carrying amount of accrued product warranty costs for the nine months ended June 30, 2004 and 2003 are summarized as follows (in millions):

	June 30, 2004			June 30, 2003
Balance at September 30	$	144		$	152
Warranty costs incurred		(42	)		(45	)
Product warranty accrual		49			33
Pre-existing warranty adjustments		—			5
Balance at June 30	$	151		$	145

Lease guarantee

The Company guarantees fifty percent of a lease obligation of a Rockwell Scientific facility. The Company’s portion of the guarantee totals $3 million and expires ratably through December 2011. Should Rockwell Scientific fail to meet its lease obligations, this guarantee may become a liability of the Company. This guarantee is not reflected as a liability on the Company’s Statement of Financial Position.

Letters of credit

The Company has contingent commitments in the form of commercial letters of credit. Outstanding letters of credit are issued by banks on the Company’s behalf to support certain contractual obligations to its customers. If the Company fails to meet these contractual obligations, these letters of credit may become liabilities of the Company. Total outstanding letters of credit at June 30, 2004 were $99 million. These commitments are not reflected as liabilities on the Company’s Statement of Financial Position.

Indemnifications

The Company enters into indemnifications with lenders, counterparties in transactions such as administration of employee benefit plans, and other customary indemnifications with third parties in the normal course of business. The following are other than customary indemnifications based on the judgment of management.

In connection with agreements for the sale of portions of its business, the Company at times retains the liabilities of a business which relate to events occurring prior to its sale, such as tax, environmental, litigation and employment matters. The Company at times indemnifies the purchaser of a Rockwell Collins’ business in the event that a third party asserts a claim that relates to a liability retained by the Company.

The Company also provides indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of Company products. These indemnifications generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions.

Related to the Company’s spin-off in 2001, the Company is generally obligated to indemnify and defend Rockwell Automation and its affiliates and representatives under the terms of the spin-off agreement for all damages, liabilities or actions arising out of or in connection with Rockwell Automation’s former avionics and communications business, including with respect to former operations, and the liabilities assumed by the Company as part of the separation. This indemnity obligation continues indefinitely and without any maximum limitation.

The amount the Company could be required to pay under its indemnification agreements is generally limited based on amounts specified in the underlying agreements, or in the case of some agreements, the maximum potential amount of future payments that could be required is not limited. When a potential claim is asserted under these agreements, the Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. The nature of these agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay should counterparties to these agreements assert a claim. Although future claims cannot be predicted with certainty, management believes these agreements will not have a material adverse effect on the Company’s business or financial position, but could possibly be material to the results of operations or cash flows of any one period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

17. Environmental Matters

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, excluding those sites related to the Company’s acquisition of Kaiser Aerospace & Electronics Corporation (Kaiser) that are discussed below. As of June 30, 2004, management estimates that the total reasonably possible future costs the Company could incur from these matters to be approximately $15 million. The Company has recorded environmental reserves for these matters of $5 million as of June 30, 2004, 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. Moreover, Rockwell Collins also 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 certain rights to indemnification for the Kaiser related environmental matters from escrow funds set aside at the time of acquisition (approximately $4 million is remaining in escrow as of June 30, 2004). The remaining escrow funds are not expected to be disbursed to the former owners of Kaiser any earlier than December 2005, and some funds may remain in escrow in the event there are any outstanding and unresolved claims. Management believes the amounts of these escrow funds are sufficient to address the Company’s potential liability for these matters.

To date, compliance with environmental regulations and resolution of environmental claims has 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 position, but could possibly be material to the results of operations or cash flows of any one period. Management cannot assess the possible effect of compliance with future environmental regulations.

18. Litigation

BAE Systems Electronics Limited (BAE) filed a complaint against the Company in the United States District Court for the Northern District of Texas on April 7, 2003 alleging a single count of patent infringement involving certain head-up display (HUD) products sold by the Company’s Flight Dynamics subsidiary. BAE’s complaint seeks an unspecified amount of compensatory damages (which could be tripled if willful infringement can be proven), reasonable attorney’s fees and a permanent injunction until August 2005 when the patent expires. The Company has filed an answer to the complaint denying BAE’s allegation and asserting several, what the Company’s management believes to be, valid defenses, including that the HUD products do not infringe BAE’s patent, invalidity of BAE’s patent and inequitable conduct by BAE during prosecution of their patent. The Company filed a motion for summary judgment during the three months ended June 30, 2004 requesting the Court to dismiss the lawsuit and is awaiting the Court’s decision. The trial is currently scheduled for August 2004 and if the Court does not grant the Company’s summary judgment request, the Company is prepared to defend this case. In the event that the Company does not prevail, which the Company’s management believes is unlikely, the outcome is not reasonably expected to have a material adverse effect on the Company’s business or financial position, but could possibly be material to the results of operations or cash flows of any one period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition, various other lawsuits, claims and proceedings that have been or may be instituted or asserted against the Company relating to the conduct of the Company’s 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 that are pending or asserted will not have a material adverse effect on the Company’s business or financial position, but could possibly be material to the results of operations or cash flows of any one period.

19. Business Segment Information

The sales and results of operations of the Company’s operating segments are summarized as follows (in millions):

	Three Months Ended June 30						Nine Months Ended June 30
	2004			2003			2004			2003
Sales:
Government Systems	$	388		$	329		$	1,076		$	881
Commercial Systems		356			291			1,015			918
Total sales	$	744		$	620		$	2,091		$	1,799
Segment operating earnings:
Government Systems	$	69		$	64		$	201		$	167
Commercial Systems		53			35			141			106
Total segment operating earnings		122			99			342			273
Interest expense		(2	)		(1	)		(6	)		(3	)
Earnings from corporate-level equity affiliate		—			1			1			3
General corporate, net		(12	)		11			(30	)		(9	)
Income before income taxes		108			110			307			264
Income tax provision		(32	)		(33	)		(92	)		(79	)
Net income	$	76		$	77		$	215		$	185

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; earnings and losses from corporate-level equity affiliates; and other special items as identified by management from time to time.

General corporate, net for the three and nine months ended June 30, 2004 and 2003 includes items (A), (B), (C), and (D) as described in Note 13.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

The following management discussion and analysis is based on financial results for the three and nine months ended June 30, 2004 and 2003 and should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in Item 1 of Part I of this quarterly report.

Three Months Ended June 30, 2004 and 2003

Consolidated Financial Results

Sales increased 20 percent to $744 million for the three months ended June 30, 2004 compared to $620 million for the three months ended June 30, 2003. This sales growth resulted primarily from stronger aftermarket and original equipment sales to our Commercial Systems customers, incremental sales from our NLX acquisition, and increased demand for defense electronics. Net income for the three months ended June 30, 2004 was $76 million, or 10.2 percent of sales, compared to net income of $77 million, or 12.4 percent of sales, for the three months ended June 30, 2003. Diluted earnings per share for the three months ended June 30, 2004 was 42 cents compared to 43 cents for the three months ended June 30, 2003. The slight decrease in net income and diluted earnings per share for the three months ended June 30, 2004 compared to the same period last year was primarily the result of lower other income, net partially offset by higher sales volume coupled with effects of productivity and cost containment initiatives that minimized the growth in selling, general and administrative expenses.

Selling, general and administrative expenses as a percent of sales declined to 11.8 percent, or $88 million, for the three months ended June 30, 2004 compared to 13.1 percent, or $81 million for the same period last year. Other income, net was $1 million for the three months ended June 30, 2004 compared to $22 million during the same period a year ago. Other income, net for the three months ended June 30, 2004 includes a $7 million gain ($4 million after taxes or 2 cents per share) related to the resolution of a legal matter brought by us that existed prior to our spin-off from Rockwell Automation in 2001 and a $7 million loss ($4 million after taxes or 2 cents per share) on our equity investment in Tenzing. Other income, net for the three months ended June 30, 2003 includes a $20 million gain ($12 million after taxes or 7 cents per share) from a favorable tax ruling on an overfunded life insurance reserve fund.

Government Systems Financial Results

Government Systems sales of $388 million for the three months ended June 30, 2004 increased $59 million, or 18 percent, compared to sales of $329 million for the three months ended June 30, 2003. The NLX acquisition contributed $32 million of incremental sales for the three months ended June 30, 2004. Excluding NLX, Government Systems sales increased $27 million, or 8 percent, from the same period last year resulting primarily from higher sales on the KC-135 aircraft retrofit and F-22 production programs, various advanced communication programs, and the Joint Tactical Radio System (JTRS), Joint Strike Fighter (JSF) and Future Combat Systems (FCS) development contracts. Government Systems operating earnings for the three months ended June 30, 2004 increased $5 million to $69 million, or 17.8 percent of sales, compared to operating earnings of $64 million, or 19.5 percent of sales for the three months ended June 30, 2003. This operating earnings growth resulted primarily from the higher sales volume. The decline in operating earnings as a percentage of sales was the result of lower margin sales from our NLX acquisition and increases in sales for development contracts such as JTRS, JSF, and FCS, partially offset by incurring lower operating expenses as a percent of sales.

Commercial Systems Financial Results

Commercial Systems sales of $356 million for the three months ended June 30, 2004 increased $65 million, or 22 percent, compared to sales of $291 million for the three months ended June 30, 2003. This growth resulted from original equipment sales increases of 24 percent and aftermarket sales increases of 21 percent. The increase in Commercial Systems’ original equipment sales was due to higher customer demand for commercial avionics products and systems in all of its served markets, particularly related to new business jets. The increase in aftermarket sales resulted primarily from significant year over year increases in flight hours in all geographic regions of the world coupled with improving airline profitability, especially in Asia. Commercial Systems operating earnings for the three months ended June 30, 2004 increased $18 million to $53 million, or 14.9 percent of sales, compared to $35 million, or 12.0 percent of sales for the three months ended June 30, 2003. These increases were due primarily to the higher sales volume combined with the effects of cost containment and productivity improvement initiatives which have allowed Commercial Systems to keep operating expenses at a level comparable to the same period last year.

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Nine Months Ended June 30, 2004 and 2003

Consolidated Financial Results

Sales increased 16 percent to $2,091 million for the nine months ended June 30, 2004 compared to $1,799 million for the nine months ended June 30, 2003. This sales growth resulted primarily from increased demand for defense electronics, stronger aftermarket and business jet OEM sales in our Commercial Systems business, and incremental sales from NLX. Net income for the nine months ended June 30, 2004 increased 16 percent to $215 million, or 10.3 percent of sales, compared to net income of $185 million, or 10.3 percent of sales, for the nine months ended June 30, 2003. Diluted earnings per share for the nine months ended June 30, 2004 increased to $1.19 compared to $1.03 for the nine months ended June 30, 2003. The higher net income and diluted earnings per share for the nine months ended June 30, 2004 compared to the same period last year resulted from higher sales volume coupled with cost controls minimizing growth in selling, general and administrative expenses, partially offset by lower other income, net.

Selling, general and administrative expenses as a percent of sales declined to 12.2 percent, or $255 million, for the nine months ended June 30, 2004 compared to 13.6 percent, or $245 million for the same period last year. Other income, net was $5 million for the nine months ended June 30, 2004 compared to $32 million during the same period a year ago. Other income, net for the nine months ended June 30, 2004 includes a $7 million gain ($4 million after taxes or 2 cents per share) related to the resolution of a legal matter brought by us that existed prior to our spin-off, a $7 million loss ($4 million after taxes or 2 cents per share) on our equity investment in Tenzing, and a $5 million gain ($3 million after taxes or 2 cents per share) from favorable settlements related to insurance matters arising prior to our spin-off. Other income, net for the nine months ended June 30, 2003 includes a $20 million gain ($12 million after taxes or 7 cents per share) from a favorable tax ruling on an overfunded life insurance reserve fund.

Government Systems Financial Results

Government Systems sales of $1,076 million for the nine months ended June 30, 2004 increased $195 million, or 22 percent, compared to sales of $881 million for the nine months ended June 30, 2003. The NLX acquisition contributed $67 million of incremental sales for the nine months ended June 30, 2004. Excluding NLX, Government Systems sales increased $128 million, or 15 percent, from the same period last year resulting primarily from higher sales on the KC-135 and international C-130 aircraft retrofit programs, higher ARC-210 / 220 radio product sales, and increased JSF, JTRS and FCS development contract sales. Government Systems operating earnings for the nine months ended June 30, 2004 increased $34 million to $201 million, or 18.7 percent of sales, compared to operating earnings of $167 million, or 19.0 percent of sales for the nine months ended June 30, 2003. This earnings growth resulted primarily from the higher sales volume. The slight decline in segment operating earnings as a percent of sales was primarily due to lower margin sales from NLX and increased sales from development contracts such as JTRS, JSF, and FCS, partially offset by incurring lower operating expenses as a percent of sales.

Commercial Systems Financial Results

Commercial Systems sales of $1,015 million for the nine months ended June 30, 2004 increased $97 million, or 11 percent, compared to sales of $918 million for the nine months ended June 30, 2003. The sales growth was attributable to all our major Commercial Systems markets, particularly sales to aftermarket and business jet OEM customers. Commercial Systems operating earnings for the nine months ended June 30, 2004 increased $35 million to $141 million, or 13.9 percent of sales, compared to $106 million, or 11.5 percent of sales for the nine months ended June 30, 2003. The increase was due primarily to the higher sales volume combined with holding operating expenses at a level comparable with the same period last year.

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Retirement Benefits

Net periodic benefit expense for pension benefits and other retirement benefits are as follows (in millions):

	Three Months Ended June 30				Nine Months Ended June 30
	2004		2003		2004		2003
Pension benefits	$	8	$	5	$	24	$	15
Other retirement benefits		4		5		14		14
Net periodic benefit expense	$	12	$	10	$	38	$	29

Pension Benefits

Pension expense for the three months ended June 30, 2004 and 2003 was $8 million and $5 million, respectively, and $24 million and $15 million for the nine months ended June 30, 2004 and 2003, respectively. Pension expense for the full year 2004 will be approximately $32 million compared to $20 million for the full year 2003. The increase in pension expense in 2004 is primarily due to the decrease in the funded status of our pension plans caused by declines in the fair value of pension assets and falling discount rates during 2003 and 2002. The funded status of our pension plans at September 30, 2003 was a deficit of $763 million. Improved investment performance combined with $200 million of voluntary contributions since our June 30, 2003 actuarial valuation have improved the funded status of our pension plans by approximately $300 million at June 30, 2004.

Other Retirement Benefits

Other Retirement Benefits expense for the three months ended June 30, 2004 and 2003 was $4 million and $5 million, respectively, and $14 million for both the nine months ended June 30, 2004 and 2003. Other Retirement Benefits expense for the full year 2004 will remain unchanged from 2003 at $19 million as a direct result of an amendment to our retiree medical plan in 2002 that, among other plan design changes, established a fixed company contribution toward per capita health care costs for retirees.

Other Retirement Benefits expense for the three months ended June 30, 2004 as well as the full year 2004 projection of $19 million includes the expected effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) that was signed into law on December 8, 2003. Pursuant to the Act, the Company amended its retiree medical plans on June 30, 2004 to discontinue post-65 prescription drug coverage effective January 1, 2008. For more information related the Act and the retiree medical plan amendment, see Note 10 in the condensed consolidated financial statements.

Income Taxes

At the end of each interim reporting period we make an estimate of the effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The effective income tax rate for the three and nine months ended June 30, 2004 and 2003 was 30 percent. The Extraterritorial Income Exclusion (ETI) and Research and Development Tax Credit both provide substantial benefits in reducing our overall effective income tax rate. The ETI, which provides a tax benefit on export sales, will likely be repealed in 2004. The Research and Development Tax Credit expired June 30, 2004 and there is legislation currently pending in U.S. Congress that may extend it for 18 months from June 30, 2004 to December 31, 2005. We believe that a 30.0 percent effective income tax rate is sustainable for our company as long as the ETI is replaced with an equivalent tax benefit and the Research and Development Tax Credit is extended. Assuming we take no other actions, if the IETI is repealed without an equivalent replacement and the Research and Development Tax Credit is not extended beyond June 30, 2004, the loss of the tax benefit to our company would increase our effective income tax rate in 2005 to as much as 35 percent.

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Outlook

Due to the continuing strength of our sales and operating results, we have revised our guidance for the full year 2004. We anticipate revenues will be approximately $2.9 billion and earnings per share to be in the range of $1.60 to $1.65. Cash flow from operating activities are expected to be in the range of $275 million to $325 million, after $125 million in voluntary contributions to our qualified pension plans.

Our Government Systems business sales are expected to represent approximately 53 percent of total sales in 2004 on expected growth of approximately 21 percent over 2003. Our acquisition of NLX is expected to account for about 8 percentage points, or approximately $100 million, of this sales increase. Operating margins for Government Systems are projected to decrease from the 18.7 percent posted in the first nine months of 2004 to approximately 18 percent for the full year 2004 due to lower margins derived from NLX and an increase in the proportion of lower margin development contract sales.

Our sales to air transport customers for aviation electronics are projected to be approximately 27 percent of total sales. Air transport aftermarket sales are anticipated to increase approximately 10 percent over 2003 due to strengthening in all areas of our aftermarket business, while air transport original equipment sales are expected to be flat.

Our sales to business and regional jet customers are projected to be approximately 20 percent of total sales. Sales to business jet original equipment customers are expected to be up 15 percent on the strength of our third quarter sales and additional anticipated sales growth in the fourth quarter. Sales to regional jet customers are expected to be flat for the full fiscal year. Aftermarket sales to business and regional customers are anticipated to increase approximately 15 percent as a result of strong third quarter fiscal year 2004 sales growth and expected continued sales growth for the remainder of our 2004 fiscal year.

Operating margins for Commercial Systems in 2004 are projected to be approximately 14 percent.

Company and customer-funded research and development for 2004 is projected to approximate 19 percent of sales.

Financial Condition and Liquidity

Cash Flow Summary

Cash provided by operating activities was $177 million for the nine months ended June 30, 2004 compared to cash provided by operating activities of $203 million in the same period last year. The decrease in operating cash flow during the nine months ended June 30, 2004 compared to the same period last year was principally due to increases in voluntary pension contributions and higher working capital to support increased sales volume, partially offset by lower income tax payments and increased advance payments from customers.

Cash used for investing activities during the nine months ended June 30, 2004 was $186 million compared to $43 million in the same period last year. This increase was primarily due to $126 million of cash paid for the NLX acquisition in December 2003. In addition, we paid $11 million for license agreements during the nine months ended June 30, 2004. Capital expenditures increased to $50 million in the nine months ended June 30, 2004 from $44 million for the same period last year. We expect capital expenditures for the full year 2004 to be in the range of $85 to $95 million compared to full year 2003 capital expenditures of $72 million. Purchases of test equipment to ramp-up production for certain new government programs is the primary driver of increased capital expenditures.

Cash provided by financing activities was $4 million for the nine months ended June 30, 2004 compared to cash used by financing activities of $144 million for the same period last year. The increase is due primarily to $198 million in proceeds from long-term debt that was used primarily to fund our pension plan and our acquisition of NLX, partially offset by increased common stock repurchases and reductions in short-term commercial paper borrowings. For the nine months ended June 30, 2004 we repurchased 4.5 million shares of common stock at a cost of $134 million compared to 4.5 million shares at a cost of $93 million for the same period last year. On June 30, 2004, our Board of Directors approved an additional $200 million of share repurchases bringing the remaining authorized share repurchase program to $210 million. We paid cash dividends of $48 million during each of the nine months ended June 30, 2004 and 2003 which were comprised of quarterly dividends of 9 cents per share. On June 30, 2004, our Board of Directors increased the quarterly cash dividend to 12 cents per share beginning with the dividend to be paid September 7, 2004. Annual cash requirements required to fund the 12 cent quarterly dividend are expected to approximate $85 million.

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Cash generated by operations combined with our borrowing capacity is expected to meet the foreseeable future operating cash flow needs, capital expenditures, dividend payments, contractual commitments, acquisitions, and share repurchases.

Liquidity

In addition to cash provided by normal operating activities, we utilize a combination of short-term and long-term debt to finance operations. Our primary source of short-term liquidity is through borrowings in the commercial paper market. Our access to that market is facilitated by the strength of our credit ratings and $850 million of committed credit facilities with several banks (Revolving Credit Facilities). Our current ratings as provided by Moody’s Investors Service (Moody’s), 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, Standard & Poor’s and Fitch, Inc. have stable outlooks on our credit rating.

Under our commercial paper program, we may sell up to $850 million 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. There were no commercial paper borrowings outstanding at June 30, 2004.

Our Revolving Credit Facilities consist of a five-year $500 million portion expiring in May 2006 and a 364-day $350 million portion which expires in May 2005. The Revolving Credit Facilities exist primarily to support our commercial paper program, but are available to us 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 we maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. Our debt to total capitalization ratio at June 30, 2004 was 18 percent. At our election, the 364-day portion of the Revolving Credit Facilities can be converted to a one-year term loan. The Revolving Credit Facilities do not contain any rating downgrade triggers that would accelerate the maturity of our indebtedness. In addition, short-term credit facilities available to foreign subsidiaries amounted to $36 million as of June 30, 2004. There were no significant commitment fees or compensating balance requirements under these facilities. At June 30, 2004, there were no borrowings outstanding under any of the Company’s credit facilities.

In addition to our 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, 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. On November 20, 2003, we issued $200 million of debt due December 1, 2013 (the Notes) under the shelf registration statement. The Notes contain covenants that require the Company to satisfy certain conditions in order to incur debt secured by liens, engage in sale/leaseback transactions, or merge or consolidate with another entity. At June 30, 2004, $550 million of the shelf registration was available for future use.

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.

Environmental

For information related to environmental claims, remediation efforts and related matters, see Note 17 of the condensed consolidated financial statements.

Critical Accounting Policies

Preparation of the Company’s financial statements in accordance with accounting principles generally accepted in the United States of America requires management of Rockwell Collins to make estimates, judgments, and assumptions that affect our financial condition and results of operations that are reported in the accompanying condensed consolidated financial statements as well as the related disclosure of assets and liabilities contingent upon future events. The critical accounting policies used in preparation of the Company’s financial statements are described in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003. Actual results in these areas could differ from management’s estimates. There have been no significant changes in the Company’s critical accounting policies during the nine months ended June 30, 2004.

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CAUTIONARY STATEMENT

This quarterly report contains 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 health of the global economy as well as the commercial aerospace industry; domestic and foreign government spending, budgetary and trade policies; demand for and market acceptance of new and existing products and services; performance of our products and services; potential cancellation or termination of contracts, delay of orders or changes in procurement practices or program priorities by our customers; customer bankruptcies; recruitment and retention of qualified personnel; performance of our suppliers and subcontractors; risks inherent in fixed price contracts, particularly the risk of cost overruns; risks inherent in developing new technologies and products for our customers; risk of significant and prolonged disruption to air travel (including any future terrorist attacks); our ability to execute our internal performance plans as well as our acquisition, strategic and integration plans; achieving our planned effective tax rates; favorable outcomes of certain customer procurements and congressional approvals; changes to new aircraft build rates; product reliability; 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 Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof.

Item 3. 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 derivative financial instruments in the form of interest rate swap contracts and foreign currency forward contracts.

Interest Rate Risk

In addition to using cash provided by normal operating activities, we utilize a combination of short-term and long-term debt to finance operations. Our operating results as well as the fair value of these debt obligations are exposed to changes in interest rates. We manage our exposure to interest rate risk by maintaining an appropriate mix of fixed and variable rate debt and when considered necessary, we may employ financial instruments in the form of interest rate swaps to help meet our objectives.

There were no short-term commercial paper borrowings outstanding at June 30, 2004 and accordingly we had no short-term borrowing interest rate risk at that time.

At June 30, 2004 we had $200 million of fixed rate long-term debt obligations outstanding with a carrying value and fair value of $196 million and $194 million, respectively. Fluctuations in market interest rates related to our fixed-rate long-term debt would not have an effect on our results of operations or cash flows as we currently have no plans to repurchase this debt. In addition, we have interest rate swap contracts which effectively converted $100 million aggregate principal amount of our fixed rate long-term debt to floating rate debt based on six-month LIBOR less 7.5 basis points. The fair value of the interest rate swaps was a liability of $4 million at June 30, 2004. A hypothetical 10 percent adverse change in market interest rates relative to our interest rate swaps would not have a material effect on our results of operations or cash flows.

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 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 and purchases 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. Less than 10 percent of our total sales are 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 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 dollars.

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ROCKWELL COLLINS, INC.

At June 30, 2004 and September 30, 2003, we had outstanding foreign currency forward exchange contracts with notional amounts of $72 million and $101 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. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates associated with these contracts would not have a material effect on our results of operations or cash flows.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we carried out an evaluation of the effectiveness, as of June 30, 2004, of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are adequate and effective as of June 30, 2004 to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

BAE Systems Electronics Limited (“BAE”) filed a complaint against us in the United States District Court for the Northern District of Texas on April 7, 2003 alleging a single count of patent infringement involving certain head-up display (“HUD”) products sold by our Flight Dynamics subsidiary. BAE’s complaint seeks an unspecified amount of compensatory damages (which could be tripled if willful infringement can be proven), reasonable attorney’s fees and a permanent injunction until August 2005 when the patent expires. We have filed an answer to the complaint denying BAE’s allegation and asserting several, what we believe to be, valid defenses, including that our HUD products do not infringe BAE’s patent, invalidity of BAE’s patent and inequitable conduct by BAE during prosecution of their patent. We have filed a motion for summary judgment during the three months ended June 30, 2004 requesting the Court to dismiss the lawsuit and are awaiting the Court’s decision. The trial is currently scheduled for August 2004 and if the Court does not grant our summary judgment request, we are prepared to defend this case. In the event that we do not prevail, which we believe is unlikely, the outcome is not reasonably expected to have a material adverse effect on our business or financial position, but could possibly be material to the results of operations or cash flows of any one period.

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ROCKWELL COLLINS, INC.

Item 2. Issuer Purchases of Equity Securities

The following table provides information about our purchases of shares of our common stock during the quarter pursuant to our board authorized stock repurchase program:

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs 1
April 1, 2004 through April 30, 2004	801,600	$	32.56	801,600	$	44.7 million
May 1, 2004 through May 31, 2004	1,150,100	$	30.15	1,150,100	$	10.0 million
June 1, 2004 through June 30, 2004	—		—	—	$	210.0 million
Total	1,951,700	$	31.14	1,951,700	$	210.0 million

¹ In February 2003, our Board of Directors approved $200 million of repurchases and on June 30, 2004 our Board approved an additional $200 million of repurchases. These authorizations have no stated expiration dates.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3-b-1	By-Laws of the Company, as amended June 30, 2004.
3-b-2	Copy of Resolution of the Board of Directors of the Company, adopted June 30, 2004, amending the Company’s By-Laws.
10-o-3	Amendment No. 2 to the 364-day Credit Agreement dated as of May 26, 2004 among the Company, the Banks listed therein and JP Morgan Chase Bank, as Agent.
12	Computation of Ratio of Earnings to Fixed Charges for the nine months ended June 30, 2004.
31.1	Certification by Chief Executive Officer.
31.2	Certification by Chief Financial Officer.
32.1	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.
32.2	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.

(b) Reports on Form 8-K during the three months ended June 30, 2004:

Form 8-K dated April 27, 2004 announcing second quarter 2004 results.

Form 8-K dated July 2, 2004 announcing a change from a fiscal year ending September 30 to a fiscal year ending on the Friday nearest to September 30.

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SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Date: August 3, 2004	By	/s/ D. H. Brehm
		D. H. Brehm
		Vice President, Finance and Controller
		(Principal Accounting Officer)
Date: August 3, 2004	By	/s/ G. R. Chadick
		G. R. Chadick
		Senior Vice President,
		General Counsel and Secretary

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EX-3.B.1

Exhibit 3.b.1

BY-LAWS OF

ROCKWELL COLLINS, INC.

(As Amended and Restated Effective June 30, 2004)

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

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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.

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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 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.

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(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 affirmative vote (which need not be by ballot) of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter, 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

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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.

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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

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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 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,

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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 scheduled meeting of the Board of Directors

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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.

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(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

(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,

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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.

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(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.

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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.

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.

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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.

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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.

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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.

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

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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 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

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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.

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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 the Friday closest to September 30 in each year.

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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

21

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 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

22

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 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.

23

(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.

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EX-3.B.2

Exhibit 3-b-2

ROCKWELL COLLINS, INC.

RESOLUTIONS OF THE BOARD OF DIRECTORS

ADOPTING AMENDMENTS TO BY-LAWS

ON JUNE 30, 2004

RESOLVED, that Section 10 of Article II of the Amended and Restated By-Laws of this Corporation be, and it hereby is, amended, effective as of this date, to read in its entirety as follows:

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 affirmative vote (which need not be by ballot) of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter, a quorum being present.

RESOLVED, that Article X of the Amended and Restated By-Laws of this Corporation be, and it hereby is, amended, effective as of this date, to read in its entirety as follows:

ARTICLE X

Fiscal Year

The fiscal year of this Corporation shall end on the Friday closest to September 30 in each year.

EX-10.O.3

Exhibit 10.o.3

$350,000,000

AMENDMENT NO. 2 TO

364-DAY

CREDIT AGREEMENT

dated as of May 26, 2004

among

Rockwell Collins, Inc.,

The Banks Listed Herein,

and

JPMorgan Chase Bank,

as Agent

Bank of America, N.A.,

as Syndication Agent

and

UBS AG, Cayman Islands Branch,

Bank One, NA (Main Office Chicago),

Wachovia Bank, National Association,

as Co-Documentation Agents

J.P. Morgan Securities Inc.,

Lead Arranger and Sole Bookrunner

AMENDMENT NO. 2 TO 364-DAY CREDIT AGREEMENT

AMENDMENT dated as of May 26, 2004 (this “Amendment No. 2”) to the 364-Day Credit Agreement dated as of May 29, 2002 (as amended by Amendment No. 1, the “Credit Agreement”) among ROCKWELL COLLINS, INC. (the “Company”), the BANKS listed on the signature pages hereof (the “Banks”) and JPMORGAN CHASE BANK, as Agent (the “Agent”).

W I T N E S S E T H :

WHEREAS, the parties hereto desire to amend the Credit Agreement to (i) extend the Termination Date from May 26, 2004 to May 25, 2005, (ii) modify the Commitments thereunder, (iii) update the representations relating to financial information and (iv) make certain other modifications to the Credit Agreement related thereto;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement, as amended by this Amendment No. 2. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Credit Agreement, any Note or any other document issued or delivered thereunder shall, after the Amendment No. 2 Effective Date, refer to the Credit Agreement as amended hereby.

SECTION 2. Amendments to Credit Agreement. Effective as of the Amendment No. 2 Effective Date (as defined below):

(a) Section 1.01 of the Credit Agreement is hereby amended by adding, in appropriate alphabetical order, the following definitions

“Amendment No. 2” means Amendment No. 2 to 364-Day Credit Agreement dated as of May 26, 2004 among the Company, the Banks listed on the signature pages thereof and the Agent.

“Amendment No. 2 Effective Date” means the date of effectiveness of Amendment No. 2 in accordance with Section 8 thereof.

(b) The definition of “Revolving Credit Period” in Section 1.01 of the Credit Agreement is amended by changing the reference to “Amendment No. 1 Effective Date” specified therein to “Amendment No. 2 Effective Date”.

(c) The definition of “Termination Date” in Section 1.01 of the Credit Agreement is amended by changing the date specified therein from “May 26, 2004” to “May 25, 2005”.

2

(d) Clause (c) of Section 2.09 of the Credit Agreement is amended to read in full as follows:

“(c) Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Payment Date, upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety) and on the Amendment No. 2 Effective Date.”

(e) Section 4.01 of the Credit Agreement is amended by deleting the phrase “Amendment No. 1 Effective Date” and substituting therefor the phrase “Amendment No. 2 Effective Date”.

(f) Section 4.04 of the Credit Agreement is amended by:

(i) changing the date specified in clause (a) thereof from “September 30, 2002” to “September 30, 2003”;

(ii) changing the date specified in clause (b) thereof from “March 31, 2003” to “March 31, 2004”; and

(iii) (A) deleting the phrase “Amendment No. 1 Effective Date” in clause (c) thereof and substituting therefor the phrase “Amendment No. 2 Effective Date” and (B) changing the date specified in clause (c) thereof from “March 31, 2003” to “March 31, 2004”.

(g) Section 4.05 of the Credit Agreement is amended by changing the year specified therein from “2002” to “2003”.

(h) The first sentence of Section 9.06 (c) is amended to read in full as follows:

“Any Bank may at any time assign to one or more banks or other institutions (each an “Assignee”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of its rights and obligations under this Agreement and its Note, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent the Issuing Bank, the Agent and (so long as no Event of Default exists) of the Company, such consent of the Company and Issuing Bank not to be unreasonably withheld; provided that, if an Assignee is an Approved Fund, an affiliate of such transferor Bank or was a Bank immediately before such assignment, no consent of the Company shall be required, and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Competitive Bid Loans.”

3

(i) Section 9.12 of the Credit Agreement is amended by deleting the following:

“Notwithstanding any other provision in this Agreement, each of the parties hereto (and each employee, representative, or other agent of any such party) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws.”

(j) Schedule 1.01 hereto is substituted for Schedule 1.01 of the Credit Agreement.

(k) Section 4 of Exhibit G is amended to read in full as follows:

“SECTION 4. Consent of the Company and the Agent. This Agreement is conditioned upon the consent of [the Issuing Bank, the Agent and the Company] pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Issuing Bank, the Agent and the Company] is evidence of this consent.”

(l) Exhibit G is amended by deleting the following:

“ROCKWELL COLLINS, INC.

By:

Title:”

(m) Exhibit G is amended by adding, at the end thereof, the following:

“[ISSUING BANK]

By:

Title:

[ROCKWELL COLLINS, INC.,
By:
Title:	]”

SECTION 3. Changes in Commitments. With effect from and including the Amendment No. 2 Effective Date, (i) each Person listed on the signature pages hereof which is not a party to the Credit Agreement (each, a “New Bank”) shall become a Bank party to the Credit Agreement, and (ii) the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the Commitment Schedule. On the Amendment No. 2 Effective Date, any Bank

4

whose Commitment is changed to zero (each, an “Exiting Bank”) shall cease to be a Bank party to the Credit Agreement, and all accrued fees and other amounts payable under the Credit Agreement for the account of each Exiting Bank shall be due and payable on such date; provided that the provisions of Sections 8.03, 8.04 and 9.03 of the Credit Agreement shall continue to inure to the benefit of each Exiting Bank after the Amendment No. 2 Effective Date.

SECTION 4. Notes. On the Amendment No. 2 Effective Date or promptly thereafter (i) each Exiting Bank holding any Note(s) shall deliver such Note(s) to the Company for cancellation and (ii) the Company shall issue to each New Bank that has so requested a new Note or Notes evidencing its Loans hereunder in accordance with Section 2.05 of the Credit Agreement. On the Amendment No. 2 Effective Date, any Notes issued to an Exiting Bank prior to the Amendment No. 2 Effective Date shall be of no force and effect and shall no longer constitute evidence of Loans.

SECTION 5. Representations of Company. The Company represents and warrants that (i) the representations and warranties of the Company set forth in Article 4 of the Credit Agreement, as amended by this Amendment No. 2, will be true on and as of the Amendment No. 2 Effective Date and (ii) no Default will have occurred and be continuing on such date.

SECTION 6. Governing Law. This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts. This Amendment No. 2 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 8. Effectiveness. This Amendment No. 2 shall become effective as of the date hereof on the date when each of the following conditions shall have been satisfied (the “Amendment No. 2 Effective Date”):

(a) receipt by the Agent of counterparts hereof signed by the Company, the Agent, each New Bank and each Exiting Bank (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of facsimile, telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

(b) receipt by the Agent of an opinion of the General Counsel of the Company, substantially in the form of Exhibit E to the Credit Agreement and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(c) receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Company, the corporate authority for and the validity of this Amendment No. 2 and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; and

5

(d) payment by the Company (i) to the Agent, for the accounts of the Banks, of participation fees in the amounts and to be shared among the Banks as heretofore mutually agreed upon and (ii) of all other amounts due and payable under the Credit Agreement and/or this Amendment No. 2, including all fees and other amounts due and payable under the Fee Letter, dated as of April 29, 2004 among the Agent, J.P. Morgan Securities Inc., as Lead Arranger, and the Company;

provided that this Amendment No. 2 shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than May 26, 2004. The Agent shall promptly notify the Company and the Banks of the Amendment No. 2 Effective Date, and such notice shall be conclusive and binding on all parties hereto.

6

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the date first above written.

ROCKWELL COLLINS, INC.

By:

Name:

Title:

Address:

Attention:

Telecopy:

JPMORGAN CHASE BANK

By:

Name:

Title:

BANK OF AMERICA, N.A.

By:

Name:

Title:

UBS AG, CAYMAN ISLANDS BRANCH

By:

Name:

Title:

By:

Name:

Title:

Signature Page to Amendment No. 2 to Rockwell Collins 364-Day Credit Agreement

BANK ONE, NA (MAIN OFFICE CHICAGO)

By:

Name:

Title:

CITICORP USA, INC. (CUSA)

By:

Name:

Title:

WACHOVIA BANK, NATIONAL ASSOCIATION

By:

Name:

Title:

MELLON BANK, N.A.

By:

Name:

Title:

Signature Page to Amendment No. 2 to Rockwell Collins 364-Day Credit Agreement

WELLS FARGO BANK,
NATIONAL ASSOCIATION

By:

Name:

Title:

THE BANK OF NEW YORK

By:

Name:

Title:

CALYON NEW YORK BRANCH

By:

Name:

Title:

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION

By:

Name:

Title:

Signature Page to Amendment No. 2 to Rockwell Collins 364-Day Credit Agreement

KEY BANK NATIONAL ASSOCIATION

By:

Name:

Title:

SUMITOMO MITSUI BANKING CORPORATION

By:

Name:

Title:

JPMORGAN CHASE BANK, as Agent

By:

Name:

Title:

Signature Page to Amendment No. 2 to Rockwell Collins 364-Day Credit Agreement

SCHEDULE 1.01

Commitment Schedule

Institution	Title	Allocation
JPMorgan	Administrative Agent	$	33,500,000.00
Bank of America	Syndication Agent		33,500,000.00
Bank One	Co-Documentation Agent		33,500,000.00
UBS	Co-Documentation Agent		33,500,000.00
Wachovia	Co-Documentation Agent		33,500,000.00
Citibank	Co-Agent		27,500,000.00
Mellon	Co-Agent		27,500,000.00
Wells Fargo	Co-Agent		27,500,000.00
Sumitomo	Participant		25,000,000.00
Bank of New York	Participant		20,000,000.00
Key Bank	Participant		20,000,000.00
Calyon New York Branch	Participant		17,500,000.00
US Bank	Participant		17,500,000.00
Total		$	350,000,000.00

EX-12

Exhibit 12

ROCKWELL COLLINS, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

NINE MONTHS ENDED JUNE 30, 2004

(in millions, except ratio)

EARNINGS AVAILABLE FOR FIXED CHARGES:
Income before income taxes	$	215
Add fixed charges included in earnings:
Interest expense		6
Interest element of rentals		7
Total earnings available for fixed charges	$	228
FIXED CHARGES:
Fixed charges included in earnings	$	13
Capitalized interest		—
Total fixed charges	$	13
RATIO OF EARNINGS TO FIXED CHARGES (1)		17.5

(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.

EX-31.1

Exhibit 31.1

CERTIFICATION

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

1. I have reviewed the quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Rockwell Collins, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2004	/s/ Clayton M. Jones
	Clayton M. Jones
	Chairman, President and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

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

1. I have reviewed the quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Rockwell Collins, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2004	/s/ Lawrence A. Erickson
	Lawrence A. Erickson
	Senior Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

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 Quarterly Report of Rockwell Collins, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2004 (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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 3, 2004	/s/ Clayton M. Jones
	Clayton M. Jones
	Chairman, President and
	Chief Executive Officer

EX-32.2

Exhibit 32.2

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 Quarterly Report of Rockwell Collins, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2004 (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:

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

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

Date: August 3, 2004	/s/ Lawrence A. Erickson
	Lawrence A. Erickson
	Senior Vice President and
	Chief Financial Officer