10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2005

Commission file number 001-16445

Rockwell Collins, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant on March 31, 2005 was approximately $8.5 billion. For purposes of this calculation, the registrant has assumed that its directors and executive officers are affiliates.

172,759,299 shares of the registrant’s Common Stock were outstanding on October 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Certain information contained in the Annual Report to Shareowners of the registrant for the fiscal year ended September 30, 2005 is incorporated by reference into Part I, Part II and Part IV.

(2) Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of the registrant to be held on February 7, 2006 is incorporated by reference into Part III.

Rockwell Collins, Inc.

Annual Report on Form 10-K

Table of Contents

PART I
Item 1.	Business	2
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 4A.	Executive Officers of the Company.	15
PART II
Item 5.	Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data.	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 8.	Financial Statements and Supplementary Data.	18
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	18
Item 9A.	Controls and Procedures.	18
Item 9B.	Other Information	19
PART III
Item 10.	Directors and Executive Officers of the Company	19
Item 11.	Executive Compensation	19
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	19
Item 13.	Certain Relationships and Related Transactions	19
Item 14.	Principal Accountant Fees and Services	20
PART IV
Item 15.	Exhibits and Financial Statement Schedules	20
SIGNATURES		24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		S-1
SCHEDULE II		S-2
EXHIBIT INDEX		E-1

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PART I

Item 1. Business.

General

Our company, Rockwell Collins, Inc., is a leader in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. While our products and systems are primarily focused on aviation applications, our Government Systems business also offers products and systems for ground and shipboard applications. We also provide a wide range of services and support to our customers through our network of over 60 service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. We operate in multiple countries and are headquartered in Cedar Rapids, Iowa.

Our company’s heritage is rooted in the Collins Radio Company formed in 1933. Rockwell International Corporation (now named Rockwell Automation, Inc. and referred to herein as “Rockwell”) purchased the Collins Radio Company in 1973. The Collins legacy continued to be fostered under Rockwell’s ownership until 2001 when we became an independent company. Rockwell Collins, Inc. was incorporated in Delaware in March 2001 in connection with the June 29, 2001 distribution of our shares (the “Distribution”) by Rockwell to Rockwell shareowners. As used herein, the terms “we”, “us”, “our” or the “Company” include subsidiaries and predecessors unless the context indicates otherwise.

Whenever reference is made in any Item of this Annual Report on Form 10-K to information under specific captions of our 2005 Annual Report to Shareowners (the “2005 Annual Report”) or to information in our Proxy Statement for the Annual Meeting of Shareowners to be held on February 7, 2006 (the “2006 Proxy Statement”), such information shall be deemed to be incorporated herein by such reference.

Prior to 2004, we operated on a fiscal year basis with the fiscal year ending on September 30. Beginning with the 2004 fiscal year, we changed for administrative efficiencies to a 52/53 week fiscal year ending on the Friday closest to September 30, which for 2005 was September 30. All date references contained herein relate to our fiscal year unless otherwise stated. For ease of presentation, September 30 is utilized consistently throughout this report to represent the fiscal year end date.

Financial Information About Our Business Segments

Financial information with respect to our business segments, including product line disclosures, revenues, operating income and total assets, is contained under the caption Segment Financial Results in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2005 Annual Report, and in Note 22 of the Notes to Consolidated Financial Statements in the 2005 Annual Report.

Access to the Company’s Reports

We maintain an Internet website at http://www.rockwellcollins.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on this site as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (“SEC”). All reports we file with the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. We also post corporate governance information (including our corporate governance guidelines and committee charters) and other information related to our company on our Internet website and this information is available free of charge on this site. We will provide, without charge, upon written request, copies of our corporate governance information. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

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Description of Business by Segment

We serve our worldwide customer base through our Government Systems and Commercial Systems business segments. These two segments are described in detail below.

Government Systems

Our Government Systems business supplies defense communications systems and products as well as defense electronics systems and products, which include subsystems, navigation and displays, to the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign ministries of defense. These systems and products support airborne (fixed wing and rotary), ground, and shipboard applications.

Our defense communications and defense electronics systems and products include:

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

• Military data link systems and products.

• Navigation systems and products, including radio navigation systems, global positioning systems (GPS), handheld navigation systems and multi-mode receivers.

• Subsystems for the flight deck that combine flight operations with navigation and guidance functions and that can include flight controls and displays, information/data processing and communications, navigation and/or safety and surveillance systems.

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

• Integrated computer systems for future combat systems.

• Simulation and training systems.

Highlights for the Government Systems segment in 2005 included:

• We were selected by the U.S. Air Force as the prime contractor for Phase 2 of the Ground Element Minimum Essential Emergency Communications Network System (GEMS) program. GEMS will replace Air Force and Navy fixed and deployable communications for bomber, tanker, reconnaissance and other alert communications facilities by providing an upgraded networked infrastructure incorporating improved capabilities for aircrew alerting, message handling and the supporting communications links. The total program revenues are estimated at more than $350 million over six years.

• We were selected by Sikorsky Aircraft Corp. to provide avionics, simulators, training and support on its S-92 platform for the Canadian Maritime Helicopter Program. The program has potential revenues of more than $100 million over its 20-year life. Equipment selected includes our integrated cockpit solution for the S-92, as well as our new EyeHUD™ helmet mounted display, two Level D equivalent full-flight simulators and communications products.

• We were awarded a $17 million contract to provide the Tactical Data Radio System (TDRS) to the Swedish military. The software-defined radio system will consist of modular, open architecture, hardware and software components and will host a customized, high-data rate networked waveform to provide Swedish tactical forces with a wireless, mobile, ad-hoc network capable of simultaneous voice, data and video communications. The contract calls for the delivery of 76 Software Communications Architecture (SCA) compliant multi-channel radios, documentation and training.

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• A General Dynamics - Rockwell Collins team was awarded a $154 million contract modification to accelerate technology development of the Integrated Computer System (ICS) into the U.S. Army’s Current Force and to add support for previously deferred assets within the Future Combat Systems (FCS) program. The ICS is the common computing environment for 17 of the 18 platforms in the FCS family of systems, which constitutes a network of sensors, unmanned air platforms, and both manned and unmanned ground platforms. The contract modification brings the total ICS contract to $429 million for the team.

• We were selected by the U.S. Air Force for Phases II, III and IV of the KG-3X Cryptographic Modernization Program, which is designed to provide the U.S. military with assured, survivable, protected and highly reliable strategic communications for airborne portions of the Minimum Essential Emergency Communications Network (MEECN) as well as the Fixed Submarine Broadcast System (FSBS). The contract has potential revenues of $70 million over the life of the program. KG-3X units are used in the MEECN system and the FSBS for strategic transmission of emergency action messages. We have been involved in the MEECN system since its inception and continue to provide key portions of the network for the U.S. military, including work on the GEMS program.

Commercial Systems

Our Commercial Systems business supplies air transport aviation electronics systems and products as well as business and regional aviation electronics systems and products. These systems and products include flight deck electronic systems and products, including communications, navigation, surveillance, displays and automatic flight control and flight management systems, as well as in-flight entertainment, cabin electronics and information management systems. We also provide a wide range of services to our commercial customers. Commercial Systems customers include manufacturers of commercial air transport, regional and business aircraft, commercial airlines, regional airlines, fractional jet operators and business jet operators.

Our air transport aviation electronics and business and regional aviation electronics systems and products include:

• Integrated avionics systems and products, such as the Pro Line 21 system, which provide advanced avionics such as liquid crystal flight displays, flight management, integrated flight control, automatic flight controls, engine indication and crew alerts.

• In-flight entertainment systems and products, including the enhanced Total Entertainment System (eTES™) and the Passenger Audio Video Entertainment System (P@ves), as well as a full line of audio and video entertainment solutions for widebody and narrow aircraft.

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

• Communications systems and products, such as data link, High Frequency (HF), Very High Frequency (VHF) and satellite communications systems.

• Navigation systems and products, including multi-mode receivers, radio and geophysical navigation sensors, as well as flight management systems.

• Situational awareness and surveillance systems and products, such as Head-Up Guidance Systems, weather radar and collision avoidance systems.

• Flight deck systems and products, which include a broad offering of multi-function cockpit liquid crystal display (LCD) units, CRT display units and head-up displays (HUDs).

• Integrated information systems, such as eEnable and eXchange, to provide information management solutions that help improve flight operations, maintenance and cabin services, as well as provide worldwide TV coverage.

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Highlights for the Commercial Systems segment in 2005 included:

• We were selected by several airlines and business jet operators to provide aircraft fleet aviation service solutions. Newly awarded long-term service and support contracts include:

• Avionics maintenance repair and technical support for NetJets Europe’s fleet of Hawker 400 XP aircraft under a 10-year contract.

• On-board maintenance for Air New Zealand of our eTES^TM in-flight entertainment systems on 15 wide-body aircraft, with an option for 40 additional aircraft, under a five-year agreement.

• Spares ownership, maintenance repair and technical support of avionics on GoJet’s fleet of Bombardier Canadair Regional Jet aircraft under a 16-year Dispatch Plus^SM agreement.

• We continue to have success in the airline avionics Buyer Selectable Equipment forward fit market place. The following is a partial list of the major airlines that selected us for these products in 2005: AirAsia, Air Berlin, Air China Cargo, Air China, Xiamen, Air Sahara, China Eastern, Japan Airlines, and Hainan Airlines. These airlines selected us to provide avionics equipment on over 220 Airbus and Boeing aircraft, with options for provisioning equipment on over 135 additional aircraft. Deliveries of equipment are expected to commence this year for each of these airlines. Equipment selections included our advanced Multi-Mode Receiver and the fully automatic WRX-2100 MultiScan™ Weather Radar as well as our industry leading Nav/Com and Sensor package. These products provide the airlines with enhanced operational efficiency, safety, and passenger comfort through reducing pilot work load and increasing pilot situational awareness.

• We were selected by ARINC Engineering Services, LLC to upgrade the Navy’s fleet of 55 T-44A aircraft over four years with the Pro Line 21 integrated avionics system. The Pro Line 21 integrated avionics system aircraft upgrade will provide enhanced efficiency and functionality to the customer in the areas of reduced pilot workload, weight and installation cost.

• Our Head-Up Guidance System (HGS) 4000 was selected by All Nippon Airways for installation on its fleet of 45 new Boeing 737-700 aircraft with deliveries beginning in late 2005 and by Southwest Airlines for installation on all future deliveries of Boeing 737-700 aircraft. HGS presents critical flight information in the pilot’s forward field of view enhancing situational awareness, improving energy management and increasing touchdown precision. New features of the HGS-4000 include runway remaining, tailstrike avoidance and unusual attitude recovery as well as providing a platform for new technologies, such as enhanced vision and surface guidance, which are designed to improve further safety of operations.

• We were selected by easyJet to develop a fleet-wide electronic flight bag (EFB) and supporting software solution for easyJet’s fleet of 54 Boeing 737 aircraft, using our eFlight information management program. We will supply Civil Aviation Authority Class 2 EFB functionality for easyJet’s aircraft as well as a ground-based server and integration. This EFB solution moves easyJet towards a paperless cockpit and is designed to increase the airline’s operational efficiency.

• The public unveiling of the Boeing 787 Dreamliner flight deck offered a first look at our next-generation avionics systems. We are the supplier and systems integrator of the flight deck display system and crew alerting system, pilot controls, communication and surveillance systems, the aircraft’s common data network, and the core network cabinet. These systems and products provide new capabilities to enhance safety and performance, enable growth to address future requirements and offer operational commonality with other Boeing flight decks. The integrated display system includes five 15.1-inch diagonal LCD displays-four across the flight deck and one in the control stand for emulation of the Control Display Units (CDU)—as well as dual LCD head-up displays (HUD). The system utilizes cursor control devices and a multifunction key pad for data entry and retrieval. The pilot controls system package content includes control columns, control wheels and rudder pedals, as well as interfaces to the aircraft’s fly-by-wire systems. The modular design of the system will simplify installation and maintenance and is designed to meet Boeing’s objective of providing operators with a look and feel similar to the Boeing 777 while achieving significant weight savings.

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Customers; Sales and Marketing

We serve a broad range of customers worldwide, including the U.S. Department of Defense, U.S. Coast Guard, civil agencies, defense contractors, foreign ministries of defense, manufacturers of commercial air transport, business and regional aircraft, commercial airlines, regional airlines, fractional jet operators, and business jet operators. We market our systems, products and services directly to Government Systems and Commercial Systems customers through an internal marketing and sales force. In addition, we utilize a worldwide dealer network to distribute our products and international sales representatives to assist with international sales and marketing. In 2005, various branches of the U.S. Government accounted for 41% of our total sales.

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

Competition

We operate in a highly competitive environment. Principal competitive factors include total cost of ownership, product and system performance, quality, service, warranty and indemnification terms, technology, design engineering capabilities, new product innovation and timely delivery. We compete worldwide with a number of United States and international companies, including approximately ten principal competitors in each of our Government Systems and Commercial Systems businesses. Some of our principal competitors include Honeywell International, Inc., Thales S.A., Matsushita, Raytheon Co., Harris Corp., BAE Systems Aerospace, Inc., General Dynamics Corporation, L3 Communications, Inc., and Northrop Grumman Corp. Several of our competitors are significantly larger than we in terms of resources and market share, and can offer a broader range of products. Some of our competitors have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. In addition, some of our competitors offer avionic and communication solutions with fewer features and lower prices that may compete with our solutions. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products. Furthermore, competitors who have greater financial resources may be better able to provide a broader range of financing alternatives to their customers in connection with sales of their products.

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

Raw Materials, Supplies and Working Capital

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

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Our investment in inventory is a significant part of our working capital and historically we have maintained sufficient inventory to meet our customers’ requirements on a timely basis. This investment includes production stock, finished goods, spare parts and goods on consignment with airlines. Our accounts receivable also constitute a significant part of our working capital. Accounts receivable includes unbilled receivables related to sales recorded under the percentage-of-completion method of accounting that are billed to customers in accordance with applicable contract terms. The critical accounting policies involving inventory valuation reserves are discussed under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2005 Annual Report.

Backlog

The following table summarizes our backlog (in billions):

	September 30
	2005		2004
Commercial Systems	$	0.5	$	0.4
Government Systems:
Funded Orders		2.4		2.1
Unfunded Orders		0.3		0.2
Total Backlog	$	3.2	$	2.7

Our backlog represents the aggregate of the sales price of orders received from customers, but not recognized as revenue, and excludes unexercised options. Although we believe that the orders included in backlog are firm, some orders may be canceled by the customer without penalty, and we may elect to permit cancellation of orders without penalty where management believes that it is in our best interest to do so. Our backlog includes approximately $1.2 billion of orders not expected to be filled by us in 2006.

Joint Ventures

Joint ventures, strategic investments and other cooperative arrangements are part of our business strategies to broaden the market for our products and develop new technologies. We currently have interests in three non-majority owned joint ventures.

We have a 50% ownership interest in Data Link Solutions LLC (DLS), a joint venture with BAE Systems, plc, for joint pursuit of the worldwide military data link market. We have a 50% ownership interest in Vision Systems International, LLC (VSI), a joint venture with Elbit Systems, Ltd., for joint pursuit of helmet mounted cueing systems for the worldwide military fixed wing marketplace. We and Rockwell each own a 50% equity interest in Rockwell Scientific Company LLC (RSC), which is engaged in advanced research and development of technologies in electronics, imaging and optics, material and computational sciences and information technology. RSC provides research and development services to us, as well as to Boeing, Rockwell, the U.S. Government and other customers. RSC is also pursuing the commercialization of its technologies through licensing, low rate production and strategic alliances.

Highlights for our Joint Ventures in 2005 included:

• DLS received an $82 million not-to-exceed contract for a product improvement program for the migration of the Multifunctional Information Distribution System (MIDS) to a Joint Tactical Radio System (JTRS) software communications compliant architecture. The improved product, called MIDS JTRS, is scheduled to be completed within 29 months and will represent the next generation of MIDS products. By using software applications for expanded capability, the MIDS JTRS terminal is expected to enable enhanced operational effectiveness without consuming additional space, weight or power.

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• VSI received an award for $64.8 million for the delivery of production Joint Helmet Mounted Cueing Systems (JHMCS) to be used on domestic and foreign military aircraft. JHMCS is currently flying on over 400 operational aircraft and has been successfully used in combat by US forces in Iraq and Afghanistan.

• RSC contributed its power supply technology in the formation of a venture business now named ColdWatt. RSC retained a minority equity position in the new company.

Acquisitions and Dispositions

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

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

• military aviation electronics: the April 2005 acquisition of TELDIX GmbH; and

• flight simulators: the December 2003 acquisition of NLX Holding Corporation.

Additional information relating to our acquisitions is contained in Note 3 of the Notes to Consolidated Financial Statements in the 2005 Annual Report.

Research and Development

We have significant research, development, engineering and product design capabilities. At September 30, we employed approximately 4,000 engineers.

Amounts attributed to our research and development activities are as follows (in millions):

	September 30
	2005		2004		2003
Customer-funded 1	$	348	$	327	$	259
Company-funded		243		218		216
Total	$	591	$	545	$	475

¹ Customer-funded research and development includes activities relating to the development of new products and the improvement of existing products.

Intellectual Property

We own more than 600 United States and foreign patents and have numerous pending patent applications, including patents and patent applications purchased in our acquisitions. We also license certain patents relating to our manufacturing and other activities. While in the aggregate we consider our patents and licenses important to the operation of our business, we do not consider any individual patent or license to be of such importance that the loss or termination of any one patent or license would materially affect us.

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

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Employees

As of September 30, 2005, we had approximately 17,100 full-time employees. Approximately 2,300 of our employees in the United States are covered by collective bargaining agreements. The collective bargaining agreements are generally set to expire between September 2006 and May 2008.

Cyclicality and Seasonality

The avionics and communications markets in which we sell our products are, to varying degrees, cyclical and have experienced periodic downturns. For example, markets for our commercial aviation electronic products have experienced downturns during periods of slowdowns in the commercial airline industry and during periods of weak conditions in the economy in general, as demand for new aircraft generally declines during these periods. Although we believe that aftermarket demand for many of our products and our Government Systems business reduce our exposure to these business downturns, we may experience downturns in the future.

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

Regulatory Matters

As a defense contractor, our contract costs are audited and reviewed on a continual basis by the Defense Contract Audit Agency. Audits and investigations are conducted from time to time to determine if our performance and administering of our U.S. Government contracts are compliant with applicable contractual requirements, and procurement and other applicable Federal statutes and regulations. Under present U.S. Government procurement regulations, if indicted or adjudged in violation of procurement or other Federal civil laws, a contractor, such as us, could be subject to fines, penalties, repayments or other damages. U.S. Government regulations also provide that certain findings against a contractor may lead to suspension or debarment from eligibility for awards of new U.S. Government contracts for up to three years.

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

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

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

Our products and technical data are controlled for export and import under various regulatory agencies. Audits and investigations by these agencies are a regular occurrence to ensure compliance with applicable Federal statutes and regulations. Violations, including as a successor to an acquired business, can result in fines and penalties assessed against the corporation as well as individuals, and the most egregious acts may result in a complete loss of export privileges.

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Although we do not have any significant regulatory action pending against us, any such action could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Environmental Matters

Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on our manufacturing operations. Compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on our liquidity and capital resources, competitive position or financial condition. We believe that our expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on our business or financial condition, but could possibly be material to the results of operations or cash flows of any one period. Additional information on environmental matters is contained in Note 20 of the Notes to Consolidated Financial Statements in the 2005 Annual Report.

Geographic Information

Our principal markets outside the United States are in France, Canada, the United Kingdom, Australia, Japan, Germany, Israel, Singapore, China, India and Brazil. In addition to normal business risks, operations outside the United States are subject to other risks, including, among other factors, political, economic and social environments, governmental laws and regulations, and currency revaluations and fluctuations.

Selected financial information by major geographic area for each of the three years in the period ended September 30, 2005 is contained in Note 22 of the Notes to Consolidated Financial Statements in the 2005 Annual Report.

Certain Business Risks

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

International conflicts may adversely affect our business.

International conflicts such as the war in Iraq, political turmoil in the Middle East and the possibility of future terrorist attacks cause significant uncertainty with respect to U.S. and other business and financial markets and adversely affect our business. These international conflicts also affect the price of oil, which has a significant impact on the financial health of our air transport and regional customers. Although our Government Systems business may experience greater demand for its products as a result of increased government defense spending, factors arising (directly or indirectly) from international conflicts which may adversely affect our business include reduced aircraft build rates, upgrades, maintenance and spending on discretionary products such as in-flight entertainment, as well as increases in the cost of property and aviation products insurance and increased restrictions placed on our insurance policies. The war in Iraq creates the risk that our Government Systems’ customers may need to reprogram funding from our existing business to pay for war-related activities. Furthermore, we currently hold only nominal insurance related to the effects of terrorist acts on our assets and our aircraft products.

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

In 2005, 41% of our sales were derived from United States government contracts. In addition to normal business risks, our supply of systems and products to the United States government is subject to unique risks which are largely beyond our control. These risks include:

• dependence on Congressional appropriations and administrative allotment of funds;

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

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

• significant changes in contract scheduling or program structure, which generally result in delays or reductions in deliveries;

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

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

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

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

New airspace management technologies may impact future sales.

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

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

• delays in adopting national and international regulatory standards;

• competitors developing better products;

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

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

We derive a significant portion of our revenues from international sales and are subject to the risks of doing business outside the United States.

In 2005, revenues from products and services exported from the U.S. or manufactured and serviced abroad were 33% of our total sales. We expect that international sales will continue to account for a significant portion of our total sales. As a result, we are subject to risks of doing business internationally, including:

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

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

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

• import and export licensing requirements and regulations;

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

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

While these factors or the impact of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition, operating results and cash flows in the future.

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

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

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

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

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

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

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

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

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

During 2005 approximately 90% of our total sales were from, and a significant portion of our anticipated future sales will be from, firm, fixed-price contracts. This allows us to benefit from cost savings, but it carries the burden of potential cost overruns since we assume all of the cost risk. If our initial estimates are incorrect, we can lose money on these contracts. These fixed price contracts can expose us to potentially large losses because the customer can compel us to complete a project or, in the event of a termination for default, pay the entire incremental cost of its replacement by another provider regardless of the size of any cost overruns that occur over the life of the contract. Because many of these projects involve new technologies and applications and can last for years, the following items can result in the contractual price becoming less favorable or even unprofitable to us over time: unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with subcontractors and cost overruns. Furthermore, if we do not meet project deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts we may not realize their full benefits. Our results of operations are dependent on our ability to maximize our earnings from our contracts. Lower earnings caused by cost overruns would have an adverse impact on our financial condition, operating results and cash flows.

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

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

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

• the effect declines in the stock and bond markets have on the performance of our pension plan assets; and

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

Tax law changes may impact our effective tax rate.

The difference between our effective tax rate and the statutory tax rate is primarily the result of the tax benefits derived from the Research and Development Tax Credit (“R&D Tax Credit”), which provides a tax benefit on certain incremental R&D expenditures, and the Extraterritorial Income Exclusion (“ETI”), which provides a tax benefit on export sales.

In October 2004, the Working Families Tax Relief Act of 2004 was signed into law and extended the R&D Tax Credit through December 31, 2005 on a retroactive basis back to June 30, 2004. As a result, our effective income tax rate for 2005 includes a R&D Tax Credit for 15 months of qualified R&D expenditures incurred between June 30, 2004 and September 30, 2005, while 2004 includes 9 months of the R&D tax credit. Assuming the R&D Tax Credit or tax benefit equivalent to the R&D Tax Credit is not extended beyond December 31, 2005, a loss of the R&D Tax Credit would have an adverse impact on our effective tax rate beginning in 2006.

In October 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law. The Act repeals and replaces the ETI with a new deduction for income generated from qualified production activities by U.S. manufacturers. The ETI export tax benefit will be phased out through fiscal 2007. For fiscal 2007 and thereafter, we are evaluating the impact of the ETI replacement legislation regarding the new deduction for income generated from qualified production activities by domestic manufacturers. The ETI repeal and replacement under the Act is not expected to have a significant impact on our effective income tax rate in 2006, however, the Act may have an adverse impact on our effective tax rate for years beyond 2006.

Cautionary Statement

This Annual Report on Form 10-K, and documents that are incorporated by reference in this Annual Report on Form 10-K, contain statements, including certain projections and business trends, 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, the continued recovery of the commercial aerospace industry and the continued support for military transformation and modernization programs; the potential adverse impact of oil prices on the commercial aerospace industry; changes in domestic and foreign government spending, budgetary and trade policies adverse to our businesses; market acceptance of our new and existing technologies, products and services; reliability of and customer satisfaction with 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 and profitability; recruitment and retention of qualified personnel; performance of our suppliers and subcontractors which we are highly dependent upon for timely, high quality and specification compliant products and services; risks inherent in fixed price contracts, particularly the risk of cost overruns; risk of significant and prolonged disruption to air travel; our ability to execute to our internal performance plans such as our continuous productivity improvement and cost reduction initiatives; achievement of our acquisition and related integration plans; continuing to maintain our planned effective tax rates; our ability to develop contract compliant systems and

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products and satisfy our contractual commitments; 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 Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof.

Item 2. Properties.

As of September 30, 2005, we operated 18 manufacturing facilities throughout the United States and one manufacturing facility each in Mexico, France, Germany and the United Kingdom. The Company also had engineering facilities, sales offices, warehouses and service locations in approximately 75 cities and 20 countries around the world. These facilities have aggregate floor space of approximately 5.7 million square feet, substantially all of which is in use. Of this floor space, approximately 65% is owned and approximately 35% is leased. There are no major encumbrances on any of our plants or equipment, other than financing arrangements which in the aggregate are not significant. In the opinion of management, our properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels. A summary of floor space of these facilities at September 30, 2005 is as follows:

Location	Owned Facilities	Leased Facilities	Total
	(in thousands of square feet)
United States	3,452	1,552	5,004
Europe	329	206	535
Canada and Mexico	—	111	111
Asia Pacific	—	86	86
South America	—	7	7
Total	3,781	1,962	5,743
Type of Facility	Owned Facilities	Leased Facilities	Total
	(in thousands of square feet)
Manufacturing	1,771	960	2,731
Sales, engineering, service and general office space	2,010	1,002	3,012
Total	3,781	1,962	5,743

We have facilities with a total of at least 100,000 square feet in the following cities: Cedar Rapids, Iowa (2,480,000 square feet), Richardson, Texas (280,000 square feet), Melbourne, Florida (275,000 square feet), Pomona, California (240,000 square feet), Heidelberg, Germany (240,000 square feet), San Jose, California (225,000 square feet), Irvine, California (220,000 square feet), Coralville, Iowa (180,000 square feet), Toulouse, France (130,000 square feet) and Mexicali, Mexico (110,000 square feet). Most of our facilities are generally shared for the benefit of our Government Systems and Commercial Systems businesses. Two owned facilities with 165,000 total square feet of space are currently vacant.

Certain of our facilities, including those located in California and Mexicali, Mexico, are located near major earthquake fault lines. We maintain earthquake insurance with a $40 million deductible with respect to these facilities. We also maintain property insurance for wind damage, including hurricanes and tornados, for our facilities. This insurance covers physical damage to property and any resulting business interruption. All losses are subject to a $5 million deductible with certain exceptions that could affect the deductible.

Item 3. Legal Proceedings.

Various lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, intellectual property, environmental, safety and health, contract and employment matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2005.

Item 4A. Executive Officers of the Company.

The name, age, office and position held with us, and principal occupations and employment during the past five years of each of our executive officers as of November 17, 2005 are as follows:

Name, Office and Position, and Principal Occupations and Employment	Age
Clayton M. Jones — Chairman of the Board of Rockwell Collins since June 2002; President and Chief Executive Officer of Rockwell Collins since June 2001; Senior Vice President of Rockwell (electronic controls and communications) and President of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	56
Barry M. Abzug — Senior Vice President, Corporate Development of Rockwell Collins since October 2001; President and General Manager, Aerospace/Communications Division of ITT Industries, Inc. (engineering and manufacturing) prior thereto	53
Patrick E. Allen — Senior Vice President and Chief Financial Officer of Rockwell Collins since January 2005; Vice President and Controller of Rockwell Collins’ Commercial Systems business from January 2004 to December 2004; Vice President, Finance and Treasurer of Rockwell Collins from June 2001 to February 2004; Vice President and Treasurer of Rockwell prior thereto	41
John-Paul E. Besong — Senior Vice President of e-Business & Lean Electronics of Rockwell Collins since February 2003; Vice President of e-Business & Lean Electronics of Rockwell Collins from January 2002 to February 2003; Vice President of e-Business of Rockwell Collins prior thereto	52
David H. Brehm — Vice President, Finance and Controller of Rockwell Collins since February 2004; Vice President, Investor Relations of Rockwell Collins from July 2001 to January 2004; Chief Financial Officer of In-Flight Network, LLC (a former joint venture between Rockwell Collins and News Corporation to provide on-board digital broadband communication and entertainment services to airline passengers) prior thereto	51
Gary R. Chadick — Senior Vice President, General Counsel and Secretary of Rockwell Collins since July 2001; Assistant General Counsel, Operations of Litton Industries, Inc. (advanced electronics, information systems, electronic components and ship systems) prior thereto	44
Robert M. Chiusano — Executive Vice President and Chief Operating Officer, Commercial Systems of Rockwell Collins since May 2002; Executive Vice President and Chief Operating Officer, Government Systems of Rockwell Collins from June 2001 to May 2002; Vice President and General Manager, Government Systems of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	55
Gregory S. Churchill — Executive Vice President and Chief Operating Officer, Government Systems of Rockwell Collins since May 2002; Vice President and General Manager of Business and Regional Systems for Commercial Systems of Rockwell Collins from June 2001 to May 2002; Vice President of Business Development for Government Systems of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	48

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Name, Office and Position, and Principal Occupations and Employment	Age
Ronald W. Kirchenbauer — Senior Vice President, Human Resources, of Rockwell Collins since April 2003; Senior Vice President, Employee and Workplace Services, of Cadence Design Systems, Inc. (electronic design technologies and services) prior thereto	58
Nan Mattai — Senior Vice President, Engineering and Technology of Rockwell Collins since November 2004; Vice President, Government Systems Engineering of Rockwell Collins from June 2001 to October 2004; Senior Director, Tactical Communications, Government Systems of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	53
Kent L. Statler — Senior Vice President and General Manager of Rockwell Collins Services since October 2005; Senior Vice President of Operations of Rockwell Collins from January 2003 to October 2005; Vice President of Manufacturing Operations of Rockwell Collins from January 2002 to January 2003; Vice President Lean Electronics of Rockwell Collins from January 2001 to January 2002; Vice President of Collins Maintenance Operations for Collins Aviation Services of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto	40
Douglas E. Stenske —Treasurer of Rockwell Collins since February 2004; Senior Director, Risk and Asset Management of Rockwell Collins from June 2001 to January 2004; Manager, Risk Management and Special Projects of Rockwell prior thereto	39

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

PART II

Item 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock, par value $.01 per share, is listed on the New York Stock Exchange and trades under the symbol “COL”. On October 31, 2005, there were 34,168 shareowners of record of our common stock.

The following table sets forth the high and low sales price of our common stock on the New York Stock Exchange—Composite Transactions reporting system during each quarter of our years ended September 30, 2005 and 2004:

	2005				2004
Fiscal Quarters	High		Low		High		Low
First	$	40.94	$	34.40	$	30.10	$	25.18
Second		48.47		37.22		35.25		29.16
Third		49.80		42.88		34.35		29.24
Fourth		49.75		45.32		38.08		32.02

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Dividends

The following table sets forth the cash dividends per share paid by us during each quarter of our years ended September 30, 2005 and 2004:

Fiscal Quarters	2005		2004
First	$	0.12	$	0.09
Second		0.12		0.09
Third		0.12		0.09
Fourth		0.12		0.12

Based on our current dividend policy, we will pay quarterly cash dividends which, on an annual basis, will equal $0.48 per share. The declaration and payment of dividends by us, however, will be at the sole discretion of our Board of Directors.

Repurchases

Our Board of Directors has authorized certain repurchases of our common stock. During 2005, we repurchased approximately 10.6 million shares of our common stock at a total cost of approximately $498 million, which resulted in a weighted average cost of $47.20 per share. During 2004, we repurchased approximately 5.8 million shares at a total cost of approximately $179 million, which resulted in a weighted average cost of $31.16 per share.

The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of shares of our common stock during the three months ended September 30, 2005:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs1
July 1, 2005 through July 31, 2005	475,000	$	47.34	475,000	$	291.9 million
August 1, 2005 through August 31, 2005	4,600,000	$	49.05	4,600,000	$	66.3 million
September 1, 2005 through September 30, 2005	0		N/A	N/A	$	66.3 million
Total	5,075,000	$	48.89	5,075,000	$	66.3 million

¹ On April 18, 2005, we announced that our Board authorized the repurchase of $400 million of our common stock. This authorization has no stated expiration. In August 2005, with the Board’s approval, we entered into accelerated repurchase agreements with an investment bank under which we purchased 4 million shares of our outstanding common stock.

Item 6. Selected Financial Data.

See the information in the table captioned Selected Financial Data in the 2005 Annual Report.

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

See the discussion and analysis under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2005 Annual Report.

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

See the discussion and analysis under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2005 Annual Report.

Item 8. Financial Statements and Supplementary Data.

See Reports of Independent Registered Public Accounting Firm, Consolidated Statement of Financial Position, Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Shareowners’ Equity and Comprehensive Income (Loss), and Notes to Consolidated Financial Statements in the 2005 Annual Report.

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

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s disclosure control objectives.

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”). Based upon that evaluation, our Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Evaluation of Internal Control Over Financial Reporting

Management’s report on internal control over financial reporting as of September 30, 2005 is included within Item 8 of this Form 10-K and is incorporated herein by reference. The report of Deloitte & Touche LLP on management’s assessment and the effectiveness of internal control over financial reporting is included within Item 8 of this Form 10-K and is incorporated herein by reference.

Changes in Internal Control

There were no significant changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information.

None.

PART III

Item 10. Directors and Executive Officers of the Company.

See the information under the captions Election of Directors, Information as to Nominees for Directors and Continuing Directors and Section 16(a) Beneficial Ownership Reporting Compliance in the 2006 Proxy Statement. See also the information with respect to executive officers of the Company under Item 4A of Part I.

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

The members of the Audit Committee of our board of directors are: Joseph F. Toot, Jr., Anthony J. Carbone and Richard J. Ferris. The board of directors has determined that Messrs. Toot, Carbone and Ferris are “audit committee financial experts” and “independent” as defined under applicable SEC and New York Stock Exchange rules. The Board’s affirmative determination with respect to Messrs. Toot and Ferris was based upon their extensive experience as chief executive officers of public companies in actively supervising chief financial officers and their extensive audit committee experience. The Board’s affirmative determination with respect to Mr. Carbone was based upon his more than twenty years in various executive positions at the Dow Chemical Company, including four years as an Executive Vice President in which he actively supervised business unit controllers and actively reviewed business unit financial statements, his eight years serving on Dow’s Finance Committee where Dow’s financial statements were reviewed and analyzed on a quarterly basis, and the years he has served on our Audit Committee during which he reviewed and analyzed our financial statements.

We have adopted a handbook entitled “Ethics is Good Business and Integrity is the Bottom Line” and the Rockwell Collins Standards of Business Conduct Policy (collectively, the “code of ethics”), a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Vice President, Finance and Controller (who serves as our principal accounting officer), as well as to all of our other employees and to the members of our Board of Directors. The code of ethics is publicly available on our website at www.rockwellcollins.com. If we make any amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code applicable to our Chief Executive Officer, Chief Financial Officer or principal accounting officer requiring disclosure under applicable SEC rules, we intend to disclose the nature of such amendment or waiver on our website.

Item 11. Executive Compensation.

See the information under the captions Compensation of Directors, Executive Compensation, Option Grants, Long-Term Incentive Plans – Awards in Last Fiscal Year, Aggregated Option Exercises and Fiscal Year-End Values, Retirement Benefits, Compensation Committee Report on Executive Compensation and Shareowner Return Performance Presentation in the 2006 Proxy Statement.

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

See the information under the captions Voting Securities, Equity Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information in the 2006 Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

See the information under the caption Corporate Governance; Board of Directors and Committees and Certain Transactions and Other Relationships in the 2006 Proxy Statement.

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Item 14. Principal Accountant Fees and Services.

See the information under the caption Proposal to Approve the Selection of Auditors in the 2006 Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)		Financial Statements, Financial Statement Schedules and Exhibits.
(1)		Financial Statements (all financial statements listed below are those of the Company and its consolidated subsidiaries and are incorporated by reference in Item 8 of this Form 10-K from the 2005 Annual Report).
		Consolidated Statement of Financial Position, as of September 30, 2005 and 2004.
		Consolidated Statement of Operations, years ended September 30, 2005, 2004 and 2003.
		Consolidated Statement of Cash Flows, years ended September 30, 2005, 2004 and 2003.
		Consolidated Statement of Shareowners’ Equity and Comprehensive Income (Loss), years ended September 30, 2005, 2004 and 2003.
		Notes to Consolidated Financial Statements.
		Reports of Independent Registered Public Accounting Firm.
	(2)	Financial Statement Schedule for the years ended September 30, 2005, 2004 and 2003.
			Page
		Report of Independent Registered Public Accounting Firm	S-1
		Schedule II — Valuation and Qualifying Accounts	S-2
		Schedules not filed herewith are omitted because of the absence of conditions under which they are required or because the information called for is shown in the financial statements or notes thereto.
	(3)	Exhibits
	3-a-1	Restated Certificate of Incorporation of the Company, as amended, filed as Exhibit 3-a-1 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
	3-a-2	Certificate of Merger effecting name change of the Company from “New Rockwell Collins, Inc.” to “Rockwell Collins, Inc.”, filed as Exhibit 3-a-2 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
	3-b-1	Amended By-Laws of the Company, filed as Exhibit 3-b-1 to the Company’s Form 10-Q for quarter ended June 30, 2004, is incorporated herein by reference.
	4-a-1	Rights Agreement dated as of June 28, 2001 by and between the Company and Mellon Investor Services LLC, as Rights Agent, filed as Exhibit 4.1 to the Company’s current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
	4-a-2	Indenture dated as of November 1, 2001 between the Company and Citibank, N.A., as Trustee, filed as Exhibit 4.b to the Company’s Registration Statement on Form S-3 (No. 333-72914), is incorporated herein by reference.

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4-a-3	Form of certificate for the Company’s 4  3/4% Notes due 2013, filed as Exhibit 4-a to the Company’s current report on Form 8-K dated November 21, 2003, is incorporated herein by reference.
*10-a-1	The Company’s 2001 Long-Term Incentives Plan, as amended by the Company’s Board of Directors on September 8, 2005.
*10-a-2	Forms of Stock Option Agreements under the Company’s 2001 Long-Term Incentives Plan, filed as Exhibit 10-a-2 to the Company’s Form 10-K for year ended September 30, 2001, are incorporated herein by reference.
*10-a-3	Form of Stock Option Agreement under the Company’s 2001 Long-Term Incentives Plan for stock option grants to the non-executive Chairman of the Board of Directors, filed as Exhibit 10-a-3 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-a-4	Form of Restricted Stock Agreement under the Company’s 2001 Long-Term Incentives Plan for restricted stock grants to the non-executive Chairman of the Board of Directors, filed as Exhibit 10-a-4 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-b-1	The Company’s Directors Stock Plan, adopted by the Company’s Board of Directors on June 1, 2001 and approved by the Company’s shareowners at the 2002 Annual Meeting of Shareowners, filed as Exhibit 10.2 to the Company’s Registration Statement on Form 10 (File No. 001-16445) (the “Form 10”), is incorporated herein by reference.
*10-b-2	Form of Stock Option Agreement under the Company’s Directors Stock Plan, filed as Exhibit 10-b-2 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-b-3	Form of Restricted Stock Agreement under the Company’s Directors Stock Plan, filed as Exhibit 10-b-3 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-c-1	The Company’s Annual Incentive Compensation Plan for Senior Executive Officers, adopted by the Company’s Board of Directors on June 1, 2001 and approved by the Company’s shareowners at the 2002 Annual Meeting of Shareowners, filed as Exhibit 10.4 to the Form 10, is incorporated herein by reference.
*10-d-1	The Company’s Incentive Compensation Plan, adopted by the Company’s Board of Directors on June 11, 2003, filed as Exhibit 10-d-1 to the Company’s Form 10-Q for quarter ended June 30, 2003, is incorporated herein by reference.
*10-e-1	The Company’s 2001 Stock Option Plan, adopted by the Company’s Board of Directors on June 1, 2001, filed as Exhibit 10.3 to the Form 10, is incorporated herein by reference.
*10-f-1	The Company’s Deferred Compensation Plan, adopted by the Company’s Board of Directors on June 13, 2001, filed as Exhibit 10-f-1 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-g-1	The Company’s Non-Qualified Savings Plan, adopted by the Company’s Board of Directors on June 13, 2001, filed as Exhibit 10-g-1 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-h-1	The Company’s Non-Qualified Pension Plan, adopted by the Company’s Board of Directors on June 13, 2001, filed as Exhibit 10-h-1 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
*10-h-2	The Company’s Memorandum of Proposed Amendments to the Non-Qualified Pension Plan, adopted by the Company’s Board of Directors on November 6, 2003, filed as Exhibit 10-h-2 to the Company’s Form 10-Q for quarter ended December 31, 2003, is incorporated herein by reference.

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*10-i-1	The Company’s Master Trust — Deferred Compensation and Non-Qualified Savings and Non-Qualified Pension Plans, adopted by the Company’s Board of Directors on June 13, 2001, filed as Exhibit 10-i-1 to the Company’s Form 10-K for year ended September 30, 2001, is incorporated herein by reference.
10-k-1	Distribution Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, the Company and Rockwell Scientific Company LLC, filed as Exhibit 2.1 to the Company’s current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
10-l-1	Employee Matters Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, the Company and Rockwell Scientific Company LLC, filed as Exhibit 2.2 to the Company’s current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
10-m-1	Tax Allocation Agreement dated as of June 29, 2001 by and between Rockwell International Corporation and the Company, filed as Exhibit 2.3 to the Company’s current report on Form 8-K dated July 11, 2001, is incorporated herein by reference.
*10-n-1	Form of Change of Control Agreement between the Company and certain executives of the Company (Three-Year Agreement), filed as Exhibit 10-n-1 to the Company’s Form 8-K dated June 29, 2005, is incorporated herein by reference.
*10-n-2	Schedule identifying executives of the Company who are party to a Change of Control Agreement (Three-Year Agreement), filed as Exhibit 10-n-2 to the Company’s Form 8-K dated June 29, 2005, is incorporated herein by reference.
*10-n-3	Form of Change of Control Agreement between the Company and certain executives of the Company (Two-Year Agreement), filed as Exhibit 10-n-3 to the Company’s Form 8-K dated June 29, 2005, is incorporated herein by reference.
*10-n-4	Schedule identifying executives of the Company who are party to a Change of Control Agreement (Two-Year Agreement), filed as Exhibit 10-n-4 to the Company’s Form 8-K dated June 29, 2005, is incorporated herein by reference.
10-o-1	Five-Year Credit Agreement dated as of May 24, 2005 among the Company, the Banks listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, and Citibank, N.A., as Syndication Agent, filed as Exhibit 99 to the Company’s Form 8-K dated May 24, 2005, is incorporated herein by reference.
*10-p-1	Form of Three-Year Performance Unit Agreement for Persons With a Change of Control Agreement filed as Exhibit 10-p-1 to the Company’s Form 10-K for year ended September 30, 2004, is incorporated herein by reference.
*10-p-2	Form of Three-Year Performance Unit Agreement for Persons Not With a Change of Control Agreement filed as Exhibit 10-p-2 to the Company’s Form 10-K for year ended September 30, 2004, is incorporated herein by reference.
*10-p-3	Form of Performance Unit Agreement for FY03-05 for Persons With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan, filed as Exhibit 10-p-3 to the Company’s Form 10-K for year ended September 30, 2002, is incorporated herein by reference.
*10-p-4	Form of Performance Unit Agreement for FY03-05 for Persons Not With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan, filed as Exhibit 10-p-4 to the Company’s Form 10-K for year ended September 30, 2002, is incorporated herein by reference.
*10-p-5	Form of Performance Unit Agreement for FY04-06 for Persons With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan, filed as Exhibit 10-p-5 to the Company’s Form 10-Q for quarter ended December 31, 2003, is incorporated herein by reference.
*10-p-6	Form of Performance Unit Agreement for FY04-06 for Persons Not With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan, filed as Exhibit 10-p-6 to the Company’s Form 10-Q for quarter ended December 31, 2003, is incorporated herein by reference.

22

*10-q-1	Form of Three-Year Performance Awards Agreement for Persons With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan.
*10-q-2	Form of Three-Year Performance Awards Agreement for Persons Not With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan.
*10-s-1	Directors’ Compensation Summary, filed as Exhibit 10-s-1 to the Company’s Form 8-K dated June 29, 2005, is incorporated herein by reference.
10-t-1	Purchase Agreement dated August 16, 2005, between Company and UBS AG, London Branch acting through UBS Securities LLC (TRANCHE 1), filed as Exhibit 10.1 to the Company’s Form 8-K dated August 16, 2005, is incorporated herein by reference.
10-t-2	Purchase Agreement dated August 16, 2005, between Company and UBS AG, London Branch acting through UBS Securities LLC (TRANCHE 2), filed as Exhibit 10.2 to the Company’s Form 8-K dated August 16, 2005, is incorporated herein by reference.
12	Statement re: Computation of Ratio of Earnings to Fixed Charges.
13	Portions of the 2005 Annual Report to Shareowners of the Company incorporated herein by reference.
21	List of subsidiaries of the Company.
23	Consent of Independent Registered Public Accounting Firm.
24	Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the Company.
31.1	Section 302 Certification of Chief Executive Officer.
31.2	Section 302 Certification of Chief Financial Officer.
32.1	Section 906 Certification of Chief Executive Officer.
32.2	Section 906 Certification of Chief Financial Officer.

* Management contract or compensatory plan or arrangement.

23

SIGNATURES

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

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

Dated: November 21, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 21^st day of November, 2005 by the following persons on behalf of the registrant and in the capacities indicated.

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

*By	/s/ Gary R. Chadick
	Gary R. Chadick, Attorney-in-fact**

** By authority of the powers of attorney filed herewith.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the consolidated financial statements of Rockwell Collins, Inc. and subsidiaries (the “Company”) as of September 30, 2005 and October 1, 2004, and for each of the three years in the period ended September 30, 2005, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005, and the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005, and have issued our reports thereon dated November 4, 2005; such consolidated financial statements and reports are included in your 2005 Annual Report to Shareowners and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 15(a)(2). This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

November 4, 2005

S-1

SCHEDULE II

ROCKWELL COLLINS, INC.

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended September 30, 2005, 2004 and 2003

(in millions)

Description	Balance at Beginning of Year		Charged to Costs and Expenses		Other			Deductions (b)			Balance at End of Year
Year ended September 30, 2005:
Allowance for doubtful accounts	$	16	$	1	$	—		$	(6	)	$	11
Allowance for excess and obsolete inventories		102		21		9	(a)		(29	)		103
Year ended September 30, 2004:
Allowance for doubtful accounts		17		3		—			(4	)		16
Allowance for excess and obsolete inventories		98		32		—			(28	)		102
Year ended September 30, 2003:
Allowance for doubtful accounts		16		4		—			(3	)		17
Allowance for excess and obsolete inventories		102		18		—			(22	)		98

(a) Amount relates to the TELDIX GmbH acquisition.

(b) Amounts written off.

S-2

EXHIBIT INDEX

Exhibit Number	Description
*10-a-1	The Company’s 2001 Long-Term Incentives Plan, as amended by the Company’s Board of Directors on September 8, 2005.
*10-q-1	Form of Three-Year Performance Awards Agreement for Persons With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan.
*10-q-2	Form of Three-Year Performance Awards Agreement for Persons Not With a Change of Control Agreement under the Company’s 2001 Long-Term Incentives Plan.
12	Statement re: Computation of Ratio of Earnings to Fixed Charges.
13	Portions of the 2005 Annual Report to Shareowners of the Company incorporated herein by reference.
21	List of subsidiaries of the Company.
23	Consent of Independent Registered Public Accounting Firm.
24	Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the Company.
31.1	Section 302 Certification of Chief Executive Officer.
31.2	Section 302 Certification of Chief Financial Officer.
32.1	Section 906 Certification of Chief Executive Officer.
32.2	Section 906 Certification of Chief Financial Officer.

* Management contract or compensatory plan or arrangement.

E-1

EX-10.(A).1

Exhibit 10-a-1

ROCKWELL COLLINS, INC.

2001 LONG-TERM INCENTIVES PLAN

AS AMENDED SEPTEMBER 8, 2005

Section 1: Purpose

The purpose of the Plan is to promote the interests of the Corporation (as defined in Section 2) and its shareowners by providing incentive compensation opportunities to assist in (i) attracting, motivating and retaining Employees (as defined in Section 2) and (ii) aligning the interests of Employees participating in the Plan with the interests of the Corporation’s shareowners.

Section 2: Definitions

As used in the Plan, the following terms shall have the respective meanings specified below.

a. “Award” means an award granted pursuant to Section 4.

b. “Award Agreement” means a document described in Section 6 setting forth the terms and conditions applicable to an Award granted to a Participant.

c. “Board of Directors” means the Board of Directors of the Corporation, as it may be comprised from time to time.

d. “Change of Control” means any of the following:

(i) 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 (A) the then outstanding shares of common stock of the Corporation (the “Outstanding Collins Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Collins Voting Securities”); provided, however, that for purposes of this subparagraph (i), 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 (“Rockwell”) or any

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corporation controlled by the Corporation or Rockwell or (z) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or

(ii) Individuals who, as of the date of the pro rata distribution of all the outstanding Stock by Rockwell to its shareowners (the “Collins Distribution Date”), 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

(iii) 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, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Collins Common Stock and Outstanding Collins Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Collins Common Stock and Outstanding Collins Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Corporation, of Rockwell 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 (C) at least a majority

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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

(iv) Approval by the Corporation’s shareowners of a complete liquidation or dissolution of the Corporation.

e. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

f. “Committee” means the Compensation and Management Development Committee of the Board of Directors, as it may be comprised from time to time.

g. “Corporation” means Rockwell Collins, Inc. and any successor thereto.

h. “Covered Employee” means a covered employee within the meaning of Code Section 162(m)(3).

i. “Dividend Equivalent” means an amount equal to the amount of cash dividends payable with respect to a share of Stock after the date specified in an Award Agreement with respect to an Award settled in Stock or an Award of Restricted Stock.

j. “Employee” means an individual who is an employee or a leased employee of, or a consultant to, the Corporation or a Subsidiary, but excludes members of the Board of Directors, other than the non-executive Chairman of the Board of Directors (who shall be deemed an Employee), who are not also employees of the Corporation or a Subsidiary.

k. “Exchange Act” means the Securities Exchange Act of 1934, and any successor statute, as it may be amended from time to time.

l. “Executive Officer” means an Employee who is an executive officer of the Corporation as defined in Rule 3b-7 under the Exchange Act as it may be amended from time to time.

m. “Fair Market Value” means the closing sale price of the Stock as reported in the New York Stock Exchange—Composite Transactions (or if the Stock is not then traded on the New York Stock Exchange, the closing sale price of the Stock on the stock exchange or over-the-counter market on which the Stock is principally trading on the relevant date) on the date of a determination (or on the next preceding day the Stock was traded if it was not traded on the date of a determination).

n. “Incentive Stock Option” means an Option (or an option to purchase Stock granted pursuant to any other plan of the Corporation or a Subsidiary) intended to comply with Code Section 422.

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o. “Non-Qualified Stock Option” means an Option that is not an Incentive Stock Option.

p. “Option” means an option to purchase Stock granted pursuant to Section 4(a).

q. “Participant” means any Employee who has been granted an Award.

r. “Performance Goal” means the level of performance, whether absolute or relative to a peer group or index, established by the Committee as the performance goal with respect to a Performance Measure. Performance Goals may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

s. “Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Committee for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained with respect to one or more Performance Goals. Performance Formulas may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

t. “Performance Measure” means one or more of the following selected by the Committee to measure the performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or both for a Performance Period: basic or diluted earnings per share; revenue; sales; operating income; earnings before or after interest, taxes, depreciation or amortization; return on capital; return on invested capital; return on equity; return on assets; return on net assets; cash flow; operating cash flow; free cash flow (operating cash flow plus proceeds from property dispositions less capital expenditures); working capital; stock price and total shareowner return. Each such measure, to the extent applicable, shall be determined in accordance with generally accepted accounting principles as consistently applied by the Corporation and, if so determined by the Committee at the time the Award is granted and to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

u. “Performance Period” means one or more periods of time (of not less than one fiscal year of the Corporation), as the Committee may designate, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s rights in respect of an Award.

4

v. “Plan” means this 2001 Long-Term Incentives Plan as adopted by the Corporation and in effect from time to time.

w. “SAR” means a stock appreciation right granted pursuant to Section 4(b).

x. “Stock” means shares of Common Stock, par value $.01 per share, of the Corporation or any security of the Corporation issued in substitution, exchange or lieu thereof.

y. “Subsidiary” means (i) any corporation or other entity in which the Corporation, directly or indirectly, controls 50% or more of the total combined voting power of such corporation or other entity and (ii) any corporation or other entity in which the Corporation has a significant equity interest and which the Committee has determined to be considered a Subsidiary for purposes of the Plan.

Section 3: Eligibility

The Committee may grant one or more Awards to any Employee designated by it to receive an Award.

Section 4: Awards

The Committee may grant any one or more of the following types of Awards, and any such Award may be granted by itself, together with another Award that is linked and alternative to the Award with which it is granted or together with another Award that is independent of the Award with which it is granted:

a. Options. An Option is an option to purchase a specific number of shares of Stock exercisable at such time or times and subject to such terms and conditions as the Committee may determine consistent with the provisions of the Plan, including the following:

(i) The exercise price of an Option shall not be less than 100% of the Fair Market Value of the Stock on the date the Option is granted, and no Option may be exercisable more than 10 years after the date the Option is granted.

(ii) The exercise price of an Option shall be paid in cash or, at the discretion of the Committee, in Stock or in a combination of cash and Stock. Any Stock accepted in payment of the exercise price of an Option shall be valued at its Fair Market Value on the date of exercise.

(iii) No fractional shares of Stock will be issued or accepted. The Committee may impose such other conditions, restrictions and contingencies with respect to shares of Stock delivered pursuant to the exercise of an Option as it deems desirable.

(iv) Incentive Stock Options shall be subject to the following additional provisions:

A. No grant of Incentive Stock Options to any one Employee shall cover a number of shares of Stock whose aggregate Fair Market Value (determined on the date the Option is granted), together with the aggregate Fair Market Value (determined on the respective date of grant of any Incentive Stock Option) of the shares of Stock covered by any Incentive Stock Options which have been previously granted under the Plan or any other plan of the Corporation or any Subsidiary and which are exercisable for the first time during the same calendar year, exceeds $100,000 (or such other amount as may be fixed as the maximum amount permitted by Code Section 422(d)).

5

B. No Incentive Stock Option may be granted under the Plan after June 1, 2011.

C. No Incentive Stock Option may be granted to an Employee who on the date of grant is not an employee of the Corporation or a corporation that is a subsidiary of the Corporation within the meaning of Code Section 424(f).

b. Stock Appreciation Rights (SARs). A SAR is the right to receive a payment measured by the increase in the Fair Market Value of a specified number of shares of Stock from the date of grant of the SAR to the date on which the Participant exercises the SAR. SARs may be (i) freestanding SARs or (ii) tandem SARs granted in conjunction with an Option, either at the time of grant of the Option or at a later date, and exercisable at the Participant’s election instead of all or any part of the related Option. The payment to which the Participant is entitled on exercise of a SAR may be in cash, in Stock valued at Fair Market Value on the date of exercise or partly in cash and partly in Stock, as the Committee may determine.

c. Restricted Stock. Restricted Stock is Stock that is issued to a Participant subject to restrictions on transfer and such other restrictions on incidents of ownership as the Committee may determine, which restrictions shall lapse at such time or times, or upon the occurrence of such event or events, including but not limited to the achievement of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or that Participant over a specified period of time as the Committee may determine. Subject to the specified restrictions, the Participant as owner of those shares of Restricted Stock shall have the rights of the holder thereof, except that the Committee may provide at the time of the Award that any dividends or other distributions paid with respect to that Stock while subject to those restrictions shall be accumulated, with or without interest, or reinvested in Stock and held subject to the same restrictions as the Restricted Stock and such other terms and conditions as the Committee shall determine. Shares of Restricted

6

Stock shall be registered in the name of the Participant and, at the Corporation’s sole discretion, shall be held in book entry form subject to the Corporation’s instructions or shall be evidenced by a certificate, which shall bear an appropriate restrictive legend, shall be subject to appropriate stop-transfer orders and shall be held in custody by the Corporation until the restrictions on those shares of Restricted Stock lapse.

d. Performance Units. A Performance Unit is an Award denominated in cash, the amount of which may be based on the achievement of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or the Participant to whom the Performance Units are granted over a specified period of time. The maximum amount of compensation that may be paid to any one Participant with respect to Performance Units for any one Performance Period shall be $5 million. The payout of Performance Units may be in cash, in Stock, valued at Fair Market Value on the payout date (or at the sole discretion of the Committee, the day immediately preceding that date), or partly in cash and partly in Stock, as the Committee may determine.

e. Performance Shares. A Performance Share is an Award denominated in Stock, the amount of which may be based on the achievement of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or the Participant to whom the Performance Shares are granted over a specified period of time. The payout of Performance Shares shall be made in Stock, in accordance with the terms and conditions specified by the Committee; provided, however, that the Committee may in whole or in part, in its discretion, make a cash payment equal to the Fair Market Value of Stock otherwise required to be issued to a participant pursuant to an Award of Performance Shares.

f. Performance Compensation Awards.

(i) The Committee may, at the time of grant of an Award (other than an Option or SAR) designate such Award as a Performance Compensation Award in order that such Award constitute qualified performance-based compensation under Code Section 162(m); provided, however, that no Performance Compensation Award may be granted to an Employee who on the date of grant is a leased employee of, or a consultant to, the Corporation or a Subsidiary. With respect to each such Performance Compensation Award, the Committee shall (on or before the 90^th day of the applicable Performance Period or such other period as may be required by Code Section 162 (m)), establish, in writing, a Performance Period, Performance Measure(s), Performance Goal(s) and Performance Formula(s). Once established for a Performance Period, such items shall not be amended or otherwise modified if and to the extent such amendment or

7

modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m).

(ii) A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Goal(s) for that Award are achieved and the Performance Formula as applied against such Performance Goal(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period. As soon as practicable after the close of each Performance Period, the Committee shall review and determine whether, and to what extent, the Performance Goal(s) for the Performance Period have been achieved and, if so, determine the amount of the Performance Compensation Award earned by the Participant for such Performance Period based upon such Participant’s Performance Formula. The Committee shall then determine the actual amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may in its sole discretion decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance. The maximum Performance Compensation Award for any one Participant for any one Performance Period shall be determined in accordance with Sections 4(d) and 5(b), as applicable.

g. Deferrals. The Committee may require or permit Participants to defer the issuance or vesting of shares of Stock or the settlement of Awards under such rules and procedures as it may establish under the Plan. The Committee may also provide that deferred settlements include the payment of, or crediting of interest on, the deferral amounts or the payment or crediting of Dividend Equivalents on deferred settlements in shares of Stock. Notwithstanding the foregoing, no deferral will be permitted if it will result in the Plan becoming an “employee pension benefit plan” under Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is not otherwise exempt under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

Section 5: Stock Available under Plan

a. Subject to the adjustment provisions of Section 9, the number of shares of Stock which may be delivered upon exercise of Options or upon grant or in payment of other Awards under the Plan shall not exceed 14 million, and the number of those shares which may be delivered upon grant or in payment of all Awards other than Options and SARs shall not exceed 12 million. In addition, (i) no more than 1 million shares of Stock shall be granted in the form of Restricted Stock or Performance Shares; and (ii) SARs shall be granted with respect to no more than 100,000 shares of Stock. For purposes of applying the limitations provided in this Section 5(a), all shares of Stock with respect to the unexercised, undistributed or unearned portion of any terminated or forfeited Award shall be available for further Awards.

8

b. Subject to the adjustment provisions of Section 9, no single Participant shall receive, in any fiscal year of the Corporation, Awards in the form of (i) Options with respect to more than that number of shares of Stock determined by subtracting from 2,500,000 the number of shares of Stock with respect to which Options or options to purchase Stock under any other plan or program of the Corporation or a Subsidiary have been granted to such Participant during the immediately preceding four fiscal years of the Corporation; and (ii) Restricted Stock or Performance Shares for more than that number of shares of Stock determined by subtracting from 250,000 the number of shares of Stock granted as Restricted Stock or Performance Shares or as restricted stock or performance shares under any other plan or program of the Corporation or a Subsidiary to such Participant during the immediately preceding four fiscal years of the Corporation.

c. The Stock that may be delivered on grant, exercise or settlement of an Award under the Plan may be reacquired shares held in treasury or authorized but unissued shares.

Section 6: Award Agreements

Each Award under the Plan shall be evidenced by an Award Agreement. Each Award Agreement shall set forth the terms and conditions applicable to the Award, including but not limited to provisions for (i) the time at which the Award becomes exercisable or otherwise vests; (ii) the treatment of the Award in the event of the termination of a Participant’s status as an Employee; and (iii) any special provisions applicable in the event of an occurrence of a Change in Control, as determined by the Committee consistent with the provisions of the Plan.

Section 7: Amendment and Termination

The Board of Directors may at any time amend, suspend or terminate the Plan, in whole or in part; provided, however, that no such action shall be effective without the approval of the shareowners of the Corporation to the extent that such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan; and provided, further, that subject to Section 9, no such action shall impair the rights of any holder of an Award without the holder’s consent. The Committee may, subject to the Plan, at any time alter or amend any or all Award Agreements to the extent permitted by applicable law; provided, however, that subject to Section 9, no such alteration or amendment shall impair the rights of any holder of an Award without the holder’s consent. Notwithstanding the foregoing, neither the Board of Directors nor the Committee shall (except pursuant to Section 9) amend the Plan or any Award Agreement to increase the number of shares of Stock available for Awards as set forth in Section 5 or to reprice any Option or SAR whose exercise price is above the then Fair Market Value of the Stock subject to the Award, whether by decreasing the exercise price, canceling the Award and granting a substitute Award, or otherwise.

9

Section 8: Administration

a. The Plan and all Awards shall be administered by the Committee. The members of the Committee shall be designated by the Board of Directors from among its members who are not eligible for Awards under the Plan.

b. Any member of the Committee who, at the time of any proposed grant of one or more Awards, is not both an “outside director” as defined for purposes of Code Section 162(m) and a “Non-Employee Director” as defined in Rule 16b-3(b)(3)(i) under the Exchange Act (or any successor provision) shall abstain from and take no part in the Committee’s action on the proposed grant.

c. The Committee shall have full and complete authority, in its sole and absolute discretion, (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any related document, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to make all determinations necessary or advisable in administering the Plan, and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan. The actions and determinations of the Committee on all matters relating to the Plan and any Awards will be final and conclusive. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among Employees who receive, or who are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

d. The Committee and others to whom the Committee has delegated such duties shall keep a record of all their proceedings and actions and shall maintain all such books of account, records and other data as shall be necessary for the proper administration of the Plan.

e. The Corporation shall pay all reasonable expenses of administering the Plan, including but not limited to the payment of professional fees.

f. It is the intent of the Corporation that the Plan and Awards hereunder satisfy, and be interpreted in a manner that satisfy, (i) in the case of Participants who are or may be Executive Officers, the applicable requirements of Rule 16b-3 under the Exchange Act, so that such persons will be entitled to the benefits of Rule 16b-3, or other exemptive rules under Section 16 of the Exchange Act, and will not be subjected to avoidable liability under Section 16(b) of the Exchange Act; and (ii) in the case of Performance Compensation Awards to Covered Employees, the applicable requirements of Code Section 162(m). If any provision of this Plan or of any Award Agreement would otherwise frustrate or conflict with the intent expressed in this Section 8(f), that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent, such provision shall be deemed void as to Executive Officers or Covered Employees, as applicable.

10

g. The Committee may appoint such accountants, counsel, and other experts as it deems necessary or desirable in connection with the administration of the Plan.

h. The Committee may delegate, and revoke the delegation of, all or any portion of its authority and powers under the Plan to the Chief Executive Officer of the Corporation, except that the Committee may not delegate any discretionary authority with respect to substantive decisions or functions regarding the Plan or Awards to the extent inconsistent with the intent expressed in Section 8(f) or to the extent prohibited by applicable law.

Section 9: Adjustment Provisions

a. In the event of any change in or affecting the outstanding shares of Stock by reason of a stock dividend or split, merger or consolidation (whether or not the Corporation is a surviving corporation), recapitalization, reorganization, combination or exchange of shares or other similar corporate changes or an extraordinary dividend in cash, securities or other property, the Board of Directors shall make or take such amendments to the Plan and outstanding Awards and Award Agreements and such adjustments and actions thereunder as it deems appropriate, in its sole discretion, under the circumstances. Such amendments, adjustments and actions may include, but are not limited to, changes in the number of shares of Stock then remaining subject to the Plan, and the maximum number of shares that may be granted or delivered to any single Participant pursuant to the Plan, including those that are then covered by outstanding Awards, or accelerating the vesting of outstanding Awards.

b. The existence of the Plan and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Board of Directors or the shareowners of the Corporation to make or authorize any adjustment, recapitalization, reorganization or other change in the capital structure of its business, any merger or consolidation of the Corporation, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or the rights thereof, the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding.

Section 10: Miscellaneous

a. Nonassignability. Except as otherwise provided by the Committee, no Award shall be assignable or transferable except by will or by the laws of descent and distribution.

b. Other Payments or Awards. Nothing contained in the Plan shall be deemed in any way to limit or restrict the Corporation or a Subsidiary from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

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c. Payments to Other Persons. If payments are legally required to be made to any person other than the person to whom any amount is made available under the Plan, payments shall be made accordingly. Any such payment shall be a complete discharge of the liability hereunder.

d. Unfunded Plan. The Plan shall be unfunded. No provision of the Plan or any Award Agreement shall require the Corporation or a Subsidiary, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Corporation or a Subsidiary maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Corporation or a Subsidiary, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under generally applicable law.

e. Limits of Liability. Any liability of the Corporation or a Subsidiary to any Participant with respect to an Award shall be based solely upon contractual obligations created by the Plan and the Award Agreement. Neither the Corporation or its Subsidiaries, nor any member of the Board of Directors or of the Committee, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability to any party for any action taken, or not taken, in good faith under the Plan.

f. Rights of Employees. Status as an eligible Employee shall not be construed as a commitment that any Award shall be made under the Plan to such eligible Employee or to eligible Employees generally. Nothing contained in the Plan or in any Award Agreement shall confer upon any Employee or Participant any right to continue in the employ or other service of the Corporation or a Subsidiary or constitute any contract or limit in any way the right of the Corporation or a Subsidiary to change such person’s compensation or other benefits or to terminate the employment or other service of such person with or without cause. A transfer of an Employee from the Corporation to a Subsidiary, or vice versa, or from one Subsidiary to another, and a leave of absence, duly authorized by the Corporation, shall not be deemed a termination of employment or other service.

g. Rights as a Shareowner. A Participant shall have no rights as a shareowner with respect to any Stock covered by an Award until the date the Participant becomes the holder of record thereof. Except as provided in Section 9, no adjustment shall be made for dividends or other rights, unless the Award Agreement specifically requires such adjustment.

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h. Withholding. Applicable taxes, to the extent required by law, shall be withheld in respect of all Awards. A Participant may satisfy the withholding obligation by paying the amount of any taxes in cash or, with the approval of the Committee, shares of Stock may be delivered to the Corporation or deducted from the payment to satisfy the obligation in full or in part. The amount of the withholding and the number of shares of Stock to be paid or deducted in satisfaction of the withholding requirement shall be determined by the Committee with reference to the Fair Market Value of the Stock when the withholding is required to be made; provided, however, that the amount of withholding to be paid in respect of Options exercised through the cashless method in which shares of Stock for which the Options are exercised are immediately sold may be determined by reference to the price at which said shares are sold. The Corporation shall have no obligation to deliver any Stock pursuant to the grant or settlement of any Award until it has been reimbursed for all required withholding taxes.

i. Section Headings. The section headings contained herein are for the purpose of convenience only, and in the event of any conflict, the text of the Plan, rather than the section headings, shall control.

j. Construction. In interpreting the Plan, the masculine gender shall include the feminine, the neuter gender shall include the masculine or feminine, and the singular shall include the plural unless the context clearly indicates otherwise. Any reference to a statutory provision or a rule under a statute shall be deemed a reference to that provision or any successor provision unless the context clearly indicates otherwise.

k. Invalidity. If any term or provision contained herein or in any Award Agreement shall to any extent be invalid or unenforceable, such term or provision will be reformed so that it is valid, and such invalidity or unenforceability shall not affect any other provision or part thereof.

l. Applicable Law. The Plan, the Award Agreements and all actions taken hereunder or thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to the conflict of law principles thereof.

m. Compliance with Laws. Notwithstanding anything contained herein or in any Award Agreement to the contrary, the Corporation shall not be required to sell, issue or deliver shares of Stock hereunder or thereunder if the sale, issuance or delivery thereof would constitute a violation by the Participant or the Corporation of any provisions of any law or regulation of any governmental authority or any national securities exchange; and as a condition of any sale or issuance the Corporation may require such agreements or undertakings, if any, as the Corporation may deem necessary or advisable to assure compliance with any such law or regulation.

n. Supplementary Plans. The Committee may authorize Supplementary Plans applicable to Employees subject to the tax

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laws of one or more countries other than the United States and providing for the grant of Non-Qualified Stock Options, SARs or Restricted Stock to such Employees on terms and conditions, consistent with the Plan, determined by the Committee which may differ from the terms and conditions of other Awards in those forms pursuant to the Plan for the purpose of complying with the conditions for qualification of Awards for favorable treatment under foreign tax laws. Notwithstanding any other provision hereof, Options granted under any Supplementary Plan shall include provisions that conform with Sections 4(a)(i), (ii) and (iii); SARs granted under any Supplementary Plan shall include provisions that conform with Section 4(b); and Restricted Stock granted under any Supplementary Plan shall include provisions that conform with Section 4(c).

o. Effective Date and Term. The Plan was adopted by the Board of Directors and shall be submitted to the sole shareowner of the Corporation, and if approved, shall be effective as of the Collins Distribution Date. The Plan also shall be submitted to the shareowners of the Corporation for approval at the first Annual Meeting of Shareowners to be held in 2002, and no Award may be granted, and no Performance Unit may be paid under the Plan after the date of that meeting unless such shareowner approval is obtained. If such shareowner approval is not obtained, the rights of any holder of an outstanding Award shall continue in force and effect after termination of the Plan, except as they may lapse or be terminated pursuant to the terms of the Plan or by their own terms and conditions. The Plan shall remain in effect until all Awards under the Plan have been exercised or terminated under the terms of the Plan and applicable Award Agreements; provided, however, that Awards under the Plan may be granted only within ten (10) years from the effective date of the Plan.

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EX-10.(Q).1

Exhibit 10-q-1

For Persons With a Change of Control Agreement

ROCKWELL COLLINS, INC.

PERFORMANCE AWARDS AGREEMENT

[Date]

Target Cash Performance Unit: $                    

Target Performance Shares:                 shares of Company Common Stock

PERSONAL AND CONFIDENTIAL

[Name]

Identification # (SSN or Employee #)

Dear [Nickname]:

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries (“Rockwell Collins” or the “Company”), you have been granted the following two performance awards (collectively, the “Performance Awards”) pursuant to this agreement (this “Agreement”) and under the Rockwell Collins 2001 Long-Term Incentives Plan, as amended (the “Plan”):

• Performance Unit denominated in cash and based on the target cash amount stated above

• Performance Shares denominated in shares of Common Stock of the Company and based on the target shares stated above

Any payout of your Performance Awards is based on the achievement by Rockwell Collins of the goals for Cumulative Sales and Return on Sales for its fiscal years of              through              [covering three fiscal years] (the “Performance Period”) as set forth in the matrix attached as Exhibit A (the “Matrix”). Any payout based on performance pursuant to the Matrix is to be further adjusted based on Shareowners Return as specified below. The terms and conditions of these Performance Awards are as set forth in more detail below.

1. Confirmation of Award. Together with any letter transmitting this document to you, this Agreement confirms your award in accordance with the terms as set forth herein.

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2. Amount Payable Pursuant to Awards. Subject to the provisions of this Agreement, the cash and/or share amounts payable to you pursuant to your Performance Awards shall be determined as follows:

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

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

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

(d) The payments as determined for achievement against goals for Cumulative Sales and for Return on Sales for the Performance Period will be further adjusted for the Company’s Shareowners Return (TSR) performance (as determined pursuant to paragraph 3) relative to the 10 peer companies listed on Exhibit B. If relative performance is among the top 3 of the peer companies, the payments will be adjusted upward by 20%. If relative performance is among the lowest 3 of the peer companies, the payments will be reduced by 20%. If the relative performance is not one of the top 3 companies or one of the lowest 3 companies, it will be deemed to be in the middle group of companies and there will be no adjustment.

Subject to the provisions of this Agreement, including your ability to defer payment under this Agreement in accordance with paragraph 16, the amount payable to you pursuant to the Performance Awards with respect to the Performance Period shall be paid in a lump sum of cash and/or Common Stock, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountant’s letter for the Performance Period pursuant to paragraph 14, but in no event later than the March 15th immediately following the end of the Performance Period. The Performance Awards represent the Company’s unfunded and unsecured promise to pay cash and/or issue shares of Common Stock at a future date, subject to the terms of this Agreement and the Plan. You have no rights under the Performance Awards or this Agreement other than the rights of a general unsecured creditor of the Company. Until the distribution of any Common Stock after vesting is evidenced in book entry form at the transfer agent (or a stock certificate is issued), you shall not have, with respect to the Performance Awards, rights to vote or receive dividends or any other rights as a shareowner.

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3. Definitions and Determination of Financial Performance. “Cumulative Sales” means, for the Performance Period, the total Sales as reported by the Company in its audited financial statements. “Return on Sales” means, for the Performance Period, the rate determined by dividing Net Income by Sales. Both Net Income and Sales will be the three year cumulative values as reported in the Company’s audited financial statements after adjusting for extraordinary income and expense items. The foregoing definitions and measures will exclude the base Net Income and Sales of major acquisitions and divestitures, however, they will include post-acquisition growth. Net Income will also be adjusted for “fair value” expenses of the acquisition including investment banker charges, amortization of intangibles, physical property step-ups, and imputed interest on the acquisition value.

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

In connection with the receipt of the accountant’s letter for the Performance Period pursuant to paragraph 14, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the “Committee” and which, on the date hereof, is the Compensation Committee) shall determine the Cumulative Sales, Return on Sales and the Shareowners Return results and ranking for the Performance Period after taking into account any adjustment as contemplated in paragraph 11.

4. Payment of Performance Unit Award Denominated in Cash. The Performance Unit denominated in cash is payable in cash and/or in Common Stock of the Company. The Committee will determine whether payment will be made in Common Stock and whether such payment in Common Stock will be automatic or elected at the discretion of each recipient. The number of shares of Common Stock of the Company to be issued pursuant to the payment made in the form of Common Stock for this Performance Unit denominated in cash is to be determined by dividing (1) the payment amount, net of income tax withholdings (which withholdings are to be paid in cash), to be paid in the form of Common Stock of the Company by (2) the Fair Market Value (as defined in the Plan) of the Common Stock of the Company on the day immediately preceding the payout date for the Performance Unit.

5. Payment of Performance Shares Denominated in Shares of Common Stock. The Performance Shares denominated in shares of Common Stock are payable

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in shares of the Company’s Common Stock; provided, however, that the Committee may, in its sole discretion, make a cash payment equal to the Fair Market Value of shares of Common Stock otherwise required to be issued. The Company may issue shares of Common Stock in book entry form in connection with the payout of Performance Awards. In lieu of fractional shares the Company may determine, in its sole discretion, to pay cash or to round such shares to the closest whole number. The future value of the shares of Common Stock underlying the Performance Award is unknown and cannot be predicted with certainty.

6. Transferability of Award. The Performance Awards shall not be transferable by you except by will or by the laws of descent and distribution.

7. Termination of Employment for Death or Disability. If your employment by the Company terminates during the Performance Period by reason of your death, disability or retirement under a retirement plan of the Company, you will continue to be eligible to receive a payment, if any, that would otherwise be payable pursuant to paragraph 2, but any such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.

8. Termination of Employment for Other Reasons. Except as otherwise provided in paragraphs 10 through 13, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, or retirement under a retirement plan of the Company, you will not be entitled to any payment pursuant to paragraph 2 with respect to the Performance Period.

9. Forfeiture of Award for Detrimental Activity. If you engage in detrimental activity (as defined in this paragraph 9) at any time (whether before or after termination of your employment), you will not be entitled to any payment hereunder and you will forfeit all rights with respect to the Performance Awards under this Agreement. For purposes of this paragraph 9, “detrimental activity” shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company. Any such determination of the Committee shall be final and binding for all purposes. Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 9 on or after the date of a Change of Control (as defined in the Plan) unless the “Cause” standard set forth in paragraph 12(b) is satisfied.

10. Transfer of Employment; Leave of Absence. For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or vice versa, or from one subsidiary of Rockwell Collins to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence. If your level of employment changes, the Company may adjust your target payment hereunder to pro rate the portion of the Performance Period that elapses (i) prior to the change in employment status at the old target payment level and (ii) after the change at the new target payment level, if any. Any promotion to the ranks of “Designated Senior Executive” requires Committee action to adjust the target payment hereunder.

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Notwithstanding anything in this paragraph 10 to the contrary, to the extent that your Performance Awards are subject to Internal Revenue Code Section 409A, as amended from time to time, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service (collectively, “Section 409A”) and you are entitled to payment under the Performance Awards upon a termination of employment, Section 409A’s definition of “separation of service,” including its rules on leaves of absences, will be used to determine the date on which you actually terminate employment.

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

(b) In the event of any change in or affecting the outstanding shares of Common Stock of the Company by reason of a stock dividend or split, merger or consolidation, or various other events, adjustments will be made as appropriate in connection with the Performance Awards as contemplated in the Plan.

(c) Subject to the provisions of paragraph 12, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 11 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

12. Change of Control. (a) Notwithstanding any other provision of this Agreement to the contrary, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 12(b)) or (ii) by you for Good Reason (as defined in paragraph 12(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated, but subject to your ability to defer payment under this Agreement in accordance with paragraph 16, as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Sales and Return on Sales as well as TSR for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to your target awards set forth on the first page of this letter multiplied by the greater of (Y) 100% and (Z) the average actual percentage payout for the Company’s long-term incentive performance awards for the prior three completed performance periods (or the average of two performance periods if three performance periods have not been completed), not to exceed the maximum allowed in the cycle being paid.

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(b) For purposes of paragraphs 9 and 12(a), termination for “Cause” shall mean:

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

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

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

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

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

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

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

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

(v) any failure by the Company to comply with and satisfy Section 19(b) of this Agreement.

For purposes of this paragraph 12(c), any good faith determination of “Good Reason” made by you shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by you for any reason during the 30-day period immediately following the first anniversary of the Change of Control (the “Thirteenth Month Election”) shall be deemed to be a termination for Good Reason for all purposes of this Agreement. Notwithstanding the provisions of Section 12(a) to the contrary, you shall be entitled to only 50% of the amount otherwise provided in Section 12(a) in the event you terminate employment for Good Reason based on the Thirteenth Month Election.

(d) Notwithstanding any other provision of this Agreement to the contrary, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Cumulative Sales and Return on Sales for the Company for the Performance Period shall be deemed to be not less than the 100% level set forth in the attached Matrix and the Company’s Shareowners Return shall be deemed to rank among the top 3 of the peer companies. Notwithstanding anything to the contrary in this Agreement (except to the extent that paragraph 12(a) provides for an earlier payment upon a termination of employment or you defer payment under this Agreement in accordance with paragraph 16), if a Change of Control occurs during the Performance Period, the payment date for your Performance Awards will be deemed to be November              [the last year of the Performance Period].

13. Divestiture. In the event that your principal employer is a subsidiary of Rockwell Collins, it is possible that your principal employer may cease to be a subsidiary of Rockwell Collins during the Performance Period (the date of such cessation is herein called the Divestiture Date). If your Performance Awards (a) are forfeitable at the time of the Divestiture Date such that your Performance Awards are not then subject to Section 409A, or (b) are nonforfeitable at the time of the Divestiture Date such that your Performance Awards are then subject to Section 409A and the divestiture of your principal employer at that time constitutes a “change in control event” that meets the requirements of Section 409A, then your Performance Awards shall become nonforfeitable (to the extent not already nonforfeitable) and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Sales and Return on Sales as well as TSR for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to 100% of your target awards set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee. If your Performance Awards are nonforfeitable at the time of the Divestiture Date such that your Performance Awards are then subject to Section 409A, but the divestiture of your principal employer at that time does not meet the requirements of a “change in control event” under Section 409A, then your Performance Awards shall

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become nonforfeitable (to the extent not already nonforfeitable) on the Divestiture Date and shall be paid out in November              [the last year of the Performance Period] (x) as if the Cumulative Sales and Return on Sales as well as Shareowners Return for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to 100% of your target awards set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.

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

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

16. Deferrals. You shall be permitted to defer any payment due to you under this Agreement in accordance with the terms of the Company’s Deferred Compensation Plan (the “DCP”), as amended from time to time, including to comply with Section 409A. Any such deferral will only be permitted to the extent that your election to defer payment complies with Section 409A. The Company will provide you with the appropriate deferral election form pursuant to which you may make your deferral election. Once you have deferred your payment into the DCP, the deferred amounts, including your ability to make a change to that deferral and your right to receive payment of any deferred amounts, will be subject in all regards to the terms and conditions of the DCP and the requirements of Section 409A.

17. Tax Withholding. Upon any payment to you of cash and/or Common Stock of the Corporation hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you. The Company will withhold such required amounts from your payments, unless the Company has made other arrangements with you for you to promptly remit an amount sufficient to pay such withholding taxes.

18. Governing Law. This Agreement and the awards provided for hereunder shall be governed by and construed in accordance with the laws of the State of Delaware.

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

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

20. Administration. Consistent with Section 8 of the Plan, the Committee shall interpret and administer the Plan, this Agreement and the Performance Awards. The actions and determinations of the Committee on all matters relating to the Plan, this Agreement and the Performance Awards will be final and conclusive.

21. Entire Agreement. This Agreement and the other terms applicable to Performance Units and Performance Shares granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Performance Awards, and there are no representations, promises, covenants, agreements or understandings with respect to the Performance Awards other than those expressly set forth in this Agreement and the Plan. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained from the office of the Secretary of the Company.

Sincerely yours,

ROCKWELL COLLINS, INC.

Gary R. Chadick

Senior Vice President,

General Counsel and Secretary

Rockwell Collins, Inc.

400 Collins Road NE, M/S 124-323

Cedar Rapids, IA 52498-0001

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EX-10.(Q).2

Exhibit 10-q-2

For Persons Not With a Change of Control Agreement

ROCKWELL COLLINS, INC.

PERFORMANCE AWARDS AGREEMENT

[Date]

Target Cash Performance Unit: $                    

Target Performance Shares:                 shares of Company Common Stock

PERSONAL AND CONFIDENTIAL

[Name]

Identification # (SSN or Employee #)

Dear [Nickname]:

We are pleased to confirm that, as a key employee of Rockwell Collins, Inc. and its subsidiaries (“Rockwell Collins” or the “Company”), you have been granted the following two performance awards (collectively, the “Performance Awards”) pursuant to this agreement (this “Agreement”) and under the Rockwell Collins 2001 Long-Term Incentives Plan, as amended (the “Plan”):

• Performance Unit denominated in cash and based on the target cash amount stated above

• Performance Shares denominated in shares of Common Stock of the Company and based on the target shares stated above

Any payout of your Performance Awards is based on the achievement by Rockwell Collins of the goals for Cumulative Sales and Return on Sales for its fiscal years of              through              [covering three fiscal years] (the “Performance Period”) as set forth in the matrix attached as Exhibit A (the “Matrix”). Any payout based on performance pursuant to the Matrix is to be further adjusted based on Shareowners Return as specified below. The terms and conditions of these Performance Awards are as set forth in more detail below.

1. Confirmation of Award. Together with any letter transmitting this document to you, this Agreement confirms your award in accordance with the terms as set forth herein.

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2. Amount Payable Pursuant to Awards. Subject to the provisions of this Agreement, the cash and/or share amounts payable to you pursuant to your Performance Awards shall be determined as follows:

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

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

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

(d) The payments as determined for achievement against goals for Cumulative Sales and for Return on Sales for the Performance Period will be further adjusted for the Company’s Shareowners Return (TSR) performance (as determined pursuant to paragraph 3) relative to the 10 peer companies listed on Exhibit B. If relative performance is among the top 3 of the peer companies, the payments will be adjusted upward by 20%. If relative performance is among the lowest 3 of the peer companies, the payments will be reduced by 20%. If the relative performance is not one of the top 3 companies or one of the lowest 3 companies, it will be deemed to be in the middle group of companies and there will be no adjustment.

Subject to the provisions of this Agreement, including your ability to defer payment under this Agreement in accordance with paragraph 16, the amount payable to you pursuant to the Performance Awards with respect to the Performance Period shall be paid in a lump sum of cash and/or Common Stock, less applicable taxes, by Rockwell Collins as soon as practicable after the end of the Performance Period and after receipt of the accountant’s letter for the Performance Period pursuant to paragraph 14, but in no event later than the March 15th immediately following the end of the Performance Period. The Performance Awards represent the Company’s unfunded and unsecured promise to pay cash and/or issue shares of Common Stock at a future date, subject to the terms of this Agreement and the Plan. You have no rights under the Performance Awards or this Agreement other than the rights of a general unsecured creditor of the Company. Until the distribution of any Common Stock after vesting is evidenced in book entry form at the transfer agent (or a stock certificate is issued), you shall not have, with respect to the Performance Awards, rights to vote or receive dividends or any other rights as a shareowner.

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3. Definitions and Determination of Financial Performance. “Cumulative Sales” means, for the Performance Period, the total Sales as reported by the Company in its audited financial statements. “Return on Sales” means, for the Performance Period, the rate determined by dividing Net Income by Sales. Both Net Income and Sales will be the three year cumulative values as reported in the Company’s audited financial statements after adjusting for extraordinary income and expense items. The foregoing definitions and measures will exclude the base Net Income and Sales of major acquisitions and divestitures, however, they will include post-acquisition growth. Net Income will also be adjusted for “fair value” expenses of the acquisition including investment banker charges, amortization of intangibles, physical property step-ups, and imputed interest on the acquisition value.

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

In connection with the receipt of the accountant’s letter for the Performance Period pursuant to paragraph 14, the committee of the Board of Directors of Rockwell Collins administering the Plan (which committee is herein called the “Committee” and which, on the date hereof, is the Compensation Committee) shall determine the Cumulative Sales, Return on Sales and the Shareowners Return results and ranking for the Performance Period after taking into account any adjustment as contemplated in paragraph 11.

4. Payment of Performance Unit Award Denominated in Cash. The Performance Unit denominated in cash is payable in cash and/or in Common Stock of the Company. The Committee will determine whether payment will be made in Common Stock and whether such payment in Common Stock will be automatic or elected at the discretion of each recipient. The number of shares of Common Stock of the Company to be issued pursuant to the payment made in the form of Common Stock for this Performance Unit denominated in cash is to be determined by dividing (1) the payment amount, net of income tax withholdings (which withholdings are to be paid in cash), to be paid in the form of Common Stock of the Company by (2) the Fair Market Value (as defined in the Plan) of the Common Stock of the Company on the day immediately preceding the payout date for the Performance Unit.

5. Payment of Performance Shares Denominated in Shares of Common Stock. The Performance Shares denominated in shares of Common Stock are payable

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in shares of the Company’s Common Stock; provided, however, that the Committee may, in its sole discretion, make a cash payment equal to the Fair Market Value of shares of Common Stock otherwise required to be issued. The Company may issue shares of Common Stock in book entry form in connection with the payout of Performance Awards. In lieu of fractional shares the Company may determine, in its sole discretion, to pay cash or to round such shares to the closest whole number. The future value of the shares of Common Stock underlying the Performance Award is unknown and cannot be predicted with certainty.

6. Transferability of Award. The Performance Awards shall not be transferable by you except by will or by the laws of descent and distribution.

7. Termination of Employment for Death or Disability. If your employment by the Company terminates during the Performance Period by reason of your death, disability or retirement under a retirement plan of the Company, you will continue to be eligible to receive a payment, if any, that would otherwise be payable pursuant to paragraph 2, but any such amount shall be pro rated for the portion of the Performance Period that elapsed prior to this termination of employment.

8. Termination of Employment for Other Reasons. Except as otherwise provided in paragraphs 10 through 13, if your employment by the Company terminates during the Performance Period other than by reason of your death, disability, or retirement under a retirement plan of the Company, you will not be entitled to any payment pursuant to paragraph 2 with respect to the Performance Period.

9. Forfeiture of Award for Detrimental Activity. If you engage in detrimental activity (as defined in this paragraph 9) at any time (whether before or after termination of your employment), you will not be entitled to any payment hereunder and you will forfeit all rights with respect to the Performance Awards under this Agreement. For purposes of this paragraph 9, “detrimental activity” shall mean willful, reckless or grossly negligent activity that is determined by the Committee to be detrimental to or destructive of the business or property of the Company. Any such determination of the Committee shall be final and binding for all purposes. Notwithstanding the foregoing, no payment hereunder shall be forfeited or become not payable by virtue of this paragraph 9 on or after the date of a Change of Control (as defined in the Plan) unless the “Cause” standard set forth in paragraph 12(b) is satisfied.

10. Transfer of Employment; Leave of Absence. For the purposes of this Agreement, (a) a transfer of your employment from Rockwell Collins to a subsidiary or vice versa, or from one subsidiary of Rockwell Collins to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employ of Rockwell Collins or a subsidiary of Rockwell Collins during such leave of absence. If your level of employment changes, the Company may adjust your target payment hereunder to pro rate the portion of the Performance Period that elapses (i) prior to the change in employment status at the old target payment level and (ii) after the change at the new target payment level, if any. Any promotion to the ranks of “Designated Senior Executive” requires Committee action to adjust the target payment hereunder.

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Notwithstanding anything in this paragraph 10 to the contrary, to the extent that your Performance Awards are subject to Internal Revenue Code Section 409A, as amended from time to time, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service (collectively, “Section 409A”) and you are entitled to payment under the Performance Awards upon a termination of employment, Section 409A’s definition of “separation of service,” including its rules on leaves of absences, will be used to determine the date on which you actually terminate employment.

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

(b) In the event of any change in or affecting the outstanding shares of Common Stock of the Company by reason of a stock dividend or split, merger or consolidation, or various other events, adjustments will be made as appropriate in connection with the Performance Awards as contemplated in the Plan.

(c) Subject to the provisions of paragraph 12, the determination of the Committee as to the terms of any adjustment made pursuant to this paragraph 11 shall be binding and conclusive upon you and any other person or persons who are at any time entitled to receipt of any payment pursuant to the award.

12. Change of Control. (a) Notwithstanding any other provision of this Agreement to the contrary, in the event that during the Performance Period your employment is terminated on or after a Change of Control (as defined in the Plan) (i) by the Company other than for Cause (as defined in paragraph 12(b)) or (ii) by you for Good Reason (as defined in paragraph 12(c)), your award shall become nonforfeitable and shall be paid out on the date your employment is so terminated, but subject to your ability to defer payment under this Agreement in accordance with paragraph 16, as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Sales and Return on Sales as well as TSR for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to your target awards set forth on the first page of this letter multiplied by the greater of (Y) 100% and (Z) the average actual percentage payout for the Company’s long-term incentive performance awards for the prior three completed performance periods (or the average of two performance periods if three performance periods have not been completed), not to exceed the maximum allowed in the cycle being paid.

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(b) For purposes of paragraphs 9 and 12(a), termination for “Cause” shall mean:

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

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

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

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

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

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

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

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

(v) any failure by the Company to comply with and satisfy Section 19(b) of this Agreement.

For purposes of this paragraph 12(c), any good faith determination of “Good Reason” made by you shall be conclusive.

(d) Notwithstanding any other provision of this Agreement to the contrary, if a Change of Control (as defined in the Plan) occurs during the Performance Period the Cumulative Sales and Return on Sales for the Company for the Performance Period shall be deemed to be not less than the 100% level set forth in the attached Matrix and the Company’s Shareowners Return shall be deemed to rank among the top 3 of the peer companies. Notwithstanding anything to the contrary in this Agreement (except to the extent that paragraph 12(a) provides for an earlier payment upon a termination of employment or you defer payment under this Agreement in accordance with paragraph 16), if a Change of Control occurs during the Performance Period, the payment date for your Performance Awards will be deemed to be November              [the last year of the Performance Period].

13. Divestiture. In the event that your principal employer is a subsidiary of Rockwell Collins, it is possible that your principal employer may cease to be a subsidiary of Rockwell Collins during the Performance Period (the date of such cessation is herein called the Divestiture Date). If your Performance Awards (a) are forfeitable at the time of the Divestiture Date such that your Performance Awards are not then subject to Section 409A, or (b) are nonforfeitable at the time of the Divestiture Date such that your Performance Awards are then subject to Section 409A and the divestiture of your principal employer at that time constitutes a “change in control event” that meets the requirements of Section 409A, then your Performance Awards shall become nonforfeitable (to the extent not already nonforfeitable) and shall be paid out on the Divestiture Date (x) as if the Performance Period hereunder had been completed or satisfied and as if the Cumulative Sales and Return on Sales as well as TSR for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to 100% of your target awards set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee. If your Performance Awards are nonforfeitable at the time of the Divestiture Date such that your Performance Awards are then subject to Section 409A, but the divestiture of your principal employer at that time does not meet the requirements of a “change in control event” under Section 409A, then your Performance Awards shall become nonforfeitable (to the extent not already nonforfeitable) on the Divestiture Date and shall be paid out in November              [the last year of the Performance Period] (x) as if the Cumulative Sales and Return on Sales as well as Shareowners Return for the Company for the Performance Period were sufficient to enable a payment to you pursuant to paragraph 2 of the amount that is equal to 100% of your target awards set forth on the first page of this letter, but (y) pro rated for the portion of the Performance Period that elapsed prior to the Divestiture Date, all as conclusively determined by the Committee.

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

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

16. Deferrals. You shall be permitted to defer any payment due to you under this Agreement in accordance with the terms of the Company’s Deferred Compensation Plan (the “DCP”), as amended from time to time, including to comply with Section 409A. Any such deferral will only be permitted to the extent that your election to defer payment complies with Section 409A. The Company will provide you with the appropriate deferral election form pursuant to which you may make your deferral election. Once you have deferred your payment into the DCP, the deferred amounts, including your ability to make a change to that deferral and your right to receive payment of any deferred amounts, will be subject in all regards to the terms and conditions of the DCP and the requirements of Section 409A.

17. Tax Withholding. Upon any payment to you of cash and/or Common Stock of the Corporation hereunder, Federal income and other tax withholding (and state and local income tax withholding, if applicable) may be required by the Company in respect of taxes on income realized by you. The Company will withhold such required amounts from your payments, unless the Company has made other arrangements with you for you to promptly remit an amount sufficient to pay such withholding taxes.

18. Governing Law. This Agreement and the awards provided for hereunder shall be governed by and construed in accordance with the laws of the State of Delaware.

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

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

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20. Administration. Consistent with Section 8 of the Plan, the Committee shall interpret and administer the Plan, this Agreement and the Performance Awards. The actions and determinations of the Committee on all matters relating to the Plan, this Agreement and the Performance Awards will be final and conclusive.

21. Entire Agreement. This Agreement and the other terms applicable to Performance Units and Performance Shares granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Performance Awards, and there are no representations, promises, covenants, agreements or understandings with respect to the Performance Awards other than those expressly set forth in this Agreement and the Plan. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained from the office of the Secretary of the Company.

Sincerely yours,

ROCKWELL COLLINS, INC.

Gary R. Chadick

Senior Vice President,

General Counsel and Secretary

Rockwell Collins, Inc.

400 Collins Road NE, M/S 124-323

Cedar Rapids, IA 52498-0001

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EX-12

Exhibit 12

ROCKWELL COLLINS, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

YEAR ENDED SEPTEMBER 30, 2005

(in millions, except ratio)

	2005			2004			2003			2002			2001
Earnings available for fixed charges:
Income before income taxes	$	547		$	430		$	368		$	341		$	224
Adjustments:
Income from equity affiliates		(11	)		(8	)		(5	)		(4	)		(2	)
Equity affiliate distributions		8			5			1			—			4
		544			427			364			337			226
Add fixed charges included in earnings:
Interest expense		11			8			3			6			3
Interest element of rentals		8			9			8			8			7
Total earnings available for fixed charges	$	563		$	444		$	375		$	351		$	236
Fixed charges:
Fixed charges included in earnings	$	19		$	17		$	11		$	14		$	10
Capitalized Interest		—			—			—			—			—
Total fixed charges	$	19		$	17		$	11		$	14		$	10
Ratio of earnings to fixed charges (1)		29.6			26.1			34.1			25.1			23.6

(1) In computing the ratio of earnings to fixed charges, earnings are defined as income before income taxes, 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-13

Exhibit 13

Portions of the Rockwell Collins, Inc. – 2005 Annual Report to Shareowners

Incorporated by reference in our Form 10-K

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto as well as our Annual Report on Form 10-K for the year ended September 30, 2005 filed with the Securities and Exchange Commission (SEC). The following discussion and analysis contains forward-looking statements and estimates that involve risks and uncertainties. Actual results could differ materially from these estimates. Factors that could cause or contribute to differences from estimates include those discussed under “Cautionary Statement” below and under “Certain Business Risks” in our Annual Report on Form 10-K for the year ended September 30, 2005.

Prior to 2004, we operated on a fiscal year basis with the fiscal year ending on September 30. Beginning with the 2004 fiscal year, we changed to a 52/53 week fiscal year ending on the Friday closest to September 30. For ease of presentation, September 30 is utilized consistently throughout this report to represent the fiscal year end date. All date references contained herein relate to our fiscal year unless otherwise stated.

OVERVIEW AND OUTLOOK

Our 2005 results reflect the continuing strength of both our Commercial Systems and Government Systems businesses. Our Government Systems business continued its strong sales growth as increases in the U. S. defense budget have driven higher demand for our government-related products. Our Commercial Systems business also continued its strong sales growth as the commercial aerospace market continues to recover. More importantly, these increased sales volumes were the catalyst for even stronger profitability improvements in 2005. Our earnings in 2005 benefited from strategic cost containment and operational efficiency initiatives we began putting in place several years ago aimed at optimizing our infrastructure, our core processes, and how we interact with our customers and our suppliers. Examples of these strategic actions include:

• We use Lean Electronics^SM as our comprehensive methodology to provide value to our customers and our shareowners. We believe the concepts of Lean Electronics^SM have eliminated waste within our company and have made us more efficient. By focusing our efforts on key Lean Electronics ^SM goals throughout the company in areas such as customer acceptance, on-time delivery, and manufacturing cycle time, we have been able to contain costs, satisfy our customers, and grow sales.

• During 2005, we began to see the benefits of the first full year of our Life Cycle Value Stream Management initiative. Life Cycle Value Stream Management has transformed how we do business by focusing accountability for planning and execution throughout the entire life cycle of our products, making our businesses more efficient, effective and competitive, so that we are better able to serve our customers, provide returns to our shareowners, and generate opportunities for our employees.

• Successful deployment of our enterprise resource planning system has provided capabilities that improve inventory management and standardize processes, as well as enabling our businesses to more fully utilize our shared services infrastructure. The efficiencies built into our shared services infrastructure, which includes such areas as engineering, finance, information technology, human resources, and other general corporate activities, has provided the company with the ability to grow sales volume without experiencing the same growth in employee and facility costs.

Financial highlights for 2005 include:

• Total company sales increased to $3.45 billion, or 18 percent from 2004, with our Government and Commercial Systems businesses contributing equally to this rate of growth. Excluding incremental revenues provided by our NLX (renamed Rockwell Collins Simulation and Training Solutions) and TELDIX GmbH (TELDIX) acquisitions, organic sales growth was 15 percent.

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Management’s Discussion and Analysis (continued)

• Earnings per share increased 32 percent to $2.20. The combination of higher revenues and our ongoing cost containment and operational efficiency initiatives translated into a profitability growth rate more than double that of our rate of organic revenue growth.

• Operating cash flow increased by 44 percent to $574 million, or 145 percent of net income. This strong operating cash flow and our solid balance sheet provided us with ample resources to execute upon our capital deployment strategy of making strategic business acquisitions and returning value to our shareowners through share repurchases and cash dividends:

• We repurchased 10.6 million shares of our common stock for $498 million.

• We paid dividends to shareowners totaling $85 million.

• We acquired TELDIX, a provider of military aviation products and services based in Heidelberg, Germany, for $19 million.

Looking forward to 2006, we believe we are well positioned to generate a third consecutive year of double-digit revenue growth. Despite the dampening impact of expensing stock compensation costs for the first time and defined benefit pension costs that are expected to more than double from 2005, we expect our rate of earnings growth to once again exceed our revenue growth rate. Highlights of our 2006 earnings guidance are as follows:

• Total sales in the range of $3.8 billion to $3.9 billion, or about a 12 percent increase over 2005.

• Diluted earnings per share in the range of $2.45 to $2.55, or about a 14 percent increase over 2005.

• Cash provided by operating activities of approximately $500 million.

• Capital expenditures of approximately $140 million; or about 3.6 percent of total sales.

• Total company and customer-funded research and development expenditures of approximately $690 million, or about 18 percent of total sales.

See the following operating segment sections for further discussion of 2005 and anticipated 2006 segment results.

RESULTS OF OPERATIONS

The following management discussion and analysis of results of operations is based on reported financial results for 2003 through 2005 and should be read in conjunction with our consolidated financial statements and the notes thereto.

Consolidated Financial Results

Sales

(dollars in millions)	2005			2004			2003
Domestic	$	2,312		$	1,957		$	1,667
International		1,133			973			875
Total	$	3,445		$	2,930		$	2,542
Percent increase		18	%		15	%

Total sales in 2005 increased 18 percent to $3,445 million compared to 2004. TELDIX, acquired on March 31, 2005, provided $51 million of incremental sales, or about 2 percentage points of the total sales growth. Rockwell Collins Simulation and Training Solutions, acquired on December 1, 2003, provided $21 million of incremental sales, or about 1 percentage point of the total sales growth. The remainder of the sales increase resulted from 17 percent organic revenue growth in our Commercial Systems business and 13 percent organic revenue growth in our Government Systems business. Domestic sales growth was driven by continued strong demand from the U.S. government for defense related products and the continuing recovery of the commercial aerospace market, which resulted in increased sales of commercial avionics products and services. International sales growth was due to the continuing global recovery of the commercial aerospace market and the acquisition of TELDIX.

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Management’s Discussion and Analysis (continued)

Total sales in 2004 increased $388 million, or 15 percent, compared to 2003. Our Rockwell Collins Simulation and Training Solutions acquisition accounted for $105 million of this sales increase, or about 4 percentage points of the total sales growth. Excluding our Rockwell Collins Simulation and Training Solutions acquisition, total sales increased $283 million in 2004, an organic growth rate of 11 percent over 2003. Domestic sales growth was driven by strong demand from the U.S. government for defense related products and the beginning of a recovery in the commercial aerospace market, which resulted in increased sales of commercial avionics products and services. International sales growth was also due primarily to the beginning of a recovery in the commercial aerospace market.

Cost of Sales

Total cost of sales is summarized as follows:

(dollars in millions)	2005			2004			2003
Total cost of sales	$	2,502		$	2,144		$	1,866
Percent of total sales		72.6	%		73.2	%		73.4	%

Cost of sales consists of all costs incurred to design and manufacture our products and includes research and development, raw material, labor, facility, product warranty and other related expenses. The improvement in cost of sales as a percentage of total sales in 2005 in comparison to 2004 is due primarily to higher sales combined with our continued focus on cost containment and operational efficiency initiatives, partially offset by the $15 million write-off of certain indefinite-lived Kaiser tradenames, higher employee incentive compensation costs, and the impact of incremental lower margin revenues from our TELDIX and Rockwell Collins Simulation and Training Solutions acquisitions.

The improvement in cost of sales as a percentage of total sales in 2004 in comparison to 2003 is due to increasing sales volumes combined with our continued focus on containing cost growth, partially offset by increases in payroll, incentive compensation, and pension expenses as well as lower margins generated from development contracts and the Rockwell Collins Simulation and Training Solutions business acquired in early 2004.

Research and development (R&D) expense is included as a component of cost of sales and is summarized as follows:

(dollars in millions)	2005			2004			2003
Customer-funded	$	348		$	327		$	259
Company-funded		243			218			216
Total	$	591		$	545		$	475
Percent of total sales		17	%		19	%		19	%

R&D expense consists primarily of payroll-related expenses of employees engaged in research and development activities, engineering related product materials and equipment, and subcontracting costs. Total research and development expense increased $46 million, or 8 percent, from 2004 to 2005. Total research and development expense as a percent of sales decreased to 17 percent in 2005 from 19 percent in 2004 and 2003, primarily due to the significant increases in sales volume in 2005. The company-funded portion of research and development expense increased $25 million in 2005 from 2004 primarily due to increased spending on the ARJ-21 regional jet and Boeing 787 programs. The customer-funded portion of research and development expense has increased over the past two years primarily due to several defense-related programs that are in their development phases, including Joint Tactical Radio System (JTRS) and the Future Combat Systems (FCS) programs. Looking forward to 2006, total research and development expense is expected to be about 18 percent of sales, or approximately $690 million, of which about 11 percentage points are expected to relate to customer-funded initiatives. Significant areas of spending in 2006 are expected to include the Boeing 787, JTRS, and FCS programs.

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Management’s Discussion and Analysis (continued)

Selling, General and Administrative Expenses

(dollars in millions)	2005			2004			2003
Selling, general and administrative expenses	$	402		$	356		$	341
Percent of total sales		11.7	%		12.2	%		13.4	%

Selling, general and administrative (SG&A) expenses consist primarily of personnel, facility, and other expenses related to employees not directly engaged in manufacturing, research or development activities. These activities include marketing and business development, finance, legal, information technology, and other administrative and management functions. SG&A expenses increased $46 million in 2005 as compared to 2004, due primarily to higher payroll and incentive compensation expenses as well as our acquisition of TELDIX. When measured as a percentage of sales, SG&A expenses in 2005 decreased to 11.7 percent as compared to 12.2 percent in 2004 as the continued growth in sales volume outpaced the increase in SG&A expenses as a result of cost containment and operational efficiency initiatives, partially offset by higher employee incentive compensation costs.

SG&A expenses increased $15 million in 2004 compared to 2003, due primarily to higher payroll, incentive compensation, and pension expenses as well as our acquisition of Rockwell Collins Simulation and Training Solutions. When measured as a percentage of sales, SG&A expenses in 2004 decreased to 12.2 percent as compared to 13.4 percent in 2003 as the growth in sales volume outpaced the increase in SG&A expenses.

Interest Expense

(in millions)	2005		2004		2003
Interest expense	$	11	$	8	$	3

On November 20, 2003, we issued $200 million of 4.75 percent fixed rate unsecured debt due December 1, 2013. The proceeds were used primarily to fund our pension plan and our acquisition of Rockwell Collins Simulation and Training Solutions. Interest expense increased slightly in 2005 compared to 2004 due to a full year of the outstanding long-term debt, slightly offset by lower average short-term borrowings. This $200 million debt issuance is the primary reason for the increased interest expense in 2004 as compared to 2003, slightly offset by lower average short-term borrowings.

Other Income, Net

(in millions)	2005			2004			2003
Other income, net	$	(17	)	$	(8	)	$	(36	)

For information regarding the fluctuations in other income, net, see Note 15 in the consolidated financial statements.

Income Tax Expense

(dollars in millions)	2005			2004			2003
Income tax expense	$	151		$	129		$	110
Effective income tax rate		27.6	%		30.0	%		30.0	%

4

Management’s Discussion and Analysis (continued)

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

	2005		2004		2003
Statutory tax rate	35.0	%	35.0	%	35.0	%
Research and development credit	(3.9	)	(2.4	)	(3.6	)
Extraterritorial income exclusion	(2.9	)	(2.3	)	(2.3	)
State and local income taxes	1.4		(0.1	)	1.5
Resolution of pre-spin deferred tax matters	(1.9	)	—		—
Other	(0.1	)	(0.2	)	(0.6	)
Effective income tax rate	27.6	%	30.0	%	30.0	%

The difference between our effective tax rate and the statutory tax rate is primarily the result of the tax benefits derived from the Research and Development Tax Credit (“R&D Tax Credit”), which provides a tax benefit on certain incremental R&D expenditures, the Extraterritorial Income Exclusion (“ETI”), which provides a tax benefit on export sales, and the resolution of pre-spin deferred tax matters. Including the R&D Tax Credit and ETI, we currently expect our effective income tax rate to be approximately 30 percent in 2006.

In October 2004, the Working Families Tax Relief Act of 2004 was signed into law and extended the R&D Tax Credit through December 31, 2005 on a retroactive basis back to June 30, 2004. As a result, our effective income tax rate for 2005 includes a R&D Tax Credit for 15 months of qualified R&D expenditures incurred between June 30, 2004 and September 30, 2005, while 2004 includes 9 months of the R&D tax credit. Assuming the R&D Tax Credit or tax benefit equivalent to the R&D Tax Credit is not extended beyond December 31, 2005, a loss of the R&D Tax Credit would have an adverse impact on our effective tax rate beginning in 2006.

In October 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law. The Act repeals and replaces the ETI with a new deduction for income generated from qualified production activities by U.S. manufacturers. The ETI export tax benefit will be phased out through fiscal 2007. For fiscal 2007 and thereafter, we are evaluating the impact of the ETI replacement legislation regarding the new deduction for income generated from qualified production activities by domestic manufacturers. As a result, the ETI repeal and replacement under the Act is not expected to have a significant impact on our effective income tax rate in 2006, however, the Act may have an adverse impact on our effective tax rate for years beyond 2006.

The Act also provides for a special one-time deduction of 85 percent of certain foreign earnings repatriated into the U.S. from non-U.S. subsidiaries through September 30, 2006. Based on the guidance provided from the IRS to date, we have completed our evaluation of the merits of repatriating funds under the Act as of September 30, 2005. We plan to repatriate approximately $100 million of unremitted non-U.S. earnings in 2006 in accordance with the provisions of the Act. Prior to the completion of this evaluation, we had not provided for income taxes on unremitted earnings generated by non-U.S. subsidiaries given our intent to permanently invest these earnings abroad. As a result, we recorded a $2 million tax liability in 2005 for the funds expected to be repatriated pursuant to the provisions of the Act.

Net Income and Diluted Earnings Per Share

(dollars and shares in millions, except per share amounts)	2005			2004			2003
Net income	$	396		$	301		$	258
Net income as a percent of sales		11.5	%		10.3	%		10.1	%
Diluted earnings per share	$	2.20		$	1.67		$	1.43
Weighted average diluted common shares		180.2			180.0			180.1

Net income in 2005 increased 32 percent to $396 million, or 11.5 percent of sales, from net income in 2004 of $301 million, or 10.3 percent of sales. Diluted earnings per share also increased 32 percent in 2005 to $2.20, compared to $1.67 in 2004. These increases were due primarily to higher sales volumes coupled with cost containment and operational efficiency initiatives. In addition, the items affecting comparability between 2005 and 2004 are detailed below.

5

Management’s Discussion and Analysis (continued)

Net income in 2004 increased 17 percent to $301 million, or 10.3 percent of sales, from net income in 2003 of $258 million, or 10.1 percent of sales. Diluted earnings per share also increased 17 percent in 2004 to $1.67, compared to $1.43 in 2003. Incremental margins contributed by the higher sales volumes along with continuing cost containment initiatives combined to produce these increases, partially offset by the impact of the items affecting comparability in 2004 and 2003 as detailed below.

Items Affecting Comparability

Net income and diluted earnings per share were impacted by the items affecting comparability summarized in the table below. The identification of these items is important to the understanding of our results of operations.

(dollars in millions, except per share amounts)	2005			2004			2003
Tradenames write-off (A)	$	(15	)	$	—		$	—
Contract dispute settlement (B)		—			7			—
Insurance settlements		—			5			—
Loss on equity investment (C)		—			(7	)		—
Gain on life insurance reserve fund (D)		—			—			20
Impact on income before income taxes		(15	)		5			20
Impact on income tax provision		5			(2	)		(8	)
Resolution of pre-spin deferred tax matters (E)		10			—			—
Impact on net income	$	—		$	3		$	12
Impact on diluted earnings per share	$	—		$	.02		$	.07
Net income as a percent of sales, excluding the above items		11.5	%		10.2	%		9.7	%

(A) The tradenames write-off relates to certain indefinite-lived Kaiser tradenames (see Note 7 in the consolidated financial statements).

(B) The contract dispute settlement gain relates to the resolution of a legal matter from a divested business.

(C) The loss on equity investment relates to our investment in Tenzing (see Note 8 in the consolidated financial statements).

(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 us to use funds from the trust to pay for other employee health and welfare benefits without incurring an excise tax.

(E) The resolution of pre-spin deferred tax matters relates to certain deferred tax matters that existed at the time of our spin-off in 2001 (see Note 16 in the consolidated financial statements).

Segment Financial Results

Government Systems

Overview and Outlook:

Our Government Systems business supplies defense communications and defense electronics systems and products, which include subsystems, navigation and displays, to the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign Ministries of Defense. The short and long-term performance of our Government Systems business is affected by a number of factors, including the amount and prioritization of defense spending by the U.S. and non-U.S. governments, which are generally based on the underlying political landscape, security environment and budgetary considerations.

The past few years have seen significant increases in the U.S. defense budget that have driven higher demand for the systems and products supplied by our Government Systems business. More importantly, an increasing amount of the U.S. defense budget is being allocated to transformation and modernization activities that are focused on increasing capabilities in such areas as network centric operations, transformational defense communications, situational awareness, precision guided munitions, signals intelligence, and surveillance. Many of the technologies that are required to achieve these transformation and modernization objectives overlap with our core competencies

6

Management’s Discussion and Analysis (continued)

and product offerings. Key program wins over the past few years that have validated our strengths in these areas include Clusters One, Five, and AMF (Airborne and Maritime/Fixed) of the JTRS program; certain positions on the JSF program; the integrated computer system for the FCS program; defense advanced GPS receivers (DAGRs) primarily for U.S. Army ground forces; displays, simulation, and integrated avionics systems for various military helicopter programs, including the Sikorsky S-92 Canadian Maritime Helicopter program; prime contractor positions for providing upgraded and modernized network infrastructure and cryptographic equipment for the Ground Element Minimum Essential Emergency Communications Network System (GEMS) program; and mission avionics for the E-6B systems upgrade program.

Looking ahead, we expect that the overall U.S. defense budget growth rate will likely begin to moderate beginning with the 2006 budget year; however, we believe that military transformation and modernization will remain a high priority of the U.S. military and the portion of the defense budget allocated to such initiatives will remain strong. We believe that this budgetary backdrop, combined with our key positions on major programs, some of which are expected to enter into full-rate production before the end of the decade, will drive continued growth in our Government Systems business. Risks affecting future performance of our Government Systems business include, but are not limited to, the potential impacts of geopolitical events, the overall funding and prioritization of the U.S. defense budget, and our ability to develop products and execute on programs pursuant to contractual requirements.

Specifically related to 2006, we expect Government Systems’ sales to increase in the range of 14 to 16 percent due primarily to increased sales in the following areas currently receiving higher military funding priority:

• Network centric and transformational defense communications programs

• Navigational products and systems

• Displays and integrated avionics systems for helicopter upgrade and production programs

Two to three percentage points of Government Systems’ revenue growth in 2006 is expected to result from incremental revenues from the TELDIX business acquired in March of 2005. We also anticipate maintaining operating margins in the range of 18 to 19 percent as the positive impact of increased revenues, cost containment and operating efficiencies, and an expected reduction in employee incentive compensation costs is expected to be offset by the impact of higher pension costs and a full year of lower margin TELDIX revenues. The impact of stock compensation expense is not included in our anticipated segment operating margins as our definition of segment operating earnings will exclude stock compensation expense.

Government Systems’ Sales:

The following table represents Government Systems’ sales by product category:

(dollars in millions)	2005			2004			2003
Defense electronics	$	1,232		$	956		$	767
Defense communications		578			579			503
Total	$	1,810		$	1,535		$	1,270
Percent increase		18	%		21	%

Defense electronics sales increased $276 million, or 29 percent, in 2005 compared to 2004. TELDIX, acquired on March 31, 2005, and Rockwell Collins Simulation and Training Solutions, acquired on December 1, 2003, provided $51 million and $21 million, respectively, or a total of 8 percentage points of this sales growth. Defense electronics organic sales increased $204 million, or 21 percent, in 2005 compared to 2004. This sales growth is due primarily to higher revenues from the following:

• Electronics systems upgrades for fixed-wing aircraft and U.S Army, Navy and Special Operations Forces helicopter programs

• Global positioning system equipment programs

• U. S. Army helicopter simulator programs

Defense communications sales decreased $1 million in 2005 compared to 2004. This decline in sales is attributable to higher sales of ARC-210 radios, which were more than offset by lower revenues primarily related to the completion of certain legacy data link projects, including the Swedish RA-90 program, as demand for data link capabilities shifts to advanced data link products.

7

Management’s Discussion and Analysis (continued)

Defense electronics sales increased $189 million, or 25 percent, in 2004 compared to 2003. Our acquisition of Rockwell Collins Simulation and Training Solutions in December 2003 contributed $105 million of this sales increase. Excluding our Rockwell Collins Simulation and Training Solutions acquisition, defense electronics sales increased $84 million, or 11 percent, in 2004 compared to 2003. This sales increase resulted from a continuation of ongoing defense transformation and modernization initiatives by the U.S. government, including initiating deliveries under the DAGR program, higher development contract sales on the JSF and FCS programs, as well as higher C-130 aircraft retrofit program sales.

Defense communications sales increased $76 million, or 15 percent, in 2004 compared to 2003. The sales increase was due to higher development contract sales on JTRS and advanced communications programs, as well as higher ARC-210 / 220 radio sales.

Government Systems’ Segment Operating Earnings:

(dollars in millions)	2005			2004			2003
Segment operating earnings	$	328		$	282		$	250
Percent of sales		18.1	%		18.4	%		19.7	%

Government Systems’ operating earnings increased $46 million, or 16 percent, in 2005 compared to 2004 due primarily to increased sales volume. Government Systems’ operating earnings as a percent of sales for 2005 was 18.1 percent compared with 18.4 percent for 2004. Operating margins were impacted by cost containment and operational efficiency initiatives offset by increased employee incentive compensation costs and incremental lower margin sales from Rockwell Collins Simulation and Training Solutions and TELDIX.

Government Systems operating earnings increased $32 million, or 13 percent, in 2004 compared to 2003 due primarily to increased sales volumes. The decrease in operating earnings as a percent of sales in 2004 compared to 2003 is primarily the result of lower margin sales from Rockwell Collins Simulation and Training Solutions as well as increased sales from lower margin development contracts such as those for the JTRS, JSF, and FCS programs. These decreases were partially offset by incurring lower company-funded R&D and lower operating expenses as a percent of sales as the growth in sales volume outpaced the moderate growth in marketing and other operating expenses.

Commercial Systems

Overview and Outlook:

Our Commercial Systems business is a supplier of aviation electronics to customers located throughout the world. The customer base is comprised of original equipment manufacturers (OEMs) of commercial air transport, regional and business aircraft, commercial airlines, fractional operators and business jet operators. The near and long-term performance of our Commercial Systems business is impacted by general worldwide economic health, commercial airline flight hours, the financial condition of airlines worldwide, as well as corporate profits.

Following two years of weak industry conditions, in 2004 we entered the initial phases of the recovery of the commercial aerospace market as evidenced by airlines around the world adding aircraft back into their fleets, increasing aircraft utilization, and making improvements in profitability. Improving economic conditions, corporate profitability, and stimulus provided by bonus depreciation accelerated the original equipment manufacturer aircraft production rates. In 2005, the commercial aerospace market recovery strengthened as evidenced by the first year of higher year-over-year rates of production of air transport aircraft by original equipment manufacturers Boeing and Airbus since 2001. In addition, the market for new business jets and aftermarket activities remained robust as improving economic conditions, corporate profitability, and airline profitability in certain segments of the airline industry, combined with certain regulatory mandate programs reaching their anticipated effective dates, continued to fuel demand in these market areas. Following several years of strong demand, production rates for regional jets turned lower due primarily to saturation for 50-seat capacity aircraft.

We believe the recovery of the current commercial aerospace market cycle, as defined by year-over-year increases in production rates of new air transport aircraft, will continue for an additional 2 to 4 years, and will also be accompanied by annual mid-single digit rates of growth in aircraft flight hours. Risks to the commercial aerospace

8

Management’s Discussion and Analysis (continued)

market include, among other things: the occurrence of an unexpected geopolitical event that could have a significant impact on demand for air travel and airline demand for new aircraft; the potential ramifications of the negative impact that the current high level of fuel prices are having on the profitability of our airline and other aircraft operator customers; and the continued poor financial condition of certain major U.S. airlines, some of which continue to operate while under the protection of bankruptcy regulations. Risks related to our ability to capitalize on the commercial aerospace market recovery and attain our stated enterprise long-term growth targets include, among other things: our ability to develop products and execute on programs pursuant to contractual requirements, such as the development of systems and products for the Boeing 787 and business jet OEMs, and the development and market acceptance of our Information Management products and systems.

Looking forward to 2006, we expect Commercial Systems’ sales to increase 7 to 9 percent over 2005. Market dynamic assumptions and company specific actions that are expected to positively impact Commercial Systems revenues in 2006 are:

• Combined production rates for new air transport and business aviation aircraft are expected to increase by about 25 percent.

• New product offerings and improving global economic conditions are anticipated to drive increased avionics retrofit activity.

• Anticipated 5 to 6 percent growth in global airline flight hours, as well as anticipated growth in our out-of-warranty installed base, will generate higher service and support activity.

These positive factors are expected to be partially offset by:

• Lower production rates of 50-seat regional jets that will more than offset anticipated higher production quantities of new higher capacity regional jet aircraft, resulting in an approximate 15 percent reduction in regional jet production rates.

• An approximate $40 million reduction in revenues relating to the expiration and delay of certain regulatory mandate programs.

• Lower in-flight entertainment (IFE) system sales resulting from the continued focus of this business on enhancing its current generation IFE systems and fully supporting its customer base, coupled with a decision to forego investing in next-generation wide-body IFE systems.

Commercial Systems segment operating margins are expected to increase for a third consecutive year and be in the range of 19 to 20 percent as the positive impact of the combination of increased revenues, cost containment and operational efficiency initiatives and an expected reduction in employee incentive compensation costs should more than offset the impact of higher pension and research and development costs. The impact of stock compensation expense is not included in our anticipated operating margins as our definition of segment operating earnings will exclude stock compensation expense.

Commercial Systems’ Sales:

The following table represents Commercial Systems’ sales by product category:

(dollars in millions)	2005			2004			2003
Air transport aviation electronics	$	911		$	798		$	746
Business and regional jet aviation electronics		724			597			526
Total	$	1,635		$	1,395		$	1,272
Percent increase		17	%		10	%

Air transport aviation electronics sales increased $113 million, or 14 percent, in 2005 compared to 2004. This increase is due primarily to higher sales to airlines and air transport OEMs in support of higher new aircraft production rates as well as strong growth in demand for retrofit and service and support activity. Business and regional aviation electronics sales increased $127 million, or 21 percent, in 2005 compared to 2004. This sales growth is due primarily to significantly higher sales to business jet OEMs and higher aftermarket revenues that more than offset the impact of lower regional jet OEM sales.

9

Management’s Discussion and Analysis (continued)

Air transport aviation electronics sales increased $52 million, or 7 percent, in 2004 compared to 2003. This increase was due primarily to year-over-year growth in global flight hours combined with improving airline profitability in some areas of the world. These factors led to higher aftermarket activity, while original equipment sales to air transport OEM’s and airline customers were approximately flat. Business and regional aviation electronics sales increased $71 million, or 13 percent, in 2004 compared to 2003. This sales growth was due primarily to improved aircraft utilization and corporate profitability which led to higher aftermarket and business jet OEM customer sales, while sales to regional jet OEMs declined as production rates of 50-seat capacity jets began to slow.

The following table represents Commercial Systems’ sales based on the type of product or service:

(dollars in millions)	2005		2004		2003
Aftermarket	$	857	$	738	$	639
Original equipment		778		657		633
Total	$	1,635	$	1,395	$	1,272

Aftermarket sales increased $119 million, or 16 percent, in 2005 compared to 2004 as a result of increased service and support activity and stronger demand for avionics retrofit applications and aircraft modification programs. Original equipment sales increased $121 million, or 18 percent, in 2005 compared to 2004 as higher sales to business jet OEMs and air transport airlines and OEMs in support of higher new aircraft production rates were partially offset by the impact of lower sales to regional jet OEMs and an anticipated shift of in-flight entertainment revenues from original equipment line-fit to aftermarket retrofit installations.

Aftermarket sales increased $99 million, or 15 percent, in 2004 compared to 2003 as a result of increased service and support activity and stronger demand for avionics retrofit applications. Original equipment sales increased $24 million, or 4 percent, in 2004 compared to 2003, as higher sales to business jet OEMs more than offset flat air transport OEM sales and a decrease in regional jet OEM sales as production rates of 50-seat capacity jets began to slow.

Commercial Systems’ Segment Operating Earnings:

(dollars in millions)	2005			2004			2003
Segment operating earnings	$	296		$	200		$	137
Percent of sales		18.1	%		14.3	%		10.8	%

Commercial Systems’ operating earnings increased $96 million, or 48 percent, to $296 million, or 18.1 percent of sales, compared to $200 million, or 14.3 percent of sales, in 2004. These significant increases were due primarily to the combination of increased sales volume, including higher margin aftermarket revenues, and cost containment and operational efficiency initiatives, which more than offset higher research and development and employee incentive compensation costs.

Commercial Systems operating earnings increased 46 percent, or $63 million, in 2004 compared to 2003. In addition, operating earnings as a percentage of sales increased from 10.8 percent in 2003 to 14.3 percent in 2004. The higher sales volume combined with the effects of cost containment and productivity improvement initiatives were the primary factors contributing to the improvement in 2004 over 2003. In addition, improving in-flight entertainment profitability as a result of lower product warranty costs and lower contract loss reserves contributed to the improvement.

General Corporate, Net

(in millions)	2005			2004			2003
General corporate, net	$	(55	)	$	(47	)	$	(20	)

Increase in general corporate, net in 2005 over 2004 is due primarily to higher employee incentive compensation costs as well as a net $5 million increase from the absence of Items Affecting Comparability in 2004 detailed above, including the contract dispute settlement, insurance settlements, and loss on equity investment.

10

Management’s Discussion and Analysis (continued)

Increase in general corporate, net in 2004 over 2003 is due primarily to the following:

• The absence of a $20 million gain on life insurance reserve fund from 2003 (see Items Affecting Comparability above)

• Loss on Tenzing equity investment of $7 million (see Items Affecting Comparability above)

• Higher incentive compensation and pension costs

These items were partially offset by:

• Gain on contract dispute settlement of $7 million (see Items Affecting Comparability above)

• Gain on insurance settlements of $5 million (see Items Affecting Comparability above)

Retirement Plans

Net benefit expense for pension benefits and other retirement benefits is as follows:

(in millions)	2005		2004		2003
Pension benefits	$	31	$	31	$	20
Other retirement benefits		1		19		19
Net benefit expense	$	32	$	50	$	39

Pension Benefits

We provide pension benefits to most of our employees in the form of defined benefit pension plans. Over the past few years, the cost of providing retirement benefits under a defined benefit structure has become increasingly volatile due to falling discount rates and the volatility in the stock market. In response, we made significant contributions to our pension plans and amended our U.S. qualified and non-qualified pension plans in 2003 covering all salary and hourly employees not covered by collective bargaining agreements to discontinue benefit accruals for salary increases and services rendered after September 30, 2006. Concurrently, we plan to replace this benefit by supplementing our existing defined contribution savings plan to include an additional company contribution effective October 1, 2006. We believe this new benefit structure will achieve our objective of providing benefits that are both valued by our employees and whose costs and funding requirements are more consistent and predictable over the long term.

Pension expense for the years ended September 30, 2005, 2004, and 2003 was $31 million, $31 million, and $20 million, respectively. Decreases in the funded status of our pension plans in prior years drove these increases in pension expense, with pension expense in 2005 and 2004 partially benefiting from the 2003 plan amendment. During 2005, the funded status of our pension plans decreased to a deficit of $681 million at September 30, 2005 from a deficit of $386 million at September 30, 2004, due primarily to a decrease in the discount rate used to measure our pension obligations from 6.25 percent to 5.3 percent, higher than anticipated pensionable earnings, and the addition of $41 million in unfunded pension obligations related to our acquisition of TELDIX. We expect pension expense to increase to $70 million in 2006, which reflects the impact of the decline in the funded status of our pension plans.

Our objective with respect to the funding of our pension plans is to provide adequate assets for the payment of future benefits. Pursuant to this objective, we will fund our pension plans as required by governmental regulations and may consider discretionary contributions as conditions warrant. We believe our strong financial position continues to provide us the opportunity to make discretionary contributions to our pension fund without inhibiting our ability to pursue other strategic investments.

Other Retirement Benefits

We provide retiree medical and life insurance benefits to substantially all of our employees. We have undertaken two major actions over the past few years with respect to these benefits that have lowered both the current and future costs of providing these benefits:

11

Management’s Discussion and Analysis (continued)

• In July of 2002, the pre-65 and post-65 retiree medical plans were amended to establish a fixed contribution to be paid by the company. Additional premium contributions will be required from participants for all costs in excess of this fixed contribution amount. This amendment has eliminated the risk to our company related to health care cost escalations for retiree medical benefits going forward as additional contributions will be required from retirees for all costs in excess of our fixed contribution amount.

• As a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, we amended our retiree medical plans on June 30, 2004 to discontinue post-65 prescription drug coverage effective January 1, 2008. Upon termination of these benefits, post-65 retirees will have the option of receiving these benefits through Medicare. On average, we expect that the prescription drug benefit to be provided by Medicare will be better than the benefit provided by our current post-65 drug plan as a result of the fixed contribution plan design implemented in 2002.

Other retirement benefits expense for the years ended September 30, 2005, 2004, and 2003 was $1 million, $19 million, and $19 million, respectively. The decrease in other retirement benefits expense in 2005 was due primarily to the major actions discussed above. We expect to generate income related to other retirement benefits of approximately $2 million in 2006, due primarily to the actions discussed above.

FINANCIAL CONDITION AND LIQUIDITY

Cash Flow Summary

Our ability to generate significant cash flow from operating activities coupled with our access to the credit markets enables our company to execute our growth strategies and return value to our shareowners. During 2005, significant cash expenditures aimed at future growth and enhanced shareowner value were as follows:

• $498 million of share repurchases

• $111 million of property additions

• $85 million of dividend payments

• $19 million for the acquisition of TELDIX

Operating Activities

(in millions)	2005		2004		2003
Cash provided by operating activities	$	574	$	399	$	371

The increase in cash flows provided by operating activities of $175 million in 2005 compared to 2004 was principally due to the following items:

• Increase in net income of $95 million

• Lower incremental inventory growth of $23 million, principally due to working capital management initiatives

• Higher tax benefits from employee stock option exercises of $20 million

• Lower pension plan contributions of $18 million

These increases in cash provided by operating activities in 2005 compared to 2004 were partially offset by an increase in receivables due to higher sales volumes and due to a customer withholding payments of $36 million as a result of performance related matters on an in-flight entertainment contract. We expect these performance matters will be remedied and the past due receivable balance will be paid during fiscal 2006.

The increase in cash flows provided by operating activities of $28 million in 2004 compared to 2003 is attributed primarily to cash flows from increased sales volumes and working capital initiatives.

12

Management’s Discussion and Analysis (continued)

Investing Activities

(in millions)	2005			2004			2003
Cash used for investing activities	$	(134	)	$	(228	)	$	(68	)

The decrease in cash used for investing activities was primarily due to $126 million of net cash paid for the Rockwell Collins Simulation and Training Solutions acquisition in December 2003, partially offset by $19 million of net cash paid for the TELDIX acquisition completed in March 2005. Capital expenditures increased to $111 million in 2005 from $92 million in 2004. We expect capital expenditures for 2006 to be approximately $140 million. Demand for new test equipment to support new programs is the primary driver of this expected increase.

The increase in cash used for investing activities of $160 million from 2003 to 2004 is due primarily to the $126 million acquisition of Rockwell Collins Simulation and Training Solutions and increases in expenditures for capital and intangible assets of $34 million to support upcoming programs.

Financing Activities

(in millions)	2005			2004			2003
Cash used for financing activities	$	(487	)	$	(37	)	$	(279	)

The increase in cash used for financing activities in 2005 over 2004 is primarily due to an increase in treasury stock repurchases of $319 million as well as the absence of $198 million in long-term debt borrowings, partially offset by the absence of $42 million in short-term borrowing repayments and an increase of $41 million in proceeds received from the exercise of stock options.

The decrease in cash used for financing activities in 2004 compared to 2003 is due primarily to $198 million in proceeds from long-term debt and lower payments on commercial paper borrowings, partially offset by increased treasury stock repurchases. Proceeds from long-term debt were used primarily to fund our pension plan and our acquisition of Rockwell Collins Simulation and Training Solutions.

Share Repurchase Program

Strong cash flow from operations provided funds for repurchasing our common stock under our share repurchase program as follows:

(in millions, except per share amounts)	2005		2004		2003
Amount of share repurchases	$	498	$	179	$	154
Number of shares repurchased		10.6		5.8		6.8
Weighted average price per share	$	47.20	$	31.16	$	22.56

On August 16, 2005, we entered into accelerated share repurchase agreements with an investment bank under which we repurchased 4 million shares of our outstanding common shares. See Note 18 in the consolidated financial statements for further discussion of these agreements.

We plan to continue repurchasing shares of our common stock up to the amount approved by our Board of Directors as our cash flow allows. As of September 30, 2005, we can repurchase up to $66 million in additional shares under our current Board of Directors authorization, although the Board of Directors may in its discretion authorize additional repurchases. Historically, we have executed share repurchases when cash flow from operations is not being used for other investing or financing activities, such as acquisitions or short-term debt reduction.

Dividends

We declared and paid cash dividends of $85 million, $69 million, and $64 million in 2005, 2004, and 2003, respectively. The increase in cash dividends was the result of an increase in the quarterly cash dividend from 9 cents to 12 cents per share beginning with the dividend paid September 7, 2004. Based on our current dividend policy, we will pay quarterly cash dividends which, on an annual basis, will equal $0.48 per share. We expect to fund dividends using cash generated from operations. The declaration and payment of dividends, however, will be at the sole discretion of the Board of Directors.

13

Management’s Discussion and Analysis (continued)

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 an $850 million committed credit facility with several banks (Revolving Credit Facility). 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 September 30, 2005.

Our Revolving Credit Facility consists of an $850 million five-year unsecured revolving credit agreement entered into on May 24, 2005. This agreement replaced a five-year $500 million revolving credit agreement which would have expired in May 2006 and a 364-day $350 million revolving credit agreement which expired in May 2005. The Revolving Credit Facility exists primarily to support our commercial paper program, but is 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 Facility requires that we maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. Our debt to total capitalization ratio at September 30, 2005 was 18 percent. The Revolving Credit Facility contains covenants that require us to satisfy certain conditions in order to incur debt secured by liens, engage in sale/leaseback transactions, or merge or consolidate with another entity. The Revolving Credit Facility does 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 $52 million as of September 30, 2005, of which $21 million was utilized to support commitments in the form of commercial letters of credit. There were no significant commitment fees or compensating balance requirements under any of our credit facilities. At September 30, 2005, 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 us 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 September 30, 2005, $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 Facility, funds available from the issuance of securities under our shelf registration, and potential asset securitization strategies.

14

Management’s Discussion and Analysis (continued)

Contractual Obligations

The following table summarizes certain of our contractual obligations as of September 30, 2005, as well as when these obligations are expected to be satisfied:

	Payments Due by Period
(in millions)	Total		Less than 1 Year		1 – 3 Years		4 - 5 Years		Thereafter
Long-term debt	$	200	$	—	$	—	$	—	$	200
Interest on long-term debt		80		10		20		20		30
Non-cancelable operating leases		135		23		36		24		52
Purchase obligations:
Purchase orders		652		523		83		46		—
Purchase contracts		14		10		4		—		—
Total	$	1,081	$	566	$	143	$	90	$	282

Interest payments under long-term debt obligations exclude the potential effects of the related interest rate swap contracts. See Note 10 in the consolidated financial statements.

We lease certain office and manufacturing facilities as well as certain machinery and equipment under various lease contracts with terms that meet the accounting definition of operating leases. Our commitments under these operating leases, in the form of non-cancelable future lease payments, are not reflected as a liability on our Statement of Financial Position.

Purchase obligations include purchase orders and purchase contracts. Purchase orders are executed in the normal course of business and may or may not be cancelable. Purchase contracts include agreements with suppliers under which there is a commitment to buy a minimum amount of products or pay a specified amount regardless of actual need. Generally, items represented in purchase obligations are not reflected as liabilities on our Statement of Financial Position.

We also have obligations with respect to pension and other post-retirement benefit plans. See Note 11 in the consolidated financial statements.

ENVIRONMENTAL

For information related to environmental claims, remediation efforts and related matters, see Note 20 in the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

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

Understanding the critical accounting policies discussed below and related risks is important in evaluating our financial condition and results of operations. We believe the following accounting policies used in the preparation of the consolidated financial statements are critical to our financial condition and results of operations as they involve a significant use of management judgment on matters that are inherently uncertain. If actual results differ significantly from management’s estimates, there could be a material effect on our financial condition, results of operations and cash flows. Management regularly discusses the identification and development of these critical accounting policies with the Audit Committee of the Board of Directors.

15

Management’s Discussion and Analysis (continued)

Accounting for Long-Term Contracts

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

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

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

Income Taxes

At the end of each quarterly reporting period, we estimate an effective income tax rate that is expected to be applicable for the full fiscal year. The estimate of our effective income tax rate involves significant judgments resulting from uncertainties in the application of complex tax regulations across many jurisdictions, implementation of tax planning strategies, and estimates as to the jurisdictions where income is expected to be earned. These estimates may be further complicated by new laws, new interpretations of existing laws, and rulings by taxing authorities. Due to the subjectivity and complex nature of these underlying issues, our actual effective income tax rate and related tax liabilities may differ from our initial estimates. Differences between our estimated and actual effective income tax rates and related liabilities are recorded in the period they become known or as our estimates are revised based on additional information. The resulting adjustment to our income tax expense could have a material effect on our results of operations in the period the adjustment is recorded. A one percentage point change in our effective income tax rate would change our annual net income by approximately $5 million.

Deferred tax assets and liabilities are recorded for tax carryforwards and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Management believes it is more likely than not that the current and long-term deferred tax assets will be realized through the reduction of future taxable income. See Note 16 in the consolidated financial statements for further detail regarding deferred taxes and the factors considered in evaluating deferred tax asset realization.

16

Management’s Discussion and Analysis (continued)

Goodwill and Indefinite-Lived Intangible Assets

As of September 30, 2005, we had $458 million of goodwill resulting from various acquisitions and $2 million of indefinite-lived intangible assets consisting of trademarks and tradenames (herein referred to as “trademarks”). We perform impairment tests on both goodwill and indefinite-lived intangible assets on an annual basis during the second quarter of each fiscal year, or on an interim basis if events or circumstances indicate that it is more likely than not that impairment has occurred.

Goodwill is potentially impaired if the carrying value of the “reporting unit” that contains the goodwill exceeds its estimated fair value. The fair values of our reporting units are determined with the assistance of third-party valuation experts using a combination of an “income approach”, which estimates fair value based upon future discounted cash flows, and a “market approach”, which estimates fair value using market multiples, ratios, and valuations of a set of comparable public companies within our industry. An indefinite-lived intangible asset is impaired if its carrying value exceeds its fair value. The fair values of our trademarks are determined with the assistance of third-party valuation experts using a “royalty savings” method, which is based upon a hypothetical royalty rate that would be charged by a licensor of the trademarks against discounted projected revenues attributable to products using those trademarks.

The valuation methodology and underlying financial information that is used to estimate the fair value of our reporting units and trademarks requires significant judgments to be made by management. These judgments include, but are not limited to, the long-term projections of future financial performance, the selection of appropriate discount rates used to present value future cash flows, and the determination of appropriate royalty rates. Our five-year strategic operating plan serves as the basis for these valuations and represents our best estimate of future business conditions in our industry as well as our ability to compete. Discount rates are determined based upon the weighted average cost of capital for a set of comparable companies adjusted for risks associated with our different operations. Royalty rates used for the trademark valuations are determined by considering market competition, customer base, the age of the trademark, quality, absolute and relative profitability, and market share. Our goodwill and indefinite-lived intangible asset impairment tests that were performed in the second quarter of 2005 yielded no impairments. If there was a significant downturn in our business, or if our plans with respect to utilization of acquired trademarks changed significantly, we could incur an impairment of one or more of these intangible assets.

In the fourth quarter of 2005, we completed a company-wide branding initiative and announced to our customers that we will no longer use certain indefinite lived tradenames related to Kaiser Aerospace and Electronics Corporation (acquired in December 2000). As a result, Kaiser Electronics has been renamed Rockwell Collins Display Systems, Kaiser Electroprecision has been renamed Rockwell Collins ElectroMechanical Systems, Inc., and Kaiser Electro-Optics, Inc. has been renamed Rockwell Collins Optronics, Inc. These changes resulted in a $15 million pre-tax write-off in the fourth quarter of 2005, as we will no longer be using these tradenames.

Warranty

Accrued liabilities are recorded on our Statement of Financial Position to reflect our contractual obligations relating to warranty commitments to our customers. We provide warranty coverage of various lengths and terms to our customers depending on standard offerings and negotiated contractual agreements. We record an estimate for warranty expense at the time of sale based on historical warranty return rates and repair costs. We believe our primary source of warranty risk relates to our in-flight entertainment products and extended warranty terms across all businesses. At September 30, 2005, we have recorded $172 million of warranty liabilities. Should future warranty experience differ materially from our historical experience, we may be required to record additional warranty liabilities which could have a material adverse effect on our results of operations and cash flows in the period in which these additional liabilities are required.

Pension Benefits

We provide retirement benefits to most of our employees in the form of defined benefit pension plans. Accounting standards require the cost of providing these pension plans be measured on an actuarial basis. These accounting standards will generally reduce, but not eliminate, the volatility of the reported pension obligation and related pension expense as actuarial gains and losses resulting from both normal year-to-year changes in valuation assumptions and the differences from actual experience are deferred and amortized. The application of these

17

Management’s Discussion and Analysis (continued)

accounting standards requires management to make numerous assumptions and judgments that can significantly affect these measurements. Critical assumptions made by management in performing these actuarial valuations include the selection of discount rates and expectations on the future rate of return on pension plan assets.

Discount rates are used to determine the present value of our pension obligation and also affect the amount of pension expense recorded in any given period. We estimate this discount rate based on the rates of return of high quality, fixed-income investments with maturity dates that reflect the expected time horizon that benefits will be paid (see Note 11 in the consolidated financial statements). Changes in the discount rate could have a material effect on our reported pension obligation and related pension expense.

The expected rate of return is our estimate of the long-term earnings rate on our pension plan assets and is based upon both historical long-term actual and expected future investment returns considering the current investment mix of plan assets. Differences between the actual and expected rate of return on plan assets can impact our expense for pension benefits.

Holding all other factors constant, the estimated impact on 2005 pension expense caused by hypothetical changes to key assumptions is as follows:

(dollars in millions) Assumption	Change in Assumption
	25 Basis Point Increase	25 Basis Point Decrease
Pension obligation discount rate	$7 pension expense decrease	$7 pension expense increase
Expected rate of return on plan assets	$5 pension expense decrease	$5 pension expense increase

Inventory Valuation Reserves

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

Management believes its primary source of risk for excess and obsolete inventory is derived from the following:

• Our in-flight entertainment inventory, which tends to experience quicker technological obsolescence than our other products. In-flight entertainment inventory at September 30, 2005 was $120 million.

• Life-time buy inventory, which consists of inventory that is typically no longer being produced by our vendors but for which we purchase multiple years of supply in order to meet production and service requirements over the life span of a product. Total life-time buy inventory on hand at September 30, 2005 was $69 million.

At September 30, 2005, we had $103 million of inventory valuation reserves recorded on $863 million of total inventory on hand. Although management believes these reserves are adequate, any abrupt changes in market conditions may require us to record additional inventory valuation reserves which could have a material adverse effect on our results of operations in the period in which these additional reserves are required.

18

Management’s Discussion and Analysis (continued)

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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 and cash flows are exposed to changes in interest rates that could adversely affect the amount of interest expense incurred and paid on debt obligations in any given period. In addition, changes in interest rates can affect the fair value of our debt obligations. Such changes in fair value are only relevant to the extent these debt obligations are settled prior to maturity. 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 this objective.

At September 30, 2005, we had $200 million of 4.75 percent fixed rate long-term debt obligations outstanding with a carrying value of $200 million and a fair value of $197 million. We converted $100 million of this fixed rate debt to floating rate debt bearing interest at six-month LIBOR less 7.5 basis points by executing “receive fixed, pay variable” interest rate swap contracts. A hypothetical 10 percent increase or decrease in average market interest rates would have decreased or increased the fair value of our long-term debt, exclusive of the effects of the interest rate swap contracts, by $6 million. The fair value of the $100 million notional value of interest rate swap contracts was zero at September 30, 2005. A hypothetical 10 percent increase or decrease in average market interest rates would increase or decrease the fair value of our interest rate swap contracts by $3 million. Inclusive of the effect of the interest rate swaps, a hypothetical 10 percent increase or decrease in average market interest rates would not have a material effect on our results of operations, cash flows, or financial condition. For more information related to outstanding debt obligations and derivative financial instruments, see Notes 10 and 17 in the consolidated financial statements.

Foreign Currency Risk

We transact business in various foreign currencies which subjects our cash flows and earnings to exposure related to changes to foreign currency exchange rates. We attempt to manage this exposure through operational strategies and the use of foreign currency forward exchange contracts (foreign currency contracts). All foreign currency contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. The majority of our non-functional currency firm and anticipated receivables and payables are hedged using foreign currency contracts. It is our policy not to manage exposure to net investments in foreign subsidiaries or enter into derivative financial instruments for speculative purposes. Notional amounts of outstanding foreign currency forward exchange contracts were $234 million and $96 million at September 30, 2005 and 2004, respectively. Notional amounts are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. Principal currencies that are hedged include the European euro, British pound sterling, and Japanese yen. The duration of foreign currency contracts is generally two years or less. The net fair value of these foreign currency contracts at September 30, 2005 and 2004 were net liabilities of $5 million and $3 million, respectively. If the U.S. dollar increased or decreased in value against all currencies by a hypothetical 10 percent, the effect on the fair value of the foreign currency contracts, our results of operations, cash flows, or financial condition would not be significant at September 30, 2005.

For more information related to outstanding foreign currency forward exchange contracts, see Note 17 in the consolidated financial statements.

19

Management’s Discussion and Analysis (continued)

CAUTIONARY STATEMENT

This Annual Report to Shareowners, and documents that are incorporated by reference to our Annual Report on Form 10-K filed with the SEC, 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, the continued recovery of the commercial aerospace industry and the continued support for military transformation and modernization programs; the potential adverse impact of oil prices on the commercial aerospace industry; changes in domestic and foreign government spending, budgetary and trade policies adverse to our businesses; market acceptance of our new and existing technologies, products and services; reliability of and customer satisfaction with 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 and profitability; recruitment and retention of qualified personnel; performance of our suppliers and subcontractors which we are highly dependent upon for timely, high quality and specification compliant products and services; risks inherent in fixed price contracts, particularly the risk of cost overruns; risk of significant and prolonged disruption to air travel; our ability to execute to our internal performance plans such as our continuous productivity improvement and cost reduction initiatives; achievement of our acquisition and related integration plans; continuing to maintain our planned effective tax rates; our ability to develop contract compliant systems and products and satisfy our contractual commitments; 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 Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof.

20

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

Deloitte & Touche LLP, our independent auditors, are retained to audit our financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards of the Public Company Accounting Oversight Board in the United States of America, which include the consideration of our internal controls to determine the nature, timing and extent of audit tests to be applied.

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

/s/ Clayton M. Jones	/s/ Patrick E. Allen
Clayton M. Jones	Patrick E. Allen
Chairman, President &	Senior Vice President &
Chief Executive Officer	Chief Financial Officer

21

MANAGEMENT’S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Rockwell Collins’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Rockwell Collins; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of Rockwell Collins’ management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Rockwell Collins’ internal control over financial reporting as of September 30, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on this assessment, management determined that Rockwell Collins, Inc. maintained effective internal control over financial reporting as of September 30, 2005.

Management’s assessment of the effectiveness of Rockwell Collins’ internal control over financial reporting as of September 30, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/s/ Clayton M. Jones	/s/ Patrick E. Allen
Clayton M. Jones	Patrick E. Allen
Chairman, President &	Senior Vice President &
Chief Executive Officer	Chief Financial Officer

22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareowners of

Rockwell Collins, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Rockwell Collins, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of September 30, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of September 30, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended September 30, 2005 of the Company and our report dated November 4, 2005, expressed an unqualified opinion on those financial statements.

/s/    DELOITTE & TOUCHE LLP

Chicago, Illinois

November 4, 2005

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareowners of

Rockwell Collins, Inc.

We have audited the accompanying consolidated statement of financial position of Rockwell Collins, Inc. and subsidiaries (the “Company”) as of September 30, 2005 and October 1, 2004, and the related consolidated statements of operations, cash flows, and shareowners’ equity and comprehensive income (loss) for each of the three years in the period ended September 30, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2005 and October 1, 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 4, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/    DELOITTE & TOUCHE LLP

Chicago, Illinois

November 4, 2005

24

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(in millions, except per share amounts)

	September 30
	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	145		$	196
Receivables		732			616
Inventories		685			650
Current deferred income taxes		178			165
Other current assets		35			36
Total current assets		1,775			1,663
Property		473			418
Intangible Assets		113			131
Goodwill		458			419
Other Assets		321			243
TOTAL ASSETS	$	3,140		$	2,874
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Accounts payable	$	291		$	240
Compensation and benefits		272			235
Income taxes payable		39			18
Product warranty costs		172			154
Other current liabilities		403			317
Total current liabilities		1,177			964
Long-Term Debt		200			201
Retirement Benefits		758			521
Other Liabilities		66			55
Shareowners’ Equity:
Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 183.8)		2			2
Additional paid-in capital		1,263			1,228
Retained earnings		771			492
Accumulated other comprehensive loss		(604	)		(397	)
Common stock in treasury, at cost (shares held: 2005, 11.3; 2004, 6.8)		(493	)		(192	)
Total shareowners’ equity		939			1,133
TOTAL LIABILITIES AND SHAREOWNERS’ EQUITY	$	3,140		$	2,874

See Notes to Consolidated Financial Statements.

25

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share amounts)

	Year Ended September 30
	2005			2004			2003
Sales:
Product sales	$	3,072		$	2,604		$	2,271
Service sales		373			326			271
Total sales		3,445			2,930			2,542
Costs, expenses and other:
Product cost of sales		2,242			1,913			1,665
Service cost of sales		260			231			201
Selling, general and administrative expenses		402			356			341
Interest expense		11			8			3
Other income, net		(17	)		(8	)		(36	)
Total costs, expenses and other		2,898			2,500			2,174
Income before income taxes		547			430			368
Income tax provision		151			129			110
Net income	$	396		$	301		$	258
Earnings per share:
Basic	$	2.24		$	1.70		$	1.44
Diluted	$	2.20		$	1.67		$	1.43
Weighted average common shares:
Basic		177.0			177.4			179.1
Diluted		180.2			180.0			180.1
Cash dividends per share	$	0.48		$	0.39		$	0.36

See Notes to Consolidated Financial Statements.

26

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

	Year Ended September 30
	2005			2004			2003
Operating Activities:
Net income	$	396		$	301		$	258
Adjustments to arrive at cash provided by operating activities:
Depreciation		85			92			93
Amortization of intangible assets and tradenames write-off		34			17			12
Pension plan contributions		(114	)		(132	)		(123	)
Compensation and benefits paid in common stock		69			57			37
Deferred income taxes		31			38			105
Tax benefit from exercise of stock options		35			15			7
Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments:
Receivables		(104	)		(65	)		3
Inventories		(16	)		(39	)		28
Accounts payable		47			21			(11	)
Income taxes		25			21			(34	)
Compensation and benefits		30			36			2
Other assets and liabilities		56			37			(6	)
Cash Provided by Operating Activities		574			399			371
Investing Activities:
Property additions		(111	)		(92	)		(69	)
Acquisition of businesses, net of cash acquired		(19	)		(126	)		2
Acquisition of intangible assets		(7	)		(11	)		—
Proceeds from disposition of property		3			1			4
Investment in equity affiliates		—			—			(5	)
Cash Used for Investing Activities		(134	)		(228	)		(68	)
Financing Activities:
Purchases of treasury stock		(498	)		(179	)		(154	)
Proceeds from exercise of stock options		96			55			29
Cash dividends		(85	)		(69	)		(64	)
Net proceeds from issuance of long-term debt		—			198			—
Decrease in short-term borrowings, net		—			(42	)		(90	)
Cash Used for Financing Activities		(487	)		(37	)		(279	)
Effect of exchange rate changes on cash and cash equivalents		(4	)		(4	)		(7	)
Net Change in Cash and Cash Equivalents		(51	)		130			17
Cash and Cash Equivalents at Beginning of Year		196			66			49
Cash and Cash Equivalents at End of Year	$	145		$	196		$	66

See Notes to Consolidated Financial Statements.

27

ROCKWELL COLLINS, INC.

CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(in millions)

	Year Ended September 30
	2005			2004			2003
Common Stock
Beginning and ending balance	$	2		$	2		$	2
Additional Paid-In Capital
Beginning balance		1,228			1,213			1,208
Shares issued under stock option and benefit plans		35			15			7
Other		—			—			(2	)
Ending balance		1,263			1,228			1,213
Retained Earnings
Beginning balance		492			273			91
Net income		396			301			258
Cash dividends		(85	)		(69	)		(64	)
Shares issued under stock option and benefit plans		(32	)		(13	)		(12	)
Ending balance		771			492			273
Accumulated Other Comprehensive Income (Loss)
Beginning balance		(397	)		(516	)		(252	)
Minimum pension liability adjustment		(200	)		114			(273	)
Currency translation gain (loss)		(6	)		6			9
Foreign currency cash flow hedge adjustment		(1	)		(1	)		—
Ending balance		(604	)		(397	)		(516	)
Common Stock in Treasury
Beginning balance		(192	)		(139	)		(62	)
Share repurchases		(498	)		(179	)		(154	)
Shares issued from treasury		197			126			77
Ending balance		(493	)		(192	)		(139	)
Total Shareowners’ Equity	$	939		$	1,133		$	833
Comprehensive Income (Loss)
Net income	$	396		$	301		$	258
Other comprehensive income (loss), net of deferred taxes (2005, $117; 2004, $(67); 2003, $160)		(207	)		119			(264	)
Comprehensive income (loss)	$	189		$	420		$	(6	)

See Notes to Consolidated Financial Statements.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business Description and Basis of Presentation

Rockwell Collins, Inc. (the Company or Rockwell Collins) provides design, production and support of communications and aviation electronics solutions for commercial and military customers worldwide.

Prior to 2004, the Company operated on a fiscal year basis with the fiscal year ending on September 30. Beginning with the 2004 fiscal year, the Company changed to a 52/53 week fiscal year ending on the Friday closest to September 30. For ease of presentation, September 30 is utilized consistently throughout these financial statements and notes to represent the fiscal year end date. 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.

2. Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The Company’s investments in entities it does not control but has the ability to exercise significant influence are accounted for under the equity method and are included in Other Assets. All intercompany transactions are eliminated.

Revenue Recognition

The Company enters into sales arrangements that may provide for multiple deliverables to a customer. The Company identifies all goods and/or services that are to be delivered separately under a sales arrangement and allocates revenue to each deliverable based on relative fair values. Fair values are generally established based on the prices charged when sold separately by the Company. In general, revenues are separated between hardware, maintenance services, and installation services. The allocated revenue for each deliverable is then recognized using appropriate revenue recognition methods.

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

Sales related to long-term separately priced product maintenance or warranty contracts are accounted for based on the terms of the underlying agreements. Certain contracts are fixed price contracts with sales recognized ratably over the contractual life, while other contracts have a fixed hourly rate with sales recognized based on actual labor or flight hours incurred. The cost of providing these services is expensed as incurred.

The Company recognizes sales for all other products or services when all of the following criteria are met: an agreement of sale exists, product delivery and acceptance has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured.

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and Development

The Company performs research and development activities relating to the development of new products and the improvement of existing products. Company-funded research and development programs are expensed as incurred and included in Cost of Sales. Customer-funded research and development expenditures are generally accounted for as contract costs within Cost of Sales, and the reimbursement is accounted for as a sale.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

Allowances are established in order to report receivables at net realizable value on the Company’s Statement of Financial Position. The determination of these allowances requires management of the Company to make estimates and judgments as to the collectibility of customer account balances. These allowances are estimated for customers who are considered credit risks by reviewing the Company’s collection experience with those customers as well as evaluating the customers’ financial condition. The Company also considers both current and projected economic and market conditions. Special attention is given to accounts with invoices that are past due. Past due is defined as any invoice for which payment has not been received by the due date specified on the billing invoice. The uncollectible portion of receivables is charged against the allowance for doubtful accounts when collection efforts have ceased. Recoveries of receivables previously charged-off are recorded when received.

Inventories

Inventories are stated at the lower of cost or market using costs which approximate the first-in, first-out method, less related progress payments received. Inventoried costs include direct costs of manufacturing, certain engineering costs and allocable overhead costs. The Company regularly compares inventory quantities on hand on a part level basis to estimated forecasts of product demand and production requirements as well as historical usage. Based on these comparisons, management establishes an excess and obsolete inventory reserve on an aggregate basis.

The Company defers certain pre-production engineering costs as work-in-process inventory in connection with long-term supply arrangements that contain contractual guarantees for reimbursement from customers. Such customer guarantees typically take the form of a minimum order quantity with quantified reimbursement amounts if the minimum order quantity is not taken by the customer. Such costs are deferred to the extent of the contractual guarantees and are amortized over a period of 1 to 10 years as a component of Cost of Sales as revenue is recognized on the minimum order quantity. Deferred pre-production engineering costs were $68 million and $45 million at September 30, 2005 and 2004, respectively. All pre-production engineering costs incurred pursuant to customer contracts that do not contain customer guarantees for reimbursement are expensed as incurred.

Progress Payments

Progress payments relate to both receivables and inventories and represent cash collected from government-related contracts whereby the governments have a legal right of offset related to the receivable or legal title to the work-in-process inventory.

Property

Property is stated at acquisition cost. Depreciation of property is generally provided using accelerated and straight-line methods over the following estimated useful lives: buildings and improvements, fifteen - forty years; machinery and equipment, six - twelve years; and information systems software and hardware, three - ten years. Depreciation methods and lives are reviewed periodically with any changes recorded on a prospective basis. Effective at the beginning of 2005, the Company changed its estimated useful lives for machinery and equipment from eight - ten years to six - twelve years.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant renewals and betterments are capitalized and replaced units are written off. Maintenance and repairs, as well as renewals of minor amounts, are charged to expense in the period incurred. The fair value of liabilities associated with the retirement of property is recorded when there is a legal or contractual requirement to incur such costs. Upon the initial recognition of a contractual or legal liability for an asset retirement obligation, the Company capitalizes the asset retirement cost by increasing the carrying amount of the property by the same amount as the liability. This asset retirement cost is then depreciated over the estimated useful life of the underlying property. The Company has no significant asset retirement obligations as of September 30, 2005.

In the Company’s Consolidated Statement of Cash Flows for the year ended September 30, 2005, the Company changed the classification of property additions acquired by incurring accounts payable to be reflected as a non-cash transaction. In the accompanying Consolidated Statement of Cash Flows for the years ended September 30, 2004 and 2003, the Company reclassified property additions acquired by incurring accounts payable to be consistent with the 2005 presentation, which resulted in a decrease to cash flows used for investing activities and a corresponding decrease to cash flows provided by operating activities from the amounts previously reported of $2 million and $3 million, respectively. Property additions acquired by incurring accounts payable were $14 million, $10 million, and $8 million at September 30, 2005, 2004, and 2003, respectively.

Goodwill and Intangible Assets

Goodwill and intangible assets generally result from business acquisitions. Business acquisitions are accounted for under the purchase method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed, including research and development projects which have not yet reached technological feasibility and have no alternative future use (purchased research and development). Assets acquired and liabilities assumed are recorded at their fair values; the appraised value of purchased research and development is immediately charged to expense; and the excess of the purchase price over the amounts assigned is recorded as goodwill. Assets acquired and liabilities assumed are allocated to the Company’s “reporting units” based on the Company’s integration plans and internal reporting structure. Purchased intangible assets with finite lives are amortized over their estimated useful lives. Goodwill and intangible assets with indefinite lives are not amortized, but reviewed at least annually for impairment.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when management plans to dispose of assets or when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Assets held for disposal are reported at the lower of the carrying amount or fair value less cost to sell. Management determines fair value using a discounted future cash flow analysis or other accepted valuation techniques. Long-lived assets held for use are reviewed for impairment by comparing the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value.

Goodwill and indefinite lived intangible assets are tested annually for impairment with more frequent tests performed if indications of impairment exist. The Company’s annual impairment testing date is in the second quarter of each fiscal year. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. Goodwill is potentially impaired if the carrying value of a “reporting unit” exceeds its estimated fair value. Management determines fair value using a discounted future cash flow analysis or other accepted valuation techniques. The Company’s annual impairment testing performed in the second quarter of 2005, 2004, and 2003 yielded no impairments. See Note 7 for a discussion of the tradenames write-off recorded in the fourth quarter of 2005.

Advance Payments from Customers

Advance payments from customers represent cash collected from customers in advance of revenue recognition and are included in Other Current Liabilities.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer Incentives

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

Environmental

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

Income Taxes

Current tax liabilities and assets are based upon an estimate of taxes payable or refundable in the current year for each of the jurisdictions in which the Company transacts business. As part of the determination of its tax liability, management exercises considerable judgment in assessing the positions taken by the Company in its tax returns and establishes reserves for probable tax exposures. These reserves represent the best estimate of amounts expected to be paid and are adjusted over time as more information regarding tax audits becomes available. Deferred tax assets and liabilities are recorded for the estimated future tax effects attributable to temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and their respective carrying amounts for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Derivative Financial Instruments

The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and interest rate swap contracts for the purpose of minimizing exposure to changes in foreign currency exchange rates on business transactions and interest rates, respectively. The Company’s policy is to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes or to manage exposure for net investments in foreign subsidiaries. These derivative financial instruments do not subject the Company to undue risk as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged.

All derivative financial instruments are recorded at fair value in the Statement of Financial Position. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the Statement of Financial Position in Accumulated Other Comprehensive Loss to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The amount recorded within Accumulated Other Comprehensive Loss is reclassified in earnings in the same period during which the underlying hedged transaction affects earnings. The Company does not exclude any amounts from the measure of effectiveness for both fair value and cash flow hedges. The change in the fair value related to the ineffective portion of a hedge, if any, is immediately recognized in earnings.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

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

Concentration of Risks

The Company’s products and services are concentrated within the aerospace and defense industries with customers consisting primarily of commercial and military aircraft manufacturers, commercial airlines, and the United States and foreign governments. As a result of this industry focus, the Company’s current and future financial performance is largely dependent upon the overall economic conditions within these industries. In particular, the commercial aerospace market has been historically cyclical and subject to downturns during periods of weak economic conditions which could be prompted by or exacerbated by political or other domestic or international events. The defense market may be affected by changes in budget appropriations, procurement policies, political developments both domestically and abroad, and other factors. While management believes the Company’s product offerings are well positioned to meet the needs of its customer base, any material deterioration in the economic and environmental factors that impact the aerospace and defense industries could have a material adverse effect on the Company’s results of operations, financial position or cash flows.

In addition to the overall business risks associated with the Company’s concentration within the aerospace and defense industries, the Company is also exposed to a concentration of collection risk on credit extended to commercial airlines. Accounts receivable due from U.S. and international commercial airlines at September 30, 2005 was approximately $37 million and $138 million, respectively. As of September 30, 2005, accounts receivable from international commercial airlines includes $36 million of payments withheld by a customer due to performance related matters on an in-flight entertainment contract. The Company expects these performance matters will be remedied and the past due receivable balance will be paid during fiscal 2006. The Company performs ongoing credit evaluations on the financial condition of all of its commercial airline customers and maintains allowances for uncollectible accounts receivable based on expected collectibility. Although management believes its allowances are adequate, the Company is not able to predict with certainty the changes in the financial stability of its customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on the Company’s results of operations, financial position or cash flows.

Stock-Based Compensation

The Company accounts for employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). 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 recognized in connection with stock options granted to employees.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value method is an alternative method of accounting for stock-based compensation that is permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123). 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)	2005			2004			2003
Net income, as reported	$	396		$	301		$	258
Stock-based employee compensation expense included in reported net income, net of tax		—			—			—
Stock-based employee compensation expense determined under the fair value method, net of tax		(13	)		(15	)		(15	)
SFAS 123 pro forma net income	$	383		$	286		$	243
Earnings per share:
Basic – as reported	$	2.24		$	1.70		$	1.44
Basic – SFAS 123 pro forma	$	2.16		$	1.62		$	1.36
Diluted – as reported	$	2.20		$	1.67		$	1.43
Diluted – SFAS 123 pro forma	$	2.13		$	1.59		$	1.35

The weighted average fair value of options granted by the Company was $10.06, $9.55, and $8.01 per option granted in 2005, 2004, and 2003, respectively. The fair value of each option granted by the Company was estimated using a binomial lattice pricing model for 2005 and the Black-Scholes pricing model for 2004 and 2003 and the following weighted average assumptions:

	2005 Grants		2004 Grants		2003 Grants
Risk-free interest rate	3.55	%	3.37	%	3.27	%
Expected dividend yield	1.50	%	1.51	%	1.73	%
Expected volatility	0.30		0.40		0.40
Expected life	5 years		5 years		6 years

Recently Issued Accounting Standards

In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154). SFAS 154 requires, among other things, retrospective application to prior periods’ financial statements of a voluntary change in accounting principle. Previously, voluntary changes in accounting principle were generally accounted for by including a one-time cumulative effect in the period of change. The guidance provided on error corrections remained unchanged. SFAS 154 is effective for accounting changes beginning in 2007.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award beginning in 2006. The cost of the employee services is recognized as compensation cost over the period that an employee provides service in exchange for the award. SFAS 123R may be adopted using a prospective method or a retrospective method. The Company will adopt the prospective method effective October 1, 2005. The Company expects the adoption of SFAS 123R will reduce earnings in 2006 by approximately 7 cents per diluted share.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Acquisitions

During the years ended September 30, 2005, 2004 and 2003, the Company completed two acquisitions that are summarized as follows:

						Intangible Assets
(dollars in millions)	Fiscal Year Acquired	Cash Purchase Price		Goodwill		Finite Lived		Weighted Average Life in Years
TELDIX GmbH	2005	$	19	$	45	$	15	11
NLX Holding Corporation	2004	$	126	$	102	$	17	5

On March 31, 2005, the Company acquired 100% of the stock of TELDIX GmbH (TELDIX), a leading provider of military aviation electronics products and services, based in Heidelberg, Germany. TELDIX supplies a broad portfolio of complex military aircraft computer products, advanced mechanical space mechanisms and related support services primarily to major prime contractors throughout Europe. The acquisition of TELDIX broadens the Company’s European presence and provides complementary product lines that will allow the Company to enhance its offerings to customers worldwide and should provide new channel-to-market opportunities for the Company’s current products and services. The purchase price, net of cash acquired, was $19 million. Based on preliminary valuation reports, the excess purchase price over net assets acquired reflects the Company’s view that there are opportunities to expand its market share in the European region. Approximately 18 percent of the goodwill resulting from this acquisition is tax deductible. Goodwill is included within the assets of the Government Systems segment.

In December 2003, the Company acquired 100% of NLX Holding Corporation (NLX), a provider of integrated training and simulation systems. This business is now called Rockwell Collins Simulation and Training Solutions and provides simulators ranging from full motion simulators to desktop simulators, training, upgrades, modifications, and engineering and technical services primarily to branches of the United States military. The acquisition of Rockwell Collins Simulation and Training Solutions extends the Company’s capabilities in the areas of training and simulation and enables the Company to provide a more complete service offering to its customers. The excess purchase price over net assets acquired reflects the Company’s view that there are significant opportunities to expand its market share in the areas of simulation and training. Approximately 20 percent of the goodwill resulting from this acquisition is tax deductible. Goodwill is included within the assets of the Government Systems segment.

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

4. Receivables

Receivables are summarized as follows:

	September 30
(in millions)	2005			2004
Billed	$	612		$	493
Unbilled		198			202
Less progress payments		(67	)		(63	)
Total		743			632
Less allowance for doubtful accounts		(11	)		(16	)
Receivables	$	732		$	616

As of September 30, 2005 and 2004, the portion of receivables outstanding that are not expected to be collected within the next twelve months is approximately $3 million and $5 million, respectively.

Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that have not been billed to customers in accordance with applicable contract terms.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Inventories

Inventories are summarized as follows:

	September 30
(in millions)	2005			2004
Finished goods	$	164		$	150
Work in process		277			242
Raw materials, parts, and supplies		319			314
Total		760			706
Less progress payments		(75	)		(56	)
Inventories	$	685		$	650

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 and pre-production engineering costs. Life-time buy inventory 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. Inventory not expected to be realized within one year is $146 million and $131 million at September 30, 2005 and 2004, respectively.

6. Property

Property is summarized as follows:

	September 30
(in millions)	2005			2004
Land	$	30		$	25
Buildings and improvements		249			232
Machinery and equipment		655			603
Information systems software and hardware		236			230
Construction in progress		44			39
Total		1,214			1,129
Less accumulated depreciation		(741	)		(711	)
Property	$	473		$	418

Depreciable lives are reviewed by the Company periodically with any changes recorded on a prospective basis. In the beginning of 2005, the Company changed its useful lives for certain classes of depreciable property. The range of estimated useful lives for machinery and equipment was changed from 8 - 10 years to 6 - 12 years. As a result of the change, depreciation expense decreased $9 million ($6 million after taxes or 3 cents per share) for 2005 compared to 2004.

7. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill are summarized as follows:

(in millions)	Government Systems			Commercial Systems			Total
Balance at September 30, 2003	$	143		$	187		$	330
Rockwell Collins Simulation and Training Solutions acquisition		102			—			102
Resolution of Kaiser pre-acquisition tax contingency		(8	)		(5	)		(13	)
Balance at September 30, 2004		237			182			419
TELDIX acquisition		45			—			45
Resolution of Kaiser pre-acquisition tax contingency		—			(2	)		(2	)
Currency translation adjustment		(4	)		—			(4	)
Balance at September 30, 2005	$	278		$	180		$	458

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets are summarized as follows:

	September 30, 2005							September 30, 2004
(in millions)	Gross		Accum Amort			Net		Gross		Accum Amort			Net
Intangible assets with finite lives:
Developed technology and patents	$	121	$	(46	)	$	75	$	116	$	(35	)	$	81
License agreements		21		(5	)		16		21		(4	)		17
Customer relationships		22		(7	)		15		12		(3	)		9
Trademarks and tradenames		10		(5	)		5		10		(3	)		7
Intangible assets with indefinite lives:
Trademarks and tradenames		2		—			2		18		(1	)		17
Intangible assets	$	176	$	(63	)	$	113	$	177	$	(46	)	$	131

In the fourth quarter of 2005, the Company completed a company-wide branding initiative and announced to its customers that it will no longer use certain indefinite lived tradenames related to Kaiser Aerospace and Electronics Corporation (Kaiser), acquired in December 2000. As a result, Kaiser Electronics has been renamed Rockwell Collins Display Systems, Kaiser Electroprecision has been renamed Rockwell Collins ElectroMechanical Systems, Inc., and Kaiser Electro-Optics, Inc. has been renamed Rockwell Collins Optronics, Inc. These changes resulted in the Company recording a $15 million pre-tax write-off in the fourth quarter of 2005 as the Company will no longer be using these tradenames. The tradenames write-off was recorded in Cost of Sales.

During the year ended September 30, 2004, the Commercial Systems segment acquired license agreements for $18 million, of which $11 million was paid in 2004 and $7 million was paid in 2005. These license agreements relate primarily to a strategic agreement with The Boeing Company to provide a global broadband connectivity solution for business aircraft through the Company’s Collins eXchange product.

Amortization expense for intangible assets for the years ended September 30, 2005, 2004 and 2003 was $19 million, $17 million and $12 million, respectively. Annual amortization expense for intangible assets for 2006, 2007, 2008, 2009, and 2010 is expected to be $19 million, $20 million, $19 million, $16 million, and $13 million, respectively.

8. Other Assets

Other assets are summarized as follows:

	September 30
(in millions)	2005		2004
Long-term deferred income taxes (Note 16)	$	173	$	95
Investments in equity affiliates		71		68
Exchange and rental assets, net of accumulated depreciation of $85 at September 30, 2005 and $79 at September 30, 2004		37		41
Other		40		39
Other assets	$	321	$	243

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 (RSC), Vision Systems International, LLC (VSI), and Data Link Solutions, LLC (DLS).

RSC is a joint venture with Rockwell Automation, Inc. (Rockwell Automation) and is engaged in advanced research and development of technologies in electronics, imaging and optics, material and computational sciences and information technology. The Company shares equally with Rockwell Automation in providing a $6 million line-of-credit to RSC, which bears interest at the greater of the Company’s or Rockwell Automation’s commercial paper borrowing rate. At September 30, 2005, no borrowings were due from RSC under this line-of-credit. RSC performed research and development efforts on behalf of the Company in the amount of $9 million for each of the years ended September 30, 2005, 2004, and 2003, respectively.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

VSI is a joint venture with Elbit Systems, Ltd. for the joint pursuit of helmet mounted cueing systems for the worldwide military fixed wing aircraft market.

DLS is a joint venture with BAE Systems, plc for the joint pursuit of the worldwide military data link market.

As of September 30, 2004, investments in equity affiliates also included a 16 percent investment in Tenzing Communications, Inc. (Tenzing), 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 OnAir N.V. (OnAir), which offers aircraft data and voice connectivity. The terms of this transaction indicated the fair value of the Company’s investment in Tenzing was lower than the carrying amount recorded. This decline in value was believed to be other-than-temporary in nature and accordingly, the Company recorded a $7 million pre-tax loss related to this investment during the three months ended June 30, 2004. This loss is included in Other Income, Net (Note 15) in the Company’s Consolidated Statement of Operations and General Corporate, Net for segment performance reporting (Note 22). Exclusive of this loss, the Company’s share of earnings or losses of Tenzing prior to the merger transaction are included in the operating results of the Commercial Systems’ operating segment. The merger transaction was completed in the second quarter of 2005 and the Company’s ownership percentage in OnAir is approximately 2 percent. This investment is not significant and is accounted for under the cost method as of September 30, 2005.

Under the equity method of accounting for investments, the Company’s proportionate share of the earnings or losses of its equity affiliates are included in net income and classified as Other Income, Net in the Statement of Operations. For segment performance reporting purposes, Rockwell Collins’ share of earnings or losses of VSI and DLS are included in the operating results of the Government Systems’ operating segment. RSC is considered a corporate-level investment.

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 $126 million, $123 million, and $109 million for the years ended September 30, 2005, 2004, and 2003, respectively. The deferred portion of profit generated from sales to equity affiliates was not significant as of September 30, 2005 and 2004.

Exchange and Rental Assets

Exchange and rental assets consist of Company products that are either loaned or rented to customers on a short-term basis in connection with warranty and other service related activities or under operating leases. These assets are recorded at acquisition or production cost and depreciated using the straight-line method over their estimated lives which range from three to eleven years. Depreciation methods and lives are reviewed periodically with any changes recorded on a prospective basis.

9. Other Current Liabilities

Other current liabilities are summarized as follows:

	September 30
(in millions)	2005		2004
Advance payments from customers	$	190	$	128
Customer incentives		116		105
Contract reserves		36		39
Other		61		45
Other current liabilities	$	403	$	317

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Debt

Revolving Credit Facility

On May 24, 2005, the Company entered into an $850 million five-year unsecured revolving credit facility with various banks. This agreement replaced a five-year $500 million revolving credit agreement which would have expired in May 2006 and a 364-day $350 million revolving credit agreement which expired in May 2005. This credit facility exists primarily to support the Company’s commercial paper program, but may be used for other corporate purposes in the event access to the commercial paper market is impaired or eliminated. The credit facility includes one financial covenant requiring the Company to maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. The ratio was 18 percent as of September 30, 2005. In addition, the credit facility contains 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. Borrowings under this credit facility bear interest at the London Interbank Offered Rate (LIBOR) plus a variable margin based on the Company’s unsecured long-term debt rating or, at the Company’s option, rates determined by competitive bid. In addition, short-term credit facilities available to foreign subsidiaries were $52 million as of September 30, 2005, of which $21 million was utilized to support commitments in the form of commercial letters of credit. There were no significant commitment fees or compensating balance requirements under any of the Company’s credit facilities.

Long-term Debt

The Company has 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, the Company issued $200 million of 4.75 percent fixed rate unsecured debt under the shelf registration due December 1, 2013 (the Notes). Interest payments on the Notes are due on June 1 and December 1 of each year. 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. 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. See Note 17 for additional information relating to the interest rate swap contracts. At September 30, 2005, $550 million of the shelf registration statement was available for future use.

Long-term debt and a reconciliation to the carrying amount is summarized as follows :

	September 30
(in millions)	2005		2004
Principal amount of Notes due December 1, 2013	$	200	$	200
Fair value adjustment (Note 17)		—		1
Long-term debt	$	200	$	201

Interest paid on debt for the years ended September 30, 2005, 2004, and 2003 was $10 million, $7 million, and $3 million, respectively.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Retirement Benefits

The Company sponsors defined benefit pension (Pension Benefits) and other postretirement (Other Retirement Benefits) plans covering most of its U.S. employees and certain employees in foreign countries which provide monthly pension and other benefits to eligible employees upon retirement. The components of expense for Pension Benefits and Other Retirement Benefits are summarized below:

	Pension Benefits									Other Retirement Benefits
(in millions)	2005			2004			2003			2005			2004			2003
Service cost	$	36		$	39		$	38		$	3		$	5		$	4
Interest cost		141			135			140			18			24			26
Expected return on plan assets		(177	)		(175	)		(166	)		(1	)		(1	)		(1	)
Amortization:
Prior service cost		(15	)		(14	)		1			(39	)		(30	)		(30	)
Net actuarial loss		46			46			7			20			21			20
Net benefit expense	$	31		$	31		$	20		$	1		$	19		$	19

The following table reconciles the projected benefit obligations, plan assets, funded status, and net asset (liability) for the Company’s Pension Benefits and the Other Retirement Benefits:

	Pension Benefits						Other Retirement Benefits
(in millions)	2005			2004			2005			2004
Projected benefit obligation at beginning of year	$	2,314		$	2,315		$	302		$	418
Service cost		36			39			3			5
Interest cost		141			135			18			24
Discount rate change		302			(77	)		11			(4	)
Actuarial losses (gains)		32			14			(1	)		(9	)
Medicare Reform Act		—			—			—			(8	)
Acquisitions		41			—			—			—
Plan amendments		—			—			—			(92	)
Benefits paid		(122	)		(115	)		(33	)		(32	)
Other		(2	)		3			1			—
Projected benefit obligation at end of year		2,742			2,314			301			302
Plan assets at beginning of year		1,928			1,552			14			14
Actual return on plan assets		146			279			1			1
Company contributions		108			207			33			31
Benefits paid		(122	)		(115	)		(33	)		(32	)
Other		1			5			(1	)		—
Plan assets at end of year		2,061			1,928			14			14
Funded status of plans		(681	)		(386	)		(287	)		(288	)
Contributions after measurement date		6			—			—			—
Unamortized amounts:
Prior service cost		(140	)		(155	)		(212	)		(252	)
Net actuarial loss		1,192			873			281			290
Net asset (liability) in the Statement of Financial Position	$	377		$	332		$	(218	)	$	(250	)
Net asset (liability) consists of:
Deferred tax asset	$	351		$	234		$	—		$	—
Accrued benefit liability		(573	)		(301	)		(218	)		(250	)
Accumulated other comprehensive loss		599			399			—			—
Net asset (liability) in the Statement of Financial Position	$	377		$	332		$	(218	)	$	(250	)

The accumulated benefit obligation for all defined benefit pension plans was $2,640 million and $2,229 million at September 30, 2005 and 2004, respectively.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actuarial Assumptions

Plan assets and benefit obligations as of September 30 as well as net periodic benefit expense for the following fiscal years are measured on an annual basis using a measurement date of June 30 each year. Significant assumptions used in determining the benefit obligations and related expense are as follows:

	Pension Benefits				Other Retirement Benefits
	2005		2004		2005		2004
Assumptions used to determine benefit obligations at September 30:
Discount rate	5.30	%	6.25	%	5.30	%	6.25	%
Compensation increase rate	4.50	%	4.50	%	—		—
Assumptions used to determine net benefit expense for years ended September 30:
Discount rate	6.25	%	6.00	%	6.25	%	6.00	%
Expected return on plan assets	8.75	%	8.75	%	8.75	%	8.75	%
Compensation increase rate	4.50	%	4.50	%	—		—
Pre-65 health care cost gross trend rate*	—		—		11.00	%	11.00	%
Post-65 health care cost gross trend rate*	—		—		11.00	%	11.00	%
Ultimate trend rate*	—		—		5.5	%	5.5	%
Year that trend reaches ultimate rate	—		—		2011		2009

* Due to the effect of the fixed Company contribution, the net impact of any change in trend rate is zero.

The discount rate used to determine the September 30, 2005 benefit obligations is based on an individual bond-matching model comprised of a portfolio of high-quality corporate bonds with projected cash flows and maturity dates reflecting the expected time horizon that benefits will be paid. Bonds included in the model portfolio are from a cross-section of different issuers, are rated AA- or better, are non-callable, and have at least $25 million outstanding at the measurement date. The discount rate used to determine the September 30, 2004 benefit obligations is also based on rates of return of high quality, fixed-income investment indexes, primarily the Moody’s AA Index. Expected return on plan assets for each year presented is based on both historical long-term actual and expected future investment returns considering the current investment mix of plan assets.

Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets are amortized on a straight-line basis over the average remaining service period of active participants. Prior service costs resulting from plan amendments are amortized in equal annual amounts over the average remaining service period of affected active participants or over the remaining life expectancy of affected retired participants. The Company uses a five-year, market-related value asset method of amortizing the difference between actual and expected returns on plan assets.

Pension Benefits

The Company provides pension benefits to most of the Company’s U.S. employees in the form of non-contributory, defined benefit plans that are considered qualified plans under applicable laws. The benefits provided under these plans for salaried employees are generally based on years of service and average compensation. The benefits provided under these plans for hourly employees are generally based on specified benefit amounts and years of service. In addition, the Company sponsors an unfunded non-qualified defined benefit plan for certain employees. The Company also maintains three pension plans in foreign countries, two of which are unfunded.

In June 2003, the Company’s U.S. qualified and non-qualified defined benefit pension plans were amended to discontinue benefit accruals for salary increases and services rendered after September 30, 2006. These changes will affect all of the Company’s domestic pension plans for all salaried and hourly employees not covered by collective bargaining agreements. Concurrently, the Company plans to supplement its existing defined contribution savings plan effective October 1, 2006 to include additional Company contributions.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended September 30, 2005 and 2004, the Company made contributions to its pension plans as follows:

(in millions)	2005		2004
Discretionary contributions to U.S. qualified plans	$	100	$	125
Contributions to international plans		8		—
Contributions to U.S. non-qualified plan		6		7
Total	$	114	$	132

The Company’s objective with respect to the funding of its pension plans is to provide adequate assets for the payment of future benefits. Pursuant to this objective, the Company will fund its pension plans as required by governmental regulations and may consider discretionary contributions as conditions warrant. During 2005 and 2004, the Company made discretionary contributions to its qualified pension plans of $100 million and $125 million, respectively. These contributions resulted in a reduction of a previously established deferred tax benefit and as a result, there was no effect on the Company’s effective income tax rate or related income tax expense during 2005 and 2004.

The Company is not required to make any contributions to its qualified pension plans in 2006 pursuant to governmental regulations and current projections indicate that none will be required in 2007; however, future funding requirements are difficult to estimate as such estimates are dependent upon market returns and interest rates, which can be volatile. The Company currently has no plans to make additional discretionary contributions to its U.S. qualified pension plans in 2006. Contributions to the Company’s international plans and the non-qualified plan are expected to total $11 million in 2006.

Other Retirement Benefits

Other retirement benefits consist 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. Retiree medical plans pay a stated percentage of expenses reduced by deductibles and other coverage, principally Medicare. The amount the Company will contribute toward retiree medical coverage is fixed. Additional premium contributions will be required from participants for all costs in excess of the Company’s fixed contribution amount. As a result, increasing or decreasing the health care cost trend rate by one percentage point would not have an impact on the Company’s cost of providing these benefits. Retiree life insurance plans provide coverage at a flat dollar amount or as a multiple of salary. With the exception of certain bargaining unit plans, Other Retirement Benefits are funded as expenses are incurred.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Reform Act) was signed into law. The effect of the Medicare Reform Act was to reduce the Company’s benefit obligation for Other Retirement Benefits by $8 million in 2004. The effect on the Company’s Other Retirement Benefits expense in 2005 and 2004 was not material. This is a direct result of the Company’s fixed contribution plan design. As a result of the Medicare Reform Act, the Company amended its retiree medical plans on June 30, 2004 to discontinue post-65 prescription drug coverage effective January 1, 2008. The effect of this plan amendment was to reduce the benefit obligation of the Company’s Other Retirement Benefits by $92 million in 2004.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets

Total plan assets for Pension Benefits and Other Retirement Benefits as of September 30, 2005 and 2004 were $2,075 million and $1,942 million, respectively. The Company has established investment objectives that seek to preserve and maximize the amount of plan assets available to pay plan benefits. These objectives are achieved through investment guidelines requiring diversification and allocation strategies designed to maximize the long-term returns on plan assets while maintaining a prudent level of investment risk. These investment strategies are implemented using actively managed and indexed assets. Target and actual asset allocations as of September 30 are as follows:

	Target Mix	2005		2004
Equities	40%- 70%	66	%	67	%
Fixed income	25%- 60%	26	%	28	%
Alternative assets	0%- 15%	—		—
Cash	0%- 5%	8	%	5	%

Alternative investments may include real estate, hedge funds, venture capital, and private equity. There were no plan assets invested in the securities of the Company as of September 30, 2005 and 2004 or at any time during the years then ended. Target and actual asset allocations are periodically rebalanced between asset classes in order to mitigate investment risk and maintain asset classes within target allocations.

Benefit Payments

The following table reflects estimated benefit payments to be made to eligible participants for each of the next five years and the following five years in aggregate:

(in millions)	Pension Benefits		Other Retirement Benefits
2006	$	127	$	33
2007		132		31
2008		137		27
2009		144		25
2010		148		24
2011 - 2015		845		111

Substantially all of the Pension Benefit payments relate to the Company’s qualified funded plans which are paid from the pension trust. Estimated benefit payments for Other Retirement Benefits are presented net of $11 million of federal subsidies that the Company expects to receive under the Medicare Reform Act between 2006 and 2008.

12. Shareowners’ Equity

Common Stock

The Company is authorized to issue one billion shares of common stock, par value $0.01 per share, and 25 million shares of preferred stock, without par value, of which 2.5 million shares are designated as Series A Junior Participating Preferred Stock for issuance in connection with the exercise of preferred share purchase rights. At September 30, 2005, 11.0 million shares of common stock were reserved for issuance under various employee incentive plans.

Preferred Share Purchase Rights

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

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Treasury Stock

The Company repurchased shares of its common stock as follows:

(in millions)	2005		2004		2003
Amount of share repurchases	$	498	$	179	$	154
Number of shares repurchased		10.6		5.8		6.8

At September 30, 2005, the Company is authorized to repurchase an additional $66 million of outstanding stock under the Company’s share repurchase program.

On August 16, 2005, the Company entered into accelerated share repurchase agreements with an investment bank under which the Company repurchased 4 million shares of its outstanding common shares at an initial price of $49.10 per share, representing the August 16, 2005 closing price of the Company’s common shares. Total consideration paid to repurchase the shares of approximately $196 million was recorded as a treasury stock repurchase which resulted in a reduction of Shareowners’ Equity. The agreements are subject to a future contingent purchase price adjustment based on the volume-weighted average price of the Company’s shares over a period of time that ends no later than December 31, 2005 (see Note 18 for further discussion of the contingent purchase price adjustment).

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

	September 30
(in millions)	2005			2004			2003
Minimum pension liability adjustment, net of taxes of $351 for 2005, $234 for 2004 and $301 for 2003	$	(599	)	$	(399	)	$	(513	)
Foreign currency translation adjustment		(3	)		3			(3	)
Foreign currency cash flow hedge adjustment		(2	)		(1	)		—
Accumulated other comprehensive loss	$	(604	)	$	(397	)	$	(516	)

13. Stock-Based Compensation

Stock Options

Options to purchase common stock of the Company have been granted under various incentive plans to directors, officers and other key employees. All of the Company’s stock-based incentive plans require options to be granted at prices equal to or above the fair market value of the common stock on the dates the options are granted. The plans provide that the option price for certain options granted under the plans may be paid by the employee in cash, shares of common stock utilizing a third-party broker arrangement, or a combination thereof. Stock options generally expire ten years from the date they are granted and vest over three years except for approximately 1 million performance-vesting options that vest at the earlier of (a) the date the market price of the Company’s common stock reaches a specific level for a pre-determined period of time or certain other financial performance criteria are met, or (b) a period of six to nine years from the date they were granted.

Under the Company’s 2001 Long-Term Incentives Plan and Directors Stock Plan, up to 14.3 million shares of common stock may be issued by the Company as non-qualified options, incentive stock options, performance units, performance shares, stock appreciation rights, and restricted stock. Shares available for future grant or payment under these plans were 6.1 million at September 30, 2005.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following summarizes the activity of the Company’s stock options for 2005, 2004, and 2003:

	2005				2004				2003
(shares in thousands)	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Number of shares under option:
Outstanding at beginning of year	13,311		$	24.37	14,208		$	22.93	16,286		$	22.37
Granted	1,337			36.88	1,983			28.24	110			22.10
Exercised	(4,172	)		22.96	(2,791	)		19.72	(1,745	)		16.85
Canceled or expired	(48	)		28.14	(89	)		27.14	(443	)		26.06
Outstanding at end of year	10,428			26.52	13,311			24.37	14,208			22.93
Exercisable at end of year	7,146			23.78	10,014			23.34	10,618			22.89

The following table summarizes the status of the Company’s stock options outstanding at September 30, 2005:

	Options Outstanding				Options Exercisable
(shares in thousands; remaining life in years)	Shares	Weighted Average			Shares	Weighted Average Exercise Price
Range of Exercise Prices		Remaining Life	Exercise Price
$15.30 to $23.25	4,701	5.4	$	20.60	4,680	$	20.60
$23.26 to $31.05	2,561	6.0		27.40	1,314		26.95
$31.06 to $46.10	3,120	6.0		34.43	1,152		33.09
$46.11 to $46.75	46	9.4		46.26	—		—
Total	10,428	5.7		26.52	7,146		23.78

Dilutive stock options outstanding resulted in an increase in average outstanding diluted shares of 3.2 million, 2.6 million, and 1.0 million for 2005, 2004, and 2003, respectively. The average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the year. Less than 0.1 million stock options were excluded from the average outstanding diluted shares calculation in 2005. 2.3 million and 4.2 million stock options were excluded from the average outstanding diluted shares calculation in 2004 and 2003, respectively.

Other Stock-Based Compensation

The Company offers an Employee Stock Purchase Plan (ESPP) which allows employees to have their base compensation withheld to purchase the Company’s common stock. There are two offering periods during the year, each lasting six months, beginning on December 1 and June 1. Prior to June 1, 2005, shares of the Company’s common stock could be purchased under the ESPP at six month intervals at 85 percent of the lower of the fair market value on the first or the last day of the offering period. Effective June 1, 2005, the ESPP was amended whereby shares of the Company’s common stock are purchased each month by participants at 95 percent of the fair market value on the last day of the month. The Company is authorized to issue 9.0 million shares under the ESPP, of which 4.9 million shares are available for future grant at September 30, 2005. The ESPP is considered a non-compensatory plan and accordingly no compensation expense is recorded in connection with this benefit.

The Company also sponsors defined contribution savings plans that are available to the majority of its employees. The plans allow employees to contribute a portion of their compensation on a pre-tax and/or after-tax basis in accordance with specified guidelines. The Company matches a percentage of employee contributions using common stock of the Company up to certain limits. Employees may transfer at any time all or a portion of their balance in Company common stock to any of the alternative investment options offered within the plans. The Company’s expense related to the savings plans was $35 million, $33 million, and $30 million for 2005, 2004 and 2003, respectively.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2005, 2004, and 2003, 1.9 million, 2.2 million, and 1.8 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 $69 million, $57 million, and $37 million for the respective periods.

14. Research and Development

Research and development expense consists of the following:

(in millions)	2005		2004		2003
Customer-funded	$	348	$	327	$	259
Company-funded		243		218		216
Total research and development	$	591	$	545	$	475

15. Other Income, Net

Other income, net consists of the following:

(in millions)	2005			2004			2003
Earnings from equity affiliates		(11	)		(8	)		(5	)
Interest income		(5	)		(2	)		(2	)
Royalty income		(3	)		(4	)		(9	)
Contract dispute settlement (A)		—			(7	)		—
Insurance settlements		—			(5	)		—
Loss on equity investment (B)		—			7			—
Gain on life insurance reserve fund (C)		—			—			(20	)
Other, net		2			11			—
Other income, net	$	(17	)	$	(8	)	$	(36	)

(A) The contract dispute settlement gain relates to the resolution of a legal matter from a divested business.

(B) The loss on equity investment relates to the Company’s investment in Tenzing (Note 8).

(C) 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.

16. Income Taxes

The components of income tax expense are as follows:

(in millions)	2005		2004			2003
Current:
United States	$	104	$	85		$	(1	)
Non-United States		11		7			10
State and local		5		(1	)		(4	)
Total current		120		91			5
Deferred:
United States		25		39			95
Non-United States		—		(2	)		(1	)
State and local		6		1			11
Total deferred		31		38			105
Income tax expense	$	151	$	129		$	110

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	September 30
(in millions)	2005		2004
Inventory	$	43	$	44
Product warranty costs		62		52
Customer incentives		25		23
Contract reserves		10		14
Compensation and benefits		21		13
Other, net		17		19
Current deferred income taxes	$	178	$	165

Net long-term deferred income tax benefits included in Other Assets consist of the tax effects of temporary differences related to the following:

	September 30
(in millions)	2005			2004
Retirement benefits	$	283		$	206
Property		(64	)		(58	)
Other, net		(46	)		(53	)
Long-term deferred income taxes	$	173		$	95

Management believes it is more likely than not that the current and long-term deferred tax assets will be realized through the reduction of future taxable income. Significant factors considered by management in its determination of the probability of the realization of the deferred tax assets include: (a) the historical operating results of Rockwell Collins ($600 million of United States taxable income over the past three years), (b) expectations of future earnings, and (c) the extended period of time over which the retirement benefit liabilities will be paid.

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

	2005		2004		2003
Statutory tax rate	35.0	%	35.0	%	35.0	%
Research and development credit	(3.9	)	(2.4	)	(3.6	)
Extraterritorial income exclusion	(2.9	)	(2.3	)	(2.3	)
State and local income taxes	1.4		(0.1	)	1.5
Resolution of pre-spin deferred tax matters	(1.9	)	—		—
Other	(0.1	)	(0.2	)	(0.6	)
Effective income tax rate	27.6	%	30.0	%	30.0	%

Income tax expense was calculated based on the following components of income before income taxes:

(in millions)	2005		2004		2003
United States income	$	512	$	413	$	339
Non-United States income		35		17		29
Total	$	547	$	430	$	368

During 2005, the Company settled an Internal Revenue Service (IRS) tax return audit for the short period return filed for the three months ended September 30, 2001. In addition, the IRS is in the process of finalizing its tax return audits for 2002 and 2003. The IRS audit work for 2002 and 2003, other than for the Extraterritorial Income Exclusion, is complete and all audit adjustments have been proposed by the IRS for the audited areas. Based on the proposed audit adjustments, the Company believes that the IRS audits will be resolved favorably for the Company and the effects of accepting the proposed adjustments are included in the effective tax rate for 2005. The Company expects to formally settle the IRS tax return audits for 2002 and 2003 in the first quarter of 2006.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The completion of the IRS’s audit of the Company’s tax returns for the three month short-period ended September 30, 2001 and the 2002 and 2003 years has enabled the Company to now resolve estimates involving certain deferred tax matters existing at the time of the spin-off. The resolution of these pre-spin deferred tax matters during 2005 resulted in a $10 million decrease to the Company’s income tax expense.

The American Jobs Creation Act of 2004 (the “Act”) provides for a special one-time deduction of 85 percent of certain foreign earnings repatriated into the U.S. from non-U.S. subsidiaries through September 30, 2006. Based on the guidance provided from the IRS to date, the Company completed its evaluation of the merits of repatriating funds under the Act as of September 30, 2005. The Company plans to repatriate approximately $100 million of unremitted non-U.S. earnings in 2006 in accordance with the provisions of the Act. Prior to the completion of this evaluation, the Company had not provided for income taxes on unremitted earnings generated by non-U.S. subsidiaries given the Company’s intent to permanently invest these earnings abroad. As a result, the Company recorded a $2 million tax liability in 2005 for the funds expected to be repatriated pursuant to provisions of the Act.

No provision has been made for United States federal or state, or additional foreign income taxes related to approximately $7 million of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested.

The Company paid income taxes, net of refunds, of $60 million, $51 million, and $28 million, in 2005, 2004, and 2003, respectively.

17. Financial Instruments

Fair Value of Financial Instruments

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

	Asset (Liability)
	September 30, 2005						September 30, 2004
(in millions)	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	145		$	145		$	196		$	196
Long-term debt		(200	)		(197	)		(201	)		(200	)
Interest rate swaps		—			—			1			1
Foreign currency forward exchange contracts		(5	)		(5	)		(3	)		(3	)
Accelerated share repurchase agreements (Note 18)		—			6			—			—

The fair value of cash and cash equivalents approximate their carrying value due to the short-term nature of the instruments. Fair value information for long-term debt and interest rate swaps is obtained from third parties and is based on current market interest rates and estimates of current market conditions for instruments with similar terms, maturities, and degree of risk. The fair value of foreign currency forward exchange contracts is estimated based on quoted market prices for contracts with similar maturities. The fair value of the accelerated share repurchase agreements are based on the estimated settlement amount under the agreements as discussed in Note 18. These fair value estimates do not necessarily reflect the amounts the Company would realize in a current market exchange.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest Rate Swaps

The Company manages its exposure to interest rate risk by maintaining an appropriate mix of fixed and variable rate debt, which over time should moderate the costs of debt financing. When considered necessary, the Company may use financial instruments in the form of interest rate swaps to help meet this objective. On November 20, 2003, the Company entered into two interest rate swap contracts (the Swaps) which expire on December 1, 2013 and effectively convert $100 million of the 4.75 percent fixed rate long-term notes to floating rate debt based on six-month LIBOR less 7.5 basis points. The Company has designated the Swaps as fair value hedges and uses the “short-cut” method for assessing effectiveness. Accordingly, changes in the fair value of the Swaps are assumed to be entirely offset by changes in the fair value of the underlying debt that is being hedged with no net gain or loss recognized in earnings. At September 30, 2005 and 2004, the Swaps are recorded at a fair value of zero and $1 million, respectively, within Other Assets, offset by a fair value adjustment to Long-Term Debt (Note 10) of zero and $1 million, respectively. Cash payments or receipts between the Company and the counterparties to the Swaps are recorded as an adjustment to interest expense.

Foreign Currency Forward Exchange Contracts

The Company transacts business in various foreign currencies which subjects the Company’s cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third-parties and intercompany inventory and royalty transactions. The Company has established a program that utilizes foreign currency forward exchange contracts (foreign currency contracts) and attempts to minimize its exposure to fluctuations in foreign currency exchange rates relating to these transactions. Foreign currency contracts provide for the exchange of currencies at specified future prices and dates and reduce exposure to currency fluctuations by generating gains and losses that are intended to offset gains and losses on the underlying transactions. Principal currencies that are hedged include the European euro, British pound sterling, and Japanese yen. The duration of foreign currency contracts is generally two years or less. The maximum duration of a foreign currency contract at September 30, 2005 was 178 months. The majority of the Company’s non-functional currency firm and anticipated receivables and payables that are denominated in major currencies that can be traded on open markets are hedged using foreign currency contracts. The Company does not manage exposure to net investments in foreign subsidiaries.

Notional amounts of outstanding foreign currency forward exchange contracts were $234 million and $96 million at September 30, 2005 and 2004, respectively. Notional amounts are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. The net fair value of these foreign currency contracts at September 30, 2005 and 2004 were net liabilities of $5 million and $3 million, respectively. Net losses of $2 million and $1 million were deferred within Accumulated Other Comprehensive Loss relating to cash flow hedges at September 30, 2005 and 2004, respectively. The Company expects to re-classify approximately $1 million of these net losses into earnings over the next 12 months. There was no significant impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the three years ended September 30, 2005. Gains and losses related to all foreign currency contracts are recorded in Cost of Sales.

18. Guarantees and Indemnifications

Product warranty costs

Accrued liabilities are recorded to reflect the Company’s contractual obligations 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 the length of the warranty and historical warranty return rates and repair costs.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the carrying amount of accrued product warranty costs are summarized as follows:

	September 30
(in millions)	2005			2004
Balance at beginning of year	$	154		$	144
Warranty costs incurred		(53	)		(55	)
Product warranty accrual		67			67
Acquisition of TELDIX		2			—
Pre-existing warranty adjustments		2			(2	)
Balance at September 30	$	172		$	154

Lease guarantee

The Company guarantees fifty percent of a lease obligation for a RSC facility. The Company’s portion of the guarantee totals $2 million at September 30, 2005 and expires ratably through December 2011. Should RSC 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 September 30, 2005 were $94 million. These commitments are not reflected as liabilities on the Company’s Statement of Financial Position.

Accelerated Share Repurchase

On August 16, 2005, the Company entered into accelerated share repurchase agreements with an investment bank under which the Company repurchased 4 million shares of its outstanding common shares at an initial price of $49.10 per share, representing the August 16, 2005 closing price of the Company’s common shares. Total consideration paid to repurchase the shares of approximately $196 million was recorded as a treasury stock repurchase which resulted in a reduction of Shareowners’ Equity.

The agreements contain a forward sale contract whereby the 4 million borrowed shares held by the investment bank that were sold to the Company are covered by share purchases by the investment bank in the open market over a subsequent period of time that ends no later than December 31, 2005. The agreements are subject to a future contingent purchase price adjustment based on the volume-weighted average price of the Company’s shares purchased during the period less a discount as defined in the agreements. At settlement, the Company, at its option, will either pay cash or issue registered or unregistered shares of its common stock to the investment bank if the final per share settlement amount, as defined in the agreements, exceeds the initial price of $49.10 per share (in the event the Company elects to net-share settle, the maximum number of shares that the Company would issue under the agreements is 30 million). Conversely, if the final per share settlement amount, as defined in the agreements, is less than the initial price of $49.10 per share, the investment bank will pay the Company either cash or shares of the Company’s common stock, at the Company’s option.

The Company accounted for the agreements as two separate transactions, the repurchase of shares as a treasury stock transaction and the forward sale contract as an equity instrument. As long as the forward sale contract continues to meet the requirements for classification as an equity instrument, no accounting for the forward sale contract will be required until settlement. Any amounts (either cash or shares) subsequently paid or received at settlement will be recorded in Shareowners’ Equity.

Assuming the volume-weighted average price of the Company’s common stock over the applicable period is $47.90, which was the volume-weighted average price of the Company’s common stock from August 17, 2005 to September 30, 2005, then the investment bank would be required to pay the Company approximately $6 million (net of related settlement fees and expenses) in cash or shares to settle the transaction. A one dollar increase or decrease in the volume-weighted average price of the Company’s common stock over the applicable period would increase or decrease the fair value of the settlement by $4 million.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 of varying amounts 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 amounts to certain customers against claims of product liability or intellectual property infringement made by third parties arising from the use of Company or customer products or intellectual property. These indemnifications generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party product liability or intellectual property claims arising from these transactions.

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. A liability is recorded when a potential claim is both probable and estimable. 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; however, the Company currently has no material claims pending related to such agreements.

19. Contractual Obligations and Other Commitments

The following table reflects certain of the Company’s non-cancelable contractual commitments as of September 30, 2005:

	Payments Due By Period
(in millions)	2006		2007		2008		2009		2010		Thereafter		Total
Non-cancelable operating leases	$	23	$	20	$	16	$	13	$	11	$	52	$	135
Purchase contracts		10		4		—		—		—		—		14
Long-term debt		—		—		—		—		—		200		200
Interest on long-term debt		10		10		10		10		10		30		80
Total	$	43	$	34	$	26	$	23	$	21	$	282	$	429

Non-cancelable Operating Leases

The Company leases certain office and manufacturing facilities as well as certain machinery and equipment under various lease contracts with terms that meet the accounting definition of operating leases. Some leases include renewal options, which permit extensions of the expiration dates at rates approximating fair market rental rates. Rent expense for the years ended September 30, 2005, 2004, and 2003 was $25 million, $26 million, and $23 million, respectively. The Company’s commitments under these operating leases, in the form of non-cancelable future lease payments, are not reflected as a liability on its Statement of Financial Position.

Purchase Contracts

The Company may enter into purchase contracts with suppliers under which there is a commitment to buy a minimum amount of products or pay a specified amount. These commitments are not reflected as a liability on the Company’s Statement of Financial Position.

Interest on Long-term Debt

Interest payments under long-term debt obligations exclude the potential effects of the related interest rate swap contracts.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. 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 ten sites under these regulations or pursuant to lawsuits asserted by third parties. Certain of these sites relate to properties purchased in connection with the Company’s acquisition of Kaiser. Rockwell Collins has certain rights to indemnification from escrow funds set aside at the time of acquisition that management believes are sufficient to address the Company’s potential liability related to the Kaiser related environmental matters. As of September 30, 2005, management estimates that the total reasonably possible future costs the Company could incur from these matters to be approximately $12 million. The Company has recorded environmental reserves for these matters of $4 million as of September 30, 2005, which represents management’s best estimate of the probable future cost 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.

21. Litigation

The Company is subject to various 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, environmental, safety and health, contract and employment matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to 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, financial position, results of operations or cash flows.

22. Business Segment Information

Rockwell Collins provides design, production and support of communications and aviation electronics for commercial and military customers worldwide. The Company has two operating segments consisting of the Government Systems and Commercial Systems businesses.

The Government Systems business supplies defense communications systems and products as well as defense electronics systems and products, which include subsystems, navigation and displays, to the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign Ministries of Defense. These product lines support airborne, ground, and shipboard applications.

Products sold by the Commercial Systems business include air transport aviation electronics systems and products and business and regional aviation electronics systems and products. These systems and products include communications, navigation, surveillance, displays and automatic flight control and flight management systems, as well as in-flight entertainment, cabin electronics and information management systems. Customers include manufacturers of commercial air transport, business and regional aircraft, commercial airlines, fractional operators and business jet operators.

Sales made to the United States Government were 41 percent, 42 percent, and 39 percent of total sales for the years ended September 30, 2005, 2004, and 2003, respectively.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects the sales and operating results for each of the Company’s operating segments:

(in millions)	2005			2004			2003
Sales:
Government Systems	$	1,810		$	1,535		$	1,270
Commercial Systems		1,635			1,395			1,272
Total sales	$	3,445		$	2,930		$	2,542
Segment operating earnings:
Government Systems	$	328		$	282		$	250
Commercial Systems		296			200			137
Total segment operating earnings		624			482			387
Interest expense		(11	)		(8	)		(3	)
Earnings from corporate-level equity affiliate		4			3			4
Tradenames write-off (Note 7)		(15	)		—			—
General corporate, net		(55	)		(47	)		(20	)
Income before income taxes	$	547		$	430		$	368

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

Tradenames write-off relates to the write-off of certain indefinite-lived Kaiser tradenames in 2005 related to the operating segments as follows: Government Systems, $9 million, and Commercial Systems, $6 million.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(in millions)	2005			2004			2003
Identifiable assets:
Government Systems	$	1,174		$	1,057		$	823
Commercial Systems		1,398			1,290			1,278
Corporate		568			527			490
Total identifiable assets	$	3,140		$	2,874		$	2,591
Investments in equity affiliates:
Government Systems	$	12		$	10		$	9
Commercial Systems		—			1			8
Corporate		59			57			54
Total investments in equity affiliates	$	71		$	68		$	71
Depreciation and amortization:
Government Systems	$	43		$	45		$	38
Commercial Systems		61			64			67
Total depreciation and amortization	$	104		$	109		$	105
Capital expenditures for property:
Government Systems	$	48		$	42		$	31
Commercial Systems		63			50			38
Total capital expenditures for property	$	111		$	92		$	69
Earnings (losses) from equity affiliates:
Government Systems	$	8		$	6		$	3
Commercial Systems		(1	)		(1	)		(2	)
Corporate		4			3			4
Total earnings from equity affiliates	$	11		$	8		$	5

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

The following table summarizes sales by product category for the years ended September 30:

(in millions)	2005		2004		2003
Defense electronics	$	1,232	$	956	$	767
Defense communications		578		579		503
Air transport aviation electronics		911		798		746
Business and regional aviation electronics		724		597		526
Total	$	3,445	$	2,930	$	2,542

Product line disclosures for defense-related products are delineated based upon their underlying technologies while the air transport and business and regional aviation electronics product lines are delineated based upon the difference in underlying customer base, size of aircraft, and markets served.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Sales						Property
(in millions)	2005		2004		2003		2005		2004		2003
United States	$	2,312	$	1,957	$	1,667	$	428	$	387	$	372
Europe		612		544		503		36		21		18
Asia-Pacific		231		165		168		6		7		8
Canada		208		171		164		—		—		—
Africa / Middle East		55		70		25		—		—		—
Latin America		27		23		15		3		3		3
Total	$	3,445	$	2,930	$	2,542	$	473	$	418	$	401

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

23. Quarterly Financial Information (Unaudited)

Quarterly financial information for the years ended September 30, 2005 and 2004 is summarized as follows:

	2005 Quarters
(in millions, except per share amounts)	First		Second		Third		Fourth		Total
Sales	$	763	$	829	$	890	$	963	$	3,445
Cost of sales		545		600		641		716		2,502
Net income		90		95		101		110		396
Earnings per share:
Basic	$	0.51	$	0.53	$	0.57	$	0.63	$	2.24
Diluted	$	0.50	$	0.52	$	0.56	$	0.62	$	2.20

Cost of sales and net income in the fourth quarter of 2005 include a tradenames write-off of $15 million ($10 million after taxes), or 6 cents per share related to the write-off of certain indefinite-lived Kaiser tradenames (see Note 7).

Net income in the fourth quarter of 2005 includes $10 million, or 6 cents per share, in favorable income tax adjustments resulting from the resolution of certain deferred tax matters that existed at the time of the Company’s spin-off in 2001 (see Note 16).

	2004 Quarters
(in millions, except per share amounts)	First		Second		Third		Fourth		Total
Sales	$	628	$	719	$	744	$	839	$	2,930
Cost of sales		455		526		547		616		2,144
Net income		68		71		76		86		301
Earnings per share:
Basic	$	0.38	$	0.40	$	0.43	$	0.49	$	1.70
Diluted	$	0.38	$	0.39	$	0.42	$	0.48	$	1.67

Net income in the first quarter of 2004 includes a gain of $3 million ($5 million before taxes), or 2 cents per share related to the favorable settlements of insurance matters.

Net income in the third quarter of 2004 includes a gain of $4 million ($7 million before taxes) related to the resolution of a legal matter brought by the Company which was offset by a loss of $4 million ($7 million before taxes) related to the Company’s investment in Tenzing (see Note 8).

55

Selected Financial Data

The following selected financial data should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report. The Statement of Operations, Statement of Financial Position and other data has been derived from our audited financial statements.

	Years Ended September 30
	2005(a)		2004(b)		2003(c)		2002(d)		2001(e)
	(in millions, except per share amounts)
Statement of Operations Data:
Sales	$	3,445	$	2,930	$	2,542	$	2,492	$	2,820
Cost of sales		2,502		2,144		1,866		1,863		2,108
Selling, general and administrative expenses		402		356		341		307		351
Goodwill and asset impairment charges (f)		—		—		—		—		149
Income before income taxes		547		430		368		341		224
Net income		396		301		258		236		139
Diluted earnings per share		2.20		1.67		1.43		1.28		—
Statement of Financial Position Data:
Working capital (g)	$	598	$	699	$	530	$	402	$	504
Property		473		418		401		411		439
Goodwill and intangible assets		571		550		440		456		285
Total assets		3,140		2,874		2,591		2,555		2,637
Short-term debt		—		—		42		132		202
Long-term debt		200		201		—		—		—
Shareowners’ equity		939		1,133		833		987		1,110
Other Data:
Capital expenditures	$	111	$	92	$	69	$	62	$	110
Goodwill amortization		—		—		—		—		18
Other depreciation and amortization		104		109		105		105		120
Dividends per share		0.48		0.39		0.36		0.36		.09
Stock Price:
High	$	49.80	$	38.08	$	27.67	$	27.70	$	24.23
Low		34.40		25.18		17.20		12.99		11.80
Pro Forma Financial Information: (h)
Net income	$	—	$	—	$	—	$	—	$	149
Diluted earnings per share		—		—		—		—		0.80

(a) Includes (i) $10 million reduction in income tax expense related to the resolution of certain deferred tax matters that existed prior to our spin-off in 2001 and (ii) $15 million write-off of certain indefinite-lived Kaiser tradenames ($10 million after taxes). The tradename write-off was recorded in Cost of sales.

(b) Includes (i) $5 million gain ($3 million after taxes) related to favorable insurance settlements, (ii) $7 million gain ($4 million after taxes) related to the resolution of a legal matter brought by us, and (iii) $7 million loss ($4 million after taxes) related to our investment in Tenzing Communications, Inc.

(c) Includes a $20 million gain ($12 million after taxes) related to a favorable tax ruling on an over-funded life insurance reserve trust fund.

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

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

(f) Goodwill and asset impairment charges of $149 million ($108 million after taxes) include $136 million related to long-lived assets recorded in connection with the Sony Trans Com and Hughes-Avicom acquisitions and $13 million related to certain software license agreements.

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

(h) We became an independent, publicly held company on June 29, 2001, when Rockwell International Corporation, renamed Rockwell Automation, Inc. (Rockwell), spun off its former avionics and communications business (Avionics and Communications) and certain other assets and liabilities of Rockwell by means of a distribution (the Distribution) of all our outstanding shares of common stock to the shareowners of Rockwell in a tax-free spin-off. Pro forma financial information is presented as if the adoption of SFAS No. 141, Business Combinations (SFAS 141), SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142) and the Distribution occurred on October 1, 2000. Pro forma adjustments related to the adoption of SFAS 141 and SFAS 142 include the elimination of amortization expense for goodwill, assembled workforce, and trademarks and tradenames with indefinite lives as these intangibles are no longer being amortized. Pro forma adjustments related to the Distribution include interest expense on $300 million of commercial paper borrowings used to fund a pre-Distribution dividend to Rockwell and income and costs related to employee benefit plan obligations related to active and former Rockwell employees not associated with the Avionics and Communications business that were assumed by us in connection with the Distribution.

56

EX-21

Exhibit 21

List of Subsidiaries of Rockwell Collins, Inc.

Name	State/Country of Incorporation
Intertrade Limited	Iowa
K Systems, Inc.	California
Kaiser Optical Systems, Inc.	Michigan
NLX Holding Corporation	Delaware
Rockwell Collins Aerospace & Electronics, Inc.	Delaware
Rockwell Collins ElectroMechanical Systems, Inc.	Nevada
Rockwell Collins Optronics, Inc.	California
Rockwell Collins Simulation & Training Solutions LLC	Delaware
Rockwell Collins Technologies LLC	Delaware
Rockwell Collins Danmark ApS	Denmark
Rockwell Collins Deutschland Holdings GmbH	Germany
Rockwell Collins European Holdings S.à r.l.	Luxembourg
Rockwell-Collins France S.A.S.	France
Rockwell Collins International Financing LIMITED	Bermuda
Rockwell Collins International Holdings LIMITED	Bermuda
Rockwell-Collins (U.K.) Limited	United Kingdom
TELDIX GmbH	Germany

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

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-63100, 333-63120, and 333-72814 on Form S-8 and Nos. 333-63142 and 333-72914 on Form S-3 of our reports dated November 4, 2005, relating to the consolidated financial statements and consolidated financial statement schedule of Rockwell Collins, Inc. and subsidiaries (the “Company”) and management’s report on the effectiveness of internal control over financial reporting, appearing in and incorporated by reference in this Annual Report on Form 10-K of the Company for the year ended September 30, 2005.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

November 21, 2005

EX-24

Exhibit 24

POWER OF ATTORNEY

I, the undersigned Director of Rockwell Collins, Inc., a Delaware corporation (the “Company”), hereby constitute GARY R. CHADICK, PATRICK E. ALLEN and DAVID H. BREHM, and each of them singly, my true and lawful attorneys with full power to them and each of them to sign for me, and in my name and in the capacity or capacities indicated below, the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2005, and any amendments thereto.

Signature	Title	Date
/s/ Donald R. Beall Donald R. Beall	Director	November 17, 2005
/s/ Anthony J. Carbone Anthony J. Carbone	Director	November 17, 2005
/s/ Michael P.C. Carns Michael P.C. Carns	Director	November 16, 2005
/s/ Chris A. Davis Chris A. Davis	Director	November 17, 2005
/s/ Richard J. Ferris Richard J. Ferris	Director	November 17, 2005
/s/ Cheryl L. Shavers Cheryl L. Shavers	Director	November 17, 2005
/s/ Joseph F. Toot, Jr. Joseph F. Toot, Jr.	Director	November 17, 2005

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 annual report on Form 10-K ended September 30, 2005 of Rockwell Collins, Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f) 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 annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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: November 21, 2005	/s/ Clayton M. Jones
	Clayton M. Jones
	Chairman, President and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Patrick E. Allen, Senior Vice President and Chief Financial Officer of Rockwell Collins, Inc., certify that:

1. I have reviewed the annual report on Form 10-K for September 30, 2005 of Rockwell Collins, Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f) 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 annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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: November 21, 2005	/s/ Patrick E. Allen
	Patrick E. Allen
	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 Annual Report of Rockwell Collins, Inc. (the “Company”) on Form 10-K for the fiscal year ended September 30, 2005 (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 to my knowledge:

(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 Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 21, 2005	/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 Annual Report of Rockwell Collins, Inc. (the “Company”) on Form 10-K for the fiscal year ended September 30, 2005 (the “Report”) filed with the Securities and Exchange Commission, I, Patrick E. Allen, 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 to my knowledge:

(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 Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 21, 2005	/s/ Patrick E. Allen
	Patrick E. Allen
	Senior Vice President and
	Chief Financial Officer