ROCKWELL COLLINS INC (Form: 10-Q, Received: 04/17/2014 11:10:05)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

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

Commission file number 001-16445

Rockwell Collins, Inc .

(Exact name of registrant as specified in its charter)



Delaware	52-2314475
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	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

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer R		Accelerated filer £
Non-accelerated filer £	(Do not check if a smaller reporting company)	Smaller reporting company £

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

135,499,497 shares of the registrant's Common Stock were outstanding on April 14, 2014.

ROCKWELL COLLINS, INC.

INDEX



			Page No.

PART I.	FINANCIAL INFORMATION:

	Item 1.	Condensed Consolidated Financial Statements:

		Condensed Consolidated Statement of Financial Position (Unaudited) — March 31, 2014 and September 30, 2013	1

		Condensed Consolidated Statement of Operations (Unaudited) — Three and Six Months Ended March 31, 2014 and 2013	2

		Condensed Consolidated Statement of Other Comprehensive Income (Unaudited) — Three and Six Months Ended March 31, 2014 and 2013	3

		Condensed Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended March 31, 2014 and 2013	4

		Notes to Condensed Consolidated Financial Statements (Unaudited)	5

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47

	Item 4.	Controls and Procedures	49

PART II.	OTHER INFORMATION:

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

	Item 6.	Exhibits	50

Signatures			S-1


PART I.	FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited; in millions, except per share amounts)



	March 31,			September 30,
	2014			2013
ASSETS
Current Assets:
Cash and cash equivalents	$	410		$	391
Receivables, net	1,126			1,058
Inventories, net	1,674			1,518
Current deferred income taxes	10			19
Business held for sale	69			17
Other current assets	128			91
Total current assets	3,417			3,094

Property	829			773
Goodwill	1,834			779
Intangible Assets	715			288
Long-term Deferred Income Taxes	50			245
Other Assets	238			221
TOTAL ASSETS	$	7,083		$	5,400
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	866		$	436
Accounts payable	465			463
Compensation and benefits	245			293
Advance payments from customers	362			324
Accrued customer incentives	197			184
Product warranty costs	114			121
Liabilities associated with business held for sale	10			4
Other current liabilities	141			156
Total current liabilities	2,400			1,981

Long-term Debt, Net	1,658			563
Retirement Benefits	1,005			1,078
Other Liabilities	168			155

Equity:
Common stock ($0.01 par value; shares authorized: 1,000; shares issued: 183.8)	2			2
Additional paid-in capital	1,474			1,469
Retained earnings	4,362			4,163
Accumulated other comprehensive loss	(1,269		)	(1,287		)
Common stock in treasury, at cost (shares held: March 31, 2014, 48.3; September 30, 2013, 48.7)	(2,722		)	(2,729		)
Total shareowners’ equity	1,847			1,618
Noncontrolling interest	5			5
Total equity	1,852			1,623
TOTAL LIABILITIES AND EQUITY	$	7,083		$	5,400

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)



	Three Months Ended						Six Months Ended
	March 31						March 31
	2014			2013			2014			2013
Sales:
Product sales	$	1,065		$	1,056		$	2,059		$	2,030
Service sales	207			75			284			163
Total sales	1,272			1,131			2,343			2,193

Costs, expenses and other:
Product cost of sales	744			742			1,444			1,429
Service cost of sales	150			62			206			125
Selling, general and administrative expenses	150			126			286			250
Interest expense	16			8			28			14
Other income, net	(2		)	(4		)	(15		)	(10		)
Total costs, expenses and other	1,058			934			1,949			1,808

Income from continuing operations before income taxes	214			197			394			385
Income tax expense	67			36			116			92
Income from continuing operations	147			161			278			293

Income from discontinued operations, net of taxes	1			—			1			—

Net income	$	148		$	161		$	279		$	293

Earnings per share:
Basic
Continuing operations	$	1.08		$	1.18		$	2.05		$	2.13
Discontinued operations	0.01			—			0.01			—
Basic earnings per share	$	1.09		$	1.18		$	2.06		$	2.13

Diluted
Continuing operations	$	1.07		$	1.17		$	2.03		$	2.10
Discontinued operations	0.01			—			0.01			—
Diluted earnings per share	$	1.08		$	1.17		$	2.04		$	2.10

Weighted average common shares:
Basic	135.5			136.2			135.3			137.8
Diluted	137.2			137.8			136.9			139.3

Cash dividends per share	$	0.30		$	0.30		$	0.60		$	0.60

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

(in millions)



	Three Months Ended						Six Months Ended
	March 31						March 31
	2014			2013			2014			2013
Net income	$	148		$	161		$	279		$	293
Unrealized foreign currency translation adjustments	(2		)	(11		)	(1		)	(11		)
Pension and other retirement benefits adjustments (net of taxes for the three and six months ended March 31, 2014 of $5 and $10, respectively; net of taxes for the three and six months ended March 31, 2013 of $6 and $12, respectively)	8			10			17			21
Cash flow hedge adjustments (net of taxes for the three and six months ended March 31, 2014 of $0 and $(1), respectively; net of taxes for the three and six months ended March 31, 2013 of $0 and $0, respectively)	—			—			2			(2		)
Comprehensive income	$	154		$	160		$	297		$	301

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL COLLINS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(in millions)



	Six Months Ended
	March 31
	2014			2013
Operating Activities:
Net income	$	279		$	293
Adjustments to arrive at cash provided by operating activities:
Gain on sale of business	(10		)	—
Depreciation	67			61
Amortization of intangible assets and pre-production engineering costs	37			27
Stock-based compensation expense	12			13
Compensation and benefits paid in common stock	24			29
Excess tax benefit from stock-based compensation	(5		)	(3		)
Deferred income taxes	40			39
Pension plan contributions	(63		)	(117		)
Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments:
Receivables	57			2
Production inventory	(83		)	(63		)
Pre-production engineering costs	(103		)	(88		)
Accounts payable	(33		)	(46		)
Compensation and benefits	(76		)	7
Advance payments from customers	(19		)	37
Accrued customer incentives	13			9
Product warranty costs	(7		)	(5		)
Income taxes	(47		)	6
Other assets and liabilities	(20		)	(22		)
Cash Provided by Operating Activities	63			179

Investing Activities:
Acquisition of business, net of cash acquired	(1,415		)	—
Property additions	(70		)	(61		)
Acquisition of intangible assets	(1		)	(1		)
Proceeds from business divestitures	24			—
Cash (Used for) Investing Activities	(1,462		)	(62		)

Financing Activities:
Purchases of treasury stock	(61		)	(437		)
Cash dividends	(81		)	(83		)
Proceeds from short-term commercial paper borrowings, net	631			385
Repayment of debt	(200		)	—
Net proceeds from long-term debt issuance	1,089			—
Proceeds from the exercise of stock options	31			19
Excess tax benefit from stock-based compensation	5			3
Cash Provided by (Used for) Financing Activities	1,414			(113		)

Effect of exchange rate changes on cash and cash equivalents	4			(2		)

Net Change in Cash and Cash Equivalents	19			2
Cash and Cash Equivalents at Beginning of Period	391			335
Cash and Cash Equivalents at End of Period	$	410		$	337

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Business Description and Basis of Presentation

Rockwell Collins, Inc. (the Company or Rockwell Collins) designs, produces and supports communications and aviation systems for commercial and military customers and provides voice and data communication networks and solutions worldwide.

The Company operates on a 52/53 week fiscal year with quarters ending on the Friday closest to the last day of the calendar quarter. For ease of presentation, March 31 and September 30 are utilized consistently throughout these financial statements and notes to represent the period end date.

The Company has one consolidated subsidiary with income attributable to a noncontrolling interest. The net income and comprehensive income attributable to the noncontrolling interest is insignificant.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2013 .

In the opinion of management, the unaudited financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the three and six months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year.

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

During the first quarter of 2014, the Company acquired ARINC Incorporated (ARINC). As a result of the acquisition, the Company's service sales are now greater than ten percent of total sales. Accordingly, service and product sales and service and product cost of sales are now presented separately and prior periods were changed to conform to the current period presentation. This change did not impact previously reported total revenues, total cost of sales, or net income, nor did it have any effect on the Company's financial position or cash flows for any prior periods.

As discussed in Note 4, Discontinued Operations and Divestitures, the Company intends to divest the Aerospace Systems Engineering and Support (ASES) business, which was acquired as part of the ARINC transaction. As such, this business is classified as held for sale and has been accounted for as a discontinued operation for all periods presented. Unless otherwise noted, disclosures pertain to the Company's continuing operations.


2.	Recently Issued Accounting Standards

In February 2013 the Financial Accounting Standards Board (FASB) issued amended guidance which requires entities to provide details about the amounts reclassified out of accumulated other comprehensive income (AOCI) by component. In addition, entities must disclose the income statement line items affected for significant items reclassified out of AOCI to net income in their entirety. The amendment became effective for the Company in the first quarter of 2014 and is required to be applied prospectively. There was no impact to the Company's financial position, results of operations, or cash flows; the Company did, however, include additional disclosures as required by the new pronouncement, as shown in Note 13.


3.	Acquisitions

On December 23, 2013, the Company acquired 100 percent of the outstanding common stock and voting interests of Radio Holdings, Inc. (Radio Holdings), the holding company of ARINC, a leading global provider of air-to-ground

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

data and voice communication services. ARINC develops and operates communications and information processing systems and provides systems engineering and integration solutions to five key industries: commercial aviation, business aviation, airports, rail and nuclear power. Combining ARINC’s communication networks and services with the Company’s onboard aircraft information systems will strengthen the Company’s ability to deliver efficiency and enhanced connectivity to aircraft operators worldwide.

The ARINC purchase price was $1.415 billion , net of cash acquired. The purchase price is subject to post-closing adjustments for potential changes in working capital and other items. As discussed in Note 10, the Company used proceeds from the issuance of long-term debt and commercial paper to finance the cash purchase price. The following table, which is preliminary and subject to change, summarizes the estimated fair value of assets acquired and liabilities assumed at the acquisition date.



(in millions)	December 23, 2013
Restricted Cash ⁽¹⁾	$	61
Receivables and Other current assets	148
Building held for sale ⁽²⁾	81
Business held for sale ⁽³⁾	61
Property	55
Intangible Assets	443
Other Assets	7
Total Identifiable Assets Acquired	856
Payable to ARINC option holders ⁽¹⁾	(61		)
Current Liabilities	(131		)
Liability related to building held for sale ⁽²⁾	(81		)
Liabilities associated with business held for sale ⁽³⁾	(9		)
Long-term deferred income taxes	(168		)
Retirement Benefits and Other Long-term Liabilities	(45		)
Total Liabilities Assumed	(495		)
Net Identifiable Assets Acquired, excluding Goodwill	361
Goodwill	1,054
Net Assets Acquired	$	1,415

(1) Option-holders of ARINC were due approximately $61 million at the transaction closing date. This payment did not clear until December 24, 2013. Therefore the opening balance sheet, which is prepared as of December 23, 2013, includes restricted cash of $61 million and a current liability payable to the ARINC option holders for an equal amount.

(2) On March 28, 2014, the Company sold the building which was classified as held for sale at the acquisition date. Concurrent with the sale date, the building held for sale and the liability related to the building held for sale were removed from the balance sheet. For more information related to the Building held for sale, see below.

(3) Assets and liabilities associated with the Business held-for-sale relate to ASES, which the Company intends to divest, as detailed in Note 4.

The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as allowed by FASB Accounting Standards Codification Topic 805, Business Combinations (ASC 805). As of March 31, 2014, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary. The size and breadth of the ARINC acquisition necessitates use of the measurement period to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including intangible assets, certain reserves, purchase price adjustments and the related tax impacts of any changes made. Any potential adjustments will be made retroactively and could be material to the preliminary values presented above.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The preliminary purchase price allocation resulted in the recognition of $1.054 billion of goodwill, none of which is expected to be deductible for tax purposes. All of the goodwill is included in the Company’s new Information Management Services segment. The goodwill is primarily a result of revenue synergy opportunities generated by the combination of the Company’s aviation electronics and flight services business with ARINC’s network communication solutions and cost synergies resulting from the consolidation of certain corporate and administrative functions. Goodwill also results from the workforce acquired with the business. See Note 22 for additional information relating to the new Information Management Services segment.

ARINC’s results of operations have been included in the Company's operating results for the period subsequent to the completion of the acquisition on December 23, 2013. ARINC contributed sales of $137 million for the three months ended March 31, 2014 and $143 million from the date of acquisition through March 31, 2014, and net income of $9 million for the three months ended March 31, 2014 and $10 million from the date of acquisition through March 31, 2014.

Building Held For Sale and Liability Related to Building Held for Sale

In connection with the acquisition of ARINC, the Company classified $81 million of acquired real estate assets as Building held for sale at the acquisition date. The Company also recorded a $81 million liability related to the Building held for sale at the acquisition date. The assets and related liability were recorded at their estimated fair value.

In November of 2004, ARINC obtained approval from the Department of Labor to contribute these real estate assets to their defined benefit pension plan. In connection with this transaction, ARINC entered into a simultaneous agreement to leaseback the contributed facilities for a period of twenty years, through November 1, 2024. As a result of the related party elements of the transaction, no sale or gain was recognized when ARINC contributed the real estate to its pension plan. Instead, ARINC recognized a deferred gain liability equal to the fair value of the contributed real estate. The increase in deferred gain liability was offset by an equal reduction to pension plan liabilities to recognize the fair value of the contributed real estate in the funded status of the pension plan.

The Building held for sale was comprised of the land and buildings of the ARINC corporate headquarters, located in Annapolis, Maryland. The related liability represented future rental payment obligations under the leaseback agreement. As of the acquisition date, the real estate assets were being marketed for sale. In March 2014, the assets were sold to an unrelated third party. The net proceeds from the sale of $81 million were remitted directly to the ARINC pension plan, and have been included as a benefit to the funded status of that plan, as detailed in Note 11, Retirement Benefits. Concurrent with the sale of the real estate assets, the Company entered into a revised lease agreement with the new owner of the Annapolis, Maryland facilities. The held for sale asset and related liability were removed from the Company's balance sheet upon completion of the sale. The transaction had no impact on the Company's statement of operations or statement of cash flows.

Transaction-related Expenses

The Company incurred transaction costs related to the acquisition of $1 million and $16 million during the three and six months ended March 31, 2014, respectively. Of the year to date amount, $13 million is recorded within Selling, general and administrative expenses on the Condensed Consolidated Statement of Operations. The remaining $3 million is recorded within Interest expense and relates to fees incurred in connection with the bridge credit agreement which was entered into in September 2013 to support the financing of the ARINC acquisition.

Supplemental Pro-Forma Data

The following unaudited supplemental pro-forma data presents consolidated pro-forma information as if the acquisition and related financing had been completed as of the beginning of the prior year, or on October 1, 2012.

The unaudited supplemental pro-forma financial information does not reflect the potential realization of revenue synergies or cost savings, nor does it reflect other costs relating to the integration of the two companies. This pro-forma data should not be considered indicative of the results that would have actually occurred if the acquisition and related financing been consummated on October 1, 2012, nor are they indicative of future results.

The unaudited supplemental pro-forma financial information was calculated by combining the Company's results with the stand-alone results of ARINC for the pre-acquisition periods, which were adjusted to account for certain

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

transactions and other costs that would have been incurred during this pre-acquisition period. The pro-forma information included herein is preliminary and may be revised as additional information becomes available and as additional analysis is performed within the one year measurement period allowed by ASC 805. Any potential future adjustments could be material.



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions, except per share amounts)	2014		2013		2014		2013
Pro-forma sales	$	1,272	$	1,252	$	2,449	$	2,445
Pro-forma net income attributable to common shareowners from continuing operations	$	148	$	165	$	281	$	284
Pro-forma basic earnings per share from continuing operations	$	1.09	$	1.21	$	2.08	$	2.06
Pro-forma diluted earnings per share from continuing operations	$	1.08	$	1.20	$	2.05	$	2.04

The unaudited supplemental pro-forma data above exclude the results of ASES, which the Company intends to divest, as detailed in Note 4. The following significant adjustments were made to account for certain transactions and costs that would have occurred if the acquisition had been completed on October 1, 2012. These adjustments are net of any applicable tax impact and were included to arrive at the pro-forma results above. As the acquisition of ARINC was completed on December 23, 2013, the pro forma adjustments for the three and six months ended March 31, 2014 in the table below include only the required adjustments through December 23, 2013.



	Three Months Ended					Six Months Ended
	March 31					March 31
(in millions)	2014		2013			2014			2013
Increases / (decreases) to pro-forma net income:
Net reduction to depreciation resulting from fixed asset purchase accounting adjustments ⁽¹⁾	$	—	$	2		$	2		$	5
Advisory, legal and accounting service fees ⁽²⁾	1		—			21			(22		)
Amortization of acquired ARINC intangible assets, net ⁽³⁾	—		(4		)	(4		)	(9		)
Interest expense incurred on acquisition financing, net ⁽⁴⁾	—		(2		)	—			(3		)

(1) This adjustment captures the net impact to depreciation expense resulting from various purchase accounting adjustments to fixed assets

(2) This adjustment reflects the elimination of transaction-related fees incurred by ARINC and Rockwell Collins in connection with the acquisition and assumes all of the the fees were incurred during the first quarter of 2013

(3) This adjustment eliminates amortization of the historical ARINC intangible assets and replaces it with the new amortization for the acquired intangible assets

(4) This adjustment reflects the addition of interest expense for the debt incurred by Rockwell Collins to finance the ARINC acquisition, net of interest expense that was eliminated on the historical ARINC debt that was repaid at the acquisition date. The adjustment also reflects the elimination of interest expense incurred by Rockwell Collins for bridge loan financing which was assumed to not be required for purposes of the pro-forma periods presented.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.	Discontinued Operations and Divestitures

The Company intends to divest ARINC's ASES business, which provides military aircraft integration and modifications, maintenance, and logistics and support, in order to align with the Company's long-term primary business strategies. The operating results of ASES are included in discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented. At March 31, 2014, the Company has classified $69 million of assets related to ASES as a business held-for-sale within current assets and $10 million of liabilities related to ASES as a business held-for-sale within current liabilities on the Condensed Consolidated Statement of Financial Position.

Results of discontinued operations are as follows:



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions)	2014		2013		2014		2013
Sales	$	13	$	—	$	13	$	—
Income from discontinued operations before income taxes	2		—		2		—

On November 22, 2013, the Company sold its subsidiary, Kaiser Optical Systems, Inc. (KOSI), a supplier of spectrographic instrumentation and applied holographic technology, to Endress+Hauser. The sale price, after post-closing adjustments for changes in working capital, was $23 million . This resulted in a pretax gain of $10 million , which was included in Other income during the three months ended December 31, 2013. The divestiture of this business is part of an overall strategy for the Company to focus on growth opportunities in its addressed markets. As part of the divestiture agreement, the Company entered into a long-term supply agreement with the buyer that allows the Company to continue purchasing certain products from KOSI after completion of the sale. As a result of this continuing involvement, the KOSI divestiture did not qualify for classification as a discontinued operation. As of September 30, 2013, the KOSI business was classified within current assets and current liabilities as a business held-for-sale.


5.	Receivables, Net

Receivables, net are summarized as follows:



(in millions)	March 31, 2014			September 30, 2013
Billed	$	794		$	823
Unbilled	512			432
Less progress payments	(171		)	(188		)
Total	1,135			1,067
Less allowance for doubtful accounts	(9		)	(9		)
Receivables, net	$	1,126		$	1,058

Receivables expected to be collected beyond the next twelve months are classified as long-term and are included within Other Assets. Total receivables due from the U.S. Government including the Department of Defense and other government agencies, both directly and indirectly through subcontracts, were $ 304 million and $ 312 million at March 31, 2014 and September 30, 2013 , respectively. U.S. Government unbilled receivables, net of progress payments, were $ 133 million and $ 97 million at March 31, 2014 and September 30, 2013 , respectively. Billed receivables due from equity affiliates were $40 million and $52 million at March 31, 2014 and September 30, 2013 , 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.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.	Inventories, Net

Inventories, net are summarized as follows:



(in millions)	March 31, 2014			September 30, 2013
Finished goods	$	211		$	181
Work in process	275			273
Raw materials, parts and supplies	392			358
Less progress payments	(7		)	(8		)
Total	871			804
Pre-production engineering costs	803			714
Inventories, net	$	1,674		$	1,518

The Company defers certain pre-production engineering costs during the development phase of a program in connection with long-term supply arrangements that contain contractual guarantees for reimbursement from customers. Such customer guarantees generally take the form of a minimum order quantity with quantified reimbursement amounts if the minimum order quantity is not taken by the customer. These costs are deferred to the extent of the contractual guarantees and are amortized over their estimated useful lives using a units-of-delivery method, up to 15 years. This amortization expense is included as a component of cost of sales. Amortization is based on the Company’s expectation of delivery rates on a program-by-program basis and begins when the Company starts recognizing revenue as the Company delivers equipment for the program. The estimated useful life is limited to the amount of time the Company is virtually assured to earn revenues through a contractually enforceable right included in long-term supply arrangements with the Company’s customers. Pre-production engineering costs incurred pursuant to supply arrangements that do not contain contractual guarantees for reimbursement are expensed as incurred.

Anticipated annual amortization expense for pre-production engineering costs is as follows:



(in millions)	2014		2015		2016		2017		2018		Thereafter
Anticipated amortization expense for pre-production engineering costs	$	38	$	61	$	80	$	87	$	100	$	451

Amortization expense for pre-production engineering costs for the three and six months ended March 31, 2014 was $8 million and $14 million , respectively, compared to $7 million and $12 million for the three and six months ended March 31, 2013 . As of March 31, 2014 , the weighted average amortization period remaining for pre-production engineering costs included in inventory was approximately 9 years.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.	Property

Property is summarized as follows:



(in millions)	March 31, 2014			September 30, 2013
Land	$	16		$	10
Buildings and improvements	408			388
Machinery and equipment	1,130			1,066
Information systems software and hardware	354			344
Furniture and fixtures	67			65
Construction in progress	113			101
Total	2,088			1,974
Less accumulated depreciation	(1,259		)	(1,201		)
Property	$	829		$	773


8.	Goodwill and Intangible Assets

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



(in millions)	Government Systems		Commercial Systems			Information Management Services			Total
Balance at September 30, 2013	$	513	$	266		$	—		$	779
ARINC acquisition	—		—			1,054			1,054
Reclassification from Commercial Systems to Information Management Services	—		(4		)	4			—
Foreign currency translation adjustments and other	2		—			(1		)	1
Balance at March 31, 2014	$	515	$	262		$	1,057		$	1,834

As a result of the ARINC acquisition, the Company recorded $1.054 billion of goodwill. The goodwill value is preliminary and subject to change. Beginning in the first quarter of 2014, the Company created a new Information Management Services segment. This segment combines the retained portion of the newly acquired ARINC business with the Company's existing flight services business, which had previously been included in the Commercial Systems segment. As a result of the reorganization of the Company's segments, a portion of the goodwill from the Commercial Systems segment was reassigned to the Information Management Services segment using a fair value allocation method.

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets during the second quarter of each fiscal year, or at any time there is an indication goodwill or indefinite-lived intangibles are more-likely-than-not impaired, commonly referred to as triggering events. There have been no such triggering events during any of the periods presented, and the Company's 2014 and 2013 impairment tests resulted in no impairment.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible assets are summarized as follows:



	March 31, 2014							September 30, 2013
(in millions)	Gross		Accum Amort			Net		Gross		Accum Amort			Net
Intangible assets with finite lives:
Developed technology and patents	$	340	$	(183	)	$	157	$	222	$	(175	)	$	47
Backlog	8		—			8		—		—			—
Customer relationships:
Acquired	374		(68		)	306		89		(60		)	29
Up-front sales incentives	247		(40		)	207		241		(35		)	206
License agreements	13		(8		)	5		13		(8		)	5
Trademarks and tradenames	15		(14		)	1		15		(14		)	1
Intangible assets with indefinite lives:
Trademarks and tradenames	31		—			31		—		—			—
Intangible assets	$	1,028	$	(313	)	$	715	$	580	$	(292	)	$	288

As a result of the ARINC acquisition, the Company has preliminarily allocated $412 million to finite-lived intangible assets with a weighted average life of approximately 14 years and $31 million to indefinite-lived intangible assets. In addition, the Company has also preliminarily allocated $20 million of intangible assets to the ASES business. As of March 31, 2014, the intangible assets associated with ASES are classified within Business held for sale on the Condensed Consolidated Statement of Financial Position and are not reflected in the table above.

Rockwell Collins provides up-front sales incentives prior to delivering products or performing services to certain commercial customers in connection with sales contracts. Up-front sales incentives are recorded as a Customer relationship intangible asset and are amortized using a units-of-delivery method over the period the Company has received a contractually enforceable right related to the incentives, up to 15 years. Amortization is based on the Company’s expectation of delivery rates on a program-by-program basis. Amortization begins when the Company starts recognizing revenue as the Company delivers equipment for the program. Up-front sales incentives consisting of cash payments or customer account credits are amortized as a reduction of sales, whereas incentives consisting of free products are amortized as cost of sales. As of March 31, 2014 , the weighted average amortization period remaining for up-front sales incentives was approximately 10 years.

Anticipated annual amortization expense for intangible assets is as follows:



(in millions)	2014		2015		2016		2017		2018		Thereafter
Anticipated amortization expense for up-front sales incentives	$	11	$	17	$	21	$	23	$	25	$	115
Anticipated amortization expense for intangibles acquired in ARINC acquisition	23		31		31		31		31		265
Anticipated amortization expense for all other intangible assets	19		17		14		8		6		19
Total	$	53	$	65	$	66	$	62	$	62	$	399

Amortization expense for intangible assets for the three and six months ended March 31, 2014 was $16 million and $23 million , respectively, compared to $7 million and $15 million for the three and six months ended March 31, 2013 .

The Company reviews Intangible Assets for impairment at least annually, or whenever potential indicators of impairment exist.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9.	Other Assets

Other assets are summarized as follows:



(in millions)	March 31, 2014		September 30, 2013
Long-term receivables	$	34	$	32
Investments in equity affiliates	17		22
Exchange and rental assets (net of accumulated depreciation of $94 at March 31, 2014 and $91 at September 30, 2013)	58		55
Other	129		112
Other assets	$	238	$	221

Investments in Equity Affiliates

Investments in equity affiliates consist of seven joint ventures, which are accounted for under the equity method. 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 Condensed Consolidated Statement of Operations.

During the three months ended March 31, 2014, the Company established a new joint venture to develop and deliver products for the C919 Program. Rockwell Collins CETC Avionics Co., Ltd (RCCAC) is a 50 percent owned joint venture with CETC Avionics Co., Ltd (CETCA). The Company's share of earnings or losses of RCCAC is included in the operating results of the Commercial Systems segment.

As a result of the ARINC acquisition, the Company has a new joint venture, which is not significant. ADARI Aviation Technology Limited (ADARI) is a 50 percent owned joint venture with Aviation Data Communication Corporation Co, LTD. The Company's share of earnings or losses of ADARI is included in the operating results of the Information Management Services segment.

The Company's remaining joint ventures are also 50 percent owned. For segment performance reporting purposes, Rockwell Collins’ share of earnings or losses of Visual Systems International, LLC. (VSI), Data Link Solutions LLC (DLS), Integrated Guidance Systems LLC (IGS) and Quest Flight Training Limited are included in the operating results of the Government Systems segment, while the share of earnings or losses of AVIC Leihua Rockwell Collins Avionics Company (ALRAC) are included in the operating results of the Commercial Systems segment.

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 $38 million and $ 76 million for the three and six months ended March 31, 2014 , respectively, and $36 million and $ 69 million for the three and six months ended March 31, 2013 . The deferred portion of profit generated from sales to equity affiliates was $ 0 at March 31, 2014 and $ 1 million at September 30, 2013 .

Exchange and Rental Assets

Exchange and rental assets consist primarily of Company products that are either exchanged or rented to customers on a short-term basis in connection with warranty and other service related activities. These assets are recorded at acquisition or production cost and depreciated using the straight-line method over their estimated lives, up to 15 years. Depreciation methods and lives are reviewed periodically with any changes recorded on a prospective basis. Depreciation expense for exchange and rental assets was $3 million and $5 million for the three and six months ended March 31, 2014 , respectively, and $3 million and $5 million for the three and six months ended March 31, 2013 , respectively.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


10.	Debt

Short-term Debt

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



(in millions)	March 31, 2014		September 30, 2013
Short-term commercial paper borrowings	$	866	$	235
Current portion of long-term debt	—		200
Current portion of fair value swap adjustment (Notes 16 and 17)	—		1
Short-term debt	$	866	$	436

Commercial Paper Program

Under the Company’s commercial paper program, the Company may sell up to $1.2 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount, and have a maturity of not more than 364 days from the time of issuance. The commercial paper program is supported by the Company's five-year $ 1.0 billion revolving credit facility and a 364-day $200 million revolving credit facility. At March 31, 2014 , short-term commercial paper borrowings outstanding were $866 million with a weighted-average interest rate and maturity period of 0.34 percent and 37 days, respectively. At September 30, 2013 , short-term commercial paper borrowings outstanding were $235 million with a weighted-average interest rate and maturity period of 0.18 percent and 15 days, respectively.

Revolving Credit Facilities

On September 24, 2013, the Company entered into new credit agreements to ensure adequate commercial paper borrowing capacity in anticipation of the Company's pending ARINC acquisition and to meet other short-term cash requirements. The Company closed on these new revolving credit facilities on December 23, 2013, concurrent with the ARINC acquisition closing date. These new credit facilities consist of a five-year $1.0 billion credit facility that expires in December 2018 and a 364-day $200 million credit facility that expires in December 2014. These agreements replace the prior $850 million revolving credit facility that was terminated concurrently upon the closing of the new agreements. The credit facilities include one financial covenant requiring the Company to maintain a consolidated debt to total capitalization ratio of not greater than 60 percent . The ratio excludes the equity impact on accumulated other comprehensive loss related to defined benefit retirement plans. The ratio was 45 percent as of March 31, 2014 . The credit facilities also contain covenants that require the Company to satisfy certain conditions in order to incur debt secured by liens, engage in sale/leaseback transactions or merge or consolidate with another entity. Borrowings under these credit facilities bear interest at the London Interbank Offered Rate (LIBOR) plus a variable margin based on the Company’s unsecured long-term debt rating or, at the Company’s option, rates determined by competitive bid. At March 31, 2014 and September 30, 2013 , there were no outstanding borrowings under either revolving credit facility.

In addition, short-term credit facilities available to non-U.S. subsidiaries amounted to $59 million as of March 31, 2014 , of which $18 million was utilized to support commitments in the form of commercial letters of credit. At

March 31, 2014 and September 30, 2013 , there were no short-term borrowings outstanding under the Company’s non-U.S. subsidiaries’ credit facilities.

At March 31, 2014 and September 30, 2013 , there were no significant commitment fees or compensating balance requirements under any of the Company’s credit facilities.

Bridge Credit Agreement

On December 16, 2013, the Company terminated the $900 million 364-day senior unsecured bridge term loan credit agreement it had previously entered into on September 24, 2013. There were no outstanding borrowings under this agreement. The termination coincided with the receipt of net proceeds from the Company's long-term debt issuance on December 16, 2013. As a result of that long-term debt issuance, the Company no longer required the bridge credit agreement as a potential financing source for the ARINC acquisition.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Current Portion of Long-term Debt

On November 20, 2003, the Company issued $200 million of 4.75 percent fixed rate unsecured debt due

December 1, 2013 (the 2013 Notes). At the time of the debt issuance, the Company entered into interest rate swap contracts which effectively converted $100 million of the 2013 Notes to floating rate debt based on six-month LIBOR less 0.075 percent . See Notes 16 and 17 for additional information relating to the interest rate swap contracts. The 2013 Notes matured on December 1, 2013. The Company initially repaid the 2013 Notes using commercial paper borrowing proceeds, and then subsequently refinanced the amounts borrowed using a portion of the proceeds from the new long-term debt issued on December 16, 2013, which is discussed in further detail below.

New Long-term Debt Issuances

On December 16, 2013, the Company issued $300 million of floating rate unsecured debt due December 15, 2016 (the 2016 Notes). The 2016 Notes bear annual interest at a rate equal to three-month LIBOR plus 0.35 percent . As of March 31, 2014 the quarterly interest rate was 0.58 percent . The rate resets quarterly. The net proceeds to the Company from the 2016 Notes, after deducting $1 million of debt issuance costs, were $299 million .

On December 16, 2013, the Company issued $400 million of 3.70 percent fixed rate unsecured debt due December 15, 2023 (the 2023 Notes). The net proceeds to the Company from the 2023 Notes, after deducting a $1 million discount and $3 million of debt issuance costs were $396 million . In March 2014, the Company entered into interest rate swap contracts which effectively converted $200 million of the 2023 Notes to floating rate debt based on one-month LIBOR plus 0.94 percent . See Notes 16 and 17 for additional information relating to the interest rate swap contracts.

On December 16, 2013, the Company issued $400 million of 4.80 percent fixed rate unsecured debt due December 15, 2043 (the 2043 Notes). The net proceeds to the Company from the 2043 Notes, after deducting a $2 million discount and $4 million of debt issuance costs were $394 million .

The net proceeds after discounts and debt issuance costs from the December 16, 2013 debt issuance totaled $1,089 million . Approximately $900 million was used to finance the ARINC acquisition and approximately $200 million was used to refinance the 2013 Notes that matured on December 1, 2013. The remaining ARINC purchase price was funded using commercial paper proceeds.

Other Long-term Debt

On November 16, 2011, the Company issued $250 million of 3.10 percent fixed rate unsecured debt due November 15, 2021 (the 2021 Notes).

On May 6, 2009, the Company issued $300 million of 5.25 percent fixed rate unsecured debt due July 15, 2019 (the 2019 Notes). In January 2010, the Company entered into interest rate swap contracts which effectively converted $150 million of the 2019 Notes to floating rate debt based on six-month LIBOR plus 1.235 percent . See Notes 16 and 17 for additional information relating to the interest rate swap contracts.

The 2043, 2023, 2021, 2019 and 2016 Notes are included in the Condensed Consolidated Statement of Financial Position net of any unamortized discount within the caption Long-term Debt, Net. The debt issuance costs are capitalized within Other Assets on the Condensed Consolidated Statement of Financial Position. The debt issuance costs and any discounts are amortized over the life of the debt and recorded in Interest expense.

The 2043, 2023, 2021, 2019 and 2016 Notes each contain covenants that require the Company to satisfy certain conditions in order to incur debt secured by liens, engage in sales/leaseback transactions, merge or consolidate with another entity or transfer substantially all of the Company’s assets. The Company was in compliance with all debt covenants at March 31, 2014 and September 30, 2013 .

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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



(in millions)	March 31, 2014		September 30, 2013
Principal amount of 2043 Notes, net of discount	$	398	$	—
Principal amount of 2023 Notes, net of discount	399		—
Principal amount of 2021 Notes, net of discount	249		249
Principal amount of 2019 Notes, net of discount	299		299
Principal amount of 2016 Notes	300		—
Principal amount of 2013 Notes	—		200
Fair value swap adjustment (Notes 16 and 17)	13		16
Total	$	1,658	$	764
Less current portion	—		201
Long-term debt, net	$	1,658	$	563

Interest paid on debt for the six months ended March 31, 2014 and 2013 was $20 million and $13 million , respectively.


11.	Retirement Benefits

The Company sponsors defined benefit pension (Pension Benefits) and other postretirement (Other Retirement Benefits) plans which provide monthly pension and other benefits to eligible employees upon retirement. In connection with the acquisition of ARINC, the Company assumed pension and postretirement employment benefits obligations of $4 million and $8 million , respectively.

Pension Benefits

The components of expense for Pension Benefits for the three and six months ended March 31, 2014 and 2013 are as follows:



	Three Months Ended						Six Months Ended
	March 31						March 31
(in millions)	2014			2013			2014			2013
Service cost	$	3		$	3		$	5		$	5
Interest cost	43			34			83			69
Expected return on plan assets	(59		)	(50		)	(112		)	(101		)
Amortization:
Prior service credit	(3		)	(5		)	(6		)	(9		)
Net actuarial loss	17			20			34			40
Net benefit expense	$	1		$	2		$	4		$	4

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Retirement Benefits

The components of expense for Other Retirement Benefits for the three and six months ended March 31, 2014 and 2013 are as follows:



	Three Months Ended						Six Months Ended
	March 31						March 31
(in millions)	2014			2013			2014			2013
Service cost	$	2		$	1		$	2		$	2
Interest cost	2			2			4			4
Expected return on plan assets	—			(1		)	—			(1		)
Amortization:
Prior service credit	(3		)	(2		)	(5		)	(4		)
Net actuarial loss	2			3			4			6
Net benefit expense	$	3		$	3		$	5		$	7

ARINC Pension Plan

ARINC sponsors two primary pension sub-plans: one for union employees and one for non-union employees.

Effective April 1, 2006, ARINC froze the majority of its pension plans for employees not covered by bargaining unit agreements. As such, most of the non-union participants in the ARINC pension plans are no longer accruing contribution credits. The plans generally allow for employees who retire, or terminate, to elect to receive their pension benefits in a lump sum and certain existing participants in the plan continue to earn vesting rights and accrue interest on their account balance at rates established by the plan.

The ARINC pension plans were remeasured as of the acquisition date. ARINC's projected benefit obligation for pensions at December 23, 2013 was $274 million and was calculated using a discount rate of 4.89 percent . The fair value of ARINC's pension plan assets at December 23, 2013 were $270 million . Therefore, the funded status of the ARINC pension as of the December 23, 2013 acquisition date was a $4 million deficit. This net pension benefit obligation is included within Retirement benefits as a liability on the Company's Condensed Consolidated Statement of Financial Po sition at March 31, 2014. During the six months ended March 31, 2014, the Company recorded $2 million of income related to the ARINC pension plans, which is reflected in the table above.

Included in ARINC's pension plan assets at December 23, 2013 was real estate that ARINC contributed to its pension plan in 2004 under a Department of Labor approved transaction. The details of this transaction are further discussed in Note 3, Acquisitions. Refer also to Note 3 for additional discussion regarding the subsequent sale of the contributed real estate to an independent third party in March 2014. The net proceeds from the sale were $81 million a nd have been retained by the ARINC pension plan for future investment.

ARINC Other Retirement Benefits

ARINC also provides postretirement health coverage for many of their current and former employees and postretirement life insurance benefits for certain retirees. These benefits vary by employment status, age, service, and salary level at retirement.

The postretirement welfare plan was also remeasured as of the acquisition date. ARINC's postretirement plan obligation as of December 23, 2013 was $8 million and was calculated using a discount rate of 4.89 percent . There are no assets for this plan. The obligation is included within Retirement benefits as a liability on the Company's Condensed Consolidated Statement of Financial Position at March 31, 2014.

Pension Plan Funding

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. In October 2013, the Company voluntarily contributed $ 55 million to its U.S. qualified pension plan. There was no minimum statutory funding requirement for 2014 and the Company does not currently expect to make any additional discretionary contributions

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

during fiscal year 2014. Furthermore, we are not required to make, and do not intend to make, any contributions to the ARINC pension plans during 2014. Any additional future contributions necessary to satisfy minimum statutory funding requirements are dependent upon actual plan asset returns and interest rates. Contributions to the non-U.S. plans and the U.S. non-qualified plan are expected to total $14 million in 2014 . During the six months ended March 31, 2014 the Company made contributions to the non-U.S. plans and the U.S. non-qualified pension plan of $8 million .


12.	Stock-Based Compensation and Earnings Per Share

Stock-based compensation expense and related income tax benefit included within the Condensed Consolidated Statement of Operations is as follows:



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions)	2014		2013		2014		2013
Stock-based compensation expense included in:
Product cost of sales	$	2	$	2	$	4	$	4
Selling, general and administrative expenses	5		5		8		9
Total	$	7	$	7	$	12	$	13
Income tax benefit	$	2	$	2	$	4	$	4

The Company issued awards of equity instruments under the Company's various incentive plans for the six months ended March 31, 2014 and 2013 as follows:



	Options			Performance Shares			Restricted Stock Units
(shares in thousands)	Number Issued	Weighted Average Fair Value		Number Issued	Weighted Average Fair Value		Number Issued	Weighted Average Fair Value
Six months ended March 31, 2014	576.0	$	18.53	149.1	$	71.38	77.4	$	72.20
Six months ended March 31, 2013	875.8	12.45		200.1	54.40		82.9	55.56

The maximum number of shares of common stock that can be issued in respect of performance shares granted in 2014 based on the achievement of performance targets for fiscal years 2014 through 2016 is approximately 348,000 .

The fair value of each option granted by the Company was estimated using a binomial lattice pricing model and the following weighted average assumptions:



	2014 Grants		2013 Grants
Risk-free interest rate	0.3% - 3.0%		0.3% - 2.9%
Expected dividend yield	1.9	%	2.0	%
Expected volatility	28.0	%	27.0	%
Expected life	7 years		8 years

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee benefits Paid in Company Stock

During the six months ended March 31, 2014 and 2013 , 0.3 million and 0.5 million shares, respectively, of the Company common stock were issued to employees under the Company's employee stock purchase and defined contribution savings plans at a value of $24 million and $29 million for the respective periods.

Earnings Per Share and Diluted Share Equivalents

The computation of basic and diluted earnings per share is as follows:



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions, except per share amounts)	2014		2013		2014		2013
Numerator for basic and diluted earnings per share:
Income from continuing operations	$	147	$	161	$	278	$	293
Income from discontinued operations, net of taxes	1		—		1		—
Net income	$	148	$	161	$	279	$	293
Denominator:
Denominator for basic earnings per share – weighted average common shares	135.5		136.2		135.3		137.8
Effect of dilutive securities:
Stock options	1.3		1.2		1.2		1.1
Performance shares, restricted stock and restricted stock units	0.4		0.4		0.4		0.4
Dilutive potential common shares	1.7		1.6		1.6		1.5
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversion	137.2		137.8		136.9		139.3
Earnings per share:
Basic
Continuing operations	$	1.08	$	1.18	$	2.05	$	2.13
Discontinued operations	0.01		—		0.01		—
Basic earnings per share	$	1.09	$	1.18	$	2.06	$	2.13
Diluted
Continuing operations	$	1.07	$	1.17	$	2.03	$	2.10
Discontinued operations	0.01		—		0.01		—
Diluted earnings per share	$	1.08	$	1.17	$	2.04	$	2.10

The average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the period. Stock options excluded from the average outstanding diluted shares calculation were 0 and 0.3 million for the three months ended March 31, 2014 and 2013 , respectively, and 0 and 0.7 million for the six months ended March 31, 2014 and 2013 , respectively.

Earnings per share amounts are computed independently each quarter. As a result, the sum of each quarter's per share amount may not equal the total per share amount for the full year.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


13.	Other Comprehensive Loss

Changes in accumulated other comprehensive loss (AOCL), net of tax, by component for the six months ended March 31, 2014 are as follows:



	Foreign Exchange Translation Adjustment			Pension and Other Postretirement Adjustments ⁽¹⁾			Change in the Fair Value of Effective Cash Flow Hedges ⁽²⁾			Total
Balance at September 30, 2013	$	12		$	(1,293	)	$	(6	)	$	(1,287	)
Other comprehensive income before reclassifications	(1		)	—			2			1
Amounts reclassified from accumulated other comprehensive income	—			17			—			17
Net current period other comprehensive income	(1		)	17			2			18
Balance at March 31, 2014	$	11		$	(1,276	)	$	(4	)	$	(1,269	)

⁽¹⁾ Reclassifications from AOCL to net income, related to the amortization of net actuarial losses and prior service credits for the Company's retirement benefit plans, were $27 million ( $17 million net of tax), for the six months ended March 31, 2014. The reclassifications are included in the computation of net benefit expense. See Note 11, Retirement Benefits for additional details.

⁽²⁾ Reclassifications from AOCL to net income related to cash flow hedges were not significant for the six months ended March 31, 2014. The reclassifications are included in cost of sales and interest expense. See Note 17, Derivative Financial Instruments for additional details.


14.	Other Income, Net

Other income, net consists of the following:



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions)	2014		2013		2014		2013
Earnings from equity affiliates	$	1	$	4	$	4	$	9
Gain from business divestiture	—		—		10		—
Other	1		—		1		1
Other income, net	$	2	$	4	$	15	$	10


15.	Income Taxes

At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.

During the three months ended March 31, 2014 and 2013 , the effective income tax rate from continuing operations was 31.3 percent and 18.3 percent , respectively. The higher effective income tax rate from continuing operations for the three months ended March 31, 2014, was primarily due to the differences in availability of the Federal R&D Tax Credit, partially offset by a favorable adjustment recorded in the current period that related to the resolution of the IRS audit for taxable years ended September 30, 2010 and 2011.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

benefit that was recognized last year for net operating loss carryovers in the United Kingdom. These unfavorable impacts were partially offset by favorable adjustments in the current period due to the resolution of the IRS audit for taxable years ended September 30, 2010 and 2011 and the recognition of a tax benefit related to the Extraterritorial Income Exclusion.

The Company's U.S. Federal income tax returns for the tax year ended September 30, 2011 and prior years have been audited by the IRS and are closed to further adjustments by the IRS. ARINC is currently not under audit by the IRS for any open tax year and is cleared to further adjustments for all tax years ended December 31, 2009 and prior, with the exception of the research and development credits claimed for 2009. The Company and ARINC are also currently under audit in various U.S. states and non-U.S. jurisdictions. The U.S. state and non-U.S. jurisdictions have statutes of limitations generally ranging from 3 to 5 years. The Company believes it has adequately provided for any tax adjustments that may result from the various audits.

The Company had net income tax payments of $114 million and $45 million during the six months ended March 31 2014 and 2013 , respectively.

The Company has gross unrecognized tax benefits recorded within Other Liabilities in the Condensed Consolidated Statement of Financial Position of $43 million and $56 million as of March 31, 2014 and September 30, 2013 , respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate were $21 million and $34 million as of March 31, 2014 and September 30, 2013 , respectively. Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur in the range of $0 to $2 million based on the outcome of tax examinations or as a result of the expiration of various statutes of limitations.

The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of interest and penalties recognized within Other Liabilities in the Condensed Consolidated Statement of Financial Position was $4 million and $2 million as of March 31, 2014 and September 30, 2013 , respectively. The total amount of interest and penalties recorded as an expense or (income) within Income tax expense in the Condensed Consolidated Statement of Operations was $0 and $0 for the six months ended March 31, 2014 and 2013 , respectively.


16.	Fair Value Measurements

The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The FASB’s guidance classifies the inputs used to measure fair value into the following hierarchy:


Level 1 -	quoted prices (unadjusted) in active markets for identical assets or liabilities


Level 2 -	quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument


Level 3 -	unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and September 30, 2013 are as follows:



		March 31, 2014			September 30, 2013
(in millions)	Fair Value Hierarchy	Fair Value Asset (Liability)			Fair Value Asset (Liability)
Deferred compensation plan investments	Level 1	$	49		$	49
Interest rate swap assets	Level 2	13			16
Forward starting interest rate swap liabilities	Level 2	—			(5		)
Foreign currency forward exchange contract assets	Level 2	4			6
Foreign currency forward exchange contract liabilities	Level 2	(6		)	(6		)

There were no nonfinancial assets or nonfinancial liabilities recognized at fair value on a nonrecurring basis and there were no transfers between levels of the fair value hierarchy during the six months ended March 31, 2014 or 2013 .

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



	Asset (Liability)
	March 31, 2014						September 30, 2013
(in millions)	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	410		$	410		$	391		$	391
Short-term debt:
2013 Notes	—			—			(200		)	(201		)
Commercial paper borrowings	(866		)	(866		)	(235		)	(235		)
Long-term debt	(1,645		)	(1,725		)	(548		)	(586		)

The fair value of cash and cash equivalents and the commercial paper portion of the short-term debt approximates their carrying value due to the short-term nature of the instruments. These items are within Level 1 of the fair value hierarchy. Fair value information for the 2013 Notes, which were classified as short-term debt at September 30, 2013, and fair value information for all long-term debt is within Level 2 of the fair value hierarchy. The fair value of these financial instruments were based on current market interest rates and estimates of current market conditions for instruments with similar terms, maturities and degree of risk. The carrying amount and fair value of short-term and long-term debt excludes the interest rate swaps fair value adjustment. These fair value estimates do not necessarily reflect the amounts the Company would realize in a current market exchange.


17.	Derivative Financial Instruments

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. In March 2014, the Company entered into three interest rate swap contracts (the 2023 Swaps) which expire on December 15, 2023 and effectively converted $200 million of the 2023 Notes to floating rate debt based on one-month LIBOR plus 0.94 percent .

In January 2010, the Company entered into two interest rate swap contracts (the 2019 Swaps) which expire on July 15, 2019 and effectively converted $150 million of the 2019 Notes to floating rate debt based on six-month LIBOR plus 1.235 percent .

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On November 20, 2003, the Company entered into two interest rate swap contracts (the 2013 Swaps) which expired on December 1, 2013 and effectively converted $100 million of the 2013 Notes to floating rate debt based on six-month LIBOR less 0.075 percent .

The Company designated the 2013, 2019 and 2023 Swaps (the Swaps) as fair value hedges. The 2013 Swaps matured on December 1, 2013, and accordingly have no fair value at March 31, 2014 . At September 30, 2013 , the 2013 Swaps were recorded within Other current assets at a fair value of $1 million offset by a fair value adjustment to Short-term debt (Note 10) of $1 million . The 2019 and 2023 Swaps are recorded within Other Assets at a fair value of $13 million , offset by a fair value adjustment to Long-term Debt (Note 10) of $13 million at March 31, 2014 . At September 30, 2013 , the 2019 Swaps were recorded within Other Assets at a fair value of $15 million , offset by a fair value adjustment to Long-term Debt (Note 10) of $15 million . Cash payments or receipts between the Company and the counterparties to the Swaps are recorded as an adjustment to interest expense.

Forward Starting Interest Rate Swaps

In September 2013, the Company entered into forward starting interest rate swap agreements with combined notional values of $200 million to effectively lock in fixed interest rates on a portion of the long-term debt it incurred in December 2013 to refinance maturing debt and to fund the acquisition of ARINC. In October 2013, the Company entered into an additional $300 million notional value of forward starting interest rate swap agreements. These forward starting interest rate swaps were designated as cash flow hedges and were executed to hedge against the risk of potentially higher benchmark U.S. Treasury bond yields on long-term debt with maturities ranging from 2023 to 2043 and fixed interest rates ranging between 2.8150% and 3.8775% . The forward starting interest rate swaps were terminated in December 2013 concurrent with the Company's debt issuance. Upon termination, the forward starting swaps were valued at a net loss of $2 million . This net loss has been deferred within Accumulated other comprehensive losses on the Condensed Consolidated Statement of Financial Position and will be amortized into interest expense over the life of the corresponding debt.

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 transactions. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. As of March 31, 2014 and September 30, 2013 , the Company had outstanding foreign currency forward exchange contracts with notional amounts of $295 million and $482 million , respectively. These notional values consist primarily of contracts for the European euro, British pound sterling and Japanese yen, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. The acquisition of ARINC had no significant impact on the Company's foreign currency forward exchange contracts.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value of Derivative Instruments

Fair values of derivative instruments in the Condensed Consolidated Statement of Financial Position as of March 31, 2014 and September 30, 2013 are as follows:



		Asset Derivatives
(in millions)	Classification	March 31, 2014		September 30, 2013
Foreign currency forward exchange contracts	Other current assets	$	4	$	6
Interest rate swaps	Other assets	13		15
Interest rate swaps	Other current assets	—		1
Total		$	17	$	22



		Liability Derivatives
(in millions)	Classification	March 31, 2014		September 30, 2013
Foreign currency forward exchange contracts	Other current liabilities	$	6	$	6
Forward starting interest rate swaps	Other current liabilities	—		5
Total		$	6	$	11

The fair values of derivative instruments are presented on a gross basis as the Company does not have any derivative contracts which are subject to master netting arrangements. As of March 31, 2014 and September 30, 2013 , there were no undesignated foreign currency forward exchange contracts classified within other current assets or other current liabilities.

The effect of derivative instruments on the Condensed Consolidated Statement of Operations for the three and six months ended March 31 is as follows:



		Amount of Gain (Loss)				Amount of Gain (Loss)
		Three Months Ended				Six Months Ended
		March 31				March 31
(in millions)	Location of Gain (Loss)	2014		2013		2014			2013
Derivatives Designated as Hedging Instruments:
Fair Value Hedges
Interest rate swaps	Interest expense	$	2	$	3	$	4		$	5
Cash Flow Hedges
Foreign currency forward exchange contracts:
Amount of gain (loss) recognized in AOCL (effective portion, before deferred tax impact)	AOCL	$	2	$	—	$	(1	)	$	(2	)
Amount of gain reclassified from AOCL into income	Cost of sales	1		—		—			—
Forward starting interest rate swaps:
Amount of gain recognized in AOCL (effective portion, before deferred tax impact)	AOCL	$	—	$	—	$	3		$	—

There was no significant impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the six months ended March 31, 2014 . In addition, there was no significant impact to the

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company’s earnings when a hedged firm commitment no longer qualified as a fair value hedge or when a hedged forecasted transaction no longer qualified as a cash flow hedge during the three and six months ended March 31, 2014 .

The Company did not have any hedges with credit-risk-related contingent features or that required the posting of collateral as of March 31, 2014 . The cash flows from derivative contracts are recorded in operating activities in the Condensed Consolidated Statement of Cash Flows.

Cash flow hedges are designated as fair value hedges once the underlying transaction is recorded on the balance sheet, or approximately 60 days from the maturity date of the hedge. The Company expects to reclassify approximately $ 0 of losses over the next 12 months. The maximum duration of a foreign currency cash flow hedge contract at March 31, 2014 was 76 months.


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.

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



	Six Months Ended
	March 31
(in millions)	2014			2013
Balance at beginning of year	$	121		$	126
Warranty costs incurred	(23		)	(24		)
Product warranty accrual	25			21
Changes in estimates for prior years	(9		)	(2		)
Balance at March 31, 2014	$	114		$	121

Guarantees

The Company provides a parent company guarantee related to various obligations of its 50 percent owned joint venture, Quest Flight Training Limited (Quest). The Company has guaranteed, jointly and severally with Quadrant Group plc (Quadrant), the joint venture partner, the performance of Quest in relation to its contract with the United Kingdom Ministry of Defence (which expires in 2030) and the performance of certain Quest subcontractors (up to $2 million ). In addition, the Company has also pledged equity shares in Quest to guarantee payment by Quest of a loan agreement executed by Quest. In the event of default on this loan agreement, the lending institution can request that the trustee holding such equity shares surrender them to the lending institution in order to satisfy all amounts then outstanding under the loan agreement. As of March 31, 2014 , the outstanding loan balance was approximately $ 4 million . Quadrant has made an identical pledge to guarantee this obligation of Quest.

Should Quest fail to meet its obligations under these agreements, these guarantees may become a liability of the Company. As of March 31, 2014 , the Quest guarantees are not reflected on the Company’s Condensed Consolidated Statement of Financial Position because the Company believes that Quest will meet all of its performance and financial obligations in relation to its contract with the United Kingdom Ministry of Defence and the loan agreement.

Letters of credit

The Company has contingent commitments in the form of 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 March 31, 2014 were $ 293 million . These commitments are not reflected as liabilities on the Company’s Condensed Consolidated Statement of Financial Position.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Indemnifications

The Company enters into indemnifications with lenders, counterparties in transactions such as administration of employee benefit plans, for the benefit of customers for the work of subcontractors 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 various liabilities of a business that 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.	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. As of March 31, 2014 , the Company is involved in the investigation or remediation of ten sites under these regulations or pursuant to lawsuits asserted by third parties. Management estimates that the total reasonably possible future costs the Company could incur for nine of these sites is not significant. Management estimates that the total reasonably possible future costs the Company could incur from one of these sites to be approximately $ 12 million . Environmental reserves for this site were $ 6 million and $6 million as of March 31, 2014 and September 30, 2013 , respectively, which represents management’s best estimate of the probable future cost for this site.

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 effect on the Company’s business or financial position.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


20.	Legal Matters

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, antitrust, intellectual property, safety and health, exporting and importing, contract, employment and regulatory matters. Although the outcome of these matters cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes there are no material pending legal proceedings.


21.	Restructuring and Asset Impairment Charges, Net

During the year ended September 30, 2012, the Company recorded restructuring and asset impairment charges, net totaling $58 million . Included in this charge was $35 million related to employee severance costs, primarily resulting from decisions to realign the Company's European organizational structure to better position the business for long-term growth and to adjust the size of the workforce in anticipation of the sequestration impacts on the U.S. defense budgets. Through March 31, 2014 , the Company has made cash severance payments of approximately $26 million . As of March 31, 2014 , $9 million of employee separation costs related to the 2012 action remains to be paid in future periods.


22.	Business Segment Information

The sales and results of continuing operations of the Company's operating segments are summarized as follows:



	Three Months Ended						Six Months Ended
	March 31						March 31
(in millions)	2014			2013			2014			2013
Sales:
Government Systems	$	567		$	578		$	1,099		$	1,124
Commercial Systems	556			542			1,077			1,048
Information Management Services	149			11			167			21
Total sales	$	1,272		$	1,131		$	2,343		$	2,193

Segment operating earnings:
Government Systems	$	109		$	112		$	210		$	219
Commercial Systems	127			116			238			221
Information Management Services	18			1			20			2
Total segment operating earnings	254			229			468			442

Interest expense ⁽¹⁾	(16		)	(8		)	(28		)	(14		)
Stock-based compensation	(7		)	(7		)	(12		)	(13		)
General corporate, net	(16		)	(17		)	(31		)	(30		)
Gain on divestiture of business	—			—			10			—
ARINC transaction costs ⁽¹⁾	(1		)	—			(13		)	—
Income from continuing operations before income taxes	214			197			394			385
Income tax expense	(67		)	(36		)	(116		)	(92		)
Income from continuing operations	$	147		$	161		$	278		$	293

(1) During the six months ended March 31, 2014 , the Company incurred $3 million of bridge facility fees related to the acquisition of ARINC. These costs are included in Interest expense; therefore total transaction costs related to the acquisition of ARINC during the period were $16 million . At March 31, 2014 , $3 million of transaction costs were unpaid and included in Accounts payable on the Condensed Consolidated Statement of Financial Position.

ROCKWELL COLLINS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Beginning in the first quarter of 2014, the Company created a new Information Management Services segment. This segment combines the retained portion of the newly acquired ARINC business with the Company's existing flight services business, which had previously been included in the Commercial Systems segment. Prior period results of the Commercial Systems and Information Management Services segments have been revised to conform to the current year presentation.

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, stock-based compensation, unallocated general corporate expenses, interest expense, gains and losses from the disposition of businesses, restructuring and 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 following table summarizes sales by product category for the three and six months ended March 31, 2014 and 2013 :



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions)	2014		2013		2014		2013
Government Systems product categories:
Avionics	$	333	$	324	$	650	$	639
Communication products	132		152		250		285
Surface solutions	56		57		114		107
Navigation products	46		45		85		93
Government Systems sales	567		578		1,099		1,124

Commercial Systems product categories:
Air transport aviation electronics	313		288		617		567
Business and regional aviation electronics	243		254		460		481
Commercial Systems sales	556		542		1,077		1,048

Information Management Services sales	149		11		167		21

Total sales	$	1,272	$	1,131	$	2,343	$	2,193

Product category sales for Government Systems are delineated based upon differences in the underlying product technologies and markets served.

The air transport and business and regional aviation electronics product categories in Commercial Systems are delineated based on the difference in underlying customer base, size of aircraft and markets served. For the three and six months ended March 31, 2014 , product category sales for air transport aviation electronics include revenue from wide-body in-flight entertainment products and services of $18 million and $37 million , respectively, compared to $18 million and $45 million for the three and six months ended March 31, 2013 .


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



OVERVIEW AND OUTLOOK

We have a diversified and balanced business, serving both commercial and government markets. On December 23, 2013, we completed our acquisition of ARINC Incorporated (ARINC) for approximately $1.4 billion. The acquisition of ARINC was funded through a combination of new long-term debt issuances and commercial paper borrowings. In connection with this acquisition, a new Information Management Services business segment was formed. This new segment combines ARINC with the Company's flight services business, which had previously been included in the Commercial Systems segment. The integration of the ARINC business is well underway and is progressing as planned. The acquisition of ARINC is expected to expand our position as a leading provider of information management services.

Total revenues increased 7 percent during the first six months of 2014 as inorganic sales from the ARINC acquisition and higher revenues in Commercial Systems were partially offset by a 2 percent reduction within the Government Systems business. During the first half of our fiscal year, we maintained total segment operating margins at 20 percent of sales. During this same period, diluted earnings per share from continuing operations decreased 3 percent to $2.03, driven by higher income taxes resulting from differences in availability of the Federal Research and Development Tax Credit, which expired on December 31, 2013.

In December 2013, Congress passed and the President signed into law the Murray-Ryan Bipartisan Budget Act (BBA) of 2013, raising government discretionary spending limits for fiscal years 2014 and 2015. The overall impact of the BBA on our current year results is expected to be favorable and was previously incorporated into our sales estimates for Government Systems. More recently, the President released the fiscal year 2015 Department of Defense Budget, which reflects top-line growth in government spending for fiscal year 2016 and beyond. While the President's budget is higher than sequestration and provides some visibility into future year program spending, uncertainty surrounding defense spending could have a material adverse effect on our Company and the defense industry in general. We remain confident that our product offerings are well positioned to meet the needs of our government customers in this uncertain environment and we continue to enhance our international strategies and make proactive adjustments to our cost structure as necessary.

Our Commercial Systems business continues to benefit from strong market conditions in air transport with original equipment manufacturers (OEMs) increasing their production rates and building robust order backlogs as new aircraft enter into service. Production rates at the light end of the business jet market continue to be depressed. The market share gains we have achieved over the past several years, however, are expected to position us for growth as the market recovers.

The following table is a complete summary of our fiscal year 2014 guidance, which has been updated from amounts previously provided on January 21, 2014:


•	total sales in the range of $4.95 billion to $5.05 billion


•	diluted earnings per share from continuing operations in the range of $4.40 to $4.55 (from $4.35 to $4.55) ⁽¹⁾


•	cash provided by operating activities in the range of $600 million to $700 million


•	capital expenditures of about $160 million


•	total research and development investment of about $950 million ⁽²⁾

⁽¹⁾ Earnings per share guidance was updated to reflect lower than previously estimated intangible asset amortization expense for ARINC.

⁽²⁾ Total research and development (R&D) investment is comprised of company and customer-funded R&D expenditures and the net increase in pre-production engineering costs capitalized within Inventory.

RESULTS OF OPERATIONS

The following management discussion and analysis is based on reported financial results for the three and six months ended March 31, 2014 and 2013 and should be read in conjunction with our condensed consolidated financial statements and notes thereto in Item 1 of Part I of this quarterly report.

As discussed in Note 4 of the Notes to Condensed Consolidated Financial Statements, we intend to divest ARINC's Aerospace Systems Engineering and Support division and therefore, this business has been accounted for as a discontinued operation for all periods presented. Unless otherwise noted, disclosures pertain to our continuing operations.

Three Months Ended March 31, 2014 and 2013

Sales



	Three Months Ended
	March 31
(in millions)	2014			2013
Total sales	$	1,272		$	1,131
Percent increase	12		%

Total sales increased $141 million , or 12 percent . ARINC, which was acquired on December 23, 2013, contributed $137 million of the overall revenue growth. Non-acquisition organic revenues increased $4 million from the prior year, driven by a combined $15 million increase within the Commercial Systems and Information Management Services businesses, partially offset by an $11 million reduction in Government Systems sales. Refer to the Government Systems, Commercial Systems, and Information Management Services Financial Results sections below for a detailed discussion of sales in the second fiscal quarter of 2014 compared to the same period last year.

Cost of Sales



	Three Months Ended
	March 31
(in millions)	2014			2013
Total cost of sales	$	894		$	804
Percent of total sales	70.3		%	71.1		%

Cost of sales consists of all costs incurred to design, manufacture and deliver our products and services and includes R&D, raw material, labor, facility, product warranty, depreciation, amortization and other related expenses.

Total cost of sales increased $90 million , or 11 percent , primarily due to the following:


•	$102 million of inorganic cost of sales from the ARINC acquisition


•	partially offset by $12 million of other net decreases to cost of sales, including lower employee incentive compensation costs, a reduction in company-funded R&D expense within Commercial Systems, and benefits from cost savings initiatives

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



	Three Months Ended
	March 31
(in millions)	2014			2013
Customer-funded:
Government Systems	$	92		$	101
Commercial Systems	27			25
Total customer-funded	119			126
Company-funded:
Government Systems	19			19
Commercial Systems	48			52
Total company-funded	67			71
Total research and development expense ⁽¹⁾	$	186		$	197
Percent of total sales	14.6		%	17.4		%

⁽¹⁾ The Company is currently evaluating ARINC’s research and development expenditures in connection with our ongoing integration and purchase price accounting activities. As a result, Research and Development expenses related to the newly formed Information Management Services segment have been excluded from the table above.

We make significant investments in research and development to provide our customers with the latest technological advancements. Total R&D expense is comprised of both company-funded and customer-funded R&D expenditures. In addition to the R&D expenditures shown in the table above, we capitalize in inventory the cost of certain pre-production engineering effort incurred during the development phase of programs when the customer has provided us a long-term supply arrangement and a contractual guarantee for reimbursement. Pre-production engineering costs are then amortized over their useful lives. This amortization cost is included within customer-funded R&D expense and totaled $8 million and $7 million for the three months ended March 31, 2014 and 2013 , respectively. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further discussion of our incremental investments in pre-production engineering effort.

Customer-funded R&D expenditures are incurred pursuant to contractual arrangements and are typically accounted for as contract costs within cost of sales with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method of accounting.

Company-funded R&D expenditures relate to the development of new products and the improvement of existing products and are expensed as incurred. Company-funded R&D expense consists primarily of payroll-related expenses of employees engaged in R&D activities, engineering-related product materials and equipment and subcontracting costs.

Total R&D expense for the three months ended March 31, 2014 decreased $11 million from the same period last year. The customer-funded portion of R&D expense decreased $7 million as a number of programs in Government Systems that were in development have completed or are now transitioning to production. The $4 million decrease in company-funded R&D was principally within Commercial Systems and was driven by a reduction in R&D efforts associated with various next generation business jet avionics development programs.

In addition to the R&D expenses above, our investments in pre-production engineering programs capitalized within inventory had a net increase of $46 million during the three months ended March 31, 2014, primarily driven by effort on the Boeing 737 MAX platform and Bombardier CSeries and Global 7000/8000 programs. For the three months ended March 31, 2013, our investments in pre-production engineering had a net increase of $40 million. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further discussion of our incremental investments in pre-production engineering effort.

Selling, General and Administrative Expenses



	Three Months Ended
	March 31
(in millions)	2014			2013
Selling, general and administrative expenses	$	150		$	126
Percent of total sales	11.8		%	11.1		%

Selling, general and administrative (SG&A) expenses consist primarily of labor, facility and other expenses related to employees not directly engaged in manufacturing or R&D activities. These activities include marketing and business development, finance, legal, information technology and other administrative and management functions.

Total SG&A expenses for the three months ended March 31, 2014 increased $24 million , driven primarily by $19 million of SG&A from the recently acquired ARINC business.

Interest Expense



	Three Months Ended
	March 31
(in millions)	2014			2013
Interest Expense	$	16		$	8
Percent increase	100		%

Interest expense for the three months ended March 31, 2014 increased by $8 million from the same period last year, primarily driven by incremental interest on the long-term debt and commercial paper we issued to fund the ARINC acquisition.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements for more detail regarding outstanding debt.

Net Income and Diluted Earnings Per Share



	Three Months Ended
	March 31
(in millions, except per share amounts)	2014			2013
Income from continuing operations, net of taxes	$	147		$	161
Percent of sales	11.6		%	14.2		%

Income from discontinued operations, net of taxes	1			—
Net income	$	148		$	161
Percent of sales	11.6		%	14.2		%

Diluted earnings per share from continuing operations	$	1.07		$	1.17
Diluted earnings per share from discontinued operations	0.01			—
Diluted earnings per share	$	1.08		$	1.17

Income from continuing operations, net of taxes for the three months ended March 31, 2014 was $147 million , a $14 million decrease from the $161 million reported for the three months ended March 31, 2013 . Diluted earnings per share from continuing operations decreased 9 percent , or $0.10 , during the three months ended March 31, 2014 .

Income from continuing operations, net of taxes and earnings per share for the second quarter of fiscal year 2014 benefited from higher operating earnings in Commercial Systems, driven by higher sales to air transport customers, and the additional earnings from our recently completed ARINC acquisition in our newly formed Information Management Services segment.

These benefits, however, were more than offset by higher income taxes, higher interest expense, and lower operating earnings within Government Systems that resulted from their decreased sales volume. The higher income tax expense was primarily attributable to the absence of a $31 million income tax benefit that was included in the prior year results related to the retroactive reinstatement of the Federal Research and Development Tax Credit, which once again expired on December 31, 2013.

Government Systems Financial Results

Government Systems Sales

The following table presents Government Systems sales by product category:



	Three Months Ended
	March 31
(in millions)	2014			2013
Avionics	$	333		$	324
Communication products	132			152
Surface solutions	56			57
Navigation products	46			45
Total	$	567		$	578
Percent (decrease)	(2		)%

Avionics sales increased $9 million , or 3 percent , primarily due to the following:


•	a $19 million increase from the combined impact of higher hardware deliveries and installations on the E-6B aircraft upgrade program and other international aircraft platforms


•	partially offset by $10 million in other net decreases to revenue, including lower development revenues on the KC-46 and KC-10 programs

Communication products sales decreased $20 million , or 13 percent , primarily driven by a $16 million reduction in satellite communication sales as fewer terminals were delivered and service revenues declined as troop deployments wind down in the Middle East.

Government Systems Segment Operating Earnings



	Three Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	109		$	112
Percent of sales	19.2		%	19.4		%

The $3 million decrease in Government Systems operating earnings was primarily caused by the $11 million reduction in sales volume discussed in the Government Systems sales section above.

The decrease in Government Systems operating earnings as a percent of sales was primarily driven by the unfavorable margin impact from the lower sales volume.

Commercial Systems Financial Results

Commercial Systems Sales

The following table presents Commercial Systems sales by product category and type of product or service:



	Three Months Ended
	March 31
(in millions)	2014			2013
Air transport aviation electronics:
Original equipment	$	171		$	154
Aftermarket	124			116
Wide-body in-flight entertainment	18			18
Total air transport aviation electronics	313			288
Business and regional aviation electronics:
Original equipment	146			158
Aftermarket	97			96
Total business and regional aviation electronics	243			254
Total	$	556		$	542
Percent increase	3		%

In connection with the acquisition of ARINC, a new Information Management Services business segment was formed that combines ARINC with the Company's existing flight services business, which had previously been included in the Commercial Systems segment. Prior period sales and earnings for the Commercial Systems segment have been revised to exclude results of the flight services business.

Total air transport aviation electronics sales increased $25 million , or 9 percent , primarily due to the following:


•	OEM sales increased $17 million , or 11 percent primarily due to increased product deliveries from higher aircraft production rates for the Boeing 787 aircraft


•	aftermarket sales increased $8 million , or 7 percent , driven primarily by higher regulatory airspace mandates and increased service and support activities

Total business and regional aviation electronics sales decreased $11 million , or 4 percent , primarily due to the following:


•	OEM sales decreased $12 million, or 8 percent, driven by a reduction in sales at the light-end of the business jet market


•	aftermarket sales increased $1 million, or 1 percent, as a result of higher service and support activities

Commercial Systems Segment Operating Earnings



	Three Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	127		$	116
Percent of sales	22.8		%	21.4		%

Commercial Systems operating earnings increased $11 million , or 9 percent , primarily due to incremental earnings from the higher sales volume and a $7 million benefit from the combined impact of lower company-funded R&D expense and savings realized from cost reduction initiatives.

The increase in Commercial Systems operating earnings as a percent of sales was primarily due to the benefits from lower company-funded R&D expense and cost savings initiatives.

Information Management Services Financial Results

Information Management Services Sales

On December 23, 2013, we acquired ARINC. In connection with this acquisition, a new Information Management Services business segment was formed. This new segment combines ARINC with our existing flight services business. Sales and earnings of the existing flight services business were previously included in the Commercial Systems segment. This business has been reclassified into the Information Management Services segment and prior period results of Commercial Systems have been restated. Prior period results of the Information Management Services segment do not include any sales or earnings from the ARINC acquisition, but do include a full three months of sales and earnings from the reclassified flight services business. Sales and earnings for the three months ended March 31, 2014 include a full three months of activity from the flight services business and the ARINC acquisition.

Our Information Management Services business enables mission-critical data and voice communications throughout the world to customers including the U.S. Federal Aviation Administration (FAA), commercial airlines, business aircraft operators, airport and critical infrastructure operators and major passenger and freight railroads. These communications are enabled by ARINC's high-performance, high-quality and high-assurance proprietary radio and terrestrial networks, enhancing customer efficiency, safety and connectivity.

Our information management services include:


•	voice and data communication services, such as GLOBALink voice and data services, which enable satellite, VHF and HF transmissions between the cockpit, the FAA and airline operation centers ensuring safety and efficiency for commercial airlines. These communications are enabled through ARINC's legacy ACARS® analog system and through the FAA's next generation VDLM2 digital technology


•	pre-flight and in-flight planning services and communications, such as ARINC Direct and ASCEND®, which provide business aircraft operators with cockpit and cabin voice and data communication capabilities, around the clock flight planning and support, flight tracking, weather information and ground services


•	airport communications and information systems designed to ease congestion and improve airport efficiency via airline agent and passenger-facing check-in, baggage, boarding and access control solutions


•	train dispatching and information systems including solutions to support positive train control as mandated by the 2008 Railroad Safety Improvement Act


•	mission critical security systems including intrusion detection, access control, video and credential management and vehicle identification for nuclear power plants and defense-related facilities

The following table presents Information Management Services sales:



	Three Months Ended
	March 31
(in millions)	2014		2013
Sales	$	149	$	11

Total Information Management Services sales increased $138 million , primarily due to the acquisition of ARINC, which contributed $137 million of revenue to the second quarter of fiscal year 2014.

Note 3 of the Notes to Condensed Consolidated Financial Statements presents supplemental pro-forma financial data as if the acquisition of ARINC had been completed as of the beginning of our prior year, or on October 1, 2012. The pro-forma data included in Note 3 combines the Company's consolidated results with the stand-alone results of ARINC for the pre-acquisition periods. The pro-forma data excludes the results of ASES, which we intend to divest. The supplemental pro-forma data is not necessarily indicative of results that actually would have occurred had the acquisition truly been consummated on October 1, 2012. On a pro-forma basis, sales for the newly formed Information Management Services segment would be $149 million and $132 million for the three months ended March 31, 2014 and 2013, respectively. The $17 million, or 13 percent, increase in the pro-forma sales was primarily due to growth in the flight planning and voice and data communication services provided by ARINC's commercial and business aviation divisions. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further pro-forma disclosures.

Information Management Services Segment Operating Earnings



	Three Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	18		$	1
Percent of sales	12.1		%	9.1		%

Information Management Services operating earnings increased $17 million, primarily due to the acquisition of ARINC.

Operating earnings includes depreciation and amortization expense of $12 million and $1 million for the three months ended March 31, 2014 and 2013, respectively.

General Corporate, Net

General corporate expenses that are not allocated to our business segments are included in General corporate, net. These costs are included within Cost of sales, SG&A and Other Income, net on the Condensed Consolidated Statement of Operations. General corporate, net is summarized as follows:



	Three Months Ended
	March 31
(in millions)	2014		2013
General corporate, net	$	16	$	17

Six Months Ended March 31, 2014 and 2013

Sales



	Six Months Ended
	March 31
(in millions)	2014			2013
Total sales	$	2,343		$	2,193
Percent increase	7		%

Total sales increased $150 million , or 7 percent . ARINC, which was acquired on December 23, 2013, contributed $143 million, or 7 percent, to the overall revenue growth. Non-acquisition organic revenues increased $7 million from the prior year, driven by a combined $32 million increase within the Commercial Systems and Information Management Services businesses, partially offset by a $25 million reduction in Government Systems sales. Refer to the Government Systems, Commercial Systems, and Information Management Services Financial Results sections below for a detailed discussion of sales.

Cost of Sales



	Six Months Ended
	March 31
(in millions)	2014			2013
Total cost of sales	$	1,650		$	1,554
Percent of total sales	70.4		%	70.9		%

Total cost of sales increased $96 million , or 6 percent , primarily due to the following:


•	$106 million of inorganic cost of sales from the ARINC acquisition


•	partially offset by a $10 million reduction in company-funded R&D expense, as explained below

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



	Six Months Ended
	March 31
(in millions)	2014			2013
Customer-funded:
Government Systems	$	181		$	199
Commercial Systems	49			47
Total customer-funded	230			246
Company-funded:
Government Systems	35			36
Commercial Systems	97			106
Total company-funded	132			142
Total research and development expense ⁽¹⁾	$	362		$	388
Percent of total sales	15.5		%	17.7		%

We make significant investments in research and development to provide our customers with the latest technological advancements. Total R&D expense is comprised of both company-funded and customer-funded R&D expenditures. In addition to the R&D expenditures shown in the table above, we capitalize in inventory the cost of certain pre-production engineering effort incurred during the development phase of programs when the customer has provided us a long-term supply arrangement and a contractual guarantee for reimbursement. Pre-production engineering costs are then amortized over their useful lives. This amortization cost is included within customer-funded R&D expense and totaled $14 million and $12 million for the six months ended March 31, 2014 and 2013 , respectively. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further discussion of our incremental investments in pre-production engineering effort.

Total R&D expense for the six months ended March 31, 2014 decreased $26 million from the same period last year. The customer-funded portion of R&D expense decreased $16 million as a number of programs that were in development have completed or are now transitioning to production in Government Systems. The $10 million decrease in company-funded R&D was principally within Commercial Systems and was driven by a reduction in R&D efforts associated with various next generation business jet avionics development programs.

In addition to the R&D expenses above, our investments in pre-production engineering programs capitalized within inventory had a net increase of $89 million during the six months ended March 31, 2014, primarily driven by effort on the Boeing 737 MAX platform and Bombardier CSeries and Global 7000/8000 programs. For the six months ended March 31, 2013, our investments in pre-production engineering had a net increase of $76 million. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further discussion of our incremental investments in pre-production engineering effort.

Selling, General and Administrative Expenses



	Six Months Ended
	March 31
(in millions)	2014			2013
Selling, general and administrative expenses	$	286		$	250
Percent of total sales	12.2		%	11.4		%

Total SG&A expenses for the six months ended March 31, 2014 increased $36 million , primarily due to:


•	$20 million of SG&A costs from the recently acquired ARINC business


•	$13 million of transaction costs for legal, accounting and advisory fees resulting from the ARINC acquisition


•	$3 million of other net increases, including higher bid and proposal activities

Interest Expense



	Six Months Ended
	March 31
(in millions)	2014			2013
Interest Expense	$	28		$	14
Percent increase	100		%

Interest expense increased by $14 million during the six months ended March 31, 2014 compared to the same period in 2013, primarily due to incremental interest on the new long-term debt and commercial paper we issued to fund the ARINC acquisition.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements for more detail regarding outstanding debt.

Net Income and Diluted Earnings Per Share



	Six Months Ended
	March 31
(in millions, except per share amounts)	2014			2013
Income from continuing operations, net of taxes	$	278		$	293
Percent of sales	11.9		%	13.4		%

Income from discontinued operations, net of taxes	1			—
Net income	$	279		$	293
Percent of sales	11.9		%	13.4		%

Diluted earnings per share from continuing operations	$	2.03		$	2.10
Diluted earnings per share from discontinued operations	0.01			—
Diluted earnings per share	$	2.04		$	2.10

Income from continuing operations, net of taxes for the six months ended March 31, 2014 was $ 278 million , down 5 percent, or $15 million, from the $ 293 million in income from continuing operations, net of taxes reported for March 31, 2013 . Diluted earnings per share from continuing operations decreased 3 percent to $2.03 for the six months ended March 31, 2014 compared to $2.10 for the six months ended March 31, 2013 . The rate of decrease in diluted earnings per share from continuing operations was less than the rate of decrease in income from continuing operations, net of taxes as a result of the favorable impacts from our share repurchase program.

Income from continuing operations, net of taxes and earnings per share in the first half of fiscal year 2014 benefited from higher operating earnings in Commercial Systems and Information Management Services, and from the gain realized on the divestiture of Kaiser Optical Systems, Inc. (KOSI). These benefits, however, were more than offset by higher income taxes, higher interest cost, transaction costs incurred in connection with the ARINC acquisition, and lower operating earnings within Government Systems that resulted from the decreased sales volume.

Government Systems Financial Results

Government Systems Sales

The following table presents Government Systems sales by product category:



	Six Months Ended
	March 31
(in millions)	2014			2013
Avionics	$	650		$	639
Communication products	250			285
Surface solutions	114			107
Navigation products	85			93
Total	$	1,099		$	1,124
Percent (decrease)	(2		)%

Avionics sales increased $11 million , or 2 percent , primarily due to the following:


•	a $31 million increase from the combined impact of higher hardware deliveries and installations on the E-6B aircraft upgrade program and other international aircraft platforms


•	partially offset by $20 million in other net decreases to revenue, including lower development revenues on the KC-46 and KC-10 programs

Communication products sales decreased $35 million , or 12 percent , primarily driven by a $37 million reduction in satellite communication sales as fewer terminals were delivered and service revenues declined as troop deployments wind down in the Middle East.

Surface solutions sales increased $7 million , or 7 percent , primarily due to the following:


•	$18 million increase attributable to higher international sales of Firestorm targeting systems


•	partially offset by other net decreases to revenue of $11 million, including a reduction of effort on the Common Range Integrated Instrumentation Systems development program

Navigation products sales decreased $8 million , or 9 percent , primarily due to fewer deliveries of our GPS-based products.

Government Systems Segment Operating Earnings



	Six Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	210		$	219
Percent of sales	19.1		%	19.5		%

The $9 million decrease in Government Systems operating earnings was primarily due to the $25 million reduction in sales volume discussed in the Government Systems sales section above.

The decrease in Government Systems operating earnings as a percent of sales was primarily driven by the unfavorable margin impact from the lower sales volume.

Commercial Systems Financial Results

Commercial Systems Sales

The following table presents Commercial Systems sales by product category and type of product or service:



	Six Months Ended
	March 31
(in millions)	2014			2013
Air transport aviation electronics:
Original equipment	$	328		$	294
Aftermarket	252			228
Wide-body in-flight entertainment	37			45
Total air transport aviation electronics	617			567
Business and regional aviation electronics:
Original equipment	275			300
Aftermarket	185			181
Total business and regional aviation electronics	460			481
Total	$	1,077		$	1,048
Percent increase	3		%

Total air transport aviation electronics sales increased $50 million , or 9 percent , primarily due to the following:


•	OEM sales increased $34 million , or 12 percent primarily due to increased product deliveries from higher aircraft production rates for the Boeing 787 aircraft


•	aftermarket sales increased $24 million , or 11 percent , primarily driven by higher revenue from regulatory airspace mandates, increased service and support activities, and a large delivery of spare parts for 787 aircraft


•	wide-body IFE sales decreased $8 million , or 18 percent , resulting from the absence of a $7 million last-time buy order for spare parts that was delivered to an airline customer last year

Total business and regional aviation electronics sales decreased $21 million , or 4 percent , primarily due to the following:


•	OEM sales decreased $25 million, or 8 percent, driven by a reduction in sales at the light-end of the business jet market


•	aftermarket sales increased $4 million, or 2 percent, as a result of higher service and support activities

Commercial Systems Segment Operating Earnings



	Six Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	238		$	221
Percent of sales	22.1		%	21.1		%

Commercial Systems operating earnings increased $17 million , or 8 percent , primarily due to incremental earnings from the higher sales volume and a $9 million benefit resulting from a reduction in company-funded R&D expenses.

The incremental earnings from the higher sales volume were tempered as the sales growth primarily related to newer products, which typically feature less favorable initial margins. Therefore, the increase in Commercial Systems operating earnings as a percent of sales was primarily due to the benefits from lower company-funded R&D expense.

Information Management Services Financial Results

Information Management Services Sales

On December 23, 2013, we acquired ARINC. In connection with this acquisition, a new Information Management Services business segment was formed. This new segment combines ARINC with our existing flight services business. Sales and earnings of the existing flight services business were previously included in the Commercial Systems segment. This business has been reclassified into the Information Management Services segment and prior period results of Commercial Systems have been restated. Prior period results of the Information Management Services segment do not include any sales or earnings from the ARINC acquisition, but do include a full six months of sales and earnings from the reclassified flight services business. Sales and earnings for the six months ended March 31, 2014 include a full six months of activity from the flight services business and also include financial results for the ARINC acquisition for periods subsequent to the acquisition date.

The following table presents Information Management Services sales:



	Six Months Ended
	March 31
(in millions)	2014		2013
Sales	$	167	$	21

Total Information Management Services sales increased $146 million , primarily due to the acquisition of ARINC, which contributed $143 million of revenue to the first six months of 2014.

Note 3 of the Notes to Condensed Consolidated Financial Statements presents supplemental pro-forma financial data as if the acquisition of ARINC had been completed as of the beginning of our prior year, or on October 1, 2012. The pro-forma data included in Note 3 combines the Company's consolidated results with the stand-alone results of ARINC for the pre-acquisition periods. The pro-forma data excludes the results of ASES, which we intend to divest. The supplemental pro-forma data is not necessarily indicative of results that actually would have occurred had the acquisition truly been consummated on October 1, 2012. On a pro-forma basis, sales for the newly formed Information Management Services segment would be $273 million for both the six months ended March 31, 2014 and 2013. An increase in pro-forma revenue within ARINC’s commercial and business aviation divisions was offset by the combined impact of a reduction to revenue from the completion of effort on projects in ARINC's airport business and lower sales resulting from changes in the estimated profit margins expected to be realized on certain long-term contracts within the rail division. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further pro-forma disclosures.

Information Management Services Segment Operating Earnings



	Six Months Ended
	March 31
(in millions)	2014			2013
Segment operating earnings	$	20		$	2
Percent of sales	12.0		%	9.5		%

Information Management Services operating earnings increased $18 million , primarily due to to the acquisition of ARINC.

Operating earnings includes depreciation and amortization expense of $13 million and $2 million for the six months ended March 31, 2014 and 2013, respectively.

General Corporate, Net



	Six Months Ended
	March 31
(in millions)	2014		2013
General corporate, net	$	31	$	30

Retirement Plans

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



	Three Months Ended				Six Months Ended
	March 31				March 31
(in millions)	2014		2013		2014		2013
Pension benefits	$	1	$	2	$	4	$	4
Other retirement benefits	3		3		5		7
Net benefit expense	$	4	$	5	$	9	$	11

Pension Benefits

In 2003, we amended our U.S. qualified and non-qualified pension plans 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. Additionally, the ARINC defined benefit pension plan that we assumed in connection with the December 2013 acquisition is also largely frozen to new participants who are not covered by collective bargaining agreements. As discussed in Note 11 of the Notes to Condensed Consolidated Financial Statements , the ARINC pension plan was approximately 99 percent funded at the acquisition date.

For 2014, we anticipate $10 million of expense from the Rockwell Collins defined benefit pension plans. We expect this amount to be partially offset by $5 million of income from the acquired ARINC pension plans. Total defined benefit pension expense for 2014 is therefore expected to be $5 million, compared to $7 million of pension expense in 2013 .

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 contributions to our pension fund without inhibiting our ability to pursue strategic investments.

During the six months ended March 31, 2014 , we made contributions to our U.S. qualified pension plan of $55 million. We do not expect to make any additional contributions to our U. S. qualified pension plan during 2014 nor do we expect to make any contributions to our ARINC pension plan during 2014. Contributions to our non-U.S. plans and U.S. non-qualified plan are anticipated to total $14 million in 2014 . For the six months ended March 31, 2014 we made contributions to our non-U.S. plans and U.S. non-qualified pension plan of $8 million .

Other Retirement Benefits

We expect other retirement benefits expense of approximately $9 million for 2014 . This compares to 2013 expense of $15 million.

Income Taxes

At the end of each interim reporting period we make an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods. The difference between our effective income tax rate and the statutory income tax rate is primarily the result of the tax benefits derived from the Federal Research and Development Tax Credit (Federal R&D Tax Credit), which provides a tax benefit on certain incremental R&D expenditures and the Domestic Manufacturing Deduction, which provides a tax benefit on U.S. based manufacturing.

During the three months ended March 31, 2014 and 2013, the effective income tax rate from continuing operations was 31.3 percent and 18.3 percent, respectively. The higher effective income tax rate from continuing operations for the three months ended March 31, 2014, was primarily due to the differences in availability of the Federal R&D Tax Credit, partially offset by a favorable adjustment recorded in the current period that related to the resolution of the IRS audit for taxable years ended September 30, 2010 and 2011.

During the six months ended March 31, 2014 and 2013, the effective income tax rate from continuing operations was 29.4 percent and 23.9 percent, respectively. The higher effective income tax rate for the six months ended March 31, 2014, was primarily due to the differences in the availability of the Federal R&D Tax Credit as well as the absence of a tax benefit that was recognized last year for net operating loss carryovers in the United Kingdom. These unfavorable impacts were partially offset by favorable adjustments recorded in the current period due to the resolution of the IRS audit for taxable years ended September 30, 2010 and 2011 and the recognition of a tax benefit related to the Extraterritorial Income Exclusion claimed in prior years.

For fiscal year 2014, our effective income tax rate is projected to be about 30 percent and assumes that the Federal R&D Tax Credit is not extended beyond December 31, 2013. The acquisition of ARINC does not have a material impact on our effective income tax rate for the year.

FINANCIAL CONDITION AND LIQUIDITY

Cash Flow Summary

Our ability to generate significant cash flow from operating activities coupled with our expected ability to access the credit markets enables us to execute our growth strategies and return value to our shareowners. The timing of our cash inflows is historically heavily weighted towards the second half of our fiscal year, particularly our fourth quarter. We expect this trend to continue in the future.

Operating Activities



	Six Months Ended
	March 31
(in millions)	2014		2013
Cash provided by operating activities	$	63	$	179

The $116 million reduction in cash provided by operating activities during the six months ended March 31, 2014 compared to the same period last year was primarily due to the following:

•

payments for production inventory and other operating costs increased by $173 million to $2,013 million during the first half of 2014, compared to $1,840 million during the first half of 2013. The increased payments for operating costs primarily resulted from the higher sales volume associated with our recently completed acquisition of ARINC. In addition, the operating cost payments for 2014 include approximately $13 million of payments that relate to ARINC transaction closing costs

•

payments for employee incentive pay increased $60 million. Incentive pay is expensed in the year it is incurred and is paid in the first fiscal quarter of the following year. During the six months ended March 31, 2014, $114 million was paid for employee incentive pay costs expensed during fiscal year 2013. This compares to $54 million paid during the six months ended March 31, 2013 for employee incentive pay costs expensed during fiscal year 2012

•

cash payments for income taxes increased $69 million to $114 million during the first six months of 2014 compared to $45 million paid during the same period last year. The increase in cash used for income tax payments is primarily due to differences in the availability of the Federal R&D Tax Credit and the timing of tax deductions, including lower contributions to our pension plan in fiscal year 2014 as compared to fiscal 2013


•	the above items were partially offset by higher cash receipts from customers which increased by $140 million to $2,380 million during the first half of 2014, compared to $2,240 million during the first half of 2013. The increase was primarily attributable to higher sales volume from our acquisition of ARINC


•	in addition, payments to our pension plan were lower by $54 million as we made contributions of $63 million during the six months ended March 31, 2014 as compared to $117 million during the same period in the prior year

Investing Activities



	Six Months Ended
	March 31
(in millions)	2014			2013
Cash used for investing activities	$	(1,462	)	$	(62	)

The $1.4 billion increase in cash used for investing activities during the six months ended March 31, 2014 compared to the same period last year was primarily due to the following:


•	in December 2013, we acquired ARINC for $1.415 billion. We had no business acquisitions during the same period of the prior year


•	partially offset by the proceeds from the divestiture of our KOSI business in November 2013. We had no business divestitures during the same period of the prior year

Financing Activities



	Six Months Ended
	March 31
(in millions)	2014		2013
Cash provided by (used for) financing activities	$	1,414	$	(113	)

The $1.527 billion increase in cash provided by financing activities during the six months ended March 31, 2014 compared to the same period last year was primarily due to the following:


•	we received net proceeds of $1.089 billion from the issuance of long-term debt in December 2013. A portion of these proceeds were used to finance the acquisition of ARINC and the remainder was used to repay $200 million of long-term debt that matured in December 2013


•	net proceeds from short-term commercial paper borrowing increased by $246 million. During the first six months of 2014, net proceeds from short-term commercial paper borrowings were $631 million, compared to net proceeds of $385 million during the same period last year. The increase in short-term commercial paper borrowings was driven by our financing of the ARINC acquisition


•	cash repurchases of common stock decreased $376 million to $61 million during the six months ended March 31, 2014, compared to $437 million repurchased during the same period last year

The Company expects share count to remain fairly stable during 2014 and expects some level of share repurchases to occur in order to offset the dilution from employee stock benefits.

Financial Condition and Liquidity

We maintain a capital structure that enables us sufficient access to credit markets. When combined with our ability to generate strong levels of cash flow from our operations, this capital structure provides the strength and flexibility necessary to pursue strategic growth opportunities and to return value to our shareowners.

A comparison of key elements of our financial condition as of March 31, 2014 and September 30, 2013 are as follows:



(in millions)	March 31, 2014			September 30, 2013
Cash and cash equivalents	$	410		$	391
Short-term debt ⁽¹⁾	(866		)	(436		)
Long-term debt, net	(1,658		)	(563		)
Net debt ⁽²⁾	$	(2,114	)	$	(608	)
Total equity	$	1,852		$	1,623
Debt to total capitalization ⁽³⁾	58		%	38		%
Net debt to total capitalization ⁽⁴⁾	53		%	27		%


(1)	Short-term debt at March 31, 2014 is comprised of short-term commercial paper borrowings. Short-term debt at September 30, 2013 includes $235 million of short-term commercial paper borrowings, $200 million of unsecured debt that matured on December 1, 2013 (the 2013 Notes) and a $1 million fair value swap adjustment related to the 2013 Notes


(2)	Calculated as total of short-term and long-term debt, net (Total debt), less cash and cash equivalents


(3)	Calculated as Total debt divided by the sum of Total debt plus Total equity


(4)	Calculated as Net debt divided by the sum of Net debt plus Total equity

We primarily fund our contractual obligations, capital expenditures, small to medium sized acquisitions, dividends and share repurchases from cash generated from operating activities. On December 23, 2013, we acquired ARINC for $1.415 billion. This acquisition was funded through a combination of new long-term debt which we issued on December 16, 2013 and commercial paper borrowings. The net proceeds from the long-term debt issuance totaled $1.089 billion, of which approximately $900 million was used for the ARINC acquisition and a portion was used to effectively refinance the 2013 Notes, which had matured on December 1, 2013 (the 2013 Notes principal was initially paid at maturity using commercial paper). The balance of the ARINC purchase price was funded with commercial paper issuances which we intend to pay down over the next few years using our operating cash flow. While the incremental debt resulting from the acquisition of ARINC increased our leverage, we expect to maintain our investment grade credit ratings and have continued access to the credit markets.

As of March 31, 2014 , approximately 90 percent of our cash and cash equivalents resides at non-U.S. locations and may not be readily accessible for use in the U.S. due to potential adverse income tax implications and other statutory limitations. Due to the

fluctuations of cash flows, we supplement our internally-generated cash flow from time to time by issuing short-term commercial paper. Under our commercial paper program, we may sell up to $1.2 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes have maturities of not more than 364 days from the date of issuance.

At March 31, 2014 , short-term commercial paper borrowings outstanding were $866 million with a weighted-average interest rate and maturity period of 0.34 percent and 37 days , respectively. At September 30, 2013 , short term commercial paper borrowings outstanding were $235 million. The maximum amount of short-term commercial paper borrowings outstanding during the six months ended March 31, 2014 was $975 million.

In the event our access to the commercial paper markets is impaired, we have access to a five-year $1 billion unsecured revolving credit facility and a 364-day $200 million unsecured revolving credit facility, each of which was entered into on December 23, 2013. These revolving credit facilities are in place principally to support our commercial paper program. The credit facilities include one financial covenant that requires us to maintain a consolidated debt to total capitalization ratio of not greater than 60 percent. The ratio excludes the accumulated other comprehensive loss equity impact related to defined benefit retirement plans. Our debt to total capitalization ratio at March 31, 2014 based on this financial covenant was 45 percent . We had no borrowings at September 30, 2013 under our revolving credit facilities.

In addition, alternative sources of liquidity could include funds available from the issuance of equity securities, debt securities and potential asset securitization strategies. To date, we have not raised capital through the issuance of equity securities, nor do we have any current plans to do so, as we prefer to use debt financing to lower our overall cost of capital and increase our return on shareowners' equity.

Credit ratings are a significant factor in determining our ability to access short-term and long-term financing as well as the cost of such financing. Our strong credit ratings have enabled continued access to both short and long-term credit markets. If our credit ratings were to be adjusted downward by the rating agencies, the implications of such actions could include impairment or elimination of our access to credit markets and an increase in the cost of borrowing. The following is a summary of our credit ratings as of March 31, 2014 :



Credit Rating Agency	Short-Term Rating	Long-Term Rating	Outlook
Fitch Ratings	F1	A	Negative
Moody’s Investors Service	P-2	A3	Stable
Standard & Poor’s	A-2	A-	Stable

When the Company announced its intent to acquire ARINC and fund the purchase price through the incurrence of additional debt, each of the above rating agencies placed our credit ratings under review for possible downgrade. In October 2013, Fitch affirmed our current short-term and long-term ratings, but revised our outlook to Negative from Stable. In December 2013, Standard & Poor's lowered the Company's short-term and long-term ratings by one notch to A-2 and to A-, respectively. Also in December 2013, Moody’s lowered the Company’s short-term and long-term ratings by one notch to P-2 and A3, respectively. We do not expect any of the changes to our credit ratings or outlook to materially impact our ability to access credit markets or significantly increase our cost of borrowing.

We were in compliance with all debt covenants at March 31, 2014 and September 30, 2013 .

ENVIRONMENTAL

For information related to environmental claims, remediation efforts and related matters, see Note 19 of the Notes to Condensed Consolidated Financial Statements .

CRITICAL ACCOUNTING POLICIES

Preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America requires management of Rockwell Collins to make estimates, judgments and assumptions that affect our financial condition and results of operations that are reported in the accompanying condensed consolidated financial statements as well as the related disclosure of assets and liabilities contingent upon future events. The critical accounting policies used in preparation of our financial statements are described in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2013. Actual results in these areas could differ from management's estimates.

CAUTIONARY STATEMENT

This quarterly report contains statements, including certain projections and business trends, 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 financial condition of our customers, including bankruptcies; the health of the global economy, including potential deterioration in economic and financial market conditions; adjustments to the commercial OEM production rates and the aftermarket; the impacts of natural disasters, including operational disruption, potential supply shortages and other economic impacts; cybersecurity threats, including the potential misappropriation of assets or other sensitive information, corruption of data or operational disruption; delays related to the award of domestic and international contracts; delays in customer programs; unanticipated impacts of sequestration and other provisions of the Budget Control Act of 2011 as modified by the Bipartisan Budget Act of 2013; the discontinuance of support for military transformation and modernization programs; potential adverse impact of oil prices on the commercial aerospace industry; the impact of terrorist events on the commercial aerospace industry; declining defense budgets resulting from budget deficits in the U.S. and abroad; changes in domestic and foreign government spending, budgetary, procurement 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 unavailability of our mission-critical data and voice communication networks; favorable outcomes on or potential cancellation or restructuring of contracts, orders or program priorities by our customers; recruitment and retention of qualified personnel; regulatory restrictions on air travel due to environmental concerns; effective negotiation of collective bargaining agreements by us and our customers; performance of our customers and subcontractors; risks inherent in development and fixed-price contracts, particularly the risk of cost overruns; risk of significant reduction to air travel or aircraft capacity beyond our forecasts; our ability to execute to our internal performance plans such as our productivity and quality improvements and cost reduction initiatives; achievement of ARINC integration and synergy plans as well as our other acquisition and related integration plans; continuing to maintain our planned effective tax rates; our ability to develop contract compliant systems and products on schedule and within anticipated cost estimates; risk of fines and penalties related to noncompliance with laws and regulations including export control and environmental regulations; risk of asset impairments; our ability to win new business and convert those orders to sales within the fiscal year in accordance with our annual operating plan; and the uncertainties of the outcome of lawsuits, claims and legal proceedings, 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 3A.	Quantitative and Qualitative Disclosures 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 March 31, 2014 , we had the following unsecured long-term debt obligations:



	March 31, 2014
(in millions)	Interest Rate	Carrying Value		Fair Value
$400 Notes due 2043	4.80%	$	398	$	425
$400 Notes due 2023	3.70%	399		409
$250 Notes due 2021	3.10%	249		251
$300 Notes due 2019	5.25%	299		340
$300 Notes due 2016	3 month LIBOR plus 0.35%	300		300

In September, we entered into forward starting interest rate swap agreements with combined notional values of $200 million to effectively lock in fixed interest rates on a portion of the long-term debt we incurred to refinance maturing debt and to fund the acquisition of ARINC. In October 2013, we entered into an additional $300 million notional value of forward starting interest rate swap agreements. These forward starting interest rate swaps were designated as cash flow hedges and were executed to hedge against the risk of potentially higher benchmark U.S. Treasury bond yields on long-term debt with maturities ranging from 2023 to 2043 and fixed interest rates ranging between 2.8150% and 3.8775% . The forward starting swaps were terminated in December 2013 at a net loss of $2 million concurrent with our debt issuance. The net loss was deferred within Accumulated other comprehensive losses on the Condensed Consolidated Statement of Financial Position and this amount will be amortized into Interest expense over the life of the corresponding debt. In March 2014, we entered into interest rate swap contracts which effectively converted $200 million of the 2023 Notes to floating rate debt based on one-month LIBOR plus 0.94 percent.

A hypothetical 10 percent increase in average market interest rates would have decreased the fair value of our long-term fixed rate debt, exclusive of the effects of the interest rate swap contracts, by $40 million. A hypothetical 10 percent decrease in average market interest rates would have increased the fair value of our long-term fixed rate debt, exclusive of the effects of the interest rate swap contracts, by $42 million. The fair value of the $350 million notional value of interest rate swap contracts was a $13 million net asset at March 31, 2014 . A hypothetical 10 percent increase or decrease in average market interest rates would decrease or increase the fair value of our interest rate swap contracts by $1 million. Our results of operations are affected by changes in market interest rates related to variable rate debt. 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 operations or cash flows. For more information related to outstanding debt obligations and derivative financial instruments, see Notes 10, 16 and 17 in the Notes to Condensed 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 banks we believe to be creditworthy 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 non-U.S. subsidiaries or enter into derivative financial instruments for speculative purposes. Notional amounts of outstanding foreign currency forward exchange contracts were $295 million and $482 million at March 31, 2014 and September 30, 2013 , 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 five years or less. The net fair value of these foreign currency contracts was a net liability of $2 million and $0 at March 31, 2014 and September 30, 2013 , respectively. A hypothetical 10 percent increase or decrease in the value of the U.S. dollar against all currencies would decrease or increase the fair value of our foreign currency contracts at March 31, 2014 by $4 million. For more information related to outstanding currency forward exchange contracts, see Notes 16 and 17 in the Notes to Condensed Consolidated Financial Statements .


Item 4A.	Controls and Procedures.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, we carried out an evaluation of the effectiveness, as of March 31, 2014 , of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of March 31, 2014 to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no 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.

During the first quarter of 2014, the Company completed the acquisition of ARINC. The Company has begun the process to integrate the acquired ARINC operations into our overall system of internal control over financial reporting.


PART II	OTHER INFORMATION


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

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



Period	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 Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(1)
January 1, 2014 through January 31, 2014	—	$	—	—	$	395 million
February 1, 2014 through February 28, 2014	225,000	$	81.51	225,000	$	376 million
March 1, 2014 through March 31, 2014	250,000	$	81.62	250,000	$	356 million
Total/Average	475,000	$	81.57	475,000


(1)	On February 7, 2013 our Board authorized the repurchase of an additional $500 million of our common stock, as reflected in the table above. The authorization has no stated expiration.

EXHIBIT INDEX


Item 6.	Exhibits


(a)	Exhibits




Exhibit Number			Description

10-f-1			Rockwell Collins 2005 Deferred Compensation Plan, Amended and Restated

10-n-2			Schedule identifying executives of the Company who are party to a Change of Control Agreement

10-p-2			Consulting Agreement between the Company and Gary R. Chadick dated February 6, 2014

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.

101.INS			XBRL Instance Document.

101.SCH			XBRL Taxonomy Extension Schema.

101.CAL			XBRL Taxonomy Extension Calculation Linkbase.

101.DEF			XBRL Taxonomy Extension Definition Linkbase.

101.LAB			XBRL Taxonomy Extension Label Linkbase.

101.PRE			XBRL Taxonomy Extension Presentation Linkbase.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		ROCKWELL COLLINS, INC.
		(Registrant)

Date:	April 17, 2014	By	/s/ Tatum J. Buse
			Tatum J. Buse
			Vice President, Finance and Controller
			(Principal Accounting Officer and an Authorized Officer)

S-1

Exhibit 10-f-1

ROCKWELL COLLINS 2005

DEFERRED COMPENSATION PLAN

Amended and Restated April 7, 2014

AMENDED AND RESTATED

ROCKWELL COLLINS 2005

DEFERRED COMPENSATION PLAN

The purpose of this Plan is to provide certain specified benefits to a select group of management and highly compensated employees who contribute materially to the continued growth, development and future business success of Rockwell Collins, Inc. and its affiliates. This Plan is unfunded for tax purposes and for purposes of Title I of ERISA.

This Plan is established effective as of January 1, 2005 for deferred compensation that was earned and vested after December 31, 2004 under the Rockwell Collins Deferred Compensation Plan and for compensation deferred for the period subsequent to the date this Plan is established. The Plan is hereby amended and restated on April 7, 2014.

ARTICLE I: DEFINITIONS


1.010	Account means one of the accounts established for the purpose of measuring and determining a Participant’s interest in this Plan, such accounts being the Participant’s Salary Deferral Account, Company Match Account, Incentive Compensation Deferral Account, and Performance Award Account.


1.020	Account Balance means, with respect to each Participant, an account in the records of the Company equal to the sum of the Participant’s:


(a)	Salary Deferral Account balance;


(b)	Company Match Account balance;


(c)	Incentive Compensation Deferral Account balance; and


(d)	Performance Award Account balance.

The Account Balance (and each underlying balance making up such Account Balance) is a bookkeeping entry only and will be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his designated Beneficiary, pursuant to this Plan.


1.030	Affiliate means:


(a)	any corporation incorporated under the laws of one of the United States of America of which the Company owns, directly or indirectly, eighty percent (80%) or more of the combined voting power of all classes of stock or eighty percent (80%) or more of the total value of the shares of all classes of stock (all within the meaning of Code Section 1563);


(b)	any partnership or other business entity organized under such laws, of which the Company owns, directly or indirectly, eighty percent (80%) or more of the voting power or eighty

percent (80%) or more of the total value (all within the meaning of Code Section 414(c)); and


(c)	any other company deemed to be an Affiliate by the Company’s Board of Directors.


1.040	Annual Company Match Amount for any Plan Year means the amount determined in accordance with Section 3.030.

1.050

Annual Deferral Amount means that portion of a Participant’s Base Annual Salary which a Participant elects to have deferred, in accordance with Article III, for any one Plan Year. In the event of a Participant’s Retirement, Disability, death or a Separation from Service prior to the end of a Plan Year, such year’s Annual Deferral Amount will be the actual amount withheld prior to such event.

1.060

Annual Installment Method means a benefit payment method involving a series of annual installment payments over the number of years selected by the Participant in accordance with this Plan, which will be calculated in the manner set forth in this Section. The Account Balance of the Participant will be determined as of the close of business on the last business day of the calendar year. The annual installment will be calculated by multiplying this balance by a fraction, the numerator of which is one (1), and the denominator of which is the remaining number of annual payments due the Participant. (By way of example, if a Participant were to elect a 10-year payment under the Annual Installment Method, the first payment would be one-tenth (1/10) of the Account Balance, calculated as described in this definition. The following year, the payment would be one-ninth (1/9) of the Account Balance, calculated as described in this definition.) Each annual installment will be paid within the first sixty (60) days of the calendar year following the applicable year.

1.070

Base Annual Salary means the Employee’s annualized salary rate for services performed by such Employee on behalf of the Company or an Affiliate, whether or not paid to him in such calendar year or included on the Federal Income Tax Form W‑2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, stock appreciation rights, restricted stock, restricted stock units, relocation expenses, incentive payments, Performance Awards, non-monetary awards, directors fees and other fees, automobile and other allowances (whether or not such allowances are included in the Employee’s gross income) paid to a Participant for employment services rendered. Base Annual Salary will be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non‑qualified plans of the Company or any Affiliate and will be calculated to include amounts not otherwise included in the Participant’s gross income under Code Section 125, 129, 223, 402(e)(3), 402(h), 403(b) or similar provision, pursuant to plans established by the Company or an Affiliate; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Participant.


1.080	Beneficiary means one or more persons, trusts, estates or other entities, designated in accordance with Article XI who or which are entitled to receive benefits under this Plan upon the death of a Participant.


1.090	Beneficiary Designation Form means the written or electronic form established from time to time by the Committee or its delegate that a Participant completes, signs and returns to the Committee or its delegate, in order to designate one or more Beneficiaries.


1.100	Board of Directors means the Company’s Board of Directors.


1.110	Change of Control means any of the following:

(a)

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (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 (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (c) of this Section 1.110; or

(b)

Individuals who, as of the date hereof, constitute the Board of Directors of the Company (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 Company’s shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or

(c)

Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Company Transaction”), in each case, unless, following such Company Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company 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 Company Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Company Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any employee benefit plan (or related trust) of the Company or of such corporation resulting from such Company Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Company 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 Company Transaction and (3) at least a majority of the members of the board of

directors of the corporation resulting from such Company 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 Company Transaction; or


(d)	Approval by the Company’s shareowners of a complete liquidation or dissolution of the Company.


1.120	Code means the Internal Revenue Code of 1986, as from time to time amended.


1.130	Committee means the Compensation Committee of the Board of Directors.


1.140	Company means Rockwell Collins, Inc., a Delaware corporation.


1.150	Company Match Account means:


(a)	the sum of all of a Participant’s Annual Company Match Amounts,


(b)	adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b), as such provisions relate to such Company Match Account, and


(c)	reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Company Match Account.

1.160

Deduction Limitation means the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation will be applied to all distributions that are “subject to the Deduction Limitation” under this Plan. If the Company determines in good faith prior to a Change of Control that it is reasonably anticipated that any compensation paid to a Participant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code Section 162(m), then, to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change of Control is deductible, the Company may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation will continue to be credited/debited with additional amounts in accordance with Section 4.020(b), even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon will be distributed to the Participant or his Beneficiary (in the event of the Participant’s death) at the earlier of (a) the earliest possible date in the calendar year, as determined in good faith by the Company, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Company during which the distribution is made will not be limited by Section 162(m), or (b) the Participant’s Separation from Service or Retirement. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation will not apply to any distributions made after a Change of Control.


1.170	Deferral Election means a written or electronic election made pursuant to Article III by a Participant to defer receipt of a part of his Base Annual Salary, or to defer receipt of all or a part of his Incentive Compensation or any Performance Award.


1.180	Deferral Election Form means the form established from time to time by the Committee or its delegate that a Participant completes, signs and returns to the Committee or its delegate to make a

Deferral Election pursuant to Article III, in order to defer receipt of a part of his Base Annual Salary or to defer receipt of all or a part of his Incentive Compensation or any Performance Award.


1.190	Disability has the meanings set forth in Section 409A. Specifically, for purposes of this Plan and Section 409A, a Participant will be considered to have incurred a Disability if the Participant is:


(a)	unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or


(b)	by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident or health plan covering employees of the Company or any Affiliate.


1.200	Effective Date means January 1, 2005.


1.210	Eligible Employee means:


(a)	For the Plan Year commencing January 1, 2005, any Employee who is employed in the United States by the Company or any Affiliate whose Base Annual Salary for 2005 is greater than or equal to $110,000.


(b)	For the Plan Year commencing January 1, 2006, any Employee who is employed in the United States by the Company or any Affiliate whose Base Annual Salary for 2006 is greater than or equal to $120,000.


(c)	For Plan Years commencing on or after January 1, 2007, any Employee who is employed in the United States by the Company or an Affiliate whose salary band on or after January 1, 2007 is equal to D5, E6, M0, or M5 through M9 before July 23, 2007, or is equal to D5, E6, M0, M1, or M6 through M9 on or after July 23, 2007.


(d)	For Plan Years commencing on or after January 1, 2014, any Employee who is employed in the United States by the Company or an Affiliate whose salary band is equal to D5, E6, M0, M1, or M6 through M9 prior to May 31, 2014, or is equal to D5, G7, G8, G9, M0, M1, or M6 through M9 on or after May 31, 2014.

Notwithstanding the foregoing, an Eligible Employee shall not include anyone who becomes an Employee of an Affiliate as a result of the completion of the merger contemplated by the Agreement and Plan of Merger by and among the Company, Avatar Merger Sub, Inc., Radio Holdings, Inc., and TC Group IV Managing GP, L.L.C.


1.220	Employee means any person who is employed by the Company or by an Affiliate.


1.230	ERISA means the Employee Retirement Income Security Act of 1974, as from time to time amended.


1.240	Exchange Act means the Securities Exchange Act of 1934, as amended.


1.245	409A Change of Control means a “Change of Control Event” as defined in Treasury Regulation Section 1.409A-3(i)(5)(i) and set forth in Treasury Regulation Section 1.409A-3(i)(5)(v)-(vii), applying the default rules and percentages set forth in such Treasury Regulation.

1.250

Incentive Compensation means any award payable to a Participant under an incentive compensation plan sponsored by the Company or an Affiliate which, but for a Deferral Election under the Plan, would be paid to the Participant and considered to be “wages” for purposes of United States federal income tax withholding, including without limitation any incentive compensation payable pursuant to the Company’s incentive payment plan(s) and annual incentive compensation plan(s) for Senior Executives, and any change of control agreement entered into between the Company and a Participant.

1.260

Incentive Compensation Deferral means a deferral by a Participant of part or all of his Incentive Compensation otherwise payable to him with respect to a particular fiscal year of the Company. In the event of a Participant’s Retirement, Disability, death or a Separation from Service prior the completion of the fiscal year for which the Incentive Compensation is payable, such year’s Incentive Compensation Deferral will be zero and any Incentive Compensation payable with respect to such partial fiscal year will be paid at the same time Incentive Compensation is paid to employees who did not elect to make a deferral of Incentive Compensation.


1.270	Incentive Compensation Deferral Account means:


(a)	the sum of all of a Participant’s Incentive Compensation Deferrals,


(b)	adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b) which are related to such Incentive Compensation Deferral Account, and


(c)	reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Incentive Compensation Deferral Account.


1.280	Measurement Funds means the investment vehicles offered under this Plan which are identified and described in communication materials made available to Participants by the Company.


1.290	Named Fiduciary means the Committee, its delegates, the Trustee and, following the occurrence of a Change of Control, the third-party fiduciary described in Section 14.020 of this Plan.


1.300	Non-Qualified Savings Plan means the Rockwell Collins 2005 Non-Qualified Retirement Savings Plan, as amended from time to time.


1.310	Participant means any Eligible Employee:


(a)	who is an employee of Rockwell Collins, Inc. (or one of its Affiliates);


(b)	who elects to participate in the Plan;


(c)	who completes a Participation Agreement and a Beneficiary Designation Form;


(d)	whose completed Participation Agreement and Beneficiary Designation Form are accepted by the Committee or its delegate;


(e)	who commences participation in the Plan; and


(f)	who has not elected to terminate participation in the Plan.

A spouse or former spouse of a Participant will not be treated as a Participant in the Plan or have an Account Balance under the Plan, even if the spouse or former spouse has an interest in the Participant’s benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.

Notwithstanding any other provision of this Plan to the contrary, no Eligible Employee or any other person, individual or entity shall become a Participant in this Plan on or after the day on which a Change of Control occurs.

1.320

Participation Agreement means a written or electronic agreement, as may be amended from time to time, which is provided to an Eligible Employee or Participant by the Committee or its delegate. The Participation Agreement bearing the latest date by the Committee or its delegate will supersede all previous such Participation Agreements in their entirety and will govern the Eligible Employee’s or Participant’s entitlement to benefits hereunder. The terms of any such Participation Agreement may be different for a particular Participant.


1.325	Performance Award means any Performance Share or Performance Unit awarded under (and as defined in) the Company’s 2001 Long-Term Incentives Plan or 2006 Long-Term Incentives Plan.

1.326

Performance Award Deferral means any deferral of a Performance Award made pursuant to and in accordance with the terms of this Plan. In the event of a Participant’s Retirement, Disability, death or a Separation from Service prior to the end of the performance period for which the Performance Award was granted, such Performance Award Deferral will be zero and any Performance Award payable with respect to such partial performance period will be paid at the same time it is paid to employees who did not elect to make a deferral of a Performance Award.


1.328	Performance Award Account means:


(a)	the sum of all of a Participant’s Performance Award Deferrals;


(b)	adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b), as such provisions relate to such Performance Award Account; and


(c)	reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Performance Award Account.


1.330	Plan means this Amended and Restated Rockwell Collins 2005 Deferred Compensation Plan, which is evidenced by this instrument and by the forms associated with the said instrument, as they may be amended from time to time.


1.340	Plan Year means each twelve-month period ending on the last day of December.


1.350	Pre-Retirement Survivor Benefit means the benefit set forth in Article VII.


1.360	Qualified Savings Plan means the Rockwell Collins Retirement Savings Plan, as amended from time to time.


1.370	Retirement , Retire(s) or Retired means, with respect to an Employee, “separation from service” with the Company and all of its Affiliates, within the meaning of Section 409A, on or after the attainment of age 55, other than for reasons of Disability or death.


1.380	Retirement Benefit means the benefit set forth in Article VI.


1.390	Salary Deferral Account means:


(a)	the sum of all of a Participant’s Base Annual Salary deferral amounts,


(b)	adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b), as such provisions relate to such Salary Deferral Account, and


(c)	reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Salary Deferral Account.


1.400	Section 409A means Section 409A of the Code and any regulations or other guidance issued thereunder.


1.410	Separation from Service means a “separation from service” from the Company and all of its Affiliates, within the meaning of Section 409A, other than for reasons of Retirement or death.


1.420	Short-Term In-Service Payout means the payout set forth in Section 5.010 of the Plan.


1.430	Specified Employee has the meaning set forth in Section 409A, as determined each year in accordance with procedures established by the Company.


1.440	Termination Benefit means the benefit set forth in Article VIII.


1.450	Third-Party Administrator means an independent third party selected by the Trustee and approved by the individual who, immediately prior to a Change of Control, was the Company’s Chief Executive Officer or, if not so identified, the Company’s highest ranking officer immediately prior to the Change of Control (the “Ex-CEO”).


1.460	Trust means the master trust established by agreement between the Company and the Trustee, which will be a grantor trust.


1.470	Trustee means Wells Fargo Bank N.A., or any successor trustee of the Trust described in Section 1.460 of this Plan.

1.480

Unforeseeable Financial Emergency has the meaning set forth in Section 409A. Specifically, for purposes of this Plan and Section 409A, an Unforeseeable Financial Emergency means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary or unforeseeable circumstances arising as a result of events beyond the control of the Participant. The requirements

of this Section 1.480 are met only if, as determined under Section 409A, the amount distributed with respect to the emergency does not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship may be relieved through reimbursement or compensation by insurance or otherwise by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

ARTICLE II: PARTICIPATION


2.010	Select Group Defined . Since participation in the Plan is intended to be limited to a select group of management and highly compensated Employees, the Plan is only available to Eligible Employees of the Company and its Affiliates.


2.020	Commencement of Participation . As a condition to initial participation in this Plan, each Eligible Employee who wishes to participate in the Plan will be required to complete, execute and return to the Committee or its delegate a written or electronic Deferral Election Form.

In the case of such an Eligible Employee’s initial election to become a Participant in a particular Plan Year (after taking into account the plan aggregation rules of Section 409A), such documentation must be provided by the Eligible Employee to the Committee or its delegate within thirty (30) days following his first becoming an Eligible Employee. Such initial election made shall apply only with respect to amounts paid for services performed after the election and any such initial election to defer Incentive Compensation must be approved by the Vice President of Compensation and Benefits.

If an Eligible Employee has met all enrollment requirements set forth in this Plan and required by the Committee or its delegate (including returning all required documents to the Committee or its delegate) in the time frames described in the above subsections, that the Eligible Employee will become a Plan Participant as soon as administratively practicable after he completes all such enrollment requirements, except that, if an individual becomes an Eligible Employee during the last three months of a calendar year, that Eligible Employee will become a Plan Participant on the first day of the next calendar year.

If an Eligible Employee fails to meet all such requirements within the period required under this Section 2.020 that Eligible Employee will not be entitled to participate in the Plan until the first day of a subsequent Plan Year following the delivery to and acceptance by the Committee or its delegate of the required documents. In addition, the Committee or its delegate will establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.

2.025 Circumstances in which Eligible Employee Initially Eligible Again . An Eligible Employee who ceased to be an Eligible Employee and who subsequently becomes an Eligible Employee again will be treated as an Eligible Employee for the first time ( i.e. , entitled to make deferrals within the first 30 days of eligibility with respect to services performed after the election as set forth in Sections 2.020 and 3.010(b)) if such employee satisfies either (a) or (b) below.

(a) After 24 Month Break . He or she was not an Eligible Employee or otherwise eligible to participate in the Plan (except with respect to the accrual of earnings on previously deferred amounts) at all times during the 24-month period immediately preceding the date he or she again became an Eligible Employee; or

(b) After Full Distribution . All amounts he or she previously deferred under the Plan have been fully paid, and on and before the date of the last such payment he or she was not an Eligible Employee or otherwise eligible to participate in the Plan for periods after the last payment.

2.030

Termination of Participation and/or Deferrals . If the Committee or its delegate determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with ERISA Sections 201(2), 301(a)(3) and 401(a)(1), the Committee will have the right, in its sole discretion, to prevent the Participant from making future deferral elections.

ARTICLE III: DEFERRAL AND COMPANY MATCH CREDITS


3.010	Base Annual Salary Deferral . Each Plan Participant will be permitted to make an irrevocable election to defer (such Deferral Election to be made in whole percentages) receipt of an amount equal to one percent (1%) through fifty percent (50%) of his Base Annual Salary.

(a)

For each Plan Year, a Participant, will be permitted, in his sole discretion, to make an irrevocable election to defer Base Annual Salary for the following Plan Year and must deliver such Deferral Election to the Company or an Affiliate on a new Deferral Election Form before December 31 ^st of the Plan Year immediately preceding the Plan Year for which the deferral is intended. If no such Deferral Election Form is timely delivered for a Plan Year, the Annual Deferral Amount will be zero for that Plan Year.

(b)

Notwithstanding the foregoing, any Participant who first becomes eligible to participate in the Plan (taking into account the aggregation rules set forth in Section 409A) within the first nine months of a Plan Year may, within thirty (30) days after first becoming eligible to participate in the Plan (taking into account the plan aggregation rules set forth in Section 409A), make an irrevocable election to defer Base Annual Salary for the Plan Year commencing as soon as administratively practicable following the Deferral Election.


(c)	During each Plan Year, the Base Annual Salary Deferral Amount will be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary.


3.020	Incentive Compensation Deferral . In addition to the Base Annual Salary deferral described in the preceding Section, each Participant will be permitted to irrevocably elect to defer receipt of an amount equal to one percent (1%) through one hundred percent (100%), such Deferral Election to be made in whole percentages, of the amount of any Incentive Compensation which he might be awarded.


(a)	In general, such Deferral Election will be made on a Deferral Election Form and will apply to Incentive Compensation to which the Participant might be entitled for the fiscal year commencing immediately following such Deferral Election.

(b)

Except as otherwise permitted by Section 409A, any election made pursuant to this Section 3.020 must be made by the close of the fiscal year immediately preceding the fiscal year to which such Incentive Compensation relates commences. Notwithstanding the foregoing, to the extent permitted under Section 409A, if the Company in its sole discretion determines that the Incentive Compensation (or any portion thereof) meets the requirements for “performance-based compensation” within the meaning of Section 409A, the Committee may permit such election to be made after the start of the fiscal year for which the

Incentive Compensation may be payable for the portion that qualifies as performance-based compensation, but any such election must be made at least six months prior to the end of the fiscal year for which the Incentive Compensation may be payable. A Participant will not be permitted to make an election under the preceding sentence unless the Participant is in service with the Company or an Affiliate continually from the later of the beginning of the fiscal year or the date performance criteria are established through the date of the election and no such election may be made with respect to compensation that has become readily ascertainable.

The Incentive Compensation Deferral Amount will be withheld at the time the said Incentive Compensation are or otherwise would be paid to the Participant.

3.025 Performance Award Deferral . If permitted by the Committee or its delegate, each Participant will be permitted to irrevocably elect to defer receipt of an amount equal to one percent (1%) through one hundred percent (100%), such Deferral Election to be made in whole percentages, of his Performance Shares and/or Performance Units.


(a)	In general, such Deferral Election will be made on a Deferral Election Form and will apply to Performance Awards to which the Participant might be granted for the fiscal year commencing immediately following such Deferral Election.

(b)

Except as otherwise permitted by Section 409A, any election made pursuant to this Section 3.025 must be made by the close of the fiscal year immediately preceding the first fiscal year for which the Performance Award is granted. Notwithstanding the foregoing, to the extent permitted under Section 409A, if the Company in its sole discretion determines that the Performance Award (or any portion thereof) meets the requirements for “performance-based compensation” within the meaning of Section 409A, the Committee may permit such election to be made after the Performance Award is granted for the portion that qualifies as performance-based compensation, but any such election must be made at least six months prior to the end of the performance period to which the Performance Award relates. A Participant will not be permitted to make an election under the preceding sentence unless the Participant is in service with the Company or an Affiliate continually from the later of the beginning of the performance period or the date performance criteria are established through the date of the election, and no such election may be made with respect to compensation that has become readily ascertainable.

The Performance Award Deferral Amount will be withheld at the time the said Performance Award otherwise would have been paid to the Participant.

3.030 Annual Company Match Amount . The Plan provided certain matching contributions for Plan Years commencing prior to January 1, 2006. These contributions will be governed by the terms of the Plan as in effect without regard to the November 17, 2009 amendment.

For Plan Years commencing on and after January 1, 2009, a Participant’s Company Match Account will be credited with an amount equal to the “Company Matching Contributions” that would have been made with respect to the Participant under the Qualified Savings Plan and the Non-Qualified Retirement Savings Plan for the Plan Year, but which was not made due to the Participant’s election to participate in this Plan. The Annual Company Match Amount will be determined by applying the applicable matching contribution percentage in

the Qualified Savings Plan to the Participant’s “Basic After-tax Contributions” and “Basic Pre-Tax Contributions” for the corresponding period that would apply if “Base Compensation” under the Qualified Savings Plan (as such terms are defined in the Qualified Savings Plan) included the deferral of Base Annual Salary to this Plan for the corresponding period, reduced by the amount of “Company Matching Contribution” actually payable for such period under the terms of the Qualified Savings Plan and the Rockwell Collins 2005 Non-Qualified Retirement Savings Plan.

For purposes of this calculation, (a) the Participant’s Qualified Savings Plan deferral election shall be deemed to be the Qualified Savings Plan deferral election on file for the Participant as of the last day of the year preceding such Plan Year (or, in the case of a newly hired Participant who makes an election to participate under the second paragraph of Section 2.020, based upon the Participant’s Qualified Savings Plan deferral election in effect on, or soonest made within thirty (30) days following, his first becoming an Eligible Employee); (b) no change to the Participant’s written or electronic deferral election to the Qualified Savings Plan during the applicable Plan Year shall be considered (other than a permitted suspension of contributions due to financial hardship); and (c) “Base Compensation” shall be determined without regard to the Code Section 401(a)(17) limit.

The Annual Company Match Amount which is attributable to a Participant’s deferral of Base Annual Salary for a particular Plan Year will be calculated in the first month of the immediately succeeding Plan Year and will be credited to the Participant’s Company Match Account no later than January 31 ^st of such succeeding Plan Year. Subject to the provisions of the preceding sentence:


(a)	In the event of a Participant’s Retirement or death, the Participant’s Company Match Account will be credited with the Annual Company Match Amount for the Plan Year in which he retires or dies; and


(b)	If a Participant is not employed by the Company or an Affiliate as of the last day of a Plan Year for any reason other than the Participant’s Retirement or death, the Annual Company Match for such Plan Year will be zero.

Annual Company Match Amounts with respect to Plan Years commencing on and after January 1, 2009, will be paid in accordance with the Participant’s Deferral Election applicable to Base Annual Salary for the corresponding period. Such Annual Company Match Amounts will be available for withdrawal due to Unforeseeable Financial Emergency under Section 5.020.

In accordance with Section 4.020 below, Annual Company Match Amounts with respect to Plan Years commencing on and after January 1, 2009, will be allocated in accordance with the Participant’s investment election, into one or more of the Plan’s available Measurement Funds, that is in effect at the time such Annual Company Match Amount is credited.

ARTICLE IV: PLAN ACCOUNTS

4.010 Vesting .


(a)	A Participant will have a one hundred percent (100%) vested interest in his Account Balance.


(b)	Notwithstanding anything to the contrary contained in this Plan, in the event of a Change of Control, a Participant’s Account Balance and any other interest of his under this Plan at

the time of the occurrence of the Change of Control will remain one hundred percent (100%) vested, if such interest is already 100% vested at that time and, if such interest is not one hundred percent (100%) vested at that time, will immediately become one hundred (100%) vested.


4.020	Crediting/Debiting of Account Balances . In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee or its delegate, in its sole discretion, amounts will be credited or debited to a Participant’s Account Balance in the manner set forth in the provisions of this Section.

(a)

Allocation to Measurement Funds . A Participant, in connection with his initial Deferral Election in accordance with Section 3.010 or 3.020 above, will be permitted to also elect to have one or more Measurement Funds used to determine the amounts to be credited to his Account Balance and his election will continue to be in effect thereafter, unless it should be changed in accordance with subsection (c). If it is determined by the Committee or its delegate that an investment election made by a Participant is invalid or defective, the Participant’s election, until duly corrected by him, will be deemed to have been made in favor of the Fidelity Puritan® Fund or such other Measurement Fund as may be designated by the Vice President of Compensation and Benefits from time to time.

(b)

Crediting or Debiting Method . The performance (either positive or negative) of each elected Measurement Fund will be determined by the Committee or its delegate, based on the performance of the Measurement Funds themselves. A Participant’s Account Balance will be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee or its delegate in its sole discretion, as though:


(1)	a Participant’s Account Balance were actually invested in the Measurement Fund(s) selected by the Participant as of the close of business on any business day, at the closing price on that day;


(2)	the portion of the amount actually deferred during any pay period was invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable on such day, no later than the close of business on the first business day after the day on which such amounts are actually deferred, at the closing price on such date; and


(3)	any distribution made to a Participant that decreases such Participant’s Account Balance ceased being invested in the Measurement Fund(s), in the applicable percentages, no earlier than one business day prior to the distribution, at the closing price on such date.

(c)

Transfers among Measurement Funds . The Participant will be permitted to change, on a daily basis, any previous Measurement Fund election or elections he has made with regard to his Account Balance. The elections and changes to such elections which a Participant makes pursuant to this subsection will be made by means of any method (including any available telephonic or electronic method which is acceptable to the Committee or its delegate at the time the election or change is made by the Participant), and may be made at any time and will be effective as of the New York Stock Exchange closing immediately following the making of that election or change.

(d)

No Actual Investment . Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation to his Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Account Balance will not be considered or construed in any manner as an actual investment of his Account Balance in any such Measurement Fund. In the event that the Company or the Trustee, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant will have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Account Balance will at all times be a bookkeeping entry only and will not represent any investment made on his behalf by the Company or the Trust. The Participant will at all times remain an unsecured creditor of the Company.


(e)	Company Reservation of Rights . Consistent with the preceding sentence, nothing to the contrary in this Plan or any of its forms or communication material, nor in any document associated with the Trust, should be interpreted or understood to provide Participants or their Beneficiaries with any current, direct rights with respect to the assets held by the Trustee in the Trust.

4.030 FICA and Other Taxes .


(a)	Deferral Amounts . For each Plan Year, the Company or any Affiliate employing the Participant will withhold from that portion of the Participant’s Base Annual Salary, Incentive Compensation, or Performance Award which is being deferred the Participant’s share of FICA and other employment taxes on such deferrals.


(b)	Annual Company Match Amounts . For each Plan Year in which Company Match Amount is credited to the Participant, the Company or any Affiliate employing the Participant will withhold the Participant’s share of FICA and other employment taxes on the amount credited to such Company Match Account.

(c)

Distributions . The Company or any Affiliate employing the Participant, or the Trustee of the Trust, will withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Company and the trustee of the Trust.

ARTICLE V: SHORT-TERM IN SERVICE PAYOUTS, IN-SERVICE WITHDRAWALS AND 409A CHANGE OF CONTROL PAYMENTS

5.010

Short-Term In-Service Payouts . In connection with each election to defer, a Participant may irrevocably elect to receive a future Short-Term In -Service Payout from the Plan with respect to such Salary Deferral Account, Company Match Account, Incentive Compensation Deferral Account, and Performance Award Account. Any such election must be made no later than (i) December 31st of the Plan Year immediately preceding the Plan Year to which the Base Annual Salary deferral relates and (ii) the close of the fiscal year immediately preceding the first fiscal year to which the Incentive Compensation or Performance Award relates; provided, however, that if the Incentive Compensation or Performance Award qualifies as “performance-based compensation” within the meaning of Section 409A, the Committee may permit such election to

be made at any time that is at least six months prior to the end of the performance period to which the Incentive Compensation or Performance Award, as the case may be, relates.


(a)	Subject to the Deduction Limitation, the said Short-Term In-Service Payout will be a lump sum payment in an amount that is equal to the sum of the deferrals and Annual Company Match Amount, as adjusted for amounts credited or debited in the manner provided in Section 4.020 on that amount.

(b)

Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short‑Term In-Service Payout elected will be paid out during a sixty (60) day period commencing immediately after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the deferral occurred. By way of example, if a three-year Short-Term In-Service Payout is elected for amounts that are deferred in the Plan Year commencing January 1, 2008, the three-year Short-Term In-Service Payout would become payable during a sixty (60) day period commencing January 1, 2012.


(c)	Should an event occur that triggers a benefit under Article VI, VII, or VIII any deferrals, plus amounts credited or debited thereon, that is subject to a Short-Term In-Service Payout election under this Section will not be paid in accordance with this Section, but will instead be paid in accordance with the other applicable Article.


5.020	Withdrawal for Unforeseeable Financial Emergencies . In the event that any Participant should encounter an Unforeseeable Financial Emergency, such Participant may:


(a)	petition the Committee or its delegate to suspend any deferrals required to be made on his behalf, and/or


(b)	petition the Committee or its delegate to permit him to receive a partial or full payout from the Plan. Such a payout will not exceed the lesser of:


(1)	the Participant’s Account Balance, calculated as if the Participant were receiving a Termination Benefit; and


(2)	the amount reasonably needed to satisfy the Unforeseeable Financial Emergency.

If, subject to the sole discretion of the Committee or its delegate, the petition for a suspension and/or payout is approved, suspension will take effect on the date of approval and any payout will be made within sixty (60) days of the date of approval. The payment of any amount under this Section will not be subject to the Deduction Limitation.


5.030	409A Change of Control Payments . Notwithstanding any other provision of this Plan to the contrary, a Participant may elect to have his interest in and to Accounts hereunder paid in a lump sum, in the event of the occurrence of a 409A Change of Control, subject to the following:

(a)

To be effective, the election of a Participant pursuant to this Section 5.030 must be made in writing and filed with the Committee or filed electronically on or before the latest of (1) December 31, 2008, (2) December 31st of the calendar year immediately preceding the first Plan Year with respect to which the Participant has deferred Base Annual Salary, Incentive Compensation , Performance Award and/or Annual Company Match Amounts, or (3) the thirtieth day after initial eligibility for the Plan or any similar Company deferred

compensation plan (in which case such election shall apply only with respect to amounts earned after such election is filed) . Such election shall apply to the entire Account Balance and, e xcept as otherwise provided in Section 10.020, shall be irrevocable.


(b)	Any lump sum payments which are to be made on account of the occurrence of a 409A Change of Control shall be made within forty-five (45) days following such 409A Change of Control.


(c)	Notwithstanding the foregoing, if the Participant does not file a timely written or electronic election in accordance with Section 5.030(a) to receive or not receive his or her Accounts under the Plan in a lump sum upon a 409A Change of Control, then such Participant’s Accounts under the Plan will automatically be paid in a lump sum upon a 409A Change of Control.

ARTICLE VI: RETIREMENT BENEFITS


6.010	Retirement Benefit . Subject to the Deduction Limitation, a Participant who Retires will receive, as a Retirement Benefit, his Account Balance.

6.020

Payment of Retirement Benefit . A Participant, in connection with his commencement of participation in the Plan, may elect to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of periods of from two (2) through fifteen (15) years. The Participant may change any election he has previously made to a different payout period permitted hereunder, but only one such a change may be made with respect to any single election. Such change will be accomplished by the Participant notifying the Committee or its delegate, but such change will not be valid, unless it has been submitted by the Participant and accepted by the Committee or its delegate (in the Committee’s or delegate’s discretion) in accordance with the rules set forth in Section 10.020. The Participant’s most recent election accepted by the Committee or its delegate shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, within the first sixty (60) days following the Plan Year in which the Participant Retires. Any payment made shall be subject to the Deduction Limitation.

6.030

Death Prior to Completion of Retirement Benefit . If a Participant dies after Retirement distributions commence but before the Retirement Benefit is paid in full, the Participant’s unpaid Retirement Benefit payments shall continue and shall be paid to the Participant’s Beneficiary over the remaining number of years and in the same amounts and form and time of payment as that benefit would have been paid to the Participant had the Participant survived.

ARTICLE VII: PRE-RETIREMENT SURVIVOR BENEFIT


7.010	Pre-Retirement Survivor Benefit . Subject to the Deduction Limitation, the Participant’s Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant’s Account Balance if the Participant dies before he Retires or experiences a Separation from Service.


7.020	Payment of Pre-Retirement Survivor Benefit . Any Pre-Retirement Survivor Benefit payable pursuant to Section 7.010 will be paid in a lump sum within the first sixty days of the calendar year following the year which includes the Participant’s death. Such lump sum payment will be

paid to the Participant’s beneficiary as designated on the Beneficiary Designation Form most recently filed in writing or electronically with the Committee or its delegate prior to the Participant’s death. Any such payment made will be subject to the Deduction Limitation.

ARTICLE VIII: SEPARATION FROM SERVICE BENEFIT


8.010	Separation from Service Benefit . Subject to the Deduction Limitation, the Participant will receive a Separation from Service Benefit, which will be equal to the Participant’s Account Balance if a Participant experiences a Separation from Service prior to his Retirement or death.

8.020

Payment of Separation from Service Benefit . The form of payment of a Participant’s Account Balance, if such payment is due to the Participant’s Separation from Service, will in all cases be a lump sum in cash. Payment of such Separation from Service Benefit will be paid within the first sixty (60) days of the calendar year immediately following the Plan Year which includes the Participant’s Separation from Service.

ARTICLE IX: DISABILITY WAIVER AND BENEFIT


9.010	Disability Waiver .

(a)

Waiver of Deferral . A Participant who is determined by the Committee or its delegate to be suffering from a Disability will be excused from fulfilling deferrals that would otherwise have been withheld from his Base Annual Salary, Incentive Compensation or Performance Awards after he is determined to have suffered a Disability. During the period of Disability, such Participant will continue to be considered a Participant for all other purposes of this Plan.


(b)	Return to Work . If a Participant returns to employment after a Disability ceases, subject to Section 409A, the Participant may continue to defer amounts for the remainder of the Plan Year and for every Plan Year thereafter while he is a Participant in the Plan.

ARTICLE X: SECTION 409A


10.010	Section 409A Generally . This Plan is intended to comply with Section 409A. Notwithstanding any other provision of this Plan to the contrary, the Company makes no representation that this Plan or any amounts payable or benefits provided under this Plan will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to this Plan.


10.020	Changes in Elections . Notwithstanding any other provision of this Plan to the contrary, once an election is made pursuant to this Plan it shall be irrevocable unless all of the following conditions are met:


(a)	the election to change the time or form of payment will not become effective until the date that is one year after the date on which the election to make the change is made;


(b)	except with respect to any payment to be made upon the death of a Participant, the form of payment, as changed, will defer payment for the Plan Year for a minimum of five (5) years later than the date that payment of such Participant’s Account Balances would otherwise have been made under this Plan; and


(c)	with respect to a payment that is to be made upon a fixed date or schedule of dates, the election to change the form of payment is made no less than twelve (12) months before the date that payment of the Account Balances for that Plan Year was otherwise scheduled to be paid.

For purposes of Section 10.020(b) and (c), all payments scheduled to be made in the form of installments attributable to a particular Plan Year will be treated as scheduled to be made on the date that the first installment of such series of payments is otherwise scheduled to be made (that is, the installments will be treated as an entitlement to a single payment for purposes of Section 409A).

Once a change in election is made and recorded pursuant to the Plan, such election will be irrevocable unless all of the conditions of this Section 10.020 are met. Notwithstanding any other provision of this Plan to the contrary, a Participant will be permitted to make only one change in election pursuant to this Section 10.020 with respect to the Account Balances to which such election relates.

10.030

Six Month Wait for Specified Employees . Notwithstanding any other provision of this Plan to the contrary, to the extent that any Account payable under the Plan constitute an amount payable upon Separation from Service or Retirement to any Participant under the Plan who is deemed to be a Specified Employee, then such amount will not be paid during the six (6) month period following such Separation from Service or Retirement. If the provisions of this Section 10.030 apply to a Participant who incurs a Separation from Service or Retirement, within the first six (6) months of the calendar year, then such amount will be paid within the first sixty (60) days following the close of the calendar year which includes the Participant’s Separation from Service or Retirement. If the provisions of this Section 10.030 apply to a Participant who incurs a Separation from Service or Retirement within the last six (6) months of the calendar year, then such amount will be paid within the first sixty (60) days after June 30th of the calendar year following the year in which includes the Participant’s Separation from Service or Retirement.

ARTICLE XI: BENEFICIARY DESIGNATION

11.010

Beneficiary . Each Participant will have the right, at any time, to designate his Beneficiary or Beneficiaries (both primary and contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.

11.020

Beneficiary Designation or Change of Designation . A Participant will be permitted to designate his Beneficiary by completing and signing a written or electronic Beneficiary Designation Form , and returning it to the Committee or its delegate. A Participant will have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the written or electronic Beneficiary Designation Form and the Committee’s or its delegate’s rules and procedures, as in effect from time to time. Upon the acceptance by the Committee or its delegate of a new written or electronic Beneficiary Designation Form, all Beneficiary designations previously filed will be canceled. The Committee or its delegate will be entitled to rely on the last written or electronic Beneficiary Designation Form filed by the Participant and accepted by the Committee or its delegate prior to the Participant’s death.


11.030	Spousal Consent Required . If a Participant names someone other than his spouse as a Beneficiary, a spousal consent, in the written or electronic form designated by the Committee or its delegate, must be signed by that Participant’s spouse and returned to the Committee or its delegate.


11.040	Acknowledgment . No designation or change in designation of a Beneficiary will be effective until received and acknowledged by the Committee or its delegate.

11.050

Absence of Valid Beneficiary Designation . If a Participant fails to designate a Beneficiary as provided in the preceding Sections or, if all designated Beneficia-ries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary will be deemed to be his surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary will be payable to the executor or personal representative of the Participant’s estate.


11.060	Doubt as to Beneficiary . Subject to and in accordance with Section 409A, if the Committee or its delegate has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee or its delegate will have the right, exercisable in its discretion, to withhold such payments until this matter is resolved to the Committee’s or the delegate’s satisfaction.


11.070	Discharge of Obligations . The payment of benefits under the Plan to a Beneficiary will fully and completely discharge the Company and all of its Affiliates and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant’s participation in this Plan will terminate upon such full payment of benefits.

ARTICLE XII: LEAVE OF ABSENCE

12.010

Paid Leave of Absence . Subject to Section 409A, if a Participant is authorized by the Company or the Affiliate employing the Participant for any reason to take a company-paid leave of absence, the Participant will continue to be considered to be an Eligible Employee and deferrals will continue to be withheld during such paid leave of absence. Notwithstanding the foregoing, such withholding will cease on the date such paid leave of absence is deemed to be a Separation from Service for purposes of Section 409A.

12.020

Unpaid Leave of Absence . Subject to Section 409A, if a Participant is authorized by the Company or the Affiliate employing the Participant to take an unpaid leave of absence, the Participant will continue to be considered an Eligible Employee and the Participant will not be permitted to make deferrals until the Participant returns to a paid employment status. Upon such return, deferrals will resume for the remaining portion of the Plan Year in which the return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral will be withheld.

ARTICLE XIII: TERMINATION, AMENDMENT OR MODIFICATION

13.010

Termination . Although the Company and each Affiliate anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Company or any such Affiliate will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Company reserves the right to discontinue sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of the Board of Directors. Notwithstanding the foregoing, except as otherwise permitted by Section 409A, in the

event of any termination of the Plan, any amounts payable under the Plan shall continue to be paid in accordance with the terms of the Plan in effect on the date of Plan termination.


13.020	Amendment . The Company may, at any time, amend or modify the Plan in whole or in part by action of the Board of Directors; provided, however, that:

(a)

no amendment or modification shall be effective to decrease or restrict the value of a Participant’s Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Separation from Service as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification;


(b)	no amendment or modification of this Section 13.020 Plan shall be effective; and


(c)	the amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification.


13.030	Effect of Payment . The full payment of all applicable benefits hereunder shall completely discharge all obligations to a Participant and his Beneficiaries under this Plan.

ARTICLE XIV: ADMINISTRATION


14.010	Committee Duties . Except as otherwise provided in this Article, this Plan will be administered by the Committee and its delegates. Members of the Committee may be Participants under this Plan. The Committee will also have the discretion and authority to:


(a)	make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, and


(b)	decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan.

Any individual serving on the Committee who is a Participant will not be permitted to vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee will be entitled to rely on information furnished by a Participant or the Company.

14.020

Administration Upon Change of Control . Notwithstanding any other provision of this Plan to the contrary, upon and after the occurrence of a Change of Control, the Plan will be administered by the Third-Party Administrator. The Third-Party Administrator so selected will have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to, benefit entitlement determinations; provided, however, upon and after the occurrence of a Change of Control, such administrator will have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust.

Upon and after the occurrence of a Change of Control, the Company will be required to:


(a)	pay all reasonable administrative expenses and fees of the Third-Party Administrator;


(b)	indemnify the Third-Party Administrator against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with the performance of such administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the said administrator or its employees or agents; and

(c)

supply full and timely information to the Third-Party Administrator on all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date of circumstances of the Retirement, Disability, death or Separation from Service of the Participants, and such other pertinent information as the Third-Party Administrator may reasonably require.

Upon and after a Change of Control, the Third-Party Administrator may not be terminated by the Company and may only be terminated (and a replacement appointed) by the Trustee, but only with the approval of the Ex-CEO.

14.030

Agents . In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to the Company or any Affiliate. The Company’s Vice President, Compensation and Benefits will at all times, unless otherwise determined by the Committee, be deemed to be and shall be specifically referred to herein as the Committee’s delegate for all purposes herein.


14.040	Binding Effect of Decisions . The decision or action of the Committee or its delegate with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder will be final and conclusive and binding upon all persons having any interest in the Plan.

14.050

Indemnity of Committee . The Company and its Affiliates shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Committee or its delegate against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, or such Employee.

14.060

Employer Information . To enable the Committee and its delegates to perform their functions, the Company will supply full and timely information to the Committee and delegates on all matters relating to the compensation of its Participants, the date and circum-stances of the Retirement, Disability, death or circumstances of the Retirement, Disability, death or Separation from Service of its Participants, and such other pertinent information as the Committee or its delegate may reasonably require.

ARTICLE XV: OTHER BENEFITS AND AGREEMENTS

15.10 Coordination with Other Benefits . The benefits provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company and its Affiliates. The Plan will supplement and will not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE XVI: CLAIMS PROCEDURE

16.010

Presentation of Claim . Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee or its delegate a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred and eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.


16.020	Notification of Decision . The Committee or its delegate will consider a Claimant’s claim within a reasonable time, and will notify the Claimant in writing:


(a)	that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or


(b)	that the Committee or its delegate has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant;


(c)	the specific reason(s) for the denial of the claim, or any part of it;


(1)	specific reference(s) to pertinent provisions of the Plan upon which such denial was based;


(2)	a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and


(3)	an explanation of the claim review procedure set forth in Section 16.030 below.

16.030

Review of a Denied Claim . Within sixty (60) days after receiving a notice from the Committee or its delegate that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee or its delegate a written request for a review of the denial of the claim. Thereafter, but not later than thirty (30) days after the review procedure began, the Claimant (or the Claimant’s duly authorized representative):


(a)	may review pertinent documents;


(b)	may submit written comments or other documents; and/or


(c)	may request a hearing, which the Committee or its delegate, in its sole discretion, may grant.

16.040

Decision on Review . The Committee or its delegate will render any decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee’s or its delegate’s decision must be rendered within one hundred and twenty (120) days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain:


(a)	specific reasons for the decision;


(b)	specific reference(s) to the pertinent Plan provisions upon which the decision was based; and


(c)	such other matters as the Committee or its delegate deems relevant.


16.050	Legal Action . A Claimant’s compliance with the foregoing provisions of this Article XVI is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.

ARTICLE XVII: TRUST

17.010

Establishment of the Trust . The Company shall establish the Trust (which may be referred to herein as a “Rabbi Trust”). The Trust shall become irrevocable upon a Change of Control (to the extent not then irrevocable). Notwithstanding any other provision of this Plan to the contrary, the Trust shall not become irrevocable or funded with respect to this Plan upon the occurrence of an event described in Section 1.110(d). After the Trust has become irrevocable with respect to the Plan, except as otherwise provided in Section 12 of the Trust, the Trust shall remain irrevocable with respect to the Plan until all benefits due under the Plan and benefits and account balances due to participants and beneficiaries under any other plan covered by the Trust have been paid in full. Upon establishment of the Trust, the Company shall provide for funding of the Trust in accordance with the terms of the Trust.

17.020

Interrelationship of the Plan and the Trust . The provisions of the Plan and each Participant’s Participation Agreement will govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust will govern the rights of the Company and its Affiliates, Participants and the creditors of the Company and its Affiliates to the assets transferred to the Trust. The Company and each of its Affiliates employing any Participant will at all times remain liable to carry out their obligations under the Plan.


17.030	Distributions From the Trust . The Company’s and each of its Affiliate’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution will reduce their obligations under this Plan.

17.040 Rabbi Trust . The Rabbi Trust shall:


(a)	be a non-qualified grantor trust which satisfies in all material respects the requirement of Revenue Procedure 92-64, 1992-2 CB 122 (or any successor Revenue Procedure or other applicable authority);


(b)	become irrevocable upon a Change of Control, to the extent not then irrevocable (other than an event described in Section 1.110(d)); and


(c)	provide that any successor trustee shall be a bank trust department or other party that may be granted corporate trustee powers under state law.

ARTICLE XVIII: MISCELLANEOUS


18.010	Status of Plan . The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose

of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Section 201(2), 301(a)(3) and 401(a)(1). The Plan will be administered and interpreted to the extent possible in a manner consistent with that intent.

18.020

Unsecured General Creditor . Participants and their Bene-ficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company or its Affiliates. For purposes of the payment of benefits under this Plan, any and all of the Company’s or Affiliate’s assets shall be, and remain, the general, unpledged unrestricted assets of the Company or Affiliate. The Company or Affiliate’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.


18.030	Company Liability . The Company’s or an Affiliate’s liability for the payment of benefits will be defined only by the Plan and the Participant’s specific Participation Agreement. The Company and its Affiliates will have no obliga-tion to a Participant under the Plan, except as expressly provided in the Plan and the Participant’s Participation Agreement.

18.040

Nonassignability . Neither a Participant nor any other person will have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transfer-able. No part of the amounts payable will, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.

18.050

Not a Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any of its Affiliates and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or an Affiliate or to interfere with the right of the Company or an Affiliate to discipline or discharge the Participant at any time.


18.060	Furnishing Information . A Participant or his Beneficiary will cooperate with the Committee or its delegate by furnishing any and all information requested by the Committee or its delegate and take such other actions as may be requested in order to facilitate the administra-tion of the Plan and the payments of benefits hereunder.


18.070	Terms . Whenever any words are used herein in the masculine, they should be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they should be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.


18.080	Captions . The captions of the articles, sections and paragraphs of this Plan are for convenience only and do not control or affect the meaning or construction of any of its provisions.


18.090	Governing Law . Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the State of Iowa.


18.100	Notice . Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Vice President, Compensation and Benefits

Rockwell Collins, Inc.

400 Rockwell Collins Road NE

Cedar Rapids, Iowa 52498

Such notice will be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.


18.110	Successors . The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and the Participant’s designated Beneficiaries.


18.120	Spouse’s Interest . The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant will automatically pass to the Participant and will not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor will such interest pass under the laws of intestate succession.


18.130	Validity . In case any provision of this Plan should be found to be illegal or invalid for any reason, said illegality or invalidity will not affect the remaining parts hereof, but this Plan should be construed and enforced as if such illegal or invalid provision had never been inserted herein.

18.140

Minors, Incompetent Persons, etc . If the Committee or its delegate determines that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee or its delegate may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee or its delegate may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and will be a complete discharge of any liability under the Plan for such payment amount.


18.150	Qualified Domestic Relations Order . The Committee or its delegate is authorized to make any payments directed by court order that qualifies as a “qualified domestic relations order” under Section 414(p) in any action in which the Plan or the Committee has been named as a party.

18.160 Distribution in the Event of Taxation .


(a)	In General . Subject to and in accordance with Section 409A, if, for any reason, all or any portion of a Participant’s benefits under this Plan becomes taxable to the Participant under Section 409A prior to receipt, a Participant may petition the Committee or its delegate before a Change of Control, or the Trustee of the Trust after a Change of Control, for a

distribution of that portion of his benefit that has become taxable under Section 409A. Upon the grant of such a petition, which grant should not be unreasonably withheld (and, after a Change of Control, must be granted), the Company or, as applicable, its Affiliate will distribute to the Participant immediately available funds in an amount equal to the taxable portion of his benefit (which amount will not exceed a Participant’s unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution will be made within 90 days of the date when the Participant’s petition is granted. Such a distribution will affect and reduce the benefits to be paid under this Plan.


(b)	Trust . If the Trust terminates in accordance with provisions thereof and benefits are distributed from the Trust to a Participant in accordance therewith, the Participant’s benefits under this Plan will be reduced to the extent of such distributions.

18.170

Insurance . The Company, on its own behalf or on behalf of the trustee of the Trust, and, in its discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Company or the trustee of the Trust, as the case may be, will be the sole owner and beneficiary of any such insurance. The Participant will have no interest whatsoever in any such policy or policies, and at the request of the Company will submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to which the Company has applied for insurance.

18.180

Requirement for Release . Any payment to any Participant or a Participant’s present, future or former spouse or Beneficiary in accordance with the provisions of this Plan will, to the extent thereof, be in full satisfaction of all claims against the Plan, the Trustee and the Company, and the Trustee may require such Participant or Beneficiary, as a condition precedent to such payment to execute a receipt and release to such effect.

Exhibit 10-n-2

Schedule of Executives of the Company who are a party to the Change of Control Agreement:

Three-Year Agreement


1.	Barry M. Abzug


2.	Patrick E. Allen


3.	John-Paul E. Besong


4.	Bruce M. King


5.	Nan Mattai


6.	Robert K. Ortberg


7.	Kent L. Statler


8.	Robert A. Sturgell

Two-Year Agreement


1.	Tatum J. Buse


2.	Philip J. Jasper


3.	Colin R. Mahoney


4.	Martha L. May


5.	Robert J. Perna


6.	Jeffrey A. Standerski


7.	Douglas E. Stenske

Exhibit 10-p-2

CONSULTING AGREEMENT

This Consulting Agreement (this “ Agreement ”) is dated February 6, 2014 by and between Rockwell Collins, Inc., a Delaware corporation (the “ Company ”), and Gary R. Chadick (“ Mr. Chadick ”).

WHEREAS, Mr. Chadick has advised the Company of his desire to cease his employment with the Company effective as of February 7, 2014 (the “ Effective Date ”); and

WHEREAS, the Company desires to retain his services as a consultant on the terms and conditions set forth herein;

NOW THEREFORE, in consideration of the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

OFFICER & DIRECTOR POSITIONS

Section 1.01 Resignation . Effective as of the Effective Date, Mr. Chadick shall resign from all remaining positions that he holds with the Company and from all officer, director and other positions that he holds with any of the Company’s affiliates. Mr. Chadick agrees to execute such documents and take such actions as may be necessary or desirable to further effectuate the foregoing.

ARTICLE I

ARTICLE II

CONSULTING SERVICES

Section 2.01 Term . For the three-month period commencing on February 10, 2014 (the “Term”), Mr. Chadick shall serve as a consultant to the Company. The Term may be extended by an instrument in writing signed by both parties. Mr. Chadick can shorten the Term with advance written notice if he secures alternative employment that conflicts with his ability to provide services hereunder, in which case he shall be compensated for the pro rata portion of such month then in progress.

Section 2.02 Scope of Services and Duties . During the Term, Mr. Chadick agrees to make himself available to facilitate an orderly transition of his prior responsibilities to the Company’s new General Counsel and Secretary. Such services shall be performed on mutually agreed upon dates and times, shall not be unduly burdensome or unreasonable and shall not unreasonably interfere with Mr. Chadick’s other activities. Mr. Chadick is not required to travel to provide these services.

Section 2.03 Independent Contractor Status . During the Term, it is the intention of the parties to establish an independent contractor relationship and not an employer-employee relationship, partnership, or joint venture. Accordingly, Mr. Chadick shall not be deemed employed by the Company for purposes of any federal or state withholding taxes, and the Company shall not be responsible for or required to withhold any such taxes for or on behalf of Mr. Chadick relating to payments made hereunder. Unless otherwise specifically agreed upon in writing, Mr. Chadick shall not have any authority after the Effective Date to act as the Company’s agent for any purposes, and shall not have the authority to bind the Company or to otherwise incur any liability or obligation in the name or on behalf of the Company.

ARTICLE III

COMPENSATION, BENEFITS AND IDEMNIFICATION

Section 3.01 Compensation and Benefits . During the Term, Mr. Chadick shall be (i) paid $20,000 per month in arrears by electronic funds transfer to his personal bank account on March 10, 2014, April 10, 2014 and May 9, 2014, respectively, (ii) entitled to receive prompt reimbursement for all reasonable and necessary expenses incurred by him in performing his consulting services, which shall be reimbursed in accordance with the Company’s policies and procedures for third party business expenses and (iii) provided with administrative support reasonably required to fulfill his duties hereunder (such support shall be provided remotely by the Company’s existing administrative assistants).

Section 3.01 Indemnification . To the maximum extent provided by law, the Company shall indemnify and hold Mr. Chadick harmless from all claims, actions, damages or losses relating in any way to his provision of services hereunder. The benefits provided in this Section 3.02 are in addition to any rights to indemnification and defense, including any right to advancement of legal fees and expenses, as are provided to Mr. Chadick pursuant to the Company’s Restated Certificate of Incorporation and By-Laws, and under Delaware General Corporation Law.

ARTICLE IV

COMPANY POLICIES

Section 4.01 Compliance with Company Policies . While providing services hereunder, Mr. Chadick will continue to comply with:

a. the Company’s Standards of Business Conduct; and

b. the legal restrictions on trading in the Company’s securities while in possession of material non-public information.

ARTICLE V

MISCELLANEOUS

Section 5.01 Date of Separation from Service . The parties agree that the services to be provided pursuant to this Agreement are distinct from the services Mr. Chadick provided as an employee of the Company prior to the Effective Date. Nevertheless, the parties agree that the level of services expected to be provided by Mr. Chadick during the Term shall not exceed the level of services permitted under Treasury Regulations § 1.409A-1(h)(1)(i) under which Mr. Chadick is presumed to have had a “ Separation from Service ” and shall not affect the date of his “ Separation from Service ” from the Company, as such term is defined in Section 409A of the Internal Revenue Code of 1986, as amended and any regulations and other guidance promulgated thereunder (“ Section 409A ”). The Effective Date shall be Mr. Chadick’s date of Separation from Service from the Company.

Section 5.02 Termination of Change of Control Agreement . On the Effective Date, the Change of Control Agreement between Mr. Chadick and the Company dated as of June 30, 2009, shall terminate, and all rights of Mr. Chadick thereunder shall be extinguished.

Section 5.03 Binding Effect; Successors .

a. This Agreement shall be binding upon and inure to the benefit of the Company and any of its successors or assigns, but the Company may assign this Agreement only: (i) to one of its affiliates, provided the Company guarantees such affiliate’s performance of its obligations under this Agreement; or (ii) pursuant to a merger or consolidation in which the Company is not the continuing

entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company; and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law.

b. This Agreement is personal to Mr. Chadick and shall not be assignable by him without the consent of the Company (there being no obligation to give such consent) other than such rights or benefits as are transferred by will, the laws of descent and distribution, or succession.

Section 5.04 Notices . All notices hereunder must be in writing and shall be deemed to have given upon receipt of delivery by: (a) hand (against a receipt therefor); (b) certified or registered mail, postage prepaid, return receipt requested; (c) a nationally-recognized overnight courier service (against a receipt therefor); or (d) e-mail or facsimile transmission with confirmation of receipt. All such notices must be addressed as follows:

If to the Company, to:

Rockwell Collins, Inc.

400 Collins Road NE

Cedar Rapids, IA 52498

Attention: Robert J. Perna, Senior Vice President, General Counsel and Secretary

Fax: (319) 295-3599

E-mail: rjperna@rockwellcollins.com

If to Mr. Chadick, to:

At Mr. Chadick’s address on file with the Company or such other address as to which any party hereto may have notified the other in writing.

Section 5.05 Governing Law . THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.

Section 5.06 Amendment, Waiver . No provision of this Agreement may be modified, amended, or waived except by an instrument in writing signed by both parties.

Section 5.07 Waiver of Breach . The waiver or ratification by either party of a breach of this Agreement shall not be construed as a waiver or ratification of any subsequent breach by either party to this Agreement.

Section 5.08 Remedies Not Exclusive . No remedy specified herein shall be deemed to be such party’s exclusive remedy, and accordingly, in addition to all of the rights and remedies provided for in this Agreement, the parties shall have all other rights and remedies provided to them by applicable law, rule or regulation.

Section 5.09 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

Section 5.10 Entire Agreement . Except as otherwise noted herein, this Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior and contemporaneous agreements, if any, between the parties relating to the subject matter hereof.

Section 5.11 Severability . It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and, therefore, to the extent permitted by applicable law, the parties hereto waive any provision of applicable law that would render any provision of this Agreement invalid or unenforceable.

Section 5.12 Section 409A . This Agreement is intended to comply with the provisions of Section 409A and, wherever possible, shall be construed and interpreted to ensure that any payments that may be paid, distributed provided, reimbursed, deferred or settled under this Agreement will not be subject to any additional taxation or premium interest under Section 409A. In the event the parties determine that this Agreement or any payment hereunder does not comply with the applicable provisions of Section 409A, the Company and Mr. Chadick agree to cooperate to the fullest extent in pursuit of any available corrective relief, as provided under the terms of Internal Revenue Service Notice 2008-113 or any corresponding subsequent guidance, from the Section 409A additional income tax and premium interest. Notwithstanding the foregoing, Mr. Chadick acknowledges and agrees that any and all tax liabilities of Mr. Chadick arising from the transactions contemplated by this Agreement are his sole responsibility, including, without limitation, any additional taxes and interest due pursuant to Section 409A. No acceleration of payments and benefits provided herein shall be allowed, unless permitted by Section 409A.

[ Signatures appear on the following page. ]

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or caused the same to be executed by its duly authorized representative as of the date first above written.



	ROCKWELL COLLINS, INC.
By:	/s/ Martha May
	Name:	Martha May
	Title:	SVP, Human Resources


		/s/ Gary R. Chadick
By:	Gary R. Chadick

Exhibit 31.1

CERTIFICATION

I, Robert K. Ortberg, certify that:


2.	I have reviewed the quarterly report on Form 10-Q for the quarter ended March 31, 2014 of Rockwell Collins, Inc.;


3.	Based on my knowledge, this 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 report;


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


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: April 17, 2014	/s/ Robert K. Ortberg
	Robert K. Ortberg
	Chief Executive Officer and President

Exhibit 31.2

CERTIFICATION

I, Patrick E. Allen, certify that:


1.	I have reviewed the quarterly report on Form 10-Q for the quarter ended March 31, 2014 of Rockwell Collins, Inc.;


2.	Based on my knowledge, this 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 report;


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


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: April 17, 2014	/s/ Patrick E. Allen
	Patrick E. Allen
	Senior Vice President and
	Chief Financial Officer

Exhibit 32.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rockwell Collins, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2014 (the Report) filed with the Securities and Exchange Commission, I, Robert K. Ortberg, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


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


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



Date: April 17, 2014	/s/ Robert K. Ortberg
	Robert K. Ortberg
	Chief Executive Officer and President

Exhibit 32.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rockwell Collins, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2014 (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:


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


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



Date: April 17, 2014	/s/ Patrick E. Allen
	Patrick E. Allen
	Senior Vice President and
	Chief Financial Officer