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Rockwell Collins DEF 14A 2009

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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.       )

Filed by the Registrant x
Filed by a Party other than the Registrant o

Check the appropriate box:

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12

Rockwell Collins, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:


 
 

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[GRAPHIC MISSING]

December 18, 2009

Dear Shareowner:

You are cordially invited to attend the 2010 Annual Meeting of Shareowners of the Corporation.

The meeting will be held at The Cedar Rapids Marriott, 1200 Collins Road NE, Cedar Rapids, Iowa, on Tuesday, February 9, 2010, at 10:00 a.m. (Central Standard Time). At the meeting we will present a current report of the activities of the Corporation followed by discussion and action on the matters described in the Proxy Statement. Shareowners will have an opportunity to comment on or inquire about the affairs of the Corporation that may be of interest to shareowners generally.

If you plan to attend the meeting, please indicate your desire in one of the ways described in the box on the last page of the Proxy Statement.

We sincerely hope that as many shareowners as can conveniently attend will do so.

Sincerely yours,

[GRAPHIC MISSING]

Clayton M. Jones
Chairman, President and Chief Executive Officer


 
 

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        ROCKWELL COLLINS, INC.        
400 Collins Road NE, Cedar Rapids, Iowa 52498

Notice of 2010 Annual Meeting of Shareowners

To the Shareowners of
ROCKWELL COLLINS, INC.:

Notice Is Hereby Given that the 2010 Annual Meeting of Shareowners of Rockwell Collins, Inc. will be held at The Cedar Rapids Marriott, 1200 Collins Road NE, Cedar Rapids, Iowa, on Tuesday, February 9, 2010, at 10:00 a.m. (Central Standard Time) for the following purposes:

(1) to elect the three nominees named in the accompanying proxy statement as members of the Board of Directors of the Corporation with terms expiring at the Annual Meeting in 2013;
(2) to consider and vote upon a proposal to approve the selection by the Audit Committee of the Board of Directors of the firm of Deloitte & Touche LLP as auditors of the Corporation for fiscal year 2010;
(3) to consider and vote upon a proposal to approve amendments to the Corporation’s 2006 Long-Term Incentives Plan;
(4) to consider and vote upon a shareowner proposal; and
(5) to transact such other business as may properly come before the meeting.

Only shareowners of record at the close of business on December 11, 2009 will be entitled to notice of, and to vote at, the meeting.

By order of the Board of Directors.

[GRAPHIC MISSING]

Gary R. Chadick
Secretary

December 18, 2009

 
 
Note: The Board of Directors solicits votes by mail or by use of our telephone or Internet voting procedures.


 
 

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ROCKWELL COLLINS, INC. PROXY STATEMENT

Table of Contents

 
  Page
Proxy Statement     1  
Voting Securities     1  
Election Of Directors     1  
Information As To Nominees For Directors And Continuing Directors     2  
Corporate Governance; Board Of Directors And Committees     5  
Certain Transactions And Other Relationships     8  
Audit Committee Report     9  
Equity Ownership Of Certain Beneficial Owners And Management     10  
Compensation Of Directors     11  
Compensation Discussion And Analysis     13  
Compensation Committee Report     28  
Summary Compensation Table     29  
Grants Of Plan-Based Awards     31  
Outstanding Equity Awards At Fiscal Year-End     33  
Option Exercises And Stock Vested     34  
Pension Benefits     35  
Non-Qualified Deferred Compensation     36  
Potential Payments Upon Termination Or Change Of Control     38  
Proposal To Approve The Selection Of Auditors     42  
Equity Compensation Plan Information     44  
Proposal To Approve Amendments To The 2006 Long-Term Inventives Plan     44  
Shareowner Proposal     51  
Vote Required     52  
Other Matters     53  
Section 16(a) Beneficial Ownership Reporting Compliance     53  
Annual Reports     53  
Shareowner Proposals For Annual Meeting In 2011     54  
Expenses of Solicitation     54  
General Q&A About The Meeting     54  
Appendix A – Amended and Restated 2006 Long-Term Incentives Plan     A-1  

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PROXY STATEMENT

The 2010 Annual Meeting of Shareowners of Rockwell Collins, Inc. will be held on February 9, 2010, for the purposes set forth in the accompanying Notice of 2010 Annual Meeting of Shareowners.

This statement and the accompanying proxy, that are first being sent to shareowners on or about December 28, 2009, are furnished in connection with the solicitation by the Board of Directors of proxies to be used at the meeting and at any adjournment thereof. If a shareowner duly executes and returns a proxy in the accompanying form or uses our telephone or internet voting procedures to authorize the named proxies to vote the shareowner’s shares, those shares will be voted as specified. If no specification is made, the shares will be voted in accordance with the recommendations of the Board of Directors. The proxy and any votes cast using our telephone or internet voting procedures may be revoked prior to exercise at the meeting by delivering written notice of revocation to the Secretary of the Corporation, by executing a later dated proxy, by casting a later vote using the telephone or internet voting procedures or by attending the meeting and voting in person.

VOTING SECURITIES

Only shareowners of record at the close of business on December 11, 2009, the record date for the meeting, are entitled to notice of, and to vote at, the meeting. On December 11, 2009, we had outstanding 157,481,130 shares of our Common Stock, par value $0.01 per share (Common Stock). Each holder of Common Stock is entitled to one vote for each share held. We have no other class or series of shares currently outstanding other than our Common Stock.

ELECTION OF DIRECTORS

Our Board of Directors currently consists of nine members. Our Restated Certificate of Incorporation provides that the Board of Directors shall consist of three classes of directors with overlapping three-year terms. One class of directors is to be elected each year with terms extending to the third succeeding Annual Meeting after election. The Restated Certificate of Incorporation provides that the Board of Directors shall maintain the three classes so as to be as nearly equal in number as the then total number of directors permits. The three directors in Class III who are elected at the 2010 Annual Meeting will serve for a term expiring at our Annual Meeting in the year 2013. The three directors in Class I and the three directors in Class II are serving terms expiring at our Annual Meetings in 2011 and 2012, respectively.

It is intended that proxies in the accompanying form properly executed and returned to our proxy tabulator or shares properly authorized to be voted in accordance with our telephone or internet voting procedures will be voted at the meeting, unless authority to do so is withheld, for the election as directors of the three nominees specified in Class III — Nominees for Directors with Terms Expiring in 2013 (Donald R. Beall, Mark Donegan and Andrew J. Policano), each of whom now serves as a director with a term extending to the 2010 Annual Meeting and until a successor is elected and qualified. If for any reason any of the nominees is not a candidate (which is not expected) when the election occurs, it is expected that proxies in the accompanying form or shares properly authorized to be voted in accordance with our telephone or internet voting procedures will be voted at the meeting for the election of a substitute nominee or, in lieu thereof, the Board of Directors may reduce the number of directors.

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INFORMATION AS TO NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS

There is shown below for each nominee for director and each continuing director, as reported to us as of December 11, 2009, the nominee’s or continuing director’s name, age and principal occupation; the position, if any, with us; the period of service as a director of our company; other public company directorships held; and the committees of the Board of Directors on which the nominee or continuing director serves.

CLASS III — NOMINEES FOR DIRECTORS WITH TERMS EXPIRING IN 2013

   
[GRAPHIC MISSING]   Donald R. Beall   Age 71
  Chairman Emeritus, Rockwell.  Mr. Beall has been a director of our company since June 2001 and served as non-executive Chairman of the Board from June 2001 to June 2002. He is the Chairman of the Executive Committee and a member of the Technology Committee. Mr. Beall is the retired Chairman and CEO of Rockwell and was a director of Rockwell from 1978 to February 2001. He served as Chairman and CEO of Rockwell from 1988 to February 1998 and President from 1979 to 1988. Mr. Beall serves on the board of CT Realty. He is a former director of Conexant Systems, Jazz Semiconductor, Mindspeed Technologies, Skyworks Solutions, Procter & Gamble, Times Mirror, Amoco and ArvinMeritor. He is a member of various University of California — Irvine supporting organizations, an Overseer of the Hoover Institute at Stanford and a former trustee of the California Institute of Technology. He is also a member of the Business Executives for National Security; on the Presidents’ Circle of National Academies of Science, Engineering & Medicine; and member of numerous Young Presidents Organization Alumni groups. He is a Fellow of the American Institute of Aeronautics and Astronautics. He is an advisor to the San Jose State University School of Engineering, and a trustee and President’s Circle member of the Naval Postgraduate School Foundation. He is an investor, director and/or advisor with several private companies and investment partnerships.

   
[GRAPHIC MISSING]   Mark Donegan   Age 53
  Chairman and Chief Executive Officer of Precision Castparts Corp.  Mr. Donegan has been a director of our company since June 2006. He is a member of the Compensation Committee. Mr. Donegan has been Chairman and Chief Executive Officer of Precision Castparts Corp. (metal components, investment castings, forgings and fasteners) since August 2003. He served as President, Chief Executive Officer and Chief Operating Officer of Precision Castparts from August 2002 to August 2003, and as President and Chief Operating Officer from August 2001 to August 2002. He served as President of Wyman-Gordon Company (complex metal components and products subsidiary of Precision Castparts) and as President of the Structural Division of Precision Castparts from December 1999 to July 2001. He joined Precision Castparts in 1985 and prior thereto was with the General Electric Company.

   
[GRAPHIC MISSING]   Andrew J. Policano   Age 60
  Dean, The Paul Merage School of Business, University of California, Irvine. Dr. Policano has been a director of our company since April 2006. He is the Chairman of the Board Nominating and Governance Committee and a member of the Audit Committee. Dr. Policano has been the Dean of The Paul Merage School of Business, University of California — Irvine since August 2004. Prior thereto, he served on the faculty and as Dean at the School of Business, University of Wisconsin-Madison. Dr. Policano is a director of Badger Meter, Inc. and a former director of Physicians Insurance Company of Wisconsin. He is a member of the board of other professional and civic organizations.

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CLASS I — CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2011

   
[GRAPHIC MISSING]   Chris A. Davis   Age 59
  General Partner, Forstmann Little & Co. Ms. Davis has been a director of our company since February 2002 and is the Chairman of the Audit Committee. She became a General Partner with Forstmann Little & Co. (private equity firm) in October 2005 after having served them as a Special Limited Partner since August 2001. She served as Chairman of McLeodUSA Incorporated (telecommunications) from August 2005 to January 2006, Chairman and Chief Executive Officer of McLeodUSA from April 2002 to August 2005 and Chief Operating and Financial Officer of McLeodUSA from August 2001 to April 2002. She served as Executive Vice President, Chief Financial and Administrative Officer of ONI Systems (telecommunications) from May 2000 to August 2001. She served as Executive Vice President, Chief Financial and Administrative Officer and director of Gulfstream Aerospace Corporation (business aircraft) from July 1993 to April 2000. She is a member of the board of directors of Cytec Industries, Inc., IMG Worldwide, 24 Hour Fitness Worldwide and ENK International, and is a former director of Aviall, Inc. and Wolverine Tube, Inc.

   
[GRAPHIC MISSING]   Ralph E. Eberhart   Age 62
  Chairman and President, Armed Forces Benefit Association. General Eberhart has been a director of our company since November 2007 and is a member of the Technology Committee and the Compensation Committee. He has been Chairman and President of the Armed Forces Benefit Association since February 2009. He served as Commander of the North American Aerospace Defense Command (NORAD) and U.S. Northern Command from October 2002 to January 2005. His active military career spanned 36 years. He is a member of the board of directors of VSE Corporation and is a director of several private companies.

   
[GRAPHIC MISSING]   David Lilley   Age 62
  Retired Chairman and Chief Executive Officer of Cytec Industries Inc. Mr. Lilley has been a director of our company since December 2008. He is a member of the Audit Committee and Board Nominating and Governance Committee. He served as Chairman of Cytec Industries Inc. (specialty chemicals and materials) from January 1999 to December 2008, Chief Executive Officer of Cytec Industries from May 1998 to December 2009, and non-executive director of Cytec Industries Inc. from January 2009 through April 2009. He was President of Cytec Industries from January 1997 through June 2008. From 1994 until January 1997, he was a vice president of American Home Products Corporation (medical devices), responsible for its Global Medical Device business. Prior to that he was a vice president and a member of the Executive Committee of American Cyanamid Company (medical and agricultural products). Mr. Lilley is also a director of Arch Chemicals, Inc. and Public Service Enterprise Group Inc.

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CLASS II — CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2012

   
[GRAPHIC MISSING]   Anthony J. Carbone   Age 68
  Retired Vice Chairman of the Board and Senior Consultant, The Dow Chemical Company. Mr. Carbone has been a director of our company since June 2001. He is the Chairman of the Compensation Committee and a member of the Executive Committee. Mr. Carbone served as Vice Chairman of the Board of Directors of The Dow Chemical Company (chemical, plastic and agricultural products) from February 2000 to October 2005 and Senior Consultant of Dow from November 2000 to October 2005. He served as Executive Vice President of Dow from November 1996 to November 2000. He is a former director of Dow. He is a member of the American Chemical Society and former board member and Chairman of the American Plastics Council and the Society of Plastics Industries. Mr. Carbone has served on the Advisory Council of the Heritage Foundation.

   
[GRAPHIC MISSING]   Clayton M. Jones   Age 60
  Chairman, President and Chief Executive Officer of the Corporation. Mr. Jones has been a director of our company since March 2001. He has been our Chairman of the Board since June 2002 and President and Chief Executive Officer since June 2001. Mr. Jones is a member of the Executive Committee. He serves as a director of the Unisys Corporation and Deere & Company. He also serves as a director or member of a number of professional and civic organizations.

   
[GRAPHIC MISSING]   Cheryl L. Shavers   Age 55
  Chairman and Chief Executive Officer, Global Smarts, Inc. Dr. Shavers has been a director of our company since September 2002. She is Chairman of the Technology Committee and a member of the Board Nominating and Governance Committee. Dr. Shavers has been the Chairman and Chief Executive Officer of Global Smarts, Inc. (business advisory services) since February 2001. She also serves as a director of ATMI, Inc. and served on the Advisory Board for E.W. Scripps Company. She served as Under Secretary of Commerce for Technology for the United States Department of Commerce from November 1999 to February 2001 after having served as its Under Secretary Designate from April 1999 to November 1999. She served as Sector Manager, Microprocessor Products Group for Intel Corporation prior to April 1999. She served as non-executive chairman of BitArts Ltd. from 2001 to December 2003.

The Board of Directors recommends that you vote “FOR” the election as directors of the three Class III nominees named above, that is presented as item (1) on the accompanying proxy card.

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CORPORATE GOVERNANCE;
BOARD OF DIRECTORS AND COMMITTEES

Our business is managed through the oversight and direction of the Board of Directors. Our Board seeks to maintain high corporate governance standards.

The directors regularly keep informed about our business at meetings of the Board and its Committees and through various supplemental reports and communications between meetings. Our non-employee directors meet regularly in executive sessions without the presence of any corporate officers. These executive sessions are chaired by the Chair of the Executive Committee or a director, designated by the independent directors, who has the relevant background to lead the discussion of a particular matter.

We continue to enhance our corporate governance structure from time to time in light of regulatory activity and based upon a review of recommended best practices. Our corporate governance documents are available free of charge on our website at www.rockwellcollins.com under the Investor Relations tab and within the Corporate Governance link. We will provide, without charge, upon written request, copies of our corporate governance information. These documents include our Restated Certificate of Incorporation, By-Laws, Board of Directors Guidelines on Corporate Governance, Committee Charters, Board Membership Criteria, Code of Ethics, Categorical Standards and Policy for Director Independence and Related Person Transaction Policy.

Board Independence

The Board of Directors has determined that no director other than Messrs. Jones and Beall has a material relationship with the Corporation. Accordingly, seven of our nine directors are “independent” directors based on an affirmative determination by our Board of Directors in accordance with the listing standards of the New York Stock Exchange (“NYSE”) and Securities and Exchange Commission (“SEC”) rules.

The standards relied upon by the Board in affirmatively determining whether a director is independent are comprised, in part, of those objective standards set forth in the NYSE and SEC rules. The Corporation’s Categorical Standards and Policy for Director Independence have been adopted by the Board to assist it in making determinations regarding the independence of its members.

With respect to its evaluation of Mr. Donegan’s independence, the Board considered the annual amount of purchases by us in the ordinary course of business within the preceding three years from companies for which he served as an executive officer. The Board determined that the amount of such purchases for any single fiscal year within those three years was below the greater of $1,000,000 or 2% of the other company’s consolidated gross annual revenues and therefore in accordance with the Commercial Relationship categorical standard set forth in the Categorical Standards and Policy for Director Independence, did not impair his independence.

Board Meetings and Attendance

In fiscal year 2009, the Board of Directors held six meetings and acted on four occasions by unanimous written consent in lieu of a meeting. All of the directors attended at least 75% of the meetings of the Board and the Committees on which they served, and most of the directors attended 100% of such meetings. Directors are expected to attend the Annual Meeting of Shareowners unless they have a valid reason such as a schedule conflict. Last year, eight directors attended our 2009 Annual Meeting of Shareowners and one director could not attend due to a schedule conflict.

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Board Committees

The Board has established five committees whose principal functions are briefly described below.

The Audit Committee has three independent directors. It assists the Board in overseeing (i) our accounting and financial reporting processes; (ii) the integrity and audits of our financial statements; (iii) our compliance with legal and regulatory requirements; (iv) the qualifications and independence of our independent auditors; and (v) the performance of our internal and independent auditors. The Audit Committee also:

has sole authority to appoint or replace our independent auditors, with that appointment being subject to shareowner approval
has sole authority to approve in advance the fees, scope and terms of all audit and non-audit engagements with our independent auditors
monitors compliance of our employees with our standards of business conduct and conflict of interest policies
meets at least quarterly with our senior executive officers, head of internal audit and our independent auditors in separate executive sessions

The specific functions and responsibilities of the Audit Committee are set forth in the Audit Committee Charter. The Committee met eight times during fiscal year 2009.

The Board Nominating and Governance Committee has three independent directors. The principal functions of this Committee are seeking, considering and recommending to the Board qualified candidates for election as directors and recommending a slate of nominees for election as directors at the Annual Meeting. It also periodically prepares and submits to the Board for adoption the Committee’s selection criteria for director nominees (“Board Membership Criteria”). It reviews and makes recommendations on matters involving general operation of the Board and our corporate governance, and it annually recommends to the Board nominees for each committee of the Board. In addition, the Committee annually facilitates the assessment of the Board of Directors’ performance as a whole and of the individual directors and reports thereon to the Board. The Committee has the sole authority to retain and terminate any search firm to be used to identify director candidates. For more information regarding the Committee’s role in director nominations, see “Director Nominations” below. The Committee members met two times during fiscal year 2009.

The Compensation Committee has three independent directors. The principal functions of the Compensation Committee are to set salaries and annual and long-term incentives for the CEO and other senior executives; evaluate annually the performance of the CEO and other senior executives; review and approve the design and competitiveness of compensation plans, executive benefits and perquisites; periodically review and make recommendations to the Board regarding the competitiveness of director compensation; oversee the Corporation’s annual and long-term incentive plans and deferred compensation plans pursuant to the terms of the respective plans; retain and terminate, in its sole discretion, any independent compensation consultant used to assist in the evaluation of director, CEO or senior executive compensation and in its sole authority approve the independent consultant’s fees and other retention terms; review and approve corporate financial and key business goals used for the annual and long-term incentive plans; and produce a compensation committee report on executive compensation for inclusion in the proxy statement. The Committee met four times during fiscal year 2009.

The Executive Committee has three directors. The principal function of the Executive Committee is to discharge certain responsibilities of the Board of Directors between meetings of the Board of Directors. The Committee may exercise all of the powers of the Board of Directors, except it has no power or authority to adopt, amend or repeal any sections or articles of our By-Laws or Restated Certificate of Incorporation; elect or remove officers, or fill vacancies in the Board of Directors or in committees; fix compensation for officers, directors or committee members; amend or rescind prior resolutions of the Board; make recommendations to shareowners or approve transactions that require shareowner approval; issue additional stock of the Corporation or fix or determine the designations and any of the rights and preferences of any series of stock (other than pursuant to a specific delegation of authority from the Board related to a shelf registration statement) or take certain other actions specifically reserved for the Board. The Committee met once during fiscal year 2009.

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The Technology Committee has three non-employee directors. The principal functions of the Technology Committee are to review and provide guidance on important technology-related issues, including the assessment of (i) our technology competitiveness; (ii) the strength and competitiveness of our engineering processes and disciplines; (iii) our technology planning processes to support our growth objectives; and (iv) our focus on engineering leadership and critical technologist development and replacement planning. The Committee met twice during fiscal year 2009.

The membership of each committee as of December 1, 2009 is listed below.

         
  Audit   Board Nominating
and Governance
  Compensation   Executive   Technology
     Davis*   Policano*   Carbone*   Beall*   Shavers*
     Lilley   Lilley   Donegan   Carbone   Beall
     Policano   Shavers   Eberhart   Jones   Eberhart

* Chairman.

Director Nominations

The Board Nominating and Governance Committee is responsible for identifying individuals who meet the Board’s membership criteria, and recommending to the Board the election of such individuals. The Committee identifies qualified candidates in many ways including utilizing outside search firms and by receiving suggestions from directors, management and shareowners. Shareowners wishing to recommend director candidates for consideration by the Committee can do so by writing to the Board Nominating and Governance Committee, c/o the Secretary of the Corporation at our corporate headquarters in Cedar Rapids, Iowa, giving the candidate’s name, biographical data and qualifications. Any such recommendation must be accompanied by a written statement from the individual of his or her consent to be named as a candidate and, if nominated and elected, to serve as a director. In addition to recommending nominees to the Committee, shareowners may also propose nominees for consideration at shareowner meetings. These nominee proposals must be provided timely and otherwise meet the requirements set forth in our By-Laws. See “Shareowner Proposals for Annual Meeting in 2011” set forth later in this proxy statement.

The Committee evaluates the qualifications of candidates properly submitted by shareowners under the same criteria and in the same manner as potential nominees identified by the Corporation. Director candidates are reviewed by the Committee as part of the Committee’s Charter against various general guidelines set forth in the Board Membership Criteria, a copy of which is attached to the Board Nominating and Governance Committee Charter. In addition to the general guidelines, the Committee has identified the following minimum qualifications for Board membership: each nominee for director should be an individual of the highest character and integrity, have solid leadership skills, have experience at strategy/policy setting, have good communication skills, have a reputation for working constructively with others, have sufficient time available to devote to the affairs of the Corporation, be free of any conflict of interests that would interfere with the proper performance of the responsibilities of a director, and be under the age of 72 as of the meeting of shareowners at which he or she will stand for election.

Communicating With Board Members

As discussed above, the Chair of the Executive Committee generally presides at regular executive sessions of our non-employee directors. Any shareowner or other interested party may communicate directly with this presiding director by sending an email to presidingdirector@rockwellcollins.com or writing to: Presiding Director, Rockwell Collins, Inc., 400 Collins Road NE, Cedar Rapids, IA 52498. Communications by shareowners or other interested parties may also be sent to non-employee directors, as a group or individually, by sending an email to boardofdirectors@rockwellcollins.com or by writing to Board of Directors (or one or more directors by name), Attn: Corporate Secretary, Rockwell Collins, Inc., 400 Collins Road NE, Cedar Rapids, IA 52498. Upon receipt of any communication, the Corporate Secretary will determine the nature of the communication and, as appropriate, facilitate direct communication with the appropriate director.

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CERTAIN TRANSACTIONS AND OTHER RELATIONSHIPS

The Board has adopted a Related Person Transaction Policy providing for the review and approval or ratification by the Audit Committee of certain transactions or relationships involving Rockwell Collins and its directors, executive officers, certain shareowners and their affiliates. The Audit Committee is responsible for reviewing these transactions and takes into account the pertinent facts and circumstances presented, and any other information they deem appropriate, to determine the disposition action that is in the best interests of the Corporation.

This written policy sets forth procedures for the review, approval or ratification and monitoring of transactions involving Rockwell Collins and “related persons.” For the purposes of the policy, “related persons” include executive officers, directors and director nominees or their immediate family members, or shareowners owning five percent or greater of Rockwell Collins’ outstanding stock. The Related Person Transaction Policy defines “related person transactions” in accordance with applicable SEC rules as any transaction in which the Corporation was or is to be a participant, and in which a related person has a material direct or indirect interest that exceeds $120,000. The policy requires these related person transactions to be reviewed and approved or ratified by the Audit Committee. In addition, this policy requires related persons to disclose to the Audit Committee the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction and the related person’s direct or indirect material interest in, or relationship to, the related person transaction.

The Corporation employs in non-executive positions the spouses of two executives and those spouses each receive in excess of $120,000 in total employee compensation. The compensation of these family members was established in accordance with the Corporation’s employment and compensation practices applicable to employees with equivalent qualifications, experience and responsibilities. These two employment relationships were approved by the Board.

The Corporation purchases goods and services in the ordinary course of business from companies where Mr. Donegan, a director of ours, served as an executive officer within the preceding three years. This relationship is further discussed above under Corporate Governance; Board Independence. This relationship is not material in amount and has been approved by the Board.

In addition, Mr. Beall’s Rockwell benefits assumed by us, as described below under the heading “Compensation of Directors”, have been approved by the Board pursuant to the Related Person Transaction Policy.

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AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors consists entirely of directors who meet the independence and other requirements of the New York Stock Exchange and applicable law. All three members have been deemed “audit committee financial experts” (as defined by applicable Securities and Exchange Commission rules) by our Board. The Committee has furnished the following report:

We assist the Board of Directors in overseeing and monitoring the integrity of the Corporation’s financial reporting process, compliance with legal and regulatory requirements and the quality of the internal and external audit processes. Our roles and responsibilities are set forth in a written Charter adopted by the Board of Directors. We review and reassess the Charter periodically and recommend any changes to the Board for approval.

We are responsible for overseeing the Corporation’s overall financial reporting process. In fulfilling our responsibilities for the financial statements for fiscal year 2009, we:

Reviewed and discussed the audited financial statements for fiscal year 2009 with management and Deloitte & Touche LLP (“Deloitte”), the Corporation’s independent auditors;
Reviewed and discussed management’s report and Deloitte’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act;
Discussed with Deloitte the matters required to be discussed by Statement on Auditing Standards No. 114 relating to the conduct of the audit; and
Received written disclosures and the letter from Deloitte regarding its independence as required by applicable requirements of the Public Company Accounting Oversight Board. We discussed with Deloitte its independence, and considered whether the provision of non-audit services by Deloitte is compatible with maintaining its independence. All audit and non-audit services provided by Deloitte to the Corporation in fiscal year 2009 were pre-approved by us.

Based on our review of the audited financial statements and discussions with management and Deloitte, we recommended to the Board of Directors that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for fiscal year 2009 for filing with the SEC. The Audit Committee also has reviewed the performance and independence of Deloitte and recommends that shareowners approve the selection of Deloitte as the Corporation’s independent auditors for fiscal year 2010.

Audit Committee
Chris A. Davis, Chairman
Andrew J. Policano
David Lilley (member since February 2009)
Anthony J. Carbone (member until February 2009)

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EQUITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareowners.  There is no shareowner known to us that beneficially owns more than 5% of the outstanding shares of our Common Stock as of December 1, 2009.

Management Equity Ownership.  The following table shows the beneficial ownership, reported to us as of December 1, 2009, of our Common Stock, including shares as to which a right to acquire ownership within 60 days exists (for example, through the exercise of stock options or through various trust arrangements) within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended, of each director, each executive officer listed in the table and of such persons and other executive officers as a group.

   
  Beneficial Ownership on
December 1, 2009
Name   Shares(1)   Percent of
Class(2)
Clayton M. Jones     1,453,074 (3,4,5)      __*  
Donald R. Beall     363,817 (4,6,7,8)      __*  
Anthony J. Carbone     46,960 (4,6,7)      __*  
Chris A. Davis     46,082 (4,6,7)      __*  
Mark Donegan     7,596 (7)      __*  
Ralph E. Eberhart     5,868 (7)      __*  
David Lilley     8,273 (7)      __*  
Andrew J. Policano     10,466 (7)      __*  
Cheryl L. Shavers     30,727 (4,6,7)      __*  
Gregory S. Churchill     358,519 (3,4,5)      __*  
Patrick E. Allen     224,204 (3,4,5)      __*  
Robert K. Ortberg     158,830 (3,4,5)      __*  
Kent L. Statler     85,840 (3,4,5)      __*  
All of the above and other executive officers as a group (23 persons)     3,516,283 (3,4,5,6,7,8,9)      2  

* Less than 1%
(1) Each person has sole voting and investment power with respect to the shares listed unless otherwise indicated.
(2) The shares owned by each person, and by the group, and the shares included in the number of shares outstanding have been adjusted, and the percentage of shares owned has been computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934.
(3) Includes shares held under our Retirement Savings Plan as of December 1, 2009. Does not include 10,443 share equivalents for Mr. Jones, 1,895 share equivalents for Mr. Churchill, 1,111 share equivalents for Mr. Allen, 929 share equivalents for Mr. Ortberg, 944 share equivalents for Mr. Statler, and 24,297 share equivalents for the group, held under our Non-Qualified Savings Plan as of December 1, 2009. These share equivalents under the Non-Qualified Savings Plan are settled in cash in connection with retirement or termination of employment and may not be voted or transferred.
(4) Includes shares that may be acquired upon the exercise of outstanding stock options that are or will become exercisable within 60 days as follows: 1,340,977 for Mr. Jones, 165,985 for Mr. Beall, 15,000 for Mr. Carbone, 25,000 for Ms. Davis, 18,500 for Dr. Shavers, 329,541 for Mr. Churchill, 202,265 for Mr. Allen, 143,198 for Mr. Ortberg, 71,287 for Mr. Statler and 2,897,170 for the group.
(5) Does not include performance shares held by such persons for which shares of our Common Stock may be issued following the completion of any open three-year performance period, which shares are dependent on the level of achievement of our performance goals.
(6) Includes 21,381 shares for Mr. Beall, 11,984 shares for Mr. Carbone, 6,413 shares for Ms. Davis, and 4,632 shares for Dr. Shavers granted as restricted stock as compensation for services as directors.

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(7) Includes 14,160 shares for Mr. Beall, 14,191 shares for Mr. Carbone, 14,669 shares for Ms. Davis, 7,596 shares for Mr. Donegan, 5,868 shares for Mr. Eberhart, 8,273 shares for Mr. Lilley, 10,466 shares for Dr. Policano, and 7,595 shares for Dr. Shavers granted as restricted stock units as compensation for services as directors.
(8) Includes 162,291 shares that are held by a family trust. These shares in the family trust, along with other assets, are pledged as collateral for a loan from a third party.
(9) Includes 7,455 shares under our Savings Plan held by executive officers’ spouses and 1,286 shares acquired by an executive officer’s spouse under our Employee Stock Purchase Plan as of December 1, 2009. Also includes 3,818 vested performance shares, including dividend equivalents accumulated on these deferred shares, that have been deferred under a Deferred Compensation Plan.

COMPENSATION OF DIRECTORS
2009 DIRECTOR COMPENSATION TABLE

The following table sets forth information regarding compensation for each of our non-employee directors for 2009. Our non-employee director compensation program for 2009 is comprised of cash (board and committee annual retainer fees) and equity (restricted stock unit awards). Mr. Jones, who is a director and an employee, does not participate in this compensation program for non-employee directors.

             
Name   Fees
Earned or
Paid in
Cash ($)(1)(2)
  Stock
Awards
($)(3)(4)
  Option
Awards
($)(4)
  Non-Equity
Incentive
Plan
Compensation
($)
  Change
in Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings ($)
  All Other
Compensation
($)(5)
  Total
($)
Donald R. Beall(6)   $ 100,000     $ 111,331                       $ 20,526     $ 231,857  
Anthony J. Carbone   $ 102,500     $ 111,352                       $ 11,505     $ 225,357  
Chris A. Davis   $ 110,000     $ 111,669                       $ 6,156     $ 227,825  
Mark Donegan   $ 100,000     $ 106,541                             $ 206,541  
Ralph E. Eberhart   $ 100,000     $ 104,907                             $ 204,907  
David Lilley(7)   $ 83,545     $ 205,054                             $ 288,599  
Andrew J. Policano   $ 105,000     $ 109,255                             $ 214,255  
Cheryl L. Shavers   $ 100,000     $ 106,541                       $ 4,447     $ 210,988  

(1) Non-employee directors receive an annual retainer fee of $100,000 that they may elect to receive in cash or restricted stock units (RSUs) in lieu of cash. Each of Messrs. Beall, Carbone and Lilley and Ms. Davis elected in 2008 to defer 100% of their cash retainer in 2009 into RSUs.
(2) Audit Committee members receive an annual fee of $5,000 and the Audit Committee Chairman receives an annual fee of $10,000. These fees may be paid in cash or in RSUs in lieu of cash, at the election of the Audit Committee member. Ms. Davis and Mr. Carbone elected in 2008 to defer 100% of their 2009 audit committee fees into RSUs.
(3) Under the 2006 Long-Term Incentives Plan, as amended effective December 29, 2007, non-employee directors received an annual grant of RSUs determined by dividing $100,000 by the Fair Market Value of our stock on the date of the shareowner’s annual meeting. RSU dividend equivalents payable quarterly are also included in this column.

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(4) No options were awarded to directors in fiscal year 2009. The non-employee directors have outstanding equity awards as of the end of fiscal year 2009 as follows:

     
Name   Option
Awards
  Restricted
Stock Awards
  Restricted
Stock Unit
Awards
Donald R. Beall     165,985       21,381       13,647  
Anthony J. Carbone     25,000       11,984       13,678  
Chris A. Davis     25,000       6,413       14,104  
Mark Donegan                 7,596  
Ralph E. Eberhart                 5,868  
David Lilley                 7,760  
Andrew J. Policano                 10,466  
Cheryl L. Shavers     18,500       4,632       7,595  
(5) Includes cash dividends paid on restricted stock.
(6) Mr. Beall also receives benefits related to his prior service as an executive of a predecessor company. These additional benefits are disclosed further in the narrative below.
(7) Mr. Lilley was elected a director in December 2008 and was granted RSUs with a value of $200,000 upon his election. Mr. Lilley is not entitled to an annual grant of RSUs until the 2010 annual meeting.

Cash Compensation

All non-employee directors receive a retainer fee of $100,000 per year for service on the Board of Directors, payable in advance in equal quarterly installments. An additional $10,000 annual retainer fee is paid to the Audit Committee chair. An additional $5,000 annual retainer fee is paid to each of the other Audit Committee members. No additional retainer is paid for service on committees other than the Audit Committee. Under the 2006 Long-Term Incentives Plan (2006 LTIP), each director has the option each year to determine whether to defer all or any part of his or her retainer fees by electing to receive restricted stock units of our Common Stock valued at the closing price of our Common Stock on the date the cash retainer payment would otherwise be paid. Directors are reimbursed for all reasonable expenses associated with attending board and committee meetings and otherwise relating to their director duties. Directors are eligible to obtain up to $5,000 in matching charitable gifts under our Matching Gift Program.

Stock-Based Compensation

In addition to the retainer fees described above, each non-employee director is granted restricted stock units of our Common Stock under the 2006 LTIP based on a $200,000 value effective concurrently with the director’s election to our Board. Following the completion of one year of service on the Board, each non-employee director is granted restricted stock units of our Common Stock based on a $100,000 value immediately after every Annual Meeting of Shareowners of the Corporation. These restricted stock units entitle the directors to a contractual right to receive at a future date the number of shares of Common Stock specified. Pursuant to the terms of the directors’ restricted stock units, dividend equivalents in the form of additional restricted stock units accumulate on the date we otherwise pay dividends on our Common Stock and directors receive unrestricted shares of our Common Stock in payment for restricted stock units upon termination of service on the Board of Directors. A director has no voting rights on the restricted stock units prior to the issuance of unrestricted shares upon termination of service.

Other

Mr. Beall receives, in addition to the standard non-employee director compensation described above, approximately $22,600 per month for office, telecommunication and administrative services. Payment for these office, telecommunication and administrative services are benefits granted by Rockwell International Corporation (now known as Rockwell Automation, Inc.) (“Rockwell”) that were assumed by us in our spin-off from Rockwell (the “Distribution”) and are not compensation for services provided to us as a director. Mr. Beall also receives various retirement benefits (principally defined benefit pension, 401(k) savings plan distributions and deferred compensation payouts) as a result of his years of service with Rockwell that were assumed by us in the Distribution.

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Director Stock Ownership Guidelines

Each non-employee director is required to own shares of our Common Stock with a market value of at least three times the annual retainer amount within four years of joining the Board of Directors. We consider all shares held as follows toward meeting these ownership requirements: shares owned outright (including in trusts and those held by a spouse), shares of restricted stock and shares represented by restricted stock units. Unexercised stock options are not included toward meeting the guidelines. Progress toward meeting these ownership guidelines was reviewed in April 2009, and at that time it was projected that the ownership guidelines would be met on a timely basis.

EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This Compensation Discussion and Analysis (CD&A) provides detailed information about the compensation program for the Corporation’s named executive officers. It includes the Compensation Committee’s philosophy and objectives, roles and responsibilities, descriptions of each of the elements of compensation and the basis for compensation adjustments, incentive payments and long-term incentive grants made for 2009. Unless otherwise noted, references to years in this CD&A are to Rockwell Collins’ fiscal years that commence in October.

Executive Summary

The Compensation Committee has a strong pay-for-performance philosophy and approves programs that are aligned with corporate, shareowner and individual goals. To attract and retain top talent, target compensation is set around the median of the competitive market. A significant portion of total direct compensation is dependent on actual performance measured against annual and long-term performance goals of the Corporation approved by the Board of Directors.

The implementation of the Committee’s pay-for-performance philosophy in 2009 resulted in no annual incentive plan payment for the named executive officers and all other employees. Due to the global economic weakness and particularly the impact on the Corporation’s Commercial Systems business, the Corporation did not meet its fiscal 2009 annual incentive financial targets. Additionally, due to the challenging economic environment, salaries were frozen for 2009 for most employees, including the named executive officers. The salary freeze helped to minimize the number of layoffs for the Corporation in 2009.

The Corporation’s three-year performance on long-term financial targets for the 2007-2009 period resulted in return on sales of 14%, well above the target of 11%, and cumulative sales of $13.5 billion, within 2% of the goal of $13.7 billion in spite of the decline in our commercial markets during 2009. As a result, long-term incentive payments for 2009, including cash performance units and performance shares, were made at 168% of target to eligible executives, including the named executive officers.

Stock options granted in November 2006 and 2007 were “underwater” at the end of fiscal 2009 (with the market price of shares below the stock option exercise prices) and these stock options will not provide compensation to executives unless the stock price is above the exercise prices. Stock options granted in November 2008, are currently “in the money” given the rebound in the stock price over the past year.

After reviewing a report from the independent compensation consultant on competitive benchmark data and looking at the past three years of data for long-term incentive targets, the target dollar values of long-term incentives granted to the named executive officers in November 2008 were adjusted upward to remain consistent with the median of competitive practice.

Benefits provided to the executive officers are generally consistent with those provided to other salaried employees of the Corporation, including health plans and retirement benefits. One noteworthy incremental benefit for executive officers is in their change of control agreements that provide them with a strong incentive to continue their employment with the Corporation if there is a change of control, or a threat of such a transaction. These agreements also help to maintain a competitive total compensation program. The executives’ potential benefits under these agreements were reduced in 2009. The reductions included the elimination of the tax gross up provision, removal of the executive’s ability to collect fifty percent of the benefits if the executive terminates

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employment without good reason following a change of control and other changes, all of which resulted on average in an estimated 30% reduction of the potential cost of these agreements.

Although the executives’ retirement benefits under the defined benefit pension plans have been frozen since 2006, significant increases in the value of these benefits is reported in the Summary Compensation Table for 2009. These increases in pension values result from present value calculations using a much lower discount rate this year compared to last year. While the defined pension benefits to be paid to the executives are frozen, the calculated present value of these benefits change from year to year based on changes in the discount rate as required by regulatory standards.

Compensation Philosophy and Objectives

The Compensation Committee (“Committee”) has developed and implemented compensation policies, plans and programs to provide competitive compensation opportunities with actual payments highly dependent on the Corporation’s performance results and enhancements to shareowner value, consistent with a pay-for-performance philosophy. Base salaries and target incentive compensation are set around the median compensation levels of other major U.S. industrial and aerospace and defense peer companies, adjusted for size. The Committee considers the total compensation package (earned or potentially available, including benefits) in establishing each element of compensation.

The policies, plans and programs are designed to meet the following objectives:

support the Corporation’s vision roadmap
attract and retain highly qualified executives
be competitive with other major U.S. industrial and aerospace and defense peer companies
reward corporate, business unit and individual performance (“pay-for-performance”)
align the interests of executives and shareowners
promote a balance of annual and long-term results

What Compensation is Intended to Reward

A significant amount of the named executive officers’ compensation is variable, tied to performance as measured by specific goals for both the annual and long-term incentive plans. To support the pay-for-performance philosophy, performance is evaluated as follows:

Corporate Performance.  The annual incentive plan is designed to reward the achievement of annual financial goals and key business goals that are important to the current and future success of the Corporation. These goals are included in the Corporation’s annual operating plan that is prepared by management and approved by the Board of Directors. The same annual incentive plan design and performance metrics apply to all named executive officers and most employees of the Corporation worldwide.

Our 2006 Long-Term Incentives Plan was established to reward the achievement of long-term financial goals and increased shareowner value. This plan applies generally to about 150 executives of the Corporation including the named executive officers. These long-term incentives include three-year performance awards and stock options.

Business Unit Performance.  The Chief Executive Officer (“CEO”) reviews the performance of each business unit and shared service based on the achievement of goals included in the Corporation’s annual operating plan consisting of both financial and non-financial measures. Based on this overall assessment, the CEO has the discretion to adjust the annual incentive pool upward or downward to reflect the business unit’s or shared service’s performance within the limits the Committee has delegated to the CEO. There was no adjustment to the zero payout for 2009.

Individual Performance.  The Corporation’s Performance Review and Development Plan is a formal performance management program that applies to all salaried employees including the named executive officers. Individual performance goals are established at the beginning of each fiscal year and are aligned with the Corporation’s annual operating plan. Performance against these goals is evaluated at the mid-year point and at the

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end of the fiscal year. The CEO approves the individual performance goals of the other named executive officers at the beginning of each fiscal year, evaluates their performance at mid-year and the end of the fiscal year and recommends to the Committee any resulting performance adjustments to their salaries and annual incentive payments. The CEO’s personal goals are approved by the Committee each year in September for the next year. Following the end of the fiscal year, the Committee, with input from the other directors, formally evaluates the CEO’s performance during its executive session and decides on any resulting salary adjustment and/or individual performance adjustment to the annual incentive payment.

Roles and Responsibilities

Compensation Committee.  The Board of Directors has delegated to the Committee responsibility for the development and oversight of the Corporation’s executive compensation programs. The Committee consists entirely of independent directors. The Committee reports back to the Board of Directors the results of its review and specific proposals regarding changes to compensation programs and actions regarding the CEO. In accordance with its charter and its operating procedures and guidelines, the Committee’s principal functions are to:

set salaries and annual and long-term incentives for the CEO and other senior executives
evaluate annually the performance of the CEO and other senior executives
review and approve the design and competitiveness of compensation plans, executive benefits and perquisites
periodically review and make recommendations to the Board regarding the competitiveness of director compensation
oversee the Corporation’s annual and long-term incentive plans and deferred compensation plans pursuant to the terms of the respective plans
retain and terminate, in its sole discretion, any independent compensation consultant used to assist in the evaluation of director, CEO or senior executive compensation and in its sole authority approve the independent consultant’s fees and other retention terms
review and approve corporate financial and key business goals used for the annual and long-term incentive plans
produce a compensation committee report on executive compensation for inclusion in the proxy statement

The Committee has established a recurring agenda that ensures a consistent and timely review of those areas under its responsibility.

Independent Consultant.  The Committee selects and retains the services of an independent consultant to provide professional advice related to the Corporation’s executive compensation policies, plans and programs. The independent consultant, Semler Brossy Consulting Group, LLC (“independent consultant”), is retained by the Committee and provides no other service to the Corporation. The independent consultant interacts directly with the Committee’s chairman, attends Committee meetings and provides independent benchmarking of peer companies and general industry compensation and practices. The independent consultant meets with new Committee members to orient them to the various policies, plans and programs managed by the Committee. The independent consultant meets with management to collect information, to solicit management’s input and to fully understand the Corporation’s plans, goals and actual performance. The consulting relationship is reviewed by the Committee annually to determine its satisfaction with the services and advice provided by the independent consultant.

Management.  The CEO reports to the Committee about the Corporation’s performance, business unit performance and individual performance of the other named executive officers. He also discusses the operational and financial plans for future performance periods (annual and long-term) as they relate to compensation decisions. The CEO provides input on the design of compensation programs and policies. He also makes recommendations for compensation changes for the other named executive officers. The Senior Vice President, Human Resources provides additional support, analysis and counsel, including execution of the programs under the supervision of the Committee. Certain members of management, including the CEO, regularly attend

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Committee meetings. The CEO is delegated authority for the compensation arrangements for executives below the designated senior executive positions in the Corporation, with limitations that are established by the Committee. The Committee typically meets for a portion of its meetings in executive session, with its independent consultant but without the CEO or other members of management. The Committee’s deliberations on CEO compensation are held during a non-management executive session of the Committee (that typically includes all board members) or at a meeting of the Board of Directors, and the CEO is not present during this executive session.

Market Benchmarking

The Committee annually considers benchmark market data for total direct compensation (base salary plus annual and long-term incentives) for the named executive officers and other designated senior executives based on the research done by the independent consultant, and also considers benchmark market data prepared by management and reviewed by the independent consultant. The Committee uses this market data to assess the competitiveness of the Corporation’s executive compensation and the mix of fixed (base salary) and variable (annual and long-term incentives) compensation.

The Committee uses two sources of information to benchmark executive compensation — a general industry peer group with revenues similar to the Corporation and a peer group of companies in the aerospace and defense industry. The general industry peer group data is the primary source of market data and the aerospace and defense industry peer group is the secondary. The smaller group of aerospace and defense peers provides more insight into specific industry practices, however, detailed data is only provided for the named executive officers and the data for this group can experience significant variation due to changes in incumbents reported. The general industry peer group provides more consistency year-over-year due to its size. A wider variety of positions are reported in the general industry peer group allowing more specific comparisons to the executive officers of the Corporation.

General industry peer group:  The Corporation’s senior executives have skills that are in demand outside of the aerospace and defense industry. The independent consultant conducts analysis using compensation information from a widely utilized executive compensation resource — the Towers Perrin Compensation Data Bank. The independent consultant reviews the compensation levels of industrial companies with similar revenues. In 2009 this general industry peer group is comprised of 111 companies with sales ranging from $3 billion to $6 billion. The CEO, Chief Financial Officer and Chief Operating Officers are compared to corporate roles in the general industry peer group. The Executive Vice President was matched to a multi-profit center group head with sales of $0.8 billion to $2 billion.
The aerospace and defense industry peer group (used for 2009 compensation benchmarking) consisted of fourteen companies:

 
AAR Corp.   ITT Corp.
Alliant Techsystems Inc.   L-3 Communications Holdings, Inc.
The Boeing Co.   Lockheed Martin Corp.
Esterline Technologies Corp.   Moog Inc.
General Dynamics Corp.   Northrop Grumman Corp.
Goodrich Corp.   Raytheon Co.
Harris Corp.   Teledyne Technologies Inc.

The aerospace and defense industry peer group is reviewed periodically by the Committee to assure that it continues to represent an appropriate group of competitive companies for executive compensation purposes. For 2009, the Committee updated the peer group based on a review by the independent consultant who looked broadly at companies in the aerospace and defense industry. These companies were selected because they are representative of companies that compete with us for business and executive talent. The independent consultant recommended that the size of the group be increased from 10 to 14 companies. Median size (sales and market capitalization) of the current peer group remains similar to the prior peer group.

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Each year the independent consultant collects compensation data from public filings for each of these peer group companies. Rockwell Collins’ revenue is around the median of the peer group; however, because some companies are larger and some are smaller, the data is size-adjusted based on revenue to obtain a more accurate view of the market. This data is also interpreted giving consideration to year-over-year variability and the impact of changes of any individual named executive officer among the peer group companies.

The Committee generally sets target total direct compensation (base salary plus annual and long-term incentives) around the median of the benchmark data. Each executive can be paid above or below that amount based on years in the position, prior experience, individual performance and corporate performance.

Comprehensive Compensation Review

In the course of reviewing benchmark information from external sources and making decisions about the CEO’s compensation or considering the CEO’s recommendations for the other named executive officers, the Committee also reviews comprehensive compensation information for each named executive officer. This information includes detailed modeling of the current dollar value of all aspects of compensation, including base salary, annual and long-term incentives, perquisites, pension and savings plans, and health and welfare benefits. The Committee reviews this information to ensure that the total compensation awarded to each named executive officer is reasonable and consistent with the compensation philosophy and objectives discussed above.

Elements of the Compensation Program

The elements of the Corporation’s executive compensation program are as follows: base salary, annual incentive, long-term incentives, perquisites and benefits. Each year the Committee approves the design and performance goals for both the annual and long-term incentives consistent with the Committee’s compensation philosophy and objectives.

Allocation among the elements of direct compensation.  The mix of base salary and annual and long-term incentives varies by position. To support the Corporation’s pay-for-performance philosophy and consistent with external benchmark information, the higher the level of responsibilities and accountability, the more compensation is “at risk” for achieving the Corporation’s annual and long-term performance goals. For the CEO, other named executive officers and other executive officers, the mix of the elements of total direct compensation at target levels is generally the following:

     
Position   Base
Salary
  Annual
Incentives
  Long-Term
Incentives
Chairman, President & CEO     20 %      20 %      60 % 
Other named executive officers     30 %      20 %      50 % 
Other reports to the CEO     40 %      20 %      40 % 

Base Salary.  Each of the named executive officers, including the CEO, is paid a base salary for performance of his/her job duties and responsibilities. Base salary targets are generally set around the median of the competitive data; however, actual salaries can be below, at or above the median depending on performance and past experience. Newly promoted named executive officers are typically paid below the median of the competitive data with salary increases over time designed to move them to the median or above subject to meeting or exceeding their performance objectives.

Base salary is reviewed annually and consideration is given for base salary adjustments based on individual performance and available competitive data that is presented by the independent consultant. Salaries are reviewed after the end of the fiscal year and any adjustments go into effect in the first salary payment in January each year, consistent with practices for all salaried employees. The salaries of the CEO and the other named executive officers are decided by the Committee after considering input from the CEO regarding base salary adjustments for the other named executive officers and consulting with the independent consultant and the Board of Directors.

Annual Incentives.  The Incentive Compensation Plan is an annual incentive plan under which participants are eligible for payouts based on the achievement of specific financial goals and key business goals that are included in the Corporation’s annual operating plan approved by the Board of Directors. The annual operating plan reflects the Corporation’s performance commitments to its key constituents — shareowners, customers and employees — for the upcoming year. The Incentive Compensation Plan has historically included specific goals

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for sales, earnings per share and working capital as a percentage of sales, and non-financial goals (“key business goals”) in the categories of future growth/program pursuits, operational excellence and employee goals. The philosophy is to provide competitive annual incentive payouts if financial and non-financial goals are met, to provide above-target payouts if these goals are exceeded, and to provide below target or no payouts if these goals are not met.

For 2010, the Committee considered other measures to enhance focus on specific drivers of performance and selected operating cash flow to replace working capital as a percent of sales. For further details on the measures for the annual incentive plan in 2010, see “Compensation for 2010” below.

The Committee establishes the annual performance target goals and sets each named executive officer’s annual target bonus as a percentage of salary based upon the median of the competitive benchmark data for each position. Annual incentive payments typically range from 0% to 200% of the annual incentive target based on the performance achieved against the financial and key business goals. Each named executive officer’s payout may also be adjusted up or down based upon the individual’s and his or her business unit’s performance during that fiscal year.

The annual incentive pool is the sum of all target bonuses for the named executive officers and other executives who participate in the annual incentive plan multiplied by the annual incentive payout percent based on the performance of the Corporation against the goals that were established for the year. The incentive pool is subject to business unit, as well as individual, adjustments in accordance with recommendations from the CEO to the Committee. Individual performance adjustments can be made to the resulting incentive payments; however, they cannot in the aggregate increase the size of the incentive pool unless authorized by the Committee or unless the CEO exercises the discretion delegated to him by the Committee to increase the pool by up to 5%.

The 2006 Annual Incentive Compensation Plan for Senior Executive Officers, approved by shareowners at the 2006 Annual Meeting, provides for performance-based annual incentive compensation designed to comply with Internal Revenue Code Section 162(m) and thereby allow for the full tax deduction for the annual incentive payment. This plan defines a maximum amount for the awards that can be allocated each year to the CEO and to the other named executive officers. The annual incentive awards actually paid to these executives have been well below the plan maximum. The Committee bases the annual incentive awards for these senior executives on the same performance goals as set forth in the Incentive Compensation Plan and uses its negative discretion to pay incentive awards for the executives at the performance level achieved against the goals that apply to all employees (as opposed to the maximum amount permitted by the 2006 Annual Incentive Compensation Plan for Senior Executive Officers).

Annual Incentive Plan Performance Results.  A disciplined performance philosophy has been applied to the annual incentive plan. As the table below shows for actual annual incentive payouts in the past three years, annual incentives are paid above targets when performance objectives are exceeded and annual incentives suffer when performance objectives are not met. For the years 2007, 2008 and 2009, the plan provided for potential payouts ranging from 0 to 200% of the target incentive. When performance is better than the annual goals (+) set by the Committee, the plan payout percent can be as high as 200%. When plan performance is worse than the annual goals (-), the plan payout can be as low as zero as occurred in 2009.

       
Year   Actual Performance Compared to Annual Goals   Incentive
Payout
Percent
  EPS(1)   Sales(1)   Working
Capital as %
of Sales(2)
2007     +10 %      +4 %      +6 %      171 % 
2008     +7 %      +1 %      -20 %      121 % 
2009     -14 %      -14 %      -22 %      0 % 

(1) Sales and EPS have been adjusted for acquisitions and certain other nonrecurring items in accordance with the plan.
(2) Working capital was adjusted for acquisitions and certain other nonrecurring items and is defined as current assets, excluding cash and deferred taxes, minus current liabilities, excluding debt. The working capital measure is based on an average of the measurement taken at the beginning of the year and the end of each quarter of the year.

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Long-Term Incentives.  The 2006 Long-Term Incentives Plan, approved by the Corporation’s shareowners, provides the Committee with the flexibility to grant long-term incentive awards in a variety of forms including equity and multi-year performance awards. The purpose of long-term incentive compensation is to align an executive’s performance to the long-term success of the Corporation and to increased shareowner value. As a result, a significant portion of the compensation of the CEO and other named executive officers is at risk for achieving the strategic financial performance targets set by the Committee in these long-term incentive awards and for growing the Corporation’s stock price. These awards also serve as an important retention tool because they vest over multiple years.

Each year the Committee reviews the competitive market data and analysis for long-term incentive grants provided by the independent consultant. This review includes the amount of compensation awarded and the design of a long-term incentive plan that will support the Committee’s pay-for-performance philosophy. The target long-term incentive compensation for the CEO and other named executive officers is set around the median of the competitive market, making any changes in the targets after evaluating three years of market data to ensure changes are a trend and not just short-term volatility in long-term incentive compensation. The Committee sets the long-term incentive target compensation in dollars. This dollar target is converted to a mix of stock options and multi-year performance awards with overlapping performance cycles. This approach allows the Committee to establish goals for each cycle that reflect the current strategic business plan.

At its April 2008 meeting, the Committee reviewed trends in the forms of awards used by peer companies and the design of the long-term incentive plans with the independent consultant. The Committee decided to continue in 2009 with the design selected in 2008. To provide balance and to encourage achievement of multi-year financial goals and increased shareowner value, the dollar value of the 2009 long-term incentives grant was allocated as 50% stock options and 50% performance shares for performance over a three-year period. The dollar values of these incentives are converted on the date of grant to a number of shares underlying stock options based on an option pricing model that determines the value of an option and are converted into a number of target performance shares based on the grant date share price.

Stock options are granted with an exercise price equal to the fair market value on the date of grant and provide compensation value that is dependent on growth in the Corporation’s stock price. The performance share payouts can range from 0% to 200% of the target amount and the payouts are determined after the three-year results are evaluated against financial goals. A peer performance modifier, based on total return to shareowners (TSR) defined as share price growth and dividend yield over the three-year period, can drive an adjustment up or down by 20% of the amount otherwise payable under the performance awards. For further details on these long-term incentives, see “2009 Compensation, Long-Term Incentives” below.

Long-Term Incentives Performance Results.  The long-term performance awards are strongly linked to the Corporation’s performance results. The Committee has chosen to use a combination of stock options and performance cash or shares with multi-year performance cycles. The performance award payouts are dependent on organic sales growth and return on sales (net income divided by total sales) to encourage profitable growth. The following table shows the payouts for long-term performance awards in the past three years and the associated performance by the Corporation on the key measures.

       
3-year Performance Cycle   Actual Financial
Performance
  Percent of Target
Performance Award
Payout
  Cumulative
Sales
($ billions)*
  Return on
Sales*
  Before TSR
Modifier
  After TSR
Modifier
2005-2007   $ 11.4       12.8 %      300 %      300 % 
2006-2008   $ 12.6       13.7 %      200 %      160 % 
2007-2009   $ 13.5       14.0 %      168 %      168 % 

* Cumulative sales and return on sales have been adjusted for acquisitions and certain other nonrecurring items in accordance with the performance awards. Return on sales is defined as total net income adjusted for acquisitions and certain other nonrecurring items divided by total sales adjusted for acquisitions and certain other nonrecurring items for the applicable 3-year performance cycle.

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Starting with the 2006 through 2008 cycle, the mix of stock options and performance awards was changed from 75%-25% to 50%-50% and the maximum payout available to participants was adjusted from 300% of the target payout to 200% of the target payout. For the 2006-2008 cycle, the final payment was adjusted downward by 20% for the peer performance modifier as the Corporation’s total shareowner return (TSR) performance was among the bottom group of peer companies.

Equity grant practices.  The Committee has continued to follow a practice of approving long-term incentives (Including Stock options) at its November meeting each year. The meeting date is scheduled at least one year in advance. Stock options are granted with an exercise price equal to the closing price of the Corporation’s Common Stock on the date of the meeting that is the date of grant. This meeting follows the public release of annual earnings typically by about two weeks. This allows the market to absorb the impact of the Corporation’s public release of year-end financial results before the Committee makes the annual grant. The Committee on occasion will make grants at other regularly scheduled meetings when a new executive is named either as a result of an internal promotion or hiring. The Committee has delegated to the CEO the authority to make individual equity grants to positions below the designated senior executives. These grants are approved by the CEO on the date of a regularly scheduled meeting of the Board of Directors. The Committee reviews the use of this delegation at its November meeting each year.

Benefits.  The CEO and other named executive officers generally are covered by the same broad range of benefit programs available to other U.S. salaried employees of the Corporation. These benefits include medical, prescription drug, dental, vision, flexible spending accounts, defined contribution pension and savings plans, an employee stock purchase plan, life insurance, disability payments and vacation. In October 2006, the Corporation froze its defined benefit pension plan and amended the defined contribution savings plan to include an additional corporate contribution using a percent of eligible earnings ranging from 0.5% to 6% based on age and service for salaried employees including the named executive officers. The Corporation provides a broad array of benefit programs to attract and retain a skilled and highly talented workforce and to provide employees with choice to meet their personal needs. These benefits are compared to external benchmarks periodically to assure that they remain competitive and cost effective. It is the Corporation’s intention to provide a comprehensive benefits program that in total value is around the median of competitive practice.

Deferral Plans.  To provide a tax-effective opportunity to save for retirement or other future needs, the Board of Directors has authorized compensation plans that allow for the elective deferral of the receipt of base salary and performance-based awards (annual incentive and long-term performance awards) when earned and otherwise payable to eligible employees. Eligible employees include the CEO, other named executive officers and a select group of other management and professional employees. Amounts deferred into the plan accrue earnings based on each participant’s selection of investment choices that generally mirror the funds provided in the Corporation’s qualified savings plan.

Perquisites.  As part of a comprehensive executive compensation program, the Committee has provided the CEO and named executive officers certain annual perquisites, such as: car allowance, financial planning allowance, reimbursement for an executive physical exam, and airline club memberships.

These perquisites are designed to be competitive within the industry that the Corporation competes for executive talent. They are reviewed annually by the Committee to assure that they continue to be competitive and consistent with the Committee’s overall compensation philosophy. Details about the perquisites provided to the CEO and other named executive officers are included in the Summary Compensation Table and its footnotes.

2009 Compensation

At its November 2008 meeting, the Committee approved base salaries and annual incentive targets for 2009. Long-term incentive grants in the form of stock options and performance shares for the period 2009 through 2011 were also made in November 2008. At its November 2009 meeting, the Committee approved long-term incentive payments for the performance period 2007 through 2009. These actions are outlined below.

In late 2008, the weakening economy, disruptions to the commercial aerospace business and a few key program delays and losses indicated some potential challenges for the Corporation. By early 2009, it became clear that the markets as well as sales and earnings forecasts would be adversely impacted by a weakening global economy. In November 2008, the Corporation announced that salary increases scheduled to take effect January 1,

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2009 would be delayed for three months worldwide (except for production and maintenance employees). By February 2009 business conditions had continued to decline most notably among significant commercial customers. As a result, the Committee determined that salaries would be held at 2008 levels and the increases previously planned would not be implemented. At the end of the third quarter of 2009, it was clear that the annual incentive plan financial goals for the year would miss the minimum threshold for an annual incentive plan payment for 2009. Based in part on the CEO’s recommendation, the Committee decided to eliminate the remaining funding available for the key business goals resulting in no annual incentive payout for 2009.

  Base Salary

The effective date for salary increases for the CEO and other named executive officers was initially delayed from January 1, 2009 for three months to April 1, 2009 to respond to deteriorating business conditions and to minimize the number of layoffs. In February 2009, as business conditions continued to decline, all salaries were frozen at 2008 levels including the CEO and other named executive officers.

  Annual Incentives

Target Awards for 2009.  Target annual incentive amounts for the CEO and other named executive officers are reviewed annually by the Committee using the competitive information provided by the independent consultant. Target awards are set around the median of the competitive data for each position. The target awards are expressed as a percentage of annual salary. For 2009, the target annual incentive (as a percentage of base salary) for each named executive officer was as follows:

 
Chief Executive Officer     100 % 
Chief Operating Officers     75 % 
Chief Financial Officer     70 % 
Executive Vice President     70 % 

Target annual incentives were increased by the Committee from 70% to 75% for the Chief Operating Officers in 2009 after consultation with the independent consultant and to reflect competitive practice.

Performance Measures for 2009.  Prior to the beginning of each year, the CEO recommends to the Committee performance measures, based on the annual operating plan, that are most important to achieving the Corporation’s goals. For 2009, the Committee selected earnings per share, sales and working capital (defined as current assets excluding cash and deferred taxes, minus current liabilities excluding debt) as a percentage of sales. The working capital measure is based on an average of the measurement taken at the beginning of the year and the end of each quarter of the year.

Key business goals are included as a fourth measure. These goals allow the Committee to consider non-financial performance that contributes to or detracts from the future success of the Corporation. These non-financial goals for 2009 included program wins, operational excellence and people strategies.

The weighting of these measures is evaluated each year. In 2009, by weighting earnings per share and sales most heavily and equally at 35% each, the desired balance of sales growth and profit was reflected. Working capital as a percent of sales represented 10% of the total target award. The key business goals were weighted at 20% of the target award.

Performance Goals for 2009.  For each of the financial measures, the Committee sets specific target goals based on the Corporation’s annual operating plan approved by the Board of Directors. A minimum threshold below which no payment will be made and “stretch” goals are set for each measure to establish the payout (minimum and maximum) range for the year.

Significant improvements in company performance for earnings per share and sales over what was achieved in 2008, adjusted for acquisitions and non-recurring items, were required to earn target awards in 2009. The working capital as a percentage of sales goal was set after taking into account expected increases in deferred

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engineering and inventory levels plus a higher starting point for 2009 (year-end 2008). The year-over-year changes are shown in “% Change” column below:

       
Measure   Weighting   2009 Target
Goal
  2008 Actual   % Change
Sales ($ in millions)     35 %    $ 5,080     $ 4,764       6.6% higher  
Earnings per share     35 %    $ 4.45     $ 4.17       6.7% higher  
Working capital as % of sales     10 %      12.5 %      10.4 %      20.2% lower  

Actual Performance and Payments for 2009.  Financial performance was below the threshold for all three financial measures for 2009, therefore the Committee’s overall assessment resulted in no annual incentive payout for the year.

The Corporation’s 2009 actual performance on these financial goals, each as adjusted for acquisitions and certain other non-recurring items, were below the thresholds established by the Committee as shown below:

       
Measure   Weighting   2009 Target   2009 Actual   Result
Sales ($ in millions)     35 %    $ 5,080     $ 4,364       Not Met  
Earnings per share     35 %    $ 4.45     $ 3.81       Not Met  
Working capital as % of sales     10 %      12.5 %      15.3 %      Not Met  
Key business goals     20 %                        Met*  

* Most of the key business goals were either met or exceeded; however, the Committee delegated to the CEO the authority to eliminate the funding for this component to offset the erosion in sales and profitability during the second half of the year. The CEO then determined to eliminate the funding for this component of the plan resulting in zero payout.

The annual incentive plan has the same criteria for a payout for all employees of the Corporation. As a result, no annual incentive payments were made to employees for 2009 consistent with the Corporation’s pay-for-performance philosophy.

  Long-Term Incentives

2009 Grant.  At its November 2008 meeting, the Committee granted stock options and three-year performance shares (for the 2009 through 2011 performance period) to the CEO, the other named executive officers and certain other executives under the 2006 Long-Term Incentives Plan after consultation with the independent consultant. The target awards in dollars for the CEO and other named executive officers were set after taking into account levels of responsibility, the past three years of competitive market data and the relative contribution of each position to the business (i.e., internal equity or consistency between positions). The target awards in dollars were increased for the named executive officers to align them with the median of the competitive market data for the general industry peer group.

Stock Options — 50% of the 2009 target dollar value for each named executive officer’s long-term incentive award was granted as stock options. The exercise price of the options was set at the closing price of Common Stock on the date of grant and the options vest in three equal amounts on the first, second and third anniversary of the grant. The number of stock options is determined on the date of grant by dividing the target stock option compensation in dollars by the fair market value of one stock option (using a Binomial Lattice option pricing model for valuation) and rounded up to the nearest 100 shares.

Performance Shares — 50% of the 2009 target dollar value for each named executive officer’s long-term incentive award was granted by the Committee in the form of a three-year performance award, denominated in performance shares, for achievement of pre-established financial goals for the years 2009 through 2011. The financial goals, based on the strategic plan approved by the Board of Directors, focus on long-term profitable growth of the Corporation — measured by return on sales and cumulative sales — and total return to shareowners relative to aerospace and defense industry peer companies. These measures reflect the importance of long-term financial performance balanced by its impact on total return to shareowners.

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Financial goals:

Return on sales is determined by dividing net income by the total sales for the years 2009 through 2011. The goal was set at 12%, consistent with the goal set for the prior cycle despite the weakened global economy in 2009. The return on sales goal significantly exceeds the return on sales generally achieved by the aerospace and defense industry peer companies.
Cumulative sales reflects an average annual growth rate of 8% per year (excluding acquisitions) for the years 2009 through 2011. The three-year cumulative sales goal of $16.8 billion was increased by 9.8% over the previous three-year cycle (years 2008 through 2010).

Peer performance modifier:

The modifier is a potential adjustment to the award (otherwise determined based on return on sales and cumulative sales) up or down by 20% depending on the Corporation’s total return to shareowners (share price growth plus dividend yield) measured against a group of aerospace and defense industry peer companies.
The peer performance adjustment will be made as follows:
If performance is among the top group of peer companies, the award will be adjusted upward by 20%.
If performance is among the middle group of companies, no adjustment will be made.
If performance is among the bottom group of peer companies, a reduction of 20% will be made to the final award.
Beginning in 2009, the companies included for the peer performance modifier were aligned to the compensation peer group. The peer companies are AAR Corp., Alliant Techsystems, Inc., The Boeing Co., Esterline Technologies Corp., General Dynamics Corp., Goodrich Corp., Harris Corp., ITT Corp., L-3 Communications Holdings, Inc., Lockheed Martin Corp., Moog Inc., Northrop Grumman Corp., Raytheon Co. and Teledyne Technologies, Inc.

The total number of shares awarded in November 2008 for stock options and performance shares at target payout represented 1% of total shares outstanding as of the date of grant. The Committee will review the level of achievement against the pre-established financial goals at its November 2011 meeting and determine the payment, if any, earned by participants for the 2009-2011 performance shares.

2009 Direct Compensation Actions Summary

The following table summarizes how the Compensation Committee viewed the direct compensation actions taken for our named executive officers in 2009. It differs substantially from the Summary Compensation Table required by the SEC and is not a substitute for that table. However, this table is presented because it is a better reflection of the matters considered by the Compensation Committee with respect to 2009 compensation.

           
Name   Year   Base Salary   Annual
Incentive
  Long-Term Incentives
(Stock Awards)
  Total
  Performance
Shares($)
  Stock
Options ($)
Jones     2009     $ 1,000,000     $ 0     $ 1,650,025     $ 1,650,138     $ 4,300,163  
Churchill     2009     $ 530,000     $ 0     $ 550,029     $ 550,046     $ 1,630,075  
Ortberg     2009     $ 490,000     $ 0     $ 550,029     $ 550,046     $ 1,590,075  
Allen     2009     $ 475,000     $ 0     $ 450,015     $ 450,359     $ 1,375,374  
Statler     2009     $ 432,000     $ 0     $ 350,002     $ 350,672     $ 1,132,674  

This table differs from the Summary Compensation Table in the following respects:

Base Salary.  As discussed in the Summary Compensation Table, base salaries were frozen in 2009 as part of cost-savings measures. The base salaries reported in this table are the named executive officers’ annual base salaries at the end of the fiscal year. The base salaries in this table differ from the values in the Summary

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Compensation Table because the base salaries in the Summary Compensation Table account for the actual number of days in our fiscal year (which is not always 365). These amounts assume 365 days in a year.

Annual Incentive.  In 2009 we did not make annual incentive plan payments because we did not meet the minimum thresholds required for payment under the Incentive Compensation Plan. In addition, based in part on the CEO’s recommendation, the Committee decided to eliminate the remaining funding available for the key business goals. In the Summary Compensation Table, an amount is reported for 2009 under the Non-Equity Incentive Plan column. This payment, although made in 2009, was attributable to a Performance Unit Award granted in 2007 and does not reflect a 2009 compensation decision.

Performance Shares and Stock Options.  The amounts shown in this table are the grant date fair value of awards made in November 2008. The amounts shown in the Stock Awards and Stock Option columns in the Summary Compensation Table reflect the compensation cost recognized in 2009 for financial statement purposes for stock awards and stock options granted in 2009 and in prior years. As a result, these columns include amounts that do not reflect 2009 compensation decisions.

Change in Pension Value.  This table does not include the Change in Pension Value column because the change in pension value shown in the Summary Compensation Table for 2009 was not attributable to any action taken by the Compensation Committee for year 2009. As noted in footnote 5 in the Summary Compensation Table, the change in pension value was attributable solely to the fact that a lower discount rate was required to be used in 2009.

All Other Compensation.  We have not included this column because a significant portion of the amounts reported are attributable to the retirement savings plan the design of which has been in place since 2006. This plan is available to all other salaried employees. Additionally, these amounts do not represent a material portion of the total compensation provided for 2009 to our named executive officers.

Performance Award Payments for the Three-Year Period Ending in 2009

In November 2009, in addition to the compensation decisions specific to performance and equity grants in 2009 discussed above, the Committee also determined the payments to participants for the three-year performance awards granted in November 2006 covering the years 2007 through 2009. The pre-established goals for the three-year period were for cumulative sales and return on sales. Performance for the three-year performance period is summarized below:

Return on Sales, after adjustment for acquisitions and non-recurring items, was 14%, substantially exceeding the target of 11%. This compares to a median return on sales of 5.9% among the peer companies over the same period.
Cumulative sales, after reduction for acquisitions by $0.2 billion, was $13.5 billion compared to a goal of $13.7 billion.
Total return to shareowners (stock price plus dividends) was among the middle group of the peer companies resulting in no adjustment for this measure. There were 10 peer companies for this cycle: AAR Corp., Alliant Techsystems Inc., The Boeing Co., General Dynamics Corp., Goodrich Corp., L-3 Communications Inc., Lockheed Martin Corp., Northrop Grumman Corp., Raytheon Co. and Teledyne Technologies Inc. (The 2008-2010 cycle uses the same peer group; for grants beginning in 2009, the peer group of 14 aerospace and defense companies is be used as detailed earlier in this CD&A.)

Based on the Corporation’s performance, a payment of 168% of target awards was earned for the three-year period 2007-2009 and approved by the Committee. Payments were made to 114 executives of the Corporation, including the CEO and other named executive officers, based on the formula established for the awards. The Committee made no other adjustments to the final award. The CEO received a cash payment of $1,008,000 and 17,405 shares of stock resulting from the three-year performance at 168% of his target award after the November 2009 Committee meeting. This cash performance unit represents the last payout of this long-term incentive component.

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Compensation for 2010

At the September 2009 meeting, the Committee established the criteria for the 2010 Incentive Compensation Plan. The measures for determining the annual incentive are reviewed annually to ensure that those chosen best represent the current factors of success for the Corporation that align with the annual operating plan, shareowner growth and employee motivation. The Committee made three significant changes: operating cash flow replaces working capital as a percent of sales, the weightings of the measures (EPS, sales, operating cash flow and key business goals) have been adjusted and the payout at plan performance was set at 40% of each participant’s regular target incentive opportunities based on affordability considerations for 2010.

Operating cash flow was selected because it is a direct measure of cash management and it is tied to external reporting which adds clarity to how the Corporation is performing. In addition, two key elements of working capital, inventory and accounts receivable, are included in the key business goals measure for 2010.

Earnings per share will continue to be the highest weighted measure to reflect its importance to the success of the Corporation and its impact on shareowner returns. Operating cash flow will have a relatively higher weighting than used in recent years for working capital as a percent of sales due to the importance of cash flow in a difficult economic environment. Sales will be weighted lower due to expected continuation of volatility in the commercial market outside the Corporation’s control. The weighting for key business goals (20%) will remain the same to ensure continued focus on growth, operational excellence and employee goals.

   
  Weighting
Measure:   2009   2010
Earnings per share     35 %      30 % 
Sales     35 %      25 % 
Working capital     10 %       
Operating cash flow           25 % 
Key business goals     20 %      20 % 
Total     100 %      100 % 

Changing the plan payout from 100% to 40% provides a payout that the Corporation believes is affordable given the lower earnings expectations announced for 2010. The actual payment can range from 0 to 160%, providing more upside opportunity if goals are exceeded in 2010. The resulting target payouts for the named executive officers are outlined below:

   
  Regular
Target
Incentive
(as a % of
base salary)
  2010 Target
Incentive
at Plan
Performance
(as a % of
base salary)
Chief Executive Officer     100 %      40 % 
Chief Operating Officers     75 %      30 % 
Chief Financial Officer     70 %      28 % 
Executive Vice President     70 %      28 % 

The long-term performance goals for 2010 through 2012 were established with cumulative sales targets again based on an 8% annual growth rate and the return on sales target percentage was held constant at 12%.

At the Committee’s November 2009 meeting, the independent consultant presented competitive benchmark data for named executive officers’ base salaries using the expanded peer group and the CEO reviewed the performance of the other named executive officers and designated senior executives. Salary increases for the named executive officers and designated senior executives will be effective January 1, 2010 consistent with the reinstatement of the salary increase program throughout the Corporation. In addition, based on the competitive report provided by the independent consultant, the Committee considered the CEO’s recommendation in approving target annual incentives for 2010 and long-term incentive grants made up of stock options and three-year performance share awards that are dependent on the Corporation’s performance for the years 2010

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through 2012 for cumulative sales, return on sales and total shareowner return using the expanded peer group. Target annual incentives and long-term incentive target values for the named executive officers are unchanged from those established the prior year.

At its November 2009 meeting, the Committee met in executive session with the CEO to discuss his performance for 2009. The Committee then met in executive session with the independent consultant and without the CEO present to discuss CEO compensation. They reviewed the Corporation’s results for 2009, confirmed no annual incentive payment (as outlined above) and approved the 2007 through 2009 cash performance unit payment and performance shares earned according to the pre-established formula approved in 2006. Based on the input of the independent consultant and after consulting with the other members of the Board of Directors, the Committee approved a base salary increase for the CEO of 3.5% to $1.035 million annually (effective on January 1, 2010 consistent with the reinstatement of the salary increase program throughout the Corporation), the 2010 target annual incentive at 100% of base earnings (with plan payout at 40% of target annual incentive) and a long-term incentive target award of $3.5 million made up of stock options and a three-year performance share award payable for achievement of pre-established goals for return on sales, cumulative sales and total return to shareowners for the performance period of 2010 through 2012.

Stock Ownership Guidelines

The Committee believes that senior executives should have a significant equity interest in the Corporation. To promote equity ownership and further align the interests of senior executives with the Corporation’s shareowners, the Committee increased ownership guidelines for senior executives in 2006.

These guidelines require that each executive officer own shares of the Corporation’s common stock with a market value of at least a specified multiple of their salary within a predetermined time period. The guidelines are six times salary for the CEO, three times salary for the other named executive officers and two times salary for certain other executive officers. Progress toward meeting the guidelines is reviewed by the Committee annually. Based on the Corporation’s 2009 fiscal year end stock price of $48.15 per share, it is projected that the ownership guidelines will be met by January 1, 2012, or within six years of any date of promotion after April 2006.

The Committee considers all shares held as follows toward meeting the ownership requirements: shares owned outright (including in trusts and those held by a spouse), shares in the qualified savings plan, share equivalents held in the non-qualified savings plan, and shares in the employee stock purchase plan. Unexercised stock options and unearned performance shares are not included toward meeting the guidelines.

Employment, Severance and Change of Control Agreements

The Corporation does not generally enter into employment contracts with its executive officers, including severance arrangements. The executives serve at the will of the Board of Directors. This approach allows for removal of an executive officer prior to retirement whenever it is in the best interest of the Corporation to do so, with discretion on whether to provide any severance benefits (excluding vested benefits). On the rare occasion when an executive officer is removed, the Committee exercises its business judgment in approving any appropriate separation agreement in light of all relevant circumstances, including the individual’s term of employment, past accomplishments and reasons for separation.

The Committee has approved change of control employment agreements with each of the named executive officers and with certain other executives. The current agreements were approved after reviewing the competitive benchmark data for similar arrangements with the independent consultant. The Committee has adopted these agreements to provide executive officers with a strong incentive to continue their employment with the Corporation if there is a change of control, or the threat of such a transaction, and to maintain a competitive total compensation program. These change of control employment agreements protect executives if they are terminated by an acquirer following the change of control. The current agreements replace prior agreements that were set to expire on June 30, 2009. The independent consultant analyzed the current environment for competitive practice as well as best practice guidelines and presented findings to the Committee in April 2009. The Committee approved a number of changes in the new agreements: the protection period was reduced from 3 years to 2 years following a change of control; the ability of the executive to leave the Corporation voluntarily during the thirteenth month following a change of control and collect fifty percent of the benefits was eliminated; the definition of bonus for the severance payment was modified to the 3-year average of actual bonuses (compared

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to the higher of 100% or such 3-year average in the predecessor agreements); and the potential gross-up for excise tax on excess parachute payments was removed.

Change of control severance payments continue to be subject to a “double trigger” requiring that a change of control occur and a termination, or constructive termination, of employment also occur within the protected period. Additionally, stock options granted on or after November 2009 will also be subject to a similar “double trigger” consistent with the terms of the performance shares. Changes have also been made for grants made on or after November 2009 in the level of multi-year performance award payouts following a change of control and a termination of employment to provide payments based on the 3-year average of actual performance award payouts (compared to the higher of 100% or such 3-year average in the predecessor agreements). The renewal date for the change of control agreements will be the third anniversary following June 30, 2009, with the agreements then automatically renewed annually unless 60-days notice is given to participants.

The Committee has provided for special treatment of long-term incentive awards upon death, disability and retirement, as well as change of control. The Committee evaluates these provisions from time to time and believes they are appropriate as part of a competitive total compensation program. For additional details about the terms and potential payments in the event of change of control and other separations, see the discussion of “Potential Payments upon Termination or Change of Control.”

Payment Recovery Provisions

Executive officers are subject to certain restrictive agreements that could be relevant upon a termination of employment, including confidentiality restrictions, mutual arbitration agreements, non-competition covenants and employee non-solicitation arrangements. An executive could lose all outstanding long-term incentives and/or be required to refund various long-term incentive benefits realized in the prior two-year period for breaching the non-compete or non-solicitation restrictions.

The CEO and CFO could also be required by law to reimburse the Corporation for certain incentive compensation amounts received associated with misconduct leading to an accounting restatement.

Tax Deductibility of Executive Compensation

Under Internal Revenue Code Section 162(m), a publicly held Corporation may not deduct in any taxable year compensation in excess of one million dollars paid in that year to its CEO and its other named executive officers (other than its CFO) unless the compensation is “performance based.” Awards under the Senior Executive Incentive Compensation Plan, grants of stock options and grants of performance awards are designed to be “performance based” compensation. Since the Committee retains discretion with respect to base salaries and certain other compensation awards, those elements would not qualify as “performance based” compensation for these purposes. For fiscal year 2009, the Committee believes that all of the compensation for the named executive officers is deductible under this tax code provision, other than the portion of Mr. Jones’ base salary and perquisites that is in excess of one million dollars.

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COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors acts on behalf of the Board to establish and oversee the executive compensation program in a manner that serves the interests of the Corporation and its shareowners. For a discussion of the policies and procedures, see Corporate Governance; Board of Directors and Committees — Compensation Committee.

Management of the Corporation prepared the Compensation Discussion and Analysis of the compensation program for named executive officers. We reviewed and discussed the Compensation Discussion and Analysis for fiscal year 2009 (included in this proxy statement) with management. Based on this review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in the 2009 Form 10-K for filing with the Securities and Exchange Commission. The Board has approved that recommendation.

Compensation Committee

Anthony J. Carbone, Chairman
Mark Donegan
Ralph E. Eberhart (member since February 2009)
Chris A. Davis (member until February 2009)

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SUMMARY COMPENSATION TABLE

The following table sets forth information concerning compensation, from all sources, paid to or earned by our chief executive officer, chief financial officer and our other three most highly compensated executive officers at fiscal year end 2009 (the “named executive officers”), for services rendered in all capacities to us and our subsidiaries for the 2009, 2008 and 2007 fiscal years.

                 
                 
Name and
Principal Position
  Year   Salary
($)(1)
  Bonus ($)(2)   Stock
Awards
($)(3)
  Option
Awards
($)(3)
  Non-Equity
Incentive Plan
Compensation
($)(4)
  Change in
Pension
Value
($)(5)
  All Other
Compensation
($)(6)
  Total ($)
Clayton M. Jones
Chairman, President and CEO
    2009     $ 996,154           $ 979,870     $ 1,585,569     $ 1,008,000     $ 2,564,615     $ 247,600     $ 7,381,808  
    2008     $ 1,001,538           $ 1,536,979     $ 1,540,754     $ 2,171,861           $ 275,796     $ 6,526,928  
    2007     $ 945,000           $ 720,486     $ 1,926,428     $ 3,416,000     $ 1,021,347     $ 167,709     $ 8,196,970  
Gregory S. Churchill
EVP and COO,
Government Systems
    2009     $ 527,962           $ 346,239     $ 505,037     $ 420,000     $ 655,402     $ 114,939     $ 2,569,579  
    2008     $ 526,115           $ 566,086     $ 515,083     $ 838,619           $ 131,046     $ 2,576,950  
    2007     $ 480,000           $ 290,340     $ 598,900     $ 1,283,600     $ 115,398     $ 92,257     $ 2,860,495  
Robert K. Ortberg
EVP and COO,
Commercial Systems
    2009     $ 488,115           $ 332,428     $ 469,659     $ 378,000     $ 261,662     $ 99,400     $ 2,029,264  
    2008     $ 473,154           $ 416,995     $ 327,541     $ 459,761           $ 109,109     $ 1,786,560  
    2007     $ 400,000           $ 145,465     $ 211,111     $ 564,600     $ 32,228     $ 70,135     $ 1,423,539  
Patrick E. Allen
SVP and CFO
    2009     $ 473,173           $ 255,571     $ 369,084     $ 273,000     $ 208,583     $ 87,456     $ 1,666,867  
    2008     $ 470,481           $ 385,629     $ 349,800     $ 673,497           $ 85,251     $ 1,964,658  
    2007     $ 420,750           $ 191,905     $ 384,883     $ 919,200     $ 23,338     $ 63,139     $ 2,003,215  
Kent L. Statler
EVP, Rockwell
Collins Services
    2009     $ 430,338           $ 194,041     $ 273,644     $ 210,000     $ 256,686     $ 87,821     $ 1,452,530  

(1) Salaries were frozen for employees, including executives, in 2009 as part of cost-savings measures. The annual salary reported in the table varies from year to year in part because of a difference in the number of days in the company’s fiscal years (e.g., 2008 included 370 days and 2009 included 364 days). Salaries reported in the table are based on a fiscal year, while any approved adjustments to salary are implemented on a calendar year basis. As a result, the 2009 reported amount could be greater than the 2008 reported amount despite a pay freeze since one quarter of the calendar year 2008 pay increase is reported in 2009. Reported salary includes amounts deferred by the executives and amounts contributed to the company’s qualified and non-qualified savings plans.
(2) No discretionary bonus was paid to any named executive officer.
(3) The dollar values set forth in this column are equal to the compensation cost recognized in 2009 for financial statement purposes and do not reflect a reduction for possible forfeitures. A discussion of the assumptions used in calculating the fair values for stock options and performance shares is set forth in Note 13 of the Notes to Consolidated Financial Statements in our 2009 Annual Report on Form 10-K.
(4) The dollar values set forth in this column represent the sum of the performance unit payouts denominated in cash (long-term incentives) for the 2007 – 2009 performance period. Since we did not make any annual incentive compensation plan payment in 2009, this column only reflects long-term incentive payments for the 2007 – 2009 performance period.
(5) The increase in the actuarial value of these benefits is attributable solely to the fact that a lower discount rate was used to value these benefits this year as compared to last year; no additional amounts are payable to our executives under our defined benefits pension plans, which were frozen in 2006 for all of our salaried employees. The actuarial value of these benefits fluctuates greatly from year to year based on required changes in discount rates. The 2009 increase in the present value (discounted at 5.47%) of qualified and non-qualified pension plan benefits for each named executive officer is as follows: Mr. Jones $238,107 in the qualified plan and $2,326,508 in the non-qualified plan, Mr. Churchill $191,886 in the qualified plan and $463,516 in the non-qualified plan, Mr. Ortberg $143,096 in the qualified plan and $118,566 in the non-qualified plan, Mr. Allen $69,757 in the qualified plan and $138,826 in the non-qualified plan. and Mr. Statler $115,533 in the qualified plan and $141,153 in the non-qualified plan. For more information about these plans, see the Pension Benefits section.

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(6) Includes the aggregate incremental cost to us of providing perquisites and personal benefits to the named executive officers for the year. Named executive officers are eligible for perquisites such as automobile allowances, airline club memberships, financial planning and an executive physical.

For Mr. Jones the amount in this column for 2009 represents the sum of the following components: $25,394 for automobile allowance, contributions to the company’s qualified and non-qualified savings plans made up of $60,000 in company matching contributions and $133,866 for retirement contributions, plus other perquisites totaling $28,340, which includes the incremental value of the executive long-term disability benefit, financial planning, executive physical, incidental costs from offsite Board of Directors meetings, discounted sale of unused vacation and a tax gross-up on non-qualified savings and deferred compensation. The tax gross-up on non-qualified savings and deferred compensation relates to October through December 2008 contributions. This perquisite was discontinued as of December 31, 2008.

For Mr. Churchill the amount in this column for 2009 represents the sum of the following components: $20,557 for automobile allowance, contributions to the company’s qualified and non-qualified savings plans made up of $29,892 in company matching contributions and $58,117 for retirement contributions, plus other perquisites totaling $6,373, which includes the incremental value of the executive long-term disability benefit, financial planning, airline clubs, incidental costs from offsite Board of Directors meetings, event tickets and a tax gross-up on non-qualified savings and deferred compensation. The tax gross-up on non-qualified savings and deferred compensation relates to October through December 2008 contributions. This perquisite was discontinued as of December 31, 2008.

For Mr. Ortberg the amount in this column for 2009 represents the sum of the following components: $20,557 for automobile allowance, contributions to the company’s qualified and non-qualified savings plans made up of $29,400 in company matching contributions and $44,288 for retirement contributions, plus other perquisites totaling $5,155, which includes the incremental value of the executive long-term disability benefit, executive physical, airline clubs, incidental costs from offsite Board of Directors meetings, event tickets and a tax gross-up on non-qualified savings and deferred compensation. The tax gross-up on non-qualified savings and deferred compensation relates to October through December 2008 contributions. This perquisite was discontinued as of December 31, 2008.

For Mr. Allen the amount in this column for 2009 represents the sum of the following components: $20,557 for automobile allowance, contributions to the company’s qualified and non-qualified savings plans made up of $28,500 in company matching contributions and $31,097 for retirement contributions, plus other perquisites totaling $7,302, which includes the incremental value of the executive long-term disability benefit, financial planning, executive physical, incidental costs from offsite Board of Directors meetings, event tickets, and a tax gross-up on non-qualified savings and deferred compensation. The tax gross-up on non-qualified savings and deferred compensation relates to October through December 2008 contributions. This perquisite was discontinued as of December 31, 2008.

For Mr. Statler the amount in this column for 2009 represents the sum of the following components: $20,557 for automobile allowance, contributions to the company’s qualified and non-qualified savings plans made up of $25,920 in company matching contributions and $38,172 for retirement contributions, plus other perquisites totaling $3,172, which includes the incremental value of the executive long-term disability benefit, financial planning, executive physical, incidental costs from offsite Board of Directors meetings, event tickets and a tax gross-up on non-qualified savings and deferred compensation. The tax gross-up on non-qualified savings and deferred compensation relates to October through December 2008 contributions. This perquisite was discontinued as of December 31, 2008.

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GRANTS OF PLAN-BASED AWARDS

Shown below is information on grants to the Named Executive Officers of plan-based awards during fiscal year 2009.

                   
                   
Name   Grant Date   Type   Estimated Possible
Payouts Under
Non-Equity Incentive
Plan Awards
  Estimated Future
Payouts Under Equity
Incentive Plan Awards
  All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
  Exercise
or Base
Price of
Option
Awards
($/Sh)
  Grant Date
Fair Value
of Stock
and Option
Awards ($)
  Target
($)
  Maximum ($)   Target
(#)
  Maximum (#)
Jones     10/4/2008       ICP (1)    $ 996,154     $ 1,992,308                                      
    11/21/2008       Performance Shares (2)                  54,295       130,308                       $ 3,960,060  
    11/21/2008       Stock Options (3)                                    233,400     $ 30.39     $ 1,650,138  
Churchill     10/4/2008       ICP (1)    $ 395,972     $ 791,944                                      
    11/21/2008       Performance Shares (2)                  18,099       43,438                       $ 1,320,081  
    11/21/2008       Stock Options (3)                                    77,800     $ 30.39     $ 550,046  
Ortberg     10/4/2008       ICP (1)    $ 366,086     $ 732,172                                      
    11/21/2008       Performance Shares (2)                  18,099       43,438                       $ 1,320,081  
    11/21/2008       Stock Options (3)                                    77,800     $ 30.39     $ 550,046  
Allen     10/4/2008       ICP (1)    $ 331,221     $ 662,442                                      
    11/21/2008       Performance Shares (2)                  14,808       35,539                       $ 1,080,030  
    11/21/2008       Stock Options (3)                                    63,700     $ 30.39     $ 450,359  
Statler     10/4/2008       ICP (1)    $ 279,720     $ 559,440                                      
    11/21/2008       Performance Shares (2)                  11,517       27,641                       $ 840,010  
    11/21/2008       Stock Options (3)                                    49,600     $ 30.39     $ 350,672  

(1) The amounts set forth in this row represent the 2009 annual incentive established for each named executive officer under the Annual Incentive Compensation Plan (ICP), which is an incentive program designed to reward for the achievement of annual performance goals. The performance measures and methodology for calculating payouts are described in the “Compensation Discussion and Analysis” section. The payout percent for fiscal year 2009 was determined to be zero resulting in no payout.
(2) The amounts set forth in this row represent performance share awards in November 2008 under our 2006 Long-Term Incentives Plan. These long-term incentive grants are designed to reward the achievement of return on sales and cumulative sales growth goals over a three-year performance period. Payouts can range from 0% to 200% of target and are also eligible for a potential adjustment that is based on our total shareowner return for the performance period as measured against a group of peer companies. This adjustment is a multiplier of plus or minus 20 percent. See the Compensation Discussion and Analysis section for more information. The grant date fair values were derived by multiplying the grant date per share price by the maximum number of shares. Until the distribution of any Common Stock after the performance period is complete, executives do not have rights to vote the shares, receive dividends or any other rights as a shareowner. Named executive officers must remain employed through the performance period to earn an award, although pro-rata vesting will occur if employment terminates earlier due to retirement, death or disability. See the “Potential Payments Upon Termination or Change of Control” section for treatment of performance shares in these situations.
(3) The amounts set forth in this row are the number of stock options granted in November 2008 under our 2006 Long-Term Incentives Plan. The grant date fair values for these stock options were computed as described in Note 13 of the Notes to Consolidated Financial Statements in our 2009 Annual Report on Form 10-K. Stock options vest in three equal annual installments beginning on the first anniversary of the date of grant. Stock options may also vest upon a change of control under certain circumstances, and a portion of the stock options may vest upon termination due to retirement, death or disability. See the “Potential Payments Upon Termination or Change of Control” section for a discussion of treatment of stock options in these situations.

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Stock options expire ten years from the date of the grant. No dividends or dividend equivalents are payable with respect to stock options. The exercise price for these grants is equal to our closing share price on the date of the grant.

Annual Incentive Compensation Plan

The annual Incentive Compensation Plan is an incentive plan under which participants are eligible for payouts based on the achievement of specific financial goals and key business goals that are aligned with our annual operating plan as approved by the Board of Directors. It is a broad based plan applicable to most of our employees and for 2009 it included specific goals for sales, earnings per share and working capital as a percentage of sales and non-financial goals (“key business goals”) in the categories of growth/program pursuits, operational excellence and people goals. Annual incentive payments can range from 0% to 200% of the incentive target based on our performance achieved against the financial and key business goals. Individual performance adjustments can be made to the incentive payments.

The 2006 Annual Incentive Compensation Plan for Senior Executive Officers (Senior Executive Plan), approved by shareowners at the 2006 Annual Meeting, and amended and restated on September 12, 2007 to reflect changes in respect of Internal Revenue Code Section 409A, provides for an Internal Revenue Code Section 162(m) compliant maximum amount for the incentive awards that can be allocated each year to the named executive officers based on a percentage of pre-tax segment operating earnings. The Senior Executive Plan generally yields a potential incentive payout to the named executive officers that is significantly higher than the incentive payout to the named executive officers calculated in accordance with the incentive plan applicable to a broader group of executives. The Compensation Committee regularly exercises its discretion under the Senior Executive Plan to reduce and align the actual payout to the named executive officers with the more broadly applicable incentive plan.

Performance Shares

For 2009, performance share awards are based on three-year performance periods tied to established targets for cumulative sales and return on sales. Payouts can range from 0% to 200%. In addition, the awards include a potential multiplier adjustment up or down by 20 percent depending on the Corporation’s total return to shareowners (share price growth plus dividend yield) measured against a group of peer companies. If performance is among the top group of peer companies, 20 percent of the amount otherwise payable will be added to the award. If performance is among the middle group of companies, no adjustment will be made. If performance is among the bottom group of peer companies, a reduction of 20 percent of the amount otherwise payable will be made to the final award. The actual number of shares, to the extent earned, will be determined after the applicable three-year period is complete. The performance shares are payable in shares of Common Stock. Upon death, disability or retirement under a retirement plan of the Corporation, participants continue to be eligible to receive a payment, if any, that would otherwise be payable but any such amount shall be pro rated and paid at the normal time and manner.

Stock Options

The provisions of the stock option grants are as follows:

ten-year term
the exercise price is the closing sale price of our stock on the date of grant
vest in three equal amounts on the first, second and third anniversary of the grant
continue to vest upon retirement under one of our retirement plans (eligibility is currently as early as age 55) provided the retirement occurs on or after the first anniversary of the grant
upon death, the stock options become fully exercisable
for grants made prior to November 2009, stock options are fully vested automatically upon a change of control
for grants made on or after November 2009, stock options are subject to double trigger vesting (i.e., a change of control and a qualifying termination of employment in the protected period)
incentive stock options were used prior to November 2009 for a portion of the grant to the designated senior executives

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General

For further information about these plan-based awards, see the “Compensation Discussion and Analysis.”

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table provides outstanding stock options and unvested stock awards information for the named executive officers as of fiscal year end 2009.

             
    Option Awards   Stock Awards
Name   Grant Date   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
  Option
Exercise
Price ($)(2)
  Option
Expiration
Date
  Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(3)
  Equity Incentive
Plan Awards:
Market
or Payout
Value of
Unearned Shares, Units
or Other Rights
That Have Not
Vested ($)(4)
Jones     7/5/01       437,067           $ 22.35       7/5/11              
       9/11/02       248,411           $ 20.97       9/11/12              
       11/6/03       250,000           $ 27.97       11/6/13              
       11/2/04       185,000           $ 36.55       11/2/14              
       11/17/05       98,800           $ 44.85       11/17/15              
       11/9/06       49,799       24,901     $ 57.92       11/9/16       20,720     $ 997,668  
       11/13/07       21,200       42,400     $ 74.05       11/13/17       40,514     $ 1,950,749  
       11/21/08             233,400     $ 30.39       11/21/18       108,590     $ 5,228,609  
Churchill     7/5/01       14,000           $ 22.35       7/5/11              
       6/12/02       15,000           $ 24.86       6/12/12              
       9/11/02       17,376           $ 20.97       9/11/12              
       11/6/03       100,000           $ 27.97       11/6/13              
       11/2/04       74,000           $ 36.55       11/2/14              
       11/17/05       40,000           $ 44.85       11/17/15              
       11/9/06       19,352       9,768     $ 57.92       11/9/16       8,634     $ 415,727  
       11/13/07       6,966       13,934     $ 74.05       11/13/17       13,302     $ 640,491  
       11/21/08             77,800     $ 30.39       11/21/18       36,198     $ 1,742,934  
Ortberg     7/5/01       26,000           $ 22.35       7/5/11              
       9/11/02       16,000           $ 20.97       9/11/12              
       11/6/03       16,000           $ 27.97       11/6/13              
       11/2/04       12,100           $ 36.55       11/2/14              
       11/17/05       6,500           $ 44.85       11/17/15              
       11/9/06       18,132       9,068     $ 57.92       11/9/16       7,770     $ 374,126  
       11/13/07       6,733       13,467     $ 74.05       11/13/17       12,830     $ 617,765  
       11/21/08             77,800     $ 30.39       11/21/18       36,198     $ 1,742,934  
Allen     7/5/01       38,000           $ 22.35       7/5/11              
       9/11/02       19,000           $ 20.97       9/11/12              
       11/6/03       19,000           $ 27.97       11/6/13              
       11/2/04       49,000           $ 36.55       11/2/14              
       11/17/05       26,400           $ 44.85       11/17/15              
       11/9/06       13,132       6,568     $ 57.92       11/9/16       5,612     $ 270,218  
       11/13/07       4,966       9,934     $ 74.05       11/13/17       9,454     $ 455,210  
       11/21/08             63,700     $ 30.39       11/21/18       29,616     $ 1,426,010  

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    Option Awards   Stock Awards
Name   Grant Date   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
  Option
Exercise
Price ($)(2)
  Option
Expiration
Date
  Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(3)
  Equity Incentive
Plan Awards:
Market
or Payout
Value of
Unearned Shares, Units
or Other Rights
That Have Not
Vested ($)(4)
Statler     9/11/02       4,768           $ 20.97       9/11/12              
       1/06/03       4,222           $ 23.68       1/6/13              
       11/6/03       3,575           $ 27.97       11/6/13              
       11/2/04       7,824           $ 36.55       11/2/14              
       11/17/05       12,200           $ 44.85       11/17/15              
       11/9/06       10,066       5,034     $ 57.92       11/9/16       4,318     $ 207,912  
       11/13/07       3,533       7,067     $ 74.05       11/13/17       6,754     $ 325,205  
       11/21/08             49,600     $ 30.39       11/21/18       23,034     $ 1,109,087  

(1) Stock options are exercisable in three equal annual installments beginning on the first anniversary of the date of grant.
(2) The option exercise price for these grants was equal to our closing share price on the New York Stock Exchange on the date of the grant.
(3) The amounts set forth in this column were derived by multiplying each named executive officer’s target performance shares by the maximum payout percent assuming no adjustment for the Total Shareowner Return multiplier. The actual number of shares that will be granted, to the extent earned, will be determined after the applicable three-year performance period is complete. Vesting and payment of performance shares for the November 2007 grant (covering the fiscal year 2008 – 2010 performance period) will be based on performance for the three-year cycle ending with fiscal year 2010. Vesting and payment of performance shares for the November 2008 grant (covering the fiscal year 2009 – 2011 performance period) will be based on performance for the three-year cycle ending with fiscal year 2011.
(4) The market value of performance shares that have not vested as of our year-end 2009 was calculated using our year-end closing share price of $48.15 multiplied by the number of shares displayed in the prior column.

OPTION EXERCISES AND STOCK VESTED

The following table shows (i) exercises by the named executive officers during fiscal 2009 of options to purchase Common Stock granted under our equity compensation plans; and (ii) vestings of stock, including performance shares, restricted stock, restricted stock units and similar instruments for the named executive officers in fiscal 2009.

       
  Option Awards   Stock Awards
Name   Number of
Shares Acquired
on Exercise (#)
  Value Realized
on Exercise ($)(1)
  Number of
Shares Acquired
on Vesting (#)
  Value Realized on
Vesting ($)(2)
Jones     144,900     $ 1,084,814       17,405     $ 838,051  
Churchill     10,143     $ 157,002       7,253     $ 349,232  
Ortberg                 6,527     $ 314,275  
Allen     14,796     $ 476,393       4,714     $ 226,979  
Statler                 3,627     $ 174,640  

(1) The amounts shown in this column were calculated using the spread between the price at which the shares were sold on the date of exercise minus the stock option exercise (purchase) price, multiplied by the number of stock options exercised. The stock options exercised may include both incentive stock options and non-qualified stock options.

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(2) The amounts shown in this column represent the value of shares of Common Stock issued in respect of performance share payouts for the 2007 – 2009 performance period using the end of fiscal year 2009 closing share price.

PENSION BENEFITS

The following table provides information as of the end of fiscal year 2009 (the pension measurement date for purposes of the Corporation’s financial statements) for each named executive officer regarding retirement benefits under our qualified and non-qualified pension plans.

       
Name   Plan Name   Number of Years Credited
Service (#)
  Present
Value of
Accumulated
Benefit
  Payments
During Last
Fiscal Year ($)
Jones   Rockwell Collins Pension Plan   26.8   $ 967,840  
  Rockwell Collins Non-Qualified Pension Plan   26.8   $4,223,811  
  2005 Rockwell Collins Non-Qualified Pension Plan   26.8   $4,282,696  
Churchill   Rockwell Collins Pension Plan   26.1   $  530,454  
  Rockwell Collins Non-Qualified Pension Plan   26.1   $  373,540  
  2005 Rockwell Collins Non-Qualified Pension Plan   26.1   $  866,712  
Ortberg   Rockwell Collins Pension Plan   19.2   $  362,397  
  Rockwell Collins Non-Qualified Pension Plan   19.2   $   94,497  
  2005 Rockwell Collins Non-Qualified Pension Plan   19.2   $  197,640  
Allen   Rockwell Collins Pension Plan   11.8   $  156,398  
  Rockwell Collins Non-Qualified Pension Plan   11.8   $   87,376  
  2005 Rockwell Collins Non-Qualified Pension Plan   11.8   $  205,403  
Statler   Rockwell Collins Pension Plan   19.8   $  254,300  
  Rockwell Collins Non-Qualified Pension Plan   19.8   $   69,331  
  2005 Rockwell Collins Non-Qualified Pension Plan   19.8   $  222,055  

In September 2006, we froze our qualified and non-qualified defined benefit pension plans applicable to the named executive officers and certain other salaried employees and shifted our emphasis to a defined contribution plan. Set forth below is further disclosure relating to these qualified and non-qualified defined benefit pension plans that have been frozen.

We maintain qualified and non-qualified defined benefit pension plans for our employees. As part of the 2001 spin-off from Rockwell, all of the qualified defined benefit pension plans were merged into one plan and renamed the Rockwell Collins Pension Plan (“Qualified Pension Plan”). Effective September 30, 2006, the plan was amended to discontinue benefit accruals for salary increases and services rendered after that date, other than for employees covered by collective bargaining agreements. Each of the current named executive officers is eligible for a benefit under the Qualified Pension Plan that is included in the totals above. Benefit calculations for each named executive officer are unique depending on age, years of service and average annual covered compensation. Covered compensation includes salary and annual incentive.

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We also maintain non-qualified supplemental defined benefit pension plans (the Rockwell Collins Non-Qualified Pension Plan (“NQ Pension Plan”) and the 2005 Rockwell Collins Non-Qualified Pension Plan (“2005 NQ Pension Plan”)) to provide eligible employees, including the named executive officers, with supplemental pension benefits in excess of the maximum benefit allowed under the Qualified Pension Plan by reason of limitations of the Internal Revenue Code. A participant’s supplemental retirement benefit is generally based on a continuation of the participant’s benefit calculation formula under the Qualified Pension Plan. The Corporation adopted the 2005 NQ Pension Plan to comply with the requirements of Internal Revenue Code Section 409A for non-qualified benefits earned after 2004. Non-qualified benefits based on service and compensation earned before 2005 are paid from the NQ Pension Plan and benefits based on service and compensation earned after 2004 are paid from the 2005 NQ Pension Plan.

Executive officers hired after January 1, 1993 are covered by an enhanced early build-up retirement benefit provision broadly available to the other salaried sub-plan participants hired before 1993. This benefit was also frozen on September 30, 2006.

The Qualified Pension Plan does not have a lump sum option. Payments from the NQ Pension Plan are made in the same form and at the same time as payments from the Qualified Pension Plan. Under the 2005 NQ Pension Plan, participants made an election at the end of calendar year 2008 as to the form and timing of the payments that will be made upon separation from the Corporation. For benefits payable under the 2005 NQ Pension Plan, participants can elect to receive a life annuity, one lump sum or up to ten annual installments.

The present value of the accumulated pension benefit for each named executive officer is calculated as required by regulatory standards using a 5.47% discount rate as of September 30, 2009, and a retirement age of 62, the earliest age an executive can retire without a reduction in benefits. For the Qualified Pension Plan and the NQ Pension Plan, the form of payment assumes a weighted average of a joint and 60% survivor annuity and a single life annuity. For the 2005 NQ Pension Plan, the form of payment is based on participants’ elected payment forms. For further discussion related to our pension assumptions, see Note 11 of the Notes to Consolidated Financial Statements in our 2009 Annual Report on Form 10-K.

We have established a master rabbi trust, which was amended and restated on September 11, 2007 to reflect certain changes in respect of Internal Revenue Code Section 409A, relating to the NQ Pension Plans. The master rabbi trust requires that, upon a change of control, we fund the trust in a cash amount equal to the unfunded accrued liabilities of the NQ Pension Plan and the 2005 NQ Pension Plan as of such time.

NON-QUALIFIED DEFERRED COMPENSATION

The table below provides information on the non-qualified deferred compensation of the named executive officers in 2009, including the following elements:

Deferred Compensation Plan.  The plan allows eligible employees to defer a portion of their income and earnings until a future date when distributions are received from the plan. Participation in the plan is an annual decision that covers only the upcoming calendar year and must be made during each year’s annual enrollment period. The participants are not allowed to change their deferral election during the year. The Corporation adopted the 2005 Deferred Compensation Plan to comply with Internal Revenue Code Section 409A requirements.

Participants may elect to defer up to 50% of their base salary and/or as much as 100% of any annual incentive award. The 2005 Deferred Compensation Plan also provides for a matching contribution for each participant to the extent participation in the plan reduces the matching contribution he or she would have received under the Corporation’s Qualified Retirement Savings Plan. With respect to distributions, the named executive officers may elect to receive their balance on a future specified date, at retirement (up to 15 annual installments or as a lump sum) or upon termination (lump sum only). All deferrals of base salary and/or incentive awards made in a calendar year will be subject to the same distribution election.

Participants can choose any of the measurement funds offered by the plan and have the ability to change their investment election at any time. The measurement fund options are intended to mirror as closely as possible the performance of underlying mutual funds.

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Non-Qualified Retirement Savings Plan.  The primary purpose of the Corporation’s Non-Qualified Retirement Savings Plan (“Non-Qualified Savings Plan”) is to supplement the Corporation’s Qualified Retirement Savings Plan (“Qualified Savings Plan”) by allowing employees to receive credits for contributions that could not be made to the Qualified Savings Plan due to the Internal Revenue Code compensation limit or annual additions limit. Additionally, employees receive credits to the Non-Qualified Savings Plan for amounts that but for the Internal Revenue Code limits would have been contributed to the Qualified Savings Plan (a) as company matching contributions (equal to 75% of the first 8% of employee contributions) and (b) as company retirement contributions (such defined contributions are expressed as a specified percentage of eligible compensation determined based on each employee’s age and length of service).

Participants may defer up to 50% of their base salary to the plan. To comply with Internal Revenue Code Section 409A regulations, the contribution percent in effect for the Qualified Savings Plan on December 31 of the prior year will be the contribution percent in effect for the current year in the Non-Qualified Savings Plan. With respect to distributions, contributions made prior to 2005 permit participants to receive their balance upon termination of employment either through a lump sum payment or in annual installments up to 10 years. Contributions made in 2005 through 2007 are paid in lump sum only upon termination of employment. The Corporation adopted the 2005 Non-Qualified Savings Plan to comply with Internal Revenue Code Section 409A requirements. Beginning with deferral elections for 2008, participants can receive their resulting balance upon termination of employment either through a lump sum payment or in up to ten annual installments.

The investment funds available for the employee and company credits are identical to the investment funds in the Qualified Savings Plan. Investment elections to the Non-Qualified Savings Plan are made independently from the Qualified Savings Plan. Contribution credits not directed to a specific investment fund will be invested in a Fidelity Freedom Fund designed for a target retirement date that is closest to the date that the employee turns age 65. Employees may transfer credits to other investment funds within the plan at any time.

Distributions for the Deferred Compensation Plan and Non-Qualified Savings Plan are processed within the first 60 days of the calendar year following the year that an employee terminates or retires. However, if the named executive officer terminates or retires after June 30, the distribution will be processed within the first 60 days following June 30 of the following calendar year.

Non-Qualified Deferred Compensation

         
Name   Executive
contributions
in last fiscal
year ($)(1)
  Registrant
contributions
in last fiscal
year ($)(2)
  Aggregate
earnings/(losses)
in last fiscal
year ($)(3)
  Aggregate
withdrawals/
distributions ($)(4)
  Aggregate
balance at last
fiscal year
end ($)(5)
Jones   $ 61,938     $ 165,620     $ 274,656           $ 7,740,970  
Churchill   $ 129,862     $ 59,669     $ 57,430           $ 791,638  
Ortberg   $ 71,426     $ 46,738     $ 31,695           $ 399,495  
Allen   $ 18,400     $ 36,322     $ 1,880           $ 599,276  
Statler   $ 14,960     $ 37,142     $ 14,455           $ 147,160  

(1) For fiscal year 2009, the amounts shown in this column include elective deferrals to the Deferred Compensation Plan and contributions to the 2005 Non-Qualified Savings Plan. This column includes contributions of base salary to the Deferred Compensation Plan and contributions to the 2005 Non-Qualified Savings Plan that were reported in the Summary Compensation Table as salaries in 2009 and contributions of incentive payments to the Deferred Compensation Plan that were reported in the Summary Compensation Table as non-equity incentives in 2008 as follows: