The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto. The following discussion and analysis contains forward-looking statements and estimates that involve risks and uncertainties. Actual results could differ materially from these estimates. Factors that could cause or contribute to differences from estimates include those discussed under "Cautionary Statement" and "Risk Factors" contained in Item 1 above.

We operate on a 52/53 week fiscal year ending on the Friday closest to September
30. For ease of presentation, September 30 is utilized consistently throughout Management's Discussion and Analysis of Financial Condition and Results of Operations to represent the fiscal year end date. 2009 was a 52 week fiscal year, while 2008 and 2007 were 53 week and 52 week fiscal years, respectively. All date references contained herein relate to our fiscal year unless otherwise stated.

For many years, Rockwell Collins has benefited from having a diversified and balanced business, serving both commercial and government markets. This diversification and balance was an important attribute that helped support the performance of our Company during 2009. Our Commercial Systems business was adversely impacted as the aerospace marketplace reacted sharply to the macroeconomic events of 2009 with a sudden and severe decline in demand. Meanwhile, our Government Systems business experienced stable end markets with continued demand for our systems, products and services. We acted quickly to address these dynamic market conditions by redeploying resources where possible and by implementing infrastructure and cost reduction actions where necessary, which helped to preserve the financial strength and long-term growth prospects of our Company. The actions included a restructuring plan, along with other cost saving initiatives, to better align our resources with this new environment. As a result of the market dynamics and steps the Company took to address those dynamics, we generated the following results for 2009:

• we achieved sales of $4.47 billion

• we delivered earnings per share of $3.73

• we generated operating cash flow of $633 million

• we continued to invest in research and development at 19 percent of sales

We believe Rockwell Collins has proven its ability to both react quickly to changing business conditions and to execute its business plans. Despite these exceptionally difficult times, our fundamental strategies have served us well:
the balance between our commercial and government businesses; the diversification of our customer base and product offerings; the integration of our business through our shared service operating model and our focus on innovation through R&D.

Balance - We feel our business is characterized by its balance, in terms of market segment, geographic, product and customer sales mix. We strive to maintain a balance between our Government and Commercial Systems businesses, believing that the segments are complementary to one another. In 2010, we expect the stability of our Government Systems business to offset most of the volatility within our Commercial Systems business. It is this aspect of our balanced business portfolio that makes it a fundamental strength of Rockwell Collins.

Diversification - Our business derives its revenue streams from a large number of diverse customers, products, solutions and markets. Our Government Systems business executes against numerous programs every year for a variety of customers, including the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign ministries of defense. Our Commercial Systems business serves customers ranging from the world's largest aircraft manufacturers to individual aircraft owners within the general aviation marketplace. This diversification of revenue sources enables us to pursue numerous growth opportunities as business conditions vary across our portfolios.

Integration - We have a highly integrated business reliant upon a shared services operating platform. The integrated nature of our business allows us to leverage product and service capabilities across our segments in a manner we believe is unique in our industry. This integration is evidenced by our product and technology

centers of excellence in areas such as displays, communication, navigation and surveillance, through which we apply our core competencies to solutions in both Government and Commercial Systems.

Innovation - A well-funded and comprehensive R&D program is a foundational aspect of Rockwell Collins. Our focus on developing unique solutions to our customers' needs is evidenced by the large investment we dedicate towards R&D programs. It is this spending profile that has allowed Rockwell Collins to successfully pursue and capture customer programs and that will continue to be the growth engine for our Company.

Looking forward to 2010, we believe we are well positioned to operate in an environment that will continue to present challenges for our Commercial Systems business and modest opportunities for our Government Systems business. Highlights of our 2010 earnings guidance are as follows:

• total sales in the range of $4.6 billion to $4.8 billion, or about a 3 percent to 7 percent increase over 2009

• diluted earnings per share in the range of $3.35 to $3.55

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

• capital expenditures of approximately $135 million

• total company and customer-funded R&D expenditures in the range of $870 million to $900 million, or about 19 percent of total sales

See the following operating segment sections for further discussion of 2009 and anticipated 2010 segment results. For additional disclosure on segment operating earnings see Note 24 of the Notes to Consolidated Financial Statements in Item 8 below.

The following management discussion and analysis of results of operations is based on reported financial results for 2007 through 2009 and should be read in conjunction with our consolidated financial statements and the notes thereto in Item 8 below.

Consolidated Financial Results

Sales

[[Image Removed]]        [[Image Removed]]      [[Image Removed]]       [[Image Removed]]
(Dollars in Millions)            2009                   2008                   2007
U.S.                     $       3,080          $         3,164         $           2,987
Non-U.S.                         1,390                    1,605                     1,428
Total                    $       4,470          $         4,769         $           4,415
Percent (decrease)                  (6 )%                     8 %
increase

Total sales in 2009 decreased 6 percent to $4,470 million compared to 2008. Commercial Systems sales decreased 21 percent partially offset by a 9 percent increase in Government Systems sales. Incremental sales from acquisitions contributed a total of $117 million in revenue. Three acquisitions contributed to this growth: the April 2008 acquisition of Athena Technologies, Inc. (Athena), the November 2008 acquisition of SEOS Group Limited (SEOS) and the May 2009 acquisition of DataPath, Inc. (DataPath).

The decrease in domestic sales from 2008 to 2009 was due to lower sales volume of Commercial Systems products and systems to original equipment manufacturers (OEMs) and reduced commercial avionics aftermarket hardware and service and support revenues. These decreases were partially offset by incremental revenue from the DataPath and Athena acquisitions and higher sales to the U.S. Government. The decrease in non-U.S. sales was primarily due to lower Commercial Systems sales related to lower production rates at OEMs, reduced commercial avionics aftermarket hardware and a decrease in Commercial Systems service and support revenues. These decreases were partially offset by incremental sales from the SEOS and DataPath acquisitions.

Total sales in 2008 increased 8 percent to $4,769 million compared to 2007. Incremental sales from the August 2007 acquisition of Information Technology & Applications Corporation (ITAC) and the acquisition of

Athena contributed a total of $22 million, or less than 1 percentage point of the overall revenue growth. The remainder of the sales increase resulted from 10 percent organic revenue growth in our Commercial Systems business and 5 percent organic revenue growth in our Government Systems business. Domestic sales growth was driven by higher sales of commercial products and systems to OEMs and airlines, as well as higher sales to the U.S. Government of Government Systems communication and electronic systems, products and services. Non-U.S. sales were impacted by higher sales from commercial aerospace customers.

Cost of Sales

Total cost of sales is summarized as follows:

[[Image Removed]]        [[Image Removed]]       [[Image Removed]]       [[Image Removed]]
(Dollars in Millions)            2009                    2008                    2007
Total cost of sales      $         3,150         $         3,334         $         3,092
Percent of total sales              70.5 %                  69.9 %                  70.0 %

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

Cost of sales as a percentage of total sales increased slightly in 2009 in comparison to 2008 as the impact of lower Commercial Systems sales volume, the restructuring charge and incremental lower margin revenues from the DataPath, SEOS and Athena acquisitions were largely offset by lower employee incentive compensation, lower R&D costs and other cost savings. The 2009 cost of sales includes $19 million of restructuring and asset impairment charges. These charges were primarily related to our plan to reduce our workforce and close our San Jose, California facility and relocate engineering, production and service work to other locations.

Cost of sales as a percentage of total sales in 2008 as compared to 2007 was relatively flat as increased sales volume, productivity improvements, lower employee incentive compensation costs and lower retirement benefit costs were offset by the absence of certain net favorable contract-related adjustments benefiting 2007 and a $5 million favorable adjustment to a restructuring reserve included in cost of sales in 2007.

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

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(Dollars in Millions)            2009                   2008                   2007
Customer-funded          $         493          $         501          $         480
Company-funded                     355                    395                    347
Total                    $         848          $         896          $         827
Percent of total sales              19 %                   19 %                   19 %

R&D expense consists primarily of payroll-related expenses of employees engaged in R&D activities, engineering related product materials and equipment and subcontracting costs.

Total R&D expense decreased $48 million, or 5 percent, from 2008 to 2009. The majority of the decrease was within the company-funded portion of R&D expense. This decrease was driven by lower company-funded development costs on the Boeing 787 program as well as reduced spending on certain other initiatives that were impacted by global macro-economic factors impacting our commercial markets, partially offset by increased spending on the Airbus A350 program. The customer-funded portion of R&D expense decreased slightly from 2008 to 2009 as lower customer-funded development on certain commercial air transport platforms with Boeing were partially offset by higher customer-funded development within Government Systems on programs such as Common Range Integrated Instrumentation System (CRIIS) and Joint Precision Approach and Landing System (JPALS).

Total R&D expense increased $69 million, or 8 percent, from 2007 to 2008. The customer-funded portion of R&D expense increased primarily due to several defense-related programs that were in the development phase, including the E-6 mission systems upgrade program, the CH-53G helicopter program and the Modernized User Equipment (MUE) program. The company-funded portion of R&D expense increased from 2007 to 2008 primarily due to spending on new business and regional jet platforms, development efforts

towards our next generation flight deck and cabin systems for business aircraft and the enhancement of capabilities of other products and systems.

Looking forward to 2010, total R&D expense is expected to increase by approximately 3 to 6 percent over 2009 and be in the range of $870 million to $900 million, or about 19 percent of total Company sales. The increase is primarily due to expected growth in customer-funded R&D principally related to recently awarded and anticipated Government Systems development programs and other customer-funded development programs within Commercial Systems related to regional jet OEMs. Increases in customer-funded R&D are expected to be partially offset by decreases in company-funded R&D of about 10 percent, primarily within Commercial Systems and due to lower spending on certain next generation flight decks for business aircraft.

Selling, General and Administrative Expenses

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(Dollars in Millions)            2009                   2008                   2007
Selling, general and
administrative           $          458         $          485         $          482
expenses
Percent of total sales             10.2 %                 10.2 %                 10.9 %

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

SG&A expenses decreased $27 million to $458 million, or 10.2 percent of total sales, in 2009 compared to SG&A expenses of $485 million, or 10.2 percent of total sales, in 2008. The Company held SG&A expenses as a percentage of total sales flat in 2009 compared to 2008 as the negative impact of lower sales volume and the incrementally higher SG&A expenses related to our 2009 acquisitions were offset by lower employee incentive compensation costs and other cost savings.

SG&A expenses increased $3 million to $485 million, or 10.2 percent of sales, in 2008 compared to SG&A expenses of $482 million, or 10.9 percent of sales, in 2007. The improvement in SG&A expenses as a percentage of total sales was attributed primarily to productivity improvements, lower employee incentive compensation costs and lower retirement benefit costs, partially offset by higher charitable contributions.

Interest Expense

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(In Millions)               2009                    2008                    2007
Interest expense    $            18         $            21         $            13

Interest expense decreased by $3 million in 2009 compared to 2008 due primarily to the impact of a more favorable interest rate environment on our variable rate short-term debt outstanding during 2009.

Interest expense increased by $8 million in 2008 compared to 2007 due primarily to increases in short-term borrowings.

Other Income, Net

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(In Millions)               2009                   2008                   2007
Other income, net   $         (23 )        $         (24 )        $         (15 )

For information regarding the fluctuations in other income, net, see Note 15 of the Notes to Consolidated Financial Statements in Item 8 below.

Income Tax Expense

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(Dollars in Millions)            2009                   2008                   2007
Income tax expense       $          273         $          275         $          258
Effective income tax               31.5 %                 28.9 %                 30.6 %
rate

The effective income tax rate differed from the U.S. statutory tax rate as detailed below:

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                                 2009                   2008                   2007
Statutory tax rate                 35.0 %                 35.0 %                 35.0 %
State and local income              0.7                    0.6                    1.1
taxes
Research and                       (2.2 )                 (2.6 )                 (4.0 )
development credit
Domestic manufacturing             (1.3 )                 (1.5 )                 (0.7 )
deduction
Tax settlements                       -                   (2.3 )                    -
Extraterritorial                      -                      -                   (0.5 )
income exclusion
Other                              (0.7 )                 (0.3 )                 (0.3 )
Effective income tax               31.5 %                 28.9 %                 30.6 %
rate

The difference between our effective income tax rate and the statutory tax rate was primarily the result of the tax benefits derived from the Federal Research and Development Tax Credit (Federal R&D Tax Credit), which provides a tax benefit on certain incremental R&D expenditures and the Domestic Manufacturing Deduction under Section 199 (DMD), which provides a tax benefit on U.S. based manufacturing.

The effective income tax rate in 2009 increased from 2008 primarily due to the favorable resolution of certain tax settlements that benefitted our effective income tax rate in 2008.

On the last day of fiscal year 2008, the Emergency Economic Stabilization Act of 2008 was enacted, which retroactively reinstated and extended the Federal R&D Tax Credit from January 1, 2008 to December 31, 2009. Our effective income tax rate for 2009 and 2008 reflected a full year of benefit from the Federal R&D Tax Credit.

Our effective income tax rate for 2007 reflected the retroactive reinstatement of the Federal R&D Tax Credit which had previously expired December 31, 2005. On December 20, 2006, the Tax Relief and Health Care Act of 2006 was enacted, which retroactively reinstated and extended the Federal R&D Tax Credit from January 1, 2006 to December 31, 2007. The retroactive benefit for the previously expired period from January 1, 2006 to September 30, 2006 lowered our effective income tax rate by about 1.5 percentage points for 2007.

In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act repealed and replaced the federal Extraterritorial Income Exclusion (ETI) with a new deduction for income generated from qualified production activities by U.S. manufacturers. The ETI export tax benefit completely phased out December 31, 2006 and the DMD benefit will be phased in through fiscal year 2010. For 2007, the available DMD tax benefit was one-third of the full benefit that will be available in 2011. For 2009 and 2008, the available DMD tax benefit was two-thirds of the full benefit that will be available in 2011.

Management believes it is more likely than not that our current and long-term deferred tax assets will be realized through the reduction of future taxable income.

For 2010, our effective income tax rate is expected to be in the range of 30 to 31 percent. The projected 2010 effective tax rate assumes the Federal R&D Tax Credit is available for the entire fiscal year, although legislation extending the Federal R&D Tax Credit beyond December 31, 2009 has yet to be enacted.

Net Income and Diluted Earnings per Share

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(Dollars and Shares
in Millions, Except           2009                    2008                    2007
per Share Amounts)
Net income            $           594         $           678         $           585
Net income as a                  13.3 %                  14.2 %                  13.3 %
percent of sales
Diluted earnings      $          3.73         $          4.16         $          3.45
per share
Weighted average
diluted common                  159.4                   162.9                   169.7
shares

Net income in 2009 decreased 12 percent to $594 million, or 13.3 percent of sales, from net income in 2008 of $678 million, or 14.2 percent of sales. Diluted earnings per share decreased 10 percent in 2009 to $3.73, compared to $4.16 in 2008. The decrease in net income was primarily due to lower Commercial Systems sales volume, a higher effective income tax rate and a $14 million after-tax restructuring and asset impairment

charge ($21 million before income taxes) that was primarily related to the decision to close our San Jose, California facility. These items were partially offset by lower employee incentive compensation costs, lower R&D costs and lower SG&A expenses. The decrease in earnings per share was lower than the decrease in net income as the positive impact of our share repurchase program partially offset the lower net income.

Net income in 2008 increased 16 percent to $678 million, or 14.2 percent of sales, from net income in 2007 of $585 million, or 13.3 percent of sales. Diluted earnings per share increased 21 percent in 2008 to $4.16, compared to $3.45 in 2007. Earnings per share growth exceeded the growth rate in net income due to the favorable impact of our share repurchase program. These increases were primarily due to higher sales volume coupled with productivity improvements. Included in 2008 net income is a discrete item related to favorable income tax adjustments resulting from the resolution of certain tax settlements, which lowered our 2008 effective income tax rate by 2.3 percentage points.

Segment Financial Results
Government Systems
Overview and Outlook

Our Government Systems business provides communication and electronic systems, products and services for airborne and surface applications to the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign ministries of defense. These systems, products and services support airborne (fixed and rotary wing), ground and shipboard applications. The short and long-term performance of our Government Systems business is affected by a number of factors, including the amount and prioritization of defense spending by the U.S. and non-U.S. governments, which is generally based on the underlying political landscape and security environment.

We expect global baseline defense budgets (excluding supplemental appropriations) to continue to increase, but at moderate rates as the volatility of the global threat environment is weighed against budgetary pressures created by the worldwide economic situation and non-defense government spending and stimulus investing. We expect high priority military transformation initiatives and cost-effective solutions to modernize and replace aged weapons systems will lead to funding support for military communications and electronics equipment. We expect that these customer priorities, combined with our strengthening positions in certain faster growing areas of our served defense electronics and communications markets, should enable us to continue to deliver above-market rates of organic revenue growth. Our involvement in various elements of the Joint Tactical Radio System (JTRS) program, our wide range of positions for fixed and rotary wing cockpit and mission electronics systems (including KC-135 refueling tankers and C-130 cargo aircraft, as well as Blackhawk, Chinook, and Sea Stallion helicopters) and our positions in precision guidance systems for missiles and munitions are examples of significant programs in these faster growing areas that have been, and are expected to continue to be, drivers of our growth going forward. We are expanding our involvement in certain segments of the defense electronics market and expect to see future growth from sales of our products and services for unmanned air vehicles, ground vehicles and soldier worn electronic systems.

Risks affecting future performance of our Government Systems business include, but are not limited to:

• potential impact of geopolitical and economic events

• overall funding and prioritization of the U.S. and non-U.S. defense budgets

• funding for programs we have won at projected levels and without program delays

• our ability to win new business, successfully develop products and execute on programs pursuant to contractual requirements

We expect Government Systems sales to increase by approximately 12 percent in 2010 compared to 2009. The revenue growth is expected to be derived from continued demand for avionics systems for tanker, transport and rotary wing aircraft; moderate increases in unmanned aerial system and international military system sales and growth in programs focused on communication and situational awareness solutions for soldier and ground vehicle applications. Revenues from the acquisition of DataPath (now Rockwell Collins Satellite Communication Systems) are expected to contribute approximately six percentage points of Government Systems 2010 revenue growth.

We project Government Systems 2010 operating margins will be lower than the 23.3 percent segment operating margin reported in 2009, primarily due to salary and incentive compensation increases in 2010, an increase in retirement benefit costs and incremental lower margins on revenues from the DataPath acquisition.

For additional disclosure on Government Systems segment operating earnings see Note 24 of the Notes to Consolidated Financial Statements in Item 8 below.

Government Systems Sales

The following table represents Government Systems sales by product category:

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(Dollars in Millions)           2009                    2008                   2007
. . .