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ROK 2001
/ ANNUAL REPORT & FORM 10-K /
73487-ROCKWELL AR01 COVERrv1 12/4/01 01:09 Page 2
VISION.
TO BE THE MOST VALUED GLOBAL PROVIDER OF
POWER, CONTROL AND INFORMATION SOLUTIONS.
Financial Highlights
CONTINUING OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999
2000
2001
SALES
$4,665
$4,656
$4,279
SEGMENT OPERATING EARNINGS
INCOME FROM CONTINUING OPERATIONS*
DILUTED EARNINGS PER SHARE*
725
283
1.47
696
344
1.81
474
173
0.94
*Before special items in 2001. Special items include charges of $91 million ($60 million after tax, or 32 cents per
share) for costs associated with realignment actions which were partially offset by a gain of $18 million ($12 mil-
lion after tax, or six cents per share) resulting from the favorable settlement of an intellectual property matter.
Sales by Segment (IN MILLIONS)
CONTINUING OPERATIONS
1999
3,646
2000
3,677
2001
3,359
782
202
35
762
168
49
710
150
60
$4,665
$4,656
$4,279
CONTROL SYSTEMS
POWER SYSTEMS
ELECTRONIC COMMERCE
OTHER
ROK 2001
/ 02 /
LETTER TO SHAREOWNERS
LETTER TO SHAREOWNERS
Dear Shareowner:
2001 was a pivotal year for Rockwell. With the successful
spin-off of Rockwell Collins, we transformed the company
into one primarily focused on automation. At the same
time, we responded aggressively to an unprecedented
industry downturn in the manufacturing economy while
preserving our investments in future growth.
Today, as Rockwell Automation, we have the fullest range
of industrial automation products and platforms and a
growing portfolio of value-added services and manufactur-
ing solutions tailored to meet our customers’ needs. We
have the global market presence, people and know-how
to capture significant revenue and profit opportunities
when business investment in the manufacturing sector
improves. We are intent on being the most valued global
provider of power, control and information solutions for
industrial automation.
This past year was very difficult as capital spending in the
manufacturing economy suffered a sharp pull-back across
/ 03 /
the markets we serve. Business activity in served markets
was weak but stable during the first half of the year, but
the third quarter saw a pronounced decline in demand,
most notably in North America. This unstable environment
was further weakened by the uncertainty that followed the
tragic terrorist events of September 11th.
We have taken action to respond to the persistent weakness
of our markets and continued economic uncertainty. Since
June, we have consolidated and closed facilities, realigned
administrative functions and reduced our worldwide work-
force by approximately 9%. We remain committed to
maintaining our competitive strength by balancing the
appropriate level of cost reduction with investments in
future growth.
In fiscal 2001, Rockwell Automation earned $0.94 per
share, before special items, on revenues of $4.3 billion.
These amounts are down significantly from the prior year,
due almost entirely to the adverse market conditions. At
the same time, however, we managed to generate $178
million of free cash flow, maintained operating margins of
11% and invested over $170 million in R&D and new
growth initiatives. We also benefited from the relative
strength of our international operations, which accounted
for 33% of total revenue.
ROK 2001
/ 04 /
In sum, after 39 years in this business, I can tell you this
environment is the toughest I have ever seen. I can also tell
you that it will improve, and when it does, we will be ready.
We are confident in the significant upside we will realize
as we capitalize on Rockwell Automation’s considerable
operating leverage. We have made significant investments
in our Global Manufacturing Solutions business including
the addition of new people and expertise. This investment
lessens our dependency on the industrial capital spending
cycle, and we will benefit from a strengthening economy.
We remain focused on our strategy for profitable growth.
We will continue to drive the Rockwell Lean Enterprise
throughout our organization. We are investing to optimize
our core automation product and platform offerings, and
we are making good on our commitment to expand that
core by taking decades of manufacturing know-how and
transforming it into a high value-added and fast-growing
services business. We will continue to seek out strategic
partnerships and acquisitions that will enable us to expand
our reach into new markets, new customers and new
regions of the world.
I have spent a lot of time over the past year talking with our
customers. What I have heard, consistently, is that they
are focused on ways to reduce time to market, increase
asset productivity, outsource non-core functions and activ-
/ 05 /
ities, cut energy costs and increase their efficiency and
reliability. As a company focused on industrial automation
products, services and solutions, those are the areas where
we bring value to our global customer base of world
leading manufacturers.
Our customers also tell us that they require integrated
control and information solutions that seamlessly connect
automation products, both at the plant level and with their
business systems. We have the building blocks in place
to help manufacturers around the world. Over the past
several years, we have invested over $100 million in our
Logix integrated control and information architecture.
It has been successfully deployed and well received by our
customers as evidenced by a growth rate of over 50% in
2001. Our expanded services capabilities now include
technical support services, human performance/training,
asset management, engineered solutions, manufacturing
information, software and consulting services.
Finally, following a return to profitability in 2001, Rockwell
Electronic Commerce’s contact center business is well-
positioned to meet the current and future needs of our
customers.
In planning for the year ahead, we have taken great care to
base our forecasts and strategies on what we know and
what we can control. It’s a fact that we cannot control the
ROK 2001
/ 06 /
economy. But Rockwell has never been about what we
cannot do - it’s about what we can do. We can control
our costs. We can control the strength of our customer
relationships. We can control the quality of the integrated
products, services and solutions we are developing for the
next wave of our company’s growth. My commitment to you
is that what we can do, we will do.
Our industry is in the midst of a transformation. In the
early 1970’s Rockwell was at the forefront of the industry
with our electro-mechanical products. In the 1980’s we
were at the forefront of the move toward the PLC platform
and related products and systems. Rockwell Automation
today is at the forefront of the movement to integrated
services and solutions.
We remain confident in Rockwell Automation and optimistic
about the future. Thank you for your continued support.
Sincerely,
Don H. Davis, Jr.
Chairman of the Board & Chief Executive Officer
Rockwell Automation
Control Systems
Rockwell Electronic Commerce
Power Systems
Rockwell Scientific Company LLC
ROK 2001
/ 08 /
Control Systems
Rockwell Automation’s largest segment, Control Systems,
offers a unique combination of Allen-Bradley and Rockwell
Software brand products, control and information manage-
ment platforms, and global manufacturing solutions. Our
comprehensive suite of industrial automation solutions
makes us a global industry leader with $3.4 billion in
annual sales.
Control Systems employs 17,900 people, operates 38
manufacturing plants and maintains more than 600
sales and support locations serving customers in over
80 countries. Through a comprehensive network of global
research centers, service centers and more than 3,500
authorized distributors, representatives and solution
providers worldwide, Control Systems is there with its
customers around the globe, helping them to reduce
time to market, increase productivity, improve quality
and cut costs.
Control Systems enjoys a balanced exposure to different
industries with a variety of world-class customers.
Major industries served include consumer products, food
and beverage, transportation, metals, mining, pulp and
paper, petroleum, specialty chemicals, pharmaceuticals,
electric power, water treatment, electronic assembly and
semiconductors.
Control Systems
The Components and
Packaged Applications Group
The Automation Control
and Information Group
Global Manufacturing
Solutions
ROK 2001
/ 10 /
Control Systems
THE COMPONENTS AND PACKAGED APPLICATIONS GROUP (CPAG) is comprised of
Rockwell Automation’s industrial components, power control and motor management
products, as well as our packaged and engineered products. CPAG provides a broad
portfolio of innovative solutions to improve the productivity of leading manufacturers
worldwide. It maintains global leadership positions across many electro-mechanical and
solid-state product segments, including motor starters and contactors, push buttons and
signaling devices, termination and protection devices, relays and timers, discrete and
condition sensing, and variable speed drives for HVAC, material handling and packaging
applications. CPAG is also aggressively expanding its market leading portfolio of machine
safety components.
THE AUTOMATION CONTROL AND INFORMATION GROUP (ACIG) has introduced a
powerful new, open architecture that integrates information and multiple types of control
disciplines including discrete, motion and process control across various factory floor
operating platforms. This architecture provides a unified, scalable approach that allows
companies to standardize multiple automation and information applications on one platform.
The Integrated Logix Architecture has been received very positively by our customers and
represents another key driver for long-term growth. This architecture encompasses our Logix
control, NetLinx communications and ViewAnyWare visualization, enabling customers to
reduce their total cost of ownership by creating a seamless electronic manufacturing
environment. ACIG also produces distributed I/O platforms, high performance rotary and
linear motion control systems, as well as electronic operator interface devices and plant
floor industrial computers.
GLOBAL MANUFACTURING SOLUTIONS (GMS) leverages Rockwell Automation’s decades
of know-how to help manufacturing companies deliver quality products faster and at a
lower cost. It provides multi-vendor automation and information systems and solutions for
manufacturing, multi-vendor customer support, training, software, consulting and imple-
mentation, integrated predictive maintenance, asset management, energy solutions and
services, batch manufacturing and regulatory compliance solutions. GMS tailors solutions
to meet each customer’s specific needs, using tools from a wide range of manufacturing
and service disciplines.
/ 11 /
NEW PRODUCTS AND SERVICES
• Integrated power control capabilities with demand for energy efficiency by introducing
next generation PowerFlex™ Drive, DrivesLogix™ and medium voltage IntelliCENTER™
technology
• Executed on safety market strategy by extending portfolio with the successful introduction
of Safety Light Curtains and the GuardPLC™ for machine safety applications
• Continued to expand on component offerings with the introduction of push buttons, motor
starters and sensor products
BRAND NAMES
• Extended ControlLogix® platform and introduced CompactLogix™, FlexLogix™, SoftLogix™
and DriveLogix™ to create a common, scalable integrated control architecture to help
customers reduce design, installation and maintenance costs and improve cycle time
• Enhanced the Integrated Logix Architecture with the introduction of SERCOS™ digital
motion interface for application in the demanding packaging, converting and assembly
processes
• Introduced EtherNET/IP networking based on industry standard EtherNET technology to
help manufacturers establish seamless information flows
• Introduced Rockwell Automation Asset Management Portfolio to provide repair and
re-manufacturing services to assure top performance of plant floor equipment
• Expanded scope of Manufacturing BusinessWare Software to help customers’
e-Manufacturing solutions, tying plant floor information into enterprise and supply chain
business systems and converting plant floor data into useful, decision-making information
• Launched remote monitoring to improve uptime of critical plant assets and to provide
technical support faster and at a lower cost
ROK 2001
/ 12 /
Power Systems
Power Systems offers Dodge® brand mechanical power
transmission products and Reliance Electric™ brand indus-
trial motors and drives found in almost every industrial
and commercial application. Dodge and Reliance products
have been powering industrial plants since the early
1900’s, providing the best total-cost-of-ownership solutions
with Power Matched™ products. Sales for fiscal 2001 were
$710 million.
Power Systems employs 4,500 people within 13 manufac-
turing facilities and 12 service centers in the U.S.,
Mexico, Canada, Germany and China. Power Systems
incorporates world-class design, engineering, manufacturing
and logistics techniques to provide products and services
that ensure long life, low maintenance, service excellence
and lowest long-term cost. Supporting this commitment to
excellence is an extensive network of over 5,000 distribu-
tors and OEM partners worldwide.
Major industries served include mining, aggregate,
food/beverage, forestry, transportation, petrochemicals,
metals, unit handling, air handling and environmental.
In each industry, Power Systems active participation and
total commitment to customer satisfaction allows it to be a
key partner in its customers’ success.
Power Systems
Mechanical Power
Transmission Business
Industrial Motor
and Drive Business
Power Services Business
ROK 2001
/ 14 /
Power Systems
THE MECHANICAL POWER TRANSMISSION BUSINESS has helped increase the produc-
tivity and profitability of industrial applications around the world for over 120 years. By
offering a complete line of mounted bearings, gear reducers, standard mechanical drives,
conveyor pulleys, couplings, bushings, clutches and motor brakes, we can respond quickly
and effectively to our customers’ industry or unique application-driven requirements.
THE INDUSTRIAL MOTOR AND DRIVE BUSINESS has been an industry leader for more
than 90 years, providing industrial and engineered motors, and standard AC and DC drives,
that ensure optimum durability and performance in the most demanding applications. We
have the capability to engineer standard, modified or custom motors in all types, styles and
sizes, ranging from fractional to 15,000 horsepower motors. Reliance Electric sets the
standard in the design and production of energy efficient motors and continues to achieve
new profit initiatives within the manufacturing process.
THE POWER SERVICES BUSINESS positions Power Systems as the premier motor,
mechanical and maintenance service provider for OEMs, end-users and distributors.
Power Services offers these customers a complete line of service modules including product
repair, motor and mechanical maintenance solutions, plant maintenance, training and
consulting services.
/ 15 /
NEW PRODUCTS AND SERVICES
• Introduced TORQUE-ARM II™, new generation of shaft mount speed reducers to address
customer demands for increased torque and horsepower ratings
• Launched IMPERIAL™/ISAF mounted spherical roller bearings to improve installation and
removal efficiency
BRAND NAMES
• Extended wide range of motor and power transmission products to its key markets,
including:
- Large AC G-30 motors for global applications
- SABRE™ small AC motors for OEM and MRO customers
- TORQUE MAX™ AC motors to meet Aggregate Industry requirements
- V*S MASTER™ line of inverter-duty, constant-torque motors for application in the
paper, metals and printing industries
• Introduced SP-600™ standard AC drives for a broad range of speed-regulated applications
• Extended service offerings to include Power Lean™ assessment programs, Total Cost of
Ownership-TCO Appraisal™ services and TCO TOOLBOX™ software to improve customer
productivity
ROK 2001
/ 16 /
Rockwell Electronic Commerce
Rockwell Electronic Commerce provides contact center
solutions to industry leaders in a wide variety of industries
worldwide. With a current installed base of more than
1,100 systems, Rockwell Electronic Commerce enables
businesses to interact with their customers reliably, field-
ing millions of contacts everyday around the world.
Through a partnership approach, Rockwell Electronic
Commerce combines advanced, scalable and open plat-
forms, innovative applications and unique value-added
services to help businesses effectively leverage the revenue
generating potential of their existing customer contact and
IT infrastructures. Solution suites from Rockwell Electronic
Commerce are respected for their ability to enhance
overall system functionality and value while providing
clearly defined paths for system migration and growth.
Major industries served include service, transportation,
energy, healthcare, retail telecommunications and financial.
NEW PRODUCTS AND SERVICES
• Accelerated transition from an embedded hardware platform, extending open software
environment penetration to greater than 35% of customer base
• Implemented a professional services model focused on consulting and application devel-
opment to provide sophisticated solutions for customers
/ 17 /
Rockwell Scientific Company LLC
Rockwell Automation has a 50% ownership interest in
Rockwell Scientific Company LLC, the former Rockwell
Science Center. Rockwell Scientific Company conducts
advanced research programs which support the strategies
of Rockwell Automation’s operating businesses. Rockwell
Scientific Company also provides research and development
services to Rockwell Collins, The Boeing Company and the
U.S. Government.
ROK 2001
/ 18 /
Rockwell Automation — 2001 Business Highlights
• Control Systems
• Acquired batch process capability
to deliver flexible, cost-effective
solutions to a variety of industries
• Established Rockwell Automation as a
leader in machine safety through new
product introductions
• Penetrated the Marine industry
with significant wins on U.S. and
U.K. naval programs by applying
global support services with
commercial industrial hardware
• Achieved 50% increase in Integrated
Logix Architecture global sales
• Established brand labeling
strategic alliance with Omron to
expand presence in Asia Pacific
and strengthen product portfolio
• Created custom panel assembly
capability to address OEM customer
outsourcing requirements
• Initiated nearly 200 Lean Enterprise
projects related to product revenue
streams, new product development
and functional support
• Launched Power and Energy
Management service initiative to
help customers be more competitive
by addressing power and energy
management needs
• Increased international sales to 38%
of total sales
CONTROL SYSTEMS
POWER SYSTEMS
ELECTRONIC COMMERCE
/ 19 /
• Power Systems
• Electronic Commerce
• Established Power Systems Shanghai
for assembly and service of power
transmission products tailored to the
Asia Pacific market
• Established an industrial services
strategic alliance with Fluor Global
Services
• Established new distribution
agreements, both domestically
and internationally, increasing
channel revenue by 46%
• Implemented Power Lean operational
excellence initiatives within 13
manufacturing locations and at Power
Systems Group Headquarters
• Opened an offshore development
center in India to augment software
development, improve time to market
and reduce costs by 33%
• Realigned the business to focus on
products and solutions targeted to
maintaining our leadership position
in the high-end customer market and
penetrating the small- and medium-
size business market
• Formed Colinx LLC and Endorsia
(Europe) e-business platforms that
combines e-business with logistics
ROK 2001
/ 20 /
Mary Jane Hall
Vice President,
Human Resources
Thomas J. Mullany
Vice President & Treasurer
Keith D. Nosbusch
Senior Vice President & President
Rockwell Automation Control Systems
James P. O’Shaughnessy
Vice President & Chief
Intellectual Property Counsel
Rondi Rohr-Dralle
Vice President, Corporate Development
Joseph D. Swann
Senior Vice President & President
Rockwell Automation Power Systems
Rockwell Automation Corporate Officers
Don H. Davis, Jr.
Chairman of the Board
& Chief Executive Officer
Carl G. Artinger
General Auditor
Michael A. Bless
Senior Vice President
& Chief Financial Officer
William J. Calise, Jr.
Senior Vice President,
General Counsel & Secretary
John D. Cohn
Senior Vice President,
Strategic Development
& Communications
Michael G. Cole
Vice President,
Corporate Information Technology
Kent G. Coppins
Vice President & General Tax Counsel
David M. Dorgan
Vice President & Controller
/ 21 /
Bruce M. Rockwell
Vice Chairman
First of Michigan
Division of Fahnestock & Co. Inc.
Joseph F. Toot, Jr.
Retired President
& Chief Executive Officer
The Timken Company
Rockwell Automation Board of Directors
Don H. Davis, Jr.
Chairman of the Board
& Chief Executive Officer
Betty C. Alewine
Former President
& Chief Executive Officer
COMSAT Corporation
George L. Argyros
Chairman & Chief Executive Officer
Arnel & Affiliates
J. Michael Cook
Retired Chairman
& Chief Executive Officer
Deloitte & Touche LLP
William H. Gray, III
President & Chief Executive Officer
The College Fund/UNCF
William T. McCormick, Jr.
Chairman & Chief Executive Officer
CMS Energy Corporation
John D. Nichols
Retired Chairman
& Chief Executive Officer
Illinois Tool Works, Inc.
ROK 2001
/ 22 /
General Information
Rockwell Automation
World Headquarters
777 E. Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
414.212.5200
www.rockwellautomation.com
Investor Relations
Securities analysts should call:
Thomas J. Mullany
Vice President & Treasurer
414.212.5210
Corporate Public Relations
Members of the news media should call:
Donald J. McGrath
Director, Media Relations
414.212.5313
Annual Meeting
The company’s annual meeting of
shareowners will be held near its World
Headquarters at The Pfister Hotel, 424 E.
Wisconsin Avenue, Milwaukee, Wisconsin,
at 10 a.m., Wednesday, February 6,
2002. A notice of the meeting and proxy
materials will be mailed to shareowners in
late December 2001.
Shareowner Services
Correspondence about share ownership,
dividend payments, transfer requirements,
changes of address, lost stock certificates,
and account status may be directed to:
Mellon Investor Services LLC
PO Box 3316
South Hackensack, NJ 07606-1916
800.204.7800 or 201.329.8660
www.melloninvestor.com
Shareowners wishing to transfer stock
should send their written request, stock
certificate(s) and other required
documents to:
Mellon Investor Services LLC
PO Box 3312
South Hackensack, NJ 07606-1912
Shareowners needing further assistance
should call Rockwell Shareowner
Relations:
414.212.5300
For copies of the annual report (including
Form 10-K) and Form 10-Q, please call
Rockwell Shareholder Direct:
888.765.3228
/ 23 /
General Information Continued
Investor Services Program
Under the Mellon Shareholder Services
Investor Services Program for Rockwell
shareowners, shareowners of record may
select to reinvest all or a part of their divi-
dends, to have cash dividends directly
deposited in their bank accounts and to
deposit share certificates with the agent
for safekeeping. These services are all pro-
vided without charge to the participating
shareowner.
In addition, the program allows participat-
ing shareowners at their own cost to make
optional cash investments in any amount
from $100 to $100,000 per year or to
sell all or any part of the shares held in
their accounts.
Participation in the program is voluntary,
and shareowners of record may participate
or terminate their participation at any
time. For a brochure and full details of
the program, please direct inquiries to:
Mellon Bank, N.A.
c/o Mellon Investor Services LLC
PO Box 3338
South Hackensack, NJ 07606-1938
800.204.7800 or 201.329.8660
Independent Auditors
Deloitte & Touche LLP
411 E. Wisconsin Avenue, Suite 2300
Milwaukee, WI 53202
414.271.3000
Transfer Agent and Registrar
Mellon Investor Services LLC
PO Box 3316
South Hackensack, NJ 07606-1916
800.204.7800 or 201.329.8660
120 Broadway, 33rd Floor
New York, NY 10271
800.204.7800 or 201.329.8660
Stock Exchanges
Common Stock (Symbol: ROK)
United States: New York and Pacific
United Kingdom: London
FORM 10-K >
/ ROCKWELL AUTOMATION /
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Ñscal year ended September 30, 2001. Commission Ñle number 1-12383
Rockwell International Corporation
(Exact name of registration as speciÑed in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
777 East Wisconsin Avenue
Suite 1400
Milwaukee, Wisconsin
(Address of principal executive oÇces)
25-1797617
(I.R.S. Employer
IdentiÑcation No.)
53202
(Zip Code)
Registrant's telephone number, including area code:
(414) 212-5299 (OÇce of the Secretary)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $1 Par Value (including the
associated Preferred Share Purchase Rights)
New York, PaciÑc and London Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has Ñled all reports required to be Ñled by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to Ñle such reports), and (2) has been subject to such Ñling requirements for
the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's knowledge, in deÑnitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¥
The aggregate market value of registrant's voting stock held by non-aÇliates of registrant on October 31,
2001 was approximately $2.5 billion.
183,793,520 shares of registrant's Common Stock, par value $1 per share, were outstanding on
October 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in this Proxy Statement for the Annual Meeting of Shareowners of
registrant to be held on February 6, 2002 is incorporated by reference into Part III hereof.
Item 1. Business.
PART I
Rockwell International Corporation, now doing business under the name Rockwell Automation (the
Company or Rockwell), a Delaware corporation, is a leading global provider of industrial automation power,
control and information products and services. The Company was incorporated in 1996 and is the successor to
the former Rockwell International Corporation as a result of a tax-free reorganization completed on
December 6, 1996, pursuant to which the Company divested its former aerospace and defense businesses (the
A&D Business) to The Boeing Company (Boeing). The predecessor corporation was incorporated in 1928.
On September 30, 1997, the Company completed the spinoÅ of its automotive component systems business
(the Automotive Business) into an independent, separately traded, publicly held company named Meritor
Automotive, Inc. (Meritor). On July 7, 2000, Meritor and Arvin Industries, Inc. merged to form ArvinMer-
itor, Inc. (ArvinMeritor). On December 31, 1998, the Company completed the spinoÅ of its semiconductor
systems business (Semiconductor Systems) into an independent, separately traded, publicly held company
named Conexant Systems, Inc. (Conexant). On June 29, 2001, the Company completed the spinoÅ of its
Rockwell Collins avionics and communications business into an independent, separately traded, publicly held
company named Rockwell Collins, Inc. (Rockwell Collins). As used herein, the terms the ""Company'' or
""Rockwell'' include subsidiaries and predecessors unless the context indicates otherwise. Information included
in this Annual Report on Form 10-K refers to the Company's continuing businesses unless otherwise
indicated.
For purposes hereof, whenever reference is made in any Item of this Annual Report on Form 10-K to
information under speciÑc captions in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations (the MD&A), or in Item 8, Consolidated Financial Statements and Supplementary
Data (the Financial Statements), or to information in the Proxy Statement for the Annual Meeting of
Shareowners of the Company to be held on February 6, 2002 (the 2002 Proxy Statement), such information
shall be deemed to be incorporated therein by such reference.
Products and Services
Rockwell is a provider of industrial automation power, control and information products and services. The
Company is organized based upon products and services and has three operating segments consisting of
Control Systems, Power Systems and Electronic Commerce.
The Control Systems business is a supplier of industrial automation products, systems, software and
services focused on helping customers control manufacturing processes. Products include controllers, I/O
(input/output) systems, drives, sensors, packaged control products, operator interface devices, software
products and services and network monitoring products. These products are primarily marketed under the
Rockwell Automation, Allen-Bradley, and Rockwell Software brand names. Major markets served include
consumer products, food and beverage, transportation, metals, mining, pulp and paper, petroleum, specialty
chemicals, pharmaceuticals, electric power, water treatment, electronic assembly and semiconductor
fabrication.
The Power Systems business is a supplier of industrial automation mechanical power transmission
products and industrial motors and drives. Products include power transmission components, gear reducers,
speed drives, shaft mounted reducers, conveyor pulleys, shaft couplings, clutches, motor brakes, mounted
bearings and motors. These products are primarily marketed under the Dodge and Reliance Electric brand
names. Major markets served include mining, aggregate, food/beverage, forestry, petrochemicals, metals, unit
handling, air handling and environmental.
The Electronic Commerce business is a solutions supplier for companies that interact with their
customers via the telephone, the internet, or both. Products include automatic call distributors, computer
telephony integration software, information collection, reporting, queuing and management systems, call
center systems and consulting services. Major markets served include service, transportation, energy,
healthcare, retail, telecommunications and Ñnancial.
1
Financial information with respect to the Company's business segments, including their contributions to
sales and operating earnings for each of the three years in the period ended September 30, 2001, is contained
under the caption Results of Operations in the MD&A on pages 11-13 hereof, and in Note 19 of the Notes to
Consolidated Financial Statements in the Financial Statements.
Competitive Posture
The Company has competitors which, depending on the product involved, range from large diversiÑed
businesses that sell products outside of automation, comparable to or greater than the Company in scope and
resources, to smaller companies specializing in niche products and services. Factors that aÅect the Company's
competitive posture are its research and development eÅorts, the quality of its products and services and its
marketing and pricing strategies.
The Company's products are sold by its own sales force and through distributors and agents.
Acquisitions and Divestitures
The Company regularly considers the acquisition or development of new businesses and reviews the
prospects of its existing businesses to determine whether any should be modiÑed, sold or otherwise
discontinued.
During 2001, the Control Systems segment acquired the batch software and services business of
Sequencia Corporation. The acquisition expanded Control Systems' portfolio of Manufacturing BusinessWare
solutions into the batch application space.
During 2000, the Control Systems segment acquired Entek IRD International Corporation (Entek), a
provider of machinery condition monitoring solutions, and acquired substantially all the assets and assumed
certain liabilities of Systems Modeling Corporation (SMC), a developer of shop Öoor scheduling, simulation
and modeling software. The total cost of these acquisitions was $70 million. The acquisition of Entek has
increased Rockwell's ability to provide value-added services that reduce customers' downtime and mainte-
nance costs at their manufacturing facilities. The acquisition of SMC complements Control Systems'
Manufacturing BusinessWare strategy by providing additional capabilities.
During 1999, the Control Systems segment acquired Anorad Corporation, EJA Engineering Ltd.,
substantially all of the assets of Enterprise Technology Group, Inc. (ETG) and certain assets, principally
intellectual property, of Vancouver-based Dynapro. The total cost of these acquisitions was $185 million.
Anorad is a supplier of linear motor equipment and its acquisition positions Rockwell to capitalize on motion
control opportunities in the semiconductor fabrication market. EJA, based in the United Kingdom, is a
manufacturer of integrated control and safety systems in the industrial safety market. The ETG acquisition
enhances the technological capabilities of Control Systems while the Dynapro acquisition expands Control
Systems' human-machine interface software and hardware capabilities.
On June 29, 2001, the Company completed the spinoÅ of its Rockwell Collins avionics and communica-
tions business into an independent, separately traded, publicly held company by distributing all of the
outstanding shares of Rockwell Collins to the Company's shareowners on the basis of one Rockwell Collins
share for each outstanding Rockwell share. Commensurate with the spinoÅ, Rockwell Collins made a special
payment to the Company of $300 million. Following the spinoÅ, each of Rockwell Collins and the Company
has a 50 percent ownership interest in Rockwell ScientiÑc Company LLC (RSC) (formerly a wholly-owned
subsidiary of Rockwell known as Rockwell Science Center).
On December 31, 1998, the Company completed the spinoÅ of Semiconductor Systems into an
independent, separately traded, publicly held company by distributing all of the outstanding shares of
Conexant to the Company's shareowners on a pro-rata basis. The Company sold its North American
Transformer business during 1999.
2
The results of operations for Rockwell Collins for 2001, 2000 and 1999 and for Semiconductor Systems
for 1999 have been presented in the Company's Consolidated Statement of Operations included in the
Financial Statements as income from discontinued operations.
Additional information relating to acquisitions and divestitures is contained in the MD&A on page 14
hereof and in Notes 2 and 4 of the Notes to Consolidated Financial Statements in the Financial Statements.
Geographic Information
The Company's principal markets outside the United States are in Australia, Brazil, Canada, China,
Denmark, France, Germany, Italy, Japan, Mexico, Singapore, Spain, Sweden, Switzerland, The Netherlands
and the United Kingdom. In addition to normal business risks, operations outside the United States are
subject to other risks including, among other factors, political, economic and social environments, governmen-
tal laws and regulations, and currency revaluations and Öuctuations.
Selected Ñnancial information by major geographic area for each of the three years in the period ended
September 30, 2001 is contained in Note 19 of the Notes to Consolidated Financial Statements in the
Financial Statements.
Research and Development
At September 30, 2001, the Company employed approximately 2,400 professional engineers and
scientists and 1,000 supporting technical personnel. In addition to research and development activities
conducted by each of the Company's businesses, the Company has a 50 percent ownership interest in RSC. In
addition to other activities, RSC conducts advanced research programs which support the strategies of the
Company's operating businesses. The Company compensates RSC for such services. The Company spent
$169 million and $209 million in 2001 and 2000, respectively, on research and development. In addition,
customer-sponsored research and development was $61 million in each of 2001 and 2000.
Employees
At September 30, 2001, the Company had approximately 23,100 employees, of whom approximately
6,700 were employed outside the United States.
Raw Materials and Supplies
Raw materials essential to the conduct of each of the Company's business segments generally are
available at competitive prices. Many items of equipment and components used in the production of the
Company's products are purchased from others. Although the Company has a broad base of suppliers and
subcontractors, it is dependent upon the ability of its suppliers and subcontractors to meet performance and
quality speciÑcations and delivery schedules.
Environmental Protection Requirements
Information with respect to the eÅect on the Company and its manufacturing operations of compliance
with environmental protection requirements and resolution of environmental claims is contained in Note 18 of
the Notes to Consolidated Financial Statements in the Financial Statements. See also Item 3, Legal
Proceedings, on pages 4-6 hereof.
Patents, Licenses and Trademarks
Numerous patents and patent applications are owned or licensed by the Company and utilized in its
activities and manufacturing operations. Various claims of patent infringement and requests for patent
indemniÑcation have been made to the Company. Management believes that none of these claims will have a
material adverse eÅect on the Ñnancial condition of the Company. See Item 3, Legal Proceedings, on
pages 4-6 hereof. While in the aggregate the Company's patents and licenses are considered important in the
3
operation of its business, management does not consider them of such importance that loss or termination of
any one of them would materially aÅect the Company's business or Ñnancial condition.
The Company's name and its registered trademarks ""Rockwell'' and ""Rockwell Automation'' are
important to each of its business segments. In addition, the Company owns other important trademarks
applicable to only certain of its products, such as ""Allen-Bradley'' and ""A-B'' for electronic controls and
systems for industrial automation, ""Reliance Electric'' for electric motors and ""Dodge'' for mechanical power
transmission products.
Seasonality
None of the Company's business segments is seasonal.
Item 2. Properties.
At September 30, 2001, the Company's businesses operated 61 plants and research and development
facilities principally in the United States, Europe, Africa, Asia PaciÑc, South America and Canada. These
businesses also had approximately 300 sales oÇces, warehouses and service centers. These facilities had an
aggregate Öoor space of approximately 16 million square feet. Of this Öoor space, approximately 59 percent
was owned by the Company and approximately 41 percent was leased. At September 30, 2001, approximately
520,000 square feet of Öoor space was not in use, most of which was in owned facilities. A summary of Öoor
space of these facilities at September 30, 2001 is as follows:
Location and Segments
United States:
Owned
Facilities
Leased
Facilities
Total
(in millions of square feet)
Control SystemsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe:
Control SystemsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
South America:
4.8
3.4
0.1
0.4
0.1
Control SystemsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.1
Canada and other areas:
Control SystemsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate OÇces ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.3
0.1
Ì
9.3
2.2
1.1
0.2
1.1
Ì
0.5
0.9
0.2
0.3
6.5
7.0
4.5
0.3
1.5
0.1
0.6
1.2
0.3
0.3
15.8
There are no major encumbrances (other than Ñnancing arrangements which in the aggregate are not
material) on any of the Company's plants or equipment. In the opinion of management, the Company's
properties have been well maintained, are in sound operating condition and contain all equipment and facilities
necessary to operate at present levels.
Item 3. Legal Proceedings.
Rocky Flats Plant. On January 30, 1990, a civil action was brought in the United States District Court
for the District of Colorado against the Company and another former operator of the Rocky Flats Plant (the
Plant), Golden, Colorado, operated from 1975 through December 31, l989 by the Company for the
Department of Energy (DOE). The action alleges the improper production, handling and disposal of
radioactive and other hazardous substances, constituting, among other things, violations of various environ-
4
mental, health and safety laws and regulations, and misrepresentation and concealment of the facts relating
thereto. The plaintiÅs, who purportedly represent two classes, sought compensatory damages of $250 million
for diminution in value of real estate and other economic loss; the creation of a fund of $150 million to Ñnance
medical monitoring and surveillance services; exemplary damages of $300 million; CERCLA response costs in
an undetermined amount; attorneys' fees; an injunction; and other proper relief. On February 13, 1991, the
court granted certain of the motions of the defendants to dismiss the case. The plaintiÅs subsequently Ñled a
new complaint, and on November 26, 1991, the court granted in part a renewed motion to dismiss. The
remaining portion of the case is pending before the court. On October 8, 1993, the court certiÑed separate
medical monitoring and property value classes. EÅective August 1, 1996, the DOE assumed control of the
defense of the contractor defendants, including the Company, in the action. Beginning on that date, the costs
of the Company's defense, which had previously been reimbursed to the Company by the DOE, have been and
are being paid directly by the DOE. The Company believes that it is entitled under applicable law and its
contract with the DOE to be indemniÑed for all costs and any liability associated with this action.
On November 13, 1990, the Company was served with a summons and complaint in another civil action
brought against the Company in the same court by James Stone, claiming to act in the name of the United
States, alleging violations of the U.S. False Claims Act in connection with the Company's operation of the
Plant (and seeking treble damages and forfeitures) as well as a personal cause of action for alleged wrongful
termination of employment. On August 8, 1991, the court dismissed the personal cause of action. On
December 6, 1995, the DOE notiÑed the Company that it would no longer reimburse costs incurred by the
Company in defense of the action. On November 19, 1996, the court granted the Department of Justice leave
to intervene in the case on the government's behalf. On April 1, 1999 a jury awarded the plaintiÅs
approximately $1.4 million in damages. On May 18, 1999, the court entered judgment against the Company
for approximately $4.2 million, trebling the jury's award as required by the False Claims Act, and imposing a
civil penalty of $15,000. If the judgment is aÇrmed on appeal, Mr. Stone may also be entitled to an award of
attorney's fees but the court refused to consider the matter until appeals from the judgment have been
exhausted. On September 24, 2001, a panel of the 10th Circuit Court of Appeals aÇrmed the judgment. The
Company intends to seek further appellate review. Management believes that an outcome adverse to the
Company will not have a material eÅect on the Company's business or Ñnancial condition.
On January 8, 1991, the Company Ñled suit in the United States Claims Court against the DOE, seeking
recovery of $6.5 million of award fees to which the Company alleges it is entitled under the terms of its
contract with the DOE for management and operation of the Plant during the period October 1, 1988 through
September 30, 1989. On July 17, 1996, the government Ñled an amended answer and counterclaim against the
Company alleging violations of the U.S. False Claims Act previously asserted in the civil action described in
the preceding paragraph. On March 20, 1997, the court stayed the case pending disposition of the civil action
described in the preceding paragraph. On August 30, 1999, the court continued the stay pending appeal in that
civil action. The Company believes the government's counterclaim is without merit, and believes it is entitled
under applicable law and its contract with the DOE to be indemniÑed for any liability associated with the
counterclaim.
Hanford Nuclear Reservation. On August 6 and August 9, 1990, civil actions were Ñled in the United
States District Court for the Eastern District of Washington against the Company and the present and other
former operators of the DOE's Hanford Nuclear Reservation (Hanford), Hanford, Washington. The
Company operated part of Hanford for the DOE from 1977 through June 1987. Both actions purport to be
brought on behalf of various classes of persons and numerous individual plaintiÅs who resided, worked, owned
or leased real property, or operated businesses, at or near Hanford or downwind or downriver from Hanford, at
any time since 1944. The actions allege the improper handling and disposal of radioactive and other hazardous
substances and assert various statutory and common law claims. The relief sought includes unspeciÑed
compensatory and punitive damages for personal injuries and for economic losses, and various injunctive and
other equitable relief.
Other cases asserting similar claims (the follow-on claims) on behalf of the same and similarly situated
individuals and groups have been Ñled from time to time since August 1990 and may continue to be Ñled from
time to time in the future. These actions and the follow-on claims have been (and any additional follow-on
5
claims that may be Ñled are expected to be) consolidated in the United States District Court for the Eastern
District of Washington under the name In re Hanford Nuclear Reservation Litigation. Because the claims and
classes of claimants included in the actions described in the preceding paragraph are so broadly deÑned, the
follow-on claims Ñled as of October 31, 2001 have not altered, and possible future follow-on claims are not
expected to alter, in any material respect the scope of the litigation.
EÅective October 1, 1994, the DOE assumed control of the defense of certain of the contractor
defendants (including the Company) in the In re Hanford Nuclear Reservation Litigation. Beginning on that
date, the costs of the Company's defense, which had previously been reimbursed to the Company by the DOE,
have been and are being paid directly by the DOE. The Company believes it is entitled under applicable law
and its contracts with the DOE to be indemniÑed for all costs and any liability associated with these actions.
Russellville. On June 24, 1996, judgment was entered against the Company in a civil action in the
Circuit Court of Logan County, Kentucky on a jury verdict awarding $8 million in compensatory and
$210 million in punitive damages for property damage. The action had been brought August 12, 1993 by
owners of Öood plain real property near Russellville, Kentucky allegedly damaged by polychlorinated
biphenyls (PCBs) discharged from a plant owned and operated by the Company's Measurement & Flow
Control Division prior to its divestiture in March 1989. On January 14, 2000, the Kentucky Court of Appeals
reversed the lower court's judgment and directed entry of judgment in the Company's favor on all claims as a
matter of law. On November 16, 2000 the Kentucky Supreme Court granted plaintiÅs' motion for
discretionary review of the Appellate Court ruling.
On March 24, 1997, the Circuit Court of Franklin County, Kentucky in Commonwealth of Kentucky,
Natural Resources and Environmental Protection Cabinet vs. Rockwell, an action Ñled in 1986 seeking
remediation of PCB contamination resulting from unpermitted discharges of PCBs from the Company's
former Russellville, Kentucky plant, entered judgment establishing PCB cleanup levels for the former plant
site and certain oÅsite property and ordering additional characterization of possible contamination in the Mud
River and its Öood plain. The Court deferred any decision on the imposition of Ñnes and penalties pending
implementation of an appropriate remediation program. On August 13, 1999, the Court of Appeals aÇrmed
the trial court's judgment, a ruling that the Supreme Court of the State of Kentucky has let stand. The
Company has been proceeding with remediation and characterization eÅorts consistent with the trial Court's
ruling.
Other.
In July 1995, a federal grand jury impaneled by the United States District Court for the Central
District of California began an investigation into a July 1994 explosion at the Santa Susana Field Laboratory
operated by the Company's former Rocketdyne Division in which two scientists were killed and a technician
was injured. On April 11, 1996, pursuant to an agreement between the Company and the United States
Attorney for the Central District of California, the Company entered a plea of guilty to two counts of
unpermitted disposal of hazardous waste and one count of unpermitted storage of hazardous waste, all of
which are felony violations of the Resource Conservation and Recovery Act, and paid a Ñne of $6.5 million to
settle potential federal criminal claims arising out of the federal government's investigation. Investigation
under other U.S. and California laws continues. While the Company has no information on the status of these
investigations, further civil sanctions could be imposed on the current owner of the facility, Boeing, for which
the Company would be required to indemnify Boeing.
Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the
Company relating to the conduct of its business, including those pertaining to product liability, environmental,
safety and health, intellectual property, employment and contract matters. Although the outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to
the Company, management believes the disposition of matters which are pending or asserted will not have a
material adverse eÅect on the Company's business or Ñnancial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 2001.
6
Item 4a. Executive OÇcers of the Company.
The name, age, oÇce and position held with the Company and principal occupations and employment
during the past Ñve years of each of the executive oÇcers of the Company as of October 31, 2001 are as
follows:
Name, OÇce and Position, and Principal Occupations and Employment
Age
Don H. Davis, Jr. Ì Chairman of the Board of Rockwell since February 1998 and Chief Executive
OÇcer since October 1997; President and Chief Operating OÇcer of Rockwell prior thereto ÏÏÏÏÏÏ
61
Carl G. Artinger Ì General Auditor of Rockwell since June 2001; Director, General Audit of
Rockwell from October 2000 to June 2001; Manager, General Audit of Rockwell from October
1998 to October 2000; Manager, Planning and Analysis of Cone Mills (textile manufacturer) prior
thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
41
Michael A. Bless Ì Senior Vice President and Chief Financial OÇcer of Rockwell since June 2001;
Vice President of Rockwell from February 2001 to June 2001; Vice President, Finance of Rockwell
Automation Control Systems from June 1999 to June 2001; Vice President, Corporate
Development and Planning of Rockwell from August 1997 to June 1999; Director, Investment
Banking of Merrill Lynch & Co., Inc. (investment banking) from April 1997 to August 1997;
Senior Vice President of Dillon, Read & Co. (investment banking) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
William J. Calise, Jr. Ì Senior Vice President, General Counsel and Secretary of Rockwell ÏÏÏÏÏÏÏÏ
John D. Cohn Ì Senior Vice President, Strategic Development and Communications of Rockwell
since July 1999; Vice President-Global Strategy Development of the avionics and communications
business of Rockwell from February 1997 to June 1999; Director, Global Business Development
and Strategic Planning of the avionics and communications business of Rockwell prior thereto ÏÏÏÏ
Michael G. Cole Ì Vice President, Corporate Information Technology of Rockwell and Vice
President and Chief Information OÇcer of Rockwell Automation Controls Systems since
September 2000; Vice President, Corporate Information Systems of Rockwell from July 1999 to
September 2000; Director-Information Systems of Rockwell prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kent G. Coppins Ì Vice President and General Tax Counsel of Rockwell since June 2001; Associate
General Tax Counsel of Rockwell from November 1998 to June 2001; Senior Tax Counsel of
Rockwell prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David M. Dorgan Ì Vice President and Controller of Rockwell since June 2001; Director,
Headquarters Finance of Rockwell Automation Control Systems from April 2000 to June 2001;
Director, Financial Reports of Rockwell from June 1999 to April 2000; Manager, Financial
Reports of Rockwell from April 1998 to June 1999; Senior Manager, Deloitte & Touche LLP
(professional services Ñrm) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mary Jane Hall Ì Vice President of Rockwell since June 2001 and Senior Vice President, Human
Resources of Rockwell Automation Control Systems since January 2001; Vice President, Human
Resources of Rockwell Automation Controls Systems prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas J. Mullany Ì Vice President and Treasurer of Rockwell since June 2001; Vice President,
Investor Relations of Rockwell from May 1998 to June 2001; Treasury Operations Executive of the
avionics and communications business of Rockwell from March 1997 to May 1998; and President
of Rockwell International Credit Corporation prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Keith D. Nosbusch Ì Senior Vice President of Rockwell and President, Rockwell Automation
Control Systems since November 1998; Senior Vice President-Automation Control and
Information Group of Rockwell Automation from February 1996 to November 1998; Vice
President-Control Logic Business of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
James P. O'Shaughnessy Ì Vice President and Chief Intellectual Property Counsel of RockwellÏÏÏÏÏ
Rondi Rohr-Dralle Ì Vice President, Corporate Development of Rockwell since June 2001; Vice
President, Finance of Rockwell Automation Control Systems, Global Manufacturing Solutions
business from September 1999 to June 2001; Treasurer and Investment Controller of Applied
Power, Inc. (manufacturer of tools, equipment, systems and supply items) from October 1998 to
September 1999; Vice President and General Manager of Caltern, Inc. (a subsidiary of Applied
Power, Inc.) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
36
63
47
53
48
37
58
52
50
54
45
7
Name, OÇce and Position, and Principal Occupations and Employment
Joseph D. Swann Ì Senior Vice President of Rockwell since June 2001 and President, Rockwell
Automation Power Systems since June 1998; Vice President of Rockwell from June 1998 to June
2001; Senior Vice President and General Manager-Dodge Mechanical Group of Rockwell
Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Age
60
There are no family relationships, as deÑned, between any of the above executive oÇcers. No oÇcer of
the Company was selected pursuant to any arrangement or understanding between him and any person other
than the Company. All executive oÇcers are elected annually.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
The principal market on which the Company's common stock is traded is the New York Stock Exchange.
The Company's common stock is also traded on the PaciÑc and London Stock Exchanges. On October 31,
2001, there were 46,635 shareowners of record of the Company's common stock.
The following table sets forth the high and low closing price of the Company's common stock on the New
York Stock Exchange Ì Composite Transactions reporting system during each quarter of the Company's
Ñscal years ended September 30, 2001 and 2000:
Fiscal Quarters
2001
2000
High
Low
High
Low
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SecondÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
47.63
48.62
47.00
16.96
29.94
35.99
35.95
12.20
54.06
51.94
44.63
41.06
45.00
38.38
31.50
28.13
(1) The high and low closing prices of the Company's common stock for the fourth quarter of 2001 reÖect the
spinoÅ of Rockwell Collins on June 29, 2001.
On December 6, 1996, each Rockwell shareowner became entitled to receive .042 share (presently .084
share) of Boeing common stock for each share of Rockwell common stock or Class A common stock owned.
On September 30, 1997, each Rockwell shareowner received one-third of a share of Meritor common stock for
each share of Rockwell common stock owned. On July 7, 2000, Meritor and Arvin Industries, Inc. merged to
form ArvinMeritor. Under the terms of the merger agreement, each share of Meritor common stock was
converted into the right to receive three-quarters of a share of ArvinMeritor common stock. As a result, the
one-third of a share of Meritor common stock received by Rockwell shareowners on September 30, 1997 now
represents one-quarter of a share of ArvinMeritor common stock. On December 31, 1998, each Rockwell
shareowner received one-half of a share (presently one share) of Conexant common stock for each share of
Rockwell common stock owned. On June 29, 2001, each Rockwell shareowner received one share of Rockwell
Collins common stock for each share of Rockwell common stock owned. At September 30, 2001, such
fractional or whole shares of Boeing, ArvinMeritor, Conexant and Rockwell Collins common stock per
Rockwell share had values of $2.81, $3.57, $8.30 and $14.20, respectively. Rockwell's current stock price does
not reÖect the value of the Boeing, ArvinMeritor, Conexant and Rockwell Collins shares.
During the year ended September 30, 2001, the Company repurchased, through open-market purchases,
approximately 1.7 million shares of common stock.
8
The following table sets forth the aggregate quarterly cash dividends per common share (comprised of
the common stock and, until February 23, 1997, the date of its automatic conversion to common stock,
Class A common stock) during each of the Company's Ñve Ñscal years in the period ended September 30,
2001:
Fiscal Year
Cash Dividends per
Common Share(1)
2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1998 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.93
1.02
1.02
1.02
1.16
(1) Upon the spinoÅ of Meritor on September 30, 1997, the Company's annual $1.16 per share dividend was
set at $1.02 for Rockwell and $0.14 for Meritor. EÅective with the spinoÅ of Rockwell Collins, the
Company anticipates that it will pay quarterly cash dividends which, on an annual basis, will equal $0.66
per share and Rockwell Collins will pay quarterly dividends which, on an annual basis, will equal $0.36
per share. However, the declaration and payment of dividends by the Company and Rockwell Collins will
be at the sole discretion of their respective boards of directors. Per share dividend amounts indicated do
not include dividends paid on the shares of Boeing, Meritor and Rockwell Collins received on
December 6, 1996, September 30, 1997 and June 29, 2001, respectively, by Rockwell shareowners.
On July 31, 2001, the Company granted nonqualiÑed stock options to purchase 7,000 shares of common
stock of the Company at an exercise price of $16.05 per share to each of the following directors: B.C. Alewine,
G.L. Argyros, J.M. Cook, W. H. Gray, III, W.T. McCormick, Jr., J.D. Nichols, B.M. Rockwell and
J.F. Toot, Jr. The options vest in three equal installments beginning on July 31, 2002. The grant of these
options was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.
9
Item 6. Selected Financial Data.
The following sets forth selected consolidated Ñnancial data in respect of the Company's continuing
operations. The data should be read in conjunction with the MD&A and the Financial Statements. The
consolidated statement of operations data for each of the Ñve years in the period ended September 30, 2001,
the related consolidated balance sheet data and other data have been derived from the audited consolidated
Ñnancial statements of the Company.
2001(a)
Year Ended September 30,
1999(c)
(in millions, except per share data)
1998(d)
2000(b)
1997(e)
Consolidated Statement of Operations Data:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Earnings (loss) per share from continuing operations:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheet Data: (at end of period)
Total assets-continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Data:
Capital expendituresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,279
83
125
$4,656
73
344
$4,665
84
283
$4,790
58
(169)
$4,714
27
280
0.69
0.68
0.93
$4,074
4,074
922
1,600
$ 157
196
76
1.83
1.81
1.02
$4,397
5,289
924
2,669
$ 217
193
77
1.49
1.47
1.02
(0.85)
(0.85)
1.02
1.30
1.28
1.16
$4,627
5,292
911
2,540
$ 250
184
67
$4,392
5,857
908
3,151
$ 265
169
71
$5,160
6,572
156
4,716
$ 264
157
78
(a) Includes special items of $73 million ($48 million after tax, or 26 cents per diluted share). Special items
include charges of $91 million ($60 million after tax, or 32 cents per diluted share) for costs associated
with the consolidation and closing of facilities, the realignment of administrative functions, the reduction
in workforce and asset impairments which were partially oÅset by an $18 million gain ($12 million after
tax, or six cents per share) resulting from the favorable settlement of an intellectual property matter.
(b) Includes a gain of $32 million ($22 million after tax, or 12 cents per diluted share) resulting from the sale
of real estate, a loss of $14 million ($10 million after tax, or six cents per diluted share) on the sale of a
Power Systems business, and income of $28 million ($19 million after tax, or 10 cents per diluted share)
resulting from the demutualization of Metropolitan Life Insurance Company.
(c) Includes a gain of $32 million ($21 million after tax, or 11 cents per diluted share) on the sale of the
Company's North American Transformer business and a loss of $29 million ($19 million after tax, or
10 cents per diluted share) associated with the write-oÅ of the Company's investment in Goss Graphic
Systems, Inc. preferred stock.
(d) Includes charges of $521 million ($458 million after tax, or $2.32 per diluted share) for costs associated
with asset impairments and a comprehensive restructuring program. The diluted and basic per share
amounts for 1998 are identical, as the loss from continuing operations resulted in stock options being
antidilutive.
(e) Includes a charge of $23 million (before and after tax, or 11 cents per diluted share), relating to the
write-oÅ of purchased research and development in connection with an acquisition.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Summary of Results of Operations
2001
Year Ended September 30,
2000
(in millions)
1999
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,359
710
150
60
$3,677
762
168
49
$3,646
782
202
35
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,279
$4,656
$4,665
Segment operating earnings(b):
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 426
38
7
3
$ 640
65
(16)
7
$ 642
53
12
18
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and purchase accounting items ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Loss) gain on disposition of businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
474
(79)
(53)
Ì
(83)
(91)
168
(43)
696
(82)
(20)
(14)
(73)
Ì
507
(163)
725
(72)
(163)
32
(84)
Ì
438
(155)
Income from continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 125
$ 344
$ 283
(a) Other represents the sales and segment operating earnings of Rockwell Science Center through the third
quarter of 2001. Beginning with the fourth quarter of 2001, the Company's 50 percent ownership interest
in RSC is accounted for using the equity method, and the Company's proportional share of RSC's
earnings or losses are included in general corporate-net.
(b) Information with respect to the composition of segment operating earnings is contained in Note 19 of the
Notes to Consolidated Financial Statements in the Financial Statements.
2001 Compared to 2000
Sales were $4,279 million in 2001 compared to $4,656 million in 2000. Income from continuing
operations in 2001 was $125 million, or 68 cents per diluted share, compared to $344 million, or $1.81 per
diluted share, in 2000. The 2001 results from continuing operations include special charges of $91 million
($60 million after tax, or 32 cents per share) for costs associated with realignment actions which were partially
oÅset by an $18 million gain ($12 million after tax, or six cents per share) resulting from the favorable
settlement of an intellectual property matter.
Control Systems
Control Systems' sales in 2001 were $3,359 million compared to $3,677 million in 2000, reÖecting
principally depressed market conditions for automation products in the United States during 2001. Shipments
11
outside of the United States, before the eÅect of currency rate Öuctuations, were higher and included increases
of six percent in Europe, 13 percent in Asia PaciÑc and 13 percent in Latin America. Sales in 2001 were
reduced by approximately $96 million due to a stronger dollar in 2001, particularly against the euro, relative to
the foreign currency exchange rates for the same period a year ago.
Segment operating earnings were $426 million in 2001 compared to $640 million in 2000. The decrease
was due to lower volume and costs resulting from planned lower capacity utilization. Control Systems' return
on sales in 2001 was 12.7 percent compared to 17.4 percent in 2000.
Power Systems
Power Systems' sales in 2001 were $710 million compared to $762 million in 2000, with an increase at the
motors business more than oÅset by lower volume in mechanical products as distributors continue to pare
inventories. Segment operating earnings in 2001 were $38 million compared to $65 million in the same period
a year ago primarily due to lower volume and unfavorable product mix. Power Systems' return on sales was
5.4 percent in 2001 compared to 8.5 percent in 2000.
Electronic Commerce
Sales at Electronic Commerce were $150 million in 2001 compared to $168 million in 2000. The decrease
was due to depressed market conditions. Segment operating earnings were $7 million in 2001 compared to an
operating loss of $16 million in 2000. The increase was due to the successful implementation of cost saving
initiatives and the absence of approximately $10 million in charges related to such initiatives which are
reÖected in the results for 2000.
Other
EÅective June 29, 2001, each of Rockwell Collins and the Company has a 50 percent ownership interest
in RSC (formerly a wholly-owned subsidiary of Rockwell known as Rockwell Science Center). Results of
Rockwell Science Center are included in continuing operations through the third quarter of 2001. Sales of
Rockwell Science Center for the Ñrst nine months of 2001 were $60 million compared to $49 million for the
full year in 2000. The increase was primarily due to higher sales to the United States government. Segment
operating earnings decreased to $3 million for the Ñrst nine months of 2001 compared to $7 million for the full
year in 2000 due to lower royalty income.
General Corporate Ì Net
General corporate-net in 2001 included a gain of $18 million resulting from the favorable settlement of an
intellectual property matter. General corporate-net in 2000 included a $32 million gain on the sale of real
estate and $28 million of income resulting from the Metropolitan Life Insurance Company demutualization.
Special Charges
The Company recorded charges of $91 million ($60 million after tax, or 32 cents per diluted share) for
costs associated with a realignment of its business operations to reduce costs in response to the continued
decline in demand in industrial automation markets. Total cash expenditures related to the realignment
actions are expected to be approximately $51 million, with substantially all of the spending to be completed by
the end of the Ñrst quarter of Ñscal 2002. Management expects that the annual pre-tax savings resulting from
these actions will be approximately $150 million, a portion of which is expected to be reinvested in growth
initiatives. The special charges are related to the business segments as follows: Control Systems, $76 million;
Power Systems, $5 million; and Corporate, $10 million. See Note 3, Special Charges, in the Notes to
Consolidated Financial Statements in the Financial Statements.
12
2000 Compared to 1999
Sales were $4,656 million in 2000 compared to $4,665 million in 1999. Earnings per diluted share from
continuing operations in 2000 of $1.81 were up 23 percent over comparable 1999 earnings of $1.47. The
related income from continuing operations increased $61 million to $344 million from $283 million. Earnings
per share for 2000 reÖect the beneÑts of the Company's stock repurchase program and a lower eÅective
income tax rate.
Control Systems
Control Systems' sales of $3,677 million in 2000 were slightly higher than in 1999 despite continued
sluggish North American markets, particularly automotive related spending projects, and a weaker euro. The
increase in sales attributable to businesses acquired in 2000 was more than oÅset by the absence of sales from
the North American Transformer business disposed of during the fourth quarter of 1999. Operating earnings
were $640 million in 2000 compared to $642 million in 1999. During 2000, Control Systems made investments
in new product development and experienced material cost increases resulting from certain parts shortages.
Operating earnings in 2000 include approximately $15 million of charges associated with ongoing process
improvement and productivity initiatives. Operating earnings as a percent of sales was 17.4 percent in 2000
compared to 17.6 percent in 1999.
Power Systems
Power Systems' sales decreased $20 million between 1999 and 2000 primarily as a result of lower volume
at the motors business. Segment operating earnings increased to $65 million in 2000 from $53 million in 1999
due to the beneÑts of manufacturing process improvements and material cost reductions. Operating earnings
as a percentage of sales was 8.5 percent in 2000 compared to 6.8 percent in 1999.
Electronic Commerce
Sales for Electronic Commerce were down $34 million to $168 million in 2000 from $202 million in 1999.
Electronic Commerce experienced an operating loss of $16 million in 2000, compared to operating earnings of
$12 million in 1999. The results for 2000 include approximately $10 million of charges associated with a
realignment which was aimed at sharpening market focus, better responding to customer needs and optimizing
operating performance.
Other
Sales at Rockwell Science Center increased by $14 million between 1999 and 2000. Segment operating
earnings decreased to $7 million in 2000 from $18 million in 1999. Operating earnings in 1999 included a
$14 million gain resulting from the favorable settlement of an intellectual property matter.
General Corporate Ì Net
General corporate-net in 2000 included a gain of $32 million on the sale of real estate in Colorado
Springs, Colorado and $28 million of income resulting from the demutualization of Metropolitan Life
Insurance Company. Corporate expenses in 2000 included $5 million related to strategic investments in
SourceAlliance.com. General corporate-net in 1999 included charges of approximately $37 million for costs
incurred in connection with the Company's relocation of its corporate oÇce and a $29 million loss associated
with the write-oÅ of its investment in Goss Graphic Systems, Inc. preferred stock.
Disposition of Businesses
In 2000, the Company recognized a $14 million loss on the sale of a Power Systems business. In 1999, the
Company recognized a $32 million gain on the sale of Control Systems' North American Transformer
business.
13
Discontinued Operations
On June 29, 2001, the Company completed the spinoÅ of its Rockwell Collins avionics and communica-
tions business into an independent, separately traded, publicly held company. In connection with the spinoÅ,
all outstanding shares of Rockwell Collins, Inc. were distributed to Rockwell shareowners on the basis of one
Rockwell Collins share for each outstanding Rockwell share. Commensurate with the spinoÅ, Rockwell
Collins made a special payment to the Company of $300 million. The Company recorded a decrease to
shareowner's equity for the net assets of Rockwell Collins as of June 29, 2001 of approximately $1.2 billion
(including $300 million of debt incurred to make the special payment to the Company). Included in 2001
income from discontinued operations was $21 million of costs related to the spinoÅ.
On December 31, 1998, the Company completed the spinoÅ of Semiconductor Systems into an
independent, separately traded, publicly held company by distributing all of the outstanding shares of
Conexant to the Company's shareowners on a pro-rata basis.
Acquisitions
During 2001, Control Systems acquired the batch software and services business of Sequencia Corpora-
tion. The total cost of the acquisition was $6 million, which was allocated to intangible assets, including
developed technology and assembled workforce, and the excess of the purchase price over the amounts
assigned to intangible assets was recorded as goodwill. The acquisition will expand Control Systems' portfolio
of Manufacturing BusinessWare Solutions into the batch application space.
During 2000, Control Systems acquired Entek IRD International Corporation (Entek) and acquired
substantially all the assets and assumed certain liabilities of Systems Modeling Corporation (SMC). Entek is
a provider of machinery condition monitoring solutions and its acquisition has increased Rockwell's ability to
provide value-added services that reduce customers' downtime and maintenance costs at their manufacturing
facilities. SMC is a developer of shop Öoor scheduling, simulation and modeling software. The acquisition of
SMC complements Control Systems' Manufacturing BusinessWare strategy by providing additional capabili-
ties. The total cost of these acquisitions was $70 million, of which $61 million was allocated to intangible
assets, including developed technology, and the excess of the purchase price over the amounts assigned to
tangible and intangible assets was recorded as goodwill.
Income Taxes
The Company's eÅective income tax rate declined to 28.0 percent (excluding the tax eÅect of special
items) in 2001 from 32.3 percent in 2000. This improvement reÖects the beneÑts of the development and
implementation of strategies to achieve meaningful and sustainable tax rate reductions as well as certain tax
refund claims in 2001. These strategies include utilization of foreign tax credits, lower state income tax rates
and lower taxes associated with tax eÅective structuring of our international business. In addition, the eÅective
income tax rate continues to beneÑt from the conversion of the Rockwell Salaried Retirement Savings Plan to
a tax-advantaged employee stock ownership plan. Management believes the Company's eÅective income tax
rate will continue to beneÑt in 2002 and beyond from ongoing tax planning initiatives.
Outlook for 2002
Due to the continuing weak manufacturing environment, the Company is assuming a further sequential
three percent sales decline in the Ñrst quarter of 2002. In this event, earnings per share are expected to be
modestly higher than fourth quarter earnings due to the continued implementation of the cost reduction
actions. Longer term results continue to be diÇcult to project given uncertain market conditions.
Financial Condition
Cash generated by operations was $335 million in 2001 compared to $645 million in 2000. Free cash Öow
in 2001 was $178 million compared to $428 million in 2000. The lower cash generation in 2001 was driven
primarily by lower earnings which was partially oÅset by reduced capital expenditures. The Company deÑnes
14
free cash Öow, an internal performance measurement, as cash provided by operating activities reduced by
capital expenditures. The Company's deÑnition of free cash Öow may be diÅerent from deÑnitions used by
other companies.
Cash provided by investing activities was $153 million in 2001 compared to cash used for investing
activities of $228 million in 2000. Investing activities in 2001 include a special payment of $300 million
received from Rockwell Collins in connection with the spinoÅ on June 29, 2001. Capital expenditures in 2001
were $157 million, $60 million less than in 2000, and consisted primarily of investments in facilities,
machinery and equipment, and integrated information systems to facilitate growth and increase operating
eÇciencies. Capital expenditures in 2002 are expected to approximate 2001 levels.
In addition to internally-generated cash, the Company has access to existing Ñnancing sources, including
the public debt markets and the Company's approximately $1 billion of unsecured credit facilities with various
banks. The Company's debt-to-total-capital ratio at September 30, 2001 was 37 percent compared to
26 percent at September 30, 2000.
During 2000, the Board of Directors approved a $250 million stock repurchase program. The Company
spent approximately $63 million to purchase approximately 1.7 million shares during 2001 in connection with
this program. At September 30, 2001, there was approximately $104 million remaining on the Company's
current $250 million stock repurchase program.
Cash dividends to shareowners were $170 million, or $0.93 per share, in 2001 compared to $192 million,
or $1.02 per share, in 2000. EÅective with the spinoÅ of Rockwell Collins, the Company anticipates that it will
pay quarterly cash dividends which, on an annual basis, will equal $0.66 per share. However, the declaration
and payment of dividends by the Company will be at the sole discretion of the Company's board of directors.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk during the normal course of business from changes in interest
rates and foreign currency exchange rates. The exposure to these risks is managed through a combination of
normal operating and Ñnancing activities and derivative Ñnancial instruments in the form of interest rate swap
contracts and foreign currency forward exchange contracts.
Interest Rate Risk
In addition to using cash provided by normal operating activities, the Company utilizes a combination of
short-term and long-term debt to Ñnance operations. The Company is exposed to interest rate risk on these
debt obligations.
The Company had short-term debt obligations consisting of bank borrowings with a carrying value of
$9 million and $15 million at September 30, 2001 and 2000, respectively. The Company's results of operations
are aÅected by changes in market interest rates on these short-term obligations. If market interest rates would
have averaged 10 percent higher than actual levels in either 2001 or 2000, the eÅect on the Company's results
of operations would not have been material. The fair values of these obligations approximated their carrying
values at September 30, 2001 and 2000, and would not have been materially aÅected by changes in market
interest rates.
At September 30, 2001 and 2000, the Company had outstanding Ñxed rate long-term debt obligations
with carrying values of $923 million and $925 million, respectively. The fair value of this debt was
$887 million and $843 million at September 30, 2001 and 2000, respectively. The potential loss in fair value on
such Ñxed-rate debt obligations from a hypothetical 10 percent increase in market interest rates would not be
material to the overall fair value of the debt. The Company currently has no plans to repurchase outstanding
Ñxed-rate instruments and, therefore, Öuctuations in market interest rates would not have an eÅect on the
Company's results of operations or shareowners' equity.
15
Foreign Currency Risk
The Company is exposed to foreign currency risks that arise from normal business operations. These risks
include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign
subsidiaries and transactions denominated in foreign currencies. The Company's objective is to minimize its
exposure to these risks through a combination of normal operating activities and the utilization of foreign
currency forward exchange contracts to manage its exposure on transactions denominated in currencies other
than the applicable functional currency. In addition, the Company enters into contracts to hedge certain
forecasted intercompany transactions. These contracts are executed with creditworthy banks and are
denominated in currencies of major industrial countries. It is the policy of the Company not to enter into
derivative Ñnancial instruments for speculative purposes. The Company does not hedge its exposure to the
translation of reported results of foreign subsidiaries from local currency to United States dollars. A 10 percent
adverse change in the underlying foreign currency exchange rates would not be signiÑcant to the Company's
Ñnancial condition or results of operations.
The Company records all derivatives on the balance sheet at fair value regardless of the purpose or intent
for holding them. Derivatives that are not hedges are adjusted to fair value through earnings. For derivatives
that are hedges, depending on the nature of the hedge, changes in fair value are either oÅset by changes in the
fair value of the hedged assets, liabilities or Ñrm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The ineÅective portion of a derivative's
change in fair value is immediately recognized in earnings.
At September 30, 2001 and 2000, the Company had outstanding foreign currency forward exchange
contracts with notional amounts of $738 million and $852 million, respectively, primarily consisting of
contracts to exchange the euro, pound sterling, Canadian dollar, Australian dollar and Swiss franc. Notional
amounts are stated in the United States dollar equivalents at spot exchange rates at the respective dates. The
use of these contracts allows the Company to manage transactional exposure to exchange rate Öuctuations as
the gains or losses incurred on the foreign currency forward exchange contracts will oÅset, in whole or in part,
losses or gains on the underlying foreign currency exposure. A hypothetical 10 percent adverse change in
underlying foreign currency exchange rates associated with these contracts would not be material to the
Ñnancial condition, results of operations or shareowners' equity of the Company.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations (SFAS 141), and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 addresses Ñnancial
accounting and reporting for business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Under SFAS 142, goodwill and certain other
intangible assets will no longer be systematically amortized but instead will be reviewed for impairment and
written down and charged to results of operations when their carrying amount exceeds their estimated fair
value. SFAS 142 is eÅective for Ñscal years beginning after December 15, 2001, with early adoption permitted
for entities with Ñscal years beginning after March 15, 2001. The Company expects to adopt SFAS 142
eÅective October 1, 2001. Management expects that the eÅect of ceasing amortization of goodwill will
increase net income by approximately $41 million after tax, or 22 cents per diluted share, in Ñscal 2002. The
Company has not completed its assessment of the additional eÅects of adopting SFAS 142.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses Ñnancial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 is
eÅective for Ñscal years beginning after December 15, 2001, with early adoption permitted. Management is
currently evaluating the provisions of SFAS 144, but believes there will be no eÅect on the Company's
Ñnancial position, results of operations or shareowners' equity resulting from the adoption.
16
Cautionary Statement
This Annual Report contains statements (including certain projections and business trends) accompanied
by such phrases as ""believes,'' ""estimates,'' ""expect(s),'' ""anticipates,'' ""will,'' ""intends,'' ""assumes'' and
other similar expressions, that are ""forward-looking statements'' as deÑned in the Private Securities Litigation
Reform Act of 1995. Actual results may diÅer materially from those projected as a result of certain risks and
uncertainties, including but not limited to economic and political changes in international markets where the
Company competes, such as currency exchange rates, inÖation rates, recession, foreign ownership restrictions
and other external factors over which the Company has no control; demand for and market acceptance of new
and existing products, including levels of capital spending in industrial markets; successful development of
advanced technologies; competitive product and pricing pressures; the terrorist attacks in New York City and
Washington, D.C. on September 11, 2001 and their aftermath; and the uncertainties of litigation, as well as
other risks and uncertainties, including but not limited to those detailed from time to time in the Company's
Securities and Exchange Commission Ñlings. These forward-looking statements are made only as of the date
hereof, and the Company undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
The information with respect to the Company's market risk is contained under the caption Quantitative
and Qualitative Disclosures About Market Risk in MD&A on pages 15-16 hereof.
17
Item 8. Consolidated Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEET
(in millions)
Assets
Current Assets
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables (less allowance for doubtful accounts: 2001, $43; 2000, $39) ÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net current assets of Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net long-term assets of Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2001
2000
121
680
600
152
144
Ì
1,697
1,075
1,192
110
Ì
$
170
737
610
153
201
551
2,422
1,194
1,255
77
341
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,074
$ 5,289
Liabilities and Shareowners' Equity
Current Liabilities
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10
388
189
74
206
867
922
338
171
176
$
16
478
196
119
215
1,024
924
281
199
192
Commitments and contingent liabilities (Note 18)
Shareowners' Equity
Common stock (shares issued: 216.4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Common stock in treasury, at cost (shares held: 2001, 32.7; 2000, 32.9)ÏÏÏÏÏÏÏÏÏÏÏÏ
216
981
2,242
(162)
(1)
(1,676)
216
967
3,363
(166)
(2)
(1,709)
Total shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,600
2,669
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,074
$ 5,289
See notes to consolidated Ñnancial statements.
18
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended September 30,
2000
2001
1999
Sales and Other Income:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,279
44
$4,656
66
$4,665
48
Total sales and other incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,323
4,722
4,713
Costs and Expenses:
Cost of sales (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,031
1,041
83
Total costs and expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,155
Income from continuing operations before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
168
43
125
180
3,102
1,040
73
4,215
507
163
344
292
3,173
1,018
84
4,275
438
155
283
276
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 305
$ 636
$ 559
Basic earnings per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 0.69
0.98
$ 1.83
1.55
$ 1.49
1.45
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1.67
$ 3.38
$ 2.94
Diluted earnings per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 0.68
0.97
$ 1.81
1.54
$ 1.47
1.42
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1.65
$ 3.35
$ 2.89
Average outstanding shares:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
182.9
187.8
190.5
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
185.3
189.9
193.6
See notes to consolidated Ñnancial statements.
19
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended September 30,
2000
1999
2001
Continuing Operations:
Operating Activities
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to arrive at cash provided by operating activities:
$ 125
$ 344
$ 283
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on dispositions of property and businesses (Note 15) ÏÏÏÏÏÏÏÏÏ
Loss on investment (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax beneÑt from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, excluding eÅects of acquisitions,
divestitures, and foreign currency adjustments:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by Operating Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
196
76
2
(6)
Ì
91
14
31
(3)
(84)
(37)
(52)
(18)
335
Investing Activities
Property additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions of businesses, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special payment from Rockwell Collins (Note 2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment in aÇliate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(157)
(6)
300
(3)
19
Cash Provided by (Used for) Investing ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
153
Financing Activities
Net (decrease) increase in short-term borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of treasury stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(8)
(63)
(170)
44
Cash Used for Financing ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(197)
EÅect of exchange rate changes on cashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
9
Cash Provided by (Used for) Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash (Used for) Provided by Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Decrease) Increase in Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
300
(349)
(49)
170
193
77
142
(15)
Ì
Ì
7
(13)
(86)
43
66
(54)
(59)
645
(217)
(70)
Ì
Ì
59
(228)
(173)
(325)
(192)
13
(677)
35
(225)
59
(166)
336
184
67
(5)
(36)
29
Ì
37
3
32
70
26
(92)
162
760
(250)
(185)
Ì
Ì
111
(324)
35
(172)
(194)
88
(243)
8
201
52
253
83
Cash and Cash Equivalents at End of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 121
$ 170
$ 336
See notes to consolidated Ñnancial statements.
20
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in millions, except per share amounts)
Common Stock (no shares issued during years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
216
$
216
$
216
Year Ended September 30,
2001
2000
1999
Additional Paid-In Capital
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained Earnings
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends (per share: 2001, $0.93; 2000 and 1999, $1.02) ÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Rockwell Collins (Note 1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Conexant (Note 1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
967
14
981
3,363
305
(170)
(53)
(1,203)
Ì
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,242
Accumulated Other Comprehensive Loss
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Rockwell Collins (Note 1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted Stock Compensation
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(166)
(26)
30
(162)
(2)
1
Ì
(1)
960
7
967
2,937
636
(192)
(18)
Ì
Ì
3,363
(153)
(13)
Ì
(166)
Ì
Ì
(2)
(2)
Treasury Stock
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,709)
(63)
96
(1,420)
(325)
36
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,676)
(1,709)
923
37
960
3,603
559
(194)
(118)
Ì
(913)
2,937
(135)
(18)
Ì
(153)
Ì
Ì
Ì
Ì
(1,456)
(172)
208
(1,420)
Total Shareowners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,600
$ 2,669
$ 2,540
See notes to consolidated Ñnancial statements.
21
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive loss:
Net unrealized (losses) gains on cash Öow hedges (net of tax (beneÑt) expense
Year Ended September 30,
1999
2000
2001
$305
$636
$559
of $(4) and $6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(7)
12
Ì
Currency translation adjustments (net of tax expense (beneÑt) of $2, $0, and
$(3)) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension adjustments (net of tax (beneÑt) expense of $(2), $2 and $(1)) ÏÏÏÏÏÏ
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(15)
(4)
(26)
(29)
4
(13)
(16)
(2)
(18)
Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$279
$623
$541
See notes to consolidated Ñnancial statements.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Basis of Presentation
Except as indicated, amounts reÖected in the consolidated Ñnancial statements or the notes thereto relate
to the continuing operations of Rockwell International Corporation, now doing business under the name
Rockwell Automation (Rockwell or the Company). Certain prior year amounts have been reclassiÑed to
conform to the current year presentation.
On June 29, 2001, the Company completed the spinoÅ of its Rockwell Collins avionics and communica-
tions business and certain other assets and liabilities into an independent, separately traded, publicly held
company (the SpinoÅ). In connection with the SpinoÅ, all outstanding shares of Rockwell Collins, Inc.
(Rockwell Collins) were distributed to Rockwell shareowners on the basis of one Rockwell Collins share for
each outstanding Rockwell share. Commensurate with the spinoÅ, Rockwell Collins made a special payment
to the Company of $300 million. The net assets of Rockwell Collins as of June 29, 2001 of approximately
$1.2 billion (including $300 million of debt incurred to make the special payment to the Company) were
recorded as a decrease to shareowners' equity. Following the SpinoÅ, each of Rockwell Collins and the
Company has a 50 percent ownership interest in Rockwell ScientiÑc Company LLC (RSC)(formerly known
as Rockwell Science Center).
On December 31, 1998, the Company completed the spinoÅ of its former semiconductor systems
business (Semiconductor Systems) into an independent, separately traded, publicly held company by
distributing all of the outstanding shares of Conexant Systems, Inc. (Conexant) to the Company's
shareowners on a pro-rata basis.
Consolidation
The consolidated Ñnancial statements of the Company include the accounts of the Company and all
majority-owned subsidiaries over which the Company has control. All signiÑcant intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates
The consolidated Ñnancial statements have been prepared in accordance with generally accepted
accounting principles which require management to make estimates and assumptions that aÅect the reported
amounts of assets and liabilities at the date of the consolidated Ñnancial statements and revenues and expenses
during the periods reported. Actual results could diÅer from those estimates. Estimates are used in accounting
for, among other items, allowances for doubtful accounts, excess and obsolete inventory, product warranty
costs, workers compensation, product and other self-insurance liabilities, employee beneÑts, reserves and
contingencies.
Revenue Recognition
Sales are generally recorded when all of the following have occurred: an agreement of sale exists, product
delivery and acceptance has occurred or services have been rendered, pricing is Ñxed or determinable, and
collection is reasonably assured.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Accounting Policies Ì (Continued)
Cash and Cash Equivalents
Cash and cash equivalents includes time deposits and certiÑcates of deposit with original maturities of
three months or less.
Inventories
Inventories are stated at the lower of cost or market using Ñrst-in, Ñrst-out (FIFO) or average methods.
Market is determined on the basis of estimated realizable values.
Property
Property is stated at cost. Depreciation of property is provided generally using accelerated and straight-
line methods over 15 to 40 years for buildings and improvements and 3 to 14 years for machinery and
equipment. SigniÑcant renewals and betterments are capitalized and replaced units are written oÅ. Mainte-
nance and repairs, as well as renewals of minor amounts, are charged to expense.
Intangible Assets
Goodwill and other intangible assets generally result from business acquisitions. The Company accounts
for business acquisitions under the purchase method by assigning the purchase price to tangible and intangible
assets and liabilities. Assets acquired and liabilities assumed are recorded at their fair values, and the excess of
the purchase price over the amounts assigned is recorded as goodwill.
Goodwill is amortized using the straight-line method over periods ranging from 5 to 40 years.
Trademarks, distributor networks, patents, and other intangibles are amortized on a straight-line basis over
their estimated useful lives, generally ranging from 5 to 40 years.
Impairment of Long-Lived Assets
Long-lived assets, including goodwill, are reviewed for impairment when events or circumstances indicate
that the carrying amount of a long-lived asset may not be recoverable, and for all assets to be disposed of.
Long-lived assets held for use are reviewed for impairment by comparing the carrying amount of an asset to
the undiscounted future cash Öows expected to be generated by the asset over its remaining useful life. If an
asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost to sell. Management determines fair value using discounted future cash
Öow analysis or other accepted valuation techniques.
Investments
Investments in aÇliates over which the Company has the ability to exert signiÑcant inÖuence but does
not control, including RSC, are accounted for using the equity method of accounting. Accordingly, the
Company's proportional share of the respective aÇliate's earnings or losses are included in other income in the
Consolidated Statement of Operations.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Accounting Policies Ì (Continued)
Derivative Financial Instruments
The Company uses derivative Ñnancial instruments in the form of foreign currency forward exchange
contracts and interest rate swap contracts to manage foreign currency and interest rate risks. Foreign currency
forward exchange contracts are used to hedge changes in the amount of future cash Öows associated with
intercompany transactions generally forecasted to occur within one year (cash Öow hedges) and changes in
fair value of certain assets and liabilities resulting from intercompany loans and other transactions with third
parties denominated in foreign currencies. Interest rate swap contracts are periodically used to manage the
balance of Ñxed and Öoating rate debt. The Company's accounting method for derivative Ñnancial instruments
is based upon the designation of such instruments as hedges under generally accepted accounting principles. It
is the policy of the Company to execute such instruments with creditworthy banks and not to enter into
derivative Ñnancial instruments for speculative purposes. All foreign currency forward exchange contracts are
denominated in currencies of major industrial countries.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating outside of the United States with a functional currency
other than the U.S. dollar are translated into U.S. dollars using exchange rates at the end of the respective
period. Sales, costs and expenses are translated at average exchange rates eÅective during the respective
period. Foreign currency translation gains and losses are included as a component of accumulated other
comprehensive loss. Currency transaction gains and losses are included in the results of operations in the
period incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. Stock options are granted at prices equal to or
greater than the fair market value of the Company's common stock on the grant dates, therefore no
compensation expense is recognized in connection with stock options granted to employees. Compensation
expense resulting from grants of restricted stock is recognized generally during the period the service is
performed.
Environmental Matters
The Company records accruals for environmental matters in the accounting period in which its
responsibility is established and the cost can be reasonably estimated. Revisions to the accruals are made in
the periods in which the estimated costs of remediation change. At environmental sites in which more than
one potentially responsible party has been identiÑed, the Company records a liability for its estimated allocable
share of costs related to its involvement with the site as well as an estimated allocable share of costs related to
the involvement of insolvent or unidentiÑed parties. At environmental sites in which the Company is the only
responsible party, the Company records a liability for the total estimated costs of remediation. Costs of future
expenditures for environmental remediation obligations are not discounted to their present value. If recovery
from insurers or other third parties is determined to be probable, the Company records a receivable for the
estimated recovery.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Accounting Policies Ì (Continued)
Recently Adopted Accounting Standards
The Company adopted Emerging Issues Task Force Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs (EITF 00-10), on July 1, 2001. EITF 00-10 requires companies to classify shipping
and handling amounts billed to customers as sales. The Company has historically classiÑed shipping and
handling amounts billed to customers as a reduction to cost of sales. Shipping and handling amounts billed to
customers which have been reclassiÑed to sales from cost of sales were $19 million in 2001, $20 million in
2000 and $17 million in 1999. Shipping and handling costs are included in cost of sales in the Consolidated
Statement of Operations.
EÅective October 1, 2000, the Company adopted Securities and Exchange Commission StaÅ Accounting
Bulletin 101, Revenue Recognition in Financial Statements (SAB 101). No accounting changes were required
in connection with the adoption of SAB 101 and, accordingly, the adoption had no eÅect on the Company's
results of operations or shareowners' equity.
EÅective July 1, 2000, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
requires the Company to record all derivatives on the balance sheet at fair value regardless of the purpose or
intent for holding them. Derivatives that are not hedges are adjusted to fair value through earnings. For
derivatives that are hedges, depending on the nature of the hedge, changes in fair value are either oÅset by
changes in the fair value of the hedged assets, liabilities or Ñrm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings. The ineÅective portion of a
derivative's change in fair value is immediately recognized in earnings. The eÅect of adopting SFAS 133 was
not material to the Company's Ñnancial position, results of operations or shareowners' equity.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations
(SFAS 141), and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 addresses
Ñnancial accounting and reporting for business combinations and requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, goodwill and
certain other intangible assets will no longer be systematically amortized but instead will be reviewed for
impairment and written down and charged to results of operations when their carrying amount exceeds their
estimated fair value. SFAS 142 is eÅective for Ñscal years beginning after December 15, 2001, with early
adoption permitted for entities with Ñscal years beginning after March 15, 2001. The Company expects to
adopt SFAS 142 eÅective October 1, 2001. Management expects that the eÅect of ceasing amortization of
goodwill will increase net income by approximately $41 million after tax, or 22 cents per diluted share, in Ñscal
2002. The Company has not completed its assessment of the additional eÅects of adopting SFAS 142.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses Ñnancial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 is
eÅective for Ñscal years beginning after December 15, 2001, with early adoption permitted. Management is
currently evaluating the provisions of SFAS 144, but believes there will be no eÅect on the Company's
Ñnancial position, results of operations or shareowners' equity resulting from the adoption.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
2. Discontinued Operations
The Ñnancial statements have been restated for all periods presented to classify Rockwell Collins as a
discontinued operation, together with Semiconductor Systems, which had previously been reported as a
discontinued operation.
At September 30, 2000, the net assets of Rockwell Collins consisted of the following (in millions):
Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
20
513
656
156
1,345
220
574
794
Net current assets of Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 551
Property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 422
318
Total long-term assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
740
399
Net long-term assets of Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 341
Summarized results of discontinued operations are as follows (in millions):
Year Ended September 30,
2000
1999
2001
Sales:
Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Semiconductor Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,002
Ì
$2,515
Ì
$2,395
289
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,002
$2,515
$2,684
Income (loss) before income taxes:
Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Semiconductor Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 268
Ì
$ 436
Ì
$ 448
(29)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 268
$ 436
$ 419
Net income (loss):
Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Semiconductor Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 180
Ì
$ 292
Ì
$ 296
(20)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 180
$ 292
$ 276
The results of operations of Rockwell Collins in 2001 include $21 million of costs directly related to the
SpinoÅ.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Special Charges
In 2001, the Company recorded special charges of $91 million ($60 million after tax, or 32 cents per
diluted share) for costs associated with the consolidation and closing of facilities, the realignment of
administrative functions, the reduction of workforce, primarily in North America, by approximately 2,000
employees and asset impairments. The special charges are reÖected in the Consolidated Statement of
Operations for the year ended September 30, 2001 in cost of sales and selling, general and administrative
expenses in the amounts of $50 million and $41 million, respectively. The Company expects to be substantially
complete with these actions in the Ñrst quarter of 2002.
Total cash expenditures in connection with these actions are expected to approximate $51 million. The
Company spent approximately $17 million through September 30, 2001 for employee severance and
separation costs. In connection with the SpinoÅ, Rockwell Collins assumed a liability for employee severance
and separation costs resulting from these actions of approximately $7 million. As a result of actions taken
through September 30, 2001, the workforce has been reduced by approximately 1,400 employees.
The special charges included write-downs to the carrying amount of goodwill, certain facilities and
machinery and equipment totaling approximately $26 million resulting from the decision to shut down certain
facilities and exit non-strategic operations. The charges represented the diÅerence between the fair values of
the assets and their carrying values. Fair value was determined by management on the basis of various
customary valuation techniques.
Revenues and results of operations of businesses and product lines which are being exited are not
material.
The charges and their utilization for the year ended September 30, 2001 are summarized as follows (in
millions):
Charges
Amounts
Utilized
September 30,
2001
Employee severance and separation costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment of property and intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Lease termination costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$52
26
5
8
$91
$25
26
Ì
6
$57
$27
Ì
5
2
$34
The Company evaluates the adequacy of reserves recorded in prior years and makes necessary revisions
for changes in estimates in the periods in which they occur. During 2001, the Company recorded an
adjustment of $8 million as a reduction of cost of sales and $2 million as a reduction of selling, general and
administrative expenses primarily as a result of lower than expected employee separation and lease
termination costs associated with actions taken in prior years. The remaining balances at September 30, 2001
related to charges taken in previous years were not signiÑcant.
4. Acquisitions of Businesses
In October 2000, the Control Systems segment acquired the batch software and services business of
Sequencia Corporation. The purchase price for this acquisition was $6 million which was allocated to
intangible assets, including developed technology and assembled workforce, and the excess of the purchase
price over the amounts assigned to intangible assets was recorded as goodwill. Goodwill and the intangible
assets are being amortized on a straight-line basis over approximately 5 years.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
4. Acquisitions of Businesses Ì (Continued)
In March 2000, the Control Systems segment acquired Entek IRD International Corporation (Entek), a
provider of machinery condition monitoring solutions. In April 2000, the Control Systems segment acquired
substantially all the assets and assumed certain liabilities of Systems Modeling Corporation, a software
developer. The aggregate purchase price for these acquisitions was $70 million, of which $61 million was
allocated to intangible assets, including developed technology, and the excess of the purchase price over the
amounts assigned to tangible and intangible assets was recorded as goodwill. Developed technology is being
amortized on a straight-line basis over a period of 5 years. Goodwill related to the acquisitions of Entek and
Systems Modeling Corporation is being amortized on a straight-line basis over 15 and 10 years, respectively.
During 1999, the Company acquired four businesses for an aggregate purchase price of $185 million, of
which $178 million was allocated to intangible assets. Goodwill is being amortized on a straight-line basis over
periods ranging from 10 to 30 years, and the intangible assets are being amortized on a straight-line basis over
10 years.
Amounts recorded for liabilities assumed in connection with these acquisitions were $1 million,
$16 million and $41 million for the years ended September 30, 2001, 2000 and 1999, respectively.
These acquisitions were accounted for as purchases and, accordingly, the results of operations of these
businesses have been included in the Consolidated Statement of Operations since their respective dates of
acquisition. Pro forma Ñnancial information is not presented as the combined eÅect of these acquisitions was
not material to the Company's results of operations or Ñnancial position.
5.
Inventories
Inventories are summarized as follows (in millions):
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Raw materials, parts, and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$204
154
242
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$600
$220
167
223
$610
September 30,
2000
2001
6. Property
Property is summarized as follows (in millions):
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2001
2000
$
41
506
1,551
70
2,168
1,093
$
51
513
1,596
94
2,254
1,060
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,075
$1,194
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
7.
Intangible Assets
Intangible assets are summarized as follows (in millions):
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Trademarks, distributor networks, patents, and other intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,130
657
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less accumulated amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,787
595
$1,148
646
1,794
539
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,192
$1,255
September 30,
2001
2000
8. Short-Term Debt
Short-term debt consists of the following (in millions):
Short-term bank borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current portion of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2000
2001
$ 9
1
$10
$15
1
$16
The weighted average interest rate on short-term bank borrowings was 2.0% at September 30, 2001 and
2.4% at September 30, 2000.
At September 30, 2001, the Company had $1 billion of unsecured credit facilities with various banks to
support commercial paper borrowings. There were no signiÑcant commitment fees or compensating balance
requirements under these facilities. Short-term credit facilities available to foreign subsidiaries amounted to
$191 million at September 30, 2001 and consisted of arrangements for which there are no signiÑcant
commitment fees.
9. Other Current Liabilities
Other current liabilities are summarized as follows (in millions):
Advance payments from customers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxes other than income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 40
34
33
99
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$206
$ 37
35
37
106
$215
September 30,
2000
2001
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
10. Long-Term Debt
Long-term debt consists of the following (in millions):
September 30,
2000
2001
6.8% notes, payable in 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.15% notes, payable in 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.70% debentures, payable in 2028 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.20% debentures, payable in 2098 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized discount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$150
350
250
200
24
(51)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
923
1
$150
350
250
200
28
(53)
925
1
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$922
$924
11. Financial Instruments
The Company's Ñnancial instruments include short- and long-term debt and foreign currency forward
exchange contracts. The fair value of short-term debt approximates the carrying value due to its short-term
nature. At September 30, 2001 and 2000, the carrying value of long-term debt was $923 million and
$925 million, respectively. The fair value of long-term debt, based upon quoted market prices for the same or
similar issues, was $887 million and $843 million at September 30, 2001 and 2000, respectively.
Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at
speciÑed future dates at speciÑed exchange rates. At September 30, 2001 and 2000, the Company had
outstanding foreign currency forward exchange contracts with notional amounts of $738 million and
$852 million, respectively, primarily consisting of contracts for the euro, pound sterling, Canadian dollar,
Australian dollar, and Swiss franc. Notional amounts are stated in the U.S. dollar equivalents at spot exchange
rates at the respective dates. At September 30, 2001, the net carrying value of foreign currency forward
exchange contracts of $2 million was equal to its fair value based upon quoted market prices for contracts with
similar maturities. As of September 30, 2001 and 2000, the foreign currency forward exchange contracts are
recorded in other current assets in the amounts of $11 million and $51 million, respectively, and other current
liabilities in the amounts of $9 million and $11 million, respectively. The Company does not anticipate any
material adverse eÅect on its results of operations or Ñnancial position relating to these foreign currency
forward exchange contracts. The Company has designated certain foreign currency forward exchange
contracts related to forecasted intercompany transactions as cash Öow hedges. The amount recognized in
earnings as a result of the ineÅectiveness of cash Öow hedges was not material.
In February 2000, the Company entered into an interest rate swap contract (the Swap) which eÅectively
converted its $350 million aggregate principal amount of 6.15% notes, payable in 2008, to Öoating rate debt
based on 90 day LIBOR (5.42% at September 30, 2000). At September 30, 2000, the fair value of the Swap,
based upon quoted market prices for contracts with similar maturities, was approximately $13 million. On
October 24, 2000, the Swap was terminated at a net gain of $16 million. The gain is being amortized as a
reduction of interest expense over the remaining term of the 6.15% notes, payable in 2008.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Shareowners' Equity
Common Stock
At September 30, 2001, the authorized stock of the Company consisted of one billion shares of common
stock, par value $1 per share, and 25 million shares of preferred stock, without par value. At September 30,
2001, 32 million shares of common stock were reserved for various employee incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
2001
2000
1999
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.5
(1.7)
1.9
190.9
(8.0)
0.6
190.6
(3.5)
3.8
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.7
183.5
190.9
For 2001, 2000 and 1999, dilutive stock options resulted in an increase in average outstanding shares of
2.4 million, 2.1 million and 3.1 million, respectively.
Preferred Share Purchase Rights
Each outstanding share of common stock provides the holder with one Preferred Share Purchase Right
(Right). The Rights will become exercisable only if a person or group, without the approval of the board of
directors, acquires, or oÅers to acquire, 20% or more of the common stock, although the board of directors is
authorized to reduce the 20% threshold for triggering the Rights to not less than 10%. Upon exercise, each
Right entitles the holder to 1/100th of a share of Series A Junior Participating Preferred Stock of the
Company (Junior Preferred Stock) at a price of $250, subject to adjustment.
Upon an acquisition of the Company, each Right (other than Rights held by the acquirer) will generally
be exercisable for $500 worth of either common stock of the Company or common stock of the acquirer for
$250. In certain circumstances, each Right may be exchanged by the Company for one share of common stock
or 1/100th of a share of Junior Preferred Stock. The Rights will expire on December 6, 2006, unless earlier
exchanged or redeemed at $0.01 per Right.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, including amounts related to Rockwell Collins at September 30,
2000, consisted of the following (in millions):
September 30,
2000
2001
Unrealized gains on cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
5
(166)
(1)
$
12
(173)
(5)
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(162)
$(166)
During 2001, unrealized gains on cash Öow hedges of $22 million ($15 million after tax) were reclassiÑed
into earnings. Approximately $5 million of the unrealized gains on cash Öow hedges will be reclassiÑed into
earnings during 2002. Management expects that these unrealized gains will be oÅset when the hedged items
are recognized in earnings.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
13. Stock Options
Options to purchase common stock of the Company have been granted under various incentive plans and
by board action to directors, oÇcers and other key employees at prices equal to or above the fair market value
of such stock on the dates the options were granted. The plans provide that the option price for certain options
granted under the plans may be paid in cash, shares of common stock or a combination thereof.
Under the 2000 Long-Term Incentives Plan, the Company may grant up to 16 million shares of Company
common stock as non-qualiÑed options, incentive stock options, stock appreciation rights and restricted stock.
Shares available for future grant or payment under various incentive plans were 12 million at September 30,
2001. None of the incentive plans presently permits options to be granted after November 30, 2009. Stock
options generally expire ten years from the date they are granted and vest over three years (time-vesting
options) with the exception of performance-vesting options.
In 2001, 2000 and 1999, the Company granted performance-vesting options. These options expire ten
years from the date they are granted and vest at the earlier of (a) the date the market price of the Company's
common stock reaches a speciÑed level for a pre-determined period of time or certain other Ñnancial
performance criteria are met or (b) a period of six to nine years from the date they are granted.
Information relative to stock options is as follows (shares in thousands):
Number of shares under option:
Outstanding at beginning of year ÏÏÏÏÏÏÏ
Granted:
2001
2000
1999
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
13,998
$36.04
11,564
$31.13
13,419
$36.27
Time-vestingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance-vesting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,309
941
Adjustments:
Collins adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conversion to Collins options ÏÏÏÏÏÏÏÏ
Conexant adjustmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conversion to Conexant optionsÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canceled or expiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6,379
(2,486)
Ì
Ì
(1,884)
(561)
Outstanding at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,696
Exercisable at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
9,863
28.23
29.94
Ì
37.32
Ì
Ì
23.17
29.99
14.15
13.48
2,523
880
51.04
52.48
2,169
1,023
Ì
Ì
Ì
Ì
(561)
(408)
Ì
Ì
669
Ì
Ì
Ì
Ì (1,621)
(3,750)
(345)
24.62
40.31
13,998
36.04
11,564
8,584
30.52
7,419
37.05
35.22
Ì
Ì
Ì
48.97
23.68
39.60
31.13
28.69
In connection with the SpinoÅ, the number and exercise prices of certain options were adjusted in order
to preserve the intrinsic value of the options that were outstanding immediately before and after the SpinoÅ.
For certain other options, option holders received a combination of Rockwell and Rockwell Collins options
with adjustments made to the number and exercise prices of those options to preserve the intrinsic value of the
Rockwell and Rockwell Collins options that were outstanding immediately before and after the SpinoÅ.
Outstanding Rockwell options held by Rockwell Collins employees generally were converted into Rockwell
Collins options.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
13. Stock Options Ì (Continued)
In connection with the spinoÅ of Semiconductor Systems, the number and exercise prices of certain
options were adjusted in order to preserve the intrinsic value of the options that were outstanding immediately
before and after the spinoÅ. For certain other options, option holders received a combination of Rockwell and
Conexant options with adjustments made to the number and exercise prices of those options to preserve the
intrinsic value of the Rockwell and Conexant options that were outstanding immediately before and after the
spinoÅ. Outstanding Rockwell options held by Semiconductor Systems employees were converted into
Conexant options.
The following table summarizes information about stock options outstanding at September 30, 2001
(shares in thousands; remaining life in years):
Range of Exercise Prices
$ 4.71 to $10.49ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10.50 to $14.14ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$14.15 to $18.86ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$18.87 to $23.57ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options Outstanding
Weighted Average
Remaining
Life
Exercise
Price
1.9
7.4
6.3
7.9
$ 8.80
11.72
16.51
20.49
Shares
2,231
9,558
3,749
4,158
19,696
Options Exercisable
Wtd. Avg.
Exercise
Price
Shares
$ 8.80
12.05
16.54
20.68
2,231
3,926
2,568
1,138
9,863
The Company's net income and earnings per share would have been reduced to the following pro forma
amounts if the Company accounted for its stock-based plans using the fair value method provided by SFAS
No. 123, Accounting for Stock-Based Compensation (in millions, except per share amounts):
2001
As
Reported
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 305
$1.67
$1.65
Pro
Forma
$ 271
$1.48
$1.46
2000
As
Reported
$ 636
$3.38
$3.35
Pro
Forma
$ 611
$3.26
$3.22
1999
As
Reported
$ 559
$2.94
$2.89
Pro
Forma
$ 478
$2.51
$2.47
The 2001 pro forma net income includes $6 million ($4 million after tax, or two cents per diluted share)
of pro forma compensation expense related to the spinoÅ of Rockwell Collins. The 1999 pro forma net income
includes $87 million ($57 million after tax, or 29 cents per diluted share) of pro forma compensation expense
related to the spinoÅ of Semiconductor Systems. The pro forma eÅect of stock options on net income for 2001
may not be indicative of the pro forma eÅect on net income in future years.
The weighted average fair value of options granted was $8.79, $16.30 and $9.55 per share in 2001, 2000
and 1999, respectively. The fair value of each option was estimated on the date of grant or subsequent date of
option adjustment using the Black-Scholes pricing model and the following assumptions:
Average risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
2000
1999
Collins
SpinoÅ
Adjustment
4.73%
1.77%
0.35
5
Grants
5.76%
2.29%
0.33
5
Grants
Grants
6.06% 4.51%
2.29% 2.23%
0.33
5
0.29
5
Conexant
SpinoÅ
Adjustment
4.66%
Ì
0.44
5
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Retirement BeneÑts
The Company sponsors pension and other postretirement beneÑt plans for its employees. The pension
plans cover most of the Company's employees and provide for monthly pension payments to eligible
employees upon retirement. Pension beneÑts for salaried employees generally are based on years of credited
service and average earnings. Pension beneÑts for hourly employees generally are based on speciÑed beneÑt
amounts and years of service. The Company's policy is to fund its pension obligations in conformity with the
funding requirements of applicable laws and governmental regulations. Other postretirement beneÑts are in
the form of retirement medical plans and cover most of the Company's United States employees and provide
for the payment of certain medical costs of eligible employees and dependents upon retirement.
In connection with the SpinoÅ, Rockwell Collins assumed the former Rockwell International Corporation
domestic qualiÑed plan (Rockwell Retirement Plan). Pension plan obligations attributable to all of Rockwell's
domestic active employees and former employees of the Control Systems, Power Systems and Electronic
Commerce businesses were retained by Rockwell and a proportionate share of pension plan assets were
transferred from the Rockwell Retirement Plan to a new pension plan established by Rockwell. The Company
also retained liabilities for other postretirement beneÑts for active and former employees. The tables below
reÖect the continuing Rockwell plans.
The components of net periodic beneÑt cost are as follows (in millions):
Pension BeneÑts
2000
2001
1999
Other Postretirememt
BeneÑts
2000
2001
1999
Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization:
$
44
87
(126)
$
44
79
(110)
$
52
75
$ 7
18
(100) Ì
$ 7
18
Ì
$ 6
13
Ì
Prior service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5
(4)
4
5
(4)
3
6
(6)
(13) Ì
3
17
(6)
Ì
2
(6)
Ì
Ì
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
10
$
17
$
37
$22
$21
$13
The Company recognized a curtailment gain of $9 million and $14 million in 2000 and 1999, respectively,
and special termination beneÑt charges of $3 million, $3 million and $11 million in 2001, 2000 and 1999,
respectively.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Retirement BeneÑts Ì (Continued)
BeneÑt obligation, plan asset, funded status, and net liability information is summarized as follows (in
millions):
BeneÑt obligation at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discount rate change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial (gains) lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan amendmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
RSC adjustmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (including currency translation) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension BeneÑts
2000
2001
$1,243
44
87
83
(4)
3
(51)
(41)
11
$1,203
44
79
(73)
65
1
(45)
Ì
(31)
BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,375
1,243
Plan assets at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Company contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
RSC adjustmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (including currency translation) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,453
(28)
8
(51)
(106)
8
1,376
148
8
(45)
Ì
(34)
Plan assets at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,284
1,453
Other
Postretirement
BeneÑts
2001
2000
$ 242
7
18
16
43
Ì
(30)
(6)
4
$ 258
7
18
(12)
5
(4)
(30)
Ì
Ì
294
Ì
Ì
30
(30)
Ì
Ì
Ì
242
Ì
Ì
30
(30)
Ì
Ì
Ì
Funded status of plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized amounts:
(91)
210
(294)
(242)
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial (gains) losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
16
(8)
(32)
18
(12)
(272)
(39)
Ì
103
(49)
Ì
49
Net liability on balance sheet ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (115)
$ (56)
$(230)
$(242)
Net liability on balance sheet consists of:
Prepaid beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued beneÑt liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
17
(137)
1
3
1
$
18
(75)
(2)
7
(4)
$ Ì $ Ì
(242)
(230)
Ì
Ì
Ì
Ì
Ì
Ì
Net liability on balance sheet ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (115)
$ (56)
$(230)
$(242)
In connection with the SpinoÅ, pension plan obligations attributable to Rockwell Science Center
domestic active and former employees and a proportionate share of pension plan assets were transferred from
the Rockwell Retirement Plan to a new pension plan established by RSC. RSC also assumed its obligation for
other postretirement beneÑts for such active and former employees.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Retirement BeneÑts Ì (Continued)
The Company uses an actuarial measurement date of June 30 to measure its beneÑt obligations.
SigniÑcant assumptions used in determining these beneÑt obligations and net periodic beneÑt cost are
summarized as follows (in weighted averages):
Pension
BeneÑts
Other
Postretirement
BeneÑts
2001
2000
2001
2000
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Health care cost trend rate* ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 8.0% 7.0%
7.5% 8.0% 7.5% 8.0%
4.5% 4.5% Ì
9.75% 9.5% Ì
Ì
Ì
* Decreasing to 5.5% after 2016.
The discount rate, compensation increase rate and health care cost trend rate assumptions are determined
as of the measurement date. The expected return on plan assets assumption is determined as of the previous
measurement date.
Pension BeneÑts
The projected beneÑt obligation, accumulated beneÑt obligation and fair value of plan assets for the
pension plans with accumulated beneÑt obligations in excess of the fair value of plan assets (underfunded
plans) were $93 million, $78 million and $20 million, respectively, as of September 30, 2001 and $63 million,
$55 million and $1 million, respectively, as of September 30, 2000.
Other Postretirement BeneÑts
Assumed health care cost trend rates have a signiÑcant eÅect on amounts reported for the retiree medical
plans. A one-percentage point change in assumed health care cost trend rates would have the following eÅect
(in millions):
One-Percentage
Point Increase
2000
2001
One-Percentage
Point Decrease
2000
2001
Increase (decrease) to total of service and interest cost
components ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) to postretirement beneÑt obligation ÏÏÏÏÏÏÏÏ
$ 3
23
$ 3
16
$ (3)
(19)
$ (3)
(14)
DeÑned Contribution Savings Plans
The Company also sponsors certain deÑned contribution savings plans for eligible employees. Expense
related to these plans was $22 million, $21 million and $21 million, for 2001, 2000 and 1999, respectively.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
15. Other Income, Net
The components of other income, net are as follows (in millions):
2001
2000
1999
Net gain on dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6
Demutualization incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Loss on investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
18
Intellectual property settlement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3
Royalty income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$44
$15
28
Ì
Ì
9
10
4
$66
$ 36
Ì
(29)
14
10
9
8
$ 48
During 2000, the Company recorded a $32 million gain on the sale of real estate, which was partially
oÅset by a loss of $14 million on the sale of a Power Systems business, and recorded $28 million of income
resulting from the demutualization of Metropolitan Life Insurance Company.
In 1999, the Company recorded a loss of $29 million associated with the write-oÅ of its investment in
Goss Graphic Systems, Inc. preferred stock, which the Company received in connection with the sale of its
graphic systems business. In addition, the Company recorded a gain of $32 million on the sale of Control
Systems' North American Transformer business.
16.
Income Taxes
The components of the income tax provision are as follows (in millions):
2001
2000
1999
Current:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 13
(22)
44
6
$ (5)
Ì
19
7
Total currentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
41
21
(2)
2
2
2
111
11
20
142
$104
Ì
24
32
160
(18)
11
2
(5)
Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 43
$163
$155
During 2001, the Company reached agreement with various taxing authorities on refund claims related to
certain prior years and recorded $22 million as a reduction of its income tax provision.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes Ì (Continued)
Net current deferred income tax beneÑts at September 30, 2001 and 2000 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
2001
2000
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 20
13
28
26
65
Current deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$152
$ 22
15
33
24
59
$153
Net long-term deferred income taxes in the balance sheet at September 30, 2001 and 2000 consist of the
tax eÅects of temporary diÅerences related to the following (in millions):
2001
2000
Retirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(129)
126
75
(4)
(49)
100
SubtotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
119
52
$(107)
145
73
(9)
(71)
88
119
80
Long-term deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 171
$ 199
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes Ì (Continued)
Management believes it is more likely than not that current and long-term deferred tax assets will be
realized through the reduction of future taxable income. SigniÑcant factors considered by management in its
determination of the probability of the realization of the deferred tax assets include: (a) the historical
operating results of the Company ($453 million of United States taxable income over the past three years),
(b) expectations of future earnings, and (c) the extended period of time over which the retirement medical
liability will be paid. A valuation allowance is established for deferred tax assets related to net operating loss
carryforwards and foreign tax credit carryforwards for which utilization is uncertain. The carryforward period
for $1 million of the net operating losses ends between 2002 and 2005. The carryforward period for the
remaining net operating losses is indeÑnite. The carryforward period for all of the foreign tax credits ends in
2002.
The eÅective income tax rate diÅered from the United States statutory tax rate for the reasons set forth
below:
2001
2000
1999
Statutory tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit utilization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-deductible goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee stock ownership plan beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of foreign loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
35.0% 35.0% 35.0%
3.4
3.6
1.4
5.3
(4.8)
(8.4)
8.3
2.0
(4.2)
5.0
1.8
(4.9)
2.1
(1.2) Ì
Ì
(0.9)
(2.6)
(1.8)
(1.7)
(0.6)
(0.3)
(13.1) Ì
EÅective income tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25.6% 32.3% 35.5%
The income tax provisions were calculated based upon the following components of income from
continuing operations before income taxes (in millions):
2001
2000
1999
United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 87
81
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$168
$410
97
$507
$343
95
$438
No provision has been made for United States, state, or additional non-United States income taxes
related to approximately $239 million of undistributed earnings of foreign subsidiaries which have been or are
intended to be permanently reinvested. It is not practical to determine the United States federal income tax
liability, if any, which would be payable if such earnings were not permanently reinvested.
The Company's United States income tax returns for the years 1995 through 1997 are currently under
examination. In connection with the divestiture of the Company's aerospace and defense business (""the A&D
Business''), the spinoÅ of the Company's automotive components business (""Automotive''), the Semiconduc-
tor Systems spinoÅ, and the Rockwell Collins spinoÅ, the Company has retained all tax liabilities and the right
to all tax refunds related to United States and certain non-U.S. operations of the A&D Business, Automotive,
Semiconductor Systems and Rockwell Collins for periods prior to the respective divestiture dates. Manage-
ment expects the examination of the Company's 1995 through 1997 tax years will be completed during 2002.
Management believes adequate provision for income taxes has been made for all years through 2001.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
17. Supplementary Financial Statement Information
Statement of cash Öows information (in millions):
Income taxes paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Statement of operations information (in millions):
Research and development:
2001
2000
1999
$213
79
$129
74
$111
85
Company-initiated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customer-funded ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rental expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
169
61
86
209
61
94
188
52
89
Income taxes paid and interest payments related to discontinued operations for 2001, 2000 and 1999 were
not signiÑcant.
Minimum future rental commitments under operating leases having noncancelable lease terms in excess
of one year aggregated $200 million as of September 30, 2001 and are payable as follows (in millions): 2002,
$44; 2003, $37; 2004, $31; 2005, $23; 2006, $17, and after 2006, $48. Commitments from third parties under
sublease agreements having noncancelable lease terms in excess of one year aggregated $44 million as of
September 30, 2001 and are receivable through 2008 at approximately $6 million per year.
18. Commitments and Contingent Liabilities
Federal, state and local requirements relating to the discharge of substances into the environment, the
disposal of hazardous wastes and other activities aÅecting the environment have and will continue to have an
eÅect on the manufacturing operations of the Company. Thus far, compliance with environmental require-
ments and resolution of environmental claims has been accomplished without material eÅect on the
Company's liquidity and capital resources, competitive position or Ñnancial condition.
The Company has been designated as a potentially responsible party at 19 Superfund sites, excluding sites
as to which the Company's records disclose no involvement or as to which the Company's potential liability
has been Ñnally determined or assumed by third parties. Management estimates the total reasonably possible
costs the Company could incur for the remediation of Superfund sites at September 30, 2001 to be about
$13 million, of which $9 million has been accrued.
Various other lawsuits, claims and proceedings have been asserted against the Company alleging
violations of federal, state and local environmental protection requirements, or seeking remediation of alleged
environmental impairments, principally at previously owned properties. As of September 30, 2001, manage-
ment has estimated the highest total reasonably possible costs the Company could incur from these matters to
be about $55 million. The Company has recorded environmental accruals for these matters of $25 million. In
addition to the above matters, the Company assumed certain other environmental liabilities in connection with
the 1995 acquisition of Reliance Electric Company (Reliance). The Company is indemniÑed by ExxonMobil
Corporation (Exxon) for substantially all costs associated with these Reliance matters. At September 30,
2001, the Company has recorded a liability of approximately $29 million and a receivable of approximately
$28 million for these Reliance matters. Management estimates the highest total reasonably possible costs for
these matters to be approximately $37 million for which the Company is substantially indemniÑed by Exxon.
Based on its assessment, management believes that the Company's expenditures for environmental
capital investment and remediation necessary to comply with present regulations governing environmental
protection and other expenditures for the resolution of environmental claims will not have a material adverse
eÅect on the Company's liquidity and capital resources, competitive position or Ñnancial condition. Manage-
ment cannot assess the possible eÅect of compliance with future requirements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
18. Commitments and Contingent Liabilities Ì (Continued)
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company
relating to the conduct of its business, including those pertaining to product liability, intellectual property,
safety and health, employment and contract matters. In connection with the divestiture of the A&D Business
to The Boeing Company (Boeing), Rockwell agreed to indemnify Boeing for certain government contract and
environmental matters related to operations of the A&D Business for periods prior to the divestiture. In
connection with the spinoÅs of Automotive, Semiconductor Systems and Rockwell Collins, the spun-oÅ
companies have agreed to indemnify Rockwell for substantially all contingent liabilities related to the
respective businesses, including environmental and intellectual property matters. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to the Company, management believes the disposition of matters which are pending or asserted
will not have a material adverse eÅect on the Company's business or Ñnancial condition.
In the ordinary course of business, the Company has divested certain of its businesses. As a result of such
divestitures, there may be lawsuits, claims or proceedings instituted or asserted against the Company related to
the period that the businesses were owned by the Company. Management believes that any judgments against
the Company related to such matters would not have a material adverse eÅect on the Company's business or
Ñnancial condition.
19. Business Segment Information
Rockwell is a provider of industrial automation power, control and information products and services. The
Company is organized based upon products and services and has three operating segments consisting of
Control Systems, Power Systems and Electronic Commerce. Following the spinoÅ of Rockwell Collins, the
Company has a 50 percent ownership interest in RSC and accounts for its interest in RSC using the equity
method.
The Control Systems segment is a supplier of industrial automation products, systems, software and
services focused on helping customers control manufacturing processes. Products include controllers, I/O
(input/output) systems, drives, sensors, packaged control products, operator interface devices, software
products and services and network monitoring products. These products are primarily marketed under the
Rockwell Automation, Allen-Bradley, and Rockwell Software brand names. Major markets served include
consumer products, food and beverage, transportation, metals, mining, pulp and paper, petroleum, specialty
chemicals, pharmaceuticals, electric power, water treatment, electronic assembly and semiconductor
fabrication.
The Power Systems segment is a supplier of industrial automation mechanical power transmission
products and industrial motors and drives. Products include power transmission components, gear reducers,
speed drives, shaft mounted reducers, conveyor pulleys, shaft couplings, clutches, motor brakes, mounted
bearings and motors. These products are primarily marketed under the Dodge and Reliance Electric brand
names. Major markets served include mining, aggregate, food/beverage, forestry, petrochemicals, metals, unit
handling, air handling and environmental.
The Electronic Commerce segment is a solutions supplier for companies that interact with their
customers via the telephone, the internet, or both. Products include automatic call distributors, computer
telephony integration software, information collection, reporting, queuing and management systems and call
center systems and consulting services. Major markets served include service, transportation, energy,
healthcare, retail, telecommunications and Ñnancial.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. Business Segment Information Ì (Continued)
The following tables reÖect the sales and operating results of the Company's reportable segments for the
years ended September 30 (in millions):
2001
2000
1999
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intersegment salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,364
744
151
73
(53)
$3,682
797
169
78
(70)
$3,651
822
203
35
(46)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,279
$4,656
$4,665
Segment operating earnings:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 426
38
7
3
$ 640
65
(16)
7
$ 642
53
12
18
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and purchase accounting items ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Loss) gain on disposition of businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
474
(79)
(53)
Ì
(83)
(91)
696
(82)
(20)
(14)
(73)
Ì
725
(72)
(163)
32
(84)
Ì
Income from continuing operations before income taxes ÏÏÏÏÏÏÏÏÏÏÏ
$ 168
$ 507
$ 438
Other represents the sales and segment operating earnings of Rockwell Science Center through the third
quarter of 2001. Beginning with the fourth quarter of 2001, the Company's 50 percent ownership interest in
RSC is accounted for using the equity method, and the Company's proportional share of RSC's earnings or
losses are included in general corporate-net.
Among other considerations, the Company evaluates performance and allocates resources based upon
segment operating earnings before income taxes, interest expense, costs related to corporate oÇces,
nonrecurring special charges, gains and losses from the disposition of businesses, earnings and losses from
equity aÇliates, and incremental acquisition related expenses resulting from purchase accounting adjustments
such as goodwill and other intangible asset amortization, depreciation, inventory and purchased research and
development charges. The accounting policies used in preparing the segment information are consistent with
those described in Note 1. Special charges are discussed in Note 3.
EÅective October 1, 2001, management changed its method of evaluating segment performance to
exclude from segment operating earnings all purchase accounting items, including depreciation and intangible
asset amortization. Management believes the exclusion of these items provides additional insight into the
operating performance of the segments.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. Business Segment Information Ì (Continued)
The following tables summarize the identiÑable assets at September 30, the provision for depreciation
and amortization and the amount of capital expenditures for property for the years ended September 30 for
each of the reportable segments and Corporate (in millions):
2001
2000
1999
IdentiÑable assets:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets of discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,494
1,024
86
Ì
470
Ì
$2,604
1,049
101
62
581
892
$2,688
1,132
112
38
657
665
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,074
$5,289
$5,292
Depreciation and amortization:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 132
41
10
4
6
193
79
$ 130
37
10
6
5
188
82
$ 124
34
8
7
6
179
72
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 272
$ 270
$ 251
Capital expenditures for property:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Commerce ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
99
43
1
13
1
$ 148
54
6
6
3
$ 167
53
9
6
15
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 157
$ 217
$ 250
IdentiÑable assets at Corporate consist principally of cash, net deferred income tax assets, property and
the 50 percent ownership interest in RSC.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. Business Segment Information Ì (Continued)
The Company conducts a signiÑcant portion of its business activities outside the United States. The
following tables reÖect geographic sales and property by geographic region (in millions):
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EuropeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asia-PaciÑcÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
$2,871
655
299
278
176
Sales
2000
$3,205
684
329
268
170
1999
2001
$3,278
700
299
233
155
$ 945
75
20
24
11
Property
2000
$1,052
84
21
25
12
1999
$1,050
102
22
25
12
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,279
$4,656
$4,665
$1,075
$1,194
$1,211
Sales are attributed to the geographic regions based on the country of destination.
20. Quarterly Financial Information (Unaudited)
2001 Quarters
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) from continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings (loss) per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings (loss) per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First
$1,111
748
69
134
0.38
0.74
0.38
0.73
Fourth
Second
Third
(in millions, except per share amounts)
$1,026
796
(27)
34
$1,168
783
71
125
$974
704
12
12
0.39
0.68
0.38
0.67
(0.15)
0.18
(0.15)
0.18
0.07
0.07
0.07
0.07
2001
$4,279
3,031
125
305
0.69
1.67
0.68
1.65
Net income for 2001 includes: (a) charges of $69 million ($45 million after tax, or 25 cents per diluted
share) for costs associated with realignment actions in the third quarter; (b) charges of $22 million ($15
million after tax, or eight cents per diluted share) for costs associated with realignment actions in the fourth
quarter and (c) a gain of $18 million ($12 million after tax, or six cents per diluted share) resulting from the
favorable settlement of an intellectual property matter in the fourth quarter.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
20. Quarterly Financial Information (Unaudited) Ì (Continued)
2000 Quarters
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share:
Continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First
$1,103
721
87
157
0.46
0.83
0.45
0.81
Fourth
Second
Third
(in millions, except per share amounts)
$1,195
813
92
170
$1,184
796
63
145
$1,174
772
102
164
0.54
0.87
0.53
0.85
0.49
0.91
0.49
0.90
0.34
0.79
0.34
0.78
2000
$4,656
3,102
344
636
1.83
3.38
1.81
3.35
Net income for 2000 includes: (a) a net gain of $18 million ($12 million after tax, or six cents per diluted
share) resulting from the sale of real estate in the second quarter which was partially oÅset by a loss on sale of
a business and (b) a gain of $28 million ($19 million after tax, or 10 cents per diluted share) resulting from
the demutualization of Metropolitan Life Insurance Company in the third quarter.
46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of
Rockwell International Corporation:
We have audited the accompanying consolidated balance sheet of Rockwell International Corporation
and subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of operations,
shareowners' equity, cash Öows, and comprehensive income for each of the three years in the period ended
September 30, 2001. Our audits also included the Ñnancial statement schedule listed at Item 14(a)(2). These
Ñnancial statements and Ñnancial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these Ñnancial statements and Ñnancial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the Ñnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An audit also includes
assessing the accounting principles used and signiÑcant estimates made by management, as well as evaluating
the overall Ñnancial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated Ñnancial statements present fairly, in all material respects, the Ñnancial
position of Rockwell International Corporation and subsidiaries at September 30, 2001 and 2000, and the
results of their operations and their cash Öows for each of the three years in the period ended September 30,
2001, in conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, such Ñnancial statement schedule, when considered in relation to the basic consolidated Ñnancial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 7, 2001
47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 10. Directors and Executive OÇcers of the Company.
PART III
See the information under the captions Election of Directors and Information as to Nominees for
Directors and Continuing Directors in the 2002 Proxy Statement.
No nominee for director was selected pursuant to any arrangement or understanding between the
nominee and any person other than the Company pursuant to which such person is or was to be selected as a
director or nominee. See also the information with respect to executive oÇcers of the Company under Item 4a
of Part I hereof.
Item 11. Executive Compensation.
See the information under the captions Executive Compensation, Option Grants and Aggregated Option
Exercises and Fiscal Year-End Values and Retirement Plans in the 2002 Proxy Statement.
Item 12. Security Ownership of Certain BeneÑcial Owners and Management.
See the information under the captions Voting Securities and Ownership by Management of Equity
Securities in the 2002 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
See the information under the caption Board of Directors and Committees in the 2002 Proxy Statement.
48
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedule and Exhibits.
PART IV
(1) Financial Statements (all Ñnancial statements listed below are those of the Company and its
consolidated subsidiaries).
Consolidated Balance Sheet, September 30, 2001 and 2000.
Consolidated Statement of Operations, years ended September 30, 2001, 2000 and 1999.
Consolidated Statement of Cash Flows, years ended September 30, 2001, 2000 and 1999.
Consolidated Statement of Shareowners' Equity, years ended September 30, 2001, 2000 and
1999.
Consolidated Statement of Comprehensive Income, years ended September 30, 2001, 2000 and
1999.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2001, 2000 and 1999.
Schedule II Ì Valuation and Qualifying Accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page
S-1
Schedules not Ñled herewith are omitted because of the absence of conditions under which they
are required or because the information called for is shown in the consolidated Ñnancial
statements or notes thereto.
(3) Exhibits.
3-a-1
3-b-l
4-a-1
4-b-l
4-b-2
4-b-3
Restated CertiÑcate of Incorporation of the Company, as amended, Ñled as
Exhibit 3-a-1 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is hereby incorporated by reference.
By-Laws of the Company, Ñled as Exhibit 3-b-2 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1998, are hereby incorporated by
reference.
Rights Agreement, dated as of November 30, 1996, between the Company and
Mellon Investor Services LLC (formerly named ChaseMellon Shareholder
Services, L.L.C.), as rights agent, Ñled as Exhibit 4-c to Registration Statement
No. 333-17031, is hereby incorporated by reference.
Indenture dated as of April 1, 1993 between Reliance Electric Company and
Bankers Trust Company, as Trustee, pursuant to which the 6.8% Notes of
Reliance Electric Company due April 15, 2003 have been issued, Ñled as
Exhibit 4.7 to Registration Statement No. 33-60066, is hereby incorporated by
reference.
First Supplemental Indenture dated April 14, 1993 to the Indenture listed as
Exhibit 4-b-l above, Ñled as Exhibit 4.1 to Current Report on Form 8-K of
Reliance Electric Company dated April 19, 1993 (File No. 1-10404), is hereby
incorporated by reference.
Form of certiÑcate for the 6.8% Notes of Reliance Electric Company due
April 15, 2003, Ñled as Exhibit 4-8 to Registration Statement No. 33-60066, is
hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
49
4-c-1
4-c-2
4-c-3
4-c-4
*10-a-l
*10-a-2
*10-a-3
*10-a-4
*10-a-5
*10-a-6
*10-a-7
*10-a-8
*l0-b-1
Indenture dated as of December 1, 1996 between the Company and The Chase
Manhattan Bank (successor to Mellon Bank, N.A.), as Trustee, Ñled as
Exhibit 4-a to Registration Statement No. 333-43071, is hereby incorporated by
reference.
Form of certiÑcate for the Company's 6.15% Notes due January 15, 2008, Ñled as
Exhibit 4-a to the Company's Current Report on Form 8-K dated January 26,
1998, is hereby incorporated by reference.
Form of certiÑcate for the Company's 6.70% Debentures due January 15, 2028,
Ñled as Exhibit 4-b to the Company's Current Report on Form 8-K dated
January 26, 1998, is hereby incorporated by reference.
Form of certiÑcate for the Company's 5.20% Debentures due January 15, 2098,
Ñled as Exhibit 4-c to the Company's Current Report on Form 8-K dated
January 26, 1998, is hereby incorporated by reference.
Copy of the Company's 1988 Long-Term Incentives Plan, as amended through
November 30, 1994, Ñled as Exhibit 10-d-l to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994 (File No. 1-1035), is hereby
incorporated by reference.
Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, amending the Company's 1988 Long-Term Incentives Plan,
Ñled as Exhibit 4-g-1 to Registration Statement No. 333-17055, is hereby
incorporated by reference.
Copy of resolution of the Board of Directors of the Company, adopted
November 5, 1997, increasing the number of shares authorized for issuance under
the Company's 1988 Long-Term Incentives Plan, Ñled as Exhibit 10-b-2 to the
Company's Annual Report on Form 10-K for the year ended September 30, 1997,
is hereby incorporated by reference.
Form of Stock Option Agreement under the Company's 1988 Long-Term
Incentives Plan for options granted after May 1, 1992 and prior to March 1, 1993,
Ñled as Exhibit 28-a-1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992 (File No. 1-1035), is hereby incorporated by
reference.
Forms of Stock Option Agreements under the Company's 1988 Long-Term
Incentives Plan for options granted after March 1, 1993 and prior to November 1,
1993, Ñled as Exhibit 28-a to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993 (File No. 1-1035), are hereby incorporated by
reference.
Forms of Stock Option Agreements under the Company's 1988 Long-Term
Incentives Plan for options granted after November 1, 1993 and prior to
December 1, 1994, Ñled as Exhibit 10-d-6 to the Company's Annual Report on
Form 10- K for the year ended September 30, 1993 (File No. 1-1035), are hereby
incorporated by reference.
Forms of Stock Option Agreements under the Company's 1988 Long-Term
Incentives Plan for options granted after December 1, 1994, Ñled as
Exhibit 10-d-7 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994 (File No. 1-1035), are hereby incorporated by reference.
Memorandum of Proposed Amendments to the Rockwell International
Corporation 1988 Long-Term Incentives Plan approved and adopted by the Board
of Directors of the Company on June 6, 2001 in connection with the spin-oÅ of
Rockwell Collins.
Copy of the Company's 1995 Long-Term Incentives Plan, as amended, Ñled as
Exhibit l0-b-1 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1998, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
50
*10-b-2
*10-b-3
*10-b-4
*10-b-5
*10-b-6
*10-b-7
*10-b-8
*10-c-l
*10-c-2
*10-c-3
*10-c-4
*10-c-5
*10-c-6
Forms of Stock Option Agreements under the Company's 1995 Long-Term
Incentives Plan for options granted prior to December 3, 1997, Ñled as
Exhibit 10-e-2 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994 (File No. 1-1035), are hereby incorporated by reference.
Forms of Stock Option Agreements under the Company's 1995 Long-Term
Incentives Plan for options granted between December 3, 1997 and August 31,
1998, Ñled as Exhibit 10-b-3 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1998, are hereby incorporated by reference.
Form of Stock Option Agreement under the Company's 1995 Long-Term
Incentives Plan for options granted on April 23, 1998, Ñled as Exhibit 10-b-4 to
the Company's Annual Report on Form 10-K for the year ended September 30,
1998, is hereby incorporated by reference.
Form of Stock Option Agreement under the Company's 1995 Long-Term
Incentives Plan for options granted after August 31, 1998, Ñled as Exhibit 10-b-5
to the Company's Annual Report on Form 10-K for the year ended September 30,
1998, is hereby incorporated by reference.
Form of Restricted Stock Agreement under the Company's 1995 Long-Term
Incentives Plan, Ñled as Exhibit 10-e to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by
reference.
Copy of Restricted Stock Agreement dated December 3, 1997 between the
Company and Don H. Davis, Jr., Ñled as Exhibit 10-c-5 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997, is hereby
incorporated by reference.
Memorandum of Proposed Amendments to the Rockwell International
Corporation 1995 Long-Term Incentives Plan approved and adopted by the Board
of Directors of the Company on June 6, 2001 in connection with the spin-oÅ of
Rockwell Collins.
Copy of the Company's Directors Stock Plan, as amended February 2, 2000, Ñled
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, is hereby incorporated by reference.
Form of Stock Option Agreement under the Company's Directors Stock Plan for
options granted prior to February 2, 2000, Ñled as Exhibit 10-d to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (File
No. 1-1035), is hereby incorporated by reference.
Forms of Restricted Stock Agreements under the Company's Directors Stock
Plan between the Company and each of George L. Argyros, William H. Gray, III,
William T. McCormick, Jr., John D. Nichols and Joseph F. Toot, Jr., Ñled as
Exhibit 10-f to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, are hereby incorporated by reference.
Form of Stock Option Agreement under the Directors Stock Plan for options
granted after February 2, 2000, Ñled as Exhibit 10-c-4 to the Company's Annual
Report on Form 10-K for the year ended September 30, 2000, is hereby
incorporated by reference.
Form of Restricted Stock Agreement under the Directors Stock Plan for restricted
stock granted after February 2, 2000, Ñled as Exhibit 10-c-5 to the Company's
Annual Report on Form 10-K for the year ended September 30, 2000, is hereby
incorporated by reference.
Form of Restricted Stock Agreement for payment of portion of annual retainer for
Board service by issuance of shares of restricted stock, Ñled as Exhibit 10-c-6 to
the Company's Annual Report on Form 10-K for the year ended September 30,
2000, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
51
*10-c-7
*10-d-1
*10-d-2
*10-d-3
*10-e-1
*10-e-2
*10-e-3
*10-e-4
*10-e-5
*10-e-6
*10-f-1
*10-g-1
*10-g-2
Form of Stock Option Agreement for options granted on July 31, 2001 for service
on the Board between the Company and each of the Company's Non-Employee
Directors.
Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, adjusting outstanding awards under the Company's (i) 1988
Long-Term Incentives Plan, (ii) 1995 Long-Term Incentives Plan and
(iii) Directors Stock Plan, Ñled as Exhibit 4-g-2 to Registration Statement
No. 333-17055, is hereby incorporated by reference.
Copy of resolution of the Board of Directors of the Company, adopted
September 3, 1997, adjusting outstanding awards under the Company's (i) 1988
Long-Term Incentives Plan, (ii) 1995 Long-Term Incentives Plan and
(iii) Directors Stock Plan, Ñled as Exhibit 10-e-3 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997, is hereby
incorporated by reference.
Memorandum of Adjustments to Outstanding Options Under Rockwell
International Corporation's 1988 Long-Term Incentives Plan, 1995 Long-Term
Incentives Plan and Directors Stock Plan approved and adopted by the Board of
Directors of the Company in connection with the spin-oÅ of Conexant, Ñled as
Exhibit 10-d-3 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1999, is hereby incorporated by reference.
Copy of the Company's 2000 Long-Term Incentives Plan, Ñled as Exhibit A to
the Proxy Statement for the Company's 2000 Annual Meeting, is hereby
incorporated by reference.
Forms of Stock Option Agreements under the Company's 2000 Long-Term
Incentives Plan for options granted prior to July 31, 2001, Ñled as Exhibit 10-e-2
to the Company's Annual Report on Form 10-K for the year ended September 30,
2000, are hereby incorporated by reference.
Form of Restricted Stock Agreement under the Company's 2000 Long-Term
Incentives Plan, Ñled as Exhibit 4-d-3 to Registration Statement No. 333-38444,
is hereby incorporated by reference.
Memorandum of Proposed Amendments to the Rockwell International
Corporation 2000 Long-Term Incentives Plan approved and adopted by the Board
of Directors of the Company on June 6, 2001, in connection with the spin-oÅ of
Rockwell Collins.
Forms of Stock Option Agreements under the Company's 2000 Long-Term
Incentives Plan for options granted on October 1, 2001.
Memorandum of Adjustments to Outstanding Options under Rockwell
International Corporation's 1988 Long-Term Incentives Plan, 1995 Long-Term
Incentives Plan, 2000 Long-Term Incentives Plan and Directors Stock Plan
approved and adopted by the Board of Directors of the Company on June 6, 2001,
in connection with the spin-oÅ of Rockwell Collins.
Copy of the Company's Incentive Compensation Plan, amended and restated as of
July 1, 1997, Ñled as Exhibit 10-f-1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997, is hereby incorporated by
reference.
Copy of the Company's Deferred Compensation Plan, as amended eÅective as of
October 1, 1992, Ñled as Exhibit 10-g-1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1993 (File No. 1-1035), is hereby
incorporated by reference.
Copy of the Company's Deferred Compensation Plan, amended and restated as of
June 1, 2000, Ñled as Exhibit 4-d to Registration Statement No. 333-34826, is
hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
52
*10-h-1
*10-h-2
*10-h-3
*l0-i-1
*10-j-1
*10-k-1
*10-k-2
10-l-1
10-l-2
10-l-3
Copy of resolutions of the Board of Directors of the Company, adopted
November 3, 1993, providing for the Company's Deferred Compensation Policy
for Non-Employee Directors, Ñled as Exhibit 10-h-l to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994 (File No. 1-1035),
is hereby incorporated by reference.
Copy of resolutions of the Compensation Committee of the Board of Directors of
the Company, adopted July 6, 1994, modifying the Company's Deferred
Compensation Policy for Non-Employee Directors, Ñled as Exhibit 10-h-2 to the
Company's Annual Report on Form 10-K for the year ended September 30, 1994
(File No. 1-1035), is hereby incorporated by reference.
Copy of resolutions of the Board of Directors of New Rockwell International
Corporation, adopted December 4, 1996, providing for its Deferred Compensation
Policy for Non-Employee Directors, Ñled as Exhibit 10-i-3 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1996, is hereby
incorporated by reference.
Copy of the Company's Annual Incentive Compensation Plan for Senior
Executive OÇcers, Ñled as Exhibit A to the Company's Proxy Statement for its
1996 Annual Meeting of Shareowners (File No. 1-1035), is hereby incorporated
by reference.
Restricted Stock Agreement dated December 6, 1995 between the Company and
Don H. Davis, Jr., Ñled as Exhibit 10-1-1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 (File No. 1-1035), is hereby
incorporated by reference.
Form of Change of Control Agreements between the Company and each of
D.H. Davis, Jr., M.A. Bless, W.J. Calise, Jr., J.D. Cohn, K.D. Nosbusch, and
J.D. Swann, Ñled as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, is hereby incorporated by
reference.
Form of Change of Control Agreements between the Company and certain other
oÇcers of the Company, Ñled as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2001, is hereby incorporated by
reference.
Agreement and Plan of Distribution dated as of December 6, 1996, among
Rockwell International Corporation (renamed Boeing North American, Inc.), the
Company (formerly named New Rockwell International Corporation), Allen-
Bradley Company, Inc., Rockwell Collins, Inc., Rockwell Semiconductor
Systems, Inc., Rockwell Light Vehicle Systems, Inc. and Rockwell Heavy Vehicle
Systems, Inc., Ñled as Exhibit l0-b to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by
reference.
Post-Closing Covenants Agreement dated as of December 6, 1996, among
Rockwell International Corporation (renamed Boeing North American, Inc.),
The Boeing Company, Boeing NA, Inc. and the Company (formerly named New
Rockwell International Corporation), Ñled as Exhibit 10-c to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, is
hereby incorporated by reference.
Tax Allocation Agreement dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), the Company
(formerly named New Rockwell International Corporation) and The Boeing
Company, Ñled as Exhibit 10-d to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
53
10-m-l
10-m-2
10-m-3
10-n-1
10-n-2
10-n-3
10-o-1
10-o-2
10-o-3
12
21
23
24
Distribution Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference.
Employee Matters Agreement dated as of September 30, 1997 by and between
the Company and Meritor Automotive, Inc., Ñled as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference.
Tax Allocation Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference.
Distribution Agreement dated as of December 31, 1998 by and between the
Company and Conexant Systems, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by
reference.
Amended and Restated Employee Matters Agreement dated as of December 31,
1998 by and between the Company and Conexant Systems, Inc., Ñled as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated January 12,
1999, is hereby incorporated by reference.
Tax Allocation Agreement dated as of December 31, 1998 by and between the
Company and Conexant Systems, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by
reference.
Distribution Agreement dated as of June 29, 2001 by and among the Company,
Rockwell Collins, Inc. and Rockwell ScientiÑc Company LLC, Ñled as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 11, 2001, is
hereby incorporated by reference.
Employee Matters Agreement dated as of June 29, 2001 by and among the
Company, Rockwell Collins, Inc. and Rockwell ScientiÑc Company LLC, Ñled as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated July 11, 2001, is
hereby incorporated by reference.
Tax Allocation Agreement dated as of June 29, 2001 by and between the
Company and Rockwell Collins, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated July 11, 2001, is hereby incorporated by
reference.
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended
September 30, 2001.
List of Subsidiaries of the Company.
Independent Auditors' Consent.
Powers of Attorney authorizing certain persons to sign this Annual Report on
Form 10-K on behalf of certain directors and oÇcers of the Company.
(b) Reports on Form 8-K.
The Company Ñled a Current Report on Form 8-K dated July 11, 2001 in respect of the completion
on June 29, 2001 of the spin-oÅ of its avionics and communications business to holders of shares of
Common Stock, par value $1 per share, of the Company by means of the pro rata distribution to such
holders of all the outstanding shares of Common Stock, par value $.01 per share, of Rockwell Collins,
Inc., then a wholly-owned subsidiary of the Company, including the associated preferred share purchase
rights (the ""Distribution''). Rockwell Collins began operations as an independent, separately traded,
publicly held company on June 30, 2001. The Form 8-K includes unaudited pro forma condensed
consolidated Ñnancial information of the Company reÖecting the Distribution (Items 2 and 7).
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
ROCKWELL INTERNATIONAL CORPORATION
By
/s/ WILLIAM J. CALISE, JR.
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
Dated: November 21, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
on the 21st day of November 2001 by the following persons on behalf of the registrant and in the capacities
indicated.
DON H. DAVIS, JR.*
Chairman of the Board and
Chief Executive OÇcer
(principal executive oÇcer)
BETTY C. ALEWINE*
Director
J. MICHAEL COOK*
Director
WILLIAM H. GRAY, III*
Director
WILLIAM T. MCCORMICK, JR.*
Director
JOHN D. NICHOLS*
Director
BRUCE M. ROCKWELL*
Director
JOSEPH F. TOOT, JR.*
Director
MICHAEL A. BLESS*
Senior Vice President and
Chief Financial OÇcer (principal Ñnancial oÇcer)
DAVID M. DORGAN*
Vice President and Controller
(principal accounting oÇcer)
*By
/s/ WILLIAM J. CALISE, JR.
William J. Calise, Jr., Attorney-in-fact**
**By authority of powers of attorney Ñled herewith
55
SCHEDULE II
ROCKWELL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2001, 2000 and 1999
Description
Year ended September 30, 2001
Balance at
Beginning
of
Year(a)
Net Charge to
Costs and
Expenses
Balance at
End of
Year(a)
Other
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$42
$14
$(10)(b)
$46
Year ended September 30, 2000
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year ended September 30, 1999
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
52
47
12
14
(22)(b)
(9)(b)
42
52
(a) Includes allowances for trade and other long-term receivables.
(b) Consists principally of uncollectible accounts written oÅ.
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/ ROCKWELL AUTOMATION / 777 East Wisconsin Avenue / Suite 1400 / Milwaukee, WI 53202 / 414.212.5200 / www.rockwellautomation.com /
ROK 2001
/ ANNUAL REPORT & FORM 10-K /