Rockwell Automation 777 East Wisconsin Avenue. Suite 1400. Milwaukee, WI 53202. 414.212.5200. www.rockwellautomation.com
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2002 Annual Report
& Form 10-K
Rockwell Automation
Control Systems
Power Systems
FirstPoint Contact
Rockwell Scientific
Company LLC.
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)
Sales
Segment operating earnings
Income from continuing operations before
accounting change3
Diluted earnings per share from continuing operations3
Sales by segment:
Control Systems
Power Systems
FirstPoint Contact
Other
Total
2000
$4,661
696
389
2.05
$3,641
803
168
49
$4,661
20011
20022
$4,285
474
198
1.07
$3,327
748
150
60
$4,285
$3,909
381
174
0.92
$3,060
716
133
—
$3,909
1Before charges of $91 million ($60 million after tax, or 32 cents per share) for costs associated with realignment actions which were partially off-
set by income of $18 million ($12 million after tax, or six cents per share) resulting from the favorable settlement of an intellectual property matter
and a reduction of the income tax provision of $22 million, or 12 cents per share, from the resolution of certain tax matters.
2 Before a reduction of the income tax provision of $48 million, or 26 cents per share, from the resolution of certain tax matters, income of
$9 million ($7 million after tax, or four cents per share) from the favorable settlement of intellectual property matters, and a charge of $4 million
($3 million after tax, or two cents per share) related to an asset impairment and severance at FirstPoint Contact.
3Results for 2000 and 2001 have been adjusted to reflect a change in the accounting for goodwill and other intangible assets deemed to have an
indefinite useful life. The adjustment resulted in an increase to income from continuing operations before accounting change of $45 million, or 24
cents per share in 2000, and $47 million, or 25 cents per share in 2001.
See financial statements for additional information.
Sales by Segment
Continuing Operations (in millions)
2000
3,641
2001
3,327
2002
3,060
803
168 49
748
150 60
716
133
$4,661
$4,285
$3,909
Control Systems
Power Systems
FirstPoint Contact
Other
Letter to Shareowners
Dear Shareowner:
Although fiscal 2002 was a difficult year, Rockwell Automation is better
positioned today than I have seen it in my 40 years in this industry. We took
actions to reduce costs and improve the efficiency of our operations. At
the same time, we invested in initiatives that strengthened our market
position. We emerged with a leaner cost structure, a more productive
enterprise and a market presence in automation control and information
technology that is second to none. With these capabilities, I would not
trade places with anyone else in our industry.
In 2002, Rockwell Automation executed on our many productivity initia-
tives which had a significant impact and resulted in improved operating
margins. Additionally, we generated $372 million of free cash flow, a 109
02 | 03
Rockwell Automation is better positioned today than
I have seen it in my 40 years in this industry.
percent increase. We are pleased with our performance in this difficult
environment. Our goal is to capitalize on our hard work and drive future
performance, regardless of market conditions.
Today, we operate in a world that demands the highest quality products at
globally competitive pricing. To be successful, manufacturers must reduce
costs, improve productivity, and reduce time to market. Throughout our
100 year history of serving the manufacturing industry, we have developed
a large customer base and world-class expertise in applying automation
technology to improve manufacturing operations. We provide these cus-
tomers with one of the broadest suites of automation products, services
and solutions of anyone in the industry.
We will achieve global competitive positioning
by driving Rockwell Lean Enterprise throughout the organization
to become the lowest total cost supplier.
Moving forward we will continue to focus on solutions to satisfy our exist-
ing customers and attract new customers in our expanding industrial
markets and geographies. We will achieve global competitive position-
ing by driving Rockwell Lean Enterprise throughout the organization to
become the lowest total cost supplier. And we will continue to have our
employees engaged around the world to build value for our customers
and shareowners.
Throughout Rockwell Automation, we are extending our product capabili-
ties, accelerating value to our customers and expanding our global reach
– consistent strategies of our Control Systems, Power Systems and
FirstPoint Contact businesses.
Logix Sales
(in millions)
04 | 05
CAGR 50%
1999
2000
2001
2002
$51
$82
$132
$174
0
100
200
Integrated Architecture – Extending our Product Capabilities
At the core of our strategy is the Logix™ integrated control and information
architecture. Our Logix architecture gives customers the ability to inte-
grate multiple control disciplines, such as discrete, motion, process,
drives and safety on a single platform. The Logix architecture also allows
our customers to collect and use plant floor data to enhance manufac-
turing and supply chain processes and make more effective real-time
business decisions. Simply put, Logix is revolutionizing the way manu-
facturing is done.
Acquisitions
ANORAD
EJA
ENTEK
1999
2000
DYNAPRO
ETG
SYSTEMS MODELING
Our integrated control and information architecture has achieved a
compound annual growth rate of 50 percent since we introduced the Logix
product line in 1999. Today, we are extending the capabilities of our Logix
products for customers in the packaging, material handling, life sciences
and semiconductor markets.
Global Manufacturing Solutions – Accelerating Value to our Customers
Also fundamental to our approach is our focus on providing solutions that
improve manufacturing operations. Our Global Manufacturing Solutions
business helps companies provide quality products faster and at a lower
cost. GMS helps our customers optimize manufacturing, improve plant
uptime and reduce time-to-market, all of which enables plants to be more
productive. Customers have responded enthusiastically. Despite soft mar-
ket conditions, GMS produced solid revenue growth in 2002.
06 | 07
SEQUENCIA
TESCH
SAMSUNG CONTROLLER BUSINESS
2001
2002
PROPACK DATA
SPEL
Strategic Acquisitions – Expanding our Global Reach
In 2002, Rockwell Automation made four strategic acquisitions to fill
product, technology and geographic gaps.
Tesch (Germany) – Strengthened our safety product portfolio and increased
our European market presence.
Propack Data (Germany) – Expanded our presence in the life sciences,
food and beverage, and specialty chemicals markets.
Samsung (Korea) – With the acquisition of the controller division of
Samsung’s Mechatronics business, the new Rockwell Samsung Automation
offers a world-class product development and manufacturing center in the
Asia Pacific region.
Spel (Czech Republic) – Expanded our Global Manufacturing Solutions
presence into Central Europe.
Maintaining your confidence is important
to our management team.
Rockwell Automation Power Systems had an excellent year with profits up
over 35 percent, despite difficult market conditions and declining sales.
The business implemented aggressive programs to improve profitability
and expand the group’s product and service offerings. Productivity, qual-
ity, and delivery improvements, as well as the continued execution of
Power Lean® initiatives, contributed to the improved earnings results.
Power Systems’ focus on its service business, including asset manage-
ment, power maintenance and Lean consulting offerings, resulted in
strong revenue growth in this area of the business. Power Systems began
the assembly and repair of power transmission products in Shanghai,
08 | 09
which expanded its presence to the Asia Pacific market. These efforts,
combined with the successful introduction of new gearing, motor and
drive products, have positioned Power Systems for future growth.
Our FirstPoint Contact customer contact solutions business maintained
profitability despite continued severe declines in its telecommunications
markets. Having completed its transition to an open software environment
and through increasing engagement with strategic partners, FirstPoint
Contact is well positioned to respond to new customer requirements.
Maintaining your confidence is important to our management team.
No message from me would be complete without addressing the timely
Our strategy is sound, and our successful execution
of that strategy will drive success for our customers, for our
company, and for our shareowners.
issue of trust. Our company prides itself on integrity and honesty. We work
hard to ensure these values are reflected in our governance structures and
in the way we conduct our business every day.
You can be confident in our continued integrity, which I expect of every
person in our organization. On a daily basis our 22,000 employees, repre-
senting a diverse population from 46 countries, build value for our
customers and shareowners through pursuing excellence, driving innova-
tion and responding to customer needs with speed and efficiency.
In closing, I am proud of the performance turned in by this management
team in these difficult market conditions and I am very optimistic about
10 | 11
the long-term prospects for your company. Our strategy is sound, and our
successful execution of that strategy will drive success for our customers,
for our company and for our shareowners.
Sincerely,
Don H. Davis, Jr.
Chairman of the Board & Chief Executive Officer
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 &
Chief Information Officer
Kent G. Coppins
Vice President & General Tax Counsel
David M. Dorgan
Vice President & Controller
Mary Jane Hall
Vice President
Human Resources
Thomas J. Mullany
Vice President & Treasurer
Terry P. Murphy
Vice President & President
Rockwell FirstPoint Contact Corporation
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
12 | 13
Rockwell Automation Board of Directors
Don H. Davis, Jr.
Chairman of the Board & Chief Executive Officer
Betty C. Alewine
Retired President & Chief Executive Officer
COMSAT Corporation
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.
Retired Chairman & Chief Executive Officer
CMS Energy Corporation
John D. Nichols
President & Chief Executive Officer
The Marmon Group, Inc.
Bruce M. Rockwell
Retired Executive Vice President
Fahnestock & Co., Inc.
Joseph F. Toot, Jr.
Retired President & Chief Executive Officer
The Timken Company
Kenneth F. Yontz
Chairman of the Board
Apogent Technologies Inc. and
Sybron Dental Specialties Inc.
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:
Matthew P. Gonring
Vice President
Global Marketing & Communications
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 5, 2003. A notice of
the meeting and proxy materials will be mailed
to shareowners in late December 2002.
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 Automation Shareowner Relations:
414.212.5300
For additional copies of the annual report
(including Form 10-K) and Forms 10-Q, please
call Rockwell Shareholder Direct:
888.765.3228 or visit our Internet site at
www.rockwellautomation.com
14 | 15
General Information Continued
Investor Services Program
Under the Mellon Shareholder Services Investor
Services Program for Rockwell Automation
shareowners, shareowners of record may select
to reinvest all or a part of their dividends, to
have cash dividends directly deposited in their
bank accounts and to deposit share certificates
with the agent for safekeeping. These services
are all provided without charge to the partici-
pating shareowner.
In addition, the program allows participating
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 termi-
nate 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
Rockwell Automation Form 10K >
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, 2002. Commission Ñle number 1-12383
Rockwell Automation, Inc.
(Exact name of registrant 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. ¥
Indicate by check mark whether the registrant is an accelerated Ñler (as deÑned in Rule 12b-2 of the
Act). Yes ¥
No n
The aggregate market value of registrant's voting stock held by non-aÇliates of registrant on October 31,
2002 was approximately $3.1 billion.
185,899,678 shares of registrant's Common Stock, par value $1 per share, were outstanding on
October 31, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of
registrant to be held on February 5, 2003 is incorporated by reference into Part III hereof.
Item 1. Business.
PART I
Rockwell Automation, Inc. (the Company or Rockwell Automation), formerly named Rockwell
International Corporation, 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 Automation'' 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.
Where 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
(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 5, 2003 (the 2003 Proxy Statement), such information shall be deemed to
be incorporated therein by such reference.
The Company is organized based upon products and services and has three operating segments: Control
Systems, Power Systems and FirstPoint Contact (formerly Electronic Commerce). 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, 2002, is contained under the caption Results of
Operations in MD&A on page 17 hereof, and in Note 20 of the Notes to Consolidated Financial Statements
in the Financial Statements.
Control Systems
Control Systems is Rockwell Automation's largest operating segment with 2002 sales of $3.1 billion
(79 percent of total sales) and approximately 17,300 employees at September 30, 2002. Control Systems is a
supplier of industrial automation products, systems, software and services focused on helping customers
control and improve manufacturing processes and is divided into three units: the Components and Packaged
Applications Group (CPAG), the Automation Control and Information Group (ACIG) and Global
Manufacturing Solutions (GMS).
CPAG produces industrial components, power control and motor management products and packaged
and engineered products. It supplies both electro-mechanical and solid-state products, including motor starters
and contactors, push buttons and signaling devices, termination and protection devices, relays and timers,
discrete and condition sensors and variable speed drives. CPAG's sales account for approximately 40 percent
of Control Systems sales.
ACIG's products include programmable logic controllers (PLCs). PLCs are used to automate the
control and monitoring of industrial plants and processes and typically consist of a computer processor and
input/output devices. The Company's LogixTM integrated architecture integrates multiple types of control
disciplines including discrete, process, drive and motion control across various factory Öoor operating systems.
ACIG also produces distributed I/O (input/output) platforms, high performance rotary and linear motion
1
control systems, electronic operator interface devices, plant Öoor industrial computers and machine safety
components. ACIG's sales account for approximately 40 percent of Control Systems sales.
GMS provides multi-vendor automation and information systems and solutions which help customers
improve their manufacturing operations. Solutions include multi-vendor customer support, training, software,
consulting and implementation, asset management, and process batch manufacturing solutions. GMS's sales
account for approximately 20 percent of Control Systems sales.
Control Systems has competitors which, depending on the product or service involved, range from large
diversiÑed businesses that sell products outside of automation, to smaller companies specializing in niche
products and services. Major competitors include Emerson Electric Co., General Electric Company,
Schneider Electric SA and Siemens AG. Factors that aÅect Control Systems' competitive posture are its
broad product portfolio and scope of solutions, knowledge of customer applications, large installed base,
established distribution network, quality of products and services and global presence.
Control Systems' products are marketed primarily under the Allen-Bradley, Rockwell Automation, and
Rockwell Software brand names. Major markets served include consumer products, transportation, pe-
trochemical and mining, metals and forest products.
In North America, Control Systems' products are sold primarily through independent distributors that do
not carry products that compete with Allen-Bradley products. Large systems and service oÅerings are sold
principally through a direct sales force, though opportunities are sometimes sourced through distributors.
Product sales outside the United States occur through a combination of direct sales forces and distributors.
Sales in the United States accounted for 60 percent of Control Systems sales.
Power Systems
The Power Systems operating segment recorded 2002 sales of $716 million (18 percent of total sales) and
had approximately 4,100 employees at September 30, 2002. Power Systems is divided into two units: The
Mechanical Power Transmission Business (Mechanical) and The Industrial Motor and Drive Business
(Electrical).
Mechanical's products include mounted bearings, gear reducers, standard mechanical drives, conveyor
pulleys, couplings, bushings, clutches and motor brakes. Electrical's products include industrial and engi-
neered motors and standard AC and DC drives. In addition, Power Systems provides product repair, motor
and mechanical maintenance solutions, plant maintenance, training and consulting services to OEM's, end
users and distributors.
Mechanical's products are marketed primarily under the Dodge brand name while Electrical's products
are marketed primarily under the Reliance Electric brand name. Major markets served include mining, air
handling, aggregates, environmental, forestry, food/beverage, petrochemicals, metals, and unit handling.
Power Systems has competitors which, depending on the product involved, range from large diversiÑed
businesses that sell products outside of automation, to smaller companies specializing in niche products and
services. Major competitors include ABB Ltd., Baldor Electric Company, Emerson Electric Co., General
Electric Company, Regal-Beloit Corporation and Siemens AG. Factors that aÅect Power Systems' competi-
tive posture are product quality, installed base, and its established distributor network.
Mechanical's products are sold primarily through distributors while Electrical's products are sold
primarily through a direct sales force.
Sales in the United States accounted for 88 percent of Power Systems sales.
FirstPoint Contact
The FirstPoint Contact operating segment recorded 2002 sales of $133 million (3 percent of total sales)
and had approximately 500 employees at September 30, 2002. FirstPoint Contact provides customer contact
center solutions that support multiple channels (voice, e-mail, web, wireless) through open interaction
2
infrastructure. Products include automatic call distributors, computer telephony integration software, informa-
tion collection, reporting, queuing and management systems, call center systems and consulting services.
Major markets served include telecommunications, Ñnancial, transportation and retail. FirstPoint Contact
sells directly through its own sales force and increasingly through distribution channels.
FirstPoint Contact faces competition from other companies selling both hardware and software in the
customer contact market ranging from major multinationals to small companies specializing in niche products
and services. Major competitors include Apropos Technology, Inc., Aspect Communications Corporation,
Avaya, Inc., Cisco Systems, Inc. and Nortel Networks Corporation. Factors that aÅect FirstPoint Contact's
competitive position include product quality and reliability, and reputation.
Sales in the United States accounted for 73 percent of FirstPoint Contact's sales.
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.
Acquisitions
During 2002, the Company's Control Systems segment acquired all of the stock of Tesch GmbH
(Tesch), an electronic products and safety relay manufacturer; all of the stock of Propack Data GmbH
(Propack), a provider of manufacturing information systems for the pharmaceutical and other regulated
industries; the assets of the controller division of Samsung Electronics Company Limited's Mechatronics
business (the Controller Division); and the engineering services and system integration assets of SPEL, spol.
s.r.o. (SPEL). The total cost of these acquisitions was approximately $71 million. The acquisition of Tesch is
expected to expand the Company's machine safety product and research and development capabilities. The
acquisition of Propack is expected to broaden the Company's position in the pharmaceuticals market, enhance
the Company's process solutions business, and enable the Company to expand its reach into the manufactur-
ing information markets. The acquisition of the Controller Division is expected to expand the Company's
existing operations in Korea, further the Company's design and product development capabilities and support
future commercial and operational expansion in the Asia PaciÑc region. The acquisition of SPEL is expected
to accelerate the establishment of the Company as a complete solution provider in Central Europe; it also
strategically locates the Company in a region with future growth opportunities.
During 2001, the Company's Control Systems segment acquired the batch software and services business
of Sequencia Corporation. The acquisition expanded Control Systems' portfolio of Manufacturing Business-
Ware solutions into the batch application market.
During 2000, the Company's 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 approximately $70 million. The
acquisition of Entek has increased Rockwell Automation's ability to provide value-added services that reduce
customers' downtime and maintenance costs at their manufacturing facilities. The acquisition of SMC
complements Control Systems' Manufacturing BusinessWare strategy by providing additional capabilities.
Divestitures
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 Automation share. At the time of the spinoÅ, Rockwell Collins made a
special payment to the Company of $300 million. Following the spinoÅ, the Company and Rockwell
3
Collins each have owned 50 percent of Rockwell ScientiÑc Company LLC (RSC) (formerly a wholly-owned
subsidiary of the Company known as Rockwell Science Center).
The results of operations for Rockwell Collins for 2001 and 2000 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 MD&A on page 21 hereof
and in Notes 2 and 14 of the Notes to Consolidated Financial Statements in the Financial Statements.
Geographic Information
The Company's principal markets outside the United States are in Canada, the United Kingdom,
Germany, Italy, Mexico, China, Japan, Brazil, Australia, France and Switzerland. In addition to normal
business risks, operations outside the United States are subject to other risks including, among other factors,
political, economic and social environments, governmental laws and regulations, and currency revaluations and
Öuctuations.
Selected Ñnancial information by major geographic area for each of the three years in the period ended
September 30, 2002 is contained in Note 20 of the Notes to Consolidated Financial Statements in the
Financial Statements.
Research and Development
The Company's research and development spending is as follows:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint Contact ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rockwell Science Center ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended September 30,
2000
2001
2002
$114
10
7
Ì
$131
$130
9
10
9
$158
$164
11
17
8
$200
Customer-sponsored research and development was $61 million in each of 2001 and 2000. Customer-
sponsored research and development was not material in 2002 and related primarily to the Company's
formerly wholly-owned (now 50 percent owned) subsidiary, Rockwell Science Center in 2001 and 2000.
Employees
At September 30, 2002, the Company had approximately 22,000 employees. Approximately 15,000 were
employed in the United States, and, of these employees, about 8 percent were represented by various local or
national unions.
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. During 2000, the Company experienced a shortage of certain
electronic components which had an adverse eÅect on its ability to make timely deliveries and resulted in
increased material costs. If such a shortage were to occur again, it could have an adverse eÅect on the
operating results of the Company.
4
Backlog
The Company's total order backlog was approximately $495 million at September 30, 2002 and
approximately $520 million at September 30, 2001. Backlog is not necessarily indicative of results of
operations for future periods due to the short-cycle nature of most of the Company's products.
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 19 of
the Notes to Consolidated Financial Statements in the Financial Statements. See also Item 3, Legal
Proceedings, on pages 6-8 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 6-8 hereof. While in the aggregate the Company's patents and licenses are considered important in the
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 trademark ""Rockwell Automation'' is 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 drives and ""Dodge'' for mechanical power transmission products.
Seasonality
None of the Company's business segments is seasonal.
Available Information
The Company maintains an Internet site at http://www.rockwellautomation.com. The Company's annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such
reports Ñled or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well
as the annual report to shareowners and other information, are available free of charge on this site. The
Company's Internet site and the information contained therein or connected thereto are not incorporated by
reference into this Form 10-K.
5
Item 2. Properties.
At September 30, 2002, the Company operated 62 plants and research and development facilities,
principally in North America and Europe. The Company also had approximately 280 sales oÇces, warehouses
and service centers. The aggregate Öoor space of the Company's facilities was approximately 16 million square
feet. Of this Öoor space, approximately 60 percent was owned by the Company and 40 percent was leased.
Manufacturing space occupied approximately 8 million square feet with the Control Systems segment
occupying approximately 5 million square feet and Power Systems occupying the remaining approximately
3 million square feet. At September 30, 2002, approximately 1 million square feet of Öoor space was not in use,
approximately 90 percent of which was in owned facilities.
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-
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. On
November 2, 2001, the Company Ñled a petition for rehearing with the Court of Appeals seeking
reconsideration of that portion of the decision holding that the relator, Mr. Stone, is entitled to an award of
attorneys' fees, and on March 4, 2002, the Court of Appeals remanded the case to the trial court for the
limited purpose of making Ñndings of fact and conclusions of law pertaining to Mr. Stone's relator status.
Management believes that an outcome adverse to the Company will not have a material eÅect on the
6
Company's business or Ñnancial condition. 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, and
intends to Ñle a claim with the DOE seeking reimbursement thereof at the conclusion of the litigation.
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.
On September 28, 1995, the Company Ñled an appeal with the Department of Energy Board of Contract
Appeals (""EBCA'') from DOE's denial of claims totaling $10 million for costs incurred in relation to a 1989
federal grand jury investigation of possible environmental crimes at the DOE's Rocky Flats plant. During pre-
trial proceedings, the EBCA bifurcated proceedings so as to consider the Company's entitlement to
reimbursement of costs of the sort claimed before determining the amount of any award. On October 31, 2001,
the EBCA ruled that the Company was entitled to reimbursement of the types of costs claimed. On March 11,
2002, the DOE appealed the EBCA's decision to the United States Court of Appeals for the Federal Circuit.
If the Court of Appeals aÇrms the EBCA's decision on entitlement, the matter will be remanded to the
EBCA for further proceedings to determine the amount of the DOE's liability to the Company.
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
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, 2002 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
7
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 May 16, 2002, the Kentucky Supreme Court aÇrmed the Court of Appeals' exclusion of
certain of the plaintiÅs' evidence but reversed the judgment of dismissal on the ground that the proper remedy
is a new trial on plaintiÅs' claims, but only after and to the extent required following disposition of numerous
other issues that were before the Court of Appeals but not resolved in its original decision. The case was
remanded to the Court of Appeals for further proceedings.
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. Further civil
sanctions in an amount not in excess of $250,000 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.
8
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 2002.
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, 2002 are as
follows:
Name, OÇce and Position, and Principal Occupations and Employment
Age
Don H. Davis, Jr. Ì Chairman of the Board and Chief Executive OÇcer of Rockwell Automation
since February 1998 and Chief Executive OÇcer of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏ
62
Carl G. Artinger Ì General Auditor of Rockwell Automation since June 2001; Director, General
Audit of Rockwell Automation from October 2000 to June 2001; Manager, General Audit of
Rockwell Automation from October 1998 to October 2000; Manager, Planning and Analysis of
Cone Mills (textile manufacturer) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Michael A. Bless Ì Senior Vice President and Chief Financial OÇcer of Rockwell Automation since
June 2001; Vice President of Rockwell Automation 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 Automation prior theretoÏÏÏÏÏÏÏÏÏÏÏ
42
37
William J. Calise, Jr. Ì Senior Vice President, General Counsel and Secretary of Rockwell
Automation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
64
John D. Cohn Ì Senior Vice President, Strategic Development and Communications of Rockwell
Automation since July 1999; Vice President-Global Strategy Development of the avionics and
communications business of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
48
Michael G. Cole Ì Vice President and Chief Information OÇcer of Rockwell Automation since
February 2002 and Vice President and Chief Information OÇcer of Rockwell Automation Control
Systems since September 2000; Vice President, Corporate Information Technology of Rockwell
Automation from September 2000 to February 2002; Vice President, Corporate Information
Systems of Rockwell Automation from July 1999 to September 2000; Director-Information
Systems of Rockwell Automation prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kent G. Coppins Ì Vice President and General Tax Counsel of Rockwell Automation since June
2001; Associate General Tax Counsel of Rockwell Automation from November 1998 to June 2001;
Senior Tax Counsel of Rockwell Automation prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David M. Dorgan Ì Vice President and Controller of Rockwell Automation since June 2001;
Director, Headquarters Finance of Rockwell Automation Control Systems from April 2000 to June
2001; Director, Financial Reports of Rockwell Automation from June 1999 to April 2000;
Manager, Financial Reports of Rockwell Automation from April 1998 to June 1999; Senior
Manager, Deloitte & Touche LLP (professional services Ñrm) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mary Jane Hall Ì Vice President of Rockwell Automation since June 2001 and Senior Vice
President, Human Resources of Rockwell Automation Control Systems since January 2001; Vice
President, Human Resources of Rockwell Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas J. Mullany Ì Vice President and Treasurer of Rockwell Automation since June 2001; Vice
President, Investor Relations of Rockwell Automation from May 1998 to June 2001; Treasury
Operations Executive of the avionics and communications business of Rockwell Automation prior
thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
54
49
38
59
53
9
Name, OÇce and Position, and Principal Occupations and Employment
Terry P. Murphy Ì Vice President, Rockwell Automation since February 2002; President, Rockwell
FirstPoint Contact Corporation (formerly Rockwell Electronic Commerce Corporation) since
September 2000; Vice President Sales & Marketing, Rockwell FirstPoint Contact Corporation from
June 2000 to September 2000; Management Consultant, Worldwide Sales & Marketing, Adaptive
Broadband Corporation and IT-Shortlist.com (broadband communications transmission equipment)
from January 1999 to June 2000; Management Consultant, (self-employed) from June 1998 to
June 2000; Management Consultant, European Cellular Infrastructure, Motorola Incorporated
(integrated communications solutions and embedded electronic solutions) prior thereto ÏÏÏÏÏÏÏÏÏÏ
Keith D. Nosbusch Ì Senior Vice President of Rockwell Automation and President, Rockwell
Automation Control Systems since November 1998; Senior Vice President-Automation Control
and Information Group of Rockwell Automation prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Age
50
51
James P. O'Shaughnessy Ì Vice President and Chief Intellectual Property Counsel of Rockwell
Automation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55
Rondi Rohr-Dralle Ì Vice President, Corporate Development of Rockwell Automation 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. (renamed Actuant Corporation) (manufacturer of tools, equipment, systems
and supply items) from October 1998 to September 1999; Vice President and General Manager of
Calterm, Inc. (a subsidiary of Applied Power, Inc.) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Joseph D. Swann Ì Senior Vice President of Rockwell Automation since June 2001 and President,
Rockwell Automation Power Systems since June 1998; Vice President of Rockwell Automation
from June 1998 to June 2001; Senior Vice President and General Manager-Dodge Mechanical
Group of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
46
61
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 the oÇcer and any person
other than the Company. All executive oÇcers are elected annually.
10
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 Stock Exchange and The London Stock
Exchange. On October 31, 2002, there were 43,628 shareowners of record of the Company's common stock.
The following table sets forth the high and low sales 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, 2002 and 2001:
Fiscal Quarters
2002
2001(1)
High
Low
High
Low
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$18.70
21.45
22.79
20.26
$13.10
17.26
18.70
15.70
$48.63
49.45
47.20
17.30
$29.81
35.30
35.90
11.78
(1) The high and low sales prices prior to the fourth quarter of 2001 reÖect the Company's stock price prior to
the spinoÅ of its former Rockwell Collins business.
On June 29, 2001, each Rockwell Automation shareowner received one share of Rockwell Collins
common stock for each share of Rockwell Automation common stock owned. At September 30, 2002,
Rockwell Collins common stock had a value of $21.94 per share. Rockwell Automation's current stock price
does not reÖect the value of the Rockwell Collins shares.
The declaration and payment of dividends by the Company is at the sole discretion of the Company's
board of directors. The following table sets forth the aggregate cash dividends per common share (paid
quarterly) during each of the Company's last three Ñscal years:
Fiscal Year
Cash Dividends per
Common Share(1)
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.66
0.93
1.02
(1) Prior to the spinoÅ of Rockwell Collins, the Company paid quarterly cash dividends, which, on an annual
basis, equaled $1.02 per share. Since the spinoÅ of Rockwell Collins, the Company has paid quarterly
cash dividends which, on an annual basis, equal $0.66 per share. Per share dividend amounts indicated
above do not include dividends paid on the shares of Rockwell Collins received on June 29, 2001 by
Rockwell Automation shareowners.
On February 6, 2002, the Company granted nonqualiÑed options to purchase 7,000 shares of common
stock of the Company at an exercise price of $18.05 per share and paid a portion of the annual retainer fees for
Ñscal 2002 for a non-employee director by issuing 998 shares of restricted stock to a new director, Kenneth F.
Yontz. The options vest in three equal annual installments beginning on February 6, 2003. The grant of these
options and issuance of these shares was exempt from the registration requirements of the Securities Act of
1933 pursuant to Section 4(2) thereof.
11
Item 6. Selected Financial Data.
The following sets forth selected consolidated Ñnancial data of the Company's continuing operations. The
data should be read in conjunction with MD&A and the Financial Statements. The consolidated statement of
operations data for each of the Ñve years in the period ended September 30, 2002, the related consolidated
balance sheet data and other data have been derived from the audited consolidated Ñnancial statements of the
Company.
2002(a)
Year Ended September 30,
2000(c)
(in millions, except per share data)
2001(b)
1999(d)
1998(e)
Consolidated Statement of Operations Data:
Sales(f) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) from continuing operations before
$3,909
66
$4,285
83
$4,661
73
$4,670
84
$4,795
58
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
226
125
344
283
(169)
Earnings (loss) per share from continuing operations
before accounting change:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change(g) ÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change per diluted
share(g) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheet Data: (at end of period)
Total assets-continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Data:
Capital expendituresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization(g) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.22
1.20
(108)
(0.58)
0.66
$4,024
4,024
162
767
1,609
$ 104
184
22
0.69
0.68
Ì
Ì
0.93
$4,098
4,098
10
909
1,600
$ 157
196
76
1.83
1.81
Ì
Ì
1.02
$4,428
5,320
16
911
2,669
$ 217
193
77
1.49
1.47
Ì
Ì
1.02
$4,655
5,320
189
911
2,540
$ 250
184
67
(0.85)
(0.85)
Ì
Ì
1.02
$4,414
5,879
156
908
3,151
$ 265
169
71
12
(a) Includes a reduction in the income tax provision of $48 million, or 26 cents per diluted share, from the
resolution of certain tax matters and income of $9 million ($7 million after tax, or four cents per diluted
share) from the favorable settlement of intellectual property matters.
(b) Includes special items of $73 million ($48 million after tax, or 26 cents per diluted share) and a reduction
in the income tax provision of $22 million, or 12 cents per diluted share, from the resolution of certain tax
matters. Special items include charges of $91 million ($60 million after tax, or 32 cents per diluted
share) for a comprehensive restructuring which included 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 income of $18 million ($12 million after tax, or six cents per
diluted share) resulting from the favorable settlement of an intellectual property matter.
(c) 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.
(d) 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.
(e) 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.
(f) Certain amounts have been reclassiÑed from cost of sales to sales as a result of the adoption of Emerging
Issues Task Force No. 01-14, Income Statement Characterization of Reimbursement Received for 'Out of
Pocket' Expenses Incurred (EITF 01-14).
(g) EÅective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, the Company no
longer amortizes goodwill and certain other intangible assets that have been deemed to have an indeÑnite
useful life, resulting in a decrease in amortization expense in 2002. In addition, the Company recorded
pre-tax charges of $56 million related to a trademark impairment and $73 million related to goodwill
impairment in connection with the adoption of SFAS 142. These charges have been recorded as the
cumulative eÅect of accounting change in the amount of $129 million ($108 million after tax, or 58 cents
per diluted share).
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies and Estimates
The consolidated Ñnancial statements have been prepared in accordance with accounting principles
generally accepted in the United States which require the Company 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. The
Company believes the following are the critical accounting policies which could have the most signiÑcant
eÅect on the Company's reported results and require subjective or complex judgments by management.
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. Management is required to make judgments about whether the pricing is
Ñxed or determinable and whether or not collectibility is reasonably assured.
The Company records accruals for sales rebates to distributors at the time of shipment based upon
historical experience. The liability recorded for the Company's primary distributor rebate program was
$36 million at September 30, 2002 and $35 million at September 30, 2001. In addition, the Company has a
liability for rebates and sales incentives to commercial customers and other distributors of $32 million at
September 30, 2002 and $28 million at September 30, 2001.
Allowance for Doubtful Accounts
The Company records allowances for doubtful accounts based on customer-speciÑc analysis and general
matters such as current assessments of past due balances and economic conditions. Additional allowances for
doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less
favorable than the Company has anticipated or for customer-speciÑc circumstances, such as Ñnancial
diÇculty. During 2002, the Company recorded an allowance of approximately $9 million to fully reserve a
receivable due to the deterioration in the Ñnancial condition of one of its independent distributors. The
allowance for doubtful accounts was $45 million at September 30, 2002 and $43 million at September 30,
2001.
Excess and Obsolete Inventory
The Company records allowances for excess and obsolete inventory based on historical and estimated
future demand and market conditions. Additional inventory allowances may be required if future demand or
market conditions are less favorable than the Company has estimated. The allowance for excess and obsolete
inventory was $53 million at September 30, 2002 and $50 million at September 30, 2001.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The
Company evaluates the recoverability of goodwill and other intangible assets with indeÑnite useful lives
annually or more frequently if events or circumstances indicate that an asset might be impaired. The Company
uses judgment when applying the impairment rules to determine when an impairment test is necessary.
Factors the Company considers which could trigger an impairment review include signiÑcant un-
derperformance relative to historical or forecasted operating results, a signiÑcant decrease in the market value
of an asset, a signiÑcant change in the extent or manner in which an asset is used, and signiÑcant negative
industry or economic trends.
Impairment losses are measured as the amount by which the carrying value of an asset exceeds its
estimated fair value. The Company is required to make estimates of its future cash Öows related to the asset
subject to review. These estimates require assumptions about demand for the Company's products and
14
services, future market conditions and technological developments. Other assumptions include determining
the discount rate and future growth rates. During 2002, the Company recorded pre-tax impairment charges of
$129 million ($108 million after-tax) in connection with the adoption of SFAS 142. Additional information
regarding the impairment charges is contained in Note 3 of the Notes to Consolidated Financial Statements
in the Financial Statements.
Product Warranty Obligations
The Company records a liability for product warranty obligations at the time of sale to a customer based
upon historical warranty experience. The Company also records a liability for speciÑc warranty matters when
they become known and are reasonably estimable. Additional provision for product warranty obligations may
be required if actual product performance is less favorable than anticipated. The liability for product warranty
obligations was $31 million at September 30, 2002 and $34 million at September 30, 2001.
Retirement BeneÑts
Pension BeneÑts
Pension costs and obligations are actuarially determined and are aÅected by assumptions including
discount rate, the expected rate of return on plan assets and assumed annual rate of compensation increase for
plan employees, among other factors. Changes in discount rate and diÅerences from actual results for each
assumption will aÅect the amount of pension expense recognized in future periods. For Ñscal 2002, based on
an annual review of actuarial assumptions, the Company reduced the long-term expected rate of return on
plan assets from 9.75 percent to 9.0 percent and the discount rate from 8.0 percent to 7.5 percent for the
pension plan covering most of its employees. All other factors being equal, these changes resulted in
incremental pension expense in 2002 of approximately $12 million. For Ñscal year 2003, the Company is
assuming an expected rate of return on plan assets of 8.5 percent and a discount rate of 7.0 percent. All other
factors being equal, and assuming actual experience is consistent with the actuarial assumptions, the Company
expects Ñscal year 2003 pension expense to increase by approximately $15 million compared to Ñscal 2002
including the recognition of actuarial losses related primarily to the accumulated diÅerence between actual
and expected returns or pension plan assets. In addition, while not required to contribute any amount to the
Company's primary qualiÑed pension plan trust covering the majority of its employees, the Company may
choose to contribute up to the maximum allowable tax deductible contribution of approximately $50 million
during Ñscal 2003. Additional information regarding pension beneÑts is available in Note 12 of the Notes to
Consolidated Financial Statement in the Financial Statements.
Other Postretirement BeneÑts
The costs and obligation for postretirement beneÑts other than pension are also actuarially determined
and are aÅected by assumptions including the discount rate and expected future increase in per capita costs of
covered postretirement health care beneÑts. Changes in the discount rate and diÅerences between actual and
assumed per capita health care costs may aÅect the recorded amount of the expense in future periods.
EÅective October 1, 2002, the Company amended its U.S. postretirement health care beneÑt program in order
to mitigate the increasing cost of postretirement health care services. The eÅect of this change will be to
reduce the beneÑt obligation by $62 million. Net periodic beneÑt cost in 2003 will be approximately
$32 million, which is approximately 20 percent lower than what the cost would have been without
implementing this change. Additional information regarding postretirement beneÑts is available in Note 12 of
the Notes to the Consolidated Financial Statements in the Financial Statements.
Self-Insurance Liabilities
The Company's self-insurance programs include primarily product liability and workers' compensation.
For product liability and workers' compensation, the Company self-insures from the Ñrst dollar of loss up to
speciÑed retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of
liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is
15
estimated using the Company's claim experience and risk exposure levels for the periods being valued.
Adjustments to the self-insured liabilities may be required to reÖect emerging claims experience and other
factors such as inÖationary trends or jury awards. The liability for these self-insurance programs was
$48 million at September 30, 2002 and $46 million at September 30, 2001.
Litigation, Claims and Contingencies
The Company records environmental liabilities based on estimates for known environmental remediation
exposures utilizing information received from independent environmental consultants. The liabilities include
accruals for sites owned by the Company and third-party sites where the Company was determined to be a
potentially responsible party. At third-party sites where 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, a liability is
recorded for the total estimated costs of remediation. Future expenditures for environmental remediation
obligations are not discounted to their present value. Environmental liability estimates may be aÅected by
changing determinations of what constitutes an environmental exposure or an acceptable level of cleanup. To
the extent that remediation procedures change or the Ñnancial condition of other potentially responsible
parties is adversely aÅected, the estimate of the Company's environmental liabilities may change. The liability
for environmental matters, net of related receivables was $28 million at September 30, 2002. Additional
information regarding litigation, claims and contingencies is included in Note 19 of the Notes to Consolidated
Financial Statements in the Financial Statements.
Income Taxes
The Company records a liability for potential tax assessments based on its estimate of the potential
exposure. The liability for potential tax assessments may be aÅected by new laws and new interpretations of
laws and rulings by tax authorities, among other reasons. Due to the subjectivity and complex nature of the
underlying issues, actual payments or assessments may diÅer from estimates. To the extent the Company's
estimates diÅer from actual payments or assessments, income tax expense is adjusted. During 2002, the
Company resolved certain matters from previous years resulting in a $48 million reduction of its income tax
provision. 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. Additional
information regarding income taxes is included in Note 17 of the Notes to the Consolidated Financial
Statements in the Financial Statements.
The Company has recorded a valuation allowance of $23 million at September 30, 2002 for the majority
of its deferred tax assets related to net operating loss carryforwards, capital loss carryforwards and state tax
credit carryforwards. The valuation allowance is based on an evaluation of the uncertainty of the amounts of
net operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards that are expected
to be realized. An increase to income would result if the Company determines it could utilize more net
operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards than originally
expected.
At the end of each interim reporting period, the Company estimates the eÅective tax rate expected to be
applicable for the full Ñscal year. The estimated eÅective tax rate contemplates the expected jurisdiction
where income is earned (e.g. United States compared to non-United States) as well as tax planning strategies.
If the actual results are diÅerent from the Company's estimates, adjustments to the eÅective tax rate may be
required in the period such determination is made.
16
Results of Operations
Summary of Results of Operations
2002
Year Ended September 30,
2001(c)
(in millions)
2000(c)
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,060
716
133
Ì
$3,327
748
150
60
$3,641
803
168
49
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,909
$4,285
$4,661
Segment operating earnings (loss)(b):
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 324
53
4
Ì
$ 425
39
7
3
$ 636
69
(16)
7
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and purchase accounting items(d) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a businessÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes and accounting
change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change(d) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
381
(25)
(57)
Ì
(66)
Ì
233
(7)
226
3
(108)
474
(79)
(53)
Ì
(83)
(91)
168
(43)
125
180
Ì
696
(82)
(20)
(14)
(73)
Ì
507
(163)
344
292
Ì
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 121
$ 305
$ 636
(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 Ó net.
(b) Information with respect to the composition of segment operating earnings is contained in Note 20 of the
Notes to Consolidated Financial Statements in the Financial Statements.
(c) Certain amounts in prior periods have been reclassiÑed to reÖect the transfer of management responsibil-
ity of a business from Control Systems to Power Systems which was eÅective January 1, 2002. In
addition, certain amounts have been reclassiÑed from cost of sales to sales as a result of the adoption of
EITF 01-14.
(d) EÅective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, the Company no
longer amortizes goodwill and certain other intangible assets that have been deemed to have an indeÑnite
useful life. The amortization related to goodwill and the indeÑnite useful life intangible assets was
$56 million in 2001 and $53 million in 2000. In addition, the Company recorded a charge of $56 million
($35 million after tax, or 19 cents per diluted share) related to a trademark impairment and $73 million
(before and after tax, or 39 cents per diluted share) related to goodwill impairment in connection with the
adoption of SFAS 142. The amount included in goodwill and purchase accounting items in 2002 includes
amortization expense for acquired intangible assets that do not have an indeÑnite life and depreciation
expense for purchase accounting adjustments.
17
Demand for the Company's products is largely driven by trends in industrial spending. Sales are aÅected
by the level of industrial production activity, customers' new product introductions, upgrades and expansions
of existing manufacturing facilities and the creation of new manufacturing facilities. Due to recent weak
business conditions, especially in the manufacturing economy, manufacturers have been operating at
historically low levels of plant capacity utilization. This condition results in the tendency to defer signiÑcant
amounts of capital investment until the environment improves. Capacity utilization in the United States, as
published by the Federal Reserve, decreased from 80.2 percent in December 2000 to 75.9 percent in
September 2002. As a result, demand for the Company's products has deteriorated, the results of which are
reÖected in the operating results for 2002 and 2001.
2002 Compared to 2001
Sales were $3,909 million in 2002 compared to $4,285 million in 2001. Income from continuing
operations before accounting change in 2002 was $226 million, or $1.20 per diluted share, compared to
$125 million, or 68 cents per diluted share, in 2001. The 2002 results from continuing operations include a
reduction in the income tax provision of $48 million, or 26 cents per diluted share, from the favorable
resolution of certain tax matters and income of $9 million ($7 million after tax or four cents per diluted share)
from the favorable settlement of intellectual property matters. In 2001, income from continuing operations
before accounting change would have been $198 million, or $1.07 per diluted share, excluding amortization of
goodwill and certain other intangible assets of $56 million ($47 million after tax, or 25 cents per diluted
share), as well as special charges of $91 million ($60 million after tax, or 32 cents per diluted share) for costs
associated with realignment actions and income of $18 million ($12 million after tax, or six cents per diluted
share) resulting from the favorable settlement of an intellectual property matter and a reduction in the income
tax provision of $22 million, or 12 cents per diluted share, from the favorable resolution of certain tax matters.
Control Systems
Control Systems' sales in 2002 were $3,060 million compared to $3,327 million in 2001. The decrease was
primarily the result of continued depressed market conditions for automation products. Sales declined
9 percent in the United States in 2002 compared to 2001 while non-United States shipments (which exclude
the eÅect of foreign currency translation) declined 4 percent compared to 2001 primarily as a result of a
9 percent decline in Europe. Excluding the eÅect of acquisitions, non-United States shipments declined
6 percent compared to 2001, including an 11 percent decrease in Europe. Despite the overall sales decline,
sales of LogixTM integrated architecture products increased 31 percent. Sales in the Global Manufacturing
Solutions business increased 6 percent over 2001 driven by increases in process and engineering solutions sales
and the acquisition of Propack.
Segment operating earnings were $324 million in 2002 compared to $425 million in 2001. The decrease
was primarily due to lower volume, especially in higher margin CPAG and ACIG products. In addition,
Control Systems continued to invest in the growth of its Global Manufacturing Solutions business. Control
Systems' return on sales in 2002 was 10.6 percent compared to 12.8 percent in 2001.
Power Systems
Power Systems' sales in 2002 were $716 million compared to $748 million in 2001. The decline was the
result of lower demand due to depressed market conditions. Segment operating earnings increased to
$53 million in 2002 from $39 million in 2001. The improvement was the result of cost savings from actions
taken in the fourth quarter of 2001 and ongoing initiatives to improve productivity. Power Systems' return on
sales was 7.4 percent in 2002 compared to 5.2 percent in 2001.
FirstPoint Contact
FirstPoint Contact's sales in 2002 were $133 million compared to $150 million in 2001. The decline was
primarily due to decreased customer capital spending for telecommunications products. Segment operating
18
earnings were $4 million in 2002 compared to $7 million in 2001. Included in 2002 results are charges of
$4 million related to severance and an asset impairment.
General Corporate Ì Net
General corporate expenses were $57 million in 2002 compared to $53 million in 2001. General corporate
expenses included income from the settlement of intellectual property matters of $9 million in 2002 and $18
million in 2001 and a gain on the sale of real estate of $5 million in 2001. Also in 2001, general corporate
expenses included $3 million of costs associated with the spinoÅ of Rockwell Collins. Excluding these items,
general corporate expenses decreased from $73 million in 2001 to $66 million in 2002, primarily as a result of
lower corporate spending.
Interest Expense
Interest expense decreased to $66 million in 2002 from $83 million in 2001. The decrease was due to
lower weighted-average borrowings and lower commercial paper borrowing rates in 2002. The Company used
commercial paper in the second quarter of 2001 to fund an acquisition by Rockwell Collins. In the third
quarter of 2001, the Company received a special payment of $300 million from Rockwell Collins which was
used to repay commercial paper borrowings.
2001 Compared to 2000
Sales were $4,285 million in 2001 compared to $4,661 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 included special charges of $91 million
($60 million after tax, or 32 cents per diluted share) for costs associated with realignment actions which were
partially oÅset by an $18 million gain ($12 million after tax, or six cents per diluted share) resulting from the
favorable settlement of an intellectual property matter.
Control Systems
Control Systems' sales in 2001 were $3,327 million compared to $3,641 million in 2000, reÖecting
principally depressed market conditions for automation products in the United States during 2001. Non-
United States shipments (which exclude the eÅect of foreign currency translation) 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 in 2000.
Segment operating earnings were $425 million in 2001 compared to $636 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 12.8 percent compared to 17.5 percent in 2000.
Power Systems
Power Systems' sales in 2001 were $748 million compared to $803 million in 2000, with an increase at the
electrical business more than oÅset by lower volume in mechanical products as distributors continued to pare
inventories. Segment operating earnings in 2001 were $39 million compared to $69 million in 2000 primarily
due to lower volume and unfavorable product mix. Power Systems' return on sales was 5.2 percent in 2001
compared to 8.6 percent in 2000.
FirstPoint Contact
Sales at FirstPoint Contact were $150 million in 2001 compared to $168 million in 2000. The decrease
was due to depressed market conditions in the telecommunications sector. Segment operating earnings were
$7 million in 2001 compared to an operating loss of $16 million in 2000. The increase was due to the
19
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.
General Corporate Ì Net
General corporate expenses in 2001 included income of $18 million resulting from the favorable
settlement of an intellectual property matter, $3 million of costs associated with the spinoÅ of Rockwell
Collins and a $5 million gain on the sale of real estate. General corporate expenses 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
In 2001, 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 will be approximately $50 million, of which $43 million had been spent as of
September 30, 2002. 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 13, Special Charges, in the
Notes to Consolidated Financial Statements in the Financial Statements.
Accounting Change
EÅective October 1, 2001, the Company adopted SFAS 142. This standard requires that companies no
longer amortize goodwill and indeÑnite life intangible assets, such as trademarks. This standard also requires
that companies evaluate goodwill and indeÑnite life intangible assets for impairment. In 2002, as a result of
this analysis, the Company recorded charges of $56 million ($35 million after-tax, or 19 cents per diluted
share) related to a trademark impairment and $73 million (before and after-tax, or 39 cents per diluted share)
related to goodwill impairment at a Power Systems reporting unit.
Discontinued Operations
Discontinued operations in 2002 relate to a net beneÑt of $3 million for the resolution of certain
obligations related to two discontinued businesses.
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 were distributed to Rockwell Automation shareowners on the basis
of one Rockwell Collins share for each outstanding Rockwell Automation share. At the time of 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.
Rockwell ScientiÑc Company LLC
Since June 29, 2001, the Company and Rockwell Collins each have owned 50 percent of Rockwell
ScientiÑc Company LLC (RSC) (formerly 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. 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.
20
Acquisitions
In September 2002, the Company's Control Systems segment acquired the engineering services and
system integration assets of SPEL, spol. s.r.o. The acquisition is expected to accelerate the establishment of
the Company as a complete solution provider in Central Europe. This acquisition also strategically locates the
Company in a region with future growth opportunities.
In May 2002, the Company's Control Systems segment acquired the assets of the controller division of
Samsung Electronics Company Limited's Mechatronics business (the Controller Division). The Company
combined its existing Korean business with the Controller Division to form a new business that operates under
the name Rockwell Samsung Automation and creates technologies for the design and development of
automation products. The acquisition is expected to expand the Company's existing operations in Korea,
further the Company's design and product development capabilities and support future commercial and
operational expansion in the Asia PaciÑc region.
In March 2002, the Company's Control Systems segment acquired all of the stock of Propack Data
GmbH (Propack), a provider of manufacturing information systems for the pharmaceutical and other
regulated industries. The acquisition is expected to broaden the Company's position in the pharmaceuticals
market, enhance the Company's process solutions business and enable the Company to expand its reach into
the manufacturing information markets.
In January 2002, the Company's Control Systems segment acquired all of the stock of Tesch GmbH, an
electronic products and safety relay manufacturer, expanding the Company's machine safety product and
research and development capabilities.
The aggregate cash purchase price of the businesses acquired in 2002, of which the majority related to the
acquisition of Propack, was approximately $71 million. Assets acquired and liabilities assumed have been
recorded at fair values. The excess of the purchase price over the estimated fair value of the acquired tangible
and intangible assets was recorded as goodwill.
During 2001, the Company's Control Systems segment acquired the batch software and services business
of Sequencia Corporation. 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 expanded Control Systems'
portfolio of Manufacturing BusinessWare Solutions into the batch application market.
During 2000, the Company's Control Systems segment 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 Automation'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 capabilities. The total cost of acquisitions in 2000 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
During 2002, the Company resolved certain tax matters for the period of 1995-1999, resulting in a
$48 million reduction in its income tax provision. Excluding the eÅect of this reduction, the eÅective income
tax rate for 2002 was 23.7 percent. See Note 17 in the Notes to Consolidated Financial Statements in the
Financial Statements for a reconciliation of the United States statutory rate to the eÅective income tax rate.
Management believes that the eÅective income tax rate in 2003 will be approximately 30 percent.
The Company anticipates Ñling in 2003 a federal research and experimentation tax credit refund claim of
approximately $100 million for the years 1997 through 2001. The claim will be subject to audit by the Internal
21
Revenue Service. The ultimate potential tax beneÑt of this claim, if any, is not currently known and therefore
no beneÑt has been recognized for Ñnancial reporting purposes.
Outlook for 2003
Indicators of the future direction of the global manufacturing economy are mixed, though the Company's
end markets have generally stabilized. While the Company does not expect further deterioration in the
markets it serves, the Company is managing its cost structure tightly, and Ñrst quarter results will include
expenses for targeted cost reduction actions. These actions, combined with normal quarterly revenue trends,
are expected to result in Ñrst quarter earnings per share in the range of 16 to 18 cents. For the full year, the
Company will deliver earnings growth of at least 15 percent (to $1.05 per share), even if the current soft
business conditions persist. If business conditions improve modestly, the Company expects to achieve earnings
growth of 25 percent (to $1.15 per share).
Financial Condition
The Company's cash Öows from operating, investing and Ñnancing activities, as reÖected in the
Consolidated Statement of Cash Flows, are summarized in the following tables (in millions):
Year Ended September 30,
2000
2001
2002
Cash provided by (used for):
Operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of exchange rate changes on cashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 476
(175)
(97)
Ì
$ 335
153
(197)
9
$ 645
(228)
(677)
35
Cash provided by (used for) continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 204
$ 300
$(225)
The following table summarizes free cash Öow for the Company. The Company's deÑnition of free cash
Öow, which is an internal performance measurement, may be diÅerent from deÑnitions used by other
companies.
Cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 476
(104)
$ 335
(157)
$ 645
(217)
Free cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 372
$ 178
$ 428
Cash provided by operating activities was $476 million in 2002 compared to $335 million in 2001. Free
cash Öow in 2002 was $372 million, after a $24 million contribution made to the Company's qualiÑed pension
plan trust related to the spinoÅ of Rockwell Collins and $12 million in contributions to non-United States
pension trusts, compared to free cash Öow of $178 million in 2001. The higher cash generation in 2002 was
driven primarily by working capital improvements and a decrease in capital expenditures.
Cash used for investing activities was $175 million in 2002 compared to cash provided by investing
activities of $153 million in 2001. Investing activities in 2001 included a special payment of $300 million
received from Rockwell Collins in connection with the spinoÅ on June 29, 2001. Capital expenditures in 2002
were $104 million compared to $157 million in 2001. Capital expenditures in 2003 are expected to be $125 to
$150 million, but will ultimately depend on business conditions.
In addition to internally-generated cash, the Company has access to existing Ñnancing sources, including
the public debt markets and unsecured credit facilities with various banks. The Company's debt-to-total-
capital ratio was 36.6 percent at September 30, 2002 and 36.5 percent at September 30, 2001.
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, but purchased no shares in 2002. At September 30, 2002, there was approximately $104 million
22
remaining on the Company's current $250 million stock repurchase program. The Company anticipates
repurchasing stock in 2003, the amount of which will ultimately depend on business conditions.
Future signiÑcant uses of cash are expected to include capital expenditures, dividends to shareowners,
acquisitions, repurchases of common stock in connection with the Company's stock repurchase program and
may include contributions to the qualiÑed pension plan trust. Additional information regarding pension
contributions is contained in MD&A on page 15 hereof. In addition, the Company's $150 million of 6.8% notes
mature in April 2003. It is expected that each of these future uses of cash will be funded by existing cash
balances, cash generated by operating activities and commercial paper borrowings; although the funding may
include a new issue of debt or other securities.
The Company elects to utilize commercial paper markets as its principal source of short-term Ñnancing.
As of September 30, 2002, the Company had no commercial paper borrowings outstanding. During the year
ended September 30, 2002, the Company had weighted average borrowings of $68 million under its
commercial paper program at interest rates ranging from 1.8 percent to 2.7 percent.
As of September 30, 2002, the Company had $1 billion of unsecured committed credit facilities available
to support its commercial paper borrowings. On October 29, 2002, the Company terminated these credit
facilities and entered into new credit facilities with various banks for $337.5 million expiring in October 2003
and $337.5 million expiring in October 2005. Prior to October 2003, the Company expects to enter into a new
credit facility similar to the credit facility expiring at that time in an amount deemed suÇcient to support its
operations. Pursuant to the terms of the new credit facilities, the Company's debt to capital ratio shall not
exceed 60 percent. Outstanding commercial paper balances reduce the amount of available borrowings under
the unsecured committed credit facilities.
The Company's current commercial paper credit ratings are as follows: Moody's (P-2), Standard &
Poor's (A-1) and Fitch (F-1). Should the Company's access to the commercial paper market be adversely
aÅected due to a change in market conditions or otherwise, the Company would expect to rely on a
combination of available cash and the unsecured committed credit facilities to provide short-term funding. In
such event, the cost of borrowings under the unsecured committed credit facilities would likely be higher than
the cost of commercial paper borrowings.
Cash dividends to shareowners were $122 million, or $0.66 per share, in 2002 compared to $170 million,
or $0.93 per share, in 2001. Prior to the spinoÅ of Rockwell Collins, the Company paid quarterly cash
dividends, which, on an annual basis, equaled $1.02 per share. Since the spinoÅ of Rockwell Collins, the
Company has paid quarterly cash dividends which, on an annual basis, equal $0.66 per share. Although
declaration and payment of dividends by the Company are at the sole discretion of the Company's board of
directors, the Company expects to pay quarterly dividends in 2003, which, on an annual basis, will equal $0.66
per share.
Certain of the Company's contractual cash obligations at September 30, 2002 are summarized as follows:
Total
2003
2004
Payments by Period
2005
2006
2007
Short-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum operating lease payments ÏÏÏÏÏÏÏÏÏÏÏ
$ 162
767
208
Total contractual cash obligations ÏÏÏÏÏÏÏÏÏ
$1,137
$162
1
47
$210
$Ì $Ì $Ì $Ì
2
20
1
42
2
35
2
25
$43
$37
$27
$22
Thereafter
$ Ì
759
39
$798
In connection with the sale of a Power Systems business in 2000, the Company entered into a supply
agreement with the buyer of the business. The agreement requires minimum purchases by the Company of
approximately $21 million per year through December 31, 2005. In the event that purchases are less than
$21 million in a given year, the Company may incur penalties which are a percentage of the amount by which
the actual purchases were less than the contractual minimum for the period. Based upon current estimates of
23
future purchases, management does not believe that any penalties payable under the terms of the agreement
would be material to the Company's business or Ñnancial condition.
At September 30, 2002, the Company guaranteed the performance of Conexant related to a $60 million
lease obligation. The lease obligation is secured by the real property subject to the lease and is within a range
of estimated fair values of the real property. Management expects to be released from the guarantee by
December 31, 2003.
At September 30, 2002, the Company was the sole guarantor of the performance of RSC under a lease
agreement for one of RSC's facilities. The total future minimum payments under the lease are approximately
$7 million. The lease agreement has a term which ends in 2011. EÅective October 2002, the Company and
Rockwell Collins each guarantees one-half of the lease obligation of RSC.
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's short-term debt obligations relate to commercial paper borrowings and bank borrowings.
At September 30, 2002 and 2001, the Company had no commercial paper borrowings outstanding. During
2002, the weighted average commercial paper borrowings were $68 million compared to $293 million in 2001.
At September 30, 2002, the carrying value of bank borrowings was $10 million compared to $9 million at
September 30, 2001. 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 2002 or 2001, 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, 2002 and 2001, and would
not have been materially aÅected by changes in market interest rates.
The Company had outstanding Ñxed rate long-term debt obligations with carrying values of $919 million
at September 30, 2002 and $910 million at September 30, 2001. The fair value of this debt was $976 million at
September 30, 2002 and $898 million at September 30, 2001. 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 its 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.
In September 2002, 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 six-month LIBOR. The Öoating rate was 4.21 percent at September 30, 2002. A
hypothetical 10 percent change in market interest rates would not be material to the overall fair value of the
swap or the Company's results of operations.
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
24
than the applicable functional currency. In addition, the Company enters into contracts to hedge certain
forecasted intercompany transactions. 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 designated as hedges for accounting purposes 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, 2002 and 2001, the Company had outstanding foreign currency forward exchange
contracts primarily consisting of contracts to exchange the euro, pound sterling, Canadian dollar and Swiss
franc. 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 Standards
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations (SFAS 143), which requires
entities to recognize the fair value of a liability for legal obligations associated with the retirement of tangible
long-lived assets in the period incurred, if a reasonable estimate of the fair value can be made.
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 to be held and used and for long-lived assets to be disposed of
by sale. Under SFAS 144, the presentation of discontinued operations is broadened to include a component of
an entity rather than being limited to a segment of a business. Also, accrual of future operating losses of
discontinued businesses will no longer be permitted.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146), which addresses Ñnancial accounting and reporting
associated with exit or disposal activities. Under SFAS 146, the Company will measure costs associated with
an exit or disposal activity at fair value and recognize the costs in the period in which the liability is incurred
rather than at the date of a commitment to an exit or disposal plan.
The Company is required to adopt SFAS 143 and SFAS 144 at the beginning of Ñscal year 2003.
Management is currently evaluating the provisions of SFAS 143 and SFAS 144, but believes there will be no
material eÅect on the Company's Ñnancial position, results of operations or shareowners' equity at the time of
adoption. The Company is required to adopt SFAS 146 for all exit and disposal activities initiated after
December 31, 2002.
Cautionary Statement
This Annual Report contains statements (including certain projections and business trends) accompanied
by such phrases as ""believes'', ""estimates'', ""expects'', ""anticipates'', ""will'' 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
25
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; future terrorist attacks; 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 24-25 hereof.
26
Item 8. Consolidated Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEET
(in millions)
September 30,
2002
2001
Assets
Current Assets
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
289
645
557
175
109
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,775
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
988
778
346
137
$
121
704
600
152
144
1,721
1,075
808
384
110
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,024
$ 4,098
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
162
325
161
44
274
966
767
381
158
143
$
10
346
189
31
279
855
909
338
209
187
Commitments and contingent liabilities (Note 19)
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: 2002, 30.6; 2001, 32.7)ÏÏÏÏÏÏÏÏÏÏÏÏ
216
987
2,165
(194)
Ì
(1,565)
216
981
2,242
(162)
(1)
(1,676)
Total shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,609
1,600
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,024
$ 4,098
See Notes to Consolidated Financial Statements.
27
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended September 30,
2001
2002
2000
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 3,909
(2,674)
$ 4,285
(3,037)
$ 4,661
(3,107)
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,235
1,248
1,554
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes and accounting
change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax provision (Note 17) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before accounting changeÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(953)
17
(66)
233
(7)
226
3
(108)
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
121
Basic earnings per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting changeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1.22
0.02
(0.58)
(1,041)
44
(83)
(1,040)
66
(73)
168
(43)
125
180
Ì
305
507
(163)
344
292
Ì
636
$
0.69
0.98
Ì
$ 1.83
1.55
Ì
$
$
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.66
$
1.67
$
3.38
Diluted earnings per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting changeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1.20
0.02
(0.58)
$
0.68
0.97
Ì
$ 1.81
1.54
Ì
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.64
$
1.65
$
3.35
Average outstanding shares:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
184.9
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
188.8
182.9
185.3
187.8
189.9
See Notes to Consolidated Financial Statements.
28
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended September 30,
2001
2002
2000
Continuing Operations:
Operating Activities
Income from continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to arrive at cash provided by operating activities:
$ 226
$ 125
$ 344
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension trust contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss (gain) on dispositions of property and businesses (Note 16) ÏÏÏ
Special charges (Note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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
184
22
(36)
(14)
3
Ì
6
70
53
(26)
14
(30)
4
476
196
76
(5)
2
(6)
91
14
33
(3)
(86)
(37)
(52)
(13)
335
Investing Activities
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions of businesses, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special payment from Rockwell Collins (Note 1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment in aÇliates and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(104)
(71)
Ì
(4)
4
(157)
(6)
300
(3)
19
Cash (Used for) Provided by Investing ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(175)
153
Financing Activities
Net decrease in short-term borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of treasury stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(122)
25
Cash Used for Financing ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(97)
EÅect of exchange rate changes on cashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by (Used for) Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash (Used for) Provided by Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (Decrease) in Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
204
(36)
168
121
(8)
(63)
(170)
44
(197)
9
300
(349)
(49)
170
193
77
(4)
142
(15)
Ì
7
(16)
(86)
42
66
(54)
(51)
645
(217)
(70)
Ì
Ì
59
(228)
(173)
(325)
(192)
13
(677)
35
(225)
59
(166)
336
Cash and Cash Equivalents at End of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 289
$ 121
$ 170
See Notes to Consolidated Financial Statements.
29
960
7
967
2,937
636
(192)
(18)
Ì
3,363
(153)
(13)
Ì
(166)
Ì
Ì
(2)
(2)
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in millions, except per share amounts)
Common Stock (no shares issued during years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
216
$
216
$
216
Year Ended September 30,
2001
2002
2000
Additional Paid-In Capital
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained Earnings
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends (per share: 2002, $0.66; 2001, $0.93; 2000, $1.02) ÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Rockwell Collins (Note 1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
981
6
987
967
14
981
2,242
121
(122)
(85)
9
3,363
305
(170)
(53)
(1,203)
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,165
2,242
Accumulated Other Comprehensive Loss
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Rockwell Collins (Note 1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted Stock Compensation
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury Stock
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(162)
(32)
Ì
(194)
(1)
1
Ì
Ì
(166)
(26)
30
(162)
(2)
1
Ì
(1)
(1,676)
Ì
111
(1,709)
(63)
96
(1,420)
(325)
36
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,565)
(1,676)
(1,709)
Total Shareowners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,609
$ 1,600
$ 2,669
See Notes to Consolidated Financial Statements.
30
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive loss:
Net unrealized (losses) gains on cash Öow hedges (net of tax (beneÑt)
expense of $(4), $(4) and $6)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized losses on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustments (net of tax expense of $4, $2, and $0)ÏÏÏÏÏÏ
Pension adjustments (net of tax (beneÑt) expense of $(15), $(2) and $2) ÏÏÏ
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended September 30,
2000
2001
2002
$121
$305
$636
(8)
(1)
6
(29)
(32)
(7)
Ì
(15)
(4)
(26)
12
Ì
(29)
4
(13)
Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 89
$279
$623
See Notes to Consolidated Financial Statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and 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 Automation, Inc. (the Company or Rockwell Automation), formerly
named Rockwell International Corporation. 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 Automation shareowners on the basis of one Rockwell
Collins share for each outstanding Rockwell Automation share. At the time of 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.
Consolidation
The consolidated Ñnancial statements of the Company include the accounts of the Company and all
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 accounting principles
generally accepted in the United States 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, sales rebates and incentives to distributors and commercial
customers; allowance for doubtful accounts; excess and obsolete inventory; impairment of long-lived assets;
product warranty obligations; retirement beneÑts; self-insurance liabilities; litigation, claims and contingencies
including environmental matters; and income taxes.
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. Management is required to make judgments about whether pricing is Ñxed or
determinable and whether or not collectibility is reasonably assured.
The Securities and Exchange Commission's (SEC) StaÅ Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, provides guidance on the SEC staÅ's views on application of generally
accepted accounting principles to selected revenue recognition issues. The Company's revenue recognition
policy is in accordance with generally accepted accounting principles and SAB No. 101.
The Company records accruals for sales rebates to distributors at the time of shipment based upon
historical experience. Changes in such allowances may be required if future rebates diÅer from historical
experience.
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs, shipping and handling costs billed to customers are included in sales and the related
costs are included in cost of sales in the Consolidated Statement of Operations.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and 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.
Receivables
Receivables are stated net of allowances for doubtful accounts of $45 at September 30, 2002 and
$43 million at September 30, 2001.
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 straight-line and
accelerated 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 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.
Since October 1, 2001 upon adoption of Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets (SFAS 142), goodwill and other intangible assets with indeÑnite useful
lives are no longer systematically amortized but instead are reviewed for impairment and any excess in
carrying value over the estimated fair value is charged to results of operations. Distributor networks, developed
technology, patents, and other intangibles with Ñnite useful lives are amortized on a straight-line basis over
their estimated useful lives, generally ranging from 3 to 40 years.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The
Company evaluates the recoverability of goodwill and other intangible assets with indeÑnite useful lives
annually or more frequently if events or circumstances indicate that an asset might be impaired. 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, primarily including Rockwell ScientiÑc Company LLC (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 (expense) in the Consolidated Statement of Operations. These aÇliated
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
companies are not material individually or in the aggregate to Rockwell Automation's Ñnancial position,
results of operations or cash Öows.
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
the 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.
Earnings Per Share
The Company presents two earnings per share (EPS) amounts, basic and diluted. Basic EPS is
calculated by dividing net income by the weighted average number of common shares outstanding during the
year. Diluted EPS amounts are based upon the weighted average number of common and common equivalent
shares outstanding during the year. Common equivalent shares are excluded from the computation in periods
in which they have an antidilutive eÅect. The diÅerence between basic and diluted EPS is solely attributable
to stock options. The Company uses the treasury stock method to calculate the eÅect of outstanding stock
options. Stock options for which the exercise price exceeds the average market price over the period have an
antidilutive eÅect on EPS, and accordingly, are excluded from the calculation. For the years ended
September 30, 2002, 2001 and 2000, options for 4.0 million, 5.9 million and 4.8 million, respectively, were
excluded from the diluted EPS calculation because they were antidilutive.
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 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 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 probable 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
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
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. 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.
Recently Adopted Accounting Standards
EÅective October 1, 2001, the Company adopted SFAS 142. Under SFAS 142, goodwill and certain
other intangible assets are no longer systematically amortized but instead are reviewed for impairment and any
excess in carrying value over the estimated fair value is charged to results of operations (see Note 3).
The Company adopted EITF Issue No. 01-14, Income Statement Characterization of Reimbursements
Received for "Out of Pocket' Expenses Incurred (EITF 01-14), on January 1, 2002. EITF 01-14 requires
companies to classify as sales certain amounts billed to customers that have historically been classiÑed as a
reduction of cost of sales. Out of pocket expenses which have been reclassiÑed from cost of sales to sales were
$6 million in 2001 and $5 million in 2000.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations
(SFAS 141), which 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.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143), which requires entities to recognize the fair value of a liability for legal
obligations associated with the retirement of tangible long-lived assets in the period incurred, if a reasonable
estimate of the fair value can be made.
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 to be held and used and for long-lived assets to be disposed of
by sale. Under SFAS 144, the presentation of discontinued operations is broadened to include a component of
an entity rather than being limited to a segment of a business. Also, accrual of future operating losses of
discontinued businesses will no longer be permitted.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146), which addresses Ñnancial accounting and reporting
associated with exit or disposal activities. Under SFAS 146, the Company will measure costs associated with
an exit or disposal activity at fair value and recognize the costs in the period in which the liability is incurred
rather than at the date of a commitment to an exit or disposal plan.
The Company is required to adopt SFAS 143 and SFAS 144 at the beginning of Ñscal year 2003.
Management is currently evaluating the provisions of SFAS 143 and SFAS 144, but believes there will be no
material eÅect on the Company's Ñnancial position, results of operations or shareowners' equity at the time of
adoption. The Company is required to adopt SFAS 146 for all exit and disposal activities initiated after
December 31, 2002.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
2. Acquisitions of Businesses
In September 2002, the Company's Control Systems segment acquired the engineering services and
system integration assets of SPEL, spol. s.r.o. The acquisition is expected to accelerate the establishment of
the Company as a complete solution provider in Central Europe and it also strategically locates the Company
in a region with future growth opportunities.
In May 2002, the Company's Control Systems segment acquired the assets of the controller division of
Samsung Electronics Company Limited's Mechatronics business (the Controller Division). The Company
combined its existing Korean business with the Controller Division to form a new business that operates under
the name Rockwell Samsung Automation and creates technologies for the design and development of
automation products. The acquisition is expected to expand the Company's existing operations in Korea,
further the Company's design and product development capabilities and support future commercial and
operational expansion in the Asia PaciÑc region.
In March 2002, the Company's Control Systems segment acquired all of the stock of Propack Data
GmbH (Propack), a provider of manufacturing information systems for the pharmaceutical and other
regulated industries. The acquisition is expected to broaden the Company's position in the pharmaceuticals
market, enhance the Company's process solutions business and enable the Company to expand its reach into
the manufacturing information markets.
In January 2002, the Company's Control Systems segment acquired all of the stock of Tesch GmbH, an
electronic products and safety relay manufacturer, expanding the Company's machine safety product and
research and development capabilities.
The aggregate cash purchase price of the businesses acquired in 2002, of which the majority related to the
acquisition of Propack, was approximately $71 million. Assets acquired and liabilities assumed have been
recorded at fair values. The excess of the purchase price over the estimated fair value of the acquired tangible
and intangible assets was recorded as goodwill.
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.
In March 2000, the Control Systems segment acquired Entek IRD International Corporation, a provider
of machinery condition monitoring solutions. In April 2000, the Control Systems segment acquired substan-
tially all the assets and assumed certain liabilities of Systems Modeling Corporation, a software developer. The
aggregate cash purchase price for acquisitions in 2000 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.
Amounts recorded for liabilities assumed in connection with these acquisitions were $6 million in 2002,
$1 million in 2001 and $16 million in 2000.
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 and allocation of the purchase price is not presented as the
combined eÅect of these acquisitions was not material to the Company's results of operations or Ñnancial
position.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Goodwill and Other Intangible Assets
In connection with the adoption of SFAS 142, management determined that the Company's Allen-
Bradley, Reliance and Dodge trademarks have indeÑnite useful lives. Accordingly, management performed a
transitional intangible asset impairment test which resulted in an impairment charge of $56 million
($35 million after tax, or 19 cents per diluted share) related to the Reliance trademark used primarily by
Power Systems. The impairment charge represents the excess of the carrying amount of the trademark over its
estimated fair value as determined by management, with the assistance of independent valuation experts,
utilizing the relief from royalty valuation method. This method estimates the beneÑt to the Company resulting
from owning rather than licensing the trademark.
Also in connection with the adoption of SFAS 142, the Company completed the transitional goodwill
impairment test during 2002. As a result, an impairment charge of $73 million (before and after tax, or 39
cents per diluted share) was recorded related to goodwill at a Power Systems reporting unit. The fair value of
the reporting unit was estimated using a combination of valuation techniques, including the present value of
expected future cash Öows and historical valuations of comparable businesses.
The previous method for determining impairment prescribed by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, utilized an undiscounted cash Öow
approach for the initial impairment assessment, while SFAS 142 utilizes a fair value approach. The trademark
impairment charge and the goodwill impairment charge discussed above are the result of the change in the
accounting method for determining the impairment of goodwill and certain intangible assets. These charges
have been recorded as the cumulative eÅect of accounting change in the amount of $129 million ($108 million
after tax, or 58 cents per diluted share) as of October 1, 2001 in the accompanying Condensed Consolidated
Statement of Operations.
The changes in the carrying amount of goodwill for the year ended September 30, 2002 are as follows (in
millions):
Balance as of September 30, 2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill acquired (Note 2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment charge ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$582
49
Ì
Ì
$226
Ì
(73)
(6)
Control
Systems
Power
Systems
Total
$808
49
(73)
(6)
Balance as of September 30, 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$631
$147
$778
Other includes an adjustment to goodwill for the resolution of tax matters relating to tax returns Ñled by
Reliance Electric Company prior to its acquisition by Rockwell Automation in 1995. The change in the
carrying amount of goodwill for the year ended September 30, 2001 resulted primarily from amortization.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Goodwill and Other Intangible Assets Ì (Continued)
The results for periods prior to adoption of SFAS 142 have not been restated. The following table
reconciles the reported income from continuing operations before accounting change, net income and earnings
per share to that which would have resulted for 2001 and 2000 if SFAS 142 had been adopted eÅective
October 1, 1999 (in millions, except per share amounts):
Year Ended
September 30,
2000
2001
Income from continuing operations before accounting change, as reported ÏÏÏÏÏÏ
Goodwill amortization, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Trademark amortization, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 125
41
6
$ 344
39
6
Pro forma income from continuing operations before accounting change ÏÏÏÏÏÏÏÏ
$ 172
$ 389
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill amortization, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Trademark amortization, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 305
51
6
636
44
6
Pro forma net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 362
$ 686
Basic earnings per share:
Income from continuing operations before accounting change:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.69
$1.83
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.95
$2.07
Net income:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1.67
$3.38
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1.99
$3.65
Diluted earnings per share:
Income from continuing operations before accounting change:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.68
$1.81
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.93
$2.05
Net income:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1.65
$3.35
Pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1.95
$3.61
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Goodwill and Other Intangible Assets Ì (Continued)
Other intangible assets at September 30, 2002 and September 30, 2001 consisted of the following (in
millions):
September 30, 2002
Carrying
Amount
Accumulated
Amortization
Net
Amortized intangible assets:
Distributor networksÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Developed technology ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PatentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$115
100
40
83
338
302
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$640
$ 75
38
34
65
212
82
$294
$ 40
62
6
18
126
220
$346
September 30, 2001
Carrying
Amount
Accumulated
Amortization
Net
Amortized intangible assets:
Distributor networksÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Developed technology ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PatentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$115
75
40
69
299
358
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$657
$ 71
25
32
63
191
82
$273
$ 44
50
8
6
108
276
$384
Unamortized intangible assets consists of trademarks which have been determined to have an indeÑnite
life.
Estimated amortization expense for each of the Ñscal years ended September 30 is as follows (in
millions):
Fiscal Year
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount
$21
21
16
14
14
In connection with the business acquisitions in 2002, the Company acquired $12 million of intangible
assets, of which $9 million was assigned to developed technology. The weighted-average amortization period
for the intangible assets acquired in 2002 is 5 years and the amortization period for developed technology
acquired in 2002 is 6 years.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
4.
Inventories
Inventories are summarized as follows (in millions):
September 30,
2001
2002
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Raw materials, parts, and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$195
158
204
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$557
$204
154
242
$600
Inventories are reported net of the allowance for excess and obsolete inventory of $53 million at
September 30, 2002 and $50 million at September 30, 2001.
5. 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,
2002
2001
$
40
505
1,596
40
2,181
1,193
41
506
1,551
70
2,168
1,093
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 988
$1,075
6. Short-Term Debt
Short-term debt consists of the following (in millions):
September 30,
2001
2002
Commercial paper ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term bank borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $Ì
9
1
10
152
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$162
$10
Included in the current portion of long-term debt is $150 million of 6.80% notes which mature in April
2003. The weighted average interest rate on short-term bank borrowings was 2.8 percent at September 30,
2002 and 2.0 percent at September 30, 2001.
At September 30, 2002, 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. On October 29, 2002, the Company terminated these credit facilities and
entered into new credit facilities with various banks for $337.5 million expiring in October 2003 and
$337.5 million expiring in October 2005. Pursuant to the terms of the new credit facilities, the Company's debt
to capital ratio shall not exceed 60 percent. Short-term credit facilities available to foreign subsidiaries
amounted to $108 million at September 30, 2002 and consisted of arrangements for which there are no
signiÑcant commitment fees.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
7. Other Current Liabilities
Other current liabilities are summarized as follows (in millions):
Sales rebates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advance payments from customers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxes other than income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 68
49
31
28
98
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$274
$ 63
40
34
33
109
$279
September 30,
2001
2002
8. Long-Term Debt
Long-term debt consists of the following (in millions):
September 30,
2001
2002
6.80% notes, payable in 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.15% notes, payable in 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.70% debentures, payable in 2028 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.20% debentures, payable in 2098 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized discount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$150
356
250
200
11
(48)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
919
152
$150
350
250
200
11
(51)
910
1
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$767
$909
In September 2002, 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 six-month LIBOR. The Öoating rate was 4.21 percent at September 30, 2002. At
September 30, 2002, the fair value of the Swap, based upon quoted market prices for contracts with similar
maturities, was approximately $6 million. As permitted by SFAS 133, the Company has designated the Swap
as a fair value hedge. Accordingly, the fair value of the Swap was recorded in other assets on the Consolidated
Balance Sheet and the carrying value of the underlying debt was adjusted by an equal amount in accordance
with SFAS 133.
9. 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. The carrying value of long-term debt was $919 million at September 30, 2002 and $910 million at
September 30, 2001. The fair value of long-term debt, based upon quoted market prices for the same or
similar issues, was $976 million at September 30, 2002 and $898 million at September 30, 2001.
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, 2002 and 2001, the Company had
outstanding foreign currency forward exchange contracts primarily consisting of contracts for the euro, pound
sterling, Canadian dollar and Swiss franc. The net carrying value of foreign currency forward exchange
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
9. Financial Instruments Ì (Continued)
contracts of $15 million at September 30, 2002 and $2 million at September 30, 2001 was equal to its fair
value based upon quoted market prices for contracts with similar maturities. The foreign currency forward
exchange contracts are recorded in other current assets in the amounts of $6 million as of September 30, 2002
and $11 million as of September 30, 2001 and other current liabilities in the amounts of $21 million as of
September 30, 2002 and $9 million as of September 30, 2001. 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.
10. Shareowners' Equity
Common Stock
At September 30, 2002, 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,
2002, 28.7 million shares of common stock were reserved for various employee incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
2002
2001
2000
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.7
Ì
2.1
183.5
(1.7)
1.9
190.9
(8.0)
0.6
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
185.8
183.7
183.5
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.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
10. Shareowners' Equity Ì (Continued)
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in millions):
September 30,
2001
2002
Net unrealized (losses) gains on cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized losses on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(3)
(1)
(160)
(30)
$
5
Ì
(166)
(1)
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(194)
$(162)
Unrealized gains on cash Öow hedges of $7 million ($4 million after tax) in 2002 and $22 million
($15 million after tax) in 2001 were reclassiÑed into earnings and oÅset losses on the hedged items. There
were no amounts reclassiÑed into earnings in 2000. Approximately $3 million of the net unrealized losses on
cash Öow hedges as of September 30, 2002 will be reclassiÑed into earnings during 2003. Management expects
that these unrealized losses will be oÅset when the hedged items are recognized in earnings.
11. 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 the 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 7.6 million at September 30,
2002. 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. Performance-vesting 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.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
11. Stock Options Ì (Continued)
Information relative to stock options is as follows (shares in thousands):
Number of shares under option:
Outstanding at beginning of year ÏÏÏÏÏÏÏ
Granted:
2002
2001
2000
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
19,696
$14.15
13,998
$36.04
11,564
$31.13
Time-vestingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance-vesting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,720
Ì
13.48
Ì
3,309
941
Adjustments:
Collins adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conversion to Collins options ÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canceled or expiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(2,123)
(518)
Ì
6,379
Ì (2,486)
(1,884)
(561)
11.63
16.81
Outstanding at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,775
14.27
19,696
Exercisable at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12,133
13.88
9,863
28.23
29.94
Ì
37.32
23.17
29.99
14.15
13.48
2,523
880
Ì
Ì
(561)
(408)
13,998
8,584
51.04
52.48
Ì
Ì
24.62
40.31
36.04
30.52
Approximately 1.1 million performance-vesting options were not exercisable at September 30, 2002.
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 Automation and Rockwell
Collins options with adjustments made to the number and exercise prices of those options to preserve the
intrinsic value of the Rockwell Automation and Rockwell Collins options that were outstanding immediately
before and after the SpinoÅ. Outstanding Rockwell Automation options held by Rockwell Collins employees
generally were converted into Rockwell Collins options. None of the information for 2000, the options
outstanding at the beginning of 2001 nor grants for 2001 have been restated to reÖect adjustments made in
connection with the SpinoÅ.
The following table summarizes information about stock options outstanding at September 30, 2002
(shares in thousands; remaining life in years):
Range of Exercise Prices
$ 7.07 to $10.49 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10.50 to $11.78 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$11.79 to $14.14 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$14.15 to $16.27 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16.28 to $18.86 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$18.87 to $23.57 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options Outstanding
Options Exercisable
Weighted Average
Remaining
Life
Exercise
Price
1.2
7.1
6.7
6.4
4.1
6.7
$ 9.07
11.28
13.42
15.68
17.42
20.50
Wtd. Avg.
Exercise
Price
$ 9.07
11.09
13.46
15.60
17.39
20.62
Shares
1,665
4,082
1,824
1,272
1,293
1,997
12,133
Shares
1,665
6,443
4,483
1,737
1,523
3,924
19,775
The closing price of the Company's common stock on the New York Stock Exchange-Composite
Transactions reporting system on September 30, 2002 was $16.27 per share.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
11. Stock Options Ì (Continued)
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):
2002
As
Reported
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 121
$0.66
$0.64
Pro
Forma
$ 115
$0.63
$0.61
2001
As
Reported
$ 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
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 pro forma eÅect of stock
options on net income for 2002 may not be indicative of the pro forma eÅect on net income in future years.
The per share weighted average fair value of options granted was $2.99 in 2002, $8.79 in 2001 and $16.30
in 2000. 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:
2002
2001
2000
Average risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4.01% 5.76%
3.76% 2.29%
0.30
5
0.33
5
Grants
Grants
Collins
SpinoÅ
Adjustment
4.73%
1.77%
0.35
5
Grants
6.06%
2.29%
0.33
5
The per share weighted average fair value of options granted in 2001 and 2000 have not been restated to
reÖect the SpinoÅ.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. 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.
Pension plan obligations attributable to all of Rockwell Automation's domestic active employees and
former employees of the Control Systems, Power Systems and FirstPoint Contact businesses were retained by
Rockwell Automation and a proportionate share of pension plan assets were transferred from the former
Rockwell International Corporation domestic qualiÑed plan (Rockwell Retirement Plan) to a new pension
plan established by Rockwell Automation. In connection with the SpinoÅ, Rockwell Collins assumed the
Rockwell Retirement Plan. The Company also retained liabilities for other postretirement beneÑts for active
and former employees. The tables below reÖect the continuing Rockwell Automation plans.
The components of net periodic beneÑt cost are as follows (in millions):
Pension BeneÑts
2001
2002
2000
Other Postretirement
BeneÑts
2001
2002
2000
Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization:
$
45
92
(117)
$
44
87
(126)
$
44
79
$ 8
21
(110) Ì
$ 7
18
Ì
$ 7
18
Ì
Prior service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5
(3)
3
5
(4)
4
5
(6)
(4) Ì
5
3
(6)
Ì
3
(6)
Ì
2
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
25
$
10
$
17
$28
$22
$21
The Company recognized a curtailment gain of $9 million in 2000 and special termination beneÑt charges
of $3 million in 2001 and $3 million in 2000.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
BeneÑt obligation, plan assets, funded status, and net liability information is summarized as follows (in
millions):
Pension BeneÑts
2001
2002
Other
Postretirement
BeneÑts
2002
2001
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
$1,375
45
92
90
(1)
Ì
(60)
Ì
23
$1,243
44
87
83
(4)
3
(51)
(41)
11
$ 294
8
21
32
99
(16)
(29)
Ì
Ì
$ 242
7
18
16
43
Ì
(30)
(6)
4
BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,564
1,375
Plan assets at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Company contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participant contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
RSC adjustmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (including currency translation) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,284
(83)
33
1
(60)
Ì
17
1,453
(28)
8
1
(51)
(106)
7
Plan assets at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,192
1,284
409
Ì
Ì
29
4
(33)
Ì
Ì
Ì
294
Ì
Ì
29
1
(30)
Ì
Ì
Ì
Funded status of plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized amounts:
(372)
(91)
(409)
(294)
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial losses (gains) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11
(6)
255
16
(8)
(32)
(49)
Ì
229
(39)
Ì
103
Net liability on balance sheet ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (112)
$ (115)
$(229)
$(230)
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
$
16
(184)
15
11
30
$
17
(137)
1
3
1
$ Ì $ Ì
(230)
(229)
Ì
Ì
Ì
Ì
Ì
Ì
Net liability on balance sheet ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (112)
$ (115)
$(229)
$(230)
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
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.
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):
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Health care cost trend rate* ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7.0%
4.5%
9.0%
Ì
7.5%
4.5%
9.75%
Ì
Pension BeneÑts
2001
2002
Other
Postretirement
BeneÑts
2002
2001
7.0%
Ì
Ì
8.5%
7.5%
Ì
Ì
8.0%
* Decreasing to 5.5% after 2017.
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.
EÅective October 1, 2002, the Company amended its United States postretirement healthcare beneÑt
program in order to mitigate the increasing cost of postretirement healthcare services. This change will be
phased in as follows: eÅective January 1, 2004, the Company, per an amendment to this program implemented
in 1992, will contribute 50 percent of the amount in excess of the 2003 per capita amount. However, the
Company's 2004 contribution shall be limited to a 7.5 percent increase from the 2003 per capita amount.
EÅective January 1, 2005, the Company will limit its future per capita maximum contribution to its calendar
2004 per capita contribution. The eÅect of this change will be to reduce the beneÑt obligation by $62 million.
Net periodic beneÑt cost in 2003 will be approximately $32 million, which is approximately 20 percent lower
than what the cost would have been without implementing this change.
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 $1,325 million, $1,137 million and $961 million respectively, as of the 2002 measurement date
(June 30) and $93 million, $78 million and $20 million, respectively, as of the 2001 measurement date.
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
2001
2002
One-Percentage
Point Decrease
2001
2002
Increase (decrease) to total of service and interest cost
components ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) to postretirement beneÑt obligation ÏÏÏÏÏÏÏÏ
$ 4
32
$ 3
23
$ (3)
(26)
$ (3)
(19)
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
DeÑned Contribution Savings Plans
The Company also sponsors certain deÑned contribution savings plans for eligible employees. Expense
related to these plans was $21 million for 2002, $22 million for 2001 and $21 million for 2000.
13. 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 had completed these
actions at September 30, 2002.
Total cash expenditures in connection with these actions are expected to approximate $50 million. The
Company spent approximately $43 million through September 30, 2002 of which $41 million related to
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, 2002, all of the workforce reductions have been completed. The
remaining balance at September 30, 2002 relates to salary continuation and beneÑt payments to terminated
employees.
The special charges included write-downs to the carrying amount of goodwill, certain facilities and
machinery and equipment totaling approximately $27 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 years ended September 30, 2001 and 2002 are summarized as
follows (in millions):
Utilization
2001
Charges
Year Ended
September 30,
2001
Year Ended
September 30,
2002
Adjustments
Balance
September 30,
2002
Employee severance
and separation cost ÏÏ
Impairment of property
and intangible assets
Lease termination costs
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$52
26
5
8
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$91
$(25)
(26)
Ì
(6)
$(57)
$(23)
(1)
(2)
Ì
$(26)
$Ì
1
Ì
(2)
$(1)
$ 4
Ì
3
Ì
$ 7
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. The remaining balances at September 30, 2002
related to charges taken in previous years were not signiÑcant. 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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Discontinued Operations
Summarized results of the Company's Rockwell Collins avionics and communications business are as
follows (in millions):
Year Ended
September 30,
2001
2000
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,002
$ 268
$ 180
$2,515
$ 436
$ 292
The results of operations of the Company's Rockwell Collins avionics and communications business in
2001 include $21 million of costs directly related to the SpinoÅ.
The net beneÑt of $3 million in discontinued operations in 2002 reÖects the resolution of certain
obligations related to two discontinued businesses. Related payments of approximately $36 million were made
in 2002, which have been reÖected as cash used by discontinued operations in the accompanying Consolidated
Statement of Cash Flows.
15. Related Party Transactions
Following the SpinoÅ, the Company and Rockwell Collins each have owned 50 percent of Rockwell
ScientiÑc Company LLC (RSC) (formerly a wholly-owned subsidiary of the Company known as Rockwell
Science Center). At September 30, 2002, the Company's investment in RSC of $50 million is included in
other assets. Beginning with the fourth quarter of 2001, the Company's 50 percent ownership interest in RSC
is accounted for using the equity method.
The Company has an agreement with RSC pursuant to which RSC will perform research and
development services for the Company through 2004. The Company is obligated to pay RSC a minimum of
$3 million for such services in 2003 and $4 million for such services in 2004. The Company incurred
approximately $3 million for research and development services performed by RSC for the year ended
September 30, 2002. At September 30, 2002, the amount due to RSC for research and development services
was not signiÑcant.
The Company shares equally with Rockwell Collins in providing a $4 million line of credit to RSC which
bears interest at the greater of the Company's or Rockwell Collins' commercial paper borrowing rate. At
September 30, 2002, there were no outstanding borrowings on the line of credit. At September 30, 2002, the
Company was the sole guarantor of the performance of RSC under a lease agreement for one of RSC's
facilities. The total future minimum lease payments under the lease are approximately $7 million. The lease
agreement has a term which ends in 2011. EÅective October 2002, the Company and Rockwell Collins each
guarantees one-half of the lease obligation of RSC.
The Company owns 25 percent of CoLinx, LLC (CoLinx), a company that provides logistics and
e-commerce services. The Company paid CoLinx approximately $15 million in 2002 and $6 million in 2001
primarily for logistics services. In addition, CoLinx paid the Company approximately $3 million in 2002 and
$2 million in 2001 for the use of facilities owned by the Company and other services.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16. Other Income (Expense)
The components of other income (expense) net are as follows (in millions):
2002
2001
2000
Net (loss) gain on dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(3)
Demutualization income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
9
Intellectual property settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4
Royalty income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17
$ 6
Ì
18
6
3
11
$44
$15
28
Ì
9
10
4
$66
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.
17.
Income Taxes
The components of the income tax provision are as follows (in millions):
2002
2001
2000
Current:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (3)
(14)
30
8
$ (5)
$ 13
(22) Ì
19
7
44
6
Total currentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
21
41
21
(10)
(1)
(3)
(14)
(2)
2
2
2
111
11
20
142
Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
7
$ 43
$163
During 2002, the Company resolved certain tax matters for the period of 1995-1999. The resolution
resulted in a $48 million reduction of the Company's income tax provision, of which $11 million is reÖected in
tax refund claims in the current income tax provision and $37 million is reÖected in the United States deferred
income tax provision.
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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
17.
Income Taxes Ì (Continued)
Net current deferred income tax assets at September 30, 2002 and 2001 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
2002
2001
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 35
12
30
20
78
Current deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$175
$ 20
13
28
17
74
$152
Net long-term deferred income tax liabilities at September 30, 2002 and 2001 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
Retirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SubtotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002
2001
$ 135
(136)
(42)
18
9
4
Ì
(123)
(135)
(23)
$ 129
(126)
(75)
6
Ì
Ì
49
(140)
(157)
(52)
Long-term deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(158)
$(209)
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 ($346 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 at September 30, 2002 for deferred tax assets related
to non-United States, state and local net operating loss carryforwards ($12 million), capital loss carryforwards
($8 million) and state tax credit carryforwards ($3 million) for which utilization is uncertain. The
carryforward period for the majority of the non-United States net operating loss carryforwards is indeÑnite.
The carryforward period for the state and local net operating loss carryforwards ends between 2007 and 2022.
The capital loss carryforwards expire in 2007. The carryforward period for the state tax credit carryforwards
ends between 2003 and 2011.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
17.
Income Taxes Ì (Continued)
The eÅective income tax rate diÅered from the United States statutory tax rate for the reasons set forth
below:
Statutory tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit utilization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-deductible goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee stock ownership plan beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of foreign loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign sales corporation beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Resolution of prior period tax matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002
2001
2000
35.0% 35.0% 35.0%
3.4
3.6
1.4
1.4
5.3
7.0
(4.8)
(8.4)
(11.1)
2.0
8.3
Ì
(4.2)
(1.8)
(1.2)
(13.1) Ì
(5.9)
(1.8)
(0.6)
(1.8)
(0.4)
(0.8)
(3.2)
Ì
Ì
(16.0)
(1.3)
0.5
(0.6)
EÅective income tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3.0% 25.6% 32.3%
The $48 million reduction of the 2002 income tax provision resulting from the resolution of certain tax
matters for period of 1995-1999 is reÖected in the eÅective income tax rate in tax refund claims (4.7%) and
resolution of prior period tax matters (16.0%).
The income tax provisions were calculated based upon the following components of income from
continuing operations before income taxes and cumulative eÅect of accounting change (in millions):
2002
2001
2000
United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$184
49
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$233
$ 87
81
$168
$410
97
$507
No provision has been made for United States, state, or additional non-United States income taxes
related to approximately $261 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 anticipates Ñling in 2003 a federal research and experimentation tax credit refund claim of
approximately $100 million for the years 1997 through 2001. The claim will be subject to audit by the Internal
Revenue Service. The ultimate potential tax beneÑt of this claim, if any, is not currently known and therefore
no beneÑt has been recognized for Ñnancial reporting purposes.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
18. 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:
2002
2001
2000
$ 37
63
$213
79
$129
74
Company-initiated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customer-funded ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rental expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
131
8
84
158
61
86
200
61
94
Income taxes paid and interest payments related to discontinued operations for 2001 and 2000 were not
signiÑcant.
Minimum future rental commitments under operating leases having noncancelable lease terms in excess
of one year aggregated $208 million as of September 30, 2002 and are payable as follows (in millions): 2003,
$47; 2004, $42; 2005, $35; 2006, $25; 2007, $20; and after 2007, $39. Commitments from third parties under
sublease agreements having noncancelable lease terms in excess of one year aggregated $42 million as of
September 30, 2002 and are receivable through 2008 at approximately $7 million per year.
19. 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 15 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 and assumed by third parties. Management estimates the total reasonably possible
costs the Company could incur for the remediation of Superfund sites at September 30, 2002 to be about
$14 million, of which $8 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, 2002, manage-
ment has estimated the highest total reasonably possible costs the Company could incur from these matters to
be about $51 million. The Company has recorded environmental accruals for these matters of $19 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,
2002, 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.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. 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 its former aerospace
and defense businesses (the A&D Business) to The Boeing Company (Boeing), Rockwell Automation agreed
to indemnify Boeing for certain matters related to operations of the A&D Business for periods prior to the
divestiture. In connection with the spinoÅs of the Company's former automotive component systems business,
semiconductor systems business and Rockwell Collins avionics and communications business, the spun-oÅ
companies have agreed to indemnify Rockwell Automation 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.
The Company has, from time to time, divested certain of its businesses. In connection with such
divestitures, there may be lawsuits, claims and proceedings instituted or asserted against the Company related
to the period that the businesses were owned by the Company. In addition, the Company has guaranteed
performance and payment under certain contracts of divested businesses, including a $60 million lease
obligation of the Company's former semiconductor systems business. The lease obligation of the Company's
former semiconductor systems business is secured by real property subject to the lease and is within a range of
estimated fair values of the real property. In consideration for this guarantee, the Company will receive
$250,000 per quarter from Conexant through December 31, 2003. Management expects to be released from
the guarantee by December 31, 2003. In most cases, the Company is indemniÑed for these obligations by the
divested businesses. Management believes that any judgments against the Company related to such matters or
claims pursuant to the guarantees would not have a material adverse eÅect on the Company's business or
Ñnancial condition.
In connection with the sale of a Power Systems business in 2000, the Company entered into a supply
agreement with the buyer of the business. The agreement requires minimum purchases by the Company of
approximately $21 million per year through December 31, 2005. In the event that purchases are less than
$21 million in a given year, the Company may incur penalties which are a percentage of the amount by which
the actual purchases were less that the contractual minimum for the period. Based upon current estimates of
future purchases, management of the Company does not believe that any penalties payable under the terms of
the agreement would be material to the Company's business or Ñnancial condition.
20. Business Segment Information
Rockwell Automation 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 FirstPoint Contact. The Company has a 50 percent
ownership interest in RSC and accounts for its interest in RSC using the equity method.
Control Systems
The Control Systems operating segment is a supplier of industrial automation products, systems, software
and services focused on helping customers control and improve manufacturing processes and is divided into
three units: the Components and Packaged Applications Group (CPAG), the Automation Control and
Information Group (ACIG) and Global Manufacturing Solutions (GMS).
CPAG produces industrial components, power control and motor management products, and packaged
and engineered products. It supplies both electro-mechanical and solid-state products, including motor starters
and contactors, push buttons and signaling devices, termination and protection devices, relays and timers,
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
20. Business Segment Information Ì (Continued)
discrete and condition sensors and variable speed drives. CPAG's sales account for approximately 40 percent
of Control Systems sales.
ACIG's products include programmable logic controllers (PLCs). PLCs are used to automate the
control and monitoring of industrial plants and processes and typically consist of a computer processor and
input/output devices. The Company's LogixTM integrated architecture integrates multiple types of controls
disciplines including discrete, process, drive and motion control across various factory Öoor operating systems.
ACIG also produces distributed I/O (input/output) platforms, high performance rotary and linear motion
control systems, electronic operator interface devices, plant Öoor industrial computers and machine safety
components. ACIG's sales account for approximately 40 percent of Control Systems sales.
GMS provides multi-vendor automation and information systems and solutions which help customers
improve their manufacturing operations. Solutions include multi-vendor customer support, training, software,
consulting and implementation, asset management, and process batch manufacturing solutions. GMS's sales
account for approximately 20 percent of Control Systems sales.
Power Systems
The Power Systems operating segment is divided into two operating units: The Mechanical Power
Transmission Business (Mechanical) and The Industrial Motor and Drive Business (Electrical).
Mechanical's products include mounted bearings, gear reducers, standard mechanical drives, conveyor
pulleys, couplings, bushings, clutches and motor brakes. Electrical's products include industrial and engi-
neered motors and standard AC and DC drives. In addition, Power Systems provides product repair, motor
and mechanical maintenance solutions, plant maintenance, training and consulting services to OEM's, end
users and distributors.
FirstPoint Contact
The FirstPoint Contact operating segment provides customer contact center solutions that support
multiple channels (voice, e-mail, web, wireless) through open interaction infrastructure. Products include
automatic call distributors, computer telephony integration software, information collection, reporting,
queuing and management systems, call center systems and consulting services.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
20. 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):
2002
2001
2000
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intersegment salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,084
736
134
Ì
(45)
$3,353
777
151
73
(69)
$3,650
833
169
78
(69)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,909
$4,285
$4,661
Segment operating earnings (loss):
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 324
53
4
Ì
$ 425
39
7
3
$ 636
69
(16)
7
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and purchase accounting items ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a businessÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
381
(25)
(57)
Ì
(66)
Ì
474
(79)
(53)
Ì
(83)
(91)
696
(82)
(20)
(14)
(73)
Ì
Income from continuing operations before income taxes and
accounting changeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 233
$ 168
$ 507
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 Ì net.
Certain amounts in prior periods have been reclassiÑed to reÖect the transfer of management responsibil-
ity of a business from Control Systems to Power Systems which was eÅective January 1, 2002. In addition,
reclassiÑcations have been made as a result of the adoption of EITF Issue No. 01-14 (see Note 1).
EÅective October 1, 2001, the Company adopted SFAS 142. As a result of adopting SFAS 142, the
Company no longer amortizes goodwill and certain other intangible assets that have been deemed to have an
indeÑnite useful life. The amortization of goodwill and the intangible assets that have been deemed to have an
indeÑnite useful life was $56 million in 2001 and $53 million in 2000.
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 which are not considered part of the operations of a particular segment, 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.
Intersegment sales are made at market prices. The accounting policies used in preparing the segment
information are consistent with those described in Note 1. Special charges are discussed in Note 13.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
20. 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):
2002
2001
2000
IdentiÑable assets:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets of discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,403
885
77
Ì
659
Ì
$2,483
1,033
86
Ì
496
Ì
$2,604
1,049
101
62
612
892
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,024
$4,098
$5,320
Depreciation and amortization:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 125
43
9
Ì
4
181
25
$ 132
41
10
4
6
193
79
$ 130
37
10
6
5
188
82
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 206
$ 272
$ 270
Capital expenditures for property:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint ContactÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
77
21
5
Ì
1
$
99
43
1
13
1
$ 148
54
6
6
3
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 104
$ 157
$ 217
IdentiÑable assets at Corporate consist principally of cash, net deferred income tax assets, property and
the 50 percent ownership interest in RSC.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
20. 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 StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002
$2,574
607
271
293
164
Sales
2001
$2,877
655
299
278
176
2000
2002
$3,209
685
329
268
170
$861
75
19
25
8
$988
Property
2001
$ 945
75
20
24
11
2000
$1,052
84
21
25
12
$1,075
$1,194
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,909
$4,285
$4,661
Sales are attributed to the geographic regions based on the country of destination.
21. Quarterly Financial Information (Unaudited)
2002 Quarters
First
$ 939
647
Fourth
Second
Third
(in millions, except per share amounts)
$995
670
$1,017
698
$958
659
2002
$3,909
2,674
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes and
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before accounting
change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings (loss) per share:
40
29
(79)
Continuing operations before accounting changeÏÏÏÏÏÏÏÏÏ
Net (loss) incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.16
(0.43)
Diluted earnings (loss) per share:
Continuing operations before accounting changeÏÏÏÏÏÏÏÏÏ
Net (loss) incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.16
(0.42)
54
58
61
0.31
0.33
0.31
0.33
75
90
90
0.48
0.48
0.47
0.47
64
49
49
0.27
0.27
0.26
0.26
233
226
121
1.22
0.66
1.20
0.64
Net income for 2002 includes: (a) a charge of $129 million ($108 million after tax, or 58 cents per
diluted share) for the impairment of goodwill and a trademark in connection with the adoption of SFAS 142
in the Ñrst quarter; (b) a reduction in the income tax provision of $18 million, or 10 cents per diluted share,
from the resolution of certain tax matters in the second quarter; (c) a reduction in the income tax provision of
$30 million, or 16 cents per diluted share, from the favorable resolution of certain tax matters in the third
quarter; (d) income of $5 million ($4 million after tax, or two cents per diluted share) from the favorable
settlement of intellectual property matters in the third quarter; (e) income of $4 million ($3 million after tax,
or two cents per diluted share) from the favorable settlement of intellectual property matters in the fourth
quarter and (f) a charge of $4 million ($3 million after tax, or two cents per diluted share) related to an asset
impairment and severance at FirstPoint Contact in the fourth quarter.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
21. Quarterly Financial Information (Unaudited) Ì (Continued)
2001 Quarters
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) from continuing operations before income
taxes and accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) from continuing operations before
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings (loss) per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings (loss) per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First
$1,112
749
102
69
134
0.38
0.74
0.38
0.73
Fourth
Second
Third
(in millions, except per share amounts)
$1,027
797
$1,170
785
$976
706
102
71
125
0.39
0.68
0.38
0.67
(56)
(27)
34
(0.15)
0.18
(0.15)
0.18
20
12
12
0.07
0.07
0.07
0.07
2001
$4,285
3,037
168
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) income 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.
60
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.:
We have audited the accompanying consolidated balance sheet of Rockwell Automation, Inc. and
subsidiaries as of September 30, 2002 and 2001, 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, 2002. Our audits also included the Ñnancial statement schedule listed in the Index at
Item 15(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 Automation, Inc. and subsidiaries at September 30, 2002 and 2001, and the results of
their operations and their cash Öows for each of the three years in the period ended September 30, 2002, 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.
As described in Note 3 to the Consolidated Financial Statements, on October 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 142, ""Goodwill and Other Intangible Assets.''
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 6, 2002
61
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 2003 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 2003 Proxy Statement.
Item 12. Security Ownership of Certain BeneÑcial Owners and Management and Related Stockholder
Matters.
See the information under the captions Voting Securities, Ownership by Management of Equity
Securities and Equity Compensation Plan Information in the 2003 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
See the information under the caption Board of Directors and Committees in the 2003 Proxy Statement.
Item 14. Controls and Procedures.
Within the 90-day period prior to the date of this report, Rockwell Automation carried out an evaluation,
under the supervision and with the participation of the Company's management, including its Chief Executive
OÇcer and Chief Financial OÇcer, of the eÅectiveness of the design and operation of Rockwell Automation's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Chief Executive OÇcer and Chief Financial OÇcer concluded that Rockwell Automation's disclosure
controls and procedures are eÅective to timely alert them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in Rockwell Automation's Exchange Act
Ñlings.
There were no signiÑcant changes in Rockwell Automation's internal controls or in other factors that
could signiÑcantly aÅect these controls subsequent to the date of their evaluation.
62
Item 15. 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, 2002 and 2001.
Consolidated Statement of Operations, years ended September 30, 2002, 2001 and 2000.
Consolidated Statement of Cash Flows, years ended September 30, 2002, 2001 and 2000.
Consolidated Statement of Shareowners' Equity, years ended September 30, 2002, 2001 and
2000.
Consolidated Statement of Comprehensive Income, years ended September 30, 2002, 2001 and
2000.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2002, 2001 and 2000.
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, Ñled as Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, 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.
Second Supplemental Indenture dated May 7, 2002 to the Indenture listed as
Exhibit 4-b-1 above.
* Management contract or compensatory plan or arrangement.
63
4-b-4
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
*l0-b-1
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.
Indenture dated as of December 1, 1996 between the Company and JPMorgan
Chase (formerly 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.
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, Ñled as Exhibit 10-a-8 to the Company's Annual Report
on Form 10-K for the year ended September 30, 2001, is hereby incorporated by
reference.
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.
64
*10-b-2
*10-b-3
*10-b-4
*10-b-5
*10-b-6
*10-b-7
*10-b-8
*10-b-9
*10-c-l
*10-c-2
*10-c-3
*10-c-4
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.
Copy of resolutions of the Board of Directors of the Company, adopted
December 1, 1999, amending the Company's 1995 Long-Term Incentives Plan.
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, Ñled as Exhibit 10-b-8 to the Company's Annual Report
on Form 10-K for the year ended September 30, 2001, is hereby incorporated by
reference.
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 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 between February 2, 2000 and July 30, 2001, 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.
* Management contract or compensatory plan or arrangement.
65
*10-c-5
*10-c-6
*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
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.
Form of Stock Option Agreement for options granted on July 31, 2001 and
February 6, 2002 for service on the Board between the Company and each of the
Company's Non-Employee Directors, Ñled as Exhibit 10-c-7 to the Company's
Annual Report on Form 10-K for the year ended September 30, 2001, is hereby
incorporated by reference.
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, Ñled as Exhibit 10-e-4 to the Company's Annual Report
on Form 10-K for the year ended September 30, 2001, is hereby incorporated by
reference.
Forms of Stock Option Agreements under the Company's 2000 Long-Term
Incentives Plan for options granted on October 1, 2001, Ñled as Exhibit 10-e-5 to
the Company's Annual Report on Form 10-K for the year ended September 30,
2001, is hereby incorporate by reference.
Forms of Stock Option Agreements under the Company's 2000 Long-Term
Incentives Plan for options granted on October 7, 2002.
* Management contract or compensatory plan or arrangement.
66
*10-e-7
*10-e-8
*10-e-9
*10-e-10
*10-f-1
*10-g-1
*10-g-2
*10-h-1
*10-h-2
*10-h-3
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, Ñled as Exhibit 10-e-6
to the Company's Annual Report on Form 10-K for the year ended
September 30, 2001, is hereby incorporated by reference.
Copy of resolutions of the Compensation and Management Development
Committee of the Board of Directors of the Company adopted December 5,
2001, amending certain outstanding awards under the Company's 1995 Long-
Term Incentives Plan and 2000 Long-Term Incentives Plan, Ñled as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, is hereby incorporated by reference.
Memorandum of Amendments to Outstanding Restricted Stock Agreements
under the Company's 1995 Long-Term Incentives Plan and 2000 Long-Term
Incentives Plan, approved and adopted by the Compensation and Management
Development Committee of the Board of Directors of the Company on
November 7, 2001, Ñled as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001, is hereby incorporated by
reference.
Form of Restricted Stock Agreement under the Company's 2000 Long-Term
Incentives Plan for awards made on November 7, 2001, Ñled as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, is hereby incorporated by reference.
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.
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.
* Management contract or compensatory plan or arrangement.
67
*l0-i-1
*10-j-1
*10-k-1
*10-k-2
10-l-1
10-l-2
10-l-3
10-m-l
10-m-2
10-m-3
10-n-1
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 Agreement 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 Agreement 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.
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.
* Management contract or compensatory plan or arrangement.
68
10-n-2
10-n-3
10-o-1
10-o-2
10-o-3
10-p-1
10-p-2
12
21
23
24
99-a-1
99-a-2
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.
364-Day Credit Agreement as of October 29, 2002 among the Company, the
Banks listed therein and JPMorgan Chase Bank, as Administrative Agent.
Three-Year Credit Agreement dated as of October 29, 2002 among the
Company, the Banks listed therein and JPMorgan Chase Bank, as
Administrative Agent.
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended
September 30, 2002.
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.
CertiÑcation of Periodic Report by the Chief Executive OÇcer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
CertiÑcation of Periodic Report by the Chief Financial OÇcer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
The Company Ñled a current report on Form 8-K dated August 6, 2002 in respect of the Statements
of Oath of Principal Executive OÇcer and Principal Financial OÇcer required by Securities Exchange
Commission Order No. 4-460.
69
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 AUTOMATION, INC.
By
/s/ MICHAEL A. BLESS
Michael A. Bless
Senior Vice President and
Chief Financial OÇcer
(principal Ñnancial oÇcer)
By
/s/ WILLIAM J. CALISE, JR.
William J. Calise, Jr.
Senior Vice President,
General Counsel and Secretary
By
/s/ DAVID M. DORGAN
David M. Dorgan
Vice President and Controller
(principal accounting oÇcer)
Dated: November 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the
25th day of November 2002 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
KENNETH F. YONTZ*
Director
*By
/s/ WILLIAM J. CALISE, JR.
William J. Calise, Jr., Attorney-in-fact**
**By authority of powers of attorney Ñled herewith
70
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Don H. Davis, Jr., Chairman of the Board and Chief Executive OÇcer of Rockwell Automation, Inc.,
certify that:
1.
I have reviewed this annual report on Form 10-K of Rockwell Automation, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in
this annual report, fairly present in all material respects the Ñnancial condition, results of operations and
cash Öows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying oÇcers and I are responsible for establishing and maintaining
disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the eÅectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the Ñling date of this annual report (the ""Evaluation Date''); and
c) presented in this annual report our conclusions about the eÅectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying oÇcers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all signiÑcant deÑciencies in the design or operation of internal controls which could
adversely aÅect the registrant's ability to record, process, summarize and report Ñnancial data and
have identiÑed for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have
a signiÑcant role in the registrant's internal controls; and
6. The registrant's other certifying oÇcers and I have indicated in this annual report whether there
were signiÑcant changes in internal controls or in other factors that could signiÑcantly aÅect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to signiÑcant deÑciencies and material weaknesses.
/s/ DON H. DAVIS, JR.
Don H. Davis, Jr.
Chairman of the Board
and Chief Executive OÇcer
Date: November 25, 2002
71
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Michael A. Bless, Senior Vice President and Chief Financial OÇcer of Rockwell Automation, Inc.,
certify that:
1.
I have reviewed this annual report on Form 10-K of Rockwell Automation, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in
this annual report, fairly present in all material respects the Ñnancial condition, results of operations and
cash Öows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying oÇcers and I are responsible for establishing and maintaining
disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the eÅectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the Ñling date of this annual report (the ""Evaluation Date''); and
c) presented in this annual report our conclusions about the eÅectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying oÇcers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all signiÑcant deÑciencies in the design or operation of internal controls which could
adversely aÅect the registrant's ability to record, process, summarize and report Ñnancial data and
have identiÑed for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have
a signiÑcant role in the registrant's internal controls; and
6. The registrant's other certifying oÇcers and I have indicated in this annual report whether there
were signiÑcant changes in internal controls or in other factors that could signiÑcantly aÅect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to signiÑcant deÑciencies and material weaknesses.
/s/ MICHAEL A. BLESS
Michael A. Bless
Senior Vice President
and Chief Financial OÇcer
Date: November 25, 2002
72
SCHEDULE II
ROCKWELL AUTOMATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2002, 2001 and 2000
Description
Year ended September 30, 2002
Additions
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions(b)
Balance at
End of
Year
(in millions)
Allowance for doubtful accounts(a) ÏÏ
Allowance for excess and obsolete
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$46
$16
50
52
14
20
Year ended September 30, 2001
Allowance for doubtful accounts(a) ÏÏ
Allowance for excess and obsolete
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$42
$14
47
80
15
2
Year ended September 30, 2000
Allowance for doubtful accounts(a) ÏÏ
Allowance for excess and obsolete
$52
$12
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
43
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
119
13
3
$Ì
Ì
Ì
$Ì
Ì
Ì
$Ì
Ì
Ì
$15
11
49
$10
12
30
$22
9
42
$47
53
23
$46
50
52
$42
47
80
(a) Includes allowances for current and other long-term receivables.
(b) Consists principally of amounts written oÅ for the allowance for doubtful accounts and excess and
obsolete inventory and adjustments resulting from the Company's ability to utilize foreign tax credit
carryforwards for which a valuation allowance had been recorded.
S-1
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)
Sales
Segment operating earnings
Income from continuing operations before
accounting change3
Diluted earnings per share from continuing operations3
Sales by segment:
Control Systems
Power Systems
FirstPoint Contact
Other
Total
2000
$4,661
696
389
2.05
$3,641
803
168
49
$4,661
20011
20022
$4,285
474
198
1.07
$3,327
748
150
60
$4,285
$3,909
381
174
0.92
$3,060
716
133
—
$3,909
1Before charges of $91 million ($60 million after tax, or 32 cents per share) for costs associated with realignment actions which were partially off-
set by income of $18 million ($12 million after tax, or six cents per share) resulting from the favorable settlement of an intellectual property matter
and a reduction of the income tax provision of $22 million, or 12 cents per share, from the resolution of certain tax matters.
2 Before a reduction of the income tax provision of $48 million, or 26 cents per share, from the resolution of certain tax matters, income of
$9 million ($7 million after tax, or four cents per share) from the favorable settlement of intellectual property matters, and a charge of $4 million
($3 million after tax, or two cents per share) related to an asset impairment and severance at FirstPoint Contact.
3Results for 2000 and 2001 have been adjusted to reflect a change in the accounting for goodwill and other intangible assets deemed to have an
indefinite useful life. The adjustment resulted in an increase to income from continuing operations before accounting change of $45 million, or 24
cents per share in 2000, and $47 million, or 25 cents per share in 2001.
Rockwell Automation 777 East Wisconsin Avenue. Suite 1400. Milwaukee, WI 53202. 414.212.5200. www.rockwellautomation.com
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2002 Annual Report
& Form 10-K
Rockwell Automation
Control Systems
Power Systems
FirstPoint Contact
Rockwell Scientific
Company LLC.