2004 Annual Report and Form 10-K
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EXCEED CUSTOMER EXPECTATIONS
DELIVER SUPERIOR RESULTS
INVEST IN SUSTAINABLE GROWTH
R O C K W E LL AU TO M AT I O N
777 East Wisconsin Avenue. Suite 1400. Milwaukee. WI 53202
414-212-5200 www.rockwellautomation.com
FINANCIAL HIGHLIGHTS
c o n t i n u i n g o p e r a t i o n s
(dollars in millions, except per share amounts)
20021
20032
20043
Sales
Segment operating earnings
Income from continuing operations
before accounting change
Diluted earnings per share from continuing
operations before accounting change
$3,775.7
377.3
$3,992.3
452.2
$4,411.1
595.4
223.7
1.19
281.4
1.48
354.1
1.85
Sales by segment:
Control Systems
Power Systems
$3,059.3
716.4
$3,287.4
704.9
$3,658.6
752.5
Total
$3,775.7
$3,992.3
$4,411.1
1Includes a reduction of the income tax provision of $48.2 million, or $0.26 per share, from the resolution of certain tax matters.
2 Includes a reduction of the income tax provision of $69.4 million, or $0.37 per share, related to the settlement
of a U.S. federal research and experimentation credit refund claim.
3Includes a reduction of the income tax provision of $46.3 million, or $0.24 per share, related to the resolution
of certain tax matters as well as state tax refunds.
$4,411
$595
$213
$499
$3,992
$3,776
$188
$173
$452
$377
$362
$312
2
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Sales
(dollars in millions)
Operating Earnings
(dollars in millions)
Sales per Employee
(dollars in thousands)
Free Cash Flow
(dollars in millions)
control systems
power systems
“OUR VALUE CREATION PROPOSITION HAS BEEN
CONSISTENT: TO HELP OUR CUSTOMERS BE MORE
PRODUCTIVE AND GLOBALLY COMPETITIVE.”
DEAR SHAREOWNERS
Fiscal 2004 was a significant and gratifying year for Rockwell Automation.
Our financial results were outstanding — across the board.
• Sales growth of 7 percent (excluding the benefit of currency translation);
• Margin improvement of 2.3 points at Control Systems and 1.3 points at Power Systems;
• Segment operating earnings increase of 32 percent;
• Earnings per share from continuing operations of $1.85, up 25 percent; and
• Free cash flow of $499 million (11 percent of sales and 141 percent of income from continuing
operations), reflecting high quality earnings and our continued focus on capital spending discipline.
Our success has been rooted in a consistent, long-term strategy. Over the last several years we have worked
hard to position ourselves to benefit from an industrial recovery. Despite the challenges of an economic
downturn and volatile markets, we remained committed to the long-term profitable growth of our powerful
franchise. We’ve invested in breakthrough products and services for future growth and have made lean
enterprise a way of life.
Importantly, we’ve also worked to make our businesses more consistent by investing in capabilities in
growing regions of the world, additional vertical industry expertise and in a robust services business that
is less dependent on industrial capital spending cycles. This was not an easy path to take at a time of
industry disinvestment. Our value creation proposition has been consistent: to help our customers be
more productive and globally competitive.
Our strong financial performance in fiscal 2004 confirms the wisdom of our course, and reinforces our
overarching goal of consistent and profitable long-term growth.
02
Don H. Davis, Jr. and Keith D. Nosbusch
0303
“I’VE NEVER BEEN MORE CONFIDENT ABOUT THE
FUTURE OF THIS COMPANY.”
Four significant initiatives have provided the balanced underpinning for our recent success. They are also the
foundation of my confidence in our ability to take further advantage of greater capital spending and other
factors driving global manufacturing in the future.
• CREATION OF A PREMIER PRODUCT PORTFOLIO ANCHORED BY LOGIX. Our strong product
portfolio, anchored by the unique Integrated Architecture and the Logix control platform, gives us a
meaningful global competitive edge. Logix provides manufacturers with the foundation for transforming their
factory floor operations by more easily integrating multiple control disciplines as well as providing critical
information which links their plant to the global supply chain. Our customers have responded enthusiastically
to this market leading system, which we continue to develop and upgrade. To date our investment in Logix
exceeds $200 million and the returns have been significant. In 2004, our Logix business grew 30 percent
to over $330 million in sales.
• EXPANSION OF OUR SERVED MARKETS. A few years ago, with Logix as our foundation, we set a goal
of expanding our presence in the important hybrid process and manufacturing information solution markets.
During 2004, we continued to develop new applications and invest in industry sales resources to build our
presence in these areas. We generated sales of $100 million in 2004 as we've demonstrated our domain
expertise in life sciences, food and beverage.
• EXTENSION OF OUR GEOGRAPHIC REACH. Our focus on investing in global markets has yielded
tangible results. Sales outside the U.S. now exceed 38 percent of our total sales. We are investing in Asia
Pacific, with particular emphasis on China. Our sales in China surpassed $100 million, and we are projecting
a 30 percent annual growth rate over the next five years. Latin America sales grew by 17 percent, before the
effect of currency translation. We have begun investing in infrastructure, sales resources and market access
capabilities to accelerate market share gains in Central and Eastern Europe.
40
• IMPLEMENTATION OF LEAN ENTERPRISE MANAGEMENT. While lean enterprise has become a way
of life at Rockwell Automation, we continue to target productivity improvements and cost management. This
progress is evidenced by our sales per employee which increased from $173 thousand to $213 thousand
or 23 percent from 2002-2004.
Fiscal 2004 also marked an important transition for Rockwell Automation. In February, Keith Nosbusch
assumed responsibility as chief executive officer after an extraordinarily successful career in our Control
Systems business. Keith is exceptionally qualified to lead your company and he heads a management
team as good as there is. Keith will be named Chairman of the Board, effective following our Annual Meeting
on February 2, 2005. With Keith at the helm, I am confident that the years to follow will continue to be
rewarding for our shareowners.
Finally, I wish to thank you for the opportunity to have served this great company. To current and former
Rockwell Automation employees, I thank you for all the encouragement and support you have given me.
The 42-year journey I have enjoyed with you has been wonderful. Your hard work, dedication and passion
for excellence have been the foundation of the success we have achieved together.
To our investors and others who have followed us, my thanks for your support. I step down as Chairman
secure in my belief in the future of our company and the team in place to lead it. This will be my last Annual
Report letter as Chairman of Rockwell Automation and I’ve never been more confident about the future
of this company.
DON H. DAVIS, JR.
Chairman of the Board
05
QUESTIONS AND ANSWERS WITH
KEITH D. NOSBUSCH
In the following Q&A, President and Chief Executive Officer Keith Nosbusch discusses
the strong fundamentals of our business, his strategic focus and long-term outlook.
WHAT’S THE MOST SIGNIFICANT CHANGE THAT HAS DRIVEN THE INDUSTRIAL AUTOMATION
INDUSTRY OVER THE PAST FEW YEARS AND HOW HAS ROCKWELL AUTOMATION RESPONDED?
The most significant change has been the evolving customer requirement for open architectures and
commercial technology. Our customers wanted the flexibility to buy equipment from any automation
supplier and have that equipment work in the multi-vendor environments that exist in most factories.
We have been a leader in developing and deploying open systems as evidenced by our industry
leading Logix integrated control and information architecture and our NetLinx communication services.
The economic environment, especially for manufacturing, has been extremely difficult over the last few
years. Capital spending suffered a sharp pull back across the markets we serve. Customers focused on
ways to downsize, reduce their costs, increase asset productivity and outsource non-core functions and
activities. In short, they needed us to do more for them. We responded by investing in strengthening
our portfolio, adding new people and expertise. We now work with our customers across the entire
manufacturing life cycle: design, install, operate and maintain. As a company focused on industrial
automation products, services and solutions, those are the areas where we bring value to our global
customer base of world leading manufacturers. We are now less dependent on the industrial capital
spending cycle, and positioned to benefit from a strengthening economy. Our fiscal 2004 results
prove this point.
WHAT SETS ROCKWELL AUTOMATION APART FROM ITS COMPETITORS?
I would say it’s several things: people, focus, technology leadership, willingness to partner and
global resources. Most importantly, our people are extremely knowledgeable and passionate
about our business.
06
We are driven to help our customers succeed and make them more productive. We are able
to harness that drive and that passion with great results because of our focus. We are the largest
company in the world focused solely on automation. This focus also transcends to our customers.
We listen to what they say and how they use manufacturing for global competitive advantage.
That’s where our technology leadership comes in. Throughout our 100 year history of serving
the manufacturing industry, we have developed a large customer base and innovative world class
expertise in applying automation technology to improve manufacturing operations. We provide our
customers with one of the broadest suites of automation products, services and solutions of anyone
in the industry. We are also proud of the way we partner with our customers and other companies
to augment our offering. This unique competency in partnering creates expanded capabilities to
ensure we respond to customer requirements.
Business today is global and we must be able to serve our customers wherever they are located.
We operate on every continent, with employees solving problems - on site, wherever and whenever
they happen. Our global presence gives us the ability to offer customers consistency in deployment
of automation services and solutions, no matter where their plants are located.
WHY HAS LOGIX BEEN SO SUCCESSFUL?
Logix truly is a “game changing” technology that is revolutionizing manufacturing. Developed as
a response to customer needs, Logix integrates multiple control disciplines such as discrete, motion,
process, drives and safety onto a single platform. Logix helps our customers reduce costs, speed
development and improve productivity, thus making them more competitive. No one else in the
world can do this.
07
“WE ARE INTENSELY FOCUSED ON BEING
THE MOST VALUED GLOBAL PROVIDER OF POWER,
CONTROL AND INFORMATION SOLUTIONS FOR
INDUSTRIAL AUTOMATION.”
Logix is our foundation for growth. It has enabled us to expand our served discrete market by offering
customers integrated solutions for batch manufacturing, process optimization and regulatory compliance.
For the first time, manufacturers can adopt a single integrated control and information architecture for
an entire plant.
Logix is also the key enabler for our growth in the evolving manufacturing information solutions market.
It allows our customers to collect and use plant-floor data to enhance manufacturing and supply
chain processes and make more effective real-time business decisions. We are now able to help our
customers increase their productivity by using information from their control platforms. This information
drives the improved performance of their machines, lines, plants and enterprise systems. The ability
to integrate plant-floor data with business systems and supply chains is revolutionizing the way
manufacturing is done.
HOW DO YOU FEEL ABOUT THE REST OF THE ROCKWELL AUTOMATION PORTFOLIO?
We have never been better positioned to meet the needs of our customers. Our steady investment
in power control solutions, systems architecture and a growing portfolio of value-added services and
manufacturing solutions has strengthened our market presence. We also continue to introduce new
mechanical power transmission, motor and drive products in key markets, positioning our Power
Systems business for future growth. With our leading people and know how, our prospects for
sustainable growth and increased profitability are well founded. We are also less dependent
on the fluctuations of the business cycle. We are intensely focused on being the most valued
global provider of power, control and information solutions for industrial automation.
08
HOW IS ROCKWELL AUTOMATION’S GROWTH AROUND THE WORLD GOING?
We experienced strong performance worldwide in fiscal 2004. We saw the U.S. market come
back with sales up 8 percent over the prior year. Europe and Canada grew at 2 percent (excluding
currency translation). Asia was one of our fastest growing regions with sales up 15 percent
(excluding currency translation). This was driven by increased activity in China and India. China is
developing very quickly and is our second largest market for Logix. Both countries will be important
for our future growth. Latin America also enjoyed rapid growth, where sales were up 17 percent
(excluding currency translation) primarily due to increased capital spending on large projects.
We are committed to significant global growth. Our goal is to achieve 50 percent international
sales within the next five years. We recognize that to achieve this goal we must be close
to our customers. We will be on the ground, working shoulder-to-shoulder to help them maintain
a competitive advantage. To this end, we are making significant investments in the local resources
necessary to expand our global market presence.
WHAT ROLE WILL ACQUISITIONS PLAY TO INCREASE YOUR GROWTH?
We view acquisitions as an important element of our growth strategy. We follow a disciplined
process to identify and evaluate potential candidates. We are focused on businesses that expand
our product and services breadth and scale, our technology capabilities and our global reach.
Since 2000, we have made nine acquisitions and each of these has accomplished one or more
of these objectives. Each one has allowed us to do more for our customers as well as expand
our served market.
09
“WE ENJOY GREAT FINANCIAL STRENGTH,
SIGNIFICANT OPERATING LEVERAGE,
OUTSTANDING CASH FLOW AND A STRONG
BALANCE SHEET.”
LOOKING AT THE ECONOMY, WHAT ARE YOUR EXPECTATIONS FOR CAPITAL SPENDING IN 2005?
The outlook is quite good. Manufacturers have been playing catch-up after several years of severe
under-investment. Capacity expansion is driving growth in Asia and Latin America. In North America
and Europe, most investments have been designed to achieve productivity improvements in order
to get more out of existing plants and equipment. Looking ahead, we expect this situation to continue
worldwide as companies seek to optimize their asset base. This bodes well for the growth of our
services business. We also believe demand for larger projects will pick up in 2005, as we are
beginning to see more quoting and market activity.
WHAT CAN WE LOOK FORWARD TO IN 2005 AND BEYOND?
Rockwell Automation’s market presence and growth prospects are excellent. We enjoy great financial
strength, significant operating leverage, outstanding cash flow and a strong balance sheet. We will
use this capacity to invest in sustainable growth for our businesses. At the same time, we will continue
to drive productivity through our lean enterprise initiatives. I believe this balanced strategy will drive
success for our customers, our shareowners and our employees.
10
A TRIBUTE TO DON H. DAVIS, JR.
Don Davis presided over a critical phase in the
An unwavering sense of ethics and social
strategic transformation of this company, help-
responsibility are hallmarks of Don Davis. He
ing turn a conglomerate called Rockwell
has always had an uncompromising conviction
International into a focused global industrial
to do the right thing – for the business, for
enterprise called Rockwell Automation, and in
employees, customers and shareowners. He
doing so creating extraordinary shareowner
believes absolute integrity is a must for any
value. Don has announced plans to step down
leader at Rockwell Automation extending per-
as chairman of the board in February 2005,
sonal responsibility for leadership to every
concluding a 42-year career with the company.
employee. People who have worked side-by-
side with Don Davis over the years have
Don joined Allen-Bradley in 1963 as an engi-
described him as “the best salesperson we
neering sales trainee. He moved up through the
ever had,” and “the embodiment of leadership
sales and marketing ranks and was named
at its best.”
president of Allen Bradley in 1989 and presi-
dent of Rockwell International in 1996, CEO in
Our company, our shareowners, our employ-
1997 and chairman in 1998.
ees and our community organizations have all
benefited from Don’s leadership, dedication
Throughout Don’s career, he developed his
and commitment. Rockwell Automation will
mantra for success: focus on the customer,
continue to prosper as a direct result of his
invest in world-class technology and innovation
efforts, and while he has put in place a top
for future growth, run a lean ship, and look for
notch management team to continue the com-
opportunities to increase market presence. He
pany’s growth, Don Davis will be missed.
was the driving force behind the commercial
development of our industry-leading integrated
control and information architecture.
11
11
ROCKWELL AUTOMATION CORPORATE OFFICERS
KEITH D. NOSBUSCH
President and
Chief Executive Officer
JOHN D. COHN
Senior Vice President,
Strategic Development and
Communications
KENT G. COPPINS
Vice President
and General Tax Counsel
THEODORE D. CRANDALL
Senior Vice President
DAVID M. DORGAN
Vice President and Controller
STEVEN A. EISENBROWN
Senior Vice President
JAMES V. GELLY
Senior Vice President
and Chief Financial Officer
DOUGLAS M. HAGERMAN
Senior Vice President,
General Counsel and Secretary
MARY JANE HALL
Senior Vice President,
Human Resources
JAMES E. HART
Vice President,
Finance
JOHN P. McDERMOTT
Senior Vice President
JOHN M. MILLER
Vice President and Chief
Intellectual Property Counsel
TIMOTHY C. OLIVER
Vice President and Treasurer
RONDI ROHR-DRALLE
Vice President,
Corporate Development
ROBERT A. RUFF
Senior Vice President
A. LAWRENCE STUEVER
Vice President and General Auditor
JOSEPH D. SWANN
Senior Vice President and
President, Power Systems
12
ROCKWELL AUTOMATION BOARD OF DIRECTORS
DON H. DAVIS, JR.
Chairman of the Board
BETTY C. ALEWINE
Retired President
and Chief Executive Officer
COMSAT Corporation
WILLIAM H. GRAY, III
Retired President
and Chief Executive Officer
The College Fund/UNCF
VERNE G. ISTOCK
Retired Chairman
and President
Bank One Corporation
WILLIAM T. McCORMICK, JR.
Retired Chairman
and Chief Executive Officer
CMS Energy Corporation
KEITH D. NOSBUSCH
President and
Chief Executive Officer
BRUCE M. ROCKWELL
Retired Executive Vice President
Fahnestock & Co. Inc.
DAVID B. SPEER
President
Illinois Tool Works Inc.
JOSEPH F. TOOT, JR.
Retired President
and Chief Executive Officer
The Timken Company
KENNETH F. YONTZ
Chairman of the Board
Sybron Dental Specialties Inc.
13
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:
Timothy C. Oliver
Vice President and Treasurer
414.212.5210
CORPORATE PUBLIC RELATIONS
Members of the news media should call:
Matthew P. Gonring
Vice President
Global Marketing and Communications
414.382.5575
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 2, 2005. A notice of the meeting and
proxy materials will be delivered to shareowners
in December 2004.
SHAREOWNER SERVICES
Mellon Investor Services, our transfer agent
and registrar, maintains the records for our
registered shareowners and can help you with
a variety of shareowner related services. You
can access your shareowner account in one of
the following three ways:
INTERNET
Log on to www.melloninvestor.com/isd for
convenient access 24 hours a day, 7 days
a week for online services including account
information, change of address, transfer of
shares, lost certificates, dividend payment
elections and additional administrative services.
If you are interested in receiving shareowner
information electronically, enroll in MLinkSM,
a self-service program that provides electronic
notification and secure access to shareowner
communications. To enroll, follow the MLinkSM
enrollment instructions when you access your
shareowner account via
www.melloninvestor.com/isd
TELEPHONE
Call Mellon Investor Services at one of the
following numbers:
Inside the United States: 1.800.204.7800
Outside the United States: + 1.210.329.8660
IN WRITING
Correspondence about share ownership,
dividend payments, transfer requirements,
change of address, lost certificates and account
status may be directed to:
Mellon Investor Services LLC
PO Box 3338
South Hackensack, NJ 07606-1938
14
GENERAL INFORMATION CONTINUED
Shareowners wishing to transfer stock should
send their written request, stock certificate(s)
and other required documents to:
Mellon Investor Services LLC
P.O. Box 3312
South Hackensack, NJ 07606-1915
Registered or Overnight Mail
should be sent to:
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660-2108
A copy of our annual report (including annual
report on Form 10-K) may be obtained without
charge through the Internet at http://www.share-
holder.com/rockwellauto/document-request.cfm
or by calling 888.765.3228. Other investor
information is available in the Investor Relations
section of our website at
www.rockwellautomation.com
Shareowners needing further assistance should
contact Rockwell Automation Shareowner
Relations by telephone at 414.212.5300 or
email at shareownerrelations@ra.rockwell.com
INVESTOR SERVICES PROGRAM
Under the Mellon Investor Services Program
for Shareowners of Rockwell Automation,
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
participating 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 terminate their participation at any time.
For full details of the program, direct inquiries to:
Mellon Bank, N.A.
c/o Mellon Investor Services LLC
P.O. Box 3338
South Hackensack, NJ 07606-1938
800.204.7800 or 201.329.8660
www.melloninvestor.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202
414.271.3000
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
P.O. Box 3316
South Hackensack, NJ 07606-1916
800.204.7800 or 201.329.8660
STOCK EXCHANGES
Common Stock (Symbol: ROK)
United States: New York and Pacific
United Kingdom: London
15
FORM 10-K
ROCKWELL AUTOMATION
01
FINANCIAL HIGHLIGHTS
c o n t i n u i n g o p e r a t i o n s
(dollars in millions, except per share amounts)
20021
20032
20043
Sales
Segment operating earnings
Income from continuing operations
before accounting change
Diluted earnings per share from continuing
operations before accounting change
$3,775.7
377.3
$3,992.3
452.2
$4,411.1
595.4
223.7
1.19
281.4
1.48
354.1
1.85
Sales by segment:
Control Systems
Power Systems
$3,059.3
716.4
$3,287.4
704.9
$3,658.6
752.5
Total
$3,775.7
$3,992.3
$4,411.1
1Includes a reduction of the income tax provision of $48.2 million, or $0.26 per share, from the resolution of certain tax matters.
2 Includes a reduction of the income tax provision of $69.4 million, or $0.37 per share, related to the settlement
of a U.S. federal research and experimentation credit refund claim.
3Includes a reduction of the income tax provision of $46.3 million, or $0.24 per share, related to the resolution
of certain tax matters as well as state tax refunds.
UNITED STATES
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, 2004. 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 March 31,
2004 was approximately $6.4 billion.
184,191,340 shares of registrant's Common Stock, par value $1 per share, were outstanding on
October 31, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of
registrant to be held on February 2, 2005 is incorporated by reference into Part III hereof.
Item 1. Business.
General
PART I
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a leading global provider of
industrial automation power, control and information products and services. The Company was incorporated in
Delaware in 1996 and is the successor to the former Rockwell International Corporation as the 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, we completed the spinoÅ of our automotive component systems 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 ArvinMeritor, Inc. (ArvinMeritor). On
December 31, 1998, we completed the spinoÅ of our semiconductor systems business (Semiconductor
Systems) into an independent, separately traded, publicly held company named Conexant Systems, Inc.
(Conexant). On June 29, 2001, we completed the spinoÅ of our 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 ""we'', ""us'', ""our'', 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 our 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. Financial Statements and Supplementary Data (the Financial Statements), or to
information in our Proxy Statement for the Annual Meeting of Shareowners of the Company to be held on
February 2, 2005 (the 2005 Proxy Statement), such information is incorporated therein by such reference. All
date references to years refer to our Ñscal year unless otherwise stated.
Operating Segments
We have two operating segments: Control Systems and Power Systems. In 2004, our total sales were
$4.4 billion. Financial information with respect to our business segments, including their contributions to sales
and operating earnings for each of the three years in the period ended September 30, 2004, is contained under
the caption Results of Operations in MD&A on page 14 hereof, and in Note 18 in the Financial Statements.
Control Systems
Control Systems is our largest operating segment with 2004 sales of $3.7 billion (83 percent of our total
sales) and approximately 16,800 employees at September 30, 2004. Control Systems supplies industrial
automation products, systems, software and services focused on helping customers control and improve
manufacturing processes and is divided into three business groups: the Components and Packaged
Applications Group (CPAG), the Automation Control and Information Group (ACIG) and Global
Manufacturing Solutions (GMS).
CPAG supplies industrial components, power control and motor management products, and packaged
and engineered products and systems. CPAG's sales account for approximately 40 percent of Control Systems'
sales.
ACIG's core products are used primarily to control and monitor industrial plants and processes and
typically consist of a processor and input/output (I/O) devices. Our integrated architecture and Logix
controllers perform multiple types of control applications, including discrete, batch, continuous process, drive
system, motion and machine safety across various factory Öoor operations. ACIG's sales account for
approximately 40 percent of Control Systems' sales.
2
GMS provides multi-vendor automation and information systems and solutions that help customers
improve and support their manufacturing operations. GMS's sales account for approximately 20 percent of
Control Systems' sales.
The following is a summary of the major products and services and major competitors of the Control
Systems business groups:
Business Group
Major Products/Services
Major Competitors
CPAG
ACIG
GMS
Motor starters
Contactors
Push buttons
Signaling devices
Termination and protection devices
Relays and timers
Condition sensors
Adjustable speed drives
Motor control centers
Drive systems
Controllers
Control platforms
Input/output devices
High performance rotary and linear
motion control systems
Electronic operator interface devices
Sensors
Plant Öoor industrial computers
Machine safety components
Multi-vendor customer support
Training
Software
Automation systems integration
Asset management
Manufacturing information solutions
ABB, Ltd.
Schneider Electric SA
Siemens AG
Emerson Electric Co.
Mitsubishi
Omron
Schneider Electric SA
Siemens AG
Emerson Electric Co.
General Electric Company
Invensys
Siemens AG
Depending on the product or service involved, Control Systems' competitors range from large diversiÑed
businesses that sell products outside of industrial automation, to smaller companies specializing in niche
products and services. Factors that inÖuence Control Systems' competitive position are its broad product
portfolio and scope of solutions, technology leadership, 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 and Rockwell Software brand
names. Major markets served include consumer products, transportation, oil and gas, mining, metals and
forest products.
In North America, Control Systems' products are sold primarily through independent distributors that
generally 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 or system integrators. Product sales outside the United States occur through a combination of
direct sales, sales through distributors and sales through system integrators.
In 2004, sales in the United States accounted for 56 percent of Control Systems' sales. Outside the U.S.,
Control Systems' primary markets were Canada, Germany, the United Kingdom, Italy, China, Korea and
Australia.
Control Systems is headquartered in Milwaukee, Wisconsin and has operations in North America,
Europe, Asia-PaciÑc and South America.
3
Power Systems
Power Systems recorded 2004 sales of $752.5 million (17 percent of our total sales) and had
approximately 4,000 employees at September 30, 2004. Power Systems is divided into two businesses: Dodge
mechanical (Mechanical) and Reliance electrical (Electrical).
The following is a summary of the major products and services and major competitors of the Power
Systems businesses:
Business
Major Products/Services
Major Competitors
Mechanical
Electrical
Mounted bearings
Gear reducers
Mechanical drives
Conveyor pulleys
Couplings
Bushings
Clutches
Motor brakes
Emerson Electric Co.
Falk Corporation
Rexnord Corporation
SEW Ì Eurodrive
SKF
Industrial and engineered motors
Adjustable speed drives
Repair services
Motor and mechanical maintenance solutions Regal-Beloit Corporation
Training
Consulting services to OEMs,
end-users and distributors
A.O. Smith Corporation
Baldor Electric Company
Emerson Electric Co.
Siemens AG
Depending on the product involved, Power Systems' competitors range from large diversiÑed businesses
that sell products outside of industrial automation, to smaller companies specializing in niche products and
services. Factors that inÖuence Power Systems' competitive position are product quality, installed base and its
established distributor network. While Power Systems' competitive position is strong in North America, it is
limited somewhat by its small presence outside the United States.
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,
cement, aggregates, environmental, forest products, food/beverage, oil and gas, metals and material handling.
Mechanical's products are sold primarily through distributors while Electrical's products are sold
primarily through a direct sales force.
In 2004, sales in the United States accounted for 89 percent of Power Systems' sales. Outside the U.S.,
Power Systems' primary markets were Canada, China and Mexico.
Power Systems is headquartered in Greenville, South Carolina and has operations in North America,
Europe and Asia-PaciÑc.
Divestitures
In September 2004, we sold our FirstPoint Contact business. Additional information relating to this
divestiture is contained in Note 13 in the Financial Statements.
Geographic Information
In 2004, sales in the United States accounted for 62 percent of our total sales. Our principal markets
outside the United States are in Canada, Germany, the United Kingdom, Italy, China, Korea and Mexico. In
addition to normal business risks, our non-U.S. operations are subject to other risks including, among other
factors, political, economic and social environments, governmental laws and regulations and currency
revaluations and Öuctuations.
4
Sales and property information by major geographic area for each of the three years in the period ended
September 30, 2004 is contained in Note 18 in the Financial Statements.
Research and Development
Our research and development spending is summarized as follows:
Year Ended September 30,
2003
2002
2004
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$111.8
9.9
$111.9
9.7
$113.4
9.8
$121.7
$121.6
$123.2
Customer-sponsored research and development was not material in 2004, 2003 or 2002.
Employees
At September 30, 2004, we had approximately 21,000 employees. Nearly 14,000 were employed in the
United States, and, of these employees, about 7 percent were represented by various local or national unions.
Raw Materials and Supplies
We purchase many items of equipment, components and materials used in the production of our products
from others. The raw materials essential to the conduct of each of our business segments generally are
available at competitive prices. Although we have a broad base of suppliers and subcontractors, we are
dependent upon the ability of our suppliers and subcontractors to meet performance and quality speciÑcations
and delivery schedules. We have in the past experienced shortages of certain components and materials, which
had an adverse eÅect on our ability to make timely deliveries of certain products. Market forces, particularly
for certain raw materials, have also caused signiÑcant increases in costs of those materials. Both shortages and
cost increases, if they occur again, could have an adverse eÅect on our operating results.
Backlog
Our total order backlog was $500.4 million at September 30, 2004 and $395.5 million at September 30,
2003. Backlog is not necessarily indicative of results of operations for future periods due to the short-cycle
nature of most of our sales activities.
Environmental Protection Requirements
Information about the eÅect on the Company and its manufacturing operations of compliance with
environmental protection requirements and resolution of environmental claims is contained in Note 17 in the
Financial Statements. See also Item 3. Legal Proceedings, on page 6 hereof.
Patents, Licenses and Trademarks
We own or license numerous patents and patent applications related to our products and operations.
Various claims of patent infringement and requests for patent indemniÑcation have been made to us. We
believe that none of these claims will have a material adverse eÅect on our Ñnancial condition. See Item 3.
Legal Proceedings, on page 6 hereof. While in the aggregate our patents and licenses are important in the
operation of our business, we do not believe that loss or termination of any one of them would materially aÅect
our business or Ñnancial condition.
The Company's name and its registered trademark ""Rockwell Automation'' is important to each of our
business segments. In addition, we own other important trademarks we use for certain of our products and
services, such as ""Allen-Bradley'' and ""A-B'' for electronic controls and systems for industrial automation,
5
""Reliance'' and ""Reliance Electric'' for electric motors and drives and ""Dodge'' for mechanical power
transmission products.
Seasonality
Our business segments are generally not subject to seasonality.
Available Information
We maintain an Internet site at http://www.rockwellautomation.com. Our 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 our annual
report to shareowners and Section 16 reports on Forms 3, 4 and 5, are available free of charge on this site as
soon as reasonably practicable after we Ñle or furnish these reports with the Securities and Exchange
Commission (SEC). All reports we Ñle with the SEC are also available free of charge via EDGAR through
the SEC's website at http://www.sec.gov. Our Guidelines on Corporate Governance and charters for our
Board Committees are also available at our Internet site. The Guidelines and charters are also available in
print to any shareowner upon request. The information contained on and linked from our Internet site is not
incorporated by reference into this Form 10-K.
Item 2. Properties.
At September 30, 2004, we operated 69 plants, principally in North America. We also had 279 sales and
administrative oÇces and a total of 32 warehouses, service centers, and other facilities. The aggregate Öoor
space of our facilities was approximately 14.3 million square feet. Of this Öoor space, we owned approximately
60 percent and leased approximately 40 percent. Manufacturing space occupied approximately 7.0 million
square feet. Our Control Systems segment occupied approximately 4.4 million square feet, and our Power
Systems segment occupied the remaining approximately 2.6 million square feet of manufacturing space. At
September 30, 2004, approximately 1.1 million square feet of Öoor space was not in use, principally in owned
facilities.
There are no major encumbrances (other than Ñnancing arrangements, which in the aggregate are not
material) on any of our plants or equipment. In our opinion, our 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 us and another former operator of the Rocky Flats Plant (the Plant),
Golden, Colorado, that we operated from 1975 through December 31, l989 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 environmental, 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 us, in the action. Beginning on that date, the costs of our defense, which had previously been
reimbursed to us by the DOE, have been and are being paid directly by the DOE. We believe that we are
entitled under applicable law and our contract with the DOE to be indemniÑed for all costs and any liability
associated with this action.
6
On November 13, 1990, we were served with another civil action brought against us 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 our 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 us that it would no longer
reimburse costs incurred by us 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 us 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 will also be entitled to an
award of attorney's fees but the court refused to award fees 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, we 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. 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 and, the trial court having made
Ñndings of fact on the issue, on March 15, 2004, a panel of the Court of Appeals again ruled that Mr. Stone is
entitled to an award of attorneys' fees. We believe that ruling is in error and have petitioned the 10th Circuit
Court of Appeals for en banc review. We believe that an outcome adverse to us will not have a material eÅect
on our business or Ñnancial condition. We believe that we are entitled under applicable law and our contract
with the DOE to be indemniÑed for all costs and any liability associated with this action, and intend to Ñle a
claim with the DOE seeking reimbursement at the conclusion of the litigation.
On January 8, 1991, we Ñled suit in the United States Claims Court against the DOE, seeking recovery of
$6.5 million of award fees that we allege are owed to us under the terms of our 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 us 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. We believe
the government's counterclaim is without merit, and believe we are entitled under applicable law and our
contract with the DOE to be indemniÑed for any liability associated with the counterclaim.
Russellville. On August 13, 2004, we received a favorable ruling from the Kentucky Supreme Court in
the principal case against us by private plaintiÅs arising from alleged environmental contamination in
Russellville, Kentucky from a plant owned and operated by our Measurement & Flow Control Division prior
to its divestiture in March 1989. This eÅectively ends a case in which a $218 million judgment had been
entered against us in a civil action in the Circuit Court of Logan County, Kentucky on a 1996 jury verdict. The
action had been brought by owners of Öood plain real property in the area around Russellville allegedly
damaged by polychlorinated biphenyls (PCBs) discharged from our plant. On January 14, 2000, the Kentucky
Court of Appeals reversed the lower court's judgment and directed entry of judgment in our favor on all claims
as a matter of law. On August 8, 2003, the Court of Appeals issued a second decision holding that the amounts
of PCBs alleged by plaintiÅs to have contaminated their properties were insuÇcient to constitute an actionable
injury under Kentucky law, thus requiring dismissal of plaintiÅs' suit with prejudice. PlaintiÅs Ñled a petition
for discretionary review with the Kentucky Supreme Court, which was denied on August 13, 2004.
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 our 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 civil penalties pending
implementation of an appropriate remediation program. On August 13, 1999, the Court of Appeals aÇrmed
7
the trial court's judgment, a ruling that the Supreme Court of the State of Kentucky has let stand. We have
been proceeding with remediation and characterization eÅorts consistent with the trial court's ruling.
Solaia Technology LLC. We and our wholly owned subsidiary Rockwell Software Inc. are parties in
several suits in which Solaia Technology LLC is adverse. Solaia is a single-purpose entity formed to license
US Patent No. 5,038,318 (the '318 patent). Solaia acquired the '318 patent from Schneider Automation, Inc.,
a competitor of ours in the Ñeld of factory automation. Schneider has retained certain interests in the '318
patent, including a share in Solaia's licensing income. Solaia has asserted that the '318 patent covers computer
controlled factory automation systems used throughout most modern factories in the United States.
Solaia has issued hundreds of demand letters to a wide range of factory owners and operators, and has
Ñled a series of lawsuits against over 40 companies alleging patent infringement. A signiÑcant number of the
companies sued by Solaia have chosen to settle the claims for amounts that we believe are notably smaller
than the likely legal costs of successfully defending Solaia's claims in court.
In a suit Ñled by Solaia on July 2, 2002 in Chicago, Solaia Technology LLC v. ArvinMeritor, Inc., et al.
(02-C-4704, N.D. Ill.) (Chicago patent suit), Solaia accused sixteen companies of infringing the '318 patent.
We made arrangements with ArvinMeritor, which now owns and operates our former automotive business, to
undertake ArvinMeritor's defense of Solaia's patent claims to seek to assure that Solaia's infringement claim
against ArvinMeritor could be Ñnally and actually adjudicated in the Chicago patent suit. In that case, Solaia
responded on May 12, 2003 by suing us directly for patent infringement, demanding material monetary
damages. We believe that Solaia's claim against us in the Chicago patent suit is wholly without merit and
baseless. Discovery is completed in the case and dispositive summary judgment motions are pending. No trial
date has been set in this matter.
Prior to Solaia's claims of infringement against us in the Chicago patent suit (May 12, 2003), we sought
to protect our customers from Solaia's claims. We brought an action in federal court in Milwaukee on
December 10, 2002 against Solaia, its law Ñrm Niro, Scavone, Haller & Niro, and Schneider Automation,
Rockwell Automation, Inc., et al. v. Schneider Automation, Inc., et al (Case No. 02-C-1195, E.D. Wis.),
asserting claims of tortious interference and civil conspiracy, and alleging violations of federal antitrust and
unfair competition laws (the Milwaukee action). We are seeking monetary damages and other relief arising
from the infringement claims Solaia has made against our customers.
In January 2003, Solaia Ñled a lawsuit in federal court in Chicago against us and several others, Solaia
Technology LLC v. Rockwell Automation, Inc., et al., (Case No. 03-C-566, N.D. Ill.), alleging federal
antitrust and unfair competition violations, tortious interference, defamation and other claims. We deny any
liability under those claims. Solaia's antitrust and tort case has now been transferred to the federal court in
Milwaukee (Case No. 03-C-939, E.D. Wis.) and eÅectively consolidated with the Milwaukee action, and all
proceedings in Milwaukee have been administratively stayed.
In December 2003, Solaia Ñled a state court action in Cook County, Illinois alleging tortious interference
claims against us and one of our former oÇcers. This action was removed from state court and, as with
Solaia's January 2003 suit, has been transferred to the federal court in Milwaukee (Case No. 04-C-368, E.D.
Wis.).
All of the Milwaukee cases are in their earliest stages. The federal court in Milwaukee has stayed all
three cases in Milwaukee pending developments in the Chicago patent suit.
Asbestos. Like thousands of other companies, we (including our subsidiaries) have been named as a
defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain
components of our products many years ago. Currently there are thousands of claimants in lawsuits that name
us, together with hundreds of other companies, as defendants. The great bulk of the complaints, however, do
not identify any of our products or specify which of these claimants, if any, were exposed to asbestos
attributable to our products; and past experience has shown that the vast majority of the claimants will never
identify any of our products. In addition, when our products appear to be identiÑed, they are frequently from
divested businesses, and we are indemniÑed for most of the costs. For those claimants who do show that they
worked with our products, we nevertheless believe we have meritorious defenses, in substantial part due to the
8
integrity of our products, the encapsulated nature of any asbestos-containing components, and the lack of any
impairing medical condition on the part of many claimants. We defend those cases vigorously. Historically, we
have been dismissed from the vast majority of these claims with no payment to claimants. We have
maintained insurance coverage that we believe covers indemnity and defense costs, over and above self-
insured retentions, for most of these claims. We have initiated litigation against our carriers, Nationwide
Indemnity Company and Kemper Insurance, to enforce the insurance policies. Although Kemper's status as a
Ñnancially viable entity is in question, we expect to recover the majority of defense and indemnity costs we
have incurred to date over and above our self-insured retentions and a substantial portion of the costs for
defending asbestos claims going forward. The uncertainties of asbestos claim litigation and resolution of the
litigation with our insurance companies make it diÇcult to predict accurately the ultimate resolution of
asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation aÅecting
asbestos claim litigation or the settlement process. Subject to these uncertainties and based on our experience
defending asbestos claims, we do not believe these lawsuits will have a material adverse eÅect on our Ñnancial
condition.
Other. Various other lawsuits, claims and proceedings have been or may be instituted or asserted against
us relating to the conduct of our 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 us, we
believe the disposition of matters that are pending or asserted will not have a material adverse eÅect on our
business or Ñnancial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 2004.
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, 2004 are as
follows:
Name, OÇce and Position, and Principal Occupations and Employment
Don H. Davis, Jr. Ì Chairman of the Board of Rockwell Automation since February 2004; Chairman of
the Board and Chief Executive OÇcer of Rockwell Automation prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Keith D. Nosbusch Ì President and Chief Executive OÇcer of Rockwell Automation since February
2004; Senior Vice President of Rockwell Automation and President, Rockwell Automation Control
Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
John D. Cohn Ì Senior Vice President, Strategic Development and Communications of Rockwell
Automation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kent G. Coppins Ì Vice President and General Tax Counsel of Rockwell Automation since June 2001;
Associate General Tax Counsel of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Theodore D. Crandall Ì Senior Vice President of Rockwell Automation since February 2004 and Senior
Vice President, Components and Packaged Applications Group of Rockwell Automation Control
Systems since August 2000; Senior Vice President of Industrial Control Group of Rockwell
Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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 prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Steven A. Eisenbrown Ì Senior Vice President of Rockwell Automation since February 2004 and Senior
Vice President, Automation Control and Information Group of Rockwell Automation Control
Systems since August 2000; Senior Vice President of Control and Information Group of Rockwell
Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Age
64
53
50
51
49
40
51
9
Name, OÇce and Position, and Principal Occupations and Employment Ì (Continued)
James V. Gelly Ì Senior Vice President and Chief Financial OÇcer of Rockwell Automation since
January 2004; Vice President and Treasurer of Honeywell International (diversiÑed technology and
manufacturing) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Douglas M. Hagerman Ì Senior Vice President, General Counsel and Secretary of Rockwell
Automation since May 2004; Litigation partner at Foley & Lardner LLP (law Ñrm) and Co-Chair of
the Securities Litigation, Enforcement and Regulation Practice Group prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mary Jane Hall Ì Senior Vice President, Human Resources of Rockwell Automation since February
2004; Vice President of Rockwell Automation from June 2001 to February 2004; Senior Vice
President, Human Resources of Rockwell Automation Control Systems from January 2001 to
February 2004; Vice President, Human Resources of Rockwell Automation Control Systems prior
thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
James E. Hart Ì Vice President, Finance of Rockwell Automation since February 2004; Vice President,
Finance and Procurement of Rockwell Automation Control Systems from April 2001 to February
2004; Vice President, Strategic Sourcing and Chief Procurement OÇcer of Rockwell Automation
prior theretoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
John P. McDermott Ì Senior Vice President of Rockwell Automation since February 2004 and Senior
Vice President, Global Manufacturing Solutions Group of Rockwell Automation Control Systems
since November 2002; Senior Vice President, Americas Sales of Rockwell Automation Control
Systems from October 2000 to November 2002; Senior Vice President, Motion and Information
Group of Rockwell Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
John M. Miller Ì Vice President and Chief Intellectual Property Counsel of Rockwell Automation
since October 2004; Associate Intellectual Property Counsel of Rockwell Automation prior thereto ÏÏ
Timothy C. Oliver Ì Vice President and Treasurer of Rockwell Automation since May 2004; Vice
President, Investor Relations and Financial Planning of Raytheon Co. (manufacturer of defense
electronics and business aviation aircraft) from March 2001 to May 2004; Director of Finance for
Aviation Aftermarket business of Honeywell International (diversiÑed technology and
manufacturing) from January 2000 to March 2001; Director of Strategic Development for Aerospace
Services business of Honeywell International prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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 Group prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Robert A. RuÅ Ì Senior Vice President of Rockwell Automation since February 2004 and Senior Vice
President of Americas Sales of Rockwell Automation Control Systems since November 2002;
Regional Vice President-Detroit Region Sales of Rockwell Automation Control Systems from
February 2001 to November 2002; Vice President-Eastern U.S. Region Sales of Rockwell
Automation Control Systems from August 2000 to February 2001; Vice President Account Sales-
Central U.S. Region of Rockwell Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
A. Lawrence Stuever Ì Vice President and General Auditor of Rockwell Automation since June 2003;
Vice President, Compensation of Rockwell Automation prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Joseph D. Swann Ì Senior Vice President of Rockwell Automation since June 2001 and President,
Rockwell Automation Power Systems since June 1998 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
44
43
61
55
47
37
36
48
56
52
63
There are no family relationships, as deÑned by applicable SEC rules, between any of the above executive
oÇcers and any other executive oÇcer or director of the Company. 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, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The principal market on which our common stock is traded is the New York Stock Exchange. Our
common stock is also traded on the PaciÑc Exchange and The London Stock Exchange. On October 31, 2004,
there were 36,564 shareowners of record of our common stock.
The following table sets forth the high and low sales price of our common stock on the New York Stock
Exchange Ó Composite Transactions reporting system during each quarter of our Ñscal years ended
September 30, 2004 and 2003:
Fiscal Quarters
2004
2003
High
Low
High
Low
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SecondÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$36.10
37.00
37.56
39.72
$26.16
28.45
30.89
35.05
$22.30
23.87
25.85
28.69
$14.71
18.75
20.52
23.33
The declaration and payment of dividends by the Company is at the sole discretion of our Board of
Directors. During each of our last three Ñscal years, we have declared and paid aggregate cash dividends of
$0.66 per common share ($0.165 per quarter).
The table below sets forth information with respect to purchases made by or on behalf of the Company or
any ""aÇliated purchaser'' (as deÑned in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of
shares of Company common stock during the three months ended September 30, 2004:
Period
July 1-31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
August 1-31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 1-30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total
Number of
Shares
Purchased
735,000
770,000
735,000
Average
Price Paid
per Share(1)
$36.3996
37.7629
38.8676
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(2)
Maximum Number
(or Approximate
Dollar Value) of
Shares that may yet
be Purchased
Under the Plans or
Programs(2)
735,000
770,000
735,000
$226,200,000
197,100,000
168,500,000
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,240,000
37.6786
2,240,000
168,500,000
(1) Average price paid per share includes brokerage commissions.
(2) On December 4, 1996, we announced a $1 billion share repurchase program that had been approved by
our Board of Directors. From time to time thereafter, our Board of Directors has authorized the periodic
purchase of additional shares of our common stock under the program. As of September 30, 2004,
approximately $168.5 million was available for share repurchases under the program. The program has no
expiration date.
11
Item 6. Selected Financial Data.
The following table sets forth selected consolidated Ñnancial data of our 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, 2004, the related consolidated
balance sheet data and other data have been derived from our audited consolidated Ñnancial statements.
Consolidated Statement of Operations Data:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before
2004(a)
Year Ended September 30,
2003(b)
2001(d)
2002(c)
(in millions, except per share data)
2000(e)
$4,411.1
41.7
$3,992.3
52.5
$3,775.7
66.1
$4,134.8
83.2
$4,493.0
72.7
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
354.1
281.4
223.7
120.7
353.8
Earnings per share from continuing operations
before accounting change:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change per
diluted share(f) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheet Data: (at end of
period)
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Data:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill and trademark amortization(f) ÏÏÏÏÏÏÏ
Other intangible asset amortization ÏÏÏÏÏÏÏÏÏÏÏÏ
1.91
1.85
Ì
0.66
1.51
1.48
Ì
0.66
1.21
1.19
(0.58)
0.66
0.66
0.65
Ì
0.93
1.88
1.86
Ì
1.02
4,201.2
0.2
757.7
1,861.0
3,939.9
8.7
764.0
1,586.8
3,955.8
161.6
766.8
1,609.0
4,043.7
10.4
909.3
1,600.5
5,261.0
16.4
910.6
2,669.2
$
98.0
159.7
Ì
27.0
$ 107.6
168.5
Ì
22.1
$
99.6
178.4
Ì
19.3
$ 155.7
190.2
55.5
16.3
$ 210.0
186.4
53.1
21.4
12
(a) Includes a reduction in the income tax provision of $46.3 million, or $0.24 per diluted share, related to the
resolution of certain tax matters as well as state tax refunds.
(b) Includes a reduction in the income tax provision of $69.4 million, or $0.37 per diluted share, related to the
settlement of a U.S. federal research and experimentation credit refund claim.
(c) Includes a reduction in the income tax provision of $48.2 million, or $0.26 per diluted share, from the
resolution of certain tax matters and income of $9.4 million ($7.2 million after tax, or $0.04 per diluted
share) from the favorable settlement of intellectual property matters.
(d) Includes special items of $73.1 million ($48.0 million after tax, or $0.26 per diluted share) and a
reduction in the income tax provision of $21.6 million, or $0.12 per diluted share, from the resolution of
certain tax matters. Special items include charges of $91.1 million ($59.9 million after tax, or $0.32 per
diluted share) for a comprehensive restructuring program which were partially oÅset by income of
$18.0 million ($11.9 million after tax, or $0.06 per diluted share) resulting from the favorable settlement
of an intellectual property matter.
(e) Includes a gain of $32.5 million ($22.0 million after tax, or $0.12 per diluted share) resulting from the
sale of real estate, a loss of $14.0 million ($9.5 million after tax, or $0.06 per diluted share) on the sale of
a Power Systems business, and income of $28.1 million ($19.0 million after tax, or $0.10 per diluted
share) resulting from the demutualization of Metropolitan Life Insurance Company.
(f) EÅective October 1, 2001, we adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, we no longer amortize
goodwill and certain trademarks that have been deemed to have an indeÑnite useful life, resulting in a
decrease in amortization expense beginning in 2002. In addition, in 2002 we recorded pre-tax impairment
charges of $128.7 million ($107.8 million after tax, or $0.58 per diluted share) in connection with the
adoption of SFAS 142. These charges have been recorded as the cumulative eÅect of accounting change.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Cautionary Statement
This Annual Report contains statements (including certain projections and business trends) accompanied
by such phrases as ""believe'', ""estimate'', ""expect'', ""anticipate'', ""will'', ""intend'' 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 the following:
‚ economic and political changes in international markets where we compete, such as currency exchange
rates, inÖation rates, recession, foreign ownership restrictions and other external factors we cannot
control;
‚ demand for and market acceptance of new and existing products;
‚ levels of capital spending in industrial markets;
‚ the availability and price of components and materials;
‚ successful development of advanced technologies;
‚ the availability and eÅectiveness of our information technology systems;
‚ competitive product and pricing pressures;
‚ future terrorist attacks;
‚ intellectual property infringement claims by others and the ability to protect our intellectual property;
‚ the uncertainties of litigation; and
‚ other risks and uncertainties, including but not limited to those detailed from time to time in our SEC
Ñlings.
These forward-looking statements are made only as of the date hereof, and we undertake no obligation to
update or revise the forward-looking statements, whether as a result of new information, future events or
otherwise.
Non-GAAP Measures
The following discussion includes sales excluding the eÅect of changes in currency exchange rates and
free cash Öow, which are non-GAAP measures. See Supplemental Sales Information on page 23 hereof for a
reconciliation of reported sales to sales excluding the eÅect of changes in currency exchange rates in addition
to a discussion of why we believe this non-GAAP measure is useful to investors. See Financial Condition on
page 21 hereof for a reconciliation of cash Öows from operating activities to free cash Öow and a discussion of
why we believe this non-GAAP measure is useful to investors.
Overview
Overall demand for our products is driven by:
‚ Levels of global industrial production;
‚ Investments in capacity, including upgrades, modiÑcations, and expansions of existing manufacturing
facilities, and the creation of new manufacturing facilities;
‚ Regional factors that include local political, social, regulatory and economic circumstances; and
14
‚ Industry factors that include customers' new product introductions, trends in the actual and forecasted
demand for our customers' products or services, and the regulatory and competitive environments in
which our customers operate.
U.S. Industrial Economic Trends
In 2004, sales in the U.S. accounted for more than 60 percent of our total sales. Due to weaker business
conditions in 2002 and 2003, especially in the U.S. manufacturing economy, manufacturers operated at
historically low levels of plant capacity utilization. During 2004, the manufacturing economy experienced
improving fundamentals and higher levels of output. In the U.S., this is reÖected in various indicators that we
use to gauge the direction and momentum of our markets. These indicators include:
‚ Industrial equipment spending, which is an economic statistic compiled by the Bureau of Economic
Analysis (""BEA''). This statistic provides insight into spending trends in the broad U.S. industrial
economy, which includes our primary customer base. This measure, over the longer term, has proven to
have reasonable predictive value, and to be a good directional indicator of our growth trend.
‚ Capacity utilization, which is an indication of plant operating activity, is published by the Federal
Reserve. Historically there has been a meaningful correlation between capacity utilization and the level
of capital investment made by our customers in their manufacturing base.
‚ The purchasing managers' index (PMI), as published by the Institute for Supply Management (ISM),
which is an indication of the level of manufacturing activity in the U.S. According to the ISM, a PMI
measure above 50 indicates that the manufacturing economy is generally expanding while a measure
below 50 indicates that it is generally contracting.
The table below depicts the trend for the indicated months since December 2001 in U.S. industrial
equipment spending, capacity utilization and the PMI.
Industrial
Equipment
Spending
(in billions)
Capacity
Utilization
(percent)
Fiscal 2004
September 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$155.9
145.0
143.1
139.5
Fiscal 2003
September 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal 2002
September 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
140.8
139.3
139.7
136.9
137.9
136.9
142.5
136.6
77.2
77.0
76.6
75.8
74.9
74.0
74.8
74.9
75.7
76.2
75.6
75.1
PMI
58.5
61.1
62.5
63.4
54.7
50.4
46.6
53.3
51.4
55.7
55.3
47.3
Non-US Regional Trends
Outside the U.S., growth in demand has in part been driven by investments made in infrastructure in
emerging economies, such as those found in the Asia-PaciÑc and Latin America regions. Demand for our
products in China is moderating somewhat from the rapid expansion experienced in the Ñrst half of 2004 as a
result of rising local interest rates and other economic and political factors but commercial activity in Korea
15
and India has been strong. In Latin America, demand for our products has been driven by investment in the
mining and oil and gas industries, resulting in increased sales in 2004.
Industry Views
We serve a wide range of industries including consumer products, transportation, basic materials, and oil
and gas. During 2004 we beneÑted from growing demand in nearly all of the industries we serve.
Our consumer products segment serves a broad array of customers in the food and beverage, brewing,
consumer packaged goods and life sciences industries. This group is generally less cyclical than other heavy
manufacturing segments.
Sales to the automotive segment are aÅected by such factors as customer investment in new model
introductions and more Öexible manufacturing technologies.
Basic materials segments, including mining, aggregates and cement all beneÑt from higher commodities
prices and higher global demand for basic materials that encourage signiÑcant investment in capacity and
productivity in these industries.
As energy prices rise, customers in the oil and gas industry increase their investment in production and
transmission capacity as they did during the latter half of 2004. In addition, higher energy prices have
historically caused customers across all industries to consider new investment in more energy-eÇcient
manufacturing processes and technologies.
Outlook for 2005
The following is a summary of our objectives for 2005:
‚ Expand our integrated architecture platform by accelerating the penetration of the batch/hybrid
market and demonstrating the value of real-time information;
‚ Continue our geographic expansion and growth, particularly in emerging economies;
‚ Build additional domain expertise in the industries we serve; and
‚ Drive continued cost productivity.
Our outlook for 2005 assumes that the current economic recovery will continue and that we will
experience a favorable industrial environment with gradual growth during 2005. While we expect demand for
our products to beneÑt from this trend, we also assume that our growth will vary, and may exceed or lag trend
levels in any given quarter.
As of the date hereof, we expect to grow revenue in 2005 by 6 to 8 percent, excluding the eÅect of
changes in currency exchange rates, and to raise operating margins to approximately 15 percent. As of the date
hereof, we expect full year 2005 diluted earnings per share in the range of $2.15 to $2.25, and plan to generate
free cash Öow in excess of net income in part through disciplined capital deployment.
16
Summary of Results of Operations
2004
Year Ended September 30,
2003
(in millions)
2002
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,658.6
752.5
$3,287.4
704.9
$3,059.3
716.4
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,411.1
$3,992.3
$3,775.7
Segment operating earnings(a):
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 527.9
67.5
$ 397.6
54.6
$ 323.9
53.4
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes and accounting
change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change(b) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
595.4
(27.3)
(88.3)
Ì
(41.7)
438.1
(84.0)
354.1
60.8
Ì
452.2
(26.9)
(66.8)
(8.4)
(52.5)
297.6
(16.2)
281.4
5.0
Ì
377.3
(24.6)
(57.4)
Ì
(66.1)
229.2
(5.5)
223.7
5.6
(107.8)
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 414.9
$ 286.4
$ 121.5
(a) Information regarding how we deÑne segment operating earnings is contained in Note 18 in the Financial
Statements.
(b) The cumulative eÅect of accounting change recorded in 2002 represents impairment charges recorded in
connection with the adoption of SFAS 142. Additional information regarding the impairment charges is
contained in Note 3 in the Financial Statements.
In September 2004, we sold our FirstPoint Contact business for cash and a note convertible into a
minority interest in the corporate parent of the buyer of the business resulting in a gain of $33.5 million
($32.1 million after tax, or $0.17 per diluted share). The results of operations of FirstPoint Contact and the
gain on sale are included in Income from Discontinued Operations in this annual report.
2004 Compared to 2003
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
Increase
(Decrease)
2003
(in millions, except per share amounts)
$418.8
$3,992.3
$4,411.1
72.7
281.4
354.1
0.37
1.48
1.85
Sales increased 10 percent compared to 2003 driven by growth at both Control Systems and Power
Systems. Three percentage points of the growth was due to the eÅect of changes in currency exchange rates.
Income from continuing operations in 2004 includes $46.3 million ($0.24 per diluted share) of tax
beneÑts related to the resolution of certain tax matters as well as the beneÑt of state tax refunds. The 2003
17
result included a tax beneÑt of $69.4 million ($0.37 per diluted share) related to the settlement of a
U.S. federal research and experimentation credit refund claim.
Control Systems
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating marginÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase
(Decrease)
2004
2003
(in millions, except percentages)
$3,287.4
397.6
12.1%
$371.2
130.3
2.3pts
$3,658.6
527.9
14.4%
Control Systems sales increased 11 percent compared to 2003. Four percentage points of the sales
increase was due to the eÅect of changes in currency exchange rates, primarily resulting from the relative
strength of the euro to the U.S. dollar. Sales outside of the U.S. increased 15 percent (6 percent excluding the
eÅect of changes in currency exchange rates) and U.S. sales increased 8 percent.
Control Systems experienced sales growth in all regions with exceptional strength in the emerging
economies of Asia and Latin America where we continued to increase market penetration. Sales growth was
primarily driven by maintenance related and smaller productivity related projects. These projects were the
result of pent-up demand after the period of under-investment in productive assets during 2002 and 2003. In
addition to these ongoing required investments, we experienced an increase in activity related to larger scale
projects in the second half of Ñscal year 2004. These larger projects were driven by our customers'
requirements for incremental productivity improvements and capacity optimization.
Our Logix platform business continued its strong growth with an increase of 30 percent over 2003.
Industrial components and adjustable speed drives experienced double-digit growth as well. These gains were
partially oÅset by moderate declines in drive systems and legacy control platforms.
Segment operating margins increased due to higher volume, favorable product mix and productivity
improvements. Volume leverage improved during the year due to our continuing productivity eÅorts and
ongoing facility rationalization programs.
Power Systems
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating marginÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase
(Decrease)
2003
2004
(in millions, except percentages)
$ 47.6
12.9
1.3pts
$704.9
54.6
$752.5
67.5
7.7%
9.0%
Power Systems sales increased 7 percent compared to 2003. The Mechanical and Electrical businesses
contributed about equally to the growth. The sales increase was mainly the result of volume strength in the
second half of 2004. Higher global demand for basic materials and subsequent higher prices for these
materials encouraged signiÑcant investment in capacity optimization and productivity and drove our sales.
SigniÑcant cost and productivity initiatives launched in the second quarter, Ñnancial leverage on
incremental volume, and price increases more than oÅset rising raw material prices, resulting in the improved
segment operating margin.
General Corporate Ì Net
General corporate expenses were $88.3 million in 2004 compared to $66.8 million in 2003. Expense in
2004 includes charges of $16.4 million due to higher estimated costs for environmental remediation at several
legacy sites, $7.0 million of contributions to our charitable corporation, and $5.0 million of costs associated
with corporate staÅ changes. Expense in 2003 included a charge of $4.7 million due to higher estimated future
costs for environmental remediation at a legacy site.
18
Loss on Disposition of a Business
In the second quarter of 2003, we sold a majority of our ownership interest in Reliance Electric Limited
Japan (REJ) resulting in a loss of $8.4 million ($2.5 million after tax, or $0.01 per diluted share). The cash
proceeds from the transaction totaled $10.4 million.
Interest Expense
Interest expense was $41.7 million in 2004 compared to $52.5 million in 2003. The decrease was the
result of the retirement at maturity of the $150.0 million principal amount of 6.80% notes in April 2003, the
beneÑt of an interest rate swap (see Note 6 in the Financial Statements) and lower average short-term
borrowings.
2003 Compared to 2002
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before accounting change ÏÏÏÏÏÏÏÏÏ
Diluted earnings per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
Increase
(Decrease)
2002
(in millions, except per share amounts)
$216.6
$3,775.7
$3,992.3
57.7
223.7
281.4
0.29
1.19
1.48
Sales increased 6 percent compared to 2002. Three percentage points of the growth was due to the eÅect
of changes in currency exchange rates. The growth was driven by a 7 percent increase at Control Systems
which more than oÅset a 2 percent decrease at Power Systems.
Income from continuing operations before accounting change in 2003 included a tax beneÑt of
$69.4 million, or $0.37 per diluted share, related to the settlement of a U.S. federal research and
experimentation credit refund claim. The 2002 results included a tax beneÑt of $48.2 million, or $0.26 per
diluted share, from the resolution of certain tax matters for the period 1995 through 1999.
Control Systems
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating marginÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase
(Decrease)
2003
2002
(in millions, except percentages)
$3,059.3
323.9
10.6%
$228.1
73.7
1.5pts
$3,287.4
397.6
12.1%
Control Systems sales increased 7 percent compared to 2002. More than 3 percentage points of the
increase was due to the favorable impact of currency translation, primarily resulting from the relative strength
of the euro to the U.S. dollar. Sales outside of the U.S. increased 18 percent (9 percent excluding the eÅect of
changes in currency exchange rates) and U.S. sales increased 1 percent. Our Logix platform business grew
approximately 30 percent over 2002.
The improvement in segment operating margin was due to higher volume and the continuing beneÑts of
cost reduction actions.
Power Systems
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Segment operating marginÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19
Increase
(Decrease)
2002
2003
(in millions, except percentages)
$(11.5)
1.2
0.3pts
$716.4
53.4
$704.9
54.6
7.7%
7.4%
Power Systems sales decreased 2 percent compared to 2002. Mechanical sales increased 3 percent while
Electrical sales decreased 5 percent. Segment operating earnings remained relatively stable despite the
decrease in sales due to savings from cost reduction eÅorts.
General Corporate Ì Net
General corporate expenses were $66.8 million in 2003 compared to $57.4 million in 2002. Expense in
2003 included a charge of $4.7 million due to higher estimated future costs for environmental remediation at a
legacy site. The 2002 amount included $9.4 million of income related to the settlement of intellectual property
matters. Excluding these amounts, corporate expenses decreased in 2003 as a result of lower corporate staÅ
costs and an increase of approximately $1.4 million in earnings from our investment in RSC.
Loss on Disposition of a Business
In the second quarter of 2003, we sold a majority of our ownership interest in REJ resulting in a loss of
$8.4 million ($2.5 million after tax, or $0.01 per diluted share). The cash proceeds from the transaction
totaled $10.4 million.
Interest Expense
Interest expense was $52.5 million in 2003 compared to $66.1 million in 2002. The decrease was the
result of the retirement at maturity of the $150.0 million principal amount of 6.80% notes in April 2003, the
beneÑt of an interest rate swap (see Note 6 in the Financial Statements) and lower average short-term
borrowings.
Discontinued Operations
See Note 13 in the Financial Statements for information regarding the composition of discontinued
operations.
Income Taxes
During 2004, we recognized tax beneÑts of $46.3 million in Income from Continuing Operations and
$18.4 million in Income from Discontinued Operations related to the following items:
‚ $34.5 million resulting from the resolution of certain tax matters, in part related to former businesses.
A majority of the beneÑts recognized related to non-U.S. tax matters in addition to an agreement with
a taxing authority related to the treatment of an investment;
‚ $4.3 million related to additional state tax beneÑts associated with the U.S. research and
experimentation credit refund claim in 2003 (see discussion below); and
‚ $25.9 million related to a refund from the State of California for the period 1989 to 1991. Of this
amount, $7.5 million is included as a reduction in the income tax provision and $18.4 million is
included in Income from Discontinued Operations.
Including these items, the full year eÅective tax rate for 2004 was approximately 19 percent. In the
aggregate, these items decreased the eÅective tax rate by approximately 11 percent.
During 2003, we recognized in earnings a net tax beneÑt of $69.4 million related to a U.S. federal
research and experimentation credit refund claim and a tax beneÑt of approximately $2.6 million as a result of
our ability to utilize certain capital loss carryforwards for which a valuation allowance had been previously
provided. The ability to utilize the capital loss carryforwards was the result of the sale of a majority of our
ownership in REJ which took place in 2003. The full year eÅective tax rate for 2003 was approximately
5 percent, including the eÅect of the research and experimentation settlement (23 percent beneÑt) and the
REJ transaction (1 percent beneÑt).
20
See Note 16 in the Financial Statements for a reconciliation of the United States statutory tax rate to the
eÅective tax rate.
We expect that the eÅective income tax rate in 2005 will be approximately 31 percent, excluding the
income tax expense or beneÑt related to discrete items, if any, that will be separately reported or reported net
of their related tax eÅects.
Subsequent to September 30, 2004, the President signed into law both the American Jobs Creation Act
of 2004 and the Working Families Tax Relief Act of 2004. This legislation contains numerous corporate tax
changes, including eliminating a tax beneÑt relating to U.S. product exports, a new deduction relating to
U.S. manufacturing, a lower U.S. tax rate on non-U.S. dividends and an extension of the research and
experimentation credit. This new legislation is not anticipated to materially aÅect our results of operations or
our Ñnancial condition.
Financial Condition
The following is a summary of our cash Öows from operating, investing and Ñnancing activities, as
reÖected in the Consolidated Statement of Cash Flows (in millions):
Year Ended September 30,
2003
2004
2002
Cash provided by (used for):
Operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 596.9
(65.2)
(312.0)
1.8
$ 419.9
(131.4)
(335.3)
(31.0)
$ 461.9
(171.0)
(97.4)
(0.4)
Cash provided by (used for) continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 221.5
$ (77.8)
$ 193.1
The following table summarizes free cash Öow (in millions):
Cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 596.9
$ 419.9
(98.0)
(107.6)
$ 461.9
(99.6)
Free cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 498.9
$ 312.3
$ 362.3
Our deÑnition of free cash Öow takes into consideration capital investment required to maintain the
operations of our businesses and execute our strategy. In our opinion, free cash Öow provides useful
information to investors regarding our ability to generate cash from business operations that is available for
acquisitions and other investments, service of debt principal, dividends and share repurchases. We use free
cash Öow as one measure to monitor and evaluate performance. Our deÑnition of free cash Öow may be
diÅerent from deÑnitions used by other companies.
Free cash Öow was $498.9 million for the year ended September 30, 2004 compared to $312.3 million for
the year ended September 30, 2003. The following factors contributed to the signiÑcant increase in free cash
Öow:
‚ Income before income taxes in 2004 was $140.5 million higher than in 2003;
‚ U.S. federal tax payments were lower in 2004 as a result of the tax beneÑts related to voluntary pension
contributions and increased beneÑts from the exercise of stock options. U.S. federal tax payments were
$10.0 million in 2004 compared to $43.0 million in 2003; and
‚ We received net tax refunds of $30.6 million from various tax authorities related to prior years.
These factors more than oÅset the higher voluntary contributions to our U.S. qualiÑed pension trust
which totaled $125.0 million in 2004 compared to $50.0 million in 2003.
21
We anticipate that cash payments for income taxes will approach our income tax expense in the near
future.
When necessary, we utilize commercial paper as our principal source of short-term Ñnancing. At
September 30, 2004 and 2003, we had no commercial paper borrowings outstanding. During 2004 and 2003,
we did not have signiÑcant commercial paper borrowings due to our cash position.
In January 2004, we repaid our $8.4 million of industrial development revenue bonds prior to maturity
using cash on hand. In April 2003, we repaid our $150.0 million principal amount of 6.80% notes at maturity
using a combination of cash on hand and commercial paper borrowings.
We repurchased approximately 7.5 million shares of our common stock at a cost of $258.4 million in
2004. At September 30, 2004, we had approximately $168.5 million remaining for stock repurchases under
existing board authorizations. We repurchased approximately 5.6 million shares of our common stock at a cost
of $128.4 million in 2003. We anticipate repurchasing stock in 2005, the amount of which will depend
ultimately on business conditions, stock price and other cash requirements.
Future signiÑcant uses of cash are expected to include capital expenditures, dividends to shareowners,
acquisitions of businesses and repurchases of common stock and may include contributions to our pension
plans. We expect capital expenditures in 2005 to be about $120 million. Additional information regarding
pension contributions is contained in MD&A on page 14 hereof. We expect that each of these future uses of
cash will be funded by existing cash balances, cash generated by operating activities, commercial paper
borrowings, a new issue of debt or issuance of other securities.
In addition to cash generated by operating activities, we have access to existing Ñnancing sources,
including the public debt markets and unsecured credit facilities with various banks. Our debt-to-total-capital
ratio was 28.9 percent at September 30, 2004 and 32.7 percent at September 30, 2003.
As of September 30, 2004, we had $675.0 million of unsecured committed credit facilities, with
$337.5 million expiring in October 2004 and $337.5 million expiring in October 2005. These facilities were
available for general corporate purposes, including support for our commercial paper borrowings. On
October 26, 2004, we entered into a new Ñve-year $600.0 million unsecured revolving credit facility. It
replaced both the facility expiring on that date and the facility expiring in October 2005 (which we cancelled
on that date). Borrowings under our new credit facility bear interest based on short-term money market rates
in eÅect during the period such borrowings are outstanding. The terms of our credit facility contain a covenant
under which we would be in default if our debt to capital ratio were to exceed 60 percent. In addition to our
$600.0 million credit facility, short-term unsecured credit facilities available to foreign subsidiaries amounted
to $130.4 million at September 30, 2004.
The following is a summary of our credit ratings as of September 30, 2004:
Credit Rating Agency
Short-Term
Long-Term
Rating
Outlook
Rating
Outlook
Standard & Poor's ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1
P-2
Moody's ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
F1
Fitch Ratings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Negative
Stable
Stable
A
A3
A
Negative
Negative
Stable
Among other things, our credit facility is a standby liquidity facility that can be drawn, if needed, to repay
our outstanding commercial paper as it matures. This access to funds to repay maturing commercial paper is
an important factor in maintaining the ratings set forth in the table above that have been given to our
commercial paper. While we are not required to do so, under our current policy with respect to these ratings,
we expect to limit our other borrowings under the credit facility, if any, to amounts that would leave enough
credit available under the facility so that we could borrow, if needed, to repay all of our then outstanding
commercial paper as it matures.
Should our access to the commercial paper market be adversely aÅected due to a change in market
conditions or otherwise, we would expect to rely on a combination of available cash and the unsecured
22
committed credit facilities to provide short-term funding. In such event, the cost of borrowings under the
unsecured committed credit facilities could be higher than the cost of commercial paper borrowings.
Cash dividends to shareowners were $122.5 million ($0.66 per share) in 2004 and $122.4 million
($0.66 per share) in 2003. Although declaration and payment of dividends are at the sole discretion of our
Board of Directors, we expect to pay quarterly dividends in 2005 at least equal to the quarterly per share
amount paid in 2004.
Certain of our contractual cash obligations at September 30, 2004 are summarized as follows:
Total
2005
2006
Payments by Period
2007
2008
2009
Thereafter
Long-term debt and interest(a) ÏÏÏÏÏ
Minimum operating lease payments ÏÏ
Purchase commitment(b) ÏÏÏÏÏÏÏÏÏÏ
$2,241.4
210.9
26.3
$ 48.7
51.0
21.0
$48.7
41.8
5.3
$48.7
33.6
Ì
$387.9
26.9
Ì
$27.1
19.1
Ì
$1,680.3
38.5
Ì
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,478.6
$120.7
$95.8
$82.3
$414.8
$46.2
$1,718.8
(a) The amounts for long-term debt assume that the respective debt instruments will be outstanding until
their scheduled maturity dates. The amounts include interest, but exclude the amounts to be received
under an interest rate swap, the unamortized discount of $46.0 million, and the $3.7 million fair value
adjustment recorded for the interest rate swap as permitted by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. See Note 6 in the Financial Statements for additional information
regarding our long-term debt.
(b) In connection with the sale of a Power Systems business in 2000, we entered into a supply agreement with
the buyer of the business. The agreement requires us to purchase a minimum of $21.0 million per year
through December 31, 2005. In the event that purchases are less than $21.0 million in a given year, we
may incur penalties which are 25 percent of the amount by which the actual purchases were less than the
contractual minimum for the period. Based upon current estimates of future purchases, we do not believe
that any penalties payable under the terms of the agreement would be material to our business or Ñnancial
condition. For additional information on the supply agreement, see Note 17 in the Financial Statements.
We sponsor pension and other postretirement beneÑt plans for certain employees. See Note 12 in the
Financial Statements for information regarding these plans and expected future cash outÖows related to the
plans.
At September 30, 2004, we guaranteed the performance of Conexant related to a lease obligation of
approximately $60.0 million. 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. In consideration for this guarantee, we received
$250,000 per quarter from Conexant through December 31, 2003 and receive $500,000 per quarter from
Conexant through December 31, 2004 unless we are released from the guarantee prior thereto. We expect to
be released from the guarantee in 2005.
At September 30, 2004, we and Rockwell Collins each guarantee one-half of a lease agreement for one of
Rockwell ScientiÑc Company LLC's (RSC) facilities. The total future minimum payments under the lease
are $5.5 million. The lease agreement has a term that ends in December 2011. In addition, we share equally
with Rockwell Collins in providing a $4.0 million line of credit to RSC, which bears interest at the greater of
our or Rockwell Collins' commercial paper borrowing rate. At September 30, 2004 and 2003, there were no
outstanding borrowings under this line of credit. During October 2004, the line of credit was increased to
$6.0 million, with us and Rockwell Collins still sharing equally.
Supplemental Sales Information
We translate sales of subsidiaries operating outside of the United States using exchange rates eÅective
during the respective period. Therefore, reported sales are aÅected by changes in currency rates, which are
outside of our control. We believe that sales excluding the eÅect of changes in currency exchange rates, which
23
is a non-GAAP Ñnancial measure, provides useful information to investors because it reÖects regional
performance from the activities of our businesses without the eÅect of changes in currency rates. We use sales
excluding the eÅect of changes in currency exchange rates to monitor and evaluate our regional performance.
We determine the eÅect of changes in currency exchange rates by translating the respective period's sales
using the same currency exchange rates as were in eÅect in the preceding year.
The following is a reconciliation of our reported sales to sales excluding the eÅect of changes in currency
exchange rates (in millions):
Year Ended September 30, 2004
Year Ended September 30, 2003
US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanadaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East, Africa ÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sales
$2,727.0
339.8
779.6
400.4
164.3
Currency
Translation
$ Ì
(30.9)
(83.1)
(21.0)
2.5
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
$2,727.0
308.9
696.5
379.4
166.8
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
$2,530.2
281.5
584.1
313.3
177.2
Sales
$2,530.2
303.8
685.4
330.7
142.2
Currency
Translation
$ Ì
(22.3)
(101.3)
(17.4)
35.0
Total Company SalesÏÏÏÏÏÏÏÏÏÏ
$4,411.1
$(132.5)
$4,278.6
$3,992.3
$(106.0)
$3,886.3
The following is a reconciliation of reported sales of our Control Systems segment to sales excluding the
eÅect of changes in currency exchange rates (in millions):
Year Ended September 30, 2004
Year Ended September 30, 2003
US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanadaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East, Africa ÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sales
$2,054.2
302.4
766.0
382.9
153.1
Currency
Translation
$ Ì
(27.4)
(81.6)
(21.0)
1.7
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
$2,054.2
275.0
684.4
361.9
154.8
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
$1,893.8
248.0
569.9
308.7
164.7
Sales
$1,893.8
267.8
668.7
326.1
131.0
Currency
Translation
$ Ì
(19.8)
(98.8)
(17.4)
33.7
Total Control Systems Sales ÏÏÏÏ
$3,658.6
$(128.3)
$3,530.3
$3,287.4
$(102.3)
$3,185.1
Critical Accounting Policies and Estimates
We have prepared the consolidated Ñnancial statements in accordance with accounting principles
generally accepted in the United States, which require us 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. We believe the
following are the critical accounting policies that could have the most signiÑcant eÅect on our reported results
or 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
has been delivered according to contract terms and acceptance as may be required by contract terms has
occurred or services have been rendered; pricing is Ñxed or determinable; and collection is reasonably assured.
24
We generally use contracts and customer purchase orders to determine the existence of an arrangement.
We use shipping documents and customer acceptance, when applicable, to verify delivery. We assess whether
the fee is Ñxed or determinable based on the payment terms associated with the transaction and whether the
sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness
of the customer as determined by credit evaluations and analysis, as well as the customer's payment history.
We record accruals for customer returns, rebates and incentives at the time of revenue recognition based
upon historical experience. Adjustments to the accrual may be required if actual returns, rebates and
incentives diÅer from historical experience or if there are changes to other assumptions used to estimate the
accrual. A critical assumption used in estimating the accrual for our primary distributor rebate program is the
time period from when revenue is recognized to when the rebate is processed. If the time period were to
change by 10 percent, the eÅect would be an adjustment to the accrual of approximately $4.0 million.
The accrual for rebates and incentives to customers was $79.1 million at September 30, 2004 and
$70.8 million at September 30, 2003, of which $7.8 million at September 30, 2004 and $5.4 million at
September 30, 2003 was included as an oÅset to accounts receivable.
Impairment of Long-Lived Assets
We evaluate 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 through future cash
Öows. We evaluate 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. We use
judgment when applying the impairment rules to determine when an impairment test is necessary. Factors we
consider that could trigger an impairment review include signiÑcant underperformance 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. To determine fair value, we are required to make estimates of the future cash Öows
related to the asset being reviewed. These estimates require assumptions about demand for our products and
services, future market conditions and technological developments. Other assumptions include the discount
rate and future growth rates. During 2002, we recorded pre-tax impairment charges of $128.7 million
($107.8 million after tax) in connection with the adoption of SFAS 142.
We perform our annual impairment test on non-amortized intangible assets during the second quarter of
our Ñscal year. As of the second quarter of Ñscal 2004, the $72.8 million net book value of our Reliance
trademark approximated its estimated fair value, as computed with the assistance of independent valuation
specialists. Either an increase in the discount rate or a decrease in planned future growth or proÑtability rates
could result in a material impairment charge to writedown the book value of the Reliance trademark to the
revised estimated fair value.
Additional information regarding the impairment charges is contained in Note 3 in the Financial
Statements.
Retirement BeneÑts
Pension BeneÑts
Pension costs and obligations are actuarially determined and are aÅected by annually reviewing
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 the discount rate and diÅerences
between the assumptions and actual experience will aÅect the amount of pension expense recognized in future
periods.
Our worldwide pension expense in 2004 was $68.8 million compared to $41.6 million in 2003.
Approximately 80 percent of this cost relates to our U.S. qualiÑed pension plan. We used the following
25
actuarial assumptions to determine our 2004 U.S. pension expense: discount rate of 6.0 percent (compared to
7.0 percent for 2003); expected rate of return on plan assets of 8.5 percent (compared to 8.5 percent for 2003);
and an assumed rate of compensation increase of 4.5 percent (compared to 4.5 percent for 2003). The
decrease in discount rate, as well as the amortization of actuarial losses, were the primary causes of the
$27.2 million increase in pension expense in 2004 over 2003.
For 2005, we are assuming that the expected rate of return on plan assets and rate of compensation
increase will remain consistent with the 2004 assumptions, but that the discount rate will increase from 6.0%
to 6.25%. Assuming this discount rate increase and that actual experience is consistent with the actuarial
assumptions, we expect 2005 pension expense to remain approximately the same as 2004.
The following chart illustrates the estimated change in beneÑt obligation and net periodic pension cost
assuming a change of 25 basis points in the assumptions for our U.S. pension plans (in millions):
Pension BeneÑts
Change in
Projected BeneÑt
Obligation
Change in
Net Periodic
BeneÑt Cost
Discount Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of Return ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$62.7
Ì
$6.7
3.0
In 2004, we made voluntary contributions of $125.0 million to our primary U.S. qualiÑed pension plan
trust compared to a $50.0 million voluntary contribution in 2003. We currently anticipate making
contributions during 2005 to our qualiÑed pension plans in an amount that approximates the 2005 net periodic
pension cost.
Additional information regarding pension beneÑts, including our pension obligation and minimum
pension liability adjustment, is contained in Note 12 in the Financial Statements.
Other Postretirement BeneÑts
We estimate, with the assistance of independent actuarial consultants, the costs and obligations for
postretirement beneÑts other than pensions using assumptions, including the discount rate and, for plans other
than our primary U.S. postretirement healthcare beneÑt program, expected trends in the cost for healthcare
services. Changes in these assumptions and diÅerences between the assumptions and actual experience will
aÅect the amount of postretirement beneÑt expense recognized in future periods.
EÅective October 1, 2002, we amended our primary U.S. postretirement healthcare beneÑt program in
order to mitigate our share of the increasing cost of postretirement healthcare services. As a result of this
amendment, there will be no increase in healthcare costs resulting from healthcare inÖationary trends
beginning January 1, 2005. This amendment reduced our other postretirement beneÑt obligation by
$86.5 million.
Net periodic beneÑt cost in 2004 was approximately $23.4 million compared to $29.1 million in 2003.
This decrease is primarily due to the eÅect of amending our primary U.S. postretirement healthcare beneÑt
program.
We expect net periodic beneÑt cost in 2005 of approximately $25 million. The expected increase is due to
the amortization of actuarial losses oÅset by an increase in the discount rate (as of our June 30, 2004
measurement date) by 25 basis points to 6.25%.
Additional information regarding postretirement beneÑts is contained in Note 12 in the Financial
Statements.
Self-Insurance Liabilities
Our principal self-insurance programs include product liability and workers' compensation where we self-
insure up to a speciÑed dollar amount. Claims exceeding this amount up to speciÑed limits are covered by
policies purchased from commercial insurers. We estimate the liability for the majority of the self-insured
26
claims with the assistance of an independent actuarial consultant using our claims experience 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 outcome of liability claims. The liability for these self-
insurance programs was $53.4 million at September 30, 2004 and $51.1 million at September 30, 2003.
As described in Item 3. Legal Proceedings, we have been named as a defendant in lawsuits alleging
personal injury as a result of exposure to asbestos that was used in certain components of our products many
years ago. See Item 3 on page 6 hereof, for further discussion.
Litigation, Claims and Contingencies
We record liabilities for litigation, claims and contingencies when an obligation is probable and when we
have a basis to reasonably estimate the value of an obligation. We also record liabilities for environmental
matters based on estimates for known environmental remediation exposures utilizing information received
from independent environmental consultants. The liabilities include accruals for sites we currently own and
third-party sites where we were determined to be a potentially responsible party. At third-party sites where
more than one potentially responsible party has been identiÑed, we record a liability for our estimated
allocable share of costs related to our 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 where we are the only
responsible party, we record a liability for the total estimated costs of remediation. We do not discount future
expenditures for environmental remediation obligations 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, additional contamination is
identiÑed, or the Ñnancial condition of other potentially responsible parties is adversely aÅected, the estimate
of our environmental liabilities may change.
The liability for environmental matters, net of related receivables, was $38.8 million at September 30,
2004 and $28.9 million at September 30, 2003. During 2004, we recorded adjustments totaling $16.9 million to
increase the environmental reserves related to several legacy sites. These adjustments were in addition to an
adjustment made during the fourth quarter of 2003 to increase the environmental reserve by $4.7 million due
to higher estimated future costs for environmental remediation at our legacy sites.
Our recorded liability for environmental matters almost entirely relates to businesses formerly owned by
us (legacy businesses) but for which we retained the responsibility to remediate. The nature of our current
business is such that the likelihood of new environmental exposures that could result in a material charge to
earnings is low. As a result of remediation eÅorts at legacy sites and limited new environmental matters, we
expect that gradually over a long period of time, our environmental obligations will decline. However, changes
in remediation procedures at existing legacy sites or discovery of contamination at additional sites could result
in increases to our environmental obligations.
In 2004, we recorded income of $7.6 million ($4.6 million after tax) as a result of a Ñnal judgment in a
defense claim legal proceeding related to our former operation of the Rocky Flats facility of the Department of
Energy. This amount is in addition to income of $7.3 million ($4.4 million after tax) recognized in 2003
related to the Rocky Flats defense claim legal proceeding. In March 2004, we received $15.1 million related to
this matter. This amount is displayed, net of the related tax, in the Consolidated Statement of Cash Flows as
Cash Provided by Discontinued Operations.
Additional information regarding litigation, claims and contingencies is contained in Note 17 in the
Financial Statements. See also Item 3. Legal Proceedings, on page 6 hereof.
Income Taxes
We record a liability for probable income tax assessments based on our estimate of the potential
exposure. To the extent our estimates diÅer from actual payments or assessments, income tax expense is
adjusted.
27
Our income tax positions are based on diligent research of the applicable income tax laws, claimed with
knowledge, and vigorously defended. We conduct business in many countries, which requires an interpretation
of the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of
interpretations of laws and rulings in each jurisdiction in which we do business, diÅerences and the interplay in
tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of
income tax liabilities may diÅer from actual payments or assessments. During 2004, we resolved certain tax
matters, resulting in our recognizing $34.5 million of tax beneÑts. The majority of these matters related to
non-U.S. jurisdictions. During 2002, we resolved certain matters from previous years resulting in a
$48.2 million reduction of our income tax provision.
While our tax positions are claimed with knowledge, taxing authorities are increasingly asserting
interpretations of laws and facts in an eÅort to increase their tax revenue especially in instances where
transactions involve two or more countries. Such cross border transactions between our aÇliates involving the
transfer price for products, services, and/or intellectual property is one of the primary issues we face. Due to
our presence in Canadian markets, Canadian transfer pricing matters are the most signiÑcant of all countries
in which we do business. Transfer pricing matters as well as legal structures relating to current and previously-
divested businesses represent nearly $57 million of our tax liabilities for income tax assessments.
We have recorded a valuation allowance of $63.0 million at September 30, 2004 for the majority of our
deferred tax assets related to net operating loss carryforwards, capital loss carryforwards and state tax credit
carryforwards (Carryforwards). The valuation allowance is based on an evaluation of the uncertainty of the
amounts of the Carryforwards that are expected to be realized. An increase to income would result if we
determine we will be able to utilize more Carryforwards than currently expected.
At the end of each interim reporting period, we estimate 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 our estimates, adjustments to the eÅective tax rate may be required in the period
such determination is made.
Additional information regarding income taxes is contained in Note 16 in the Financial Statements.
Recently Adopted Accounting Standards
See Note 1 in the Financial Statements regarding recently adopted accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk during the normal course of business from changes in interest rates and
foreign currency exchange rates. We manage exposure to these risks 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 existing cash balances and cash provided by normal operating activities, we utilize a
combination of short-term and long-term debt to Ñnance operations. We are exposed to interest rate risk on
certain of these debt obligations.
Our short-term debt obligations relate to commercial paper borrowings and bank borrowings. At
September 30, 2004 and 2003, we had no commercial paper borrowings outstanding. During 2004, the
weighted average commercial paper borrowings were $1.8 million compared to $26.5 million in 2003. There
were no bank borrowings outstanding at September 30, 2004 and 2003. Our results of operations are aÅected
by changes in market interest rates on commercial paper borrowings. If market interest rates would have
averaged 10 percent higher than actual levels in either 2004 or 2003, the eÅect on our results of operations
would not have been material.
28
We had outstanding Ñxed rate long-term debt obligations with carrying values of $757.7 million at
September 30, 2004 and $772.4 million at September 30, 2003. The fair value of this debt was $837.1 million
at September 30, 2004 and $843.4 million at September 30, 2003. The potential reduction 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. We currently have no plans to repurchase our outstanding Ñxed-
rate instruments and, therefore, Öuctuations in market interest rates would not have an eÅect on our results of
operations or shareowners' equity.
In September 2002, we entered into an interest rate swap contract that eÅectively converted our
$350.0 million aggregate principal amount of 6.15% notes, payable in 2008, to Öoating rate debt based on six-
month LIBOR. The Öoating rate was 4.27 percent at September 30, 2004. A hypothetical 10 percent change
in market interest rates would not be material to the overall fair value of the swap or our results of operations.
Foreign Currency Risk
We are 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. Our objective is to minimize our exposure to these risks
through a combination of normal operating activities and the utilization of foreign currency forward exchange
contracts to manage our exposure on transactions denominated in currencies other than the applicable
functional currency. In addition, we enter 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 our policy not to enter into derivative Ñnancial instruments for speculative purposes.
We do not hedge our 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 our Ñnancial condition or results of operations.
We record all derivatives on the balance sheet at fair value regardless of the purpose 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. We recognize the
ineÅective portion of a derivative's change in fair value in earnings immediately.
At September 30, 2004 and 2003, we had outstanding foreign currency forward exchange contracts
primarily consisting of contracts to exchange the euro, pound sterling, Swiss franc, Australian dollar and
Canadian dollar. The use of these contracts allows us 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 our Ñnancial condition, results of operations or shareowners' equity.
29
Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEET
(in millions)
September 30,
2004
2003
Assets
Current Assets
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
473.8
719.9
574.3
132.7
125.4
$
226.4
651.5
536.1
159.7
118.3
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,026.1
1,692.0
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
804.5
811.1
323.8
235.7
917.1
798.2
339.8
192.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,201.2
$ 3,939.9
Liabilities and Shareowners' Equity
Current Liabilities
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commitments and contingent liabilities (Note 17)
0.2
362.2
202.3
8.3
290.6
863.6
757.7
505.6
89.3
124.0
$
8.7
315.2
163.4
15.0
273.4
775.7
764.0
656.7
35.3
121.4
Shareowners' Equity
Common stock (shares issued: 216.4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unearned restricted stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Common stock in treasury, at cost (shares held: 2004, 32.6; 2003, 30.8)ÏÏÏÏÏÏÏÏÏ
216.4
1,050.6
2,255.7
(226.8)
(1.1)
(1,433.8)
216.4
1,007.5
2,143.0
(343.8)
Ì
(1,436.3)
Total shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,861.0
1,586.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,201.2
$ 3,939.9
See Notes to Consolidated Financial Statements.
30
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended September 30,
2003
2002
2004
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,411.1
(2,848.3)
$ 3,992.3
(2,681.0)
$ 3,775.7
(2,589.7)
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,562.8
1,311.3
1,186.0
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (expense) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,058.6)
(24.4)
(41.7)
(967.7)
6.5
(52.5)
(907.4)
16.7
(66.1)
Income from continuing operations before income taxes and
cumulative eÅect of accounting changeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax provision (Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
438.1
(84.0)
297.6
(16.2)
229.2
(5.5)
Income from continuing operations before cumulative eÅect of
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations (Note 13)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
354.1
60.8
Ì
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
414.9
Basic earnings per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Diluted earnings per share:
Continuing operations before accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1.91
0.33
Ì
2.24
1.85
0.32
Ì
2.17
281.4
5.0
Ì
286.4
1.51
0.03
Ì
1.54
1.48
0.03
Ì
1.51
$
$
$
$
$
223.7
5.6
(107.8)
121.5
1.21
0.03
(0.58)
0.66
1.19
0.03
(0.58)
$
$
$
$
$
0.64
Weighted average outstanding shares:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
185.5
191.1
185.4
190.1
184.9
188.8
See Notes to Consolidated Financial Statements.
31
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended September 30,
2003
2004
2002
Continuing Operations:
Operating Activities:
Income from continuing operations before accounting change ÏÏÏÏÏÏÏ
Adjustments to arrive at cash provided by operating activities:
$ 354.1
$ 281.4
$ 223.7
DepreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax mattersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement beneÑt expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension trust contributionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss on dispositions of property and business (Note 15) ÏÏÏÏÏÏ
Income tax beneÑt from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, excluding eÅects of acquisitions,
divestitures, and foreign currency adjustments:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
159.7
27.0
(46.3)
92.2
(157.3)
63.6
24.3
40.2
(48.2)
(28.5)
37.1
35.2
7.2
36.6
Cash Provided by Operating ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
596.9
Investing Activities:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisition of businesses, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sales of business and property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Used for Investing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(98.0)
Ì
32.4
0.4
(65.2)
Financing Activities:
Repayments of debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(8.4)
(122.5)
(258.4)
78.5
(1.2)
Cash Used for Financing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(312.0)
EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by (Used for) Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by (Used for) Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (Decrease) in CashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.8
221.5
25.9
247.4
226.4
168.5
22.1
(69.4)
70.7
(65.9)
26.4
12.2
20.9
(13.0)
20.3
6.9
7.7
(32.8)
(36.1)
419.9
(107.6)
(25.7)
6.6
(4.7)
(131.4)
(153.4)
(122.4)
(128.4)
70.4
(1.5)
(335.3)
(31.0)
(77.8)
15.0
(62.8)
289.2
178.4
19.3
(48.2)
53.0
(35.8)
(14.6)
2.7
6.0
66.4
47.9
(23.3)
(29.1)
14.0
1.5
461.9
(99.6)
(71.0)
3.6
(4.0)
(171.0)
Ì
(122.1)
Ì
24.7
Ì
(97.4)
(0.4)
193.1
(25.3)
167.8
121.4
Cash and Cash Equivalents at End of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 473.8
$ 226.4
$ 289.2
See Notes to Consolidated Financial Statements.
32
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in millions, except per share amounts)
Year Ended September 30,
2003
2002
2004
Common Stock (no shares issued during years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
216.4
$
216.4
$
216.4
Additional Paid-In Capital
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,007.5
40.2
2.9
986.6
20.9
Ì
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,050.6
1,007.5
980.6
6.0
Ì
986.6
Retained Earnings
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends ($0.66 per share) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SpinoÅ of Rockwell Collins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,143.0
414.9
(122.5)
(179.7)
Ì
2,165.3
286.4
(122.4)
(186.3)
Ì
2,242.4
121.5
(122.1)
(85.3)
8.8
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,255.7
2,143.0
2,165.3
Accumulated Other Comprehensive Loss
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(343.8)
117.0
(193.8)
(150.0)
(162.4)
(31.4)
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(226.8)
(343.8)
(193.8)
Unearned Restricted Stock Compensation
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock compensation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury Stock
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
0.6
(1.7)
(1.1)
(0.2)
0.5
(0.3)
Ì
(0.7)
1.0
(0.5)
(0.2)
(1,436.3)
(258.4)
260.9
(1,565.3)
(128.4)
257.4
(1,675.9)
Ì
110.6
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,433.8)
(1,436.3)
(1,565.3)
Total Shareowners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,861.0
$ 1,586.8
$ 1,609.0
See Notes to Consolidated Financial Statements.
33
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
Year Ended September 30,
2003
2004
2002
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income (loss):
$414.9
$ 286.4
$121.5
Minimum pension liability adjustments (net of tax expense (beneÑt) of
$42.1, $(106.9) and $(14.7)) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustments (net of tax expense of $0, $25.0, and
$3.8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on cash Öow hedges (net of tax expense
(beneÑt) of $8.6, $(9.0) and $(5.0)) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏ
68.2
(169.9)
(28.5)
34.0
14.2
0.6
34.1
6.7
(14.9)
0.7
(8.2)
(1.4)
Other comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
117.0
(150.0)
(31.4)
Comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$531.9
$ 136.4
$ 90.1
See Notes to Consolidated Financial Statements.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a leading global provider of
industrial automation power, control and information products and services. The following is a description of
the basis of presentation for our consolidated Ñnancial statements and a description of our signiÑcant
accounting policies:
Basis of Presentation
Except as indicated, amounts reÖected in the consolidated Ñnancial statements or the notes thereto relate
to our continuing operations. Certain prior year amounts have been reclassiÑed to conform to the current year
presentation.
In June 2001, we completed the spinoÅ of our Rockwell Collins avionics and communications business
and certain other assets and liabilities into an independent, separately traded, publicly held company.
In September 2004, we sold our FirstPoint Contact business. FirstPoint Contact is classiÑed as a
discontinued operation in the consolidated Ñnancial statements for all periods presented.
Consolidation
The consolidated Ñnancial statements of the Company include the accounts of the Company and all
subsidiaries over which the Company has a controlling Ñnancial interest. 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 us 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, customer returns, rebates and incentives; 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
has been delivered according to contract terms and acceptance as may be required by contract terms has
occurred or services have been rendered; pricing is Ñxed or determinable; and collection is reasonably assured.
We generally use contracts and customer purchase orders to determine the existence of an arrangement.
We use shipping documents and customer acceptance, when applicable, to verify delivery. We assess whether
the fee is Ñxed or determinable based on the payment terms associated with the transaction and whether the
sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness
of the customer as determined by credit evaluations and analysis, as well as the customer's payment history.
We record accruals for customer returns, rebates and incentives at the time of revenue recognition based
upon historical experience. Adjustments to the accrual may be required if actual returns, rebates and
incentives diÅer from historical experience or if there are changes to other assumptions used to estimate the
accrual. Rebates and incentives are recognized as a reduction of sales if distributed in cash or customer
account credits. Rebates and incentives are recognized as cost of sales for products or services to be provided.
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.
35
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
We record allowances for doubtful accounts based on customer-speciÑc analysis and general matters such
as current assessments of past due balances and economic conditions. Receivables are stated net of allowances
for doubtful accounts of $25.2 million at September 30, 2004 and $26.7 million at September 30, 2003. In
addition, receivables are stated net of an allowance for certain customer rebates and incentives of $7.8 million
at September 30, 2004 and $5.4 million at September 30, 2003.
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 calculated using the straight-line method over 15 to
40 years for buildings and improvements and 3 to 14 years for machinery and equipment. SigniÑcant renewals
and enhancements are capitalized and replaced units are written oÅ. Maintenance 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. We account 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 annually or more
frequently if events or circumstances indicate an impairment may be present. Any excess in carrying value
over the estimated fair value is charged to results of operations.
Distributor networks, computer software products, patents and other intangible assets 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
We evaluate the recoverability of the recorded amount of long-lived assets whenever events or changes in
circumstances indicate that the recorded amount of an asset may not be fully recoverable. An impairment is
assessed when the undiscounted expected future cash Öows derived from an asset are less than its carrying
amount. If an asset is determined to be impaired, the impairment to be recognized is measured as the amount
by which the recorded amount of the asset exceeds its fair value. Assets to be disposed of are reported at the
lower of the recorded amount or fair value less cost to sell. We determine fair value using discounted future
cash Öow analysis or other accepted valuation techniques.
During 2004, we sold a facility in a sale-leaseback transaction with a third party resulting in a
$20.6 million pre-tax loss. The net cash proceeds from the sale were $19.0 million.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
Investments
Investments in aÇliates over which we have the ability to exert signiÑcant inÖuence but we do not
control, including Rockwell ScientiÑc Company LLC (RSC), are accounted for using the equity method of
accounting. Accordingly, our proportional share of the respective aÇliate's earnings or losses is included in
other income (expense) in the Consolidated Statement of Operations. Investments in aÇliates over which we
do not have the ability to exert signiÑcant inÖuence are accounted for using the cost method of accounting.
These aÇliated companies are not material individually or in the aggregate to our Ñnancial position, results of
operations or cash Öows.
Derivative Financial Instruments
We use 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 oÅset 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. Our accounting method for derivative Ñnancial instruments is based upon the
designation of such instruments as hedges under accounting principles generally accepted in the United States.
It is our policy 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 adjustments 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.
Research and Development Expenses
Research and development (R&D) costs are expensed as incurred and were $121.7 million in 2004,
$121.6 million in 2003 and $123.2 million in 2002. R&D expenses are included in cost of sales in the
Consolidated Statement of Operations.
Income Taxes
We record a liability for income tax exposures when they are probable and the amount can be reasonably
estimated. The determination of probability and the estimate of the liability reÖect the relevant tax law as
applied to us taking into account the particular country, state, or other taxing authority.
Earnings Per Share
We present basic and diluted per share (EPS) amounts. 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. The diÅerence between basic and diluted EPS is solely attributable to stock options. We use the treasury
stock method to calculate the eÅect of outstanding stock options. Stock options for which the exercise price
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
exceeds the average market price (out-of-the-money options) over the period have an antidilutive eÅect on
EPS, and accordingly, are excluded from the calculation. For the years ended September 30, 2004, 2003 and
2002, options for 0.1 million, 1.1 million and 3.6 million shares were excluded from the diluted EPS
calculation because they were antidilutive.
Stock-Based Compensation
We account 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 our common stock on the grant dates; therefore no compensation expense is generally recognized in
connection with stock options granted to employees. Compensation expense resulting from grants of restricted
stock is recognized during the period in which the service is performed. The following table illustrates the
eÅect on net income and earnings per share as if the fair value-based method provided by SFAS No. 123,
Accounting for Stock-Based Compensation, had been applied for all outstanding and unvested awards in each
year (in millions, except per share amounts):
Net income, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add: Stock-based employee compensation expense included in
2004
2003
2002
$414.9
$286.4
$121.5
reported net income, net of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3.3
0.3
0.6
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(15.2)
(5.3)
(6.4)
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$403.0
$281.4
$115.7
Earnings per share:
Basic Ì as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.24
$ 1.54
$ 0.66
Basic Ì pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.17
$ 1.52
$ 0.63
Diluted Ì as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.17
$ 1.51
$ 0.64
Diluted Ì pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.11
$ 1.48
$ 0.61
Net income, as reported and pro forma net income in 2004 include $2.9 million (before and after tax) of
compensation expense resulting from modiÑcations made to certain stock options in connection with the sale
of our FirstPoint Contact business.
The per share weighted average fair value of options granted was $7.20 in 2004, $2.98 in 2003 and $2.99
in 2002.
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:
2004
2003
2002
Average risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3.17% 2.59% 4.01%
2.34% 4.22% 3.76%
0.30
0.31
5
5
0.30
5
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
Self-Insurance Liabilities
We record accruals for self-insured claims in the period in which they are probable and reasonably
estimable. Our principal self-insurance programs include product liability and workers' compensation where
we self-insure up to a speciÑed dollar amount. Claims exceeding this amount up to speciÑed limits are covered
by policies purchased from commercial insurers. We estimate the liability for the majority of the self-insured
claims with the assistance of an independent actuarial consultant using our claims experience for the periods
being valued.
Environmental Matters
We record accruals for environmental matters in the period in which our responsibility is probable and
the cost can be reasonably estimated. Changes to the accruals are made in the periods in which the estimated
costs of remediation change. At environmental sites for which more than one potentially responsible party has
been identiÑed, we record a liability for our estimated allocable share of costs related to our 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 for which we are the only responsible party, we record 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,
we record a receivable for the estimated recovery.
Recently Adopted Accounting Standards
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) was signed into law. The Act provides a federal subsidy to sponsors of retiree healthcare beneÑt plans
that provide a prescription drug beneÑt that is at least actuarially equivalent to Medicare Part D. In May 2004,
the Financial Accounting Standards Board (FASB) staÅ issued FASB StaÅ Position No. FAS 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (FSP FAS 106-2), which supercedes FASB StaÅ Position No. FAS 106-1,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, and is eÅective for interim or annual periods beginning after June 15, 2004. We
adopted FSP FAS 106-2 during our fourth quarter of 2004. The impact was to decrease our other
postretirement obligations by $16.9 million. As a result, the Ñscal 2005 expense is expected to decrease by
$2.0 million.
2. Acquisitions of Businesses
2003 Acquisitions
In March 2003, our Control Systems segment acquired certain assets and assumed certain liabilities of
Weidm uller Holding AG's (Weidm uller) North American business. In connection therewith, we entered into
a master brand label agreement, a technology/design exchange and joint product development eÅorts with
Weidm uller. In February 2003, our Control Systems segment acquired substantially all of the assets and
assumed certain liabilities of Interwave Technology, Inc., a consulting integrator focusing on manufacturing
solutions. The aggregate cash purchase price of these businesses was $25.7 million. Amounts recorded for
liabilities assumed were approximately $1.0 million.
2002 Acquisitions
In September 2002, our Control Systems segment acquired the engineering services and system
integration assets of SPEL, spol. s.r.o. In May 2002, our Control Systems segment acquired the assets and
assumed certain liabilities of the controller division of Samsung Electronics Company Limited's Mechatronics
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
2. Acquisitions of Businesses Ì (Continued)
business. In March 2002, our 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. In January 2002, our Control Systems segment acquired all of the stock of Tesch GmbH, an
electronic products and safety relay manufacturer. The aggregate cash purchase price of the businesses we
acquired in 2002, of which the majority related to the acquisition of Propack, was $71.0 million. Amounts
recorded for liabilities assumed were approximately $6.0 million.
Assets acquired and liabilities assumed of the businesses acquired in 2003 and 2002 have been recorded
at estimated fair values. The excess of the purchase price over the estimated fair value of the acquired tangible
and intangible assets was recorded as goodwill. See Note 3 for goodwill and intangible assets acquired in
connection with these acquisitions.
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 our results of operations or Ñnancial position.
3. Goodwill and Other Intangible Assets
In connection with the adoption of SFAS 142 in 2002, we determined that the Allen-Bradley, Reliance
and Dodge trademarks have indeÑnite useful lives. Accordingly, we performed a transitional intangible asset
impairment test that resulted in an impairment charge of $56.1 million ($35.2 million after tax, or $0.19 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 that we determined,
with the assistance of independent valuation experts, utilizing the relief from royalty valuation method. This
method estimates the beneÑt to us resulting from owning rather than licensing the trademark.
Also in connection with the adoption of SFAS 142, we completed a transitional goodwill impairment test
during 2002. As a result, an impairment charge of $72.6 million (before and after tax, or $0.39 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 $128.7 million
($107.8 million after tax, or $0.58 per diluted share) as of October 1, 2001 in the accompanying Consolidated
Statement of Operations.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Goodwill and Other Intangible Assets Ì (Continued)
The changes in the carrying amount of goodwill for the years ended September 30, 2003 and 2004 are as
follows (in millions):
Balance as of September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill acquired (Note 2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Control
Systems
$630.6
11.2
11.3
Power
Systems
$147.6
Ì
(2.5)
Total
$778.2
11.2
8.8
Balance as of September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
653.1
145.1
798.2
Translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12.9
Ì
12.9
Balance as of September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$666.0
$145.1
$811.1
We performed our annual evaluation of goodwill and indeÑnite life intangible assets for impairment
during the second quarter of 2004 and concluded that no impairments existed.
Other intangible assets consisted of the following (in millions):
September 30, 2004
Accumulated
Amortization
Carrying
Amount
Net
Amortized intangible assets:
Distributor networks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Computer software products ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Patents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets not subject to amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$117.7
113.4
39.3
93.2
363.6
210.8
$ 84.6
57.6
35.4
73.0
250.6
Ì
$ 33.1
55.8
3.9
20.2
113.0
210.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$574.4
$250.6
$323.8
September 30, 2003
Accumulated
Amortization
Carrying
Amount
Net
Amortized intangible assets:
Distributor networks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Computer software products ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Patents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets not subject to amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$117.7
102.6
39.3
93.0
352.6
210.8
$ 79.4
40.1
34.2
69.9
223.6
Ì
$ 38.3
62.5
5.1
23.1
129.0
210.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$563.4
$223.6
$339.8
Computer software products amortization expense was $16.0 million in 2004, $13.8 million in 2003 and
$11.3 million in 2002.
The Allen-Bradley, Reliance and Dodge trademarks have been determined to have an indeÑnite life, and
therefore are not subject to amortization.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
3. Goodwill and Other Intangible Assets Ì (Continued)
Estimated amortization expense is $23.2 million in 2005, $20.0 million in 2006, $19.9 million in 2007,
$19.3 million in 2008 and $15.6 million in 2009.
4.
Inventories
Inventories are summarized as follows (in millions):
September 30,
2004
2003
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Raw materials, parts, and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$218.7
135.4
220.2
$200.8
138.1
197.2
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$574.3
$536.1
Inventories are reported net of the allowance for excess and obsolete inventory of $46.2 million at
September 30, 2004 and $53.4 million at September 30, 2003.
5. Property
Property is summarized as follows (in millions):
September 30,
2004
2003
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
32.4
458.0
1,606.0
43.3
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,139.7
1,335.2
$
35.8
504.9
1,570.0
47.6
2,158.3
1,241.2
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 804.5
$ 917.1
6. Debt
Short-term debt consists of the following (in millions):
Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $8.4
0.3
0.2
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.2
$8.7
September 30,
2003
2004
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
6. Debt Ì (Continued)
Long-term debt consists of the following (in millions):
September 30,
2004
2003
6.15% notes, payable in 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.70% debentures, payable in 2028 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.20% debentures, payable in 2098 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized discount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$353.7
250.0
200.0
Ì
(46.0)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
757.7
Ì
$360.4
250.0
200.0
8.4
(46.4)
772.4
8.4
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$757.7
$764.0
In September 2002, we entered into an interest rate swap contract (the Swap) that eÅectively converted
our $350.0 million aggregate principal amount of 6.15% notes, payable in 2008, to Öoating rate debt based on
six-month LIBOR. The Öoating rate was 4.27 percent at September 30, 2004 and 3.52 percent at
September 30, 2003. The fair value of the Swap, based upon quoted market prices for contracts with similar
maturities, was $3.7 million at September 30, 2004 and $10.4 million at September 30, 2003. As permitted by
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended, we
have 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 at September 30, 2004 and 2003. The carrying value of the
underlying debt was increased to $353.7 million at September 30, 2004 and $360.4 million at September 30,
2003 in accordance with SFAS 133.
At September 30, 2004, we had $675.0 million of unsecured committed credit facilities, with
$337.5 million expiring in October 2004 and $337.5 million expiring in October 2005. These facilities were
available for general corporate purposes, including support for our commercial paper borrowings. On
October 26, 2004, we entered into a new Ñve-year $600.0 million unsecured revolving credit facility. It
replaced both the facility expiring on that date and the facility expiring in October 2005 (which we cancelled
on that date). Borrowings under our new credit facility bear interest based on short-term money market rates
in eÅect during the period such borrowings are outstanding. The terms of our credit facility contain a covenant
under which we would be in default if our debt to capital ratio were to exceed 60 percent. In addition to our
$600.0 million credit facility, short-term unsecured credit facilities available to foreign subsidiaries amounted
to $130.4 million at September 30, 2004. There were no signiÑcant commitment fees or compensating balance
requirements under any of our credit facilities.
Interest payments were $40.9 million during 2004, $54.7 million during 2003 and $63.1 million during
2002.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
7. Other Current Liabilities
Other current liabilities are summarized as follows (in millions):
September 30,
2004
2003
Advance payments from customers and deferred revenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customer rebates and incentives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized losses on foreign exchange contracts (Note 9)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty obligations (Note 8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxes other than income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 63.5
71.3
12.0
28.9
34.8
80.1
$ 56.7
65.4
46.6
29.3
24.2
51.2
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$290.6
$273.4
8. Product Warranty Obligations
We record a liability for product warranty obligations at the time of sale to a customer based upon
historical warranty experience. The term of the warranty is generally twelve months. We also record a liability
for speciÑc warranty matters when they become known and are reasonably estimable.
Changes in the product warranty obligations are as follows (in millions):
Balance at beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranties recorded at time of saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to pre-existing warranties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PaymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 29.3
30.8
(1.1)
(30.1)
$ 30.5
28.3
(0.8)
(28.7)
Balance at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 28.9
$ 29.3
September 30,
2004
2003
9. Financial Instruments
Our Ñnancial instruments include short-term debt, long-term debt, foreign currency forward exchange
contracts and an interest rate swap. The following is a summary of the carrying value and fair value of our
Ñnancial instruments (in millions):
September 30, 2004
Fair
Value
Carrying
Value
September 30, 2003
Fair
Value
Carrying
Value
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency forward exchange contracts ÏÏÏÏÏÏÏÏ
Interest rate swapÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(0.2)
(757.7)
(7.8)
3.7
$
(0.2)
(837.1)
(7.8)
3.7
$
(0.3)
(772.4)
(41.9)
10.4
$
(0.3)
(843.4)
(41.9)
10.4
Short-term debt in the table above excludes the current portion of long-term debt. The fair value of short-
term debt approximates the carrying value due to its short-term nature. The fair value of long-term debt was
based upon quoted market prices for the same or similar issues. The fair value of foreign currency forward
exchange contracts was based on quoted market prices for contracts with similar maturities.
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, 2004 and 2003, we had outstanding
foreign currency forward exchange contracts primarily consisting of contracts for the euro, pound sterling,
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
9. Financial Instruments Ì (Continued)
Swiss franc, Australian dollar and Canadian dollar. The foreign currency forward exchange contracts are
recorded in other current assets in the amounts of $4.2 million as of September 30, 2004 and $4.7 million as of
September 30, 2003 and other current liabilities in the amounts of $12.0 million as of September 30, 2004 and
$46.6 million as of September 30, 2003. We do not anticipate any material adverse eÅect on our results of
operations or Ñnancial position relating to these foreign currency forward exchange contracts. We have
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, 2004, the authorized stock of the Company consisted of one billion shares of common
stock, par value $1.00 per share, and 25 million shares of preferred stock, without par value. At September 30,
2004, 24.5 million shares of common stock were reserved for various incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
2004
2003
2002
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
185.6
(7.5)
5.7
185.8
(5.6)
5.4
183.7
Ì
2.1
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.8
185.6
185.8
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.
45
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,
2004
2003
Minimum pension liability adjustment (Note 12) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net unrealized losses on cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized losses on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(131.2)
(91.3)
(4.2)
(0.1)
$(199.4)
(125.3)
(18.4)
(0.7)
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(226.8)
$(343.8)
In 2003, we adjusted our accumulated currency translation adjustments and deferred income taxes by
approximately $25.0 million resulting from our decision to permanently reinvest the earnings of certain foreign
subsidiaries.
Unrealized losses on cash Öow hedges of $36.6 million ($22.1 million after tax) in 2004 and $24.2 million
($15.0 million after tax) in 2003 were reclassiÑed into earnings and oÅset gains on the hedged items.
Unrealized gains of $6.7 million ($4.2 million after tax) were reclassiÑed into earnings in 2002 and oÅset
losses on the hedged items.
Approximately $6.7 million ($4.0 million after tax) of the net unrealized losses on cash Öow hedges as of
September 30, 2004 will be reclassiÑed into earnings during 2005. We expect that these unrealized losses will
be oÅset when the hedged items are recognized in earnings.
11. Stock Options
Options to purchase our common stock have been granted under various incentive plans and by board
action to directors, oÇcers and other key employees at prices equal to 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, we are authorized to grant up to 24.0 million shares of our
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 approximately 10.4 million at
September 30, 2004. None of the employee 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 our common stock reaches a speciÑed level for a pre-determined period of time or (b) a period of seven
years from the date they are granted.
46
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:
2004
2003
2002
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
16,860
$14.88
19,775
$14.27
19,696
$14.15
Time-vestingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance-vesting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canceled or expiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,168
Ì
(5,676)
(270)
Outstanding at end of year ÏÏÏÏÏÏÏÏÏÏÏÏ
14,082
Exercisable at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,562
28.24
Ì
13.87
21.09
18.17
15.57
2,883
Ì
(5,416)
(382)
16,860
15.69
Ì
13.03
15.57
14.88
2,720
Ì
(2,123)
(518)
19,775
9,980
14.67
12,133
13.48
Ì
11.63
16.81
14.27
13.88
The following table summarizes information about stock options outstanding at September 30, 2004
(shares in thousands; remaining life in years):
Range of Exercise Prices
$7.93 to $13.49ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13.50 to $17.49ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17.50 to $24.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$25.00 to $27.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$28.00 to $39.10ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options Outstanding
Options Exercisable
Weighted Average
Remaining
Life
Exercise
Price
5.6
6.0
4.7
8.9
9.4
$12.24
15.62
20.45
27.75
32.60
Wtd. Avg.
Exercise
Price
$12.00
15.71
20.43
27.75
Ì
Shares
3,680
2,303
2,544
35
Ì
8,562
Shares
4,450
3,988
2,604
2,721
319
14,082
The closing price of our common stock on September 30, 2004 was $38.70.
12. Retirement BeneÑts
We sponsor funded and unfunded pension plans and other postretirement beneÑt plans for our employees.
The pension plans cover most of our 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 are primarily based on speciÑed beneÑt
amounts and years of service. Our policy with respect to funding our pension obligations is to fund the
minimum amount required by applicable laws and governmental regulations. We may, however, at our
discretion, fund amounts in excess of the minimum amount required by laws and regulations. Other
postretirement beneÑts are primarily in the form of retirement medical plans and cover most of our United
States employees and provide for the payment of certain medical costs of eligible employees and dependents
upon retirement.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
The components of net periodic beneÑt cost are as follows (in millions):
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏ
Amortization:
Pension BeneÑts
2003
2004
2002
Other Postretirement BeneÑts
2002
2003
2004
$
62.2
110.6
(119.8)
$
50.3
102.0
(115.6)
$
44.6
92.5
(117.1)
$
5.8
19.9
Ì
$
5.8
23.4
Ì
$ 8.0
21.4
Ì
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition asset ÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.8
(1.8)
15.8
1.4
(2.4)
5.9
5.1
(2.8)
2.6
(13.8)
Ì
11.5
(12.2)
Ì
12.1
(5.9)
Ì
4.6
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏ
$
68.8
$
41.6
$
24.9
$ 23.4
$ 29.1
$28.1
Included in this net periodic beneÑt cost table and Income from Discontinued Operations in the
Consolidated Statement of Operations is pre-tax pension beneÑt cost of $2.8 million, $1.8 million and
$1.5 million and pre-tax other postretirement beneÑt cost of $1.1 million, $0.2 million and $1.0 million related
to FirstPoint Contact for the years ended September 30, 2004, 2003 and 2002, respectively. We retained the
pension liability related to the eligible FirstPoint Contact participants and the other postretirement beneÑt
liability for eligible retirees through the date of sale, which will result in ongoing net periodic beneÑt cost for
us. Also in 2004, we recognized a pension curtailment loss of $0.4 million and an other postretirement beneÑts
curtailment gain of $2.3 million related to the sale of our FirstPoint Contact business that is reÖected in
Income from Discontinued Operations in the Consolidated Statement of Operations.
48
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
Other Postretirement
BeneÑts
2004
2003
2004
2003
BeneÑt obligation at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏ
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discount rate change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial losses (gains)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan amendmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Medicare subsidy eÅectÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DivestitureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participant contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,919.2
62.2
110.6
(73.8)
68.4
0.8
Ì
(9.5)
4.9
(75.1)
47.2
$1,564.5
50.3
102.0
227.6
(11.1)
2.3
Ì
Ì
3.7
(64.9)
44.8
BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,054.9
1,919.2
Plan assets at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Company contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participant contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,248.2
187.5
152.2
4.9
(75.1)
31.1
1,192.4
11.8
68.6
3.7
(64.9)
36.6
Plan assets at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,548.8
1,248.2
$ 345.2
5.8
19.9
(8.6)
34.9
Ì
(16.9)
(0.3)
6.1
(36.9)
0.5
349.7
Ì
Ì
30.8
6.1
(36.9)
Ì
Ì
$ 408.9
5.8
23.4
30.7
(13.0)
(86.5)
Ì
Ì
6.1
(34.2)
4.0
345.2
Ì
Ì
28.1
6.1
(34.2)
Ì
Ì
Funded status of plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized amounts:
(506.1)
(670.7)
(349.7)
(345.2)
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition liability (asset) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11.2
1.2
481.0
12.5
(3.4)
574.0
(104.4)
(120.7)
Ì
232.6
Ì
234.8
Net amount on balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (12.7)
$ (87.6)
$(221.5)
$(231.1)
Net amount on balance sheet consists of:
Prepaid beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total retirement beneÑt liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏ
$
68.8
(305.1)
81.4
11.0
131.2
$
24.5
(447.4)
123.5
12.4
199.4
$ Ì $ Ì
(231.1)
(221.5)
Ì
Ì
Ì
Ì
Ì
Ì
Net amount on balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (12.7)
$ (87.6)
$(221.5)
$(231.1)
During 2004, we recorded a decrease to our minimum pension liability of $111.7 million resulting
primarily from the pension plan contributions. Considering the reduction of the deferred tax asset of
$42.1 million resulting from the decrease of our minimum pension liability and the decrease in the intangible
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
pension asset of $1.4 million, the net increase to shareowners' equity (reÖected as a reduction of accumulated
other comprehensive loss) was $68.2 million.
In 2004, we made voluntary contributions of $125.0 million to our U.S. qualiÑed pension plan trust. In
2003, we made a voluntary contribution of $50.0 million to our U.S. qualiÑed pension plan trust.
The accumulated beneÑt obligation for our pension plans is $1,768.1 million as of the 2004 measurement
date and $1,655.8 million as of the 2003 measurement date.
We use an actuarial measurement date of June 30 to measure our beneÑt obligations for pension and
other postretirement beneÑts.
Net Periodic BeneÑt Cost Assumptions
SigniÑcant assumptions used in determining net periodic beneÑt cost as of September 30 are as follows
(in weighted averages):
Pension BeneÑts
2003
2004
2002
Other Postretirement
BeneÑts
2003
2002
2004
U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.0% 7.0% 7.5% 6.0%
8.5% 8.5% 9.0% Ì
4.5% 4.5% 4.5% Ì
6.6%(1)
Ì
Ì
7.5%
Ì
Ì
4.89% 5.12% 5.10% 6.25% 6.50%
6.35% 6.75% 7.15% Ì
2.96% 3.38% 3.46% Ì
Ì
Ì
6.50%
Ì
Ì
Net BeneÑt Obligation Assumptions
SigniÑcant assumptions used in determining the beneÑt obligations as of September 30 are summarized
as follows (in weighted averages):
Pension
BeneÑts
Other
Postretirement
BeneÑts
2004
2003
2004
2003
U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Healthcare cost trend rate(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Non-U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Healthcare cost trend rate(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
6.25% 6.0% 6.25% 6.0%
4.5% 4.5% Ì
Ì
Ì 11.0% 11.0%
5.03% 4.89% 6.25% 6.25%
2.62% 2.96% Ì
Ì
Ì 9.50% 9.50%
(1) As a result of the plan amendment adopted eÅective October 1, 2002, as more fully described below, and in accordance with
SFAS No. 106, Employers' Accounting for Postretirement BeneÑts Other Than Pensions, our postretirement healthcare liabilities
were recalculated as of the date of the amendment using a 6.5 percent discount rate, the discount rate applicable at the date of the
plan amendment. The related net periodic beneÑt cost in 2003 of $29.1 million consists of expense using a 7.0 percent discount rate
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
for the period July 1, 2002 through September 30, 2002 and expense using a 6.5 percent discount rate for the period October 1, 2002
through June 30, 2003.
(2) The healthcare cost trend rate reÖects the estimated increase in gross medical claims costs as required to be disclosed by
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement BeneÑts. As a result of the plan amendment
adopted eÅective October 1, 2002, as more fully described below, our eÅective per person retiree medical cost increase will be zero
percent beginning in 2005 for the majority of our postretirement beneÑt plans. For our other plans, we are assuming gross healthcare
cost trend rate will decrease to 5.5% in 2010.
(3) Decreasing to 5.5% in 2010.
EÅective October 1, 2002, we amended our 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, per an amendment to this program implemented in 1992, we began
contributing 50 percent of the amount in excess of the 2003 per capita amount. However, our calendar 2004
contribution is limited to a 7.5 percent increase from the 2003 per capita amount. EÅective January 1, 2005,
we will limit our future per capita maximum contribution to our calendar 2004 per capita contribution.
As a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act),
we have included a reduction in our accumulated projected beneÑt obligation of $16.9 million as of
September 30, 2004 related to certain Other Postretirement BeneÑt plans. There was no adjustment to net
periodic postretirement beneÑt cost in Ñscal 2004. Net periodic postretirement beneÑt cost in Ñscal 2005 is
expected to decrease by $2.0 million as a result of the Act.
In determining the expected long-term rate of return on assets assumption, we equally consider the
historical performance and the future expected performance for returns for each asset category, as well as the
target asset allocation of the pension portfolios. We consulted with and considered the opinions of Ñnancial
and other professionals in developing appropriate return assumptions. This resulted in the selection of the
weighted average long-term rate of return on assets assumption. Our weighted-average asset allocations at
September 30, by asset category, are as follows:
Asset Category
Allocation
Range
Target
Allocation
September 30,
2003
2004
Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50% - 80%
20% - 50%
0% - 20%
65%
33%
2%
65%
33%
2%
61%
37%
2%
The investment objective for pension funds related to our deÑned beneÑt plans is to meet the plan's
beneÑt obligations, while maximizing the long-term growth of assets without undue risk. This is accomplished
by investing plan assets within target allocation ranges and diversiÑcation within asset categories. Target
allocation ranges are guidelines that are adjusted periodically based on ongoing monitoring by plan Ñduciaries.
Investment risk is controlled by rebalancing to target allocations on a periodic basis and ongoing monitoring of
investment manager performance relative to the investment guidelines established for each manager.
As of September 30, 2004 and 2003, our pension plans do not have investments in our common stock.
In certain non-U.S. countries in which we operate, there are no legal requirements or Ñnancial incentives
provided to companies to pre-fund pension obligations. In these instances, beneÑt payments are typically paid
directly from cash as they become due, rather than through the creation of a separate pension fund.
Estimated Future Payments
We expect to contribute approximately $64.0 million related to our worldwide pension plans and
$31.3 million to our postretirement beneÑt plans in 2005.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
12. Retirement BeneÑts Ì (Continued)
The following beneÑt payments, which include employees' expected future service, as applicable, are
expected to be paid (in millions):
Pension BeneÑts
Other
Postretirement
BeneÑts
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010-2014ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 79.7
81.8
83.4
87.6
92.3
568.0
$ 31.3
28.7
27.3
26.2
25.5
124.6
Other Postretirement BeneÑts
In light of the October 1, 2002 plan amendment discussed above, a one-percentage point change in
assumed healthcare cost trend rates would have the following eÅect (in millions):
One-Percentage
Point Increase
2003
2004
One-Percentage
Point Decrease
2003
2004
Increase (decrease) to total of service and interest cost components ÏÏÏ
Increase (decrease) to postretirement beneÑt obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1.0
12.6
$ 1.0
10.6
$ (0.9)
(10.8)
$(0.8)
(9.4)
Pension BeneÑts
Information regarding our pension plans with accumulated beneÑt obligations in excess of the fair value
of plan assets (underfunded plans) as of the 2004 and 2003 measurement dates (June 30) are as follows (in
millions):
2004
2003
Projected beneÑt obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,730.2
1,489.7
1,233.2
$1,733.5
1,485.8
1,062.8
DeÑned Contribution Savings Plans
We also sponsor certain deÑned contribution savings plans for eligible employees. Expense related to
these plans was $24.7 million in 2004 and $23.9 million in 2003 and 2002.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
13. Discontinued Operations
The following is a summary of the composition of income from discontinued operations included in the
Consolidated Statement of Operations (in millions):
2004
2003
2002
FirstPoint Contact net income from operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint Contact gain on sale (net of tax expense of $1.4) ÏÏÏÏÏÏÏÏÏÏÏÏ
State tax refund (see Note 16)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rocky Flats ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Resolution of certain obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 5.7
32.1
18.4
4.6
Ì
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$60.8
$0.6
Ì
Ì
4.4
Ì
$5.0
$2.4
Ì
Ì
Ì
3.2
$5.6
FirstPoint Contact
In 2004, we sold our FirstPoint Contact business for cash proceeds and a note convertible into a minority
interest in the corporate parent of the buyer. The note has a term of ten years and is convertible at our option
during the term but conversion is mandatory in the event of an initial public oÅering of the buyer's corporate
parent or in the event the buyer's corporate parent is acquired. The value assigned to the convertible note on
the date of the transaction was approximately $27.0 million. The results of operations of FirstPoint Contact for
2002 through 2004, as well as the gain on the sale, are reÖected in Income from Discontinued Operations in
the Consolidated Statement of Operations.
Summarized results of FirstPoint Contact are as follows (in millions):
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$105.5
9.4
5.7
$111.8
1.1
0.6
$133.4
3.9
2.4
2004
2003
2002
Rocky Flats
In 2004, we recorded a beneÑt of $7.6 million ($4.6 million after tax) as a result of a Ñnal judgment in a
defense claim legal proceeding related to our former operation of the Rocky Flats facility of the Department of
Energy. This amount is in addition to income of $7.3 million ($4.4 million after tax) recognized in 2003
related to the Rocky Flats defense claim legal proceeding. In March 2004, we received $15.1 million related to
this matter. This amount is included, net of the related tax, in the Consolidated Statement of Cash Flows as
Cash Provided by Discontinued Operations.
Other
The net beneÑt of $3.2 million (before and after tax) in discontinued operations in 2002 reÖects the
resolution of certain obligations related to two discontinued businesses. Related payments of approximately
$35.7 million were made in 2002, which have been included in Cash Used for Discontinued Operations in the
accompanying Consolidated Statement of Cash Flows.
14. Related Party Transactions
We own 50 percent of RSC. This ownership interest is accounted for using the equity method. Our
investment in RSC of $57.5 million at September 30, 2004 and $53.9 million at September 30, 2003 is
included in other assets in the Consolidated Balance Sheet.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Related Party Transactions Ì (Continued)
We have an agreement with RSC pursuant to which RSC performs research and development services
for us through 2004. We were obligated to pay RSC a minimum of $2.5 million for such services in 2005. We
incurred $3.7 million in 2004, $3.0 million in 2003 and $3.1 million in 2002 for research and development
services performed by RSC. At September 30, 2004, the amount due to RSC for research and development
services was $0.7 million. At September 30, 2004, the amount due from RSC for cost sharing arrangements
was not signiÑcant. At September 30, 2003, the amounts due to and from RSC were not signiÑcant.
We share equally with Rockwell Collins, which owns 50 percent of RSC, in providing a $4.0 million line
of credit to RSC which bears interest at the greater of our or Rockwell Collins' commercial paper borrowing
rate. At September 30, 2004 and 2003, there were no outstanding borrowings on the line of credit. During
October 2004, the line of credit was increased to $6.0 million, with us and Rockwell Collins still sharing
equally. In addition, we and Rockwell Collins each guarantee one-half of a lease agreement for one of RSC's
facilities. The total future minimum lease payments under the lease are $5.5 million. The lease agreement has
a term that ends in December 2011.
We own 25 percent of CoLinx, LLC (CoLinx), a company that provides logistics and e-commerce
services. This ownership interest is accounted for using the equity method. We paid CoLinx $17.1 million in
2004, $15.2 million in 2003 and $15.1 million in 2002, primarily for logistics services. In addition, CoLinx paid
us approximately $2.2 million in 2004, $2.4 million in 2003 and $2.7 million in 2002 for the use of facilities we
own and other services. The amounts due to and from CoLinx at September 30, 2004 and 2003 were not
signiÑcant.
15. Other Income (Expense)
The components of other income (expense) are as follows (in millions):
2004
2003
2002
Net loss on dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intellectual property settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Royalty income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(24.3)
0.3
5.6
2.6
(8.6)
$(12.2)
1.4
5.8
1.9
9.6
$(2.7)
9.4
5.4
3.7
0.9
Other (expense) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(24.4)
$
6.5
$16.7
During 2004, we sold a facility in a sale-leaseback transaction with a third party resulting in a
$20.6 million pre-tax loss. The net cash proceeds from the sale were $19.0 million.
During 2003, we sold a majority of our ownership interest in Reliance Electric Limited Japan
(REJ) resulting in a loss of $8.4 million ($2.5 million after tax, or $0.01 per diluted share). The loss includes
a $9.3 million non-cash charge related to the impairment of the Reliance trademark. The cash proceeds from
the transaction totaled $10.4 million.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes
The components of the income tax provision are as follows (in millions):
2004
2003
2002
Current:
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and localÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$32.3
(5.8)
(6.1)
$(35.4)
28.7
(3.5)
$(16.5)
29.3
7.3
Total current ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred:
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and localÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
20.4
(10.2)
20.1
53.4
6.0
4.2
63.6
23.3
(0.3)
3.4
26.4
(11.2)
(1.0)
(2.4)
(14.6)
Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$84.0
$ 16.2
$
5.5
During 2004, we recognized tax beneÑts of $46.3 million in income from continuing operations and
$18.4 million in income from discontinued operations related to the following items:
‚ $34.5 million resulting from the resolution of certain tax matters, in part related to former businesses.
A majority of the beneÑts recognized related to non-U.S. tax matters in addition to an agreement with
a taxing authority related to the treatment of an investment. Of this amount, $11.5 million is reÖected
as a reduction of the United States income tax provision; $21.3 million is reÖected as a reduction of the
non-United States income tax provision; and $1.7 million is reÖected as reduction of the state and local
income tax provision;
‚ $4.3 million related to additional state tax beneÑts associated with the U.S. research and
experimentation credit refund claim in 2003 (see discussion below); and
‚ $25.9 million related to a refund from the State of California for the period 1989 to 1991. Of this
amount, $7.5 million is included as a reduction in the income tax provision and $18.4 million is
included in Income from Discontinued Operations.
During 2003, we recognized in earnings a tax beneÑt of $69.4 million related to a federal research and
experimentation credit refund claim (Claim) for the years 1997 through 2001. Of this amount, $66.4 million
is reÖected as a reduction of the United States income tax provision and $3.0 million is reÖected as a reduction
of the state and local income tax provision. A portion of the proceeds from the Claim were received in 2004.
Upon the conclusion of the current federal audit cycle, which is expected in 2005, the remaining proceeds
from the Claim are expected to be netted against the liability arising from the audit. The future annual income
tax beneÑt related to research and experimentation expenditures is not expected to be signiÑcant.
During 2002, we resolved certain tax matters for the period of 1995-1999. The resolution resulted in a
$48.2 million reduction of our United States income tax provision.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes Ì (Continued)
Net current deferred income tax assets at September 30, 2004 and 2003 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
2004
2003
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allowance for doubtful accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 20.5
11.3
26.4
11.1
3.5
1.1
58.8
$ 41.0
11.5
27.0
12.6
0.2
0.4
67.0
Current deferred income tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$132.7
$159.7
Net long-term deferred income tax liabilities at September 30, 2004 and 2003 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
Retirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PropertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State tax credit carryforwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SubtotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
2003
$ 135.0
(125.2)
(49.2)
19.4
58.4
9.1
(73.8)
(26.3)
(63.0)
$ 227.6
(138.5)
(43.6)
21.9
30.8
4.4
(91.1)
11.5
(46.8)
Long-term deferred income tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (89.3)
$ (35.3)
Total deferred tax assets were $354.6 million at September 30, 2004 and $507.0 million at September 30,
2003. Total deferred tax liabilities were $248.2 million at September 30, 2004 and $335.8 million at
September 30, 2003.
We believe it is more likely than not that current and long-term deferred tax assets will be realized
through the reduction of future taxable income, other than as reÖected below for tax attributes to be carried
forward. SigniÑcant factors we considered in our determination of the probability of the realization of the
deferred tax assets include: (a) our historical operating results ($356.7 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 retiree medical liability will be paid.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes Ì (Continued)
Net operating loss, capital loss and tax credit carryforwards, and related carryforward periods at
September 30, 2004 are summarized as follows (in millions):
Tax Attribute to be Carried Forward
Non-United States net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States capital loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
United States net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
United States capital lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State tax credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax
BeneÑt
Amount
$ 0.6
12.0
30.1
1.4
28.3
8.9
10.2
Carryforward
Period Ends
2007-2009
IndeÑnite
IndeÑnite
2019-2024
2007-2009
2005-2024
2005-2019
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$91.5
A valuation allowance of $63.0 million was established at September 30, 2004 for certain of the above
carryforwards for which future utilization is uncertain. The United States capital loss carryforward was
increased in 2004 by $19.1 million as a result of the sale of our FirstPoint Contact business. The valuation
allowance was increased by a like amount due to the uncertainty of realizing a future tax beneÑt from that
capital loss.
In 2004, we reduced the prior year's state valuation allowance by $11.3 million as a result of it being more
likely than not that the same amount of state carryforward attributes will be utilized in light of our expectation
that a trend of taxable income is likely to be sustained in subsequent years allowing for the utilization of these
state carryforwards. In addition, we reduced the prior year's valuation allowance by $2.3 million as a result of
our ability to utilize certain non-United States carryforwards.
In 2003, we recognized a tax beneÑt of $2.6 million as a result of our ability to utilize certain capital loss
carryforwards for which a valuation allowance had been previously provided. The ability to utilize that capital
loss carryforward resulted from the sale of a majority of our ownership interest in REJ in 2003.
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
Employee stock ownership plan beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of foreign loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of capital loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax beneÑts on export salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Research and experimentation refund claim ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Resolution of prior period tax matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
2003
2002
35.0% 35.0% 35.0%
1.3
2.8
0.6
(3.0)
(0.8)
(0.2)
(1.4)
(0.9)
(2.4)
(3.7)
(1.0)
(0.3)
(1.7)
0.8
(0.8)
(2.1)
(23.3)
(2.3)
0.6
(8.3)
(0.7)
1.4
1.4
7.2
(11.3)
(1.9)
(6.0)
(1.8)
Ì
(3.3)
Ì
(16.2)
(0.7)
EÅective income tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19.2%
5.4%
2.4%
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
16.
Income Taxes Ì (Continued)
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):
2004
2003
2002
United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$319.8
118.3
$205.6
92.0
$180.8
48.4
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$438.1
$297.6
$229.2
No provision has been made for United States, state, or additional non-United States income taxes
related to $340.0 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, that would be payable if such earnings were not permanently reinvested.
Income taxes paid were $30.0 million during 2004, $84.5 million during 2003 and $36.9 million during
2002.
17. Commitments and Contingent Liabilities
Environmental Matters
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 our manufacturing operations. Thus far, compliance with environmental requirements and resolution
of environmental claims has been accomplished without material eÅect on our liquidity and capital resources,
competitive position or Ñnancial condition.
We have been designated as a potentially responsible party at 15 Superfund sites, excluding sites as to
which our records disclose no involvement or as to which our potential liability has been Ñnally determined
and assumed by third parties. We estimate the total reasonably possible costs we could incur for the
remediation of Superfund sites at September 30, 2004 to be $12.8 million, of which $5.0 million has been
accrued.
Various other lawsuits, claims and proceedings have been asserted against us 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, 2004, we have
estimated the total reasonably possible costs we could incur from these matters to be $67.1 million. We have
recorded net environmental accruals for these matters of $32.6 million. In addition to the above matters, we
assumed certain other environmental liabilities in connection with the 1995 acquisition of Reliance. We are
indemniÑed by ExxonMobil Corporation (Exxon) for substantially all costs associated with these Reliance
matters. At September 30, 2004, we have recorded a liability of $23.0 million and a receivable of $21.8 million
for these Reliance matters. We estimate the total reasonably possible costs for these matters to be
$36.6 million for which we are substantially indemniÑed by Exxon.
Based on our assessment, we believe that our 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 our liquidity
and capital resources, competitive position or Ñnancial condition. We cannot assess the possible eÅect of
compliance with future requirements.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
17. Commitments and Contingent Liabilities Ì (Continued)
Purchase Commitments
In connection with the sale of a Power Systems business in 2000, we entered into a supply agreement with
the buyer of the business. The agreement requires us to purchase at least $21.0 million per year through
December 31, 2005 at prices that we believe are higher than those available from other vendors. In the event
that purchases are less than $21.0 million in a given year, we may incur penalties which are 25 percent of the
amount by which the actual purchases were less than the contractual minimum for the period. Penalties we
paid under the terms of the supply agreement were $1.3 million in 2004 and $1.8 million in 2003. The liability
recorded in connection with the supply agreement was $1.3 million at September 30, 2004 and $3.5 million at
September 30, 2003.
See Note 14 for a discussion of our commitments to related parties.
Lease Commitments
Rental expense was $85.2 million in 2004; $80.7 million in 2003; and $82.2 million in 2002. Minimum
future rental commitments under operating leases having noncancelable lease terms in excess of one year
aggregated $210.9 million as of September 30, 2004 and are payable as follows (in millions):
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Beyond 2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 51.0
41.8
33.6
26.9
19.1
38.5
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$210.9
Commitments from third parties under sublease agreements having noncancelable lease terms in excess
of one year aggregated $17.3 million as of September 30, 2004 and are receivable through 2009 at
approximately $3.5 million per year. Most leases contain renewal options for varying periods, and certain
leases include options to purchase the leased property during or at the end of the lease term.
Other Matters
Various lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to
the conduct of our business, including those pertaining to product liability, intellectual property, safety and
health, employment and contract matters.
Like thousands of other companies, we have been named as a defendant in lawsuits alleging personal
injury as a result of exposure to asbestos that was used in certain components of our products many years ago.
We have maintained insurance coverage that we believe covers indemnity and defense costs, over and above
self-insured retentions, for most of these claims. The uncertainties of asbestos claim litigations and the
uncertainties related to collection of insurance coverage make it diÇcult to accurately predict the ultimate
resolution of asbestos claims. Subject to these uncertainties and based on our experience defending asbestos
claims, we do not believe these lawsuits will have a material adverse eÅect on our Ñnancial condition.
In connection with the divestiture of our former aerospace and defense businesses (the A&D Business)
to The Boeing Company (Boeing), we 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 our former
automotive component systems business, semiconductor systems business and Rockwell Collins avionics and
communications business, the spun-oÅ companies have agreed to indemnify us for substantially all contingent
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
17. Commitments and Contingent Liabilities Ì (Continued)
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 us, we believe the disposition of matters which are pending or
asserted will not have a material adverse eÅect on our business or Ñnancial condition.
We have, from time to time, divested certain of our businesses. In connection with such divestitures,
there may be lawsuits, claims and proceedings instituted or asserted against us related to the period that we
owned the businesses. In addition, we have guaranteed performance and payment under certain contracts of
divested businesses, including a $60.0 million lease obligation of our former semiconductor systems business,
now Conexant Systems, Inc. (Conexant). The lease obligation of Conexant 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, we received $250,000 per quarter from Conexant through December 31, 2003 and will receive
$500,000 per quarter from Conexant through December 31, 2004 unless we are released from the guarantee
prior thereto. We expect to be released from the guarantee in 2005.
In many countries we provide a limited intellectual property indemnity as part of our terms and
conditions of sale. We also at times provide limited intellectual property indemnities in other contracts with
third parties, such as contracts concerning: the development and manufacture of our products; the divestiture
of businesses; and the licensing of intellectual property. Due to the number of agreements containing such
provisions, we are unable to estimate the maximum potential future payments. However, we believe that
future payments, if any, would not be material to our business or Ñnancial condition.
18. Business Segment Information
Rockwell Automation is a provider of industrial automation power, control and information products and
services. We are organized based upon products and services and have two operating segments: Control
Systems and Power Systems.
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 business groups: the Components and Packaged Applications Group (CPAG), the Automation Control
and Information Group (ACIG) and Global Manufacturing Solutions (GMS).
CPAG supplies industrial components, power control and motor management products, and packaged
and engineered products and systems. It supplies motor starters, contactors, push buttons, signaling devices,
termination and protection devices, relays and timers, condition sensors, adjustable speed drives, motor control
centers and drive systems. CPAG's sales account for approximately 40 percent of Control Systems' sales.
ACIG's core products are used to control and monitor industrial plants and processes and typically
consist of a processor and input/output (I/O) devices. Our integrated architecture and Logix controllers
perform multiple types of controls applications, including discrete, batch, continuous process, drive system,
motion and machine safety across various factory Öoor operations. ACIG's products include controllers,
control platforms, I/O devices, high performance rotary and linear motion control systems, electronic operator
interface devices, sensors, 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,
automation systems integration, asset management, and manufacturing information solutions for discrete and
targeted batch process industries. GMS's sales account for approximately 20 percent of Control Systems'
sales.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
18. Business Segment Information Ì (Continued)
Power Systems
The Power Systems operating segment is divided into two businesses: Dodge mechanical (Mechanical)
and Reliance electrical (Electrical).
Mechanical's products include mounted bearings, gear reducers, mechanical drives, conveyor pulleys,
couplings, bushings, clutches and motor brakes. Electrical's products include industrial and engineered
motors, adjustable speed drives, product repair, motor and mechanical maintenance solutions, training and
consulting services to OEM's, end-users and distributors.
The following tables reÖect the sales and operating results of our reportable segments for the years ended
September 30 (in millions):
Sales:
2004
2003
2002
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intersegment sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,692.6
770.0
(51.5)
$3,313.9
724.1
(45.7)
$3,084.0
736.1
(44.4)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,411.1
$3,992.3
$3,775.7
Segment operating earnings:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 527.9
67.5
$ 397.6
54.6
$ 323.9
53.4
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a business (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
595.4
(27.3)
(88.3)
Ì
(41.7)
452.2
(26.9)
(66.8)
(8.4)
(52.5)
377.3
(24.6)
(57.4)
Ì
(66.1)
Income from continuing operations before income taxes and
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 438.1
$ 297.6
$ 229.2
Among other considerations, we evaluate performance and allocate 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
that are not considered part of the operations of a particular segment and incremental acquisition related
expenses resulting from purchase accounting adjustments such as intangible asset amortization, depreciation,
inventory and purchased research and development charges. Depending on the product, intersegment sales are
either at a market price or cost plus a mark-up, which does not necessarily represent a market price. The
accounting policies used in preparing the segment information are consistent with those described in Note 1.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
18. 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):
2004
2003
2002
IdentiÑable assets:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,442.1
850.2
908.9
$2,424.0
854.7
661.2
$2,404.1
885.1
666.6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,201.2
$3,939.9
$3,955.8
Depreciation and amortization:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 121.4
35.2
2.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏ
159.4
27.3
$ 122.1
38.2
3.4
163.7
26.9
$ 125.6
43.1
4.4
173.1
24.6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 186.7
$ 190.6
$ 197.7
Capital expenditures for property:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
70.7
26.9
0.4
98.0
$
$
78.1
28.7
0.8
$ 107.6
$
77.4
21.4
0.8
99.6
IdentiÑable assets at Corporate consist principally of cash, net deferred income tax assets, property and
the 50 percent ownership interest in RSC.
We conduct a signiÑcant portion of our business activities outside the United States. The following tables
reÖect geographic sales and property by geographic region (in millions):
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East, Africa ÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
$2,727.0
339.8
779.6
400.4
164.3
Sales
2003
$2,530.2
303.8
685.4
330.7
142.2
2002
2004
$2,527.6
264.7
564.6
273.1
145.7
$683.2
21.5
70.0
18.6
11.2
Property
2003
$793.2
21.5
76.8
16.8
8.8
2002
$851.2
18.6
74.3
24.9
8.5
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,411.1
$3,992.3
$3,775.7
$804.5
$917.1
$977.5
Sales are attributed to the geographic regions based on the country of origin.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. Quarterly Financial Information (Unaudited)
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before
income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operationsÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First(b)(c)
$990.3
329.9
75.4
57.1
5.1
62.2
0.30
0.03
0.33
0.29
0.03
0.32
2004 Quarters(a)
Third(d)
Fourth(e)(f)(g)
Second
(in millions, except per share amounts)
$1,206.2
437.2
$1,135.0
411.9
$1,079.6
383.8
106.2
74.9
3.4
78.3
0.40
0.02
0.42
0.39
0.02
0.41
129.8
125.5
0.9
126.4
0.68
Ì
0.68
0.66
Ì
0.66
126.7
96.6
51.4
148.0
0.52
0.28
0.80
0.51
0.27
0.78
2004
$4,411.1
1,562.8
438.1
354.1
60.8
414.9
1.91
0.33
2.24
1.85
0.32
2.17
(a) The amounts for the Ñrst, second and third quarters have been adjusted from the amounts
reÖected in the quarterly reports on Form 10-Q as Ñled for the respective periods to reÖect our former
FirstPoint Contact business as a discontinued operation. See Note 13 for additional information regarding
the sale of FirstPoint Contact.
Net income for 2004 includes:
(b) a net tax beneÑt of $4.3 million ($0.02 per diluted share) related to additional state tax beneÑts
associated with a previously reported U.S. federal research and experimentation credit refund claim;
(c) income of $7.6 million ($4.6 million after tax, or $0.02 per diluted share), reÖected in
discontinued operations, from a Ñnal judgment in a legal proceeding related to our former operation of the
Rocky Flats facility of the Department of Energy;
(d) a tax beneÑt of $34.5 million ($0.18 per diluted share) related to the resolution of certain tax
matters;
(e) a tax beneÑt of $25.9 million ($0.14 per diluted share) related to tax refunds from the State of
California, of which $7.5 million is included in continuing operations as a reduction of income tax
expense, and $18.4 million is included in income from discontinued operations;
(f) a gain on sale of $33.5 million ($32.1 million after tax, or $0.17 per diluted share) resulting from
the sale of FirstPoint Contact, reÖected in Income from Discontinued Operations;
(g) charges of $26.3 million ($16.3 million after tax, or $0.09 per diluted share) associated with an
ongoing facilities rationalization program.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
19. Quarterly Financial Information (Unaudited) Ì (Continued)
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before
income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First
$957.9
310.1
60.0
41.9
(0.2)
41.7
0.22
Ì
0.22
0.22
Ì
0.22
2003 Quarters(a)
Third(b)
Fourth(c)(d)
Second
(in millions, except per share amounts)
$1,024.9
339.5
$1,004.5
333.3
$1,005.0
328.4
65.1
49.0
Ì
49.0
0.26
Ì
0.26
0.26
Ì
0.26
83.4
127.9
0.2
128.1
0.69
Ì
0.69
0.67
Ì
0.67
89.1
62.6
5.0
67.6
0.34
0.02
0.36
0.33
0.02
0.35
2003
$3,992.3
1,311.3
297.6
281.4
5.0
286.4
1.51
0.03
1.54
1.48
0.03
1.51
(a) The amounts have been adjusted from the amounts reÖected in the quarterly reports on
Form 10-Q as Ñled for the respective periods to reÖect our former FirstPoint Contact business as a
discontinued operation. See Note 13 for additional information regarding the sale of FirstPoint Contact.
Net income for 2003 includes:
(b) a tax beneÑt of $69.4 million, or $0.37 per diluted share, related to the settlement of a
U.S. federal research and experimentation credit refund claim;
(c) income of $7.3 million ($4.4 million after tax, or $0.02 per diluted share), reÖected in
discontinued operations, from a favorable determination in a legal proceeding related to our former
operation of the Rocky Flats facility of the Department of Energy;
(d) a charge of $4.7 million ($2.8 million after tax, or $0.02 per diluted share), due to higher
estimated future costs for environmental remediation at a legacy site.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.:
Milwaukee, Wisconsin
We have audited the accompanying consolidated balance sheet of Rockwell Automation, Inc. and
subsidiaries (the ""Company'') as of September 30, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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 the Company at September 30, 2004 and 2003, and the results of its operations and its cash Öows
for each of the three years in the period ended September 30, 2004, 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 Standards No. 142, ""Goodwill and Other Intangible Assets.''
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 15, 2004
65
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our management,
including the Chief Executive OÇcer and Chief Financial OÇcer, of the eÅectiveness, as of September 30,
2004, of the design and operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Chief Executive OÇcer and Chief Financial OÇcer concluded
that our disclosure controls and procedures are eÅective as of the end of the year ended September 30, 2004 to
timely alert them to material information relating to the Company (including its consolidated subsidiaries)
required to be included in our Exchange Act Ñlings.
In Ñscal 2003, as a complement to our existing overall program of internal control, we initiated a
company-wide review of our internal control over Ñnancial reporting as part of the process of preparing for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002. As a result of the review, we made numerous
improvements to the design and eÅectiveness of our internal controls through the year ended September 30,
2004, especially our internal controls related to our information technology systems. Some of these changes
could be deemed to have materially improved our internal control over Ñnancial reporting. We anticipate that
improvements will continue to be made.
Item 10. Directors and Executive OÇcers of the Company.
PART III
See the information under the captions Election of Directors, Information as to Nominees for Directors
and Continuing Directors and Board of Directors and Committees in the 2005 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.
We have adopted a code of ethics that applies to our executive oÇcers, including the principal executive
oÇcer, principal Ñnancial oÇcer and principal accounting oÇcer. A copy of our code of ethics is posted on our
Internet site at http://www.rockwellautomation.com. In the event that we make any amendment to, or grant
any waiver from, a provision of the code of ethics that applies to the principal executive oÇcer, principal
Ñnancial oÇcer or principal accounting oÇcer and that requires disclosure under applicable SEC rules, we
intend to disclose such amendment or waiver and the reasons therefor on our Internet site.
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 2005 Proxy Statement.
Item 12. Security Ownership of Certain BeneÑcial Owners and Management and Related Stockholder
Matters.
See the information under the captions Stock Ownership by Certain BeneÑcial Owners and Ownership by
Management of Equity Securities in the 2005 Proxy Statement.
66
The following table provides information as of September 30, 2004 about our common stock that may be
issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under
all of our existing equity compensation plans, including our 2000 Long-Term Incentives Plan, 1995 Long-
Term Incentives Plan, 1988 Long-Term Incentives Plan, 2003 Directors Stock Plan and 1995 Directors Stock
Plan.
Number of Securities
to be Issued
Weighted Average
Upon Exercise of
Exercise Price of
Outstanding Options,
Outstanding Options,
Warrants and Rights Warrants and Rights
(a)
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities ReÖected
in Column (a))
(c)
14,033,434(1)
$18.18
10,410,204(2)
Plan Category
Equity compensation plans approved by
shareownersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity compensation plans not approved by
shareownersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14,082,434
49,000(3)
16.34
$18.17
Ì
10,410,204
(1) Represents outstanding options under our 1988 Long-Term Incentives Plan, 1995 Long-Term Incentives
Plan, 2000 Long-Term Incentives Plan, 2003 Directors Stock Plan and 1995 Directors Stock Plan.
(2) Includes 9,965,902 and 444,302 shares available for future issuance under our 2000 Long-Term
Incentives Plan and our 2003 Directors Stock Plan, respectively.
(3) On July 31, 2001, each non-employee director received a grant of options to purchase 7,000 shares of our
common stock at an exercise price of $16.05 per share pursuant to Board resolutions. On February 6,
2002, a new non-employee director received a grant of options to purchase 7,000 shares of our common
stock at an exercise price of $18.05 per share pursuant to Board resolutions. The options become
exercisable in substantially equal installments on the Ñrst, second and third anniversaries of the grant date
and expire ten years from the grant date.
Item 13. Certain Relationships and Related Transactions.
See the information under the caption Board of Directors and Committees in the 2005 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
See the information under the caption Proposal to Approve the Selection of Auditors in the 2005 Proxy
Statement.
67
PART IV
Item 15. Exhibits and Financial Statement Schedule.
(a) Financial Statements, Financial Statement Schedule and Exhibits.
(1) Financial Statements (all Ñnancial statements listed below are those of the Company and its
consolidated subsidiaries).
Consolidated Balance Sheet, September 30, 2004 and 2003.
Consolidated Statement of Operations, years ended September 30, 2004, 2003 and 2002.
Consolidated Statement of Cash Flows, years ended September 30, 2004, 2003 and 2002.
Consolidated Statement of Shareowners' Equity, years ended September 30, 2004, 2003 and
2002.
Consolidated Statement of Comprehensive Income, years ended September 30, 2004, 2003 and
2002.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
(2) Financial Statement Schedule for the years ended September 30, 2004, 2003 and 2002.
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-1
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, as amended November 3, 2004, Ñled as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated November 4, 2004, 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 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
* Management contract or compensatory plan or arrangement.
68
4-b-4
*10-a-l
*10-a-2
*10-a-3
*10-a-4
*10-a-5
*l0-b-1
*10-b-2
*10-b-3
*10-b-4
*10-b-5
*10-b-6
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
Forms of Stock Option Agreements under the Company's 1988 Long-Term
Incentives Plan, 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
Form of Stock Option Agreement under the Company's 1995 Long-Term
Incentives Plan, 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,
Ñled as Exhibit 10-b-8 to the Company's Annual Report on Form 10-K for the
year ended September 30, 2002, is hereby incorporated by reference
Memorandum of Proposed Amendments to the Rockwell International
Corporation 1995 Long-Term Incentives Plan approved and adopted by the
Board of Directors of the Company on June 6, 2001 in connection with the spin-
oÅ of Rockwell Collins, 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
* Management contract or compensatory plan or arrangement.
69
*10-b-7
*10-b-8
*10-c-l
*10-c-2
*10-c-3
*10-c-4
*10-c-5
*10-c-6
*10-c-7
*10-c-8
*10-c-9
*10-c-10
Copy of resolutions of the Board of Directors of the Company, adopted
November 6, 2002, amending the Company's 1995 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, 2002, is hereby incorporated by reference
Copy of resolutions of the Compensation and Management Development
Committee of the Board of Directors of the Company, adopted June 4, 2003,
amending the restricted stock agreements of Don H. Davis, Jr., Ñled as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, 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
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., 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, Ñled as
Exhibit 10-c-4 to the Company's Annual Report on Form 10-K for the year
ended September 30, 2000, is hereby incorporated by reference
Form of Restricted Stock Agreement under the Directors Stock Plan for
restricted stock granted between February 2, 2000 and February 6, 2002, 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 on
December 4, 2002, amending the Company's Directors Stock Plan, Ñled as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003, is hereby incorporated by reference
Copy of the Company's 2003 Directors Stock Plan, Ñled as Exhibit 4-d to the
Company's Registration Statement on Form S-8 (No. 333-101780), is hereby
incorporated by reference
Form of Restricted Stock Agreement under Section 6 of the 2003 Directors
Stock Plan, Ñled as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2003, is hereby incorporated by
reference
Form of Stock Option Agreement under Sections 7(a)(i) and 7(a)(ii) of the
2003 Directors Stock Plan, Ñled as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003, is hereby
incorporated by reference
* Management contract or compensatory plan or arrangement.
70
*10-c-11
*10-c-12
*10-c-13
*10-d-1
*10-d-2
*10-d-3
*10-e-1
*10-e-2
*10-e-3
*10-e-4
Memorandum of Amendments to the Company's 2003 Directors Stock Plan
approved and adopted by the Board of Directors of the Company on April 25,
2003, Ñled as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, is hereby incorporated by reference
Form of Restricted Stock Agreement under Section 8(a)(i) of the
2003 Directors Stock Plan, Ñled as Exhibit 10-c-14 to the Company's Annual
Report on Form 10-K for the year ended September 30, 2003, is hereby
incorporated by reference
Amendments to Restricted Stock Agreements with William H. Gray, III,
William T. McCormick, Jr., Joseph F. Toot, Jr., and Don H. Davis, Jr., Ñled as
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, are 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, as amended through
February 4, 2004
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, Ñled as Exhibit 10-e-6 to the Company's Annual Report on
Form 10-K for the year ended September 30, 2002, are 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, 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
* Management contract or compensatory plan or arrangement.
71
*10-e-5
*10-e-6
*10-e-7
*10-f-1
*10-g-1
*10-h-1
*10-h-2
*10-h-3
*l0-i-1
*10-j-1
*10-j-2
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, 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 resolutions of the Compensation and Management Development
Committee of the Board of Directors of the Company, adopted February 5, 2003,
regarding the Corporate OÇce vacation plan, Ñled as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2003, is hereby incorporated by reference
Copy of the Company's Deferred Compensation Plan, Ñled as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
2003, 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
Copy of the Company's Annual Incentive Compensation Plan for Senior
Executive OÇcers, as amended December 3, 2003
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
Copy of Restricted Stock Agreement dated January 5, 2004, between the
Company and James V. Gelly, Ñled as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2003, is hereby
incorporated by reference
* Management contract or compensatory plan or arrangement.
72
*10-k-1
*10-k-2
*10-k-3
*10-k-4
*10-k-5
*10-k-6
*10-k-7
*10-k-8
10-l-1
10-l-2
10-l-3
Form of Change of Control Agreement between the Company and each of Don
H. Davis, Jr., John D. Cohn and Joseph 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
Copy of Restricted Stock Agreement dated February 5, 2004 between the
Company and Keith D. Nosbusch, Ñled as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, is hereby
incorporated by reference
Agreement dated as of January 27, 2004, between the Company and Michael A.
Bless, Ñled as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2004, is hereby incorporated by reference
Copy of Restricted Stock Agreement dated May 1, 2004 between the Company
and Douglas M. Hagerman, Ñled as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004, is hereby
incorporated by reference
Form of Change of Control Agreement dated as of May 1, 2004 between the
Company and each of James V. Gelly and Douglas M. Hagerman, Ñled as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, is hereby incorporated by reference
Copy of Change of Control Agreement dated as of June 2, 2004 between the
Company and Keith D. Nosbusch, Ñled as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, is hereby
incorporated by reference
Agreement dated as of May 27, 2004 between the Company and William J.
Calise, Jr., Ñled as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, is hereby incorporated by
reference
Agreement and Plan of Distribution dated as of December 6, 1996, among
Rockwell International Corporation (renamed Boeing North American, Inc.),
the Company (formerly named New Rockwell International Corporation),
Allen-Bradley Company, Inc., Rockwell Collins, Inc., Rockwell Semiconductor
Systems, Inc., Rockwell Light Vehicle Systems, Inc. and Rockwell Heavy
Vehicle Systems, Inc., Ñled as Exhibit l0-b to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated
by reference
Post-Closing Covenants Agreement dated as of December 6, 1996, among
Rockwell International Corporation (renamed Boeing North American, Inc.),
The Boeing Company, Boeing NA, Inc. and the Company (formerly named
New Rockwell International Corporation), Ñled as Exhibit 10-c to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
1996, is hereby incorporated by reference
Tax Allocation Agreement dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), the
Company (formerly named New Rockwell International Corporation) and The
Boeing Company, Ñled as Exhibit 10-d to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by
reference
* Management contract or compensatory plan or arrangement.
73
10-m-l
10-m-2
10-m-3
10-n-1
10-n-2
10-n-3
10-o-1
10-o-2
10-o-3
10-p-1
12
21
23
24
31.1
31.2
Distribution Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference
Employee Matters Agreement dated as of September 30, 1997 by and between
the Company and Meritor Automotive, Inc., Ñled as Exhibit 2.2 to the
Company's Current Report on Form 8-K dated October 10, 1997, is hereby
incorporated by reference
Tax Allocation Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference
Distribution Agreement dated as of December 31, 1998 by and between the
Company and Conexant Systems, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by
reference
Amended and Restated Employee Matters Agreement dated as of December 31,
1998 by and between the Company and Conexant Systems, Inc., Ñled as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated January 12,
1999, is hereby incorporated by reference
Tax Allocation Agreement dated as of December 31, 1998 by and between the
Company and Conexant Systems, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by
reference
Distribution Agreement dated as of June 29, 2001 by and among the Company,
Rockwell Collins, Inc. and Rockwell ScientiÑc Company LLC, Ñled as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 11, 2001,
is hereby incorporated by reference
Employee Matters Agreement dated as of June 29, 2001 by and among the
Company, Rockwell Collins, Inc. and Rockwell ScientiÑc Company LLC, Ñled
as Exhibit 2.2 to the Company's Current Report on Form 8-K dated July 11,
2001, is hereby incorporated by reference
Tax Allocation Agreement dated as of June 29, 2001 by and between the
Company and Rockwell Collins, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated July 11, 2001, is hereby incorporated by
reference
Five-Year Credit Agreement dated as of October 26, 2004 among the Company,
the Banks listed therein and JPMorgan Chase Bank, as Administrative Agent,
Ñled as Exhibit 99 to the Company's Current Report on Form 8-K dated
October 27, 2004, is hereby incorporated by reference
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended
September 30, 2004
List of Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
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
Rule 13a-14(a) of the Securities Exchange Act of 1934
CertiÑcation of Periodic Report by the Chief Financial OÇcer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
* Management contract or compensatory plan or arrangement.
74
32.1
32.2
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
* Management contract or compensatory plan or arrangement.
75
SIGNATURES
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.
ROCKWELL AUTOMATION, INC.
By
/s/
JAMES V. GELLY
James V. Gelly
Senior Vice President and
Chief Financial OÇcer
(principal Ñnancial oÇcer)
By
/s/ DAVID M. DORGAN
David M. Dorgan
Vice President and Controller
(principal accounting oÇcer)
Dated: November 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
on the 19th day of November 2004 by the following persons on behalf of the registrant and in the capacities
indicated.
DON H. DAVIS, JR.*
Chairman of the Board
KEITH D. NOSBUSCH*
President and
Chief Executive OÇcer
(principal executive oÇcer)
and Director
BETTY C. ALEWINE*
Director
WILLIAM H. GRAY, III*
Director
VERNE G. ISTOCK*
Director
WILLIAM T. MCCORMICK, JR.*
Director
BRUCE M. ROCKWELL*
Director
DAVID B. SPEER*
Director
JOSEPH F. TOOT, JR.*
Director
KENNETH F. YONTZ*
Director
*By
/s/ DOUGLAS M. HAGERMAN
Douglas M. Hagerman, Attorney-in-fact**
**By authority of powers of attorney Ñled herewith
76
SCHEDULE II
ROCKWELL AUTOMATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2004, 2003 and 2002
Description
*Year ended September 30, 2004
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for excess and obsolete
Additions
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
(in millions)
Deductions(b)
Balance at
End of
Year
$29.5
$ 8.5
$ Ì
$10.0
$28.0
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
53.4
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
46.8
14.3
26.1
0.7
3.7
22.2
13.6
46.2
63.0
*Year ended September 30, 2003
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for excess and obsolete
$43.6
$ 3.5
$1.6
$19.2
$29.5
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50.9
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
51.7
15.2
3.8
1.9
Ì
14.6
8.7
53.4
46.8
*Year ended September 30, 2002
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for excess and obsolete
$42.5
$14.0
$ Ì
$12.9
$43.6
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
48.1
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
80.3
11.5
20.8
0.5
Ì
9.2
49.4
50.9
51.7
(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 our ability to utilize foreign tax credit, capital loss, or
net operating loss carryforwards for which a valuation allowance had previously been recorded.
* Amounts reported relate to continuing operations in all periods presented.
S-1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Keith D. Nosbusch, President 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 report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in this
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 report;
4. The registrant's other certifying oÇcer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the eÅectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the eÅectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over Ñnancial reporting that
occurred during the registrant's most recent Ñscal quarter (the registrant's fourth Ñscal quarter in the case
of an annual report) that has materially aÅected, or is reasonably likely to materially aÅect, the
registrant's internal control over Ñnancial reporting; and
5. The registrant's other certifying oÇcer and I have disclosed, based on our most recent evaluation of
internal control over Ñnancial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All signiÑcant deÑciencies and material weaknesses in the design or operation of internal control
over Ñnancial reporting which are reasonably likely to adversely aÅect the registrant's ability to record,
process, summarize and report Ñnancial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
signiÑcant role in the registrant's internal control over Ñnancial reporting.
Date: November 19, 2004
/s/ KEITH D. NOSBUSCH
Keith D. Nosbusch
President and Chief Executive OÇcer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, James V. Gelly, 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 report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in this
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 report;
4. The registrant's other certifying oÇcer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the eÅectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the eÅectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over Ñnancial reporting that
occurred during the registrant's most recent Ñscal quarter (the registrant's fourth Ñscal quarter in the case
of an annual report) that has materially aÅected, or is reasonably likely to materially aÅect, the
registrant's internal control over Ñnancial reporting; and
5. The registrant's other certifying oÇcer and I have disclosed, based on our most recent evaluation of
internal control over Ñnancial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All signiÑcant deÑciencies and material weaknesses in the design or operation of internal control
over Ñnancial reporting which are reasonably likely to adversely aÅect the registrant's ability to record,
process, summarize and report Ñnancial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
signiÑcant role in the registrant's internal control over Ñnancial reporting.
Date: November 19, 2004
/s/
JAMES V. GELLY
James V. Gelly
Senior Vice President and
Chief Financial OÇcer
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
I, Keith D. Nosbusch, President and Chief Executive OÇcer of Rockwell Automation, Inc. (the
""Company''), hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended September 30, 2004 (the
""Report'') fully complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly presents, in all material respects, the Ñnancial
condition and results of operations of the Company.
Date: November 19, 2004
/s/ KEITH D. NOSBUSCH
Keith D. Nosbusch
President and Chief Executive OÇcer
Exhibit 32.2
CERTIFICATION OF PERIODIC REPORT
I, James V. Gelly, Senior Vice President and Chief Financial OÇcer of Rockwell Automation, Inc. (the
""Company''), hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended September 30, 2004 (the
""Report'') fully complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly presents, in all material respects, the Ñnancial
condition and results of operations of the Company.
Date: November 19, 2004
/s/
JAMES V. GELLY
James V. Gelly
Senior Vice President and
Chief Financial OÇcer
2004 Annual Report and Form 10-K
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R O C K W E LL AU TO M AT I O N
777 East Wisconsin Avenue. Suite 1400. Milwaukee. WI 53202
414-212-5200 www.rockwellautomation.com