2005 Annual Report and Form 10-K
ROCKWELL AUTOMATION
777 East Wisconsin Avenue / Suite 1400 / Milwaukee / WI 53202
414.212.5200 / www.rockwellautomation.com
FINANCIAL HIGHLIGHTS
continuing operations
(dollars in millions, except per share amounts)
2003
2004
2005
Sales
$3,992.3
$4,411.1
$5,003.2
Segment operating earnings
Income from continuing operations*
Diluted earnings per share from
continuing operations*
Sales by segment:
Control Systems
Power Systems
452.2
281.4
595.4
354.1
867.2
518.4
1.48
1.85
2.77
$3,287.4
$3,658.6
$4,123.6
704.9
752.5
879.6
Total
$3,992.3
$4,411.1
$5,003.2
* Includes separately reported tax benefi ts of $69.4 million ($0.37 per share), $46.3 million ($0.24 per share)
and $19.7 million ($0.10 per share) for the years 2003, 2004, and 2005, respectively.
SALES
(dollars in millions)
OPERATING EARNINGS
(dollars in millions)
$3,992.3
$4,411.1
$5,003.2
$452.2
$595.4
$867.2
Control Systems
Power Systems
SALES PER EMPLOYEE
(dollars in thousands)
$188
$213
$238
FREE CASH FLOW
(dollars in millions)
$312.3
$498.9
$514.8
2003
2004
2005
2003
2004
2005
2003
2004
2005
2003
2004
2005
Dear Shareowners,
I am pleased to report that fi scal 2005 was another outstanding year for
Rockwell Automation – one marked by increasing evidence that we have
the people, fi nancial resources and strategic focus to deliver sustained value
to our shareowners.
Our fi nancial performance tells the story:
• Revenues were $5 billion, up 11 percent
(excluding the benefi t of currency translation);
• Segment operating margin improved 4.0 points at Control Systems and
3.5 points at Power Systems;
• Earnings per share from continuing operations was $2.77, up 50 percent;
2
• Free cash fl ow was $514.8 million, or 99 percent of income from
continuing operations, refl ecting high-quality earnings and our continued
focus on capital spending discipline; and
• Return on Invested Capital was 18.5 percent.*
These results validate the growth and performance strategy we launched several
years ago to transform Rockwell Automation into a global technology leader.
Today we are well-positioned to meet customer business needs, to capitalize
on the current industrial recovery, and to generate profi table growth throughout
the economic cycle.
* For a complete defi nition and calculation of ROIC, please see the supplemental page following the Form 10-K.
Fiscal 2005 was another outstanding year for Rockwell Automation – one marked by
increasing evidence that we have the people, fi nancial resources and strategic focus to
deliver sustained value to our shareowners.
Keith D. Nosbusch
Chairman and
Chief Executive Offi cer
There are two fundamental actions driving our transformation. First, we are
committed to generating sustainable, above-market revenue growth through
disciplined investment in organic growth initiatives. Second, we are funding
these investments with our relentless focus on cost productivity. I am happy to
report that today, this is a proven business model and way of life for us.
Our priority now, quite simply, is continued execution.
In 2005, we accelerated our investment in high-return growth opportunities to
enhance our technology leadership, expand and diversify our served markets,
and deepen our customer relationships.
Establishing Our Technology Leadership
Our company’s success is anchored in the most innovative, competitive and
4
comprehensive product and service portfolio in the automation industry. It consists
principally of the Logix control and information platform, power control and
conversion solutions, and value-added services.
Our unique integrated architecture is revolutionizing manufacturing. It enables
manufacturers to integrate multiple-control disciplines on a single platform. It also
allows customers to collect and use plant fl oor data to enhance manufacturing
operations and supply chain processes, and to make more effective real-time
business decisions.
Our company’s success is anchored in the most innovative,
competitive and comprehensive product and service
portfolio in the automation industry.
Working collaboratively with our customers, we continue to invest in new features
and capabilities that enhance and extend the functionality of the Logix platform.
These investments include simplifi cation of the platform to accommodate the
unique needs of smaller manufacturers and machine builders, integrated safety to
capture heightened demand for machine safety, and industry-specifi c applications
to penetrate the process and plant-wide information markets.
The signifi cant investments we have made in Logix over the past decade are
delivering outstanding returns. In 2005, Logix sales were up 26 percent to
$433 million, and we expect that the Logix installed base will be more than
$3 billion by 2008. When it comes to the Logix platform, I’m confi dent that
the best is yet to come.
Our power control and conversion businesses – drives, industrial components,
5
packaged solutions, systems, mechanical power transmission and motors – are also
essential to expanding our customers’ success. These businesses continued
to introduce innovative and differentiated products, securing our place as a
world-class provider for customers in industries such as oil and gas, mining,
metals, and water/wastewater – where the goals are improved performance
and energy effi ciency.
Finally, our steady investment in a growing portfolio of value-added services and
solutions delivery capabilities has strengthened our market presence. It allows us
to help our customers optimize manufacturing, improve plant uptime and reduce
time to market.
We work hard to understand the business needs of
our customers, develop solutions that respond to those
needs, and deliver meaningful benefi ts and value.
Expanding and Diversifying Our Served Markets
While our investment in enhancing our technology leadership adds to our
capabilities, our vertical industry and globalization initiatives give us access
to a larger, more diverse set of potential customers.
We are investing in developing in-depth, industry-specifi c application expertise
to better anticipate and address our customers’ unique manufacturing problems
and business needs. As a result, we are closer to our customers’ core value-added
processes and are better able to apply our innovation to differentiate their
products and improve their competitiveness.
During 2005, we created industry-specifi c domain expertise staffed with dedicated
sales resources, and developed targeted applications to solve problems unique
to these industries. We are developing this expertise across many industries,
6
with a focus on the food, beverage and brewing, consumer goods, automotive,
and life sciences industries.
Our investment in global market expansion has also yielded tangible results.
Revenues outside the U.S. now exceed 38 percent of our total sales. During
2005, we experienced strong revenue growth in the Asia Pacifi c and Latin
American regions, with 16 and 27 percent increases, respectively (excluding
currency translation). Revenues in Europe were fl at in a diffi cult economic
environment. We are investing in, and deploying new customer-facing resources
throughout Europe to grow market share by emphasizing the benefi ts of our
integrated control and information architecture.
Our expanding presence in key developing markets, including China, India,
Latin America and Central and Eastern Europe, is important to our growth.
Our sales in China, which is the second largest market for Logix, grew 25 percent
to approximately $145 million. We also experienced rapid growth in Mexico and
Brazil, particularly on large projects in resource-based industries. Finally,
our investment in infrastructure, sales resources and market access capabilities
in Central and Eastern Europe resulted in 37 percent sales growth.
Looking forward, we expect to derive 50 percent of our revenues from sales
outside the United States by 2009. We are committed to the continued
globalization of our business model and diversifi cation of our customer base.
Our shareowners should benefi t from the revenue diversifi cation that comes
with global business operations.
Deepening Our Customer Relationships
We are passionate about customer success. Rockwell Automation continues to
emphasize its customer-centric focus that increasingly positions us as a trusted
partner. To achieve this, we work hard to understand the business needs of our
customers, develop solutions that respond to those needs, and deliver meaningful
benefi ts and value. We deliver value by helping customers achieve faster time
to market, lower total cost of ownership, better asset management, and reduced
manufacturing business risks. Our value proposition has remained the same:
to help our customers be more productive and globally competitive.
7
Funding Growth with Productivity
As we pursue growth opportunities and expand served markets, Rockwell
Automation is maintaining its focus on performance improvement. We continually
emphasize productivity and cost-management initiatives, with a particular focus
on Lean Enterprise, Six Sigma processes, and developing performance-driven
skills in employees around the world.
We are driving this continuous improvement throughout the company. Our
annual cost productivity goal has increased to 3-4 percent, a critical objective
for two reasons. First, it is important that we fund growth and redeploy
resources without adding expense. Second, we understand the challenges
of customer expectations and competitive pressures. Our customers continuously
raise the bar, and our competitors are not standing still. We must respond by
offering the highest quality products, services and solutions with the best value,
8
and we must never become complacent.
Focus on Corporate Best Practices
As we work to build and deliver shareowner value, we are equally focused on
best practices in the critical areas of corporate governance, ethics and social
responsibility. Under the leadership of our Board of Directors, we continue
to make sound corporate governance a priority. That commitment is refl ected in
the leadership scores we have received from corporate governance rating agencies.
Our corporate culture has always been one of integrity and forthrightness,
and we have further demonstrated this with the appointment of a compliance
leader whose job is to act as a central point of review and supervision for our
business conduct. Finally, we continue our vigilance in fostering a diverse and
inclusive workforce, maintaining a safe workplace, and respecting the environment.
Rockwell Automation’s intellectual assets – represented by
our highly skilled, experienced and talented workforce –
will continue to be an invaluable competitive advantage.
Outlook
In conclusion, our growth prospects remain excellent. We continue to enjoy a
strong fi nancial position with a very conservatively capitalized balance sheet,
signifi cant operating leverage, and outstanding cash fl ow. We will build on our
strengths and prudently deploy fi nancial resources to accelerate growth and
optimize long-term returns to shareowners. Perhaps most important, Rockwell
Automation’s intellectual assets – represented by our highly skilled, experienced
and talented workforce – will continue to be an invaluable competitive advan-
tage. Our employees drive this organization’s pursuit of excellence at all
levels, and that attribute will continue to be a key differentiator.
I am pleased to be able to report in this letter – my fi rst as your Chairman
and CEO – that Rockwell Automation is executing on its balanced strategy of
growth and performance. We have solid momentum entering 2006, and we
are carefully deploying and allocating the resources necessary to position us
9
for continued success in an ever-changing global marketplace. To our employees
around the world, you continue to be key drivers in this success, and I want
to acknowledge and thank you for your hard work and dedication. We have
signifi cantly more work to accomplish and will be relentless in doing so. To our
investors and business partners, I look forward to updating you on our new
initiatives, and would like to express our thanks for your continuing support.
Keith D. Nosbusch
Chairman and
Chief Executive Offi cer
10
Rockwell Automation Corporate Offi cers
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
KEITH D. NOSBUSCH
Chairman of the Board and
Chief Executive Offi cer
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 Offi cer
DOUGLAS M. HAGERMAN
Senior Vice President,
General Counsel and Secretary
MARY JANE HALL
Senior Vice President,
Human Resources
Rockwell Automation Board of Directors
KEITH D. NOSBUSCH
Chairman of the Board and
Chief Executive Offi cer
BETTY C. ALEWINE
Retired President and
Chief Executive Offi cer
COMSAT Corporation
DON H. DAVIS, JR.
Retired Chairman and
Chief Executive Offi cer
VERNE G. ISTOCK
Retired Chairman and
President
Bank One Corporation
BARRY C. JOHNSON, Ph.D.
Dean, College of Engineering
Villanova University
WILLIAM T. MCCORMICK, JR.
Retired Chairman and
Chief Executive Offi cer
CMS Energy Corporation
BRUCE M. ROCKWELL
Retired Executive Vice President
Fahnestock & Co. Inc.
DAVID B. SPEER
President and
Chief Executive Offi cer
Illinois Tool Works Inc.
JOSEPH F. TOOT, JR.
Retired President and
Chief Executive Offi cer
The Timken Company
KENNETH F. YONTZ
Chairman of the Board
Sybron Dental Specialties, Inc.
11
General Information
ROCKWELL AUTOMATION
World Headquarters
INTERNET
Log on to www.melloninvestor.com/isd for
777 E. Wisconsin Avenue, Suite 1400
convenient access 24 hours a day, 7 days a
Milwaukee, WI 53202
414.212.5200
week for online services including account
information, change of address, transfer of
www.rockwellautomation.com
shares, lost certifi cates, dividend payment
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:
12
Matthew P. Gonring
Vice President
Global Marketing and Communications
414.382.5575
ANNUAL MEETING
The company’s annual meeting of shareowners
elections and additional administrative services.
If you are interested in receiving shareowner
information electronically, enroll in MLinksm,
a self-service program that provides electronic
notifi cation and secure access to shareowner
communications. To enroll, follow the MLink
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: 800.204.7800
Outside the United States: + 1.201.680.6578
will be held near its World Headquarters at
IN WRITING
The Pfi ster Hotel, 424 E. Wisconsin Avenue,
Correspondence about share ownership,
Milwaukee, Wisconsin, at 10 a.m., Wednesday,
dividend payments, transfer requirements,
February 1, 2006. A notice of the meeting and
change of address, lost certifi cates and
proxy materials will be delivered to shareowners
account status may be directed to:
in December 2005.
SHAREOWNER SERVICES
Mellon Investor Services, our transfer agent and
Mellon Investor Services LLC
PO Box 3338
South Hackensack, NJ 07606-1938
registrar, maintains the records for our registered
Shareowners wishing to transfer stock should
shareowners and can help you with a variety of
send their written request, stock certifi cate(s)
shareowner related services. You can access
and other required documents to:
your shareowner account in one of the following
three ways:
Mellon Investor Services LLC
PO Box 3312
South Hackensack, NJ 07606-1915
Registered or overnight mail should be sent to:
shares held in their accounts. Participation in the
Mellon Investor Services LLC
Newport Offi ce Center VII
480 Washington Boulevard
Jersey City, NJ 07310
A copy of our annual report (including Form 10-K)
may be obtained without charge through the
Internet at http://www.shareholder.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 certifi cates 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
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
PO Box 3338
South Hackensack, NJ 07606-1938
800.204.7800 or 201.329.8660
www.melloninvestor.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202
414.271.3000
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
PO Box 3316
South Hackensack, NJ 07606-1916
800.204.7800 or 201.680-6578
STOCK EXCHANGES
Common Stock (Symbol: ROK)
United States: New York and Pacifi c
United Kingdom: London
13
Form 10-K
Rockwell Automation
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, 2005. 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 if the registrant is a well-known seasoned issuer, as deÑned in Rule 405 of the
Securities Act. Yes ¥
No n
Indicate by check mark if the registrant is not required to Ñle reports pursuant to Section 13 or
Section 15(d) of the Act. Yes n
No ¥
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 filers 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 definitive 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
Indicate by check mark whether the registrant is a shell company (as deÑned in Rule 12b-2 of the
Act). Yes n
No ¥
The aggregate market value of registrant's voting stock held by non-aÇliates of registrant on March 31,
2005 was approximately $10.4 billion.
179,136,454 shares of registrant's Common Stock, par value $1 per share, were outstanding on
October 31, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of
registrant to be held on February 1, 2006 is incorporated by reference into Part III hereof.
FORWARD-LOOKING STATEMENTS
PART I
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,
many of which are beyond our control, including but not limited to:
‚ economic and political changes in global markets where we compete, such as currency exchange rates,
inÖation rates, interest rates, recession, local laws, regulations and policies of foreign governments and
other external factors we cannot control;
‚ successful development of advanced technologies, demand for and market acceptance of new and
existing products;
‚ general global and regional economic, business or industry conditions, including levels of capital
spending in industrial markets;
‚ the availability, eÅectiveness and security of our information technology systems;
‚ competitive product and pricing pressures;
‚ disruption of our operations due to natural disasters, acts of war, strikes, terrorism, or other causes;
‚ intellectual property infringement claims by others and the ability to protect our intellectual property;
‚ regulatory and legislative changes related to the reporting and funding of pension and health care
obligations;
‚ our ability to successfully address claims by taxing authorities in the various jurisdictions where we do
business;
‚ our ability to attract and retain qualiÑed personnel;
‚ the uncertainties of litigation;
‚ disruption of our North American distribution channel;
‚ the availability and price of components and materials; and
‚ other risks and uncertainties, including but not limited to those detailed from time to time in our
Securities and Exchange Commission Ñlings.
These forward-looking statements reÖect our beliefs as of the date of Ñling this report. We undertake no
obligation to update or revise any forward-looking statement, whether as a result of new information, future
events or otherwise. See Item 1 Risk Factors for additional information.
Item 1. Business
General
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,
2
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). In September 2004, we sold our FirstPoint Contact business. Additional
information related to this divestiture is contained in Note 13 in the Financial Statements.
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 1, 2006 (the 2006 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 2005, our total sales were
$5.0 billion. Financial information with respect to our operating segments, including their contributions to
sales and operating earnings for each of the three years in the period ended September 30, 2005, is contained
under the caption Results of Operations in MD&A, and in Note 18 in the Financial Statements.
Control Systems
Control Systems is our largest operating segment with 2005 sales of $4.1 billion (82 percent of our total
sales) and approximately 17,000 employees at September 30, 2005. Control Systems supplies industrial
automation products, systems, software and services focused on helping customers control and improve
manufacturing processes. The operating segment includes two main business groups: the Components and
Packaged Applications Group (CPAG) and the Automation Control and Information Group (ACIG).
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, software and input/output (I/O) devices. ACIG's 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 45 percent of Control Systems' sales.
In addition, Control Systems' oÅering also includes services and solutions, such as multi-vendor customer
support, training, automation systems integration, asset management, and manufacturing information
solutions for discrete and targeted batch process industries. Control Systems' service and solution oÅerings
compete with Emerson Electric Co., General Electric Company, Invensys, Siemens AG and other system
integrators.
3
The following is a summary of the major products and services and major competitors of Control
Systems' two main business groups:
Business Group
Major Products/Services
Major Competitors
CPAG
ACIG
ABB, Ltd.
Schneider Electric SA
Siemens AG
Emerson Electric Co.
Mitsubishi
Omron
Schneider Electric SA
Siemens AG
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
Software
Input/output devices
High performance rotary and linear
motion control systems
Electronic operator interface devices
Sensors
Industrial computers
Machine safety components
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, price 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
typically 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 2005, sales in the United States accounted for 56 percent of Control Systems' sales. Outside the U.S.,
Control Systems' primary markets were Canada, China, the United Kingdom, Germany, Italy, Mexico,
Australia and Korea.
Control Systems is headquartered in Milwaukee, Wisconsin and has operations in North America,
Europe, Asia-PaciÑc and Latin America.
Power Systems
Power Systems recorded 2005 sales of $0.9 billion (18 percent of our total sales) and had approximately
4,000 employees at September 30, 2005. Power Systems consists of two business groups: Dodge mechanical
(Mechanical) and Reliance electrical (Electrical).
4
The following is a summary of the major products and services and major competitors of the Power
Systems operating segment:
Business Group
Major Products/Services
Major Competitors
Mechanical
Electrical
Mounted bearings
Gear reducers
Mechanical drives
Conveyor pulleys
Couplings
Bushings
Clutches
Motor brakes
Emerson Electric Co.
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, price
and our 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 2005, sales in the United States accounted for 87 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.
Geographic Information
In 2005, sales in the United States accounted for 62 percent of our total sales. Our principal markets
outside the United States are in Canada, China, the United Kingdom, Germany, Italy, Mexico, Australia and
Korea. See Risk Factors below for a discussion of risks associated with our operations outside of the United
States.
Sales and property information by major geographic area for each of the three years in the period ended
September 30, 2005 is contained in Note 18 in the Financial Statements.
5
Research and Development
Our research and development spending is (in millions):
Year Ended September 30,
2004
2003
2005
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$128.2
10.4
$111.8
9.9
$111.9
9.7
$138.6
$121.7
$121.6
Customer-sponsored research and development was not signiÑcant in 2005, 2004 or 2003.
Employees
At September 30, 2005, we had approximately 21,000 employees. Approximately 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 depend
upon the ability of our suppliers and subcontractors to meet performance and quality speciÑcations and
delivery schedules. See Risk Factors below for a discussion of risks associated with our reliance on third party
suppliers.
Backlog
Our total order backlog was $772.5 million at September 30, 2005 and $500.4 million at September 30,
2004. 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.
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. 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. See Risk Factors below for a discussion of risks associated with our intellectual property.
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 products and services,
such as ""Allen-Bradley'' and ""A-B'' for electronic controls and systems for industrial automation, ""Reliance''
and ""Reliance Electric'' for electric motors and drives and ""Dodge'' for mechanical power transmission
products.
6
Seasonality
Our business segments are not subject to signiÑcant seasonality.
Risk Factors
We generate a substantial portion of our revenues from international sales and are subject to the risks of
doing business outside of the United States.
Approximately 38 percent of our revenues in 2005 were outside of the U.S. Future growth rates and
success of our business depend in large part on continued growth in our non-U.S. operations. Numerous risks
and uncertainties aÅect our non-U.S. operations. These risks and uncertainties include changes in political,
economic and social environments, local labor conditions, changes in laws, regulations and policies of foreign
governments, as well as U.S. laws aÅecting activities of U.S. companies abroad, including tax laws and
enforcement of contract and intellectual property rights. In addition, we are aÅected by changes in foreign
currency exchange rates, inÖation rates and interest rates. Additionally, cash generated in
non-U.S. jurisdictions may be diÇcult to transfer to the U.S. in a tax-eÇcient manner.
An inability to anticipate changes in customer preferences could result in decreased demand for our
products.
Our success depends in part on our ability to anticipate and oÅer products that appeal to the changing
needs and preferences of our customers in the various markets we serve. Developing new products requires
high levels of innovation and the development process is often lengthy and costly. If we are not able to
anticipate, identify, develop and market products that respond to changes in customer preferences, demand for
our products could decline and our operating results would be adversely aÅected.
General economic, business or industry conditions may result in a decrease in our revenues and
proÑtability.
Demand for our products is sensitive to changes in levels of global industrial production. As economic
activity slows down, companies tend to reduce their levels of capital spending, resulting in decreased demand
for our products. If this occurs, our revenues and proÑtability may be negatively aÅected.
Information technology infrastructure failures could signiÑcantly aÅect our business.
We depend heavily on our information technology infrastructure in order to achieve our business
objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem
with the functioning of an important IT application, or an intentional disruption of our IT systems by a third
party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a
timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to
lose customers or revenue and could require us to incur signiÑcant expense to eliminate these problems and
address related security concerns.
We are in the process of introducing a global Enterprise Resource Planning (ERP) system that will
redesign and deploy new processes, organization structures, and a common information system over a period of
several years. As we implement the ERP system, the new system may not perform as expected. This could
have an adverse eÅect on our business.
The global industrial automation power, control and information products and services industry is highly
competitive.
We face strong competition in all of our market segments. Price competition in our various industries is
intense and pricing pressures from competitors and customers are increasing. We expect that the level of
competition will remain high in the future, which could limit our ability to maintain or increase our market
share or proÑtability.
7
The growth of our Control Systems solutions oÅerings may create additional risks.
Risks inherent in the sale of systems and solutions include assuming greater responsibility for project
completion and success, deÑning and controlling contract scope, eÇcient execution of projects, and the
eÇciency and quality of our subcontractors. Our inability to control, manage, and mitigate these risks could
adversely aÅect our results of operations.
Natural disasters, terrorism, acts of war, international conÖicts or other disruptions to our operations
could harm our business.
Natural disasters, acts or threats of war or terrorism, international conÖicts, and the actions taken by the
United States and other governments in response to such events could cause damage or disrupt our business
operations, our suppliers, or our customers, and could create political or economic instability, any of which
could have an adverse eÅect on our business. Although it is not possible to predict such events or their
consequences, these events could decrease demand for our products, could make it diÇcult or impossible for
us to deliver products, or could disrupt our supply chain.
The inability to secure and maintain rights to intellectual property could harm our business and our
customers.
We own the rights to many patents, trademarks, brand names and trade names that are important to our
business. The loss of patents or licenses used in principal portions of our business may have an adverse eÅect
on our results of operations. Expenses related to enforcing our intellectual property rights could be signiÑcant.
In addition, others may assert intellectual property infringement claims against us or our customers. We
sometimes provide a limited intellectual property indemnity in connection with our terms and conditions of
sale to our customers and in other types of contracts with third parties. IndemniÑcation payments and legal
costs to defend claims could have an adverse eÅect on our business.
Future legislation or regulations intended to reform the funding and reporting of pension beneÑt plans
could adversely aÅect our operating results and cash Öows, as could changes in market conditions that
impact the assumptions we use to measure our liabilities under these plans.
Legislators and agencies of the U.S. government have proposed legislation and regulations to amend,
restrict or eliminate various features of, and mandate additional funding of, pension beneÑt plans. If legislation
or new regulations are adopted, we may be required to contribute additional cash to these plans, in excess of
our current estimates. Market volatility in interest rates, investment returns and other factors could also
adversely aÅect the funded status of our pension plans. Moreover, future changes to the accounting and
reporting standards related to pension plans could create signiÑcant volatility in our operating results.
The inability to successfully defend claims from taxing authorities related to our current and divested
businesses could adversely aÅect our operating results and Ñnancial position.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in
each of those taxing jurisdictions. Due to the subjectivity of 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. Claims from taxing authorities related to these diÅerences could have an adverse impact on
our operating results and Ñnancial position. In connection with the divestiture of certain businesses in prior
years, we retained tax liabilities and the rights to tax refunds for periods before the divestitures. As a result,
from time to time, we may be required to make payments related to tax matters associated with those divested
businesses.
Our failure to attract and retain qualiÑed personnel could lead to a loss of revenue or proÑtability.
Our success depends in part on the eÅorts and abilities of our senior management team and key
employees. Their skills, experience and industry contacts signiÑcantly beneÑt our operations and
8
administration. The failure to attract and retain members of our senior management team and key employees
could have a negative eÅect on our operating results.
Potential liabilities and costs from litigation (including asbestos claims) could adversely aÅect our
business.
Various lawsuits, claims and proceedings have been or may be asserted against us relating to the conduct
of our business, including those pertaining to product liability, safety and health, employment and contract
matters. 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. The uncertainties of litigation
(including asbestos claims) and the uncertainties related to the collection of insurance coverage make it
diÇcult to accurately predict the ultimate resolution thereof.
Potential liabilities and costs relating to environmental remediation could adversely aÅect our business.
Our operations, both in the United States and abroad, are subject to regulation by various environmental
regulatory authorities concerned with the impact of the environment on human health, the limitation and
control of emissions and discharges into the air, ground and waters, the quality of air and bodies of water, and
the handling, use and disposal of speciÑed substances. Environmental laws and regulations can be complex
and may change. Our Ñnancial responsibility for the cleanup or other remediation of contaminated property or
for natural resource damages can extend to previously owned or used properties, waterways and properties
owned by unrelated companies or individuals, as well as properties currently owned and used by us, regardless
of whether the contamination is attributable to prior owners.
We have been named as a potentially responsible party at cleanup sites and may be in the future as well,
and the costs associated with these current and future sites may be signiÑcant.
Risks associated with acquisitions could have an adverse eÅect on us.
We have acquired, and anticipate continuing to acquire, businesses in an eÅort to enhance shareowner
value. Acquisitions involve risks and uncertainties, including:
‚ diÇculties integrating the acquired company, retaining the acquired business' customers, and achieving
the expected beneÑts of the acquisition, such as revenue increases, cost savings, and increases in
geographic or product presence, in the desired time frames, if at all;
‚ loss of key employees of the acquired business;
‚ implementing and maintaining consistent standards, controls, procedures, policies and information
systems; and
‚ diversion of management's attention from other business concerns.
Future acquisitions could cause us to incur additional debt, dilution, contingent liabilities, increased
interest expense, and amortization expenses related to intangible assets. Impairment losses on goodwill and
intangible assets with an indeÑnite life, or restructuring charges, could also occur as a result of acquisitions.
A disruption to our distribution channel could have an adverse eÅect on our operating results.
In North America, approximately 75 percent of our sales are through a limited number of third party
distributors. While we maintain the right to appoint new distributors, any unplanned disruption to the existing
channel could adversely aÅect our revenues and proÑtability. A disruption could be caused by the sale of a
distributor to a competitor, Ñnancial instability of the distributor, or other unforeseen events.
9
Our reliance on third party suppliers creates certain risks and uncertainties.
Our manufacturing processes require that we purchase a high volume of equipment, components and
materials from third party suppliers. Our reliance on these suppliers involves certain risks, including:
‚ the cost of these purchases may change due to inÖation, exchange rates and other factors;
‚ poor quality can adversely aÅect the reliability and reputation of our products; and
‚ a shortage of components or materials could adversely aÅect our manufacturing eÇciencies and
delivery capabilities, which could reduce sales and proÑtability.
Any of these uncertainties could adversely aÅect our proÑtability and ability to compete. We also
maintain several single-source supplier relationships, because either alternative sources are not available or the
relationship is advantageous due to performance, quality, support, delivery, capacity, or price considerations.
Unavailability or delivery delays of single-source components or products could adversely aÅect our ability to
ship the related product in desired quantities and in a timely manner. The eÅect of unavailability or delivery
delays would be more severe if associated with our higher volume and more proÑtable products. Even where
alternative sources of supply are available, qualifying the alternative suppliers and establishing reliable supplies
could cost more or could result in delays and a possible loss of revenues.
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 (the Exchange Act), 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. These 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.
The certiÑcations of our Chief Executive OÇcer and Chief Financial OÇcer required pursuant to
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as Exhibits to this Annual Report on
Form 10-K and were included as Exhibits to each of our Quarterly Reports on Form 10-Q Ñled with the SEC
during 2005. Our Chief Executive OÇcer certiÑed to the New York Stock Exchange (NYSE) on March 2,
2005, pursuant to Section 303A.12 of the NYSE's listing standards, that he was not aware of any violation by
the Company of the NYSE's corporate governance listing standards as of that date.
Item 2. Properties
At September 30, 2005, we operated 69 plants, principally in North America. We also had 278 sales and
administrative oÇces and a total of 37 warehouses, service centers, and other facilities. The aggregate Öoor
space of our facilities was approximately 14.1 million square feet. Of this Öoor space, we owned approximately
52 percent and leased approximately 48 percent. Manufacturing space occupied approximately 6.6 million
square feet. Our Control Systems segment occupied approximately 3.7 million square feet, and our Power
Systems segment occupied the remaining approximately 2.9 million square feet of manufacturing space. At
September 30, 2005, approximately 0.7 million square feet of Öoor space was not in use, principally in owned
facilities.
In November 2005, we sold and leased back 24 properties in North America comprising approximately
3.8 million square feet. See Note 20 in the Financial Statements for additional information.
There are no major encumbrances (other than Ñnancing arrangements, which in the aggregate are not
signiÑcant) 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.
10
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. Trial began on October 11, 2005. 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.
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 attorneys' 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 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. We believe that an outcome adverse to us will not have a
material eÅect on our business or Ñnancial condition.
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 May 4,
2005, we Ñled another claim with the DOE, seeking recovery of $11.3 million in unreimbursed costs incurred
in defense of the Stone suit described in the preceding paragraph. On September 30, 2005, the DOE denied
that claim, a denial we intend to appeal, and simultaneously Ñled a motion in the Court of Claims suit seeking
leave to amend its answer and counterclaim to seek repayment of $4 million in previously reimbursed Stone
11
defense costs or an oÅset of that amount against any judgment we might obtain against the DOE on our claim
for award fees.
Russellville. 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 a plant in
Russellville, Kentucky owned and operated by our Measurement & Flow Control Division prior to its
divestiture in March 1989, 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
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 are a party in several suits in which Solaia Technology LLC (Solaia) 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. Recently, Solaia has dismissed its
lawsuits against several of the companies that chose not to settle.
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 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 direct 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. On March 28, 2005, the court granted ArvinMeritor's motion for summary judgment that the
accused ArvinMeritor systems did not infringe the `318 patent. On the same date, the court denied Solaia's
motion for summary judgment that the accused Rockwell systems infringed the `318 patent. Additional
summary judgment motions, in which we seek dismissal of Solaia's claims against us, remain pending.
We sought to protect our customers from Solaia's claims by bringing an action in federal court in
Milwaukee 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.) (the Milwaukee
action). Pursuant to our claims of tortious interference, civil conspiracy and violations of federal antitrust and
unfair competition laws, 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
12
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 as defendants, together with hundreds of other companies. 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
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 initiated litigation in the Milwaukee County
Circuit Court on February 12, 2004 to enforce the insurance policies against Nationwide Indemnity Company
and Kemper Insurance, the insurance carriers that provided liability insurance coverage to our former Allen-
Bradley subsidiary. As a result, the insurance carriers have paid some past defense and indemnity costs and
have agreed to pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos
claims, subject to policy limits. If either carrier becomes insolvent or the policy limits of either carrier are
exhausted, our share of future defense and indemnity costs may increase. However, coverage under excess
policies may be available to pay some or all of these costs.
The uncertainties of asbestos claim litigation and the long term solvency of our insurance companies
make it diÇcult to predict accurately the ultimate outcome 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.
13
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 2005.
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, 2005 are:
Name, OÇce and Position, and Principal Occupations and Employment
Age
Keith D. Nosbusch Ì Chairman of the Board of Rockwell Automation since February 2005, and
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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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 prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David M. Dorgan Ì Vice President and Controller of Rockwell Automation since June 2001; Director,
Headquarters Finance of Rockwell Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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 prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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, Global Sales and Solutions of Rockwell Automation
Control Systems since October 2005 and Senior Vice President of Rockwell Automation since
February 2004; Senior Vice President, Global Manufacturing Solutions Group of Rockwell
Automation Control Systems from November 2002 to October 2005; Senior Vice President, Americas
Sales of Rockwell Automation Control Systems prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy C. Oliver Ì Vice President and Treasurer of Rockwell Automation since May 2004; Vice
President, Investor Relations and Financial Planning of Raytheon Company (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) prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
54
51
52
50
41
52
45
44
62
56
47
38
37
14
Name, OÇce and Position, and Principal Occupations and Employment Ì (Continued)
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 prior thereto ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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
Age
49
57
53
64
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.
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. We intend
to delist our common stock from the PaciÑc Exchange and the London Stock Exchange in 2006. On
October 31, 2005, there were 34,125 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, 2005 and 2004:
Fiscal Quarters
2005
2004
High
Low
High
Low
First ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SecondÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$49.97
63.30
58.40
55.25
$37.72
45.40
45.49
48.16
$36.10
37.00
37.56
39.72
$26.16
28.45
30.89
35.05
The declaration and payment of dividends by the Company is at the sole discretion of our Board of
Directors. During 2005, we declared and paid aggregate cash dividends of $0.78 per common share ($0.165 for
each of the Ñrst and second quarters and $0.225 for each of the third and fourth quarters). During each of the
previous two years (2004 and 2003), we declared and paid aggregate cash dividends of $0.66 per common
share ($0.165 per quarter).
15
The table below sets forth information with respect to purchases made by or on behalf of the Company of
shares of Company common stock during the three months ended September 30, 2005:
Period
July 1-31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
August 1-31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 1-30, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total
Number of
Shares
Purchased(1)
565,400
1,142,741
392,100
Average
Price Paid
per Share(2)
$52.3622
51.4539
52.9182
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
565,400
1,137,000
392,100
Maximum Number
of Shares that may
yet be Purchased
Under the Plans or
Programs(3)
2,237,000
1,100,000
8,776,900
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,100,241
51.9718
2,094,500
(1) All of the shares purchased during the quarter ended September 30, 2005 were acquired pursuant to the repurchase program
described in (3) below, except for 5,741 shares that were acquired in August 2005 from an employee. These shares were acquired in
connection with a stock swap exercise of employee stock options and the surrender of shares to us to pay the exercise price.
(2) Average price paid per share includes brokerage commissions.
(3) On September 8, 2005, we initiated a 9 million share repurchase program eÅective through September 30, 2006 that was approved
by our Board of Directors, replacing our former 9 million share repurchase program in eÅect since December 2, 2004. At the time of
the termination and replacement of our former repurchase program, 931,000 shares remained subject to repurchase under the
former program. The new program allows management to repurchase shares at its discretion, except during quarter-end ""quiet
periods'', deÑned as the period of time from quarter-end until two days following the Ñling of our quarterly earnings results with the
SEC on Form 8-K. During quarter-end quiet periods, shares are repurchased at our broker's discretion pursuant to a share
repurchase plan subject to previously established price and volume parameters.
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, 2005, the related consolidated
balance sheet data and other data have been derived from our audited consolidated Ñnancial statements.
2005(a)
Year Ended September 30,
2004(b)
2002(d)
2003(c)
(in millions, except per share data)
2001(e)
Consolidated Statement of Operations Data:
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,003.2
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
45.8
Income from continuing operations before accounting
$4,411.1
41.7
$3,992.3
52.5
$3,775.7
66.1
$4,134.8
83.2
change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
518.4
354.1
281.4
223.7
120.7
Earnings per share from continuing operations before
accounting change:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change per diluted
2.83
2.77
Ì
0.78
share(f)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheet Data:
(at end of period)
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,525.1
1.2
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
748.2
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,649.1
Other Data:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 124.1
150.8
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Goodwill and trademark amortization(f) ÏÏÏÏÏÏÏÏÏÏÏÏ
20.4
Other intangible asset amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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
$4,213.3
0.2
757.7
1,861.0
$
98.0
159.7
Ì
27.0
$4,006.3
8.7
764.0
1,586.8
$ 107.6
168.5
Ì
22.1
$3,955.8
161.6
766.8
1,609.0
$
99.6
178.4
Ì
19.3
$4,043.7
10.4
909.3
1,600.5
$ 155.7
190.2
55.5
16.3
16
(a) Includes a reduction in the income tax provision of $19.7 million, or $0.10 per diluted share, primarily
related to the resolution of claims and other tax matters in connection with the closure of the 1998
through 2002 federal audit. Additionally, includes a beneÑt of $12.3 million ($8.4 million after tax, or
$0.04 per diluted share) related to insurance settlements and $21.5 million of costs ($14.2 million after
tax, or $0.08 per diluted share) related to special charges as further detailed in Note 19 in the Financial
Statements.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(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.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
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 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 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:
‚ Investments in capacity, including upgrades, modiÑcations, and expansions of existing manufacturing
facilities, and the creation of new manufacturing facilities;
‚ Industry factors that include our 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;
‚ Levels of global industrial production; and
‚ Regional factors that include local political, social, regulatory and economic circumstances.
U.S. Industrial Economic Trends
In 2005, sales in the U.S. accounted for more than 60 percent of our total sales. The trend of improving
conditions experienced in the U.S. manufacturing economy during 2004 continued into 2005, as reÖected in
the various indicators we use to gauge the direction and momentum of our served 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 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), 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.
18
The table below depicts the continued gradual improvement in U.S. industrial equipment spending
(expressed in billions of USD), capacity utilization (expressed as a percentage), and the continued expansion
in manufacturing activity, as indicated by the PMI (expressed as deÑned above) since December 2002.
Industrial
Equipment
Spending
(in billions)
Capacity
Utilization
(percent)
Fiscal 2005
September 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$162.6
154.9
161.3
152.6
Fiscal 2004
September 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal 2003
September 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
March 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
149.3
139.5
145.3
137.1
140.8
139.3
139.7
136.9
Note: Economic indicators are subject to revisions by the issuing organizations.
78.6
79.8
79.5
79.2
78.0
77.8
77.4
76.8
75.8
74.9
75.2
75.2
PMI
59.4
53.8
55.2
57.3
59.1
61.2
62.3
62.1
55.1
50.4
46.4
52.5
Non-U.S. Regional Trends
Outside the U.S., demand is principally driven by the strength of the industrial economy in each region
and by our customers' ability and propensity to invest in their manufacturing assets. These customers may
include both multinational companies with expanding global presence and growing indigenous companies.
Recent strength in demand has, in part, been driven by investment in infrastructure in developing economies,
in basic materials production capacity in response to higher-end product pricing and in expanding consumer
markets.
The table below presents our actual sales for the year ended September 30, 2005 by geographic region
and the change in sales from the year ended September 30, 2004 (in millions, except percentages):
Year Ended
September 30, 2005
Change vs.
Year Ended
September 30, 2004
Change
Excluding the
EÅect of Changes
in Currency Exchange
Rates vs. Year Ended
September 30, 2004(1)
United States and Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and Africa ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,477.2
823.5
483.1
219.4
$5,003.2
13%
6%
21%
34%
13%
12%
1%
16%
27%
11%
(1) See Supplemental Sales Information for information on this non-GAAP measure.
Industry Views
We serve customers in a wide range of industries including consumer products, transportation, basic
materials, and oil and gas. During 2005 we beneÑted from growing demand in most of the industries we serve.
19
Our consumer products customers are engaged in the food and beverage, brewing, consumer packaged
goods and life sciences industries. As automation is key to their ability to diÅerentiate their product oÅerings,
their investment is generally less cyclical than heavy manufacturing customers.
Factors such as customer investment in new model introductions and more Öexible manufacturing
technologies aÅect our sales to transportation customers.
Our customers in basic materials industries, including mining, aggregates, metals, forest products and
cement, all beneÑt from higher commodities prices and higher global demand for basic materials, both of
which encourage 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. In addition, higher energy prices have historically caused customers across all industries
to consider new investment in more energy-eÇcient manufacturing processes and technologies, such as
intelligent motor controls.
Outlook for 2006
The following is a summary of our objectives for 2006:
‚ Sustain the growth of our Logix platform by accelerating the proliferation and adoption of our
integrated architecture features and functionality, and by aggressively pursuing growth in an expanded
addressable market;
‚ Continue our geographic expansion and growth, particularly in emerging economies;
‚ Demonstrate and expand our industry speciÑc domain expertise and solutions capability; and
‚ Drive continued cost productivity.
Our outlook for 2006 assumes that the economic environment will remain favorable and that a continuing
industrial recovery will result in growth during 2006. 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 of Ñling this report, based upon current economic activities and business trends, we expect
to grow revenue in 2006 by 7 to 9 percent, excluding the eÅect of changes in currency exchange rates. As of
the date hereof, we also expect full year 2006 diluted earnings per share to be in the range of $3.00 to $3.10,
and plan to generate free cash Öow of approximately $280 million, after giving eÅect to our $450 million
voluntary contribution to our U.S. qualiÑed pension trust in October 2005.
20
Summary of Results of Operations
2005
Year Ended September 30,
2004
(in millions)
2003
Sales:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,123.6
879.6
$3,658.6
752.5
$3,287.4
704.9
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,003.2
$4,411.1
$3,992.3
Segment operating earnings(a):
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 756.9
110.3
$ 527.9
67.5
$ 397.6
54.6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General corporateÌnet ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
867.2
(14.7)
(69.7)
Ì
(45.8)
Income from continuing operations before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
737.0
(218.6)
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations(b) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
518.4
21.6
595.4
(27.3)
(88.3)
Ì
(41.7)
438.1
(84.0)
354.1
60.8
452.2
(26.9)
(66.8)
(8.4)
(52.5)
297.6
(16.2)
281.4
5.0
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 540.0
$ 414.9
$ 286.4
(a)
Information regarding how we deÑne segment operating earnings is included in Note 18 in the Financial Statements.
(b) 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). In
September 2005, the note was converted to non-voting equity shares accounted for under the cost method. The results of operations
of FirstPoint Contact and the gain on sale are included in Income from discontinued operations. Additional information related to
Income from discontinued operations is included in Note 13 in the Financial Statements.
2005 Compared to 2004
(in millions, except per share amounts)
Sales
Income from continuing operations
Diluted earnings per share from continuing operations
2005
2004
$5,003.2
518.4
2.77
$4,411.1
354.1
1.85
Increase
$592.1
164.3
0.92
Sales increased 13 percent compared to 2004 driven by double digit growth at both Control Systems and
Power Systems. Two percentage points of the growth was due to the eÅect of changes in currency exchange
rates, primarily resulting from the strength of the major European currencies and the Canadian dollar in
relation to the U.S. dollar. Sales rose by double digit percentages in all regions except for EMEA where
diÇcult economic conditions dampened growth in the major economies of Western Europe, primarily France,
Germany and the U.K. The emerging economies in Asia-PaciÑc, led by China and India, experienced
particularly strong growth. Strength of the oil and gas and mining industries in Latin America and oil and gas
industry in Canada contributed to particularly strong sales growth in those regions.
Sales in the global water/wastewater, oil and gas, aggregate and cement, and mining industries grew at a
rate higher than our annual growth rate of 13 percent. Sales in the food and transportation industries grew at
rates approximate to our annual growth rate, while sales in life sciences, semiconductor, and beverage grew at
a rate less than our annual growth rate.
21
Income from continuing operations beneÑted from higher volume, productivity programs and favorable
pricing oÅset slightly by inÖation in comparison to the prior year. Additionally, income from continuing
operations in 2005 includes $19.7 million ($0.10 per share) of tax beneÑts related to the resolution of claims
and other tax matters in connection with the closure of the 1998 through 2002 federal audit and $8.4 million
after-tax ($0.04 per share) of beneÑts related to insurance settlements, oÅset by $14.2 million after-tax
($0.08 per share) related to special charges associated with restructuring activities in Europe and a U.S. plant
closing. Income from continuing operations in 2004 includes $46.3 million ($0.24 per share) of tax beneÑts
related to the resolution of certain tax matters and state tax refunds, oÅset by $16.3 million after-tax
($0.09 per share) of special facilities related charges.
Control Systems
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
2005
2004
$4,123.6
756.9
18.4%
$3,658.6
527.9
14.4%
Increase
$465.0
229.0
4.0pts
Control Systems sales increased 13 percent compared to 2004. Three 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 major European currencies and the Canadian dollar in relation to the U.S. dollar. Sales of our
Logix oÅering grew by more than 26 percent compared to 2004, which was somewhat oÅset by a decline in our
legacy control platform products that are being replaced by Logix. Growth in sales of our Logix oÅering was
driven by our introduction of new functionality and an expanded addressable market. Our intelligent motor
control products also delivered signiÑcantly higher revenue driven by strong sales to extraction-based and
heavy industrial customers. Higher commodity prices and a renewed investment in energy eÇciency programs
led to the strong demand from these customers.
Segment operating earnings increased by 43 percent compared to 2004. The increase in segment
operating earnings is due to higher volume, cost productivity and favorable pricing that was somewhat oÅset
by inÖation. Control Systems 2005 results include $12.3 million (pre-tax) of beneÑts related to insurance
settlements oÅset by $16.5 million (pre-tax) of special charges associated with realignment of administrative
functions and a reduction in workforce in Europe. Prior year segment operating earnings includes a
$26.3 million (pre-tax) charge related to a facilities rationalization program.
Power Systems
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
2005
2004
$879.6
110.3
12.5%
$752.5
67.5
9.0%
Increase
$127.1
42.8
3.5pts
Power Systems sales increased 17 percent compared to 2004 with growth in both our Dodge mechanical
and Reliance electrical business groups. Growth was driven by demand from the power-centric customers in
heavy, extraction-based industries such as mining and oil and gas. Higher commodity prices are causing the
segment's predominantly U.S. based customers to invest in capacity expansion after several years of under-
investment and reduced capital spending.
Power Systems operating earnings grew 63 percent due to higher volume, favorable pricing and
productivity somewhat oÅset by inÖation and signiÑcantly higher material costs. Segment operating earnings
in 2005 include a charge of $5.0 million (pre-tax) associated with a facility closure and the corresponding
write-down of property to its fair value compared to $4.0 million (pre-tax) of charges related to restructuring
activities in 2004.
22
General Corporate Ì Net
General corporate expenses were $69.7 million in 2005 compared to $88.3 million in 2004. Expense
dropped primarily due to decreased environmental costs, lower contributions to our charitable corporation and
increased interest income.
Interest Expense
Interest expense was $45.8 million in 2005 compared to $41.7 million in 2004, primarily due to higher
interest rates associated with our interest rate swap (see Note 6 in the Financial Statements).
2004 Compared to 2003
(in millions, except per share amounts)
Sales
Income from continuing operations
Diluted earnings per share from continuing operations
2004
2003
$4,411.1
354.1
1.85
$3,992.3
281.4
1.48
Increase
$418.8
72.7
0.37
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 included $46.3 million ($0.24 per share) of tax beneÑts
related to the resolution of certain tax matters as well as the beneÑt of state tax refunds. The 2003 results
included a tax beneÑt of $69.4 million ($0.37 per share) related to the settlement of a U.S. federal research
and experimentation credit refund claim.
Control Systems
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
2004
2003
$3,658.6
527.9
14.4%
$3,287.4
397.6
12.1%
Increase
$371.2
130.3
2.3pts
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 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.
23
Power Systems
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
2004
2003
$752.5
67.5
9.0%
$704.9
54.6
7.7%
Increase
$ 47.6
12.9
1.3pts
Power Systems sales increased 7 percent compared to 2003. The Mechanical and Electrical business
groups 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 of 2004, 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.
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.
Discontinued Operations
See Note 13 and Note 16 in the Financial Statements for information regarding discontinued operations.
Income Taxes
During 2005, we recognized tax beneÑts of $19.7 million ($0.10 per diluted share) related to the
resolution of claims and other tax matters in connection with the closure of the federal audit cycle for the years
1998 through 2002.
In 2004, we recognized tax beneÑts of $46.3 million ($0.24 per diluted share) related to the following
items:
‚ $34.5 million resulting from the resolution of certain tax matters primarily 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
‚ $7.5 million related to a refund from the State of California for the period 1989 to 1991.
24
During 2003, we recognized a net tax beneÑt of $69.4 million ($0.37 per diluted share) 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 full year eÅective tax rate for 2005 was 29.7 percent as compared to 19.2 percent for 2004. The
discrete items described above decreased the eÅective tax rate by 2.6 percent in 2005 and 10.5 percent in 2004.
The full year eÅective tax rate for 2003 was 5.4 percent, including the eÅect of the research and
experimentation settlement (23.3 percent beneÑt) and the utilization of capital loss carryforwards (0.9 percent
beneÑt).
See Note 16 in the Financial Statements for a reconciliation of the United States statutory tax rate to the
eÅective tax rate.
Current and projected growth in income in higher tax jurisdictions has resulted, and may continue to
result, in an increasing eÅective tax rate over time. We expect that the eÅective income tax rate in 2006 will be
approximately 33.5 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.
See Note 13 and Note 16 in the Financial Statements for information on tax matters related to
discontinued operations.
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,
2004
2005
2003
Cash provided by (used for):
Operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 638.9
(122.8)
(550.6)
(3.1)
$ 596.9
(65.2)
(312.0)
1.8
$ 419.9
(131.4)
(335.3)
(31.0)
Cash (used for) provided by continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (37.6)
$ 221.5
$ (77.8)
The following table summarizes free cash Öow (in millions):
Cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 638.9
$ 596.9
(124.1)
(98.0)
$ 419.9
(107.6)
Free cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 514.8
$ 498.9
$ 312.3
Our deÑnition of free cash Öow, which is a non-GAAP Ñnancial measure, 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 $514.8 million for the year ended September 30, 2005 compared to $498.9 million for
the year ended September 30, 2004. Increased pre-tax earnings more than oÅset the increase in voluntary
contributions to our U.S. pension plan ($150.0 million in 2005 compared to $125.0 million in 2004), capital
spending and working capital needs. The increased capital spending includes investments in information
technology and certain long-lived asset replacements.
25
When necessary, we utilize commercial paper as our principal source of short-term Ñnancing. At
September 30, 2005 and 2004, we had no commercial paper borrowings outstanding. During 2005 we had no
commercial paper borrowings and during 2004 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.
In 2005, we repurchased approximately 9.8 million shares of our common stock at a cost of
$499.2 million, compared to repurchases of approximately 7.5 million shares of our common stock at a cost of
$258.4 million in 2004. We anticipate repurchasing stock in 2006, the amount of which will depend ultimately
on business conditions, stock price and other cash requirements. At September 30, 2005 we had authorization
from our Board of Directors to purchase up to approximately 8.8 million additional shares through
September 30, 2006.
In October 2005, we contributed $450 million to our U.S. qualiÑed pension trust. The contribution was
funded with a combination of cash on hand and $300 million of commercial paper borrowings. In November
2005, we sold 24 owned properties in a sale-leaseback transaction for net cash proceeds of approximately
$148 million. The cash proceeds were used to repay commercial paper borrowings.
We expect future signiÑcant uses of cash to include capital expenditures, dividends to shareowners,
repayments of short-term borrowings, acquisitions of businesses and repurchases of common stock and may
include additional contributions to our pension plans. We expect capital expenditures in 2006 to be about
$150 million. 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 31.2 percent at September 30, 2005 and 28.9 percent at September 30, 2004.
In October 2004, we entered into a Ñve-year $600.0 million unsecured revolving credit facility that
replaced our then existing $675.0 million unsecured credit facilities. Borrowings under our credit facility bear
interest based on short-term money market rates in eÅect during the period the borrowings are outstanding.
The terms of our credit facility contain a covenant under which we would be in default if our debt-to-total
capital ratio were to exceed 60 percent. In addition to our $600.0 million credit facility, short-term unsecured
credit facilities of approximately $115 million at September 30, 2005 were available to foreign subsidiaries.
The following is a summary of our credit ratings as of September 30, 2005:
Credit Rating Agency
Short-Term
Long-Term
Rating
Outlook
Rating
Outlook
Standard & Poor's ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1
P-2
Moody's ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
F1
Fitch Ratings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stable
Stable
Stable
A
A3
A
Stable
Stable
Stable
Moody's changed its long-term outlook from negative to stable during the second quarter of 2005 to
reÖect our leading position in the global industrial automation market, our healthy balance sheet and solid
cash Öow generation.
Among other things, we can draw our credit facility as a standby liquidity facility, 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. 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.
26
If our access to the commercial paper market is 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 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 $142.7 million ($0.78 per share) in 2005 and $122.5 million
($0.66 per share) in 2004. Although declaration and payment of dividends are at the sole discretion of our
Board of Directors, we expect to continue to pay quarterly dividends in 2006 of $0.225 per outstanding share.
Certain of our contractual cash obligations at September 30, 2005 are:
Total
2006
2007
2008
2009
2010
Thereafter
Payments by Period
Long-term debt and interest(a) ÏÏÏÏÏÏÏÏÏ
Minimum operating lease payments(b) ÏÏ
$2,192.7
206.5
$ 48.7
51.5
$48.7
45.2
$387.9
37.3
$27.1
26.4
$27.1
15.0
$1,653.2
31.1
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,399.2
$100.2
$93.9
$425.2
$53.5
$42.1
$1,684.3
(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 $(6.3) million fair
value adjustment recorded for the interest rate swap as permitted by SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and the unamortized discount of $45.5 million. See Note 6 in the Financial Statements for additional
information regarding our long-term debt.
(b) See Note 20 in the Financial Statements for information regarding our November 2005, sale-leaseback transaction.
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, 2005, 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 $4.8 million. The lease agreement has a term that ends in December 2011. In addition, we share equally
with Rockwell Collins in providing a $6.0 million line of credit to RSC, which bears interest at the greater of
our or Rockwell Collins' commercial paper borrowing rate. At September 30, 2005 and 2004, there were no
outstanding borrowings under this line of credit.
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
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. We attribute sales to the
geographic regions based on the country of origin.
27
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, 2005
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
Currency
Translation
Sales
Year Ended September 30, 2004
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
Currency
Translation
Sales
US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanadaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and AfricaÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,058.8
418.4
823.5
483.1
219.4
$ Ì $3,058.8
386.0
787.1
462.6
208.3
(32.4)
(36.4)
(20.5)
(11.1)
$2,727.0
339.8
779.6
400.4
164.3
$ Ì $2,727.0
308.9
696.5
379.4
166.8
(30.9)
(83.1)
(21.0)
2.5
Total Company SalesÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,003.2
$(100.4)
$4,902.8
$4,411.1
$(132.5)
$4,278.6
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, 2005
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
Currency
Translation
Sales
Year Ended September 30, 2004
Sales
Excluding
the EÅect
of Changes
in Currency
Exchange
Rates
Currency
Translation
Sales
US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanadaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and AfricaÏÏÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,275.5
370.0
815.4
457.7
205.0
$ Ì
(28.7)
(36.1)
(20.3)
(11.0)
$2,275.5
341.3
779.3
437.4
194.0
$2,054.2
302.4
766.0
382.9
153.1
$ Ì $2,054.2
275.0
684.4
361.9
154.8
(27.4)
(81.6)
(21.0)
1.7
Total Control Systems Sales ÏÏÏÏÏÏÏ
$4,123.6
$(96.1)
$4,027.5
$3,658.6
$(128.3)
$3,530.3
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 critical accounting policies could have the most signiÑcant eÅect on our reported results or require
subjective or complex judgments by management.
Retirement BeneÑts
Pension BeneÑts
Pension costs and obligations are actuarially determined and are inÖuenced by assumptions used to
estimate these amounts, including the discount rate, the expected rate of return on plan assets, the assumed
annual compensation increase rate, retirement rate, mortality rate and employee turnover rate. Changes in any
of the assumptions and the amortization of diÅerences between the assumptions and actual experience will
aÅect the amount of pension expense recognized in future periods.
Our global pension expense in 2005 was $66.2 million compared to $68.8 million in 2004. Approximately
80 percent of our 2005 global pension expense relates to our U.S. qualiÑed pension plan. The actuarial
28
assumptions used to determine our 2005 U.S. pension expense included the following: discount rate of
6.25 percent (compared to 6.00 percent for 2004); expected rate of return on plan assets of 8.50 percent
(compared to 8.50 percent for 2004); and an assumed compensation increase rate of 4.50 percent (compared
to 4.50 percent for 2004).
In 2005, we made voluntary contributions of $150.0 million to our primary U.S. qualiÑed pension plan
trust compared to $125.0 million in 2004.
We estimate our pension expense will be approximately $82 million in 2006, an increase of approximately
$16 million over 2005. Our estimated 2006 pension expense reÖects the following changes in the U.S. pension
plan:
‚ the net cost related to changes in actuarial assumptions;
‚ the beneÑt of a $100 million contribution in September 2005 and a $450 million contribution in
October 2005; and
‚ the beneÑt related to a plan amendment that eliminates the early retirement subsidy for certain
employees.
For 2006, changes in actuarial assumptions include a 100 basis point reduction in our discount rate to
5.25 percent from the 6.25 percent used in 2005. The discount rate is set as of our June 30th measurement
date and was determined by modeling a portfolio of bonds that match the expected cash Öow of our beneÑt
plans. Our assumed rate of return on plan assets will remain at 8.50 percent, consistent with 2005. We
considered actual returns on plan assets over the long term as well as the current and expected mix of plan
investments in setting this assumption. We have assumed a compensation increase rate of 4.06 percent in
2006, compared to 4.50 percent used in 2005. We established this rate using an analysis of all elements of
employee compensation that are considered pension eligible earnings. Additionally, in establishing our 2006
pension assumptions, we performed an actuarial experience study that changed other assumptions including
retirement rate, employee turnover rate, and mortality rate as a result of utilizing the RP2000 table projected
forward 10 years.
EÅective for 2006, we amended our U.S. pension plan to eliminate the early retirement subsidy for
certain employees. The eÅect of the amendment is a reduction of approximately $70 million in our pension
beneÑt obligation and a corresponding reduction in annual pension expense recognized over the average
remaining service life of plan participants.
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
$75.5
Ì
$8.1
4.1
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 third party 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. The discount rate used to
calculate our 2005 other postretirement beneÑts expense was 6.25 percent (compared to 6.00 percent in
29
2004). For 2006, the discount rate assumption for other postretirement beneÑt expense will decrease to
5.0 percent.
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 to our primary U.S. program, there is no increase in healthcare costs resulting from healthcare
inÖationary trends as of January 1, 2005.
Net periodic beneÑt cost in 2005 was $24.9 million compared to $23.4 million in 2004.
We expect net periodic beneÑt cost in 2006 of approximately $36 million and the estimated
postretirement projected beneÑt obligation to approximate $425 million. The expected increases are primarily
due to the decrease in discount rate (as of our June 30, 2005 measurement date) by 125 basis points to
5.0 percent.
Additional information regarding postretirement beneÑts is contained in Note 12 in the Financial
Statements.
Revenue Recognition
We record sales of products and services, representing approximately 90% of our consolidated sales, when
all of the following have occurred: an agreement of sale exists; pricing is Ñxed or determinable; collection is
reasonably assured; and product has been delivered and acceptance has occurred, as may be required
according to contract terms, or services have been rendered.
We recognize substantially all of the remainder of our sales on construction-type contracts using either
the percentage-of-completion or completed contract methods of accounting. We record sales relating to these
contracts using the percentage-of-completion method when we determine that progress towards completion is
reasonably and reliably estimable; we use the completed contract method for all others. Under the
percentage-of-completion method, we recognize sales and gross proÑt as work is performed using either
(i) the relationship between actual costs incurred and total estimated costs at completion or (ii) units-of-
delivery. Under the percentage-of-completion method, we adjust sales and gross proÑt for revisions of
estimated total contract costs or revenue in the period the change is identiÑed. We record estimated losses on
contracts when they are identiÑed.
We use contracts and customer purchase orders to determine the existence of an agreement of sale. 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 on the creditworthiness of the customer
as determined by credit evaluations and analysis, as well as the customer's payment history.
Returns, Rebates and Incentives
Our primary incentive program provides distributors with cash rebates or account credits based on agreed
amounts that vary depending on the end user or original equipment manufacturing (OEM) customer to whom
our distributor ultimately sells the product. We also oÅer various other incentive programs that provide
distributors and direct sale customers with cash rebates, account credits or additional products and services
based on meeting speciÑed program criteria. Certain distributors are oÅered a right to return product, subject
to contractual limitations.
We record accruals for customer returns, rebates and incentives at the time of revenue recognition based
primarily on 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 $5.0 million.
30
Returns, rebates and incentives are recognized as a reduction of sales if distributed in cash or customer
account credits. Rebates and incentives are recognized in cost of sales for additional products and services to
be provided. Accruals are reported as a current liability in our balance sheet or, where a right of set-oÅ exists,
as a reduction of accounts receivable. The accrual for customer returns, rebates and incentives was
$117.6 million at September 30, 2005 and $86.1 million at September 30, 2004, of which $9.4 million at
September 30, 2005 and $7.8 million at September 30, 2004 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 must 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.
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 2005, the estimated fair value of our Reliance trademark exceeded
its $72.8 million net book value. We calculated the estimated fair value with the assistance of third party
valuation specialists. Either an increase in the discount rate or a decrease in planned future growth or
proÑtability of our Electrical (Reliance) business group could result in an impairment charge to write down
the book value of the Reliance trademark to the revised estimated fair value.
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 reserve for environmental matters, net of related receivables, was $39.3 million at September 30,
2005 and $38.8 million at September 30, 2004. During 2005, we recorded adjustments totaling $8.5 million to
increase the environmental reserves related to several legacy sites compared to 2004 adjustments of
$16.9 million.
Our recorded liability for environmental matters almost entirely relates to businesses formerly owned by
us (legacy businesses) 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 signiÑcant charge to
31
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.
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. 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 for further
discussion.
Our principal self-insurance programs include product liability where we are self-insured 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 reserve for product liability claims, excluding asbestos, with the
assistance of a third party actuarial consultant using our claims experience for the periods being valued.
Adjustments to the product liability reserves may be required to reÖect emerging claims experience and other
factors such as inÖationary trends or the outcome of claims. The reserve for product liability claims was
$29.5 million at September 30, 2005 and $32.3 million at September 30, 2004.
Additional information regarding litigation, claims and contingencies is contained in Note 17 in the
Financial Statements.
Income Taxes
We operate in numerous taxing jurisdictions and are subject to regular examinations by various
U.S. Federal, state and foreign jurisdictions for various tax periods. Additionally, we have retained tax
liabilities and the rights to tax refunds in connection with various divestitures of businesses in prior years. Our
income tax positions are based on research and interpretations of the income tax laws and rulings in each of
the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each
jurisdiction, the diÅerences and interplay in tax laws between those jurisdictions as well as the inherent
uncertainty in estimating the Ñnal resolution of complex tax audit matters, our estimates of income tax
liabilities may diÅer from actual payments or assessments.
While we have support for the positions taken on our tax returns, taxing authorities are increasingly
asserting interpretations of laws and facts and challenging cross jurisdictional transactions. Cross jurisdictional
transactions between our subsidiaries involving the transfer price for products, services, and/or intellectual
property as well as various U.S. state tax matters comprise our more signiÑcant income tax exposures. We
regularly assess our position with regard to tax exposures and record liabilities for these uncertain tax positions
and related interest and penalties, if any, according to the principles of SFAS No. 5, Accounting for
Contingencies. We have recorded an accrual of $103.1 million at September 30, 2005 that reÖects our
estimate of the likely outcome of current and future audits and is recorded in Other liabilities in our
Consolidated Balance Sheet. A Ñnal determination of these tax audits or changes in our estimates may result
in additional future income tax expense or beneÑt.
We have recorded a valuation allowance of $55.5 million at September 30, 2005 for the majority of our
deferred tax assets related to net operating loss carryforwards, capital loss carryforwards and state tax credit
carryforwards (Carryforwards) based on the projected proÑtability of the entity in the respective tax
jurisdiction. The valuation allowance is based on an evaluation of the uncertainty of the amounts of the
Carryforwards that are expected to be realized. Our income would increase 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 apply to the full
Ñscal year. The estimated eÅective tax rate contemplates the expected jurisdiction where income is earned as
well as tax planning strategies. Current and projected growth in income in higher tax jurisdictions has resulted,
and may continue to result, in an increasing eÅective tax rate over time. If the actual results diÅer from our
estimates, we may have to adjust the eÅective tax rate in the interim period such determination is made.
32
Additional information regarding income taxes is contained in Note 16 in the Financial Statements.
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 use 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, 2005 and 2004, we had no commercial paper or bank borrowings outstanding. During 2005, we
had no commercial paper borrowings. In 2004, the weighted average commercial paper borrowing was
$1.8 million. Changes in market interest rates on commercial paper borrowings aÅect our results of operations.
If market interest rates would have averaged 10 percent higher than actual levels in either 2005 or 2004, the
eÅect on our results of operations would not have been signiÑcant.
In October 2005, we issued $300 million of unsecured commercial paper obligations with maturities of
1 to 28 days. We used the proceeds of the commercial paper to partially fund a $450 million voluntary
contribution to our U.S. qualiÑed pension plan trust made on October 11, 2005. As these obligations mature,
we anticipate issuing additional short-term commercial paper obligations to reÑnance all or part of these
borrowings.
We had outstanding Ñxed rate long-term debt obligations with carrying values of $748.2 million at
September 30, 2005 and $757.7 million at September 30, 2004. The fair value of this debt was $826.2 million
at September 30, 2005 and $837.1 million at September 30, 2004. 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 6.23 percent at September 30, 2005. A hypothetical 10 percent change
in market interest rates would not be signiÑcant 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 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 expected to occur
within the next four years. Contracts are executed with creditworthy banks and are denominated in currencies
of major industrial countries. We do not 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.
33
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, 2005 and 2004, we had outstanding foreign currency forward exchange contracts
primarily consisting of contracts to exchange the euro, Swiss franc, Canadian dollar, British pound sterling,
and Australian dollar for U.S. dollars. 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 signiÑcant to our Ñnancial condition or results of operations.
34
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEET
(in millions)
September 30,
2005
2004
Assets
Current Assets
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
463.6
799.6
569.9
169.4
184.0
$
473.8
719.9
574.3
132.7
125.4
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,186.5
2,026.1
Property, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other intangible assets, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid pension ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
774.5
811.9
307.0
66.3
200.5
178.4
804.5
811.1
323.8
12.1
68.8
166.9
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,525.1
$ 4,213.3
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
Other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commitments and contingent liabilities (Note 17)
1.2
388.5
214.4
5.4
331.3
940.8
748.2
977.5
209.5
$
0.2
362.2
202.3
8.3
290.6
863.6
757.7
505.6
225.4
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: 2005, 36.7; 2004, 32.6)ÏÏÏÏÏÏÏÏÏ
216.4
1,122.7
2,493.5
(501.5)
(1.7)
(1,680.3)
216.4
1,050.6
2,255.7
(226.8)
(1.1)
(1,433.8)
Total shareowners' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,649.1
1,861.0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,525.1
$ 4,213.3
See Notes to Consolidated Financial Statements.
35
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended September 30,
2004
2003
2005
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 5,003.2
(3,109.1)
$ 4,411.1
(2,848.3)
$ 3,992.3
(2,681.0)
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense) (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before income taxes ÏÏÏÏÏÏÏÏÏÏÏ
Income tax provision (Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,894.1
(1,120.8)
9.5
(45.8)
737.0
(218.6)
Income from continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations (Note 13)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
518.4
21.6
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
540.0
Basic earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Diluted earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2.83
0.12
2.95
2.77
0.11
2.88
1,562.8
(1,058.6)
(24.4)
(41.7)
438.1
(84.0)
354.1
60.8
414.9
1.91
0.33
2.24
1.85
0.32
2.17
$
$
$
$
$
$
$
$
$
$
1,311.3
(967.7)
6.5
(52.5)
297.6
(16.2)
281.4
5.0
286.4
1.51
0.03
1.54
1.48
0.03
1.51
Weighted average outstanding shares:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.1
187.2
185.5
191.1
185.4
190.1
See Notes to Consolidated Financial Statements.
36
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended September 30,
2004
2005
2003
Continuing Operations:
Operating Activities:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to arrive at cash provided by operating activities:
$ 540.0
(21.6)
518.4
$ 414.9
(60.8)
354.1
$ 286.4
(5.0)
281.4
DepreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax mattersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension and postretirement beneÑt expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension trust contributionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss on dispositions of property and business (Note 15) ÏÏÏÏÏÏÏÏ
Income tax beneÑt from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, excluding eÅects of acquisitions,
divestitures, and foreign currency adjustments:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by Operating ActivitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investing Activities:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisition of businesses, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sales of business and property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Used for Investing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financing Activities:
Issuance (repayments) of debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Used for Financing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash (Used for) Provided by Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued Operations:
Cash Provided by Discontinued Operating Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Used for Discontinued Investing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Provided by Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Decrease) Increase in CashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at End of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
150.8
20.4
(19.7)
91.1
(185.6)
115.8
4.7
72.1
(56.4)
9.0
20.7
12.3
(46.4)
(68.3)
638.9
(124.1)
(5.4)
7.4
(0.7)
(122.8)
1.0
(142.7)
(499.2)
91.6
(1.3)
(550.6)
(3.1)
(37.6)
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
596.9
(98.0)
Ì
32.4
0.4
(65.2)
(8.4)
(122.5)
(258.4)
78.5
(1.2)
(312.0)
1.8
221.5
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)
27.4
Ì
27.4
(10.2)
473.8
$ 463.6
27.2
(1.3)
25.9
247.4
226.4
$ 473.8
16.2
(1.2)
15.0
(62.8)
289.2
$ 226.4
See Notes to Consolidated Financial Statements.
37
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in millions, except per share amounts)
Year Ended September 30,
2004
2003
2005
Common Stock (no shares issued during years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
216.4
$
216.4
$
216.4
Additional Paid-In Capital
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,050.6
72.1
Ì
1,007.5
40.2
2.9
986.6
20.9
Ì
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,122.7
1,050.6
1,007.5
Retained Earnings
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends (2005, $0.78 per share; 2004 and 2003, $0.66 per share)
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,255.7
540.0
(142.7)
(159.5)
2,143.0
414.9
(122.5)
(179.7)
2,165.3
286.4
(122.4)
(186.3)
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,493.5
2,255.7
2,143.0
Accumulated Other Comprehensive Loss
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive (loss) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(226.8)
(274.7)
(343.8)
117.0
(193.8)
(150.0)
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(501.5)
(226.8)
(343.8)
Unearned Restricted Stock Compensation
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock compensation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted stock grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury Stock
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1.1)
0.9
(1.5)
(1.7)
Ì
0.6
(1.7)
(1.1)
(0.2)
0.5
(0.3)
Ì
(1,433.8)
(499.2)
252.7
(1,436.3)
(258.4)
260.9
(1,565.3)
(128.4)
257.4
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,680.3)
(1,433.8)
(1,436.3)
Total Shareowners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,649.1
$ 1,861.0
$ 1,586.8
See Notes to Consolidated Financial Statements.
38
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
Year Ended September 30,
2004
2005
2003
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive (loss) income:
$ 540.0
$ 414.9
$ 286.4
Minimum pension liability adjustments (net of tax (beneÑt) expense of
$(185.0), $42.1 and $(106.9)) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustments (net of tax expense of $0, $0, and
$25.0) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on cash Öow hedges (net of tax expense
(beneÑt) of $6.9, $8.6 and $(9.0)) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏ
(293.4)
68.2
(169.9)
7.1
11.4
0.2
34.0
14.2
0.6
34.1
(14.9)
0.7
Other comprehensive (loss) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(274.7)
117.0
(150.0)
Comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 265.3
$ 531.9
$ 136.4
See Notes to Consolidated Financial Statements.
39
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.
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 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.
Principles of Consolidation
The accompanying consolidated Ñnancial statements include the accounts of the Company and its
wholly-owned and controlled majority owned subsidiaries. All signiÑcant intercompany accounts and
transactions have been eliminated in consolidation. Investments in aÇliates over which we have the ability to
exert signiÑcant inÖuence, but that we do not control and are not the primary beneÑciary of, 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.
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. We use estimates 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; litigation, claims and contingencies, including environmental matters; and income taxes. We account
for changes to estimates and assumptions prospectively when warranted by factually based experience.
Revenue Recognition
We record sales of products and services, representing approximately 90 percent of our consolidated sales,
when all of the following have occurred: an agreement of sale exists; pricing is Ñxed or determinable; collection
is reasonably assured; and product has been delivered and acceptance has occurred, as may be required
according to contract terms, or services have been rendered.
We recognize substantially all of the remainder of our sales on construction-type contracts using either
the percentage-of-completion or completed contract method of accounting. We record sales relating to these
contracts using the percentage-of-completion method when we determine that progress towards completion is
reasonably and reliably estimable; we use the completed contract method for all others. Under the
percentage-of-completion method, we recognize sales and gross proÑt as work is performed using either
(i) the relationship between actual costs incurred and total estimated costs at completion or (ii) units-of-
delivery. Under the percentage-of-completion method, we adjust sales and gross proÑt for revisions of
estimated total contract costs or revenue in the period the change is identiÑed. We record estimated losses on
contracts when they are identiÑed.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
We use contracts and customer purchase orders to determine the existence of an agreement of sale. 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 on the creditworthiness of the customer
as determined by credit evaluations and analysis, as well as the customer's payment history.
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.
Returns, Rebates and Incentives
Our primary incentive program provides distributors with cash rebates or account credits based on agreed
amounts that vary depending on the end user or original equipment manufacturer (OEM) customer to whom
our distributor ultimately sells the product. We also oÅer various other incentive programs that provide
distributors and direct sale customers with cash rebates, account credits or additional products and services
based on meeting speciÑed program criteria. Certain distributors are oÅered a right to return product, subject
to contractual limitations.
We record accruals for customer returns, rebates and incentives at the time of revenue recognition based
primarily on historical experience. Returns, rebates and incentives are recognized as a reduction of sales if
distributed in cash or customer account credits. Rebates and incentives are recognized in cost of sales for
additional products and services to be provided. Amounts are accrued at the time of recognition of our sale to
a distributor or direct sale customer. Accruals are reported as a current liability in our balance sheet or, where
a right of set-oÅ exists, as a reduction of accounts receivable.
Cash and Cash Equivalents
Cash and cash equivalents include 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 $18.4 million at September 30, 2005 and $25.2 million at September 30, 2004. In
addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of
$9.4 million at September 30, 2005 and $7.8 million at September 30, 2004.
Inventories
Inventories are stated at the lower of cost or market using the Ñrst-in, Ñrst-out (FIFO) method. Market is
determined on the basis of estimated realizable values.
Property
Property is stated at cost. We calculate depreciation of property using the straight-line method over 15 to
40 years for buildings and improvements, 3 to 14 years for machinery and equipment and 3 to 10 years for
computer hardware and software. We capitalize signiÑcant renewals and enhancements and write oÅ replaced
units. We expense maintenance and repairs, as well as renewals of minor amounts.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
Intangible Assets
Goodwill and other intangible assets generally result from business acquisitions. We account for business
acquisitions by allocating the purchase price to tangible and intangible assets acquired and liabilities assumed
at their fair values, the excess of the purchase price over the allocated amount is recorded as goodwill.
Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets,
requires goodwill and other intangible assets with indeÑnite useful lives to be reviewed for impairment
annually or more frequently if events or circumstances indicate an impairment may be present, rather than
amortized as previous standards required. Any excess in carrying value over the estimated fair value is charged
to results of operations.
We amortize distributor networks, computer software products, patents and other intangible assets with
Ñnite useful lives 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 we determine that an asset is impaired, we measure the impairment to be recognized as the amount
by which the recorded amount of the asset exceeds its fair value. We report assets to be disposed of at the
lower of the recorded amount or fair value less cost to sell. We determine fair value using a 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.
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. We use foreign currency
forward exchange contracts to oÅset changes in the amount of future cash Öows associated with intercompany
transactions expected to occur within the next four years (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. We sometimes use interest rate swap contracts 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
We translate assets and liabilities of subsidiaries operating outside of the United States with a functional
currency other than the U.S. dollar into U.S. dollars using exchange rates at the end of the respective period.
We translate sales, costs and expenses at average exchange rates eÅective during the respective period. We
report foreign currency translation adjustments as a component of other comprehensive income. Currency
transaction gains and losses are included in the results of operations in the period incurred.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
Research and Development Expenses
We expense research and development (R&D) costs as incurred; these costs were $138.6 million in 2005,
$121.7 million in 2004 and $121.6 million in 2003. We include R&D expenses 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. Tax beneÑts related to claims are also recognized when they become probable and reasonably
estimable. The determination of probability and the estimate of the liability or tax beneÑt 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 earnings 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 eÅect of stock options represents the entire diÅerence between basic and diluted EPS. We use
the treasury stock method to calculate the eÅect of outstanding stock options. Stock options for which the
exercise price exceeds the average market price (out-of-the-money options) over the period have an
antidilutive eÅect on EPS, and accordingly, we exclude them from the calculation. Antidilutive options for the
years ended September 30, 2005 (20,013 shares), 2004 (51,938 shares) and 2003 (1,073,119 shares) were
excluded from the diluted EPS calculation.
Stock-Based Compensation
We account for stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. We grant stock options at prices equal to the fair market
value of our common stock on the grant dates; therefore we do not recognize compensation expense in
connection with stock options granted to employees. We recognize compensation expense on grants of
restricted stock during the period of the employee's service.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
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
2005
2004
2003
$540.0
$414.9
$286.4
reported net income, net of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.6
3.3
0.3
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(18.8)
(15.2)
(5.3)
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$521.8
$403.0
$281.4
Earnings per share:
Basic Ì as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.95
$ 2.24
$ 1.54
Basic Ì pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.85
$ 2.17
$ 1.52
Diluted Ì as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.88
$ 2.17
$ 1.51
Diluted Ì pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2.79
$ 2.11
$ 1.48
Pro forma net income for 2005 includes an additional $4.9 million after tax of compensation expense,
recognized in the second quarter of 2005, for retirement eligible stock option participants. Previously we
reported compensation expense for these participants over the vesting period. Stock options granted to
retirement eligible plan participants who retire under our retirement plans on or after the Ñrst anniversary of
the grant date continue to vest post-retirement in accordance with plan provisions and agreements related
thereto. If the plan participant retires less than twelve months from the grant date, the options under that grant
are forfeited. Stock compensation expense on grants to plan participants who are retirement eligible on the
grant date or who will be retirement eligible in less than twelve months from the grant date is reported in pro
forma net income over the twelve month period from the grant date. We report stock compensation expense
on grants to plan participants who become retirement eligible between twelve and thirty-six months after the
grant date in pro forma net income over the period from grant date to the retirement eligibility date.
Pro forma net income for 2004 includes $3.6 million after tax of expense related to performance-vesting
options that vested in the Ñrst quarter of 2004 as a result of the market price of our common stock reaching a
speciÑed level for a pre-determined period of time.
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.
See Recent Accounting Pronouncements for further discussion of stock-based compensation.
The per share weighted average fair value of options granted was $12.60 in 2005, $7.20 in 2004 and $2.98
in 2003.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
We estimated the fair value of each option on the date of grant using the Black-Scholes pricing model
and the following assumptions:
Average risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected term (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
3.59%
1.50%
0.31
5
2004
3.17%
2.34%
0.31
5
2003
2.59%
4.22%
0.30
5
Product and Workers' Compensation Liabilities
We record accruals for product and workers' compensation 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 a third party 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. We make changes to the accruals 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. We do not discount to their present value future expenditures for
environmental remediation obligations. If we determine that recovery from insurers or other third parties is
probable, we record a receivable for the estimated recovery.
Recent Accounting Pronouncements
In March 2005, the FASB issued Interpretation No. 47 (FIN 47) to clarify the guidance included in
SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 requires companies to recognize a
liability for the fair value of a legal obligation to perform asset retirement activities that are conditional on a
future event if the amount can be reasonably estimated. If amounts cannot be reasonably estimated, certain
disclosures will be required about the unrecognized asset retirement obligations. The interpretation must be
adopted in the fourth quarter of 2006. We are currently evaluating the interpretation to determine the eÅect on
our Ñnancial statements and related disclosures.
In December 2004, the FASB issued the revised SFAS No. 123, Share-Based Payment (SFAS 123(R)).
SFAS 123(R) requires compensation cost related to share-based payment transactions, including stock
options and restricted stock, to be recognized in the Ñnancial statements. Compensation cost will be measured
based on the grant-date fair value of the instruments issued using an option pricing model and will be
recognized over the requisite service period. We are required to implement SFAS 123(R) for our 2006 Ñscal
year. SFAS 123(R) will apply to all awards granted after the implementation date and to previously-granted
awards unvested as of the implementation date. The eÅect of adoption of SFAS 123(R) is currently estimated
to be approximately $17 to $20 million ($0.09 to $0.11 per share) after-tax for 2006. However, our actual
share-based compensation expense in 2006 depends on a number of factors, including fair value of awards at
the time of grant.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
1. Basis of Presentation and Accounting Policies Ì (Continued)
In November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151). SFAS 151 requires
that abnormal amounts of idle facility expense, freight, handling costs and spoilage be recognized as current-
period charges. Further, SFAS 151 requires the allocation of Ñxed production overhead to inventory based on
the normal capacity of the production facilities. Unallocated overhead must be recognized as an expense in the
period in which it is incurred. SFAS 151 is eÅective for inventory costs incurred beginning in the Ñrst quarter
of 2006. We do not believe the adoption of SFAS 151 will have a material eÅect on our Ñnancial statements
and related disclosures.
2. Acquisitions of Businesses
2005 Acquisitions
On September 1, 2005, our Power Systems segment acquired the assets of Quality Rewind & Electric,
Inc.'s motor repair and management business based in Ft. McMurray, Alberta, Canada.
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 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.
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 for these acquisitions 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
The changes in the carrying amount of goodwill for the years ended September 30, 2004 and 2005 are (in
millions):
Balance as of September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Control
Systems
$653.1
12.9
Power
Systems
$145.1
Ì
Total
$798.2
12.9
Balance as of September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
666.0
145.1
811.1
Acquisition of business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
(3.6)
4.3
0.1
4.3
(3.5)
Balance as of September 30, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$662.4
$149.5
$811.9
We performed our annual evaluation of goodwill and indeÑnite life intangible assets for impairment
during the second quarter of 2005 and concluded that no impairments existed.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
3. Goodwill and Other Intangible Assets Ì (Continued)
Other intangible assets consist of (in millions):
September 30, 2005
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
123.9
39.3
84.1
365.0
210.8
$ 87.1
69.9
36.3
75.5
268.8
Ì
$ 30.6
54.0
3.0
8.6
96.2
210.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$575.8
$268.8
$307.0
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
Computer software products amortization expense was $14.8 million in 2005, $16.0 million in 2004 and
$13.8 million in 2003.
The Allen-Bradley, Reliance and Dodge trademarks have been determined to have an indeÑnite life, and
therefore are not subject to amortization.
Estimated amortization expense is $17.2 million in 2006, $17.1 million in 2007, $16.5 million in 2008,
$12.8 million in 2009, and $11.5 million in 2010.
4.
Inventories
Inventories consist of (in millions):
September 30,
2005
2004
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Raw materials, parts, and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$189.6
149.3
231.0
$218.7
135.4
220.2
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$569.9
$574.3
We report inventories net of the allowance for excess and obsolete inventory of $45.9 million at
September 30, 2005 and $46.2 million at September 30, 2004.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
5. Property
Property consists of (in millions):
September 30,
2005
2004
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
32.3
464.5
1,645.8
37.0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,179.6
1,405.1
$
32.4
458.0
1,606.0
43.3
2,139.7
1,335.2
Property, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 774.5
$ 804.5
6. Long-term Debt
Long-term debt consists of (in millions):
September 30,
2005
2004
6.15% notes, payable in 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.70% debentures, payable in 2028 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.20% debentures, payable in 2098 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized discount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 343.7
250.0
200.0
(45.5)
$ 353.7
250.0
200.0
(46.0)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
748.2
Ì
757.7
Ì
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 748.2
$ 757.7
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 6.23 percent at September 30, 2005 and 4.27 percent at
September 30, 2004. 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 (liabilities) assets on the Consolidated Balance Sheet with a
corresponding adjustment to the carrying value of the underlying debt at September 30, 2005 and 2004. The
fair value of the Swap, based upon quoted market prices for contracts with similar maturities, was
$(6.3) million at September 30, 2005 and $3.7 million at September 30, 2004.
On October 26, 2004, we entered into a Ñve-year $600.0 million unsecured revolving credit facility.
Borrowings under our credit facility bear interest based on short-term money market rates in eÅect during the
period the borrowings are outstanding. The terms of our credit facility contain a covenant under which we
would be in default if our debt-to-total capital ratio were to exceed 60 percent. In addition to our
$600.0 million credit facility, short-term unsecured credit facilities of approximately $115 million at
September 30, 2005 were available to foreign subsidiaries. There were no signiÑcant commitment fees or
compensating balance requirements under any of our credit facilities. Borrowings under our credit facilities
during 2005 were not signiÑcant.
Interest payments were $45.6 million during 2005, $40.9 million during 2004 and $54.7 million
during 2003.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
7. Other Current Liabilities
Other current liabilities consist of (in millions):
September 30,
2005
2004
Advance payments from customers and deferred revenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customer returns, rebates and incentives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized losses on foreign exchange contracts (Note 9)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product warranty obligations (Note 8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxes other than income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 78.2
108.2
4.0
36.3
42.8
61.8
$ 63.5
78.3
12.0
28.9
34.8
73.1
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$331.3
$290.6
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. Most of our products are covered under a warranty period that runs for twelve
months from either the date of sale or from installation to an end-user or OEM customer. We also record a
liability for speciÑc warranty matters when they become known and reasonably estimable. Our product
warranty obligations are included in other current liabilities in the Consolidated Balance Sheet.
Changes in the product warranty obligations are (in millions):
Balance at beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranties recorded at time of saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to pre-existing warranties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PaymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 28.9
51.0
(0.7)
(42.9)
$ 29.3
30.8
(1.1)
(30.1)
Balance at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 36.3
$ 28.9
September 30,
2005
2004
9. Financial Instruments
Our Ñnancial instruments include 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, 2005
Fair
Value
Carrying
Value
September 30, 2004
Fair
Value
Carrying
Value
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency forward exchange contracts ÏÏÏÏÏÏÏÏ
Interest rate swapÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(748.2)
18.2
(6.3)
$(826.2)
18.2
(6.3)
$(757.7)
(7.8)
3.7
$(837.1)
(7.8)
3.7
We base the fair value of long-term debt upon quoted market prices for the same or similar issues. We
base the fair value of foreign currency forward exchange contracts 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, 2005 and 2004, we had outstanding
foreign currency forward exchange contracts primarily consisting of contracts for the euro, Swiss franc,
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
9. Financial Instruments Ì (Continued)
Canadian dollar, British pound sterling and Australian dollar. The foreign currency forward exchange
contracts are recorded in other current assets in the amounts of $22.2 million as of September 30, 2005 and
$4.2 million as of September 30, 2004 and other current liabilities in the amounts of $4.0 million as of
September 30, 2005 and $12.0 million as of September 30, 2004. 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 signiÑcant.
10. Shareowners' Equity
Common Stock
At September 30, 2005, 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,
2005, 20.3 million shares of common stock were reserved for various incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
2005
2004
2003
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares delivered under incentive plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
183.8
(9.8)
5.7
185.6
(7.5)
5.7
185.8
(5.6)
5.4
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
179.7
183.8
185.6
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 percent or more of the common stock, although the board of
directors is authorized to reduce the 20 percent threshold for triggering the Rights to not less than 10 percent.
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.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
10. Shareowners' Equity Ì (Continued)
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of (in millions):
September 30,
2005
2004
Minimum pension liability adjustments (Note 12) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net unrealized gains (losses) on cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized gains (losses) on investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(424.6)
(84.2)
7.2
0.1
$(131.2)
(91.3)
(4.2)
(0.1)
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(501.5)
$(226.8)
Unrealized losses on cash Öow hedges of $11.2 million ($6.8 million after tax) in 2005 and $36.6 million
($22.1 million after tax) in 2004 were reclassiÑed into earnings and oÅset gains on the hedged items.
Approximately $4.6 million ($2.8 million after tax) of the net unrealized gains on cash Öow hedges as of
September 30, 2005 will be reclassiÑed into earnings during 2006. We expect that these unrealized gains will
be oÅset when the hedged items are recognized in earnings.
11. Stock Options
We have granted options to purchase our common stock 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
grant dates. 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 our 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 8.0 million at
September 30, 2005. None of our employee incentive plans presently permits options to be granted after
November 30, 2009. Stock options generally expire ten years from the grant date and vest over three years.
Information relative to stock options is as follows (shares in thousands):
2005
2004
2003
Wtd. Avg.
Exercise
Price
Shares
Wtd. Avg.
Exercise
Price
Shares
Number of shares under option:
Outstanding at beginning of year ÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canceled or expiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14,082
2,449
(5,703)
(126)
$18.17
44.11
16.18
22.11
16,860
3,168
(5,676)
(270)
$14.88
28.24
13.87
21.09
Shares
19,775
2,883
(5,416)
(382)
Outstanding at end of year ÏÏÏÏÏÏÏÏ
10,702
25.12
14,082
18.17
16,860
Exercisable at end of yearÏÏÏÏÏÏÏÏÏ
5,478
16.96
8,562
15.57
9,980
Wtd. Avg.
Exercise
Price
$14.27
15.69
13.03
15.57
14.88
14.67
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
11. Stock Options Ì (Continued)
The following table summarizes information about stock options outstanding at September 30, 2005
(shares in thousands; remaining life in years):
Range of Exercise Prices
$5.85 to $11.71 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$11.72 to $17.56 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17.57 to $23.42 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$23.43 to $35.12 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$35.13 to $58.54 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Option
Shares
Outstanding
Wtd. Avg. Wtd. Avg.
Exercise
Remaining
Price
Life
Option
Shares
Exercisable
Wtd. Avg.
Exercise
Price
1,244
3,060
1,386
2,586
2,426
10,702
4.6
5.8
3.9
7.7
9.1
$11.47
14.88
20.50
28.27
44.10
$11.47
14.65
20.48
28.38
39.10
1,244
2,238
1,366
628
2
5,478
The closing price of our common stock on September 30, 2005 was $52.90.
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 after 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, as we did in
2005 and 2004. Other postretirement beneÑts are primarily in the form of retirement medical plans that cover
most of our United States employees and provide for the payment of certain medical costs of eligible
employees and dependents after retirement.
The components of net periodic beneÑt cost are (in millions):
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏ
Amortization:
Pension BeneÑts
2004
2005
2003
Other Postretirement BeneÑts
2003
2004
2005
$
60.8
120.2
(132.9)
$
62.2
110.6
(119.8)
$
50.3
102.0
(115.6)
$
5.1
20.9
Ì
$
5.8
19.9
Ì
$
5.8
23.4
Ì
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition asset ÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.7
(0.2)
16.6
1.8
(1.8)
15.8
1.4
(2.4)
5.9
(13.3)
Ì
12.2
(13.8)
Ì
11.5
(12.2)
Ì
12.1
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏ
$
66.2
$
68.8
$
41.6
$ 24.9
$ 23.4
$ 29.1
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 and $1.8 million for the
years ended September 30, 2004 and 2003, respectively, and pre-tax other postretirement beneÑt cost of
$1.1 million and $0.2 million for the years ended September 30, 2004 and 2003, respectively, related to
FirstPoint Contact. 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
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
12. Retirement BeneÑts Ì (Continued)
Contact business that is reÖected in Income from discontinued operations in the Consolidated Statement of
Operations.
BeneÑt obligation, plan assets, funded status, and net liability information is summarized as follows (in
millions):
Pension BeneÑts
Other Postretirement
BeneÑts
2005
2004
2005
2004
BeneÑt obligation at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discount rate change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan amendmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Medicare subsidy eÅectÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DivestitureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participant contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,054.9
60.8
120.2
325.5
107.8
(70.0)
Ì
Ì
4.8
(81.3)
(2.0)
$1,919.2
62.2
110.6
(73.8)
68.4
0.8
Ì
(9.5)
4.9
(75.1)
47.2
BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,520.7
2,054.9
Plan assets at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Company contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Plan participant contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,548.8
134.4
75.6
4.8
(81.3)
(2.3)
1,248.2
187.5
152.2
4.9
(75.1)
31.1
Plan assets at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,680.0
1,548.8
$ 349.7
5.1
20.9
47.3
50.2
Ì
(13.5)
Ì
9.1
(43.3)
0.6
426.1
Ì
Ì
34.2
9.1
(43.3)
Ì
Ì
$ 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
Funded status of plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contributions after measurement dateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized amounts:
(840.7)
117.5
(506.1)
Ì
(426.1)
Ì
(349.7)
Ì
Prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transition liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net actuarial losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(60.6)
1.5
894.8
11.2
1.2
481.0
(90.9)
Ì
304.6
(104.4)
Ì
232.6
Net amount on balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 112.5
$ (12.7)
$(212.4)
$(221.5)
Net amount on balance sheet consists of:
Prepaid pension ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total retirement beneÑt liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 200.5
(780.4)
266.4
1.4
424.6
$
68.8
(305.1)
81.4
11.0
131.2
$ Ì $ Ì
(221.5)
(212.4)
Ì
Ì
Ì
Ì
Ì
Ì
Net amount on balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 112.5
$ (12.7)
$(212.4)
$(221.5)
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
12. Retirement BeneÑts Ì (Continued)
During 2005, we recorded an increase to our minimum pension liability of $468.8 million resulting
primarily from the discount rate change. Considering the increase of the deferred tax asset of $185.0 million
resulting from the increase of our minimum pension liability and the decrease in the intangible pension asset
of $9.6 million, the net decrease to shareowners' equity (reÖected as an increase in accumulated other
comprehensive loss) was $293.4 million.
EÅective for 2006, we amended our U.S. pension plan to eliminate the early retirement subsidy for
certain employees. The eÅect of the amendment is a reduction in the pension obligation of approximately
$70 million and a corresponding reduction in annual pension expense recognized over the average remaining
service life of plan participants.
In 2005, we made voluntary contributions of $150.0 million to our U.S. qualiÑed pension plan trust,
including $100.0 million contributed in the fourth quarter. We also made contributions of $17.5 million to our
non-U.S. pension plan trusts in the fourth quarter of 2005. In 2004, we contributed $125.0 million to our
U.S. qualiÑed pension plan trust.
The accumulated beneÑt obligation for our pension plans is $2,357.1 million as of the 2005 measurement
date and $1,768.1 million as of the 2004 measurement date.
We use an actuarial measurement date of June 30 to measure our beneÑt obligations and to calculate our
net periodic beneÑt cost for pension and other postretirement beneÑts.
Net Periodic BeneÑt Cost Assumptions
SigniÑcant assumptions used in determining net periodic beneÑt cost for the period ended September 30
are (in weighted averages):
Pension BeneÑts
September 30,
2004
2005
2003
Other Postretirement BeneÑts
September 30,
2004
2003
2005
U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏ
Non-U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏ
6.25%
8.50%
4.50%
5.03%
6.25%
2.62%
6.00%
8.50%
4.50%
4.89%
6.35%
2.96%
7.00%
8.50%
4.50%
5.12%
6.75%
3.38%
6.25%
Ì
Ì
6.25%
Ì
Ì
6.00%
Ì
Ì
6.25%
Ì
Ì
6.60%(1)
Ì
Ì
6.50%
Ì
Ì
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
12. Retirement BeneÑts Ì (Continued)
Net BeneÑt Obligation Assumptions
SigniÑcant assumptions used in determining the beneÑt obligations are (in weighted averages):
Pension BeneÑts
September 30,
2004
2005
Other
Postretirement
BeneÑts
September 30,
2004
2005
U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Healthcare cost trend rate(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Non-U.S. Plans
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation increase rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Healthcare cost trend rate(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
5.25%
4.06%
4.19%
2.62%
6.25%
4.50%
Ì
5.03%
2.62%
Ì
5.00%
Ì
11.0%
5.00%
Ì
8.75%
6.25%
Ì
11.00%
6.25%
Ì
9.50%
(1) As a result of a plan amendment adopted eÅective October 1, 2002, 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 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, our eÅective per person retiree medical cost increase is zero percent beginning in 2005 for the
majority of our postretirement beneÑt plans. For our other plans, we assume gross healthcare cost trend rate will decrease to 5.5% in
2011.
(3) Decreasing to 4.25% in 2011.
EÅective October 1, 2002, we amended our United States postretirement healthcare beneÑt program in to
order mitigate the increasing cost of postretirement healthcare services. EÅective January 1, 2004, we began
contributing 50 percent of the amount in excess of the 2003 per capita amount. However, our calendar 2004
contribution was limited to a 7.5 percent increase from the 2003 per capita amount. EÅective January 1, 2005,
we limit our future per capita maximum contribution to our calendar 2004 per capita contribution.
As a result of the Ñnalization during 2005 of the rules for the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act), we have included an additional reduction in our accumulated
projected beneÑt obligation of $13.5 million as of September 30, 2005 related to certain Other Postretirement
BeneÑt plans. A reduction in our accumulated projected beneÑt obligation of $16.9 million was included as of
September 30, 2004. Net periodic postretirement beneÑt cost in 2005 decreased by $2.0 million and is
expected to decrease in 2006 by an additional $1 million as a result of the Act. There was no adjustment to net
periodic postretirement beneÑt cost in 2004.
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
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
12. Retirement BeneÑts Ì (Continued)
weighted average long-term rate of return on assets assumption. Our weighted-average asset allocations at
September 30, by asset category, are:
Asset Category
Allocation
Range
Target
Allocation
September 30,
2004
2005
Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50% - 80%
20% - 50%
0% - 20%
66%
33%
1%
64%
35%
1%
65%
33%
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. We strive to achieve
this objective 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, 2005 and 2004, our pension plans do not own 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, we typically make beneÑt payments
directly from cash as they become due, rather than by creating a separate pension fund.
Estimated Future Payments
We contributed $450 million to our U.S. pension plan trust in October 2005. In addition, we expect to
contribute approximately $25 million related to our worldwide pension plans and $30.2 million to our
postretirement beneÑt plans in 2006.
The following beneÑt payments, which include employees' expected future service, as applicable, are
expected to be paid (in millions):
Pension BeneÑts
Other Postretirement
BeneÑts
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2011 - 2015ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 92.3
96.9
103.1
109.2
115.8
705.0
$ 30.2
29.6
29.6
29.7
30.1
154.6
Other Postretirement BeneÑts
A one-percentage point change in assumed healthcare cost trend rates would have the following eÅect (in
millions):
One-Percentage
Point Increase
2004
2005
One-Percentage
Point Decrease
2004
2005
Increase (decrease) to total of service and interest
cost components ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) to postretirement beneÑt obligationÏÏÏÏÏ
$ 1.2
20.2
$ 1.0
12.6
$ (1.0)
(19.1)
$ (0.9)
(10.8)
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
12. Retirement BeneÑts Ì (Continued)
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 2005 and 2004 measurement dates (June 30) are as follows (in
millions):
2005
2004
Projected beneÑt obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,279.5
2,138.4
1,442.3
$1,730.2
1,489.7
1,233.2
DeÑned Contribution Savings Plans
We also sponsor certain deÑned contribution savings plans for eligible employees. Expense related to
these plans was $24.5 million in 2005, $25.2 million in 2004, and $24.2 million in 2003.
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):
FirstPoint Contact net income from operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FirstPoint Contact gain on sale (net of tax expense of $1.4) ÏÏÏÏÏÏÏÏÏÏÏ
Tax matters (see Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rocky Flats ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2004
$ Ì $ 5.7
32.1
18.4
4.6
Ì
21.6
Ì
Income from discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21.6
$60.8
2003
$0.6
Ì
Ì
4.4
$5.0
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 value assigned to the convertible note on the date of the
transaction was approximately $27.0 million. In September 2005, the note was converted to non-voting equity
shares, accounted for under the cost method. The historical cost value of $27.0 million was used to value the
equity shares at the date of conversion. No fair value was available for this investment as the equity shares are
not publicly traded. Accordingly, it is not practicable to estimate that value. The results of operations of
FirstPoint Contact for 2003 and 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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$105.5
9.4
5.7
$111.8
1.1
0.6
2004
2003
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
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
13. Discontinued Operations Ì (Continued)
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.
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 $58.8 million at September 30, 2005 and $57.5 million at September 30, 2004 is
included in Other assets in the Consolidated Balance Sheet.
We have an agreement with RSC pursuant to which RSC performs research and development services
for us. We incurred $2.8 million in 2005, $3.7 million in 2004 and $3.0 million in 2003 for research and
development services performed by RSC. At September 30, 2005, the amounts due to or from RSC were not
signiÑcant. 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.
We share equally with Rockwell Collins, Inc. (Rockwell Collins), which owns 50 percent of RSC, in
providing a $6.0 million line of credit to RSC which bears interest at the greater of our or Rockwell Collins'
commercial paper borrowing rate. At September 30, 2005 and 2004, there were no outstanding borrowings on
the line of credit. 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 $4.8 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 $18.2 million in
2005, $17.1 million in 2004 and $15.2 million in 2003, primarily for logistics services. In addition, CoLinx paid
us approximately $2.8 million in 2005, $2.2 million in 2004 and $2.4 million in 2003 for the use of facilities we
own and other services. The amounts due to and from CoLinx at September 30, 2005 and 2004 were not
signiÑcant.
15. Other Income (Expense)
The components of other income (expense) are (in millions):
2005
2004
2003
Net loss on dispositions of property and businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intellectual property settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Royalty income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Earnings on equity method investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (4.7)
Ì
10.6
2.4
3.8
(2.6)
$(24.3)
0.3
5.6
2.6
3.2
(11.8)
$(12.2)
1.4
5.8
1.9
3.2
6.4
Other income (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
9.5
$(24.4)
$
6.5
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.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
16.
Income Taxes
The components of the income tax provision are as follows (in millions):
2005
2004
2003
Current:
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and localÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 50.8
56.6
(4.6)
$32.3
(5.8)
(6.1)
$(35.4)
28.7
(3.5)
Total current ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred:
102.8
20.4
(10.2)
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and localÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
112.0
(5.8)
9.6
Total deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
115.8
53.4
6.0
4.2
63.6
23.3
(0.3)
3.4
26.4
Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$218.6
$84.0
$ 16.2
During 2005, we recognized a net tax beneÑt of $19.7 million in income from continuing operations and
$21.6 million in income from discontinued operations related to current and former businesses. The net tax
beneÑts included in income from continuing operations are primarily related to the resolution of claims and
other tax matters in connection with the closure of the federal audit cycle for the years 1998 through 2002. In
addition, these net tax beneÑts include the eÅect of the true-up of estimated tax audit contingency accruals in
connection with closure of the 1998 through 2002 audit. The net tax beneÑts included in discontinued
operations relate primarily to the closure of the 1998 through 2002 audit ($7.5 million), a prior year state tax
refund of a divested business ($11.3 million) and the resolution of various other tax matters of divested
businesses ($2.8 million).
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 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.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
16.
Income Taxes Ì (Continued)
Net current deferred income tax assets at September 30, 2005 and 2004 consist of the tax eÅects of
temporary diÅerences related to the following (in millions):
2005
2004
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
$ 56.3
12.9
25.7
12.3
3.5
1.3
57.4
$ 20.5
11.3
26.4
11.1
3.5
1.1
58.8
Current deferred income tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$169.4
$132.7
Net long-term deferred income tax assets/(liabilities) at September 30, 2005 and 2004 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
2005
2004
$ 152.6
(105.4)
(30.2)
31.6
46.5
11.9
14.8
121.8
(55.5)
$ 135.0
(125.2)
(22.1)
19.4
58.4
9.1
0.5
75.1
(63.0)
Long-term deferred income tax assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
66.3
$
12.1
Total deferred tax assets were $426.8 million at September 30, 2005 and $355.1 million at September 30,
2004. Total deferred tax liabilities were $135.6 million at September 30, 2005 and $147.3 million at
September 30, 2004.
We reclassiÑed our tax audit accrual as of September 30, 2004 from Deferred income taxes
(non-current) to Other liabilities in the Consolidated Balance Sheet. The reclassiÑcation resulted in a
remaining net non-current deferred tax asset of $12.1 million at September 30, 2004, which is reported as a
non-current asset in the Consolidated Balance Sheet.
We believe it is more likely than not that we will realize current and long-term deferred tax assets
through the reduction of future taxable income, other than as reÖected below for tax attributes to be carried
forward. SigniÑcant factors we considered in determining the probability of the realization of the deferred tax
assets include: (a) our historical operating results ($261.0 million of United States taxable income over the
past three years), (b) expected future earnings, and (c) the extended period of time over which the retiree
medical beneÑts will be paid.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
16.
Income Taxes Ì (Continued)
Net operating loss, capital loss and tax credit carryforwards, valuation allowances and the related
carryforward periods at September 30, 2005 are (in millions):
Tax Attribute to be Carried Forward
Non-United States net operating lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States net operating lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States capital loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
United States net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
United States capital lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local net operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State tax credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax
BeneÑt
Amount
$ 2.2
17.5
29.8
1.7
16.7
13.7
13.2
Valuation
Allowance
Carryforward
Period Ends
$ (2.2)
(7.3)
(29.1)
2008-2012
IndeÑnite
IndeÑnite
Ì 2019-2025
2007-2009
2006-2025
Ì 2006-2020
(16.7)
(0.2)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$94.8
$(55.5)
We have a valuation allowance at September 30, 2005 as noted above for carryforwards for which future
use is uncertain.
During 2005, the valuation allowance decreased by $7.5 million as a result of a basis adjustment in
connection with the Ñling of the 2004 income tax return related to the sale of FirstPoint Contact and the
recording of a valuation allowance for non-U.S. net operating losses.
We operate in numerous taxing jurisdictions and are subject to regular examinations by various
U.S. Federal, state and foreign jurisdictions for various tax periods. Additionally, we have retained tax
liabilities and the rights to tax refunds in connection with various divestitures of businesses in prior years. Our
income tax positions are based on research and interpretations of the income tax laws and rulings in each of
the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each
jurisdiction, the diÅerences and interplay in tax laws between those jurisdictions as well as the inherent
uncertainty in estimating the Ñnal resolution of complex tax audit matters, our estimates of income tax
liabilities may diÅer from actual payments or assessments.
Cross jurisdictional transactions between our subsidiaries involving the transfer price for products,
services, and/or intellectual property as well as various U.S. state tax matters comprise our more signiÑcant
income tax exposures. We regularly assess our position with regard to tax exposures and record liabilities for
these uncertain tax positions and related interest and penalties, if any, according to the principles of
SFAS No. 5, Accounting for Contingencies. We have recorded an accrual of $103.1 million and
$111.7 million at September 30, 2005 and 2004, respectively, that reÖects our estimate of the likely outcome
of current and future audits and is recorded in Other liabilities in our Consolidated Balance Sheet. The change
in the accrual reÖects a reduction of $34.6 million related primarily to settlement of the 1998 Ì 2002
U.S. federal audit, oÅset by an increase of $26.0 million to the accrual for changes in estimates and additional
interest related to previously identiÑed income tax exposures. A Ñnal determination of these tax audits or
changes in our estimates may result in additional future income tax expense or beneÑt.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
16.
Income Taxes Ì (Continued)
The eÅective income tax rate diÅered from the United States statutory tax rate for the reasons set forth
below:
2005
2004
2003
Statutory tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax credit utilizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee stock ownership plan beneÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax refund claims ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of foreign loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Utilization of capital loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Tax beneÑts on export sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Research and experimentation refund claim ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Resolution of prior period tax matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
35.0%
2.1
(0.5)
(0.9)
(0.5)
(1.6)
(0.1)
(4.2)
1.3
(0.9)
35.0%
2.8
(3.0)
(0.2)
(0.9)
(3.7)
(0.3)
0.8
(2.1)
(2.3)
(8.3)
1.4
35.0%
1.3
0.6
(0.8)
(1.4)
(2.4)
(1.0)
(1.7)
(0.8)
(23.3)
0.6
(0.7)
EÅective income tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
29.7%
19.2%
5.4%
We calculated the income tax provisions based upon the following components of income from
continuing operations before income taxes (in millions):
2005
2004
2003
United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-United States income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$610.0
127.0
$319.8
118.3
$205.6
92.0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$737.0
$438.1
$297.6
We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. aÇliates that have been
reinvested indeÑnitely. These earnings relate to ongoing operations and at September 30, 2005, were
approximately $510.0 million. Because of the availability of U.S. foreign tax credits, it is not practicable to
determine the U.S. or state income tax liabilities that would be payable if such earnings were not reinvested
indeÑnitely. Deferred taxes are provided for non-U.S. aÇliates when we plan to remit those earnings.
Income taxes paid were $134.8 million during 2005, $30.0 million during 2004 and $84.5 million during 2003.
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 have 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 12 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, 2005 to be $7.1 million, of which $3.8 million has been
accrued.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
17. Commitments and Contingent Liabilities Ì (Continued)
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, 2005, we have
estimated the total reasonably possible costs we could incur from these matters to be $82.5 million. We have
recorded environmental accruals for these matters of $34.3 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, 2005, we have recorded a liability of $22.6 million and a receivable of $21.4 million
for these Reliance matters. We estimate the total reasonably possible costs for these matters to be
$35.0 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.
Lease Commitments
Rental expense was $88.0 million in 2005; $85.2 million in 2004; and $80.7 million in 2003. Minimum
future rental commitments under operating leases having noncancelable lease terms in excess of one year
aggregated $206.5 million as of September 30, 2005 and are payable as follows (in millions):
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Beyond 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 51.5
45.2
37.3
26.4
15.0
31.1
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$206.5
Commitments from third parties under sublease agreements having noncancelable lease terms in excess
of one year aggregated $13.6 million as of September 30, 2005 and are receivable through 2010 at
approximately $2.7 million per year. Most leases contain renewal options for varying periods, and certain
leases include options to purchase the leased property.
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, 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.
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 as defendants, together with hundreds of other
companies. 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
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
17. Commitments and Contingent Liabilities Ì (Continued)
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 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 initiated litigation in the Milwaukee County
Circuit Court on February 12, 2004 to enforce the insurance policies against Nationwide Indemnity Company
and Kemper Insurance, the insurance carriers that provided liability insurance coverage to our former Allen-
Bradley subsidiary. As a result, the insurance carriers have paid some past defense and indemnity costs and
have agreed to pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos
claims, subject to policy limits. If either carrier becomes insolvent or the policy limits of either carrier are
exhausted, our share of future defense and indemnity costs may increase. However, coverage under excess
policies may be available to pay some or all of these costs.
The uncertainties of asbestos claim litigation and the long term solvency of our insurance companies
make it diÇcult to predict accurately the ultimate outcome 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.
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
liabilities related to the respective businesses, including environmental and intellectual property matters.
We have, from time to time, divested certain of our businesses. In connection with such divestitures,
lawsuits, claims and proceedings may be instituted or asserted against us related to the period that we owned
the businesses.
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 supplies industrial automation products, systems, software and
services focused on helping customers control and improve manufacturing processes. Control Systems
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
18. Business Segment Information Ì (Continued)
includes two main business groups: the Components and Packaged Applications Group (CPAG) and the
Automation Control and Information Group (ACIG).
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 primarily to control and monitor industrial plants and processes and
typically consist of a processor, software and input/output (I/O) devices. ACIG's 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 products include
controllers, control platforms, I/O devices, high performance rotary and linear motion control systems,
electronic operator interface devices, sensors, industrial computers and machine safety components. ACIG's
sales account for approximately 45 percent of Control Systems' sales.
In addition, Control Systems' oÅering also includes services and solutions, such as multi-vendor customer
support, training, automation systems integration, asset management, and manufacturing information
solutions for discrete and targeted batch process industries.
Power Systems
The Power Systems operating segment consists of two business groups: 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:
2005
2004
2003
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intersegment sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,154.4
899.3
(50.5)
$3,692.6
770.0
(51.5)
$3,313.9
724.1
(45.7)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,003.2
$4,411.1
$3,992.3
Segment operating earnings:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 756.9
110.3
$ 527.9
67.5
$ 397.6
54.6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏ
General corporate Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on disposition of a business (Note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
867.2
(14.7)
(69.7)
Ì
(45.8)
595.4
(27.3)
(88.3)
Ì
(41.7)
452.2
(26.9)
(66.8)
(8.4)
(52.5)
Income from continuing operations before income taxes ÏÏÏÏÏÏ
$ 737.0
$ 438.1
$ 297.6
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
18. Business Segment Information Ì (Continued)
Among other considerations, we evaluate performance and allocate resources based upon segment
operating earnings before income taxes, interest expense, costs related to corporate oÇces, certain non-
recurring corporate initiatives, 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. In preparing the segment information, we use accounting policies consistent with
those described in Note 1.
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):
2005
2004
2003
IdentiÑable assets:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,484.2
867.8
1,173.1
$2,442.1
850.2
921.0
$2,424.0
854.7
727.6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,525.1
$4,213.3
$4,006.3
Depreciation and amortization:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 115.1
38.2
3.2
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase accounting depreciation and amortizationÏÏÏÏÏÏÏÏÏ
156.5
14.7
$ 121.4
35.2
2.8
159.4
27.3
$ 122.1
38.2
3.4
163.7
26.9
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 171.2
$ 186.7
$ 190.6
Capital expenditures for property:
Control Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Power Systems ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
89.7
21.1
13.3
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 124.1
$
$
70.7
26.9
0.4
98.0
$
78.1
28.7
0.8
$ 107.6
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
present sales and property by geographic region (in millions):
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and Africa ÏÏ
Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Latin America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
$3,058.8
418.4
823.5
483.1
219.4
Sales
2004
$2,727.0
339.8
779.6
400.4
164.3
2003
2005
$2,530.2
303.8
685.4
330.7
142.2
$661.4
23.7
57.6
19.1
12.7
$774.5
Property
2004
$683.2
21.5
70.0
18.6
11.2
$804.5
2003
$793.2
21.5
76.8
16.8
8.8
$917.1
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,003.2
$4,411.1
$3,992.3
We attribute sales to the geographic regions based on the country of origin.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
19. Quarterly Financial Information (Unaudited)
2005 Quarters
First
Second(a)(b)
Third
Fourth(c)
2005
SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before
income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏ
Income from discontinued operations(d) ÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations(d) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations(d) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,184.9
449.1
179.6
122.1
11.3
133.4
0.66
0.06
0.72
0.65
0.06
0.71
Income from continuing operations for 2005 includes:
(in millions, except per share amounts)
$1,218.4
455.9
$1,264.7
481.0
$1,335.2
508.1
180.6
142.5
7.5
150.0
0.77
0.04
0.81
0.75
0.04
0.79
191.2
127.3
Ì
127.3
0.70
Ì
0.70
0.68
Ì
0.68
185.6
126.5
2.8
129.3
0.70
0.02
0.72
0.69
0.01
0.70
$5,003.2
1,894.1
737.0
518.4
21.6
540.0
2.83
0.12
2.95
2.77
0.11
2.88
(a) a net tax beneÑt of $19.7 million ($0.10 per diluted share) primarily related to the resolution of
claims and other tax matters in connection with the closure of the federal audit cycle for the years
1998 through 2002;
(b) an insurance claim of $11.4 million ($7.8 million after tax, or $0.04 per diluted share) related to the
recovery of previously incurred legal costs;
(c) special charges of $21.5 million ($14.2 million after tax, or $0.08 per diluted share) associated with
realignment of administrative functions and a reduction of workforce in Europe in our Control
Systems segment and a facility closure in our Power Systems segment. Segment operating earnings
of Control Systems and Power Systems include these special charges of $16.5 million and
$5.0 million, respectively, for the quarter ended September 30, 2005. The special charges are
included in the Consolidated Statement of Operations for the year ended September 30, 2005 in cost
of sales and selling, general and administrative expenses in the amounts of $9.4 million and
$12.1 million, respectively. We expect that total cash expenditures (after-tax) in connection with
these actions will be approximately $11.4 million related to employee severance and separation costs
and will be mostly incurred during the Ñrst half of 2006. Non-cash charges of $2.8 million after-tax
relate to a write-down of property to its fair value, determined by management using customary
valuation techniques.
(d) see Note 13 for additional information on discontinued operations.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì(Continued)
19. Quarterly Financial Information (Unaudited) Ì (Continued)
2004 Quarters
Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations before
income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏ
Income from discontinued operations(e) ÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations(e)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share:
Continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discontinued operations(e)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
First(a)
$990.3
329.9
75.4
57.1
5.1
62.2
0.30
0.03
0.33
0.29
0.03
0.32
Income from continuing operations for 2004 includes:
Third(b)
Fourth(c)(d)
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) 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;
(b) a tax beneÑt of $34.5 million ($0.18 per diluted share) related to the resolution of certain tax
matters;
(c) a tax beneÑt of $7.5 million ($0.04 per diluted share) related to tax refunds from the State of
California;
(d) charges of $26.3 million ($16.3 million after tax, or $0.09 per diluted share) associated with an
ongoing facilities rationalization program.
(e) see Note 13 for additional information on discontinued operations.
20. Subsequent Events
In November 2005, the Company completed a sale-leaseback transaction of 24 properties, including the
land, buildings and improvements aÇxed to the properties. The lease terms vary from Ñve to Ñfteen years
depending on the property and will be classiÑed as operating leases. The net proceeds on sale were
approximately $148 million, which were used to repay commercial paper borrowings. Three of the sold
properties resulted in a loss of $2.0 million that will be recognized in our Ñrst quarter of 2006, the remaining
properties resulted in a gain on sale of $36 million that will be amortized to rent expense over the term of the
respective leases. The average operating lease commitment for the Ñrst Ñve years is $12 million per year and
$10 million per year thereafter.
On October 11, 2005, we issued unsecured commercial paper obligations of $300.0 million with various
maturities of between 1 and 28 days. We used the proceeds to partially fund a $450 million voluntary
contribution to our U.S. qualiÑed pension trust.
68
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, 2005 and 2004, 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, 2005. 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, 2005 and 2004, and the results of its operations and its cash Öows
for each of the three years in the period ended September 30, 2005, 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.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) the eÅectiveness of the Company's internal control over Ñnancial reporting as of
September 30, 2005, based on the criteria established in Internal Control Ì Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 10,
2005 expressed an unqualiÑed opinion on management's assessment of the Company's internal control over
Ñnancial reporting.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 10, 2005
69
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure 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,
2005, of the design and operation of our disclosure controls and procedures, as deÑned in Rule 13a-15(e) of
the Exchange Act. Based upon that evaluation, the Chief Executive OÇcer and Chief Financial OÇcer have
concluded that our disclosure controls and procedures were eÅective as of September 30, 2005.
Management's Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over Ñnancial reporting, as
deÑned in Rule 13a-15(f) under the Exchange Act. Our internal control over Ñnancial reporting is a process
designed to provide reasonable assurance regarding the reliability of our Ñnancial reporting and the preparation
of Ñnancial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including the Chief Executive OÇcer
and Chief Financial OÇcer, we conducted an evaluation of the eÅectiveness of our internal control over
Ñnancial reporting based on the framework in Internal Control Ì Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon that evaluation,
management has concluded that our internal control over Ñnancial reporting was eÅective as of September 30,
2005.
Our assessment of the eÅectiveness of our internal control over Ñnancial reporting as of September 30,
2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting Ñrm, as stated
in their report that is included below.
Because of its inherent limitations, internal control over Ñnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of eÅectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
During 2005, we continued to make improvements to the design and eÅectiveness of our internal controls
over Ñnancial reporting, including those related to our information technology systems, as part of a previously
existing overall program on internal control and as part of the process of preparing for compliance with
Section 404 of the Sarbanes-Oxley Act of 2002. Some of these changes, especially to our internal controls
related to information technology systems, could be deemed to have materially improved our internal control
over Ñnancial reporting. We anticipate that we will continue to make improvements.
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin
We have audited management's assessment, included in the accompanying Management's Report on
Internal Control Over Financial Reporting, that Rockwell Automation, Inc. and subsidiaries (the
""Company'') maintained eÅective internal control over Ñnancial reporting as of September 30, 2005, based on
criteria established in Internal Control Ì Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for maintaining
eÅective internal control over Ñnancial reporting and for its assessment of the eÅectiveness of internal control
over Ñnancial reporting. Our responsibility is to express an opinion on management's assessment and an
opinion on the eÅectiveness of the Company's internal control over Ñnancial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by
the company's board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial
reporting as of September 30, 2005, is fairly stated, in all material respects, based on the criteria established in
Internal Control Ì Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2005, based on the criteria established in Internal Control Ì Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended September 30, 2005 of the
Company and our report dated November 10, 2005, expressed an unqualified opinion on those financial statements
and financial statement schedule.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 10, 2005
71
Item 9B. Other Information
None.
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, Board of Directors and Committees and Section 16(a) BeneÑcial Ownership
Reporting Compliance in the 2006 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 amend 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, Aggregated Option
Exercises and Fiscal Year-End Values and Retirement Plans in the 2006 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 2006 Proxy Statement.
The following table provides information as of September 30, 2005 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, 2003 Directors Stock Plan and 1995 Directors Stock Plan.
Plan Category
Number of Securities to
be issued upon Exercise
of Outstanding Options,
Warrants and Rights
(a)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Equity compensation plans approved by
shareownersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10,667,127(1)
Equity compensation plans not approved
by shareowners ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
35,000(3)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10,702,127
$25.15
16.45
$25.12
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (excluding
Securities reÖected
in Column (a))
(c)
8,026,232(2)
Ì
8,026,232
(1) Represents outstanding options under our 1995 Long-Term Incentives Plan, 2000 Long-Term Incentives Plan, 2003 Directors Stock
Plan and 1995 Directors Stock Plan.
72
(2) Includes 7,612,490 and 413,742 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 became 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 2006 Proxy Statement.
Item 14. Principal Accountant Fees and Services
See the information under the caption Proposal to Approve the Selection of Auditors in the 2006 Proxy
Statement.
73
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, 2005 and 2004
Consolidated Statement of Operations, years ended September 30, 2005, 2004 and 2003
Consolidated Statement of Cash Flows, years ended September 30, 2005, 2004 and 2003
Consolidated Statement of Shareowners' Equity, years ended September 30, 2005, 2004 and
2003
Consolidated Statement of Comprehensive Income, years ended September 30, 2005, 2004 and
2003
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(2) Financial Statement Schedule for the years ended September 30, 2005, 2004 and 2003
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.
74
4-b-4
*l0-a-1
*10-a-2
*10-a-3
*10-a-4
*10-a-5
*10-a-6
*10-a-7
*10-a-8
*10-b-l
*10-b-2
*10-b-3
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 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
spinoÅ of Rockwell Collins, Ñled as Exhibit 10-b-8 to the Company's Annual
Report on Form 10-K for the year ended September 30, 2001, is hereby
incorporated by reference.
Copy of 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.
* Management contract or compensatory plan or arrangement.
75
*10-b-4
*10-b-5
*10-b-6
*10-b-7
*10-b-8
*10-b-9
*10-b-10
*10-b-11
*10-b-12
*10-b-13
*10-b-14
*10-c-1
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.
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.
Summary of Non-Employee Director Compensation and BeneÑts, Ñled as
Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005, is hereby incorporated by reference.
Copy of resolution of the Board of Directors of the Company, adopted
November 6, 1996, adjusting outstanding awards under the Company's (i) 1988
Long-Term Incentives Plan, (ii) 1995 Long-Term Incentives Plan and
(iii) Directors Stock Plan, Ñled as Exhibit 4-g-2 to Registration Statement
No. 333-17055, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
76
*10-c-2
*10-c-3
*10-c-4
*10-d-1
*10-d-2
*10-d-3
*10-d-4
*10-d-5
*10-d-6
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 spinoÅ 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.
Description of amendments to certain Restricted Stock Agreements between the
Company and each of Betty C. Alewine, William T. McCormick, Jr., Bruce M.
Rockwell and Joseph F. Toot, Jr., Ñled as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 7, 2005, is hereby incorporated by reference.
Copy of the Company's 2000 Long-Term Incentives Plan, as amended through
February 4, 2004, Ñled as Exhibit 10-e-1 to the Company's Annual Report
on 10-K for the year ended September 30, 2004, is hereby incorporated by
reference.
Memorandum of Proposed Amendments to the Rockwell International
Corporation 2000 Long-Term Incentives Plan approved and adopted by the
Board of Directors of the Company on June 6, 2001, in connection with the
spinoÅ 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 spinoÅ of Rockwell Collins, Ñled as Exhibit 10-e-6
to the Company's Annual Report on Form 10-K for the year ended
September 30, 2001, is hereby incorporated by reference.
Copy of resolutions of the Compensation and Management Development
Committee of the Board of Directors of the Company adopted December 5,
2001, amending certain outstanding awards under the Company's 1995 Long-
Term Incentives Plan and 2000 Long-Term Incentives Plan, Ñled as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, is hereby incorporated by reference.
Memorandum of Amendments to Outstanding Restricted Stock Agreements
under the Company's 1995 Long-Term Incentives Plan and 2000 Long-Term
Incentives Plan, approved and adopted by the Compensation and Management
Development Committee of the Board of Directors of the Company on
November 7, 2001, Ñled as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001, is hereby incorporated by
reference.
* Management contract or compensatory plan or arrangement.
77
*10-d-7
*10-d-8
*10-e
*10-f
*10-g-1
*10-g-2
*10-g-3
*l0-h-1
*l0-h-2
*10-h-3
*10-i-1
*10-i-2
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.
Memorandum of Amendments to the Rockwell Automation, Inc. 2000 Long-
Term Incentives Plan, as amended, Ñled as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 7, 2005, 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, Ñled as Exhibit 10-i-1 to the
Company's Annual Report for the year ended September 30, 2004, is hereby
incorporated by reference.
Copy of the Company's Incentive Compensation Plan, Ñled as Exhibit 10 to the
Company's Current Report on Form 8-K dated September 7, 2005, is hereby
incorporated by reference.
Description of the Company's incentive compensation program for Ñscal year
2005 and the performance measures and goals therefor and for the Company's
Annual Incentive Compensation Plan for Senior Executives for Ñscal year 2005,
contained in the Company's Current Report on Form 8-K dated December 7,
2004, is hereby incorporated by reference.
Restricted Stock Agreement dated December 6, 1995 between the Company and
Don H. Davis, Jr., Ñled as Exhibit 10-1-1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995 (File No. 1-1035), is hereby
incorporated by reference.
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.
78
*10-j-1
*10-j-2
*10-j-3
*10-j-4
*10-j-5
*10-j-6
*10-j-7
*10-j-8
*l0-j-9
10-k-1
10-k-2
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 dated January 26, 2005 by and between the Company and Don H.
Davis, Jr., Ñled as Exhibit 10 to the Company's Quarterly Report of Form 10-Q
for the quarter ended December 31, 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.
* Management contract or compensatory plan or arrangement.
79
10-k-3
10-l-l
10-l-2
10-l-3
10-m-1
10-m-2
10-m-3
10-n-1
10-n-2
10-n-3
10-o
l0-p
Tax Allocation Agreement dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), the
Company (formerly named New Rockwell International Corporation) and The
Boeing Company, Ñled as Exhibit 10-d to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by
reference.
Distribution Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference.
Employee Matters Agreement dated as of September 30, 1997 by and between
the Company and Meritor Automotive, Inc., Ñled as Exhibit 2.2 to the
Company's Current Report on Form 8-K dated October 10, 1997, is hereby
incorporated by reference.
Tax Allocation Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., Ñled as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by
reference.
Distribution Agreement dated as of December 31, 1998 by and between the
Company and Conexant Systems, Inc., Ñled as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by
reference.
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.
Purchase and Sale Agreement dated as of August 24, 2005 by and between the
Company and First Industrial Acquisitions, Inc., including the form of Lease
Agreement attached as Exhibit I thereto, together with the First Amendment to
Purchase and Sale Agreement dated as of September 30, 2005 and the Second
Amendment to Purchase and Sale Agreement dated as of October 31, 2005.
* Management contract or compensatory plan or arrangement.
80
12
21
23
24
31.1
31.2
32.1
32.2
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended
September 30, 2005.
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.
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.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
ROCKWELL AUTOMATION, INC.
By
/s/
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 10, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
on the 10th day of November 2005 by the following persons on behalf of the registrant and in the capacities
indicated.
KEITH D. NOSBUSCH*
Chairman of the Board,
President and
Chief Executive OÇcer
(principal executive oÇcer)
and Director
BETTY C. ALEWINE*
Director
DON H. DAVIS, JR.*
Director
VERNE G. ISTOCK*
Director
BARRY C. JOHNSON*
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
82
SCHEDULE II
ROCKWELL AUTOMATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2005, 2004 and 2003
Description
*Year ended September 30, 2005
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for customer returns, rebates
Additions
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
(in millions)
Deductions(b)
Balance at
End of
Year
$28.0
$
4.4
$ Ì
$ 11.2
$ 21.2
and incentives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
86.1
367.1
11.3(c)
346.9
117.6
Allowance for excess and obsolete
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
46.2
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
63.0
18.0
5.5
0.2
Ì
18.5
13.0
45.9
55.5
*Year ended September 30, 2004
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for customer returns, rebates
$29.5
$
8.5
$ Ì
$ 10.0
$ 28.0
and incentives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
75.4
237.1
Allowance for excess and obsolete
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
53.4
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
46.8
14.3
26.1
Ì
0.7
3.7
226.4
22.2
13.6
86.1
46.2
63.0
*Year ended September 30, 2003
Allowance for doubtful accounts(a) ÏÏÏÏ
Allowance for customer returns, rebates
$43.6
$
3.5
$1.6
$ 19.2
$ 29.5
and incentives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
75.1
160.7
Allowance for excess and obsolete
inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50.9
Valuation allowance for deferred tax
assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
51.7
15.2
3.8
Ì
1.9
Ì
160.4
14.6
8.7
75.4
53.4
46.8
(a) Includes allowances for current and other long-term receivables.
(b) Consists of amounts written oÅ for the allowance for doubtful accounts and excess and obsolete inventory,
customer account credits for customer returns, rebates and incentives and adjustments resulting from our
ability to utilize foreign tax credits, capital losses, or net operating loss carryforwards for which a
valuation allowance had previously been recorded.
(c) Represents reclassiÑcation of amounts reported in other balance sheet accounts in prior years.
* Amounts reported relate to continuing operations in all periods presented.
S-1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Keith D. Nosbusch, Chairman, 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)) and
internal control over Ñnancial reporting (as deÑned in Exchange Act Rules 13a-15(f) and 15d-15(f))
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) Designed such internal control over Ñnancial reporting, or caused such internal control over
Ñnancial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of Ñnancial reporting and the preparation of Ñnancial statements for external purposes
in accordance with generally accepted accounting principles;
c) 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
d) 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 10, 2005
/s/ Keith D. Nosbusch
Keith D. Nosbusch
Chairman, 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)) and
internal control over Ñnancial reporting (as deÑned in Exchange Act Rules 13a-15(f) and 15d-15(f))
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) Designed such internal control over Ñnancial reporting, or caused such internal control over
Ñnancial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of Ñnancial reporting and the preparation of Ñnancial statements for external purposes
in accordance with generally accepted accounting principles;
c) 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
d) 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 10, 2005
James V. Gelly
/s/
James V. Gelly
Senior Vice President and
Chief Financial OÇcer
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
I, Keith D. Nosbusch, Chairman, 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, 2005 (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 10, 2005
/s/ Keith D. Nosbusch
Keith D. Nosbusch
Chairman, 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, 2005 (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 10, 2005
/s/
James V. Gelly
James V. Gelly
Senior Vice President and
Chief Financial OÇcer
Rockwell Automation, Inc.
Return On Invested Capital
This page does not constitute part of our Annual Report on
Form 10-K for the fi scal year ended September 30, 2005.
Supplemental Information
Rockwell Automation, Inc.
Return On Invested Capital
This annual report contains information regarding Return On Invested Capital (ROIC), which is a non-GAAP fi nancial measure.
Management believes that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in
its operations. Management uses ROIC as one measure to monitor and evaluate the performance of the company. Our measure of
ROIC is likely to differ from that used by other companies. We defi ne ROIC as the percentage resulting from the following calculation:
(a) Income from continuing operations before accounting change, if any, and before interest expense, income tax provision,
and purchase accounting depreciation and amortization, divided by;
(b) average invested capital for the year, calculated as a fi ve quarter rolling average using the sum of short-term debt,
long-term debt, shareowners’ equity, cumulative impairments of goodwill and intangibles required under SFAS No. 142,
and accumulated amortization of goodwill and other intangible assets, minus cash and cash equivalents, multiplied by;
(c) one minus the adjusted effective tax rate for the period, the adjusted effective tax rate is calculated by excluding the
effect of separately reported tax items in continuing operations.
ROIC is calculated as follows:
(in millions, except percentages)
(a) Return
Income from continuing operations
Interest expense
Income tax provision
Purchase accounting depreciation and amortization
Return
(b) Average Invested Capital
Short-term debt
Long-term debt
Shareowners’ equity
Impairments of goodwill and intangibles
Accumulated amortization of goodwill and intangibles
Cash and cash equivalents
Average invested capital
(c) Adjusted Effective Tax Rate
Income tax provision
Separately reported tax items in continuing operations
Income tax provision before separately reported
tax items in continuing operations
Year Ended
September 30,
2005
2004
$518.4
$354.1
45.8
218.6
14.7
41.7
84.0
27.3
797.5
507.1
0.4
752.2
3.6
760.0
1,870.1
1,689.2
108.0
659.7
(471.7)
108.0
645.4
(339.8)
2,918.7
2,866.4
218.6
19.7
84.0
46.3
238.3
130.3
Income from continuing operations before income taxes
$737.0
$438.1
Adjusted effective tax rate
32.3%
29.7%
(a) / (b) * (1-c) Return On Invested Capital
18.5%
12.4%
This page does not constitute part of our Annual Report on Form 10-K for the fi scal year ended September 30, 2005.
FINANCIAL HIGHLIGHTS
continuing operations
Sales
$3,992.3
$4,411.1
$5,003.2
(dollars in millions, except per share amounts)
Segment operating earnings
Income from continuing operations*
Diluted earnings per share from
continuing operations*
Sales by segment:
Control Systems
Power Systems
2003
2004
2005
452.2
281.4
595.4
354.1
867.2
518.4
1.48
1.85
2.77
$3,287.4
$3,658.6
$4,123.6
704.9
752.5
879.6
Total
$3,992.3
$4,411.1
$5,003.2
* Includes separately reported tax benefi ts of $69.4 million ($0.37 per share), $46.3 million ($0.24 per share)
and $19.7 million ($0.10 per share) for the years 2003, 2004, and 2005, respectively.
2005 Annual Report and Form 10-K
ROCKWELL AUTOMATION
777 East Wisconsin Avenue / Suite 1400 / Milwaukee / WI 53202
414.212.5200 / www.rockwellautomation.com