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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

Rockwell Automation, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      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.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      The aggregate market value of registrant’s voting stock held by non-affiliates of registrant on October 31, 2002 was approximately $3.1 billion.

      185,899,678 shares of registrant’s Common Stock, par value $1 per share, were outstanding on October 31, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of registrant to be held on February 5, 2003 is incorporated by reference into Part III hereof.

PART I

      Rockwell Automation, Inc. (the Company or Rockwell Automation), formerly named Rockwell International Corporation, a Delaware corporation, is a leading global provider of industrial automation power, control and information products and services. The Company was incorporated in 1996 and is the successor to the former Rockwell International Corporation as a result of a tax-free reorganization completed on December 6, 1996, pursuant to which the Company divested its former aerospace and defense businesses (the A&D Business) to The Boeing Company (Boeing). The predecessor corporation was incorporated in 1928. On September 30, 1997, the Company completed the spinoff of its automotive component systems business (the Automotive Business) into an independent, separately traded, publicly held company named Meritor Automotive, Inc. (Meritor). On July 7, 2000, Meritor and Arvin Industries, Inc. merged to form ArvinMeritor, Inc. (ArvinMeritor). On December 31, 1998, the Company completed the spinoff of its semiconductor systems business (Semiconductor Systems) into an independent, separately traded, publicly held company named Conexant Systems, Inc. (Conexant). On June 29, 2001, the Company completed the spinoff of its Rockwell Collins avionics and communications business into an independent, separately traded, publicly held company named Rockwell Collins, Inc. (Rockwell Collins). As used herein, the terms the “Company” or “Rockwell Automation” include subsidiaries and predecessors unless the context indicates otherwise. Information included in this Annual Report on Form 10-K refers to the Company’s continuing businesses unless otherwise indicated.

      Where reference is made in any Item of this Annual Report on Form 10-K to information under specific captions in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), or in Item 8, Consolidated Financial Statements and Supplementary Data (the Financial Statements), or to information in the Proxy Statement for the Annual Meeting of Shareowners of the Company to be held on February 5, 2003 (the 2003 Proxy Statement), such information shall be deemed to be incorporated therein by such reference.

      The Company is organized based upon products and services and has three operating segments: Control Systems, Power Systems and FirstPoint Contact (formerly Electronic Commerce). Financial information with respect to the Company’s business segments, including their contributions to sales and operating earnings for each of the three years in the period ended September 30, 2002, is contained under the caption Results of Operations in MD&A on page 17 hereof, and in Note 20 of the Notes to Consolidated Financial Statements in the Financial Statements.

Control Systems

      Control Systems is Rockwell Automation’s largest operating segment with 2002 sales of $3.1 billion (79 percent of total sales) and approximately 17,300 employees at September 30, 2002. Control Systems is a supplier of industrial automation products, systems, software and services focused on helping customers control and improve manufacturing processes and is divided into three units: the Components and Packaged Applications Group (CPAG), the Automation Control and Information Group (ACIG) and Global Manufacturing Solutions (GMS).

      CPAG produces industrial components, power control and motor management products and packaged and engineered products. It supplies both electro-mechanical and solid-state products, including motor starters and contactors, push buttons and signaling devices, termination and protection devices, relays and timers, discrete and condition sensors and variable speed drives. CPAG’s sales account for approximately 40 percent of Control Systems sales.

      ACIG’s products include programmable logic controllers (PLCs). PLCs are used to automate the control and monitoring of industrial plants and processes and typically consist of a computer processor and input/ output devices. The Company’s Logix^TM integrated architecture integrates multiple types of control disciplines including discrete, process, drive and motion control across various factory floor operating systems. ACIG also produces distributed I/O (input/ output) platforms, high performance rotary and linear motion

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      GMS provides multi-vendor automation and information systems and solutions which help customers improve their manufacturing operations. Solutions include multi-vendor customer support, training, software, consulting and implementation, asset management, and process batch manufacturing solutions. GMS’s sales account for approximately 20 percent of Control Systems sales.

      Control Systems has competitors which, depending on the product or service involved, range from large diversified businesses that sell products outside of automation, to smaller companies specializing in niche products and services. Major competitors include Emerson Electric Co., General Electric Company, Schneider Electric SA and Siemens AG. Factors that affect Control Systems’ competitive posture are its broad product portfolio and scope of solutions, knowledge of customer applications, large installed base, established distribution network, quality of products and services and global presence.

      Control Systems’ products are marketed primarily under the Allen-Bradley, Rockwell Automation, and Rockwell Software brand names. Major markets served include consumer products, transportation, petrochemical and mining, metals and forest products.

      In North America, Control Systems’ products are sold primarily through independent distributors that do not carry products that compete with Allen-Bradley products. Large systems and service offerings are sold principally through a direct sales force, though opportunities are sometimes sourced through distributors. Product sales outside the United States occur through a combination of direct sales forces and distributors.

      Sales in the United States accounted for 60 percent of Control Systems sales.

Power Systems

      The Power Systems operating segment recorded 2002 sales of $716 million (18 percent of total sales) and had approximately 4,100 employees at September 30, 2002. Power Systems is divided into two units: The Mechanical Power Transmission Business (Mechanical) and The Industrial Motor and Drive Business (Electrical).

      Mechanical’s products include mounted bearings, gear reducers, standard mechanical drives, conveyor pulleys, couplings, bushings, clutches and motor brakes. Electrical’s products include industrial and engineered motors and standard AC and DC drives. In addition, Power Systems provides product repair, motor and mechanical maintenance solutions, plant maintenance, training and consulting services to OEM’s, end users and distributors.

      Mechanical’s products are marketed primarily under the Dodge brand name while Electrical’s products are marketed primarily under the Reliance Electric brand name. Major markets served include mining, air handling, aggregates, environmental, forestry, food/ beverage, petrochemicals, metals, and unit handling.

      Power Systems has competitors which, depending on the product involved, range from large diversified businesses that sell products outside of automation, to smaller companies specializing in niche products and services. Major competitors include ABB Ltd., Baldor Electric Company, Emerson Electric Co., General Electric Company, Regal-Beloit Corporation and Siemens AG. Factors that affect Power Systems’ competitive posture are product quality, installed base, and its established distributor network.

      Mechanical’s products are sold primarily through distributors while Electrical’s products are sold primarily through a direct sales force.

      Sales in the United States accounted for 88 percent of Power Systems sales.

FirstPoint Contact

      The FirstPoint Contact operating segment recorded 2002 sales of $133 million (3 percent of total sales) and had approximately 500 employees at September 30, 2002. FirstPoint Contact provides customer contact center solutions that support multiple channels (voice, e-mail, web, wireless) through open interaction

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      Major markets served include telecommunications, financial, transportation and retail. FirstPoint Contact sells directly through its own sales force and increasingly through distribution channels.

      FirstPoint Contact faces competition from other companies selling both hardware and software in the customer contact market ranging from major multinationals to small companies specializing in niche products and services. Major competitors include Apropos Technology, Inc., Aspect Communications Corporation, Avaya, Inc., Cisco Systems, Inc. and Nortel Networks Corporation. Factors that affect FirstPoint Contact’s competitive position include product quality and reliability, and reputation.

      Sales in the United States accounted for 73 percent of FirstPoint Contact’s sales.

Acquisitions and Divestitures

      The Company regularly considers the acquisition or development of new businesses and reviews the prospects of its existing businesses to determine whether any should be modified, sold or otherwise discontinued.

      During 2002, the Company’s Control Systems segment acquired all of the stock of Tesch GmbH (Tesch), an electronic products and safety relay manufacturer; all of the stock of Propack Data GmbH (Propack), a provider of manufacturing information systems for the pharmaceutical and other regulated industries; the assets of the controller division of Samsung Electronics Company Limited’s Mechatronics business (the Controller Division); and the engineering services and system integration assets of SPEL, spol. s.r.o. (SPEL). The total cost of these acquisitions was approximately $71 million. The acquisition of Tesch is expected to expand the Company’s machine safety product and research and development capabilities. The acquisition of Propack is expected to broaden the Company’s position in the pharmaceuticals market, enhance the Company’s process solutions business, and enable the Company to expand its reach into the manufacturing information markets. The acquisition of the Controller Division is expected to expand the Company’s existing operations in Korea, further the Company’s design and product development capabilities and support future commercial and operational expansion in the Asia Pacific region. The acquisition of SPEL is expected to accelerate the establishment of the Company as a complete solution provider in Central Europe; it also strategically locates the Company in a region with future growth opportunities.

      During 2001, the Company’s Control Systems segment acquired the batch software and services business of Sequencia Corporation. The acquisition expanded Control Systems’ portfolio of Manufacturing BusinessWare solutions into the batch application market.

      During 2000, the Company’s Control Systems segment acquired Entek IRD International Corporation (Entek), a provider of machinery condition monitoring solutions, and acquired substantially all the assets and assumed certain liabilities of Systems Modeling Corporation (SMC), a developer of shop floor scheduling, simulation and modeling software. The total cost of these acquisitions was approximately $70 million. The acquisition of Entek has increased Rockwell Automation’s ability to provide value-added services that reduce customers’ downtime and maintenance costs at their manufacturing facilities. The acquisition of SMC complements Control Systems’ Manufacturing BusinessWare strategy by providing additional capabilities.

      On June 29, 2001, the Company completed the spinoff of its Rockwell Collins avionics and communications business into an independent, separately traded, publicly held company by distributing all of the outstanding shares of Rockwell Collins to the Company’s shareowners on the basis of one Rockwell Collins share for each outstanding Rockwell Automation share. At the time of the spinoff, Rockwell Collins made a special payment to the Company of $300 million. Following the spinoff, the Company and Rockwell

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      The results of operations for Rockwell Collins for 2001 and 2000 have been presented in the Company’s Consolidated Statement of Operations included in the Financial Statements as income from discontinued operations.

      Additional information relating to acquisitions and divestitures is contained in MD&A on page 21 hereof and in Notes 2 and 14 of the Notes to Consolidated Financial Statements in the Financial Statements.

Geographic Information

      The Company’s principal markets outside the United States are in Canada, the United Kingdom, Germany, Italy, Mexico, China, Japan, Brazil, Australia, France and Switzerland. In addition to normal business risks, operations outside the United States are subject to other risks including, among other factors, political, economic and social environments, governmental laws and regulations, and currency revaluations and fluctuations.

      Selected financial information by major geographic area for each of the three years in the period ended September 30, 2002 is contained in Note 20 of the Notes to Consolidated Financial Statements in the Financial Statements.

Research and Development

      The Company’s research and development spending is as follows:

      Customer-sponsored research and development was $61 million in each of 2001 and 2000. Customer-sponsored research and development was not material in 2002 and related primarily to the Company’s formerly wholly-owned (now 50 percent owned) subsidiary, Rockwell Science Center in 2001 and 2000.

Employees

      At September 30, 2002, the Company had approximately 22,000 employees. Approximately 15,000 were employed in the United States, and, of these employees, about 8 percent were represented by various local or national unions.

Raw Materials and Supplies

      Raw materials essential to the conduct of each of the Company’s business segments generally are available at competitive prices. Many items of equipment and components used in the production of the Company’s products are purchased from others. Although the Company has a broad base of suppliers and subcontractors, it is dependent upon the ability of its suppliers and subcontractors to meet performance and quality specifications and delivery schedules. During 2000, the Company experienced a shortage of certain electronic components which had an adverse effect on its ability to make timely deliveries and resulted in increased material costs. If such a shortage were to occur again, it could have an adverse effect on the operating results of the Company.

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Backlog

      The Company’s total order backlog was approximately $495 million at September 30, 2002 and approximately $520 million at September 30, 2001. Backlog is not necessarily indicative of results of operations for future periods due to the short-cycle nature of most of the Company’s products.

Environmental Protection Requirements

      Information with respect to the effect on the Company and its manufacturing operations of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 19 of the Notes to Consolidated Financial Statements in the Financial Statements. See also Item 3, Legal Proceedings, on pages 6-8 hereof.

Patents, Licenses and Trademarks

      Numerous patents and patent applications are owned or licensed by the Company and utilized in its activities and manufacturing operations. Various claims of patent infringement and requests for patent indemnification have been made to the Company. Management believes that none of these claims will have a material adverse effect on the financial condition of the Company. See Item 3, Legal Proceedings, on pages 6-8 hereof. While in the aggregate the Company’s patents and licenses are considered important in the operation of its business, management does not consider them of such importance that loss or termination of any one of them would materially affect the Company’s business or financial condition.

      The Company’s name and its registered trademark “Rockwell Automation” is important to each of its business segments. In addition, the Company owns other important trademarks applicable to only certain of its products, such as “Allen-Bradley” and “A-B” for electronic controls and systems for industrial automation, “Reliance Electric” for electric motors and drives and “Dodge” for mechanical power transmission products.

Seasonality

      None of the Company’s business segments is seasonal.

Available Information

      The Company maintains an Internet site at http://www.rockwellautomation.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as the annual report to shareowners and other information, are available free of charge on this site. The Company’s Internet site and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K.

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      At September 30, 2002, the Company operated 62 plants and research and development facilities, principally in North America and Europe. The Company also had approximately 280 sales offices, warehouses and service centers. The aggregate floor space of the Company’s facilities was approximately 16 million square feet. Of this floor space, approximately 60 percent was owned by the Company and 40 percent was leased. Manufacturing space occupied approximately 8 million square feet with the Control Systems segment occupying approximately 5 million square feet and Power Systems occupying the remaining approximately 3 million square feet. At September 30, 2002, approximately 1 million square feet of floor space was not in use, approximately 90 percent of which was in owned facilities.

      There are no major encumbrances (other than financing arrangements which in the aggregate are not material) on any of the Company’s plants or equipment. In the opinion of management, the Company’s properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels.

Item 3.     Legal Proceedings.

      Rocky Flats Plant. On January 30, 1990, a civil action was brought in the United States District Court for the District of Colorado against the Company and another former operator of the Rocky Flats Plant (the Plant), Golden, Colorado, operated from 1975 through December 31, l989 by the Company for the Department of Energy (DOE). The action alleges the improper production, handling and disposal of radioactive and other hazardous substances, constituting, among other things, violations of various environmental, health and safety laws and regulations, and misrepresentation and concealment of the facts relating thereto. The plaintiffs, 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 finance 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 plaintiffs subsequently filed 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 certified separate medical monitoring and property value classes. Effective August 1, 1996, the DOE assumed control of the defense of the contractor defendants, including the Company, in the action. Beginning on that date, the costs of the Company’s defense, which had previously been reimbursed to the Company by the DOE, have been and are being paid directly by the DOE. The Company believes that it is entitled under applicable law and its contract with the DOE to be indemnified for all costs and any liability associated with this action.

      On November 13, 1990, the Company was served with a summons and complaint in another civil action brought against the Company in the same court by James Stone, claiming to act in the name of the United States, alleging violations of the U.S. False Claims Act in connection with the Company’s operation of the Plant (and seeking treble damages and forfeitures) as well as a personal cause of action for alleged wrongful termination of employment. On August 8, 1991, the court dismissed the personal cause of action. On December 6, 1995, the DOE notified the Company that it would no longer reimburse costs incurred by the Company in defense of the action. On November 19, 1996, the court granted the Department of Justice leave to intervene in the case on the government’s behalf. On April 1, 1999, a jury awarded the plaintiffs approximately $1.4 million in damages. On May 18, 1999, the court entered judgment against the Company for approximately $4.2 million, trebling the jury’s award as required by the False Claims Act, and imposing a civil penalty of $15,000. If the judgment is affirmed on appeal, Mr. Stone may also be entitled to an award of attorney’s fees but the court refused to consider the matter until appeals from the judgment have been exhausted. On September 24, 2001, a panel of the 10th Circuit Court of Appeals affirmed the judgment. On November 2, 2001, the Company filed a petition for rehearing with the Court of Appeals seeking reconsideration of that portion of the decision holding that the relator, Mr. Stone, is entitled to an award of attorneys’ fees, and on March 4, 2002, the Court of Appeals remanded the case to the trial court for the limited purpose of making findings of fact and conclusions of law pertaining to Mr. Stone’s relator status. Management believes that an outcome adverse to the Company will not have a material effect on the

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      On January 8, 1991, the Company filed suit in the United States Claims Court against the DOE, seeking recovery of $6.5 million of award fees to which the Company alleges it is entitled under the terms of its contract with the DOE for management and operation of the Plant during the period October 1, 1988 through September 30, 1989. On July 17, 1996, the government filed an amended answer and counterclaim against the Company alleging violations of the U.S. False Claims Act previously asserted in the civil action described in the preceding paragraph. On March 20, 1997, the court stayed the case pending disposition of the civil action described in the preceding paragraph. On August 30, 1999, the court continued the stay pending appeal in that civil action. The Company believes the government’s counterclaim is without merit, and believes it is entitled under applicable law and its contract with the DOE to be indemnified for any liability associated with the counterclaim.

      On September 28, 1995, the Company filed an appeal with the Department of Energy Board of Contract Appeals (“EBCA”) from DOE’s denial of claims totaling $10 million for costs incurred in relation to a 1989 federal grand jury investigation of possible environmental crimes at the DOE’s Rocky Flats plant. During pre-trial proceedings, the EBCA bifurcated proceedings so as to consider the Company’s entitlement to reimbursement of costs of the sort claimed before determining the amount of any award. On October 31, 2001, the EBCA ruled that the Company was entitled to reimbursement of the types of costs claimed. On March 11, 2002, the DOE appealed the EBCA’s decision to the United States Court of Appeals for the Federal Circuit. If the Court of Appeals affirms the EBCA’s decision on entitlement, the matter will be remanded to the EBCA for further proceedings to determine the amount of the DOE’s liability to the Company.

      Hanford Nuclear Reservation. On August 6 and August 9, 1990, civil actions were filed in the United States District Court for the Eastern District of Washington against the Company and the present and other former operators of the DOE’s Hanford Nuclear Reservation (Hanford), Hanford, Washington. The Company operated part of Hanford for the DOE from 1977 through June 1987. Both actions purport to be brought on behalf of various classes of persons and numerous individual plaintiffs who resided, worked, owned or leased real property, or operated businesses, at or near Hanford or downwind or downriver from Hanford, at any time since 1944. The actions allege the improper handling and disposal of radioactive and other hazardous substances and assert various statutory and common law claims. The relief sought includes unspecified compensatory and punitive damages for personal injuries and for economic losses, and various injunctive and other equitable relief.

      Other cases asserting similar claims (the follow-on claims) on behalf of the same and similarly situated individuals and groups have been filed from time to time since August 1990 and may continue to be filed from time to time in the future. These actions and the follow-on claims have been (and any additional follow-on claims that may be filed are expected to be) consolidated in the United States District Court for the Eastern District of Washington under the name In re Hanford Nuclear Reservation Litigation. Because the claims and classes of claimants included in the actions described in the preceding paragraph are so broadly defined, the follow-on claims filed as of October 31, 2002 have not altered, and possible future follow-on claims are not expected to alter, in any material respect the scope of the litigation.

      Effective October 1, 1994, the DOE assumed control of the defense of certain of the contractor defendants (including the Company) in the In re Hanford Nuclear Reservation Litigation. Beginning on that date, the costs of the Company’s defense, which had previously been reimbursed to the Company by the DOE, have been and are being paid directly by the DOE. The Company believes it is entitled under applicable law and its contracts with the DOE to be indemnified for all costs and any liability associated with these actions.

      Russellville. On June 24, 1996, judgment was entered against the Company in a civil action in the Circuit Court of Logan County, Kentucky on a jury verdict awarding $8 million in compensatory and $210 million in punitive damages for property damage. The action had been brought August 12, 1993 by owners of flood plain real property near Russellville, Kentucky allegedly damaged by polychlorinated biphenyls (PCBs) discharged from a plant owned and operated by the Company’s Measurement & Flow

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      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 filed in 1986 seeking remediation of PCB contamination resulting from unpermitted discharges of PCBs from the Company’s former Russellville, Kentucky plant, entered judgment establishing PCB cleanup levels for the former plant site and certain offsite property and ordering additional characterization of possible contamination in the Mud River and its flood plain. The Court deferred any decision on the imposition of fines and penalties pending implementation of an appropriate remediation program. On August 13, 1999, the Court of Appeals affirmed the trial court’s judgment, a ruling that the Supreme Court of the State of Kentucky has let stand. The Company has been proceeding with remediation and characterization efforts consistent with the trial Court’s ruling.

      Other. In July 1995, a federal grand jury impaneled by the United States District Court for the Central District of California began an investigation into a July 1994 explosion at the Santa Susana Field Laboratory operated by the Company’s former Rocketdyne Division in which two scientists were killed and a technician was injured. On April 11, 1996, pursuant to an agreement between the Company and the United States Attorney for the Central District of California, the Company entered a plea of guilty to two counts of unpermitted disposal of hazardous waste and one count of unpermitted storage of hazardous waste, all of which are felony violations of the Resource Conservation and Recovery Act, and paid a fine of $6.5 million to settle potential federal criminal claims arising out of the federal government’s investigation. Further civil sanctions in an amount not in excess of $250,000 could be imposed on the current owner of the facility, Boeing, for which the Company would be required to indemnify Boeing.

      Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, environmental, safety and health, intellectual property, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company’s business or financial condition.

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Item 4.     Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of security holders during the fourth quarter of 2002.

Item 4a.     Executive Officers of the Company.

      The name, age, office and position held with the Company and principal occupations and employment during the past five years of each of the executive officers of the Company as of October 31, 2002 are as follows:

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      There are no family relationships, as defined, between any of the above executive officers. No officer of the Company was selected pursuant to any arrangement or understanding between the officer and any person other than the Company. All executive officers are elected annually.

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PART II

Item 5.     Market for the Company’s Common Equity and Related Stockholder Matters.

      The principal market on which the Company’s common stock is traded is the New York Stock Exchange. The Company’s common stock is also traded on the Pacific Stock Exchange and The London Stock Exchange. On October 31, 2002, there were 43,628 shareowners of record of the Company’s common stock.

      The following table sets forth the high and low sales price of the Company’s common stock on the New York Stock Exchange — Composite Transactions reporting system during each quarter of the Company’s fiscal years ended September 30, 2002 and 2001:

(1)	The high and low sales prices prior to the fourth quarter of 2001 reflect the Company’s stock price prior to the spinoff of its former Rockwell Collins business.

      On June 29, 2001, each Rockwell Automation shareowner received one share of Rockwell Collins common stock for each share of Rockwell Automation common stock owned. At September 30, 2002, Rockwell Collins common stock had a value of $21.94 per share. Rockwell Automation’s current stock price does not reflect the value of the Rockwell Collins shares.

      The declaration and payment of dividends by the Company is at the sole discretion of the Company’s board of directors. The following table sets forth the aggregate cash dividends per common share (paid quarterly) during each of the Company’s last three fiscal years:

(1)

Prior to the spinoff of Rockwell Collins, the Company paid quarterly cash dividends, which, on an annual basis, equaled $1.02 per share. Since the spinoff of Rockwell Collins, the Company has paid quarterly cash dividends which, on an annual basis, equal $0.66 per share. Per share dividend amounts indicated above do not include dividends paid on the shares of Rockwell Collins received on June 29, 2001 by Rockwell Automation shareowners.

      On February 6, 2002, the Company granted nonqualified options to purchase 7,000 shares of common stock of the Company at an exercise price of $18.05 per share and paid a portion of the annual retainer fees for fiscal 2002 for a non-employee director by issuing 998 shares of restricted stock to a new director, Kenneth F. Yontz. The options vest in three equal annual installments beginning on February 6, 2003. The grant of these options and issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.

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Item 6.     Selected Financial Data.

      The following sets forth selected consolidated financial data of the Company’s continuing operations. The data should be read in conjunction with MD&A and the Financial Statements. The consolidated statement of operations data for each of the five years in the period ended September 30, 2002, the related consolidated balance sheet data and other data have been derived from the audited consolidated financial statements of the Company.

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(a)	Includes a reduction in the income tax provision of $48 million, or 26 cents per diluted share, from the resolution of certain tax matters and income of $9 million ($7 million after tax, or four cents per diluted share) from the favorable settlement of intellectual property matters.
(b)	Includes special items of $73 million ($48 million after tax, or 26 cents per diluted share) and a reduction in the income tax provision of $22 million, or 12 cents per diluted share, from the resolution of certain tax matters. Special items include charges of $91 million ($60 million after tax, or 32 cents per diluted share) for a comprehensive restructuring which included costs associated with the consolidation and closing of facilities, the realignment of administrative functions, the reduction in workforce and asset impairments which were partially offset by income of $18 million ($12 million after tax, or six cents per diluted share) resulting from the favorable settlement of an intellectual property matter.
(c)	Includes a gain of $32 million ($22 million after tax, or 12 cents per diluted share) resulting from the sale of real estate, a loss of $14 million ($10 million after tax, or six cents per diluted share) on the sale of a Power Systems business, and income of $28 million ($19 million after tax, or 10 cents per diluted share) resulting from the demutualization of Metropolitan Life Insurance Company.
(d)	Includes a gain of $32 million ($21 million after tax, or 11 cents per diluted share) on the sale of the Company’s North American Transformer business and a loss of $29 million ($19 million after tax, or 10 cents per diluted share) associated with the write-off of the Company’s investment in Goss Graphic Systems, Inc. preferred stock.
(e)	Includes charges of $521 million ($458 million after tax, or $2.32 per diluted share) for costs associated with asset impairments and a comprehensive restructuring program. The diluted and basic per share amounts for 1998 are identical, as the loss from continuing operations resulted in stock options being antidilutive.

(f)	Certain amounts have been reclassified from cost of sales to sales as a result of the adoption of Emerging Issues Task Force No. 01-14, Income Statement Characterization of Reimbursement Received for ’Out of Pocket’ Expenses Incurred (EITF 01-14).

(g)

Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, the Company no longer amortizes goodwill and certain other intangible assets that have been deemed to have an indefinite useful life, resulting in a decrease in amortization expense in 2002. In addition, the Company recorded pre-tax charges of $56 million related to a trademark impairment and $73 million related to goodwill impairment in connection with the adoption of SFAS 142. These charges have been recorded as the cumulative effect of accounting change in the amount of $129 million ($108 million after tax, or 58 cents per diluted share).

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Critical Accounting Policies and Estimates

      The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company believes the following are the critical accounting policies which could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management.

     Revenue Recognition

      Sales are generally recorded when all of the following have occurred: an agreement of sale exists, product delivery and acceptance has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Management is required to make judgments about whether the pricing is fixed or determinable and whether or not collectibility is reasonably assured.

      The Company records accruals for sales rebates to distributors at the time of shipment based upon historical experience. The liability recorded for the Company’s primary distributor rebate program was $36 million at September 30, 2002 and $35 million at September 30, 2001. In addition, the Company has a liability for rebates and sales incentives to commercial customers and other distributors of $32 million at September 30, 2002 and $28 million at September 30, 2001.

     Allowance for Doubtful Accounts

      The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions. Additional allowances for doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less favorable than the Company has anticipated or for customer-specific circumstances, such as financial difficulty. During 2002, the Company recorded an allowance of approximately $9 million to fully reserve a receivable due to the deterioration in the financial condition of one of its independent distributors. The allowance for doubtful accounts was $45 million at September 30, 2002 and $43 million at September 30, 2001.

     Excess and Obsolete Inventory

      The Company records allowances for excess and obsolete inventory based on historical and estimated future demand and market conditions. Additional inventory allowances may be required if future demand or market conditions are less favorable than the Company has estimated. The allowance for excess and obsolete inventory was $53 million at September 30, 2002 and $50 million at September 30, 2001.

     Impairment of Long-Lived Assets

      The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company evaluates the recoverability of goodwill and other intangible assets with indefinite useful lives annually or more frequently if events or circumstances indicate that an asset might be impaired. The Company uses judgment when applying the impairment rules to determine when an impairment test is necessary. Factors the Company considers which could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, and significant negative industry or economic trends.

      Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value. The Company is required to make estimates of its future cash flows related to the asset subject to review. These estimates require assumptions about demand for the Company’s products and

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     Product Warranty Obligations

      The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. The Company also records a liability for specific warranty matters when they become known and are reasonably estimable. Additional provision for product warranty obligations may be required if actual product performance is less favorable than anticipated. The liability for product warranty obligations was $31 million at September 30, 2002 and $34 million at September 30, 2001.

     Retirement Benefits

     Pension Benefits

      Pension costs and obligations are actuarially determined and are affected by assumptions including discount rate, the expected rate of return on plan assets and assumed annual rate of compensation increase for plan employees, among other factors. Changes in discount rate and differences from actual results for each assumption will affect the amount of pension expense recognized in future periods. For fiscal 2002, based on an annual review of actuarial assumptions, the Company reduced the long-term expected rate of return on plan assets from 9.75 percent to 9.0 percent and the discount rate from 8.0 percent to 7.5 percent for the pension plan covering most of its employees. All other factors being equal, these changes resulted in incremental pension expense in 2002 of approximately $12 million. For fiscal year 2003, the Company is assuming an expected rate of return on plan assets of 8.5 percent and a discount rate of 7.0 percent. All other factors being equal, and assuming actual experience is consistent with the actuarial assumptions, the Company expects fiscal year 2003 pension expense to increase by approximately $15 million compared to fiscal 2002 including the recognition of actuarial losses related primarily to the accumulated difference between actual and expected returns or pension plan assets. In addition, while not required to contribute any amount to the Company’s primary qualified pension plan trust covering the majority of its employees, the Company may choose to contribute up to the maximum allowable tax deductible contribution of approximately $50 million during fiscal 2003. Additional information regarding pension benefits is available in Note 12 of the Notes to Consolidated Financial Statement in the Financial Statements.

     Other Postretirement Benefits

      The costs and obligation for postretirement benefits other than pension are also actuarially determined and are affected by assumptions including the discount rate and expected future increase in per capita costs of covered postretirement health care benefits. Changes in the discount rate and differences between actual and assumed per capita health care costs may affect the recorded amount of the expense in future periods. Effective October 1, 2002, the Company amended its U.S. postretirement health care benefit program in order to mitigate the increasing cost of postretirement health care services. The effect of this change will be to reduce the benefit obligation by $62 million. Net periodic benefit cost in 2003 will be approximately $32 million, which is approximately 20 percent lower than what the cost would have been without implementing this change. Additional information regarding postretirement benefits is available in Note 12 of the Notes to the Consolidated Financial Statements in the Financial Statements.

     Self-Insurance Liabilities

      The Company’s self-insurance programs include primarily product liability and workers’ compensation. For product liability and workers’ compensation, the Company self-insures from the first dollar of loss up to specified retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is

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     Litigation, Claims and Contingencies

      The Company records environmental liabilities based on estimates for known environmental remediation exposures utilizing information received from independent environmental consultants. The liabilities include accruals for sites owned by the Company and third-party sites where the Company was determined to be a potentially responsible party. At third-party sites where more than one potentially responsible party has been identified, the Company records a liability for its estimated allocable share of costs related to its involvement with the site as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties. At environmental sites in which the Company is the only responsible party, a liability is recorded for the total estimated costs of remediation. Future expenditures for environmental remediation obligations are not discounted to their present value. Environmental liability estimates may be affected by changing determinations of what constitutes an environmental exposure or an acceptable level of cleanup. To the extent that remediation procedures change or the financial condition of other potentially responsible parties is adversely affected, the estimate of the Company’s environmental liabilities may change. The liability for environmental matters, net of related receivables was $28 million at September 30, 2002. Additional information regarding litigation, claims and contingencies is included in Note 19 of the Notes to Consolidated Financial Statements in the Financial Statements.

     Income Taxes

      The Company records a liability for potential tax assessments based on its estimate of the potential exposure. The liability for potential tax assessments may be affected by new laws and new interpretations of laws and rulings by tax authorities, among other reasons. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates. To the extent the Company’s estimates differ from actual payments or assessments, income tax expense is adjusted. During 2002, the Company resolved certain matters from previous years resulting in a $48 million reduction of its income tax provision. During 2001, the Company reached agreement with various taxing authorities on refund claims related to certain prior years and recorded $22 million as a reduction of its income tax provision. Additional information regarding income taxes is included in Note 17 of the Notes to the Consolidated Financial Statements in the Financial Statements.

      The Company has recorded a valuation allowance of $23 million at September 30, 2002 for the majority of its deferred tax assets related to net operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards. The valuation allowance is based on an evaluation of the uncertainty of the amounts of net operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards that are expected to be realized. An increase to income would result if the Company determines it could utilize more net operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards than originally expected.

      At the end of each interim reporting period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The estimated effective tax rate contemplates the expected jurisdiction where income is earned (e.g. United States compared to non-United States) as well as tax planning strategies. If the actual results are different from the Company’s estimates, adjustments to the effective tax rate may be required in the period such determination is made.

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Results of Operations

     Summary of Results of Operations

(a)	Other represents the sales and segment operating earnings of Rockwell Science Center through the third quarter of 2001. Beginning with the fourth quarter of 2001, the Company’s 50 percent ownership interest in RSC is accounted for using the equity method, and the Company’s proportional share of RSC’s earnings or losses are included in general corporate – net.
(b)	Information with respect to the composition of segment operating earnings is contained in Note 20 of the Notes to Consolidated Financial Statements in the Financial Statements.
(c)	Certain amounts in prior periods have been reclassified to reflect the transfer of management responsibility of a business from Control Systems to Power Systems which was effective January 1, 2002. In addition, certain amounts have been reclassified from cost of sales to sales as a result of the adoption of EITF 01-14.
(d)	Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, the Company no longer amortizes goodwill and certain other intangible assets that have been deemed to have an indefinite useful life. The amortization related to goodwill and the indefinite useful life intangible assets was $56 million in 2001 and $53 million in 2000. In addition, the Company recorded a charge of $56 million ($35 million after tax, or 19 cents per diluted share) related to a trademark impairment and $73 million (before and after tax, or 39 cents per diluted share) related to goodwill impairment in connection with the adoption of SFAS 142. The amount included in goodwill and purchase accounting items in 2002 includes amortization expense for acquired intangible assets that do not have an indefinite life and depreciation expense for purchase accounting adjustments.

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      Demand for the Company’s products is largely driven by trends in industrial spending. Sales are affected by the level of industrial production activity, customers’ new product introductions, upgrades and expansions of existing manufacturing facilities and the creation of new manufacturing facilities. Due to recent weak business conditions, especially in the manufacturing economy, manufacturers have been operating at historically low levels of plant capacity utilization. This condition results in the tendency to defer significant amounts of capital investment until the environment improves. Capacity utilization in the United States, as published by the Federal Reserve, decreased from 80.2 percent in December 2000 to 75.9 percent in September 2002. As a result, demand for the Company’s products has deteriorated, the results of which are reflected in the operating results for 2002 and 2001.

     2002 Compared to 2001

      Sales were $3,909 million in 2002 compared to $4,285 million in 2001. Income from continuing operations before accounting change in 2002 was $226 million, or $1.20 per diluted share, compared to $125 million, or 68 cents per diluted share, in 2001. The 2002 results from continuing operations include a reduction in the income tax provision of $48 million, or 26 cents per diluted share, from the favorable resolution of certain tax matters and income of $9 million ($7 million after tax or four cents per diluted share) from the favorable settlement of intellectual property matters. In 2001, income from continuing operations before accounting change would have been $198 million, or $1.07 per diluted share, excluding amortization of goodwill and certain other intangible assets of $56 million ($47 million after tax, or 25 cents per diluted share), as well as special charges of $91 million ($60 million after tax, or 32 cents per diluted share) for costs associated with realignment actions and income of $18 million ($12 million after tax, or six cents per diluted share) resulting from the favorable settlement of an intellectual property matter and a reduction in the income tax provision of $22 million, or 12 cents per diluted share, from the favorable resolution of certain tax matters.

     Control Systems

      Control Systems’ sales in 2002 were $3,060 million compared to $3,327 million in 2001. The decrease was primarily the result of continued depressed market conditions for automation products. Sales declined 9 percent in the United States in 2002 compared to 2001 while non-United States shipments (which exclude the effect of foreign currency translation) declined 4 percent compared to 2001 primarily as a result of a 9 percent decline in Europe. Excluding the effect of acquisitions, non-United States shipments declined 6 percent compared to 2001, including an 11 percent decrease in Europe. Despite the overall sales decline, sales of Logix™ integrated architecture products increased 31 percent. Sales in the Global Manufacturing Solutions business increased 6 percent over 2001 driven by increases in process and engineering solutions sales and the acquisition of Propack.

      Segment operating earnings were $324 million in 2002 compared to $425 million in 2001. The decrease was primarily due to lower volume, especially in higher margin CPAG and ACIG products. In addition, Control Systems continued to invest in the growth of its Global Manufacturing Solutions business. Control Systems’ return on sales in 2002 was 10.6 percent compared to 12.8 percent in 2001.

     Power Systems

      Power Systems’ sales in 2002 were $716 million compared to $748 million in 2001. The decline was the result of lower demand due to depressed market conditions. Segment operating earnings increased to $53 million in 2002 from $39 million in 2001. The improvement was the result of cost savings from actions taken in the fourth quarter of 2001 and ongoing initiatives to improve productivity. Power Systems’ return on sales was 7.4 percent in 2002 compared to 5.2 percent in 2001.

     FirstPoint Contact

      FirstPoint Contact’s sales in 2002 were $133 million compared to $150 million in 2001. The decline was primarily due to decreased customer capital spending for telecommunications products. Segment operating

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     General Corporate — Net

      General corporate expenses were $57 million in 2002 compared to $53 million in 2001. General corporate expenses included income from the settlement of intellectual property matters of $9 million in 2002 and $18 million in 2001 and a gain on the sale of real estate of $5 million in 2001. Also in 2001, general corporate expenses included $3 million of costs associated with the spinoff of Rockwell Collins. Excluding these items, general corporate expenses decreased from $73 million in 2001 to $66 million in 2002, primarily as a result of lower corporate spending.

     Interest Expense

      Interest expense decreased to $66 million in 2002 from $83 million in 2001. The decrease was due to lower weighted-average borrowings and lower commercial paper borrowing rates in 2002. The Company used commercial paper in the second quarter of 2001 to fund an acquisition by Rockwell Collins. In the third quarter of 2001, the Company received a special payment of $300 million from Rockwell Collins which was used to repay commercial paper borrowings.

     2001 Compared to 2000

      Sales were $4,285 million in 2001 compared to $4,661 million in 2000. Income from continuing operations in 2001 was $125 million, or 68 cents per diluted share, compared to $344 million, or $1.81 per diluted share, in 2000. The 2001 results from continuing operations included special charges of $91 million ($60 million after tax, or 32 cents per diluted share) for costs associated with realignment actions which were partially offset by an $18 million gain ($12 million after tax, or six cents per diluted share) resulting from the favorable settlement of an intellectual property matter.

     Control Systems

      Control Systems’ sales in 2001 were $3,327 million compared to $3,641 million in 2000, reflecting principally depressed market conditions for automation products in the United States during 2001. Non-United States shipments (which exclude the effect of foreign currency translation) were higher and included increases of six percent in Europe, 13 percent in Asia Pacific and 13 percent in Latin America. Sales in 2001 were reduced by approximately $96 million due to a stronger dollar in 2001, particularly against the euro, relative to the foreign currency exchange rates in 2000.

      Segment operating earnings were $425 million in 2001 compared to $636 million in 2000. The decrease was due to lower volume and costs resulting from planned lower capacity utilization. Control Systems’ return on sales in 2001 was 12.8 percent compared to 17.5 percent in 2000.

     Power Systems

      Power Systems’ sales in 2001 were $748 million compared to $803 million in 2000, with an increase at the electrical business more than offset by lower volume in mechanical products as distributors continued to pare inventories. Segment operating earnings in 2001 were $39 million compared to $69 million in 2000 primarily due to lower volume and unfavorable product mix. Power Systems’ return on sales was 5.2 percent in 2001 compared to 8.6 percent in 2000.

     FirstPoint Contact

      Sales at FirstPoint Contact were $150 million in 2001 compared to $168 million in 2000. The decrease was due to depressed market conditions in the telecommunications sector. Segment operating earnings were $7 million in 2001 compared to an operating loss of $16 million in 2000. The increase was due to the

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     General Corporate — Net

      General corporate expenses in 2001 included income of $18 million resulting from the favorable settlement of an intellectual property matter, $3 million of costs associated with the spinoff of Rockwell Collins and a $5 million gain on the sale of real estate. General corporate expenses in 2000 included a $32 million gain on the sale of real estate and $28 million of income resulting from the Metropolitan Life Insurance Company demutualization.

     Special Charges

      In 2001, the Company recorded charges of $91 million ($60 million after tax, or 32 cents per diluted share) for costs associated with a realignment of its business operations to reduce costs in response to the continued decline in demand in industrial automation markets. Total cash expenditures related to the realignment actions will be approximately $50 million, of which $43 million had been spent as of September 30, 2002. The special charges are related to the business segments as follows: Control Systems, $76 million; Power Systems, $5 million; and Corporate, $10 million. See Note 13, Special Charges, in the Notes to Consolidated Financial Statements in the Financial Statements.

     Accounting Change

      Effective October 1, 2001, the Company adopted SFAS 142. This standard requires that companies no longer amortize goodwill and indefinite life intangible assets, such as trademarks. This standard also requires that companies evaluate goodwill and indefinite life intangible assets for impairment. In 2002, as a result of this analysis, the Company recorded charges of $56 million ($35 million after-tax, or 19 cents per diluted share) related to a trademark impairment and $73 million (before and after-tax, or 39 cents per diluted share) related to goodwill impairment at a Power Systems reporting unit.

     Discontinued Operations

      Discontinued operations in 2002 relate to a net benefit of $3 million for the resolution of certain obligations related to two discontinued businesses.

      On June 29, 2001, the Company completed the spinoff of its Rockwell Collins avionics and communications business into an independent, separately traded, publicly held company. In connection with the spinoff, all outstanding shares of Rockwell Collins were distributed to Rockwell Automation shareowners on the basis of one Rockwell Collins share for each outstanding Rockwell Automation share. At the time of the spinoff, Rockwell Collins made a special payment to the Company of $300 million. The Company recorded a decrease to shareowner’s equity for the net assets of Rockwell Collins as of June 29, 2001 of approximately $1.2 billion (including $300 million of debt incurred to make the special payment to the Company). Included in 2001 income from discontinued operations was $21 million of costs related to the spinoff.

     Rockwell Scientific Company LLC

      Since June 29, 2001, the Company and Rockwell Collins each have owned 50 percent of Rockwell Scientific Company LLC (RSC) (formerly known as Rockwell Science Center). Results of Rockwell Science Center are included in continuing operations through the third quarter of 2001. Sales of Rockwell Science Center for the first nine months of 2001 were $60 million compared to $49 million for the full year in 2000. The increase was primarily due to higher sales to the United States Government. Segment operating earnings decreased to $3 million for the first nine months of 2001 compared to $7 million for the full year in 2000 due to lower royalty income. Beginning with the fourth quarter of 2001, the Company’s 50 percent ownership interest in RSC is accounted for using the equity method, and the Company’s proportional share of RSC’s earnings or losses are included in general corporate-net.

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     Acquisitions

      In September 2002, the Company’s Control Systems segment acquired the engineering services and system integration assets of SPEL, spol. s.r.o. The acquisition is expected to accelerate the establishment of the Company as a complete solution provider in Central Europe. This acquisition also strategically locates the Company in a region with future growth opportunities.

      In May 2002, the Company’s Control Systems segment acquired the assets of the controller division of Samsung Electronics Company Limited’s Mechatronics business (the Controller Division). The Company combined its existing Korean business with the Controller Division to form a new business that operates under the name Rockwell Samsung Automation and creates technologies for the design and development of automation products. The acquisition is expected to expand the Company’s existing operations in Korea, further the Company’s design and product development capabilities and support future commercial and operational expansion in the Asia Pacific region.

      In March 2002, the Company’s Control Systems segment acquired all of the stock of Propack Data GmbH (Propack), a provider of manufacturing information systems for the pharmaceutical and other regulated industries. The acquisition is expected to broaden the Company’s position in the pharmaceuticals market, enhance the Company’s process solutions business and enable the Company to expand its reach into the manufacturing information markets.

      In January 2002, the Company’s Control Systems segment acquired all of the stock of Tesch GmbH, an electronic products and safety relay manufacturer, expanding the Company’s machine safety product and research and development capabilities.

      The aggregate cash purchase price of the businesses acquired in 2002, of which the majority related to the acquisition of Propack, was approximately $71 million. Assets acquired and liabilities assumed have been recorded at fair values. The excess of the purchase price over the estimated fair value of the acquired tangible and intangible assets was recorded as goodwill.

      During 2001, the Company’s Control Systems segment acquired the batch software and services business of Sequencia Corporation. The total cost of the acquisition was $6 million, which was allocated to intangible assets, including developed technology and assembled workforce, and the excess of the purchase price over the amounts assigned to intangible assets was recorded as goodwill. The acquisition expanded Control Systems’ portfolio of Manufacturing BusinessWare Solutions into the batch application market.

      During 2000, the Company’s Control Systems segment acquired Entek IRD International Corporation (Entek) and acquired substantially all the assets and assumed certain liabilities of Systems Modeling Corporation (SMC). Entek is a provider of machinery condition monitoring solutions and its acquisition has increased Rockwell Automation’s ability to provide value-added services that reduce customers’ downtime and maintenance costs at their manufacturing facilities. SMC is a developer of shop floor scheduling, simulation and modeling software. The acquisition of SMC complements Control Systems’ Manufacturing BusinessWare strategy by providing additional capabilities. The total cost of acquisitions in 2000 was $70 million, of which $61 million was allocated to intangible assets, including developed technology, and the excess of the purchase price over the amounts assigned to tangible and intangible assets was recorded as goodwill.

     Income Taxes

      During 2002, the Company resolved certain tax matters for the period of 1995-1999, resulting in a $48 million reduction in its income tax provision. Excluding the effect of this reduction, the effective income tax rate for 2002 was 23.7 percent. See Note 17 in the Notes to Consolidated Financial Statements in the Financial Statements for a reconciliation of the United States statutory rate to the effective income tax rate. Management believes that the effective income tax rate in 2003 will be approximately 30 percent.

      The Company anticipates filing in 2003 a federal research and experimentation tax credit refund claim of approximately $100 million for the years 1997 through 2001. The claim will be subject to audit by the Internal

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     Outlook for 2003

      Indicators of the future direction of the global manufacturing economy are mixed, though the Company’s end markets have generally stabilized. While the Company does not expect further deterioration in the markets it serves, the Company is managing its cost structure tightly, and first quarter results will include expenses for targeted cost reduction actions. These actions, combined with normal quarterly revenue trends, are expected to result in first quarter earnings per share in the range of 16 to 18 cents. For the full year, the Company will deliver earnings growth of at least 15 percent (to $1.05 per share), even if the current soft business conditions persist. If business conditions improve modestly, the Company expects to achieve earnings growth of 25 percent (to $1.15 per share).

Financial Condition

      The Company’s cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows, are summarized in the following tables (in millions):

      The following table summarizes free cash flow for the Company. The Company’s definition of free cash flow, which is an internal performance measurement, may be different from definitions used by other companies.

      Cash provided by operating activities was $476 million in 2002 compared to $335 million in 2001. Free cash flow in 2002 was $372 million, after a $24 million contribution made to the Company’s qualified pension plan trust related to the spinoff of Rockwell Collins and $12 million in contributions to non-United States pension trusts, compared to free cash flow of $178 million in 2001. The higher cash generation in 2002 was driven primarily by working capital improvements and a decrease in capital expenditures.

      Cash used for investing activities was $175 million in 2002 compared to cash provided by investing activities of $153 million in 2001. Investing activities in 2001 included a special payment of $300 million received from Rockwell Collins in connection with the spinoff on June 29, 2001. Capital expenditures in 2002 were $104 million compared to $157 million in 2001. Capital expenditures in 2003 are expected to be $125 to $150 million, but will ultimately depend on business conditions.

      In addition to internally-generated cash, the Company has access to existing financing sources, including the public debt markets and unsecured credit facilities with various banks. The Company’s debt-to-total-capital ratio was 36.6 percent at September 30, 2002 and 36.5 percent at September 30, 2001.

      During 2000, the Board of Directors approved a $250 million stock repurchase program. The Company spent approximately $63 million to purchase approximately 1.7 million shares during 2001 in connection with this program, but purchased no shares in 2002. At September 30, 2002, there was approximately $104 million

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      Future significant uses of cash are expected to include capital expenditures, dividends to shareowners, acquisitions, repurchases of common stock in connection with the Company’s stock repurchase program and may include contributions to the qualified pension plan trust. Additional information regarding pension contributions is contained in MD&A on page 15 hereof. In addition, the Company’s $150 million of 6.8% notes mature in April 2003. It is expected that each of these future uses of cash will be funded by existing cash balances, cash generated by operating activities and commercial paper borrowings; although the funding may include a new issue of debt or other securities.

      The Company elects to utilize commercial paper markets as its principal source of short-term financing. As of September 30, 2002, the Company had no commercial paper borrowings outstanding. During the year ended September 30, 2002, the Company had weighted average borrowings of $68 million under its commercial paper program at interest rates ranging from 1.8 percent to 2.7 percent.

      As of September 30, 2002, the Company had $1 billion of unsecured committed credit facilities available to support its commercial paper borrowings. On October 29, 2002, the Company terminated these credit facilities and entered into new credit facilities with various banks for $337.5 million expiring in October 2003 and $337.5 million expiring in October 2005. Prior to October 2003, the Company expects to enter into a new credit facility similar to the credit facility expiring at that time in an amount deemed sufficient to support its operations. Pursuant to the terms of the new credit facilities, the Company’s debt to capital ratio shall not exceed 60 percent. Outstanding commercial paper balances reduce the amount of available borrowings under the unsecured committed credit facilities.

      The Company’s current commercial paper credit ratings are as follows: Moody’s (P-2), Standard & Poor’s (A-1) and Fitch (F-1). Should the Company’s access to the commercial paper market be adversely affected due to a change in market conditions or otherwise, the Company would expect to rely on a combination of available cash and the unsecured committed credit facilities to provide short-term funding. In such event, the cost of borrowings under the unsecured committed credit facilities would likely be higher than the cost of commercial paper borrowings.

      Cash dividends to shareowners were $122 million, or $0.66 per share, in 2002 compared to $170 million, or $0.93 per share, in 2001. Prior to the spinoff of Rockwell Collins, the Company paid quarterly cash dividends, which, on an annual basis, equaled $1.02 per share. Since the spinoff of Rockwell Collins, the Company has paid quarterly cash dividends which, on an annual basis, equal $0.66 per share. Although declaration and payment of dividends by the Company are at the sole discretion of the Company’s board of directors, the Company expects to pay quarterly dividends in 2003, which, on an annual basis, will equal $0.66 per share.

      Certain of the Company’s contractual cash obligations at September 30, 2002 are summarized as follows:

      In connection with the sale of a Power Systems business in 2000, the Company entered into a supply agreement with the buyer of the business. The agreement requires minimum purchases by the Company of approximately $21 million per year through December 31, 2005. In the event that purchases are less than $21 million in a given year, the Company may incur penalties which are a percentage of the amount by which the actual purchases were less than the contractual minimum for the period. Based upon current estimates of

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      At September 30, 2002, the Company guaranteed the performance of Conexant related to a $60 million lease obligation. The lease obligation is secured by the real property subject to the lease and is within a range of estimated fair values of the real property. Management expects to be released from the guarantee by December 31, 2003.

      At September 30, 2002, the Company was the sole guarantor of the performance of RSC under a lease agreement for one of RSC’s facilities. The total future minimum payments under the lease are approximately $7 million. The lease agreement has a term which ends in 2011. Effective October 2002, the Company and Rockwell Collins each guarantees one-half of the lease obligation of RSC.

Quantitative and Qualitative Disclosures about Market Risk

      The Company is exposed to market risk during the normal course of business from changes in interest rates and foreign currency exchange rates. The exposure to these risks is managed through a combination of normal operating and financing activities and derivative financial instruments in the form of interest rate swap contracts and foreign currency forward exchange contracts.

      In addition to using cash provided by normal operating activities, the Company utilizes a combination of short-term and long-term debt to finance operations. The Company is exposed to interest rate risk on these debt obligations.

      The Company’s short-term debt obligations relate to commercial paper borrowings and bank borrowings. At September 30, 2002 and 2001, the Company had no commercial paper borrowings outstanding. During 2002, the weighted average commercial paper borrowings were $68 million compared to $293 million in 2001. At September 30, 2002, the carrying value of bank borrowings was $10 million compared to $9 million at September 30, 2001. The Company’s results of operations are affected by changes in market interest rates on these short-term obligations. If market interest rates would have averaged 10 percent higher than actual levels in either 2002 or 2001, the effect on the Company’s results of operations would not have been material. The fair values of these obligations approximated their carrying values at September 30, 2002 and 2001, and would not have been materially affected by changes in market interest rates.

      The Company had outstanding fixed rate long-term debt obligations with carrying values of $919 million at September 30, 2002 and $910 million at September 30, 2001. The fair value of this debt was $976 million at September 30, 2002 and $898 million at September 30, 2001. The potential loss in fair value on such fixed-rate debt obligations from a hypothetical 10 percent increase in market interest rates would not be material to the overall fair value of the debt. The Company currently has no plans to repurchase its outstanding fixed-rate instruments and, therefore, fluctuations in market interest rates would not have an effect on the Company’s results of operations or shareowners’ equity.

      In September 2002, the Company entered into an interest rate swap contract (the Swap) which effectively converted its $350 million aggregate principal amount of 6.15% notes, payable in 2008, to floating rate debt based on six-month LIBOR. The floating rate was 4.21 percent at September 30, 2002. A hypothetical 10 percent change in market interest rates would not be material to the overall fair value of the swap or the Company’s results of operations.

      The Company is exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. The Company’s objective is to minimize its exposure to these risks through a combination of normal operating activities and the utilization of foreign currency forward exchange contracts to manage its exposure on transactions denominated in currencies other

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      The Company records all derivatives on the balance sheet at fair value regardless of the purpose or intent for holding them. Derivatives that are not designated as hedges for accounting purposes are adjusted to fair value through earnings. For derivatives that are hedges, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

      At September 30, 2002 and 2001, the Company had outstanding foreign currency forward exchange contracts primarily consisting of contracts to exchange the euro, pound sterling, Canadian dollar and Swiss franc. The use of these contracts allows the Company to manage transactional exposure to exchange rate fluctuations as the gains or losses incurred on the foreign currency forward exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates associated with these contracts would not be material to the financial condition, results of operations or shareowners’ equity of the Company.

New Accounting Standards

      In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations (SFAS 143), which requires entities to recognize the fair value of a liability for legal obligations associated with the retirement of tangible long-lived assets in the period incurred, if a reasonable estimate of the fair value can be made.

      In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting and reporting for the impairment of long-lived assets to be held and used and for long-lived assets to be disposed of by sale. Under SFAS 144, the presentation of discontinued operations is broadened to include a component of an entity rather than being limited to a segment of a business. Also, accrual of future operating losses of discontinued businesses will no longer be permitted.

      In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial accounting and reporting associated with exit or disposal activities. Under SFAS 146, the Company will measure costs associated with an exit or disposal activity at fair value and recognize the costs in the period in which the liability is incurred rather than at the date of a commitment to an exit or disposal plan.

      The Company is required to adopt SFAS 143 and SFAS 144 at the beginning of fiscal year 2003. Management is currently evaluating the provisions of SFAS 143 and SFAS 144, but believes there will be no material effect on the Company’s financial position, results of operations or shareowners’ equity at the time of adoption. The Company is required to adopt SFAS 146 for all exit and disposal activities initiated after December 31, 2002.

Cautionary Statement

      This Annual Report contains statements (including certain projections and business trends) accompanied by such phrases as “believes”, “estimates”, “expects”, “anticipates”, “will” and other similar expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to economic and political changes in international markets where the Company competes, such as

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      The information with respect to the Company’s market risk is contained under the caption Quantitative and Qualitative Disclosures About Market Risk in MD&A on pages 24-25 hereof.

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Item 8.     Consolidated Financial Statements and Supplementary Data.

CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENT OF OPERATIONS

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS