Back to GetFilings.com

UNITED STATES

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 March 31, 2003 was approximately $3.8 billion.

      186,430,888 shares of registrant’s Common Stock, par value $1 per share, were outstanding on November 30, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of registrant to be held on February 4, 2004 is incorporated by reference into Part III hereof.

PART I

      Rockwell Automation, Inc. (the Company or Rockwell Automation), 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 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, the Company completed the spinoff of its automotive component systems business into an independent, separately traded, publicly held company named Meritor Automotive, Inc. (Meritor). On July 7, 2000, Meritor and Arvin Industries, Inc. merged to form ArvinMeritor, Inc. (ArvinMeritor). On December 31, 1998, 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 4, 2004 (the 2004 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. Total Company sales in 2003 were $4.1 billion. 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, 2003, is contained under the caption Results of Operations in MD&A on page 18 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 2003 sales of $3.3 billion (80 percent of total Company sales) and approximately 17,000 employees at September 30, 2003. 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 (I/O) devices. The Company’s Logix integrated architecture integrates multiple types of control disciplines, including discrete, process, drive, motion and safety control across various factory floor operating systems. ACIG also produces distributed I/O platforms, high performance rotary and linear motion control

1

      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 manufacturing information solutions for discrete and targeted batch process industries. 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 ABB, Ltd., 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, technology leadership, knowledge of customer applications, large installed base, established distribution network, quality of products and services and global presence.

      Control Systems’ products are marketed primarily under the Allen-Bradley, 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 generally 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.

      In 2003, sales in the United States accounted for 58 percent of Control Systems’ sales. Outside the U.S., Control Systems’ primary markets were Canada, the United Kingdom, Italy, Germany, China and Korea.

Power Systems

      Power Systems recorded 2003 sales of $705 million (17 percent of total Company sales) and had approximately 4,000 employees at September 30, 2003. 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, Electrical provides product repair, motor and mechanical maintenance solutions, plant maintenance, training and consulting services to OEMs, 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., A. O. Smith Corporation, Baldor Electric Company, Emerson Electric Co., General Electric Company, Regal-Beloit Corporation, Rexnord Corporation and Siemens AG. Factors that affect Power Systems’ competitive posture are product quality, installed base and its established distributor network. However, Power Systems’ competitive posture is limited somewhat by its relatively small international presence.

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

2

      In 2003, sales in the United States accounted for 89 percent of Power Systems’ sales. Outside the U.S., Power Systems’ primary markets were Canada, Mexico and China.

FirstPoint Contact

      FirstPoint Contact recorded 2003 sales of $112 million (3 percent of total Company sales) and had approximately 500 employees at September 30, 2003. FirstPoint Contact provides customer contact center solutions that support multiple channels (voice, e-mail, web, wireless) through open interaction infrastructure. Products include automatic call distributors, computer telephony integration software, information collection, reporting, queuing and management systems, call center systems and consulting services.

      Major markets served include telecommunications, financial, transportation and retail. FirstPoint Contact sells through a direct 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. However, FirstPoint Contact’s competitive position is somewhat inhibited by its limited available resources to devote to research and development activities relative to certain competitors.

      In 2003, sales in the United States accounted for 72 percent of FirstPoint Contact’s sales. Outside the U.S., FirstPoint Contact’s primary markets were the United Kingdom, South Africa and Canada.

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.

     Acquisitions

      During 2003, Control Systems acquired substantially all of the assets and assumed certain liabilities of Interwave Technology, Inc. (Interwave), a consulting integrator focusing on manufacturing solutions, and acquired certain assets and assumed certain liabilities of Weidmüller Holding AG’s (Weidmüller) North American business. In addition, the Company entered into a master brand label agreement, a technology/ design exchange and joint product development efforts with Weidmüller. The total cost of these acquisitions was approximately $26 million. The acquisition of Interwave expands the Company’s Manufacturing Information Solutions capability and accelerates its ability to integrate real-time information between customers’ manufacturing plant floors and business systems. The Weidmüller transaction enhances the Company’s position in providing IEC (an international standard for electrical technologies) connection products which are used to connect factory automation systems to basic electrical switches.

      During 2002, Control Systems 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 and certain liabilities 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 expanded the Company’s machine safety product and research and development capabilities. The acquisition of Propack broadened the Company’s position in the pharmaceuticals market, enhanced the Company’s Process Solutions business, and enabled the Company to expand its reach into the manufacturing information markets. The acquisition of the Controller Division expanded the Company’s existing operations in Korea, furthered the Company’s design and product development capabilities and supported future commercial and operational expansion in the Asia-Pacific region. The acquisition of SPEL accelerated the establishment of the Company as a complete

3

      In connection with the Interwave, Weidmüller, and Controller Division transactions, the Company would be required to make additional cash payments if certain future operating performance criteria are met by the acquired businesses. Management believes that these additional cash payments, if any, would not have a material effect on the Company’s financial position, results of operations or shareowners’ equity.

      In the second quarter of 2003, the Company sold a majority of its ownership interest in Reliance Electric Limited Japan (REJ), resulting in a loss of approximately $8 million ($3 million after tax, or 1 cent per diluted share). The after-tax loss on the sale included a $2 million benefit resulting from the Company’s ability to utilize capital loss carryforwards for which a valuation allowance had been previously provided. The cash proceeds from the transaction totaled approximately $10 million.

      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 common stock 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 Collins each have owned 50 percent of Rockwell Scientific Company LLC (RSC) (formerly a wholly-owned subsidiary of the Company known as Rockwell Science Center). The results of operations for Rockwell Collins for 2001 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 Notes 2 and 15 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, China, Mexico, and Korea. 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, 2003 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 summarized as follows:

      Customer-sponsored research and development was $61 million in 2001 and related primarily to the Company’s formerly wholly-owned (now 50 percent owned) subsidiary, Rockwell Science Center. Customer-sponsored research and development was not material in 2003 and 2002.

4

Employees

      At September 30, 2003, the Company had approximately 21,500 employees. Approximately 14,500 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.

Backlog

      The Company’s total order backlog was approximately $500 million at September 30, 2003 and 2002. 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 page 6 hereof.

Patents, Licenses and Trademarks

      Numerous patents and patent applications are owned or licensed by the Company and utilized in its activities and manufacturing operations. Various claims of patent infringement and requests for patent 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 page 6 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” and “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 Section 16 reports on Forms 3, 4 and 5, are available free of charge on this site as soon as reasonably practicable after the Company files or furnishes these reports with the Securities and Exchange Commission (SEC). The Company’s Guidelines on Corporate Governance and charters for its Board Committees are also available at the Company’s Internet site. The Guidelines and charters are also available in print to any shareowner upon request. The Company’s Internet site and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K.

5

      At September 30, 2003, the Company operated 69 plants and research and development facilities, principally in North America. The Company also had approximately 350 sales offices, warehouses and service centers. The aggregate floor space of the Company’s facilities was approximately 15 million square feet. Of this floor space, approximately 65 percent was owned by the Company and approximately 35 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, 2003, approximately 1 million square feet of floor space was not in use, approximately 68 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

6

      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 April 16, 2003, the United States Court of Appeals for the Federal Circuit affirmed the EBCA decision. The period during which the government could have appealed this decision has lapsed. The Court of Appeals remanded the case to the EBCA for such further action as may be appropriate in light of its decision.

      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 Control Division prior to its divestiture in March 1989. On January 14, 2000, the Kentucky Court of Appeals reversed the lower court’s judgment and directed entry of judgment in the Company’s favor on all claims as a matter of law. On May 16, 2002, the Kentucky Supreme Court affirmed the Court of Appeals’ exclusion of certain of the plaintiffs’ evidence but reversed the judgment of dismissal on the ground that the proper remedy is a new trial on plaintiffs’ claims, but only after and to the extent required following disposition of numerous other issues that were before the Court of Appeals but not resolved in its original decision. The case was remanded to the Court of Appeals for further proceedings, and on August 8, 2003, the Court of Appeals issued a second decision holding that the amounts of PCBs alleged by plaintiffs to have contaminated their properties were insufficient to constitute an actionable injury under Kentucky law, thus requiring dismissal of plaintiffs’ suit with prejudice. On September 8, 2003, plaintiffs filed a petition for discretionary review with the Kentucky Supreme Court.

      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.

      Solaia Technology LLC. The Company is a party in several suits in which Solaia Technology LLC is adverse. Solaia is a single-purpose entity formed to license US Patent No. 5,038,318 (the ’318 patent). Solaia

7

      Solaia has issued several hundred demand letters to a wide range of factory owners and operators, and has filed a series of lawsuits against about 30 companies. A significant number of the companies sued by Solaia have chosen to settle the claims for amounts that the Company believes are notably smaller than the likely legal costs of successfully defending Solaia’s claims in court.

      The Company has sought to protect its customers from Solaia’s claims, which the Company believes to be altogether without merit and baseless. The Company brought an action in Milwaukee on December 10, 2002 against Solaia and others, Rockwell Automation, Inc., et al. v. Schneider Automation, Inc., et al. (02-CV-1195, E.D. Wis.), asserting the objective baselessness of the claims Solaia has made against Rockwell’s customers and seeking monetary damages and other relief under state and federal laws.

      In January 2003, Solaia and its law firm, Niro, Scavone, Haller & Niro, filed a lawsuit in Chicago against the Company and several others, Solaia Technology LLC v. Rockwell Automation, Inc., et al., Case No. 03-CV-566, alleging federal antitrust and unfair competition violations, defamation and other claims. The Company denies any liability under that claim.

      In a suit filed by Solaia in Chicago, Illinois, Solaia Technology LLC v. ArvinMeritor, Inc., et al. (02C-4704, N.D. Ill.), the Company sought to intervene on behalf of its customers wrongly accused of infringement. On April 23, 2003, the Company made arrangements with ArvinMeritor, which now owns and operates the Company’s former automotive business, to undertake its defense of Solaia’s patent claims to ensure that Solaia’s infringement claim against ArvinMeritor could be finally and actually adjudicated in the Chicago patent suit and thereby remove the continuing threat of additional lawsuits from Solaia against American manufacturers. In that case, Solaia responded on May 12, 2003 by suing the Company for direct patent infringement, demanding material monetary damages. As with the claims made against its customers, the Company believes that Solaia’s claim against it is wholly without merit and baseless.

      The Court in Milwaukee has recently denied all of the defendants’ (Solaia) motions to dismiss the Company’s claims against them. The Chicago Court has transferred Solaia’s antitrust case against the Company to Milwaukee where it is expected to be consolidated with the Company’s pending suit against Solaia and others. It is unclear whether the Milwaukee cases will go forward, be stayed pending the outcome of the Chicago patent case, or be transferred to Chicago.

      Other. Like thousands of other companies, the Company (including certain of its subsidiaries) has been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of the Company’s products many years ago. Currently there are thousands of claimants in lawsuits that name the Company together with hundreds of other companies as defendants. Most of the complaints, however, do not identify any of the Company’s products or specify which of the claimants, if any, were exposed to asbestos attributable to the Company’s products; and past experience has shown that the vast majority of the claimants will never identify any of the Company’s products. In addition, when products of the Company appear to be identified, they are frequently from divested businesses, and the Company is indemnified for most of the costs. For those claimants who do show that they worked with the Company’s products, we nevertheless believe we have meritorious defenses, in substantial part due to the integrity of the Company’s products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. The Company defends those cases vigorously. Historically, the Company has been dismissed from most (approximately 95%) of these claims with no payment to claimants. The Company has maintained insurance coverage that it believes covers indemnity and defense costs, over and above self-insurance retentions, for most of the claims where there is any exposure to the Company’s products. The Company does not believe these lawsuits will have a material adverse effect on its financial condition.

8

      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.

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 2003.

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, 2003 are as follows:

9

      There are no family relationships, as defined by applicable SEC rules, 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.

10

PART II

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

      The principal market on which the Company’s common stock is traded is the New York Stock Exchange. The Company’s common stock is also traded on the Pacific Exchange and The London Stock Exchange. On November 30, 2003, there were 39,021 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, 2003 and 2002:

      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.

11

      The following table 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, 2003, the related consolidated balance sheet data and other data have been derived from the audited consolidated financial statements of the Company.

12

(a)	Includes a reduction in the income tax provision of $69 million, or 37 cents per diluted share, related to the settlement of a U.S. federal research and experimentation credit refund claim.
(b)	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 4 cents per diluted share) from the favorable settlement of intellectual property matters.
(c)	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 program 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 6 cents per diluted share) resulting from the favorable settlement of an intellectual property matter.
(d)	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 6 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.
(e)	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.

(f)

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 trademarks that have been deemed to have an indefinite useful life, resulting in a decrease in amortization expense beginning in 2002. In addition, in 2002 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).

13

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.

      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.

      Contracts and customer purchase orders are generally used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

      The Company records accruals for customer returns, rebates and incentives at the time of sale to a customer based upon historical experience. Additional accruals may be required if actual returns, rebates and incentives differ from historical experience. The accrual for rebates and incentives to customers was $75 million at September 30, 2003 and $74 million at September 30, 2002, of which $5 million at September 30, 2003 and $6 million at September 30, 2002 was included as an offset to accounts receivable.

      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 $28 million at September 30, 2003 and $45 million at September 30, 2002. The decrease in the allowance balance primarily relates to the writeoff of the $9 million distributor receivable and $3 million of account collections for which an allowance had previously been provided. The remainder of the decrease resulted from the Company’s regular review of the allowance, considering such factors as historical experience, credit quality and age of the accounts receivable balances.

      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 $56 million at September 30, 2003 and $53 million at September 30, 2002.

      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

14

      Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value. To determine 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 services, future market conditions and technological developments. Other assumptions include determining the discount rate and future growth rates. During 2002, the Company recorded pre-tax impairment charges of $129 million ($108 million after tax) in connection with the adoption of SFAS 142. Additional information regarding the impairment charges is contained in Note 3 of the Notes to Consolidated Financial Statements in the Financial Statements.

      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. An 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 $29 million at September 30, 2003 and $31 million at September 30, 2002.

      Pension costs and obligations are actuarially determined and are affected by annually reviewed assumptions including discount rate, the expected rate of return on plan assets and assumed annual rate of compensation increase for plan employees, among other factors. Changes in the discount rate and differences between the assumptions made and actual experience will affect the amount of pension expense recognized in future periods.

      Pension expense in fiscal 2003 was $42 million compared to $25 million in fiscal 2002. Fiscal 2003 pension expense was determined using the following actuarial assumptions: discount rate of 7.0 percent (compared to 7.5 percent for fiscal 2002); expected rate of return on plan assets of 8.5 percent (compared to 9.0 percent for fiscal 2002); and an assumed rate of compensation increase of 4.5 percent (compared to 4.5 percent for fiscal 2002). All other factors being equal, these changes were the primary cause of the incremental pension expense in 2003 over 2002 of approximately $17 million. For fiscal year 2004, the Company is assuming an expected rate of return on plan assets of 8.5 percent and a discount rate of 6.0 percent for determining net periodic benefit cost. All other factors being equal, and assuming actual experience is consistent with the actuarial assumptions, the Company expects fiscal year 2004 pension expense to increase by approximately $24 million compared to fiscal 2003. This increase is primarily attributable to the change in the discount rate and includes the recognition of actuarial losses related primarily to the accumulated difference between actual and expected returns on pension plan assets.

      In June 2003, the Company made a $50 million voluntary contribution to the Company’s primary U.S. qualified pension plan trust compared to a 2002 contribution of $24 million which was related to the spinoff of Rockwell Collins. In addition, while not required to contribute any amount to the Company’s primary U.S. qualified pension plan trust in fiscal 2004, the Company may choose to contribute up to the maximum allowable tax deductible contribution of approximately $200 million. The Company currently anticipates making a contribution during fiscal 2004 to the primary U.S. qualified pension plan trust in an amount that approximates the 2003 contribution.

15

      Additional information regarding pension benefits, including the Company’s pension obligation and minimum pension liability adjustment, is contained in Note 13 of the Notes to Consolidated Financial Statements in the Financial Statements.

      The costs and obligations for postretirement benefits other than pension are also actuarially determined and are affected by assumptions, including the discount rate. Changes in the discount rate may affect the recorded amount of the expense in future periods. Effective October 1, 2002, the Company amended its primary U.S. postretirement health care benefit program in order to mitigate the Company’s share of the increasing cost of postretirement health care services. This change reduced the benefit obligation by $86 million. Net periodic benefit cost in 2003 was approximately $29 million compared to $28 million in 2002. Net periodic benefit cost in 2004 is expected to be $23 million, which reflects the full year effect on expense of the October 1, 2002 plan amendment. Additional information regarding postretirement benefits is contained in Note 13 of the Notes to Consolidated Financial Statements in the Financial Statements.

      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 estimated using the Company’s claims experience and risk exposure levels for the periods being valued. Adjustments to the self-insured liabilities may be required to reflect emerging claims experience and other factors such as inflationary trends or jury awards. The liability for these self-insurance programs was $51 million at September 30, 2003 and $48 million at September 30, 2002.

      The Company records liabilities for litigation, claims and contingencies when an obligation is probable and when the Company has a basis to reasonably estimate the value of an obligation. The Company also 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, additional contamination is identified, 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 $29 million at September 30, 2003 and $28 million at September 30, 2002. This includes an adjustment made during the fourth quarter of 2003 to increase the environmental reserve by approximately $5 million due to higher estimated future costs for environmental remediation near the Russellville, Kentucky facility of the Company’s former Measurement and Flow Control business.

      Also during the fourth quarter of 2003, the Company recognized income, reflected in discontinued operations, of approximately $7 million ($4 million after tax) from a favorable determination in a legal proceeding related to the Company’s former operation of the Rocky Flats facility of the Department of Energy.

16

      Additional information regarding litigation, claims and contingencies is contained in Note 19 of the Notes to Consolidated Financial Statements in the Financial Statements. See also Item 3. Legal Proceedings, on page 6 hereof.

      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. Additional information regarding income taxes is contained in Note 18 of the Notes to Consolidated Financial Statements in the Financial Statements.

      The Company has recorded a valuation allowance of $47 million at September 30, 2003 for the majority of its deferred tax assets related to net operating loss carryforwards, capital loss carryforwards and state tax credit carryforwards (Carryforwards). The valuation allowance is based on an evaluation of the uncertainty of the amounts of the Carryforwards that are expected to be realized. An increase to income would result if the Company determines it could utilize more 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.

17

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)	Effective October 1, 2001, the Company adopted SFAS 142. As a result of adopting SFAS 142, the Company no longer amortizes goodwill and certain trademarks that have been deemed to have an indefinite useful life, resulting in a decrease in amortization expense in 2002. The 2001 amortization of goodwill and indefinite life trademarks was $56 million. In addition, in 2002 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). The amount included in goodwill and purchase accounting items in 2003 and 2002 includes amortization expense for acquired intangible assets that have a finite life and depreciation expense for purchase accounting adjustments.

18

      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 weak business conditions in recent years, 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. The table below depicts the trend since December 2000 in capacity utilization in the United States, as published by the Federal Reserve, and in manufacturing activity in the United States, as reflected by the purchasing managers’ index (PMI), published by the Institute for Supply Management (ISM). 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.

      Sales were $4,104 million in 2003, an increase of 5 percent compared to $3,909 million in 2002. Three percentage points of the growth was due to the effect of currency translation. Segment operating earnings for 2003 were $453 million, an increase of 19 percent compared to $381 million in 2002. Income from continuing operations before accounting change in 2003 was $282 million, or $1.49 per diluted share, compared to $226 million, or $1.20 per diluted share, in 2002. Net income in 2003 was $286 million, or $1.51 per diluted share, compared to $121 million, or 64 cents per diluted share, in 2002. The 2003 results included a tax benefit of $69 million, or 37 cents per diluted share, related to the settlement of a U.S. federal research and experimentation credit refund claim. The 2002 results included a tax benefit of $48 million, or 26 cents per diluted share, from the resolution of certain tax matters for the period 1995-1999 and a charge of $129 million ($108 million after tax, or 58 cents per diluted share) related to the adoption of SFAS 142.

      Control Systems’ sales in 2003 were $3,287 million, an increase of 7 percent compared to $3,060 million in 2002. More than 3 percentage points of the sales increase was due to the favorable impact of currency translation, primarily resulting from the relative strength of the euro to the U.S. dollar. Sales outside of the U.S. increased 18 percent (9 percent excluding currency translation) (see Supplemental Sales Information on page 27) and U.S. sales increased 1 percent. The Company’s Logix and Process Solutions businesses each

19

      Segment operating earnings were $398 million in 2003, an increase of 23 percent compared to $324 million in 2002. The increase was due to higher volume and the continuing benefits of cost reduction actions. Control Systems’ return on sales in 2003 was 12.1 percent compared to 10.6 percent in 2002.

     Power Systems

      Power Systems’ sales in 2003 were $705 million compared to $716 million in 2002. Mechanical sales increased 3 percent while Electrical sales decreased 5 percent. Segment operating earnings were $54 million in 2003 compared to $53 million in 2002. Segment operating earnings remained relatively stable despite the decrease in sales due to savings from cost reduction efforts. Power Systems’ return on sales was 7.7 percent in 2003 compared to 7.4 percent in 2002.

     FirstPoint Contact

      FirstPoint Contact’s sales in 2003 were $112 million compared to $133 million in 2002. The decrease was primarily due to lower customer capital spending for telecommunications products. Segment operating earnings were $1 million in 2003 compared to $4 million in 2002. Included in 2003 results is a charge of $2 million related to a workforce reduction. Included in 2002 results were charges of $4 million related to severance and an asset impairment.

     General Corporate — Net

      General corporate expenses were $67 million in 2003 compared to $57 million in 2002. Expense in 2003 included a charge of $5 million due to higher estimated future costs for environmental remediation near the Russellville, Kentucky facility of the Company’s former Measurement and Flow Control business. 2002 included $9 million of income related to the settlement of intellectual property matters. Excluding these amounts, corporate expenses decreased in 2003 as a result of lower corporate staff costs and an increase of approximately $2 million in earnings from the Company’s investment in RSC.

     Loss on Disposition of a Business

      In the second quarter of 2003, the Company sold a majority of its ownership interest in REJ resulting in a loss of approximately $8 million ($3 million after tax, or 1 cent per diluted share). The after-tax loss on the sale included a $2 million benefit resulting from the Company’s ability to utilize capital loss carryforwards for which a valuation allowance had been previously provided. The cash proceeds from the transaction totaled approximately $10 million.

     Interest Expense

      Interest expense was $52 million in 2003 compared to $66 million in 2002. The decrease was the result of the retirement at maturity of the $150 million principal amount of 6.80% notes in April 2003, the benefit of an interest rate swap (see Note 9 in the Notes to Consolidated Financial Statements) and lower average short-term borrowings.

     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. In 2001, income from continuing operations before accounting change included 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

20

     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 in the U.S declined 9 percent in 2002, while sales outside of the U.S. declined 6 percent (4 percent excluding currency translation), primarily as a result of a 7 percent decline in Europe (9 percent excluding currency translation). 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 earnings were $4 million in 2002 compared to $7 million in 2001. Included in the 2002 results are charges of $4 million related to severance and an asset impairment.

     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 short-term 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.

21

     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 operations to reduce costs in response to the continued decline in demand in industrial markets. Total cash expenditures related to the realignment actions will approximate $50 million, of which substantially all had been spent as of September 30, 2003. The special charges were related to the business segments as follows: Control Systems, $76 million; Power Systems, $5 million; and Corporate, $10 million. See Note 14 in the Notes to Consolidated Financial Statements in the Financial Statements.

     Discontinued Operations

      Discontinued operations in 2003 are a benefit of $7 million ($4 million after tax, or 2 cents per diluted share) from a favorable determination in a legal proceeding related to the Company’s former operation of the Rocky Flats facility of the Department of Energy.

      Discontinued operations in 2002 related 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 common stock 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 RSC. 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. Segment operating earnings were $3 million for the first nine months 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.

     Acquisitions

      See Note 2 in the Notes to Consolidated Financial Statements for information regarding acquisitions.

     Income Taxes

      During 2003, the Company recognized in earnings a net tax benefit of $69 million related to a U.S. federal research and experimentation credit refund claim and a tax benefit of approximately $2 million as a result of the Company’s ability to utilize certain capital loss carryforwards for which a valuation allowance had been previously provided. The ability to utilize the capital loss carryforwards was the result of the sale of a majority of the Company’s ownership in REJ which took place in 2003. The full year effective tax rate for 2003 was approximately 6 percent, including the effect of the research and experimentation settlement (23 percent benefit) and the REJ transaction (1 percent benefit). See Note 18 in the Notes to Consolidated Financial Statements in the Financial Statements. Management believes that the effective income tax rate in 2004 will be approximately 30 percent, excluding the income tax expense or benefit related to discrete items, if any, that will be separately reported or reported net of their related tax effects.

      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. Including the effect of this reduction, the effective income tax rate for 2002 was 3 percent.

22

     Outlook for 2004

      Customer demand has strengthened since early September 2003 and management has begun to see a broad improvement across the Company’s markets. Management is confident that these early signs are indicative of an emerging upward trend and is optimistic that this trend will be sustainable. Until further evidence emerges, management is planning for revenue growth in 2004 in the mid-single digits and expects diluted earnings per share in 2004 in the range of $1.35 to $1.45.

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 table (in millions):

      The following table summarizes free cash flow (in millions):

      The Company’s definition of free cash flow takes into consideration capital investment required to maintain the operations of the Company and execute its strategy. Management believes that free cash flow provides useful information to investors regarding the Company’s ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases. Management uses free cash flow as one measure to monitor and evaluate the performance of the Company. The Company’s definition of free cash flow may be different from definitions used by other companies.

      Free cash flow was $327 million for the year ended September 30, 2003 compared to $372 million for the year ended September 30, 2002. The decrease in free cash flow was in part the result of a $50 million voluntary contribution made to the Company’s primary U.S. qualified pension plan trust in June 2003 compared to the $24 million contribution made in 2002 related to the spinoff of Rockwell Collins. Capital expenditures in 2003 were $109 million compared to $104 million in 2002. Capital expenditures in 2004 are expected to be $125 million to $135 million, but will depend ultimately on business conditions.

      The Company acquired Weidmüller Holding AG’s North American business and Interwave Technology, Inc. during 2003 for approximately $26 million (see Note 2 in the Notes to Consolidated Financial Statements for a discussion of the businesses). During 2002, the Company acquired four businesses for approximately $71 million.

      The Company elects to utilize commercial paper as its principal source of short-term financing. At September 30, 2003 and 2002, the Company had no commercial paper borrowings outstanding. During the year ended September 30, 2003, the Company had weighted average borrowings of $27 million under its commercial paper program at interest rates ranging from 1.1 percent to 1.4 percent. 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.

23

      In April 2003, the Company’s $150 million principal amount of 6.80% notes were retired at maturity using a combination of cash on hand and commercial paper borrowings.

      The Company repurchased approximately 5.6 million shares of its common stock at a cost of approximately $128 million in 2003, which included repurchases of approximately 70,000 shares at a cost of approximately $1.6 million under a voluntary program that provided shareowners owning fewer than 100 shares of common stock the opportunity to sell all of their shares of common stock to the Company without paying a commission. At September 30, 2003, the Company had approximately $177 million remaining for stock repurchases under existing board authorizations. The Company did not repurchase any shares in 2002. The Company anticipates repurchasing stock in 2004, the amount of which will depend ultimately on business conditions and other cash requirements.

      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 Company’s pension plans. Additional information regarding pension contributions is contained in MD&A on page 15 hereof. It is expected that each of these future uses of cash will be funded by cash generated by operating activities and commercial paper borrowings, a new issue of debt or issuance of other securities.

      In addition to cash generated by operating activities, 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 32.7 percent at September 30, 2003 and 36.6 percent at September 30, 2002.

      As of September 30, 2003, the Company had $675 million of unsecured committed credit facilities available to support its commercial paper borrowings, with $337.5 million expiring in October 2003 and $337.5 million expiring in October 2005. During October 2003, the Company entered into a new $337.5 million credit facility expiring in October 2004. Outstanding commercial paper balances, if any, reduce the amount of available borrowings under the unsecured committed credit facilities. The terms of the credit facilities contain a covenant under which the Company would be in default if the Company’s debt to capital ratio were to exceed 60 percent. In addition to the $675 million credit facilities, short-term unsecured credit facilities available to foreign subsidiaries amounted to $121 million at September 30, 2003.

      The following is a summary of the Company’s credit ratings as of September 30, 2003:

*	Standard & Poor’s changed its outlook to “Negative” in April 2003 due to its concerns about the Company’s exposure to unfunded postretirement benefit liabilities, including defined benefit pension and retiree medical liabilities.

      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 could be higher than the cost of commercial paper borrowings.

      Cash dividends to shareowners were $122 million, or $0.66 per share, in 2003 and 2002. 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 2004 which, on an annual basis, are expected to equal $0.66 per share.

24

      Certain of the Company’s contractual cash obligations at September 30, 2003 are summarized as follows:

      At September 30, 2003, 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. In consideration for this guarantee, the Company receives $250,000 per quarter from Conexant through December 31, 2003. The guarantee expires in 2005.

      At September 30, 2003, the Company and Rockwell Collins each guarantee one-half of a lease agreement for one of RSC’s facilities. The total future minimum payments under the lease are approximately $6 million. The lease agreement has a term which ends in December 2011. In addition, the Company shares equally with Rockwell Collins in providing a $4 million line of credit to RSC, which bears interest at the greater of the Company’s or Rockwell Collins’ commercial paper borrowing rate. At September 30, 2003 and 2002, there were no outstanding borrowings under this line of credit.

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 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 certain of these debt obligations.

      The Company’s short-term debt obligations relate to commercial paper borrowings and bank borrowings. At September 30, 2003 and 2002, the Company had no commercial paper borrowings outstanding. During 2003, the weighted average commercial paper borrowings were $27 million compared to $68 million in 2002. There were no bank borrowings outstanding at September 30, 2003. At September 30, 2002, the carrying value of bank borrowings was $10 million. The Company’s results of operations are affected by changes in market

25

      The Company had outstanding fixed rate long-term debt obligations with carrying values of $773 million at September 30, 2003 and $919 million at September 30, 2002. The fair value of this debt was $844 million at September 30, 2003 and $976 million at September 30, 2002. 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 other than $8 million of industrial development revenue bonds which the Company expects to repay in January 2004 (prior to maturity) 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 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 3.52 percent at September 30, 2003. 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 than the applicable functional currency. In addition, the Company enters into contracts to hedge certain forecasted intercompany transactions. Contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. It is the policy of the Company not to enter into derivative financial instruments for speculative purposes. The Company does not hedge its exposure to the translation of reported results of foreign subsidiaries from local currency to United States dollars. A 10 percent adverse change in the underlying foreign currency exchange rates would not be significant to the Company’s financial condition or results of operations.

      The Company records all derivatives on the balance sheet at fair value regardless of the purpose or intent for holding them. Derivatives that are not designated as hedges for accounting purposes are adjusted to fair value through earnings. For derivatives that are hedges, depending on the nature of the hedge, changes in fair value are either 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, 2003 and 2002, 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.

Recently Adopted Accounting Standards

      See Note 1 in the Notes to Consolidated Financial Statements regarding recently adopted accounting standards.

26

Supplemental Sales Information

      The following is a reconciliation for the Control Systems segment of reported sales to sales excluding currency translation (which is a non-GAAP measure):

      The following is a reconciliation for the Company of reported sales to sales excluding currency translation (which is a non-GAAP measure):

      The effect of currency translation is determined by translating the respective period sales data using the same exchange rates as the preceding year. Management believes sales excluding currency translation provides useful information to investors since it reflects regional performance from the Company’s activities without the effect of changes in currency rates, which is outside the control of management. Management uses sales excluding currency translation to monitor and evaluate the Company’s regional performance.

Cautionary Statement

      This Annual Report contains statements (including certain projections and business trends) accompanied by such phrases as “believes”, “estimates”, “expect(s)”, “anticipates”, “will”, “intends” 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 currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which the Company has no control; demand for and market acceptance of new and existing products, including levels of capital spending in industrial markets; successful development of advanced technologies; competitive product and pricing pressures; future terrorist attacks; epidemics; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company’s Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

27

      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 page 25 hereof.

28

Item 8.     Consolidated Financial Statements and Supplementary Data.

CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements.

29

CONSOLIDATED STATEMENT OF OPERATIONS